CHAPTER 7 Product Strategy O. C. Ferrell Michael D. Hartline Product Strategy Defines what the organization does and why it exists Involves creating a product offering that is a bundle of physical (tangible), service (intangible), and symbolic (perceptual) attributes designed to satisfy customers’ needs and wants Due to commoditization, the core product typically becomes incapable of differentiating the product offering. A product offering’s real value comes from its ability to deliver benefits that solve customers’ problems. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Consumer Products (Exhibit 7.1) Convenience Products Shopping Products Specialty Products Unsought Products Consumers may be unaware of these products. Consumers may not consider purchasing these products until a sudden need or emergency arises. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Business Products (Exhibit 7.1) Raw Materials Component Process Parts Materials Maintenance, Repair, and Accessory Operating Products Equipment Installations Business Services © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Product Portfolio Product A group of closely related product items Product Line Mix or Portfolio The total group of products offered by the firm Strategic Decisions Variety – number of product lines offered Assortment – depth of each product line © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. P&G’s Portfolio of House and Home Products (Exhibit 7.2) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Potential Benefits of Offering a Large Product Portfolio Economies Package of Scale Uniformity Standardization Sales and Distribution Efficiency Equivalent Quality Beliefs © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Discussion Question Consider the number of products available in the U.S. consumer market. In virtually every product category, consumers have many options to fulfill their needs. Are all of these options really necessary? Is having this many choices a good thing for consumers? Why or why not? Is it a good thing for marketers and retailers that have to support and carry all of these product choices? Why or why not? © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Challenges of Service Products Balancing Time supply (capacity) with demand and place dependency of demand Difficulty purchase of evaluating service quality prior to Inconsistency of service quality Difficulty in tying offerings to customer needs (i.e., the need is not always apparent to customers) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Unique Characteristics of Services (Exhibit 7.3) Intangibility Simultaneous Production and Consumption Perishability Heterogeneity Client-Based Relationships © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Discussion Question Given the unique characteristics of services, what potential ethical issues could arise in service marketing and delivery? How can a service marketer prevent ethical challenges and convey a sense of trust to customers? © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. New Product Development A vital part of a firm’s effort to sustain growth and profits Depends on the firm’s ability to create a differential advantage for the new product Customer perception of newness is critical © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Strategic Options for Newness of a Product New-to-the-World Products (Discontinuous Innovations) New Product Lines Product Line Extensions Improvements or Revisions of Existing Products Repositioning Cost Reductions © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. New Product Development Process Idea Generation Screening and Evaluation Development Test Marketing Commercialization © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Branding Strategy Involves selecting the right combination of name, symbol, term, or design that identifies a product Brands have two parts Brand name – words, letters, and numbers that can be spoken Brand mark – symbols, figures, or a design Critical to product identification and the key factor in differentiating a product from its competition Makes it easier for customers to find and buy products Firms must protect brand names and brand marks from trademark infringement by other firms © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Good Brands Answer Questions for Customers Where can I find information quickly? Where can I get a quick meal and make my kids happy? Where can I buy everything I need, all at decent prices? Where can I get the best deal on car insurance? How do I find a value-priced hotel in midtown Manhattan? © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Potential Brand Attributes (Exhibit 7.4) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Strategic Issues in Branding Strategy Manufacturer Private-label brands are more profitable for the retailer Manufacturer brands have built-in demand Brand Brand recognition Brand preference Brand insistence Brand Equity The value of a brand associated with its marketplace position Brand Loyalty Positive attitude toward a brand that results in a consistent preference for that brand. Three levels: vs. Private-Label Brands Alliances Strategies that involve close relationships with other firms (e.g., co-branding, brand licensing) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Advantages of Branding (Exhibit 7.5) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The World’s Twenty-Five Most Valuable Brands (Exhibit 7.6) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Discussion Question Consider the notion that a truly effective brand is one that succinctly captures the product offering in a way that answers a question in the customer’s mind. Now, consider these brands (or choose your own): Coca-Cola, Disney, Marlboro, American Express, and Ford. What questions do these brands answer? Why are these effective brands? © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Packaging and Labeling Goes hand-in-hand with branding in developing a product, its benefits, its differentiation, and its image Includes issues such as color, shape, size, convenience Often used to reposition the product or give it new and improved features Vital to helping customers make proper product selections Can have important environmental and legal consequences © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Differentiation and Positioning Product Differentiation Creating differences in the firm’s offerings that set them apart from competing offerings Positioning Creating a mental image of the product offering and its differentiating features Perceptual Mapping A visual, spatial display of customer perceptions that allows monitoring of product positioning relative to other products © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Hypothetical Perceptual Map of the Automotive Market (Exhibit 7.7) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Differentiation Strategies Branding Other important bases for differentiation Product Descriptors (see Exhibit 7.8) Product features – factual descriptors of the product and its characteristics Advantages – performance characteristics of how the product behaves Benefits – positive outcomes or need satisfaction Customer Support Services is the most important tool of differentiation. May be the best way to overcome commoditization Image © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Using Product Descriptors in Differentiation (Exhibit 7.8) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Positioning Strategies Strengthen the Current Position Constantly monitor customer perceptions, needs, and wants Raise the bar of customer expectations Repositioning Often requires a fundamental change in one or more marketing program elements Reposition the Competition Attempt to put a competitor’s strengths in a less favorable light Force the competitor to change its positioning strategy © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Product Life Cycle: Managing Products and Brands Over Time The product life cycle is a useful tool for addressing product strategy over time. Limitations of the product life cycle Most new products never get past development Most successful products never die Life cycles really refer to industries, not products or brands The length of each stage depends on the actions of other firms The product life cycle forces managers to consider the future of their industry and their brand. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Stages of the Product Life Cycle (Exhibit 7.9) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Strategy During the Product Life Cycle (Exhibit 7.10) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Product Life Cycle: Development Stage No sales revenue during this stage Components of the product concept An understanding of desired uses and benefits A description of the product The potential for creating a complete product line An analysis of the feasibility of the product concept Customer needs should be discerned before developing marketing strategy Test marketing is conducted in this stage. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Product Life Cycle: Introduction Stage Begins when development is complete and ends when customers widely accept the product Marketing strategy goals during this stage Attract customers by raising awareness and interest Induce customers to try and buy Engage in customer education activities Strengthen or expand channel and supply chain relationships Build on availability and visibility through trade promotion Set pricing objectives © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Product Life Cycle: Growth Stage Be ready for sustained sales increases and the rapid increase in profitability early in the growth stage Length depends on nature of product and competitive reactions Two main priorities during growth Establish a strong, defensible marketing position Achieve financial objectives that repay investment Marketing strategy shifts from customer acquisition to customer retention and building brand loyalty. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Marketing Strategy Goals During the Growth Stage Leverage the product’s perceived differential advantages Establish a clear product and brand identity Create unique positioning Maintain control over product quality Maximize availability of the product Maintain or enhance the product’s profitability to partners Find the ideal balance between price and demand Keep an eye focused on the competition © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Product Life Cycle: Maturity Stage Typically, no more firms will enter the market Still an opportunity for new product features and variations Typically the longest stage in the product life cycle © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Goals and Strategies During the Maturity Stage Four Generate cash flow Hold market share Steal market share Increase share of customer Four general goals during the maturity stage strategic options to achieve these goals Develop a new product image Find and attract new users to the product Discover new applications for the product Apply new technology to the product © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Product Life Cycle: Decline Stage Two options during the decline stage Attempt to postpone the decline Accept the inevitability of decline Harvesting Divesting Factors to be considered during this stage Market segment potential The market position of the product The firm’s price and cost structure The rate of market deterioration © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
