Product Offerings and the Business Model Dr. Dawne Martin MKTG 241 February 28, 2012

LEARNING OBJECTIVES Rethink Tool #7: Think holistically by approaching marketing as a system with various ecosystems. Identifying the uses for a Business concept, a business model and the product Identify the components of the product and how it defines the business Analysis the internal and external fit in your business model Prentice Hall © 2009 Rethinking Marketing, 1st Edition7-2

PRODUCTS, CONCEPTS, AND MODELS Creating new ventures, either from scratch or within an existing company, three sequential challenges ◦Come up with a new product or service ◦Translate these products or services into a unique business concept ◦Develop an original business model around the innovative concept Prentice Hall © 2009 Rethinking Marketing, 1st Edition7-3

The Business Concept Core value of firm may come from ◦Product ◦Way product is sold ◦How it is distributed ◦Manner it is priced or sold Concise statement that centers on what is really being done for customer ◦CNN — “instant information, anytime, from anywhere” ◦Starbucks: core value proposition is defined more by the environment and experience they create ◦Proactiv, which sells acne and related skin treatment products, additional value comes from selling directly to customers. Prentice Hall © 2009 Rethinking Marketing, 1st Edition7-4

Common characteristics ◦Challenge existing assumptions and ways of doing things ◦Beyond responding to customers in existing markets ◦Create entirely new market spaces ◦Lead customers instead of follow Companies that created new market spaces  Starbucks  Dell Computer  Swatch  Amazon.com Prentice Hall © 2009 Rethinking Marketing, 1st Edition7-5 Entrepreneurial Success

A simplified abstraction of a real situation Captures key aspects of a sustainable new venture More than business concept less than business plan Concise representation of interrelated variable interacts to create sustainable competitive advantage Prentice Hall © 2009 Rethinking Marketing, 1st Edition7-6 What is a Business Model?

Helps ensure fairly logical and internally consistent approach to design and operation It represents the architecture for identifying key variables that can be combined in unique ways Vehicle for demonstrating the economic attractiveness of the venture A guide to ongoing company operations Mapping it can help facilitate necessary modifications as conditions change over time Prentice Hall © 2009 Rethinking Marketing, 1st Edition7-7 What it the Purpose of a Business Model?

Breaking It Down: Elements that Define a Business Model Well formulated model must address six key questions ◦How will firm create value? ◦For whom will the firm create value? ◦What is the firm’s internal source of advantage? ◦How will the firm differentiate itself? ◦How will the firm make money? ◦What are the entrepreneur’s time, scope, and size ambitions? Prentice Hall © 2009 Rethinking Marketing, 1st Edition7-8

The product or service ◦Products are tangible, services are not ◦Great challenge with any product or service  Build in enough uniqueness such that the item can be differentiated from the offerings of competitors ◦Creative marketers tend to view their product or service differently than others do  Apple is more than a computer, it is an artistic tool  Snap-on Tools not a tool made of metal but an extension of the hand of an auto mechanic Prentice Hall © 2009 Rethinking Marketing, 1st Edition7-9

Figure 7.1: Seeing Products as Creative Variables Prentice Hall © 2009 Rethinking Marketing, 1st Edition 7- 10

Seeing Products as Creative Variable Core product  Primary benefit Tangible product  Company and product presentation  Styling  Physical design  Options  Quality and reliability  Features  Packaging Prentice Hall © 2009 Rethinking Marketing, 1st Edition 7- 11

Augmented product ◦Delivery ◦Installation ◦System interaction ◦Sales terms and warranty ◦Technical support ◦Maintenance and repair ◦After-sale service ◦Customer training Communicated product ◦Product positioning ◦Product brand name ◦Product logo ◦Product image ◦Product bundling Prentice Hall © 2009 Rethinking Marketing, 1st Edition Seeing Products as Creative Variable

Characteristics of Successful New Products and Services Superior Advantage: Customers perceive product to be superior to existing alternatives Compatibility: Aligned with values, attitudes, norms or behaviors Simplicity: Easy to understand and use Observability: Innovative characteristics that customer can “see” or can be easily communicated Trailability: Customer can try or “trial” product Low Perceived Risk: Customer perceives risk to be low through return policy, guarantees or warranties Intellectual Property Protection: patent, trademark or copyright to protect sustainable competitive advantage

Adoption of Innovation Process of acceptance and continuous use Adoption Process ◦Awareness ◦Interest ◦Evaluation ◦Trial ◦Adoption or rejection Diffusion: Manner in which customers accept a new product/service

Adopter Categories Time Innovators 2.5% Early Adopters 13.5% Early Majority 34% Adopter s Profit Late Majority 34% Laggards 16%

Enhancing or Speed Diffusion and Adoption Superior Advantage Simplicity (ease of use) Compatibility Price Distribution Promotion (create awareness) Trial Niche (Crossing the Chasm) Leveraging Opinion Leadership (buss or viral marketing Publicity Educational programs Free (trial)

Managing the Product Life Cycle IntroductionGrowthMaturityDecline Industry Sales LowIncreasingHigh/StableDecreasing Industry Profit LowIncreasingDecreasing Marketing Objective AwarenessDifferentiationBrand LoyaltyHarvest/ Delete Target Market InnovatorsEarly Adopters Early Majority Early/Late Majority Late Majority Laggards Product OneMore versionsFull lineBest sellers Price High (or Low)DecreasingLowerLow Promotion High DecreasingLow Distribution LimitedExpandedMaximumFewer Competition LittleGrowingManyReduced

Product-Price Position, Marketing Effort, and Market Share

Marketing to Cross the Chasm Geoffery A. Moore, Crossing the Chasm, Harper Business, Target specific niche markets through technology enthusiasts and visionary stages Broaden niche to cross chasm ◦Develop a must have value-statement  Capability to ensure competitive advantage  Improves productivity  Reduces operating costs ◦Choose a niche  Application niche  Thematic niche: portability across incompatible hardware platforms Bowling Alley & Main Street Issues Inside the Tornado

Prentice Hall © 2009 Rethinking Marketing, 1st Edition 7- 21

Prentice Hall © 2009 Rethinking Marketing, 1st Edition 7- 22

The Importance of Internal and External Fit Internal fit ◦Includes both consistency and reinforcement within and between the six components of the models ◦Each component affects and is affected by every other component External fit ◦Consistency between choices in each of the six areas of the model and conditions in the external environment ◦As conditions change, model may require adaptation or wholesale change Prentice Hall © 2009 Rethinking Marketing, 1st Edition 7- 23

How Business Models Emerge Process of trial and error Mental model becomes some aspect of written model Intuitive sense of how firm must operate to make money As competencies are developed keener insight emerges Entrepreneur may have fair picture of the foundation level, limited notion of some proprietary level Develop rules to guide operation and ongoing development Prentice Hall © 2009 Rethinking Marketing, 1st Edition 7- 24

New Products/Services Continuous Innovations: minor improvements of existing products: little disruptive influence on consumptions Dynamically Continuous Innovations : New approach but not new technologies – mildly disruptive Discontinuous Innovation: Major technological innovations & cause disruptions in the way customers buy – new markets and education required Major Service Innovations: New Concept Major Process Innovations: New ways to deliver services that create new value Service Line Extensions: Adding new services Supplementary Service Innovations: Adding new elements or improving existing supplemental service