Lecture 8

Product

Definition
A product is a good, service or idea offered to the market in exchange
 Customers require products to satisfy specific social, functional, monetary or other
needs
 Must satisfy wants and demands
 Product does not always have to be tangible and can be intangible (not physical)
Tangible: can be touched/is physical
Intangible: cannot be touched

Total Product
Total product is the summation of the four levels of a product that determine its value in the
eyes of customers
Core Product
The fundamental benefit of the product that satisfies a customer’s needs or wants
 Regardless of the changes made to a product’s composition, the product’s core
benefit usually remains the same
Expected Product
The attributes of the product that form expectations of value and use in the heads of
customers
 Perceived attributes that deliver core product’s benefit
 ‘What am I going to get out of buying this product?’
Augmented Product
The bundle of benefits offered by a product that exists as well as the core functional benefit
offered by the product
 Exists to distinguish themselves from the competition
 Includes support services, guarantees and other benefits that fall outside the
product’s perceived functional benefit
Potential Product
All the possibilities that could become a part of the augmented or expected product
 Features still in development and
features that have not yet been
conceived
 Customer’s perceptions of what
the product could feature that
encourage them to buy the
product, regardless of the validity
of these perceptions
Products offer a bundle of attributes;
with the way these are marketed being
key in how they are received by the
market
Product Relationships
Relationships between the products of organizations can be determined as
 Product-Item: a particular version of a product that can be differentiated from the
organization’s other product items by characteristics such as brands, ingredients, etc.
o Example: Bonds brand boxers/briefs
 Product Line: a set of closely related product items. Relationship usually details
similarities in end use, target market, technology or raw materials
o Example: product line of Bonds including the different kinds of briefs
 Product Mix: the set of all products that an organization makes available to all
consumers, described by its width (number of product lines) and depth (number of
different products in each line).
o Example: Bonds offering different forms of clothing products including
hoodies, t-shirts, shorts, etc.

Product Classification: Consumer Products

 those products purchased by households and individuals for their private consumption
Products can be classified as either:
 Shopping Products
 Convenience Products
 Specialty Products
 Unsought Products

Shopping Products
Irregularly purchased items that involve moderate to high-level engagement and thought in
the decision making process. Usually involves a more strenuous weighing up of alternatives
and thought based on benefits, quality and price
 Long lasting
 Infrequently bought
 Sold in low volume
 Large profit margins
 Small number of retail outlets stock them
o Example: electrical appliances, high-end fashion

Convenience Products (aka fast-moving consumer goods)

Inexpensive, frequently purchased products that involve little-to-no thought or engagement
in the decision making process (usually habitual). Such products often include food and
beverages and look to satisfy immediate physiological needs and is dependent on high
volume of sales to generate a reasonable profit. Packaging is important.
 Staple products: products bought frequently for immediate consumption
 Impulse products: products bought with little planning spurred by advertising
 Emergency products: products bought in emergency situations

Specialty Products
Products with unique characteristics that are highly desired by their buyers (niche markets)
 Not interested in comparing brands or considering alternatives but rather getting
exactly what they want
 Often handled by monopoly supplier
  Pre-selected
 Available only in limited outlets
 Bought infrequently
 No consideration of alternative brands/products
 Sell in low volumes
 Very high profit margins

Unsought Products
Products that a consumer normally doesn’t purchase or doesn’t know about at all
 Such products require extensive marketing communication of benefits and attributes
to raise awareness
 Sudden, unexpected needs arise
 Could be spurred by bad event
 Customers are made aware of a product’s existence through prior marketing
communication efforts so it’s on the ‘top of mind’ for the consumer
 Contingency or emergency purchases, such as first aid kits or home security
programs

Note: product can be purchased as a different product class depending on customer’s usual
purchase behaviour.

Product Classification: Business-to-Business Products

 purchased by individuals and organisations for the use in the production of other
products or for use in their daily business operations.
Business-to-business products can be classified as either:
 Parts and materials
 Equipment
 Services and supplies

Parts and Materials

Materials that form part of the business’ offering
 Raw materials: unprocessed natural materials such as iron ore, wheat, etc.
 Components: processed items that are built upon by businesses to produce end-
products

Equipment
Business-to-business products that are used in the production of the business’ products.
 Capital equipment: installations such as buildings and machinery
 Accessory equipment: smaller items that facilitate production of a product but DO
NOT FORM PART OF THE PRODUCT
o Example: fork-lifts, computers, etc.

Services and Supplies

B2B products that are essential to business operations but are not used in the production of
a business’ offering
 Business services: specialised services such as financial, legal and market research
that support company operations that are often provided by external suppliers.
  Maintenance, Repair and Operating Supplies: items that assist company production
and operations BUT DON’T FORM PART OF THE PRODUCT
o Example: engine oil, rivets, etc.

Product Life Cycle

The product life cycle can be divided up into 5 phases, ranging from when a product is
developed and introduced to when it declines and becomes obsolete. It reflects the
product’s current place in the market and its sales and profitability.
New Product Development  Introduction  Growth  Maturity  Decline

New Product Development (NPD)

The first stage of a product’s life cycle, the stage involves the development and initial
production of the product/service/offering. It is necessary to enhance the product
characteristics/ product mix to meet the changing needs of consumers.
 Prototypes and trial runs conducted prior to launch
 Enhancement of product benefits and creation of value through CO-CREATION
 Products can be new to the market, new to a company, new to a product line or new
to a product
 Involves substantial costs for a business and these are not offset by sales until later
 Logical step-by-step approach that many organizations use to move a product from
an idea to a reality in the market
 Undertake research to test the suitability of the new product with the target market
in current market environment
 Process adapted to suit specific context of product, not the exact same from
organization to organization

8 Phases of Development
1. Idea generation
2. Screening: analyse and identity most promising ideas
3. Concept evaluation: evaluate key attributes provided that satisfies a particular
need/want
4. Marketing strategy: start planning if a positive concept evaluation is returned
5. Business analysis: good fit with company’s overall business objectives?
 6. Product development: convert product concept into actual product
7. Test marketing
8. Commercialization

Product Adoption Process

How consumers perceive a new product, learn about and ultimately adopt said product. Can
be divided into 5 phases
1. Awareness: the consumer becomes aware of the product through promotion or
word of mouth, yet knows little about the product
2. Interest: the consumer experiences and expresses interest in purchasing the product
and seeks more information
3. Evaluation: the consumer evaluates the information and decides whether or not to
try the product
4. Trial: the consumer examines and tries out the product, deciding if this product will
satisfy certain need/want
5. Adoption: decides to purchase the product, with further evaluation helping to
determine future purchasing or not. Usually where post-purchase dissonance occurs
Marketers must understand where consumers lie in the product adoption process in order
to more effectively market products and determine the appropriate marketing mix.

Diffusion of Innovations (theory)

 the adoption of different products by different users at different times. May be
determined by who is marketed to (target market), access to products, etc.
 Describes how innovations are adopted by the market over time
 Looks into influences of social groups on the decisions made by individuals
 How products and ideas are adopted
Categories
In the order of speed of adoption
1. Innovators: first adapters who are interested in new ideas and technology
2. Early Adopters: second adapters who are careful choosers of products. Often are
OPINION LEADERS
3. Early Majority: more deliberate with choices of new products but usually adopt
products faster than the average person
4. Late Majority: sceptics that eventually adopt products later than the average person.
5. Laggards: wary of change and new products/ideas. Generally, prefer products that
are familiar.
Factors: target market, country (region), cultures and context. Asian cultures display more
uncertainty avoidance therefore unlikely to be innovators; Western cultures are highly
individualistic. High-context society relies on implicit and observed information from the
environment; low-context societies prefer to be given clear information about a product’s
benefits.

Product Differentiation
Product differentiation refers to the creation of products and product benefits/attributes
that distinguish one product from another (stand out). These differentiations and attributes
form the augmented product layer
 Attributes tailor made to suit target market
  Differentiated against
o Competition
o Product line
o Product mix
 Can be differentiated by
o Attributes (linked with product positioning)
o Design
o Brand/Image
o Quality/Style
o Functionality
o Add-on services
I.e. Apple has good after sales service and customer relations- satisfactory
dealing with requests, complaints, suggestion and maintenance; Australia
Post offering online bill payments, expanding into the insurance marketing.
o Other elements of marketing mix (7 P’s)
 Differentiation serves to create a unique value offering from product to product and
brand to brand in order to serve the needs of a particular target market and gain
customer and brand loyalty and give company a competitive advantage in the
marketplace. Marketers modify, upgrade and reposition products during life cycle to
ensure this.

Branding
 refers to the collection of symbols associated with the product including but not limited
to the name, logo, slogan and design.
These symbols all work to create an image of quality, self-expression, status and a set of
beliefs that differentiate the offerings of different organizations from competitors and
construct brand loyalty. Speeds up consumer purchases.
Brand Image
The set of beliefs a consumer has regarding a particular brand. Essentially how that brand is
perceived by the market, including preconceptions of quality, price, etc.
 To protect the brand, register as trade mark with relevant bodies
Brand Name
Brand name encompasses the beliefs that pop up in the minds of consumers when hearing a
brand’s name mentioned. The ideal brand name is distinct, easily recognisable and relevant
to the products it represents. Top-of-head recall is a key marketing metric used to
determine how well a brand name is known
 BN usually trademarked as it serves as a source of income for the business
Brand names must be widely applicable, and appeal to different target markets than just the
primary one

Brand Equity
The added value a brand name holds to its organization, both in the generation of revenue
directly (trademarks, etc.) and through the recognition a successful brand image garners.
Brands
 Identify the organizations products
  Differentiates the organization’s product from competition
 Attracts customers
 Helps introduce new products
 Facilitates the promotion of same-brand products
A brand’s equity may be seen in the influence the brand has over purchase decisions, with
this value manifesting itself in added value to the company.
Brand Loyalty
The high favouring and preference of a specific brand over competitors displayed by
customers/consumers
 Loyal customers will go to great lengths to purchase a specific brand
 Encourages customer retention
 Directly correlates with value
 When no brand loyalty exists, customers often turn to the basic marketing mix to
determine what products to purchase
Brand Metrics
Used to measure the value of brands
 Brand assets
 Stock price analysis
 Replacement cost
 Brand attributes
 Brand loyalty
 Willingness-to-pay analysis
Brand Strategies
Individual Branding: using a different brand on each product, giving each its own specific
identity
 Example: Smiths Snackfood company using doritos, twisties, etc.
Family Branding: using the SAME brand on several of an organization’s products or every
product in the product mix. Most common form of branding
 Example: Bonds clothing
Brand Extension: gives an existing brand name to a new product in a different category.
Used in market penetration strategies by associating a well-known brand with an
alternative/new product in order to sell it
 Example: Virgin Group in recent endeavours including music and credit cards

Brand Ownership
Manufacturer Brands: owned by producers, with the selling of the product under the same
name clearly identifies with the producer at the point of sale. Is involved in the entire
marketing process: production, pricing, distribution and promotional activities.
 E.g. Devondale dairy
Private Label Brands: owned by resellers and not identified by the manufacturer. These
types of brands are often associated with other intermediaries in the distribution channel
and aim to provide better economies of scale through more efficient distribution and
promotion. Often cheaper but receive less brand loyalty. Private label brands are often
MADE BY MANUFACTURERS that have their own manufacturer brands in the same product
category.
 E.g. David Jones, Myer, Woolworths
Generic Brands: those products that only indicate the product category and do not promote
a specific brand name. Rather, these brands state what the product is instead.
 E.g. Black and Gold, Homebrand

Licensing
 An agreement in which a brand owner permits another party to use the brand on its
products.
 Licensee capitalises on the brand equity of the brand it does not own and the
licensor receives income from a product line it could not produce itself.
 Licensee bears financial costs if fails, licensor risks its brand equity if product is poor
Franchising
People purchase off the shelf business model- reduce risk and effort

Co-Branding
The use of two or more brand names on the same product in order to
 Capitalise on brand equity of multiple brands
 Improve the perceived value of a product
 Maintain existing branding after another organization’s brands are acquired
Often done by established brands in efforts to show complementary relationship between
the two. Done through partnership agreements and sponsorships
 Ideally in co-branding ventures, neither brand should lose their individual identities
o May however be a dominant brand and subordinate brand
 Serves as a source of competitive advantage

Packaging
Packaging performs both functional and marketing roles and often serves as an instantly
identifiable means for a brand and product. Packaging serves primarily to protect a certain
product from waste, damage or spoilage while also working to promote and distinguish said
product from competitors.
 Primary package- holds the actual product (bottle for coke)
 Secondary package- material used to hold or protect the product (seal)
 Shipping package- packaging used to carry product out of factory and through to
distribution channels (boxes)
Changing Packaging
Changing packaging is an effective marketing tool used by organizations to convey the
notion that they are cutting edge and innovative, thus promoting positive brand image.
Serves to
 Express to customers that the product has changed in some way or added value
 Update the style of package or logo to broaden customer appeal and increase target
market
 Emphasize certain elements to differentiate from competition
Successful re-packaging endeavour displayed by COKE in the ‘Share a Coke’ Campaign

Labelling
forms part of the package and provides identifying, promotional, legal and other info.
 Aids in decision making
 Instructions
  Size of packaging, serving per unit
 Name and address of packer/manufacturer etc.

Managing products
Approaches to management
 Need to consider complexity in communication and coordination if allocating
different functions to different groups
 May choose to employ one/more managers to take responsibility for the
management of particular products/lines- brand manager & product manager
Product/market growth strategy matrix
Aka. Ansoff matrix
 suggests that a business’s attempts to grow will depend on whether it markets its current
or new products in current or new markets

Current products New products

Current Market Product
markets penetration development
New Market
Diversification Market
markets development
penetration- business increases market share within the existing marketplace
 Sell more of the current product/service to the existing or finding customers within
the current market (less risky)
Product development- developing new products for the current markets
 New capabilities, modifications or entirely new product
 Emphasis on R&D, innovation, customer insights (product may be rejected)
Market development- business finds new markets for its existing products
 Involve market research and segmentation of potential markets to identify new
customers
 New geographical markets, different priced markets, new distribution channels
(retail to online)
Diversification- introducing new products into new markets (most risky)
 Moving away from traditional means into areas where it has no/little experience
Managing products through the life cycle
 Line extension
 Product repositioning
 Product obsolescence due to upgrade or advancement in technology
 Product deletion: process of eliminating product from product mix