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Setting Product Strategy

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Title: Setting Product Strategy


1
Setting Product Strategy
Chapter 12
2
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.

3
Figure Three Levels of Product
4
Example Hotel
  • Core benefit rest and sleep.
  • Actual product bed, bathroom, towels, desk,
    closet, or food.
  • Augmented product restaurant, gym, mans suit,
    or remembering consumers special needs.

5
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.

6
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 ?
  • ??????????,?????????,????????

7
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

8
Continuum of Evaluation for Different Types of
Products
9
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.

10
Marketing Debate
In one-shot relationships, may a high price
signal a high quality? Is it possible that a low
price may signal a high quality?
11
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

12
Individual Product Decisions
  • Product attributes
  • Product quality performance conformance
  • Product features
  • Product style and design
  • Branding
  • Packaging
  • Labeling
  • Product support services

13
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.

14
Case FedEx
  • Federal Express ? FedEX
  • ?????? to send an overnight shipment
  • ??????????The World On Time

15
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.

16
Packaging Examples
  • Skippy SqueezIt, Heinzs EZ Squirt, Dutch Boy,
    ???????, and ???????
  • Failure Planters Lifesaverss Brik-Pacs, Aunt
    Jemima

17
Labeling
  • Functions identify the product or brand,
    describe the product, and promote the product.
  • Legal concerns
  • E.g. Dr. Bronners Magic Soaps

18
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 PG, ??.

19
Product-Mix Width and Product-Line Length for
Proctor Gamble Products
PRODUCT-LINE LENGTH Product-Mix Width Product-Mix Width Product-Mix Width Product-Mix Width Product-Mix Width
PRODUCT-LINE LENGTH Detergents Toothpaste Disposable Bar Soap Diapers Paper Tissue
PRODUCT-LINE LENGTH Ivory Snow (1930) Dreft (1933) Tide (1946) Cheer (1950) Gleem (1952) Crest (1955) Ivory (1879) Kirks (1885) Lava (1893) Camay (1926) Pampers (1961) Luvs (1976) Charmin (1928) Puffs (1960) Banner (1982) Summit (1992)
20
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

21
Product-Item Contributions to a Product Lines
Total Sales and Profits
22
Marketing Debate
Is it a good idea to drop the 5th product in the
last slide? If not, what may be the reasons?
23
Case American Iron and Steel Market
Source The Innovators Solution (2003)
24
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

25
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.

26
Two-way Stretch
  • Marriott hotels resorts
  • L'ORÉAL PARiS LANCOME, SHU UEMURA, and BIOTHERM
    (7004000) LOREAL PARiS (5001000) MAYBELLINE
    GARNIER (100400).
  • Toyota

27
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?

28
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.
  • Webers Law just-noticeable difference.
  • Risk of cannibalization

29
Line Filling Examples
  • Sonys walkman solar-powered and waterproof,
    MiniDisc, CD, or Memory Stick.
  • Howard hotels, resorts, and suites

30
Line Modernization, Featuring and Pruning
  • ????? ?????
  • Line pruning
  • E.g. Unilever 1600 ? 970 ? 400 Hyundais Kia
    30?20.

31
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.

32
Building Brand Identity Samsung
  • Logo blue color, written in English, and S
    G partially break out of the oval to connect
    the interior and the exterior.
  • Slogan conveying Samsungs desire, and the
    All in the slogan.

33
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 Coca Cola - 70 billion
    Microsoft - 65 billion IBM - 52 billion.

34
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

35
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
    2040 off, store brand 1020 off).

36
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

37
The Situation of Private Label
  • 2005?ACNielsen????-1
  • 2005?ACNielsen????-2

38
Marketing Debate
If a store brand is not profitable, are there
other reasons for the retailer to develop the
store brand?
39
Marketing Debate
If you have owned a national brand in the market,
will you produce the same product for a
retailers store brand?
40
Brand-Name Decision
  • Individual names
  • E.g. PG, 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. ?????, ?????.

41
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

42
Brand Positioning
  • Product attribute, e.g. Dove, Compaq.
  • Benefit, e.g. Volvo safety.
  • Beliefs and values

43
Brand-Strategy Decision
Product Category Product Category
Existent New
Brand Existent Line Extensions Brand Extensions
Brand New Multibrands Diversification
44
Line Extensions
  • ???????,??????,???????,?????,?????????
  • ????????????,???????????????????,?????(Cannibaliz
    ation)?
  • Branded variants (??????) specific brand lines
    supplied to specific retailers or distribution
    channels.

45
Brand Extensions
  • ????????????????????
  • ?????????????????????????????(?HCG??)?????(????
    ?)?

46
Multibrands
  • ????????,???????????,??????,???????
  • ????????????,??????,Cannibalization?
  • Example ?????,??,??,???

47
Peter Lynchs Comment on Diversification
  • Over-Diversification ? Diworseification
  • Examples
  • Mobil Oil(????) purchased Marcor Inc. (retail
    industry).
  • ?????????????
  • ???????????????????????????????

48
The Product Life Cycle
  • Product development
  • Introduction
  • Growth
  • Maturity
  • Decline

49
Figure Sales and Profit Life Cycles
50
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

51
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

52
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

53
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.

54
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.

55
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

56
Case Yamaha Piano
  • ???(Yamaha)??40????????,????????10?
  • ?????????????,?????????????,????????????????,?????
    ????????????????
  • ??,??????????????????,????????????,???????????????
    ?????????,???????,???????????

57
Modifying the Product
  • Crayola has added a steady stream of new colors,
    forms, and packages.

58
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

59
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

60
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

61
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.
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