Chapter 13-Setting Product Strategy.pptx

Setting Product Strategy
CHAPTER 13
MARKETING MANAGEMENT 15Ed

Concept of Product
A product is anything that can be offered to a market
to satisfy a want or need, including physical goods,
services, experiences, events, persons, places,
properties, organizations, information, and ideas.
Components of the Market
Offering
Marketing planning begins with
formulating an offering to meet
target customers’ needs or wants.
The customer will judge the offering
on three basic elements: product
features and quality, service mix
and quality, and price

Product Levels: Customer-Value Hierarchy
In planning its market offering, the marketer needs to address
five product levels. Each level adds more customer value, and
together the five constitute a customer-value hierarchy.
1) The fundamental level is the core benefit: the
service or benefit the customer is really buying. A
hotel guest is buying rest and sleep. Marketers must
see themselves as benefit providers.
2) At the second level, the marketer must turn the core
benefit into a basic product. Thus a hotel room
includes a bed, bathroom, towels, desk, dresser, and
closet.
3) At the third level, the marketer prepares an
expected product, a set of attributes and
conditions buyers normally expect when they
purchase this product. Hotel guests minimally expect
a clean bed, fresh towels, working lamps, and a
relative degree of quiet.

Product Levels: Customer-Value Hierarchy
4) At the fourth level, the marketer prepares an augmented product that exceeds
customer expectations. In developed countries, brand positioning and competition
take place at this level. In developing and emerging markets such as India and
Brazil, however, competition takes place mostly at the expected product level.
5) At the fifth level stands the potential product, which encompasses all the possible
augmentations and transformations the product or offering might undergo in the
future. Here companies search for new ways to satisfy customers and distinguish
their offering.
Differentiation arises and competition increasingly occurs on the basis of
product augmentation. Each augmentation adds cost, however, and augmented
benefits soon become expected benefits and necessary points-of-parity in the
category.
If today’s hotel guests expect large-screen HD TVs, wireless Internet access, and a
fully equipped fitness center, competitors must search for still other features and
benefits to differentiate themselves.
As some companies raise the price of their augmented product, others offer a
stripped-down version for less.

Product Classification
Marketers classify products on the basis of durability, tangibility, and
use (consumer or industrial). Each type has an appropriate marketing-
mix strategy.
• Nondurable goods are tangible goods normally
consumed in one or a few uses, such as soap,
shampoo, toothpaste, sugar etc. Because these
goods are purchased frequently, the appropriate
strategy is to make them available in many
locations, charge only a small markup, and
advertise heavily to induce trial and build
preference.
• Durable goods are tangible goods that normally
survive many uses: refrigerators, machine tools,
and clothing etc. They normally require more
personal selling and service, command a higher
margin, and require more seller guarantees.
• Services are intangible, inseparable, variable,
and perishable products that normally require
more quality control, supplier credibility, and
adaptability. Examples include haircuts, legal
advice, and appliance repairs.
Products
(Market
Offering)
Tangible
Goods
Non Durable Durable
Intangible
Service

Use – Consumer Goods Classification
Products fall into two groups according to usage- Consumer goods &
Industrial goods. Based on shopping habits, consumer goods are classified
as follows:
When we classify the vast array of consumer goods on the basis of shopping habits, we distinguish
among convenience, shopping, specialty, and unsought goods.
1. Convenience goods are goods a consumer needs but isn’t willing to spend much time or effort
shopping for. These products are bought often, require little service or selling, don’t cost much, and
may even be bought by habit. A convenience product may be a staple, impulse product, or emergency
product:
a. Staples are products that are bought often, routinely, and without much thought— like soap,
toothpaste, breakfast cereal, canned soup, and most other packaged foods used almost everyday
in almost every household.
b. Impulse goods are products goods are bought quickly—as unplanned purchases— because
of a strongly felt need, such as candy bars, magazines etc. True impulse products are items that
the customer hadn’t planned to buy, decides to buy on sight, may have bought the same way
many times before, and wants right now. If the buyer doesn’t see an impulse product at the
right time, the sale may be lost.
c. Emergency goods are goods that are purchased immediately when the need is great. The
customer doesn’t have time to shop around when a traffic accident occurs, a thunderstorm
begins, or an impromptu party starts. The price of the ambulance service, raincoat, or ice cubes
won’t be important.

Use – Consumer Goods Classification
2. Shopping goods are products that a customer feels are worth the time and effort to
compare with competing products based on quality, price, and style. Shopping products
can be divided into two types, depending on what customers are comparing: (1)
homogeneous or (2) heterogeneous shopping products.
Homogeneous shopping goods are shopping goods the customer sees as basically
the same and wants at the lowest price. Some consumers feel that certain sizes and
types of computers, television sets, washing machines, and even cars are very similar.
So they shop for the best price. Fish, beef, gas stove etc. are good examples.
Heterogeneous shopping goods are shopping goods the customer sees as different
and wants to inspect for quality and suitability. Furniture, clothing are good
examples. Quality and style matter more than price. Seller of such products carry
wide assortment to satisfy customers.
3. Specialty goods are products that the customer really wants and makes a special
effort to find. Any branded product that consumers insist on by name is a specialty
product. Examples include cars, camera etc.
4. Unsought goods are those the consumer does not know about or normally think
of buying, such as smoke detectors. Other classic examples are life insurance,
cemetery plots, and gravestones. Unsought goods require advertising and personal-
selling support..

Use – Industrial Goods Classification
We classify industrial goods in terms of their relative cost and the way they enter the
production process: materials and parts, capital items, and supplies and business
services.
1. Materials and parts are goods that enter the manufacturer’s product completely.
They fall into two classes:
a. Raw materials - Raw materials in turn fall into two major groups: farm products
(wheat, cotton, livestock, fruits, and vegetables) and natural products (fish, lumber,
crude petroleum, iron ore).
b. Manufactured materials and parts - Manufactured materials and parts fall into
two categories: component materials (iron, yarn, cement, wires) and component
parts (small motors, tires, castings)
2. Capital items are long-lasting goods that facilitate developing or managing the
finished product. They fall into two groups:
a. Installations - Installations consist of buildings (factories, offices) and heavy
equipment (generators, drill presses, mainframe computers, elevators). Installations
are major purchases. They are usually bought directly from the producer, whose sales
force includes technical staff, and a long negotiation precedes the typical sale.
Producers must be willing to design to specification and to supply post sale services.
Advertising is much less important than personal selling.

Use – Industrial Goods Classification
b. Equipment - Equipment includes portable factory equipment and tools (hand
tools, lift trucks) and office equipment (desktop computers, desks). These types of
equipment don’t become part of a finished product. They have a shorter life than
installations but a longer life than operating supplies. Although some equipment
manufacturers sell direct, more often they use intermediaries because the market is
geographically dispersed, buyers are numerous, and orders are small. Quality,
features, price, and service are major considerations. The sales force tends to be more
important than advertising, though advertising can be used effectively.
3. Supplies and business services are short-term goods and services that facilitate
developing or managing the finished product. Supplies are of two kinds: maintenance
and repair items (paint, nails, brooms) and operating supplies (lubricants, coal,
writing paper, pencils). Together, they go under the name of MRO goods.
Business services include maintenance and repair services (window cleaning,
copier repair) and business advisory services (legal, management consulting,
advertising). Maintenance and repair services are usually supplied under contract
by small producers or from the manufacturers of the original equipment. Business
advisory services are usually purchased on the basis of the supplier’s reputation and
staff.

Product Differentiation
To be branded, products must be differentiated. At one extreme are
products that allow little variation: kitchenware, medicines, and steel. At
the other extreme are products capable of high differentiation, such as
automobiles, commercial buildings, and furniture. Here the seller faces an
abundance of differentiation possibilities. Means for differentiation include
form, features, performance quality, conformance quality, durability,
reliability, design, and style.
• Form Many products can be differentiated in form—the size, shape, or
physical structure of a product.
• Features Most products can be offered with varying features that
supplement their basic function. A company can identify and select
appropriate new features by surveying recent buyers and then
calculating customer value versus company cost for each potential
feature.
• Performance Quality Most products occupy one of four performance
levels: low, average, high, or superior. Performance quality is the level at
which the product’s primary characteristics operate.

Product Differentiation
• Conformance Quality Buyers expect a high conformance quality, the
degree to which all produced units are identical and meet promised
specifications.
• Durability, a measure of the product’s expected operating life under natural
or stressful conditions, is a valued attribute for vehicles, kitchen appliances,
and other durable goods.
• Reliability Buyers normally will pay a premium for more reliable products.
Reliability is a measure of the probability that a product will not
malfunction or fail within a specified time period.
• Style describes the product’s look and feel to the buyer and creates
distinctiveness that is hard to copy. Buyers pay a premium for Apple phones
because of their extraordinary looks.
• Customization Customized products and marketing allow firms to be
highly relevant and differentiating by finding out exactly what a person
wants—and doesn’t want—and delivering on that.

Service Differentiation
When the physical product cannot easily be differentiated, the key to competitive
success may lie in adding valued services and improving their quality. The main
service differentiators are ordering ease, delivery, installation, customer training,
customer consulting, maintenance and repair, and returns.
• Ordering ease. Ordering ease describes how easy it is for the customer to place
an order with the company.
• Delivery. Delivery refers to how well the product or service is brought to the
customer, including speed, accuracy, and care throughout the process.
• Installation refers to the work done to make a product operational in its
planned location.
• Customer training Customer training helps the customer’s employees use the
vendor’s equipment properly and efficiently. General Electric not only sells and
installs expensive X-ray equipment in hospitals, it also gives users extensive
training.
• Customer Consulting Customer consulting includes data, information systems,
and advice services the seller offers to buyers. Technology firms such as IBM,
Oracle, and others have learned that such consulting is an increasingly essential
—and profitable—part of their business.
• Maintenance and repair programs help customers keep purchased products
in good working order.

Design
Design is the totality of features that affect how a
product looks, feels, and functions to a consumer. Design
offers functional and aesthetic benefits and appeals to both
our rational and emotional sides. As competition intensifies,
design offers a potent way to differentiate and position a
company’s products and services.
Power of Design
‘’In a crowded market place, aesthetics is often the only way
to make a product stand out’’
• Design is especially important with long-lasting
durables- i.e, cars
• Design can shift consumer perceptions to make
brand experiences more rewarding.

Design
Approaches to Design
“Design is more than just creativity, or a phase in creating
a product, service, or application. It’s a way of thinking
that can transform an entire enterprise
• To the company, a well-designed product is easy to
manufacture and distribute.
• To the customer, a well-designed product is pleasant to
look at and easy to open, install, use, repair, and dispose
of. The designer must take all these goals into account.
Design thinking is a very data-driven approach with three phases:
observation, ideation, and implementation. Design thinking
requires intensive ethnographic studies of consumers, creative
brainstorming sessions, and collaborative teamwork to decide how
to bring the design idea to reality.

Product & Brand Relationships
Each product can be related to other products to ensure that a
firm is offering and marketing the optimal set of products.
The Product Hierarchy
The product hierarchy stretches from basic needs to particular
items that satisfy those needs. We can identify six levels of the
product hierarchy Ite
m
Product
type
Product Line
Product Class
Product Family
Need family

The Product Hierarchy
• Need family—The core need that underlies the existence of a product family. Example: people
need products for their oral care.
• Product family—All the product classes that can satisfy a core need with reasonable
effectiveness. Example: Oral hygiene products
• Product class—A group of products within the product family recognized as having a certain
functional coherence, also known as a product category. Example: Teeth care products form
one product class and Mouth care products form another product class.
• 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 through
the same outlets or channels, or fall within given price ranges. A product line may consist of
different brands, a single family brand, or an individual brand that has been line extended.
Example: In teeth care product class, Colgate offers toothpastes, toothbrushes and dental floss.
• Product type—A group of items within a product line that share one of several possible forms
of the product. Example: In Toothpaste line, Colgate offers Colgate Total, Colgate Herbal,
Colgate Cavity Protection, Colgate Sensitive, Colgate Sparkle
• Item (also called stock-keeping unit or product variant)—A distinct unit within a brand or
product line distinguishable by size, price, appearance, or some other attribute. Example: 100g-
Colgate Sensitive Pro-relief is one item

Product Systems And Mixes
A product system is a group of diverse but related
items that function in a compatible manner.
• For example, the extensive iPod product system
includes headphones and headsets, cables and
docks, armbands, cases, power and car
accessories, and speakers.
A product mix (also called a product assortment) is
the set of all products and items a particular seller
offers for sale. A product mix consists of various
product lines.
• For example, HP’s product mix consists of imaging
products, computer products and photography

A company’s product mix has a certain width, length, depth, and consistency.
• The width of a product mix refers to how many different product lines
the company carries.
• The length of a product mix refers to the total number of items in the
mix.
• The depth of a product mix refers to how many variants are offered of
each product in the line.
• The consistency of the product mix describes how closely related the
various product lines are in end use, production requirements,
distribution channels, or some other way.
These four product mix dimensions permit the company to expand its business in
four ways. It can add new product lines, thus widening its product mix. It can
lengthen each product line. It can add more product variants to each product
and deepen its product mix. Finally, a company can pursue more product line
consistency. To make these product and brand decisions, marketers can
conduct product line analysis.

Product Mix Width and Product Line Length for Procter & Gamble Products
(including year of introduction)

Product Line Analysis
When a company is offering multiple product lines ,
• Product line managers need to know the sales and
profits of each item in their line to determine which
items to build, maintain, harvest, or divest.
• They also need to understand each product line’s
market profile and image, which helps them
understand how the product line is positioned
against competitors’ product lines. Product maps
are used for this purpose.
• The product map also shows which competitors’ items
are competing against company’s items.
• Another benefit of product mapping is that it identifies
market segments.

Product Line Length
Which company objectives influence product line length?
• One objective is to create a product line to induce up-selling –
Encouraging a customer to buy a more expensive or upgraded
version of a product they are already considering.
• A different objective is to create a product line that facilitates
cross-selling – Encouraging a customer to buy complementary
or additional products along with their main purchase. The goal
is to increase the total purchase value by offering related items.
Companies seeking high market share and market growth will
generally carry longer product lines. Those emphasizing high
profitability will carry shorter lines consisting of carefully chosen
items.

Growing Product Lines
Product lines tend to lengthen over time. Product line can be lengthened in two ways:
o Line Stretching: Line stretching occurs when a company lengthens its product line beyond
its current range, whether down-market, up-market, or both ways.
 Down- Market Stretch: A company positioned in the middle market
may want to introduce a lower-priced line to avail growth
opportunities in down-market, tie-up lower-end competitors, or to
get wider market when middle market is stagnating or declining.
 Up-Market Stretch: Companies may wish to enter the high end of
the market to achieve more growth, realize higher margins, or
simply position themselves as full-line manufacturers.
 Two-Way Stretch: Companies serving the middle market might
stretch their line in both directions. Example: Oppo mobiles offers
products at almost all price ranges.
o Line Filling: A firm can also lengthen its product line by adding more items within the present
range. Motives for line filling include reaching for incremental profits, satisfying dealers who
complain about lost sales because of items missing from the line, utilizing excess capacity,
trying to become the leading full-line company, and plugging holes to keep out competitors.
Example: P&G or Unilever products.

Growing Product Lines
Line Modernization, featuring, and pruning
Product lines regularly need to be modernized. The question is whether to
modernize or feature some products or all at once. A piecemeal approach
allows the company to see how customers and dealers take to the new style. It
is also less draining on the company’s cash flow, but it lets competitors see
changes and start redesigning their own lines.
• In rapidly changing markets, modernization is continuous.
Companies plan improvements to encourage customer migration to
higher-value, higher-price items.
• The product line manager typically selects one or a few items in the
line to feature.
• Using sales and cost analysis, product line managers must
periodically review the line to identify the products that depresses
profits.
Multi-brand companies all over the world try to optimize their brand
portfolios. This often means focusing on core brand growth and concentrating
resources on the biggest and most established brands.

Product Mix Pricing
• Companies normally develop product lines rather than single
products, so they introduce price steps. The seller’s task is
to establish perceived quality differences that justify the
price differences.
Product Line
Pricing
• Many companies offer optional products, features,
and services with their main product.
Optional-feature
Pricing
• Some products require the use of ancillary or captive
products.
Captive-Product
Pricing
• Service firms engage in two-part pricing, consisting
of a fixed fee plus a variable usage fee.
Two-part Pricing
•The production of certain goods—meats, petroleum products, and other
chemicals—often yields by-products that should be priced on their value. Any
income earned on the by-products will make it easier for the company to charge
a lower price on its main product
By-product
Pricing
• Sellers often bundle products and features
Product
Bundling Pricing

Co-branding and Ingredient Branding
Marketers often combine their products with products from other
companies in various ways.
In co-branding—also called dual branding or brand bundling—
two or more well-known brands are combined into a joint product
or marketed together in some fashion.
• Same-company co-branding
• Joint-venture co-branding
• Multiple-sponsor co-branding
• Retail co-branding
For co-branding to succeed, the two brands must separately have
brand equity—adequate brand awareness and a sufficiently positive
brand image. The most important requirement is a logical fit
between the two brands, to maximize the advantages of each while
minimizing disadvantages. Consumers are more apt to perceive co-
brands favorably if they are complementary and offer unique
quality, rather than being overly similar and redundant.

Co-branding and Ingredient Branding
Ingredient branding is a special case of co-branding. It creates
brand equity for materials, components, or parts that are
necessarily contained within other branded products. For host
products whose brands are not that strong, ingredient brands can
provide differentiation and important signals of quality
Ingredient Branding Requirements
• Consumers must believe the ingredient matters to the
performance and success of the end product.
• Consumers must be convinced that not all ingredient
brands are the same and that the ingredient is superior.
• A distinctive symbol or logo must clearly signal that the
host product contains the ingredient.
• A coordinated consumer advertising or promotion
program must help consumers understand the
advantages of the branded ingredient.

Packaging
Packaging includes all the activities of designing and producing
the container for a product. Packages might have up to three layers.
A perfume comes in a bottle (primary package) inside a
cardboard box (secondary package), shipped in a corrugated box
(shipping package) containing six dozen bottles in cardboard
boxes.
Why packaging is important?
Packaging is important because it is the buyer’s first encounter
with the product. A good package draws the consumer in and
encourages product choice. Distinctive packaging is an important
part of a brand’s equity.

Packaging
Which factors contribute to the growing use of packaging as a marketing tool?
• Self-service. The package must perform many sales tasks: attract attention, describe
the product’s features, create consumer confidence, and make a favorable overall
impression.
• Consumer affluence. Rising affluence means consumers are willing to pay a little
more for the convenience, appearance, dependability, and prestige of better packages.
• Company & Brand image. Packages contribute to instant recognition of the
company or brand.
• Innovation opportunity. Unique or innovative packaging can bring big benefits to
consumers and profits to producers. Companies are always looking for a way to make
their products more convenient and easier to use and sometimes charge premium to
do so.
Formally, packaging must achieve a number of objectives:
• Identify the brand
• Convey descriptive and persuasive information
• Facilitate product transportation and protection
• Assist at-home storage
• Aid product consumption

Labelling
The label can be a simple attached tag or an elaborately designed
graphic that is part of the package. It might carry a great deal of
information, or only the brand name. Even if the seller prefers a simple
label, the law may require more.
A label performs several functions.
1. First, it identifies the product or brand.
2. It might also grade the product; canned peaches are grade-labeled
A, B, and C.
3. The label might describe the product: who made it, where and
when, what it contains, how it is to be used, and how to use it safely.
4. Finally, the label might promote the product through attractive
graphics.
Advanced technology allows 360-degree shrink-wrapped labels to surround
containers with bright graphics and accommodate more product
information, replacing glued-on paper labels.

Warranties And Guarantees
Warranties and guarantees can offer further assurance to
consumers.
Warranties are formal statements of expected product
performance by the manufacturer. Products under warranty can
be returned to the manufacturer or designated repair center for
repair, replacement, or refund.
Whether expressed or implied, warranties are legally enforceable.
Many sellers offer either general or specific guarantees.
Guarantees reduce the buyer’s perceived risk. They suggest that
the product is of high quality and the company and its service
performance are dependable. They can be especially helpful
when the company or product is not well known or when the
product’s quality is superior to that of competitors

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