Unit 2

The Marketing Mix- ProductSubhajit Sanyal

11–2

What Is a Product?

• A Product Defined–A good, a service, or an idea received in an exchange–It can be tangible (a good) or intangible (a service or an

idea) or a combination of both.–It can include functional, social, and psychological

utilities or benefits.

11–3

Formal, core and augmented products

The formal product•What customers think they are buying•Tangible and intangible attributes that are easy to articulate•i.e. a meeting room with seating capacity

The core product•What the customer is actually buying•Defined in terms of benefits for the customer•Is often described through abstract, intangible terms•i.e. a quiet, hassle-free, successful meeting

The augmented product•The totality of all benefits received or experienced by customers•Includes tangible and intangible elements, attributes that are easily to articulate as well as abstract ones•Can comprise everything from a comfortable bed over guest amenities to the sound of the sea

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Classifying Products

• Consumer Products–Products purchased to satisfy

personal and family needs

• Business Products–Products bought to use in an

organization’s operations, to resell, or to make

other products (raw materials and

components)

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Consumer Products

• Convenience Products–Relatively inexpensive, frequently purchased items for

which buyers exert minimal purchasing effort–Characteristics

• Marketed through many retail outlets• Relatively low per-unit gross margins• Little promotional effort at the retail level• Packaging is important marketing mix element

11–6

Consumer Products (cont’d)

• Shopping Products–Items for which buyers are willing to expend

considerable effort in planning and making purchases–Characteristics

• Expected to last a long time; less frequently purchased• Do not have brand loyalty appeal• Require fewer retail outlets• Inventory turnover is lower• Gross margins are higher• More amenable to personal selling• Supported (servicing and promoting the product) by both

the producer and channel members

11–7

Consumer Products (cont’d)

• Specialty Products–Items with unique characteristics that buyers are willing

to expend considerable effort to obtain–Characteristics

• Are preselected by the consumer• Have no close substitutes or alternatives• Are available in a limited number of retail outlets• Purchased infrequently and represent a significant

and expensive investment• Have high gross margins

and low inventory turnover

11–8

Consumer Products (cont’d)

• Unsought Products–Products purchased to solve a sudden problem,

products of which the customers are unaware, and products that people do not necessarily think about buying

–Characteristics• Speed and problem resolution of the utmost importance• Price and other features not considered• No consideration of substitutes

or alternatives• Purchased infrequently

11–9

Business Products

• Installations–Facilities and nonportable major equipment

• Office buildings, factories and warehouses, production lines, very large machines

• Accessory Equipment–Equipment used in production

or office activities• File cabinets, small motors,

calculators, and tools

11–10

Business Products (cont’d)

• Raw Materials–Basic natural materials that become part of a physical

product such as ores, water, lumber, grains, and eggs

• Component Parts–Items that become part of the physical product

• Finished items ready for assembly• Items needing little processing

before assembly• Computer chips, engine blocks,

girders, and paints

11–11

Business Products (cont’d)

• Process Materials–Materials that are not readily identifiable when used

directly in the production of other products such as screws, knobs, and handles

• MRO Supplies–Maintenance, repair, and operating items that facilitate

production and do not become part of the finished product such as cleaners, rubber bands, and staples

Copyright © Houghton Mifflin Company. All rights reserved. 11–12

Business Products (cont’d)

• Business Services–The intangible products that many organizations use in

their operations such as cleaning, legal, consulting, and repair service.

11–13

Seller’sservices

Seller’sservices

Productquality

Productquality Physical

characteristicsof goods

Physicalcharacteristics

of goods

PricePrice

BrandBrand

DesignDesign

PackagingPackagingProductwarranty

Productwarranty

Seller’sreputation

Seller’sreputation

ColorColor

11–14

THE PRODUCT LIFE CYCLE

• A product life cycle consists of the aggregate demand for all brands comprising a generic product category over time.

• A PLC consists of four stages:– Introduction—most risky and expensive.– Growth—both sales and profits rise, often rapidly.– Maturity—sales increase at a decreasing rate and

profits decline.– Decline—demand drops, often because of another

product development.

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LENGTH OF PRODUCT LIFE CYCLE

• Ranges from a few weeks to decades.• Length of individual stages varies from one product

category to the next.• Stages of any given life cycle usually last for different

periods.

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The Four Stages of the Product Life Cycle

FIGURE 10.2

11–17

Product Life Cycles and Marketing Strategies

• Product Life Cycle–The progression of a product

through four stages: introduction, growth, maturity, and decline.

MP3s

DVDs

CDs

Cassettes

LP records

11–18

The Product Life Cycle

• Introduction–The initial stage of a product’s life cycle—its first

appearance in the marketplace—when sales start at zero and profits are negative

–Why new products fail• Lack of resources, knowledge, and marketing skills to

successfully launch the product• High pricing to recoup research and development costs

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The Product Life Cycle (cont’d)

• Growth–The stage of a product’s life cycle when sales rise

rapidly and profits reach a peak and then start to decline

• More competitors enter the market• Product pricing is aggressive• Brand loyalty becomes important• Gaps in market coverage are filled• Promotion expenditures moderate• Production efficiencies lower costs

11–20

The Product Life Cycle (cont’d)

• Maturity–The stage of a product’s life cycle when the sales curve

peaks and starts to decline and profits continue to fall• Intense competition• Emphasis on improvements and differences in

competitors’ products• Weaker competitors lose interest and exit the market• Advertising and dealer-oriented promotions predominate• Distribution sometimes expands to the global market

–Strategic objectives for maturity stage• Generate cash flow• Maintain market share• Increase share of customer

11–21

11–22

Product Life Cycle (cont’d)

• Decline–The stage of a product’s life cycle when sales fall

rapidly• Pruning items from the product line• Cutting promotion expenditures• Eliminating marginal distributors• Planning to phase out the product

–Strategic choices• Harvesting the product’s remaining value• Divesting the product when losses are

sustained and a return to profitability is unlikely

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1. Cutting Edge: Technology development that is ahead of the marketplace.

2. State of the Art: Adapting cutting-edge techniques to market needs.

3. Advanced: Increased competition and a less sophisticated customer base.

4. Mainstream: Market is fully developed with standardized products.

5. Mature: Competition shifts to customer service.

6. Decline: Other technologies replace the dying technology.

LIFE CYCLES IN BUSINESS MARKETS

A technological life cycle (TLC) has six phases:

11–24

THE NEW-PRODUCT DEVELOPMENT PROCESS

• A new product is best developed through a series of six stages:– The first two stages provide a focus for generating

new-product ideas and a basis for evaluating them.– The first three stages deal with ideas and are the least

expensive.– In their haste, some companies skip stages — the

most common omission being market tests.

11–25

Identifythe strategicrole of newproducts,

then...

Identifythe strategicrole of newproducts,

then...

1.Idea

generation

1.Idea

generation

2.Screeningof ideas

2.Screeningof ideas

3.Businessanalysis

3.Businessanalysis

4. Prototype

development

4. Prototype

development

5.MarketTests

5.MarketTests

6.Commer-cialization

6.Commer-cialization

11–26

ADOPTER CATEGORIES

• Researchers have identified five categories of individual adopters for new products:– Innovators — 3% of the market.– Early adopters — 13% of the market.– Early majority — 34% of the market.– Late majority — 34% of the market.– Laggards — 16% of the market.

• In addition, some individuals — nonadopters — never accept the innovation.

11–27

Product Adoption Process

• Production Adoption Process–The stages buyers go through in accepting a product

Stage Buyer’s response

Awareness The buyer becomes aware of the product

Interest The buyer seeks information and is receptive to learning about the product

Evaluation The buyer considers the product’s benefits and decides whether to try the product

Trial The buyer examines, tests, or tries the product to determine if it meets his or her needs

Adoption The buyer purchases the product and can be expected to use it again whenever the need for this general type of product arises

11–28

Product Adoption Process (cont’d)

• Categories of Product Adopters–Innovators

• First adopters of new products

–Early adopters• Careful choosers of new products

–Early majority• Those adopting new products just

before the average person

–Late majority• Skeptics who adopt new products

when they feel it is necessary

–Laggards• The last adopters, who distrust new products

11–29FIGURE 10.3

Distribution of Product Adopter Categories

Source: Reprinted with permission of The Free Press, a Division of Simon & Schuster, Inc., from Diffusion of Innovations, Fourth Edition by Everett M. Rogers. Copyright © 1995, by Everett M. Rogers. Copyright © 1962, 1971, 1983 by The Free Press

Excerpt from Diffusion of Innovations, Fourth edition by Everett M. Rogers. Reprinted with permission of The Free Press, a division of Simon & Schuster, Inc. Copyright 2005 by Everett M. Rogers. Copyright 1962, 1971, 1983, by The Free Press.

11–30

NEW-PRODUCT ADOPTION AND DIFFUSION

• Adoption process: The decision-making activity of an individual through which the new product is accepted.

• Stages in Adoption Process:

– Awareness – Interest – Evaluation – Trial – Adoption – Confirmation

• Diffusion: The process by which an innovation is spread through a social system over time.

11–31

FASHION-ADOPTION PROCESS

• Fashion: Any style that is accepted and purchased by successive groups of people over a long period of time.

• Fashion-adoption process: Series of buying waves as a given style is popularly accepted by one group after another.

• Three theories of fashion adoption:– Trickle-down—a given fashion flows down through

several socioeconomic levels.– Trickle-across—the fashion moves horizontally and

simultaneously within several socioeconomic levels.– Trickle-up—a style first becomes popular at lower

levels and then flows upward.

11–32

TRICKLE-UP

Productadoptedfirst bylowersocio-economicgroup

TRICKLE-DOWN

Productofferedfirst touppersocio-economicgroup

Product introduced at same timein all three types of stores:

TRICKLE-ACROSSExclusive high-priced specialty stores (boutiques)

TRICKLE-ACROSSMedium-priced departmentstores and specialtystores

TRICKLE-ACROSSDiscount stores

11–33

Marketing Mix - Definition

“A framework for the tactical management of the customer relationship” (Jobber, 2000)

“A blend of marketing tactics tailored to an organisation’s chosen competitive role and its strategic issues, which is

aimed at increased customer satisfaction, repeat business, positive brand awareness, increased market share and sustainable competitive advantage and thus ultimately at continued business growth and enhanced

profitability.”

11–34

Some Key Features

Successful marketing mix strategies• Are integrated• Are strategically timetabled

– Examples of key strategic marketing mix decisions are thus• When to launch a new product or open a new property• When to refurbish• When and in which frequency to advertise • When to run special promotions and events• When to train staff and revise operational procedures

• Need to be continuously monitored and, if required, adapted to changes in the environment

11–35

• For marketers it is not enough to focus only on the sales of formal and core product

• The marketing mix must be laid out to embrace the augmented product

• The hallmarks of an effective marketing mix are a good blend, a match with customer needs and company resources and the achievement of competitive advantage

11–36

Product Line and Product Mix

• Product Item–A specific version of a product

• Product Line–A group of closely related product items

viewed as a unit because of marketing, technical, or end-use considerations

WholeMilk

WholeMilk

SkimMilk

2%Milk

11–37

Product Line and Product Mix (cont’d)• Product Mix

–The total group of products that an organization makes available to customers

–Width of product mix• The number of product lines a company offers

–Depth of product mix• The average number of different products in each product

line

11–38

PRODUCT MIX AND PRODUCT LINE

• The product mix is the set of all products offered for sale by a company.

• A product mix has two dimensions:– Breadth - the number of product lines carried.– Depth - the variety of sizes, colors, and models offered

within each product line.• A product line is a broad group of products, intended for

similar uses and having similar characteristics.

11–39

The Concepts of Product Mix Width and DepthApplied to Selected U.S. Proctor & Gamble Products

11–40

1. Market fragmentation: Smaller and smaller market segments.

2. Consumer desires: Trying “something different.”

3. Pricing breadth: A broader range of price points to capture a wider audience.

4. Excess capacity: When faster production lines were added, many older lines were not scrapped.

5. Short-term gain: Way to boost sales quickly and inexpensively.

6. Competitive intensity: Build a brand’s market share and retail shelf space.

7. Trade pressure: To satisfy new retail channels for consumer products.

HAS PRODUCT PROLIFERATION GONE TOO FAR?

Seven factors help explain the lure of line extensions:

11–41

1. Overextended line: No elimination of existing items.

2. Lower brand loyalty: Line extensions encourage brand switching.

3. Underexploited ideas: Line extensions typically are “little” ideas rather than big ideas with more risk and greater profit potential.

4. Stagnant category demand: More products alone rarely expand total demand.

5. Poorer trade relations: Retailers don’t have enough shelf space for the flood of new products.

6. More competitor opportunities: Competitors may concentrate on the most popular line extensions.

7. Increased costs: Line-extension costs often remain hidden.

HAS PRODUCT PROLIFERATION GONE TOO FAR?

Seven pitfalls to proliferation:

11–42

Why Some Products Fail and Others Succeed

• Reasons for Product Failure–Product’s value or features did not match customer

needs–Ineffective or inconsistent branding that failed to convey

the right message or image to customers–Technical or design problems–Poor market timing–Overestimation of market size–Ineffective promotion–Insufficient distribution

11–43

11–44

• 1. Ford’s Edsel automobile.

• 2. Dupont’s Corfam synthetic leather.

• 3. Polaroid’s Polavision.

• 4. United Artist’s Heaven’s Gate western movie.

• 5. RCA’s Videodisc.

• 6. Time’s TV-Cable Week magazine

• 7. IBM’s PCjr.

• 8. New Coke.

• 9. R.J. Reynolds’ Premier cigarette.

• 10. Nutrasweet’s Simplesse fat substitute.

TEN “WORLD-CLASS” PRODUCT FAILURES

11–45

Transparency Figure 10F

Changing Market for Luxury Automobile Name Plates