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Product and Service Strategy and Brand Management

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Title: Product and Service Strategy and Brand Management


1
5
CHAPTER
Product and Service Strategy and Brand Management
2
AFTER READING THIS CHAPTERYOU SHOULD BE ABLE TO
  • Explain the offering concept and offering mix
    portfolio.
  • Describe how the marketing manager modifies the
    offering mix.
  • Identify and describe the stages in the
    new-offering development process.
  • Identify and describe the stages in the product
    life cycle.

3
AFTER READING THIS CHAPTERYOU SHOULD BE ABLE TO
  • Explain the types of positioning strategies.
  • Define the concepts of brand and brand equity.
  • Describe how brand equity is created as well as
    its value to organizations.
  • Explain the types of branding and brand growth
    strategies.

4
OFFERING STRATEGY FRAMEWORK
  • The profitability of an organization depends on
    its product or service offering(s) and the
    strength of its brand(s).
  • Marketers face three offering-related strategy
    decisions

PositioningOfferings
Branding Offerings
Modifying theOffering Mix
5
CHAPTER 5 PRODUCT AND SERVICE STRATEGY AND BRAND
MANAGEMENT
THE OFFERING PORTFOLIO
6
THE OFFERING CONCEPT
  • An offering consists of the benefits or
    satisfaction provided to target markets by an
    organization.
  • It consists of the following elements

Tangibleproduct/service(a physical entity)
Brand name(s)
Related services(delivery, setup, etc.)
Packaging
Warranties/Guarantees
Other Features
7
THE OFFERING MIX
Offering Mix/Portfolio
The totality of an organizations offerings is
known as its product or service.
Groups of offerings similar in terms of usage,
buyers marketed to, or technical characteristics.
ProductLines
Product Items
A specific product or service noted by a brand,
size, or price.
8
THE OFFERING MIX
Offering mix decisions concern the
Width(breadth)
The number of offering lines.
Depth
The number of items in each line.
The extent to which offeringssatisfy similar
needs, appeal to similar buyer groups, or
usesimilar technologies.
Consistency
9
THE OFFERING MIX
Offering mix decisions depend on the
CompetitiveSituation
OrganizationalResources
MarketingStrategy
High-Profit orHigh-Volume Offerings
CompleteLines
OneOffering
10
THE OFFERING MIX
Bundling involves the marketing of two or more
product or service items in a single package
that creates a new offering
Value Meals
Vacation Packages
11
THE OFFERING MIX
Bundling
  • Means that consumers value the package more than
    the individual items.
  • Is due to benefits received from not having to
    make separate purchases and the satisfaction from
    one item given the presence of another.
  • Provides a lower total cost to buyers and lower
    marketing costs to sellers.

12
CHAPTER 5 PRODUCT AND SERVICE STRATEGY AND BRAND
MANAGEMENT
MODIFYING THE OFFERING MIX
13
OFFERING MIX MODIFICATON STRATEGY DECISIONS
SingleOffering
Adding to theOffering Mix
New OfferingDevelopment
EntireLine
Trading Up
Modifyingthe Offering
Trading Down
Harvestingthe Offering
Eliminatingthe Offering
14
ADDITIONS TO THE OFFERING MIX
SingleOffering
EntireLine
  • Additions take the form of
  • Questions to ask when considering new offerings

How consistent is the new offering with existing
offerings?
Consistency
Does the organization have the resources to
introduce and sustain the offering?
Resources
Market
Is there a viable market for the offering?
15
ADDITIONS TO THE OFFERING MIX
Consistency
  • Consider demand interrelationships (offering
    substitutes or complements) the
    cannibalization effect.
  • Consider the degree to which the new offering
    fits the organizations existing selling and
    distribution strategies.

16
ADDITIONS TO THE OFFERING MIX
Resources
  • Consider the organizations financial strengthR
    D and marketing programs.
  • Consider the speed and magnitude of the
    competitive response.
  • Consider the market growth rate.

17
ADDITIONS TO THE OFFERING MIX
Market
  • Consider whether a market exists.
  • Consider whether the new offering has a relative
    advantage over competitive offerings at a price
    consumers are willing and able to pay.
  • Consider if there is a distinct buyer group or
    segment for which no present offering is
    satisfactory.

18
STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS
IdeaGeneration
IdeaScreening
Business Analysis
MarketTesting
Commercial-ization
19
STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS
Idea Generation
  • Sources of new offering ideas include

Employees
Buyers
Competitors
  • Ideas are obtained through marketing research
    (formal) and informal means.

20
STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS
Idea Screening
  • Ideas are screened based on

OrganizationalDefinition
OrganizationalCapability
ProspectiveBuyers
  • Ideas deemed incompatible with organizational
    definition and capabilityare quickly eliminated.

21
STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS
Idea Screening
  • Assess the match between prospective buyers
    andoffering characteristics by asking
  • Does the offering have a relative advantage over
    existing offerings?
  • Is the offering compatible with buyers use or
    consumption behavior?
  • Is the offering simple enough for buyers to
    understand and use?
  • Can the offering be tested on a limited basis
    prior to actual purchase?
  • Are there immediate benefits from the offering
    once it is consumed?
  • If the answers are yes and the offering
    satisfies a felt need,then go to the business
    analysis stage.

22
STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS
Business Analysis
  • Assess financial viability based on estimated

Sales
Costs
Profits
  • Forecasting sales is difficult for new offerings.
  • Profitability analyses relate to

Investment
Break-even
Payback Period
23
STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS
Business Analysis
24
STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS
Business Analysis
25
STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS
Market Testing
  • May include product concept or buyer preference
    tests in a laboratory situation or field test
    market.
  • A test market is a scaled-down implementation of
    one or more alternative marketing strategies for
    introducing the new offering.
  • Ideas that pass through this stage are
    commercially introduced into the marketplace.

26
STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS
Market Testing
  • Generate benchmark data for assessing sales
    volume when the product is introduced over a
    wider area.
  • Examine the relative impacts of alternative
    marketing strategies and programs under actual
    market conditions.
  • Assess the incidence of trial, repeat-purchase,
    and quantities purchased by potential buyers of
    the offering.
  • Inform competitors of the organizations
    activities,which may increase the speed and
    effectiveness of competitive response.

27
STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS
Commercialization
  • 3,000 raw ideas are needed to produce a single
    commercially successful new offering.
  • New offering success depends on a fit with
  • Market needs
  • Organizational strengths and resources

28
LIFE-CYCLE CONCEPT
  • A life cycle plots sales of an offering(a brand
    of coffee) or a product class(all ground coffee
    brands) over a periodof time.
  • Life cycles are divided into four stages

Maturity-Saturation
Growth
Introduction
Decline
29
EXHIBIT 5.1 GENERAL FORM OF A PRODUCT LIFE CYCLE
Sales
Maturity-Saturation
Growth
Introduction
Decline
Time
30
LIFE-CYCLE CONCEPT
The sales curve can be viewed as the result of
offering trial and repeat purchasing behavior.
31
LIFE-CYCLE CONCEPT
Introduction Stage
  • Focus on stimulating trial of the offering by
  • Advertising
  • Giving out free samples
  • Obtaining adequate distribution
  • The vast majority of sales volume is due to trial
    purchases.

32
LIFE-CYCLE CONCEPT
Growth Stage
  • An increasing share of volume is due to repeat
    purchases.
  • Marketers focus on retaining existing buyers of
    the offering through offering
  • Modifications
  • Enhanced brand image
  • Competitive pricing

33
LIFE-CYCLE CONCEPT
Maturity-Saturation Stage
There is an increase in the
  • Proportion of buyers who are repeat
    purchasers(i.e. few new buyers or triers exist).
  • Standardization of production operations and
    product-service offerings.
  • Incidence of aggressive pricing activities by
    competitors.

34
LIFE-CYCLE CONCEPT
Maturity-Saturation Stage
Marketers focus on
  • Finding new buyers for the offering.
  • Significantly improving the offering.
  • Increasing the frequency of usage among current
    buyers.

Decline Stage
Marketers decide to harvest or eliminate the
offering.
35
MODIFYING OFFERINGS
Involves adding new features and higher-quality
materials or augmenting the offering with
attendant services and then raising the price.
TradingUp
Modifyingthe Offering
Is the process of reducing the number of features
or quality of an offering and lowering the price.
Trading Down
36
HARVESTING OFFERINGS
  • Harvesting is the strategic decision to reduce
    the investment in a business entity in the hope
    of cutting costs and/or improving cash flow.
  • The decision is not to abandon the offering
    outright but to minimize the human and financial
    resources allocated to it.

37
HARVESTING OFFERINGS
Harvesting should be considered when
  • The market for the offering is stable.
  • The offering is not producing good profits.
  • Market share becomes increasingly costly to
    defend from competitive inroads.
  • The offering enhances the firms image or
    provides a full product line despite a poor
    future.

38
ELIMINATING OFFERINGS
  • Elimination means that the offering is dropped
    from the firms offering mix.
  • An offering may be eliminated if the answers to
    these questions are very little or none.
  • What is the future sales potential of the
    offering?
  • How much is the offering contributing to offering
    mix profitability?
  • How much is the offering contributing to the sale
    of other offerings in the mix?
  • How much could be gained by modifying the
    offering?
  • What would be the effect on channel members and
    buyers?

39
CHAPTER 5 PRODUCT AND SERVICE STRATEGY AND BRAND
MANAGEMENT
POSITIONING OFFERINGS
40
POSITIONING
Positioning is the act of designing an
organizations offering and image so that it
occupies a distinct and valued place in the
target customers mind relative to competitive
offerings.
41
POSITIONING STRATEGIES
  • Strategies include positioning by

Product or Brand User
Use orApplication
Attribute or Benefit
Product orService Class
Price andQuality
Competitors
  • Marketers often combine two or more of these
    strategies when positioning a product, service,
    or brand.

42
POSITIONING BY ATTRIBUTE OR BENEFIT
  • Is the strategy most frequently used.
  • Requires determining
  • Which attributes are important to target markets
  • Which attributes are being emphasized by
    competitors
  • How the offering can be fitted into this
    offering-target market environment
  • Accomplished by designing an offering that
    contains appropriate attributes or stressing the
    appropriate attributes if they already exist.

43
ATTRIBUTE OR BENEFIT POSITIONING MATRIX
  • Develop a matrix relating attributes of the
    offering to market segments (see Exhibit 5.2).
  • Benefits of the positioning matrix
  • Can spot potential opportunities for new
    offerings and determine if a market niche exists
  • Permits subjective estimation of the extent to
    which a new offering might cannibalize existing
    offerings
  • Can judge the competitive response to a new
    offering more effectively

44
EXHIBIT 5.2 ATTRIBUTES AND MARKETING SEGMENT
POSITIONING
45
CRAFTING A POSITIONING STATEMENT
  • Once the desired positioning has been determined,
    marketers prepare a succinct, written positioning
    statement.
  • A positioning statement identifies
  • The target market and needs satisfied
  • The product (service) class or category in which
    the organizations offering competes
  • The offerings unique attributes or benefits

46
CRAFTING A POSITIONING STATEMENT
A positioning statement takes this form
  • For (target market and need), the (product,
    service,brand name) is a (product/service class
    or category)that (statement of unique attributes
    or benefits provided).
  • Example

For upscale American families who desire a
carefree driving experience, Volvo is a
premium-priced automobile that offers the utmost
in safety and dependability.
47
REPOSITIONING
  • Repositioning is necessary when
  • The initial positioning of a product, service,
    brand, or organization is no longer competitively
    sustainable or profitable
  • Better positioning opportunities arise
  • It takes time and is costly to establish a new
    position, so do this after careful study.

48
MAKING THE POSITIONING STRATEGY DECISION
The choice of which positioning strategy to use
can be made by answering the following
  • Who are the likely competitors, what positions
    have they staked out in the marketplace, and how
    strong are they?
  • What are the preferences of the target consumers
    and how do they perceive competitors offerings?
  • What position, if any, does the organization
    already have in the target consumers mind?

49
MAKING THE POSITIONING STRATEGY DECISION
Positioning strategy implementation decisions can
be made by answering the following
  • What position do we want to own?
  • What competitors must be outperformed if we are
    to establish the position?
  • Do we have the marketing resources to occupy and
    hold the position?

50
MAKING THE POSITIONING STRATEGY DECISION
The success of a positioning strategy depends on
the following factors
  • The position must be clearly communicated to and
    valued by targeted customers.
  • Frequent positioning changes should be avoided
    since the development of a position is a lengthy
    and expensive process.
  • The position taken in the marketplace should be
    sustainable and profitable.

51
CHAPTER 5 PRODUCT AND SERVICE STRATEGY AND BRAND
MANAGEMENT
BRAND EQUITY AND BRAND MANAGEMENT
52
BRAND AND BRAND EQUITY
Brand
Brand Equity
A brand name is any word, device (design,
sound, shape, or color), or combination of these
that are used to identify an offering and set it
apart from competing offerings.
Brand equity is the added value a brand name
bestows on a product or service beyond the
functional benefits provided.
53
BRAND EQUITY
Brand equity has two marketing advantages
  • Provides a competitive advantage, such as
    signifying quality.
  • Can charge a higher price for an offering since
    consumers are often willing to pay for the equity
    premium present in the brand.

54
CREATING BRAND EQUITY
Brand equity arises from a four-step process
  • Develop positive brand awareness in consumers
    minds and associate it with a product class or
    need to give the brand an identity.
  • Establish a brands meaning in the minds of
    consumers, consisting of
  • Brand functional performance
  • Brand imagery

55
CREATING BRAND EQUITY
Brand equity arises from a four-step process
  • Elicit the proper consumer responses to a brands
    identity and meaninghow they think and feel.
  • Thinking Focuses on a brands perceived quality,
    credibility, and superiority relative to other
    brands
  • Feeling Relates to the consumers emotional
    reaction to a brand
  • Create a consumer-brand resonance evident in an
    intense, active loyalty relationship
    (psychological bond) between consumers and the
    brand.

56
EXHIBIT 5.3 CUSTOMER-BASED BRAND EQUITY PYRAMID
57
VALUING BRAND EQUITY
Successful brand names provide organizations with
financial benefits because they
  • Have economic value as intangible assets.
  • Enjoy a competitive advantage.
  • Create earnings and cash flow in excess of the
    return on its tangible (plant and equipment)
    assets.
  • Achieve a high rate of return relative to
    competitors.
  • Can be bought and sold, generating earnings.
  • Can appreciate in value, not depreciate as
    tangible assets do with time and use.

58
BRANDING STRATEGY
Three common branding strategies are
MultiproductBranding
A company uses one name for all its products in a
product class.
Multibranding
A company gives each product or product line a
distinct name.
PrivateBranding
A company supplies a reseller with a product
bearing a brand name chosen by the reseller.
59
BRANDING STRATEGY
Multiproduct Branding
  • Is also called family branding or corporate
    branding.
  • Establishes dominance in a product or service
    class.
  • Allows consumers to transfer the good brand
    equity of one product to other company offerings
    with the same name.
  • Lowers advertising and promotion costs and raises
    overall brand awareness since the same name is
    used on all products.

60
BRANDING STRATEGY
Multiproduct Branding
  • Builds a global brand, which
  • Is a brand marketed under the same name in
    multiple countries with similar and centrally
    coordinated marketing programs
  • Requires a large financial investment to create a
    unified global message
  • Dilutes the meaning of a brand for consumers if
    there are too many uses for one brand name.

61
BRANDING STRATEGY
Multiproduct Branding
Firms can also can employ sub-branding, which
  • Combines a corporate/family brand with a new one.
  • Builds on favorable associations consumers have
    toward the corporate/family brand while
    differentiating the new offering.
  • Differentiates offerings along a price-quality
    continuum by adding high-end, midlevel, and
    low-end offerings.

62
BRANDING STRATEGY
Multibranding
  • Is a useful strategy when each brand is intended
    for a different market segment or uniquely
    positioned in the marketplace.
  • Often arises from company acquisitions.
  • Increases promotional costs because the firm must
    generate acceptance among consumers and
    distributors for each new brand.

63
BRANDING STRATEGY
Multibranding
Since each brand is unique toeach market
segment, there is reduced risk that an individual
brands failure will transfer to the firm itself
or to its other brands.
Advantage
The complexity and expense of implementing this
strategy canoutweigh the benefit.
Disadvantage
64
BRANDING STRATEGY
Private Branding
If a reseller carries its own private brands
  • Price competition with other resellers is avoided.
  • Brand equity for an offering accrues to the
    reseller.

65
BRANDING STRATEGY
Private Branding
  • Brand name companies also produce private label
    branded offerings.
  • If a manufacturer offers its own private brands
  • Profits contribute to overhead if production
    capacity is underutilized
  • Thwarts competitors who may want to obtain the
    rights to produce competing private label brands

66
BRANDING STRATEGY
Private Branding
Dangers in producing private brands
  • Becoming too reliant on private-brand revenue,
    only to have it curtailed when a reseller
    switches suppliers or produces its own.
  • May adversely affect the trade relationship
    between a producer and reseller.

67
BRAND GROWTH STRATEGIES
LineExtension
Occurs when an organization introduces additional
offerings with the same brand in a product class
that it currently serves.
BrandExtension
Is the practice of using a current brand name to
enter a completely different product class.
NewBrand
Involves the development of a new brand and often
a new offering for a product class that has not
been previously served by the organization.
  • Creates new brands for an existing product class
    that attracts specific consumer segments not
    served by an organizations existing
    products/brands

Fighting/Flanker Brand
  • Represents a defensive move to counteract
    competitors

68
EXHIBIT 5.4 BRAND GROWTH STRATEGIES
69
BRAND GROWTH STRATEGIES
Line Extension Strategy
Examples New or different flavors, forms,
colors, ingredients, features, and package sizes.
This strategy
  • Responds to customers desire for variety.
  • Eliminates gaps in a product line.
  • Lowers advertising and promotion costs because
    the same brand is used on all items.
  • Risks product cannibalism as buyers substitute
    one item for another in the extended product line.
  • Can create production and distribution problems
    and added costs without incremental sales.

70
BRAND GROWTH STRATEGIES
Brand Extension Strategy
  • Provides consumers with the familiarity of an
    established brand when introducing an offering in
    a new market.
  • Requires that the perceptual fit and core product
    benefit of the brand exists with and transfers to
    the new product class.
  • Dilutes the meaning of a brand for consumers if
    the brand name has too many uses.

71
BRAND GROWTH STRATEGIES
Brand Extension Strategy
Allows for co-branding, which
  • Pairs the two brand names of two manufacturers on
    a single product (General Mills and Hersheys)
  • Permits firms to enter a new product class
    (Hersheyscereal) and capitalize on an already
    established brand name (HersheysReeses)

72
BRAND GROWTH STRATEGIES
New Brand Strategy
  • Used when existing brand names are not extendable
    to a new product class for whichit is targeted.
  • May be the most challenging to successfully
    implement and the most costly 50 to 100
    million to introduce a new brand.
  • This strategy is akin to diversification.

73
BRAND GROWTH STRATEGIES
Fighting/Flanker Brand Strategy
Adding a new brand whose sole purpose is to
confront competitive brands in a product class
being served by an organization.
Fighting Brand
Adding new brands on the high orlow end of a
product line based on a price-quality continuum.
Flanker Brand
74
BRAND GROWTH STRATEGIES
Fighting Brand
Introduced when
  • An organization has a high relative share of the
    sales in a product class.
  • Its dominant brand is susceptible to having its
    high market share reduced by competitors through
    aggressive pricing or promotion.
  • The organization wishes to preserve its profit
    margins on its existing brand.

75
BRAND GROWTH STRATEGIES
Fighting/Flanker Brand Strategy
  • Fighting and flanker brand strategies risk
    cannibalizing other, particularly lower-priced,
    brands in a product line.
  • Marketers should engage in preemptive
    cannibalismthe conscious practice of stealing
    sales from an organizations existing products or
    brands to keep customers from switching to
    competitors offeringsthan lose sales volume.
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