CHAPTER 5CHAPTER 5

Product and ServProduct and Services ices StrategyStrategy

ObjectiveObjective: defining and classifying : defining and classifying products, in addition discussing the products, in addition discussing the

decisions that marketers make decisions that marketers make regarding products.regarding products.

What is a product?What is a product?

A product is anything that can be offered A product is anything that can be offered to a market for attention, acquisition, to a market for attention, acquisition, use, or consumption that might satisfy a use, or consumption that might satisfy a want or need.want or need.

Products include more than just tangible Products include more than just tangible goods but intangible services e.g. goods but intangible services e.g. banking, home repair, consultancy.banking, home repair, consultancy.

A product has three levels: the core A product has three levels: the core product, actual product, and augmented product, actual product, and augmented product;product;

core productcore product: is the basic problem-solving : is the basic problem-solving benefit that consumers seek when they benefit that consumers seek when they buy a product. e.g. a woman buying a buy a product. e.g. a woman buying a lipstick buys more than lip color but lipstick buys more than lip color but hopes as well. That is why, when hopes as well. That is why, when designing products, marketers first define designing products, marketers first define the core benefit that the product will the core benefit that the product will provide to consumers.provide to consumers.

actual productactual product: may have five : may have five characteristics - a quality level, features, characteristics - a quality level, features, design, a brand name, and packaging. design, a brand name, and packaging.

augmented productaugmented product: offers additional : offers additional consumer services and benefits. e.g. consumer services and benefits. e.g. warranty, repair services...warranty, repair services...

Product ClassificationProduct Classification

Products are divided into two as: Products are divided into two as: consumer products and industrial consumer products and industrial products:products: Consumer productsConsumer products; are those bought by ; are those bought by

final consumers for personal consumption. final consumers for personal consumption. Consumer products include convenience Consumer products include convenience products, shopping products, specialty products, shopping products, specialty products, and unsought products. These products, and unsought products. These products differ in the way how consumers products differ in the way how consumers buy and how marketers market them. buy and how marketers market them.

Convenience productsConvenience products: are bought frequently with : are bought frequently with minimum comparison and effort e.g. soap, candy, minimum comparison and effort e.g. soap, candy, newspapers... are usually low priced and highly newspapers... are usually low priced and highly distributed. distributed.

Shopping productsShopping products: are less frequently purchased, : are less frequently purchased, compared carefully on quality, price, style, compared carefully on quality, price, style, suitability e.g. furniture, clothing, used car… are suitability e.g. furniture, clothing, used car… are less distributed but given more sales support.less distributed but given more sales support.

Specialty productsSpecialty products: have unique characteristic and : have unique characteristic and brand identification for some consumers who brand identification for some consumers who spend special effort to purchase e.g. specific spend special effort to purchase e.g. specific brands and types of cars, high-priced photographic brands and types of cars, high-priced photographic equipment, custom-made men’s suits… e.g. Rolls equipment, custom-made men’s suits… e.g. Rolls Royce buyers do not compare specialty products, Royce buyers do not compare specialty products, they only invest the time needed to reach the they only invest the time needed to reach the sellers.sellers.

Unsought productsUnsought products: are not known by the : are not known by the consumers or not normally thought to be bought consumers or not normally thought to be bought e.g life insurance, blood donation …they require a e.g life insurance, blood donation …they require a lot of promotions and marketing effortslot of promotions and marketing efforts

Industrial productsIndustrial products; are those purchased ; are those purchased for further processing or for use in for further processing or for use in conducting a business. There are three conducting a business. There are three groups of industrial products: materials and groups of industrial products: materials and parts, capital items, supplies and services.parts, capital items, supplies and services.

Materials and partsMaterials and parts: include raw materials, sold : include raw materials, sold directly to industrial users. Price and service directly to industrial users. Price and service are the major marketing factors rather than are the major marketing factors rather than advertising.advertising.

Capital itemsCapital items: are industrial products that aid in : are industrial products that aid in the buyer’s production or operations including the buyer’s production or operations including accessory e.g. fax machines desk… accessory e.g. fax machines desk…

Supplies and servicesSupplies and services: supplies include e.g. : supplies include e.g. paper, pencils.. Services include e.g. window paper, pencils.. Services include e.g. window cleaning, computer repair, legal consultancy … cleaning, computer repair, legal consultancy … are usually supplied under contract.are usually supplied under contract.

Individual Product Individual Product Decisions Decisions

There are fThere are five important decisions to ive important decisions to be made in the development and be made in the development and marketing of individual products;marketing of individual products; product attributesproduct attributes brandingbranding packagingpackaging labelinglabeling product-support servicesproduct-support services

Product AttributesProduct Attributes

The benefits that the product will The benefits that the product will offer would be based on (1) quality, offer would be based on (1) quality, (2)features, and (3) design.(2)features, and (3) design. Product QualityProduct Quality

Product quality (customer value) has Product quality (customer value) has two dimensions - level and consistency. two dimensions - level and consistency. Companies must choose a quality level Companies must choose a quality level that matches target market needs and that matches target market needs and the quality level of competing products. the quality level of competing products.

Product FeaturesProduct Features

Features are a competitive tool for Features are a competitive tool for differentiation the company’s product differentiation the company’s product from competitor’s products. In order from competitor’s products. In order to add new features to its products, to add new features to its products, companies can survey its customers.companies can survey its customers.

Product DesignProduct Design

Product design contributes to a Product design contributes to a product’s usefulness and appearance. product’s usefulness and appearance. Good design can attract attention, Good design can attract attention, improve product performance, cut improve product performance, cut production costs, give the product a production costs, give the product a strong competitive advantage.strong competitive advantage.

BrandingBranding

A brand is a name, term, sign, symbol or A brand is a name, term, sign, symbol or design or a combination of these to identify design or a combination of these to identify the goods and services of one seller or group the goods and services of one seller or group of sellers and to differentiate them from those of sellers and to differentiate them from those of competitors.of competitors.

For the consumers; brand names help For the consumers; brand names help consumers identify products, get an idea about consumers identify products, get an idea about the product quality, promise consistency in the product quality, promise consistency in quality.quality.

For the producers; brand names provide For the producers; brand names provide legal protection for unique product legal protection for unique product features and prevent them to be copied by features and prevent them to be copied by competitors. Plus, helps the seller to competitors. Plus, helps the seller to segment markets.segment markets.

Brand EquityBrand Equity

Brand equity is the value of a brand. Brand equity is the value of a brand. Brands vary in the amount of power and Brands vary in the amount of power and value that they have in the marketplace. A value that they have in the marketplace. A powerful brand has high brand equity. If powerful brand has high brand equity. If the brand has higher brand loyalty, name the brand has higher brand loyalty, name awareness, perceived quality; the brand is awareness, perceived quality; the brand is accepted to be having a strong brand accepted to be having a strong brand equity. equity.

Branding DecisionsBranding Decisions

Major branding decisions are (1) selecting Major branding decisions are (1) selecting the brand name, (2) finding a brand the brand name, (2) finding a brand sponsor, (3) identifying the brand strategy, sponsor, (3) identifying the brand strategy, (4) repositioning the brand. (4) repositioning the brand. Brand Name SelectionBrand Name Selection: A good brand : A good brand

differentiates the product, communicates differentiates the product, communicates its benefits, suits the target market and its benefits, suits the target market and marketing strategies.marketing strategies.

Brand SponsorBrand Sponsor: A producer has four : A producer has four sponsorship options. The product may be sponsorship options. The product may be sold (1) as a manufacturer’s (producer’s) sold (1) as a manufacturer’s (producer’s) brand, (2) to a reseller (middleman) who brand, (2) to a reseller (middleman) who give it a privategive it a private

brand (who create and own the brand), (3) as brand (who create and own the brand), (3) as a licensed brand (a company may be licensed a licensed brand (a company may be licensed to sell its products under another company’s to sell its products under another company’s brand), or (4) as a co-brand (two companies brand), or (4) as a co-brand (two companies combine their brands and create a new one).combine their brands and create a new one).

Brand strategyBrand strategy: A company has four choices; : A company has four choices; line extensionline extension; using a successful brand name to ; using a successful brand name to

introduce additional items in an existing product introduce additional items in an existing product category under the same brand name, such as new category under the same brand name, such as new flavors, forms, colors, added ingredients, or flavors, forms, colors, added ingredients, or package sizes. Meets consumer desires for variety, package sizes. Meets consumer desires for variety, works best when it decreases competition.works best when it decreases competition.

brand extensionbrand extension; using a successful brand name ; using a successful brand name to launch a new product in a new category. Helps to launch a new product in a new category. Helps thethe

company introduce new product categories more company introduce new product categories more easily, provides instant recognition and easily, provides instant recognition and acceptance, decreases advertising costs. But acceptance, decreases advertising costs. But may be dangerous if it fails, because it may may be dangerous if it fails, because it may tarnish the company’s whole image. tarnish the company’s whole image.

multibrandsmultibrands; a strategy under which a seller ; a strategy under which a seller develops two or more brands in the same product develops two or more brands in the same product category. Offers a way to establish different category. Offers a way to establish different features and appeal to different types of buyers, features and appeal to different types of buyers, therefore, may increases the market share of the therefore, may increases the market share of the company. company.

new brandsnew brands; introducing new brand names in ; introducing new brand names in new product categories. Demands lot of company new product categories. Demands lot of company resources, that is why, nowadays some resources, that is why, nowadays some companies use companies use megabrandmegabrand strategies - spending strategies - spending resources only on brands that can achieve the resources only on brands that can achieve the number one or two market share position in their number one or two market share position in their categories and dropping the weaker brands. categories and dropping the weaker brands.

Four Brand StrategFour Brand Strategiesies

Product Product CategoryCategory

ExistingExisting NewNew

ExistingExisting LineLine BrandBrand

Brand NameBrand Name extention extention extentionextention

NewNew

MultibrandsMultibrands New New brandsbrands

PackagingPackaging

The activities of designing and producing the The activities of designing and producing the container or wrapper for a product. container or wrapper for a product.

There are three packages - the product’s There are three packages - the product’s primary container; a secondary package that primary container; a secondary package that is thrown away when the product is about to is thrown away when the product is about to be used; and the shipping package to ship and be used; and the shipping package to ship and store the product. store the product.

Packaging decisions are based on cost and Packaging decisions are based on cost and production.production.

Packages attract attention and describe the Packages attract attention and describe the product. product.

LabelingLabeling

Labels may range from tags attached to Labels may range from tags attached to products to graphics that are part of the products to graphics that are part of the package. package.

Labels may (1) identify, (2) grade, (3) Labels may (1) identify, (2) grade, (3) describe, or (4) promote describe, or (4) promote (through attractive graphics)(through attractive graphics) the product or brand.the product or brand.

Labels can mislead customers, fail to describe Labels can mislead customers, fail to describe important ingredients or fail to include important ingredients or fail to include important safety warnings. That is why, laws important safety warnings. That is why, laws regulate labeling in (1) unit pricing, (2) shelf regulate labeling in (1) unit pricing, (2) shelf life, and (3) nutritional value life, and (3) nutritional value

Product-Support ServicesProduct-Support Services

The product-support services augment the The product-support services augment the actual product, can help the product to gain a actual product, can help the product to gain a competitive advantage and create customer competitive advantage and create customer loyalty. loyalty.

The company should periodically survey its The company should periodically survey its customers to assess its customers’ customers to assess its customers’ satisfaction and to get new ideas for product satisfaction and to get new ideas for product improvements. improvements.

E.g. services to handle complaints, credits, E.g. services to handle complaints, credits, maintenance, technical issues, customer maintenance, technical issues, customer information.information.

Product Line DecisionsProduct Line Decisions

A product lA product line is a group of products ine is a group of products that are closely related because they that are closely related because they function in a similar manner, are sold to function in a similar manner, are sold to the same customer groups, are the same customer groups, are marketed through the same types of marketed through the same types of outlets or fall within given price range. outlets or fall within given price range. E.g. Nike produces several lines of E.g. Nike produces several lines of athletic shoes. athletic shoes.

In developing product line strategies, In developing product line strategies, marketers decide on;marketers decide on;

product line lengthproduct line length; the number of items in ; the number of items in the product line. Product line length is the product line. Product line length is influenced by company objectives. If the influenced by company objectives. If the company wants to position itself as a full-company wants to position itself as a full-line company or wants to have high market line company or wants to have high market share and growth, the company prefers to share and growth, the company prefers to carry a longer line. Product lines tend to carry a longer line. Product lines tend to lenghten over time. However, such line lenghten over time. However, such line increases raise the costs of design, increases raise the costs of design, inventory, production, promotion, that is inventory, production, promotion, that is why, pruning is inevitable.why, pruning is inevitable.

increasing the length of the product lineincreasing the length of the product line; ; there are two ways - by there are two ways - by strechingstreching and and fillingfilling. . Product line strechingProduct line streching occurs when occurs when a companya company

lengthens (downward, upward or lengthens (downward, upward or both ways) its product line beyond its both ways) its product line beyond its current range. E.g. Xerox, Marriott current range. E.g. Xerox, Marriott Hotels... On the other hand, Hotels... On the other hand, product product line fillingline filling occurs when a company occurs when a company adds more items within the present adds more items within the present range of the line. Reasons are; range of the line. Reasons are; reaching for extra profit, tyring to reaching for extra profit, tyring to satisfy dealers, use excess capacity, satisfy dealers, use excess capacity, be the leading full-line company, plug be the leading full-line company, plug holes to keep out competitors. E.g. holes to keep out competitors. E.g. Sony solar-powered and waterproof Sony solar-powered and waterproof Walkman.Walkman.

Product Mix DecisionsProduct Mix Decisions

A product mix (or product assortment) A product mix (or product assortment) includes all the product lines and items includes all the product lines and items that a particular seller offers for sale. E.g. that a particular seller offers for sale. E.g. Avon’s product mix includes cosmetics, Avon’s product mix includes cosmetics, jewellery, fashion each with sublines such jewellery, fashion each with sublines such as lipstick, eyeliner…as lipstick, eyeliner…

A company’s product mix has four A company’s product mix has four dimensions: width, length, depth, and dimensions: width, length, depth, and consistency.consistency.

WidthWidth; refers to the number of different product ; refers to the number of different product lines the company carries. E.g. Procter & lines the company carries. E.g. Procter & Gamble has a product mix of six lines as Gamble has a product mix of six lines as detergents, toothpaste, bar soap, deodorants, detergents, toothpaste, bar soap, deodorants, fruit juice, and lotions.fruit juice, and lotions.

LengthLength; refers to the total number of items that ; refers to the total number of items that the company carries. E.g. P&G has 42 different the company carries. E.g. P&G has 42 different products under its six lines.products under its six lines.

DepthDepth; refers to the number of versions offered ; refers to the number of versions offered of each product in the line. E.g. one of the of each product in the line. E.g. one of the products of P&G may have different sizes and products of P&G may have different sizes and formulations. formulations.

ConsistencyConsistency; refers to how closely related the ; refers to how closely related the various product lines are. E.g. P&G’s products various product lines are. E.g. P&G’s products are consistent in the way that they are all are consistent in the way that they are all consumer products, but inconsistent in the way consumer products, but inconsistent in the way that they perform different functions for buyers.that they perform different functions for buyers.

Services MarketingServices Marketing

Service industries are quite varies: Service industries are quite varies: governmental servicesgovernmental services - courts, - courts, hospitals, police, fire departments, hospitals, police, fire departments, postal services, schools etc; postal services, schools etc; private private nonprofit organizationsnonprofit organizations - museums, - museums, colleages, hospitals etc; colleages, hospitals etc; business business organizationsorganizations - airlines, hotels, - airlines, hotels, restaurants, advertising, real estate restaurants, advertising, real estate etc.etc.

Nature and Characteristics of Nature and Characteristics of a Servicea Service

Service intangibilityService intangibility; means that services ; means that services cannot be seen, tasted, felt, heard or smelled cannot be seen, tasted, felt, heard or smelled before they are bought. That is why, buyers before they are bought. That is why, buyers look for “signals” for service quality from the look for “signals” for service quality from the place, people, price, equipment and place, people, price, equipment and communications that they can see. communications that they can see.

Service inseparabilityService inseparability; means that services ; means that services cannot be separated from their providers. If a cannot be separated from their providers. If a service employee provides the service, then the service employee provides the service, then the employee is part of the service. Both the employee is part of the service. Both the provider and the customer affect the service provider and the customer affect the service outcome.outcome.

Service variabilityService variability; means that the quality of ; means that the quality of services depends on who provides them, plus, services depends on who provides them, plus, when, where, and how they are provided. E.g. when, where, and how they are provided. E.g. within a given Marriott hotel, one reception within a given Marriott hotel, one reception desk agent may be cheerful and efficient, desk agent may be cheerful and efficient, another would be unpleasant and slow. Service another would be unpleasant and slow. Service providers’ service quality depends on his energy providers’ service quality depends on his energy and his frame of mind at the time of each and his frame of mind at the time of each customer encounter.customer encounter.

Service perishabilityService perishability; means that services ; means that services cannot be stored for later sale or use. E.g. the cannot be stored for later sale or use. E.g. the demand for public transportation during the demand for public transportation during the rush-hour. Service perishability is a serious rush-hour. Service perishability is a serious problem when demand fluctuates. Here, the problem when demand fluctuates. Here, the marketer needs to design strategies for marketer needs to design strategies for producing better matchproducing better match

between demand and supply. E.g. between demand and supply. E.g. hotels charge lower rates in the off-hotels charge lower rates in the off-season to attract more guests; season to attract more guests; restaurants hire part-time employees to restaurants hire part-time employees to serve during peak periods; tour serve during peak periods; tour operators and airline companies have operators and airline companies have last-minute sales.last-minute sales.

MarketMarketinging Strategies for Strategies for Service FirmsService Firms

Services are different form tangible Services are different form tangible products, that is why, additional marketing products, that is why, additional marketing approaches are needed to market services.approaches are needed to market services.

In service businesses, the customer and In service businesses, the customer and front-line service employees interact. front-line service employees interact. Service providers must interact effectively Service providers must interact effectively with customers to satisfy them. That is with customers to satisfy them. That is why, companies take care of their why, companies take care of their employees to make profit. Because they employees to make profit. Because they believe that onlybelieve that only

satisfied and productive service satisfied and productive service employees can create satisfied and loyal employees can create satisfied and loyal customers.customers. Internal marketingInternal marketing; means that the service ; means that the service

firm must effectively train and motivate its firm must effectively train and motivate its customer-contact employees to provide customer-contact employees to provide customer satisfaction.customer satisfaction.

Interactive marketingInteractive marketing; means that service ; means that service quality depends on the quality of the buyer-quality depends on the quality of the buyer-seller interaction during the service seller interaction during the service encounter.encounter.

In order to increase the profit margin, In order to increase the profit margin, there are three major marketing tasks there are three major marketing tasks for service companies;for service companies;

Managing Service DifferentiationManaging Service Differentiation

Differentiated offer, delivery and Differentiated offer, delivery and image are the keys for the solution image are the keys for the solution to price competition.to price competition. The The offeroffer can provide innovative can provide innovative

features like e.g. in-flight movies, features like e.g. in-flight movies, advance seating, frequent-flyer award advance seating, frequent-flyer award programs in an airlines. British Airways programs in an airlines. British Airways offers a sleeping compartment and hot offers a sleeping compartment and hot showers. showers.

The The deliverydelivery can be differentiated by can be differentiated by having better customer-contact having better customer-contact people, developing apeople, developing a superior superior physical environment, or by physical environment, or by designing a superior deliver process designing a superior deliver process like e.g. home banking can be like e.g. home banking can be provided as a better way to deliver provided as a better way to deliver banking services.banking services.

The The imageimage can differentiate the can differentiate the service company through symbols service company through symbols and branding.and branding.

Managing Service QualityManaging Service Quality

A service firm can also differentiate A service firm can also differentiate itself by delivering consistently higher itself by delivering consistently higher quality than its competitors do.quality than its competitors do. Service quality will always vary, Service quality will always vary,

depending on the interactions between depending on the interactions between employees and customers. A company employees and customers. A company cannot always prevent service problems cannot always prevent service problems but can recover them. A good but can recover them. A good service service recoveryrecovery can turn angry customers into can turn angry customers into loyal ones. Companies loyal ones. Companies empowerempower front-line front-line

service employees (giving authority service employees (giving authority to do whatever it takes to keep to do whatever it takes to keep customers happy) to recover customers happy) to recover problems. problems.

Good service companies also Good service companies also communicate their qualities to communicate their qualities to employees and provide employees and provide performance performance feedbackfeedback..

Managing Service ProductivityManaging Service Productivity

Service productivity can be increased by;Service productivity can be increased by; training the employees better or hiring new and training the employees better or hiring new and

better employees better employees industrializing the service with equipment and industrializing the service with equipment and

standardized production as in McDonald’s standardized production as in McDonald’s using technology to save time and moneyusing technology to save time and money

Trying to increase the productivity would Trying to increase the productivity would reduce quality and diminish customer reduce quality and diminish customer service. That is why, some service providers service. That is why, some service providers accept to have lower productivity levels.accept to have lower productivity levels.

Marketing Marketing Organizations, Persons, Organizations, Persons,

Places, and IdeasPlaces, and Ideas Organization marketingOrganization marketing; consists of activities ; consists of activities

undertaken to create, maintain, or change the undertaken to create, maintain, or change the attitudes and behavior of target customers toward attitudes and behavior of target customers toward an organization. Corporate image advertising is a an organization. Corporate image advertising is a major toolfor a company to build up or maintain major toolfor a company to build up or maintain its favorable image in various publics over many its favorable image in various publics over many years. years.

Person marketingPerson marketing; consists of activities ; consists of activities undertaken to create, maintain, or change undertaken to create, maintain, or change attitudes or behavior toward particular people. attitudes or behavior toward particular people. Politicians, entertainers, business leaders etc. Politicians, entertainers, business leaders etc. practice persons marketing.practice persons marketing.

Place marketingPlace marketing; involves activities ; involves activities undertaken to create, maintain or change undertaken to create, maintain or change attitudes or behavior toward particular places. attitudes or behavior toward particular places. There are two basic types - business site There are two basic types - business site marketing and tourism marketing. Business marketing and tourism marketing. Business site marketing involves developing, selling, or site marketing involves developing, selling, or renting sites for factories, stores etc.Tourism renting sites for factories, stores etc.Tourism marketing involves attracting vacationers to marketing involves attracting vacationers to tourist locations and organizations e.g. “I love tourist locations and organizations e.g. “I love New York”. New York”.

Idea marketingIdea marketing; also called social marketing, ; also called social marketing, involves the marketing of social ideas such as involves the marketing of social ideas such as public health (e.g. drug abuse), family public health (e.g. drug abuse), family planning, environmental (e.g. protecting the planning, environmental (e.g. protecting the wild life) campaigns.wild life) campaigns.

International Product International Product and Service Marketingand Service MarketingIntInternational product and service ernational product and service marketers must;marketers must;

first; figure out what products and first; figure out what products and services to introduce and in which services to introduce and in which countriescountries

second; decide how much to second; decide how much to standardize or adapt their products standardize or adapt their products and servicesand services

standardization helps a company to standardization helps a company to build a consistent worldwide image, build a consistent worldwide image, reduces production, research and reduces production, research and development, advertising and development, advertising and product design costs.product design costs.

adaption helps a company to develop adaption helps a company to develop its product offering in a way that its product offering in a way that satisfies customers with different satisfies customers with different attitudes, buying behaviors and attitudes, buying behaviors and cultures.cultures.