9 MKTG CHAPTER Lamb, Hair, McDaniel 2007-2008 Product Concepts Chapter 9 Product Concepts MKTG Lamb, Hair, McDaniel 2007-2008 9 CHAPTER Product Concepts Designed by Amy McGuire, B-books, Ltd. Prepared by Deborah Baker, Texas Christian University

Learning Outcomes LO1 LO2 LO3 LO4 Define the term product Chapter 9 Product Concepts Learning Outcomes Define the term product Classify consumer products Define the terms product item, product line, and product mix Describe marketing uses of branding LO1 LO2 LO3 LO4

Learning Outcomes LO5 LO6 LO7 Describe marketing uses of Chapter 9 Product Concepts Learning Outcomes Describe marketing uses of packaging and labeling Discuss global issues in branding and packaging Describe how and why product warranties are important marketing tools LO5 LO6 LO7

Define the term product Chapter 9 Product Concepts What Is a Product? LO1 Define the term product

What Is a Product? LO1 Product Chapter 9 Product Concepts What Is a Product? Everything, both favorable and unfavorable, that a person receives in an exchange. Tangible Good Service Idea Product LO1

What is a Product? A set of tangible and intangible attributes that may include packaging, color, price, quality, and brand, plus the services and reputation of the seller. Products go from being tangible objects to pure services Most products fall somewhere in the middle. May include goods, services, places, persons, or ideas Provide want-satisfaction in the form of benefits

Layers of Product Concept

Chapter 9 Product Concepts 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

Product is the starting point of Marketing Mix Chapter 9 Product Concepts What Is a Product? Product is the starting point of Marketing Mix Promotion Place (Distribution) Price Product Notes: The product offering is the heart of an organization’s marketing program. Price, distribution, and promotion strategies can not be determined until the firm has a product to sell. A product is everything, both favorable and unfavorable, that a person receives in an exchange. Well-conceived price, distribution, and promotion strategies have little value without a strong product offering. LO1

REVIEW LEARNING OUTCOME Chapter 9 Product Concepts REVIEW LEARNING OUTCOME LO1 Define the term product Product Good Service Idea

Types of Consumer Products Chapter 9 Product Concepts Types of Consumer Products LO2 Classify consumer products

A product bought to satisfy an individual’s personal needs or wants Chapter 9 Product Concepts Types of Products Business Product Consumer A product used to manufacture other goods or services, to facilitate an organization’s operations, or to resell to other consumers. A product bought to satisfy an individual’s personal needs or wants Notes: Products can be classified as either business or consumer products. The classification as a business or consumer product depends on the buyer’s intentions. LO2

Types of Consumer Products Chapter 9 Product Concepts Types of Consumer Products Unsought Products Specialty Shopping Convenience Consumer Business Notes: Chapter 6 described seven categories of business products: (have students name these) major equipment, accessory equipment, component parts, processed materials, raw materials, supplies, and services. Consumer products are classified into four types: convenience products, shopping products, specialty products, and unsought products. This approach organizes products by the effort used to shop for them. LO2

Types of Consumer Products Chapter 9 Product Concepts Types of Consumer Products Market Development Diversification Increase market share among existing customers Attract new customers to existing products Introduce new products into new markets Create new products for present markets Convenience Product Shopping Specialty Unsought A relatively inexpensive item that merits little shopping effort A product that requires comparison shopping, because it is usually more expensive and found in fewer stores A particular item for which consumers search extensively and are reluctant to accept substitutes A product unknown to the potential buyer or a known product that the buyer does not actively seek Discussion/Team Activity: Name products and services that fall into each of the consumer product categories: Convenience: candy, soft drinks, deodorant, aspirin, hardware, dry cleaning. Shopping: Homogeneous shopping products such as washers, dryers, televisions. Decisions are based on the lowest-priced brand with the desired features. Heterogeneous shopping products are essentially different, for example furniture, clothing, housing, universities. Decisions are highly-individual and based on “finding the best product for me.” Specialty: fine watches, expensive automobiles, gourmet restaurants. Unsought: new products, insurance, burial plots, encyclopedias. LO2

Convenience Product

Shopping Product

Specialty Products

Unsought Products

REVIEW LEARNING OUTCOME Chapter 9 Product Concepts REVIEW LEARNING OUTCOME LO2 Consumer Products

Product Items, Lines, and Mixes Chapter 9 Product Concepts Product Items, Lines, and Mixes LO3 Define the terms product item, product line, and product mix

Product Items, Lines, and Mixes Chapter 9 Product Concepts LO3 Product Item Product Line Product Mix A specific version of a product that can be designated as a distinct offering among an organization’s products. A group of closely-related product items. All products that an organization sells. Notes: Rarely does a company sell a single product. Instead, it sells a variety of things that may be categorized into product lines and product mixes.

Campbell’s Product Lines and Mix Chapter 9 Product Concepts LO3 { } Notes: All of Campbell’s products constitute its product mix. Each product in the product mix may require a separate marketing strategy. In some cases, product lines and mixes share some marketing strategy components. Consider Nike’s theme, “Just Do It.” An example of Campbell’s product lines and product mix is shown in Exhibit 9.1. Discussion/Team Activity: Identify a few companies with extensive product lines and product mixes. Pick one and create a matrix similar to Exhibit 9.1. Evaluate the marketing strategies in use.

Benefits of Product Lines Chapter 9 Product Concepts LO3 Equivalent Quality Efficient Sales and Distribution Standardized Components Package Uniformity Advertising Economies Notes: Advertising economies: economies of scale in advertising (more impact for equivalent spending). Package uniformity: packages may have a common look but maintain individual identities. Standardized components: reductions in manufacturing and inventory costs. Efficient sales and distribution: a product line enables a full range of choices to customers, and as a result, better distribution and retail coverage. Equivalent quality: all products in a line are perceived as having similar quality. Discussion/Team Activity: Discuss product lines that demonstrate the above benefits. Some ideas include: Gillette, General Motors, Procter & Gamble, Mary Kay Cosmetics

The number of product lines an organization offers. Product Mix Width Chapter 9 Product Concepts LO3 Product Mix Width The number of product lines an organization offers. Diversifies risk Capitalizes on established reputations Notes: In Exhibit 9.1, Campbell’s product mix width is represented by the five product lines. Product mix width diversifies risk across many product lines rather than depend on one or two lines. Widening the mix also capitalizes on established reputations.

Product Line Depth LO3 Product Line Depth The number of product Chapter 9 Product Concepts LO3 Product Line Depth The number of product Items in a product line. Attracts buyers with different preferences Increases sales/profits by further market segmentation Capitalizes on economies of scale Evens out seasonal sales patterns Notes: In Exhibit 9.1, the product line depth of Campbell’s sauces is 4; of entrees is 3; and of frozen beverages is 3. Product line depth gives people more options for a particular product. Think about Campbell’s depth in soup. The line is so deep that it can meet the needs and wants of people who only like brothy soup and those who only like creamy soups.

Adjustments LO3 Adjustments to Product Items, Lines, and Mixes Chapter 9 Product Concepts LO3 Product Modification Product Repositioning Product Line Extension or Contraction Adjustments to Product Items, Lines, and Mixes Notes: Over time, updates in technical or product developments or environmental changes warrant changes to product items, lines, and mixes. The three strategies for making these changes are: Product Modification Product Repositioning Product Line Extension or Contraction

Types of Product Modifications Chapter 9 Product Concepts LO3 Quality Modification Functional Modification Notes: Marketing managers must decide if and when to modify products. Product modification changes one or more of a product’s characteristics: Quality modification: change in a product’s dependability or durability. Functional modification: change in a product’s versatility, effectiveness, convenience, or safety. Style modification: an aesthetic product change (like color) rather than a quality or functional change. Planned obsolescence is a style modification change to make old products “obsolete” to the consumer. Style Modification

Planned Obsolescence LO3 Planned Obsolescence Chapter 9 Product Concepts LO3 Planned Obsolescence The practice of modifying products so those that have already been sold become obsolete before they actually need replacement. Discussion/Team Activity: Debate the advantages and disadvantages of the practice of planned obsolescence. What products become obsolete in a short period?

Repositioning LO3 Why reposition established brands? Chapter 9 Product Concepts LO3 Changing Demographics Declining Sales Changes in Social Environment Why reposition established brands? Notes: The second way of adjusting product items, lines, and mixes is by repositioning. Repositioning changes consumers’ perceptions of a brand. Changing demographics, declining sales, or changes in the social environment often motivate firms to reposition established brands.

Product-Mix Strategies Product mix expansion—increasing the number of product lines and/or depth within a line. Line extension—adding a similar item to an existing product line Brand extension—adding a new product line to the present assortment Contraction of product mix—elimination of product lines or simplifying the selection within a product line.

Brand Strategy Product mix expansion—increasing the number of product lines and/or depth within a line. Line Extension - Existing brand names extended to new forms, sizes, and flavors of an existing product category. Brand Extension - Existing brand names extended to new product categories. New Brands - New brand names in new product categories.

Product Line Extension Chapter 9 Product Concepts LO3 Product Line Extension Product Line Extension Adding additional products to an existing product line in order to compete more broadly in the industry. Notes: The third way of adjusting product items, lines, and mixes is by product line extensions.

Product Line Extension

Product Mix Extensions

New Brands

Product Line Contraction Chapter 9 Product Concepts LO3 Product Line Contraction Some products have low sales or cannibalize sales of other items Resources are disproportionately allocated to slow-moving products Items have become obsolete because of new product entries Symptoms of Product Line Overextension Notes: When a firm contracts overextended product lines, the benefits that are likely include: * Resource concentration on the most important products. * No waste of resources on poorly performing products. * Greater likelihood of the success of new product items due to more financial and human resources to manage them.

REVIEW LEARNING OUTCOME Chapter 9 Product Concepts REVIEW LEARNING OUTCOME LO3 Product item, product line, and product mix

Describe marketing uses of branding Chapter 9 Product Concepts Branding LO4 Describe marketing uses of branding

Chapter 9 Product Concepts Brand Brand A name, term, symbol, design, or combination thereof that identifies a seller’s products and differentiates them from competitors’ products. Notes: A product’s success depends on the target market’s ability to distinguish one product from another. Marketers use branding as the major tool in distinguishing their product from the competition. Discussion/Team Activity: Name products with strong brand recognition. LO4

The elements of a brand that The value of company and brand names Chapter 9 Product Concepts Branding Brand Name Mark Equity That part of a brand that can be spoken, including letters, words, and numbers The elements of a brand that cannot be spoken The value of company and brand names Global Brand A brand where at least 20 percent of the product is sold outside its home country Discussion/Team Activity: What attributes make a good brand name, based on the names of strongly recognized brands? Discuss examples of strong global brands. LO4

Brand Name Brand name—consists of words, letters, and/or numbers that can be vocalized. Michigan Business School Brand mark—the part of the brand that appears in the form of a symbol, design, or distinctive coloring or lettering.

Product Identification Chapter 9 Product Concepts Benefits of Branding Product Identification Repeat Sales New Product Sales LO4

Chapter 9 Product Concepts Biz Flix Josie and the Pussycats LO4

Top Five Global and North American Brands Chapter 9 Product Concepts Top Five Global and North American Brands Global 1. Apple 2. Google 3. IKEA 4. Starbucks 5. Al Jazeera North American 1. Apple 2. Google 3. Target 4. Starbucks 5. Pixar LO4 SOURCE: Deborah L. Vence, “Not Taking Care of Business,” Marketing News, March 15, 2005, p. 19.

Branding Strategies LO4 Brand No Brand Manufacturer’s Brand Chapter 9 Product Concepts Branding Strategies Brand No Brand Manufacturer’s Brand Private Brand Individual Brand Family Brand Combi- nation Notes: The lack of a brand name, a generic product, can be a selling point. If a brand is used, the choice is made between a manufacturers’ brand, a private brand, or both. With either a manufacturers’ brand or a private brand, a decision is made among: Individual brand—different brands for different products Family brand—common names for different products or a Combination of individual branding and family branding. Discussion/Team Activity: Name brands that fall into each of the categories shown on this slide. LO4

Generic Brand LO4 Generic Product Chapter 9 Product Concepts Generic Brand Generic Product A no-frills, no-brand-name, low-cost product that is simply identified by its product category. LO4

Generic Brands

Manufacturers’ Brands Versus Private Brands Chapter 9 Product Concepts Manufacturers’ Brands Versus Private Brands Manufacturers’ Brand The brand name of a manufacturer. Private Brand A brand name owned by a wholesaler or a retailer. Also known as a private label or store brand. LO4

Manufacturers’ Brands Versus Private Brands

Advantages of Manufacturers’ Brands Chapter 9 Product Concepts Advantages of Manufacturers’ Brands Heavy consumer ads by manufacturers Attract new customers Enhance dealer’s prestige Rapid delivery, carry less inventory If dealer carries poor quality brand, customer may simply switch brands and remain loyal to dealer LO4

Advantages of Private Brands Chapter 9 Product Concepts Advantages of Private Brands Earn higher profits on own brand Less pressure to mark down price Manufacturer can become a direct competitor or drop a brand/reseller Ties customer to wholesaler or retailer Wholesalers and retailers have no control over the intensity of distribution of manufacturers’ brands LO4

Individual Brands Versus Family Brands Chapter 9 Product Concepts Individual Brands Versus Family Brands Individual Brand Using different brand names for different products. Family Brand Marketing several different products under the same brand name. LO4

Individual Brands Versus Family Brands

Complementary Branding Chapter 9 Product Concepts Cobranding Ingredient Branding Cooperative Branding Complementary Branding Types of Cobranding On-Line: Bose Many automobile manufacturers tout the fact that their cars include audio systems engineered by Bose. Visit the Bose Web site and search for the list of vehicles that offer Bose stereos as standard or optional equipment. What types of brands are they? How do the relationships benefit Bose? What is the payoff for the auto manufacturers? Notes: Cobranding is placing two or more brand names on a product or its package. Ingredient branding identifies the brand of a part that makes up the product. Examples: Intel in Dell computers, Coach interiors in Lincoln automobiles. Cooperative branding occurs when two brands receive equal treatment. Examples: Promotional contest sponsored by Ramada Inns, American Express, and Continental Airlines. Complementary branding refers to products advertised or marketed together to suggest usage. The benefits of cobranding include: Enhancement of prestige or value of a product and increased market presence in markets with little or no market share. LO4 http://www.bose.com Online

Cobranding Ingredient Branding Cooperative Branding

A Trademark is the exclusive right to use a brand. Chapter 9 Product Concepts Trademarks A Trademark is the exclusive right to use a brand. Many parts of a brand and associated symbols qualify for trademark protection. Trademark right comes from use rather than registration. The mark has to be continuously protected. Rights continue for as long as the mark is used. Trademark law applies to the online world. Notes: A trademark is the exclusive right to use a brand or part of a brand. Others are prohibited to use without permission. A service mark performs the same function for services. Parts of a brand or other product identification may qualify for trademark protection. Some of the best known trademarked features include the Coca-Cola bottle and the Nike “Swoosh,” the Jeep front grille, and the Levi’s pocket tag. Companies that fail to protect trademarks face the risk of product names becoming generic. This list includes aspirin, cellophane, thermos, monopoly, cola, and shredded wheat. Discussion/Team Activity: Discuss some heavily-protected product brands that are used generically in conversations. Examples might include Kleenex, Xerox, Band-Aid Brand Adhesive Bandages, etc. TM LO4

Genericized Trademarks Escalator Aspirin moving staircase Cellophane vacuum-insulated bottles

REVIEW LEARNING OUTCOME Chapter 9 Product Concepts REVIEW LEARNING OUTCOME LO4 Marketing Uses of Branding

Describe marketing uses of packaging and labeling Chapter 9 Product Concepts Packaging LO5 Describe marketing uses of packaging and labeling

Functions of Packaging Chapter 9 Product Concepts Functions of Packaging LO5 Contain and Protect Promote Facilitate Storage, Use, and Convenience Facilitate Recycling Online Levesque Design Design 4 Packaging What does it take to design a successful package? Visit the Web sites of Levesque Design and Design 4 Packaging to find out. What is the most innovative or eye-catching package you see? Notes: Packaging serves not only the practical function of containing and protecting products as they travel through the distribution channel, but it is also a container for promoting the product and making it safer and easier to use. http://www.levesquedesign.com/ http://www.design4packaging.com Online

Functions of Packaging

Co-branding or dual branding Ford Explorer Eddie Bauer Edition

Labeling LO5 Persuasive Informational Focuses on promotional theme Chapter 9 Product Concepts Labeling LO5 Persuasive Focuses on promotional theme Consumer information is secondary Informational Helps make proper selections Lowers cognitive dissonance Includes use/care Online: Just what does the label on your snack foods have to say? What about your makeup/ go to the food and Drug Administration's Web site to read the exact requirements for labeling various products. Pick a product and report back to the class. Notes: Package labeling takes two forms: persuasive or informational. Online http://www.fda.gov

Universal Product Codes Chapter 9 Product Concepts Universal Product Codes LO5 Universal Product Codes (UPCs) A series of thick and thin vertical lines (bar codes), readable by computerized optical scanners, that represent numbers used to track products. Notes: Universal product codes, often called bar codes, were first introduced in 1974. UPCs help retailers prepare records of customer purchases, control inventories, and track sales.

REVIEW LEARNING OUTCOME Chapter 9 Product Concepts REVIEW LEARNING OUTCOME LO5 Packaging and Labeling

Global Issues in Branding and Packaging Chapter 9 Product Concepts Global Issues in Branding and Packaging LO6 Discuss global issues in branding and packaging

Global Issues in Branding Chapter 9 Product Concepts LO6 Global Issues in Branding Adaptations & Modifications Global Options for Branding One Brand Name Everywhere Different Brand Names in Different Markets Notes: When entering a foreign market with an existing product a firm has three options for handling the brand name: One brand name everywhere. Coca-Cola uses this strategy in 195 countries around the world. This strategy allows greater recognition of the product and easier promotional coordination from market to market. Adaptations and modifications are used when the name cannot be pronounced or interpreted successfully in a different language. Different brand names for different markets: Local brand names are used when translation or pronunciation problems occur, when the marketer wants the brand to appear to be a local brand, or when regulations require localization.

Global Issues in Packaging Chapter 9 Product Concepts LO6 Global Issues in Packaging Aesthetics Global Considerations for Packaging Climate Considerations Labeling Notes: Labeling concern is translation of ingredient, promotional, and instructional information on labels. Package aesthetics are important from a cultural perspective. For example, colors may have different and often negative connotations. Package size is influenced by availability of refrigeration, amount of storage space, and even the purchasing power of buyers. On the other hand, simple visual elements of the brand, such as a logo or symbol, can be a standardizing element across products and countries. Extreme climates and long-distance shipping necessitate sturdier packages. Packages may need a longer shelf life.

REVIEW LEARNING OUTCOME Chapter 9 Product Concepts REVIEW LEARNING OUTCOME LO6 Global Issues in Branding and Packaging Branding Choices: 1 name Modify or adapt 1 name Different names in different markets Packaging Considerations: Labeling Aesthetics Climate

and why product warranties are important Chapter 9 Product Concepts Product Warranties LO7 Describe how and why product warranties are important marketing tools

A confirmation of the quality or performance of a good or service. Chapter 9 Product Concepts Product Warranties Warranty Express Implied Warranty A confirmation of the quality or performance of a good or service. A written guarantee. An unwritten guarantee that the good or service is fit for the purpose for which it was sold. (UCC) LO7

REVIEW LEARNING OUTCOME Chapter 9 Product Concepts REVIEW LEARNING OUTCOME LO7 Product Warranties Express warranty = written guarantee Implied warranty = unwritten guarantee