Chapter 7: Creating the product

1. Build a better mousetrap: the value proposition

Just because a product is better is no guarantee that it will succeed.
Value proposition= consumers perceptions of the benefits they will receive
if they buy a product or service.
Marketers task is twofold: create a better value than whats already out
there and then convince customers that this is true.
Good = tangible product, something that we can see, touch, smell, hear, taste
or possess
Intangible products = services, ideas, people, places are products we cannot
always see, touch, taste, smell or possess.
Marketers view product as a bundle of attributes that includes packaging,
brand name, benefits and supporting features in addition to a physical good: a
product
Product= everything a customer receives the basic benefits, the physical
product and its packaging, & the extras that come with the product.
Creating the value proposition: developing and marketing products
appropriately.
1.1 Layers of the product concept
In developing product strategies, marketers need to
consider how to satisfy customers wants and needs
at each of these 3 layers.

The core product

= All the benefits the product will provide for
consumers or business customers (from owning or
using the product)
People are buying the core product (e.g. ability to
make a hole)
+ customised benefits: features added to win over
customers.
Marketing is about supplying benefits, not features.

The actual product

= The physical good or the delivered service that supplies the desired benefit.
includes the unique features of the product, such as its appearance or styling, the
package and the brand name.

The augmented product

= The actual product + other supporting features such as warranty, credit, delivery,
installation and repair service after the sale. effective way to stand out from the
crowd.

1.2. Classifying products

Marketers classify products into categories because the categories represent
differences in how consumers and business customers feel about products and how
they purchase them. it helps marketers develop new products and marketing mix
that satisfies customer needs
Generally, products are either consumer products or B2B products.
 Classifying goods: How long does the product last?
Durable goods:
- consumer products that provide benefits over a period of months, years or even
decades.
- purchased durable goods under conditions of high involvement. need to
understand customers preferences, need a lot of information
- Use FAQ section on website or board or blog to facilitate a sense of community
around the product

Non-durable goods:
- are consumed in the short-term (newspapers, food).
- Under conditions of low involvement.
- Do not consider the details so much
- base their decision on past experiences (little if any search for info).
Marketers should focus on pricing and distribution strategies.

Classifying goods: How do consumers buy the product?

By understanding how consumers buy products, marketers have a clearer vision of
the buying process that will help them to develop effective marketing strategies
based upon the category.

a) Convenience product:
- typically a non-durable good or service that consumers purchase frequently with a
minimum of comparison and effort (eg. milk).
- Consumers expect these products to be handy and will buy whatever brands are
easy to obtain
- in general, low priced & widely available.
- Marketers must make sure that the product is easily obtainable in all the places
where consumers are likely to look for it.
- Marketers classify convenience products as staples, impulse products, emergency
products.
Staples = basic or necessary items that are available almost everywhere (eg.
Milk, bread)
- Most consumers dont perceive big differences among brands.
- Marketers must make sure that product consistently meets their
expectations for quality and that it is available at a price comparable to the
competitions prices.
Impulse product = people often buy at the spur of the moment.
- Marketers must make sure that package and product design is enticing,
highly visible.
Emergency products = products we purchase when we are in dire need.
Quality and price of the products may be irrelevant due to urgency. (Eg.
Bandages, umbrella). These products must meet customers needs and be
available in the right place and in right sizes.
b) Shopping products =
-goods/services for which consumers will spend time and effort gathering information
on price, product attributes and product quality.
-Likely to compare alternatives before making a purchase.
- Customers have little prior knowledge about the product and are moderately brand
loyal
-These products need to have attributes the customers want and that packaging
points out those features. (Eg. Computers).
Some shopping products have special characteristics:
Attribute-based shopping products = e.g. clothing. People will spend time
finding the best possible selection.
Price-based shopping products = shoppers will visit numerous shops to save
money.
Shopbots/intelligent agents = computer programs that find sites selling a
particular product. provide info on competitors prices + rate of the e-
commerce websites

Speciality product =
- Have unique characteristics that are important to buyers at any price. (ex: Rolex
watch)
- Consumers tend to be loyal to specific brands and know a good deal about the
product
- Extended problem-solving purchase that requires a lot of effort to choose
firm needs to create marketing strategies that make their product stand out from
the rest.

Unsought products = goods/services for which a consumer has little

awareness/interest until a need arises. ex: retirement plan and disability
assurance.
Need a good deal of advertising or personal selling to interest people difficult to
find ways to interest consumers making pricing more attractive.
1.3. Business-to-business products
Business purchase items to use in the production process or to facilitate the
organizations operations. Marketers classify B2B products on how organizations use
them

Equipment = products an organization uses in its daily operations.

Heavy equipment/Installations/Capital Equipment = expensive items that
last for a number of years. (building or robotics)
Light/Accessory equipment = portable, cost less and have a shorter life span.
(computers)
Equipment marketing usually emphasises personal selling and may mean
designing products to meet customers specific needs.

MRO products = Maintenance (eg. light bulb), repair (eg. washers) and operating
(eg. computer paper), goods that a business customer consumes in a relatively short
time.
Marketers use sales forces or rely on catalogues sales, the internet and
telemarketing to keep prices low as possible

Raw materials = products of the fishing, lumber, agricultural and mining industries
that organisations purchase to use in their finished products.

Processed materials = produced when firms transform raw materials from their
original state become a art of the products they make.
Specialized services from outside suppliers essential to the operation
of an organization but are not part of the production of a product (ex: legal
services)

Component parts = manufactured goods or subassemblies of finished items that

organisations need to complete their own products. (batteries, chips)
 Involve nurturing relationships with customer firms and on-time delivery of a
product that meets the buyers specifications

2. New and improved: the process of innovation:

Legal perspective of a new product= a product must be entirely new or changed
significantly and can be called new for only 6 months.

Marketing perspective of Innovation= anything that customers perceive as new

and different.
may be a completely new product that provides benefits which were never
available before or may simply be an existing product with a new style, in a different
colour or with some new feature.

2.1. It is important to understand how innovations work

If successful innovation: it spreads throughout the population.
Firms need to understand the process by which innovations succeed because:
1) Technology is advancing at a dizzying pace products are introduced and
become obsolete faster
2) High costs of developing new products and even higher costs of products that
fail. need to understand what it takes to develop a new product successfully
3) New products contribute to society by improving quality of life. allows us to
live longer, happier lives of better quality than ever before

2.2 Types of innovation

New innovations that are more novel do not spread so fast, because people need to
figure out how to use them. Innovations categorized in three categories based on
degree of novelty, described in terms of the amount of disruption or changer they
bring to peoples lives.

Continuous innovation = modification to an existing product. can set a brand

apart from its competitor.
- Consumer does not have to learn anything new to use continuous innovation easy
to convince customers to adopt the product.
- imitation is the sincerest form of flattery decision regarding how much ones
product should resemble those of competitors are often a centrepiece of marketing
strategy
Copycat = new product that copies with slight modification the design of
an original product. design is difficult to protect as one can argue that
even a very slight change means it is not an exact copy

Dynamically continuous innovation = pronounced modification to an existing

product that requires a modest amount of learning or change behaviour to use it. (Eg.
CD MP3).
Convergence = coming together of two or more technologies to create
new systems that provide greater benefit that the original technologies
alone.

Discontinuous innovation = creates major changes in the way we live. Consumers

must engage in a great amount of learning because no similar product has ever been
on the mkt. (aeroplane, personal computers).
 Marketers may offer a free product trial or place heavier emphasis on a personal
selling strategy to convince consumers that the new product offers benefits worth
the hassle

3. Developing new products:

Product development is a continuous process of looking for ways to make an
existing product better. Companies must continuously offer new product choices to
compete with the ever-increasing changing environment, and competition around the
world firms need to stay on top of current developments in various topics (politics,
religion, culture).
New products sometimes based on careful research or being in the right place at
the right time
More and more difficult to introduce new products Firms have less time to
recover R&D costs, because of increasing pace + have to pay slotting fees to retailers
to get attractive shelve space.
need to reduce the time it takes to het good products to market and increase the
speed of adoption to recover the costs quickly

3.1 Phase 1: Idea generation

Marketers use a variety of sources to come up with
great new product ideas that provide customer
benefits and that are compatible with the company
mission.
ideas can come form customers, salesperson,
firm encourage their designers to think outside the
box
use focus group

3.2 Phase 2: Product concept development

and screening
Marketers need to expand these ideas into more
complete product concepts (=describe what features the product should have and
what benefits they will provide for consumers)
During screening, researchers and marketers examine the chances that a new
product will be successful, while weeding out concepts that have little chance of
making it.
Estimating technical success means assessing whether the product is
technologically feasible.
Estimating commercial success means deciding whether anyone is likely
to buy the product.
Products appearance also plays a role, because of many similar products, but
different appearance. The first moment of truth incorporating design into
products

3.3 Phase 3: Marketing strategy development

To introduce the product to the marketplace.
Marketers must identify the target market, market size and determined how the
product can be positioned to address the targets markets needs includes planning
for pricing, distribution and promotion expenditures for the product introduction and
the long-run.
3.4 Phase 4: Business Analysis
find out whether product can make a profitable contribution to the organisations
product mix (i.e. potential demand for it, firms resources to develop it and introduce
it).
Development in house or buy the technology from entrepreneurs
Need to sell products more cheaply to some countries.

3.5. Phase 5: Technical development

Firms engineers work with marketers to refine the design and production process.
The better a firm understands how customers will react to a new product, the
better its chances of commercial success R&D will typically develop 1 or more
physical versions/prototypes of the product then the prototypes are evaluated in
focus group or in field trials at home
This is also useful to determine which parts company makes itself & which ones to
purchase from suppliers (sew equipment, automation)
Technical dvlpmt sometimes requires application for a patent. Patents prevent
competitors from producing or selling the invention a firm has breathing room to
recoup investments in technical developments.

3.6. Phase 6: Test Marketing

The firm tries out the complete marketing plan the distribution, advertising and
sales promotion, but in a small geographic area that is similar to the larger market it
hopes to enter.
Disadvantages: extremely expensive, gives the competition a free look at the new
product, its introductory price and the intended promotional strategy and an
opportunity to get to the market first.
Advantages: marketers can improve and evaluate the marketing programme and
product or can pull the plug.
Marketers could as well conduct simulated tests that imitate the introduction of a
product line into the marketplace using special computer software.
allow the company to see the likely effect of price cuts and new packaging or
where in the shop the product should be placed.
Les expensive and more discreet
Entails gathering basic research data on consumers perceptions of the product
concept, the physical product, the advertising,

3.7 Phase 7: Commercialisation

Commercialization= Launching of the new product and that requires full-scale
production, distribution, advertising and sales promotion. Planning & careful
preparation.
Marketers must implement trade promotion plans that offer special incentives to
encourage dealers, retailers or other members of the channel to stock the product so
that customers will find it on the shop shelves + promotions to customers such as
coupons.
If the new product is complex, service employees must receive extensive training
and preparation.
As launch time nears, preparations gain a sense of urgency (countdown to
blastoff). & There is always a huge element of risk in a new product launch.

4. Adoption and diffusion:

what happens after the new product hits the market
Product adoption = process by which a consumer or business customer begins to
buy and use a new good, service or idea.
Diffusion = how the use of a product spreads throughout a population.
Tipping point = when product/process reaches a critical mass.
Need to get consumer to buy and use the product in order to recover more quickly
from the costs

4.1 Stages in consumer adoption of a new

product
At every stage (6), people drop out of the process, so
the proportion of consumers who wind up using the
innovation on a consistent basis is a fraction of those
who are exposed to it.
1. Awareness
Learning that the innovation exists. To make
consumers aware of the new product,
marketers may conduct a media blitz =
massive advertising campaign.
some will fall by the wayside and some will think they cant live without it

2. Interest
A prospective adopter begins to see how a new product might satisfy an existing
or newly realised need.
consumers look for and are open to information about the innovation.
Marketers often design teaser advertisements that give prospective
customers just enough information about the new product to make them curious
and to stimulate their interest.

3. Evaluation
A prospect weighs the costs and benefits of the new product: for complex,
risky, expensive products, people think about the innovation a great deal before
trying it (marketers try to show prospects how these products can benefit them).
Little evaluation may occur with an impulse purchase: a purchase made
without any planning or search effort. For these products, marketers design the
product to be eye-catching and appealing to consumers to note them quickly.

4. Trial
Potential buyers actually experience or use the product for the first time.
Marketers often stimulate trial by providing customers the opportunity to
sample the product.
Try in shop spend hours trying out the products and taking home a full
shopping basket
Some will move to the adaptation stage, some will fin it too expensive and
drop out

5. Adoption
Prospects actually buy the product and learn how to use or maintain it (if it is
a good). If it is an idea: the individual agrees with the new idea. (!)
Marketers need to provide follow-up contacts and communications with
adopters to ensure they are satisfied and remain loyal to the new product over
time.

6. Confirmation
The customer weighs expected vs. actual benefits and costs.
Favourable experiences adopters becoming loyal customers as their initial
positive opinions result in confirmation. Some marketers feel that, in this stage,
reselling is important (advertisements, sales presentations etc to reinforce
customers choice).
4.2 The diffusion of innovations
how it spread throughout the population
Consumers and business costumers differ in how eager or willing they are to try
something new, lengthening the diffusion process by months or even years.

Adopter categories
1) Innovators = first 2.5% of adopters,
extremely adventurous and willing to
take risks, younger and better off
financially than others in the
population + worldly and well
educated.
Company must take care not to anger innovators e.g. through inconsistent pricing
strategies.

2) Early adopters = 13.5% of adopters, have greater concern for social

acceptance, heavy media users and often heavy users of the product category,
others often look to early adopters for their opinions on various topics, making
early adopters key to a new products success. ( product is no longer
considered new or different but is already established).

3) Early majority = 34% of adopters, avoid being either first or last to try an
innovation, typically middle-class consumers and are deliberate and cautious,
have slightly above average education and income after that the product is
no longer considered new or different

4) Late majority = 34% of adopters, older & more conservative and typically
have lower than average levels of education and income. They avoid trying a
new product unless it is no longer risky and until they are under pressure from
peer group.

5) Laggards = 16% of adopters, last in a population to adopt a new product,

typically lower in social class than other adopter categories and are bound by
tradition, by the time they adopt a new product it may already be superseded
by other innovations.

Early in the process marketers put greater emphasis on advertising in special

interest magazines to attract innovators and early adopters. Later, they may lower
the products price to attract the late majority.

Product factors affecting the rate of adoption

Experts estimate that between 1/3 and of new products fail.
There are 5 characteristics of innovations that affect the rate of adoption: relative
advantage, compatibility, complexity, trialability, observability. Whether a new
product has each of these characteristics affects the speed of diffusion.

Relative advantage = the degree to which a consumer perceives that a new

product provides superior benefits.
Compatibility = the extent to which a new product is consistent with existing
cultural values, customs and practices. (i.e. Planning communications programmes).
Complexity = degree to which customers find a new product or its use difficult to
understand.
Trial ability = ease of sampling a new product and its benefits.
Observability = how visible a new product and its benefits are to others who might
adopt it. The ideal innovation is easy to see.

4.3. How organizational differences affect adoption

- Firms that welcome innovations are likely to be younger companies in highly
technical industries with younger managers and entrepreneurial corporate
cultures
- Early adopter firms are likely to be market-share leaders that adopt new
innovations and try new things to maintain their leadership
- Firms are in the early majority when they adopt new things only when they
recognise they need to in order to keep up.
- Late majority firms tend to be oriented towards the status quo and often have
large financial investments in existing production technology.
- Laggard firms are probably already losing money.
- Organisations are likely to adopt an innovation if that helps them increase gross
margins and profits.
- Organisational innovations are attractive when they are consistent with a firms
ways of doing business.
- Firms and institutions are more likely to accept a new product if they perceive
the improvement to be large in relation to the investment they will have to make.
- Cost is also a factor in the new products firms will adopt