1. Topic eight PRODUCT DECISIONS 1

2. Product, Services, and Branding Strategy What Is a Product? Levels of products Product Decisions Branding Strategy New product development Product life circle Topic Outline

3. 8.1 Definition of key concepts Product is anything that can be offered in a market for attention, acquisition, use, or consumption that might satisfy a need or want Experiences represent what buying the product or service will do for the customer 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

4. 8.2 Levels of products

5. Three levels. Each adds value to the customer. (i) Core Product The most basic level is the core benefit This answers the question “What is the buyer really buying”? The marketer job is to sell core benefits, problem solving benefits or services that consumer seeks and not product features.

6. 8.2 Levels of products (ii) Formal/Actual Product Is the larger “packaging” of the core product. the target market recognizes as the tangible offer. If the formal product is a physical object, it may be recognized by the Market as having 5 characteristics:- Quality level, features, styling, a brand name and packaging. lipsticks, educational seminars, political candidates are all formal products.

7. 8.2 Levels of products (iii) Augmented Product Product planners build an augmented product around core benefits and actual product by offering additional consumer services and benefits. This is the totality of benefits that the person receives or experiences in obtaining the formal product. The augmented product of computer is not only the computer but a whole set of accompanying services including instructions, canned software programs, programming services, maintenance and repairs etc. Sellers are thus able to recognize many opportunities for augmenting their product offering in a competitive manner.

8. 8.2 Levels of products The new competition is not between what companies produce in their factories but between what they add to their factory output in the form of packaging, services, advertising, customer advice, financing, delivery arrangements, warehousing and other things that people value. Conclusively, consumers see products as bundle of benefits that satisfy their needs i.e. core, formal and augmented dimensions Marketers must create a bundle of benefits that will provide the most satisfying customer experience.

9. 8.3 Product attribute decisions (i) Product Quality In developing a product, the manufacturer has to choose a quality level that will support the product’s intended position in the target market. Quality is one of the major products positioning tools. It stands for the rated ability of the brand to perform its functions. It is a summary term for the product’s attributes: durability, reliability, precision, ease of operation and repair etc. From a Marketing point of view, quality should be measured in terms of buyers’ perceptions of quality.

10. 8.3 Product attribute decisions (ii) Product Features Any product can be offered with varying features. The company can create higher level models by adding one or more features. In the case of an automobile, the buyer can order electric windows, automatic transmission, air conditioning, stereo radio etc. Features are a competitive tool for differentiating the company’s product from competitor’s products. Japanese have an excellent record of improving features in wristwatches. In some cases watches and calculators allow owners to play musics or games in addition to calculating or telling time.

11. 8.3 Product attribute decisions (iii) Product Style Some companies stand out for their design distinctiveness or style or design Good design offers several benefits. It can create personality for a newly launched product It can create product replacement cycles for products in the mature stage of their product life cycle. It can communicate value to the consumer and make selection easier.

12. 8.3 Product attribute decisions (iv) Brand Decisions Branding can be defined as a name, sign, symbol, or design, or a combination of them, which is intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors.

13. 8.3 Product attribute decisions Importance of Branding An easy way for consumers to identify a product or a service Brands assume purchasers that they are getting comparable quality when they reorder. For sellers, brands are something which can be advertised Assist sellers to control their share of the market because buyers will not confuse one product with another Reduces price comparisons because it is hard to compare prices on two items with different brands. Branding can add a measure of prestige to otherwise ordinary commodities.

14. 8.3 Product attribute decisions ( v) Packaging Packaging: the general group of activities in product planning which involve designing and producing the container or wrapper for a product. Reasons for packaging: - -Protect a product on its route from the producer to the final consumer. -Packaged goods are usually cleaner, convenient and less accessible to losses from evaporation and spoilage. -Packaging helps to identify a product and thus may prevent substitution of competitive goods.

15. 8.3 Product attribute decisions Packaging may implement a company’s marketing program - A package may be the only significant way in which a firm can differentiate its product. - Changing a package is an inexpensive way to give the impression that the product itself has been changed. Management may package its product in such a way as to increase profit possibilities. - A package may be so attractive that customers will pay more just to get a special package – even though the increase in price exceeds the additional cost of the package.

16. 8.4 Product Classifications Consumer products are classified by how consumers buy them: – Convenience products – Shopping products – Specialty products – Unsought products

17. 8.4 Product Classifications (i) Convenience products are consumer products and services that the customer usually buys frequently, immediately, and with a minimum comparison and buying effort. E.g Newspapers, detergents, Fast food, Cigarettes etc These may have the following marketing considerations: -Price-Low -Distribution: widespread and convenient locations -Promotion: Mass promotion by producer

18. 8.4 Product Classifications (ii ) Shopping products are consumer products and services that the customer compares carefully on suitability, quality, price, and style. They tend to be less frequently purchased. E.g. Furniture, Cars, Major Appliances, Clothing, television Marketing considerations: -price: higher -Distribution: Selective in fewer outlets -Promotion: advertising and personal; selling by both producer and resellers

19. 8.4 Product Classifications (iii) Specialty products are consumer products and services with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort. They have strong brand loyalty and preference. Little comparison of brands and low price sensitivity. E.g. Medical services, luxury goods, Designer clothes Special cars. Marketing considerations: -Price: High price -Distribution: exclusive distribution in only one or few outlets peer market. -Promotion: more carefully targeted promotion by both producer and resellers

20. 8.4 Product Classifications (iv) Unsought products are consumer products that the consumer does not know about or knows about but does not normally think of buying. E.g. Life insurance, Funeral services, Red cross Blood donations. Marketing considerations: -Price: varies -Distribution: Varies - Promotion: Aggressive advertising and personal selling by both producers and resellers

21. 8.5 Product Line Decisions Product strategy calls for building a product line. A product line is 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. E.g. bank producing several lines of financial services. Major product line decisions include product line length.

22. 8.5 Product Line Decisions Product line length: number of items in the product line. The line is too short if manager can increase profits by adding items and the line is too long if the manager can increase profit by dropping items. Managers need to conduct product line analysis to assess each product item sales and profits and to understand how each item contributes to the line’s performance. A company can lengthen its product line through Line stretching, Line filling.

23. 8.5 Product Line Decisions (i)Product line filling is the adding more items within the present range of the line. Reason could be using excess capacity, reaching extra profits etc. (ii) Product line stretching occurs when a company lengthen its product line beyond its current range

24. 8.6 Product Mix decisions An organization with several product lines has a product mix. Product mix consists of all the products and items that a particular seller offers for sale. - Width: The number of different product lines the company carries - Length: Total number of product items the company carries within its product lines

25. 8.6 Product Mix decisions - Depth: The number of version offered for each product in the line - Consistency: how closely related the various product lines are in end use, production requirements, distribution channels etc. Product mix provides the handles for defining the company’s product strategy. The company can increase its business in 4 ways:

26. 8.6 Product Mix decisions (i)Can add new product lines thus widening its product mix (ii)Lengthen its existing product lines to become a more full line company (iii)Can add more versions of each product thus deepen its product mix (iv)Company can pursue more product line consistency or less

27. Brand represents the consumer’s perceptions and feelings about a product and its performance. They are more than just names and symbols It is the company’s promise to deliver a specific set of features, benefits, services, and experiences consistently to the buyers. Brands are powerful assets for the company. Strategies need to be developed for building and managing brands. 8.7 Branding Strategy: Building Strong Brands 27

28. 8.7.1 Brand equity A powerful brand has brand equity. This is the differential effect that knowing the brand name has, on customer response to the product and its marketing. It is a measure of the brand ability to capture consumer preference and loyalty. A brand has positive brand equity when consumers react more favourably to it than to a generic or unbranded version of the same product. 28

29. 8.7.1 Brand equity The brand has negative brand equity when consumers react less favorably than unbranded version Consider worldwide accepted brands like coke, mc Donald, Yamaha, etc.. These brands succeed because they deliver unique benefits and have deep connections because they forge deep connections with customers. 29

30. 8.7.1 Brand equity High brand equity provides competitive advantages : -A powerful brand enjoys a high level of consumer brand awareness and loyalty -A company can also easily launch line and brand extensions because the company has high credibility. -Offers some defense against fierce price competition -It builds strong and profitable customer relationship. -It is also easy to bargain with resellers. 30

31. 8.7.1 Brand equity The key asset of brand equity is the customer equity: the value of the customer relationships that the brand creates. A powerful brand creates a profitable set of loyal customers. 31

32. 8.7.2 brand strategy decisions 32

33. Branding Strategy: Building Strong Brands Marketers can position their brands at any of the 3 levels. Product attributes (lowest level)-easy to copy Product benefits-associate name with desirable benefits Product beliefs and values (strongest brands) (i) Brand Positioning

34. Pampers can capitalise on fluid absorption- Attributes Pampers can go beyond technical product attributes and talk about skin health benefits from dryness.- Benefit. e’g Volvo positioned on safety etc. Pampers emphasizing more on about parent-child relationship and total baby care.

35. Branding Strategy: Building Strong Brands Desirable qualities 1.Suggest benefits and qualities 2.Easy to pronounce, recognize, and remember 3.Distinctive 4.Extendable 5.Translatable for the global economy 6.Capable of registration and legal protection (ii) Brand Name Selection

36. Branding Strategy: Building Strong Brands (i) Manufacturer’s brand: A manufacturer create own brand (ii) Private brand: A brand created and owned by a reseller of a product or service. (iii) Licensed brand: A company may license names or other symbols by other manufacturers. (iv) Co-brand: two companies can join forces and co brand a product. Two established brand names of different companies are used on the same product. (iii) Brand Sponsorship

37. Branding Strategy: Building Strong Brands (iv)Brand Development Strategies

38. Line extension: This is where a company extends existing brand names to new forms, colours, sizes, ingredients or flavors of an existing product category. E.g verieties of coke products. Brand extensions: Extend the current brand name to new or modified products in new category. 38

39. Multibands: Company introduce additional brands in the same category. Multibranding offers a way to establish different features and appeal to different buying motives. New brands: A company may believe that the power of an existing brand name is weakening and a new brand name is needed. It may also be that a new brand is needed when enters a new product category for which none of the current brand names are appropriate. E.g Toyota 39

40. 9. New Product Development Process Given a rapid changes in technology, consumer tastes, competition companies must develop a steady stream of new products and services. New product development is the development of original products, product improvements, product modifications and new brands through the firms own research and development efforts. 40

41. (i)Idea generation Ways of generating ideas: - Establishing new product planning committee Members are drawn from all functional areas of the business of e.g. finance, marketing, production etc. Establish employee incentive schemes These are schemes for rewarding employees who come up with good ideas about new product. 9.0 New Product Development Process 41

42. 9.0 New Product Development Process Brainstorming sessions The group size ranges between 6 and 10. The aim is to encourage as many ideas generation as possible. The company invites employees and customers for discussion on how the organization can produce new product ideas are successively collected, revised and sent back to the members until consensus is reached. 42

43. 9.0 New Product Development Process Customers: Customers may be given questionnaires to fill and from their response it is possible to have ideas on how to develop a new product. Scientists:Through laboratory tests, scientists can come up with new ideas. Competitors: It is through competitors product that new ideas can be developed e.g. from competitors weakness on their product, better and newer products can be developed. 43

44. 9.0 New Product Development Process Company’s salesmen Salesmen know how consumers are complaining hence can be a source of new ideas 44

45. 9.0 New Product Development Process (ii) Screening: The purpose of the screening stage is to reduce the number of ideas through their analysis to determine which are reasonable. Company must avoid two types of errors: - Drop error –The company dismisses an otherwise good idea. A go error –The company permits a poor idea to move into development and commercialization. 45

46. Reasons for elimination of some ideas include the following: - Inconsistency with the company objectives Incompatible with the company’s image Lack of management know-how Unavailable technology 46

47. 9.0 New Product Development Process (iii) Business Analysis: This involves specifying the features of the product and the marketing strategy needed to commercialize it and making necessary financial projections. Components of the business analysis are:- Estimation of sales, costs and profits Forecasting of market share Estimating of the environmental changes 47

48. 9.0 New Product Development Process (iv) Product development: If the product concept passes the business test it moves to Research and development to be developed into a physical product. This stage will answer whether the product ideas can be translated into a technically and commercially feasible product. It involves turning the ideas on paper into a prototype. That is ideas converted into products in hand that are producible and demonstrable. 48

49. The prototype has to satisfy the following criteria: - The needs of the consumer Should perform safely under normal use and conditions Has to be produced for the budgeted manufacturing costs. During this stage the various ingredients that will make up the marketing mix must be developed for testing. 49

50. 9.0 New Product Development Process (v) Test Marketing: Test marketing is an experimental procedure that provides an opportunity to test a new product under realistic market conditions. Purpose of Test marketing is to learn how consumers and dealers react to handling, using and repurchasing the actual product and how large the market is. It is conducted in limited geographical areas in order to determine the feasibility of the full Marketing Program. 50

51. 9.0 New Product Development Process Test Marketing is beneficial in at least two circumstances: - -It provides an opportunity to examine a product in natural environment -It allows management to identify and correct any weaknesses before making fully marketing of product. Test marketing drawbacks Costly Time consuming Competitors can monitor results Competitors get early look at your new product 51

52. 9.0 New Product Development Process (vi) Commercialization is the Introduction of the New Product into the Marketplace. Considerations: Timing: Whether it is the right time to introduce the new product. Geography single locality, a region, several regions, national market or the international market. Target market Target distribution, pricing and promotion to the best prospect. Market strategy marketing budget allocated among the marketing mix elements. 52

53. 9.1 Product Life Cycle (PLC) Time Product Developme nt Introduction Profits Sales GrowthMaturityDecline Losses/ Investments ($) Sales and Profits ($) Sales and Profits Over the Product’s Life 53

54. (i) Introduction Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Low sales High cost per customer Negative Create product awareness and trial Create product awareness and trial Offer a basic product Use cost-plus Distribution Build selective distribution Advertising Build product awareness among early adopters and dealers 54

55. Sales Costs Profits Marketing Objectives Product Price Rapidly rising sales Average cost per customer Rising profits Maximize market share Offer product extensions, service, warranty Price to penetrate market Distribution Build intensive distribution Advertising Build awareness and interest in the mass market (ii) Growth Stage of the PLC Summary of Characteristics, Objectives, & Strategies 55

56. Sales Costs Profits Marketing Objectives Product Price Peak sales Low cost per customer High profits Maximize profit while defending market share Maximize profit while defending market share Diversify brand and models Price to match or best competitors Distribution Build more intensive distribution Advertising Stress brand differences and benefits Summary of Characteristics, Objectives, & Strategies (iii) Maturity Stage of the PLC 56

57. Sales Costs Profits Marketing Objectives Product Price Declining sales Low cost per customer Declining profits Reduce expenditure and milk the brand Phase out weak items Cut price Distribution Go selective: phase out unprofitable outlets Advertising Reduce to level needed to retain hard-core loyal customers Reduce to level needed to retain hard-core loyal customers (iv) Decline Stage of the PLC Summary of Characteristics, Objectives, & Strategies 57