Designing and Managing Products Marketing for Hospitality and Tourism Kotler, Bowen and Makens Designing and Managing Products Chapter 9

Learning Objectives Define the term product, including the core, facilitating, supporting, and augmented product. Explain how accessibility, atmosphere, customer interaction with the service delivery system, customer interaction with other customers, and customer coproduction are all critical elements to keep in mind when designing a product. Understand branding and the conditions that support branding. The new product development process. Understand how the product life cycle can be applied to the hospitality industry.

What is a Product? A product is anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. It includes physical objects, services, places, organizations, and ideas.

Facilitating Products Product Levels Core Products Facilitating Products Supporting Products Augmented Products Hospitality managers need to think about the product on four levels: the core product, the facilitating product, the supporting product and the augmented product Core Products The most basic level is core product Marketers must uncover the core benefit to the consumer of every product and sell these benefits rather than merely selling features Facilitating Products Facilitating products are services or goods that must be present for the guest to use the core product Facilitating products for one market segment may be supporting products for another Supporting Products Core products require facilitating products but do not require supporting products Supporting products are extra products offered to add value to the core product and help to differentiate it from the competition Supporting products offer a competitive advantage, only if they are properly planned and implemented Augmented Product The augmented product includes accessibility, atmosphere, customer interaction with the service organization, customer participation, and customers’ interaction with each other These elements combine with the core facilitating and supporting products to provide the augmented product (See Slide 5)

Customer Participation Augmented Product Augmented Product Accessibility Atmosphere Customer Participation Customer Interaction The augmented product includes accessibility, atmosphere, customer interaction with the service organization, customer participation, and customers’ interaction with each other Accessibility If a product is not accessible it has no value Two barriers to accessibility are hours of operation and lack of knowledge Products must be accessible when the guest wants to use them Atmosphere: The Physical Environment Atmosphere is a critical element in services It can be the customer’s reason for choosing to do business with an establishment Atmosphere is appreciated through the senses Sensory terms provide descriptions for the atmosphere of a particular set of surroundings Customer Participation The customer participates in the delivery of most hospitality and travel products There are three phases to this involvement: joining, consumption, and detachment (See Slide 7) Customer Interaction An area that is drawing the interest of hospitality researchers is the interaction of customers with each other Hospitality organizations must manage the interaction of customers to ensure that some do not negatively affect the experience of others

Atmosphere’s Effect on Purchase Behavior Attention-Creating Medium Message-Creating Medium Effect-Creating Medium Mood-Creating Medium Atmosphere can affect purchase behavior in at least four ways First, atmosphere may serve as an attention-creating medium Second, atmosphere may serve as a message-creating medium to the potential customers Third, atmosphere may serve as an effect-creating medium Colors, sounds, and textures directly arouse visceral reactions that stimulate the purchase of a product Finally, environment can be a mood-creating medium An environmental psychologist has described environments as high load and low load High and low refer to the information that one receives from the environment Bright colors, bright lights, loud noises, crowds, and movement are typical elements of a high-load environment, whereas their opposites are characteristic of a low-load environment A high-load environment creates a playful, adventurous mood, whereas low-load environments create a relaxing mood

Customer Interaction with the Service Delivery System Joining Consumption Detachment The customer participates in the delivery of most hospitality and travel products There are three phases to this involvement: joining, consumption, and detachment Thinking through these three stages helps management understand how the customer will interact with the service delivery system, resulting in a product designed to fit the needs of the customer Joining stage The customer makes the initial inquiry contact When designing products we must make it easy for people to learn about the new product This information must be delivered in a professional way Consumption phase Takes place when the service is consumed Designers of hospitality products must understand how guests will interact with the product The employees, customers, and physical facilities are all part of the product Physical features, layout, and signage can also be used to help customers interact with the product Detachment phase The customer is through using a product and departs

Elements of Branding Strategy Brand Equity Brand Portfolios Brand Positioning Building Strong Brands Brands are powerful assets that must be carefully developed and managed Some analysts see brands as the major enduring asset of a company, outlasting the company’s specific products and facilities Brand Equity Brands are more than just names and symbols, they are a key element in the company's relationships with consumers Brands represent consumers' perceptions and feelings about a product and its performance—everything that the product means to consumers Brand equity is the differential effect that knowing the brand name has on customer response to the product and its marketing It's a measure of the brand's ability to capture consumer preference and loyalty Brand Positioning Marketers need to position their brands clearly in target customers' minds Brand Portfolios The brand portfolio is the set of all brands and brand particular category or market segment The hallmark of an optimal brand portfolio is the ability of each brand in it to maximize equity in combination with all the other brands in it Marketers carefully monitor brand portfolios over time to identify weak brands and kill unprofitable ones Managing Brands Companies must manage their brands carefully Companies need to periodically audit their brands' strengths and weaknesses

Brand Positioning Beliefs and Values Benefits Attributes Marketers need to position their brands clearly in target customers' minds When positioning a brand, the marketer should establish a mission for the brand and a vision of what the brand must be and do A brand is the company's promise to deliver a specific set of features, benefits, services, and experiences consistently to buyers The brand promise must be simple and honest They can position brands at any of three levels: At the lowest level they can position the brand on product attributes However, attributes are the least desirable level for brand positioning Competitors can easily copy attributes A brand can be better positioned by associating its name with a desirable benefit The strongest brands go beyond attribute or benefit positioning - they are positioned on strong beliefs and values Successful brands engage customers on a deep, emotional level Attributes

New Product Development Idea Generation Idea Screening Concept Development and Testing Marketing Strategy Business Analysis Product Development Test Marketing Commercialization To create successful new products, a company must understand its consumers, markets, and competitors and develop products that deliver superior value to customers It must carry out strong new-product planning and set up a systematic, customer-driven new-product development process for finding and growing new products Idea Generation New-product development starts with idea generation—the systematic search for new-product ideas (See Slide 11) The purpose of idea generation is to create a large number of ideas Idea Screening The purpose of screening is to spot good ideas and drop poor ones as quickly as possible Product development costs rise greatly in later stages, so the company wants to proceed only with ideas that will turn into profitable products The idea or concept screening stage is the appropriate time to review carefully the question of product line compatibility Concept Development and Testing Surviving ideas must now be developed into product concepts It is important to distinguish between a product idea, a product concept, and a product image A product idea envisions a possible product that company managers might offer to the market A product concept is a detailed version of the idea stated in meaningful consumer terms A product image is the way that consumers picture an actual or potential product Marketing Strategy The next step is marketing strategy development: designing an initial marketing strategy for introducing the product into the market The marketing strategy statement consists of three parts The first part describes the target market, the planned product positioning, and the sales, market share, and profit goals for the first few years The second part of the marketing strategy statement outlines the product’s planned price, distribution, and marketing budget for the first year The third part of the marketing strategy statement describes the planned long-run sales, profit goals, and marketing mix strategy Business Analysis Business analysis involves a review of the sales, costs, and profit projections to determine whether they satisfy the company’s objectives Product Development If the product concept passes the business test, it moves into product development and into a proto type One problem with developing a prototype is that the prototype is often limited to the core product Many of the intangible aspects of the product, such as the performance of the employees, cannot be included Test Marketing The product and marketing program are introduced into realistic market settings Market testing allows the marketer to gain experience in marketing the product, to find potential problems, and to learn where more information is needed before the company goes to the great expense of full introduction Commercialization If the company goes ahead with commercialization, it will face high costs (See Slide 12)

Idea Generation Idea Generation External Environment Internal Sources External Sources Crowdsourcing New-product development starts with idea generation—the systematic search for new-product ideas Awareness of External Environment All members of the hospitality industry are highly dependent on the external environment Recession, inflation, economic growth, terrorists, an aging population, and other external factors all directly affect this industry Internal Sources Using internal sources, the company can find new ideas through formal R&D A danger with this source is that managers and employees may say yes the idea is good when in fact they believe it is abysmal External Idea Sources Companies can also obtain good new-product ideas from any of a number of external sources For example, distributors and suppliers can contribute ideas Crowdsourcing More broadly, many companies are now developing crowdsourcing or open-innovation new-product idea programs Jeff Howe is credited with developing the term He defines crowdsourcing as “The application of open source principles to fields outside of software”

Commercialization Where? To Whom? When? How? Commercialization Decisions When? The first decision is whether it is the right time to introduce the new product Where? The company must decide whether to launch the new product in a single location, a region, several regions, the national market, or the international market To Whom? Within the rollout markets, the company must target its promotion to the best prospect groups Management should have determined profiles of prime prospects during earlier market testing It must now fine-tune its market identification, looking for early adopters, heavy users, and opinion leaders How? The company must develop an action plan for introducing the new product into the selected markets and spend the marketing budget on the marketing mix

Product Life Cycle Strategy changes are often the result of changing market and environmental conditions as the product moves through the product life cycle (PLC) Product development Begins when the company finds and develops a new product idea During product development, sales are zero and the company’s investment costs add up Introduction A period of slow sales growth as the product is being introduced into the market Profits are nonexistent at this stage because of the heavy expenses of product introduction Growth A period of rapid market acceptance and increasing profits Maturity A period of slowdown in sales growth because the product has achieved acceptance by most of its potential buyers Although sales are still high, profits level off or decline because of increased marketing outlays to defend the product against competition Decline The period when sales fall off quickly and profits drop

Product Deletion Phase-Out Drop It Run-Out The product life cycle illustrates that most products will become obsolete and have to be replaced If a product is no longer profitable, it is important to terminate it rather than continue to pour time and resources into reviving it If the analysis indicates that the product should be deleted, there are three choices: phase-out, run-out, or drop it immediately Phase-out The ideal method; it enables a product to be removed in an orderly fashion Run-out Used when sales for an item are low and costs exceed revenues drop This option is usually chosen when the product may cause harm or complaints Drop it It is best to drop the item rather than continuing to create unhappy customer

Key Terms Augmented products Additional consumer services and benefits built around the core and actual products. Aural The dimension of atmosphere relating to volume and pitch. Brand A name, term, sign, symbol, design, or a combination of these elements that is intended to identify the goods or services of a seller and differentiate them from competitors. Brand equity The added value endowed on products and services. It may be reflected in the way consumers think, feel, and act with respect to the brand, as well as in the prices, market share, and profitability the brand commands for the firm. Branding The process of endowing products and services with the power of a brand. It’s all about creating differences between products. Brand promise The marketer’s vision of what the brand must be and do for consumers. Consumption phase Takes place when the customer consumes the service. Core product Answers the question of what the buyer is really buying. Every product is a package of problem- solving services. Crowdsourcing An open-innovation new-product idea program.

Key Terms (cont.) Decline The period when sales fall off quickly and profits drop. Detachment phase When the customer is through using the product and departs. Drop The action taken toward a product that may cause harm or customer dissatisfaction. Facilitating products Those services or goods that must be present for the guest to use the core product. Growth The product life-cycle stage when a new product’s sales start climbing quickly. Introduction The product life-cycle stage when a new product is first distributed and made available for purchase. Joining stage The product life-cycle stage when the customer makes the initial inquiry contact. Maturity The stage in a product life cycle when sales growth slows or levels off. Olfactory The dimension of atmosphere relating to scent and freshness.

Key Terms (cont.) Phase-out The ideal method of removing an unpopular or unprofitable product; it enables a product to be removed in an orderly fashion. Product concept A detailed version of a product idea stated in meaningful consumer terms. Product development Developing the product concept into a physical product to ensure that the product idea can be turned into a workable product. Product idea Envisioning a possible product that company managers might offer to the market.. Product image The way that consumers picture an actual or potential product. Run-out Removing a product after existing stock has been depleted; used when sales for an item are low and costs exceed revenues, such as the case of a restaurant serving a crabmeat cocktail with sales of only one or two items per week. Supporting products Extra products offered to add value to the core product and to help to differentiate it from the competition. Tactile The dimension of atmosphere relating to softness, smoothness, and temperature. Visual The dimension of atmosphere relating to color, brightness, size, and shape.