MGT301 Principles of Marketing Lecture-23

Summary of Lecture-22

Consumer Adoption Process Communicate Availability Communicate Benefits Emphasize Advantages Motivate Consumers Ensure Satisfaction Strategy Awareness Interest Evaluation Trial Adoption

Product Life-Cycle (PLC) Time Product Development Stage Introduction Profits Sales Growth Maturity Decline Sales and Profits ($) Sales and Profits Over the Product’s Life From Inception to Demise

Today’s Topics Product

Value-Driven Marketing A customer’s subjective assessment of benefits relative to the costs in determining the worth of a product Customer value = customer benefits – customer costs Customer benefits Anything desired by the customer that is received in an exchange Customer costs Anything a customer gives up in an exchange for benefits Monetary price of the benefit Search costs (time and effort) to locate the product Risks associated with the exchange

Benefits Consumers don’t buy products; they buy benefits Functional benefits: relating to the practical purpose a product serves Psychological benefits: relating to how a product makes one feel

Segmentation

Market Segmentation Market Targeting Market Positioning 1. Identify segmentation variables and segment the market 2. Develop profiles of resulting segments 3. Evaluate attractiveness of each segment 4. Select the target segment(s) 5. Identify possible positioning concepts for each target segment 6. Select, develop, and communicate the chosen concept

Question: Why do you buy a product?

Marketing Mix 4 Ps

Marketing is the involved process of determining the 4 P’s of the Marketing Mix Product Price Promotion Place (Distribution)

Product Target Market Price Place Promotion The Marketing Mix Four marketing activities—product, Price, Place and Promotion—that a firm can control to meet the needs of customers within its target market Product Target Market Price Place Promotion

Definitions Product Anything offered to a market for attention, acquisition, use, or consumption that might satisfy a need or want. Service Any activity or benefit that one party can offer to another that is essentially intangible and does not result in ownership of anything.

Goods Services

Sold Then Produced and/ Goods Services Tangible Produced Then Sold Intangible Sold Then Produced and/ or Consumed Same Time

Sold Then Produced and/ Can Store and Transport Tangible Produced Then Sold Intangible Sold Then Produced and/ or Consumed Same Time Can Store and Transport Produced Separate From Consumer Perishable Often Produced In Consumer's Presence Goods Services

Levels of Products

Core Benefit or Service Augmented Product Product Levels This CTR corresponds to Figure 8-1 on p. 239 and relates to the material on pp. 239-240. Installation Packaging Brand Name Features Delivery & Credit After- Sale Service Core Benefit or Service Product A product is anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a want or need. Products can be physical objects, services, persons, places, organizations, and ideas. Product Levels Core Product. This concept refers to the use-benefit, problem-solving service that the consumer is really buying when purchasing a product. Actual Product. The actual product is the tangible product or intangible service that serves as the medium for receiving core product benefits. Five characteristics: Quality Level refers to product performance. Features include combinations of product attributes. Design consists of aesthetic or ergonomic aspects of the product. Brand Name may help consumers position and identify the product. Packaging serves to both protect the product and to promote it to consumers. Augmented Product. The augmented consists of the measures taken to help the consumer put the actual product to sustained use. Measures can include installation, delivery & credit, warranties, and after sale service. Quality Level Design Warranty Core Product Actual Product

Product Classifications

Individual Product Decisions Product Attributes Branding Packaging Labeling Product Support Services

Product Attributes Developing a Product or Service Involves Defining the Benefits that it Will Offer

Quality Features Design Product Attribute Decisions This CTR relates to the material on pp. 244-245. Quality Features Product Attribute Decisions Product Quality. Product quality stands for the ability of a product to perform its functions. Quality includes the attributes of overall durability, reliability, precision, ease of operations, and quality consistency -- the ability to maintain the targeted level of quality in delivering benefits to consumers. The importance of quality has lead to widespread adoption of Demings Total Quality Management. Product Features. The number and combination of product features offered consumers are assessed in terms of customer value versus company cost. Consumers seek value and need-satisfaction. Features irrelevant to consumers are undesirable. Also, additional features cost money to produce and higher quality features are more costly still. Product feature decisions must be carefully tied to consumer needs and consumer perceptions of received, affordable value. Product Design. Product design combines attention to style (appearance) with enhanced performance. Style alone may attract attention but not improve performance. Discussion Note: You may wish to discuss how style may adversely affect perceptions of product performance. Good styling may inadvertently lead to higher performance expectations on the part of the interested consumer. For this reason, product attribute decisions incorporating a marketing perspective should focus on product design over style alone. Design

Branding

Brand A name, term, sign, symbol, or design, or a combination of these, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those competitors

Why Incur the Cost & Efforts to Brand? To Brand or Not to Brand? Why Incur the Cost & Efforts to Brand?

Brand Name Selection A Good Brand Name Is... Short and simple Suggestive of product benefits Legally available No negative imagery Easy to spell, read, and pronounce Adaptable for international markets Adaptable to packaging/labeling needs Adaptable to any advertising medium A Good Brand Name Is...

Brand Development

Four Brand Strategies Product Category Brand Name Line Extension Multibrands Brand Extension New Brands Brand Name Existing New Product Category

Packaging

Goals of Packaging Protection against damage, spoilage, tampering etc. Assistance in marketing the product Cost effectiveness (and good for the environment)

Labeling

Sales Tasks Competitive Advantages Product Safety Packaging Labeling Packaging Decisions This CTR relates to the material on pp. 253-254. Sales Tasks Competitive Advantages Product Safety Packaging Labeling Packaging Concept The packaging concept states what the package should be or do for the product in support of marketing objectives. Packaging includes the activities of designing and producing the container or wrapper for a product. The package includes the immediate container (that holds the product for use), a secondary package that is discarded prior to use, and a shipping package necessary for storage and shipping. Discussion Note: Both environmentalists and consumer groups have complained about unnecessary packaging. Environmentalists point out the ecological costs of more packages to throw away. Many firms now recycle packages to reduce wastes and save money. Consumer groups, such as Consumer’s Union (publisher of Consumer Reports), express concern that unnecessary packaging costs consumers more. Labeling Decisions Labels perform several functions. Labels identify, describe, and promote the product. Also, labels must meet the demands of legal regulations. Identifies. Especially in support of brand strategies, labels distinguish the product from others. Describes. Labels can provide information about contents, production, freshness, and instructions on safe and effective use. Promotes. Use of color and graphics can stimulate and arouse consumer attention for the product. Legal Regulation Mis-use of labels has lead to regulation on product claims, the addition of unit prices, open dating, and nutritional labeling for processed foods. Including all required information is necessary to ward off governmental investigations. Identifies Describes Promotes

Universal Product Code (UPC) A bar code on a product’s package that provides information read by optical scanners. UPC codes provide several advantages: labor saving, improve inventory control, and help with marketing research. 79400 80740

Product - Support Services

Product Line Strategies

Product Line Extensions Adding new items to line Stretching Adding new items to line Filling Adding sizes or styles Contracting a Product Line Dropping items Downward Upward Two-way

New Product Development

Major Stages in New-Product Development Idea Generation Screening Concept Development and Testing Marketing Strategy Business Analysis Product Test Commercialization

Consumer Adoption Process Communicate Availability Communicate Benefits Emphasize Advantages Motivate Consumers Ensure Satisfaction Strategy Awareness Interest Evaluation Trial Adoption

Product Life-Cycle (PLC) Time Product Development Stage Introduction Profits Sales Growth Maturity Decline Sales and Profits ($) Sales and Profits Over the Product’s Life From Inception to Demise

Product Life-Cycle Strategies

Product Development Stage Time Product Development Stage Introduction Profits Sales Growth Maturity Decline Sales and Profits ($) Sales and Profits Over the Product’s Life From Inception to Demise

PLC Stages Product development Begins when the company develops a new-product idea Sales are zero Investment costs are high Profits are negative Product development Introduction Growth Maturity Decline

Introduction Stage

Time Product Development Stage Introduction Profits Sales Growth Maturity Decline Sales and Profits ($) Sales and Profits Over the Product’s Life From Inception to Demise

Product Life-Cycle Strategies Low sales Sales This CTR relates to the material on pp. 289 and 293. Low sales Sales High cost per customer Costs Negative Profits Product Life Cycle Strategies Introduction. In this stage marketers spend heavily on promotions to inform the target market about the new product's benefits. Low or negative profits may encourage the company to price the product high to help offset expenses. companies can concentrate on skimming strategies to generate high profits now or on penetration strategies to build market share and dominant the market for larger profits once the market stabilizes. Create product awareness and trial Marketing Objectives Product Offer a basic product Price Use cost-plus Distribution Build selective distribution Advertising Build product awareness among early adopters and dealers

Growth Stage

Time Product Development Stage Introduction Profits Sales Growth Maturity Decline Sales and Profits ($) Sales and Profits Over the Product’s Life From Inception to Demise

Product Life-Cycle Strategies Sales Rapidly rising sales This CTR relates to the material on pp. 289-290 and 293. Sales Rapidly rising sales Average cost per customer Costs Rising profits Profits Product Life-Cycle Strategies Growth. In this stage the company experiences both increasing sales and competition. Promotion costs are spread over larger volume and strategic decisions focus on growth strategies. Strategies include adding new features, improving quality, increasing distribution, and entering new market segments. Marketing Objectives Maximize market share Offer product extensions, service, warranty Product Price Price to penetrate market Distribution Build intensive distribution Build awareness and interest in the mass market Advertising

Maturity Stage Time Product Development Stage Introduction Profits Sales Growth Maturity Decline Sales and Profits ($) Sales and Profits Over the Product’s Life From Inception to Demise

Product Life-Cycle Strategies Sales Peak sales This CTR relates to the material on pp. 290-292 and 293. Sales Peak sales Costs Low cost per customer High profits Profits Product Life Cycle Strategies Maturity. In this stage the company must manage slower growth over a longer period of time. Strategic decisions made in the growth stage may limit choices now. Marketing managers must proactively seek advantage by either market modification to increase consumption, product modification to attract new users (quality, feature, and style improvements), or marketing mix modification in an attempt to improve competitive position. Maximize profit while defending market share Marketing Objectives Product Diversify brand and models Price Price to match or best competitors Distribution Build more intensive distribution Advertising Stress brand differences and benefits

Decline Stage

Time Product Development Stage Introduction Profits Sales Growth Maturity Decline Sales and Profits ($) Sales and Profits Over the Product’s Life From Inception to Demise

Product Life-Cycle Strategies This CTR relates to the material on pp. 292-293. Sales Declining sales Low cost per customer Costs Profits Declining profits Marketing Objectives Reduce expenditure and milk the brand Product Life Cycle Strategies Decline. In this stage the costs of managing the product may eventually exceed profits. Rate of decline is a major factor in setting strategy. Management may maintain the brand as competitors drop out, harvest the brand by reducing costs of support for short term profit increases, or drop the product (divest) altogether. Product Phase out weak items Price Cut price Distribution Go selective: phase out unprofitable outlets Advertising Reduce to level needed to retain hard-core loyal customers

Extending the Product Life Cycle

To prevent the product going into decline you modify the product Adding new features, variations, model varieties will change the consumer reaction - create more demand therefore you attract more users

Enough for today. . .

Summary Product

Next…. 4-P’s price

MGT301 Principles of Marketing Lecture-23