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Offerings

The entire bundle of a tangible good, intangible service, and price that composes what a company offers to customers.

product

A tangible good that can be bought, sold, and owned.

Features

A physical characteristic of a product.

benefit

The degree to which a feature satisfies a buyer’s need or desire.

price

The amount exchanged by the buyer to receive the value offered by the product or service.

total cost of ownership (TCO)

The total amount of time and money spent to acquire, use, and dispose of an offering.

C H A P T E R 6 Creating Offerings Why do buyers purchase things? Why do you own anything? Few people own an iPad just to own an iPad. Yes,

some probably own them to look cool, but most people bought one in order to access the Web, whether it is for

music, videos, or data. Yet the impact that iPads have had on the music and entertainment industry has been huge

because the product revolutionized how we purchase entertainment.

1. WHAT COMPRISES AN OFFERING?

L E A R N I N G O B J E C T I V E S

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 compon-

ents 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 the Web in order to access data or entertainment, to look cool, or both. Offerings are products and services de- signed to deliver value to customers—either to fulfill their needs, satisfy their “wants,” or both. We dis- cuss people’s needs in other chapters. In this chapter, we discuss how marketing fills those needs through the creation and delivery of offerings.

1.1 Product, Price, and Service Most offerings consist of a product, or a tangible good people can buy, sell, and own. If you search for storage capacity of iPad, you’ll find that people have a lot of questions about how much memory to buy, what model will work for their situation, and the like. What they want to know is whether their needs will be met. Features, or physical characteristics of a product, determine what the product can do. For example, if reading books like this on your iPad is the primary way you use your iPad, you may have less storage needs than someone who travels a lot and wants a large library of videos avail- able. You won’t be willing to pay more for the extra storage that the heavy video user will want 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 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 apps, plus the Internet service cost, and so forth. The total cost of ownership (TCO), then, is the total amount someone pays to own, use, and eventually dispose of a 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 dol- lars but may cost more to own in terms of your time and hassle. A smart consumer would take that in- to consideration. When we first introduced the personal value equation, 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. One buyer may find that the hassle and time is worth it to save the money for dry cleaning, while another may prefer to spend money rather than time on taking care of the sweater.

FIGURE 6.1

Neiman Marcus sells sweaters for over $1,000! But that’s just the purchase price. The total cost of ownership would also include the cost of having the sweater professionally cleaned or the value of the time and effort needed to hand wash it.

Source: © Jupiterimages Corporation

service

An intangible component of an offering.

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 it 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 truly these products are financial services. The term “product” is frequently used to describe an offering of either type.

The intangibility of a service creates interesting challenges for marketers and buyers when they try to judge the relative merits of one service over another. An old riddle asks, “You enter a barbershop to get a haircut and encounter two barbers—one with badly cut hair and the other with a great haircut. Which do you choose?” The answer is the one with the badly cut hair as he cut the hair of the other. But in many instances, judging how well a barber will do before the haircut is difficult. Thus, services can suffer from high variability in quality due to the fact that they are often created as they are received.

Services usually require the consumer to be physically present or involved. A haircut, a night in a hotel, or a flight from here to there all require the consumer to be physically present and consumption of the service is not separate from the creation of the service. Unlike a physical product, which can be created and purchased off a shelf, a service often (but not always) involves the consumer in its creation.

Another challenge for many services providers is that services are perishable; they can’t be stored. A night at a hotel, for example, can’t be saved and sold later. If it isn’t sold that day, it is lost forever. A barber isn’t really paid for a haircut (to use the riddle) but for time. Services have difficult management and marketing challenges because of their intangibility.

FIGURE 6.2

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).

Source: © Jupiterimages Corporation

Many tangible products have an intangible service components attached to them, however. When Hewlett-Packard (HP) introduced its first piece of audio testing equipment, a key concern for buyers was the service HP could offer with it. Could a new company such as HP back up the product, should something go wrong with it? As you can probably tell, a service does not have to be consumed to be an important aspect of an offering. HP’s ability to provide good after-sales service in a timely fashion was an important selling characteristic of the audio oscillator, even if buyers never had to use the service.

118 PRINCIPLES OF MARKETING VERSION 3.0

FIGURE 6.3

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 from Pro Cuts, the experience you had getting it was very different, which adds value for some buyers.

Source: Sport Clips, used with permission.

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 like Publix, 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.

FIGURE 6.4

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 like Publix, or perhaps online.

Source: Wikimedia Commons.

CHAPTER 6 CREATING OFFERINGS 119

product-dominant

An approach to products and offerings that clearly separates the physical product from services and from price.

product-oriented

An approach to business that centers on capturing business by focusing on creating and manufacturing better products at lower prices.

FIGURE 6.5

King Ranch Chicken is a casserole made with chicken, RO*TEL tomatoes, cream of mushroom soup, and cream of chicken soup. If you eat the casserole at your school’s cafeteria, you are consuming both a product and a service. Consequently, separating the product from the service is often an artificial exercise.

Source: © Good Housekeeping,

http://www.goodhousekeeping.com/recipefinder/king-ranch-

chicken-recipe-ghk0111?click=rec_sr

service-dominant

An approach to offerings that integrates the physical product, attendant services, and price into the total offering.

1.2 The Product-Dominant Approach to Marketing From the traditional product-dominant perspective of business, marketers consider products, ser- vices, and prices as three separate and distinguishable characteristics. To some extent, they are. HP could, for example, add or strip out features from a piece of testing equipment and not change its ser- vice policies or the equipment’s price. The product-dominant marketing perspective has its roots in the Industrial Revolution. During this era, business people focused on the development of products that could be mass produced cheaply. 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. A limitation, of course, is that the maker determined what was better, not the consumer. Mar- keting remained oriented that way until after World War II.

1.3 The Service-Dominant Approach to Marketing Who determines which products are better? Customers do, of course. Thus, taking a product-oriented approach can result in marketing professionals focusing too much on the product itself and not 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 oth- er 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 oth- er features and services of the products. The dominance of any one 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 integration helps marketers think more like their customers, which can help them add value to their firm’s offer- ings. In addition to the product 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), to enjoy them, and to dispose of them (e.g., someone to move the product out of the house and haul it away), because each of these activities create costs for their customers—either monetary costs or time and hassle costs.

120 PRINCIPLES OF MARKETING VERSION 3.0

core product

The physical component of an offering.

augmented product

Services and accessories that improve the core product’s ability to deliver benefits.

FIGURE 6.6

A core product is the central functional offering, but it may be augmented by various accessories or services, known as the augmented product.

FIGURE 6.7

Few consumers could have envisioned that a new type of adhesive would lead to the development of a product as successful as Post-it Notes.

Source: © Jupiterimages Corporation

sharing economy

The use of information technology to allow owners of assets to increase utilization of those assets, whether for money or exchange of other goods or services (barter).

technology platform

The core technology that is the basis for an offering or product.

Critics of the service-dominant approach argue that the product-dominant approach also integ- rated services (though not price). The argument is that at the core of an offering is the product, such as an iPad, as illustrated in Figure 6.6. The physical product, in this case an iPad, is the core product. Surrounding it are services and accessories, called the augmented product, that support the core product. Together, these make up the complete product. One limitation of this approach has already been mentioned; price is left out. But for many “pure” products, this conceptualization can be helpful in bundling different augmentations for different markets.

Today’s empowered 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 in- gredient in making King Ranch Chicken. As far as the consumer is concerned, no be- nefit is experienced until the soup is eaten; thus, the consumer played a part in the cre- ation of the final “product” when the soup was an ingredient in the King Ranch Chick- en. Or suppose your school’s cafeteria made King Ranch Chicken 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 custom- ers often have difficulty seeing how an innovative new technology can create benefits for them. 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 Post-it Notes to stick and restick was created by a 3M scientist who was actually in the process of trying to make something else. Post-it Notes came later.

1.4 The Sharing Economy Uber and Lyft, the ride-sharing companies that are displacing taxicabs, and AirBnB, the room-sharing company that competes with traditional hotels, are perhaps the best- known examples of the sharing economy. Have you heard of Sprig, the company that cooks for you, or Washio, the company that sends someone to clean your clothes? The sharing economy is the use of information technology to allow owners of assets to in- crease utilization of their assets, whether for money or exchange of other goods or ser- vices (barter).[1] You can see how this movement is based on service-dominant logic; that is, the realiz- ation that people want the benefits without the hassle or costs of ownership of assets like cars, washing machines, or even kitchens.

Yet you can also see how there were other ways to obtain those benefits—taxis, laundries and dry cleaners, and restaurants. What the sharing economy has done is make it possible for anyone to share an asset, driving cost down and availability up, disrupting these many established businesses. Estimates of the size of the sharing economy vary, but recent studies show that two-thirds of Americans are will- ing to share their assets, whether it is their car or a room in their home.[2]

When business strategists talk about a company’s go-to-market strategy or the firm’s business model, think back to the sharing economy. If the benefit being sold is automobile transportation, there are several business models: selling cars, offering taxis, joining Uber or Lyft, or renting cars either on a transactional basis (such as Avis) or on a subscription basis (such as Zipcar).

1.5 Product Levels and Product Lines A product’s technology platform is the core technology on which it is built. Take for example, the iPad, which is based on cellular 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 already-ex- isting offering. For example, in addition to the iPad , Apple offers the iPad Mini. 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 patented formula developed by NASA to decontaminate astronauts after they return from space.

CHAPTER 6 CREATING OFFERINGS 121

FIGURE 6.8

The formula in EQyss’s Micro Tek pet grooming spray was originally developed by NASA to decontaminate astronauts after they return from space.

Source: Photo by Amy Ray, used with

permission.

product line

A group of offerings that serve similar needs and are sold under the same name.

line depth

The number of variations in a single product line.

line extension

A new idea or offering that occurs when a company comes out with another model (related product or service) based on the same platform and brand as one of its other products.

Line breadth

The number of different, or distinct, product lines offered by a company.

product mix

The entire assortment of products that a firm offers.

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 de- veloped 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 and white labels. But Campbell’s Chunky is a ready-to-eat soup sold in cans that are labeled differently. Most consumers expect there to be differ- ences between Campbell’s red-label chicken soup and Chunky chicken soup, even though they are both made by the same company.

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 iPad line, which consists of only a few different devices. How many offerings there are in a 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 iPad, that would be a line extension. The Apple watch, however, is a new product line. 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 non-soup 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 6.9 shows, there are four offering levels. Consider the iPad Mini. There is (1) the basic offering (the device itself); (2) the offering’s technology platform (the cell technology used by the Mini); (3) the product line to which the Mini belongs (Apple’s iPad line of pad computers); and (4) the product category to which the offering belongs (tablet computers as opposed to iPhones, for example).

122 PRINCIPLES OF MARKETING VERSION 3.0

FIGURE 6.9 Product Levels

So how does a technology platform become a new product or service or line of new products and ser- vices? In another chapter, we take a closer look at how companies design and develop new offerings.

K E Y T A K E A W A Y S

Companies market offerings 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 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 plat- form, 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.

CHAPTER 6 CREATING OFFERINGS 123

convenience offering

Low-priced, frequently purchased products and services that require little shopping effort.

R E V I E W Q U E S T I O N S

1. How do the product-dominant and service-dominant approaches to marketing differ?

2. Do “product-dominant” and “product-oriented” mean the same thing?

3. What is the difference between a technology platform and a product line?

4. The text describes the different business models for the automobile transportation market. What would drive consumers to select one specific model? How do terms like technology platform apply to the different models?

5. What is the difference between product depth and product breadth?

2. TYPES OF CONSUMER OFFERINGS

L E A R N I N G O B J E C T I V E S

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 book because they are the most commonly referred to categories 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 func- tion 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.

2.1 Convenience Offerings Convenience offerings are products and services consumers generally don’t want to put much effort into shopping for 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.

124 PRINCIPLES OF MARKETING VERSION 3.0

FIGURE 6.10

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 of a roll of Life Savers—in the customer’s change.

Source: Wikimedia Commons.

impulse offering

An offering that is purchased on impulse, without prior planning.

shopping offering

An offering for which the consumer will make an effort to compare various firms’ offerings and select a brand.

specialty offering

An offering that is highly differentiated from other offerings and is designed to satisfy a similar need or want.

Closely related to convenience offerings are impulse offerings, or items purchased without any planning. The classic example is Life Savers, originally manufactured by the Life Savers Candy Com- pany, 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 part of their change so as to en- courage them to buy one additional item—a roll of Life Savers, of course!

2.2 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 similar 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 deciding on shopping goods. 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 the store you’re shopping at is out of it, you might put off buying the tooth- paste 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 her dental health—perhaps after she’s read online product reviews or consulted with her dentist. That’s why companies like Procter & Gamble, the maker of Crest, work hard to influence not only consumers but also people like dentists, who influence the sale of their products.

FIGURE 6.11

If your favorite toothpaste is Crest’s Whitening Fresh Mint, you might change stores if you don’t find it on the shelves of your regular store.

Source: Wikimedia Commons.

2.3 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 mo- torcycle is likely to be far different feature-wise than a Kawasaki or Suzuki motorcycle. Typically, spe- cialty 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. Therefore, the profit margin on them tends to be greater.

Note that while marketers try to distinguish between specialty offerings, shopping offerings, and convenience offerings, it is the consumer who ultimately makes the decision. Therefore, what might be a specialty offering to one consumer may be a convenience offering to another. For example, one con- sumer may never go to Sport Clips or Ultra-Cuts because hair styling is seen as a specialty offering. A consumer at Sport Clips might consider it a shopping offering, while a consumer for Ultra-Cuts may view it as a convenience offering. The choice is the consumer’s.

CHAPTER 6 CREATING OFFERINGS 125

unsought offering

An offering consumers don’t typically shop for until it is needed. Examples include funeral and towing services.

FIGURE 6.12

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: Wikimedia Commons.

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 versus a Polo label). Even so, mar- keters spend a great deal of money and effort to try to get consumers to perceive these products differ- ently than their competitors’.

2.4 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 un- sought items is difficult. Some organizations try to presell the offering, such as preneed sales in the fu- neral industry or towing insurance in the auto industry. Other companies, such as insurance compan- ies, try to create a strong awareness among consumers so that when the need arises for these products, consumers think of their organizations first.

K E Y T A K E A W A Y S

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, and so forth), for which there is little difference across brands. Shopping goods do vary, and many consumers develop strong preferences for some brands versus others. 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.

126 PRINCIPLES OF MARKETING VERSION 3.0

capital equipment offering

Tangible equipment business purchases that are depreciated.

R E V I E W Q U E S T I O N S

1. What are the four types of consumer offerings? How do they differ from one another?

2. Is it possible for cemetery plots or caskets to be a shopping good or a specialty good? Or are they always unsought goods?

3. TYPES OF BUSINESS-TO-BUSINESS (B2B) OFFERINGS

L E A R N I N G O B J E C T I V E S

1. Define the various types of offerings marketed to businesses. 2. Identify some of the differences with regard to how the various types of business offerings are

marketed.

Just like there are different types of consumer offerings, there are different types of business-to-business (B2B) offerings as well. But unlike consumer offerings, which are categorized by how consumers shop, B2B offerings are categorized by how they are used. The primary categories of B2B offerings are:

< capital equipment offerings; < raw materials offerings; < original equipment manufacturer (OEM) offerings; < maintenance, repair, and operations (MRO) offerings; and < facilitating offerings.

3.1 Capital Equipment Offerings A capital equipment offering is any equipment purchased and used for more than one year and de- preciated over its useful life. Machinery used in a manufacturing facility, for example, would be con- sidered capital equipment. Professionals who market capital equipment often have to direct their com- munications to many people within the firms to which they are selling because the buying decisions re- lated to the products can be rather complex and involve many departments. From a marketing stand- point, deciding who should get what messages and how to influence the sale can be very challenging.

CHAPTER 6 CREATING OFFERINGS 127

FIGURE 6.13

The grade of raw leather used to cover the sofa is purchased from suppliers as a commodity—that is, a certain grade is the same across vendors, which compete on the basis of price and the availability of the product.

Source: © Jupiterimages Corporation

raw materials offering

Raw material products firms offer other firms so they can make a product or provide a service. These offerings are processed only to the point required for economic handling and distribution.

manufactured material

A material that has been processed into a finished good but is not a stand-alone product; it still has to be incorporated into something else to be usable.

original equipment manufacturer (OEM)

A company that assembles and manufactures a product into its final form.

OEM offerings or components

Products, or parts, sold by one manufacturer to another that get built into a final product without further modification.

maintenance, repair, and operations (MRO)

Offerings used to maintain, repair, and operate the physical assets of an organization.

3.2 Raw Materials Offerings Raw materials offerings are materials firms offer other firms so they can make a product or provide a service. Raw materials offerings are processed only to the point re- quired to economically distribute them. Lumber is generally considered a raw material, as is iron, nickel, copper, and other ores. If iron is turned into sheets of steel, it is called a manufactured material because it has been processed into a finished good but is not a stand-alone product; it still has to be incorporated into something else to be us- able. Both raw and manufactured materials are then used in the manufacture of other offerings.

Raw materials are often thought of as commodities, meaning that there is little difference among them. Consequently, the competition to sell them is based on price and availability. Natuzzi is an Italian company that makes leather furniture. The wood Natuzzi buys to make its sofas is a commodity. By contrast, the leather the company uses is graded, meaning each piece of leather is rated based on quality. To some extent, the leather is still a commodity, because once a firm decides to buy a certain grade of leather, every company’s leather within that grade is virtually the same.

3.3 OEM Offerings or Components An original equipment manufacturer (OEM) is a manufacturer or assembler of a final product. An OEM purchases raw materials, manufactured materials, and compon- ent parts and puts them together to make a final product. OEM offerings or components, like an on/off switch, are components, or parts, sold by one manufac-

turer to another that get built into a final product without further modification. If you look at that pic- ture of the Natuzzi couch, you may notice that it sits on metal feet. The metal feet are probably made by a manufacturer other than Natuzzi, making the feet an OEM component. Dell’s hard drives installed in computer kiosks like the self-service kiosks in airports that print your boarding passes are another example of OEM components.

3.4 MRO Offerings Maintenance, repair, and operations (MRO) offerings refer to products and services used to keep a company functioning. Janitorial supplies are MRO offerings as is hardware used to repair any part of a building or equipment. MRO items are often sold by distributors. However, you can buy many of the same products at a retail store. For example, you can buy nuts and bolts at a hardware store. A business buyer of nuts and bolts, however, will also need repair items that you don’t, such as very strong solder used to weld metal. For convenience sake, the buyer would prefer to purchase multiple products from one vendor rather than driving all over town to buy them. So the distributor sends a salesperson to see the buyer. Most distributors of MRO items sell thousands of products, set up online purchasing Web sites for their customers, and provide a number of other services to make life easier for them.

128 PRINCIPLES OF MARKETING VERSION 3.0

FIGURE 6.14

These janitorial products are examples of MRO items. Because most businesses buy MRO items in large quantities and because these firms also need products not available to the general public, they will generally buy these products from a distributor such as T&G Chemical rather than from a retailer.

Source: © Jupiterimages Corporation

facilitating offerings

Offerings that support an organization’s ability to do business but do not go into the final product.

3.5 Facilitating Offerings Facilitating offerings include products and services that support a company’s opera- tions but are not part of the final product it sells. Marketing research services, banking and transportation services, copiers and computers, and other similar products and ser- vices fall into this category. Facilitating offerings might not be central to the buyer’s business, at least not the way component parts and raw materials are. Yet to the person who is making the buying decision, these offerings can be very important. If you are a marketing manager who is selecting a vendor for marketing research or choosing an advertising agency, your choice could be critical to your own personal success. For this reason, many companies that supply facilitating offerings try to build strong relation- ships with their clients.

K E Y T A K E A W A Y S

Business buyers purchase various types of offerings to make their own offerings. Some of the types of products they use are raw materials, manufactured materials, and component parts and assemblies, all of which can become part of an offering. MRO (maintenance, repair, and operations) offerings are those that keep a company’s depreciable assets in working order. Facilitating offerings are products and services a com- pany purchases to support its operations but are not part of the firm’s final product.

R E V I E W Q U E S T I O N S

1. What types of offerings do businesses buy? How do the offerings differ in terms of how they are marketed?

2. As you learned early in the chapter, consumer offering can belong to different categories depending on how the buyer wants to purchase them. Is the same true for business offerings?

CHAPTER 6 CREATING OFFERINGS 129

brand

A name, picture, design, or symbol, or combination of those elements, used by a seller to differentiate its offerings from competitors’.

Branding

A set of activities designed to create a brand and position it in the minds of consumers.

brand name

The spoken part of an identity used to describe of a brand.

brand mark

A symbol or logo used to identify a brand.

brand extension

The process of utilizing an existing brand name or brand mark for a new product category.

4. BRANDING, LABELING, AND PACKAGING

L E A R N I N G O B J E C T I V E S

1. Understand the branding decisions firms make when they’re developing new products. 2. Identify the various levels of packaging for new products.

What comes to mind when someone says Apple, Google, or Coke ? According to Interbrand, the Apple brand is the strongest brand in the world. Not too long ago, Coca-Cola held the number one spot but both Apple and Google have risen much faster. What is a “brand,” and what do these studies mean when they report that one brand is the strongest or the best?

4.1 Branding We have mentioned brands periodically throughout this chapter. But 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 cre- ate a brand and position it in the minds of consumers. Did you know that The Beatles started a record- ing studio called Apple? When Apple Computer (the iPhone and iPad 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 com- panies and their products. In fact, it wasn’t until very recently that the lawsuit over the name was settled, some thirty years after the initial lawsuit was filed. Nonetheless, the situation signifies how im- portant brand names are to the companies that own them.

A successful branding strategy is one that accomplishes what Coke and Apple have done—it cre- ates consumer recognition of what the brand (signified by its name, picture, design, symbol, and so forth) means. Consequently, when marketing professionals are considering whether a potential new offering fits a company’s image, they are very concerned about whether the offering supports the or- ganization’s brand and position in the mind of the consumer. For this reason, many consider branding to be much more than how the product is packaged or labeled, and they are right. Characteristics of the offering, such as pricing and quality, have to support the brand’s position. If Apple (the brand) stands for innovation, then products and services have to be innovative. But branding itself refers to strategies that are designed to create an image and position in the consumers’ minds.

One challenge that Apple and other international brands face is how brands translate from one country to another. IKEA, the Swedish furniture retailer, has one product called the Redalen, a word that is also the name of a town in Norway as well as a sports term in Thailand.[3]

A brand name, like 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 be- cause 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.

An important decision companies must make is under which brand a new offering will be mar- keted. 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 manufactured under its Dewalt brand. If Black & Decker decided to add to its Dewalt line new products such as coolers, portable music systems, 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. Black & Decker has three choices: market these products un- der the Black & Decker brand, the Dewalt brand, or a new brand.

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 perform- ance among construction professionals and because the company believes these professionals would be most likely to buy such products. These same professionals would trust the Dewalt brand to deliver. But if the company had developed a line of products that would sell to a different market or might be expected to deliver very different benefits to the same market, a new brand might be more effective.

130 PRINCIPLES OF MARKETING VERSION 3.0

Cannibalization

When a new product takes sales away from the same company’s existing products.

FIGURE 6.15

Sometimes the package itself is part of a licensed brand. Coke’s curvaceous bottle is an example.

Source: Wikimedia Commons.

Primary packaging

Packaging designed to hold a single retail unit of a product.

Secondary packaging

Packaging designed to hold a single wholesale unit of a product.

tertiary packaging

Packaging designed for the shipping and efficiently handling of large quantities of a product.

For example, Procter & Gamble sells detergent for cleaning clothes and soap for cleaning dishes, yet doesn’t have brands that are the same across those two applications. Both are versions of soap. The company, though, believes that a key selling point is how each product is engineered for a specific job and the consumer needs a different brand for each job in order to trust the brand.

How a company like Black & Decker or Procter & Gamble go about building this trust is the sub- ject of later chapters. For now, 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 for the product.

One thing firms have to consider when they’re branding a new offering is the degree of cannibaliz- ation 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, such as coolers and portable music systems, will not result in cannibalization for Dewalt power tools, 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 and portable music systems when the Dewalt line of the same products was 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.

4.2 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 curves 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.

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; and < 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 (five hundred sheets) of printer paper are all ex- amples 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 needed 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 twelve- packs, for example.

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. So- metimes, secondary packaging is also designed to be turned into a display for the product.

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.

CHAPTER 6 CREATING OFFERINGS 131

FIGURE 6.16

A single wholesale unit of a product, such as these empty cartons shown here, is an example of secondary packaging. Each of these boxes might hold, for example, twenty-four cans of car polish or thirty-six cans of bug spray.

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

132 PRINCIPLES OF MARKETING VERSION 3.0

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.

FIGURE 6.17

This product is bound in tertiary packaging so that mass quantities of it can be stacked on pallets and moved with a forklift.

CHAPTER 6 CREATING OFFERINGS 133

brand manager

A person responsible for all business decisions regarding offerings within one brand. A brand manager is often charged with running his or her brand as if it is its own separate business.

product manager

Someone with business responsibility for a particular product or product line. Like brand managers, product managers must make decisions, such as which offerings to include, advertising selection, and others.

category manager

Someone responsible for managing a broad group of products that may belong to multiple manufacturers.

K E Y T A K E A W A Y S

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 com- panies must make is under which brand a new offering will be marketed. A brand extension involves utilizing 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.

R E V I E W Q U E S T I O N S

1. How do brands help companies market their products?

2. What is the purpose of a brand extension?

3. When would you choose a brand extension over a new brand?

4. Name the basic types of packaging used in marketing.

5. MANAGING THE OFFERING

L E A R N I N G O B J E C T I V E S

1. Understand the people involved in creating and managing offerings. 2. Recognize the differences in organizing product marketing for consumer versus B2B

companies.

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 busi- ness 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, pricing options, and so forth. 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, 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 productsource line. Like the brand manager, the product manager must make many business decisions, such as which offerings to include, advertising selection, and so on. Companies with brand managers include Microsoft, Procter & Gamble, SC Johnson, Kraft, Target, General Mills, and ConAgra Foods. Product managers are found at Teradata, IBM, Crown, Rockwell International, and many others.

The University of Georgia was the first to launch a graduate program in brand management, but the only major program now being taught in the United States is at the University of Wisconsin. The program is 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 the United Kingdom, a number of schools have undergraduate degree programs specializ- ing in brand management, as does Seneca College in Toronto, Canada.

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 brand manager who then reports directly to the category manager.

134 PRINCIPLES OF MARKETING VERSION 3.0

market manager

Someone responsible for managing efforts within a particular market, such as a geographic market or another grouping of customers into a market (e.g., a single industry or size).

vertical market

B2B customers that compose a particular industry, such as the health care industry.

vertical market managers

Marketing managers who oversee B2B products sold to a particular industry.

At the retail level, a category manager at each store is responsible for more than just one manufac- turer’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.

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 mosqui- toes are already breeding and biting in the southern United States.

In B2B markets, a market manager is more likely to be given responsibility for a particular market segment, such as all hospital health care professionals or doctor’s offices. All customers such as these (retail, wholesale, and so forth) in a particular industry compose what’s called a vertical market, and the managers of these markets are called vertical market managers. B2B companies organize in this way because

< buying needs and processes are likely to be similar within an industry, < channels of communication are likely to be the same within an industry but different across

industries. Because magazines, websites, and trade shows are organized to serve specific industries or even specific positions within industries, B2B marketers find vertical market structures (meaning each group serves a different industry) for marketing departments to be more efficient than organizing by geography.

Market managers sometimes report to brand managers or are a part of their firms’ sales organiza- tions 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 mar- ket managers but no brand managers. Instead, marketing vice presidents or other executives are re- sponsible for the brands.

K E Y T A K E A W A Y S

Brand managers decide what products are to be marketed and how. Other important positions include cat- egory managers, market managers, and vertical market managers. Category managers are found in consumer markets, usually in retail. Market managers can be found in both consumer markets and B2B markets. However, vertical market managers are found only in B2B markets. Some companies have market managers but no brand managers. Instead, a vice president of marketing or other executive is responsible for the brands.

R E V I E W Q U E S T I O N S

1. What is a brand manager?

2. How do brand managers differ from category managers?

3. What is a market manager?

4. Which type of manager has the most marketing responsibility?

CHAPTER 6 CREATING OFFERINGS 135

6. DISCUSSION QUESTIONS AND ACTIVITIES

D I S C U S S I O N Q U E S T I O N S

1. How is marketing capital equipment different from marketing MRO offerings?

2. What are the marketing implications for your company if buyers stop viewing your primary offering as a shopping good and begin considering it a convenience good? How would you respond to the change?

3. Can you market unsought goods? If so, how?

4. How does packaging add value for consumers and retailers?

5. If consumers find the most value in the services of your offering rather than the tangible product, how will perishability, intangibility, variability, and inseparability influence your marketing? Be specific for each characteristic.

6. Choose two of the different marketing jobs or positions described and compare and contrast the challenges associated with each. One position should be one you would want while the other is one you would not. Why did you pick one over the other?

7. Describe three decisions that would be made differently from a product-dominant approach when compared to a service-dominant approach. What is each decision and how would it be different?

8. When would a product orientation be useful? Why?

9. Describe an example of a core product where there are many different augmented products and the augmented products are considered very different by the consumer or user.

10. The text says that branding is much more than labeling or packaging. Provide some examples where you believe the product did not live up to the brand. Using examples to illustrate how consistency works, discuss how the offering and the desired brand image have to be consistent.

A C T I V I T I E S

1. Identify three television commercials designed to persuade buyers to view the products being advertised as shopping items rather than convenience items. What is similar about the strategies employed in the commercials? Do you think the commercials are successful? Why or why not?

2. Identify a product for which packaging adds value and describe how that value is added for the consumer. Identify a second brand for which the organization uses primary packaging to distinguish the brand at the point of purchase, and describe how the package contributes to the branding. Do not use brands used as examples in the chapter. Finally, identify a pure service brand and describe how that service is “packaged.”

3. Select two brands that serve the same market but are not discussed in the chapter. Using print advertising, screen shots from Web sites, and stills from commercials (use screen shots from streaming video), assemble supporting material that helps you describe what each brand stands for and how consumers view each brand. Is one brand better than the other? Why or why not?

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136 PRINCIPLES OF MARKETING VERSION 3.0

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ENDNOTES

Arun Sundararajan, "From Zipcar to the Sharing Economy," Harvard Business Review, January 3, 2013, https://hbr.org/2013/01/from-zipcar-to-the-sharing-eco/.

John Burbank, “The Rise of the Sharing Economy,” Huffington Post, August 5, 2014, http://www.huffingtonpost.com/john-burbank/the-rise-of-the-sharing- e_b_5454710.html.

James Gookway, “IKEA’s Products Make Shoppers Blush,” Wall Street Journal, May 14, 2015, p. B2.

CHAPTER 6 CREATING OFFERINGS 137

138 PRINCIPLES OF MARKETING VERSION 3.0

Chapter 6: Creating Offerings

What Comprises an Offering?

Product, Price, and Service
The Product-Dominant Approach to Marketing
The Service-Dominant Approach to Marketing
The Sharing Economy
Product Levels and Product Lines

Types of Consumer Offerings

Convenience Offerings
Shopping Offerings
Specialty Offerings
Unsought Offerings

Types of Business-to-Business (B2B) Offerings

Capital Equipment Offerings
Raw Materials Offerings
OEM Offerings or Components
MRO Offerings
Facilitating Offerings

Branding, Labeling, and Packaging

Branding
Packaging Decisions

Managing the Offering
Discussion Questions and Activities
Endnotes