Download Product Management

Chapter 5
Product and Service Strategy
and Brand Management
Importance of the Offering
The ultimate profitability of an
organization depends on its
product or service offering(s) and
the strength of its brand(s).
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Basic Offering-Related
Decisions
Modifying the Offering Mix
Positioning Offerings
Branding Offerings
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The Offering Concept
What is an “offering”? It consists of:
Tangible product or service
Related services (e.g.,
delivery and setup)
Brand name(s)
Warranties or guarantees
Packaging
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The Offering Mix
(Portfolio)
The totality of a company’s offerings is
known as its product or service offering
mix or portfolio
Consists of distinct offering lines
(product line width)
Each line consists of individual
offers or items (product line depth)
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The Offering Portfolio
Bundling – enhancing the offering mix
by providing two or more product or
service items as a “package deal”
McDonald’s “value meal”
Travelocity’s vacation packages
IBM hardware, software, and
maintenance contracts
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Modifying the Offering Mix
Major Decisions
Should the offering mix be modified?
If yes, what should be
added, modified, harvested,
or eliminated?
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Modifying the Offering Mix
Additions to the Offering Mix
How consistent is the new offering with
existing offerings?
Does the organization have the
resources to adequately introduce and
sustain the offerings?
Is there a viable market niche for the
offering?
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Modifying the Offering Mix
Additions to the Offering Mix
How consistent is the new
offering with existing offerings?
Cannibalization
Fit with sales and distribution
strategies
Consistency with target markets
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Modifying the Offering Mix
Additions to the Offering Mix
Does the organization have the
resources to adequately introduce
and sustain the offerings?
Financial strength – outlays for
research, development, and
marketing
Market Growth
Competitive response
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Modifying the Offering Mix
Additions to the Offering Mix
Is there a viable market niche
for the offering?
Is there a relative advantage
over existing competitive
offerings?
Does a distinct buyer group
exist that is not being satisfied
with current offerings?
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Modifying the Offering Mix
New-Offering Development Process
1. Idea generation/idea screening
employees, buyers, competitors
2. Business analysis
forecasting sales, costs, profitability
3. Market testing
laboratory or field market tests
4. Commercialization
full-scale introduction of offering to
market
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New-Offering
Development Process
Idea Generation & Screening
1. Does the offering have a relative
advantage?
2. Is the offering compatible with buyers’
use or consumption behavior?
3. Is the offering simple enough for buyers to
understand and use?
4. Can the offering be tested on a limited
basis prior to actual purchase?
5. Are there immediate benefits from the
offering, once it is used or consumed?
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New-Offering
Development Process
Business Analysis
Sales Forecasts
Profitability Analysis
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Investment requirements
Breakeven analysis
Payback period
Return on investment (ROI)
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New-Offering
Development Process
Test Marketing
Generate benchmark data for assessing
sales volume
Relative effectiveness of alternative
marketing programs can be examined
Incidence of offering trial by potential
buyers, repeat-purchasing behavior, and
quantities purchased
Results in a competitive response
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Modifying the Offering Mix
Life-Cycle Concept
A life cycle plots sales of an offering or a
product class over a period of time.
There are FOUR main stages:
1. Introduction
2. Growth
3. Maturity (Saturation)
4. Decline
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Modifying the Offering Mix
Life-Cycle Concept
Sales
Sales
Profits
Introduction
Growth
Maturity
Decline
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Modifying the Offering Mix
Life-Cycle Concept
The sales curve can be viewed as
being the result of offering trial and
repeat-purchasing behavior.
Sales volume = (number of triers x average
purchase amount x price) + (number of
repeaters x average purchase amount x price)
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Modifying the Offering Mix
Modification
Trading up
Improving the product and increasing the price
Trading down
Reducing the number of features or quality
and reducing the price
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Modifying the Offering Mix
Harvesting
Harvesting should be considered when:
1. The market for the offering is stable
2. The offering is not producing good
profits
3. Market share is becoming difficult to
maintain
4. The offering provides other benefits
to the organization
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Modifying the Offering Mix
Elimination
Elimination is appropriate when the answer to
the following questions is “very little” or “none”:
1. What is the future sales potential of
the offering?
2. How much is the offering contributing
to the overall profitability of the
offering mix?
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Modifying the Offering Mix
Elimination
3. How much is the offering
contributing to the sales of other
offerings in the mix?
4. How much could be gained by
modifying the offering?
5. What would be the effect on
channel members and buyers?
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Positioning Offerings
We’ve already discussed as part of
Segmentation.
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Brand Equity &
Brand Management
Brand Name
Any word, “device” (design, sound, shape,
or color), or combination of these
used to identify an offering
and set it apart from competing offerings.
Brand Equity
The added value a brand name bestows on a
product or service beyond the functional
benefits provided.
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Brand Equity & Brand Management
Creating and Valuing Brand Equity
Develop positive brand awareness and nameproduct association (Gatorade, Kleenex)
Establish a brand’s meaning in the minds of
consumers (Nike)
Elicit the proper consumer responses to a
brand’s identity and meaning (Michelin)
Create a consumer-brand resonance (HarleyDavidson, Apple, eBay)
Customer-Based Brand Equity
Pyramid
Relationships:
What about
you and me?
Response:
What about
you?
Meaning: What
are you?
Identity: Who
are you?
Consumer
Brand
Resonance
Consumer
Judgments
Brand
Performance
Intense, active
loyalty
Consumer
Feelings
Brand Imagery
Brand Salience
Positive,
accessible
reactions
Strong,
favorable, and
unique brand
association
Deep, broad
brand
awareness
Brand Equity and
Brand Management
Branding Decisions
Assign one brand name all of the
organization’s offerings (GE, Sony)
OR
Assign one brand name to each line of
offerings (Sears, Craftsman Tools)
OR
Assign individual names to each
offering (P&G, Unilever)
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Brand Equity &
Brand Management
Branding Decisions
Using a single brand name…
Advantage
Easier to introduce new offerings when
the brand name is familiar to buyers
Disadvantage
Can have a negative effect on existing
offerings if a new offering fails
Sub-branding…
…combining a family brand with a new
brand
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Brand Equity &
Brand Management
Branding Decisions
Decide whether or not to supply an
intermediary with its own brand name.
What are the costs/revenues?
Is there excess capacity?
If we don’t manufacture the brand, will
a competitor produce it?
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Brand Equity & Brand Mgmt
Brand Growth Strategies
New
Brand
New
products
Existing
products
New Brand
Strategy
Fighting/Flanker
Brand Strategy
Existing Brand Extension
Strategy
Brand
Line Extension
Strategy
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Brand Equity & Brand Mgmt
Line Extension Strategy
Adding offerings with the same brand in a
product class that an organization currently
serves…
Respond to customers’ desire for variety
Eliminate gaps in the product line
Lowers advertising and promotion costs
Consider possibilities of product cannibalism and
proliferation of offerings (Coke and Vanilla Coke)
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Brand Equity & Brand Mgmt
Brand Extension Strategy
The practice of using a current brand name
to enter a completely different product class
Reduced risk due to brand equity
Success depends on perceptual fit with
the original product class
e.g., Yamaha makes motorcycles, sound
equipment, computer peripherals, and
musical instruments
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Brand Equity & Brand Mgmt
Brand Extension Strategy: Co-branding
Co-branding
Pairing two brand names of two
manufacturers on a single product
e.g., General Mills and Hershey Foods’
Reese’s Peanut Butter Puffs
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Brand Equity & Brand Mgmt
New Brand Strategy
Involves the development of a new brand
and often a new offering for a product
class that has not been previously
served by the organization.
Most challenging strategy
Most costly
e.g., Lexus by Toyota
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Brand Equity & Brand Mgmt
Flanker/Fighting Brand Strategy
Flanker Brand Strategy
Involves adding a new brand on the high or
low end of a product line based on a pricequality continuum (Marriott Hotels).
Fighting Brand Strategy
Involves adding a new brand whose sole
purpose is to confront competitive brands in a
product class being served by an organization.
(Frito-Lay’s Santitas used to fight regional
tortilla chip brands).
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