©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages Chapter 11 Developing and Managing Goods and Services

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  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 Learning Objectives

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  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 developing and managing products Learning Objectives

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Organizations benefit by capitalizing on existing products  Weaknesses and gaps can be identified by assessing the composition of the current product mix  Analysis can lead to improvement of the product mix through:  Line extensions  Product modifications Managing Existing Products

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Development of a product closely related to existing products but designed specifically to meet different customer needs  Line extensions may:  Focus on a different market segment  Increase sales within the same market segment  Success of a line extension is enhanced when a:  Parent brand has a high-quality brand image  Good fit between the line extension and its parent exists Line Extensions

Discussion Point - Line Extensions Tide Pods represent a line extension of the successful Tide laundry product line. Can you think of other products that are line extensions?

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Changing one or more characteristics of a product  Differs from a line extension because the original product drops from the product line  Improves a firm’s product mix under certain conditions  Product must be modifiable  Customers must recognize the modification  Modification should be consistent with customers’ desires Product Modifications

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages Changes relating to a product’s dependability and durability Quality modifications Changes that affect a product’s versatility, effectiveness, convenience, or safety Functional modifications Changes the sensory appeal of a product Aesthetic modifications Types of Product Modifications

Discussion Point Do AXE Products Make Men More Desirable? To effectively manage the brand, Unilever has regularly developed new products. How has AXE managed its product mix? How has AXE used line extensions to increase its reach among consumers?

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Enhances product mix and adds depth to a product line  A new product can be:  An innovative product that has never been sold by any organization  A modified product that existed previously  A product a specific company has not marketed previously  Viewed as new when it is brought to one or more markets from another market Developing New Products

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages Figure Phases of New-Product Development

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Ideas can come from several sources Idea Generation Internal Marketing managers Researchers Sales personnel Engineers Other organizational personnel External Customers Competitors Advertising agencies Management consultants Research organizations

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Selecting ideas with greatest potential for further review  Ideas are analyzed to determine whether they match the organization’s objectives and resources  Most new products are rejected during this phase Screening

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Presenting potential buyers with a product idea  To determine their attitudes and initial buying intentions regarding the product  Low-cost procedure Concept Testing

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Evaluating a product idea to determine its potential contribution to the firm’s sales, costs, and profits  Marketers ask a series of questions  Results supply the specifics needed to estimate potential sales, costs and profits  Analysis based on estimates  Breakeven analysis  Payback analysis Business Analysis

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Determining if producing a product is technically feasible and cost effective  Idea is converted into a test prototype  Overall functioning of the prototype is tested  Determining the quality to be built into the product Product Development

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Limited introduction of a product in geographic areas chosen to represent the intended market  Aims to determine the extent to which potential customers will buy the product  Exposes a product in a natural marketing environment to measure its sales performance  Measures the extent of brand awareness  Risks  Expensive  Competitors may try to interfere Test Marketing

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Plans for full-scale manufacturing and marketing are refined and settled, and budgets are prepared  Marketers analyze results of test marketing  Necessary changes to the marketing mix are made  Decisions on warranties, repairs and replacement parts are made  Rollout - Product is introduced in stages  Starting in one geographic area and gradually expanding into adjacent areas Commercialization

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages Introduction in test cities Market coverage of the states where the test cities are located Marketing efforts be extended into adjacent states Remaining states be covered in stage Stages of Commercialization

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages Figure Stages of Expansion into a National Market During Commercialization

Discussion Point Merck & Company Merck develops, manufactures and markets a broad range of health-care products. What products has Merck developed and introduced recently? How does research facilitate new product development at Merck?

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Process of creating and designing products that are perceived as different from other products  Aspects to be considered when creating and offering products for sale  Product quality  Product design and features  Product support services Product Differentiation

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Overall characteristics of a product that allow it to perform as expected in satisfying customer needs  Concept of quality varies between consumer and business markets  Dimensions of quality  Level of quality: Amount of quality a product possesses  Consistency of quality: Degree to which a product has the same level of quality over time Product Quality

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages How a product is conceived, planned and produced Styling: Physical appearance of a product Product design Specific design characteristics Allows a product to perform certain tasks Product features Product Design and Features

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Customer services: Human or mechanical efforts or activities a company provides  Adds value to a product  Differentiates a company’s products from competitors’  Profoundly affects customer satisfaction  Consumers infer a higher level of quality from the availability of add-on services Product Support Services

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Decisions and activities intended to create and maintain a certain concept of the firm’s product in customers’ minds  Product is positioned so that it appears to have the characteristics that the target market most desires Product Positioning

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages Figure Hypothetical Perceptual Map of Pain Relievers

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages Product’s performance characteristics are equal to those of competitive brands Head-to-head Brand has unique characteristics that are important to some buyers Avoid competition Product attributes Features Specifically based Price Quality level Benefits Other bases Bases for Positioning

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Evaluating the positions of existing products  Brand’s market share and profitability may be strengthened  Can be accomplished by:  Physically changing the product, price, or distribution  Changing product image through promotional efforts  Aiming at a different target market Repositioning

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Eliminating a product from the product mix  Systematic review allows an organization to improve a product or delete a product  Ways of product deletion  Phase-out - Allows a product to decline without a change in marketing strategy  Run-out - Exploits any strengths left in the product  Immediate drop - Used when losses are too great Product Deletion

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages Characteristics of Services Service is not physical and cannot be touched Intangibility Shared responsibility between the customer and service provider in giving and receiving the service Inseparability of production and consumption Unused service capacity of one time period cannot be stored for future use Perishability

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages Characteristics of Services Variation in quality Heterogeneity Interactions that result in satisfied customers who use a service repeatedly over time Client-based relationships Level of interaction between provider and customer needed to deliver the service Customer contact

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Services consist of:  Core service - Basic service experience or commodity that a customer expects to receive  Supplementary services - Related to the core service to differentiate the service bundle from competitors’ Development of Services

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Pricing should consider consumer price sensitivity, nature of the transaction, and costs  Prices can be based on performance of specific tasks, time, level of demand  Services can be offered at one price, separately, or a combination of the two  Customers rely on price as an indicator of quality Pricing of Services

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Marketers deliver services in a variety of ways  At the service provider’s facility  At customer’s home or business  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 Distribution of Services

Discussion Point Distribution of Services FedEx provides delivery services and maintains online websites to track packages.

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages  Tangible cues are a typical way to promote services  Intangibility results in promotion-related challenges  Advertisements for services show pictures of facilities, equipment, and service personnel  Personal selling can help customers visualize the service experience  Word-of-mouth communication is important Promotion of Services

©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©wecand/GettyImages Responsible for a product, a product line, or several distinct products that make up an interrelated group Product manager Responsible for a single brand Brand manager Responsible for all aspects of developing a product Research and development Production and engineering Finance and accounting Marketing Venture team Organizing to Develop and Manage Products

Discussion Point - Product Manager Responsibilities Product managers operate cross- functionally to coordinate marketing activities associated with products, including advertising, branding, design, and distribution.