Product, PLC and Services Chapters

What is a Product? Anything that can be offered to a market to satisfy a want or need. It is usually judged on (1) product features (2) services mix & quality and (3) price appropriateness Core benefit, Basic product, Expected product, Augmented product, Potential product

Brand Name Quality Level Packaging Design Features Delivery& Credit Installation Warranty After- Sale Service Core Benefit or Service Core Benefit or Service Augmented Product Augmented Product

Product Classifications Unsought Products Unsought Products Specialty Products Specialty Products Shopping Products Shopping Products Convenience Products Convenience Products Consumer Products Consumer Products Business Products Business Products PRODUCTS

Gillette’s Product Lines &Mix Gillette’s Product Lines & Mix Blades andWriting razorsToiletriesinstrumentsLighters Mach 3 Series Paper Mate Cricket SensorAdorn Flair S.T. Dupont Trac IIToni Atra Right Guard Swivel Silkience Double-Edge Soft and Dri Lady Gillette Foamy Super Speed Dry Look Twin Injector Dry Idea Techmatic Brush Plus Width of the product mix Depth of the product lines

Product Line Strategies Extensions: Adding additional products to an existing product line in order to compete more broadly in the industry. Contractions: deleting products from product lines if there are low sales, cannibalization, obsolesce or few resources.

The Product Life Cycle Time Dollars Product Category Profits Product Category SalesIntroductoryStageGrowthStageMaturityStageDeclineStage 0

Introduction Stage High failure rates Little competition Frequent product modification Limited distribution High marketing and production costs Negative profits Promotion focuses on awareness and information Intensive personal selling to channels

Growth Stage Increasing rate of sales Entrance of competitors Market consolidation Initial healthy profits Promotion emphasizes brand ads Goal is wider distribution Prices normally fall Development costs are recovered

Maturity Stage Declining sales growth Saturated markets Extending product line Stylistic product changes Heavy promotions to dealers and consumers Marginal competitors drop out Prices and profits fall Niche marketers emerge

Decline Stage Long-run drop in sales Large inventories of unsold items Elimination of all nonessential marketing expenses Options for Deleting Products: Maintaining Deletion Harvesting Contracting

Marketing Strategies for PLC INTRODUCTIONGROWTHMATURITYDECLINE Product Strategy Distribution Strategy Promotion Strategy Pricing Strategy Limited models Frequent changes More models Frequent changes. Large number of models. Eliminate unprofitable models Limited Wholesale/ retail distributors Expanded dealers. Long- term relations Extensive. Margins drop. Shelf space Phase out unprofitable outlets Awareness. Stimulate demand.Sampling Aggressive ads. Stimulate demand Advertise. Promote heavily Phase out promotion Higher/recoup development costs Fall as result of competition & efficient produc- tion. Prices fall (usually). Prices stabilize at low level.

Categories of Product Adopters Percentage of Adopters Time Innovators 2.5% Early Adopters 13.5% Late Majority 34% Early Majority 34% Laggards 16%

Diffusion Process and PLC Curve Innovators Early adopters Early majority Late majority Laggards Product life cycle curve Diffusioncurve Introduction Growth Maturity Decline Sales

Pricing Concepts Chapters 13

Price and Value Value = perceived benefits/price Price = perception of quality Price = consumer perception of prestige Example: –Swiss firm TAG HEUER –Changed prices from $250 to $1000 –Sales volume increased sevenfold

Step 1: Pricing Objectives Survival Maximum current profit/profit oriented pricing Maximum market share/sales oriented pricing Maximum market skimming Product quality leadership

Step 2: Determining Demand Quantity demanded S S Price D D Surplus Shortage Price Equilibrium

Elasticity of Demand Consumers sensitivity to price changes Price Goes... Revenue Goes... Demand is... DownUpElastic Down Inelastic Up Inelastic UpDownElastic Up or DownStays the SameUnitary Elasticity

Factors that Affect Elasticity DEMAND LESS ELASTIC IF: –Few or no substitutes –Buyers don’t notice higher price –Buyers are slow to change habits –Buyers think higher prices are justified

Step 3: Estimating Cost Variable costs – changes with level of output Fixed costs – no change with output level Marginal costs – the change in total costs associated with a 1 unit change in output Average variable costs – total variable costs divided by quantity of output Average total costs – total costs divided by quantity of output

Step 4: Analyzing Competition Analyze competitors costs, prices and offers

Step 5: Methods of Setting Prices Markup pricing –Target return pricing Perceived value pricing

Step 6: Selecting Final Price Psychological pricing Marketing mix Company policies

Promotion Concepts Chapter 16

What is Promotion? Communication by marketers that informs, persuades, and reminds potential buyers of a product in order to influence an opinion or elicit a response. Informing Reminding Persuading Target Audience Target Audience

Developing Effective Marketing Communications Identify the target audience Determine Communication objectives Design the message Select the communication channels Budget Determine the media mix Measure the results Manage the IMC process

Promotional Mix Advertising Elements of the Promotional Mix Elements of the Promotional Mix Public Relations Personal Selling Sales Promotion

A ttention I nterest D esire A ction Design the Message: AIDA Concept

AIDA and the Promotional MixAwarenessAwarenessInterestInterestDesireDesireActionActionAdvertising Very effective Very effective Somewhat effective Not effective Not effective PublicRelationsPublicRelations Very effective Very effective Very effective Very effective Very effective Very effective Not effective Not effective SalesPromotion Somewhat effective Somewhat effective Very effective Very effective Very effective PersonalSelling Somewhat effective Very effective Very effective Somewhat effective Somewhat effective

Designing the Message Message content –Rational appeals, moral appeals, emotional appeals Message structure –One sided vs. two sided messages Message format Message source –Source credibility

Select Communication Channels Personal communication channels Nonpersonal communication channels (which is what we will focus on for this class)

Establishing the Budget Affordable method Percentage of sales method Competitive parity method Objective and task method

Factors Affecting the Promotional Mix Nature of Product Stage in PLC Target Market Factors Type of Buying Decision Promotion Funds Push or Pull Strategy FactorsAffecting Choice of Promotional Mix FactorsAffecting Choice of Promotional Mix

Product Life Cycle and the Promotional Mix Light Advertising, pre- introduction Publicity Heavy use of advertising, PR for awareness; sales promotion for trial AD/PR decrease Limited Sales Promotion, Personal Selling for distribution Ads decrease. Sales Promotion, Personal Selling Reminder & Persuasive Advertising, PR, Brand loyalty Personal Selling for distribution Introduction Growth Maturity Decline Sales ($) Time

Push and Pull Strategies Manufacturer promotes to wholesalerManufacturer wholesalerWholesaler retailerWholesaler retailerRetailer consumerRetailer consumerConsumer buys from retailerConsumer retailer PUSH STRATEGY Orders to manufacturer Manufacturer promotes to consumerManufacturer consumerConsumerdemandsproduct from retailer Consumerdemandsproduct Retailerdemandsproduct from wholesaler Retailerdemandsproduct Wholesalerdemands product from manufacturerWholesalerdemands manufacturer Orders to manufacturer PULL STRATEGY

Distribution Concepts Chapter

Value Networks & Marketing Channels Value network: partnerships that a firm creates to source, augment and deliver its offerings. Marketing Channel: A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer. Functions of Channels: –Specialization of labor –Overcoming discrepancies & gaps –Providing contact efficiency

Channel Structure for Consumer Products Producer Consumers Retailers Wholesalers Agents or BrokersWholesalerChannelRetailerChannelDirectChannelAgent/BrokerChannel

Alternative Arrangements Multiple channels – two+ channels to distribute the same product Nontraditional channels – infomercials, mail order, internet etc. Strategic channel alliances – use another manufacturer’s already established channel

Factors that Affect Channel Choice Market factors –Customer profiles –Type of customer –Market size and geographic location Product factors –Product complexity –Price –PLC Producer factors –Resources –Desire for control

Levels of Distribution Intensity Intensity Level ObjectiveObjective Number of Intermediaries Intensive Selective Exclusive Achieve mass market selling. Convenience goods. Achieve mass market selling. Convenience goods. Work with selected intermediaries. Shopping and some specialty goods. Work with selected intermediaries. Shopping and some specialty goods. Work with single intermediary. Specialty goods and industrial equipment. Work with single intermediary. Specialty goods and industrial equipment. Many Several One

Managing Channel Relationships – Social Dimensions Channel power Channel control Channel conflict –Horizontal conflict –Vertical conflict Legal & ethical issues in channel relations

Classification Summary Type of Retailer Department Store Specialty Store Supermarket Convenience Store Drugstore Full-line Discounter Specialty Discounter Warehouse Clubs Off-price Retailer Restaurant ServiceLevelServiceLevel Mod Hi-High High Low Low-Mod Mod-Low Low Low-High Assort-mentAssort-mentPricePrice Gross Margin Broad Narrow Broad Med-Narrow Medium Med-Broad Broad Med-Narrow Mod-High Moderate Mod High Moderate Mod Low Mod Lo-low Low-lower Low Low-High Mod High High Low Mod High Low Mod Low Low Low-High

Nonstore Retailing Major Forms of Nonstore Retailing Major Forms of Nonstore Retailing Automatic Vending Direct Retailing Direct Marketing Electronic Retailing