Chapter Six The Marketing Mix Key Words / Outline Tangible product, Extended product, Generic product, Marketing myopia, Buyer derives, Vertical market, Horizontal market, Quality Value, Product mix, ,line extension, Brand extension, Franchise extension, Dual branding, Multi branding, Fashions, Fads, Innovators, Laggards, Market dimensions McGraw-Hill/Irwin Marketing Management, 8e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Three Views Of Product • Tangible – physical entity or service • Extended – tangible product plus a whole cluster of services that accompany it • Generic – the essential benefits the buyer expects to receive from the product 6- 3 Product Definition • A product is the sum of the physical, psychological, physiological, and sociological satisfactions the buyer derives from purchase, ownership and consumption 6- 4 Product Classification • Two basic criteria of product classification - End use or market - Degree of processing or physical transformation • Three categories of products - Agricultural products and raw materials - Organizational goods - Consumer goods 6- 5 Agricultural Products and Raw Materials • • • • Grown or extracted from the land or the sea Fairly homogeneous Sold in large volume Low value per unit 6- 6 Organizational Goods • Purchased by firms for the purpose of producing other goods • Raw materials and semi-finished goods • Major and minor equipment • Parts or components needed to complete other finished goods • Supplies or items used to operate the business but not an element of a finished good 6- 7 Consumer Goods • Convenience goods – such as food which require minimal effort • Shopping goods – such as appliances, which are purchased after some time and energy is spent comparing • Specialty goods – which are unique in some way to the consumer and are characterized by special effort 6- 8 Organizational Market Characteristics • A primary purchasing motive for organizational goods is profit • Organizational markets are concentrated geographically as in the case of steel or auto • Can be categorized into - Vertical market: Limited number of buyers - Horizontal market: Limited number of industries 6- 9 Quality and Value • Buyers expect . . . - Quality • The degree of excellence or superiority that an organization’s product possesses - Value • What the customer gets in exchange for what the customer gives 6- 10 Product Mix • The full set of products offered for sale by an organization • May consist of several product lines, or groups of products sharing common characteristics, distribution channels, customers, or uses • Product mix exhibits - Width – number of product lines in the organization - Depth – average number of products in each line 6- 11 Branding • A brand identifies one seller’s good or service as distinct from competitors • Brand can be - A name A term A design A symbol 6- 12 Branding • Line extension: Uses brand name to facilitate entry into a new market segment • Brand extension: Uses an existing brand to enter a different product class • Family branding: Attaches the corporate name to a product to either enter a new market or a new product class • Dual branding: Concept where two or more branded products are integrated • Multibranding: Assigning different brand names to each product 6- 13 Advantages of a Multi-branding strategy • The firm can distance products from other offerings it markets • The image of one product is not associated with other products the company markets • The products can be specifically targeted • If the product fails, the effect on other products is minimized 6- 14 Brand Equity 6- 15 Packaging • Differentiates relatively homogeneous products • Contributes to “Brand Equity” by creating new attributes or value • Creates urgent salability within a target market 6- 16 Product Lifecycle • Introduction - High costs, low or no profit • Growth - Reduced costs, profits increase, maximum value • Maturity - Marginal cost, marginal profit, high competition • Decline - Low costs, high profits, competition lessens 6- 17 Product Lifecycle - Limitations • As useful as the product life cycle can be to managers, it does have limitations that require it to be used cautiously - Accuracy pertaining to the longevity of the product can’t be predicted Variations in life cycle exists • • Fashion: These are accepted and popular product styles Fads: Products which experience high but brief popularity 6- 18 Product Lifecycle and Strategy 6- 19 Product Adoption And Diffusion • Adopter categories - • Innovators Early adopters Early majority Late majority Laggards Diffusion: The spread of the product through the population is known as the diffusion of innovation 6- 20 Product Audit • The product audit is a marketing management technique whereby the company’s current product offerings are reviewed to ascertain whether each product should be continued as is, improved, modified, or deleted 6- 21 Deletions • Deletion decisions are difficult because of the potential impact on customers and the firm Considerations in the deletion decision include • - Sales trends: Have sales moved over time? What has happened to market share? Profit contribution: What has been the profit contribution of the product to the company? Product life cycle: Has the product reached a level of maturity? Customer migration patterns: If the product is deleted, will customers switch to another product marketed by our firm? 6- 22 Product Improvement • • • Another important objective of the audit is to ascertain whether to alter the product in some way or leave things the way they are Attributes: Refer to main features of the product such as design, package and so forth Marketing dimensions: Refer to features like pricing, promotion strategy and distribution channels 6- 23 Product Improvement • Benchmarking: Continuous process of measuring products, services, and practices against those of the toughest competitors Advantages of benchmarking include • - Boosting product quality Developing more user-friendly products Improving customer order processing activities Shortening delivery lead times 6- 24 Product Rejuvenation • • • • • Less risk Lower costs Less time Cheaper market share Higher profits 6- 25 Product Management • • Market management system: One person is responsible for overseeing an entire product line with all of the functional areas of marketing such as research, advertising, sales promotion, sales, and product planning Brand management system: A manager focuses on a single product or a very small group of new and existing products 6- 26 Cross Functional Teams • Use of cross functional teams has become an important way to manage the development of new products Requirements of managing a cross functional team include • - Commitment of top management and provision of clear goals Trust among members Cross functional cooperation Time and training 6- 27