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5 A product is the overall term given for both goods and services. Many use the term product and good interchangeably which often leads to confusion. Next slide outlines how a service differs from a good. Levens 5

6 Intangible A service cannot be perceived through the five senses. Inseparable The service and the service provider are one in the same. Perishable A service cannot be stored for later use. Example can be an airline. Once a plane departs, an empty seat cannot be saved and sold on a later flight. Variability Differences exist in the quality of the service being provided. This is true not only of differences between service providers, but also among the same service providers. Each time a service is performed, it is different from the previous performance and all future performances. Levens 6

7 Products fall on a continuum with pure goods and pure services anchoring each end. In between, there are hybrids where both a service and a good are being provided. The example used in this slide comes from the text (minus the inclusion of hair transplants). You can expand on this by using pizza. Pure good: buying the raw materials to make and bake own pizza at home; Heavy product/some service: Pizza preparation (pick up unbaked pizza from Papa Murphy s or Pizza-U-Bake ); Pure Hybrid: establishment where you make, bake, and eat pizza at store front location; heavy service/some product: Pizzeria restaurant; Pure service: watching a cooking show where the hosts explains how to make a pizza. Levens 7

8 Core benefits are the fundamental benefits that the customer is buying. For the purchase of an automobile, the core benefit is transportation. The actual product is a combination of the tangible and intangible attributes that delivers the core benefit. Automobiles have combinations of attributes such as horsepower and fuel economy, which determine its acceleration and cost of ownership (gas mileage, etc). The brand name is also apart of the actual product. Augmented products are the additional services or benefits that enhance the products ownership. For automobiles, this could be an extended warranty, financing, among other benefits. Levens 8

9 Convenience products, such as potato chips or gum, are bought frequently with little or no advance planning. They are usually low price goods and are widely distributed. Shopping products are more complex and are purchased less frequently than convenience products. Consumers spent more time comparing features between brands. Consumers are willing to make great effort to find shopping products and thus are distributed to fewer locations. Advertising and personal selling play a key role in the process. Examples include travel tickets, TVs, and blue jeans. Specialty products have unique characteristics such as highly prized brand names (think Rolex watches and Waterford crystal) or one-of-a-kind features. These products are purchased infrequently and consumers expend great effort, search more locations (although they are sold in limited locations) to find exactly what they want. Products are high priced and promotional activities are targeted to specific audiences or lifestyles due to the inefficiencies of mass communications. Unsought products are those products which buyers do not like to think about. There is limited knowledge regarding brand names due to purchase infrequency. Examples include caskets, life insurance, etc. Levens 9

10 In outlining the classifications of industrial products farming will be used as an overall example. Equipment includes tractors, combines, etc. These types of products are primarily sold through personal selling and are often customized based on the buyer s needs. MRO (Maintenance, Repair, and Operation) products are purchased frequently and as such prices are kept affordable. Examples are fuel, oil, and other parts needed to keep farm equipment operating. Products in this category are considered fungible as there are numerous sources available and buyers easily substitute one brand for another. Raw materials are the seeds the farmers purchase to plant. In an industrial setting, raw materials can be lumber, steel, and other materials used in the production of products. Low price and superior customer service are key strategies for marketing raw materials. Processed materials and services are products that are used directly to manufacturer other products. An example would be fertilizers. Delivery of the materials or services is deemed critical as a missed delivery can hamper they buyers ability to carry out its activities. Components are finished products that are used to fabricate other products. For a greenhouse operator, the plastic trays in which bedding plants grow are component products. Components parts are easily identified even after becoming part of the final product. Levens 10

11 The new product development process generally follows a 6-step process outlined here. New product ideas can be dropped at any step (hence the garbage can). There are various statistics in the literature that quantify this process and each will be context specific. There are some reports that it takes 300 ideas in the generation stage to have one product that reaches the market. The hit rate (ideas to commercialized new products) will vary between the consumer (more ideas required) and industrial markets (fewer ideas required). Idea generation dream up the idea for a new product or service. Ideas can come from everywhere including internal (R&D departments) and external sources (customers making product suggestions). In this stage the more ideas the better. Idea screening review the ideas to discard bad ideas in an attempt to find the best ones that can advance to the next stage. Concept development In this stage, the concept is becoming more focused as the features and benefits of the product idea are being outlined. These features and benefits can change later after business analysis and market testing stages are conducted. Business analysis Outline of the sales and profit objectives to see if the new product will meet set goals. Products that fail this stage may get a second life by reformulating Levens the concept. Perhaps finds ways to lower costs, increase price, or expand the target 11

12 Cosmetic or Incremental changes are minor enhancements or upgrades to an existing product. It is basically taking what is existing and making it better. Context or New Direction changes are taking existing products or concepts and repackaging them in a new way. Apple took the MP3 market in a new direction by integrating players and music together. Concept or Breakthrough changes are new to the world products that alter everything. DNA, the PC and airplanes are examples. Levens 12

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15 This slide highlights Sony s product portfolio. Levens 15

16 Product mix width is the number of product lines a company offers. In the Sony example previously shown, there are 6 distinct product lines. Product mix depth is the number of products within each product line, or all the different computers products that Sony offers. Product mix length is the total number of products that Sony offers (depth x width). Companies generally ensure that each product line is related to each other in some way. For example, Honda s product line (automobiles, garden power tools, etc) has a connection based on the engine. For Sony, the connection is in the form of entertainment. Levens 16

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19 Note: Product life cycle applies to a product category and not one particular product. Each phase will be discussed in the next four slides. Levens 19

20 Sales volume for the entire category is low. Models introduced during this stage have limited features, and often perform worse than existing (substitute) products. Think of electric or hybrid cars. Electric cars have limited range as compared to gasoline powered cars. Few retailers or distributors carry the product. The goals for the marketer is to generate awareness of the product category first, and then build awareness of their particular brand. In many cases, multiple companies competing in the category will work together to build awareness. Levens 20

21 In the Growth stage, managers are seeking to retain existing buyers as additional competitors are entering the market. Changes are made to specific products and seek to enhance brand image. While profits are beginning to become tangible, competitive pricing is also becoming a factor due to competitive pressures. This pressure is coming from existing brands which have not a gained sufficient spot in the market and will soon be exiting the market. Levens 21

22 In the Maturity stage, managers are trying to maximize sales by trying to find new buyers. This is done through making improvements to the product and finding ways to increase product usage. Levens 22

23 In the decline stage, sales volume is decreasing, profits have disappeared, and companies are reducing expenses for the product. Products can be stripped down to the basic elements by eliminating the whistles and bells. Managers have several options during the Decline stage. They can harvest profits by cutting all marketing expenses; they can modify the product in hopes of restarting growth (think Arm & Hammer Baking Soda); or they can eliminate the product completely. Levens 23

24 Innovators (2.5% of the population) are willing to try new innovations as they are openminded, adventurous, and are often younger, better educated, and more financially secure. They try new things because the like new things. Early Adopters (13.5% of the population) look at new products very differently than innovators. They consider the social aspect (such as prestige) of being the first to own a product. They are heavy users of the media and the more mainstream groups (the early and late majority) rely on early adopters for cues on the next big thing. Early Majority (34% of the population) do not wish to be the first to try new technologies, nor do they wish to be the last to adopt. If early adopters accept a new innovation then the early majority will begin to purchase. Once the early majority has adopted an innovation then these products no longer are new or cutting edge, but have gone mainstream. Late Majority (34% of the population) are older and more conservative that other groups and as such they will not adopt a product that they consider risky. Adoption by the late majority will only occur if the product is considered a necessity or if social pressures are great. Laggards (16% of the population) are great followers of tradition and are the last to adopt an innovation. By the time this group has adopted an innovation the product is often made obsolete by the next innovation. Levens 24

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