8 Developing Product Strategy

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Book byDonald R LehmannRussell WinerFourth Edition

Product Management


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Part II: Product strategy

Chapter 8. Developing Product Strategy

Chapter 9: New Products


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Developing Product Strategy

Chapter 8

Product ManagementBook by: Donald Lehmann & Russell Winer


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What is product strategy?

All the detailed view from earlier chapters will lead

to product strategy.

Objectives:

Where are we headed? Strategies:

How will we get there?

Tactics:

What will we do?


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Benefits of strategy

1. Strategy enhances coordination among

functional areas

2. Strategy defines resource allocation

3. Strategy should lead to superior market position


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Competitive strategy has at least ONEof the

FOURcharacteristics

1. It should be something a competitor can not do

2. It should be something a competitor will choosenot to do

3. Competitor would be at disadvantage if they do it

4. You will gain, if competitor does it


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TACTICS

POSITIONING

STRATEGY

OBJECTIVES

Elements of a product strategy

Seven parts of marketing strategy

1. Statement of the objective(s) the product should

attain

2. Selection of strategic alternatives3. Selection of customer targets

4. Choice of competitor targets

5. Statement of the core strategy6. Description of supporting marketing mix

7. Description of supporting functional programs


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1. Setting objectives:Hierarchy of objectives

Company Mission/ Vision

Corporate objectives

Corporate strategies

Divisional objectives

Divisional strategies

Product/ Brand objectives

Brand strategies

Program objectives

Tactics

Level 0

Level 1

Level 2

Level 4

Business Mix

Product Mix

Program MixGrowth- Sales

Growth- Share

ROI

Divisionalprofits

Level 3


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Trade off

ProfitShare

Primary objective

The objective for

maximization (PROFIT)

Secondary objective

The objective acting as a

constraint (SHARE

maintenance, CSI index,

Cash flow)


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2. Selection of strategic alternativesFOR INCREASING SALES MARKET SHARE

1 Market penetrationStrategy

Increase usage rate

(Customer expansion)

Using larger package size

Promoting frequent use

Increase share of wallet, Cross sellingIncrease consumption rate, Coupons

Is actual consumption rate equal to potential rate?

2 Market DevelopmentStrategy

Pursue non-customers

(Customer acquisition)

Enter new markets

Enter new segments

3 Product developmentStrategy

(Diversificationstrategy)

NewMarkets

CurrentMarkets

Current Products New Products


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2. Selection of strategic alternatives

Four basic strategies are

Customer acquisition

Customer retention

Customer expansion

Customer deletion


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2. Selection of strategic alternativesFOR INCREASING PROFITABILITY

1. Decreasing Inputs

Decrease product costs

Decrease marketing costs

Decrease other costs

Reengineering

Improve utilization of assets

Keeping low accounts receivables Reducing inventory

Running efficient production runs

Investing idle cash

Reduce customer churn (increase retention)

Use economies of scale at all functions

2. Increasing Outputs

Improve prices

Improve sales mix using Paretos law

De-emphasize unprofitable customers

Price

Cost


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3. Positioning: Choice of customer targets

THREE key considerations

Size/ growth of the segment

Opportunities for obtaining competitive advantages

Resources availableTarget segments &

Factor for MOBILES

Young generation Officer goers Older generation

Benefits

Main factor affectingpurchase

Where do they

purchase?

When do they buy?


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4. Positioning: Choice of competitor targets

For penetration strategy (stealing competitor) identify which

competitors customers are

More valuable

Most easily priced away

Identify a weak or docile company that can be easilyovercome. (not always available)

Use situational analysis (Competitor analysis)

Market leaderoften take defensive steps, hence focus onstrong 2ndor 3rdcompetitor

Strong 2nd(Challenger) might be more offensive targeting the

leader

Weak followerstry to avoid major competitors using niches


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5. Positioning: Core strategy

Product positioning has two basic categories,

Price strategy (Cost/Price-value strategy)

Nonprice strategy (Offering/Services)

Sources of customer value

Economic

Functional

Psychological

Either be good in price or be good at some of the

offering (Customer value = QSP)

Struck in the middle can be disastrous


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5. Positioning: Core strategy (Value proposition)


Price strategy (Cost/Price-value strategy)

Sam Waltons Wal-Mart

Kishor Biyanis Big Bazzar Dhoots Sansui, Akai

Low pricing requires muscles

Need to understand cost components

Low pricing strategy has its own problems Shift in customer tastes

Technological shifts

Cost beating by competitors

Costcomponen

ts


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Product positioning has two basic

categories,

Nonprice strategy

(Offering/Services)

Core

benefit

Potential product

Augmented product

Expected product

Basic product

The Total Product Concept


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Nonprice strategy (Offering/Services)

Total product concept

Core benefit:Hotel guest is buying rest and sleep Basic product:Hotel room includes a bed, bathroom,

towels, desk, dresser and closet

Expected product:Hotel guest expect a clean bed,

fresh towels, working lamps and a relative degree of

quiet

Augmented product:Provide superior customer

service

Potential product:All possible augmentations and

transformations the product or offering might undergoin the future


FUNCTIONAL

NEED

BENEFITS

DIFFERENTIATION

FUTURE


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Nonprice strategy

(Offering/Services)

Differential advantage areas

Quality:Intel, Lexus, Apple,

Sony, Timken, Caterpillar

Status and Image:Rolex, Mercedes

Branding:Salt: Tata Salt, Atta: Ashirvad, Chicken: Realgood

Convenience and Service:Maruti-Suzuki

Distribution:HUL

Firm infrastructure

Human resource management

Technology development

Procurement

Inboundlogistics

Operations Outboundlogistics

MarketingAnd sales

Service

S

upportActivities

The Generic Value chain


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Maintain the differential advantage


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6. Description of supporting marketing mix

Price

Place

Promotion

7. Description of supporting functional

programs

Tactics

8 Developing Product Strategy

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