Copyright © 2006 Pearson Education Canada Inc Chapter 13 Developing and Promoting Goods and Services
Copyright © 2006 Pearson Education Canada Inc Learning Objectives Identify a product, distinguish between consumer and industrial products, and explain the product mix Describe the new product development process and trace the stages of the product life cycle Discuss the importance of branding, packaging and labelling
Copyright © 2006 Pearson Education Canada Inc Learning Objectives Identify the important objectives of promotion and discuss the considerations involved in selecting a promotional mix Describe the key advertising media Outline the tasks involved in personal selling and list the steps in the personal selling process Describe the various types of sales promotions and distinguish between publicity and public relations
Copyright © 2006 Pearson Education Canada Inc The Product Consumers purchase a product for its function and benefit to them … for what it does as much as what it is Product features must provide desired benefits Features include intangibles like image and reputation
Copyright © 2006 Pearson Education Canada Inc Consumer Goods Classification Convenience Bought quickly & with little thought (milk) Shopping Purchased infrequently; Typically of moderate cost Consumers shop around for price, value and brand (home furnishings) Specialty Purchased rarely; Typically expensive Consumers take time to carefully plan their purchase ( wedding gowns, automobiles)
Copyright © 2006 Pearson Education Canada Inc Industrial Goods Classification Expense items Relatively inexpensive industrial goods that are consumed rapidly and regularly Support materials, supplies Capital items Expensive, long-lasting industrial goods that are used in producing other goods or services and have a long life Offices, factories, equipment, computers
Copyright © 2006 Pearson Education Canada Inc Product Strategy Product mix the group of products a company has available for sale Procter & Gamble sells household cleansers, disposable diapers etc Product line a group of similar products intended for a similar group of buyers who will use them in a similar fashion Procter and Gamble sells more than one brand of laundry detergent
Copyright © 2006 Pearson Education Canada Inc R & D Activities required to provide new products, services, and processes Usually requires a large investment in laboratories, equipment, and scientific talent Businesses must embrace technology so that their products will not become obsolete
Copyright © 2006 Pearson Education Canada Inc The Product Development Process (1 of 4) Step #1: product ideas Seek out ideas for new products Sources: employees, consumers, sales people, engineers Step #2: screening Elimination of product ideas that do not fit with the firm’s resources Includes staff from marketing, engineering, and production
Copyright © 2006 Pearson Education Canada Inc The Product Development Process (2 of 4) Step #3: Concept Testing Market research to obtain customer feedback Results in a clearer understanding of product benefits as well as a pricing strategy Step #4: Business Analysis Comparison of costs and benefits of each new product Preliminary sales projections and cost projections Comparison of profit potential with the firm’s goals
Copyright © 2006 Pearson Education Canada Inc The Product Development Process (3 of 4) Step #5: Prototype Development input from concept-testing, engineering and/or R & D result in a preliminary version of the product identifies potential problems with the product and its production; costly Step #6: Product and Market Testing limited production of the product for sale in a test market area with complete promotion and distribution provides feedback on potential performance: costly
Copyright © 2006 Pearson Education Canada Inc The Product Development Process (4 of 4) Step #7: Commercialization Full-scale production of the product for sale in the target market The product may be rolled out to the larger market area on a gradual basis to alleviate strain on the company both in production and finances
Copyright © 2006 Pearson Education Canada Inc The Product Life Cycle Concept Basic philosophy that each product/service goes through a profit- producing lifecycle Consists of four stages Introduction, growth, maturity, and decline Represents the life of a product/service offering (industry), not the activities of an individual firm in the industry
Copyright © 2006 Pearson Education Canada Inc The Product Life Cycle
Copyright © 2006 Pearson Education Canada Inc Introduction Competition is limited to the firm that has introduced the application Costs are high due to R & D and promotion Profits are non-existent due to expensive costs Prices are high to offset costs of market entry Promotion focuses on informing consumers And generating initial product demand
Copyright © 2006 Pearson Education Canada Inc Growth Sales grow rapidly New competition begins to enter the market to seek the growth opportunity Funds diverted to aggressive promotion Prices are lowered to meet the competition Profits peak and level off Promotion emphasizes brand preference
Copyright © 2006 Pearson Education Canada Inc Maturity Industry sales level off Market becomes more aggressive due to increased competition in the face of slow/no sales growth Profits decline Costs increase due to the need to promote aggressively while prices are simultaneously declining In late maturity, some firms will leave the market
Copyright © 2006 Pearson Education Canada Inc Decline Sales and profits decline Product is becoming obsolete Competition leaves market Sales drop: the industry has run its course Promotion is limited and tied to brand loyalty Firms with larger market shares may let product linger until industry ceases to exist
Copyright © 2006 Pearson Education Canada Inc Brand Names Specific names associated with a manufacturer, wholesaler, and/or retailer Designed to distinguish products from those of competitors and establish “brand loyalty” Brand categories National brands Licensed brands Private brands Generic brands NIKE Sheraton Heinz
Copyright © 2006 Pearson Education Canada Inc Types of Brands National Distributed by, and carrying the name of, the manufacturer (Kellogg’s) Licensed Selling the right to use the firm’s name on another company’s product (Mickey mouse) Private Brands carrying the name of the retailer or wholesaler (president’s choice) Generic Products carrying no brand name, which are usually priced lower
Copyright © 2006 Pearson Education Canada Inc Trademarks, Patents, and Copyrights Trademark The exclusive legal right to use a brand name Patent Protects an invention or idea for a period of 20 years Copyright Exclusive ownership rights to creators of books, articles, designs, illustrations, photos, films, and music
Copyright © 2006 Pearson Education Canada Inc Packaging and Labelling The physical container in which the product is sold Label, which identifies the product’s name, contents, and possibly benefits May enhance product features (Aseptic packaging, bottles with spouts) Must conform to the consumer packaging and labelling act (federal legislation)
Copyright © 2006 Pearson Education Canada Inc Promotion Key objectives Increase product awareness Increase knowledge of products and their added-values Increase product preference Increase product purchase
Copyright © 2006 Pearson Education Canada Inc Promotion Plan Objectives Strategies PromotionalMix Information Positioning Added value Sales volume Pushvs.Pull Advertising Personal selling Sales promotion Publicity
Copyright © 2006 Pearson Education Canada Inc Promotional Strategies Push strategy Firm promotes aggressively to intermediaries Commonly used by industrial product manufacturers Pull strategy Firm promotes directly to final consumers, who demand the product from intermediaries Commonly used for consumer product producers Many firms use a combination of both strategies
Copyright © 2006 Pearson Education Canada Inc Promotional Mix Choosing the best combination of promotional methods Methods used depends on: The nature of the product The nature of the audience Promotional budget The cost of different promotional methods
Copyright © 2006 Pearson Education Canada Inc Advertising Media Newspapers Television Direct mail Radio Magazines Outdoor Word-of-mouth Internet
Copyright © 2006 Pearson Education Canada Inc Newspaper Most widely used medium Excellent market coverage Flexible with short lead times Do not usually print in colour May be too widely spread, resulting in waste Poor reproduction of images
Copyright © 2006 Pearson Education Canada Inc Television Total sensory experience (Sight, sound & motion) Can target specific markets Broad market coverage Expensive People are beginning to ignore ads Too many ads are confusing Short ad time Hard to use as an informative tool
Copyright © 2006 Pearson Education Canada Inc Direct Mail Printed ads (flyers or mail-outs, faxes) directed to final consumers’ homes or businesses Highly selective and personalized “Junk mail” image Expensive but cost-effective
Copyright © 2006 Pearson Education Canada Inc Radio Large audience Inexpensive Ads are quick, impacting on the listener’s ability to comprehend the message May be used as background music with little actual attention going to the medium
Copyright © 2006 Pearson Education Canada Inc Magazines Advantages High degree of consumer selectivity (less waste) Excellent reproduction of images (full-colour possible) Magazines have a long life Space is available for detailed product information Disadvantages Long lead times Expensive fees for special positioning in the issue Relatively expensive
Copyright © 2006 Pearson Education Canada Inc Outdoor Advertising Billboards, signs, bus, taxi, and bus stop ads Inexpensive, with little distraction for readers Reaches broad audience, but is not selective Some areas ban roadside billboards
Copyright © 2006 Pearson Education Canada Inc Word-of-Mouth and the Internet Word of Mouth Opinions about products passed from consumer to consumer through informal conversation Very powerful promotional tool Internet The newest advertising medium Internet advertisers obtain counts of Web page visitors Requires considerable Web-surfing to find information online Spyware: monitors the websites a person visits and the generates pop-up advertisements
Copyright © 2006 Pearson Education Canada Inc Other Advertising Channels Yellow Pages Catalogues Sidewalk flyers Door-to-door advertising Special Events
Copyright © 2006 Pearson Education Canada Inc Personal Selling Promotions Personal selling Salesperson communicates one-on-one with potential customers Requires a level of trust between the buyer and the seller Most expensive form of promotion
Copyright © 2006 Pearson Education Canada Inc Sales Promotions Coupons Point-of-purchase (POP) displays Purchase incentives/premiums (free item or bargain price) Trade shows Contests and sweepstakes
Copyright © 2006 Pearson Education Canada Inc Publicity and Public Relations Publicity Information made available to consumers via the news media Company has no control over it Free to the company Public relations Public service announcements initiated by the firm Designed to enhance the firm’s image
Copyright © 2006 Pearson Education Canada Inc International Promotion Companies involved in exporting are adopting a worldwide advertising strategy Decentralized approach Separate marketing management for each company Global perspective A coordinated marketing focus on a global scale Issues impacting on international promotion Language differences, product variations, cultural receptivity, image differences