MARK4210, 2014 Spring, L1/L2

MARK4210: Strategic Marketing

2014 Spring, Section L1/L2

[Class #9]

Product Strategies

2 MARK4210, 2014 Spring, L1/L2

Refresher: Product Life Cycle

Promote

demand

for new

offering

(market

education)

Initial

structural

invest-

ments

More new

customers

join early

users & re-

purchasers

Company

begins to earn

profits on the

new product

More competition

Industry eventually reaches

saturation level -- difficult to

expand further

More intense

competition

(possibly

‘price wars’)

Market may

perceive

product

category as

“old”

Sales fall and

profits decline

3 MARK4210, 2014 Spring, L1/L2

Product Strategies

Specifies market needs that may be served by

different product offerings

Directly linked to market strategy

Deals with number and diversity of products, product

innovations, design, etc.

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

4 MARK4210, 2014 Spring, L1/L2

Product Strategies

BCG Matrix – Product Resource Allocation Strategy

Product Re-positioning Strategy

Product Overlap Strategies

Product Design Strategies

New Product Strategies

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

5 MARK4210, 2014 Spring, L1/L2

BCG Matrix: Product Resource

Allocation Strategy Recommendations

High Low

High

Low

Pro

du

ct

Sale

s G

row

th R

ate

Relative Market Share

• Investment strategy: Grow further;

maintain market position

• Cash flow: Self-fund own growth;

funding from ‘Cash Cows’

• Assure company’s future

• Grow into ‘Cash Cows’

• Investment strategy: Increase

market share; selectively develop

into ‘Stars’

• Cash Flow: Funding from ‘Cash

Cows’

• Unrealized future opportunities

• Investment strategy: Maintain

market share; maintain capacity

• Cash flow: Positive cash flow;

support ‘Stars’ & “?’s”

• No potential for profit growth

• Investment strategy: Divestiture;

reduce capacity, free-up resources

• Cash Flow: Achieve positive cash

flow; divest if negative cash flow

• No real growth opportunities

6 MARK4210, 2014 Spring, L1/L2

BCG Matrix: Pros/Cons

PROS

Relatively quick & simple

Good measurability of

market share and growth

Strong basis for decision-

making

Provides guidance on

efficiently allocating

resources within the

organization

Generates strategic

options

CONS

Oversimplifies complex

decisions

Only 2 factors considered --

creates risk

Uncertainty in market and

SBU definition

Only considers current

businesses – not dynamic

Does not recognize

synergies between SBUs

Susceptible to “GI-GO”

7 MARK4210, 2014 Spring, L1/L2

Product Re-positioning Strategy

Product may need repositioning if:

• Competitive entry has been positioned next to the brand

• Consumer preferences have changed

• New customer-preference clusters have been discovered

with promising opportunities

• Mistake has been made in the original positioning

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

8 MARK4210, 2014 Spring, L1/L2

Product Re-positioning: Ways to

Reposition a Product

Repositioning Description

Among existing

customers

• Involves promoting new & alternative

product uses

• Revitalizes product by building a new

character

• In some instances, leads to a new sub-

category

To new

consumers

• Presenting product with a different twist to

entice new consumers, and minimize

alienating current users

• In some instances, leads to a new category

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

9 MARK4210, 2014 Spring, L1/L2

10 MARK4210, 2014 Spring, L1/L2

Product Overlap Strategy

Company decides to compete with its own brand

Common strategies:

• Promote competing lines

• Provide private labeling

• Original equipment manufacturers (OEM)

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

11 MARK4210, 2014 Spring, L1/L2

Product Overlap: Promote Competing

Lines – Risks & Opportunities

While cannibalism occurs, overall sales usually

increase substantially

Two competing brands from same company

provides more aggressive front against other

competitors

Often used to transition new products into the

market – existing product maintained until new

product establishes market, thus minimize

competitive switches

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

12 MARK4210, 2014 Spring, L1/L2

13 MARK4210, 2014 Spring, L1/L2

Product Overlap: Provide Private

Labeling

Manufacture product for another company Pros Cons

• Represents large (usually

growing) market segment

• Economies of scale (e.g.,

manufacturing, distribution, etc.)

• Improves trade relationships

• Control over technology and raw

materials reduces overall risks

• Clear consumer segmentation

between branded and unbranded

• Helps eliminate small, local

competitors

• Compete on price vs. competitors

• Increases shelf space

• Market share growth at expense

of profitability (more price

sensitive, lower margins)

• Discloses cost information to

traders

• To displace existing private label

suppliers, risk of starting price war

• Affects consumer perception of

branded business

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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15 MARK4210, 2014 Spring, L1/L2

Product Overlap: Deal with OEM

Sell to competitors the components used in its own products, leading to direct competition

Motivation for Seller:

• Maximize manufacturing capacity levels (economies-of-scale)

• Share burden of driving primary demand

• Seller can always limit/restrict sales to problematic competitors

In some cases, forced by governments to promote industry competition

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

16 MARK4210, 2014 Spring, L1/L2

17 MARK4210, 2014 Spring, L1/L2

Product Design Strategy

A business may offer a standardized or a custom-

designed product; decision based on factors such

as:

• Capabilities

• Business vision

Strategic alternatives:

• Standard products

• Customized products

• Modifying standard products

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

18 MARK4210, 2014 Spring, L1/L2

Product Design: Standard Products

Standard products are more familiar, lessen

company’s “experience curve effect” and yield lower

costs

Can be efficiently marketed more broadly

Generally offered in limited grades and styles with

varying prices

Generally more suited for large companies

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

19 MARK4210, 2014 Spring, L1/L2

20 MARK4210, 2014 Spring, L1/L2

Product Design: Customized Products

Based on the extent that the product meets customer

specifications – usually by working closely with

customers from development to completion

Price is less of a factor versus standard products

Depending on nature/complexity of the product, generally

more suitable for smaller, flexible, specialized companies

Recent rise of “mass customization” – “build-to-order”

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

21 MARK4210, 2014 Spring, L1/L2

22 MARK4210, 2014 Spring, L1/L2

MAYBACH: Most customizable production car: ~2 million

equipment option possibilities

“Personal Relationship Manager” to help customize 'ships'

23 MARK4210, 2014 Spring, L1/L2

Product Design: Modifying Standard

Products

Customers can specify a limited number of desired

modifications to a standard product

Manufacturing base product provides economies-of-

scale, while modifications allow product certain level

of individualization based on customer requirements

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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25 MARK4210, 2014 Spring, L1/L2

New Product Strategy

New-product development is essential for

companies seeking growth

Facilitated by technological innovations and

customer willingness to accept new things

Strategic alternatives:

• Product innovation

• Product imitation

• Product improvement/modification

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

26 MARK4210, 2014 Spring, L1/L2

New Product: Product Innovation

Introduce offering with a completely new approach in fulfilling customer desires, or replace existing ways to satisfying customer desires

Involves major financial commitment, heavy management effort, and often risky

Ways to encourage innovation:

• Smaller divisions (better interaction amongst team)

• Willingness to tolerate failure (experimentation, risk taking)

• Champions are motivated (encouragements, incentives)

• Close liaison with customer

• Technology is widely shared

• Projects are sustained despite initial discouragements

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

27 MARK4210, 2014 Spring, L1/L2

RIM Blackberry: First

“integrated” phone

Series 6000 launched in

2003

Model 6210 listed in

influential “Time All Time

100 Gadgets” list

28 MARK4210, 2014 Spring, L1/L2

New Product: Product Imitation

Introducing product with existing characteristics in

the market, but new to the company

“Follower” strategy by letting other companies take

the riskier first move, and learning the lessons

Saves investment in R&D or costly acquisitions,

especially for companies with limited resources

Also used by companies to leverage unique

capability or competency from one product category

to another (e.g., distribution)

Caution on patents and trademarks

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

29 MARK4210, 2014 Spring, L1/L2

??

?

30 MARK4210, 2014 Spring, L1/L2

New Product: Product Improvement/

Modification

Introducing new or improved version of existing

product, usually by:

• adding new features/styles

• changing processing requirements

• altering ingredients

Usually when existing products become mature, and

ceased to provide adequate return, and/or

competitive pressure has reduced existing product

to “me-too”

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

31 MARK4210, 2014 Spring, L1/L2

32 MARK4210, 2014 Spring, L1/L2

Guide Questions: The Birth of

Swatch

1. Prior to Swatch, what was the watch industry like in various

historical stages (prior to 1950s, between 1950s-1970s,

1970s-1980s)? Consider various aspects of the category

(e.g., the positioning of the category, marketing mix, and

consumer behavior).

2. Why did Swatch became a success, what are the key

elements of their marketing plan (positioning, marketing

mix) that contributed to their success?

3. How has Swatch influenced/impacted the watch industry in

terms of how people view the category and consumer

behavior

33 MARK4210, 2014 Spring, L1/L2

Reminder: Mid-term Exam

When: March 19 (Wednesday) 7:00-8:20pm

• No lecture during the day

• Pls try to arrive at 650pm to find your assigned seat

Where: LSK1001, LSK1003, LSK1005

• Assigned seating plan will be posted outside rooms by

650pm

What: Classes up to STP (including STP & JBC)

• Open-notes

• Bring your own calculator (NO borrowing allowed)

• Short scenarios questions based on discussed concepts

& methodologies

34 MARK4210, 2014 Spring, L1/L2

OPTIONAL Tutorial for Mid-term

Exam

Entirely OPTIONAL, NO attendance check, NO

participation points

NO new slides/concepts NOR preset discussion

plan, will be based review of past classes and slides

depending on student questions

March 12, Wednesday, 6-8pm

• Please arrive on time

• BUT, you can leave early if your concerns are addressed

If interested to attend, please register by 7pm of

March 11 with your question/topic request (see

course announcement for details)

MARK4210, 2014 Spring, L1/L2

End

Next Class: March 7, Friday

Pre-reading/Case Analysis:

“The Birth of Swatch” Case