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Marketing - ALL STUDY MATERIALS COVERED
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Endterm Practice Marketing
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Lecture notes marketing UVA 2023
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PART 4: Value CreationChapter 9: Product Mix and New Offerings
- A product offering is judged based on three basic elements: product features and quality,
service mix and quality, and price.
PRODUCT CHARACTERISITICS AND CLASSIFICATIONS
- Product: anything that can be offered to a market to satisfy a want or need.
Product Levels: The Customer-Value Hierarchy
- Customer-value hierarchy: five product levels that must be addressed by marketers in planning an offering.
1. Core benefit: the service or benefit the customer is really buying.
2. Basic product: marketer turns the core benefit into a basic product.
3. Expected product: a set of attributes and conditions buyers normally expect when they purchase this product.
4. Augmented product: exceeds customer expectations. Brand positioning and competition takes place at this level.
5. Potential product: with all the possible augmentations and transformations that product or offering might undergo in
the future. Here companies search for new ways to satisfy customers and distinguish offering.
Product Classifications
- Durability and tangibility:
o Tangible:
• Nondurable goods: goods consumed in one or a few uses. These items are frequently purchased and therefore
should be made widely available, charge a small mark-up, and advertise to induce trial and build preference.
• Durable goods: that survive many uses. These items require more personal selling and service, command a higher
margin and require more seller guarantees.
o Intangible
• Services are inseparable, variable, and perishable products that normally require more quality control, supplier
credibility, and adaptability.
- Consumer-goods classification:
o Convenience goods: consumer goods that are purchased frequently, immediately, and with minimal effort. E.g. soft
drinks.
o Shopping goods: goods that consumers compare on the basis of sustainability, quality, price, and style. E.g. furniture.
o Speciality goods: consumer goods with unique characteristics or brand identification for which enough buyers are
willing to make a special purchasing effort. E.g. cars.
o Unsought goods: goods that the consumer does not know about or normally think of buying. E.g. smoke detectors.
- Industrial-goods classification:
o Materials and parts: goods that enter the manufacturer’s product completely.
o Raw materials: farm products or natural products.
o Manufactured materials and parts: component materials or component parts.
o Capital items: long-lasting business goods that facilitate developing or managing the finished product. E.g. installations
and equipment.
o Supplies and business services: short-term goods and services that facilitate developing or managing the finished
product.
DIFFERENTIAITON
Product Differentiation
- Form: the size, shape, or physical structure of a product.
- Features: characteristics that supplement a product’s basic function.
- Performance quality: the level at which the product’s primary characteristics operate.
- Conformance quality: the degree to which all produced units are identical and meet promised specifications.
- Durability: the measure of the product’s expected operating life under natural or stressful conditions.
- Reliability: the measure of the probability that a product will not malfunction or fail within a specific period.
- Repairability: measure the ease of fixing a product when it malfunctions or fails.
- Style: describes the product’s look and feel to the buyer and creates distinctiveness that is hard to copy, although strong
style does not always mean high performance.
- Customization: allows firms to be highly relevant and differentiates by finding out what a person wants and delivering on
that.
Service Differentiation
- Ordering ease, delivery, installation, customer training, customer consulting, maintenance and repair
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,Design Differentiations
- With increased competition, design offers a way to differentiate and position a company’s products and services.
- Design: the totality of features that affect how a product looks, feels, and functions to a consumer.
- Offers functional and aesthetic benefits and appeals to both our rational and emotional sides.
PRODUCTS AND BRAND RELATIONSHIPS
The Product Hierarchy
- The product hierarchy stretches from basic needs to particular items that satisfy those needs.
- Product system: a group of diverse but related items that function in a compatible manner.
- Product mix: the set of all products and items a particular seller offers for sale. Also called product assortment.
- A product mix has various product lines and has a certain width, length, depth, and consistency:
o Width: how many different product lines the company carries.
o Length: total number of items in the mix.
o Depth: how many variants are offered of each product in the line.
o Consistency: how closely related the various product lines are in end use, production requirements, distribution
channels, or some other way.
- Conduct product line analysis to make decisions: widening (add new product lines), lengthen (add more products), deepen
(add product variants), increase consistency.
Product Line Analysis
- Product line managers need to know the sales and profits of each item in each line to determine which ones to build,
maintain, harvest, or divest.
- Product map: to see which competitors’ items are competing against their own items and to identify market segments so
they can gauge how well their items are positioned to serve the needs to each segment.
Product Line Length
- Companies seeking high market share and market growth will generally carry longer product lines.
- Companies seeking high profitability will carry shorter lines of carefully chosen items.
- Lengthen product line in two ways:
o Line stretching: when a company lengthens its product line beyond its current range.
• Down-market stretch: introducing a lower-priced line.
• Up-market stretch: aim to achieve more growth, realize higher margins, or positions itself as a full-line
manufacturer.
o Line filling: when a company lengthens its product line by adding more items within the present range.
Line Modernization, Featuring, and Pruning
- In rapidly changing markets, modernization is continuous.
- Marketers need to time improvements so they do not appear too early or too late.
Product Mix Pricing
- Marketers need to modify their price-setting logic when the product is part of a product mix.
- Product mix pricing: the firm plans a set of prices that maximizes profits on the total product mix.
- Product mix pricing situations:
1. Product line pricing: seller introduces price steps within a product line and strives to establish perceived quality
differences that justify the price differences.
2. Optional-feature pricing: the seller offers optional products, features, and services with the main product. The
challenge is which option to include in the standard price and which to offer separately.
3. Captive-product pricing: some products require the use of ancillary or captive products. E.g. a razor is priced low but
the captive product, the razor blades has a high mark-up.
4. Two-part pricing: many service firms charge a fixed fee plus a variable usage fee. E.g. cell phone contract plus extra
airtime.
5. By-product pricing: the production of certain goods often yields by-products that should be prices on their value.
6. Product-bundling pricing: pure bundling occurs when a firm offers its products only as a bundle. Mixed bundling occurs
when the seller offers goods both individually and in bundles (the bundle is generally cheaper).
Co-Branding and Ingredient Branding
- Marketers combine their products with products from other companies in various ways.
- Co-branding: combining two or more well-known brands into a joint product or marketing them together in some fashion.
Also called dual branding or brand bundling.
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, o Types: same-company co-branding, joint-venture co-branding, multiple-sponsor, and retail co-branding.
o For co-branding to succeed, the brands must separately have bran equity (adequate brand awareness and a
sufficiently positive brand image).
o Advantages:
• A product can be convincingly positioned by virtue of the multiple brands, generating greater sales from the
existing market and opening opportunities for new consumers and channels.
• Reduces cost of product introduction and speeds adoption.
• Valuable means to learn about consumers and how other companies approach them.
o Disadvantages:
• Risks and lack of control in becoming aligned with another brand.
• Consumers may feel less sure of what they know about the brand.
- Ingredient branding: a special case of co-branding that creates brand equity for materials, components, or parts contained
in a branded product.
o Ingredient brands try to create enough awareness and preference so consumers will not buy a host product that
doesn’t contain it.
o Requirements for successful ingredient branding?
1. Consumers must believe the ingredient matters to the performance and success of the end product.
2. Consumers must be convinced that not all ingredient brands are the same and that the ingredient is superior.
3. A distinctive symbol or logo must clearly signal that the host product contains the ingredient.
4. A coordinated “pull” and “push” program must help consumers understand the advantages of the branded
ingredient.
PACKAGING, LABELING, WARRANTIES, AND GUARANTEES
- Many marketers have called packaging a fifth P. Most treat packaging and labelling as an element of product strategy.
Packaging
- Packaging: all the activities of designing and producing a product’s container.
- Packages might have up to three layers: primary package inside a secondary package, with one or more packaged units sent
in a shipping package.
- It is important because it is the buyer’s first encounter with the product.
- Objectives of packaging:
o Identify the brand
o Convey descriptive and persuasive information
o Facilitate product transportation and protection
o Assist at-home storage
o Aid at-home consumption
- Functionally, structural design is crucial.
- Aesthetic considerations are package size, shape, material, colour, text and graphics.
Labelling
- A simple attached tag or an elaborately designed graphic that is part of the package.
- Functions: identifies, grades, describes and promotes the product.
- Labels need to be updated.
- Legal and regulatory requirements must also be considered.
Warranties and Guarantees
- Sellers are legally responsible for fulfilling a buyer’s normal or reasonable expectations.
- Warranties: formal statements of expected product performance by the manufacturer, legally enforceable.
- Products under warranty can be returned to the manufacturer or designated repair centre for repair, replacement, or
refund.
- Warranties are legally enforceable.
- Guarantees reduce the buyer’s perceived risk. They suggest that the product is of high quality and the company and its
service performance are dependable.
Chapter 10: Analyzing and Marketing Services
- Companies find it harder to differentiate products and therefore turn to service differentiation e.g. on-time delivery, better
and faster response to inquiries, quicker resolution of complaints etc.
THE NATURE OF SERVICES
- Nature of services:
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, o Government sector: courts, hospitals, military service, police, fire departments, postal service, regulatory agencies,
schools.
o Private nonprofit sector: museums, churches, colleges, hospitals, charities.
o Business sector: airlines, banks, hotels, insurance companies, law firms, medical practices, real estate firms.
o Manufacturing sector: accountants and legal staff.
o Retail sector: cashiers, salespeople, customer service representatives.
- Service: any act or performance one party can offer to another that is essentially intangible and does not result in the
ownership of anything.
Categories of Service Mix
- Five categories of offerings:
1. Pure tangible good e.g. soap, toothpaste.
2. Tangible good with accompanying services e.g. cellphone with a warranty
or customer service contract.
3. Hybrid e.g. restaurant meal with equal parts goods and services.
4. Major service with accompanying minor goods and services e.g. air travel
with supporting goods such as food and drink.
5. Pure service e.g. babysitting, massage.
- Search qualities: characteristics the buyer can evaluate before purchase.
- Experience qualities: characteristics the buyer can evaluate after purchase.
- Credence qualities: characteristics the buyer normally finds hard to evaluate even after consumption.
- Services are high in experience and credence qualities and therefore there is more risk in their purchase with several
consequences:
o Service consumers generally rely on word of mouth rather than advertising.
o They rely heavily on price, provider, and physical cues to judge quality.
o They are highly loyal to service providers who satisfy them.
o Switching costs are high, inertia.
Distinctive Characteristics of Services
- Four distinctive service characteristics:
1. Intangibility
o Services cannot be seen, tasted, felt, heard, or smelled before they are bought.
o To reduce uncertainty, buyers will look for evidence of quality by drawing inferences from the place, people,
equipment, communication, price etc.
o Service companies try to demonstrate their service quality through physical evidence and presentation.
2. Inseparability
o Services are typically produced and consumed simultaneously.
o Provider-client interaction is a special feature of services marketing.
3. Variability
o Quality of services depends on who provides them, when and where, and to whom.
o To reassure customers, some firms offer service guarantees.
o Increase quality control of services:
• Invest in good hiring and training procedures
• Standardize the service-performance process
• Monitor customer satisfaction
4. Perishability
o Services cannot be stored, so their perishability can be a problem when demand fluctuates.
o Demand or yield management is crucial
o Strategies to produce better match between service demand and supply:
• Demand side: differential pricing, cultivate nonpeak demand, offering complementary services as alternatives,
using a reservation system.
• Supply side: adding part-time employees to serve peak demand, having employees perform only essential
tasks during peak periods, increasing consumer participation, sharing services, facilities for future expansion.
THE NEW SERVICES REALITIES
A Shifting Customer Relationship
- Customer empowerment
o Customers are becoming more sophisticated about buying product-support services and are pressing for “unbundled
services” so they can select the elements they want.
o Customers can easily share their comments through the Internet.
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