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.