Product Management

Book by Donald R Lehmann Russell Winer Fourth Edition

Part II: Product strategy

Chapter 8. Developing Product Strategy Chapter 9: New Products

Developing Product Strategy

Chapter 8 Product Management Book by: Donald Lehmann & Russell Winer

What is product strategy?

All the detailed view from earlier chapters will lead to product strategy. Objectives:

Where are we headed? How will we get there? What will we do?

Strategies:

Tactics:

What is product strategy?

Benefits of strategy
1. Strategy enhances coordination among functional areas 2. Strategy defines resource allocation 3. Strategy should lead to superior market position

What is product strategy?

Competitive strategy has at least ONE of the FOUR characteristics 1. It should be something a competitor can not do 2. It should be something a competitor will choose not to do 3. Competitor would be at disadvantage if they do it 4. You will gain, if competitor does it

Elements of a product strategy

Seven parts of marketing strategy 1. Statement of the objective(s) the product should OBJECTIVES attain STRATEGY 2. Selection of strategic alternatives 3. Selection of customer targets 4. Choice of competitor targets POSITIONING 5. Statement of the core strategy 6. Description of supporting marketing mix 7. Description of supporting functional programs
TACTICS

1. Setting objectives: Hierarchy of objectives

Level 0
Level 1 ROI Company Mission/ Vision Corporate objectives Business Mix

Corporate strategies
Divisional objectives Level 2 Divisional profits Product Mix

Divisional strategies
Growth- Sales Growth- Share Product/ Brand objectives Program Mix Brand strategies Program objectives Level 4 Tactics

Level 3

Trade off

Primary objective

The objective for maximization (PROFIT)

Secondary objective

Share

Profit

The objective acting as a constraint (SHARE maintenance, CSI index, Cash flow)

2. Selection of strategic alternatives

FOR INCREASING SALES/ MARKET SHARE
1 Market penetration Strategy Increase usage rate (Customer expansion) 3 Product development Current Using larger package size Strategy Markets Promoting frequent use Increase share of wallet, Cross selling Increase consumption rate, Coupons Is actual consumption rate equal to potential rate?

New Markets

2 Market Development Strategy Pursue non-customers (Customer acquisition) Enter new markets Enter new segments

(Diversification strategy)

Current Products

New Products

2. Selection of strategic alternatives

Four basic strategies are

Customer acquisition Customer retention Customer expansion Customer deletion

2. Selection of strategic alternatives

FOR INCREASING PROFITABILITY
1. Decreasing Inputs

Decrease product costs Decrease marketing costs Decrease other costs Reengineering Improve utilization of assets Keeping low accounts receivables Reducing inventory Running efficient production runs Investing idle cash Reduce customer churn (increase retention) Use economies of scale at all functions

Price

Cost

2. Increasing Outputs

Improve prices Improve sales mix using Paretos law De-emphasize unprofitable customers

3. Positioning: Choice of customer targets

THREE key considerations

Size/ growth of the segment Opportunities for obtaining competitive advantages Resources available
Young generation Officer goers Older generation

Target segments & Factor for MOBILES Benefits Main factor affecting purchase Where do they purchase? When do they buy?

4. Positioning: Choice of competitor targets

For penetration strategy (stealing competitor) identify which competitors customers are

More valuable Most easily priced away

Identify a weak or docile company that can be easily overcome. (not always available) Use situational analysis (Competitor analysis) Market leader often take defensive steps, hence focus on strong 2nd or 3rd competitor Strong 2nd (Challenger) might be more offensive targeting the leader Weak followers try to avoid major competitors using niches

5. Positioning: Core strategy

Product positioning has two basic categories, Price strategy (Cost/Price-value strategy) Nonprice strategy (Offering/Services)

Sources of customer value

Economic Functional Psychological

Either be good in price or be good at some of the offering (Customer value = QSP)
Struck in the middle can be disastrous

5. Positioning: Core strategy (Value proposition)

Product positioning has two basic categories, Price strategy (Cost/Price-value strategy)

Shift in customer tastes Technological shifts Cost beating by competitors

Cost components

Sam Waltons Wal-Mart Kishor Biyanis Big Bazzar Dhoots Sansui, Akai Low pricing requires muscles Need to understand cost components Low pricing strategy has its own problems

5. Positioning: Core strategy (Value proposition)

Product positioning has two basic categories, Nonprice strategy (Offering/Services)

Potential product Augmented product Expected product Basic product

Core benefit

The Total Product Concept

5. Positioning: Core strategy (Value proposition)

Product positioning has two basic categories, Nonprice strategy (Offering/Services) Total product concept

Core benefit: Hotel guest is buying rest and sleep NEED Basic product: Hotel room includes a bed, bathroom, towels, desk, dresser and closet FUNCTIONAL Expected product: Hotel guest expect a clean bed, fresh towels, working lamps and a relative degree of BENEFITS quiet Augmented product: Provide superior customer DIFFERENTIATION service Potential product: All possible augmentations and FUTURE transformations the product or offering might undergo in the future

5. Positioning: Core strategy (Value proposition)

Support Activities

Product positioning has two basic categories, Nonprice strategy (Offering/Services)

Firm infrastructure Procurement

Human resource management Technology development

Differential advantage areas Quality: Intel, Lexus, Apple,

Sony, Timken, Caterpillar

Inbound Operations Outbound Marketing logistics logistics And sales

Service

The Generic Value chain

Status and Image: Rolex, Mercedes Branding: Salt: Tata Salt, Atta: Ashirvad, Chicken: Realgood Convenience and Service: Maruti-Suzuki Distribution: HUL

5. Positioning: Core strategy (Value proposition)

Maintain the differential advantage

6. Description of supporting marketing mix

Price Place Promotion

7. Description of supporting functional programs

Tactics