PRODUCT, SERVICE

WHAT IS A PRODUCT?
Product is anything that can be offered to a
market for attention, acquisition, use, or
consumption that might satisfy a want or
need.

—Also include services, events, persons,

place, organizations, ideas, or a mixture of
these—
 EXAMPLES OF
PRODUCT

EVENT PLACE IDEAS(new product)

SERVICES
SERVICES are a form of product
that consists of activities, benefits, or
satisfactions offered for sale that are
essentially intangible and do not
result in the ownership of anything.

EXAMPLE S

Doctor’s HAIR CUT

Examination
 Product, Service,
Experience
PURE TANGIBLE GOOD PURE SERVICE

COMBINATION OF THIS TWO

Levels of Product
CORE ACTUAL AUGMENTED
CUSTOMER PRODECT PRODUCT
VALUE

To develop
What is the Offering
product and
additional
buyer service features,
consumer
really design, a quality
services and
level, a brand
buying? name, and
benefits.
packaging.
 AUGMENTED:

ACTUAL: DELIVERY
INSTALLATI
ON
BRAND PACKAGING
CORE:
BASIC
CREDIT/ NEED, FEATURES
WARRANTY
PAYMENT QUALITY BENEFI
TERMS LEVEL T

DESIGN

AFTER SALES SERVICES

NOKIA
N8:
THE CORE
PRODUCT:
COMMUNICATI
ON
MESSAGING
THE ACTUAL PRODUCT
PACKAGING-Anodised
Aluminium case, available
in 6 different colours.
Size: 113.5 x 59 x 12.9
mm Weight (with battery):
135 g Volume: 86 cc
FEATURES-Works on
Symbian ^3, Has a 12 MP
camera, Radio and Music
player and Gaming.
QUALITY LEVEL: Phone
camera is of exceptional
quality with HD recording.
BRAND: Nokia, which
happens to be one of the
most trusted cell phone
brands in India.
AUGMENTED PRODUCT
DELIVERY: Then
product can be
purchased from any
Electronic goods
showroom. It can be also
ordered online.
INSTALLATION: Not
required.
WARRANTY: The
product has a warranty
period of 1 year.
AFTER SALE
SERVICES: Can be
acquired from any Nokia
service centre.
CREDIT/PAYMENT
Product and
service
classification
 Product and services
classes
Consumer Industrial Products
products Are A product brought by
products and individuals and
services bought by organizations for
final consumers for further processing for
personal use in conducting a
consumption. business.
 Types of consumer
product
Consumer Product

Convenience Product

Shopping Product

Specialty Product

Unsought Product
 Marketing Convenience Shopping Specialty Unsought
Consideratio
ns
Customer Frequent purchase, little Less frequent Strong brand Little product
buying behavior planning, little purchase, much preference and loyalty, awareness
comparison or shopping planning and special purchase
effort, low customer shopping effort, effort, little comparison
involvement comparison of of brands, low price
brands on price, sensitivity
quality, style
Price Low price Higher Price High Price Varies

Distribution Widespread distribution, Selective Exclusive distribution Varies

convenient locations distribution in in only one or few
fewer outlets outlets per market
area

Promotion Mass promotion by the Advertising and More carefully Aggressive advertising
producer personal selling targeted promotion by and personal selling
by both the both the producer and by the producer and
producer and reseller reseller
resellers

Examples Toothpaste, magazines Clothing and Luxury goods such Life insurance and red
and detergent appliances Rolex or fine crystals cross blood donations
 Industrial Product
types
Materials and parts - Raw materials and
manufactured materials and parts.
Capital Items – Industrial products that
aid in the buyer’s production or
operation.
Supplies and services – Operating
supplies and repair and maintenance
items.
New Product Development

Development of original products, product

improvements, product modifications,
and new Brands through the firm’s
own R&D efforts.

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 New Product Development Strategy

New products can be obtained via acquisition

or development.

New products suffer from high failure rates.

Several reasons account for failure.

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 Why Do New Products Fail ?
• Overestimated market

• Poor design

• Incorrect positioning

• Error in pricing

• Poor marketing communication

• Production-orientation

• Cost overrun

• Competition
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 Why Do New Products Success?

• Unique

• superior product
• Well defined product concept
from startup

• Specific criteria

• Specific strategic role

• Systematic new-product
process

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 Major Stages in
New-Product Development

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 New Product Development Strategy

New Product Development Process:

 Stage 1: Idea Generation
 Internal idea sources:
• R&D
 External idea sources:
• Customers,
• Competitors,
• Distributors
• Suppliers

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 New Product Development Strategy

New Product Development Process:

Stage 2: Idea Screening
 Product development costs increase
dramatically in later stages.
 Ideas are evaluated against criteria;
most are eliminated.

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 New-Product Development Process:
Idea Generation

Systematic process
 Idea manager
 Multidisciplinary
committee
 Toll-free number
 Staff encouragement
 Formal recognition
Yields
 innovation culture
 more ideas

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 New Product Development Strategy

New Product Development Process:

Stage 3: Concept Development and
Testing
 Product concepts provide detailed
versions of new product ideas.
 Consumers evaluate ideas in concept
tests.

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 New-Product Development Process:
Idea Screening

• Purpose • Product concept

– Identify good ideas
– New-product idea in
drop poor ones fast
detail stated in
• Challenge
meaningful consumer
– Maintain creativity and
terms
stream of ideas
• Standard format • Concept development
• Criteria and rating – Expanding the new-
product idea into
various alternative
forms
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 New-Product Development Process: Concept
Development and Testing

• Concept testing
– Target consumers
exposed to new-
product concepts
– Word or picture
description
– Physical
presentation of the
concept
– Question reactions
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 New Product Development Strategy

New Product Development Process:

Stage 4: Marketing Strategy
Development
 Strategy statements describe:
• The target market, product positioning, and
sales, share, and profit goals for the first few
years.
• Product price, distribution, and marketing
budget for the first year.
• Long-run sales and profit goals and the
marketing mix strategy.

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 New Product Development Strategy

New Product Development Process:

Stage 5: Business Analysis
 Sales, cost, and profit projections
Stage 6: Product Development
 Prototype development and testing

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 New-Product Development Process: Business
Analysis

• Review sales, costs and profit projections

• Compare projected results to objectives
• Estimate maximum and minimum sales
– Company history and market opinion
• Assess risk
• Estimate product costs and profits
• Analyze attractiveness using sales and costs

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 New Product Development Strategy

New Product Development Process:

 Stage 7: Test Marketing
 Standard test markets

 Controlled test markets

 Simulated test markets

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New-Product Development Process: Standard
Test Markets

• Use small number of representative test cities

• Conducts full marketing campaign
• Store audits, consumer/distributor surveys
gauge performance
• Costly and time consuming
• Competitor reaction
• Most popular approach

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 New-Product Development Process: Controlled
Test Markets

• Controlled panel of stores - fee basis

• Client specifies stores and locations
• Shelf space/location, displays, promotion and price
controlled
• Sales tracked
• Less time, lower costs
• Representativeness and competition

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 Simulated Test Markets (STM)
In-Depth

Advantages: Types of STMs:

Reduces risk – capital,  ASSESSOR
marketing dollars,  BASES
cannibalization
 Marke-Test
Increases efficiency
 Merwyn
Maintains security –
 And others
competitors have less time to
plan counter strategies
Saves the company time

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 Simulated Test Markets (STM)
In-Depth

Model Inputs: Model Inputs:

The market's size Price
Copy testing results The proportion of stores
carrying the test product
Advertising budget for the
and the number of shelf
test product and
facings by month.
competitors.
Expected marketing
Media schedule, Consumer
costs and margin
promotion, Trade promotion
contribution.
by month.

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 Simulated Test Markets (STM)
In-Depth

Do‘s & Don’ts of STMs Do‘s & Don’ts of

Be a champion for your new STMs
product--but be objective
Calculate different levels of
Choose the proper sample. competitive response.
Expose people to your Don't estimate a level of
product and its advertising in a support in a simulated market
way that best simulates the
that you would not maintain
real world. nationally.
Use proven research Be very careful in estimating
technology to forecast market all marketing input factors—
behavior and sales.
the more you guess
incorrectly, the less accurate
the forecast.

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New-Product Development Process: Stage
8 :Commercialization

• Major investment in manufacturing facilities

• High initial advertising and promotion expense

• Introduction timing critical

• Launch location?

• Local, regional roll-out, national, or global?

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 Sales and Profits
Over A Product’s Life

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 Product Life-Cycle Strategies

The Typical Product Life Cycle

(PLC) Has Five Stages
Product Development, Introduction,
Growth, Maturity, Decline
Not all products follow this cycle:
 Fads
 Styles
 Fashions

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Styles, Fashions, and Fads

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 Product Life-Cycle Strategies

Additional marketing
investments can
move a product back
into the growth stage,

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 Product Life-Cycle Strategies

The product life cycle concept can

be applied to a:
Product class (soft drinks)
Product form (diet colas)
Brand (Diet Dr. Pepper)
 Using the PLC to forecast brand
performance or to develop marketing
strategies is problematic

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 Product Life-Cycle Strategies

Product development Begins when the

company develops a new-
• PLC Stages product idea
• Growth
Sales are zero
• Maturity
Investment costs are high
• Decline
Profits are negative

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 Product Life-Cycle Strategies

Product development Introduction

Low sales High
cost per
• PLC Stages customer acquired
• Growth Maturity Negative profits
Decline Innovators are
targeted
Little competition

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 Marketing Strategies:
Introduction Stage

Product – Offer a basic product Price – Use cost-plus

basis to set Place – Build selective distribution
Advertising – Build awareness among early adopters
and dealers/resellers
Sales Promotion – Heavy expenditures to create trial

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 Product Life-Cycle Strategies
Product development Introduction
Rapidly rising sales
Average cost per
• PLC Stages customer
• Growth Maturity Rising profits Early
Decline adopters are
targeted
Growing competition

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 Marketing Strategies: Growth
Stage

Product – Offer product extensions, service, warranty

Price – Penetration pricing
Distribution – Build intensive distribution
Advertising – Build awareness and interest in the mass
market
Sales Promotion – Reduce expenditures to take
advantage of consumer demand

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 Product Life-Cycle Strategies

Product development Introduction

Sales peak
Low cost per
customer
• PLC Stages
High profits
• Growth Maturity
Decline Middle majority are
targeted
Competition begins
to decline
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Marketing Strategies: Maturity
Stage

Product – Diversify brand and models

Price – Set to match or beat competition
Distribution – Build more intensive
distribution
Advertising – Stress brand differences
and benefits
Sales Promotion – Increase to encourage
brand switching

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 Product Life-Cycle Strategies

Declining sales
Product development Introduction
Low cost per
customer
• PLC Stages
Declining profits
• Growth Maturity
Laggards are
Decline targeted
Declining
competition
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 Marketing Strategies:
Decline Stage
• Product – Phase out weak items
• Price – Cut price
• Distribution – Use selective distribution: phase
out unprofitable outlets
• Advertising – Reduce to level needed to retain
hard-core loyalists
• Sales Promotion – Reduce to minimal level

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 Product Life-Cycle Strategies

Characteristics Introduction Growth Maturity Decline

Sales Low Rapidly rising Peak Declining

Costs High per customer Average per customer Low per customer Low per customer

Profits Negative Rising High Declining

Customers Innovators Early adopters M iddle majority Laggards

Competitors Few Growing number Stable number Declining number

beginning to decline

Marketing Create product M aximize market M aximize profit Reduce

awareness and trial share while defending expenditures and
Objectives market share milk the brand

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 Product Life-Cycle Strategies

Strategies Introduction Growth Maturity Decline

Offer basic product Offer product Diversify brand and Phase out weak items
Product extensions, service, models
warranty
Use cost-plus Price to penetrate market Price to match or best Cut price
Price competitors

Build selective Build intensive Build more intensive Go selective, phase out
Distribution unprofitable outlets

Build product awareness Build awareness and Stress brand differences Reduce to level needed
Advertising among early adopters and interest in the mass and benefits to retain hard-core loyals
dealers market
Use heavy sales Reduce to take Increase to encourage Reduce to minimal level
Sales promotion to entice trial advantage of heavy brand switching
Promotion consumer demand

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Pricing
 Synonyms for Price
• Rent • Special assessment
• Tuition • Bribe
• Fee • Dues
• Fare • Salary
• Rate • Commission
• Toll • Wage
• Premium • Tax
• Honorarium
Objective Outline
What Is a Price?
Answer question “What is a price?” and discuss the
1 importance of pricing in today’s fast-changing
environment.

Major Pricing Strategies

Identify the three major pricing strategies and discuss
the importance of understanding customer-value
2
perceptions, company costs, and competitor
strategies when setting prices.
Objective Outline

Other Internal and External Considerations

Affecting Price Decisions
3 Identify and define the other important external and
internal factors affecting a firm’s pricing decisions
 What is a Price?
• In the narrowest sense, price is the amount of money charged
for a product or a service.
• More broadly, price is the sum of all the values that customers
give up to gain the benefits of having or using a product or
service.
• Price is the only element in the marketing mix that produces
revenue; all other elements represent costs.
 Major Pricing Strategies
• The price the company charges will fall
somewhere between one that is too low to
produce a profit and one that is too high to
produce any demand.
 Customer Value-Based Pricing
• Customer value-based pricing uses buyers’ perceptions of
value as the key to pricing.
• The company first assesses customer needs and value
perceptions.
• It then sets its target price based on customer perceptions of
value.
• The targeted value and price drive decisions about what costs
can be incurred and the resulting product design.
 Good-Value Pricing
•Everyday
In response,
lowmany companies
pricing (EDLP)have changed their pricing
approaches to bring them in line with changing economic
conditions and consumer price perceptions.
EDLP involves charging a constant, everyday low price
• More andormore,
with few marketers
no temporary have
price adopted good-value pricing
discounts.
strategies ─ offering the right combination of quality and good
service at a fair price.

High-Low Pricing

It involves charging higher prices on an everyday basis but

running frequent promotions to lower price temporarily on
selected items.
 Value-Added Pricing
• Many companies adopt value-added pricing
strategies.
• Rather than cutting prices to match
competitors, they attach value-added features
and services to differentiate their offers and
thus support their higher prices.
 Cost-Based Pricing
• Cost-Based pricing involves setting prices
based on the costs of producing, distributing,
and selling the product plus a fair rate of
return for its effort and risk.
• A company’s costs may be an important
element in its pricing strategy.
 Types of Costs
The sum of the fixed and
variable costs for any
Costs that do not vary given level of production.
with production or sales
level.

Fixed costs
(over- Variable Total costs
head) costs

Costs that vary directly with

the level of production.
Costs at Different Levels of Production

• To price wisely, management needs to know

how its costs vary with different levels of
production.
 Costs as a Function of Production
Experience
• This drop in the average cost with
accumulated production experience is called
the experience curve (or the learning curve).
 Cost-Plus Pricing
• The simplest pricing method is cost-plus pricing (or markup
pricing) ─ adding a standard markup to the cost of the product.
Break-Even Analysis and Target Profit
Pricing
• Break-even pricing (target return) sets price to break even on
the costs of making and marketing a product, or setting price
to make a target return.
• Target return pricing uses the concept of a break-even chart,
which shows the total cost and total revenue expected at
different sales volume levels.
 Competition-Based Pricing
• Competition-based pricing involves setting
prices based on competitors’ strategies, costs,
prices, and market offerings.
• Consumers will base their judgments of a
product’s value on the prices that competitors
charge for similar products.
 Other Internal and External
Considerations Affecting Price
Decisions
• Internal factors affecting pricing include the
company’s overall marketing strategy,
objectives, and marketing mix, as well as other
organizational considerations.
• External factors include the nature of the
market and demand and other environmental
factors.
 Organizational Considerations
• Top management sets the pricing objectives and policies, and
it often approves the prices proposed by lower level
management or salespeople.
• In industries in which pricing is a key factor, companies often
have pricing departments to set the best prices or help others
set them.
• These departments report to the marketing department or
top management.
• Others who have an influence on pricing include sales
managers, production managers, finance managers, and
accountants.
 The Market and Demand
• In this section, we take a deeper look at the
price-demand relationship and how it caries
for different types of markets.
• We then discuss methods for analyzing the
price-demand relationship.
Pricing in Different Types of Markets

• Economists recognize four types of markets,

each presenting a different pricing challenge.
 • Oligopolistic Competition
• The market consists of only a few large sellers.
• Because there are few sellers, each seller is alert and
responsive to competitors’ pricing strategies and marketing
moves.
 • Pure Monopoly
• The market is dominated by one seller.
• The seller may be a government monopoly, a private regulated
monopoly, or a private unregulated monopoly.
 • Monopolistic Competition
• It consists of many buyers and sellers who trade over a range
of prices rather than a single market price.
• A range of prices occurs because sellers can differentiate their
offers to buyers.
• Sellers try to develop differentiated offers for different
customer segments and, in addition to price, freely use
branding, advertising, and personal selling to set their offers
apart.
 • Pure Competition
• It consists of many buyers and sellers trading in a uniform
commodity, such as wheat, copper, or financial securities.
• No single buyer or seller has much effect on the going market
price.
 Analyzing the Price-Demand
Relationship
• Demand curve is a curve that shows the
number of units the market will buy in a given
time period, at different prices that might be
charged.
 Price Elasticity of Demand
• Price Elasticity is a measure of the sensitivity
of demand to changes in price.
• It is given by the following formula:

• If demand is elastic rather than inelastic, sellers will

consider lowering their prices.
• A lower price will produce more total revenue.
• Marketers need to work harder than ever to differentiate
their offerings when a dozen competitors are selling
virtually the same product at a comparable or lower price.
 The Economy
• Economic conditions can have a strong impact on the firm’s
pricing strategies.
• Economic factors such as a boom or recession, inflation, and
interest rates affect pricing decisions because they affect
consumer spending, consumer perceptions of the product’s
price and value, and the company’s costs of producing and
selling a product.
 Other External Factors
• Resellers react to various prices
• Government
• Social Concerns