MGTA04 Textbook Notes, Chapter 6, The 4 P's - Product.pdf

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Management (MGT)
Bovaird/ Mc Conkey/ Lawrence

Chapter 6 – The 4 P’s (Product) WHAT IS A PRODUCT?  Marketers must consider what consumers really buy when they purchase products, only then can they plan their strategies effectively The Value Package  Features – the qualities, both tangible and intangible, that a company builds into its products  In order to attract buyers, features must also provide benefits  Value package – product marketed as a bundle of value-adding attributes, including reasonable cost  Buyers increasingly expect to receive products with greater value (more benefits at reasonable costs)  In addition to buying visible features and benefits, consumers are also buying an image and reputation  Most items in the value package are services or intangibles (rather than physical features)  For example, a statistical software company markets that using their service will give you a complete view of your customer, which will increase customer profitability, identify and keep the most valuable customers, generate greater ROI from marketing campaigns  Firms compete on the basis of enhanced value packages because the addition of a new service often pleases customers far beyond the cost of providing it Classifying Goods and Services  The consumer and industrial buying processes differ significantly; similarly, marketing products to consumers is vastly different from marketing them to other companies  Classifying Consumer Products (divided based on consumer behavior)  Convenience goods/services – relatively inexpensive, purchased frequently with little expenditure of time and effort, consumed rapidly and regularly  Shopping goods/services – moderately expensive, purchased infrequently, consumers spend more time comparing alternatives (i.e. price, brand, style, performance, colour, etc.)  Specialty goods/services – very expensive, rarely purchased, consumers spend a great deal of time locating the exact item desired (no substitute) Classifying Industrial Products (divided based on cost and intended use)  Expense items – relatively inexpensive, consumed rapidly and regularly (within a year)  Capital items – expensive, long-lasting or long-term commitments, purchased infrequently, approved by high-level managers The Product Mix  Product mix – the group of products a company has available for sale Product Lines  Product line – group of similar products with similar functions, intended for a similar group of buyers who will use them in a similar ways  Most companies begin with a single product, and over time, find that the initial product fails to suit every consumer shopping for the product type, so to meet market demand, they introduce similar products  Companies may extend their horizons and identify opportunities outside existing product lines  The resulting multiple (or diversified) product lines allow companies to grow rapidly and help offset the consequence of slow sales in any one product line DEVELOPING NEW PRODUCTS  Faced with competition and shifting consumer preferences, no firm can count on a single successful product to carry it forever  Even basic products that have been widely purchased for decades require constant renewal The Time Frame of New Product Development Product Mortality Rates  It takes about 50 new product ideas to generate one final product, but only a few of the products that make it to the market become successful  Creating a successful product has become increasingly difficult since the number of new products hitting the market each year has increased dramatically  With lack of space and customer demand, about 9 out of 10 new products will fail; those with the best changes are innovated and deliver unique benefits Speed to Market  The more rapidly a product moves from the laboratory to the marketplace, the more likely it is to survive  By introducing new products ahead of competitors, companies establish market leadership and become entrenched in the market before being challenged by newer competitors  Speed to market – strategy of introducing new products to respond quickly to customer and/or market changes  A product that is 3 months behind the leader loses 12% of its life-time profit, and 33% at 6 months The Seven-Step Development Process  1. Product ideas – Actively seek out ideas and reward those whose ideas become successful products. Can come from consumers, the sales force, research and development team or engineering personnel.  2. Screening – Eliminate product ideas that do not match the firm’s abilities, expertise, or objectives. Representatives from marketing, engineering, and production must have input at this stage.  3. Concept testing – Companies use market research to solicit consumers’ input so that firms can identify benefits that the product must provide and determine an appropriate price level.  4. Business analysis – Develop an early comparison of costs versus benefits for the proposed product. Preliminary sales projections are compared with cost projections from finance and production. Determine of the product can meet minimum profitability goals.  5. Prototype development – Using input from the concept testing phase, engineering and/or research and development product a preliminary version of the product. Often expensive, but can help identify potential production problems.  6. Product testing and test marketing – Company begins limited production of the item. The product is tested internally to see if it meets performance requirements. If it does, it is made available for sale in limited areas. This is a costly phase due to promotional campaigns and establishing distribution channels for test markets. However, it provides the
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