1. Marketing Management • 14e
Kotler • Keller
Phillip
Kevin Lane
Marketing Management • 14e

2. Setting Product Strategy
Chapter 12
Setting Product Strategy

3. Discussion Questions
What are the characteristics of a product, and how do marketers classify products?
How can companies differentiate products?
Why is product design important and what factors affect a good design?
How can a company build and manage its product mix and product lines?

4. Discussion Questions
How can companies combine products to create strong co-brands or ingredient brands?
How can companies use packaging, labeling, warranties, and guarantees as marketing tools?

5. Marketing Planning Needs Wants
Marketing planning begins by formulating an offering to meet the needs and wants of the target customers.
Wants

6. Components of the Market Offering
Figure 12.1
Components of the Market Offering
As shown in Figure 12.1 the customer will judge the offering’s: product features and quality, services mix and quality, and price.

7. Product Characteristics/Classifications
Persons
Experiences
Events
Properties
Organizations
Information
Ideas
Services
Goods
As discussed in chapter 1, a product is anything that can be marketed to satisfy a want or need, including physical goods, services, experiences, events, persons, places, properties, organizations, information, and ideas.
Places

8. Five Product Levels Figure 12.2
Figure 12.2 shows the five levels of a product. Each of these will be illustrated in more depth on the next slide.

9. Product Levels Core Benefit Basic Product Customer-value Hierarchy
(Rest and sleep)
Basic Product
(Bed, bathroom, towels)
Customer-value Hierarchy
Expected Product
(Clean bed, fresh towels)
Products are comprised of 5 levels. Each level adds more customer value. Here are the product levels using a hotel as an example.
Core benefit: service or benefit the customer is really buying.
Basic product: marketers turn core benefit into a basic product at this level.
Expected product: attributes and conditions buyers expect when they purchase this product. Competition takes place at this level in developing countries.
Augmented product: : attributes and conditions exceed customer expectations. Competition takes place at this level in developed countries..
Potential product: various augmentations that could be incorporated in the future. Here is where companies search for new ways to satisfy customers and distinguish their offering.
Augmented Product
(Free Internet; free breakfast)
Potential Product
(Future augmentations)

10. Product Classifications
Durability and Tangibility
Nondurable goods
Durability, tangibility, and use (consumer or industrial).
Durable goods
Services

11. Product Classifications
Consumer-Goods
Staples
Impulse goods
Emergency goods
Specialty goods
Convenience goods
Consumers purchase convenience goods frequently, immediately, and with minimal effort.
Consumers compare shopping goods based on suitability, quality, price, and style.
Consumer make special purchasing effort to buy specialty goods due to their unique characteristics or brand identification.
Consumer does not normally know or buy unsought goods. As such these goods require advertising and personal-selling support.
Shopping goods
Unsought goods

12. Product Classifications
Materials and Parts
Industrial-Goods
Manufactured
materials
Capital Items
Installations
Equipment
Raw materials
Materials and parts are goods that enter the manufacturer’s product completely.
Capital items are long-lasting goods that facilitate developing or managing the finished product.
Supplies and business services are short-term goods and services that facilitate developing or managing the finished product.
Supplies and business Services

13. Product and Services Differentiation
For a product to be branded it must be differentiated from competitors.

14. Product Differentiation
Form
Customization
Performance
Reliability
Features
Durability
Conformance
Repairability
Style
Products can be differentiated in many ways including: Form, features, customization, performance quality, conformance quality, durability, reliability, repairability, and style.

15. Services Differentiation
Customer Consulting
Delivery & Returns
Ordering Ease
The main service differentiators are ordering ease, delivery, installation, customer training, customer consulting, and maintenance and repair.
The key to competitive success may lie in adding valued services and improving product quality.
Training
Installation
Maintenance & Repair

16. Design Functional Benefits Aesthetic Benefits
Design is the totality of features that affect how a product looks, feels, and functions to a consumer. Design is often an important aspect of luxury products.
Aesthetic
Benefits

17. Product and Brand Relationships
Product Hierarchy
Product Systems/Mixes
Product Line Analysis
Product Line Length
The product hierarchy stretches from basic needs to particular items that satisfy those needs.
A product system is a group of diverse but related items that function in a compatible manner. A product mix is the set of all products and items a particular seller offers for sale.
Product line analysis: companies develop a basic platform and modules of a product line that can be added to meet different customer requirements and lower production costs. Managers need to know the sales and profits of each item in their line to determine which items to build, maintain, harvest, or divest, as well as each product line’s market profile.
Product line length is influenced by company objectives and tend to lengthen over time.
In product-mix pricing, the firm searches for a set of prices that maximizes profits on the total mix.
In Co-branding: two or more well known brands are combined into a joint product or marketed together in some fashion.
Product Mix Pricing
Co-Branding

18. Product Hierarchy Need Family Product Family Product Class
Product Line
The product hierarchy stretches from basic needs to particular items that satisfy those needs. E.g., life insurance.
Product Type
Item

19. Product Systems and Mixes
Product Mix
Width
Length
Depth
Consistency
A product system is a group of diverse but related items that function in a compatible manner.
A product mix is the set of all products and items a particular seller offers for sale. A company’s product mix has a certain width, length, depth, and consistency. These concepts are illustrated in Table 12.2 for selected Procter & Gamble consumer products.

20. Proctor & Gamble Product Mix
Product Mix Width
Detergents
Toothpaste
Bar Soap
Disposable Diapers
Paper Products
Ivory Snow
Gleem
Ivory
Pampers
Charmin
Dreft
Crest
Camay
Luvs
Puffs
Tide
Zest
Bounty
Cheer
Safeguard
Dash
Oil of Olay
Bold
Gain
Era
Product Line Length
Table 12.2 shows the product mix for P&G.

21. Product Line Analysis Sales and Profit Market Profile
In conducting product line analysis managers must examine each product in terms of how it contributes to overall sales and profits. Products that are responsible for a large percentage of sales and profits must be carefully monitored and protected. Products that deliver on a small percentage may be candidates for being dropped, unless strong growth potential is possible. Figure 12.3 highlights
A product line manager must examine how the line is positioned against competitors. One tool that managers can employ is a product map, which shows competitors’ items in relation to firm’s items. This also allows for identifying market segments.
Product line analysis is helpful in two key decision areas – product line length and product mix pricing.

22. Product-Item Contributions
Figure 12.3
Product-Item Contributions
Figure 12.3 highlights the sales and profits of a 5-item product line. Item 1 accounts for 50% of total sales and 30% of total profits.

23. Figure 12.4
Product Map
Figure 12.4 shows the location of the various product line items of company X and four competitors, A, B, C, D. Competitor A sells two product items in the extra-high weight class ranging from medium to low finish quality. The product map shows which competitors’ items are competing against company X’s items.

24. Product Line Length Line stretching
Up-market stretch
Down-market stretch
Two-way stretch
Line modernization, featuring, and pruning
Line stretching – company lengthens its product line beyond its current range.
Line filling – company lengthens its product line by adding more items within the present range.
Line modernization, featuring, and pruning – Companies continuous modernize product lines to encourage customer migration to higher-valued, higher-priced items; boost demand for certain product lines by featuring them; and optimize their brand portfolios by focusing on core brand growth and concentrating resources on the biggest and most established brands.
Line filling

25. Product Mix Pricing Product line pricing Captive-product pricing
In product-mix pricing, the firm searches for a set of prices that maximizes profits on the total mix.
Product line pricing – develop product lines rather than single products and introduce price steps.
Optional-feature pricing – offer optional products, features, and services with their main product.
Captive-product pricing – price the main products low and set high markups on the aftermarket products.
Two-part pricing – consists of a fixed fee plus a variable usage fee.
By-product pricing – charge low price for the main products and earn income on the by-products .
Product-bundling pricing – offer goods as a bundles and charges less for the bundle than if the items were purchased separately.
Optional-feature pricing
Two-part pricing
By-product pricing
Product-bundling pricing

26. Co-Branding and Ingredient Branding
Same-company
Joint venture
Multi-sponsor
Retail co-branding
Co-branding - Brand bundling or Dual branding
Same-company- When brands owned by the same company are used together. Example, General Mills launched a Trix branded Yoplait yogurt.
Joint venture co-branding – Where brands owned by different companies are combined. Example, American Airlines and Citibank launching the Citibank AAdvantage credit card.
Multi-sponsor – An alliance between three or more partners.
Retail co-branding – Where two retail establishments use the same location to optimize space and profits. Pizza Hut, KFC, and Taco Bell often share the same retail space.
Ingredient branding is a special case of co-branding and involves the linking of one brand with another. KC Masterpiece barbecue sauce was combined with Lay’s potato chips is an example.
Ingredient Branding

27. Packaging and Labeling
Packaging Objectives
Brand identification
Persuade
Protection
At-home storage
Aid consumption
The package is the customers first encounter with the product and a good package draws the customer in, encouraging product choice. Packaging also influences customers when they go to open and use the product at home. Distinctive packaging, Altoids mints and Absolut vodka serve as an important part of a brand’s equity.
Labeling – FDA requires that labels on all processed foods contain nutritional information.
Warranties and guarantees – A warranty is a formal statement of expected product performance, and are legally enforceable. Guarantees help reduce a buyers perceive risk by suggesting that the product is high quality and that the manufacturer is dependable.
Labeling Objectives
Identify
Grade
Describe
Promote