Product

Module- 03Product and Pricing Decisions

Concept of Concept of ProductProduct

What is a product?

• A product is any offering by a company to a market that serves to satisfy customer needs and wants.

• It can be an object, service, idea, etc.• what you buy, that satisfies what you want to

be able to do• it can be “good feeling” cause you bought

some cosmetics and someone said you looked pretty

• it could be a happy stomach cause you bought a meal that tasted great

• it could be easier homework cause you bought new software for your computer

Difference between goods and services

• GoodsGoods - things you can touch - “tangible”

• ServicesServices - things you can’t touch - but you can see their effect “intangible”“… services are not physical, they are intangible…”

Classes of Consumer ProductsClasses of Consumer Products

Impulse ProductsImpulse Products

ConvenienceConvenience ShoppingShopping SpecialtySpecialty

GoodsGoods

ServicesServices

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• ConvenienceConvenience goods and services goods and services

• things consumer wants to buy frequentlythings consumer wants to buy frequently

• minimum effort, low riskminimum effort, low risk

• small amount of money, not much timesmall amount of money, not much time

three typesthree types

1. Staples 1. Staples - bought routinely- bought routinely

2. Impulse products2. Impulse products- unplanned purchases- unplanned purchases

3. Emergency products3. Emergency products- bought immediately- bought immediately

• ShoppingShopping goods and servicesgoods and services

• ““stuff” people buy after they “shop & compare”stuff” people buy after they “shop & compare”

• they have the time to compare pricesthey have the time to compare prices

• Homogenous - stuff that is the sameHomogenous - stuff that is the samesimply pick the lowest pricesimply pick the lowest priceeg. Condensed milk, eg. Condensed milk,

• Heterogeneous - stuff that is different, so the Heterogeneous - stuff that is different, so the customer will take time to compare features customer will take time to compare features and pricesand prices- “some retailers carry competing brands”- “some retailers carry competing brands”

• SpecialtySpecialty goods and services goods and services

• jewellery, special clothingjewellery, special clothing

• special entertainmentspecial entertainment

• ““Willingness to search, not extent of Willingness to search, not extent of searching, makes it a specialty product”searching, makes it a specialty product”

• if people are willing to look and look at if people are willing to look and look at different products, before they commit, it is a different products, before they commit, it is a specialty itemspecialty item

• UnsoughtUnsought• things people don’t want to buy, but things people don’t want to buy, but

forced to buy.forced to buy.

• eg. Auto insurance, funeral planeg. Auto insurance, funeral plan

• the only way to sell this is to the only way to sell this is to convince people of the benefit convince people of the benefit because the benefit is not easily seen because the benefit is not easily seen by the average personby the average person

•New Product Development

New Product Development

•Most new product development is an improvement on existing products

•Less than 10% of new products are totally new concepts.

•Development of original products, product improvements, product modifications, and new brands through the firm’s own R & D efforts.

Success rate of new products

•The success rate of new products is very low – less than 5%. ‘You have to kiss a lot of frogs to find a prince.”

•Product obsolescence is rapid with improvements in technology

•Shorter PLCs

• New products can be obtained via acquisition or development.

• New products suffer from high failure rates.

• Several reasons account for failure.

New Product Development Strategy

Causes of New Product Failures

• Overestimation of Market Size• Product Design Problems• Product Incorrectly Positioned, Priced or Advertised• Costs of Product Development• Competitive Actions

• To create successful new products, the company must:– understand it’s customers, markets and competitors – develop products that deliver superior value to

customers.

Major Stages in New-Product Development

Product Development Stages

• Idea generation

• Idea screening

• Concept development and testing

• Concept testing

• Conjoint analysis – to find out the best valued attributes by consumers

Step 1. Idea Generation

• Systematic Search for New Product Ideas

• Internal sources

• Customers

• Competitors

• Distributors

• Suppliers

Step 2. Idea Screening

• Process to spot good ideas and drop poor ones

• Criteria– Market Size– Product Price– Development Time & Costs– Manufacturing Costs– Rate of Return

step 3. Concept Development & Testingstep 3. Concept Development & Testing

1. Develop Product Ideas into Alternative

Product Concepts

1. Develop Product Ideas into Alternative

Product Concepts

2. Concept Testing - Test theProduct Concepts with Groups

of Target Customers

2. Concept Testing - Test theProduct Concepts with Groups

of Target Customers

3. Choose the Best One3. Choose the Best One

Step 4. Marketing Strategy DevelopmentStep 4. Marketing Strategy Development

Part Two - Short-Term:Product’s Planned Price

DistributionMarketing Budget

Part Two - Short-Term:Product’s Planned Price

DistributionMarketing Budget

Part Three - Long-Term:Sales & Profit Goals

Marketing Mix Strategy

Part Three - Long-Term:Sales & Profit Goals

Marketing Mix Strategy

Marketing Strategy Statement FormulationPart One - Overall:

Target MarketPlanned Product Positioning

Sales & Profit Goals Market Share

Part One - Overall:Target Market

Planned Product PositioningSales & Profit Goals

Market Share

step 5. Business AnalysisStep 6. Product Development

step 5. Business AnalysisStep 6. Product Development

Business Analysis

Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

Business Analysis

Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

If Yes, Move to Product Development

If Yes, Move to Product Development

If No, Eliminate Product Concept

If No, Eliminate Product Concept

Step 7. Test MarketingStep 7. Test Marketing

StandardTest Market

Full marketing campaignin a small number of representative cities.

StandardTest Market

Full marketing campaignin a small number of representative cities.

SimulatedTest Market

Test in a simulated shopping environment

to a sample of consumers.

SimulatedTest Market

Test in a simulated shopping environment

to a sample of consumers.

Controlled Test Market

A few stores that have agreed to carry newproducts for a fee.

Controlled Test Market

A few stores that have agreed to carry newproducts for a fee.

Business analysis

• The most customer appealing offer is not always the most profitable to make

• Estimate on costs, sales volumes,pricing and profit levels are made to find out the optimal price – volume mix.

• Breakeven and paybacks

• Discounted cash flow projections

Market testing

• Test markets

• Test periods

• What information to gather?

• What action to take?

Commercialization

• When? (Timing)

• Where? (Which geographical markets)

• To whom? (Target markets)

• How? (Introductory Marketing strategy)

Product Levels

Customer value hierarchy

• Core benefit

• Basic product

• Expected product

• Augmented product

• Potential product

Customer Delight

• When you exceed customer expectations

Product Hierarchy

• Need

• Product family

• Product class

• Product Line

• Product type

• Brand

• Item

Product classification

• Durable

• Non – durable

• Services

Consumer goods classification

• Convenience goods

• Shopping goods

• Specialty goods

• Unsought goods

Industrial goods classification

• Materials and Parts

- raw materials

- manufactured materials and parts

• Capital items

• Supplies and business services

Product Mix

• The assortment of products that a company offers to a market

• Width – how many different product lines?

• Length – the number of items in the product mix

• Depth – The no. of variants offered in a product line

• Consistency – how closely the product lines are related in usage

Product Line decisions

• Product rationalization

• Market rationalization

• Product line length

too long – when profits increase by dropping a product in the line

too short – when profits increase by adding products to the product line

• Line pruning – capacity restrictions to decide

Brand

• A name becomes a brand when consumers associate it with a set of tangible and intangible benefits that they obtain from the product or service

• It is the seller’s promise to deliver the same bundle of benefits/services consistently to buyers

Brand Equity

• When a commodity becomes a brand, it is said to have equity.

• The premium a brand can command in the market

• The difference between the perceived value and the intrinsic value

Levels of meaning

• Attributes

• Benefits

• Values

• Culture

• Personality

• Users

Brand Power

• Customer will change brands for price reasons

• Customer is satisfied. No reason to change.• Customer is satisfied and would take pains

to get the brand• Customer values the brand and sees it as a

friend• Customer is devoted to the brand

Brand Equity – Competitive Advantages

• Reduced marketing costs

• Trade leverage

• Can charge a higher price

• Can easily launch brand extensions

• Can take some price competition

Managing Brand Equity

• Brand Equity needs to be nourished and replenished. We must not flog the brand for equity to be diluted or dissipated

• Store brands

Advantages of branding

• Easy for the seller to track down problems and process orders

• Provide legal protection of unique product features• Branding gives an opportunity to attract loyal and

profitable set of customers• It helps to give a product category at different

segments, having separate bundle of benefits• It helps build corporate image• It minimises harm to company reputation if the brand

fails

Brand parity

• Consumers buy from a set of acceptable/ preferred brands

Umbrella Brand

• Products from different categories under one brand

• Dangerous to the brand if the principal brand fails

• Sometimes the company name is prefixed to the brand. In such cases the company name gives it legitimacy. The product name individualises it.

Naming the Brand

• Product benefits

• Product qualities

• Easy to pronounce

• Should be distinctive

• Should not have poor meanings in other languages and countries

Brand strategy

• Line extension – existing brand name extended to new sizes in the existing product category

• Brand extension – brand name extended to new product categories

• Multibrands – new brands in the same product category

• New brands – new product in a different product category

• Cobrands –brands bearing two or more well known brand names

Brand Repositioning

• This may be required after a few years to face new competition and changing customer preferences

Packaging

• Includes the activities of designing and producing the container for a product

• Packaging is done at three levels

- primary

- secondary

- shipping

Packaging as a marketing tool

• Self service

• Consumer affluence

• Company and brand image

• innovation

Designing packaging

• Packaging concepts

• Technical specifications

• Engineering tests

• Visual tests

• Dealer tests

• Consumer tests

• Packaging innovations

• Environmental considerations

Labels

• Identification

• Grade classification

• Description of product

• Manufacturer identity

• Date of mfg., batch no.

• Instructions for use

• Promotion

Labels as a marketing tool

• Labels need to change with time or packaging changes to give it a contemporary and fresh look