SLIDE principles of marketing chapter 5

LEARNING OBJECTIVES  Define product and describe the major classifications of products and services  Describe the decisions companies make regarding their individual products and services, product lines, and product mixes  Describe the stages of the product life cycle and how marketing strategies change during a product’s life cycle  List and define the steps in the new product development process and the major considerations in managing this process WHAT IS A PRODUCT?  Definition  Anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need LEVELS OF PRODUCT AND SERVICES After-sale service Delivery CORE CUSTOMER VALUE The core, problem-solving benefits or services that consumers seek (“What is the customer really buying?”) Features Quality level Packaging Design Warranty ACTUAL PRODUCT Product and service features, design, quality level, brand name, packaging and other attributes combined to deliver the core customer value Brand name Product support Credit AUGMENTED PRODUCT Additional consumer services and benefits (warranty, repair services, delivery, consulting, installation, etc.) PRODUCT AND SERVICE CLASSIFICATIONS  By tangibility  Non-durable product: Tangible goods that are immediately consumed in one use or ones that have a lifespan of less than three years  Durable product: Tangible goods that can be used for a long time (typically at least three years) and that people not buy very often  Service: An activity, benefit, or satisfaction offered for sale that is essentially intangible and does not result in the ownership of anything PRODUCT AND SERVICE CLASSIFICATIONS  Nature and Characteristics of a Service Service intangibility Service inseparability • Services cannot be seen, tasted, felt, heard, or smelled before purchase • Services cannot be separated from their providers Service variability • Quality of services depends on who provides them and when, where, and how Service perishability • Services cannot be stored for later sale or use PRODUCT AND SERVICE CLASSIFICATIONS MARKET CLASSIFICATION CONSUMERS PRODUCT CLASSIFICATION CONSUMER PRODUCTS MARKET PRODUCTS ORGANIZATIONS INDUSTRIAL PRODUCTS PRODUCT AND SERVICE CLASSIFICATIONS  Consumer product  A product bought by final consumers for personal consumption  Industrial product  A product bought by individuals and organizations for further processing or for use in conducting a business CONSUMER PRODUCTS CONVENIENCE PRODUCT Customer - Frequent purchase buying - Little planning behavior - Little comparison or shopping effort - Low customer involvement Examples SHOPPING PRODUCT SPECIALTY PRODUCT UNSOUGHT PRODUCT - Less frequent purchase - Much planning and shopping effort - Comparison of brands on price, quality, and style - Strong brand preference and loyalty - Special purchase effort - Little comparison of brands - Low price sensitivity Little product awareness or knowledge (or, if aware, little or even negative interest) INDUSTRIAL PRODUCTS Raw materials Materials and parts Manufactured materials and parts Installations INDUSTRIAL PRODUCTS Capital items Supplies and services 10 - Farm products (wheat, cotton, livestock, fruits, vegetables) - Natural products (fish, lumber, crude petroleum, iron ore) - Component materials (iron, yarn, cement, wires) - Component parts (small motors, tires, castings) - Buildings (factories, offices) - Fixed equipment (generators, drill presses, large computer systems, elevators) Accessory equipment - Portable factory equipment and tools (hand tools, lift trucks) - Office equipment (computers, fax machines, desks) Supplies - Operating supplies (lubricants, coal, paper, pencils) - Repair and maintenance items (paint, nails, brooms) Business services - Maintenance and repair services (window cleaning, computer repair) - Business advisory services (legal, management consulting, advertising) PRODUCT LIFE CYCLE STRATEGIES  Special PLCs STYLE  A basic and distinctive mode of expression  Once a style is invented, it may last for generations, passing in and out of vogue  A style has a cycle showing several periods of renewed interest 32 FASHION  A currently accepted or popular style in a given field  Fashions tend to grow slowly, remain popular for a while, and then decline slowly FAD  A temporary period of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity  May be part of a normal PLC, or may comprise a brand’s entire PLC PRODUCT LIFE CYCLE STRATEGIES 33 NEW PRODUCT DEVELOPMENT STRATEGY  Two ways to obtain new products:  Acquisition: The buying of a whole company, a patent, or a license to produce someone else’s product  New product development: The development of original products, product improvements, product modifications, and new brands through the firm’s own research and development efforts 34 NEW PRODUCT DEVELOPMENT STRATEGY  Roles of new products +  To customers: Bring new solutions and variety to customers’ lives  To companies: Key source of growth -  Very expensive and very risky (60% of all new consumer packaged products introduced by established companies fail) Reasons: 35 • The company may overestimate market size • The actual product may be poorly designed, incorrectly positioned, launched at the wrong time, priced too high, or poorly advertised • A high-level executive might push a favorite idea despite poor marketing research findings • The costs of product development are higher than expected • Competitors fight back harder than expected NEW PRODUCT DEVELOPMENT PROCESS 36 NEW PRODUCT DEVELOPMENT PROCESS  The systematic search for new product ideas  Major sources of new product ideas: IDEA GENERATION • Internal sources: employees, R&D • External sources: distributors, suppliers, competitors, customers, etc • Crowdsourcing or open-innovation: Inviting broad communities of people—customers, employees, independent scientists and researchers, and even the public at large—into the new product innovation process  Innovative companies don’t rely only on one source or another for new product ideas Instead, they develop extensive innovation networks that capture ideas and inspiration from every possible source, from employees and customers to outside innovators and multiple points beyond 37 NEW PRODUCT DEVELOPMENT PROCESS IDEA GENERATION IDEA SCREENING  Screening new product ideas to spot good ones and drop poor ones as soon as possible  New product idea write-up: • A standard format that can be reviewed and evaluated by a new product committee • Describe the product or the service, the proposed customer value proposition, the target market, and the competition, rough estimates of market size, product price, development time and costs, manufacturing costs, and rate of return  New product screening framework: R-W-W • Is it real? • Can we win? • Is it worth doing? 38 NEW PRODUCT DEVELOPMENT PROCESS IDEA GENERATION  Distinguish between: IDEA SRCREENING • Product idea is an idea for a possible product that the company can see itself offering to the market CONCEPT DEVELOPMENT & TESTING • Product concept is a detailed version of the idea stated in meaningful consumer terms • Product image is the way consumers perceive an actual or potential product 39 NEW PRODUCT DEVELOPMENT PROCESS IDEA GENERATION IDEA SRCREENING CONCEPT DEVELOPMENT & TESTING  Concept development • Idea  Concept 1, 2, 3, 4, …  Concept testing: Testing new product concepts with a group of target consumers to find out if the concepts have strong consumer appeal • The concepts may be presented to consumers symbolically or physically (a word or picture description) • After being exposed to the concept, consumers then may be asked to react to it by answering questions 40 NEW PRODUCT DEVELOPMENT PROCESS IDEA GENERATION IDEA SCREENING CONCEPT DEVELOPMENT & TESTING MARKETING STRATEGY DEVELOPMENT  Designing an initial marketing strategy for a new product based on the product concept  The marketing strategy statement consists of parts: • The first part describes the target market; the planned value proposition; and the sales, market-share, and profit goals for the first few years • The second part of the marketing strategy statement outlines the product’s planned price, distribution, and marketing budget for the first year • The third part of the marketing strategy statement describes the planned long-run sales, profit goals, and marketing mix strategy 41 NEW PRODUCT DEVELOPMENT PROCESS IDEA GENERATION IDEA SCREENING CONCEPT DEVELOPMENT & TESTING MARKETING STRATEGY DEVELOPMENT BUSINESS ANALYSIS 42  A review of the sales, costs, and profit projections for a new product to find out whether these factors satisfy the company’s objectives  steps: • Estimate sales (by looking at the sales history of similar products and conducting market surveys )  assess the range of risk • Estimate the expected costs (including marketing, R&D, operations, accounting, and finance costs) and profits • Analyze the new product’s financial attractiveness: based on sales and cost forecasts NEW PRODUCT DEVELOPMENT PROCESS IDEA GENERATION IDEA SCREENING CONCEPT DEVELOPMENT & TESTING MARKETING STRATEGY DEVELOPMENT BUSINESS ANALYSIS PRODUCT DEVELOPMENT 43  Developing the product concept into a physical product to ensure that the product idea can be turned into a workable market offering  Tasks: • Develop and test one or more physical versions (prototypes) of the product concept • Companies can their own product testing or outsource testing to other firms that specialize in testing NEW PRODUCT DEVELOPMENT PROCESS IDEA GENERATION IDEA SCREENING CONCEPT DEVELOPMENT & TESTING MARKETING STRATEGY DEVELOPMENT BUSINESS ANALYSIS PRODUCT DEVELOPMENT TEST MARKETING 44  The stage of new product development in which the product and its proposed marketing program are tested in realistic market settings  A company may little or no test marketing when the costs of developing and introducing a new product are low or when management is already confident about the new product  Test markets: • Standard market: extensive and costly • Controlled test market: new products and tactics are tested among controlled panels of shoppers and stores • Simulated test market: new products and marketing tactics measured in laboratory stores or simulated online shopping environments NEW PRODUCT DEVELOPMENT PROCESS IDEA GENERATION IDEA SCREENING  Introducing a new product into the market  Decisions: CONCEPT DEVELOPMENT & TESTING • Build or rent a manufacturing facility MARKETING STRATEGY DEVELOPMENT • Spend money for advertising, sales promotion, and other marketing efforts in the first year BUSINESS ANALYSIS PRODUCT DEVELOPMENT TEST MARKETING • Decide on introduction timing • Decide where to launch the new product—in a single location, a region, the national market, or the international market COMMERCIALIZATION 45 MANAGING NEW PRODUCT DEVELOPMENT  Customer-Centered New Product Development  New product development that focuses on finding new ways to solve customer problems and create more customer-satisfying experiences  Begins and ends with solving customer problems  Team-Based New Product Development  New product development in which various company departments work closely together, overlapping the steps in the product development process to save time and increase effectiveness  Systematic New Product Development  The new product development process should be holistic and systematic rather than compartmentalized and haphazard => install an innovation management system to collect, review, evaluate, and manage new product ideas  Outcomes: • Create an innovation-oriented culture • Yield a large number of new-product ideas 46 ... Organization marketing E.g.: corporate image marketing, public relations, etc Aims: create, maintain, or change the attitudes and behavior of target consumers toward an organization Person marketing. .. symbol, or design, or a combination of these, that identifies the products or services of one seller or group of sellers and differentiates them from those of competitors 26 INDIVIDUAL PRODUCT... DEVELOPMENT & TESTING MARKETING STRATEGY DEVELOPMENT  Designing an initial marketing strategy for a new product based on the product concept  The marketing strategy statement consists of parts: • The