Chapter 8

Classification of Consumer and B2B Products

Categorizing consumer and B2B products helps marketers to: Develop better new products Improved marketing mixes Product durability, purchase process, and product use provide useful information

Compatibility

-Compatibility is the extent to which an innovation is consistent with existing cultural values, customs, practices, and norms -Lack of perceived compatibility slows adoption -Marketers can overcome perceptions of incompatibility through careful planning of marketing communications

Complexity

-Complexity refers to the degree to which consumers perceive a new product as difficult to understand and use -Higher the degree of perceived complexity, the slower the rate of adoption -Well-executed marketing communications can reduce perceptions of complexity

Convergence

-Convergence is the coming together of two or more technologies to create a new system -One of the most talked about forms of dynamically continuous innovation

Innovation

-Innovation is a hot topic in the boardroom today! -For marketers, an innovation is anything customers perceive as new or different -May be a minor or game changing alteration to an existing good or service -May be a brand new product entirely

Business to Business Products

-Marketers classify B2B products based on how organizations use them -Knowledge of customer product use enables marketers to: -Improve product designs -Craft an appropriate marketing mix

Phase 1: Idea generation

-Marketers use a variety of sources to come up with ideas for new products -Value creation via collaboration with customers, salespeople, service personnel and other stakeholders

Observability

-Observability refers to the degree to which others can see the new product and the benefits it provides -An innovation that is more visible will drive more word-of-mouth communication -Distinctive product features or brand elements can speed diffusion (e.g., Apple iPod's white headphones)

Shopping Products

-Shopping products are goods and services for which consumers will spend time and effort to gather information on price, product attributes, and product quality -Computers -TVs -Appliances -Consumers are more likely to compare alternatives before they buy

New Product Development

-The new product development model is based on categories of R&D expenditures -In most organizations, this process is well-defined and systematic -R&D is a central metric for measuring and organization's commitment to innovation relative to its rivals -Key reasons for new product failure include: 1) creating a product with no discernable benefit over existing alternatives; 2) overestimating the size of the market; 3) poor positioning strategy; 4) poor implementation of the marketing mix (bad product quality, pricing too high or low; inadequate distribution; targeting the wrong market; ineffective advertising).

Discontinuous Innovation

-To qualify as a discontinuous innovation, the product must create major change in the way people live -Consumers have to learn a great deal in order to be able to effectively use the product

Trialability

-Trialability refers to the ease of sampling a new product and its benefits -Lower costs associated with trial usage can speed rate of adoption -Sales demonstrations and sampling can help to improve trialability -Some products do not lend themselves to trials, due to nature of product or high costs

Unsought Products

-Unsought products are goods and services for which a consumer has little awareness or interest until a need arises -Burial plots -Life insurance for young people -Often require a good deal of advertising or personal selling to interest buyers

Phases in New Product Development

1. Idea generation 2. Product concept development and screening 3. Marketing strategy development 4. Business analysis 5. Technical development 6. Test marketing 7. Commercialization

Continuous Innovation

A continuous innovation is a modification to an existing product Most common form of innovation A knockoff is a new product that copies, with slight modification, the design of an original product Harder to legally protect designs than technological innovations

Dynamically Continuous Innovation

A dynamically continuous innovation is a pronounced modification to an existing product Requires a modest amount of learning for consumers to use

Layers of the Product

A product is everything that a customer receives from a purchase. Figure 8.1 illustrates how a product such an automobile can be broken down into three layers corresponding to the core product, actual product, and augmented product. Marketers need to understand consumers' needs and wants at EACH level and market their products appropriately. Let's discuss the three product layers in more detail. Basic benefits relate to the primary reason why consumers purchase a given product within a product category. Obviously, anyone who purchases a vehicle is looking for transportation - this would be considered a basic benefit. But basic benefits might also be less functional or practical in nature. For example, an individual seeking to enhance their personal status would consider this a basic benefit when purchasing a luxury vehicle. Fun, or driving excitement might also be a primary benefit sought by individuals who purchase sports cars. The core product is defined as the physical good or delivered service that supplies the desired benefits. Thus the core product includes specific features associated with the physical product, its appearance, the brand, or its package. The augmented product includes the actual product PLUS other supporting features such as the warranty, service contract, credit and delivery services, installation and training or product use instructions. Many aspects of the augmented product can be adapted or changed much more easily than can the actual product itself. For example, loan rates offered by manufacturer's fluctuate - low rates may be used to entice consumers to buy at certain times of the year. Similarly, warranties can change, though a change of this nature is more likely to coincide with the start of a new model year

Layers of the Product Concept

A product represents all that a customer receives in an exchange Marketers distinguish among three distinct "layers" of the product: -Core product -Actual product -Augmented product

Categorizing B2B Products

B2B products are classified by how organizational customers use them. Equipment is used in daily operations. One form is heavy equipment, which is sometimes called capital equipment or installations. Examples might include a conveyor system used in a warehouse or as part of a production line, or the robotics used by Ford in the manufacturing of their vehicles. Computers, copy machines, and water fountains are examples of light or accessory equipment. Normally these types of items are more portable, cost less, and do not last as long as heavy equipment. Regardless of the type of equipment, marketers commonly rely heavily upon personal selling of equipment in B2B situations. Maintenance, repair, and operating (MRO) goods are consumed relatively quickly. Maintenance items include light bulbs, mops, etc., in comparison to repair products, which include small tools, nuts, bolts, and the like. Operating supplies include paper, toner, and the oil that keeps machines running smoothly. The low cost and straightforward, non-technical nature of these items means most marketers use e-commerce or catalog marketing as the primary method of selling these items, as opposed to personal selling. However, sometimes inside sales representatives will be used to telephone business buyers for supply orders. Raw materials are products of fishing, lumber, agricultural, and mining industries that are used in the manufacture of finished goods. Milk, soybeans, trees, and ore would be considered examples of raw materials.

Phase 4: Business analysis

Business analysis While the concept development and screening stage estimated the basic commercial viability of the product, the concept is scrutinized in greater detail during the business analysis phase. To be commercially viable, the product concept must make a positive contribution to the overall profit of the firm. Employees charged with determining the commercial viability of a product estimate product demand, and work hard to determine if the firm has adequate resources to introduce the new product. The new items fit in the overall product mix is also analyzed. In particular, marketers try to estimate if the new offering will cannibalize (e.g., steal sales from) existing brands. Possible synergies with existing brands are also evaluated. The business analysis must be thorough because the costs of new product development begin to climb rapidly from this stage forward.

Phase 7: Commercialization

Commercialization is just what the name implies - a full scale launch of the new product. Sometimes products are rolled nationally all at once; other times, a product may be released first into a specific geographic region, with future regional introductions occurring over time as production gears up or as sales grown in the original region. Commercialization requires careful preparation. Marketers begin by reaching out to the trade, such as retailers and wholesalers who are part of the distribution chain. These organizations must be convinced to carry the product. Publicity aimed at the media is often used to announce the new product, and accompanied by advertising, sales promotion, and other communication tactics geared towards consumers.

Convenience Products

Convenience products are frequently purchased nondurable products that are purchased with a minimum of time and effort. As the name implies, consumers want easy and convenient access to these products, so marketers often try to make them available in as many locations as possible that make sense given the specific type of product in question. Consumers who can't find their preferred brand will simply purchase a competitive product because they aren't that invested in the purchase decision. There are three common subtypes of convenience products:. Staple products are basic or necessary items that we simply can't do without. Gasoline and milk are a couple of examples. Can you think of some others? Impulse products are bought on the spur of the moment. Package designs of items like candy bars need to be bright and colorful so they catch the consumers attention, enhancing the likelihood of an impulse by. In-store placement is also important; many manufacturers of impulse items try to obtain special point-of-purchase displays to make the product standout, or seek to have them stocked near the cash registers where they may be noticed by bored shoppers waiting their turn in line. What's another example of an impulse item? Emergency products are items that have to be purchased immediately because of dire need. Because immediate access to the product takes priority, consumers may not consider price or product quality when making their choice. Some examples of emergency products include drain cleaner (when the sink is stopped or overflowing), diapers (when the baby is wet and none are in the house), or an umbrella when you're outside somewhere and have to stay there, despite the fact that it is raining. Other examples?

How long do products last?

Durable goods are consumer products that provide benefits over a period of months, years, or even decades Cars -Furniture -Appliances Nondurable goods are consumed over the short term -Magazines -Sushi

Types of Innovations

Dynamically Continuos, Discontinuous, Continuos

Product Factors that Affect the Rate of Adoption

Each product characteristic affects the speed of innovation diffusion -Relative advantage -Compatibility -Complexity -Trialability -Observability

Technical Development

Even continuous innovations such as new beverage flavors may require multiple prototypes and consumer tests as part of the technical development phase

Classification of Products

Marketers also classify products based on their intended usage (by consumers for personal use vs. for business use) and according to either where it is bought (consumer) or the type of item it is (business). In some cases, the same item (such as a laptop) may be sold to both consumers (as a shopping good) or to a business (as equipment). We'll discuss the different classifications of consumer and business products in more detail on the following slides.

How do Consumers Buy Products?

Marketers also classify products based on where and how consumers buy the product Similar to how consumer decisions differ in terms of effort they put into habitual decision making vs. limited problem solving vs. extended problem Categories: -Convenvience, Shopping, Speciality, Unsought Products

Phase 3: Marketing Strategy Development

Marketing strategy development Marketers need to make some fundamental decisions at this stage, including identifying a target market, estimating its size and potential, and determining how to position the product to effectively appeal to the selected target market. Next, planning for pricing, distribution, and promotion is undertaken.

Ethical/Sustainable Decisions in the Real World

New product development is a greater challenge today as marketers must also keep sustainability in mind Adidas systematically applies environmental and health considerations at the design stage One new Adidas shoe, the Element Voyager, is made from sustainable fabrics and recycled polyester.

Phase 6: Test Marketing

Once the final product configuration is created, a firm may decide to launch the product in a test market for a limited amount of time. During the test market, the entire marketing plan is tested - the geographic market in which the test takes place is exposed to the actual promotion, distribution, and pricing strategy planned for the final product launch. Not all products warrant a test market though. A new flavored beverage for an established manufacturer probably wouldn't warrant the expense. Aside from the tremendous cost associated with test market which often run in the millions of dollars, a firm runs the risk of alerting the competition to the new product, which allows them to begin developing a competitive product that much sooner. However, the benefits can outweigh the costs. For example, test marketing allows marketers to fine tune their entire marketing strategy before taking the campaign and new product introduction national. Sometimes flaws in the product are discovered and fixed. Sometimes, the firm saves millions of dollars by pulling a product that "fails" its test market. As an alternative to actual test marketing, more and more firms are opting for simulated test markets that take place online, or in controlled warehouses which mimic a grocery store.

Categorizing B2B Products (cont.)

Processed materials are produced by firms when they transform raw materials from their original state Specialized services are those which are essential to the organization buy are not a part of the actual production of a product Component parts are manufactured goods or subassemblies of finished items that firms need to complete their own goods

Specialty Products

Specialty products have unique characteristics that are important to buyers at almost any price -Generally, an extended problem-solving purchase that requires a lot of effort to choose -Marketers have to go to a lot of effort to make their products stand out -Customers tend to be very loyal

Adoption and Diffusion of New Products

Product adoption is the process by which a consumer or business customer begins to buy and use a new good, service, or idea Diffusion is the process by which a product or innovation spreads throughout a population

Phase 2: Product concept development and screening

Product-concept development and screening The marketer takes the ideas generated in phase 1 of the process, and expands these ideas into more complete product concepts. Product concepts are screened - meaning they are tested - for both technical AND commercial success. The idea is to weed out those concepts that have little chance of making it if actually produced and released for distribution.

How Marketers Classify Products

Products differ from one another in several ways and it is common for marketers to attempt to classify products in categories, especially when buyers feel differently or behave differently towards products of different categories. One way that marketers classify products is according to their level of durability, that is, how long they are expected to last. Nondurable goods are sometimes called consumables, because they are typically depleted or used up in a relatively short amount of time. What are some other examples of nondurable, or consumable items? Durable goods last much longer and almost always cost more than nondurable goods. Cost and longevity differences are two reasons why durable goods are usually purchased under conditions of high involvement, compared to the low involvement levels which characterize nondurable good purchases. Marketers must understand how consumer needs for augmented products as well as information differ for durable and nondurable goods. For example, all things being equal, would you expect the warranty to more important for a durable, or nondurable purchase? {Answer: Durable of course}. Since those who are highly involved in a purchase decision spend more time gathering information and comparing alternatives, marketers can cater to the needs of those looking to purchase a durable good by providing extensive information on the website, via the FAQ section or specific web pages devoted to important actual product features or augmented product aspects. What other actions might marketers take to satisfy the needs of consumers of each type of good? DISCUSSION NOTE: Creating a Facebook page, monitoring and responding to tweets, creating a community forum or blog where users can talk about the product are all actions that may be appropriate for durable goods. Since those who purchase nondurable goods are less likely to spend much time and effort shopping for alternatives, marketers should strive to keep their current users of the brand happy. As long as these users are satisfied, they are likely to continue purchasing the product. Marketers might consider creating new uses for the existing product, rewarding their loyalty via a continuity program (such as a frequency card, buy X items get the X+1 item free), etc.

Categories of Adopters

Recall from our earlier discussion that diffusion describes how a product spreads throughout the marketplace. Some consumers are eager to try new innovations, while others may take a "wait and see" attitude, or be downright skeptical of new offerings. The simple fact is that different people adopt innovations at different times. Figure 8.6 illustrates this idea - the first to adopt a new product are innovators. These risk-taking, adventurous individuals are young, well educated, and better off financially than most others. Early adopters are concerned about their standing with peers, and gravitate towards products that will enhance their social acceptance by making them appear to be fashionable or cutting-edge. Marketers will often spend more money targeting the early adopters than they will innovators, knowing that innovators are going to try the product anyways if it is at all relevant to them. More cautious than either of the first two groups mentioned, those who fall under the early majority are cautious and deliberate in their decision-making. Once they adopt a product, it is no longer considered to be new or all that different. Early majority are middle-class consumers, with slightly above average levels of education and income. The late majority tends to be comprised of older consumers with lower levels of education and income. Those in the late majority are risk adverse, so they'll only purchase a product once it has a proven track record and is no longer considered to be a risky buy. Laggards, the very last group to adopt a product, are rarely, if ever actively targeted by marketers. Tradition bound to the core, laggards often only adopt a product when there is no other alternative. For example, there is a still a small group of men who use a strait razor to shave. As it becomes more difficult for these people to find a replacement razor or to sharpen and existing blade, straight razor users may be forced to purchase either an electric razor or disposable razor.

Relative Advantage

Relative advantage is the degree to which a consumer perceives a new product as offering superior benefits The greater the relative advantage, the faster the product should be adopted Typically relates to functional benefits (e.g., higher quality, speed, lower cost) Marketers should promote relative advantage of a new offering such that its superiority is clear

Adoption Pyramid

The process that leads to consumers' adoption of an innovation is illustrated in Figure 8.5. The process begins at the ground level, and marketers first task is to create awareness among consumers. Different tactics used by marketers to create interest, spur product evaluations, and stimulate trial, adoption and confirmation are also shown in figure 8.5. However, not everyone who becomes aware of an innovation is interested in learning more. The pyramid shape of Figure 8.5 symbolizes the fact that some consumers "drop out" at each level despite the best efforts of marketers. Let's briefly discuss each step of the adoption pyramid: A media blitz, or massive advertising campaign and publicity efforts are commonly used to create awareness among the target market. Prospective adopters become interested when they see how the new product might satisfy a need. Teaser advertising is often used to stimulate curiosity and the desire to look for more information. Consumers weigh the costs/benefits of the new innovation during the evaluation stage, though some types of products, such as those bought on impulse, may be bought with very little evaluation. Sampling is the premiere technique for stimulating trial usage of the product among potential adopters, and demonstrations can be critical as well. During Adoption, the prospect actually buys the product for the first time. But that's not the end of the process! After initially adopting the product, the consumer weighs the expected vs. actual benefits and costs. If he or she is satisfied following a favorable experience, the individual is likely to continue using the product for as long as it meets his or her needs better than the competition. Marketers can encourage confirmation via marketing communications by reinforcing the idea that the consumer made the correct choice.

Phase 5: Technical Development

The technical development stage is expensive for firms because engineers begin refining the product concept, develop detailed blueprints, schemata, and models, and actual product prototypes. Prototypes are fully functioning test versions of the product developed by the R&D department. Prototypes are often tested during focus groups, or by employees within the firm. For example, Gillette employees constantly test new products by shaving when they first come to work. Prototypes are used by employees responsible for writing instructions, determining which parts will be manufactured internally versus purchased from a supplier as well as what type of new machinery will be needed for the production process. Often, firms will patent the product during the technical development stage to protect the firm's investment.