Product Decisions Tutorial
Marketing starts with the product since it is what an organization has to offer its target market. As we stress throughout the Principles of Marketing Tutorials, 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 crucial because it is how organizations generate revenue. It is what a for-profit company sells in order to realize profits and satisfy financial stakeholders (e.g., stockholders). Products are also important for many not-for-profit organizations where they are used to generate revenue needed to support operations (e.g., fund raising). 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:
Goods
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, smartphones, 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 or mobile devices, such as listening to music streaming services. For these products, 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), and generally offer the same benefits each time (e.g., quality of digital song is always the same).
Services
Something is considered a service if it is a product a customer obtains through the work or labor of someone else. Services can result in the creation of tangible goods (e.g., a magazine publisher 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).
Ideas
Something falls into the category of an idea if the marketer attempts to convince the customer to alter his/her behavior or perception in some way. Marketing ideas is often an approach used by not-for-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 drug addiction, texting while driving, and shelter pet adoption.
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.
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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. As explained below, consumer products can fall under the following categories: convenience, shopping, specialty, emergency, and unsought.
Convenience Products
These are products that appeal to an extremely large market segment. These product tend to be 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 for a better deal 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 (see Mass Coverage).
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 shopping products since these 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 for convenience goods. Consequently, marketers often are more selective when choosing distribution outlets to sell their products (see Selective Coverage).
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 hairstylists. The target markets are generally very small and outlets selling the products are very limited to the point of being exclusive (see Exclusive Coverage).
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 in an unplanned situation).
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, including appealing pricing discounts. These promotional activities often lead customers to engage in impulse purchasing.
Categories of Business Products
As discussed in the Business Buying Behavior Tutorial, the amount spent on business purchasing far exceeds consumer purchasing. Products purchased by business buyers for business use (i.e., purchases in 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, original raw materials are refined while in other cases the process combines different raw materials to create something new. For instance, certain 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 with important business operations activities. Examples range from conveyor belts used on an assembly line to large buildings used to house the headquarters staff of a multinational company.
Basic Components
These are products used within more advanced components and are often built with raw or processed materials. 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, power connector, 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.
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 assume product decisions are focused exclusively on designing and building the consumable elements of goods, services, or ideas.
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:
1. Core Benefits
As we discussed in the What is Marketing? Tutorial, customers seek to obtain something of value from marketers in exchange for their willingness to give up something they value, generally money. What customers obtain are solutions to their needs or, stated another way, they receive benefits. For customers, benefits drive their purchase decisions. Consequently, at the very heart of all product decisions is being able to determine the core benefits a product should provide.
In some cases these core benefits are offered by the product itself (e.g., floor cleaner) while in other cases the benefit is offered by other aspects of the product (e.g., the can containing the floor cleaner that makes it easier to spread the product). Consequently, at the very heart of all product decisions is determining the key or core benefits a product will provide. From this decision, the rest of the product offering can be developed.
2. Actual Product
The core benefits are offered through the components that make up the actual product the customer purchases. For instance, when a consumer returns home from shopping at the grocery store and takes a purchased item out of her shopping bag, the actual product is the item she holds in her hand.
Within the actual product is the consumable product, which can be viewed as the main good, service, or idea the customer is buying. For example, while toothpaste comes in a package that makes dispensing it easy, the consumable product is the paste that is placed on a toothbrush. But marketers must understand that while the consumable product is, in most cases, the most critical of all product decisions, the actual product includes many separate product decisions including product features, branding, packaging, labeling, and more. Full coverage of several of these important areas is provided later in this tutorial.
3. Augmented Product
Marketers often surround their actual products with goods and services that provide additional value to the customer’s purchase. While these factors may not be key reasons leading customers to purchase (i.e., do not offer core benefits), for some customers the inclusion of these items strengthens the purchase decision while for others failure to include these may cause the customer not to buy. Items considered part of the augmented product include:
Guarantee – This provides a level of assurance that the product will perform up to expectations and, if not, the company marketing the product will support the customer’s decision to replace, repair, or return the product for a refund.
Warranty – This offers customers a level of protection often extending past the guarantee period to cover repair or replacement of certain product components.
Customer Service – As noted in the Managing Customer Tutorial, these services support customers through such methods as training, repair, and other types of assistance.
Complementary Products – The value of some product purchases is enhanced with add-ons or complementary products. Such items make the main product easier to use or use in more situations (e.g., laptop carry bag), provides more protection (e.g., cellphone case), or extends functionality (e.g., portable keyboard for tablet computers). Complementary products can also include services. For instance, receiving free tire rotation for the life of the tires. .
Availability – How customers obtain the product can affect its perceived value depending on such considerations as how easy it is to obtain (e.g., stocked at nearby store, delivered directly to office), the speed at which it can be obtained, and the likelihood it will be available when needed.
Key Product Decisions
The actual product is designed to provide the core benefits sought by the target market. The marketer offers these benefits through a combination of factors that make up the actual product. Below we discuss in detail four key factors that together help shape the actual product.
Consumable Product Features
Features are characteristics of a product that offer benefits to the customer. When it comes to developing a consumable product, marketers face several decisions related to product features. The decision marketers face may include:
Features Set vs. Cost
For marketers, an important decision focuses on the quantity and quality of features (i.e., features set) to include in a product. In most cases, the more features that are included or the higher the features quality level, the more expensive the product is to produce and market.
Is More Better?
Even if added cost is not a major concern, the marketer must determine if more features help or hurt the target market’s perception of the product. A product with too many features could be viewed as too difficult to use.
Who Should Choose the Features?
Historically marketers determined what features to include in a product. However, the Customized or Micro Marketing targeting strategy offers customers the opportunity to choose their own features to custom build a product. For instance, for the vast majority of websites, the actual computer files that produce the site reside on computers managed by a website hosting service. Such services charge a fee that varies depending on the service features the website owner chooses (e.g., data storage options, processing speed). Also, for traditional products, such as clothing, companies may allow customers to stylize their purchases with logos and other personalized options.
Product Features and Benefits
For more on how product features impact marketing strategy, let’s consider how features and benefits affect buying decisions. The benefits a customer obtains from a product are contained within the actual and augmented product through product features. Features are the separate attributes of a product. For example, features of a high-definition (HD) television may include screen size, screen resolution, built-in Wi-Fi, remote control, and overall weight. The benefits a customer receives from the purchase and use of the product fall into two main categories:
Functional Benefits
These are benefits derived from features that are part of the consumable product. For instance, in our television example, features and benefits may include:
- screen size – offers greater detail and allows for more distant viewing
- screen resolution – provides clear, more realistic picture
- built-in Wi-Fi – allows access to online content including on-demand services
- remote control – allows for greater comfort while viewing
- lightweight – can be easily hung on a wall
The benefits offered by these features are called functional because these result in a benefit the user directly associates with the product. Functional benefits are often the result of materials, design, and production decisions. How the product is built can lead to benefits, such as increased speed, ease-of-use, durability, and cost savings.
Psychological Benefits
These are benefits the customer perceives he/she receives when using the product. These benefits address psychological needs, such as status within a group, risk reduction, sense of independence, and happiness. Such benefits are developed through promotional efforts that are aimed at customers’ internal influences on purchase behavior (see Chapter 4).
In communicating with customers, marketers should always associate a benefit with a product feature. Benefits are what customers seek; the feature is simply how the benefit is delivered.
Branding
Branding involves decisions that establish an identity for a product with the goal of distinguishing it from competitors’ offerings. In markets where competition is fierce and where customers may select from among many competitive products, creating an identity through branding is essential. It is particularly important in helping position the product (see Product Positioning) in the minds of the product’s target market.
While consumer products companies have long recognized the value of branding, it has only been within the last 25 years that organizations selling component products in the business-to-business market have begun to focus on brand building strategies. Intel, maker of computer component products such as computer chips, was one of the first business market companies to brand its products with its now famous 1990s “Intel Inside” slogan. Intel’s success has led many other business-to-business marketers to incorporate branding within their overall marketing strategy.
Brand Names and Brand Marks
At a very basic level, branding is achieved through the use of unique brand names and brand marks. The brand name, which may be either the individual product name or a name applied to a group or family of products, is important for many reasons including suggesting what the product is or does (e.g., Mop-and-Glow). This can catch the attention of customers needing a product for a certain usage or who are seeking a specific benefit but do not know what products to choose. The name is also what we utter when we discuss the product and is helpful in creating and spreading product awareness.
The brand mark is a design element that provides visual or auditory recognition for the product. This can be represented by a symbol (e.g., Nike swoosh ), logo (e.g., Google color graphic), a character (e.g., Keebler elves) or even a sound (e.g., Intel inside sound).
Advantages of Brands
A strong brand provides a marketing organization with a number of important advantages, which may result in the marketer obtaining certain competitive benefits. Listed below are the key advantages of brands with discussion of how these advantages can benefit marketing strategy:
Enhances Product Recognition
Brands provide multiple sensory stimuli to enhance customer recognition. For example, a brand can be visually recognizable from its packaging, logo, shape, etc. It can also be recognizable via sound, such as hearing the name on a radio advertisement or talking with someone who mentions the product.
Helps Build Brand Loyalty
Customers who are frequent and enthusiastic purchasers of a particular brand are likely to become brand loyal. Cultivating brand loyalty among customers is the ultimate reward for successful marketers since these customers are far less likely to be enticed to switch to other brands compared to non-loyal customers.
Helps With Product Positioning
Well-developed and promoted brands make product positioning efforts more effective. The result is that upon exposure to a brand (e.g., hearing it, seeing it) customers conjure up mental images or feelings of the benefits they receive from using that brand. The reverse is even better. When customers associate benefits with a particular brand, the brand may have attained a significant competitive advantage. In these situations the customer who recognizes he needs a solution to a problem (e.g., needs to bleach clothes) may automatically think of one brand that offers the solution to the problem (e.g., Clorox). This association of “benefit = brand” can provide a significant advantage for the brand.
Aids in Introduction of New Products
Firms that establish a successful brand can extend the brand by adding new products under the same “family” brand. Such branding may allow companies to introduce new products more easily since the brand is already recognized within the market (for more see Approaches to Branding).
Builds Brand Equity
Strong brands can lead to financial advantages through the concept of brand equity in which the brand itself becomes valuable. Such gains can be realized through the outright sale of a brand or through licensing arrangements. For example, Company A may have a well-recognized brand (Brand X) within a market but for some reason they are looking to concentrate their efforts in other markets. Company B is looking to enter the same market as Brand X. If circumstances are right, Company A could sell to Company B the rights to use the Brand X name without selling any other part of the company. That is, Company A simply sells the legal rights to the Brand X name but retains all other parts of Brand X, such as the production facilities and employees. These other parts can then be redirected to the production of other Company A brands. In cases of well-developed brands, such a transaction may carry a very large price tag. Thus, through strong branding efforts Company A achieves a large financial gain by simply signing over the rights to the name. But why would Company B seek to purchase a brand for such a high price tag? Because by buying the brand Company B has already achieved an important marketing goal – building awareness within the target market. The fact the market is already be familiar with the brand allows the Company B to concentrate on other marketing decisions.
We provide more detail on branding in the Managing Products Tutorial with a special emphasis on the strategies marketers follow in order to build a strong brand.
Packaging Decisions
Nearly all tangible products (i.e., goods) are sold to customers within a container or package that, as we will discuss, serves many purposes including protecting the product during shipment. In a few instances, such as with certain produce items, the final customer may purchase the product without a package but the produce marketer still faces packaging decisions when it comes to shipping its produce to others, such as resellers. Thus, for many products there are two packaging decisions:
Final Customer Package
This relates to the package the final customer receives in exchange for their payment. When the final customer makes a purchase he or she is initially exposed to the Primary Package – the outermost container that is seen and touched by the final customer. This primary package can be further divided into the following:
First-Level Package – This represents packaging that holds the actual product (e.g., Tylenol bottle holding tablets). In some cases, this packaging is minimal since it only serves to protect the product. For instance, certain frozen food products are sold to consumers in a cardboard box with the product itself contained in a plastic bag found inside the box. This plastic bag represents the first-level package. In other cases, frozen food products are sold to the final consumer only in plastic bags. In these cases, the plastic bag is both first-level package and the primary package for convey product information.
Second-Level Package – For some products, the first-level package is surrounded by one or more outer packages (e.g., box holding the Tylenol bottle). This second-level package may act as the exterior package for the product.
Package Inserts – Marketers use a variety of other methods to communicate with customers after they open the product package. These methods are often inserted within, or sometimes on, the product’s package. Insertions include product information, such as instruction manuals and warranty cards, promotional incentives, such as coupons, and items that add value such as recipes.
Distribution Channel Package
This packaging is used to transport the customer package through the supply chain. It generally holds multiple customer packages and also offers a higher level of damage protection than that of customer packaging. The most obvious examples are cardboard boxes and wooden crates. A single box or crate may contain a large number of customer packages.
Factors in Packaging Decisions
Packaging decisions are important for several reasons including:
Protection
Packaging is used to protect the product from damage during shipping and handling, and to lessen spoilage if the protect is exposed to air or other elements.
Visibility
Packaging design is used to capture customers’ attention as they are shopping or glancing through a catalog, website or smartphone app. This is particularly important for customers who are not familiar with the product or in situations where a product must stand out among thousands of other products,such as those found in grocery stores. Packaging designs that stand out are more likely to be remembered on future shopping trips.
Added Value
Packaging design and structure can add value to a product. For instance, benefits can be obtained from package structures that make the product easier to use while stylistic designs can make the product more attractive to display in the customer’s home (e.g., design of plug-in air fresheners).
Distributor Acceptance
Packaging decisions must not only be accepted by the final customer, it may also have to be accepted by distributors who sell the product for the supplier. For instance, a retailer may not accept packages unless they conform to requirements they have for storing products on their shelves (e.g., fits maximum height or weight requirements).
Cost
Packaging can represent a significant portion of a product’s selling price. For example, it is estimated that in the cosmetics industry the packaging cost for some products may be as high as 40% of a product’s selling price. Smart packaging decisions can help reduce costs and possibly lead to higher profits.
Expensive to Create
Developing new packaging can be extremely expensive. The costs involved in creating new packaging include: graphic and structural design, production, customer testing, possible destruction of leftover old packaging, and possible advertising to inform customer of the new packaging.
Long-Term Decision
When companies create a new package it is most often with the intention of having the design on the market for an extended period of time. In fact, changing a product’s packaging too frequently can have negative effects since customers become conditioned to locate the product based on its package and may be confused if the design is altered.
Environmental or Legal Issues
Packaging decisions must also include an assessment of its environmental impact especially for products with packages that are frequently discarded. Packages that are not easily bio-degradable could draw customer and possibly governmental reaction. Also, caution must be exercised in order to create packages that do not infringe on another firm’s intellectual property, such as copyrights, trademarks, or patents.
Product Labeling
Most packages, whether final customer packaging or distribution packaging, are imprinted with information intended to assist the customer. For consumer products, labeling decisions are extremely important for the a number of reasons as explained below:
Captures Attention – Labels serve to capture the attention of shoppers. The use of catchy words and eye-catching graphics may cause strolling customers to stop and evaluate the product.
Offers First Impression – The label is likely to be the first thing a new customer sees and thus offers their first impression of the product.
Provides Information – The label provides customers with product information to aid their purchase decision or help improve the customer’s experience when using the product (e.g., recipes).
Aids Purchasing – Labels generally include a universal product codes (UPC) ,that make it easy for resellers, such as retailers, to checkout customers and manage inventory.
Addresses Needs in Global Markets – For companies serving international markets or diverse cultures within a single country, bilingual or multilingual labels may be needed.
Meets Legal Requirements – In some countries, certain products, including food and pharmaceuticals, are required by law to contain certain labels such as listing ingredients, providing nutritional information or including usage warning information.