Chapter 9 Designing and Managing Products

“Profit is payment you get when you take advantage of change “Profit is payment you get when you take advantage of change.” -Joseph Schumpeter   “Being fed a decent meal in a casual environment is a commodity in far more supply than demand.” -Barry M. Cohen ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Chapter Objectives Define the term product, including the core, facilitating, supporting, and augmented product Explain the elements with which one needs to be concerned when designing a product ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Chapter Objectives Understand branding and the conditions that support branding Explain the new product development process Understand how the product life cycle can be applied to the hospitality industry ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

What is a Product? A product is anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need Includes physical objects, services, places, organizations, and ideas ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Product Levels Core Product Facilitating Products Supporting Products Core Competency ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Core Product What the buyer is really buying Every product is a package of problem-solving services ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Facilitating Products Goods or services that must be present for the guest to use the core product ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Supporting Products Extra products offered to add value to the core product and help to differentiate it from the competition ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Core Competency Review Supporting products offer a competitive advantage only if they are properly planned and implemented They must meet or exceed customer expectations to have a positive effect ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Augmented Product The augmented product includes accessibility, atmosphere, customer interaction with the service organization, customer participation, and customers’ interaction with each other. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Product levels (Adapted from C. Gonroos, “Developing the Service Offering— A Source of Competitive Advantage,” in Add Value to Your Service, C. Surprenant, ed., Chicago: American Marketing Association, 1987, p. 83.) ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Atmosphere: The Physical Environment Can be the customer’s reason for choosing, or not choosing, to do business with an establishment Multidimensional Visual, aural, olfactory, tactile ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Customer Interaction with the Service Delivery System Joining stage is when the customer makes the initial inquiry contact Consumption phase takes place when the service is consumed Detachment phase is when the customer is through using a product and departs ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Customer Interaction with Other Customers Hospitality organizations must manage the interaction of customers to ensure that some do not negatively affect the experience of others ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Customer Coproduction Increase capacity Improve customer satisfaction Reduce costs ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Brand Decisions A brand is a name, term, sign, symbol, design, or a combination of these elements that is intended to identify the goods or services of a seller and differentiate them from competitors ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

(Scott Davis, Brand Asset Management) Brands are among a company’s most valuable assets A Brand represents what the company is and what it stands for A Brand implies trust , consistency, and a defined set of expectations The strongest brands own a place in the customer’s mind ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Branding Advantages of Brand Names Brand Equity Consistency Quality & Value Attributes Identification Advantages of Brand Names Brand Equity High Brand Loyalty Strong Brand Association Name Awareness Perceived Quality ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Conditions that Support Branding The product is easy to identify by brand or trademark The product is perceived as the best value for the price Quality and standards are easy to maintain ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Conditions that Support Branding The demand for the general product class is large enough to support a regional, national, or international chain There are economies of scale ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Leveraging Brand Equity Cobranding Partnerships ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

New Product Development Product life cycle Product is born Passes through several phases Eventually dies as younger products come along that better serve consumer needs ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

New Product Development Process Marketing Strategy Development Business Analysis Product Development Concept Development and Testing Market Testing Idea Screening Commercialization Idea Generation ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Idea Generation Internal Sources Customers Competitors Distributors and Suppliers Other Sources ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Idea Screening The purpose of screening is to spot good ideas and drop poor ones as quickly as possible ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Concept Development and Testing A product idea envisions a possible product that company managers might offer to the market A product concept is a detailed version of the idea stated in meaningful consumer terms A product image is the way that consumers picture an actual or potential product ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Concept Development and Testing The task is to develop an idea into alternative product concepts, determine how attractive each is to customers, and choose the best one Concept testing occurs within a group of target consumers ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Marketing Strategy Includes information such as the target market and product positioning as well as both short and long term projections in terms of sales, profits and costs ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Business Analysis Business analysis involves a review of the sales, costs, and profit projections to determine whether they satisfy the company’s objectives ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Product Development The prototype must: Have the key features described in the product concept statement, as perceived by the customer Performs safely under normal use Be produced for the budgeted costs ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Test Marketing The product and marketing program are introduced into realistic market settings ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Commercialization In launching a new product, a company must make four decisions: When? Where? To whom? and How? ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Product Development Through Acquisition A method of product development that reduces the risk considerably for large companies that have the assets to purchase and then develop a fledgling chain ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Product Life-Cycle Strategies Product development Introduction Growth Maturity Decline ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Product Development Product development begins when the company finds and develops a new product idea During development, sales are zero and the company’s investment costs add up ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Sales and Profits Over the Product’s Life From Inception to Demise Product Life Cycle Sales and Profits Over the Product’s Life From Inception to Demise Time Product Develop- ment Introduction Profits Sales Growth Maturity Decline Losses/ Investments ($) Sales and Profits ($) ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Introduction Introduction is a period of slow sales growth as the product is being introduced into the market Profits are nonexistent at this stage due to high product introduction expenses ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Growth Growth is a period of rapid market acceptance and increasing profits ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Maturity Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most of its potential buyers Profits level off or decline due to increased marketing outlays to defend the product against competition ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Decline Decline is the period when sales fall off quickly and profits drop ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Product Deletion Process (Martin Bell, Marketing Concepts and Strategy, 3rd ed., p.267, 1979, Houghton Mifflin Company; used by permission, Mrs.. Marcellette (Bell) Chapman. ) ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Key Terms Augmented products Aural Brand Consumption phase Core product ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Key Terms Customization Decline Detachment phase Drop Facilitating products ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Key Terms Growth Introduction Joining Maturity Olfactory ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Key Terms Phase-out Product concept Product development Product idea Product image ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Key Terms Run-out Standardization Supporting products Tactile Visual ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens