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Chapter 6

Chapter 6 Textbook Notes


Department
Management (MGT)
Course Code
MGTA02H3
Professor
Chris Bovaird
Chapter
6

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MGTA04 / 01
Chapter 6: Developing and Promoting Goods and Services
- When making strategic decisions, you can not only focus on one element of the
marketing mix without having to deal with the other three elements
- When developing an effective marketing mix strategy for any product, marketers must
consider what consumers really buy when they purchase products
The Value Package
- Product features are the qualities, tangible and intangible, that a company builds into its
products such as a 12-horsepower motor on a lawn mower
- To attract buyers, features also must provide benefits (e.g. produces an attractive lawn)
- A value package is a product that is marketed as a bundle of value-adding attributes,
including reasonable cost
- Most items in a value package are services or intangibles that, collectively, add value by
providing benefits WKDWLQFUHDVHWKHFXVWRPHVVDWLVIDFWLRQHJIDVWGHOLYHU\WLPHV
- Products are much more than just visible features and benefits, customers are also buying
an image and a reputation (e.g. SwDWFK¶VZDWFKUHPLQGSHRSOHRI\RXQJDQGWUHQGLQHVV
Classifying Goods and Services
- Buyers fall into two groups: buyers of consumer products and buyers of industrial
products
Classifying Consumer Products
- Consumer products are commonly divided into three cDWHJRULHVWKDWUHIOHFWEX\HV
behaviour: convenience, shopping, and specialty products
o Convenience goods (e.g. milk & newspapers) and convenience services (e.g. fast
food restaurant) are relatively inexpensive, consumed rapidly and regularly,
causing consumers to spend little time looking or comparing their prices
o Shopping goods (e.g. stereos & tires) and shopping services (e.g. insurance) are
more expensive and are purchased less frequently, causes consumers to spend
more time comparing brands, prices, peUIRUPDQFHTXDOLW\HWF«
o Specialty goods (e.g. wedding gowns) and specialty services (e.g. catering) are
extremely important and expensive purchases, purchased rarely which causes
consumers to spend a great deal of time locating the exact item desired
Classifying Industrial Products
- Depending on the cost and frequency of usage, industrial products can categorized:
o Expense items are inexpensive materials and services that are consumed rapidly
and regularly (e.g. industrial goods used directly in the production process)
o Capital items are more expensive (often purchased by high-level managers),
long-lasting industrial goods that are used in producing other goods or services
and have a long life (e.g. buildings and building maintenance services)
The Product Mix
- The product mix is the group of products a company has available for sale (e.g. Black &
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Product Lines
What is a Product? (pg. 121 ± 124)
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MGTA04 / 02
- A product line are a group of similar products intended for a similar group of buyers
who will use them in a similar fashion (e.g. from iced tea, a company can introduce many
different flavours in order to attract a larger consumer base)
- Companies may extend their horizons and identify opportunities outside existing product
lines, the result is multiple (or diversified) product lines
- Multiple product lines allow a company to row rapidly and can help to offset the
consequences of slow sales in any one product line
- No firm can count on a single successful product to carry it forever, due to competition
and shifting consumer preferences, firms must develop and successfully introduce
streams of new products
The Time Frame of New Product Development
- Companies often face multi-year time horizons and high risks when developing new
products (e.g. HDTV is an example of a product that has been slower to develop since not
all broadcaster offer HD programs and consumers were hesitant about the prices)
Product Mortality Rates
- It takes about 50 new product ideas to generate one that finally reaches the market
- Creating a successful new product has become increasingly difficult because the number
of new products hitting the market each year is increasing and the average supermarket
caries a total of only 20,000 to 25,000 different items. Because of the lack of space and
customer demand, about 9 out of 10 products fail.
- Most successful products are innovative 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 products ahead of competitors, companies establish
market leadership (becomes in entrenched in the market before competitors)
- Speed to market is a strategy of introducing new products to respond quickly to
customer and/or market changes
The Seven-Step Development Process
- Firms adopt a basic seven-step process to increase their chances of developing a
successful new product
1. Product ideas
x Product ideas can come from consumers, the sales force, research and
development people, or engineering personnel
x Key is to actively seek ideas and reward those whose ideas are successful
2. Screening
x This stage is an attempt to eliminate all product ideas that do not mesh
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x Representatives from marketing, engineering, and production are involved
3. Concept testing
x Once ideas have been chosen, companies use market research to solicit
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4. Business analysis
Developing New Products (pg. 124 ± 127)
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MGTA04 / 03
x Stage includes developing an early comparison of costs vs. benefits for the
proposed product (e.g. preliminary sales projections compared with cost
projections from finance and production)
x Goal is to not determine how much money the product will make but
rather to see whether the product can meet minimum profitability goals
5. Prototype development
x In this stage, product ideas begin to take shape
x Development produces a preliminary version of the product
x Prototypes can be extremely expensive but essentially in order to identify
potential production problems
6. Product testing and test marketing
x Using what it learned from the prototype, companies begin limited
production of the item which is then tested internally to see if it meets
performance requirements (if not, it will not be made available for sale)
x This stage can be costly since promotional campaigns and distribution
channels must be established for test markets (test marketing gives a
company its first information on how consumers will respond to a product
7. Commercialization
x If test marketing results are positive, the company will begin full-scale
production and marketing of the product
x Gradual commercialization is providing more and more of the product
over different areas. Delays in commercialization may give competitors a
chance to bring out their own version
Variations in the Process for Services
- The development of services (both for consumers and industrial buyers) involves many of
the same stages as goods development except stage 1 and stage 5
1. Service ideas
x Search for service ideas includes a task called defining the service
package which is the identification of the tangible and intangible features
that define the service (e.g. building will be swept before midnight daily)
5. Service process design
x Instead of prototype development, services require a service process
design which involves selecting the process, identifying worker
requirements, and determining facilities requirements so that the service
can be effectively provided
x Process selection identifies each step in the service including the sequence
and the timing
x Worker requirements specify employee behaviours, skills, capabilities,
and interactions with customers during the service encounter
x Facilities requirements designate all of the equipment that supports
delivery of the service
The Product Life Cycle (pg. 127 ± 128)
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