Product and Service Strategy and Brand Management

2/3/2010 CHAPTER 5 Product and Service Strategy and Brand Management Slide 5-1 AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 1. Explain the offering concept and offering mix portfolio. 2.

Describe how the marketing manager modifies the offering mix. 3. Identify and describe the stages in the new-offering development process. 4. Identify and describe the stages in the product life cycle. Slide 5-2 1 2/3/2010 AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 5.

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Explain the types of positioning strategies. 6. Define the concepts of brand and brand equity. . Describe how brand equity is created as well as its value to organizations. 8.

Explain the types of branding and brand growth strategies. Slide 5-3 OFFERING STRATEGY FRAMEWORK ? The profitability of an organization depends on its product or service offering(s) and the strength of its brand(s). ? Marketers face three offering-related strategy decisions: Modifying the Offering Mix Positioning Offerings Branding Offerings Slide 5-4 2 2/3/2010 CHAPTER 5: PRODUCT AND SERVICE STRATEGY AND BRAND MANAGEMENT THE OFFERING PORTFOLIO Slide 5-5 THE OFFERING CONCEPT An offering consists of the benefits or satisfaction provided to target markets by an organization. ? It consists of the following elements: Tangible product/service Related services (delivery, setup, etc. ) (a physical entity) Brand name(s) Warranties/ Guarantees Packaging Other Features Slide 5-6 3 2/3/2010 THE OFFERING MIX Offering Mix/ Portfolio The totality of an organization’s offerings is known as its product or service. Groups of offerings similar in terms of usage, buyers marketed to, or technical characteristics.

A specific product or service noted by a brand, size, or price.Slide 5-7 Product Lines Product Items THE OFFERING MIX Offering mix decisions concern the: Width (breadth) The number of offering lines. Depth The number of items in each line. The extent to which offerings satisfy similar needs, appeal to similar buyer groups, or use similar technologies. Slide 5-8 Consistency 4 2/3/2010 THE OFFERING MIX Offering mix decisions depend on the: Competitive Situation Marketing Strategy Organizational Resources One Offering High-Profit or High-Volume Offerings Complete Lines Slide 5-9 THE OFFERING MIXBundling involves the marketing of two or more product or service items in a single “package” that creates a new offering: Value Meals Vacation Packages Slide 5-10 5 2/3/2010 THE OFFERING MIX Bundling: ? Means that consumers value the package more than the individual items. ? Is due to benefits received from not having to make separate purchases and the satisfaction from one item given the presence of another.

? Provides a lower total cost to buyers and lower marketing costs to sellers. Slide 5-11 CHAPTER 5: PRODUCT AND SERVICE STRATEGY AND BRAND MANAGEMENT MODIFYING THE OFFERING MIX Slide 5-12 2/3/2010 OFFERING MIX MODIFICATON STRATEGY DECISIONS Adding to the Offering Mix Modifying the Offering Harvesting the Offering Eliminating the Offering Slide 5-13 New Offering Development Trading Up Trading Down Single Offering Entire Line ADDITIONS TO THE OFFERING MIX ? Additions take the form of: Single Offering Entire Line ? Questions to ask when considering new offerings: Consistency How consistent is the new offering with existing offerings? Does the organization have the resources to introduce and sustain the offering? Resources Market Is there a viable market for the offering?Slide 5-14 7 2/3/2010 ADDITIONS TO THE OFFERING MIX Consistency ? Consider demand interrelationships (offering substitutes or complements) —the cannibalization effect. ? Consider the degree to which the new offering fits the organization’s existing selling and distribution strategies. Slide 5-15 ADDITIONS TO THE OFFERING MIX Resources ? Consider the organization’s financial strength—R & D and marketing programs. ? Consider the speed and magnitude of the competitive response.

? Consider the market growth rate. Slide 5-16 8 2/3/2010 ADDITIONS TO THE OFFERING MIX Market ?Consider whether a market exists. ? Consider whether the new offering has a relative advantage over competitive offerings at a price consumers are willing and able to pay. ? Consider if there is a distinct buyer group or segment for which no present offering is satisfactory. Slide 5-17 STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS Idea Generation Idea Screening Business Analysis Market Testing Commercialization Slide 5-18 9 2/3/2010 STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS Idea Generation ? Sources of new offering ideas include: Employees Buyers Competitors Ideas are obtained through marketing research (formal) and informal means. Slide 5-19 STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS Idea Screening ? Ideas are screened based on: Organizational Definition Organizational Capability Prospective Buyers ? Ideas deemed incompatible with organizational definition and capability are quickly eliminated.

Slide 5-20 10 2/3/2010 STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS Idea Screening ? Assess the match between prospective buyers and offering characteristics by asking: • Does the offering have a relative advantage over existing offerings? Is the offering compatible with buyers’ use or consumption behavior? • Is the offering simple enough for buyers to understand and use? • Can the offering be tested on a limited basis prior to actual purchase? • Are there immediate benefits from the offering once it is consumed? ? If the answers are “yes” and the offering satisfies a felt need, then go to the business analysis stage. Slide 5-21 STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS Business Analysis ? Assess financial viability based on estimated: Sales Costs Profits ? Forecasting sales is difficult for new offerings. Profitability analyses relate to: Investment Break-even Payback Period Slide 5-22 11 2/3/2010 STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS Business Analysis Payback Period = The number of years required for an organization to recapture its initial offering investment. Total Fixed Costs Payback Period = Cash Flows Slide 5-23 STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS Business Analysis Return on Investment (ROI) = The ratio of average annual net earnings (return) divided by average annual investment, discounted to the present time. Annual Net Earnings Return on Investment (ROI) = Annual Investment Discount Factor Slide 5-24 12 2/3/2010 STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS Market Testing ? May include product concept or buyer preference tests in a laboratory situation or field test market.

? A test market is a scaled-down implementation of one or more alternative marketing strategies for introducing the new offering. ? Ideas that pass through this stage are commercially introduced into the marketplace. Slide 5-25 STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS Market Testing ? Generate benchmark data for assessing sales volume when the product is introduced over a wider area. Examine the relative impacts of alternative marketing strategies and programs under actual market conditions. ? Assess the incidence of trial, repeat-purchase, and quantities purchased by potential buyers of the offering.

? Inform competitors of the organization’s activities, which may increase the speed and effectiveness of competitive response. Slide 5-26 13 2/3/2010 STAGES IN THE NEW-OFFERING DEVELOPMENT PROCESS Commercialization ? 3,000 raw ideas are needed to produce a single commercially successful new offering. ? New offering success depends on a fit with: • Market needs • Organizational strengths and resourcesSlide 5-27 LIFE-CYCLE CONCEPT ? A life cycle plots sales of an offering (a brand of coffee) or a product class (all ground coffee brands) over a period of time. ? Life cycles are divided into four stages: Introduction Growth MaturitySaturation Decline Slide 5-28 14 2/3/2010 EXHIBIT 5. 1: GENERAL FORM OF A PRODUCT LIFE CYCLE Sales Introduction Growth Maturity-Saturation Decline Time Slide 5-29 LIFE-CYCLE CONCEPT The sales curve can be viewed as the result of offering trial and repeat purchasing behavior.

Sales Repeater Volume Trier Volume Time Sales volume = (Number of triers ? average purchase amount ? rice) + (number of repeaters ? average purchase amount ? price) Slide 5-30 15 2/3/2010 LIFE-CYCLE CONCEPT Introduction Stage ? Focus on stimulating trial of the offering by: • Advertising • Giving out free samples • Obtaining adequate distribution ? The vast majority of sales volume is due to trial purchases. Slide 5-31 LIFE-CYCLE CONCEPT Growth Stage ? An increasing share of volume is due to repeat purchases. ? Marketers focus on retaining existing buyers of the offering through offering: • Modifications • Enhanced brand image • Competitive pricing Slide 5-32 16 2/3/2010 LIFE-CYCLE CONCEPTMaturity-Saturation Stage There is an increase in the: ? Proportion of buyers who are repeat purchasers (i. e. few new buyers or triers exist).

? Standardization of production operations and product-service offerings. ? Incidence of aggressive pricing activities by competitors. Slide 5-33 LIFE-CYCLE CONCEPT Maturity-Saturation Stage Marketers focus on: ? Finding new buyers for the offering. ? Significantly improving the offering. ? Increasing the frequency of usage among current buyers. Decline Stage Marketers decide to harvest or eliminate the offering.

Slide 5-34 17 2/3/2010 MODIFYING OFFERINGSInvolves adding new features and higherquality materials or augmenting the offering with attendant services and then raising the price. Is the process of reducing the number of features or quality of an offering and lowering the price. Slide 5-35 Trading Up Modifying the Offering Trading Down HARVESTING OFFERINGS ? Harvesting is the strategic decision to reduce the investment in a business entity in the hope of cutting costs and/or improving cash flow. ? The decision is not to abandon the offering outright but to minimize the human and financial resources allocated to it. Slide 5-36 18 /3/2010 HARVESTING OFFERINGS Harvesting should be considered when: ? The market for the offering is stable. ? The offering is not producing good profits.

? Market share becomes increasingly costly to defend from competitive inroads. ? The offering enhances the firm’s image or provides a full product line despite a poor future. Slide 5-37 ELIMINATING OFFERINGS ? Elimination means that the offering is dropped from the firm’s offering mix. ? An offering may be eliminated if the answers to these questions are “very little” or “none. ” • What is the future sales potential of the offering? How much is the offering contributing to offering mix profitability? • How much is the offering contributing to the sale of other offerings in the mix? • How much could be gained by modifying the offering? • What would be the effect on channel members and buyers? Slide 5-38 19 2/3/2010 CHAPTER 5: PRODUCT AND SERVICE STRATEGY AND BRAND MANAGEMENT POSITIONING OFFERINGS Slide 5-39 POSITIONING Positioning is the act of designing an organization’s offering and image so that it occupies a distinct and valued place in the target customer’s mind relative to competitive offerings. Slide 5-40 0 2/3/2010 POSITIONING STRATEGIES ? Strategies include positioning by: Attribute or Benefit Product or Service Class Use or Application Product or Brand User Price and Quality Competitors ? Marketers often combine two or more of these strategies when positioning a product, service, or brand.

Slide 5-41 POSITIONING BY ATTRIBUTE OR BENEFIT ? Is the strategy most frequently used. ? Requires determining: • Which attributes are important to target markets • Which attributes are being emphasized by competitors • How the offering can be fitted into this offeringtarget market environment ?Accomplished by designing an offering that contains appropriate attributes or stressing the appropriate attributes if they already exist. Slide 5-42 21 2/3/2010 ATTRIBUTE OR BENEFIT POSITIONING MATRIX ? Develop a matrix relating attributes of the offering to market segments (see Exhibit 5. 2). ? Benefits of the positioning matrix: • Can spot potential opportunities for new offerings and determine if a market niche exists • Permits subjective estimation of the extent to which a new offering might cannibalize existing offerings • Can judge the competitive response to a new offering more effectively Slide 5-43EXHIBIT 5.

2: ATTRIBUTES AND MARKETING SEGMENT POSITIONING Toothpaste Attributes Flavor Color Whiteness of Teeth Fresh Breath Decay Prevention Price Plaque Prevention Stain Prevention Principal Brands for Each Segment Ultra Brite; McCleans Market Segments Children Teens; Young Adults Family Adults ? ? ? ? ? ? ? ? Aim; Stripe Colgate; Crest Topol; Rembrandt NOTE: A check (? ) indicates principal benefits sought by each market segment. Slide 5-44 22 2/3/2010 CRAFTING A POSITIONING STATEMENT ? Once the desired positioning has been determined, marketers prepare a succinct, written positioning statement. A positioning statement identifies: • The target market and needs satisfied • The product (service) class or category in which the organization’s offering competes • The offering’s unique attributes or benefits Slide 5-45 CRAFTING A POSITIONING STATEMENT A positioning statement takes this form: ? For (target market and need), the (product, service, brand name) is a (product/service class or category) that (statement of unique attributes or benefits provided). ? Example: “For upscale American families who desire a carefree driving experience, Volvo is a premium-priced automobile that offers the utmost in safety and dependability. Slide 5-46 23 2/3/2010 REPOSITIONING ? Repositioning is necessary when: • The initial positioning of a product, service, brand, or organization is no longer competitively sustainable or profitable • Better positioning opportunities arise ? It takes time and is costly to establish a new position, so do this after careful study. Slide 5-47 MAKING THE POSITIONING STRATEGY DECISION The choice of which positioning strategy to use can be made by answering the following: ? Who are the likely competitors, what positions have they staked out in the marketplace, and how strong are they? What are the preferences of the target consumers and how do they perceive competitors’ offerings? ? What position, if any, does the organization already have in the target consumers’ mind? Slide 5-48 24 2/3/2010 MAKING THE POSITIONING STRATEGY DECISION Positioning strategy implementation decisions can be made by answering the following: ? What position do we want to own? ? What competitors must be outperformed if we are to establish the position? ? Do we have the marketing resources to occupy and hold the position? Slide 5-49 MAKING THE POSITIONING STRATEGY DECISION The success of a positioning strategy depends on the following factors: ?The position must be clearly communicated to and valued by targeted customers.

? Frequent positioning changes should be avoided since the development of a position is a lengthy and expensive process. ? The position taken in the marketplace should be sustainable and profitable. Slide 5-50 25 2/3/2010 CHAPTER 5: PRODUCT AND SERVICE STRATEGY AND BRAND MANAGEMENT BRAND EQUITY AND BRAND MANAGEMENT Slide 5-51 BRAND AND BRAND EQUITY Brand A brand name is any word, “device” (design, sound, shape, or color), or combination of these that are used to identify an offering and set it apart from competing offerings.Brand Equity Brand equity is the added value a brand name bestows on a product or service beyond the functional benefits provided. Slide 5-52 26 2/3/2010 BRAND EQUITY Brand equity has two marketing advantages: ? Provides a competitive advantage, such as signifying quality. ? Can charge a higher price for an offering since consumers are often willing to pay for the equity premium present in the brand.

Slide 5-53 CREATING BRAND EQUITY Brand equity arises from a four-step process: 1.Develop positive brand awareness in consumers’ minds and associate it with a product class or need to give the brand an identity. 2. Establish a brand’s meaning in the minds of consumers, consisting of: • Brand functional performance • Brand imagery Slide 5-54 27 2/3/2010 CREATING BRAND EQUITY Brand equity arises from a four-step process: 3. Elicit the proper consumer responses to a brand’s identity and meaning—how they think and feel.

• Thinking: Focuses on a brand’s perceived quality, credibility, and superiority relative to other brands • Feeling: Relates to the consumer’s emotional reaction to a brand . Create a consumer-brand resonance evident in an intense, active loyalty relationship (psychological bond) between consumers and the brand. Slide 5-55 EXHIBIT 5. 3: CUSTOMER-BASED BRAND EQUITY PYRAMID 4. Relationships = What about you and me? Intense, active loyalty Consumer brand resonance 3. Response = What about you? Consumer Consumer judgments feelings Positive, accessible reactions 2.

Meaning = What are you? Brand performance Brand imagery Strong, favorable, and unique brand associations 1. Identity = Who are you? Brand salience Deep, broad brand awareness Slide 5-56 28