m370 final

three types of consumer products

development, design, and sale

core customer value

defines the basic problem-solving benefits that customers are seeking

actual product

includes the name, quality, communication, packaging design, and features

associated services (augmented prodcut)

ex amazon has no risk because you can return if you don’t like

include non physical aspects of product such as warranties financing product support and after sale service

product complexity

degree of difficulty involved in designing manufacturing selling and maintaining a product

arises from the number of components interdependencies among parts or functions and variety in configurations or versions of a product

product complexity core dilemma

should a firm simplify its product offerings and risk losing variety driven customers or embrace complexity and risk inefficiency and brand dilution

four steps a company must take when determining how complex to make their product

1. identify and compare product complexity sources

2. evaluate strategic trade-offs

3. customer perception

4. broader implications

ex of first step to determine how complex to make product (identify and compare product complexity sources)

apple: fewer models, standardized components, simple externally, minimal product variety but strong ecosystem lock in

samsung: wide range of skus and price points, frequence updates, compelx supply chains and overlapping features

step 2 example (evaluate strategic trade-offs)

apple: dependent on few skus, strong brand coherence, focused, lower operational complexity

samsung: faster iteration and feature adoption, broader market coverage, cannibalization, brand fragmentation

step 3 example (customer perception)

how do customers perceive apple and samsung differently

how does perceived simplicity influence brand equity

step 4 ex (understand broader implications)

complexity might increase coordination cost or hinder agility

simplicity might improve quality control and brand consistency

complexity might allow market segmentation and technological leader

types of consumer products

products and services used by people for their personal use

specialty, shopping, convenience, unsought

specialty product dimensions

high end, willing to make a special purchasing effort- few substitutes

brand loyalty: very high

price sensitivity: low

distribution: limited

purchase frequency: low

promotion strategy: image based, prestige, emotional

shopping product dimensions

consumer behavior: buyers compare options carefully before deciding

price sensitivity: moderate to high (consumers look for value)

purchase frequency: less frequent than convenient goods

distribution: selective

promotion: focused on information, benefits, and value comparison

buying motive: functional and emotional (balanced)

convenience product feautres

purchase frequency: high

consumer effort: low little planning or comparison

price leve: low

brand loyalty: moderate (brand switching is common)

distribution: intensive - available in many outlets

promotion focus: top of mind awareness, impulse buying triggers

unsought product features

consumer awareness: low

purchase motivation: problem driven not desire

marketing challenge: must create or remind consumers of need

promotion strategy: heavy personal selling, direct marketing, reminders

distribution: varies

product mix product lines and product items

mix: complete set of products the company makes

lines: categorize every product into lines (ex: energy drink, bottled water, etc)

items: individual items that fix under the umbrella lines

breadth

number of product lines in a product mix

depth

number of products within a product line

increase depth ex

ex: adding new ice cream flavors etc

decrease depth ex

p&g eliminates cannibalization by eliminating slow moving products and introduce new products that have potential

increase breadth ex

add new product lines to capture new or evolving markets (ex: coke adding alcohol product line)

decrease breadth ex

a firm drops its line due to changing market conditions or internal strategic priorities (loreal doesn’t have mousse anymore because it’s not as popular)

difference between a brand and product

product is item or service for sale, while brand is intangible identiy and reputation built in the mind of consumers

a company manufactures a product, but consumers through their perceptions and experiences create the brand

what makes a brand

brand name, urls, logos and symbols, characters, slogans, jingles/sounds

why is it important for a brand to have value

facilitate purchases

move consumers to loyalty

protect from comp or price comp

asset value

affect marketplace value with wholesale/retail

brand value vs brand equity

equity: qualitative measure of consumer perception (brand’s value in minds of consumers)

value: quantitative financial metric (financial worth of a brand name)

important considerations in creating and increasing brand equity

brand awareness

perceived value

brand associations

loyalty

brand extension vs line extension

brand: same brand name in diff product line

line: same brand name within same product line

cobranding

partnership w other brands

why do business create new products

stay competitive and drive growth in evolving marketplace.

how do new products create value for a business

how do new products create value for a customer

innovation segmentation

• the category already exists: a completely new product that your business has never made or sold before to compete w others

• the category doesnt exist: a completley new product innovation created and brought to the marketplace that doesn’t exist yet

• already in market: they may be existing products that you have modified or improved

degree of innovation is based on the risk ( line extension, brand extension, and true innovation)

diffusion of innovation theory

diffusion of innovation curve

diffusion of innovation curve- innovators

diffusion of innovation curve- early adopters

diffusion of innovation curve- early majority

diffusion of innovation curve- late majority

diffusion of innovation curve- laggards

pro

proudct development process

idea generation: sources of ideas

idea generation: internal r+d

idea generation: r+d consortia

idea generation: licensing

idea generation: brainstorming

idea generation: outsourcing

hiring an outside firm to help generate ideas and develop new products and services

idea generation: competitors products

products w patents or other proprietary protections cannot be copied so reverse engineered products must be substantively different from their source product

idea generation: consumer input

the product development process: concept testing

the product development process

at this stage, an engineering team develops a product prototype that is based on research findings from previous conecept testing steps 

product development process (internal and external)

product development process: market testing

premarket tests:

1. customers exposed

2. customers surveryed

3. firms makes decision

test marketing (considerations: type of innovation, confidentiality)

1. mini product launch

2. more expensive

3. demand is estimated

the product development process: product launch

this step requires tremendous financial resources and extensive coordination of all aspects of the marketing mix. the firm confirms its target markets, decides how the product will be positioned, finalizes the remaining marketing mix variables, and determines the marketing budget. timing of the launch may be critical

product development process: evaluate the results

the product life cycle (4)

introductory stage

growth stage

marked by a growing number of product adopters, rapid growth in industry sales, and increased in the number of competitors and the number of available product versions. majority of new products fail at thsi point

the maturity stage

decline stage

limitations of the product life cycle

5 questions that marketing answers

concept of value creation and value capture

value creation vs value capture

the role of price for a company (1)

price links customer value to company value

• customers express willingness to pay based on perceived benefits

  • companies translate that willingness into a price that covers cost + returns a profit

customer/producer surplus

a company can capture value when its price is less than a customer’s perceived value, but greater than a firm’s cost.

customer surplus= perceived value-price

producer surplus= price-cost

ex: if perceived value is $100 and cost is $60, a price of $80 gives: customer surp: $20 and producer surp; $20

role of price for a company (2)

price is the revenue driver

• among the 4ps price is the only one that generates income, the others create costss

role of price for a company (3)

price signals quality and positioning

• a premium price can reinforce a premium image

the price value relationship

key question comps must answer pos for the customer: do you get equal or more value than you give up in money

corporate internal considerations or why company’s set price a certain way (6 corp objects)

a targeted profit return objective:

a sales revenue objective:

a market share objective:

a unit sales objective:

a survival objective:

a responsibility objective:

pricing strategy or how company’s set price (4)

demand oriented: skimming

skimming: start high, end lower

demand oriented: penetration pricing

start lower, maintain or raise price.

penetration pricing

demand oriented: value based pricing

demand oriented: presitge pricing

demand oriented: yield management

yield managmenet ex

uber uses surge pricing during peak ride times

cost oriented: standard mark up

whys standard mark up used

retailers can’t accurately estimate demand for all their products, so demand can’t be basis for setting price

cost oriented: loss leader

cost oriented: cost plus

profit oriented: target profit

benefits of target profit pricing

profit oriented: target ROS

benefits of target return on sales pricing

profit oriented: target ROI

competition based: customary pricing

competition based: everyday low price (EDLP)

no fluctuation in pricing as an enticement to customers

competition based: high low pricing

multiple tiers of pricing

• often controlled by the manufacturer

• limited risk for the retailer

the psychology behind setting the final price

strategic questions you need to answer before lowering price

• what’s the goal of the cut: volume, share, survival

• how will competitors respond

• will customers perceive lower price as lower value

• can we maintain profitability at lower price

• are there other non-price alternatives that we can implement instead