This chapter discusses product strategy and classification. It covers 5 levels of a product from core benefit to potential product. Products are classified based on durability, tangibility, and consumer shopping habits. The chapter also discusses differentiation through various product attributes. It outlines the product hierarchy from need to item and covers product mix, line, pricing and strategies like stretching, filling and modernization. The chapter concludes with topics like co-branding, packaging, labeling, warranties and guarantees.

1. Marketing Management
By Philip, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha
logo copy.tif
SUMMARY by
Chapter 12
Setting Product Strategy
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
Product: • Basic Product: e.g. hotel room includes bed, bathroom, desk, dresser, closet, towel etc
Anything that can • Expected product: attributes that buyers normally expect along with their product.
• Augmented product: attributes that exceed buyer expectations. In developed countries,
be offered to a
brand positioning and competition take place at this level, while in developing countries
market to satisfy a it takes place at ‘expected product’ level.
need or want, • Potential product: it encompasses all the augmentations and transformations the
including physical product or offering might undergo in the future.
goods, services,
experiences, Product classification
events, persons, • Durability and tangibility
places, properties. 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. 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.
Straddle Raw materials: 2 kinds- Farm products, which are seasonal and require spec
marketing apart from advertising, and Natural products, which are limited in supp
Positing: Manufactured materials and parts: 2 kinds- component materials (e.g. Iro
cement. These are usually fabricated further), and component parts (e.g. Moto
It is a common tires. These enter the final product w/o change.)
positioning technique 2. Capital items: long lasting goods that facilitate developing or managing the finish
products. They include-
used when a
Installation: includes buildings and heavy equipments. Advertising less importa
company tries to that personal selling
straddle between two Equipment: includes portable factory tools and equipments. Sales force mo
frames of reference. important than advertising.
3. Supplies: short term goods that facilitate developing or managing finished produc
E.g. BMW through a
They include-
well crafted
Maintenance and repair items. E.g. Paint, broom.
marketing program Operating supplies. E.g. Lubricants, writing paper, pencils.
straddled ‘Luxury’ 4. Business services: short term services that facilitate developing or managing finish
and ‘Performance’ as products. They include-
Maintenance and repair services. E.g. Air conditioner maintenance.
both POD and POP.
Business advisory services. E.g. Management consulting, advertising.
Product Differentiation
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.

3. Chapter 12 - Setting Product Strategy
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
Product line can be eliminated with proper strategies.
2. Uncontrollable: can’t be eliminated by the company in the short run.
length: Product Hierarchy
1. Need family: the core need that underlies the existence of a product family. E.g.
Companies seeking
Security.
higher market share 2. Product family: product classes that satisfy a core need. E.g. Savings and income
have longer product 3. Product class: a group of products within a family that have functional coherence
lines, those seeking 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.
higher profitability
5. Product type: a group of items within a line that share of possible forms of the
have shorter product product. E.g. Term life insurance.
lines. They lengthen 6. Item: a distinct unit within a brand or product line distinguishable by size, price,
over time. Excess appearance, etc. ICICI prudential term life insurance.
manufacturing forces
production of newer Product system: a group of diverse but related items that function in a
items. However, compatible manner.
other costs increase Product Mix
and thus some non It is the set of all products and items a particular seller offers for sale.
performing items are • Width: how many product lines the company carries.
eliminated. • 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.

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. 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.
Ingredient For co-branding to succeed, both brands must have brand equity, and must fit in terms of
values, goals and capabilities.
Branding:
special case of co- 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.
branding. It created
Factors leading to growing use of packaging:
brand equity for
• Self service
materials, • Consumer affluence
components, parts • Company and brand image: package leads to instant recognition of brand
that are contained • Innovation opportunity: packaging can be used to target different segments.
within other branded Packaging needs to achieve the following objectives:
• Identify the brand
products. Ingredient
• Convey descriptive and persuasive information
brands create • Facilitate product transportation and protection
preference for their • Assist at-home storage
products so that • Aid product consumption
customers do not but After designing, the packaging needs to be tested:
• Engineering tests: ensure that package stands up under normal circumstances
a host product which
• Visual tests: ensure that script is legible and colors harmonious
does not have that
• Dealer tests: dealers should find package attractive and easy to handle
ingredient. • 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.