Product and Distribution Strategies 12 Chapter Product and Distribution Strategies

Learning Objectives LO 12.1 Explain marketing’s definition of a product; differentiate among convenience products, shopping products, and specialty products; and distinguish between a product mix and a product line. LO 12.2 Briefly describe each of the four stages of the product life cycle and their marketing implications. LO 12.3 Explain how firms identify their products. LO 12.4 Outline and briefly describe each of the major components of an effective distribution strategy. LO 12.5 Distinguish between the different types of wholesaling intermediaries. LO 12.6 Describe the various types of retailers and identify retail strategies. LO 12.7 Identify the various categories of distribution channels, and discuss the factors that influence channel selection.

Product Strategy Product: A bundle of physical, service, and symbolic characteristics designed to satisfy consumer wants Consumer product categories Convenience products: items the consumer seeks to purchase frequently, immediately, and with little effort Shopping products: typically purchased only after the buyer has compared competing products in competing stores Specialty products: items a purchaser is willing to make a special effort to obtain The marketing conception of a product includes decisions about package design, brand name, trademarks, warranties, product image, new product development, and customer service. Categories of consumer products are divided by how consumers buy them.

Classifying Consumer Goods and Services Marketers classify goods as business-to-business and business-to-consumers. This classification helps with the development of marketing strategy. Is the customer a business or a consumer? Consumer goods and services can be classified as convenience products, shopping products, and specialty products. Lecture Enhancer: Is it more difficult to market products and services for B2B or for B2C? Why? Lecture Enhancer: Which B2C classification would be the most difficult to market? Why?

Classifying Business Goods Capital versus expense items Installations are major capital items such as new factories, heavy equipment and machinery, and custom-made equipment. Accessory equipment includes less expensive and shorter-lived capital items than installations, and involves fewer decision makers. Component parts and materials become part of a final product. Raw materials are farm and natural products used in producing other final products. Supplies are expense items used in a firm’s daily operations that do not become part of the final product. Business goods and services may be capital items because they are long-lived and expensive. Other less-costly and quickly consumed goods that businesses purchase are expense items. Services fall under the same categories as tangible products. While consumer products are classified by how consumers buy them, business products are classified by their basic characteristics and by how they are used. Lecture Enhancer: Which of these B2B classifications would be the most difficult to market? Why?

Classifying Services Different from goods Intangible Perishable Difficult to standardize Service provider is the service Services fall under the same categories (convenience, shopping, specialty) as tangible products. Services are different from goods: intangible, perishable (cannot stockpile in inventory), difficult to standardize (are customized to each customer’s needs), and the service is inseparable from the provider. Lecture Enhancer: Discuss the pros and cons of marketing products versus services. Class Activity: Ask students what product qualities a blueberry orchard might emphasize when marketing blueberries to a company that processes pie fillings.

Test Your Knowledge A product is best described as a. the tangible parts of a company’s offerings. b. a bundle of physical, service, and symbolic attributes. c. the trade-off between cost and quality. d. customer benefits.  

Test Your Knowledge A product is best described as a. the tangible parts of a company’s offerings. b. a bundle of physical, service, and symbolic attributes. c. the trade-off between cost and quality. d. customer benefits.   Answer: B

Marketing Strategy Implications In B2B, there is a greater emphasis on personal selling for installations and many component parts, and a concentration on quality and customer service. Producers of installations and component parts may involve customers in new-product development. Advertising is more commonly used to sell supplies and accessory equipment. Producers of supplies and accessory equipment place a greater emphasis on competitive pricing strategies. Each group of products requires a different marketing strategy. Product classification serves as a powerful tool in developing marketing strategy. Lecture Enhancer: Why is it a good idea for producers of installations to include customer input when developing new products?

Product Lines and Product Mix Product line: A group of related products that share by physical similarities or are targeted toward a similar market Pepsi Product mix: The assortment of product lines and individual goods and services that a firm offers to consumers and business users Companies have an ongoing assessment to ensure growth, to satisfy changing consumer needs and wants, and to adjust to competitors’ offerings. Companies must manage their product mix. They might introduce new products and product lines or extend their current offerings. Pepsi has many soda products, but also offers other drinks (juice, water, teas) and snack food products (Frito-Lay). Class Activity: Ask students their ideas for marketing the intangible services of a company that cleans hotels.

Product Life Cycle Product life cycle: The four basic stages in the development of a successful product—introduction, growth, maturity, and decline The product life cycle is a tool that marketers use to help guide marketing strategies. The life cycle helps marketers anticipate developments. Sales and profits go through a predictable pattern. The product life cycle also provides cost, advertising expenditures, and competition strategies.

Stages of the Product Life Cycle In the introduction stage, the firm promotes demand for its new offering; informs the market about it; gives free samples to entice consumers to make a trial purchase; and explains its features, uses, and benefits. In the growth stage, sales climb quickly as new customers join early users who are repurchasing the item. The company begins to earn profits on the new product. In the maturity stage, industry sales eventually reach a saturation level at which further expansion is difficult. In the decline stage, sales fall and profits decline. During the introduction stage, losses are common due to relatively low sales and high costs of promotions, establishing distribution channels, and training the sales force about the new product’s advantages. Expenditures are necessary for later profit. During the growth stage, competitors enter the field with similar offerings, and price competition appears. During the maturity stage, competition intensifies, increasing the availability of the product. Firms concentrate on capturing competitors’ customers, often dropping prices to further the appeal. Firms promote mature products aggressively to protect their market share and to distinguish their products from those of competitors. During the decline phase, they may become losses as further price-cutting occurs in the reduced overall market for the item. This is usually caused by a product innovation or a shift in consumer preferences. Lecture Enhancer: Think of a product introduced in recent years. How did it pass from introduction to growth cycle? Class Activity: Ask students for examples of products in each stage of the product life cycle.

Marketing Strategy Implications of the Product Life Cycle Marketer’s objective is to extend the life cycle as long as product is profitable. Marketers’ goals: Increasing customers’ frequency of use Adding new users Finding new uses for product Changing package sizes, labels, and product designs Marketers’ goal is to extend the product life cycle for as long as possible. Marketers can use it to design a flexible marketing strategy that can adapt to the changing marketplace. A firm’s competitive activities may involve developing new products, lowering prices, increasing distribution coverage, creating new promotional campaigns, or any combination of these approaches. Lecture Enhancer: What are some other possible factors that have increased the efficiency of new-product development?

Stages in New-Product Development Expensive, time-consuming, and risky. Only one-third of new products become success stories. Each step requires a “go/no-go” decision. New product development can be expensive and risky, but it is a key strategy to excite a company's product mix and product lines. Each stage is important as there is a :go/no-go” decision to be made in order to keep moving forward. Lecture Enhancer: What are some possible factors that have increased the efficiency of new-product development?

Product Development Stages Stage 1: Generating ideas for new offerings Stage 2: Screening Stage 3: Concept development and business analysis Stage 4: Product development Stage 5: Test marketing Stage 6: Commercialization Ideas come from many sources, including customer suggestions, suppliers, employees, and competitive products. The most successful ideas are directly related to satisfying customer needs. Screening eliminates ideas that do not mesh with overall company objectives or cannot be developed given the company’s resources. During concept development, further screening occurs, as well as assessment of potential sales, profits, growth rate, and competitive strengths. During product development, functioning prototypes or detailed descriptions of the product may be created. Designs are joint responsibility of the firm’s development staff and its marketers. Introduction of a new product supported by a complete marketing campaign to a selected city or TV coverage area to examine both consumer responses to the new offering and the marketing effort used to support it. Finally, the product is made generally available in the marketplace. The firm’s distribution, promotion, and pricing strategies are all geared to support the new product offerings. Lecture Enhancer: What outside factors might affect the success or failure of a new product? Lecture Enhancer: Choose a popular product. Identify the product ’s brand, brand name, and trademark.

Product Failures The Worst-Made Cars on the Road Many products that go through the product development process fail. Only one-third of new products are successful.

Product Identification Brand: A name, term, sign, symbol, design, or some combination that identifies the products of one firm and shows how they differ from competitors’ offerings Brand name: The part of the brand that is made up of words or letters that form a name Used to identify a firm’s products and show how they differ from the products of competitors. Trademark: A brand that has been given legal protection A key aspect of marketing is the development of the brand. Methods are used for identifying a product and distinguishing it from competing offerings. Both products and services are identified by brands. Good brands are easy to pronounce, recognize and remember. Brands includes design logos, slogans, packaging elements, and product features such as colour and shape. Lecture Enhancer: Share an example of a brand name that is difficult to say. How does this brand name affect the marketing of the product? Class Activity: Ask students which trademarks are the most recognizable in Canada.

Brand Categories A manufacturer’s (or national) brand is offered and promoted by a manufacturer. Tide, Cheerios, Windex, Fossil, Nike A private (or store) brand is not linked to the manufacturer but instead carries a wholesaler’s or retailer’s label. Loblaw ’s President ’s Choice foods, Sears’ Craftsman tools A family branding strategy uses a single brand name for several related products. KitchenAid, Johnson & Johnson, Hewlett-Packard, Arm & Hammer An individual branding strategy gives each product within a line a different name. Procter & Gamble products Tide, Cheer, and Dash Click the links to see the different types of brands that firms offer. Manufacturer’s or national brands are most known. Some brands like private or store brands are owned by retailers. Family branding is the use of a brand across different products. Individual brand strategies give each product its own brand name. Click on the links to see some brand examples. Class Activity: Lead a discussion about which store-brand products are equal to or better than their brand-name counterparts.

Test Your Knowledge Procter & Gamble markets a variety of detergent products such as Tide, Cheer, Dash, and Gain. The company uses ________ branding. a. family b. individual c. product d. private  

Test Your Knowledge Procter & Gamble markets a variety of detergent products such as Tide, Cheer, Dash, and Gain. The company uses ________ branding. a. family b. individual c. product d. private   Answer: B Services fall under the same categories (convenience, shopping, specialty) as tangible products. Services are different from goods: intangible, perishable (cannot stockpile in inventory), difficult to standardize (are customized to each customer’s needs), and the service is inseparable from the provider. Class Activity: Ask students what ideas they might have for a hotel cleaning service company to market its intangible service.

Brand Loyalty In brand recognition, the consumer is aware of the brand but does not have a preference for it over other brands. In brand preference, the consumer chooses one firm’s brand over a competitor’s. In brand insistence, the consumer will seek out a preferred brand and accept no substitute for it (the ultimate degree of brand loyalty). Consumer loyalty can increase a brand ’s value, so marketers try to strengthen brand loyalty. When a brand image suffers, marketers try to recreate a positive image. Brand-building strategies were once limited to consumer goods, but they are becoming more important for B2B brands. Lecture Enhancer: Discuss which brands of tissues students typically purchase. What factors influence their choices? 

Brand Equity Brand equity: The added value that a respected and successful name gives to a product In brand awareness, the product is the first one that comes to mind when a product category is mentioned. Brand equity is an important aspect of marketing. The added value of brand equity results from a combination of factors: awareness, loyalty, perceived quality, and feelings or images the customer associates with the brand. Firms make sure the job of raising product awareness is focused throughout the firm. Large companies have typically assigned the task of managing a brand’s marketing strategies to a brand manager or product manager. Category managers oversee an entire group of products and have profit responsibility for their product group. Category advisor vendors are designated by the business customer as the major supplier to deal with all other suppliers for a special purchase and to present the entire package to the business buyer. Lecture Enhancer: What names have very high brand equity? Lecture Enhancer: How does global distribution affect a brand?

The World’s Ten Most Valuable Brands Across the world, some products have such strong brand loyalty and recognition that their brand alone is worth billions.

Packages and Labels Packaging affects the durability, image, and convenience of an item and is responsible for one of the biggest costs in many consumer products. Packaging is important in product identification and play is an important role in a firm’s overall product strategy. Choosing the right package is especially important in international marketing. Packing must meet legal requirements of all countries in which product is sold. Universal Product Code: bar code read by optical scanner; link UPC to product Environmental impact of packaging: Sun Chips Packaging is important to a product’s identification. For international marketing, marketers need to be aware of language variations and cultural preferences. Package size can vary depending on a country ’s purchasing patterns and market conditions. Package weight is another important issue because shipping costs are often based on weight.There are legal issues to consider for labeling products intended for other countries (Does the information on the labels need to be in more than one language? Do ingredients need to be listed? Do the labels give enough information about the product to meet government standards?) The impact of packaging on the environment is important (click on the Sun Chips link for information on their unique packaging). Class Activity: Ask students which labels they read most carefully and why.

Distribution Strategy Distribution channel: The path that products—and their legal ownership—follow from producer to consumers or business users Physical distribution: The actual movement of products from producer to consumers or business users Distribution strategy deals with the marketing activities and institutions involved in getting the right good or service to the firm’s customers. Marketing channels are made up of retailers and wholesalers that move the product through the channel to the customer. .

Distribution Channels A distribution channel carries goods directly from producer to the consumer or business user.No one distribution channel fits every product. Marketers must select which channel will best fit the firm and the product’s needs along with their customers’ needs. Consumer goods, business goods, and services may move through a direct channel from the producer to the consumer or a channel with multiple intermediaries.

Distribution Channels Direct distribution Direct contact between producer and customer. Most common in B2B markets. Often found in the marketing of relatively expensive, complex products that may require demonstrations. Internet is helping companies distribute directly to consumer market. Distribution channels using marketing intermediaries Producers distribute products through wholesalers and retailers. Inexpensive products sold to thousands of consumers in widely scattered locations. Lowers costs of goods to consumers by creating market utility. Direct channels may be simple, but there are many benefits to using marketing intermediaries. It is not true that middlemen add cost. Marketing intermediaries often lower costs to consumers. Wholesalers can also add significant value to the purchasing process. Lecture Enhancer: Choose one marketing channel and share examples of products that might be moved by a marketing intermediary in this channel.

Reducing Transactions through Marketing Intermediaries The main role of marketing intermediaries is reducing the number of transactions required by consumers because they consolidate the locations where consumers can purchase goods. Lecture Enhancer: How do intermediaries reduce the number of contacts needed to deliver goods?

Wholesaling Wholesaler: A distribution channel member that sells primarily to retailers, other wholesalers, or business users Manufacturer-owned wholesaling intermediaries Owned by the manufacturer of the goods or products to control distribution or customer service Sales branch stocks products and fills orders from inventories Sales office takes orders but does not stock the product Wholesaling is a crucial part of the distribution channel for many products, especially consumer goods and business supplies. Wholesaling intermediaries can be classified on the basis of ownership: some are owned by manufacturers, some are owned by retailers, and others are independently owned. Statistics Canada reports that Canada has approximately 111,500 wholesale enterprises. In many product categories, Canadian wholesalers compete with American wholesalers for customers anywhere in North America. An independent wholesaling intermediary is a business that represents several different manufacturers and sells to retailers, manufacturers, and other business accounts. Independent wholesalers can be either merchant wholesalers or agents and brokers, depending on whether they take title to (legal ownership of) the products they handle.

Retailing Retailers: Distribution channel members that sells goods and services to individuals for their own use, not for resale Final link of the distribution channel; deal directly with customers Two types: store and nonstore Both store and nonstore retailers exist. Retailers are the final link to the customer– they sell the goods and services. Lecture Enhancer: How might a retail firm be affected if it does not adapt to new consumer needs or disruptions in deliveries?

Test Your Knowledge Retailers differ from wholesalers in that they a. take ownership of the goods. b. sell to the individual consumer. c. promote the goods. d. only deal with limited product lines.  

Test Your Knowledge Retailers differ from wholesalers in that they: a. take ownership of the goods. b. sell to the individual consumer. c. promote the goods. d. only deal with limited product lines.   Answer: B

Non-Store Retailing Direct-response retailing reaches prospective customers through catalogs, telemarketing, and even magazine, newspaper, and television ads. Shoppers order merchandise by mail, telephone, computer, or fax machine and then receive home delivery or pick the merchandise up at a local store. Internet retailing is growing at about 5 percent per year. Automatic merchandising provides convenience through the use of vending machines. Direct selling includes direct-to-consumer sales and party-plan selling methods. Lecture Enhancer: As a customer, which type of retailing do you prefer? Why? Lecture Enhancer: Think of an Internet retailer with a user-friendly website. What details make the shopping experience especially convenient?

Types of Retail Stores Although there is growth in Internet retailing, store retailers still outpace nonstore retailing methods. The types of retail stores range.

The Wheel of Retailing Retailers go through constant change; new retailers enter the market by offering lower prices made possible through reductions in services. Most of these changes go through a wheel pattern.

How Retailers Compete Identifying a target market Selecting a product strategy Selecting a customer service strategy Selecting a pricing strategy Choosing a location Building a promotional strategy Creating a store atmosphere Retailers must choose merchandising, customer service, pricing, and location strategies that will attract customers in their target market segments. Retailers must identify a target market, evaluating the size and profit potential of the chosen market segment. Retailers must select a product strategy determining the right mix of product categories and product lines. Determining the right level of customer service to maximize sales and profits. Pricing strategies will be based on the costs of purchasing products from other channel members and offering services to customers. Can play a major role in customer perception. Choosing the location depends on the retailer’s size. Retailers must build a promotional strategy. Advertising and other promotions to stimulate demand and to provide information. Store atmospherics are the physical characteristics of a store and its amenities. This aids in creating a store atmosphere. Lecture Enhancer: Discuss a retailer that is especially good at its customer service strategy. Class Activity: Ask students for examples of stores where music is essential to setting the store’s atmosphere.

Choosing a Location Planned shopping centre Shopping mall Regional mall Lifestyle mall A planned shopping centre is a group of retail stores planned, coordinated, and marketed as a unit to shoppers in a geographical trade area. Location selection has seen a shift to smaller strip centres, name-brand outlet centres, and lifestyle centres, open-air complexes containing retailers that often focus on specific shopper segments and product interests. Class Activity: Which retail stores seem always to be clustered together in strip malls, and why?

Distribution Channel Decisions and Logistics What specific channel will it use? What will be the level of distribution intensity? Selecting distribution channels Complex, expensive, custom-made, or perishable products move through shorter distribution channels involving few—or no—intermediaries. Standardized products or items with low unit values usually pass through relatively long distribution channels. Start-up companies often use direct channels because they can’t persuade intermediaries to carry their products, or because they want to extend their sales reach. Every firm must choose how to distribute its goods and services. They must decide what channels they will use and what the degree of intensity will be in each channel. There are some common ideas regarding complex, standardized, and start-up products.

Selecting Distribution Intensity Intensive distribution involves a firm’s products in nearly every available outlet, and requires the cooperation of many intermediaries. In selective distribution, the manufacturer selects a limited number of retailers to distribute its product lines. Exclusive distribution limits market coverage in a specific geographical region that will enhance a product’s image. Retailers are carefully selected to enhance the product’s image to ensure that well- trained personnel will contribute to customer satisfaction. Distribution intensity is the number of intermediaries or outlets through which a manufacturer distributes its goods. Intensive distribution generally suits low-priced convenience goods such as milk, newspapers, and soft drinks. Selective distribution can reduce total marketing costs and establish strong working relationships within the channel. Exclusive distribution is unique for prestige products that may be expensive or when the producer wants to control the customer experience. Class Activity: Ask students for other examples of products with an intensive distribution strategy.

Logistics and Physical Distribution Supply chain: The complete sequence of suppliers that help to create a good or service and deliver it to business users and final consumers Logistics: The process of coordinating the flow of goods, services, and information among members of the supply chain In physical distribution, activities are aimed at efficiently moving finished goods from the production line to the consumer or business buyer. The choice of distribution channel creates the final link in the supply chain. The supply chain begins with the raw materials and ends with the customer and the retail relationship. The process of coordinating this flow is logistics, while physical distribution is the choice of how the product will move through the supply chain.

Comparison of Transportation Modes A major aspect of logistics is transportation. Which mode of transportation will be most appropriate for our product, channel, and customer needs? Lecture Enhancer: Which modes of transportation are the most dependable? Which are the most expensive and least expensive? Which are fastest and slowest?

Customer Service Customer service standards measure the quality of service a firm provides for its customers. Warranties are a firm’s promises to repair a defective product, refund money paid, or replace a product if it proves unsatisfactory. Internet retailers have worked to humanize their customer interactions and deal with complaints more effectively. Customer service is a vital component of both product and distribution strategies. Although a firm will set its own customer service standards, the customer sets its own standards, too, and then choose suppliers that meet or exceed those standards. Class Activity: Ask students for examples of businesses with excellent customer service and businesses with poor customer service.