Weekdq3

Product and Brand Strategy I. Basic Issues in Product management • Successful marketing depends on understanding the nature of products and basic decision

areas in product management. A. Product Definition • The way in which the product variable is defined can have important implications for

the survival, profitability, and long-run growth of the firm. • The same product can be viewed in at least three different ways:

o First, it can be viewed in terms of the tangible product––the physical entity or service that is offered to the buyer.

o Second, it can be viewed in terms of the extended product––the tangible product along with the whole cluster of services that accompany it.

o Third, it can be viewed in terms of the generic product—the essential benefits the buyer expects to receive from the product.

• From the standpoint of the marketing manager, to define the product solely in terms of the tangible product is to fall into the error of “marketing myopia.”

• Executives who are guilty of committing this error define their company's product too narrowly, since they overemphasize the physical object itself.

• The classic example of this mistake can be found in railroad passenger service. Although no amount of product improvement could have staved off its decline, if the industry had defined itself as being in the transportation business, rather than the railroad business, it might still be profitable today.

• In line with the marketing concept philosophy, a reasonable definition of product is that it is the sum of the physical, psychological, and sociological satisfactions the buyer derives from purchase, ownership, and consumption.

• From this standpoint, products are customer-satisfying objects that include such things as accessories, packaging, and service.

B. Product Classification • A product classification scheme can be useful to the marketing manager as an analytical

device to assist in planning marketing strategy and programs. • In general, products are classed according to two basic criteria:

o End use or market o Degree of processing or physical transformation

• Agricultural products and raw materials o These are goods grown or extracted from the land or sea, such as iron ore, wheat,

and sand. o In general, these products are fairly homogeneous, sold in large volume, and have

low value per unit or in bulk weight. • Organizational Goods

o Such products are purchased by business firms for the purpose of producing other goods or for running the business.

o This category includes the following:  Raw materials and semifinished goods  Major and minor equipment, such as basic machinery, tools, and other

processing facilities  Parts or components, which become an integral element of some other

finished good  Supplies or items used to operate the business but that do not become part of

the final product • Consumer Goods

o Consumer goods can be divided into three classes:  Convenience goods, such as food, which are purchased frequently with

minimum effort. Impulse goods would also fall into this category.  Shopping goods, such as appliances, which are purchased after some time

and energy are spent comparing the various offerings.  Specialty goods, which are unique in some way so the consumer will make a

special purchase effort to obtain them. • In general the buying motive, buying habits, and character of the market are different

for organizational goods vis-à-vis consumer goods. • Organizational goods are usually purchased as means to an end and not as an end in

themselves. This is another way of saying that the demand for organizational goods is a derived demand.

• Many organizational goods are subject to multiple-purchase influence, and a long period of negotiation is often required.

• Certain products have a limited number of buyers; this is known as a vertical market, which means that: o It is narrow, because customers are restricted to a few industries o It is deep, in that a large percentage of the producers in the market use the product

• Some products, such as desktop computers, have a horizontal market, which means that the goods are purchased by all types of firms in many different industries.

• From the standpoint of the marketing manager, product classification is useful to the extent that it assists in providing guidelines for developing an appropriate marketing mix.

C. Product Quality and Value • Quality can be defined as the degree of excellence or superiority that an organization’s

product possesses. • Quality can encompass both the tangible and intangible aspects of a firm’s products or

services. • Although quality can be evaluated from many perspectives, the customer is the key

perceiver of quality because his or her purchase decision determines the success of the organization’s product or service and often the fate of the organization itself.

• Many organizations have formalized their interest in providing quality products by undertaking total-quality management (TQM) programs.

• TQM is an organizationwide commitment to satisfy customers by continuously improving every business process involved in delivering products or services.

• Organizations that practice TQM train and commit employees to continually look for ways to do things better so defects and problems don’t arise in the first place.

• The result of this process is higher-quality products being produced at a lower cost. • The term quality is often confused with the concept of value. • Value encompasses not only quality but also price. • Value can be defined as what the customer gets in exchange for what the customer

gives. • Some organizations are beginning to shift their primary focus from one that solely

emphasizes quality to one that also equally encompasses the customer’s viewpoint of the price/quality trade-off.

• Organizations that are successful at this process derive their competitive advantage from the provision of customer value.

D. Product Mix and Product Line • A firm’s product mix is the full set of products offered for sale by the organization. • A product mix may consist of several product lines, or groups of products that share

common characteristics, distribution channels, customers, or uses. • A firm’s product mix is described by its width and depth. Width of the product mix

refers to the number of product lines handled by the organization. Depth refers to the average number of products in each line.

• An integral component of product line planning revolves around the question of how many product variants should be included in the line.

• Organizations offer varying products within a given product line for three reasons: o First, potential customers rarely agree on a single set of specifications regarding

their “ideal product.” o Second, customers prefer variety. o Third, the dynamics of competition lead to multiproduct lines.

• All too often, organizations pursue product line additions with little regard for consequences.

• However, in reaching a decision on product line additions, organizations need to evaluate whether: o Total profits will decrease o The quality/value associated with current products will suffer

E. Branding and Brand Equity • A critical focus in marketing strategy is on building the company’s brand and brand

equity. • Marketing Insight 6–3 presents some of the most valuable worldwide brands that are

most likely to be familiar because of some or all of the following reasons: o Whatever they do, they do it very well o They tell their story often and very well

o Customers see the brand wherever they shop o The brand has a distinct personality, in other words, they stand for something

• The brand name is perhaps the single most important element on the package, serving as a unique identifier.

• A brand is a name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers.

• The legal term for brand is trademark. • A good brand name can evoke feelings of trust, confidence, security, and strength. • Many companies make use of manufacturer branding strategies in carrying out market

and product development strategies. o The line extension approach uses a brand name to facilitate entry into a new

market segment. o In brand extension, a current brand name is used to enter a completely different

product class. o A third form of branding is franchise extension or family branding, whereby a

company attaches the corporate name to a product to enter either a new market segment or a different product class.

o A final type of branding strategy that is becoming more and more common is dual branding. A dual branding strategy is one in which two or more branded products are integrated.

• Companies may also choose to assign different brand names to each product. This is known as multibranding strategy.

• Major advantages of using multiple brand names are that: o The firm can distance products from other offerings it markets. o The image of one product is not associated with other products the company

markets. o The product(s) can be targeted at a specific market segment. o Should the product(s) fail, the probability of failure impacting on other company

products is minimized. • The major disadvantage of this strategy is that because new names are assigned, there is

no consumer brand awareness and significant amounts of money must be spent familiarizing customers with new brands.

• Increasingly, companies are finding that brand names are one of the most valuable assets they possess.

• Brand equity can be viewed as the set of assets (or liabilities) linked to the brand that add (or subtract) value.

• Brand equity is determined by the consumer and is the culmination of the consumer’s assessment of the product, the company that manufactures and markets the product, and all other variables that impact on the product between manufacture and consumer consumption.

• Figure 6.1 lists the elements of brand equity. • As with consumer products, organizational products also can possess brand equity.

However, several differences do exist between the two sectors. o First, organizational products are usually branded with firm names. As a result,

loyalty (or disloyalty) to the brand tends to be of a more global nature, extending across all the firm’s product lines.

o Second, because firm versus brand loyalty exists, attempts to position new products in a manner differing from existing products may prove to be difficult, if not impossible.

o Finally, loyalty to organizational products encompasses not only the firm and its products but also the distribution channel members employed to distribute the product.

• As a related branding strategy, many retail firms produce or market their products under a so-called private label.

• Private-label products differ markedly from so-called generic products that sport labels such as “beer,” “cigarettes,” and “potato chips.”

• Private label brands are being marketed as value brands, products that are equivalent to national brands but are priced much lower.

• Private brands are rapidly growing in popularity. • Consolidation within the supermarket industry, growth of super stores, and heightened

product marketing are poised to strengthen private brands even further. F. Packaging • Distinctive or unique packaging is one method of differentiating a relatively

homogenous product. • In other cases, packaging changes have succeeded in creating new attributes of value in

a brand. • Finally, packaging changes can make products urgently salable to a targeted segment. • On one hand, the package must be capable of protecting the product through the channel

of distribution to the consumer. • In addition, it is desirable for packages to have a convenient size and be easy to open for

the consumer. • The marketing manager must determine the optimal protection, convenience,

positioning, and promotional strengths of packages, subject to cost constraints. II. Product Life Cycle • A firm’s product strategy must take into account the fact that products have a life cycle. • Figure 6.2 illustrates this life-cycle concept. Products are introduced, grow, mature, and

decline. • During the introduction phase of the cycle, there are usually high production and marketing

costs, and since sales are only beginning to materialize, profits are low or nonexistent. • Profits increase and are positively correlated with sales during the growth stage as the

market begins trying and adopting the product. • As the product matures, profits for the initiating firm do not keep pace with sales because

of competition. • At some point sales decline, and the seller must decide whether to:

o Drop the product o Alter the product o Seek new uses for the product

o Seek new markets o Continue with more of the same

• In doing so, it should become clear that shifts in phases of the life cycle correspond to changes in the market situation, competition, and demand.

• When applied with sound judgment, the life-cycle concept can aid in forecasting, pricing, advertising, product planning, and other aspects of marketing management.

• As useful as the product life cycle can be to managers, it does have limitations that require it to be used cautiously in developing a strategy.

• Fashions are accepted and popular product styles. Their life cycle involves a distinctiveness stage in which trendsetters adopt the style, followed by an emulation stage in which more customers purchase the style to be the trendsetters.

• Fads are products that experience an intense but brief period of popularity. • Some fads may repeat their popularity after long lapses.

A. Product Adoption and Diffusion • The shape of the life-cycle curve indicates that most sales occur after the product has

been available for awhile. • The spread of a product through the population is known as the diffusion of innovation,

as illustrated in Figure 6.3, which presents five adopter categories. o The first category is the innovators, those who are the first to buy a new product. o If the experience of the innovators is favorable, early adopters begin to buy. o Members of the early majority tend to avoid risk and to make purchases carefully. o Members of the late majority not only avoid risks, but are cautious and skeptical

about new ideas. o Laggards are reluctant to make changes and are comfortable with traditional

products. III. The Product Audit • The product audit is a marketing management technique whereby the company’s current

product offerings are reviewed to ascertain whether each product should be continued as is, improved, modified, or deleted.

• The audit is a task that should be carried out at regular intervals as a matter of policy. • Product audits are the responsibility of the product manager unless specifically delegated

to someone else. A. Deletions • In today’s environment, a growing number of products are being introduced each year

that are competing for limited shelf space. • This growth is primarily due to:

o New knowledge being applied faster o The decrease in time between product introductions (by a given organization)

• One of the main purposes of the product audit is to detect sick products and then bury them.

• Rather than let the retailer or distributor decide which products should remain, organizations themselves should take the lead in developing criteria for deciding which products should stay and which should be deleted.

• Some of more obvious factors to be considered are as follows: o Sales trends o Profit contribution o Product life cycle o Customer migration patterns

B. Product Improvement • One of the other important objectives of the audit is to ascertain whether to alter the

product in some way or to leave things as they are. • Attributes refer mainly to product features, design, package, and so forth. • Marketing dimensions refer to such things as price, promotion strategy, and channels of

distribution. • Product improvement is a top-level management decision, but the information needed to

make the improvement decision may come from the consumer or the middlemen. • A discussion of product improvement would not be complete without taking into

account the benefits associated with benchmarking, especially as they relate to the notion of the extended product, the tangible product along with the whole cluster of services that accompany it.

• The formal definition of benchmarking is the continuous process of measuring products, services, and practices against those of the toughest competitors or companies renowned as leaders.

• It is an effective tool organizations use to improve on existing products, activities, functions, or processes.

• Benchmarking can assist companies in many product improvement efforts, including: o Boosting product quality o Developing more user-friendly products o Improving customer order-processing activities o Shortening delivery lead times

IV. Organizing for Product Management • Whether managing existing products or developing new products, organizations that are

successful have one factor in common—they actively manage both types. • Under a marketing-manager system, one person is responsible for overseeing an entire

product line with all of the functional areas of marketing such as research, advertising, sales promotion, sales, and product planning.

• This type of system is popular in organizations with a line or lines of similar products or one dominant product line.

• Sometimes referred to as category management, the marketing-manager system is seen as being superior to a brand manager system because one manager oversees all brands within a particular line, thus avoiding brand competition.

• Under a brand-manager system, a manager focuses on a single product or a very small

group of new and existing products. • Successful new products often come from organizations that try to bring all the capabilities

of the organization to bear on the problems of customers. • Obviously, this requires the cooperation of all the various functional departments in the

organization. • Thus, the use of cross-functional teams has become an important way to manage the

development of new products. • A venture team is a popular method used in such organizations as Xerox, Polaroid, Exxon,

IBM, Monsanto, and Motorola. • A venture team is a cross-functional team responsible for all the tasks involved in the

development of a new product. • The use of cross-functional teams in product management and new product development is

increasing for a very simple reason: Organizations need the contributions of all functions and therefore require their cooperation.

• Cross-functional teams operate independently of the organization’s functional departments but include members from each function.

• Figure 6.4 presents some prerequisites for the use of cross-functional teams in managing existing products and developing new products.