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 self-service 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 pricingb. 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 unknowledgeablee. Response to service failure: If the customer service representative exhibits negative response or reluctant response or no response at allf. 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 unsafeh. 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 Productsto 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 NEW-PRODUCT 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