Chapter12 Setting Product Strategy

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Chapter12 Setting Product Strategy

  1. 1. Part 5 : Shaping the Market Offerings Chapter 12 – Setting Product Strategy
  2. 2. Product and Brand Relationship <ul><li>Most companies sell more than one product. Each product can be related to other products </li></ul><ul><li>The product hierarchy stretches from basic needs to particular items that satisfy those needs (using life insurance as an example): </li></ul><ul><li>Need family: the core need that underlies the existence of a product family. Example: security </li></ul><ul><li>Product family: all the product classes that can satisfy a core need with reasonable effectiveness. Example: savings and income </li></ul><ul><li>Product class: a group of products within the product family recognized as having a certain functional coherence. Also known as product category. Example: financial instruments </li></ul><ul><li>Product line: a group of products within a product class that are closely related because they perform a similar function, are sold to the same customer groups, are marketed to the same outlets. A product line may be composed of different brands. Example: life insurance </li></ul><ul><li>Product type: a group of items within a product line that share one of several forms of products. Example: term life insurance </li></ul><ul><li>Item or product variant: a distinct unit within a brand or a product line distinguishable by size, price, or some other attributes. Example: Prudential renewable term life insurance </li></ul>
  3. 3. Product and Brand Relationship <ul><li>A product system is a group of diverse but related items that function in a compatible manner. For example, PalmOne handheld and smartphone product lines come with attachable products including camera, MP3 player, e-books, and voice recorder </li></ul><ul><li>A product mix or product assortment is the set of all products and items a particular seller offers for sale. A product mix consists of various product lines </li></ul><ul><li>A product mix can be classified according to: </li></ul><ul><li>The width of a product mix refers to how many different product lines the company carries </li></ul><ul><li>The length of a product mix refers to the total number of items in the mix </li></ul><ul><li>The depth of a product mix refers to how many variants are offered of each product in the line </li></ul><ul><li>The consistency of the product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels etc </li></ul>
  4. 4. Product and Brand Relationship Product Line Length Product Mix Width The Width of a product mix is 5 lines The Length of a product mix is 20 items The Depth of Tide mix is 8 variants (if Tide in two scents, two formulation, two additives) The consistency of P&G product line is “consistent” as consumer goods but “ inconsistent” as different functions for buyer Safeguard Era Cheer Bounty Zest Gain Tide Puffs Luvs Camay Crest Bold Dreft Charmin Pampers Oil of Olay Ivory Gleem Dash Ivory Snow Paper Products Diapers Bar Soap Toothpaste Detergents
  5. 5. Product and Brand Relationship <ul><li>Product line length is created by company in order to: </li></ul><ul><li>Induce upselling i.e. General Motors would like to move customers up from the Chevrolet to the Buick to the Cadillac. </li></ul><ul><li>Facilitate cross-selling i.e. Hewlett Packard sells printers as well as computers </li></ul><ul><li>Protect against economic ups and downs i.e. Electrolux offers refrigerators, dishwasher, and vacuum cleaner under different brand names in the discount, middle market, and premium segment </li></ul><ul><li>Seek high market share and market growth through longer product lines or high profitability through shorter lines with carefully chosen items </li></ul>
  6. 6. Product and Brand Relationship <ul><li>A company lengthens its product line in two ways: by line stretching and line filling </li></ul><ul><li>Line stretching occurs when a company lengthens its product line beyond its current range: </li></ul><ul><li>Down-market Stretch: a company positioned in the middle market may want to introduce a lower price line i.e. Mercedes successfully introduced its C-Class cars at $30.000 without injuring its ability to sell other Mercedes cars for $100.000 and up </li></ul><ul><li>Up-market Stretch: a company enters the high social class segment for more market growth, higher margins, as full line manufacturers e.g. Starbucks in coffee, Hagen Dazs in ice cream, Toyota Lexus </li></ul><ul><li>Two-way Stretch: a company serving the middle market might decide to stretch their line in both lower and high social class i.e. Holiday Inn Worldwide performed five different segments – the upscale Crown Plaza, the traditional Holiday Inn, the budget Holiday Inn Express, and the business-oriented Holiday Inn Select and Holiday Inn Suites </li></ul><ul><li>Line filling occurs when a company adds more items within the present range. The motives are to overcome the missing items in the line, reach the incremental profits, utilize excess capacity, plug holes to keep out competitors </li></ul>
  7. 7. Co Branding and Ingredient Branding <ul><li>Co Branding (dual branding) in which two or more well-known existing brands are combined into a joint product and marketed together in some fashion (same-company co-branding). Example: Avanza and Xenia </li></ul><ul><li>Brand alliances involves a number of decisions: </li></ul><ul><li>What capabilities do you not have? </li></ul><ul><li>What resource constraints are you faced with? </li></ul><ul><li>Is it a profitable business venture? </li></ul><ul><li>Is there any possible risk of dillution of brand equity? </li></ul><ul><li>Co Branding can generate greater sales from the existing target market and new customers and channels, reduce cost of product introduction. </li></ul><ul><li>Ingredient branding involves creating brand equity for materials, components or parts that are necessarily contained within other branded products e.g. “good cake” if Betty Crocker baking mixes with Hershey’s chocolate syrup. </li></ul>

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