Chapter 12 (Creating and Pricing Products that Satisfy Customers) Flashcards
Product
A product is everything one receives in an exchange, including all tangible and intangible attributes and expected benefits; including a goods, services, or ideas
Goods, Services & Ideas.
A good is a real, physical thing that we can touch.
A service is a result of applying human or mechanical effort to change a person or thing.
An idea comes in the form of philosophies, lessons, concepts or advice.
What are the 2 general categories of products?
(1) Consumer (Business-to-Business)
2) Business (Industrial Products
Consumer Product & Business Product
A consumer product is a product purchased to satisfy personal and family needs. A business product is a product bought for resale, for making other products, or for use in a firm’s operations
What are the 3 categories in classifying consumer products?
(1) Convenience Product
(2) Shopping Product
(3) Specialty Product
Convenience Product
A convenience product is a relatively inexpensive, frequently purchased item for which buyers want to exert only minimal effort to acquire (i.e. chewing gum). The buyer spends little time in planning the purchase and comparing available brands or sellers.
Shopping Product
A shopping product is an item for which buyers are willing to expend considerably more effort on planning and purchasing. With cost > than convenience products, buyers allocate more time for comparing prices, product features, qualities, services and warranties between different stores and brands (i.e. appliances, furniture, mobile phones)
Specialty Product
A specialty product possesses one or more unique characteristics for which a group of buyers is willing to expend considerable purchasing effort. Buyers know exactly what they want and will not accept a substitute. For specialty products, purchasers do not compare alternatives (i.e. collectible items).
What are the 7 categories in classifying business products?
(1) Raw Materials
(2) Major Equipment
(3) Accessory Equipment
(4) Component Parts
(5) Process Materials
(6) Supplies
(7) Services
Raw Material
A raw material is a basic material that becomes part of a physical product. They usually come from mines, forests, oceans, or recycled solid waste. Raw materials are generally bought and sold according to grades and specifications.
Major Equipment
A Major equipment includes large tools and machines used for production purposes (i.e. cranes). Some major equipment is custom-made for an organization, while other items are standardized products that perform tasks for many types of organizations.
Accessory Equipment
Accessory equipment is standardized equipment used in a firm’s production or office activities (i.e. hand tools, fax machines, calculators). Compared to major equipment, these are usually less expensive and are purchased routinely with less negotiation.
Component Parts
A component part becomes part of a physical product that is either a finished item ready for assembly or a product that needs a little processing prior to assembly. Although it becomes an element of a larger product, it can often be identified (i.e. tires, computer chips).
Process Material
A process material is used directly in the production of another product. Unlike component parts, process materials are not readily identifiable in the finished product. Purchases are based off industry standards or specifications to the individual purchaser (i.e. industrial glue).
Supply
A supply facilitates production and operations but is not part of the finished product (i.e. paper, pencils, oils, cleaning agents)
Business Service
A business service is an intangible product that an organization uses in its operations. Includes financial, legal, online, janitorial, marketing research activities. Purchases decide whether to provide their business services internally or hire contractors from outside the organization.
Product Life-Cycle
The product life-cycle is a series of stages in which a product’s sales revenue and profit increase, reach a peak, then decline. Marketers use this information to launch, modify, and delete products in response to changes in product life-cycles.
What are the 4 stages of the product life-cycle?
(1) Introduction
(2) Growth
(3) Maturity
(4) Decline
Introduction Stage
In the introduction stage, customer awareness and acceptance of the product are low. Sales gradually rise in response to promotion and distribution activities, while development & marketing costs often result in low profit or a net loss. The marketing goal is to maintain sales growth and raise customer awareness of the product’s existence and its features. In this stage, marketers monitor early buying patterns and promptly modify the product. Price is based on customer response.
Growth Stage
In the growth stage, sales increase rapidly as consumer gain awareness of the product. Competing firms begin creating market competing products. Industry profits reach a peak and then decline in this stage. To meet the growing market, the originating firm offers modified versions of the product and expands distribution. Management and marketing’s goal is to stabilize and strengthen the product’s position by encouraging brand loyalty, promoting customer service, and improving/expanding the product line and cost.
Maturity Stage
In the maturity stage, the rate of sales increase has slowed. Later, the sales curve peaks and begins to decline, thus the industry profits. Product lines are simplified, markets are more segmented, and price competition increases, forcing weaker competitors to leave. During this stage, market share may be strengthened by redesigning packaging or style. Pricing strategies are flexible, and marketers focus on offering incentives and new promotional efforts.
Maturity Stage
In the maturity stage, the rate of sales increase has slowed. Later, the sales curve peaks and begins to decline, thus the industry profits. Product lines are simplified, markets are more segmented, and price competition increases, forcing weaker competitors to leave. During this stage, market share may be strengthened by redesigning packaging or style. Pricing strategies are flexible, and marketers focus on offering incentives and new promotional efforts.
Decline Stage
In the decline stage, sales volume decrease sharply and profits continue to fall. The number of competing firms decline, and the survivors have specialized in marketing the product. Production and marketing costs are the most important determinant of profit. Management begins to determine when to eliminate declining products in the product line. Few changes are made in the product itself, management focuses on narrowing distribution to the existing markets.
Product Line
A product line is a group of similar products that differ only in relatively minor characteristics. Generally, products within a product line are related in production, marketing and use. (*Note: Due to lesser cost, organizations tend to introduce new products within an existing product line instead of starting a new one).
Product Mix
Includes: width & depth
A product mix consists of all the products the firm offers for sale. The width of the product mix is the # of product lines. The depth of the mix is the # of individual products within each line. Width and depth are estimates. (*Note: a marketer must develop, adjust and maintain an effective product mix, responding to customer product preferences, market competition)
What are the 3 ways to improve product mix?
(1) Change an existing product (product modifications & line extensions)
(2) Delete a product
(3) Develop a new product
Product Modification
Product modifications refer to changing a product’s characteristics.
What are the 3 conditions for product modification?
(1) the product is modifiable
(2) existing customers can perceive the modification
(3) the modification makes the product more consistent with customers’ desires
What are the 3 primary ways for product modification?
(1) Quality modification are changes to a product’s dependability and durability, usually achieved by alterations in the material and production process..
(2) Functional modifications are changes in a product’s versatility, effectiveness, convenience or safety, usually requires product redesign.
(3) Aesthetic modifications change the sensory appeal of the product in taste, texture, sound, smell or visual characteristics to improve product appeal.
Line Extension
A line extension is the development of a new product that is closely related to an existing product in the product line. However, it is designed specifically to meet a different customer need. Many so-called new products are line extensions, which are less-expensive and produce lower-risk.
Product Deletion
Product Deletion is the elimination of a product from a product line
What are the challenges & strategies for product deletion?
Challenges for product deletion include the loss of cost used (for bringing the product to market) and emotional attachment.
The Strategy for product deletion is to conduct a systematic review of the product’s impact on the overall effectiveness in a product mix. This review analyzes the product’s sales in a given period, and includes estimates of future sales, costs and profits.
What are the pros and cons in developing a new product?
Pros: if successful, new products improve a firm’s survival, profit, and competitive advantage
Cons: developing and introducing new products are time-consuming, expensive and risky
What are the 3 categories of product deletion?
Categories of product deletion is based on degree of similarity to existing products:
(1) Imitations: products designed to compete with existing products of outside firms
(2) Adaptations: variations of existing products intended for an established market (i.e. product refinements & extensions)
(3) Innovations: entirely new products; gives rise to new industries or revolutionizes existing ones (*note: innovations are the riskiest new product to develop and launch and is the least common)
What are the 7 Phases of Developing a New Product?
(1) Idea Generation
(2) Screening
(3) Concept Testing
(4) Business Analysis
(5) Product Development
(6) Test Marketing
(7) Commercialization
Idea Generation
Idea generation involves looking for product ideas that will help the firm achieve its objectives. Although some organizations get ideas by chance, most organizations maximize product-mix effectiveness by developing systematic approaches for generating new-product ideas. Ideas can be generated from all the firm’s stakeholders.
Screening
In screening, ideas that do not match organizational resources and objectives are rejected. In this, management decides if the firm has resources & expertise to develop and market the proposed product.
Concept Testing
Concept testing is a phase in which a product idea is presented to a sample of potential buyers through a written or oral description. Concept is a low-cost method to test initial reactions to a product before investing considerable resources in product research & development. Concept-testing is also used to modify the product to adhere to initial customer response.
Business Analysis
Business Analysis generates tentative ideas about a potential product’s financial performance, including profitability. The firm considers the new-product’s potential affect in sales, costs and profits. Marketing usually compose preliminary sales and cost projections with the help of Research & Development and Production.
Product Development
In Product Development, the company assesses if the product’s production is technically feasible and if the product will generate a net profit. If the product passes this point, the product is transformed to a working model or prototype.
Test Marketing
Test Marketing is the limited introduction of a product in a controlled location that is representative of the intended target market. Its aim is to determine buyers’ probable reactions. In this stage, marketers experiment with advertising, pricing and packaging and measure brand awareness, brand switching and repeat purchases.
Commercialization
Commercialization: the organization completes plans for full-scale manufacturing & marketing and prepares project budgets. Marketing analyzes test marketing results for any necessary changes in the marketing mix (distribution, promotion, pricing)
What are some questions asked in concept-testing?
Which benefits of the proposed product are especially attractive to you?
Which features of the proposed product are of little to no interest to you?
What are the primary advantages of the proposed product in comparison to similar existing products?
On estimate, how often would you buy this proposed product?
How could this proposed product be improved?
Why do New-Products fail?
The main reason a new-product fails is due to inadequate attention to the product & marketing program.
