1. Copyright © Houghton Mifflin Company. All rights reserved. 10–1 What Is a Product? A Product Defined –A good, a service, or an idea received in an exchange –It can be tangible (a good) or intangible (a service or an idea) or a combination of both. –It can include functional, social, and psychological utilities or benefits. Why Buyers Purchase a Product –To get the benefits and satisfaction that they think the product will provide –Symbols and cues provided by marketing help consumers make judgments about products.

2. Copyright © Houghton Mifflin Company. All rights reserved. 10–2 Classifying Products Consumer Products –Products purchased to satisfy personal and family needs Business Products –Products bought to use in an organization’s operations, to resell, or to make other products (raw materials and components)

3. Copyright © Houghton Mifflin Company. All rights reserved. 10–3 Consumer Products Convenience Products –Relatively inexpensive, frequently purchased items for which buyers exert minimal purchasing effort –Characteristics Marketed through many retail outlets Relatively low per-unit gross margins Little promotional effort at the retail level Packaging is important marketing mix element

4. Copyright © Houghton Mifflin Company. All rights reserved. 10–4 Consumer Products (cont’d) Shopping Products –Items for which buyers are willing to expend considerable effort in planning and making purchases –Characteristics Expected to last a long time; less frequently purchased Do not have brand loyalty appeal Require fewer retail outlets Inventory turnover is lower Gross margins are higher More amenable to personal selling Supported (servicing and promoting the product) by both the producer and channel members

5. Copyright © Houghton Mifflin Company. All rights reserved. 10–5 Consumer Products (cont’d) Specialty Products –Items with unique characteristics that buyers are willing to expend considerable effort to obtain –Characteristics Are preselected by the consumer Have no close substitutes or alternatives Are available in a limited number of retail outlets Purchased infrequently and represent a significant and expensive investment Have high gross margins and low inventory turnover

6. Copyright © Houghton Mifflin Company. All rights reserved. 10–6 Consumer Products (cont’d) Unsought Products –Products purchased to solve a sudden problem, products of which the customers are unaware, and products that people do not necessarily think about buying –Characteristics Speed and problem resolution of the utmost importance Price and other features not considered No consideration of substitutes or alternatives Purchased infrequently

7. Copyright © Houghton Mifflin Company. All rights reserved. 10–7 Important Terms Good –A tangible physical entity Service –An intangible result of the application of human and mechanical efforts to people or objects Idea –A concept, philosophy, image, or issue

8. Copyright © Houghton Mifflin Company. All rights reserved. 10–8 Important Terms Consumer Products –Products purchased to satisfy personal and family needs Business Products –Products bought to use in an organization’s operations, to resell, or to make other products (raw materials and components) Convenience Products –Relatively inexpensive, frequently purchased items for which buyers exert minimal purchasing effort

9. Copyright © Houghton Mifflin Company. All rights reserved. 10–9 Important Terms Shopping Products –Items for which buyers are willing to expend considerable effort in planning and making purchases Specialty Products –Items with unique characteristics that buyers are willing to expend considerable effort to obtain Unsought Products –Products purchased to solve a sudden problem, products of which the customers are unaware, and products that people do not necessarily think about buying

10. Copyright © Houghton Mifflin Company. All rights reserved. 10–10 Business Products Installations –Facilities and nonportable major equipment Office buildings, factories and warehouses, production lines, very large machines Accessory Equipment –Equipment used in production or office activities File cabinets, small motors, calculators, and tools

11. Copyright © Houghton Mifflin Company. All rights reserved. 10–11 Business Products (cont’d) Raw Materials –Basic natural materials that become part of a physical product such as ores, water, lumber, grains, and eggs Component Parts –Items that become part of the physical product Finished items ready for assembly Items needing little processing before assembly Computer chips, engine blocks, girders, and paints

12. Copyright © Houghton Mifflin Company. All rights reserved. 10–12 Business Products (cont’d) Process Materials –Materials that are not readily identifiable when used directly in the production of other products such as screws, knobs, and handles MRO Supplies –Maintenance, repair, and operating items that facilitate production and do not become part of the finished product such as cleaners, rubber bands, and staples

13. Copyright © Houghton Mifflin Company. All rights reserved. 10–13 Business Products (cont’d) Business Services –The intangible products that many organizations use in their operations such as cleaning, legal, consulting, and repair service.

14. Copyright © Houghton Mifflin Company. All rights reserved. 10–14 Important Terms Installations –Facilities and nonportable major equipment Accessory Equipment –Equipment used in production or office activities Raw Materials –Basic natural materials that become part of a physical product Component Parts –Items that become part of the physical product

15. Copyright © Houghton Mifflin Company. All rights reserved. 10–15 Important Terms Process Materials –Materials that are not readily identifiable when used directly in the production of other products MRO Supplies –Maintenance, repair, and operating items that facilitate production and do not become part of the finished product Business Services –The intangible products that many organizations use in their operations

16. Copyright © Houghton Mifflin Company. All rights reserved. 10–16 Product Line and Product Mix Product Item –A specific version of a product Product Line –A group of closely related product items viewed as a unit because of marketing, technical, or end-use considerations Whole Milk Skim Milk 2% Milk

17. Copyright © Houghton Mifflin Company. All rights reserved. 10–17 Product Line and Product Mix (cont’d) Product Mix –The total group of products that an organization makes available to customers Width of Product Mix –The number of product lines a company offers Depth of Product Mix –The average number of different products in each product line

18. Copyright © Houghton Mifflin Company. All rights reserved. 10–18 The Concepts of Product Mix Width and Depth Applied to Selected United States Proctor & Gamble Products Source: The Procter & Gamble Company. Used with permission. FIGURE 10.1

19. Copyright © Houghton Mifflin Company. All rights reserved. 10–19 Important Terms Product Item –A specific version of a product Product Line –A group of closely related product items viewed as a unit because of marketing, technical, or end-use considerations Product Mix –The total group of products that an organization makes available to customers

20. Copyright © Houghton Mifflin Company. All rights reserved. 10–20 Important Terms Width of Product Mix –The number of product lines a company offers Depth of Product Mix –The average number of different product items offered in each product line

21. Copyright © Houghton Mifflin Company. All rights reserved. 10–21 Product Life Cycle –The progression of a product through four stages: introduction, growth, maturity, and decline.

22. Copyright © Houghton Mifflin Company. All rights reserved. 10–22 The Four Stages of the Product Life Cycle FIGURE 10.2

23. Copyright © Houghton Mifflin Company. All rights reserved. 10–23 The Product Life Cycle Introduction –The initial stage of a product’s life cycle—its first appearance in the marketplace—when sales start at zero and profits are negative Growth –The stage of a product’s life cycle when sales rise rapidly and profits reach a peak and then start to decline More competitors enter the market Product pricing is aggressive Brand loyalty becomes important Gaps in market coverage are filled Promotion expenditures moderate Production efficiencies lower costs

24. Copyright © Houghton Mifflin Company. All rights reserved. 10–24 The Product Life Cycle (cont’d) Maturity –The stage of a product’s life cycle when the sales curve peaks and starts to decline and profits continue to fall Intense competition Emphasis on improvements and differences in competitors’ products Weaker competitors lose interest and exit the market Advertising and dealer-oriented promotions predominate Distribution sometimes expands to the global market –Strategic objectives for maturity stage Generate cash flow Maintain market share Increase share of customer

25. Copyright © Houghton Mifflin Company. All rights reserved. 10–25 Product Life Cycle (cont’d) Decline –The stage of a product’s life cycle when sales fall rapidly Pruning items from the product line Cutting promotion expenditures Eliminating marginal distributors Planning to phase out the product

26. Copyright © Houghton Mifflin Company. All rights reserved. 10–26 Important Terms Product Life Cycle –The progression of a product through four stages: introduction, growth, maturity, and decline Introduction Stage –The initial stage of a product’s life cycle—its first appearance in the marketplace—when sales start at zero and profits are negative Growth Stage –The stage of a product’s life cycle when sales rise rapidly and profits reach a peak and then start to decline

27. Copyright © Houghton Mifflin Company. All rights reserved. 10–27 Important Terms Maturity Stage –The stage of a product’s life cycle when the sales curve peaks and starts to decline and profits continue to fall Decline Stage –The stage of a product’s life cycle when sales fall rapidly

28. Copyright © Houghton Mifflin Company. All rights reserved. 10–28 Product Adoption Process Production Adoption Process –The stages buyers go through in accepting a product

29. Copyright © Houghton Mifflin Company. All rights reserved. 10–29 Product Adoption Process (cont’d) Categories of Product Adopters –Innovators First adopters of new products –Early adopters Careful choosers of new products –Early majority Those adopting new products just before the average person –Late majority Skeptics who adopt new products when they feel it is necessary –Laggards The last adopters, who distrust new products

30. Copyright © Houghton Mifflin Company. All rights reserved. 10–30 Source: Reprinted with permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Diffusion of Innovations, Fourth Edition, by Everett M. Rogers. Copyright © 1995 by Everett M. Rogers. Copyright © 1962, 1971, 1983, by The Free Press. Distribution of Product Adopter Categories FIGURE 10.3

31. Copyright © Houghton Mifflin Company. All rights reserved. 10–31 Important Terms Production Adoption Process –The stages buyers go through in accepting a product: awareness, interest, evaluation, trial, and adoption Innovators –First adopters of new products Early Adopters –Careful choosers of new products

32. Copyright © Houghton Mifflin Company. All rights reserved. 10–32 Important Terms Early Majority –Those adopting new products just before the average person Late Majority –Skeptics who adopt new products when they feel it is necessary Laggards –The last adopters, who distrust new products

33. Copyright © Houghton Mifflin Company. All rights reserved. 10–33 Branding: Key Terms Brand –An identifying name, term, design, or symbol –One item, family of items, or all items of a seller Corvette, Chevrolet, General Motors Brand Name –The part of a brand that can be spoken –Words, letters, numbers Union 76, NBA, 49’ers Brand Mark –The part of a brand not made up of words –Symbols or designs Nike swoosh, Mercedes star, McDonald’s arches

34. Copyright © Houghton Mifflin Company. All rights reserved. 10–34 Branding: Key Terms (cont’d) Trademark –A legal designation of exclusive use of a brand Coca-Cola®, Hewlett-Packard® Trade Name –Full legal name of an organization American Telephone and Telegraph Corporation (AT&T)

35. Copyright © Houghton Mifflin Company. All rights reserved. 10–35 Branding (cont’d) Value of Branding –To Buyers Helps speed consumer purchases by identifying specific preferred products Provides a form of self-expression and status Evaluates product quality to reduce the risk of purchase –To Sellers Identifies and differentiates a firm’s products from competing products Helps in the introduction of new products Facilitates the promotion of all same-brand products Fosters the development of brand loyalty

36. Copyright © Houghton Mifflin Company. All rights reserved. 10–36 Branding (cont’d) Brand Equity –The marketing and financial value associated with a brand’s strength in a market Brand Loyalty –A customer’s favorable attitude toward a specific brand Brand Recognition –A customer’s awareness that a brand exists and is an alternative purchase

37. Copyright © Houghton Mifflin Company. All rights reserved. 10–37 Branding (cont’d) Brand Preference –The degree of brand loyalty in which a customer prefers one brand over competitive offerings Brand Insistence –The degree of brand loyalty in which a customer strongly prefers a specific brand and will accept no substitute

38. Copyright © Houghton Mifflin Company. All rights reserved. 10–38 Major Elements of Brand Equity Source: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Managing Brand Equity: Capitalizing on the Value of a Brand Name by David A. Aaker. Copyright © 1991 by David A. Aaker. FIGURE 10.4

39. Copyright © Houghton Mifflin Company. All rights reserved. 10–39 Source: “The 100 Top Brands,” BusinessWeek, Aug. 2, 2004, p.68. The brand valuations draw upon publibly available information, which has not been independently investigated by Interbrand. Data: Interbrand Corp., J.P. Morgan Chase & Co., Citigroup, Morgan Stanley, Business Week. BrandBrand Value (In Billion $) Coca-Cola67.4 Microsoft61.4 IBM53.8 GE44.1 Intel33.5 Disney27.1 McDonald’s25.0 Nokia24.0 Toyota22.7 Marlboro22.1 Top Ten Most Valuable Brands in the World FIGURE 10.2

40. Copyright © Houghton Mifflin Company. All rights reserved. 10–40 Important Terms Brand –An identifying name, term, design, or symbol Brand Name –The part of a brand that can be spoken Brand Mark –The part of a brand not made up of words Trademark –A legal designation of exclusive use of a brand Trade Name –Full legal name of an organization

41. Copyright © Houghton Mifflin Company. All rights reserved. 10–41 Important Terms Brand Equity –The marketing and financial value associate with a brand’s strength in a market Brand Loyalty –A customer’s favorable attitude toward a specific brand Brand Recognition –A customer’s awareness that a brand exists and is an alternative purchase

42. Copyright © Houghton Mifflin Company. All rights reserved. 10–42 Important Terms Brand Preference –The degree of brand loyalty in which a customer prefers one brand over competitive offerings Brand Insistence –The degree of brand loyalty in which a customer strongly prefers a specific brand and will accept no substitute

43. Copyright © Houghton Mifflin Company. All rights reserved. 10–43 Types of Brands Manufacturer Brands –Brands initiated by producers Private Distributor Brands –Brands initiated and owned by resellers Dealer brands, private brands, store brands Generic Brands –Brands indicating only the product category

44. Copyright © Houghton Mifflin Company. All rights reserved. 10–44 Selecting a Brand Name The name should –be easy to say, spell, and recall. –indicate the product’s major benefits. –suggest the product’s major uses and special characteristics. –be distinctive, setting it apart from competing brands. –be compatible with all products in line. –be designed for use and recognition in all types of media.

45. Copyright © Houghton Mifflin Company. All rights reserved. 10–45 Branding Policies Individual Branding –A policy of naming each product differently –Avoids stigmatizing all products due to a failed product Family Branding –Branding all of a firm’s products with the same name –Promotion of one item also promotes all other products

46. Copyright © Houghton Mifflin Company. All rights reserved. 10–46 Brand Extensions Using an existing brand name on a new product in a different category. Provides support for new products through established brand name and image

47. Copyright © Houghton Mifflin Company. All rights reserved. 10–47 Co-Branding Using two or more brands on one product to capitalize on the brand equity (customer confidence and trust) of multiple brands Brands involved must represent a complementary fit in the minds of consumers.

48. Copyright © Houghton Mifflin Company. All rights reserved. 10–48 Important Terms Manufacturer Brands –Brands initiated by producers Private Distributor Brands –Brands initiated and owned by resellers Generic Brands –Brands indicating only the product category Individual Branding –A policy of naming each product differently Family Branding –Branding all of a firm’s products with the same name

49. Copyright © Houghton Mifflin Company. All rights reserved. 10–49 Important Terms Brand-Extension –Using an existing brand name on a new product in a different category. Co-Branding –Using two or more brands on one product to capitalize on the brand equity (customer confidence and trust) of multiple brands Brand Licensing –An agreement whereby a company permits another organization to use its brand on other products for a licensing fee

50. Copyright © Houghton Mifflin Company. All rights reserved. 10–50 Packaging Involves the development of a container and a graphic design for a product Packaging Functions –Protect the product from damage –Offer convenience to consumers –Prevent waste and make storage easier –Promote the product by communicating its features, uses, benefits, and image

51. Copyright © Houghton Mifflin Company. All rights reserved. 10–51 Major Packaging Considerations Cost of Packaging –Limited consumer willingness to pay for better packaging Family Packaging –Similar packaging for all of a firm’s products or packaging that has one common design element A A

52. Copyright © Houghton Mifflin Company. All rights reserved. 10–52 Major Packaging Considerations (cont’d) Promotional Role (Informing the Consumer) –Verbal and nonverbal symbols –Size, shape, texture, color, and graphics Reseller Needs –Transportation, storage, and handling

53. Copyright © Houghton Mifflin Company. All rights reserved. 10–53 Packaging and Marketing Strategy Altering the Package –To update style and to meet increased competition –To highlight new features –To take advantage of new packaging materials –To make the product safer or easier to use –To reduce packaging costs Secondary-Use Packaging –Reusable packaging adds customer value Category-Consistent Packaging –Packaging reflects customer expectations for the expected appearance of products in a category

54. Copyright © Houghton Mifflin Company. All rights reserved. 10–54 Packaging and Marketing Strategy (cont’d) Innovative Packaging –Unique features or ways of packaging that make a product more distinct from its competitors Multiple Packaging –Bundling multiple units of a product together to encourage usage and to increase demand Handling-Improved Packaging –Packaging that has been changed to facilitate product handling in the distribution channel

55. Copyright © Houghton Mifflin Company. All rights reserved. 10–55 Labeling Providing identifying, promotional, legal, or other information on package labels Purposes of Labels –Help identify the product Display brand name and unique graphics –Support promotional efforts for the product Coupons, discounts, product features –Provide legally required labeling information Fair Packaging and Labeling Act of 1966 Nutrition Labeling Act of 1990 –Provide information on product origin “Made in the USA”

56. Copyright © Houghton Mifflin Company. All rights reserved. 10–56 Important Terms Packaging –Involves the development of a container and a graphic design for a product Family Packaging –Similar packaging for all of a firm’s products or packaging that has one common design element Secondary-Use Packaging –Reusable packaging that adds customer value Category-Consistent Packaging –Packaging that reflects customer expectations for the expected appearance of products in a category

57. Copyright © Houghton Mifflin Company. All rights reserved. 10–57 Important Terms Innovative Packaging –Unique features or ways of packaging that make a product more distinct from its competitors Multiple Packaging –Bundling multiple units of a product together to encourage usage and to increase demand Handling-Improved Packaging –Packaging that has been changed to facilitate product handling in the distribution channel

58. Copyright © Houghton Mifflin Company. All rights reserved. 10–58 Important Terms Labeling –Providing identifying, promotional, legal, or other information on package labels