307 Final: Product and Services
Characteristics of Services
(Distinguishable from product marketing based on four fundamental differences) 1. Intangible - Cannot be touched, tasted, or seen like a pure product can - Difficult to convey the benefits of services, difficult to promote --> Service providers offer cues to help their customers experience and perceive their service more positively (i.e. beverages, comfy chairs to create an atmosphere that appeals to the target market) - Marketers creatively employ symbols and images to promote and sell services (Six Flags evokes images of happy friends riding roller coaster) 2. Inseparable Production and Consumption - Services are produced and consumed at the same time - Rarely have the opportunity to try the service before they purchase and After service is performed can't be returned if you don't like it - Firms provide extended warranties and 100% satisfaction guarantees because the purchase risk is higher 3. Heterogenous - The more humans needed to provide a service the more likely there is to be heterogeneity/variability in the service's quality - Difference between the marketing of products and services - Delivery of services is more variable - hairstylist gives bad haircuts in the morning b/c of a long night - By the time a firm recognizes a problem, the damage has already been done (can't take back a service but can recall a product) - Marketers use variable nature of services too their advantage → customize a service to meet customers' needs exactly (vary details surrounding exercise facilities (local storefronts) to match the needs and preferences of the local members - each gym seeks to exercise a pleasant experience rather than an intimidation festival) - Replacing people with machines to tackle variability → ATMs, Kiosks 4. Perishable - Cannot be stored for use in the future - Provides both challenges and opportunities to marketers in terms of matching demand and supply (perfect matching rarely occurs) - Cruise ships, movie theaters, airlines, ski tickets Offer discounts during off-peak periods to stimulate demand
3 Types of Innovations
A continuum of "newness:" -Continuous—same product, just small improvements over time—e.g., automobiles - implies the inclusion of some new technology or ideas without any fundamental way in the way the product, idea, or service, is used. - For example, Whether a car has a carburetor or fuel injection, again, may not constitute a highly visible difference for the consumer, with established methods of operation left unchanged. -Dynamically continuous—product form changed, but function and usage are roughly similar—e.g., cell phones, HDTV, video streaming, Blu-ray - involve some degree of change for the consumer, although such changes do not completely change existing ways of product usage. - For example, digital watches, although different from electronic ones, basically serve the same purpose. The ball point pen, although somewhat more convenient, did not change the fundamental way people wrote. -Discontinuous—entirely new product; usage approach changes— e.g., fax, GPS •The more "new" a product category is, the greater the need to educate the customer on benefits and basic idea of how the product works - fundamentally changes the way things are done. - For example, many consumers had difficulty understanding the concept of a microwave oven when this device first came out.
Chicken and Egg Problems
A potential "chicken-and-egg" problem may exist when it is necessary to have two conditions—each of which depends on the other—met before a product or exchange is possible. These problems come in a variety of forms: For some innovations to work, two conditions must be met, but each requires the other to happen first Investment in required infrastructure requires demand. (1) Consumers are reluctant to buy electric vehicles before charging stations are available at hotels and other parking facilities but (2) hotels and operators of parking facilities are unwilling to invest in putting in charging stations until enough consumers drive electric cars. •Need for critical mass: Social media sites tend to require a certain "critical mass" before they can attract users. (1) You will not be particularly interested in joining a new social media site before your friends do, but (2) your friends will have limited interest in joining before you do. Similarly, (1) for a potential competitor to Netflix to attract customers, it must offer a strong recommendation database but (2) developing the recommendation database requires input from a large number of customers. •Two parties must join, each of which requires the other to join first. A new online auction site will have difficulty attracting (1) potential buyers until sellers list their offerings, but (2) sellers will have limit interest in listing—especially if they have to pay—until there are sufficient numbers of potential buyers. -E.g., Uber: must have drivers before riders will sign up, but will need riders before drivers can be recruited •Most two-sided platforms face chicken-and egg problems, but not all innovations that have chicken-and-egg problems are two-sided platforms •A product needs third party accessories and/or support. If a new cell phone operating system (OS) is introduced to compete with the iPhone iOS, Android, or Windows, (1) customers will have limited interest in adopting until there is a sufficient number of apps available but (2) software developers will have limited interest in investing in creating apps for the OS until there are sufficient numbers of users to provide a profitable market. -E.g., electric cars, cell phone systems (apps are needed before users will adopt the system),
Brand Value and Image Brand Equity Brand Personality
An essential issue in product management is branding. Brand equity: Effective value added to product based on brand name -Choice likelihood -Ability to charge higher price -Use of product as loss leader •Benefit in market share, temporary revenue (Coca Cola) •Possible damage to long term brand image (Louis Vuitton suitcases in Japan) --> This value —often from history of advertising and a reputation for quality that a manufacturer has established among consumers over time —results from the increased profits that can be made by selling products (Apple can sell their product at higher prices and greater quantity after est. brand name) and/or services under the brand name over and above what could be obtained by selling a generic, un-branded product. Brand "personality:" Human associations with product Notes: In some countries, accountings standards allow firms to maintain brand equity on their balance sheets as an asset. In the United States, generally accepted accounting principles generally provide that advertising expenses must be "expensed" in the period in which they are made. However, if one firm acquires another and/or buys a brand from another firm, the "good will" component of the purchase price can be depreciated over time.
PLC 3. Maturity Stage
As more and more potential customers buy the product, it will tend to reach a maturity stage where little growth will be seen The product category will likely compete with an increasing number of other product categories to satisfy similar customer needs. This can happen either as most consumers have now bought a durable product—e.g., a microwave oven, leaving (domestically, at least) mostly a replacement market where consumers buy new items to replace those worn out or to start new households. Non-durable goods: customers may continue to buy the product, but sales will have nearly peaked since the supply of new potential customers is limited, with existing customers not increasing their frequency of purchase. Typically: -Greatly increased competition—lower prices (when adjusted for inflation), race to offer more features, higher quality (capacity has reached its peak but the market is not growing much; any new capacity must take away market share from competitors) -Both increased manufacturing and design in less developed countries -Limited growth opportunities (in either domestic or world market) --> limited opportunities to reinvest profits in this category --> need to enter new product and/or country markets --> Since the growth of the market is limited, they cannot grow much unless they do so by taking market share away from competitors (more difficult to reinvest profits in growth) -Significantly lower prices (relative to inflation) --> Although costs of production may be at their lowest point (again, adjusted for inflation at this point), lower prices will tend to decrease profitability from its peak experienced at the growth stage. -Sales may be mostly for replacements and new population Examples: Microwave ovens; laser printers;
Alternative Approach: New products as investments
Big Picture Only A more sophisticated approach (details are beyond scope of course) Some issues that are addressed in the investment approach are that: •There are certain fixed and start-up costs in introducing a product. If you do not sell a sufficient volume, you will lose money. •Demand is uncertain and there is risk is involved. The greater the risk, the greater the expected return will be needed to justify going ahead. •Expenditures and revenues occur at various times. Many expenses are incurred before the first revenues. •Money made in the future is worth less ("discounting"). Calculation of net present value (NPV)--discounted cash flows over time for -R&D expenses -Setting up manufacturing capacity -Period fixed expenses (e.g., cost of buildings and equipment depreciation) -Total revenue Discount rate should reflect the risk associated with the specific product considered More complex models assign probabilities to various outcomes (e.g., competitor entry, reaching certain sales levels, changes in resource costs) This approach is covered in finance and managerial accounting courses
Brand Dilution
Brand Dilution - occurs when the brand extension adversely affects consumer perceptions about the attributes the core brand is believed to hold (ex. Ferrari gone fast past clothing to offer brand licenses for clothing, perfume, cologne, skis, etc,) Unsuccessful examples: Cheetos lip balm, Lifesaver sodas, Colgate kitchen entrees, Bic disposable underwear
Brand Extensions
Brand extensions may allow a firm to use an existing brand name for a product category that is new to the firm. Ex. Although Apple had originally focused on computers, its brand name was also used when MP3 players, smart phones, and tablet computers were offered. May lower cost of launching new product line and increase speed of market penetration that would otherwise take time to develop regardless of resources available, but... Considerations: -Perception of ability to make product well (poorly received product could damage the strong brand name extended) -Extension should not be exploitative—making a "trivial" product by high image brand (e.g., Heineken Popcorn) -Congruence: Are products seen by customers as "sensible" creations by the same brand? - less successful if new offering is not found suitable by customers •Apple iPod made sense as a "mini computer" with hard drive based music files; iPhone made sense as an extension of the iPod •Would apple "stylish" Apple furniture make sense? Research shows that consumers are more receptive to brand extensions when (1) the company appears to have the expertise to make the product [McDonald's was not thought as credible as a photo-finishing service] (2) the products are congruent (compatible) (3) the brand extension is not seen as being exploitative of a high quality brand name [e.g., one should not use a premium brand name like Heineken to make a trivially easy product like popcorn].
Store (Private Label) Brands
Brands owned by a retail chain, a collection of chains, or a consortium -E.g., Sam's Choice (Walmart), Kirkland (Costco), Kroger (owner of regional chains such as Ralph's) - Vons and Safeway have the same corporate parent and both carry the "Select" brand Usually sell for lower prices than national brands More profitable—event though prices are lower, there are fewer brand building costs and higher margins May be manufactured by the same firms that make the major brands, but with different brand name attached Retailers can put these next to national brands to emphasize savings - Retailers have a great deal of power here because they control the placement of products within the store. Many place the store brand right next to the national brand and place a sign highlighting the cost savings on the store brand. More common in Europe, where there are more national grocery retail chains
Assumptions in BE Analysis
Break-even analysis is a highly simplified method that makes a number of rather unreasonable assumptions—in particular that: •No additional manufacturing capacity will be needed to make any of the quantities considered •All customers pay the same price •No discounting on future cash flow from made after the initial period •No periodic fixed effects •Marginal costs of resources remain constant -No quantity discounts -No increase in costs due to limited market supply
Co-Branding
Details on specific types of co-branding are not needed for the exam! Using two or more brands as a way of maximizing appeal and greater customer value Types: -Distributional •Egalitarian: Carl's Jr. and Green Taco •Hierarchical: Visa as official credit card of the Olympics -Line filling—e.g., airline code sharing -Ingredients •Cooperative: Dryers' ice cream with Mars M&Ms •Independent: Local computer maker advertises Maxtor hard drive components --> Some ice cream makers, for example, use their own brand name in addition to naming the brands of ingredients contained. Sometimes, this strategy may help one brand at the expense of the other. -Intrusive: "Intel Inside" --> It is widely believed, for example, that the "Intel inside" messages, which Intel paid computer makers to put on their products and packaging, reduced the value of the computer makers' brand names because the emphasis was now put on the Intel component. -Partial: McD's serves Coca Cola -Sponsorship: Good Housekeeping seal of approval
Brand Specificity
Different firms have different policies on the branding on their products. On a continuum, different brands cover varying degrees of breadth: •Single product category brands(product line specific brand) - Some brands cover only a single product category. --> Narrow: Very specific brands—each product category by the same firm has its own brand name. (P&G even maintains different brands of laundry detergent competing against each other - Tide, Ariel, Era) •The philosophy here typically is that one less well regarded product should not drag the whole brand own with it. •Brands covering a broader scope (with common "themes") - Disney uses brand in amusement parks, movies, TV programming, and a cruise line - Different offerings each make use of the Disney image and borrow characters other creations across the offerings --> there's a clear purpose for broad scope --> Continuum: The brand covers different product categories, but these are usually clearly related (Apple sells a number of electronic products—generally connected by use of computing power or as accessories for these main products) •"Umbrella" brands - (vast assortment covered) - Some brands cover a very vast scope. Although there may be good reasons why the respective offerings are presented under a common brand, these may not be readily evident to customers - 3M, for example, focuses on different types of products that involve bonding materials to surfaces in some way—thus, we have glue, tape, and recordable DVDs (where a metal disk is coated with iron oxide). --> Wide: Very broad brands—cover a number of different product categories. The rationale for using the brand across these product categories may or may not be clear to the customer.
PLC 2. Growth Stage
Eventually, when products reach a growth phase—sales increase dramatically More firms enter with their models of the product Because the market is growing so rapidly, the level of competitive intensity has usually not reached the highest intensity yet, but brand awareness and differentiation are becoming more important Because of high sales volumes and moderate competition, profitability can be high at this stage However, as markets become increasingly competitive, many are now pricing aggressively even at this stage Typically: -Greater consumer awareness -Higher sales volumes -Better and more user friendly products -Prices are lower, but not as low as they are likely to get (adjusted for inflation, at least) -Although there are more competitors, market growth is large enough to carry the available supply. -Greater interest in differentiation and brand awareness. Examples: Electric cars (battery powered); smart watches; consumer and business drones
Diffusion Themes
FREQUENTLY MISSED ON EXAM! 1. Observability: Products that can be seen being used advantageously by others tend to spread faster - extent to which an innovation can be readily observed in public - iPhones were readily observable as were Uber and Lyft cars and riders - Nutritional supplements are often consumed in private and are thus not as visible. - To the extent that new fashions can be seen readily on Instagram and other social media, they may catch the attention of more and more people. 2. Imitation: Later adopters follow the lead of earlier adopters whose adoption has been shown to be successful - extent to which people who see other people using an innovation will eventually follow. - people might have hesitated to "take the plunge" to get a smart phone b/c of costs involved - as people notice more and more others using these phones, they become increasingly well assured that these devices are useful and manageable 3. "Chicken-and-egg" problem: A certain infrastructure is needed to make adoption attractive, but motivation to provide the infrastructure depends on market size—e.g., -Coupons and clearinghouses -Hydrogen/electric cars -HDTV -Social networks - Some innovations require two things to happen, each of which in turn requires the other, to take off. - electric car charging example 4. Trialability: People tend to prefer "trying out" a potentially costly innovation on a smaller scale rather than having to commit before trial - extent to which a consumer does not have to commit to a large expenditure or extensive efforts to learn to use the innovation - Example: GPS system trial in rental cars to try out and realize its usefulness - One can easily try new foods and beverages and discontinue these if they are not satisfactory -In contrast, solar panels are not readily triable 5. Network economies (the inverse of the chicken-and-egg problem): Some innovations will be more valuable to a potential adopter the more others have adopted the innovation -Peer-to-peer payment systems (Venmo - you can venmo more people you know as friends join) -E-mail -Online personals sites -Other online communities This is particularly the case for innovations that involve communication, distribution, or certain other types of contact. Contrary to what one might have expected, there was no real chicken-and-egg problem with the fax machine. Large businesses immediately found it useful to have at least one fax machine in each building, thus allowing these organizations to fax each other. This, in turn, made it attractive for major suppliers and customers to acquire their own fax machines, a cycle that then continued to the next "generation" of firms
Break-Even Sales Volume Points
For a new product, how much do we have to sell at what price to avoid losing money? In order to "break even"—that is, to at least not lose any money—on a new product introduction, a minimum of a certain quantity will need to be sold. If less than that quantity is sold:loss on the new product If a larger quantity is sold: profits begin to accumulate. This break-even point: Total Revenue (pq) = Total Cost Total Cost = Fixed Costs + Quantity * Variable Costs -Fixed: constant regardless of quantity sold (e.g., R&D, equipment needed, setup, overhead) -Variable (marginal): Costs of making one additional unit (e.g., labor, materials) The amount by which the selling price exceeds the cost of production is known as the "contribution by unit CPU= Price - Variable costs (contribution margin) Breakeven Quantity = Fixed Costs/Contribution per unit. Significance: We can calculate the break-even point directly and compare this with cost and revenue figures at various quantities. We can then graph these figures and note the point at which the total cost and total revenue curves intersect.
National vs. Regional Brands
In many markets, brands of different strength compete against each other. At the top level are national or international brands. A large investment has usually been put into extensive brand building—including advertising, distribution and, if needed, infrastructure support. Some national brands are better regarded than others—e.g., Dell has a better reputation than e-Machines—but the national brands usually sell at higher prices than to regional and store brands National brands -Generally available across the U.S. -Usually have a longer history -Have usually been built with extensive advertising -Often described as "major" brands -Typically more expensive than regional brands Regional brands -Usually brands that have started in and are available only in some region (only one area) -Regional entry may have occurred because the manufacturer did not have the investment capital/resources to start a national one -Typically do not have a long history of elaborate advertising --> advertising is usually done at regional level due to barrier in regional entry and thus limits the adv. opportunities/effectiveness of advertising -May be adapted for regional tastes -Typically sell for lower prices than national brands -May eventually go national with sufficient success and resources/work their way up to a more inclusive national brand For example, Snapple® while a regional beverage, it became so successful that it was able to attract investments to allow a national launch. For example, Mars was originally a small brand that focused on liquor filled chocolate candy. Eventually, the firm was able to expand.
Technology Driven Consumer Innovation (Diffusion)
In some cases, new product categories or practices diffuse as innovation make these cost effective. Widespread smartphone diffusion has led to: 1. More people adopting digital photography (developed countries) •Some never photographed before •Some did not want or remember to carry a standalone digital camera --> no cost in taking photo, no need to develop it, high quality pictures in smart phone no need to carry camera 2. Electronic payment systems more common across world •Currency shortage in India made e-payments attractive •Local street vendors in China started to accept mobile payments pushing China ahead of U.S. in this regard •Online banking in rural African towns not served by brick-and-mortar banks Increased Internet bandwidth -Movie streaming became feasible and was easier than renting movies
"Jump Starting" Innovations with Chicken and Egg Problems Uber Example
It is sometimes possible to "jump start" an innovation facing a chicken-and-egg problem. For example, manufacturers of electric cars and/or the government can pay part of the cost for one hotel chain to install charging stations. Although there may not be a lot of guests arriving in electric cars immediately, the hotel chain gets "bragging rights" of being the first to offer this. It is now more attractive for consumers to buy electric cars, and as the number of owners increases, more and more facilities find it worthwhile to join in the offering of charging stations. - Subsidies—e.g., for electric cars, car makers and/or the government takes on a large portion of the cost of initial infrastructure - Starting with a lesser innovation that can be used individually by one of the needed parties (two step) -E.g., OpenMenu: First introduced as an internal reservation for restaurants to use; later on, users were invited to join Internet network for diners to make reservations (an easy step that many restaurants could take over a short period of time) Uber Example: - Uber must have drivers to attract riders, but recruiting drivers can be difficult if no riders have downloaded the app to hire them - Uber was started in San Francisco (contributed to its success) --> Due to the influence of taxi operators and driver unions, there has been a significant under-supply of taxis in San Francisco - This has allowed taxis to go with little "down time" without passengers and has limited competition such that higher fares can be charged - Finding an available taxi is especially difficult, can take a longtime, and is expensive This increased motivation to download earlier than they might in other areas. This could help persuade drivers to sign up. -SF is a heavy tourist destination. Once someone downloads the app for use there, he or she can use it elsewhere.
Lower Tier Brands Generic Brands Main and Subbrands
Lower Tier: Brands that are usually national in scope, but are less regarded and have been developed less than the major ones -E.g., Shasta (soda) Quality tends to vary -Less has been spent on building these brands. The owners of some of these brands may also have access to less research and development funds, so the products may be—but are not always—of lower quality. May emphasize specific tastes or needs Generic: •No brand name products •Typically lowest price •Quality tends to vary - Sometimes, these are actually made by the same firms that make major brands, but the quality tends to vary considerably. Main and Subbrands: In the beginning, the main brand often adds considerable value. In practice, the product may be referred to simply by its subbrand. In some cases, the subbrand may become deemphasized. For example, today many people refer simply to Apple computers rather than Apple Macintosh. •Some brand names may consist of a main brand and a subbrand: -Apple (main brand) iPhone (subbrand) -Toyota Prius •These brands may be referred to by the combination or by the subbrand •Even when the main brand is not mentioned, it is usually understood and adds value
The Product Life Cycle (Product Category and Era Specificity)
PLC: Products often go through a life cycle. A number of factors will change throughout the product life cycle requiring the design and function of products that serve a given purpose to change dramatically over time The Cycle (The curve will look different for each product) 1. Products will generally be invented and start with low use. 2. With decreased costs and improved technology, more people tend to adopt (sales volume goes up) 3. With more consumer interest, competition increases, driving down prices and up quality, user friendliness, and features offered. Product Category and Era Specificity: •Certain major improvements within a product category are often seen as entirely "new" categories—e.g., black and white TV --> color TV --> HDTV --> Ex: Phones evolved from non-dialing, operator assisted only desktops; dial-able desktops; car phones (large); cell phones (big and clumsy); readily portable cell phones; smart phones; VOIP •The timing and shape of the Product Life Cycle (PLC) curve will differ depending on how general or specific evolutionary the level—TV as a whole may be in maturity, but color TV is in decline --> saturation point may be reached where there is no further growth, and the product category may eventually be replaced, over time, by another a later innovation --> Ex: Horse driven wagons were eventually replaced by automobiles and other vehicles.
Primary vs. Secondary Packaging
Primary packaging Packaging the consumer uses from which they seek convenience in terms of storage, use, and consumption i.e. toothpaste tube Secondary package Wrapper or exterior carton that contains the primary package and provides the UPC label used by retail scanners Consumers can find additional product information that may not be available on primary package Add consumer value by facilitating the convenience of carrying, using, and storing the package Packaging in general Attracts consumer attention Enables products to stand out from their competitors Offers a promotional tool Allows for the same product to appeal to different markets with different sizes Firms change packaging as a subtle way of repositioning the product
Cross Country and Cultural Product Adaptions
Product adaptations to match -Cultural values and tendencies -Economic conditions -Infrastructure -Tastes and preferences We discussed international product adaptation previously in the context of international marketing. Lessons from Japan: - Customers expect to see the actual product Brazil: Influence of People of Japanese Ancestry (incorporated Japanese art) Korea: healthy burger phase
Brand repositioning
Rebranding Refers to a strategy in which marketers change a brand's focus to target new markets or realign the brand's core emphasis with changing market preferences Can improve brand's fit with its target segment or boost vitality of old brands but also has costs and risks Spend tremendous amounts of money to: - Make tangible changes to the product and packaging - Intangible changes to the brand's image through various forms of promotion Ex of failure: - Repositioning high fructose corn syrup as corn sugar
Some Diffusion Examples
Ride sharing (Uber, Lyft) -Chicken and egg problem -Observability -Imitation --> The use of ride-share services became increasingly popular as smart phones became more widespread --> Uber and Lyft logos on cars have increased awareness --> The social proof of the sheer number of people using these services has caused more people to try. Paleo diet -Word-of-mouth and social currency --> Although only some food is consumed in public, word has spread extensively on diet innovations such as the Paleo diet. --> Such a diet is readily trialable. You can stop any time. MP3 players -iPod users became "walking advertisements" --> MP3 players started to spread rapidly with the advent of the Apple iPod compared (less big/bulky than previous MP3 players) --> The iPod featured white earbuds, in contrast to most other audio devices in black. --> Even if the user kept the iPad in a pocket, the earbuds alone turned the user into a walking advertisement. GPS systems -Initially expensive -Trial through rental cars (financial risk was greatly reduced) Faded, torn jeans -Fads -Innovations do not have to be high tech --> Fashions are often quite arbitrary, and sometimes cyclical. At various times, faded and torn jeans have come into fashion. It is actually not easy to artificially wear out jeans, so used ones have often been resold.
The Service Gaps Model
Service gap - results when a service fails to meet the expectations that customers have about how a service should be delivered Model - designed to encourage the systematic examination of all aspects of the service delivery process and includes steps needed to develop an optimal service strategy 1. Knowledge gap: Reflects the difference between customer's expectations and the firm's perception of those expectations Close this gap by: - Determining what customers really want through marketing research metrics: 1. service quality- customer's perceptions of how well service meets their expectations (based on reliability, responsiveness, assurance, empathy, and tangibles) 2. zone of tolerance- area between the customer's expectations (what they want) regarding their desired service and their minimum level of acceptable service before going somewhere else 2. Standards gap: Difference between the firm's perceptions of customers' expectations and the service standard it sets Close this gap by: - Set appropriate service standards, train employees to meet and exceed those standards, measure service performance 3. Delivery gap: Difference between the firm's service standards and the actual service it provides to consumers Close this gap by: - Getting employees to meet or exceed service standards when the service is being delivered - Empowering service providers - Providing support and incentives (emotional and instrumental support) - Using technology when appropriate (Panera kiosk ordering: ensure orders are prepared correctly and at what time, Cisco shelf sensor to allow retailer to know when stock is low) 4. Communication gap: Difference between the actual service provided to consumers and the service that the firm's promotion program promises - Although firms have difficulty controlling service quality b/c it can vary from day to day and provider to provider, they can have constant control (almost) over how they communicate their service package to their customers Close this gap by: - Be more realistic about services provided (don't overpromise) - Manage customer expectations effectively: warn people if something is below their expectations, don't lie and surprise them!
International Brands
Some brands derive a great deal of their value, prestige, and mystique from their global status! Gain part of the mystique and value from being ubiquitous across the world—e.g., -Coca Cola -Apple -Disney -Louis Vuitton -Nike Although necessary adaptations may be made across countries, these are often deemphasized. - For example, the artificial sweeteners permitted will often vary across countries. Sizing may also be made to conform with local standards. - For example, Haagen-Daaz offers green tea ice cream in Japan - For example, in the U.S., a can of soda is usually twelve ounces; in Europe, a size of 250 milliliters is more common. These adaptations, however, are not advertised. Note that some of the classic advertising of Coca Cola has emphasized the international reach of this product. For example, the ad series "I'd Like to Buy the World a Coke" featured people of many different ethnicities and nationalities.
Corporate (Owner) vs. Product Brands
Some corporations do not find value in associating their corporate brands with more specific brands. But in some cases, these companies own an assortment of brands that may have been built by a variety of other firms and are then acquired. Promoting the corporate name and its products to investors may be important, but the original brands tend to convey more value to consumers. •Conglomerates may hold numerous brands •The brand owner may or may not want to emphasize corporate brand -Procter & Gamble does not want to risk damage to the main brand by unsuccessful brands -Brand owners may not feel that their corporate identity adds value to brands that have been built over decades
Product-Service Continuum
Some people insist on drawing a rigid distinction between tangible goods and services (not useful in practice) Most products contain at least some element of both tangible and service goods It is more useful to examine where, on the continuum from a pure tangible good to a pure service a given offering lies. Example: A computer, for example, is a tangible product, but it often comes with a warranty and software updates. Although surgery is primarily a service, it involves pain medication and sutures. NOTE: This Product-Service Continuum is NOT a question of whether the product can be used by the customer to perform a service (a washing machine can be used to wash clothes) but a question of what the customer RECEIVES --> What it identifies is the relative value of what is being provided by the seller: - The tangible product component (e.g., the washing machine) and the service component (e.g., delivery and installation, instruction manual, phone and online support, warranty service).
PLC 4. Decline Stage
Some products may reach a decline stage, usually because the product category is being replaced by something better Will usually eventually occur although the product category dominate last for a long time Typically: -The product category is increasingly being replaced by other categories (which are often cheaper than the original category) -Competition causes some—if not most—of the manufacturers to exit the market -Product may be used as specialty product (e.g., typewriter to fill out "legacy" (old paper and carbon) forms For example, typewriters experienced declining sales as more consumers switched to computers or other word processing equipment. --> Many producers will be driven out of the business --> Those who survive may focus on specialty markets (e.g., business users who need typewriters for "legacy" carbon copy forms) Examples: Cassette tape players; typewriters; brick-and-mortar travel agents; print newspapers
PLC Involves
The product life cycle is tied to the phenomenon of diffusion of innovation. When a new product comes out, it is likely to first be adopted by consumers who are more innovative than others—they are willing to pay a premium price for the new product and take a risk on unproven technology (be on the good side of innovators since many other later adopters will tend to rely for advice on the innovators who are thought to be more knowledgeable about new products for advice 1. Demand for the product 2. Awareness of the product 3. Competition in supplying the product -Price -Features -Differentiation 4. Profitability -Higher during growth -Shrinking at maturity -Possibly negative during decline—only some producers survive 5. Alternatives available to the product—e.g., a DVD player competes with smart phones and other devices 6. Investment opportunities: Should you reinvest in creating more capacity or focus on new products? 7. Appropriate strategies - firm may need to modify its market strategy - For example, facing a saturated market for baking soda in its traditional use, Arm & Hammer launched a major campaign to get consumers to use the product to deodorize refrigerators. Deodorizing powders to be used before vacuuming were also created.
To test Chicken and Egg Problems
To test the likelihood of a potential chicken-and-egg problem, you may think of these questions: •Does the innovation or offering require a large number of others to be involved before it is useful for the first adopters? In the case of ATM machines, the answer was no since the system was useful as soon as the customer got his or her card. On the other hand, social networking sites are attractive only once friends or other interesting people have joined. •Does the innovation or offering require investments by third parties that are unlikely to occur until a sufficient number of customers already own/use the innovation? For example, for customers to pay extra for a laptop offering a new and faster wi-fi technology, there must be routers and wi-fi systems supporting this technology, but wi-fi operators may not be willing to invest in the required technology until sufficient numbers of people have computers and devices that can take advantage.
Brand vs. Firm Level Assortment Product Lines and Product Mix
Today, the same firm may own several different brands, and efforts may be made to clearly differentiate the different brands of the same company. 1. A firm may spread both its product lines and product mix across different brands: -Different brands for different product lines (e.g., Microsoft Bing [search engine]; Sam's Club) -Different tier brands in same product category (e.g., Courtyard by Marriott, Lexus [owned by Toyota]) -Brands acquired by a firm over time and maintained (e.g., Toblerone is owned by Kraft) -"Vestigial" brands (Rite Aid acquired Payless Drugs which had previously acquired Thrifty stores; the Thrifty brand name is still used on ice cream) -Different brand for each product (e.g., Procter & Gamble; Mars Candy) --> Procter & Gamble owns a number of laundry detergent brands in the same product category (Tide, Bold, and Gain) in addition to a number of brands used in different regions of the world. --> Managers at these brands are expected to aggressively compete against each other --> P&G mentality: a weak product should not be allowed to "drag" the overall brand down. Thus, each separate brand has to make it on its own. 2. Separately operated divisions using the same brand name (e.g., Virgin Group: Virgin Mobile, Virgin Hotels, Virgin Railways) 3. Divisions sold off to a buyer who maintains the original brand name (e.g., Kit Kat brand name is owned by different firms in different parts of the World)
Two-Sided Platforms
Two-sided platforms are when services connect two parties without providing the direct service themselves. Firm adds value as intermediary between two parties Example: -Uber (riders and drivers) • Handles matching of riders with nearby driver; collects money • Uber's function is mostly as an intermediary that connects the two parties efficiently. -eBay (buyers and sellers) -OpenMenu (diners and restaurants) •Diners can check reservation availability for multiple restaurants in an area and make a reservation in the most preferred available one - Retailers—including online ones such as Amazon—which do a lot of distribution work are intermediaries that connect buyers and sellers, but they are not considered two-sided platforms since they do more substantive work (e.g., operating a retail store, keeping inventory, or shipping goods to customers)
PLC 1. Introduction Stage
When a product is initially introduced, typically there is: -Low awareness category awareness: product category is typically not well known and is usually expensive -Limited competition—greater interest in category awareness -No finalized standards/protocols (might be unable to get apps for a new cell phone OS) -Fear that the technology may not survive (may fade away or be replaced a different standard) -Limited features -Less reliable technology: products are often less reliable and clumsier than they are likely to be once production and design are improved, product is less well developed at this stage and may be more difficult to use --> At this point, the interest is generally more in creating product category awareness than in brand awareness. -High prices: expenses are also high -Low unit sales -Low or negative profits—limited sales and high expenses: negative cash flow for heavy investments in research, design, production as needed Examples: Fuel cell battery technology (hydrogen converted to electricity for electric cars, allowing greater range than charged batteries) Internet of Things: An increasing number of devices and appliances can be connected to the Internet through, Thus, it is possible for appliances to send back error codes to manufacturers, to download software upgrades automatically, and to be controlled remotely. Here are some examples of possibilities:
PLC Alternatives: Plateau Revitalization Fad
•In a plateau, the product category is not being actively replaced by anything else, but growth ceases (or remains small) (e.g., fast food in U.S., microwave market that's mainly a replacement market now) •Under revitalization, a new use for the product emerges (or renewed interest develops) (e.g., cranberry juice; car cigarette lighters) •Fad: Product spreads rapidly, but quickly loses appeal
Examples of Chicken and Egg Vulnerable Ventures
•Personals sites - Personals sites, social media platforms, and text messaging systems generally need a certain "critical mass" to attract and maintain participants - you're unlikely to join a social media platform until your friends do and they, in turn, are likely to wait until you join •Auction sites - need both buyers and sellers •Text messaging systems •"Wiki" projects •Crowdsourcing apps •Carpool systems •Electric cars: Catch 22: Hotels would be quite willing to pay in charging systems in their parking garages if a sufficient number of guests have electric cars; however, many are reluctant to buy an electric car until such systems are available. •Computer and cell phone operating systems
Product Lines vs. Product Mix
•Product Line: A number of similar or related products, assortment of similar things the firm holds - Brother laser printer and one typewriter -BIC writing utensils -Boeing Commercial Aircraft (aircraft and parts) -Nike shoes; Nike clothing --> Depth refers to the variety that is offered within each product line. Maybelline offers a great deal of depth in lipsticks with subtle differences in shades while Morton Salt offers few varieties of its product. •Product Mix: Assortment of different products offered, a combination of different product lines the firm holds - "KFC—we do only chicken right!" (some firms have very narrow focused or narrow product line - only one product line) -Samsung: wide product mix, Computers, computer parts (e.g., RAM, SSDs), TVs, monitors, cell phones (numerous models for different markets), appliances (some firms maintain numerous lines that all have some common theme) - 3M, for example, makes a large assortment of goods that are thought to be related in the sense that they use the firm's ability to bond surfaces together. Difficult and surprising products to make: •French fries -Intense competition for taste -Consistency of taste despite changing harvests -Maximization of time until they have to be discarded -Theoretically: Balance taste with calories •Razor blades - Gillette does extensive research -Must cut facial hair as tough as copper! -Shave should be close—preferably in one pass -Skin should be cut •Nail polish -Should look "just put on"—shine -Should last as long as possible -Should dry quickly -Should avoid most dangerous chemicals (e.g., toluene) •Candy bars -Should maintain consistency across a wide range of temperatures.
Trademarks and "Genericide"
•To retain trade marks, owners must "vigorously protect" them •In theory, trademark protection can be lost of if the brand same comes to be used as synonymous with the product category—uncommon in practice •Some examples of brand names that are often used to refer to the product category rather than the specific brand -Kleenex -Xerox -"FedEx" (verb)—to send overnight Genericide refers to a situation where a brand name, in the informal day-to-day speech of consumers, comes to be synonymous with the product category. - People have even gone so far as to turn some brand names into verbs ("promise to fed ex something today" or "googling someone" may refer to multiple search engines as other search engines gain significant future market share)
