Developing Product and Brand Strategy

1. MBA Marketing Seminar [Dr. Carter; MKTG.600] COMBINED SET OF 2nd PHASE “MARKETING PERFORMANCE” TEXT CONCEPT SLIDES

2. Chapter 6: Developing Product and Brand Strategy The Marketing Plan Handbook: 3rd ed. Marian Burk Wood 6-1

3. Introduction • Product strategy is critical to the success of the overall marketing strategy. • Value is captured in two key areas: • Product Strategy • Existing and proposed products. • Branding • Value enhancement through awareness and image. 6-2

4. Product Strategy • Product value is derived from • Features, and • Benefits received • Products can be tangible goods, services, places, ideas, organizations, or people. 6-3

5. Designing a Service 6-4

6. Features and Benefits • Features: Specific attributes that enable a product or service to perform its function. • Benefits: Need-satisfaction outcomes. 6-5

7. Mass Customization • Mass Customization: Creating products, on a large scale, with features tailored to the needs of individual customers. Offerings should be analyzed, feature by feature, to help understand the benefits and value derived by the target customers. Try to avoid “feature bloat”. 6-6

8. Sample Needs, Features and Benefits 6-7

9. Quality Quality: Put simply, how well the product satisfies customers. • Basic functionality is only the price of entry. • Superior quality attracts business. • Poor quality can lead to negative word-of-mouth. 6-8

10. Design Design: Quality comes from design, components/ingredients and processes. • At the forefront of many categories. • Includes “emotional quality” – the impact of design on how it makes the customer feel. 6-9

11. Packaging • Keeps products safe. • Helps companies burnish their brand imagery and highlight points of differentiation. 6-10

12. Labeling • Communicates product contents, uses and warnings. • Conforms to national, regional and local laws and requirements mandating warnings, allowable use of certain phrases, and even the size and type of words used. • Helps attract attention, stand out from retail clutter. 6-11

13. Product Development Steps in the Product Development Process: • Idea generation. • Screening of new ideas. • Initial concept testing. • Business analysis. • Prototype design. • Market testing. • Commercialization. • Monitoring customer reaction. Let’s look at product strategy from the perspective of this development process… 6-12

14. Product Strategy andThe Product Development Process 6-13

15. The Product Life Cycle Marketers must carefully monitor the environment to determine where their industry or product may be among the following stages of the PLC: • Introduction • Growth • Maturity • Decline Let’s look at product strategy from the perspective of the Product Life Cycle… 6-14

16. Product Strategy andthe Product Life Cycle 6-15

17. Product Mix and Product Lines • Product Mix: The overall assortment of all product or services offered. • Product Lines: A group of products that are all similar in some way. • Product Mix Width: Number of lines offered. • Product line Depth: Number of products in a line. 6-16

18. Line Extensions & Brand Extensions • Line Extension: Putting an established brand on a new product and adding it to an existing product line. • A low fat version of Lay’s potato chips. • Brand Extension: Putting an established brand on a new product in a different category for a new customer segment. • E.g., Snicker’s brand ice cream. 6-17

19. Product Line and Mix Decisions 6-18

20. Planning Branding • Branding gives a product a distinct identity and differentiates it from competitive products using: words, designs, and symbols. • In terms of branding, a product may carry: • Company name and individual brand. • Courtyard by Marriott • Individual name. • Gap, Old Navy • Private-label brand. • Wal-Mart • Multiple Brands (co-branding, ingredient branding). • Dell PC with Intel computer chips 6-19

21. Brands Should Be…. • Meaningful. • Recognizable and memorable. • Capable of being legally protected. • Suitable for international markets.

22. Branding and Positioning • Branding not only identifies a particular product, but it sets it apart from the competition (both direct and indirect). • Positioning: What the target group perceives about your brand relative to how they perceive the competition. 6-20

23. The Power of Brand Equity • Brand Equity: the extra value customers perceive that enhances their long-term loyalty to a brand. • Can insulate a company against competitive threats. • Can help new products achieve acceptance. • The Value of Strong Brands: • Encourages brand loyalty. • Boosts customer lifetime value. • The total amount that a customer spends on a brand or with a company during the life of their relationship. 6-21

24. Pyramid of Brand Equity Resonance Feelings Judgments Performance Imagery Salience 6-22

25. Chapter 7: Developing Pricing Strategy The Marketing Plan Handbook: 3rd ed. Marian Burk Wood 7-1

26. Unique Aspects of Pricing • Pricing directly produces revenues, whereas other marketing functions require investments of money, time and effort. • Most pricing decisions can be implemented relatively quickly, while other elements of the marketing mix usually take longer to implement. 7-2

27. Fixed vs. Dynamic Pricing • Fixed Pricing: customers in the targeted segment pay the price set (fixed) by the marketer. • Dynamic Pricing: Prices vary from customer to customer or situation to situation. 7-3

28. Value • Marketers must research and analyze value from the customers perspective • Marketers must also consider how the product’s value will be communicated to customers. • Customers’ perceptions of value and price sensitivity can be used to deal with imbalances in supply and demand. 7-4

29. Weighing Benefits vs. Total Price 7-5

30. Price Elasticity • Price elasticity is the level of demand for a product at different price points. • Price elasticity is calculated by dividing the percentage change in unit sales demanded by the percentage change in price. • Demand is said to be “elastic” when a small price change significantly increases or decreases demand. • Demand is said to be “inelastic” when a price change does not significantly change the number of units demanded. 7-6

31. Price Elasticity (cont’d) 7-7

32. Factors Impacting Elasticity In general, customers tend to be less sensitive to a product’s price when they: • Are considering a relatively small amount. • Are unaware of or can’t easily compare substitutes and prices. • Would incur costs or difficulties in switching products. • Perceive that the product’s quality, status, or another benefit justifies the price. • Are spending a relatively small amount or are sharing the cost. • Perceive the price as fair. • Are buying products bundled rather than separately. 7-8

33. Cost-Based Pricing / Value-Based Pricing • Cost-based pricing: • Start with the product and its cost. • Set a price that covers the cost. • Communicate value to customers. • Value-based pricing: • Research customers perceptions of value and the price they are willing to pay. • Find a way to make the product at a reasonable cost (target costing) to return a reasonable profit or achieve other objectives. 7-9

34. Cost-Based Pricing / Value-Based Pricing Of the two methods, cost-based is more common. 7-10

35. Planning Pricing Decisions • Pricing decisions must be: • Value-based • Profit-driven • Proactive • When planning pricing, marketers must examine: • Objectives • External influences • Tend to suggest the price “ceiling”. • Internal influences • Tend to suggest the price “floor”. 7-11

36. Pricing to Meet the Firm’s Objectives • The pricing strategy must be consistent with the firm’s overall goals and objectives • Due to market realities, organizations may have to trade off market share growth with profitability. 7-12

37. Samples of Pricing Objectives 7-13

38. External Pricing Influences Key external influences on pricing strategy include: • Customers • Competitors • Channel Members • Legal, Regulatory and Ethical Concerns 7-14

39. Customers • Consumer Customers • Perceptions of value, behavior, and attitudes all affect consumers reaction to pricing. • Research shows consumers allow some latitude in the range of prices deemed acceptable. • Business Customers • Globalization has increased range of choices. • Customers frequently search for the lowest price. • Willing to switch suppliers frequently. • Emphasis on building relationships, thereby increasing switching costs. Customers tend to set the price “ceiling”. 7-15

40. Competitors • By analyzing prices, special deals and probable costs of competing products, a company can get a better sense of: • The alternatives available to customers, and • Competitors’ pricing objectives and strategies. • Pricing is highly visible in many industries, often exerting downward pressure on profits and limiting pricing options. 7-16

41. Reacting to Competitors’ Changes in Pricing Strategy 7-17

42. Channel Members • Companies must consider the pricing expectations and marketing objectives of their distribution partners: wholesalers and retailers. • The marketer must also consider that the Internet is bringing wholesale and retail prices down in many categories, due to: • More efficient transaction capabilities, • Convenient price comparisons, and • Higher competition – sometimes from unexpected sources. 7-18

43. Sample of Consumer Pricing in the Retail Channel Note the % increase in price required by each channel intermediary. 7-19

44. Legal and Regulatory Concerns Companies need to comply with a variety of pricing laws and regulations. Some of these include: • No price collusion. • No minimum retail price. • No price discrimination. • No predatory pricing. • Price limits. 7-20

45. Ethical Concerns Some examples of ethical decisions in pricing: • Is it ethical to raise prices during an emergency, when products may be scarce or particularly valuable? • Should a company set a high price for an indispensable product, knowing that some customers will be unable to pay? • How far in advance should customers be notified of planned price increases? 7-21

46. Internal Pricing Influences Key external influences on pricing strategy include: • Costs and break-even objectives. • Targeting and positioning strategy. • Product strategy. • Other marketing decisions. 7-22

47. Costs and Break-even Objectives • Costs typically establish the theoretical “floor” of the pricing range. • Break-even point: the sales level at which revenues cover costs. • Costs and break-even are more easily calculated for existing products in existing markets. • For new products, marketers must rely on forecasts and/or expert estimates of costs and expected sales volumes. 7-23

48. Total, Fixed and Variable Costs • The total cost consists of both fixed and variable cost. • Fixed costs: Overhead expenses such as rent and payroll, which do not vary with volume. • Variable costs: Expenses such as raw materials, which do vary with volume. 7-24

49. Average Cost/Unit • Once the marketer knows the total costs, they can divide the total by the number of units produced to compute the average cost per unit. • The marketer can then compute this average cost at various output levels, corresponding to different assumptions about demand. • This provides important insight to the marketer at how the price could be set at each level of demand to recover total costs, or earn a targeted level of profit. 7-25

50. Break-even Example The break-even formula is: • Break-even volume = fixed cost/price-variable cost. • Example: • Fixed cost = $40,550 • Variable cost = $45 per unit • Price = $995 per unit • Therefore: • Breakeven = $40,550/$995 - $45 • Breakeven = $40,550/$950 • Breakeven = 42.6 units (roundup to 43 units) 7-26