CHAPTER 8

 

Product Strategy

 

Lecture Notes/Annotated Chapter Outline

 

A.  What Is a Product?

A product is not only a physical commodity, but also anything offered by an organization to provide customer satisfaction. The “augmented product” refers to the aggregate of physical, psychological, and sociological satisfactions that a buyer obtains.    

 

B.   Classification of Goods

Classification schemes are used for both consumer goods and organizational goods to provide a basis for marketing decisions.

 

1.   Consumer Goods

Consumer goods are purchased by final consumers for their own or household use; they can be classified as convenience, shopping, and specialty goods.

 

a.   Convenience goods—can be purchased with minimum expenditure of time and effort.

 

b.   Shopping goods—consumers want to compare with other available offerings before making a selection.

 

c.   Specialty goods—buyers will go to considerable lengths to seek out and purchase specialty items.

 

2.   Organizational Goods

Organizational goods are purchased by businesses, institutions, etc. to use as inputs into the production of other products or to facilitate production and business processes.

 

a.   Agricultural, other extractive products, raw materials—raw materials from farms, forests, mines, and quarries; derived demand for extractive products.

 

b.   Manufactured organizational products—products that have undergone some processing; includes semi-manufactured goods, parts, or components; process machinery or installations; accessory equipment; and operating supplies.

 

c.   Unique characteristics of organizational goods—many organizational goods can be characterized as highly technical, expensive, or purchased in large quantities; many have relatively long life expectancies, slower growth, and longer maturity cycles; they may pose environmental problems in comparison to consumer goods.

 

d.   The marketing mix for organizational goods—the complex and technical nature of many organizational products often requires a greater degree of customization than consumer goods; other differences include more emphasis on R&D, after-sale service, specialized distribution channels, more personal selling and less mass communication, and complex pricing; these differences require different overall strategies than those used in consumer goods marketing.

 

C.   Product Strategy Issues

      A number of interrelated elements comprise a product strategy as shown below:

 

(Transparency 8A: “Product Strategy Issues” and 8.8: “Product-Market Questions”)

1.   Determining the Product Line

The basic product strategy decision is to determine the type and range of goods or services that the company should provide in order to deliver the greatest satisfaction and benefits to both final consumers and resellers.

 

(Transparency 8B: “Product, Product Line, and Product Mix”)

 

2.   Product Line Width and Depth

A product mix is made up of one or more product lines (noncompeting categories) that are offered by a company. Product width refers to the number of different products that are offered within a single product line; product depth refers to the number of items carried within each type.

 

(Transparency 8C: “Product Variety and Assortment”)

 

3.   When to Introduce and When to Delete Products

Accelerating technological obsolescence and declining competitive distinctiveness exacerbates this problem. Major drivers of performance and impact include high-quality new product process, new product strategy for the SBU, resource availability, and R&D spending levels. Time-to-market for new products requires longer-range planning, and candidates for deletion should be identified early.

 

4.   Packaging

      Some factors to consider when making packaging decisions include the following:

 

a.   Environmental concerns—emphasis on reusable and recyclable containers and safety issues in packaging.

 

b.   Relationship between packaging and product image and promotion—particularly when self-service and mass merchandising are involved. Packages are often referred to as the “silent salesman.”

 

c.   Packaging requirements of resellers—sales appeal, convenience in handling and storing, sturdy enough to withstand necessary level of handling.

 

d.   Cost of packaging—should be considered in relation to its contribution to the overall marketing strategy.

 

5.   Product Safety

Marketers are confronted with concerns about a customer’s harmful use or misuse of a product. Manufacturers are reluctant to introduce new, untried products due to liberal court awards and extremely high liability insurance premiums.

 

6.   Product Liability

Marketers have responded to the escalation of product liability lawsuits and high insurance premiums in a variety of ways: product withdrawal, increased product prices, changes in product and/or packaging, etc.

 

7.   Warranties and Post-Sale Service

Customer satisfaction involves some assurance that product-related problems will be taken care of after the sale through warranty agreements or other types of service after a purchase is made. (Warranties and post-sale services are part of the “augmented product” concept.)

 

D.  The Product Lifecycle (PLC)

The PLC graphically portrays the sales history of a product from the time it is introduced to the market until the point when it is withdrawn.

 

(Transparency 8D: “The Product Lifecycle”)

 

1.   The PLC Consists of Four Major Stages

 

a.   Introduction—new product is introduced to the market; initial distribution and promotion.

 

b.   Growth—expanded distribution, increased promotion, increased sales, repeat orders, and word-of-mouth communication leads to more sales.

 

c.   Maturity—wide distribution; intense competition.

 

d.   Decline—significant decline in sales and profits; product obsolescence is imminent; loss of competitive advantages; product is deleted or abandoned.

 

      2.   Are Product Lifecycles Real?

There are many views of the product lifecycle and its usefulness. The shape and duration of the cycle depends on marketing growth rate, innovation, marketing concentration, competitive entry, and spending on R&D and marketing.

 

      3.   Implications of the Product Lifecycle for Marketing Managers

The PLC is a useful guide for marketing strategy and permits analysis of the factors that influence the shape and amplitude of volume projections in order to assess opportunities and risks realistically.

 

      4.   Why Do Lifecycles Occur?

Two theories are used to explain the product lifecycle: the consumer adoption process and adoption theory.

 

a.   Consumer adoption process—five-stage progression from initial awareness of a new product to eventual adoption (purchase/use); accompanied by sales increase until the market is saturated.

 

                  1.   Awareness—individual is aware of the innovation, but lacks information.

2.   Interest—individual is stimulated to search for information about the innovation.

                  3.   Evaluation—individual considers whether to try the innovation.

4.   Trial—individual tests the innovation on a small scale to determine its usefulness.

5.   Adoption—individual decides to make use of the innovation on a regular basis.

 

b.   Adoption theory—provides further insight into the adoption process by incorporating the diffusion process—the spread of a new idea from its introduction to its final general acceptance. The key to success is to capture the innovators and early adopters quickly because of their influence on the rest of the market. There are five categories of adopters:

 

1.   Innovators—small number of people (~ 2.5%) who are first to adopt a new product.

                  2.   Early adopters—more people who accept innovation (~ 13.5 %).

                  3.   Early majority—beginning of more complete market acceptance (~ 34%).

                  4.   Late majority—remaining major group of innovation acceptors (~ 34%).

                  5.   Laggards—last to adopt an innovation (~ 16%).

 

(Transparency 8E: “Cumulative Distribution of Innovation Adopters”)

 

E.   Test Marketing

Test markets were formerly used primarily as a screening device to determine if a product could be successful in a certain market. Today, test marketing investigates marketing mix variables and other aspects of the marketing plan.

 

  1. Advantages of Test Marketing

 

            a.   Overall workability of the marketing plan can be evaluated.

 

            b.   Serves as first step in market entry strategy.

 

            c.   Can be used to evaluate alternative budget allocations.

 

            d.   Can be used to evaluate the integrated marketing communications (IMC) mix.

 

            e.   Other tactical decisions can be tried out and evaluated.

 

 

      2.   Disadvantages of Test Marketing

 

            a.   Is expensive.

 

            b.   Takes time to complete.

 

c.   May prematurely inform competitors of the company’s plans, and may invite unwanted competitive maneuvers.

 

F.   Launching New Products

      Decisions to be made include the following:

 

1.   Timing of Market Entry—strategic window of opportunity is open for only a short time.

 

      2.   Identified Target Market—whether to use mass marketing or segmentation strategy.

 

3.   Initial Market Entry Strategy—decide whether to start with one/few market segments or enter into a full-blown market rollout strategy (national, international, etc.).

 

G.   Brand Strategies

Brand equity is the primary product strategy focus for some firms. Firms must decide whether to use individual or family branding strategies for each product, multiple brand names for related products, and what market segments they should pursue with these brands. Brand image is enhanced by product quality, consistent marketing communications, distribution effectiveness, and brand personality.

 

      1.   Brand Equity Explained

           

a.   Brand equity is the set of assets (or liabilities) associated with a brand that add (or subtract) value.

 

b.   The value of brand equity is dependent upon the marketplace’s relationship with the brand.

 

c.   Aaker suggests grouping brand equity associations into four categories for active management.

1.   Perceived quality—increases return on investment due to reduced cost of retaining customers and opportunity to charge higher prices.

2.   Brand awareness—differentiates brands on basis of familiarity, increased commitment, and recall.

3.   Brand association—anything directly or indirectly linked to the brand in the consumer’s memory, including product attributes and customer benefits that connote value; extends to organizational associations, emotional benefits, etc.

4.   Brand loyalty—customer’s resistance to switching brands, based on habit, performance, or switching costs; increases competitive advantage and reduces marketing costs.

 

(Transparency 8F: “Elements of Brand Equity”)

 

      2.   Private Labels or Store Brands

The use of private labels is increasing significantly. This includes the use of store brands, house brands, and private-label brands marketed as value brands in competition with national brands.