DQ5Mkt4_05 – Caspiano

DQ5Mkt4_05 – Caspiano

Week 5, “Creating Offerings” was derived from Principles of Marketing, which was adapted by the Saylor
Foundation under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported license without
attribution as requested by the work’s original creator or licensee. © 2015, The Saylor Foundation.
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Week 5
Creating Offerings
Why do buyers purchase something? Why do you own anything? Many of us own iPads, but few
of us do for the sake of owning an iPad. We own one because it delivers music, productivity, and
connectivity. Or we own one because we have been influenced to buy one. Shortly after the iPad’s
introduction, some people undoubtedly purchased the devices because other people thought they
were “cool,” and they wanted to be cool by owning one. Now iPads are so ubiquitous that no one
gives them a second glance. Yet the impact that iPads have had on the music, entertainment, and
mobile connectivity industry has been huge because the product revolutionized how we stay in
touch and conduct our lives.
This week, we focus on how to define and categorize offerings and then how to develop new
offerings based on consumer needs. These are important concepts to marketers because new
offerings generally serve a specific target market. We will use many commonly known offerings to
illustrate these concepts, most of which you are probably familiar, and perhaps you are even a
member of the product’s target market or current customer.
5.1 What Composes an Offering?
LEARNING OBJECTIVES
1. Distinguish between the three major components of an offering: product, price, and service.
2. Explain, from both a product-dominant and a service-dominant approach, the mix of components
that compose different types of offerings.
3. Distinguish between technology platforms and product lines.
People buy things to solve needs. In the case of the iPad, the need is to have better access to
music, connectivity functions, productivity function, games and other entertainment, to look cool
on the go, or all of the above. Offerings are products and services designed to deliver value to
customers—either to fulfill their needs, satisfy their “wants,” or both. This week, we discuss how
marketing fills consumer needs through the creation and delivery of offerings.
Product, Price, and Service
Most offerings consist of a product, or a tangible good people can buy, sell, and own. Purchasing
a classic iPad, for example, will allow you to store thousands of songs and hundreds of hours of
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video, connect to your e-mail and other social media, search the web and just about everything
you can do on a desktop computer, but not be tethered to the desktop. The amount of storage is
an example of a feature, or characteristic of the offering. If your iPad playlist consists of 20,000
songs, then this feature delivers a benefit—the benefit of plenty of storage. However, the feature
will only benefit you to a point. For example, you won’t be willing to pay more for the extra
storage if you only need half that much. When a feature satisfies a need or want, then there is a
benefit. Features, then, matter differently to different consumers based on each individual’s
needs. Remember the value equation introduced in Week 1, which is different for every customer.
An offering also consists of a price, or the amount people pay to receive the offering’s benefits.
The price paid can consist of a one-time payment, or it can consist of something more than that.
Many consumers think of a product’s price as only the amount they paid; however, the true cost of
owning an iPad, for example, is the cost of the device itself plus the cost of the music, videos,
books, games, and other applications downloaded onto it. The total cost of ownership (TCO),
then, is the total amount someone pays to own the product, use the product, and eventually
dispose of the product.
TCO is usually thought of as a concept businesses use to compare offerings. However, consumers
also use the concept. For example, suppose you are comparing two sweaters, one that can be
hand-washed and one that must be dry-cleaned. The hand-washable sweater will cost you less to
own in dollars but may cost more to own in terms of your time and hassle. A smart consumer
would take that into consideration. When we first introduced the personal value equation in Week
1, “What Is Marketing?”, we discussed hassle as the time and effort spent making a purchase. A
TCO approach, though, would also include the time and effort related to owning the product—in
this case, the time and effort to hand-wash the sweater.
A service is also a product. A service is an action that provides a buyer with an intangible benefit.
A haircut is a service. When you purchase a haircut, it’s not something you can hold, give to
another person, or resell. “Pure” services are offerings that don’t have any tangible characteristics
associated with them. Skydiving is an example of a pure service. You are left with nothing after
the jump but the memory of it (unless you buy a DVD of the event). Yes, a plane is required, and it
is certainly tangible. But the plane isn’t the product—the jump is. At times, people use the term
“product” to mean an offering that’s either tangible or intangible. Banks, for example, often
advertise specific types of loans, or financial “products,” they offer consumers. Yet, these products
are financial services. The term “product” is frequently used to describe an offering of either type.
Many tangible products have intangible service components. When Apple introduces a product, it
comes with a service component. Apple provides staff for troubleshooting questions in its Genius
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Bars at its stores. Apple supports user groups, services Apple products and provides training, and
Apple owners can access online and telephone help. A buyer of an Apple product may never take
advantage of these services, but buyers do consider these benefits when considering the personal
value equation.
Some Apple products require a pure service component to be operational, such as the iPhone that
requires a cell phone carrier. The customer experience with the cell phone carrier is all part of the
iPhone ownership experience, and both Apple and the cell phone carriers are interconnected in
the consumer’s mind.
Figure 5.1
Sport Clips is a barbershop with a sports-bar atmosphere. The company’s slogan is “At Sport
Clips, guys win.” So, although you may walk out of Sport Clips with the same haircut you could
get elsewhere, the experience you had getting it was different, which adds value for some
buyers.
Source: Photo by M.O. Stevens (2012). Wikimedia Commons. Used under
the terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license.
What services do you get when you purchase a can of soup? You might think that a can of soup is
as close to a “pure” product devoid of services that you can get. But think for a moment about
your choices in terms of how to purchase the can of soup. You can buy it at a convenience store, a
grocery store, or online. Your choice of how to get it is a function of the product’s intangible
service benefits, such as the way you are able to shop for it.
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Figure 5.2
Even what seems like a “pure” product like a can of soup can have an intangible service
component associated with it, such as the way you are able to shop for it—say, at a convenience
store, a grocery store such as Publix, or perhaps online.
Source: (Left): Photo from Wikimedia Commons.(2005). Used under the terms of the
Creative Commons Attribution-ShareAlike 3.0 Unported license.
(Right) Photo by Alexf. (2008). Wikimedia Commons. Used under the
terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license.
The Product-Dominant Approach to Marketing
From the traditional product-dominant perspective of business, marketers consider products,
services, and prices as three separate and distinguishable characteristics. To some extent, they
are. Whirlpool could, for example, change some of the features of its washers and not change its
service policies or the equipment’s price.
The product-dominant marketing perspective has its roots in the Industrial Revolution when
businesspeople focused on the development of products that could be mass-produced cheaply.
New models every year with product improvements were common. In other words, firms
became product-oriented, meaning that they believed the best way to capture market share
was to create and manufacture better products at lower prices. Marketing remained oriented that
way until after World War II, when the service-dominant approach to marketing was born.
The Service-Dominant Approach to Marketing
Who determines which products are better? Customers do, of course, and the emphasis on the
consumer in marketing is the major theme of this course. Thus, taking a product-oriented
approach can result in marketing professionals focusing too much on the product itself and not
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enough on the customer or service-related factors that customers want. Most customers will
compare tangible products and the prices charged for them in conjunction with the services that
come with them. In other words, the complete offering is the basis of comparison. So, although a
buyer will compare the price of product A to the price of product B, in the end, the prices are
compared in conjunction with the other features and services of the products. The dominance of
any of these dimensions is a function of the buyer’s needs.
The advantage of the service-dominant approach is that it integrates the product, price, and
service dimensions of an offering. This helps marketers think more like customers, which can
help them add value to their firm’s products. In addition to the offering itself, marketers should
consider what services it takes for the customer to acquire their offerings (e.g., the need to learn
about the product from a sales clerk, the need to acquire software, etc.), to enjoy them, and to
dispose of them (e.g., someone to move the product out of the house), because each of these
activities create costs for their customers—either monetary costs or time and hassle costs.
Customers are now becoming more involved in the creation of benefits. Let’s go back to that
“pure” product, Campbell’s Cream of Chicken Soup. The consumer may prepare that can as a
bowl of soup, but it could also be used as an ingredient in making chicken casserole. As far as the
consumer goes, no benefit is experienced until the soup is eaten; thus, the consumer played a part
in the creation of the final “product” when the soup was an ingredient in the chicken casserole. Or
suppose your office’s cafeteria made chicken casserole for you to consume; in that case, you both
ate a product and consumed a service.
Some people argue that focusing too much on the customer can lead to too little product
development or poor product development. These people believe that customers often have
difficulty seeing how an innovative new technology can create benefits. Researchers and
entrepreneurs frequently make many discoveries, and then products are created as a result of
those discoveries. 3M’s Post-it Notes are an example. The adhesive that made it possible for Postit
Notes to stick and restick was created by a 3M scientist who was actually trying to make
something else. Post-it Notes came later. Both the microwave oven and ATM machines were
developed long before they were commercialized. The consumers could not understand nor trust
these products until their busy lifestyles created needs for more time-saving offerings.
Product Levels and Product Lines
A product’s technology platform is the core technology on which it is built. Take, for example,
the iPod, which is based on MP3 technology. In many cases, the development of a new offering is
to take a technology platform and rebundle its benefits in order to create a different version of an
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already-existing offering. For example, in addition to the iPod Classic, Apple offers the Shuffle
and the Nano. Both are based on the same core technology.
In some instances, a new offering is based on a technology platform originally designed to solve
different problems. For example, a number of products originally were designed to solve the
problems facing NASA’s space-traveling astronauts. Later, that technology was used to develop
new types of offerings. EQyss’s Micro Tek pet spray, which stops pets from scratching and biting
themselves, is an example. The spray contains a trademarked formula developed by NASA to
decontaminate astronauts after they return from space.
A technology platform isn’t limited to tangible products. Knowledge can be a type of technology
platform in a pure services environment. For example, the “bioesthetic” treatment model was
developed to help people who suffer from TMJ, a jaw disorder that makes chewing painful. A
dentist can be trained on the bioesthetic technology platform and then provide services based on
it. There are, however, other ways to treat TMJ that involve other platforms, or bases of
knowledge and procedures, such as surgery.
Few firms survive by selling only one product. Most firms sell several offerings designed to work
together to satisfy a broad range of customers’ needs and desires. A product line is a group of
related offerings. Product lines are created to make marketing strategies more efficient.
Campbell’s condensed soups, for example, are basic soups sold in cans with red labels. But
Campbell’s Chunky is a ready-to-eat soup sold in cans that are labeled differently. Most
consumers expect there to be differences between Campbell’s red-label chicken soup and Chunky
chicken soup, even though they are both made by the same company.
Figure 5.3 Campbell’s Soup Varieties
Source: (Left) Photo by Mike Mozart. (2014). Flickr. Used under
the terms of the Creative Commons Attribution 2.0 Generic license.
(Right) Photo by theimpulsivebuy. (2013). Flickr. Used under the terms
of the Creative Commons Attribution-ShareAlike 2.0 Generic license.
A product line can be broad, as in the case of Campbell’s condensed soup line, which consists of
several dozen different flavors. Or, a product line can be narrow, as in the case of Apple’s iPod
line, which consists of only a few different MP3 devices. The number of offerings there are in a
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single product line—that is, whether the product line is broad or narrow—is called line depth.
When new but similar products are added to the product line, it is called a line extension. If
Apple introduces a new MP3 player to the iPod family, that would be a line extension. Companies
can also offer many different product lines. Line breadth (or width) is a function of how many
different, or distinct, product lines a company has. For example, Campbell’s has a Chunky soup
line, condensed soup line, Kids’ soup line, lower sodium soup line, and a number of nonsoup lines
like Pace Picante sauces, Prego Italian sauces, and crackers. The entire assortment of products
that a firm offers is called the product mix.
As Figure 5.4, “Product Levels,” shows, there are four offering levels. Consider the iPod Shuffle.
There is (1) the basic offering (the device itself), (2) the offering’s technology platform (the MP3
format or storage system used by the Shuffle), (3) the product line to which the Shuffle belongs
(Apple’s iPod line of MP3 music players), and (4) the product category to which the offering
belongs (MP3 players as opposed to iPhones, for example).
Figure 5.4 Product Levels
So how does a technology platform become a new product or service or line of new products and
services? We will explore that question a little later under new product development.
5.1 KEY TAKEAWAY
A company’s market offering is composed of a combination of tangible and intangible characteristics for
certain prices. During the Industrial Revolution, firms focused primarily on products and not so much on
customers. The service-dominant perspective to marketing integrates three different dimensions of an
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offering—not only the product but also its price and the services associated with it. This perspective helps
marketers think more like their customers, which helps firms add value to their offerings. An offering is
based on a technology platform, which can be used to create a product line. A product line is a group of
similar offerings. A product line can be deep (many offerings of a similar type) and/or broad (offerings
that are very different from one another and cover a wide range of customers’ needs). The entire
assortment of products that a company offers is called the product mix.
5.2 Types of Consumer Offerings
LEARNING OBJECTIVES
1. Define the various types of offerings marketed to individual consumers.
2. Explain why a single offering might be marketed differently to different types of consumers.
Products and services can be categorized in a number of ways. We will use these categories
throughout the course because they are the most commonly referred to by marketers and because
there are marketing implications for each. Consumer offerings fall into four general categories:
1. Convenience offerings
2. Shopping offerings
3. Specialty offerings
4. Unsought offerings
In this section, we will discuss each of these categories. Keep in mind that the categories are not a
function of the characteristic of the offerings themselves. Rather, they are a function of how
consumers want to purchase them, which can vary from consumer to consumer. What one
consumer considers a shopping good might be a convenience good to another consumer.
Convenience Offerings
Convenience offerings are products and services for which consumers generally don’t want to
put much effort into shopping because they see little difference between competing brands. For
many consumers, bread is a convenience offering. A consumer might choose the store in which to
buy the bread but be willing to buy whatever brand of bread the store has available. Marketing
convenience items is often limited to simply trying to get the product in as many places as
possible where a purchase could occur.
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Figure 5.5
The Life Savers Candy Company was formed in 1913. Its primary sales strategy was to create
an impulse to buy Life Savers by encouraging retailers and restaurants to place them next to
their cash registers and include a nickel—the purchase price—in the customer’s change.
Source: Photo by Scott Ehardt. (2005). Wikimedia Commons. In the public domain.
Closely related to convenience offerings are impulse offerings, or items purchased without any
planning. In general, impulse offerings are purchased in conjunction with another type of
purchase such as a shopping offering. The classic example is Life Savers, originally manufactured
by the Life Savers Candy Company, beginning in 1913. The company encouraged retailers and
restaurants to display the candy next to their cash registers and to always give customers a nickel
back as change so as to encourage them to buy one more item—a roll of Life Savers, of course!
Figure 5.6 Impulse and/or Convenience Goods
Whether a product is considered an impulse good or a convenience good is in the mind of the
consumer. Candy displays near grocery store registers appeal to both. Notice some of the candy
also offers a price promotion, or a further incentive for making the purchase without much
thought.
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Source: Photo by Doc Brown (2007). Flickr. Used under the terms of the
Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic license.
Shopping Offerings
A shopping offering is one for which the consumer will make an effort to compare and select a
brand. Consumers believe there are differences between shopping offerings and want to find the
right one or the best price. Buyers might visit multiple retail locations or spend a considerable
amount of time visiting websites and reading reviews about the product, such as the reviews
found in Consumer Reports.
Consumers often care about brand names when they’re shopping. If a store is out of a particular
brand, then another brand might not do. For example, if you prefer Crest Whitening Expressions
toothpaste and a store is out if it, you might put off buying the toothpaste until your next trip to
the store. Or, you might go to a different store or buy a small tube of some other toothpaste until
you can get what you want. Note that even something as simple as toothpaste can become a
shopping good for someone very interested in dental health—perhaps after reading online
product reviews or consulting with the dentist. That’s why companies such as Procter & Gamble,
the maker of Crest, work hard to influence not only consumers but also people such as dentists
who influence the sale of their products.
Specialty Offerings
Specialty offerings are highly differentiated offerings, and the brands under which they are
marketed are very different across companies, too. For example, an Orange County Chopper or
Iron Horse motorcycle is likely to be far different feature-wise than a Kawasaki or Suzuki
motorcycle. Typically, specialty items are available only through limited channels. For example,
exotic perfumes available only in exclusive outlets are considered specialty offerings. Specialty
offerings are purchased less frequently than convenience offerings, and consumers will generally
do some preplanning in terms of finding the right retailers and traveling farther. Therefore, the
profit margin on specialty offerings tends to be greater.
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Figure 5.7
Specialty offerings, such as this custom-made motorcycle, are highly differentiated. People will
go to greater lengths to shop for these items and are willing to pay more for them.
Source: Photo by Nick Knouse. (2006). Wikimedia Commons. Used under
the terms of the Creative Commons Attribution 2.0 Generic license.
Marketing specialty goods requires building brand name recognition in the minds of consumers
and educating them about your product’s key differences. This is critical. For fashion goods, the
only point of difference may be the logo on the product (for example, an Izod vs. a Polo label).
Even so, marketers spend a great deal of money and effort to try to get consumers to perceive
these products differently than their competitors’ products.
Unsought Offerings
Unsought offerings are those that buyers do not generally want to have to shop for until they
need them. Towing services and funeral services are generally considered unsought offerings.
Marketing unsought items is difficult. Some organizations try to presell the offering, such as
preneed sales in the funeral industry or towing insurance in the auto industry or as part of an
automobile club membership. The club merges unsought offerings with other tangible goods and
services to create a strong bundle of value so that consumers associate the club when the need for
an unsought offering occurs.
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5.2 KEY TAKEAWAY
Convenience offerings, shopping offerings, specialty offerings, and unsought offerings are the major types
of consumer offerings. Convenience offerings often include life’s necessities (bread, milk, fuel), for which
there is little difference across brands. Shopping goods do vary, and many consumers develop strong
preferences for some brands. Specialty goods are even more exclusive. Unsought goods are a challenge
for marketers because customers do not want to have to shop for them until they need them.
5.3 Branding, Labeling, and Packaging
LEARNING OBJECTIVES
1. Understand the branding decisions firms make when they are developing new products.
2. Identify the various levels of packaging for new products.
What comes to mind when someone says Coke or Nike or Microsoft? According
to BusinessWeek magazine, the Coca-Cola brand is the strongest brand in the world. However, a
global study of consumers sponsored by Reuters found that Apple has the best brand. What is a
“brand,” and what do these studies mean when they report that one brand is the strongest or the
best?
Branding
What is a brand? A brand is a name, picture, design, or symbol, or combination of those items,
used by a seller to identify its offerings and to differentiate them from competitors’
offerings. Branding is the set of activities designed to create a brand and position it in the minds
of consumers.
Did you know that The Beatles started a recording studio called Apple? When Apple Computer
(the iPod company) was formed, Apple Corp., Ltd. (the Beatles’ recording studio), sued Apple
Computer because two companies with the same name can create confusion among consumers.
This wasn’t much of a problem when Apple was only selling computers, but following the release
of the iPod and launch of Apple’s iTunes program, a case could be made that the companies’
offerings are similar enough for consumers to confuse the two companies and their products. In
fact, the matter took about 30 years to settle, long after the initial lawsuit was filed. Nonetheless,
the situation signifies how important brand names are to the companies that own them.
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Figure 5.8
According to Forbes Magazine, Apple is the world’s most valuable brand. A valuable brand
allows the company to charge a premium price and expand its offerings with the advantage of a
positive brand image in the minds of consumers. Following Apple, the top 15 valuable brands
include Microsoft, Google, Coca-Cola, IBM, McDonald’s, General Electric, Samsung, Toyota,
Louis Vuitton, BMW, Cisco, Intel, Disney, and Oracle (Badenhausen, 2014).
Source: Photo by CbMeeks. (2008). Wikimedia Commons. In the public domain.
A successful branding strategy is one that accomplishes what Coke and Apple have done—it
creates consumer recognition of what the brand (signified by its name, picture, design, symbol)
means. Consider Kleenex, a brand name of facial tissue, which is now a commonly used term to
refer to any facial tissue. That is a strong brand. Consequently, when marketing professionals are
considering whether a potential new offering fits a company’s image, they are concerned about
whether the offering supports the organization’s brand and position in the mind of the consumer.
When Coke ventured into diet drinks, it launched Tab, a cola product containing an artificial
sweetener. When consumers eventually accepted artificially sweetened sodas, Coke launched Diet
Coke to take advantage of the consumer confidence and acceptance of its Coke name.
A brand name, such as Apple, is the spoken part of a brand’s identity. A brand mark is the
symbol, such as Coke’s wave or Apple Computer’s multicolor apple (not to be confused with Apple
Records’ green apple), associated with a brand. Brand names and brand marks are important to
companies because consumers use them to make choices. That’s why it was important to sort out
the Apple brand. Each company wanted to make sure that consumers were getting what they
wanted and would know what each brand meant.
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An important decision companies must make is under which brand a new offering will be
marketed. For example, Black & Decker makes power tools for consumers under its Black &
Decker brand, while tools for more serious do-it-yourselfers and professionals are under its
Dewalt brand. If Black & Decker decided to add to its Dewalt line new products such as coolers,
portable radios, CD players, and other accessories construction professionals might find useful at
a job site, the company would be creating a brand extension. A brand extension involves
utilizing an existing brand name or brand mark for a new product category.
Why would Black & Decker add these accessories to the Dewalt line? If the company did, it would
be because Dewalt already has a good reputation for high-quality, long-lasting durability, and
performance among construction professionals. These same professionals would trust the Dewalt
brand to deliver. Let’s consider whether it is better for a company to market a new product via a
brand extension or create an entirely new brand.
One thing firms have to consider when they’re branding a new offering is the degree of
cannibalization that can occur across products. Cannibalization occurs when a firm’s new
offering eats into the sales of one of its older offerings. (Ideally, when you sell a new product, you
hope that all of its sales come from your competitors’ buyers or buyers that are new to the
market.) A completely new offering will not result in cannibalization, whereas a line extension
likely will. A brand extension will also result in some cannibalization if you sell similar products
under another brand. For example, if Black & Decker already had an existing line of coolers,
portable radios, and CD players when the Dewalt line of them were launched, the new Dewalt
offerings might cannibalize some of the Black & Decker offerings.
Some marketers argue that cannibalization can be a good thing because it is a sign that a company
is developing new and better offerings. These people believe that if you don’t cannibalize your
own line, then your competitors will. The goal would be to increase the company’s revenues
overall even though revenues of one product line might be reduced due to cannibalization.
Packaging Decisions
Another set of questions to consider involves the packaging on which a brand’s marks and name
will be prominently displayed. Sometimes the package itself is part of the brand. For example, the
curvaceous shape of Coca-Cola’s Coke bottle is a registered trademark. If you decide to market
your beverage in a similar-shaped bottle, Coca-Cola’s attorneys will have grounds to sue you.
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Figure 5.9
Sometimes the package itself is part of a licensed brand.
Coke’s curvaceous bottle is an example.
Source: Photo by Cokewww. (2005). Wikimedia Commons. In the public domain.
Packaging has to fulfill a number of important functions, including
• communicating the brand and its benefits
• protecting the product from damage and contamination during shipment, as well as
damage and tampering once it’s in retail outlets
• preventing leakage of the contents
• presenting government-required warning and information labels.
Sometimes packaging can fulfill other functions, such as serving as part of an in-store display
designed to promote the offering.
Primary packaging holds a single retail unit of a product. For example, a bottle of Coke, a bag
of M&Ms, or a ream of printer paper (500 sheets) are all examples of primary packages. Primary
packaging can be used to protect and promote products and get the attention of consumers.
Primary packaging can also be used to demonstrate the proper use of an offering, provide
instructions on how to assemble the product, or any other information. If warning or nutrition
labels are required, they must be on the primary packaging. Primary packaging can be bundled
together as well. Consumers can buy bottles of Coke sold in six-packs or cans of Coke in 12-packs.
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Secondary packaging holds a single wholesale unit of a product. A case of M&M bags is an
example, as are cartons of reams of paper. Secondary packaging is designed more for retailers
than consumers. It does not have to carry warning or nutrition labels but is still likely to have
brand marks and labels. Secondary packaging further protects the individual products during
shipping.
Tertiary packaging is packaging designed specifically for shipping and efficiently handling
large quantities. When a Coca-Cola bottler ships cases of Cokes to a grocery store, they are
stacked on pallets (wooden platforms) and then wrapped in plastic. Pallets can be easily moved by
a forklift truck and can even be moved within the grocery store by a small forklift.
A product’s packaging can benefit the customer beyond just protecting the offering while it’s
being shipped. No-spill caps, for example, can make it easier for you to use your laundry
detergent or prevent spills when you’re adding oil to your car’s engine. And, as we have noted,
secondary packaging (and also tertiary packaging) can serve as part of an in-store display, thereby
adding value for your retailers.
5.3 KEY TAKEAWAY
A brand is a name, picture, design, or symbol, or combination of those items, used by a seller to identify
its offerings and differentiate them from competitors’ offerings. Branding is the set of activities designed
to create a brand and position it relative to competing brands in the minds of consumers. An important
decision companies must make is under which brand a new offering will be marketed. A brand extension
involves using an existing brand name or brand mark for a new product or category (line) of products.
Cannibalization occurs when a company’s new offering eats into the sales of one of its older offerings. It is
something to be avoided in most cases, but it can also be a sign of progress because it means a company
is developing new and better products. Packaging protects products from damage, contamination,
leakage, and tampering, but it is also used to communicate the brand and its benefits, product warnings,
and proper use.
5.4 Managing the Offering
LEARNING OBJECTIVES
1. Understand the people involved in creating and managing offerings.
2. Recognize the differences in organizing product marketing for consumer vs. business-to-business
(B2B) companies.
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Managing all of a company’s offerings presents a number of challenges. Depending on the size of
the company and the breadth of the company’s offerings, several positions may be needed.
A brand manager is one such position. A brand manager is the person responsible for all
business decisions regarding offerings within one brand. By business decisions, we mean making
decisions that affect profit and loss, which include such decisions as which offerings to include in
the brand, how to position the brand in the market, and pricing options. Indeed, a brand manager
is often charged with running the brand as if it were its own separate business.
A brand manager is much more likely to be found in consumer marketing companies. Typically,
business-to-business (B2B) companies do not have multiple brands, so the position is not
common in the B2B environment. What you often find in a B2B company is
a product manager, someone with business responsibility for a particular product or product
line. Like the brand manager, the product manager must make many business decisions, such as
which offerings to include, and advertising selection. Companies with brand managers include
Microsoft, Procter & Gamble, SC Johnson, Kraft, Target, General Mills, and ConAgra Foods.
Product managers are found at Xerox, IBM, Konica-Minolta Business Solutions, Rockwell
International, and many others.
The University of Georgia was the first to launch a graduate program in brand management, and
the University of Wisconsin features a major program managed through the university’s Center
for Brand and Product Management. Most brand managers simply have an undergraduate degree
in marketing, but it helps to have a strong background in either finance or accounting because of
the profitability and volume decisions brand managers have to make.
In some companies, a category manager has responsibility for business decisions within a
broad grouping of offerings. For example, a category manager at SC Johnson may have all home
cleaning products, which would mean that brands such as Pledge, Vanish, Drano, Fantastik,
Windex, Scrubbing Bubbles, and Shout would be that person’s responsibility. Each of those
brands may be managed by a brand manager, who then reports directly to the category manager.
At the retail level, a category manager at each store is responsible for more than just one
manufacturer’s products. The home cleaning category manager would have responsibility for
offerings from SC Johnson, as well as Procter & Gamble, Colgate-Palmolive, and many other
producers.
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Another option is to create a market manager, who is responsible for business decisions within
a market. In this case, a market can be defined as a geographic market or region; a market
segment, such as a type of business; or a channel of distribution. For example, SC Johnson could
have regional insect control managers. Regional market managers would make sense for insect
control because weather has an influence on which bugs are pests at any given time. For example,
a southern regional manager would want more inventory of the repellent Off! in March because it
is already warm and the mosquitoes are breeding and biting in the southern United States.
Market managers sometimes report to brand managers or are a part of their firms’ sales
organizations and report to sales executives. Market managers are less likely to have as much
flexibility in terms of pricing and product decisions and have no control over the communication
content of marketing campaigns or marketing strategies. These managers are more likely to be
tasked with implementing a product or brand manager’s strategy and be responsible for their
markets. Some companies have market managers but no brand managers. Instead, marketing
vice presidents or other executives are responsible for the brands.
5.4 KEY TAKEAWAY
Brand managers decide what products are to be marketed and how. Other important positions include
category managers, market managers, and vertical market managers. Category managers are found in
consumer markets, usually in retail. Some companies have market managers but no brand managers.
Instead, a vice president of marketing or other executive is responsible for the brands.
5.5 New Products
LEARNING OBJECTIVES
1. Identify an effective process for creating offerings and bringing them to market.
2. Understand the relative importance of each step in the new offering development process and the
functions within each step.
3. Distinguish between the various forms of testing and analysis that take place before a new offering is
brought to the market.
Having something that customers want to buy is important to any company. Most companies are
started by people who get an idea about how to make something better. Hewlett-Packard, for
example, began in 1939 in a garage (now a California historic landmark) when two young
engineers, Bill Hewlett and Dave Packard, thought they had a better idea for designing and
making a precision audio oscillator, which is an electronic device that tests sound. Their product
was so much more precise than competitors’ products that it was manufactured and sold around
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the world for over 30 years. In fact, it is probably one of the longest-selling electronic devices
ever. It also sold for just $54, whereas competing products sold for over $200. Hewlett-Packard,
now more commonly known as HP, has not been located in a little garage for many years. Yet the
company’s ability to grow by successfully designing and marketing new offerings continues.
Figure 5.10
Hewlett-Packard was founded in this California garage, which is now a landmark.
Source: Photo by selbst. (2002). Wikimedia Commons. Used under the terms
of the Creative Commons Attribution-ShareAlike 3.0 Unported license.
Developing new offerings is a constant process in most companies. In some instances, a company
starts with a price and then develops products and services to fit that price. IKEA is an example of
such a company. IKEA looks at the prices consumers want to pay for home furnishings and then
works backward to design products that match those prices (using a demand backward pricing
strategy is discussed in Week 6).
In other situations, the goal is simply to develop a better product that adds value to existing
products, and the price comes later. Hewlett-Packard’s audio oscillator is an example.
Keep in mind that a “new” product can be a “new and improved” product, such as laundry
detergent; an addition to a product or service line, such as Marriott adding the Courtyard by
Marriott and the Fairfield Inn, or Capri Sun adding new flavors; a repositioned product or
company, such as Hyundai Motor Company trying to change the perceptions of Hyundai
automobiles from being inexpensive to being “an overachieving, underappreciated brand that
smart people are discovering” (BusinessWeek, 2007); or a totally new innovation, such as the
mobile phone. What is new for one company may not be new to another. For example, one hotel
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may already have budget properties, but when a luxury hotel adds a budget property, that
property is considered a new offering.
Most new offerings go through similar stages in their development process. Although the size of a
company will affect how the different stages of the new product development process are conducted
and whether products are test-marketed before being introduced, the steps are generally the
same. Figure 5.11, “The New Offering Development Process,” summarizes these steps.
Figure 5.11 The New Offering Development Process
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Step 1: Idea Generation
Many companies, HP and Apple included, were launched in someone’s garage after the founders
got an idea for a product and then tried to make and sell it. HP’s first product was an audio
oscillator that two Stanford University students developed. While there was some debate, Apple’s
Macintosh microcomputer appeared to be a low-cost knockoff of the Xerox Star, a softwareequipped
workstation. Apple’s cofounder, Steve Jobs, saw the product demonstrated at a Xerox
research center (Fisher, 1989).
Employees often come up with new product ideas, too. At Motorola, engineers worked on a
mobile phone that can be recharged by rubbing it on a smooth surface. A Motorola engineer came
up with the idea while rollerblading. He wondered if a small generator could be created to capture
and store the energy generated by rollerblade wheels. This idea, in turn, led to the development of
a small roller ball (like you would find on an old-style computer mouse) built into the mobile
phone. To power up the phone, you just give it a roll.
Ideas can come from anywhere, including your customers. In fact, in B2B markets, customers are
probably the biggest source of new product ideas. Customers know what customers need and
want, which provides organizations an indication of market needs. Customers who are good at
generating new product ideas or applications of products are called lead users. These people are
often courted by manufacturers. Lead users exist in consumer markets, too. JCPenney, for
example, uses a panel of women who help develop the company’s Ambrielle line of lingerie.
Customers are particularly important cocreators of offerings when they are consuming products
with service components. For example, if you provide your hairdresser with feedback while your
hair is being cut, your input will alter the final style you receive. Similarly, a businessperson who
provides her certified public accountant (CPA) with information and feedback about her firm will
help the CPA develop better financial and tax plans for her business.
Suppliers provide another source of ideas for new products. A supplier might develop a new product
or technology that can be used to make yet another product, and then go to the makers of those
products and suggest new versions. For example, McClancy Seasoning Co. makes spices that
restaurants and food processing companies use in their food products. McClancy’s research and
development department works with companies such as Campbell’s to help develop new and
better offerings.
Of course, companies also watch their competitors to see what they’re doing. Some offerings are
protected by patents or copyrights and can’t be legally duplicated. The software that runs Apple’s
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iPhone is an example. There are, however, different ways to achieve the same results as Apple has
with its iPhone. The Omnia, manufactured by Samsung, and the G1, a T-Mobile product, are
devices similar to the iPhone that operate with software serving the same purpose.
Figure 5.12, “New Offering Ideas,” shows some product ideas that came from each of the sources
we have discussed—employees, customers, suppliers, and one’s competitors. Innovations such as
the iPhone are rare. However, many new ideas (and consequently new products) aren’t actually
new but rather are versions of products and services already available. A line extension occurs
when a company comes out with another model (related product) based on the same platform
and brand as one of its other products. When Apple added the Nano and the Shuffle to its iPod
line, these were line extensions.
Figure 5.12 New Offering Ideas
Keep in mind that idea generation is typically the least expensive step in the process of developing
a new offering, whether you involve customers or not. As you move through the product
development process, each step is usually more expensive than the last. Ideas for new products
are relatively cheap and easy to generate; what is difficult and expensive is making them a reality.
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Step 2: Idea Screening
Figure 5.13
Better idea screening might have helped Coca-Cola avoid
the problems it encountered marketing its “New Coke” formula.
Source: Photo by My 100cans. (n.d.). Wikimedia Commons. In the public domain.
Not all new product ideas are good ones. Famous product blunders include Ford Motor
Company’s Edsel, Clear Pepsi, and Coca-Cola’s New Coke. Less famous is Dell’s cell phone for
aging baby boomers. The phone’s large size, large buttons, and large screen screamed “I’m old
and blind!” That led potential users to shun it in droves. Yes, even the big companies make
mistakes.
The purpose of idea screening is to try to avoid mistakes early in the development process. The
sooner bad ideas are discarded, the less the investment made and lost. In the idea screening stage,
the company tries to evaluate the new offering by answering these questions:
• Does the proposed product add value for the customer? Does it satisfy a market need?
• Can the product be made within a stated time period to get it to market when needed?
• How many units of it will sell and at what price?
• Can we manufacture and sell the product within budget and still make money?
• Do we need to provide the customer with after-sales service? If so, do we have the
resources to do that?
• Does the product fit our image and corporate strategy?
Some organizations conduct concept testing at this stage. Concept testing involves running the
idea of the offering by potential consumers. The purpose is to get early consumer feedback before
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investing too much money in an offering that won’t work. Some of the methods used to test
concepts include focus groups, in which groups of eight to 12 consumers gather and react to the
concept, and depth interviews, in which individuals are presented with the concept and can
react to it individually.
Focus groups and depth interviews are research techniques that can also be used later in the
offering development process to test ideas, or for other purposes. Focus groups working virtually
on the web and by phone helped to develop this textbook. Concepts may also be tested online by
creating an image and having people representative of the target market provide feedback.
Whether using focus groups, depth interviewing, or online methods, concepts must be evaluated
by people representative of the target market, or the feedback is not relevant.
Because screening considers the feasibility of actually making and servicing an offering, price and
cost are important components. If the company cannot sell the product in sufficient quantities to
generate a profit, the idea must be scrapped. Understanding the customer’s personal value
equation is an important consideration, too. If the value consumers receive from the product is
less than the price the company charges for it, they will not buy it. In other words, the offering
must be financially feasible to justify investing in it.
The offering must also have process feasibility. Process feasibility is the degree to which the
company can actually make and service the product. Process feasibility
affects financial feasibility. If the product’s costs cannot be controlled when it’s being made or
serviced, the firm’s financial goals won’t be met.
Process feasibility also affects customer satisfaction. For example, many manufacturers make
great-looking faucets, yet one of the authors of this book had to have the “guts” of one faucet
replaced three times before it would work, only to find two other friends had the same experience
with the same model. A great-looking design is really only great if it works right.
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Figure 5.14
A good product doesn’t just look right. It also works
right, which is the idea behind process feasibility.
Source: Photo by Nicole-Koehler. (n.d.). Wikimedia Commons. Used under
the terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license.
The question of strategic fit is a difficult one. The history of business is rife with examples of
companies failing to develop winning new products only to see their competitors do so. For
example, when the inventor Chester Carlson approached IBM executives with the idea of
photocopying—the technology platform that later became the heart of Xerox Corporation—they
turned Carlson down. IBM did not see the product fitting with its strategy and stopped before
fully considering the potential. Nor did IBM see the moneymaking opportunity the product
presented.
At this point in the process, the company begins to assess two types of risk. The first is
investment risk, or the possibility that the company will fail to earn the appropriate return on
the money and effort (the investment) it puts into the new product. The second
is opportunity risk, or the risk that there is a better idea that gets ignored because the firm has
invested in the idea at hand. When a company is assessing fit, it is assessing its opportunity risk.
When it is assessing feasibility (both financial and process), it is assessing its investment risk.
Other risk-related questions include whether or not the offering can be developed on time and
within budget. Assessing a product’s feasibility continues throughout the entire new product
development process.
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Step 3: Feature Specification
The next step involves narrowing the product’s features. Again, price enters the picture as the
company considers which features are important to consumers at different price points. A
premium (high-priced) offering is likely to be loaded with extra features. By contrast, a low-priced
offering is likely to be a “bare-bones” product with few features.
Quality function deployment (QFD) is a process whereby a company begins with the
customer’s desired benefits and then designs an offering that delivers those benefits. The benefits
are linked to certain characteristics of the offering, which are then broken down into componentpart
characteristics. From this list of component parts, the product is designed. Thus, the feature
specifications process begins with a strong understanding of what consumers want and need.
HP has developed a number of computer printers using the QFD process. The QFD process has
been particularly helpful when it comes to bundling the right features within HP’s printer line
because each printer model can be targeted to specific customer needs. Customers can then
purchase the model that suits their needs and don’t have to buy features that don’t add value for
them.
Step 4: Development
In the development stage, the actual offering is designed, specifications are written, and
prototypes are developed. It is also during this stage that the firm considers the product’s
manufacturing process. For example, when a restaurant is developing a new dish, it must not only
taste good; it must also be a dish that can be made in a reasonable amount of time once it’s
ordered and prepared at a cost that earns the restaurant a profit. In terms of a manufacturer’s
offerings, using the same technology platform as another product (such as Apple has done with
iPods) can be effective and cheaper. Using the same platform also generally makes it easier for a
company to train its technicians to service a new product.
Step 5: Testing
During the testing stage, the offering is tested, first in the lab and then with real customers. Lab
testing is also called alpha testing. Alpha testing ensures that the offering works as it’s supposed
to in a variety of different environments—that it meets its specifications, that is. For example,
Kraft might launch a new food product that has to work in hot climates, cold climates, high
humidity, dry climates, and high altitudes—conditions that can change how well the product
works.
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The next step is beta testing. During beta testing, actual customers make sure the offering works
under real-world conditions. Beta testing not only tests whether the offering works as advertised
but also tests the offering’s delivery mechanisms, service processes, and other aspects of
marketing the product. This step can be an expensive. Depending on the product, some
companies might find it better to simply launch the product and let the market respond to, or test,
the product once it is available for purchase.
Simultaneous to testing the offering’s ability to meet its specs, the company is also developing and
testing the marketing communication plan that will be used to launch the product. Many
companies involve consumer panels or user communities, both for testing the offering and the
communication plan. As we mentioned in Week 2, JCPenney solicits the advice of a user
community for its Ambrielle line of lingerie. The company frequently runs concepts by the group
as well as sends actual prototypes to users to try on and report back to the company. Similarly, the
data warehousing company Teradata has a “partners” organization that consists of a community
of users who participate in the firm’s product design and testing.
Step 6: Launch or Commercialization
Once an offering has been designed and tested, it is made available to customers. Sometimes a
company launches the offering to all of its markets at once. Other companies may use
a rolling launch in which the offering is made available to certain markets first and then other
markets later. A rolling launch might make sense if the company’s service technicians need
training. The company makes the offering available to one market after the first batch of its
employees are prepared to service the product; then as new batches of employees are prepared to
service the product, the company enters more markets.
Some companies test the complete launch of a product’s marketing plan to ensure that it reaches
buyers, gets positive feedback, and generates sales of the product or service. This is called
a market test. Companies may conduct market tests in limited markets or nationwide. For
example, when one beverage maker tested the marketing plan for a new wine cooler, the firm first
launched the product on the East Coast, where the beverage was promoted as a “Polynesian”
drink; on the West Coast, the beverage was promoted as an “Australian” drink. The Polynesian
version proved more popular, so in other new markets, that’s how the beverage was advertised
and packaged.
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Step 7: Evaluation
Once an offering is launched, a firm’s executives carefully monitor its progress. You have probably
heard about the “box office” sales for new movies the first weekend following their release. The
first weekend is a good predictor of how much money a movie will make overall. If the ticket sales
for it are high during the first weekend, a studio’s executives might decide to beef up the
promotions. If the ticket sales are low, the studio might stop screening the movie in theaters and
release it on DVD instead. For other types of offerings, important milestones might be the first 90
days after the product is launched, followed by a second period of 90 days. However, be aware
that firms are constantly evaluating their offerings and modifying them by either adding or
subtracting the features and services associated with them, changing their prices, or how they are
marketed. The length of time for milestones used to evaluate products may vary depending on the
organization and other products or services being developed.
5.5 KEY TAKEAWAY
Most companies put new offering ideas through a seven-step process, beginning with the idea generation
stage. Ideas for new offerings can come from anywhere, including one’s customers, employees, suppliers,
and competitors. The next step in the process is the idea screening stage, followed by the feature
specifications, development, testing, and launching stages. After an offering is launched, it is evaluated. A
company must balance an offering’s investment risk (the risk associated with losing the time and money
put into developing the offering) against the offering’s opportunity risk (the risk associated with missing
the opportunity to market the product and profit from it).
5.6 Managing New Products: The Product Life Cycle
LEARNING OBJECTIVES
1. Explain how organizations manage offerings after being introduced to the marketplace.
2. Explain how managing an offering may be different in international markets.
3. Explain the product life cycle and the objectives and strategies for each stage.
Over 20,000 new offerings, including convenience foods, health and beauty aids, electronics,
automobiles, pharmaceutical products, hotels, and restaurants enter the marketplace each year.
For example, in 2006 almost 1,400 food products making a “whole grain claim” were introduced
(Roskelly, 2007). Other new product introductions include many technological products such as
Nintendo’s Wii, iPods, and digital video recorders (DVRs); many personal care products such as
fragrances of shampoo and conditioner and flavors of toothpaste; and convenience foods such as
frozen meals, “100 calorie pack” snacks, and cereal bars (Hunter, 2008).
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Once a product is created and introduced in the marketplace, the offering must be managed
effectively for the customer to receive value from it. Only if this is done will the product’s
producer achieve its profit objectives and be able to sustain the offering in the marketplace. The
process involves making many complex decisions, especially if the product is being introduced in
global markets. Before introducing products in global markets, an organization must evaluate and
understand factors in the external environment, including laws and regulations, the economy and
stage of economic development, the competitors and substitutes, cultural values, and market
needs.
Companies also need expertise to successfully launch products in foreign markets. Given many
possible constraints in international markets, companies might initially introduce a product in
limited areas abroad. Other organizations, such as Coca-Cola, decide to compete in markets
worldwide (Interbrand, 2009).
The product life cycle (PLC) includes the stages the product goes through after development,
from introduction to the end of the product. Just as children go through different phases in life
(toddler, elementary school, adolescent, young adult), products and services also age and go
through different stages. The PLC helps marketers manage the stages of a product’s acceptance
and success in the marketplace, beginning with the product’s introduction, its growth in market
share, maturity, and possible decline in market share.
Other tools such as the Boston Consulting Group matrix and the General Electric approach
(see Week 2, “Strategic Planning” for discussion) may also be used to manage and make decisions
about what to do with products. For example, when a market is no longer growing but the product
is doing well (cash cow in the BCG approach), the company may decide to use the money from the
cash cow to invest in other products rather than continuing to invest in a no-growth market.
The product life cycle can vary for different products and different product categories. Figure 5.15,
“Life Cycle,” illustrates an example of the product life cycle, showing how a product can move
through four stages. However, not all products go through all stages, and the length of a stage
varies. For example, some products never experience market share growth and are withdrawn.
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Figure 5.15 Life Cycle
Other products stay in one stage longer than others. For example, in 1992, PepsiCo introduced a
product called Clear Pepsi, which went from introduction to decline very rapidly. By contrast, Diet
Coke entered the growth market soon after its introduction in the early 1980s and then entered
(and remains in) the mature stage of the product life cycle. New computer products and software
and video games often have limited life cycles, whereas product categories such as diamonds and
durable goods (kitchen appliances) generally have longer life cycles. How a product is promoted,
priced, distributed, or modified can also vary throughout its life cycle.
Figure 5.16
Diet Coke changed its can (right) to keep from getting outdated.
Source: Photo by My 100cans. (2009). Wikimedia Commons. In the public domain.
31
Let’s now look at the various product life cycle stages and what characterizes each.
Stage 1: Introduction
The first stage in a product’s life cycle is the introduction stage. The introduction stage is the
same as commercialization, or the last stage of the new product development process. Marketing
costs are typically higher in this stage than in other stages. As an analogy, think about the amount
of fuel a plane needs for takeoff relative to the amount it needs while in the air. Just as an airplane
needs more fuel for takeoff, a new product or service needs more funds for introduction into the
marketplace. Communication (promotion) is needed to generate awareness of the product and
persuade consumers to try it, and placement alternatives and supply chains are needed to deliver
the product to the customers. Profits are often low in the introductory stage due to the research
and development costs and the marketing costs to launch the product.
The length of the introductory stage varies for different products. However, by law in the United
States, a company is only allowed to use the label “new” on a product’s package for six months. An
organization’s objectives during the introductory stage often involve educating potential
customers about its value and benefits, creating awareness, and getting potential customers to try
the product or service. Getting products and services, particularly multinational brands, accepted
in foreign markets can take even longer. Consequently, companies introducing products and
services abroad generally must have the financial resources to make a long-term (longer than one
year) commitment to their success.
The specific promotional strategies a company uses to launch a product vary depending on the
type of product and the number of competitors it faces. Firms that manufacture products such as
cereals, snacks, toothpastes, soap, and shampoos often use mass marketing techniques such as
television commercials and Internet campaigns, and promotional programs such as coupons and
sampling to reach consumers. Many firms promote to customers, retailers, and wholesalers.
Sometimes other, more targeted advertising strategies are employed, such as billboards and
transit signs (signs on buses, taxis, subways). For more technical or expensive products such as
computers or plasma televisions, many firms use personal selling, informational promotions, and
in-store demonstrations so consumers can see how the products work.
During introduction, an organization must have enough distribution outlets (places where the
product is sold or the service is available) to get the product or service to the customers. The
product quantities must also be available to meet demand. For example, IBM’s ThinkPad was a
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big hit when it was first introduced, but the demand for it was so great that IBM wasn’t able to
produce enough of the product. Cooperation from a company’s supply chain members—its
manufacturers, wholesalers—helps ensure that supply meets demand and that value is added
throughout the process.
When you were growing up, you may remember eating Rice Krispies Treats cereal. The product
was so popular that Kellogg’s could not keep up with initial demand and placed ads to consumers
apologizing for the problem. When demand is higher than supply, the door opens for competitors
to enter the market, which is what happened when the microwave was introduced. Most people
own a microwave, and prices have dropped significantly since Amana introduced the first
microwave at a price of almost $500. As consumers in the United States initially saw and heard
about the product, sales increased, many competitors entered the market, and prices dropped.
Product pricing strategies in the introductory stage can vary depending on the type of product,
competing products, the extra value the product provides consumers vs. existing offerings, and
the costs of developing and producing the product. Organizations want consumers to perceive
that a new offering is better or more desirable than existing products. Two strategies that are
widely used in the introductory stage are penetration pricing and skimming. A
penetration pricing strategy involves using a low initial price to encourage many customers
to try a product. The organization hopes to sell a high volume in order to generate substantial
revenues. New varieties of cereals, fragrances of shampoo, scents of detergents, and snack foods
are often introduced at low initial prices. The low initial price of the product is often combined
with advertising, coupons, samples, or other special incentives to increase awareness.
A company uses a skimming pricing strategy, which involves setting a high initial price for a
product, to more quickly recoup the investment related to its development and marketing. The
skimming strategy attracts the top, or high end, of the market. Generally this market consists of
customers who are not as price-sensitive or who are early adopters of products. Firms that
produce electronic products such as DVRs, plasma televisions, and digital cameras set their prices
high in the introductory stage. However, the high price must be consistent with the nature of the
product as well as the other marketing strategies being used. For example, engaging in more
personal selling to customers, running ads targeting specific groups of customers, and placing the
product in a limited number of outlets are likely to be strategies used with a skimming approach.
Stage 2: Growth
If a product is accepted by the marketplace, it enters the growth stage of the product life cycle.
The growth stage is characterized by increasing sales, more competitors, and higher profits.
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Unfortunately for the firm, the growth stage attracts competitors who enter the market quickly.
For example, when Diet Coke experienced great success, Pepsi soon entered with Diet Pepsi.
You’ll notice that both Coca-Cola and Pepsi have similar competitive offerings in the beverage
industry, including their own brands of bottled water, juice, and sports drinks. As additional
customers begin to buy the product, manufacturers must ensure that the product remains
available to customers or run the risk of them buying competitors’ offerings. For example, the
producers of video game systems such as Nintendo’s Wii could not keep up with consumer
demand when the product was first launched. Consequently, some consumers purchased
competing game systems such as Microsoft’s Xbox.
Figure 5.17
Demand for the Nintendo Wii increased sharply after the product’s introduction.
Source: Greyson Orlando, modified by Jecowa. (2006). Wikimedia Commons.
Used under the terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license.
A company sometimes increases its promotional spending on a product during its growth stage.
However, instead of encouraging consumers to try the product, the promotions often focus on the
specific benefits the product offers and its value relative to competitive offerings. In other words,
although the company must still inform and educate customers, it must counter the competition.
Emphasizing the advantages of the product’s brand name can help a company maintain its sales
in the face of competition. Although different organizations produce personal computers, a highly
recognized brand such as IBM strengthens a firm’s advantage when competitors enter the market.
New offerings that use the same successful brand name as a company’s existing offerings, which is
what Black & Decker does with some of its products, can give a company a competitive advantage.
Companies typically begin to make a profit during the growth stage because more units are being
sold and more revenue is generated.
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The number of distribution outlets (stores and dealers) used to sell the product can also increase
during the growth stage as a company tries to reach as much of the marketplace as possible.
Expanding a product’s distribution and increasing its production to ensure its availability at
different outlets usually results in a product’s costs remaining high during the growth stage. The
price of the product itself typically remains at about the same level, although some companies
reduce their prices slightly to attract additional buyers and meet the competitors’ prices.
Companies hope by increasing their sales, they also improve their profits.
Stage 3: Maturity
After many competitors enter the market and the number of potential new customers declines,
the sales of a product typically begin to level off. This indicates that a product has entered
the maturity stage of its life cycle. Most consumer products are in the mature stage of their life
cycle; their buyers are repeat purchasers vs. new customers. Intense competition causes profits to
fall until only the strongest players remain. The maturity stage lasts longer than other stages.
Quaker Oats and Ivory Soap are products in the maturity stage—they have been on the market for
over 100 years.
Given the competitive environment in the maturity stage, many products are promoted heavily to
consumers by stronger competitors. The strategies used to promote the products often focus on
value and benefits that give the offering a competitive advantage. The promotions aimed at a
company’s distributors may also increase during the mature stage. Companies may decrease the
price of mature products to counter the competition. However, they must be careful not to get
into “price wars” with their competitors and destroy all the profit potential of their markets,
threatening a firm’s survival. Intel and Advanced Micro Devices (AMD) have engaged in several
price wars with regard to their microprocessors. Likewise, Samsung added features and lowered
the price on its Instinct mobile phone, engaging in a price war with Apple’s iPhone. With the
weakened economy, many online retailers engaged in price wars during the 2008 holiday season
by cutting prices on their products and shipping costs. Although large organizations such as
Amazon.com can absorb shipping costs, price wars often hurt smaller retailers. Many retailers
learned from their mistakes and ordered less inventory for the 2009 holiday season.
Companies are challenged to develop strategies to extend the maturity stage of their products so
they remain competitive. Many firms do so by modifying their target markets, their offerings, or
their marketing strategies.
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Modifying the target market helps a company attract different customers by seeking new users,
going after different market segments, or finding new uses for a product in order to attract
additional customers. Financial institutions and automobile dealers realized that women have
increased buying power and now market to them. With the growth in the number of online
shoppers, more organizations sell their products and services through the Internet. Entering new
markets provides companies an opportunity to extend the product life cycles of their offerings.
Figure 5.18 McDonald’s in China
While McDonald’s is in the mature stage of its life cycle
in the United States, it is in the growth stage in China.
Source: Wikimedia Commons. (2005). Used under the terms
of the Creative Commons Attribution 2.5 Generic license.
Many companies enter different geographic markets or international markets as a strategy to get
new users. A product that might be in the mature stage in one country might be in the
introductory stage in another. For example, when the US market became saturated, McDonald’s
began opening restaurants in foreign markets. Cell phones were popular in Asia before they were
introduced in the United States. Many cell phones in Asia were being used to scan coupons and to
charge purchases before that type of technology in the United States.
Modifying the product, such as changing its packaging, size, flavors, colors, or quality can also
extend the product’s maturity stage. The 100 Calorie Packs created by Nabisco provide an
example of how a company changed the packaging and size to provide convenience and 100-
calorie portions for consumers. While the sales of many packaged foods fell, the sales of the 100
Calorie Packs increased to over $200 million, prompting Nabisco to repackage more products
(Hunter, 2008). Kraft Foods extended the mature stage of different crackers such as Wheat Thins
and Triscuits by creating different flavors. Although not popular with consumers, many
36
companies downsize (or decrease) the package sizes of their products or the amount of the
product in the packages to save money and keep prices from rising too much.
Car manufacturers modify their vehicles slightly each year to offer new styles and new safety
features. Every three to five years, automobile manufacturers do more extensive modifications.
Changing the package or adding variations or features are common ways to extend the mature
stage of the life cycle. Pepsi changed the design and packaging of its soft drinks and Tropicana
juice products. However, consumers thought the new juice package looked like a less expensive
brand, which made the quality of the product look poorer. As a result, Pepsi resumed the use of
the original Tropicana carton. Pepsi’s redesigned soda cans also received negative reviews.
When introducing products to international markets, firms must decide if the product can
be standardized (kept the same) or how much, if any, adaptation, or changing, of the product
to meet the needs of the local culture is necessary. Although it is much less expensive to
standardize products and promotional strategies, cultural and environmental differences usually
require some adaptation. Product colors and packages as well as product names must often be
changed because of cultural differences. For example, in many Asian and European countries,
Coca-Cola’s diet drinks are called “light,” not diet. GE makes smaller appliances such as washers
and dryers for the Japanese market. Hyundai Motor Company had to improve the quality of its
automobiles in order to compete in the US market. Companies must also examine the external
environment in foreign markets since the regulations, competition, and economic conditions vary
as well as the cultures.
Figure 5.19
In Europe, diet drinks are called “light,” not diet.
This Coca-Cola product is available in Germany.
Source: Photo by FotoPhest. (2009). Wikimedia Commons. Used under the
terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license.
37
Some companies modify the marketing strategy for one or more marketing variables of their
products. For example, many coffee shops and fast-food restaurants such as McDonald’s now
offer specialty coffee that competes with Starbucks. As a result, Starbucks’ managers decided it
was time to change the company’s strategy. Over the years, Starbucks added lunch offerings and
moved away from grinding coffee in the stores to provide faster service. However, customers
missed the coffee shop atmosphere and the aroma of freshly brewed coffee, and didn’t like the
smell of all the lunch items.
As a result of falling market share, Starbucks’ former CEO and founder Howard Schultz returned
to the company. Schultz hired consultants to determine how to modify the firm’s offering and
extend the maturity stage of Starbucks’ life cycle. Subsequently, Starbucks changed the
atmosphere of many of its stores back to that of traditional coffee shops, modified its lunch
offerings in many stores, and resumed grinding coffee in stores to provide the aroma customers
missed. The company also modified some of its offerings to provide health-conscious consumers
lower-calorie alternatives (Horovitz, 2008). After the US economy weakened in 2009, Starbucks
announced it would begin selling instant coffee for about a dollar a cup to appeal to customers
who were struggling financially but still wanted a special cup of coffee. The firm also changed its
communication with customers by using more interactive media such as blogs.
Figure 5.20
The oldest operating McDonald’s is in California.
Source: Photo by Bryan Hong. (2007). Wikimedia Commons. Used under
the terms of the Creative Commons Attribution-ShareAlike 2.5 Generic license.
Whereas Starbucks might have overexpanded, in 2008 McDonald’s announced plans to add
14,000 coffee bars to selected stores (Economist, 2008). In addition to the coffee bars, many
McDonald’s stores are remodeling their interiors to feature flat-screen televisions, recessed
38
lighting, and wireless Internet access. Other McDonald’s restaurants kept their original design,
which customers still like.
Stage 4: Decline
When sales decrease and continue to drop to lower levels, the product has entered
the decline stage of the product life cycle. In the decline stage, changes in consumer
preferences, technological advances, and alternatives that satisfy the same need can lead to a
decrease in demand for a product. How many of your fellow students do you think have used a
typewriter, adding machine, or slide rule? Computers replaced the typewriter, and calculators
replaced adding machines and the slide rule. Ask your parents about eight-track tapes, which
were popular before cassette tapes, which were popular before CDs.
Some products decline slowly. Others go through a rapid decline. Many fads and fashions for
young people tend to have very short life cycles and go “out of style” very quickly. (If you’ve ever
asked your parents to borrow clothes from the 1990s, you may be amused at how much the styles
have changed.) Similarly, many students don’t have landline phones or VCR players and cannot
believe that people still use the “outdated” devices. Similarly, payphones are becoming obsolete.
Figure 5.21
How many of us have old videocassettes and no way to watch them? Movie delivery is an
excellent example of technology divesting products in the decline stage. Videocassettes were
replaced by DVDs, which are now replaced by streaming video.
Source: Photo by Groink. (2012). Wikimedia Commons. Used under
the terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license.
Technical products such as digital cameras, cell phones, and video games that appeal to young
people often have limited life cycles. Companies must decide what strategies to take when their
products enter the decline stage. To save money, some companies try to reduce their promotional
39
expenditures and the number of distribution outlets. They might implement price cuts to get
customers to buy the product. Harvesting the product entails gradually reducing all costs,
including investments made in the product and marketing costs. By reducing these costs, the
company hopes that the profits from the product will increase until inventory runs out. Another
option for the company is divesting (dropping or deleting) the product from its offerings. The
company might choose to sell the brand to another firm or simply reduce the price drastically in
order to get rid of all remaining inventory. If a company decides to keep the product, it may lose
money or make money if competitors drop out. Many companies decide the best strategy is to
modify the product in the maturity stage to avoid entering the decline stage.
5.6 KEY TAKEAWAY
The product life cycle helps a company understand the stages (introduction, growth, maturity, and
decline) a product or service may go through once it is launched in the marketplace. The number and
length of stages can vary. When a product is launched or commercialized, it enters the introduction stage.
Companies must try to generate awareness of the product and encourage consumers to try it. During the
growth stage, companies must demonstrate the product’s benefits and value to persuade customers to
buy it vs. competing products. Some products never experience growth. Most products are in the mature
stage. In the mature stage, sales level off and the market typically has many competitors. Companies
modify the target market, the offering, or the marketing mix to extend the mature state and keep from
going into decline. If a product goes into decline, a company must decide whether to keep the product,
harvest and reduce the spending on it until all the inventory is sold, or divest and get rid of the product.
WEEK 6 PREVIEW
Now that we have covered the first element of the marketing mix, offerings, next week we move on to
two other elements, marketing channels or distribution and price, both of which are within the control of
the marketer and designed to create value for customers. We will explore what channel systems look like
and the roles they play in delivering customer value. Types of channels and channel design will be
covered, along with some specifics on transportation, warehousing, wholesaling, and retailing. Price
communicates value to customers, and we will end the week with a discussion on how price can be
determined, as well as some pricing strategies commonly used by marketers.
Week 5 References
Section 5.3
Badenhausen, K. (2014, November 5.) Apple, Microsoft and Google are world’s most valuable brands.
Forbes.com. Retrieved January 26, 2015 from
http://www.forbes.com/sites/kurtbadenhausen/2014/11/05/apple-microsoft-and-google-are-worldsmost-valuable-brands/
Section 5.5
Business Week. (2007, May 21). At Hyundai, branding is job 2. Retrieved January 20, 2010, from
http://www.businessweek.com/magazine/content/07_21/b4035069.htm
40
Fisher, L. M. (1989, December 15). Xerox sues Apple computer over Macintosh copyright. New York Times.
Retrieved January 20, 2010, from http://www.nytimes.com/1989/12/15/business/company-news-xeroxsues-apple-computer-over-macintosh-copyright.html?
pagewanted=1
Section 5.6
Economist. (2008, January 10). Starbucks v. McDonald’s: Coffee wars. Retrieved January 20, 2010, from
http://www.economist.com/business/displaystory.cfm?story_id=10498747
Horovitz, B. (2008, January 8). Starbucks orders an extra shot; founder takes over as CEO to perk up
coffee chain. USA Today, 1B.
Hunter, M. (2008, July 15). The true cost of the 100-calorie snack pack. ABC News. Retrieved January 20,
2010, from http://abcnews.go.com/Health/story?id=5373173&page=1&mediakit=adgallery10
Interbrand. (2009). Best global brands. Retrieved January 20, 2010, from
http://www.interbrand.com/best_global_brands.aspx?langid=1000
Roskelly, N. (2007, March). Partial to whole grains. New Products Online. Retrieved January 20, 2010,
from http://www.newproductsonline.com/Archives_Davinci?article=1979

Good to Know
We now enter the phase of the process where we create strategies for our products specifically designed for our chosen target segment (Ford F-150). You, as head of
marketing for the product will develop strategies for the plan year 2018
Recap for this week
The big takeaway for this week is an appreciation for the complexity of bringing the right product or service offerings to market, ensuring the features and benefits
are need-fulfilling for the right consumers. It’s no easy task as evidenced by the vast number of product failures. In addition, there are multiple marketing
strategies to implement and modified as the product moves through its life cycle. Marketing research done right can minimize many of the new product launch challenges.

5.1 What Composes an Offering
As we have been noting in earlier weeks, “product” is a generic term to mean tangible goods, services, or ideas. Most products are a combination of tangible goods and
service and fall somewhere on a continuum like this:

Select one of your favorite products and describe it terms of its:
1. features
2. benefits
3. price
4. total cost of ownership
Be sure you refer to these concepts in the week’s readings before tackling this description. Then, identify where your product would fall on the product/service
continuum and why you chose that location. Use percentages such as 25 percent product and 75 percent service. Lastly, does the product have any product lines? If so,
how do they differ from the “core product” in terms of additional benefits or features?
Required: Discuss your thoughts on this topic in this Week’s Discussion 4, Topic 1: Product Descriptions. Comment on the posts of other classmates if you are familiar
with products they have chosen and what your thoughts are on the description and the continuum choice.
Check out this Ad Week article on Coach repositioning its brand in 2013:
Coach: We’re a Lifestyle Brand: Not Just Pricey Purses Anymore: http://www.adweek.com/news/advertising-branding/coach-we-re-lifestyle-brand-152778
Why do you think Coach needed to reposition its brand? What new target market is the company seeking? How has it changed the offering?
5.2 Types of Consumer Offerings
This section of the week’s readings describes the types of consumer offerings with four categories:
1. convenience offerings
2. shopping offerings
3. specialty offerings
4. unsought offerings
Consider your own purchase behaviors. Identify a product that, for you, falls into each of the four categories. Be sure to consider why you chose each of the
categories for each product.
Required: Share your thoughts in this Week’s Discussion Forum, Topic 2: Types of Consumer Offerings. As you read through your classmates’ posts, you will most likely
notice that the same product can be a different category for different customers; if so, share your observations with your classmates.
5.6 Managing New Products: The Product Lifecycle
The value of the product life cycle is that it provides clues as to what marketing mix strategies might need to change as the product moves through the cycle. For
example, a high-tech product being launched will have to decide whether to use penetration or skimming pricing strategy. That pricing strategy will then determine how
much marketing communications is needed and what distribution strategy is needed. Because high-tech products are particularly susceptible to competition and entry of
substitute products, the company needs to stimulate sales early, knowing the product life cycle may be short.
Pick one of the following products and identify which stage of the life cycle you believe it is in and why. You don’t need to do research; just use your personal
experience and judgment. You may want to check out the product’s website. Then, identify what needs to be done to the marketing mix based on the stage you selected.
1. Apple iWatch
2. Kellogg All-Bran cereal
3. Crest Complete toothpaste
4. Ford Focus automobile
5. Häagen-Dazs ice cream
6. Libby Sweet Peas canned vegetables
7. Rolling Barn Door Hardware by CSH
8. Beyond Meat Chicken Free Strips
Required: Post your thoughts in this Week’s Discussion Forum, Topic 3: Product Life Cycle. Since each of you are picking different products, scroll through some
responses and see if you have a different point of view and post as appropriate.

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