mkt 8

Product Concept

Definition of a Product

  • Anything received in exchange that can satisfy a need or want.
  • Can be tangible (physical goods) or intangible (services, ideas).
  • Effectively includes:
    • Goods: Physical products (e.g., snacks, electronics)
    • Services: Non-physical offerings (e.g., streaming services)
    • Ideas: Concepts/promotions to satisfy a need (e.g., public health campaigns)
    • People: Individual offerings (e.g., public figures)
    • Places: Destinations marketed to consumers.

Types of Consumer Products

1. Convenience Goods
  • Low cost, frequent purchases.
  • Minimal effort required for buying.
  • Example: Snacks, toothpaste.
2. Shopping Goods
  • Higher involvement in decision making, requires comparison.
  • Examples: Clothing, electronics.
3. Specialty Goods
  • Unique products, brand preference is significant.
  • No close substitutes available.
  • Example: Rolex watches, luxury cars.
4. Unsought Goods
  • Products not actively sought out, may require persuasion to buy.
  • Example: Life insurance, burial plots.

Product Items, Lines, and Mixes

  • Product Item: A specific product version (e.g., iPhone 14).
  • Product Line: A group of related product items (e.g., Apple iPhones).
  • Product Mix: All the products offered by a company (e.g., Apple’s mix includes iPhones, MacBooks, AirPods).

Product Adjustments

  1. Modification: Changes in features or packaging.
  2. Planned Obsolescence: Products designed to become outdated (e.g., shortening iPhone battery life intentionally).
  3. Repositioning: Altering customer perception (e.g., Old Spice’s rebrand).
  4. Line Extension: Adding variants to an existing line (e.g., Coke Zero, Cherry Coke).
  5. Line Contraction: Removing underperforming products.

Branding & Brand Strategy

Benefits of Branding

  • Creates product identity and recognition.
  • Builds customer loyalty and trust.
  • Facilitates launching new products effectively.

Types of Brands

  • Manufacturer’s Brands (National): Products made by producers (e.g., Samsung, Tide).
  • Private Label Brands (Retailer-owned): Sold exclusively by a retailer (e.g., President's Choice, Kirkland).
  • Generic Brands: No-name products with low prices, simple packaging; contrast with branded goods which are recognized brands often priced at a premium.

Brand Strategy Tools

  • Individual Brands: Each product gets its own distinct brand (e.g., Tide, Cheer).
  • Family Brands: A single brand that represents multiple products (e.g., Sony).

Brand Extensions & Packaging

  • Brand Extension: Utilizing the brand name in a new category (e.g., Dove soap to Dove deodorant).
  • Line Extension: Creating new variants within the same category (e.g., Diet Coke).
Co-branding Types:
  1. Ingredient Co-branding: (e.g., Intel inside HP laptops)
  2. Cooperative Co-branding: (e.g., Airmiles partnering with BMO)
  3. Complementary Co-branding: (e.g., Taco Bell menu items featuring Doritos).

Brand Dilution

  • Occurs when too many unrelated brand extensions confuse consumers or decrease brand equity.

Packaging & Labelling

Packaging

  • Functions to attract customers, protect the product, and provide information.

Labelling

  • Informational: Ingredients, usage instructions, safety info.
  • Persuasive: Logos, slogans (e.g., "Now with 30% more").

Product Warranties

  • Express Warranty: Written guarantees of product quality (e.g., "100% cotton").
  • Implied Warranty: Unwritten assurance about the product's quality and usability.

New Product Development (NPD)

Importance of NPD

  • Drives company growth and innovation.
  • Replaces outdated products.
  • Meets evolving consumer needs.
  • Adapts to shorten product life cycles.

7-Step NPD Process

  1. Strategy: Aligning with business objectives.
  2. Idea Generation: From various sources like R&D and customers.
  3. Screening: Eliminating weak ideas through concept testing.
  4. Business Analysis: Evaluating profitability, demand, and costs.
  5. Development: Creating prototypes and branding strategies (including testing).
  6. Test Marketing: A limited market launch to gauge consumer response.
  7. Commercialization: Full-scale launch of the product.

Reasons for Product Failure

  • Poor timing, ineffective design, lack of market need, pricing issues.

Diffusion of Innovation (Adoption Curve)

Adopter Categories

  1. Innovators (2.5%): Risk-takers, first to adopt products.
  2. Early Adopters (13.5%): Influential opinion leaders.
  3. Early Majority (34%): More deliberate in decision.
  4. Late Majority (34%): Skeptical, adopt after the average person.
  5. Laggards (16%): Resistant to change, last to adopt new products.

Factors Affecting Adoption

  • Relative advantage of innovation over current alternatives.
  • Compatibility with existing values or needs.
  • Complexity of the product and ease of use.
  • Trialability allows consumers to experiment before full adoption.
  • Observability of the product's benefits to others.

Product Life Cycle (PLC)

Stages of the PLC

  1. Introduction: High costs, low market awareness, initial losses.
  2. Growth: Fast sales increases and rising profits.
  3. Maturity: Market saturation and intense competition.
  4. Decline: Sales decrease, potential product withdrawal.

Strategies to Extend the PLC

  • Reposition products to target new market segments.
  • Identify and encourage new uses or features.
  • Attracting new users through marketing efforts.

Case Examples

  • Apple: Leverages planned obsolescence and line extensions to maintain its brand relevance.
  • Gillette: Once market-dominant, faces challenges from low-cost competitors disrupting their business model.

Marketing Channels & Pricing

Overview of Marketing Channels

  • Multiple businesses participate from production to end customer sales (e.g., manufacturer, wholesaler, retailer).
  • Pricing needs to account for the margins expected by all channel members, affecting final consumer prices.

Pricing Mechanisms and Formulas

  1. Margin ($) or Markup ($):
    • extPrice=extVariableCost+extMarginext{Price} = ext{Variable Cost} + ext{Margin}
    • extPrice=extVariableCost+extMarkupext{Price} = ext{Variable Cost} + ext{Markup}
  2. Margin (%) or Markup (%):
    • ext{Margin ( ext{%})} = rac{ ext{Margin} ( ext{ extdollar})}{ ext{Price}} imes 100 ext{ ext{%}}
    • ext{Markup ( ext{%})} = rac{ ext{Markup} ( ext{ extdollar})}{ ext{Variable Cost}} imes 100 ext{ ext{%}}
  3. Merged Formulas:
    • Save time calculating price by using the transformed equations, such as:
    • ext{Price ( ext{ extdollar})} = rac{ ext{Variable Cost}}{1 - ext{Margin ( ext{%})}}

Solved Example Overview

  • Problem Setup: ANC Theatres example where a wholesaler takes a 40% margin and gets products from a manufacturer with a 30% markup, where the manufacturer's selling price is set at $5 per piece.

Step to Solve the Example

  1. Manufacturer's Cost Calculation:
    • Using the formula consider:
      ext{Selling Price} = ext{Variable Cost} imes (1 + ext{Markup} ext{( ext{%})})
    • From manufacturer's price = $5 with a markup of 30%, find VC = $3.85.
  2. Wholesaler's Price Calculation:
    • Wholesaler's cost is the manufacturer's price. Use the margin formula:
      ext{Selling Price} = rac{Cost}{1 - ext{Margin} ext{( ext{%})}}
    • Result: Wholesaler price = $8.33.