MARK 5311 Marketing

Product Decisions 3/25/2008

Product Decisions
AGENDA Product Strategy Decisions
Definition of product Product Hierarchy

Service Marketing

Branding Strategy Decisions Significance of Branding The concept of brand equity

New Product Development Decisions The Process of New Product Development New Product Development and Product Life Cycle
Wrapup - Key Take-aways Next time

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Product Strategy
A product is

a bundle of expectations that performs physical functions and enhances ego

everything a person receives in an exchange Benefits Risks

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Product Strategy
Product Hierarchy (how products relate)
Need - core need Product family - all products satisfying a core need Product class - functional coherence within family Product line - closely related within a class same customers, outlets, prices Product type - different forms of same product Brand - one manufacturers offering Item - one unit within a brand Transportation Vehicles Work trucks
Pickup trucks Crew-cab pickup F-150 an SKU

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Product Strategy
What do we buy during the exchange process? Generic product features
broadest view of expectations

Extended product features

accompanying cluster of features

Tangible product features

precise specifications

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Product Life Cycle
Whats Happening Here???

Dollars

Introductory Growth Stage Stage

Maturi ty Stage

Decline Stage Sales

Profits

0
Time

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Product Life Cycle
Do all Product Life Cycles look alike??

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Product Mix
One way for companies to think of their product offerings is to view them as portfolio of products:

breadth
number of product lines

depth
number of items in a line What is Brand Proliferation?

consistency
similarity of product lines in terms of production and marketing

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Goods Classification Theory

Another way to think about a companys products is by how people shop for them

Convenience goods
Frequently purchased products
Think: Habitual decisions Marketing Mix: Intensive distribution Mass promotion Self-service

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Goods Classification Theory Shopping goods
Less Frequently purchased products Think: Limited decisions with some comparison of alternatives

Marketing Mix: Selective distribution which entails channel support Persuasive communications designed to enable comparisons Merchandise assortment decisions are critical the suit story

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Goods Classification Theory Specialty goods
Products with low frequency of purchase Typically higher price Think: Extended decisions with considerable information search Marketing Mix: Exclusive distribution which requires distribution system control Communication strategy parallels the exclusive nature of the product Product Strategy may be tied to continuous improvement Marketing strategy is to develop and leverage differential advantage

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Goods Classification Theory Unsought/Emergency goods
Products with low consumer knowledge or low or unknown likelihood of use Think: Products we dont really plan for ambulance services, life insurance, health insurance Marketing Mix: Usually direct marketing systems Salespeople usually are the communications channel

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Services Marketing
salt dinner in a restaurant hair style

tangible

intangible

Services are a form of products.

Product Decisions
Services Marketing
but they have different attributes that affect marketing strategies: Perishable - Cannot be stored or shipped Inseparable - Consumer is present when service is produced/Cannot separate service
from service provider

Heterogeneity - Demand and service quality vary over time Substitutability - You can always do it yourself Postponability - You can always stall

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Services Marketing
We know satisfaction is important in all exchanges; it is important enough in services to develop a unique Product Strategy:

Gap Theory:
Satisfaction is a function of the gap between expected service and perceived service.
An extension of buyer behavior What you thought was going to happen versus your perception of what happened
Key is to minimize the gap Give the customer what they expect?

Product Decisions
Services Marketing
Marketing strategy is different for services.
Pricing
Must be more flexible Service demand is highly volatile Use price to shift demand away from peak periods More negotiated prices Must promote the benefits. dead bugs versus a safe, pest-free environment Build a tangible image, personalize the firm Personal selling is critical for the professional service provider Location/convenience and they do not want to are critical Cannot store or ship. do it. Can postpone, substitute Short, Direct Channels Intermediaries are agents or brokers

Promotion

Distribution

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Services Marketing
Non-profit organizations
IRS tax classification, not an operating strategy Lack marketing orientation
Equate marketing to advertising Have non-professional boards Lack clear marketing objectives
What is the purpose of a charity?the profit?

Multiple market segments with simultaneous campaigns Donors versus Clients

Rarely overlap - The people who give the money dont use the service. Need one strategy for eachbut management is frequently less qualified to manage multiple strategies

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Services Marketing
Organization Marketing
Sell the organization itself Public Relations
Perform image assessment Corporate Reputation Then shift image toward goal

Product Decisions
Services Marketing
Person Marketing
Create, maintain, alter attitudes toward a particular individual Similar to organization marketing but with more dramatic life-cycles
Celebrity and sports agents.

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Services Marketing
Place Marketing
Sell a general geographic area
Houses, buildings, land, vacation locations

Market segmentation and information flows

Who might be interested? How do we reach them?

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Services Marketing
Idea Marketing (aka social marketing):
This is the ultimate intangible
One time action vote, get flu shot. Understanding food labels Change behavior wear seat belts Change a belief religion

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Branding Strategy Brand
Name (vocalized) or Symbol/Mark (unutterable?) Implies Product Differentiation based on image Key concerns are product generity and brand infringement The issue of GENERICS Trademarks or service marks as exclusive rights to use brand

To Brand or not to Brand

No brand The Private Label Decision
Key is margin with no marketing costs

To Brand Manufacturers Brand Decision

Aid in promotion Simplify consumer decision making Pull product through channel Enhance control by manufacturer Emphasize quality

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Branding Strategy Options
Individual Brands - no connections among brands P&G Cobranding two or more brand names on a package Ingredient branding Intel Inside Cooperative branding Six Flags and Wonderbread Complementary branding 7 & 7 Blanket (Family) Brands Intel when looking at toys Separate Family Brands Holiday Inn/Holiday Inn Express/Holiday Inn Garden Court
similar manufacturing but not marketing does not tie all products together

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Branding Strategy Options
Brand Extension
Brand X, new and improved, with additives, new package size, new flavor..

Multibrand (proliferation)
increase shelf space and market share catch brand switchers reach new segments

Brand Repositioning
move to a better segment competition increased in current segment customer preference changed new segment opened up

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Why are we so interested in branding strategy?

Brand Equity

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New Product Development
Acquisition versus Innovation risk versus rewards
Corporate acquisition - buy the company
rapid entry, total control invites antitrust attention, threat of divestiture

Patent acquisition - buy the patent

avoids antitrust problems does not give total control

License the patentrent it

minimum investment, fast introduction, fast income fast competition, lack of control, less reward

Innovation -develop new products internally

maximize long term profit, gain technological leadership no legal problems...

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New Product Development Why is this so difficult?
Shortage of fundamentally new solutions to old problems
Fragmented markets due to increased competition, decreased reaction time Increase in social and government constraints Cost

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New Product Development Process
Idea Generation 1000 in Idea Screening
Type I, Type II errors

Business Analysis Product Development Market Testing Commercialization Long Term Market Success 1 in 1000

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Whats Happening Here???

Introductory Growth Stage Stage

Maturity Stage

Decline Stage

Sales

Dollars

Profits

Time

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Why Do Most New Products Fail? Consumer
No discernible benefits

Poor match between features and customer desires

Marketing
Overestimation of market size Incorrect positioning Price too high or too low Inadequate distribution Poor promotion

Product
Inferior product

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Innovators What do we know about the process by which consumers adopt new products? Early Adopters Early Majority Late Majority

Laggards

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Introduction
Growth Maturity Decline

Sales

Product life cycle curve

Early majority Late majority Early adopters

Innovators

Laggards

Diffusion curve
6

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New Product Adoption Process
Each successive set of consumers behaves differently

Rate of Adoption is a function of:

Complexity more complex, slower adoption Compatibility more change, slower adoption Relative Advantage lack of product superiority, slower adoption Observability lack of physical and social visibility, slower adoption Trialability no way to try, slower adoption

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Wrap-up Key Takeaways
Today we looked at issues of:

Product Strategy Brand Strategy Product Management Some questions you may want to consider:
What is the relationship between the New Product Development Process (p. 289-98) and the Boston Consulting Group Model (see Marketing Strategy notes)? What is the significance of the diagram on p. 303 For subsequent marketing mix decisions, how will each of those mix elements change over the Product Life Cycle (p. 304)?

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NEXT TIME
Intel Case Presentation This is a Product Case Please do not use any materials newer than 10/2005 Secondary materials should cover the time frame 2002-2005 Please read Distribution materials in Chapters 10 and 11