Module 2: Product in Theory and Practice

“People don't buy products; they buy the expectation of benefits.”

Introduction:

In everyday life we use the word ‘product’ freely as a noun which describes ‘a thing or
substance produced by natural process or manufacture’ with its associated connotations of
‘artefact, good(s), produce, commodity, output, merchandise, offering, work’. Through
common usage ‘product has come to embrace all kinds of offering including services despite
the fact that services possess a number of distinctive features which often discriminate strongly
between physical product and non-physical services, especially in terms of marketing.

Chapter Objectives:
 Understand the difference between effective, latent and potential demand and the factors
which shape an influence them.
 Be familiar with the different approaches to the classification of the products and the criteria
used.
 Have been introduced to the concept of branding.
 Appreciate some features used to distinguish physical products from services.
 Know the schemes for classifying new products.
 Be familiar with the Buy-grid approach to analyzing buying decisions.

WHAT IS PRODUCT?

Basically the product is the object of the exchange process, the thing which the producer or
supplier offers to a potential customer in exchange for something else which the supplier
perceives as of equivalent or greater value. Conventionally, this ‘something else’ is money or a
title to money which is freely exchangeable as a known and understood store of value. It
follows that for an exchange to occur someone must have a demand for the object in question
and be willing to exchange other assets or objects, which are seen as possessing value.

DEMAND

In economics, demand is the desire to own anything, the ability to pay for it, and the willingness
to pay. Basically Demand refers to how much (quantity) of a product or service is desired by
buyers. The quantity demanded is the amount of a product people are willing to buy at a
certain price; the relationship between price and quantity demanded is known as the demand
relationship. The term demand signifies the ability or the willingness to buy a particular
commodity at a given point of time. To begin understanding what demand is, it is useful to
recognize three broad categories of demand:

 Effective demand – is the kind of demand in which economists are primarily interested
and maybe defined ad “demand backed up by purchasing power”.
 Latent demand – may be thought of as one which the consumer is unable to satisfy,
usually for lack or purchasing power.
 Potential demand – may be said to exist where a consumer possesses purchasing power
but is not currently buying.

General demand influencers

Three broad factors have a general influence of demand:

 Demographics – is the statistical characteristics of population. Ultimately, demand

reflects the aggregated needs and wants of individuals. It follows that the population is
growing so will demand and vice versa.
 Buyer behavior - An important part of the marketing process is to understand why a
customer or buyer makes a purchase. Without such an understanding, businesses find it
hard to respond to the customer’s needs and wants.
  Availability (supply and channels of distribution) – have more to do with achieving some
kind of equilibrium between demand and supply than in shaping long term demand
changes.

Product Classification
As a first step towards refining our consideration of demand it will be helpful to develop
some kind of classificatory system for products as this should enable us to make
generalizations about a particular categories or kinds or products.

 Convenience goods: Those consumer goods which the customer purchases frequently,
immediately, and with minimum of effort, e.g. chocolate, candies, pens
 Shopping goods: Those consumer goods which the customer in the process of selection
and purchase characteristically compares on such bases as suitability, quality, price and
style, e.g. cosmetics, TVs, PCs, hairstyle.
 Specialty goods: Those consumer goods on which a significant group of buyers are
habitually willing to make a special purchasing effort, e.g. house, car, jewelry.

OBJECTIVE VERSUS SUBJECTIVE SELECTION CRITERIA

If products and services are defined in terms of the buyer’s behavior towards them, it
will be useful here to consider the factors that determine that behavior. Most models of buyer
behavior implicitly recognize two kinds of factors – objective and subjective. Objective factors
may or may not be tangible, but they must be quantifiable and measurable and are present in
the object itself. By contrast, subjective factors are intangible and are influenced by attitudes,
beliefs, experience and associations which the decision maker holds towards the object and
feels to be relevant in forming judgment about the level of satisfaction to be gained from its
consumption.

ARE SERVICES DIFFERENT?

Although products and services are but two faces of the same coin and that the principles and
practices of marketing are equally applicable to both, still, there are characteristics distinct to
services alone. These are:

 Intangibility – is probably the single most important factors in distinguishing services

from goods. While it is possible to describe the nature and performance of physical
products using objective criteria, this is only possible to a limited extent in the case of
services. The question now is “how potential users evaluate services”? One answer is of
course to make at least some aspects of the service tangible, e.g. impressive buildings
and office spaces, dependable customer care representative etc.
 Inseparability – the provision of the service is inseparable from the provider and
requires the involvement of the customer for the service to be created and consumed. A
service requires some degree of interaction with the customer for it to be a service. The
interaction may be brief, but it must exist for the service to be complete. Where face-to-
face service is required, the service facility must be designed to handle the customer's
presence. Goods, on the other hand, are generally produced in a facility separate from
the customer. They can be made according to a production schedule that is efficient for
the company.
 Heterogeneity - with the big exception of hard technologies such as ATMs and
information technologies such as answering machines and automated Internet
exchanges, services are inherently heterogeneous—they vary from day to day and even
hour by hour as a function of the attitudes of the customer and the servers. Thus, even
highly scripted work such as found in call centers can produce unpredictable outcomes.
Goods, in contrast, can be produced to meet very tight specifications day-in and day-out
with essentially zero variability. In those cases where a defective good is produced, it
can be reworked or scrapped.
  Perishable and time dependent - services as a process are perishable and time
dependent, and unlike goods, they can't be stored. You cannot “come back last week”
for an air flight or a day on campus.

To sum up, the distinction between products and services will be helpful if it used to develop
enhanced marketing mixes for both; it will be harmful if it hinders the transfer of ideas and
practices between product dominant and service dominant entities.

NEW SERVICE DEVELOPMENT

Compared with physical products many new service offerings require limited new investment
leading to the development of the proliferation of variants. Subsequently, this enlarged choice
can lead to confusion and a lack of meaningful differentiation with the result that many are
unsuccessful. It follows that improved processes and procedures are required to improve
success rates, just as they have been in the case of new product development. Nearly all service
products involve close interaction with customers. Interaction is the distinguishing feature of
service offerings. In many service sectors the interactive elements are the very essence of the
service offer. Further, because interaction is an integral part of the service exchange, new
service development is often more complex conceptually then new product development.

BRANDING
Irrespective of whether we are dealing with a physical product or an intangible service,
for a customer to be able to differentiate between the offerings of competing suppliers they
must be able to discriminate them. This can be achieved through BRANDING. The growth of
branding may be attributed to many factors including:

 Growth of mass production and consumption

 Improved transportation and communication
 Advances in packaging
 Increased literacy and the growth of advertising
 Improved standard of living
 Development of laws to protect trademarks

A brand is a "Name, term, design, symbol, or any other feature that identifies one
seller's good or service as distinct from those of other sellers as having a sustainable differential
advantage." Branding began as a way to tell one person's cattle from another by means of a hot
iron stamp. A modern example of a brand is Coca Cola which belongs to the Coca-Cola
Company.

Several important points are contained within this definition:

 Brands can take many forms and are not just names.
 Brands are not restricted to physical products. A brand can just as easily be a service, an
organization or even aspiration.
 Most importantly, successful brands confer a sustainable competitive advantage – the
corollary being that unsuccessful brands have precisely the opposite effect. (Sustainable
as an advantage that is not easily copied by competitors and so represents a barrier to
entry in the market in which the brand competes.)

Many brands are represented by a logo or icon and it is this that is immediately recognizable.
However all brands have names and it is this that ‘symbolizes the sum of the attributes that
make up the brand and quickly becomes synonymous with the satisfaction that the brand
delivers. So a brand name has a number of distinguishing characteristics. It is:
 A form of identification or badge of origin.
 A promise of a certain level of consistency in performance.
 Reassurance as to the authenticity and performance of the product.
 An indicator of the essential properties or attributes of the product.
Collectively, these attributes enable buyers to form attitudes towards the brand even where it
is otherwise difficult to distinguish it from closely competing alternatives.

Characteristics of a Good Brand Name – A good brand name should possess as many of the
following characteristics as possible

1. It should be distinctive: The market is filled with over-worked names and over-used
symbols. A unique and distinctive symbol is not only easy to remember but also a
distinguishing feature. “Nike” shoes have a distinct name and a distinct symbol, the
swoosh.
2. It should be suggestive: A well-chosen name or symbol should be suggestive of quality,
or may be associated with superiority or a great personality. The name VIP Classic for
travelers is suggestive of a superior quality for a distinct class of people.
3. It should be appropriate: Many products are surrounded by a certain mystique in the
minds of the consumers. Carefree is an appropriate brand name of a sanitary napkin.
4. It should be easy to remember: It should be easy to read, pronounce and spell. Tide,
Surf, Milo are examples of such brand names.
5. It should be adaptable to new products: Sony is a good brand name for TVs and VCRs
and is extended to communication devices such as phones.
6. It should be registerable.

A basic decision is whether to identify each product by a separate name of use an ‘umbrella’
brand for all of one’s products. Product brands are used by companies like Procter and Gamble
with a distinctive name of each of its products. The main advantages of giving each product a
distinctive name is that there is less risk that the failure of one product will affect any other;
that you can compete in several product categories which may be seen as quite different in the
mind of the customer; and that you can offer more than one product within the same product
category, at different price points and appealing to different market segments. Against these
advantages may be offset by the loss of economies of scale; loss of ability to stretch or leverage
the brand’s equity, and the need to develop a new identity and reputation for every new
product.

In summary, brands are popular with customers because they help to simplify their decision
making process. A brand is a summary statement of the complex bundle of attributes and
benefits which, once learned, enable consumers to differentiate between closely competitive
offerings, and develop loyalty towards their preferred brand.

CLASSIFYING NEW PRODUCTS

From the preceding discussion on branding it is clear that firms are seeking to achieve a
sustainable competitive advantage, and also that customers will seek to differentiate between
competitive offerings in terms of their objective performance factors, but that, faced with two
or more objectively similar products or services, they will look for other subjective factors to
help them discriminate and make a final choice. From the producer/supplier point of view,
objective benefits are to be preferred, hence the emphasis on innovation and new product
development.

Of course, innovation is without its risks – if the new thing is not sufficiently different from the
old (incremental innovation) customers may see little benefit in changing a currently
satisfactory form of behavior. Conversely, if the new thing is radically different from the
intended users’ past experience, then they may perceive considerable risk in trying it and defer
a purchase decision until they have more and better information.

Five (5) Headings which classifies characteristics of new products

1. Relative Advantage: Degree to which a new product is more advantageous to the customers
than the competing brands. Rate of adoption of a new offering depends on its relative
advantage as perceived by its prospective customers. Customers seeks to measure the
economic benefit conferred upon or available to the adopter of an innovation adjusted to
take cognizance of the adopter’s present situation.

This is the extent to which a given consumer sees a certain attribute of a new product or
service to be better than the attributes of similar existing products or services. If a consumer
sees the new product attribute as better than existing ones, it does not necessarily mean
that that attribute is actually better. This means that this product characteristic is based on
consumer perception.

2. Compatibility: Compatibility is how the consumer perceives the new product or service into
the person’s lifestyle choices. When the product or service closely matches the individual’s
needs, wants, beliefs, values, and consumptions patterns, the innovation can be considered
highly compatible with the consumer. For example even though a coke substitute might
have an almost identical flavor to the real thing, consumers who are loyal to the Coke brand
are unlikely to purchase the substitutes. This is because in the consumer’s mind the real
Coke is the only Coke, and anything else is considered “junk” or worthless. In this case the
coke substitute would be considered incompatible with the loyal Coke drinkers.

The more compatible a new product is with the existing systems, the more likely it is to be
readily accepted.

3. Complexity: The extent to which the consumer considers the innovation to be difficult to
utilize is known as the innovation’s complexity. If the innovation has a high level of
complexity, it will have a lower level of adoption. If the innovation is perceived as being less
complex than its existing counterparts, a marketer can sometimes use the advantage to
gain a price premium on the new product or service.

4. Trialability: If the new product or service can be tried out for limited time period before an
actual outlaying of money, the product adoption rates will rise substantially. Trialability
reduces the consumer’s perceived risk of making a purchase of the product. By letting your
customer try your product before the purchase, you are showing your customer that you
are confident enough in your product to allow them to try it before they make a purchase.
Of course, the trial offering has to be tailored to appropriately fit with your product offering.
For example if you own a website that offers paid subscription based financial services, you
might want to try to offer a free one month subscription.

5. Communicability: Is heavily influenced by the preceding four factors, for it reflects the
degree of difficulty associated with communicating the benefits of an innovation to
prospective users, which, in turn, is a function of its relative advantage, compatibility,
complexity, and trialability.

Communication is a vital activity throughout the new product purchase decision process,
with impersonal, or media communications being most important in creating initial
awareness, both impersonal and personal sources influencing interest, personal source
becoming dominant as buyer moves towards a decision, and impersonal sources assuming
the primary role of reassurance after the decision has been made.

All these factors can be measured objectively, but that objective measurement is of
secondary importance. It is the way prospective users perceive and interpret the factors
which is important. In turn, it would seem reasonable to infer that early adopters do
perceive the facts differently from the followers and laggards – that is, the selling
proposition must seem more attractive and/or less risky to them, and marketers have
expended a great deal of effort in attempts to determine what the distinguishing features
are.
 Perhaps the most important point to be made about classifying products is that it is the
perception of novelty that determines how prospective buyers will view them.

THE BUYGRID ANALYTIC FRAMEWORK

In 1967, the Canadian, American and Israeli marketing researchers, Robinson, Faris and Wind,
introduced the buygrid framework as a generic conceptual model for buying processes of
organizations. They saw industrial buying not as single events, but as organizational decision-
making processes where multiple individuals decide on a purchase. Their framework consists of
a matrix of buyclasses and buyphases.

The BUYCLASSES are:

 1. New Tasks: The first-time buyer seeks a wide variety of information to explore alternative
purchasing solutions to his organizational problem. The greater the cost or perceived risks
related to the purchase, the greater the need for information and the larger the number of
participants in the buying center.

2. Modified Rebuy: The buyer wants to replace a product the organization uses. The decision
making may involve plans to modify the product specifications, prices, terms or suppliers as
when managers of the company believe that such a change will enhance quality or reduce cost.
In such circumstances, the buying center proved to require fewer participants and allow for a
quicker decision process than in a new task buyclass.

 3. Straight Rebuy: The buyer routinely reorders a product with no modifications. The buyer
retains the supplier as long as the level of satisfaction with the delivery, quality and price is
maintained. New suppliers are considered only when these conditions change. The challenge
for the new supplier is to offer better conditions or draw the buyer's attention to greater
benefits than in the current offering.

Based on field research, Robinson, Faris and Wind divided the buyer purchase process into
eight sequential, distinct but interrelated BUYPHASES:

Phase 1. Anticipation or Recognition of a Problem (Need).

It originates within the buying organization, when products become outmoded, equipment
breaks down or existing materials are unsatisfactory in quality or availability. It may also
originate outside the buying organization with a marketer who recognizes opportunities for
potential performance improvement.

Phase 2. Determination of the Characteristics and Quality of Needed Item.

Organizational members determine specifically how the situation may be resolved; problems &
solutions are narrowed& precisely analyzed. The narrowing of problem and alternatives is a
task internal to User department. Critical decisions & information needs at this phase lie chiefly
within the user department.

Phase 3. Description of the Characteristics and Quantity of the item needed item.

Buying influences may change from department heads to engineering and manufacturing
personnel. In this phase buying influencers also begin to look outside the firm for suppliers &
product information and for assistance in developing product specifications.

Phase 4. Search for and Qualification of Potential Sources.

Buying organization begins to search for all sources of supply, leading to qualification of
suppliers. Qualifications sought vary with the type of buying organization, specific buying
situation& buying influencers. End result of this phase is that decision makers have determined
which suppliers will be considered as potential vendors
Phase 5. Acquisition and Analysis of Proposals.

 Qualified suppliers are requested for proposals.

 Extensive information is required.
 A great deal of time is given to analyzing proposals and comparing products, services&
costs.
 This phase is considered as distinct component of purchasing process.

Phase 6. Evaluation of Proposals and Selection of Suppliers.

 Various proposals of competing suppliers are weighed and analyzed.

 Make or buy
 Further negotiations may continue with selected suppliers on terms, prices, deliveries or
other aspects of suppliers’ proposals.

Phase 7. Selection of an Order Routine.

 Order routines are established by forwarding purchase orders to vendors and status
reports to using departments, by determining inventory levels needed over various time
periods.
 The user department does not view its problems solved until the specified product has
been received & is available for use.

Phase 8. Performance Feedback and Evaluation.

 The final phase in purchasing process.

 It consists of a formal or informal review and feedback regarding product performance
as well as vendor performance.

Figure 2.1 The Buygrid Analytic Framework

The most complex buying situations occur in the upper left quadrant of the buygrid matrix
where the largest number of decision makers and buying influences are involved. A new task
that occurs in the problem recognition phase (1) is generally the most difficult for management.

 The buying process can vary from highly formalized to an approximation depending on the
nature of the buying organization, the size of the deal and the buying situation.

 The relationship between the buyer and seller is initiated in phases 1 and 2. Assessing the
buyer's needs and determining gaps between the current and desired situation is important.
Buyers need assistance in forming realistic perceptions of both the current and the desired
situation. Need gaps create the motive behind any purchase.
The relationship needs to be developed during phases 3 to 7. A sales person must be aware
that a buyer not only has functional needs, but psychological, social, knowledge and situational
needs as well. These components should be addressed in meetings in order to obtain
commitment. The purchase can be a one-time transaction of a repetitive nature. When there
are multiple deliveries, the supplier and buyer must agree on an order routine.

As buyphases are completed, the process of 'creeping commitment' occurs and reduces the
likelihood of new suppliers gaining access to the buying situation.

 During the performance feedback and evaluation phase, the relationship between the seller
and buyer can develop into a longer term engagement. Buyer loyalty and customer satisfaction
are primarily determined by the sales activities during this last phase.

SUMMARY

In this chapter we have reviewed some of the factors which should have been taken into
account when considering the nature of the product or services in order to be able to answer
the question ‘What is a product?.

It has been show that there is value in seeking to classify products as this requires us to
consider carefully precisely what is the basis of exchange between producer and consumer.
Such consideration makes it clear that for a successful exchange to occur both parties must be
satisfied: it is a win-win outcome. If it a win-lose outcome it cannot satisfy our definition of the
purpose of marketing as establishing ‘mutually satisfying exchange relationships.

Our review has also made it clear that it is the prospective buyers’ perception of benefits or
satisfaction which is determinant and they are best able to define what mix of benefits –
objective or subjective, tangible or intangible, ‘product’ or ‘service’- will best match their want.
The consumers’ wants and their buying behavior define the market.