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Introduction to Management II - Lecture 006

9 Pages

Management (MGT)
Course Code
Chris Bovaird

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28 February 2013 CHAPTER 6: DEVELOPING AND PROMOTING GOODS AND SERVICES WHAT IS A PRODUCT? Features are the qualities, both tangible and intangible, that a company builds into its products (IE: 12 horsepower motor on a lawn mower. Features must also provide benefits (IE: Mower must produce an attractive lawn (tangible), owner’s pleasure in knowing that the mower is nearby when needed (intangible). Value Package is when the product is marketed as a bundle of value adding attributes, including reasonable cost. Most items in the value package are services or intangibles that add value by providing benefits. Greater value is when buyers expect to receive more benefits at reasonable costs. Products are much more than just visible features and benefits, consumers look at image and reputation. A personal computer:  Value Package: Easy access to understandable pre-purchase information, choices of colour, attractivesoftwarepackages,fastorderingviatheinternet,assuranceofspeedydelivery,internet chat room capability  Features: Processing devices, hardware  Benefits: Increase customer’s satisfaction CLASSIFYING GOODS AND SERVICES Buyers of Consumer Products  Convenience are relatively inexpensive consumer goods or services that are bought and used rapidly and regularly, causing consumers to spend little time looking for them or comparing their prices o Goods (IE: Milk, newspapers) o Services (Fast food restaurants)  Shoppingaremoderatelyexpensiveconsumergoodsorservicesthatarepurchasedinfrequently, causing consumers to spend some time comparing their prices o Goods (IE: Stereos, tires) o Services (IE: Insurance)  Specialty are very expensive consumer goods or services that are purchased rarely, causing consumers to spend a great deal of time locating the exact item desired o Goods (IE: Wedding gowns) o Services (IE: Catering) Buyers of Industrial Products  Expense Items are relatively inexpensive industrial goods that are consumed rapidly and regularly, consumed within a year by firms producing other goods or supplying services (IE: Bulk loads of tea processed into tea bags)  Capital Items are expensive, long lasting industrial goods that are used in producing other goods or services and have a long life, permanent and consumed over several years o Goods (IE: Buildings, fixed equipment, computers, airplanes) o Services (IE: Employee food services, building and equipment maintenance, legal services) Product Mix is the group ofproducts a company has available for sale (IE: Black &Decker makes toasters, vacuum cleaners, electric drills). Product Line is a group of similar products intended for a similar group of buyers who will use them in a similar fashion (IE: Flavoured iced teas). Multiple (or diversified) Product Lines is the result when companies extend their horizons and identify opportunities outside existing products line (IE: ServiceMaster serving residential has branched to industry services of landscaping and janitorial). It allows a company to grow rapidly and can help to offset the consequences of slow sales in any one product line. DEVELOPING NEW PRODUCTS Companies often face multi-year time horizons and high risks when developing new products. It takes about 50 new product ideas to generate one product that finally reaches the market. Creating a successful new product has become increasingly difficult, even for the most experienced marketers because the number of new products hitting the market each year has increased dramatically, and thousandsofnewhousehold,grocery,anddrugstoreitemsareintroducedannually.Butatanygiventime, the average supermarket carries a total of only 20,000 to 25,000 different items. Because of lack of space and customer demand, about 9 of 10 new products will fail. Those with the best chances are innovative and deliver unique benefits. The more rapidly a productmoves from the laboratory to themarketplace, the more likely it is to survive. By introducing new products ahead of competitors, companies establish market leadership. Speed of Marketisastrategyofintroducingnewproductstorespondquickly(IE:3monthslate=loses12%lifetime potential, 6 months = loses 33%). Seven Step Development Process  Product Ideas o Search for ideas and new products o Comes from consumers, the sale force, research and development people, engineering personnel o Key is to actively seek out ideas and reward those whose ideas become successful products  Screening o Attempttoeliminateallproductideasthatdonotmeshwiththefirm’sabilities,expertise, objectives o Marketing, engineering, production has input  Concept Testing o Market research to solicit consumers’ input o Firms identify benefits that the product must provide, appropriate price level  Business Analysis o Developing early comparison of costs versus benefits for proposed product o Preliminary sales projections compared with cost projections from finance and production o Aim not to determine precisely how much money product will make o See whether product can meet minimum profitability goals  Prototype Development o Product ideas begin to take shape o Input from concept testing phase, engineering and research and development produce preliminary version of product o Extremely expensive, requiring extensive hand crafting, tooling, development of components o Identify potential production problems  Product Testing and Test Marketing o Limits production of item o Tested internally to see if it meets performance requirements o Made available for sale in limited areas o Costly, promotional campaigns and distribution channels established for test markets o Gives company information on how consumers will respond to product  Commercialization o If marketing results positive, company begs full scale production and marketing o Formprovidesproducttomoreandmoreareasovertime,preventsunduestrainonfirm’s initial production capabilities o Extensive delays in commercialization may give competitors a chance to bring out their own version VARIATIONS IN PROCESS FOR SERVICES In development of services: screening, concept testing, business analysis, product testing and test marketing, commercialization is the same. Differences in: product ideas and prototype development.  Service Ideas o Service Package is the identification of the tangible and intangible features that define the service  ServiceProcessDesignisselectingtheprocess,identifyingworkerrequirements,anddetermining facilities requirements so that the service can be effectively provided o Process Selection identifies each step in the service (IE: Sequence, timing) o Worker Requirements specify employee behaviours, skills, capabilities, and interactions with customers during the service encounter o Facilities Requirements designate all of the equipment that supports delivery of the service PRODUCT LIFE CYCLE (PLC) The concept that the profit producing life of any product goes through a cycle of introduction, growth, maturity (levelling off), and decline. Stages in the Product Life Cycle  Introduction o When product reaches marketplace o Marketers focus on making potential consumers aware of product and benefits o Because of extensive promotional and development costs, profits are nonexistent  Growth o If product attracts and satisfies enough consumers, saes climb rapidly o Product begins to show a profit o Firms in industry move rapidly to introduce own versions  Maturity o Sales growth begins to slow o Early stage, product earns its highest profit o Increased competition eventually leads to price cutting and lower profits o End of stage, sales start to fall  Decline o Sales and profits continue to fall o New products take away sales o Remove or reduce promotional support but let the product linger to provide profits Extending Product Life: An Alternative to New Products Foreign markets offer three possibilities for lengthening product life cycles:  Product Extension are existing, unmodified products that are marketed globally (IE: Coke, Levi’s)  Product Adaptation are products modified to have greater appeal in foreign markets (IE: McDonald’s meal includes beer in Germany)  Reintroductionistheprocessofrevivingfornewmarketsproductsthatareobsoleteinolderones (IE: NCR introduced manually operated cash registers in Latin America) IDENTIFYING PRODUCTS Branding is the process of using symbols to communicate the qualities of a product made by a particular producer  Brand Equity is the degree of consumers’ loyalty to and awareness of a brand and its resultant market share. A strong brand equity is an equally important asset as widely known and admired brands are valuable because of their power to attract customers o National Brands are products distributed by and carrying a name associated with the manufacturer (IE: Scotch tape) o LicensedBrandsissellingtherighttouseabrandname,acelebrity’sname,orsomeother well-known identification mark to another company to use on a product. Marketers exploit brands because of their public appeal, the image and status that consumers hope to gain by associating with them and the free advertising that comes with licensing (IE: T- shirts) o Private Brands are products promoted by and carrying a name associated with the retailer or wholesaler, not the manufacturer (IE: Loblaw’s with President’s Choice, Shoppers Drug Mart with Life) o BrandLoyaltyiswhencustomers’recognitionof,preferencefor,andinsistenceonbuying a product with a certain brand name  Brand Awareness is when customers recognize the brand name  Brand Preference is when consumers have a favourable attitude toward the product  Brand Insistence is when consumers demand the product and are willing to go out of their way to get it. It implies a lot of trust in a brand o Trademarks are the exclusive legal right to use a brand name. Because brand development is very expensive, a company does not want another company using its nameandconfusingconsumersintobuyingasubstituteproduct.Itisgrantedfor15years and may be renewed for further periods of 15 years o Patent protects an invention or idea for a period of 20 years o Copyright is an exclusive ownership right granted to creators for the tangible expression of an idea Packaging is the physical container in which a product is sold, including the label. It serves as an in-store advertisement that makes the product attractive, clearly displays the brand, identifies product features and benefits, and reduces the risk of damage, breakage, or spoilage. Packaging costs can be as high as 15% of the total cost to make the product, and features like a zip lock top can add 20% to the price that is charged. Label is the part of the product’s packaging that identifies the product’s name and contents and sometimes its benefits.  Identifies the product or brand (IE: Campbell)  Promote products by getting consumer’s attention (IE: Attractive colours, graphics)  Describes the product as it provides information about nutritional content, directions for use, proper disposal, and safety Promotion is any technique used designed to sell a product. Communication Mix is the total message a company sends to consumers about its product. There are two general values to be gained from any promotionalactivityregardlessoftheparticularstrategyortoolinvolved:communicatinginformationand creating satisfying exchanges.  InformationandExchangeValuesthepurposeistoinfluencepurchasedecisions.Thebuyergains from the exchange (a more attractive product) as does the seller (sales and profits) o Make them aware of products o Make them knowledgeable about products o Persuade them to like products o Persuade them to purchase products  Objective is to increase sales; however, marketers also use promotion
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