C H A P T E R 11

SETTING PRODUCT STRATEGY

DETAILED CHAPTER OUTLINE
At the heart of a great brand is a great product. Product is a key element in the market offering. To
achieve market leadership, firms must offer products and services of superior quality that provide
unsurpassed customer value.
Marketing planning begins with formulation of an offering to meet target customers needs or wants.
The customer will udge the offering by three basic elements! product features and quality, services
mi" and quality, and price.
PRODUCT CHARACTERISTICS AND CLASSIFICATIONS
A product is anything that can be offered to a market to satisfy a want or need.
A# Products that are marketed include!
$# Physical goods
%# &ervices
'# ("periences
)# (vents
*# Persons
+# Places
,# Properties
-# .rgani/ations
0# 1nformation
$2# 1deas
Product Levels: The Customer Vlue H!errch"
1n planning its market offering, the marketer needs to address five product levels. (ach level
adds more customer value, and the five constitute a customer value hierarchy.
A# The fundamental level is the core benefit! The service or benefit the customer is really buying.
Marketers must see themselves as benefit providers.
3# At the second level, the marketer has to turn the core benefit into a basic product.
4# At the third level, the marketer prepares an e"pected product, a set of attributes and conditions
buyers normally e"pect when they purchase this product.
5# At the fourth level, the marketer prepares an augmented product that e"ceeds customer
e"pectations.
(# At the fifth level stands the potential product that encompasses all the possible augmentations
and transformations the product or offering might undergo in the future.
$# 6ere is where companies search for new ways to satisfy customers and distinguish its
individual offer.
5ifferentiation arises on the basis of product augmentation. Product augmentation also leads the
marketer to look at the total consumption system! the way the user performs the tasks of getting and
using products and related services.
a. 7irst, each augmentation adds costs.
b. &econd, augmented benefits soon become e"pected benefits and necessary points8of8
parity.
c. Third, as companies raise the price of their augmented product, some competitors
offer a 9stripped8down: version at a much lower price.
Product Clss!#!ct!o$s
Marketers have traditionally classified products on the basis of characteristics! durability,
tangibility, and use. (ach product type has an appropriate marketing8mi" strategy.
Dur%!l!t" $d T$&!%!l!t"
Products can be classified into three groups, according to durability and tangibility!
A# ;ondurable goods! tangible consumed in one or a few uses.
3# 5urable goods! tangible that normally survives many uses. 5urable goods require more
personal selling and service, command a higher margin, and require more seller guarantees.
4# &ervices! intangible, inseparable, variable, and perishable products that require more quality
control, supplier credibility, and adaptability.
Co$sumer'(oods Clss!#!ct!o$
The vast array of goods consumers buy can be classified on the basis of shopping habits.
A# 4onvenience goods are purchased frequently, immediately, and with a minimum of effort.
$# &taples
%# 1mpulse goods
'# (mergency goods
3# &hopping goods are goods that the consumer, in the process of selection and purchase,
characteristically compares on such basis as suitability, quality, price, and style.
$# 6omogeneous shopping goods are similar in quality but different enough on price to
adust shopping comparisons.
%# 6eterogeneous shopping goods differ in product features and services that may be more
important than price.
4# &pecialty goods have unique characteristics or brand identification for which a sufficient
number of buyers are willing to make a special purchasing effort.
5# <nsought goods are those that the consumer does not know about or does not normally think
of buying. The classic e"amples of known but unsought goods are life insurance and cemetery
plots.
I$dustr!l'(oods Clss!#!ct!o$
=e classify industrial goods in terms of their relative cost and how they enter the production
process! materials and parts, capital items, and supplies and business services.
A# Materials and parts
$# These are goods that enter the manufacturers product completely. They fall into two
maor groups!
a. >aw materials include!
$. 7arm products?commodity characteristics.
%. ;atural products?are in limited supply.
8 great bulk
8 low unit value
8must be moved from producers to user
b. Manufactured materials and parts fall into two categories!
$. 4omponent materials.
%. 4omponent parts.
3# 4apital items are long8lasting goods that facilitate developing or managing the finished
product. They include!
$# 1nstallations.
%# (quipment.
4# &upplies and business services are short8term goods and services that facilitate developing or
managing the finished product. There are two kinds of supplies!
$# Maintenance and repair items @including business advisory services such as legal,
consulting, and advertising#.
%# .perating supplies.
'# 3usiness services include maintenance and repair services and business advisory services
are usually purchased on the basis of the suppliers reputation and staff.
PRODUCT AND SERVICE DIFFERENTIATION
To be branded, products must be differentiated. Physical products vary in potential for
differentiation.
#A 6ere the seller faces an abundance of differentiation possibilities, including form,
features, customi/ation, performance quality, conformance quality, durability, reliability,
repairability, and style.
Product D!##ere$t!t!o$
A# 7orm! Many products can be differentiated in form?the si/e, shape, or physical structure of a
product.
3# 7eatures! Most products can be offered with varying features that supplement its basic
function.
$# A company can identify and select appropriate features by surveying buyers and then
calculating customer value versus company cost for each feature.
%# To avoid 9feature fatigue,: the company must prioriti/e features and tell consumers how
to use and benefit from them.
'# (ach company must decide whether to offer feature customi/ation at a higher cost or a
few standard packages at a lower cost.
4# 4ustomi/ation! marketers can differentiate products by making them customi/ed to an
individual.
$# Mass customi/ation is the ability of a company to meet each customers requirements.
5# Performance Auality! Most products are established at one of four performance levels! low,
average, high, or superior.
$# Performance quality is the level at which the products primary characteristics operate.
%# The manufacturer must design a performance level appropriate to the target market and
competitors performance levels.
'# A company must mange performance quality through time.
a. Auality is becoming an increasingly important parameter for differentiation as
companies adopt a value model and provide higher quality for less money.
(# 4onformance Auality! 3uyers e"pect products to have a high conformance quality?the
degree to which all the product units are identical and meet the promised specifications.
7# 5urability! A measure of the products e"pected operating life under natural or stressful
conditions.
$# 5urability is a valued attribute for certain products.
%# 3uyers will generally pay more for products that have a reputation for being long lasting.
B# >eliability! 3uyers normally will pay a premium for more reliable products. >eliability is a
measure of the probability that a product will not malfunction or fail within a specified time
period.
6# >epairability! 1s the measure of the ease of fi"ing a product when it
malfunctions or fails.
1# &tyle! 5escribes the products look and feel to the buyer.
$# &tyle creates distinctiveness that is hard to copy.
%# &trong style does not always mean high performance.
Serv!ces D!##ere$t!t!o$
=hen the physical product cannot easily be differentiated, the key to competitive success may lie
in adding valued services and improving quality.
The main service differentiators are ordering ease, delivery, installation, customer training,
customer consulting, and maintenance and repair.
$# .rdering (ase! .rdering ease refers to how easy it is for the customer to place an order with
the company.
%# 5elivery! refers to how well the product or service is brought to the customer.
'# 1nstallation! >efers to the work done to make the product operational.
)# 4ustomer Training! >efers to the training the customers employees undergo to use the
vendors equipment properly and efficiently.
*# 4ustomer consulting! >efers to data, information systems, and advice services that the seller
offers to the buyers.
+# Maintenance and >epair! 5escribes the service program for helping customers keep purchased
products in good working order.
,# >eturns! An unavoidable reality of doing business
a# 4ontrollable returns
b# <ncontrollable returns
DESI(N
A# As competition intensifies, design offers a potent way to differentiate and position a
companys products and services.
3# 5esign is the totality of features that affect how a product looks and functions in terms of
customer requirements.
4# To the company, a well8designed product is one that is easy to manufacture and distribute.
5# As holistic marketers recogni/e the emotional power of design and the importance to
consumers of how things look and feel as well as work, design is e"erting a stronger influence
in categories where it once played a smaller role.
(# 1n an increasingly visually oriented culture, transmitting brand meaning and positioning
through design is critical.
7# 5esign can shift consumer perceptions to make brand e"periences more rewarding.
B# 5esign should penetrate all aspects of the marketing program so that all design aspects work
together.
6# Biven the creative nature of design, its no surprise that there isnt one widely adopted
approach. &ome firms employ formal, structured processes.
1# 5esign thinking is a very data8driven approach with three phases! observation, ideation, and
implementation.
C# To the customer, a well8designed product is one that is pleasant to look at and easy to open,
install, use, repair, and dispose of.
)r*et!$& I$s!&ht: Develo+!$& Products #or Rurl )r*ets
The needs, preferences, buying habits, and conte"t of product and service usage of rural
consumers differ from that of their urban counterparts. Marketing to consumers in rural areas
therefore needs to reflect these realities. This can be achieved by either appropriately modifying
products sold in urban areas or designing and developing specific products and services for rural
markets. Many people in rural areas, for e"ample, prefer to use tooth powder instead of
toothpaste.
Packaging has emerged as one of the key drivers of success in rural markets. Products targeted at
rural areas have to withstand the problems of transportation, storage, and physical infrastructure,
and this requires robust packaging solutions. Packaging emerges as an even more important issue
with respect to affordability. .ne of the ways in which companies have addressed this issue of
affordability is by introducing small unit packs. The brand identity system for rural markets is
yet another decision area that needs special attention. 4olors used in packaging, brand names and
brand symbols, and the language used to denote the brand name need to factor in rural
consumers tastes and preferences.
>ural consumers show a distinct preference for bright colors. This has been utili/ed by brands
like Difebuoy soap and Tiger biscuits @from 3ritannia# using red as a dominant color in the
packaging.
PRODUCT AND ,RAND RELATIONSHIPS
(ach product can be related to other products to ensure that a firm is offering and marketing the
optimal set of products.
The Product H!errch"
The product hierarchy stretches from basic needs to particular items that satisfy those needs. =e
can identify si" levels of the product hierarchy.
A# ;eed family
3# Product family
4# Product class
5# Product line
(# Product type
7# 1tem, also called stock keeping unit @&E<# or product variant
Product S"stems $d )!-es
A product system is a group of diverse but related items that function in a compatible manner.
A# A product mi" consists of various product lines.
3# A companys product mi" has a certain width, length, depth, and consistency.
4# The width of a product mi" refers to how many different product lines the company carries.
$# The length of a product mi" refers to the total number of items in the mi".
a. =e can also talk about the average length of a line. This is obtained by dividing the
total length by the number of lines.
#5 The depth of a product mi" refers to how many variants are offered of each product in the line.
#( The consistency of the product mi" refers to how closely related the various product lines are
in end use, production requirements, distribution channels, or some other way.
#7 These four product8mi" dimensions permit the company to e"pand its business in four ways.
1t can add new product lines, thus widening its product mi". 1t can lengthen each product line.
1t can add more product variants to each product and deepen its product mi". 7inally, a
company can pursue more product8line consistency.
)r*et!$& I$s!&ht: )r*et!$& Lu-ur" ,r$ds
Du"ury products are perhaps one of the purest e"amples of branding, because the brand and its
image are often key competitive advantages that create enormous value and wealth for
organi/ations. Marketers for lu"ury brands such as Prada, Bucci, 4artier, and Douis Fuitton
manage lucrative franchises that have endured for decades in what some believe is now a G%,2
billion industry. Cust like marketers in less e"pensive and more 9down8to8earth: categories,
however, those guiding the fortunes of lu"ury brands must do so in a constantly evolving?and
sometimes rapidly changing? marketing environment. Blobali/ation, new technologies,
financial crises, shifting consumer cultures, and other forces necessitate that marketers of lu"ury
brands be skillful and adept at their brand stewardship to succeed.
Product'L!$e A$l"s!s
A# 1n offering a product line, companies normally develop a basic platform and modules that can
be added to meet different customer requirements.
3# Product8line managers need to know the sales and profits of each item in their line in order to
determine which items to build, maintain, harvest, or divest.
Sles $d Pro#!ts
(very companys product portfolio contains products with different margins.
A# A company can classify its products into four types that yield different gross margins,
depending on sales volume and promotion.
$# 4ore products
%# &taples
'# &pecialties
)# 4onvenience items
)r*et Pro#!le
The product8line manager must review how the line is positioned against competitors lines.
A# The product map shows which competitors items are competing against company Hs items.
A# The map also reveals possible locations for new items.
3# Another benefit of product mapping is that it identifies market segments.
4# Product8line analysis provides information for two key decision areas?product8line length
and product8mi" pricing.
)r*et!$& I$s!&ht: When Less Is More
=ith thousands of new products introduced each year, consumers find it ever harder to navigate
store aisles. .ne study found the average shopper spent )2 seconds or more in the supermarket
soda aisle, compared to %* seconds si" or seven years ago. Although consumers may think
greater product variety increases their likelihood of finding the right product for them, the reality
is often different. .ne study showed that although consumers e"pressed greater interest in
shopping with a larger assortment of %) flavored ams than a smaller assortment of +, they were
$2 times more likely to actually make a selection with the smaller assortment.
&imilarly, if the product quality in an assortment is high, consumers would actually prefer a
smaller than a larger set of choices. Although consumers with well8defined preferences may
benefit from more differentiated products that offer specific benefits to better suit their needs, too
much product choice may be a source of frustration, confusion, and regret for other consumers.
Product proliferation has another downside. ("posing the customer to constant product changes
and introductions may nudge them into reconsidering their choices and perhaps switching to a
competitors product.
Product'L!$e Le$&th
A# 4ompany obectives influence product8line length.
3# .ne obective is to create a product line to induce upselling.
4# A different obective is to create a product line that facilitates cross selling.
5# &till another obective is to create a product line that protects against economic ups and downs.
(# Product lines tend to lengthen over time.
7# A company lengthens its product line in two ways! by line stretching and line filling.
L!$e Stretch!$&
A# Dine stretching occurs when a company lengthens its product line beyond its current range.
Do.$'mr*et stretch
A# 1s when a company positioned in the middle market may want to introduce a lower8priced line
for any of three reasons!
#3 &hoppers want value8priced goods
#4 =ish to tie up lower8end competitors
#5 7ind that the middle market is stagnating or declining
A company faces a number of choices in deciding to move a brand down8market!
#A <se the parent name on all offerings
#3 <se a sub8brand name
#4 1ntroduce lower8price goods under a different brand name
Moving down8market carries risk.
U+')r*et stretch
4ompanies may wish to enter the high end of the market for!
$# More growth
%# 6igher margins
'# &imply to position themselves as a full8line manufacturer
Two8way stretch
A# 1s where companies serving the middle market might decide to stretch the line in both
directions.
3# >esearch has shown that a high8end model of a low8end brand is favored over a low8end
model of a high8end brand.
L!$e F!ll!$&
A# A product line can also be lengthened by adding more items within the present range. There
are several motives for line filling!
$# >eaching for incremental profits.
%# Trying to satisfy dealers who complain about lost sales because of missing items in the
line.
'# Trying to utili/e e"cess capacity.
)# Trying to be the leading full8line company.
*# Trying to plug holes to keep out competitors.
3# Dine filling is overdone if it results in self8cannibali/ation and customer confusion.
4# The company needs to differentiate each item in the consumers mind with a ust8noticeable
difference.
5# The company should also check that the proposed item meets a market need and is not being
added simply to satisfy an internal need.
L!$e )oder$!/t!o$0 Fetur!$&0 $d Pru$!$&
Product lines need to be moderni/ed. 1n rapidly changing product markets, moderni/ation
is continuous.
A# 4ompanies plan improvement to encourage customer migration to higher8valued, higher8
priced items.
3# The product8line manager typically selects one or a few items in the line to feature.
4# Product8line managers must periodically review the line for deadwood that is depressing
profits.
Product')!- Pr!c!$&
A# Marketers must modify their price8setting logic when the product is part of a product mi".
3# Product8mi" pricing is when the firm searches for a set of prices that ma"imi/es profits on the
total mi".
4# Pricing is difficult because the various products have demand, cost interrelationships, and are
subect to different degrees of competition.
=e can distinguish si" situations involving product8mi" pricing!
A# Product'l!$e +r!c!$&
$# 4ompanies normally develop product lines rather than single products and
introduce price steps.
%# 1n many lines of trade, sellers use well8established price points for the
products in its personal line.
'# The sellers task is to establish perceived8quality differences that ustify
the price differences.
3# O+t!o$l'#eture +r!c!$&
$# Many companies offer optional products, features, and services along with their main
product.
%# Pricing is a sticky problem, because companies must decide which items to include in the
standard price and which to offer as options.
4# C+t!ve'+roduct +r!c!$&
$# &ome products require the use of ancillary or captive products.
%# There is a danger in pricing the captive product too high in the aftermarket.
5# T.o'+rt +r!c!$&
$# &ervice firms often engage in two8part pricing, consisting of a fi"ed fee
plus a variable usage fee.
(# ,"'+roduct +r!c!$&
$# The production of certain goods often results in by8products. 1f the by8products have value
to a customer group, they should be priced on their value.
7# Product'%u$dl!$& +r!c!$&
$# &ellers often bundle product and features.
%# Pure bundling occurs when a firm only offers its products as a bundle @tied8in sales#.
'# 1n mi"ed bundling, the seller offers goods both individually and in bundles.
)# =hen offering a mi"ed bundle, the seller normally charges less for the bundle than if the
items were purchased separately.
*# &ome customers will want less than the whole bundle.
Co',r$d!$& $d I$&red!e$t ,r$d!$&
Products are often combined with products from other companies in various ways.
A# 4o8branding is also called dual branding or brand bundling.
$# 1s in which two or more well8known e"isting brands are combined into a oint product
andIor marketed together in some fashion.
3# .ne form of co8branding is same8company co8branding.
4# &till another form is oint8venture co8branding.
5# Another form of co8branding is called multi8sponsor co8branding.
(# 7inally there is retail co8branding where two retail establishments use the same location to
ma"imi/e sales.
7# The main advantage to co8branding is that a product may be convincingly positioned by virtue
of the multiple brands involved.
B# 4o8branding can generate greater sales from the e"isting target market as well as open
additional opportunities with new consumers and channels.
$# 4o8branding can also reduce the cost of product introduction because two well8known
images are combined, accelerating potential adoption.
6# The potential disadvantages of co8branding are!
a. The risks and lack of control from becoming aligned with another brand in the minds
of consumers.
b. 4onsumer e"pectations about the level of involvement and commitment with co8
brands are likely to be high, so unsatisfactory performance could have negative
repercussions for the brands involved.
c. >isk of overe"posure if the other brand has entered into a number of co8branding
arrangements.
d. 1t may also result in a lack of focus on e"isting brands.
1# 7or co8branding to succeed, the two brands separately must have brand equity?adequate
brand awareness and a sufficiently positive brand image.
a. The most important requirement is that there is a logical fit between the two brands to
ma"imi/e the advantages of each while minimi/ing disadvantages.
b. Managers must enter co8branding ventures carefully, looking for the right fit in values,
capabilities, and goals and an appropriate balance of brand equity.
c. >esearch studies show that consumers are more apt to perceive co8brands favorably if
the two brands are complementary rather than similar.
d. 4o8branding ventures must be entered into and e"ecuted carefully.
I$&red!e$t ,r$d!$&
1ngredient branding is a special case of co8branding. 1t creates brand equity for materials,
components, or parts that are necessarily contained within other branded products.
A# An interesting take on ingredient branding is 9self8branding: in which companies advertise and
even trademark their own branded ingredients.
3# 1ngredient brands attempt to create sufficient awareness and preference for their product such that
consumers will not buy a 9host: product that does not contain the ingredient.
=hat are the requirements for successful ingredient brandingJ
$. 4onsumers must believe the ingredient matters to the performance and success of the end
product. 1deally, this intrinsic value is easily seen or e"perienced.
%. 4onsumers 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. 1deally, this symbol or logo functions like a 9seal: and is simple and versatile,
credibly communicating quality and confidence.
). A coordinated 9pull: and 9push: program must help consumers understand the
advantages of the branded ingredient. 4hannel members must offer full support such as
consumer advertising and promotions and?sometimes in collaboration with
manufacturers?retail merchandising and promotion programs.
) r * e t ! $ & )emo: ',u$dle Pr!c!$& co$s!dert!o$s
As promotional activity increases on individual items in the bundle, buyers perceive less savings
on the bundle and are less apt to pay for it. >esearch suggests the following guidelines for
implementing a bundling strategy!
1 5ont promote individual products in a package as frequently and cheaply as the bundle. The
bundle price should be much lower than the sum of individual products or the consumer will not
perceive its attractiveness.
1 Dimit promotions to a single item in the mi" if you still want to promote individual products.
Another option! alternate promotions, one after another, to avoid running conflicting promotions.
1 1f you offer large rebates on individual products, make them the absolute e"ception and do it
with discretion. .therwise, the consumer uses the price of individual products as an e"ternal
reference for the bundle, which then loses value.
1 4onsider how e"perienced and knowledgeable your customer is. More knowledgeable
customers may be less likely to need or want bundled offerings and prefer the freedom to choose
components individually.
1 >emember costs play a role. 1f marginal costs for the products are low?such as for proprietary
software components that can be easily copied and distributed?a bundling strategy can be
preferable to a pure component strategy where each component is purchased separately.
1 7irms with single8products bundling products together to compete against a multiproduct firm
may not be successful if a price war ensues.
PAC2A(IN(0 LA,ELIN(0 3ARRANTIES0 AND (UARANTEES
Most physical products have to be packaged and labeled. Many marketers have called packaging
a fifth P. Most marketers, however, treat packaging and labeling as an element of product
strategy.
Pc*&!$&
A# Packaging includes all the activities of designing and producing the container for a
product.
3# The package is the buyers first encounter with the product.
4# A good package draws the consumer in and encourages product choice. 1n effect, they
can act as 9five8second commercials: for the product.
5# Packaging also affects consumers later product e"periences when they go to open the
package and use the product at home.
(# Farious factors have contributed to the growing use of packaging as a marketing tool!
$# &elf8service
%# 4onsumer affluence
'# 4ompany and brand image
)# 1nnovation opportunity
7# To achieve these obectives and satisfy consumers desires, marketers must choose the
aesthetic and functional components of packaging correctly.
B# Aesthetic considerations relate to a packages si/e and shape, material, color, te"t, and
graphics.
6# 7unctionally, structural design is crucial. The packaging elements must harmoni/e with
each other and with pricing, advertising, and other parts of the marketing program.
1# After packaging is designed, it must be tested.
$# (ngineering tests are conducted to ensure that the package stands up under normal
conditions.
%# Fisual tests are used to ensure that the script is legible and the colors harmonious.
'# 5ealer tests are performed to ensure that dealers find the packages attractive and easy to
handle.
)# 4onsumer tests ensure favorable consumer response.
L%el!$&
The label can be a simple attached tag or an elaborately designed graphic that is part of the
package. 1t might carry a great deal of information, or only the brand name. (ven if the seller
prefers a simple label, the law may require more.
A# &ellers must label products
3# Dabels perform several functions!
$# The label identifies the product or brand
%# The label might also grade the product
'# The label might describe the product
)# 7inally, the label might promote the product through attractive graphics
4# Dabels eventually need freshening up
5# 4ompanies with labels that have become icons need to tread very carefully when initiating a
redesign.
3rr$t!es $d (ur$tees
All sellers are legally responsible for fulfilling a buyers normal or reasonable e"pectations.
=arranties are formal statements of e"pected product performance by the manufacturer.
=arranties, whether e"pressed or implied are legally enforceable.
("tended warranties and service contracts can be e"tremely lucrative for manufacturers and
retailers.
Many sellers offer either general guarantees or specific guarantees.
A# Buarantees reduce the buyers perceived risk.
3# Buarantees are most effective in two situations!
$# =here the company or the product is not well8known.
%# =here the products quality is superior to the competition.