Marketing Foundations Textbook - Chapter 7 PDF

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Chapter 7 7.1 Define ‘product’ and understand different ways to view and analyse products and product attributes - A product is defined as a good, service or idea offered to the market for exchange. - Potential customers require products to satisfy functional, social and psychological needs, wants and demands. - The core concept is that both parties must gain value from the exchange. - Goods are physical, tangible offerings that involves the transfer of ownership from marketer to customer. - Services are intangible offerings that cannot be touched and does not involve ownership; you experience a service. - An idea can also be offered in the form of a concept, issue or philosophy, often products of community organisations, charities and political parties - Quit for Life; Slip, Slop, Slap Total Product Concept - Total Product Concept - Four levels: core product, expected product, augmented product and potential product. - It is crucial to understand that when customers choose a product, they do not purchase some ‘thing’; rather, they buy a solution to a problem – EXAMPLE - vending machines that serve hot drinks should view its business as one that warms them when out on chilly winter nights. - The total product concept is a way of viewing a product as the totality of value and benefits it provides to the customer. The core product - The core product comprises the fundamental benefit that generally remains the same with changes What is the key benefit they want from a product? - EXAMPLE - a mobile phone, the core benefit is reliable, accessible communications The expected product - The expected product describes those attributes that actually deliver the benefit that forms the core product. - Marketers generally try to differentiate their offering using fundamental characteristics such as branding, packaging and quality standards at the expected product level. - EXAMPLE - a mobile phone, an expected product could be a conveniently sized phone with an easy‐ to‐ read screen and keypad The augmented product - The product delivers a bundle of benefits that the buyer may not require as part of the basic fulfilment of their needs. - The augmented product level enables marketers to significantly differentiate their offerings from those of competitors. - Often augmented product features form the main reason brand selection. - EXAMPLE - a mobile phone, product augmentation may extend to superior sound quality or a television, it could be the expansion of smart TV capabilities with internet access. - Over time, augmented product level can become incorporated into the expected product layer. The potential product - The potential product comprises all possibilities that could become part of the expected or augmented product including features that are being developed, planned or prototyped, as well as features that have not yet been conceived. - EXAMPLE - in the early days of mobile phones, SMS was an idea for a potential product feature. Within a few years, SMS capability became an expected product feature. - EXAMPLE - Potential product features of a mobile phone could include digital television

Product relationships – Production of multiple products or several different styles of a product. - Product item — a particular version of a product that can be differentiated from the organisation’s other product items by characteristics such as brand, ingredients, style or price. EXAMPLE - Bonds, a product item in their men’s underwear range is Bonds Boxers. - Product line — a set of closely related product items, usually in terms of end use, target market, technology or raw materials. EXAMPLE – Bonds, the product line for Bonds men’s underwear includes trunks, Y‐fronts, boxers and hipsters. - Product mix — the set of all products that an organisation makes available to customers. EXAMPLE Bonds, it is underwear, singlets, shorts, tracksuits, hoodie jackets, socks, and T‐shirts, as part of their men’s, women’s and children’s wear. Product classification - Consumer products are those products purchased by households and individuals for their own private consumption. - Business‐ to‐ business products are those products purchased by individuals and organisations for use in the production of other products or for use in their daily business operations. - Some products are both a consumer and a business product, EXAMPLE - photocopy paper, can be purchased at a discount store for home printer, or as from a wholesaler for an organisation’s office printers and photocopiers. Consumer products - Shopping products are irregularly purchased items that involve moderate to high engagement with the decision‐ making process: consumers will often visit a number of stores, looking at the range and comparing items based on features, quality and price. Shopping products exhibit that: - they are expected to last a long time - they are purchased relatively infrequently - they are stocked by a small number of retail outlets - they sell in low volumes - they have reasonably large profit margins. - EXAMPLE - electrical appliances, furniture, cameras and clothing. -

Convenience products, also known as fast‐ moving consumer goods, are inexpensive, frequently purchased products that are bought with little engagement in the decision‐making process, usually available from a wide range of retailers, including supermarkets, and petrol stations. Being cheap, they depend on a high volume of sales to generate profit. As self‐service products, packaging plays a major role in grabbing consumers’ attention. Convenience products can be further broken down into three main categories. 1. Staple products — regularly bought products, EXAMPLE - milk, bread, rice and soap. 2. Impulse products — products that are bought with little planning, EXAMPLE - chocolate and chewing gum. 3. Emergency products —product is needed in an ‘emergency’, EXAMPLE - umbrella

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Specialty products have unique characteristics that are highly desired by their buyers. The purchaser of a specialty product usually knows exactly what they want — they are not interested in comparing brands or considering alternatives. EXAMPLE - If someone is interested in purchasing a BMW car they will go to a BMW dealer and they will travel some distance if necessary. The main characteristics of specialty products are: - they are pre‐ selected by the consumer - there are no close substitutes or alternatives - they are available in a limited number of outlets - they are purchased infrequently

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- they sell in low volumes - they have high profit margins. Unsought products - Customer knows about but doesn’t normally consider purchasing – EXAMPLE - most consumers know of home security product but won’t purchase one until needed. Prior marketing communication efforts are likely for a particular product or brand to be ‘top of mind’ for the consumer - Customer doesn’t even know about - marketing communication makes consumers aware that the product is available which only then will demand for the product potentially be generated.

Business ‐to ‐business products It is the intention to use the product as part of business operations that defines business‐to ‐business products. - Parts and materials - products that form part of the purchasing business’s product. - Raw materials — unprocessed natural materials that are used in the production process to form part of the business’s products. Raw materials can be farm products (fleece for woollen yarn) or natural products (iron ore). - Components — processed items that form part of a business’s product. Components may be materials (yarn, for jackets) or parts (brakes, for bicycles). - Equipment refers to those business‐ to‐ business products that are used in the production of the business’s products. - Capital equipment — installations (buildings) and machinery (generators) - Accessory equipment — smaller items that support the production of a product (drills, computers) - Services and supplies products that are essential to business operations, but that do not directly form part of the production process. - Business services — specialised services (financial, legal, market research and office cleaning services) that support the company’s operations, often provided by external suppliers, such as banks and solicitors - Maintenance, Repair and Operating (MRO) supplies — items that assist in the company’s production and operations but do not form part of the product, including engine oil (for maintenance), rivets (for repair) and paper (for operations). 7.2 Describe the product life cycle, new product development and the product adoption process

1. New product development - The first stage occurs when the organisation develops the idea, undertakes research, prepares prototypes, pre‐ tests the product, and makes modifications before the product launch and becomes available to the market. New product development can involve substantial costs for a business and these are not offset by sales until later in the product life cycle. 2. Introduction - This stage marks the first appearance of the product in the marketplace. The market is likely to know little or nothing about the product, and so considerable investment in promotional activities are to be made. Even with a successfully launched product, there is often a lag between introduction and the building of substantial sales. Sales start at zero in the introduction stage and must offset promotional costs associated with the product launch and recoup the research and development costs incurred in the new product development stage.

3. Growth - This stage sees increasing popularity, sales and profits. At some point during this period, competitors enter the market with similar products, so while sales overall continue to increase, the rate of growth of a particular organisation’s profits is likely to slow. 4. Maturity - As competitors enter the market with similar products, alternative products become available, and the product’s sales and profitability peak and start to fall. - In the maturity stage, the organisation must determine its future approach to the product; to continue in the market with some change to the marketing mix with the expectation that this will increase profits and move the product into a growth stage again. - New strategies could be to change the product, lower the price, expand the distribution or differ the promotional activities. - Alternatively, a marketer may decide to leave the market and enter the decline stage. 5. Decline - sees sales and profits fall as new products may be entering, and there may be little interest in the current product. - In the decline stage, the marketer must decide whether to reduce its investment in the product, drop the product from its product mix, or change the product and hope that it will enter a new growth stage - Eventually, a product left in the decline stage will be withdrawn from the market. New product development What may be classified as a new product includes: 1. new to the market — a new technology that has never been seen before 2. new to the company — a product already in the marketplace but this is the first time it has been produced by a certain company 3. new to the product line — a product that is an extension of whatever the company currently produces 4. new to the product — modifications, enhancements and improvements to a specific product that will revitalise it and move it into a growth stage in the product life cycle. The new product development process sets out eight phases for introducing products. 1. Idea generation - the phase in which ideas for new products are created. - The approach should be open to ideas from internal sources (scientists, engineers, marketers) and external sources (customers, competitors and partners). - Techniques specifically aimed at generating ideas, such as brainstorming and focus groups, are also a worthwhile investment. 2. Screening - the organisation must undertake a screening process to eliminate those ideas that are not feasible, and to help identify the most promising of those that are. - Screening may involve analysing the organisation’s ability to produce the product, the target market’s potential interest, the market size and the product cost. 3. Concept evaluation - The product concept is usually presented to potential customers as a description or drawing of various options for the product. - This process is designed to determine whether the product could satisfy a customer need or want and to identify those attributes that could provide the most value to potential customers. 4. Marketing strategy - management can start planning a marketing strategy. - This includes describing the projected sales and profits, market positioning, potential target market, marketing mix strategies and long‐ term goals. 5. Business analysis - the organisation should undertake a business analysis to determine whether the strategy will be a good fit with the company’s current offerings and its overall business objectives. - A business analysis reviews how the new product will affect the organisation’s costs, sales and profit projections. 6. Product development - the next stage is to convert the product concept into an actual product. - This often means developing a working prototype, along with additional investment in research and development to ensure the design, materials and so on will result in the optimum product. 7. Test marketing - a prototype should be tested in a market setting; test marketing activities enable a ‘real world’ assessment. - It is better to work out any problems with the marketing mix in a smaller test market.

8. Commercialisation - It is time to launch the new product into the market, but costs will be high at this stage Product adoption process 1. To give an organisation the best chance of developing and marketing products that can succeed, marketers need to understand how a consumer perceives a new product, learns about it, and decides to adopt it. 2. The process appears relatively straightforward, but a product can fail at any stage. 3. Once a potential customer is aware of a new product, the product and its marketing must generate interest if the customer is to proceed further into the product adoption process. 4. For marketers, it is important to determine where potential customers are situated in the product adoption process and then aim to help them move to the next stage. 5. This may take the form of promotional material that explains the product in detail and its advantages over competing products or activities, such as sampling, whereby potential customers are given a sample of the product to try. The diffusion of innovation - The theory describes how innovations are adopted by the market over time and suggests that the influence of social groups on the decisions made by individuals determines the way in which new products and ideas are adopted. - Innovators - are the first adopters of new products. People in this group are usually adventurous, interested in new technology and ideas, and willing to take risks. - Early adopters - They are likely to be careful choosers of new products and are often opinion leaders, respected by peers and people in the other categories. - Early majority - tend to be more deliberate in their choice of new product and try to avoid taking risks. However, they usually adopt the new products before the average person. - Late majority - are more cautious and sceptical about new products and technologies but will eventually adopt the new product after most people have purchased it, and due to economic necessity or social pressure. - Laggards - are the last adopters. They are often wary of new products and ideas, and generally prefer products that are familiar. 7.3 Outline how an organisation can differentiate its products to obtain a competitive advantage - Product differentiation is the creation of products and product attributes that distinguish one product from another - Deciding on the right characteristics is recommended to regularly undertake some type of market research to determine potential customers’: - desires in relation to the product category - attitudes towards the product offering - attitudes towards the product’s features. - If customers perceive a difference between competing products, they will examine the specific product characteristics to assist them in making the final purchase choice.

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Most of the differentiating features are part of the augmented product layer of the total product concept. Some of the characteristics that customers may perceive to be differentiators include design, brand, image, style, quality and features. Warranties, installation, in‐ home training and free phone help lines are all examples of add‐on services that some organisations use to differentiate their products from competitors. Products can also be differentiated within an organisation’s product mix; EXAMPLE - when purchasing a new car, a luxury or sports model may include specific features (such as air‐ conditioning,\ air‐ bags and leather seats) that are not included in the base model. These differences serve to create a unique value offering to the market and influence how the product is positioned Product differentiation based on product attributes is intimately linked with product positioning. EXAMPLE - Australia Post, usually identified as a nationwide postal service, has extra services, expanding into the insurance market, offering car insurance.

7.4 Explain the value of branding and the major issues involved in brand management - Brand - refers to a collection of symbols, such as the name, logo, slogan and design, intended to create an image in the customer’s mind that differentiates a product from competitors’ products. - Most consumers will prefer a well‐ known, reputed brand over a cheaper, unknown brand when making high‐ involvement purchases. - The brand can provide a form of self‐ expression and status, as well as denote product quality. - Brand image is the set of beliefs that a consumer has regarding a particular brand. - When marketers make decisions about products, the decisions must relate to the product’s brand and brand image. Brand name - Organisations with a well‐ known brand name are very protective of it and will be willing to spend large amounts of money to ensure it is not used or abused by other individuals or organisations. - A brand name is part of a brand that can be spoken and can include words, letters and numbers. - Some brands can even be known by a nickname, EXAMPLE - McDonald’s called ‘Maccas’. - A name that might sound good at first could give rise to unintended problems, particularly if you are going to sell your product in another country - The ideal brand is distinctive, easily recognisable and relevant to the products it represents - To protect the brand, an organisation can register it as a trademark with the relevant body IP Australia. Brand equity - Brand equity - The added value that a brand gives a product - A well‐ known brand can be very valuable to an organisation in both financial and non‐ financial terms. - For marketers, the brand: - identifies the organisation’s products - differentiates the organisation’s products from competing products - attracts customers - helps introduce new products - facilitates the promotion of same‐brand products. - Brand equity is therefore a consumer‐ based concept. Brand loyalty - Brand loyalty exists when the customer: - shows a highly favourable attitude towards a specific brand - would prefer to buy a specific brand over any other brand in the market. - Brand‐ loyal customers are highly valued by organisations and represent a core segment for produce sales. - Some firms encourage brand loyalty by having a loyalty program, whereby customers are given an incentive to continue

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Loyal customers who will go to great lengths to obtain their preferred brand, unwilling to accept a substitute - This degree of loyalty tends to be found for football codes.

Brand metrics - To measure the value of brands is extremely useful to organisations. - Brand equity metrics include: - brand assets (e.g. trade marks and patents) - stock price analysis - replacement cost - b...