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Ashesi University
COURSE TITLE : MARKETING
SEMESTER : FIRST, 2011/2012
MODULE 6: Making Product Decision
Lecturer: Ebow Spio
Marketing Management Framework
Opportunities
Impediments
& Solutions
Target
Segment
Corporate/
Business
Objectives
Marketing
Objectives
Sources
of
Volume/
Business
Position
Product
Price
Place
Promotion
Physical Ev.
Process
People
Execute
Evaluate
Lesson Outcomes
1. Define the term product and major classifications of
2.
3.
4.
5.
products and services
Describe the decisions companies make regarding
their individual products and services, product lines,
and product mixes
Identify the four characteristics that affect the
marketing of a service and the additional marketing
considerations that services require
Explain how companies find and develop newproduct ideas
List and define the steps in the new-product
development process and the major considerations
in managing this process
Lesson Outcomes
6. Describe the stages of the product life cycle
7. Describe how marketing strategies change
during the product’s life cycle
8. Discuss two additional product and services
issues: socially responsible product decisions
and international product and services
marketing
9. Discuss Branding Strategy- the decisions
companies make in building and managing
their brands.
WHAT IS A PRODUCT?
Product: Is anything that can be offered to a market for attention,
acquisition, use or consumption that might satisfy a want or need.
It includes physical objects, services, persons, places, organizations and ideas.
Broadly defined, products include physical objects, services, persons,
places, organizations, ideas, or mixes of these entities.
Services are products that consist of activities, benefits or satisfactions
offered for sale that are essentially intangible and do not result in the
ownership of anything. E.g. banking, hotel, legal advice
Experiences represent what buying the product or service will do for the
customer e.g. Disney
DIFFERENCES IN GOODS & SERVICES
GOODS
SERVICES
• Tangible
• Intangible
• Produced then sold
• Sold then produced &/
Or Consumed the same time
• Can store & transport
• Perishable
• Produced Separate from
Consumer
• Often produced in consumer’s
presence
LEVELS OF PRODUCT
LEVEL 1
Core Product: The problem-solving services or core benefits that
consumers are really buying when they obtain a product
Charles Revson of Revlon “In the factory, we make cosmetics, in the store, we
sell hope.”
LEVEL 2
Actual Product: A product’s parts, quality level, features, design, brand
name, packaging and other attributes that combine to deliver core
product benefits
LEVEL 3
Augmented Product: Additional consumer services and benefits built
around the core and actual products. E.g. warranty, repair services etc.
NB: Marketer must first define the core benefits that the product will provide
to consumers.
Product Classifications: Consumers
Products
Consumer products are products and
services for personal consumption
Classified by how consumers buy them
• Convenience product
• Shopping products
• Specialty products
• Unsought products
PRODUCT CLASSIFICATIONS:
CONSUMER PRODUCTS
Marketing
Consideration
Convenience: A
Shopping : A consumer
consumer product that the
customer usually buys frequently,
immediately, & with a minimum
comparison & buying effort.
Staples, Impulse & Emergency
product that the customer, in the
process of selection and purchase,
characteristically compares with
others on such bases as suitability,
quality, price & style.
Homogeneous & Heterogeneous
Customer Buying
Behaviour
Frequent purchase, little planning,
little comparison or shopping
effort, low customer involvement
Less frequent purchase, much
planning and shopping effort,
comparison of brands on price,
quality, style
Price
Distribution
Low price
Higher price
Widespread distribution,
convenient locations
Selective distribution in fewer
outlets
Promotion
Mass promotion by the
producer
Advertising & personal selling
by both producer and resellers
Examples
Toothpaste, magazines,
laundry detergent, breakfast
cereals etc.
Major appliances, televisions,
furniture, clothing, washing
machines.
PRODUCT CLASSIFICATIONS:
CONSUMER PRODUCTS
Marketing
Specialty: A consumer
with unique characteristics
Consideration product
or brand identification for which a
significant group of buyers is willing
to make a special purchase effort.
Unsought : A consumer
product that the consumer either
does not know about or knows
about but does not normally think of
buying. ( New & Regular unsought)
Customer
Buying
Behaviour
Strong brand preference and
loyalty, special purchase effort,
little comparison of brands, low
price sensitivity
Little product awareness,
knowledge( or if aware, little or
even negative interest)
Price
Distribution
High Price
Varies
Exclusive distribution in only
one or a few outlets per market
area
Varies
Promotion
More carefully targeted
promotion by both producer and
resellers.
Aggressive advertising &
personal selling by producer
and resellers.
Examples
Luxury goods, such as Rolex
watches, designer clothes,
Life insurance, gravestones,
encyclopedias, wreath, blood
donation
PRODUCT CLASSIFICATIONS:
INDUSTRIAL PRODUCTS
Industrial products are products purchased for
further processing or for use in conducting a
business
Classified by the purpose for which the product is
purchased
• Materials and parts
• Capital
• Raw materials
PRODUCT CLASSIFICATIONS:
INDUSTRIAL PRODUCTS
Materials & Parts: Industrial products that enter
the manufacturer’s product completely,
including raw materials and manufactured
materials and parts e.g. wheat, steel, cement
Capital Items: are industrial products that aid in
the buyer’s production or operations e.g.
buildings, computers, machines etc.
Supplies and Services: Industrial products that do
not enter the finished product at all
Product and Services Decision
Marketers make product and service decisions
at 3 levels :
1. Individual product decisions
2. Product Line Decisions
3. Product Mix
Product and Service Decision :
Individual Product Decisions
•
•
•
•
•
Product attributes
Branding
Packaging
Labeling
Product support services
Product and Service Decision :
Individual Product Decisions
Product attributes are the benefits of
the product or service
• Quality
• Features
• Style and design
Product and Service Decision :
Individual Product Decisions
Quality
•
•
Quality in terms of the product or service is the lack of defects
Quality in terms of the customer is the value and satisfaction
provided by the product or service
Product quality includes level and consistency
• Quality level is the level of quality that supports the product’s
positioning
• Performance quality is the ability of a product to perform its
functions
• Quality consistency is the freedom from defects and the
delivering of a targeted level of performance
Product and Service Decision :
Individual Product Decisions
Features
•
•
Features are a competitive tool for differentiating a product
from competitors’ products
Product features are assessed based on the value to the
customer versus the cost to the company
Style and Design
Product style and design add value to customer value
• Style describes the appearance of the product
• Design contributes to a product’s usefulness as well as to its
looks
Product and Service Decision :
Individual Product Decisions
Branding
Brand is the name, term, sign, or design, or a combination of
these, that identifies the maker or seller of a product or service
Consumer benefits
• Quality
• Consistency
Seller benefits
• Segmentation
• Communicate product features
Product and Service Decision :
Individual Product Decisions
Packaging involves designing and producing the container
or wrapper for a product
Packaging Decision
•
•
•
•
•
•
Containing & Protecting: Packaging can improve shipping,
handling, and storage and reduce shop- lifting or spoilage
Sales tasks of attracting attention, to describing the product, to
making the sale
Reinforce the product’s positioning: Packaging can make the
difference in ease of use, more distinctive, etc
Affects Cost: Packaging costs and externalities vary widely
Product Safety
Environmental Concern
Product and Service Decision :
Individual Product Decisions
Labeling : A label identifies the product or brand, describes
attributes, and provides promotion
Labeling Decisions
•
•
•
•
•
•
Product Identification
Grade or describe the product
Legal concerns
Open dating (shelf life)
Nutritional Labelling
Dosage etc
Product and Service Decision :
Individual Product Decisions
Product Support Services
Product support services augment actual products
Companies must continually:
• Assess the value of current services to obtain ideas for new
ones
• Assess the costs of providing these services
• Develop a package of services to satisfy customers and
provide profit to the company
Product and Service Decision :
Product Line
Product line is a group of products that are closely
related because they function in a similar
manner, are sold to the same customer groups,
are marketed through the same types of outlets,
or fall within given price ranges
Product line length is the number of items in
the product line.
• Line stretching
• Line filling
Product and Service Decision :
Product Line
Product Line stretching is when a company lengthens its
product line beyond its current range
1.
Downward Product Line Stretching is used by
companies at the upper end of the market to plug a
market hole or respond to a competitor’s attack
2.
Upward Product Line Stretching is by companies at the
lower end of the market to add prestige to their current
products
3.
Combination Line Stretching of both is used by
companies in the middle range of the market to
achieve both goals of upward and downward line
stretching
Product and Service Decision :
Product Line
Product line filling occurs when companies add
more items within the present range of the
line
•
More profits
•
Satisfying dealers
•
Excess capacity
•
Plugging holes to fend off competitor
Product and Service Decision :
Product Mix
Product mix consists of all the products and
items that a particular seller offers for sale
•
Width
•
Length
•
Depth
•
Consistency
Product and Service Decision :
Product Mix
Product mix width is the number of different product
lines the company carries
Product mix length is the total number of items the
company carries within its product lines
Product line depth is the number of versions offered of
each product in the line
Consistency is how closely the various product lines are
in end use, production requirements, or distribution
channels
Product and Service Decision : Services
Marketing
Types of Service Industries
•
Government
•
Private not-for-profit organizations
•
Business services
Product and Service Decision : Services
Marketing
Nature and Characteristics of a Service
•
Intangibility
•
Inseparability
•
Variability
•
Perishability
Product and Service Decision : Services
Marketing
Nature and Characteristics of a Service
Intangibility refers to the fact that services cannot be
seen, tasted, felt, heard, or smelled before they are
Purchased
Inseparability refers to the fact that services cannot be
separated from their providers
Variability refers to the fact that service quality depends
on who provides it as well as when, where, and how it is
Provided
Perishability refers to the fact that services cannot be
stored for later sale or use
Product and Service Decision : Services
Marketing
Marketing Strategies for Service Firms
In addition to traditional marketing strategies,
service firms often require additional
strategies
•
Service-profit chain
•
Internal marketing
•
Interactive marketing
Product and Service Decision : Services Marketing
Marketing Strategies for Service Firms
Service-profit chain links service firm profits with employee and
customer satisfaction
•
Internal service quality: superior employee selection and training, a
quality work environment, and strong support for dealing with customers,
results in --------•
Satisfied and productive service employees : more satisfied, loyal
and hardworking employees, which results-------
•
Greater service value : more effective and efficient customer value
creation and service delivery results in --------
•
Satisfied and loyal customers : Satisfied customers who remain loyal,
repeat purchase and refer other customers results in ------
•
Healthy service profits and growth : Superior service firm
performance.
8-60
Product and Service Decision : Services Marketing
Marketing Strategies for Service Firms
Internal marketing means that the service firm must orient and
motivate its customer contact employees and supporting
service people to work as a team to provide customer
satisfaction
Internal marketing must precede external marketing
8-61
Product and Service Decision : Services Marketing
Marketing Strategies for Service Firms
Interactive marketing means that service quality depends
heavily on the quality of the buyer-seller interaction
during the service encounter
•
Service differentiation
•
Service quality
•
Service productivity
8-62
Product and Service Decision : Services Marketing
Marketing Strategies for Service Firms
Managing service differentiation creates a competitive
advantage from the offer, delivery, and image of the service
•
Offer can include distinctive features
•
Delivery can include more able and reliable customer
contact people, environment, or process
•
Image can include symbols and branding
8-63
Product and Service Decision : Services Marketing
Marketing Strategies for Service Firms
Managing service quality provides a competitive advantage by
delivering consistently higher quality than its competitors
Service quality always varies depending on interactions
between employees and customers
8-64
Product and Service Decision : Services Marketing
Marketing Strategies for Service Firms
Service recovery can turn disappointed customers
into loyal customers
•
Empower employees
•
•
•
Responsibility
Authority
Incentive
8-65
Product and Service Decision : Services Marketing
Marketing Strategies for Service Firms
Managing service productivity refers to the cost side
of marketing strategies for service firms
•
Employee recruiting, hiring, and training strategies
•
Service quantity and quality strategies
8-66
NEW PRODUCT DEVELOPMENT
• Invention
A new technology or product that may or may not deliver
benefits to customers.
• Innovation
An idea, service, product or technology that has been
developed and marketed to customers who perceive it as
novel or new. It is a process of identifying, creating and
delivering new-product or service values that did not exist
before in the market place.
• New Product Development
The development of original products, product improvements,
product modifications and new brands from the firm’s own R
& D efforts.
New Product Development : Why New
Products Fail ?
• Overestimation of market size or opportunity
• Poor design
• Incorrect positioning/differentiation
• Wrong timing
• Priced too high
• Ineffective promotion
• Management influence
• High development costs
• Competition
• Unexpected delays in development e.g. Air Bus 380
super jumbo
• Lack of sound marketing information or research
New Product Development : Factors that
influence new product success?
•
•
•
•
Unique superior product
Well defined product concept
Better at meeting market needs
Senior Management commitment & company
wide effort
• A smoothly functioning and proficiency in
executing the new product development
process
• Clearly segmented market
New Product Development Process
1.
2.
3.
4.
5.
6.
7.
8.
New Product Strategy
Idea Generation
Idea Screening, Concept Development & Testing
Marketing Strategy
Business Analysis
Product Development
Test Marketing
Commercialization
New Product Development Process: New
Product Strategy
Product Innovation Charter: A new product strategy statement formalizing
management’s reasons or rationale behind the firm’s search for innovation
opportunities, the product/market and the technology to focus upon, and the
goals and objectives to be achieved
New Product Strategy Goals
1.
Gives direction to team and focuses team effort
2.
Integrate functional or departmental effort
3.
Tasks delegated to team members & operate independently
4.
Get managers to agree on a strategy
New Product Strategy and Role of New Product
1.
Maintain a firms position in the industry as an innovator
2.
Defend a market position
3.
Get a foothold in a future new market
4.
Assist the firm to take advantage of its special strengths
New Product Development Process: Idea
Generation
Idea Generation: Systematic search for new product ideas
Sources of New Product Ideas
1. Internal Sources
2. Customers
3. Competitors
4. Distributors, suppliers & others (trade magazines, shows,
seminars, marketing research firms, universities,
commercial laboratories etc.
NB: Search for new product ideas must be systematic. Some
firms have in place idea management systems e.g. Idea
Manager or Idea Management Committee.
New Product Development Process: Idea
Screening
The purpose of idea screening is to spot good ideas and drop poor ones as soon as
possible.
Product Development costs rise greatly in later stages, consequently it is important for
the company to go ahead only with those product ideas that will turn into profitable
products
Screening is based on new product ideas write-up
- Product description
- Target market
- Competition
Estimate of market size
Product price
- Development time
- Cost
- Rate of return etc
Criteria and hurdles to pass
- Does satisfy real consumer need?
- Does deliver more value to customers than competition?
- Does fit with company objectives and strategies?
- Do we have the people, skills and resources to succeed?
Is it easy to distribute etc
New Product Development Process: Concept
Development & Testing
Product Idea: An idea for a possible product that
the company can see itself offering to market
Product Concept: A detailed version of the idea
stated in meaningful consumer terms.
Concept Testing: Testing new product concepts
with a group of target consumers to find out if
the concepts have strong consumer appeal
NB: Concept Testing allows a relatively inexpensive judgement to
be made by customers before embarking on costly product
development programme.
Concept A
You care about the health and well
being of your family, Therefore, you
are always careful to procure food
ingredients that are hygienically
processed and handled.
K maize flour and products are
Wholesome and deliver a distinctive
taste that the family loves.
K maize flour and products are
produced with superior Technology
and under hygienic conditions that
guarantee consistent high quality flour
(clean and finer grains).
Available in different pack sizes.
Concept B
You aspire to show your love time and time
again through good cooking for your family.
K maize flour and products deliver that
distinct great taste, texture and appetizing
appeal to your dish that makes
your family almost always say
“Mummy you are special”.
K maize flour and products are produced
with superior Technology and under
hygienic conditions that guarantee
consistent high quality flour
(clean and finer grains).
Available in different pack sizes.
Concept C
You desire to provide nourishing and
tasty food for your family time and time
again but you don’t always Have the time
to process food ingredients by yourself.
K maize flour and products deliver
consistent and distinct taste that
members of your family relish, Leaving
you free to get on with other things.
K maize flour and products are produced
with superior Technology and under
hygienic conditions that guarantee
consistent high quality flour
(clean and finer grains).
Available in different pack sizes.
New Product Development Process: Marketing
Strategy Development
• Marketing Strategy Statement: A statement of the
planned strategy for a new product that outlines the
intended target market, the planned product
positioning, and the sales, market share and profit
goals for the first few years.
• Strategy will also outline the products planned price,
distribution and marketing budget for the first year
• Strategy will also outlined planned long-term sales,
profit goals and marketing mix strategy
New Product Development Process: Business
Analysis
Business Analysis: A review of the sales, costs and
profit projections for a new product to find out
whether these factors satisfy the company’s
objectives
NB: This is to determine the commercial feasibility
of the product. It involves at lot of scenarios e.g.
changing price, costs and consumer acceptability
levels
New Product Development Process: Product
Development
Developing the product concept into a physical
product in order to ensure that the product
idea can be turned into a workable product.
• It take weeks, months & even years
• Prototypes undergo rigorous functional tests
• Product/Consumer tests are also conducted to
ensure the product delivers on both functional
and emotional attributes.
• Functional tests are carried out in the
laboratory or in house first.
New Product Development Process: Product
Development
A multifunctional team is established to bring product
into the market place.
Key Principles for the effective management of such
teams
1. Mission
2. Organization: Heavy weight project leader and core team
3. Project Plan
4. Project Leader: Lead and champion project internally and
externally
5. Responsibilities: Collective and individual responsibilities of
team members
6. Executive Sponsorship: Senior Management member acts
coach/mentor and channel to top management
New Product Development Process: Test
Marketing
Test Marketing: The stage in new-product development where the product
and marketing programme are tested in more realistic market settings
Standard Test Markets: The company finds a small number of representative
test cities, conducts a full marketing campaign in these cities and uses
store audits, consumer and distributor surveys, and other measures to
gauge performance. It then uses the results to forecast national sales and
profits, to discover potential product problems and to fine tune the
marketing programme
Simulated Test Markets: Firms test new products in simulated shopping or
usage environment. The research firm will show to a representative
sample of consumers, the new product, advertising, price etc. The
respondents are then asked questions and their responses are then used
to project national sales figures. Consumer dislikes and reservations are
also captured.
Controlled test markets are panels of stores that have agreed to carry new
products for a fee
• Less expensive than standard test markets
• Faster than standard test markets
• Competitors gain access to the new product
New Product Development Process: Test
Marketing
When firms test market
• New product with large investment
• Uncertainty about product or marketing
program
When firms may not test market
• Simple line extension
• Copy of competitor product
• Low costs
• Management confidence
New Product Development
Process: Test Marketing
Challenges of standard test markets
• Cost
• Time
• Competitors can monitor the test
• Competitor interference
• Competitors gain access to the new product
before introduction
New Product Development
Process: Test Marketing
Advantages of simulated test markets
• Less expensive than other test methods
• Faster
• Restricts access by competitors
Disadvantages
• Not considered as reliable and accurate due
to the controlled setting
New Product Development Process:
Commercialization
Commercialization: Introducing a new product into the
market. It involves the implementation of total
marketing plan and full production
A firm launching a new product must take 4 decisions:
When to launch
Where to launch
To Whom : Target Market
How? Differentiation
New Product Development Process:
Commercialization
Diffusion of Innovation Process and Targeting
Diffusion of Innovation Process: How a new product
spreads through a market over time.
•
•
•
•
•
Innovators
Early adopters
Early majority
Late majority
Laggards or non adopters
2.5%
13.5%
34%
34%
16%
NB: Target innovators/early adopters very early in the
launch. They tend to be opinion leaders.
New Product Development Process:
Commercialization
Characteristics of Products also affects rate of diffusion:
1. Differential advantage : functional as well
psychological e.g. Blackberry and I Phone
2. Innovation Compatibility with values, experiences,
lifestyles and behaviours e.g. mobile phones, iPod
3. Complexity: Products that difficult to understand or
use may take longer to be adopted.
4. Divisibility : Refers to the degree to which the
product can be tried on a limited basis.
5. Communicability : Benefits and application of the
innovation can be readily observed or described to
target customers.
Managing New-Product Development
Successful new product development should be:
• Customer-centered
• Team-centered
• Systematic
9-26
Managing New-Product Development
New-Product Development Strategies
Customer-centered new-product development focuses
on finding new ways to solve customer problems
and create more customer-satisfying experiences
• Begins and ends with solving customer problems
9-27
Managing New-Product Development
New-Product Development Strategies
Sequential new-product development is a development
approach where company departments work closely
together individually to complete each stage of the
process before passing along to the next department or
stage
• Increased control in risky or complex projects
• Slow
9-28
Managing New-Product Development
New-Product Development Strategies
Team-based new-product development is a
development approach where company
departments work closely together in crossfunctional teams, overlapping in the productdevelopment process to save time and increase
effectiveness
9-29
Managing New-Product Development
New-Product Development Strategies
Team-based versus sequential new-product
development
• Team-based can increase tension and confusion
• Team-based is faster and more flexible
9-30
Managing New-Product Development
New-Product Development Strategies
Systematic new-product development is an innovative
development approach that collects, reviews,
evaluates, and manages new-product ideas
• Creates an innovation-oriented culture
• Yields a large number of new-product ideas
9-31
WHAT IS PRODUCT LIFE CYCLE
The course of a product’s sales and profits over
its lifetime. It involves five distinct stages:
product development, introduction, growth,
maturity & decline
Product Life-Cycle Strategies
Product life cycle (PLC) describes:
• Product class
• Product form
• Brand
9-33
Product Life-Cycle Strategies
Product classes have the longest life cycles, with sales
of many product classes in the mature stage for a
long time
Product forms have the standard PLC— shape,
introduction, rapid growth, maturity, and decline
Brands have changing PLCs due to competitive threats
9-34
Product Life-Cycle Strategies
Style is a basic and distinctive mode of expression
Fashion is a currently accepted popular style in a given
field
9-35
Product Life-Cycle Strategies
Fads are temporary periods of unusually high
sales driven by consumer enthusiasm and
immediate product or brand popularity
9-36
STAGES OF THE PLC
Product Development: When a company finds and
develops a new-product idea. During product
development, sales are zero and the company’s
investment costs mount
Introduction: When a new product is first distributed and
made available for purchase. Period of slow sales
growth and profit may non-existent due to heavy
expenses of product introduction.
Growth : Period where sales starts to climb quickly due
to rapid market acceptance. Period of increasing
profits.
STAGES OF THE PLC
Maturity: Where sales growth slows or levels off
because high level of product acceptance by
most potential buyers has been achieved.
Profits level off or decline because of increase
marketing outlays to defend the product
against competition
Decline is where product sales decline and
profits drop.
MARKETING OBJECTIVES, STRATEGIES & TACTICS AT
THE VARIOUS STAGES OF PLC : INTRODUCTION STAGE
Introduction Stage:
Much Money needed to build inventories & attract distributors/build
channels (selective distribution)
Promotion spending relatively high to reach consumers of the new
product and get them to try
Strategy Options
1.
Skim the market: High price & low promotion spending
2.
High-price, high-promotion strategy helps skim rapidly the priceinsensitive end of the market
3.
Rapid Penetration Strategy: A low price and heavy promotion spending.
Achieve fastest penetration and the largest market share. Huge market,
potential buyers are price sensitive & strong potential competition.
4.
Slow Penetration Strategy: low price but low promotion spend.
MARKETING OBJECTIVES, STRATEGIES & TACTICS AT
THE VARIOUS STAGES OF PLC : GROWTH STAGE
• Meets market needs or stimulates previously untapped needs
• Early adopters will continue to buy and later buyers will start following
their lead
• New competitors attracted by profit opportunities
• New competitors may introduce new features, improve on pioneer’s
product & expand market for product
• Increase in the number of distribution outlets & sales jump
• Profits increase as promotions costs are spread over a large volume and as
unit-manufacturing costs fall.
Strategy Options to sustain rapid growth :
- Product: Improve product quality and add new features/models. Enter
new markets.
- Distribution: Selling through new channels
- Advertising: Focus on building product conviction/brand
familiarity/preference and with less emphasis on awareness
- Pricing: May lower prices at the right time to attract more buyers
MARKETING OBJECTIVES, STRATEGIES & TACTICS AT
THE VARIOUS STAGES OF PLC : MATURITY
Maturity Stage: This stage lasts longer than the previous stages and poses strong
challenges such as slow down in sales and overcapacity fueling greater
competition
- Competitors begin to cut prices
- Increase in advertising and sales promotion & raise R&D budgets to find better
versions of product. This leads to a drop in profit.
- Weaker competitors begin to exist
Strategy Options
Product: Innovation to meet changing needs of customer
Distribution: Move towards intensive distribution. Recruit more distributors
Promotion: Aggressive sales promotion to increase usage & brand switching,
advertising focuses on persuading and reminding consumers about the key
differentiator of the brand
Pricing : Price to match or beat competition or value pricing for long term
relationships
MARKETING OBJECTIVES, STRATEGIES & TACTICS AT THE
VARIOUS STAGES OF PLC : DECLINE
Sales of most product forms and brand decline. Sales may plunge to zero or to low
Level where they continue for a long time e.g. manual typewriters
Sales decline due to technological advances, shift in consumer tastes or increased
competition.
As sales and profit decline firms withdraw from the market
Those remaining may reduce the number of product offerings.
Drop smaller market segments and marginal trade channels, cut promotion budget or cut
price further
Strategy Options
Product: Harvest or phase out weak items, delist product, or sell to another company
Promotion: Reduce to level needed to maintain hard core loyals
Distribution: Phase out unprofitable outlets
Pricing: May cut price further
USEFULNESS OF PLC
• Useful framework for describing how products
and markets work
• Useful for forecasting product performance
• Useful for developing appropriate marketing
strategies
LIMITATIONS OF PLC
• Managers may have difficulties identifying
which stage of the PLC a product or the market
is in
• It is even more challenging is to pinpoint when
the product moves into the next stage
• It is not easy to forecast the sale level at each
stage of the PLC nor the length of each stage
Some Useful Observations about Product
Life Cycle
• Product market, not brand
• Markets may have different cycles
• Timing of stages may vary
• Strategy must change over time
Additional Product and Service Considerations
Product Decisions and Social Responsibility
Public policy and regulations regarding developing and
dropping products, patents, quality, and safety
9-44
Additional Product and Service Considerations
International Product and Service Marketing
Challenges
• Determining what products and services to
introduce in which countries
• Standardization versus customization
• Packaging and labeling
• Customs, values, laws
9-45
What is a BRAND?
A brand
is a product or service that has a unique
identity. It may have a unique name, logo,
design and packaging. It is more than an
undifferentiated commodity , product or service
Examples: Coca Cola, Nokia, Mercedes Benz,
Toyota etc.
BRAND
A name, term, symbol or 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.
“ … is product or service or organization,
considered in combination with its name,
its identity and its reputation” Simon Anholt
BRANDING
Brand is the process by which companies
distinguish their product offerings from the
competitor.
“ Branding is the process of designing,
planning and communicating the name
and the identity, in order to build or
manage the reputation.” Simon Anholt
Brand Elements
- Brand names
- Slogans e.g. “Discover the gem in
reading” from Beacon Books Company
- Characters
-Logos
- Symbols
Brands & Meaning
Brand can deliver up to 4 levels of meaning
1. Attributes: A brand first brings to mind certain
product attributes . E.g. Mercedes suggest
attributes such as ‘ well engineered”, “well built”,
“prestige” “durable”
2. Benefits : Customers do not buy attributes, they
buy benefits. Attributes must be translated in
functional & emotional benefits E.g. “Durable”
translate into functional benefit “ I won’t have to
buy a new car every few years’ and “Prestige” may
mean “The car makes me feel important”
Brands & Meaning
Brand can deliver up to 4 levels of meaning
3. Values : A brand also says something about the buyers’ values.
What does the buyer of Mercedes value?
4. Personality : A brand also projects a personality. The brand
will attract people, whose actual or desired self-images
match the brand’s image. If Toyota, Mercedes or Jaguar
where persons what will they be?
NB: The most lasting and sustainable meanings of a brand are its
core values and personality. They define the brand’s
essence. E.g. Mercedes stands for “ High achievement and
success”
WHY BRANDING ?
•
•
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For differentiation & recognition
To add value to a naked commodity
Easier to promote
Helps market segmentation
Can help boost share price
Easier to integrate - sales promotion, personal selling
& packaging
• Can help corporate image
Branding Decisions
1. To brand or not to brand?
2. Brand name selection
3. Brand Sponsor
4. Brand Strategy
5. Brand Positioning & Repositioning
6. Rebranding
To Brand or Not to brand : Brands
versus Commodities
• User focus
• Consistent
• Guaranteed quality
• Relevant
• Differentiated
• Communicated
To Brand or Not Brand : Importance of
Branding: To Users
• Choice
“A brand is a complex thing. Not only is it
the actual product, but it is also the unique
property of a specific owner and has been
developed over time so as to embrace a set
of values and attributes, both tangible and
intangible, which meaningfully and
appropriately differentiate products which
are otherwise very similar.” [John Murphy,
founder of Interbrand]
• Relevance
I am on my way to the top – BMW, Tag
Heuer, Armani
I care about the environment – Bank, Body Shop
“In the modern world brands are a key part
of how individuals define themselves and
their relationships with one another.”
[Sir Michael Perry]
Importance of Branding: To Users
• Satisfaction
• Attention to new products with desired
benefits
• Shopping Efficiency
Importance of Branding: To
Owners/Suppliers
• Sustainable advantage
• Defendability
• Share Performance
• Legal protection of unique features i.e. patent
• Attract loyal and profitable set of customers
• Helps supplier to segment markets e.g. Procter & Gamble
range of laundry brands
Importance of Branding: To Distributors,
Retailers & Financial Agents
• Traffic generators
• Margin
• Loyalty
• Image
• Own brand
Importance of Branding: To the Economy
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•
•
•
Economic value added
Innovation
Export
Employment
Branding Importance in the Future
•
•
•
•
Increasing choice
Distant Purchasing (Internet)
Globalization
More demanding customers
How Brands perceived: Input Perspective: The
Producer or Owners View
•
•
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As logo
As legal instrument
As company
As shorthand
As risk reducer
As positioning
As personality
As cluster of values
As adding value
As Identity
How Brands perceived: Output Perspective:
Users’ View
• As Image
• As relationship
“Brands are part of our social existence.
Relationships with brands are obviously not
the same as relationships with people but the
metaphor is useful. The brands we use
reinforce our self-image and how others see
us. Brand perceptions are moulded just
as much by their users as by their marketers,
perhaps more so. We are social beings and
brands are part of that.”
[Tim Ambler, Senior Fellow, London Business
School, Inaugural Brands Lecture, British
Brand Group, December 2000]
Branding Decision: Brand Name Selection
3 brand name strategies can identified
Family brand names: The brand name is used for all products
e.g. Philips, Heinz, Ford, Motorola. The goodwill benefits all
brands and use of the name in advertising helps all brands
under the family name.
Individual brand name does not identify a brand with a
particular company e.g. Unilever has Omo, Persil, Surf etc. It
is done when it is believed that each brand requires a
separate and unrelated identity.
Combination Brand Names : Combines family brand and
individual brands names to capitalize on the reputation of
the company while allowing the individual brands to be
distinguished and identified e.g. Levi’s 501, Volkswagen
Golf, Microsoft Vista
Branding Decision: Brand Name Selection
Selecting a brand name is crucial part of the brand the marketing
planning process:
Desirable Qualities for a brand name
1.
2.
3.
4.
5.
6.
7.
Suggest something about product benefits e.g. Kleenex (tissue paper)
Is to pronounce, recognize or remember e.g. Dove (soap), Yale (security
products), Shell
The brand name should be distinctive e.g. Virgin, Kodak
It should translate easily (and meaningfully) into foreign languages
It should be capable of registration and legal protection e.g. Miller
Brewery Company not allowed to use “Lite” exclusively for its lowcalorie beer
Evoke positive associations e.g. Pepsi Max, Lexus
Use of numerals or alphanumerics when emphasizing technology e.g.
Audi A 4, Airbus 380 etc.
Branding Decisions: Brand Sponsor
1. Manufacturer’s Brand: A brand created and
owned by the producer of a product or
service
2. Private Brand (distributor or store brand or
Own label) : A brand created and owned by
a reseller/distributor of a product or service
e.g. Wal mart/Asda’s own clothe brand St
Georges,
Branding Decisions: Brand Sponsor
3. Licensed Brand
A product or service using a brand name offered by the
brand owner to the licensee for an agreed fee or royalty
e.g. Calvin Klein .
4. Corporate Brand Licensing: a form of licensing
whereby a firm rents a corporate trademark or logo made
famous in one product or service category and uses it in a
related category.
Sellers of children’s products attach an endless list of
character names to clothing, toys, cereals etc e.g. Shrek,
Spiderman, Micky Mouse
Branding Decisions: Brand Strategy
1. Line extensions: Using a useful brand name to
introduce additional items in given product category
under the same brand such as new flavours, forms,
colours, added ingredients or package sizes e.g. Key
Mini, Key Powder
2. Brand Extension : The use of an established brand
name on new brand within the same broad market
or product category . E.g. Unilever used Dove brand
name for deodorants, shower gel, liquid soap and
body wash
Branding Decisions: Brand Strategy
3. Brand Stretching : Using a successful brand name to
launch a new or modified product in a new category or
at times unrelated category e.g. Honda from
motorcycles to cars, Virgin Records, Virgin Train, Virgin
Atlantic, Virgin Cola
Merits of Brand Extensions
- Reduces risks and less costly than outright launch
- Introduction of new a brand can benefit core brand
Demerits
- Brand Dilution: occurs when consumers no longer
associate a brand with a specific product
- Cannibalization : New brand gain sales at the expense of
the established brand
- Bad publicity on one brand may affect others
Branding Decisions : Brand
Strategy- Co-Branding
Two forms of Co-branding namely Product-Based Co-branding
and Communication Based Co-branding
Product Based Co-Branding involves the linking of 2 or more
existing brands from different companies or business units to
form a product in which the brands names are visible to
consumers.
Parallel Co-branding e.g. Siemens and Porsche design which
produce a range of kettles, toasters and coffee machines
Ingredient Co-branding is found when one supplier explicitly
chooses to position its brand as an ingredient of a product.
Intel is an ingredient brand E.g. Intel linked to Sony Vaio
Laptop
Branding Decisions : Brand
Strategy- Co-Branding
Advantages of Product-Co branding
• Add Value and Differentiation
• Positioning : Can position a product for a particular target
market e.g. Ford alliance with Elle Magazine led to creation of
Ford Focus Elle car as a stylish fashion accessory targeted at
women
• Reduction of cost of product introduction
Disadvantages
• Could lead to loss of control: Potential for disagreement,
misunderstanding, and conflict.
• Brand Equity Loss
Branding Decisions : Brand
StrategyCo-Branding
Communication Based Co-branding involves the linking of 2 or
more existing brands from different companies or business
units to for the purposes of joint communication.
• It can take the form of recommendation. E.g. Ariel and
Whirlpool launched a co-branding advertising campaign where
Ariel was endorsed by Whirlpool.
• Can also take the form of stimulating awareness and interest
and to provide promotional opportunities. E.g. A deal between
McDonald’s and Disney gives McDonald’s exclusive rights to
display and promote materials relating to new Disney movies in
its stores.
• Can also result from sponsorship, where sponsor’s brand name
appears on the product being sponsored .E.g. Shell’s
sponsorship of Ferrari Formula 1 motor racing team
Branding Decisions : Brand
Strategy- Co-Branding
Advantages of Communication Co -branding
• Endorsement Opportunities
• Cost Benefits
• Awareness and Interest Gains
• Promotional Opportunities
Disadvantages
• Could lead to loss of control: Differences in opinion in terms
of creative content and emphasis given to each brand in the
advertising.
• Brand Equity Loss : Failure of a brand can affect the other.
Branding Decisions: Brand Strategy
3. Multibrand Strategy: Managing a stable of brand names within
the same product category.
- Companies such as Unilever (Persil, Surf, Skip ) , Procter &
Gamble create individual brand identities for each of their
products.
- Permits finer segmentation of market with each brand
suggesting different functions or benefits appealing to different
buying motives of different customer segments.
Corporate Branding Strategy : Company makes company name
the dominant brand identity across all of its products, as in the
case of Mercedes Benz, Heinz, Ford
NB: Some have used a company and individual brand approach to
naming products e.g. Nestle (KitKat, Nescafe, Coffee Mate)
4. New Brands : Firms that favour a multibrand approach are likely
to create a new product, whether it is introduced into an
existing or a new product category. E.g. Toyota launching Lexus
into Luxury car market.
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Building Successful Brands
Quality
Positioning
Repositioning
Well blended communications : Integrated
marketing communications
• Being First
• Internal Marketing : Investment in training
and communicating to staff the ethos on
which brand is built. Mobilize the entire
company behind the brand .
• Long term perspective
Building Successful Brands : Positioning
Creating a unique position in the marketplace
involves a careful choice of target market and
establishing a clear differential advantage in
the minds of the those people This can be
achieved through product attributes, products,
benefits brand names and image, service,
design, guarantees, packaging and delivery.
Positioning should be founded on Clarity,
Consistency, credibility and competitiveness
Building Successful Brands : Positioning
The strength of a brand’s position in the marketplace is built on 6
elements
1. Brand Domain: The brand’s target market
2. Brand Heritage: based on brand’s culture and how it has
achieved success (of failure) in the past
3. Brand Value: The core value and characteristics of the brand
4. Brand Assets: What makes the brand distinctive from other
competing brands such as symbol, features etc.
5. Brand Personality: The character of the brand described in
terms of other entities, such as people, animal or objects
6. Brand Reflection: How the brand relates to self-identity: how
the customer perceives him/herself as a result of buying/using
the brand.
Building Successful Brands : Repositioning
As markets change and opportunities arise
repositioning may be needed to build brands from
their initial base.
• A brand may be repositioned in a market E.g. Omo,
MacDonald in the UK, Skoda
• A competitor may launch a brand position next to
the company’s brand and cut into its market share
• Customer wants may shift living brand with less
demand
NB: Repositioning may entail change of product, image
Branding Decisions: Rebranding
Rebranding is act of changing a brand name. It can occur both at
the product level and corporate level. E.g. Jif/Cif/Vif/Vim to Cif
and BT Wireless to O2 or Andersen Consulting to Accenture
Why Rebranding?
1. Merger or Acquisition
2. Desire to create a new image/position in the marketplace
3. The sale or acquisition of parts of a business or enterprise
4. Corporate Strategy Changes
5. Brand Familiarity
6. International Marketing Considerations
7. Legal Problems
Branding Decisions: Rebranding
Managing the Rebranding Process involves Choosing the brand
name and Implementing the Name Change.
1. Choosing the Brand Name
- Setting the rebranding objectives
- Generation of new names
- Screen the names
- Information Research
- Consumer Research : memorability, associations and
distinctivenesss
- Choice of new brand name
- Implementation
Branding Decisions: Rebranding
1. Implementing the Brand Name
• Coordination : Between company departments
• Communication : Mass advertising campaign, retailers
informed in advance, salesforce focus on the brand
and consumer promotion to generate trial and
acceptance
• Understanding What consumer identifies with the
brand
• Providing Assistance to distributors/retailers
• Speed of Change
Branding Decisions: Global Branding
Global Branding is the achievement of brand
penetration worldwide e.g. Coca Cola,
Microsoft, Toyota, Mercedes Benz, Sony
1. Geographic extension: taking present brands
into new geographic markets
2. Brand Acquisition: Purchasing brands
3. Brand Alliance: Joint venture or partnerships
to market brands in national and
international markets
Branding Decisions: Global Branding :
Developing Global Brand
Criteria for Evaluation
Strategy
Speed
Control
Investment
Geographic
Expansion
Slow
High
Medium
Brand
Acquisition
Fast
Medium
High
Build Alliance
Moderate
Low
Low
Branding Decisions: Global Branding
Global Branding Decision: Standardization vrs Adaptation
Brand Form
- Quality
- Formulation
- Design
- Variants
Brand Communications
- Name
- Execution
- Packaging
Brand Additionals
- Delivery
- Service
- Guarantees
Brand Equity
“The value of a brand based on the extent to which it has high brand
loyalty, name awareness, perceived quality, strong brand associations,
and other assets such as patents, trademarks and channel
relationships”
“The most valuable part of the brand ... The added value bit ... the bit
that protects respectable margins and fills up the reservoirs of future
cashflow ... the bit that distinguishes a brand from a mere product ...
doesn’t belong to it. It belongs to the public.”
[Jeremy Bullmore, British Brands Group, 2001]
“ Brand Equity is a measure of the strength of a brand in the market
place by adding tangible value to a company through the resulting
sales and profits” David Jobber, 2007
Building Equity
- Constant flow of improved and innovative products
- Creative advertising and activation
- Excellent trade & consumer service
Brand Equity
These four dimensions to guide brand development, management and measurement.
> Brand awareness is an often undervalued asset;
however, awareness has been shown to affect perceptions and even taste. People like
the familiar and are prepared to ascribe all sorts of good attitudes to items that are
familiar to them. The Intel Inside campaign has dramatically transferred awareness into
perceptions of technological superiority and market acceptance.
 Perceived quality is a special type of association, partly because it influences brand
associations in many contexts and partly because it has been empirically shown to affect
profitability (as measured by both ROI and stock return).
 Brand associations can be anything that connects the customer to the brand. It can
include user imagery, product attributes, use situations, organisational associations,
brand personality and symbols. Much of brand management involves determining what
associations to develop and then creating programs that will link the associations to the
brand.
Brand loyalty is at the heart of any brand’s value. The concept is to strengthen the size
and intensity of each loyalty segment. A brand with a small but intensely loyal customer
base can have significant equity.
The Role & Importance of Strong Brands
- Identify the maker
- Simplify product handling
-Offer legal protection
- Signify quality
- Create barriers to entry
- Serve as a competitive advantage
- Secure price premium and high profits
- Add value to the company
- Create positive consumer perceptions and
preferences
- Base for brand extensions.
- Engender Trust
Attributes of strong Brands
- Excels at delivering desired results
-Stays relevant
- priced to meet perceptions of value
- positioned properly
- communicates consistent brand messages
Marketing advantages of Strong Brands
- High level of consumer brand
awareness
-Improved perceptions of product performance
- Greater loyalty
- Less vulnerable to crisis
- Larger margins
- Inelastic consumer response to price
increases
- Elastic consumer response to price decreases
-Licensing opportunities
-Brand extensions opportunities
Advantages and Cost of a Brand –
Some Facts:
Ω
Brands and Profitability
with 40% market share, 3 times the return of one
with 10% share
Ω
UK Grocery Brands
No.1 Brand generates over 6 times the return of
the No.2 Brand.
Ω
US consumer goods market
No.1 Brand earned 20% return; No.2,earned 5%
Advantages and Cost of a Brand – Some Facts:
Ω
A strong Brand in a niche market earns higher
return than a strong Brand in a market
Ω
Premium Brands earn 20% more than discount
Brands
Ω
Strong Brands managed properly have long
lives- (Haris: bread; Kellogs; Corn flakes;
Colgate: toothpaste; Hoover: vacuum cleaner)
Ω
The best strategy for achieving profitability and
growth is to focus on brand differentiation rather
than cost and price
Managing Brands
What is brand management?
Brand management is a process that takes control over everything the brand
does and says, managing the way in which it Is perceived by others. This
involves
1.
Identifying clearly what the brand stands for, and how to position it so
that it appears different and better than competing brands.
2.
It requires constant tracking of the brand and its competitors,
3.
The integration of all communications,
4.
And the management of each contact point a consumer may have
with the brand.
NB: The overall aim of this process is to increase the value of the brand
over time.
BRAND INVESTMENT BENEFITS
Basic products
Investment in branding
Sustainable advantage
Market share increase
Economies of scale
Increased profitabilty
Long term brand value
Building & Maintaining Brands
The critical success factors for building and maintaining
Brands are:
►
Quality - fundamental (Benz, McDonald)
►
Differentiation - USP is a sustainable competitive
advantage
►
Consistency - hallmark of great brands
►
Evaluation - essential as environment changes
►
Support - continuous investment to maintain its
position
Threats to Brands (esp. in consumer markets)
☼
Fragmentation of markets (changing
technology)
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Repertoire buying - buying several brands
each for different purpose
☼
Media cost inflation - TV costs up, inflation
increasing
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Media fragmentation - makes it less easier to
produce traditional heavy mass market
campaigns
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Changing lifestyles - makes it difficult to
reach some key target groups