Setting Product Strategy Dr Rushdy Wady Objectives Identify

Setting Product Strategy Dr. Rushdy Wady

Objectives Identify the product and the various characteristics of products. Level of products. Learn how companies build and manage product lines and mixes. Understand how companies make better brand decisions. Comprehend how packaging and labeling can be used as marketing tools. Warranties & guarantees can offer further assurance to consumers.

Product is a key element in the market offering. Is the first and the most important element of the marketing mix. Product strategy calls for making coordinated decisions on product mixes, product lines, product brands, packaging and labeling. Who should ultimately design the product? The customer of course.

The product is any thing that can be offered to market to satisfy a want or a need.

What Is a Product? Products, Services, and Experiences • Products include more than just tangible objects such as cars, computers or cell phones.

What Is a Product? Products , services and experiences • The offer may consist of a pure tangible • good such as soap, toothpaste or salt. • At the other extreme are the pure services for which the offer consists primarily of a service.

Type Of Product Goods Properties Information Places Organizations A Product can be Experiences Ideas Persons Services Events

What Is a Product? Products , services and experiences • Experiences represent what buying the product or service will do for the customer • Experiences have always been an important part of marketing for some companies

Companies that market experiences realize that customers are really buying much more than just products and services, they are buying what those offers will do for them

What Is a Product? Organizations, Persons, Places, and Ideas • • • Organization marketing consists of activities undertaken to create, maintain, or change attitudes and behavior of target consumers toward an organization Both profit and non profit organization practice organization marketing Business firms sponsor public relations or corporate image advertising campaign to market themselves and polish their images

What Is a Product? Organizations, Persons, Places, and Ideas • • Person marketing consists of activities undertaken to create, maintain, or change attitudes and behavior of target consumers toward particular people. People use person marketing to build their reputation

What Is a Product Organizations, Persons, Places, and Ideas Place marketing consists of activities undertaken to create, maintain, or change attitudes and behavior of target consumers toward particular places Social marketing is the use of commercial marketing concepts and tools in programs designed to influence individuals’ behavior to improve their well-being and that of society

What Is a Product Organizations, Persons, Places, and Ideas • Social marketing programs include public health campaigns to reduce smoking , alcoholism, drug abuse, and obesity • Other social marketing efforts include environmental campaign to promote clean air and conservation • Still others address issues such as family planning and human rights and racial equality

What Is a Product? Levels of Product and Services • Product planners need to think about products and services on three levels, each level adds more customer value. The most basic level is the core customer value, which addresses the question “ what is the buyer really buying ? “ • When designing products, marketers must first define the core, problem solving benefits or services that consumers seek

What Is a Product? Levels of Product and Services • At the second level, product planners must turn the core benefits into an actual product, they need to develop product and service features, design, a quality level or a brand name and packaging. • For Ex. The Black. Berry is an actual product. Its name , parts, styling, features have all been combined to deliver the core customer value

What Is a Product? Levels of Product and Services • Finally , product planners must build an augmented product around the core benefit and actual product by offering additional consumer services and benefits. • For ex. The Black. Berry solution offers more than just a communication device, it provides customers with a complete solution to mobile connectivity problems.

Potential Product Augmented product Expected product Basic Product Core benefit

• Levels of Product and Services

The Product and Product Mix The customer value hierarchy: Core benefit The service or benefit the customer is really buying. Basic product The marketer has to turn the core benefit into basic product. Expected product A set of attributes and conditions buyers normally expect when they purchase the products. Augmented product The product exceeds customer expectation. Potential product All possible augmentations and transformations the product or offering might undergo in the future.

Example CORE BENEFIT HEALTHY FOOD BASIC PRODUCT FRUITS & VEGETABLES EXPECTED PRODUCT FRESH FRUITS & VEGGIES, JUICES, CANNED GOODS AUGMENTED PRODUCT VEGGIES PREPARED WITH DIPS, FRUITS IN BASKETS POTENTIAL PRODUCT NEW WAYS TO SATISFY CUSTOMERS

Product and Service Decisions Individual Product and Service Decisions

Product and Service Decisions Individual Product and Service Decisions Product attributes are the benefits of the product or service • Quality • Features • Style and design

Product and Service Decisions Individual Product and Service Decisions • Quality has a direct impact on product or service performance, thus , its closely linked to customer value and satisfaction. • Quality can be defined as “ freedom from defects” • The American society for quality defines quality as the characteristics of a product or service that bear on its ability to satisfy stated or implied customer needs

Product and Service Decisions Individual Product and Service Decisions Product quality includes level and consistency • Quality level is the level of quality that supports the product’s positioning • Conformance quality is the product’s freedom from defects and consistency in delivering a targeted level of performance

Product and Service Decisions Individual Product and Service Decisions Product features are a competitive tool for differentiating a product from competitors’ products Product features are assessed based on the value to the customer versus the cost to the company

Product and Service Decisions Style describes the appearance of the product Design contributes to a product’s usefulness as well as to its looks. It goes to the very heart of a product

Product and Service Decisions Individual Product and Service Decisions • Customer service is another element of the product strategy. A company’s offer usually includes some support services, which can be a minor or a major part of the total offering.

Services Marketing Types of Service Industries • Government • Private not-for-profit organizations • Business services

Services Marketing Nature and Characteristics of a Service

Services Marketing Strategies for Service Firms In addition to traditional marketing strategies, service firms often require additional strategies • Service-profit chain • Internal marketing • Interactive marketing

Services Marketing Service-profit chain links service firm profits with employee and customer satisfaction • Internal service quality • Satisfied and productive service employees • Greater service value • Satisfied and loyal customers • Healthy service profits and growth

Services Marketing Internal marketing means that the service firm must orient and motivate its customer contact employees and supporting service people to work as a team to provide customer satisfaction Internal marketing must precede external

Services Marketing Interactive marketing means that service quality depends heavily on the quality of the buyerseller interaction during the service encounter • Service differentiation • Service quality • Service productivity

Product Classification 1. Durability and Tangibility. 2. Consumer Goods. 3. Industrial Goods.

Product Classification 1. Durability and tangibility Nondurable goods Tangible Rapidly consumed in one or a few uses. Example: Milk - Soap Durable goods Tangible Lasts a long time Example: Oven – electronics- Refrigerators Clothes Services Intangible Example: Appliance repairs, Transportation Services

2. Consumer Goods Classifications Consumer products are products and services for personal consumption Classified by shopping habits Convenience goods Shopping goods Specialty goods Unsought goods

2. Consumer Goods Classifications Consumer Goods Convenience goods Staples Goods Impulse Goods Emergency Goods Shopping goods Homogeneous Goods Specialty goods Heterogeneous Goods Unsought goods

2. Consumer Goods Classification 2. 1 Convenience goods : are consumer products and services that the customer usually buys frequently, immediately, and with a minimum comparison and buying effort Staples Goods: Goods consumers purchase on a regular basis (Toothpast). Impulse Goods: Purchased without any planning or search efforts (Magazines). Emergency Goods: Are purchased when a need is urgent (umbrellas during a rainstorm)

2. Consumer Goods Classification 2. 2 Shopping goods : are consumer products and services that the customer compares carefully on suitability, quality, price, and style Homogeneous shopping goods: Are similar quality but different enough in price to justify shopping comparisons. Heterogeneous shopping goods: Offer in product features & services that maybe more important than price.

Comparative Between Convenience & Shopping Goods Convenience Goods Limit Distribution Convenience Distribution High Price Reasonable Price Low life cycle High life cycle Needs planning or search efforts Purchased without planning or search efforts Selective distribution policy Intensive distribution policy

2. 3 Specialty products are consumer products and services with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort • Medical services • Designer clothes • Buyers normally don’t compare specialty products, they invest only the time needed to reach dealers carrying the wanted products

2. 4 Unsought products are consumer products • • that the consumer does not know about or knows about but does not normally think of buying Life insurance Funeral services Blood donations Unsought products require a lot of advertising, personal selling, and other marketing efforts

Industrial goods classification Industrial Goods Material & parts Supplies & business services Capital Items Farm materials Natural products Component materials Component parts Installations Equipment Maintenance & repair Advisory services

3. Industrial goods Classifications Are goods that enter the manufactures product completely 3. 1 Materials and parts Farm products ( Wheat, Cotton, Fruits …) Natural products (Fish, Crude petroleum …) Component materials (Iron, cement, wires…) Component parts ( Small motors, tires …) 3. 2 Capital items Installations (Factories, offices) Equipment (drill presses, personal computer, elevators). 3. 3 Supplies and business services Maintenance and repair (paint, window cleaning, copier repair…) Advisory services (Legal, management consulting, advertising)

The Product Hierarchy: Need family The core need that underlies the existence of a product family (Security). Product family All the product classes that can satisfy a core need with reasonable effectiveness (Saving, income) Product class A group of products within the product family recognized as having a certain functional coherence (financial instruments) Product line A group of products within a product class that are closely related because they perform a similar function. Product type A group of items within a product line that share one of several possible forms of the product. Item. A distinct unit within a brand or product line distinguishable by size, price, appearance or some other attribute.

Product Mix Decision Product mix consists of all the products and items that a particular seller offers for sale • Width • Length • Depth • Consistency

Product mix The set of all products and items that a particular seller offers for sale. A Product mix consists of various product lines. Product mix dimensions: : The Width: Number of product lines. The Length: Total number of items in mix. The Depth: How many variants are offered of each product in the line. Consistency: Degree to which product lines are related. (Production requirements, distribution channels)

Product mix Width = 4 Depth L 1 = 3 Length = 12 Product Line 4 Product Line 3 Product Line 2 Product Line 1 Sweets Snakes Soft Drinks Coffee Mars In Pizza Tang Nescafe kinder Burger Coca Cola Bream Twix Kentucky Meranda Sanca The Width The Depth

Product Line Decisions • Product line is a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges

Product-Line Decisions Product-Line Analysis Product line managers need to know the sales and profit items in their lines in order to determine which items to built, maintain, harvest and divest.

Product-Line Analysis

Market Profile Product line managers need to look at market profile. The manager must review how the line is positioned against competitor’s lines. The product map is useful for designing product line marketing strategy & identifies market segments.

Market Profile Product Map for a Paper-product Line

Product Line Length Product line length is the number of items in the product line A company lengthen its product line in two ways 1. Line stretching: involves the question of whether a particular line should be extended: Down market: it introduces a lower priced line for any three reasons: 1 - The company may notice strong growth opportunities in the down market. 2 - To tie up lower end competitors who might other wise try to move up market. 3 - The middle market is declining.

• - Upward stretch: Enter the high end of market for more growth , higher margins. • - The two way stretch: The line in both direction • 2 - Line filling: A product line can be lengthened by adding more items within the present rang like reaching for incremental profits, trying to satisfy dealers,

• - Line modernizations: whether the line needs a new look. • In rapidly changing product markets , modernization is continuous. • A major issue is timing improvements , so they do not appear too early ( damaging sales of the current line ) or too late ( after the competition has established a strong reputation for more advanced equipment).

• - Line pruning : How to delete and remove weaker items from the line.

Product mix pricing There are six situation involving product mix pricing: 1) Product line pricing: Companies normally develop product lines rather than single products and introduce price steps. 2) Optional feature pricing: Many companies offer optional products, features and service a long with their main product. 3) Captive product pricing: Some products require the use of ancillary or captive products.

4) Two part pricing product: Service firms often engage in two-part pricing consisting of affixed fee plus variable usage fee. 5) By-product pricing: The production of certain goods-meats, petroleum products often results in by-products. 6) Product bundling: Sellers often bundle products and features.

Mixed Bundling The seller offers goods both individually and in bundles. When offering a mixed bundle, the seller normally charges less for the bundle than if the items were purchased separately.

Product Differentiation : It is the process of distinguishing a product or service from others, to make it more attractive to a particular target market.

Product Differentiation Form Feature Performance Quality Many products can be differentiated in form (Size, shape, physical structure of a product ). The company should consider how many people want each feature, how much it would take to introduce each feature, and think of feature bundles or packages. Most products are established at one of four performance levels: Low, average, high or superior.

Product Differentiation Durability Reliability Style A measure of the product's expected operating life under natural or stressful conditions, is a valued attribute for certain products. Measure of the probability that a product will not fail within a specified time period. Describe the product's look and feel to the buyer.

Product Differentiation Conform ance Quality Repair ability Is the degree to which all the produced units are identical and meet the promised specifications Is a measure of the ease of fixing a product when it malfunction or fails.

Services 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.

Services Differentiation Customer training: refers to training the customer’s employees to use the vendor’s equipment properly and efficiently. Customer consulting: refers to data, information systems, and advice services that the seller offers to buyers. Maintenance & repair: describes the service program for helping customers keep purchased products in good working order.

Brand Decision Definition of a brand: “A name, term, sign, symbol, or design, or a combination of these, intended to identify the goods or services of one seller or group of sellers and to differentiate them from the competition. ”

Product and Service Decisions Individual Product and Service Decisions Brand equity is the differential effect that the brand name has on customer response to the product and its marketing.

Product and Service Decisions • Branding helps buyers in many ways. Brand names help consumers identify products that might benefit them. Brands also say something about product quality and consistency • Buyers who always buy the same brands know that they will get the same features , benefits and quality each time they buy.

Branding Strategy: Building Strong Brands Brand Positioning Brand strategy decisions include: • Product attributes • Product benefits • Product beliefs and values

Branding Strategy: Building Strong Brands Brand Name Selection Desirable qualities 1. Suggest benefits and qualities 2. Easy to pronounce, recognize, and remember 3. Distinctive 4. Extendable 5. Translatable for the global economy 6. Capable of registration and legal protection

Branding Strategy: Building Strong Brands Brand Sponsorship Manufacturer’s brand Private brand Licensed brand Co-brand

Brand Decision v. Culture It may represent a certain culture (Mercedes. German) v Personality It project a certain personality v User It suggests the kind of consumer who buys or use the product.

Brand Decision Brands can convey six levels of meaning: v Attributes A brand bring to mind certain attributes. v Benefits Attributes must be translated in to functional & emotional benefits v Values The brand say something about the product (Mercedes-Safety)

Brand Decision Companies need to develop brand policies for the individual product items in their lines. They must decide whether to brand at all , whether to use family or individual brand names, whether to extend the brand name to new products , and whether to create multiple brands.

Brand Decision In developing marketing strategy for individual product, the seller has to confront the branding decision. Branding is a major issue in product strategy. Developing branded product requires a great deal of long term investment spending especially for advertising, promotion, and packaging. Companies need to develop brand polices for individual product items in their lines.

Co-Branding & Ingredient Branding Co-Branding: It called dual branding or brand bundling, in which two or more well known existing brands are combined into a joint product or marketed together in some fashion.

Integrated Branding: • Is a special case of co-branding. • It involves creating brand equity for materials, components or parts that are necessarily contained within other branded products.

Packaging and Labeling • Packaging : • Is all the activities of designing and producing the container for a product.

Packaging includes: The primary package The secondary package The shipping package Packaging has become as marketing tool, well designed packages can create convenience & promotional value.

The factors that help in increasing using packaging as a marketing tool: 1 - Self service: The package must perform many of the sales tasks: attract attention, describe the product features, create consumer confidence and make a favorable impression. 2 - Consumer affluence: Consumers are willing to pay a little more per the convenience appearance, dependability and prestige of better packages.

3 - company and brand Image : Packages contribute to instant recognition of the company or brand. 4 - Innovation opportunity : Innovative packaging can bring large benefits to consumes and profits to producers. ( easy to carry , easy to open , easy to pour and close).

• Developing an effective package: Determine the packaging concept Determine key package elements Testing: v v Engineering tests Visual tests Dealer tests Consumer tests

After Packaging is designed it must be tested Engineering Tests: Conducted to ensure that the package stand up under normal conditions. Visual Tests: To ensure that the script is legible & the colors harmonious. Dealer tests: To ensure that dealers find the packages attractive & easy to handle. Customer tests: To ensure favorable consumer response.

Labeling The label may be a simple tag attached to the product or an elaborately designed graphic that is part of the package.

Labeling functions: Identifies the product or brand May identify product grade May describe the product May promote the product Legal restrictions impact packaging for many products.

Warranties & guarantees Warranties: are formal statements of expected product performance by the manufacturer. Guarantees are most effective in two situations: The company or the product is not well know. The product's quality is superior to the competition.

Warranties and Guaranties q Guaranties : ü Reduce the buyer perceived risk. ü Suggest that the product is of high quality. ü Company and its service performance are dependable. ü Enables the company to charge a higher price than a competitor who is not offering an equivalent guarantee.

New-Product Development and Product Life-Cycle Strategies Topic Outline • New-Product Development Strategy • New-Product Development Process • Managing New-Product Development • Product Life-Cycle Strategies • Additional Product and Service Considerations

New-Product Development Strategy Two ways to obtain new products Acquisition refers to the buying of a whole company, a patent, or a license to produce someone else’s product New product development refers to original products, product improvements, product modifications, and new brands developed from the firm’s own research and development efforts

New-Product Development Reasons for new product failure Overestimation of market size Poor design Incorrect positioning Wrong timing Priced too high Ineffective promotion Management influence High development costs Competition

New-Product Development Process Major Stages in New-Product Development

Product Life-Cycle Strategies • Product Life Cycle The product life cycle begins when the company finds and develops a new product idea. During product development, the company accumulates increasing investment costs. After the company launches the product, sales pass through an introductory period, then through a period of strong growth, followed by maturity and eventual decline. Meanwhile profits go from negative to positive, peak in the growth or mature sales stages, and then decline.

Claims of Product Life Cycles • Products have a limited life • Product sales pass through distinct stages each with different challenges and opportunities • Profits rise and fall at different stages • Products require different strategies in each life cycle stage

The Product Life Cycle Concept is Based on Four Premises: Products have a limited life Product sales pass through distinct stages, each with different marketing implications Profits from a product vary at different stages in the life cycle Products require different strategies at different life cycle stages 10 -95

Product Life-Cycle Stage 1. Introduction: A period of slow sales growth as the product is introduced in the market, profit nonexistent because of the heavy expenses of product introduction. 2. Growth: A period of rapid market acceptance & substantial profit improvement. 3. Matiurity: A slowdown in sales growth because the product has achieved acceptance by most potential buyers, profit stabilize or decline because of increased competition. 4. Decline: Sales show a downward drift & profit erode.

Product Life Cycle 10 -97

PLC Stages and Characteristics 10 -98

Introduction Stage of the PLC Sales Low sales Costs High cost per customer Profits Product Negative Create product awareness and trial Offer a basic product Price Use cost-plus Distribution Build selective distribution Build product awareness among early adopters and dealers Marketing Objectives promotion 10 -99

Growth Stage of the PLC Sales Rapidly rising sales Costs Average cost per customer Profits Rising profits Product Maximize market share Offer product extensions, service, warranty Price to penetrate market Distribution Build intensive distribution Marketing Objectives promotion Build awareness and interest in the mass market 10 -100

Strategies for Sustaining Rapid Market Growth • Improve product quality, add new features, and improve styling • Add new models and flanker products • Enter new market segments • Increase distribution coverage • Shift from product-awareness advertising to product-preference advertising • Lower prices to attract the next layer of pricesensitive buyers 10 -101

Maturity Stage of the PLC Sales Peak sales Costs Low cost per customer Profits High profits Marketing Objectives Product Price Distribution promotion Maximize profit while defending market share Diversify brand models Price to match or best competitors Build more intensive distribution Stress brand differences and benefits 10 -102

Maturity Stage: Strategies Marketers can extend the life of the brand by the following methods: § Market modification: converting nonusers & entering new market segments. § Product modification: quality and features improvements. § Marketing-mix modification: Price, distribution, advertising, sales promotion, services. 10 -103

Ways to Increase Sales Volume • • Convert nonusers Enter new market segments Attract competitors’ customers Have consumers use the product on more occasions • Have consumers use more of the product on each occasion • Have consumers use the product in new ways 10 -104

Decline Stage of the PLC Sales Declining sales Costs Low cost per customer Profits Declining profits Marketing Objectives Product Price Distribution promotion Reduce expenditure and milk the brand Phase out weak items Cut price Go selective: phase out unprofitable outlets Reduce to level needed to retain hard-core loyal customers 10 -105

Product in Decline 10 -106

Decline Stage: Strategies • Increasing the firm's investment ( to dominate the market or strengthen its competitive position. ) • Maintaining the firm’s investment level until the uncertainties about the industry are resolved. • Decreasing the firm’s investment level selectivity, by dropping unprofitable customers, while simultaneously strengthening the firm’s investment in lucrative niches. • Harvesting the firm’s investment to recover cash quickly. • Divesting the business quickly by disposing of its assets as advantageously as possible. 10 -107