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Introduction to Business

11.6 What Is a Product?

Introduction to Business11.6 What Is a Product?
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  1. Preface
  2. 1 Understanding Economic Systems and Business
    1. Introduction
    2. 1.1 The Nature of Business
    3. 1.2 Understanding the Business Environment
    4. 1.3 How Business and Economics Work
    5. 1.4 Macroeconomics: The Big Picture
    6. 1.5 Achieving Macroeconomic Goals
    7. 1.6 Microeconomics: Zeroing in on Businesses and Consumers
    8. 1.7 Competing in a Free Market
    9. 1.8 Trends in the Business Environment and Competition
    10. Key Terms
    11. Summary of Learning Outcomes
    12. Preparing for Tomorrow's Workplace Skills
    13. Ethics Activity
    14. Working the Net
    15. Critical Thinking Case
    16. Hot Links Address Book
  3. 2 Making Ethical Decisions and Managing a Socially Responsible Business
    1. Introduction
    2. 2.1 Understanding Business Ethics
    3. 2.2 How Organizations Influence Ethical Conduct
    4. 2.3 Managing a Socially Responsible Business
    5. 2.4 Responsibilities to Stakeholders
    6. 2.5 Trends in Ethics and Corporate Social Responsibility
    7. Key Terms
    8. Summary of Learning Outcomes
    9. Preparing for Tomorrow's Workplace Skills
    10. Ethics Activity
    11. Working the Net
    12. Critical Thinking Case
    13. Hot Links Address Book
  4. 3 Competing in the Global Marketplace
    1. Introduction
    2. 3.1 Global Trade in the United States
    3. 3.2 Why Nations Trade
    4. 3.3 Barriers to Trade
    5. 3.4 Fostering Global Trade
    6. 3.5 International Economic Communities
    7. 3.6 Participating in the Global Marketplace
    8. 3.7 Threats and Opportunities in the Global Marketplace
    9. 3.8 The Impact of Multinational Corporations
    10. 3.9 Trends in Global Competition
    11. Key Terms
    12. Summary of Learning Outcomes
    13. Preparing for Tomorrow's Workplace Skills
    14. Ethics Activity
    15. Working the Net
    16. Critical Thinking Case
    17. Hot Links Address Book
  5. 4 Forms of Business Ownership
    1. Introduction
    2. 4.1 Going It Alone: Sole Proprietorships
    3. 4.2 Partnerships: Sharing the Load
    4. 4.3 Corporations: Limiting Your Liability
    5. 4.4 Specialized Forms of Business Organization
    6. 4.5 Franchising: A Popular Trend
    7. 4.6 Mergers and Acquisitions
    8. 4.7 Trends in Business Ownership
    9. Key Terms
    10. Summary of Learning Outcomes
    11. Preparing for Tomorrow's Workplace Skills
    12. Ethics Activity
    13. Working the Net
    14. Critical Thinking Case
    15. Hot Links Address Book
  6. 5 Entrepreneurship: Starting and Managing Your Own Business
    1. Introduction
    2. 5.1 Entrepreneurship Today
    3. 5.2 Characteristics of Successful Entrepreneurs
    4. 5.3 Small Business: Driving America's Growth
    5. 5.4 Ready, Set, Start Your Own Business
    6. 5.5 Managing a Small Business
    7. 5.6 Small Business, Large Impact
    8. 5.7 The Small Business Administration
    9. 5.8 Trends in Entrepreneurship and Small-Business Ownership
    10. Key Terms
    11. Summary of Learning Outcomes
    12. Preparing for Tomorrow's Workplace Skills
    13. Ethics Activity
    14. Working the Net
    15. Critical Thinking Case
    16. Hot Links Address Book
  7. 6 Management and Leadership in Today's Organizations
    1. Introduction
    2. 6.1 The Role of Management
    3. 6.2 Planning
    4. 6.3 Organizing
    5. 6.4 Leading, Guiding, and Motivating Others
    6. 6.5 Controlling
    7. 6.6 Managerial Roles
    8. 6.7 Managerial Skills
    9. 6.8 Trends in Management and Leadership
    10. Key Terms
    11. Summary of Learning Outcomes
    12. Preparing for Tomorrow's Workplace Skills
    13. Ethics Activity
    14. Working the Net
    15. Critical Thinking Case
    16. Hot Links Address Book
  8. 7 Designing Organizational Structures
    1. Introduction
    2. 7.1 Building Organizational Structures
    3. 7.2 Contemporary Structures
    4. 7.3 Using Teams to Enhance Motivation and Performance
    5. 7.4 Authority—Establishing Organizational Relationships
    6. 7.5 Degree of Centralization
    7. 7.6 Organizational Design Considerations
    8. 7.7 The Informal Organization
    9. 7.8 Trends in Organizational Structure
    10. Key Terms
    11. Summary of Learning Outcomes
    12. Preparing for Tomorrow's Workplace Skills
    13. Ethics Activity
    14. Working the Net
    15. Critical Thinking Case
    16. Hot Links Address Book
  9. 8 Managing Human Resources and Labor Relations
    1. Introduction
    2. 8.1 Achieving High Performance through Human Resources Management
    3. 8.2 Employee Recruitment
    4. 8.3 Employee Selection
    5. 8.4 Employee Training and Development
    6. 8.5 Performance Planning and Evaluation
    7. 8.6 Employee Compensation and Benefits
    8. 8.7 The Labor Relations Process
    9. 8.8 Managing Grievances and Conflicts
    10. 8.9 Legal Environment of Human Resources and Labor Relations
    11. 8.10 Trends in Human Resource Management and Labor Relations
    12. Key Terms
    13. Summary of Learning Outcomes
    14. Preparing for Tomorrow's Workplace Skills
    15. Ethics Activity
    16. Working the Net
    17. Critical Thinking Case
    18. Hot Links Address Book
  10. 9 Motivating Employees
    1. Introduction
    2. 9.1 Early Theories of Motivation
    3. 9.2 The Hawthorne Studies
    4. 9.3 Maslow's Hierarchy of Needs
    5. 9.4 McGregor's Theories X and Y
    6. 9.5 Herzberg's Motivator-Hygiene Theory
    7. 9.6 Contemporary Views on Motivation
    8. 9.7 From Motivation Theory to Application
    9. 9.8 Trends in Employee Motivation
    10. Key Terms
    11. Summary of Learning Outcomes
    12. Preparing for Tomorrow's Workplace Skills
    13. Ethics Activity
    14. Working the Net
    15. Critical Thinking Case
    16. Hot Links Address Book
  11. 10 Achieving World-Class Operations Management
    1. Introduction
    2. 10.1 Production and Operations Management—An Overview
    3. 10.2 The Production Process: How Do We Make It?
    4. 10.3 Location, Location, Location: Where Do We Make It?
    5. 10.4 Pulling It Together: Resource Planning
    6. 10.5 Production and Operations Control
    7. 10.6 Looking for a Better Way: Improving Production and Operations
    8. 10.7 Transforming the Factory Floor with Technology
    9. 10.8 Trends in Production and Operations Management
    10. Key Terms
    11. Summary of Learning Outcomes
    12. Preparing for Tomorrow's Workplace Skills
    13. Ethics Activity
    14. Working the Net
    15. Critical Thinking Case
    16. Hot Links Address Book
  12. 11 Creating Products and Pricing Strategies to Meet Customers' Needs
    1. Introduction
    2. 11.1 The Marketing Concept
    3. 11.2 Creating a Marketing Strategy
    4. 11.3 Developing a Marketing Mix
    5. 11.4 Buyer Behavior
    6. 11.5 Market Segmentation
    7. 11.6 What Is a Product?
    8. 11.7 Creating Products That Deliver Value
    9. 11.8 The Product Life Cycle
    10. 11.9 Pricing Strategies and Future Trends
    11. 11.10 Trends in Developing Products and Pricing
    12. Key Terms
    13. Summary of Learning Outcomes
    14. Preparing for Tomorrow's Workplace Skills
    15. Ethics Activity
    16. Working the Net
    17. Critical Thinking Case
    18. Hot Links Address Book
  13. 12 Distributing and Promoting Products and Services
    1. Introduction
    2. 12.1 The Nature and Functions of Distribution (Place)
    3. 12.2 Wholesaling
    4. 12.3 The Competitive World of Retailing
    5. 12.4 Using Supply Chain Management to Increase Efficiency and Customer Satisfaction
    6. 12.5 Promotion Strategy
    7. 12.6 The Huge Impact of Advertising
    8. 12.7 The Importance of Personal Selling
    9. 12.8 Sales Promotion
    10. 12.9 Public Relations Helps Build Goodwill
    11. 12.10 Trends in Social Media
    12. 12.11 Trends in E-Commerce
    13. Key Terms
    14. Summary of Learning Outcomes
    15. Preparing for Tomorrow's Workplace Skills
    16. Ethics Activity
    17. Working the Net
    18. Critical Thinking Case
    19. Hot Links Address Book
  14. 13 Using Technology to Manage Information
    1. Introduction
    2. 13.1 Transforming Businesses through Information
    3. 13.2 Linking Up: Computer Networks
    4. 13.3 Management Information Systems
    5. 13.4 Technology Management and Planning
    6. 13.5 Protecting Computers and Information
    7. 13.6 Trends in Information Technology
    8. Key Terms
    9. Summary of Learning Outcomes
    10. Preparing for Tomorrow's Workplace Skills
    11. Ethics Activity
    12. Working the Net
    13. Critical Thinking Case
    14. Hot Links Address Book
  15. 14 Using Financial Information and Accounting
    1. Introduction
    2. 14.1 Accounting: More than Numbers
    3. 14.2 The Accounting Profession
    4. 14.3 Basic Accounting Procedures
    5. 14.4 The Balance Sheet
    6. 14.5 The Income Statement
    7. 14.6 The Statement of Cash Flows
    8. 14.7 Analyzing Financial Statements
    9. 14.8 Trends in Accounting
    10. Key Terms
    11. Summary of Learning Outcomes
    12. Preparing for Tomorrow's Workplace Skills
    13. Ethics Activity
    14. Working the Net
    15. Critical Thinking Case
    16. Hot Links Address Book
  16. 15 Understanding Money and Financial Institutions
    1. Introduction
    2. 15.1 Show Me the Money
    3. 15.2 The Federal Reserve System
    4. 15.3 U.S. Financial Institutions
    5. 15.4 Insuring Bank Deposits
    6. 15.5 International Banking
    7. 15.6 Trends in Financial Institutions
    8. Key Terms
    9. Summary of Learning Outcomes
    10. Preparing for Tomorrow's Workplace Skills
    11. Ethics Activity
    12. Working the Net
    13. Critical Thinking Case
    14. Hot Links Address Book
  17. 16 Understanding Financial Management and Securities Markets
    1. Introduction
    2. 16.1 The Role of Finance and the Financial Manager
    3. 16.2 How Organizations Use Funds
    4. 16.3 Obtaining Short-Term Financing
    5. 16.4 Raising Long-Term Financing
    6. 16.5 Equity Financing
    7. 16.6 Securities Markets
    8. 16.7 Buying and Selling at Securities Exchanges
    9. 16.8 Trends in Financial Management and Securities Markets
    10. Key Terms
    11. Summary of Learning Outcomes
    12. Preparing for Tomorrow's Workplace Skills
    13. Ethics Activity
    14. Working the Net
    15. Critical Thinking Case
    16. Hot Links Address Book
  18. 17 Your Career in Business
    1. Introduction
    2. 17.1 Learn the Basics of Business
    3. 17.2 Developing Interpersonal Skills Is Key to Your Success
    4. 17.3 Make Your Future Happen: Learn to Plan
    5. 17.4 Going to College Is an Opportunity of a Lifetime—Never Drop Out
    6. 17.5 Get Your Career Off on the Right Track
    7. 17.6 Self-Test Scoring Guidelines
  19. A | Understanding the Legal and Tax Environment
  20. Index
  21. References
  1. What is a product, and how is it classified?

The goal of marketing research is to create products that are desired by the target market(s) chosen as strategic markets in line with the organization’s goals. In marketing, a product (a good, service, or idea), along with its perceived attributes and benefits, creates value for the customer. Attributes can be tangible or intangible. Among the tangible attributes are packaging and warranties as illustrated in Exhibit 11.5. Intangible attributes are symbolic, such as brand image. Intangible attributes can include things like image as well as the depth of the relationship between a service provider and a customer. People make decisions about which products to buy after considering both tangible and intangible attributes of a product. For example, when a consumer buys a pair of jeans, he or she considers price, brand, store image, and style before making the purchase. These factors are all part of the marketing mix.

At the center of a circle is the product. Within the circle reads as follows. Type of material, metal, plastic, cloth; size, shape, smell. There are concentric circles surrounding the product, and there are orbs attached to the circles. These are labeled as follows. Image of retail store; warranty; color; packaging; instructions; image of brand; attachments; and service after sale.
Exhibit 11.5 Tangible and Intangible Attributes of a Product Create Value (Attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license.)

Classifying Consumer Products

Consumers are really buying packages of benefits that deliver value, which always includes some tangible aspects and some intangible aspects. The person who buys a plane ride on United Airlines is looking for a quick way to get from one city to another (the benefit). Providing this benefit requires a tangible part of the product (a plane) and an intangible part of the product (ticketing, maintenance, and piloting services). A person who purchases accounting services buys the benefit of having taxes completed on the correct tax form (tangible part of the service) and having the taxes prepared correctly by a trusted person (intangible part of the service).

Marketers must know how consumers view the types of products their companies sell so that they can design the marketing mix to appeal to the selected target market. To help them define target markets, marketers have devised product categories. Products that are bought by the end user are called consumer products. They include electric razors, sandwiches, cars, stereos, magazines, and houses. Consumer products that get used up, such as Nexxus shampoo and Lay’s potato chips, are called consumer nondurables. Those that last for a long time, such as Whirlpool washing machines and Apple computers, are consumer durables.

Another way to classify consumer products is by the amount of effort consumers are willing to make to acquire them. The four major categories of consumer products are unsought products, convenience products, shopping products, and specialty products, as summarized in Table 11.4. Unsought products are products unplanned by the potential buyer or known products that the buyer does not actively seek.

Convenience products are relatively inexpensive items that require little shopping effort. Soft drinks, candy bars, milk, bread, and small hardware items are examples. Consumers buy them routinely without much planning. This does not mean that such products are unimportant or obscure. Many, in fact, are well known by their brand names—such as Pepsi-Cola, Pepperidge Farm breads, Domino’s pizza, Sure deodorant, and UPS shipping.

In contrast to convenience products, shopping products are bought only after a brand-to-brand and store-to-store comparison of price, suitability, and style. Examples are furniture, automobiles, a vacation in Europe, and some items of clothing. Convenience products are bought with little planning, but shopping products may be purchased after months or even years of search and evaluation.

Specialty products are products for which consumers search long and hard and for which they refuse to accept substitutes. Expensive jewelry, designer clothing, state-of-the-art stereo equipment, limited-production automobiles, and gourmet restaurants fall into this category. Because consumers are willing to spend much time and effort to find specialty products, distribution is often limited to one or two sellers in a given region, such as Neiman-Marcus, Gucci, or a Porsche dealer.

Classification of Consumer Products by the Effort Expended to Buy Them
Consumer Product Examples Degree of Effort Expended by Consumer
Unsought products Life insurance No effort
Burial plots Some to considerable effort
Time-share condos Some to considerable effort
Convenience products Soft drinks Very little or minimum effort
Bread Very little or minimum effort
Milk Very little or minimum effort
Coffee Very little or minimum effort
Shopping products Automobiles Considerable effort
Homes Considerable effort
Vacations Considerable effort
Specialty products Expensive jewelry Maximum effort
Gourmet restaurants Maximum effort
Limited-production automobiles Maximum effort
Table 11.4

Customer Satisfaction and Quality

Ferrari Targets Successful Consumers

Kevin Crowder walked onto the famed Monza, Italy, race track, climbed into a Ferrari F2000 racer, and circled the course with a Grand Prix champion. Mr. Crowder, a Texas businessman who earned millions when he sold a software company he cofounded, isn’t himself a professional driver. He’s a customer of one of Ferrari’s marketing programs: the F-1 Clienti program, under which Ferrari resurrects old race cars that would otherwise be headed for the scrap heap. Instead, it sells them for $1 million or more, along with the chance to drive them with a professional pit crew’s help.

Ferrari has long built its business around exclusivity. It limits production to around 4,500 to 5,000 cars a year at around $180,000 and up. Some customers pay additional money to race these street cars against fellow owners at company-sponsored Ferrari Challenge events. The F-1 Clienti program adds a super-premium service by giving people a chance to drive the same Ferraris used in Formula One, a series of auto races that are especially popular among Europeans.

The program gives customers “an experience they can’t get elsewhere,” says Ferrari CEO Dieter Knechtel. Mr. Knechtel says that the “brand experience is very much related to the ownership experience: It’s about driving and the experience of the car while doing it in a community of like-minded people. This is why, we organise track days and tours in Italy with road tours in different countries, we can organise almost any experience with the car—what we offer to our customers is often a ‘money can’t buy’ experience.”

Critical Thinking Questions
  1. For Mr. Crowder, the Ferrari is a specialty good. What kind of product would it be for you? Why?
  2. Do you think that Ferrari has done a good job of building brand loyalty? Could Ford do the same thing?

Sources: “Corse Clienti: Overview,” http://races.ferrari.com, accessed October 8, 2017; James Allen, “Ferrari’s F1 Clienti Is the World’s Ultimate Used Car Buying Program,” Car Buzz, http://www.carbuzz.com, accessed October 8, 2017; Jonathan Ho, “Ferrari Celebrates 70 Years,” Luxuo, http://www.luxuo.com, July 13, 2017; Jonathan Welsh, “Checkered-Flag Past Helps Ferrari Unload a Fleet of Used Cars,” The Wall Street Journal, January 11, 2005, pp. A1, A10.

Classifying Business Products

Products bought by businesses or institutions for use in making other products are called business products. These products can be commercial, industrial, or services products. A commercial product would be an 18-wheeler truck used by a major transportation company as part of the business. An industrial product might be a major robotics installation in a state-of-the-art manufacturing facility. A services product (for business) might be telecommunications consulting for a large corporation setting up offices in Singapore. Business products are classified as either capital products or expense items. Capital products are usually large, expensive items with a long life span. Examples are buildings, large machines, and airplanes. Expense items are typically smaller, less expensive items that usually have a life span of less than a year. Examples are printer cartridges and paper. Industrial products are sometimes further classified in the following categories:

  1. Installations: These are large, expensive capital items that determine the nature, scope, and efficiency of a company. Capital products such as General Motors’ truck assembly plant in Fort Wayne, Indiana, represent a big commitment against future earnings and profitability. Buying an installation requires longer negotiations, more planning, and the judgments of more people than buying any other type of product.
  2. Accessories: Accessories do not have the same long-run impact on the firm as installations, and they are less expensive and more standardized. But they are still capital products. Minolta photocopy machines, HP laptops, and smaller machines such as Black & Decker table drills and saws are typical accessories. Marketers of accessories often rely on well-known brand names and extensive advertising as well as personal selling.
  3. Component parts and materials: These are expense items that are built into the end product. Some component parts are custom-made, such as a drive shaft for an automobile, a case for a computer, or a special pigment for painting U.S. Navy harbor buoys; others are standardized for sale to many industrial users. Intel’s Pentium chip for PCs and cement for the construction trade are examples of standardized component parts and materials.
  4. Raw materials: Raw materials are expense items that have undergone little or no processing and are used to create a final product. Examples include lumber, copper, and zinc.
  5. Supplies: Supplies do not become part of the final product. They are bought routinely and in fairly large quantities. Supply items run the gamut from pencils and paper to paint and machine oil. They have little impact on the firm’s long-run profits. Bic pens, Champion copier paper, and Pennzoil machine oil are typical supply items.
  6. Services. These are expense items used to plan or support company operations—for example, janitorial cleaning and management consulting services.

Concept Check

  1. What is a product?
  2. What are the classes of consumer products?
  3. Explain how business products are classified.
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© Sep 19, 2018 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution License 4.0 license. The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.