Product Ing. Kateřina Matušínská, Ph.D. Ing. Martin Klepek, Ph.D. Principles of Marketing Subject code The aim of the lecture is to explain the core ideas around product its typology and how the product delivers value to the customers. Outline of the lecture •Definition of a product and its layers and levels •Deifferences between goods and services •Service characteristics •Product lifecycle and brand portfolio management •Product assortment •New product development • • • • • Product characteristics •The goal of the marketer is to help customers to meet their own goals. •Means for meeting customers needs and goals are products. •If the customer's goal is to move from point A to point B, he can own a car (goods) or use public transport or a taxi (service). •Both products achieve our customer's goal. Product layers •Core •Expected •Augmented • Výsledek obrázku pro product layers Product levels •CORE PRODUCT •The service or benefit the customer is really buying. •BASIC PRODUCT •The core benefit transformed into a basic product. •EXPECTED PRODUCT •Set of attributes and conditions buyers normally expect when they purchase this product. •AUGMENTED PRODUCT •That exceeds customer expectations. • Product layers – bike example •Core benefit •Basic product •Expected product •Augmented product • Výsledek obrázku pro from a to b Product layers – bike example •Core benefit •Basic product •Expected product •Augmented product • Výsledek obrázku pro old bicycle Product layers – bike example •Core benefit •Basic product •Expected product •Augmented product • Výsledek obrázku pro bicycle Product layers – bike example •Core benefit •Basic product •Expected product •Augmented product • Výsledek obrázku pro bicycle Product Classification •Nondurable goods are tangible goods normally consumed in one or a few uses, such as beer and shampoo. Because these goods are purchased frequently, the appropriate strategy is to make them available in many locations, charge only a small markup, and advertise heavily to induce trial and build preference. •Durable goods are tangible goods that normally survive many uses: refrigerators, machine tools, and clothing. Durable products normally require more personal selling and service, command a higher margin, and require more seller guarantees. Product Classification •Services are intangible, inseparable, variable, and perishable products that normally require more quality control, supplier credibility and adaptability. Examples include haircuts, legal advice, and appliance repairs. • •Goods are tangible, can be stored for later sell, do not differ piece by piece very much, and can be sold second hand. Production is separated from consumption. Examples include toys, smartphones, and fast-moving consumer goods. Two types Goods Services A physical commodity A process or activity Tangible Intangible Homogenous Heterogeneous Production and distribution are separated from the consumption Production, distribution and consumption are simultaneous processes Can be stored Cannot be stored Transfer of ownership is possible Transfer of ownership is not possible Good-service continuum Service examples •Health care – hospital, medical practice, dentistry, eye care. •Professional services – accounting, legal, architectural. •Financial services – banking, investment advising, insurance. •Hospitality – restaurant, hotel, bed & breakfast, ski resort, rafting. •Travel – air lines, travel agencies, theme park •Others – hair styling, pest control, lawn maintenance, counseling services. Service differences •Intangibility •Heterogeneity •Inseparability •Perishability Intangibility: •Services are intangible and do not have a physical existence. •Hence services cannot be touched, held, tasted or smelt. •This is most defining feature of a service and that which primarily differentiates it from a product. •Also, it poses a unique challenge to those engaged in marketing a service as they need to attach tangible attributes to an otherwise intangible offering. Heterogeneity/Variability: •Given the very nature of services, each service offering is unique and cannot be exactly repeated even by the same service provider. •While products can be mass produced and be homogenous the same is not true of services. e.g.: All burgers of a particular flavor at McDonalds are almost identical. •However, the same is not true of the service rendered by the same counter staff consecutively to two customers. Inseparability: •This refers to the fact that services are generated and consumed within the same time frame. E.g.: a haircut is delivered to and consumed by a customer simultaneously unlike, say, a takeaway burger which the customer may consume even after a few hours of purchase. •Moreover, it is very difficult to separate a service from the service provider. E.g.: the barber is necessarily a part of the service of a haircut that he is delivering to his customer. • Perishability: •Services cannot be stored, saved, returned or resold once they have been used. •Once rendered to a customer the service is completely consumed and cannot be delivered to another customer. e.g.: A customer dissatisfied with the services of a barber cannot return the service of the haircut that was rendered to him. •At the most he may decide not to visit that particular barber in the future. • Extension of marketing mix for services: •Product, •Price, •Place, •Promotion, •Processes, •People, •Physical evidence. • Výsledek obrázku pro people in services Consumption differences goods and services MARKETING PRODUCTION CONSUMPTION MARKETING? PRODUCTION CONSUMPTION OUTCOME CONSUMPTION PROCESS CONSUMPTION What is the role of marketing in services? •Matching the production (service) process with consumption process •Result is that consumers perceive good service quality and value •Than they are willing to continue he relationship with the service provider • MARKETING? PRODUCTION CONSUMPTION What remains? •Market research •Pricing •Advertising •Marketing communication • MARKETING? PRODUCTION CONSUMPTION What is new? •Relationship management •Customer processes analysis •Customer databases •Feedback MARKETING? PRODUCTION CONSUMPTION Excercise •YOU ARE RICE MERCHANT IN CHINA COUNTRYSIDE •The city you operate is located in distant area, so expansion to other cities is not possible. •You basically cannot improve anyhow the rice, all farmers have the same conditions and type of seed available. •Price reduction brings only short term sales however in a long run it brings price wars leaving all the farmers bleeding financially. •What can you do to beat your competition? (Grönroos, Ch. 2015. Service management and marketing) Excercise – where your solution falls? FOCUS ON REVENUE FOCUS ON COSTS FOCUS ON FIRM‘S RESOURCES AND PROCESSES FOCUS ON CONSUMERS‘ RESOURCES AND PROCESSES From goods dominant do service dominant •Changing the economic ratios and the advanced economies' orientations towards the service sector is coming up with a series of assessments of product thinking effectiveness. •In theory, we have two approaches: •Goods-dominant logic •Service-dominant logic Service dominant logic •Tangible products do not exist •The product is always strongly connected to the benefit •This tangible product only generates the benefit •We say "This product has made us a service" •The logic of service helps businesses perceive the true value that product generates. Service dominant logic Logic Goods-Dominant Service-Dominant Main Idea Goods Service Focus Product Experience Improvement Product features Solution Means for the transaction Price Value proposition Communication style Promotion Dialogue Marketing goals Market Co-create value Case study: Hilti Výsledek obrázku pro hilti Case study •The Swiss firm Hilti is a manufacturer of high quality professional electronic tools. •Customers are mainly construction companies. •Thanks to the fierce competition, which was able to produce at a lower cost, large orders were dropping significantly. •Hilti responded by changing the business model from product to service thinking. •Providing large developers and construction companies with rental of machinery. •Ensured delivery of the specified quantity and type of tools directly to the construction. Case study •Construction companies do not have to buy, own and maintain tools. •The client's need is access to tools rather than tool ownership. •Clients can concentrate on what they do best and that's building and not caring for tools. •Set up a regular company income from contracts for rental of tools. •Hilti also provides service and that machines are always functional and available. •For this added value, the customer is willing to pay - he is sure that the construction will not be blocked due to machine failures. •No delay mean no fine for delayed constructions. •https://www.youtube.com/watch?time_continue=11&v=VxSObyUhqNY • Product Lifecycle Development Introduction Growth Maturity Decline Quantity Time Sales Earnings after taxes Product Lifecycle and Product Portfolio Management Development Introduction Growth Maturity Decline Development Introduction Growth Time Non-standard product lifecycles Výsledek obrázku pro product lifecycles types Could you guess a fad? Stages and strategies (Fad was Pokemon Go) Product portfolio / assortment •Width of product portfolio •How many product categories we offer •Depth of product portfolio •How many brands are in product categories Související obrázek Product portfolio / assortment In the food store, the breakdown of meat and sausages, milk and dairy products, pastries, fruits and vegetables etc. is the width of the assortment. The division of milk and dairy products into milk, cheese, yoghurt, etc. is still the width of the assortment. The division of yoghurts according to flavours, brands, etc. is the depth of the assortment. Související obrázek Výsledek obrázku pro tesco Brand portfolio C:\Users\Libor\Dropbox\Do výuky\Značky\Logo_MARS_incorporated.png Výsledek obrázku pro mondelez logo png Výsledek obrázku pro snickers logo png Výsledek obrázku pro twix logo png Výsledek obrázku pro orbit logo png Výsledek obrázku pro wrigley logo png C:\Users\Libor\Dropbox\Do výuky\Značky\Wrigley's_Spearmint_logo.png Výsledek obrázku pro milka logo png Výsledek obrázku pro toblerone logo png Brand portfolio Výsledek obrázku pro illusion of choice 2018 BCG Matrix •Most famous portfolio analysis is Boston Consulting Group Matrix . •Logic: profitability of different strategic business units (brands or products) is aligned with share and growth. •Result: Model BCG which sort brands BCG Matrix 20% 10% 0% 1x 0,1x 10x BCG Model •Stars •Requires lots of investments and managing effort •Strong competition in the segments •Cash Cows •Established well functioning units. •Generates valuable profits for other unists. •Question marks •Requires extensive investments to maintain market share. •Management have to decide which of these will progress to Stars. •Dogs •Can generate sufficient amount of profits to survive. •Has no bright future ahead of them. • BCG Model Question marks Stars Cash cows Dogs Introduction Growth Maturity Decline Time BCG Model Stars Question mark Cash cow Dogs Relative market share Product development •It is obvious that the company's range is not static, but the products need to be changed purposefully. •Companies need to develop new products and services due to rapid changes in consumer consciousness, technology and competition. •In addition, the products have a limited life and the company has to look for new products to replace the older ones. •The result is product innovations. Product development https://img.ihned.cz/attachment.php/580/72631580/NkfVF1z6jQq9UiDxbdLC82cgtsKeHE3A/Computer_history2 1.jpg Product development •Product innovation includes various activities - product improvement, new product development, product expansion, or product line upgrades. •New products can be established by the company in two ways: •acquisition - purchase of an entire company, patent or production license from someone else, •development of new products in its own development department. •These are the make or buy decisions. Product development https://graphs.net/wp-content/uploads/2014/07/how-angry-birds-started_53b5b7822861f_w1500-Copy.jpg Product development https://blog.adioma.com/wp-content/uploads/2016/07/how-airbnb-started-infographic.png New product development process 1.Generate ideas 2.Idea screening 3.Creating a concept or prototype 4.Creating a marketing strategy 5.Business analysis 6.Product development 7.Test Marketing 8.Commercialization New product development process New product development costs Design Thinking •At the center of attention is man, not technology or product. •Active engagement of a company to create a product with customers. •Empathy •User testing •Innovation is understood as applied creativity to a problem where results can be measured - market share, profitability New methods for product development •Crowdsourcing •Drawing an idea from people •Customers or fans •This form of product development has been enabled thanks to technological development •Crowdfunding •Financing development •Product launch financing •Kickstarter or Indiegogo •A relatively safe way combining market validation and product introduction Summary •Products include more than just tangible goods. Broadly defined, products include physical objects, services, events, persons, places, organizations, ideas or mixes of these entities. Throughout this presentation, we use the term product broadly to include any or all of these entities. Thus, an Apple iPad, a Toyota Avensis and a tin of Dulux paint are products. But so are a skiing holiday, HSBC banking services and advice from your doctor. Because of their importance in the world economy, services are given our special attention. Services are a form of product that consists of activities, benefits or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything. Examples are banking, hotel, airline, retail, accounting and home repair services. THANKS FOR YOUR ATTENTION. End of presentation