Video Case 11.3: Zipcar and UNH: Customer-Driven Marketing

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service proactively in coming years—sending Zipcar

information to incoming students and faculty before

they arrive on campus with their own vehicles. UNH conducted a survey of members and discovered that users

like the convenience and visibility of the cars as well as

the low cost. Badger might be the Zipcar’s best spokesperson at UNH. “I wish I’d figured it out a lot sooner,”

she admits. She accrued a lot of parking tickets around

campus before she joined Zipcar. “I’d have saved myself

a lot of money if I’d joined sooner,” she says.



Questions for Critical Thinking

1. Who is Zipcar’s target market? How might

Zipcar’s market be further segmented?



2. Describe how Zipcar might create a marketing

mix for colleges and universities.

3. Just as Zipcar must market to UNH, UNH in

turn must market the Zipcar concept to its

customers—students and faculty. Describe how

studying consumer behavior could help select a

strategy for UNH’s marketing effort.

4. What steps can Zipcar take to manage its relationship with UNH?

Sources: Zipcar Web site, http://www.zipcar.com, accessed March

24, 2012; University of New Hampshire Transportation Services, http://

www.unh.edu/transportation, accessed March 24, 2012; “Zipcar, Inc.,”

Bloomberg Businessweek, http://investingbusinessweek.com, accessed

March 24, 2012.



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Learning Objectives

1 Explain product strategy.

2 Briefly describe the four stages of the product life cycle.



Chapter



12



3 Discuss product identification.

4 Outline the major components of an effective distribution strategy.

5 Explain wholesaling.

6 Describe retailing.

7 Identify distribution channel decisions and logistics.



Steve Cole/iStockphoto



Product and Distribution

Strategies



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Panama Canal’s Expansion

Is a Game Changer



L



ife has changed in many ways since the 1960s, but here’s

one way you might not have thought about. Back then, every

commercial ship afloat could pass through the Panama Canal.

Today, about 15 percent of shipping must travel a different

route than through the 100-year-old passage between the

Atlantic and Pacific Oceans because the ships are too wide or

too deep to navigate the canal.

Rising fuel prices have driven shipping companies to build

ever-larger ships that can carry more cargo in fewer trips. When

ships can’t travel through the canal, goods from Asia must

travel over land by truck and rail, which is more expensive, to

reach consumers on the East Coast where about two-thirds of

the U.S. population lives.

A $5.25 billion expansion project is underway to widen and

deepen the canal, allowing larger, post-Panama-sized ships to

pass through the all-water route from Asia to the U.S. Atlantic

coast. The expansion doubles the amount of freight that can

go through the canal and will have a significant impact on

distribution.



By reducing shipping costs, the canal’s expansion will reward

shipping companies, manufacturers, and retailers with higher

profit margins and consumers with lower prices, although

goods will take a bit longer to arrive. Still, the trade-off is

considered worthwhile. The largest ships passing through the

canal today can carry about 4,000 20-foot containers; after the

expansion is complete in 2014, ships carrying 12,600—triple

the amount—will sail through.

Exactly where these ships will dock is still an open question.

Currently they can put in only at Norfolk, Virginia, but ports

in New York, New Jersey, Maryland, and Florida are among

those racing to prepare for the arrival of the larger ships. “The

Panama Canal . . . is stimulating a great deal of infrastructure

investment and attention into the port systems, particularly

along the East Coast of the U.S., the mid-Atlantic coast, and

certain areas of the Gulf Coast as well,” says one report.

With new access to and from Asia through the canal, even

railroads expect things in the transportation and distribution

business to change. Whenever new capacity is built in a global

transportation system, people find a way to use it.1



Overview

In this chapter we examine ways in which

organizations design and implement marketing

strategies that address customers’ needs and

wants. Two of the most powerful such tools are

strategies that relate to products, which include

both goods and services, and those that relate

to the distribution of those products.

As the story of the Panama Canal illustrates, successful organizations stay ahead of

changes in their business environment and

anticipate their customers’ needs. Widening

the Panama Canal assures that it remains the

route of choice for today’s commercial vessels,

saving fuel and minimizing shipping costs.

This chapter focuses on the first two

elements of the marketing mix: product



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and distribution. Our discussion of product

strategy begins by describing the classifications of goods and services, customer service,

product lines and the product mix, and the

product life cycle. Companies often shape

their marketing strategies differently when

they are introducing a new product, when

the product has established itself in the marketplace, and when it is declining in popularity. We also discuss product identification

through brand name and distinctive packaging, and the ways in which companies foster

loyalty to their brands to keep customers

coming back for more.

Distribution, the second mix variable

discussed, focuses on moving goods and



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services from producer to wholesaler to

retailer to buyers. Managing the distribution process includes making decisions

such as what kind of wholesaler to use and

where to offer products for sale. Retailers

can range from specialty stores to factory

outlets and everything in between, and



1



product bundle of physical, service, and symbolic

characteristics designed to

satisfy consumer wants.



they must choose appropriate customer

service, pricing, and location strategies

in order to succeed. The chapter concludes with a look at logistics, the process

of coordinating the flow of information,

goods, and services among suppliers and

on to final consumers.



Product Strategy

Most people respond to the question “What is a product?” by listing its physical

features. By contrast, marketers take a broader view. To them, a product is a bundle of

physical, service, and symbolic characteristics designed to satisfy consumer wants. The chief

executive officer of a major tool manufacturer once startled his stockholders with this statement: “Last year our customers bought over 1 million quarter-inch drill bits, and none of

them wanted to buy the product. They all wanted quarter-inch holes.” Product strategy

involves considerably more than just producing a good or service; instead, it focuses on benefits. The marketing conception of a product includes decisions about package design, brand

name, trademarks, warranties, product image, new-product development, and customer service. Think, for instance, about your favorite soft drink. Do you like it for its taste alone? Or

do other attributes, such as clever ads, attractive packaging, ease of purchase from vending

machines and other convenient locations, and overall image, also attract you? These other

attributes may influence your choice more than you realize.



Classifying Goods and Services

Marketers have found it useful to classify goods and services as either B2C or B2B,

depending on whether the purchasers of the particular item are consumers or businesses.

These classifications can be subdivided further, and each type requires a different competitive strategy.



Classifying Consumer Goods and Services

The classification typically used for ultimate consumers who purchase products for their

own use and enjoyment and not for resale is based on consumer buying habits. Convenience

products are items the consumer seeks to purchase frequently, immediately, and with little

effort. Items stocked in gas-station markets, vending machines, and local newsstands are usually convenience products—for example, newspapers, snacks, candy, coffee, and bread.

Shopping products are those typically purchased only after the buyer has compared competing products in competing stores. A person intent on buying a new sofa or dining room

table may visit many stores, examine perhaps dozens of pieces of furniture, and spend days

making the final decision. Specialty products, the third category of consumer products, are

those that a purchaser is willing to make a special effort to obtain. The purchaser is already

familiar with the item and considers it to have no reasonable substitute. The nearest Lexus

dealer may be 75 miles away, but if you have decided you want one, you will make the trip.

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The interrelationship of the marketing mix factors

is shown in Figure 12.1. By knowing the appropriate

classification for a specific product, the marketing decision maker knows quite a bit about how the other mix

variables will adapt to create a profitable, customerdriven marketing strategy.



Classifying Business Goods Business

products are goods and services such as paycheck services and huge multifunction copying machines used in

operating an organization; they also include machinery,

tools, raw materials, components, and buildings used to

Buying a specialty product takes extra effort. The Fiat 500 is sold in a limited number

produce other items for resale. While consumer prodof places.

ucts are classified by buying habits, business products

are classified based on how they are used and by their basic characteristics. Products that are

long-lived and relatively expensive are called capital items. Less costly products that are consumed within a year are referred to as expense items.



KristofferTripplaar/Sipa/NewsCom



Note that a shopping product for one person may

be a convenience item for someone else. Each item’s

product classification is based on buying patterns of the

majority of people who purchase it.



FIGURE



12.1



Marketing Impacts of Consumer Product Classification



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Five basic categories of B2B products exist: installations, accessory equipment, component parts and materials, raw materials, and supplies. Installations are major capital

items, such as new factories, heavy equipment and machinery, and custom-made equipment. Installations are expensive and often involve buyer and seller negotiations that

may last for more than a year before a purchase actually is made. Purchase approval

frequently involves a number of different people—production specialists, representatives

from the purchasing department, and members of top management—who must agree on

the final choice.

Although accessory equipment also includes capital items, they are usually less expensive

and shorter lived than installations and involve fewer decision makers. Examples include

hand tools and fax machines. Component parts and materials are finished business goods that

become part of a final product, such as disk drives that are sold to computer manufacturers

or batteries purchased by automakers. Raw materials are farm and natural products used in

producing other final products. Examples include milk, wood, leather, and soybeans. Supplies

are expense items used in a firm’s daily operation that do not become part of the final product. Often referred to as MRO (maintenance, repair, and operating supplies), they include

paper clips, light bulbs, and copy paper.



Classifying Services Services can be classified as either B2C or B2B. Child and



elder care centers and auto detail shops provide services for consumers, while the Pinkerton

security patrol at a local factory and Kelly Services’ temporary office workers are examples

of business services. In some cases, a service can accommodate both consumer and business

markets. For example, when ServiceMaster cleans the upholstery in a home, it is a B2C service, but when it spruces up the painting system and robots in a manufacturing plant, it is a

B2B service.



Like tangible goods, services can also be convenience, shopping, or specialty products depending on the buying patterns of customers. However, they are distinguished

from goods in several ways. First, services, unlike goods, are intangible. In addition,

they are perishable because firms cannot stockpile them in inventory. They are also difficult to standardize, because they must meet individual customers’ needs. Finally, from

a buyer’s perspective, the service provider is the service; the two are inseparable in the

buyer’s mind.



Marketing Strategy Implications

The consumer product classification system is a useful tool in marketing strategy. As

described in Figure 12.1, because a new refrigerator is classified as a shopping good, its marketers have a better idea of its promotion, pricing, and distribution needs.

Each group of business products, however, requires a different marketing strategy.

Because most installations and many component parts are frequently marketed directly

from manufacturer to business buyer, the promotional emphasis is on personal selling rather

than on advertising. By contrast, marketers of supplies and accessory equipment rely more

on advertising, because their products are often sold through an intermediary, such as a

wholesaler. Producers of installations and component parts may involve their customers in

new-product development, especially when the business product is custom made. Finally,

firms selling supplies and accessory equipment place greater emphasis on competitive pricing

strategies than do other B2B marketers, who tend to concentrate more on product quality

and customer service.

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Product Lines and Product Mix

Few firms operate with a single product. If their initial entry is successful, they tend to increase their profit and growth chances by adding

new offerings. The iPhone and iPad, with their touchscreen technology

and App Stores, are harbingers of things to come. Although most mainstream knowledge workers will probably continue to use conventional

computers for some time, touchscreen technology is fast becoming a

standard feature in consumer electronics.2



Marketers must assess their product mix continually to ensure

company growth, to satisfy changing consumer needs and wants, and

to adjust to competitors’ offerings. To remain competitive, marketers

look for gaps in their product lines and fill them with new offerings

or modified versions of existing ones. A helpful tool that is frequently

used in making product decisions is the product life cycle.



2



Teri Stratford



A company’s product line is a group of related products marked by

physical similarities or intended for a similar market. A product mix is

the assortment of product lines and individual goods and services that a

firm offers to consumers and business users. The Coca-Cola Company

and PepsiCo both have product lines that include old standards—Coke

Classic and Diet Coke, Pepsi and Diet Pepsi. But recently, PepsiCo

announced it would start distributing Tampico Plus in selected states.

Unlike other products from Tampico Beverages, Tampico Plus drinks

contain vitamins A, C, and E. They also have half as much sugar as

regular Tampico drinks. Thus, they meet the guidelines for beverages

that can be sold in U.S. high schools, which want to limit the amount of

sugar in drinks available to students.3



A product line includes several related products designed to have

the same appearance, like these PepsiCo products.



Product Life Cycle

Once a product is on the market, it usually goes through four stages known as the product life cycle: introduction, growth, maturity, and decline. As Figure 12.2 shows, industry

sales and profits vary depending on the life cycle stage of an item.

Product life cycles are not set in stone; not all products follow this pattern precisely, and different products may spend different periods of time in each stage. The concept, however, helps

the marketing planner anticipate developments throughout the various stages of a product’s life.

Profits assume a predictable pattern through the stages, and promotional emphasis shifts from

dispensing product information in the early stages to heavy brand promotion in the later ones.



Stages of the Product Life Cycle

In the introduction stage, the firm tries to promote demand for its new offering; inform

the market about it; give free samples to entice consumers to make a trial purchase; and

explain its features, uses, and benefits. Sometimes companies partner at this stage to promote

new products. Others launch product offerings that enhance the use of products made by

other companies, thus granting the start-up nearly immediate name recognition. Loopt is

one such firm. Created by three college students, California-based Loopt transforms users’

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product line group of

related products marked

by physical similarities

or intended for a similar

market.

product mix the assortment of product lines

and individual goods and

services that a firm offers

to consumers and business

users.



Assessment

Check

1. How do consumer products differ from business

products?

2. Differentiate among convenience, shopping, and

specialty products.

product life cycle four

basic stages—introduction, growth, maturity,

and decline—through

which a successful product

progresses.



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FIGURE



12.2



Stages in the Product Life Cycle



Sales and Profits



Maturity

Growth

(Late)

Introduction

Introdu

on

Flex-Fuel

vehicles, Internet

TV broadcasts



(Early)



Flip phone



iPhone, Satellite

radio, Internet

video-conferencing



Tablets



Decline

DVD players



INDUSTRY

SALES



INDUSTRY PROFITS

Time



cell phones into a GPS-sharing system that alerts them when friends are nearby. In addition,

Loopt uses integrated content from Facebook, Citysearch, Bing, and other Web services to

provide more geographic search data to users, and offers iPad and BlackBerry apps.4

New-product development costs and extensive introductory promotional campaigns to

acquaint prospective buyers with the merits of the innovation, though essential to later success, are expensive and commonly lead to losses in the introductory stage. Some firms are

seeking to lower these costs through ultra-low-cost product development, which involves

meeting customer needs with the lowest-cost innovations possible, designing from scratch

with a stripped-down budget, and the simplest engineering possible. But all these expenditures are necessary if the firm is to profit later.

During the growth stage, sales climb quickly as new customers join early users who now

are repurchasing the item. Word-of-mouth referrals and continued advertising and other

special promotions by the firm induce others to make trial purchases. At this point, the

company begins to earn profits on the new product. This success encourages competitors to

enter the field with similar offerings, and price competition develops. After its initial success

with the Kindle, Amazon faced competition from Barnes & Noble’s Nook. Amazon rushed

to launch its Kindle for the iPad, then Barnes & Noble countered with its popular NOOK

Color. The two competitors continue to release new models with additional features.5

In the maturity stage, industry sales at first increase, but they eventually reach a saturation

level at which further expansion is difficult. Competition also intensifies, increasing the availability of the product. Firms concentrate on capturing competitors’ customers, often dropping prices to further the appeal. Cell phones are in the maturity stage: competitors compete

not only on price but also on features such as calendars, e-mail and attachments, messaging

capability, full-color screens, keyboards, and fax and word-processing functions. When flatscreen TVs reached the maturity stage, companies tried to entice consumers to buy new ones

by offering even bigger TVs than they had before, topping the 90-inch mark. As worldwide

production of high-definition TVs increased dramatically, makers of TVs with the old LED

backlight display lowered their prices dramatically to stay competitive with TVs featuring

newer technology.6

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Hit



& Miss

Kodak Ignores the Digital Picture



When Eastman Kodak entered a restructuring bankruptcy recently, it

had become a victim of its own success. The 131-year-old Rochester, New

York, company virtually invented the film industry, made Hollywood possible, and later dominated the market with iconic brands such as Brownie,

Instamatic, and Kodachrome. But it acted years too late to adapt to the

digital technology that replaced its most innovative product—film. “Clearly

they could have made some changes faster,” said one former employee,

“but there just weren’t a lot of options to replace the film business.”

One option, ironically, was the digital camera, which Kodak also

invented but failed to pursue aggressively for fear of hurting its profitable film products. Kodak’s focus on film while other technologies were

created caused the company to lose focus on its future and caused a

severe decline in its business. Instead of capitalizing on its digital technology, Kodak’s storied film products became a liability. The restructured,

smaller firm will focus on photo printing and desktop inkjet printers.



Questions for Critical Thinking

1. In what way did Kodak let its history become a liability?

2. Kodak’s CEO says the company was better at inventing

products than at commercializing them. What does that

statement mean?

Sources: “Kodak to Stop Making Cameras, Digital Frames,” The Wall Street Journal, February 9,

2012, http://online.wsj.com; Dawn McCarty and Beth Jinks, “Kodak Files for Bankruptcy

as Digital Era Spells End to Film,” Bloomberg Businessweek, January 25, 2012, www

.businessweek.com; Michael J. De La Merced, “Eastman Kodak Files for Bankruptcy,”

The New York Times, January 19, 2012, www.nytimes.com; Michael Kraten, “Sears, Kodak,

and the Product Life Cycle,” AQPQ, January 3, 2012, http://aqpq.org.



Sales volume fades late in the maturity stage, and some of the weaker competitors leave

the market. During this stage, firms promote mature products aggressively to protect their

market share and to distinguish their products from those of competitors.

Sales continue to fall in the decline stage, the fourth phase of the product life cycle. Profits

decline and may become losses as further price-cutting occurs in the reduced overall market for

the item. Competitors gradually exit, making some profits possible for the remaining firms in

the shrinking market. The decline stage usually is caused by a product innovation or a shift in

consumer preferences. Sometimes technology change can hasten the decline stage for a product. For example, more than 90 percent of U.S. homes contain at least one DVD player. Once

touted as the ultimate in DVD technology, high-definition DVDs have now been superseded

by Blu-ray technology and online streaming sites. Online sites where consumers can simply

download movies or television shows are becoming another major competitor for entertainment as the link between computer and television is becoming faster and more reliable.7



Marketing Strategy Implications of the

Product Life Cycle

Like the product classification system, the product life cycle is a useful concept for

designing a marketing strategy that will be flexible enough to accommodate changing marketplace characteristics. These competitive moves may involve developing new products,

lowering prices, increasing distribution coverage, creating new promotional campaigns,

or any combination of these approaches. In general, the marketer’s objective is to extend

the product life cycle as long as the item is profitable. Some products can be highly profitable during the later stages of their life cycle, because all the initial development costs have

already been recovered. Others, like conventional film, can drag down a company that can’t

let go even as the product dies, as Eastman Kodak found. See the “Hit & Miss” feature.

A commonly used strategy for extending the life cycle is to increase customers’ frequency of use. Walmart and Target offer grocery sections in many of their stores to increase

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the frequency of shopper visits. Another strategy is to add new users. Despite the recent

lending crunch, credit-card issuers are actively advertising for new—and viable—customers.

Chase has been pushing its new line of credit cards designed for small businesses, called Ink.

Each Ink card program has its own benefits and rewards, such as no interest (Ink Bold) and

cash back (Ink Cash).8

A third product life cycle extension strategy is to find new uses for products. Post-it has

made successful use of this strategy. One recent blog posting lists 20 innovative ways students can use Post-it Notes, including wrapping the sticky edge around a cable to identify it

and using the sticky edge to clean between the keys of a computer keyboard.9 Finally, a firm

may decide to change package sizes, labels, and product designs. Mattel has done this several

times with its iconic Barbie doll.



Stages in New-Product Development

New-product development is expensive, time consuming, and risky, because only about

one-third of new products become success stories. Products can fail for many reasons. Some

are not properly developed and tested, some are poorly packaged, and others lack adequate

promotional support or distribution or do not satisfy a consumer need or want. Even successful products eventually reach the end of the decline stage and must be replaced with

new-product offerings.

FIGURE



12.3



Process for Developing New Goods and Services

Generate New Product Ideas



Screening



Concept Development and

Business Analysis



Product Development



Test

Marketing*



$



$

$

Commercialization

$



$



* Some firms skip this step and move directly from

product development to commercialization.



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Most of today’s newly developed items are aimed at satisfying specific consumer demands. New-product development

is becoming increasingly efficient and cost-effective because

marketers use a systematic approach in developing new products. As Figure 12.3 shows, the new-product development

process has six stages. Each stage requires a “go/no-go” decision by management before moving on to subsequent stages.

Because items that go through each development stage only

to be rejected at one of the final stages involve significant

investments in both time and money, the sooner decision

makers can identify a marginal product and drop it from further consideration, the less time and money will be wasted.

The starting point in the new-product development

process is generating ideas for new offerings. Ideas come

from many sources, including customer suggestions, suppliers, employees, research scientists, marketing research,

inventors outside the firm, and competitive products. The

most successful ideas are directly related to satisfying customer needs. Procter & Gamble’s Febreze eliminates odors

in the home and leaves a fresh scent. When P&G researchers discovered that cars often need freshening up, too—from

transporting well-used athletic equipment, small children,

and carryout meals—the company added Febreze CAR Vent

Clips to the product line. The clip attaches to a car’s air vent

and comes in five scents.10

In the second stage, screening eliminates ideas that do

not mesh with overall company objectives or that cannot be

developed given the company’s resources. Some firms hold



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open discussions of new-product ideas with specialists who work in different functional areas

in the organization.

During the concept development and business analysis phase, further screening occurs.

The analysis involves assessing the new product’s potential sales, profits, growth rate, and

competitive strengths and determining whether it fits with the company’s product, distribution, and promotional resources. Concept testing—marketing research designed to solicit

initial consumer reaction to new-product ideas—may be used at this stage. For example,

potential consumers might be asked about proposed brand names and other methods of

product identification. Focus groups are sessions in which consumers meet with marketers to

discuss what they like or dislike about current products and perhaps test or sample a new

offering to provide some immediate feedback.

Next, an actual product is developed, subjected to a series of tests, and revised.

Functioning prototypes or detailed descriptions of the product may be created. These

designs are the joint responsibility of the firm’s development staff and its marketers, who

provide feedback on consumer reactions to the proposed product design, color, and other

physical features. Sometimes prototypes do not meet the stated requirements. When the U.S.

military began looking for an improved helmet, it asked four companies to submit prototypes

for helmets that would be 35 percent more effective against fragmentation as well as handgun and small-arms bullets. But all four prototypes failed. Then, a couple of years later, one

firm submitted a prototype so strong that military engineers didn’t have equipment powerful enough to penetrate the shell. “We don’t know exactly [how strong] it is, but it’s better

than we’ve ever seen before,” said one U.S. Army spokesman. The military then had to build

stronger testing equipment.11

Test marketing introduces a new product supported by a complete marketing campaign to a selected city or TV coverage area. Marketers look for a location with a manageable size, where residents match their target market’s demographic profile, to test

their product. During the test marketing stage, the item is sold in a limited area while the

company examines both consumer responses to the new offering and the marketing effort

used to support it. Test market results can help managers determine the product’s likely

performance in a full-scale introduction. Some firms skip test marketing, however, because

of concerns that the test could reveal their strategies to the competition. Also, the expense

of doing limited production runs of complex products such as a new auto or refrigerator

is sometimes so high that the test marketing stage is skipped and the development process

moves directly to the next stage.



test marketing introduction of a new product

supported by a complete

marketing campaign to a

selected city or TV coverage

area.



In the final stage, commercialization, the product is made available in the marketplace.

Sometimes this stage is referred to as a product launch. Considerable planning goes into this

stage, because the firm’s distribution, promotion, and pricing strategies must all be geared to

support the new product offering. The video game maker Electronic Arts (EA) announced a

new distribution strategy for future products. The company will release premium downloadable

content (PLDC) for a game before releasing the complete, packaged version. The PLDC will

be moderately priced and include three to four hours of playing time. The company will invite

comments from reviewers and players and make changes to the final version prior to release.12

The need for a steady stream of new products to offer the firm’s customers, the chances

of product failure, and the tens of millions of dollars needed to complete a successful newproduct launch make new-product development a vital process for 21st-century firms.

However, as Table 12.1 illustrates, success is not guaranteed until the new-product offering

achieves customer acceptance. Microsoft introduced a new operating system, Windows Vista,

but it just never caught on. The next version of Windows, Windows 7, fared better. Sony’s

sock case for cameras is cute—but doesn’t protect cameras from bumps and scrapes. And who

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