CHAPTER 11 Product and Service Strategies Chapter Objectives 1 Define 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. 4 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. 7 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, and explain why certain products may be deleted. 5 8 2 6 3 9

• Marketing mix Blending of the four strategy elements —product, distribution, promotion, and price—to fit the needs and preferences of a specific target market. • Marketers develop strategies to sell both tangible goods and intangible services.

WHAT ARE GOODS AND SERVICES? WHAT IS A PRODUCT? • People buy want satisfaction, not objects. • Product Bundle of physical, service, and symbolic attributes designed to satisfy a customer’s wants and needs. WHAT ARE GOODS AND SERVICES? • Services Intangible tasks that satisfy the needs of consumer and business users. • Goods Tangible products that customers can see, hear, smell, taste, or touch.

IMPORTANCE OF THE SERVICE SECTOR • Service sector makes up more than two-thirds of the U.S. economy. • U.S. has maintained a trade surplus in services every year since the 1970. • Homeshoring Hiring workers to do jobs from their homes. • Marketing is growing in importance in the service sector.

CLASSIFYING GOODS AND SERVICES FOR CONSUMER AND BUSINESS MARKETS • Consumer (B2C) products Product destined for use by ultimate consumers. • Business (B2B) products. Product that contributes directly or indirectly to the out- put of other products for resale; also called industrial or organizational product. • Some products fall into both categories.

TYPES OF CONSUMER PRODUCTS Specialty Products Unsought Products Convenience Products Shopping Products

CLASSIFYING CONSUMER SERVICES • Marketers rely on five questions to classify services: • What is the nature of the service? • What type of relationship does the service organization have with its customers? • How much flexibility is there for customization and judgment on the part of the service provider? • Do demand and supply for the service fluctuate? • How is the service delivered? APPLYING THE CONSUMER PRODUCTS CLASSIFICATION SYSTEM • Buying behavior and marketing mix choices patterns differ for different product types.

TYPES OF BUSINESS PRODUCTS • Categories emphasize product use rather than consumer buying behavior. Installations Business Services MRO Supplies Raw Materials Accessory Equipment Components

QUALITY AS A PRODUCT STRATEGY • Total quality management (TQM) Continuous effort to improve products and work processes with the goal of achieving customer satisfaction and world-class performance. WORLDWIDE QUALITY PROGRAMS • Leadership of several large U.S. corporations led to quality revolution of the 1980s. • U.S. Congress established the Malcolm Baldrige National Quality Award to recognize excellence in quality management. • ISO 9002 standards implemented by the European Union define international criteria for quality management and assurance. • U.S. member body of ISO is National Institute of Standards and Technology.

BENCHMARKING QUALITY OF SERVICES • Purpose is to achieve superior performance that results in a competitive advantage. • Involves three main activities: • Identifying manufacturing or business processes that need improvement. • Comparing internal processes to those of industry leaders. • Implementing changes for quality improvement. QUALITY OF SERVICES • Service encounter—point at which customer and service provider interact, which usually determines the customer’s perception of the quality of service. • Service quality—expected and perceived quality of a service offering.

DEVELOPMENT OF PRODUCT LINES • Product line Series of related products offered by one company. DESIRE TO GROW • Growth potential limited if company focuses on a single product. ENHANCING COMPANY’S POSITION IN THE MARKET • Entire lines of products make company more important to consumers and marketing intermediaries. OPTIMAL USE OF COMPANY RESOURCES • Spreading operations costs over a series of product lines reduces the average production and marketing costs of each product.

THE PRODUCT MIX PRODUCT MIX DECISIONS • Assortment of product lines and individual product offerings that the company sells. • Product mix width—Number of product lines a firm offers. • Product mix length—Number of different products a firm sells. • Product mix depth—Variations in each product that the firm markets in its mix. PRODUCT MIX DECISIONS • Firms evaluate the effectiveness of the width, length, and depth to make decisions about adding or eliminating products from their offerings. • Line extension—adding individual offerings that appeal to different market segments while remaining closely related to the existing product line.

THE PRODUCT LIFE CYCLE STAGES IN THE PRODUCT LIFE CYCLE • Product life cycle Progression of a product through introduction, growth, maturity, and decline stages. STAGES IN THE PRODUCT LIFE CYCLE Introduction Growth Maturity Decline

EXTENDING THE PRODUCT LIFE CYCLE • Product life cycles can be extended indefinitely as a result of marketers’ decisions. INCREASING FREQUENCY OF USE • Convincing current customers to buy a product more frequently boosts total sales even if no new buyers enter the market. INCREASING THE NUMBER OF USERS • Attracting new customers who have not previously used the product.

CHANGING PACKAGE SIZES, LABELS, OR PRODUCT QUALITY FINDING NEW USES • New applications extend a product’s life cycle. CHANGING PACKAGE SIZES, LABELS, OR PRODUCT QUALITY • Example: Food marketers produce packages designed to appeal to one-person households. • Example: Kraft’s 100-calorie Snack Packs, which package snacks in 100 calorie amounts.

PRODUCT DELETION DECISIONS • Marketers prune product lines and eliminate marginal products to preserve limited resources. • Firms may carry poor performing items to carry a complete product line. • Shortages or raw materials can prompt a firm to discontinue production. • Firm may drop products that don’t fit into the direction in which it plans to grow.