University of Kelaniya, Sri Lanka
Kaushalya Silva
M.Sc. in Mgt. (USJ), B.B. Mgt. (Special) Degree in Accountancy (Kel’ya), CMA Passed Finalist,
DBF (IBSL)
Lecturer
Department of Accountancy
E-mail: [email protected]
Setting Product Strategy
BACC 21652/BAFA 21252
Marketing Management
Learning Outcomes
At the end of the session students should be able to:
• Identify the characteristics of products and how do marketers
classify products.
• Explain how companies differentiate products.
• Describe how a company build and manage its product mix and
product lines.
• Identify how companies combine products to create strong co-
brands or ingredient brands.
• Explain how companies use packaging, labeling, warranties, and
guarantees as marketing tools.
3
What is a Product?
A product is anything that can be offered to a market to satisfy a
want or need, including physical goods, services, experiences,
events, persons, places, properties, organizations, information,
and ideas.
4
Components of the Market Offering
Value-based prices
Attractiveness
of the market
offering
Product Services
features mix and
and quality quality
5
Product Levels
▪ In planning its market offering, the marketer needs to address
five product levels and it is called “customer-value hierarchy.”
6
Product Levels
• Core benefit - The fundamental level is the core service or benefit
the customer is really buying.
• Basic product - The marketer should provide basics to achieve
core benefits.
• Expected product - The marketer should provide a set of
attributes and conditions buyers normally expect when they
purchase the product.
• Augmented product - The marketer prepares an augmented
product that exceeds customer expectations.
• Potential Product - Encompasses all the possible augmentations
and transformations the product or offering might undergo in
the future. Marketers show new ways to satisfy customers and
distinguish their offering.
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Product Classifications
Durability
Tangibility
Use
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Product Classifications
Durability and Tangibility
• are tangible goods normally consumed in
Nondurable
one or a few uses, such as shampoo,
Goods
soap etc.
Durable • are tangible goods that normally survive
Goods
many uses: refrigerators, machine tools and
clothing.
Services • are intangible, inseparable, variable, and
perishable products that normally require
more quality control, supplier credibility, and
adaptability.
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Product Classifications
Use
PRODUCTS
Products
Consumer Industrial
Goods Goods
• Convenience Goods • Materials and Parts
• Shopping Goods • Capital Items
• Specialty Goods • Supplies and Business Services 9
• Unsought Goods
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Types of Consumer Products
Convenience ▪ Purchase frequently & immediately.
▪ Relatively inexpensive.
Goods ▪ Little shopping effort.
Shopping ▪ Goods that consumer characteristically compares on
such bases as suitability, quality, price and style.
Goods
Specialty ▪ Have unique characteristics or brand identification for
which enough buyers are willing to make a special
Goods purchasing effort.
Unsought ▪ Unsought Goods are goods that the consumer
Goods does not know about or does not normally think of
buying.
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Product Differentiation
• Form
• Features
• Customization
• Performance
• Conformance
• Durability
• Reliability
• Repairability
• Style
Product Differentiation
1. Form : Most products can be differentiated in form – the physical size, shape
or structure of a product.
2. Features : Most products can be offered with varying features that
supplement their basic function.
3. Customization : Marketers can differentiate products by customizing them
via flexibility, reaching to individual market offerings, messages, and media.
4. Performance Quality : The level at which the product’s primary
characteristics operate.
5. Conformance Quality : The degree to which all produced units are identical
and meet promised specifications.
6. Durability : A measure of the product’s expected operating life under natural
and other conditions.
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Product Differentiation
7. Reliability : Is a measure of the probability that a product will not malfunction
or fail within a specified time period.
8. Repairability : Measures the ease of fixing a product when it malfunctions or
fails.
9. Style : Describes the product’s look and feel to the buyer (Jaguar cars, Apple
computers etc). Strong style does not always mean high performance.
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Service Differentiation
• Ordering ease
• Delivery
• Installation
• Customer training
• Customer consulting
• Maintenance and repair
• Returns
Service 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 brought to the customer,
including speed, accuracy, and care throughout the process.
• Installation : Refers to the work done to make a product operational in its
planned location.
• Customer Training : helps the customer’s employees use the vendor’s
equipment properly and efficiently.
• Customer Consulting : Includes data, information systems and advice services
the seller offers to buyers.
• Maintenance and Repair : Helps customers keep purchased products in good
working order.
• Returns : Ability to return the products.
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Design
• Design is the totality of features that affect how a product looks, feels,
and functions to a consumer. Design offers functional and aesthetic
benefits and appeals to both customers’ rational and emotional
aspects.
• The designer must figure out how much to invest in form, feature
development, performance, conformance, durability, reliability,
repairability and style.
• To the company, a well-designed product is easy to
manufacture and distribute.
• To the customer, a well-designed product is a pleasant to look at and
easy to open, install, use, repair, and dispose of.
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The Product Hierarchy
The product hierarchy stretches from basic needs to particular items
that satisfy those needs.
• Need family: the core need that underlies the existence of a
product family.
• Product family: all the product classes that can satisfy a core need
with reasonable effectiveness.
• Product class: a group of products within the product family
recognized as having a certain functional coherence.
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The Product Hierarchy
• Product line: a group of products within a product class that are
closely related because they perform a similar function, are sold
to the same customer groups, are marketed through the same
outlets or channels, or fall within given price ranges.
• Product type: a group of items that share one of several possible
forms of product.
• Item: a distinct unit within a brand or product line distinguishable
by size, price, appearance or some other attribute.
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Product Systems and Mixes
• Product System is a group of diverse but related items that
function in a compatible manner.
Ex: The extensive iPod product system includes
headphones and headsets, cables and docks, armbands,
cases, power and car accessories, and speakers.
• Product Mix (also called a product assortment) is the set of
all products and items a particular seller offers for sale.
Company’s product mix has a certain width, length, depth,
and consistency.
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Product Mix Dimensions
Refers to the number of different product lines that are
Product Width marketed by a single firm.
Total number of items in the product mix.
Product Length
Depth How many variants are offered in each product in
the line.
How closely related the various product lines are in
The consistency end use, production requirements, distribution
channels or some other way.
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Product Mix Width & Product Line Length for
Procter and Gamble Products
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Product Line Analysis
In offering a product line, companies normally develop a basic
platform and modules that can be added to meet different
customer requirements and lower production costs.
Product-line managers need to know the sales and profits of
each item in their line in order to determine which items to
build, maintain, harvest, or divest. They also need to understand
each product line’s market profile and image.
Product-line analysis provides information for two key decision
areas-product-line length and product-mix pricing.
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Product Line Length
• Company Objectives influence product line length.
• One objective is to create a product line to induce up-selling.
• A different objective is to create a product line that facilitates
cross-selling.
• Another objective is to create a product line that protects
against economic ups and downs.
• Companies seeking high market share and market growth will
generally carry longer product lines. Product lines tend to
lengthen over time.
• A company lengthens its product line in two ways: line
stretching and line filling.
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Product Line Length
Line Stretching
• Every company’s product line covers a certain part of the total
possible market. Line stretching occurs when a company
lengthens its product line beyond its current range, whether
✓ Down-Market Stretch - A company positioned in the
middle market may want to introduce a lower-priced line.
✓ Up-Market Stretch - Companies may wish to enter the
high end of the market to achieve more growth, realize
higher margins.
✓ Two-Way Stretch - Companies serving the middle market
might stretch their line in both directions.
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Product Line Length
Line Filling
• A firm can also lengthen its product line by adding more items within
the present range.
• Motives for line filling include reaching for incremental profits
satisfying dealers who complain about lost sales because of items
missing from the line, utilizing excess capacity, trying to become the
leading full-line company, and plugging holes to keep out
competitors.
• Line filling is overdone if it results in self-cannibalization and
customer confusion.The company needs to differentiate each item in
the consumer’s mind with a just-noticeable difference.
Ex - BMW
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Product-Mix Pricing
Marketers must modify their price-setting logic when the product is
part of a product mix. In product mix pricing, the firm searches for a set
of prices that maximizes profits on the total mix. Six situations calling
for product-mix pricing:
• Product line pricing
• Optional-feature pricing
• Captive-product pricing
• Two-part pricing
• By-product pricing
• Product-bundling pricing
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What is a Brand ?
A brand is an identifying symbol, mark, logo, name, word, and/or
sentence or combination that companies use to distinguish their
product from competitors.
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Co-Branding and Ingredient Branding
• Co-Branding Marketers often combine their products with products
from other companies in various ways. In co-branding also called
dual branding or brand bundling, two or more well known brands
are combined into a joint product or marketed together in some
fashion.
• There are various ways to form a combination: same-company co-
branding, joint-venture co-branding, multiple- sponsor co-branding,
or retail co-branding.
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Co-Branding and Ingredient Branding
Ingredient Branding
Ingredient branding is a special case of co-branding. It creates brand
equity for materials, components, or parts that are necessarily
contained within other branded products.
Ingredient brands try to create enough awareness and preference
for their product so consumers will not buy a host product that
doesn’t contain it.
Ex: Intel Inside
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Co-Branding and Ingredient Branding
Ingredient Branding
Requirements for successful ingredient branding:
1. Consumers must perceive that the ingredient matters to the performance
and success of the end product. Ideally, this intrinsic value is easily seen or
experienced.
2. Consumers must be convinced that not all ingredient brands are the same
and that the ingredient is superior.
3. A distinctive symbol or logo must clearly signal to consumers that the host
product contains the ingredient. Ideally, the symbol or logo would function
like a "seal" and would be simple and versatile and credibly communicate
quality and confidence.
4. A coordinated "pull" and "push" program must help consumers understand
the importance and advantages of the branded ingredient. Channel members
must offer full support. Often this will require consumer advertising and
promotions and - sometimes in collaboration with manufacturers - retail
merchandising and promotion programs.
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Packaging
• Packaging, sometimes called the fifth P, is all the activities of
designing and producing the container for a product.
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Packaging
Factors Contributing to the Growing Use of Packaging as a Marketing Tool are:
Self-service
Consumer affluence
Company and brand image
Innovation opportunity
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Packaging Objectives
• Identify the brand
• Convey descriptive and persuasive information
• Facilitate product transportation and protection
• Assist at-home storage
• Aid product consumption
34
Labeling
The label can be a simple attached tag or an elaborately designed graphic that is
part of the package. It might carry a great deal of information.
Functions of a Label
• Identifies the product or brand.
• Grade the product.
• Describe the product: who made it, where and when, what it contains,
how it is to be used, and how to use it safely.
• Promote the product through attractive graphics.
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Warranties and Guarantees
• All sellers are legally responsible for fulfilling a buyer's normal or reasonable
expectations. Warranties are formal statements of expected product
performance by the manufacturer. Products under warranty can be returned
to the manufacturer or designated repair center for repair, replacement or
refund.
• Guarantees reduce the buyer's perceived risk. They suggest that the product
is of high quality and that the company and its service performance are
dependable. They can be especially helpful when the company or product is
not that well known or when the product's quality is superior to
competitors.
✓ Guarantees is more than legal statements that guides the
warranties, they can be seen as extra benefits to induce consumer
to buy the product.
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