Title: Product and Service Strategy and Brand Management
15
CHAPTER
Product and Service Strategy and Brand Management
2AFTER 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.
3AFTER 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.
4OFFERING 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
5CHAPTER 5 PRODUCT AND SERVICE STRATEGY AND BRAND
MANAGEMENT
THE OFFERING PORTFOLIO
6THE 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
7THE 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.
8THE 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
9THE OFFERING MIX
Offering mix decisions depend on the
CompetitiveSituation
OrganizationalResources
MarketingStrategy
High-Profit orHigh-Volume Offerings
CompleteLines
OneOffering
10THE 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
11THE 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.
12CHAPTER 5 PRODUCT AND SERVICE STRATEGY AND BRAND
MANAGEMENT
MODIFYING THE OFFERING MIX
13OFFERING MIX MODIFICATON STRATEGY DECISIONS
SingleOffering
Adding to theOffering Mix
New OfferingDevelopment
EntireLine
Trading Up
Modifyingthe Offering
Trading Down
Harvestingthe Offering
Eliminatingthe Offering
14ADDITIONS 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?
15ADDITIONS 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.
16ADDITIONS 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.
17ADDITIONS 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.
18STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS
IdeaGeneration
IdeaScreening
Business Analysis
MarketTesting
Commercial-ization
19STAGES 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.
20STAGES 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.
21STAGES 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.
22STAGES 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
23STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS
Business Analysis
24STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS
Business Analysis
25STAGES 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.
26STAGES 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.
27STAGES 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
- Organizational strengths and resources
28LIFE-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
29EXHIBIT 5.1 GENERAL FORM OF A PRODUCT LIFE CYCLE
Sales
Maturity-Saturation
Growth
Introduction
Decline
Time
30LIFE-CYCLE CONCEPT
The sales curve can be viewed as the result of
offering trial and repeat purchasing behavior.
31LIFE-CYCLE CONCEPT
Introduction Stage
- Focus on stimulating trial of the offering by
- Obtaining adequate distribution
- The vast majority of sales volume is due to trial
purchases.
32LIFE-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
33LIFE-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.
34LIFE-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.
35MODIFYING 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
36HARVESTING 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.
37HARVESTING 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.
38ELIMINATING 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?
39CHAPTER 5 PRODUCT AND SERVICE STRATEGY AND BRAND
MANAGEMENT
POSITIONING OFFERINGS
40POSITIONING
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.
41POSITIONING 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.
42POSITIONING BY ATTRIBUTE OR BENEFIT
- Is the strategy most frequently used.
- 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.
43ATTRIBUTE 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
44EXHIBIT 5.2 ATTRIBUTES AND MARKETING SEGMENT
POSITIONING
45CRAFTING 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
46CRAFTING 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).
For upscale American families who desire a
carefree driving experience, Volvo is a
premium-priced automobile that offers the utmost
in safety and dependability.
47REPOSITIONING
- 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.
48MAKING 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?
49MAKING 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?
50MAKING 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.
51CHAPTER 5 PRODUCT AND SERVICE STRATEGY AND BRAND
MANAGEMENT
BRAND EQUITY AND BRAND MANAGEMENT
52BRAND 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.
53BRAND 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.
54CREATING 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
55CREATING 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.
56EXHIBIT 5.3 CUSTOMER-BASED BRAND EQUITY PYRAMID
57VALUING 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.
58BRANDING 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.
59BRANDING 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.
60BRANDING 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.
61BRANDING 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.
62BRANDING 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.
63BRANDING 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
64BRANDING 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.
65BRANDING 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
66BRANDING 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.
67BRAND 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
68EXHIBIT 5.4 BRAND GROWTH STRATEGIES
69BRAND 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.
70BRAND 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.
71BRAND 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)
72BRAND 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.
73BRAND 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
74BRAND 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.
75BRAND 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.