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Chapter
6
Product
and Brand Strategy
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2
01
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e
Product
Definition
Physical entity or service that is offered to the buyer
Tangible product
Tangible product along with whole cluster of services that accompany it
Extended product
Includes the essential benefits the buyer expects to receive
Generic product
Sum of the physical, psychological, and sociological satisfactions the buyer derives from purchase, ownership, and consumption
Product
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Product Classification
Useful as an analytical device to assist in planning marketing strategy and programs
Criteria for classification
End use or market
Degree of processing or physical transformation
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Product Classification
Agricultural products and raw materials
Goods grown or extracted from the land or sea
Organizational goods
Purchased by business firms for the purpose of running the business
Raw materials and semi finished goods
Major and minor equipment
Parts which become a part of a finished good
Supplies that do not become a part of a finished good
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Product Classification
Consumer goods
Convenience goods – Purchased frequently with minimum effort
Shopping goods – Purchased after some time and energy are spent comparing various offerings
Specialty goods – Unique in some way for which consumer makes special purchase effort
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Organizational Goods
Demand is attributed as derived
Purchased directly from the original source with few middlemen
Subject to multiple-purchase influence
Market is concentrated geographically
Vertical market: Limited number of buyers
Horizontal market: Product purchased by all types of firms in different industries
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Product Quality
Quality: Degree of excellence or superiority that an organization’s product possesses
Encompasses both the tangible and intangible aspects of a firm’s products or services
Total-quality management (TQM) – Organization wide commitment to satisfying customers by improving business processes
ISO
9
000 – Standardized approach for evaluating a supplier’s quality system
7
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Product Value
What the customer gets in exchange for what the customer gives
Encompasses quality and price
Customer’s perception of value depends on:
Degree to which the product meets his or her specifications
Price that he or she will have to pay to acquire the product
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Product Mix
Full set of products offered for sale by an organization
Described by:
Width: Number of individual product lines offered by the organization
Depth: Average number of products in each product line
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Product Line
Group of products that share common characteristics, distribution channels, customers, or uses
Reasons why organizations offer varying products within a given product
Potential customers rarely agree on a single set of specifications regarding their ideal product
Customers prefer variety and dynamics of competition lead to multiproduct lines
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Product Line
To reach a decision on product line additions, organizations need to evaluate whether:
Total profits will decrease
Quality/Value associated with current products will suffer
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Branding
Brand: Name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers
Trademark – Legal term for brand
12
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Branding Strategies
Line extension: Uses a well-known brand name to enter into a new market segment
Brand extension: Uses a current brand name to enter a completely different product class
Franchisee extension: Organization’s attachment of the corporate name to a product to enter either a new market segment or a different product class
Called family branding
13
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Branding Strategies
Dual branding: Two or more branded products are integrated
Multibranding: Assigns different brand names to each product
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Multibranding Strategy
Advantages
Firm can distance products from other offerings it markets
Image of one product is not associated with other products the company markets
Products can be targeted at specific market segments
Should the products fail, the probability of failure impacting on other company products is minimized
Disadvantages
No consumer brand awareness
Significant amounts of money must be spent familiarizing customers with new brands
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Brand Equity
Set of assets or liabilities linked to the brand that add or subtract value
Value of assets depends upon results of marketplace’s relationship with the brand
Determined by the consumer on the basis of consumer’s assessment of the:
Product
Company that manufactures and markets
Variables that impact on the product
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Figure 6.1 – Elements of Brand Equity
17
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Packaging
Helps differentiate homogeneous products
Helps create new attributes of value in a brand
Can make products urgently saleable
Things to consider while making packaging decisions
Consumer
Cost
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Figure 6.2 – Product Life Cycle
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Product Life Cycle
Decisions to be taken when sales decline
Dropping or altering the product
Seeking new uses for the product or new markets
Continuing with more of the same
Limitations
Length of time a product will remain in each stage is unknown
Not all products go through the product life cycle in the same way
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Variations of the Life Cycle
Fashion: Accepted and popular products that go through a repetitive cycle of popularity, lost popularity, and regained popularity
Fads: Product that experiences an intense but often very brief period of popularity
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Product Adoption and Diffusion
Not all customers immediately purchase a product in the introductory stage of the product life cycle
Majority of sales occur after the product has been available for awhile
Diffusion of innovation – Spread of a product through the population
22
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Figure 6.3 – Adopter Categories
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Adopter Categories
First to buy a new product
Innovators
Buy the product if the experience of innovators is favorable
Early adopters
Avoid risks and make purchases carefully
Early majority
Avoid risks and are cautious and skeptical about new ideas
Late majority
Reluctant to make changes and are comfortable with traditional products
Laggards
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Product Audit
Marketing management technique whereby the company’s current product offerings are reviewed
To ascertain whether each product should be continued as is, improved, modified, or deleted
25
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Deletions
Occur when too many products are fighting for too little shelf space
Product audit helps in detecting sick products and then buries them
Factors to be considered during deletion
Sales trends
Profit contribution
Product life cycle
Customer migration patterns
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Product Improvement
Product audit helps ascertain if a product requires altering
Product altering involves changing:
Attributes – Product features, design, package, and so forth
Marketing dimensions – Pricing, promotion strategy, and channels of distribution
Product audit works as a management device for controlling product strategy
27
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Benchmarking
Process of measuring products, services, and practices against those of the toughest competitors or renowned leaders
Assists companies in:
Boosting product quality
Developing more user-friendly products
Improving customer order processing activities
Shortening delivery lead times
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Organizing for Product Management
Marketing-manager system: One person is responsible for overseeing an entire product line with all of the functional areas of marketing
Popular in organizations with line of similar products or one dominant line
Brand-manager system: Manager focuses on a single product or a very small group of new and existing products
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Organizing for Product Management
Criticism of Brand manager system
Brand managers:
Have difficulty because they do not have authority commensurate with their responsibilities
Often pay inadequate attention to new products
Are more concerned with their own brand’s profitability than with the profitability of all of the organization’s brands
30
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Organizing for Product Management
Successful new products requires the cooperation of teams
Cross-functional teams: Teams requiring membership and cooperation of all the various functional departments in the organization to create successful new products
Venture teams: Cross-functional teams responsible for all of the tasks involved in the development of a new product
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Requirements for the Effective Use of Cross-Functional Teams
Commitment of top management and provision of clear goals
Trust among members
Cross-functional cooperation
Time and training
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Chapter 7
New Product Planning and Development
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New Products
Inventions that create a whole new market
New-to-the-world products
Take the firm into a category new to it but not to the world
New category entries
Extend existing product lines to current markets
Additions to existing product lines
Current products made better
Improvements and revisions of existing products
Retarget products for a new use or application
Repositionings
Replace existing products with similar performance but lower cost
Cost reductions
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Figure 7.1 – Organizational Growth Strategies
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New Product Strategies
Market penetration
Denotes a growth direction through the increase in market share of present products in present markets
Product development
Seeks to create new products to replace existing ones
Market development
Seeks to find new customers for existing products
Diversification
Seeks to develop new products and cultivate new customers
4
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New Product Strategies
Policy-making criteria on new products should specify:
Working definition of profit concept acceptable to top management
Minimum level or floor of profits
Availability and cost of capital
Specified time period in which the new product must recoup its operating costs and begin contributing to profits
5
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Figure 7.2 – The New Product Development Process
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Idea Generation
All new product ideas considered by the organization should have the opportunity to be heard and evaluated
Ideas are the raw materials for product development
Top-management support is critical to providing an atmosphere that stimulates new product activity
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Idea Generation
Technology push and market pull research activities play an important role
To foster cooperation between design engineers and marketers, firms use:
Out-rotation
Outsider involvement
Rewards
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Idea Screening
Purpose is to:
Eliminate ideas that can not be profitably marketed
Expand viable ideas into full product concepts
Evaluation of an idea based risk
9
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Categories of Risks
Strategic risk
No match between the role of a new product with a strategic need of the organization
Market risk
New product won’t meet a market need in a value-added, differentiated way
Internal risk
New product won’t be developed within the desired time and budget
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Strategic Alliance
Long-term partnership between two organizations designed to accomplish strategic goals of both parties
Potential benefits
Increased access to technology, funding, and information
Market expansion and greater penetration of current markets
De-escalated competitive rivalries
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Project Planning
Idea is evaluated further and responsibility for the project is assigned to a project team
Evaluation is done in terms of production, marketing, financial, and competitive factors
Development budget is established
Preliminary marketing and technical research is undertaken
Product is designed in a rough form
12
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Project Planning
Alternative product features and component specifications are outlined
Project plan is written up and scheduled
Project proposal is given to top management for a go or no-go decision
Alternatives for creating and managing teams
Skunkworks: Team members work in relative privacy, away from the rest of the organization
13
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Project Planning
Rugby or relay approach: Groups in different areas of the organization work simultaneously on the project
Cross-functional teams: Members from different departments come together to jointly establish new product development goals and priorities and to develop schedules
Key component contributing to the success of a company’s product development efforts
14
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Product Development
Post meeting expectations, product idea is considered for further research and testing
Development report to management contains:
Results of the studies by the engineering department
Required plan design and estimated release date
Production facilities design
Tooling requirements and marketing test plan
Financial program survey
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Test Marketing
Management submits the product candidate for customer approval
Controlled experiment in a limited geographical area
Tests the new product as well as elements of the marketing mix
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Goals of Test Marketing
Evaluate and adjust the general marketing strategy and the appropriate marketing mix
Help producers explore issues related to the next generation of product development
Help analyse findings and develop volume forecasts, and reduce risks
Help finalize marketing plan and prepare for a product launch
17
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Commercialization and Importance of Time
Commercialization – Launch of the product and implementation of the marketing strategy
Emphasis is given to:
Organization structure and management talent
Bugs in the design and inventory requirements
Production costs and quality control
Importance of time
Time to market: Elapsed time between product definition and marketplace product availability
18
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New Product Decisions
Quality level
Warranty: Statement of the producer of what it will do to compensate the buyer if the product is defective or does not perform properly
Guarantee: Assurance by the producer that the product is as represented and will perform properly
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Figure 7.3 – Some Criteria for
Determining Perceptions of Quality
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New Product Decisions
Product features: Fact or particular specification about a product
New product features are determining by what customer wants the products to offer
Product design
Good design adds great value to a new product
Well-designed product pleases customers without necessarily costing more
21
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Product Safety
Ethical and practical issue
Ethical issue – Customers should not be harmed by using the product as intended
Practical issue – When users get harmed by a product, they may:
Stop buying
Tell others about their experience
Sue the company that made or sold it
22
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Causes of New Product Failure
No competitive point of difference
Unexpected reactions from competitors
Poor positioning
Poor quality of product
Nondelivery of promised benefits of product
Too little marketing support
Poor perceived price/quality relationship
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Causes of New Product Failure
Faulty estimates of market potential & other marketing research mistakes
Faulty estimates of production and marketing costs
Improper channels of distribution selected
Rapid change in the market after product introduction
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Need for Research
Top management has a responsibility to ask questions
New product planning team has an obligation to generate answers to these questions
Research should provide:
Marketing information
Economic information
Engineering information
Production information
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