Product Strategy and Demand Measurement

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Presentation Outline

• Different levels of a product

• Characteristics of products and services

• Types of consumer and industrial goods

• Product mix concept

• Product mix pricing

• Brand Development Strategy

• Ingredient Branding

• Demand measurement

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Products and Services

• Products and services are offered to the market to satisfy a consumer need or want.

• Products are tangible in nature whereas services are intangible in nature.

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The different levels of a product

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The different levels of a product

• Core benefit level: is the core customer value and the core customer need that is being provided/fulfilled by a product or service.

• Basic product level: are the basic different attributes of a product which delivers the core benefit to the customers.

• Expected product level: are the different attributes and performance marks a consumer expects from a product or service.

• Augmented product level: are the additional customer services and benefits that a company provides to its customers.

• Potential product level: are all the possible augmentations and transformations the product or offering might undergo in the future.

• Discussion: do you think expected product level increases as competition increases?

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Durable and non durable products

• Durable product are tangible goods that normally survive many uses: refrigerators, machine tools, clothing. Durable products require more personal selling, command a higher margin, and require more seller guarantees.

• Non durable products are tangible goods normally consumed in one or few uses, such as soft drinks and soap. Because these goods are purchased frequently, the appropriate strategy is to make them available in many locations, charge only a small markup, and advertise heavily to induce trial and preference.

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Characteristics of Services

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Consumer Goods Classifications

• Convenience goods are products that are purchased frequently, immediately, and with minimal purchasing effort and comparison shopping.

• The company pursues mass promotion and widespread distribution. Furthermore, the price of the product is less.

• Example: toothpaste, newspaper, chewing gum, fast food shops.

• Habitual or variety seeking buying behavior occurs incase of purchasing convenience goods.

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Consumer Goods Classifications

• Shopping goods are products that are not purchased frequently. Furthermore, consumer compares carefully on suitability, quality, price, and style.

• The company pursues selective distribution in fewer outlets, where there is more promotional effort by the company. Furthermore, the price of the product or service is more than convenience product.

• Example: furniture, clothing, hotel and airline services. • Dissonance reducing or complex buying behavior

occurs incase of purchasing shopping goods.

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Consumer Goods Classifications

• Specialty goods are products with unique characteristics and brand identity. These specialty goods have few reasonable substitutes so consumers put forth a special effort to purchase them.

• The company pursues exclusive distribution with carefully targeted promotional effort. Furthermore, the price of the product or service is very high.

• Example: Rolex watches, Lamborghini automobiles, Tiffany Jewelry.

• Complex buying behavior occurs incase of purchasing specialty goods.

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Consumer Goods Classifications

• Unsought goods are products consumers aren’t aware of or haven’t thought of buying until they need them.

• Aggressive promotional effort by the producer to create brand awareness.

• Example: funeral services, car towing services.

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Industrial Goods Classifications

• Materials and parts include raw materials (coconut, cotton, fruits, vegetables, crude petroleum) and manufactured materials (cement, tires) usually sold directly to industrial users.

• Capital items are long lasting industrial products that aid in the buyer’s production or operations. Example: factories, offices, generators, large computer systems, elevators.

• Supplies: include operating supplies (paper, pencils, markers, printer ink) which are needed to conduct the operations of the business.

• Business Services: include services that a company takes from other organizations to achieve its goals. Example: advertising firms, legal firms, consultancy firms.

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Concepts of Product Mix• Product line is a group of products under the same product category

that are closely related because they perform a similar function, are marketed through the same channel or fall within a given price range.

• Product mix consists of all the products (product lines) and items that a particular seller offers for sale.

• Product Mix width refers to how many different product lines the company carries.

• Product mix length refers to total number of items in the mix.• Product mix depth refers to how many variants are offered of each

product in the line. • Product mix consistency refers to how closely related the various

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

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Concepts of Product Mix

• Discussion: if you want to increase the revenues and profits of the business of Unilever – what strategy can you pursue?

• Add new product lines, thus widening the product mix.

• It can lengthen each product line• It can add more product variants to each

product and deepen its product mix.

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Concepts of Product Line

• Line stretching occurs when a company lengthens its product line beyond its current range, whether down market, up market, or both.

• A company can add products that are higher priced than the existing line (up market stretch). example: Lexus/Acura/crowne plaza/priority banking/Icon.

• A company can add products that are lower priced than the existing line (down market stretch). Example: Mercedes C-class cars/Genstar/Luvs/Kodak Funtime.

• A company can add products in both directions (two way stretch). For example: Titan was serving the middle price middle quality market. Gradually it added watches in the premium segment such a Titan Edge, Nebula, and Xylux, where it competes with European brands. In the Economy segment titan introduced Sonata. This is how Titan dominated the category.

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Product Mix Pricing Strategies

A presentation by Varqa Shamsi Bahar

• Product Line Pricing:• Involves setting price steps between various

products in a product line based on the cost of making the product.

• A men’s clothing store might carry men’s shirts at three price levels: 500 TK, 1000TK, 1500TK and above.

• The seller’s task is to establish perceived quality differences that justify the price differences.

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Product Mix Pricing Strategies

A presentation by Varqa Shamsi Bahar

• Optional-Product Pricing:– Pricing optional or accessory

products sold with the main product. E.g. sound system of car, Inexpensive hotels.

• Captive-Product Pricing– Pricing products that must be

used with the main product. i.e. film for cameras, Blades for Razor. (fixed fee, variable usage rate).

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Product Mix Pricing Strategies

A presentation by Varqa Shamsi Bahar

• By-Product Pricing:– Pricing low-value

by-products to get rid of them and make the main product’s price more competitive.

– E.g. Food wastes– Salt from

desalination.

• Product-Bundling Pricing:– Combining several

products and offering the bundle at a reduced price.

– Burger + fries + pepsi.

– 3 day trip to Malaysia @ TK 30,000

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Brand Development Strategies

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Brand Development Strategies

• Line extensions– Minor changes to existing products flavors, forms, package sizes,

colors, ingredients. E.g. Bata: sandals, regular shoes, sport shoes, premium shoes.

• Brand extensions– Successful brand names help introduce new products Dove

deodorant, body wash, bar soap, shampoo. Kool shaving cream, shaving foam, bodyspray, deotalc, after shave gel. Maggi noodles, ketchup, soup

• Multi-brands– Multiple brand entries in a product category Close up, Pepsodent.

OR Wheel, Rin, Surf Excel. • New brands

– New brand for a new product category

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Co-branding and Ingredient Branding

• In co-branding two or more well known brands are combined into a joint product or marketed together in some fashion.

• Co-branding reduces the cost of product introduction because it combines two or more well known brand images and speeds adoption.

• Unsatisfactory product performance may have negative impact on the all the brands involved.

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Co-branding and Ingredient Branding

• 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.

• Ingredient brands are a signal of quality. For example: Diet Coke Sweetened with Splenda.

• Ingredient brands can even become a necessity for the category. For example: Visa ingredient brand.

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Co-branding and Ingredient Branding

• Discussion: • Suggest an ingredient brand for:• A chocolate drink• A biscuit• The camera of a phone• A saree

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Packaging and Labeling

• Packaging helps in:– Facilitate product transportation and protection.– Aid product consumption (Example: Heinz) – Assist at home storage (example Heinz) – Identify the brand (example: Pringles)

• Labeling helps in:– Convey information about the brand.– Identify the brand.

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Forecasting and Demand Measurement

• A company must measure the size, growth, and profit potential of each current SBU and any new opportunities that a company wants to tap into.

• A sales forecast prepared by the marketing department will help:– The procurement department to purchase the right amount of raw

materials and packaging materials. – The production department to establish production capacity to deliver the

required output. – The HRM department to hire the right number of workers. – Finance department to raise the right amount of money needed for

operations.

• Sales forecasts should be conducted for monthly, yearly, and even 5 yearly.

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Different ways to break down a market• A potential market is the set of consumers with a sufficient level of interest in a

market offer. However, their interest is not enough to define a market unless they have sufficient income or access to the product.

• The available market is the set of consumers who have an interest, income, and access to the product.

• The target market is the set of consumers amongst the available market that a company wants to pursue.

• The penetrated market (from a company’s perspective) is the set of consumers who are buying the company’s products or services.

• The penetrated market (from the category perspective) is the set of consumers who are using the company’s and its competitor’s products.

• The non-penetrated market from the category perspective is the potential market. • The non penetrated market from the company’s perspective are the set of

consumers from the available market who are not buying the company’s products.

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Different ways to break down a market

• If a company wants to increase its current sales then it can:– Try to attract more consumers from the target market through

advertising and promotions so that they become part of the penetrated market (from a company’s perspective).

– It can convert potential market into available market by increasing distribution or my lowering down prices.

– It can launch different brands/sub-brands to tap into all the available market (Example GP).

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