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Chapter 7: Product Decisions
Chapter Objectives
After reading this chapter, students should understand:

· The elements of brand equity, building strong brand equity, and leveraging
brand equity through brand extensions

· Developing perceptual maps to make positioning and repositioning decisions

· Global and technology-related issues in positioning and branding

· Product line management

· Issues in packaging and product design

Chapter Overview
The purpose of this chapter is focus on areas of product decision-making. Although
some product-related issues were discussed in Chapter 2 as part of the development of a
marketing strategy, this chapter expands those discussions and includes other relevant
topics for marketing managers.

Chapter Outline and Key Terms

Product Decisions

Key Terms:
· Product features
· Product line
· Packaging
· Product design
· Global marketing
· Position
· Joint space
· Multidimensional scaling (MDS)
· Original equipment manufacturer (OEM)
· Global marketing
· Product line strategy
· Cannibalization
· Mass customization
· Customerization
· Choiceboards
Copyright© 2011 Pearson Education, Inc., publishing as Prentice Hall 1
A. Definitions
1. Product features: Are the characteristics or attributes of a product or service.

2. Product line: A group of closely related products.

3. Packaging: The design of the container for the product in which it is

displayed in a retail environment.

4. Product design: Combines art, science, and technology to create tangible

three-dimensional goods.

5. Position: The communication of the value proposition to the customer,

which differentiates the product from competition in the mind of the
prospect.

6. Joint space: A perceptual map that contains both brand spatial locations as
well as consumer perceptions of their ideal brand.

7. Multidimensional scaling (MDS): Develop perceptual maps based on

customer-based judgments of brand similarity.

8. Original equipment manufacturer (OEM): A channel of distribution for

technology-based products; companies that purchase ingredients or
components (e.g., hard disk drives) from manufacturers.

9. Global marketing: A generic term encompassing any marketing activities

outside a company’s home market; also a standardization of the strategies
used to market a product around the world.

10. Product line strategy: A marketing strategy covering a set of related

products.

11. Cannibalization: The amount of sales for a new element of a product line
that is taken away from an existing element of the line.

12. Mass customization: Also called one-to-one marketing, a new marketing

process whereby a company takes a product or service that is widely
marketed and develops a system for customizing it to each customer’s
specifications.

13. Customerization: A process whereby a company takes a product or service

that is widely marketed and perhaps offered to many different
configurations and develops a system for customizing (or nearly
customizing) it to each customer’s specifications.

Copyright© 2011 Pearson Education, Inc., publishing as Prentice Hall 2

 14. Choiceboards: Online, interactive systems that allow individual customers to
design their own products by choose from an array of attributes, delivery
options, and prices.

B. Branding
1. Why customers value brands:
· Reduced information search costs.
· Risk reduction.
· Expectations of quality
· Prestige and emotional needs

2. Types of brands
· Corporate brands: Company brands. (Companies like GE, Clorox, etc.,
are corporate names that are brands in themselves.)
· Corporate parent brands: Brand names where the corporate brand is
carried with individual product names. (Snap-on Tool’s heavy duty air
hammer is the PH2050 and referred to as the Snap-on PH2050.)
· Distinct product brands: Brand names separate from the corporate brand.
(Crest is not marketed with the Proctor & Gamble name.)
· Sub-brands: Include the name of the corporate brand along with the
distinct product brand. (Sony PlayStation, Nestle Kit Kat)
· Co-brands: Two independent companies have both brands highlighted in
a product. (Haagen-Daz’s ice cream and M&M’s)
· Ingredient brands: A special case of co-branding. (Intel, Dolby,
DuPont’s Gore-Tex)

3. Dimensions of brand equity

· Brand loyalty: Strongest measure of a brand’s value. How loyal
customers are.
· Brand awareness: Simplest form of brand equity is familiarity.
· Perceived quality: A quality association with the brand.
· Brand association: More subjective and emotional associations are
important parts of brand value.
· Other brand assets: Patents and trademarks are also valuable to products
and services.

· Figure 7.1 Page 181 Brand Equity. Demonstrates brand equity and the
associated dimensions.
· Illustration: Aflac, Inc., (www.aflac.com) Page 182
· Illustration: IKEA, (www.ikea.com) Page 183

4. Building strong brands

· Create brand identity: Differentiate brand from others
· Be consistent over time: Not changing advertising or selling messages

Copyright© 2011 Pearson Education, Inc., publishing as Prentice Hall 3

 · Track the equity: Measuring the dimensions of equity over time relative
to competitors
· Assign responsibility for brand development activities: Assigning
someone to oversee the brand.
· Invest in the brands: Investing enough in the brand to keep it strong

5. Brand extensions
· Leveraging the brand into new product categories

· Illustration: Brand Extensions Page 184. Include:

· Montblanc wrist watches (from pens)
· ESPN cellular phone service
· Nike into clothing and sportswear
· IBM into IT consulting
· Michelin work boots
· M&M’s stereo ear buds

· Main considerations for fit of an extension to the parent brand category

include:
· Transferability of the associations
· Complementarity of the product
· Similarity of the users
· Transferability of the symbol
· Illustration: Virgin (www.virgin.com) Page 185
· Illustration: Mountain Dew Code Red (www.mountaindew.com)
Page 185

6. Global Branding
· Theodore Levitt’s Model for Global Branding:
· Consumer convergence
· Demographic convergence
· Decline of the nuclear family
· The changing role of women
· Static populations
· Higher living standards
· Cultural convergence
· Illustration: Table 7.2 Page 188 Best Global Brands
· Illustration: L’Oreal (www.loreal.com) Page 188
· Illustration: Vodafone (www.vodafone.com) Page 188

7. Branding Issues
· Brand personality
· Brand person relationships
· Logos
· Illustration: Audi (www.audi.com) Page 192
·

Copyright© 2011 Pearson Education, Inc., publishing as Prentice Hall 4

C. Marketing Return on Investment (ROI) and Branding
1. In context of branding, there are two approaches to measuring brand equity:
· Behavioral measures: These represent how customers have actually
responded to the brand (Table 7.2 Page 188, Leading Global Brands,
demonstrates behavioral measures as related to customer activity.)

· Intermediate measures: These are measures of how the brand is

represented psychologically in the minds of the customers (Figure 7.1
Page 191, Brand Equity, produces examples of at least 3 intermediate
measures.)

2. Alternative model (Developed by Young & Rubicam) is called the Brand

Asset Valuator). The BAV includes four key dimensions:
· Differentiation: How different or unique is the brand from the
competition?
· Relevance: How relevant is the brand to the target customer?
· Esteem: How high is the regard or value for the brand?
· Knowledge: How much information does the customer about the value
of the brand

D. Product Positioning
1. Concept of product positioning becomes clearer when thinking about
different steps involved in product positioning:
· Determine product’s current position.
· If you are satisfied with the position and brand performance, continue
with the current strategy and value proposition. The product is “well-
positioned.”
· If you are dissatisfied with the current position, the brand needs to be
repositioned and the value proposition may need to be modified.
· If the product is new, step 2 is irrelevant and step 3 becomes the position
you are creating for it.

2. Determining a product’s position:

· Attribute-based methods: Perceptual maps (Figure 7.5 Page 196 Credit
Card Joint Space: Attribute-based.) When an ideal “point” is plotted
with the brands, it is called joint space.
· Methods based on similarity judgments: Based on customer-based
judgments. This is called multi-dimensional scaling (MDS) (Figure 7.6
Page 197 Credit Card Joint Space: Multidimensional Scaling Version.)

3. Positioning decisions

Copyright© 2011 Pearson Education, Inc., publishing as Prentice Hall 5

 · Positioning decisions can be linked to various stages of the product’s life
cycle (Figure 2.8)
· Multiple positions: When a product is being marketed to multiple target
markets, it normal for the value proposition and positioning to be different
· Illustration: Volkswagen Skoda (www.vw.com) Page 198

4. Product feature decisions

· Developing different product features for different segments is particularly
appealing for services and information goods
· Developing different product features for different segments for
manufactured goods can be expensive
· Product or services can be developed or modified for entirely different target
groups (Marriott’s different hotel brands)

5. Product line decisions

· Strategies may have to be developed for a group of closely related products
(product lines)
· Product lines may include complementary products, which are intended to
be used together but could also be marketed separately
· In developing a product line strategy, the marketing manager must address a
number of issues
· How many products should be in the line?
· How should the products in the line be targeted and differentiated?
· How should resources be allocated across the line to maximize profits or
market share?

6. Number of products and differentiation

· Add variants to the line as long as the incremental sales exceed the
incremental costs
· Unsuccessful additions can cost loss of goodwill and have long-term
negative consequences
· Some other negative aspects are in terms of cannibalization (sales of one
product at the expense of other existing products in the line)
· Adding products can have an effect on overall branding (adding a luxury
line for example)

7. Resource allocation
· Resource allocation depends on the nature of the product line
· If products are promoted as a single line, then a single marketing strategy
may be used
· When elements of the line appeal to different segments with different
characteristics such as growth rates or competition, then multiple strategies
or another approach might be used.
· Most popular approach to the above, would be the portfolio approach
(introduced by The Boston Consulting Group)

Copyright© 2011 Pearson Education, Inc., publishing as Prentice Hall 6

 · Portfolio approach is also called The Growth Share Matrix. (Figure 7.7
Page 201 Growth Share Matrix)
· The two dimensions of the Growth Share Matrix are relative market
share and market growth and incorporate the following definitions:
· The market is defined as the served market or market segment
· Market share is defined as relative share (Figure 7.7 Page 201
Growth Share Matrix)
· Market growth is the sales growth rate in the served market

E. Mass Customization
1. Changes in information technology have permitted a fundamental change in
product line policy: from company-supplied to customer-demanded variations
(mass customization or customerization)

2. System is developed to take a product or service that is widely marketed and

offers it many different configurations to customers’ specifications

3. Choiceboards are online interactive systems that allow customers to design their
own products

4. Examples of mass customization are:

· Ross Controls
· Nike and Converse (www.nikeid.com and www.converse.com)
· Stamps.com
· M&Ms (www.mymms.com)

5. Four different approaches to mass customization:

· Collaborative customizers (individuals help determine their needs)
· Adaptive customizers (offer one standard but offer the ability for customer
to alter it to their own specs)
· Cosmetic customizers (products presented differently to each customer)
· Transparent (present products to each customer without telling them the
products have been customized for them)

F. Packaging and Product Design

1. Packaging decisions have both functional and strategic implications for a
product

2. Functional perspective: Protect contents, etc.

3. Strategic: Helps differentiate product from others

4. Illustration: Heineken DraughtKeg (http://heinekendraughtkeg.com)

Page 204

Copyright© 2011 Pearson Education, Inc., publishing as Prentice Hall 7

Teaching Tips and Strategies from Barbara S. Faries, MBA
The purpose of this chapter is focus on areas of product decision-making. Although
some product-related issues were discussed in Chapter 2 as part of the development of a
marketing strategy, this chapter expands those discussions and includes other relevant
topics for marketing managers.

Key Terms and Concepts Introduced Include:

· Product features
· Product line
· Packaging
· Product design
· Global marketing
· Position
· Joint space
· Multidimensional scaling (MDS)
· Original equipment manufacturer (OEM)
· Global marketing
· Product line strategy
· Cannibalization
· Mass customization
· Customerization
· Choiceboards

Note: Two recurring themes in this Instructor’s Manual are the first two items:
· Link theory to practice.
· Engage students to link work experience to the concepts demonstrated in
the text.

· Instructors are encouraged to link theory to practice by finding current examples

in the business environment that demonstrate the key concepts above.
· If your class contains those already working in the field, have them describe how
the concepts in theory match those in the actual workplace.

A large portion of this chapter is devoted to branding and the key concepts behind
brands, brand equity, and the implications branding has on the overall marketing efforts of
a company. I generally suggest discussing these concepts in terms of well-known brands
and have the students discuss the brands with which they are familiar.

As important as branding, are the key decisions that they must make as product or
marketing executives such as: product feature decisions, positioning decisions, product line
decisions, product differentiation decisions, and other closely related strategic decisions
that they will make as senior level executives. I also discuss The Boston Consulting
Group’s Growth Share Matrix as it relates to the product life cycle and the accompanying
decisions that products in the life cycle will require. If available, I suggest using a real life

Copyright© 2011 Pearson Education, Inc., publishing as Prentice Hall 8

example to demonstrate how a product might progress through the life cycle and what the
differences in the decision-making process might be at each stage.

Finally, it is important to discuss the concept of return on investment (ROI). From

an executive’s viewpoint, this is key term. I often point out to the students that sometimes a
large investment in product marketing may not make sense in terms of the low expected
return on the investment required. I often integrate ROI into the discussion of The Boston
Consulting Group’s Matrix and ask them to consider investments in terms of the life cycle.

Within this context, I also suggest a discussion on resource allocation. How does a
manager allocate resources under difficult circumstances? How does this effect product
decision-making? Is ROI a consideration? How does resource allocation effect product line
extensions or expansion?

Copyright© 2011 Pearson Education, Inc., publishing as Prentice Hall 9

Review Questions
1. Pick two companies with different branding strategies (i.e., corporate parent
brands vs. distinct product brands). Why do you think they are using different
branding approaches?

The answer to this question will vary. The key is for students to understand that there are
different branding strategies for the above situation. Corporate Brands, usually try to
promote all or some of their product line at a time. Distinct product brands tend to focus on
the name of the item or brand being promoted.

An interesting example for the students to discuss would be the Clorox Company, which
owns and markets, Burt’s Bees, a product line of natural skin care, beauty, and natural
personal care. Clorox realizes that it is normally identified by its major brand: Clorox
bleach, which can be toxic and poisonous. They have carefully branded and marketed the
Burt’s Bees product line as distinct from the corporation. This product line is positioned as
natural and personally (and environmentally) friendly.

2. Choose a brand that you think is weak in the minds of customers. Using the
framework shown in Figure 7.1, what are the elements of brand equity that are
deficient for this product?

This answer to this question will vary. Look for students’ answers to this question to
incorporate the five dimensions of Figure 7.1 (Brand Loyalty, Brand Awareness, Perceived
Quality, Brand Associations, and Other Proprietary Brand Assets).

3. Given the two brand names Nabisco and Mercedes Benz, choose several brand
extensions that you believe make sense and several that do not. Explain why.

The answer to this question will vary. The key is to make sure students understand that
Mercedes Benz has higher brand equity than Nabisco. Mercedes will be able to launch
brand extensions at a higher price than Nabisco. Mercedes also has to be careful to not
launch a brand extension that will dilute the brand equity of the company. Some fruitful
brand extensions for Mercedes are clothing (high-end), jewelry. Nabisco could extend into
low calorie snack crackers since the category fit and image association congruent with the
brand.

4. Are there some product categories that are more amenable to global branding than
others are? What are the general characteristics of those that work and those that
do not?

This question depends on what type of product is being launched. General characteristics of
those that work versus those that do not could be attributable to the astuteness of the
company to adjust to cultural and environmental differences inherent in marketing in a

Copyright© 2011 Pearson Education, Inc., publishing as Prentice Hall 10

global marketplace. A discussion regarding product customization to accommodate cultural
and environmental differences would be interesting.

5. In late 2002, Dell Computer Corporation decided to start selling “white boxes,”
unbranded PCs, to computer distributors who then put their own or some other
private label brand name on them. Do you think this was a good idea? Why or why
not? (Hint: Dell killed the idea in 2005)

A discussion on potential cannibalization would be one approach to answering this

question. Dell may have sacrificed its main products and brand equity just to gain sales
volume. Why would consumers buy a Dell if they knew they could buy a “white box” and
get the same (or perceived same) product?

6. Give several examples of brands that have been recently repositioned. How has this
been implemented and for what reason?

The answer to this will vary. The key is for students to signify why the brand had to be
repositioned. Abercrombie & Fitch is a brand that has been repositioned over the years. For
many years, it was the epitome of classic clothing and style. It has been repositioned as a
young hip brand for a much younger buying segment. Microsoft has repositioned itself to
reflect an image closer to Apple’s with clean branding images and marketing messages.

7. Are there some kinds of products and services that can more easily mass customized
than others can? Are there any negatives to mass customization?

Many types of products and services can be customized—even Internet advertising can be
delivered as customized according to the search characteristics of the users, their
demographics, and many other factors. As technology advances, it will be easier to offer
customized products and services. However, one of the drawbacks is that the company
must be careful to make sure that it can properly and correctly execute on the
customization.

Copyright© 2011 Pearson Education, Inc., publishing as Prentice Hall 11

Exercises, Activities, and Projects
Purpose: To help students link theory to real life.
To demonstrate the important implications product decisions have on the business
success or failure of a product or company.

· Have the students take a product (either from their own companies or another)
and walk through The Growth Share Matrix and the implications for changes in
product decisions at each stage.

· Have the students create an ROI model based on the above or another product
of their choice.

· Have the students discuss a product with which they are familiar or from their
own business experience. Discuss the various product decisions that were made
either from launch stage or through the product life cycle and the issues
associated with the ultimate outcome.

Copyright© 2011 Pearson Education, Inc., publishing as Prentice Hall 12

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Footnotes:
[1] This value varies with experimental environment of core.
[2] This value varies with experimental environment of core.
[3] P1: Center of Glory Hole; P2: Core Surface (11.3 cm from
Core Center); P3: 1 meter from Core Center.
[4] These values are approximate and meant for qualitative
comparison only.
[5] P1: Center of Glory Hole; P2: Core Surface; P3: 1 Meter from
Core Center.
[6] Ionization and elastic recoil processes contribute roughly equal
amounts to the total kerma.
[7] P1: Center of Glory Hole; P2: Core Surface; P3: 1 Meter from
Core Center.
[8] Representative data. Actual values influenced by core
operating history.
 Transcriber’s Notes:

The illustrations have been moved so that they do not break up paragraphs and so
that they are next to the text they illustrate.
Typographical and punctuation errors have been silently corrected.
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