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Chapter 6

Business Chapter #6 Part 2 Notes.doc

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BIOL 376

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Business Chapter 6 – Developing and Promoting Goods and Services What is A Product? Customers get value from the various benefits, features, and even intangible rewards associated with a product. Product features are the qualities, tangible and intangible, that a company builds into its products. The owner’s pleasure in knowing that the mower is nearby when needed is an intangible reward. Value Package – Product marketed as a bundle of value-adding attributes, including reasonable cost Increasingly, buyers expect to receive products with greater value – with more benefits at reasonable costs. Most items in the value package are services or intangibles that, collectively, add value by providing benefits that increase the customer’s satisfaction. Buyers fall into two groups: buyers of consumer products and buyers of industrial products. Consumer products are commonly divided into three categories that reflect buyers’ behavior: convenience, shopping, and specialty products. Convenience goods (such as milk and newspapers) and convenience services (such as those offered by fast food restaurants) are consumed rapidly and regularly. They are relatively inexpensive and are purchased frequently and with little expenditure of time and effort. Shopping goods (such as stereos and tires) and shopping services (such as insurance) are more expensive and are purchased less frequently than convenience goods and services. Consumers often compare brands, sometimes in different stores. They may also evaluate alternatives in terms of style, performance, color, price and other criteria. Specialty goods (such as wedding gowns) and specialty services (such as catering for wedding receptions) are extremely important and expensive purchases. Consumers usually decide on precisely what they want and will accept no substitutes. They will often go from store to store, sometimes spending a great deal of money and time to get a specific product. Depending on how much they cost and how they will be used, industrial products can be divided into two categories: Expense items are any materials and services that are consumed within a year by firms producing other goods or supplying services. The most obvious expense items are industrial goods used directly in the production process, for example, bulk loads of tea processed into tea bags. Capital items are permanent – that is, expensive and long lasting – goods and services. All these items have expected lives of more than year – typically up to several years. Expensive buildings (offices, factories), fixed equipment (water towers, baking ovens), and accessory equipment (computers airplanes) are capital goods. Capital services are those for which long-term commitments are made. These many include purchases for employee food services, building and equipment maintenance, or legal services. Because capital items are expensive and purchased infrequently, they often involve decisions by high-level managers. The group of products a company has available for sale, be it consumer or industrial, is known as the firm’s product mix. A group of products that are closely related because they function in a similar manner or are sold to the same customer group who will use them in similar ways is a product line. Developing New Products To expand or diversify product lines – indeed, just to survive – firms must develop and successfully introduce streams of new products. Faced with competition and shifting consumer preferences, no firm can count on a single successful product to carry it forever. Speed to Market – Strategy of introducing new products to respond quickly to customer and/or market changes To increase their chances of developing a successful new product, many firms adopt some variation on a basic seven-step process. 1. Product ideas. Product development begins with a search for ideas for new products. Product ideas 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. This second stage is 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 consumers’ input. In this way, firms can identify benefits that the product must provide as well as an appropriate price level for the product. 4. Business analysis. This stage involves developing an early comparison of costs versus benefits for the proposed product. 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. At this stage, product ideas begin to take shape. Using input from the concept-testing phase, engineering and/or research and development produce a preliminary version of the product. Prototypes can be extremely expensive, often requiring extensive hand crafting, tooling, and development of components, but this phase can help identify potential production problems 6. Product testing and test marketing. Using what it learned from the prototype, the company begins limited production of the item. The product is then tested internally to see if it meets performance requirements. If it does, it is made available for sale in limited areas. This stage is very costly, since promotional campaigns and distribution channels must be established for test markets. But test marketing gives a company its first information on how consumers will respond to a product under real market conditions. 7. Commercialization. If test marketing results are positive, the company will begin full- scale production and marketing of the product. Gradual commercialization, with the firm providing the product to more and more areas over time, prevents undue strain on the firm’s initial production capabilities. But extensive delays in commercialization may give competitors a chance to bring out their own version. The development of services (for both customers and industrial buyers) involves many of the same stages as goods development. Basically, steps 2,3,4,6, and 7 are the same. There are, however, some important differences in Steps 1 and 5: 1. Service Ideas. The search for service ideas include a task called defining the service package, which involves identification of the tangible and intangible features that define the service and stating service specification. 5. Service process design. Instead of prototype development, services require a service process design. This step involves selecting the process, identifying worker requirements and determining facilities requirements so that the service can be provided as promised in the service specifications. Process selection identifies each step in the service, including the sequence and timing. Worker requirements specify employee behaviors, skills, capabilities, and interactions with customers during the service encounter. Facilities requirements designate all of the equipment that supports delivery of the service. Product Life Cycle – the concept that the profit producing life of any product goes through a cycle of introduction, growth, maturity (leveling off), and decline The life cycle for both goods and services is a natural process in which product are born, grow in stature, mature and finally decline and die. 1. Introduction. The introduction stage begins when the product reaches the marketplace. During this stage, marketers focus on making potential consumers aware of the product and its benefits. Because of extensive promotional and development costs, profits are nonexistent. 2. Growth. If the new product attracts and satisfies enough consumers, sales begin to climb rapidly. During this stage, the product begins to show a profit. Other firms in the industry move rapidly to introduce their own versions. 3. Maturity. Sales growth begins to slow. Although the product earns its highest profit level early it this stage, increased competition eventually leads to price cutting and lower profits. Toward the end of the stage, sales start to fall. 4. Decline. During this final stage, sales and profits continue to fall. New products in the introduction stage take away sales. Companies remove or reduce promotional support (ads and salespeople) but may let the product linger to provide some profits. Companies can extend product life through a number of creative means 1. In product extension, an existing product is marketed globally instead of just domestically. Coca-Cola and Levi’s 501 jeans are prime examples of international product extensions. 2. With product adaptation, the product is
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