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Chapter 11 . Product and Service Strategies. 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.

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Chapter 11

Product and Service Strategies

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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.

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What is a Product?

  • Product: bundle of physical, service, and symbolic attributes designed to enhance buyers’ want satisfaction

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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

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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.

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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

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  • Convenience product Markets: 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.

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  • Shopping product Markets: 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.

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

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  • Gucci MarketsA Specialty Product

    • Print reads: Guccitimepieces neiman marcus

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

    • Pet Insurance

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  • Installation Markets: 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

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  • Accessory equipment Markets: capital product, usually less expensive and shorter-lived that insulation, such as a laptop computer

    • Industrial distributor--wholesaling marketing intermediary

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  • Component parts and materials Markets: 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

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  • Supplies Markets: 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

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  • Business services Markets: 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

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Quality as a Product Strategy Markets

  • 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

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  • Worldwide Quality Programs Markets

    • 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

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  • Quality of Services Markets

    • 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

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Development of Product Lines Markets

  • 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

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The Product Mix Markets

  • 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.

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  • Product Mix Decisions Markets

    • 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

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The Product Life Cycle Markets

  • Product life cycle: progression of products through introduction, growth, maturity, and decline stages

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  • Introduction Stage Markets

    • 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

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  • Growth Stage Markets

    • 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

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  • Maturity Stage Markets

    • 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

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  • Figure 11.15 Markets

    • Using Promotion--and Product Extensions--to Extend the Maturity Stage of the Product Life Cycle

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  • Decline Stage Markets

    • 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

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Extending the Product Life Cycle Markets

  • 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

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  • Quaker Oats Markets

    • A new application for a mature product

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  • Bounce Markets

    • Finding new uses for Bounce Fabric Softener

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  • Kraft Markets

    • New cubed cheese for snacking

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Product Deletion Decisions Markets

  • 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