Chapter6 Setting the product and branding
strategy
Kotler on Marketing
The best way to hold customers is to constantly figure out
how to give them more for less.
Chapter Objectives
In this chapter, we focus on the following questions:
■
What are the characteristics of products?
■
How can a company build and manage its product mix
and product lines?
■
How can a company make better brand decisions?
■
How can packaging and labeling be used as marketing
tools?
What do business executives Roy Kroc (McDonald’s) and Colonel Sanders (Kentucky Fried
Chicken) have in common? They all have led or lead lives interesting enough to feature on AξE’s
award-winning television show Biography. AξE’s Biography offers excellent lessons in product
and brand management.
1. The product and the product mix
A product is anything that can be offered to a market to satisfy a want or need. Products that are
marketed include physical goods, services, experiences, events, persons, places, prosperities,
organizations, information, and ideas.
Product levels
In planning its market offering, the marketer needs to think through five levels of the product.
Each level adds more customer value, and the five constitute a customer value hierarchy. The most
fundamental level is the core benefit: the fundamental service or benefit that the customer is really
buying. A hotel guest is buying "test and sleep." The purchaser of a drill is buying "holes,"
Marketers must see themselves as benefit providers.
At the second level, the marketer has to turn the core benefit into a basic product. Thus a
hotel room includes a bed, bathroom, towels, desk, dresser, and closet.
At the third level, the marketer prepares an expected product, a set of attributes and
conditions buyers normally expect when they purchase this product. Hotel guest expect a clean
bed, fresh towels, working lamps, and a relative degree of quiet. Because most hotels can meet
this minimum expectation, the traveler normally will settle for whichever hotel is most convenient
or least expensive.
At the forth level, the marketer prepares mi augmented product that exceeds customer
expectations.
At the fifth level stands the potential product, which encompasses all the possible
augmentations and transforming the product or offering might undergo in the future. Here is where
companies search for new ways to satisfy customers and distinguish their offer. Richard Branson
of Virgin Atlantic is thinking of adding a casino and a shopping mall in the 600-passenger planes
that his company will acquire in the next few years; and consider the customization platforms new
e-commerce sites are offering, from which companies can learn by seeing what different
customers prefer.
Product hierarchy
Each product is related to certain other products. The product hierarchy stretches from basic needs
to particular items that satisfy those needs. We can identify six levels of the product hierarchy
(here for life insurance):
1. Need family: The core need that underlies the existence of a product family. Example:
security.
2. Product family: All the product classes that can satisfy a core need with reasonable
effectiveness. Example: savings and income.
3. Product class: A group of products within the product family recognized as having a certain
functional coherence Example: financial instruments.
4. Product line: A group of products within a product class that am closely related because they
perform a similar function, are sold to the same customer groups, are marketed through the same
customers, or fall within given price ranges, Example: life insurance.
5. Product type. A group of items within a product line that share one of several possible forms of
the product. Example: term life.
6. Item (also called stock keeping unit or product variant): A distinct unit within a brand or
product line distinguishable by size, price, appearance, or some other attribute, Example:
Prudential renewable term life insurance.
Product classifications
Marketers have traditionally classified products on the basis of characteristics: durability,
tangibility, mid use (consumer or industrial). Each product type has an appropriate marketing-mix
strategy.
DURABILIIY AND TANGIBILITY Products can be classified into three groups, according to
durability and tangibility:
1. Nondurable goods are tangible goods normally consumed in one or a few uses, like beer and
soap. Because these goods are consumed quickly and 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 build preference.
2. Durable goods are tangible goods that normally survive many uses: refrigerators, machine
tools, and clothing. Durable products normally require more personal selling and service,
command a higher margin, and require more seller guarantees.
3. Service are intangible, inseparable: variable, and perishable, products. As a result, they
normally require more quality control, supplier credibility, and adaptability. Examples include
haircuts and repairs.
CONSUMER-GOOOS CLASSIFICATION Tile vast array of goods consumers buy can be
classified on the basis of shopping habits. We can distinguish among convenience, shopping,
specialty, and unsought goods.
Convenience goods are those the customer usually purchases frequently, immediately, and
with a minimum of effort. Examples include tobacco products, soaps, and newspapers.
Shopping goods are goods that the customer, in the process of selection and purchase,
characteristically compares on such bases as suitability, quality, price, and style.
Examples include furniture, clothing, used cars, and major appliances.
Specialty goods have unique characteristics or brand identification for winch a sufficient
number of buyers is willing to make a special purchasing effort. Examples include cars, stereo
components, photographic equipment, and men's suits.
Unsought goods are those the consumer does not know about or does not normally think of
buying, eke smoke detectors. The classic examples of known but unsought goods are life
insurance, cemetery plots, gravestones, and encyclopedias. Unsought goods require advertising
and personal-selling support.
INDUSTRIAL-GOODS CLASSIFICATION Industrial goods can be classified in terms of
how they enter the production process and their relative costliness. We can distinguish three
groups of industrial goods: materials and parts, capital items, and supplies and business services.
Materials and parts ale goods that enter the manufacturer's product completely. They fall into two
classes: raw materials and manufactured materials and parts. Raw materials fall into two major
classes: farm products (e.g., wheat, cotton, live-stock, fruits, and vegetables) and natural products
(e.g., fish, lumber, crude petroleum, iron ore). Manufactured materials and parts fall into two
categories: component materials (iron, yarn, cement, and wires) and component parts (small
motors, tires, castings). Component materials are usually fabricated further pig icon is made into
steel, and yarn is woven into cloth.
Capital items are long-lasting goods that facilitate developing or managing the finished
product. They include two groups: installations and equipment, installations consist of buildings
(factories, offices) and equipment (generators. drill presses, mainframe computers, elevators).
Installations are major purchases.
Supplies and business services are short-lasting goods and services that facilitate developing or
managing the finished product. Supplies are of two kinds: maintenance and repair items (paint,
nails, brooms), and operating supplies (lubricants, coal, writing paper, pencils). Together, they go
under the name of MRO goods. Supplies are the equivalent of convenience goods; they are usually
purchased with minimum effort on a straight rebury basis. They am normally marketed through
intermediaries because their low unit value and the great number and geographic dispersion of
customers. Price and service are important considerations, because suppliers are standardized and
brand preference is not high.
Product mix
A product mix (also called product assortment) is the set of all products and items that a particular
seller offers for sale. Kodak's product mix consists of two strong product lines: information
products and image products. NEC's (Japan) product mix consists of communication products and
computer products. Michelin has three product lines: tires, maps, and restaurant-rating services.
A company's product mix has a certain width, length, depth, and consistency. These
concepts are illustrated in Table 14.1 for selected Procter & Gamble consumer products.
The width of a product mix refers to how many different product lines the company carries. The
length of a product mix refers to the total number of items in tile mix. The width 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 dominions 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-line decisions
A product mix consists of various product lines. In General Electric's Consumer Appliance
Division, there are product-line managers for refrigerators, stoves, and washing machines. At
Northwestern University, there are separate academic deans for the medical school, law school,
business school, engineering school, music school, speech school, journalism school, and liberal
arts school.
Product-line analysis
Product-line managers need to know the sales and profits of each item in their line in order to
determine which items to build, maintain, harvest, or divest. They also need to understand each
product line's market profile.
Product-line length
A product line is too short if profits can be increased by adding items; the fine is too long if profits
can be increased by dropping items. Product lines tend to lengthen over time. Excess
manufacturing capacity puts pres sure on the product-line manager to develop new items. The
sales force and distributors also pressure the company for a more complete product line to satisfy
customers; but as items are added, several costs rise: design and engineering costs,
inventory-carrying costs, manufacturing-changeover costs, order-processing costs, transportation
costs, and new-item promotional costs. A company lengthens its product line in two ways: by line
stretching and line filling.
LIN E SIRETCHING Every Company’s product line covers a certain part of the total possible
range. For example, BMW automobiles are located in the upper price range of the automobile
market. Line stretching occurs when a company lengthens its product line beyond its current range.
The company can stretch its line down market, up market, or both ways.
LINE FILLING 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, and trying to plug holes to keep out
competitors.
Line modernization, featuring, and pruning
Product lines need to be modernized. A company's machine tools might have a 1950s look and
1ose out to newer-styled competitors' lines. The issue is whether to overhaul the line piecemeal or
all at once. A piecemeal approach allows the company to see how customers and dealers take to
tile new style. It is also less draining on the company's cash flow, but it allows competitors to see
changes and to start redesigning their own lines.
In rapidly changing product markets, modernization is carried on continuously. Companies
plan improvements to encourage customer migration to higher-valued, higher-priced items.
Microprocessor companies such as Intel and Motorola, and soft-ware companies such as
Microsoft and Lotus, continually introduce more advanced versions of their’ products. A major
issue is timing improvements so they do not appear too early (damaging sales of the current line)
or too late (afar tire competition has established a strong reputation for more advanced
equipment).
The product-line manager typically selects one or a few items in the line to feature. Sears will
announce a special low-priced washing machine to attract customers. At other times, managers
will feature a high*end item to lend prestige to the product line. Sometimes a company finds one
end of its line selling well and the other end selling poorly. The company may try to boost demand
for the slower sellers, especially if they are produced in a factory that is idled by lack of demand.
This situation faced Honeywell when its medium-sized computers were not selling as well as its
large computers; but it could be counter argued that the company should promote items that sell
well rather than try to prop up weak items.
Product-line managers must periodically review the line for deadwood that is depressing
profits. Unilever recently cut down its portfolio of brands from 1600 to 970 and may- even prune
more, to 400 by 2005. The weak items can be identified through sales and cost analysis. A
chemical company cut down its line from 217 to the 93 products with the largest volume, the
largest contribution to profits, and the greatest long term potential. Pruning is also done when the
company is short of production capacity. Companies typically shorten their product lines in
periods of tight demand and lengthen their lines in periods of slow demand.
2. Brand decisions
What is a brand?
A brand is a complex symbol that can convey up to six levels of meaning:"
1. Attributes: A brand brings to mind certain attributes. Mercedes suggests expensive, well- built,
well-engineered, durable, high prestige automobiles.
2. Benefits: Attributes must be translated into functional and emotional benefits. The attribute
“durable” could translate into the functional benefit “I won’t have to buy another car for several
years.” The attribute "expensive” translates into the emotional benefit "The car makes me feel
importer and admired."
3. Values: The brand also says something about the producer's values. Mercedes stands for high
performance, safety, and prestige.
4. Culture: The brined may represent a certain culture. The Mercedes represents German culture:
organized, efficient, high quality.
5. Personality: The brand can project a certain personality. Mercedes may suggest a no-nonsense
boss (person), a reigning lion (animal), or an austere palace (object).
6. User: The brand suggests the kind of consumer who buys or uses the product. We would
expect to see a 55-year-old top executive behind tile wheel of a Mercedes, not a 20-year-old
secretary.
Building brand identity
Building the brand identity requires additional decisions on the brand's name, logo, colors, tagline,
and symbol. Here is what one new dot-com decided.
Building brands in the new economy
Brand-building theory developed out of the practices of consumer packaged-goods companies in
the last century. The theory called for creating a product difference, real or symbolic; spending a
huge amount oil advertising; and hoping this would lead to trial, adoption, and loyalty. Advertising
played the crucial role and its effectiveness was judged by measures of awareness, recognition,
recall, or intent to buy.
Brand equity
Brand equity is highly related to how many customers are in classes 3, 4, or 5. It is also related,
according to Aaker, to the degree of brand-name recognition, perceived brand quality, strong
mental and emotional associations, and other assets such as patents, trademarks, and channel
relationships.
Customers will pay more for a strong brand One study found that 72 percent of customers
stated they would pay a 20 percent premium for their brand of choice relative to their closest
competitive brand; 50 percent said they would pay a 25 percent premium; and 40 percent would
pay up to a 30 percent preminmd7 Coke lovers are willing to pay a 50 percent premium over the
closest competitor; Tide and Heinz users, a 100 percent premium; and Volvo users, a 40 percent
premium; and although the Lexus and the Toyota Camry share 'the same exact engine, file Lexus
brand commands $10,000 more than the Camry brand.
VALUE OF BRAND EQUITY
Clearly, brand equity is an asset. We define brand equity as the
positive differential effect that knowing the brand name has on customer response to the product
or service. Brand equity results in customers showing a preference for one product over another
when they are basically identical. The extent to which customers are willing to pay more for the
particular brand is a measure of brand equity.
MANAGING BRAND EQUITY A brand needs to be carefully managed so that its equity does not
depreciate. This requires maintaining or improving brand awareness, perceived quality and
functionality, and positive associations. These tasks require continuous R&D investment, skillful
advertising, and excellent trade and consumer service.
Branding challenges
BRANDING DECISION: TO BRAND OR NOT TO BRAND? The first decision is whether to
develop a brand name for a product, in the past, producers and intermediaries sold filets goods out
of barrels, bins, and cases, without any supplier identification. Buyers depended on file seller's
integrity. The earliest signs of branding were the medieval guilds' efforts to require craftspeople to
put trademarks on their products to protect themselves and consumers against inferior quality. In
the fine arts, too, branding began with artists signing their works.
Today, branding is such a strong force that hardly anything goes unbranded, so-called
commodities does not have to remain commodities. Salt is packaged in distinctive containers,
oranges are stamped with growers' names, nuts and bolts are packaged in cellophane with a
distributor's label, and automobile components--spark plugs, tires, filters--bear separate brand
names from file automakers. Fresh food products-such as chicken, turkey, and salmon-are
increasingly being sold under strongly advertised brand flames. Even bricks do not have to be seen
as commodities.
BRAND-SPONSOR DECISION A manufacturer has several options with respect to brand
sponsorship. The product may be launched as a manufacturer brand (sometimes called a national
brand), a distributor brand (also called reseller, store, house, or private brand), or a licensed brand
name. Another alternative is for the manufacturer to produce some output under its own name and
some under reseller labels. Kellogg, John Deere & Company, and IBM sell virtually all of their
output under their own brand names. Hart Schaffner & Marx sells some of its manufactured
clothes under licensed names such as Christian Dior, Pierre Cardin, and Johnny Carson. Whirlpool
produces both under its own name and under distributors' names (Sears Kenmore appliances).
Brand-name decision
Manufacturers and service companies who brand their products must choose which brand names
to use. Four strategies are available:
1. Individual names: A major advantage of an individual-names strategy is that the company does
not fie its reputation to the products. If the product fails or appears to have low quality, the
company's name or image is not hurt. A manufacturer of good-quality watches, such as Seiko, can
introduce a lower-quality line of watches (called Pulsar) without diluting foe Seiko name. The
strategy permits foe firm to search for each new product.
2. Blanket family names: A blanket family name also has advantages. Development cost is 1ess
because there is no need for "name" research or heavy advertising expenditures to create
brand-name recognition. Furthermore, sales of the new product are likely to be strong if the
manufacturer's name is good. Campbell soup introduces new soups under its brand name with
extreme simplicity and achieves instant recognition.
3. Separate family names for all products: Where a company produce quite different products, it
is not desirable to use one blanket family name. Companies often invent different family names
for different quality lines within the same product class.
4. Corporate name combined with individual product names: The company name legitimized,
and for the individual name individualized, the new product.
Brand-building tools
A common misconception is that brands are basically built by advertising. It is true that TV
advertising in its early days was the most effective brand-building tool. There were very few TV
stations and people watched the comedies, dramas, and ads with almost equal interest. Now,
viewers may be watching one of dozens of TV stations, and many are zapping or ignoring the
commercials. In fact, many more are simply not watching TV. They are busy on their computers or
engaged in recreational activities.
Marketers are therefore turning to other tools for attracting attention to their brands. Among
the most important are: Public relations and press releases; Clubs and consumer communities;
Factory visits; Trade shows; Event marketing; Public facilities; Social cause marketing; High
value for the money; Founder’s or a celebrity personality; Mobile.
Brand strategy decision
Brand strategy will vary with whether the brand is a functional brand, an image brand, or an
experiential brand. Consumers purchase a functional brand to satisfy a functional need such as to
shave, to clean clothes, to relieve a headache. Functional brands have the best chance to satisfy
customers it they are seen as providing superior performance (Tide) or superior economy
(Wal-Mart). Functional brands rely heavily on "product” and or "price" features. Over time, each
type of brand can be developed further. A company can introduce line extensions (existing brand
name extended to new sizes or flavors in the existing product category), brand extensions (brand
names extended to new-product categories), multi-brands (new brand names introduced in the
same product category), new brands (new brand name for a new category product), and
co-branding (combining two or more well-known brand names).
LINE EXTENSIONS Line extensions consist of introducing additional items in the same
product category under the same brand name, such as new flavors, forms, colors, added
ingredients, and package sizes. Dannon introduced several Dannon yogurt line extensions,
including fat-free "light' yogurt and dessert flavors such as "mint chocolate cream pie" and
"caramel apple crunch." The vast majority of new-product introductions consist of line extensions.
BRAND EXTENSION a company may use its existing brand name to launch new products in
other categories. Honda uses its company name to cover such different products as automobiles,
motorcycles, snow blowers, lawnmowers, marine engines, and snowmobiles. This allows Honda
to advertise that it can fit "six Hondas in a two-car garage," GAP stores now feature its name on
soap, lotion, shampoo, conditioner, shower gel, bath salts, and perfume spray. A new trend in
corporate brand building is that corporations are licensing their names to manufacturers of a wide
range of products, from bedding to shoes. See "Marketing Insight: The Rise of Licensing and
Corporate Branding" for a closer look at the new trend in corporate image branding.
MULTIBRANDS, NEW BRANDS, AND CO-BRANDS a company will often introduce
additional brands in the same product category. Sometimes the company is trying to establish
different features or appeal to different buying motives. Consider Black & Decker.
Brand asset management
Although print and broadcast advertising have played a large role in building strong brands, other
forces are now playing an Increasing role. Customers come to know a brand through a range of
contacts and touch points: personal observation and use, word of mouth, meeting company
personnel telephone experience, seeing the Web page, receiving invoices, and so on. Any of these
experiences can be positive or negative. The company must put in as much quality In managing
these experiences as it does in producing its ads.
Brand auditing and repositioning
Companies need to periodically audit their brands' strengths and weaknesses. Kevin Keller
constructed a brand report card (see "Marketing Memo: The Brand Report Card") listing 10
characteristics based on his review of the world's strongest brands.
A company will occasionally discover that it may have to reposition the brand Because of
changing customer preferences or new competitors.
Packaging and Labeling
Most physical products have to be packaged and labeled. Some packages--such as the Coke bottle
and tile L'eggs container--are world famous. Many marketers have called packaging a fifth P,
along with price, product, place, and promotion. Most marketers, however, treat packaging and
labeling as an element of product strategy.
Packaging
We define packaging as all the activities of designing and producing the container for a
product. The container is called the package, and it might include up to three levels of material.
Old Spice aftershave lotion is in a bottle (primary package) that is in a cardboard box (secondary
package) that is in a corrugated box (shipping package) containing six dozen boxes of Old Spice.
Labeling
Sellers must label products. Tile label may be a simple tag attached to the product or an
elaborately designed graphic that is part of the package. The label might carry only the brand
name or a great deal of information. Even if the seller prefers a simple label, the law may require
additional information.
Labels perform several functions. First, the label identifies the product or brand. The label
might also grade tile product; canned peaches are grade labeled A, B, and C. The label might
describe the product: who made it, where it was made, when it was made, what it contains, how it
is to be used, and how to use it safely. Finally, the label might promote the product through its
attractive graphics,
Labels eventually become outmoded and need freshening up. The label on Ivory soap has
been redone 18 times since the 1890s, with gradual changes in the size and design of the letters.
The label on Orange Crush soft drink was substantially changed when competitors' labels begin to
picture fresh traits, thereby pulling in more sales. In response, Orange Crash developed a label
with new symbols to suggest freshness and with much stronger and deeper colors.