Chapter 11 Product Management PDF

PRODUCT: A physical good, a service or some combination of the two. Product Features – Tangible and intangible qualities that a company builds into its product. Value Package – A product is marketed as a bundle of value-adding attributes, including a reasonable cost. CLASSIF...

PRODUCT: A physical good, a service or some combination of the two. Product Features – Tangible and intangible qualities that a company builds into its product. Value Package – A product is marketed as a bundle of value-adding attributes, including a reasonable cost. CLASSIFYING GOODS AND SERVICES: Consumer – Person who purchases products for personal use. Industrial Buyer – A company or other organization that buys products for use in producing other products (goods or services). BUYERS OF CONSUMER PRODUCT: Convenience Goods and Services o Consumed rapidly and regularly. o Inexpensive o Purchased often and with little input of time and effort. ▪ Milk, Newspaper, Fast food. Shopping Goods and Services o Purchased less often. o More expensive o Consumers may shop around and compare products based on style, performance, colour, price, and other criteria. ▪ Television set, Tyres, Hotel reservation. Specialty Goods and Services o Purchased infrequently. o Expensive. o Consumer decides on a precise product and will not accept substitutions and spends a good deal of time choosing the ‘perfect’ item. ▪ Luxury jewelry, Wedding gown, Healthcare insurance. BUYERS OF ORGANIZATIONAL PRODUCT: Production Items o Goods or services used directly in the production process. ▪ Loads of tea processed into tea bags. ▪ Information processing for real-time production. ▪ Jet fuel used by airline services. Expense Items o Goods or services that are consumed within a year by firms producing other goods or supplying other services. ▪ Oil and electricity for machines. ▪ Building Maintenance. ▪ Legal Services. Capital Items o Permanent (expensive and long-lasting) goods and services. o Life expectancy of more than a year. o Purchased infrequently so transactions often involve decisions by high-level managers. ▪ Buildings (offices, factories). ▪ Fixed equipment (water towers, baking ovens). ▪ Accessory equipment (information systems, airplanes). ▪ Financial advisory services. PRODUCT MIX: The group of products that a firm makes available for sale. E*TRADE – Offers online financial investing and trading services, retirement planning, and educational resources. Nestle o Drinks – Milo, Nescafe o Chocolate & Confectionary – KitKat o Ice-cream – Haagen-Dazs, Drumstick o Chill – Yogurt, Maggie PRODUCT LINE: The group of products that are closely related because they function in a similar manner or are sold to the same customer group who will use them in similar ways. Nescafe – Rich, Regular, Mild Coca-Cola – Original, Creations, Zero Sugar, Flavors, Local Taste PRODUCT DEVELOPMENT: Speed to Market – Strategy of introducing new products to respond quickly to customer. Seven-Step Development Process o Product Ideas – Typically come from consumers, the sales force, R&D departments, suppliers, or engineering personnel. o Screening – Eliminate ideas that do not mesh with the firm’s abilities or objectives. o Concept Testing – Companies use market research to get consumers’ input about benefits and prices. o Business Analysis – Marketers compare production costs and benefits. o Prototype Development – Engineering, R&D, or design groups produce a prototype. o Product Testing and Test Marketing – Test the product to see if it meets performance requirements, sell on trial basis in limited area. o Commercialisation - The company begins full-scale production and marketing. PRODUCT LIFE CYCLE (PLC): Series of stages in a product’s commercial life. Introduction o Begins when the product reaches the marketplace. o Extensive promotional and development costs erase all profits. Growth o If the new product attracts enough consumers, sales start to climb rapidly. o The product starts to show a profit. Maturity o Sales growth starts to slow, towards the end, sales start to fail. o Profit levels are high. Decline o Sales and profit continue to fail, as new products in the introduction stage take away sales. EXTENDING PRODUCT LIFE: Product Extension – Marketing an existing product globally instead of just domestically. o Coca-Cola, Kentucky Fried Chicken, Levi’s Jeans. Product Adaptation – Modifying an existing product for greater appeal in different countries. o Involves product changes, this approach is usually more costly than product extensions. o In Germany, a McDonald’s meal includes beer, o In Japan, Ford puts the steering wheel on the right side for sales. Reintroduction - Reviving obsolete or older products for new markets. o NCR reintroduced manually operated cash registers in Latin America. PRICING: Process of determining what a company will receive in exchange for its products. Pricing Objectives – The goals that seller hope to achieve in pricing products for sale. o Profit-Maximising Objectives - The seller’s pricing decision is critical for determining the firm’s revenue, which is the result of the selling price times the number of units sold. o Market Share (Market Penetration) – Company’s percentage of the total industry sales for a specific product type. ▪ Accept minimal profits, even losses, to get buyers to try products. PRICE SETTING TOOLS: Cost-Oriented Pricing – Pricing that considers the firm’s desire to make a profit and its need to cover production costs. Markup – Amount added to an item’s purchase cost to sell it at a profit. BREAKEVEN ANALYSIS: COST-VOLUME-PROFIT RELATIONSHIPS For a particular selling price, assessment of the seller’s total costs versus total revenues at various sales volume. Variable Cost – Cost that is changes with the quantity of a product produced and sold. o Raw materials, Sales commissions, Shipping. Fixed Cost – Cost that is incurred regardless of the quantity of a product produced and sold. o Rental fee, Insurance, Utilities. Breakeven Point – Sales volume at which the seller’s total revenue from sales equals total costs (variable and fixed) with neither profit nor loss. PRICING STRATEGIES: Pricing Existing Products o Pricing above prevailing market prices for similar products to take advantage of the common assumption that higher price means higher quality. o Pricing below market prices while offering a product of comparable quality to higher- priced competitors. o Pricing at or near market prices. Pricing New Products o Price Skimming – Setting an initially high price to cover new product costs and generate a profit. o Penetration Pricing – Setting an initially low price to establish a new product in the market. PRICING TACTICS: Bundling Strategy o Grouping several products together to be sold as a single unit at a reduced price, rather than individually. Price Lining o Setting a limited number of prices for certain categories of products. Psychological Pricing o Take advantage of the fact that consumers do not always respond rationally to stated prices. o Odd-Even Pricing – Based on the premise that customers prefer prices not stated in even dollar amounts. o Discount – Price reductions offered as an incentive to purchase. DISTRIBUTION MIX: Combination of distribution channels by which a firm gets its products to end users. INTERMEDIARIES AND DISTRIBUTION CHANNELS: Intermediary – Individual or firm that helps to distribute a product. Wholesaler – Intermediary who sells products to other businesses for resale to final consumers. Retailer – Intermediary who sells products directly to consumers. Distribution Channel - Network of interdependent companies through which a product passes from producer to end user. VALUE-ADDING INTERMEDIARY: Intermediaries provide time-saving information and making right quantities of products available where and when consumers need them. Goods can be shipped to one place, and consumers can shop in one place. NONSTORE RETAILING: Direct-Response Retailing – Firms directly interact with customers to inform them of products and to receive sales orders. Mail Order (Catalogue Marketing) – Customers place orders for catalog merchandise received through the mail. Telemarketing – Telephone is used to sell directly to consumers. Direct Selling – Door-to-door sales. ONLINE RETAILING: Nonstore retailing in which information about the seller’s products and services is connected to consumers’ computers, allowing consumers to receive the information and purchase the products at home. E-catalogue – Internet is used to display products. o The seller avoids mail distribution and printing costs, and once an online catalog is in place, there is little cost in maintaining and accessing it. Electronic Storefront – Commercial website at which customers gather information about products and buying opportunities, place orders, and pay for purchases. Cybermall – Collection of virtual storefronts (business websites) representing a variety of products and product lines on the Internet. o Offering speed, convenience, 24-hour access, and efficient searching. o Shoppers can navigate by choosing from a list of stores (L.L. Bean, Lids, or Macy’s), product listings (sporting goods, ladies’ fashions, or mobile devices), or departments (apparel or bath/beauty). PROMOTION: Techniques for communicating information about and selling a product. Part of communication mix, the total message any company sends to customers about its product. Positioning – Process of establishing an identifiable product image in the minds of consumers by fixing, adapting, and communicating the nature of the product itself. PROMOTIONAL MIX: Advertising – Paid, nonpersonal communication used by an identified sponsor to inform an audience about a product. o Advertising Media – Variety of communication devices for carrying a seller’s message to potential customers. o Media Mix – Combination of advertising media chosen to carry a message about a product. Personal Selling – A salesperson communicates one-on-one with potential customers to identify their needs and align them with the product. o Retail selling is selling a consumer product for the buyer’s personal or household use. o Industrial selling is selling products to other businesses, either for the purpose of manufacturing or for resale. o Order Processing – A salespeople receive orders and see to their handling and delivery. ▪ Route salespeople, who call on regular customers to check inventories, are often order processors. With the customer’s consent, they may decide on the sizes of reorders, fill them directly from their trucks, and even stock shelves. o Creative Selling – A salespeople try to persuade buyers to purchase products by providing information about their benefits. ▪ Crucial for industrial products and high-priced consumer products, such as cars, for which buyers’ comparison shop. o Missionary Selling – A salespeople promote their firms and products rather than try to close sales. ▪ Pharmaceutical companies often use this method to make doctors aware of the company and its products so they will recommend the company’s products to others, or so the doctor will prescribe the products to patients. Sales Promotion – Short-term promotional activity designed to encourage consumer buying, industrial sales, or cooperation from distributors. o Free Samples (Giveaways) – Let customers try products without risk. o Coupon – A certificate is issued entitling the buyer to a reduced price. ▪ Encourage customers to try new products, lure them away from competitors, or induce them to repurchase. o Premium – Offers of free or reduced-price items are used to stimulate purchases. o Point-of-Sale (POS) Display – Product displays are located in certain areas to stimulate purchase or to provide information on a product.  Publicity – Information about a company, a product, or an event is transmitted by the general mass media to attract public attention. o Although publicity is free, marketers have no control over the content media reporters and writers disseminate, and because it is presented in a news format, consumers often regard it as objective and credible. Public Relations – Company-influenced information directed at building goodwill with the public or dealing with unfavorable events.