Marketing 310 Week 5 Writing assignment

Week 5, "Creating Offerings" was derived from Principles of Marketing, which was adapted by the Saylor Foundation under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported license without

attribution as requested by the work's original creator or licensee. © 2015, The Saylor Foundation.

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Week 5 Creating Offerings

Why do buyers purchase something? Why do you own anything? Many of us own iPads, but few

of us do for the sake of owning an iPad. We own one because it delivers music, productivity, and

connectivity. Or we own one because we have been influenced to buy one. Shortly after the iPad's

introduction, some people undoubtedly purchased the devices because other people thought they

were "cool," and they wanted to be cool by owning one. Now iPads are so ubiquitous that no one

gives them a second glance. Yet the impact that iPads have had on the music, entertainment, and

mobile connectivity industry has been huge because the product revolutionized how we stay in

touch and conduct our lives.

This week, we focus on how to define and categorize offerings and then how to develop new

offerings based on consumer needs. These are important concepts to marketers because new

offerings generally serve a specific target market. We will use many commonly known offerings to

illustrate these concepts, most of which you are probably familiar, and perhaps you are even a

member of the product's target market or current customer.

5.1 What Composes an Offering?

LEARNING OBJECTIVES

1. Distinguish between the three major components of an offering: product, price, and service. 2. Explain, from both a product-dominant and a service-dominant approach, the mix of components

that compose different types of offerings. 3. Distinguish between technology platforms and product lines.

People buy things to solve needs. In the case of the iPad, the need is to have better access to

music, connectivity functions, productivity function, games and other entertainment, to look cool

on the go, or all of the above. Offerings are products and services designed to deliver value to

customers—either to fulfill their needs, satisfy their "wants," or both. This week, we discuss how

marketing fills consumer needs through the creation and delivery of offerings.

Product, Price, and Service Most offerings consist of a product, or a tangible good people can buy, sell, and own. Purchasing

a classic iPad, for example, will allow you to store thousands of songs and hundreds of hours of

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video, connect to your e-mail and other social media, search the web and just about everything

you can do on a desktop computer, but not be tethered to the desktop. The amount of storage is

an example of a feature, or characteristic of the offering. If your iPad playlist consists of 20,000

songs, then this feature delivers a benefit—the benefit of plenty of storage. However, the feature

will only benefit you to a point. For example, you won't be willing to pay more for the extra

storage if you only need half that much. When a feature satisfies a need or want, then there is a

benefit. Features, then, matter differently to different consumers based on each individual's

needs. Remember the value equation introduced in Week 1, which is different for every customer.

An offering also consists of a price, or the amount people pay to receive the offering's benefits.

The price paid can consist of a one-time payment, or it can consist of something more than that.

Many consumers think of a product's price as only the amount they paid; however, the true cost of

owning an iPad, for example, is the cost of the device itself plus the cost of the music, videos,

books, games, and other applications downloaded onto it. The total cost of ownership (TCO),

then, is the total amount someone pays to own the product, use the product, and eventually

dispose of the product.

TCO is usually thought of as a concept businesses use to compare offerings. However, consumers

also use the concept. For example, suppose you are comparing two sweaters, one that can be

hand-washed and one that must be dry-cleaned. The hand-washable sweater will cost you less to

own in dollars but may cost more to own in terms of your time and hassle. A smart consumer

would take that into consideration. When we first introduced the personal value equation in Week

1, "What Is Marketing?", we discussed hassle as the time and effort spent making a purchase. A

TCO approach, though, would also include the time and effort related to owning the product—in

this case, the time and effort to hand-wash the sweater.

A service is also a product. A service is an action that provides a buyer with an intangible benefit.

A haircut is a service. When you purchase a haircut, it's not something you can hold, give to

another person, or resell. "Pure" services are offerings that don't have any tangible characteristics

associated with them. Skydiving is an example of a pure service. You are left with nothing after

the jump but the memory of it (unless you buy a DVD of the event). Yes, a plane is required, and it

is certainly tangible. But the plane isn't the product—the jump is. At times, people use the term

"product" to mean an offering that's either tangible or intangible. Banks, for example, often

advertise specific types of loans, or financial "products," they offer consumers. Yet, these products

are financial services. The term "product" is frequently used to describe an offering of either type.

Many tangible products have intangible service components. When Apple introduces a product, it

comes with a service component. Apple provides staff for troubleshooting questions in its Genius

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Bars at its stores. Apple supports user groups, services Apple products and provides training, and

Apple owners can access online and telephone help. A buyer of an Apple product may never take

advantage of these services, but buyers do consider these benefits when considering the personal

value equation.

Some Apple products require a pure service component to be operational, such as the iPhone that

requires a cell phone carrier. The customer experience with the cell phone carrier is all part of the

iPhone ownership experience, and both Apple and the cell phone carriers are interconnected in

the consumer's mind.

Figure 5.1

Sport Clips is a barbershop with a sports-bar atmosphere. The company's slogan is "At Sport

Clips, guys win." So, although you may walk out of Sport Clips with the same haircut you could

get elsewhere, the experience you had getting it was different, which adds value for some

buyers.

Source: Photo by M.O. Stevens (2012). Wikimedia Commons. Used under the terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license.

What services do you get when you purchase a can of soup? You might think that a can of soup is

as close to a "pure" product devoid of services that you can get. But think for a moment about

your choices in terms of how to purchase the can of soup. You can buy it at a convenience store, a

grocery store, or online. Your choice of how to get it is a function of the product's intangible

service benefits, such as the way you are able to shop for it.

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Figure 5.2

Even what seems like a "pure" product like a can of soup can have an intangible service

component associated with it, such as the way you are able to shop for it—say, at a convenience

store, a grocery store such as Publix, or perhaps online.

Source: (Left): Photo from Wikimedia Commons.(2005). Used under the terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license.

(Right) Photo by Alexf. (2008). Wikimedia Commons. Used under the terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license.

The Product-Dominant Approach to Marketing From the traditional product-dominant perspective of business, marketers consider products,

services, and prices as three separate and distinguishable characteristics. To some extent, they

are. Whirlpool could, for example, change some of the features of its washers and not change its

service policies or the equipment's price.

The product-dominant marketing perspective has its roots in the Industrial Revolution when

businesspeople focused on the development of products that could be mass-produced cheaply.

New models every year with product improvements were common. In other words, firms

became product-oriented, meaning that they believed the best way to capture market share

was to create and manufacture better products at lower prices. Marketing remained oriented that

way until after World War II, when the service-dominant approach to marketing was born.

The Service-Dominant Approach to Marketing Who determines which products are better? Customers do, of course, and the emphasis on the

consumer in marketing is the major theme of this course. Thus, taking a product-oriented

approach can result in marketing professionals focusing too much on the product itself and not

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enough on the customer or service-related factors that customers want. Most customers will

compare tangible products and the prices charged for them in conjunction with the services that

come with them. In other words, the complete offering is the basis of comparison. So, although a

buyer will compare the price of product A to the price of product B, in the end, the prices are

compared in conjunction with the other features and services of the products. The dominance of

any of these dimensions is a function of the buyer's needs.

The advantage of the service-dominant approach is that it integrates the product, price, and

service dimensions of an offering. This helps marketers think more like customers, which can

help them add value to their firm's products. In addition to the offering itself, marketers should

consider what services it takes for the customer to acquire their offerings (e.g., the need to learn

about the product from a sales clerk, the need to acquire software, etc.), to enjoy them, and to

dispose of them (e.g., someone to move the product out of the house), because each of these

activities create costs for their customers—either monetary costs or time and hassle costs.

Customers are now becoming more involved in the creation of benefits. Let's go back to that

"pure" product, Campbell's Cream of Chicken Soup. The consumer may prepare that can as a

bowl of soup, but it could also be used as an ingredient in making chicken casserole. As far as the

consumer goes, no benefit is experienced until the soup is eaten; thus, the consumer played a part

in the creation of the final "product" when the soup was an ingredient in the chicken casserole. Or

suppose your office's cafeteria made chicken casserole for you to consume; in that case, you both

ate a product and consumed a service.

Some people argue that focusing too much on the customer can lead to too little product

development or poor product development. These people believe that customers often have

difficulty seeing how an innovative new technology can create benefits. Researchers and

entrepreneurs frequently make many discoveries, and then products are created as a result of

those discoveries. 3M's Post-it Notes are an example. The adhesive that made it possible for Post-

it Notes to stick and restick was created by a 3M scientist who was actually trying to make

something else. Post-it Notes came later. Both the microwave oven and ATM machines were

developed long before they were commercialized. The consumers could not understand nor trust

these products until their busy lifestyles created needs for more time-saving offerings.

Product Levels and Product Lines A product's technology platform is the core technology on which it is built. Take, for example,

the iPod, which is based on MP3 technology. In many cases, the development of a new offering is

to take a technology platform and rebundle its benefits in order to create a different version of an

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already-existing offering. For example, in addition to the iPod Classic, Apple offers the Shuffle

and the Nano. Both are based on the same core technology.

In some instances, a new offering is based on a technology platform originally designed to solve

different problems. For example, a number of products originally were designed to solve the

problems facing NASA's space-traveling astronauts. Later, that technology was used to develop

new types of offerings. EQyss's Micro Tek pet spray, which stops pets from scratching and biting

themselves, is an example. The spray contains a trademarked formula developed by NASA to

decontaminate astronauts after they return from space.

A technology platform isn't limited to tangible products. Knowledge can be a type of technology

platform in a pure services environment. For example, the "bioesthetic" treatment model was

developed to help people who suffer from TMJ, a jaw disorder that makes chewing painful. A

dentist can be trained on the bioesthetic technology platform and then provide services based on

it. There are, however, other ways to treat TMJ that involve other platforms, or bases of

knowledge and procedures, such as surgery.

Few firms survive by selling only one product. Most firms sell several offerings designed to work

together to satisfy a broad range of customers' needs and desires. A product line is a group of

related offerings. Product lines are created to make marketing strategies more efficient.

Campbell's condensed soups, for example, are basic soups sold in cans with red labels. But

Campbell's Chunky is a ready-to-eat soup sold in cans that are labeled differently. Most

consumers expect there to be differences between Campbell's red-label chicken soup and Chunky

chicken soup, even though they are both made by the same company.

Figure 5.3 Campbell's Soup Varieties

Source: (Left) Photo by Mike Mozart. (2014). Flickr. Used under

the terms of the Creative Commons Attribution 2.0 Generic license. (Right) Photo by theimpulsivebuy. (2013). Flickr. Used under the terms

of the Creative Commons Attribution-ShareAlike 2.0 Generic license.

A product line can be broad, as in the case of Campbell's condensed soup line, which consists of

several dozen different flavors. Or, a product line can be narrow, as in the case of Apple's iPod

line, which consists of only a few different MP3 devices. The number of offerings there are in a

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single product line—that is, whether the product line is broad or narrow—is called line depth.

When new but similar products are added to the product line, it is called a line extension. If

Apple introduces a new MP3 player to the iPod family, that would be a line extension. Companies

can also offer many different product lines. Line breadth (or width) is a function of how many

different, or distinct, product lines a company has. For example, Campbell's has a Chunky soup

line, condensed soup line, Kids' soup line, lower sodium soup line, and a number of nonsoup lines

like Pace Picante sauces, Prego Italian sauces, and crackers. The entire assortment of products

that a firm offers is called the product mix.

As Figure 5.4, "Product Levels," shows, there are four offering levels. Consider the iPod Shuffle.

There is (1) the basic offering (the device itself), (2) the offering's technology platform (the MP3

format or storage system used by the Shuffle), (3) the product line to which the Shuffle belongs

(Apple's iPod line of MP3 music players), and (4) the product category to which the offering

belongs (MP3 players as opposed to iPhones, for example).

Figure 5.4 Product Levels

So how does a technology platform become a new product or service or line of new products and

services? We will explore that question a little later under new product development.

5 . 1 K E Y T A K E A W A Y

A company's market offering is composed of a combination of tangible and intangible characteristics for certain prices. During the Industrial Revolution, firms focused primarily on products and not so much on customers. The service-dominant perspective to marketing integrates three different dimensions of an

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offering—not only the product but also its price and the services associated with it. This perspective helps marketers think more like their customers, which helps firms add value to their offerings. An offering is based on a technology platform, which can be used to create a product line. A product line is a group of similar offerings. A product line can be deep (many offerings of a similar type) and/or broad (offerings that are very different from one another and cover a wide range of customers' needs). The entire assortment of products that a company offers is called the product mix.

5.2 Types of Consumer Offerings

LEARNING OBJECTIVES

1. Define the various types of offerings marketed to individual consumers. 2. Explain why a single offering might be marketed differently to different types of consumers.

Products and services can be categorized in a number of ways. We will use these categories

throughout the course because they are the most commonly referred to by marketers and because

there are marketing implications for each. Consumer offerings fall into four general categories:

1. Convenience offerings

2. Shopping offerings

3. Specialty offerings

4. Unsought offerings

In this section, we will discuss each of these categories. Keep in mind that the categories are not a

function of the characteristic of the offerings themselves. Rather, they are a function of how

consumers want to purchase them, which can vary from consumer to consumer. What one

consumer considers a shopping good might be a convenience good to another consumer.

Convenience Offerings Convenience offerings are products and services for which consumers generally don't want to

put much effort into shopping because they see little difference between competing brands. For

many consumers, bread is a convenience offering. A consumer might choose the store in which to

buy the bread but be willing to buy whatever brand of bread the store has available. Marketing

convenience items is often limited to simply trying to get the product in as many places as

possible where a purchase could occur.

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Figure 5.5

The Life Savers Candy Company was formed in 1913. Its primary sales strategy was to create

an impulse to buy Life Savers by encouraging retailers and restaurants to place them next to

their cash registers and include a nickel—the purchase price—in the customer's change.

Source: Photo by Scott Ehardt. (2005). Wikimedia Commons. In the public domain.

Closely related to convenience offerings are impulse offerings, or items purchased without any

planning. In general, impulse offerings are purchased in conjunction with another type of

purchase such as a shopping offering. The classic example is Life Savers, originally manufactured

by the Life Savers Candy Company, beginning in 1913. The company encouraged retailers and

restaurants to display the candy next to their cash registers and to always give customers a nickel

back as change so as to encourage them to buy one more item—a roll of Life Savers, of course!

Figure 5.6 Impulse and/or Convenience Goods

Whether a product is considered an impulse good or a convenience good is in the mind of the

consumer. Candy displays near grocery store registers appeal to both. Notice some of the candy

also offers a price promotion, or a further incentive for making the purchase without much

thought.

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Source: Photo by Doc Brown (2007). Flickr. Used under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic license.

Shopping Offerings A shopping offering is one for which the consumer will make an effort to compare and select a

brand. Consumers believe there are differences between shopping offerings and want to find the

right one or the best price. Buyers might visit multiple retail locations or spend a considerable

amount of time visiting websites and reading reviews about the product, such as the reviews

found in Consumer Reports.

Consumers often care about brand names when they're shopping. If a store is out of a particular

brand, then another brand might not do. For example, if you prefer Crest Whitening Expressions

toothpaste and a store is out if it, you might put off buying the toothpaste until your next trip to

the store. Or, you might go to a different store or buy a small tube of some other toothpaste until

you can get what you want. Note that even something as simple as toothpaste can become a

shopping good for someone very interested in dental health—perhaps after reading online

product reviews or consulting with the dentist. That's why companies such as Procter & Gamble,

the maker of Crest, work hard to influence not only consumers but also people such as dentists

who influence the sale of their products.

Specialty Offerings Specialty offerings are highly differentiated offerings, and the brands under which they are

marketed are very different across companies, too. For example, an Orange County Chopper or

Iron Horse motorcycle is likely to be far different feature-wise than a Kawasaki or Suzuki

motorcycle. Typically, specialty items are available only through limited channels. For example,

exotic perfumes available only in exclusive outlets are considered specialty offerings. Specialty

offerings are purchased less frequently than convenience offerings, and consumers will generally

do some preplanning in terms of finding the right retailers and traveling farther. Therefore, the

profit margin on specialty offerings tends to be greater.

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Figure 5.7

Specialty offerings, such as this custom-made motorcycle, are highly differentiated. People will

go to greater lengths to shop for these items and are willing to pay more for them.

Source: Photo by Nick Knouse. (2006). Wikimedia Commons. Used under the terms of the Creative Commons Attribution 2.0 Generic license.

Marketing specialty goods requires building brand name recognition in the minds of consumers

and educating them about your product's key differences. This is critical. For fashion goods, the

only point of difference may be the logo on the product (for example, an Izod vs. a Polo label).

Even so, marketers spend a great deal of money and effort to try to get consumers to perceive

these products differently than their competitors' products.

Unsought Offerings Unsought offerings are those that buyers do not generally want to have to shop for until they

need them. Towing services and funeral services are generally considered unsought offerings.

Marketing unsought items is difficult. Some organizations try to presell the offering, such as

preneed sales in the funeral industry or towing insurance in the auto industry or as part of an

automobile club membership. The club merges unsought offerings with other tangible goods and

services to create a strong bundle of value so that consumers associate the club when the need for

an unsought offering occurs.

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5 . 2 K E Y T A K E A W A Y

Convenience offerings, shopping offerings, specialty offerings, and unsought offerings are the major types of consumer offerings. Convenience offerings often include life's necessities (bread, milk, fuel), for which there is little difference across brands. Shopping goods do vary, and many consumers develop strong preferences for some brands. Specialty goods are even more exclusive. Unsought goods are a challenge for marketers because customers do not want to have to shop for them until they need them.

5.3 Branding, Labeling, and Packaging

LEARNING OBJECTIVES

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

What comes to mind when someone says Coke or Nike or Microsoft? According

to BusinessWeek magazine, the Coca-Cola brand is the strongest brand in the world. However, a

global study of consumers sponsored by Reuters found that Apple has the best brand. What is a

"brand," and what do these studies mean when they report that one brand is the strongest or the

best?

Branding What is a brand? A brand is a name, picture, design, or symbol, or combination of those items,

used by a seller to identify its offerings and to differentiate them from competitors'

offerings. Branding is the set of activities designed to create a brand and position it in the minds

of consumers.

Did you know that The Beatles started a recording studio called Apple? When Apple Computer

(the iPod company) was formed, Apple Corp., Ltd. (the Beatles' recording studio), sued Apple

Computer because two companies with the same name can create confusion among consumers.

This wasn't much of a problem when Apple was only selling computers, but following the release

of the iPod and launch of Apple's iTunes program, a case could be made that the companies'

offerings are similar enough for consumers to confuse the two companies and their products. In

fact, the matter took about 30 years to settle, long after the initial lawsuit was filed. Nonetheless,

the situation signifies how important brand names are to the companies that own them.

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Figure 5.8

According to Forbes Magazine, Apple is the world's most valuable brand. A valuable brand

allows the company to charge a premium price and expand its offerings with the advantage of a

positive brand image in the minds of consumers. Following Apple, the top 15 valuable brands

include Microsoft, Google, Coca-Cola, IBM, McDonald's, General Electric, Samsung, Toyota,

Louis Vuitton, BMW, Cisco, Intel, Disney, and Oracle (Badenhausen, 2014).

Source: Photo by CbMeeks. (2008). Wikimedia Commons. In the public domain.

A successful branding strategy is one that accomplishes what Coke and Apple have done—it

creates consumer recognition of what the brand (signified by its name, picture, design, symbol)

means. Consider Kleenex, a brand name of facial tissue, which is now a commonly used term to

refer to any facial tissue. That is a strong brand. Consequently, when marketing professionals are

considering whether a potential new offering fits a company's image, they are concerned about

whether the offering supports the organization's brand and position in the mind of the consumer.

When Coke ventured into diet drinks, it launched Tab, a cola product containing an artificial

sweetener. When consumers eventually accepted artificially sweetened sodas, Coke launched Diet

Coke to take advantage of the consumer confidence and acceptance of its Coke name.

A brand name, such as Apple, is the spoken part of a brand's identity. A brand mark is the

symbol, such as Coke's wave or Apple Computer's multicolor apple (not to be confused with Apple

Records' green apple), associated with a brand. Brand names and brand marks are important to

companies because consumers use them to make choices. That's why it was important to sort out

the Apple brand. Each company wanted to make sure that consumers were getting what they

wanted and would know what each brand meant.

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An important decision companies must make is under which brand a new offering will be

marketed. For example, Black & Decker makes power tools for consumers under its Black &

Decker brand, while tools for more serious do-it-yourselfers and professionals are under its

Dewalt brand. If Black & Decker decided to add to its Dewalt line new products such as coolers,

portable radios, CD players, and other accessories construction professionals might find useful at

a job site, the company would be creating a brand extension. A brand extension involves

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

Why would Black & Decker add these accessories to the Dewalt line? If the company did, it would

be because Dewalt already has a good reputation for high-quality, long-lasting durability, and

performance among construction professionals. These same professionals would trust the Dewalt

brand to deliver. Let's consider whether it is better for a company to market a new product via a

brand extension or create an entirely new brand.

One thing firms have to consider when they're branding a new offering is the degree of

cannibalization that can occur across products. Cannibalization occurs when a firm's new

offering eats into the sales of one of its older offerings. (Ideally, when you sell a new product, you

hope that all of its sales come from your competitors' buyers or buyers that are new to the

market.) A completely new offering will not result in cannibalization, whereas a line extension

likely will. A brand extension will also result in some cannibalization if you sell similar products

under another brand. For example, if Black & Decker already had an existing line of coolers,

portable radios, and CD players when the Dewalt line of them were launched, the new Dewalt

offerings might cannibalize some of the Black & Decker offerings.

Some marketers argue that cannibalization can be a good thing because it is a sign that a company

is developing new and better offerings. These people believe that if you don't cannibalize your

own line, then your competitors will. The goal would be to increase the company's revenues

overall even though revenues of one product line might be reduced due to cannibalization.

Packaging Decisions Another set of questions to consider involves the packaging on which a brand's marks and name

will be prominently displayed. Sometimes the package itself is part of the brand. For example, the

curvaceous shape of Coca-Cola's Coke bottle is a registered trademark. If you decide to market

your beverage in a similar-shaped bottle, Coca-Cola's attorneys will have grounds to sue you.

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Figure 5.9

Sometimes the package itself is part of a licensed brand.

Coke's curvaceous bottle is an example.

Source: Photo by Cokewww. (2005). Wikimedia Commons. In the public domain.

Packaging has to fulfill a number of important functions, including

• communicating the brand and its benefits

• protecting the product from damage and contamination during shipment, as well as

damage and tampering once it's in retail outlets

• preventing leakage of the contents

• presenting government-required warning and information labels.

Sometimes packaging can fulfill other functions, such as serving as part of an in-store display

designed to promote the offering.

Primary packaging holds a single retail unit of a product. For example, a bottle of Coke, a bag

of M&Ms, or a ream of printer paper (500 sheets) are all examples of primary packages. Primary

packaging can be used to protect and promote products and get the attention of consumers.

Primary packaging can also be used to demonstrate the proper use of an offering, provide

instructions on how to assemble the product, or any other information. If warning or nutrition

labels are required, they must be on the primary packaging. Primary packaging can be bundled

together as well. Consumers can buy bottles of Coke sold in six-packs or cans of Coke in 12-packs.

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Secondary packaging holds a single wholesale unit of a product. A case of M&M bags is an

example, as are cartons of reams of paper. Secondary packaging is designed more for retailers

than consumers. It does not have to carry warning or nutrition labels but is still likely to have

brand marks and labels. Secondary packaging further protects the individual products during

shipping.

Tertiary packaging is packaging designed specifically for shipping and efficiently handling

large quantities. When a Coca-Cola bottler ships cases of Cokes to a grocery store, they are

stacked on pallets (wooden platforms) and then wrapped in plastic. Pallets can be easily moved by

a forklift truck and can even be moved within the grocery store by a small forklift.

A product's packaging can benefit the customer beyond just protecting the offering while it's

being shipped. No-spill caps, for example, can make it easier for you to use your laundry

detergent or prevent spills when you're adding oil to your car's engine. And, as we have noted,

secondary packaging (and also tertiary packaging) can serve as part of an in-store display, thereby

adding value for your retailers.

5 . 3 K E Y T A K E A W A Y

A brand is a name, picture, design, or symbol, or combination of those items, used by a seller to identify its offerings and differentiate them from competitors' offerings. Branding is the set of activities designed to create a brand and position it relative to competing brands in the minds of consumers. An important decision companies must make is under which brand a new offering will be marketed. A brand extension involves using an existing brand name or brand mark for a new product or category (line) of products. Cannibalization occurs when a company's new offering eats into the sales of one of its older offerings. It is something to be avoided in most cases, but it can also be a sign of progress because it means a company is developing new and better products. Packaging protects products from damage, contamination, leakage, and tampering, but it is also used to communicate the brand and its benefits, product warnings, and proper use.

5.4 Managing the Offering

LEARNING OBJECTIVES

1. Understand the people involved in creating and managing offerings. 2. Recognize the differences in organizing product marketing for consumer vs. business-to-business

(B2B) companies.

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Managing all of a company's offerings presents a number of challenges. Depending on the size of

the company and the breadth of the company's offerings, several positions may be needed.

A brand manager is one such position. A brand manager is the person responsible for all

business decisions regarding offerings within one brand. By business decisions, we mean making

decisions that affect profit and loss, which include such decisions as which offerings to include in

the brand, how to position the brand in the market, and pricing options. Indeed, a brand manager

is often charged with running the brand as if it were its own separate business.

A brand manager is much more likely to be found in consumer marketing companies. Typically,

business-to-business (B2B) companies do not have multiple brands, so the position is not

common in the B2B environment. What you often find in a B2B company is

a product manager, someone with business responsibility for a particular product or product

line. Like the brand manager, the product manager must make many business decisions, such as

which offerings to include, and advertising selection. Companies with brand managers include

Microsoft, Procter & Gamble, SC Johnson, Kraft, Target, General Mills, and ConAgra Foods.

Product managers are found at Xerox, IBM, Konica-Minolta Business Solutions, Rockwell

International, and many others.

The University of Georgia was the first to launch a graduate program in brand management, and

the University of Wisconsin features a major program managed through the university's Center

for Brand and Product Management. Most brand managers simply have an undergraduate degree

in marketing, but it helps to have a strong background in either finance or accounting because of

the profitability and volume decisions brand managers have to make.

In some companies, a category manager has responsibility for business decisions within a

broad grouping of offerings. For example, a category manager at SC Johnson may have all home

cleaning products, which would mean that brands such as Pledge, Vanish, Drano, Fantastik,

Windex, Scrubbing Bubbles, and Shout would be that person's responsibility. Each of those

brands may be managed by a brand manager, who then reports directly to the category manager.

At the retail level, a category manager at each store is responsible for more than just one

manufacturer's products. The home cleaning category manager would have responsibility for

offerings from SC Johnson, as well as Procter & Gamble, Colgate-Palmolive, and many other

producers.

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Another option is to create a market manager, who is responsible for business decisions within

a market. In this case, a market can be defined as a geographic market or region; a market

segment, such as a type of business; or a channel of distribution. For example, SC Johnson could

have regional insect control managers. Regional market managers would make sense for insect

control because weather has an influence on which bugs are pests at any given time. For example,

a southern regional manager would want more inventory of the repellent Off! in March because it

is already warm and the mosquitoes are breeding and biting in the southern United States.

Market managers sometimes report to brand managers or are a part of their firms' sales

organizations and report to sales executives. Market managers are less likely to have as much

flexibility in terms of pricing and product decisions and have no control over the communication

content of marketing campaigns or marketing strategies. These managers are more likely to be

tasked with implementing a product or brand manager's strategy and be responsible for their

markets. Some companies have market managers but no brand managers. Instead, marketing

vice presidents or other executives are responsible for the brands.

5 . 4 K E Y T A K E A W A Y

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

5.5 New Products

LEARNING OBJECTIVES

1. Identify an effective process for creating offerings and bringing them to market. 2. Understand the relative importance of each step in the new offering development process and the

functions within each step. 3. Distinguish between the various forms of testing and analysis that take place before a new offering is

brought to the market.

Having something that customers want to buy is important to any company. Most companies are

started by people who get an idea about how to make something better. Hewlett-Packard, for

example, began in 1939 in a garage (now a California historic landmark) when two young

engineers, Bill Hewlett and Dave Packard, thought they had a better idea for designing and

making a precision audio oscillator, which is an electronic device that tests sound. Their product

was so much more precise than competitors' products that it was manufactured and sold around

19

the world for over 30 years. In fact, it is probably one of the longest-selling electronic devices

ever. It also sold for just $54, whereas competing products sold for over $200. Hewlett-Packard,

now more commonly known as HP, has not been located in a little garage for many years. Yet the

company's ability to grow by successfully designing and marketing new offerings continues.

Figure 5.10

Hewlett-Packard was founded in this California garage, which is now a landmark.

Source: Photo by selbst. (2002). Wikimedia Commons. Used under the terms

of the Creative Commons Attribution-ShareAlike 3.0 Unported license.

Developing new offerings is a constant process in most companies. In some instances, a company

starts with a price and then develops products and services to fit that price. IKEA is an example of

such a company. IKEA looks at the prices consumers want to pay for home furnishings and then

works backward to design products that match those prices (using a demand backward pricing

strategy is discussed in Week 6).

In other situations, the goal is simply to develop a better product that adds value to existing

products, and the price comes later. Hewlett-Packard's audio oscillator is an example.

Keep in mind that a "new" product can be a "new and improved" product, such as laundry

detergent; an addition to a product or service line, such as Marriott adding the Courtyard by

Marriott and the Fairfield Inn, or Capri Sun adding new flavors; a repositioned product or

company, such as Hyundai Motor Company trying to change the perceptions of Hyundai

automobiles from being inexpensive to being "an overachieving, underappreciated brand that

smart people are discovering" (BusinessWeek, 2007); or a totally new innovation, such as the

mobile phone. What is new for one company may not be new to another. For example, one hotel

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may already have budget properties, but when a luxury hotel adds a budget property, that

property is considered a new offering.

Most new offerings go through similar stages in their development process. Although the size of a

company will affect how the different stages of the new product development process are conducted

and whether products are test-marketed before being introduced, the steps are generally the

same. Figure 5.11, "The New Offering Development Process," summarizes these steps.

Figure 5.11 The New Offering Development Process

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Step 1: Idea Generation Many companies, HP and Apple included, were launched in someone's garage after the founders

got an idea for a product and then tried to make and sell it. HP's first product was an audio

oscillator that two Stanford University students developed. While there was some debate, Apple's

Macintosh microcomputer appeared to be a low-cost knockoff of the Xerox Star, a software-

equipped workstation. Apple's cofounder, Steve Jobs, saw the product demonstrated at a Xerox

research center (Fisher, 1989).

Employees often come up with new product ideas, too. At Motorola, engineers worked on a

mobile phone that can be recharged by rubbing it on a smooth surface. A Motorola engineer came

up with the idea while rollerblading. He wondered if a small generator could be created to capture

and store the energy generated by rollerblade wheels. This idea, in turn, led to the development of

a small roller ball (like you would find on an old-style computer mouse) built into the mobile

phone. To power up the phone, you just give it a roll.

Ideas can come from anywhere, including your customers. In fact, in B2B markets, customers are

probably the biggest source of new product ideas. Customers know what customers need and

want, which provides organizations an indication of market needs. Customers who are good at

generating new product ideas or applications of products are called lead users. These people are

often courted by manufacturers. Lead users exist in consumer markets, too. JCPenney, for

example, uses a panel of women who help develop the company's Ambrielle line of lingerie.

Customers are particularly important cocreators of offerings when they are consuming products

with service components. For example, if you provide your hairdresser with feedback while your

hair is being cut, your input will alter the final style you receive. Similarly, a businessperson who

provides her certified public accountant (CPA) with information and feedback about her firm will

help the CPA develop better financial and tax plans for her business.

Suppliers provide another source of ideas for new products. A supplier might develop a new product

or technology that can be used to make yet another product, and then go to the makers of those

products and suggest new versions. For example, McClancy Seasoning Co. makes spices that

restaurants and food processing companies use in their food products. McClancy's research and

development department works with companies such as Campbell's to help develop new and

better offerings.

Of course, companies also watch their competitors to see what they're doing. Some offerings are

protected by patents or copyrights and can't be legally duplicated. The software that runs Apple's

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iPhone is an example. There are, however, different ways to achieve the same results as Apple has

with its iPhone. The Omnia, manufactured by Samsung, and the G1, a T-Mobile product, are

devices similar to the iPhone that operate with software serving the same purpose.

Figure 5.12, "New Offering Ideas," shows some product ideas that came from each of the sources

we have discussed—employees, customers, suppliers, and one's competitors. Innovations such as

the iPhone are rare. However, many new ideas (and consequently new products) aren't actually

new but rather are versions of products and services already available. A line extension occurs

when a company comes out with another model (related product) based on the same platform

and brand as one of its other products. When Apple added the Nano and the Shuffle to its iPod

line, these were line extensions.

Figure 5.12 New Offering Ideas

Keep in mind that idea generation is typically the least expensive step in the process of developing

a new offering, whether you involve customers or not. As you move through the product

development process, each step is usually more expensive than the last. Ideas for new products

are relatively cheap and easy to generate; what is difficult and expensive is making them a reality.

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Step 2: Idea Screening

Figure 5.13

Better idea screening might have helped Coca-Cola avoid

the problems it encountered marketing its "New Coke" formula.

Source: Photo by My 100cans. (n.d.). Wikimedia Commons. In the public domain.

Not all new product ideas are good ones. Famous product blunders include Ford Motor

Company's Edsel, Clear Pepsi, and Coca-Cola's New Coke. Less famous is Dell's cell phone for

aging baby boomers. The phone's large size, large buttons, and large screen screamed "I'm old

and blind!" That led potential users to shun it in droves. Yes, even the big companies make

mistakes.

The purpose of idea screening is to try to avoid mistakes early in the development process. The

sooner bad ideas are discarded, the less the investment made and lost. In the idea screening stage,

the company tries to evaluate the new offering by answering these questions:

• Does the proposed product add value for the customer? Does it satisfy a market need?

• Can the product be made within a stated time period to get it to market when needed?

• How many units of it will sell and at what price?

• Can we manufacture and sell the product within budget and still make money?

• Do we need to provide the customer with after-sales service? If so, do we have the

resources to do that?

• Does the product fit our image and corporate strategy?

Some organizations conduct concept testing at this stage. Concept testing involves running the

idea of the offering by potential consumers. The purpose is to get early consumer feedback before

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investing too much money in an offering that won't work. Some of the methods used to test

concepts include focus groups, in which groups of eight to 12 consumers gather and react to the

concept, and depth interviews, in which individuals are presented with the concept and can

react to it individually.

Focus groups and depth interviews are research techniques that can also be used later in the

offering development process to test ideas, or for other purposes. Focus groups working virtually

on the web and by phone helped to develop this textbook. Concepts may also be tested online by

creating an image and having people representative of the target market provide feedback.

Whether using focus groups, depth interviewing, or online methods, concepts must be evaluated

by people representative of the target market, or the feedback is not relevant.

Because screening considers the feasibility of actually making and servicing an offering, price and

cost are important components. If the company cannot sell the product in sufficient quantities to

generate a profit, the idea must be scrapped. Understanding the customer's personal value

equation is an important consideration, too. If the value consumers receive from the product is

less than the price the company charges for it, they will not buy it. In other words, the offering

must be financially feasible to justify investing in it.

The offering must also have process feasibility. Process feasibility is the degree to which the

company can actually make and service the product. Process feasibility

affects financial feasibility. If the product's costs cannot be controlled when it's being made or

serviced, the firm's financial goals won't be met.

Process feasibility also affects customer satisfaction. For example, many manufacturers make

great-looking faucets, yet one of the authors of this book had to have the "guts" of one faucet

replaced three times before it would work, only to find two other friends had the same experience

with the same model. A great-looking design is really only great if it works right.

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Figure 5.14

A good product doesn't just look right. It also works

right, which is the idea behind process feasibility.

Source: Photo by Nicole-Koehler. (n.d.). Wikimedia Commons. Used under

the terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license.

The question of strategic fit is a difficult one. The history of business is rife with examples of

companies failing to develop winning new products only to see their competitors do so. For

example, when the inventor Chester Carlson approached IBM executives with the idea of

photocopying—the technology platform that later became the heart of Xerox Corporation—they

turned Carlson down. IBM did not see the product fitting with its strategy and stopped before

fully considering the potential. Nor did IBM see the moneymaking opportunity the product

presented.

At this point in the process, the company begins to assess two types of risk. The first is

investment risk, or the possibility that the company will fail to earn the appropriate return on

the money and effort (the investment) it puts into the new product. The second

is opportunity risk, or the risk that there is a better idea that gets ignored because the firm has

invested in the idea at hand. When a company is assessing fit, it is assessing its opportunity risk.

When it is assessing feasibility (both financial and process), it is assessing its investment risk.

Other risk-related questions include whether or not the offering can be developed on time and

within budget. Assessing a product's feasibility continues throughout the entire new product

development process.

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Step 3: Feature Specification The next step involves narrowing the product's features. Again, price enters the picture as the

company considers which features are important to consumers at different price points. A

premium (high-priced) offering is likely to be loaded with extra features. By contrast, a low-priced

offering is likely to be a "bare-bones" product with few features.

Quality function deployment (QFD) is a process whereby a company begins with the

customer's desired benefits and then designs an offering that delivers those benefits. The benefits

are linked to certain characteristics of the offering, which are then broken down into component-

part characteristics. From this list of component parts, the product is designed. Thus, the feature

specifications process begins with a strong understanding of what consumers want and need.

HP has developed a number of computer printers using the QFD process. The QFD process has

been particularly helpful when it comes to bundling the right features within HP's printer line

because each printer model can be targeted to specific customer needs. Customers can then

purchase the model that suits their needs and don't have to buy features that don't add value for

them.

Step 4: Development In the development stage, the actual offering is designed, specifications are written, and

prototypes are developed. It is also during this stage that the firm considers the product's

manufacturing process. For example, when a restaurant is developing a new dish, it must not only

taste good; it must also be a dish that can be made in a reasonable amount of time once it's

ordered and prepared at a cost that earns the restaurant a profit. In terms of a manufacturer's

offerings, using the same technology platform as another product (such as Apple has done with

iPods) can be effective and cheaper. Using the same platform also generally makes it easier for a

company to train its technicians to service a new product.

Step 5: Testing During the testing stage, the offering is tested, first in the lab and then with real customers. Lab

testing is also called alpha testing. Alpha testing ensures that the offering works as it's supposed

to in a variety of different environments—that it meets its specifications, that is. For example,

Kraft might launch a new food product that has to work in hot climates, cold climates, high

humidity, dry climates, and high altitudes—conditions that can change how well the product

works.

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The next step is beta testing. During beta testing, actual customers make sure the offering works

under real-world conditions. Beta testing not only tests whether the offering works as advertised

but also tests the offering's delivery mechanisms, service processes, and other aspects of

marketing the product. This step can be an expensive. Depending on the product, some

companies might find it better to simply launch the product and let the market respond to, or test,

the product once it is available for purchase.

Simultaneous to testing the offering's ability to meet its specs, the company is also developing and

testing the marketing communication plan that will be used to launch the product. Many

companies involve consumer panels or user communities, both for testing the offering and the

communication plan. As we mentioned in Week 2, JCPenney solicits the advice of a user

community for its Ambrielle line of lingerie. The company frequently runs concepts by the group

as well as sends actual prototypes to users to try on and report back to the company. Similarly, the

data warehousing company Teradata has a "partners" organization that consists of a community

of users who participate in the firm's product design and testing.

Step 6: Launch or Commercialization Once an offering has been designed and tested, it is made available to customers. Sometimes a

company launches the offering to all of its markets at once. Other companies may use

a rolling launch in which the offering is made available to certain markets first and then other

markets later. A rolling launch might make sense if the company's service technicians need

training. The company makes the offering available to one market after the first batch of its

employees are prepared to service the product; then as new batches of employees are prepared to

service the product, the company enters more markets.

Some companies test the complete launch of a product's marketing plan to ensure that it reaches

buyers, gets positive feedback, and generates sales of the product or service. This is called

a market test. Companies may conduct market tests in limited markets or nationwide. For

example, when one beverage maker tested the marketing plan for a new wine cooler, the firm first

launched the product on the East Coast, where the beverage was promoted as a "Polynesian"

drink; on the West Coast, the beverage was promoted as an "Australian" drink. The Polynesian

version proved more popular, so in other new markets, that's how the beverage was advertised

and packaged.

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Step 7: Evaluation Once an offering is launched, a firm's executives carefully monitor its progress. You have probably

heard about the "box office" sales for new movies the first weekend following their release. The

first weekend is a good predictor of how much money a movie will make overall. If the ticket sales

for it are high during the first weekend, a studio's executives might decide to beef up the

promotions. If the ticket sales are low, the studio might stop screening the movie in theaters and

release it on DVD instead. For other types of offerings, important milestones might be the first 90

days after the product is launched, followed by a second period of 90 days. However, be aware

that firms are constantly evaluating their offerings and modifying them by either adding or

subtracting the features and services associated with them, changing their prices, or how they are

marketed. The length of time for milestones used to evaluate products may vary depending on the

organization and other products or services being developed.

5 . 5 K E Y T A K E A W A Y

Most companies put new offering ideas through a seven-step process, beginning with the idea generation stage. Ideas for new offerings can come from anywhere, including one's customers, employees, suppliers, and competitors. The next step in the process is the idea screening stage, followed by the feature specifications, development, testing, and launching stages. After an offering is launched, it is evaluated. A company must balance an offering's investment risk (the risk associated with losing the time and money put into developing the offering) against the offering's opportunity risk (the risk associated with missing the opportunity to market the product and profit from it).

5.6 Managing New Products: The Product Life Cycle

LEARNING OBJECTIVES

1. Explain how organizations manage offerings after being introduced to the marketplace. 2. Explain how managing an offering may be different in international markets. 3. Explain the product life cycle and the objectives and strategies for each stage.

Over 20,000 new offerings, including convenience foods, health and beauty aids, electronics,

automobiles, pharmaceutical products, hotels, and restaurants enter the marketplace each year.

For example, in 2006 almost 1,400 food products making a "whole grain claim" were introduced

(Roskelly, 2007). Other new product introductions include many technological products such as

Nintendo's Wii, iPods, and digital video recorders (DVRs); many personal care products such as

fragrances of shampoo and conditioner and flavors of toothpaste; and convenience foods such as

frozen meals, "100 calorie pack" snacks, and cereal bars (Hunter, 2008).

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Once a product is created and introduced in the marketplace, the offering must be managed

effectively for the customer to receive value from it. Only if this is done will the product's

producer achieve its profit objectives and be able to sustain the offering in the marketplace. The

process involves making many complex decisions, especially if the product is being introduced in

global markets. Before introducing products in global markets, an organization must evaluate and

understand factors in the external environment, including laws and regulations, the economy and

stage of economic development, the competitors and substitutes, cultural values, and market

needs.

Companies also need expertise to successfully launch products in foreign markets. Given many

possible constraints in international markets, companies might initially introduce a product in

limited areas abroad. Other organizations, such as Coca-Cola, decide to compete in markets

worldwide (Interbrand, 2009).

The product life cycle (PLC) includes the stages the product goes through after development,

from introduction to the end of the product. Just as children go through different phases in life

(toddler, elementary school, adolescent, young adult), products and services also age and go

through different stages. The PLC helps marketers manage the stages of a product's acceptance

and success in the marketplace, beginning with the product's introduction, its growth in market

share, maturity, and possible decline in market share.

Other tools such as the Boston Consulting Group matrix and the General Electric approach

(see Week 2, "Strategic Planning" for discussion) may also be used to manage and make decisions

about what to do with products. For example, when a market is no longer growing but the product

is doing well (cash cow in the BCG approach), the company may decide to use the money from the

cash cow to invest in other products rather than continuing to invest in a no-growth market.

The product life cycle can vary for different products and different product categories. Figure 5.15,

"Life Cycle," illustrates an example of the product life cycle, showing how a product can move

through four stages. However, not all products go through all stages, and the length of a stage

varies. For example, some products never experience market share growth and are withdrawn.

30

Figure 5.15 Life Cycle

Other products stay in one stage longer than others. For example, in 1992, PepsiCo introduced a

product called Clear Pepsi, which went from introduction to decline very rapidly. By contrast, Diet

Coke entered the growth market soon after its introduction in the early 1980s and then entered

(and remains in) the mature stage of the product life cycle. New computer products and software

and video games often have limited life cycles, whereas product categories such as diamonds and

durable goods (kitchen appliances) generally have longer life cycles. How a product is promoted,

priced, distributed, or modified can also vary throughout its life cycle.

Figure 5.16

Diet Coke changed its can (right) to keep from getting outdated.

Source: Photo by My 100cans. (2009). Wikimedia Commons. In the public domain.

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Let's now look at the various product life cycle stages and what characterizes each.

Stage 1: Introduction The first stage in a product's life cycle is the introduction stage. The introduction stage is the

same as commercialization, or the last stage of the new product development process. Marketing

costs are typically higher in this stage than in other stages. As an analogy, think about the amount

of fuel a plane needs for takeoff relative to the amount it needs while in the air. Just as an airplane

needs more fuel for takeoff, a new product or service needs more funds for introduction into the

marketplace. Communication (promotion) is needed to generate awareness of the product and

persuade consumers to try it, and placement alternatives and supply chains are needed to deliver

the product to the customers. Profits are often low in the introductory stage due to the research

and development costs and the marketing costs to launch the product.

The length of the introductory stage varies for different products. However, by law in the United

States, a company is only allowed to use the label "new" on a product's package for six months. An

organization's objectives during the introductory stage often involve educating potential

customers about its value and benefits, creating awareness, and getting potential customers to try

the product or service. Getting products and services, particularly multinational brands, accepted

in foreign markets can take even longer. Consequently, companies introducing products and

services abroad generally must have the financial resources to make a long-term (longer than one

year) commitment to their success.

The specific promotional strategies a company uses to launch a product vary depending on the

type of product and the number of competitors it faces. Firms that manufacture products such as

cereals, snacks, toothpastes, soap, and shampoos often use mass marketing techniques such as

television commercials and Internet campaigns, and promotional programs such as coupons and

sampling to reach consumers. Many firms promote to customers, retailers, and wholesalers.

Sometimes other, more targeted advertising strategies are employed, such as billboards and

transit signs (signs on buses, taxis, subways). For more technical or expensive products such as

computers or plasma televisions, many firms use personal selling, informational promotions, and

in-store demonstrations so consumers can see how the products work.

During introduction, an organization must have enough distribution outlets (places where the

product is sold or the service is available) to get the product or service to the customers. The

product quantities must also be available to meet demand. For example, IBM's ThinkPad was a

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big hit when it was first introduced, but the demand for it was so great that IBM wasn't able to

produce enough of the product. Cooperation from a company's supply chain members—its

manufacturers, wholesalers—helps ensure that supply meets demand and that value is added

throughout the process.

When you were growing up, you may remember eating Rice Krispies Treats cereal. The product

was so popular that Kellogg's could not keep up with initial demand and placed ads to consumers

apologizing for the problem. When demand is higher than supply, the door opens for competitors

to enter the market, which is what happened when the microwave was introduced. Most people

own a microwave, and prices have dropped significantly since Amana introduced the first

microwave at a price of almost $500. As consumers in the United States initially saw and heard

about the product, sales increased, many competitors entered the market, and prices dropped.

Product pricing strategies in the introductory stage can vary depending on the type of product,

competing products, the extra value the product provides consumers vs. existing offerings, and

the costs of developing and producing the product. Organizations want consumers to perceive

that a new offering is better or more desirable than existing products. Two strategies that are

widely used in the introductory stage are penetration pricing and skimming. A

penetration pricing strategy involves using a low initial price to encourage many customers

to try a product. The organization hopes to sell a high volume in order to generate substantial

revenues. New varieties of cereals, fragrances of shampoo, scents of detergents, and snack foods

are often introduced at low initial prices. The low initial price of the product is often combined

with advertising, coupons, samples, or other special incentives to increase awareness.

A company uses a skimming pricing strategy, which involves setting a high initial price for a

product, to more quickly recoup the investment related to its development and marketing. The

skimming strategy attracts the top, or high end, of the market. Generally this market consists of

customers who are not as price-sensitive or who are early adopters of products. Firms that

produce electronic products such as DVRs, plasma televisions, and digital cameras set their prices

high in the introductory stage. However, the high price must be consistent with the nature of the

product as well as the other marketing strategies being used. For example, engaging in more

personal selling to customers, running ads targeting specific groups of customers, and placing the

product in a limited number of outlets are likely to be strategies used with a skimming approach.

Stage 2: Growth If a product is accepted by the marketplace, it enters the growth stage of the product life cycle.

The growth stage is characterized by increasing sales, more competitors, and higher profits.

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Unfortunately for the firm, the growth stage attracts competitors who enter the market quickly.

For example, when Diet Coke experienced great success, Pepsi soon entered with Diet Pepsi.

You'll notice that both Coca-Cola and Pepsi have similar competitive offerings in the beverage

industry, including their own brands of bottled water, juice, and sports drinks. As additional

customers begin to buy the product, manufacturers must ensure that the product remains

available to customers or run the risk of them buying competitors' offerings. For example, the

producers of video game systems such as Nintendo's Wii could not keep up with consumer

demand when the product was first launched. Consequently, some consumers purchased

competing game systems such as Microsoft's Xbox.

Figure 5.17

Demand for the Nintendo Wii increased sharply after the product's introduction.

Source: Greyson Orlando, modified by Jecowa. (2006). Wikimedia Commons. Used under the terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license.

A company sometimes increases its promotional spending on a product during its growth stage.

However, instead of encouraging consumers to try the product, the promotions often focus on the

specific benefits the product offers and its value relative to competitive offerings. In other words,

although the company must still inform and educate customers, it must counter the competition.

Emphasizing the advantages of the product's brand name can help a company maintain its sales

in the face of competition. Although different organizations produce personal computers, a highly

recognized brand such as IBM strengthens a firm's advantage when competitors enter the market.

New offerings that use the same successful brand name as a company's existing offerings, which is

what Black & Decker does with some of its products, can give a company a competitive advantage.

Companies typically begin to make a profit during the growth stage because more units are being

sold and more revenue is generated.

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The number of distribution outlets (stores and dealers) used to sell the product can also increase

during the growth stage as a company tries to reach as much of the marketplace as possible.

Expanding a product's distribution and increasing its production to ensure its availability at

different outlets usually results in a product's costs remaining high during the growth stage. The

price of the product itself typically remains at about the same level, although some companies

reduce their prices slightly to attract additional buyers and meet the competitors' prices.

Companies hope by increasing their sales, they also improve their profits.

Stage 3: Maturity After many competitors enter the market and the number of potential new customers declines,

the sales of a product typically begin to level off. This indicates that a product has entered

the maturity stage of its life cycle. Most consumer products are in the mature stage of their life

cycle; their buyers are repeat purchasers vs. new customers. Intense competition causes profits to

fall until only the strongest players remain. The maturity stage lasts longer than other stages.

Quaker Oats and Ivory Soap are products in the maturity stage—they have been on the market for

over 100 years.

Given the competitive environment in the maturity stage, many products are promoted heavily to

consumers by stronger competitors. The strategies used to promote the products often focus on

value and benefits that give the offering a competitive advantage. The promotions aimed at a

company's distributors may also increase during the mature stage. Companies may decrease the

price of mature products to counter the competition. However, they must be careful not to get

into "price wars" with their competitors and destroy all the profit potential of their markets,

threatening a firm's survival. Intel and Advanced Micro Devices (AMD) have engaged in several

price wars with regard to their microprocessors. Likewise, Samsung added features and lowered

the price on its Instinct mobile phone, engaging in a price war with Apple's iPhone. With the

weakened economy, many online retailers engaged in price wars during the 2008 holiday season

by cutting prices on their products and shipping costs. Although large organizations such as

Amazon.com can absorb shipping costs, price wars often hurt smaller retailers. Many retailers

learned from their mistakes and ordered less inventory for the 2009 holiday season.

Companies are challenged to develop strategies to extend the maturity stage of their products so

they remain competitive. Many firms do so by modifying their target markets, their offerings, or

their marketing strategies.

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Modifying the target market helps a company attract different customers by seeking new users,

going after different market segments, or finding new uses for a product in order to attract

additional customers. Financial institutions and automobile dealers realized that women have

increased buying power and now market to them. With the growth in the number of online

shoppers, more organizations sell their products and services through the Internet. Entering new

markets provides companies an opportunity to extend the product life cycles of their offerings.

Figure 5.18 McDonald's in China

While McDonald's is in the mature stage of its life cycle

in the United States, it is in the growth stage in China.

Source: Wikimedia Commons. (2005). Used under the terms

of the Creative Commons Attribution 2.5 Generic license.

Many companies enter different geographic markets or international markets as a strategy to get

new users. A product that might be in the mature stage in one country might be in the

introductory stage in another. For example, when the US market became saturated, McDonald's

began opening restaurants in foreign markets. Cell phones were popular in Asia before they were

introduced in the United States. Many cell phones in Asia were being used to scan coupons and to

charge purchases before that type of technology in the United States.

Modifying the product, such as changing its packaging, size, flavors, colors, or quality can also

extend the product's maturity stage. The 100 Calorie Packs created by Nabisco provide an

example of how a company changed the packaging and size to provide convenience and 100-

calorie portions for consumers. While the sales of many packaged foods fell, the sales of the 100

Calorie Packs increased to over $200 million, prompting Nabisco to repackage more products

(Hunter, 2008). Kraft Foods extended the mature stage of different crackers such as Wheat Thins

and Triscuits by creating different flavors. Although not popular with consumers, many

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companies downsize (or decrease) the package sizes of their products or the amount of the

product in the packages to save money and keep prices from rising too much.

Car manufacturers modify their vehicles slightly each year to offer new styles and new safety

features. Every three to five years, automobile manufacturers do more extensive modifications.

Changing the package or adding variations or features are common ways to extend the mature

stage of the life cycle. Pepsi changed the design and packaging of its soft drinks and Tropicana

juice products. However, consumers thought the new juice package looked like a less expensive

brand, which made the quality of the product look poorer. As a result, Pepsi resumed the use of

the original Tropicana carton. Pepsi's redesigned soda cans also received negative reviews.

When introducing products to international markets, firms must decide if the product can

be standardized (kept the same) or how much, if any, adaptation, or changing, of the product

to meet the needs of the local culture is necessary. Although it is much less expensive to

standardize products and promotional strategies, cultural and environmental differences usually

require some adaptation. Product colors and packages as well as product names must often be

changed because of cultural differences. For example, in many Asian and European countries,

Coca-Cola's diet drinks are called "light," not diet. GE makes smaller appliances such as washers

and dryers for the Japanese market. Hyundai Motor Company had to improve the quality of its

automobiles in order to compete in the US market. Companies must also examine the external

environment in foreign markets since the regulations, competition, and economic conditions vary

as well as the cultures.

Figure 5.19

In Europe, diet drinks are called "light," not diet.

This Coca-Cola product is available in Germany.

Source: Photo by FotoPhest. (2009). Wikimedia Commons. Used under the terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license.

37

Some companies modify the marketing strategy for one or more marketing variables of their

products. For example, many coffee shops and fast-food restaurants such as McDonald's now

offer specialty coffee that competes with Starbucks. As a result, Starbucks' managers decided it

was time to change the company's strategy. Over the years, Starbucks added lunch offerings and

moved away from grinding coffee in the stores to provide faster service. However, customers

missed the coffee shop atmosphere and the aroma of freshly brewed coffee, and didn't like the

smell of all the lunch items.

As a result of falling market share, Starbucks' former CEO and founder Howard Schultz returned

to the company. Schultz hired consultants to determine how to modify the firm's offering and

extend the maturity stage of Starbucks' life cycle. Subsequently, Starbucks changed the

atmosphere of many of its stores back to that of traditional coffee shops, modified its lunch

offerings in many stores, and resumed grinding coffee in stores to provide the aroma customers

missed. The company also modified some of its offerings to provide health-conscious consumers

lower-calorie alternatives (Horovitz, 2008). After the US economy weakened in 2009, Starbucks

announced it would begin selling instant coffee for about a dollar a cup to appeal to customers

who were struggling financially but still wanted a special cup of coffee. The firm also changed its

communication with customers by using more interactive media such as blogs.

Figure 5.20

The oldest operating McDonald's is in California.

Source: Photo by Bryan Hong. (2007). Wikimedia Commons. Used under the terms of the Creative Commons Attribution-ShareAlike 2.5 Generic license.

Whereas Starbucks might have overexpanded, in 2008 McDonald's announced plans to add

14,000 coffee bars to selected stores (Economist, 2008). In addition to the coffee bars, many

McDonald's stores are remodeling their interiors to feature flat-screen televisions, recessed

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lighting, and wireless Internet access. Other McDonald's restaurants kept their original design,

which customers still like.

Stage 4: Decline When sales decrease and continue to drop to lower levels, the product has entered

the decline stage of the product life cycle. In the decline stage, changes in consumer

preferences, technological advances, and alternatives that satisfy the same need can lead to a

decrease in demand for a product. How many of your fellow students do you think have used a

typewriter, adding machine, or slide rule? Computers replaced the typewriter, and calculators

replaced adding machines and the slide rule. Ask your parents about eight-track tapes, which

were popular before cassette tapes, which were popular before CDs.

Some products decline slowly. Others go through a rapid decline. Many fads and fashions for

young people tend to have very short life cycles and go "out of style" very quickly. (If you've ever

asked your parents to borrow clothes from the 1990s, you may be amused at how much the styles

have changed.) Similarly, many students don't have landline phones or VCR players and cannot

believe that people still use the "outdated" devices. Similarly, payphones are becoming obsolete.

Figure 5.21

How many of us have old videocassettes and no way to watch them? Movie delivery is an

excellent example of technology divesting products in the decline stage. Videocassettes were

replaced by DVDs, which are now replaced by streaming video.

Source: Photo by Groink. (2012). Wikimedia Commons. Used under the terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license.

Technical products such as digital cameras, cell phones, and video games that appeal to young

people often have limited life cycles. Companies must decide what strategies to take when their

products enter the decline stage. To save money, some companies try to reduce their promotional

39

expenditures and the number of distribution outlets. They might implement price cuts to get

customers to buy the product. Harvesting the product entails gradually reducing all costs,

including investments made in the product and marketing costs. By reducing these costs, the

company hopes that the profits from the product will increase until inventory runs out. Another

option for the company is divesting (dropping or deleting) the product from its offerings. The

company might choose to sell the brand to another firm or simply reduce the price drastically in

order to get rid of all remaining inventory. If a company decides to keep the product, it may lose

money or make money if competitors drop out. Many companies decide the best strategy is to

modify the product in the maturity stage to avoid entering the decline stage.

5 . 6 K E Y T A K E A W A Y

The product life cycle helps a company understand the stages (introduction, growth, maturity, and decline) a product or service may go through once it is launched in the marketplace. The number and length of stages can vary. When a product is launched or commercialized, it enters the introduction stage. Companies must try to generate awareness of the product and encourage consumers to try it. During the growth stage, companies must demonstrate the product's benefits and value to persuade customers to buy it vs. competing products. Some products never experience growth. Most products are in the mature stage. In the mature stage, sales level off and the market typically has many competitors. Companies modify the target market, the offering, or the marketing mix to extend the mature state and keep from going into decline. If a product goes into decline, a company must decide whether to keep the product, harvest and reduce the spending on it until all the inventory is sold, or divest and get rid of the product.

W E E K 6 P R E V I E W

Now that we have covered the first element of the marketing mix, offerings, next week we move on to two other elements, marketing channels or distribution and price, both of which are within the control of the marketer and designed to create value for customers. We will explore what channel systems look like and the roles they play in delivering customer value. Types of channels and channel design will be covered, along with some specifics on transportation, warehousing, wholesaling, and retailing. Price communicates value to customers, and we will end the week with a discussion on how price can be determined, as well as some pricing strategies commonly used by marketers.

Week 5 References Section 5.3 Badenhausen, K. (2014, November 5.) Apple, Microsoft and Google are world's most valuable brands. Forbes.com. Retrieved January 26, 2015 from http://www.forbes.com/sites/kurtbadenhausen/2014/11/05/apple-microsoft-and-google-are-worlds- most-valuable-brands/ Section 5.5 Business Week. (2007, May 21). At Hyundai, branding is job 2. Retrieved January 20, 2010, from http://www.businessweek.com/magazine/content/07_21/b4035069.htm

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Fisher, L. M. (1989, December 15). Xerox sues Apple computer over Macintosh copyright. New York Times. Retrieved January 20, 2010, from http://www.nytimes.com/1989/12/15/business/company-news-xerox- sues-apple-computer-over-macintosh-copyright.html? pagewanted=1 Section 5.6 Economist. (2008, January 10). Starbucks v. McDonald's: Coffee wars. Retrieved January 20, 2010, from http://www.economist.com/business/displaystory.cfm?story_id=10498747 Horovitz, B. (2008, January 8). Starbucks orders an extra shot; founder takes over as CEO to perk up coffee chain. USA Today, 1B. Hunter, M. (2008, July 15). The true cost of the 100-calorie snack pack. ABC News. Retrieved January 20, 2010, from http://abcnews.go.com/Health/story?id=5373173&page=1&mediakit=adgallery10 Interbrand. (2009). Best global brands. Retrieved January 20, 2010, from http://www.interbrand.com/best_global_brands.aspx?langid=1000 Roskelly, N. (2007, March). Partial to whole grains. New Products Online. Retrieved January 20, 2010, from http://www.newproductsonline.com/Archives_Davinci?article=1979