Chapter 8: Product and Service Management
Learning Objectives
Learn the range of product and service variation.
Understand the issues of product line formation.
Identify the strategy considerations over the product life cycle.
Know the strategic implication of alternative branding strategies.
Introduction: Three Dimensions of a Product or Service
Products and services can be understood through three key dimensions:
Core Value: This is the most fundamental level, representing the basic problem-solving benefits that customers seek. For example, in healthcare, the core value might be improved health or relief from pain.
Actual Product: This dimension includes the tangible characteristics or attributes of the product or service.
Features
Quality level
Brand Name
Associated Services (Augmented Services): These are the non-physical attributes that add value to the product or service, enhancing the customer experience.
Service Support
Clinical Care (in a healthcare context)
Complaint Procedures
Financing options
Online Scheduling
Learning Objective 1: Range of Product and Service Variation
Marketing efforts are fundamentally centered on developing and delivering products and services that effectively meet customer needs.
Product Classifications
By Tangibility/Durability
Nondurable Goods: Products consumed in one or a few uses. Examples include food items or fuel.
Durable Goods: Products that last over many uses and typically require more significant purchase deliberation. Examples include automobiles and major appliances.
By Type of User
Consumer Goods: Products purchased by the ultimate consumer for personal use.
Convenience Goods: Products purchased frequently, conveniently, and with minimal effort or deliberation prior to purchase. Examples often include staple groceries or over-the-counter medications.
Shopping Goods: Products for which the consumer engages in a significant amount of research, comparing competing brands on selected attributes such as price, quality, and style. Examples include clothing, televisions, or airline tickets.
Specialty Goods: Products that a consumer specifically seeks out due to unique characteristics or brand identification. Consumers are typically willing to make considerable effort to purchase these. Examples include luxury cars, specific designer brands, or specialized medical treatments.
Industrial Products: Products purchased for use in the manufacture of other products, which will ultimately be purchased by the ultimate consumer.
Production Goods: Items that directly become part of a final product. This includes raw materials and component parts.
Support Goods: Items used to assist in the production of other products, rather than becoming part of the final product. Examples include installations (factories), accessory equipment (tools), supplies (office supplies), and industrial services (maintenance).
Service Characteristics
Services are intangible activities or processes offered to customers to solve problems. They are distinct from physical products and are characterized by the "5 I's of Service":
Intangibility: Services cannot be physically felt, touched, heard, tasted, or seen before they are encountered or purchased. This makes evaluation difficult for consumers.
Inconsistency: The quality of health services, or any service, can vary significantly because they are delivered by people (e.g., nurse practitioners, physicians, admitting clerks). This human element introduces variability.
Inseparability: Services cannot be separated from the individuals or equipment that deliver them. Production and consumption often occur concurrently. For example, a doctor's examination is consumed as it is produced.
Inventory: This concept, common in product businesses (where goods can be stored), is often overlooked in services. Service capacity (e.g., an unoccupied hospital bed, an idle doctor's appointment slot) cannot be stored for later use.
Interaction with Customers: The quality of a service is often profoundly influenced by the interaction between the customer and the service provider. This personal element is crucial.
Customer Contact Audit (Medical Practice Blueprint): A valuable tool that flowchart-maps all points of interaction between the customer and the service offering, helping to identify potential issues and optimize the customer experience.
Service Classifications
By Delivery Method
People-Based Delivery: Services delivered primarily by individuals, susceptible to inconsistency.
Equipment-Based Delivery: Services delivered primarily by machines or technology. These often exhibit fewer problems with inconsistency compared to people-based services.
By Organizational Structure (in Healthcare)
For-Profit Businesses: A portion of the profits generated is often directed to shareholders or owners.
Non-Profit Service Organizations: Any excess revenues generated are redirected back into the organization to maintain and improve the service, rather than being distributed as profits.
Learning Objective 2: Issues of Product Line Formation
All businesses must make strategic decisions about the specific products or services they will offer.
Product Mix: This refers to the total number of product lines an organization offers.
Product Line: A group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges.
Breadth of Product Mix: The number of different product lines the company carries.
Depth of Product Line: The number of items or variations within each product line.
Most companies manage multiple product lines and items within those lines to cater to diverse market needs.
Learning Objective 3: Strategy Considerations Over the Product Life Cycle
The product life cycle describes the stages a product goes through as it exists in the market, from its first introduction to its final withdrawal. Understanding these stages is critical for developing effective marketing strategies.
The Four Stages of the Product Life Cycle
Introduction Stage:
Occurs when the product is first rolled out into the marketplace.
Sales are typically low, and profits are often negative due to high development and marketing costs.
The primary marketing objective is to create awareness and stimulate initial trial.
Pricing strategies can involve:
Skimming Pricing: Pricing high to recover development costs quickly and target innovators and early adopters willing to pay a premium.
Penetration Pricing: Pricing low to achieve rapid market share, attract a large number of buyers, and discourage competitors.
Growth Stage:
Sales of the product begin to increase rapidly.
Profits rise significantly as economies of scale are achieved and costs are spread over more units.
The focus shifts to differentiating the product from competitors and building brand loyalty.
Competitors begin to enter the market.
Maturity Stage:
Sales growth begins to slow or level off, reaching their peak.
Intense competition, often leading to price wars.
Profits may decline due to increased marketing expenditures to defend market share.
The organization's goal is to maintain market share and extend the life of the product.
Decline Stage:
Sales and profits begin to fall consistently.
The organization must recognize that the service or product cannot continue to grow indefinitely due to factors like technological advancements, shifts in consumer tastes, or increased competition.
Strategies may involve harvesting (reducing costs to maximize remaining profits) or divesting (discontinuing the product).
Product Life Cycle Issues and Modifications
Alternative Product Life Cycles: Not all products follow the classic bell-shaped curve. Some exhibit rapid growth and decline (fads), others ebb and flow (fashions), and some have extended introduction periods (high-learning products).
Length of the Life Cycle: The duration of a product life cycle can vary significantly and is influenced by uncontrollable forces such as technological advancements, changes in economic conditions, and demographic shifts.
Modifying the Product Life Cycle: Organizations can employ strategies to extend or adjust the life cycle of a product, particularly during the maturity phase:
Product Modification: Involves altering one or more of a product's characteristics, such as quality, features, performance, or appearance, to increase its sales. Examples include new car models each year or software updates.
Market Modification: Strategies aimed at increasing the total market for a product by:
Finding new customers (e.g., targeting a new demographic).
Increasing a product's use among existing customers (e.g., promoting new uses for baking soda).
Creating new usage situations (e.g., "soup for lunch").
Repositioning the Product: Changing the place a product occupies in a consumer's mind relative to competitive products. This can be driven by:
Changing the value offered (e.g., trading up or down).
Reacting to a competitor's position.
Reaching a new market segment.
Reacting to a trending or changing environment.
Learning Objective 4: Strategic Implications of Alternative Branding Strategies
Core Branding Concepts
Brand: Any name, term, sign, symbol, design, or combination of these that identifies the products or services of one seller and differentiates them from those of competitors.
Trademark: A brand name or trade name that is given legal protection, preventing others from using it.
Branding Strategies
Organizations employ various branding strategies to build brand equity and differentiate their offerings:
Multiproduct Strategy (Family Branding or Corporate Branding):
The company places one brand name on all of the products in its line.
Advantage: Capitalizes on existing brand equity, simplifies new product introductions, and reduces promotional costs.
Example: A hospital putting its name (e.g., "General Hospital") on all its facilities, such as an outpatient surgery center or a walk-in emergency center (e.g., "General Hospital Outpatient Surgery Center").
Multibrand Strategy:
The company places a different name on each item or product within its portfolio.
Advantage: Allows for targeting different market segments, creating distinct brand images, and enabling internal competition.
Disadvantage: Can lead to higher promotional costs as each brand needs its own marketing support.
Example: Proctor and Gamble's diverse laundry detergent brands like Tide, Cheer, and Ivory Snow, each appealing to different consumer needs or price points.
Reseller and Mixed Strategy:
Reseller Branding: One company sells its product under the name of another company (the reseller or private label).
Example: Sears selling Craftsman tools and Kenmore appliances, which are manufactured by other companies but branded by Sears.
Mixed Branding: A producer markets its products under its own name and that of a reseller because the segment attracted by the reseller is different from its own market.
Co-branding:
One organization markets its brand name alongside another brand name on a single product or service.
Advantage: Leverages the brand equity and reputation of both brands, potentially reaching new audiences and enhancing perceived quality.
Example: Lexus automobiles featuring Coach luggage leather seats, combining luxury automotive with premium accessory branding.
The Diffusion of Innovation
The diffusion of innovation refers to the process by which a new product or idea spreads through a market or population over time.
Categories of Adopters (Based on Relative Time of Adoption)
Figure 8-8 illustrates the distribution of adopter categories:
Innovators ( of Population):
Venturesome individuals who are eager to try new ideas.
Typically higher educated, use multiple information sources, and are risk-takers.
Often act as opinion leaders.
Early Adopters ( of Population):
Respectable opinion leaders in their social settings.
Slightly above average education and more integrated into the local social system.
They adopt new ideas early but carefully, and their endorsement helps to legitimize the innovation.
Early Majority ( of Population):
Deliberate and prudent individuals who adopt new ideas just before the average person.
Often rely on the experiences of early adopters and opinion leaders. They are often characterized by many informal social contacts.
Late Majority ( of Population):
Skeptical individuals who adopt an innovation only after a majority of people have tried it.
Often motivated by peer pressure or a need to conform.
Tend to be below average in social status and have little opinion leadership.
Laggards ( of Population):
Tradition-bound individuals who are the last to adopt an innovation.
Often suspicious of innovations and fear debt.
Their primary information sources are usually neighbors and friends who have already adopted.
Factors Affecting Adoption Rate
Several factors influence how quickly a new product is adopted by the market:
Relative Advantage: The degree to which an innovation is perceived as better than the idea it supersedes. The greater the perceived advantage, the faster the adoption.
Compatibility: The degree to which an innovation is perceived as consistent with the existing values, past experiences, and needs of potential adopters. High compatibility increases adoption.
Complexity: The degree to which an innovation is perceived as difficult to understand and use. Simpler innovations diffuse faster.
Divisibility (Trialability): The degree to which an innovation can be tried on a limited basis. Products that can be sampled or tested without full commitment tend to be adopted faster.
Communicability (Observability): The degree to which the results of an innovation are visible to others. Innovations with easily observable benefits are more likely to be adopted.
Homophilous Groups: The extent to which members of a group share similar traits, beliefs, and experiences. Diffusion is often faster within homophilous groups due to easier communication and trust.
Pace of Innovation: The speed at which new products are introduced and evolve within a particular industry or market. A faster pace can accelerate or complicate adoption.
Norms, Roles, and Social Networks: Societal norms, individual roles within a community, and the structure of social networks significantly influence when and how innovations spread.
Infrastructure: The availability of supporting systems, resources, and complementary technologies necessary for the effective adoption and use of the innovation. For example, high-speed internet is an infrastructure requirement for many digital innovations.