Setting product-strategy


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Setting product-strategy

  1. 1. SETTING PRODUCT STRATEGY01020304050607080901st Qt r 2nd Qt r 3rd Qt r 4t h Qt rEastWestNort h
  3. 3. Marketing planning begins with…FORMULATING AN OFFERING TO MEET TARGET CUSTOMER’S NEEDSOR WANTS. THE CUSTOMER WILL JUDGE THE OFFERING BYTHREE BASIC ELEMENTS: PRODUCT FEATURES & QUALITY,SERVICE MIX & QUALITY, & PRICEValue-based pricedAttractivenessof the marketofferingProduct Servicesfeatures mix && quality quality
  4. 4. Product strategy1. Product characteristics & classification2. Product differentiation3. Product & brand relationships4. Packaging, labeling, warrantees, &guarantees
  5. 5. 1. Product characteristics &classificationMany people think that a product is a tangibleoffering, but a product can be more than that. Aproduct is anything that can be offered to a marketto satisfy a need or a want. Products that aremarketed include physical goods, services,experiences, events, persons, places, properties,organizations, information, & ideasA. Product levels: the customer value hierarchyB. Product classifications
  6. 6. A. Product levels: the customervalue hierarchy5 product levels:1. Core benefit: service or benefit consumer is really buying2. Basic product: marketer turns core benefit into3. Expected product: a set of attributes & conditions buyers normallyexpect when they purchase his product4. Augmented product: that exceeds customers expectations: Differentiation arises on basis of product augmentation; it also leads tomarketer looking at user’s total consumption system: the way theuser performs the tasks of getting & using products & related services Product augmentation:1. Each augmentation adds to costs2. Augmented benefit soon become expected benefits & necessarypoints-of-parity5. Potential product: encompasses all the possible augmentations &transformations product or offering might undergo in the future: Here is where companies search for new ways to satisfy customers &distinguish their offer
  7. 7. B. Product classifications Durability & tangibility Consumer goods classification Industrial goods classification
  8. 8. Durability & tangibility Non-durable goods: tangible goods normally consumed inone or a few uses, like beer & soap:Because these goods are consumed quickly & purchasedfrequently, the appropriate strategy is to make them available inmany locations, charge only small markup, & advertise heavily toinduce trial & build preference Durable goods: tangible goods that normaly survive manyuses: refrigerators, machine tools, & clothingNormally require more personal selling & service, command ahigher margin, & require more seller guarantees Services: intangible, inseparable, variable, & perishableproducts.As a result, they normally require more quality control, suppliercredibility, & adaptability; examples include haircuts, legal advice, &appliance repairs
  9. 9. Consumer goods classification Convenience goods: purchased frequently, immediately, &with a minimum of effort:Convenience goods can be further divided: Staples are goods purchased on a regular basis: Maggiisauces, Colgate toothpaste Impulse goods are purchased without any planning or searcheffort: Candy, ice cream Emergency goods purchased when need is urgent: umbrellasduring rainstorm, car batteries when car breaks down due tobattery failure Shopping goods: in the process of selection & purchase,characteristically compares on such bases as suitability,quality, price, & style: furniture, clothing, used cars, majorappliancesShopping goods can be further divided: Homogenous shopping goods are similar in quality but differentenough in price to justify shopping comparisons Heterogeneous shopping goods differ in product features &services that may be more important than price. Seller carries awide assortment to satisfy individual tastes & must have well-trained salespeople to inform & advice customers
  10. 10.  Specialty goods: has unique characteristics or brandidentification for which a sufficient number of buyers arewilling to make special purchasing effort; cars, men’s suit.Mercedes is a specialty good because interested buyers willtravel far to buy oneDo not involve making comparisons; buyers spend time only to reachdealers carrying the wanted productsDealers do not need convenient locations, although they must letprospective buyers know the locations Unsought goods: consumer does not know about or doesnot normally think of buying, like smoke detectors:Require advertising & personal-selling effort
  11. 11. Industrial goods classification Classified in terms of how they enter theproduction process & their relative costliness into3 groups of industrial goods:1. Materials & parts2. Capital items3. Supplies & business services
  12. 12. Materials & parts Materials & parts are goods that enter themanufacturer’s product completely. They fall into2 classes:1. Raw materials: fall into 2 major groups:Farm products: supplied by many producers, who turn themover to market intermediaries, who provide assembly,grading, storage, transportation, & selling services. Their perishable & seasonal nature leads to special marketingpractices. Their commodity character results in little advertising &promotions, with some exceptionsNatural products: limited in supply, usually have great bulk &low unit value & must be moved from producer to user; fewer & larger producers often market them directly industrialusers long-term supply contracts are common; price & deliveryreliability are the major factors influencing the selection ofsupplier, homogeneity of natural materials limiting the amount of demandcreating activities
  13. 13. 2. Manufactured materials & parts: fallinto 2 categories:Component materials (iron, cement, wires):usually fabricated further – pig iron into steel,yarn woven into cloth. Standardized nature of component materialsusually means that price reliability are key purchasefactorsComponent parts (small motors, tyres,castings):enter the finished product with nofurther change in form, as when small motorsare put into vacuum cleaners, tyres are putinto automobiles. Most manufactured materials & parts are solddirectly to industrial users. Price & service are major marketing considerations,& branding & advertising tend to be less important
  14. 14. Capital items Long-lasting goods that facilitate development ormanaging the finished product They include 2 groups:1. Installation: consist of building & heavy equipment:Constitute major purchases, usually bought directly fromproducer, with typical sale preceded by a long negotiationperiodProducers sales force include technical personnelProducers have to be willing to design to specifications & tosupply post sale specificationsAdvertising much less important than personal selling1. Equipment: comprises portable factory equipment & tools & officeequipment; they don’t become part of finished product, shorter lifethan installations longer than operating suppliesAlthough some sell directly, normally routed throughintermediaries, markets being geographically dispersed,buyers numerous, & orders smallQuality, feature, price, & service are major considerationsSales force tend to be more important than advertising,although latter can be used effectively
  15. 15. Supplies & business services Short-term goods & services that facilitatedeveloping or managing the finished product Supplies are of 2 kinds, going under the nameMRO goods:1. Maintenance & repair items (paint, nail, brooms): usuallysupplied under contract by small parties or manufaturersof original equipment2. Operating supplies (lubricants, coal, writing paper):equivalent of convenience goods, usually purchased withminimum effort on straight re-buy basisNormally marketed thru’ intermediariesPrice & service important considerations, standardisation
  16. 16. 2. Product differentiationA. Product differentiationB. Design: the integrative forceC. Services differentiation
  17. 17. A. Product differentiation Form: size, shape, or physical structure of a product. Features: a company can identify & select appropriate newfeatures by surveying recent buyers & then calculating customervalue versus company cost for each potential feature Co. should also know how many people want each feature,how lofg it would take to introduce each potential feature,whether competitors could copy it Also think in terms of feature bundles or packages Auto companies often manufacture cars at several “trimlevels”: reduces inventory costs Each co. should decide whether to offer feature customizationat higher cost or a few standard packages at a lower cost Performance quality: 4 levels- low, average, high or superior Performance quality is the level at which product’s primarycharacteristics operate: cos Manufacturers must design aperformance level appropriate tothe target market & competitor’s performance levels Co. should also manage performance quality over time;continuous improvement can produce high returns & marketshare Lowering quality in an attempt to cut costs often has direconsequences. E.g. how Shiltz beer, no.2 beer in US in 1960s& 1970s lost out
  18. 18.  Conformance quality: degree to which all the units are identical &meet promised specifications – buyers expect this to be high;problem with low conformance is that it would disappoint somebuyers Durability: measure of product’s expected life under natural orstressful conditions, is a valued attribute for certain products;buyers will generally pay more for vehicles & kitchen appliancesthat have a reputation for being long lasting Rule is subject to some qualifications: extra price should not beexcessive; product should not be subject to rapid technologicalobsolescence, as with computers, video cameras Reliability: probability that a product will not malfunction or failwithin specified time period, consumers willing to pay a premium Repairability: measure of ease of fixing when it malfunctions orfails. Ideal if users could users could fix themselves with little cost Style: product’s look & feel to the buyer Style has the advantage of creating distinctiveness that isdifficult to copy On the negative side, does not always mean high performance
  19. 19. B. Design: the integrative force As competition intensifies, design offers a potent way to differentiate &position a company’s products & services: it is the totality of features thateffect how a product looks & functions in terms of customer requirements Design is particularly important in making & marketing retail services,apparel, packaged goods, & durable equipment- all these are designparameters, co. has to figure out how much to invest in form, featuredevelopment, durability, reliability, repairability, & style To a co., a well designed product is easy to manufacture & distribute To a customer, a well-designed product is pleasant to look at & easy toopen, use repair, & dispose off The argument for good design are particularly compelling for smallerconsumer-product companies & star-ups that don’t have big budgets Certain countries are winning on design: Italian design in apparel &furniture; Scandinavian design for functionality, aesthetics, &environmental consciousness Cos. design department enjoys equal status with engineering &manufacturing
  20. 20. C. Services differentiation When physical product cannot easily bedifferentiated, the key to competitive successmay lie in adding services & improving theirquality. The main differentiators are: Ordering ease Installation Customer training Maintenance & repair
  21. 21. 3. Product & brand relationships The product hierarchy Product systems & mixes Product-line analysis Product-line length Product-mix pricing Co-branding & ingredient branding
  22. 22. A. The product hierarchy Stretches from basic needs to particular items that satisfythose needs (using life insurance) Need family: core need that underlies the existence of a product family;e.g. security Product family: all product classes that can satisfy the core need withreasonable effectiveness; e.g. savings & income Product class: a group of products within the product family recognizedas having a certain functional coherence, also known as productcategory; e.g. financial instruments Product line: a group of products within a product class that are closelyrelated because they perform a similar function, are sold to the samecustomer groups, are marketed through the same outlets or channels,or fall within price rangesA product line may be composed of different brands or a single familybrand or individual brand that has been line extended; e.g. life insurance Product type: a group of items within a product line that share one ofthe several possible forms of the product; e.g. term life insurance Item (a.k.a. SKU or product variant): a distinct unit within a brand orproduct line distinguishable by size, price, appearance, or some otherattribute; e.g. Prudential renewable term life insurance
  23. 23. B. Product systems & mixes A product system is a group of diverse but relateditems that function in a compatible manner (camera,film, developer,..) A product mix (a.k.a. product assortment) is aset of all products & items a particular seller offersfor sale (items offered by Shoppers’ Stop) A company’s product mix has certain: Width Depth consistency
  24. 24. Table 1: Product-mix width & product-line lengthfor P&G (including date of introduction)Product-mix widthDetergents Toothpaste Bar soap DisposablediapersPaperproductsPRODUCTLINELENGTHIvorysnow(1930)Dreft(1933)Cheer(1950)Dash(1954)Bold (1965)GainGleem(1952)Crest(1955)Ivory(1879)Camay(1926)Zest (1952)Safeguard(1963)Oil of Olay(1993)Pampers(1961)Lovs(1976)Charmin(1928)Puffs (1960)Bounty(1965)
  25. 25.  Breadth of a product mix refers to how many different productlines the company carries (5 in P&G example) Depth of a product mix refers to total number of items in the mix( 20 in the P&G example). Can also consider average length ofline (20/5=4) Width of a product mix refers to how many variants are offeredof each product in the line (e.g. Tide has a depth of 8 as it offers8 distinct variants: 2 scents, 2 formulations, 2 additives) Consistency of product mix refers to how closely relatedproduct lines are in end use, production requirements,distribution channels,.. P&G products are consistent in so far asthey are consumer goods that go through the same distributionchannels, less consistent in so far as they perform differentfunctions for the buyer These 4 product mix dimensions permit the company to expandits business in 4 ways:1. Can add new product lines, widening product mix2. Lengthen each product line,3. Add more product variants to each product & deepen itsproduct mix4. Pursue more product-line consistency
  26. 26. C. Product-line analysis Sales & profits: every company’s product portfolio contains products withdifferent margins A company can classify its products into 4 types that yield differentgross margins, depending on sales volume & promotion. To illustratewith P.C.s:Core product: basic computers that produce high sales volume &are heavily promoted but with low margins because they areviewed as undifferentiated commoditiesStaples: items with lower sales volume & no promotion, such asfaster CPUs or bigger memories; these yield somewhat highermarginSpecialties: items with lower sales volume but which might behighly promoted, such as digital movie making equipmentConvenience items: peripheral items that sell in high volume butreceive less promotion, such as computer monitors, printers,upscale video or sound cards Main point is that companies should recognize that these items differ intheir potential for being priced higher or advertised more as ways toincrease their sales , margins, or both
  27. 27.  Market profile: the product-line manager mustknow how the line is positioned againstcompetitor’s lines Product-line analysis provides information for twokey decision areas:Product–line lengthProduct-mix pricing
  28. 28. D. Product-line length Company objectives influence product-line length. One objective is to create a product line to induceup-selling Product lines tend to lengthen over time A company lengthens its product line in two ways:1. Line stretching2. Line filling Line modernization, features, & pruning: acontinuous process to cope with changing product-markets
  29. 29. 1. Line stretching Down-market stretch: a company positioned in the middle may wantto introduce a lower-priced line for any of 3 reasons:1. May notice strong growth opportunities as mass market retailersattract growing number of shoppers who want value-priced good2. Wish to tie up lower-end competitors who might otherwise try tomove up-market (low-end competitor if moving up oftencounterattacked by entering low-end market)3. May find middle market stagnating or declining Moving down-market carries risks Up-market stretch: companies may wish to enter the high end of themarket for more growth, higher margins, or simply to positionthemselves as full-line manufacturers: Many markets have spawned surprising upscale segments:Starbucks in coffee, Haagen-Dazs in ice cream; Japanese automakers introduced upscale automobile: Toyota’s Lexus, Honda’sAcura. They invented entirely new names rather than using orincluding their own names Other companies have included their own name in moving up-market: Extra Strength Tylenol Two-way stretch: companies serving the middle market might decideto stretch their line in both directions
  30. 30. 2. Line filling A product line can be lengthened by adding more productswithin the present range Several motives for line filling: Reaching for incremental profits Trying to satisfy dealers who complain about loss sales,because of missing items Trying to utilize excess capacity Trying to be leading full-line company Trying to plug holes to keep competitors out Line filling is overdone if it results in self-cannibalization &customer confusion Each item should possess just-noticeable difference
  31. 31. E. Product-mix pricing Price-setting logic must be modified when the product is partof the product mix: here firm searches for a set of prices thatmaximizes profits on the total mix. Pricing is difficult because the various products have demand& cost interrelationships & are subject to different degrees ofcompetition Can distinguish 6 situations involving product-mix pricing:1. Product-line pricing: companies normally develop productlines rather than single products & introduce price steps;often with well established price points for products2. Optional feature pricing: optional products, features, &services offered with main product, e.g. auto mobiles
  32. 32. 3. Captive-product pricing: manufacturers of razors, cameras often price them low &set high markups for razor blades, & film There is danger of pricing the captive product too high in the aftermarket, can lead topiroting4. Two-part pricing: fixed fee plus variable usage fee, e.g. telephone users. Fixedfee should be low enough to induce purchase of the service, profit can be madeon the usage fees5. By-product pricing; if by-products have value to a customer group, they should bepriced on their value; it allows competitive leverage for the main product6. Product-bundling pricing: pure bundling occurs when a firm only offers itsproducts as a bundle In mixed bundling seller offers goods both iboth individually & inbundles. Seller normally charges less for the bundle than if the itemswere purchased separately 3 suggested guidelins for correctly implementing bundling strategy:1. Don’t promote individual products in a package as frequently & cheaply asa bundle; bundle price should be much lower than the sum of theindividual products, otherwise consumer will not perceive itsattractiveness2. Limit promotions to a single item in the mix if still want to promoteindividual products; alternatively promote products one afteranother, not simultaneously, to avoid conflicting promotions3. If deciding to give rebates on individual products, it must beabsolute exception done with discretion, otherwise danger ofbundle losing value
  33. 33. F. Co-branding & ingredientbranding Co-branding Ingredient branding
  34. 34. Co-branding Two or more well known existing-brands are combined into a jointproduct and/or marketed together in some fashion: Same-company co-branding Joint venture co-branding Multi-sponsor co-branding Retail co-branding Main advantage of co-branding is that product may be convincinglypositioned by virtue of multiple brands involved: Can generate greater sales from existing target markets as wellas open additional opportunities with new consumers & channels Can reduce cost of product introduction – 2 well known images –accelerating potential adoption Valuable means to, learn about consumers & how othercompanies approach them Potential disadvantages of co-branding are the risks & lack of controlfrom becoming aligned with another brand in the minds ofconsumers: Consumer expectations about level of involvement & commitmentwith co-brands likely to be high, so unsatisfactory performancecould have negative repercussions for brands involved If other brand has entered into a number of co-brandingarrangements, there may be a risk that overexposure will dilutethe transfer of any association; may also result in lack of focus onexisting brands
  35. 35.  A necessary condition for co-branding success is that the two brandsseparately have brand equity – adequate brand awareness & brandimage: Most important requirement logical fit between two brands such thatcombined brand or marketing activity maximizes advantages of theindividual brands while minimizing disadvantages Research studies show consumers more apt to perceive brandsfavourably if two brands are complementary rather than similar Besides these strategic considerations, co-branding ventures mustbe entered into & executed carefully: There must be right kind if values capabilities & goals, in addition to anappropriate balance of brand equity Must be detailed plans to legalize contracts, make financialarrangements, & coordinate marketing programmes Brand alliances require a number of decisions: What capabilities you do not have? What resource constraints are youfaced with? What growth goals or revenue needs do you have? In assessing qa joint branding opportunity, a number of questions needto be asked : Is it a profitable business venture? How does it help to maintain orstrengthen brand equity? Is there any possible risk of dilution of brandequity? Does it offer any intrinsic advantages?
  36. 36. Ingredient branding Involves creating brand equity for materials, components, orparts that are necessarily contained within other brandedproducts Interesting type of branding is “self branding” in whichcompanies advertise & even trademark their own brandingredients Ingredient brands attempt to create awareness & preferencefor their product such that consumers will not buy a “host”product that does not contain the ingredient brands Many manufacturers make components or materials that enterinto final products, but whose individual identity generally getslost: Intel has succeeded in building a separate identity As a result , major PC manufacturers - IBM, Dell, Compaq – purchaseat a premium price
  37. 37. 4. Packaging, labeling, warrantees, &guaranteesA. PackagingB. LabelingC. Warrantees & guarantees
  38. 38. A. PackagingIncludes all the activities of designing & producing the container for a product.Package might include up to 3 levels of material: primary package, secondarypackage & shipping packageVarious factors contributing to the growing use of packaging as a marketing tool: Self-service: an increasing number of products are sold on a self-service basis,: Given that 53% of all purchases made on impulse, effective package must perform many of thesales tasks: attract attention, describe the products features, create consumer confidence, & makefavourable overall impression Consumer affluence: consumers are willing to pay a little more for convenience,appearance, dependability, & prestige of better packages Company brand image; contribute to instant recognition of company or brand Innovation opportunity: can bring large benefits to consumers & profits to producersDeveloping an effective package requires a number of decisions. From the perspectiveof both the firm & consumers, packaging must achieve a number of objectives:1. Identify the brand2. Convey descriptive & persuasive information3. Facilitate product transportation & protection4. Assist at-home storage, &5. Aid product consumption
  39. 39. B. Labeling1. Identifies product or brand2. Might describe the product3. Might promote the product through attractivegraphics
  40. 40. C. Warrantees & guarantees All sellers are legally responsible for fulfilling abuyer’s normal or reasonable expectations: Many sellers offer either general ghuarantee orspecific guarantee Guarantee’s reduce buyers perceived risk Guarantees are most effective in two situations:1. When company or product is not well known2. When product’s quality is superior top competitors