Product Strategy

Product Strategy Defines what the organization does and why it exists A product offering’s real value comes from its ability to deliver benefits that enhance a customer’s situation or solve a customer’s problems. Products fall into two general categories Consumer products – for personal use and enjoyment Business products – for resale, use in making other products, or use in a firm’s operations

Types of Consumer Products Convenience Products Shopping Products Specialty Products Unsought Products

Types of Business Products Raw Materials Component Parts Process Materials Maintenance, Repair, and Operating Products Accessory Equipment Installations Business Services

The Product Portfolio Product Line Product Mix or Portfolio A group of closely related product items Product Mix or Portfolio The total group of products offered by the firm Strategic Decisions Variety – number of product lines offered Assortment – depth of each product line

P&G’s Portfolio of Household Care Products

Potential Benefits of Offering a Large Product Portfolio Economies of Scale Package Uniformity Standardization Sales and Distribution Efficiency Equivalent Quality Beliefs

Consider the number of product choices available in the U. S Consider the number of product choices available in the U.S. consumer market. In virtually every product category, consumers have many options to fulfill their needs. Are all of these options really necessary? Is having this many choices a good thing for consumers? Why or why not? Is it a good thing for marketers and retailers that have to support and carry all of these product choices? Why or why not?

The Challenges of Service Products Balancing supply (capacity) with demand Time and place dependency of demand Difficulty of evaluating service quality prior to purchase Inconsistency of service quality Difficulty in tying offerings to customers’ needs (i.e., the need is not always apparent to customers)

Unique Characteristics of Services Intangibility Simultaneous Production and Consumption Perishability Heterogeneity Client-Based Relationships

Developing New Products A vital part of a firm’s effort to sustain growth and profits Depends on the firm’s ability to create a differential advantage for the new product Customer perception of newness is critical

Strategic Options for Newness of a Product New-to-the-World Products (Discontinuous Innovations) New Product Lines Product Line Extensions Improvements or Revisions of Existing Products Repositioning Cost Reductions

New Product Development Process Idea Generation Screening and Evaluation Development Test Marketing Commercialization

Branding Strategy Involves selecting the right combination of name, symbol, term, or design that identifies a product Brands have two parts Brand name – words, letters, and numbers that can be spoken Brand mark – symbols, figures, or a design Critical to product identification and the key factor in differentiating a product from its competition Makes it easier for customers to find and buy products Firms must protect brand names and brand marks from trademark infringement by other firms

Good Brands Answer Questions for Customers Where can I find information quickly? Where can I get a quick meal and make my kids happy? Where can I buy everything I need, all at decent prices? Where can I get the best deal on car insurance? How do I find a value-priced hotel in midtown Manhattan?

Consider the notion that a truly effective brand is one that succinctly captures the product offering in a way that answers a question in the customer’s mind. Now, consider these brands (or choose your own): Coca-Cola, Disney, Marlboro, American Express, and Ford. What questions do these brands answer? Why are these effective brands?

Potential Brand Attributes (Exhibit 7.1)

Strategic Issues in Branding Corporate Branding Equally as important as product-related branding Aimed at a variety of stakeholders Designed to build and enhance the firm’s reputation Basic Branding Decisions Manufacturer vs. private-label brands Individual vs. family branding Strategic Brand Alliances Cobranding Brand licensing Brand Value Brand loyalty Brand equity Packaging and Labeling

The Strongest and Weakest U.S. Corporate Reputations (Exhibit 7.2)

Advantages of Branding Product Identification Comparison Shopping Shopping Efficiency Risk Reduction Product Acceptance Enhanced Self-Image Enhanced Product Loyalty

Basic Branding Decisions Manufacturer vs. Private-Label Brands Private-label brands are owned by the merchants that sell them (Gap, Craftsman, Sam’s Choice) Private-label brands are more profitable for the retailer Manufacturer brands have built-in demand Individual vs. Family Branding Individual branding – when a firm gives each of its product offerings a different brand name Family branding – when a firm uses the same name or part of the brand name on every product

Manufacturer (Name) Brands versus Private-Label Brands (Exhibit 7.3)

Strategic Brand Alliances Cobranding The use of two or more brands on one product Leverages the image and reputation of multiple brands to create distinctive differentiation Brand Licensing A contractual agreement where a company permits an organization to use its brand on non-competing products in exchange for a licensing fee Licensed brands typically have instant recognition among consumers

Brand Value Brand Loyalty Brand Equity A customer-centric view of brand value A positive attitude toward a brand that causes customers to have a consistent preference for the brand Three degrees: Brand recognition Brand preference Brand insistence Brand Equity A firm-centric view of brand value The marketing and financial value associated with a brand’s position in the marketplace

The World’s Twenty-Five Most Valuable Brands (Exhibit 7.4)

Compare the corporate reputation scores in Exhibit 7 Compare the corporate reputation scores in Exhibit 7.2 with the brand valuations in Exhibit 7.4. Why does Apple sit at the top of both lists? How has the company used good branding and positioning strategy to achieve this result? How is it that Wells Fargo can have a very high brand valuation, but a very low corporate reputation score?

Packaging and Labeling Goes hand-in-hand with branding in developing a product, its benefits, its differentiation, and its image Includes issues such as color, shape, size, convenience Often used to reposition the product or give it new and improved features Vital to helping customers make proper product selections Can have important environmental and legal consequences

Differentiation and Positioning Creating differences in the firm’s product offering that set it apart from competing offerings Positioning Creating a mental image of the product offering and its differentiating features in the minds of the target market Relative Position A product’s position vis-à-vis the competition Addressed through two tools Perceptual mapping Strategy canvas

Hypothetical Perceptual Map of the Automotive Market (Exhibit 7.5)

Hypothetical Strategy Canvas for the Book Retailing Market (Exhibit 7

Bases for Differentiation Branding is the most important tool of differentiation. Other important bases for differentiation Product Descriptors (see Exhibit 7.7) Product features – factual descriptors of the product and its characteristics Advantages – performance characteristics of how the product behaves Benefits – positive outcomes or need satisfaction Customer Support Services May be the best way to overcome commoditization

Using Product Descriptors as a Basis for Differentiation (Exhibit 7.7)

Look back at the Top 10 brands in Exhibit 7. 4 Look back at the Top 10 brands in Exhibit 7.4. What bases do these brands use for differentiation? What strategies do they use to create a relative position in their respective markets? Why do these brands hold so much value?

Positioning Strategies Strengthen the Current Position Constantly monitor customer perceptions, needs, and wants Raise the bar of customer expectations Repositioning Often requires a fundamental change in one or more marketing program elements

Managing Brands over Time The product life cycle is a useful tool for addressing brand and product strategy over time. Limitations of the product life cycle Most new products never get past development Most successful products never die Life cycles really refer to industries, not products or brands The length of each stage depends on the actions of other firms The product life cycle forces managers to consider the future of their industry and their brand.

Stages of the Product Life Cycle (Exhibit 7.8)

Strategic Considerations During the Product Life Cycle (Exhibit 7.9)

The Product Life Cycle: Development Stage No sales revenue during this stage Components of the product concept An understanding of desired uses and benefits A description of the product The potential for creating a complete product line An analysis of the feasibility of the product concept Customer needs should be discerned before developing marketing strategy Test marketing is conducted in this stage.

The Product Life Cycle: Introduction Stage Begins when development is complete and ends when customers widely accept the product Marketing strategy goals during this stage Attract customers by raising awareness and interest Induce customers to try and buy Engage in customer education activities Strengthen or expand channel and supply chain relationships Build on availability and visibility through trade promotion Set pricing objectives

The Product Life Cycle: Growth Stage Be ready for sustained sales increases and the rapid increase in profitability early in the growth stage Length depends on nature of product and competitive reactions Two main priorities during growth Establish a strong, defensible marketing position Achieve financial objectives that repay investment Marketing strategy shifts from customer acquisition to customer retention and building brand loyalty.

Marketing Strategy Goals During the Growth Stage Leverage the product’s perceived differential advantages Establish a clear brand identity Create unique positioning Maintain control over product quality Maximize availability of the product Maintain or enhance the product’s profitability to partners Find the ideal balance between price and demand Keep an eye focused on the competition

The Product Life Cycle: Maturity Stage Typically, no more firms will enter the market Still an opportunity for new product features and variations Typically the longest stage in the product life cycle

Goals and Strategies During the Maturity Stage Four general goals during the maturity stage Generate cash flow Hold market share Steal market share Increase share of customer Four strategic options to achieve these goals Develop a new product image Find and attract new users to the product Discover new applications and uses for the product Apply new technology to the product

The Product Life Cycle: Decline Stage Two options during the decline stage Attempt to postpone the decline Accept the inevitability of decline Harvesting Divesting Factors to be considered during this stage Market segment potential The market position of the product The firm’s price and cost structure The rate of market deterioration