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Chapter 8

Chapter 8. Product and Services Strategy. What is a Product?. A PRODUCT is anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a want or need. Includes: Physical Objects Services Events Persons Places Organizations

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Chapter 8

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  1. Chapter 8 Product and Services Strategy

  2. What is a Product? • A PRODUCT is anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a want or need. • Includes: • Physical Objects • Services • Events • Persons • Places • Organizations • Ideas • Combinations of the above

  3. What is a Service? • A SERVICE is a form of product that consist of activities, benefits, or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything. • Examples include: • Banking • Hotels • Tax preparation • Home repair services

  4. Products, Services, and Experiences Service With Accompanying Minor Goods Tangible Good With Accompanying Services Pure Tangible Good Hybrid Offer Pure Service Auto With Accompanying Repair Services Airline Trip With Accompanying Snacks Soap Restaurant Doctor’s Exam The Product-Service Continuum

  5. Levels of Product (Fig. 8-1)

  6. Product Quality Ability of a Product to Perform Its Functions; Includes Level & Consistency Product Features Differentiates the Product from Competitors’ Products Product Style & Design Process of Designing a Product’s Style & Usefulness Product Attributes Developing a Product or Service Involves Defining the Benefits that it Will Offer Such as:

  7. Advantages to Branding Buyers: Identification Quality and value Sellers Tells a story Provides legal protection Helps segments markets Brand Equity Higher brand loyalty Name awareness Perceived quality Strong brand associations Patents, trademarks, channel relationships Branding

  8. Brand Strategy • Line Extension • Existing brand names extended to new forms, sizes, and flavors of an existing product category. • Brand Extension • Existing brand names extended to new or modified product categories. • Multibrands • New brand names introduced in the same product category. • New Brands • New brand names in new product categories.

  9. Packaging • Designing and producing the container or wrapper for a product. • Steps in developing a good package: • Packaging concept, • Develop specific elements of the package, • Elements must support product’s position and marketing strategy.

  10. Labeling • Printed information appearing on or with the package. • Performs several functions: • Identifies product or brand • Describes several things about the product • Promotes the product through attractive graphics

  11. Product Support Services Companies use product support services as a major tool in gaining competitive advantage. How? Step 1. Survey customers to assess the value of current services and to obtain ideas for new services. Step 2. Assess costs of providing desired services. Step 3. Develop a package of services to delight customers and yield profits to the company.

  12. Managing Service Differentiation Develop differentiated offer, delivery, and image. Managing Service Quality Empower front-line employees, Become “Customer obsessed,” Set high service quality standards, Watch service performance closely. Managing Service Productivity Train current or new employees better, Work on quality as well as quantity, Utilize technology Well-designed Web site Marketing Strategies for Service Firms

  13. Chapter 9 New-Product Development and Product Life-Cycle Strategies

  14. Strategies for Obtaining New-Product Ideas New-Product DevelopmentStrategy Original Products Acquired Companies Product Improvements Acquired Patents Product Modifications Acquired Licenses New Brands

  15. Causes of New-Product Failures • One study estimated that as many as 80% of new consumer packaged products fail. • Only about 40% of new consumer products are around 5 years after introduction. • Why? • Overestimation of market size, • Product design problems, • Product incorrectly positioned, priced, or advertised, • Product may have been pushed despite poor marketing research findings, • Costs of product development, or • Competitive actions.

  16. New-product success depends on having a: Unique superior product (one with higher quality, features, and value in use), and a Well-defined product concept (a defined target market, product requirements, and benefits). To create successful new products, the company must: understand its consumers, markets, and competitors, and develop products that deliver superior value to customers. Improving New-Product Success

  17. New Product Development ProcessNew Product Development Process Step 1. Idea Generation Systematic Search for New Product Ideas Obtained From Employees and Also From: Competitors Distributors Suppliers Customers

  18. New Product Development Process Step 2. Idea Screening • Helps spot good ideas and drop poor ones as soon as possible. • Many companies have systems for rating and screening ideas which estimate: • Market Size • Product Price • Development Time & Costs • Manufacturing Costs • Rate of Return • Then, the idea is evaluated against a set of general company criteria.

  19. Product Imageis the Way Consumers Perceive an Actual or Potential Product 1. Develop NewProduct Ideas into Alternative Detailed Product Concepts New Product Development Process Step 3. Concept Development 2.Concept Testing - Test the New-Product Concepts with Groups of Target Customers 3. Choose the One That Has the Strongest Appeal to Target Customers

  20. DaimlerChrysler’s Electric Car • The company’s task is to develop its fuel-cell powered electric car into alternative product concepts, find out how attractive each is to customers, and choose the best one.

  21. Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Satisfy Company Objectives If Yes, Move to Product Development Step 5. Business AnalysisStep 6. Product Development If No, Eliminate Product Concept

  22. Product and marketing program are introduced into more realistic market settings. Can be very expensive and time consuming. Test the following: Positioning strategy, Advertising, Distribution, Pricing, Branding, Packaging, Budget levels. New Product Development ProcessStep 7. Test Marketing

  23. New Product Development ProcessStep 8. Commercialization Introducing the New Product into the Market When is the Right Time to Introduce Product? Where to Launch a New Product?

  24. Sales and Profits ($) Sales Profits Time Product Develop- ment Introduction Growth Maturity Decline Losses/ Investments ($) Product Life Cycle (Fig. 9-2) Sales and Profits Over the Product’s Life From Inception to Demise

  25. Chapter 10 Pricing Products: Pricing Considerations and Strategies

  26. Factors Affecting Price Decisions (Fig. 10-1)

  27. Variable Costs Costs that do vary directly with the level of production Raw materials Fixed Costs (Overhead) Costs that don’t vary with sales or production levels Executive Salaries, Rent Types of Cost Factors that Affect Pricing Decisions • Total Costs • Sum of the Fixed and Variable Costs for Any Given • Level of Production

  28. Market and Demand External Factors Affecting Pricing Decisions Competitors’ Costs, Prices, and Offers Other External Factors Economic Conditions Reseller Reactions Government Actions Social Concerns

  29. Demand Curve (Fig. 10-2)

  30. Price Elasticity of Demand A. Inelastic Demand - Demand Hardly Changes With a Small Change in Price. Price P2 P1 Q2 Q1 Quantity Demanded per Period B. Elastic Demand - Demand Changes Greatly With a Small Change in Price. Price P’2 P’1 Q2 Q1 Quantity Demanded per Period

  31. Major Considerations in Setting Price (Fig. 10-3)

  32. Certainty About Costs Unexpected Situational Factors Cost-Plus Pricing is an Approach That Adds a Standard Markup to the Cost of the Product Simplest Pricing Method Ethical Pricing is Simplified Attitudes of Others Price Competition Is Minimized Ignores Current Demand & Competition Fairer to Buyers & Sellers Cost-Based Pricing

  33. 12 10 8 6 4 2 200 400 600 800 1,000 Breakeven Analysis or Target Profit Pricing (Fig. 10-4) Tries to Determine the Price at Which a Firm Will Break Even or Make a Certain Target Profit. Total Revenue Target Profit ($2 million) Cost in Dollars (millions) Total Cost Fixed Cost Sales Volume in Units (thousands)

  34. Methods for Setting Prices Going-Rate Company Sets Prices Based on What Competitors Are Charging Sealed-Bid Company Sets Prices Based on What They Think Competitors Will Charge ? ? Competition-Based Pricing

  35. Market-Skimming Setting a High Price for a New Product to “Skim” Maximum Revenues from the Target Market. Results in Fewer, But More Profitable Sales. I.e. Intel Use Under These Conditions: Product’s Quality and Image Must Support Its Higher Price. Costs Can’t be so High that They Cancel the Advantage of Charging More. Competitors Shouldn’t be Able to Enter Market Easily and Undercut the High Price. New-Product Pricing Strategies

  36. Market Penetration Setting a Low Price for a New Product in Order to “Penetrate” the Market Quickly and Deeply. Attract a Large Number of Buyers and Win a Larger Market Share. I.e. Dell Use Under These Conditions: Market Must be Highly Price-Sensitive so a Low Price Produces More Market Growth. Production/Distribution Costs Must Fall as Sales Volume Increases. Must Keep Out Competition & Maintain Its Low Price Position or Benefits May Only be Temporary. New-Product Pricing Strategies

  37. Product Mix-Pricing Strategies:Product Line Pricing • Involves setting price steps between various products in a product line based on: • Cost differences between products, • Customer evaluations of different features, and • Competitors’ prices.

  38. Product Mix-Pricing Strategies • Optional-Product • Pricing optional or accessory products sold with the main product. i.e camera bag. • Captive-Product • Pricing products that must be used with the main product. i.e. film.

  39. By-Product Pricing low-value by-products to get rid of them and make the main product’s price more competitive. I.e. sawdust, Zoo Doo Product-Bundling Combining several products and offering the bundle at a reduced price. I.e. theater season tickets. Product Mix-Pricing Strategies

  40. Discount and Allowance Pricing

  41. Segmented Pricing

  42. Psychological Pricing • Considers the psychology of prices and not simply the economics. • Customers use price less when they can judge quality of a product. • Price becomes an important quality signal when customers can’t judge quality; price is used to say something about a product. Retail $100.00 Cost $3.00

  43. Loss Leaders Special-Event Pricing Cash Rebates Temporarily Pricing Products Below List Price Through: Low-Interest Financing Longer Warranties Free Maintenance Discounts Promotional Pricing

  44. Other Price Adjustment Strategies Geographical Pricing • Pricing products for customers • located in different parts of • the country or world. • i.e. FOB-Origin, Uniform- • Delivered, Zone, Basing- • Point, & Freight-Absorption. • Adjusting prices for customers • in different counties. • Price Depends on Costs, • Consumers, Economic • Conditions, Competitive • Situations, & Other Factors. International Pricing

  45. Price Increases Price Cuts Why? Excess Capacity Falling Market Share Dominate Market Through Lower Costs Why? Cost Inflation Overdemand: Company Can’t Supply All Customers’ Needs Initiating Price Changes

  46. Chapter 11 Marketing Channels and Supply Chain Management

  47. What is a Distribution Channel? Set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.

  48. Why are Marketing Intermediaries Used? • The use of intermediaries results from their greater efficiency in making goods available to target markets. • Offers the firm more than it can achieve on its own through the intermediaries: • Contacts, • Experience, • Specialization, • Scale of operation. • Purpose: match supply from producers to demand from consumers.

  49. Number of Channel Levels (Fig. 11-2)

  50. Channel Behavior & Organization • The channel will be most effective when: • each member is assigned tasks it can do best. • all members cooperate to attain overall channel goals and satisfy the target market. • When this doesn’t happen, conflict occurs: • Horizontal Conflict occurs among firms at the same level of the channel, i.e retailer to retailer. • Vertical Conflict occurs between different levels of the same channel, i.e. wholesaler to retailer. • Each channel member’s role must be specified and conflict must be managed.

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