1. Developing and Promoting Goods and Services
CHAPTER 16
Developing and Promoting
Goods and Services

2. Learning Objectives
Identify a product and 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.
Explain the importance of branding, packaging and labelling.
Identify the objectives of promotion and discuss the considerations involved in selecting a promotional mix.
These learning objectives are based upon those at the beginning of the chapter. For a review of learning objectives, see the summary at the end of the chapter, as well as the list of key terms.
Objectives: p. 493.
Summary: p. 532.
Key Terms: p. 533.
Study Questions & Exercises: p. 534.
Building Your Business Skills: p. 534.
Exploring the Net: p. 535.
Concluding Case 16-1: Web Promotions, p. 536.
Concluding Case 16-2: Walker Digital, p. 537. 2 2 2

3. More Learning Objectives
Discuss the most important advertising strategies and 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
These learning objectives are based upon those at the beginning of the chapter. For a review of learning objectives, see the summary at the end of the chapter, as well as the list of key terms.
Objectives: p. 493.
Summary: p. 532.
Key Terms: p. 533.
Study Questions & Exercises: p. 534.
Building Your Business Skills: p. 534.
Exploring the Net: p. 535.
Concluding Case 16-1: Web Promotions, p. 536.
Concluding Case 16-2: Walker Digital, p. 537. 3 3 3

4. 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
Discussed on pages
Activities:
Exploring the Net. 4 4 4

5. 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)
Discussed on page
Notes:
While there are typical examples of products for each classification, a product can fall into any group depending on how the consumer goes about the purchase process.
Activities:
Review Questions: #1.
Exploring the Net. 5 5 5

6. Industrial Goods Classification
Expense Items: are used quickly
in the course of business/
production
Capital Items:
expensive, long-lasting
goods and equipment
Discussed on page 495.
Notes:
Expense item are materials that are consumed through the production process, or in the process of operating the business (supplies, such as cleansers and paper clips). Goods consumed through the production process include those which become “ingredients” , and those which help the production process but do not become ingredients, such as additional equipment. The text refers to the latter group as “support materials”. These items are “expensed” as purchased by the firm.
Capital items are permanent fixtures that are used in the production process and have a much longer life that support materials. For example, a baker’s oven is a capital item, while the trays used to load the bread pans in and out of the over would be support materials. Capital items typically represent a major financial investment and are depreciated over time for accounting purposes rather than expensed.
Activities:
Review Questions: #1. 9 9 9

7. Product Strategy Product mix Product line
the group of products a company has for sale
Procter & Gamble sells household cleansers, disposable diapers etc.
Product line
a group of similar products intended for a group of buyers
Procter and Gamble sells more than one brand of laundry detergent
Discussed on page 495.
Activities:
Review Questions: #1. 10 10 10

8. R & D
Activities required to provide new products, services, and processes
Usually requires a large investment in laboratories, equipment, and scientific talent
Canada has a lower percentage of GDP spending on R&D compared to the US, Japan, and Germany
Businesses must embrace technology so that their products will not become obsolete
Discussed on page 496.
Activities:
Ask students to conduct web-based research into R&D spending in various countries, including Canada. Engage them in a discussion regarding how Canada compares to other nations.

9. The Product Development Process (1of 3)
Step #1: Product Ideas
Seek out ideas for new products
Sources: employees, consumers, sales people, engineers etc.
Step #2: Screening
Elimination of product ideas that do not fit with the firm’s resources
Includes staff from marketing, engineering, and production
Discussed on page 499.
Activities:
Using examples of products which exist, ask students to trace the product development process. Why do some products fail? Examples: Firestone tires on Ford automobiles, the Ford Pinto (they will have to research the Pinto story), silicon breast implants. Engage students in a discussion about how such product failures could be avoided. Can there ever be a foolproof approach to product development? 14 14 14

10. The Product Development Process (2of 3)
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
Discussed on page 499.
Activities:
Using examples of products which exist, ask students to trace the product development process. Why do some products fail? Examples: Firestone tires on Ford automobiles, the Ford Pinto (they will have to research the Pinto story), silicon breast implants. Engage students in a discussion about how such product failures could be avoided. Can there ever be a foolproof approach to product development? 14 14 14

11. The Product Development Process (3of 3)
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
Discussed on page 499.
Activities:
Using examples of products which exist, ask students to trace the product development process. Why do some products fail? Examples: Firestone tires on Ford automobiles, the Ford Pinto (they will have to research the Pinto story), silicon breast implants. Engage students in a discussion about how such product failures could be avoided. Can there ever be a foolproof approach to product development? 14 14 14

12. 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
Discussed on page 499.
Activities:
Using examples of products which exist, ask students to trace the product development process. Why do some products fail? Examples: Firestone tires on Ford automobiles, the Ford Pinto (they will have to research the Pinto story), silicon breast implants. Engage students in a discussion about how such product failures could be avoided. Can there ever be a foolproof approach to product development? 20 20 20

13. Special Aspects of Developing Services
Step #1: Service Ideas
definition of the “service package”: identification of the tangible and intangible features that define the service
Step #5: Prototype Development
requires “service process design”: selecting the process, identifying worker requirements, and determining the facilities required
Discussed on page 500.
Activities:
Using examples of products which exist, ask students to trace the service development process. How could FedEx have grown to be the most successful courier company? What would they have done differently in developing their service design process. Students should do some research about FedEx before attempting to answer this question. 21 21 21

14. 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
Discussed on pages
Activities:
Application Exercises: #13.
Exploring the Net. 22 22 22

15. The Product Life Cycle
Discussed on pages This is an example of the Product Life Cycle depicted in Figure 16.3 on page Each stage of the life cycle is discussed separately on the slides which follow.
Notes:
This curve is an industry curve, not the development of an individual firm or its product. The example on page 464 shows the Product Life Cycle for VCR’s. This curve illustrates the profitability cycle for VCR’s. This represents the industry activity for all producers of VCR’s in the industry and the development of the industry in terms of sales and profits over time.
Prospective producers can use the Product Life Cycle curve to determine when to enter the industry. Profits tend to peak in the Growth stage. A mature industry is too late to enter a new market. Declining industries do not hold any potential at all for profit-oriented firms. Firms with an entirely new product or a significant innovation in an existing product may open an entirely new industry (the Intro stage).
Activities:
Application Exercises: #13.
Exploring the Net. 23 23 23

16. 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
Discussed on pages 500.
Activities:
Application Exercises: #13.
Exploring the Net. 24 24 24

17. 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
Discussed on pages 501.
Activities:
Application Exercises: #13.
Exploring the Net. 25 25 25

18. 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
Discussed on pages 501.
Activities:
Application Exercises: #13.
Exploring the Net. 26 26 26

19. 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
Discussed on page 501.
Activities:
Application Exercises: #13.
Exploring the Net. 27 27 27

20. Extending Product Life: Foreign Markets
Product Extension
Marketing an existing product globally (Coca-cola, Levi’s)
Product Adaptation
Marketing a product internationally with some modification (McDonald’s in Germany serves beer)
Reintroduction
Aiming declining or obsolete products to less developed markets (Manual cash registers in Latin America)

21. NIKE Heinz Sheraton 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
Heinz
NIKE
Discussed on pages
Notes:
Trademarks are exclusive legal rights to use a brand name. They are registered legally and are protected nationally and internationally through intellectual property laws. A patent protects ownership of a product design, manufacturing process, or layout.
Activities:
Review Questions: #3.
Building Your Business Skills.
Sheraton 29 29 29

22. Types of Brands National Licensed Private Generic
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
Discussed on page
Notes:
The brand identifies the product from others in the marketplace. Consumers may become loyal to a brand. Brand loyalty is measured in three stages (from least loyal to most loyal):
Brand Recognition: consumers are aware of the product’s existence
Brand Preference: consumers prefer one brand over another
Brand Insistence: consumers insist on buying only one brand over all others without substitution.
Activities:
Brainstorm in class with students to list as many brands as you can. Then, classify them as national and/or licensed, private or generic. 30 30 30

23. Trademarks, Patents and Copyrights
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
Discussed on page 506.
Activities:
Ask students to list five brands and/or logos which they believe are good examples of highly effective brands. Are they protected under law (ask students to look for the registered trademark, or copyright, symbol on the brand’s advertising.

24. 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)
Described on page 507.
Notes:
The Consumer Packaging and Labelling Act is designed to provide a st of rules to guide packaging and labelling, and to insure that the manufacturer provides complete and factual information. Canadian packages must contain both official languages, French and English, and contain measurement units in metric and imperial. Most packages also contain the UPC (Universal Product barcode symbol) which allows for automated inventory control and check-out.
Activities:
Analysis Questions: #9. 31 31 31

25. Promotion Key objectives increase product awareness
increase knowledge of products and their added-values
increase product preference
increase product purchase
Buy! Buy! Buy!
Discussed on pages
Notes:
Objectives regarding product awareness also include positioning the product in the minds of consumers. Promotion must convey an image of the product which allows consumers to position it relative to other products on the market with regards to price, quality, and features.
Activities:
Application Exercises: #14, #15.
Exploring the Net.
Concluding Case 16-1: Walker Digital. 32 32 32

26. Promotion Plan Objectives Strategies Promotional Mix Push vs. Pull
Information
Positioning
Added value
Sales volume
Promotional
Mix
Push
vs.
Pull
Advertising
Personal selling
Sales promotion
Publicity
Discussed on page This is a duplication of Figure 16.4 on page 509.
Notes:
The promotion requires that promotional objectives be determined, followed by strategies, and then the promotional mix.
Activities:
Application Exercises: #14, #15.
Exploring the Net.
Concluding Case 16-1: Walker Digital. 33 33 33

27. Promotion Strategies Push Strategy Pull 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
Discussed on page 510.
Activities:
Application Exercises: #14, #15.
Exploring the Net.
Concluding Case 16-1: Walker Digital. 34 34 34

28. Promotional Mix The combination of promotional methods
used are affected by
the nature of the product
the nature of the audience
promotional budget
the cost of different promotional methods
Discussed on pages
Notes:
The different promotional methods have different costs. Personal selling is very expensive per contact and is used more frequently with higher priced products or services, or in the industrial market. Advertising is expensive overall but reaches a large group of people at a single time. This makes it appropriate for most consumer products that have a broad market, as well as new products with an information-based ad appeal.
Activities:
Application Exercises: #14, #15.
Exploring the Net.
Concluding Case 16-1: Walker Digital. 35 35 35

29. The Consumer Purchase Process and the Promotional Mix
Advertising
Publicity
Sales promotion
Personal selling
Advertising
Personal
selling
Discussed on pages This slide duplicates Figure 16.8 on page 513.
Notes:
The separate elements of the promotional strategy must be balanced in order to achieve promotional objectives. This means that the promotional budget must be spread over various elements in order to be balanced. The nature of the marketing situation (product life cycle, consumer purchase process) affect promotional balance. The most effective promotional tools for each stage of the purchase process is summarized on this slide. Telemarketing is the use of the telephone to carry out marketing activities from sales to research. Telemarketing is part of the personal selling process when it relates to sales.
Activities:
Application Exercises: #14, #15.
Exploring the Net.
Concluding Case 16-1: Walker Digital.
Advertising
Personal selling
Personal
selling 36 36 36

30. Advertising Strategies (1 of 2)
Informative Advertising
Increase awareness among potential buyers
generate primary (initial) demand
typical life cycle stage: introduction
Persuasive Advertising
influence the customer to buy the firm’s product over that of the competition
typical life cycle stage: growth to maturity
Discussed on page 514.
Activities:
Application Exercises: #14, #15.
Exploring the Net.
Concluding Case 16-1: Walker Digital. 38 38 38

31. Advertising Strategies
(2 of 2)
Comparative Advertising
influence customers to switch brands
involves direct or indirect comparison
typical life cycle stage: growth
Reminder Advertising
keep the product’s name in front of consumers
typical life cycle stage: maturity
Discussed on page 514.
Activities:
Application Exercises: #14, #15.
Exploring the Net.
Concluding Case 16-1: Walker Digital. 38 38 38

32. Advertising Media Newspapers Television Direct mail Radio Magazines
Outdoor
Word-of-mouth
Internet
Discussed on pages
Notes:
The media mix is the combination of media through which a firm chooses to advertise its products. The media to be used in the mix are listed on this slide. The graph shows that apart from “other media” (a miscellaneous category containing Yellow Pages, skywriting, telephone calls, special events and door-to-door communications) newspaper is the most widely used medium, followed by television.
Activities:
Application Exercises: #14, #15.
Exploring the Net.
Concluding Case 16-1: Walker Digital. 42 42 42

33. 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
Discussed on page 515.
Activities:
Application Exercises: #14, #15.
Exploring the Net.
Concluding Case 16-1: Walker Digital. 43 43 43

34. Television Total sensory experience Can target specific markets
(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
Discussed on page 515.
Activities:
Application Exercises: #14, #15.
Exploring the Net.
Concluding Case 16-1: Walker Digital. 44 44 44

35. 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
Discussed on page 515.
Activities:
Application Exercises: #14, #15.
Exploring the Net.
Concluding Case 16-1: Walker Digital. 45 45 45

36. 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
Discussed on page 516.
Activities:
Application Exercises: #14, 15.
Exploring the Net.
Concluding Case 16-1: Walker Digital. 46 46 46

37. Magazines Advantages Disadvantages
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
Discussed on page 516.
Activities:
Application Exercises: #14, #15.
Exploring the Net.
Concluding Case 16-1: Walker Digital. 47 47 47

38. Outdoor Super Cola 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
Super
Cola
Discussed on pages
Activities:
Application Exercises: #14, #15.
Exploring the Net.
Concluding Case 16-1: Walker Digital. 48 48 48

39. Word-of-Mouth and the Internet
Opinions about products passed from consumer to consumer through informal conversation
Very powerful promotional tool
Internet
A new and exciting advertising venue
Internet advertisers obtain counts of Web page visitors
Requires considerable Web-surfing to find information online; might dissuade some consumers
Discussed on page 515.
Activities:
Application Exercises: #14, #15.
Exploring the Net.
Concluding Case 16-1: Walker Digital. 49 49 49

40. Data Mining
Consumer behaviour patterns can be traced by analyzing files of information over time
May involve data on millions of customers
Who buys
What they buy
How often
Payment methods
Commonly used for e-business tracking
Discussed on page 517.
Activity:
Have students go to the websites listed in “Exploring the Web”. What information can these sites obtain from users, either directly, or electronically? How could they “data mine” this information?

41. NIKE Virtual Advertising
Advertising that uses “digital implants” of brands or products in live or taped programming
Gives the impression that the product was part of the show
Allows better overall promotion because viewers are more “tuned in” to programs than they are to commercials
Discussed on page 518.
Activity:
Ask students to view their favourite television programs for one week, and to record any products that they believe have been digitally implanted.
NIKE

42. Other Advertising Channels
Yellow Pages
Catalogues
Sidewalk flyers
Door-to-door advertising
Skywriting
Special Events
Discussed on page 519.
Activity:
Have students track the advertising that they see which is considered “other advertising”. Ask them to describe how pervasive it is.

43. Advertising Campaigns
Identify the target audience
Establish an advertising budget
Define the objectives of the messages
Create advertising messages
Select appropriate media
Evaluate advertising effectiveness
Discussed on page 519.
Activity:
Analysis Questions: #10.

44. Advertising Agency A firm that creates and places ads for clients
Rank
Company
Revenue (Millions) 1
Maxxcom Inc.
$559.5 2
Cossette Comm. Group Inc.
157.6 3
MacLaren McCann Canada Inc.
102.5 4
BBDO Canada Inc.
74.2 5
Envoy Comm. Group Inc.
59.1 6
Publicis Canada Inc..
51.0 7
Palmer Jarvis DDB Inc.
35.4 8
Leo Burnett Co. Ltd.
31.9 9
Marketel
20.5 10
CP Ltd..
10.4
A firm that creates and places ads for clients
Usually paid a commission
May be paid a fee for ad creation
Discussed on page The table is reproduced from Table 16.3.
Activities:
Have students interview an employee of an advertising agency. What kinds of services does the agency provide for its clients? What major accounts do they manage? 51 51 51

45. Personal Selling Situations
Retail: selling to consumers
Industrial: selling to business users
Sales force management
setting goals for sales people, organizing a sales force, implementing and evaluating the sales program
Discussed on page 522.
Activities:
Review Questions: #6. 53 53 53

46. Personal Selling Tasks
Order processing
receiving and handling orders
Creative selling
using techniques to sell expensive products or products with benefits that are hard to describe or relate to
Missionary selling
offering of technical assistance to aid the selling process, or to promote the image of the firm
Discussed on page 523.
Activities:
Review Questions: #6. 52 52 52

47. Personal Selling Process
Prospecting & Qualifying Leads
Approaching
Presenting & Demonstrating
Creative selling
involves skilful use
of a sales presentation.
Handling Objections
Discussed on page
Notes:
Prospecting: identifying potential customers
Qualifying: process of determining whether potential customers have the authority to buy the product and the ability to pay for it.
Approach: the initial part of a sales presentation which opens the dialogue between sales rep and customer and establishes credibility and rapport.
Presenting and Demonstrating: presenting and showing the product
Handling Objections: overcoming prospect’s questions or concerns about the product
Closing: closing the sale by asking the customer to purchase directly or indirectly
Following Up: order processing, delivery, follow-up to insure satisfaction.
Activities:
Review Questions: #6.
Closing
Following Up 54 54 54

48. Sales Promotions Coupons Point-of-purchase (POP) displays
Purchase incentives/premiums (free item or bargain price)
Trade shows
Contests and sweepstakes
Discussed on page 525.
Activities:
Have students list the types of sales promotions that they have used (participated in) or enjoyed. 55 55 55

49. Publicity and Public Relations
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
Discussed on pages
Activities:
Review Questions: #8.
Analysis Questions: #12. 56 56 56

50. 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
Discussed on page
Notes:
language differences: complicate global marketing due to need to translate carefully across languages
product variations: differences in taste and format (e.g.: some countries have laundry detergent in tablet form rather than powder) confound global appeals
cultural reception: some products are more culturally sensitive than others (e.g.: underwear, condoms, feminine-hygiene products). Some countries are more tolerant than others (such as European vs. Middle East). Some products are banned from promotion in some countries (alcohol and cigarettes).
image differences: firms may have different images abroad. Many firms use global institutional advertising to establish a good corporate name.
Activities:
Have students go to some websites for international/multinational firms such as Coca-Cola and IBM. Are there major differences between the websites? Are these websites arranged to service different users in different markets with their own languages, graphics, etc.? 57 57 57

51. Small Business Promotion
Firms use the same sales promotion methods as larger firms and rely heavily on publicity
May use direct mail and magazine to tap international markets and personal selling to gain local market share
High costs of national personal selling often lead to a combination of telemarketing and direct mail
Most small firms cannot afford to promote via television, so they use newspapers, radio and the Yellow Pages
Discussed on page
Activities:
Application Exercises: #15. 58 58 58