Learning Objectives 10, 11, 13, 15, & 17

Recognize the various terms that pertain to products and services.
A product is a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers and is received in exchange for money or something else of value.
A good has tangible attributes that a consumer’s five senses can perceive and intangible ones such as warranties; a laptop computer is an example. Goods also can be divided into nondurable goods, which are consumed in one or a few uses, and durable goods, which usually last over many uses.
Services are intangible activities or benefits that an organization provides to satisfy consumer needs in exchange for money or something else of value, such as an airline trip. An idea is a thought that leads to a product or action, such as eating healthier foods.
Identify the ways in which consumer and business products and services can be classified.
By type of user, the major distinctions are consumer products, which are products purchased by the ultimate consumer, and business products, which are products that assist an organization in providing other products for resale.
Consumer products can be broken down based on the effort involved in the purchase decision process, marketing mix attributes used in the purchase, and the frequency of purchase: (a) convenience products are items that consumers purchase frequently and with a minimum of shopping effort; (b) shopping products are items for which consumers compare several alternatives on selected criteria; (c) specialty products are items that consumers make special efforts to seek out and buy; and (d) unsought products are items that consumers either do not know about or do not initially want.
Business products can be broken down into (a) components, which are items that become part of the final product, such as raw materials or parts, and (b) support products, which are items used to assist in producing other goods and services and include installations, accessory equipment, supplies, and industrial services.
Services can be classified in terms of whether they are delivered by (a) people or equipment, (b) business firms or nonprofit organizations, or (c) government agencies.
Firms can offer a range of products, which involve decisions regarding the product item, product line, and product mix.
Explain the significance of “newness” in new products and services as it relates to the degree of consumer learning involved.
From the important perspective of the consumer, “newness” is often seen as the degree of learning that a consumer must engage in to use the product. With a continuous innovation, no new behaviors must be learned. With a dynamically continuous innovation, only minor behavioral changes are needed. With a discontinuous innovation, consumers must learn entirely new consumption patterns.
Describe the factors contributing to the success or failure of a new product or service.
A new product or service often fails for these marketing reasons: (a) insignificant points of difference, (b) incomplete market and product protocol before product development starts, (c) a failure to satisfy customer needs on critical factors, (d) bad timing, (e) no economical access to buyers, (f) poor product quality, (g) poor execution of the marketing mix, and (h) too little market attractiveness.
Explain the purposes of each step of the new-product process.
The new-product process consists of seven stages a firm uses to develop salable products or services: (1) New-product strategy development involves defining the role for the new product within the firm’s overall objectives. (2) Idea generation involves developing a pool of concepts from consumers, employees, basic R&D, and competitors to serve as candidates for new products. (3) Screening and evaluation involves evaluating new-product ideas to eliminate those that are not feasible from a technical or consumer perspective. (4) Business analysis involves defining the features of the new product, developing the marketing strategy and marketing program to introduce it, and making a financial forecast. (5) Development involves not only producing a prototype product but also testing it in the lab and with consumers to see that it meets the standards set for it. (6) Market testing involves exposing actual products to prospective consumers under realistic purchasing conditions to see if they will buy the product. (7) Commercialization involves positioning and launching a product in full-scale production and sales with a specific marketing program.
Explain the product life-cycle concept.
The product life cycle describes the stages a new product goes through in the marketplace: introduction, growth, maturity, and decline. Product sales growth and profitability differ at each stage, and marketing managers have marketing objectives and marketing mix strategies unique to each stage based on consumer behavior and competitive factors. In the introductory stage, the need is to establish primary demand, whereas the growth stage requires selective demand strategies. In the maturity stage, the need is to maintain market share; the decline stage necessitates a deletion or harvesting strategy. Some important aspects of product life cycles are (a) their length, (b) the shape of the sales curve, (c) how they vary by product classes and forms, and (d) the rate at which consumers adopt products.
Identify ways that marketing executives manage a product’s life cycle.
Marketing executives can manage a product’s life cycle three ways. First, they can modify the product itself by altering its characteristics, such as product quality, performance, or appearance. Second, they can modify the market by finding new customers for the product, increasing a product’s use among existing customers, or creating new use situations for the product. Finally, they can reposition the product using any one or a combination of marketing mix elements. Four factors trigger a repositioning action. They include reacting to a competitor’s position, reaching a new market, catching a rising trend, and changing the value offered to consumers.
Recognize the importance of branding and alternative branding strategies.
A basic decision in marketing products is branding, in which an organization uses a name, phrase, design, symbols, or a combination of these to identify its products and distinguish them from those of its competitors. Product managers recognize that brands offer more than product identification and a means to distinguish their products from those of competitors. Successful and established brands take on a brand personality and acquire brand equity—the added value a given brand name gives to a product beyond the functional benefits provided—that is crafted and nurtured by marketing programs that forge strong, favorable, and unique consumer associations with a brand. A good brand name should suggest the product benefits, be memorable, fit the company or product image, be free of legal restrictions, be simple and emotional, and have favorable phonetic and semantic associations in other languages. Companies can and do employ several different branding strategies. With multiproduct branding, a company uses one name for all its products in a product class. A multibranding strategy involves giving each product a distinct name. A company uses private branding when it manufactures products but sells them under the brand name of a wholesaler or retailer. Finally, a company can employ mixed branding, where it markets products under its own name(s) and that of a reseller.
Describe the role of packaging, labeling, and warranties in the marketing of a product.
Packaging, labeling, and warranties play numerous roles in the marketing of a product. The packaging component of a product refers to any container in which it is offered for sale and on which label information is conveyed. Manufacturers, retailers, and consumers acknowledge that packaging and labeling provide communication, functional, and perceptual benefits. Contemporary packaging and labeling challenges include (a) the continuing need to connect with customers, (b) environmental concerns, (c) health, safety, and security issues, and (d) cost reduction. Warranties indicate the liability of the manufacturer for product deficiencies and are an important element of product and brand management.
Identify the elements that make up a price.
Price is the money or other considerations (such as barter) exchanged for the ownership or use of a product or service. Although price typically involves money, the amount exchanged is often different from the list or quoted price because of incentives (rebates, discounts, etc.), allowances (trade), and extra fees (finance charges, surcharges, etc.). The price of an offering is often used to indicate value, which is the ratio of perceived benefits to price. Pricing has a direct effect on a firm’s profits, which is determined by the profit equation: Profit = Total revenue − Total cost.
Recognize the objectives a firm has in setting prices and the constraints that restrict the range of prices a firm can charge.
Pricing objectives specify the role of price in a firm’s marketing strategy and may include profit, sales revenue, market share, unit volume, survival, or some socially responsible price level. Pricing constraints that restrict a firm’s pricing flexibility include demand, product newness, other products sold by the firm, production and marketing costs, cost of price changes, type of competitive market, and the prices of competitive substitutes
Explain what a demand curve is and the role of revenues in pricing decisions.
A demand curve is a graph relating the quantity sold and price, which shows the maximum number of units that will be sold at a given price. Three demand factors affect price: (a) consumer tastes, (b) price and availability of substitute products, and (c) consumer income. These demand factors determine consumers’ willingness and ability to pay for products and services. Assuming these demand factors remain unchanged, if the price of a product is lowered or raised, then the quantity demanded for it will increase or decrease, respectively.

Three important forms of revenues impact a firm’s pricing decisions: (a) total revenue, which is the total money received from the sale of a product; (b) average revenue, which is the average amount of money received for selling one unit of a product (which is simply the price of the unit); and (c) marginal revenue, which is the change in total revenue that results from producing and marketing one additional unit.

Describe what price elasticity of demand means to a manager facing a pricing decision.
Price elasticity of demand measures the responsiveness of units of a product sold to a change in price, which is expressed as the percentage change in the quantity of a product demanded divided by the percentage change in price. Price elasticity is important to marketing managers because a change in price usually has an important effect on the number of units of the product sold and on total revenue.
Explain the role of costs in pricing decisions.
Five important costs impact a firm’s pricing decisions: (a) total cost, or total expenses, is the sum of fixed cost and variable cost incurred by a firm in producing and marketing a product; (b) fixed cost, is the sum of expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold; (c) variable cost, is the sum of expenses of the firm that vary directly with the quantity of a product that is produced and sold; (d) unit variable cost, is variable cost expressed on a per unit basis; and (e) marginal cost, is the change in total cost that results from producing and marketing one additional unit of the product.
Describe how various combinations of price, fixed cost, and unit variable cost affect a firm’s break-even point.
Break-even analysis is a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output. The break-even point is the quantity at which total revenue and total cost are equal. Assuming no change in price, if the costs of a firm’s product increase due to higher fixed costs (manufacturing or advertising) or variable costs (direct labor or materials), then its break-even point will be higher. And if total cost is unchanged, an increase in price will reduce the break-even point.
Explain what is meant by a marketing channel of distribution and why intermediaries are needed.
A marketing channel of distribution, or simply a marketing channel, consists of individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users. Intermediaries make possible the flow of products from producers to buyers by performing three basic functions. The transactional function involves buying, selling, and risk taking because intermediaries stock merchandise in anticipation of sales. The logistical function involves the gathering, storing, and dispensing of products. The facilitating function assists producers in making products and services more attractive to buyers. The performance of these functions by intermediaries creates time, place, form, and possession utility for consumers.
Distinguish among traditional marketing channels, electronic marketing channels, and different types of vertical marketing systems.
Traditional marketing channels describe the route taken by products and services from producers to buyers. This route can range from a direct channel with no intermediaries, because a producer and the ultimate consumer deal directly with each other, to indirect channels where intermediaries (agents, wholesalers, distributors, or retailers) are inserted between a producer and consumer and perform numerous channel functions. Electronic marketing channels employ the Internet to make products and services available for consumption or use by consumer or business buyers. Vertical marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact. There are three major types of vertical marketing systems (VMSs). A corporate VMS combines successive stages of production and distribution under a single ownership. A contractual VMS exists when independent production and distribution firms integrate their efforts on a contractual basis to obtain greater functional economies and marketing impact than they could achieve alone. An administered VMS achieves coordination at successive stages of production and distribution by the size and influence of one channel member rather than through ownership.
Describe factors that marketing executives consider when selecting and managing a marketing channel.
Marketing executives consider three questions when selecting and managing a marketing channel and intermediaries. (1) Which channel and intermediaries will provide the best coverage of the target market? Marketers typically choose one of three levels of market coverage: intensive, selective, or exclusive distribution. (2) Which channel and intermediaries will best satisfy the buying requirements of the target market? These buying requirements fall into four categories: information, convenience, variety, and pre- or postsale services. (3) Which channel and intermediaries will be the most profitable? Here marketers look at the margins earned (revenues minus cost) for each channel member and for the channel as a whole.
Explain what supply chain and logistics management are and how they relate to marketing strategy.
A supply chain refers to the various firms involved in performing the various activities required to create and deliver a product or service to consumers or industrial users. Supply chain management is the integration and organization of information and logistics across firms for the purpose of creating value for consumers. Logistics involves those activities that focus on getting the right amount of the right products to the right place at the right time at the lowest possible cost. Logistics management includes the coordination of the flows of both inbound and outbound products, an emphasis on making these flows cost effective, and customer service. A company’s supply chain follows from a clearly defined marketing strategy. The alignment of a company’s supply chain with its marketing strategy involves three steps. First, a supply chain must reflect the needs of the customer segment being served. Second, a company must understand what a supply chain is designed to do well. Supply chains range from those that emphasize being responsive to customer requirements and demands to those that emphasize efficiency with the goal of supplying products at the lowest possible delivered cost. Finally, a supply chain must be consistent with the targeted customer’s needs and the company’s marketing strategy. The Dell and Walmart examples in the chapter illustrate how this alignment is achieved by two market leaders.
Discuss integrated marketing communication and the communication process.
Integrated marketing communication is the concept of designing marketing communications programs that coordinate all promotional activities—advertising, personal selling, sales promotion, public relations, and direct marketing—to provide a consistent message across all audiences. The communication process conveys messages with six elements: a source, a message, a channel of communication, a receiver, and encoding and decoding. The communication process also includes a feedback loop and can be distorted by noise.
Describe the promotional mix and the uniqueness of each component.
There are five promotional alternatives. Advertising, sales promotion, and public relations are mass selling approaches, whereas personal selling and direct marketing use customized messages. Advertising can have high absolute costs but reaches large numbers of people. Personal selling has a high cost per contact but provides immediate feedback. Public relations is often difficult to obtain but is very credible. Sales promotion influences short-term consumer behavior. Direct marketing can help develop customer relationships, although maintaining a database can be very expensive.
Select the promotional approach appropriate to a product’s target audience, life-cycle stage, and characteristics, as well as stages of the buying decision and channel strategies.
The promotional mix depends on the target audience. Programs for consumers, business buyers, and intermediaries might emphasize advertising, personal selling, and sales promotion, respectively. The promotional mix also changes over the product life-cycle stages. During the introduction stage, all promotional mix elements are used. During the growth stage advertising is emphasized, while the maturity stage utilizes sales promotion and direct marketing. Little promotion is used during the decline stage. Product characteristics also help determine the promotion mix. The level of complexity, risk, and ancillary services required will determine which element is needed. Knowing the customer’s stage in the buying process can help marketers select appropriate promotions. Advertising and public relations can create awareness in the prepurchase stage, personal selling and sales promotion can facilitate the purchase, and advertising can help reduce anxiety in the postpurchase stage. Finally, the promotional mix can depend on the channel strategy. Push strategies require personal selling and sales promotions directed at channel members, while pull strategies depend on advertising and sales promotion directed at consumers.
Describe the elements of the promotion decision process.
The promotional decision process consists of three steps: planning, implementation, and evaluation. The planning step consists of six elements: identify the target audience, specify the objectives, set the budget, select the right promotional elements, design the promotion, and schedule the promotion. The implementation step includes pretesting. The evaluation step includes posttesting.
Explain the value of direct marketing for consumers and sellers.
The value of direct marketing for consumers is indicated by its increasing level of use. For example, during the past year, 52 percent of the U.S. population made a purchase by mail and more than 110 million people shopped online. The value of direct marketing for sellers can be measured in terms of three types of responses: direct orders, lead generation, and traffic generation.