BUS 2000 - Chapter 14 Product Differentiation, Packaging, Branding

value definition

• good quality at a fair price

• foundation of marketing

• consumer calculate this by looking at the benefits and subtracting that from the cost (not just literal, also psychological)

total product offer definition

everything that consumers evaluate when deciding whether to buy something

• evaluated on tangible and intangible dimensions

  • marketers must think like and talk to consumers to figure out what’s important

potential components of a total product offer

marketing managers must take the physical and add value to create the total product offer

• price

• brand

• package

• convenience

distributer product development definition

• handing off various parts of your innovation process (often to companies overseas)

• the increase in outsourcing causes multiple organizations to be separated by cultural/geographic/legal boundaries

product line definition

a group of products offered by one company that are physically similar or intended for a similar market

• product lines often include competing brands like:

  • cocacola

  • diet coke

  • coke zero

  • cherry coke

product mix definition

the combination of product lines offered by a manufacturer

• product mixes like procter & gamble’s can be extensive:

  • toothpaste

  • paper towels

  • diapers

  • batteries

  • bar soap

product differentiation definition

the creation of real or perceived product differences.

• marketers use a mix of branding, pricing, advertising and packaging to create different images

• consumer and industrial goods and services

Marketing 4 Different Classes of Consumer Goods and Services

1. convenience goods and services

2. shopping goods and services

3. specialty goods and services

4. unsought goods and services

1st Class: Convenience goods and services definition

products that the vonsumer wants to purchase frequently and with a minimum of effort

Ex: candy/snacks, gas, milk, etc

• important aspects:

  • location

  • brand awareness

  • image

2nd Class: shopping goods and services definition

those products that the consumer buys only after comparing value, quality, price, and style from different sellers

• important aspects:

  • brand name

  • price

  • quality difference

3rd Class: Specialty goods and services definition

consumer products with unique characteristics and brand identity. These have no reasonable substitute, so the consumer puts forth a special effort to purchase them

ex: fur coats, imported chocolates, business consultants

4th class: unsought goods and services definition

products that consumers are unaware of, haven’t though of buying, or find that they need to solve an unexpected problem

ex: car towing services, burial services, insurance

industrial goods definition

products used in the products of other, sometimes called business or B2B goods

industrial goods: production goods

raw materials

component parts

production materials

industrial goods: support goods

installations

accessory equipment

supplies

service

packaging

• used to change and improve their basic product

• good packaging can make a product more attractive to retailers

• more promotional burden and sales responsibility

• information on packages regulated by the Fair Packaging and Labeling Act and the Food and Drug Administration Act

• ex:

  • squeezable ketchup bottles

  • square paint cans with screw tops

  • single-use spice packets

7 key functions of packaging:

1. attract the buyer’s attention

2. protect the goods inside, be tamperproof and deter theft

3. be easy to open and use

4. describe and give information about the contents

5. explain the product’s benefits

6. provide warranty information and warnings

7. give an indication of price value and uses

bundling definition

• grouping two or more products together and pricing them as a unit

• bundle is sometimes sold less than the products individually

ex:

• value meal at a restaurant (taco bell)

• buying home insurance and auto insurance together

• chips multipacks

brand definition

a name, symbol, or design that identifies the goods or services of one seller or group of sellers. It distinguishes them from the goods/services of other competitors

• gives products a distinction that might make them more attractive to consumers

  • brands often trademark

trademark definition

a brand that has exclusive legal protection for both its brand name and its design

how to pick a brand name:

1. ensure it’s what customers will actually call the product or company

2. make certain it’s easy to remember, not necessarily clever

3. keep it short and sweet. don’t add extra words

4. test out your ideas

5. use the name as much as possible

6 rules for branding:

1. keep it simple

2. don’t just improve, reinvent your sector

3. embrace big ideas

4. use strong symbols for customers to easily identify

5. give customers a reason to seek out your company

6. communicate regularly with your customer base

4 brand categories:

1. manufacturers’ brands

2. dealer (private-label) brands

3. generic goods

4. knockoff brands

1st brand category: manufacturers’ brands definition

the brand names of manufacturers that distribute products nationally

ex: Tylenol, Nike, Apple

2nd brand category: dealer (private-label) brands definition

products that don’t carry the manufacturer’s name but carry a distributor’s or retailer’s name instead

• aka store brand

ex: CVS Acetaminophen

3rd brand category: generic goods definition

nonbranded (no name) products that usually sell at a sizable discount compared to national or private-label brands

4th brand category: knockoff brands definition

illegal copies of national brand-name goods

brand equity definition

the value of the brand name and associated symbols

• the combination of factors (awareness, loyalty, quality, images, emotions) that are associated with the brand

brand loyalty definition

the level off commitment that customers have to further purchases of the brand based on their satisfaction

brand awareness definition

how quickly a given brand name comes to mind when a product category is mentioned

• leads to brand preferences

• when consumers reach brand insistence, they don’t accept substitute brands

brand association definition

linking a brand to other favorable images

brand manager definition

a manager who has direct responsibility for one brand or one product line

• handles the brand’s marketing mix

new product development

• the offs of a new product failing is high

• new product potential

generating new-product ideas

• takes about 7 ideas to generate one commercial product

• employees, research, development, and suppliers offer new ideas

6 Steps for the New-Product Development Process

1. idea generate

2. product screening

3. product analysis

4. product development

5. testing

6. commercialization

product screening definition

a process designed to reduce the number of new-product ideas being worked on at one time (to focus the most promising ideas)

product analysis definition

making cost estimates and sales forecasts to get a feeling for profitability of new-product ideas

testing definition

• aka concept testing

• taking a product idea to consumers to test reactions

  • crowdsourcing platforms allow the public to give feedback of potential products

commercialization definition

1. promoting a product to distributors/retailers to get wide distribution

2. developing strong advertising and sales campaigns to generate interest in the product among distributors and consumers

commercialization: how to bring the market four ways

1. build up slowly

2. design for a single function

3. package it perfectly

4. become a status symbol

product life cycle definition

a theoretical model of what happens to sales and profits for a product class over time

4 stages of the product life cycle

1. introduction

2. growth

3. maturity

4. decline

1. introduction

• low sales

• potential losses

• few competitors

Using the Cycle:

• offer market-tested product (keep mix small)

• go after innovators with high introductory price or penetrating pricing

• use wholesalers, selective distribution

• use dealer promotion, heavy investment in advertising, and sales promotion to get stores to carry the product and consumers to try it

2. growth

• rapidly rising sales

• very high profits

• growing number of competitors

Using the Cycle:

• improve product, keep product mix limited

• adjust price to meet competition

• increase distribution

• use heavy competitive advertising

3. maturity

• peak sales

• declining profits

• stable number then declining competitors

Using the Cycle:

• differentiate product to satisfy different market segments

• further reduce price

• take over wholesaling function and intensify distribution

• emphasize brand name as well as product benefits/differences

4. decline

• falling sales

• profits may fall to losses

• declining number of competitors

Using the Cycle:

• cut product mix, develop new product ideas

• consider price increase

• consolidate distribution, drop some outlets

• reduce advertising to only loyal customers

Main types of Competitive Pricing

1. Cost-based pricing

2. demand-based pricing (Target costing)

3. competition-based pricing

cost-based pricing definition

measures cost of producing a product like materials, labor, overhead (rent, utilities) and promotion. Then adds in a margin of profit

• a way in which a business may develop an initial price for its goods/services (this initiall price might change based on supply/demand curve)

demand- based pricing (target costing) definition

designing a product so that it satisfies customers and meets the profit margins desired by the firm (another way to develop an initial price)

competition-based pricing definition

the strategy by which one or more dominant firms set the pricing practices that all competitors in an industry follow

Other Pricing Strategies

• skimming price strategy

• penetration strategy

• everyday low pricing (EDLP)

• high-low pricing strategy

• psychological pricing 

skimming price strategy definition

strategy where a new product is priced too high to make optimum profit when there’s little competition

penetration strategy definition

strategy where a product is priced too low to attract many customers and discourage competition

Everyday Low Pricing definition (EDLP)

setting prices lower than competitors and then not having any special sales

ex: walmart uses EDLP to dominate retail

High-low pricing strategy definition

setting prices that are higher than EDLP stores, but having many sales where the prices are lower than the competitors

psychological pricing definition

pricing goods and services at prices points that make the product appear less expensive than it is

break-even analysis definition

before selling a new product, conduct a break-even analysis

• the process used to determine profitability at various levels of sale

aspects of break-even analysis

• break-even point (BEP)

• total fixed costs (FC)

• variable costs (VC)

break-even point (BEP) definition

revenue = cost

break-even point formula

total fixed costs

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price of one unit (P) - Variable Cost of one unit

total fixed costs (FC) definition

all expenses that are there no matter the products made or sold

ex: rent, salary

variable costs definition

costs that change according to the level of production

ex: raw materials, hourly wages, shipping

nonprice competition

• product images

• comfort

• style

• convenience

• durability

• accompanying services