Dr. Close

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Elements of Product Strategy

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Three Perspectives of a Product  Tangible product – Physical entity or service offered  Extended product – Tangible product along with whole cluster of services that accompany it  Generic product – Essential benefits the buyer expects to receive from the product ……Avoid Marketing myopia – Executives who view their company’s product too narrowly by overemphasizing the physical object itself

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Definition and Classification  Product – The sum of the physical, psychological, physiological, and sociological satisfactions the buyer derives from purchase, ownership and consumption  Two basic criteria for product classification  End use or market  Degree of processing or physical transformation

Consumer Products  General classification: what types of customers will use them?  Businesses B2B or consumers B2C  Consumer products: For “final” users Classifying consumer products How consumers shop How consumers think about them  Perception usage varies (among food items and what other product categories?)

4 Types of Consumer Products 1. Convenience  Little time/effort; frequent purchase  Intense distribution  Substitutes acceptable  Low price (grocery products) 2. Shopping: time comparing alternatives; less frequent purchase, low loyalty  Homogeneous: seen as same; want bargain  Heterogeneous: seen as different; want quality; salespeople help desired  Marketing: fewer outlets, higher markups

4 Types of B2C Products, cont. 3. Specialty: is shopping an end, pleasurable; willingness makes it specialty Planned purchase: strong desire and effort (collectors); alternatives unacceptable Amount of search (Beanie Babies; xmas toys) Limited availability is OK; high markups 4. Unsought (tombstones; towing; dentists) Only want “in a pinch;” infrequent and no effort; lack knowledge or desire Promotion; sales (Dentists for phobic patients) What are your unsought products?What are your unsought products?

What type of product?

B2B Products  Businesses (B2B):  Agricultural or organizational  Use to make other products  Bought and resold  Used for corporate or organization’s use  Less shopping is involved (vs. B2C)  Classify via:  How buyers think about the product  What type of customer will use the product  How the product is used

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Organizational Market Characteristics  A primary purchasing motive for organizational goods is profit  Organizational markets are concentrated geographically as in the case of steel, auto or shoes  Can be categorized into  Vertical market – Limited number of buyers  It is narrow and deep  Horizontal market – Goods are purchased by all types of firms in many different industries

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Quality and Value  Quality – Defined as the degree of excellence or superiority that an organization’s product possesses  Total-quality management (TQM)  ISO 9000 quality systems of standards  Value – Defines as what the customer gets in exchange for what the customer gives  Customers perception of value based on  Degree the product meets expected specifications  Price

Product Planning  Quality (What does it mean?)  Product’s ability to satisfy customer’s needs/requirements.  Consistency (McDonalds and what other companies?)  Relative quality – similar products against each other What do you think are some quality products? Why?

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Mix  Full set of products offered for sale by an organization  May consist of several product lines, or groups of products sharing common characteristics, distribution channels, customers, or uses  Product mix described by  Width – Number of product lines handled by organization  Depth – Average number of products in each line

Product Items, Lines, and Mixes  Item: version of a product (Diet Coke)  Line: group of closely related products  Mix: all the products a company offers  Modify and reposition (Coke) for variety, diversification, and multi-product lines  Line extension – Brand name used to facilitate entry into a new market segment

Branding  Identify product via letters, terms, designs  Branding strategies:  Brand name – letters associated with product  Trademark/servicemark – words, symbols for one firm (legally protected)  Co-brand (apple ipod and coach)  Multibranding – Different brand names assigned to each product (ipad; ipod; iphone)  Dual branding – Integration of two or more branded products  Family – one brand, many products (Hershey’s, Campbell’s)  Generics – no brand (signal of savings)  Dealer/private label: by store

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Multi-Branding Strategy  Advantages  Firm can distance products from other offerings it markets  Image of one product is not associated with other products the company markets  Products can be targeted at specific market segments  If the product fails, the effect on other products is minimized  Disadvantages  No consumer brand awareness due to different names  Significant money spent on familiarizing new brands

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Elements of Brand Equity

Branding  Brand equity: financial value of the brand name  Value (are we just paying for the name?)  Consumer – familiarity  Seller- be authentic, true to your people  Less promotion (Reese’s)  Legal protection (Coke; Olympic rings)

Hot or not…What are the most equitable brands?

Equitable Brands 1. Apple 2. Blackberry 3. Google 4. Amazon 5. Yahoo 6. eBay 7. Red Bull 8. Starbucks 9. Pixar 10. Coach 11. Whole Foods 12. EA Sports/Games 13. MTV 14. Samsung 15. Victoria’s Secret 16. Nike

Packaging  Defined as:  Container or wrapping  Elements: 1.Function (fridgepack; pill bottles) 2.Promotion (L’eggs pantyhose; square Chanel)  Issues: - UPC codes needed  Information: government guidelines (good or bad??)  Waste (kids lunches)  Size (changing??)

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Life Cycle

Product Life Cycle (1)  Product life cycle (4 stages): for product IDEA, not individual firms. 1.Introduction (phones with net access; plasma TV) High marketing costs (inform) Slow sales increase Low or no profit (Amazon.com) Low competition Price often high (ex. Calculator)  What other products can you think of that are in introduction?

Product Life Cycle (2)  Product life cycle (cont…) 2.Growth (solar changing lens) High marketing expense (inform and persuade) Many small competitors – market entry (athletic apparel) Little price competition Industry profits rise/peak and sales increasing  What other products are in growth? are in growth?

Product Life Cycle (3) 3.Maturity (Beer and Auto) Industry sales level off; profits down Promotions stop rising: moderate marketing expense (persuade) Fewer, stronger competitors: tough competition in general Many consumers view product as homogeneous; price competition  What other products can you think of that are in maturity?

Product Life Cycle (4) 4.Decline: being replaced (VCR) Decrease in industry sales/profits Low marketing expense; small groups remain loyal Dropouts: few competitors; most gone  What other products can you think of that are in decline?

Product Life Cycle (5)  Criticisms:  Accuracy pertaining to the longevity of the product in different stages of the cycle can’t be predicted  Self fulfilling prophecy (Is beer always going to be a mature product?)  All do not follow pattern (fads; fashion; scooters: comeback)  Product may be in different stages by the market (B&W T.V.; Coke)  What do you see are the advantages of the PLC? Why should m.managers care?

Product Life Cycle (6)  Factors that may speed products through PLC: 1.Ease of trial (supermarkets, no risk, test drive) 2.Ease of use (some assembly required; Toys R Us (bike); Gateway store) 3.Easy to communicate advantages (Always low price; cars) 4.Compatible with customer experience (Poland & free samples)

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Marketing Strategy Implications of the Product Life Cycle

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Adoption And Diffusion  Adopter categories  Innovators  Early adopters  Early majority  Late majority  Laggards  Diffusion – Spread of the product through the population is known as the diffusion of innovation

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Adopter Categories

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Audit  A marketing management technique whereby the company’s current product offerings are reviewed to ascertain whether each product should be continued as is, improved, modified, or deleted

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Deletions  Deletion decisions are difficult because of the potential impact on customers and the firm  Considerations in the deletion decision include  Sales trends – Have sales moved over time? What has happened to market share?  Profit contribution – What has been the profit contribution of the product to the company?  Product life cycle – Has the product reached a level of maturity?  Customer migration patterns – If the product is deleted, will customers switch to another product marketed by our firm?

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Improvement  Another important objective of the audit is to ascertain whether to alter the product in some way or leave things the way they are  Attributes – Refer mainly to product features, design, package and so forth  Marketing dimensions – Refer to features like pricing, promotion strategy and distribution channels

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Improvement  Benchmarking – Continuous process of measuring products, services, and practices against those of the toughest competitors or companies renowned as leaders  Advantages  Boosting product quality  Developing more user-friendly products  Improving customer order processing activities  Shortening delivery lead times

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Advantages of Rejuvenating a Product

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Organizing for Product Management  Market management system – One person is responsible for overseeing an entire product line with all of the functional areas of marketing such as research, advertising, sales promotion, sales, and product planning  Brand management system – A manager focuses on a single product or a very small group of new and existing products

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Cross Functional Teams  Use of cross functional teams has become an important way to manage the development of new products  Venture team – A cross-functional team responsible for all tasks involved in development of new product

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Some Requirements for the Effective Use of Cross- Functional Teams in Product Management and New Product Development