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Chapter 6

chapter 6 notes

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Department
Management (MGT)
Course Code
MGTA02H3
Professor
Chris Bovaird

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Chapter 6 Developing and Promoting Goods and Services Notes
What is a Product?
The Value Package
x whether it is a physical good, a service, or some combination of the two, customers get value from the various benefits, features,
and even intangible rewards associated with a product
x features Æ the qualities, both tangible and intangible, that a company builds into its products
x todays consumer regards a product as a bundle of attributes which, taken together, marketers call the value package
x value package Æ product marketed as a bundle of value-added attributes, including reasonable cost
x today, more and more firms compete on the basis of enhanced value package—they find that the addition of a simple new service
often pleases customers far beyond the cost of providing it
Classifying Goods and Services
x buyers fall into two groups: buyers of consumer products and buyers of industrial products
Classifying Consumer Products
x consumer products are divided into 3 categories that reflect buyers’ behaviour: convenience, shopping, and speciality products
x convenience goods/services Æ relatively inexpensive consumer goods or services that are bought and used rapidly and regularly,
causing consumers to spend little time looking for them or comparing their prices
x shopping hoods/services Æ moderately expensive consumer goods or services that are purchased infrequently, causing
consumers to spend some time comparing their prices
x speciality goods/services Æ very expensive consumer goods or services that are purchased rarely, causing consumers to spend a
great deal of time locating the exact item desired
Classifying Industrial Products
x depending on how much they cost and how will they will be used, industrial products can be divided into two categories:
o expense items Æ relatively inexpensive industrial goods that are consumed rapidly and regularly
o capital items Æ expensive, long-lasting industrial goods that are used in producing goods or services and have a long life
The Product Mix
x product mix Æ the group of products a company has available for sale
Product Lines
x product line Æ a group of similar products intended for a similar group of buyers who will use them in a similar fashion
x companies may extend their horizons and identify opportunities outside existing product lines
x multiple product lines allow a company to grow rapidly and can help to offset consequences of slow sales in any one product line
Developing New Products
x to expand or diversify product lines—just to survive—firms must develop and successfully introduce streams of new products
x faced with competition and shifting consumer preferences, no firm can count on a single successful product to carry it forever
x even basic products that have been widely purchased for decades require nearly constant renewal9
The Time Frame of New Product Development
Product Mortality Rates
x it takes about 50 new products ideas to generate one product that finally reaches the market
x even then, only a few of theses survivors become successful products; many seemingly great ideas have failed as products
x indeed, creating a successful new product has become increasingly difficult—even for most experienced marketers—because the
number of new products hitting market each year has increased dramatically, and thousands of new household, grocery, and
drugstore items are introduced annually, but at any given time, average supermarket carries only 20 000 to 25 000 different items
Speed to Market
x the more rapidly a product moves from the laboratory to the marketplace, the more likely it is to survive
x by introducing new products ahead of competitors, companies establish market leadership and they become entrenched in the
market before being challenged by newer competitors
x speed to market Æ strategy of introducing new products to respond quickly to customer and/or market changes
The Seven-Step Development Process
x to increase their chances of developing a successful new product, many firms adopt some variation on a basic 7-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
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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.
Variations in the Process for Services
x the development of services (both for consumers and industrial buyers) involves many of the same steps as goods development
x basically, steps 2, 3, 4, 6, and 7 are the same; however, there are some important differences in steps 1 and 5:
1) Service ideas. The service for service ideas includes task called defining the service package, which involves identification
of the tangible and intangible features that define the service and stating service specifications.
5) Service process design. Instead of prototype development, services require a service process design. This step involves
selecting process, identifying worker requirements, and determining facilities requirements so that service can be provided
as promised in the service specifications. Process selection identifies each step in the service, including the sequence and
the timing. Worker requirements specify employee behaviours, skills, capabilities, and interactions with customers during
the service encounter. Facilities requirements designate all of the equipment that supports delivery of the service.
x service package Æ identification of the tangible and intangible features that define the service
x service process design Æ selecting the process, identifying worker requirements, and determining facilities requirements so that
the service can be effectively provided
The Product Life Cycle
x product live cycle (PLC) Æ the concept that the profit-producing life of any product goes through a cycle of introduction,
growth, maturity (levelling off), and decline
Stages in the Product Line Cycle
x life cycle for both goods and services is a natural process in which products are born, grow in stature, 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 in 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 the 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 product linger to provide some profits.
Extending Product Life: An Alternative to New Products
x firms try to keep products in maturity stage as long as they can, in fact, they extend product life via number of creative means
x foreign markets offer 3 possibilities for lengthening product life cycles:
1) product extension Æ existing, unmodified product that is marketed globally
2) product adaptation Æ product modified to have greater appeal in foreign markets
3) reintroduction Æ process of reviving for new markets products that are obsolete in older ones
Identifying Products
Branding Products
x branding Æ process of using symbols to communicate the qualities of a product made by a particular producer
x brands are designed to signal uniform quality: customers who try and like a product can return to it by remembering its name
x sometimes companies change the name of a popular brand because it is “tired”, or because of legal requirements
x just as products can be branded, so can entire countries
Adding Value Through Brand Equity
x widely known and admired brands are valuable because of their power to attract customers
x those with higher brand equity generate greater brand awareness and loyalty on the part of consumers and larger market shares
than competing brands (and are perceived to have greater quality)
x brand equity Æ degree of consumers’ loyalty to and awareness of a brand and its resultant market share
x because a brand adds value to a product, marketers manage brand names to increase that value
Types of Brand Names
x every product has brand name of some form, however, different types of brand names tell consumer something about its origins
x national brands Æ products distributed by and carrying a name associated with the manufacturer
x these brands are often widely recognized by consumers because of large national advertising campaigns
x costs of developing positive image for national brand are high, so some companies use national brand on several related products
x licensed brands Æ selling the right to use a brand name, a celebrity’s name, or some other well-known identification mark to
another company to use on a product
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Description
Chapter 6 Developing and Promoting Goods and Services Notes What is a Product? The Value Package N whether it is a physical good, a service, or some combination of the two, customers get value from the various benefits, features, and even intangible rewards associated with a product N features the qualities, both tangible and intangible, that a company builds into its products N todays consumer regards a product as a bundle of attributes which, taken together, marketers call the value package N value package product marketed as a bundle of value-added attributes, including reasonable cost N today, more and more firms compete on the basis of enhanced value packagethey find that the addition of a simple new service often pleases customers far beyond the cost of providing it Classifying Goods and Services N buyers fall into two groups: buyers of consumer products and buyers of industrial products Classifying Consumer Products N consumer products are divided into 3 categories that reflect buyers behaviour: convenience, shopping, and speciality products N convenience goodsservices relatively inexpensive consumer goods or services that are bought and used rapidly and regularly, causing consumers to spend little time looking for them or comparing their prices N shopping hoodsservices moderately expensive consumer goods or services that are purchased infrequently, causing consumers to spend some time comparing their prices N speciality goodsservices very expensive consumer goods or services that are purchased rarely, causing consumers to spend a great deal of time locating the exact item desired Classifying Industrial Products N depending on how much they cost and how will they will be used, industrial products can be divided into two categories: o expense items relatively inexpensive industrial goods that are consumed rapidly and regularly o capital items expensive, long-lasting industrial goods that are used in producing goods or services and have a long life The Product Mix N product mix the group of products a company has available for sale Product Lines N product line a group of similar products intended for a similar group of buyers who will use them in a similar fashion N companies may extend their horizons and identify opportunities outside existing product lines N multiple product lines allow a company to grow rapidly and can help to offset consequences of slow sales in any one product line Developing New Products N to expand or diversify product linesjust to survivefirms must develop and successfully introduce streams of new products N faced with competition and shifting consumer preferences, no firm can count on a single successful product to carry it forever N even basic products that have been widely purchased for decades require nearly constant renewal9 The Time Frame of New Product Development Product Mortality Rates N it takes about 50 new products ideas to generate one product that finally reaches the market N even then, only a few of theses survivors become successful products; many seemingly great ideas have failed as products N indeed, creating a successful new product has become increasingly difficulteven for most experienced marketersbecause the number of new products hitting market each year has increased dramatically, and thousands of new household, grocery, and drugstore items are introduced annually, but at any given time, average supermarket carries only 20 000 to 25 000 different items Speed to Market N the more rapidly a product moves from the laboratory to the marketplace, the more likely it is to survive N by introducing new products ahead of competitors, companies establish market leadership and they become entrenched in the market before being challenged by newer competitors N speed to market strategy of introducing new products to respond quickly to customer andor market changes The Seven-Step Development Process N to increase their chances of developing a successful new product, many firms adopt some variation on a basic 7-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 firms 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 andor research and development produce a preliminary version of the product. Prototypes can be extremely www.notesolution.com
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