MKTG 350 Exam 3

Customer value

Customer value

which defines the basic problem-solving benefits that consumers are seeking

associated services

also referred to as the augmented product, include the nonphysical aspects of the product, such as product warranties, financing, product support, and after-sale service. The amount of associated services also varies with the product

4 types of products

1. Specialty

2. Shopping

3. Unsought

4. Convenience

Shopping

are products or services for which consumers will spend a fair amount of time comparing alternatives, such as furniture, apparel, fragrances, appliances, and travel alternatives

Specialty

are those for which customers express such a strong preference that they will expend considerable effort to search for the best suppliers

Consumer Products

are products and services used by people for their personal use

Convenience

are those products or services for which the consumer is not willing to expend any effort to evaluate prior to purchase

Unsought

are products or services that consumers either do not normally think of buying or do not know about. Because of their very nature, these products/services require lots of marketing effort and various forms of promotion

Product mix

The complete set of all products and services offered by a firm

Product lines

which are groups of associated items that consumers tend to use together or think of as part of a group of similar products or services

breadth

represents a count of the number of product lines offered by the firm; BMW has four

depth

in contrast, equals the number of products within a product line. Within BMW's Rolls-Royce brand, for example, it offers Phantom, Wraith, and Ghost models

What makes a brand

• Brand names -logos -symbols -characters -slogans

• jingles

• URL

Brand Awareness

measures how many consumers in a market are familiar with the brand and what it stands for and have an opinion about it. The more aware or familiar they are, the easier their decision-making process is, which improves the chances of purchase

Perceived value

of a brand is the relationship between a product's or service's benefits and its cost. Customers usually determine the offering's value in relationship to that of its close competitors

Brand Associations

reflect the mental and emotional links that consumers make between a brand and its key product attributes, such as a logo and its color, slogan, or famous personality

What do brands do

• Facilitate Purchasing

• Establish Loyalty

• Protect from Competition

• Are Assets

• Impact Market Value

Brand Loyalty

occurs when a consumer buys the same brand's product or service repeatedly over time rather than buy from multiple suppliers within the same category

Two basic brand ownership strategies

• manufacturer brands

• retailer/store brands

Manufacturer brands, also known as national brands

are owned and managed by the manufacturer. Some famous manufacturer brands are Nike, Coca-Cola, KitchenAid, and Sony

Retailer/store brands, also called private-label brands

are products developed by retailers. In some cases, retailers manufacture their own products, whereas in other cases theyPage 230 develop the design and specifications for their retailer/store brands and then contract with manufacturers to produce those products

Family Brand

the individual brands benefit from the overall brand awareness associated with the family name. Kellogg's uses its family brand name prominently on its cereal brands (e.g., Kellogg's Special K, Kellogg's Froot Loops, Kellogg's Rice Krispies).

Individual brand

names for each of its products. For example, while Kellogg's makes good use of the family branding strategy, it also allows other products, such as Morningstar Farms, Famous Amos cookies, Keebler cookies, and Cheez-Its (Exhibit 11.6), to keep individual identities not readily seen as being under the Kellogg's umbrella

Brand extension

refers to the use of the same brand name in a different product line. It is an increase in the product mix's breadth

Line extension

is the use of the same brand name within the same product line and represents an increase in a product line's depth

Brand Dilution

occurs when the brand extension adversely affects consumer perceptions about the attributes the core brand is believed to hold

Examples of Unsuccesful brand extensions:

• Cheetos Lip Balm was based on the idea that if you like Cheetos, you would want to wipe it all over your lips.

• Lifesavers Soda did well in prelaunch taste tests but didn't in subsequent sales.

• Colgate Kitchen Entrees were microwavable frozen dinner entrees that shared the name with the famous toothpaste.

• Bic thought that since people wanted their disposable lighters and razors, they would also want disposable underwear. They were wrong.

Co-branding

is the practice of marketing two or more brands together on the same package, promotion, or store

Brand licensing

is a contractual arrangement between firms whereby one firm allows another to use its brand name, logo, symbols, and/or characters in exchange for a negotiated fee

Brand repositioning or rebranding

refers to a strategy in which marketers change a brand's focus to target new markets or realign the brand's core emphasis with changing market preferences

Sustainable packaging

is product packaging that is ecologically responsible. Leaders in this area of innovation include Coca-Cola, Microsoft, Waste Management, Aveda, and Zappos

Primary package

is the one the consumer uses, such as the toothpaste tube. From the primary package, consumers typically seek convenience in terms of storage, use, and consumption

Secondary package

is the wrapper or exterior carton that contains the primary package and provides the UPC label used by retail scanners. Consumers can use the secondary package to find additional product information that may not be available on the primary package

Innovation

refers to the process by which ideas are transformed into new offerings, including products, services, processes, and branding concepts that will help firms grow

5 reasons firms create new products

1. Customer needs

2. Market Saturation

3. Fashion cycles

4. Managing Risk through Diversity

5. Improving Business Relationships

Diffusion of innovation

The process by which the use of an innovation—whether a product, a service, or a process—spreads throughout a market group, over time and across various categories of adopters

Pioneers or Breakthroughs

Truly new product introductions, that is, new-to-the-world products that create new markets, can add tremendous value to firms. These new products establish a completely new market or radically change both the rules of competition and consumer preferences in a market

First Movers

as the first to create the market or product category, they become readily recognizable to consumers and thus establish a commanding and early market share lead. Studies also have found that market pioneers can command a greater market share over a longer time period than later entrants can

Innovators

are those buyers who want to be the first on the block to have the new product or service. These buyers enjoy taking risks and are regarded as highly knowledgeable

Early adopters

The second subgroup that begins to use a product or service innovation

Early majority

which represents approximately 34 percent of the population, is crucial because few new products and services can be profitable until this Page 246large group buys them. If the group never becomes large enough, the product or service typically fails

represents approximately 34 percent of the population

Late majority

is the next group of buyers to enter a new product market. When they do, the product has achieved its full market potential. Perhaps these movie watchers wait until the newest movie is easy to find at Red Box or put it low on their Netflix queue, to be delivered after the other consumers interested in watching it have already seen it

At 34 percent of the market

Laggards

These consumers like to avoid change and rely on traditional products until they are no longer available. In some cases, laggards may never adopt a certain product or service.

make up roughly 16 percent of the market

4 components of Diffusion of Innovation Theory

1. Relative Advantage

2. Compatibility

3. Observability

4. Complexity and Trialability

6 steps How Firms Develop New Products

1. IDEA GENERATION

2. CONCEPT TESTING

3. PRODUCT DEVELOPMENT

4. MARKET TESTING

5. PRODUCT LAUNCH

6. EVALUATION OF RESULTS

7 sources of ideas

1. Customer input

2. Internal Research and Development

3. R&D Consortia

4. Licensing

5. Brainstorming

6. Outsourcing

7. Competitors' Products

Concept

which in this context refers to a brief written description of the product; its technology, working principles, and forms; and what customer needs it would satisfy

Concept testing

refers to the process in which a concept statement is presented to potential buyers or users to obtain their reactions. These reactions enable the developer to estimate the sales value of the product or service concept, possibly make changes to enhance its sales value, and determine whether the idea is worth further development

Product development or Product design

entails a process of balancing various engineering, manufacturing, marketing, and economic considerations to develop a product's form and features or a service's features

Prototype

is the first physical form or service description of a new product, still in rough or tentative form, which has the same properties as a new product but is produced through different manufacturing processes—sometimes even crafted individually

alpha testing

the firm attempts to determine whether the product will perform according to its design and whether it satisfies the need for which it was intended

beta testing

uses potential consumers, who examine the product prototype in a real-use setting to determine its functionality, performance, potential problems, and other issues specific to its use

premarket tests

before they actually bring a product or service to market to determine how many customers will try and then continue to use the product or service according to a small group of potential consumers.

Test marketing

introduces the offering to a limited geographical area (usually a few cities) prior to a national launch

product life cycle

defines the stages that products move through as they enter, get established in, and ultimately leave the marketplace. It thereby offers marketers a starting point for their strategy planning

Growth stage

the product gains acceptance, demand and sales increase, and more competitors emerge in the product category

maturity stage

industry sales reach their peak, so firms try to rejuvenate their products by adding new features or repositioning them

Decline stage

the stage when sales decline and the product eventually exits the market

Reverse engineering

involves taking apart a product, analyzing it, and creating an improved product that does not infringe on the competitor's patents, if any exist. This copycat approach to new product development is widespread and practiced by even the most research-intensive firms

Service

is any intangible offering that involves a deed, performance, or effort that cannot be physically possessed

Customer review

specifically refers to human or mechanical activities firms undertake to help satisfy their customers' needs and wants. By providing good customer service, firms add value to their products

4 fundamental differences involved in services

• intangible

• inseparable

• heterogeneous

• perishable

intangible

the most fundamental difference between a product and a service is that services are intangible—they cannot be touched, tasted, or seen like a pure product can

Inseparable

Unlike a pair of jeans that may have been made halfway around the world six months prior to their purchase, services are produced and consumed at the same time; that is, service and consumption are inseparable.

Heterogeneity

or variability in the service's quality. A hairstylist may give bad haircuts in the morning because he or she went out the night before.

Perishable

they cannot be stored for use in the future. You can't stockpile your membership at Planet Fitness like you could a six-pack of V8 juice, for instance. The perishability of services provides both challenges and opportunities to marketers in terms of the critical task of matching demand and supply

When the delivery of that service fails to meet those expectations

Service gap

4 Service gaps

1. Knowledge

2. Standard

3. Delivery

4. Communication

Knowledge gap

reflects the difference between customers' expectations and the firm's perception of those customer expectations

Standard gaps

pertains to the difference between the firm's perceptions of customers' expectations and the service standards it sets

Delivery gap

is the difference between the firm's service standards and the actual service it provides to customers

Communication gap

refers to the difference between the actual service provided to customers and the service that the firm's promotion program promises

Service quality

or customers' perceptions of how well a service meets or exceeds their expectations, is often difficult for customers to evaluate

voice-of-customer (VOC) program

collects customer inputs and integrates them into managerial decisions

Zone of tolerance

which refers to the area between customers' expectations regarding their desired service and the minimum level of acceptable service—that is, the difference between what the customer really wants and what he or she will accept before going elsewhere

Empowerment

means allowing employees to make decisions about how service is provided to customers

Emotional support

to service providers by demonstrating a concern for their well-being and standing behind their decisions

Instrumental support

the systems and equipment to deliver the service properly. Many retailers provide state-of-the-art instrumental support for their service providers

3 Service Recovery stages

1. Listening to the Customers and Involving Them in the Service Recovery

2. Finding a Fair Solution

3. Resolving Problems Quickly

Distributive Fairness

pertains to a customer's perception of the benefits he or she received compared with the costs (inconvenience or loss). Customers want to be compensated a fair amount for a perceived loss that resulted from a service failure

procedural fairness

refers to the perceived fairness of the process used to resolve them. Customers want efficient complaint procedures over whose outcomes they have some influence. Customers tend to believe they have been treated fairly if the service providers follow specific company guidelines

5 service quality dimensions

1. reliability,

2. responsiveness

3. assurance

4. empathy

5. tangible

Realiability

The ability to perform the service dependably and accurately.

Responsiveness

The willingness to help customers and provide promptservice.

Assurance

The knowledge of and courtesy by employees and their ability to convey trust and confidence

Empathy

The caring, individualized attention provided to customers

Tangibles

The appearance of physical facilities, equipment, personnel, and communication materials.

Price

as the overall sacrifice a consumer is willing to make to acquire a specific product or service

The 5 C's of Pricing

1. Company Objectives

2. Customers

3. Costs

4. Competition

5. Channel Members

Profit Orientation

a company objective specifically by focusing on target profit pricing, maximizing profits, or target return pricing

target profit pricing

when they have a particular profit goal as their overriding concern. To meet this targeted profit objective, firms use price to stimulate a certain level of sales at a certain profit per unit.

maximizing profits

strategy relies primarily on economic theory. If a firm can accurately specify a mathematical model that captures all the factors required to explain and predict sales and profits, it should be able to identify the price at which its profits are maximized

Target return pricing

and employ pricing strategies designed to produce a specific return on their investment, usually expressed as a percentage of sales

Sales oreintation

to set prices believe that increasing sales will help the firm more Page 287than will increasing profits

Premium pricing

means the firm deliberately prices a product above the prices set for competing products to capture those customers who always shop for the best or for whom price does not matter.

competitor orientation

they strategize according to the premise that they should measure themselves primarily against their competition

competitive parity

which means they set prices that are similar to those of their major competitors

status quo pricing

changes prices only to meet those of the competition. For example, when Delta increases its average fares, American Airlines and United often follow with similar increases; if Delta rescinds that increase, its competitors tend to drop their fares too

Customer Orientation

is when a firm sets its pricing strategy based on how it can add value to its products or services

Demand Curve

shows how many units of a product or service consumers will demand during a specific period of time at different prices

Prestige products or services

which consumers purchase for their status rather than their functionality. The higher the price, the greater the status associated with it and the greater the exclusivity because fewer people can afford to purchase it