This material is protected by copyright and has been copied by and solely for the educational purposes of the University under licence. You may not sell, alter or further reproduce or distribute any part of this coursepack/material to any other person. Where provided to you in electronic format, you may only print from it for your own private study and research. Failure to comply with the terms of this warning may expose you to legal action for copyright infringement and or disciplinary action by the University Course of Study: (BUSINESS111) Understanding Business Title of work: Business in action, 7th edition. (2015) Section: pp. 355--357 Author/editor of work: Bovée, Courtland L.; Thill, John V. Author of section: Courtland L Bovee; John V Thill Name of Publisher: Pearson Education Limited CHAPTER 14 In her new career, Sbrenstam is once again measuring herself against top performers, including such figures as basketball star Michael Jordan and golfers Arnold Palmer and Jack Nicklaus. Palmer and Nicklaus are particularly apt role models, both having built golf-centric business empires and having remained vibrant public figures years after hitting their last competitive shots. Product and Pricing Strategies 355 Sbrenstam believes it's high time a woman joined their ranks. "Ask a person on the street to name five male athletes who have made a name for themselves outside their sport- no problem," she says. "Ask the same question about women athletes? They can't name one." She plans to be the first. What advice would you give her to make the transition from golf star to business star, from Annika the athlete to Annika the brand? 1 INTRODUCTION ( This chapter explores two of the four elements in the marketing mix, product and price. Annika Sorenstam's challenge in defining the Annika brand (profiled in the chapter-opening Behind the Scenes) is an essential part of product strategy. She also faces another challenge that you'll read more about in this chapter: assembling the right mix of goods and services as part of a firm's overall product mix. Finally, as in every business, Sbrenstam has to engage in careful financial analysis and make shrewd pricing decisions to stay both competitive and profitable. Characteristics of Products As the central element in every company's exchanges with its customers, products naturally command a lot of attention from managers who are planning new offerings and coordinat­ ing the marketing mixes for existing offerings. To understand the nature of these decisions, it's important to recognize the various types of products and the stages that products go through during their "lifetime" in the marketplace. TYPES OF PRODUCTS Think about Doritos tortilla chips, Intel semiconductors, and your favorite musical artist. You wouldn' t market all these products in the same way, because buyer behavior, product characteristics, market expectations, competition, and other elements of the equation are entirely different. Classifying products on the basis of tangibility and application can provide useful insights into the best ways to market them. Some products are predominantly tangible; others are mostly intangible. Most products, however, fall somewhere between those two extremes. The product continuum indicates the relative amounts of tangible and intangible components in a product (see Exhibit 14.1). To provide a more complete solution to customer needs, many companies find success by augmenting a core product with accessories, services, and other elements (see Exhibit 14.2 on the next page). In some cases, these enhancements are included in the price of the product, EXHIBIT 14.1 The Product Continuum Products contain both tangible and intangible components; predominantly tangible products are categorized as goods, whereas predominantly intangible products are categorized as services. GOODS IDEAS SERVICES Tangible dominant Intangible dominant II LEARNING OBJECTIVE Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product. 356 PART FIVE Satisfying the Customer: Marketing, Sales, and Customer Support Augmenting the Basic Product EXHIBIT 14.2 Product decisions also involve how much or how little to augment the core product with additional goods and services. Augmented product Delivery and credit Aftersale service Actual product Brand name Features Core benefit Quality level Design Packaging Upgrades Installation Accessories Warranty Source: Kotler, Philip R.; Armstrong, Gary, Principles of Marketing, 10th ed. (c) 2004 p.279, 330. Reprinted and Electronically reproduced by permission of Pearson Education, Inc., Upper Saddle River, New Jersey. but product augmentation can also be a way to increase revenue, by offering new services and accessories or by charging for enhancements that were previously included at no charge.2 Consumer Products Organizations and consumers use many of the same products, but they can use them for different reasons and in different ways. Products that are primarily sold to individuals for personal consumption are known as consumer products. They can be classified into four subgroups, depending on how people shop for them: convenience products Everyday goods and services that people buy frequently, usually without much conscious planning. shopping products Fairly impor­ tant goods and services that people buy less frequently with more planning and comparison. specialty products Particular brands that the buyer especially wants and will seek out, regardless oflocation or price. • Everyday goods and services that people buy frequently, usually without much conscious planning, are known as convenience products. • Shopping products are fairly important goods and services that people buy less frequently, such as computers and college educations. Because the stakes are higher and the decisions more complex, such products require more thought and comparison shopping. • Specialty products are particular brands that the buyer especially wants and will seek out, regardless of location or price, such as Suzuki violin lessons or Bang & Olufsen home entertainment gear. • When it comes to some products, such as life insurance, cemetery plots, and items that are new to the marketplace, consumers aren't looking for them. The marketing chal­ lenges for these unsought products include making consumers aware of their existence and convincing people to consider them. Industrial and Commercial Products Organizational products, or industrial and commercial products, are generally purchased by organizations in large quantities and used to create other products or to operate CHAPTER 14 Product and Pricing Strategies the organization. Expense items are relatively inexpensive goods that are generally used within a year of purchase, such as printer cartridges and paper. Capital items are more expensive products with a longer useful life. Examples include computers, vehicles, production machinery, and even entire factories. Businesses and other orga­ nizations also buy a wide variety of services, from facilities maintenance to temporary executives. Aside from dividing products into expense and capital items, industrial buyers and sellers often classify products according to their intended use: 357 expense items Inexpensive prod­ ucts that organizations generally use within a year of purchase. capital items More expensive organizational products with a longer useful life, ranging from office and plant equipment to entire factories. • Raw materials such as iron ore, crude petroleum, lumber, and chemicals are used in the production of final products. • Components such as semiconductors and fasteners also become part of the manufac­ turers' final products. • Supplies such as pencils, nails, and lightbulbs that are used in a firm's daily operations are considered expense items. • Installations such as factories, power plants, and airports are major capital projects. • Equipment includes items such as desks, computers, and factory robots. • Business services range from landscaping and cleaning to complex services such as management consulting and auditing. THE PRODUCT LIFE CYCLE Most products undergo a product life cycle, passing through four distinct stages in sales and profits: introduction, growth, maturity, and decline (see Exhibit 14.3). The marketing challenge changes from stage to stage, sometimes dramatically. The product life cycle can describe a product class (gasoline-powered automobiles), a product form (sport utility vehicles), or a brand or model (Ford Explorer). Product classes and EXHIBIT 1 4.3 The Product Life Cycle Most products and product categories move through a life cycle similar to the one represented by the curve in this diagram, with new innovations pushing existing products along the time axis. However, the duration of each stage varies widely from product to product. Automobiles have been in the maturity stage for decades, but faxing services barely made it into the introduction stage before being knocked out of the market by low­ cost fax machines that every business and home office could afford-which were themselves pushed along the curve by digital document formats. Introduction Growth Maturity Decline • CD players • Payphones • Google Glass • Smartphones • Conventional automobiles • Commercial • Hybrid automobiles • Digital cameras space travel ...............············· . .... ••• ••• Profits ········ ······ ••• • 0 b-,-,...-:-,,-----'-oe=.---,�----------------·-·-··-·-·...•a....=._ Time Source: Adapted from Kotler, Philip R.; Armstrong, Gary, Principles of Marketing, 1oth ed. (c) 2004 p.279, 330. Reprinted and Electronically reproduced by permission of Pearson Education, Inc., Upper Saddle River, New Jersey. product life cycle Four stages through which a product progresses: introduction, growth, maturity, and decline.
