BUSN 1200 - Chapter 12 PDF

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BUSN 1200 Chapter 12 Understanding Marketing Principles and Developing Products Marketing Marketing is planning and executing the development, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy both and needs and objectives. Marketing can be directed to...

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BUSN 1200 Chapter 12 - Understanding Marketing Principles and Developing Products Marketing  Marketing is planning and executing the development, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy both buyers’ and sellers’ needs and objectives.  Marketing can be directed to: o Products o Services o Ideas Choosing the Marketing Mix  Product  Price  Place  Promotion o These equal to customer satisfaction and business profitability.  The four elements of the marketing mix can be combined any number of ways. Different parts of the marketing mix are stressed depending on the nature of the product.  For example, price is not as important in selling luxury products as the product and its image are.  However, price may be a critical factor when selling commodities such as bread, milk or other grocery products. For some products, such as milk, there is little product differentiation, and the different brands of the product are easily substituted if prices differ.  Managers must decide which marketing mix element(s) need to be emphasized to meet the needs of the firm. The Product as a Value Package  Consumers purchase a product for its function and benefit to them … for what it does as much as what it is o Product features include both tangibles and intangibles like image and reputation § must provide desired benefits  Classifying Goods and Services – can be classified in terms of its expected buyers: consumers or industries. Consumer Products Classification  Convenience – Bought frequently & with little thought. For example, milk and bread.  Shopping – Purchased infrequently; typically of moderate cost o Consumers shop around for price, value and brand § Home furnishings  Specialty – Purchased rarely; typically expensive.

o Consumers take time to locate the exact item desired such as wedding gowns, automobiles. Industrial Products Classification  Expense Item – Materials that are consumed through the production process, or in the process of operating the business (supplies, such as cleansers and paper clips). o Goods consumed through the production process include those which become “ingredients,” and those which help the production process but do not become ingredients, such as additional equipment. The text refers to the latter group as “support materials.” These items are “expensed” as purchased by the firm.  Capital Items – Permanent fixtures that are used in the production process and have a much longer life that support materials. o For example, a baker’s oven is a capital item, while the trays used to load the bread pans in and out of the over would be support materials. Capital items typically represent a major financial investment and are depreciated over time for accounting purposes rather than expensed. Product Mix  Product mix – The group of products a company has for sale/ o Procter & Gamble sells household cleansers, disposable diapers, personal grooming & hygiene products etc.  Product line – A group of similar products intended for a similar group of buyers. o Procter and Gamble sells more than one brand of laundry detergent (e.g.: Tide, Gain, Ivory Snow and Cheer).  Multiple product lines make up the product mix. New Product Development  Needed to expand and survive.  Expensive, risky and longtime horizons.  Product mortality – Only 1 in 50 new product ideas reaches the market. o Only a few become successful  Speed to market – Introduce products quickly to respond to changes. o Introduce ahead of competitors to establish market leadership. o More rapid = more likely to survive. The 7-Step Development Process  Step #1: Product Ideas o Seek out ideas for new products o Sources: employees, consumers, sales people, engineers etc. Step #2: Screening  o Elimination of product ideas that do not fit with the firm’s resources o Includes staff from marketing, engineering, and production  Step #3: Concept Testing

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o Market research o Identify benefits and a pricing strategy Step #4: Business Analysis o Comparison of costs and benefits o Preliminary sales and cost projections o Can it meet minimum profitability goals? Step #5: Prototype Development o Preliminary version of the product; costly o Identifies potential production problems Step #6: Product and Market Testing o Limited production of the product for sale in a test market area with complete promotion and distribution. o Provides feedback on potential performance: costly. Step #7: Commercialization o Full-scale production and marketing o May be rolled out on a gradual basis to alleviate strain on the company’s production and finances

The Product Life Cycle Concept  Products have a limited profit-producing life cycle  Consists of four stages o Introduction § Competition is limited to the firm that has introduced the application § Costs are high due to R & D and promotion § Profits are non-existent due to expensive costs § Prices are high to offset costs of market entry § Promotion focuses on informing consumers and generating initial product demand o Growth § Sales grow rapidly § New competition enters § Aggressive promotion emphasizes brand preference § Prices lowered to meet competition § Profits peak and level off o Maturity § Industry sales level of § Market becomes more aggressive due to increased competition in the face of slow/no sales growth § Profits decline  Costs increase due to the need to promote aggressively while prices are simultaneously declining § In late maturity, some firms will leave the market o Decline

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§ Sales and profits decline § Product is becoming obsolete § Competition leaves market § Sales drop: the industry has run its course § Promotion is limited and tied to brand loyalty § Firms with larger market shares may let product linger until industry ceases to exist May be months, years, or decades $

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Sales

Profits 0 Introduction

Growth

Maturity

Decline

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This curve is an industry curve, not the development of an individual firm or its product. Consider the Product Life Cycle for VCR’s. This curve illustrates the profitability cycle for VCR’s. This represents the industry activity for all producers of VCR’s in the industry and the development of the industry in terms of sales and profits over time. Prospective producers can use the Product Life Cycle curve to determine when to enter the industry. Profits tend to peak in the Growth stage. A mature industry is too late to enter a new market. Declining industries do not hold any potential at all for profitoriented firms. Firms with an entirely new product or a significant innovation in an existing product may open an entirely new industry (the Intro stage).

Extending Product Life: Foreign Markets  Using foreign markets is just one possibility for trying to stretch out the maturity phase of a product.  Product Extension – Marketing an existing product globally (Coca-Cola, Levi’s)  Product Adaptation – Marketing a product internationally with some modification (McDonald’s in Germany serves beer)  Reintroduction – Aiming declining or obsolete products to less developed markets (Manual cash registers in Latin America)

Identifying Products

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Branding – Use of symbols to communicate the qualities of a product made by a particular producer. o Brand Equity – Degree of loyalty to and awareness of a brand and its relevant market share. § Manage brands to increase value and “brand loyalty” § International Branding  Takes a long time to establish national or global brand recognition  Must consider how brand names translate o Types of Brands § National - Distributed by and carrying the name of the manufacturer (Kellogg’s). § Private - Brands carrying the name of the retailer or wholesaler (President’s Choice, Kirkland). § Licensed - Selling the right to use the firm’s name on another company’s product (Mickey Mouse) § Generic – No frills (plain packaging) o Trademarks – Exclusive legal rights to use a brand name. They are registered legally and are protected nationally and internationally through intellectual property laws. o Patent – Protects ownership of a product design, manufacturing process, or layout. Protects an invention for 20 years. o Copyright – Exclusive ownership rights to creators of books, articles, designs, illustrations, photos, films, and music Packaging – The physical container in which the product is sold. o Makes the product attractive. o Reduces risk of damage, breakage or spoilage. o Most packages also contain the UPC (Universal Product barcode symbol) which allows for automated inventory control and check-out. Labelling – Identifies the product’s name, contents, and possibly benefits. o Identifies, promotes and describes. o Must conform to the Consumer Packaging and Labelling Act....