setting product strategy

Setting Product Strategy

Chapter12

Prepared by:Manabat, Yona Mari Carmela B.

Mungcal, Raphael L.Sapnu, Clarissa T.

Potential Product

Augmented Product

Expected Product

Basic Product

Core Benefit

Product Characteristics and classifications

Product Levels: The Customer – Value Hierarchy

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The service or benefit the customer is really buying.

◦Example: The need of a customer to get from one place to another

Core benefit

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The basic product that might satisfy the inner needs of the customer.

Example: A car

Basic product

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A set of attributes and conditions buyers normally expect when they purchase this product.

Example: A car that is in working condition and has decent mileage ,etc.

Expected products

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Product that exceeds customer expectations

◦ Example: any brand (for example, a Ford) that is in fully working condition, has an attractive design, passed all safety tests, built-in alarm and air condition, etc. The car is also accompanied by other benefits such as warranty , instalments, etc.

Augmented product

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Encompasses all the possible augmentations and transformations the product is offering might undergo in the future

◦ Example: the car is much safer than the competitors’ products; it tends to break down less frequently than other cars, has the best mileage, etc.

Potential product

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Durability and tangibility◦ Nondurable goods – are tangible goods normally

consumed in one or a few uses.◦ Durable goods – are tangible goods that normally survive

many uses◦ Services- are intangible. Inseparable, variable, and

perishable products that normally require more quality control, supplier credibility, and adaptability.

Product classifications

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Nondurable goods

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Durable goods

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Services

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Consumer – Goods classification◦Convenience goods – purchased

frequently, immediately, and with minimal effort.

◦Shopping goods – are those the consumer characteristically compares on such bases as suitability, quality, price and style.

◦Specialty goods – have unique characteristics or brand identification for which enough buyers are willing to make a special purchasing effort

◦Unsought goods – are those the consumer does not know about or normally think of buying.

Product classifications

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Convenience goods

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Shopping goods

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Specialty goods

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Unsought goods

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Materials and Parts – are goods that enter the manufacturer’s product completely◦Raw materials

Farm products (wheat, cotton, fruits, livestock and vegetables)

Natural products (fish, lumber, crude petroleum, iron ore)

Industrial – Goods Classification

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◦Manufactures materials and parts Component materials (iron, yarn, cement,

wires) Component parts (small motors, tires, casting)

Capital items – are long-lasting goods that facilitate developing or managing the finished product.◦Installations (factories, offices) and

heavy equipment (generators, drills, etc)◦Equipment (personal computer, desks)

Product classifications

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Supplies and business services – are short-term goods and services that facilitate developing or managing the finished product◦ Supplies

Maintenance and repair items (paints, nails, brooms) Operating supplies (lubricants, coal, writing paper)

◦ Business services Maintenance and repair service (window cleaning,

copier repair etc.) Business advisory services (legal, management

consulting, advertising)

Product Classifications

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Product and Services Differentiation

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Form – size, shape, or physical structure of a product.

Features – most products can be offered with varying features that supplement their basic function.

Customization – marketers can differentiate products by customizing them.

Performance Quality – the level at which the product’s primary characteristics operate.

Product Differentiation

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Conformance quality – the degree to which all produced units are identical and meet promised specifications

Durability – a measure of the product’s expected operating life under natural or stressful conditions

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

Product Differentiation

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Repairability – measures the ease of fixing a product when it malfunctions or fails.

Style – describes the product’s look and feel to the buyer.

Product Differentiation

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Ordering ease - refers to how easy it is for the customer to place an order with the company

Delivery – refers to how well the product or service is brought to the customers

Installation – refers to work done to make a product operational in its planned location

Services Differentiation

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Customer training – helps the customer’s employees use the vendor’s equipment properly and efficiently

Customer consulting – includes data, information systems, and advice services the seller offers to buyers.

Maintenance and repair- programs help customers keep purchased products in good working order.

Services Differentiation

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Returns – feedbacks◦ Controllable returns – result from problems or

errors by the seller or customer and can mostly be eliminated with improved handling or storage, better packaging, etc.

◦ Uncontrollable returns – result from the need for customers to actually see, try, or experience products in person to determine suitability and can’t be eliminated by the company in the short run.

Services Differentiation

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Design

• totality of features that affect how a product looks, feels, and functions to a consumer• offers functional and aesthetic benefits and

appeals to both our rational and emotional sides

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a very data-driven approach with three phases: observation, ideation, and implementation

requires intensive ethnographic studies of consumers, creative brainstorming sessions, and collaborative teamwork to decide how to bring the idea to reality

Design thinking

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stretches from basic needs to particular items that satisfy those needs

composed of six levels

Product hierarchy

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1. Need family◦ the core need that underlies the existence of a

product family

2. Product family◦ product classes that can satisfy a core need

3. Product class or product category◦ group of products within the product family

4. Product line◦ group of products within a product class

5. Product type◦ group of items within a product line

6. Item or stock-keeping unit or product variant◦ distinct unit within a brand or product line

Levels of Product Hierarchy

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group of diverse but related items that function in a compatible manner

Product system

Product mix or product assortment• set of all products and items a particular seller offers for

sale• consists of various product lines• has four dimensions: width, length, depth, and

consistency

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1. Width◦ number of product lines the company carries

2. Length◦ total number of items in the mix

3. Depth◦ number of variants each product has

4. Consistency◦ how closely related the various product lines

are

Dimensions of Product Mix

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In offering a product line, companies normally develop a basic platform and modules that can be added to meet different customer requirements and lower production costs.

Sales and Profits Companies should recognize that items can differ in

their potential fpr being priced higher or advertised more as ways to increase their sales, their margins, or both.

Product Line Analysis

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Market Profile

◦ The product line manager must review how the line is positioned against competitors’ lines. Product map

shows which competitor’s items are competing with the other companies’ items

identifies market segments

Product line analysis provides information for two key decision areas – product line length and product mix pricing.

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Company objectives influence product line length. To induce up-selling To facilitate cross-selling To protect against economic ups and

downs

High market share and market growth: longer product linesHigh profitability: shorter product lines

Product line length

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Reasons why product lines tend to lengthen over time Excess manufacturing capacity Customer satisfaction

A company lengthens its product line in two ways: line stretching and line filling.

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Line stretching lengthens its product line beyond its

current range has three kinds

1. Down-market stretch◦ Middle-market companies introduce a lower-priced

line.

2. Up-market stretch◦ Companies enter the high end of a market or simply

position themselves as full-line manufacturers.

3. Two-way stretch◦ Middle-market companies stretch their line in both

directions.

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Line filling lengthens its product line by adding more

items within the present range

Motives for line filling1. To gain incremental profits2. To satisfy the customers3. To utilize excess capacity 4. To become the leading full-time company5. To keep out competitors

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Line modernization, featuring, and pruning

Product lines need to be modernized. The product line manager typically selects

one or a few items in the line to feature. The company may try to boost demand

for slower sellers. Product line managers must periodically

review the line for deadwood that depresses profits.

Multibrand companies all over the world try to optimize their brand portfolios.

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Product Mix- also known as product assortment- refers to the total number of product

lines that a company offers to its customers

Product Mix Pricing- searches for a set of prices that

maximizes profits on the total mix

Product Mix Pricing

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Product Line Pricing- separating goods into cost categories

in order to create various quality levels in the minds of consumers

Six Situations Calling for Product Mix Pricing

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Optional-feature Pricing- companies offer optional products,

features, and services with their main product

Six Situations Calling for Product Mix Pricing

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Captive-product Pricing- pricing items made specifically for use

with a core product, usually from the same manufacturer

- necessary to the function of the core product

Six Situations Calling for Product Mix Pricing

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Two-Part Pricing- consists of fixed charge that does not

vary with usage or consumption and an additional charge that does vary with usage or consumption.

Six Situations Calling for Product Mix Pricing

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By-product Pricing- a pricing method used in situations

where a saleable by-product results in the manufacturing process

- pricing low-value by-products to get rid of them or to earn extra margin in profit

Six Situations Calling for Product Mix Pricing

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Product-building Pricing- firm offers its products only as a bundle- mixed bundling

- offers goods both individually and in bundles, normally charging less for the bundle than if the items were purchased separately

Six Situations Calling for Product Mix Pricing

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Co-branding- dual-branding or brand bundling- marketers often combine their

products with products from other companies in various ways

Co-branding and ingredient branding

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1. Same-company co-branding-  company with more than one product

promotes their own brands together simultaneously

- company links its one brand products with the other brand

Co-branding

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2. Joint venture co-branding- defined as two or more companies

going for a strategic alliance to present a product to the target audience

Co-branding

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3. Multiple-sponsor co-branding- involves two or more

companies working together to form a strategic alliance in technology, promotions, sales, etc.

- a product has more than one sponsor

CO-branding

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4. Retail co-branding- retail establishments use the same

location to optimize space and profits

CO-branding

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

Ingredient branding

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Requirements for Successful Ingredient Branding

1. Consumers must believe the ingredient matters to the performance or success of the end product.

2. Consumers must be convinced that not all ingredient brands are the same and that the ingredient is superior.

3. A distinctive symbol or logo must clearly signal that the host product contains the ingredient.

4. There should be programs that can help consumers understand the advantages of the branded ingredient

Ingredient branding

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Packaging- includes all the activities of designing and producing the container for a product- factors contribute to growing use of packaging:a. self-service – attract attention and make

favorable overall impressionb. consumer affluence – consumers are willing

to pay a little more for the appearance, convenience, and prestige of better packaging

Packaging, labeling, warranties, and guarantees

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c. company and brand image- instant recognition of the company or

brand- creates a ‘billboard effect’

d. innovation opportunity

Packaging, labeling, warranties, and guarantees

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Objectives of packaging1. Identify the brand2. Convey descriptive and persuasive information3. Facilitate product transportation and protection4. Assists at0home storage5. Aid product consumption

packaging

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Label can be a simple attached tag or an elaborately designed graphic that is part of the package.

Functions:1. It identifies the product2. It describes the product3. It promotes the product

LABELING

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Warranties- are formal statements of expected

product performance by the manufacturer

Guarantees- reduce the buyer’s perceived risk- suggest that the product is of high

quality and the company and is services are dependable

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WARRANTIES And Guarantees