CH 13 Setting Product Strategy Dr. A. Haidar at FALL 17-18

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Setting
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Product Strategy
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Marketing Management, 15th ed.

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Chapter Questions
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• What are the characteristics of products and
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how do marketers classify products?
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• How can companies differentiate products?
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• How can a company build and manage its
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product mix and product lines?
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© Dr A. Haidar FALL 17-18

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Chapter Questions (cont.)
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• How can companies combine products to create
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strong co-brands or ingredient brands?
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• How can companies use packaging, labeling,
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warranties, and guarantees as marketing tools?
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At the heart of a great brand there is a great
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product.
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Product is a key element in the market offering
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Marketing planning begins with formulating an
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offering to meet target customers’ needs or wants.

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Who should ultimately design the product?
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The customer,
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of course
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What is a product?
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• Physical goods
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• A product is anything that
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• Services
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can be offered to a market
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• Experiences
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to satisfy a want or need.
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• Events
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Persons
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• Places
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• Properties
Products that are marketed fo
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include: Organizations
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• Information
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• Ideas
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 Consumer judge the marketing offer based on 3 elements
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 constitute components of the Market Offering
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Value-based prices
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Caterpillar known for its
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reliability & durability
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Attractiveness
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of the market
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fo offering
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Product Services
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features mix and

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and quality quality

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 Product functionality is the key to brand success
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versus product design is the key to brand
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success.
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 product performance is the end all and be all.
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feel, and other design elements of products.
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Product Levels:
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The Customer Value Hierarchy
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 In planning its market
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offering, the marketer needs
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to address five product levels.
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 Each level adds more
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customer value, and
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 the five constitute a customer
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value hierarchy.
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Figure 12.2 Five Product Levels

Product Levels:
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core benefit: The service or
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benefit the customer is really
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buying. Marketers are benefit
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providers.
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(rest & sleep in a hotel)
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basic product. (component of a
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products) (hotel room with its furniture)

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Product Levels:
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 expected product,
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a set
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of attributes and conditions
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buyers normally expect
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when they purchase this
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product.
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 (clean room & fresh lining)
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Product Levels:
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 augmented product that exceeds
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customer expectations.
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 potential product that encompasses
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all the possible augmentations and
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transformations the product or
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offering might undergo in the future.
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 New ways to satisfy consumers

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Some things should be noted about product-
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augmentation strategy:
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 First, each augmentation adds costs.
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 Second, augmented benefits soon become expected
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benefits and necessary points-of-parity.
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 Third, as companies raise the price of their augmented
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product, some competitors offer a “stripped-down”
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version at a much lower price.

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Product Classification Schemes
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Durability
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Tangibility
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Use
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Durability and Tangibility
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Nondurable
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goods
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Durable
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goods
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Product Classification
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 NONDURABLE GOODS: Are
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consumer goods that are
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normally consumed in one or V
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few uses.
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 DURABLE GOODS: Are
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consumer goods that are
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normally used over an extended
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period of time and that normally

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survive many uses.

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© Dr A. Haidar FALL 17-18 17

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Goods Vs Services
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• Goods are physical
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objects and results in
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ownership when
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purchased
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Goods Vs Services
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Service
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• A form of product that
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consists of activities, benefits
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or satisfactions offered for
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sale that are essentially
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intangible and do not result in
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the ownership of anything.
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Goods Vs Services
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• The question is: what is
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buying?
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• At one extreme, the offer may
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consist of a pure tangible good.
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At the other extreme are pure
services, for which the offer fo
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consists primarily of a service.

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Consumer Goods Classification
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Convenience Shopping
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Specialty Unsought
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Convenience goods
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Purchased frequently, immediately, and with a minimum
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of effort.
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 Staples
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 Impulse goods
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 Emergency goods fo
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Convenience goods could be classified
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further into
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Staples are goods that consumers buy
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on a regular basis.
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Impulse goods are purchased with little
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planning or search effort.
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Emergency goods are purchased

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when a need is urgent.

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Shopping goods
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goods that the consumer compares suitability, quality,
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price, and style.
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 Homogeneous shopping goods are similar in quality
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but different enough on price to adjust shopping
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comparisons.
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 Heterogeneous shopping goods differ in product

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features and services that may be more important than

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price.
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Product Classification
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Shopping products
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Specialty goods
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have unique characteristics or brand
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identification for which a sufficient number of
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buyers are willing to make a special
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purchasing effort.
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Unsought goods
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are those that the consumer does not know
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about or does not normally think of buying.
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insurance and funeral arrangement.

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Industrial Goods Classification
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Materials & parts
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Capital items Supplies/
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business services
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Product Differentiation
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• Product form
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• Features
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Customization
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• Performance
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• Conformance
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•
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Durability
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• Reliability fo
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Repairability
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• Style
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 To face competition branded
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products must be differentiated.
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 Physical products vary in potential
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for differentiation.
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
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Marketers are always looking for
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new dimensions of differentiation.

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 Form: size, shape, or physical structure of a
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product.
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 Features: varying features that supplement its
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basic function. (customer value vs firm’s cost
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 Customization: customized to an individual.
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 Mass customization :each customer’s requirements
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 Performance Quality: the level at which the
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product’s primary characteristics operate.

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 one of four performance levels: low, average, high, or

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superior.
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 Cconformance Quality: the degree to which all the product
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units are identical and meet the promised specifications.
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 Durability: A measure of the product’s expected operating
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life under natural or stressful conditions
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 Reliability: is a measure of the probability that a product
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will not malfunction or fail within a specified time period
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 Reparability: Is the measure of the ease of fixing a
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product.
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 Style: Describes the product’s look and feel to the buyer.

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Services Differentiation
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• When the physical product
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cannot easily be
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differentiated, the key to
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competitive success may lie
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in adding valued services
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and improving quality. fo
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Service Differentiation
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• Ordering ease
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Delivery
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• Installation
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• Customer training
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• Customer consulting
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• Maintenance and repair
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Returns
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Service Differentiation
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 Ordering Ease: Ordering ease refers to how easy it is for the customer
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to place an order with the company.
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 Delivery: refers to how well the product or service is brought to the
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customer.
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 Installation: Refers to the work done to make the product operational.
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 Customer Training: refers to the training the customer’s employees to
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use the vendor’s equipment properly and efficiently.
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 Customer consulting: refers to data, information systems, and advice
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services that the seller offers to the buyers.
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 Maintenance and Repair: Describes the service program for helping
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customers keep purchased products in good working order.

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 Returns: An unavoidable reality of doing business

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1)Controllable returns
2) FALL
© Dr A. Haidar Uncontrollable
17-18 returns
Design
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 As competition intensifies, design offers a potent way to
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differentiate and position a company’s products and
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services.
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 Design is the totality of features that affect how a
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product looks and functions in terms of customer
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requirements.
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Approaches to Design
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 To the company, a well-designed product is one that is
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easy to manufacture and distribute.
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 To the customer, a well-designed product is one that is
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pleasant to look at and easy to open, install, use, repair,
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and dispose of.
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 The designer must take all these goals into account.

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Design
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• Design Leaders: the emotional power of design
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and the importance to consumers of look and feel
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as well as function,
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• so design is exerting a stronger influence in
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categories where it once played a small role.
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Design
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• Power of Design: In a visually oriented culture,
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transmitting brand meaning and positioning
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through design is critical.
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Luxury Products
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• Luxury Products face some unique issues
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• luxury brands such as Prada, Gucci, Cartier, and
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Louis Vuitton
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• $270 billion industry
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Luxury Products
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Characterizing Luxury Brands
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• Higher priced; often about social status and who a
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customer was—or perhaps wanted to be
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• Luxury for many has become more about style and
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substance, combining personal pleasure and self-
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expression
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• Common denominators of luxury brands are quality and
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uniqueness fo
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• Winning formula for many is craftsmanship, heritage,

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authenticity, and history, often critical to justifying a

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sometimes extravagant price.

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Luxury Products
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• The brand promise of Montblanc is that
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“the product you buy is of highest esteem, based
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on its timeliness, elegant design and the high
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quality, which is derived from the excellence of
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our craftsmen.” fo
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Luxury Products
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Growing Luxury Brands
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• luxury brands usually the most immune to economic
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downturns
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• Clear differentiation must exists between these brands,
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minimizing the potential for consumer confusion and brand
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cannibalization.
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• Each also must live up to the core promise of the parent
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brand, reducing chances of hurting the parent’s image.
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• Horizontal extensions into new categories can also be tricky

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for luxury brands.

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Giorgio Armani Privé to mid-range luxury with Emporio Armani to affordable luxury with Armani Jeans
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and Armani Exchang

Product and Brand Relationship
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The Product Hierarchy
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Each product can be related to
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other products to ensure that a
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firm is offering and marketing
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Item
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the optimal set of products.
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Life insurance Product type
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Product line/ closely related to customer group
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Product class/soft drink
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financial instruments
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Savings & income

Product family/core +effectiveness
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security Need family /core need

Product and Brand Relationship
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The Product Hierarchy: Six Levels
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Need family: The core need that underlies the existence of a product family.
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Product family: All the product classes that can satisfy a core need with reasonable
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effectiveness.
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Product class : A group of products within the product family recognized as having a
certain functional coherence, also known as a product category.
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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
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marketed through the same outlets or channels, or fall within given price ranges.
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A product line may consist of different brands, a single family brand, or an
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individual brand that has been line extended.
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Product type: A group of items within a product line that share one of several possible
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forms of the product.

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Item : (also called stock-keeping unit or product variant)—A distinct unit within a brand or
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product line distinguishable by size, price, appearance, or some other attribute.

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Product Systems and Mixes
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A product system is a group of diverse but related
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items that function in a compatible manner
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iPod product system = headphones and
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headsets, cables and docks, armbands, cases, Product system
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power and car accessories, and speakers
Product mix (Product assortment)
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 Depth
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 Length
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fo  Width
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 Consistency
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Product mix
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• The width of a product mix refers to how many different
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product lines the company carries.
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• The length refers to the total number of items in the mix
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• The depth of a product mix refers to how many variants
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are offered of each product in the line.
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• The consistency describes how closely related the
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various product lines are in end use, production

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requirements, distribution channels, or some other way.

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fo
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ida
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fo
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Product Line Analysis
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Sales and Profits
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• Product-line managers need to know the sales and
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profits of each item in their line in order to determine
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which items to build, maintain, harvest, or divest.
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• A company can classify its products into four types
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that yield different gross margins, depending on
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sales volume and promotion.

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Figure 13.3 Product-Item Contributions
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to a Product Line’s Total Sales and Profits
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Sales and Profits
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 Every company’s product portfolio contains
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products with different margins.
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 Companies should recognize that different items
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will allow for different margins and respond
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differently to changes in level of advertising.

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Market Profile and Image
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• The product line manager must review how the line is
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positioned against competitors’ lines.
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•
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A product map shows which competitors’ items are
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competing against company X’s items.
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• The map also reveals possible locations for new items.
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• Another benefit of product mapping is that it identifies
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market segments.
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• Product line analysis provides information for two key

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decision areas: product line length and product mix

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pricing.
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Figure 13.4 Product Map
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Product-Line Length
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 Company objectives influence product-line length.
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 One objective is to create a product line to induce
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upselling.
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 A different objective is to create a product line that
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facilitates cross selling.

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Product-Line Length
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 Still another objective is to create a product line that
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protects against economic ups and downs.
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 Product lines tend to lengthen over time.
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 A company lengthens its product line in two ways:
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 by line stretching andfo
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 line filling.
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Line Stretching
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Down-Market Stretch
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Up-Market Stretch
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Two-Way Stretch
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Line Stretching
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Down-Market Stretch c class UP-Market Stretch

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Line Filling
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 A product line lengthened by adding more items within the present
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range.
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There are several motives for line filling:
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 Reaching for incremental profits.
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 Trying to satisfy dealers who complain about lost sales because of
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missing items in the line.
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 Trying to utilize excess capacity.
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 Trying to be the leading full-line company.

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 Trying to plug holes to keep out competitors.

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Line Filling
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 Line filling is overdone if it results in self-cannibalization and
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customer confusion.
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 The company needs to differentiate each item in the consumer’s
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mind.
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 Each item should possess a just-noticeable difference.
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 The company should also check that the proposed item meets a
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market need and is not being added simply to satisfy an internal
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need.
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CT
ED
fo
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ida
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Marketers are learning through, sometimes, painful experiences that product lines
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can get too long, or products can become just too complicated.
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Copyright © 2009 Pearson Education South Asia Pte Ltd 12-61
8
Product-Mix Pricing
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FA
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• Product-line pricing
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• Optional-feature pricing
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• Captive-product pricing
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• Two-part pricing
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• By-product pricing fo
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• Product-bundling pricing
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8
Co-Branding & Ingredient Branding
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• combine products with products from other
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companies in various ways.
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• In co-branding = dual branding = brand bundling:
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two or more well-known brands are combined into
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a joint product or marketed together in some
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fashion. fo
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• same-company co-branding, joint-venture co-branding,

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multiple-sponsor co-branding, retail co-branding

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8
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Co-Branding Advantages
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• Product can be convincingly positioned by virtue of the
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multiple brands.
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Co-branding can generate greater sales from the existing
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market and open opportunities for new consumers and
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channels.
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•
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It can also reduce the cost of product introduction because it
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combines two well-known images and speeds adoption.
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• Co-branding may be a valuable means to learn about

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consumers and how other companies approach them.

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8
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Co-Branding Disadvantages
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• Risks and lack of control in becoming aligned with another brand
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in consumers’ minds
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• Consumer expectations of co-brands are likely to be high, so
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unsatisfactory performance could have negative repercussions
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for both brands.
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• Consumers may feel less sure of what they know about the
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brand. fo
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8
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Co-Branding to succeed
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For co-branding to succeed, the two brands must :
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i.separately have brand equity—
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ii.adequate brand awareness and
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iii.a sufficiently positive brand image.
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fo
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8
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Ingredient Branding
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FA
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de
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• Ingredient Branding: special case of co-branding that
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creates brand equity for materials, components, or
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parts that are necessarily contained within other
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branded products.
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8
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requirements for successful ingredient branding
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• Consumers must believe the ingredient matters to the performance
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and success of the end product. Ideally, this intrinsic value is easily
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seen or experienced.
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• Consumers must be convinced that not all ingredient brands are the
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same and that the ingredient is superior.
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• A distinctive symbol or logo must clearly signal that the host product
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contains the ingredient. Ideally,
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• A coordinated “pull” and “push” program must help

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consumers understand the advantages of the branded

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ingredient.
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Packaging
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• Packaging includes all the activities of designing
@
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and producing the container for a product.
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• Packages might have up to three layers.
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i. Cool Water by Davidoff For Men cologne comes in
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a bottle (primary package)
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ii.inside a cardboard box (secondary package),
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iii.shipped in a corrugated box (shipping package)

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containing six dozen bottles in cardboard boxes.

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Factors Contributing to the
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Emphasis on Packaging
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Self-service
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Consumer affluence
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Company/brand image
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Innovation opportunity
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Packaging Objectives
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i. Identify the brand
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ii. Convey descriptive and persuasive
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information
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iii. Facilitate product transportation and
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protection
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iv. Assist at-home storage

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v. Aid product consumption

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ida
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Labeling
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• The label can be a simple attached tag or an
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laboratory designed graphic that is part of the
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package.
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• It might carry a great deal of information, or only the
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brand name
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Labeling Functions
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• It identifies the product or brand
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• The label might describe the product: who made
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it, where and when, what it contains, how it is to
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be used, and how to use it safely.
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• The label might promote the product through
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attractive graphics. fo
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• It might also grade the product; canned peaches

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are grade-labeled A, B, and C.

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Warranties and Guarantees
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• Warranties are formal statements of expected product
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performance by the manufacturer.
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• Products under warranty can be returned to the
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manufacturer or repair center for repair, replacement,
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or refund.
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enforceable. fo
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extremely lucrative for manufacturers and retailers.

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Warranties and Guarantees
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• Many sellers offer either general or specific guarantees
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• Guarantees reduce the buyer’s perceived risk.
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• Guarantees suggest that the product is of high quality
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and the company and its service performance are
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dependable.
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• They can be especially helpful when the company or
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product is not well known or when the product’s quality

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is superior to that of competitors.

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CH 13 Setting Product Strategy Dr. A. Haidar at FALL 17-18

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12

Marketing Management, 15th ed.

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

offering to meet target customers’ needs or wants.

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

features mix and

and quality quality

© Dr A. Haidar FALL 17-18

Figure 12.2 Five Product Levels

products) (hotel room with its furniture)

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

 New ways to satisfy consumers

© Dr A. Haidar FALL 17-18

version at a much lower price.

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

period of time and that normally

survive many uses.

© Dr A. Haidar FALL 17-18 17

consists primarily of a service.

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

Emergency goods are purchased

when a need is urgent.

 Heterogeneous shopping goods differ in product

features and services that may be more important than

© Dr A. Haidar FALL 17-18

insurance and funeral arrangement.

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

new dimensions of differentiation.

© Dr A. Haidar FALL 17-18

product’s primary characteristics operate.

 one of four performance levels: low, average, high, or

 Style: Describes the product’s look and feel to the buyer.

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

customers keep purchased products in good working order.

 Returns: An unavoidable reality of doing business

© Dr A. Haidar FALL 17-18

 The designer must take all these goals into account.

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

• Winning formula for many is craftsmanship, heritage,

authenticity, and history, often critical to justifying a

sometimes extravagant price.

© Dr A. Haidar FALL 17-18

© Dr A. Haidar FALL 17-18

• Horizontal extensions into new categories can also be tricky

for luxury brands.

and Armani Exchang

Savings & income

security Need family /core need