BUSN Ch.12 Product and Promotion: Creating and Communicating Value

LEARNING OBJECTIVES After studying this chapter, you will be able to: 12-1Explain “product” and identify product classifications 12-2Describe product differentiation and the key elements of product planning 12-3Discuss innovation and the product life cycle 12-4Analyze and explain promotion and integrated marketing communications 12-5Discuss development of the promotional message 12-6Discuss the promotional mix and the various promotional tools

Product

Anything that an organization offers to satisfy consumer needs and wants, including both goods and services.

Intangibility

Services cannot be seen, tasted, felt, heard, or smelled before purchase.

Inseparability

Service delivery requires direct interaction between the buyer and the provider.

Variability

Service quality depends heavily on who provides it, plus when and where.

Perishability

Services cannot be stored for delivery or consumption at peak periods.

pure goods

Products that do not include any services.

pure services

Products that do not include any goods.

Product Layers

A complete product package that includes a core benefit, the actual product, and product augmentations.

Core Benefit

The fundamental level at which consumers buy something that satisfies their needs.

Secondary Benefits

Benefits that help distinguish products from other goods and services that meet the same customer needs.

Actual Product

The physical good or delivered service that provides the core benefit, including unique attributes like brand name, features, and packaging.

Augmented Product

Additional goods and services wrapped around the actual product to sharpen a competitive edge, such as warranties, customer service, and samples.

consumer products

Products purchased for personal use or consumption.

business products

Products purchased to use either directly or indirectly in the production of other products.

Convenience Products

Inexpensive goods and services bought frequently with limited consideration and analysis, such as toothpaste, shampoo, and impulse items.

Shopping Products

More expensive products bought less frequently where consumers search for the best value, such as cars, computers, and cell phone service.

Specialty Products

Expensive products consumers seldom purchase and are unwilling to accept substitutes for, such as high-end sports cars and branded jewelry.

Unsought Products

Goods and services holding little or negative interest for consumers that require aggressive promotion, such as disability insurance and blood donations.

Installations

Large capital purchases with long productive lives; marketing emphasizes personal selling and customization.

Accessory Equipment

Smaller, movable capital purchases with shorter lives that require less customization than installations.

Maintenance, Repair, and Operating Products

Small-ticket items businesses consume on an ongoing basis that do not become part of the final product.

Raw Materials

Farm and natural products used in producing other products; marketing emphasizes price and service.

Component Parts and Processed Materials

Finished or partially finished products used in producing other products.

Business Services

Services that businesses purchase to facilitate operations, focusing on quality and relationships.

product differentiation

The attributes that make a good or service different from other products that compete to meet the same or similar customer needs.

quality level

How well a product performs its core functions.

product consistency

How reliably a product delivers its promised level of quality.

product features

The specific characteristics of a product.

customer benefit

The advantage that a customer gains from specific product features.

product line

A group of products that are closely related to each other, either in terms of how they work or the customers they serve.

product mix

The total number of product lines and individual items sold by a single firm.

cannibalization

When a producer offers a new product that takes sales away from its existing products.

brand

A product's identity— including product name, symbol, design, reputation, and image— that sets it apart from other players in the same category.

brand equity

The overall value of a brand to an organization.

line extensions

Similar products offered under the same brand name.

brand extension

A new product, in a new category, introduced under an existing brand name.

licensing

Purchasing the right to use another company's brand name or symbol.

cobranding

When established brands from different companies join forces to market the same product.

national brands

Brands that the producer owns and markets.

store brands

Brands that the retailer both produces and distributes (also called private-label brands).

Discontinuous Innovation

Discontinuous innovations are brand-new ideas that radically change how people live. Examples include the first car, the first television, and the first computer. These dramatic innovations require extensive customer learning, which should guide the marketing process.

Dynamically Continuous

Innovation Dynamically continuous innovations are characterized by marked changes to existing products. Examples include cell phones, Blu-ray Discs, and digital cameras. These types of innovations require a moderate level of consumer learning in exchange for significant benefits.

Continuous Innovation

A slight modification of an existing product is called a continuous innovation. Examples include new sizes, flavors, shapes, packaging, and design. The goal of continuous innovation is to distinguish a product from the competition. The goal of a knockoff is simply to copy a competitor and offer a lower price.

The New Product Development Process

Idea Generation > Idea Screening > Analysis > Development > Testing > Commercialization

Product Adoption Categories

Some consumers like to try new things; others seem terrified of change. These attitudes clearly affect the rate at which individual people are willing to adopt (or begin buying and using) new products.

Product Diffusion Rates

Some new products diffuse into the population much more quickly than others.

Product Diffusion Rates: Observability

How visible is the product to other potential consumers? Some product categories are easier to observe than others.

If you adopt a new kind of car, the whole neighborhood will know, plus anyone else who sees you on the streets and highways.

Product Diffusion Rates: Trialability

How easily can potential consumers sample the new product? Trial can be a powerful way to create new consumers, which is why many markets fill their aisles with sample tables during popular shopping hours.

Other examples of trial-boosting strategies include test-driving cars, sampling music, and testing new fragrances.

Product Diffusion Rates: Complexity

Can potential consumers easily understand what your product is and how it works? If your product confuses people—or if they find it hard to explain to others—adoption rates will slow.

For example, many people who test-ride Segway Human Transporters love the experience, but they have trouble explaining to others how it works or why it beats other transportation options.

Product Diffusion Rates: Compatibility

How consistent is your product with the existing way of doing things?

Cordless phones, for example, caught on almost instantly, since they were completely consistent with people's prior experiences—only better!

Product Diffusion Rates: Product Diffusion Rates: Compatibility

How much better are the benefits of your new product compared to existing products?

When gas prices climb, for example, the benefits of a hybrid car take on a much higher value relative to standard cars. As a result, demand skyrockets.

product life cycle

A pattern of sales and profits that typically changes over time.

product life cycle: Introduction

This is a time of low sales and nonexistent profits as companies invest in raising awareness about the product and the product category. Some categories, such as the microwave, languish in this phase for years, while other categories, such as computer memory sticks, zoom through this phase. And some categories never get beyond introduction. (Think clear beers.)

product life cycle: Growth

During the growth period, sales continue to rise, although profits usually peak. Typically, competitors begin to notice emerging categories in the growth phase. They enter the market—often with new variations of existing products—which further fuels the growth. Electric cars, plug-in hybrids, personal drones, and driverless cars are currently in the growth phase, and a number of competitors have recently entered the market.

product life cycle: Maturity

During maturity, sales usually peak. Profits continue to decline as competition intensifies. Once a market is mature, the only way to gain more users is to steal them from competitors rather than to bring new users into the category. Weaker players begin to drop out of the category. Gasoline-powered cars, sugared soda, and network TV are in maturity in the United States.

product life cycle: Decline

During this period, sales and profits begin to decline, sometimes quite rapidly. The reasons usually relate to either technological change or change in consumer needs. For instance, the introduction of word processing pushed typewriters into decline, and a change in consumer taste and habits pushed hot cereal into decline. Competitors continue to drop out of the category.

Familiarity with the product life cycle helps marketers plan effective strategies for existing products and identify profitable categories for new products.

promotion

Marketing communication designed to influence consumer purchase decisions through information, persuasion, and reminders.

integrated marketing communication

The coordination of marketing messages through every promotional vehicle to communicate a unified impression about a product.

positioning statement

A brief statement that articulates how the marketer would like the target market to envision a product relative to the competition.

promotional channels

Specific marketing communication vehicles, including traditional tools, such as advertising, sales promotion, direct marketing, and personal selling, and newer tools such as product placement, advergaming, and Internet minimovies.

product placement

The paid integration of branded products into movies, television, and other media.

Internet Advertising

Internet advertising has been highly visible for more than a decade. But the industry has moved far beyond simple banner ads and annoying pop-up ads. The highest growth areas include paid search advertising, search engine optimization, and online video advertising.

Social Media

Clearly, social media—including Facebook, Twitter, Blogger, Tumblr, Foursquare, and many others—are not a fad, but rather a paradigm shift in how successful businesses market themselves.

Native Advertising

Across all media, but especially Internet advertising and social media, native advertising is a burgeoning category of advertising specifically designed to mimic the user experience into which it is placed in terms of form and function (picture the "suggested posts" in your Facebook newsfeed that you as a user are much more likely to read and click on than a typical banner ad, or similarly, any of the first few options that come up on a typical Google search). Native ads are often fully integrated into a specific delivery platform, and are not always identified as advertising.

product placement

The paid integration of branded products into movies, television, and other media.

advergaming

Video games created as a marketing tool, usually with brand awareness as the core goal.

buzz marketing

The active stimulation of word of mouth via unconventional, and often relatively low-cost, tactics. Other terms for buzz marketing are "guerrilla marketing" and "viral marketing."

sponsorship

A deep association between a marketer and a partner (usually a cultural or sporting event), which involves promotion of the sponsor in exchange for either payment or the provision of goods.

advertising

Paid, nonpersonal communication, designed to influence a target audience with regard to a product, service, organization, or idea.

sales promotion

Marketing activities designed to stimulate immediate sales activity through specific short-term programs aimed at either consumers or distributors.

consumer promotion

Marketing activities designed to generate immediate consumer sales, using tools such as premiums, promotional products, samples, coupons, rebates, and displays.

Premiums

Premiums are items that consumers receive free of charge—or for a lower than normal cost—in return for making a purchase. Upscale cosmetics companies use the gift-with-purchase approach on a regular basis.

Promotional

Promotional products are also essentially gifts to consumers of merchandise that advertises a brand name. Or pizza delivery places give away refrigerator magnets with their logo and phone number. Promotional products work best when the merchandise relates to the brand and it's so useful or fun that consumers will opt to keep it around.

Samples

Samples reduce the risk of purchasing something new by allowing consumers to try a product before committing their cash.

Coupons

Coupons offer immediate price reductions to consumers. Instant coupons require even less effort, since they are attached to the package right there in the store. The goal is to entice consumers to try new products. But the downside is huge. Marketers who depend on coupons encourage consumers to focus on price rather than value, which makes it harder to differentiate brands and build loyalty.

Rebates

Rebates, common in the car industry and the electronics business, entice consumers with cash-back offers. This is a powerful tactic for higher-priced items, since rebates offer an appealing purchase motivator. And rebates provide an incentive for marketers as well: breakage. Most people who buy a product because of the rebate don't actually follow through and do the paperwork to get the money.

Displays

Displays generate purchases in-store. Most experts agree that consumers make a hefty chunk of their purchase decisions as they shop, which means that displays can play a crucial role in sales success. Marketers of consumer products often give prefabricated display materials to grocery stores and mass merchandisers to encourage promotion.

trade promotion

Marketing activities designed to stimulate wholesalers and retailers to push specific products more aggressively over the short term.

public relations (PR)

The ongoing effort to create positive relationships with all of a firm's different "publics," including customers, employees, suppliers, the community, the general public, and the government.

publicity

Unpaid stories in the media that influence perceptions about a company or its products.

personal selling

The person-to-person presentation of products to potential buyers.

Product Characteristics:

How can you best communicate the features of your product? Is it simple or complex? Is it high priced or inexpensive? A specialized, high-priced item, for example, might require an investment in personal selling, whereas a simple, low-cost product might lend itself to billboard advertising.

Product Life Cycle:

Where does your product stand in its life cycle? Are you developing awareness? Are you generating desire? What about driving purchases? And building loyalty? The answers will clearly affect your promotional focus. For instance, if you're developing awareness, you might focus more on advertising, but if you're aiming to drive immediate sales, you'll probably emphasize sales promotion.

Target Audience:

How big is your target audience? Where do they live and work? A small target audience— especially if it's geographically dispersed—would lend itself to personal selling or direct mail. A sizable target audience might suggest advertising as an effective way to reach large numbers. Audience expectations should also play a role in your promotional mix decisions.

push strategy

A marketing approach that involves motivating distributors to heavily promote—or "push"—a product to the final consumers, usually through heavy trade promotion and personal selling.

pull strategy

A marketing approach that involves creating demand from the ultimate consumers so that they "pull" your products through the distribution channels by actively seeking them.