Why do buyers purchase something? Why do you own anything? Many of us own an iPhone because it allows us to call, text, and use apps. Or we own one because we have been influenced to buy one. Shortly after the iPhone's introduction, some people undoubtedly purchased the devices because they were considered trendy. Now iPhones are so ubiquitous that no one gives them a second glance. The impact that iPhones have had on our lives has been huge because the product revolutionized the way we interact with the world.
What Composes an Offering?
People buy things to meet needs. In the case of the iPhone, the need is to have better access to communicate, to look keep up with technological trends, or both. Offerings are products and services designed to deliver value to customers—either to fulfill their needs, satisfy their wants, or both. By the end of this text, we will understand how marketing fills those needs through the creation and delivery of offerings.
Product, Price, and Service
Most offerings consist of a product, or a tangible good people can buy, sell, and own. Purchasing a classic iPod, for example, will allow you to store up to 40,000 songs or 200 hours of video. The amount of storage is an example of a feature, or characteristic of the offering. If your playlist consists of 20,000 songs, then this feature delivers a benefit to you—the benefit of ample storage. However, the feature will only benefit you up to a point. For example, you won't be willing to pay more for the extra storage if you only need half that much. When a feature satisfies a need or want, there is a benefit. Features, then, matter differently to different consumers based on each individual's needs.
An offering also consists of a price, or the amount people pay to receive the offering's benefits. The price paid can consist of a one-time payment, or it can consist of something more than that. Many consumers think of a product's price as only the amount they paid. However, the true cost of owning an iPod, for example, is the cost of the device itself plus the cost of the music or videos downloaded onto it. The total cost of ownership (TCO), then, is the total amount someone pays to own, use, and eventually dispose of a product.
TCO is usually thought of as a concept that businesses use to compare offerings. However, consumers also use the concept. For example, suppose you are comparing two sweaters, one that can be hand-washed and one that must be dry-cleaned. The hand-washable sweater will cost you less to own in dollars but may cost more to own in terms of your time and hassle. A smart consumer would take that into consideration. A TCO approach accounts for the time and effort related to owning the product—in this case, the time and effort to handwash the sweater.
A service is an action that provides a buyer with an intangible benefit. A haircut is a service. When you purchase a haircut, it's not something you can hold, give to another person, or resell. Pure services are offerings that don't have any tangible characteristics associated with them. Skydiving is an example of a pure service. You are left with nothing after the jump but the memory of it. Yes, a plane is required, and it is certainly tangible. But it isn't the product—the jump is. At times people use the term product to mean an offering that's either tangible or intangible. Banks, for example, often advertise specific types of loans, or financial products they offer consumers. Yet truly these products are financial services. The term product is frequently used to describe an offering of either type.
The intangibility of a service creates interesting challenges for marketers and buyers when they try to judge the relative merits of one service over another. An old riddle asks, "You enter a barbershop to get a haircut and encounter two barbers—one with a bad haircut and the other with a great haircut. Which do you choose?" The answer is the one with the bad haircut; he cut the hair of the other barber. But in many instances, judging how well a barber will do before the haircut is difficult. Thus, services can suffer from high variability in quality because they are often created as they are received.
Services usually also require the consumer to be physically present or involved. A haircut, a night in a hotel, and a flight all require the consumer to be physically present. Consumption of the service is not separate from the creation of the service. Unlike a physical product, which can be created and purchased off a shelf, a service often (but not always) involves the consumer in its creation.
Another challenge for many services providers is that services are perishable—they can't be stored. A night at a hotel, for example, can't be saved and sold later. If it isn't sold that day, it is lost forever. A barber isn't really paid for a haircut (to use the riddle) but for time. Services have difficult management and marketing challenges because of their intangibility.
Many tangible products have an intangible service component attached to them, however. When Hewlett-Packard (HP) introduced its first piece of audio testing equipment, a key concern for buyers was the service HP could offer with it. Could a new company such as HP back up the product, should something go wrong with it? As you can probably tell, a service does not have to be consumed to be an important aspect of an offering. HP's ability to provide good after-sales service in a timely fashion was an important selling characteristic of the audio oscillator, even if buyers never had to use the service.
What services do you get when you purchase a can of soup? You might think that a can of soup is as close to a pure product devoid of services that you can get. But think for a moment about your choices in terms of how to purchase the can of soup. You can buy it at a convenience store, a grocery store, or online. Your choice of how to get it is a function of the product's intangible service benefits, such as the way you are able to shop for it.
The Product-Dominant Approach to Marketing
From the traditional product-dominant perspective of business, marketers consider products, services, and prices as three separate and distinguishable characteristics. To some extent, they are. HP could, for example, add or strip out features from a piece of testing equipment and not change its service policies or the equipment's price. The product-dominant marketing perspective has its roots in the Industrial Revolution. During this era, businesspeople focused on the development of products that could be mass produced cheaply. In other words, firms became product-oriented, meaning that they believed the best way to capture market share was to create and manufacture better products at lower prices. Marketing remained oriented that way until after World War II.
The Service-Dominant Approach to Marketing
Who determines which products are better? Customers do, of course. Thus, taking a product-oriented approach can result in marketing professionals focusing too much on the product itself and not enough on the customer or service-related factors that customers want. Most customers will compare tangible products and the prices charged for them in conjunction with the services that come with them. In other words, the complete offering is the basis of comparison. So, although a buyer will compare the price of product A to the price of product B, in the end, the prices are compared in conjunction with the other features and services of the products. The dominance of any one of these dimensions is a function of the buyer's needs.
In addition to the offering itself, marketers should consider what services it takes for the customer to acquire their offerings (e.g., the need to learn about the product from a sales clerk), to enjoy them, and to dispose of them (e.g., someone to move the product out of the house and haul it away), because each of these activities creates costs for their customers—either money or time and hassle.
Critics of the service-dominant approach argue that the product-dominant approach also integrated services (though not price). The argument is that at the core of an offering is the product, such as an iPod or iPhone. The physical product, in this case an iPhone, is the core product. Surrounding it are services and accessories, called the augmented product, which support the core product. Together, these make up the complete product. One limitation of this approach has already been mentioned; price is left out. But for many "pure" products, this conceptualization can be helpful in bundling different augmentations for different markets.
Customers are now becoming more involved in the creation of benefits. Consider a "pure" product like Campbell's cream of chicken soup. The consumer may prepare that can as a bowl of soup, but it could also be used as an ingredient in a recipe like king ranch chicken. As far as the consumer goes, no benefit is experienced until the soup is eaten; thus, the consumer played a part in the creation of the final product when the soup was an ingredient in the king ranch chicken recipe. Or suppose your school's cafeteria made king ranch chicken for you to consume. In that case, you both ate a product and consumed a service.
Some people argue that focusing too much on the customer can lead to too little product development or poor product development. These people believe that customers often have difficulty seeing how an innovative new technology can create benefits for them. Researchers and entrepreneurs frequently make many discoveries, and then products are created as a result of those discoveries. 3M's Post-it notes are an example. The adhesive that made it possible for Post-it notes to stick and restick was created by a 3M scientist who was actually in the process of trying to make something else. Post-it notes came later.
Product Levels and Product Lines
A product's technology platform is the core technology on which it is built. Take for example, the iPod, which is based on MP3 technology. In many cases, the development of a new offering is to take a technology platform and rebundle its benefits in order to create a different version of an already-existing offering. For example, in addition to the iPod Touch, Apple offers the Shuffle and the Nano. Both are based on the same core technology.
In some instances, a new offering is based on a technology platform originally designed to solve a different problem. For example, a number of products originally were designed to solve the problems facing NASA's space-traveling astronauts. Later, that technology was used to develop new types of offerings. EQyss's Micro Tek pet spray, which stops pets from scratching and biting themselves, is an example. The spray contains a trademarked formula developed by NASA to decontaminate astronauts after they return from space.
A technology platform isn't limited to tangible products. Knowledge can be a type of technology platform in a pure services environment. For example, the bioesthetic treatment model was developed to help people who suffer from TMJ, a jaw disorder that makes chewing painful. A dentist can be trained on the bioesthetic technology platform and then provide services based on it. There are, however, other ways to treat TMJ that involve other platforms or bases of knowledge and procedures (such as surgery).
Few firms survive by selling only one product. Most firms sell several offerings designed to work together to satisfy a broad range of customer needs and desires. A product line is group of related offerings. Product lines are created to make marketing strategies more efficient. Campbell's condensed soups, for example, are basic soups sold in cans with red labels. But Campbell's Chunky is a ready-to-eat soup sold in cans that are labeled differently. Most consumers expect there to be differences between Campbell's red-label chicken soup and Chunky chicken soup, even though they are both made by the same company.
A product line can be broad, as in the case of Campbell's condensed soup line, which consists of several dozen different flavors. Or, a product line can be narrow, as in the case of Apple's iPod line, which consists of only a few different devices. The number of offerings in a single product line—that is, whether the product line is broad or narrow—is called line depth. When new but similar products are added to the product line, it is called a line extension. If Apple introduces a new iPhone to the iPhone family, that would be a line extension. Companies can also offer many different product lines. Line breadth (or width) is a function of how many different, or distinct, product lines a company has. For example, Campbell's has a Chunky soup line, condensed soup line, kids' soup line, lower sodium soup line, and a number of nonsoup lines, like Pace Picante sauces, Prego Italian sauces, and crackers. The entire assortment of products that a firm offers is called the product mix.
There are four offering levels:
- the basic offering (e.g., the iPod Shuffle)
- the offering's technology platform (the MP3 format or storage system used by the Shuffle)
- the product line to which the offering belongs (Apple's iPod line of MP3 music players)
- the product category to which the offering belongs (MP3 players as opposed to iPhones)
Types of Consumer Offerings
Consumer offerings fall into four general categories:
- convenience offerings
- shopping offerings
- specialty offerings
- unsought offerings
In this section, we will discuss each of these categories. Keep in mind that the categories are not a function of the characteristic of the offerings themselves. Rather, they are a function of how consumers want to purchase them, which can vary from consumer to consumer. What one consumer considers a shopping good might be a convenience good to another consumer.
Convenience offerings are products and services consumers generally don't want to put much effort into shopping for because they see little difference between competing brands. For many consumers, bread is a convenience offering. A consumer might choose the store in which to buy the bread but be willing to buy whatever brand of bread the store has available. Marketing convenience items is often limited to simply trying to get the product in as many places as possible where a purchase could occur.
Closely related to convenience offerings are impulse offerings, or items purchased without any planning. The classic example is Life Savers, originally manufactured by the Life Savers Candy Company, beginning in 1913. The company encouraged retailers and restaurants to display the candy beside their cash registers and to always give customers a nickel back as part of their change to encourage them to buy one additional item—a roll of Life Savers, of course!
A shopping offering is one for which the consumer will make an effort to compare and select a brand. Consumers believe there are differences between similar shopping offerings and want to find the right one or the best price. Buyers might visit multiple retail locations or spend a considerable amount of time visiting websites and reading reviews about the product, such as the reviews found in Consumer Reports.
Consumers often care about brand names when they're deciding on shopping goods. If a store is out of a particular brand, then another brand might not do. For example, if you prefer Crest Whitening Expressions toothpaste and the store you're shopping at is out of it, you might put off buying the toothpaste until your next trip to the store. Or you might go to a different store, or buy a small tube of some other toothpaste until you can get what you want. Note that even something as simple as toothpaste can become a shopping good for someone very interested in dental health—perhaps after they've read online product reviews or consulted with her dentist. That's why companies like Procter & Gamble, the maker of Crest, work hard to influence not only consumers but also people like dentists, who can influence the sale of their products.
Specialty offerings are highly differentiated offerings, and the brands under which they are marketed are very different across companies, too. For example, an Orange County Chopper or Iron Horse motorcycle is likely to be far different than a Kawasaki or Suzuki motorcycle in terms of its available features. Typically, specialty items are available only through limited channels. For example, exotic perfumes available only in exclusive outlets are considered specialty offerings. Specialty offerings are purchased less frequently than convenience offerings. Therefore, the profit margin on them tends to be greater.
Note that while marketers try to distinguish between specialty offerings, shopping offerings, and convenience offerings, it is the consumer who ultimately makes the decision. Therefore, what might be a specialty offering to one consumer may be a convenience offering to another. For example, one consumer may never go to Sport Clips or Ultra-Cuts because hair styling is seen as a specialty offering. A consumer at Sport Clips might consider it a shopping offering, while a consumer for Ultra-Cuts may view it as a convenience offering. The choice is the consumer's.
Marketing specialty goods requires building brand name recognition in the minds of consumers and educating them about your product's key differences. This is critical. For fashion goods, the only point of difference may be the logo on the product (for example, an Izod versus a Polo label). Even so, marketers spend a great deal of money and effort to try to get consumers to perceive these products differently than their competitors'.
Unsought offerings are those that buyers do not generally want to have to shop for until they need them. Towing services and funeral services are generally considered unsought offerings. Marketing unsought items is difficult. Some organizations try to presell the offering, such as preneed sales in the funeral industry or towing insurance in the auto industry. Other companies, such as insurance companies, try to create a strong awareness among consumers so that when the need arises for these products, consumers think of their organizations first.
Types of Business-to-Business (B2B) Offerings
Just like there are different types of consumer offerings, there are different types of business-to-business (B2B) offerings as well. But unlike consumer offerings, which are categorized by how consumers shop, B2B offerings are categorized by how they are used. The primary categories of B2B offerings are as follows:
- capital equipment offerings
- raw materials offerings
- original equipment manufacturer (OEM) offerings
- maintenance, repair, and operations (MRO) offerings
- facilitating offerings
Capital Equipment Offerings
A capital equipment offering is any equipment purchased and used for more than one year and depreciated over its useful life. Machinery used in a manufacturing facility, for example, would be considered capital equipment. Professionals who market capital equipment often have to direct their communications to many people within the firms to which they are selling, because the buying decisions related to the products can be rather complex and involve many departments. From a marketing standpoint, deciding who should get what messages and how to influence the sale can be very challenging.
Raw materials offerings are materials firms offer other firms so they can make a product or provide a service. Raw materials offerings are processed only to the point required to economically distribute them. Lumber is generally considered a raw material, as is iron, nickel, copper, and other ores. If iron is turned into sheets of steel, it is called a manufactured material because it has been processed into a finished good but is not a standalone product; it still has to be incorporated into something else to be usable. Both raw and manufactured materials are then used in the manufacture of other offerings.
Raw materials are often thought of as commodities, meaning that there is little difference among them. Consequently, the competition to sell them is based on price and availability. Natuzzi is an Italian company that makes leather furniture. The wood Natuzzi buys to make its sofas is a commodity.
OEM Offerings or Components
An original equipment manufacturer (OEM) is a manufacturer or assembler of a final product. An OEM purchases raw materials, manufactured materials, and component parts and puts them together to make a final product. OEM offerings or components, like an on-off switch, are components, or parts, sold by one manufacturer to another that get built into a final product without further modification. The metal feet of a Natuzzi couch are probably made by a manufacturer other than Natuzzi, making the feet an OEM component. Dell's hard drives installed in computer kiosks like the self-service kiosks in airports that print your boarding passes are another example of an OEM component.
Maintenance, repair, and operations (MRO) offerings refer to products and services used to keep a company functioning. Janitorial supplies are MRO offerings, as is hardware used to repair any part of a building or equipment. MRO items are often sold by distributors. However, you can buy many of the same products at a retail store. For example, you can buy nuts and bolts at a hardware store. A business buyer of nuts and bolts, however, will also need repair items that you don't, such as very strong solder used to weld metal. For convenience sake, the buyer would prefer to purchase multiple products from one vendor rather than driving all over town to buy them. So, the distributor sends a salesperson to see the buyer. Most distributors of MRO items sell thousands of products, set up online purchasing websites for their customers, and provide a number of other services to make life easier for them.
Facilitating offerings include products and services that support a company's operations but are not part of the final product it sells. Marketing research services, banking and transportation services, copiers and computers, and other similar products and services fall into this category. Facilitating offerings might not be central to the buyer's business, at least not the way component parts and raw materials are. Yet to the person who is making the buying decision, these offerings can be very important. If you are a marketing manager who is selecting a vendor for marketing research or choosing an advertising agency, your choice could be critical to your personal success. For this reason, many companies that supply facilitating offerings try to build strong relationships with their clients.
Managing the Offering
Managing a company's offerings presents a number of challenges. Depending on the size of the company and the breadth of the company's offerings, several positions may be needed.
A brand manager is one such position. A brand manager is the person responsible for all business decisions regarding offerings within one brand. By business decisions, we mean making decisions that affect profit and loss, which include such decisions as which offerings to include in the brand, how to position the brand in the market, pricing options, and so forth.
A brand manager is much more likely to be found in consumer marketing companies. Typically, B2B companies do not have multiple brands, so the position is not common in the B2B environment. What you often find in a B2B company is a product manager, someone with business responsibility for a particular product or product line. Like the brand manager, the product manager must make many business decisions, such as which offerings to include, advertising selection, and so on. Companies with brand managers include Microsoft, Procter & Gamble, SC Johnson, Kraft, Target, General Mills, and ConAgra Foods. Product managers are found at Xerox, IBM, Konica-Minolta Business Solutions, Rockwell International, and many others.
Most brand managers have an undergraduate degree in marketing, but it helps to have a strong background in either finance or accounting because of the profitability and volume decisions brand managers have to make.
In some companies, a category manager has responsibility for business decisions within a broad grouping of offerings. For example, a category manager at SC Johnson may have all home cleaning products, which would mean that brands such as Pledge, Vanish, Drano, Fantastik, Windex, Scrubbing Bubbles, and Shout would be that person's responsibility. Each of those brands may be managed by a brand manager who then reports directly to the category manager.
At the retail level, a category manager at each store is responsible for more than just one manufacturer's products. The home cleaning category manager would have responsibility for offerings from SC Johnson, as well as Procter & Gamble, Colgate-Palmolive, and many other producers.
Another option is to create a market manager, who is responsible for business decisions within a market. In this case, a market can be defined as a geographic market or region, a market segment such as a type of business, or a channel of distribution. For example, SC Johnson could have regional insect control managers. Regional market managers would make sense for insect control because weather has an influence on which bugs are a problem at any given time. For example, a southern regional manager would want more inventory of the repellent Off! in March because it is already warm and the mosquitoes are already breeding and biting in the southern United States.
In B2B markets, a market manager is more likely to have responsibility for a particular market segment, (e.g., hospital health care professionals or doctor's offices). All customers like these (retail, wholesale, and so forth) in a particular industry compose what's called a vertical market, and the managers of these markets are called vertical market managers. B2B companies organize in this way for the following reasons:
- Buying needs and processes are likely to be similar within an industry.
- Channels of communication are likely to be the same within an industry but different across industries.
Because magazines, websites, and trade shows are organized to serve specific industries or even specific positions within industries, B2B marketers find vertical market structures for marketing departments to be more efficient than organizing by geography.
Market managers sometimes report to brand managers or are a part of their firms' sales organizations and report to sales executives. Market managers are less likely to have as much flexibility in terms of pricing and product decisions and have no control over the communication content of marketing campaigns or marketing strategies. These managers are more likely to be tasked with implementing a product or brand manager's strategy and be responsible for their markets. Some companies have market managers but no brand managers. Instead, marketing vice presidents or other executives are responsible for the brands.
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