Summary of Marketing Management, 11Ed. Chapter 12

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Philip Kotler, Kevin Lane Keller and Abraham Koshy

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Summary of Marketing Management, 11Ed. Chapter 12

  1. 1. logo copy.tif Product: Anything that can be offered to a market to satisfy a need or want, including physical goods, services, experiences, events, persons, places, properties. Setting Product Strategy Chapter 12 Marketing Management By Philip, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha SUMMARY by Product is the first and the most important element of a marketing mix. This chapter deals with various product strategies for making coordinated decisions on product mixes, product lines, brands, packaging, labeling and warranties and guarantees. Product Levels Marketers need to address 5 product levels: • Core Benefit: The benefit a customer really buys. E.g. Hotel guest buys rest and sleep • Basic Product: e.g. hotel room includes bed, bathroom, desk, dresser, closet, towel etc • Expected product: attributes that buyers normally expect along with their product. • Augmented product: attributes that exceed buyer expectations. In developed countries, brand positioning and competition take place at this level, while in developing countries it takes place at ‘expected product’ level. • Potential product: it encompasses all the augmentations and transformations the product or offering might undergo in the future. Product classification • Durability and tangibility 1. Nondurable goods: tangible goods that are normally consumed in a day or two. E.g.: soaps, soft drinks. They are purchased frequently, thus should be made available in many locations, charged a small markup, and advertised heavily to induce trial. 2. Durable goods: tangible goods that survive many uses. E.g. Clothes, machines. Require more personal selling, higher margins, more seller guarantees. 3. Services: intangible, variable, perishable products. E.g. Haircuts, repairs. Require more quality control, supplier credibility, adaptability. • Consumer goods classification: done on the basis of shopping habits. 4 types- 1. Convenience goods: purchased frequently, immediately, with minimum effort Staples: purchased on regular basis Impulse goods: purchased w/o planning e.g. Chocolates Emergency goods: purchased when need is urgent e.g. Umbrellas
  2. 2. Product Differentiation Form: this includes size, shape, physical structure. Features: they supplement the basic function of the product. Company must compare customer value v/s company cost for each potential feature. Customization: requires gathering and using information about consumers. Mass customization is the ability of a company to meet each customer’s requirements. Performance quality: it is the level at which a product’s primary characteristics operate. 4 performance levels- low, average, high, and superior. The level must be appropriate to the target segment and not necessarily the best. Conformance quality: the degree to which all produced units is identical and meets the promised specifications. Durability: buyers generally pay more for more durable products. However, the extra price must not be excessive and the product must not be subject to rapid technological obsolescence Reliability: probability that a product will not fail within a specified time period. Reparability: the ease of fixing a product when it malfunctions or fails Style: the product’s look and feel. Creates distinctiveness that is difficult to copy. Chapter 12 - Setting Product Strategy 2. Shopping goods: goods that consumer compares based on suitability, price etc Homogeneous: similar in quality but different in price. Heterogeneous: similar in price but different in product features. 3. Specialty goods: they have unique characteristics for which consumers can spend mo E.g. Cars, men’s suits etc. they don’t require comparison. 4. Unsought goods: those that consumers do not know about or think of buying. E Insurance, reference books. Require advertising and personal selling. • Industrial goods classification: done on the basis of relative cost and how they enter t production process- 1. Materials and parts: those that enter the manufacturer’s product completely. Raw materials: 2 kinds- Farm products, which are seasonal and require spec marketing apart from advertising, and Natural products, which are limited in supp Manufactured materials and parts: 2 kinds- component materials (e.g. Iro cement. These are usually fabricated further), and component parts (e.g. Moto tires. These enter the final product w/o change.) 2. Capital items: long lasting goods that facilitate developing or managing the finish products. They include- Installation: includes buildings and heavy equipments. Advertising less importa that personal selling Equipment: includes portable factory tools and equipments. Sales force mo important than advertising. 3. Supplies: short term goods that facilitate developing or managing finished produc They include- Maintenance and repair items. E.g. Paint, broom. Operating supplies. E.g. Lubricants, writing paper, pencils. 4. Business services: short term services that facilitate developing or managing finish products. They include- Maintenance and repair services. E.g. Air conditioner maintenance. Business advisory services. E.g. Management consulting, advertising. Differentiation Straddle Positing: It is a common positioning technique used when a company tries to straddle between two frames of reference. E.g. BMW through a well crafted marketing program straddled ‘Luxury’ and ‘Performance’ as both POD and POP.
  3. 3. Services Differentiation Ordering ease: ease of placing an order Delivery: includes speed, accuracy, and care throughout the process. Installation: work done to make a product operational in its planned location. Becomes a selling point when the target market is technologically novice. Customer training: training customer’s employees to use vendor’s equipment efficiently and properly. Customer consulting: data, information and advice services that seller offers to buyers. Maintenance and repairs: helps customers keep products in working order. Returns: they are of two types- 1. Controllable: result from problems, difficulties, or errors of seller or customer and can be eliminated with proper strategies. 2. Uncontrollable: can’t be eliminated by the company in the short run. Chapter 12 - Setting Product Strategy Product Hierarchy 1. Need family: the core need that underlies the existence of a product family. E.g. Security. 2. Product family: product classes that satisfy a core need. E.g. Savings and income 3. Product class: a group of products within a family that have functional coherence 4. Product line: a group of products within a class that perform similar function, are sold to same customers, are marketed through same channels. E.g. Life insurance. 5. Product type: a group of items within a line that share of possible forms of the product. E.g. Term life insurance. 6. Item: a distinct unit within a brand or product line distinguishable by size, price, appearance, etc. ICICI prudential term life insurance. Product system: a group of diverse but related items that function in a compatible manner. Product Mix It is the set of all products and items a particular seller offers for sale. • Width: how many product lines the company carries. • Length: the total no. of items in the mix. • Depth: how many variants are offered of each product in the line? • Consistency: how closely related the various product lines are in end use. Product line Product line analysis: based on – • Sales and Profit: a company can classify its products based on the margins. o Core products: basic products that have a high sales volume but with low margins as they are essentially undifferentiated commodities. E.g. Basic computers. o Staples: lower sales volume, higher margins, no promotions. E.g. Faster CPU o Specialties: lower sales volume, highly promoted. E.g. Installation, delivery. o Convenience items: peripherals selling in high volumes, less promotion, high margins. E.g. Software, carry cases. • Market Profile: product line managers must review how the line is positioned against competitor’s lines. Product line length: Companies seeking higher market share have longer product lines, those seeking higher profitability have shorter product lines. They lengthen over time. Excess manufacturing forces production of newer items. However, other costs increase and thus some non performing items are eliminated.
  4. 4. Chapter 12 - Setting Product Strategy Line stretching: occurs when companies try to go beyond their current range offered. Companies stretch in the following ways- • Down Market Stretch: introducing lower-priced line than the one being offered. It can be risky as the price may not be less enough for competitors or some customers may shift the cheaper version. • Up-Marker Stretch: entering high end of market for better growth, higher margins. • Two way Stretch: middle level companies entering both high end and low end markets. Helps in establishing market dominance. E.g. Titan started as mid level watch, and then introduced Sonata for low end and Edge, Xylus for high end. Note: a high end model of a low end brand is preferred over a low end model of a high end brand. Line filling: lengthening product line by introducing more items in the present range. Line modernization, Featuring and Pruning: product lines need to change with the times. Can be done piecemeal or all at once. Piecemeal allows company to gauge the effect of change on consumers, but allows competitors to copy and pose greater challenge. Improvements must not occur too early (as they will affect sales of current product) and too late (as competitors would get more time). The company may choose between featuring their most selling items and promoting their weak items from time to time. Companies also need to optimize their brand portfolio. For this, they need to identify the weak items, and weed them away. E.g. Unilever found only 400 of its 1600 items generated 90% of company’s profits. Product-Mix Pricing: searching for a set of prices that maximizes profits on the total mix. • Product Line Pricing: companies develop product lines and introduce price steps. Their task is to establish perceived quality differences that justify price differences. • Optional Feature Pricing: e.g. Automobile cos. Advertise entry level models at low prices to attract more customers. These modes are stripped of several features that buyers usually end up buying. • Captive Product Pricing: e.g. Manufacturers of razors price them low and set high markups on razor blades. If price is too high, counterfeiting and substitutions can erode sales. • Two-Part Pricing: fixed fee+ variable usage fee. Fixed fee should be low to encourage more sales; profit can be maximized from variable fees. • By-Product Pricing: e.g. Production of petroleum products produces several by products. If producer can sell these to the customer, he can price the main product lower. • Product Bundling Pricing 1. Pure bundling: products offered only as bundles. E.g. tour operators bundle stay and travel. 2. Mixed bundling: products offered individually as well as in bundles. E.g. Auto manufacturers. Customers may not plan to buy all components, but may be lured by the saving.
  5. 5. Chapter 12 - Setting Product Strategy Co-Branding: 2 or more brands are combined into a joined product or are marketed together in some fashion. It includes same company co-branding (Gillette launched Mach 3 Turbo with its shaving gel), joint venture co-branding (Indian oil and Citibank co- branded credit cards), multiple sponsor co-branding ( Taligent, a one time alliance of Apple, IBM and Motorola) and retail co-branding (2 retail establishments using the same location to optimize space and profits). It allows products to be convincingly positioned and generating greater sales as 2 well known images are combined. However, consumer expectations with the level of involvement are high, so an unsatisfactory performance will be damaging for the partner company as well. For co-branding to succeed, both brands must have brand equity, and must fit in terms of values, goals and capabilities. Packaging: activities of designing and producing containers for a product. Packages may include 3 levels of materials. Package is the buyer’s first encounter with the product. Factors leading to growing use of packaging: • Self service • Consumer affluence • Company and brand image: package leads to instant recognition of brand • Innovation opportunity: packaging can be used to target different segments. Packaging needs to achieve the following objectives: • Identify the brand • Convey descriptive and persuasive information • Facilitate product transportation and protection • Assist at-home storage • Aid product consumption After designing, the packaging needs to be tested: • Engineering tests: ensure that package stands up under normal circumstances • Visual tests: ensure that script is legible and colors harmonious • Dealer tests: dealers should find package attractive and easy to handle • Consumer test: buyers must respond favorably Labeling: labels identify the product, grade the product, describe the product and promote the product (through attractive graphics). Warranties and Guarantees: warranties are formal statements of expected product performance by the manufacturer. Products under warranties can be returned to the manufacturer for replacement, repair. Guarantees reduce the buyer’s perceived risk. They are especially helpful when the company is not well known or when product quality is superior to that of competitors. Ingredient Branding: special case of co- branding. It created brand equity for materials, components, parts that are contained within other branded products. Ingredient brands create preference for their products so that customers do not but a host product which does not have that ingredient.

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