Setting Product Strategy

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.

Figure:Three Levels of Product

Example: Hotel

Core benefit: rest and sleep. Actual product: bed, bathroom, towels, desk,

closet, or food. Augmented product: restaurant, gym, man’s

suit, or remembering customers’ special needs.

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.

When Do a Firm Advertise the Core Benefit?

Innovated product Chaos stage

E.g. The war of hamburger among McDonald’s, Burger King and Wendy. Wendy: Where is the beef ?

打回核心的第一家廠商，雖然會引起別人跟進，但讓人印象最深。

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

Continuum of Evaluation for Different Types of Products

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.

In one-shot relationships, may a In one-shot relationships, may a highhigh price price signal a signal a highhigh quality? quality?

Is it possible that a Is it possible that a lowlow price may signal a price may signal a highhigh quality? quality?

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

Individual Product Decisions

Product attributes Product quality – performance & conformance Product features Product style and design

Branding Packaging Labeling Product support services

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.

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 seller’s last chance to influence consumers.

Packaging – Examples

Skippy Squeez’It, Heinz’s EZ Squirt, Dutch Boy, 可口可樂曲線瓶 , and 郭元益黃金喜餅

Failure: Planters Lifesavers’s Brik-Pacs, Aunt Jemima

Labeling

Functions: identify the product or brand, describe the product, and promote the product.

Legal concerns E.g. Dr. Bronner’s Magic Soaps

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: P&G, 花王.

Product-Mix Width and Product-Line Length for Proctor & Gamble Products

PRODUCT-LINE LENGTH

Product-Mix Width

Detergents ToothpasteDisposable Bar Soap Diapers

Paper Tissue

Ivory Snow (1930)

Dreft (1933)

Tide (1946)

Cheer (1950)

Gleem (1952)

Crest (1955)

Ivory (1879)

Kirk’s (1885)

Lava (1893)

Camay (1926)

Pampers (1961)

Luvs (1976)

Charmin (1928)

Puffs (1960)

Banner (1982)

Summit (1992)

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

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

Is it a good idea to drop the 5th product in Is it a good idea to drop the 5th product in the last slide? If not, what may be the the last slide? If not, what may be the reasons?reasons?

Case: American Iron and Steel Market

Source: The Innovator’s Solution (2003)

Downmarket Stretch

Examples: Rolex’s Tudor, Benz’s 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

Upmarket Stretch

Reasons: more growth, higher margins or full-line manufacturers.

Examples: Toyata’s Lexus, Nissan’s Infiniti, and Honda’s Acura.

The examples above invented entirely new names rather than using or including their own names.

Two-way Stretch

Marriott hotels & resorts L'ORÉAL PARiS

LANCOME, SHU UEMURA, and BIOTHERM (700~4000); L’OREAL PARiS (500~1000); MAYBELLINE & GARNIER (100~400).

Toyota

Cannibalization

Consumers have two segments, H & L. Given quality q, H’s valuation is 5q, L’s

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?

Case: Pampers & Luvs

1980 年代， Pampers & Luvs 分占全美紙尿布銷售排名第一與第三。

1993 年， P&G 為因應通路自有品牌的挑戰，重新定位 Luvs 為打手品牌 (fighter brand) 。

Luvs 的改變：降價 16% 、縮減研發和產品創新、減少電視廣告和促銷支援、取消包裝上的提帶等。

P&G 集中更多管理和財物資源，投入Pampers 的行銷，而且改進它的特色。

節錄自哈佛商業評論 全球繁體中文版 (p. 49, October 2009)

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.

Sony’s walkman – solar-powered and waterproof, MiniDisc, CD, or Memory Stick.

Weber’s Law: just-noticeable difference. Risk of cannibalization

Line Modernization, Featuring and Pruning

人潮創造者 & 旗艦產品。 Line pruning

E.g. Unilever: 1600 → 970 → 400; Hyundai’s Kia: 30→20.

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.

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.

Interbrand模式的三個重點 品牌收入淨值估計（過去三年平均值） 品牌優勢

領導力（ Leadership ） 穩定度（ Stability ） 市場（ Market ） 國際化（ Internationality ） 時尚趨勢（ Trend ） 後勤支援（ Support ） 智財保護（ Protection ）

多重收益 由品牌優點得分估計各項收入淨值，加總出品牌價值

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

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: 20~40% off, store brand: 10~20% off).

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

If a store brand is not profitable, are If a store brand is not profitable, are there other reasons for the retailer to there other reasons for the retailer to develop the store brand?develop the store brand?

If you have owned a national brand in If you have owned a national brand in the market, will you produce the same the market, will you produce the same product for a retailer’s store brand?product for a retailer’s store brand?

Brand-Name Decision

Individual names ( 個別品牌 ), e.g. P&G, Toyota. Blanket family names ( 家族品牌 ), e.g. Sony,

Hitachi, and Panasonic. Separate family names for all products ( 單一家族品

牌 ), e.g. 黑松公司：碳酸飲料 → 黑松 , 果汁 → 綠洲 , 咖啡 → 韋恩 .

Corporate name combined with individual product names ( 公司名稱結合個別產品名稱 ), e.g. 統一純喫茶 , 統一茶裏王 ; Sony Bravia, Sony Walkman, Sony Vaio, Sony PlayStation.

Selecting a Brand Relationship Spectrum Position

Brand-Name Selection

Suggest something about the product’s 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

Brand-Strategy Decision

Product Category

Existent New

Brand

Existent Line Extensions

Brand Extensions

New Multibrands Diversification

Line Extensions

優點：存活率較高，利用過剩產能，滿足多樣化需求，防禦競爭者，獲得更多貨架空間。

缺點：品牌可能喪失特定意義，所增加之銷售額不足以抵補發展和促銷成本，產品線競食（ Cannibalization ）。

Branded variants ( 品牌變體策略 ): specific brand lines supplied to specific retailers or distribution channels.

Brand Extensions

優點：消費者較易認同與接受、節省廣告成本。 缺點：新產品失敗會影響對原產品的評價、品牌可能不適用於新產品（如： HCG 牙刷）、品牌稀釋（如：皮爾卡登）。

Multibrands

優點：樹立不同特色，吸引不同購買動機的顧客，較多貨架空間，保護主要品牌。

缺點：每一品牌市場佔有率小，廣告成本較大，Cannibalization 。

Example: 海倫仙度絲，潘婷，沙宣，飛柔。

Peter Lynch’s Comment on Diversification

Over-Diversification → Diworseification Examples

Mobil Oil （美孚石油） purchased Marcor Inc. (retail industry).

吉列曾收購藥廠、電子錶廠。 通用食品曾擁有中國餐館、玩具公司、旅行社、大賣廠、鞋類產品等。

The Product Life Cycle

Product development Introduction Growth Maturity Decline

Figure: Sales and Profit Life Cycles

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

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

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

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.

Modifying the Market

The WD-40 company’s knack for finding new uses has made this popular substance one of the truly essential survival items in most American homes.

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

Case: Yamaha Piano

當山葉 (Yamaha)控制 40% 的全球鋼琴市場時，總需求每年下降了 10% 。

山葉發現大多數的鋼琴都閒置，並成為家中最大沾灰塵的家具，且都未曾調音。似乎許多人擁有鋼琴，但很少彈奏。人們並不想投資時間來彈奏鋼琴。

因此，山葉決定增加市場上數百萬台鋼琴的價值，開發複雜的數位與光學科技，可在鋼琴上彈奏出專業鋼琴師的演奏。數位鋼琴的出現，活化了鋼琴產業，也增加鋼琴維修的市場。

Modifying the Product

Crayola has added a steady stream of new colors, forms, and packages.

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

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

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

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 product’s 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.