Layers of Product Concept

The Core Product Consists of all the benefits the product will provide for consumers or business customers A customer purchases a 1/2” drill bit. What does s/he want? A 1/2” hole! Marketing is about supplying benefits, not products.

The Actual Product Consists of the physical good or delivered service that supplies the desired benefit Example: A washing machine’s core product is the ability to get clothes clean, but the actual product is a large, square, metal apparatus Actual product also includes appearance, styling, packaging, and the brand

The Augmented Product Consists of the actual product plus other supporting features such as warranty, credit, delivery, installation, and repair service after the sale

NetFlix Example Core Product: access to movies Actual Product: rental of DVDs Augmented Product: rentals unlimited, 3 movies out at a time, monthly subscription fee, no late fees, no shipping fees, movie recommendation service

Classifying Consumer Products By how long they last Durable Nondurable By how consumers buy them Convenience Shopping Specialty Unsought

Shopping Product

Convenience Products Good or service that consumers purchase frequently with a minimum of comparison and effort Types of convenience products staples impulse products emergency products

Band-Aid

Shopping Products Good or service for which consumers will spend time and effort gathering information on price, product attributes, and product quality Consumers will tend to compare alternatives before making a purchase Types of shopping products attribute-based shopping products price-based shopping products

Specialty Products Goods or services bought with much consumer effort or in an extended problem- solving situation Consumers insist upon a particular item and will not accept substitutes

Unsought Products Goods or services for which a consumer has little awareness or interest until a need arises Require a good deal of advertising or personal selling to interest people

It’s New and Improved What is a new product? According to the FTC, a new product is one that is entirely new or changed significantly and that product may be called new for only six months From a marketing perspective, new is anything a customer perceives as new and different

Life-Changing Innovations CD Photocopier Fax Cell phone Post-it Notes Air conditioner Microwave What is your favorite life-changing innovation?

Types of Innovations Innovations differ in their degree of newness and this helps to determine how quickly products will be adopted by a target market The more novel the innovation, the slower the diffusion process Innovation continuum is based on the amount of disruption or change

Innovation Continuum Continuous Dynamically Discontinuous Continuous Little to no change Extreme changes

New Product Development Idea Generation Product Concept Development Marketing Strategy Development Business Analysis Technical Development Market Testing Commercialization

Step 1: Idea Generation Sources of new ideas customers salespeople service providers anyone with direct customer contact

Step 2: Product Concept Development Expand ideas into more complete product concepts Describe features the product should have and benefits those features will provide Evaluate chance for success

Step 3: Marketing Strategy Development Develop a marketing strategy that can be used to introduce the product to the marketplace Identify the target market Estimate its size Determine how the product can be positioned Plan pricing, distribution, and promotion expenditures necessary for roll-out

Step 4: Business Analysis Assess how the new product will fit into the firm’s total product mix Evaluate whether the product can be a profitable contribution for the organization’s product mix

Step 5: Technical Development Work with engineers to refine the design and production process Develop one or more prototypes Evaluate prototypes with prospective customers If applicable, apply for a patent

Market Testing Try out the complete marketing plan (product, price, place, and promotion) in a small geographic area that is similar to larger target market Traditional test marketing is expensive and gives competition a chance to evaluate the new product Simulated test markets eliminate competitive viewing and cost less

Product Testing Firms using online research techniques can test consumer reactions to product ideas faster than ever before

Commercialization Launch the product! Full-scale production Distribution Advertising Sales promotion and more

Commercialization Is No Guarantee Forecasts estimated sales of FluMist to exceed 6 million doses when it was introduced in 2003 Despite a $25 million ad campaign, only 100,000 doses were sold

Adoption and Diffusion Processes Adoption is the process by which a consumer or business customer begins to buy and use a new good, service, or idea Diffusion describes how the use of a product spreads throughout a population

Six Stages of Adoption

Michelle Beauty Centre This ad builds interest by showing how the service will benefit customers

Silk Soymilk Silk stimulated adoption by distributing free samples

Diffusion Process Concerned with the broader issue of how an innovation is communicated and adopted throughout the marketplace The process of spreading out

Figure 8.6: Adopter Categories Mean Time of Adoption Innovators (2.5%) Early Adopters (13.5%) Early Majority (34%) Late Majority (34%) Laggards (16%)

Innovators 2.5%, the first to accept a new idea or product Venturesome and willing to take risks Cosmopolites: willing to seek social relationships outside of their local peer group Rely heavily on impersonal information sources

Early Adopters 13.5%, the second to adopt an innovation Heavy media users Tend to be concerned with social acceptance Opinion leaders primarily come from the early adopter group

Early Majority 34% adopt the product prior to the mean time of adoption Deliberate and cautious Spend more time in the innovation decision process Slightly above average in education and social status

Late Majority 34% follow the average adoption time Older, more conservative Peers are the primary source of new ideas Below average in education, income, and social status Wait to purchase until product has become a necessity and/or peers pressure to adopt

Laggards 16% - last to adopt an innovation Lower in social class than other categories Bound by tradition Product may have already been replaced by another innovation

Factors Affecting the Rate of Adoption Relative Advantage Observability Compatibility Trialability Complexity

Relative Advantage A product innovation is perceived as better than existing alternatives Positively correlated with an innovation’s adoption rate Exist when a new product offers: Better performance, increased comfort, saving in time and effort, or immediacy of reward

Skin Watch Does an ultra-thin watch provide a relative advantage over other watches?

Compatibility An innovation is perceived to fit into a person’s way of doing things The greater compatibility, the more rapid a product’s rate of adoption Overcome perception of incompatibility through heavy advertising to persuade consumers

Complexity The more complex the product, the more slowly a product’s rate of adoption Overcome perception of complexity with demonstrations, personal selling, and emphasis on ease of use

Trialability An innovation can be used on a limited basis prior to making a full-blown commitment The trial experience serves to reduce the risk of a consumer’s being dissatisfied with a product after having permanently committed to it through outright purchase

Observability The product user or other people can observe the positive effects of new product usage The higher the visibility, the more rapid the adoption rate

B2B Adoption Factors Increase in gross margin and profits Consistency with firm’s way of doing business Benefit relative to required investment

Marketing Throughout the PLC The Product Life Cycle (PLC) explains how features change over the life of a product Marketing strategies must change and evolve as a product moves through the PLC The PLC relates to a product category

Figure 9.5: The Product Life Cycle

Introduction Full-scale launch of new product into marketplace Sales are low, high failure rate Little competition Frequent product modification Limited distribution High marketing and product costs Promotion focused on product awareness and to stimulate primary demand Intensive personal selling to retailers and wholesalers

Growth Sales grow at an increasing rate Many competitors enter market Large companies may acquire small pioneering firms Profits are healthy Promotion emphasizes brand advertising and comparative ads Wider distribution Toward end of growth stage, prices fall Sales volume creates economies of scale

Maturity Sales continue to increase but at a decreasing rate Marketplace is approaching saturation Typified by annual models of products with an emphasis on style rather than function Product lines are widened or extended Marginal competitors drop out Heavy promotions - sales promotions Prices and profits fall

Decline Signaled by a long-run drop in sales Rate of decline is governed by how rapidly consumer tastes change or how rapidly substitute products are adopted Falling demand forces many out of market Few specialty firms left