CHAPTER 12: PRODUCT
STRATEGY
Delivering More Value
PRODUCT DEFINITION: IT’S PROBABLY MORE
THAN YOU THINK
Car Wash ~ Cooking Lesson ~ Computer ~ Soap ~ Car
Product – anything a company offers to satisfy
customer needs and wants.
Brand ~ Image ~ Packaging ~ Reputation ~ Guarantee
SERVICES: A PRODUCT BY ANY OTHER NAME
Most services embody these
qualities:
Intangibility
Inseparability
Variability
Perishability
GOODS V. SERVICES: A MIXED BAG
PRODUCT LAYERS:
PEELING THE ONION
PRODUCT CLASSIFICATION: IT’S A BIRD, IT’S A
PLANE….
Consumer Products
• Convenience Products
• Shopping Products
• Specialty Products
• Unsought Products
PRODUCT CLASSIFICATION: IT’S A BIRD, IT’S A
PLANE:
• Installations
Business
Products
• Accessory Equipment
• Maintenance, Repair, and
Operating Products
• Raw Materials
• Component Parts & Processed
Materials
• Business Services
PRODUCT DIFFERENTIATION AND
PLANNING

A Meaningful Difference:
 Product
Quality
 Features
 Product
& Benefits
Lines & Product Mixes
 Branding
 Packaging
PRODUCT QUALITY
Quality Level – how well a product
performs its core functions.
Product Consistency – how
reliably a product delivers it
promised level of quality.
QUALITY INDICATORS
Internet Search Engine: Fast, relevant, far-reaching results
Stylish Blue Jeans: High-profile designer, high price,
celebrity customers
TV Editing Equipment: Reliability, flexibility, and customer
services
Roller Coasters: Thrill factor, design and setting
Chain Saws: Effectiveness, safety, and
reliability
FEATURES AND BENEFITS
Product Features – specific
characteristics of a product.
Customer Benefit – the
advantage that a customer gains
from specific product features.
PRODUCT FEATURES AND BENEFITS
Subway Sandwiches
Lower fat
Looser pants
Contact Lenses
Different colors
A new-looking you
High-definition TV
46-inch screen
The party’s at your house
Hybrid Car
Lower gas mileage
More cash for other needs
Triple Latte
Caffeine, caffeine…
More time to, uh, study
PRODUCT LINE AND PRODUCT MIX
Product Line – products
that are closely
related, either in terms
of how they work, or the
customers they serve.
Product Mix – the total
number of product
lines by a single firm.
Cannibalization –
a producer offers
a new product
that takes sales
away from its
existing product.
BRANDING
Brand - a product’s
identity that sets it
apart from other
players in the same
category.
Brand Equity – the extra
money that consumers
will spend to buy that brand.
Brand Name – a catchy,
memorable name is
a powerful part
of strong brand.
LINE EXTENSIONS AND BRAND EXTENSIONS
Line
Extensions
Brand
Extensions
Similar
products offered
under the same
brand name
A product in a
new category
under an existing
brand name
GOOD AND BAD BRAND EXTENSIONS
GOOD




Snoop Dog Pet
Accessories
Tide To Go stain removal
pen
BAD



Budweiser Barbeque
Sauce

Starbucks Coffee Liqueur
w/ Jim Beam

Cheetos Lip Balm
Smackers Starburst Bath
and Body Collection
Hooters Air
Harley Davidson Cake
Making Kit
Maxim Hair Color For
Men
COBRANDING
Cobranding - established brands from
different companies join forces to
market the same product.
Examples:
• Ford markets the Eddie Bauer Explorer
• Frito-Lay markets KC Masterpiece BBQ chips
• Betty Crocker markets brownies with Hershey’s syrup
NATIONAL BRANDS VS. STORE
BRANDS
National Brands/
Manufacturer Brands –
Brands owned and marketed by
the producer.
Store Brands/
Private Label Brands –
brands produced and marketed
by the retailer.
BECOME CEO OF ME, INC.
Create a meaningful brand for yourself

Become CEO of Me, Inc.
 What
makes you different from others?
 Better than your competition?

Once you define your brand
 Be
sure to deliver
 Pump up your visibility
A BRAND NEW YOU




Millions recognize Donald Trump’s trademark
blond hair
Trump stands for autocratic power and selfindulgent luxury
There is a 25% premium for any property that
carries his name
He told BusinessWeek that he is “a bigger brand
now than Pepsi Cola or Coca-Cola.”
PACKAGING

Protect the Product

Provide Information

Facilitate Storage

Suggest Product Uses

Promote the Brand

Attract Buyer Attention
PRODUCT LIABILITY AN ISSUE?

Toilet brush: “Do not use for personal hygiene.”

Scooter: “This product moves when used.”



Thermometer: “Once used rectally, the thermometer
should not be used orally.”
Electric blender: “Never remove food or other items
from the blades while the product is operating.”
Bag of packing air: “Do not use this product as a toy,
pillow, or flotation device.”
NEW PRODUCT DEVELOPMENT
Nuts, Bolts,
And A Spark
Of Brilliance
NEW PRODUCT DEVELOPMENT PROCESS
PRODUCT ADOPTION CATEGORIES

How willing are consumers
to buy/try new products?
First Adopters – 2.5%
 Adventurous
 Risk


Takers
Laggards – 16%
Everybody else falls in
between
PRODUCT DIFFUSION RATES
Observability
How visible is the product
to other potential consumers?
Trialability
How easily can potential
consumers sample the new product?
Complexity
Can potential consumers easily understand
what your product is and how it works?
Compatibility
How consistent is your product
with the existing way of doing things?
Relative Advantage
How much better are the benefits of your
new product compared to existing products?
THE PRODUCT LIFE CYCLE: RESULTS
OVER TIME
PRODUCT LIFE CYCLE AND MARKETING
STRATEGIES
Phase
Examples
Sales/Profits
Marketing Strategies
Introduction
Plasma TV, fuel cell
technology
Low sales, low
profits
Build awareness, trial, and distribution
Growth
Hybrid cars, video cell
phones,
Increasing sales
and profits
Reinforce brand positioning, often through
heavy advertising
Maturity
Airlines, DVD players
Flat sales and
declining profits
Target competitors, new product features,
competitive advertising, promotion, and
price cuts
Decline
Pagers, videocassettes
Declining sales
and profits
Reduce spending and consider terminating
the product
FOUNDATION BUSINESS
SIMULATION
Objectives






Demonstrate effectiveness of multi-discipline teams
working together.
Use strategic thinking to an advantage.
Develop your business expertise.
Understand overall interaction and impact of various
parts of a business on one another.
Grow an awareness of competition.
Take away practical know-how to improve the
effectiveness of your business.
SENSOR
INDUSTRY
OVERVIEW
The Marketplace
• Customers (OEMs) need
sensors for their products
Large
• Initially one segment, now
breaking into two
Size
• Very different customer
demands between the two
segments
Low Tech
High Tech
• Diversification in the use and
utility of the sensors
Small
Slow
Performance
Fast
The Marketplace
In our industry we track the
changing customer demand on a
perceptual map
Low
Tech
High
Tech
Over 8 years the customers will
demand much faster and smaller
sensors
Market Segments will continue to
diverge
Each Segment has an Ideal Spot
Large
Perceptual Map
Low
Tech
Size
High
Tech
Spot Where
Customer
Demand Is
Highest
Small
Slow
Performance
Fast
Low Tech Customers
“I want these sensors to be cheap”
“I want them to have been around for a
while – no Beta Testing!”
“They have to be moderately reliable.”
“The technology doesn’t have to be
cutting edge.”
You’re
not giving
me what I
want
High Tech Customers
“These sensors have to be small, like
micro, and fast”
“I need them to be right out of R&D, I’m
talking ZERO years on the market”
“I’ll pay more to get what I want.”
“I like a pretty high reliability, but it’s
not that important.”
And I’m not
getting what I
want!
SENSOR INDUSTRY ANALYST PROJECT
ONGOING GROWTH
Sees the next 5 years as consistent growth. Both market
segments increase at a nice “clip,” according to market
analyst.
“I see the entire
market growing at
around 14% or 15%
per year. The High
Tech market will be
growing at a
whopping 20%.”
8000
7000
6000
5000
4000
3000
2000
1000
I hope those
companies out there
are ready for that kind
of expansion!”
0
Year 1
Year 2
Year 3
Low Tech
Year 4
High Tech
Year 5
COMPANY
OVERVIEW
The Competition
ANDREWS
BALDWIN
6 Companies
$40 Million in Sales
DIGBY
ERIE
1 Product Line
CHESTER
Closed Marketplace
FERRIS
SHAKE UP IN SENSOR INDUSTRY
Company Fires Management Team
After poor results, lackluster sales and angry customer reports,
the Chairman of the Board of Directors has announced the
immediate termination of the Management Team.
“This is a black day for our company,” said Chairman Patrick
Nuss, “We need to hire a dynamic leadership group who will
be able to take this company into the future!”
“Due to this immediate need I have hired the “Dream Team” to
start on January 1st. I expect to see great things from this
Executive Team!
WELCOME TO
YOUR NEW
COMPANY!
Functional Areas
R&D
Production
Finance
Marketing
Research & Development




Establish the specification of the
products to meet customer
demand
Build the quality and reliability
(MTBF) into the products
Ensure the perceived age of the
product meets customer
demands
“Our product
straddles both
market segments.
Create new products to meet
the changing marketplace
It isn’t a great
low tech product,
or a great high
tech one.”
Marketing


“Our product
isn’t priced optimally
for either market.
And many of our
customers don’t
even know our
product exists.”

Set the price of our products in the
marketplace
Build customer awareness through promotion
Establish a sales force and distribution
channels

Set the sales forecast for our products

Set Credit Policies AR/AP
Production

“We are paying
too much for
labor costs.
Very soon we
will run out
of capacity to
meet demand.”
Purchase machinery to automate our
facilities

Buy or sell capacity of product lines

Schedule production for each line


Manage the majority of the companies
fixed assets
Establish workforce compliment
Finance

Acquire capital to fund capital
expansions
 Issue Stock
 Short Term Debt
 Issue Long Term Bonds

Issue dividend to our shareholders

Balance our debt portfolio

Manage our Proforma
“We have poor
cash flow and
substandard
financial ratios.
We have no
financial policy
statement.”
Proformas
A great management tool driven by forecasts
and projections.
Allows “What if” Scenarios by the company.




Balance Sheet
Profit & Loss
Cash Flow
Financial Ratios
Scoring the Simulation
1.
2.
3.
Analyst Report
Round Analysis
Success Measures


Select a minimum of three criteria
to be measured by:
 ROE
 ROS
 ROA
 CUM Profit
 Stock Price
 Market Capitalization
 Asset Turnover
 Market Share
Weight each selection.
Running Your Company

To Do List
Establish business strategy for your company
 Analyze Foundation FastTrack to see industry results
 Make tactical decisions across each functional area
(aligned to strategy!)
 Upload official results and confirm on the website
 Await results
 Rejoice in your superior capitalistic acumen
 Begin the process again by confirming alignment of your
results with your company’s strategic goal

Good Luck and Enjoy!