Marketing Management MKT 600

1. Marketing Management MKT 600 Product in MktgMngnt

2. Product Mix • Lecture Review • Introduction • What is a product? • The product concept • Product classifications • Product decisions • Packaging decisions • Innovation and new product development • Why do products fail? • New product development process • The product life cycle concept • Product services

3. INTRODUCTION Designing good products that customers want to buy is a challenging task. Customers do not buy mere products – they seek product benefits and are often willing to pay more for a brand that genuinely solves their problems. This session explores how marketers can satisfy customer needs by adding value to the basic product; it also shows the complexity arising in a product, branding and packaging decisions and how various forces in the environment pose tough challenges for marketers in the 21st century. Markets do not stand still. Companies must adopt their offering or create new ones in response to changing customer needs or to take advantage of new marketing and technological opportunities. As such, this session will also review how to develop and commercialise new products. It will also look at intangible products or services and examine the unique characteristics of services and how organisations adopt their approach when marketing them. But, we start by asking a simple question; “What is a product?” and in answering this question, we will look at ways to classify products in consumer and business markets but also to understand the ‘product concept’.

4. WHAT IS A PRODUCT? A Nokia mobile phone, a Euro Disney vacation, a suit of clothes, advice from a tutor or a bank manager, a pair of Nike trainers, a bet on the lottery, a Volvo truck, golf lessons or a Paul McCartney concert are all products. Definition “A product is anything that is offered to a market for attention, acquisition, use or consumption and that might satisfy a want or need.” Products include more that just tangible goods – they include physical objects, services, persons, places, organisations and ideas. The difference between a product and a service is the distinction of one being tangible and the other intangible. However, when we adopt a consumer’s viewpoint we find they simply seek solutions from the product/service. (e.g. in this respect a person having a haircut – the style of the cut is intangible, but in order to achieve it requires the need for scissors, shampoo and a salon that makes the services tangible.)

5. There are 3 components to a product or service offer Physical – any tangible aspect of the offer (e.g. scissors etc) Functional – what the offer will do for the customer (shortens, thins, shapes, colours hair etc) Symbolic – what the offer means to the consumer within their psychological profile (gives confidence, beautifies, professionalises or individualises the person etc) Consider one of your own recent purchases. How important was the function compared to its symbolic value? Consider a good wrist watch. How far would you be influenced by style or brand? How much notice would you give to its timekeeping, date and stopwatch functions? Would you bother with the physical make up of the casing, internal components, plastic face? Symbolic aspects are generally more important to us. Even professional buyers prefer to buy packages that makes life easier for them; prefer to deal with people they like, trust or respect, who put themselves out for them. These symbolic aspects carry the real value. Physical Functional Symbolic

6. THE PRODUCT CONCEPT Product planners need to consider a product on three levels as shown below. Augmented product Actual product Core product Installation Packaging Delivery and credit Features Brand name Core benefit or service After sales service Quality Training support Styling Warranty/guarantee

7. Three levels of a product Core product The core product addresses the question “What is the buyer really buying?”. The core consists of the main benefits or problem solving services that consumers seek when they buy a product. A woman buying lipstick buys more than lip colour. Charles Revson of Revlon when asked what his company made was quoted as saying, “In the factory, we make cosmetics, in the drugstore, we sell hope” – Theodore Levitt likewise pointed out that buyers do not buy ¼” drills they buy quarter inch holes. When designing a product , therefore, marketers must help to define the core benefits the customer seeks from the product.

8. Actual product The actual product will be built around the core product and will generally have 5 characteristics. Features such as size, performance and colour etc Styling Quality Packaging Brand name Product decisions will need to be take on all these areas in order to satisfy customer wants/needs. For example, Sony’s new camcorder is an actual product. It’s name, parts, styling, features, packaging and other attributes have all been combined to deliver the core benefits – a convenient, high quality way to capture important moments.

9. Augmented product Around the core and actual product, the marketer must plow to develop the augmented product by offering additional consumer services and benefits. Sony must offer more than just a camcorder, it must offer consumers a complete solution to their picture-taking problems. Therefore, they offer warranties on parts and workmanship, free lessons on how to use the camcorder, quick repair services when needed and a freephone number to call if they have problems or questions. To the customer of course, these augmentations become an important part of the total product. Today, where many products can be easily matched at the actual level, we find the real competition taking place at the augmented level. Successful companies add benefits to their offers that will not only satisfy, but also delight their customers.

10. PRODUCT CLASSIFICATIONS It was recognised in our buyer behaviour and segmentation lessons that products can be divided into two broad classes based on the types of customers that use them. Consumer Products Industrial Products

11. Consumer Products – are those bought by final consumers for personal consumption. These goods are usually classified based on consumer shopping habits under the heading – convenience, shopping and speciality products. Interestingly, these products differ in the way consumers buy them, so they differ in how they are marketed (see below).

12. Industrial Products – are those bought for further processing or for resale. There are 3 groups of industrial product; materials and parts, capital items and supplies and services. As shown below. Industrial goods Materials and Parts Capital Items Supplies and Services Raw Materials Manufactured Materials and Parts Installations Accessory Equipment Supplies Business Services Classification of Industrial Goods

13. PRODUCT DECISIONS There are several decisions that need to be taken in the development and marketing of individual products. These are; Product Attributes Product quality – in developing a product, the marketers must choose a quality level that will support the product’s position in the target market Product features – a product can be offered with varying features. Features represent a competitive tool for differentiating the company’s product from competitor’s products. Product design – another way to add product distinctiveness is through product design. Some companies have reputations for outstanding design, such as Black&Decker in cordless appliances and tools. Good design contributes to a products usefulness as well as its looks. That’s why Nike employ, for example, 60 designers who release 500 footwear designs each year. Branding – a brand is a name, term, sign, symbol or design or combination, which is used to identify the goods or services of one seller and to differentiate them from the competition. It is important because branding can add value to a product and in doing so allows the firm to charge premium prices. It brings with it brand equity, a high degree of product awareness, preference and loyalty amongst its target market.

14. PACKAGING DECISIONS Often called the 5th P, along with; price, product, place and promotion. Packaging includes the activities of designing and producing the container or wrapper for the product. It offers protection, helps keep foodstuffs hygienic and fresh and acts as a communicator via its labelling. The package can give a company competitive advantage over its competitors. Coca Cola and Jack Daniels whiskey bottles are so distinctive and have such strong identities with their brands that the packaging has become iconic for the identification of the brand. Product Support Decisions Customer service is another element of product strategy. A company’s offer to the marketplace usually includes some services, which can be a minor or major part of the total offer. Because of its importance, many companies have set up strong customer service departments to handle complaints, credit service and maintenance. Product Mix Decisions Companies need to build up product lines in order to develop their portfolio of products. A product line is a group of products that are closely related. For example, Volvo produces several lines of cars, Phillips produces several lines of Hi Fi’s and Nike several lines of trainers. In order to compete and win high market share and market growth or simply increase sales and profit, companies need to add items to their product line. Some companies may offer more than 1 product line which then forms a product mix or product assortment. For example, a cosmetics firm may have 4 products lines in its product mix; cosmetics, jewellery, fashions and household items etc.

15. A company’s product mix has 4 important dimensions; width, length, depth and consistency , as shown below. Product width and Product Depth shown for selected Proctor and Gamble consumer products Product Mix Width Product Line Length

16. A company’s product mix has 4 important dimensions; width, length, depth and consistency , as shown below. Product width and Product Depth shown for selected Proctor and Gamble consumer products Product Mix Width Product Line Length 16

17. Product width and Product depth shown for selected Proctor & Gamble products. The length of Proctor & Gamble’s product mix refers to the total number of items the company carries, which is 42. The average length of a line can be computed by dividing 42 by the number of lines which is 6, giving an average of 7 brands per line. The depth or numbers of versions offered for each brand in the line can be counted. Crest toothpaste, for example, used to come in 3 sizes and 2 formulations (paste and gel) giving a depth of 6. The consistency of the mix refers to how closely related the various product lives are in end use, productions requirements, distribution channels etc. Proctor & Gamble lines are consistent in that they are all consumer goods and sell through the same channels.

18. INNOVATION AND NEW PRODUCT DEVELOPMENT With changing customer needs, technologies and competition, product innovation or the development of new products has become vital to a company’s survival. However, introducing new products is not enough. The firm must know how to manage the new product as it goes through it’s life cycle . By new products we mean original products, product improvements, product modifications and new brands.

19. Why do Products fail? Many products do fail despite the enormous sums of money being spent on them. Consider the Millennium Dome (Government), Concorde (Anglo/French), Pejr personal computer (IBM), Betamax video recorder (Sony), EuroDisney (Walt Disney Corp), the C5 electric car (Clive Sinclair) – they all failed to meet target returns on investment and joined the ranks of new-product failure There are several reasons for failure; Market size overestimated Poor design No real USP Incorrectly positioned Development costs too high The question is – How do you develop and grow new products?

20. New Product Development Process (NPD) The NPD process for finding and growing new products consists of 8 steps Idea generation Idea screening Concept development Marketing strategy No. of Product Ideas Business analysis Product development Test market Commercialisation New Product Development Steps

21. Idea Generation – of 100 ideas generated 8 may make it to market, but only 1 will probably meet its business objectives. To obtain a flow of new product ideas, the company can turn to its employees, customers, competitors, distributors and suppliers. Idea Screening – the purpose of the following stages is to reduce the number of ideas to a manageable flow which deserves attention. The first of these stages is to rate the ideas based around a series of factors the company believe are important to warrant further work. Idea screening is a quickmanagement approach to filter out only the really good ideas that meet the above. Concept testing– here the ideas are tested on a group of target consumers. Word or picture descriptions of the new product are provided but modern computer graphics have allowed for a virtual reality or visual effects to be presented for consumers to say whether they would buy or not. Market Strategy Development – this stage calls for marketing strategy to be developed for the new product concept. This involves describing the target market, the planned positioning of the product and setting the sales, market share and profit goals for the first couple of years.

22. Business Analysis – here the marketing strategy is reviewed in terms of the product sales, costs and profit projections to see if they fit with the company's objectives. Product Development – so far the product has only existed as a concept, a description, or drawing etc. Once the business analysis test is passed, it moves into product development. The Research and Design department will attempt to develop an actual prototype. Test Marketing – once the product has been developed and functionally tested and approved, the next step is test marketing. This stage is about testing the marketing of the product prior to full introduction or launch. It involves testing the entire marketing programme from – positioning strategy, advertising, distribution, pricing, branding and packaging and budget levels – in real market situations. Commercialisation– test marketing gives marketers the information needed to make a final decision about whether to launch the new product. This forms the beginning oe introduction of a product’s life cycle.

23. THE PRODUCT LIFE CYCLE CONCEPT Central to the planning process will be decisions which have to be taken about the portfolio of products on offer. Answers to questions such as; When shall we launch product A? What would we realistically expect the performance of each of our products to be? Which products will require support? Which products can we develop further? Which products should we harvest and/or let go? There are a number of analytical tools to aid us in answering these questions – the one we are concerned with here is called the product life cycle.

24. The Classic life-cycle Markets are in a constant state of change. Over a period of time tastes and fashions alter and the technology used to produce goods and services moves on. As a result demand for products will change over time as new products are launched offering improved solutions and old products become redundant. NB: Which of the following (if any) have you seen recently? The life cycle recognises that products, like humans in the main, have a finite market life which can be chartered by plotting its sales (or profits) over time.. The sales performance of any product introduced will rise from 0, reach a peak and then at some stage, often following the launch of a newer/better product, start to decline as shown over;

25. Introduction Growth Maturing Decline Sales £ Sales Time Profit The Class Life Cycle

26. Introduction – At this stage sales are low because of limited awareness and acceptance of the product Growth – Sales are rising more quickly. The objective is to further develop products for other market segments in order to prolong the growth in sales. Towards the end of this phase, competitors enter the market which reduces the rate of growth. Maturity – Sales are at the highest levels and most potential market segments have been reached. Competition is at its fiercest as more firms enter the market and restrict sales growth. However, there is plenty of scope for repeat purchases, but markets are saturated. Decline – sales begin to fall away as the product becomes old and is replaced by a new or improved products entering the market.

27. Injecting Life into the Product Life Cycle The product life cycle of a product can last for a few months or for many years. To prolong the life cycle of a brand or product, an organisation may inject into the growth period by readjusting the marketing mix; as shown below. Maturity Growth Growth Growth Sales £ Growth Injection of new life Introduction Time

28. Injections of new life using the marketing mix may involve; Change of modify the product to keep ahead of the competition and appeal to different market segments. For example, in 2000 Mars decided to change the ingredients of the Mars bar as well as the shape of the bar. In 2002, Ford brought out the mini Jaguar to attract a more different sector of the business market. Alter distribution patterns to make the product more readily available to consumers. This year (2005), Thorntons confectionary have launched a new chocolate bar sold throughout supermarkets. Change the prices to reflect competitive activity. For example PC home computers today are less then 1/3rd of what they cost 4 years ago. Develop promotional campaigns. For example, the Guinness beer campaigns have helped to extend the life of the Guinness brand by updating and repositioning of the brand.

29. Product Portfolios Businesses with a single product are always vulnerable to changes in the marketplace. Most companies will seek to spread their investment across a range of products in order to reduce its risks. By using the life cycle concept, companies can plan to introduce new lines as old products go into decline. A collection of products that a company produces is know as a portfolio. It also helps them to recognise that products at different stages in their life cycle will generate more or less sales and profits. It is important therefore for the company to have a balanced portfolio of products at different life cycle phases. This in turn should help them avoid serious fluctuations in overall profit levels, while ensuring that the most profitable products provide support for those which have yet to fully develop.

30. Balanced Portfolio of Products Sales £ Product 3 - Maturity Product 2 - Growth Product 1 - Decline Product 4 - Introduction Time

31. Different stages in International Development In International marketing it is important to be aware that different countries are at different stages of economic/technological and sociological development. As such, some countries may require more advanced technological product solutions where others will not. The phase a product may occupy in one country can be different in another country.

32. PRODUCT SERVICES Introduction - One of the chief trends in the western economies over the last 3 decades has been the dramatic growth in services. It is estimated that in Japan, USA and Europe upwards of 70-75% of economic national output is based on services. Internationally, services account for roughly ¼ of the value if total world exports. Definition - ‘A service is any activity or benefit that one party can offer to another which is essentially intangible and does not result in ownership of anything.’ Examples are many and can include; renting a hotel room, ordering a meal, putting money in a bank, a plane journey, visiting a doctor, having your car repaired, your hair cut or listening to a lecture, etc, etc, etc.

33. Service Characteristics There are five main characteristics to consider when designing marketing programmes for services. Intangibility – Services cannot be readily displayed so they cannot be seen/tasted/felt before they are bought. This raises uncertainty with the buyer as to what they can expect to receive. To reduce uncertainty buyers look for ‘signals’ of service quality from the place, people, equipment, communication material and price that they can see. The trick therefore is to make the service more tangible. ( eg produce holiday brochures, offer warranty cards, produce a nice environment, hand out notes to accompany a lesson.) Inseparability– Physical goods are produced, then stored, later sold and still later consumed. In contrast, services are first sold, then produced and consumed at the same time and in the same place. A lesson delivered by a tutor is consumed by the student in the same classroom at the same time it is produced. The lesson cannot be produced without the students so, provider-customer interaction is a special feature of a service. In addition, service customers at a concert, on a train, in a classroom can affect the satisfaction that their service delivers to the individual customer.

34. Variability - As services involve people in production and consumption, there is considerable potential for variability. Service variability means the quality of the services depends on who provides them and when and how they are provided. As such, it is very difficult to control. For example, some hotels, airlines, restaurants etc have reputations for providing better service than others. Service organisations need therefore to invest in; (a) selecting and training their personnel (b) motivate staff to emphasise quality (c) make service employees more visible and accountable to consumers (d) substitute equipment for staff whenever appropriate (eg vending machines, ATMs) Perishability – service perishability means services cannot be stored for later sale or use. Perishability is less of a problem when demand is steady. However when demand fluctuates, operational difficulties can arise. Companies will often use differential pricing to help manage demand for off-peak and peak periods of demand.

35. Lack of ownership – when you buy a physical good such as a car or computer you own it and have unlimited access to it – and ultimately you can sell or dispose of it. In contrast, you cannot own a service – you can have access but only for a limited period. Because of lack of ownership, service providers must make special effort to reinforce the brand identity and affinity with the consumer by; (a) offering inducements such as British Airways frequent flyer schemes (b) create membership clubs or associations to give an impression of ownership ( eg IKEA family club membership)