Marketing Management Module-(4/5)

8/4/2019 Marketing Management Module-(4/5)

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Module 4:Product Strategies, Servicequality and Pricing

Copyright 2009 Dorling Kindersley (India) Pvt. Ltd. 8-1


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Module-4 Content

Chapter 12: Setting Product Strategy

Chapter 20: Introducing New MarketOfferings

Chapter 13: Designing and ManagingServices

Chapter 14: Developing PricingStrategies and programs



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Setting Product Strategy12

Marketing Management

A South Asian Perspective, 13th

ed


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Chapter Questions

What are the characteristics of productsand how do marketers classifyproducts?

How can companies differentiateproducts?

How can a company build and manage

its product mix and product lines?


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What is a Product?

A product is anything that can beoffered to a market to satisfy a want or

need, including physical goods,

services, experiences, events, persons,places, properties, organizations,

information, and ideas.


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Figure 12.1 Components of theMarket Offering

Attractivenessof the market

offering

Value-based prices

Productfeaturesand quality

Servicesmix andquality


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Figure 12.2 Five Product Levels


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Product Classification Schemes

Durability

Use

Tangibility


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Durability and Tangibility

Nondurable

goods

Services

Durable

goods


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Consumer Goods Classification

Convenience

Unsought

Shopping

Specialty


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Industrial Goods Classification

Materials and parts

Supplies/

business servicesCapital items


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Product Differentiation

Product form

Features

Customization

Performance Conformance

Durability

Reliability Repairability

Style
http://www.lego.com/


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Design Differentiation


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Service Differentiation

Ordering ease

Delivery

Installation

Customer training

Customer consulting

Maintenance and repair

Returns


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Ginger Hotelshas carved a

profitable

niche throughits innovative

service

configuration


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Developing products for rural markets

Products should be designed keeping in mindthe rural conditions

Packaging is one of the key drivers of

success in rural areasIssue of transfer and storage: Ruggedpacking

The issue of affordability: small-unit packs Brand elements should be decided keeping in

mind rural consumers


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The Product Hierarchy

Need family

Product family

Product class

Product line

Product type

Item


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Product Systems and Mixes

Product system

Product mix

Product assortment

Depth

Length

Width

Consistency


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Product Line Analysis

Convenience

items

Core product Staples

Specialties


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Figure 12.3 Product ItemContributions to a Product Lines

Total Sales and Profits


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Figure 12.4 Product Map


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Line Stretching

Down-Market Stretch

Up-Market Stretch

Two-Way Stretch


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Line Filling


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Pruning

Pruning weakbrands canstrengthen the

remaining brands inthe line


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Product-Mix Pricing

Product-line pricing

Optional-feature pricing

Captive-product pricing Two-part pricing

By-product pricing

Product-bundling pricing


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Two-Part

Pricing


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Co-branding


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Ingredient Branding


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What is the Fifth P?

Packaging, sometimes called thefifth P, is all the activities ofdesigning and producing the

container for a product.


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Factors Contributing to theEmphasis on Packaging

Self-service

Consumer affluence

Company/brand image

Innovation opportunity


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Innovations in Packaging


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Packaging Objectives

Identify the brand

Convey descriptive and persuasiveinformation

Facilitate product transportation andprotection

Assist at-home storage

Aid product consumption


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Functions of Labels

Identifies

Grades

Describes

Promotes


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IntroducingNew Market Offerings

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Marketing Management

A South Asian Perspective, 13th

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Chapter Questions

What challenges does a company facein developing new products andservices?

What organizational structures andprocesses do managers use to managenew-product development?

What are the main stages in developingnew products and services?


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Chapter Questions (cont.)

What is the best way to manage thenew-product development process?

What factors affect the rate of diffusion

and consumer adoption of newlylaunched products and services?


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Johnson & Johnson EmphasizesNew Product Development
http://www.jnj.com/innovations/index.htm


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Categories of New Products

New-to-the-world

Cost reductions

New product lines

Additions

Improvements

Repositionings


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Moser Baer has moved frommaking optical storage media to

selling home entertainment


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The Worlds

Most Innovative Companies

Apple

Google

Toyota

General Electric

Microsoft

Procter & Gamble

3M Walt Disney

IBM

Sony

Wal-Mart

Honda

Starbucks

Target

BMW Samsung


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Seven Notions of Innovation

See the future through the eyes of yourcustomer

Intellectual property and brand power are keyassets

Use digital technology to create tools forcustomers

Build a championship team

Innovation is a state of mind

Speed is critical, so push your organization

Partner up if youre not the best


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Factors That LimitNew Product Development

Shortage of ideas

Fragmented markets

Social and governmental constraints Cost of development

Capital shortages

Faster required development time Shorter product life cycles


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What is a Venture Team?

A venture team is a cross-functionalgroup charged with developing a

specific product or business;

intrapreneurs are relieved of otherduties and provided a

budget and time frame.


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Criteria for Staffing Venture Teams

Desired team leadership style

Desired level of leaderexpertise

Team member skills andexpertise

Level of interest in concept

Potential for personal reward

Diversity of team members


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Figure 20.2 The New ProductDevelopment Decision Process

Mahindra and Mahindra followed a


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Mahindra and Mahindra followed athorough product development

process for Scorpio


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Ways to Find Great New Ideas

Run informal sessions with customers

Allow time off for technical people toputter on pet projects

Make customer brainstorming a part ofplant tours

Survey your customers

Undertake fly on the wall research tocustomers


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More Ways to Find Great Ideas

Use iterative rounds with customers

Set up a keyword search to scan tradepublications

Treat trade shows as intelligencemissions

Have employees visit supplier labs

Set up an idea vault


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Drawing Ideas from Customers

Observe customers using product

Ask customers about problems withproducts

Ask customers about their dreamproducts

Use a customer advisory board or abrand community of enthusiasts todiscuss product


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Idea Generation: Creativity Techniques

Attribute listing

Forced relationships

Morphological

analysis

Reverse assumptionanalysis

New contexts Mind mapping


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Lateral Mapping

Gas stations + food

Cafeteria + Internet Cereal + snacking

Candy + toy

Audio + portable


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Variations on Failure

Absolute product failure

Partial product failure

Relative product failure


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Concepts in Concept Development

Product idea

Product concept

Category concept

Brand concept

Concept testing


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Concept Testing

Communicability and believability

Need level

Gap level

Perceived value

Purchase intention

User targets, purchase occasions,purchasing frequency


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Figure 20.6 Utility Functions Based onConjoint Analysis


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Marketing Strategy

Target markets size, structure, andbehavior

Planned price, distribution, and

promotion for year one

Long-run sales and profit goals andmarketing-mix strategy over time

Fi 20 7 P d t Lif C l S l


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Figure 20.7 Product Life Cycle Salesfor Three Product Types


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Consumer Goods Market Testing

Sales-Wave Research Simulated Test Marketing

Controlled Test Marketing

Test Markets


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Test Market Decisions

How many test cities?

Which cities?

Length of test?

What information to collect?

What action to take?


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Timing of Market Entry

First entry Parallel entry

Late entry

Criteria for


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Criteria forChoosing Rollout Markets

Market potential

Companys local reputation

Cost of filling pipeline Cost of communication media


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What is Adoption?

Adoptionis an individuals decision to becomea regular user of a product.


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Stages in the Adoption Process

Awareness

Interest

Evaluation

Trial

Adoption

Figure 20 8 Adopter


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Figure 20.8 AdopterCategorization


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Characteristics of an Innovation

Relative advantage

Compatibility

Complexity Divisibility

Communicability


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Designing andManaging Services

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Marketing ManagementA South Asian Perspective, 13thed


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Chapter Questions

How do we define and classify servicesand how do they differ from goods?

How do we market services?

How can we improve service quality?

How do service marketers createstrong brands?

How can goods marketers improvecustomer support services?


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What is a Service?

A service is any act of performancethat one party can offer another that is

essentially intangible and does not

result in the ownership of anything; itsproduction may or may not be tied to a

physical product.


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Service Sectors

GovernmentPrivate

nonprofit

Manufacturing

Business Retail


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Categories of Service Mix

Pure tangible good

Good w/ accompanying services

Hybrid

Service w/ accompanying goods

Pure service


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Service Distinctions

Equipment-based or people-based

Service processes

Clients presence required or not

Personal needs or business needs

Objectives and ownership

Figure 13 2 Continuum of Evaluation


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Figure 13.2 Continuum of Evaluationfor Different Types of Products

Distinctive Characteristics


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Distinctive Characteristicsof Services

Intangibility

Inseparability

Variability

Perishability

Physical Evidence and Presentation


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Physical Evidence and Presentation

Place

People

Equipment

Communicationmaterial

Symbols

Price

Palace on Wheels provides the


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pultimate royal experience due tocareful design and execution of

various service elements


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How to Increase Quality Control

Invest in good hiring and

training procedures

Monitor customer satisfaction

Standardize the

service-performance process


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Matching Demand and Supply

Demand side

Differential pricing

Nonpeak demand

Complementaryservices

Reservationsystems

Supply side

Part-timeemployees

Peak-time efficiency Increased consumer

participation

Shared services

Facilities for futureexpansion

Figure 13 3 A Blueprint for


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Figure 13.3 A Blueprint forOvernight Hotel Stay

I i S i Q li


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Improving Service Quality

Listening

Reliability

Basic service

Service design Recovery

Surprisingcustomers

Fair play

Teamwork Employee research

Servant leadership

Figure 13.4 Root Causes


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Figure 13.4 Root Causesof Customer Failure

S l i C F il


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Solutions to Customer Failures

Redesign processes and redefine customerroles to simplify service encounters

Incorporate the right technology to aid

employees and customers Create high-performance customers by

enhancing their role clarity, motivation, andability

Encourage customer citizenship wherecustomers help customers

Figure 13.5 Three Types of Marketing


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Figure 13.5 Three Types of Marketingin Service Industries

Table 13.1 Factors Leading to


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Table 13.1 Factors Leading toCustomer Switching Behavior

Pricing

Inconvenience

Core Service Failure

Service Encounter Failures

Response to Service Failure

Competition Ethical Problems

Involuntary Switching

Figure 13 6 Service-Quality Model


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Figure 13.6 Service Quality Model

Gaps That Cause Unsuccessful


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Gaps That Cause UnsuccessfulService Delivery

Gap between consumer expectation andmanagement perception

Gap between management perception andservice-quality specifications

Gap between service-quality specificationsand service delivery

Gap between service delivery and externalcommunications

Gap between perceived service andexpected service

D t i t f S i Q lit


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Determinants of Service Quality

Reliability

Responsiveness

Assurance

Empathy

Tangibles

B t P ti


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Best Practices Strategic Concept

Top-ManagementCommitment

High Standards

Self-Service

Technologies Monitoring Systems

Satisfying CustomerComplaints

SatisfyingEmployees

Figure 13.7 Importance-Performance
http://www.ritzcarlton.com/


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g pAnalysis

Table 13.3 Customer Importance and


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ab e 3 3 Custo e po ta ce a dPerformance Ratings

for an Auto Dealership

Developing Brand Strategies


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p g gfor Services

Choosing

Brand Elements

Establishing Image

Dimensions

Devising Branding

Strategy

Customer Worries


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Customer Worries

Failurefrequency

Downtime

Out-of-pocket costs

Table 13.4 Top Customer


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pService Providers

USAA

Four SeasonsHotels

Cadillac Nordstrom

Wegman FoodMarkets

Edward Jones

Lexus

UPS

Enterprise Rent-A-

Car Starbucks

Ritz-Carlton

Amica Insurance Southwest Airlines


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Developing PricingStrategies and Programs

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Marketing ManagementA South Asian Perspective, 13thed

Chapter Questions


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Chapter Questions

How do consumers process and evaluateprices?

How should a company set prices initially forproducts or services?

How should a company adapt prices to meetvarying circumstances and opportunities?

When should a company initiate a price

change? How should a company respond to a

competitors price challenge?

Gillette Commands a


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Price Premium

Synonyms for Price
http://www.gillettefusion.com/


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Synonyms for Price

Rent

Tuition

Fee

Fare

Rate

Toll

Premium Honorarium

Special assessment

Bribe

Dues

Salary Commission

Wage

Tax

Common Pricing Mistakes


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Common Pricing Mistakes

Determine costs and take traditional industrymargins

Failure to revise price to capitalize on market

changes Setting price independently of the rest of the

marketing mix

Failure to vary price by product item, market

segment, distribution channels, andpurchase occasion

Consumer Psychology


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Consumer Psychologyand Pricing

Reference Prices

Price-quality inferences

Price endings

Price cues

Table 14.1 Possible Consumer


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Reference Prices

Fair price

Typical price

Last price paid

Upper-bound price

Lower-bound price

Competitor prices

Expected futureprice

Usual discountedprice

Table 14.2 Consumer Perceptions vs.


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Reality for Cars

Overvalued Brands

Land Rover

Kia

Volkswagen Volvo

Mercedes

Undervalued Brands

Mercury

Infiniti

Buick Lincoln

Chrysler

Tiffanys


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Price-Quality Relationship

Price Cues
http://www.tiffany.com/


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Price Cues

Left to right pricing ($299 vs. $300)

Odd number discount perceptions

Even number value perceptions

Ending prices with 0 or 5

Sale written next to price

When to Use Price Cues


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When to Use Price Cues

Customerspurchase iteminfrequently

Customers are new Product designs

vary over time

Prices varyseasonally

Quality or sizes varyacross stores

Steps in Setting Price


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Steps in Setting Price

Select the price objective

Determine demand

Estimate costs

Analyze competitor price mix

Select pricing method

Select final price

Step 1: Selecting the Pricing Objective


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Step 1: Selecting the Pricing Objective

Survival

Maximum currentprofit

Maximum marketshare

Maximum marketskimming

Product-qualityleadership

Step 2: Determining Demand


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Step 2: Determining Demand

Price Sensitivity

Estimating

Demand Curves

Price Elasticityof Demand

Figure 14 2 Inelastic


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Figure 14.2 Inelasticand Elastic Demand

Table 14.3 Factors Leading to Less


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Price Sensitivity

The product is more distinctive Buyers are less aware of substitutes

Buyers cannot easily compare the quality of substitutes

The expenditure is a smaller part of buyers total income

The expenditure is small compared to the total cost ofthe end product

Part of the cost is paid by another party

The product is used with previously purchased assets

The product is assumed to have high quality andprestige

Buyers cannot store the product

Step 3: Estimating Costs


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Step 3: Estimating Costs

Types of Costs

Target Costing

Accumulated

Production

Activity-Based

Cost Accounting

Cost Terms and Production


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Cost e s a d oduct o

Fixed costs Variable costs

Total costs

Average cost Cost at differentlevels ofproduction

Figure 14.4 Cost per Unit as aF i f A l d P d i


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Function of Accumulated Production

Tata motors developed Nanoits

ll i h i


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small car with a target price

Step 5: Selecting a Pricing Method


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Step 5: Selecting a Pricing Method

Markup pricing Target-return pricing

Perceived-value

pricing Value pricing

Going-rate pricing

Auction-type pricing

Figure 14.6 Break-Even Chart


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Figure 14.6 Break Even Chart

Auction-Type Pricing
http://www.ebay.com/


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Auction Type Pricing

English auctions

Dutch auctions

Sealed-bid auctions

Step 6: Selecting the Final Price
http://www.ebay.com/


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p g

Impact of other marketing activities Company pricing policies

Gain-and-risk sharing pricing

Impact of price on other parties


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Price-Adaptation Strategies


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ce daptat o St ateg es

Countertrade Barter

Compensation deal

Buybackarrangement

Offset

Discounts/ Allowances Cash discount

Quantity discount

Functional discount Seasonal discount

Allowance


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Special festivalpricing by

Coca-Cola on the

occasion ofRamzan inPakistan.

Differentiated Pricing


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Customer-segmentpricing

Product-form pricing

Image pricing Channel pricing

Location pricing

Time pricing

Yield pricing

Pricing for rural marketsA l ti h l d l i


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A large proportion have a low and seasonal income

Several approaches adopted by retailers andcompanies to address this

Rural retailers often extend credit

Retailers also break the bulk and sell in loose form,

in small quantities Companies use a similar strategy by introducing

low-unit packing or LUP

Companies also develop low-priced products with a

target price for rural markets Companies might offer refill packs or recyclable and

reusable packs

Increasing Prices


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g

Delayed quotationpricing

Escalator clauses

Unbundling

Reduction of discounts

Brand Leader Responses toCompetitive Price Cuts


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Competitive Price Cuts

Maintain price

Maintain price and add value

Reduce price Increase price and improve quality

Launch a low-price fighter line

Marketing Management Module-(4/5)

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