1. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10: Developing and Managing Goods and Services Pride/Ferrell Foundations of Marketing Fourth Edition Prepared by Milton Pressley University of New Orleans

2. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Objectives 1.Understand how companies manage existing products through line extensions and product modifications. 2.Describe how businesses develop a product idea into a commercial product. 3.Know the importance of product differentiation and the elements that differentiate one product from another. 4.Explain product positioning and repositioning. 5.Understand how product deletion is used to improve product mixes. 6.Understand the characteristics of services and how these characteristics present challenges when developing marketing mixes for service products. 7.Be familiar with organizational structures used for managing products.

3. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Existing Products Line Extensions Product Modifications Quality Modifications Functional Modifications Aesthetic Modifications An organization can benefit by capitalizing on its existing products

4. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Line Extension Development of a product that is closely related to existing products in the line but meets different customer needs Line Extension Chocolate-flavored Chex Mix is a line extension.

5. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Modifications Changein one or more characteristics of a product Product Modification Automobile companies employ quality, functional, and aesthetic modifications.

6. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. When Apple introduced the 3G iPhone, was it a line extension or a product modification? When Apple introduced the 3GS iPhone, was it a line extension or a product modification? Discussion Question

7. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Quality, Functional, and Aesthetic Modifications Quality modifications –Changes relating to a product’s dependability and durability Functional modifications –Changes affecting a product’s versatility, effectiveness, convenience or safety Aesthetic modifications –Changes to the sensory appeal of a product

8. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Discussion Question Click on the TV below to watch a Windows 7 Promotional Video. After viewing it, and using your personal knowledge of Windows 7, discuss whether you think Windows 7 is a quality, functional, or aesthetic modification.

9. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Developing New Products The term “new product” can have more than one meaning –Offering innovative benefits –Different and distinctly better than existing products –Never been sold by any organization –One a specific firm is currently launching even though other firms are already producing and marketing similar products –It is brought to one or more markets from another market

10. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Discussion Question Some marketers would consider this to be a new product, while others would view it as a line extension. Which do you think it is?

11. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 10.1 Phases of New-Product Development

12. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Phases of New Product Development Idea generation –Seeking product ideas to achieve objectives Screening –Choosing the most promising ideas for further review Concept testing –Seeking potential buyers’ responses to a product idea Business analysis –Evaluating the potential contribution of a product idea to the firm’s sales, costs and profits Product development –Determining if producing a product is technically feasible and cost effective

13. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Test Marketing Introducing a product on a limited basis to measure the extent to which potential customers will actually buy it

14. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Commercialization Deciding on full-scale manufacturing and marketing plans and preparing budgets Stages of Expansion into a National Market During Commercialization

15. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Differentiation Creating and designing products so that customers perceive them as different from competing products

16. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Quality Characteristics of a product that allow it to perform as expected in satisfying customer needs Every product possesses a certain level of quality Products are judged by consistency of quality over time Product Quality Selected products are designed to have a very high quality and to use quality as a major competitive tool.

17. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Design and Features Product Design –How a product is conceived, planned, or produced Styling –The physical appearance of a product Product Features –Specific design characteristics that allow a product to perform certain tasks

18. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Support Services CORT Furniture provides product support services that some other office furniture manufactures do not. Product Support Services Often referred to as customer services, these services include any human or mechanical efforts or activities a company provides that add value to a product

19. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Positioning Creating and maintaining a certain concept of a product in customers’ minds Product Positioning The makers of Dockers position their products as being comfortable, flexible, and a reasonable value.

20. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Perceptual Mapping Created by questioning a sample of consumers about their perceptions of products, brands, and organizations with respect to two or more dimensions –Respondents are asked about their preferences for product features to establish “ideal points” or “ideal clusters” Represent a consensus about what a specific group of customers desires in terms of product features

21. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Hypothetical Perceptual Map for Pain Relievers

22. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Bases For Positioning Use competitors –Head-to-head competition –Avoiding competition Price Quality level Benefits provided by the product

23. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Repositioning A brand’s market share and profitability may be strengthened by repositioning Can be accomplished by: –physically changing the product –changing the price –changing distribution –changing image through promotional efforts –aiming product at a different target market

24. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Discussion Question Click on the TV below and watch the commercial. What base(s) for product positioning do you think was used in this commercial?

25. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Deletion Process Eliminating a product from the product mix, usually because it no longer satisfies a sufficient number of customers

26. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Services As Products Services, like products, must be marketed. Those marketing services must understand their unique characteristics: Intangibility Inseparability of production and consumption Perishability Heterogeneity (variation in quality) Client-based relationships (resulting in repeated use of the service) Customer contact

27. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Customer Contact The level of interaction between provider and customer needed to deliver the service Level of Customer Contact There is a high level of customer contact associated with medical services.

28. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Service Characteristics and Marketing Challenges

29. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Creating Marketing Mixes for Services Development of services Core service Supplementary service Pricing of services Most revenues brought in during peak demand Distribution of services Many firms have changed a high-contact service into a low-contact one Promotion of services Typically includes tangible cues that symbolize the service

30. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Distribution of Services Distribution FedEx mainly provides its services through retail stores, as well as pickup and delivery at customers’ homes or offices.

31. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Organizing to Develop and Manage Products Product manager –The person within an organization responsible for a product, a product line, or several distinct products that make up a group Brand manager –The person responsible for a single brand Market manager –The person responsible for managing the marketing activities that serve a particular group of customers Venture team –A cross-functional group that creates entirely new products that may be aimed at new markets

32. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. After Reviewing This Chapter You Should: 1.Understand how companies manage existing products through line extensions and product modifications. 2.Be able to describe how businesses develop a product idea into a commercial product. 3.Know the importance of product differentiation and the elements that differentiate one product from another. 4.Be able to explain product positioning and repositioning. 5.Understand how product deletion is used to improve product mixes. 6.Understand the characteristics of services and how these characteristics present challenges when developing marketing mixes for service products. 7.Be familiar with organizational structures used for managing products.

33. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Key Concepts Line extension Product modification Quality modifications Functional modifications Aesthetic modifications New-product development process Idea generation Screening Concept testing Business analysis Product development Test marketing Commercialization Product differentiation Quality Level of quality Consistency of quality Product design Styling Product features Customer services Product positioning Product deletion Intangibility Inseparability Perishability Heterogeneity Client-based relationships Product manager Brand manager Market manager Venture team