BK12e Ch11 Basic

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Copyright 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Part 4: Product DecisionsPart 4: Product Decisions

1.1. Product and ServiceProduct and ServiceStrategiesStrategies

2.2. Category and BrandCategory and Brand

Management, ProductManagement, ProductIdentification, and New-Identification, and New-

Product DevelopmentProduct Development

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Copyright 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Chapter 11Chapter 11

Product andProduct and

Service StrategiesService Strategies

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11-3Copyright 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Chapter ObjectivesChapter Objectives

Define the termproductand distinguish between goods andservices and how they relate to the goods-services

continuum. Explain the importance of the service sector in todays

marketplace.

List the classifications of consumer goods and services and

briefly describe each category. Describe each of the types of business goods and services.

Explain how quality is used by marketers as a productstrategy.

Explain why firms develop lines of related products.

Describe the way marketers typically measure product mixesand make product mix decisions.

Explain the concept of the product life cycle and identify thedifferent stages.

Describe how a firm can extend a products life cycle.

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What is a Product?What is a Product?

Product:Product: bundle of physical, service, and

symbolic attributes designed to enhance

buyers want satisfaction

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What are Goods and Services?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

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Characteristics that distinguish services from

goods:Intangibility

Inseparability

PerishabilityDifficulty of standardization

Frequent requirement of

interaction between buyer

and Seller

Variability

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7/2911-7Copyright 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Importance of the Service SectorImportance of the Service Sector

The service sector makes up more than two-thirds of the economy.

Services also play a crucial role in theinternational competitiveness of U.S. firms.

Concerns include offshoring service jobs such

as customer service call centers.

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Classifying Goods and Services forClassifying Goods and Services for

Consumer and Business MarketsConsumer and Business Markets

Consumer productsConsumer products: products destined for

use by ultimate consumers

Business (or B2B) productsBusiness (or B2B) products: those that

contribute directly or indirectly to the output of

other products for resale

Also called industrial or organizationalproducts

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Types of Consumer ProductsTypes of Consumer Products

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Convenience productConvenience 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 boughtin response to unexpected and urgent needs.

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Shopping productShopping product: good or service

purchased only after the customer compares

competing offerings from competing vendorson such characteristics as price, quality, style,

and color

Typically cost more than conveniencepurchases.

Include tangible items.

Shopper lacks complete information and

gathers information during the buying

process.

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Specialty productSpecialty product: good or service with

unique characteristics that cause the buyer tovalue it and make a special effort to obtain it

Unsought productUnsought product: good or servicemarketed to consumers who may not yet

recognized in the need for it

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Types of Business Products

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InstallationInstallation: major capital investment by abusiness buyer that typically involves expensive

and relatively long-lived products, such as anew factory or piece of heavy machinery

Accessory equipmentAccessory equipment: capital product, usually

less expensive and shorter-lived that insulation,such as a laptop computer

Component parts and materialsComponent parts and materials: finished

business products that become parts of buyingfirms final products, such as spark plugs fornew cars

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Raw materialsRaw materials: business product, such as afarm product (wheat, cotton, soybeans) ornatural product (coal, lumber, iron ore) thatbecome part of a final product

SuppliesSupplies: products that represent regular

expenses necessary to carry out a firms dailyoperations but are not part of the final product.Supplies are sometimes called MRO items

MRO itemMRO item: part of business supplies

categorized as maintenance items, repairitems, or operating supplies such as lightbulbs, nuts and bolts used in repairingequipment, or pencils

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Business servicesBusiness services: intangible product

purchased to facilitate a firms production

and operating processes such as financial

services, leasing of vehicles, legal advice

and consulting

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Quality as a Product StrategyQuality as a Product Strategy

QualityQuality is a key component to a firms success

in a competitive marketplace.

Total quality managementTotal quality management (TQM): approach

that involves all employees in continuallyimproving products and work processes to

achieve customer satisfaction and world-class

performance

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Worldwide Quality ProgramsWorldwide Quality Programs

Malcolm Baldrige National Quality Award

ISO 9002: set of standards for qualitymanagement and quality assurancedeveloped by the International StandardsOrganization in Switzerland for countries in

the European Union

Benchmarking:Benchmarking: process in which anorganization improves performance bycontinually comparing and measuring itselfagainst the leading firms in an industry andimplementing changes for qualityimprovement

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Quality of ServicesQuality of Services

Service encounter

Service quality: Expected and perceived

quality of a service offering

Determined by five variables:

Tangibles

Reliability

Responsiveness

Assurances

Empathy

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Development of Product LinesDevelopment of Product Lines

Product LineProduct Line: a series of related productsMotivation

Desire to Grow

Enhancing the Companys Position inthe Market

Optimal Use of Company Resources

Exploit the Product Life Cycle

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A companys assortment of product lines and

individual offeringsProduct 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 MixThe Product Mix

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Product Mix DecisionsProduct Mix Decisions

A firm may lengthen or widen its productmix

A Company may decide to add variations

that will attract new users

A product may be pruned or altered, andnew product may extend the product life

cycle

Line extension: introduction of a newproduct that is closely related to other

products in the firms existing line

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The Product Life CycleThe Product Life Cycle

Product life cycleProduct life cycle: progression of products

through introduction, growth, maturity, anddecline stages

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Introduction StageIntroduction Stage

Firm works to stimulate demand for the

new market entry

Promotional campaigns stress features

Additional promotions to intermediariesattempt to induce them to carry the product

Although prices are typically high, financial

losses are common due to heavypromotional and research-and-

development costs

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Maturity StageMaturity Stage

Industry sales continue to grow, buteventually reach a plateau

Many competitors have entered themarket, and profits began to decline

Differences between competing productsdiminish

Available supplies exceed industry demandfor the first time

Competition intensifies and heavypromotional outlays are common

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Decline StageDecline Stage

Innovations or shifts in consumer

preferences cause an absolute decline in

industry sales

Industry profits fall -- sometimes becomelosses

Firms cut prices in a bid for the dwindling

market

Manufacturers gradually drop the declining

items from their product lines

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Extending the Product Life CycleExtending the Product Life Cycle

Marketers usually try to expand each stage of thelife 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 currentcustomers

Increase the number of users for the

productFind new uses

Change package sizes, labels, or product

quality

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Product Deletion DecisionsProduct Deletion Decisions

Product lines must sometimes be pruned andmarginal products eliminated

This decision is typically faced during the late

maturity and early declined stages of the

product life cycleAn unprofitable item may be continued in

order to provide a complete line for

customers

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BK12e Ch11 Basic