MARKETING
17e
Hult • Pride • Ferrell
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Part 4
Product
Decisions
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10: Product Decisions
11: Strategic Product
Management
12: Services Marketing
13: Strategic Management of
Branding and Packaging
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12-2
Objectives
 To understand how companies manage existing
products through line extensions and product
modifications
 To describe how businesses develop a product idea
into a commercial product
 To understand the importance of product differentiation
and the elements that differentiate one product from
another
 To understand how businesses position their products
 To examine how product deletion is used to improve
product mixes
 To describe organizational structures used for
managing products
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12-3
Managing Existing Products
 Organizations must be able to adjust their
products’ features in response to changes in
customers’ needs
 A marketer must develop, alter and maintain
an effective product mix
 By assessing the current product mix, a
marketer can identify weaknesses and gaps
which can lead to improving the product mix
through
 Line Extensions
 Product Modifications
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12-4
Line Extensions
 A line extension is the development of a
product closely related to existing products in
the line but designed specifically to meet
different customer needs
 Less risky and less costly than introducing a
new product
 Line extensions may
 Increase sales
 Take market share from competitors
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12-5
Discussion Point
Tide Pods
represent a line
extension of the
successful Tide
laundry product
line
? Can you think of other products that are line
extensions?
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12-6
Product Modifications
 A product modification means changing
one or more characteristics of a product
 Differs from a line extension because the
original product drops from the product line
 Certain conditions must exist for the
modification to work
 The product must be modifiable
 Customers must recognize the modification
 The modification should make the product
more consistent with customers’ desires
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12-7
Product Modifications
Three major types of product modifications
 Quality modifications are changes to a
product’s dependability and durability
 Functional modifications are changes that
affect a product’s versatility, effectiveness,
convenience or safety
 Aesthetic modifications are changes to the
sensory appeal of a product
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12-8
Discussion Point
Friday’s brings its food
products to supermarkets in
the form of ready-to-heat,
frozen foods
? Have you tried Friday’s frozen food?
? If so, does it taste like the food in the restaurant?
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12-9
Discussion Point
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12-10
Discussion Point




Do AXE Products Make Men More Desirable?
To effectively manage the brand, Unilever has
regularly developed new products
AXE’s product features are both tangible and
psychological
Love them or hate them, AXE commercials
leave an indelible impression
Take a look at the website
? How has AXE managed its product mix?
? How has AXE used line extensions to increase
its reach among consumers?
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12-11
Developing New Products
 Developing new products enhances a product
mix and adds depth to a product line
 Introducing new products can be expensive
and risky
 New product failures often occur and can
create major financial problems for an
organization
 Failing to introduce new products is also risky
 Companies can lose market share with failure
to innovate and keep up with competitive
products
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12-12
Developing New Products
 The term new product may have more than
one meaning
 A new product can be an innovative product
that has never been sold by any organization
 A new product can be a modified product that
existed previously
 A new product may be a product a specific
company has not marketed previously but
similar products have been available from other
companies
 A product can be viewed as new when it is
brought to one or more markets from another
market
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12-13
New Products
Red Mango lowfat frozen yogurt
introduced dark
chocolate to
celebrate its 100th
store opening
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12-14
Phases of the New-Product
Development Process
New-product
development
process is a
seven-phase
process for
introducing
products
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12-15
Idea Generation
 Idea generation is the activity of seeking
product ideas to achieve organizational
objectives
 There is a relationship between the amount of
market research gathered and the number of
ideas generated by work groups
 One trend is engaging customers online
 Ideas can come from several sources
 Internally through departments or franchisees
 Externally through customers, competitors,
advertising agencies, consultants or even
outsourcing
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12-16
Screening
 Screening means selecting the ideas with the
greatest potential for further review
 Ideas are analyzed to determine whether they
match the organization’s objectives and
resources
 Keeping the product idea in focus and on track
by understanding consumer needs and wants
is the key to success
 A checklist is often used encouraging
evaluators to be systematic
 Most new products are rejected during this
phase
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12-17
Concept Testing
 Concept testing is seeking a sample of
potential buyers’ responses to a product idea
 Often necessary in order to evaluate ideas
properly
 A low-cost procedure allowing the company to
determine customers’ initial reactions before
investing resources in research and
development
 The result of concept testing can help
marketers understand which attributes and
benefits are most important to potential
customers
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12-18
Business Analysis
 Business analysis involves evaluating the
potential impact of a product idea on the firm’s
sales, costs and profits
 Marketers ask a series of questions and
attempt to answer them through market
information
 Results of customer surveys and secondary
data supply the specifics needed to estimate
potential sales, costs and profits
 Analysis based on estimates is useful but not
precise
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12-19
Product Development
 Product development is determining if
producing a product is technically feasible and
cost effective
 To test acceptability, the idea is converted into
a prototype or working model
 The prototype is tested for overall functioning
both in the lab and in the field
 Crucial questions during this phase include
how much quality to build into the product
 This phase is lengthy and expensive so a small
number of product ideas are put into
development
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12-20
Concept Testing
Before M&M
introduced a crunchy,
chocolate-covered
pretzel candy, they
had to determine
consumer interest in
the new product
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12-21
Test Marketing
 Test marketing is a limited introduction of a
product in geographic areas chosen to
represent the intended market
 The aim is to determine if potential customers
will buy the product and used to lessen the risk
of product failure
 Selection of test areas is important to provide
accurate representation of the intended market
 Test marketing is expensive and competitors
may try to interfere
 Not all test marketed products are launched
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12-22
Popular Test Markets
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12-23
Commercialization
 Commercialization is refining and finalizing
plans and budgets for full-scale manufacturing
and marketing of a product
 Marketers analyze results of test marketing and
make needed changes to the marketing mix
 During this stage, decisions are made on
services such as warranties, repairs and
replacement parts
 Product enters the market with advertising,
personal selling and promotion
 A roll-out is introducing a product in stages
starting in one geographic area and expanding
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12-24
Stages of Expansion During
Commercialization
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12-25
Commercialization
Peapod, the
nation’s leading
online grocer, has
placed a virtual
store in Chicago to
test the virtual store
concept versus
maintaining a
strictly online
presence to
support sales
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12-26
Discussion Point
 Merck & Company
 Merck develops, manufactures and markets a
broad range of health-care products
 The firm’s Merck-Medco Managed Care
Division manages pharmacy benefits for more
than 40 million Americans
? What products has Merck developed and
introduced recently?
? How does research facilitate new product
development at Merck?
? Is Merck’s focus on research consistent with the
firm’s mission and values?
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12-27
Product Differentiation
 Product differentiation is creating and
designing products so customers perceive
them as different from competing products
 Customer perception is critical
 Three aspects of product differentiation
companies must consider
 Product Quality
 Product Design and Features
 Product Support Services
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12-28
Product Quality
 Product Quality
 The overall characteristics of a product that
allow it to perform as expected in satisfying
customer needs
 Level of Quality
 The amount of quality a product possesses
 Consistency of Quality
 The degree to which a product has the same
level of quality over time
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12-29
Discussion Point
Dyson provides
high-quality
products known
for exceptional
design and
performance
? Can you think of other products that are known
for high-quality, design and performance?
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12-30
Product Design and Features
 Product Design – how a product is
conceived, planned and produced
 Styling – the physical appearance of a product
 Product Features – specific design
characteristics that allow a product to perform
certain tasks
 Marketers must determine the product designs
and features customers desire
 Information from marketing research helps
assess customers’ preferences
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12-31
Product Design
Nike carefully
designed the
Nike Free shoes
to be stylish and
integrated with
Apple
performancemonitoring apps
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12-32
Product Support Services
 Customer Services – human or mechanical
efforts or activities that add value to a product
 Examples include:
Delivery/Installation
Financing
Customer training
Warranties/Guarantees
Repairs
Layaway plans
Convenient hours
Adequate parking
Toll-free numbers
Websites
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12-33
Discussion Point
Authenticity of the Artisan Food Label
 Artisan food has traditionally been used to
describe handcrafted food
 Tostito’s, Wendy’s and Subway have all used
the term
 Domino’s sells artisan pizzas with unique
toppings
? Is this enough to classify these pizzas as artisan?
Is the term misleading?
? Are artisan food labels authentic?
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12-34
Product Positioning
 Product positioning refers to the decisions and
activities intended to create and maintain a
certain concept of the product in customers’
minds
 This projected image is crucial because
consumers tend to group, or position, products
in their minds to simplify buying decisions
 Perceptual maps are created by questioning a
sample of consumers about their perceptions of
products, brands and organizations with
respect to two or more dimensions
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12-35
Hypothetical Perceptual Map
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12-36
Bases for Positioning
Marketers can use several bases for product
positioning
 Head-to head – best when products are equal
and if price is lower
 Avoid competition – critical when introducing a
brand into a market in which the company already
has one or more brands
 Position can be based on specific product
attributes or features
 Other bases include price, quality level and
benefits
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12-37
Repositioning
 A brand’s market share and profitability may
be strengthened by product repositioning of
existing products
 Requires changes in perception and usually
changes in product features
 Repositioning can be accomplished by
changing any aspect of the marketing mix
 A marketer may reposition a product by aiming
it at a completely different target market
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12-38
Product Deletion
 Product deletion means eliminating a product
from the product mix when it no longer
satisfies a sufficient number of customers
 Declining products reduce profitability and
drain resources
 A dying product may lose favor with customers
and negative feelings may transfer to a
company’s other products
 Product deletions may be met with opposition
by management, sales people and other
employees
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12-39
Product Deletion
 A systematic review allows an organization to
improve a product or delete a product
 Three ways to delete a product
 Phase-out – allows a product to decline without
a change in marketing strategy
 Run-out – exploits any strengths left in the
product
 Immediate drop – used when losses are too
great
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12-40
Product Deletion Process
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12-41
Organizing to Develop and
Manage Products
 Product Manager – the person within an
organization who is responsible for a product, a
product line or several distinct products that make
up a group
 Brand Manager – the person responsible for a
single brand
 Market Manager – the person responsible for
managing the marketing activities that serve a
particular group of customers
 Venture team – a cross-functional group that
creates entirely new products that may be aimed
at new markets
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12-42
Discussion Point
Caterpillar Inc. Crawls Over the Competition with
Product Development
 Caterpillar Inc. is a global manufacturer of
construction and mining equipment, machinery
and engines
 Caterpillar’s continued success at product
management will likely lead the company to take
advantage of future opportunities in the global
market
? Why is it important for Caterpillar to develop new
products on a regular basis?
? Why is Caterpillar so careful to test-market its
products prior to commercialization?
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12-43