Marketing Management • 14e Kotler • Keller Phillip Kevin Lane Marketing Management • 14e

Setting Product Strategy Chapter 12 Setting Product Strategy

Discussion Questions What are the characteristics of a product, and how do marketers classify products? How can companies differentiate products? Why is product design important and what factors affect a good design? How can a company build and manage its product mix and product lines?

Discussion Questions How can companies combine products to create strong co-brands or ingredient brands? How can companies use packaging, labeling, warranties, and guarantees as marketing tools?

Marketing Planning Needs Wants Marketing planning begins by formulating an offering to meet the needs and wants of the target customers. Wants

Components of the Market Offering Figure 12.1 Components of the Market Offering As shown in Figure 12.1 the customer will judge the offering’s: product features and quality, services mix and quality, and price.

Product Characteristics/Classifications Persons Experiences Events Properties Organizations Information Ideas Services Goods As discussed in chapter 1, a product is anything that can be marketed to satisfy a want or need, including physical goods, services, experiences, events, persons, places, properties, organizations, information, and ideas. Places

Five Product Levels Figure 12.2 Figure 12.2 shows the five levels of a product. Each of these will be illustrated in more depth on the next slide.

Product Levels Core Benefit Basic Product Customer-value Hierarchy (Rest and sleep) Basic Product (Bed, bathroom, towels) Customer-value Hierarchy Expected Product (Clean bed, fresh towels) Products are comprised of 5 levels. Each level adds more customer value. Here are the product levels using a hotel as an example. Core benefit: service or benefit the customer is really buying. Basic product: marketers turn core benefit into a basic product at this level. Expected product: attributes and conditions buyers expect when they purchase this product. Competition takes place at this level in developing countries. Augmented product: : attributes and conditions exceed customer expectations. Competition takes place at this level in developed countries.. Potential product: various augmentations that could be incorporated in the future. Here is where companies search for new ways to satisfy customers and distinguish their offering. Augmented Product (Free Internet; free breakfast) Potential Product (Future augmentations)

Product Classifications Durability and Tangibility Nondurable goods Durability, tangibility, and use (consumer or industrial). Durable goods Services

Product Classifications Consumer-Goods Staples Impulse goods Emergency goods Specialty goods Convenience goods Consumers purchase convenience goods frequently, immediately, and with minimal effort. Consumers compare shopping goods based on suitability, quality, price, and style. Consumer make special purchasing effort to buy specialty goods due to their unique characteristics or brand identification. Consumer does not normally know or buy unsought goods. As such these goods require advertising and personal-selling support. Shopping goods Unsought goods

Product Classifications Materials and Parts Industrial-Goods Manufactured materials Capital Items Installations Equipment Raw materials Materials and parts are goods that enter the manufacturer’s product completely. Capital items are long-lasting goods that facilitate developing or managing the finished product. Supplies and business services are short-term goods and services that facilitate developing or managing the finished product. Supplies and business Services

Product and Services Differentiation For a product to be branded it must be differentiated from competitors.

Product Differentiation Form Customization Performance Reliability Features Durability Conformance Repairability Style Products can be differentiated in many ways including: Form, features, customization, performance quality, conformance quality, durability, reliability, repairability, and style.

Services Differentiation Customer Consulting Delivery & Returns Ordering Ease The main service differentiators are ordering ease, delivery, installation, customer training, customer consulting, and maintenance and repair. The key to competitive success may lie in adding valued services and improving product quality. Training Installation Maintenance & Repair

Design Functional Benefits Aesthetic Benefits Design is the totality of features that affect how a product looks, feels, and functions to a consumer. Design is often an important aspect of luxury products. Aesthetic Benefits

Product and Brand Relationships Product Hierarchy Product Systems/Mixes Product Line Analysis Product Line Length The product hierarchy stretches from basic needs to particular items that satisfy those needs. A product system is a group of diverse but related items that function in a compatible manner. A product mix is the set of all products and items a particular seller offers for sale. Product line analysis: companies develop a basic platform and modules of a product line that can be added to meet different customer requirements and lower production costs. Managers need to know the sales and profits of each item in their line to determine which items to build, maintain, harvest, or divest, as well as each product line’s market profile. Product line length is influenced by company objectives and tend to lengthen over time. In product-mix pricing, the firm searches for a set of prices that maximizes profits on the total mix. In Co-branding: two or more well known brands are combined into a joint product or marketed together in some fashion. Product Mix Pricing Co-Branding

Product Hierarchy Need Family Product Family Product Class Product Line The product hierarchy stretches from basic needs to particular items that satisfy those needs. E.g., life insurance. Product Type Item

Product Systems and Mixes Product Mix Width Length Depth Consistency A product system is a group of diverse but related items that function in a compatible manner. A product mix is the set of all products and items a particular seller offers for sale. A company’s product mix has a certain width, length, depth, and consistency. These concepts are illustrated in Table 12.2 for selected Procter & Gamble consumer products.

Proctor & Gamble Product Mix Product Mix Width Detergents Toothpaste Bar Soap Disposable Diapers Paper Products Ivory Snow Gleem Ivory Pampers Charmin Dreft Crest Camay Luvs Puffs Tide Zest Bounty Cheer Safeguard Dash Oil of Olay Bold Gain Era Product Line Length Table 12.2 shows the product mix for P&G.

Product Line Analysis Sales and Profit Market Profile In conducting product line analysis managers must examine each product in terms of how it contributes to overall sales and profits. Products that are responsible for a large percentage of sales and profits must be carefully monitored and protected. Products that deliver on a small percentage may be candidates for being dropped, unless strong growth potential is possible. Figure 12.3 highlights A product line manager must examine how the line is positioned against competitors. One tool that managers can employ is a product map, which shows competitors’ items in relation to firm’s items. This also allows for identifying market segments. Product line analysis is helpful in two key decision areas – product line length and product mix pricing.

Product-Item Contributions Figure 12.3 Product-Item Contributions Figure 12.3 highlights the sales and profits of a 5-item product line. Item 1 accounts for 50% of total sales and 30% of total profits.

Figure 12.4 Product Map Figure 12.4 shows the location of the various product line items of company X and four competitors, A, B, C, D. Competitor A sells two product items in the extra-high weight class ranging from medium to low finish quality. The product map shows which competitors’ items are competing against company X’s items.

Product Line Length Line stretching Up-market stretch Down-market stretch Two-way stretch Line modernization, featuring, and pruning Line stretching – company lengthens its product line beyond its current range. Line filling – company lengthens its product line by adding more items within the present range. Line modernization, featuring, and pruning – Companies continuous modernize product lines to encourage customer migration to higher-valued, higher-priced items; boost demand for certain product lines by featuring them; and optimize their brand portfolios by focusing on core brand growth and concentrating resources on the biggest and most established brands. Line filling

Product Mix Pricing Product line pricing Captive-product pricing In product-mix pricing, the firm searches for a set of prices that maximizes profits on the total mix. Product line pricing – develop product lines rather than single products and introduce price steps. Optional-feature pricing – offer optional products, features, and services with their main product. Captive-product pricing – price the main products low and set high markups on the aftermarket products. Two-part pricing – consists of a fixed fee plus a variable usage fee. By-product pricing – charge low price for the main products and earn income on the by-products . Product-bundling pricing – offer goods as a bundles and charges less for the bundle than if the items were purchased separately. Optional-feature pricing Two-part pricing By-product pricing Product-bundling pricing

Co-Branding and Ingredient Branding Same-company Joint venture Multi-sponsor Retail co-branding Co-branding - Brand bundling or Dual branding Same-company- When brands owned by the same company are used together. Example, General Mills launched a Trix branded Yoplait yogurt. Joint venture co-branding – Where brands owned by different companies are combined. Example, American Airlines and Citibank launching the Citibank AAdvantage credit card. Multi-sponsor – An alliance between three or more partners. Retail co-branding – Where two retail establishments use the same location to optimize space and profits. Pizza Hut, KFC, and Taco Bell often share the same retail space. Ingredient branding is a special case of co-branding and involves the linking of one brand with another. KC Masterpiece barbecue sauce was combined with Lay’s potato chips is an example. Ingredient Branding

Packaging and Labeling Packaging Objectives Brand identification Persuade Protection At-home storage Aid consumption The package is the customers first encounter with the product and a good package draws the customer in, encouraging product choice. Packaging also influences customers when they go to open and use the product at home. Distinctive packaging, Altoids mints and Absolut vodka serve as an important part of a brand’s equity. Labeling – FDA requires that labels on all processed foods contain nutritional information. Warranties and guarantees – A warranty is a formal statement of expected product performance, and are legally enforceable. Guarantees help reduce a buyers perceive risk by suggesting that the product is high quality and that the manufacturer is dependable. Labeling Objectives Identify Grade Describe Promote