The common denominators of luxury brands are quality and

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Chapter

13

Setting

Product Strategy

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Learning Objectives

What are the characteristics of products, and how do marketers classify product?

How can companies differentiate products?

Why is product design important, and what are the different approaches taken?

How can marketers best manage luxury brands?

What environmental issues must marketers consider in their product strategies?

How can a company build and manage its product mix and product lines?

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Learning Objectives

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?

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Product Characteristics

and Classifications

Product

Anything that can be offered to a market to satisfy a want or need, including physical goods, services, experiences, events, persons, places, properties, organizations, information, and ideas

Many people think a product is tangible, but this definition suggests otherwise.

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Figure 13.1

Components Of The Market Offering

Marketing planning begins with formulating an offering to meet target customers’ needs or wants. The customer will judge the offering on three basic elements: product features and quality, service mix and quality, and price (see Figure 13.1).

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Product Levels: The Customer-Value Hierarchy

Figure 13.2: Five Product Levels

In planning its market offering, the marketer needs to address five product levels (see Figure 13.2).2 Each level adds more customer value, and together the five constitute a customer-value hierarchy.

• The fundamental level is the core benefit: the service or benefit the customer is really buying. A hotel guest is buying rest and sleep.

• At the second level, the marketer must turn the core benefit into a basic product. Thus a hotel room includes a bed, bathroom, towels, desk, dresser, and closet.

• 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 minimally expect a clean bed, fresh towels, working lamps, and a relative degree of quiet.

• At the fourth level, the marketer prepares an augmented product that exceeds customer expectations. In developed countries, brand positioning and competition take place at this level.

• At the fifth level stands the potential product, which encompasses all the possible augmentations and transformations the product or offering might undergo in the future. Here companies search for new ways to satisfy customers and distinguish their offering.

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Product Classifications

Durability

Tangibility

Use

Marketers classify products on the basis of durability, tangibility, and use (consumer or industrial). Each type has an appropriate marketing-mix strategy.

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Durability and Tangibility

Nondurable goods

Durable goods

Services

Products fall into three groups according to durability and tangibility:

1. Nondurable goods are tangible goods normally consumed in one or a few uses, such as beer and shampoo. Because these goods are purchased frequently, the appropriate strategy is to make them available in many locations, charge only a small markup, and advertise heavily to induce trial and build preference.

2. Durable goods are tangible goods that normally survive many uses: refrigerators, machine tools, and clothing. They normally require more personal selling and service, command a higher margin, and require more seller guarantees.

3. Services are intangible, inseparable, variable, and perishable products that normally require more quality control, supplier credibility, and adaptability. Examples include haircuts, legal advice, and appliance repairs.

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Consumer-Goods Classification

Convenience

Shopping

Specialty

Unsought

When we classify the vast array of consumer goods on the basis of shopping habits, we distinguish among convenience, shopping, specialty, and unsought goods.

The consumer usually purchases convenience goods frequently, immediately, and with minimal effort. Examples include soft drinks, soaps, and newspapers. Staples are convenience goods consumers purchase on a regular basis. A buyer might routinely purchase Heinz ketchup, Crest toothpaste, and Ritz crackers. Impulse goods are purchased without any planning or search effort, like candy bars and magazines. Emergency goods are purchased when a need is urgent—umbrellas during a rainstorm, boots and shovels during the first winter snow.

Shopping goods are those the consumer characteristically compares on such bases as suitability, quality, price, and style. Examples include furniture, clothing, and major appliances. Homogeneous shopping goods are similar in quality but different enough in price to justify shopping comparisons. Heterogeneous shopping goods differ in product features and services that may be more important than price.

Specialty goods have unique characteristics or brand identification for which enough buyers are willing to make a special purchasing effort. Examples include cars, audio-video components, and men’s suits.

Unsought goods are those the consumer does not know about or normally think of buying, such as smoke detectors. Other classic examples are life insurance, cemetery plots, and gravestones.

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Industrial-Goods Classification

Materials and parts

Capital items

Supplies and business services

We classify industrial goods in terms of their relative cost and the way they enter the production process: materials and parts, capital items, and supplies and business services. Materials and parts are goods that enter the manufacturer’s product completely. They fall into two classes: raw materials and manufactured materials and parts. Raw materials in turn fall into two major groups: farm products (wheat, cotton, livestock, fruits, and vegetables) and natural products (fish, lumber, crude petroleum, iron ore). Manufactured materials and parts fall into two categories: component materials (iron, yarn, cement, wires) and component parts (small motors, tires, castings). Component materials are usually fabricated further—pig iron is made into steel, and yarn is woven into cloth. The standardized nature of component materials usually makes price and supplier reliability key purchase factors. Component parts enter the finished product with no further change in form, as when small motors are put into vacuum cleaners and tires are put on automobiles.

Capital items are long-lasting goods that facilitate developing or managing the finished product. They fall into two groups: installations and equipment. Installations consist of buildings (factories, offices) and heavy equipment (generators, drill presses, mainframe computers, elevators). Equipment includes portable factory equipment and tools (hand tools, lift trucks) and office equipment (desktop computers, desks). These types of equipment don’t become part of a finished product.

Supplies and business services are short-term goods and services that facilitate developing or managing the finished product. Supplies are of two kinds: maintenance and repair items (paint, nails, brooms) and operating supplies (lubricants, coal, writing paper, pencils). Together, they go under the name of MRO goods. Business services include maintenance and repair services (window cleaning, copier repair) and business advisory services (legal, management consulting, advertising).

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Product Differentiation

Form

Features

Performance quality

Conformance quality

Durability

Reliability

Repairability

Style

Customization

Form Many products can be differentiated in form—the size, shape, or physical structure of a product.

Features Most products can be offered with varying features that supplement their basic function.

Performance Quality Most products occupy one of four performance levels: low, average, high, or superior. Performance quality is the level at which the product’s primary characteristics operate.

Conformance Quality Buyers expect a high conformance quality, the degree to which all produced units are identical and meet promised specifications.

Durability Durability, a measure of the product’s expected operating life under natural or stressful conditions, is a valued attribute for vehicles, kitchen appliances, and other durable goods.

Reliability Buyers normally will pay a premium for more reliable products. Reliability is a measure of the probability that a product will not malfunction or fail within a specified time period.

Repairability Repairability measures the ease of fixing a product when it malfunctions or fails. Ideal repairability would exist if users could fix the product themselves with little cost in money or time.

Style Style describes the product’s look and feel to the buyer and creates distinctiveness that is hard to copy.

Customization As Chapter 9 described, customized products and marketing allow firms to be highly relevant and differentiating by finding out exactly what a person wants—and doesn’t want—and delivering on that.

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Services Differentiation

Ordering ease

Delivery

Installation

Customer training

Customer consulting

Maintenance and repair

Returns

The main service differentiators are ordering ease, delivery, installation, customer training, customer consulting, maintenance and repair, and returns.

Ordering Ease Ordering ease describes how easy it is for the customer to place an order with the company.

Delivery Delivery refers to how well the product or service is brought to the customer, including speed, accuracy, and care throughout the process.

Installation Installation refers to the work done to make a product operational in its planned location.

Customer Training Customer training helps the customer’s employees use the vendor’s equipment

properly and efficiently.

Customer Consulting Customer consulting includes data, information systems, and advice services the seller offers to buyers.

Maintenance and Repair Maintenance and repair programs help customers keep purchased products in good working order. These services are critical in business-to-business settings.

Returns A nuisance to customers, manufacturers, retailers, and distributors alike, product returns are also an

unavoidable reality of doing business, especially in online purchases. Free shipping, growing more popular, makes it easier for customers to try out an item, but it also increases the likelihood of returns. Controllable returns result from problems or errors made by the seller or customer and can mostly be eliminated

with improved handling or storage, better packaging, and improved transportation and forward logistics by the seller or its supply chain partners. Uncontrollable returns result from the need for customers to actually see, try, or experience products in person to determine suitability and can’t be eliminated by the company in the short run.

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Design

Design

The totality of features that affect the way a product looks, feels, and functions to a consumer

As competition intensifies, design offers a potent way to differentiate and position a company’s products and services.

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Design

Is emotionally powerful

Transmits brand meaning/positioning

Is important with durable goods

Makes brand experiences rewarding

Can transform an entire enterprise

Facilitates manufacturing/distribution

Can take on various approaches

Design offers functional and aesthetic benefits and appeals to both our rational and emotional sides.

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Luxury brands

Quality

Uniqueness

Craftsmanship

Heritage

Authenticity

History

Design is often an important aspect of luxury products, though these products also face some unique issues.

They are perhaps one of the purest examples of the role of branding because the brand and its image are often key competitive advantages that create enormous value and wealth. A luxury shopper must feel he or she is getting something truly special. Thus the common denominators of luxury brands are quality and uniqueness. A winning formula for many is craftsmanship, heritage, authenticity, and history, often critical to justifying a sometimes extravagant price.

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Marketing Luxury Brands

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Environmental Issues

Environmental issues are also playing an increasingly important role in product design and manufacturing

Many firms are considering ways to reduce the negative environmental consequences of conducting business, and some are changing the manufacture of their products or the ingredients that go into them.

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THE PRODUCT HIERARCHY

1. Need family

2. Product family

3. Product class

4. Product line

5. Product type

6. Item

The product hierarchy stretches from basic needs to particular items that satisfy those needs. We can identify six levels of the product hierarchy, using life insurance as an example:

1. Need family—The core need that underlies the existence of a product family. Example: security.

2. Product family—All the product classes that can satisfy a core need with reasonable effectiveness. Example: savings and income.

3. Product class—A group of products within the product family recognized as having a certain functional coherence, also known as a product category. Example: financial instruments.

4. Product line—A group of products within a product class that are closely related because they perform a similar function, are sold to the same customer groups, are marketed through the same outlets or channels, or fall within given price ranges. A product line may consist of different brands, a single family brand, or an individual brand that has been line extended. Example: life insurance.

5. Product type—A group of items within a product line that share one of several possible forms of the product. Example: term life insurance.

6. Item (also called stock-keeping unit or product variant)—A distinct unit within a brand or product line distinguishable by size, price, appearance, or some other attribute. Example: Prudential renewable term life insurance.

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Product Systems

and Mixes

Product system

Product mix/assortment

Width

Length

Depth

Consistency

A product system is a group of diverse but related items that function in a compatible manner. A product mix (also called a product assortment) is the set of all products and items a particular seller offers for sale. A product mix consists of various product lines.

A company’s product mix has a certain width, length, depth, and consistency.

The width of a product mix refers to how many different product lines the company carries. The length of a product mix refers to the total number of items in the mix. The depth of a product mix refers to how many variants are offered of each product in the line. The consistency of the product mix describes how closely related the various product lines are in end use, production requirements, distribution channels, or some other way.