CHAPTER 11 NOTES

THE PRODUCT LIFE CYCLE

Introduction Stage

- Product is introduced to intended target market

- Sales grow slowly
- Profit minimal
- Large investment costs in product development
o Gillette Fusion razor shaving system
- Create consumer awareness and stimulate trial – initial purchase of product by a consumer
- Advertising stimulates Primary Demand – desire for the product class rather than for a specific
brand
- Selective Demand – preference for a specific brand
- High initial price used as part of a skimming strategy to help company recover costs of
development
o 3M “We hit fast, price high, and get the heck out when the me-too products pour in.”
- Penetration pricing – strategy helps build unit volume, discourages competitive entry
- HDTV and “Hybrids” are in introductory stage

Growth Stage

- Rapid increases in sales

- Competition appears
- Profit peaks during this stage
- Advertising shifts to stimulating selective demand (product benefits are compared with those of
competitors’ offerings to gain market share)
- Repeat Purchasers – people who tried to the product, were satisfied, and bought again
o Gillette over 60% of men who tried razor adopted product
- Changes appear in the product
- New features added
- Gain as much distribution for the product as possible
- Digital Cameras and Music Players are in growth stage

Maturity Stage

- Slowing of total industry sales or product class revenue

- Marginal competitors begin to leave the market
 - Sales increase at a decreasing rate
- Fewer new buyers enter the market
- Profit declines due to competition among many sellers
- Marketing attention directed toward holding market share through further product
differentiation
- Control overall marketing cost by improving promotional/distribution efficiency
- Soft Drinks, DVD players, and conventional TVs are in maturity stage

Decline Stage

- Sales drop
- Due to environmental changes
- Deletion
o Dropping product from the product line
- Harvesting
o Company retains product but reduces marketing costs
o Maintains ability to meet customer requests

Some Dimensions of the Product Life Cycle

Length

- No exact time product takes to move through its life cycle

- Consumer products have shorter life cycles than business products

Shape

- Generalized life cycle

- High-learning product – customer education required and there is extended introductory period
- Low-learning product – sales begin immediately due to little learning required
- Fashion product – style of the times
o Introduced, decline, and then return
- Fad – rapid sales on introduction and then rapid decline

Class and Form

- Product Class
o Entire product category or industry (prerecorded music)
- Product Form
o Variations within the product class (cassettes, CDs, and digital music players)
o
Life Cycle and Consumers

- Diffusion of Innovation – product spreads through the population

- Innovators
o Venturesome
o Higher educated
o Multiple information sources
o 2.5%
- Early Adapters
o Leaders in social setting
o Slightly above average education
o 13%
- Early Majority
o Deliberate
o Many informal social contacts
o 34%
- Late Majority
o Skeptical
o Below average social status
o 34%
- Laggards
o Fear of debt
o Neighbors and friends are information sources
o 16%

- Barriers to Adoption
o Usage barriers – product not compatible with existing habits
o Value barriers – product provides no incentive to change
o Risk barriers – physical, economic, or social barriers
o Psychological barriers – cultural differences or image

MANAGING THE PRODUCT LIFE CYCLE

Role of a Product Manager

- Brand manager – manages marketing efforts for a close-knit family of products

- Responsible for
o Managing existing products through stages of life cycle
o Developing new products
o Implementing a marketing program
 o Data analysis related to their products
 CDI category development index
 BDI brand development index

Modifying the Product

- Involves altering a product’s characteristic

o Quality, performance, or appearance to increase value to customers
 Wrinkle free clothing
 Nokia cell phones
- Product Bundling – sale of two or more separate products in one package
o Nokia handset

Modifying the Market

- Find New Customers

o Prunes and dried plums
o Women for Harley Davidsons
- Increase product’s use among existing customers
o Campbell Soup
o Florida Orange Growers Association suggests drinking orange juice regularly
- Create new use situations
o Dockers (work, weekend, dress, and golf)

Repositioning the Product

- Changes the place a product occupies in a consumer’s mind relative to competitive products

- Reacting to a Competitor’s Position

o Competitor’s position is adversely affecting sales and market share
o New Balance Inc.
- Reaching a New Market
- Catching a Rising Trend
- Changing the Value Offered
o Trading Up
 Adding value to the product through additional features
 Michelin and Goodyear tires
 Dog-food manufacturers
 o Trading Down
 Reducing the number of features, quality, or price
 Exists when companies engage in downsizing – reducing the package content
without changing package size and maintaining the package price

BRANDING AND BRAND MANAGEMENT

- Branding
o Organization uses a name, phrase, design, symbols, or combination of these to identify
its products
- Brand Name
o Any word, device, or combination of these used to distinguish a seller’s goods or
services
o Logotype
o Logo
- Trade Name
o Commercial, legal name under which a company does business
- Trademark
o Identifies that a firm has legally registered its brand name or trade name so the firm has
its exclusive use
o TM
o Product Counterfeiting
 Low-cost copies of popular brands not manufactured by the original producer
o Protected under Lanham Act
o Stop Counterfeiting in Manufactured Goods Act
 20 year prison sentences
 $15 million in fines

Brand Personality and Brand Equity

- Brand Personality
o Set of human characteristics associated with a brand name
 Traditional
 Romantic
 Rugged
 Sophisticated
 Rebellious
- Brand Equity
o Added value a brand name gives to a product beyond the functional benefits provided
o Provides competitive advantage
o Consumers are willing to pay higher price
Creating Brand Equity

- Develop positive brand awareness

o Gatorade
o Kleenex
- Establish a brand’s meaning
o Performance related
o Imagery related
- Elicit the proper response
o Attention placed on how customers think and feel
o Quality, credibility, and superiority
o Emotional reaction to a brand
- Create intense brand loyalty
o Harley Davidson
o Apple
o eBay

Valuing Brand Equity

- provides a financial advantage for the brand owner

o Gillette, Nike, Gatorade, and Nokia
- Brand licensing
o Contractual agreement whereby one company (licensor) allows its brand name or
trademark to be used with products offered by another company (licensee) for a fee
 Playboy
 Disney
 General Motors

Picking a Good Brand Name

- Name should suggest the product benefits

o Easy Off (cleaner)
o Glass Plus (glass cleaner)
o Cling-Free
- Name should be memorable, distinctive, and positive
o Mustang (Ford)
- Name should fit the company or product image
 o Sharp (audio/video)
- Name should have no legal or regulatory restrictions
o Do not use the word heart in food brand names
- Name should be simple and emotional
o Bold (laundry detergent)
o Joy and Obsession (perfumes)

Branding Strategies

- Multiproduct Branding Strategy

o Company uses one name for all its products
 Samsung
 Sony
o Makes possible line extensions – practice of using a current brand name to enter a new
market segment in its product class
 Results in lower advertising and promotion costs
 Risk is that sales of an extension may come at expense of other items in
company’s product line
o Subbranding
 Combines a corporate or family brand with a new brand
 Gatorade (Frost, Rain, A.M.)
o Brand Extension
 Using a current brand name to enter a completely different product class
 Huggies
o Co-branding
 Pairing of two brand names of two manufacturers on a single product
 Reese’s Peanut Butter Puffs
 Chips Ahoy!

- Multibranding Strategy
o Involves giving each product a distinct name
o Fighting Brands
 Introduce new product brands as defensive moves to counteract competition
o Advertising and promotion costs are higher with multibranding
o Each brand is unique to each market segment
o No risk that a product failure will affect other products in the line

- Private Branding Strategy

o Manufactures products but sells them under brand name of a wholesaler
  Wal-Mart, Kroger

- Mixed Branding Strategy

o Firm markets products under its own name and that of a reseller because the segment
attracted to the reseller is different from its own market
 Whirlpool
 Dial
 Both produce private brands for resellers

PACKAGING AND LABELING PRODUCTS

- Packaging
o Any container in which it is offered for sale
o Label information conveyed
- Label
o Identifies the product or brand, who made it, where it was made, how it is to be used,
and package contents

Creating Customer Value and Competitive Advantage through Packaging and Labeling

- Cost U.S. companies more than $120 billion annually

- Account for 15 cents of every dollar spent by consumers for products

- Communication Benefits
o Label information conveyed to consumer
o Directions on how, when, where, and why to use product
- Functional Benefits
o Storage
o Convenience
o Protection
o Product quality
- Perceptual Benefits
o Shape
o Color
o Graphics

Contemporary Packaging and Labeling Challenges

- Connecting with Customers

 o Continually updated to connect with customers
o Create functional design features that attract customer attention
- Environmental Concerns
o Amount, composition, and disposal of packaging material
o European countries have been trendsetters concerning packaging guidelines and
environmental sensitivity
- Health, Safety, and Security Issues
o Shelf-life
 Time a product can be stored
o Packaging needs to extend shelf-life
- Cost Reduction
o Cut costs of packaging material
 Hewlett Packard reduced size and weight of its Photosmart product

Product Warranty

- Warranty
o Statement indicating liability of the manufacturer for product deficiencies
- Express Warranties
o Written statements of liabilities
- Limited-coverage warranty
o States bounds of coverage and areas of nonconverage specifically
- Full warranty
o No limits of noncoverage
- Implied warranty
o Assign responsibility for product deficiencies to the manufacturer
- Trend now is toward “strict liability” rulings
 CHAPTER 12 NOTES

THE UNIQUENESS OF SERVICES

- Services
o Intangible activities or benefits that an organization provides to consumers
o 41% of GDP comes from services in the U.S.
o Services accounted for $5.5 trillion in 2006 (80% increase since 1990)

The Four I’s of Services

- Intangibility
o Can’t be held, touched, or seen before the purchase decision
o Marketers try to make them tangible or show the benefits
 Lufthansa
 Singapore Airlines
- Inconsistency
o Developing, pricing, promoting, and delivering services is challenging
o Quality of a service is often inconsistent
- Inseparability
o Amount of interaction between consumer and service
o How often consumer must be physically present to receive service
- Inventory
o Carrying costs related to idle production capacity
 Service provider is available but there is no demand
o Inventory cost of service is cost of paying the person used to provide the service along
with any needed equipment

The Service Continuum

- Service continuum
o Range from the tangible to the intangible or good-dominant to service-dominant
offerings
o Shows how offerings can vary in their balance of goods and services

Classifying Services
 - Delivery by People or Equipment
o Unskilled labor
o Equipment-based services (electric utilities)
- Profit or Nonprofit Organizations
- Government Sponsored
o No direct ownership
o Nonprofit
 USPS

HOW CONSUMERS PURCHASE SERVICES

The Purchase Process

- Search properties
o Tangible goods
o Color
o Size
o Style
- Experience properties
o Restaurants
o Child care
- Credence properties
o Doctors
o Lawyers
o Specialized professionals

Five Dimensions of Service Quality

- Reliability
o Perform promised service dependably
- Tangibles
o Physical appearance
- Responsiveness
o Willingness to help customers
- Assurance
o Knowledge of employees
o Ability to convey trust
- Empathy
o Caring
o Attention to customers
Assessing Service Quality

- Gap Analysis
o Differences between the consumer’s expectations and experience

Customer Contact and Relationship Marketing

- Customer contact audit

o Flowchart of the points of interaction between consumer and service provider

MANAGING THE MARKETING OF SERVICES

- Internal marketing
o Service organization must focus on its employees before successful programs can be
directed at customers
- Customer experience management (CEM)
o Managing the entire customer experience with the company

Product (Service)

- Exclusivity
o Services cannot be patented
- Branding
o Brand name or identifying logo of service organization is particularly important in
consumer decisioins
- Capacity Management
o Demand must match capacity
o Organization’s assets are used in ways that will maximize the return of investment (ROI)

Price

- Affects consumer perceptions

- Used in capacity management
- Off-peak pricing
o Charging different prices during different times of the day

Place (Distribution)
 - Important because of inseperability of services from the producer

Promotion

- Show benefits of purchasing the service

- Publicity
- Public Service Annonuncements
o Free
o Nonprofit groups rely on them as media plan

SERVICES IN THE FUTURE

- Technological development
o Mobility
 TV, GPS on portable devices
o Convergence
o Personalization
 Amazon
o Collaboration

- Expanding scope in global economy

o More emphasis on global marketing of services
o Increase attention to cross-cultural implications for services
o Emphasis on service quality