Chapter 11

1. Chapter 11 Product and Service Strategies

2. Chapter Objectives • Define the term product and distinguish between goods and services and how they relate to the goods-services continuum. • Explain the importance of the service sector in today’s marketplace. • List the classifications of consumer goods and services and briefly describe each category. • Describe each of the types of business goods and services. • Explain how quality is used by marketers as a product strategy. • Explain why firms develop lines of related products. • Describe the way marketers typically measure product mixes and make product mix decisions. • Explain the concept of the product life cycle and identify the different stages. • Describe how a firm can extend a product’s life cycle.

3. What is a Product? • Product: bundle of physical, service, and symbolic attributes designed to enhance buyers’ want satisfaction

4. What are Goods and Services? • Service: intangible task that satisfies consumer or business user needs • Goods-services continuum: device that helps marketers to visualize the differences and similarities between goods and services

5. Characteristics that distinguish services from goods: • Intangibility • Inseparability • Perishability • Difficulty of standardization • Frequent requirement ofinteraction between buyer and Seller • Variability

6. Importance of the Service Sector • The service sector makes up more than two-thirds of the economy. • Services also play a crucial role in the international competitiveness of U.S. firms. • Concerns include offshoring service jobs such as customer service call centers.

7. Property Insurance • An Important Part of the Service Sector

8. Classifying Goods and Services for Consumer and Business Markets • Consumer products: products destined for use by ultimate consumers • Business (or B2B) products: those that contribute directly or indirectly to the output of other products for resale • Also called industrial or organizational products

9. Types of Consumer Products

10. Convenience product: good or service that consumers want to purchase frequently, immediately, and with minimal effort • Impulse goods and services are purchased on the spur of the moment. • Staples are convenience goods and services that consumers constantly replenish to maintain a ready inventory. • Emergency goods and services are bought in response to unexpected and urgent needs.

11. Gum and Candy • An Impulse Convenience Good

12. Shopping product: good or service purchased only after the customer compares competing offerings from competing vendors on such characteristics as price, quality, style, and color • Typically cost more than convenience purchases. • Include tangible items. • Shopper lacks complete information and gathers information during the buying process.

13. Chico’s and Target • Ads for shopping products

14. Specialty product: good or service with unique characteristics that cause the buyer to value it and make a special effort to obtain it

15. GucciA Specialty Product • Print reads: Guccitimepieces neiman marcus

16. Unsought product: good or service marketed to consumers who may not yet recognized in the need for it • Pet Insurance

17. Types of Business Products

18. Installation: major capital investment by a business buyer that typically involves expensive and relatively long-lived products, such as a new factory or piece of heavy machinery

19. Accessory equipment: capital product, usually less expensive and shorter-lived that insulation, such as a laptop computer • Industrial distributor--wholesaling marketing intermediary

20. Component parts and materials: finished business products that become parts of buying firms’ final products, such as spark plugs for new cars • Raw materials: business product, such as a farm product (wheat, cotton, soybeans) or natural product (coal, lumber, iron ore) that become part of a final product

21. Supplies: products that represent regular expenses necessary to carry out a firm’s daily operations but are not part of the final product. Supplies are sometimes called MRO items • MRO [Maintenance, Repair, Operating Supplies] item: part of business supplies categorized as maintenance items, repair items, or operating supplies such as light bulbs, nuts and bolts used in repairing equipment, or pencils

22. Business services: intangible product purchased to facilitate a firm’s production and operating processes such as financial services, leasing of vehicles, legal advice and consulting • Wireless Communications for a Mobile Workforce

23. Quality as a Product Strategy • Quality is a key component to a firm’s success in a competitive marketplace. • Total quality management (TQM): approach that involves all employees in continually improving products and work processes to achieve customer satisfaction and world-class performance

24. Worldwide Quality Programs • Malcolm Baldrige National Quality Award • ISO 9002: set of standards for quality management and quality assurance developed by the International Standards Organization in Switzerland for countries in the European Union • Benchmarking: process in which an organization improves performance by continually comparing and measuring itself against the leading firms in an industry and implementing changes for quality improvement

25. Quality of Services • Service encounter • Service quality: Expected and perceived quality of a service offering • Determined by five variables: • Tangibles – physical evidence • Reliability – consistent performance • Responsiveness – willingness to provide a service • Assurances – communicated confidence • Empathy – understand customer needs, and respond accordingly

26. Development of Product Lines • Product Line: a series of related products • Motivation • Desire to Grow • Enhancing the Company’s Position in the Market • Optimal Use of Company Resources • Exploit the Product Life Cycle

27. Yum Brands’ Product lines

28. The Product Mix • A company’s assortment of product lines and individual offerings • Product Width--the number of product lines offered. • Product Length--the number of different products a firm sells. • Product Depth--variations in each product that a firm markets in its mix.

29. Product Mix Decisions • A firm may lengthen or widen its product mix • A Company may decide to add variations that will attract new users • A product may be pruned or altered, and new product may extend the product life cycle • Line extension: introduction of a new product that is closely related to other products in the firm’s existing line

30. The Product Life Cycle • Product life cycle: progression of products through introduction, growth, maturity, and decline stages

31. Introduction Stage • Firm works to stimulate demand for the new market entry • Promotional campaigns stress features • Additional promotions to intermediaries attempt to induce them to carry the product • Although prices are typically high, financial losses are common due to heavy promotional and research-and-development costs

32. Growth Stage • Sales volume rises rapidly • Firm usually begins to realize substantial profits • Success attracts competitors • Firm may need to make improvements to the product • Additional spending on promotion and distribution may be necessary

33. Maturity Stage • Industry sales continue to grow, but eventually reach a plateau • Many competitors have entered the market, and profits began to decline • Differences between competing products diminish • Available supplies exceed industry demand for the first time • Competition intensifies and heavy promotional outlays are common

34. Figure 11.15 • Using Promotion--and Product Extensions--to Extend the Maturity Stage of the Product Life Cycle

35. Decline Stage • Innovations or shifts in consumer preferences cause an absolute decline in industry sales • Industry profits fall -- sometimes become losses • Firms cut prices in a bid for the dwindling market • Manufacturers gradually drop the declining items from their product lines

36. Extending the Product Life Cycle • Marketers usually try to expand each stage of the life cycle for their products as long as possible • Product life cycles can stretch indefinitely as a result of decisions designed to: • Increase the frequency of use by current customers • Increase the number of users for the product • Find new uses • Add new product features • Change package sizes, labels

37. Quaker Oats • A new application for a mature product

38. Bounce • Finding new uses for Bounce Fabric Softener

39. Kraft • New cubed cheese for snacking

40. Product Deletion Decisions • Product lines must sometimes be pruned and marginal products eliminated • This decision is typically faced during the late maturity and early declined stages of the product life cycle • An unprofitable item may be continued in order to provide a complete line for customers

41. End of Chapter Eleven