Product and Service Strategies Chapter 11 Product and Service Strategies

Chapter Objectives Define the term product and distinguish between goods and services and how they relate to the goods-services continuum. Explain the importance of the service sector in today’s marketplace. List the classifications of consumer goods and services and briefly describe each category. Describe each of the types of business goods and services. Explain how quality is used by marketers as a product strategy. Explain why firms develop lines of related products. Describe the way marketers typically measure product mixes and make product mix decisions. Explain the concept of the product life cycle and identify the different stages. Describe how a firm can extend a product’s life cycle.

What is a Product? Product: bundle of physical, service, and symbolic attributes designed to enhance buyers’ want satisfaction

What are Goods and Services? Service: intangible task that satisfies consumer or business user needs Goods-services continuum: device that helps marketers to visualize the differences and similarities between goods and services

Characteristics that distinguish services from goods: Intangibility Inseparability Perishability Difficulty of standardization Frequent requirement of interaction between buyer and Seller Variability

Importance of the Service Sector The service sector makes up more than two-thirds of the economy. Services also play a crucial role in the international competitiveness of U.S. firms. Concerns include offshoring service jobs such as customer service call centers.

Property Insurance An Important Part of the Service Sector

Classifying Goods and Services for Consumer and Business Markets Consumer products: products destined for use by ultimate consumers Business (or B2B) products: those that contribute directly or indirectly to the output of other products for resale Also called industrial or organizational products

Types of Consumer Products

Convenience product: good or service that consumers want to purchase frequently, immediately, and with minimal effort Impulse goods and services are purchased on the spur of the moment. Staples are convenience goods and services that consumers constantly replenish to maintain a ready inventory. Emergency goods and services are bought in response to unexpected and urgent needs.

Gum and Candy An Impulse Convenience Good

Shopping product: good or service purchased only after the customer compares competing offerings from competing vendors on such characteristics as price, quality, style, and color Typically cost more than convenience purchases. Include tangible items. Shopper lacks complete information and gathers information during the buying process.

Chico’s and Target Ads for shopping products

Specialty product: good or service with unique characteristics that cause the buyer to value it and make a special effort to obtain it

Gucci A Specialty Product Print reads: Gucci timepieces neiman marcus

Unsought product: good or service marketed to consumers who may not yet recognized in the need for it Pet Insurance

Types of Business Products

Installation: major capital investment by a business buyer that typically involves expensive and relatively long-lived products, such as a new factory or piece of heavy machinery

Accessory equipment: capital product, usually less expensive and shorter-lived that insulation, such as a laptop computer Industrial distributor--wholesaling marketing intermediary

Component parts and materials: finished business products that become parts of buying firms’ final products, such as spark plugs for new cars Raw materials: business product, such as a farm product (wheat, cotton, soybeans) or natural product (coal, lumber, iron ore) that become part of a final product

Supplies: products that represent regular expenses necessary to carry out a firm’s daily operations but are not part of the final product. Supplies are sometimes called MRO items MRO [Maintenance, Repair, Operating Supplies] item: part of business supplies categorized as maintenance items, repair items, or operating supplies such as light bulbs, nuts and bolts used in repairing equipment, or pencils

Business services: intangible product purchased to facilitate a firm’s production and operating processes such as financial services, leasing of vehicles, legal advice and consulting Wireless Communications for a Mobile Workforce

Quality as a Product Strategy Quality is a key component to a firm’s success in a competitive marketplace. Total quality management (TQM): approach that involves all employees in continually improving products and work processes to achieve customer satisfaction and world-class performance

Worldwide Quality Programs Malcolm Baldrige National Quality Award ISO 9002: set of standards for quality management and quality assurance developed by the International Standards Organization in Switzerland for countries in the European Union Benchmarking: process in which an organization improves performance by continually comparing and measuring itself against the leading firms in an industry and implementing changes for quality improvement

Quality of Services Service encounter Service quality: Expected and perceived quality of a service offering Determined by five variables: Tangibles – physical evidence Reliability – consistent performance Responsiveness – willingness to provide a service Assurances – communicated confidence Empathy – understand customer needs, and respond accordingly

Development of Product Lines Product Line: a series of related products Motivation Desire to Grow Enhancing the Company’s Position in the Market Optimal Use of Company Resources Exploit the Product Life Cycle

Yum Brands’ Product lines

The Product Mix A company’s assortment of product lines and individual offerings Product Width--the number of product lines offered. Product Length--the number of different products a firm sells. Product Depth--variations in each product that a firm markets in its mix.

Product Mix Decisions A firm may lengthen or widen its product mix A Company may decide to add variations that will attract new users A product may be pruned or altered, and new product may extend the product life cycle Line extension: introduction of a new product that is closely related to other products in the firm’s existing line

The Product Life Cycle Product life cycle: progression of products through introduction, growth, maturity, and decline stages

Introduction Stage Firm works to stimulate demand for the new market entry Promotional campaigns stress features Additional promotions to intermediaries attempt to induce them to carry the product Although prices are typically high, financial losses are common due to heavy promotional and research-and-development costs

Growth Stage Sales volume rises rapidly Firm usually begins to realize substantial profits Success attracts competitors Firm may need to make improvements to the product Additional spending on promotion and distribution may be necessary

Maturity Stage Industry sales continue to grow, but eventually reach a plateau Many competitors have entered the market, and profits began to decline Differences between competing products diminish Available supplies exceed industry demand for the first time Competition intensifies and heavy promotional outlays are common

Figure 11.15 Using Promotion--and Product Extensions--to Extend the Maturity Stage of the Product Life Cycle

Decline Stage Innovations or shifts in consumer preferences cause an absolute decline in industry sales Industry profits fall -- sometimes become losses Firms cut prices in a bid for the dwindling market Manufacturers gradually drop the declining items from their product lines

Extending the Product Life Cycle Marketers usually try to expand each stage of the life cycle for their products as long as possible Product life cycles can stretch indefinitely as a result of decisions designed to: Increase the frequency of use by current customers Increase the number of users for the product Find new uses Add new product features Change package sizes, labels

Quaker Oats A new application for a mature product

Bounce Finding new uses for Bounce Fabric Softener

Kraft New cubed cheese for snacking

Product Deletion Decisions Product lines must sometimes be pruned and marginal products eliminated This decision is typically faced during the late maturity and early declined stages of the product life cycle An unprofitable item may be continued in order to provide a complete line for customers

End of Chapter Eleven