Setting Product Strategy What is a Product l

Setting Product Strategy

What is a Product? l l Anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a want or need. Includes: physical product, service, information, experience, person, place, organization, ideas, or mixes of these entities.

Figure: Three Levels of Product

Example: Hotel l Core benefit: rest and sleep. Actual product: bed, bathroom, towels, desk, closet, or food. Augmented product: restaurant, gym, man’s suit, or remembering customers’ special needs.

Example: Sony Camcorder l l l Core benefit: a convenient, high-quality way to capture important moments. Actual product: Sony Camcorder. Augmented product: warranty, instructions, quick, repair service, or toll-free telephone number.

When Do a Firm Advertise the Core Benefit? l l Innovated product Chaos stage l l E. g. The war of hamburger among Mc. Donald’s, Burger King and Wendy: Where is the beef ? 打回核心的第一家廠商，雖然會引起別人跟進，但 讓人印象最深。

Product Classifications l Durability l l l Nondurable goods → many locations, small markup, and heavily advertise. Durable goods → more personal selling and service, higher margin, and more seller guarantees. Timing of quality identification l l l Search goods Experience goods Credence goods

Continuum of Evaluation for Different Types of Products

Consequence of High in Experience and Credence Qualities l l l Service consumers generally rely on word of mouth rather than advertising. Consumers rely heavily on price, personnel, and physical cues to judge quality. Consumers are highly loyal to service providers who satisfy them.

In one-shot relationships, may a high price signal a high quality? Is it possible that a low price may signal a high quality?

Product Classifications l Consumer-goods classification l l l Convenience goods – staples, impulse goods and emergency goods. Shopping goods Specialty goods Unsought goods Marketing considerations for consumer products Drift principle

Individual Product Decisions l Product attributes l l l l Product quality – performance & conformance Product features Product style and design Branding Packaging Labeling Product support services

Packaging l l Primary container, secondary package, and shipping package. Functions: contain and protect the product, describe the product, attract attention, and create instant consumer recognition of the company or brand.

Packaging l l l In an average supermarket, which stocks 15, 000 to 17, 000 items, the typical shoppers passes by some 300 items per minute. More than 60% of all purchases are made on impulse. The package may be the seller’s last chance to influence consumers.

Packaging – Examples l l Skippy Squeez’It, Heinz’s EZ Squirt, Dutch Boy, 可口可樂 曲線瓶, and 郭元益 黃金喜餅 Failure: Planters Lifesavers’s Brik. Pacs, Aunt Jemima

Labeling l l l Functions: identify the product or brand, describe the product, and promote the product. Legal concerns E. g. Dr. Bronner’s Magic Soaps

Product Mix l l l Width: how many different product lines the company carries. Length: the total number of items in the mix. Depth: how many variants are offered of each product in the line. Consistency: how closely related the various product lines are in end use, product requirements, distribution channels, or some other way. Example: P&G, 花王.

Product-Mix Width and Product-Line Length for Proctor & Gamble Products Product-Mix Width Detergents Toothpaste Ivory Snow Gleem (1952) (1930) PRODUCT- Dreft LINE (1933) LENGTH Crest (1955) Disposable Bar Soap Diapers Paper Tissue Ivory (1879) Pampers (1961) Charmin (1928) Kirk’s (1885) Luvs (1976) Puffs (1960) Tide (1946) Lava (1893) Banner (1982) Cheer (1950) Camay (1926) Summit (1992)

Product Line Decisions l l l Product-line analysis Product line length is influenced by company objectives and resources, e. g. up-selling, crossselling, or protecting against economic swings. Vertical differentiation → Line stretching: downmarket stretch, upmarket stretch, or two-way stretch Horizontal differentiation → Line filling Line modernization, featuring and pruning

Product-Item Contributions to a Product Line’s Total Sales and Profits

Is it a good idea to drop the 5 th product in the last slide? If not, what may be the reasons?

Case: American Iron and Steel Market Source: The Innovator’s Solution (2003)

Downmarket Stretch l l Examples: Rolex’s Tudor, Benz’s Smart. Reasons: growth opportunity, tie up lowerend competitors, or the middle market is stagnating or declining. Branding: individual name, blanket family name, or separate family names for all products. Risk of Cannibalization

Upmarket Stretch l l l Reasons: more growth, higher margins or fullline manufacturers. Examples: Toyata’s Lexus, Nissan’s Infiniti, and Honda’s Acura. The examples above invented entirely new names rather than using or including their own names.

Two-way Stretch l l Marriott hotels & resorts L'ORÉAL PARi. S l l LANCOME, SHU UEMURA, and BIOTHERM (700~4000); L’OREAL PARi. S (500~1000); MAYBELLINE & GARNIER (100~400). Toyota

Cannibalization l l l Consumers have two segments, H & L. Given quality q, H’s valuation is 5 q, L’s valuation is 2 q, and the unit cost is q 2/2. What are the efficient quality levels for H and L respectively? Is it optimal for the firm to provide the twoitem product line with efficient quality levels? Is it always optimal for the firm to provide a product line?

Line Filling l l l Add more items within the present range of the line. Motives: incremental profits, satisfying dealers, excess capacity, full-line company, and keep out competitors. Sony’s walkman – solar-powered and waterproof, Mini. Disc, CD, or Memory Stick. Weber’s Law: just-noticeable difference. Risk of cannibalization

Line Modernization, Featuring and Pruning l l 人潮創造者 & 旗艦產品。 Line pruning l E. g. Unilever: 1600 → 970 → 400; Hyundai’s Kia: 30→ 20; P&G.

Brand l l Definition: a name, term, sign, symbol, design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. (AMA) Six levels of meaning: attribute, benefits, values, culture, personality, and user.

Brand Equity l l The positive differential effect that knowing the brand name has on customer response to the product or service. Measure: the extent to which customers are willing to pay more for the brand. Tide, Heinz → 100%; Coca Cola → 50%; Volvo → 40%. Brand valuation: Apple – $170 billion; Google – $120 billion; Coca Cola – $78 billion.

Branding Decisions 1. 2. 3. 4. 5. 6. Brand or No brand Brand-sponsor decision Brand-name decision Brand positioning Brand-strategy decision Brand-management decision

Brand or No Brand? l l Advantages of branding: processing orders and track down problems, legal protection, loyal customers, segmenting markets, and the corporate image. Advantages of no branding: cheap (national brand: 20~40% off, store brand: 10~20% off).

Brand-Sponsor Decision l l l Manufacturer brand (national brand) Distributor brand (store brand or private label), e. g. Wellcome, Carrefour – past, now. Licensed brand name Co-branding: the practice of using the established brand names of two different companies on the same product. Ingredient branding

If a store brand is not profitable, are there other reasons for the retailer to develop the store brand?

If you have owned a national brand in the market, will you produce the same product for a retailer’s store brand?

Brand-Name Decision l l Individual names (個別品牌), e. g. P&G, Toyota. Blanket family names (家族品牌), e. g. Sony, Hitachi, and Panasonic. Separate family names for all products (單一家族品 牌), e. g. 黑松公司：碳酸飲料 → 黑松, 果汁 → 綠洲, 咖啡 → 韋恩. Corporate name combined with individual product names (公司名稱結合個別產品名稱), e. g. 統一純喫 茶, 統一茶裏王; Sony Bravia, Sony Walkman, Sony Vaio, Sony Play. Station.

Selecting a Brand Relationship Spectrum Position

Brand-Name Selection l l l Suggest something about the product’s benefits and qualities, e. g. OFF! bug spray. Easy to pronounce, recognize, and remember, e. g. Tide, Qoo. Distinctive, e. g. Kodak, Oracle. Extendable, e. g. Amazon. Translate easily into foreign languages, e. g. Exxon. Capable of registration and legal protection

Brand-Strategy Decision Product Category Brand Existent New Existent Line Extensions Brand Extensions New Multibrands Diversification

Peter Lynch’s Comment on Diversification l l Over-Diversification → Diworseification Examples l l l Mobil Oil（美孚石油） purchased Marcor Inc. (retail industry). 吉列曾收購藥廠、電子錶廠。 通用食品曾擁有中國餐館、玩具公司、旅行社、大 賣廠、鞋類產品等。

The Product Life Cycle l l l Product development Introduction Growth Maturity Decline

Figure: Sales and Profit Life Cycles

Introduction Stage of PLC l l l l Sales: low Costs: high cost per customer Profits: negative Marketing Objective: create product awareness and trial Product: offer a basic product Price: use cost-plus formula Distribution: build selective distribution Promotion: heavy to entice product trial

Growth Stage of PLC l l l l Sales: rapidly rising Costs: average cost per customer Profits: rising Marketing Objective: maximize market share Product: offer extension, service, warranty Price: penetration strategy Distribution: build intensive distribution Promotion: reduce to take advantage of demand

Maturity Stage of PLC l l l l Sales: peak Costs: low cost per customer Profits: high Marketing Objective: maximize profits while defending market share Product: diversify brand models Price: match or best competitors Distribution: build more intensive distribution Promotion: Increase to encourage brand switching

Maturity Stage of the PLC l l Modifying the Market: Increase the consumption of the current product. How? l l l Look for new users and market segments, e. g. Johnson & Johnson. Reposition the brand to appeal to larger or fastergrowing segment Look for ways to increase usage among present customers, e. g. Campbell, Amazon.

Modifying the Market l The WD-40 company’s knack for finding new uses has made this popular substance one of the truly essential survival items in most American homes.

Maturity Stage of the PLC l l Modifying the Product: Changing characteristics such as quality, features, or style to attract new users and to inspire more usage. How? l l Improve durability, reliability, speed, taste Improve styling and attractiveness Add new features Expand usefulness, safety, convenience

Modifying the Product l Crayola has added a steady stream of new colors, forms, and packages.

Maturity Stage of the PLC l l Modifying the Marketing Mix: Improving sales by changing one or more marketing mix elements. How? l l Cut prices Launch a better ad campaign Move into larger market channels Offer new or improved services to buyers

Decline Stage of PLC l l l l Sales: declining Costs: low cost per customer Profits: declining Marketing Objective: reduce expenditures and milk the brand (harvesting or divesting) Product: phase out weak items Price: cut price Distribution: selective--phase out unprofitable outlets Promotion: reduce to minimal level

Product Life Cycles l l The PLC concept can be used to analyze a product category, a product form, a product, or a brand. Not all products exhibit a bell-shaped PLC. l l Growth-slump-maturity pattern Cycle-recycle pattern Scalloped pattern Style, Fashion, Fad

Practical Problems of PLC l l l Hard to identify which stage of the PLC the product is in. Hard to pinpoint when the product moves to the next stage. Hard to identify factors that affect product’s movement through stages. Hard to forecast sales level, length of each stage, and shape of PLC. Strategy is both a cause and result of the PLC.