8 Reviewing and Extending the Concepts

Objectives Review and Key Terms

Objectives Review

A product is more than a simple set of tangible features. Each product or service offered to customers can be viewed on three levels. The core customer value consists of the core problem-solving benefits that consumers seek when they buy a product. The actual product exists around the core and includes the quality level, features, design, brand name, and packaging. The augmented product is the actual product plus the various services and benefits offered with it, such as a warranty, free delivery, installation, and maintenance.

Objective 8-1 Define product and describe the major classifications of products and services. (pp 220225)

Broadly defined, a product is anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. Products include physical objects but also services, events, persons, places, organizations, ideas, or mixtures of these entities. Services are products that consist of activities, benefits, or satisfactions offered for sale that are essentially intangible, such as banking, hotel, tax preparation, and home-repair services.

Products and services fall into two broad classes based on the types of consumers who use them. Consumer products—those bought by final consumers—are usually classified according to consumer shopping habits (convenience products, shopping products, specialty products, and unsought products). Industrial products—those purchased for further processing or for use in conducting a business—include materials and parts, capital items, and supplies and services. Other marketable entities—such as organizations, persons, places, and ideas—can also be thought of as products.

Objective 8-2 Describe the decisions companies make regarding their individual products and services, product lines, and product mixes. (pp 225233)

Individual product decisions involve product attributes, branding, packaging, labeling, and product support services. Product attribute decisions involve product quality, features, and style and design. Branding decisions include selecting a brand name and developing a brand strategy. Packaging provides many key benefits, such as protection, economy, convenience, and promotion. Package decisions often include designing labels and logos, which identify, describe, and possibly promote the product. Companies also develop product support services that enhance customer service and satisfaction and safeguard against competitors.

Most companies produce a product line rather than a single product. A product line is a group of products that are related in function, customer-purchase needs, or distribution channels. All product lines and items offered to customers by a particular seller make up the product mix. The mix can be described by four dimensions: width, length, depth, and consistency. These dimensions are the tools for developing the company’s product strategy.

Objective 8-3 Identify the four characteristics that affect the marketing of services and the additional marketing considerations that services require. (pp 234240)

Services are characterized by four key aspects: they are intangible, inseparable, variable, and perishable. Each characteristic poses problems and marketing requirements. Marketers work to find ways to make the service more tangible, increase the productivity of providers who are inseparable from their products, standardize quality in the face of variability, and improve demand movements and supply capacities in the face of service perishability.

Good service companies focus attention on both customers and employees. They understand the service profit chain, which links service firm profits with employee and customer satisfaction. Services marketing strategy calls not only for external marketing but also for internal marketing to motivate employees and interactive marketing to create service delivery skills among service providers. To succeed, service marketers must create competitive differentiation, offer high service quality, and find ways to increase service productivity.

Objective 8-4 Discuss branding strategy—the decisions companies make in building and managing their brands. (pp 240248)

Some analysts see brands as the major enduring asset of a company. Brands are more than just names and symbols; they embody everything that the product or the service means to consumers. Brand equity is the positive differential effect that knowing the brand name has on customer response to the product or the service. A brand with strong brand equity is a very valuable asset.

In building brands, companies need to make decisions about brand positioning, brand name selection, brand sponsorship, and brand development. The most powerful brand positioning builds around strong consumer beliefs and values. Brand name selection involves finding the best brand name based on a careful review of product benefits, the target market, and proposed marketing strategies. A manufacturer has four brand sponsorship options: It can launch a national brand (or manufacturer’s brand), sell to resellers that use a private brand, market licensed brands, or join forces with another company to co-brand a product. A company also has four choices when it comes to developing brands. It can introduce line extensions, brand extensions, multibrands, or new brands.

Companies must build and manage their brands carefully. The brand’s positioning must be continuously communicated to consumers. Advertising can help. However, brands are not maintained by advertising but by customers’ brand experiences. Customers come to know a brand through a wide range of contacts and interactions. The company must put as much care into managing these touch points as it does into producing its ads. Companies must periodically audit their brands’ strengths and weaknesses.

Key Terms

Objective 8-1

Objective 8-2

Objective 8-3

Objective 8-4

Discussion and Critical Thinking

MyMarketingLab

Go to mymktlab.com to complete the problems marked with this icon A blue star icon..

Discussion Questions

  1. A blue star icon. 8-1 What is a consumer product? Describe the characteristics of each type of consumer product and give examples of each. (AACSB: Communication; Reflective Thinking)

  2. 8-2 Compare and contrast the two dimensions of product quality. (AACSB: Communication)

  3. A blue star icon. 8-3 What is a product line? Discuss the various product line decisions marketers make and how a company can expand its product line. (AACSB: Communication)

  4. 8-4 Discuss brand equity and brand value. How do marketers use these concepts to build powerful brands? (AACSB: Communication, Reflective Thinking)

  5. A blue star icon. 8-5 Explain the four choices companies have when developing brands. Provide an example of each. (AACSB: Communication, Reflective Thinking)

Critical Thinking Exercises

  1. 8-6 Walt Disney created the Disney brand from humble beginnings based on his love of drawing and animation. The Walt Disney Company has since expanded successfully into a global entertainment and media brand. Using the Internet, research the components that make up the Disney brand and discuss how The Walt Disney Company has expanded its product mix. (AACSB: Communication; Use of IT; Reflective Thinking)

  2. A blue star icon. 8-7 Companies must consider four special service characteristics when designing service marketing programs. Discuss a recent service experience using the four characteristics. Compare your service experience with that of a classmate. How do they differ? (AACSB: Communication, Reflective Thinking)

  3. 8-8 What is “genericide”? Discuss a recent case and make recommendations regarding how marketers can avoid it. (AACSB: Communication; Reflective Thinking)

Applications and Cases

Online, Mobile, and Social Media Marketing Feeding Pets from Your Smartphone

People lead busy lives, often taking time away from their pets. So Petnet has developed the Smartfeeder, allowing pet owners to schedule feeding times, monitor food intake, and personalize pet nutrition information. The Smartfeeder measures out the appropriate amount of food for a pet based on age, activity, and weight. Additional features include the ability to conveniently store five to seven pounds of pet food in an attached hopper. Petnet has also seamlessly integrated its products with a smartphone app, available with iOS (Apple) products. Pet owners can now control feeding times, portion sizes, and food supply and even order pet food to be delivered directly to their homes, all from a mobile device.

  1.  8-9 What kind of product is Petnet’s Smartfeeder? How should this type of product be marketed? (AACSB: Communication; Reflective Thinking)

  2. 8-10 What are customers really buying when they purchase a Petnet Smartfeeder? Identify the core, actual, and augmented product levels for this product. (AACSB: Communication; Reflective Thinking)

Marketing Ethics Geographical Indication

Scotch whiskey, Champagne sparkling wine, Parmesan cheese, Dijon mustard—what do all of these have in common? They are not brand names but rather geographical indicators (GIs) of the origin of these foodstuffs. Europe has a long history of gastronomical delicacies that the European Union has been strong to protect for economic reasons. For example, not just any sparkling wine can be labeled “champagne” because only sparkling wine produced in the Champagne region of France can put that on the label. The British government is launching a registry of Scottish whiskey makers to protect its $4 billion industry from imitators who label their whiskey as Scotch. True Scotch must be aged in oak casks in Scotland for at least three years. Dijon mustard must be produced in Dijon, France, made with chardonnay wine from the Burgundy wine region. Parmesan cheese was developed more than 2,000 years ago in Parma, Italy, which also boasts of Parma ham (Prosciutto di Parma). True Swiss cheeses, such as Emmental, Gruyere, and other varieties, are produced in Switzerland following strict rules to guarantee purity, and the authorities there identify counterfeits with DNA fingerprinting based on the 10,000 strains of milk bacteria that are used for authentic Swiss cheeses. All of these come with a higher price tag for consumers. For example, Portugal Algarve Salt or French Fleur de Sel sea salt cost about $80 per pound compared with 30¢ per pound for regular table salt.

  1. 8-11 Are products with geographical indications actually superior to other similar ones not originating from that geographical region? Is it ethical for makers of these products to command higher prices when others can make or grow them just as well? (AACSB: Communication; Reflective Thinking; Ethical Reasoning)

  2. 8-12 Do geographical indications (GIs) offer benefits to consumers? Are there disadvantages for sellers? Explain. (AACSB: Communication; Reflective Thinking)

Marketing by the Numbers Pop-Tarts Gone Nutty!

Kellogg, maker of Pop-Tarts, recently introduced Pop-Tarts Gone Nutty! The new product includes flavors such as peanut butter and chocolate peanut butter. Although the new Gone Nutty! product will reap a higher wholesale price for the company ($1.20 per eight-count package of the new product versus $1.00 per package for the original product), it also comes with higher variable costs ($0.55 per eight-count package for the new product versus $0.30 per eight-count package for the original product).

  1. 8-13 What brand development strategy is Kellogg undertaking? (AACSB: Communication; Reflective Thinking)

  2. 8-14 Assume the company expects to sell 5 million packages of Pop-Tarts Gone Nutty! in the first year after introduction but expects that 80 percent of those sales will come from buyers who would normally purchase existing Pop-Tart flavors (that is, cannibalized sales). Assuming the sales of regular Pop-Tarts are normally 300 million packages per year and that the company will incur an increase in fixed costs of $500,000 during the first year to launch Gone Nutty!, will the new product be profitable for the company? Refer to the discussion of cannibalization in Appendix 2: Marketing by the Numbers for an explanation regarding how to conduct this analysis. (AACSB: Communication; Analytical Reasoning)

Video Case Plymouth Rock Assurance

Plymouth Rock Assurance is an insurance company with a branding tale to tell. What started as a single Massachusetts-based auto insurance company in the early 1980s quickly grew into a group of separate companies that write and manage property and casualty insurance in various states. To streamline operations, cut costs, and better serve customers, the company undertook a rebranding process to combine three distinct auto insurance brands—Plymouth Rock, High Point, and Palisades—into one.

Rather than remaking the brand overnight, the company carried out a gradual transformation that retained existing brand equity and put customers’ minds at ease. With Plymouth Rock as the parent brand and High Point and Palisades as sub-brands, the company transitioned the three into a single brand in incremental steps.

After viewing the video featuring Plymouth Rock Assurance, answer the following questions:

  1. 8-15 What value proposition lies at the core of Plymouth Rock Assurance?

  2. 8-16 What was the reasoning behind the decision to rebrand the three auto insurance brands as one brand?

  3. 8-17 Describe the process that Plymouth Rock Assurance used to rebrand the company. How does this process differ from other options it could have pursued?

Company Case Airbnb: Making Hospitality Authentic

Like many services industries, hotel companies have done a tremendous job of ensuring the quality of the customer experience through standardization. People booking rooms through any of the major hotel chains can be pretty much assured of certain basics. They’ll enter the 13-by-25-foot room into a short hallway with a bathroom and closet on one side or the other. In the bathroom, they’ll find the basics along with a sterile display of soaps, hair care products, and other toiletries. The room features a bed or two flanked on both sides by nightstands with a reading light by each. An upholstered chair and ottoman sit at an angle in the far corner with a desk opposite. A dresser topped with a flat-screen TV sits across from the foot of the bed. Visitors might also discover a mini-fridge and a microwave oven.

The artwork and décor are fairly contemporary although impersonal and nondescript. Other details throughout the hotel property are equally predictable. And although luxury level across these features varies from chain to chain, the vibe is the same. Many travelers count on this standard experience—it assures that their experience will be within a set of narrow, expected boundaries. Minimizing the risk of negative outcomes typically results in a satisfactory lodging experience for most guests most of the time.

But one lodging provider is targeting travelers who have a different set of needs and expectations. Airbnb is turning lodging services upside down by promising a hospitality experience that is the complete opposite of the one provided by major hotel chains. A major player in the new sharing economy, Airbnb is an online community marketplace that connects people who want to rent out space in their homes with those who are looking for accommodations. Like a true online marketplace, Airbnb doesn’t own any lodging properties. It just brings buyers and sellers together and facilitates transactions between them. But Airbnb’s promise of value is what really sets it apart from the hospitality world’s status quo. The new-to-the-game lodging provider pitches an authentic experience—a true sense of what life is like in the place you visit.

Whereas the hotel industry has spent decades sculpting its standardized offering, in just eight years Airbnb has built a global network of more than 2 million listings and 60 million guests throughout 34,000 cities in 191 countries. It has also built a market value of more than $25 billion. Although these numbers may sound impressive on their own, in its brief existence Airbnb has managed to exceed the accomplishments of the largest hotel chain in the world—100-year-old Hilton Worldwide with its 765,000 rooms, 4,660 properties, and a market value of $22 billion.

How did Airbnb pull of this amazing feat? According to Brian Chesky and Joe Gebbia—the start-up’s founders—Airbnb simply recognized that the travel industry had lost touch with its customers by offering only one cookie-cutter option—ticky-tack rooms in antiseptic hotels and resorts. This standardized model seemed to dictate an unintended goal for the entire hotel industry—to ensure that nothing remotely interesting happens. Once Chesky and Gebbia recognized this, they set out a strategy to bring authenticity back into the hospitality industry.

Two Million Rooms—No Two Alike

It all started when the founders had a hair-brained thought on how to generate some extra income to help pay the rent on their modest San Francisco loft apartment. During a major convention that had every hotel room in the city booked, they rented out three air mattresses on the floor of their apartment for $40 a night each. In the process, they discovered that the people who booked that real estate got more than just a place to stay at a time when they needed it most—they got a unique networking opportunity. From that moment, Chesky and Gebbia moved quickly to develop and formalize the business concept.

Today, using Airbnb to either list a property or rent one to stay in is relatively simple. For hosts—Airbnb’s official term for property owners who want to rent out space—it’s a simple matter of registering and being vetted to ensure legitimacy. Listings can be pretty much anything from a couch, a single room, a suite of rooms, or an apartment to a moored yacht, a houseboat, an entire house, or even a castle (Airbnb currently claims more than 1,400 castle listings). Some hosts even rent out space in their yards for guests to pitch a tent. With more than 2 million listed properties for rent, each is as unique as its owner. Because listings are in private homes and apartments, they are typically located in residential neighborhoods rather than commerce centers where national and global hotel brands abound. Bookings can be offered by the day, the week, or the month, and hosts decide on price and the other details of their service and listings. Airbnb keeps only 3 percent of the booking fees and returns the rest to the host within 24 hours.

For guests, the process is about like buying or booking most anything online. Registered users search by city, room type, price range, amenities, host language, or various other options, including entering their own keywords. Most listings provide photos and details that give potential guests a reasonably accurate idea of what their stay will be like. Guests can contact potential hosts with questions before booking. On top of the fee for the property, guests typically lay down a security deposit and pay a 6 to 12 percent service fee to Airbnb. Bookings are made through Airbnb, so money changes hands only through a secure interface. When guests arrive at the chosen property, the host either greets them or arranges for entry.

As the founders were getting Airbnb off the ground, they constantly faced a big challenge. Many people—investors included—were skeptical. In fact, during Airbnb’s first year, the founders were turned down by every venture capitalist they approached. “When we started this company, people thought we were crazy,” said Chesky. “They said strangers would never stay with strangers, and horrible things are going to happen.” They also had a hard time convincing guests; few people were willing to risk staying with someone they’d never met.

But Airbnb overcame these concerns through various means. First, it set up a standard rating system for both hosts and guests, allowing each side to assess the other and reviewing what others have said about prior experiences. A “superhost” status gives an assurance of extensive booking experience and high-quality service. A “business travel ready” badge notes that the host provides specific amenities like Wi-Fi, a desk, and basic toiletries. Airbnb also puts guest and host minds at ease with its verification process, tips for safe and satisfactory bookings, and a 24-hour Trust and Safety hotline. Hosts are further protected by an included insurance policy that protects their property from damages of up to $1 million. Airbnb admits that although these measures do not guarantee that nothing bad will ever happen, the likelihood of a negative outcome is no greater than it is for staying at a chain hotel.

Seeing the World as the Locals Do

From the beginning, Airbnb primarily served budget-minded customers with prices for listings lower than those of comparable hotel rooms. But more and more, Airbnb is seeing a shift toward customers—leisure and business travelers alike—who want more than just low price. This is hardly an accident. Airbnb deliberately positions itself as a provider of unique and authentic experiences through its branding, communications, and other aspects of its business. In doing so, Airbnb has taken the uncertainty of staying in a stranger’s house and turned it into an asset. Whereas hotels can compete on price and convenience, they cannot compete when it comes to the relationship between guest and host. “Guests are looking for experiences where they connect with people and connect with culture,” says Chesky. “You can’t automate hospitality.”

Such was the theme of the second-annual Airbnb Open—a motivational event held in Paris, the company’s biggest market, and attended by 5,000 hosts from 110 different countries. In his keynote address, Chesky explained that the entire hospitality industry caters to tourists in a way that makes them feel like tourists. But with an Airbnb experience, guests start to feel like they are a part of the neighborhood and the city.

As part of his presentation, Chesky summed up the entire Airbnb philosophy by illustrating the experience his own parents had when they arrived in Paris just days before the event. Pictures of their first day in town—hosted by typical tourist guides—were projected on a big screen. There was a picture of them on a double-decker tour bus, another on a generic boat ride, and a third standing in line at the Louvre. Chesky narrated each image with comical cynicism. “Every year, 30 million people go to Paris. They look at everything and they see nothing. We don’t need to go to monuments and landmarks to experience a culture. We can actually stay with people.” Then Chesky showed images from his parents’ second day in Paris—guided by some of Airbnb’s top hosts—where they experienced the city from the perspective of locals. They had coffee at an authentic sidewalk café, took a walk in a garden, and drank and danced at a cozy Parisian boîte. “Maybe we should not travel to Paris,” suggested Chesky. “Maybe what we should do is live in Paris.”

Executing on the Promise

This ideal—one supported by all Airbnb employees—was the driving force behind a recent and ambitious rebranding effort by the tech start-up. The company tossed out its original straightforward text logo in favor of something far more abstract—a symbol that resembles a puffy capital letter “A” with the two sides crossing over. Airbnb calls it the “bélo,” “the universal symbol of belonging.” The new logo communicates a sense of belonging through something that transcends language, culture, and geography. A new slogan accompanies the logo—“Belong Anywhere.”

To ensure that the Airbnb guest experience is as authentic and unique as possible, the company focuses first and foremost on its community of hosts. In fact, Airbnb considers its hosts to be its primary customers. As a result, Airbnb has been able to nurture a huge global community of lodging providers who are true believers in the Airbnb vision. Treated as active participants in the business, hosts develop a sense of ownership and devotion. In this manner, Airbnb influences hosts to follow certain guidelines toward creating the best guest experience possible. This is by no means intended to create a standardized model. But by urging hosts to offer guest services such as airport pickup and walking tours, Airbnb strengthens the connections formed with guests. “What’s special in your world isn’t just the home you have,” Chesky tells the crowd at the Airbnb Open. “It’s your whole life.”

The explosive expansion of Airbnb in every world market has certainly caught the attention of the big hotel chains. Developers are beginning to build hotels in places where they normally would not. For example, eight new hotels are going up in Williamsburg, a Brooklyn neighborhood that is a huge Airbnb market but not a traditional tourist locale. But even as hoteliers attempt to invade Airbnb’s turf, they will have a tough time duplicating the Airbnb experience.

Despite its expansion and success, Airbnb still finds itself battling for legitimacy. Some cities do not allow the rental of personal property for any duration less than 30 days. And there are many travelers who might prefer the Airbnb experience but still have concerns about staying with strangers. Airbnb is rising to these challenges with idealistic fervor. In fact, Chesky goes so far as to suggest that Airbnb’s mission goes beyond providing an authentic guest experience and into the realm of establishing world peace. He explains that living in close proximity to those from other cultures makes people understand each other a lot more. He concludes, “I think a lot of conflicts in the world are between groups that don’t understand each other.”

Questions for Discussion

  1. 8-18 How do the four characteristics of services apply to Airbnb? How does Airbnb deal with each characteristic?

  2. 8-19 Apply the service profit chain concept to Airbnb.

  3. 8-20 How does Airbnb differentiate its offer, delivery, and image?

  4. 8-21 How much of a threat is competition to Airbnb?

  5. 8-22 Will Airbnb last as long as Hilton Worldwide has? Explain.

Sources: Max Chafkin, “Airbnb Opens Up the World?” Fast Company, February 2016, pp. 76–95; Marshall Alstyne, Geoffrey Parker, and Sangeet Choudary, “Pipelines, Platforms, and the New Rules of Strategy,” Harvard Business Review, April, 2016, pp. 54–62; Dan Peltier, “Airbnb’s CMO on Authentic Travel Experiences,” Skift, July 14, 2015, https://skift.com/2015/07/14/skift-global-forum-2015-airbnbs-cmo-on-the-meaning-of-authentic-travel-experiences/; and additional information from www.investopedia.com/articles/personal-finance/032814/pros-and-cons-using-airbnb.asp?performancelayout=true and www.airbnb.com/about/about-us, accessed July, 2016.

MyMarketingLab

Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

  1. 8-23 Describe the four characteristics of services that marketers must consider when designing marketing programs. How do the services offered by a ­doctor’s office differ from those offered by a bank?

  2. 8-24 List the names of the store brands found in the following stores: Walmart, Best Buy, and Whole Foods. Identify the private label brands of another ­retailer of your choice and compare the price and quality of one of the ­products to a comparable national brand.

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