Setting Product Strategy

What is a Product?
Anything that can be offered to a market for
attention, acquisition, use, or consumption
and that might satisfy a want or need.
Includes: physical product, service,
information, experience, person, place,
organization, ideas, or mixes of these
entities.
Figure:
Three Levels of
Product
Example: Hotel
Core benefit: rest and sleep.
Actual product: bed, bathroom, towels, desk,
closet, or food.
Augmented product: restaurant, gym, mans
suit, or remembering customers special
needs.
Example: Sony Camcorder
Core benefit: a convenient, high-quality way
to capture important moments.
Actual product: Sony Camcorder.
Augmented product: warranty, instructions,
quick, repair service, or toll-free telephone
number.
When Do a Firm Advertise the
Core Benefit?
Innovated product
Chaos stage
E.g. The war of hamburger among McDonalds,
Burger King and Wendy. Wendy: Where is the
beef ?


Product Classifications
Durability
Nondurable goods many locations, small
markup, and heavily advertise.
Durable goods more personal selling and
service, higher margin, and more seller
guarantees.
Timing of quality identification
Search goods
Experience goods
Credence goods
Continuum of Evaluation for Different Types of Products
Consequence of High in Experience
and Credence Qualities
Service consumers generally rely on word of
mouth rather than advertising.
Consumers rely heavily on price, personnel,
and physical cues to judge quality.
Consumers are highly loyal to service
providers who satisfy them.
In one-shot relationships, may a high price
signal a high quality?
Is it possible that a low price may signal a
high quality?
Product Classifications
Consumer-goods classification
Convenience goods staples, impulse goods and
emergency goods.
Shopping goods
Specialty goods
Unsought goods
Marketing considerations for consumer
products
Drift principle
Individual Product Decisions
Product attributes
Product quality performance & conformance
Product features
Product style and design
Branding
Packaging
Labeling
Product support services
Packaging
Primary container, secondary package, and
shipping package.
Functions: contain and protect the product,
describe the product, attract attention, and
create instant consumer recognition of the
company or brand.
Packaging
In an average supermarket, which stocks
15,000 to 17,000 items, the typical shoppers
passes by some 300 items per minute.
More than 60% of all purchases are made on
impulse.
The package may be the sellers last chance
to influence consumers.
Packaging Examples
Skippy SqueezIt,
Heinzs EZ Squirt,
Dutch Boy,
, and

Failure: Planters
Lifesaverss Brik-
Pacs, Aunt Jemima
Labeling
Functions: identify the product or brand,
describe the product, and promote the
product.
Legal concerns
E.g. Dr. Bronners Magic Soaps
Product Mix
Width: how many different product lines the
company carries.
Length: the total number of items in the mix.
Depth: how many variants are offered of each
product in the line.
Consistency: how closely related the various
product lines are in end use, product requirements,
distribution channels, or some other way.
Example: P&G, .
 Product-Mix Width and Product-Line Length for Proctor
& Gamble Products
Product-Mix Width
Disposable Paper
Detergents Toothpaste Bar Soap Diapers Tissue
Ivory Snow Gleem (1952) Ivory Pampers Charmin
(1930) (1879) (1961) (1928)

PRODUCT- Dreft Crest (1955) Kirks Luvs Puffs

LINE (1933) (1885) (1976) (1960)
LENGTH
Tide Lava Banner
(1946) (1893) (1982)

Cheer Camay Summit

(1950) (1926) (1992)
Product Line Decisions
Product-line analysis
Product line length is influenced by company
objectives and resources, e.g. up-selling, cross-
selling, or protecting against economic swings.
Vertical differentiation Line stretching:
downmarket stretch, upmarket stretch, or two-way
stretch
Horizontal differentiation Line filling
Line modernization, featuring and pruning
Product-Item Contributions to a Product Lines Total Sales
and Profits
Is it a good idea to drop the 5th product in
the last slide? If not, what may be the
reasons?
Case: American Iron and Steel
Market

Source: The Innovators

Solution (2003)
Downmarket Stretch
Examples: Rolexs Tudor, Benzs Smart.
Reasons: growth opportunity, tie up lower-
end competitors, or the middle market is
stagnating or declining.
Branding: individual name, blanket family
name, or separate family names for all
products.
Risk of Cannibalization
Upmarket Stretch
Reasons: more growth, higher margins or
full-line manufacturers.
Examples: Toyatas Lexus, Nissans Infiniti,
and Hondas Acura.
The examples above invented entirely new
names rather than using or including their
own names.
Two-way Stretch
Marriott hotels & resorts
L'ORAL PARiS
LANCOME, SHU UEMURA, and BIOTHERM (700~4000);
LOREAL PARiS (500~1000);
MAYBELLINE & GARNIER (100~400).
Toyota
Cannibalization
Consumers have two segments, H & L.
Given quality q, Hs valuation is 5q, Ls
valuation is 2q, and the unit cost is q2/2.
What are the efficient quality levels for H and
L respectively?
Is it optimal for the firm to provide the two-
item product line with efficient quality levels?
Is it always optimal for the firm to provide a
product line?
Case: Pampers & Luvs
1980 Pampers & Luvs

1993 P&G
Luvs (fighter brand)
Luvs 16%


P&G
Pampers

(p. 49, October 2009)
Line Filling
Add more items within the present range of
the line.
Motives: incremental profits, satisfying
dealers, excess capacity, full-line company,
and keep out competitors.
Sonys walkman solar-powered and
waterproof, MiniDisc, CD, or Memory Stick.
Webers Law: just-noticeable difference.
Risk of cannibalization
Line Modernization, Featuring
and Pruning
&
Line pruning
E.g. Unilever: 1600 970 400;
Hyundais Kia: 3020; P&G.
Brand
Definition: a name, term, sign, symbol,
design, or a combination of them, intended to
identify the goods or services of one seller or
group of sellers and to differentiate them from
those of competitors. (AMA)
Six levels of meaning: attribute, benefits,
values, culture, personality, and user.
Brand Equity
The positive differential effect that knowing
the brand name has on customer response to
the product or service.
Measure: the extent to which customers are
willing to pay more for the brand.
Tide, Heinz 100%; Coca Cola 50%;
Volvo 40%.
Brand valuation: Apple $98 billion; Google
$93 billion; Coca Cola $79 billion.
Interbrand


Leadership
Stability
Market
Internationality
Trend
Support
Protection


Branding Decisions
1. Brand or No brand
2. Brand-sponsor decision
3. Brand-name decision
4. Brand positioning
5. Brand-strategy decision
6. Brand-management decision
Brand or No Brand?
Advantages of branding: processing orders
and track down problems, legal protection,
loyal customers, segmenting markets, and
the corporate image.
Advantages of no branding: cheap (national
brand: 20~40% off, store brand: 10~20% off).
Brand-Sponsor Decision
Manufacturer brand (national brand)
Distributor brand (store brand or private label), e.g.
Wellcome, Carrefour past, now.
Licensed brand name
Co-branding: the practice of using the established
brand names of two different companies on the same
product.
Ingredient branding
If a store brand is not profitable, are
there other reasons for the retailer to
develop the store brand?
If you have owned a national brand in
the market, will you produce the same
product for a retailers store brand?
Brand-Name Decision
Individual names ( ), e.g. P&G, Toyota.
Blanket family names ( ), e.g. Sony,
Hitachi, and Panasonic.
Separate family names for all products (
), e.g. ,
, .
Corporate name combined with individual product
names ( ), e.g.
, ; Sony Bravia, Sony Walkman,
Sony Vaio, Sony PlayStation.
Selecting a Brand Relationship
Spectrum Position
Brand-Name Selection
Suggest something about the products
benefits and qualities, e.g. OFF! bug spray.
Easy to pronounce, recognize, and
remember, e.g. Tide, Qoo.
Distinctive, e.g. Kodak, Oracle.
Extendable, e.g. Amazon.
Translate easily into foreign languages, e.g.
Exxon.
Capable of registration and legal protection
Brand-Strategy Decision

Product Category

Existent New

Existent Line Brand

Extensions Extensions
Brand
New Multibrands Diversification
Line Extensions




Cannibalization
Branded variants ( ): specific
brand lines supplied to specific retailers or
distribution channels.
Brand Extensions



Levis
HCG

Multibrands



Cannibalization
Example:
Peter Lynchs Comment on
Diversification
Over-Diversification Diworseification
Examples
Mobil Oil purchased Marcor Inc.
(retail industry).



The Product Life Cycle
Product development
Introduction
Growth
Maturity
Decline
Figure: Sales and Profit Life Cycles
Introduction Stage of PLC
Sales: low
Costs: high cost per customer
Profits: negative
Marketing Objective: create product
awareness and trial
Product: offer a basic product
Price: use cost-plus formula
Distribution: build selective distribution
Promotion: heavy to entice product trial
Growth Stage of PLC
Sales: rapidly rising
Costs: average cost per customer
Profits: rising
Marketing Objective: maximize market share
Product: offer extension, service, warranty
Price: penetration strategy
Distribution: build intensive distribution
Promotion: reduce to take advantage of demand
Maturity Stage of PLC
Sales: peak
Costs: low cost per customer
Profits: high
Marketing Objective: maximize profits while
defending market share
Product: diversify brand and models
Price: match or best competitors
Distribution: build more intensive distribution
Promotion: Increase to encourage brand switching
Maturity Stage of the PLC
Modifying the Market: Increase the
consumption of the current product.
How?
Look for new users and market segments, e.g.
Johnson & Johnson.
Reposition the brand to appeal to larger or faster-
growing segment
Look for ways to increase usage among present
customers, e.g. Campbell, Amazon.
Modifying the Market
The WD-40 companys
knack for finding new
uses has made this
popular substance one
of the truly essential
survival items in most
American homes.
Maturity Stage of the PLC
Modifying the Product: Changing
characteristics such as quality, features, or
style to attract new users and to inspire more
usage.
How?
Improve durability, reliability, speed, taste
Improve styling and attractiveness
Add new features
Expand usefulness, safety, convenience
Case: Yamaha Piano
(Yamaha) 40%
10%








Modifying the Product

Crayola has added a steady stream of new colors, forms, and

packages.
Maturity Stage of the PLC
Modifying the Marketing Mix: Improving sales
by changing one or more marketing mix
elements.
How?
Cut prices
Launch a better ad campaign
Move into larger market channels
Offer new or improved services to buyers
Decline Stage of PLC
Sales: declining
Costs: low cost per customer
Profits: declining
Marketing Objective: reduce expenditures and milk
the brand (harvesting or divesting)
Product: phase out weak items
Price: cut price
Distribution: selective--phase out unprofitable outlets
Promotion: reduce to minimal level
Product Life Cycles
The PLC concept can be used to analyze a
product category, a product form, a product,
or a brand.
Not all products exhibit a bell-shaped PLC.
Growth-slump-maturity pattern
Cycle-recycle pattern
Scalloped pattern
Style, Fashion, Fad
Practical Problems of PLC
Hard to identify which stage of the PLC the product
is in.
Hard to pinpoint when the product moves to the next
stage.
Hard to identify factors that affect products
movement through stages.
Hard to forecast sales level, length of each stage,
and shape of PLC.
Strategy is both a cause and result of the PLC.