Kotler 2020 Chapter 10 Products and Services PDF

CHAPTER 10 – Products and services Mini contents Company case- Samsung: enriching customers' lives through new-product development What is a product? Company case - Financial services: Max Matthiessen The product life cycle Product and service decisions New product developmen...

CHAPTER 10 – Products and services Mini contents Company case- Samsung: enriching customers' lives through new-product development What is a product? Company case - Financial services: Max Matthiessen The product life cycle Product and service decisions New product development strategy Real Marketing - Nestlé: how the food industry leader utilizes new product development and innovation Services marketing Chapter preview Now that you've had a good look at customer-driven marketing strategy and the thinking underlying a brand perspective, we'll take a deeper look at the marketing mix - the tactical tools that marketers use to implement their strategies and deliver superior customer value. In this chapter, we'l study how companies develop and manage products. Then, in the chapters that follow, we*ll look at pricing, marketing channels, and marketing communication tools. But welfirst look at the product, which is usually the first and most basic marketing consideration. Wellopen with Samsung, the world's leading consumer electronics maker and one of the world's most innovative companies. Over the past 25 years or so, Samsung has transformed itself by creating a culture of customer-focused innovation and a seemingly endless flow of inspired new products that eature stunning design, innovative technology, life-enriching features, and a big dose of Wow!" Learning objectives After reading this chapter, you should be able to: 1. Define product and the major classifications of products and services. 2. Describe the decisions companies make regarding their individual products and services, product lines and product mixes 3. Identify the four characteristics that affect the marketing of a service and the additional marketing considerations that services require. What is a product? In their quest to create customer relationships, marketers must build and manage products and brands that connect with customers. We begin with a deceptively simple question: what is a product. After addressing this question, we will look at ways to classify products in consumer and business markets. Then we discuss the important decisions that marketers make regarding individual products, product lines and product mixes. Finally, we examine the characteristics and marketing requirements of services, and how the services approach has become a generic way of describing products, be they goods or services or, as in most cases, a mixture. Product - Anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. We define a product as anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. Products include more than just tangible objects and intangible services, such as clothes, computers or mobile phones. Broadly defined, 'products' also include places, events, peoples, organizations, employers, ideas or combinations of these Throughout this text, we use the term product broadly to include any or all of these entities. Thus, Cacharel shoes, earrings from Tiffany or a home cleaning service are products. But so are a hotel stay in Barcelona, Avanza online investment services, Max Matthiessen financial services, Spotify music streaming and advice from your doctor. Services are a form of product that consists of activities, benefits or satisfactions offered for sale that: are essentially intangible and do not result in the ownership of anything. Examples are banking, hotel, airline, retail, wireless communication and home- repair services. We will look at services more closely later in this chapter. Service – Any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Products, services and experiences Product i is a key element in the overall market offering, which often includes both tangible goods and services. At one extreme, the offer may consist of a purely tangible good, such as salt, screws, bricks and mortar - no services accompany the product. At the other extreme are purely services, for which the offer consists primarily of a service, Examples include a doctor's examination or financial services. Between these two extremes, however, many goods-and-services combinations are possible. Today, as products and services become more commodified, many companies are moving to a new level in creating value for their customers. To differentiate their offers, they are creating and managing customer experiences with their brands or company. Experiences have always been an important part of marketing for some companies. Porsche has long manufactured dreams and Disney has manufactured dreams and memories through its movies and theme parks. Today, however, all kinds of firms are recasting their traditional goods and services to create experiences. Even banks, insurance companies and auditing firms are now empha sizing experiences in their marketing. Companies that market experiences realize that customers are really buying much more than just products and services. They are buying what those offers will do for them. Remember the drill and the hole that we discussed in Chapter 1. Customers want a hole - not a drill in the first place. Levels of product and services Product planners need to think about products and services on three levels (see Figure 10.1). Each level adds more customer value. The most basic level is the core customer value, which addresses the question: what is the buyer really buying? When designing products, marketers must first define the core, problem-solving benefits or services that consumers seek, A woman buying lipstick buys more than lip colour. Charles Revson of Revlon saw this early: 'In the factory, we make cosmetics; in the store, we sell hope.' And people who buy a vaca- tion trip to Hawaii are buying more than vacation and rest – they are buying experiences, new reference points in understanding various aspects of daily life, and stories to tell others about. At the second level, product planners must turn the core benefit into an actual product. They need to develop product and service features, design, a quality level, a brand name and packaging. For example, a smartphone is an actual product. Its name, parts, styling, features, packaging and other attributes have all been combined carefully to deliver the core customer value of staying connected. A hotel stay comes with a spacious and clean room, complimentary breakfast and WiFi, a nice location, bonus points, restaurant vouchers, and lounge access. Finally, the augmented product is built around the core benefit and actual product by offering additional consumer services and benefits. The hotel stay provides the guest with a complete solution to travelling and the needs that arise. Thus, the hotel gives a guest 24/7 access to qualified advice about the area through the concierge, quick 24/7 services when needed, and a toll-free telephone number and website to use if they have problems or questions. The service offered goes beyond what can be stated on the hotel's website. Consumers see products as complex bundles of benefits that: satisfy their needs. When devel- oping products, marketers must first identify the core customer value that consumers seek from the product. They must then design the actual product and find ways to augment it in order to create this customer value and the most satisfying customer experience. Product and service classifications Products and services fall into two broad classes based on the types of consumers that use them consumer products and industrial products. Broadly defined, products also include other marketable entities such as experiences, organizations, people, places and ideas. Consumer products Consumer products – Products and services bought by final consumers for personal consumption. Consumer products are products and services bought by final consumers for personal consumption. Marketers usually classify these products and services further based on how consumers go about buying them. Consumer products include convenience products, shop- ping products, speciality products and unsought products. These products differ in the ways consumers buy them and, therefore, in how they are marketed (see Table 10.1). Convenience product – A consumer product that customers usually buy frequently, immediately and with a minimum of comparison and buying effort. Convenience products are consumer products and services that customers usually buy frequently, immediately and with a minimum of comparison and buying effort. Examples include laundry detergent, sweets, magazines and fast food. Convenience products are usually low-priced, and marketers place them in many locations to make them readily available when customers need them. Shopping product – consumer product that customers, in the process of selection and purchase, usually compare on such bases as suitability, quality, price and style. Shopping products are less frequently purchased consumer products and services that customers compare carefully on suitability, quality, price and style. Consumers spend much time and effort in gathering information and making comparisons. Examples include furni- ture, clothing, used cars, major appliances, and hotel and airline services. Marketers usually distribute shopping products through fewer outlets but provide deeper sales support to help customers in their comparison efforts. Speciality product – A consumer product with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort. Speciality products are consumer products and services with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort. Examples include specific brands of cars, high-priced photographic equipment, designer clothes, and the services of medical or legal specialists. A Lamborghini car, for example, is a speciality product because buyers are usually willing to travel great distances to buy one. Buyers normally do not compare speciality products. They invest only the time needed to reach dealers selling the desired products. Unsought product – A consumer product that the consumer either does not know about or knows about but does not normally think of buying. Unsought products are consumer products that the consumer either does not know about or knows about but does not normally think of buying. Most major new innovations are unsought until the consumer becomes aware of them through advertising. Classic examples of known but unsought products and services are life insurance, pre-planned funeral services and blood donations to the Red Cross. By their very nature, unsought products require a lot of advertising, personal selling and other marketing efforts. Industrial products Industrial product – A product purchased for further processing or for use in conducting a business. Industrial products are those purchased for further processing or for use in conducting a business. Thus, the distinction between a consumer product and an industrial product is based on the purpose for which the product is bought. If a consumer buys lawn mower for use around their home, the lawn mower is a consumer product. If the same consumer buys the same lawn mower for use in a landscaping business, the lawn mower is an industrial product. The three groups of industrial products and services include materials and parts, capital items, and supplies and services. Materials and parts include raw materials and manufac- tured materials and parts. Raw-materials consist of farm products (wheat, cotton, livestock, fruits, vegetables) and natural products (fish, timber, crude petroleum, iron ore). Manufac- tured materials and parts consist of component materials (iron, yarn, cement, wire) and component parts (small motors, tyres, castings). Most manufactured materials and parts are sold directly to industrial users. Price and service are the major marketing factors; branding and advertising tend to be less important. Capital items are industrial products that aid in the buyer's production or operations, including installations and accessory equipment. Installations consist of major purchases such as buildings (factories, offices) and fixed equipment (generators, drill presses, large computer systems, lifts). Accessory equipment includes portable factory equipment and tools (hand tools, lift trucks) and office equipment (computers, fax machines, desks). They have a shorter life than installations and simply aid in the production process. The final group of industrial products is supplies and services. Supplies include operating supplies (lubricants, coal, paper, pencils) and repair and maintenance items (paint, nails, brooms). Supplies are the convenience products of the industrial field because they are usually purchased with a minimum of effort or comparison. Business services include maintenance and repair services (window cleaning, computer repair) and business advisory services (legal, management consulting, advertising). Such services are usually supplied under contract. Organizations, persons, places and ideas As was discussed in the last chapter on brands, marketers have broadened the concept of a brand - or product - to include other market offerings - organizations, people, places and ideas. Organizations often carry out activities to "sell' the organization itself, Organization marketing consists of activities undertaken to create, maintain, or change the attitudes and behaviour of target consumers toward an organization. Both profit and not-for-profit organi- zations practice organization marketing. Business firms sponsor public relations or corporate image marketing campaigns to market themselves and polish their images. Personal branding (or person marketing) consists of activities undertaken to create, maintain, or change attitudes or behaviour toward particular people, People ranging from presidents, entertainers, and sports figures to professionals such as doctors, lawyers, authors, and archi- tects use person marketing to build their reputations. And businesses, charities, and other organizations use well-known personalities to help sell their products or causes. For example, Nike spends almost $1 billion annually on endorsement deals with a stable of stars spanning almost every conceivable sport worldwide, including headliners such as tennis greats Maria Sharapova and Roger Federer,world soccer superstars Cristiano Ronaldo and Neymar, and current and former NBA all-stars Michael Jordan, the late Kobe Bryant, LeBron James, and Kevin Durant. Ideas can also be marketed. In One sense, all marketing is the marketing of an idea,whether it is the general idea of brushing your teeth or the specific idea that Crest toothpastes create 'healthy, beautiful smiles for life'. With narrower focus, the marketing of social ideas is applied by marketers. This area has been called social marketing, defined by the Social Marketing Institute as the use of commercial marketing concepts and tools in programmes designed to influence individuals' behaviour to improve their well-being and that of society.? Social marketing – The use of commercial marketing concepts and tools in programmes designed to influence individuals' behaviour to improve their well-being and that of society. Organizations often carry out activities to 'sell' the organization itself, not least to potential employees. This is called employer branding. And business firms sponsor public relations or corporate image advertising campaigns to market themselves and polish their images. People can also be thought of as products. Personal marketing, or self-marketing, consists of activities undertaken to create, maintain or change attitudes or behaviour towards particular people Sofia Vergara, Donald Trump, Greta Thunberg, Ed Sheeran, Beyonce Elon Musk they're all examples of well-known people with strong brands, and they have all engaged in personal marketing in one way or another. Also people not consciously engaging in personal marketing may be well-known brands, such as Swedish state epidemiologist Anders Tegnell. The product life cycle After launching a new product, it 1 may live for several years, but the life span of a product varies with product type, market structure, and many other factors. Most products, however, show similarities in terms of how they develop through different stages of the product life cycle (PLC). Although the exact shape and length of the life cycle is not known in advance, it is very useful to apply this model in planning and evaluating marketing approaches. Not only may different products be in different stages - the position in the product life cycle may vary across markets too. In general terms mature markets are at a later stage in the life cycle while less mature markets are following a couple of months or a few years later, depending on product type and market circumstances. Figure 10.2 shows a typical PLC, the course that a product's sales and profits take over its lifetime. The PLc has five distinct stages: 1. Product development begins when the company finds and develops a new product idea. The company’s investment costs mount while there are no sales in this stage. 2. Introduction is a period of slow sales growth as the product is introduced in the market- place. There are normally no profits in this stage since there are heavy expenses for product introduction and marketing. 3. Growth is a period of rapid market acceptance and increasing profits. 4. Maturity is a phase of slowdown in sales growth - the product has now achieved accept- ance by most potential buyers. Profits level off or decline. 5. Decline is the last stage when sales fall off and profits drop. Not all products follow all five stages of the pLc- some stay in the mature stage for a long time while others are introduced and die quickly. Products may even enter the decline stage and then be cycled back into the growth stage through strong promotion or reposi- tioning. The PLC concept can describe a product class (automobiles running on fossil fuel), a product form (small Sports Utility Vehicle) or a brand (Mini Countryman, Nissan Qashqai or BMw x1). The PLC applies differently in each case. Product classes have the longest life cycles while product forms and, accordingly, brands representing a product form, have shorter life cycles,. The PLC concept can be applied to styles, fashions, and fads (Figure 10.3). A style is a basic and distinctive mode of expression that appears in homes (ranch-style, minimalism), clothing (formal, casual, hipster), and art (surrealistic, abstract, impressionistic). Styles may last for generations, passing in and out of vogue. Many styles show several periods of renewed interest, which is obvious in our age of great interest for nostalgia. A fashion is currently accepted or popular style in a given field. 'Business casual' is a typical fashion, and fashions tend to grow slowly, remain popular for a limited period of time, and then decline slowly. Fads are temporary periods of high sales driven by immediate product and brand popularity and 'buzz marketing' when applicable. A fad may be part of an otherwise normal PLC or may comprise a product's entire life cycle. Product and service decisions Marketers make product and service decisions at three levels: individual product decisions, product line decisions and product mix decisions, We discuss each in turn. Individual product and service decisions Figure 10.4 shows the important decisions in the development and marketing of individual products and services. We will focus on decisions about product and service attributes, pack aging, labelling and product support services. Product and service attributes Developing a product or service involves defining the benefits that it will offer. These benefits are communicated and delivered by product attributes such as quality, features and style and design. PRODUCT QUALITY Product quality is one of the marketer's major positioning tools. Quality has a direct impact on product or service performance; thus, it is closely linked to customer value and satisfaction. In the narrowest sense, quality can be defined as 'freedom from defects'. But most customer-centred companies go beyond this narrow definition. Instead, they define quality as the characteristics of a product or service that bear on its ability to satisfy stated or implied customer needs. Similarly, Siemens defines quality this way: Quality is when our customers come back and our products don't.' Product quality has two dimensions level and consistency. In developing a product, the marketer must first choose a quality level that will support the product's positioning. Here, product quality means performance quality – the ability of a product to perform its functions. For example, a Mercedes-Benz provides higher performance quality than a Dacia car: it has a smoother ride, provides more comfort, and lasts longer. Companies rarely try to offer the highest possible performance quality level - relatively few customers want or can afford the high levels of quality offered in products such as a Lexus car, a Ritz-Carlton hotel, a Poggen- pohl kitchen or a Tag Heuer watch. Instead, companies choose a quality level that matches target market needs and the quality levels of competing products. Beyond quality level, high quality can also mean high levels of quality consistency. Here, product quality means conformance quality – freedom from defects and consistency in delivering a targeted level of performance. All companies should strive for high levels of conformance quality. In this sense, a Dacia can have just as much quality as a Mercedes Benz. Although a Dacia doesn't perform at the same level as a Mercedes- Benz, 2 can deliver as consistently the quality that customers pay for and expect. PRODUCT FEATURES A product can be offered with varying features. A stripped- down model, one without any extras. is the starting point. The company can create higher-level models by adding more features. Features are a competitive tool for differentiating the company's product from competitors' products. Being the first producer t to introduce a valued new feature is one of the most effective ways to compete, e.g. a mobile phone camera or a hotel with all organic breakfast. How can company identify new features and decide which ones to add to its product? The company should periodically survey buyers who have used the product and ask the following questions. How do you like the product? Which specific features of the product do you like most? Which features could we add to improve the product? The answers provide the company with a wide list of feature ideas. The company can then assess each feature's value to customers versus its cost to the company. Features that customers value highly in relation to costs should be added. PRODUCT STYLE AND DESIGN Another way to add customer value is through distinctive product style and design. Design is a larger concept than style. Style simply describes the appearance of a product. Styles can be eye-catching or boring, or anywhere in between. A sensational style may grab attention and produce pleasing aesthetics, but it does not necessarily make the product perform better. Unlike style, design goes to the very heart of a product. Good design contributes to a product's usefulness as well as to its looks. Design begins with a deep understanding of customer needs. Product designers should think less about product attributes and technical specifications and more about how customers will use and benefit from the product. PACKAGING Packaging involves designing and producing the container or wrapper for a product. Traditionally, the primary function of the package was to hold and protect the product. But more recently, numerous factors have made packaging an important marketing tool as well. Increased competition and clutter on retail shelves mean that packages must now perform many sales tasks - from attracting attention, to describing the product, to making the sale. Companies are realizing the power of good packaging to create immediate consumer recogni- tion of a brand. An average supermarket stocks 45,000 items; the average super-centre can carry as many as 150,000 items The typical shopper passes some 300 items per minute, and more than 70 per cent of all purchase decisions are made in stores. In this highly competitive environment, the package may be the seller's last and best chance to influence buyers. Thus, for many companies, the package itself has become an important promotional medium. Grocery store chains have enjoyed a big and increasing share of private-labelled goods, and also have the opportunity to fill the shelves with their own products, thus further increasing their market power. Poorly designed packages can cause headaches for consumers and lost sales for the company. In recent years, product safety has also become a major packaging concern. Innovative packaging can give a company an advantage over competitors and boost sales. Sometimes even seemingly small packaging improvements can make a big difference. For example, Heinz revolutionized the 170-year-old condiments industry by inverting the good old ketchup bottle, letting customers quickly squeeze out every last bit of ketchup. At the same time, it adopted a refrigerator-door-fit' shape that not only slots into shelves more easily, but also has a cap that is simpler for children to open. In the four months following the introduction of the package, sales jumped 12 per cent. What's more, the new package does double duty as a new promotional tool. Innovative packaging can give a company an advantage over competitors and boost sales. Distinctive packaging may even become an important part of a brand's identity. For example, an other wise plain brown carton imprinted with the familiar curved arrow from the Amazon. com logo – variously interpreted as 'a to z' or even a smiley face – leaves no doubt as to who shipped the package that is sitting on your doorstep. Labelling and logos Labels range from simple tags attached to products to complex graphics that are part of the package. They perform several functions. At the very least, the label identifies the product or brand and might also describe several things about the product - who made it, where it was made, when it was made, its contents, how it is to be used, and how to use it safely. Finally, the label might help to promote the brand, support its positioning and connect with customers. For many companies, labels have become an important element in broader marketing campaigns. Along with the positives, labelling also raises concerns. There has been a long history of legal concerns about packaging and labels. Numerous governmental laws have held that false, misleading Or deceptive labels or packages constitute unfair competition. Labels can mislead customers, fail to describe important ingredients, or fail to include required safety warnings. As a result, many nations regulate labelling. Product support services Customer service is another element of product strategy. A company's offer usually includes some support services, which can be a minor or a major part of the total offering. Later in the chapter, we will discuss services as products in themselves. Here, We discuss services that augment actual products. The first step is to survey customers periodically to assess the value of current services and to obtain ideas for new ones. For example, many manufacturers of sports items hold regular focus group interviews with owners, and carefully watch complaints that come into their home context. Through this approach, they will learn that buyers get very upset when repairs are not done correctly the first time. General Motors' research indicates that customers who experience good service are five times more likely to buy the same brand again than those who have had a bad service experience. A common expression in the automotive industry is: the salesman sells the first car, the repair shop sells the next one. Once the company has assessed the quality of various support services to customers, it can take steps to fix problems and add new services that will both delight customers and yield profits to the company. Product line decisions Product line – A group of products that are closely related because they function in a similar manner, are sold to the same customner groups, are marketed through the same types of outlets, or fall within given price ranges. Beyond decisions about individual products and services, product strategy also calls for building a product line: a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges. The major product line decision involves product line length - the number of items in the product line. The line is too short if the manager can increase profits by adding items; the line is too long if the manager can increase profts by dropping items. Managers need to analyse their product ines periodically to assess each product item's sales and profts and to under- stand how each item contributes to the line's overall performance. Here, clever calculations are crucial - if the calculation is not right, thee wrong decisions will be taken about which products to drop or add.5 Moreover, too many products add complexity a all the way from R&D to production, to the retail floor planning, and to stock-keeping. Product line length is influenced by company objectives and resources. For example, one objective might be to allow for upselling. Thus, BMW wants to move customers up from its 1-series models to 2-, 3-, 4, 5-, 6-, and series models. Another objective might be to allow Cross- -selling: Hewlett-Packard sells printers as well as cartridges Still another objective might be to protect against economic swings: Inditex runs several clothing- store chains, including Zara, Pull and Bear, Massimo Dutti, Bershka Stradivarius and Oysho, thus covering different price points. Important feedback for the development of the segmentation and brand positioning might be generated with CRM system. A company can expand its product line in two ways: by line filling or by line stretching. Product line filling involves adding more items within the present range of the line. There are several reasons for product line filling: reaching for extra profits, satisfying dealers, using excess capacity, being the leading full-line company, and plugging holes to keep out competitors. Even though cannibalization may be obvious, line filling may add market share and save companies under heavy competition from suffering in the marketplace. Product line stretching occurs when a company lengthens its product line beyond its current range. The company can stretch its line downwards, upwards or both ways. Companies located at the upper end of the market can stretch their 1ines downwards to plug a market hole that would otherwise attract a new competitor to respond to e competitor's attack on the upper end. Armani did this by introducing Armani Exchange, clothing available at a reason able price, thus making use of the brand name and increasing the total marginal contribution from its product range. Companies can also stretch their product lines upwards. Sometimes, companies stretch upwards in order to add prestige to their current products. Or they may be attracted by a faster growth rate or higher margins at the higher end, Companies in the middle range of the market may decide to stretch their lines in both direc- tions. Marriott did this with its hotel product line. Along with regular Marriott hotels, it added eight new branded hotel lines to serve both the upper and lower ends of the market. Renais- sance Hotels & Resorts aims to attract and please top executives; Fairfield Inn by Marriott, vacationers and business travellers on a tight travel budget; and Courtyard by Marriott, salespeople and other 'road warriors'.6 One risk with this strategy is that some travellers will trade down after finding that the lower-price hotels in the Marriott chain give them pretty much everything they want. However, Marriott would rather capture its customers who move downwards than lose them to competitors. Another risk is that Swedish consumers won't get the full Marriott experience, or a mixed experience, as there are only two Marriott hotels in Sweden: an exclusive Renaissance hotel in Malmö, and a less exclusive Courtyard in Stock- holm. When travelling abroad, customers may not book Marriott because they believe the hotels are over-priced - hey have the reduced Marriott Courtyard experience in mind when making their booking. Product mix decisions Product mix (product portfolio) – The set of all product lines and items that a particular seller offers for sale. An organization with several product lines has a product mix. A product mix (or product portfolio) consists of all the productlines and items that a particular seller offers for sale. These product mix dimensions provide the handles for defining the company's product strategy. Many companies manage very complex product portfolios, e.g. Sony: Sony Elec- tronics, Sony Phones, Sony Computer Entertainment (games), Sony Pictures Entertainment (films, ry shows, music, DVDs), and Sony Financial Services (life insurance, banking and other offerings). And each major Sony business consists of several product lines. Product mix depth refers to the number of versions offered of each product in the line. Sony has a very deep product mix. The consistency of the product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other way. ÖoB and Rusta, for example, have a low product mix consist- ency: the product mix offered is to a large extent based on what is available on the spot market at a low price, while premium brands in general have a high degree of product mix consistency. New product development strategy New product development — The development of original products, product improvements, product modifications, and new brands through the firm's own product development efforts. A firm can obtain new products in two ways. One is through acquisition - by buying a whole company, a patent, or a licence to produce someone else's product. The other is through the firm's own new product development efforts. By new products we mean original products, product improvements, product modifications, and new brands that the firm develops through its own product development. In this chapter, we concentrate on new product development. New-products are important to both customers and the marketers who serve them: They bring new solutions and variety to customers lives, and they are a key source of growth for companies. In today's fast-changing environment, many companies rely on new products for the majority of their growth. Yet product innovation can be very expensive and very risky. New products face tough odds. For example, by one estimate, 60 per cent of all new consumer packaged products introduced by established companies fail; two-thirds of new product concepts are never even launched,7 Why do SO many new products fail? There are several reasons. Although an idea may be good, the company may overestimate market size. The actual product may be poorly designed. Or it might be incorrectly positioned, launched at the wrong time, priced too high, or poorly marketed. Sometimes the costs of product development are higher than expected, and some. times competitors fight back harder than expected. So, companies face a problem: they must develop new products, but the odds weigh heavily against success. To create successful new products, a company must understand its consumers,. markets, and competitors and develop products that deliver superior value to customers. The new product development process Rather than leaving new products to chance, a company must carry out strong new product planning and set up a systematic, customer-driven new product development process for finding and growing new products. Figure 10.5 shows the eight major steps in this process. Idea generation Idea generation – The systematic search for new product ideas. New product development starts with idea generation – the systematic search for new product ideas. A company typically generates hundreds – even thousands of ideas to find – a few good ones. Major sources of new product ideas include internal sources and external sources such as customers, competitors, distributors and suppliers, and others. Using internal sources, the company can find new ideas through formal R&D. Beyond its internal R&D process, a company can pick the brains of its own people from executives to salespeople to scientists, engineers, and manufacturing staff. Many companies have developed successful internal social networks and intrapreneurial programmes that encourage employees to develop new productideas. LinkedIn holds 'hackdays', one Friday each month when it encourages employees to work on whatever they want that they think will benefit the company. Marketers have a crucial role in idea generation. They have training, skills and experiences that are very useful when it comes to judging on whether particular idea which may come from engineers, customers or a idea screening lab would make sense in the marketplace. Marketers don't have all the answers, and they may not fully understand the potential of what engineers come up with – tensions between professions always exist in dynamic organizations - but marketers definitely have a unique capability when it comes to knowing what is likely to work in the marketplace. Companies can also obtain good new product ideas from any of a number of external sources. For example, marketing channels and suppliers can contribute ideas. Marketing channels are close to the market and can pass along information about consumer problems and new product possibilities. Suppliers can tell the company about new concepts, techniques, anc materials that can be used to develop new products. Competitors are another important source. Companies watch competitors' ads to get clues about their new products They buy competing new products, take them apart to see how they work, analyse their sales, and decide whether they should bring out a new product of their own. Other idea sources include trade magazines, shows, websites, and seminars; government agencies; advertising agencies; marketing research firms; university and commercial labora tories; and inventors. Perhaps the most important sources of new product ideas are customers themselves – and they are actually using the products, sometimes on a daily basis. The company car analyse customer questions and complaints to find new products that better solve consumer problems. Or it can invite customers to share suggestions and ideas. For example, The LEGO Group systematically taps users for new product ideas and input via the LEGo Ideas website. More broadly, many companies are now developing crowdsourcing or open-innovation new product idea programmes. Through crowdsourcing, a company invites broad communities of people - customers, employees, independent scientists and researchers, and even the public at large - into the innovation process. Tapping into a breadth of sources - both inside and outside the company can produce unexpected and powerful new ideas. Organizations large and small, across all industries, are crowdsourcing product innovation ideas rather than relying only on their own R&D labs. Smart companies know that no matter how many top- notch developers it has inside, sometimes the only way to produce good outside-the-box ideas is by going outside the company. Crowdsourcing can produce a flood of innovative ideas.Ir fact, opening the floodgates to anyone and everyone can overwhelm the company with idea - some good and some bad. Idea screening The purpose of idea generation is to create a large number of ideas. The purpose of the succeeding stages is to reduce that number. The first idea-reducing stage is idea screening, which helps spot good ideas and drop poor ones as soon as possible. Product development costs rise greatly in later stages, so the company wants to go ahead only with those product ideas that will turn into profitable products. Many companies require their executives to write up new product ideas in a standard format that can be reviewed by a new product committee. The write-up describes the product or the service, the proposed customer value proposition, the target market, and the competition. It makes some rough estimates of market size, product price, development time and costs, manufacturing costs, and rate of return. The committee then evaluates the idea against a set of general criteria. Concept development and testing An attractive idea must be developed into a product concept. It is important to distinguish between a product idea, a product concept, and a product image A product idea is an idea for possible product that the company can see itself offering to the market. A product concept is a detailed version of the idea stated in meaningful consumer terms. A product image is the way consumers perceive an actual or potential product. Suppose a car manufacturer has developed a practical battery-powered, all-electric car. Looking ahead, the marketer's task is to develop this new product into alternative product Concepts, find out how attractive each concept is to customers, and choose the best one Concept testing calls for testing new product concepts with groups of target consumers. The concepts may be presented to consumers symbolically Or physically. Many firms routinely test new product concepts with consumers before attempting to turn them into actual new products. For s some concept tests, a word or picture description might be sufficient. However, a more concrete and physical presentation of the concept will increase the reliability oft the concept test. After being exposed to the concept, consumers may then be asked to react to it by answering various questions such as whether they understand the meaning and benefts of the new product, and how much they would be willing to pay for it. Marketing strategy development The next step is marketing strategy development, designing an initial marketing strategy for introducing the product to the market. Testing new product concepts with a group of target consumers to find out if the concepts have a strong consumer appeal. The marketing strategy statement consists of three parts. The frst part describes the target market; the planned value proposition; and the sales, market-share, and profit goals for the first few years. Thus: The target market may be younger, well-educated, moderate- to high- income individuals, couples, or small families seeking practical, environmentally responsible solutions. The second part of the marketing strategy statement outlines the product's planned price, distribution and marketing budget for the first year. The third part describes the planned long-run sales, profit goals, and marketing mix strategy. Business analysis Once management has decided on its product concept and marketing strategy, it can evaluate the business attractiveness of the proposal. Business analysis involves a review of the sales, costs, and profit projections for a new product to find out whether they satisfy the company's objectives. If they do, the product can move to the product development stage. To estimate sales, the company might look at the sales history of similar products and conduct market surveys. It can then estimate minimum and maximum sales to assess the range of risk. After preparing the sales forecast, management can estimate the expected costs and profits for the product, including marketing, R&D, operations, accounting, and finance costs. The company then uses the sales and cost figures to analyse the new product's financial attractiveness. Product development Product development – Developing the product concept into a physical product to ensure that the product idea can be turned into a workable market offering. For many new product concepts, a product may exist only as a description in words,a drawing, or perhaps a crude mock-up. If the product concept passes the business test, moves into product development. Here, R&D or engineering develops the product concept into a physical product. The product development step, however, now calls for huge jump in investment. It will show whether the product idea can be turned into a workable product The R&D department will develop and test one or more physical versions of the product concept. R&D hopes to design a prototype that will satisfy and excite consumers and that can be produced quickly and at budgeted costs. Developing successful prototype can take days, weeks, months, or even years depending on the product and prototype methods. Often, products undergo rigorous tests to make sure that they perform safely and effectively or that consumers will find value in them. Companies can do their own product testing or outsource testing to other firms that specialize in testing. Marketers often involve actual customers in product development and testing. Software, app, and game developers use beta-testing with potential customers to test products pre-release but often struggle to find testers. Through crowdsourced beta-testing, developers get bug reports and feedback while testers earn rewards for usable bug reports and become the first to try the latest offerings. A new product must have the required functional features and also convey the intended psychological characteristics. An electric car, for example, should strike consumers as being well built, comfortable, and safe. Management must learn what makes consumers decide that a car is well built. To some consumers, this means that the car has 'solid-sounding' doors. To others, it means that the car is able to withstand a heavy impact in crash tests. Consumer tests are conducted in which consumers test-drive the car and rate its attributes. Test marketing Test marketing – The stage of new product develop- ment in which the product and its proposed marketing program are tested in realistic market settings. If the product passes both the concept test and the product test, the next step is test marketing, the stage at which the product and its proposed marketing programme are tested in realistic market settings Test marketing gives the marketer experience with marketing a product before going to the great expense of full introduction. It lets the company test the product and its entire marketing programme targeting and positioning strategy, advertising, distribution, pricing, branding and packaging, and budget levels. The amount of test marketing needed varies with each new product. When introducing a new product requires a big investment,when the risks are high, or when management is not sure of the product or its marketing programme, a company may do a lot of test marketing. Costs of test marketing can be high, and testing takes time that may allow market opportunities to slip by or competitors to gain advantages. A company may do little or no test marketing when the costs of developing and introducing a new product are low or when management is already confident about the new product, For example, companies often do not test-market simple line extensions or copies of competitors' successful products. Companies may also shorten or skip testing in the face of fast-changing market developments. As an alternative to extensive and costly standard test markets, companies can use controlled test markets or simulated test markets. In controlled test markets, new products and tactics are tested among controlled panels of shoppers and stores. By combining infor- mation on each test consumer's purchases with consumer demographic and media viewing information, the company assesses the impact of in-store and in-home marketing efforts. Using simulated test markets, researchers measure consumer responses to new products and marketing tactics in laboratory stores or simulated online shopping environments. Both controlled test markets and simulated test markets reduce the costs of test marketing and speed up the process. Commercialization Commercialization – Introducing a new product into the market. Test marketing gives management the information needed to make a final decision about whether to launch the new product, If the company goes ahead with commercialization introducing the new producti into the market it will face high costs. For example, the company may need to build or rent a manufacturing facility. And, in the case of a major new consumer product, it may spend hundreds of millions of dollars for advertising, sales promotion, and other marketing efforts in the first year. For instance, in a single month surrounding the introduction of the Apple Watch, Apple spent $38 million on a rv adver tising campaign alone for the new product - and consider that Apple normally avoids high spending on advertising. A company launching anew product must first decide on introduction timing. If the new product will eat into the sales of other company products, the introduction may be delayed. If the product can be improved further or if the economy is down, the company may wait until the following year to launch it. However, if competitors are ready to introduce their own competing products, the company may push to introduce its new product sooner. Next, the company must decide where to launch the new product - in a single location, a region, the national market, or the international market. Some companies may quickly intro- duce new models into the full national market. Companies with international distribution systems may introduce new products through swift global rollouts. Managing new product development The new product development process shown in Figure 10.5 highlig hts the important activi- ties needed to find, develop, and introduce new products. However, new product development involves more than just going through a set of steps. Companies must take a holistic approach to managing this process. Successful new product development requires a customer-cantered, team-based, and systematic effort. Customer-centered new product development Customer-centered new product development – New product development that focuses on finding new ways to solve customer problems and create more customer satisfying experiences. When looking for and developing new products, companies often rely too heavily on tech- nical research in their R&D laboratories. But like everything else in marketing, successful new product development begins with a thorough understanding of what consumers need and value. Customer-centered new product development focuses on finding new ways to solve customer problems and create more customer-satisfying experiences. One study found that the most successful new products are ones that are differentiated, solve major customer problems, and offer a compelling customer value proposition.s Companies sometimes shorten or skip test marketing to take advantage of fast-changing market developments. Another study showed that companies that directly engage their customers in the new product innovation process had twice the return on assets and triple the growth in operating income of firms that did not. Thus, customer involvement has a positive effect on the new product development process and product success. 'Choosing what kind of value your innova- tion will create and then sticking to that is critical’, says one expert. Today's innovative companies get out of the research lab and connect with customers in search of fresh Ways to meet customer needs. Customer-cantered new product development begins and ends with understanding customers and involving them in the process. Team-based new product development Team-based new product development – New product development in which various company departments work closely together, overlapping the steps in the product develop- ment process to save time and increase effectiveness. Good new product development also requires a total-company, cross-functional effort. Some companies organize their new product development process into the orderly sequence of steps shown in Figure 10.5, starting with idea generation and ending with commercialization, Under this sequential product development approach, one company department works indi- vidually to complete its stage of the process before passing the new product along to the next department and stage. This orderly, step-by-step process can help bring control to complex and risky projects. But it can also be dangerously slow. In fast-changing, highly competitive markets, such slow-but-sure product development can result in product failures, 1lost sales and profits, and crumbling market positions. To get their new products to market more quickly, many companies use a team-based new product development approach. Under this approach, company departments work closely together in cross-functional teams, overlapping the steps in the product development process to save time and increase effectiveness. Instead of passing the new product from department to department, the company assembles a team of people from various departments that stays with the new product from start to finish. Such teams usually include people from the marketing, finance, design, manufacturing, and legal departments and even supplier and customer compa- nies. In the sequential process, a bottleneck at one phase can seriously slow down an entire project. In the team-based approach, however, if one area hits snags, it works to resolve them while the team moves on. The team-based approach does have some limitations, however. For example, it sometimes creates more organizational tension and confusion than the more orderly sequential approach. However, in rapidly changing industries facing increasingly shorter product life cycles, the rewards of fast and flexible product development far exceed the risks. Companies that combine a customer-cantered approach with team-based new product develop- ment gain a big competitive edge by getting the right new products to market faster. Systematic new product development Finally, the new product development process should be holistic and systematic rather than compartmentalized and haphazard. Otherwise, few new ideas will surface, and many good ideas will sputter and die. To avoid these problems, a company can install an innovation management system to collect, review, evaluate, and manage new product ideas,. The company can appoint a respected senior person to be its innovation manager. It can set up web-based idea management software and encourage all company stakeholders employees, suppliers, distributors, and dealers - to become involved in finding and devel- oping new products. It can assign a cross-functional innovation management committee to evaluate proposed new product ideas and help bring good ideas to market. It can also create recognition programmes to reward those who contribute the best ideas. The innovation management system approach yields two favourable outcomes. First, it helps create an innovation-oriented company culture, It shows that top management supports, encourages, and rewards innovation. Second, it will yield a larger number of new product ideas, among which will be found some especially good ones. The good new ideas will be more systematically developed, producing more new product successes. No longer will good ideas wither for the lack of a sounding board or a senior product advocate. In sum, new product success requires more than simply thinking up a few good ideas, turning them into products, and finding customers for them. It requires a holistic approach for finding new ways to create valued customer experiences, from generating and screening new product ideas to creating and rolling out want-satisfying products to customers. More than this, successful new product development requires a whole-company commitment. Nestlé, for example, successfully carries out strong new product planning and sets up a systematic and customer-driven new product development process for finding and growing new market offerings in order to keep up with an ever-changing environment as well as to define and to drive new markets (see Real Marketing). Services marketing As noted at the beginning of the chapter, services are products too just intangible ones. So all of the product topics we`ve discussed so far apply to services as well as to physical products. However, in this final section, we'll focus in on the special characteristics and marketing needs that set services apart. Services have grown over time, and the service sector has accounted for 64 to 65 per cent of world GDp since 2009. In very general terms, countries with a high GDP service share are more developed and have a higher living standard. However, a strong manufacturing industry as in Germany (62 per cent) or Sweden (65 per cent) contributes to keeping the service share down. Service-intensive tourism contribute to high figures for Cuba (71 per cent), Spain (66 per cent) and France (7o per cent, Hong Kong (89 per cent) and Monaco (82 per cent) are very service- intensive, and manufacturing industries hardly exist. The Central African Republic (28 per cent) and the Democratic Republic of Congo (33 per cent) are examples of developing coun. tries with limited tourism and very low service shares." Service industries vary greatly. Governments offer services through courts, employment services, hospitals, military services, police and fire departments, postal service and schools, Private not-for-proft organizations offer services through museums, charities, churches, colleges foundations and hospitals. A large number of business organizations offer services airlines, banks, hotels, insurance companies, consulting and advisory firms, medical and legal practices, entertainment companies, real-estate firms, retailers and others. The nature and characteristics of a service A company must consider four special service characteristics when designing marketing programmes: intangibility, inseparability, variability and perishability (see Figure 10.6). Service intangibility – A major characteristic of services – they cannot be seen, tasted, felt, heard or smelled before they are bought. Service intangibility means that services cannot be seen, tasted, felt, heard or smelled before they are bought. For example, people undergoing cosmetic s surgery, seeing a thera- pist or taking piano lessons cannot see the result before the purchase. Airline passengers have nothing but a ticket and the promise that they and their luggage will arrive safely at the intended destination, hopefully at the same time. To reduce uncertainty, buyers look for indications and signals of service quality, e.g. by using web pages where other people's experiences are outlined. They draw conclusions about quality from the place, people, price, equipment and communications that they can see. Therefore, the service provider's t task is to make the service tangible in one or more ways and to send the right signals about quality. One analyst calls this evidence management, in which the service organization presents itS customers with organized, honest evidence of its capabilities. Service inseparability – A major characteristic of services – they are produced and consumed at the same time and cannot be separated from their providers. Physical goods are produced, then stored, later sold and still later consumed. In contrast, services are first sold, then produced and consumed at the same time. In services marketing, the service provider is the product. Service inseparability means that services cannot be separated from their providers, whether the providers are people or machines. If a service employee provides the service, then the employee becomes a part of the service. Because the customer is also present as the service is produced, provider- customer interac- tion is a special feature of services marketing. Both the provider and the customer affect the service outcome. Service variability – major characteristic of services – their quality may vary greatly, depending on who provides them and when, where and how. Service variability means that the quality of services depends on who provides them as well as when, where and how they are provided. For example, some hotels Radisson say- have reputations for providing better service than others. Still, within a given Radisson hotel, one registration-counter employee may be cheerful and efficient, whereas another standing just a few feet away may be rather unpleasant and slow. Even the quality of a single Radisson employee's service varies according to his Or her energy and frame of mind at the time of each customer encounter. This is not the case with goods that go through a quality inspection before they leave the factory. Service perishability – A major characteristic of services – they cannot be stored for later sale or use. Service perishability means that services cannot be stored for later sale or use. Some doctors charge patients for missed appointments because the service value existed only at that point and disappeared when the patient did not show up. The perishability of services problem when demand is steady. However, when demand fluctuates, service firms is not often have difficult problems. For example, because of rush- hour demand, public transporta- tion companies have to own much more equipment than they would if demand were even throughout the day. Thus, service firms often design strategies for producing a better match between demand and supply. Hotels and resorts charge lower prices in the off season to attract more guests, and restaurants hire part-time employees to serve during peak periods. Marketing strategies for service firms Just like manufacturing businesses, good service firms use marketing to position themselves strongly in chosen target markets. Jaguar says The art of performance', At Radisson Blu, Our goal is 100% Guest Satisfaction, which is also our promise to you. If you are not satisfied and we cannot make it right, you don't have to pay!" These and other service firms establish their positions through traditional marketing mix activities. However, because services differ from tangible products. they often require additional marketing approaches. The service-profit chain In a service business, the customer and frontline service employee interact to create the service. Effective interaction, in turn, depends on the skills of frontline service employees and on the support processes - people and systems backing these employees. Thus, successful service companies focus their attention on both their customers and their employees. They understand the service-profit chain, which links service firm profits with employee and customer satisfaction. This chain consists of five links: Internal service quality: superior employee selection and training, a quality work environment and strong support for those dealing with customers, which results in… Satisfied and productive service employees: more satisfied, loyal, and hard-working employees, which results in… Greater service value: more effective and efficient customer value creation and service delivery, which results in… Satisfied and loyal customers: satisfied customers who remain loyal, repeat purchase and refer other customers, which results in… Healthy service profits and growth: superior service firm performance. Therefore, reaching service profits and growth goals begins with taking care of those who take care of customers. The legendary cEo of Scandinavian Airlines, Jan Carlzon, revolu- tionized the airline industry's view of customer orientation and services, and made services marketing a key issue for many managers, with his focus on the staff that meet customers. Back in the 198os he emphasized the importance of these employees by turning the hierarchy upside down, thus putting flight stewardesses, salespeople and airport personnel at the top, almost as if middle managers are the support personnel. Internal marketing – Orienting and motivating customer-contact employees and supporting service people to work as a team to provide customer satisfaction. Thus, service marketing requires more than just traditional external marketing using the four Ps. Figure 10.7 shows that service marketing also requires internal marketing and interac- tive marketing. Internal marketing means that the service firm must orient and motivate its customer- contact employees and supporting service people to work as team to provide customer satisfaction. Internal marketing must precede external marketing. This idea is closely related to employer branding: putting a marketing perspective on how the organization presents itself for (existing and) potential employees. Interactive marketing means that service quality depends heavily on the quality of the buyer- seller interaction during the service encounter, In product marketing, product quality often depends little on how the product is obtained. But in services marketing, service quality depends on both the service deliverer and the quality of the delivery. Service marketers, therefore, have to master interactive marketing skills. Managing service differentiation Service companies face three major marketing tasks: they want to increase their service dlifen entiation, service quality and service productivity, In these days of intense price competition service marketers often complain about the difficulty of differentiating their services from hose of competitors. To the extent that customers view the services of different providers as similar, they care less about the provider than about the price. The solution to price competi- ion is to develop a differentiated offer, elivery and image. The offer can include innovative features that set one company's offer apart from its competi- tors' offers. Some hotels offer a unique service offer that covers all types of customer expecta ions and even - although hotel customers are very demanding these days! - go beyond wha customers expect. The five-star Sofitel St James hotel in London is known for its outstanding service offer, which covers everything from business centre services to a thorough under standing of customers' needs and desires when it comes to booking a restaurant, a family trip Or a visit to a London museum. Airlines differentiate their offers through frequent-flyer award programmes and special services. For example, British Airways offers spa services at ts Arrivals Lounge at Heathrow Airport and softer in-flight beds, plumper pillows and cosien blankets. Says one advert: Our simple goal is to deliver the best service you could ask for, without you having to ask. Service companies can differentiate their service delivery by having more able and reliable customer-contact people, by developing a superior physical environment in which the service product is delivered, or by designing a superior delivery process. For example, many grocery chains now offer online shopping and home delivery as a better way to shop than having to drive, park, wait in line and tote groceries home. Managing service quality I service firm can di fferentiate itself by delivering consistently higher quality than its competitors provide, Unfortunately, service quality is harder to define and judge than produc quality. For instance, it is harder to agree on the quality of a haircur than on the quality of a nair dryer. Customer retention is perhaps the best measure of quality - a service firm's ability to hang on to its customers depends on how consistently it delivers value to them. Unlike product manufacturers who can adjust their machinery and inputs until everything is perfect, service quality will always vary, depending on the interactions between employees and customers. As hard as they try, even the best companies will have an occasional late delivery, burned steak or grumpy employee. However, good service recovery can turn ang* customers into loyal ones. In fact, good recovery can win more customer purchasing anc loyalty than if things had gone well in the first place. Empowering frontline service employees is crucial - o give them the authority, responsibilit and incentives they need to recognize, care about and tend to customer needs. For example I&M gives its employees the autonomy they need to make decisions on returns -some thing common in fast-moving consumer goods industries in general, and with clothing ir particular. Zara, on the other hand, only gives this authority to the floor manager, meaning he customer has to wait. Long queues of people don't make a particularly good impression of other customers, although there are reasons to keep control of returns. Managing service productivity service firms are under great pressure to increase service productivity. They can do sc in several ways. They can train current employees better or hire new ones who will work harder or more skilfully. Or they can increase the quantity of their service by giving up some quality. The provider can industrialize the service' by adding equipment and standardizing production, as in McDonald's assembly line approach to fast-food retailing Finally, the service provider can harness the power of technology. Although we often think of technology's power to save time and costs in manufacturing companies, it also has great and often untapped- potential to make service workers more productive. Just think of some- body repairing lift, a dishwasher or a heating system having access to the company’s entire knowledge databank when at the customer's premises. However, companies must avoid pushing productivity to the detriment of quality. Attempts to industrialize service or to cut costs can make a service company more efficient in the short run But they can also reduce its longer- term ability to innovate, maintain service quality or respond to consumer needs and desires. Many airlines are learning this lesson the hard way as they attempt to streamline, and industrializing or standardizing service will reduce the positive side of variation: that customers get customized and personalized service. Service-dominant logic Services have long had a special place in marketing but a few key points might be empha- sized. In 1977, Lynn Shostack made a call to marketers to 'break free' from goods marketing.'5 More recently, in a 2004 article, Vargo and Lusch directly challenged the efficacy of the char- acteristic differentiators between services and goods (intangibility, heterogeneity, insepara bility and perishability).' The background for the emerging service-dominant logic maybe described as follows. Marketing inherited a model of exchange from economics, which had a dominant logic based on the exchange of goods, which usually are manufactured output. The dominant logic focused on transactions and tangible resources. In recent decades, new perspectives have emerged that have a revised logic focused on intangible resources, the co-creation of value and relationships. The new perspectives are converging to form a new dominant logic for marketing, characterized by service provisions rather than goods as fundamental to economic exchange. As stated by Evert Gummesson: 'Customers do not buy goods or services: they buy offerings which render services which create value…’ The traditional division between goods and services is long outdated. It is not a matter of redefining services and seeing them from customer perspective; activities render services, things render services. The shift in focus to services is a shift from the means and the producer perspective to the utilization and the customer perspective.' With a service dominant logic perspective, the product is the provider of the service to the customer. A mobile phone provides the service of connecting the user to the world around, and the service of the symbolic meaning the phone might render its user. The mobile phone is not viewed as being a product, but instead as the appliance to which the user co-creates value with the provider of the services when calling, surfing the web, and so on. Service-dominant logic – A perspective in which the productis the provider of the service to the customer. Summary A product is more than a simple set of tangible features. Each product or service offered to customers can be viewed on three levels. The core customer value consists of the core problem-solving benefits that consumers seek when they buy a product. The actual product exists around the core and includes the quality level, features, design, brand name and packaging. The augmented product is the actual product plus the various services and benefits offered with it, such as a warranty, free delivery, installation and maintenance. Broadly defined, a product is anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. Prod- ucts include physical objects but also services, events, persons, places, organizations/employers, ideas or mixes of these entities. Services are products that consist of activities, benefits or satisfactions offered for sale that are essentially intangible, such as banking, hotel, tax preparation and home-repair services. Products and services fall into two broad classes based on the types of consumers that use them: consumer products -those bought by final consumers-and industrial products- purchased for further processing o for use in conducting a business. Other marketable entities -such as organizations, people, places and ideas-can also be thought of as products. Individual product decisions involve product attrib utes, packaging and labelling. Product attribute deci- sions involve product quality, features, and style and design. Packaging provides many key benefits, such as protection, economy, convenience and promotion. Package decisions often include desig ning labels, which identify, describe and possibly promote the product in accordance with the company's brand image. Most companies produce a product line rather than a single product. A product line is a group of products that are related in function, customer-purchase needs or distribution channels. Line stretching involves extending a line downwards, upwards or in both directions to occupy a gap that might otherwise be filled by a compet- itor. By contrast, line filling involves adding iters within the present range of the line. All product lines and items offered to customers by a particular seller make up the product mix. The mix can be described in terms of four dimensions: width, length, depth and consist- ency. These dimensions are the tools for developing the company S product strategy. New products could be obtained through acquisition or new product develop ment efforts, the latter through a systematic, customer- driven new product development process. Services are characterized by four key characteristics: they are intangible, inseparable, variable and perish- able. Each characteristic poses problems and marketing requirements. Marketers work to find ways to make the service more tangible, to increase the productivity of providers who are inseparable from their products, to standardize the quality in the face of variability, and tO improve demand movements and supply capacities in the face of service perishability. Good service companies focus attention on both customers and employees. They understand the service- profit chain, which links service company profits with employee and customer satisfaction. Services marketing strategy calls not only for external marketing but also for internal marketing to motivate employees and interactive marketing to create service delivery skills among service providers. To succeed, service marketers must create competitive differentiation, offer high service quality and find ways to increase service productivity. The transition from goods to services as the major focus of the marketing offer has been going on for several decades now, and in the last decade, the idea of service- dominant logic has ernerged, meaning that services are now the dominating perspective in marketing, and goods are just a vehicle to bring the service to the customer. However, with the perspective taken in this book, the concept of products covers not only goods and services in all existing mixes, but also places, people, organizations, employers and ideas, and focuses on adding customer value by understanding their needs and preferences. KEY TERMS Commercialization Consumer-centered new product development Consumer product Convenience product Idea generation Industrial product Internal marketing New product development Place branding Product Product development Product line Product mix (product portfolio) Service Service inseparability Service intangibility Service perishability Service variability Service-dominant logic Shopping product Social marketing Speciality product Team-based new product development Test marketing Unsought product