Chapter Five: Product Strategy

5.1 Meaning of a product

A product can be defined as anything that can be offered to a market for attention, acquisition, use, or
consumption that might satisfy a want or need. Products include more than just tangible objects, such as
cars, computers, or cell phones. Broadly defined, “products” also include services, events, persons,
places, organizations, ideas, or a mixture of these. However, many text books and modules refer product
to mean tangible items and services to refer to intangible ones. In strict sense, goods refer to tangible
items. However, do not get confused when you find product to refer to only tangible items or both
tangible and intangible items in this module.

Because of their importance in the world economy, we give special attention to services. Services are a
form of product that consists of activities, benefits, or satisfactions offered for sale that are essentially
intangible and do not result in the ownership of anything. Examples include banking, hotel services,
airline travel, retail, wireless communication, and home repair services.

5.2 Levels of a product

Levels of a Product

 Core benefit- What the consumer is really buying.

 Actual product- Includes the brand name, features, design, packaging, quality level.

 Augmented product- Additional services and benefits such as delivery and credit, instructions,
installation, warranty, service.

Core benefit:- Each level adds more customer value. The most basic level is the core benefit which
answers the question “What is the buyer really buying?” When designing the products, marketers must
first define the core, problem solving benefits or services that consumers seek. People buying a SONY
camera are buying more than a digital camcorder. They are buying a convenient, high quality way to
capture important moments and memories.

Actual product:- At this second level, product planners must turn the core benefit into actual product.
They need to develop product and service features, design a quality level, a brand name, and packaging.
For example, the SONY camcorder is an actual product. Its name, parts, style, color, features, packaging
and other attributes have all been combined carefully to deliver the core benefit of capturing memories.

Augmented product:- Finally all product manufactures must build an augmented product around the
core benefit and actual product by offering additional customer services and benefits. For example, when
customers buy a SONY camcorder, SONY and its dealers also might give buyers a warranty on parts and

1
workmanship, instructions on how to use the camcorder, quick repair services when needed and a toll free
telephone number if they have problems or questions.

Consumers see products as complex bundles of benefits that satisfy their needs. When developing
products, marketers first must identify the core consumer needs the product will satisfy. They must then
design the actual product and find ways to augment it in order to create the bundle of benefits that will
provide the most satisfying customer experience.

5.3 Product and Service Classifications

Products and services fall into two broad classes based on the types of consumers that use them:
consumer products and industrial products. Broadly defined, products also include other marketable
entities such as experiences, organizations, persons, places, and ideas.

5.3.1 Consumer Products:

These are Products and services bought by final consumers for personal consumption. Marketers usually
classify these products and services further based on how consumers go about buying them. Consumer
products can be grouped as convenience products, shopping products, specialty products and unsought
products. These products differ in the ways consumers buy them.

1. Convenience products

 Purchased frequently and immediately

 Low priced

 Mass advertising

 Many purchase locations

2. Shopping products

Shopping products: are less frequently purchased consumer products and services that consumers
compare carefully on suitability, quality, price, and style. When buying shopping products and services,
consumers spend much time and effort in gathering information and making comparisons.

 Bought less frequently

 Higher price

 Fewer purchase locations

 Comparison shop

3. Specialty products

Specialty products are consumer products and services with unique characteristics or brand identification
for which a significant group of buyers are willing to make a special purchase effort.

2
  Special purchase efforts

 High price

 Unique characteristics

 Brand identification

 Few purchase location

4. Unsought products

Unsought products are consumer products that the customer either doesn’t know about or knows about
but does not normally think of buying. Most major new innovations are unsought until customers become
aware of them through advertising.

 New innovations

 Products consumers do not want to think about

 Require much advertising and personal selling.

Examples: life insurance, cemetery plots, blood donation

5.3.2 Industrial Products

Industrial products are those purchased for further processing, or for use in conducting a business. Thus
the main difference between a consumer product and an industrial product is based on the purpose for
which the product is bought. If a consumer buys a desk top for use personal or home use, the desk top is a
consumer product. If the same consumer buys the same desk top for use in business organization use, the
desk top is an industrial product.

The industrial products include three groups:

i. Materials and parts: Materials and parts include raw materials and manufactured materials and parts.

ii. Capital items: Capital items are industrial products that aid in the buyers production or operations,
including installations and accessory equipments. Installation consists of major purchases such as
buildings (factories, offices etc) and fixed equipments (generators, large computer systems, elevators
etc). Accessory equipment includes portable factory equipment and tools and office equipment
(computers, fax machines, desks).

iii. Supplies and services: The final group of business products is suppliers and services. Supplies
include operating supplies (lubricants, coal, paper, pencils etc) and repair and maintenance items
(paints, nails).

Other Market Offerings

3
  Organizations: Profit (businesses) and nonprofit (schools and churches).

– Includes corporate image advertising.

 Persons: Politicians, entertainers, sports figures, doctors, and lawyers.

 Places: Create, maintain, or change attitudes or behavior toward particular places (e.g., tourism).

 Ideas (social marketing): Public health campaigns, environmental campaigns, family planning,
or human rights.

5.4 Services Marketing

Service marketing has got acceptance in the world economy as it is growing faster in the world, making
up 64 percent of the gross world product in developed countries. In developing countries like Ethiopian, it
is not yet fully developed and yet the trend is toward that. Service industries vary greatly. Governments
offer services through courts, employment services, hospitals, military services, police and fire
departments, the postal service, and schools. Private not-for-profit organizations offer services through
museums, charities, churches, colleges, foundations, and hospitals. A large number of business
organizations offer services—airlines, banks, hotels, insurance companies, consulting firms, medical and
legal practices, entertainment and telecommunications companies, real-estate firms, retailers, and others.

The Nature and Characteristics of a Service:-

A company must consider four special service characteristics when designing marketing programs:
intangibility, inseparability, variability, and perishability. Service intangibility means that services cannot
be seen, tasted, felt, heard, or smelled before they are bought.

For example, people undergoing cosmetic surgery cannot see the result before the purchase. Airline
passengers have nothing but a ticket and a promise that they and their luggage will arrive safely at the
intended destination, hopefully at the same time. To reduce uncertainty, buyers look for “signals” of
service quality. They draw conclusions about quality from the place, people, price, equipment, and
communications that they can see. Therefore, the service provider’s task is to make the service tangible in
one or more ways and send the right signals about quality. One analyst calls this evidence management, in
which the service organization presents its customers with organized, honest evidence of its capabilities.

Service variability means that the quality of services depends on who provides them as well as when,
where, and how they are provided. For example, some hotels—say, Sheraton—have reputations for
providing better service than others. Still, within a given Sheraton hotel, one registration-counter
employee may be cheerful and efficient, whereas another standing just a few feet away may be unpleasant
and slow. Even the quality of a single Sheraton employee’s service varies according to his or her energy
and frame of mind at the time of each customer encounter.

Service perishability means that services cannot be stored for later sale or use. Some doctors charge
patients for missed appointments because the service value existed only at that point and disappeared
when the patient did not show up. The perishability of services is not a problem when demand is steady.
However, when demand fluctuates, service firms often have difficult problems. For example, because of
rush-hour demand, public transportation companies have to own much more equipment than they would

4
if demand were even throughout the day. Thus, service firms often design strategies for producing a better
match between demand and supply. Hotels and resorts charge lower prices in the off-season (Rainy
seasons in Ethiopian case when tourist inflow is lower) to attract more guests. And restaurants hire part-
time employees to serve during peak periods.

5.5 PRODUCT & SERVICE DECISIONS

Marketers make product and service decisions at three levels.

1. Individual product decisions

2. Product line decisions

3. Product mix decisions

5.5.1 INDIVIDUAL PRODUCT DECISIONS:

The figure above shows the important decisions in the development and marketing of individual product
and services. We will focus on decisions about product attributes, branding, packaging, and labeling and
product support services.

I. Product attribute: under product attribute product quality, product feature and product style
and design will be discussed.

A. Product Quality: Product quality is one of the marketers major

positioning tools. Product Quality is the ability of a product to
perform its functions. It includes products overall durability,
reliability, precision, ease of use and other valuable attributes. In the
narrow sense, quality can be defined as the “freedom from defects”.

Product quality has two dimensions- level and consistency. In developing a product, the marketer must
first choose a quality level that will support the product positioning. Here the product quality means
performance quality-the ability of the product to perform its functions.

High quality can also mean high levels of quality consistency. Here product quality means conformance
quality- freedom from defects and consistency in delivering targeted level of performance. All companies
should strive for high levels of conformance quality.

B. Product features

Product features differentiates a product from the competition. A product can be offered with varying
features. A stripped down model – one without any extras is the starting point.

5
The company can create higher level models by adding more features. Being the first producer to
introduce a needed and valued new feature is one of the most effective ways to compete.

C. Product style and design

Another way to add customer value is through distinctive product style and design. Design is a larger
concept than style. Style simply describes the appearance of a product. A sensational style may grab
attention and produce pleasing aesthetics, but it does not necessarily to perform better. Unlike style,
design is more than skin deep- it goes to the very heart of the product. Good design contributes to a
product’s usefulness as well as to its looks.

Good design begins with a deeper understanding of customer needs. More than simply creating products
and attributes, it involves shaping the customer’s product use experience.

II. Branding

A brand is a name, term, sign, symbol, or design, or a combination of these, that identifies the maker or
seller of a product or service. Perhaps the most important skill of professional marketers is their ability to
build and manage brands. Consumers view brand as an important part of a product and branding can add
value to a product. 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 brand know that they will get the same features, benefits, quality each time they buy.

Brand name also gives the seller several advantages. The seller’s brand name and trademark provide legal
protection for unique product features that otherwise might be copied by competitors.

III. Packaging

Packaging involves designing and producing the container or wrapper for a product.

Product Packaging,

 Protects the product

 Enhances usage

 Contains the label

 Attracts consumers

IV. Labeling

Labels are Printed information appearing on or with the package. Labels may range from simple tags
attached to products to complex graphics that are part of the package. They perform several functions.

Performs several functions:

a. Identifies product or brand

b. Describes several things about the product

6
 c. Promotes the product through attractive graphics

5.5.2Product Support Services

Customer service is another element of the product strategy.

• Assess the value of current services and obtain ideas for new services.

• Assess the cost of providing the services.

• Put together a package of services that delights the customers and yields profits for the company.

Many companies are now using a sophisticated mix of phone, email, fax, internet, and interactive voice
data technologies to provide support services that were not possible before.

5.5.2.1 Product line decisions

A 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 same type of outlets or fall within given price
ranges.

The major product line decision involves product line length- the number of items in the product line. The
line is too short if the managers can increase profits by adding items or the line is too long if the manager
can increase profits by dropping items from the product line. A manager can lengthen its product line by
two ways. One is product line stretching and the other is product line filling.

Product line stretching: occurs when a company lengthens its product line beyond its current range. The
company can stretch its line downward, upward, or both ways. Companies located at the upper end of the
market can stretch their lines downward. It may add low end products because it finds faster growth
taking place in the low end segments.

Similarly companies at the lower end of a market can stretch their product lines upward. Sometimes
companies stretch upward in order to add prestige to their current products. Or they may be attracted by a
faster growth rate or higher margins at the higher end.

An alternative to product line stretching is product line filling- adding more items within the present
range of the line. There are several reasons for product line filling: reaching for extra profits, satisfying
the dealers, using excess capacity etc.

5.5.2.2 Product Mix Decisions

A Product mix consists of all the product lines and items that a particular seller offers for sale.

A company’s product mix has four important dimensions: width, length, depth and consistency.

Product mix width refers to the number of different product lines the company carries. Product mix length
refers to the total number of items the company carries within its product line. Product line depth refers
to the number of versions offered for each product in the line. Colgate toothpaste comes in different
varieties such as Colgate total, Colgate fresh confidence etc. Finally consistency of the product mix refers

7
to how closely relate the various product lines are in end use, production requirements, distribution
channels, or some other way.

5.6 New-Product Development Strategy

A firm can obtain new products in two ways. One is through acquisition—by buying a whole company, a
patent, or a license to produce someone else’s product. The other is through the firm’s own new-product
development efforts. By new products we mean original products, product improvements, product
modifications, and new brands that the firm develops through its own R&D efforts. In this section, we
concentrate on new-product development.

Strategies for obtaining new-product ideas:

– Acquisition of companies, patents, licenses

– New product development, product improvements and modifications

New Product development: The development of original products, product improvements, product
modifications, and new brands through the firm’s own R &D efforts.

Reasons for New Product Failures

– Overestimation of market size

– Design problems

– Incorrectly positioned, priced, or advertised

– Pushed despite poor marketing research findings

– Development costs

– Competition

Major Stages in New-Product Development

1. Idea generation

2. Idea screening

3. Concept development and testing

4. Marketing strategy development

5. Business analysis

6. Product development

8
 7. Test marketing

8. Commercialization

1. Idea generation

New product development starts with idea generation-The systematic search for new product ideas. A
company typically has to generate many ideas in order to find a few good ones. For example, in one
brainstorming session for one product about 100 or more ideas may be generated and e only 10 ideas may
be considered usable for further analysis. In this regard, major sources for new ideas include internal
sources and external sources such as customers, competitors, distributors, and suppliers, and others.

Internal idea sources

Internal sources include company employees at all levels. Companies can pick the brains of its
executives, scientists, engineers, manufacturing staff, and sales people.

External idea sources

Customers: Good new product ideas also come from watching and listening to customers. Company
engineers or sales people can meet with and work alongside to get suggestions and ideas.

Competitors: Companies watch competitor’s adds to get clues about their new products. They buying
competing new products, take them apart to see how they work, analyze their sales, and decide whether
they should bring out a new product of their own.

Distributors & Suppliers: Distributors and suppliers can also contribute many good and new product
ideas. Resellers are those close to the market and can pass along information about customer problems
and new product possibilities. Suppliers can tell company about new concepts, techniques, and materials
that can be used to develop new products.

Outsourcing: Many companies are now outsourcing some of their new product innovation to outside
developers. Although such practice is uncommon in Ethiopia, many well known companies outsource
such practices to specialized firms. Other idea sources include Trade magazines, shows, seminars,
government agencies, new product consultants, advertising agencies, marketing research firms, university
and commercial laboratories, and inventors.

2. Idea Screening

Process used to spot good ideas and drop poor ones.

The purpose of idea generation is to create a large number of ideas. The purpose of the succeeding stages
is to reduce that number. The first idea reducing stage is the Idea screening.

9
“Is the product truly useful to the consumers and society?”, “Do we have the people, skills, resources, to
make it proceed?” etc.

3. Concept development and testing

An attractive idea must be developed into a product concept. It is important to distinguish between
product idea, product concept, and a product image.

 Product Idea:

– Idea for a possible product that the company can see itself offering.

 Product Concept:

– Detailed version of the idea stated in meaningful consumer terms.

 Product Image:

– The way consumers perceive an actual or potential product.

-concept testing

Testing the new product concepts with a group of target consumers to find out if the concepts have strong
consumer appeal is called concept testing. After being exposed to the concept, consumers then may be
asked to react to it by answering questions regarding the proposed product.

4. Marketing Strategy Development

The next step is marketing strategy development which is designing an initial marketing strategy for a
new product based on the product concept. The marketing strategy statement consists of three parts.

 Part One: Describes the target market, planned product positions, sales, market share, and
profit goals.

 Part Two: Outlines the product’s planned price, distribution, and marketing budget.

 Part Three: Describes the long-run sales and profit goals, marketing mix strategy.

5. Business analysis

 Involves a review of the sales, costs, and profit projections to assess fit with company objectives.

 If results are positive, project moves to the product development phase.

6. Product development

Product development involves developing the product concept into physical product in order to ensure
that the product idea can be turned into a workable product.

10
  Calls for large jump in investment.

 Prototypes are made.

 Prototype must have correct physical features and convey psychological characteristics

7. Test marketing

If the product passes functional and a consumer test, the next step is Test marketing, the stages of product
development in which the product and marketing program are tested in more realistic market settings.

 Product and program introduced in more realistic market setting.

 Not needed for all products.

 Can be expensive and time consuming, but better than making major marketing mistake.

8. Commercialization

Test marketing gives the management the information needed to make final decision about whether
to .launch a new product. Commercialization means introducing the new product into the market. The
company may have to build or rent a manufacturing facility.

The company launching of a new product

 Must decide on timing (i.e., when to introduce the product).

 Must decide on where to introduce the product (e.g., single location, state, region, nationally,
internationally).

 Must develop a market rollout plan.

5.7 The Product Life Cycle (Plc)

After launching the new product, management wants the product to enjoy a long and happy life. Although
the company doesn’t expect its product to sell forever, the company wants to earn a decent profit to cover
all the effort and risk that went into launching it.

Product Life Cycle (PLC) is the course of a products sales and profits over its lifetime. It involves five
distinct stages: product development, introduction, growth, maturity and decline. Figure given below
shows a typical product life cycle (PLC) although its exact length and shape is not known in advance

11
 1. Introduction Stage of PLC

The introduction stage starts when the new product is first launched. Introduction takes time, and sales
growth is apt to be slow. In this stage, as compared to the others, profits are negative or low because of
the low sales and high distribution and promotion expenses. Much money is needed to attract distributors
and build their own inventories. Promotion spending is relatively high to inform consumers of the new
product and get them to try it.

2. Growth Stage of PLC

If the new product satisfies the market, it will enter a new growth stage in which sales will start climbing
quickly. The early adopters will continue to buy and later buyers will start following their lead, especially
if they hear favorable word of mouth.

Attracted by the opportunities for profit, new competitors will enter the market. They will introduce new
product features, and the market will expand. The increase in competitors will lead to increase in the
number of distribution outlets, sales jump just to build reseller inventories. Prices remain same or fall
only slightly. Companies keep their promotion spending at the same or a slightly higher level. Profits
increase during the growth stage, as promotion expenses are spread over a large volume and as unit
manufacturing costs fall. The firm uses several strategies to sustain rapid market growth rate as long as
possible.

3. Maturity Stage of PLC

At this stage of PLC, product sales growth will slow down. The maturity stage normally lasts longer than
the previous stages and poses strong challenges to marketing management. In any market, most products
are in the maturity stages of the life cycle. Therefore, most of the marketing management deals with
mature product.

12
Competitors begin marking down prices, increasing their advertising and sales promotion and allocate
their R&D budgets to find better versions of the product. These steps lead to a drop in profit. Some of the
weaker competitors start dropping out, and the industry eventually contains only well established
competitors.

4. Decline Stage of PLC

The sales of most product forms and brands eventually dip. The decline may be slow or rapid depends on
the products. Sales may plunge to zero or they may drop to a level where they continue for many years.
This stage is the decline stage.

As sales and profits decline, some firms withdraw from the market.

A weak product often requires frequent price and inventory adjustments. A products falling reputation can
cause customers concern about the company and its products. For these reasons, companies need to pay
more attention to their aging products. The firm’s first task is to identify those products in the decline
stage by regularly reviewing sales, market shares, costs and profit

13