CHAPTER 14
I. PRODUCT
DEVELOPMENT AND THE VALUE PACKAGE.
LEARNING GOAL 1.
Explain the difference between a product and a value package.
A. To satisfy
consumers, marketers must learn to listen better and to adapt constantly to
changing market demands.
1. This chapters
explores two key parts of the marketing mix: PRODUCT and PRICE.
2. Customer wants
and needs must be constantly monitored because these needs change over time.
3. Product
development is key in any business.
4. Marketers must
create excitement and demand for those products (PRODUCT STRATEGY.)
B. DEVELOPING A
VALUE PACKAGE.
1. A VALUE PACKAGE
(total product offer) consists of everything that consumers evaluate when
deciding whether or not to buy something.
a. The basic
product may be a physical good or service.
b. The text lists
such intangibles as: price, package, store surroundings, image created by
advertising, guarantee, reputation of the producer, brand name, service, and
buyers' past experience.
c. When people buy
a product, they evaluate and compare value packages on all dimensions.
2. The value
package as perceived by the consumer is much more than the product itself.
a. Often a high
price indicates exceptional quality.
b. A guarantee of
satisfaction can increase the product's value in the mind of consumers.
c. An organization
can also use low price to create an attractive value package.
3. One way to keep
customers is to establish a dialogue with them and keep the information in a
database.
C. PRODUCT LINES
AND THE PRODUCT MIX.
1. Companies
usually sell several different, but complementary, products.
2. PRODUCT LINE is
a group of products that are physically similar or are intended for a similar market.
3. PRODUCT MIX is
the combination of product lines offered by a manufacturer.
4. SERVICE
PROVIDERS also have product lines and product mixes.
a. Companies must
decide what product and service mix is best.
b. The mix may
include both goods and services to spread the risk.
II. PRODUCT
DIFFERENTIATION.
LEARNING GOAL 2.
Describe how businesses create product differentiation for their goods and
services in both consumer and industrial markets.
A. PRODUCT
DIFFERENTIATION is the creation of real product differences or perceptions that
make one product seem superior to others.
1. Actual product
differences are sometimes quite small, so marketers must create a unique,
attractive image.
2. Different
products call for different marketing strategies.
3. Small businesses
can often win market share with creative product differentiation.
4. The following
questions help marketers decide how to differentiate a product:
a. How do consumers
become aware of a need for your product?
b. How do consumers
find your product?
c. How do consumers
order your product?
d. How quickly do
you deliver your product?
B. MARKETING
DIFFERENT CLASSES OF CONSUMER GOODS AND SERVICES.
1. CONVENIENCE
GOODS AND SERVICES are products that the consumer wants to purchase frequently
and with a minimum of effort.
a. Location, brand
awareness, and image are important for marketers.
b. Examples: candy,
snacks, and banking.
c. Best marketing strategy:
make them readily available.
2. SHOPPING GOODS
AND SERVICES are those products that the consumer buys only after comparing
value, quality, and price from a variety of sellers.
a. Shopping goods
and services are sold largely through shopping centers where consumers can shop
around.
b. Examples:
clothes, shoes, appliances.
c. Best marketing
strategy: good price and quality.
3. SPECIALTY GOODS
AND SERVICES are products that have a special attraction to consumers, who are
willing to go out of their way to obtain them.
a. These products
are often marketed through specialty magazines.
b. Examples:
specialty skis marketed through ski magazines.
c. Best marketing
strategy: advertising that reaches special market segments.
4. UNSOUGHT GOODS
AND SERVICES are goods and services that consumers are unaware of, haven't
necessarily thought of buying, or find that they need to solve an unexpected
problem.
a. Examples:
emergency car-towing services.
b. These also
include products that consumers did not intend to buy when they entered the
store, such as batteries and magazines.
c. Unsought goods
are best sold through creative and highly visible displays.
5. The marketing
task varies depending on the kind of product.
6. The individual
consumer determines whether or not a good or service falls into a particular
class.
C. MARKETING
INDUSTRIAL GOODS AND SERVICES.
1. INDUSTRIAL GOODS
are products used in the production of other products.
2. The buyer's
intended use of the product determines whether it is a consumer or an
industrial product.
III. PACKAGING
CHANGES THE PRODUCT.
LEARNING GOAL 3.
List and describe the six functions of packaging.
A. PACKAGING can be
very important in customers' evaluation of the value package.
1. Packaging
changes the product by changing its visibility, usefulness, or attractiveness.
2. It can change
and improve its basic product (salt.)
3. Packaging can
also help make a product more attractive to retailers (UPCs on packages make
inventory easier.)
4. The major issue
in packaging today is the effect packages have on the environment.
B. THE GROWING
IMPORTANCE OF PACKAGING.
1. Today the
package carries more of the pro motional burden than in the past.
2. PACKAGING MUST
DO THE FOLLOWING:
a. Attract the
buyer's attention.
b. Describe the
contents and give information about the contents.
c. Explain the
benefits of the goods inside.
d. Provide
information on warranties, warnings, and other consumer matters.
e. Give some
indication of price, value, and uses.
f. Protect the
goods inside, stand up under handling and storage, be tamperproof, and easy to
open.
3. Designing a
package that communicates well in all countries is a challenge.
4. Packaging of
SERVICES has been getting more attention recently.
IV. BUILDING BRAND
LOYALTY.
LEARNING GOAL 4.
Give examples of a brand, a brand name, and a trademark, and explain how to
prevent a brand name from becoming generic.
A. A BRAND is a
name, symbol, or design that identifies the goods or services of one seller and
distinguishes them from those of competitors.
1. BRAND NAME is
that part of the brand consisting of a word, letter, or group of words or
letters comprising a name that differentiates the goods or services of a seller
from those of competitors.
2. A TRADEMARK is a
brand that has been given exclusive legal protection for both the brand name
and the pictorial design.
3. Most people
choose the brand name product even when they say there's no difference.
B. BRAND
CATEGORIES.
1. MANUFACTURERS'
BRAND NAMES are the brand names of manufacturers.
2. KNOCKOFF BRANDS
are illegal copies of national brand name goods.
3. DEALER (PRIVATE)
BRANDS are products that do not carry the manufacturer's name, and carry the
name of a distributor or retailer instead.
4. Many
manufacturers fear having their brand names become generic names.
a. A GENERIC NAME
is the name for a product category.
b. Names such as
nylon, escalator, and zipper became so popular that they lost their brand
status and became generic.
c. Companies that
are working hard to protect their brand names today include Xerox and
Styrofoam.
5. GENERIC GOODS
are non-branded products that usually sell at a sizable discount compared to
national brands.
a. They have very
basic packaging and are backed with little or no advertising.
b. Consumers today
are buying more generic products because their quality has improved.
C. BUILDING BRAND
EQUITY AND LOYALTY.
1. BRAND EQUITY is
a combination of factors including awareness, loyalty, perceived quality, the
feeling and images, and any other emotion people associate with a brand name.
2. BRAND LOYALTY is
the degree to which customers are satisfied, like the brand, and are committed
to further purchases.
3. BRAND AWARENESS
means that your product is the first recalled when a product category is
mentioned.
4. PERCEIVED
QUALITY is an important part of brand equity.
a. A product that's
perceived as better quality can be priced higher and thus improve profits.
b. Quality cues
include a high price, appearance, and reputation.
c. BRAND PREFERENCE
means that consumers prefer one brand over another.
5. Brand name
manufacturers have to develop new products even faster and hold off the
challenge of lower-priced competitors.
D. CREATING BRAND
ASSOCIATIONS.
1. BRAND
ASSOCIATION is the linking of a brand to other favorable images.
2. The person
responsible for building brands is known as a brand manager or product manager.
v. PRODUCT
MANAGEMENT.
LEARNING GOAL 5.
Explain the role of product managers and the five steps of the new-product
development process.
A. A PRODUCT
MANAGER has direct responsibility for one brand or one product line, including
all the elements of the marketing mix.
1. Many companies
are now challenging the value of the product managers as customers' brand
loyalty declines.
2. The product
management concept seems to be fading, with cross-functional teams and similar
consumer-oriented forms of marketing taking its place.
B. NEW PRODUCT
SUCCESS.
1. Changes that a
new product will fail are high, as high as 86% according to The Wall Street
Journal.
2. Products that
don't deliver what they promise is a leading cause of failure.
3. Other reasons
for failure include poor positioning, not enough differences from competitors,
and poor packaging.
C. THE NEW-PRODUCT
DEVELOPMENT PROCESS:
1. IDEA GENERATION.
2. SCREENING AND
ANALYSIS.
3. DEVELOPMENT.
4. TESTING.
5.
COMMERCIALIZATION (bringing the product to market).
D. GENERATING NEW
PRODUCT IDEAS.
1. The largest
percentage of new consumer product ideas (38%) come from studying the
competition, but copying slows the flow of new ideas.
2. The largest
percentage of new industrial product ideas come from company sources other than
research and development.
3. Since more than
a third of all new ideas for industrial products come from users, managers
should listen to their suppliers and customers.
E. PRODUCT
SCREENING AND ANALYSIS.
1. PRODUCT
SCREENING determines whether the product fits in with present products, profit
potential, marketability, and personnel requirements.
2. PRODUCT
ANALYSIS, done after screening, is a matter of making cost estimates and sales
forecasts to determine profitability.
3. Products that
don't meet the established criteria are withdrawn from further consideration.
F. PRODUCT
DEVELOPMENT AND TESTING.
1. A PRODUCT IDEA
can be developed into many different PRODUCT CONCEPTS.
2. CONCEPT TESTING
involves taking a product idea to consumers to get their reactions.
G.
COMMERCIALIZATION.
1. The text uses
the example of the long struggle for the inventor of zippers to gain consumer
acceptance of the product.
2. The marketing
effort must include COMMERCIALIZATION:
a. Promoting the
product to distributors and retailers.
b. Developing
strong advertising and sales campaigns.
3. Today new
products are getting more rapid exposure to global markets by being promoted on
the Internet.
H. THE
INTERNATIONAL CHALLENGE.
1. The key to
success is to BRING OUT NEW PRODUCTS FASTER than your competitors.
2. Other countries,
particularly Japan, are known for their rapid development processes.
3. To stay
competitive in world markets, U.S. businesses must develop a NEW PRODUCT
DEVELOPMENT PROCESS.
a. This requires
continuous, incremental improvements in function, cost, and quality.
b. Cost-sensitive
design and new process technologies are also crucial.
4. Successful
new-product development is an INTERACTIVE PROCESS between customers and
marketers.
5. The focus shifts
from INTERNAL product development processes to EXTERNAL customer
responsiveness.
6. Global marketers
today use CROSS-FUNCTIONAL TEAMS to develop new products.
VI. THE PRODUCT
LIFE CYCLE.
LEARNING GOAL 6.
Identify and describe the stages of the product life cycle and describe
marketing strategies at each stage.
A. The PRODUCT LIFE
CYCLE is a theoretical model of what happens to a product class over time.
1. Not all products
follow the life cycle, and some brands may act differently.
2. Knowing what
stage in the cycle a product is in helps marketing managers to decide when
strategic changes are needed.
B. EXAMPLE OF THE
PRODUCT LIFE CYCLE-The text uses the example of the introduction of instant
coffee.
C. THE IMPORTANCE
OF THE PRODUCT LIFE CYCLE.
1. Different stages
in the product life cycle call for different strategies.
2. Each stage calls
for multiple marketing mix changes.
VII. COMPETITIVE
PRICING.
LEARNING GOAL 7.
Give examples of various pricing objectives and show how break-even analysis
helps in pricing decisions.
A. PRICE is a
critical ingredient in consumer evaluations of the product.
B. PRICING
OBJECTIVES.
1. When setting a
pricing strategy, the firm may have several objectives in mind.
2. A firm must
formulate price objectives clearly before developing an overall pricing
objective.
3. Popular PRICING
STRATEGIES include:
a. Achieving a
target profit.
b. Building
traffic.
c. Achieving
greater market share.
d. Increasing
sales.
e. Creating an
image.
f. Furthering
social objectives.
4. Another
objective may be to avoid government investigation and control.
5. A company's
SHORT-TERM PRICING OBJECTIVES may differ from its LONG-TERM OBJECTIVES.
6. Pricing
objectives are influenced by OTHER MARKETING DECISIONS regarding product
design, packaging, branding, and promotion.
C. COST-BASED
PRICING.
1. Producers often
use COST as a primary basis for setting price.
2. In the long run,
THE MARKET-not the producer-DETERMINES WHAT THE PRICE WILL BE.
3. COST-DRIVEN
PRICING may be the reason the U.S. lost much of the consumer electronics
industry.
a. Using cost-based
pricing, U.S. firms set prices too high.
b. The Japanese
used PRICE-LED COSTING, determining what the market was willing to pay, then
designing products to fit those prices.
4. The recent
economic collapse in Asia is leading to huge price discounts from Asian firms.
D. VALUE PRICING.
1. VALUE PRICING
means that marketers are providing consumers with brand name goods and services
at fair prices.
2. The way to offer
value prices and not go broke is to RE-DESIGN PRODUCTS from the bottom up and
to cut costs wherever possible.
E. VALUE PRICING IN
THE SERVICE SECTOR.
1. Service
industries are adopting many of the same pricing tactics as goods-producing
firms.
a. Service firms
begin by cutting costs as much as possible.
b. Those services
that aren't important to customers are cut.
2. With both goods
and services, the idea is to give the consumer value.
F. BREAK-EVEN
ANALYSIS.
1. BREAK-EVEN
ANALYSIS is the process used to determine profitability at various levels of
sales.
2. The BREAK-EVEN
POINT (BEP) is the point where revenues from sales equal all costs.
3. BEP is
calculated:
4. TOTAL FIXED
COSTS are all the expenses that remain the same no matter how many products are
sold.
5. VARIABLE COSTS
change according to the level of production.
G. PRICING
STRATEGIES.
1. A SKIMMING PRICE
STRATEGY is one in which the product is priced high to make optimum profit
while there is little competition.
2. A PENETRATION
STRATEGY is one in which a product is priced low to attract more customers and
discourage competitors.
3. Ultimately,
price is determined by supply and demand in the marketplace.
a. Different
consumers may be willing to pay different prices.
b. Marketers
sometimes price on the basis of consumer demand, called DEMAND- ORIENTED
PRICING, rather than cost or other calculations.
4. PRICE LEADERSHIP
is the procedure by which all the competitors in an industry follow the pricing
practices of one or more dominant firms.
5.
COMPETITION-ORIENTED PRICING is a strategy based on what all the other
competitors are doing.
6. Marketers now
face a new pricing problem: customers can compare prices of many goods and
services on the Internet.
H. NON-PRICE
COMPETITION.
1. Marketers often
compete on product attributes other than price.
2. Many smaller
organizations promote the services that accompany basic products rather than
price in order to compete with bigger firms.
3. Marketers
emphasize non-price differences because prices are so easy to match.
4. Other STRATEGIES
FOR AVOIDING PRICE WARS include:
a. Add value.
b. Educate consumers.
c. Establish
relationships.