(1)The Role of Pricing Pricing Strategies:  Identity three types of pricing strategies. Select a good or service and compare the prices of two different companies associated with the goods or service.

Part IV: Product and Pricing Decisions Part IV of this text combines two elements of the marketing mix, product and price. The pairing of these two reflect a fundamental old truism about business: Nothing happens until someone sells something . No one is certain who first made that observation more than 100 years ago, but no one has ever challenged its validity and it’s what \ marketing is all about. Product and pricing decisions fulfill a unique role in the process of selling something since they have a more direct connection to generating revenue for the organization than any other business activity.

A product is the unique value and bundle of benefits that the com - pany has to offer the market. It’s the solution that buyers purchase from the firm to solve their problem. Price is the form of payment, a standardized measure of the value that buyers convey to the seller in exchange for the product. Though pricing is typically one of the most critical decisions facing any seller, it is just as certainly the least understood. And only when product and price come together in the right relationship to each other and to the market can something happen that benefits both parties to the transaction. Hence, product and pricing decisions are essential to making the marketing concept work.

Contents:

Chapter 9: Product and Service Decisions Chapter 10: Pricing Strategies and Tactics fin80083_09_c09_231-262.indd 1 7/31/12 3:36 PM fin80083_09_c09_231-262.indd 2 7/31/12 3:36 PM Learning Outcomes By the end of this chapter, you should:

• Understand basic product concepts, and be able to identify how each of four different product levels contributes to the quality and value that buyers receive from the brands they purchase.

• Define how services differ from goods and how the unique features of services pose special marketing challenges.

• Develop a practical understanding of how the new product development process shapes the course of innovation within both small organizations and large corporations.

• Recognize the Product Diffusion Curve and product adoption process.

• Understand the Product Life Cycle and appreciate its value and limitations in guiding the development of brand strategy. 9 Product and Service Decisions Ikon Images/Getty Images fin80083_09_c09_231-262.indd 3 7/31/12 3:36 PM 234 Pre-Test Introduction I n previous chapters, we have been systematically developing our understandin\ g of products and services in conjunction with the investigation of other topics in market - ing management. The overall plan of attack for this chapter is to briefly consider a few additional core concepts about products and services before examining the strategic significance of three critical processes: new product development, product diffusion and adoption, and the Product Life Cycle. * * * Sometimes the new product development process doesn’t go precisely the way it is described in the books. Consider the case of a toy company that was evaluating the fi\ nancial potential of a project called My First RC. The RC in question was an inexpensive remote control helicopter intended for children 12 years of age and younger. The remote control technology itself was just a simplified version of the scheme used in advanced models. However, the product design team had worked for nearly two years to develop a helicopter prototype that was sturdy enough to withstand the demands of younger children playing with it outdoors across a diverse range of wind and weather conditions. To make the small copter heavy enough to be stable in outdoor flight, the final model was a little clunkier and less maneuverable \ than the team would have liked.

The plan was to build future product sales in the companys’ highly profitable remote control products division by introducing the base technology to a relatively young market. The concept had passed the initial screening process and preliminary business analysis. The next step in concept testing was to solicit the reactions of a focus group to a working prototype of My First RC. Less than a week before the focus group meeting, the market research team sent a request to the designers. “We’d like to demo this product indoors . . . at the conference facility. Could you possibly replace the copter blades with new ones made from a safer material?” The new blades were provided six hours before the meeting. They were less rigid and less brittle than the hard plastic ones on the original model. They were lighter, more flexible, and not as sharp-edged.

The response by parents invited to participate in the focus group was enthusiastic. . . . they loved the idea of a safe, indoor RC helicopter. Even when the focus group moderator tried to push them toward evaluating the concept as an outdoor toy, they were adamant that this was a great, active toy for indoor use. A second, unintended consequence of the new blades was that the copter wa\ s now lighter and more maneuverable than the initial prototype. Sales in the first two years of this product introduction were 540 percent higher than initially projected for the outdoor model.

Pre-Test 1. What’s the most important function of a product label?

a. It identifies the product and brand.

b. It names the product manufacturer.

c. It identifies where the product was produced.

d. It provides environmental and legal disclosures.

2. You bought a ticket to see your favorite band in the city where you live on a spe - cific night, but your car breaks down and you miss the concert. The fact that you can’t use your ticket to see the band perform the next night in a cit\ y 100 miles away is BEST illustrative of this fact about services: a. Services are perishable.

b. Services are intangible. fin80083_09_c09_231-262.indd 4 7/31/12 3:36 PM CHAPTER 9 235 Section 9.1 Basic Product Concepts c. Service quality is variable.

d. Service quality is inseparable from the service provider—your favorite band in this instance. 3. In which one of the following stages of the product development are focus groups MOST likely to be used? a. concept testing b. idea generation c. business analysis d. commercialization 4. Which of the following is NOT characteristic of “innovator” customers?

a. willing to take risks b. less price sensitive c. high degree of brand loyalty d. well-informed and enthusiastic 5. In the growth stage of the Product Life Cycle a. product lines have stabilized.

b. overall promotional spending decreases.

c. the price-point range expands.

d. marketing managers focus on enticing laggards. Answers 1. a. It identifies the product and brand. The answer can be found in Section 9.1. 2. a. Services are perishable. The answer can be found in Section 9.2. 3. a. Concept testing. The answer can be found in Section 9.3. 4. c. High degree of brand loyalty. The answer can be found in Section 9.4. 5. c. The price-point range expands. The answer can be found in Section 9.5 . 9.1 Basic Product Concepts A product can be defined in multiple ways. In Chapter 1, we initially identified \ the product as one of four variables in the marketing mix, related to both the tangible and intangible dimensions of ideas, goods, services, or some combination of the three. We explicitly recognized the role of products in the marketing concept as the means of satisfaction of customers’ wants and needs. That is, products are developed specifically “for the purpose of exchange in the satisfaction of individual and organizational objec - tives” (American Marketing Association, 2011).

At several later points in the discussion of consumer behavior, brand management, mar - ket segmentation, and product positioning, we identified products as bundles of attri - butes. Although the most important of these attributes are the benefits that consumers derive from using the product, other features, functions, and alternative uses can also be included in this definition. It is what the organization has to offer the intended target mar - ket as a means of satisfying customer needs. It is also the element of t\ he marketing mix that ultimately generates revenue for the company.

Two additional terms often encountered within the domain of product management are product mix and product line. A product mix is simply the complete collection or set of fin80083_09_c09_231-262.indd 5 7/31/12 3:36 PM CHAPTER 9 236 Section 9.1 Basic Product Concepts products offered for sale by an organization. It is inclusive of all product lines. A prod - uct line is most often used in reference to a group of products that are related to each other by virtue of sharing a common target market. However, lines can also be defined as sets of products that share similar uses, technologies, distribution channels, or other relevant features.

To complete our understanding of products, we need to add a few additional dimensions of this concept to the foundations established thus far.

Product Levels Recognizing that products can be better understood as bundles of attributes or benefits is a critical insight for marketing managers. However, the total product consists of more than what is consumed or utilized by the buyer. Products are composed of four levels, each of which contributes uniquely to the value that customers receive. These levels are referred to as the core benefit, secondary benefits, basic product, and augmented product.

Core benefit represents the primary or essential value that the customer derives from the product being purchased. When renting a car, for example, the core benefit to the driver is transportation.

Secondary benefits are provided by features of the product that enhance the primary value provided by the product. An automatic transmission, cruise control, and a GPS navigation system are features that make the customer ’s driving experience more pleas - ant and efficient. Although the car would still provide the renter with basic transportation if these features were absent, their presence enhances the value of the rental purchase.

Basic product refers to the tangible components and features that constitute the product being purchased. In simplest terms, it is the sum of the physical characteristics\ of the good being sold. Using the auto rental example, the physical characteristics of the car itself make up the basic product being acquired for a limited time. In the case of items frequently purchased at a drugstore, for example, the actual products are the items in the shopping bag at the end of the trip.

Augmented product refers to additional features and benefits that provide added value to products even though they may not be the primary drivers or core benefits in the pur - chase decision. Providing online check-in, perks for frequent customers, and special con - cierge services at popular destinations would be elements of the augmented product for car rental companies. Although the specific features of the augmented product will neces - sarily differ from one type of product to the next, there are several elements common to many types of B2B and B2C purchases. These include exceptional customer service and sales support, product guarantees and warranties, and accessibility. Accessibility relates to how easy the product or service is to obtain. Maintaining adequate inventories, same- day delivery, and 24-hour availability are all elements of product accessibility.

Although marketers often focus on the quality of the actual product being sold, each of these four product levels makes important contributions to the overall value enjoyed \ by purchasers. Consequently, marketing managers must recognize that the final product that reaches the customer is derived from many decisions not directly related to product design. The critical importance of branding, for example, was investigat\ ed at length in fin80083_09_c09_231-262.indd 6 7/31/12 3:36 PM CHAPTER 9 237 Section 9.1 Basic Product Concepts Chapter 7. Two additional areas of importance to successful product marketing are pack - aging and labeling.

Product Packaging A package is defined as the container used to protect, promote, transport, and/or identify a product. It may be primary (containing the product), secondary (containing one or more primary packages), or tertiary (containing one or more secondary packages). Packaging generally refers to the process by which packages are created, although it can be syn - onymous with package (American Marketing Association, 2011). Most tangible consumer products are sold within a package that serves several purposes. Although the primary function of packaging is to protect its contents, the manner in which a product is packaged can also enhance the convenience of using the product or deliver a promotional message.

Packaging decisions generally fall into one of two categories: packaging\ for distribution and packaging for final customers.

Packaging for Distribution Packaging for distribution includes the activities involved in designing and creating the containers for a product during its transportation from the manufacturer, through the channels of distribution, to the point of retail sale or purchase. It typically contains multiple packages for individual resale. Since it is usually subjected to significant physical stress as it passes through the distribution channel, it needs to be designed to withstand thes\ e forces.

Depending on the distribution path, products may require specific protection from being crushed, wide temperature variations, vibrations, water, and other threats. As a general principle, this type of transport packaging needs to provide more effective protection against damage-related losses than packaging for final customers.

Packaging for Final Customers Packaging for final customers is primarily the container that the final buyer receives at the time of purchase. Packaging at this retail level of marketing often makes the product more appealing and also protects it from damage. In this sense, retail packaging can con - tribute to the value offered by a product in four distinct ways:

Image : The graphic elements of a package as well as its physical design may a\ ttract atten - tion to the brand and promote a specific brand image. It can also contribute to the brand’s visibility within the store. As noted in Chapter 7, image-specific elements of marketing communications can shape perceptions of brands.

Convenience : Many containers have features that add convenience in product handling, storage, opening, resealing, dispensing, and disposal. In addition, some containers add value and convenience for consumers by enabling easier portion control. Single-serving containers, for example, hold an amount of the product suitable for individual use.

Product Integrity and Security : The design of containers can significantly reduce the risks posed by both intentional product tampering and unintentional product damage from routine handling. Additionally, some product packages are designed to minimize the fin80083_09_c09_231-262.indd 7 7/31/12 3:36 PM CHAPTER 9 238 Section 9.1 Basic Product Concepts potential for pilferage through the use of anti-theft devices, such as radio-frequency identification (RFID) tags that can be detected by devices at retail store exits.

Information : Packages communi - cate information on the proper use and disposal of the package or product. This is particularly criti - cal with packaged foods, pharma - ceuticals, and medical products.

The specific information included on a product’s package can make significant contributions to the successful execution of a market - ing plan for many types of prod - ucts. The following section briefly considers the role of labeling in package design. Product Labeling The term label refers to any information attached to a product for the purpose of naming it and describing its use, its dangers, its ingredients, its manufacturer, and the like. Package labeling typically includes more information than simply the brand name. Most distribu - tion and final consumer containers include printed information to assist the intermediary or end customer. For consumer products, label features serve several important purposes. Associated Press Labeling requirements for consumer products are established, regulated, and enforced by the FDA and the FTC with the authority granted to them by Congress. Hemera/Thinkstock Retailers seeking to reduce shoplifting sometimes rely on RFID tags like this one that can be detected by devices at store exits. fin80083_09_c09_231-262.indd 8 7/31/12 3:36 PM CHAPTER 9 239 Section 9.1 Basic Product Concepts Classifications for Goods There are substantial differences in how marketers approach strategy development for consumer and industrial markets. Individual consumers who purchase goods for them - selves spend far less each year than the average industrial customer, but each individual among the 7 billion people worldwide may act as an independent decision \ maker. Deci - sion making in industrial settings, as we saw in Chapter 5, often depends on input from multiple sources within the organization.

Most importantly, labels identify the product and brand being purchased. As noted in the previous discussion of brand identity, the brand name conveys the perception of a brand in the minds of current and prospective buyers. Consequently, a package label can com - municate a composite impression of what the brand means to buyers in terms of their attitudes and expectations.

The design elements and features of product labels also serve to capture the attention of shoppers. The use of color, shape, and high-impact words and phrases can lead prospec - tive first-time buyers to pause long enough to evaluate the product. This is particularly important since the label is often the first thing a shopper encounters.\ Both the appearance of the label and its information content will shape first impressions.

Labels also include information related to environmental issues and legal disclosure requirements. Increasingly, labels provide information that assists potential buyers in assessing the environmental impact of the product and its eventual disposal. For many categories of products, sellers of food and pharmaceutical products are required by law to list ingredients, nutritional data, and usage warning information. However, food market - ers also use labels to provide consumers with recipes and product usage suggestions to promote satisfaction with the product and additional sales.

Since the late 1970s, labels for most products sold in retail outlets have been required to include a Universal Product Code (UPC) to help sellers speed up the checkout process and improve inventory management. And for companies selling into international mar - kets or domestic markets with diverse cultural roots, bilingual or multilingual labels may be needed.

Think About It For one eight-hour period, make it a point to be aware of all the labels you encounter. Consider the label-maker’s intention for each of them. Consciously categorize each of the labels according to the function or purpose it is intended to serve.

Which category did you encounter the most?

Is almost every label a part of that category in some way? Why?

What did you learn about the way in which you notice or fail to notice the information provided by labels on a regular basis? fin80083_09_c09_231-262.indd 9 7/31/12 3:36 PM CHAPTER 9 240 Section 9.1 Basic Product Concepts Consumer Goods Classes Consumer goods can be classified according to the way in which individuals shop for them. Specifically, most products intended for sale in B2C markets are categorized by where and how frequently they are purchased. There are four primary classes of con - sumer goods: convenience, shopping, specialty, and emergency goods.

Convenience goods are products that appeal to a very large portion of the B2C market. They are typically consumed and purchased frequently. Examples include food, bever - ages, household cleaning products, and personal care items. These products are sold in very high volume, and the unit price per item tends to be relatively low. Consequently, buyers see little value in comparison shopping on price since such effort will yield insig - nificant savings. Unit margins are typically low due to competitive pricing pressures.

Companies need to sell large product volume to realize substantial levels of profitability.

As a direct consequence of this dynamic, firms seek to distribute their products through as many retail outlets as possible.

Shopping goods are products purchased and con - sumed less frequently than convenience goods.

These are more expensive purchases; buyers are willing to invest more time comparison shopping across brands and between retailers to locate the best values. These products are usually higher involvement purchases than convenience goods, but less involving than specialty goods. Examples include consumer electronics, clothing, home decor, and household furnishings. Since the mar - ket for these goods is substantially smaller and sales volumes lower than for convenience goods, marketers are more selective when recruiting dis - tribution outlets to sell their products.

Specialty goods are products that are relatively expensive and infrequently purchased. Consum - ers are deliberate and selective when making these high involvement decisions. In the absence of prior experience or brand loyalty, consumers may comparison shop extensively before reach - ing a decision on which brand provides the best value relative to their wants and needs. Examples include high-end automobiles, fine wines, and designer clothing. The target market for each class of specialty products is typically small, and the number of outlets selling the products is limited.

Emergency goods are products that a consumer may seek due to sudden, unexpected events. Buyers often rush to select the first viable option encountered. For example, when confronting an unexpected snowstorm in October, a consumer who needs a snow shovel will not typically shop around to find the best price. Associated Press Luxury cars, like Audi’s A6, are classified as specialty goods since they are expensive and infrequently purchased. Buyers tend to devote substantial time and energy to making the best choice. fin80083_09_c09_231-262.indd 10 7/31/12 3:36 PM CHAPTER 9 241 Section 9.1 Basic Product Concepts Industrial Goods Classes Industrial goods can be classified according to the way in which they enter the production process and their cost to acquire. These items are used directly or indirectly in the trans - formation of materials to create products for resale. The purchase patterns and behavior governing industrial buying were discussed in Chapter 5. There are four basic classes of industrial goods: materials, parts, capital goods, and operating and business supplies.

Materials include both basic raw materials and processed or manufactured materials. Raw materials are products obtained through digging, mining, harvesting, drilling, and fish - ing. These are the essential ingredients in the production of higher-order manufactured goods. Processed materials include goods created through the processing or refinement of basic raw materials. Corn, for example, can be transformed by refining processes to cre - ate ethanol, which in turn can be used to power production equipment and manufactur - ing facilities. Price, reliable supply, and on-time delivery are major considerations when companies are evaluating potential suppliers. If the supply–demand balance in materials markets is subject to significant changes over time, the purchase process will most closely resemble the modified rebuy situation.

Parts are finished goods that enter the manufacturing process for other products with - out any further change in their basic form. Basic components are products used within more advanced components such as electrical wire. Advanced components are finished goods that can be combined with basic components to produce intermediate pieces of a larger product. The circuit boards in consumer electronics, for exam - ple, only have functional value when used to combine compo - nent parts in accord with precise technical specifications. Finding a reliable source for parts tends to be less difficult than securing reliable sources for raw materials in many instances. Consequently, many buying situations for parts conform to the straight rebuy model of industrial purchasing once relationships with good sup - pliers have been established.

Capital goods are long-lasting installations and equipment that are used in the production or management of finished prod - ucts. Equipment includes portable items such as factory machinery, tools, computers, and forklifts that facilitate production and operations activities. Installations include office buildings, facto - ries, and fixed-location equipment (e.g., power plants). Installations are among the most expensive capital purchases that any organization can make. This purchasing process always corresponds to the new task buying situation and procedures described in previ - ous chapters. iStockphoto/Thinkstock Prefabricated circuit boards are classified as parts since they enter the manufacturing process for other products without any further change in their basic form or design. fin80083_09_c09_231-262.indd 11 7/31/12 3:36 PM CHAPTER 9 242 Section 9.2 Service Essentials Operating and business supplies are short-lived goods used to support the routine opera - tions of the firm. Operating supplies such as lubricating oil for machine tools are products specifically used to support the production function. Business supplies are those items used to support the maintenance and repair activities of the firm, as well as the daily office activities of the organization. The purchase of these goods is typically done on a straight rebuy basis for the organization.

9.2 Service Essentials T hough the term product refers to both goods and services, there are some charac - teristics that are specific and exclusive to the provision of services. A service is an intangible product that does not result in the ownership of material goods that can be stored or inventoried. The benefits derived from consumption of a service are uniquely dependent on the knowledge, talents, and abilities of the service provider. Services pos - sess four characteristics that have direct implications for how they should be marketed:

intangibility, perishability, inseparability, and variability.

Services are intangible insofar as they lack a physical or material nature. Unlike tangible goods, services cannot be touched or examined before they are purchased. Life insur - ance coverage, for example, is not something the buyer can hold in his or her hands. The written policy may be evidence of the purchase, but the actual benefit from acquiring the insurance is intangible. Prospective buyers of services often experience greater difficulty in evaluating the quality and value of services than tangible physical goods.

Services are perishable in the sense that they cannot be stored or inventoried. Airline seats that are not sold for a Monday flight cannot be set aside and sold on Tuesday. If an appointment with an attorney is not kept by the client, the opportunity to provide legal services on that occasion is lost. One marketing response to the perishability of services is to manage customer demand. Reservation systems, for example, allow business man - agers to match service capacity to market demand. And airlines will often use off-peak price discounts to shift nonbusiness travel demand to nights and weekends.

Services differ from physical goods since the delivery of any given ser - vice is inseparable from the service provider. Surgeries will not hap - pen in the absence of the surgeon.

Haircuts cannot be given without a barber. Personal services of this kind are particularly dependent on the presence of a specific provider.

Most customers are not content to have their hair done by just anyone with a license and a pair of scis - sors. This linkage between service quality and the abilities of the pro - vider is referred to as variability . Associated Press Quality and skill of the provider are crucial to the successful marketing of personal services, such as haircuts. fin80083_09_c09_231-262.indd 12 7/31/12 3:36 PM CHAPTER 9 243 Section 9.3 New Product Development Process 9.3 New Product Development Process T he development and introduction of new products is essential to survival and suc - cess in many product markets. The critical importance of innovations in fields such as pharmaceutical research and the high-tech sectors is apparent. However, slow- growth markets such as household products and prepackaged food are committed to the process of product development and commercialization as a primary means of sustaining sales growth in mature market categories. In all circumstances, new products provide businesses with the opportunity to better satisfy their customers’ sh\ ifting preferences and gain profitable advantages over competitors.

Since the introduction of new products on a regular basis is essential to the survival of many businesses, organizations often follow established product development procedures to improve the odds of success. Independent of the organizational structure supporting the exploration and commercialization of new ideas, the development of new products The quality of service provided is variable as a function of who provides it. Not all professionals are equally skilled or capable of delivering a consistent quality of servi\ ce on each occasion. Consequently, consumers develop preferences for one provider over another based on differences rooted in both objectively and subjectively experienced attributes of the performance. A buyer may prefer one plumber over another based on the observed quality of his or her work or one concert violinist over an\ other based on subjective aesthetics.

It is important to remember that most products are a hybrid of goods and services. Con - sider a home inspection that is performed for a prospective property buyer. The creation of a home inspection report (a good) is an integral part of the product being sold. However, it is wholly dependent on the provision of the inspection itself, the intangible dimension of this service. A can of soup sold in the grocery store may seem to be a wholly tangible product. However, the transaction cannot take place without the accompanying retail ser - vices provided by the store.

A critical consideration when marketing services is to be mindful that ea\ ch service encoun - ter is unique. It can never be perfectly duplicated, and it can never be created under pre - cisely the same circumstances and conditions again. However, consumers typically assign great importance to service consistency, and the difficulties that buyers confront when trying to evaluate intangibles complicates the marketing challenge significantly. Conse - quently, managers must recognize the need to maintain consistently high standards of service quality and find ways to effectively relate the quality and value of their offering to buyers.

Think About It Conventional business wisdom traditionally held that marketing intangible services was substantially more difficult than marketing tangible goods. However, some experts are now arguing that the task of selling services to the next generation of consumers is becoming much easier because they have grown up with social media and the Internet.

Do you agree? Why would this be the case? fin80083_09_c09_231-262.indd 13 7/31/12 3:36 PM CHAPTER 9 244 Section 9.3 New Product Development Process can often be described by a process model comprising six stages, as depicted in Figure 9.1. These stages include idea generation, screening, concept development and testing, business analysis, market testing, and commercialization. It is worth noting, however, that radically new and innovative discoveries, inventions, and product concepts often arise apart from the systematic corporate business model presented here.

Figure 9.1: New product development process Idea Generation The first stage of the new product development process requires gathering a pool of ideas for subsequent consideration and evaluation as potential product introductions.

The initial idea behind new product concepts can originate from many sources. Small firms often rely on brand manag - ers, production personnel, sales - people, and customers to identify new opportunities. Larger, multi- department companies may create a new product committee or task force composed of members from several departments to take formal responsibility for the tasks associ - ated with creating and evaluating new product concepts. Depend - ing on the specific requirements for successful innovation within a given industry, many large organi - zations create permanent research and development, or R&D, units to steer the pursuit of innovative products in specific directions.

Many of the market research tech - niques discussed in Chapter 3 can be used at the idea generation STEP 1Gener ate Ne w Ideas STEP 2 Scr een Ideas STEP 3 Anal yze theProductConcept& P otential STEP 4 De velop thePro duct STEP 5 Test Product & Mar ketingMix STEP 6 Commer cializ e Pro duct Feedbac k From Cur rent Products andCust omer s Since many organizations require a stream of new and innovative products to remain successful, marketers often rely on formal models to systematically guide the process of new product development. Associated Press New products are essential to success in many product markets. Bridgestone is developing and testing a range of innovative prototypes, including an airless tire that never goes flat. fin80083_09_c09_231-262.indd 14 7/31/12 3:36 PM CHAPTER 9 245 Section 9.3 New Product Development Process stage of the process. The Ansoff matrix for finding growth opportunities can be a par - ticularly useful framework for identifying new product concepts. Some organizations also use independent market research firms to conduct focus groups with consumers, channel intermediaries, and sales personnel. Direct customer feedback via comment cards, toll-free numbers, and website forms can also help uncover better ways to satis\ fy buyers’ needs.

Screening In Stage 2 of the process, the ideas generated in the previous step are critically evaluated to identify the most-attractive options. Large groups of new concepts are typically judged against a set of fixed criteria or scored using a formula that estimates the likelihood of successful commercialization. Under both schemes, three primary questions dominate the screening process: 1. Does the idea fit within the organization’s overall strategy?

2. Does it build upon the resources and core competencies of the company?

3. Does it have sufficient market potential to warrant further inclusion in the process? (Urban et al., 1998). If the screening process is performed periodically, judges may need more than one round of deliberations to reduce the pool size to a manageable number of alternatives. In mul - tiple-round scenarios, different filters are applied at each successive step in the process. Once a relatively small number of ideas remains, preliminary estimates of sales and profit potential may be used as the final consideration when deciding to move acceptable candi - dates on to the next stage of the process.

Concept Development and Testing To have customers, channel intermediaries, and employees contribute to th\ e evaluation process, each of the remaining concepts must be transformed from simple ideas to test - able forms of the product or concept. If the idea for a chocolate cheese soup survived the screening process, the next step would be to produce samples for taste tests. If the idea being considered is a combination snowboard and personal watercraft, the concept may be presented to audiences in the form of an actual prototype or simply as sketches and diagrams. Concept board presentations or storyboards are used as the testable form of the product when the production costs associated with producing a functional prototype or model are prohibitive.

Feedback from the different groups of participants in the testing process is most often gathered by conducting focus group studies. Favorable and unfavorable reactions to the concept boards, prototypes, or actual sample product are used to evaluate and filter out relatively weak product concepts in much the same way as the screening process judged the merits of initial product ideas. Information typically collected at this stage of the pro - cess includes measurements of interest, liking, likelihood of buying, and value or pricing- related perceptions.

Advances in technology have impacted concept development and testing for\ some types of products in recent years. Three-dimensional designs and graphics can be displayed fin80083_09_c09_231-262.indd 15 7/31/12 3:36 PM CHAPTER 9 246 Section 9.3 New Product Development Process on computer screens to solicit consumer response. Both non-working and working mod - els or prototypes can be inexpensively created with current CAD/CAM (computer-aided design and computer-aided manufacturing) technologies. Virtual reality and other com - puter-simulated environments have also been used in some instances for concept tests that include both visual and nonvisual sensory stimuli.

The New Product Development Process at Campbell’s Soup Campbell Soup Company has a long history of successful product innovations. Within its soups division alone, the company has redefined the category over the years by introducing microwavable soups, Chunky soups, Select Harvest premium soups, Healthy Request brands, and low sodium soups. The drive to generate innovative, new ideas is an essential feature of the corporate culture at Campbell’s.

“Powered by a relentless focus on the consumer and a radically different approach to innovation, we are extending our product platforms into new mealtime occasions and packaging formats, and responding directly to new consumer expectations. We are focused on rebuilding relationships with our existing consumers and establishing connections to new ones. Simply put, our mission is to rein - vent our products and our company for a new era” (Campbell Soup Company News Release, 2012).

Innovative concepts developed from in-house research, focus groups, customer comments, and other sources reflect changes in the tastes and interests of its target customer groups. Some ideas in devel - opment reflect an emerging global awareness on the part of target customers. These include varieties of pouch soups in distinctive flavors such as Coconut Curry and Moroccan Chicken. An upscale line of aseptically packaged soups called “Campbell’s Gourmet Bisques” includes varieties like Thai Tomato Coconut and Tomato Roasted Garlic Bacon.

The idea screening process used by the cross-functional innovation teams that manage the new prod - uct development process at Campbell’s Soup is guided by several growth-related objectives. These include profitable growth in North American markets, expansion of the brand’s international sales, and sales growth in healthy foods categories.

Concept testing for food producers such as Campbell’s often begins with in-house product trials.

Brand managers and members of the innovation team are often the first to sample new products.

Once the products are refined and approved, the test kitchen facilities may prepare batches for sam - pling in the company cafeteria and employee households. Positive feedback from these critical audi - ences is essential if the product is going to move forward in the process.

Those concepts that have survived the new product development process to this point will usually be subject to market testing in regions selected to be demographically representative of the intended tar - get market. This experimental market introduction provides brand managers with the opportunity to forecast the sales and profit outcomes that can be anticipated from a full-scale market launch. If these projections demonstrate significant profitability, the brand will typically be rolled out nationwide.

Business Analysis The next step in the new product development process is to subject the surviving product concepts to rigorous business analysis to evaluate their financial potential. Typically, very few of the initial ideas considered at the beginning ever reach this point in the process. The viability of the remaining candidates is determined by their projected costs, sales, profits, return on investment, cash flow, and long-term growth potential. This level of detailed scrutiny in the business analysis phase is far more detailed and thorough than any finan - cial considerations raised previously in the process. fin80083_09_c09_231-262.indd 16 7/31/12 3:36 PM CHAPTER 9 247 Section 9.3 New Product Development Process Market Testing Products that reach the market testing stage have been carefully considered and thor - oughly investigated. At this point, companies frequently create a unique marketing plan for the exclusive purpose of market testing the product. A market test is essentially an experimental market introduction, conducted on a limited basis, within a carefully selected sample of the intended target market. The primary goal of the test is to enable marketing managers to project the sales and profit consequences of a full-scale market launch.

In contrast to concept testing, real customers respond to the actual product and other dimensions of the marketing mix under actual marketplace conditions. Among the most frequently employed models of market testing is making the product available to a small The techniques and procedures of most direct relevance to this stage are those for evaluat - ing market demand and forecasting sales, as discussed in Chapter 4. The primary objec - tive is to provide an accurate assessment of the best and worst case scenarios for the product’s financial impact on the firm, as well as estimates of the mos\ t likely outcome.

This requires extensive research, analysis, and planning since multiple scenarios must be evaluated to reflect alternative marketing plans. Consider the series of consequences \ associated with simply increasing the retail price point for a proposed product. Sales shift in response to declining demand. The fixed and variable cost profile will be altered due to changing economies of scale in production as total output is reduced. Profit forecasts and marketing budgets will have to reflect the impact of reduced unit sales and increased con - tribution margins per unit. Then consider that multiple scenarios based on a wide range of alternative marketing plans need to be evaluated to determine the bes\ t possible plan for introducing the product.

Both in-house and external market research are required to complete the business analy - sis. The responses of both consumers and competitors must be reckoned with to derive the sales forecasts, production-related costs, and financial projections associated with a pos - sible product launch. If the forecast outcomes warrant the required level of investment, the development of a specific launch strategy commences.

Where’s the Marketing Plan?

Conventional descriptions of the new product development process often indicate that the next step for ideas that survive the business analysis stage is the development of a marketing plan. That is true to the extent that marketing plans are sometimes formalized at this stage. However, throughout the process to this point, the essential elements of a marketing plan for products that survive the gaunt - let have already taken shape. Marketing mix decisions are made on an “as needed” basis to facilitate completing each phase of evaluation. The target market for the product must be tentatively deter - mined at the outset. Pricing decisions are made to enable forecasting. Promotional and positioning decisions often must be made prior to concept testing the product with an audience. Distribution plans need to be tentatively made to determine both product-related costs and sales potential. Prod - uct details are inevitably refined at each step of the process. All of the marketing mix elements are, of course, interrelated and interdependent. Consequently, changes to one will trigger corresponding and iterative changes to all. Additionally, refinements to the final marketing plan will continue throughout the process and well into the future for products that are introduced to the market. fin80083_09_c09_231-262.indd 17 7/31/12 3:36 PM CHAPTER 9 248 Section 9.3 New Product Development Process geographic sample of the target market (e.g., one city), which proportionally receives the full marketing effort that has been planned for a full-market product introduction. Posi - tive customer reactions and strong sales performance are required to trigger a full-scale product launch on a market-wide basis. Negative outcomes may doom the product or suggest the need to refine the marketing mix before retesting the product once more.

It is worth noting that not all products are test marketed prior to executing a full-market launch. In some instances the costs of a test market exceed its value. This is particularly true if the financial risks associated with a full launch are relatively modest. In other situ - ations, the company may be sufficiently impressed with the results from concept testing and the business analysis to skip a test market in favor of a full market launch. Occasion - ally marketing managers will opt to avoid market tests for fear that the public exposure of the product will enable competitors to preemptively introduce a directly competitive brand before its own full-scale launch can be executed.

Think About It By now you have probably already thought about it and asked yourself, isn’t there a simpler way to organize the process of new product development? Does it have to be so elaborate?

Consider this: What would be the positive and negative consequences of skipping one or two of the steps in the process thus far?

Commercialization If the market test results are sufficiently posi - tive, the product will probably be introduced to a wider market. Commercialization is the final stage in the development cycle for a new product.

It marks the organization’s commitment to mar - keting the product to the broader target market and subsequent execution of the product-specific marketing plan.

This process of commercialization is sometimes rolled out progressively over various geographic segments of the market according to a predeter - mined schedule. This is particularly desirable if there’s reason to believe that some geographic seg - ments are likely to be more profitable than others.

For example, spicier foods tend to sell better in the south and west portions of the United States than in the north and east. This rollout pattern of commercialization is also warranted if the com - pany lacks the financial resources to introduce the product to all potential geographic segments of the intended target market. A gradual or phased market rollout also enables the company to fine- tune its marketing mix as the product enters new geographic markets. Westend61/Corbis Regional tastes must be considered when designing the final commercialization strategy. Where might a small chocolatier want to consider rolling out its new chili confections? Why? fin80083_09_c09_231-262.indd 18 7/31/12 3:36 PM CHAPTER 9 249 Section 9.4 Product Diffusion Curve and Adoption Process Marketers also recognize that there are distinct advantages to targeting prospective buy - ers who are most likely to be early purchasers of the product. Identifying and reaching consumers who are predisposed to try innovative products as soon as they become avail - able represents a strategic priority for the commercialization of many brands. Research on this issue has determined that statistical models of the new product adoption process con - form to a bell-shaped diffusion curve usually referred to as the Product Diffusion Curve.

9.4 Product Diffusion Curve and Adoption Process T he concept of the Product Diffusion Curve (PDC) is loosely based on medical mod - els that describe how contagious diseases spread through a population. That is, the PDC explains how information and the acceptance of new products spread through a market. As popularized by Everett Rogers (1962), the underlying principle is that once a target population buyer is initially exposed to information about a new product, defin - able groups of consumers will acquire the product at different rates as a function of certain group characteristics. In most instances, the new product adoption process can be mod - eled in the form of a bell-shaped diffusion curve. The managerial value of the PDC lies in identifying five specific adopter categories into which different types of consumers are most likely to belong: innovators, early adopters, early majority, late majority, and lag - gards. An illustration of the PDC is provided in Figure 9.2.

Figure 9.2: Product Diffusion Curve Innovators are the first people to adopt a new product or innovation and they represent the first 2.5 percent of adopters. They tend to be more willing to take risks and are often the youngest in age of the five typologies, especially in technology-related markets. As illustrated in Figure 9.2, they represent a small percentage of the market that is at the forefront of adopting new products. These people are often regarded as well-informed enthusiasts within the product category and eager to try the latest innovation. They are Early A dopt ers 1 3.5% Early Major ity 34% La te Major ity 34% L aggards 1 6% Innova tors 2.5% The Product Diffusion Curve groups consumers into clusters or buying segments according to how quickly they adopt new products. fin80083_09_c09_231-262.indd 19 7/31/12 3:36 PM CHAPTER 9 250 Section 9.5 Product Life Cycle typically less price sensitive than others, and their behavior within te\ st markets is often closely tracked. Unfortunately, their attraction to new products means that they are not usually brand loyal consumers.

Early adopters are the second fastest category of adopters, 13.5 percent of buyers, making up a larger share of the market than innovators. They are also attracted to innovative new products in categories that interest them, but they are less impulsive and more practical about decisions to buy new things. An important characteristic of people in this category is their tendency to convey their experiences to the early majority. Consequently, their opinions are important to a product’s long-term success since they serve as both a key buying cluster and as opinion leaders to others.

The early majority accounts for 34 percent of all buyers. They also enjoy new and inno - vative products, but they tend to wait for positive opinions and reviews from others (early adopters) before purchasing. The adoption of new products by the early majority is essential for sustained profitability. However, many products fail early in their life cycles because they are rejected by this category of consumers and those that follow.

The late majority category makes up 34 percent of buyers, corresponding in size to the early majority in many instances. These consumers will adopt an innovati\ on later than the average member of the target market. They are quite cautious and reliably take a wait- and-see approach before trying something new. However, once this category begins buy - ing into the new concept, marketers begin to capture their highest rates of profitability.

Laggards make up the final 16 percent of buyers and are the last group to adopt new prod - uct innovations. These buyers are, quite simply, skeptics. If the new product is replacing an older form of the product (e.g., audio CDs replacing cassette tapes), they may not buy into the new form until they have no other options. They tend to be older than the aver - age consumer and among the most price sensitive since they do not recognize substantial value in the new product. Since they are relatively disinterested in the product, marketing plans typically focus very little effort on them.

An understanding of the general shape and character of the Product Diffusion Curve reinforces the importance of developing a marketing plan that recognizes meaningful differences within the intended target market for a new product. The impact of opinion leadership is pivotal in the eventual success or failure of new concepts. It is important to recognize, however, that the true distribution of consumers across the five categories and corresponding steepness of the slope of the curve will differ between markets and always relates uniquely to the nature of the product being introduced. However, the PDC does provide a valuable strategic perspective on the adoption of new products that should be considered in the development of marketing plans for new product launches.

9.5 Product Life Cycle T he Product Life Cycle (PLC) is a conceptual model that describes the four stages that a product typically passes through from its origins until its demise. Initially developed by Raymond Vernon (1966), its validity and value are greatest when fin80083_09_c09_231-262.indd 20 7/31/12 3:36 PM CHAPTER 9 251 Section 9.5 Product Life Cycle applied to an analysis of general product classes (e.g., canned dog food) rather than spe - cific brands (e.g., Alpo). Nonetheless, the PLC can be a useful strategic planning tool for\ understanding the dynamics of a product’s lifespan in terms of its sales history. Further, understanding a given product’s position within the context of its life cycle can enable the manager to make better decisions in shaping the marketing plan for a\ specific brand.

Figure 9.3 provides a graphical representation of the PLC.

Figure 9.3: Product Life Cycle There are four primary assertions made by the Product Life Cycle: 1. Products have a limited life.

2. Product sales pass through distinct stages, each having different implications for the seller. 3. Profits from the product vary at different stages in the life cycle.

4. Products require different marketing strategies at different stages of the life cycle (American Marketing Association, 2011). Although the characteristics of the PLC for any given product will be unique to that prod - uct and its market, most products exhibit patterns of aggregate category sales and profits that correspond to four distinct stages: introduction, growth, maturity, and decline. Mar ket Intr oduction Mar ket Gr owth Mar ket Mat urity Sales Dec line To tal Industr y S ales To tal Industr y Pr ofit Time To tal Industr y S ales To tal Industr y Pr ofit (initiall y loss) $0+ The Product Life Cycle is a conceptual model of a product’s lifespan that is closely aligned in principle to the Product Diffusion Curve. fin80083_09_c09_231-262.indd 21 7/31/12 3:36 PM CHAPTER 9 252 Section 9.5 Product Life Cycle Introduction The introduction stage of the PLC corresponds to the commercialization and launch of a new type of product or product form. This first stage is sometimes further divided into two substages: early and late introduction stages. The introduction stage is characterized by the following market-related conditions:

Competition : Direct competitors may be absent for the first-to-market brand of this prod - uct. However, there is still competition for sales in the form of existing alternatives or sub - stitute product types that address similar customer needs. If the product is successful in gaining acceptance from innovators and early adopters, competing brands will typically enter the product market in the latter half of the introductory stage.

Target Market : At this stage, innovators and early adopters compose the target market. As the product nears the close of the introductory stage, the emphasis shifts exclusively to winning market share battles among the early adopters division of the market.

Product : Initially low sales volume, unformed consumer preferences, and uncertainty regarding the financial viability of the product tend to limit the range of options and fea - tures made available on early forms of the product. In the latter phase of this stage, new competitors introduce greater product variability and choice to the market, though the total number of brands remains low.

Price : Marketers often engage in a strategy termed market skimming by which prices are initially set at a relatively high level. This approach to maxi - mizing per unit revenue corresponds to minimal price sensitivity of buyers in the innovator cate - gory. Prices will be lowered gradually in response to competitive pressure as additional brands enter the market.

Promotion : Aggressive promotional campaigns focus on raising product awareness and educat - ing prospective buyers on the benefits associated with the new product in the initial phase of this stage. The top priority for the sale force is often securing distribution for the product. As brand- versus-brand competition intensifies toward the close of the introductory stage, promotional themes typically shift to emphasize benefits and features that are brand specific.

Distribution : Substantial sales promotions target - ing marketing intermediaries are commonly used to expand the product’s distribution network. The total number of product distributors continues to increase throughout this stage, and many offer consumers more than one brand to choose from. age fotostock/SuperStock Marketing managers use a range of sales promotions and pricing incentives to introduce new brands, encourage the movement of inventory through distribution channels, and phase out obsolete lines. fin80083_09_c09_231-262.indd 22 7/31/12 3:36 PM CHAPTER 9 253 Section 9.5 Product Life Cycle Profits : The costs associated with establishing the sales network, building product aware - ness, and confronting new competitors usually exceed profits at this stage. The organization incurs losses in anticipation of future profitability.

The overall strategy for the first few market entrants is to create both product and brand-specific awareness while generally educating customers about the new product.

Promotional campaigns typically emphasize product features and benefits that will attract innovators and early adopters. For many types of products, sales promotions are used extensively to accelerate the process of building sales volume. Examples of products currently in this stage of the PLC include electric cars, 3-D television, ta\ nk - less water heaters, holographic projection systems, and emerging multimedia confer - encing technologies.

Growth The beginning of the growth stage of the PLC is marked by the point at which profitabil - ity becomes positive. The rapid rate of category sales toward the midpoint of the growth stage is an indication that sales of the product have moved beyond the early adopters and reached the early majority. This is also the stage at which many competitors begin to show profits despite a predictable growth in the number of competitors. It is primarily the profitability of the category, after all, that attracts the new entrants at this point. In this highly competitive climate, establishing brand differentiation and preference becomes a top priority for marketing managers. The growth stage of the PLC is characterized by the following market-related conditions:

Competition : As the number of competing brands grows, the battle for market share intensifies. Price-driven competition may have the unintended consequenc\ e of delaying purchases by some early and late majority buyers if they are anticipating future price reductions. Toward the end of this stage, the battles for dominance within the largest segments of the market often intensify.

Target Market : The initial emphasis on early adopters gradually transitions to the ea\ rly and then late majority groups. The intensity of competitive rivalry drives managers to position their brands for progressively narrower target segments. Sales volume throughout the industry grows steadily, and new market segments and niche markets are often identified.

Toward the end of the growth stage, the heavy demand created by the majority groups begins to level off and sales may continue to grow, but at a decreasing rate of growth.

Product : The product evolves substantially throughout this stage of the PLC. The “basic product” that was introduced in the first stage adapts to the expressed preferences of the market as discrete benefit segments emerge. More features are incorporated as buyers grow increasingly sophisticated and demanding. Product lines tend to lengthen as com - panies seek to reach a growing diversity of consumers while differentiating themselves from competitors. Toward the close of this stage, marketers recognize the need to trim back product lines in the interest of efficiency and in response to slowing market growth.

Prices : The range of price points expands as product lines lengthen. Prices may initially remain high, especially in segments where market demand is strong. The entrance of more competing brands, however, will inevitably drive prices lower over the span of this fin80083_09_c09_231-262.indd 23 7/31/12 3:36 PM CHAPTER 9 254 Section 9.5 Product Life Cycle stage of the PLC. Toward the close of the growth stage, it is common to see average retail prices fall rapidly in response to slowing category growth. Companies need to defend market share and maintain sales volume to retain economies of scale and corresponding cost advantages. Price wars are sometimes a symptom of the close of the growth stage.

Promotion : Promotions are initially focused on sharpening the brands’ positioning relative to specific target markets. As competition intensifies and growth slows, the financial con - sequences associated with losing market share increase. Promotional spending, particu - larly among market leaders, often increases substantially as they battle for share points.

Heavy spending on sales promotions is a common tactic aimed at stimulating customers to buy.

Distribution : Marketers work to secure and reinforce those channels of distribution that are most essential to reaching their chosen target markets. Toward the end of this stage, distributors will begin critically evaluating those relationships as product demand slows.

Many distributors will reduce the number of brands they carry.

Profits : For early market entrants, product development costs have been recovered and unit profits increase in the preliminary phase of the growth stage. Economies of scale also contribute to higher profitability as sales volume grows. Toward the end of this stage, however, declines in prices and production and growing marketing-related expenses begin to erode per-unit profit levels. Profits associated with the industry as a whole begin to level off toward the close of the growth stage.

At the outset of the growth stage, the priority for marketers is sales growth. In an envi - ronment where sales are accelerating, the strategic emphasis is on providing a brand that serves buyers’ needs better than the competition. Significant numbers\ of new brands, attracted by the profitability of the product category, intensify the positioning battle to win the hearts and minds of consumers. Products currently in this phase of the growth stage include home water purification systems, e-books and e-readers, smartphones, tab - let computers, Blu-ray discs, and digital video recording systems.

The closing phase of the growth stage is quite different. Firms fight to hold their share in the face of declining rates of sales growth. Price becomes the weapon of first resort for many poorly positioned brands that are struggling to survive, depressing profitability throughout the industry. Maintaining market leadership, however, will enable a brand to remain viable as the industry transitions to the maturity stage of the Pr\ oduct Life Cycle. Many types of laptops and portable media players may be nearing t\ he end of the growth stage.

Maturity The maturity stage of the PLC can be identified by the range where the rate of sales growth reaches an industry-wide sales peak. This occurs primarily because most potential cus - tomers have already purchased the product and the market has become saturated. Since aggregate sales have leveled off, the only opportunity to increase sales is to increase mar - ket share—that is, take sales away from another competitor. Consequently, this part of the PLC initially tends to reflect a hotly contested competitive environment. fin80083_09_c09_231-262.indd 24 7/31/12 3:36 PM CHAPTER 9 255 Section 9.5 Product Life Cycle The maturity stage of the PLC is characterized by the following market-r\ elated conditions:

Competition : Very aggressive head-to-head competition for shares marks the maturity stage. Weaker brands tend to drop out of the market or merge with competitors. Eventu - ally the market becomes stable, consisting of relatively few large competitors and some small niche brands.

Target Market : Virtually no growth is seen in the target market at this stage. Sales often consist almost exclusively of repeat purchasers seeking to replace their current product.

Product : Though brands differentiate to improve their fit with their target market, com - petition for the largest market segments tends to promote the standardization of brands to a great extent. The homogenization of consumer tastes over time reinforces this trend.

Price : Initially average retail prices fall as weakened competitors try to remain viable. Price wars are common. Toward the end of this stage price levels stabilize.

Promotion : This stage is initially characterized by aggressive advertising and promotions intended to steal market share from competitors. As the market finds its own point of share equilibrium toward the end of this stage, the surviving competitors cut back on promotion expenditures.

Distribution : Distributors often continue to reduce the number of brands they will carry. Profits : Industry profits fall rapidly throughout the early phase of maturity. Profit lev - els eventually stabilize as both market shares and competitive marketing expenditures level off.

In the early parts of the maturity stage, the key objective for brands i\ s simply survival.

This is challenging as the market “shakeout” process eliminates the majority of smaller brands. In many instances, size in the form of market share is the essential key to remain - ing viable. Many successful brands in established product categories are thriving in the maturity stage as cash cows for their companies. This is a common situat\ ion in consumer packaged goods where well-established names such as Coca-Cola, Kraft Macaroni and Cheese, and Reynolds Wrap enjoy high, stable market shares in low-growth categories.

Products such as fax machines, personal DVD players, desktop telephones, a\ nd desktop personal computers are also likely occupants of this stage of the PLC.

Decline A product form or category has arrived at the decline stage of the PLC when \ the market is no longer able to sustain itself. The only significant strategic choi\ ce remaining is the determination of a market exit strategy. There are two basic alternatives: A company can simply let the brand continue, without any substantive marketing support\ , until it fails to generate enough profit to justify its existence within the company’s portfolio of brand\ s.

Alternatively, management could seek a buyer for the product while the brand still has market value. Often large companies are interested in divesting themselves of product fin80083_09_c09_231-262.indd 25 7/31/12 3:36 PM CHAPTER 9 256 Conclusion lines that simply are not profitable enough to be bothered with. A smaller firm, however, might find the rate of return on the purchase of such a brand more than satisfactory.

Product categories typical of the decline stage include VCRs and videocass\ ettes, paper bank checks, electric typewriters, electronic word processors, photographic film, and fax machines. These products are gradually passing through the final stage of the PLC, hav - ing been displaced by better technologies. Individual brands within the \ category will remain on the market only as long as justified by their financial contrib\ ution to the firm.

Strengths and Weaknesses of the PLC The Product Life Cycle, like other conceptual models, is not intended to be prescriptive.

It is a decision-making aid, not a substitute for critical analysis and \ thoughtful planning.

It has the potential to provide a general level of guidance on brand management strate - gies as they relate to general product-market conditions. It also has the potential to focus managers’ attention on how market dynamics drive industry sales.

It is necessary to note, however, that the model has some fundamental limitations. It does not apply to all kinds of products in all circumstances. The market behavior of some prod - ucts departs radically from assertions made by the model. Sales patterns associated with fads and fashions are often cited as deviating from the basic shape of the PLC curve.

Similarly, it can also be difficult to ascertain the length of each stage and where any given product currently resides along the PLC curve.

The fundamental principle asserted by the model, however, is an important one for mar - keting managers. Markets are dynamic, and marketers need to be responsive to those changing conditions. The Product Life Cycle should be regarded as one of the many mar - keting models that are intended to make managers think about important features and characteristics of the environment in which their brands compete.

Conclusion A lthough every element of the marketing mix is essential, it is hard to escape the primacy of the product. The product is the basis of the firm’s viability to the extent that it satisfies target customers’ needs or fails to meet their expectations. Contri - butions from a wide array of professionals are needed to make the tasks of product plan - ning, production, and marketing successful. The coordination and integration of these efforts across all the stages of the Product Life Cycle is one of the most vital roles played by marketing managers.

In the three chapters that follow, we will examine the contribution of the remaining mar - keting mix elements to the efficient and effective positioning and sale of the product. Prod - uct positioning will remain a central consideration in the development of the marketing mix, since it explicitly recognizes both the perceptions of buyers and strategies of competi - tors. In Chapter 13, we will revisit the concept of product once more to investigate how boundaries between the traditional conception of tangible products and the provision of intangible services are blurring as we transition from a manufacturing- to a service-based economy. In the closing chapter of the text we will examine the unique challeng\ es and opportunities posed by marketing products in a competitive global economy. fin80083_09_c09_231-262.indd 26 7/31/12 3:36 PM CHAPTER 9 257 Post-Test Post-Test 1. A toaster oven would fit best in the ____________ category.

a. emergency goods b. convenience goods c. specialty goods d. shopping goods 2. A service a. is not a product.

b. is often bundled with a physical good.

c. is inventoried in the same manner as physical goods.

d. is independent of the specific service provider.

3. The long-term growth potential and return on investment of a promising new product concept will be MOST thoroughly analyzed in the ___________ phase of the product development process. a. idea generation b. concept development c. market testing d. business analysis 4. The Product Diffusion Curve:

a. is roughly the same shape for every product.

b. indicates that laggards are actually the most important of the five segments.

c. illustrates that most segments of the market will purchase at about the same time. d. helps show the importance of satisfied innovators for product success.

5. What is the Product Life Cycle’s MOST important principle for market managers? a. The Product Life Cycle applies to all products, and the smart marketer must acknowledge this. b. Markets change with time, and marketers must adapt to those changes.

c. The stages of the Product Life Cycle are of about equal length, so marketers must schedule the marketing mix accordingly. d. Universal mathematical principles govern the life cycle of every product. Answers 1. d. Shopping goods. The answer can be found in Section 9.1. 2. b. Is often bundled with a physical good. The answer can be found in Section 9.2 . 3. d. Business analysis. The answer can be found in Section 9.3. 4. d. Helps show the importance of satisfied innovators for product success. The answer can be found in Section 9.4 . 5. b. Markets change with time, and marketers must adapt to those changes. The answer can be found in Section 9.5 . fin80083_09_c09_231-262.indd 27 7/31/12 3:36 PM CHAPTER 9 258 Key Ideas Key Ideas • Products are made up of more than simply what the buyer consumes or uses.

They are bundles of attributes and benefits that can be divided into four separ\ ate levels, each of which contributes uniquely to the value that customers receive from their purchase. • Packaging decisions fall into one of two categories: packaging for distr\ ibution and packaging for final customers. The former is concerned primarily wit\ h pro - tecting the contents of the container during its journey through the channels of distribution. Packaging for final consumers is intended to serve some ad\ ditional purposes, including promotion of the brand image, enhancing the convenience associated with using the product, and providing valuable information to the buyer. • There are substantial differences in how marketers approach strategy devel - opment for consumer and industrial markets. Consumer goods are classified according to the way in which individuals shop for them. Industrial goods are items used directly or indirectly in the transformation of materials to create prod - ucts for resale. They are classified according to the way in which they enter the production process and their cost to acquire. • A service is an intangible product that does not result in the ownership of mate - rial goods. The benefits derived from consumption of a service are dependent on the knowledge, talents, and abilities of the service provider. Services possess four specific characteristics that directly impact how they should be marketed: intan - gibility, perishability, inseparability, and variability. • The development and introduction of new products is essential to survival and success in many product markets. The new product development model identi - fies six stages that ideas often pass through as part of the process of evaluating new product ideas. The stages are idea generation, screening, concept develop - ment and testing, business analysis, market testing, and commercialization. The intent of relying on a systematic approach to product development is to improve the likelihood of the products’ eventual success for the firm. • The Product Diffusion Curve explains how information and the acceptance of new products spread through a market. The underlying principle is that once a target population buyer is initially exposed to information about a new product, definable groups of consumers will acquire the product at different rates as a function of certain group characteristics. The five adopter categories are innova - tors, early adopters, early majority, late majority, and laggards. • The Product Life Cycle is a conceptual model that describes the four stages th\ at a product typically passes through from its origins through its eventual departure from the market: introduction, growth, maturity, and decline. Though the model is specific to the life cycle of product categories, insights for the effective manage - ment of brands can be gained by studying the market dynamics involved at\ each step of the process. fin80083_09_c09_231-262.indd 28 7/31/12 3:36 PM CHAPTER 9 259 Critical Thinking Questions Critical Thinking Questions 1. Explain how understanding the four different levels of products (bundles of attri - butes) can lead to thinking creatively about promotion, distribution, and pricing.

Can it help organizations identify new product concepts? 2. Most of the time, product packaging and labeling are not very interesting. How - ever, there are always exceptions. Identify several unique product packaging or labeling features in products that you find interesting. Explain how these features contribute to the value you derive from the product. 3. Consider the four basic classes of industrial goods: materials, parts, c\ apital goods, and operating and business supplies. To which of the five classes of consumer goods do each of these types of industrial products most closely cor - respond? Some are easier to assign than others; think outside the box. Explain the rationale for the matches you made. 4. Explain how economies of scale work for services. Be specific.

5. Most products are hybrids of goods and services, making it truly difficult to dis - tinguish one type of product from another in every case. It has been argued that the Internet has blurred the distinction between goods and services even more.

Explain why this might be true. 6. Service bundling (e.g., cable television, Internet, and telephone services together) is an option in the same way that bundling tangible goods is an option f\ or brand managers. Give three examples of services bundling that you are familiar with. Is it more difficult to bundle services? Why? 7. Portfolio analysis in the form of the BCG Matrix was introduced early in the text. What role does a new product introduction typically fill within the BCG Matrix model? Why is it an important part of a healthy brand portfolio? 8. Sometimes new product introductions cannibalize an existing brand within an organization’s portfolio. Is that a good thing? Is it a necessary thing\ ? 9. What elements of the new product development process relate directly to the marketing concept? 10. Should customers or companies be primarily responsible for the safe and envi - ronmentally sound disposal of old and worn-out products? Use television sets to illustrate the rationale supporting your opinion. 11. Identify a company that you are familiar with and evaluate how the environmen - tal movement and emphasis on sustainability will necessitate the develop\ ment of new products. 12. At which stages can social media and the Internet impact the process of new product development? How? Be specific. 13. How is the process of commercializing new industrial products or consumer products with infrequent purchasing rates (e.g., computers) different from launching frequently purchased products? What kinds of measures or metrics are used to assess the success of the launch for infrequently purchased products versus frequently purchased ones? 14. What sorts of marketing-related factors within the organization will be related to the successful introduction of new products? What kinds of sales incentives are likely to do more harm than good in building consumer demand for a new brand? 15. Consider a product category that you are very familiar with. Explain how the Product Life Cycle can provide cues to category brand managers about the execution of the marketing plan. Can it give different direction to different types of brands depending on their relative size and market share? Explain. fin80083_09_c09_231-262.indd 29 7/31/12 3:36 PM CHAPTER 9 260 Key Terms Key Terms augmented product Features and benefits that provide added value to products even though they may not be the primary driv - ers or core benefits in the purchase decision.

basic product The tangible features that constitute the product being purchased.

capital goods Long-lasting industrial installations and equipment used in the production or management of finished products.

convenience goods Consumer products that are typically consumed and purchased frequently.

core benefit The primary or essential value that the customer derives from the product being purchased (e.g., transportation).

emergency goods Consumer products that are sought in response to sudden, unexpected events.

label Any information attached to a product for the purpose of naming it and describing its use, its dangers, its ingredi - ents, its manufacturer, etc.

market test An experimental market introduction, conducted on a limited basis, within a carefully selected sample of the intended target market. The primary goal of the test is to enable marketing managers to project the sales and profit consequences of a full-scale market launch.

materials Industrial goods including both basic raw materials and manufactured materials. new product development process A con - ceptual model describing the cultivation of an idea from its initial beginnings to its introduction to the market as a new prod - uct. The development of new products in this model is described in six sequential stages: idea generation, screening, concept development and testing, business analy - sis, market testing, and commercialization.

operating and business supplies Short- lived goods used to support the routine operations of the firm.

package The container used to protect, promote, transport, and/or identify a product.

packaging The process by which packages are created.

packaging for distribution Activities involved in designing and creation of containers for a product during its trans - portation from the manufacturer, through the channels of distribution, to the point of retail sale or purchase.

packaging for final customers Activities involved in the design and creation of con - tainers that the final buyer receives at the time of purchase. Packaging at this retail level can contribute to the value offered by a product in four distinct ways: maintain - ing product integrity, promoting of the brand image, enhancing the convenience associated with using the product, and pro - viding valuable information to the buyer.

parts Finished industrial goods that enter the manufacturing process for other prod - ucts without any further change in their basic form. fin80083_09_c09_231-262.indd 30 7/31/12 3:36 PM CHAPTER 9 261 Key Terms product One of four variables in the marketing mix, related to both the tangible and intangible dimensions of ideas, goods, services, or some combination of the three.

Bundles of benefits created specifically to meet the needs of specific target markets for of satisfying organizational objectives.

Product Diffusion Curve (PDC) A model illustrating how the acceptance of new products spreads through five adopter segments or categories within a market:

innovators, early adopters, early majority, late majority, and laggards.

Product Life Cycle (PLC) A conceptual model that describes the four stages that a product typically passes through from its origins until its exit from the market: intro - duction, growth, maturity, and decline.

product line A group of products that are related to each other by virtue of sharing a common target market. Lines can also be defined as sets of products that share similar uses, technologies, distribution channels, or other relevant features.

product mix The complete collection or set of products offered for sale by an orga - nization, inclusive of all product lines.

secondary benefits Features that enhance the primary value provided by the product (e.g., cruise control, GPS navigation system). service An intangible product that does not result in the ownership of material goods that can be stored or inventoried.

The benefits derived from consumption of a service are uniquely dependent on the knowledge, talents, and abilities of the service provider. Services possess four characteristics that have direct implica - tions for how they should be marketed:

intangibility, perishability, inseparability, and variability.

shopping goods Consumer products purchased and consumed less frequently than convenience goods. These are more expensive purchases, and buyers are will - ing to invest more time comparison shop - ping across brands and between retailers to locate the best values. These products are usually higher involvement purchases than convenience goods, but less involving than specialty goods.

specialty goods Consumer products that are relatively expensive and infrequently purchased. Consumers are deliberate and selective when making these very high involvement decisions.

total product A conceptualization of products as consisting of four levels, each of which contributes to the value that customers receive from their purchase.

These levels are the core benefit, second - ary benefits, basic product, and augmented product. fin80083_09_c09_231-262.indd 31 7/31/12 3:36 PM CHAPTER 9 262 Web Resources This website includes an article by John Walsh entitled “Reverse Logistics and the Total Product Life Cycle” from the November/December 2007 issue of Reverse Logistics Maga - zine. It examines the concept of the Product Life Cycle from the perspective of reversing the conventional supply chain sequence to reuse products and materials that have been previously sold as finished goods.

http://www.rlmagazine.com/edition08p42.php This is a site that provides excellent resources specific to topics in the area of new product development. The Product Development Forum section also provides an exhaustive new product development glossary of terms.

htt p://www.npd-solutions.com This links to a page of the U.S. Federal Trade Commission’s website that addresses legal requirements and practical guidelines related to product labeling.

http://www.ftc.gov/os/statutes/fplajump.shtm Many issues specific to labeling and packaging consumer commodities can \ also be found by searching the U.S. Food and Drug Admnistration site:

http://www.fda.gov.

Web Resources fin80083_09_c09_231-262.indd 32 7/31/12 3:36 PM CHAPTER 9