PRINCIPLES OF MARKETING UNIT 3

UNIT 3 PRODUCT CLASSIFICATION

CONTENTS 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 What is a Product? 3.2 Product Levels 3.3 Classification of Products 3.4 Consumer Products 3.4.1 Convenience Products 3.4.2 Shopping Goods 3.4.3 Specialty Goods 3.4.4 Unsought Goods 3.5 Industrial Goods 3.5.1 Installation 3.5.2 Equipment, Tools and Accessories 3.5.3 Raw Materials 3.5.4 Semi-Processed Components and Parts 3.5.5 Consumables and Operating Supplies 3.6 Characteristics of Industrial Products 3.7 Marketing Strategies for Consumer and Industrial Goods 4.0 Conclusion 5.0 Summary 6.0 Tutor-Marked Assignment Prepared By: Ms.Vimala Page 1

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7.0 References/Further Readings 1.0 INTRODUCTION Businesses are set up to produce products or goods and services. These products are sold to members of the society for money. Goods consist of items with attributes that have the ability to satisfy peoples needs and wants. Goods are normally tangible items. Services are intangible items that can provide value and satisfaction and are also classified as products. This unit introduces you to various definitions of a product, classification of products and their characteristics. 2.0 OBJECTIVES After studying this unit, you should be able to: define a product classify products into either consumer or industrial products explain the characteristics of industrial products. 3.0 MAIN CONTENT 3.1 What is a Product? In order to be effective at selling or marketing, it is necessary to have a proper perspective of the meaning of a product or how it should be viewed from a marketing angle. You may like to think a little deeply on what is meant by the word product. Let us understand this with the aid of an illustration While conducting seminar for operational salesmen who had been on the field for 10 to 12 years, salesmen were asked a question, What are you selling? Different answers were received from different groups. One group answered, Soaps. When asked, What? What did you say? the salesmen would immediately answer back, soaps, soaps, soaps. They even tried to help the seminar leader by putting forward their right hand with the first finger and the thumb holding something rectangular, hereby assisting him to visualize soap others claimed they sold bulbs, drills, etc. A product is the key marketing mix variable on which all the other marketing mix variables revolve. It cannot be divested from other marketing mix variables because all of them contribute to form the images of the product from the point of view of the buyers. These images determine the values and satisfaction expected from a given product and how much the buyers will offer for it. It is therefore important for the manufacturers and marketers to understand what a product means to consumers and their expectations from that product. Hence, a product can be described as goods, services, ideas, people, places, and even organizations that are offered for exchange. Or, aproduct is the bundle of benefits or satisfaction offered to a customer. Also, a product is defined as anything offered or sold for the purpose of satisfying a need or want on Prepared By: Ms.Vimala Page 2

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both sides of the exchange process. It includes a tangible object that marketers refers to as a good, as well as an intangible service (such as ideas, a place, an event, an organization), or any combination of tangible objects and intangible services. However, Stanton (1981:161) defined a product as a set of tangible and intangible attributes including packaging, colour, price, manufacturers prestige, retailers prestige, and manufacturers and retailers services, which the buyer may accept as offering want-satisfaction. It should however be noted that the consumer is not interested in your goods. He/she is interested in himself or herself and what benefits he/she will get, and not in you or your organization.

3.2 Product Levels This can be illustrated with the aid of a diagram as shown below: Levels of a Product Source: Kotler, P (1987) Principles of Marketing (a) The Core Benefits: i.e. the fundamental service or benefit that the customer is really buying. For instance, the core benefit enjoyed by a guest in a hotel is rest and sleep. (b) The Basic Product: Here, marketers have to turn the core benefit into a basic product. For example, in the case of the hotel, such things as a bed, table, chair, bathroom, and dresser are the basic products enjoyed by a guest in the hotel. (c) The Expected Product: Here, marketers prepare an expected product, i.e. a set of attributes and conditions buyers normally expect when they purchase a product. For example, in an hotel, guests expect a clean bed, fresh towels, constant power supply, and a relatively quiet (d) Augment Product: Marketers are concerned with preparing augmented products that exceed customers expectations. For example, a hotel may have a remote controlled TV set, remote controlled air conditioner, fresh flowers, etc. (e) Potential Product: This consists of all the possible augmentations and transformations the product might undergo in the future, just as we have new products in our markets daily due to modifications and diversifications undertaken by manufacturers. Prepared By: Ms.Vimala Page 3

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3.3 Classification of Products Generally, products are classified into two types namely: consumer products and industrial products.

3.4 Consumer Products Consumer goods are those which are used by ultimate consumers or households and in such form that they can be used without further commercial processing. Consumer goods can further be classified according to the amount of efforts consumers are willing to expend for purchases and the extent of their preferences for such products and services. Thus, consumer goods can be divided into: Convenience goods Shopping goods Specialty goods Unsought goods The functions of marketing can be classified into three, namely merchandising function, physical distribution, and auxiliary function as discussed in unit one. 3.4.1 Convenience Products/Goods These are standardized products and services usually of low unit values that consumers wish to buy immediately as needs arise and with little buying efforts. That is, goods which consumers generally purchase frequently with little effort. The purchase is almost spontaneous and the person has already, a predetermined brand in mind. These convenience goods include soaps, newspapers, toothpaste, cigarettes, etc. Often, convenience goods are bought impulsively or spontaneously. For example, when a person goes for shopping and sees a product which attracts his eyes, he buys it on impulse. Such goods are not purchased on a regular basis. 3.4.2 Shopping Goods These are goods which are purchased after going around shops and comparing the different alternatives offered by different manufacturers and retailers. In other words, these are durable items with differentiated product attributes that consumers wish to compare in order to be able to find the most suitable for their needs before buying. In this case, the emphasis is on quality, price, fashion, style, etc. They therefore have to be marketed differently. Examples of such goods are clothing, household appliances and furniture. 3.4.3 Specialty Goods Prepared By: Ms.Vimala Page 4

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These are products that consumers insist on having. The buyers are willing to wait until the right products are available before they buy them. Consumers have either developed special taste or liking for such goods. Specialty products are usually specific branded items rather than product categories. They are specific products which have passed the brand preference stage and reached the brand insistence stage.Examples of these are cars, jewelry, fashion clothing, photocopymachines, and cameras. They are usually very costly items and include luxury items. 3.4.4 Unsought Goods These are goods that people do not seek, either because they did not plan ahead to buy them or they did not know about their existence before they saw them on displays at the point of purchase. Most new and recently introduced products will fall into this class. Therefore, aggressive and continuous promotion is necessary for them. Examples of unsought products include life insurance, encyclopedia, and blood donation to the Red Cross Society. SELF ASSESSMENT EXERCISE 1. What is a product? 2. What are the levels of a product? 3.5 Industrial Products These are products that are used by producers who convert them into consumables or consume them in their processes of conversion or production of their goods. Industrial products are those purchased for further processing or for use in conducting a business. The distinction between consumer and industrial goods is based on the purpose for which the particular product was bought. The classification of industrial goods is based on how they are used by industries. Akanbi (2002) classified industrial products into five namely: Installation Equipment, Tools and Accessories Raw Materials Semi-Processed Components and Parts Consumables and Operating Supplies 3.5.1 Installation These are major capital items that form the main assets of production firms. They are very costly items that need major decisions before they are purchased. They include product items as buildings, heavy

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manufacturing machines, computers, etc. These are usually custom made items that will require direct negotiations between the buyers and the sellers.

3.5.2 Equipment, Tools and Accessories These are usually standardized items that are used by a wide range of industrial users. They are products like typewriters, hand tools, filing cabinets, and air conditioners. They are production operating items. 3.5.3 Raw Materials They form the major parts of the finished items. They are the materials that go through the production line to make up the finished items. They include the raw materials of agricultural products, mining products, forestry products, sea and water products. They are usually standardized items that are sold on the basis of quality and their reliability of supply. 3.5.4 Semi-Processed Components and Parts These types of industrial goods also form part of the finished items, although some of them are finished items already like buttons for shirts, radio and batteries for cars. Parts can be used by themselves or can be used to form components of the final items. 3.5.5 Consumables and Operating Supplies These are the convenience items of industrial products. They are used to aid the running and maintenance of the organisations equipment and for keeping the organisations and their machines in proper shape. They are usually standardized items and of low prices. Examples are stationery, fuel, water, grease, etc. 3.6 Characteristics of Industrial Products (i) The demand for industrial goods is derived from the demand for the final goods which they are used to produce. The higher the demand for the final item, the higher will be the demand for the industrial goods and vice versa. (ii) The demand for industrial goods is mostly inelastic. The amount of items bought of an industrial product remains essentially the same regardless of the price. This is because most items are not ade of one single product, but a combination of products. For example, a car is made of the body, tyres, radio, Prepared By: Ms.Vimala Page 6

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air conditioners, lights and so on. If the price of the items is increased, they will still need the same number for each car. Although if the price falls, they may buy more to stock in anticipation of a rise in price in future. (iii) Most industrial goods have joint demands with other industrial items. As in (ii) above, most finished goods are a combination of very many products and an increase in the demand for one item will lead to an increase in the demand for the other product. (iv) The industrial goods markets are usually concentrated and few in number than the consumer goods markets. Most of the users of industrial goods are usually concentrated in industrial estates. Government, parastatals and other institutions that use industrial goods are usually concentrated in few locations. The typical industrial buyer is very well informed about what they want to buy. They also know the alternative sources of these items. (v) The industrial buying process is usually more rational or the decisions to buy them are more economically based than in the consumer buying process. 3.6 Marketing Strategies for Consumer and Industrial Products Industrial products are generally subject to greater standardization, as against certain consumer products which require frequent changes in fashion and style. Advertising normally is an important promotional tool for consumer products, but may not be so in the case of industrial products. Personal selling and after sales service are generally more important for industrial products. Industrial products generally involve high value purchases and this involves competitive bidding based on price competition. Selling is done on the basis of quality or tangible attributes. As against this, consumer products are very often sold for psychological satisfaction. For example, in case of soaps, Lux soap is said to offer you a complexion like that of a film star! Consumer products require elaborate channels of distribution, but industrial products are sold through fewer outlets and often directly by the organization itself. These are some of the salient features of marketing of consumer products as against industrial products. 4.0 CONCLUSION A product is the key marketing mix variable on which all the other marketing mix variables revolve. It cannot be diverted from other marketing mix variables, because all of them contribute to form the images of the product from the point of view of the buyers. These images determine the values and satisfaction expected from a given product and how much the buyers will offer for it. It is therefore important for the manufacturers and marketers to understand what a product means to consumers and their expectations from that product.

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PRINCIPLES OF MARKETING UNIT 3

5.0 SUMMARY In this unit, you learnt what a product means, various classification of products and necessary strategies adopted for consumer and industrial products. We hope these concepts will build up for the next unit New Product Development and Product Life - Cycle.

6.0 TUTOR-MARKED ASSIGNMENT 1. What is a product? 2. Differentiate the following with the aid of examples: (a) Convenience goods. (b) Specialty goods (c) Shopping goods.

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