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© 2013 Cengage Learning. All rights reserved. 1-1.

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1 © 2013 Cengage Learning. All rights reserved. 1-1

2 1-2 11: Developing and Managing Goods and Services Part 4: Product Decisions © 2013 Cengage Learning. All rights reserved.

3 1-3  Understand how companies manage existing products through line extensions and product modifications  Describe how businesses develop a product idea into a commercial product  Know the importance of product differentiation and the elements that differentiate one product from another  Explain product positioning and repositioning  Understand how product deletion is used to improve product mixes  Understand the characteristics of services and how these characteristics present challenges when developing marketing mixes for service products  Be familiar with organizational structures used for managing products

4 1-4  Line extension  Product modifications  Quality modifications  Functional modifications  Aesthetic modifications © 2013 Cengage Learning. All rights reserved.

5 1-5  The development of a product closely related to existing products in the line, but designed specifically to meet different customer needs  Many “new products” are really line extensions  Are less expensive, lower-risk, and more common than totally new products  Downside is that unpopular line extensions may result in negative evaluation of the core product © 2013 Cengage Learning. All rights reserved.

6 1-6  Reese’s has introduced many line extensions to its core product, the Peanut Butter Cup  Pieces  Miniatures  Big Cup  NutRageous  Cereal  Can you think of any line extensions?

7 1-7  Focus on a different segment  More precisely satisfy needs of current segment  Capture market share from competitors © 2013 Cengage Learning. All rights reserved.

8 1-8  Changing one or more characteristics of a product  Differs from line extension in that the original product does not remain in the line  Some requirements Product must be modifiable Customers must be able to perceive a difference Modifications should produce greater customer satisfaction  Drawback is that customers accustomed to the original may resist the modified version © 2013 Cengage Learning. All rights reserved.

9 1-9  Changes related to a product’s dependability and durability  Reducing a product’s quality allows for a lower price and is appealing to a new target market  Higher quality allows a company to charge a higher price, build loyalty, and reduce price sensitivity  Some firms look for ways to increase quality while cutting costs © 2013 Cengage Learning. All rights reserved.

10 1-10  Changes affecting a product’s versatility, effectiveness, convenience, or safety  Benefits  Makes a product more useful and enlarges its market  Places a product in favorable competitive position by providing benefits that competing brands do not offer  Helps an organization achieve a progressive image  Modifications sometimes are made to reduce the possibility of product liability lawsuits © 2013 Cengage Learning. All rights reserved.

11 1-11  Changes the sensory appeal of a product by altering the taste, texture, sound, smell, or appearance  Sensory elements may strongly affect customers’ purchases  Can help a firm  Differentiate its product from competing brands  Gain market share  Drawback is that what is aesthetically appealing is subjective and varies between consumers © 2013 Cengage Learning. All rights reserved.

12 1-12  Is Opti-Free Replenish a line extension, a product modification, or a functional modification? © Bloomberg via Getty Images

13 1-13  New products enhance a firm’s product mix and add depth to a product line  The term “new product” can have more than one meaning  Innovative benefits  Different and better than existing products  Never been sold by an organization before  Never been sold in a market before © 2013 Cengage Learning. All rights reserved.

14 1-14  Stonyfield Farm released new and better tasting yogurt  Click here for press releasehere  Since taste is subjective, how do you think the company determines that its yogurt is “improved?”

15 © 2013 Cengage Learning. All rights reserved. 1-15

16 1-16  Seeking product ideas that help to achieve organizational objectives  Very few ideas are good enough for commercial success  Some ideas come from pure chance  Sources for new product ideas  Internal (Managers, researchers, employees, sales personnel)  External (Customers, competitors, advertising agencies, consultants) © 2013 Cengage Learning. All rights reserved.

17 1-17  Selecting the ideas with greatest potential for further review  Do product ideas match organizational objectives and resources?  Cannibalization of existing products  Capable of producing and marketing the product  Nature and wants of buyers  Some firms use checklists of new product requirements when making screening decisions © 2013 Cengage Learning. All rights reserved.

18 1-18  A small sample of potential buyers is presented with a product idea to determine their attitudes and buying intentions  Low-cost procedure to determine customers’ initial reaction to the product idea  Identification of important product attributes and benefits  Input from online communities can be helpful © 2013 Cengage Learning. All rights reserved.

19 1-19  The product idea is evaluated to determine its potential contribution to sales, costs, and profits  Does product fit in with existing product mix?  Is demand strong and enduring enough to justify entering the market?  What types of environmental and competitive changes can be expected?  Is the firm capable of developing the product?  What are the costs for developing and marketing? © 2013 Cengage Learning. All rights reserved.

20 1-20  The phase in which the organization determines if it is feasible and cost effective to produce the product  A prototype is used to reveal the tangible and intangible attributes associated with the product in the consumers’ minds  A product’s overall functionality must be tested  Is a lengthy and expensive part of the process  Only some products make it through this stage © 2013 Cengage Learning. All rights reserved.

21 1-21  Why do you think Apple’s iPad made it through the new product development process?  Does the iPad satisfy a consumer need that was not satisfied before?  Is it better than competing products?

22 1-22  A limited introduction of a product in geographic areas chosen to represent the intended market  Test markets must be a representative sample of the target market  The aim is to determine the extent to which customers will buy the product © 2013 Cengage Learning. All rights reserved.

23 1-23  Benefits  Lets marketers measure sales performance in a natural marketing environment  An opportunity to identify weaknesses in the product or marketing mix  Allows for experimentation with advertising, pricing, and packaging  Risks  Expensive  Competitors may interfere  Gives competitors time to copy the product  Simulated test marketing is a way to reduce costs and risks © 2013 Cengage Learning. All rights reserved.

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25 1-25  Refining and finalizing plans and budgets for full-scale manufacturing and marketing of a product  Marketing managers analyze test marketing results and refine product/marketing mix before full-scale release  Decisions about warranties, repairs, and replacement parts are made early in this stage  Expenditures from this stage may not be recovered for years © 2013 Cengage Learning. All rights reserved.

26 1-26  Introducing a product in stages across geographic areas  Benefits  Reduces the risks of introducing a new product  No product can be introduced simultaneously everywhere because of distribution considerations  Allows time to increase production capacity  Risks  Allows competitors to observe a firm’s tactics and introduce competing products © 2013 Cengage Learning. All rights reserved.

27 1-27  The process of creating and designing products so customers perceive them as different from competing products  Customer perception is critical in differentiating products  Perceived differences include Quality Features Styling Price Image © 2013 Cengage Learning. All rights reserved.

28 1-28  Quality: Characteristics of a product allowing it to perform as expected in satisfying customer needs  Level of quality: The amount of quality a product possesses  Consistency of quality: The degree to which a product has the same level of quality over time © 2013 Cengage Learning. All rights reserved.

29 1-29  Dyson differentiates its products using quality  Can you think of other products that are differentiated on the basis of quality? © Dyson

30 1-30  Product design  How a product is conceived, planned, and produced  The total sum of a product’s physical characteristics  Styling  Physical appearance of the product  Involves functionality and usefulness  Product features  Specific design characteristics that allow the product to perform certain tasks  Helps a company differentiate its products © 2013 Cengage Learning. All rights reserved.

31 1-31  Support services can help a company differentiate itself from competitors  Customer services: Human or mechanical efforts or activities that add value to a product  All marketers of goods sell some degree of customer services  May be the only way to differentiate between competing products © 2013 Cengage Learning. All rights reserved.

32 1-32  Creating and maintaining a certain concept of a product in customer’s minds  Marketers seek to position a product so that it appears to have the characteristics the target market most desires © 2013 Cengage Learning. All rights reserved.

33 1-33  A product’s position is the result of customers’ perceptions of the product's attributes relative to those of competitive brands  A perceptual map is created by questioning a sample of consumers about their perception of products, brands, and organizations with respect to two or more dimensions  Ideal clusters: Consumer consensus about desired product features  Ideal points: An indicated preference for specific product features © 2013 Cengage Learning. All rights reserved.

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35 1-35  Head-to-head competitor positioning  Product attributes or features  Price positioning  Quality-level positioning  Benefit positioning © 2013 Cengage Learning. All rights reserved.

36 1-36  Positioning decisions are for all products, existing and new  Existing brands must be reevaluated and sometimes repositioned  Can be accomplished by changing Price Distribution Image through promotion Packaging Benefits © 2013 Cengage Learning. All rights reserved.

37 1-37  Eliminating a product from the product mix, usually because it no longer satisfies a sufficient number of customers  Declining products reduce a firm’s profitability and monopolize resources that should be distributed elsewhere  It can be difficult to delete a product  Some firms wait too long to delete  A systematic review of products helps determine when to make a deletion © 2013 Cengage Learning. All rights reserved.

38 1-38  Phase-out: Allows the product to decline without a change in marketing strategy  No attempt is made to give the product new life  Run-out: Exploits any strength left in the product  Intensifying marketing efforts in core markets or eliminating some marketing expenditures  Immediate drop: The best strategy when losses are very great © 2013 Cengage Learning. All rights reserved.

39 1-39

40 1-40  Nearly all products have some service element  Services are very important to the U.S. economy  Represent 70% of United States GDP  Long-term economic growth and lifestyle changes have encouraged service sector expansion  Business services have grown as the business environment becomes more complex © 2013 Cengage Learning. All rights reserved.

41 1-41  Intangibility  Inseparability of production and services  Perishability  Heterogeneity  Client-based relationships  Close customer contact © 2013 Cengage Learning. All rights reserved.

42 1-42  The major characteristic that distinguishes a service from a good  A service is not physical and cannot be touched  Services cannot be physically possessed © 2013 Cengage Learning. All rights reserved.

43 1-43  Production of a service cannot be separated from its consumption by customers  Customers must be present at the consumption of the service and cannot take the service home  Implies a shared responsibility between the customer and service provider in giving and receiving the service © 2013 Cengage Learning. All rights reserved.

44 1-44  Unused service capacity from one time period cannot be stored for future use  Service marketers have to balance supply and demand  Must plan for predictable periodic and seasonal fluctuations in demand © 2013 Cengage Learning. All rights reserved.

45 1-45  Manufactured goods are easier to standardize  Human behavior leads to inconsistent quality  There can be wide variations in service consistency  Heterogeneity increases as labor intensiveness increases  Equipment-based services have great homogeneity  Automation reduces inconsistency © 2013 Cengage Learning. All rights reserved.

46 1-46  Interactions resulting in satisfied customers who use a service repeatedly  Important for service providers to maintain customers/clients over the long term  Build trust  Demonstrate customer commitment  Satisfy customers  Word-of-mouth communication has a key role in client-based relationship-building © 2013 Cengage Learning. All rights reserved.

47 1-47  The level of interaction between provider and customer needed to deliver the service  The look of facilities plays an important role in high-contact industries  Well-trained, satisfied employees are essential © 2013 Cengage Learning. All rights reserved. Level of Contact High Health Care Real Estate Spa Services Low Tax Filing Auto Repair Dry Cleaning

48 © 2013 Cengage Learning. All rights reserved. 1-48  Does Starbucks provide a service, a product, or both?Starbucks  Think about the characteristics of a service and which apply to Starbucks

49 1-49  The characteristics of services create marketing challenges and opportunities  Services generally come bundled  Core service: The basic service experience a customer expects to receive  Supplementary service: One or more supportive services used to differentiate the service bundle from competitors  Heterogeneity allows for customization, which creates a competitive advantage © 2013 Cengage Learning. All rights reserved.

50 1-50

51 1-51  Pricing should consider  Consumer price sensitivity  Nature of the transaction  Costs  Prices can be based on  Performance of specific tasks  Time  Level of demand (Peak demand: When demand is highest)  Marketers must decide whether to bundle options and how to price bundles  Consumers often rely on price as an indicator of service quality © 2013 Cengage Learning. All rights reserved.

52 1-52  Marketers deliver services in various ways  Customers go to service provider’s facility  Services may be provided at customer’s home or business  “At arm’s length,” with no face-to-face contact  Marketing channels for services are usually short and direct  Some services use intermediaries  Inventory management is a serious concern for services © 2013 Cengage Learning. All rights reserved.

53 1-53  Do online firms, such as Travelocity, have to worry about distribution considerations?  Why or why not? Courtesy of Travelocity

54 1-54  Intangibility results in promotion-related challenges  Tangible cues are a typical way to promote services  Service marketers are likely to promote  Price  Guarantees  Performance documentation  Availability  Training/certification of personnel  Personal selling can help customers visualize the service experience  Word-of-mouth communication is important © 2013 Cengage Learning. All rights reserved.

55 1-55  A Fortune 500 firm that is leading the way for sustainability in the waste disposal service industry  Recycling  Energy conservation  Forbes named it one of the 20 Most Responsible Companies of 201020 Most Responsible Companies of 2010  Board accountability  Financial disclosure and controls  Shareholder rights  Corporate behavior

56 1-56  Product manager: Responsible for a product, a product line, or several distinct products that make up a group  Brand manager: Responsible for a single brand  Market manager: Responsible for managing the marketing activities that serve a particular group of customers  Venture teams: A cross-functional group that creates entirely new products that may be aimed at new markets © 2013 Cengage Learning. All rights reserved.

57 1-57 Line extensionBusiness analysis Product modificationProduct development Quality modificationsTest marketing Functional modificationsCommercialization Aesthetic modificationsProduct differentiation New-product development process Quality Idea generationLevel of quality ScreeningConsistency of quality Concept testingProduct design

58 © 2013 Cengage Learning. All rights reserved. 1-58 Styling Heterogeneity Product features Client-based relationships Customer servicesCustomer contact Product positioningProduct manager Product deletionBrand manager IntangibilityMarket manager InseparabilityVenture team Perishability

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