STRATEGIC MARKETING PROBLEMS BY KERIN AND PETERSON (12th ED.)
LECTURE NOTES
Prof. Dr. Teoman Duman
Students: Amra Nušinović, Kerim Hadžiabdić, Semir Omerhodžić
Chapter 5. Product and Service Strategy and Brand Management
Importance of the Offering- the ultimate profitability of an organization depends on its product or service offering(s) and the
strength of its brand(s).
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Three basic offering-related decisions facing the marketing manager concern:
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modifying the offering mix
positioning offerings
branding offerings
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THE OFFERING PORTFOLIO
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The Offering Concept
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Offering consists of the benefits or satisfaction provided to target markets by an organization.
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It consists of a tangible product or service plus related services, brand name, warranties or guarantees, packaging, and the like.
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The Offering mix
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The totality of an organization’s offerings is known as its product or service offering mix or portfolio.
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Offering mix usually consists of distinct offering lines (product line width)
Each lines consists of individual offers or items (product line depth).
Bundling- enhancing the offering mix by providing two or more product or service items as a “package deal”.
Examples: McDonald’s “value meal”, Travelocity’s vacation packages, IBM hardware, software, and maintenance contracts.
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MODIFYING THE OFFERING MIX
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The first offering-related decision confronting the manager is wheter to modify the
Offering mix.
Marketing manager must continually monitor target markets and offerings to determine when new offerings should be introduced
and existing offerings modified or eliminated.
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Additions to the Offering Mix
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Addition of the offering mix may take the form of a single offering or of entire lines of offerings.
Whatever the reason for considering new offerings, three questions should direct the evaluation of this action:
1. How consistent is the new offering with existing offerings?
2. Does the organization have the resources to introduce and sustain the offering?
3.Is there a viable market for the offering?
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Consistency
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Demand interrelationships- offering supstitutes or complements- must be considered when evaluating the consistency of new
offerings with existing offerings.
Consistency also involves considering the degree to which the new offering fits the organization’s existing selling and distribution
strategies.
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Resources
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Organizational resources also require consideration when adding new offerings.
The financial strength of the organization must be objectively appraised.
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Market
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It must be determined wheter a market exists for the new offering.
Two questions are important:
1. Does the new offering have a relative advantage over competitive offerings at a price buyers are willing and able to pay?
2. Is there a distinct buyer group or segment for which no present offering is satisfactory?
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New Offering Development Process
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Marketing managers are often faced with new-offering decisions.
This procedure typically includes six multifaceted stages: (1) idea generation, (2) idea screening, (3) business analysis, (4)
development, (5) market testing and, (6) commercialization.
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The Process
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Idea Generation and Screening:
Does the offering have a relative advantage?
Is the offering compatible with buyers’ use or consumption behavior?
Is the offering simple enough for buyers to understand and use?
Can the offering be tested on a limited basis prior to actual purchase?
Are there immediate benefits from the offering, once it is used or consumed?
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Business Analysis and Market Testing
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Sales Forecasts and profit analysis are two fundamental aspects of the business analysis stage.
Profitability Analysis ( related to investment requirements, brack-even procedures, and payback periods.)
Payback period (refers to the number of units that must be sold to cover fixed and variable costs.)
ROI ( equals the ratio of average annual net earnings divided by average annual investment, discounted to the present time.)
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Test marketing
- provides several benefits to manager:
1. Generate benchmark data for assessing sales volume
2. Relative effectiviness of alternative marketing programs can be examined
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Incidence of offering trial by potential buyers, repeat-purchasing behavior, and quantities purchased.
Results in a competitive response
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Line- cycle concept
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A life cycle plots sales of an offering or a product class over a period of time.
There are four main stages:
1. Introduction
2.Growth
3.Maturity (saturation)
4.Decline
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The sales curve can be viewed as being the result of offering trial and repeat purchasing behavior.
Sales volume= ( number of triers x average purchase amount x price) + ( number of repeaters x average purchase amount x price)
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Modifying, harvesting, and eliminating offerings
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Modification decisions typically focus on trading up or trading down the offering.
Trading up ( improving the product and increasing the price)
Trading down ( reducing the number of features or quality and reducing the price)
Harvesting (involves reducing the investment in a business entity in the hope of cutting costs and/or improving cash flow)
Harvesting should be considered when :
1. The market for the offering is stable
2.The offering is not producing good profits
3.Market share is becoming difficult to maintain
4.The offering provides other benefits to the organization.
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Elimination- ( is appropriate when the answer to the following questions is “very little” or “none” :
1.What is the future sales potential of the offering?
2.How much is the offering contributing to the overall profitability of the offering mix?
3.How much is the offering contributing to the sales of other offering in the mix?
4.How much could be gained by modifying the offering?
5.What would be the effect on channel members and buyers?
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POSITIONING OFFERINGS
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Positioning ( the act of designing on organization’s offering and image so that it occupies a distinct and valued place in the target
costumer’s mind relative to competitive offerings.
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Positioning Approaches
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Positioning strategies:
- By attribute or benfit
- By price and quality
- By use or application
- By user
- By product or service class
- Against competition
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Crafting Positioning Statement
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- A positioning statement generally takes the following form:
For (target market and need), the (product, service, brand name) is a (product/service class or category) that (statement of unique
attributes or benefits provided).
Repositioning
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Repositioning is necessary when the initial positioning of a product, service, brand, or organization is no longer competitively
sustainable or profitable or when better positioning opportunities arise.
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Making the Positioning Decision
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The challenge facing a manager is deciding which positioning is most appropriate in a given situation.
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Once answered, attention can then be focused on a series of implementation questions:
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What position do we want own?
What competitors must be outperformed if we are to establish the position?
Do we have the marketing resources to occupy and hold the position?
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BRAND EQUITY AND BRAND MANAGEMENT
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Brand name- any word, “device” (design, sound, shape, or color) or combination of these used to identify an offering and set it
apart from competing offerings.
Brand Equity- the added value a brand name bestows on a product or service beyond the functional benefits provided.
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Creating and Valuing Brand Equity
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Develop positive brand awareness and name-product association (Gatorade, Kleenex)
Establish a brand’s meaning in the minds of consumers (Nike)
Elicit the proper consumer responses to a brand’s identity and meaning (Michelin)
Create a consumer-brand resonance (Harley-Davidson, Apple, eBay)
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Valuing Brand Equity
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Brand equity also provides a financial benefit for the brand owner.
Successful established brand names, such as Gillete, Nike, and Gucci, have an economic value because they represent intangible
assets.
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Branding Strategy
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Three most common strategies are:
1.Multiproduct branding
2.Multibranding
3.Private branding
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Multiproduct branding
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Sometimes is called family branding or corporate branding when the company’s trade name is used.
With multibranding strategy, a company uses one name for all its products in a product class.
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Global brand (is a brand marketed under the same name in multiple countries with similar and centrally coordinated marketing
programs.
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Risk of multiproduct branding ( to many uses for one brand name can dilute the meaning of a brand for consumer.)
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Multibranding
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giving each product or product line a distinct name.
Multibranding is useful strategy when each brand is intended for a different market segment or uniquely positioned in the
marketplace.
Compared with the multiproduct branding strategy, promotional costs tend to be higher with multibranding.
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Private branding
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also called private labeling.
Private branding involves a manufacturer supplying a reseller (retailer, whosaler, distributor) with a product bearing a brand name
chosen by the reseller.
This strategy should be approached from the perspective of both the supplier and the seller.
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Brand Growth Strategies
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An organization has four options for growing its brands.
Line Extension Strategy
Brand Extension Strategy
New Brand Strategy
Flanker/ Fighting Brand Strategy
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Line Extension Strategy
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The most frequently employed growth strategy
Line Extensions occur when an organization introduces additional offerings with the same brand in a product class that it currently
serves.
Examples: new floers, forms, colours, different ingredients or features, and package sizes
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Brand Extension Strategy
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Strong brand equity makes possible a brand extension strategy, the practive of using a current name to enter a completely different
product class.
A varation on brand extensions is co-branding, the pairing of two brand names of two manufactures on a single product.
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New Brand Strategy
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New brand strategy is appropriate in situations in which an organization concludes that its existing brand name cannot be
extended to a new product class.
It involves the development of a new brand and often a new offering for a product class that has not been previously served by the
organization.
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Flanker/Fighting Brand Strategy
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A flanker brand strategy involves adding new brands on the high or low end of a product line based on a price-quality continuum.
A fighting brand strategy involves adding a new brand whose sole purpose is to confront competitive brands in a product class
being served by an organization.
A fighting brand strategy is tipically introduced when: (1) an organization has a high relative share of the sales in a product class,
(2) its dominant brand(s) is susceptible to having this high share sliced away by aggressive pricing or promotion by competitors,
or (3) the organization wishes to preserve its profit margins on its existing bran(s).
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