Chapter 5 Product and Service Strategy and Brand Management

5-2 The ultimate profitability of an organization depends on its product or service offering(s) and the strength of its brand(s). Importance of the Offering

5-3 Basic Offering-Related Decisions Modifying the Offering Mix Positioning Offerings Branding Offerings

5-4 The Offering Concept Tangible product or service Related services (e.g., delivery and setup) Brand name(s) Warranties or guarantees Packaging What is an “offering”? It consists of:

5-5 The Offering Mix (Portfolio) Each line consists of individual offers or items (product line depth) The totality of a company’s offerings is known as its product or service offering mix or portfolio Consists of distinct offering lines (product line width)

5-6 The Offering Portfolio Bundling – enhancing the offering mix by providing two or more product or service items as a “package deal” McDonald’s “value meal” Travelocity’s vacation packages IBM hardware, software, and maintenance contracts

5-7 Modifying the Offering Mix Major Decisions Should the offering mix be modified? If yes, what should be added, modified, harvested, or eliminated?

5-8 Modifying the Offering Mix Additions to the Offering Mix How consistent is the new offering with existing offerings? Does the organization have the resources to adequately introduce and sustain the offerings? Is there a viable market niche for the offering?

5-9 Cannibalization Fit with sales and distribution strategies Consistency with target markets How consistent is the new offering with existing offerings? Modifying the Offering Mix Additions to the Offering Mix

5-10 Financial strength – outlays for research, development, and marketing Market Growth Competitive response Does the organization have the resources to adequately introduce and sustain the offerings? Modifying the Offering Mix Additions to the Offering Mix

5-11 Is there a relative advantage over existing competitive offerings? Does a distinct buyer group exist that is not being satisfied with current offerings? Is there a viable market niche for the offering? Modifying the Offering Mix Additions to the Offering Mix

Idea generation/idea screening employees, buyers, competitors 2.Business analysis forecasting sales, costs, profitability 3.Market testing laboratory or field market tests 4.Commercialization full-scale introduction of offering to market Modifying the Offering Mix New-Offering Development Process

Does the offering have a relative advantage? 4.Can the offering be tested on a limited basis prior to actual purchase? 2.Is the offering compatible with buyers’ use or consumption behavior? 3.Is the offering simple enough for buyers to understand and use? 5.Are there immediate benefits from the offering, once it is used or consumed? New-Offering Development Process Idea Generation & Screening

5-14 Sales Forecasts Profitability Analysis –Investment requirements –Breakeven analysis –Payback period –Return on investment (ROI) New-Offering Development Process Business Analysis

5-15 Generate benchmark data for assessing sales volume Relative effectiveness of alternative marketing programs can be examined Incidence of offering trial by potential buyers, repeat-purchasing behavior, and quantities purchased Results in a competitive response New-Offering Development Process Test Marketing

5-16 There are FOUR main stages: 1.Introduction 2.Growth 3.Maturity (Saturation) 4.Decline Modifying the Offering Mix Life-Cycle Concept A life cycle plots sales of an offering or a product class over a period of time.

5-17 Profits Sales IntroductionGrowthMaturityDecline Sales Modifying the Offering Mix Life-Cycle Concept

5-18 Sales volume = (number of triers x average purchase amount x price) + (number of repeaters x average purchase amount x price) Modifying the Offering Mix Life-Cycle Concept The sales curve can be viewed as being the result of offering trial and repeat-purchasing behavior.

5-19 Modifying the Offering Mix Modification Trading up Improving the product and increasing the price Trading up Improving the product and increasing the price Trading down Reducing the number of features or quality and reducing the price Trading down Reducing the number of features or quality and reducing the price

The market for the offering is stable 2.The offering is not producing good profits 3.Market share is becoming difficult to maintain 4.The offering provides other benefits to the organization Modifying the Offering Mix Harvesting Harvesting should be considered when:

What is the future sales potential of the offering? 2.How much is the offering contributing to the overall profitability of the offering mix? Modifying the Offering Mix Elimination Elimination is appropriate when the answer to the following questions is “very little” or “none”:

How much is the offering contributing to the sales of other offerings in the mix? 4.How much could be gained by modifying the offering? 5.What would be the effect on channel members and buyers? Modifying the Offering Mix Elimination

5-23 Positioning Offerings We’ve already discussed as part of Segmentation.

5-24 Brand Equity & Brand Management Brand Name Any word, “device” (design, sound, shape, or color), or combination of these used to identify an offering and set it apart from competing offerings. Brand Name Any word, “device” (design, sound, shape, or color), or combination of these used to identify an offering and set it apart from competing offerings. Brand Equity The added value a brand name bestows on a product or service beyond the functional benefits provided. Brand Equity The added value a brand name bestows on a product or service beyond the functional benefits provided.

Brand Equity & Brand Management Creating and Valuing Brand Equity Develop positive brand awareness and name- product association (Gatorade, Kleenex) Establish a brand’s meaning in the minds of consumers (Nike) Elicit the proper consumer responses to a brand’s identity and meaning (Michelin) Create a consumer-brand resonance (Harley- Davidson, Apple, eBay)

Customer-Based Brand Equity Pyramid Identity: Who are you? Meaning: What are you? Response: What about you? Relationships: What about you and me? Deep, broad brand awareness Strong, favorable, and unique brand association Positive, accessible reactions Intense, active loyalty Brand Salience Brand Performance Brand Imagery Consumer Judgments Consumer Feelings Consumer Brand Resonance

5-27 Assign one brand name all of the organization’s offerings (GE, Sony) OR Assign one brand name to each line of offerings (Sears, Craftsman Tools) OR Assign individual names to each offering (P&G, Unilever) Assign one brand name all of the organization’s offerings (GE, Sony) OR Assign one brand name to each line of offerings (Sears, Craftsman Tools) OR Assign individual names to each offering (P&G, Unilever) Brand Equity and Brand Management Branding Decisions

5-28 Using a single brand name… Advantage Easier to introduce new offerings when the brand name is familiar to buyers Disadvantage Can have a negative effect on existing offerings if a new offering fails Sub-branding… …combining a family brand with a new brand Brand Equity & Brand Management Branding Decisions

5-29 Decide whether or not to supply an intermediary with its own brand name. What are the costs/revenues? Is there excess capacity? If we don’t manufacture the brand, will a competitor produce it? Brand Equity & Brand Management Branding Decisions

5-30 Line Extension Strategy Brand Extension Strategy New Brand Strategy Fighting/Flanker Brand Strategy ExistingproductsNewproducts New Brand Existing Brand Brand Equity & Brand Mgmt Brand Growth Strategies

5-31 Adding offerings with the same brand in a product class that an organization currently serves… Respond to customers’ desire for variety Eliminate gaps in the product line Lowers advertising and promotion costs Consider possibilities of product cannibalism and proliferation of offerings (Coke and Vanilla Coke) Adding offerings with the same brand in a product class that an organization currently serves… Respond to customers’ desire for variety Eliminate gaps in the product line Lowers advertising and promotion costs Consider possibilities of product cannibalism and proliferation of offerings (Coke and Vanilla Coke) Brand Equity & Brand Mgmt Line Extension Strategy

5-32 The practice of using a current brand name to enter a completely different product class Reduced risk due to brand equity Success depends on perceptual fit with the original product class e.g., Yamaha makes motorcycles, sound equipment, computer peripherals, and musical instruments Brand Equity & Brand Mgmt Brand Extension Strategy

5-33 Co-branding Pairing two brand names of two manufacturers on a single product e.g., General Mills and Hershey Foods’ Reese’s Peanut Butter Puffs Co-branding Pairing two brand names of two manufacturers on a single product e.g., General Mills and Hershey Foods’ Reese’s Peanut Butter Puffs Brand Equity & Brand Mgmt Brand Extension Strategy: Co-branding

5-34 Most challenging strategy Most costly e.g., Lexus by Toyota Involves the development of a new brand and often a new offering for a product class that has not been previously served by the organization. Brand Equity & Brand Mgmt New Brand Strategy

5-35 Flanker Brand Strategy Involves adding a new brand on the high or low end of a product line based on a price- quality continuum (Marriott Hotels). Fighting Brand Strategy Involves adding a new brand whose sole purpose is to confront competitive brands in a product class being served by an organization. (Frito-Lay’s Santitas used to fight regional tortilla chip brands). Flanker Brand Strategy Involves adding a new brand on the high or low end of a product line based on a price- quality continuum (Marriott Hotels). Fighting Brand Strategy Involves adding a new brand whose sole purpose is to confront competitive brands in a product class being served by an organization. (Frito-Lay’s Santitas used to fight regional tortilla chip brands). Brand Equity & Brand Mgmt Flanker/Fighting Brand Strategy