Chapter 9 - Managing the product


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  • Product Planning: USE PRODUCT OBJECTIVES TO DECIDE ON A PRODUCT STRATEGY Strategies the product plan outlines spell out how the firm expects to develop a value proposition that will meet marketing objectives. The continual process of product management guides product planning <keyterm id="ch09term1" linkend="gloss09_001" pr </keyterm> , which is the systematic and usually team-based approach to coordinating all aspects of a product’s marketing initiative including all elements of the marketing mix. In some companies, product management is sometimes also called brand management , and the terms refer to essentially the same thing.</para> The organization members that coordinate these processes are called product managers or brand managers . Clearly stated product objectives provide focus and direction. They should support the broader marketing objectives of the business unit in addition to being consistent with the firm’s overall mission. To be effective, product-related objectives must be measurable, clear and unambiguous—and feasible. In addition, they must indicate a specific period. Above all, these objectives should consider the <emphasis> long-term implications </emphasis> of product decisions. Planners who sacrifice the long-term health of the firm to reach short-term sales or financial goals choose a risky course. Product planners may focus on one or more individual products at a time, or they may look at a group of product offerings as a whole. Objectives and Strategies for Individual Products Some product strategies focus on a single new product. Strategies for individual products may be quite different for new products, for regional products, and for mature products. For new products, the objectives relate to successful introduction. For mature products, product objectives may focus on breathing new life into a product while holding on to the traditional brand personality. For products that have achieved success at the local or regional market, it may be decided to introduce them nationally. Objectives and Strategies for Multiple Products A larger firm often sells a set of related products. This means that strategic decisions affect two or more products simultaneously. The firm must think in terms of its entire portfolio of products. Product planning means developing product line and product mix strategies encompassing multiple offerings. A <keyterm id="ch09term2" linkend="gloss09_002" preference="0" role="strong"> product line </keyterm> is a firm’s total product offering to satisfy a group of target customers. The number of separate items within the same category determines the <keyterm id="ch09term3" linkend="gloss09_003" preference="0" role="strong"> product line length </keyterm> . We describe a large number of variations in a product line as a <emphasis> full line </emphasis> that targets many customer segments to boost sales potential. A <emphasis> limited-line strategy </emphasis>, with fewer product variations, can improve the firm’s image if consumers perceive it as a specialist with a clear, specific position in the market. Organizations may decide to extend their product line by adding more brands or models when they develop product strategies. When a firm stretches its product line, it must decide on the best direction to go. If a firm’s current product line includes middle and lower-end items, an <emphasis> upward line stretch </emphasis> adds new items—higher priced entrants that claim better quality or that offer more bells and whistles. Conversely, a <emphasis> downward line stretch </emphasis> augments a line when it adds items at the lower end. Here the firm must take care not to blur the images of its higher-priced, upper-end offerings. In some cases, a firm may decide that its target is too small a market. In this case, the product strategy may call for a <emphasis> two-way stretch </emphasis> that adds products at both the upper and lower ends. A <emphasis> filling-out strategy </emphasis> adds sizes or styles not previously available in a product category. In other cases, the best strategy may be to <emphasis> contract </emphasis> a product line, particularly when some of the items are not profitable. Whenever a manufacturer extends a product line or a product family, there is risk of <keyterm id="ch09term4" linkend="gloss09_004" preference="0" role="strong"> cannibalization </keyterm> . This occurs when the new item eats up sales of an existing brand as the firm’s current customers simply switch to the new product.
  • Marketing Throughout the Product Life Cycle The PLC is a useful way to explain how the market’s response to a product and marketing activities change over the life of a product. Product marketing strategies must evolve and change as they continue through the product life cycle.
  • The Introduction Stage In the introduction stage, customers get the first chance to purchase the good or service. During this early stage, a single company usually produces the product. During the introduction stage, the goal is to get first-time buyers to try the product. Sales (hopefully) increase at a steady but slow pace. The company usually does not make a profit during this stage. Research-and-development (R&D) costs and heavy spending for advertising and promotional efforts cut into revenue. During the introduction stage, pricing may be high to recover the R&D costs or low to attract large numbers of consumers. An introduction stage can be quite long. Many products never make it past the introduction stage. Marketing during this stage often focuses on informing consumers about the product, how to use it, and its promised benefits. However, it is not as easy as it sounds: Would you believe that the most recent data indicate that as many as 95 percent of new products introduced each year fail?
  • The Growth Stage In the growth stage, sales increase rapidly while profits increase and peak. Marketing’s goal is to encourage brand loyalty by convincing the market that this brand is superior to others. In this stage, marketing strategies may include the introduction of product variations to attract market segments and increase market share. When competitors appear, marketers must use heavy advertising and other types of promotion. Price competition may develop, driving profits down. If pricing was set high initially, it may be reduced to meet the increasing competition.
  • The Maturity Stage The maturity stage of the product life cycle is usually the longest. Sales peak and then begin to level off and even decline while profit margins narrow. Competition grows intense when remaining competitors fight for their share of a shrinking pie. Price reductions and reminder advertising may be used to maintain market share. Sales are often to replace a “worn-out” item or to take advantage of product improvements. During the maturity stage, firms will try to sell their product through as many outlets as possible because availability is crucial in a competitive market. To remain competitive and maintain market share during the maturity stage, firms may tinker with the marketing mix in order to extend this profitable phase for their product.
  • The Decline Stage The decline stage of the product life cycle is characterized by a decrease in product category sales. Although a single firm may still be profitable, the market as a whole begins to shrink, profits decline, there are fewer variations of the product, and suppliers pull out. In this stage, there are usually many competitors, with none having a distinct advantage. A firm’s major product decision in the decline stage is whether to keep the product. If the firm decides to keep the product, advertising and other marketing communications may be decreased to cut costs, and prices may be reduced if the product can remain profitable. If the firm decides to drop the product, it can eliminate it in two ways: 1) phase it out by cutting production in stages and letting existing stocks run out, or 2) simply dump the product immediately. E-commerce is now a significant factor for marketing. Some products that would have died a natural death in brick-and-mortar stores continue to sell on-line to a cadre of fans, backed by zero marketing support (translation: high profits for the manufacturer).
  • The Product Life Cycle does typically have a relationship to the adoption curve
  • Create Product Identity: Branding Decisions Successful marketers keep close tabs on their products’ life cycle status, and they plan accordingly. Equally important, though, is to give that product an <emphasis> identity </emphasis> and a personality .
  • What’s in a Name (or a Symbol)? A brand is a name, a term, a symbol, or any other unique element of a product that identifies one firm’s product (s) and sets it apart from the competition. What’s in a Name (or a Symbol)? A brand is a name, a term, a symbol, or any other unique element of a product that identifies one firm’s product (s) and sets it apart from the competition. <para>How does a firm select a good brand name? Good brand designers say there are four “easy” tests: <emphasis> easy to say </emphasis>, <emphasis> easy to spell </emphasis>, <emphasis> easy to read </emphasis>, <emphasis> and easy to remember </emphasis>. .. The name should also “fit” four ways:</para> Fit the target market, </emphasis> Fit the product’s benefits, </emphasis> Fit the customer’s culture </emphasis>, and</para></listitem> Fit legal requirements </emphasis>. </para></listitem></itemizedlist> <para>When it comes to graphics for a brand symbol, name, or logo, the rule is that it must be recognizable and memorable. In addition, it should have visual impact. When it comes to graphics for a brand symbol, name, or logo, the rule is that it must be recognizable and memorable. In addition, it should have visual impact. A trademark is the legal term for a brand name, brand mark, or trade character. The symbol for legal registration in the United States is a capital “R” in a circle: ®. Marketers register trademarks to make their use by competitors illegal. A firm can claim protection for a brand even if it has not legally registered it. In the United States, <emphasis> common-law protection </emphasis> exists if the firm has used the name and established it over a period of time.
  • Why Brands Matter A brand is more than just the product it represents—the best brands build an emotional connection with their customers. Marketers spend huge amounts of money on new-product development, advertising, and promotion to develop strong brands. When they succeed, this investment creates brand equity This term describes a brand’s value over and above the value of the generic version of the product. Marketers <para>identify different levels of loyalty, or lack thereof, by observing how customers feel about the product. At the lowest level, customers really have no loyalty to a brand and they will change brands for any reason—often they will jump ship if they find something else at a lower price. At the other extreme, some brands command fierce devotion, and loyal users will go without rather than buy a competing brand. The truly successful brands, however, are those that truly “bond” with their customers so that people feel they have a real relationship with the product. Here are some of the types of relationships a person might have with a product: • Self-concept attachment • Nostalgic attachment • Interdependence • Love Ultimately, the way to build strong brands is to forge strong bonds with customers—bonds based on brand meaning This concept encompasses the beliefs and associations that a consumer has about the brand. In many ways, the practice of brand management revolves around the management of meanings. Brand managers, advertising agencies, package designers, name consultants, logo developers, and public relations firms are just some of the collaborators in a global industry devoted to the task of <emphasis> meaning management </emphasis>. Brand equity means that a brand enjoys customer loyalty because people believe it is superior to the competition. For a firm, brand equity provides a competitive advantage because it gives the brand the power to capture and hold on to a larger share of the market and to sell at prices with higher profit margins. Nowadays for many consumers brand meaning builds virally as people spread its story online. The method of brand storytelling < captures the notion that powerful ideas do self-propagate when the audience is connected by digital technology. It conveys “the constant reinvention inherent in interactivity in that whether it’s blogging, content creation through YouTube or other means, or social media, there will always be new and evolving perceptions and dialogues about a brand real-time. The following is a list of ten characteristics of the world’s top brands: 1. The brand excels at delivering the benefits customers truly desire. 2. The brand stays relevant. 3. The pricing strategy is based on consumers’ perceptions of value. 4. The brand is properly positioned. 5. The brand is consistent. 6. The brand portfolio and hierarchy make sense. 7. The brand makes use of and coordinates a full repertoire of marketing activities to build equity. 8. The brand’s managers understand what the brand means to consumers. 9. The brand is given proper support, and that support is sustained over the long run. 10. The company monitors sources of brand equity. Because of the existing brand equity, a firm is able to sell its brand extension at a higher price than if it had given it a new brand, and the brand extension will attract new customers immediately. Of course, if the brand extension does not live up to the quality or attractiveness of its namesake brand equity will suffer, as will brand loyalty and sales. One other related approach is sub-branding or creating a secondary brand within a main brand that can help differentiate a product line to a desired target group. Sometimes a brand’s meaning simply becomes so entrenched with a particular consumer group that it can be tough to find ways to branch out and achieve new users through extensions.
  • This demonstrates the value of a brand name, for 2 almost identical products.
  • Branding Strategies Because brands contribute to a marketing program’s success, a major part of product planning is to develop and execute branding strategies. Marketers have to determine which branding strategy approach(es) to use. Figure 9.6 illustrates the options: individual or family brands, national or store brands, generic brands, licensing, and co-branding. Individual Brands Versus Family Brands Part of developing a branding strategy is to decide whether to use a separate, unique brand for each product item—an individual brand strategy or to market multiple items under the same brand name—a family brand or umbrella brand strategy. Individual brands may do a better job of communicating clearly and concisely what the consumer can expect from the product, while a well-known company like Apple may find that its high brand equity in other categories (like computers) can sometimes “rub off” on a new brand (like the iPod and iPhone). The decision often depends on characteristics of the product and whether the company’s overall product strategy calls for introduction of a single, unique product or for the development of a group of similar products.
  • National and Store Brands Retailers today often are in the driver’s seat when it comes to deciding what brands to stock and push. In addition to choosing from producers’ brands, called > national or manufacturer brands </ retailers decide whether to offer their own versions. Private-label brands < also called store brands , are the retail store’s or chain’s exclusive trade name. Wal-Mart, for example, sells store brand Sam’s Cola and Sam’s cookies along with national brands such as Coke and Oreos. During the recent recession store brands gained substantially in popularity for many value-conscious shoppers, and the projection is that many consumers will not switch back to the parallel national brands as the economy rebounds because they are satisfied with the private labels.
  • Licensing Some firms choose to use a licensing strategy to brand their products. This means that one firm sells another firm the right to use a legally protected brand name for a specific purpose and for a specific period. Why should an organization sell its name? Licensing can provide instant recognition and consumer interest in a new product, and this strategy can quickly position a product for a certain target market as it trades on the high recognition of the licensed brand among consumers in that segment. A familiar form of licensing occurs when movie producers license their properties to manufacturers of a seemingly infinite number of products. Co-branding Co-branding benefits both partners when combining the two brands provides more recognition power than either enjoys alone. A new and fast-growing variation on co-branding is ingredient branding in which branded materials become “component parts” of other branded products.
  • What Packages Do A package </keyterm> is the covering or container for a product, but it is also a way to create a competitive advantage. Therefore, the important functional value of a package is that it protects the product. In addition to protecting the product, effective packaging makes it easy for consumers to handle and store the product. Over and above these utilitarian functions, however, the package communicates brand personality. Effective product packaging uses colors, words, shapes, designs, and pictures to provide brand and name identification for the product. In addition, packaging provides product facts including flavor, fragrance, directions for use, suggestions for alternative uses (for example, recipes), safety warnings, and ingredients. Packaging may also include warranty information and a toll-free telephone number for customer service.</para> A final communication element is the Universal Product Code (UPC) which is the set of black bars or lines printed on the side or bottom of most items sold in grocery stores and other mass-merchandising outlets. The UPC is a national system of product identification. It assigns each product a unique 10-digit number
  • Design Effective Packaging Effective package design involves a multitude of decisions.Planners must consider the packaging of other brands in the same product category. Firms that wish to act in a socially responsible manner must also consider the environmental impact of packaging. Some firms are developing innovative that is less harmful to the environment than other materials. Finally, there are many specific decisions brand managers must make to ensure a product’s packaging reflects well on its brand and appeals to the intended target market. Labeling Regulations The Federal Fair Packaging and Labeling Act of 1966 controls package communications and labeling in the United States. This law aims to make labels more helpful to consumers by providing useful information. More recently, the requirements of the Nutrition Labeling and Education Act of 1990 forced food marketers to make sweeping changes in how they label products. Since August 18, 1994, the U.S. Food and Drug Administration (FDA) requires most foods sold in the United States to have labels telling, among other things, how much fat, saturated fat, cholesterol, calories, carbohydrates, protein, and vitamins are in each serving of the product. As of January 1, 2006, the FDA also requires that all food labels list the amount of trans fats in the food, directly under the line for saturated fat content.
  • Chapter 9 - Managing the product

    1. 1. Chapter 9 <ul><li>Module 1 </li></ul>
    2. 2. Managing the Product <ul><li>Chapter 9 </li></ul>
    3. 3. Tactical Product Decisions (the marketing mix) Product Strategies Product & Product Line/Mix Objectives Must be clear, measurable, and within a distinct time frame (SMART) Own 15% of the snack-chip market by 20115 Considers life of the product & Rate of Diffusion. In two years, create a new package for Sunchips that is both biodegradable AND quiet. Be viewed as the most earth friendly chip brand
    4. 4. Main Objectives <ul><li>Understand the PLC & its relationship to Diffusion </li></ul><ul><li>Demonstrate how marketers manage a product using the PLC </li></ul><ul><li>Define and understand the role of “branding” as a marketing strategy </li></ul><ul><li>Understand the importance of packaging in the marketing mix </li></ul>
    5. 5. The Product Life Cycle (PLC)
    6. 6. The Product Life Cycle (PLC) Explains how the market’s response to a product and marketing activities change over the entire life of a product. Gives managers insights into how long a new product’s life cycle may be, and can help plan for marketing activities in advance. Products/brands need to be nurtured and developed with care... The PLC can help.
    7. 7. Why are profits low here? Stages in the PLC relate to a firm’s marketing objectives and marketing mix actions.
    8. 8. Introduction : launch & create desire for a product category, not always specific brands (primary demand); or create desire for a specific brand or company as competition begins to surface(selective demand) Introduction Choose a pricing strategy - Penetration vs. Skimming May need to educate target audiences
    9. 9. Growth : rapid sales increases, begin to see repeat purchasers and brand loyalty (advertising should focus on selective demand), product positioning is more segmented; product innovation and new features are key! Growth Distribution strategy - broaden the availability, or focus on concentrated/premium distribution and pricing
    10. 10. Maturity : often the longest stage, rate of sales slowing, prices are decreasing, (relative to inflation) profits are narrowing, competition is decreasing, firms try to attract new markets---differentiation is key. Maturity Distribution strategy - wide distribution, increase target market awareness Firms wanting to compete will revise their marketing mix
    11. 11. Decline : rapid decrease in sales, technologies may be obsolete, a product “rebirth” may be needed, firm dedicates limited resources to marketing; hope competition drops out ? Decline BIG DECISION: Deletion or Harvest?
    12. 12. On a Sheet of Paper... Place these products on the PLC curve where you believe they belong today. VCR 3D-TV Digital photo Low-carb ice cream USB memory stick toothpaste Fabric softener Dryer Bars
    13. 14. <ul><li>Homophily :   The more similar to each other that members of a culture are, the more likely an innovation is to spread—people are more likely to imitate similar than different models.  The two most rapidly adopting countries in the World are the U.S. and Japan.  While the U.S. interestingly scores very low, Japan scores high. </li></ul><ul><li>Physical distance:   The greater the distance between people, the less likely innovation is to spread.  </li></ul><ul><li>Opinion leadership:   The more opinion leaders are valued and respected, the more likely an innovation is to spread.  The style of opinion leaders moderates this influence, however.  In less innovative countries, opinion leaders tend to be more conservative, i.e., to reflect the local norms of resistance. </li></ul><ul><li>Modernity :   The extent to which the culture is receptive to new things. In some countries, such as Britain and Saudi Arabia, tradition is greatly valued—thus, new products often don’t fare too well.  The United States, in contrast, tends to value progress. </li></ul>Cultural Influences Other influences on the PLC and Diffusion:
    14. 15. <ul><li>Relative Advantage :   do consumers believe a new product provides superior benefits, or superior value proposition? </li></ul><ul><li>Compatability:   is the product consistent with cultural values, customs, practices? Or is it too radical? </li></ul><ul><li>Complexity:   Can consumers understand how to use the product? </li></ul><ul><li>Trialability:   Is the risk low for checking it out? What have we got to lose? </li></ul><ul><li>Observability: Does the product carry social meaning, it is visible and will it become part of my self-identity? </li></ul>Product Factors Other influences on the PLC and Diffusion:
    15. 16. PLC’s are not 100% predictable - only estimable based on history PLC’s are not to be used to forecast sales and production figures PLC’s can be misleading due to spikes & drops in sales, causing mis-adjustment of marketing mix elements Importantly:
    16. 17. End Module 1
    17. 18. Chapter 9 Module 2
    18. 19. Bring the product to life: With brand identity Brand personality and Brand recognition “ Brand” = symbol, name, unique element that identifies one product (or firm) from another. Brands help firms create relationships with customers
    19. 20. “ Brand” = symbol, name, unique element that identifies one product (or firm) from another. Brand mark: a logo or set of words Trade character: carries human features Good Brand names are... Easy to say Convey product benefits Fit customer culture Are legal Trademark: the legal term for a brand name, mark, or character.
    20. 21.
    21. 22. Is it memorable?? meaningful??
    22. 23. Dimensions of Brand Meaning <ul><li>Identification </li></ul><ul><li>Product Attribute </li></ul><ul><li>Gender </li></ul><ul><li>Social class </li></ul><ul><li>Age </li></ul><ul><li>Life stage </li></ul><ul><li>Lifestyle </li></ul><ul><li>Traditions/Rituals </li></ul><ul><li>Trends </li></ul>
    23. 24. End Module 2
    24. 25. Chapter 9 Module 3
    25. 26. The Importance of Brands
    26. 27. Brand Equity The value over and above the value of the generic version. Price premiums are associated with high brand equity. Consumers can experience strong attachments to brands related to.... Self-concept * Nostalgia * Interdependence * Love 115 00 39 00 = Comp. Advantage It’s me. Feel good Can’t do without Emotional bonds
    27. 28. Value: $79b Value: $15b Pricing Premium: $64b “ Branding accounts for 80% of it’s value.”
    28. 29.
    29. 30. The North Face's logo consists of a slightly skewed quarter-circle with two lines running within it. This image is an interpretation of Half Dome, a massive granitic monolith in Yosemite National Park , viewed from the west, with the sheer north (or northwest) face of Half Dome to the left. The North Face maintains strong links with the outdoor community through its sponsored athlete program. Athletes such as Lizzy Hawker who recently won the Ultra Trail Tour du Mont Blanc have benefited greatly from the program. THE NORTH FACE has meaning.
    30. 31. Leveraging Brand Equity
    31. 32. The North Face brand was established in 1966 when Douglas Tompkins and Kenneth &quot;Hap&quot; Klopp created an equipment retail store that eventually acquired the name The North Face. This name was chosen because the north face of a mountain in the northern hemisphere is generally the most difficult face to climb.By the 1980s, skiwear was added to the line of products, and eventually camping equipment was added as well. The North Face is now a wholly owned subsidiary of the VF Corporation . The North Face, Inc. Now specializes in outerwear , fleece, f ootwea r, and e quipment such as backpacks, tents, and s leeping b ags.
    32. 33. Branding strategies Family Brand Individual Brand
    33. 34. Branding strategies National Brands Private Brands High profit potential Compete with national brands Attract price-conscious consumers Still need some brand awareness and recognition Owned by retailer or distributor Carry brand equity Attract brand loyal customers Drive store traffic Owned by manufacturers
    34. 35. Licensing Brands Co-Branding More powerful recognition Can use ingredient branding strategy Helps create a wider product portfolio Can offer instant recognition & interest to lesser known products... ...especially for targeting specific consumer groups
    35. 36. Packaging As part of the product identity As part of the product identity
    36. 37. Packages serve several functions: 1. Protect the product 2. Inform the customer 3. Brand the product 4. Communicate with the customer 5. Lets the customer handle the product Fill the cap for a single serving Flavor, texture, contents Brand Easy to hold Fits in car cup-holder Plastic, opaque protects the contents, maintains freshness. Must consider: Competitor packaging, retailer specs, distribution limits, consumer acceptance
    37. 38. Recap Brand identity influences how consumers perceive the brand. Brand equity, as a competitive advantage, is achieved through branding. Branding is part of product positioning!
    38. 39. End Chapter 9