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McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. 8 Developing Product Strategy

8-3 A Successful Strategy: Helps achieve coordination among functional areas of the organization. Defines how resources are to be allocated. Leads to a superior market position.

8-4 Elements of a Product Strategy 1.Statement of the objective(s) the product should attain 2.Selection of strategic alternative(s) 3.Selection of customer targets 4.Choice of competitor targets 5.Statement of the core strategy 6.Description of supporting marketing mix. 7.Description of supporting functional programs

8-5 Hierarchy of Objectives Company Mission/Vision Corporate objectives Corporate strategies Divisional objectives Divisional strategies Product/brand objectives Brand strategies Program objectives Tactics Level I Level 0 Level III Level II Level IV

8-6 Strategic Alternatives Long-term profits Growth in sales or market share New segments Market development Convert nonusers New product development Competitors’ customers Efficiency, short-run profits Reduce costs Decrease inputs Improve asset utilization Increase price Increase outputs Improve sales mix Existing customers Market penetration

8-7 Criteria for Evaluating Strategic Alternative Options Size/growth of the segment Opportunities for obtaining competitive advantage Resources available to penetrate the segment

8-8 Target Segments for Handspring

8-9 Positioning Decision Steps 1.Identify alternative positioning themes by consulting the advertising account team, the product team, and past marketing plans. 2.Screen the alternatives according to whether each is (a) meaningful to customers, (b) feasible given the firm and product resources and customer perceptions, (c) competitively sensible, or (d) helpful for meeting the product objective 3.Select the position that best satisfies these criteria and can be sold to the marketing organization 4.Implement programs (e.g., advertising) consistent with the product position selected

8-10 Total Product Concept Generic product Expected product Augmented product Potential product

8-11 Five Areas for Differentiation 1.Quality 2.Status and Image 3.Branding 4.Convenience and Service 5.Distribution

8-12 Joint Space for Colas Diet Noncola Fresca Diet Pepsi Tab Segment 3 Pepsi RC Cola Segment 2 Nondiet Cola Dr Peppe r 7-Up Segment 1 Coke Diet Rite

8-13 Brand Equity Reduced marketing costs Trade leverage Attracting new customers Create awareness Reassurance Time to respond to competitive threats Anchor to which other associations can be attached Familiarity-liking Signal of substance/ commitment Brand to be considered Provides value to customer by enhancing customer’s: Interpretation/ processing of information Confidence in the purchase decision Use satisfaction Brand loyalty Brand awareness Brand loyalty Brand equity

8-14 Brand Equity cont. Reason-to-buy Differentiate/ position Price Channel member interest Extensions Help process/ retrieve information Reason-to-buy Create positive attitude/feelings Extensions Provides value to firm by enhancing: Efficiency and effectiveness of marketing programs Brand loyalty Prices/margins Brand extensions Trade leverage Competitive advantage Brand loyalty Perceived quality Brand loyalty Brand associations Brand loyalty Brand equity Competitive advantage Brand loyalty Other proprietary brand assets

8-15 Some Brand Attribute and Image Dimensions Attributes Color Style Comfort Freshness Construction material Availability Serviceability Compatibility Energy efficiency Instructions Automation Ease of Use Flavor/taste Caffeine content Price Packaging Size Calories Brand name Sweetness Weight Warranty Durability Convenience Image Dimensions Reliable—unreliable Old—young Technical—nontechnical Sensible—rash Interesting—boring Creative—noncreative Sentimental—nonsentimental Impulsive—deliberate Trustworthy—untrustworthy Conforming—rebellious Daring—cautious Forceful—submissive Bold—timid Sociable-unsociable

8-16 Ten Guidelines for Building Strong Brands 1.Brand Identity Each brand should have an identity, a personality. It can be modified for different segments. 2.Value Proposition Each brand should have a unique value proposition. 3.Brand Position The brand’s position should provide clear guidance to those implementing a communications program. 4.Execution The communications program needs to implement the identity and position, and it should be durable as well. 5.Consistency Over Time Product managers should have a goal of maintaining a consistent identity, position, and execution over time. Changes should be resisted.

8-17 Ten Guidelines for Building Strong Brands (cont.) 6.Brand System The brands in the portfolio should be consistent and synergistic. 7.Brand Leverage Extend brands and develop co-branding opportunities only if the brand identity will be both used and reinforced 8.Tracking The brand’s equity should be tracked over time, including awareness, perceived quality, brand loyalty, and brand associations. 9.Brand Responsibility Someone should be in charge of the brand who will create the identity and positions and coordinate the execution. 10.Invest Continue investing in brands even when the financial goals are not being met.

8-18 IBM Notebook Computers: Purchase vs. Positive Opinion

8-19 Basic Customer Strategies 1.Customer acquisition 2.Customer retention 3.Customer expansion 4.Customer deletion

8-20 Strategy Over the Life Cycle

8-21 Linked Strategy Issues

8-22 Illustration: Odwalla Energy Bar Objective : Grow 10 percent faster than the category Customer Targets: Existing juice customers Health conscious and on-the-go Sports enthusiasts Health purists Nutrition-seeking families Clif Bars and Clif Luna Kashi Go Lean Balance (Outdoor, Plus, Oasis) Competitive Targets: Core Strategy: Increase distribution to 80 percent ACV in mainstream grocery stores Focus on natural health Leverage brand name, Minute Maid resources

8-23 Illustration: Handspring Objective : To capture 15 percent of the PDA market by the end of year 2 Customer Targets: Price-conscious professionals Nonbusiness professionals Nonprofessionals Palm Sharp Competitive Targets: Core Strategy: Simplicity/convenience Low price Expandability (via expansion slot)