Setting Product Strategy: Marketing Management

Setting Product
12
Strategy
Marketing
Management:
An Asian Perspective
(5th edition)
Philip Kotler, Kevin Lane Keller, Swee Hoon Ang,
Siew Meng Leong, & Chin Tiong Tan
Slides adapted by
Geoffrey da Silva
Copyright © 2009 Pearson Education South Asia Pte Ltd 12-1
Learning Objectives:
 Understand what are the characteristics of products
and how do marketers classify products.
 Understand how companies can differentiate products
 Understand how a company can build and manage its
product mix and product lines
 Understand how companies can combine products to
create strong co-brands or ingredient brands
 Understand how companies can use packaging,
labeling, warranties, and guarantees as marketing tools

The essence of Chapter Twelve:
At the heart of a great brand is a great product.
A product is a key element in the market offering. Market

leaders generally offer products and services of superior
quality. Marketing planning begins with formulation an
offering to meet target customers’ needs or wants.
The customer will judge the offering by three basic

elements: product features and quality, services, quality, and
price.

What is a product?
 A product is anything  Physical goods
that can be offered to a  Services
market to satisfy a want  Experiences
or need.
 Events
 Persons
Products that are marketed  Places
include:  Properties
 Organizations
 Information
 Ideas
Figure 12.1 Components of the
Market Offering

Product Levels: The Customer
Value Hierarchy
 In planning its market

offering, the
marketer needs to
address five product
levels. Each level
adds more customer
value, and the five
constitute a
customer value
hierarchy. Figure 12.2 Five Product Levels

Product Levels: The Customer Value
Hierarchy
 Core benefit: Service customer buys
 Turned into basic product
 Expected product - attributes expected
 Augmented product - exceeds expectations
 Potential product- all possible future

augmentations & transformations of product
Group Assignment
 Your groups are establishing:
 a restaurant (group 1)
 a coffee shop (group 2)
 a fashion shop (group 3)
 a gym (group 4)
 a shoes shop (group 5)
 a game shop (group 6)
 You need to:

 Discuss the 5 product levels of your product/ services above.
 What stage in the PLC (product life cycle) of your product/
service? Why? What marketing strategy you need to apply?

Product Levels: The Customer Value
Hierarchy
Product augmentation
 Consumption system - Way user
performs tasks to get & use product
1. Adds cost
2. Augmented become expected benefits
3. Price rises, competitors - “stripped-
down” version - lower price

Product Characteristics &
Classifications
 Products traditionally classified:

 Durability
 Tangibility &
 Use (consumer or industrial)
 Each product type - own marketing-mix
strategy
Durability and Tangibility
Nondurable
goods
Durable
Services
goods

Classifications
DURABILITY & TANGIBILITY
1. Non-durable goods - tangible goods -

one/few uses – eg: beer & soap
2. Durable goods - tangible goods - many uses –
eg: refrigerators
3. Services - intangible, inseparable, variable &
perishable products
Consumer Goods Classification
Convenience Shopping
Specialty Unsought

Classifications
CONSUMER-GOODS
1. Convenience goods – frequent, quick purchases, requires

minimum effort
2. Shopping goods – compare suitability, quality, price &
style
3. Specialty goods – unique character or brand - few will buy
4. Unsought goods – not aware of or never thought of
buying

Differentiation
– Product Differentiation
 FORM: size, shape or physical structure
 FEATURES: supplement basic function
 PERFORMANCE QUALITY
 Level- primary characteristics operate
 CONFORMANCE QUALITY
 Degree units – identical, meet promised
specification
As part of its performance quality, Essilor
introduced Varilux Physio 360°, the first
progressive lens to use technology that
was used in laser surgery and advanced
astronomy for sharper vision and great
looks.

Differentiation
– Product Differentiation
 DURABILITY
 Product’s expected operating life
 REPAIRABILITY
 Ease of fixing product – malfunctions/fails
 RELIABILITY
 Probability product will not malfunction or fail
in a stated time period
 STYLE
 Product’s look & feel to a potential buyer
Toyota
Toyota’s
product
strategy is
built on
innovation
and agility

Style
3 style principles for Asia

1. Complexity & decoration
2. Balancing various aesthetic
elements
3. Naturalism

Product Differentiation through design
ABSOLUT vodka uses aesthetics in its print ads to

appeal to different market segments

Differentiation
– Design The Integrative Force
Design
Totality of features
that affects how
product looks & functions
in terms of
customer requirements

Differentiation
– Design The Integrative Force
 Design
 Essential to differentiate & position
product/service
 Gives company a competitive edge

Differentiation – Services
Differentiation
 If physical product not easily

differentiated,
 Then, the key to competitive
success may lie in
adding valued services &
improving their quality

Differentiation
Main service differentiators:
 ORDERING EASE: ease to place an order
 DELIVERY: how well is the product delivered
 INSTALLATION: work done before a product is

considered operational in a planned location

Differentiation
 CUSTOMER TRAINING
 Employee user training - vendor equipment
 CUSTOMER CONSULTING
 Data, information systems & advice services
seller offers to buyers
 MAINTENANCE & REPAIR

 Service program - help customers ensure
bought products are in good working order

The Product Hierarchy
6 levels of product hierarchy
Item
Product type
Product line
Product class
Product family
Need family
Product & Brand Relationships
–Product Systems & Mixes
 Product system
 Diverse but related items - function -
compatible manner
 Product mix
 All products seller offers for sale
 Certain width, length, depth & consistency

–Product Systems & Mixes
 Width – number of product lines

 Length - number of items in mix
 Depth - how many variants in each line
 Consistency - how close lines are in end use,
distribution etc
How to expand businesses - product -line

analysis - usefulness
Table 12.1
Product-Mix Width & Product-Line Length for Lion
Products
Copyright ©
Copyright © 2009
2009 Pearson
Pearson Education
EducationSouth
SouthAsia
AsiaPte
PteLtd
Ltd 12-30
© Kotler, Keller, Ang, Leong & Tan
–Product-Line Length
 LINE STRETCHING - lengthens product

line beyond current range
1. Down-Market Stretch - introduce

lower-priced line > WHY?
i. Growth opportunities as mass-retailers
ii. Tie up lower-end competitors
iii. Its market - stagnating or declining
–Product-Line Length
2. Up-market Stretch - enter high end of

market for:
i. More growth
ii. Higher margins, or
iii. Position as full-line manufacturers
3. Two-Way Stretch – if currently in

middle market - stretches line in both
directions
–Product-Mix Pricing
Why is Pricing difficult?

Products have demand
& cost interrelationships
& are subject to
different degrees
of competition
 PRODUCT-LINE PRICING
 Develop product lines, not single products &
introduce price steps
 OPTIONAL-FEATURE PRICING
 Offer optional products, features & services
along with main product

 CAPTIVE-PRODUCT PRICING - use of ancillary or

captive products
 TWO-PART PRICING = fixed +variable fee

Often used by service firms
 BY-PRODUCT PRICING – Producing certain

goods result in by-products
 PRODUCT-BUNDLING PRICING -bundle

products & features
1. Pure bundling
 Only offers products as a bundle
2. Mixed bundling
 Offers goods, individually & in bundles

Co-Branding
 CO-BRANDING: ≥ 2 current brands combine -
joint product, marketed as 1
 Same-company co-branding
 Venture co-branding
 Multiple-sponsor co-branding
 Retail co-branding
– Co-Branding & Ingredient Branding
An example of retail co-branding:

Kasikornbank in Thailand has Starbucks
Copyright © 2009 Pearson Education Southlocated
Asia Pte Ltd in its branches to optimize space & 12-38
Advantages
 Product convincing - multiple brands
 Reduce costs to introduce product
 Learn more about consumers
Disadvantages
 Risks & lack of control due to pair-up
 Lack of focus on existing brands

Co-Branding & Ingredient
Branding
 For co-branding to be a success:
1. The 2 brands each have brand equity
2. Logical fit of the 2 brands:

 Combined activity maximizes advantages
 Minimizes disadvantages for both

 INGREDIENT BRANDING
 Create brand equity for materials or parts used
in other branded products
 Enough awareness so buyers do not buy the
“host” product without ingredients
 “Self-branding”- advertise their own
branded ingredients
 Example: Westin Hotels - “Heavenly Bed”
Packaging
 Packaging
 Activities to design & produce
the container for a product
 Well-designed packages
 Create convenience &
promotional value

Factors Contributing to the
Emphasis on Packaging
Self-service
Self-service
Consumer
Consumer affluence
affluence
Company/brand
Company/brand image
image
Innovation
Innovation opportunity
opportunity
12-44
Packaging
Packaging must achieve these objectives:

1. Identify the brand
2. Convey descriptive & persuasive information
3. Facilitate product transportation & protection
4. Assist at-home storage &
5. Aid product consumption

Labeling
 A Label carries brand name or a great deal of
information
Performs several functions:

A label identifies the product or brand
A label might also grade the product
A label might describe the product
A label might promote the product
Warranties & Guarantees
 All sellers are legally responsible to fulfill a

buyer’s normal expectations
 Warranties
 Formal statements of expected product
performance by manufacturer
 Whether expressed or implied - legally
enforceable
Warranties & Guarantees
 Sellers offer general/specific guarantee

 Reduce buyer’s perceived risk
Guarantees effective in 2 situations:

1. Company/product - well-known
2. Product quality superior to competition

Final discussion
Marketing Debate – Are Line Extensions Good or Bad?
The “form versus function” debate applies in many arenas,
including marketing. Some marketers believe that product
performance is the end all & be all. Other marketers
maintain that the looks, feel & other design elements of
products are what really make the difference.
Take a position: Product functionality is the key to brand

success versus Product design is the key to brand success.
Marketing Discussion
Consider the different means of differentiating products and
services. Which ones have the most impact on your choices?
Why? Can you think of certain brands that excel on a number
of these different means of differentiation?
Figure 10.1 Sales and Product
Life Cycles
10-50
Product Life Cycle Marketing
Strategies
 A company’s positioning and differentiation strategy must
change as the product, market, and competitors change over
the product life cycle (PLC).
 Products have a limited life.
 Product sales pass through distinct stages, each posing
different challenges, opportunities, and problems to the seller.
 Profits rise and fall at different stages of the product life cycle.
 Products require different marketing, financial,
manufacturing, purchasing, and human resource strategies in
each life-cycle stage.

Product Life Cycles
The product life-cycle is divided into four

stages:
 Introduction.
 Growth.
 Maturity.
 Decline.

Applications of PLC
 The PLC concept can be used to analyze a
product category, a product form, a product, or a
brand.
 Figure 10.2 (a) shows a growth-slump-maturity
pattern.
 Figure 10.2 (b) shows a cycle-recycle pattern.
 Figure 10.2 (c) shows a scalloped pattern.

Figure 10.2 Common PLC
Patterns
10-54
Marketing Strategies: Introduction
Stage and Pioneer Advantage

A) Profits are negative or low in the introduction stage.
B) Promotional expenditures are at their highest ration to sales because of the need to:
1) Inform potential consumers.
2) Induce product trial.
3) Secure distribution in retail outlets.
C) Companies that plan to introduce a new product must decide when to enter the
market.
D) To be first can be rewarding, but risky and expensive.
E) To come in later makes sense if the firm can bring superior technology, quality, or
brand strength.
F) Speeding up innovation time is essential in an age of shortening product life cycles.
G) Most studies indicate that the market pioneer gains the most advantage.
10-56
1) Early users will recall the pioneer’s brand name if the product satisfies them.
2) The pioneer’s brand also establishes the attributes the product class should
possess.
3) The pioneer’s brand normally aims at the middle of the market and so captures
more users.
4) There are producer advantages:
a. Economies of scale.
b. Technological leadership.
c. Patents.
d. Ownership of scarce assets.
e. Other barriers to entry.
Note: the pioneer’s advantage is NOT inevitable.
10-57
Research by Schnaars
 Steven Schnaars studied industries where imitators
surpassed the innovators. He found several
weaknesses among the failing pioneers:
 New products were too crude.
 Were improperly positioned.
 Appeared before there was a strong demand.
 Product-development costs were high.
 Lack of resources to compete.
 Managerial incompetence or unhealthy
complacency.

Research by Golder and Tellis
Research raises further doubts about the

pioneer advantage. They distinguish
between an:
 Inventor: first to develop patents in a
new-product category
 A product pioneer: first to develop a
working model
 A market pioneer: first to sell in the new-
product category

Research by Golder and Tellis
 According to authors, there are five

factors underpinning long-term
market leadership. These are:
 Vision of a mass market
 Persistence
 Relentless innovation
 Financial commitment
 Asset leverage

Expansion Strategy (Pi = Product i; Mj =
Market j)
10-61
Marketing Strategies:
Growth Stage
The growth stage is marked by rapid climb in sales.
Early adopters like the product, and additional

consumers start buying it.
New competitors enter because they are attracted

by the possible opportunities.

Characteristics of the Growth
Stage:
1. Prices remain where they are or fall slightly.

2. Companies maintain their promotional
expenditures at the same or at a slightly increased
level to meet competition and to continue to
educate the market.
3. Sales rise much faster than promotional
expenditures.
4. Profits increase.
5. Manufacturing costs fall faster than price declines
owing to the producer learning effect.
Strategies undertaken by firms
in the growth stage:
 It improves product quality and adds new product
features and improved styling.
 It adds new models and flanker products.
 It enters new market segments.
 It increases its distribution coverage and enters
new distribution channels.
 It shifts from product-awareness advertising to
product-preference advertising.
 It lowers prices to attract the next layer of price-
sensitive buyers.
Trade-offs in the growth stage:
 A firm in the growth stage faces a trade-off

between high market share and high
current profits.
 By spending money on product
improvement, promotion, and distribution,
it can capture a dominant position.

Maturity Stage
At some point, the rate of sales growth will slow,

and the product will enter a stage of relative
maturity.
This stage normally lasts longer than the previous

stages and poses big challenges to marketing
management.
Most products are in the maturity stage of the life

cycle.

Maturity Stage:
 The maturity stage is divided into three phases:

 Growth, where the sales growth rate starts to
decline
 Stable, where sales flatten on a per capita
basis because of market saturation

 Decaying maturity, where the absolute level of
sales starts to decline, and customers begin

switching to other products

Maturity stage:
 The sales slowdown creates overcapacity in the

industry that leads to intensified competition
 The industry eventually consists of well-entrenched
competitors whose basic drive is to gain or maintain
market share
 Dominating the industry are a few giant firms that
serve the whole market and make their profits mainly
through high volume
 Surrounding these dominant firms is a multitude of
market nichers

Maturity Stage:
 The issue facing a firm in a mature

market is whether to become one of the
“big three” or pursue a niching strategy
 Some companies at this stage abandon
weaker products and concentrate on
products that are more profitable or on
new products

Marketing Strategies: Maturity Stage
Tiger Balm revived its

popularity with
constant introduction
of new products
10-70
Marketing Strategies used for
Maturity Stage:
1. Market Modification
2. Product Modification
3. Marketing Program
Modification

Market Modification
 The company might try to expand the

market for its mature brand by working
with the two factors that make up sales
volume:
Volume = number of brand users x usage
rate per user.

Market Modification Strategies
 It can try to expand the number of brands users by
converting non-users.
 It can also try to expand the number of brand users by
entering new market segments.
 A third way to expand the number of brand users is by
winning competitors’ customers.
 Volume can also be increased by convincing current users
to increase their brand usage:
 Use the product on more occasions.
 Use more of the product on each occasion.
 Use the product in new ways.

10-74
Product Modification Strategies
 Managers also try to stimulate sales by

modifying the product’s characteristics
through quality improvement, feature
improvement, or style improvement.

Product Modification Strategies
 Quality improvement aims at increasing

the product’s functional performance.
 Feature improvement aims at adding new
features that expand the product’s
performance, versatility, safety, or
convenience.
 Style improvement aims at increasing the
product’s esthetic appeal.

Advantages and disadvantages
of feature improvements:
 ADVANTAGES:
 New features build the company’s image as an
innovator.
 Wins the loyalty of market segments that value these
features.
 Provide an opportunity for free publicity.
 Generate sales force and distributor enthusiasm.
 DISADVANTAGES:
 Might not pay off in the long run.

Decline Stage
Sales decline for a number of reasons, including

technological advances, shifts in consumer tastes,
increased domestic and foreign competition.
All these lead to overcapacity, increased price-

cutting, and profit erosion.
As sales and profits decline, some firms withdraw

from the market. Those remaining may reduce the
number of products they offer.

Strategic options for products
in decline stage:
5 company strategies in declining industries:

1. Increase investment
2. Maintain investment - uncertainty resolved
3. Decrease investment selectively
4. “Milk” investment - recover cash quickly
5. Divest business quickly

Evidence of the PLC concept:
 The PLC concept helps marketers

interpret product and market
dynamics
 To conduct planning and control.
 And do forecasting.

Critique of the PLC concept:
1. Life-cycle pattern – too variable in

shape & duration
2. Hard to tell which stage the
product is in
3. PLC may be the result of
marketing, not a course which
sales must follow

Setting Product Strategy: Marketing Management

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Setting Product Strategy: Marketing Management

Uploaded by

Copyright:

Available Formats

Setting Product

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-3

At the heart of a great brand is a great product.

A product is a key element in the market offering. Market

The customer will judge the offering by three basic

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-4

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-6

 In planning its market

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-7

 Core benefit: Service customer buys

 Turned into basic product

 Expected product - attributes expected

 Augmented product - exceeds expectations

 Potential product- all possible future

 a coffee shop (group 2)

 a fashion shop (group 3)

 a shoes shop (group 5)

 a game shop (group 6)

 You need to:

service? Why? What marketing strategy you need to apply?

Copyright © 2009 Pearson Education South Asia Pte Ltd 1-9

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-10

 Products traditionally classified:

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-12

DURABILITY & TANGIBILITY

1. Non-durable goods - tangible goods -

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-14

1. Convenience goods – frequent, quick purchases, requires

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-15

 FORM: size, shape or physical structure

 FEATURES: supplement basic function

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-17

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-19

3 style principles for Asia

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-20

ABSOLUT vodka uses aesthetics in its print ads to

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-21

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-22

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-23

 If physical product not easily

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-24

Main service differentiators:

 ORDERING EASE: ease to place an order

 DELIVERY: how well is the product delivered

 INSTALLATION: work done before a product is

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-25

seller offers to buyers

 MAINTENANCE & REPAIR

bought products are in good working order

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-28

 Width – number of product lines

How to expand businesses - product -line

 LINE STRETCHING - lengthens product

1. Down-Market Stretch - introduce

2. Up-market Stretch - enter high end of

3. Two-Way Stretch – if currently in

Why is Pricing difficult?

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-34

 CAPTIVE-PRODUCT PRICING - use of ancillary or

 TWO-PART PRICING = fixed +variable fee

 BY-PRODUCT PRICING – Producing certain

 PRODUCT-BUNDLING PRICING -bundle

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-36