Chapter 9

Designing
and
Managing
Products

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 “Profit is payment you get when you take
advantage of change.”
-Joseph Schumpeter
 
“Being fed a decent meal in a casual
environment is a commodity in far
more supply than demand.”
-Barry M. Cohen

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 Chapter Objectives
• Define the term product, including the
core, facilitating, supporting, and
augmented product

• Explain the elements with which one

needs to be concerned when designing
a product

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 Chapter Objectives
• Understand branding and the conditions
that support branding

• Explain the new product development

process

• Understand how the product life cycle

can be applied to the hospitality industry
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 What is a Product?
• A product is anything that can be
offered to a market for attention,
acquisition, use or consumption that
might satisfy a want or need

• Includes physical objects, services,

places, organizations, and ideas

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 Product Levels
• Core Product

• Facilitating Products

• Supporting Products

• Core Competency
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 Core Product
• What the buyer is really buying

• Every product is a package of problem-

solving services

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 Facilitating Products
• Goods or services that must be present
for the guest to use the core product

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 Supporting Products
• Extra products offered to add value to
the core product and help to
differentiate it from the competition

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 Core Competency Review
• Supporting products offer a competitive
advantage only if they are properly
planned and implemented

• They must meet or exceed customer

expectations to have a positive effect

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 Augmented Product
• The augmented product includes
accessibility, atmosphere, customer
interaction with the service organization,
customer participation, and customers’
interaction with each other.

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 Product
levels
(Adapted from
C. Gonroos, “Developing
the
Service Offering—
A Source of Competitive
Advantage,” in
Add Value to Your Service,
C. Surprenant, ed.,
Chicago:
American Marketing
Association,
1987, p. 83.)

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 Atmosphere: The Physical
Environment
• Can be the customer’s reason for
choosing, or not choosing, to do
business with an establishment

• Multidimensional
– Visual, aural, olfactory, tactile

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 Customer Interaction with
the Service Delivery System
• Joining stage is when the customer
makes the initial inquiry contact
• Consumption phase takes place when
the service is consumed
• Detachment phase is when the customer
is through using a product and departs

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 Customer Interaction with
Other Customers
• Hospitality organizations must manage
the interaction of customers to ensure
that some do not negatively affect the
experience of others

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 Customer Coproduction

• Increase capacity

• Improve customer satisfaction

• Reduce costs

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 Brand Decisions
• A brand is a name, term, sign, symbol,
design, or a combination of these
elements that is intended to identify the
goods or services of a seller and
differentiate them from competitors

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 Brand
• Brands are among a company’s most
valuable assets
• A Brand represents what the company is and
what it stands for
• A Brand implies trust , consistency, and a
defined set of expectations
• The strongest brands own a place in the
customer’s mind

(Scott Davis, Brand Asset Management)

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 Branding
Consistency
Consistency Quality
Quality && Value
Value

Attributes
Attributes Advantages
Advantages Identification
Identification
of
of
Brand
Brand Names
Names
High
High Brand
Brand Brand Strong
Brand Strong Brand
Brand
Loyalty
Loyalty Equity
Equity Association
Association

Name
Name Awareness
Awareness Perceived
Perceived Quality
Quality

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 Conditions that Support Branding
• The product is easy to identify by brand or
trademark

• The product is perceived as the best value for

the price

• Quality and standards are easy to maintain

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 Conditions that Support Branding

• The demand for the general product class is

large enough to support a regional, national,
or international chain

• There are economies of scale

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 Leveraging Brand Equity

• Cobranding

• Partnerships

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 New Product Development
• Product life cycle

– Product is born

– Passes through several phases

– Eventually dies as younger products come

along that better serve consumer needs

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New Product Development Process
Marketing Business
Strategy
Analysis
Development
Concept
Development Product
and Testing Development

Idea Market
Screening
Testing

Idea
Generation Commercialization

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 Idea Generation
• Internal Sources

• Customers

• Competitors

• Distributors and Suppliers

• Other Sources
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 Idea Screening
• The purpose of screening is to spot
good ideas and drop poor ones as
quickly as possible

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 Concept Development and
Testing
• A product idea envisions a possible product
that company managers might offer to the
market

• A product concept is a detailed version of

the idea stated in meaningful consumer terms

• A product image is the way that consumers

picture an actual or potential product
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 Concept Development and
Testing
• The task is to develop an idea into
alternative product concepts, determine
how attractive each is to customers,
and choose the best one

• Concept testing occurs within a group

of target consumers

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 Marketing Strategy
• Includes information such as the target
market and product positioning as well
as both short and long term projections
in terms of sales, profits and costs

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 Business Analysis
• Business analysis involves a review of
the sales, costs, and profit projections
to determine whether they satisfy the
company’s objectives

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 Product Development
• The prototype must:

– Have the key features described in the

product concept statement, as
perceived by the customer

– Performs safely under normal use

– Be produced for the budgeted costs

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 Test Marketing
• The product and marketing program are
introduced into realistic market settings

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 Commercialization
• In launching a new product, a company
must make four decisions:

When?
Where?
To whom?
and How?

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 Product Development
Through Acquisition
• A method of product development that
reduces the risk considerably for large
companies that have the assets to
purchase and then develop a fledgling
chain

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 Product Life-Cycle Strategies
• Product development
• Introduction
• Growth
• Maturity
• Decline

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 Product Development
• Product development begins when the
company finds and develops a new
product idea

• During development, sales are zero and

the company’s investment costs add up

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 Product Life Cycle
Sales and Profits Over the Product’s Life From Inception to
Demise

Sales and
Sales
Profits ($)

Profits

Time
Product Introduction Growth Maturity Decline
Develop-
ment
Losses/
Investments ($)

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 Introduction
• Introduction is a period of slow sales
growth as the product is being
introduced into the market

• Profits are nonexistent at this stage due

to high product introduction expenses

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 Growth
• Growth is a period of rapid market
acceptance and increasing profits

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 Maturity
• Maturity is a period of slowdown in
sales growth because the product has
achieved acceptance by most of its
potential buyers

• Profits level off or decline due to

increased marketing outlays to defend
the product against competition

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 Decline
• Decline is the period when sales fall off
quickly and profits drop

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 Product Deletion Process

(Martin Bell, Marketing Concepts and Strategy, 3rd ed., p.267, 1979, Houghton Mifflin Company; used by permission, Mrs..
Marcellette (Bell) Chapman. )

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 Key Terms
• Augmented products

• Aural

• Brand

• Consumption phase

• Core product
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 Key Terms
• Customization

• Decline

• Detachment phase

• Drop

• Facilitating products
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 Key Terms
• Growth

• Introduction

• Joining

• Maturity

• Olfactory
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 Key Terms
• Phase-out

• Product concept

• Product development

• Product idea

• Product image
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 Key Terms
• Run-out

• Standardization

• Supporting products

• Tactile

• Visual 
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