BK12e Ch11 Basic

Part 4: Product Decisions
1. Product and Service

Strategies
2. Category and Brand

Management, Product
Identification, and New-
Product Development
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Chapter 11
Product and
Service Strategies
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Chapter Objectives
• Define the term product and distinguish between goods and
services and how they relate to the goods-services
continuum.
• Explain the importance of the service sector in today’s
marketplace.
• List the classifications of consumer goods and services and
briefly describe each category.
• Describe each of the types of business goods and services.
• Explain how quality is used by marketers as a product
strategy.
• Explain why firms develop lines of related products.
• Describe the way marketers typically measure product mixes
and make product mix decisions.
• Explain the concept of the product life cycle and identify the
different stages.
• Describe how a firm can extend a product’s life cycle.
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 11-3
What is a Product?
 Product: bundle of physical, service, and
symbolic attributes designed to enhance
buyers’ want satisfaction
What are Goods and Services?
 Service: intangible task that satisfies
consumer or business user needs
 Goods-services continuum: device that
helps marketers to visualize the differences and
similarities between goods and services
 Characteristics that distinguish services from
goods:
Intangibility
Inseparability
Perishability
Difficulty of standardization
Frequent requirement of
interaction between buyer
and Seller
Variability
Importance of the Service Sector
 The service sector makes up more than two-

thirds of the economy.
 Services also play a crucial role in the

international competitiveness of U.S. firms.
 Concerns include offshoring service jobs such

as customer service call centers.
Classifying Goods and Services for
Consumer and Business Markets
 Consumer products:
products products destined for
use by ultimate consumers
 Business (or B2B) products:

products those that
contribute directly or indirectly to the output of
other products for resale
Also called industrial or organizational
products
Types of Consumer Products
 Convenience product:
product good or service that
consumers want to purchase frequently,
immediately, and with minimal effort
Impulse goods and services are
purchased on the spur of the moment.
Staples are convenience goods and
services that consumers constantly replenish
to maintain a ready inventory.
Emergency goods and services are bought
in response to unexpected and urgent needs.
 Shopping product:
product good or service
purchased only after the customer compares
competing offerings from competing vendors
on such characteristics as price, quality, style,
and color
Typically cost more than convenience
purchases.
Include tangible items.
Shopper lacks complete information and
gathers information during the buying
process.
 Specialty product:
product good or service with
unique characteristics that cause the buyer to
value it and make a special effort to obtain it
 Unsought product:
product good or service
marketed to consumers who may not yet
recognized in the need for it
Types of Business Products
 Installation:
Installation major capital investment by a
business buyer that typically involves expensive
and relatively long-lived products, such as a
new factory or piece of heavy machinery
 Accessory equipment:
equipment capital product, usually
less expensive and shorter-lived that insulation,
such as a laptop computer
 Component parts and materials:

materials finished
business products that become parts of buying
firms’ final products, such as spark plugs for
new cars
 Raw materials:
materials business product, such as a
farm product (wheat, cotton, soybeans) or
natural product (coal, lumber, iron ore) that
become part of a final product
 Supplies:
Supplies products that represent regular
expenses necessary to carry out a firm’s daily
operations but are not part of the final product.
Supplies are sometimes called MRO items
MRO item:
item part of business supplies
categorized as maintenance items, repair
items, or operating supplies such as light
bulbs, nuts and bolts used in repairing
equipment, or pencils
 Business services:
services intangible product
purchased to facilitate a firm’s production
and operating processes such as financial
services, leasing of vehicles, legal advice
and consulting
Quality as a Product Strategy
 Quality is a key component to a firm’s success

in a competitive marketplace.
 Total quality management (TQM): approach

that involves all employees in continually
improving products and work processes to
achieve customer satisfaction and world-class
performance
 Worldwide Quality Programs
Malcolm Baldrige National Quality Award
ISO 9002: set of standards for quality
management and quality assurance
developed by the International Standards
Organization in Switzerland for countries in
the European Union
 Benchmarking: process in which an

organization improves performance by
continually comparing and measuring itself
against the leading firms in an industry and
implementing changes for quality
improvement
 Quality of Services
Service encounter
Service quality: Expected and perceived
quality of a service offering
Determined by five variables:
 Tangibles
 Reliability
 Responsiveness
 Assurances
 Empathy
Development of Product Lines
 Product Line:
Line a series of related products
Motivation
 Desire to Grow
 Enhancing the Company’s Position in
the Market
 Optimal Use of Company Resources
 Exploit the Product Life Cycle
The Product Mix
 A company’s assortment of product lines and
individual offerings
Product Width--the number of product lines
offered.
Product Length--the number of different

products a firm sells.
Product Depth--variations in each product that

a firm markets in its mix.
 Product Mix Decisions
A firm may lengthen or widen its product
mix
A Company may decide to add variations
that will attract new users
A product may be pruned or altered, and
new product may extend the product life
cycle
Line extension: introduction of a new
product that is closely related to other
products in the firm’s existing line
The Product Life Cycle
 Product life cycle:
cycle progression of products
through introduction, growth, maturity, and
decline stages
 Introduction Stage
Firm works to stimulate demand for the
new market entry
Promotional campaigns stress features
Additional promotions to intermediaries
attempt to induce them to carry the product
Although prices are typically high, financial
losses are common due to heavy
promotional and research-and-
development costs
 Growth Stage
Sales volume rises rapidly
Firm usually begins to realize substantial
profits
Success attracts competitors
Firm may need to make improvements to
the product
Additional spending on promotion and
distribution may be necessary
 Maturity Stage
Industry sales continue to grow, but
eventually reach a plateau
Many competitors have entered the
market, and profits began to decline
Differences between competing products
diminish
Available supplies exceed industry demand
for the first time
Competition intensifies and heavy
promotional outlays are common
 Decline Stage
Innovations or shifts in consumer
preferences cause an absolute decline in
industry sales
Industry profits fall -- sometimes become
losses
Firms cut prices in a bid for the dwindling
market
Manufacturers gradually drop the declining
items from their product lines
Extending the Product Life Cycle
 Marketers usually try to expand each stage of the
life cycle for their products as long as possible
 Product life cycles can stretch indefinitely as a
result of decisions designed to:
Increase the frequency of use by current
customers
Increase the number of users for the
product
Find new uses
Change package sizes, labels, or product
quality
Product Deletion Decisions
 Product lines must sometimes be pruned and

marginal products eliminated
 This decision is typically faced during the late
maturity and early declined stages of the
product life cycle
 An unprofitable item may be continued in
order to provide a complete line for
customers

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Part 4: Product Decisions

1. Product and Service

2. Category and Brand

 The service sector makes up more than two-

 Services also play a crucial role in the

 Concerns include offshoring service jobs such

 Business (or B2B) products:

 Component parts and materials:

 Quality is a key component to a firm’s success

 Total quality management (TQM): approach

 Benchmarking: process in which an

Product Length--the number of different

Product Depth--variations in each product that

 Product lines must sometimes be pruned and

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