Agenda for today

1. Housekeeping
2. Review from Jan. 30 - Product Management ?
3. Chapter 7 & 8 cont’d :
• Services (Ch 7)
• Innovations & New Product Development Process (Ch 7)
• Adoption & Diffusion of New Products (Ch 7)
• Product Planning (Ch 8)
4. Assignment # 2, Journal Article Review
5. Term Test 1 Return
 Agenda for today
1. Housekeeping
• Ultima case analysis due today (hard copy & on Safe
Assign)
• Marketing Plan Project Scope due next week
• Journal Review outline will be handed out today, due
first week back after break (no more than 3 pages)
 Review from last week
1. Soda Can Case
• Read case
• In small groups, identify and discuss the following:
• the roles of packaging
• The five lessons a humble can of pop has to teach
marketers
2. Branding
3. Consumer Product Classification System
4. PLC (acronym for Product Life Cycle)
 Objectives for today
• Understand the importance/characteristics of
services as products
• Understand the importance and types of product
innovations
• Show how firms develop new products
• Explain the process of product adoption and the
diffusion of innovations
• Explain the different product objectives and
strategies a firm may choose (Ch 8)

7-4
 Products…
• Products include tangible and intangible products
– Good
• A tangible product, something we can see, touch, smell,
hear, taste, or possess
– Intangible products
• Services, ideas, people, places
• Products are viewed as a bundle of attributes with many
layers

• Value proposition
• The benefits a consumer will receive when buying the
product

7-5
 What is a Service?
• Services…
• are acts, efforts, or performances exchanged from
producer to user without ownership rights
• satisfy needs when they provide
– information (advertising, consulting)
– convenience (online banking)
– pleasure/entertainment (movie theater showings)
• Service industry jobs accounted for 75% of Canadian
employment and over 2/3 of GDP in 2009
• Consumer-oriented services and business services

7-6
What is a Service?

7-7
 Characteristics of Services - Figure 7.3

Services differ from

goods.

They have four

unique
characteristics
versus products.

Copyright © 2013 Pearson Canada Inc.

7-8
 Characteristics of Services

• Intangibility
• Customers can’t see, touch, or smell good service
• Hard for customers to evaluate pre buy
• Marketers must provide physical “clues” (look of
facilities, employees, web site etc.)

• Perishability
• It is impossible to store for later sale or consumption
• Must be used at time service is available
• Firms try to match supply and demand via capacity
management (hotels/airlines discount at slow periods,
last minute deals, create special packages etc.)
 Characteristics of Services

• Variability
• Difficult to standardize services because providers
and customers may vary
• Even the same service performed by the same
individual for the same customer can vary (haircuts)
• Sometimes customers appreciate customized services
(depends on nature of service – i.e. personal trainer)

• Inseparability
• It is impossible to separate the production of a
service from the consumption of that service
• Service must take place when provider is there to
provide act on customer or on customer’s possession
 Characteristics of Services (cnt’d)
• Inseparability underscores the importance of the
“service encounter”

• Service encounter
• is the actual interaction between the customer and the
service provider
• has several dimensions
• physical dimension (“servicescape”)
• social contact dimension (social interaction between
provider and customer – the “make or break moment”)
“The quality of a service is only as good as its worst
employees”
• the “customer” dimension – customer is also a part
of an encounter - Can customer articulate needs ?
- Follow through (fitness regime) ?
 Characteristics of Services (cnt’d)

• To avoid a bad service encounter, and/or to cut

labour costs, some firms have turned to
disintermediation

• Disintermediation: customers obtain service

without the intervention of a human provider
i.e. - ATMs, online banking & online brokerage
services
- self serve buffets, salad bars
- self serve gas pumps
 Classifying Services - Table 7.1
One way services are classified is on the basis of :
1) whether they are performed on customer, or on possession of customer
2) whether service consists of tangible or intangible actions

Copyright © 2013 Pearson Canada Inc.

 How We Classify Services – 3 categories
• Goods-dominated products
• Firms that sell tangible products still provide support
services (i.e. warranties, 1-800 numbers, training, online
ordering)
• Equipment- or facility-based services
• Services that are a mixture/balance of tangible and
intangible products (i.e. restaurants, hotel stays, carwashes)
• Operational factors, locational factors, and physical
environmental factors are important
• People-based services
• Services of lawyers, personal trainers, wardrobe consultants
• Increasing in importance as people lack the time or
expertise to do on their own
 Core and Augmented Services
• Core services
• The basic benefits of having a service performed
– i.e. getting car repaired

• Augmented services
• Additional services that enhance value
– free shuttle to and from car repair shop
– coffee and donuts in customer lounge with internet access
• Augmented services help to differentiate businesses
from one another

.
 Providing Quality Service

• Quality service ensures that customers are

satisfied with what they have paid for
• Satisfaction is based on customer expectations
• Marketers must identify and exceed customer
expectations
• In case of service failures, marketers need to offer
logical explanations and customer compensations
 Service Quality Attributes
How do customers measure service
quality ?
• Search qualities
• Characteristics that the consumer can examine before
purchase (facilities, uniforms, décor…)
• Experience qualities
• Characteristics that buyers can determine during or
after consumption
• Credence qualities
• Characteristics that are difficult to evaluate even after
they have been experienced. Consumer must trust
provider (tangible clues – professional accreditation?)
– i.e. doctor’s diagnosis, only
. if patient feels better
 How Firms Measure Service Quality
• SERVQUAL scale measures customer
perceptions of five key dimensions
– Tangibles (servicescape, employee appearance)
– Reliability (ability to provide what was promised)
– Responsiveness (ability to help/provide prompt service)
– Assurance (knowledge/courtesy of employees; ability to
convey trust and confidence)
– Empathy (degree of caring and attention customer receives)
• Administered in survey format, tracked over
time (longitudinal studies)

.
 Gap Analysis

• Gap analysis
• A marketing research method that measures
the difference between a customer’s
expectation of a service quality and what
actually occurred

• Five major gaps are identified

 Gap Analysis (cnt’d)

• Gap between consumers’ expectations and

management’s perceptions
• Gap between management’s perception and quality
standards the firm sets
• Gap between established quality standards and
service delivery
• Gap between service quality standards and
consumers’ expectations
• Gap between expected service and actual service

.
 Gap Analysis (cnt’d)
• Gap between consumers’ expectations and
management’s perceptions: when managers don’t
understand what consumers expect, a major quality
gap exists.
• Gap between management’s perceptions and quality
standards set by the firm: Without a quality control
program, service quality suffers, particularly in the
areas of responsiveness, accuracy, and timeliness.

.
 Gap Analysis (cnt’d)
• Gap between established quality standards and
service delivery: One of the largest threats to service
quality is poor employee performance. Unfortunately,
many firms don’t clearly specify what is expected of
employees.
• Gap between service quality standards and
consumers’ expectations: Service firms should never
promise something that they can’t deliver – instead
they are better off communicating exactly what
customers should expect and what will happen if
those expectations are not met.

.
 The Critical Incident Technique
• Critical incident technique
• Firms collect and analyze customer complaints for
critical incidents – specific contacts between customers
and service providers that are most likely to cause
problems and lead to dissatisfaction

• Critical incidents may result from simply not being able

to meet a customer’s request (sometimes customer
requests are unreasonable), or a situation in which the
firm may be capable of meeting the request, but fails to
do so.
 Strategic Issues re: delivering service
quality
• To maximize the likelihood that a customer
will use a service and become a loyal user
requires firms must:
– develop effective marketing strategies (similar to
goods marketing)
• Chart in text presents examples of good strategies
– respond quickly and appropriately responses to
service failures
 The Future of Services
• “New dominant logic for marketing”
• Physical goods relatively minor in terms of their
contribution to value proposition …argues that service is
the central (core) element in every exchange

• Services will continue to grow due to several

factors
• Changing demographics (boomers need services)
• Globalization (demand for distribution, logistics, accounting, legal
services w specialized knowledge)
• Technological advances (growth in telecommunications,
internet services)
• Proliferation of information (database services, artificial
intelligence and communication systems will benefit in future)
.
 “New and Improved!”
The Process of Innovation

• Innovation
• A product that customers perceive to be new and
different from existing products
• In Canada, the Competition Bureau determines if a
product can be termed “new” or not
• Handled on a case-by-case basis
 3 Types of Innovation – Figure 7.7
Innovations differ in terms of newness…some are
radically different and require more time to
learn/understand and are slower to be “adopted”
Marketers classify based
on degree to which the
newness changes
people’s lives
and consumption
patterns

Copyright © 2013 Pearson Canada Inc.

 Continuous Innovations
Continuous innovations
• Represent the bulk of new
products
• Are modifications to an
existing product (new flavours,
bigger/smaller packages, child proof
lids)
• Enough to set a brand apart
from the competition
• Consumers don’t need to
learn anything new; change is
minimal
• A knockoff is a new product
that copies, with slight
modification, the design of an
original successful product
 Dynamically Continuous Innovation
• Dynamically continuous innovation
• A pronounced modification to an existing product
• Requires a modest amount of learning or behavior
change
• Are adopted more slowly by consumers (than
continuous innovations) as a modest amount of
learning is required before consumers can use the item
• For example… audio products such as 8 –track tapes,
CDs, MP3
 Discontinuous Innovations
• Discontinuous innovation
• A totally new product that creates major changes in the
way we live
• No similar products have been on the market
• Consumers must learn a great deal to use a
discontinuous innovation
• For example…the first personal computer
 New Product Development Process
• New-product development (NPD)
• New products critical to most firms’ growth/success
• NPD refers to the 7 phases/steps firms follow when
developing new products
• Process can help firms avoid pitfalls of new product
failure
– No discernable benefits versus competitors
– Overestimating market/demand
– Poor positioning strategy
– Poor implementation of marketing mix
Phases in the New Product Development Process
- Figure 7.8

Copyright © 2013 Pearson Canada Inc.

 New Product Development (cnt’d)
• Phase 1: Idea generation
• The first step of product development in which
marketers brainstorm for products that provide
customer benefits and are compatible with the
company mission
• Focus groups are often used to search for new product
ideas

• Phase 2: Product concept development and

screening
• Product ideas are expanded into more complete
product concepts and screened/tested for technical
and commercial success
 New-Product Development (ctn’d)
• Phase 3: Marketing strategy development
• Developing a marketing strategy to introduce the
product to the marketplace
• Phase 4: Business analysis
• The product’s commercial viability is assessed
• Phase 5: Technical development
• Firm engineers refine and perfect the new product
• Prototypes/test versions of the proposed product are
developed (in R&D department) and often tested out
in focus groups/with employees
• Often firms will apply for a patent (protect firm’s
investment)

.
 New-Product Development (ctn’d)

• Phase 6: Test marketing

• The complete marketing plan is tested in a small
geographic area similar to the larger market
• Not all new products warrant a test market (new
flavours)
• Pros and cons of test marketing: it’s expensive, and
runs risk of alerting competition to a new product, but
allows fine tuning or recognition of failure
• Phase 7: Commercialization
• The new product is launched into the market
• Full-scale production, distribution, advertising, and
sales promotion are begun
7-38
Adoption and Diffusion of New Products
What happens once a product is introduced
commercially ? Hopefully…

• Product adoption
• Process by which a customer begins to buy and use a new good,
service, or idea
• Diffusion
• Process by which the use of a product spreads throughout a
population
• Tipping point in diffusion is the point where a product’s sales spike
from a slow climb to a new level
• Marketers work hard to reach this point as soon as possible –
taking action to reach and motivate consumers during each stage
in the consumer adoption process

7-39
Six Stages in Consumers’ Adoption of a Product -
Figure 7.9

Copyright © 2013 Pearson Canada Inc. 7-40

Categories of Adopters - Figure 7.10
Different consumers “adopt” innovations at
different times…some are adventurous,
others skeptical of new offerings…

Copyright © 2013 Pearson Canada Inc. 7-42

Adoption Categories
• Innovators
• the first 2.5 percent who adopt the product
• obsessive about trying new ideas and products, risk takers
• typically well-educated, worldly, better off financially than most
• rely less on group norms, confident, venturesome
• get information from experts, scientific sources

• Early adopters
• the next 13.5 percent who adopt early in the product’s life cycle
• oriented to the community and rely on group norms and values
(concerned about social acceptance) – want to be perceived
as cutting edge
• are heavy media users
• more likely to be opinion leaders; have respect of others
• as a result, MARKETERS TARGET THIS GROUP with their
promotions
 Adoption Categories
• Early majority
• the next 34 percent weigh the pros and cons before adopting a
new product, often collecting information and evaluating more
brands than early adopters – they are neither first or last to try an
innovation
• rely on groups for advice – these are the opinion leaders’ friends
and family – and are characterized as deliberate
• WHEN THIS GROUP ADOPTS A PRODUCT, it is no longer
considered new or different
• MARKETERS ALSO PROMOTE TO THIS GROUP as they
influence next group
Adoption Categories

• Late majority:
• the next 34 percent to adopt
• this group adopts a new product because most of their
friends have already adopted it
• tend to be older, with less money and education
• rely more on word of mouth communication – from early
majority
• characterized by skepticism
Adoption Categories

• Laggards:
• the final/last 16 percent to adopt
• do not rely on group norms
• Lower in social class than other categories
• tied to tradition with heavy influence from the past
• by the time laggards adopt an innovation, it has probably
been replaced by other innovation
• MARKETERS IGNORE LAGGARDS, who do not seem to be
motivated by promotion and personal selling
Diffusion Process and PLC Curve
Product Factors That Affect the Rate of Adoption

Five characteristics of the product affect the

speed of innovation diffusion
• Relative advantage
• Compatibility
• Complexity
• Trialability
• Observability

7-48
 Product Planning: Use Product Objectives to
Decide on a Product Strategy

• Product or Brand management

• The systematic and usually team-based approach to
coordinating all aspects of a product’s marketing
initiative including all elements of the marketing mix

• Success of new products comes from well-executed

product planning and management

.
8-49
 Steps to Manage Products - Figure 8.1

8-50 Copyright © 2013 Pearson Canada Inc.

Objectives for Single and Multiple Products -
Figure 8.2

8-51 .
 Objectives and Strategies for Multiple Products
• Product line
• Firm’s total product offering designed to satisfy a single
need or desire of target customers (can include
different brands)
• Product line length = # of items in line
• Product line strategies
– Full-line vs. limited-line strategies
– Extend line upward, downward, or two-way line
stretch
– Filling out (new sizes/styles) or contracting a product
line
• Cannibalization is a risk (new product steals sales from
product already part of line) .
8-53
 Product Mix Strategies

• Product mix
• The total set of products a firm offers for sale
• Product mix width = # of product lines
• Product mix strategies
– Width of product mix must be considered
– Typical for firm to develop a mix of product lines
usually have some things in common

8-54
 Assignment # 2 – Journal Review

• Due Wednesday, March 5

• A review of a “peer reviewed” journal article
that relates to concept(s) we have studied
• Outline provides format; no more than three
pages long
• You must provide an abstract for the article
(no abstract – can’t use that article)
• Reference Desk in library most helpful

8-55
 Term Test 1 Statistics

Average mark 60 %

A = 8 students ( 22 %) (highest mark 97 %)

B = 3 Students ( 8 %)
C = 8 Students ( 22 %)
D = 6 Students ( 16 % )
F = 12 Students ( 32 % ) (lowest mark 23 %)

Total 37 students (100 %)

 Term Test 1 Statistics

Average mark 60 % (versus 67 % in other class)

A = 8 students (or 22 % vs 9 students or 24 %)

B = 3 Students ( or 8 % vs 10 students or 26 %)
C = 8 Students ( 22 % vs 8 students or 21 %)
D = 6 Students ( 16 % vs 6 students or 16 %)
F = 12 Students ( 32 % vs 5 students or 13 %)

Total 37 students vs total of 38 students

4 Fs in 45 + range, 5 attendance an issue?