CHAPTER 12:

Developing Product Strategy

PRODUCT CHARACTERISTICS AND CLASSIFICATION

Product – is anything that can be offered to market to satisfy a want or need .

PRODUCTS LEVELS : THE CUSTOMER VALUE HIERARCHY

CORE BENEFIT

BASIC PRODUCTEXPECTED PRODUCT

AUGMENTED PRODUCTPOTENTIAL PRODUCT

The Five Product Levels

• Core benefit – it is the fundamental level. This is the basic product and the focus is on the purpose for which the product is intended

• Basic product –This represents all the qualities of the product.

• Expected product – a set of attributes and conditions buyers normally expect when they purchase the product.

• Augmented product - This refers to all additional factors which sets the product apart from that of the competition.

• Potential product – encompasses all the possible augmentations and transformation that the product may undergo in the future.

PRODUCT CLASSIFICATION• Durability and tangibility

Classified into three groups:

1.Non-durable goods- normallyconsumed in one or few uses.

2. Durable goods- goods that

normally survive many uses.

3. Services- intangible, inseparable,

variable and perishable products.

CONSUMER-GOODS CLASSIFICATION

1. Consumer goods – these are usually purchases frequently, immediately and with a minimum of effort. Staples – regular basis

Impulse goods – purchase without any planning or research

Emergency goods – purchase when need is urgent

2. Shopping goods- the consumer in the process of selection and purchase, characteristically compares on such bases as suitability, quality, price and style. Homogeneous shopping goods- similar

in quality but different in price Heterogeneous shopping goods- differ

in product features and services .

• Specialty goods- have unique characteristics or brand identification.

• Unsought goods- the consumer does not know about or does not normally think buying.

INDUSTRIAL-GOODS CLASSIFICATION

Three groups of industrial goods:1. Materials and parts – goods that

enter the manufacturer’s product completely.

Two classes:-Raw materials - two major groups:

farm products and natural products-Manufactured materials and parts

-two categories: COMPONENT MATERIALS – usually fabricated COMPONENT PARTS - enter the finished product with no further change.

2. Capital items – long lasting goods that facilitate developing or managing the finished product.

Two groups:Installations consists of buildings and heavy equipments

Equipment comprises portable factory equipment and tools and office equipment.

3. Supplies and business services – short-term goods and services that facilitate developing or managing the finished product.

Two kinds of supplies:Maintenance and repair items ( paint, nails, brooms)

Operating supplies (lubricants, coal, writing paper, pencils)

Business includes:Maintenance and repair services (window cleaning, copier repair)

Business advisory services (legal, management consulting, advertising)

DIFFERENTIATION• PRODUCT DIFFERENTIATION -Form – size, shape, or physical structure

of a product.

-Features - most products an be offered with varying features that supplement it basic function

-Customization – Mass customization is the ability of a company to meet each customer’s requirement.

Performance Quality – the level at which the product’s primary characteristics operate.

Conformance Quality – the degree to which all the produced units are identical and meet the promised specifications.

Durability - measure of the product’s expected operating life under natural or stressful conditions, also valued attribute for certain products

Reliability – measure of the probability that a product will not malfunction or fail within a specified time period.

Repairability – measure of the ease of fixing a product when it malfunctions or fails.

Style – describes the product’s outlook and feel to the buyer.

Design – the totality of features that affects how a product looks and functions .

PRODUCT DESIGN

Design – the totality of features that affects how a product looks and functions

• It is the factor that will often give a company its competitive edge .

• Important in making and marketing retail services, apparel, packaged goods and durable equipment.

• SERVICE DIFFERENTIATION-Ordering Ease – refers to how

easy it is for the customer to place an order with the company.

-Delivery – refers to how well the product or service is delivered to the customer.

-Installation – refers to the work done to make a product operational in its planned location.

Customer Training – refers to training the customer’s employees to use the vendor’s equipment properly and efficiently.

Customer Consulting - refers to data, information system, and advice services that the seller offers to the buyers.

Maintenance and Repair - describes the service program for helping customers and keep purchased products in good working order.

Returns – products returns are undoubtedly a nuisance to customers, manufacturers, retailers, and distributors alike, they are also an unavoidable reality of doing business

Two ways of product returns :

1. Controllable returns 2. Uncontrollable returns

PRODUCT AND BRAND RELATIONSHIPS

The Product Hierarchy1. Need family – the core need that

underlies the existence of a product family.

2. Product family- all product classes that can satisfy a core need with reasonable effectiveness

3. Product class – a group of products within product family recognized as having a certain functional coherence.

4.Product line - a group of products within a product class that are closely related.

5.Product type – a group of item within a product line that share one several possible forms of the product

6. Item ( also called stock keeping unit or product variant ) - a distinct unit within a brand or product line distinguished by size, price appearance or some other attribute.

PRODUCT SYSTEMS AND MIXES

• Product system – a group of diverse but related items that function in a compatible manner.

• Product mix ( product assortment) – set of all products and items a particular sellers offers for sale. A company’s product mix has a certain width, length, depth, and consistency.

Width – refers to how many different product lines the company carries.

Length – refers to the total number of items in the mix.

Depth – refers to how many variants are offered of each product in the line.

Consistency- refers to how closely related the various product lines are in end use, production requirement, distribution channels and some other way

Product Line Analysis - Companies normally develop a basic platform and modules that can be added to meet different customers requirements.

- Product line managers need to know the sales and profits of each item to determine which items to build , maintain, harvest and divest.

Four types of products that yield different gross margins depending on sale volume and promotion

• Core product• Staples

• Specialties• Convenient items

Market profile Product-line manager must

review how the line is positioned against competitor’s lines.

Product line length company’s lengthens its product line in two ways :

Line Stretching occurs when a company lengthens its product line beyond its current range.

It can be done through down- market, up market or both ways.

Down market stretch – company may want to introduce a lower – Priced line for any of the three reasons :

1. The company may notice strong growth opportunities as mass retailers.

2. The company may wish to tie up lower- end competitor who might otherwise try to move up market.

3. The company may find that its market is stagnating or declining.

Up- market stretch – companies may wish to enter the high end of the market for more growth, higher margins or simply to position themselves as full line manufacturers. Two way stretch - companies serving the middle market might decide to stretch their line in both directions.

Line Filling – adding more items within the present range .

LINE MODERNIZATION FEATURING AND PRUNING

• Product lines need to be modernized.• In rapidly changing product markets,

modernization is continuous.• The product line manager typically

selects one or few items in line to feature.

• Product line managers must periodically review the line for deadwood that is depressing profits.

• Product mix pricing -The firm searches for a set of

prices that maximize profits on the total mix.

1. Product Line Pricing-Seller use a well-established price points for the product in their line.

2. Optional- Feature Pricing -companies must decide which item to include in the standard price and which to offer as an option.

3. Captive-product pricing- Captive products are strategically used to maximize revenue. Sellers generally follow a product-mix pricing strategy .

4. Two-part pricing -consisting of a fixed fee plus a variable usage fee.

5. By product pricing -products are price according to their value.

6. Product-Bundling pricing-Products are offered for sale in one combined unit that is often marked at a reduced price compared to the sum of their separate purchase prices. Pure-bundling occurs when the firm only offers its product as a bundle. Mixed-bundling sellers offers goods both individually and in bundles.

CO-BRANDING AND INGREDIENT BRANDING

Co-branding-also called dual branding or brand bundling, to or more well known existing brands are combined into a joint product and or marketed together in some fashion.

• Same-company co-branding• Joint venture co-branding• Multiple-sponsor co-branding• Retail co-branding

Ingredient Branding-special case of co-branding-involves creating brand equity for materials components or parts that are necessarily contained within other branded products.“Selfbranding”-companies advertise and even trademark their own ingredients.

PACKAGING, LABELING, WARRANTIES AND

GUARANTEESPackaging

-all the activities of designing and producing the container for a product.

-Primary package-Secondary package-Shipping package

Factors that contributed to the growing us of packaging as a marketing tool:

• Self service• Consumer Affluence• Company and Brand Name Image• Innovation Opportunity• Protecting Intellectual Rights

Packaging objectives:• Identify the brand• Convey description and persuasive

information• Facilitate product transportation and

protection• Assist at home storage• Aid product consumption

Labelling• Simple tag attached to the product or

an elaborately designed graphic that is part of the package.

• Carry only the brand name or a great deal of information.Functions of labels:-Identify-Grade-Describe-Promote

Warranties and Guarantees-Warrantees are formal statements of expected product performance by the manufacturer.-Guarantees reduce buyers risk. They suggest that the product is of high quality and that the company and its service performance are dependable.