Syllabus

5.1 Product: Meaning of product, Goods & Services

Continuum, Classification of consumer products –
Convenience, Shopping, Specialty, Unsought,
classification of industrial products – material &
parts, capital items, supplies & services
5.2 Product Levels: The customer value hierarchy
5.3 Product Mix: Width, Depth, Consistency &
Product line
 Product as Goods, Services, or Ideas

• Product is the first element of marketing mix.

A good or service that most closely meets the
requirements of a particular market and yields
enough profit to justify its continued
existence.

• A product can be offered to a market to satisfy

a want or need of customers.
 Goods & Services Continuum
Goods Services
It’s a tangible process. A good can be It’s an intangible process. A service
measured or weighted, and it has can’t be measured or weighted, and it
physical dimensions. doesn’t have a physical form.
Goods have a physical form. Goods A service is a contract where the
can be used and consumed once. In customer buys time, equipment
certain cases, goods can be used or expertise from a service provider.
repeatedly.
Goods can be produced, transfer , Services mostly as consumed as soon
stored as they are delivered.
 Furniture  Airlines
 Car  Internet Service Providers
 Washing Machine  Insurance Providers
 Pen  Medical Advice
 Book  Teaching
Goods & Services Continuum
Goods & Services Continuum
 Classification of Consumer Products
Convenience Products
Shopping Products
Speciality Products
Unsought Products
 • A convenience product is a
consumer product or service that
customers normally buy
frequently, immediately and
without great comparison or
Convenience
buying effort.
products • These products are usually low-
priced and placed in many
locations to make them readily
available when consumers need
or want them.
• Examples: toothpaste, shampoo,
laundry detergents, fast food,
sugar and magazines.
 • Shopping products are a consumer
product that customer usually compares
on attributes such as quality, price and
style in the process of selecting and
purchasing.
• Shopping product is usually less
frequently purchased and more carefully
Shopping compared.
products • Therefore, consumers spend much more
time and effort in gathering information
and comparing alternatives. Marketers
usually distribute these types of
consumer products through fewer
outlets, but provide deeper sales support
in order to help customers in the
comparison effort.
• Examples: furniture, clothing, used cars,
airline services etc.
 • Speciality products are with unique
characteristics or brand identification for which
a significant group of consumers is willing to
make a special purchase effort.
• Involve different levels of effort in the
purchasing process: the speciality product
Speciality requires a special purchase effort, but applies
only to certain consumers.
products • Examples: specific cars, professional and high-
prices photographic equipment, designer
clothes etc.
• These are less compared against each other.
Rather, the effort must be understood in terms
of other factors: Buyers invest for example the
time needed to reach dealers that carry the
wanted products.
 • In these products a consumer either does
not know about or knows about but does
not consider buying under normal
conditions.
• Here consumers do not think about
normally, at least not until they need them.
Unsought Most new innovations are unsought until
products consumers become aware of them.
• Examples: life insurance, accident
insurance, pre-planned funeral services
etc.
• Unsought products require much more
advertising, selling and marketing efforts
than other types of consumer products.
Marketing Convenience Shopping Specialty Unsought
Consideration

Consumer Frequent Less frequent Strong brand Little product

buying purchase & Low purchase & much preference, Low awareness, Low
behaviour customer effort (compare price sensitivity, purchase
involvement brands on quality, More loyalty interest
price etc.)

Price Low Moderate High Varies

Distribution Widespread Selective Exclusive Varies

distribution distribution distribution

Promotion Mass Promotion Advertisement & Targeted Personal Selling

personal selling Promotion
 Industrial
Goods

Materials & Business

Capital Items Supplies Items
Parts Services

Advisory
Raw Materials Installations Maintenance
Services

Manufacturing Operating Maintenance

Equipments
Materials Supplies Services
Product Levels: The Customer Value Hierarchy

Core Product

Basic Product

Expected Product

Agumented Product

Potential Product
 Core Product or Core Benefit
• This is the most fundamental level.
• This includes the fundamental service or
benefit that the customer is really buying.
• Example: The core product of a restaurant is
offering food. It is not the building of the
restaurant or the service in itself. The core
product is the food.
 Generic Product or Basic Product
• The marketer at this level has to turn the core
benefit to a basic product.
• Example: If a hotel, wanted to turn its core
product (rest and food) into a basic product,
then the building of the hotel, the type of bed,
the type of food, all together form the basic
product.
 Expected Product
• At this level, the marketer prepares an
expected product by incorporating a set of
attributes and conditions, which buyers
normally expect they purchase this product.
• Example: If customers are going to a 5 star
hotel, will they only expect a bed, and normal
food? No. They will expect a lot more.
Expectation is built on the fact that the hotel
is a 5 star hotel.
 Augmented product
• At this level, the marketer prepares an augmented
product that exceeds customer expectations.
• Today’s competition essentially takes place at the
product-augmentation level.
• Product augmentation leads the marketer to look at
the user’s total consumption system i.e. the way the
user performs the tasks of getting, using fixing and
disposing of the product.
• Example: A BMW or a Mercedes is an augmented
product. When people were bored of normal cars and
passenger cars offered by the likes of Volkswagen,
General electric or others, there entered a new range
of premium sports and luxury cars like the BMW, the
Mercedes or Audi.
 Potential Product
• This level takes into care of all the possible
augmentations and transformations the product might
undergo in the future.
• This level prompts the companies to search for new
ways to satisfy the customers and distinguish their
offer.
• Successful companies add benefits to their offering
that not only satisfy customers, but also surprise and
delight them.
• Delighting is a matter of exceeding expectations.
• Example: There may come a time when we won’t need
to buy a television. We will buy a virtual reality glasses,
and we can watch all the channels for a month for
some determined costs.
Product Mix: Width, Depth, Consistency & Product line

• This refers to how many

different product lines the
Product Width
company carries

• This refers to how many

variants, shades, models,
Product Depth
pack sizes etc. are offered
of each product in the line
Product Mix: Width, Depth, Consistency & Product line

• This refers to the total

Product number of items in the
Length mix

• This refers to how closely various

product lines are related in end
Consistency use, production requirements &
distribution channels
Product-Mix of LG Company
Production-Mix Decisions
 I) Line Stretching Decisions
Line stretching implies increasing the length of product line. It can take place
in three directions.
a) Downward Stretching:
Downward stretching refers to addition of a new product into existing product
line but at a lesser price.
For example; TATA introduced low cost car "Nano" in the market.
b) Upward Stretching:
Upward stretching is the opposite of downward stretching. When an
organization adds a new product in the current product line but at higher
price than the existing one, it is called upward stretching.
For example; Parle started with low cost biscuits like Parle G then introduced
high cost product of same category like Hide and Seek.
c) Two-way Stretching:
Two way stretching refers to addition of product in product line in both the
directions. So, a low priced as well as a high priced product are added at
the same time in product line. Marriot- Hotels & Resorts started
Renaissance Hotels to serve upper end of the market and Town Place
suites to serve lower section of the market.
 II) Line Filling Decisions
Product line filling involves adding a new
product in the existing product line to face
competition and increase consumer base.
Under product line filling price of the new
product is normally same.
For example, Maruti Suzuki introduced Alto
when Maruti Zen was already available in the
same range.
 III) Line Pruning Decisions
Line pruning decisions refer to removal of
unprofitable product from the product line.
For example Pepsi launched Pepsi Gold but the
product was not successful in the market. So
after some time it was removed from the
market.
 New Product Development Process

1. Idea generation – The New Product Development

Process
The new product development process starts with idea generation. Idea generation refers
to the systematic search for new-product ideas. Typically, a company generates hundreds
of ideas, maybe even thousands, to find a handful of good ones in the end. Two sources of
new ideas can be identified:

 Internal idea sources: the company finds new ideas internally. That means R&D, but
also contributions from employees.
 External idea sources: the company finds new ideas externally. This refers to all
kinds of external sources, e.g. distributors and suppliers, but also competitors. The most
important external source are customers, because the new product development process
should focus on creating customer value.

2. Idea screening – The New Product Development

Process
 The next step in the new product development process is idea screening. Idea screening
means nothing else than filtering the ideas to pick out good ones. In other words, all ideas
generated are screened to spot good ones and drop poor ones as soon as possible. While
the purpose of idea generation was to create a large number of ideas, the purpose of the
succeeding stages is to reduce that number. The reason is that product development costs
rise greatly in later stages. Therefore, the company would like to go ahead only with those
product ideas that will turn into profitable products. Dropping the poor ideas as soon as
possible is, consequently, of crucial importance.

3. Concept development and Testing – The New

Product Development Process
To go on in the new product development process, attractive ideas must be developed into
a product concept. A product concept is a detailed version of the new-product idea stated in
meaningful consumer terms. You should distinguish

 A product idea à an idea for a possible product

 A product concept à a detailed version of the idea stated in meaningful consumer
terms
 A product image à the way consumers perceive an actual or potential product.
Let’s investigate the two parts of this stage in more detail.

Concept development
Imagine a car manufacturer that has developed an all-electric car. The idea has passed the
idea screening and must now be developed into a concept. The marketer’s task is to
develop this new product into alternative product concepts. Then, the company can find
out how attractive each concept is to customers and choose the best one. Possible product
concepts for this electric car could be:

 Concept 1: an affordably priced mid-size car designed as a second family car to be

used around town for visiting friends and doing shopping.
 Concept 2: a mid-priced sporty compact car appealing to young singles and couples.
 Concept 3: a high-end midsize utility vehicle appealing to those who like the space
SUVs provide but also want an economical car.
As you can see, these concepts need to be quite precise in order to be meaningful. In the
next sub-stage, each concept is tested.

Concept testing
New product concepts, such as those given above, need to be tested with groups of target
consumers. The concepts can be presented to consumers either symbolically or physically.
The question is always: does the particular concept have strong consumer appeal? For
some concept tests, a word or picture description might be sufficient. However, to increase
the reliability of the test, a more concrete and physical presentation of the product concept
 may be needed. After exposing the concept to the group of target consumers, they will be
asked to answer questions in order to find out the consumer appeal and customer value of
each concept.

4. Marketing strategy development – The New Product

Development Process
The next step in the new product development process is the marketing strategy
development. When a promising concept has been developed and tested, it is time to design
an initial marketing strategy for the new product based on the product concept for
introducing this new product to the market.

The marketing strategy statement consists of three parts and should be formulated
carefully:

 A description of the target market, the planned value proposition, and the sales,
market share and profit goals for the first few years
 An outline of the product’s planned price, distribution and marketing budget for the
first year
 The planned long-term sales, profit goals and the marketing mix strategy.

5. Business analysis – The New Product Development

Process
Once decided upon a product concept and marketing strategy, management can evaluate
the business attractiveness of the proposed new product. The fifth step in the new product
development process involves a review of the sales, costs and profit projections for the new
product to find out whether these factors satisfy the company’s objectives. If they do, the
product can be moved on to the product development stage.

In order to estimate sales, the company could look at the sales history of similar products
and conduct market surveys. Then, it should be able to estimate minimum and maximum
sales to assess the range of risk. When the sales forecast is prepared, the firm can estimate
the expected costs and profits for a product, including marketing, R&D, operations etc. All
the sales and costs figures together can eventually be used to analyse the new product’s
financial attractiveness.

6. Product development – The New Product

Development Process
The new product development process goes on with the actual product development. Up to
this point, for many new product concepts, there may exist only a word description, a
drawing or perhaps a rough prototype. But if the product concept passes the business test,
it must be developed into a physical product to ensure that the product idea can be turned
into a workable market offering. The problem is, though, that at this stage, R&D and
engineering costs cause a huge jump in investment.
 The R&D department will develop and test one or more physical versions of the product
concept. Developing a successful prototype, however, can take days, weeks, months or even
years, depending on the product and prototype methods.

Also, products often undergo tests to make sure they perform safely and effectively. This
can be done by the firm itself or outsourced.

In many cases, marketers involve actual customers in product testing. Consumers can
evaluate prototypes and work with pre-release products. Their experiences may be very
useful in the product development stage.

7. Test marketing – The New Product Development

Process
The last stage before commercialization in the new product development process is test
marketing. In this stage of the new product development process, the product and its
proposed marketing programme are tested in realistic market settings. Therefore, test
marketing gives the marketer experience with marketing the product before going to the
great expense of full introduction. In fact, it allows the company to test the product and its
entire marketing programme, including targeting and positioning strategy, advertising,
distributions, packaging etc. before the full investment is made.

The amount of test marketing necessary varies with each new product. Especially when
introducing a new product requiring a large investment, when the risks are high, or when
the firm is not sure of the product or its marketing programme, a lot of test marketing may
be carried out.

8. Commercialisation
Test marketing has given management the information needed to make the final decision:
launch or do not launch the new product. The final stage in the new product development
process is commercialization. Commercialisation means nothing else than introducing a
new product into the market. At this point, the highest costs are incurred: the company
may need to build or rent a manufacturing facility. Large amounts may be spent on
advertising, sales promotion and other marketing efforts in the first year.

Some factors should be considered before the product is commercialized:

 Introduction timing. For instance, if the economy is down, it might be wise to wait
until the following year to launch the product. However, if competitors are ready to
introduce their own products, the company should push to introduce the new product
sooner.
 Introduction place. Where to launch the new product? Should it be launched in a
single location, a region, the national market, or the international market? Normally,
companies don’t have the confidence, capital and capacity to launch new products into full
national or international distribution from the start. Instead, they usually develop a
planned market rollout over time.
In all of these steps of the new product development process, the most important focus is
on creating superior customer value. Only then, the product can become a success in the
market. Only very few products actually get the chance to become a success. The risks and
costs are simply too high to allow every product to pass every stage of the new product
development process.

Table Showing Difference between a Brand and a

Product
Brand Product

Distinguishes a product from other

An item ready for sale in the market
products

It is what customers want It is what customers need

Cannot be copied Can be copied

Created by consumers in their mind Produced by manufacturers

Cannot be replaced Can easily be replaced

A brand is intangible Product is tangible

A brand offers value Product performs specific functions

Brand remains forever A product can be replaced with time.