MODULE [PRINCIPLES OF MARKETING]

Chapter: 2 THE PRODUCT

OBJECTIVES:

a) To understand the concept of product

b) To create product planning and development

Product, Defined
The presence of human needs require the existence of products.
The product is that bundle of utility (satisfaction) which the buyer receives as the
result of a lease or purchase. It includes the physical good or service itself (its form,
taste, odor, color and texture), the functioning of the product in use, the package, the
label, the warranty, the manufacturer’s and retailer’s services, aftersale service, the
confidence or prestige received by the brand and the manufacturer’s retailer’s
reputation, and any other symbolic utility received from possession or use of the goods
or service.

New Products
Competition is very strong and dynamic in marketing which makes it necessary
for a company to modify its existing products to meet over changing consumers needs.
New products can be innovative for a company but imitative for other firms using
“follow-the market-leader” strategy. It can be a replacement products for some, but
imitative to others. So the classification varies with timing of introduction and market
perception.

Product Planning and Development

Product planning embraces activities which enable producers and middlemen to
determine what should constitute a company’s product line.
Activities involved:
1. What product to produce by the producers and manufacturers.
2. What product to sell by the wholesalers and retailers.
Product development is undertaken to achieve stability in sales and profits and to
deprive an existing product from possible maturity by reviving interest of consumers
on new features.
Possibilities of Product Development:
1. The company can develop new product features and content.
2. The company can create different quality versions of the product.
3. The company can develop additional models and sizes.
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Steps in Product Development Process

1. Idea generation – the ideas may come from external sources or internal sources.
2. Screening of ideas – not all the ideas generated can be feasible. Feasible ideas
will be considered for further study.
3. Formal business or economic analysis – objectives of this step is further
qualification of demand, risk, investment, cost and profitability.
4. Product development – actual – developed product is now produced.
5. Test Marketing – these are commercial experiments conducted in limited
geographic areas to ascertain product feasibility.
Test marketing – test product for real conditions.
Product Test – test product function in artificial conditions.
*In average of six months period for testing the market.
6. Commercialization – full scale production and product introduction can be
realized if test marketing is successful. The new product is born and enters the
product life cycle. Product fate or destiny may not only be on the hands of the
marketing company but also of the external competitive environment.
Stages of Product Life Cycle
1. Introduction stage – this is the stage when the product is launched in the
market. The marketing organization should ensure in this stage that the
buyers are aware of the product, educated about it and to try it. The marketer
is more concerned with increasing primary demand than battling on
competition.
2. Growth stage – also known as the “market acceptance” stage, this is when
sales and profits increase at an increasing rate. Product “tryers” are now
repeat buyers. During this stage, the company wants to sustain sales growth
as long as possible.
3. Maturity stage 0 during this stage, sales and profits start to decline. More
competitors enter the market which more advanced product development.
three phases:
a. Growth maturity – sales rate declines because of distribution saturation,
unwillingness of middle men to re-sell manufacturers product.
b. Stable maturity – sales become level or at break-even because of the
market saturation; unwillingness of market to buy loss of interest on the
product.
c. Decaying Maturity – sales continue to decline; customers shift to other
brands or available substitute.
4. Decline and possible abandonment stages – new products of brands
eventually enters the industry. Obsolescence of the company’s products sets
in. As new concepts come in, they replace the old ones.
graphical presentation of the product’s life cycle.
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Reasons Why New Products Fail

1. Inadequate market analysis. Inability to determine market demand, buying
motives and overestimation of potential sales of the new product which can be
the result of insufficient marketing information.
2. Product deficiencies. This means poor quality of new products.
3. Lack of effective marketing effort. Insufficient marketing strategies as follow-up
after introductory marketing programs.
4. Higher costs than anticipated. Possible presence of inflation rate where prices
of raw materials had increased from idea generation to commercialization
periods.
5. Competitive strength and reaction. Ease of competitive entry, where other
companies may simultaneously beat timing introduction.
6. Poor timing of introduction. This can be a premature or post mature product
introduction.
7. Technical or production problems. Inability to supply the quantity demanded.

Product Line and Product Mix

A product line possesses the following characteristics:
1. A group of products closely relate to each other.
2. They are intended for same users or they function in similar manner.
3. They may possess similar physical characteristics.
4. Sold to the same customer group
5. Marketed through the same types of outlets
Examples: Home furnishings, Men’s accessories, Appliances.
Product mix includes:
1. The complete list of all products offered for the sale or produced by a company
2. It is a composite of all products, brand or items within each product line.
Examples: Dining table, china cabinet, belts, shoes, socks, washing machines,
TV set.

Major Product Line Strategies

1. Expansion of product mix.
a. Increasing the number of product lines.
Example: Hanes for men added a new line, the Hanes for ladies.
This expansion strategy is implemented if there is a manifestation of
market demand for new lines or assortments.
2. Contraction of product mix
a. Eliminating a complete line. Phasing out a “deadwood” product line.
b. Simplifying assortment within a line. Decreasing number of styles, sizes,
colors, or other product mix depth or breath.
This strategy implement if market demand is very low and cannot even offset
maintenance costs.
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3. Alteration of existing. Redesigning of an industrial product or new packaging

design for consumer products.
4. Positioning of the product. This is the consumers’ perception of a product, its
image against competitors’ product and other products being sold by the same
company.
5. Trading up and trading down. Trading up is adding high-priced, well-known brand
in order to increase sales of existing low-priced items. This appeal to consumers'
psychological comparison between a high priced item equivalents to a better
quality product. Trading down is adding low-priced products in order to increase
sales of existing high-priced items. This appeals to mass market -- who may not
enter an outlet known to have high priced line, but being aware of its trading
down strategy, may buy from this store.
6. Product differentiation and market segmentation. Market segmentation had been
defined earlier. Product differentiation involves creation of consumer awareness
about the differentiating features of a product. This consumer education about
the product can be effectively achieved by using advertising as a tool.

Brands
A brand is a word, mark, symbol, or a combination of them used to identify the
marketer's product or service. A brand name is something which can be vocalized or
spoken. A brand mark is a non-registered design, symbol or product logo. A trade name
is a registered company name. A trademark is a brand registered under the Philippine
Patent Office and therefore given legal protection.
Classification of Brands:
1. According to ownership.
a. Manufacturer's brands. Those brands owned by the producer or manufacturer.
Examples: Best Foods by California Manufacturing Company; Nido full cream
milk by Nestle, Phils.
b. Distributor's or middlemen's brands. Those brands owned by wholesalers or
retailers.

2. According to extent of geographic coverage.

a. National brands. Those that are sold in the entire Philippine archipelago or inter-
nationally and are advertised.
Example: General Electric home appliances.
b. Private brands. They are not advertised.
3. According to use by owner of brand.
a. Primary brands. Those that are advertised and of high-quality materials.
b. Secondary brands. Used for special purposes and can be a low-quality
merchandise.
4. According to number of products covered.
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a. Individual or separate name brands. A name or brand intended for one product
only. Examples: Tide by Procter and Gamble for its laundry soap; Safeguard by
Procter and Gamble for its health soap.
b. Family or blanket brands. A name or brand intended for several products or
group of product. Examples: National is a brand for TV, refrigerators, freezers,
wash-ing machines and other appliances by same company; Johnson and
Johnson is a brand of baby care lines like oil, cologne, lotion, soap and shampoo.

Packaging
The wrapping material around a consumer item that serves to contain, identify,
describe, protect, display, promote and otherwise make the product marketable and
keep it clean. Packaging is more than just your product's pretty face.
Packaging Strategies:
1. Family packaging involves making the pack-age identical for all products using
common feature on all packages.
2. For example: Johnson's baby cologne varieties and baby oil have the same package
design. Reuse packaging is designing and promoting package which can serve
other purposes when contents are consumed.
Examples are: decorative tin can by powdered milk brands; crystal or elegant
glasses by coffee products.
3. Multiple packaging is placing several units of a product in a single container.
Examples: Tennis balls comes in three-in-one package; Knorr bullion cubes in two-
in-one box.
The following factors account for considering packaging as an independent selling tool:
1. Self-service. For product sold on self-service basis, in supermarkets or department
stores, the package performs the sales tools of attracting attention, describing
product features.
2. Consumers affluence. Consumers’ willingness to pay a little more for the
convenience, appearance, dependability and prestige of the package.
3. Innovational opportunity. Innovative packaging can bring about large sales. This
can attract brand switchers, like Del M Pineapple Juice easy-open-can or pop-top
can.

Labels
Labeling is the display of label in a product. A label contains information about a
product on its container, packaging, or the product itself. It helps the product stand out
in the market, and identifies it as a part of a particular brand.
Types of Labels:
Brand label - It plays an important role in labeling as it gives information about the brand.
It can be removable or non-removable.
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Grade label - It describes the aspect and features of the product.

Descriptive label - It specifies product usage.

New Product Development Strategy

With the presence of rapid changes in technology, competition and tastes, a
marketing company cannot rely on its current products. The market expects new and
improved products. Competitors will try their best to provide them. Around this
environment, any marketing organization needs a new product development program.
A company can obtain new products in two ways. One is through acquisition by
buying a whole company, a patent or a license to produce someone else's product. The
other is through new-product development by setting its own research and development
department.

Idea-generation Techniques
1. Attribute testing. This is also known as product modification analysis. This calls
for writing down the major attributes of an existing product and then modifying
each attribute in search for an improved product.
2. Need/problem identification. The customers are interviewed and are asked to
name problems or deficiencies they found in an existing product.
3. Brainstorming. This session is conducted when a firm needs to generate many
ideas related to a pro-posed product development. Criticism is ruled out during
this meeting. Combination and improvement, of ideas is encouraged.
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Commercialization
This is the launching of a new product. During this stage, the company is facing
largest costs to date. It may build-up or rent a full-scale manufacturer facility and will
have to spend more for advertising and sales promotion I purposes.

Product Management Organization

Firms manufacturing several products or brands often establish product or brand
management organization. This does not replace functional management organization,
but serve as another layer of management. This organization is headed by a product or
brand manager responsible for specific products or brands. He sees to it that products
under his administration are unique and cognizable from the rest.

Advantages of Product Management Organization

1. The product manager harmonizes the marketing mil for the product.
2. The product manager can react quickly to problems in the marketplace than a
committee or specialist.
3. Smaller brands are less neglected because they have a product advocate.
4. Product management is an excellent training ground for young executives, for it
involves them in almost every area of company operations.

PRODUCT ADOPTION PROCESS

The process or steps through which an individual or ordinary customer goes
through acceptance or rejection of a new product idea. The cycle through which an
innovation is perceived.
Stages of Adoption Process
1. Awareness. The period or time frame within which a customer learns about a new
product. Common media are mass communication or "word-of-mouth" information. A
consumer may still lack details about the product and he may not even know how it
works.
2. Interest. The consumer is stimulated to seek information about the innovation. He
becomes interested on the products and secures facts about it. A "search-shopping"
activity is conducted. Labels and packages inspections are done.
3. Evaluation. The mental evaluation stage. He views himself mentally when using the
innovation. He analyzes whether it would make sense to try the innovation.
3. Trial. This is the initial use of the innovation. The Consumer tries the innovation on a
small-scale to improve his estimate of its value.
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5. Adoption. The customer decides on either adoption or rejection. A satisfactory

evaluation and trial may lead to adoption of the product and regular use.

PRODUCT POSITIONING
This is the system of designing the company's image and value offer so that the market
segment can under-stand and appreciate what the company stands for in relation to its
competitors. Product positioning is also the image that the product projects in relation to
competitive products or to other products marketed by the company in question.
Several positions may be considered by the company. It might go after the "low-price
position", "high-quality position", "high-service position", or "advance-technology
position". In this case the company is establishing a competitive advantage. Competitive
advantage grows out of value a firm is able to create for its buyer that exceeds the firm's
cost of creating it. Value is what buyers are willing to pay, it may be a cost leadership
approach or price differentiation approach.

Types of Industry for Product Positioning

1. Volume industry. These are companies which strive for low-cost position or the highly
differentiated position. They gain high profit at mass production. Prices are low for big
orders.
2. Stalemated industry. These has few potential advantages like a steel industry where
it is hard to differentiate the product or its manufacturing cost.
3. Fragmented industry. These are made-to-order industries where many opportunities
are available for differentiation.
4. Specialized industry. Companies specializing in production for selected market
segments.

PRODUCT AND SERVICE POLICY DECISIONS

Product Policy
Serve as guide for making product decisions. They are derived from product
development objectives of whether to market products requiring a minimum of service;
or to market products superior to those of competitors.
Service Policy
A manufacturer may decide to market its products with accompanying services. Degree of
service offering may depend on its policy.

Below are the types of service policies:

a. Consumer education;
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b. Providing for product installation, inspection and repair;

c. Providing free service under the terms of a written guarantee or contract.

Activity:
Research a new product that you think is failing and provide the following:
1. Why the product is failing.
2. Solutions to make the product to be profitable in the future.

Reference:
Elements of Marketing (Third Edition)
Chapter 2: The Product