Product and Distribution Strategies

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Chapter 13 Product and Distribution Strategies
Learning Goals
List the stages of the new-product development
process. Explain how firms identify their
products. Outline and briefly describe each of
the major components of an effective distribution
strategy. Identify the various categories of
distribution channels and discus the factors
that influence channel selection.
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Explain marketings definition of a product and
list the components of the product
strategy. Describe the classification system for
consumer and business goods and
services. Distinguish between a product mix and a
product line. Briefly describe each of the four
stages of the product life cycle.
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PRODUCT STRATEGY Product Bundle of physical,
service, and symbolic attributes designed to
satisfy buyers wants. Classifying Goods and
Services Classifying Consumer Goods and Services
Convenience products are items the consumer
seeks to purchase frequently, immediately, and
with little effort. Shopping products are
those typically purchased only after the buyer
has compared competing products in competing
stores. Specialty products are those that a
purchaser is willing to make a special effort to
obtain.
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Classifying Business Goods  Five basic
categories  Installations Major capital items,
such as new factories, heavy equipment and
machinery, and custom-made equipment.
Accessory equipment Includes less expensive and
shorter-lived capital items than installations
and involve fewer decision makers. Component
parts and materials Become part of a final
product.  Raw materials Farm and natural
products used in producing other final products.
 Supplies Expense items used in a firms daily
operation that do not become part of the final
product.
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Classifying Business Services  Classified as
either B2C or B2B  Like goods, can also be
convenience, shopping, or specialty products
depending on the buying patterns of customers.
Unlike goods, they are intangible, perishable,
difficult to standardize. From buyers
perspective, the service provider is the service.
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Marketing Strategy Implications In B2B, greater
emphasis on personal selling for installations
and many component parts.  May also involve
customers in new-product development.  Advertisin
g more commonly used to sell supplies and
accessory equipment.  Also a greater emphasis on
competitive pricing strategies. Product Lines
and Product Mix Product line Group of related
products that are physically similar or are
intended for the same market. Product mix A
companys assortment of product lines and
individual offerings. Ongoing assessment to
ensure company growth, to satisfy changing
consumer needs and wants, and to adjust to
competitors offerings.
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PRODUCT LIFE CYCLE Product life Four basic
stagesintroduction, growth, maturity, and
declinethrough which a successful product
progresses.
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Stages of the Product Life Cycle  Introduction
stage Firm tries to promote demand for its new
offering, inform the market about it, give free
samples to entice consumers to make a trial
purchase, and explain its features, uses, and
benefits.  Losses are common due to relatively
low sales and high costs of promotions,
establishing distribution channels, and training
the sales force about the new products
advantages.  Expenditures necessary for later
profit.  Growth stage Sales climb quickly as
new customers join early users who now are
repurchasing the item.  Company begins to earn
profits on the new product.  Competitors enter
the field with similar offerings, and price
competition appears.
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Maturity stage Industry sales eventually reach
a saturation level at which further expansion is
difficult. Competition intensifies,
increasing the availability of the product.
 Firms concentrate on capturing competitors
customers, often dropping prices to further the
appeal. Firms promote mature products
aggressively to protect their market share and to
distinguish their products from those of
competitors. Decline stage Sales fall and
profits decline.  May become losses as further
price-cutting occurs in the reduced overall
market for the item.  Usually is caused by a
product innovation or a shift in consumer
preferences.
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Marketing Strategy Implications of the Product
Life Cycle  Marketers objective is to extend
the life cycle as long as product is
profitable. Common strategies include
 Increasing customers frequency of
use  Adding customers  Example Zippo
Manufacturing marketing new uses for its
products.  Finding new uses for
product  Example Arm Hammer marketing
baking soda in toothpaste and other products.
Changing package sizes, labels, and product
designs  Example Sony PlayStation Portable
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Stages in New-Product Development  Expensive,
time-consuming, and risky.  Only about one-third
of new products become success stories.  Each
step requires a go or no-go decision.
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 Stage 1 Generating ideas for new offerings.
 Ideas come from many sources, including
customer suggestions, suppliers, employees, and
competitive products. The most successful
ideas are directly related to satisfying customer
needs. Stage 2 Screening Eliminates ideas
that do not mesh with overall company objectives
or cannot be developed given the companys
resources.  Stage 3 Concept development and
business analysis phase  Further screening
occurs and assessment of potential sales,
profits, growth rate, and competitive strengths
and whether it fits with the companys product,
distribution, and promotional resources.
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 Stage 4 Product development Functioning
prototypes or detailed descriptions of the
product may be created.  Designs are joint
responsibility of the firms development staff
and its marketers Stage 5 Test marketing Test
marketing Introduction of a new product supported
by a complete marketing campaign to a selected
city or TV coverage area to examine both consumer
responses to the new offering and the marketing
effort used to sup- port it. Stage 6
Commercialization  Product is made generally
available in the marketplace.  Firms
distribution, promotion, and pricing strategies
are all geared to support the new product
offerings.
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 Success is not guaranteed until product finds
customer acceptance.
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PRODUCT IDENTIFICATION Brand Name, term, sign,
symbol, design, or some combination that
identifies the products of one firm and
differentiates them from competitors
offerings.  Brand name Part of the brand
consisting of words or letters included in a name
used to identify and distinguish the firms
offerings from those of competitors.  Trademark
Brand that has been given legal protection
granted solely to the brands owner.  Includes
design logos, slogans, packaging elements, and
product features such as color and shape. Selling
an Effective Brand Name Good brands are easy to
pronounce, recognize, and remember.  Should be
appropriate for the cultural context, reflect the
right image, and be legally protectable.
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Brand Categories Manufacturers brand Brand
offered and promoted by a manufacturer
Examples Tide, Jockey, Gatorade, Swatch, and
Reebok.  Private or store brand Brand that is
not linked to the manufacturer but instead
carries a wholesalers or retailers label.
Examples Sears DieHard batteries and Wal-Marts
OlRoy dog food Members Mark brand  Family
branding strategy A single brand name used for
several related products. Examples
KitchenAid, Johnson Johnson, Hewlett-Packard,
and Dole  Individual branding strategy Giving
each product within a line a different name.
Examples Procter Gamble products Tide, Cheer,
and Dash.
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Brand Loyalty and Brand Equity Brand Loyalty
Measured in three stages. Brand recognition
Consumer is aware of the brand but does not have
a preference for it over other brands.  Brand
preference Consumer chooses one firms brand
over a competitors.  Brand insistence
Consumer will seek out preferred brand and
accept no substitute for it. Web sites can help
build brand loyalty.  Brand loyalty becoming
more important in B2B market.
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Brand Equity Brand equity Added value that a
respected and successful name gives to a
product. Brand awareness Product is the first
one that comes to mind when a product category is
mentioned. Large companies have typically
assigned the task of managing a brands marketing
strategies to a brand manager or product
manager.  Category manager Oversees an entire
group of products and have profit responsibility
for their product group.  Assisted by
associates, usually called analysts. Category
advisor Vendor that is designated by the business
customer as the major supplier to deal with all
other suppliers for a special purchase and to
present the entire pack- age to the business
buyer.
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Packages and Labels Important in product
identification and play an important role in a
firms overall product strategy.  Choosing right
package is especially important in international
marketing.  Labeling plays an important
role.  Must meet legal requirements of all
countries in which product is sold. Universal
Product Code Bar code read by optical scanner.
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DISTRIBUTION STRATEGY Distribution channel Path
through which productsand legal ownership of
themflow from producer to consumers or business
users. Physical distribution Actual movement of
products from producer to consumers or business
users.
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Distribution Channels
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Direct Distribution  Direct contact between
producer and customer. Most common in B2B
markets.  Often found in the marketing of
relatively expensive, complex products that may
require demonstrations.  Internet is helping
companies distribute directly to consumer
market. Distribution Channels Using Marketing
Intermediaries
 Producers distribute products through
wholesalers and retailers. Often used for
products that sell inexpensively to thousands of
consumers in widely scattered locations.  Often
lowers costs of goods to consumers by creating
market utility.
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WHOLESALING Wholesaler Distribution channel
member that sells primarily to retailers, other
wholesalers, or business user. U.S. has more
than 450,000 wholesalers. Manufacturer-Owned
Wholesaling Intermediaries  Owned by the
manufacturer of the good. Two main
types  Sales branch which stocks products and
fills orders from inventories.  Sales office
which takes orders but does not stock the
product.
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Independent Wholesaling Intermediaries  Represent
s a number of different manufacturers. Merchant
wholesalers Independently owned wholesaling
intermediaries that take title to the goods they
handle.  Full-function merchant wholesaler
Provides range of services for retailers or
industrial buyers, such as warehousing, shipping,
and even financing. Limited-function merchant
wholesaler Takes legal title to the products it
handles, but it provides fewer services, such as
warehouse products but not offering delivery
service.  Agents and brokers Never take title of
the goods they handle, working mainly to bring
buyers and sellers together.  Manufacturers
reps Act as independent sales forces by
representing the manufacturers of related but
noncompeting products.
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Retailer-Owned Cooperatives and Buying
Offices  Set up to reduce costs or to provide
some special service that is not readily
available in the marketplace.   Buying group
Negotiates bulk sales with manufacturers to
achieve cost savings through quantity purchases.
 Cooperative Retailers share functions such as
shipping or warehousing.
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RETAILING Retailer Channel member that sells
goods and services to individuals for their own
use rather than for resale.  Final link of the
distribution channel.  Two types Store and
nonstore.
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The Wheel of Retailing  New retailers enter the
market by offering lower prices made possible
through reductions in service.  New entries
gradually add services as they grow and
ultimately become targets for new retailers.
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How Retailers Compete  Retailers must choose
merchandising, customer service, pricing, and
location strategies that will attract customers
in their target market segments. Identifying a
Target Market  Evaluating the size and profit
potential of the chosen market segment and the
current level of competition for the segments
business. Selecting a Product Strategy  Determini
ng the right mix of product categories and
product lines. Selecting a Customer Service
Strategy  Determining the right level of
customer service to maximize sales and
profits. Selecting a Pricing Strategy  Based on
the costs of purchasing products from other
channel members and offering services to
customers.  Can play a major role in customer
perception.
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Choosing a Location  Depends on the retailers
size, financial resources, product offerings,
competition, and, of course, its target
market.  Planned shopping center Group of retail
stores planned, coordinated, and marketed as a
unit to shoppers in a geographical trade
area.  Growing shift to to smaller strip
centers, name-brand outlet centers, and lifestyle
centers, open-air complexes containing retailers
that often focus on specific shopper segments and
product interests. Building a Promotional
Strategy  Advertising and other promotions to
stimulate demand and to provide
information. Creating a Store Atmosphere  Store
atmospherics Physical characteristics of a store
and its amenities  Should align closely with
merchandising, pricing, and promotion strategies.
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DISTRIBUTION CHANNEL DECISIONS AND
LOGISTICS  Firms face two major decisions about
distribution channels  What specific channel
will it use?  What will be the level of
distribution intensity? Selecting Distribution
Channels Market factors greatly affect
decision. Generally  Complex, expensive,
custom-made, or perishable products move through
shorter distribution channels involving fewor
nointermediaries.  Standardized products or
items with low unit values usually pass through
relatively long distribution channels.  Start-up
companies often use direct channels because they
cant persuade intermediaries to carry their
products.
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Selecting Distribution Intensity  Distribution
intensity The number of intermediaries or outlets
through which a manufacturer distributes its
goods.  Intensive distribution Firms products
in nearly every available outlet.  Generally
suits low-priced convenience goods such as milk,
news- papers, and soft drinks.  Requires
cooperation of many intermediaries.  Selective
distribution Limited number of retailers to
distribute its product lines.  Can reduce
total marketing costs and establish strong
working relationships within the channel.
Exclusive distribution Limits market coverage in
a specific geographical region.  Retailers are
carefully selected to enhance the products image
to ensure that well-trained personnel will
contribute to customer satisfaction.
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Logistics and Physical Distribution Supply chain
Complete sequence of suppliers that contribute to
creating a good or service and delivering it to
business users and final consumers. Logistics
Activities involved in controlling the flow of
goods, services, and information among members of
the supply chain. Physical Distribution
Activities aimed at efficiently moving finished
goods from the production line to the consumer or
business buyer.
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Customer Service  A vital component of both
product and distribution strategies.  Customer
service standards Measure the quality of service
a firm provides for its customers.  Warranties
Firms promises to repair a defective product,
refund money paid, or replace a product if it
proves unsatisfactory. Internet retailers have
worked to humanize their customer interactions
and deal with complaints.