CHAPTER 11
Developing and Managing Goods and Services
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Purpose and Perspective
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Lecture Outline
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Discussion Starters
IRM, p. 16
Class Exercises
IRM, p. 18
Chapter Quiz
IRM, p. 20
Semester Project
IRM, p. 21
Answers to Issues for Discussion and Review
IRM, p. 22
Answers to Developing Your Marketing Plan
IRM, p. 28
Comments on Video Case 11
IRM, p. 29
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PURPOSE AND PERSPECTIVE
This chapter examines several ways to improve an organization’s product mix, including managing
existing products through line extensions and product modifications. It also examines how companies
develop new products, from idea generation to commercialization. After development of new products,
the process of product differentiation through quality, design, and support services is discussed. It also
discusses when a product should be deleted from the product mix and how this sometimes improves the
product mix. It also covers product positioning and repositioning. It addresses the unique characteristics
of services that differentiate them from goods—intangibility, inseparability of production and
consumption, perishability, heterogeneity, client-based relationships, and customer contact. Next, it
presents issues associated with developing marketing mixes for services. Finally, it explores how
organizational structures are used in managing products, including the product manager, market manager,
and venture team approaches.
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LECTURE OUTLINE
I. Managing Existing Products
A. By assessing the composition of the current product mix, a marketer can identify weaknesses and
gaps in its existing product mix.
1. This analysis can then lead to improvement of the product mix through line extension and
product modification.
B. Line Extensions
1. A line extension is the development of a product closely related to one or more products in
the existing product line but designed specifically to meet somewhat different customer
needs.
2. Many of the so-called new products introduced each year are, in fact, line extensions; line
extensions are more common than new products because they are a less expensive, lower-
risk alternative for increasing sales.
3. A line extension may focus on a different market segment or may be an attempt to increase
sales within the same market segment by more precisely satisfying the needs of people in
that segment.
C. Product Modifications
1. Product modification means changing one or more characteristics of a product; it differs
from a line extension because the original product does not remain in the line.
2. Like line extensions, product modifications entail less risk than developing new products.
3. Product modification can improve a firm’s product mix, but only under certain conditions:
a. The product must be modifiable.
b. Customers must be able to perceive a modification has been made.
c. The modification should make the product more consistent with customers’ desires so
that it provides greater satisfaction.
4. One drawback to modifying a successful product is that the consumer who had experience
with the original version of the product may view a modified version as a riskier purchase.
5. There are three major ways to modify products—quality, functional, and aesthetic
modifications.
6. Quality Modifications
a. Quality modifications are changes relating to a product’s dependability and
durability; the changes usually are executed by altering the materials or the production
process.
b. Reducing a product’s quality may allow an organization to lower its price and direct
the item at a different target market.
c. In contrast, increasing the quality of a product may enable a company to charge a
higher price by creating customer loyalty and lowering customer sensitivity to price.
d. Some firms are finding ways to increase quality while reducing costs.
7. Functional Modifications
a. Changes that affect a product’s versatility, effectiveness, convenience, or safety are
called functional modifications; they usually require that the product be redesigned.
b. Such modifications can make a product useful to more people and enlarge its market.
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c. Functional modifications can help an organization achieve and maintain a progressive
image.
d. Such modifications are sometimes made to reduce the possibility of product liability
lawsuits, such as adding a kill switch on a machine.
8. Aesthetic Modifications
a. Aesthetic modifications change the sensory appeal of a product by altering its taste,
texture, sound, smell, or appearance.
b. Aesthetic modifications attempt to minimize the amount of illegal product
counterfeiting that occurs through constant change in design and quality.
c. Aesthetic modifications can help a firm differentiate its product from competing
brands and thus gain a sizable market share.
d. The major drawback in using aesthetic modifications is that their value is determined
subjectively; although a firm may strive to improve the product’s sensory appeal,
customers actually may find the modified product less attractive.
II. Developing New Products
A. A firm develops new products as a means of enhancing its product mix and adding depth to a
product line.
1. Developing and introducing new products is frequently expensive and risky.
2. However, failure to introduce new products is also risky.
3. The term new product can have more than one meaning.
a. A genuinely new product offers innovative benefits.
b. However, products that are different and distinctly better are often viewed as new.
c. A radically new product involves a complex developmental process, including an
extensive business analysis to determine the potential for success.
d. A new product can also be a product that a given firm has not marketed previously,
although similar products have been available from other companies.
e. A product can be viewed as new when it is brought to one or more markets from
another market.
B. Before a product is introduced, it goes through the seven-phases of the new-product development
process—idea generation, screening, concept testing, business analysis, product development, test
marketing, and commercialization.
C. A product may be dropped at any stage of development.
1. Idea Generation
a. Businesses and other organizations seek product ideas that will help them to achieve
their objectives; this activity is idea generation.
b. New-product ideas may come from internal sources—marketing managers,
researchers, etc.
(1) Brainstorming and incentives or rewards for good ideas are typical intrafirm
devices for stimulating development of ideas.
c. New-product ideas also may arise from sources outside the firm, such as customers,
competitors, etc.
(1) As more global consumers become interconnected through the Internet,
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marketers have the chance to tap into consumer ideas by building online
communities with them.
(2) Many of today’s most successful companies solicit ideas from inventors and
outside consultants.
2. Screening
a. In the process of screening, the ideas with the greatest potential are selected for
further review.
b. During screening, product ideas are analyzed to determine whether or not they match
the organization’s objectives and resources.
c. If a product idea results in a product similar to the firm’s existing products, marketers
must assess the degree to which the new product could cannibalize the sales of current
products.
d. The company’s overall abilities to produce and market the product are also analyzed.
e. Other aspects of an idea to be weighed are the nature and wants of buyers and possible
environmental changes.
f. Most new product ideas are rejected during the screening phase.
3. Concept Testing
a. In concept testing, a small sample of potential buyers is presented with a product idea
through a written or oral description to determine their attitudes and initial buying
intentions regarding the product.
b. For a single product idea, an organization can test one or several concepts of the same
product.
c. Concept testing is a low-cost procedure that allows a company to determine
customers’ initial reactions to a product idea before it invests considerable resources in
research and development.
d. During concept testing, the concept is described briefly, and then a series of questions
is presented.
(1) The questions vary considerably depending on the type of product being tested.
4. Business Analysis
a. During the business analysis stage, the product idea is evaluated to determine its
potential contribution to the firm’s sales, costs, and profits.
b. In the course of a business analysis, evaluators ask various questions.
c. It is crucial that a firm determines whether its research, development, engineering, and
production capabilities are adequate to develop the product; whether new facilities
must be constructed, how quickly they can be built, and how much they will cost; and
whether the necessary financing for development and commercialization is on hand or
is obtainable based upon terms consistent with a favorable return on investment.
d. In the business analysis stage, firms seek market information.
(1) The results of consumer polls, along with secondary data, supply the specifics
needed to estimate potential sales, costs, and profits.
(2) For many products in this stage (when they are still just product ideas),
forecasting sales accurately is difficult; this is especially true for innovative and
completely new products.
(3) Organizations sometimes employ breakeven analysis and/or payback analysis to
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determine how many units they would have to sell to begin making a profit.
5. Product Development
a. Product development is the phase in which the organization determines if it is
technically feasible to produce the product and if it can be produced at costs low
enough to make the final price reasonable.
(1) To test its acceptability, the idea or concept is converted into a prototype, or
working model.
(2) The prototype should reveal tangible and intangible attributes associated with
the product in consumers’ minds.
(3) The product’s design, mechanical features, and intangible aspects must be
linked to wants in the marketplace.
(4) Through marketing research and concept testing, product attributes that are
important to buyers are identified.
b. After a prototype is developed, its overall functioning must be tested.
(1) Its performance, safety, convenience, and other functional qualities are tested
both in a laboratory and in the field.
(2) Functional testing should be rigorous and lengthy enough to test the product
thoroughly.
(3) Manufacturing issues that come to light at this stage may require adjustments.
c. A crucial question that arises during product development is how much quality to
build into the product.
(1) Higher quality often calls for better materials and more expensive processing,
which increase production costs and, ultimately, the product’s price.
(2) In determining the specific level of quality, a marketer must ascertain
approximately what price the target market views as acceptable.
(3) In addition, a marketer usually tries to set a quality level consistent with that of
the firm’s other products.
d. The development phase of a new product is frequently lengthy and expensive; thus a
relatively small number of product ideas are put into development.
(1) If the product appears sufficiently successful during this stage to merit test
marketing, then, during the latter part of the development stage, marketers begin
to make decisions regarding branding, packaging, labeling, pricing, and
promotion for use in the test marketing stage.
6. Test Marketing
a. A limited introduction of a product in geographic areas chosen to represent the
intended market is called test marketing.
b. The aim of test marketing is to determine the extent to which potential customers will
buy the product.
c. Test marketing is not an extension of the development stage; it is a sample launching
of the entire marketing mix.
d. Test marketing should be conducted only after the product has gone through
development and initial plans regarding the other marketing mix variables.
e. Companies use test marketing to lessen the risk of product failure.
f. Test marketing provides several benefits.
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(1) It lets marketers expose a product in a natural marketing environment to
measure its sales performance.
(2) The company can strive to identify weaknesses in the product or in other parts
of the marketing mix.
(3) Test marketing also allows marketers to experiment with variations in
advertising, pricing, and packaging in different test areas and to measure the
extent of brand awareness, brand switching, and repeat purchases resulting from
these alterations in the marketing mix.
g. Selection of appropriate test areas is very important because the validity of test market
results depends heavily on selecting test sites that provide accurate representations of
the intended target market.
(1) The criteria used for choosing test cities depend upon the product’s attributes,
the target market’s characteristics, and the firm’s objectives and resources.
h. Test marketing is not without risks.
(1) It is expensive, and competitors may try to interfere.
(2) A competitor may attempt to “jam” the test program by increasing its own
advertising or promotions, lowering prices, and offering special incentives, all
to combat the recognition and purchase of the new brand.
(3) Any such tactics can invalidate test results.
(4) Sometimes, too, competitors copy the product in the testing stage and rush to
introduce a similar product.
i. Not all products that are test marketed are launched.
(1) At times, problems discovered during test marketing cannot be resolved.
7. Commercialization
a. During the commercialization phase, plans for full-scale manufacturing and
marketing must be refined and settled and budgets for the project prepared.
b. Early in the commercialization phase, marketing management analyzes the results of
test marketing to find out what changes in the marketing mix are needed before the
product is introduced.
c. During the early part of this stage, marketers not only must gear up for larger-scale
production but also must make decisions about warranties, repairs, and replacement
parts.
d. The type of warranty a firm provides can be a critical issue for buyers, especially for
expensive, technically complex goods such as appliances or frequently used items.
e. The product enters the market during the commercialization phase.
(1) When introducing a product, a firm may spend enormous sums for advertising,
personal selling, and other types of promotion, as well as for plant and
equipment.
(2) Such expenditures may not be recovered for several years.
f. Products are not usually launched nationwide overnight but are introduced through a
process called a rollout.
(1) Through a rollout, a product is introduced in stages, starting in one geographic
area and gradually expanding into adjacent areas.
(2) Gradual product introductions do not always occur state by state; other
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geographic combinations, such as groups of counties that cross state borders,
are sometimes used.
(3) Products destined for multinational markets also may be rolled out one country
or region at a time.
g. Gradual product introduction is desirable for several reasons.
(1) It reduces the risks of introducing a new product; if the product fails, the firm
will experience smaller losses if it introduced the item in only a few geographic
areas than if it marketed the product nationally.
(2) Gradual introduction allows for fine-tuning of the marketing mix to better
satisfy target customers.
h. Despite the good reasons for introducing a product gradually, marketers realize that
this approach creates some competitive problems.
(1) A gradual introduction allows competitors to observe what the firm is doing and
to monitor results, just as the firm’s own marketers are doing.
(2) Marketers should realize that too much delay in launching a product can cause
the firm to miss out on seizing market opportunities, creating competitive
offerings, and forming cooperative relationships with channel members.
III. Product Differentiation through Quality, Design, and Support Services
A. Product differentiation is the process of creating and designing products so that customers
perceive them as different from competing products.
1. Customer perception is critical in differentiating products.
2. Perceived differences might include quality, features, styling, price, and image.
3. A crucial element used to differentiate one product from another is the brand.
4. Three aspects of product differentiation that companies must consider when creating and
offering products for sale are product quality, product design and features, and product
support services.
B. Product Quality
1. Quality refers to the overall characteristics of a product that allow it to perform as expected
in satisfying customer needs.
a. Quality usually means different things to different customers.
2. The concept of quality also varies between consumer and business markets.
a. For business markets, technical suitability, ease of repair, and company reputation are
important characteristics.
3. One important dimension of quality is level of quality, the amount of quality a product
possesses.
a. The concept is a relative one because the quality level of one product is difficult to
describe unless it is compared with that of other products.
4. A second important dimension is consistency.
a. Consistency of quality refers to the degree to which a product has the same level of
quality over time.
B. Product Design and Features
1. Product design refers to how a product is conceived, planned, and produced; it involves the
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total sum of all the product’s physical characteristics.
2. One component of design is styling, or the physical appearance of the product; most
consumers seek products that both look good and function well.
3. Product features are specific design characteristics that allow a product to perform certain
tasks.
a. By adding or subtracting features, a company can differentiate its products from those
of the competition.
b. Product features also can be used to differentiate products within the same company.
c. In general, the more features a product has, the higher is its price, and often, the higher
is the perceived quality.
4. For a brand to have a sustainable competitive advantage, marketers must determine the
product designs and features that customers desire.
a. Information from marketing research efforts and from databases can help in assessing
customers’ product design and feature preferences.
C. Product Support Services
1. Many companies differentiate their product offerings by providing support services.
a. Usually referred to as customer services, these services include any human or
mechanical efforts or activities a company provides that add value to a product.
b. Examples of customer services include delivery and installation, financing
arrangements, customer training, warranties and guarantees, repairs, etc.
2. Whether as a major or minor part of the total product offering, all marketers of goods sell
customer services.
a. Providing good customer service may be the only way that a company can
differentiate its products when all products in a market have essentially the same
quality, design, and features.
b. The level of customer service a company provides can profoundly affect customer
satisfaction.
IV. Product Positioning and Repositioning
A. Product positioning refers to the decisions and activities intended to create and maintain a certain
concept of the firm’s product (relative to competitive brands) in customers’ minds.
B. When marketers introduce a product, they try to position it so that it appears to have the
characteristics that the target market most desires.
C. Perceptual Mapping
1. A product’s position is the result of customers’ perceptions of the product’s attributes
relative to those of competitive brands.
2. To avoid a continuous reevaluation of numerous products, buyers tend to group, or
“position,” products in their minds to simplify buying decisions.
3. Rather than allowing customers to position products independently, marketers often try to
influence and shape consumers’ concepts or perceptions of products through advertising.
4. Marketers sometimes analyze product positions by developing perceptual maps (Figure
11.3).
a. Perceptual maps are created by questioning a sample of consumers about their
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perceptions of products, brands, and organizations with respect to two or more
dimensions.
b. To develop a perceptual map, respondents would be asked about their preferences for
product features to establish “ideal points” or “ideal clusters,” which represent a
consensus about a specific group of customers’ desires in terms of product features.
c. Then marketers can see how their brand is perceived compared with the ideal points.
D. Bases for Positioning
1. A firm can position a product to compete head-on with another brand.
a. Head–to–head competition may be a marketer’s positioning objective if the product’s
performance characteristics are at least equal to those of competitive brands and if the
product is priced lower.
b. Head–to-head positioning may be appropriate even when the price is higher if the
product’s performance characteristics are superior.
2. Positioning to avoid competition may be best when the product’s performance characteristics
do not differ significantly from competing brands.
a. Positioning a brand to avoid competition may also be appropriate when that brand has
unique characteristics that are important to some buyers.
b. Avoiding competition is critical when a firm introduces a brand into a market in which
the company already has one or more brands.
(1) Marketers usually want to avoid cannibalizing sales of their existing brands,
unless the new brand generates substantially larger profits.
3. A product’s position can be based on specific product attributes or features.
a. Style, shape, construction, and color help to create the image and the appeal.
b. If buyers can easily identify the benefits, they are more likely to purchase the product.
c. When the new product does not offer certain preferred attributes, there is room for
another new product.
4. Other bases for product positioning include price, quality level, and benefits provided by the
product.
5. The target market can be a positioning basis caused by marketing; this type of positioning
relies heavily on promoting to the types of people who use the product.
E. Repositioning
1. Evaluating the positions of existing products is important because a brand’s market share and
profitability may be strengthened by product repositioning.
2. When introducing a new product into a product line, one or more existing brands may have
to be repositioned to minimize cannibalization of established brands and ensure a favorable
position for the new brand.
3. Repositioning can be accomplished by physically changing the product, its price, or its
distribution.
a. Rather than making any of these changes, marketers sometimes reposition a product
by changing its image through promotional efforts.
4. A marketer may reposition a product by aiming it at a different target market.
V. Product Deletion
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A. Product deletion is the process of eliminating a product from the product mix, usually because it
no longer satisfies a sufficient number of customers.
1. A declining product reduces an organization’s profitability and drains resources that could be
used to modify other products or develop new ones.
2. Most organizations find it difficult to delete a product.
a. A decision to drop a product may be opposed by managers and other employees who
believe that the product is necessary to the product mix.
b. Salespeople who still have some loyal customers are especially upset when a product
is dropped.
c. Considerable resources and effort are sometimes spent trying to change a slipping
product’s marketing mix to improve its sales and thus avoid having to eliminate it.
3. Some organizations delete products only after the products have become heavy financial
burdens.
a. A better approach is some form of systematic review in which each product is
evaluated periodically to determine its impact on the overall effectiveness of the firm’s
product mix.
B. There are three basic ways to delete a product—phase it out, run it out, or drop it immediately
(Figure 11.4).
1. A phase-out allows the product to decline without a change in the marketing strategy; no
attempt is made to give the product new life.
2. A run-out exploits any strengths left in the product; intensifying marketing efforts in core
markets or eliminating some marketing expenditures, such as advertising, may cause a
sudden jump in profits.
3. An immediate drop of an unprofitable product is the best strategy when losses are too great
to prolong the product’s life.
VI. Managing Services
A. Nature and Importance of Services
1. All products—whether goods, services, or ideas—are to some extent intangible.
2. Services are usually provided through the application of human and/or mechanical efforts
directed at people or objects.
3. The increasing importance of services in the U.S. economy has led many people to call the
United States the world’s first service economy.
4. In most developed countries, services account for about 70 percent of the gross domestic
product (GDP).
5. A practice that has gained popularity among a number of U.S. businesses is homesourcing,
in which customer-contact jobs, especially at call centers, are outsourced into the homes of
workers.
B. Characteristics of Services
1. Intangibility
a. Intangibility means a service is not physical and therefore cannot be touched.
b. Services cannot be physically possessed.
c. Figure 11.5 depicts a tangibility continuum from pure goods (tangible) to pure services
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(intangible).
2. Inseparability of Production and Consumption
a. Another important characteristic of services that creates challenges for marketers is
inseparability, which refers to the fact that the production of a service cannot be
separated from its consumption by customers.
b. Services are often produced, sold, and consumed at the same time.
c. The manufacturer of the good may never see an actual customer; customers, however,
often must be present at the production of a service and cannot take the service home.
d. Because of inseparability, customers not only want a specific type of service but
expect it to be provided in a specific way by a specific individual.
e. Training programs for employees in the service sector should stress the importance of
the customer in the service experience so that employees understand that the shared
responsibility exists.
3. Perishability
a. Services are characterized by perishability because the unused service capacity of one
time period cannot be stored for future use.
b. Service marketers cannot handle the supply-demand problems through production
scheduling and inventory techniques.
(1) They can, however, plan for demand which fluctuates according to day of the
week, time of day, or season.
4. Heterogeneity
a. Services delivered by people are susceptible to heterogeneity, or variation in quality.
b. Quality of manufactured goods is easier to control with standardized procedures, and
mistakes are easier to correct.
c. Because of the nature of human behavior, however, it is very difficult for service
providers to maintain a consistent quality of service delivery.
d. The variation in quality can occur from one organization to another, from one service
person to another within the same facility, and from one service facility to another
within the same organization.
e. Heterogeneity usually increases as the degree of labor intensiveness increases.
f. People-based services are often prone to fluctuations in quality from one time period
to the next.
5. Client-Based Relationships
a. The success of many services depends on creating and maintaining client-based
relationships, interactions that result in satisfied customers who use a service
repeatedly over time.
b. Some service providers call their customers clients and develop long-term
relationships with them.
(1) For such service providers, it is not enough to attract customers; they are
successful only to the degree to which they can maintain a group of clients who
use their services on an ongoing basis.
(2) The service provider must take steps to build trust, demonstrate customer
commitment, and satisfy customers so well that they become very loyal to the
provider and unlikely to switch to competitors.
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6. Customer Contact
a. Customer contact refers to the level of interaction between the service provider and
the customer that is necessary to deliver the service.
(1) Note that high-contact services generally involve actions directed toward
people, who must be present during production.
b. Employees of high-contact service providers are part of a very important ingredient in
creating satisfied customers.
c. A fundamental precept of customer contact is that satisfied employees lead to satisfied
customers.
d. To minimize the problems that customer contact can create, service organizations
must take steps to understand and meet the needs of employees by training them
adequately, empowering them to make more decisions, and rewarding them for
customer-oriented behavior.
C. Developing and Managing Marketing Mixes for Services
1. The characteristics of services create a number of challenges for service marketers.
a. These challenges are especially evident in the development and management of
marketing mixes for services.
b. Although such mixes contain the four major marketing-mix variables—product, price,
distribution, and promotion—the characteristics of services require that marketers
consider additional issues.
2. Development of Services
a. A service offered by an organization is generally a package, or bundle, of services
consisting of a core service and one or more supplementary services.
b. A core service is the basic service experience or commodity a customer expects to
receive.
c. A supplementary service is a supportive service related to the core service and is used
to differentiate the service bundle from that of competitors.
d. Heterogeneity results in variability in service quality and makes it difficult to
standardize services.
(1) However, heterogeneity provides one advantage to service marketers—it allows
them to customize their services to match the specific needs of individual
customers.
e. Customized services can be expensive for both provider and customer, and some
service marketers therefore face a dilemma—how to provide service at an acceptable
level of quality in an efficient and economic manner and still satisfy individual
customer needs.
(1) To cope with this problem, some service marketers offer standardized packages.
f. The characteristic of intangibility makes it difficult for customers to evaluate a service
prior to purchase.
(1) The customer is forced to place some degree of trust in the service provider to
perform the service in a manner that meets or exceeds those promises.
(2) To cope with this problem, marketers will employ tangible cues, such as well-
groomed, professional-appearing contact personnel, to assure customers about
the quality and professionalism of the service.
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g. The inseparability of production and consumption and the level of customer contact
also influence the development and management of services.
(1) The fact that customers are present during the production of a service means
that other customers can affect the outcome of the service.
2. Pricing of Services
a. Services should be priced with consumer price sensitivity, the nature of the
transaction, and its costs in mind.
b. Prices of services can be established on several different bases.
(1) The prices of some services are based on the performance of specific tasks.
(2) Other service prices are based on time.
(3) Some services use demand-based pricing; when demand for the service is high,
the price is also high; when demand for a service is low, so is the price.
(a) The perishability of services means that when demand is low, the unused
capacity cannot be stored and is therefore lost forever.
(b) Some services are very time-sensitive because a significant number of
customers desire the service at a particular time; this point in time is
called peak demand.
(4) When services are offered to customers in a bundle, marketers must decide
whether to offer the services at one price, price them separately, or use a
combination of the two methods.
(a) Some service providers offer a one-price option for a specific bundle of
services and make add-on bundles available at additional charges.
c. Because of the intangible nature of services, customers rely heavily at times on price
as an indicator of quality.
(1) If customers perceive the available services in a service category as being
similar in quality, and if the quality of such services is difficult to judge even
after these services are purchased, customers may seek out the lowest-priced
provider.
3. Distribution of Services
a. Marketers deliver services in various ways.
(1) In some instances, customers go to a service provider’s facility.
(2) Some services are provided at the customer’s home or business.
(3) Some services are delivered primarily at “arm’s length,” meaning that no face-
to-face contact occurs between the customer and the service provider.
b. Marketing channels for services are usually short and direct, meaning that the
producer delivers the service directly to the end user.
(1) Some services, however, use intermediaries.
c. Service providers are less concerned with warehousing and transportation than are
goods marketers.
(1) They are very concerned, however, about inventory management, especially
balancing supply and demand.
(2) The service characteristics of inseparability and level of customer contact
contribute to the challenges of demand management.
(3) In some instances, service marketers use appointments and reservations as
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approaches for scheduling the delivery of services.
(4) To increase the supply of a service, marketers use multiple service sites and also
increase the number of contact service providers at each site.
d. To make delivery more accessible to customers and to increase the supply of a service,
as well as reduce labor costs, some service providers have decreased the use of contact
personnel and replaced them with equipment.
(1) In other words, they have changed a high-contact service into a low-contact one.
4. Promotion of Services
a. Because it may not be possible to depict the actual performance of a service in an
advertisement or to display it in a store, explaining a service to customers can be a
difficult task.
b. Promotion of services typically includes tangible cues that symbolize the service.
(1) Although the symbols have nothing to do with the actual services, they make it
much easier for customers to understand the intangible attributes associated
with the service.
(2) To make a service more tangible, advertisements for services often show
pictures of facilities, equipment, and service personnel.
c. Compared with goods marketers, service providers are more likely to promote price,
guarantees, performance documentation, availability, and training and certification of
contact personnel.
(1) When preparing advertisements, service marketers are careful to use concrete,
specific language to help make services more tangible in the minds of
customers.
(2) Service companies are also careful not to promise too much regarding their
services so that customer expectations do not rise to unattainable levels.
d. Through their actions, service contact personnel can be directly or indirectly involved
in the personal selling of services.
e. Because of the heterogeneity and intangibility of services, word-of-mouth
communication is important in service promotion.
VII. Organizing to Develop and Manage Products
A. Managing products is a complex task; often, the traditional functional form of an organization
does not fit a company’s needs.
1. In this case, management must find an organizational approach that accomplishes the
tasks necessary to develop and manage products.
2. Alternatives to functional organization include the product or brand manager approach
and the venture team approach.
B. A product manager is responsible for a product, a product line, or several distinct products
that make up an interrelated group within a multiproduct organization.
1. A brand manager is responsible for a single brand.
2. Both product and brand managers operate cross–functionally to coordinate the activities,
information, and strategies involved in marketing an assigned product.
3. The product or brand manager approach to organization is used by many large, multiple–
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Chapter 11: Developing and Managing Goods and Services
product companies.
C. A venture team creates entirely new products that may be aimed at new markets.
1. Unlike a product or market manager, a venture team is responsible for all aspects of
developing a product.
2. In working outside established divisions, venture teams have greater flexibility to apply
inventive approaches to develop new products that can take advantage of opportunities in
highly segmented markets.