Product:
• The product should be what the customer wants and expects to get.
• Products can be described as a 'bundle of benefits'. This means that it is not usually the actual product itself which is important to customers but what it will do for them.
• There are three levels of product benefits (see figure 1):
1- The core benefit: is the kind of main benefit and is NOT the tangible, physical product (see figure 2). You can't touch it. That's because the core product is the benefit of the product that makes it valuable to you. So when you buy a car for example, the benefit is convenience i.e. the ease at which you can go where you like, when you want to. Another core benefit is speed since you can travel around relatively quickly. Marketers must first define what the core benefits the product will provide the customer.
2- The actual product benefit: is the tangible, physical product. You can get some use out of it. Again with the car example, it is the vehicle that you test drive, buy and then collect. Marketer must then build the actual product around the core product. May have as many as five characteristics (quality level, features, design, brand name and packaging).
3- The augmented product benefits: is the non-physical part of the product. It usually consists of lots of added value, for which you may or may not pay a premium. So when you buy a car, part of the augmented product would be the warranty, the customer service support offered by the car's manufacture, and any after-sales service. Augmented Product - offer additional consumer benefits and services (installation, after-sale service, warranty, delivery and credit, and customer training).
The product life cycle (PLC):
• The course of a product’s sale and profit over it lifetime. It involves four distinct stages (see figure 3): introduction, growth, maturity, and decline. The characteristic profile is an S-shaped growth curve.
- The introduction stage: after a new product has been developed and is first introduced to the market. In this stage sales are small and the rate of market penetration is low because the industry’s products are little known and customers are few.
- The growth stage: characterized by accelerating market penetration as product technology becomes more standardized and prices fall.
- The maturity stage: increasing market saturation and slowing growth as new demand gives way to replacement demand (direct: customers replacing old products with new products, or indirect: new customers replacing old customers).
- The decline stage: product becomes challenged by new products that produce technologically superior substitute products.
The life cycle concept is useful for describing what is happening to a product at a particular moment but it is not much use for predicting the product's future.
Marketing issues
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- High advertising and sales promotion costs,
- High price possible
- Distribution problematic
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- High advertising costs still but as a % of sales,
- Costs are failing, Price falling,
- More distributors
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- Segmentic specific
- Choose best distribution
- Brand image
- Modifying the Marketing Mix: Improving sales by changing one or more marketing mix elements
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- Less money spent on advertising and sales promotion
- Cut price
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Figure 3: Product life cycle
New product development:
• All businesses must do this or eventually die. …use the business’s resources to meet objectives in the changing environment.
• To create successful new products, the business must:
- Understand its customers, markets and competitors;
- Develop products that deliver superior value to customers.
• Model of the new product development process (Crawford, 1991): in this model, a number of steps of new product development are shown in the following sequence:
Table 1: Steps of new product development:
Steps
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Features
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1
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New product planning
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A business looks at its current products, how well they are performing, and where the marketing environment poses threats to existing products and opportunities for new products.
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2
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Idea generation
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Specific ideas for new products are generated and collected, perhaps through group discussion techniques such as brainstorming.
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3
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Idea screening and evaluation
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The ideas generated in the previous step are examined for their feasibility and marketability.
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4
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Technical development
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The technical aspects of the product are investigated and prototype is developed.
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5
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Market appraisal
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Market research is carried out to assess whether the product would be successful in the market.
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6
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Lunch
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The product is produced and offered in the market.
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Although some form of new product development is highly important to most businesses and many put considerable resources and expertise into their new product development processes, new products often fail in the market. Not all innovations which seem technically brilliant to the experts really fulfil a need in the market. For instance, picture messaging in mobile phone technology got off to a slow start because many consumers did not really see the need to send each other pictures via the phone. On the other hand, heavy reliance on market research in the early product development stages may also lead to less than successful innovation.
• Pricing is one of the most important and complex marketing decisions. Of all the aspects of the marketing mix, price is the one, which creates sales revenue - all the others are costs. The price of an item is clearly an important determinant of the value of sales made. In theory, price is really determined by the discovery of what customers perceive is the value of the item on sale. Researching consumers' opinions about pricing is important as it indicates how they value what they are looking for as well as what they want to pay.
• Objectives in pricing: Achieve a target return on investment; create stabilization of price and margin; reach a market share target; meet or prevent competition; profit maximization; and survival.
• Pricing must be carefully coordinated with the other marketing mix elements.
Approaches to pricing:
There are three main approaches to setting prices, which vary in the degree to which they are customer oriented.
Table 2: Approaches of pricing:
Approach
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Features
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1
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Cost-based pricing (Cost-Plus Pricing)
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- Adding a standard markup (a fixed profit percentage) to cost, to cover unassigned costs and provide a profit.
- The least customer-oriented pricing method.
- Popular pricing technique because it simplifies the pricing process, Price competition may be minimized, and it is perceived as more fair to both buyers and sellers.
- By using solely a cost-based approach the seller my miss opportunities for additional profit or set a price too high to realise adequate sales to even cover cost.
- The fundamental flaw of this approach to pricing is that it ignores demand and fails to account for competition.
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2
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Customer-based pricing
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- Uses customers' perceptions of value rather than seller’s costs to set price.
- Is more in line with a marketing orientation, as it stats with the customer's willingness to pay.
- Net value = Perceived benefits to customer (gross value) minus all Perceived outlays (Money, Time, Mental/Physical effort)
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3
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Competition-based pricing
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- Pricing influenced primarily by competitors’ prices.
- Involves comparing the prices of all competing products and then setting the price of one's own product.
- Determine your competitor’s pricing, after this, you must decide to: price below or in line with or above the competition.
- Method importance increases when: competing products are homogeneous or lack differentiation, and business is serving markets in which price is a key consideration.
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In practice, businesses will take into account all three elements of costs, customer perceptions and competition when setting prices.
Pricing for strategic effect:
• Pricing also includes decisions on discounts and price differentiation, as well as relative prices for the whole product range.
• 'Product line pricing': refers to the setting of prices within linked product groups. Sometimes sales of one product are directly linked to sales of another product. It may therefore be possible to sell one product cheaply in order to encourage more purchases of another product and thus achieve a higher sales volume. Some products may be sold as a bundle (E.g. stereo system vs. components; computers), thereby creating complimentarity. The price of one product in a line may influence the buyer’s subjective evaluation of other products in the line.
• 'Psychological pricing': involves setting prices in such a way that they capture or encourage particular psychological effects in consumers. For example, in the real estate market properties are often priced at uneven dollars - $239,000 instead of $240,000. The psychology of that pricing is that buyers will recognize the $239,000 price as being much better (even though it's only $1000 less) than $240,000. Another example, in the luxury car segment. An increase in price resulted in an increase in sales because buyers tied the price increase to a value.
• Retail prices are often expressed as odd prices: a little less than a round number, e.g. $19.99 or? 6.95. Psychological pricing is a theory in marketing that these prices have a psychological impact that drives demand greater than would be expected if consumers were perfectly rational. Psychological pricing is one cause of price points.
• If the actual price is higher, consumers feel the product is overpriced. If it is too low, consumers assume quality is inferior.
Ethical issues in pricing:
• Pricing is an area of the marketing mix where irresponsible and unethical actions are often found. In a market economy prices are, in principle, negotiated depending on supply and demand but, because of the power differences that often exist between producers and consumers, there is room for unethical pricing practice.
• Predatory pricing: is another unethical pricing tactic. Here, a business offers its products at artificially low prices, below the cost of production, with the aim of winning a majority of customers and driving competitors out of the market. Consumers only benefit temporarily from such a practice as the business will later put up prices after the competition has been weakened or eliminated. Markup Laws are a regulatory approach to prevent predatory pricing. Such laws require a certain markup above cost in particular industries.
• Price discrimination: the use of different prices for different customers. It is illegal if a price advantage is granted to one, but not another, where both compete and the products are similar. Granting promotional allowances must be done on a proportionate basis to all customers.
Distribution (Place):
• Place: Making goods and services available in the right quantities and at the right locations - when customers want them.
• Distribution Channels: A series of businesses or individuals participating in the flow of products from producer to final user or consumer.
• Marketing channel strategy is growing in importance. Why?
1- Search for sustainable competitive advantage.
2- Growing power of retailers in marketing channels.
3- The need to reduce distribution costs.
4- The increased role and power of technology.
5- The new stress on growth.
Members of the distribution channel:
1- The shortest distribution channel (also called direct distribution or producer to customer): are those in which producers sell directly to final customers without any intermediaries. The internet now plays an important role in connecting businesses directly with their customers (e.g. mail order) without the need for further intermediaries.
2- Slightly longer: are those channels which include retailers as well as producers and final customers. Distribution channels involving large retail businesses often take this shape.
3- Smaller retailers: are often not in a position to buy directly from manufacturers. In this case the channel contains a further level, namely wholesalers.
4- Wholesalers: are businesses that buy products from producers and sell them on to retailers. They often carry out a number of functions in the distribution channel, such as storage and transportation, information gathering and dissemination, or certain promotional activities.
5- Retailers: are businesses that buy from producers or wholesalers and sell on to consumers (such as: high street shops, out-of-town superstores, internet seller, door-to-door salespeople).
Technology has the power to greatly enhance the effectiveness and efficiency of marketing channels and could potentially change the entire structure of distribution around the world.
4.4: Marketing communications (Promotion):
• Marketing Communication or Promotion is the communication undertaken by a firm to persuade/inform potential buyers to accept ideas, concepts, or things. The concept under which a business carefully integrates and coordinates its many communications channels to deliver a clear, consistent, and compelling message about the business and its products. Marketing communications is not a straight forward, one-way process from marketers to potential customers.
• Marketers often follow the so-called AIDA approach, which suggests that good marketing communication should go through the sequence of stimulating 'Awareness', 'Interest', 'Desire' and 'Action' on the part of consumers (get your customer’s Attention, keep them Interested, generate a Desire and encourage them to take Action). AIDA framework guides message design.
• Promotional Mix: is the specific mix of advertising, personal selling, sales promotion, and public relations that a firm uses to pursue its advertising and marketing objectives (see figure 5).
1- Advertising: any paid form of non-personal presentation and promotion of ideas, goods, or services by an identified sponsor. Advertising tools include print (newspapers, magazines), TV, radio, outdoor, and online.
2- Sales promotions: refers to the specific element of the promotional mix which tries to create a temporary increase in sales by offering customers an incentive to buy the product. Types of sales promotions include: 1) Money based, such as cash-back, immediate price reductions at point of sale, and coupons. 2) Product based, such as X % extra free, buy one get one free, free samples, piggy-backing with another product. 3) Gift, prize or merchandise based, such as gifts in return for proof of purchase, loyalty schemes, and contests 'solve questions and you win something' or sweepstakes 'depend on luck'.
3- Personal selling: personal presentation by the business’s sales force for the purpose of making sales and building customer relationships. Most effective tool for building buyers’ preferences, convictions, and actions. Personal interaction allows for feedback and adjustments.
4- Pubic relations (PR): building good relations with the business’s various publics by obtaining favorable publicity, building up a good “corporate image”, and handling or heading off unfavorable rumors, stories, and events. It is unpaid advertising. PR tools include: press releases, sponsorships, and special events.
Direct marketing: direct communications with carefully targeted individual consumers-the use of telephone, mail, fax, e-mail, the internet, and other tools to communicate directly with specific consumers. Direct marketing such as: sending catalogues and telemarketing.
