Product Decisions Tutorial
Marketing starts with the product since it is what an organization has to offer its target market. As we’ve stressed many times in this tutorial, organizations attempt to provide solutions to a target market’s problems. These solutions include tangible or intangible (or both) product offerings marketed by an organization.
In addition to satisfying the target market’s needs, the product is important because it is how organizations generate revenue. It is the “thing” that for-profit companies sell in order to realize profits and satisfy stakeholders and what non-profit organizations use to generate funds needed to sustain itself. Without a well-developed product strategy that includes input from the target market, a marketing organization will not have long-term success.
In this part of the Principles of Marketing Tutorials we take a close look at the key concepts all marketers should consider when faced with product decisions. In the Managing Products tutorial we will extend the discussion to look at the key issues in managing product decisions.
What is a Product?
In marketing, the term “product” is often used as a catch-all word to identify solutions a marketer provides to its target market. We will follow this approach and permit the term “product” to cover offerings that fall into one of the following categories:
Something is considered a good if it is a tangible item. That is, it is something that is felt, tasted, heard, smelled or seen. For example, bicycles, cellphones, and donuts are all examples of tangible goods. In some cases there is a fine line between items that affect the senses and whether these are considered tangible or intangible. We often see this with digital goods accessed via the Internet, such as listening to music online or visiting an information website. In these cases there does not appear to be anything that is tangible or real since it is essentially computer code that is proving the solution. However, for our purposes, we distinguish these as goods since these products are built (albeit using computer code), are stored (e.g., on a computer hard drive), and generally offer the same benefits each time (e.g., quality of the download song is always the same).
Something is considered a service if it is an offering a customer obtains through the work or labor of someone else. Services can result in the creation of tangible goods (e.g., a publisher of business magazines hires a freelance writer to write an article) but the main solution being purchased is the service. Unlike goods, services are not stored, they are only available at the time of use (e.g., hair salon) and the consistency of the benefit offered can vary from one purchaser to another (e.g., not exactly the same hair styling each time).
Something falls into the category of an idea if the marketer attempts to convince the customer to alter their behavior or their perception in some way. Marketing ideas is often a solution put forth by non-profit groups or governments in order to get targeted groups to avoid or change certain behavior. This is seen with public service announcements directed toward such activity as youth smoking, automobile safety, and illegal drug use.
While in some cases a marketer offers solutions that provide both tangible and intangible attributes, for most organizations their primary offering -- the thing that is the main focus of the marketing effort -- is concentrated in one area. So while a manufacturer may offer intangible services or a service firm provides certain tangible equipment, these are often used as add-ons that augment the organization’s main product.
Categories of Business Products
As discussed in the Business Buying Behavior tutorial, the amount spent on business purchasing far exceeds consumer purchasing. Products sold within the b-to-b market fall into one of the following categories:
- Raw Materials – These are products obtained through mining, harvesting, fishing, etc., that are key ingredients in the production of higher-order products.
- Processed Materials – These are products created through the processing of basic raw materials. In some cases the processing refines original raw materials while in other cases the process combines different raw materials to create something new. For instance, several crops including corn and sugar cane can be processed to create ethanol which has many uses including as a fuel to power car and truck engines.
- Equipment – These are products used to help with production or operations activities. Examples range from conveyor belts used on an assembly line to large buildings used to house the headquarters staff of a multi-national company.
- Basic Components – These are products used within more advanced components. These are often built with raw material or processed material. Electrical wire is an example.
- Advanced Components – These are products that use basic components to produce products that offer a significant function needed within a larger product. Yet by itself an advanced component does not stand alone as a final product. In computers the motherboard would be an example since it contains many basic components but without the inclusion of other products (e.g., memory chips, microprocessor, etc.) would have little value.
- Product Component – These are products used in the assembly of a final product though these could also function as stand alone products. Dice included as part of a children’s board game would be an example.
- MRO (Maintenance, Repair and Operating) Products – These are products used to assist with the operation of the organization but are not directly used in producing goods or services. Office supplies, parts for a truck fleet and natural gas to heat a factory would fall into this category.
Categories of Consumer Products
In addition to categorizing by type of offering, most products intended for consumer use can be further categorized by how frequently and where they are purchased.
- Convenience Products – These are products that appeal to a very large market segment. They are generally consumed regularly and purchased frequently. Examples include most household items such as food, cleaning products, and personal care products. Because of the high purchase volume, pricing per item tends to be relatively low and consumers often see little value in shopping around since additional effort yields minimal savings. From the marketer’s perspective the low price of convenience products means that profit per unit sold is very low. In order to make high profits marketers must sell in large volume. Consequently, marketers attempt to distribute these products in mass through as many retail outlets as possible.
- Shopping Products – These are products consumers purchase and consume on a less frequent schedule compared to convenience products. Consumers are willing to spend more time locating these products since they are relatively more expensive than convenience products and because these may possess additional psychological benefits for the purchaser, such as raising their perceived status level within their social group. Examples include many clothing products, personal services, electronic products, and household furnishings. Because consumers are purchasing less frequently and are willing to shop to locate these products, the target market is much smaller than that of convenience goods. Consequently, marketers often are more selective when choosing distribution outlets to sell their products.
- Specialty Products – These are products that tend to carry a high price tag relative to convenience and shopping products. Consumption may occur at about the same rate as shopping products but consumers are much more selective. In fact, in many cases consumers know in advance which product they prefer and will not shop to compare products. But they may shop at retailers that provide the best value. Examples include high-end luxury automobiles, expensive champagne, and celebrity hair care experts. The target markets are generally very small and outlets selling the products are very limited to the point of being exclusive.
In addition to the three main categories above, products are classified in at least two additional ways:
- Emergency Products – These are products a customer seeks due to sudden events and for which pre-purchase planning is not considered. Often the decision is one of convenience (e.g., whatever works to fix a problem) or personal fulfillment (e.g., perceived to improve purchaser’s image).
- Unsought Products – These are products whose purchase is unplanned by the consumer but occur as a result of marketer’s actions. Such purchase decisions are made when the customer is exposed to promotional activity, such as a salesperson’s persuasion or purchase incentives like special discounts offered to certain online shoppers. These promotional activities often lead customers to engage in Impulse Purchasing.
Components of a Product
On the surface it seems a product is simply a marketing offering, whether tangible or intangible, that someone wants to purchase and consume. In which case one might believe product decisions are focused exclusively on designing and building the consumable elements of goods, services or ideas. For instance, one might think the key product decision for a manufacturer of floor cleaners is to focus on creating a formula that cleans more effectively. In actuality, while decisions related to the consumable parts of the product are extremely important, the Total Product consists of more than what is consumed. The total product offering and the decisions facing the marketer can be broken down into three key parts:
- Core Benefits
- Actual Product
- Augmented Product
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