Chapter Three: Product Strategy

5.1 Product Strategy

5.1.1 What is Product?

Many people think that a product is a tangible offering, but a product can be more than that. A product is
anything that can be offered to a market to satisfy a want or need. Products that are marketed include
physical goods, services, experiences, events, persons, places, properties, organizations, information, and
ideas.

5. 2. Product Levels
In planning its market offering, the marketer needs to address five product levels. Each level adds more
customer value, and they constitute a customer value hierarchy.

Core Benefit: The fundamental level is the core benefit. The service or benefit the customer is really buying
is referring core benefit. E.g. A hotel guest is buying "rest and sleep."

Basic product: At the second level, the marketer has to turn the core benefit into a basic product. Thus a hotel
room includes a bed, bathroom, towels, desk, dresser, etc.

Expected level: At the third level, the marketer prepares an expected product, a set of attributes and
conditions buyers normally expect when they purchase this product. Hotel guests expect a clean bed, fresh
towels, working lamps, and a relative degree of quiet.
Augmented product level: At this level the marketer prepares an augmented product that exceeds customer
expectations..
Potential product Level: This level encompasses all the possible augmentations and transformations the
product or offering might undergo in the future. Here is where companies search for new ways to satisfy
customers and distinguish their offer. For instance, in an era when customers are demanding ever-faster
Internet and wireless connections, Verizon is investing its capital in creating a raft of potential products.

5. 3. Product Classification

Marketers have developed several product classification schemes based on product characteristics as an aid
to developing appropriate marketing strategies.

Product can be classified into three groups according to their durability and tangibility:

 Durable Goods: Durable goods are tangible goods that normally survive many users. Examples include
refrigerators, tape recorders, televisions etc.

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 Non-Durable Goods: These are tangible goods that normally are consumed for short period. Example
include soap, match box etc.
 Services: Services are activities, benefits or satisfactions that are offered for sale. Examples include
banking, transport, insurance service etc.
Another method of classifying products is on the basis of consumer shopping habits because they have
implications for marketing strategy. Basing on this, goods may be classified into four:
 Convenience Goods: Goods that the customer usually purchases frequently, immediately and with the
minimum effort. The price per unit is low, Example: soaps, match box etc.
 Shopping Goods: These goods are purchased infrequently. The price per unit is comparatively higher.
The customer, in the process of selection and purchase of these goods compares the suitability, quality,
price and style. Example includes furniture, clothing, footwear etc.
 Specialty Goods: Goods with unique characteristics and/or brand identification for which a significant
group of buyers are willing to make a special purchasing effort. The goods are expensive and purchased
rarely. Examples include personal computers, cars etc.
 Unsought goods: are those the consumer does not know about or does not normally think of buying, like
smoke detectors. The classic examples of known but unsought goods are life insurance, cemetery plots,
gravestones, and encyclopedias. Unsought goods require advertising and personal-selling support.
Industrial Products
One of the ways of classification of industrial products involves two broad categories (1) products that are
used in the production of other goods and become a physical part of another product, and (2) products
necessary to conduct business that do not become part of another product. The products that become part of
another product are raw materials, semi-manufactured goods, components and subcontracted production
services. The products that are needed to conduct the business include: Capital goods, operating supplies,
contracted industrial services, contracted professional services and utilities.

5. 4. Product Mix and Line

Product Mix
A product mix (also called product assortment) is the set of all product lines and items that a particular seller
offers to sale. A company’s product mix can be described as having a certain width, length, depth, and
consistency.
 The width of the product mix refers to how many product lines the company carries.
 The length of product mix refers to the total number of items in its product mix.
 The depth of product mix refers to how many product variants are offered of each product item in the
line.

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 The consistency of the product mix refers to how closely related the various product lines are in end use,
product requirements, distribution channels or some other way.

These four dimensions of the product mix provide the bases for defining the company’s product strategy. The
company can grow its business in four ways. The company can add new product lines, thus widening its
product mix to capitalize the company’s reputation or the company can lengthen its existing product lines to
become a more full line company or the company can add more product variants to each product and thus
deepen its product mix. Finally the company can pursue more product-line consistency or less, depending
upon whether it wants to acquire a strong reputation in a single field or participate in several fields.

5.5. Branding, Packaging and Labeling Decisions

Branding
The selection of a proper brand name is the major step in managing a product. The branding of a product is
like naming a new-born child. It basically serves to identify the offering. Branding can add value to a product
and is therefore an intrinsic aspect of product strategy. Essentially, a brand is a promise of the seller to
delivers a specific set of benefits or attributes or services to the buyer. Each brand represents a level of
quality.

The American Marketing Association defines a brand as "a name, term, sign, 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
Selection of Brand Name

The brand name should be carefully chosen. A good name can add greatly to a product’s success. Most large
marketing companies have developed a formal brand name selection process. Finding the best brand name is
a difficult task. It begins with a careful review of the product and its benefits, the target market, and proposed
marketing strategies. A good brand name should basically posses the following qualities:

 It should be short, simple and easy to pronounce.

 The brand name should be distinctive.
 It should be easy to recognize and remember.
 It should be pleasing when pronounced.
 It should be capable of registration and legal protection.
 It should not be offensive, obscene negative.
 It should be adaptable to packaging and labeling requirements and to any advertising media.
 It should suggest something about the product’s benefits and qualities.


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Packaging Decisions
Packaging has become a very important part of product management. With competition increasing, marketers
are turning to innovative packaging to establish a distinctive edge. Marketers are providing value addition to
products and greater benefits to consumers through packaging, thereby attempting to increase the brand
value.

Packaging includes the activities of designing and producing the container or wrapper for a product. The
package may include the product’s primary container; a secondary package that is thrown away when the
product is about to be used. Labeling is also part of packaging and consists of printed information appearing
on or with the package.

Packaging Materials
Over the years, great changes have taken place in package materials. In the earlier days, wood was the main
material for packaging. This slowly gave place to paper and paper boards. Now, in addition to paper board,
polythene carries bags. Plastic and metalized polyester laminate materials are widely used for packaging

Packaging Aesthetics
With the increasing need for enhancing the sales appeal of packaging, increased attention is now being given
to package aesthetics. Business firms are always in search of new package materials, designs, sizes and
shapes that will enhance the sales appeal of their products. It has become a common practice for marketers,
especially in consumer product lines, to rely heavily on package aesthetics as a powerful tool for sales
appeal, brand identification and product differentiation. In some cases packaging also facilitates
merchandising. The package aesthetics plays the role of a ‘silent salesmen’ in projecting the right image of
the product.

Labeling
Label is a small slip placed on or near the product to denote its nature, contents, ownership etc. It may range
from simple tags attached to products to complex graphics that are part of the package.

5.1.6 New product development and product life cycle strategies

New product development include producing original products , product improvements, product
modifications and new brand developments in which a firm will produce with its own research and
development (R&D) effort.

A. Categories of new product development

There are four types of new product development. These are:

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New-to-the-world products
These represent a small proportion of all new products introduced. They are the first of their kind and create
a new market. They are inventions that usually contain a significant development in technology, such as a
new discovery, or manipulate existing technology in a very different way, leading to revolutionary new
designs such as the Sony Walkman. Other examples include Kodak’s digital camera, 3M’s Post-It notes and
Guinness’s ‘in-can’ system.
New product lines
Although not new to the marketplace, these products are new to the particular company. They provide an
opportunity for the company to enter an established market for the first time. For example, Alcatel, Samsung
and Sony-Ericsson have all entered the cell phone market to compete with market leaders Nokia and
Motorola originators of the product.
Additions to existing lines
This category is a subset of new product lines above. The distinction is that while the company already has a
line of products in this market, the product is significantly different from the present product offering but not
so different that it is a new line. The distinction between this category and the former is one of degree. For
example, Hewlett- Packard’s color ink-jet printer was an addition to its established line of ink-jet printers.
Product replacement
These new products are replacements of existing products in a firm’s product line. These new products are
essentially the discovery of new applications for existing products. This has more to do with consumer
perception and branding than technical development.
This is none the less an important category. Following the medical science discovery that aspirin thins blood,
for example, the product has been repositioned from an analgesic to an over-the-counter remedy for blood
clots and one that may help to prevent strokes and heart attacks. In practice most of the projects in firm’s
portfolios are improvements to products already on the market, additions to existing lines (line extensions),
and products new to the firm but already manufactured by competitors (new product lines).

B. New product development processes

New product development processes involves many stages. There are eight stages of developing new
product. These include:
Idea generation
New product development starts with idea generation- the systematic search for new product ideas. Major
sources of idea generation are divided in to internal idea generation and external idea generation.
Internal idea generation
Here the new product idea generates from firm’s R&D department. Executives, engineers, sales person, and
employees at all levels can generate new product ideas and the firm uses those internal idea sources as input.

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Some companies have developed successful “intrapreneurial” programs that encourage employees to think
up and develop new product ideas.
External idea generation
A firm can also obtain new product ideas from external sources. Customers- Company can analyze
customer’s questions and complains to find new products that better solve consumer problems. The company
can conduct surveys of focus groups to learn about consumer needs and wants.
Competitors- are another good source of new-product ideas. Companies watch competitors’ advertisements
to get hint about their new products. Companies buy competing new products, take them apart to see how
they work it, analyze their sales, and decide whether they should bring out a new product of their own.
Distributors- as distributors are close to the market, they can pass along information about consumer
problems and new product possibilities.
Suppliers – can inform the company about new concepts, techniques, and materials that can be used to
develop new products.
Other sources- include trade magazines, shows, and seminars; government agencies; new-product
consultants; advertising agencies; marketing research firms; university and commercial laboratories; and
inventors.
The search for new product idea should be systematic rather than haphazard. Otherwise, few new ideas will
surface and many good ideas will sputter and die.

Idea screening
It is a process of screening new product ideas in order to spot good ideas and drop poor ones as soon as
possible. The purpose of the succeeding stages is to reduce that number. The first idea- reducing stage is idea
screening, which helps to spot good ideas and drop poor ones. Product development costs rise greatly in later
stages, so the company wants to go ahead only with the product ideas that will turn into profitable products.
The idea management committee evaluate different new product ideas base on important criteria such as
market size, product price, development time and costs, manufacturing costs, and rate of return.
Concept development and testing
A good idea must be developed into a product concept. A product concept is a detailed version of the new
product idea stated in meaningful consumer terms. Concept testing refers to testing new product concepts
with groups of target consumers to find out if the concepts have strong consumer appeal. For some concept
tests, a word or picture description might be sufficient. However, a more concrete and physical presentation
of the concept will increase the reliability of the concept test. Consumers can be asked to react to it by
answering questions. Many firms routinely test new product concepts with consumers before attempting to
turn them into actual new products.

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Market strategy development
It involves designing an initial marketing strategy for a new product based on the product concept. The
marketing strategy statement consists of the target market; the planned product positioning; and the sales,
market share, and profit goals for the first few years, the product’s planned prices, distribution, and
marketing budget for the first year, planned long run sales, profit goals, and marketing mix strategy.
Business analysis
It is a review of sales, costs, and profit projections for a new product to find out whether these factors can
satisfy company’s objectives. If they do, the product can move to the product development stage. To estimate
sales, the company might look at the sales history of similar products and conduct surveys of market opinion.
It can then estimate minimum and maximum sales to assess the range of risk. After preparing the sales
forecast, management can estimate the expected costs and profits for the product, including marketing, R&D,
operations, accounting and finance costs, the company then uses the sales and costs figures to analyze the
new product’s financial (business) attractiveness.
Product development
If the product concept passes the business test, it moves to product development. So far, for many new
product concepts, the product may have existed only as a word description, a drawing, or perhaps a crude
mock-up. It is a stage of developing the product concept in to physical product in order to ensure that the
product idea can be turned into workable product. Proto type will be developed. R&D or engineering
department develops the product concept into physical concept. A new product must have the required
functional features and also convey the intended psychological characteristics.
Test marketing
Products and marketing programs are tested in more realistic market settings. Positioning strategy,
advertising, distribution, pricing, branding, packaging and budget levels and so forth will be tested in real
market situation. The amount of test marketing needed varies with each new product.

Commercialization
This refers to introducing a new product into the market. The firm introducing those new products will face
high costs. The company must first decide on introducing timing and where to launch the new product- in a
single location, regional market, national market or international market.

C. Product life cycle strategies

It is the course of a product’s sales and profits take over its lifetime. The product life cycle has four distinct
stages.

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Introduction stage of the Product life cycle (PLC)
The introduction stage starts when the new product is first launched. Introduction takes time, and sales
growth is apt to be slow. In this stage, as compared with other stages, profits are negative or low because of
the low sales and high distribution and promotion expenses. Much money is needed to attract distributors and
build their inventories. Promotion spending is relatively high to inform consumers of the new product and get
them to try it. Because the market is not generally ready for product refinements at this stage, the company
and its few competitors produce basic versions of the product. These firms focus their selling on those buyers
who are the most ready to buy. A company, especially the market pioneer, must choose a launch strategy
that is consistent with the intended product positioning. It should realize that the initial strategy is just the
first step in a grander marketing plan for the product’s entire life cycle.

Sales and profit

Introduction Growth Maturity Decline

Time
Sales
Profit

Growth stage
If the new product satisfies the market, it will enter a growth stage, in which sales will start climbing quickly.
The early adopters will continue to buy, and later buyers will start following their lead, especially if they hear
favorable word of mouth. Attracted by the opportunities for profit, new competitors will enter the market.
They will introduce new product features, and the market will expand. The increase in competitors leads to
an increase in the number of distribution outlets, and sales jump to build reseller inventories. Prices remain
where they are or fall only slightly. Companies keep their promotion spending at the same or a slightly
higher level. Educating the market remains a goal, but now the company must also meet the competition.
Profits increase during the growth stage, as promotion costs are spread over a large volume and as unit
manufacturing costs fall.
Maturity stage
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A product’s sales growth will slow down, and the product will enter a maturity stage. This maturity stage
normally lasts longer than the previous stages and it posses strong challenges to marketing management.
Most products are in the maturity stage of the life cycle, and therefore most of marketing management deals
with the mature product. Sales and profit reach their peak point in the maturity stage but at the end of this
stage sales as well as profit shows decline after reaching the maximum point.
The slowdown in sales growth results in many producers with many products to sell. In turn, this
overcapacity leads to greater competition. Competitors begin marking down prices, increasing their
advertising and sales promotions, and upping their R&D budgets to find better versions of the product. These
steps lead to a drop in profit. Some of the weaker competitors start dropping out, and the industry eventually
contains only well-established competitors.

Decline stage
The sales of most product forms and brands eventually dip. Sales decline for many reasons, including
technological advances, shifts in consumer tastes, and increased competition. As sales and profits decline,
some firms withdraw from the market. Those remaining may prune their product offerings. They may drop
smaller market segments and marginal trade channels, or they may cut the promotion budget and reduce their
prices further. Carrying a weak product can be very costly to a firm, and not just in profit terms. There are
many hidden costs. A weak product may take up too much of management’s time. It often requires frequent
price and inventory adjustments. It requires advertising and sales force attention that might be better used to
make “healthy” products more profitable. A product’s failing reputation can cause customer concerns about
the company and its other products. The biggest cost may well lie in the future. Keeping weak products
delays the search for replacements, creates a lopsided product mix, hurts current profits, and weakens the
company’s foothold on the future.
For these reasons, companies need to pay more attention to their aging products. The firm’s first task is to
identify those products in the decline stage by regularly reviewing sales, market shares, costs, and profit
trends. Then management must decide whether to maintain, harvest, or drop each of these declining products.
Management may decide to maintain its brand without change in the hope that competitors will leave the
industry. Management may decide to harvest the product, which means reducing various costs and hoping
that sales hold up.

5.2 Service Marketing

5.2.1 Nature and characteristics of a service

As companies find it harder and harder to differentiate their physical products, they turn to service
differentiation. Many books point out the significant profitability of companies that manage to deliver

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superior service. Companies seek to develop a reputation for superior performance in on-time delivery, better
and faster answering of inquiries, and quicker resolution of complaints. Service becomes the mantra. Perhaps
the most dramatic example of how the growth of services has changed the face of business is what has
happened to one of the world's most successful companies, IBM.

Service industry consists of government sectors like courts, employment services, hospitals, loan agencies,
military services, police and fire departments, postal service, regulatory agencies, and schools, is in the
service business. The private nonprofit sector, with its museums, charities, churches, colleges, foundations,
and hospitals, is in the service business. A good part of the business sector, with its airlines, banks, hotels,
insurance companies, law firms, management consulting firms, medical practices, motion picture companies,
plumbing repair companies, and real estate firms, is in the service business. Many workers in the
manufacturing sector, such as computer operators, accountants, and legal staff, are really service providers.
In fact, they make up a "service factory" providing services to the "goods factory." And those in the retail
sector, such as cashiers, clerks, salespeople, and customer service representatives, are also providing a
service.

Distinctive Characteristics of Services

Services have four distinctive characteristics that greatly affect the design of marketing programs:
intangibility, inseparability, variability, and perishabilty.
Intangibility: Services are essentially intangible. Because services are performance or actions rather than
objects, they cannot be seen, felt, tasted, or touched in the same manner that we can see sense tangible goods.
For example, health-care services are actions (e.g. surgery, diagnosis, examinations, treatment) performed by
providers and directed toward patients and their families. These services cannot actually be seen or touched
by the patient may be able to seen and touch certain tangible, components of the services (e.g. equipment,
hospital room). In fact, many services such as health care are difficult for the consumer to grasp even
mentally. Even after a diagnosis or surgery has been completed the patient may not fully comprehend the
service performed.
Inseparability: Services are created and consumed simultaneously and generally they cannot be separated
from the provider of the service. Thus the service provider – customer interaction is a special feature of
services marketing. Unlike the tangible goods, services cannot be distributed using conventional channels.
Inseparability makes direct sales as the only possible channel of distribution and thus delimits the markets for
the seller’s services. This characteristic also limits the scale of operation of the service provider. For
example, a doctor can give treatment to limited number of patients only in a day.
Heterogeneity: This characteristic is also referred variability. We have already seen that services cannot be
standardized. They are highly variable depending upon the provider and the time and place where they are

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provided. A service provided on other occasions. Also the standard of quality perceived by different
consumers may differ according to the order of preference given by them to the various attribute of service
actuality. For example, the treatments given by a hospital to different persons on different occasion cannot be
of the same quality.
Perishabilty: Perishabilty refers to the fact that services cannot be saved, stored, resold or returned. A seat
on an airplane or in a restaurant, an hour or a lawyer’s time, or telephone line capacity not used cannot be
reclaimed and used or resold at later time. This is in contract to goods that can be stored in inventory or
resold another day, or even returned if the consumer is unhappy.

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