DEVELOPING PRODUCT
STRATEGIES
Overview of Marketing Management
Components of the Marketing Plan
Source: Hult et.al, Marketing 16e, South-Western, Cengage Learning 2012
© 2012 South-Western, a part of Cengage Learning
PRODUCT STRATEGIES
• Product
-
Components of product
Types of products : consumer products, business products
Continuum of product-service
Product mix, product line
Product Life cycle
Packaging
• Branding
• Service
• New product
The Augmented Product Concept
Product Design Decisions for
Competitive Advantage
• Product: Anything that satisfies a want or
need through use, consumption, or
acquisition
• What is important is how the consumer
perceives the product as satisfying a need, not
how the seller sees the product
Product Design Decisions for
Competitive Advantage
• The seller must turn the wanted benefits into
a tangible product with features and other
elements of the augmented product that will
provide the intended satisfaction better than
competitive products
– Features: Tangible or intangible attributes given
the product by its designers
– Benefits: Solutions to customer problems or
needs delivered by the product
SIGNIFICANCE OF DESIGN FOR A
COMPANY'S PRODUCTS AND SERVICES
• To differentiate and position a company's products and
services.
• Design = the totality of features that affect how a product
looks, feels, and functions to a consumer.
• Design offers functional and aesthetic benefits and appeals
to both consumer’s rational and emotional sides.
• How much to invest in form, feature development,
performance, conformance, durability, reliability,
reparability, and style?
• To the company, a well-designed product = easy to
manufacture and distribute.
• To the customer, a well-designed product = pleasant to
look at and easy to open, install, use, repair, and dispose of.
HOW PHYSICAL PRODUCTS CAN BE
DIFFERENTIATED?
Products can be differentiated according to :
• Form
• Features
• Customization
• performance quality
• conformance quality
• Durability
• Reliability
• Reparability
• Style.
SERVICE DIFFERENTIATORS
•
Ordering ease = how easy it is for the customer to place an order with the
company
•
Delivery = speed, accuracy, and care throughout the process.
•
Installation= Ease of installation is a true selling point for buyers of complex
products like heavy equipment and for technology novices.
•
customer training = helps the customer's employees use the vendor's equipment
properly and efficiently.
•
Customer consulting = data, information systems, and advice services the seller
offers to buyers.
•
Maintenance and repair = help customers keep purchased products in good
working order.
Marketing Strategy Implications of Consumer
Goods Classification
CONCEPTS OF PRODUCT-MIX WIDTH,
LENGTH, DEPTH, AND CONSISTENCY.
• The width = how many different product lines the
company carries.
• The length = the total number of items in the mix.
• The depth = how many variants are offered of
each product in the line and is determined by
dividing the total number of items by the number
of lines.
• The consistency = how closely related the various
product lines are in end use, production
requirements, distribution channels, or some
other way.
Managing Product Lines for Customer
Appeal and Profit Performance
• Whether a product line is too short or too
long depends on:
– The extent to which the market can be segmented
– How the company wants to position itself
– The stage of product-market evolution
Managing Product Lines for Customer
Appeal and Profit Performance
– Longer product lines generally come about
through a series of line extensions , in which
additional products are developed to serve
more narrowly targeted, or even different,
market segments
• The criteria for identifying weak products
focus largely on the trend of the product’s
contribution to profit
LINE STRETCHING
Occurs when a company lengthens its product line
beyond its current range.
• down-market stretch (introduce a lower-priced line),
• up-market stretch (introduce an upscale line),
• two-way stretch (introduce both an upscale line and a
down-scale line). E.G. Add two new shoes to the
company's middle-of-the-road pricing and product-line
strategies. The first pair will retail for $40.00 and has as
its target market the “bargain” shopper. The second
pair will retail for $200.00 and is targeted at the
“sophisticated shopper.”
PRODUCT-MIX PRICING
(1) product-line pricing—low-, medium-, and high-priced products
within the same line. E.G different priced ties;
(2) optional-feature pricing—charging for “extra” features. E.G. leather
seats in a car;
(3) captive-product pricing—when the “user” has no choice but to use
the high-priced “disposable” products that make the entire product
work (E.G. ink cartridges for printers);
(4) two-part pricing—consisting of a fixed fee and a variable usage fee
(E.G. cell phone usage);
(5) by-product pricing—the price of the by-products of goods being
used for other purposes (E.G.oil refining for example);
(6) product-bundling pricing—pure bundling when the firm offers its
products only as a bundle, or mixed bundling when the firm offers its
products as a “bundle” and/or individually.
PRODUCT BUNDLING STRATEGY
• Do not promote individual products in a
package as frequently and cheaply as the
bundle.
• Limit promotions to a single item in the mix if
you still want to promote individual products.
• If you decide to offer large rebates on
individual products, it must be the absolute
exception and done with discretion.
BRANDING
Branding Decisions
– Branding: Identifies and helps differentiate the goods or
services of one seller from those of another
– Simplifies shopping
– Facilitates the processing of information
concerned with purchase options
– Provides confidence that the consumer has made
the right decision
– Helps to ensure quality
– Satisfies certain status needs
Branding Decisions
• Through its branding efforts, a company
improves its brand equity position, which
consists of four major asset categories
– Brand name awareness
– Brand loyalty
– Perceived quality
– Brand association
Branding Decisions
• Branding strategies
– Individual branding: Requires the company to
provide each product or product line with a
distinctive name
– Family branding: Uses the same brand name to
cover a group of products or product lines
– Brand extension: Involves the use of a family
brand name established in one product class as a
vehicle to enter another product class
Branding Decisions
• Cobranding - Uses multiple brand names with
a single product or service offering
• Global branding
• Corporate identity and family branding as a
source of synergy
• Retailer and distributor brands
BRAND-POSITIONING MAP
= a perceptual map showing the current
positions of various existing brands competing
with each other.
INGREDIENT BRANDING
• The consumer must perceive that the ingredient
matters to the performance and success of the
product.
• Consumers must be convinced that not all ingredient
brands are the same and that the ingredient is
superior.
• A distinctive symbol or logo must clearly signal to
consumers that the host product contains the
ingredient.
• A coordinated “pull” and “push” program must help
consumers understand the importance and advantages
of the branded ingredient.
PACKAGING
Packaging Decisions
– Functions of a product’s package:
– Protecting the product
– Facilitating use of the product
– Promoting the product
– Providing information about the product and its
use
– Increasingly firms are recognizing the need to use
environmentally sensitive packages
OBJECTIVES OF PACKAGING
• to identify the brand;
• convey descriptive and persuasive
information;
• facilitate product transportation and
protection;
• assist at-home storage;
• aid product consumption
PACKAGING AS A MARKETING TOOL
• Self-service—an increasing number of products are
being sold without any personal interaction, on a selfservice basis.
• Consumer affluence—rising consumer affluence means
consumers are willing to pay a little more for
convenience, appearance, dependability, and prestige
of 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.
LABEL
•
•
•
•
•
identifies the product;
grade the product;
describe the product;
promote the product.
may contain information required by law.
Four Service Characteristics
STRATEGIES TO MATCH SERVICE
DEMAND AND SUPPLY
On the demand side:
a. Differential pricing: This will shift some demand from peak
to off-peak periods. E.G.low matinee movie prices and
weekend discounts for car rentals.
b. Nonpeak demand: This can be cultivated. E.G. McDonald's
pushes its breakfast service, and hotels promote mini-vacation
weekends.
c. Complementary services: These can provide alternatives to
waiting customers. E.G. cocktail lounges in restaurants and
automated teller machines in banks.
d. Reservation systems: These are one of the many ways to
manage the demand level. E.G.airlines, hotels, and physicians
employ them extensively.
STRATEGIES TO MATCH SERVICE
DEMAND AND SUPPLY
• On the supply side:
• a. Part-time employees: They can serve peak demand. E.G. colleges
add part-time teachers when enrollment goes up and stores hire
extra clerks during holiday periods.
• b. Peak-time efficiency: These routines can allow employees to
perform only essential tasks during peak periods. E.G. paramedics
assist physicians during busy periods.
• c. Increased consumer participation: This frees service providers'
time. E.G. consumers can fill out their own medical records or bag
their own groceries.
• d. Shared services: These can improve offerings. E.G. several
hospitals can share medical-equipment purchases.
• e. Facilities for future expansion: This can be a good investment.
E.G. an amusement park can buy surrounding land for later
development.
FACTORS INFLUENCING SERVICE
OUTCOME AND CUSTOMER LOYALTY
a. Pricing: High price, price increases, unfair pricing, or deceptive pricing
b. Inconvenience: If a customer is made to wait for his appointment or
service, c. Core service failure: Service failures, billing errors, or service
catastrophe.
d. Service encounter failures: If the customer service representative is
uncaring, impolite, unresponsive, or unknowledgeable
e. Response to service failure: If the customer service representative exhibits
negative response or reluctant response or no response at all
f. Competition: A customer's loyalty changes if he finds a better service.
g. Ethical problems: If a customer thinks that the service provider is a cheat
or his services are unsafe
h. Involuntary switching: If the customer has to shift his base or the service
provider has to close down, the customer's loyalty undergo an involuntary
shifting.
FIVE GAPS THAT CAUSE
UNSUCCESSFUL CUSTOMER SERVICE
DELIVERY
a. The gap between consumer expectation and management perception:
The management does not always correctly perceive what customers want.
b. The gap between management perception and service-quality
specification: The management might correctly perceive customers' wants
but not set a performance standard.
c. The gap between service-quality specifications and service delivery: The
employees might be poorly trained, or incapable of or unwilling to meet the
standard, or they may be held to conflicting standards, such as taking time to
listen to customers and serving them fast.
d. The gap between service delivery and external communications: The
consumers' expectations are affected by statements made by company
representatives and ads.
e. The gap between perceived service and expected service: This gap occurs
when the consumer misperceives the service quality.
DETERMINANTS OF SERVICE QUALITY
• Reliability = the ability to perform the promised
service dependably and accurately.
• Responsiveness = the willingness to help customers
and to provide prompt service.
• Assurance = the knowledge and courtesy of employees
and their ability to convey trust and confidence.
• Empathy = the provision of caring, individualized
attention to customers.
• Tangibles = the appearance of physical facilities,
equipment, personnel, and communication materials.
Services Decisions and Warranties
• The service component of a product can include a
variety of activities
• The following are among the more common:
–
–
–
–
–
–
–
Delivery reliability
Warranty
Repair and maintenance
Efficient handling of complaints and returns
Credit availability
Prompt inquiries handling
Buyer personnel training
Services Decisions and Warranties
– Prompt claim settlement
– Fast price quotations
– Fast order processing
• Warranties can play important roles in
reducing the customer’s risk of purchase and
enhancing quality perceptions, thereby
enhancing sales
The Importance of New Products
to Long-Term Profitability
• Number of ways to classify products
– New to the world
– New to the firm
– Product-line extensions
– Product improvements
• Only a small percentage of products are new
to the world
– The vast majority are either product-line
extensions or product improvements
NEW PRODUCT
• New-to-the-world products = products that
create an entirely new market. The product has
the greatest cost and risk of all product types.
• Incremental innovation = entering new markets
by tweaking products for new customers, using
variations on a core product to stay one step
ahead of the market, and creating interim
solutions for industry-wide problems.
CREATIVE MARKETING FOR BUSINESS
SUCCESS?
THE CONSUMER-ADOPTION PROCESS
= the mental steps through which an individual passes from
first hearing about an innovation to final adoption.
The steps are:
(1) Awareness: The consumer becomes aware of the
innovation but lacks information about it.
(2) Interest: The consumer is stimulated to seek information
about the innovation.
(3) Evaluation: The consumer considers whether to try the
innovation.
(4)Trial: The consumer tries the innovation to improve his or
her estimate of its value.
(5)Adoption: The consumer decides to make full and regular
use of the innovation.
PROCESS OF NEW PRODUCT
DEVELOPMENT
(1) Idea screening
(2) Concept testing
(3) Product development
(4) Test market
(5) Business analysis = to study a proposal’s business attractiveness.
Management prepares sales, cost, and profit projections to determine
whether they satisfy company objectives.
(6) Launching & commercialization
REASONS FOR THE FAILURE OF NEW
PRODUCTS
(1) Shortage of important ideas in certain areas
(2) fragmented markets
(3) social, economic, and governmental constraints
(4) high cost of development
(5) capital shortages
(6) shorter required development time
(7) poor launch timing, shorter product life cycles
(8) organizational support.
ORGANIZATIONAL ASPECT OF NEWPRODUCT DEVELOPMENT
• responsibility to product managers.
• employ new-product managers who report to category
managers.
• have growth leaders, a full-time job for its most creative
and successful managers.
• have a high-level management committee charged with
reviewing and approving proposals.
• establish a new-product department headed by a manager
with substantial authority and access to top management
whose responsibilities include generating and screening
new ideas, working with the R&D department, and carrying
out field testing and commercialization.
STAGE-GATE SYSTEM
•
•
•
•
•
•
•
divide the innovation process into stages, with a gate or checkpoint at the end of
each.
The project leader, working with a cross-functional team, must bring a set of
known deliverables to each gate before the project can pass to the next stage.
To move from the business plan stage into product development requires a
convincing market research study of consumer needs and interest, a competitive
analysis, and a technical appraisal.
Senior managers review the criteria at each gate to make one of four decisions: go,
kill, hold, or recycle.
Stage-gate systems make the innovation process visible to all and clarify the
project leaders and team's responsibilities at each stage.
Many firms have parallel sets of projects working through the process, each at a
different stage.
Some firms use a spiral development process that recognizes the value of
returning to an earlier stage to make improvements before moving forward.
Stage-Gate New Product Development
System
TECHNIQUES FOR STIMULATING
CREATIVITY TO GENERATE BETTER IDEAS
(1) Attribute listing: List the attributes of an object, such as a screwdriver. Then modify each
attribute, such as replacing the wooden handle with plastic, providing torque power, adding
different screw heads, and so on.
(2) Forced relationships: List several ideas and consider each in relationship to each of the others.
(3) Morphological analysis: Start with a problem, such as “getting something from one place to
another via a powered vehicle.” Now think of dimensions, such as the type of platform (cart,
chair, sling, bed), the medium (air, water, oil, rails), and the power source (compressed air, electric
motor, magnetic fields). By listing every possible combination, you can generate many new
solutions.
(4) Reverse assumption analysis: List all the normal assumptions about an entity and then reverse
them. Instead of assuming that a restaurant has menus, charges for food, and serves food,
reverse each assumption.
(5) New contexts: Take familiar processes, such as people-helping services, and put them into a
new context.
(6) Mind mapping: Start with a thought, such as a car, write it on a piece of paper, then think of
the next thought that comes up (say Mercedes), link it to car, then think of the next association
(Germany), and do this with all associations that come up with each new word. Perhaps a whole
new idea will materialize.
New Product Scoring Model
CONCEPT TESTING
= presenting the product concept to target consumers,
physically or symbolically, and getting their reactions.
• Concept testing of prototypes can help avoid costly
mistakes, but it may be especially challenging with
radically different, new-to-the-world products.
• Rapid prototyping can be used to design products on a
computer and then produce rough models to show
potential consumers for their reactions.
• Companies are also using virtual reality to test product
concepts. Virtual reality programs use computers and
sensory devices (such as gloves or goggles) to simulate
reality.
SALES-WAVE RESEARCH
= A method of consumer-goods market testing.
• Consumers who initially try the product at no cost are re-offered
the product, or a competitor’s product, at slightly reduced prices.
• Sales-wave research can be implemented quickly, conducted with a
fair amount of security, and carried out without final packaging and
advertising.
• The offer may be made as many as five times (sales waves), while
the company notes how many customers select it again and their
reported level of satisfaction.
• However, because customers are preselected, it does not indicate
trial rates the product would achieve with different sales incentives,
nor does it indicate the brand's power to gain distribution and
favorable shelf position.
SIMULATED TEST MARKETING
• Thirty to forty qualified shoppers are asked
about brand familiarity and preferences in a
specific product category and attend a brief
screening of both well-known and new TV
commercials and print ads.
• One ad advertises the new product but is not
singled out for attention. Consumers receive a
small amount of money and are invited into a
store where they may buy any items.
TIMING OF MARKET ENTRY
(1) First entry: The first firm entering a market usually enjoys
the “first mover advantages” of locking up key distributors and
customers and gaining leadership. But if rushed to market
before it has been thoroughly debugged, the first entry can
backfire.
(2) Parallel entry: The firm might time its entry to coincide
with the competitor's entry. The market may pay more
attention when two companies are advertising the new
product.
(3) Late entry: The firm might delay its launch until after the
competitor has borne the cost of educating the market, and
its product may reveal flaws the late entrant can avoid. The
late entrant can also learn the size of the market.
Generalized Product Life Cycle
Expected Characteristics and Responses by
Major Life Cycle Stages
Exhibit 10.17 - Relationship of Strategic Market Position Objective,
Investment Levels, Profits, and Cash Flow to Individual Stages in the
Product Life Cycle