Chapter 6: Product Strategy 6-1
Chapter 6: Product Strategy
I.
The best way to view a product is as a set of features and advantages that have the
capacity to satisfy customer needs and wants, thus delivering valued benefits.
A.
One of the key decision areas related to products deals with the introduction of
new products.
1.
Strategic considerations that relate to new product success include:
a.
Overall fit with the organization’s strengths and a defined
opportunity in the environment.
b.
The competitive situation as well as market needs, growth, and size
might be analyzed and defined.
c.
The organization’s ability to develop product superiority and
technological compatibility with markets.
2.
There are at least six marketing strategy options related to the newness of
products.
a.
Innovation involves the firm in a pioneering effort.
b.
New product lines allow a firm to enter new markets with a new
group of closely related product items that are considered as a unit.
c.
Product line extensions supplement an existing product line with
new styles or models.
d.
Improvements or changes in existing products offer customers
improved performance or greater perceived value.
e.
Repositioning involves the modification of existing products so
they can be targeted at new markets or segments.
f.
Cost reductions involve modified products that offer similar
performance at a lower price.
B.
Innovation and new product lines are the most effective and profitable when the
firm wants to differentiate itself significantly from competitors.
C.
Building a differential advantage is perhaps the most critical for long-term
success and survival.
1.
Determine what unique benefit the firm offers to customers.
2.
A differential advantage can be either real or based exclusively on image.
D.
The criteria for a good marketing strategy will vary across companies, markets,
and products and over time.
E.
In the process of selecting a marketing strategy, it is important for the marketing
manager to do an occasional “reality check” to understand better what can and
cannot be achieved.
II.
Life cycle considerations of the product, brand, or market are made at the Strategic
Business Unit (SBU) level. [Exhibit 6.1] [Exhibit 6.2]
A.
Development Stage
1.
A firm has no sales revenue during the product development stage.
a.
The firm experiences a net cash outflow due to the expenses of
product invention and development.
Chapter 6: Product Strategy 6-2
1)
B.
For most innovations, a substantial investment of financial
resources and time, as well as risk assumption, are
necessary for invention and development.
2)
Such investments are no guarantee of success, and in fact
many products fail.
b.
The development stage usually begins with a product concept,
which has several components:
1)
An understanding of the specific uses and benefits that
target customers seek in a new product.
2)
A description of the product, including its potential uses
and benefits.
3)
The potential for creating a complete product line that can
produce synergy in sales and income and place the firm in a
strong market position.
4)
An analysis of the feasibility of the product concept,
including such issues as anticipated sales, required return
on investment, time of market introduction, and length of
time to repay investment.
c.
Although marketing activities do not typically occur in the
development stage, planning efforts at this point can greatly
influence marketing activities in later stages of the life cycle.
d.
In creating a new product or product line, a group of closely
related product items is desired because of the scale of economies
that are created, along with increased efficiency in operations and
marketing.
Introduction Stage
1.
The introduction stage begins when development is complete and ends
when sales indicate that target customers are widely accepting the product.
a.
The marketing strategy devised during the development stage
should be fully implemented during the introduction stage, and
should relate to issues that arose during the SWOT analysis.
b.
Marketing strategy goals that are common to the introduction stage
include:
1)
Attracting customers by raising awareness of and interest in
the product through advertising, public relations, and
publicity efforts that stress key product features and
benefits.
2)
Inducing customers to try and buy the product through the
use of various sales, tools, and pricing activities.
3)
Strengthening or expand channel relationships to gain
sufficient product distribution to make the product
accessible to target customers.
4)
Building on the availability and visibility of the product
through trade promotion activities.
Chapter 6: Product Strategy 6-3
5)
C.
Engaging in customer education activities that teach target
market members how to use the new product and
convenience them to repurchase the product.
2.
Good promotion and distribution are essential to make customers aware
that the new product is available and to inform them on how to use it and
where to purchase it.
3.
After a product is introduced, the marketing manager must employ the
firm’s marketing information system to determine market share, revenues,
store placement/channel support, costs, and rate of product usage to assess
whether the new product is paying back the firm’s investment.
Growth Stage
1.
Sustained sales increases may begin quickly during the growth stage, and
the product’s upward sales curve may be steep.
a.
Regardless of the length of the growth stage, the firm has two main
priorities:
1)
Establish a strong market position and defend it from
competitors.
2)
Achieve financial objectives that repay investment and earn
enough to justify a long-term commitment to the product.
b.
Within these two priorities, there are a number of pertinent
marketing strategy issues:
1)
Utilize the product's perceivable differential advantages in
terms of quality, price, value, etc., to secure market
leadership.
2)
Establish a clear product/brand identity through imageoriented advertising and personal selling campaigns.
3)
Create a unique product position, or niche, through the use
of advertising that stresses product features and benefits for
target customers relative to other solutions/products
available to target market members.
4)
Maximize availability of the product through extensive
trade promotion activities that capitalize on the product's
popularity at this stage and thereby enhance the firm's
ability to deliver profits to key channel members, especially
retailers.
5)
Find the ideal balance between price and demand and
determine a general estimate of price elasticity.
6)
Maintain control over product quality to assure customer
satisfaction.
c.
The overall strategy in the growth stage shifts toward generating
repeat purchases and building brand loyalty.
d.
The growth stage is the most expensive stage for marketing.
e.
Increasing competition should be expected as the product moves
through the growth stage and into the maturity stage, and the
product's sales growth and emerging profitability encourages other
firms to develop competitive product entries.
Chapter 6: Product Strategy 6-4
D.
E.
Maturity Stage
1.
The maturity stage is the longest stage in the typical product life cycle.
a.
When the relatively fast growth has tapered, there will be some
"shakeout" of the competition that built during the growth stage.
1)
Because the strategic window of opportunity has all but
closed for the product/market, no more firms will enter the
market unless they have found some product innovation
significant enough to attract large numbers of target
customers.
2)
The window of opportunity often remains open for new
product features and variations.
3)
In the face of limited or no growth within the product
market, the only way for a firm to gain market share is to
steal it from a competitor.
b.
Typically, the marketing manager has three general objectives that
can be pursued during the maturity stage:
1)
Generate Cash Flow. By the time a product reaches
maturity, it should be yielding a very positive cash flow.
2)
Hold Market Share. Marketing strategy should still stress
holding market share among the dominant brands in the
market.
3)
Increase Share of Customer. Where market share refers
to the percentage of total customers held by the firm, share
of customer refers to the percentage of each customer's
needs being met by the firm.
c.
To achieve these objectives, the marketing manager has at least
four general options for strategy selection throughout the maturity
stage:
1)
Develop a new product image.
2)
Find and attract new users to the product.
3)
Discover new applications and uses for the product.
4)
Apply new technology.
d.
Holding market share or increasing share of customer often
requires heavy expenditures in marketing, particularly in
promotion.
Decline Stage
1.
A product's sales plateau will not last forever, and eventually it begins a
persistent decline in revenue that marks the beginning of the decline stage.
a.
Very popular brands can postpone this stage longer than weaker
brands.
b.
The decline stage, and the product's life, ends when the product is
terminated.
c.
The marketing manager must choose one of two options during the
decline stage:
Chapter 6: Product Strategy 6-5
1)
d.
III.
The harvesting approach calls for a gradual reduction in
marketing expenditures, and uses a less resource-intensive
marketing mix.
2)
The divesting option calls for the total withdrawal of
marketing support from the product or SBU.
There are several factors that the marketing manager should
examine before making a decision to harvest or divest:
1) The rate of market deteriorationthe faster the rate, the sooner
the manager should divest.
2) Market segment potentialloyal customer segments might
continue to buy.
3) The market position of the producta leading product with a
good image in a declining industry may be profitable and
generate excess cash by attracting customers from competitors'
abandoned products.
4) The firm's price and cost structurethis may remain strong in
the face of declining sales if the firm no longer has to invest
significantly in maintaining the product.
Marketing Strategy for Services
A
We have focused largely on strategies for tangible goods thus far, but it is
important to remember that products can be more intangible services and ideas as
well. [Exhibit 6.3]
1.
Marketing strategies can be applied to nonprofit organizations,
government agencies, and individuals, as well as for-profit businesses.
2.
The primary difference between a good and a service is that a service is
less tangible.
B.
Product considerations
1.
Because of the intangibility of services, it is quite difficult for customers
to evaluate the product before they actually use it.
a.
This forces customers to place some degree of trust in the service
provider to perform the service correctly and in the time frame
promised or anticipated.
b.
One way companies can address this issue is by providing
satisfaction guarantees to customers.
2.
Because most services are people-based, they are susceptible to variations
in quality and inconsistency.
a.
Such variations can occur from one:
1)
Organization to another.
2)
Outlet to another within the same organization.
3)
Service to another within the same outlet.
4)
Employee to another within the same outlet.
b.
Service quality can further vary:
1)
From week to week.
2)
Day to day.
3)
Hour to hour.
Chapter 6: Product Strategy 6-6
C.
D.
E.
F.
3.
Standardization and service quality are very difficult to control.
Pricing Considerations
1.
Pricing is a key issue in the marketing mix for services because it can be
used to connote quality in advance of the purchase experience.
2.
Determining the costs of producing and delivering a service is complicated
for service providers.
3.
Some services have clearly defined pricing units – airlines (by the seat),
college courses (by the credit hour), and consulting (by the hour).
Promotion Considerations
1.
Because a service cannot be directly shown or displayed, the marketer
faces the difficult task of explaining the service to customers.
2.
Service advertising typically focuses on tangible cues that symbolize the
service.
3.
Endorsements from other customers in the target market who have had a
positive experience are often a key to successful promotion.
Distribution Considerations
1.
It is practically impossible to distribute services in the traditional sense
because customers cannot take physical possession of a service.
2.
Distribution systems must be developed to provide service in a convenient
manner and in locations where they are expected to be found.
3.
Another way to distribute a service is to separate production and
consumption by creating a tangible representation of the service.
Branding Strategy
1.
One of the key decisions that marketers must make relates to product
branding. [Exhibit 6.4]
a.
Branding is the identification a product maintains through name,
symbol, or design.
b.
Such identification seeks to differentiate one manufacturer or
marketer’s products from another.
2.
Strategic planning often focuses on branding decisions as one of the most
important decisions in developing a marketing strategy.
3.
Other concepts critical to properly developing and managing a product
strategy are:
a.
Brand loyalty is the positive attitude toward a specific brand that
draws a customer to consistently purchase the brand when the
customer needs a product in that product category.
1)
A brand name—the part of a brand that can be spoken. It
could be letters, words, and numbers.
2)
A brand mark—the element of a brand that is not words but
often a symbol or design.
3)
A trademark—the legal designation indicating that the
owner has exclusive use of the brand or a part of the brand
that others are prohibited by law from using in any form or
way.
4)
A trade name—the full and legal name of an organization.
Chapter 6: Product Strategy 6-7
b.
4.
5.
6.
Brand recognition exists when a customer knows about the brand
and is thinking about it as a possible purchase.
c.
Brand preference exists when the customer prefers one brand over
competing brands and will usually purchase that brand if available.
d.
Brand insistence exists when the customer will accept no substitute
and will go out of his or her way to obtain that brand.
e.
Brand equity refers to the value of a brand.
f.
Co-branding is the use of two or more brands on one product or set
of products.
g.
Brand licensing is a licensing agreement which a company permits
an organization to use its brand on other products.
Building and protecting successful brands is a very challenging process.
See Exhibit 6.5 for the world’s most valuable brands.
a.
Brand names are often copied illegally in order to boost sales.
[Exhibit 6.6]
b.
Legal systems provides many laws to protect brands, but enforcing
this protection relies on the company to find and police abuses.
In many ways, product strategy is the most important element of the
marketing mix.
It matters little if pricing, promotion, and distribution exceed customer
requirements and expectations if the product does not match the needs and
wants of the target market.
Questions for Discussion
1.
Of the six marketing strategy options related to new products, which are the most
effective in differentiating a firm’s products from the competition? Which would be the
easiest (costing the company the least amount of time and effort) to implement? If you
were defending a strategy for the long term success and survival of a product, what would
be the key criteria for success?
2.
Describe the different product decisions that impact each phase of the product life cycle?
If you were still losing money with a product in the decline stage, why might you
consider retaining that product?
3.
Think of some examples of companies that have successfully used image advertising to
position their products?
4.
What are some of the risks associated with repositioning the competition? Give
examples of companies that have successfully and unsuccessfully used this strategy.
Marketing Strategy, 2e by Ferrell, Hartline, and Lucas. 2002.