CHAPTER 5

1. CHAPTER 5 Product and Services Strategy Objective: defining and classifying products, in addition discussing the decisions that marketers make regarding products.

2. 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. • Products include more than just tangible goods but intangible services e.g. banking, home repair, consultancy. • A product has three levels: the core product, actual product, and augmented product;

3. core product: is the basic problem-solving benefit that consumers seek when they buy a product. e.g. a woman buying a lipstick buys more than lip color but hopes as well. That is why, when designing products, marketers first define the core benefit that the product will provide to consumers. • actual product: may have five characteristics - a quality level, features, design, a brand name, and packaging. • augmented product: offers additional consumer services and benefits. e.g. warranty, repair services...

4. Product Classification • Products are divided into two as: consumer products and industrial products: • Consumer products; are those bought by final consumers for personal consumption. Consumer products include convenience products, shopping products, specialty products, and unsought products. These products differ in the way how consumers buy and how marketers market them.

5. Convenience products: are bought frequently with minimum comparison and effort e.g. soap, candy, newspapers... are usually low priced and highly distributed. • Shopping products: are less frequently purchased, compared carefully on quality, price, style, suitability e.g. furniture, clothing, used car… are less distributed but given more sales support. • Specialty products: have unique characteristic and brand identification for some consumers who spend special effort to purchase e.g. specific brands and types of cars, high-priced photographic equipment, custom-made men’s suits… e.g. Rolls Royce buyers do not compare specialty products, they only invest the time needed to reach the sellers. • Unsought products: are not known by the consumers or not normally thought to be bought e.g life insurance, blood donation …they require a lot of promotions and marketing efforts

6. Industrial products; are those purchased for further processing or for use in conducting a business. There are three groups of industrial products: materials and parts, capital items, supplies and services. • Materials and parts: include raw materials, sold directly to industrial users. Price and service are the major marketing factors rather than advertising. • Capital items: are industrial products that aid in the buyer’s production or operations including accessory e.g. fax machines desk… • Supplies and services: supplies include e.g. paper, pencils.. Services include e.g. window cleaning, computer repair, legal consultancy … are usually supplied under contract.

7. Individual Product Decisions • There are five important decisions to be made in the development and marketing of individual products; • product attributes • branding • packaging • labeling • product-support services

8. Product Attributes • The benefits that the product will offer would be based on (1) quality, (2)features, and (3) design. • Product Quality Product quality (customer value) has two dimensions - level and consistency. Companies must choose a quality level that matches target market needs and the quality level of competing products.

9. Product Features Features are a competitive tool for differentiation the company’s product from competitor’s products. In order to add new features to its products, companies can survey its customers. • Product Design Product design contributes to a product’s usefulness and appearance. Good design can attract attention, improve product performance, cut production costs, give the product a strong competitive advantage.

10. Branding • A brand is a name, term, sign, symbol or design or a combination of these to identify the goods and services of one seller or group of sellers and to differentiate them from those of competitors. • For the consumers; brand names help consumers identify products, get an idea about the product quality, promise consistency in quality.

11. For the producers; brand names provide legal protection for unique product features and prevent them to be copied by competitors. Plus, helps the seller to segment markets. • Brand Equity Brand equity is the value of a brand. Brands vary in the amount of power and value that they have in the marketplace. A powerful brand has high brand equity. If the brand has higher brand loyalty, name awareness, perceived quality; the brand is accepted to be having a strong brand equity.

12. Branding Decisions Major branding decisions are (1) selecting the brand name, (2) finding a brand sponsor, (3) identifying the brand strategy, (4) repositioning the brand. • Brand Name Selection: A good brand differentiates the product, communicates its benefits, suits the target market and marketing strategies. • Brand Sponsor: A producer has four sponsorship options. The product may be sold (1) as a manufacturer’s (producer’s) brand, (2) to a reseller (middleman) who give it a private

13. brand (who create and own the brand), (3) as a licensed brand (a company may be licensed to sell its products under another company’s brand), or (4) as a co-brand (two companies combine their brands and create a new one). • Brand strategy: A company has four choices; • line extension; using a successful brand name to introduce additional items in an existing product category under the same brand name, such as new flavors, forms, colors, added ingredients, or package sizes. Meets consumer desires for variety, works best when it decreases competition. • brand extension; using a successful brand name to launch a new product in a new category. Helps the

14. company introduce new product categories more easily, provides instant recognition and acceptance, decreases advertising costs. But may be dangerous if it fails, because it may tarnish the company’s whole image. • multibrands; a strategy under which a seller develops two or more brands in the same product category. Offers a way to establish different features and appeal to different types of buyers, therefore, may increases the market share of the company. • new brands; introducing new brand names in new product categories. Demands lot of company resources, that is why, nowadays some companies use megabrand strategies - spending resources only on brands that can achieve the number one or two market share position in their categories and dropping the weaker brands.

15. Four Brand Strategies Product Category ExistingNew ExistingLine Brand Brand Name extention extention New Multibrands New brands

16. Packaging • The activities of designing and producing the container or wrapper for a product. • There are three packages - the product’s primary container; a secondary package that is thrown away when the product is about to be used; and the shipping package to ship and store the product. • Packaging decisions are based on cost and production. • Packages attract attention and describe the product.

17. Labeling • Labels may range from tags attached to products to graphics that are part of the package. • Labels may (1) identify, (2) grade, (3) describe, or (4) promote (through attractive graphics) the product or brand. • Labels can mislead customers, fail to describe important ingredients or fail to include important safety warnings. That is why, laws regulate labeling in (1) unit pricing, (2) shelf life, and (3) nutritional value

18. Product-Support Services • The product-support services augment the actual product, can help the product to gain a competitive advantage and create customer loyalty. • The company should periodically survey its customers to assess its customers’ satisfaction and to get new ideas for product improvements. • E.g. services to handle complaints, credits, maintenance, technical issues, customer information.

19. Product Line Decisions • A product line is a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets or fall within given price range. E.g. Nike produces several lines of athletic shoes. • In developing product line strategies, marketers decide on;

20. product line length; the number of items in the product line. Product line length is influenced by company objectives. If the company wants to position itself as a full-line company or wants to have high market share and growth, the company prefers to carry a longer line. Product lines tend to lenghten over time. However, such line increases raise the costs of design, inventory, production, promotion, that is why, pruning is inevitable. • increasing the length of the product line; there are two ways - by streching and filling. Product line streching occurs when a company

21. lengthens (downward, upward or both ways) its product line beyond its current range. E.g. Xerox, Marriott Hotels... On the other hand, product line filling occurs when a company adds more items within the present range of the line. Reasons are; reaching for extra profit, tyring to satisfy dealers, use excess capacity, be the leading full-line company, plug holes to keep out competitors. E.g. Sony solar-powered and waterproof Walkman.

22. Product Mix Decisions • A product mix (or product assortment) includes all the product lines and items that a particular seller offers for sale. E.g. Avon’s product mix includes cosmetics, jewellery, fashion each with sublines such as lipstick, eyeliner… • A company’s product mix has four dimensions: width, length, depth, and consistency.

23. Width; refers to the number of different product lines the company carries. E.g. Procter & Gamble has a product mix of six lines as detergents, toothpaste, bar soap, deodorants, fruit juice, and lotions. • Length; refers to the total number of items that the company carries. E.g. P&G has 42 different products under its six lines. • Depth; refers to the number of versions offered of each product in the line. E.g. one of the products of P&G may have different sizes and formulations. • Consistency; refers to how closely related the various product lines are. E.g. P&G’s products are consistent in the way that they are all consumer products, but inconsistent in the way that they perform different functions for buyers.

24. Services Marketing • Service industries are quite varies: governmental services - courts, hospitals, police, fire departments, postal services, schools etc; private nonprofit organizations - museums, colleages, hospitals etc; business organizations - airlines, hotels, restaurants, advertising, real estate etc.

25. Nature and Characteristics of a Service • Service intangibility; means that services cannot be seen, tasted, felt, heard or smelled before they are bought. That is why, buyers look for “signals” for service quality from the place, people, price, equipment and communications that they can see. • Service inseparability; means that services cannot be separated from their providers. If a service employee provides the service, then the employee is part of the service. Both the provider and the customer affect the service outcome.

26. Service variability; means that the quality of services depends on who provides them, plus, when, where, and how they are provided. E.g. within a given Marriott hotel, one reception desk agent may be cheerful and efficient, another would be unpleasant and slow. Service providers’ service quality depends on his energy and his frame of mind at the time of each customer encounter. • Service perishability; means that services cannot be stored for later sale or use. E.g. the demand for public transportation during the rush-hour. Service perishability is a serious problem when demand fluctuates. Here, the marketer needs to design strategies for producing better match

27. between demand and supply. E.g. hotels charge lower rates in the off-season to attract more guests; restaurants hire part-time employees to serve during peak periods; tour operators and airline companies have last-minute sales.

28. Marketing Strategies for Service Firms • Services are different form tangible products, that is why, additional marketing approaches are needed to market services. • In service businesses, the customer and front-line service employees interact. Service providers must interact effectively with customers to satisfy them. That is why, companies take care of their employees to make profit. Because they believe that only

29. satisfied and productive service employees can create satisfied and loyal customers. • Internal marketing; means that the service firm must effectively train and motivate its customer-contact employees to provide customer satisfaction. • Interactive marketing; means that service quality depends on the quality of the buyer-seller interaction during the service encounter. • In order to increase the profit margin, there are three major marketing tasks for service companies;

30. Managing Service Differentiation • Differentiated offer, delivery and image are the keys for the solution to price competition. • The offer can provide innovative features like e.g. in-flight movies, advance seating, frequent-flyer award programs in an airlines. British Airways offers a sleeping compartment and hot showers.

31. The delivery can be differentiated by having better customer-contact people, developing a superior physical environment, or by designing a superior deliver process like e.g. home banking can be provided as a better way to deliver banking services. • The image can differentiate the service company through symbols and branding.

32. Managing Service Quality • A service firm can also differentiate itself by delivering consistently higher quality than its competitors do. • Service quality will always vary, depending on the interactions between employees and customers. A company cannot always prevent service problems but can recover them. A good service recovery can turn angry customers into loyal ones. Companies empower front-line

33. service employees (giving authority to do whatever it takes to keep customers happy) to recover problems. • Good service companies also communicate their qualities to employees and provide performance feedback.

34. Managing Service Productivity • Service productivity can be increased by; • training the employees better or hiring new and better employees • industrializing the service with equipment and standardized production as in McDonald’s • using technology to save time and money • Trying to increase the productivity would reduce quality and diminish customer service. That is why, some service providers accept to have lower productivity levels.

35. Marketing Organizations, Persons, Places, and Ideas • Organization marketing; consists of activities undertaken to create, maintain, or change the attitudes and behavior of target customers toward an organization. Corporate image advertising is a major toolfor a company to build up or maintain its favorable image in various publics over many years. • Person marketing; consists of activities undertaken to create, maintain, or change attitudes or behavior toward particular people. Politicians, entertainers, business leaders etc. practice persons marketing.

36. Place marketing; involves activities undertaken to create, maintain or change attitudes or behavior toward particular places. There are two basic types - business site marketing and tourism marketing. Business site marketing involves developing, selling, or renting sites for factories, stores etc.Tourism marketing involves attracting vacationers to tourist locations and organizations e.g. “I love New York”. • Idea marketing; also called social marketing, involves the marketing of social ideas such as public health (e.g. drug abuse), family planning, environmental (e.g. protecting the wild life) campaigns.

37. International Product and Service Marketing International product and service marketers must; • first; figure out what products and services to introduce and in which countries • second; decide how much to standardize or adapt their products and services

38. standardization helps a company to build a consistent worldwide image, reduces production, research and development, advertising and product design costs. • adaption helps a company to develop its product offering in a way that satisfies customers with different attitudes, buying behaviors and cultures.