Setting Product Strategy

1. Chapter 7-8 Setting Product Strategy

2. What is a Product? • 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.

3. Figure: Three Levels of Product

4. Example: Hotel • 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.

5. Example: Sony Camcorder • 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.

6. When Do a Firm Advertise the Core Benefit? • Innovated product • Chaos stage • E.g. The war of hamburger among McDonald’s, Burger King and Wendy. 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。

7. Product Classifications • Durability • 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 • Search goods • Experience goods • Credence goods

8. Continuum of Evaluation for Different Types of Products

9. Consequence of High in Experience and Credence Qualities • 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.

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

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

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

13. Packaging • 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.

14. Packaging • 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.

15. Packaging – Examples • 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

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

17. Product Mix • 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.

18. Product-Mix Width and Product-Line Length for Proctor & Gamble Products

19. Product Line Decisions • Product-line analysis • Product line length is influenced by company objectives and resources, e.g. up-selling, cross-selling, 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

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

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

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

23. Downmarket Stretch • Examples: Rolex’s Tudor, Benz’s Smart. • Reasons: growth opportunity, tie up lower-end 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

24. Upmarket Stretch • Reasons: more growth, higher margins or full-line 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.

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

26. Cannibalization • Consumers have two segments, H & L. • Given quality q, H’s valuation is 5q, L’s valuation is 2q, and the unit cost is q2/2. • What are the efficient quality levels for H and L respectively? • Is it optimal for the firm to provide the two-item product line with efficient quality levels? • Is it always optimal for the firm to provide a product line?

27. Case: Pampers & Luvs • 1980年代，Pampers & Luvs分占全美紙尿布銷售排名第一與第三。 • 1993年，P&G為因應通路自有品牌的挑戰，重新定位Luvs為打手品牌(fighter brand)。 • Luvs的改變：降價16%、縮減研發和產品創新、減少電視廣告和促銷支援、取消包裝上的提帶等。 • P&G集中更多管理和財物資源，投入Pampers的行銷，而且改進它的特色。 節錄自哈佛商業評論 全球繁體中文版 (p. 49, October 2009)

28. Line Filling • 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, MiniDisc, CD, or Memory Stick. • Weber’s Law: just-noticeable difference. • Risk of cannibalization

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

30. Brand • 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.

31. Brand Equity • 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 – $98 billion; Google – $93 billion; Coca Cola – $79 billion.

32. Interbrand模式的三個重點 • 品牌收入淨值估計（過去三年平均值） • 品牌優勢 • 領導力（Leadership） • 穩定度（Stability） • 市場（Market） • 國際化（Internationality） • 時尚趨勢（Trend） • 後勤支援（Support） • 智財保護（Protection） • 多重收益 • 由品牌優點得分估計各項收入淨值，加總出品牌價值

33. Branding Decisions • Brand or No brand • Brand-sponsor decision • Brand-name decision • Brand positioning • Brand-strategy decision • Brand-management decision

34. Brand or No Brand? • 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).

35. Brand-Sponsor Decision • 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

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

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

38. Brand-Name Decision • 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 PlayStation.

39. Selecting a Brand Relationship Spectrum Position

40. Brand-Name Selection • 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

41. Brand-Strategy Decision

42. Line Extensions • 優點：存活率較高，利用過剩產能，滿足多樣化需求，防禦競爭者，獲得更多貨架空間。 • 缺點：品牌可能喪失特定意義，所增加之銷售額不足以抵補發展和促銷成本，產品線競食（Cannibalization）。 • Branded variants (品牌變體策略): specific brand lines supplied to specific retailers or distribution channels.

43. Brand Extensions • 優點：消費者較易認同與接受、節省廣告成本。 • 缺點：新產品失敗會影響對原產品的評價、品牌可能不適用於新產品（如：Levi’s曾推出西裝、HCG牙刷）、品牌稀釋（如：皮爾卡登）。

44. Multibrands • 優點：樹立不同特色，吸引不同購買動機的顧客，較多貨架空間，保護主要品牌。 • 缺點：每一品牌市場佔有率小，廣告成本較大，Cannibalization。 • Example: 海倫仙度絲，潘婷，沙宣，飛柔。

45. Peter Lynch’s Comment on Diversification • Over-Diversification → Diworseification • Examples • 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。

46. The Product Life Cycle • Product development • Introduction • Growth • Maturity • Decline

47. Figure: Sales and Profit Life Cycles

48. Introduction Stage of PLC • 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

49. Growth Stage of PLC • 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

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