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Chapter 8

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Queen's University
COMM 131
Ethan Pancer

Chapter 8: Developing and Managing Products and Services 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 includes services, events, persons, places, idea, etc.  A service is an activity, benefit, or satisfaction offered for sale that is essentially intangible and does not result in the ownership of anything Products, Services, and Experiences  Product is a key element in the overall market offering – it becomes the basis upon which the company builds profitable customer relationships o Market offering generally includes both tangible goods and services  To differentiate their offers, companies are creating and managing customer experiences with their brands or their company  Companies that market experiences realize that customers are really buying much more than just products or services – buying what those offers will do for them 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 o 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 the attitudes and behaviour of target consumers towards particular people  Place marketing consists of activities undertaken to create, maintain, or change the attitudes and behaviour of target consumers toward particular places – to get tourists  In a sense, all marketing is the marketing of an idea - Line between p’s & s’s is not clear Levels of Products and Services  Basic level is core customer value – addresses, “What is the buyer really buying?” o Marketer must first define the core, problem-solving benefits or services  Next, turn the core benefit into an actual product – develop product and service features, design, quality level, a brand name, and packaging  Finally, build an augmented product around the core benefit and actual product by offering additional customer services and benefits Product and Service Classifications Consumer Products  Consumer products are products and services bought by final consumers for personal consumption – can be classified further (below) o Convenience Products: A consumer product that customers usually buy frequently, immediately, and with a minimum of comparison and buying effort o Shopping Products: A consumer product that the consumer, in the process of selection and purchase, usually compares on such bases as suitability, price, & style  spend a lot of time and effort gathering info and making comparisons o Specialty Products: A consumer product with unique characteristics or brand id for which a significant group of buyers is willing to a special purchase effort o Unsought Products: A consumer product that the consumer either does not know of or know about but does not normally think of buying Industrial Products  Those purchased for further processing or for use in conducting a business o The distinction is the purpose for which the product is bought o ie. A product can be both a consumer product and an industrial product  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 o Including installations (factory/fixed equipment) and accessory equipment (lift truck, office equipment)  Supplies and Services including operating supplies, repair and maintenance items, repair and maintenance services, business advisory services New Product Development New Product Development Strategy  A firm can obtain a new product in two ways o Acquisition – by buying a whole company, patent, or a licence to produce someone else’s product o New-Product Development Efforts – The development of new products, product improvements, product modifications, & new brands through their own efforts  New p’s provide new solutions to customers & are a key source of growth for businesses The New-Product Development Process  To create successful products, companies must understand consumers, markets, and competitors and develop products that deliver superior value to customers  Must carry out strong new-product planning and set up a systematic, customer-driven new-product development process for finding and growing new products  There are eight steps as follows Idea Generation  This is a systematic search for new-product ideas  Major sources of new-product ideas include internal and external sources such as customers, competitors, distributors, suppliers, etc. o Distributors and suppliers are close to the market and can pass on info about customer problems and new opportunities, offer new materials to use o Companies can watch competitor ads to get clues about their products, can buy competing products and figure out how they work, analyse sales, make copy-cat o Can analyse customer questions and feedback to find products that better meet their needs, ask for customer suggestions Idea Screening  Involves screening new-product ideas to spot good ideas and drop poor ones o Only want the ideas that will be profitable  New-product write up description of p/s, target market, value proposition, competition, market size, product price, development time & costs, manufacturing costs, rate of return  Determine: Is there a real need and desire for the product? Does the product offer a sustainable competitive advantage? Does product fit the org’s overall growth strategy? Concept Development and Testing  Product concept is a detailed version of the new-product idea stated in meaningful consumer terms – drawing, prototype, etc.  can be shown to potential customers  The concept must then be developed and tested – have various alternative forms that can be shown to a group of potential customers Marketing Strategy Development  Marketing strategy development involves designing an initial marketing strategy for a new product based on the product concept – consists of three parts (below) o The first part describes the target market, the planned VP, the sales, the market share, and profit goals for the next few years o Second part outlines planned price, distribution, and marketing budget for 1 year o Third part describes planned long-run sales, profit goals, marketing mix strategy Business Analysis  This involves a review of the sales, costs, & profit projections for new product to find out whether these factors satisfy the company’s objectives – evaluate business attractiveness o Can look at similar products to project this information Product Development  This involves developing the product concept into a physical product to ensure that the product idea can be turned into a workable market offering  calls for large investment  R&D hopes to create a prototype that will satisfy and excite consumer and can be produced quickly and at budgeted costs – also undergo many rigorous safety tests  Product must have the required functional features and convey the intended psychological characteristics Test-Marketing  The stage where the product & marketing program are tested in realistic market settings o Gives the marketer experience with marketing the product before going to the great expense of full introduction o It lets company test the full marketing program – targeting & positioning strategy, advertising, distribution, pricing, branding and packaging, and budget levels  When costs of developing and introducing the product are low, or mgmt. is confident about a new product, the company may do little/no test-marketing  When the introduction involves a big investment, high risks, or mgmt. is not sure of the product/marketing program, the company will do a lot of test-marketing Commercialization  This is the full-scale introduction of the new product into the market o During this stage, the company will face high costs – in advertising, promotions, creating a distribution network  developing entire supply chain Managing New-Product Development  Successful new-product development requires a customer-centred, team-based, and systematic effort  Customer Centred o Need a thorough understanding of what consumers need and value o Good to directly engage consumers in new-product innovation  Team-Based o Company departments work together in a cross-functional teams and stay with a product from start to finish  Systematic o One dept. works individually to complete their stage of the process before passing it on to the next dept. – can bring control to complex and risky projects, also slow The Product Life Cycle  This is the course of a product’s sales and profits over its lifetime – five stages 1. Product Development begins when the company finds and develops a new-product idea  Sales are zero and investment costs mount 2. Introduction is a period of slow sales growth as the product is introduced into the market  Profits are non-existent due to heavy expenses in product introduction 3. Growth is a period of rapid market acceptance and increasing profits  Typically competitors enter the market at this stage 4. Maturity is a period of slowdown in sales growth because the prod has reached most buyers  Profits level off because of increased marketing outlays to defend against competition 5. Decline is a period when sales fall off and profits drop Although, some products cycle back into growth via promotion or repositioning The Product Life Cycle Continued  This concept can describe a product class (gasoline powered automobiles), a pro
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