Chapter 6 Product and Brand Strategy Key Terms Tangible Product, Extended Product, Generic Product, Marketing Myopia, Product, Product Classification, Vertical Market, Horizontal Market, Quality, Value, Product Mix, Product Line, Width, Depth, Brand, Line Extension, Franchisee Extension, Dual Branding, Multibranding, Brand Equity, Packaging, Product Life Cycle, Fashions, Fads, Innovators, Early Adopters, Late Majority, Laggards, Product Audit, Attributes, Market Dimensions, Benchmarking, Organization of Product Management, CrossFunctional Teams McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Elements of Product Strategy McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Three Perspectives of a Product Tangible product – Physical entity or service offered Extended product – Tangible product along with whole cluster of services that accompany it Generic product – Essential benefits the buyer expects to receive from the product Marketing myopia – Executives who view their company’s product too narrowly by overemphasizing the physical object itself McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Definition and Classification Product – The sum of the physical, psychological, physiological, and sociological satisfactions the buyer derives from purchase, ownership and consumption Two basic criteria for product classification End use or market Degree of processing or physical transformation McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Categories of Product Classification Agricultural products and raw materials – Grown or extracted from the land or the sea Fairly homogeneous Sold in large volume, and low value per unit Organizational goods – Purchased by firms for the purpose of producing other goods Raw materials and semi-finished goods Major and minor equipment Parts needed to complete other finished goods Supplies or items used to operate the business McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Categories of Product Classification Consumer goods Convenience goods – Purchased frequently with minimum effort Include items such as food and impulse goods Shopping goods – Purchased after some time and energy are spent on comparing alternative Includes items such as appliances Specialty goods – Are unique in some way so the consumer will make some effort to obtain them McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Organizational Market Characteristics A primary purchasing motive for organizational goods is profit Organizational markets are concentrated geographically as in the case of steel, auto or shoes Can be categorized into Vertical market – Limited number of buyers It is narrow and deep Horizontal market – Goods are purchased by all types of firms in many different industries McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Quality and Value Quality – Defined as the degree of excellence or superiority that an organization’s product possesses Total-quality management (TQM) ISO 9000 quality systems of standards Value – Defines as what the customer gets in exchange for what the customer gives Customers perception of value based on Degree the product meets expected specifications Price McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Mix Full set of products offered for sale by an organization May consist of several product lines, or groups of products sharing common characteristics, distribution channels, customers, or uses Product mix described by Width – Number of product lines handled by organization Depth – Average number of products in each line McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Line Product line planning revolves around the question of how many product variants should be included Varying products offered for three reasons Potential customers rarely agree on a single set of specifications Customers prefer variety Dynamics of competition lead to multiproduct lines McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Branding A brand identifies one seller’s good or service as distinct from competitors Name, term, design, symbol, or any other feature Trademark – Legal term for brand Factors that increase strength of brand include Product quality Consistent advertising and marketing communication Distribution intensity Brand personality McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Branding Line extension – Brand name used to facilitate entry into a new market segment Brand extension – Current brand name used to enter a completely different product class Franchisee extension – Corporate name attached to a product to enter a new market or a new product class Dual branding – Integration of two or more branded products Multibranding – Different brand names assigned to each product Private-label brands – Retail firms producing or marketing their products McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Multi-Branding Strategy Advantages Firm can distance products from other offerings it markets Image of one product is not associated with other products the company markets Products can be targeted at specific market segments If the product fails, the effect on other products is minimized Disadvantages No consumer brand awareness due to different names Significant money spent on familiarizing new brands McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Elements of Brand Equity McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Packaging Differentiates relatively homogeneous products Contributes to creating new attributes of value in a brand Creates urgent salability within a target market McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Life Cycle Introduction – High costs, low or no profit Growth – Increased profits, positively correlated with sales Maturity – Profits do not keep pace with sales due to high competition Decline – Seller must decide whether to Drop the product Alter the product Seek new uses for the product Seek new markets Continue with more of the same McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Life Cycle McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Life Cycle – Limitations Accuracy pertaining to the longevity of the product in different stages of the cycle can’t be predicted Misjudging when a stage is ending and implementing an inappropriate strategy Variations in life cycle exists Fashion – These are accepted and popular product styles Fads – Products which experience high but brief popularity McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Marketing Strategy Implications of the Product Life Cycle McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Adoption And Diffusion Adopter categories Innovators Early adopters Early majority Late majority Laggards Diffusion – Spread of the product through the population is known as the diffusion of innovation McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Adopter Categories McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Audit A marketing management technique whereby the company’s current product offerings are reviewed to ascertain whether each product should be continued as is, improved, modified, or deleted McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Deletions Deletion decisions are difficult because of the potential impact on customers and the firm Considerations in the deletion decision include Sales trends – Have sales moved over time? What has happened to market share? Profit contribution – What has been the profit contribution of the product to the company? Product life cycle – Has the product reached a level of maturity? Customer migration patterns – If the product is deleted, will customers switch to another product marketed by our firm? McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Improvement Another important objective of the audit is to ascertain whether to alter the product in some way or leave things the way they are Attributes – Refer mainly to product features, design, package and so forth Marketing dimensions – Refer to features like pricing, promotion strategy and distribution channels McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Product Improvement Benchmarking – Continuous process of measuring products, services, and practices against those of the toughest competitors or companies renowned as leaders Advantages Boosting product quality Developing more user-friendly products Improving customer order processing activities Shortening delivery lead times McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Advantages of Rejuvenating a Product McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Organizing for Product Management Market management system – One person is responsible for overseeing an entire product line with all of the functional areas of marketing such as research, advertising, sales promotion, sales, and product planning Brand management system – A manager focuses on a single product or a very small group of new and existing products McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Cross Functional Teams Use of cross functional teams has become an important way to manage the development of new products Venture team – A cross-functional team responsible for all tasks involved in development of new product McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Some Requirements for the Effective Use of CrossFunctional Teams in Product Management and New Product Development McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved