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Administrative Studies
ADMS 2200
Li Lee

CHAPTER 8 DEVELOPING AND MANAGING PRODUCTS AND SERVICES PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 1. define product and describe and classifydifferent types of product offerings 2. list and define the steps in the new-product development process and the major considerations in managing this process 3. describe the stages of the product life cycle and how marketing strategies change during the product’s life cycle 4. describe the decisions companies make regarding their individual products and services, product lines, and product mixes 5. identify the four characteristics that affect the marketing of services and the additional marketing considerations that services require JUST THE BASICS CHAPTER OVERVIEW In this chapter, we take a deeper look at the marketing mix—the tactical tools that marketers use to implement their strategies and deliver superior customer value. We’ll study how a product is defined, how companies develop new products, and how marketers manage products over time. We’ll also consider the special challenges of marketing services— which are actually a type of product. Developing new products requires innovation, so we begin by looking at Google, one of the world’s most innovative companies. At Google, innovation isn’t just a process; it’s in the very spirit of the place. ANNOTATED CHAPTER NOTES/OUTLINE INTRODUCTION Google is wildly innovative and spectacularly successful. The company captures more than 70 percent of all search-related advertising revenues. Google’s mission is “to organize the world’s information and make it universallyaccessible and useful.” Google knows how to innovate. At many companies, new-product development is a cautious, step-by-step affair that might take a year or two to unfold. In contrast, Google’s freewheeling new-product development process moves at the speed of light. The company’s new-product planning looks forward only four to five months. CEO Schmidt says he would rather see projects failquickly, than see a carefullyplanned, long drawn-out project fail. In the end, at Google, innovation is more than a process – it’s part of the company’s DNA. WHAT IS A PRODUCT? A product is anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. Broadly defined, “products” also include services, events, persons, places, organizations, ideas, or mixes of these. Services are a form of product that consists of activities, benefits, or satisfactions offered for sale that are essentiallyintangible and do not result in the ownership of anything. Products, Services, and Experiences A company’s market offering often includes both tangible goods and services. At one extreme, the offer may consist of a pure tangible good, such as soap or toothpaste. At the other extreme are pure services, for which the offer consists primarilyof a service. To differentiate their offers, marketers are creating and managing customer experiences with their brands or company. Organizations, Persons, Places, and Ideas Organization marketing consists of activities undertaken to create, maintain, or change the attitudes and behaviour of target consumers toward an organization. Business firms sponsor public relations or corporate image advertising campaigns to market themselves and polish their images. Person marketing consists of activities undertaken to create, maintain, or change attitudes or behaviour toward particular people. Place marketing involves activities undertaken to create, maintain, or change attitudes or behaviour toward particular places. Levels of Products and Services Product marketers need to think about the product they manage as consisting of three levels (see Figure 8.1). Each level adds more customer value. Consumers see products as complex bundles of benefits that satisfytheir needs. When developing products, marketers first must identify the core customer value that consumers seek from the product. They must then design the actual product and find ways to augment it in order to create this customer value and the most satisfying customer experience. Product and Service Classifications Products and services fallinto two broad classes: consumer products and industrial products. Consumer products arcproducts and services bought by final consumers for personal consumption. Consumer products include convenience products, shopping products, specialty products, and unsought products (see Table 8.1). Convenience products uetsconsumer products and services that customers usually buy frequently, immediately, and with a minimum of comparison and buying effort. Examples include laundry detergent, candy, magazines, and fast food. Shopping products ts less frequently purchased consumer products and services that customers compare carefully on suitability, quality, price, and style. Examples include furniture, clothing, used cars, and hotel and airline services. Specialty productsrtsconsumer products and services with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort. Examples include specific brands of cars, high-priced photographic equipment, designer clothes, and the services of medical or legal specialists. Unsought products acetsconsumer products that the consumer either does not know about or knows about but does not normally think of buying. Classic examples of known but unsought products and services are life insurance, pre-planned funeral services, and blood donations. Industrial productsctspurchased for further processing or for use in conducting a business. The three groups of industrial products and services include materials and parts, capital items, and supplies and services. Materials and parts include raw materials and manufactured materials and parts. Capital items are industrial products that aid in the buyer’s production or operations, including installations and accessory equipment. Supplies and services include operating supplies (lubricants, coal, paper, pencils) and repair and maintenance items (paint, nails, brooms). Supplies are the convenience products of the industrial field because they are usually purchased with a minimum of effort or comparison. NEW-PRODUCT DEVELOPMENT In this section we look at the formal process for developing, managing, and marketing new products. New-Product Development Strategy A firm can obtain new products in two ways. 1. Acquisition—by buying a whole company, a patent, or a license to produce someone else’s product. 2. New-product development efforts. The New-Product Development Process Figure 8.2 shows the eight major steps in the new-product development process. 1. Idea Generation is the systematic search for new-product ideas. Internal Idea Sources Using internal sources, the company can find new ideas through formal research and development. Or it can pick the brains of employees—from executives to scientists, engineers, and manufacturing staff to salespeople. External Idea Sources Companies can also obtain good new-product ideas from any of a number of external sources, such as distributors and suppliers or even competitors. Perhaps the most important source of new-product ideas is customers themselves. 2. Idea Screening helps us spot good ideas and drop poor ones as soon as possible. 3. Concept Development and Testing A product idea is an idea for a possible product that the company can see itself offering to the market. A product concept is a detailed version of the idea stated in meaningful consumer terms. A product image is the way consumers perceive an actual or potential product. In concept development, several descriptions of the product are generated to find out how attractive each concept is to customers. From these concepts, the best one is chosen. Concept testing calls for testing new-product concepts with groups of target consumers. 4. Marketing strategy development is designing an initial marketing strategy for introducing this car to the market. The marketing strategy statement consists of three parts. 1. A description of the target market; the planned value proposition; and the sales, market share, and profit goals for the first few years. 2. Outline of the product’s planned price, distribution, and marketing budget for the first year. 3. Description of the planned long-run sales, profit goals, and marketing mix strategy: 5. Business analysis involves a review of the sales, costs, and profit projections for a new product to find out whether they satisfythe company’s objectives. 6. Product development, R&D or engineering develops the product concept into a physical product. The product development step calls for a large jump in investment. 7. Test marketing is the stage at which the product and marketing program are introduced into realistic market settings. 8. Commercialization is introducing the new product into the market. Decisions must be made concerning: • Timing, • Where to launch the new product • Market rollout. Managing New-Product Development Companies must take a holistic approach to managing this process. Successful new-product development requires a customer-centred, team-based, and systematic effort. New-product development must be customer-centred. Good new-product development also requires a total-company, cross-functional effort. Many companies use a team-based new-product development approach. Under this approach, company departments work closely together in cross-functional teams, overlapping the steps in the product development process to save time and increase effectiveness. Finally, the new-product development process should be holistic and systematic rather than compartmentalized and haph
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