MKTG 101 Chapter 10-11

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  1. The product offering, the heart of an organization's marketing program, is usually the starting point in creating a marketing mix
    The product offering, the heart of an organization's marketing program, is usually the starting point in creating a marketing mix. A marketing manager cannot determine a price, design a promotion strategy, or create a distribution channel until the firm has a product to sell. Moreover, an excellent distribution channel, a persuasive promotion campaign, and a fair price have no value when the product offering is poor or inadequate.
  2. product
    • may be defined as everything, both favorable and unfavorable, that a person receives in an exchange.
    • A product may be a tangible good like a pair of shoes, a service like a haircut, an idea like “don't litter,” or any combination of these three. Packaging, style, color, options, and size are some typical product features. Just as important are intangibles such as service, the seller's image, the manufacturer's reputation, and the way consumers believe others will view the product.To most people, the term product means a tangible good. However, services and ideas are also products.
    • The marketing process identified in Chapter 1 is the same whether the product marketed is a good, a service, an idea, or some combination of these.
  3. Types of Consumer Products
    two types of products:

    Business (industrial) product
    Consumer Product
    • Convenience Products
    • Shopping Products
    • Specialty Products
    • Unsought Products

    • Products can be classified as either business (industrial) or consumer products, depending on the buyer's intentions. The key distinction between the two types of products is their intended use. If the intended use is a business purpose, the product is classified as a business or industrial product.
    • 1. Business product (industrial): is used to manufacture other goods or services, to facilitate an organization's operations, or to resell to other customers.
    • 2. Consumer product:  is bought to satisfy an individual's personal wants. Sometimes the same item can be classified as either a business or a consumer product, depending on its intended use. Examples include lightbulbs, pencils and paper, and computers.
    • We need to know about product classifications because business and consumer products are marketed differently. They are marketed to different target markets and tend to use different distribution, promotion, and pricing strategies.
    • Chapter 7 examined seven categories of business products: major equipment, accessory equipment, component parts, processed materials, raw materials, supplies, and services.
    • This chapter examines an effective way of categorizing consumer products. Although there are several ways to classify them, the most popular approach includes these four types:
    • convenience products, shopping products, specialty products, and unsought products.

    This approach classifies products according to how much effort is normally used to shop for them.
  4. 1. Convenience Products - consumer products
    • A convenience product  is a relatively inexpensive item that merits little shopping effort—that is, a consumer is unwilling to shop extensively for such an item.
    • Candy, soft drinks, aspirin, small hardware items, dry cleaning, and car washes fall into the convenience product category.
    • Consumers buy convenience products regularly, usually without much planning.
    • Nevertheless, consumers do know the brand names of popular convenience products, such as Coca-Cola, Bayer aspirin, and Old Spice deodorant.
    • Convenience products normally require wide distribution in order to sell sufficient quantities to meet profit goals.
    • For example, the gum brand Extra is available everywhere, including Walmart, Walgreens, gas stations, newsstands, and vending machines.
  5. 2. Shopping Products - Consumer Products
    • is usually more expensive than a convenience product and is found in fewer stores.
    • Consumers usually buy a shopping product only after comparing several brands or stores on style, practicality, price, and lifestyle compatibility.
    • They are willing to invest some effort into this process to get the desired benefits.
    •    There are two types of shopping products: homogeneous and heterogeneous.
    •     Consumers perceive homogeneous shopping products as basically similar—for example, washers, dryers, refrigerators, and televisions. With homogeneous shopping products, consumers typically look for the lowest-priced brand that has the desired features. For example, they might compare Kenmore, Whirlpool, and General Electric refrigerators.
    •    In contrast, consumers perceive heterogeneous shopping products as essentially different—for example, furniture, clothing, housing, and universities. Consumers often have trouble comparing heterogeneous shopping products because the prices, quality, and features vary so much. The benefit of comparing heterogeneous shopping products is “finding the best product or brand for me”; this decision is often highly individual. For example, it would be difficult to compare a small, private college with a large, public university.
  6. 3. Specialty Products - Consumer Products
    • When consumers search extensively for a particular item and are very reluctant to accept substitutes, that item is a specialty product .
    • Omega watches, Rolls-Royce automobiles, Bose speakers, Ruth's Chris Steak House, and highly specialized forms of medical care are generally considered specialty products.
    •    Marketers of specialty products often use selective, status-conscious advertising to maintain a product's exclusive image.
    • Distribution is often limited to one or a very few outlets in a geographic area.
    • Brand names and quality of service are often very important.
  7. 4. Unsought Products - consumer products
    • A product unknown to the potential buyer or a known product that the buyer does not actively seek is referred to as an unsought product .
    • New products fall into this category until advertising and distribution increase consumer awareness of them.
    •   Some goods are always marketed as unsought items, especially needed products we do not like to think about or care to spend money on.
    • Ex: Insurance, burial plots, and similar items require aggressive personal selling and highly persuasive advertising.
    • Sales-people actively seek leads to potential buyers.
    • **Because consumers usually do not seek out this type of product, the company must go directly to them through a salesperson, direct mail, or direct response advertising.
  8. product item
    • is a specific version of a product that can be designated as a distinct offering among an organization's products.
    • EX: Campbell's Cream of Chicken soup is an example of a product item
  9. product line
    • A group of closely related product items is called a product line .
    • For example, the column in Exhibit 10.1 titled “Soups” represents one of Campbell's product lines. Different container sizes and shapes also distinguish items in a product line.
    • Diet Coke, for example, is available in cans and various plastic containers. Each size and each container are separate product items.
  10. product mix (all products sold through company)
    • An organization's product mix  includes all the products it sells. All Campbell's products—soups, sauces, frozen entrées, beverages, and biscuits—constitute its product mix. Each product item in the product mix may require a separate marketing strategy. In some cases, however, product lines and even entire product mixes share some marketing strategy components.
    • UPS promotes its various services by demonstrating its commitment to its line of work with the tagline “We [heart] Logistics.”

    Organizations derive several benefits from organizing related items into product lines:
  11. Benefits from organizing related items into product lines:
    • Advertising economies
    • Package uniformity
    • Efficient sales and distribution:
    • Equivalent quality:
  12. Advertising economies: benefits from organizing related items into product lines
    • Product lines provide economies of scale in advertising.
    • Several products can be advertised under the umbrella of the line. Campbell's can talk about its soup being “M'm, M'm, Good!” and promote the entire line.
  13. Package uniformity: benefits from organizing related items into product lines
    • A product line can benefit from package uniformity.
    • All packages in the line may have a common look and still keep their individual identities. Again, Campbell's soup is a good example.
  14. Standardized components: benefits from organizing related items into product lines
    • Product lines allow firms to standardize components, thus reducing manufacturing and inventory costs.
    • For example, General Motors uses the same parts on many automobile makes and models.
  15. Efficient sales and distribution: benefits from organizing related items into product lines
    • A product line enables sales personnel for companies like Procter & Gamble to provide a full range of choices to customers.
    • Distributors and retailers are often more inclined to stock the company's products if it offers a full line.
    • Transportation and warehousing costs are likely to be lower for a product line than for a collection of individual items.
  16. Equivalent quality: benefits from organizing related items into product lines
    • Purchasers usually expect and believe that all products in a line are about equal in quality.
    • Consumers expect that all Campbell's soups and all Gillette razors will be of similar quality.
  17. Product mix width  (or breadth)
    • refers to the number of product lines an organization offers.
    • In Exhibit 10.1, for example, the width of Campbell's product mix is five product lines. Product line depth  is the number of product items in a product line.
    • As shown in Exhibit 10.1, the sauces product line consists of four product items; the frozen entrée product line includes three product items.
    • Firms increase the width of their product mix to diversify risk.
    • To generate sales and boost profits, firms spread risk across many product lines rather than depend on only one or two.
    • Firms also widen their product mix to capitalize on established reputations.

    The Fiber One cereal brand extended its name to include yogurt, bread, baking mixes, granola bars, and cottage cheese.

    • Firms increase the depth of their product lines to attract buyers with different preferences, to increase sales and profits by further segmenting the market, to capitalize on economies of scale in production and marketing, and to even out seasonal sales patterns.
    • LG's line of Optimus Smartphones has ten different options, including the Optimus Chic, which is aimed at fashionistas who appreciate sleek curves on their phones.1
  18. Adjustments to Product Items, Lines, and Mixes
    • Over time, firms change product items, lines, and mixes to take advantage of new technical or product developments or to respond to changes in the environment.
    • They may adjust by modifying products, repositioning products, or extending or contracting product lines.
  19. Product Modification
    Marketing managers must decide if and when to modify existing products. Product modification  changes one or more of a product's characteristics:

    • 1. Quality modification
    • 2. Functional Modification
    • 3. Style Modification
  20. 1. Quality modification: product modifications
    • change in a product's dependability or durability.
    • Reducing a product's quality may let the manufacturer lower the price and appeal to target markets unable to afford the original product.
    • Conversely, increasing quality can help the firm compete with rival firms. .

    For example, Barnes & Noble offers a color version of its Nook that runs Android apps, allowing it to compete with Apple as well as netbook makers, such as Dell and Asus.

    Increasing quality can also result in increased brand loyalty, greater ability to raise prices, or new opportunities for market segmentation.
  21. 2. Functional modification: product modifications
    change in a product's versatility, effectiveness, convenience, or safety.

    Dish Network and DIRECTV can now provide satellite service to multiple units in apartment buildings with one dish. Previously, each company had to hang a satellite for each unit,  which could be unsightly and against apartment codes, but functional improvements in the technology now make satellite service a viable apartment option.
  22. 3. Style modification: Product Modifications
    • aesthetic product change rather than a quality or functional change.
    • Clothing and auto manufacturers commonly use style modifications to motivate customers to replace products before they are worn out.
  23. Planned obsolescence
    • is a term commonly used to describe the practice of modifying products so that those that have already been sold become obsolete before they actually need replacement.
    • For example, products such as printers and cell phones become obsolete because technology changes so quickly.

    Some argue that planned obsolescence is wasteful; some claim it is unethical.

    Marketers respond that consumers favor style modifications because they like changes in the appearance of goods such as clothing and cars.

    Marketers also contend that consumers, not manufacturers and marketers, decide when styles are obsolete.
  24. Repositioning
    Repositioning, involves changing consumers’ perceptions of a brand.

    Laundry detergent Woolite is trying to reposition itself as an everyday laundry detergent that will benefit all fabrics, rather than being just for delicate blacks or handwashing. Its new campaign, directed by horror film director and metal musician Rob Zombie, mimics creepy horror films and shows a deformed man “torturing” clothes by stretching, shrinking, and exposing them to bright lights. The company says the goal is to interest women ages 25 to 40 by recalling the horror films of their youth. The ads stand out for being dark and bleak in an industry characterized by Snuggle the bear and cheerful women washing bright clothing.

    Changing demographics, declining sales, or changes in the social environment often motivate firms to reposition established brands.

    Disney's 1951 animated Alice in Wonderland was a family-friendly cartoon, but in 2010, Disney repositioned Alice by teaming with Tim Burton. They brought Alice, now 19 years old, back to Wonderland in a dark, live-action adventure. To capitalize on Alice's new, dark look, Disney targeted 12- to 22-year-olds with merchandise in Hot Topic, a retail chain with a Goth following.
  25. Product Line Extensions
    • A product line extension  occurs when a company's management decides to add products to an existing product line in order to compete more broadly in the industry.
    • Hasbro/Mattel has added a series of games using the Scrabble name, some without boards or tiles, such as Scrabble Slam and a version with proper noun usage called Scrabble Trickster.
    • A company can add too many products, or demand can change for the type of products that were introduced over time. When this happens, a product line is overextended. Product lines can be overextended when:Some products in the line do not contribute to profits because of low sales or cannibalize sales of other items in the line.Manufacturing or marketing resources are disproportionately allocated to slow-moving products.Some items in the line are obsolete because of new product entries in the line or new products offered by competitors.
  26. Product Line Contraction
    Sometimes, marketers can get carried away with product extensions. (Does the world really need 31 varieties of Head & Shoulders shampoo?)

    Contracting product lines is a strategic way to deal with overextension.

    For example, when Procter & Gamble's Pantene brand lost 9 percent of sales in 2009, P&G marketing research showed that shoppers were overwhelmed by the wall of white. Pantene had 165 different products grouped into 14 collections. In an effort to regain the lost sales, P&G cut product offerings to 120 items in four groups.

    • Three major benefits are likely when a firm contracts overextended product lines.
    •   First, resources become concentrated on the most important products.
    •   Second, managers no longer waste resources trying to improve the sales and profits of poorly performing products.
    •   Third, new product items have a greater chance of being successful because more financial and human resources are available to manage them.
  27. Branding
    • The success of any business or consumer product depends in part on the target market's ability to distinguish one product from another.
    • Branding is the main tool marketers use to distinguish their products from those of the competition.
  28. brand
    is a name, term, symbol, design, or combination thereof that identifies a seller's products and differentiates them from competitors’ products.
  29. brand name
    is that part of a brand that can be spoken, including letters (GM, YMCA), words (Chevrolet), and numbers (WD-40, 7-Eleven).
  30. Brand Mark
    The elements of a brand that cannot be spoken are called the brand mark —for example, the well-known Mercedes-Benz and Delta Air Lines symbols.
  31. Benefits of Branding
    • Branding has three main purposes:
    •     product identification,
    •     repeat sales, and
    •     new-product sales.

    The most important purpose is product identification. Branding allows marketers to distinguish their products from all others. Many brand names are familiar to consumers and indicate quality.
  32. brand equity
    • The term brand equity  refers to the value of company and brand names.
    • A brand that has high awareness, perceived quality, and brand loyalty among customers has high brand equity.
    • Starbucks, Subaru, and Apple are companies with high brand equity.

    • A brand with strong brand equity is a valuable asset.
    • For example, Oprah Winfrey leverages her personal brand (her name) to sell her magazines; create shows (Dr. Phil owes his celebrity to her); and develop schools, charities, and cable networks.
  33. global brand 
    The term global brand  refers to a brand that obtains at least a third of its earnings from outside its home country, is recognizable outside its home base of customers, and has publicly available marketing and financial data.

    Yum! Brands, which owns Pizza Hut, KFC, and Taco Bell, is a good example of a company that has developed strong global brands. Yum! believes that it has to adapt its restaurants to local tastes and different cultural and political climates. In Japan, for instance, KFC sells tempura crispy strips. In northern England, KFC focuses on gravy and potatoes, and in Thailand it offers rice with soy or sweet chili sauce.

    The best generator of repeat sales is satisfied customers.

    Branding helps consumers identify products they wish to buy again and avoid those they do not.
  34. Brand loyalty
    The best generator of repeat sales is satisfied customers.

    Branding helps consumers identify products they wish to buy again and avoid those they do not.

    Brand loyalty , a consistent preference for one brand over all others, is quite high in some product categories. More than half the consumers in product categories such as cigarettes, mayonnaise, toothpaste, coffee, headache remedies, bath soap, and ketchup are loyal to one brand.

    Many students go to college and purchase the same brands they used at home rather than choosing by price.

    Brand identity is essential to developing brand loyalty.

    The third main purpose of branding is to facilitate new-product sales. Having a well-known and respected company and brand name is extremely useful when introducing new products.
  35. Branding Strategies
    Firms face complex branding decisions.

    Firms may choose to follow a policy of using manufacturers’ brands, private (distributor) brands, or both.

    In either case, they must then decide among a policy of individual branding (different brands for different products), family branding (common names for different products), or a combination of individual branding and family branding.
  36. Manufacturers’ Brands
    • The brand name of a manufacturer—such as Kodak, La-ZBoy, and Fruit of the Loom—is called a manufacturer's brand .
    • Sometimes “national brand” is used as a synonym for “manufacturer's brand.” This term is not always accurate, however, because many manufacturers serve only regional markets.
    • Using “manufacturer's brand” precisely defines the brand's owner.
  37. private brand
    A private brand , also known as a private label or store brand, is a brand name owned by a wholesaler or a retailer.

    • Walmart's Great Value brand is a popular private label. Walgreens sells Walgreens brand products, and this year it is advertising them on television and with several bloggers. The company emphasizes the comparison with brand name quality with a satisfaction guarantee.
    • Perceptions about quality are part of the reason for the success of private brands.

    • Nielsen Company reported that unit sales of private label goods increased 8 percent from 2008 to 2010, while sales of brand name products decreased about 4 percent. Another recent study found that 63 percent of consumers plan to buy private labels even after the economy rebounds.
    • Retailers love consumers’ greater acceptance of private brands. Because overhead is low and there are no marketing costs, private label products bring 10 percent higher profit margins, on average, than manufacturers’ brands.

    More than that, a trusted store brand can differentiate a chain from its competitors. Exhibit 10.2 illustrates key issues that wholesalers and retailers should consider in deciding whether to sell manufacturers’ brands or private brands. Many firms offer a combination of both.
  38. captive brands
     Instead of marketing private brands as cheaper and inferior to manufacturers’ brands, many retailers are creating and promoting their own captive brands .

    • These brands carry no evidence of the store's affiliation, are manufactured by a third party, and are sold exclusively at the chains.
    • This strategy allows the retailer to ask a price similar to manufacturers’ brands, and the captive brands are typically displayed alongside mainstream products.

    For example, Private Selection® is Kroger's line of products designed to meet consumer desire for upscale brands. Private Selection® boasts that it will meet or beat the manufacturers’ brands in terms of quality.
  39. Individual Brands
    Many companies use different brand names for different products, a practice referred to as individual branding .

    Companies use individual brands when their products vary greatly in use or performance.

    For instance, it would not make sense to use the same brand name for a pair of dress socks and a baseball bat. Procter & Gamble targets different segments of the laundry detergent market with Bold, Cheer, Dash, Dreft, Era, Gain, Ivory Snow, Oxydol, Solo, and Tide.
  40. family branding
    In contrast, a company that markets several different products under the same brand name is practicing family branding .

    Jack Daniel's family brand includes whiskey, coffee, mustard, playing cards, and clothing lines.
  41. Co-branding
    • Co-branding  entails placing two or more brand names on a product or its package.
    • Three common types of co-branding are ingredient branding, cooperative branding, and complementary branding.

    • Ingredient branding identifies the brand of a part that makes up the product—for example, Procter & Gamble has developed Mr. Clean Disinfecting Wipes with Febreze (a scent) Freshness. Febreze is also co-branded with Tide, Bounce, and Downy.
    • Cooperative branding occurs when two brands receiving equal treatment (in the context of an advertisement) borrow from each other's brand equity.

    A promotional contest jointly sponsored by Ramada Inn, American Express, and Continental Airlines used cooperative branding. Guests at Ramada who paid with an American Express card were automatically entered in a contest and were eligible to win more than a hundred getaways for two at any Ramada in the continental United States and round-trip airfare from Continental.

    Complementary branding, products are advertised or marketed together to suggest usage, such as a spirits brand (Seagram's) and a compatible mixer (7-Up).

    Co-branding is a useful strategy when a combination of brand names enhances the prestige or perceived value of a product or when it benefits brand owners and users.

    For example, people perceive a higher value for a Glad trash bag that has Febreze between its two layers of plastic than for Ruffies trash bags that use baking soda to block odor. Co-branding may be used to increase a company's presence in markets where it has little or no market share.
  42. Key Advantages of Carrying Manufacturers’ Brands
    Heavy advertising to the consumer by manufacturers such as Procter & Gamble helps develop strong consumer loyalties.

       Well-known manufacturers’ brands, such as Kodak and Fisher-Price, can attract new customers and enhance the dealer's (wholesaler's or retailer's) prestige.

    Many manufacturers offer rapid delivery, enabling the dealer to carry less inventory.

    If a dealer happens to sell a manufacturer's brand of poor quality, the customer may simply switch brands and remain loyal to the dealer.
  43. Key Advantages of Carrying Private Brands
    A wholesaler or retailer can usually earn higher profits on its own brand. In addition, because the private brand is exclusive, there is less pressure to mark down the price to meet competition.

    A manufacturer can decide to drop a brand or a reseller at any time or even become a direct competitor to its dealers.

    A private brand ties the customer to the wholesaler or retailer. A person who wants a DieHard battery must go to Sears.

    Wholesalers and retailers have no control over the intensity of distribution of manufacturers’ brands. Walmart store managers don't have to worry about competing with other sellers of Sam's American choice products or ol’ Roy dog food. They know that these brands are sold only in Walmart and sam's club stores.
  44. Trademarks
    A trademark  is the exclusive right to use a brand or part of a brand. Others are prohibited from using the brand without permission.

    A service mark  performs the same function for services, such as H&R Block and Weight Watchers. Parts of a brand or other product identification may qualify for trademark protection. Some examples are:Sounds, such as the MGM lion's roar.Shapes, such as the Jeep front grille and the Coca-Cola bottle.Ornamental colors or designs, such as the decoration on Nike tennis shoes, the black-and-copper color combination of a Duracell battery, Levi's small tag on the left side of the rear pocket of its jeans, or the cutoff black cone on the top of Cross pens.Catchy phrases, such as Prudential's “Own a piece of the rock,” Mountain Dew's “Do the Dew,” and Nike's “Just Do It!”Abbreviations, such as Bud, Coke, or The Met.It is important to understand that trademark rights come from use rather than registration.

    An intent-to-use application is filed with the U.S. Patent and Trademark Office, and a company must have a genuine intention to use the mark when it files and must actually use it within three years of the granting of the application.

    Trademark protection typically lasts for ten years.13 To renew the trademark, the company must prove it is using the mark.

    Rights to a trademark last as long as the mark is used. Normally, if the firm does not use it for two years, the trademark is considered abandoned, and a new user can claim exclusive ownership of the mark.

    In November 1999, legislation went into effect that explicitly applies trademark law to the online world. This law includes financial penalties for those who violate trademarks or register an otherwise trademarked term as a domain name. Companies that fail to protect their trademarks face the possibility that their product names will become generic.

    A generic product name  identifies a product by class or type and cannot be trademarked. Former brand names that were not sufficiently protected by their owners and were subsequently declared to be generic product names by U.S. courts include aspirin, cellophane, linoleum, thermos, kerosene, monopoly, cola, and shredded wheat.Companies such as Rolls-Royce, Cross, Xerox, Levi Strauss, Frigidaire, and McDonald's aggressively enforce their trademarks. Rolls-Royce, Coca-Cola, and Xerox even run newspaper and magazine ads stating that their names are trademarks and should not be used as descriptive or generic terms. When Apple introduced its cloud-based storage services, iCloud, a company called iCloud Communications, which offers similar services and has been in business since 2005, filed a trademark infringement lawsuit against Apple. iCloud Communications claims that Apple's iCloud not only is confusing potential customers, but is actively detracting from iCloud Communications' business. To try to stem the number of trademark infringements, violations carry steep penalties. Despite the risk of incurring a penalty, infringement lawsuits are still common. Serious conflict can occur when brand names resemble one another too closely. Bacardi's Havana Club rum won a trademark victory over Pernod Ricard in 2010. Pernod also sells Havana Club rum outside the United States. Bacardi only sells Havana Club rum in the United States and Puerto Rico, where it is distilled, so there is little brand overlap in their respective markets, but the trademark dispute has been going on since 1996. Pernod filed an appeal after the 2010 decision.16

    Companies must also contend with fake or unauthorized brands. Knockoffs of trademarked clothing lines are easy to find in cheap shops all over the world, and loose imitations are found in some reputable department stores as well. Golf equipment counterfeited in China has recently become more common, accounting for a cumulative price tag of more than $590,000 in 2011. As online shopping has increased, counterfeiters are more frequently selling directly to the customer.

    In Europe, you can sue counterfeiters only if your brand, logo, or trademark is formally registered. Until recently, formal registration was required in each country in which a company sought protection. A company can now register its trademark in all European Union (EU) member countries with one application.
  45. Packaging
    Packages have always served a practical function—that is, they hold contents together and protect goods as they move through the distribution channel.

    Today, however, packaging is also a container for promoting the product and making it easier and safer to use.
  46. Packaging Functions
    • The three most important functions of packaging are to
    • contain and protect products;
    • promote products; and
    • facilitate the storage, use, and convenience of products.

    A fourth function of packaging that is becoming increasingly important is to facilitate recycling and reduce environmental damage.
  47. Containing and Protecting Products - Packaging functions
    • The most obvious function of packaging is to contain products that are liquid, granular, or otherwise divisible.
    • Packaging also enables manufacturers, wholesalers, and retailers to market products in specific quantities, such as ounces.
    • Physical protection is another obvious function of packaging. Most products are handled several times between the time they are manufactured, harvested, or otherwise produced and the time they are consumed or used. Many products are also shipped, stored, and inspected several times between production and consumption. Some, like milk, need to be refrigerated. Others, like beer, are sensitive to light. Still others, like medicines and bandages, need to be kept sterile. Packages protect products from breakage, evaporation, spillage, spoilage, light, heat, cold, infestation, and many other conditions.
  48. Promoting Products- Packaging functions
    Packaging does more than identify the brand, list the ingredients, specify features, and give directions.

    A package differentiates a product from competing products and may associate a new product with a family of other products from the same manufacturer.

    Miracle Whip recently redesigned its packaging with a more youthful style, using just its initials (MW) to encourage 18- to 35-year-olds to use the tangy mayo alternative and to differentiate the brand from other mayonnaise packages. The package redesign dovetailed with a marketing campaign spreading the word that mayo is “boring” through billboards in EA's Skate 3 video game and product placement in Lady Gaga music videos.18

    Packages use designs, colors, shapes, and materials to try to influence consumers’ perceptions and buying behavior.

    For example, marketing research shows that health-conscious consumers are likely to think that any food is probably good for them as long as it comes in green packaging.

    Packaging can also influence consumer perceptions of quality and/or prestige—it even has a measurable effect on sales. For example, P&G designers strategically focus on package designs in order to attract consumers while they are shopping. Designers spent time researching consumer preferences and behaviors before P&G's new Febreze Home Collection was developed. Since introducing the line, P&G gained two share points in the air freshener category.
  49. Facilitating Storage, Use, and Convenience- Packaging functions
    • Wholesalers and retailers prefer packages that are easy to ship, store, and stock on shelves.
    • They also like packages that protect products, prevent spoilage or breakage, and extend the product's shelf life.

    Consumers’ requirements for storage, use, and convenience cover many dimensions.

    Consumers are constantly seeking items that are easy to handle, open, and reclose, although some consumers want packages that are tamperproof or childproof. Research indicates that hard-to-open packages are among consumers’ top complaints—especially when it comes to clamshell electronics packaging. As oil prices force the cost of plastics used in packaging skyward, companies such as Target and Walmart are pushing suppliers to do away with excess packaging. Clamshell packaged items have been the first to experience repackaging—lightbulbs, Swiss army knives, USB cables, and scissors are being packed with less plastic, making them easier to access and keeping costs down.20 Such packaging innovations as zipper tear strips, hinged lids, tab slots, screw-on tops, and pour spouts were introduced to solve these and other problems.

    Easy openings are especially important for kids and aging baby boomers.

    Some firms use packaging to segment markets.

    For example, a C&H sugar carton with an easy-to-pour, reclosable top is targeted to consumers who don't do a lot of baking and are willing to pay at least 20 cents more for the package. Different-sized packages appeal to heavy, moderate, and light users. Campbell's soup is packaged in single-serving cans aimed at the elderly and singles market segments. Packaging convenience can increase a product's utility and, therefore, its market share and profits.
  50. Facilitating Recycling and Reducing Environmental Damage - Product Packaging
    • One of the most important packaging issues today is eco-consciousness, a trend that has recently been in and out of consumer and media attention. Studies conflict as to whether consumers will pay more for eco-friendly packaging, though consumers repeatedly iterate the desire to purchase such products. One New Jersey marketing firm released a study revealing that, while customers reported increased interest in buying products made from recycled materials, only 17 percent said that they checked a package to see if it was recyclable before buying it.22 Some firms use their packaging to target environmentally concerned market segments. For example, in Canada Frito-Lay introduced 100 percent compostable bags for SunChips with a label from the Biodegradable Products Institute (BPI) to remind consumers to compost the chip bags. BPI has a labeling program that certifies that the products carrying the label will degrade completely in commercial compost facilities.
    • Programs like these help educate manufacturers, legislators, and consumers about the benefits of composting and how to do it.
  51. Labeling
    An integral part of any package is its label.

    Labeling generally takes one of two forms:

    • persuasive or
    • informational.
  52. Persuasive labeling
    Persuasive labeling  focuses on a promotional theme or logo, and consumer information is secondary.

    Note that the standard promotional claims—such as “new,” “improved,” and “super”—are no longer very persuasive.

    Consumers have been saturated with “newness” and thus discount these claims.
  53. Informational labeling
    Informational labeling in contrast, is designed to help consumers make proper product selections and lower their cognitive dissonance after the purchase.

    Most major furniture manufacturers affix labels to their wares that explain the products’ construction features, such as type of frame, number of coils, and fabric characteristics.

    The Nutritional Labeling and Education Act of 1990 mandated detailed nutritional information on most food packages and standards for health claims on food packaging. An important outcome of this legislation has been guidelines from the Food and Drug Administration for using terms such as low fat, light, reduced cholesterol, low sodium, low calorie, low carb, and fresh.

    Getting the right information is very important to consumers, and one company wants to help consumers shop smart. NuVal, LLC ranks supermarket products on a scale from 1 to 100 based on nutritional information presented in on-pack labels. A higher score indicates higher nutritional value. The NuVal score is placed on the shelf label next to the price in stores paying a licensing fee. The scores allow consumers to easily compare the nutritional elements of packaged foods
  54. Greenwashing
    There are numerous products in every product category that use greenwashing to try and sell products.

    Greenwashing is when a product or company attempts to give the impression of environmental friendliness whether or not it is environmentally friendly.

    As consumer demand for “green” products appeared to escalate, “green” certifications proliferated. Companies could create their own certifications and logos, resulting in more than 300 possible certification labels, ranging in price from free to thousands of dollars.

    Consumer distrust and confusion caused the Federal Trade Commission to issue new rules. Starting in late 2011, new regulations apply to labeling products with “green” certification logos. If the same company that produced the product performed the certification, that relationship must be clearly marked. This benefits organizations such as Green Seal, which uses unbiased, third-party scientists and experts to verify claims about emissions or biodegradability, and hopes to increase consumer confidence in “green” products.25
  55. Universal Product Codes
    • The universal product codes (UPCs)  that appear on most items in supermarkets and other high-volume outlets were first introduced in 1974.
    • Because the numerical codes appear as a series of thick and thin vertical lines, they are often called bar codes. The lines are read by computerized optical scanners that match codes with brand names, package sizes, and prices.

    They also print information on cash register tapes and help retailers rapidly and accurately prepare records of customer purchases, control inventories, and track sales. The UPC system and scanners are also used in scanner-based research (see Chapter 9).
  56. When planning to enter a foreign market with an existing product, a firm has three options for handling the brand name:
    One brand name everywhere: This strategy is useful when the company markets mainly one product and the brand name does not have negative connotations in any local market. The Coca-Cola Company uses a one-brand-name strategy in more than 195 countries around the world. The advantages of a one-brand-name strategy are greater identification of the product from market to market and ease of coordinating promotion from market to market.

    Adaptations and modifications: A one-brand-name strategy is not possible when the name cannot be pronounced in the local language, when the brand name is owned by someone else, or when the brand name has a negative or vulgar connotation in the local language. The Iranian detergent “Barf,” for example, might encounter some problems in the U.S. market.

    Different brand names in different markets: Local brand names are often used when translation or pronunciation problems occur, when the marketer wants the brand to appear to be a local brand, or when regulations require localization. Gillette's Silkience hair conditioner is called Soyance in France and Sientel in Italy. Coca-Cola's Sprite brand had to be renamed Kin in Korea to satisfy a government prohibition on the unnecessary use of foreign words.

    In addition to global branding decisions, companies must consider global packaging needs.

    Three aspects of packaging that are especially important in international marketing are labeling, aesthetics, and climate considerations.

    The major labeling concern is properly translating ingredient, promotional, and instructional information on labels. Care must also be employed in meeting all local labeling requirements. Several years ago, an Italian judge ordered that all bottles of Coca-Cola be removed from retail shelves because the ingredients were not properly labeled. Labeling is also harder in countries like Belgium and Finland, which require packaging to be bilingual.

    Package aesthetics may also require some attention. Even though simple visual elements of the brand, such as a symbol or logo, can be a standardizing element across products and countries, marketers must stay attuned to cultural traits in host countries. For example, colors may have different connotations. Red is associated with witchcraft in some countries, green may be a sign of danger, and white may be symbolic of death. Such cultural differences could necessitate a packaging change if colors are chosen for another country's interpretation.

    In the United States, green typically symbolizes an eco-friendly product, but that packaging could keep customers away in a country where green indicates danger.

    Aesthetics also influence package size. Soft drinks are not sold in six-packs in countries that lack refrigeration. In some countries, products such as detergent may be bought only in small quantities because of a lack of storage space. Other products, such as cigarettes, may be bought in small quantities, and even single units, because of the low purchasing power of buyers.

    Extreme climates and long-distance shipping necessitate sturdier and more durable packages for goods sold overseas.

    • Spillage, spoilage, and breakage are all more important concerns when products are shipped long distances or frequently handled during shipping and storage.
    • Packages may also have to ensure a longer product life if the time between production and consumption lengthens significantly.
  57. Product Warranties
    Just as a package is designed to protect the product, a warranty  protects the buyer and gives essential information about the product.

    A warranty confirms the quality or performance of a good or service.

    An express warranty  is a written guarantee. Express warranties range from simple statements—such as “100-percent cotton” (a guarantee of quality) and “complete satisfaction guaranteed” (a statement of performance)—to extensive documents written in technical language.

    In contrast, an implied warranty  is an unwritten guarantee that the good or service is fit for the purpose for which it was sold. All sales have an implied warranty under the Uniform Commercial Code.Congress passed the Magnuson-Moss Warranty–Federal Trade Commission Improvement Act in 1975 to help consumers understand warranties and get action from manufacturers and dealers. A manufacturer that promises a full warranty must meet certain minimum standards, including repair “within a reasonable time and without charge” of any defects and replacement of the merchandise or a full refund if the product does not work “after a reasonable number of attempts” at repair. Any warranty that does not live up to this tough prescription must be “conspicuously” promoted as a limited warranty.
  58. The Importance of New Products
    New products are important to sustain growth, increase revenues and profits, and replace obsolete items.

    Research by BusinessWeek and the Boston Consulting Group revealed that the world's 25 most innovative companies have higher average stock returns and higher average revenue growth than companies that were not included in this group.1 The Bloomberg Businessweek–Boston Consulting Group's list includes firms such as Apple, Google, Microsoft, IBM, and Toyota.2

    These firms are known for innovative products. Other firms on the list are known for innovative business models, innovative customer experience, and/or innovative processes.
  59. new product 
    The term new product  is somewhat confusing because its meaning varies widely. Actually, the term has several “correct” definitions.

    A product can be new to the world, to the market, to the producer or seller, or some combination of these.

    There are six categories of new products:
  60. 1. New-to-the-world products: categories of new products
    New-to-the-world products (also called discontinuous innovations) : These products create an entirely new market.

    For example, a new virtual cane uses sonarlike technology and vibrations to give blind and visually impaired users an idea of the spatial layout of a room. The strength of the vibrations indicates the proximity of obstacles. This product is intended to be a techonological replacement for traditional canes.

    New-to-the-world products represent the smallest category of new products
  61. 2. New product lines: categories of new products
    These products, which the firm has not previously offered, allow it to enter an established market.

    For example, Moleskine's first products were simple black-covered journals. Since then, the company has expanded into pens, travel bags, and even digital creative tools available on the iPhone and iPad.5
  62. 3. Additions to existing product lines: categories of new products
    This category includes new products that supplement a firm's established line.

    Nintendo added to its Wii line of consoles by introducing the Wii U, which uses a new controller with a touch screen, expanding the way that gamers can interact within the game.
  63. 4. Improvements or revisions of existing products: categories of new products
    The “new and improved” product may be significantly or only slightly changed.

    Procter & Gamble's new “Dry Max” technology for Pampers Swaddlers and Cruisers diapers, Ariel and Dash laundry detergents with Actilift to help prevent stains from setting, and a reformulation of Pantene shampoo/conditioner are examples of new and improved products.6
  64. 5. Repositioned products: categories of new products
    These are existing products targeted at new markets or market segments, or ones repositioned to change the current market's perception of the product or company, which may be done to boost declining sales.

    Spanish leather-goods brand Loewe, known for its studded, tasseled, and patterned handbags, is hoping to change how customers think of the brand and reposition the brand for simplicity with a leather version of a brown paper shopping bag without tassels, pockets, clasps, or finery.7 Clothing retailer Talbots decided to reposition from an outlet targeted at middle- and upper-class suburban ladies to a more youthful position. Its research revealed that women 65 years of age and older thought the brand was for “someone older.” Talbots is working on a complete merchandise and image overhaul.8
  65. 6. Lower-priced products: categories of new products
    This category refers to products that provide performance similar to competing brands at a lower price.

    HP LaserJet 3100 is a scanner, copier, printer, and fax machine combined. This new product is priced lower than many conventional color copiers and much lower than the combined price of the four items purchased separately.
  66. The management consulting firm Booz Allen Hamilton has studied the new-product development process for more than 30 years.
    The management consulting firm Booz Allen Hamilton has studied the new-product development process for more than 30 years.

    • Analyzing five major studies undertaken during this period, the firm has concluded that the companies most likely to succeed in developing and introducing new products are those that take the following actions:
    •       Make the long-term commitment needed to support innovation and new-product development.
    •      Use a company-specific approach, driven by corporate objectives and strategies, with a well-defined new-product strategy at its core.
    •      Capitalize on experience to achieve and maintain competitive advantage.
    •      Establish an environment—a management style, organizational structure, and degree of top management support—conducive to achieving company-specific new-product and corporate objectives.

    Most companies follow a formal new-product development process, usually starting with a new product strategy.

    Exhibit 11.1 traces the seven-step process, which is discussed in detail in this section. The exhibit is funnel shaped to highlight the fact that each stage acts as a screen. The purpose is to filter out unworkable ideas.
  67. 1. New-Product Strategy
    A new-product strategy  links the new-product development process with the objectives of the marketing department, the business unit, and the corporation.

    A new-product strategy must be compatible with these objectives, and in turn, all three of the objectives must be consistent with one another.

    A new-product strategy is part of the organization's overall marketing strategy. It sharpens the focus and provides general guidelines for generating, screening, and evaluating new-product ideas.

    The new-product strategy specifies the roles that new products must play in the organization's overall plan and describes the characteristics of products the organization wants to offer and the markets it wants to serve.

    In the traditional development process of new products, many versions of a core idea are discussed, tested, winnowed, and retested until a winning product emerges.

    Businesses should expect four out of five new products to fail under a strict traditional model. Nevertheless, companies continue to work to innovate. Following a slow year in 2009, leading firms such as Procter & Gamble, Kimberly-Clark, Energizer Holdings, and Unilever committed to increasing new-product activity in 2010.
  68. New Product Strategy
    • 1. New product strategy
    • 2. Idea generation
    • 3. idea screening
    • 4. Business analysis
    • 5. Development
    • 6. Test marketing
    • 7. Commercialization
    • *** New Product
  69. 2. Idea Generation - new product strategy
    New-product ideas come from many sources, including customers, employees, distributors, competitors, vendors, research and development (R&D), and consultants.

    Customers:
    The marketing concept suggests that customers' wants and needs should be the springboard for developing new products. Companies can derive insight from listening to Internet chatter or reading blogs, which often indicate early trends or areas consumers are interested in seeing develop or change. Another approach for generating new-product ideas is using what some companies are calling “customer innovation centers.” The idea is to provide a forum for meeting with customers and directly involving them in the innovation process. Dr. John Horn, vice president for research and development in a 3M division, says that the goal is to understand what customers are trying to accomplish instead of what they say they need.11 Customers might be better at designing products than elite teams of product designers.

    Employees: Marketing personnel—advertising and marketing research employees, as well as salespeople—of-ten create new-product ideas because they analyze and are involved in the marketplace. Encouraging employees from different divisions to exchange ideas is also a useful strategy. When the R&D team at West Paw Design had writer's block, the team held a contest for the company's 36 employees to design and produce a prototype for a new product. Now it's an annual contest, and the prototype with the most votes enters the development process. Many don't make it to stores, but some do, like the Eco Nap, a dog bed made out of recycled materials, created by a team in the shipping department. The result is an influx of ideas and encouragement across disciplines.12 Some firms reward employees for coming up with creative new ideas. In Bloomberg Businessweek's annual ranking of the most innovative companies, 15 of the top 50 are Asian, up from only 5 in 2006. The increase isn't surprising when you look at the importance upper-level executives place on innovation. In China, 95 percent said that innovation was key to economic growth. Only 72 percent of U.S. upper-level executives agreed. There is a similar trend in spending on innovation—88 percent of Chinese executives plan to increase their innovation budgets, but only 48 percent of U.S. executives said the same thing.13

    Distributors: A well-trained sales force routinely asks distributors about needs that are not being met. Because they are closer to end users, distributors are often more aware of customer needs than are manufacturers. The inspiration for Rubbermaid's Sidekick, a litter-free lunch box, came from a distributor who suggested that the company place some of its plastic containers inside a lunch box and sell the box as an alternative to plastic wrap and paper bags.

    Vendors: 7-Eleven, Inc. regularly forges partnerships with vendors to create proprietary products. Coca-Cola invented the flavor blue vanilla for a 7-Eleven Slurpee drink, and the matching Laffy Taffy Blue Vanilla Rope candy was developed by Nestlé's Wonka division exclusively for 7-Eleven..

    Competitors: No firms rely solely on internally generated ideas for new products. A big part of any organization's marketing intelligence system should be monitoring the performance of competitors' products. One purpose of competitive monitoring is to determine which, if any, of the competitors' products should be copied. There is plenty of information about competitors on the Internet. For example, AltaVista (www.altavista.com ) is a powerful index tool that can be used to locate information about products and companies. Fuld & Company's competitive intelligence guide provides links to a variety of market intelligence sites.

    • Research and development: R&D is carried out in four distinct ways. You learned about basic research and applied research in Chapter 4. The other two ways are product development and product modification.
    •     Product development  goes beyond applied research by converting applications into marketable products.
    •    Product modification makes cosmetic or functional changes in existing products. Many new-product breakthroughs come from R&D activities IBM has research and innovation labs all over the world, and in 2010 the company announced plans to open a new one in São Paulo, Brazil. The goal is to increase sales in rapidly emerging markets like Brazil, and to help Brazil find ways to manage and encourage growth. IBM will help Brazil extract natural resources with new technology developed for the area. IBM then hopes to export those new advances to China and India. By having innovation centers located all over the world, IBM is able to increase its network and generate new ideas based on how different countries operate.14

    Consultants: Outside consultants are always available to examine a business and recommend product ideas. Examples include the Weston Group, Booz Allen Hamilton, and Management Decisions. Traditionally, consultants determine whether a company has a balanced portfolio of products and, if not, what new-product ideas are needed to offset the imbalance. General Mills' Web site at https://openinnovation.generalmills.com includes interactive features that let independent inventors and food scientists know what topics the company is interested in pursuing. If General Mills likes an idea it receives, it may pursue a licensing or joint venture arrangement.15 Creativity is the wellspring of new-product ideas, regardless of who comes up with them. A variety of approaches and techniques have been developed to stimulate creative thinking. The two considered most useful for generating new-product ideas are brainstorming and focus-group exercises. The goal of brainstorming  is to get a group to think of unlimited ways to vary a product or solve a problem. Group members avoid criticism of an idea, no matter how ridiculous it may seem. Objective evaluation is postponed. The sheer quantity of ideas is what matters. As noted in Chapter 9, an objective of focus-group interviews is to stimulate insightful comments through group interaction. In the industrial market, machine tools, keyboard designs, aircraft interiors, and backhoe accessories have evolved from focus groups.
  70. 3.Idea Screening - new product strategy
    After new ideas have been generated, they pass through the first filter in the product development process.

    This stage, called screening , eliminates ideas that are inconsistent with the organization's new-product strategy or are obviously inappropriate for some other reason.

    The new-product committee, the new-product department, or some other formally appointed group performs the screening review.

    General Motors' Advanced Portfolio Exploration Group (APEx) knows that only one out of every twenty new car concepts developed by the group will ever become a reality. That's not a bad percentage. In the pharmaceutical business, the percentage is much lower. Most new-product ideas are rejected at the screening stage.

    Concept tests are often used at the screening stage to rate concept (or product) alternatives. A concept test  evaluates a new-product idea, usually before any prototype has been created. Typically, researchers get consumer reactions to descriptions and visual representations of a proposed product.Concept tests are considered fairly good predictors of success for line extensions. They have also been relatively precise predictors of success for new products that are not copycat items, are not easily classified into existing product categories, and do not require major changes in consumer behavior

    such as Betty Crocker Tuna Helper and Libby's Fruit Float. However, concept tests are usually inaccurate in predicting the success of new products that create new consumption patterns and require major changes in consumer behavior—such as microwave ovens, VCRs, computers, and word processors.
  71. 4. Business Analysis - New product strategy
    New-product ideas that survive the initial screening process move to the business analysis  stage, where preliminary figures for demand, cost, sales, and profitability are calculated.

    For the first time, costs and revenues are estimated and compared. Depending on the nature of the product and the company, this process may be simple or complex.

    The newness of the product, the size of the market, and the nature of the competition all affect the accuracy of revenue projections.

    In an established market like soft drinks, industry estimates of total market size are available.

    Forecasting market share for a new entry is a bigger challenge.

    Analyzing overall economic trends and their impact on estimated sales is especially important in product categories that are sensitive to fluctuations in the business cycle.

    If consumers view the economy as uncertain and risky, they will put off buying durable goods such as major home appliances, automobiles, and homes.

    Likewise, business buyers postpone major equipment purchases if they expect a recession.

    Understanding the market potential is important because costs increase dramatically once a product idea enters the development stage.

    COMMON QUESTIONS IN THE BUSINESS ANALYSIS STAGE:

    What is the likely demand for the product?

    What impact would the new product probably have on total sales, profits, market share, and return on investment?

    How would the introduction of the product affect existing products?

    Would the new product cannibalize existing products?

    Would current customers benefit from the product?

    Would the product enhance the image of the company's overall product mix?

    Would the new product affect current employees in any way?

    Would it lead to increasing or reducing the size of the workforce?

    What new facilities, if any, would be needed?

    How might competitors respond?

    What is the risk of failure?

    Is the company willing to take the risk?

  72. 5. Development - New product strategy
    In the early stage of development , the R&D or engineering department may develop a prototype of the product. During this stage, the firm should start sketching a marketing strategy. The marketing department should decide on the product's packaging, branding, labeling, and so forth. In addition, it should map out preliminary promotion, price, and distribution strategies. The feasibility of manufacturing the product at an acceptable cost should be thoroughly examined.

    The development stage can last a long time and thus be very expensive.

    It took 10 years to develop Crest toothpaste, 15 years to develop the Polaroid Colorpack camera and the Xerox copy machine, 18 years to develop Minute Rice, and 51 years to develop the television. Gillette developed three shaving systems over a 27-year period (Trac II, Atra, and Sensor) before introducing the Mach3 in 1998 and Fusion in 2006.16

    The development process works best when all the involved areas (R&D, marketing, engineering, production, and even suppliers) work together rather than sequentially, a process called simultaneous product development . This approach allows firms to shorten the development process and reduce costs. With simultaneous product development, all relevant functional areas and outside suppliers participate in all stages of the development process. Rather than proceeding through highly structured stages, the cross-functional team operates in unison. Involving key suppliers early in the process capitalizes on their knowledge and enables them to develop critical component parts.

    The Internet is a useful tool for implementing simultaneous product development. On the Web, multiple partners from a variety of locations can meet regularly to assess new-product ideas, analyze markets and demographics, and review cost information. Ideas judged to be feasible can quickly be converted into new products. Without the Internet, it would be impossible to conduct simultaneous product development from different parts of the world.

    • Global R&D is important for two reasons.
    •     First, large companies have become global and are no longer focused only on one market. Global R&D is necessary to connect with customers in different parts of the world.
    •      Second, companies want to tap into the world's best talent—which isn't always found in the United States. Some firms use online brain trusts to solve technical problems.

    InnoCentive, Inc. is a network of 80,000 self-selected science problem solvers in 173 countries. Its clients include NASA, Popular Science, and The Economist. When one of InnoCentive's partners selects an idea for development, it no longer tries to develop the idea from the ground up with its own resources and time. Instead, it issues a brief to its network of thinkers, researchers, technology entrepreneurs, and inventors around the world, hoping to generate dialogue, suggestions, and solutions.Innovative firms are also gathering a variety of R&D input from customers online. Threadless, a T-shirt company, and Ryz, an athletic shoe manufacturer, ask consumers to vote online for their favorites. The companies use these results to determine the products they sell over the Internet. Laboratory tests are often conducted on prototype models during the development stage. User safety is an important aspect of laboratory testing, which actually subjects products to much more severe treatment than is expected by end users.

    The Consumer Product Safety Act of 1972 requires manufacturers to conduct a “reasonable testing program” to ensure that their products conform to established safety standards.Many products that test well in the laboratory are also tried out in homes or businesses. Examples of product categories well suited for such use tests include human and pet food products, household cleaning products, and industrial chemicals and supplies. These products are all relatively inexpensive, and their performance characteristics are apparent to users. For example, Procter & Gamble tests a variety of personal and home-care products in the community around its Cincinnati, Ohio, headquarters.
  73. 6. Test Marketing - - New product strategy
    After products and marketing programs have been developed, they are usually tested in the marketplace.

    Test marketing  is the limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation.

    Test marketing allows management to evaluate alternative strategies and to assess how well the various aspects of the marketing mix fit together.

    Even established products are test marketed to assess new marketing strategies.

    The cities chosen as test sites should reflect market conditions in the new product's projected market area. Yet no “magic city” exists that can universally represent market conditions, and a product's success in one city doesn't guarantee that it will be a nationwide hit.

    When selecting test market cities, researchers should therefore find locations where the demographics and purchasing habits mirror the overall market.

    The company should also have good distribution in test cities.

    When Chick-fil-A wanted to test its new spicy chicken sandwich, it used Baltimore, Maryland, as its test market because that city is representative of the restaurant chain's other markets across the country. Baltimore also has good distribution and customers with a history of talking to the company. And the area generates more revenue per store than any other market.19 Moreover, test locations should be isolated from the media. If the television stations in a particular market reach a very large area outside that market, the advertising used for the test product may pull in many consumers from outside the market. The product may then appear more successful than it really is.

    The High Costs of Test MarketingTest marketing frequently takes one year or longer, and costs can exceed $1 million.

    Some products remain in test markets even longer. Google plans to test-market an ultra-high-speed broadband network in one or more communities at a competitive price. The search giant plans to test its fiber-to-the-home concept by providing up to 500,000 homes with 1-gigabyte-per-second broadband access. Communities in every state except Delaware have requested to be one of the test markets. Topeka, Kansas, even changed its name to Google, Kansas, for a month in an effort to be chosen.20 Despite the cost, many firms believe it is better to fail in a test market than in a national introduction. Because test marketing is so expensive, some companies do not test line extensions of well-known brands.

    The high cost of test marketing is not just financial. One unavoidable problem is that test marketing exposes the new product and its marketing mix to competitors before its introduction
    . Thus, the element of surprise is lost.

    Competitors can also sabotage or “jam” a testing program by introducing their own sales promotion, pricing, or advertising campaign.

    The purpose is to hide or distort the normal conditions that the testing firm might expect in the market.

    Government regulation can also affect test marketing, particularly in the tobacco industry. With steadily declining U.S. cigarette sales, Reynolds American (maker of Camel cigarettes) hoped to diversify with smokeless, spitless tobacco in the form of dissolvable lozenges, sticks, and strips. Testing for Camel Orbs, a pressed tobacco lozenge that looks similar to a small breath mint, hit roadblocks from several protest groups, who said that the candy-like shape and the bright packaging would encourage children to try—and get hooked on—the product. The Food and Drug Administration asked Reynolds to provide research on the use of the product by people under age 25 and their perceptions of it. Stricter legislation on how tobacco products can be marketed also limits a test market's awareness of the product.21 Alternatives to Test MarketingMany firms are looking for cheaper, faster, safer alternatives to traditional test marketing.

    In the early 1980s, Information Resources, Inc. pioneered one alternative: scanner-based research (discussed in Chapter 9). A typical supermarket scanner test costs about $300,000. Another alternative to traditional test marketing is simulated (laboratory) market testing .

    Advertising and other promotional materials for several products, including the test product, are shown to members of the product's target market. These people are then taken to shop at a mock or real store, where their purchases are recorded. Shopper behavior, including repeat purchasing, is monitored to assess the product's likely performance under true market conditions. Research firms offer simulated market tests for $25,000 to $100,000, compared to $1 million or more for full-scale test marketing.

    The Internet offers a fast, cost-effective way to conduct test marketing. Procter & Gamble uses the Internet to assess customer demand for potential new products. Many products that are not available in grocery stores or drugstores can be sampled from P&G's Web site devoted to samples and coupons, www.pgeverydaysolutions.com . Despite these alternatives, most firms still consider test marketing essential for most new products.

    The high price of failure simply prohibits the widespread introduction of most new products without testing.
  74. 7. Commercialization - New product strategy
    The final stage in the new-product development process is commercialization , the decision to market a product.

    The decision to commercialize the product sets several tasks in motion: ordering production materials and equipment, starting production, building inventories, shipping the product to field distribution points, training the sales force, announcing the new product to the trade, and advertising to potential customers.

    The time from the initial commercialization decision to the product's actual introduction varies. It can range from a few weeks for simple products that use existing equipment to several years for technical products that require custom manufacturing equipment. And the total cost of development and initial introduction can be staggering. Gillette spent $750 million developing Mach3, and the first-year marketing budget for the new three-blade razor was $300 million.The most important factor in successful new-product introduction is a good match between the product and market needs—as the marketing concept would predict. Successful new products deliver a meaningful and perceivable benefit to a sizable number of people or organizations and are different in some meaningful way from their intended substitutes.

    • Firms that routinely experience success in new-product introductions tend to share the following characteristics:
    •     A history of listening carefully to customers
    •     An obsession with producing the best product possible
    •     A vision of what the market will be like in the future
    •     Strong leadership
    •     A commitment to new-product development
    •     A project-based team approach to new-product development
    •     Getting every aspect of the product development process right
  75. Global Issues in New-Product Development
    Increasing globalization of markets and competition provides a reason for multinational firms to consider new-product development from a worldwide perspective.

    A firm that starts with a global strategy is better able to develop products that are marketable worldwide.

    In many multinational corporations, every product is developed for potential worldwide distribution, and unique market requirements are satisfied during development whenever possible.

    Some global marketers design their products to meet regulations in their major markets and then, if necessary, meet smaller markets' requirements country by country.

    Nissan develops lead-country car models that, with minor changes, can be sold in most markets. With this approach, Nissan has been able to reduce the number of its basic models from 48 to 18.

    Some products, however, have little potential for global market penetration without modification. In other cases, companies cannot sell their products at affordable prices and still make a profit in many countries.
  76. The Spread of New Products
    Managers have a better chance of successfully marketing products if they understand how consumers learn about and adopt products.
  77. innovation 
    An innovation  is a product perceived as new by a potential adopter.

    It really doesn't matter whether the product is “new to the world” or some other category of new product.

    If it is new to a potential adopter, it is an innovation in this context.
  78. Diffusion
    is the process by which the adoption of an innovation spreads.

    Five categories of adopters participate in the diffusion process:

    • 1. Innovators: the first 2.5 percent of all those who adopt the product. Innovators are eager to try new ideas and products, almost as an obsession. In addition to having higher incomes, they are more worldly and more active outside their community than noninnovators. They rely less on group norms and are more self-confident. Because they are well educated, they are more likely to get their information from scientific sources and experts. Innovators are characterized as being venturesome.
    • 2. Early adopters: the next 13.5 percent to adopt the product. Although early adopters are not the very first, they do adopt early in the product's life cycle. Compared to innovators, they rely much more on group norms and values. They are also more oriented to the local community, in contrast to the innovators' worldly outlook. Early adopters are more likely than innovators to be opinion leaders because of their closer affiliation with groups. Early adopters are a new product's best friends.The respect of others is a dominant characteristic of early adopters.

    3.
    Early majority: the next 34 percent to adopt. The early majority weighs the pros and cons before adopting a new product. They are likely to collect more information and evaluate more brands than early adopters, thereby extending the adoption process. They rely on the group for information but are unlikely to be opinion leaders themselves. Instead, they tend to be opinion leaders' friends and neighbors. The early majority is an important link in the process of diffusing new ideas because they are positioned between earlier and later adopters. A dominant characteristic of the early majority is deliberateness.

    4. Late majority:
    the next 34 percent to adopt. The late majority adopts a new product because most of their friends have already adopted it. Because they also rely on group norms, their adoption stems from pressure to conform. This group tends to be older and below average in income and education. They depend mainly on word-of-mouth communication rather than on the mass media. The dominant characteristic of the late majority is skepticism.

    5. Laggards: the final 16 percent to adopt. Like innovators, laggards do not rely on group norms. Their independence is rooted in their ties to tradition. Thus, the past heavily influences their decisions. By the time laggards adopt an innovation, it has probably been outmoded and replaced by something else. For example, they may have bought their first black-and-white television set after color television was already widely diffused. Laggards have the longest adoption time and the lowest socioeconomic status. They tend to be suspicious of new products and alienated from a rapidly advancing society. The dominant value of laggards is tradition. Marketers typically ignore laggards, who do not seem to be motivated by advertising or personal selling and are virtually impossible to reach online.

    ***Note that some product categories may never be adopted by 100 percent of the population. The adopter categories refer to all of those who will eventually adopt a product, not the entire population.
  79. Product Characteristics and the Rate of Adoption
    • Five product characteristics can be used to predict and explain the rate of acceptance and diffusion of a new product:
    • 1. Complexity: the degree of difficulty involved in understanding and using a new product. The more complex the product, the slower is its diffusion.

    2. Compatibility:
    the degree to which the new product is consistent with existing values and product knowledge, past experiences, and current needs. Incompatible products diffuse more slowly than compatible products.

    3. Relative advantage: the degree to which a product is perceived as superior to existing substitutes. Because it can store and play back thousands of songs, the iPod has a clear relative advantage over the portable CD player.

    4. Observability: the degree to which the benefits or other results of using the product can be observed by others and communicated to target customers. For instance, fashion items and automobiles are highly visible and more observable than personal-care items.

    5. “Trialability”: the degree to which a product can be tried on a limited basis. It is much easier to try a new toothpaste or breakfast cereal than a new automobile or microcomputer.
  80. Marketing Implications of the Adoption Process
    Two types of communication aid the diffusion process:

    1. word-of-mouth communication among consumers and communication from marketers to consumers. Word-of-mouth communication within and across groups speeds diffusion. Opinion leaders discuss new products with their followers and with other opinion leaders. Marketers must therefore ensure that opinion leaders have the types of information desired in the media that they use. Suppliers of some products, such as professional and health care services, rely almost solely on word-of-mouth communication for new business.

    2. The second type of communication aiding the diffusion process is communication directly from the marketer to potential adopters. Messages directed toward early adopters should normally use different appeals than messages directed toward the early majority, the late majority, or the laggards. Early adopters are more important than innovators because they make up a larger group, are more socially active, and are usually opinion leaders.As the focus of a promotional campaign shifts from early adopters to the early majority and the late majority, marketers should study the dominant characteristics, buying behavior, and media characteristics of these target markets. Then they should revise messages and media strategy to fit. The diffusion model helps guide marketers in developing and implementing promotion strategy.
  81. Product Life Cycles
    • 1. Introductory Stage
    • 2. Growth Stage
    • 3. Maturity Stage
    • 4. Decline Stage
  82. product life cycle (PLC)
    The product life cycle (PLC)  is one of the most familiar concepts in marketing. Few other general concepts have been so widely discussed. Although some researchers and consultants have challenged the theoretical basis and managerial value of the PLC, many believe it is a useful marketing management diagnostic tool and a general guide for marketing planning in various life cycle stages

    The PLC is a biological metaphor that traces the stages of a product's acceptance, from its introduction (birth) to its decline (death). As Exhibit 11.2 shows, a product progresses through four major stages: introduction, growth, maturity, and decline.The PLC concept can be used to analyze a brand, a product form, or a product category. The PLC for a product form is usually longer than the PLC for any one brand. The exception would be a brand that was the first and last competitor in a product form market. In that situation, the brand and product form life cycles would be equal in length. Product categories have the longest life cycles. A product category  includes all brands that satisfy a particular type of need such as shaving products, passenger automobiles, or soft drinks.The time a product spends in any one stage of the life cycle may vary dramatically. Some products, such as fad items, move through the entire cycle in weeks. Fads are typically characterized by a sudden and unpredictable spike in sales followed by a rather abrupt decline.26 Examples of fad items are Silly Bandz, Beanie Babies, and Crocs. Other products, such as electric clothes washers and dryers, stay in the maturity stage for decades. Exhibit 11.2 illustrates the typical life cycle for a consumer durable good, such as a washer or dryer. In contrast, Exhibit 11.3 below illustrates typical life cycles for styles (such as formal, business, or casual clothing), fashions (such as miniskirts or baggy jeans), and fads (such as leopard-print clothing). Changes in a product, its uses, its image, or its positioning can extend that product's life cycle.The PLC concept does not tell managers the length of a product's life cycle or its duration in any stage. It does not dictate marketing strategy. It is simply a tool to help marketers forecast future events and suggest appropriate strategies.
  83. 1. Introductory Stage - Product Life Cycle
    The introductory stage  of the PLC represents the full-scale launch of a new product into the marketplace. Computer databases for personal use, room-deodorizing air-conditioning filters, and wind-powered home electric generators are all product categories that have recently entered the PLC. A high failure rate, little competition, frequent product modification, and limited distribution typify the introductory stage of the PLC.Marketing costs in the introductory stage are normally high for several reasons. High dealer margins are often needed to obtain adequate distribution, and incentives are needed to get consumers to try the new product. Advertising expenses are high because of the need to educate consumers about the new product's benefits. Production costs are also often high in this stage, as product and manufacturing flaws are identified and corrected and efforts are undertaken to develop mass production economies.Sales normally increase slowly during the introductory stage. Moreover, profits are usually negative because of R&D costs, factory tooling, and high introduction costs. The length of the introductory phase is largely determined by product characteristics, such as the product's advantages over substitute products, the educational effort required to make the product known, and management's commitment of resources to the new item. A short introductory period is usually preferred to help reduce the impact of negative earnings and cash flows. As soon as the product gets off the ground, the financial burden should begin to diminish. Also, a short introduction helps dispel some of the uncertainty as to whether the new product will be successful.Promotion strategy in the introductory stage focuses on developing product awareness and informing consumers about the product category's potential benefits. At this stage, the communication challenge is to stimulate primary demand—demand for the product in general rather than for a specific brand. Intensive personal selling is often required to gain acceptance for the product among wholesalers and retailers. Promotion of convenience products often requires heavy consumer sampling and couponing. Shopping and specialty products demand educational advertising and personal selling to the final consumer.
  84. 2. Growth Stage - Product Life Cycle
    If a product category survives the introductory stage, it then advances to the growth stage  of the life cycle. In this stage, sales typically grow at an increasing rate, many competitors enter the market, and large companies may start to acquire small pioneering firms. Profits rise rapidly in the growth stage, reach their peak, and begin declining as competition intensifies. Emphasis switches from primary demand promotion (e.g., promoting personal digital assistants, or PDAs) to aggressive brand advertising and communication of the differences between 3 brands (e.g., promoting BlackBerry versus Palm).Distribution becomes a major key to success during the growth stage, as well as in later stages. Manufacturers scramble to sign up dealers and distributors and to build long-term relationships. Without adequate distribution, it is impossible to establish a strong market position.XFit, a stretch denim material, has paired with denim labels to get its product to retailers. The stretch denim market has 35 percent of the market, and customers want a jean that holds its shape but fits comfortably. XFit relies on designers to label jeans with information about the benefits of XFit. If the label doesn't resonate with customers or differentiate the material from other stretch denims, XFit will lose its place in the stretch fiber market.
  85. 3. Maturity Stage - Product Life Cycle
    A period during which sales increase at a decreasing rate signals the beginning of the maturity stage  of the life cycle. New users cannot be added indefinitely, and sooner or later the market approaches saturation. Normally, this is the longest stage of the PLC. Many major household appliances are in the maturity stage of their life cycles.For shopping products such as durable goods and electronics, and many specialty products, annual models begin to appear during the maturity stage. Product lines are lengthened to appeal to additional market segments. Service and repair assume more important roles as manufacturers strive to distinguish their products from others. Product design changes tend to become stylistic (How can the product be made different?) rather than functional (How can the product be made better?).As prices and profits continue to fall, marginal competitors start dropping out of the market. Dealer margins also shrink, resulting in less shelf space for mature items, lower dealer inventories, and a general reluctance to promote the product. Thus, promotion to dealers often intensifies during this stage in order to retain loyalty. Heavy consumer promotion by the manufacturer is also required to maintain market share. Cutthroat competition during this stage can lead to price wars. Another characteristic of the maturity stage is the emergence of “niche marketers” that target narrow, well-defined, underserved segments of a market.
  86. 4. Decline Stage - Product Life Cycle
    A long-run drop in sales signals the beginning of the decline stage . The rate of decline is governed by how rapidly consumer tastes change or substitute products are adopted. Many convenience products and fad items lose their market overnight, leaving large inventories of unsold items, such as designer jeans. Others die more slowly. Landline telephone service is an example of a product in the decline stage of the product life cycle. After peaking at about 141 million in 2000, the number of U.S. home phones fell to 78 million by the end of 2008, according to the Federal Communications Commission.28 People abandoning landlines to go wireless and households replacing landlines with Internet phones have both contributed to this long-term decline.Some firms have developed successful strategies for marketing products in the decline stage of the PLC. They eliminate all nonessential marketing expenses and let sales decline as more and more customers discontinue purchasing the products. Eventually, the product is withdrawn from the market.Some firms practice what management sage Peter Drucker has called “organized abandonment,” which is based upon a periodic audit of all goods and services that a firm markets. One key question is, if we weren't already marketing the product, would we be willing to introduce it now? If the answer is “no,” the product should be carefully considered as a candidate for elimination from the product mix.
  87. Implications for Marketing Management
    The PLC concept encourages marketing managers to plan so that they can take the initiative instead of reacting to past events. The PLC is especially useful as a predicting or forecasting tool. Because products pass through distinctive stages, it is often possible to estimate a product's location on the curve using historical data. Profits, like sales, tend to follow a predictable path over a product's life cycle.Exhibit 11.4 shows the relationship between the adopter categories and stages of the PLC. Note that the various categories of adopters first buy products in different stages of the life cycle. Almost all sales in the maturity and decline stages represent repeat purchasing.

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