Workbook 4 Semester 2 2022

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School

Deakin University *

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MAA101

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Marketing

Date

Feb 20, 2024

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Workbook 4A: Products, Services, and New Products We all use products every day of our lives, and might have never considered classifying them in any way, from a marketing perspective what attributes comprise our products and how we might classify them is vitally important when making marketing mix decisions as buying behavior can vary across classifications. There are two main classifications of product: consumer products that are bought by final consumers such as convenience products (milk, newspapers); specialty products (Rolex watches, Mercedes) and unsought products (life insurance); and business to business products that are used in the processing of goods or in conducting business, such as materials and parts (leather, castings); capital items (buildings, desks) and supplies and services (lubricants, window cleaning). More specifically to classify our products, we also need to make decisions regarding individual products, services, and experiences, and how they might fix within product lines, and product mixes. We will then consider how marketers build and manage the brands that communicate the uniqueness of our offerings to consumers – one of the most critically important elements of any marketing campaign. As we build and brand our product portfolio to meet and exceed our chosen markets expectations, we also need to consider that all things change over time (e.g.: tastes, fashion, and technology) and that demand for products will eventually fall or even cease, bringing an end to the life of those products (sometimes abbreviated to E.O.L.). In order to maintain the viability of our product portfolio, we need to plan for this by developing new products to meet the ever-changing demand of our markets. A new product is a good, service, experience or idea that is perceived by some potential customers as new. It can be argued that a product that is simply new to the company is also classified as new and as such the concept of ‘new’ may also include me-too products as well as innovative new products. You should note that the rate of market failure for new products is quite high, but with robust product planning, we can reduce that rate for a company. As you will discover through your study of this module there is a well-defined and established process for the development of new products, from idea generation, idea screening, concept development testing, marketing strategy development, business analysis, product development, and test marketing prior to commercialization. By following this process marketers can better assure the likely success of those products they launch to the market. Whilst we have already alluded to the life and death of individual products, we will also consider the five-stage product lifecycle (P.L.C) that forms the basis for sound product portfolio management and planning. Chapters 7 and 8 objectives 1. Define products and the main classifications of products and services. 2. Describe the decisions companies make regarding their individual products and services, product lines, and product mixes. 3. Identify the four characteristics that affect the marketing of service and the additional marketing considerations that services require. 4. Discuss branding strategy—the decisions companies make in building and managing their brands. 5. Explain how companies find and develop new-product ideas. 6. List and define the steps in the new-product development process and the major considerations in managing this process. 7. Describe the stages of the product life cycle and how marketing strategies change during the product life cycle. 8. Discuss two additional product issues: socially responsible product decisions and international product and services marketing MMK101 Workbook 4 Page 1 ___/30

Part 1 Definitions (3 x 2 marks = 6 marks) 1.1: Product Definition: Product has two types: one is tangible, and another is intangible. Tangible products are physical goods that can be touched, seen, and felt. They are products made of materials and can be physically handled. Example: Examples of tangible products include clothing, electronics, furniture, food, vehicles, tools, and toys. These products are usually manufactured in factories and can be transported and stored physically. 1.2: Service Definition: Intangible products are services that cannot be physically touched or seen but are experienced or consumed. They are products not made of materials and cannot be physically handled. Example: Intangible products include healthcare, education, consulting, software, banking, and legal services. Trained professionals usually perform these services and can be delivered online or in person. 1.3: Brand Definition: A brand is a name, symbol, design, or other feature that distinguishes one company's products or services from its competitors. It's an identity representing a company or organization and signifies its reputation, values, and mission. (Eichler, 2023) Example: An example of a brand is Nike, a company that produces athletic shoes and clothes. The Nike brand is known for its "swoosh" logo, slogan "Just Do It," and association with professional athletes and sportswear fashion. (Restrepo, 2022) MMK101 Workbook 4 Page 2

MMK101 Workbook 4 Page 3

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Part 2: Conceptual Question Describe a service: A service is an intangible product offered by one party to another for a fee . In general, services are activities, benefits, or satisfactions offered for sale. Explain each characteristic and use a hair salon/barbershop as an example : Characteristic 1: Intangibility Intangibility cannot be physically touched or seen but is experienced or consumed, which refers to services that cannot be touched, seen, tasted, or smelled before they are purchased For example: A hair salon/barbershop has this characteristic because the barber offers the service of cutting hair for anyone who has the needs, and this doesn’t include any selling products from the barber to the customer, which means this is an intangbility characteristic of a service. Characteristic 2: Inseparability Inseparability is a concept in service marketing that refers to the characteristic that services are produced and consumed simultaneously. This means that the production and delivery of a service cannot be separated from its consumption by the customer. ( Service Inseparability in Marketing | Overview & Example - Video & Lesson Transcript , 2022). For example: A hair salon/barbershop has this characteristic because the service is produced and consumed simultaneously. The hairdresser cannot cut your hair without your presence, and you cannot receive the service without being physically present in the salon Characteristic 3: Variability services variability is the concept that describes the differences in the quality of the same service provided by different vendors or individuals. These variations are caused by several factors, including the nature of the service, the individual who gives it, the time of year when it is provided, and the delivery method ( Service Variability - Definition, Types & Example | Marketing Overview , 2023). For example: A hair salon/barbershop has this characteristic because haircut services can be provided by many other vendors or individuals in other areas, creating different quality consumer experiences. Characteristic 4: Perishability Perishability is the expiration or spoiling of a product over time. For example: A hair salon/barbershop has this characteristic because perishability refers to the fact that services cannot be stored or inventoried for future use. Hair salons rely on a constant flow of customers to stay in business, and any unused appointment slots or idle stylists represent lost revenue opportunities. Additionally, a client who fails to attend a scheduled appointment is a missed opportunity that cannot be recaptured. Hair salons can mitigate the effects of perishability MMK101 Workbook 4 Page 4

by implementing strategies such as overbooking, offering discounts during off-peak hours, and utilizing waitlists to fill canceled appointments. 2.1: Please explain four (4) characteristics of a service and use a hair salon or barbershop as an example to elaborate on your points. The four characteristics of a service are intangibility, perishability, heterogeneity, and inseparability. Intangibility means a service cannot be touched, tasted, or seen before purchasing. This can make it difficult for customers to evaluate a service's quality before committing to it. For example, in a hair salon, customers cannot see the final result of a haircut or coloring until it is complete. Perishability means that services cannot be stored or saved for later use. Once a service has been performed, it cannot be sold again. For example, if a hair salon has empty appointment slots, it cannot compensate for lost revenue by selling more haircuts later. Heterogeneity refers to the fact that services can vary in quality depending on who performs them and when they are performed. This can challenge service providers who want consistent quality across all customers and employees. For example, a haircut may differ depending on the stylist's experience level or the customer's hair type. Inseparability means that the service provider and the customer are often involved in the service creation process. The customer's experience can be impacted by the service provider's behavior and attitude. For example, a hair salon customer's experience can be improved if the stylist is friendly and attentive during the service. Part 3: Assignment-Related Task (Individual) 3.1 Define and explain the three (3) levels of products. Apply these three elements to your assignment topic. Lastly, draw the diagram! (6 marks) Describe three levels of products: The three levels of products are the core product, the actual product, and the augmented product. Core customer value (level 1): The core product is the basic benefit customers seek when they purchase a product. For example: when someone buys a car, the core product is transportation. Actual product (level 2): The actual product is the physical product that customers receive when purchasing it. For example: when someone buys a car, the actual product is the car itself, which includes its features, design, and quality. Augmented product (level 3): _______________________________________________________________ The augmented product includes all the additional services and features that enhance the product's value and customer experience. For example: when someone buys a car, the augmented product may include a warranty, financing options, maintenance services, and customer support. Please find the 3 levels product diagram (Hint: look on Google) and include on it what your company has for each level: MMK101 Workbook 4 Page 5

For Foundry Chocolate company: Core product: when customers purchase chocolate, what they need the most is food, which is something to eat. Actual product: When customers purchase chocolate, the chocolate bar is the actual product. Augmented product: The service of refund Foundry chocolate is the augmented product that affects the choice of purchasing chocolate from Foundry. MMK101 Workbook 4 Page 6

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3.2 Go to your company’s website and draw a table showing their product mix design together with the product line, width, length, and depth of each line. (7 marks) Describe product mix: Product mix refers to the variety of products a business offers its customers. It includes all the company's product lines and the individual products that make up those lines. A well-planned product mix can help companies attract and retain customers by catering to their diverse needs and preferences. It can also help the business differentiate itself from competitors and increase profitability. Explain each of the product mix decisions: -Product line is: A product line is a group of related products that are marketed and sold by a company. These products are typically similar in terms of their intended use, target audience, or other characteristics. -Width is: The width of a product mix is the number of different product lines a company offers. It refers to the variety of products a company sells within each product line or category. -Length is: The length of a production mix is the total number of products the company sells. -Depth is: The length of a product mix is the total variety of the company's products. Go to your company’s website and draw a table showing their product mix design together with the product line, width, length and depth of each line. (2 marks) (You can add more rows or columns to the table below if necessary). 70% Dark Chocolate Bar 90% - 100% Dark Chocolate Bars Drinking Chocolate Ucayali River Semuliki Forest Pinalum, Malekula Island, Vanuatu Anamalai Estate, India Kilombero Valley Malita and Guadalcanal Micro- lots, Solomon Islands Pinalu, Malekula Island, Vanuatu Kilombero Vally Tanzania Semuliki Forest, Uganda Kilombero Valley Tanzania Socomusco, Chiapas, Mexico MMK101 Workbook 4 Page 7

3.3: There are 4 stages in the PLC. Please draw and label these stages indicating which stage your product/segment is in this cycle. (1 mark) 3.4: Explain your reasoning to the graph above (2 marks) Foundry Chocolate is experiencing growth due to the increasing demand for high-quality products, particularly among health-conscious consumers with higher disposable income. This demand has not yet peaked, thereby providing potential for further growth. These consumers have well-received Foundry Chocolate's premium dark chocolate and drinking chocolate. Because of this, the company remains on the growth spot and hasn’t reached its full potential to establish itself as one of the top brands in the chocolate industry. MMK101 Workbook 4 Page 8 Foundry Chocolate

Workbook 4B: Pricing: Capture Customer Value Companies today face a fierce and fast-changing pricing environment. Value-seeking customers have put increased pricing pressure on many companies. Thanks to the weak global economy, the pricing power of internet vendors such as Amazon – the world’s largest online merchant – and value-driven retailers such as ALDI, Costco, Coles Supermarkets and Woolworths, consumers seem to have become bargain-hunters more than ever before. In response, it appears that almost every company is looking for ways to slash prices. Yet, cutting prices is often not the best answer. Reducing prices unnecessarily can lead to lost profits and damaging price wars. IT can cheapen a brand by signalling to customers that the price is more important than the customer value a brand delivers. Instead, no matter what the state of the economy, companies should sell value, not price. In some cases, that means selling lesser products at rock-bottom prices. But in most cases, it means persuading customers that paying a higher price for the company’s brand is justified by the greater value they gain. The challenge is to find the price that will let the company make a fair profit by getting paid for the customer value it creates. After all, most of us will happily pay for products that deliver value. Chapter 9 objectives 1. Identify the three main pricing strategies, and discuss the importance of understanding customer- value perceptions, company costs and competitor strategies when setting prices. 2. Describe the main strategies for pricing new products 3. Explain how companies determine a set of prices that maximises the profits form the total product mix 4. Discuss how companies adjust their prices to take into account different types of customers and situations Part 1 – Definition Questions (3 x 2 marks = 6 marks) 1.1: Pricing Definition: MMK101 Workbook 4 Page 9

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Pricing refers to the process of determining the value of a product or service and setting a monetary amount for it. It is a crucial aspect of business as it directly affects the revenue and profitability of a company. Pricing strategies vary widely depending on the industry, competition, target market, and other factors. Example: A luxury car brand may use a premium pricing strategy to emphasize its products' exclusivity and high quality. On the other hand, a discount retailer may use a low-pricing strategy to attract price- sensitive consumers. Other common pricing strategies include cost-plus, value-based, and dynamic pricing. 1.2: Trade-in allowance Definition: Trade-in allowance is the amount of money a dealership offers a customer for their used vehicle when they purchase a new or used car. This allowance is usually applied as a credit towards the new car's purchase price, reducing the amount the customer has to pay. Example: let's say you want to buy a new car that costs $25,000 and you have a used car that the dealership offers a trade-in allowance of $5,000. If you decide to trade in your used car, the dealership will reduce the price of the new car to $20,000, and you'll only have to pay that amount. 1.3: Price Ceiling Definition: A price ceiling is a limit on how high the price of a good or service can be set, imposed by the government. It is created to protect consumers from being charged excessively high prices for essential goods and services. Example: In many cities, laws are in place to control rent prices known as rent control laws. These laws set a maximum price that a landlord can charge for a specific property, which helps protect tenants from massive increases in rent prices. MMK101 Workbook 4 Page 10

Part 3: Assignment-Related Task 3.1: Describe and explain the three major pricing strategies. Out of these three, which one(s) do you think your company has used? (7 marks) MMK101 Workbook 4 Page 11

Describe and explain the three major pricing strategies in general: Customer value-based pricing is: Customer value-based pricing is a pricing strategy that sets the price of a product or service based on the perceived value it provides. This approach considers the customer's willingness to pay and the benefits they receive from the product or service. By focusing on the value delivered to the customer, companies can avoid pricing their products too high or too low. This can help increase customer satisfaction and loyalty and drive revenue growth for the business ( Value-Based Pricing - Definition, Example, Use , n.d.). Competition-based pricing is: Competition-based pricing is a pricing strategy that sets the price of a product or service based on the fees charged by competitors. This approach involves analyzing the prices of similar products or services offered by competitors and setting a price that is in line with, or slightly below, those prices. Competition-based pricing aims to remain competitive while maintaining profitability (Witczak, 2022). Cost-based pricing is: Cost-based pricing is a pricing strategy that sets the price of a product or service based on the cost to produce, distribute, and market it, with a markup added to generate profit. This approach involves calculating the total cost of production, including direct costs such as materials and labor and indirect costs such as overhead and marketing expenses. A markup is added to this total cost to determine the final price. The goal of cost-based pricing is to ensure that the price of the product or service covers the cost of production and generates sufficient profit to sustain the business ( Cost-Based Pricing - What Is It, Example, Formula , n.d.). The major pricing strategy that your company has used is: _________________________________________________________________________________ Because : Foundry Chocolate’s competitors have different pricing strategy and use it as their strategy to drive the success of the company. For example, snickers provide a smooth chocolate experience with taste and low price, outstanding their competitors with affordable products but good taste chocolate; Nestle with their wide range of products offered to customers such as chocolate bar, drink, powder, and more. For Foundry Chocolate they provide high-quality chocolate with two main organic ingredients to create high-quality and authentic dark chocolate products. MMK101 Workbook 4 Page 12

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3.2: Now, refer back to your Workbook 2. You have recommended some new product ideas for the companies relevant to the new target market identified in Assignment 1. If your company were to launch this new product/idea to the Australian market, which new product pricing strategy should they adopt? Please explain why and why not and how they should adopt this. Your recommendations should be detailed and actionable. (4 marks) Describe and explain the new product pricing strategy concept in general: Your company should adopt: Foundry Vanuatu x Thomson Manuka smoke whisky 70% Because : To create diversity for its chocolate products, Foundry Chocolate should create new product lines to attract attention from more different customer groups to increase the company's profits. How should they do this? To be able to do this, the company needs to find suppliers of whiskey-related raw materials to create this product. In addition, they need to find a way to balance the ingredients in a chocolate bar containing whiskey so as not to degrade the original chocolate bar. Foundry is inherently a company with the image of producing chocolate products with organic ingredients and high- quality products at mid-range prices. Therefore, the company should charge a higher price for its whisky chocolate products, and in the market, it charges a higher price than its competitors for its pricing strategy. MMK101 Workbook 4 Page 14

3.3: There are internal and external factors that your company should consider before adopting the new product pricing strategy. Please provide a detailed explanation of each factor. Explain 2 internal and 1 external factor which would affect your product. (3 marks) Cost of Production: To set the price, they need to calculate their cost of production. How much do they need to spend on the new production line, and how much do they have to pay to calculate the final cost? By doing that, they can find the price to sell their products. For Foundry, this could be the price of whisky suppliers, money to build new machines to mix the cacao and the whisky, cacao bean price, factory rent, land, etc. Company Competitors: To set the price for their products, they must understand and analyze their competitors. Each competitor has a different price strategy, and understanding their brand image will give the Foundry company an advantage in setting product prices. Foundry's brand image is a high- quality chocolate company, so this will be a factor in Foundry's price strategy. As a high-quality chocolate company, the prices of its products should be higher than those of other competitors in the market. Profit Margin: After the cost of production is calculated, the company will be able to find out the price at which they can sell their product. Therefore, they can calculate the profit they can create from selling the products, and it depends on the company’s desire, whether they want to create a high profit or medium profit. MMK101 Workbook 4 Page 15

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