1. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Part 4: Product Decisions 11. Product and Service Strategies 12. Category and Brand Management, Product Identification, and New- Product Development

2. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Chapter 11 Product and Service Strategies

3. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-3 Chapter Objectives 1.Define the term product and distinguish between goods and services and how they relate to the goods-services continuum. 2.Explain the importance of the service sector in today’s marketplace. 3.List the classifications of consumer goods and services and briefly describe each category. 4.Describe each of the types of business goods and services. 5.Explain how quality is used by marketers as a product strategy. 6.Explain why firms develop lines of related products. 7.Describe the way marketers typically measure product mixes and make product mix decisions. 8.Explain the concept of the product life cycle and identify the different stages. 9.Describe how a firm can extend a product’s life cycle.

4. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-4 What is a Product? Product: Product: bundle of physical, service, and symbolic attributes designed to enhance buyers’ want satisfaction

5. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-5 What are Goods and Services? Service: Service: intangible task that satisfies consumer or business user needs Goods-services continuum: Goods-services continuum: device that helps marketers to visualize the differences and similarities between goods and services

6. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-6 Characteristics that distinguish services from goods: Intangibility Inseparability Perishability Difficulty of standardization Frequent requirement of interaction between buyer and Seller Variability

7. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-7 Importance of the Service Sector The service sector makes up more than two- thirds of the economy. Services also play a crucial role in the international competitiveness of U.S. firms. Concerns include offshoring service jobs such as customer service call centers.

8. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-8 Classifying Goods and Services for Consumer and Business Markets Consumer products Consumer products: products destined for use by ultimate consumers Business (or B2B) products Business (or B2B) products: those that contribute directly or indirectly to the output of other products for resale Also called industrial or organizational products

9. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-9 Types of Consumer Products

10. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-10 Convenience product Convenience product: good or service that consumers want to purchase frequently, immediately, and with minimal effort Impulse goods and services are purchased on the spur of the moment. Staples are convenience goods and services that consumers constantly replenish to maintain a ready inventory. Emergency goods and services are bought in response to unexpected and urgent needs.

11. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-11 Shopping product Shopping product: good or service purchased only after the customer compares competing offerings from competing vendors on such characteristics as price, quality, style, and color Typically cost more than convenience purchases. Include tangible items. Shopper lacks complete information and gathers information during the buying process.

12. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-12 Specialty product Specialty product: good or service with unique characteristics that cause the buyer to value it and make a special effort to obtain it Unsought product Unsought product: good or service marketed to consumers who may not yet recognized in the need for it

13. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-13 Types of Business Products

14. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-14 Installation Installation: major capital investment by a business buyer that typically involves expensive and relatively long-lived products, such as a new factory or piece of heavy machinery Accessory equipment Accessory equipment: capital product, usually less expensive and shorter-lived that insulation, such as a laptop computer Component parts and materials Component parts and materials: finished business products that become parts of buying firms’ final products, such as spark plugs for new cars

15. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-15 Raw materials Raw materials: business product, such as a farm product (wheat, cotton, soybeans) or natural product (coal, lumber, iron ore) that become part of a final product Supplies Supplies: products that represent regular expenses necessary to carry out a firm’s daily operations but are not part of the final product. Supplies are sometimes called MRO items MRO item MRO item: part of business supplies categorized as maintenance items, repair items, or operating supplies such as light bulbs, nuts and bolts used in repairing equipment, or pencils

16. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-16 Business services Business services: intangible product purchased to facilitate a firm’s production and operating processes such as financial services, leasing of vehicles, legal advice and consulting

17. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-17 Quality as a Product Strategy Quality Quality is a key component to a firm’s success in a competitive marketplace. Total quality management Total quality management (TQM): approach that involves all employees in continually improving products and work processes to achieve customer satisfaction and world-class performance

18. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-18 Worldwide Quality Programs Worldwide Quality Programs Malcolm Baldrige National Quality Award ISO 9002: set of standards for quality management and quality assurance developed by the International Standards Organization in Switzerland for countries in the European Union Benchmarking: Benchmarking: process in which an organization improves performance by continually comparing and measuring itself against the leading firms in an industry and implementing changes for quality improvement

19. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-19 Quality of Services Quality of Services Service encounter Service quality: Expected and perceived quality of a service offering Determined by five variables:  Tangibles  Reliability  Responsiveness  Assurances  Empathy

20. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-20 Development of Product Lines Product Line Product Line: a series of related products Motivation  Desire to Grow  Enhancing the Company’s Position in the Market  Optimal Use of Company Resources  Exploit the Product Life Cycle

21. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-21 A company’s assortment of product lines and individual offerings Product Width--the number of product lines offered. Product Length--the number of different products a firm sells. Product Depth--variations in each product that a firm markets in its mix. The Product Mix

22. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-22 Product Mix Decisions Product Mix Decisions A firm may lengthen or widen its product mix A Company may decide to add variations that will attract new users A product may be pruned or altered, and new product may extend the product life cycle Line extension: introduction of a new product that is closely related to other products in the firm’s existing line

23. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-23 The Product Life Cycle Product life cycle Product life cycle: progression of products through introduction, growth, maturity, and decline stages

24. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-24 Introduction Stage Introduction Stage Firm works to stimulate demand for the new market entry Promotional campaigns stress features Additional promotions to intermediaries attempt to induce them to carry the product Although prices are typically high, financial losses are common due to heavy promotional and research-and- development costs

25. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-25 Growth Stage Growth Stage Sales volume rises rapidly Firm usually begins to realize substantial profits Success attracts competitors Firm may need to make improvements to the product Additional spending on promotion and distribution may be necessary

26. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-26 Maturity Stage Maturity Stage Industry sales continue to grow, but eventually reach a plateau Many competitors have entered the market, and profits began to decline Differences between competing products diminish Available supplies exceed industry demand for the first time Competition intensifies and heavy promotional outlays are common

27. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-27 Decline Stage Decline Stage Innovations or shifts in consumer preferences cause an absolute decline in industry sales Industry profits fall -- sometimes become losses Firms cut prices in a bid for the dwindling market Manufacturers gradually drop the declining items from their product lines

28. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-28 Extending the Product Life Cycle Marketers usually try to expand each stage of the life cycle for their products as long as possible Product life cycles can stretch indefinitely as a result of decisions designed to: Increase the frequency of use by current customers Increase the number of users for the product Find new uses Change package sizes, labels, or product quality

29. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-29 Product Deletion Decisions Product lines must sometimes be pruned and marginal products eliminated This decision is typically faced during the late maturity and early declined stages of the product life cycle An unprofitable item may be continued in order to provide a complete line for customers