12 Setting Product Strategyaykancandemir.com/mrkmgt/chapter6.pdf1 . Chapter Questions What are the...

12 Setting Product Strategy

1

Chapter Questions

What are the characteristics of products and how do marketers classify products?

How can companies differentiate products? Why is product design important and what

factors affect a good design?

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 12-2

Chapter Questions

How can a company build and manage its product mix and product lines?

How can companies combine products to create strong co-brands or ingredient brands?

How can companies use packaging, labeling, warranties, and guarantees as marketing tools?



What is a Product?

A product is anything that can be offered to a market to satisfy a want or need, including

physical goods, services, experiences, events, persons, places, properties,

organizations, information, and ideas.

Figure 12.1 Components of the Market Offering


Figure 12.2 Five Product Levels


Five Product Levels A)The fundamental level is the core benefit: The service or

benefit the customer is really buying. Marketers must see themselves as benefit providers.

B)At the second level, the marketer has to turn the core benefit into a basic product.

C)At the third level, the marketer prepares an expected product, a set of attributes and conditions buyers normally expect when they purchase this product.

D)At the fourth level, the marketer prepares an augmented product that exceeds customer expectations.

E) At the fifth level stands the potential product that encompasses all the possible augmentations and transformations the product or offering might undergo in the future.



Product Classification Schemes

Durability

Tangibility

Use


Durability and Tangibility

Nondurable goods

Durable goods

Services

Five Product Levels

Nondurable goods: tangible consumed in one or a few uses.

Durable goods: tangible that normally survives many uses. Durable goods require more personal selling and service, command a higher margin, and require more seller guarantees.

Services: intangible, inseparable, variable, and perishable products that require more quality control, supplier credibility, and adaptability.



Consumer Goods Classification

Convenience

Shopping

Specialty

Unsought

Consumer-Goods Classification The vast array of goods consumers buy can be classified on the

basis of shopping habits. Convenience goods are purchased frequently, immediately, and

with a minimum of effort. Staples (Example: tooth paste) Impulse goods (Example: candy bars) Emergency goods (Example: umbrellas)

Shopping goods are goods that the consumer, in the process of

selection and purchase, characteristically compares on such basis as suitability, quality, price, and style. Homogeneous shopping goods are similar in quality but different

enough on price to adjust shopping comparisons. Heterogeneous shopping goods differ in product features and

services that may be more important than price.


Consumer-Goods Classification Specialty goods have unique characteristics or

brand identification for which a sufficient number of buyers are willing to make a special purchasing effort.

Unsought goods are those that the consumer does not know about or does not normally think of buying. The classic examples of known but unsought goods are life insurance and cemetery plots.



Industrial Goods Classification

Materials and parts Capital items Supplies/business services

Industrial-Goods Classification A) Materials and parts 1) These are goods that enter the manufacturer’s product completely.

They fall into two major groups: a. Raw materials include:

1. Farm products—commodity characteristics. (wheat, cotton) 2. Natural products—are in limited supply. (lumber, crude oil)

- great bulk - low unit value -must be moved from producers to user

b. Manufactured materials and parts fall into two categories: 1. Component materials. (iron, cement) 2. Component parts. (small motors)


Industrial -Goods Classification B) Capital items are long-lasting goods that facilitate developing or

managing the finished product. They include: 1) Installations.(buildings and heavy equipment) 2) Equipment. (portable factory equipment and tools, office

equipment)

C) Supplies and business services are short-term goods and services that facilitate developing or managing the finished product. There are two kinds of supplies:

Maintenance and repair items (including business advisory services such as legal, consulting, and advertising).

Operating supplies. Business services include maintenance and repair services and

business advisory services are usually purchased on the basis of the supplier’s reputation and staff.


Product Differentiation

Product form Features Customization Performance Conformance

Durability Reliability Repairability Style


Product Differentiation A) Form: Many products can be differentiated in form—the size, shape,

or physical structure of a product. B) Features: Most products can be offered with varying features that

supplement its basic function. A company can identify and select appropriate features by surveying

buyers and then calculating customer value versus company cost for each feature.

To avoid “feature fatigue,” the company must prioritize features and tell consumers how to use and benefit from them.

Each company must decide whether to offer feature customization at a higher cost or a few standard packages at a lower cost.

C) Customization: marketers can differentiate products by making them customized to an individual.

1) Mass customization is the ability of a company to meet each customer’s requirements.


Product Differentiation D) Performance Quality: Most products are established at one of four

performance levels: low, average, high, or superior. Performance quality is the level at which the product’s primary

characteristics operate. The manufacturer must design a performance level appropriate to the

target market and competitors’ performance levels. A company must mange performance quality through time. a. Quality is becoming an increasingly important parameter for

differentiation as companies adopt a value model and provide higher quality for less money.

E) Conformance Quality: Buyers expect products to have a high conformance quality—the degree to which all the product units are identical and meet the promised specifications.


Product Differentiation F) Durability: A measure of the product’s expected operating life under

natural or stressful conditions. Durability is a valued attribute for certain products. Buyers will generally pay more for products that have a reputation for

being long lasting. G) Reliability: Buyers normally will pay a premium for more reliable

products. Reliability is a measure of the probability that a product will not malfunction or fail within a specified time period.

H) Repairability: Is the measure of the ease of fixing a product when it malfunctions or fails.

I) Style: Describes the product’s look and feel to the buyer. Style creates distinctiveness that is hard to copy. Strong style does not always mean high performance.



Service Differentiation

Ordering ease Delivery Installation Customer training Customer consulting Maintenance and repair Returns

Services Differentiation 1) Ordering Ease: Ordering ease refers to how easy it is for the

customer to place an order with the company. 2) Delivery: refers to how well the product or service is brought to the

customer. 3) Installation: Refers to the work done to make the product

operational. 4) Customer Training: Refers to the training the customer’s employees

undergo to use the vendor’s equipment properly and efficiently. 5) Customer consulting: Refers to data, information systems, and

advice services that the seller offers to the buyers. 6) Maintenance and Repair: Describes the service program for helping

customers keep purchased products in good working order. 7) Returns: An unavoidable reality of doing business a) Controllable returns b) Uncontrollable returns


Services Differentiation 7) Returns: An unavoidable reality of doing business a) Controllable returns: Controllable returns result from problems,

difficulties or errors of the seller or customer and can be mostly eliminated with the proper strategies and programs by the company or its supply chain partners. Every controllable factor has a cause or causes that could be minimized or eliminated with better forward logistics processes, improved market forecasting, improved product handling or storage and so forth. Products returned because of damage can be eliminated through some combination of improved handling, better packaging, improved transportation and storage of the items as they are being distributed in the supply chain. In essence, this is eliminating problems before they happen.


Services Differentiation 7) Returns: An unavoidable reality of doing business b) Uncontrollable returns: Uncontrollable returns cannot be

eliminated by the company in the short term and, thus, these returns are often inevitable. The logic behind developing returns processes, primarily for uncontrollable returns, is straightforward. mprovements in product quality, elimination of shipping errors and implementation of programs such asvendor-managed inventory andefficient consumer response will limit returns to only those that will come back regardless of what the company does or does not do in the short term.


Design


DESIGN As competition intensifies, design offers a potent way to differentiate

and position a company’s products and services. Design is the totality of features that affect how a product looks and

functions in terms of customer requirements. To the company, a well-designed product is one that is easy to

manufacture and distribute. As holistic marketers recognize the emotional power of design and

the importance to consumers of how things look and feel as well as work, design is exerting a stronger influence in categories where it once played a smaller role.

In an increasingly visually oriented culture, transmitting brand meaning and positioning through design is critical.


DESIGN Design can shift consumer perceptions to make brand experiences

more rewarding. Design should penetrate all aspects of the marketing program so

that all design aspects work together. Given the creative nature of design, it’s no surprise that there isn’t

one widely adopted approach. Some firms employ formal, structured processes.

Design thinking is a very data-driven approach with three phases: observation, ideation, and implementation.

To the customer, a well-designed product is one that is pleasant to look at and easy to open, install, use, repair, and dispose of.



The Product Hierarchy

Need family

Product family

Product class

Product line

Product type

Item


The need family is the core need that underlies the existence of a product family. Security is an example.

The product family refers to all the product classes that can satisfy a core need with reasonable effectiveness. Examples are savings and income.

The product class is the group of products within the product family recognized as having a certain functional coherence, also known as a product category. Financial instruments are an example.



The product line is a group of products within a product class that are closely related because they perform a similar function, are sold to the same customer groups, are marketed through the same outlets or channels, or fall within given price ranges. Life insurance is an example.

The product type is a group of items within a product line that share one of several possible forms of the product. Term life insurance is an example.

An item (also called stock-keeping unit or product variant) is a distinct unit within a brand or product line distinguishable by size, price, appearance, or some other attribute. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 12-30

Product Systems and Mixes


Product Systems and Mixes A product system is a group of diverse but related items that

function in a compatible manner. A) A product mix consists of various product lines. B) A company’s product mix has a certain width, length, depth,

and consistency. C) The width of a product mix refers to how many different product

lines the company carries.


Product Systems and Mixes 1) The length of a product mix refers to the total number of items in the

mix. a. We can also talk about the average length of a line. This is obtained

by dividing the total length by the number of lines. The depth of a product mix refers to how many variants are offered

of each product in the line. The consistency of the product mix refers to how closely related the

various product lines are in end use, production requirements, distribution channels, or some other way.

These four product-mix dimensions permit the company to expand its business in four ways. It can add new product lines, thus widening its product mix. It can lengthen each product line. It can add more product variants to each product and deepen its product mix. Finally, a company can pursue more product-line consistency.


Product Systems and Mixes Line Filling A) A product line can also be lengthened by adding more items

within the present range. There are several motives for line filling:

Reaching for incremental profits. Trying to satisfy dealers who complain about lost sales because

of missing items in the line. Trying to utilize excess capacity. Trying to be the leading full-line company. Trying to plug holes to keep out competitors.

Line filling is overdone if it results in self-cannibalization and customer confusion.

The company needs to differentiate each item in the consumer’s mind with a just-noticeable difference.


Figure 12.3 Product-Item Contributions to a Product Line’s Total Sales and Profits


Figure 12.4 Product Map for a Paper-Product Line



Line Stretching

Down-Market Stretch

Up-Market Stretch

Two-Way Stretch

Line Stretching Down-market stretch A) Is when a company positioned in the middle market may want to

introduce a lower-priced line for any of three reasons: Shoppers want value-priced goods Wish to tie up lower-end competitors Find that the middle market is stagnating or declining

A company faces a number of choices in deciding to move a brand down-market: Use the parent name on all offerings Use a sub-brand name Introduce lower-price goods under a different brand name

Moving down-market carries risk.


Line Stretching Up-Market stretch Companies may wish to enter the high end of the market for: More growth Higher margins Simply to position themselves as a full-line manufacturer Two-way stretch A) Is where companies serving the middle market might decide to

stretch the line in both directions. Research has shown that a high-end model of a low-end brand is

favored over a low-end model of a high-end brand.



Product-Mix Pricing

Product-line pricing Optional-feature pricing Captive-product pricing Two-part pricing By-product pricing Product-bundling pricing

Line Stretching Product-line pricing Companies normally develop product lines rather than single products

and introduce price steps. In many lines of trade, sellers use well-established price points for the

products in its personal line. The seller’s task is to establish perceived-quality differences that justify

the price differences. Optional-feature pricing Many companies offer optional products, features, and services along

with their main product. Pricing is a sticky problem, because companies must decide which

items to include in the standard price and which to offer as options. C) Captive-product pricing Some products require the use of ancillary or captive products. There is a danger in pricing the captive product too high in the

aftermarket. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 12-41

Line Stretching D) Two-part pricing

Service firms often engage in two-part pricing, consisting of a fixed fee plus a variable usage fee.

E) By-product pricing The production of certain goods often results in by-products. If the by-

products have value to a customer group, they should be priced on their value.

F) Product-bundling pricing Sellers often bundle product and features. Pure bundling occurs when a firm only offers its products as a bundle

(tied-in sales). In mixed bundling, the seller offers goods both individually and in

bundles. When offering a mixed bundle, the seller normally charges less for the

bundle than if the items were purchased separately. Some customers will want less than the whole bundle. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 12-42

Ingredient Branding


Line Stretching Marketers often combine their products with products from other

companies. In co-branding, two or more well known brands are combined into a joint product or marketed together in some fashion. One form of co-branding is same-company co-branding, as when General Mills advertises Trix cereal and Yoplait yogurt. Another form is joint-venture co-branding, such as General Electric and Hitachi lightbulbs in Japan. There is multiple-sponsor co-branding. Finally, there is retail co-branding, such as jointly owned Pizza Hut, KFC, and Taco Bell restaurants.

Ingredient branding is a special case of co-branding. It creates brand equity for materials, components, or parts that are necessarily contained within other branded products.

DuPont has introduced d ingredient. a number of innovative products such as Corian® solid-surface material, for use in markets ranging from apparel to aerospace. Many, such as Lycra® and Stainmaster® fabrics, Teflon® coating, and Kevlar® fiber, became household names as ingredient brands in consumer products manufactured by other companies.



What is the Fifth P?

Packaging, sometimes called the 5th P, is all the activities of designing and

producing the container for a product.

Packaging

A)Packaging includes all the activities of designing and producing the container for a product.

B)The package is the buyer’s first encounter with the product. C)A good package draws the consumer in and encourages product

choice. In effect, they can act as “five-second commercials” for the product.

D)Packaging also affects consumers’ later product experiences when they go to open the package and use the product at home.

E)Various factors have contributed to the growing use of packaging as a marketing tool: Self-service Consumer affluence Company and brand image Innovation opportunity


Packaging F)To achieve these objectives and satisfy consumers’ desires,

marketers must choose the aesthetic and functional components of packaging correctly.

G)Aesthetic considerations relate to a package’s size and shape, material, color, text, and graphics.

H)Functionally, structural design is crucial. The packaging elements must harmonize with each other and with pricing, advertising, and other parts of the marketing program.

I) After packaging is designed, it must be tested. 1. Engineering tests are conducted to ensure that the package stands

up under normal conditions. 2. Visual tests are used to ensure that the script is legible and the

colors harmonious. 3. Dealer tests are performed to ensure that dealers find the

packages attractive and easy to handle. 4. Consumer tests ensure favorable consumer response.



Factors Contributing to the Emphasis on Packaging

Self-service Consumer affluence Company/brand image Innovation opportunity


Factors Contributing to the Emphasis on Packaging

Various factors contribute to the growing use of packaging as a marketing tool.

An increasing number of products are sold on a self-serve basis. In an average supermarket, which may stock 15,000 items, the typical shopper passes some 300 products per minute. Given that 50 percent to 70 percent of all purchases are made in the store, the effective package must perform many sales tasks: attract attention, describe the product’s features, create consumer confidence, and make a favorable overall impression.

Rising affluence means consumers are willing to pay a little more for the convenience, appearance, dependability, and prestige of better packages.

Packages contribute to instant recognition of the company or brand. In the store, they can create a billboard effect,

Unique or innovative packaging such as resealable spouts can bring big benefits to consumers and profits to producers.


Packaging Objectives

Identify the brand Convey descriptive and persuasive

information Facilitate product transportation and

protection Assist at-home storage Aid product consumption

Functions of Labels


For Review

What are the characteristics of products and how do marketers classify products?

How can companies differentiate products? Why is product design important and what

factors affect a good design?


Also For Review

How can a company build and manage its product mix and product lines?

How can companies combine products to create strong co-brands or ingredient brands?

How can companies use packaging, labeling, warranties, and guarantees as marketing tools?


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