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.

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 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 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, 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
  2. Actual Product
  3. Augmented Product

Product Components: 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.

Product Components: 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.

Product Components: 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. .
  • Accessibility – 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. These factors include:

  • Consumable Product Features
  • Branding
  • Packaging
  • Labeling

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 including:

  • 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.