Chapter 12
Setting Product
Strategy
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Copyright © 2003 Prentice-Hall, Inc.
Key Points for Chapter 12
1.
2.
3.
4.
5.
6.
Product differentiation
Service differentiation
Line stretching & Line filling
Line modernization and pruning
Product-Mix Pricing
Fifth P
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Copyright © 2003 Prentice-Hall, Inc.
Key Points for Chapter 12
7.`Factors for the growing use of packaging as a
marketing tool
8. Objectives of packaging
9. Functions of labeling
10. Labeling laws
11. Warranties and guarantees
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Product Characteristics and
Classifications
 Product Levels: The Customer Value
Hierarchy
 Product Classifications
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Product Characteristics and
Classifications
 Product:
 Anything that can be offered to a market to
satisfy a need or a want
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Product Characteristics and
Classifications
 Products
 Physical goods
 Services
 Experiences
 Events
 Persons
 Places
 Properties
 Organizations
 Information
 Ideas
Figure 12.1: Components
of the Market Offering
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Product Levels
(Customer Value Hierarchy)
Figure 12.2: Five Product Levels
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Core benefit
Basic product
Expected product
Augmented
product
 Potential product
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Product Levels
 Core benefit
 Fundamental benefit the buyer is really buying
 Basic product
 Physical things providing a core benefit
 Expected product
 A set of attributes and conditions buyers normally
expect.
 Meets the minimum expectation
 In the less-developed countries, competition takes
place at the expected product level
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Product Levels
 Augmented product
 An expected product becomes an augmented
product, when a new feature is added.
 Exceeds customer’s normal expectations
 In developed countries, competition takes place at
the augmented product level
 Differentiation arises on the basis of product
augmentation.
 Need to look at the user’s total consumption system:
The way the user performs the tasks of getting and
using products and related services
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Product Levels
 Augmented Product (continued)
 Considerations for product-augmentation
strategy
 Each augmentation adds cost and, therefore,
price of the augmented product is raised
 Augmented benefits later become expected
benefits. Companies need to search for still other
features and benefits
 As companies raise the price of their augmented
product, some competitors offer stripped-down
version at a much lower price. Both can coexist.
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Product Levels
 Potential product
 Encompasses all the possible augmentations
and transformations the product might
undergo in the future
 Where companies search for new ways to
satisfy customers and distinguish their offers
from competitors’ offers
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Product Classifications
 Durability and Tangibility Classification
 Nondurable Goods
 Durable Goods
 Services
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Product Classifications
 Consumer-Goods Classification
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Convenience Goods
Shopping Goods
Specialty Goods
Unsought Goods
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Product Differentiation
 Form
 Features
 Most products can be offered with varying features
 Extra items that supplement the product’s basic
function
 Calculate customer value versus company cost to
determine which features are worth adding
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Measuring Customer Effectiveness Value
Company Cost
Feature
Rear-window defrosting
Cruise control
Automatic transmission
Customer Value
Customer
Value/Customer
Cost
(a)
$100
600
800
(b)
$200
600
2,400
(c=b/a)
2
1
3
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Product Differentiation
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Customization
Performance Quality
Conformance Quality
Durability
Reliability
Reparability
Style
Design
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Services Differentiation
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Ordering Ease
Delivery
Installation
Customer Training
Customer Consulting
Maintenance and Repair
Returns
12-17
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Product and Brand Relationships
 Product-Line Analysis
 Product-Line Length
 Product-Mix Pricing
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Product-Line Analysis
 Sales and Profits of Each Item.
 Fig. 12.3. Product-Item Contribution to a
Product Line’s Total Sales and Profits
 Item 1 accounts for 50% of total sales and 30%
of total profits
 Items 1 and 2 account for 80% and 60%
 A high concentration of a firm’s sale in a few
items means line vulnerability
 Must carefully monitor and protect items
which bring high sales and profits
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Product-Line Analysis
 Market Profile
 Product-line manager must review how the line is
positioned against competitors’ lines
 The product map (Fig. 12.4) is useful for designing
product-line marketing strategy and identifying
market segments
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Market Profile
Fig. 12.4: Product Map for a
Paper-Product Line
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Product-Line Length
 A product line is too short if profits can be
increased by adding items
 The line is too long if profits can be increased by
dropping items
 For high market share and market growth,
generally carry longer product lines
 For high profitability, carry shorter lines
consisting of carefully chosen items
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Product-Line Length
 A company lengthens its product lines by
 Line Stretching
 Line Filling
 Also needs to do
 Line Modernization
 Line Featuring
 Line Pruning
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Copyright © 2003 Prentice-Hall, Inc.
Line Stretching
Line stretching occurs when a company
lengthens its product line beyond its current
range
 Down-market Stretch: Introduce a lower-priced line
 Strong growth opportunities in the down-market
 Mercedes-Benz
 Wish to tie up lower-end competitors who might
otherwise try to move up-market
 The middle market is stagnating or declining
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Line Stretching
 Up-market Stretch: Enter the high end of
market
 For more growth, higher profit margins
 To position as a full-line manufacturer
 Toyota’s Lexus, Nissan’s Infiniti, Honda’s Acura
 Two-Way Stretch: Stretch in both
directions
 To tap into different benefit segments
 Holiday Inn Worldwide: Crowne Plaza, Holiday
Inn. Holiday Inn Express, Holiday Inn Select,
Holiday Inn Suites & Rooms
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Line Filling
 Adding more items within the present range to
lengthen the product line
 Purposes:
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To reach for incremental profits
To make up for missing items in the line
To utilize excess capacity
To plug holes to keep out competitors
To be a full-line company
 Line filling is overdone if it results in selfcannibalization and customer confusion
 Each item should possess a just-noticeable
difference
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Line Modernization
 Product lines need to update to reflect current
trends and themes
 Modernization is carried on continuously to
encourage customer migration to highervalued, higher-priced items
 The another issue is timing improvements so
that they do not appear
 too early damaging sales of the current line or
 too late after the competition has established a
strong reputation for more improved products
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Line Featuring
 Product-line manager typically selects one or a
few items in the line to feature
 Some managers feature a low-end item to
attract customers:
 Sears low-priced washing machine
 Some managers feature high-end item to lend
prestige to the product line
 GM’s Corvette of Chevrolet line
 When the firm finds one end of its line selling
well and the other end selling poorly, it’s better
to promote items that sell well
12-28
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Line Pruning
 Product-line manager must periodically review
the firm’s product line for pruning deadwood
that is depressing profits
 The weak items can be identified through sales
and cost analysis
 Pruning is also done when the firm is short of
production capacity
 The company also shortens its product line by
pruning in periods of tight demand
 A chemical company: From 217 to 93 products
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Product-Mix Pricing
 Product-Line Pricing
 Price points in the product line: Men’s suits at $200,
$300, $500 for low, average, and high quality
 Needs to establish perceived quality differences that
justify the price difference
 Optional-Feature Pricing
 Extra products, features or services along with the
main product
 Complementary usually for a high priced item
 Compares company cost with customer value of an
option
 Auto options, Restaurant’s drinks, Camera cases
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Product-Mix Pricing
 Captive-Product Pricing
 Some products require the use of ancillary products,
or captive products which are nondurable goods
 Low markups on main products and high markups
on captive products
 Razor blades, Camera films, phone contracts, printer ink
 High markups can create counterfeiting &
substitutions
 Two-Part Pricing
 Fixed fee plus variable usage fee.
 Low fixed fee to induce purchases and profit from
usage fees.
 Telephone, Amusement park
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Product-Mix Pricing
 By-Product Pricing
 The production of certain products often
results in by-products
 Any income earned on the by-products can
allow the company to charge a lower price
on its main product or make extra income.
 Animal’s manure for organic gardening
 Can give away or sell by-products at much
low price to induce customers to buy main
products
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Product-Mix Pricing
 Product-Bundling Pricing
 Sellers often bundle products and features at
a set price which is less than prices
purchased separately
 Pure bundling: A firm offers its product only as a
bundle
 Mixed bundling: A firm offers its product both in
bundle and individually
 Unbundling or Rebundling
 Deleting items from the bundle
 Sometime reduces price less than cost savings to
make a more profit
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Packaging, Labeling,
Warranties and Guarantees
 Packaging
 Labeling
 Warranties and Guarantees
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Packaging
 All the activities of designing and producing the
container for a product.
 Many marketers have called packaging a fifth P.
 Package: The container of a product
 Well-designed packages can create convenience
and promotion
 The package is the buyer’s first encounter with the
product and is capable of turning the buyers on or
off.
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Copyright © 2003 Prentice-Hall, Inc.
Packaging
 Factors which have contributed to the growing use of
packaging as a marketing tool
 Self-Service
 Most consumer goods are sold on a self-service basis
 An average supermarket stocks 15,000 items. A shopper passes
by some 300 items per minute. 53% of all purchases are made
on impulse. The effective package operates as a five-second
commercial
 Consumer affluence
 Consumers are willing to pay a little more for better packages
 Company and brand image
 Packages contribute to instant recognition of the company or
brand
 Innovation opportunity
 Innovative packaging can bring large benefits to consumers
and profits to producers. Resealable spouts and openings
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Packaging

The Objectives of Packaging
1. Identify the brand
2. Convey descriptive and persuasive
information
3. Facilitate product transportation and
protection
4. Assist at-home storage, and
5. Aid product consumption
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Packaging
 Procedures for an Effective Package
 Decision on aesthetic components of packaging
 Size, shape, materials, color, text, and brand mark
 In Colors; Blue: cool & serene, Red: active & lively,
Yellow: medicinal & weak, Pastel colors: feminine, Dark
colors: masculine
 Decision on functional components of packaging:
Structural design
 Packages of food products: Resealable, tamper-proof, more
convenient to use (easy-to-hold, easy-to-open, squeezable)
 Must be harmonized with pricing, advertising, and
other marketing elements
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Packaging
 Packaging Test
 Engineering Test
 To ensure that the package stands up under
normal conditions
 Visual Test
 To ensure that the script is legible and the colors
are harmonious
 Dealer Test
 To ensure that the dealers find the packages
attractive and easy to handle
 Consumer Test
 To ensure favorable consumer responses
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Packaging
 Concerns for Packaging
 Environmental and safety concerns about
packaging
 Try to reduce packaging
 Use recyclable package instead of disposable
package
 Use biodegradable materials for packages
 Go “green”
 Invent better packaging materials:
 Tetra Pak which enables milk, fruit juice to be
distributed without refrigeration
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Labeling
 Sellers must label products.
 Functions
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Identification: Identifies the product or brand
Grading: Grades the product
Description: Describes the product
Promotion: Promotes the product through attractive
graphics
 Consumerists have lobbied for:
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Open dating The expected shelf life of the product
Unit pricing: The price per unit of standard measure
Grade labeling: Rating the quality level
Percentage labeling: Showing the percentage of each
important ingredient
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Labeling
 Label Laws
 Federal Trade Commission Act of 1914
 False, misleading or deceptive labels or packages
constitute unfair competition
 Fair Packaging and Labeling Act of 1967
 Sets mandatory labeling requirements
 Nutritional Labeling and Education Act of
1980
 Requires sellers to provide detailed nutritional
information on food products
 U.S. Food and Drug Administration (FDA)
 Enforces food-related laws and regulates the use
of health-related terms such as low fat, light and
high-fiber
Copyright © 2003 Prentice-Hall, Inc.
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Warranties and Guarantees
 Warranties are formal statements of expected
product performance by the manufacturer
 Products under warranty can be returned to
the manufacturer or designated repair center
for repair, replacement, or refund
 Warranties, whether expressed or implied, are
legally enforceable.
 Most sellers offer satisfaction guarantee.
 P&G: If you are not satisfied for any reason, return
for replacement, exchange, or refund.
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Warranties and Guarantees
 Some extraordinary guarantees
 Hampton Inn: Guarantees restful night or No payment
 A. T. Cross: Guarantee pens and pencils for life
 FedEx: Next-day delivery “absolutely, positively by 10:30
A.M.”
 Oakely Millwork: No back order guarantee for construction
parts
 BBBK, a pest extermination company: No payment until all
pests are eradicated
 Hyundai Motor’s 10-year/100,000-mile warranty for
powertrain (engine, transmission, drive systems ) to the
original car buyer. Mitsubishi Motor followed the suit.
 Warranties and Guarantee reduce the buyer’s
perceived risk
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