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Chapter 6 Management notes

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

CHAPTER 6: THE 4 Ps - PRODUCT WHAT IS A PRODUCT? The Value Package Features: the qualities, both tangible and intangible, that a company builds into its products. To attract buyers, features also must provide benefits: The mower must produce an attractive lawn or the owner’s pleasure in knowing that the mower is nearby when need. Value package: product marketed as a bundle of value-adding attributes, including reasonable cost. Products are much more than just visual features and benefits. In buying a product, consumers are also buying an image and a reputation. Classifying Goods and Services Classifying Consumer Products • Convenience goods/services: relatively inexpensive consumer goods (milk and newspapers) or services (those offered by fast food restaurants) that is bought and used rapidly and regularly, causing consumers to spend little time looking for them or comparing their prices. • Shopping goods/services: moderately expensive consumer goods (stereos and tires) or services (insurance) that are purchased infrequently, causing consumers to spend some time comparing their prices. • Specialty goods/services: very expensive consumer goods (wedding gowns) or services (catering for wedding reception) that are purchased rarely, causing consumers to spend a great deal of time locating the exact time desired. Classifying Industrial Products • Expense items: relatively inexpensive industrial goods (bulk loads of tea processed into tea bags) that are consumed rapidly and regularly. • Capital items: expensive, long-lasting industrial goods that are used in producing other goods or services and have a long life. Expensive buildings (offices, factories), fixed equipment (water towers, baking ovens), and accessory equipment (computers, airplanes) are capital goods Capital services are those which long-term commitments are made which include purchases for employee food services, building and equipment maintenance, or legal services. The Product Mix Product mix: the group of products a company has available for sale. Product Lines Product line: a group or similar products intended for a similar group of buyers who will use them in a similar fashion. DEVELOOPING NEW PRODUCTS To expand or diversify product lines, firms must develop and successfully introduce streams of new products. Faced with competition and shifting consumer preferences, no fir can count on a single successful product to carry it forever. Even basic products (jeans) that have been widely purchased for decades require neatly constant renewal. The Time Frame of New Product Development Product Mortality Rates Many seemingly great ideas have failed as products. Creating a successful new product has been increasingly difficult, even for the most experiences marketers. Why? The number of new products hitting the market each year has increased dramatically, and thousands of new household, grocery, and drugstore items are introduced annually. There’s a lack of space in supermarkets, as well as customer demand, causing 9 out of 10 products to fail. Those with the best changes are innovative and deliver unique benefits. Speed to Market Speed to Market is the strategy of introducing new products to respond quickly to customer and/or market changes. Seven-Step Development Process: 1. Product ideas: • Begins with a search for ideas for new products. • Can come from consumers, the sales force, research and development people, or engineering personnel. • The key is to actively seek out ideas and to reward those whose ideas become successful products. 2. Screening: • An attempt to eliminate all product ideas that do not mesh with the firm’s abilities, expertise or objectives. • Representatives from marketing, engineering, and production must have input at this stage. 3. Concept testing: • Once ideas have been culled, companies use market research to solicit consumer’s input. • Firms can identify benefits that the products must provide as well as an appropriate price level for the product. 4. Business analysis: • Involves an early comparison of costs versus benefits for the proposed products. • Preliminary sales projections are compared with cost projections from finance and production. • The aim is not to determine precisely how much money the product will make but to see whether the product can meet minimum profitability goals. 5. Prototype development: • Product ideas begin to take shape at this stage. • Using input from the concept-testing phase, engineering and/or development produce a preliminary version of the product. • Prototypes can be extremely expensive, often requiring extensive hand crafting, tooling and development of com
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