Chapter 10: Product Concepts

Chapter 10: Product Concepts
Prepared by David Ferrell, B-books, Ltd. Designed by Eric Brengle, B-books, Ltd. Copyright 2012 by Cengage Learning Inc. All Rights Reserved 1

Copyright 2012 by Cengage Learning Inc. All Rights Reserved
Chapter 10 Product Concepts Learning Outcomes LO1 Define the term product Classify consumer products Discuss the importance of services to the economy Discuss the differences between services and goods LO2 LO3 LO4 Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Chapter 10 Product Concepts Learning Outcomes Define the terms product item, product line, and product mix Describe marketing uses of branding 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 LO8 LO9 Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Define the term product.
Chapter 10 Product Concepts What Is a Product? Define the term product. LO1 Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Everything, both favorable person receives in an exchange.
Chapter 10 Product Concepts What Is a Product? Everything, both favorable and unfavorable, that a person receives in an exchange. Tangible Good Service Idea Notes: The product offering, the heart of an organization’s marketing program, is usually the starting point in creating a marketing mix. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Product is the starting point of Marketing Mix
Chapter 10 Product Concepts What Is a Product? Product is the starting point of Marketing Mix Promotion Place (Distribution) Price Product Notes: 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome
LO1 Chapter 10 Product Concepts Define the Term Product Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Types of Consumer Products
Chapter 10 Product Concepts Types of Consumer Products Classify consumer products. LO2 Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Types of Products Business Product - A product
Chapter 10 Product Concepts Types of Products Business Product - A product used to manufacture other goods or services, to facilitate an organizations operations, or to resell to other consumers. Consumer Product - A product bought to satisfy an individual’s personal needs or wants. Notes: Products can be classified as either business (industrial) or consumer products. The classification as a business or consumer product depends on the buyer’s intentions. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Chapter 10 Product Concepts Unsought Products Specialty Shopping Convenience Consumer Business Notes: Chapter 7 described seven categories of business products: (have students name these) major equipment, accessory equipment, component parts, processed materials, raw materials, supplies, and business 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Chapter 10 Product Concepts Types of Consumer Products 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome
LO2 Chapter 10 Product Concepts Consumer Products Copyright 2012 by Cengage Learning Inc. All Rights Reserved

The Importance of Services
Discuss the importance of services to the economy. LO3 Copyright 2012 by Cengage Learning Inc. All Rights Reserved 13

The result of applying human or
Service The result of applying human or mechanical efforts to people or objects. Notes: A service is the result of applying human or mechanical efforts to people or objects. Services involve a deed, a performance, or an effort that cannot be physically possessed. The marketing process is the same for all types of products, whether they are goods or services. In fact, many manufacturing firms can point to service as a major factor in their success. Services offered by the manufacturer are important to buyers, and often are a factor in the importance of purchasing products. Services have some unique characteristics, and marketing strategies need to be adjusted for these characteristics. Copyright 2012 by Cengage Learning Inc. All Rights Reserved 14

Review Learning Outcome The Importance of Services
LO3 Review Learning Outcome The Importance of Services 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 81% Services as a percentage of GDP Services as a percentage of employment Services Deed Performance Effort Notes: The service sector accounts for 81 percent of both U.S. gross domestic product and U.S. employment. The demand for services is expected to continue. As a result of demographic shifts, services are expected to account for nearly all net job growth through the year (The aging population will need nursing care, physical therapy, and social workers.) Copyright 2012 by Cengage Learning Inc. All Rights Reserved 15

How Services Differ from Goods
Discuss the differences between services and goods. LO4 Copyright 2012 by Cengage Learning Inc. All Rights Reserved 16

Four Unique Service Characteristics Intangibility Inseparability Heterogeneity Perishability Notes: Intangibility: Services cannot be touched, seen, tasted, heard, or felt in the same way as goods. Services cannot be stored and are easy to duplicate. Tangible cues are often used to communicate a service’s quality and nature. Facilities are a critical tangible part of a service experience. Produced and Consumed Simultaneously: Goods are produced, sold, and then consumed. In contrast, services are often sold, produced, and consumed at the same time. Consumers are involved in the production of the services that they buy. The quality of services depends on the quality of employees. Heterogeneity: Services are less standardized and uniform than goods—a characteristic known as heterogeneity. Because services are labor-intensive, consistency and quality control can be hard to achieve. Standardization and training help increase consistency and reliability. Perishability: Services cannot be stored, warehoused, or inventoried. If not used, the revenue is lost. One of the most important challenges in many service industries, such as hotels and airlines, is finding ways to synchronize supply and demand. Deep discounts and off-peak pricing strategies encourage demand during nonpeak times. Copyright 2012 by Cengage Learning Inc. All Rights Reserved 17

Intangibility Search Qualities Experience Qualities Credence Qualities Online Activity: Web MD What elements of Web MD’s Web site communicate the search, experience, and credence qualities of the services offered by an online medical consultant? Notes: Compared to goods, services tend to exhibit fewer search qualities. A search quality is a characteristic that can be easily assessed before purchase. An experience quality is a characteristic that can be assessed only after use. A credence quality is a characteristic that consumers may have difficulty assessing even after purchase because they do not have the necessary knowledge or experience. Online Copyright 2012 by Cengage Learning Inc. All Rights Reserved 18

Review Learning Outcome The Difference Between Services and Goods
LO4 Review Learning Outcome The Difference Between Services and Goods Notes: The service sector accounts for 81 percent of both U.S. gross domestic product and U.S. employment. The demand for services is expected to continue. As a result of demographic shifts, services are expected to account for nearly all net job growth through the year (The aging population will need nursing care, physical therapy, and social workers.) Copyright 2012 by Cengage Learning Inc. All Rights Reserved 19

Product Items, Lines, and Mixes
Chapter 10 Product Concepts Product Items, Lines, and Mixes Define the terms product item, product line, and product mix. LO5 Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Product Items, Lines, and Mixes
Chapter 10 Product Concepts Product Items, Lines, and Mixes 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Campbell’s Product Lines and Mix
Chapter 10 Product Concepts Campbell’s Product Lines and Mix 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 10.2. Discussion/Team Activity: Identify a few companies with extensive product lines and product mixes. Pick one and create a matrix similar to Exhibit Evaluate the marketing strategies in use. Source: Campbell’s Web site: June 10, 2008. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Benefits of Product Lines
Chapter 10 Product Concepts 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 Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Product Mix Width The number of product lines an organization offers.
Chapter 10 Product Concepts Product Mix Width The number of product lines an organization offers. Diversifies risk Capitalizes on established reputations Notes: In Exhibit 10.2, product mix width can be seen in Campbell’s product divisions. 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Product Line Depth The number of product items in a product line.
Chapter 10 Product Concepts 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 on seasonal sales patterns Notes: In Exhibit 10.2, product line depth can be seen in Campbell’s product items in its soup division. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Adjustments Adjustments to Product Items, Lines, and Mixes
Chapter 10 Product Concepts Adjustments 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 Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Types of Product Modifications
Chapter 10 Product Concepts Types of Product Modifications Quality Modification Functional Modification Style 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Planned Obsolescence The practice of modifying
Chapter 10 Product Concepts 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? Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Repositioning Why reposition established brands?
Chapter 10 Product Concepts Repositioning 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Product Line Extension
Chapter 10 Product Concepts Product Line Extension Adding additional products to an existing product line in order to complete more broadly in the industry. Notes: A product line extension occurs when management adds products to an existing product line in order to compete more broadly in the industry. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Product Line Contraction
Chapter 10 Product Concepts 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome Product Item, Product Line, and Product Mix
LO5 Chapter 10 Product Concepts Review Learning Outcome Product Item, Product Line, and Product Mix Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Describe marketing uses of branding.
Chapter 10 Product Concepts Branding Describe marketing uses of branding. LO6 Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Brand A name, term, symbol, design, or combination thereof that
Chapter 10 Product Concepts 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

The elements of a brand that The value of company and brand names
Chapter 10 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 one-third 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Product Identification
Chapter 10 Product Concepts Benefits of Branding Product Identification Repeat Sales New Product Sales Notes: Branding has three main purposes: product identification, repeat sales, and new-product sales. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Chapter 10 Product Concepts Top Ten Global Brands Source: Reprinted from the September 29, 2008, issue of Business Week by special permission, copyright © 2007 by The McGraw-Hill Companies, Inc. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Chapter 10 Product Concepts Branding Strategies Brand No Brand Manufacturer’s Brand Private Brand Individual Brand Family Brand Combi- nation Notes: Exhibit 10.4 diagrams the decisions made in branding. 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 and in Exhibit 10.4. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Manufacturers’ Brands Versus Private Brands
Chapter 10 Product Concepts Manufacturers’ Brands Versus Private Brands Manufacturer’s Brand- The brand name of manufacturer. Private Brand- A brand name owned by a wholesaler or a retailer. Also known as private label or store brand. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Advantages of Manufacturers’ Brands
Chapter 10 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 Notes: Exhibit 10.5 compares Manufacturers’ and private brands from the Reseller’s Perspective Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Advantages of Private Brands
Chapter 10 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 Exhibit 10.5 compares Manufacturers’ and private brands from the Reseller’s Perspective Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Individual Brands Versus Family Brands
Chapter 10 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Complementary Branding
Chapter 10 Product Concepts Cobranding Ingredient Branding Cooperative Branding Complementary Branding Types of Cobranding 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

A Trademark is the exclusive right to use a brand.
Chapter 10 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Describe marketing uses of packaging and labeling.
Chapter 10 Product Concepts Packaging Describe marketing uses of packaging and labeling. LO7 Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Functions of Packaging
Chapter 10 Product Concepts Functions of Packaging Contain and Protect Promote Facilitate Storage, Use, and Convenience 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. Facilitate Recycling Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Chapter 10 Product Concepts Labeling Persuasive Focuses on promotional theme Consumer information is secondary Informational Helps make proper selections Lowers cognitive dissonance Includes use/care Notes: Package labeling takes two forms: persuasive or informational. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Universal Product Codes
Chapter 10 Product Concepts Universal Product Codes 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Global Issues in Branding and Packaging
Chapter 10 Product Concepts Global Issues in Branding and Packaging Discuss global issues in branding and packaging. LO8 Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Global Issues in Branding
Chapter 10 Product Concepts 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Global Issues in Packaging
Chapter 10 Product Concepts 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. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome Global Issues in Branding and Packaging
Chapter 10 Product Concepts Review Learning Outcome 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 Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Describe how and why product warranties are important
Chapter 10 Product Concepts Product Warranties Describe how and why product warranties are important marketing tools. LO9 Copyright 2012 by Cengage Learning Inc. All Rights Reserved

A confirmation of the quality or performance of a good or service.
Chapter 10 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) Notes: Just as a package is designed to protect the product, a warranty protects the buyer and gives essential information about the product. A warranty confirms the quality or performance of a good or service. Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome Product Warranties
Chapter 10 Product Concepts LO9 Review Learning Outcome Product Warranties Express warranty = written guarantee Implied warranty = unwritten guarantee Copyright 2012 by Cengage Learning Inc. All Rights Reserved

Chapter 10: Product Concepts

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