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LEARNING OBJECTIVES
12 SETTING PRODUCT
STRATEGY
2. In planning its market offering, the marketer needs to think through the five levels of
the product: the core benefit, the basic product, the expected product, the augmented
product, and the potential product, which encompasses all the augmentations and
transformations the product might ultimately undergo.
5. Design is the totality of features that affect how a product looks, feels, and functions. A
well-designed product offers functional and aesthetic benefits to consumers and can be an
important source of differentiation.
7. A company can change the product component of its marketing mix by lengthening its
product via line stretching (down-market, up-market, or both) or line filling, by
modernizing its products, by featuring certain products, and by pruning its products to
eliminate the least profitable.
8. Brands are often sold or marketed jointly with other brands. Ingredient brands and co-
brands can add value assuming they have equity and are perceived as fitting
appropriately.
9. Physical products have to be packaged and labeled. Well-designed packages can create
convenience value for customers and promotional value for producers. Warranties and
guarantees can offer further assurance to consumers.
OPENING THOUGHT
Students will be familiar with the idea of a tangible productthe physical
manifestationa cell phone or a pair of favorite jeans or shoes.
However, students may have trouble understanding the totality of the product
physically demonstratedthe core benefit, the basic product, expected product,
augmented, and potential product. The instructor is encouraged to use the class period to
allow the students to try to uncover or explore these additional components of the
product concept so that the students will begin to understand these dimensions better.
Perhaps, the most challenging concept of the chapter is the concept of line stretching,
and/or line filling. Again, the instructor is encouraged to use examples from
manufacturers and/or personal experience to communicate these concepts successfully.
Finally, the labeling of a product includes both advertising copy and governmental
regulations. This will be new material for many students.
PROJECTS
1. At this point for the semester-long project, students should have set their group
projects product or service strategy. Instructors are to evaluate their submissions on
the product (or services) features, quality, and price and the other considerations of
product found in this chapter.
2. In planning its market offering, the marketer needs to address five product levels:
core benefit, basic product, expected product, augmented product, and potential
product. Students should select a firm within an industry and through research
(Internet and other formats) outline the firms five product levels for its products. In
their research, students should be challenged to discover the firms perception of the
customers value hierarchy and total consumption system.
3. Sonic PDA Marketing: Plan Decisions about products are critical elements of any
marketing plan. During the planning process, marketers must consider issues related
to product mix and product lines. Product marketers distinguish five levels of product,
each adding more customer value: core benefit, basic, expected, augmented, and
potential. In assessing product strategy:
How would you define the core benefit for Sonic 1000?
How would you define the augmented product for Sonic 2000, the second product
to be launched by Sonic next year?
Write your answers to the questions in a written marketing plan or enter it in the Product
Offering and Marketing Mix sections of Marketing Plan Pro.
ASSIGNMENTS
Convenience items and capital good items can be seen as two ends of the product
continuum. Convenience items are purchased frequently, immediately, and with
minimum effort. Capital goods are those items that last a long period of time and are
purchased infrequently by consumers. Students should select a convenience good and a
capital good of their choice and compare and contrast the consumers value hierarchy and
users total consumption system for each item using the concepts presented in this chapter.
Assign the following readings to students: Robert Bordley, Determining the Appropriate
Depth and Breadth of a Firms Product Portfolio, Journal of Marketing Research, 40
(February), 2003, pp. 39-53 or Peter Boatwright and Joseph C. Nunes, Reducing
Assortment: An Attribute-Based Approach, Journal of Marketing, 65 (July), 2001, pp.
50-63. After reading each article, students should submit a paper summarizing their
findings and illustrating the concepts exposed in these papers to the material covered in
this chapter.
In the Marketing Memo entitled, Making Ingredient Branding Work, the authors list four
requirements for success in ingredient branding. As a group, students should collect
examples of ingredient branding currently present in the marketplace (supermarkets,
hotels/motels, automobile companies, and causal dining establishments are good places to
start) and examine these examples versus the four requirements stated in the memo.
Students should be able to defend their positions in comparing these products to the
statements in the Marketing Memo.
END-OF-CHAPTER SUPPORT
perform the task of taking a person from point A to point B. However, it is the design of the
automobile (specific make/type: i.e., sports car, luxury car) that appeals to the buyer. For many
consumers style plays a more important role, for some, the only role in their buying decision.
A well-designed product can also be a point-of-difference in the marketplace aiding consumer
acceptance through its ease of use, durability, reliability, or packaging. A well-designed
product can be a competitive advantage for smaller firms.
Whatever, the design, however, the product must at least meet the consumers definition of a
basic product. Once that definition is met, design can be a powerful marketing asset.
MARKETING DISCUSSION
Consider the diverse means of differentiating products and services. Which ones have the
most impact on your choices? Why?
Student answers will differ according to the product/services chosen. However, student
answers should encompass the following distinctions:
Products differentiation includes:
Form
Features
Performance quality
Conformance quality
Durability
Reliability
Repairability
Style
Services differentiation includes:
Ordering ease
Delivery installation
Customer training
Customer consulting
Maintenance and repair
Suggested Answer: In terms of the concept of product, Caterpillar has re-invented its
productfrom the physical product, to its services provided, to its research and
2) Discuss Caterpillars future. What should it do next with its product line? Where
is the future growth for this company?
Suggested Answer: Students answers will vary but good students will cite material from
this chapter regarding the customer-value hierarchycore benefit, basic product,
expected product, augmented product, and potential product to defend their positions on
where Caterpillars future lies.
1) Toyota has built a huge manufacturing company that can produce millions of cars
each year for a wide variety of consumers. Why was it able to grow so much
bigger than any other auto manufacturer?
Suggested Answer: Toyota has built a huge manufacturing company that can produce
millions of cars each year for a wide variety of consumers and has products for different
price points demanded by consumers.
The firm is the master of lean manufacturing and continuous improvement. Its plants can
make as many as eight different models at the same time, bringing huge increases in
productivity and market responsiveness.
Designing these different products means listening to different customers, building the
cars they want, and then crafting marketing to reinforce each makes image. Toyota is
integrating its assembly plants around the world into a single giant network. The plants
will customize cars for local markets and shift production quickly to satisfy any surges in
demand from markets worldwide.
2) Has Toyota done the right thing by manufacturing a car brand for everyone? Why
or why not?
Suggested Answer: Student answers will vary but one opinion is that yes, Toyota has
done the right thing by manufacturing a car brand for everyone. It has been successful
because has products for different price points demanded by consumers. And Toyota
understands that each country defines perfection differentlyfor example in its Lexus
Division.
3) No doubt Toyota will feel the impact of its massive recall for a long time. Did
Toyota grow too quickly as Toyota suggested? What should the company do over the
next year, 5 years, or 10 years? How can growing companies avoid quality problems in
the future?
Suggested Answer: Students answers will vary but to be consistent with this chapters
subject, student answers should refer to Toyotas need to keep their products selection
and quality superior to their competition and to deliver to the consumer, the consumers
definition of potential product.
Product Classifications
Marketers have traditionally classified products on the basis of characteristics: durability,
tangibility, and use. Each product type has an appropriate marketing-mix strategy.
Industrial-Goods Classification
We 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
1) These are goods that enter the manufacturers product completely. They fall into
two major groups:
a. Raw materials include:
1. Farm productscommodity characteristics.
2. Natural productsare in limited supply.
- great bulk
- low unit value
-must be moved from producers to user
b. Manufactured materials and parts fall into two categories:
1. Component materials.
2. Component parts.
B) Capital items are long-lasting goods that facilitate developing or managing the
finished product. They include:
1) Installations.
2) Equipment.
C) Supplies and business services are short-term goods and services that facilitate
developing or managing the finished product. There are two kinds of supplies:
1) Maintenance and repair items (including business advisory services such as legal,
consulting, and advertising).
2) Operating supplies.
3) Business services include maintenance and repair services and business advisory
services are usually purchased on the basis of the suppliers reputation and staff.
PRODUCT DIFFERENTIATION
To be branded, products must be differentiated. Physical products vary in potential for
differentiation.
Product Differentiation
A) Form: Many products can be differentiated in formthe size, shape, or physical
structure of a product.
B) Features: Most products can be offered with varying features that supplement its basic
function.
1) A company can identify and select appropriate features by surveying buyers and
then calculating customer value versus company cost for each feature.
2) To avoid feature fatigue, the company must prioritize features and tell
consumers how to use and benefit from them.
3) Each company must decide whether to offer feature customization at a higher cost
or a few standard packages at a lower cost.
C) Customization: marketers can differentiate products by making them customized to an
individual.
1) Mass customization is the ability of a company to meet each customers
requirements.
D) Performance Quality: Most products are established at one of four performance levels:
low, average, high, or superior.
1) Performance quality is the level at which the products primary characteristics
operate.
2) The manufacturer must design a performance level appropriate to the target
market and competitors performance levels.
3) A company must mange performance quality through time.
a. Quality is becoming an increasingly important parameter for differentiation as
companies adopt a value model and provide higher quality for less money.
E) Conformance Quality: Buyers expect products to have a high conformance quality
the degree to which all the product units are identical and meet the promised
specifications.
F) Durability: A measure of the products expected operating life under natural or
stressful conditions.
1) Durability is a valued attribute for certain products.
2) Buyers will generally pay more for products that have a reputation for being long
lasting.
G) 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.
The main service differentiators are ordering ease, delivery, installation, customer
training, customer consulting, and maintenance and repair.
1) Ordering Ease: Ordering ease refers to how easy it is for the customer to place an order
with the company.
2) Delivery: refers to how well the product or service is brought to the customer.
3) Installation: Refers to the work done to make the product operational.
4) Customer Training: Refers to the training the customers employees undergo to use the
vendors equipment properly and efficiently.
5) Customer consulting: Refers to data, information systems, and advice services that the
seller offers to the buyers.
6) Maintenance and Repair: Describes the service program for helping customers keep
purchased products in good working order.
7) Returns: An unavoidable reality of doing business
a) Controllable returns
b) Uncontrollable returns
DESIGN
A) As competition intensifies, design offers a potent way to differentiate and position a
companys products and services.
B) Design is the totality of features that affect how a product looks and functions in terms
of customer requirements.
D) As holistic marketers recognize the emotional power of design and the importance to
consumers of how things look and feel as well as work, design is exerting a stronger
influence in categories where it once played a smaller role.
F) Design can shift consumer perceptions to make brand experiences more rewarding.
H) Given the creative nature of design, its no surprise that there isnt one widely adopted
approach. Some firms employ formal, structured processes.
J) To the customer, a well-designed product is one that is pleasant to look at and easy to
open, install, use, repair, and dispose of.
F) 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.
Product-Line Analysis
A) In offering a product line, companies normally develop a basic platform and modules
that can be added to meet different customer requirements.
B) Product-line 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.
Market Profile
The product-line manager must review how the line is positioned against competitors
lines.
A) The product map shows which competitors items are competing against company Xs
items.
A) The map also reveals possible locations for new items.
B) Another benefit of product mapping is that it identifies market segments.
C) Product-line analysis provides information for two key decision areasproduct-line
length and product-mix pricing.
Product-Line Length
A) Company objectives influence product-line length.
B) One objective is to create a product line to induce upselling.
C) A different objective is to create a product line that facilitates cross selling.
D) Still another objective is to create a product line that protects against economic ups
and downs.
E) Product lines tend to lengthen over time.
F) A company lengthens its product line in two ways: by line stretching and line filling.
Line Stretching
Up-Market stretch
Companies may wish to enter the high end of the market for:
1) More growth
2) Higher margins
3) Simply to position themselves as a full-line manufacturer
Two-way stretch
A) Is where companies serving the middle market might decide to stretch the line in both
directions.
B) Research has shown that a high-end model of a low-end brand is favored over a low-
end model of a high-end brand.
Line Filling
A) A product line can also be lengthened by adding more items within the present range.
There are several motives for line filling:
1) Reaching for incremental profits.
2) Trying to satisfy dealers who complain about lost sales because of
missing items in the line.
3) Trying to utilize excess capacity.
4) Trying to be the leading full-line company.
5) Trying to plug holes to keep out competitors.
B) Line filling is overdone if it results in self-cannibalization and customer confusion.
C) The company needs to differentiate each item in the consumers mind with a just-
noticeable difference.
D) The company should also check that the proposed item meets a market need and is not
being added simply to satisfy an internal need.
Line Modernization, Featuring, and Pruning
Product lines need to be modernized. In rapidly changing product markets, modernization
is continuous.
A) Companies plan improvement to encourage customer migration to higher-valued,
higher-priced items.
B) The product-line manager typically selects one or a few items in the line to feature.
C) Product-line managers must periodically review the line for deadwood that is
depressing profits.
Product-Mix Pricing
A) Marketers must modify their price-setting logic when the product is part of a product
mix.
B) Product-mix pricing is when the firm searches for a set of prices that maximizes
profits on the total mix.
C) Pricing is difficult because the various products have demand, cost interrelationships,
and are subject to different degrees of competition.
We can distinguish six situations involving product-mix pricing:
A) Product-line pricing
1) Companies normally develop product lines rather than single
products and introduce price steps.
2) In many lines of trade, sellers use well-established price points for
the products in its personal line.
3) The sellers task is to establish perceived-quality differences that
justify the price differences.
B) Optional-feature pricing
1) Many companies offer optional products, features, and services along with their
main product.
2) Pricing is a sticky problem, because companies must decide which items to
include in the standard price and which to offer as options.
C) Captive-product pricing
1) Some products require the use of ancillary or captive products.
2) There is a danger in pricing the captive product too high in the aftermarket.
D) Two-part pricing
1) Service firms often engage in two-part pricing, consisting of a
fixed fee plus a variable usage fee.
I) For co-branding 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 maximize the advantages of each while minimizing disadvantages.
b. Managers must enter co-branding ventures carefully, looking for the right fit in
values, capabilities, and goals and an appropriate balance of brand equity.
c. Research studies show that consumers are more apt to perceive co-brands
favorably if the two brands are complementary rather than similar.
d. Co-branding ventures must be entered into and executed carefully.
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.
1. Consumers must believe the ingredient matters to the performance and success of
the end product. Ideally, this intrinsic value is easily seen or experienced.
2. Consumers must be convinced that not all ingredient brands are the same and that
the ingredient is superior.
3. A distinctive symbol or logo must clearly signal that the host product contains the
ingredient. Ideally, this symbol or logo functions like a seal and is simple and
versatile, credibly communicating quality and confidence.
4. A coordinated pull and push program must help consumers understand the
advantages of the branded ingredient. Channel members must offer full support
such as consumer advertising and promotions andsometimes in collaboration
with manufacturersretail merchandising and promotion programs.
Packaging
A) Packaging includes all the activities of designing and producing the container for
a product.
B) The package is the buyers first encounter with the product.
D) Companies with labels that have become icons need to tread very carefully when
initiating a redesign.
E) The Fair Packaging and Labeling Act of 1967, set mandatory labeling requirements,
and allows federal agencies to set packaging regulations in specific industries.
F) The Food and Drug Administration (FDA) sets other labeling requirements.
G) Consumerists have lobbied for additional labeling laws to require:
1) Open dating
2) Unit pricing
3) Grade labeling
4) Percentage labeling
Warranties and Guarantees
All sellers are legally responsible for fulfilling a buyers normal or reasonable
expectations.
Extended warranties and service contracts can be extremely lucrative for manufacturers
and retailers.