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Chapter 12 Product and Service Strategies 329
CHAPTER 12
PRODUCT AND SERVICE STRATEGIES
CHAPTER OVERVIEW
After discussing how companies do research, study consumer behavior, and mobilize for global
marketing, the attention in Chapter 12 now turns to how a company takes action and makes it all happen
by creating a marketing mix. The text explores in detail the marketing mix, the blend of four elements of a
marketing strategy—product, distribution, promotion, and price—to satisfy the target market.
Chapter 12 focuses on how firms select and develop the goods and services they offer, starting with
planning which products to produce. The other variables of the marketing mix—distribution channels,
promotional plans, and pricing decisions—must accommodate the product strategy selected.
Changes in the 17th Edition
The chapter has been updated and revised in several ways:
• The Opening Vignette and Evolution of a Brand illustrate how the Apple brand became a
technology icon, with its combination of product design and customer service. Apple leads in the
design of sleek and highly functional products that are dependable and intuitively easy to use. The
brand prioritizes innovation, introducing new models frequently. Innovation truly drives the firm, and it
• Solving an Ethical Controversy features the controversy surrounding Kellogg’s Kashi brand cereal,
which was billed as “natural” but was found to contain non-organic, genetically modified soybeans.
Kashi defended its labeling, saying that it did not claim that the product was “organic,” a term that is
federally regulated and excludes genetically modified ingredients. More details, and pros and cons of
the issue are discussed in “Natural vs. Organic: Who Is Responsible for Knowing the Difference?”
330 Part 4 Product Decisions
• Marketing Success features Audi’s use of social media to allow potential customers to try out the
company’s new model. The campaign increased the brand’s visibility among customers. The
challenge, strategy, and outcome are discussed in “Audi Goes Social to Promote Brand.”
• Video Case 12.2 includes an overview of how BoltBus combines low prices and high-end amenities to
meet the needs of its customers.
LECTURE OUTLINE
Opening Vignette and Evolution of a Brand—“Apple’s ‘A’ for Innovation” As its retail vision, Apple
marketers chose “Enriching lives.” How does the company translate this vision in its everyday operations?
Chapter Objective 1: Define the term product.
Key Terms: marketing mix, want satisfaction
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1. The marketing mix
a. The marketing mix is the blend of the four elements—product,
distribution, promotion, and price—to satisfy the target market
b. The process of developing goods and services to offer begins with
planning which products to offer
2. What is a product?
a. We tend to think of products as items, but services, as well as
physical goods, are products, too
Chapter 12 Product and Service Strategies 331
image, and customer-service activities that add value for the
customer
d. A product is a bundle of physical, service, and symbolic attributes
designed to satisfy a customer’s wants and needs
Assessment check questions
1.2 Why is the understanding of want satisfaction so important to marketers? The
Chapter Objective 2: Distinguish between goods and services and how they relate to the goods–
services continuum.
Key Terms: services, goods, goods–services continuum
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1. What are goods and services?
a. Services are intangible tasks—actually intangible products—that
satisfy the needs of customers and business users
b. Most service providers cannot transport or store their products, but
instead customers simultaneously buy and consume them
c. Goods are tangible products or items that customers can see,
hear, smell, taste, or touch
d. One way to distinguish services from goods is the goods–services
continuum
e. Services can be distinguished from goods in several ways:
i. Services are intangible—customers are asked to buy a
promise
f. A product often blurs the distinction between services and goods
332 Part 4 Product Decisions
Figure 12.1 The
Goods-Services
services.” Then list
some that might be
placed in the middle
of the continuum.
Assessment check questions
2.1. Describe the goods-services continuum. The goods-services continuum is a
2.2. List the six characteristics that distinguish services from goods. The six
characteristics distinguishing services from goods are the following: (1) services
are intangible; (2) services are inseparable from the service providers; (3) services
Chapter Objective 3: Outline the importance of the service sector in today’s marketplace.
Key Terms: homeshoring
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along with the goods
it sells. Which two
firms are pure service
providers (those that
1. Importance of the service sector
a. We would all live very different lives without service firms to fill
many daily needs—the service sector makes a huge contribution
to the U.S. economy in terms of both products and jobs
b. The service sector now makes up more than three-fourths of the
U.S. economy as the nation shifts from a goods-producing
2. Reasons for growth in services:
a. Consumer desire for speed and convenience
b. Technological advances that allow firms to fulfill this demand
3. Most service firms emphasize marketing for two reasons:
a. The growth potential of service transactions represents a vast
marketing opportunity
Chapter 12 Product and Service Strategies 333
themselves. Providing superior service is one way to develop long-
term relationships
Assessment check questions
3.1. Identify two reasons services are important to the U.S. economy and business
3.2. Why do service firms emphasize marketing? The growth of potential service
transactions represents a vast marketing opportunity, and the environment for
services is changing—so marketers need to find new ways to reach customers.
Chapter Objective 4: Describe the three classifications of consumer goods and services.
Key Terms: consumer products (B2C) products, business products (B2B) products, industrial or
organizational products, unsought products, convenience products, impulse goods and services, staples,
emergency goods and services, shopping products, specialty products
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Classification of
Consumer Products.
Go through the
alphabet and quickly
think of a popular
good or service for
each letter. Then
decide in which of the
four categories each
should be placed. Do
1. Classifying goods and services for consumer and business markets
a. A firm’s choices for marketing a good or service depend on the
offering itself and on the nature of the target market
2. Types of consumer products
a. One distinction in classifying products focuses on the buyer’s
perception of a need for the product as well as his or her buying
behavior
3. Convenience products
a. Convenience products are goods and services that consumers
want to purchase frequently, immediately, and with minimal effort
b. Marketers further subdivide the convenience category into impulse
items, staples, or emergency items
i. Impulse goods and services are purchased on the spur of
the moment, some even now available on certain websites
ii. Staples are bought constantly to replenish and maintain a
ready inventory, and often have specific marketing
334 Part 4 Product Decisions
some belong in
Marketing Success—
Audi Goes Social to
messages since many competitors offer these products
4. Shopping products
a. Shopping products are purchased only after the consumer
compares competing offerings on characteristics such as price,
quality, style, and color
b. Shopping products differ from convenience products in several
ways:
i. They are generally more expensive
ii. The purchaser lacks complete information prior to the
buying trip, and gathers it in the process
c. Some shopping products are viewed as homogeneous
i. To consumers, one brand often seems much like another
ii. Marketers try to differentiate homogeneous products from
competing products in terms of price and value, quality,
appeal, or uniqueness
choices
5. Specialty products
a. Specialty products offer unique characteristics that cause buyers
Chapter 12 Product and Service Strategies 335
Table 12.1 Marketing
Impact of the
Consumer Products
Classification
System. In which
ways do the three
types differ greatly?
In which ways are
c. Purchasers of specialty goods and services know just what they
want—and they are willing to pay for it
i. Buyers begin shopping with complete information and
refuse to accept substitutes
6. Classifying consumer services
a. Like tangible goods, services are also classified based on
convenience, shopping, and specialty categories
b. But several factors are unique to classifying services, and service
firms may sell to business markets, consumer markets, or both
c. Marketers can ask five questions to classify services:
i. What is the nature of the service?
ii. What type of relationship does the firm have with its
customers?
7. Applying the consumer products classification system
a. The three-way classification system (convenience, shopping or
specialty) guides firms in developing a marketing strategy
continuum, depending on effort spent by consumers—at
one end they casually pick up items, at the other end they
search extensively for specific products
iii. Consumers differ in their buying patterns. Marketers
classify goods and services by considering the purchase
patterns of the majority of buyers.
4.1. What are the three major classifications of consumer products? The three
4.2. Identify five factors marketers should consider in classifying consumer
services. The five factors are the following: (1) the nature of the service, (2) the
relationship between the service organization and its customers, (3) flexibility for
336 Part 4 Product Decisions
delivered.
Chapter Objective 5: Identify the six types of business goods and services.
Key Terms: installations, accessory equipment, industrial distributor, component parts and materials, raw
materials, supplies, MRO items, business services
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Figure 12.4
Classification of
Business Products.
Make a list of ten of
the Fortune 500
companies, then next
to each firm write
down any raw
material, part, or
1. Types of business products
a. Business buyers are professional customers
2. Installations
a. Installations are the specialty products of the business market
b. This classification includes major capital investments
i. These purchases represent major decisions for firms since
they last a long time and involve large sums of money
ii. Negotiations often extend over several months and
involve numerous decision makers
iii. Vendors often provide technical expertise along with
tangible goods
3. Accessory equipment
a. Accessory equipment refers to capital items that cost less and last
for shorter periods than installations
4. Component parts and materials
a. Component parts and materials are finished business products of
one producer that become part of the final products of another
producer
Chapter 12 Product and Service Strategies 337
Solving an Ethical
Controversy—Natural
vs. Organic: Who Is
Responsible for
Knowing the
Difference?
Table 12.2 Marketing
Impact of the
Business Products
Classification
System. Which
variables are often
similar for each of the
5. Raw materials
a. Raw materials resemble component parts and materials in that
they become part of the buyers’ final products
b. Most raw materials carry grades determined by set criteria,
assuring purchasers of the receipt of standardized products of
6. Supplies
a. Supplies are regular expenses that a firm incurs in its daily
operations, and are not part of a final product
b. Supplies are also called MRO items because they fall into three
7. Business services
a. The business services category includes intangible products that
firms buy to facilitate their production and operating processes
g. The purchase of the right business services can make a difference
in a firm’s competitiveness
Assessment check questions
338 Part 4 Product Decisions
six factors? Which
differ widely among
the six factors?
5.1. What are the six main classifications of business products? The six main
Chapter Objective 6: Discuss how marketers use quality as a product strategy.
Key Term: Total quality management (TQM), ISO 9001: 2008, benchmarking, service encounter, service
quality
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Career Readiness—
Email: Think Before
You Send. Can you
come up with a few
more tips that would
1. Quality as a product strategy
a. Poor quality discovered in a newly purchased item can leave an
impression that will lead customers to make different purchases in
the future
b. Poor service quality can also leave bad impressions with
consumers
c. In both ways, quality is the key component to a firm’s success in a
competitive marketplace
d. Total quality management
i. Total quality management (TQM) expects all of a firm’s
employees to continually improve products and work
2. Worldwide quality programs
a. The movement toward quality began in the 1920s as an attempt to
improve the manufacturing process
b. During the 1980s the quality revolution picked up speed in U.S.
corporations, at a time when large firms had lost market share to
Japanese competitors
c. The Malcolm Baldrige National Quality Award is the highest
national recognition for quality that a U.S. company can receive; it
3. Benchmarking
a. Many quality-conscious firms rely on benchmarking to set
performance standards
b. The purpose of benchmarking is to achieve superior performance
that results in a competitive advantage in the marketplace.
c. It does this in three ways:
i. Identifying manufacturing or business processes that need
improvement
4. Quality of services
a. The buyer’s perception of the quality of a service is usually
determined during the service encounter—the point at which the
customer and service provider interact
b. Sales associates, cashiers, and customer service representatives
have a powerful impact on a customer’s decision to return or not
c. As the customer talks about an experience during the service
encounter, a powerful message about the service is transferred
d. Service quality refers to the expected or perceived value of a
service, having a huge effect on the competitiveness of a firm
e. Service quality is determined by five variables:
Assessment check questions
6.1. What is TQM? TQM stands for total quality management, a process that
6.2. What are the five variables of service quality? The five variables of service
quality are tangibles, reliability, responsiveness, assurances, and empathy.
Chapter Objective 7: Explain why firms develop lines of related products.
Key Term: product line
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1. Development of product lines
2. Motivations for marketing full product lines include: the desire to grow, to
enhance the firm’s position in the market, to make optimal use of company
resources, and to exploit the stages of the product life cycle
a. Desire to grow
i. Firms may limit their growth potential by concentrating on
a single product, even if they started that way
ii. It is unlikely that growth will result from selling only one
product, so many firms expand their product offerings
b. Enhancing the company’s position in the market
i. A company with a line of products often makes itself more
important to both consumers and marketing intermediaries
than a firm with only one product
c. Optimal use of company resources
i. By spreading the costs of operations over a series of
products, a firm may reduce the average production and
marketing costs for each product
Assessment check questions
7.1. List the four reasons for developing a product line. The four reasons why firms
(4) exploiting the stages of the product life cycle.
7.2. Give an example of a product line with which you are familiar. Product lines
could include salad dressings, hybrid automobiles, sporting equipment, hotel
chains, and so on.
Chapter 12 Product and Service Strategies 341
product mix decisions.
Key Terms: product mix, line extension
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Table 12.3 Johnson
& Johnson’s Mix of
Health-Care
Products. Which
broad areas of care
do these products
cover? Can you think
of other areas of
healthcare in which
popular products by
other firms (such as
P&G) can be
categorized?
1. The product mix
a. The product mix is an assortment of product lines and individual
2. Marketers typically measure product mixes according to width, length, and
depth
a. Product mix width: Refers to the number of product lines a firm
3. Product mix decisions
a. Establishing and managing the product mix have become
increasingly important in the world of marketing
b. The width of a product mix refers to the number of product lines
the firm offers
c. The length of a product mix refers to the number of different
products a firm sells
d. Depth refers to variations in each product the firm markets in its
mix
e. Adding depth, length, and width to product mixes requires careful
thinking and planning, or the firm ends up with too many products,
including some poor sellers
i. If a firm has ignored a consumer segment, it might
increase its depth by offering a new variation
f. Line extensions
i. A line extension adds individual offerings that appeal to
different market segments while remaining closely related
to the existing product line
g. The marketing environment also plays a role in a marketer’s
evaluation of a firm’s product mix
h. Careful evaluation of product mix can help in making decisions
about brand management and new-product introductions
342 Part 4 Product Decisions
Assessment check questions
8.1. Define product mix. The product mix is a company’s assortment of product
lines and individual product offerings.
8.2. How do marketers typically measure product mixes? The product mix is
measured by width, length, and depth.
Chapter Objective 9: Explain the four stages of the product lifecycle.
Key Terms: product lifecycle, introductory stage, growth stage, maturity stage, decline stage
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Cycle. Think of five
product categories
from recent years or
even from past
decades. In which
stage is each
product? Is it difficult
to determine the
stage for some
products? Why?
1. The product lifecycle
a. Products pass through stages as they age, and this progression is
referred to as the product lifecycle
b. Successful products pass through four basic stages: introduction,
d. There is no set time frame for a lifecycle stage—some products
pass rapidly through certain stages, others move more slowly
2. The stages of the product life cycle
a. Introductory stage—product is launched
i. Firm works to stimulate demand for the new market entry
ii. It could be a totally new product, or an innovative offering
bringing new technical features to an existing category
iii. Since the item is unknown to the public, promotions stress
information about features
iv. The public becomes acquainted with the item’s merits and
begins to accept it
v. Technical problems and financial losses are common in
this stage as the firm has to fine-tune product design and
spend money on advertising
b. Growth stage—sales rise, firm begins to make profit, competitors
enter
i. Sales volume rises rapidly
ii. New customers make purchases and early buyers make
repurchases
c. Maturity stage—sales reach a plateau, many competitors attempt
to differentiate products
i. Sales of a product category continue to grow during the
early part of this stage, but eventually sales reach a
Chapter 12 Product and Service Strategies 343
plateau as the backlog of potential customers dwindles
ii. By this time, many competitors are in the market
iii. A firm’s profits begin to decline as competition intensifies
iv. Differences between competing products diminish as
competitors discover the most desired product and
promotional characteristics
v. Companies increase sales and market share only at the
expense of competitors
vi. As competition intensifies, heavy promotion emphasizes
any differences that still separate competing products
d. Decline stage—sales fall dramatically, most firms drop the item
from their product lines
i. Innovations or shifts in consumer preferences bring about
an absolute decline in industry sales
ii. Profits decrease
iii. Some firms refuse to give up and continue to successfully
sell a certain product even as the overall market declines
iv. Most companies gradually drop the declining items from
their product lines and search for alternatives
3. Fads and fashions
a. Product life cycles differ from fad cycles
i. Fashions refer to currently popular products that tend to
follow recurring lifecycles
Assessment check questions
9.2. During which stage or stages are products likely to attract the most new
customers? Products usually attract the most new customers during the
introductory and growth stages.
Chapter Objective 10: Describe the four strategies for extending a product’s lifecycle and why
certain products may be eliminated.
Key Terms: None
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1. Extending the product lifecycle
a. Firms usually want to extend product lifecycles as long as possible
344 Part 4 Product Decisions
2. Increasing frequency of use
i. The focus is on getting current users to purchase more
3. Increasing the number of users
i. The focus is on attracting new customers who previously
4. Finding new uses
i. Finding new uses for a product is an excellent strategy for
5. Changing package sizes, labels, or product quality
i. The focus is on introducing physical changes to the look
6. Product deletion decisions
a. Marketers must sometimes prune product lines and eliminate
marginal products
b. This is done to avoid wasting a firm’s resources in the promotion
