WEEK 7 & 8:

SHAPING THE MARKET OFFERINGS

Setting Product Strategy

Discussion Questions
1. What are the characteristics of a product, and how do marketers classify products?

2. How can companies differentiate products? 3. Why is product design important and what factors affect a good design? 4. How can a company build and manage its product mix and product lines?
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Discussion Questions
5. How can companies combine products to create strong co-brands or ingredient brands? 6. How can companies use packaging, labeling, warranties, and guarantees as marketing tools?

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Marketing Planning

Needs

Wants

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Components of the Market Offering

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Product Characteristics/Classifications
Persons

Experiences Events Properties Organizations Information Ideas

Goods

Services
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Places
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Five Product Levels

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Product Levels
Core Benefit
(Rest and sleep)

Basic Product
(Bed, bathroom, towels)

Expected Product
(Clean bed, fresh towels)

Customer-value Hierarchy

Augmented Product
(Free Internet; free breakfast)

Potential Product
(Future augmentations)
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Product Classifications
Durability and Tangibility

Nondurable goods

Durable goods

Services
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Product Classifications
Staples Impulse goods Emergency goods

Consumer-Goods
Specialty goods

Convenience goods

Shopping goods
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Unsought goods
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Product Classifications
Materials and Parts
Manufactured materials
Raw materials

Industrial-Goods Capital Items

Installations

Supplies and business Services

Equipment

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Product and Services Differentiation

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Product Differentiation
Form
Customization

Features Durability Conformance

Performance

Reliability Style
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Repairability

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Services Differentiation
Customer Consulting Ordering Ease Delivery & Returns

Training

Installation
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Maintenance & Repair

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Design
Functional Benefits

Aesthetic Benefits

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Product and Brand Relationships

Product Hierarchy Product Systems/Mixes Product Line Analysis Product Line Length Product Mix Pricing Co-Branding
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Product Hierarchy
Need Family

Product Family
Product Class Product Line Product Type Item
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Product Systems and Mixes

Width

Product System

Consistency

Product Mix

Length

Depth

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Proctor & Gamble Product Mix

Product Mix Width

Detergents

Toothpaste Bar Soap

Disposable Paper Diapers Products

Ivory Snow Dreft Tide

Product Line Length

Gleem Crest

Ivory Camay Zest Safeguard Oil of Olay

Pampers Luvs

Charmin Puffs Bounty

Cheer Dash Bold Gain Era

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Product Line Analysis

Sales and Profit

Market Profile

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Product-Item Contributions

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Product Map

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Product Line Length

Up-market stretch

Line modernization, featuring, and pruning

Two-way stretch

Line stretching
Down-market stretch

Line filling

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Product Mix Pricing

Product line pricing Optional-feature pricing By-product pricing

Captive-product pricing Two-part pricing Product-bundling pricing

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Co-Branding and Ingredient Branding

Co-Branding
Same-company Joint venture Multi-sponsor Retail co-branding

Ingredient Branding
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Packaging and Labeling

Packaging Objectives
1. 2. 3. 4. 5. Brand identification Persuade Protection At-home storage Aid consumption

Labeling Objectives
1. 2. 3. 4.
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Identify Grade Describe Promote

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Designing and Managing Services

Discussion Questions
1. How do we define and classify services, and how do they differ from goods? 2. What are the new services realities? 3. How can we achieve excellence in services marketing? 4. How can we improve service quality? 5. How can goods marketers improve customer-support services?
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The Nature of Services

2008 2018 Loss of 1.2 million jobs

2008 2018 Gain of 14.6 million jobs

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Service Sectors
Private nonprofit

Business

Government
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Service
An act or performance one party can offer to another that essentially intangible and does not result in the ownership of anything.

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Categories of Service Mix

Major service, minor good Pure Tangible Good Pure Service

Hybrid

Tangible Good minor service

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Continuum of Evaluation for Products

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Service Characteristics
Intangibility

Variability

Perishability

Empty seats

Inseparability
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Intangibility
Physical Evidence & Presentation Place People Equipment Communication material Symbols Price

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Inseparability
Work Faster

Add More Service Providers

Work with Larger Groups

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Variability

Offer Guarantees

Monitor Satisfaction

Good Hiring and Training

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Overnight Hotel Stay Blueprint

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Perishability

Empty seats

Nonpeak Demand

Complementary Services

Reservation Systems

Differential Pricing
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New Services Realities

Customer Coproduction Customer Empowerment
United Breaks Guitar

Satisfying Employees
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Root Cause of Customer Failure

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Achieving Excellence in Services

Differentiating Services

Marketing Excellence

Best Practices
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Marketing Excellence
External
Preparing, pricing, distributing, promoting the service

Internal

Training/motivating employees

Interactive
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Serving the client

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Marketing in Service Industries

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Best Practices of Top Service Companies

Management Commitment Profit Tiers Satisfy Customer complaints

Strategic Concept

High Standards

Monitoring Systems
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Importance-Performance Analysis

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Differentiating Services
Primary and secondary service options

Innovation with services

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Managing Service Quality

Bored Employees

Unresponsive Employees
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Why Customers Switch Services

Ethical Issues

Pricing
Service Failure

Competition
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Response to Failure
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What Customers Want from Providers

Knowledgeable employees
Address needs on first contact Treat me like a valued customer
65% 64% 62% 54% 49%

Demonstrates desire to meet my needs

Can quickly access information Good value for the money

49%
45% 43%

Courteous employees
Is a company/brand I can trust Treats me fairly Provides relevant/personalized service
0%
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38%
31%
10% 20% 30% 40% 50% 60% 70%
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Managing Customer Expectations

Experience

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Service-Quality Model

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Determinants of Service Quality

Reliability

Tangibles

Responsive

Empathy
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Assurance
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Managing Product-Support Services

Customer Worries
Failure frequency Downtime Out-of-pocket costs

Manufacturer Strategies
Guarantees Service contracts Extended warranties

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Developing Pricing Strategies and Programs

Discussion Questions
1. How do consumers process and evaluate prices?
2. How should a company set prices initially for products or services? 3. How should a company adapt prices to meet varying circumstances and opportunities? 4. When should a company initiate a price change? 5. How should a company respond to a competitors price change?
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Marketing Mix
Revenue Producer

Cost

Product

Price

Cost

Place

Promotion

Cost

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Pricing
Forms

Price
Components

Functions

$31.50

$33.50

Bargaining
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Changing Price Environment

Buyers
Ill pay $235.00 Instant Price Comparisons

Get Products Free Name Your Own Price

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Changing Price Environment

Sellers
$29.99 $19.99

$24.99

Selective Pricing

Negotiate Prices
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Monitor Customers
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How Companies Price

Product-line Managers (w/guidance)

Small Business Owner

Pricing Department
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Consumer Psychology and Pricing

Price-Quality Inferences

Reference Prices

99 $1.
Price Endings
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A Black T-Shirt

Armani - $275

Gap - $14.90

H&M - $7.90
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Setting the Price

6 5 3 Select Final Price Price Method

4 Competitor Analysis

Estimate Costs

2 Determine Demand

Pricing Objective
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Selecting the Pricing Objective

Survival Maximum Current Profit Maximum Market Share Maximum Market Skimming Product-Quality Leadership Other Objectives

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Determining Demand
Price sensitivity Estimating demand curves Price Elasticity of Demand

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Inelastic and Elastic Demand

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Estimating Costs
Demand
Price Profit Price Floor Price Ceiling

Costs

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Estimating Costs
Types of costs

Fixed Costs (overhead)

Variable Costs

Total Costs

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Costs at Varying Levels of Production

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Estimating Costs
Accumulated Production
Experience Curve
(Learning Curve)

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Estimating Costs
Target Costing

Market research
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Design engineers
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The Experience Curve

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Analyzing Competitors Offers

Price Costs
Reaction

Worth to Customer
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Selecting a Pricing Method

Pricing Methods Markup Target-return Perceived-Value Value Going-rate Auction-type

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High Price
(No possible demand at this price)

Ceiling price

Three Cs Model for Price Setting

Customers assessment of unique product features

Orienting point Competitors prices and prices of substitutes Costs Floor Price

Low Price
(No possible profit at this price)
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Markup Pricing
Variable cost per toaster
Fixed costs Expected unit sales

$10
$300,000 50,000

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Target-Return Pricing

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Target-Return Pricing

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Perceived-Value Pricing
Customers perceived-value
Performance $$$ Warranty $ Customer support $ Reputation $$

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Value Pricing
EDLP
THOUSANDS OF

Level of Quality

LOW PRICES EVERY DAY

throughout the store

P1

C1

P2 C2

High

Pricing
Low
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Going-Rate Pricing

Commodities

Follow the Leader

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Auction Pricing
English auction
(ascending bids)

Dutch auction
(descending bids)

Sealed-bid auction
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Selecting the Final Price

Impact on others

Brand Quality

Pricing Policies Gain-and-risk-sharing

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Adapting the Price

Geographic Pricing

Price Discounts and Allowances

Differentiated Pricing

Promotional Pricing
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Dealing with Price Changes

Raising Prices

Cutting Prices

Competitor Moves
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