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UNIT-3

PRODUCT

Many people think that a product is a tangible offering, but a product can be more than that.

Product is everything that can be offered to market to satisfy a want or need. Products that are

marketed include physical goods, services, experiences, events, persons, places, properties,

organizations, information and ideas.

A product is a set of tangible and intangible attributes, which include packaging, color, price,

quality, and brand, plus the services and reputation of the seller.

Product levels: The Customer-Value Hierarchy

n planning market offering, the marketer needs to address five product levels. !ach level adds

more customer value, and the five constitute a customer value hierarchy.

Fundamental level (Core Product): "ore benefit # the service or benefit the customer is really

buying $marketers % benefit providers&'

Second level (Generic Product): (asic product % marketer turn the core benefit into a basic

product'Third level (Expected Product):- a set of attributes and conditions buyers normally expect when

they purchase this product'

Fourth level (Augmented product % the product thatexceeds customer expectations

$differentiation&'

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Fifth level (Potential Product) - which encompasses all possible augmentations and

transformations the product might undergo in the future.

Product Co!sumptio! system*

+he way the user performs the task of getting and using product and related services'

t is necessary to know that*

!ach augmentation adds costs'

Augmented benefits soon become expected benefits and necessary points#of#parity'

As companies raise the price of their augmented product, some companies offer a stripped#down

version at a much lower price.

+o better explain that, lets consider the example of a car*

Core product: The client is looking for transportation from one place to another.

Actual Product : The brand of the car, its looks and design etc.

Expected Product : Decent mileage, proper engine, inflated tires etc.

Augmented Product: After-sale services, insurance policy etc.

Potential Product : May run more smoothly as it wears off a little.

+he passage from one level to the next happens when the previous level is satisfied. f the

customer goes to a hotel and finds some chocolate bars on his bed, it exceeds his expectations

and causes and enchantment. (ut after that, the customer will always expect a chocolate bar on

his bed, and it wont cause an enchantment anymore. t will be considered part of the expected product. -ith that in mind, marketers must find a way of providing always something in order to

exceed customer expectations and cause a continuous enchantment. Marketers must find, in this

way, not only customers current needs, but also its future needs, what can be done throughout

market research.

Product classi"icatio!s

Marketers have traditionally classified products on the basis of durability, tangibility and use of

the product $"onsumer or ndustrial& the each product type has an appropriate marketing#mixstrategy.

1 Cla!!ification "n The #a!i! "f $ura%ilit& and Tangi%ilit&:

No!dura#le $oods: tangible goods normally consumed in ne or a few uses $beer and soap&.

+hese goods are consumed quickly and purchased frequently. Appropriate strategy* make them

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available in many locations, charge only a small markup, and advertise heavily to induce trial

and build preference.

Dura#le $oods: tangible goods that normally survive many uses $refrigerators, clothing&.

Appropriate strategy* require more personal selling and services, command a higher margin, and

require more sells guarantees.

%ervices: services are intangible, inseparable, variable, and perishable products. As a result

services require appropriate strategy* require more quality control, supplier credibility, and

adaptability $haircuts, legal advice&.

&' Classi"icatio! o! The (asis o" Use

A Con!umer'Good! Cla!!ification:

+he consumer usually purchases co!ve!ie!ce $oods frequently, immediately, and with a

minimum of effort. !xamples include soft drinks.

%taples are goods consumers purchase on a regular basis.

Impulse $oods are purchased without any planning or search effort.

)mer$e!cy $oods are purchased when a need is urgent % umbrellas during a rainstorm.

Manufacturers of impulse and emergency goods will place them in those outlets where

consumers are likely to experience an urge or compelling need to make a purchase.

%hoppi!$ $oods are goods that consumer characteristically compares on such bases as

suitability, quality, price and style. !xamples include furniture, clothing, used cars and ma/or appliances. -e further divide this category*

Homo$e!eous shoppi!$ $oods are similar in quality but different enough in price to /ustify

shopping comparisons.

Hetero$e!eous shoppi!$ $oods differ in product features and services that may be more

important than price.

%pecialty $oods have unique characteristics or brand identification for which a sufficient number

of buyers are willing to make a special purchasing effort. !xamples include* cars and

photographic equipments.

U!sou$ht $oods are those the consumers does not know about or does not normally think of

buying, such as smoke detectors. +he classic examples of known but unsought goods are life

insurance and encyclopedias. 0nsought goods require advertising and personal#selling support.

# ndu!trial'Good! Cla!!ification:

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ndustrial goods can be classified in terms of their relative cost and how they enter the

production process* material and parts capital items and supplies and business services.

*aterial a!d parts are goods that enter the manufacturers product completely. +hey fall into

two classes*

Ra+ materials: farm products and natural products'

*a!u"actured materials a!d parts: component materials and components parts.

Capital items are long#lasting goods that facilitate developing or managing the finished product.

+hey include two groups*

). nstallations . !quipment

%upplies a!d #usi!ess services are short#term goods and services that facilitate developing or

managing the finished product. 2upplies are of two kinds*

). Maintenance and repair items .3perating supplies

Di""ere!tiatio!

+o be branded, products must be differentiated. +he seller faces an abundance of differentiation

possibilities, including form, features, customization, performance quality, conformance quality,

durability, reliability, reparability and style. 4esign has become increasingly important.

Product di""ere!tiatio!

,orm % any products can be differentiated in form $the size, shape, or physical structure&'

,eatures % Most products can be offered with varying features that supplement their basic

function. +he marketer must be aware of customer value versus company cost for each potential

feature. !ach company must decide whether to offer feature customization at a higher cost or a

few standard packages at a lower cost.

Customiatio! % marketers can differentiate products by making them customized to an

individual'

*ass customiatio! % is the ability of a company to meet each customers requirements $to

prepare on a mass basis individually designed products, services, programs and

communications&'

Per"orma!ce .uality # most products are established at one of four performance levels* low,

average, high or superior. Performance quality is the level at which the products primary

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characteristics operate. +he manufacturer must design a performance level appropriate to the

target market and competitors performance levels'

Co!"orma!ce .uality % buyers expect products to have a high conformance quality, which is the

degree to which all the produced units are identical and meet the promised specifications'

Dura#ility % is a measure of the products expected operating life under natural or stressful

conditions, is a valued attribute for certain products'

Relia#ility % buyers normally will pay a premium for more reliable products. 6eliability is a

measure of the probability that a product will not malfunction or fail within a specified time

period'

Repaira#ility / is a measure of the ease of fixing a product when it malfunctions or fails'

%tyle % describes the products look and feel to the buyer.

Desi$!

As competition intensifies, design offers a potent way to differentiate and position a companys

products and services. n increasingly fast#paced markets, price and technology are not enough.

4esign is the factor that will often give a company its competitive edge. 4esign is the totally of

features that affect how a product looks, fells, and functions in terms of customer requirements.

n the firms point of view, a well#design product is the one that is easy to manufacture and

distribute. n the customers point of view a well#design product is pleasant to look at and easy to

open, install, use, repair and dispose of.

7olistic marketers recognize the emotional power of design and the importance to customers of

how things look and fell.

n summary, in a increasingly visually oriented culture, translating brand meaning and

positioning through design is critical.

%ervice Di""ere!tiatio!

-hen the physical product cannot easily be differentiated, the key to competitive success may lie

in adding valued services and improving their quality. +he main services differentiators are

ordering ease, delivery, installation, customer training, customer consulting and maintenance and

repair.

Orderi!$ ease* how easy it is for the customer to place an order with the company.

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Delivery: how well the product or service is brought to the customer. t includes speed, accuracy

and care throughout the process. +wo tools that help the delivery process are* 9uick 6esponse

2ystems $962& and :lobal Positioning 2ystem $:P2&.

I!stallatio!: the work done to make a product operational in its planned location.

Customer trai!i!$* training the customers employee to use the vendors equipment properly

and efficiently.

Customer co!sulti!$* data, information system and advice services that the seller offer to

buyers.

Maintenance and repair* service program for helping customers keep purchased products in good

working order.

Retur!: product returns in two ways*

Co!trolla#le retur!s results from problems, difficulties or errors of the seller or customer and

cam mostly be eliminated with proper strategies and programs'

U!co!trolla#le retur!s cant be eliminated by the company in the short#run through any of the

aforementioned means.

Product a!d (ra!d Relatio!ship

!ach product can be related to other products to ensure that a firm is offering and marketing the

optimal set of products. !xample* 0;<!=!6

The Product Hierarchyt stretches from basic needs to particular items that satisfy those needs. t has six levels and we

will use a cosmetic example in order to better explain*

0' Need "amily: underlies the existence of a product family. P!623;A< "A6!

&' Product "amily: product classes that can satisfy a core need with reasonable effectiveness.

"32M!+"2, 2>; "6!AM2, 27AMP332, "3;4+3;!62, 23AP2

3' Product class: a group of products within the product family recognized as having a certain

functional coherence. 7A6 "<!A;;: A:!;+2

1' Product li!e: a group of products class that are closely related because they perform a similar

function, are sold to the same customer groups, are marketed through the same outlets or

channels, or fall within given price ranges. 27AMP332 $2!4A, M3;A;:!, A<< "<!A6

!+"&

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2' Product type: a group of items within a product line that share one of several possible forms

of the product. 4A;460@@ "3;+63< 27AMP332

' Item: a distinct unit, distinguishable by size, price, appearance or some other attribute. A

2A"7!+ 3@ "<;" A<< "<!A6.

Product %ystem a!d *i4es

A Product system is a group of diverse but related items that function in a compatible manner.

@or example, phone and Palms product lines come with attachable products* cameras,

keyboard, e#books, MP1 players, voice recorders, :P2 etc.

+he product mix means a set of all products and items a particular seller offers for sale. t

consists of various product lines. +he product mix has four dimensions*

5idth* how many different product lines the company carries.

6e!$th: the total number of items in the mix.

Depth: refers to how many variants are offered of each product in the line.

7 Co!siste!cy: how closely related the various product lines are in end use, production

requirements, distribution channels or some other way.

+he product mix dimension permit the company to expand its business in four ways* add new

product line, lengthen each product line, add more product variants and deepen its product mix

and pursue more product line consistency. @or instance, Avons product mix consists of four ma/or product lines* cosmetics, /ewelry, fashions, and household items. <et take the example of

0ni#<ever <imited product mix from the below chart.

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Product 6i!e 8!alysisProduct#line managers need to know the sales and profits of each item in their line in order to

determine which items to build, maintain, harvest, or divest.

2ales and profits* it is possible for companies to know how well its lines are performing by the

sales and profit report. !very companyCs product portfolio contains products with different

margins. A company can classify its products into four types that yield different gross margins,

depending on sales volume and promotion*

• Core products* high sales volume, heavily promoted, low margins'

• %taples: lower sales volume and no promotion, higher margin'

• %pecialties: lower sales volume, highly promoted'

• Co!ve!ie!ce items* high volume, less promotion, higher margins.

Market Profile* how the line is positioned against competitorsC lines. +he product map shows

which competitorsC items are competing against a regarding companys items. Another benefit of

product mapping is that it identifies market segments. Product#line analysis provides information

for two key decision areas#product#line length and product#mix pricing.

Product-6i!e 6e!$th

3ne ob/ective is to create a product line to induce up#selling. A different ob/ective is to create a

product line that facilitates cross#selling. Another ob/ective is to create a product line that

protects against economic ups and downs. "ompanies seeking high market share and market

growth will generally carry longer product lines. Product lines tend to lengthen over time.

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!xcessive manufacturing capacity puts pressure on the product#line manager to develop new

items. A company lengthens its product line in two ways* line stretching and line filling.

6i!e %tretchi!$ # occurs when a company lengthens its products line beyond its current

range. +he company can strength its line down#market, up#market or both ways.

Do+!-*ar9et %tretch - A company positioned in the middle market may want to introduce a

lower#priced line for any of three reasons*

)# +he company may notice strong growth opportunities as mass retailers.

# +he company may wish to tie up lower#end competitors who might otherwise try to move up#

market.

1# +he company may find that the middle market is stagnating or declining.

A company faces a a number of naming choices in declining to move a brand down#market*

)# 0se the parent brand name on all its offerings'

# ntroduce lower#priced offerings using a sub brand name'

1# ntroduce the lower#priced offerings under a different name.

Moving down#market carries risks and it can cannibalize its core brand.

Up / *ar9et %tretch # "ompanies may wish to enter the high end of the market to achieve more

growth, to realize higher margins, or simply to position themselves as full %line manufactures.

T+o / 5ay %tretch # "ompanies serving the middle market might decide to stretch their line in

both directions. ine Filling ' A firm can also lengthen its product line by adding more items within the present

range. +here are several reasons for line filling* reaching for incremental profits. <ine filling is

overdone if it results in self#cannibalization and customer confusion. +he company needs to

differentiate each item in the consumers mind with a /ust#noticeable difference. According to

-ebers law, consumers are more attuned to relative then absolute difference.

ine moderni*ation+ featuring+ and pruning # Product lines need to be modernized. +he issue is

whether to overhaul the line piecemeal or all at once. A piecemeal approach allows the company

to see how customers and dealers tae to the new style. t is also less draining on the companys

cash flow, but it allows competitors to see changes and to start redesigning their own lines.

n rapidly changing product marketers, modernization is continuous. Ma/or issue is timing

improvements so they do not appear too early $damaging sales of the current line& or too late

$after the competition has establishes a strong reputation for more advanced equipment&.

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+he product#line manager typically selects one or a few items in the line to feature, and also they

must periodically review the line for deadwood that is depressing profits. +he weak items can be

identified through sales and cost analysis.

Product-*i4 Prici!$

Marketers must modify their price#setting logic when the product is part of a product mix. n

product#mix pricing, the firm searches for a set of prices that maximizes profits on the total mix.

2ix situations calling for product#mix pricing* product#line pricing, optional#feature pricing,

captive#product pricing, two#part pricing, by#product pricing, and product#bundling pricing.

Product , line pricing - "ompanies normally develop product lines rather than single products

and introduce prices steps. +he sellers task is to establish perceived quality differences that

/ustify the price differences.

"ptional , feature pricing - Many companies offer optional products, features and services

along with their main product.

Captive , product pricing - 2ome products require the use of ancillary products, or captive

products. Manufactures of razors, digital phones, and cameras often price them low and set high

markups on razor blades and film.

+here is a danger in pricing the captive product too high in the aftermarket, however. f parts and

service are too expensive, counterfeiting and substitutions con erode sales.T-o'part pricing ' 2ervice firms engage in two#part pricing consisting of a fixes fee plus a

variable usage fee. +elephone users pay a minimum monthly fee plus charges for call beyond a

certain area.

#&'product pricing ' +he production of certain goods#meats, petroleum products, and others

chemicals often results in by#products. f the by#products have value to a consumer group, they

should be priced on their value. Any income earned on the by#products will make it easier for the

company to charge a lower price on its main product if competition forces it to do so.

Product'%undling pricing ' 2ellers bundles products and features. Pure bundling occurs when a

firm offers its products only as a bundle. t can be a kind of tied#in sales, when a product is sold

accompanied with others products. n mixed bundling, the seller offers goods both individually

and in bundles. +he seller normally charges lees for the bundle than if the item were purchase

separately.

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Co-(ra!di!$ a!d I!$redie!t (ra!di!$

Co'#randing

Marketers often combine their products with products from other companies in various ways. n

co#branding % also called dual branding or brand bundling % two or more well#known brands are

combined into a /oint product or marketed together in some fashion. +here are various ways to

form a combination* same#company co#branding, /oint#venture co#branding, multiple# sponsor

co#branding, or retail co#branding.

"o#branding can generate greater sales, reduce cost of product introduction, and may be a

valuable means to learn about consumers and how other companies approach them. +he potential

disadvantages of co#branding are the risk and lack of control in becoming aligned with another

brand in the minds of consumers, do not overcome the consumers expectations generating

dissatisfaction affecting both brand negatively.

@or co#branding succeed, the two brands must separately have brand equity a logical fit between

them.

ngredient #randing

ngredient branding is a special case of co#branding. t creates brand equity for materials,

components, or parts that are necessarily contained within other branded products. @or example,

thereGs 4anone Activia Hogurt that advertises its trademarked probiotic (acilus 6egularis,

promoting healthy digestion.An interesting take on ingredient branding, as exposed in ActiviaGs example, is Iself#brandingI in

which companies advertise and even trademark their own branded ingredients. tGs a way to

create individual identity to the product, protection it from competitors.

Pac9a$i!$ 6a#eli!$ 5arra!ties a!d ;uara!tees

Most physical products must be packaged and labeled. 4ue to this fact, many marketers have

called packaging a fifth P, along with price, product, place, and promotion. Most marketers,however, treat packaging and labeling as an element of product strategy. -arranties and

guarantees can also be an important part of the product strategy, which often appear on the

package.

Pac9a$i!$

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-e define packaging as all the activities of designing and producing the container for a product.

Packages might include up to three levels of material. "ool -ater cologne comes in a bottle

$primary package& in a cardboard box $secondary package& in a corrugated box $shipping

package& containing six dozen boxes.

-ell#designed packages can build brand equity and drive sales. +he package is the buyerCs first

encounter with the product and is capable of turning the buyer on or off.

=arious factors have contributed to the growing use of packaging as a marketing tool*

%el"-service* package provides the sales in a self#service basis, like in a supermarket where

consumers buy directly from the shelf.

Co!sumer a""lue!ce* consumers are willing to pay more for the convenience, appearance,

dependability, and prestige of better packages.

Compa!y a!d #ra!d ima$e* packages contribute to instant recognition of the company or

brand.

I!!ovatio! opportu!ity* innovative packaging can bring large benefits to consumers and profits

to producers.

@rom the perspective of both the firm and consumers, packaging must achieve a number of

ob/ectives*

0' dentify the brand.

&. "onvey descriptive and persuasive information.

3' @acilitate product transportation and protection.

1. Assist at#home storage.

2. Aid product consumption.

Marketers must choose the aesthetic and functional components of packaging correctly. Aesthetic

considerations relate to a packageCs size and shape, material, color, text, and graphics. +he

packaging elements must harmonize with each other and with pricing, advertising, and other

parts of the marketing program.

After the company designs its packaging, it must test it. !ngineering tests ensure that the

package stands up under normal conditions' visual tests, that the script is legible and the colors

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harmonious' dealer tests, that dealers find the packages attractive and easy to handle' and

consumer tests, that buyers will respond favorably.

"ompanies must pay attention to growing environmental and safety concerns to reduce

packaging. @ortunately, many companies have gone IgreenI and are finding new ways to develop

their packaging.

6a#eli!$

+he label may be a simple tag attached to the product or an elaborately designed graphic that is

part of the package. t might carry only the brand name, or a great deal of information. !ven if

the seller prefers a simple label, the law may require more.

<abels perform several functions*

dentifies the product or brand'

:rade the product'

4escribe the product'

Promote the product'

<abels eventually become outmoded and need freshening up.

5arra!ties a!d ;uara!teesAll sellers are legally responsible for fulfilling a buyerCs normal or reasonable expectations.

-arranties are formal statements of expected product performance by the manufacturer. Products

under warranty can be returned to the manufacturer or designated repair center for repair,

replacement or refund.

!xtended warranties can be sold by the retailer or manufacturer to customers and can be

extremely lucrative for them. t represented 1FJ of (est (uyGs operating profits in FF8.

:uarantees reduce the buyerCs perceived risk. +hey suggest that the product is of high quality and

that the company and its service performance are dependable. +hey can be especially helpful

when the company or product is not that well known or when the productCs quality is superior to

competitors.

:uarantees is more than legal statements that guides the warranties, they can be seen as extra

benefits to induce consumer to buy the product. @or instance, Procter K :amble promises

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complete satisfaction without being more specific $:eneral :uarantee& and A. +. "ross

guarantees its "ross pens and pencils for life, repairing and replacing at no charges $2pecific

:uarantee&.

UNIT-1

%)TTIN; PRODUCT %TR)T);<

N)5-PRODUCT D)V)6OP*)NT %TR8T);<

A firm can obtain new products in two ways.

). Ac.ui!ition Lby buying a whole company, a patent, or a license to produce someone

elses product.

. Ne+-product developme!t efforts.

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ew products are original products, product improvements, product modifications, and new

brands that the firm develops through its own research#and#development efforts.

According to one estimate, EFJ of all new products fail $e.g. 7arley#4avidson cake#decorating

kits&. +here are a number of reasons for failure e.g. overestimation of the market size, poor

design, incorrectly positioned, launched at the wrong time, priced too high or poorly advertised.

TH) N)5-PRODUCT D)V)6OP*)NT PROC)%%

+here are eight ma/or steps in the ne-'product development proce!! +his systematic process is

for finding and growing new products. +he ma/or steps of new product development are*

0' Idea $e!eratio!

&' Idea scree!i!$

3' Co!cept developme!t a!d testi!$

1' *ar9eti!$ strate$y developme!t

2' (usi!ess a!alysis

' Product developme!t

=' Test mar9eti!$

>' Commercialiatio!

0' ID)8 ;)N)R8TION

;ew product development starts with dea generation#+he systematic search for new product

ideas. A company typically has to generate many ideas in order to find a few good ones. @or

example, one brainstorming session for Prudential insurance company came up with )8FF ideas

and only ) were considered even usable.

Ma/or sources for new ideas include internal sources and external sources such as customers,

competitors, distributors, and suppliers, and others.

I!ter!al Idea %ources

nternal sources include company employees at all levels. "ompanies can pick the brains of its

executives, scientists, engineers, manufacturing staff, and sales people.

)4ter!al Idea %ources

, Cu!tomer!

:ood new product ideas also come from watching and listening to customers. "ompany

engineers or sales people can meet with and work alongside to get suggestions and ideas.

, Competitor!

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"ompanies watch competitors adds to get clues about their new products. +hey buying

competing new products, take them apart to see how they work, analyze their sales, and decide

whether they should bring out a new product of their own.

, $i!tri%utor! / Supplier!

4istributors and suppliers can also contribute many good and new product ideas. 6esellers are

those close to the market and can pass along information about customer problems and new

product possibilities. 2uppliers can tell company about new concepts, techniques, and materials

that can be used to develop new products.

% "ut!ourcing

Many companies are now outsourcing some of their new product innovation to outside

developers. "ompanies such as 4ell, Motorola sometimes buy new designs from Asian

developers and then market under their own brand names.

3ther idea sources include +rade magazines, shows, seminars, government agencies, new

product consultants, advertising agencies, marketing research firms, university and commercial

laboratories, and inventors.

&' ID)8 %CR))NIN;: Process used to spot $ood ideas a!d drop poor o!es'

+he purpose of idea generation is to create large number of ideas. +he purpose of the succeeding

stages is to reduce that number. +he first idea reducing stage is the dea screening.

, Executive! provide a de!cription of the product along -ith e!timate! of mar0et

!i*e+ product price+ development time and co!t!+ manufacturing co!t!+ and rate

of return

% Evaluated again!t a !et of compan& criteria for ne- product!

@or example, at >ao company, the large apanese consumer products company, the new product

committee asks questions such as Ns the product truly useful to the consumers and societyO,

N4o we have the people, skills, resources, to make it proceedO etc.

1' CONC)PT D)V)6OP*)NT 8ND T)%TIN;

n co!cept developme!t, several descriptions of the product are generated to find out how

attractive each concept is to customers. @rom these concepts, the best one is chosen. An

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attractive idea must be developed into a product concept. t is important to distinguish between

product idea, product concept, and a product image.

Product Idea: idea for a possible product that the company can see itself offering.

Product Co!cept: detailed version of the idea stated in meaningful consumer terms.

Product Ima$e: the way consumers perceive an actual or potential product.

@or example, after more than )F years of development, 4aimler "hrysler is getting ready to

commercialize its experimental cell powered electric car into the market. +his cars nonpolluting

fuel system runs directly on 7ydrogen.

4aimler "hrysler is currently testing more than )FF @ cell cars under varying weather conditions,

traffic situations, and driving styles in world wide.

;ow 4aimlers task is to develop this into alternative product concept, find out each howattractive each concept to its customers, and choose the best one.

Concept one* A moderately priced sub compact designed as a second family car to be used

around town.

Concept t-o* A medium cost sporty compact appealing to the young people.

Concept three: An inexpensive subcompact green car appealing to environmentally conscious

people.

Concept Te!ting : "oncept testing calls for testing new#product concepts with groups of target

consumers. 2ometimes, a word description or picture is used. At other times the physical

representation of the ob/ect is shown to consumers, increasing the reliability of the concept test.

1' *ar9eti!$ %trate$y Developme!t

+he next step is marketing strategy development which is designing an initial marketing strategy

for a new product based on the product concept.

+he marketing strategy statement consists of three parts.

+he mar0eting !trateg& !tatement consists of three parts.

). A description of the target market' the planned value proposition' and the sales, market

share, and profit goals for the first few years.

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. 3utline of the products planned price, distribution, and marketing budget for the first

year.

1. 4escription of the planned long#run sales, profit goals, and marketing mix strategy.

2' (usi!ess 8!alysis

(usi!ess a!alysis involves a review of the sales $review the sales history of similar products and

conduct market surveys&, costs $e.g. marketing, 6K4, operations, finance and other costs&, and

profit pro/ections for a new product to find out whether they satisfy the companys ob/ectives. f

they do, the product can move to the product development stage.

' Product Developme!t

n product developme!t, 6K4 or engineering develops the product concept into a physical

product.

+he product development step calls for a large /ump in investment. 3ften, products undergo

rigorous tests to make sure they perform safely and effectively. +he new product must have the

required functional features and the intended psychological characteristics $e.g. comfortable, safe

for a car' beautiful and special for a handbag&.

=' Test *ar9eti!$

Test mar9eti!$ is the stage at which the product and marketing program are introduced into

realistic market settings $e.g. >@" test#marketed its new >entucky :rilled "hicken product for 1

years, before rolling it out widely&. t tests the product and its entire marketing program%

targeting and positioning strategy, advertising, distribution, pricing, branding, packaging and

budgeting. (ut, companies often do not test#market simple line extensions or when management

is already confident about the new product.

4rawbacksQdisadvantages include*

). "ostly

. +ime consuming

1. "ompetitors can monitor results

5. "ompetitors get an early look at your new product.

+est marketing also does not guarantee success.

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-hen using test marketing, consumer products companies usually choose one of the following

approaches* sta!dardied test mar9ets co!trolled test mar9ets and simulated test mar9ets'

>' Commercialiatio!

+est marketing gives management the information needed to make a final decision about whether

to launch the new product. f management goes ahead with commercialiatio!, it will introduce

the new product into the market $e.g. 2unsilk hair care launched by 0nilever&.

4ecisions must be made concerning*

• Timing $e.g. if the economy is down, the company may delay the launch&,

• !here to launch the new product $in a single location, region, country or international

market&

• Market rollout $rollout could be in stages&

*8N8;IN; N)5-PRODUCT D)V)6OP*)NT

"ompanies must manage this process with a customer#centered, team#based and systematic

effort.

0' Customer-Ce!tered Ne+-Product Developme!t

;ew#product development mu!t be customer centered. t must not /ust rely on technical research

in 6K4 labs.

Customer-ce!tered !e+-product developme!t focuses on finding new ways to solve customer

problems and create more customer#satisfying experiences.

&' Team-(ased Ne+-Product Developme!t

0nder the !e.uential product development approach one company department works

individually to complete its stage of the process before passing the new product along to the next

department and stage. +his orderly, step#by#step process can help bring control to complex and

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risky pro/ects. (ut it also can be dangerously slow.

n order to get their new products to market more quickly, many companies use a team-#ased

!e+-product developme!t approach. 0nder this approach, company departments work closely

together in cross#functional teams, to save time and increase effectiveness. nstead of passing the

new product from department to department, the company assembles a team of people from

various departments that stay with the new product from start to finish.

t has some limitations. @or example, it sometimes creates more organizational tension and

confusion than the more orderly sequential approach. (ut, for rapidly changing industries with

increasingly shorter product life cycles, the benefits of faster and flexible product development is

greater than the risks. "ombining this approach with team#based new prodcut development can

get the right products to market faster.

3' %ystematic Ne+-Product Developme!t

An innovation management !&!tem can be used to collect, review, evaluate, and manage new#

product ideas, so that new ideas will be encouraged and these ideas will not be lost. t can be

web#based and encourage all company stakeholders to be involved in finding and developing

new products.

TE P2"$3CT FE C4CE (PC)

After launching the new product, management wants the product to en/oy a long and happy life.

Although the company doesnt expect its product to sell forever, the company wants to earn a

decent profit to cover all the effort and risk that went into launching it.

+he product moves through the four stages namely, introduction, growth, maturity and decline.

As the product moves through different stages of its life cycle, sales volume and profitability

change from stage to stage as shown in the figure below. +he firms emphasis on the marketing

mix elements also undergoes substantial changes from stage to stage.

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+he product life cycle has four distinct stages after the Product development , during product

development, sales are zero and the companys investment costs mount.

). ntroduction is a period of slow sales growth as the product is introduced in the market.

Profits are nonexistent in this stage because of the heavy expenses of product introduction.

. Gro-th is a period of rapid market acceptance and increasing profits.

1. 5aturit& is a period of slowdown in sales growth because the product has achieved

acceptance by most potential buyers. Profits level off or decline because of increased

marketing outlays to defend the product against competition.

5. $ecline is the period when sales fall off and profits drop.

I!troductio! %ta$e:

+he first stage of a product life cycle is the introduction or pioneering stage. 0nder this state the

fixed costs of marketing and production will be high, competition is almost non#existent, markets

are limited and the product is not known much. Prices are relatively high because of small scale

)

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of production, technological problems and heavy promotional expenditure. Profits are usually

non#existent as heavy expenses are incurred for introducing the product in the market.

*ar9eti!$ strate$ies*

a. Advertisement and publicity of the product.

b. Attractive gift to customers as an Rintroductory offer.

c. Attractive discount to dealers.

d. 7igher price of product to earn more profit during the initial stages.

;ro+th %ta$e:

+he sales as well as the profits increase rapidly as the product is accepted in the market. +he

promotional expenses remain high although they tend to fall as a ratio to sales volume. 9uite

often, smaller firms move into the market during the growth phase. -ith their flexibility they can

move very quickly and capture a valuable part of the market without the huge investment risks of

the development phase. n this stage, the competition increases and distribution is greatly

widened. +he marketing management focuses its attention on improving the market share by

deeper penetration into the existing markets and entry into new markets. 2ometimes ma/or

improvements also take place in the product during this stage.

*ar9eti!$ strate$ies at ;ro+th sta$e*

+he following strategies are followed during the growth stage*

a. +he product is advertised heavily to stimulate sale.

b. ;ew versions of the product are introduced to cater to the requirements of different types of

customers.

c. +he channels of distribution are strengthened so that the product is easily available wherever

required.

d. (rand image of the product is created through promotional activities.

e. Price of the product is competitive.

f. +here is greater emphasis on customer service.

*aturity %ta$e:

+he product enters into maturity stage as competition intensifies further and market gets

stabilized. +here is saturation in the market as there is no possibility of sales growth. +he product

has been accepted by most of the potential buyers. Profits come down because of stiff

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competition and marketing expenditures rise. +he prices are decreased because of competition

and innovations in technology. +his stage may last for a longer period as in the case of many

products with long#run demand characteristics. (ut sooner or later, demand of the product starts

declining as new products are introduced in the market. Product differentiation, identification of

new segments and product improvement are emphasized during this stage.

*ar9eti!$ strate$ies at *aturity sta$e*

n order to lengthen the period of maturity stage, the following strategies may be adopted*

a. Product may be differentiated from the competitive products and brand image may be

emphasized more.

b. +he warranty period may be extended.

c. 6eusable packaging may be introduced.

d. ;ew markets may be developed.

e. ;ew uses of the product may be developed.

Decli!e %ta$e:

+his stage is characterized by either the products gradual displacement by some new products or

change in consumer buying behavior. +he sales fall down sharply and the expenditure on

promotion has to be cut down drastically. +he decline may be rapid with the product soon

passing out of market or slow if new uses of the product are found. Profits are much smaller and

companies need to assess their investment policies, looking towards investing in newer and more

profitable product lines.

*ar9eti!$ strate$ies at Decli!e sta$e*

As far as possible, attempts should be made to avoid the decline stage. (ut if it has started, the

following strategies may be useful*

a. +he promotion of the product should be selective. -asteful advertising should be avoided.

b. +he product model may be abandoned and all the good features may be retained in the new

model of the product.

c. !conomical packaging should be introduced to revive the product.

d. +he manufacturer may seek merger with a strong firm.

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8DV8NT);)% O, PRODUCT 6I,) C<C6)

+he advantages of forecasting the life cycle of a product to a firm are as follows*

). -hen the P<" is predictable, the marketer must be cautious in taking advance steps before the

decline stage, by adopting product modification, pricing strategies, distinctive style, quality

change, etc.

. +he firm can prepare an effective product plan by knowing the P<" of a product.

1. +he marketer can find new uses of the product for the expansion of market during growth

stage and for extending the maturity stage.

5. +he firm can adopt latest technological changes to improve the product quality, features and

design.

DI%8DV8NT);) O, P6C

). 7ard to identify which stage of the P<" the product is in.

. 7ard to pinpoint when the product moves to the next stage.

1. 7ard to identify factors that affect products movement through stages.

5. 7ard to forecast sales level, length of each stage, and shape of P<".

8. 2trategy is both a cause and result of the P<".

UNIT-2

D)%I;NIN; 8ND *8N8;IN; %)RVIC)%

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-e can observe services wherever you imagine, like the government sector, with its courts,

employment services, hospitals, loan agencies, military services, police and fire departments,

postal service, regulatory agencies, and schools, is in the service business. +he private nonprofit

sector, with its museums, charities, churches, colleges, foundations, and hospitals, is in the

service business. A good part of the business sector also is in the service business. Many workers

in the manufacturing sector are really service providers.

2ome reports like the (ureau of <abor 2tatistics reports that the service#producing sector will

continue to be the dominant employment generator in the economy, adding about F million /obs

by F)5. !mployment in the service#producing sector is expected to increase by )BJ over the

FF5##F)5 period, whereas manufacturing employment is expected to decrease by 8J. n fact,

manufacturingCs share of total /obs is expected to decline from around )FJ in FF5 to DJ in

F)F.+hese numbers and others have led to a growing interest in the special problems of

marketing services.

De"i!itio! o" service:

A service is any act or performance one party can offer to another that is essentially intangible

and does not result in the ownership of anything. ts production may or may not be tied to a

physical product. ncreasingly, however, manufacturers, distributors, and retailers are providing

value#added services, or simply excellent customer service, to differentiate themselves.

Cate$ories o" %ervice *i4

+he service component can be a minor or a ma/or part of the total offering. +here are

distinguishing five categories of offerings* +he below continuum of product %service mix the

same.

). Pure ta!$i#le $ood.

+he offering consists primarily of a tangible good such as soap, toothpaste, or salt. ;o services

accompany the product.

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. Ta!$i#le $ood +ith accompa!yi!$ services.

+he offering consists of a tangible good accompanied by one or more services. +ypically, the

more technologically advanced the product, the greater the need for a broad range of high#quality

supporting services. 2ervices are often crucial for cars, computers, and cell phones.

+he offering consists of equal parts goods and services. @or example, people patronize

restaurants for both the food and its preparation.

5. *a?or %ervice +ith accompa!yi!$ mi!or $oods a!d services.

+he offering consists of a ma/or service along with additional services or supporting goods. @or

example, though the trip includes a few tangibles such as snacks and drinks, what airline

passengers buy is transportation. +his service requires a capital#intensive good#an airplane#for its

realization, but the primary item is a service.

8. Pure service.

+he offering consists primarily of a service. !xamples include babysitting, psychotherapy, and

massage.

+he range of service offerings makes it difficult to generalize without a few further distinctions.). 2ervices vary as to whether they are equipment based $automated car washes, vending

machines& or people based $window washing, accounting services&.

. 2ervice companies can choose among different processes to deliver their service.

6estaurants have developed cafeteria#style, fast#food, buffet, and candlelight service

formats.

1. 2ome services need the clientCs presence.

5. 2ervices may meet a personal need $personal services& or a business need $business

services&. 2ervice providers typically develop different marketing programs for personal

and business markets.

8. 2ervice providers differ in their ob/ectives $profit or nonprofit& and ownership $private or

public&. +hese two characteristics when crossed, produce four quite different types of

organizations.

"ustomers cannot /udge the technical quality of some services even after they have received

them. (ecause services are generally high in experience and credence qualities, there is more risk

in purchase. +his factor has several consequences* @irst, service consumers generally rely on

word of mouth rather than advertising. 2econd, they rely heavily on price, personnel, and

physical cues to /udge quality. +hird, they are highly loyal to service providers who satisfy them.

@ourth, because switching costs are high, consumer inertia can make it challenging to entice a

customer away from a competitor.

Disti!ctive Characteristics o" %ervices2ervices have four distinctive characteristics that greatly affect the design of marketing

programs* intangibility, inseparability, variability, and perishability.

)& INT8N;I(I6IT<

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0nlike physical products, services cannot be seen, tasted, felt, heard, or smelled before they are

bought. +o reduce uncertainty, buyers will look for evidence of quality by drawing inferences

from the place, people, equipment, communication material, symbols, and price. +herefore, the

service providerCs task is to Imanage the evidence,I to Itangibilize the intangible.I

2ervice companies can try to demonstrate their service quality through physical evidence and

presentation. 2ervice marketers must be able to transform intangible services into concrete

benefits and a well#defined experience.

& IN%)P8R8(I6IT<

-hereas physical goods are manufactured, put into inventory, distributed through multiple

resellers, and consumed later, services are typically produced and consumed simultaneously.

(ecause the client is also often present as the service is produced, provider#client interaction is a

special feature of services marketing.

n the case of entertainment and professional services, buyers are very interested in the specific

provider. -hen clients have strong provider preferences, the provider can raise its price to ration

its limited time.2everal strategies exist for getting around the limitations of inseparability. +he service provider

can learn to work with larger groups. +he service organization can train more service providers

and build up client confidence.

3 V8RI8(I6IT<

(ecause the quality of services depends on who provides them, when and where, and to whom,

services are highly variable.

2ervice buyers are aware of this variability and often talk to others before selecting a service

provider. +o reassure customers, some firms offer service guarantees that may reduce consumer

perceptions of risk. 7ere are three steps service firms can take to increase quality control.

a I!vest i! $ood hiri!$ a!d trai!i!$ procedures'

6ecruiting the right employees and providing them with excellent training is crucial, regardless

of whether employees are highly skilled professionals or low#skilled workers. (etter#trained

personnel exhibit six characteristics*

"ompetence, "ourtesy, "redibility, 6eliability, 6esponsiveness and "ommunication.

# %ta!dardie the service-per"orma!ce process throu$hout the or$a!iatio!'

A service blueprint can simultaneously map out the service process, the points of customer

contact, and the evidence of service from the customerCs point of view. 2ervice blueprints can behelpful in developing new service, supporting a Izero defectsI culture, and devising service

recovery strategies.

c *o!itor customer satis"actio!'

!mploy suggestion and complaint systems, customer surveys, and comparison shopping.

6ecognizing how customer needs may vary in different geographical areas can allow firms to

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develop region#specific programs to improve total customer satisfaction. @irms can also develop

customer information databases and systems to permit more personalized, customized service,

especially online.

1 P)RI%H8(I6lT<

2ervices cannot be stored, so their perishability can be a problem when demand fluctuates.4emand or yield management is critical#the right services must be available to the right

customers at the right places at the right times and right prices to maximize profitability.

2everal strategies can produce a better match between demand and supply in a service business.

O! the dema!d side:

). 4ifferential pricing will shift some demand from peak to off#peak periods

. ;on Peale demand can be cultivated.

1. "omplementary services can provide alternatives to waiting customers.5. 6eservation systems are a way to manage the demand level.

O! the supply side:

). Part#time employees can serve peak demand.. Peake#time efficiency routines can allow employees to perform only essential tasks

during peak periods.

1. ncreased consumer participation can be encouraged.

5. 2hared services can improve offerings.8. @acilities for future expansion can be a good investment.

%ervice *ar9eti!$ *i4

An expanded marketing mix for services was proposed by (ooms and (itner $)ED)&, consisting

of the 5 traditional elements%product, price, place, and promotion and three additional elements%

physical evidence, participants, and process. +hese additional 1 variables beyond the traditional 5

Ps distinguish Rcustomer service for service firms from that of manufacturing firms.

Physical )vide!ce

Physical !vidence such as infrastructure, interior, decor, environmental design, business card, etc

that establishes firmCs image and influences customerCs expectations. +angible clues help

customer /udging the quality of service before service usage or purchase. (efore service usage

the service is known by the tangible elements that surrounds it. n product marketing quality of

product is /udged by the product itself.

People:

Participants in service environment also provides clues about what the customer should

expect. +here is more variability among service outcomes in labour#intensive services than in

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machine#dominated service delivery' bank customers who use human tellers will experience far

more service variability than those using automatic teller machines. +raining the personnel

adequately is a ma/or factor influencing the provision of quality service. 7ence, providing

customer service in a service industry depends not only on recognising customer desires and

establishing appropriate standards, but also on maintaining a workforce of people both willing

and able to perform at specified levels.

Process

+he how of service delivery is called the Rprocess or the Rfunctional quality. +he attitudes and

behaviour of service personnel influence perceived service performance. +hese behaviours are

usually associated with what is called the Rprocess. @or example, when things go wrong in a

service encounter, employees frequently attempt to sooth disgruntled customers by apologising,

offering to compensate, and explaining why the service delivery failure occurred. Any of these

behaviours may influence customer attributions about the firms responsibility for the failure and

the likelihood of it occurring again

= Ps o" the %ervice *ar9eti!$ *i4

+he customer service for a service firm cannot be explicitly divided into pre#transaction and

post#transaction elements, because production and consumption of a service occurs at the same

time. +he service provided can prove effective in terms of satisfying the customer, only if the gap

between expected service and perceived service is bridged. +he wider this gap%the more the

number of disappointed customers' and disappointed customers may cause the image of the firm

to deteriorate.

0' Product@%ervice

Most services are intangible because they are performances rather than ob/ects, precise

manufacturing specifications concerning uniform quality can rarely be set. (ecause of this

intangibility, the firm may find it difficult to understand how consumers perceive their services.

@or developing a good customer service, the service marketer should stress on tangible cues and

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also create a strong organisational image. +his can be done by communicating clearly to the

customers the features of the service being provided.

&' Price

(ecause of the intangible nature of the service%price becomes a pivotal quality indicator in

situations where other information is not available. t is essential, therefore that the service firmengage in competitive pricing. (eing an important tangible cue, price of the service is an area in

which the service marketer can concentrate to get a competitive edge. n the case of pure

services, as in the present context, like medical services or legal services price is an important

factor because it is a basis for the customer to make a final choice among several competing

service organizations.

3' Place

(ecause services are performances that cannot be stored, service businesses frequently find it

difficult to synchronize supply and demand. Also, services cannot be inventoried for the same

reason. "onsequently the service firms must make simultaneous ad/ustments in demand andcapacity to achieve a closer match between the two. Also, the firm could use multisite

locations to make the service more accessible to the users. f the service is located in a remote

area, regardless of the other advantages of the service, customers would not be motivated to

use the service.

1' Promotio!

+he service marketer should constantly simulate word#of#mouth communications apart from

using regular advertising. f customers in an existing market, for some reason or another have an

image of the firm which does not correspond with reality, traditional marketing activities can be

expected to be an effective way of communicating the real image to the market. "ommunicationincludes informing the customers in a language they can understand. !specially in services post#

purchase communication is very important, because retaining existing customers is as important,

as or even more important than attracting potential customers.

2' Physical )vide!ce

Physical evidence, as already discussed under the services marketing mix, like the environmental

decor and design significantly influence the customers expectations of the service. 2ince

services cannot be readily displayed, firms should create a conducive environment that help the

customers to develop a positive perception of the service. @or example, people would not like to

wait for a medical service or a legal service, if the atmosphere of the place they are made to waitis unpleasant. "ustomers can be put off by a mere change in the layout of the service facility or

even the absence of clear signboards.

' People

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Most services are highly labour intensive' the behaviour of the personnel providing the service

and the customers involved in production $due to the inseparable nature of services&, have an

effect on providing efficient customer service. +o achieve customer#oriented personnel, the

organisation needs to recruit and select the right people, and offer an appropriate package of

employment, in order to enhance their skills and encourage them. (ecause of the constant

interaction between the employees involved in the service, and the customers%there is a mutualdependence between the two. f the customers are dissatisfied, employees experience discomfort

working with unhappy customers, and customers are unhappy because the employees were

not trained in customer satisfaction. +he extent of this mutual dependence influences the

customers perception of the service.

=' Process

n the Rhow of the service delivery is extremely important because the service and the seller are

inseparable. +he functional quality, or the Rhow of service delivery is especially important to

service industries, as it is difficult to differentiate the technical quality, or the Rwhat of service

delivery. Previous experience with a service also influences the expectations of the customer. f the customer has had a bad experience with the

2ervice on any previous occasion, it will influence his or her future perceptions of the service. t

is essential to train the front line employees, whose actions and behaviour influence the

customers opinions of the organisation and the actual service provided.

*8RA)TIN; %TR8T);I)% ,OR %)RVIC) ,IR*%

At one time, service firms lagged behind manufacturing firms in their use of marketing because

they were small, or they were professional businesses that did not use marketing, they faced largedemand or little competition. +his has certainly changed.

8 %HI,TIN; CU%TO*)R R)68TION%HIP:

;ot all companies, however, have invested in providing superior service, at least not to all

customers. "ustomers complain about inaccurate information' unresponsive, rude, or poorly

trained personnel' and long wait times. !ven worse, many customers find their complaints never

actually successfull reach a live human being because of slow or faulty phone or online customer

service.

t doesnCt have to be that way.

!#mail response must be implemented properly to be effective. 3ne expert believes companies

should*

$)& 2end an automated reply to tell customers when a more complete answer will arrive $ideally

within 5 hours&'

$& ensure the sub/ect line always contains the company name'

1)

8/17/2019 marktg-units-3,4 &5


$1& Make the message easy to scan for relevant information' and

$5& :ive customers an easy way to respond with follow#up questions.

PRO,IT TI)R%

@irms have decided to raise fees and lower service to those customers who barely pay their wayand to coddle big spenders to retain their patronage as long as possible.

"ustomers in high#profit tiers get special discounts, promotional offers, and lots of special

service' customers in lower#profit tiers may get more fees, stripped#down service, and voice

messages to process their inquiries.

CU%TO*)R )*PO5)R*)NT

"ustomers are becoming more sophisticated about buying product#support services and are

pressing for Iservices unbundling.I +hey may want separate prices for each service element and

the right to select the elements they want. "ustomers also increasingly dislike having to deal with

a multitude of service providers handling different types of equipment.

Most important, the nternet has empowered customers by letting them vent their rage about bad

service#or reward good service#and have their comments beamed around the world with a mouse

click. ;inety percent of angry customers reported that they shared their story with a friend. ;ow,

they can share their stories with strangers via the nternet, or Iword of mouth on steroidsI as

some says.

Most companies respond quickly, some within an hour. More important than simply responding

to a disgruntled customer, however, is preventing dissatisfaction from occurring in the future.

+hat may mean simply taking the time to nurture customer relationships and give customers

attention from a real person.

CO-PRODUCTION

+he reality is that customers do not merely purchase and use services' they play an active role in

the delivery of that service every step of the way. +heir words and actions affect the quality of

their service experiences and those of others, and the productivity of frontline employees. 3ne

study estimated that one#third of all service problems are caused by the customer. -ith an

increasing shift to self#service technologies, this percentage can be expected to rise. Preventing

service failures from ever happening to begin with is crucial, as service recovery is always

challenging. 3ne of the biggest problems is attribution#customers will often feel that the firm is

at fault or, even if not, that it is still responsible for righting any wrongs.0nfortunately, although many firms have well#designed and executed procedures to deal with

their own failures, they find that managing customer failures is much more difficult.

1

8/17/2019 marktg-units-3,4 &5


*8N8;IN; %)RVIC) BU86IT<

+he service quality of a firm is tested at each service encounter. f service personnel are bored,

cannot answer simple questions, or are visiting with each other while customers are waiting,

customers will think twice about doing business again with that seller.

Customer )4pectatio!s

"ustomers form service expectations from many sources, such as past experiences, word of

mouth, and advertising. n general, customers compare the perceived service with the expected

service. f the perceived service falls below the expected service, customers are disappointed.

2uccessful companies add benefits to their offering that not only satisfy customers but surprise

and delight them. 4elighting customers is a matter of exceeding expectations.

+he service#quality model in figure below highlights the main requirements for delivering high

service quality.

t identifies five gaps that cause unsuccessful delivery*

1 Gap %et-een con!umer expectation and management perception :Management does not

always correctly perceive what customers want.

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8/17/2019 marktg-units-3,4 &5


6 Gap %et-een management perception and !ervice'.ualit& !pecification: Management might

correctly perceive customersC wants but not set a performance standard.

7 Gap %et-een !ervice'.ualit& !pecification! and !ervice deliver&: Personnel might poorly

trained, or incapable offer unwilling to meet the standard' or they may be held conflicting

standards, such as taking time to listen to customers and serving them faster.8 Gap %et-een !ervice deliver& and external communication!: "onsumer expectation is

affected by statements made by company representatives and ads.

9 Gap %et-een perceived !ervice and expected !ervice:+his gap occurs when the consumer

misperceives the service quality the physician may keep visiting the patient to show car but the

patient may interpret this as an indication that something really is wrong.

D)T)R*IN8NT% O, %)RVIC) BU86IT<

(ased on this service#quality model, researchers identified the following five determinants of service quality, in order of importance*

. Relia#ility: +he ability to perform the promised service dependably and accurately

. Respo!sive!ess: +he willingness to help customers and to provide prompt service.

. 8ssura!ce: +he knowledge and courtesy of employees and their ability to convey them and

confidence.

=. )mpathy: +he provision of caring, individualized attention to customers.

=. Ta!$i#les* +he appearance of physical facilities, equipment, personnel, and communicationmaterials.

()%T PR8CTIC)% O, %)RVIC)-BU86IT< *8N8;)*)NT

=arious studies have shown that well#managed service companies share the following common

practices* a strategic concept, a history of top#management commitment to quality high

standards, self#service technologies, systems for monitoring service performance an customer

complaints, and an emphasis on employee satisfaction.

%TR8T);IC CONC)PT

+op service companies are Icustomer obsessed.I +hey have a clear sense of their target

customers and their needs. +hey have developed a distinctive strategy for satisfying these needs.

TOP *8N8;)*)NT CO**IT*)NT

Many companies have a thorough commitment to service quality. +heir managements look not

only at financial performance on a monthly basis, but also at service performance.

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HI;H %T8ND8RD%

+he best service providers set high service#quality standards. +he standards must be set

appropriately high. -e can distinguish between companies offering Imerely goodI service and

those offering IbreakthroughI service, aimed at being )FFJ defect#free.

A service company can differentiate itself by designing a better and faster delivery system. +hereare three levels of differentiation. +he first is reliability* 2ome suppliers are more reliable in their

on#time delivery, order completeness, and order#cycle time. +he second is resilience* 2ome

suppliers are better at handling emergencies, product recalls, and answering inquiries. +he third

is innovativeness* 2ome suppliers create better information systems, introduce bar coding and

mixed pallets, and in other ways help the customer.

%)6,%)RVIC) T)CHNO6O;I)% %%Ts

"onsumers value convenience in services. Many person#to#person service interactions are being

replaced by self#service technologies. +o the traditional vending machines we can add

Automated +eller Machines $A+Ms&, self#pumping at gas stations, self#checkout at hotels, and avariety of activities on the nternet, such as ticket purchasing, investment trading, and

customization of products.

;ot all 22+s improve service quality, but they can make service transactions more accurate,

convenient, and faster. 3bviously they can also reduce costs. !very company needs to think

about improving its service using 22+s.

2ome companies have found that the biggest obstacle is not the technology itself, but convincing

customers to use it, especially for the first time. "ustomers must have a clear sense of their roles

in the 22+ process, must see a clear benefit to 22+, and must feel they have the ability to actually

use it.

*ONITORIN; %<%T)*%

+op firms audit service performance, both their own and competitorsC, on a regular basis. +hey

collect voice of the customer $=3"& measurements to probe customer satisfiers and dissatisfiers.

+hey use comparison shopping, ghost shopping, customer surveys, suggestion and complaint

forms, service#audit teams, and letters to the president.

-e can /udge services on customer importance and company performance. mportance#

performance analysis rates the various elements of the service bundle and identifies what actions

are required.

Perhaps the company should spend less on sending out maintenance notices and use the savings

to improve performance on important elements. Management can enhance the analysis by

checking on the competitorsC performance levels on each element.

%8TI%,<IN; CU%TO*)R CO*P68INT%

!very complaint is a gift if handled well. "ompanies that encourage disappointed customers to

complain and also empower employees to remedy the situation on the spot#have been shown to

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achieve higher revenues and greater profits than companies that do not have a systematic

approach for addressing service failures.

:etting frontline employees to adopt extra#role behaviors and to advocate the interests and image

of the firm to consumers, as well as take initiative and engage in conscientious behavior in

dealing with customers can be a critical asset in handling complaints.%8TI%,<lN; )*P6O<))% 8% 5)66 8% CU%TO*)R%

!xcellent service companies know that positive employee attitudes will promote stronger

customer loyalty. nstilling a strong customer orientation in employees can also increase their /ob

satisfaction and commitment, especially if theyCre in service settings that allow for a high degree

of customer#contact time. !mployees thrive in customer#contact positions when they have an

internal drive to $)& pamper customers, $& accurately read customer needs, $1& develop a

personal relationship with customers, and $5& deliver quality service to solve customersC

problems.

:iven the importance of positive employee attitudes to customer satisfaction, service companiesmust attract the best employees they can find. +hey need to market a career rather than /ust a /ob.

+hey must design a sound training program and provide support and rewards for good

performance. +hey can use the intranet, internal newsletters, daily reminders, and employee

roundtables to reinforce customer#centered attitudes. @inally, they must audit employee /ob

satisfaction regularly.

D)V)6OPIN; (R8ND %TR8T);I)% ,OR %)RVIC)%

4eveloping brand strategies for a service brand requires special attention to choosing brandelements, establishing image dimensions, and devising the branding strategy.

CHOO%IN; (R8NDIN; )6)*)NT%

(ecause services are intangible, and because customers often make decisions and arrangements

about their away from the actual service location itself $at home or at work&, brand recall

becomes critical important. 2o an easy#to#remember brand name is critical.

3ther brand elements logos, symbols characters, and slogans can also Ipick up the slackI and

complement the brand name to build brand awareness and brand image. +hese brand elements

often attempt to make the service and some of its key benefits more tangible, concrete and real.

(ecause a physical product does not exist, the physical facilities of the service provider its

primary and secondary signage, environmental design and reception area, apparel, collateral

material, and so on are especially important. All aspects of the service delivery process can be

branded.

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)%T8(6I%HIN; I*8;) DI*)N%ION%

:iven the human nature of services, itCs no surprise that brand personality is an important image

dimension for services.

2ervice firms can also design marketing communication and information programs so that

consumers learn more about the brand than the information they get from service encounters

alone.

D)VI%IN; (R8NDIN; %TR8T);<

@inally, services also must consider developing a brand hierarchy and brand portfolio that

permits positioning and targeting of different market segments. Marketers can brand classes of

service vertically on the basis of price and quality. =ertical extensions often require sub#branding

strategies that combine the corporate name with an individual brand name or modifier.

*8N8;IN; %)RVIC) (R8ND%

;o less important than service industries are product#based industries that must provide a service

bundle. Manufacturers of equipment#small appliances, office machines, tractors, mainframes,

airplanes all must provide product#support services. Product#support service is becoming a ma/or

battleground for competitive advantage.

Ide!ti"yi!$ a!d %atis"yi!$ Customer Needs

"ustomers have three specific worries*

). +hey worry about reliability and failure frequency. A farmer may tolerate a combine that

will break down once a year, but not two or three times a year.

. +hey worry about downtime. +he longer the downtime, the higher the cost. +he customer

counts on the sellerCs service dependability#the sellerCs ability to fix the machine quickly,

or at least provide a loaner.1. +hey worry about out#of#pocket costs. 7ow much does the customer have to spend on

regular maintenance and repair costsO

+o provide the best support, a manufacturer must identify the services customers value most and

their relative importance. n the case of expensive equipment, manufacturers offer facilitating

services such as installation, staff training, maintenance and repair services, and financing. +heymay also add value#augmenting services that extend beyond the functioning and performance of

the product itself.

A manufacturer can offer, and charge for, product#support services in different ways. f the

customer wants additional services, it can pay extra or increase its annual purchases to a higher

level, in which case additional services are included. Many companies offer service contracts

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$also called extended warranties&, in which sellers agree to provide free maintenance and repair

services for a specified period of time at a specified contract price.

PO%T-%86) %)RVIC) %TR8T);<

+he quality of customer#service departments varies greatly. At one extreme are departments that

simply transfer customer calls to the appropriate person or department for action, with little

follow#up. At the other extreme are departments eager to receive customer requests, suggestions,

and even complaints and handle them expeditiously.

CU%TO*)R-%)RVIC) )VO6UTION

Manufacturers usually start out by running their own parts#and#service departments. +hey want

to stay close to the equipment and know its problems. +hey also find it expensive and time

consuming to train others, and discover that they can make good money running the parts#and#

service business, especially if they are the only supplier of the needed parts and can charge a premium price. n fact, many equipment manufacturers price their equipment low and

compensate by charging high prices for parts and service.

3ver time, manufacturers switch more maintenance and repair service to authorized distributors

and dealers. +hese intermediaries are closer to customers, operate in more locations, and can

offer quicker service. 2till later, independent service firms emerge and offer a lower price or

faster service.

TH) CU%TO*)R %)RVIC) I*P)R8TIV)

"ustomer#service choices are increasing rapidly, however, and equipment manufacturers

increasingly must figure out how to make money on their equipment, independent of servicecontracts. +he increase in disposable or never#fail equipment makes customers less inclined to

pay J to )FJ of the purchase price every year for a service. A company with several hundred

personal computers, printers, and related equipment might find it cheaper to have its own service

personnel on#site.

Documents

marktg-units-3,4 &5