Setting Product Strategy
PRODUCT CHARACTERISTICS & CLASSIFICATIONS Product level: The customer value hierarchy Is product a tangible offering? No, it’s more than that. “Product” is anything which can satisfy market. People classify products according to customer value.
It’s illustrated by this circle system. At the centre is core benefit which the customer really buy. Take Shilla, a hotel of Samsung group, for example, when you get there, what are you pay for? Is it a room, or a bed, or a shower? Not at all. Basically, you want to buy rest and sleep.
The former as I told, we call it basic product.
At the higher level, expected product reveals customer’s normally expect such as a clean bed, fresh towel which can be met by majority of hotels. To exceed customer expectations, marketer prepares augmented products such as satellite TV, high-speed wifi, 2-line phone. We must note that augmented products soon be recognized as a expected product. Why? Let me give an example.
Around 6 years ago, wifi wasn’t widespread, hence, it was obviously an augmented product. But up to now, even a small motel or coffee shop have wifi as well, so wifi is just called expected product.
In the other words, when setting an augmented product, you want to distinguish your company from the others. But ugly truth is that It’s too easy for competitors to follow. That situation requires some new ways to satisfy customers, we call it potential product. Product classification Products have traditional been classified on the basis of characteristics: durability, tangibility, and use.
Each type has an appropriate strategy: Durability and tangibility: products can be classified in 3 groups: – Nondurable goods: are tangible goods normally consumed in one or a few uses, like beer, soap.
The appropriate strategy is to make them available in many locations, charge only a small markup, and advertise heavily. – Durable goods: are tangible goods that normally service many uses: refrigerators, washing machine. They need more personal selling and service, and require more guarantees. – Service: are intangible, inseparable, variable, and perishable products.
They require more quality control, supplier credibility, and adaptability. On the other side, products can be classified in consumer-goods and industrial-goods: To the customers, depending on their hopping habits, we can distinguish among: convenience, shopping, specialty, and unsought good. – Convinience goods: buying frequently, immediately, and popular. * Staples: regular basis: soap, toothpaste. * Impulse goods: without any planning or search effort: candy, magazines. * Emergency goods: urgent needs: raincoat.
Sellers should place them in where people can get easily like cashier table, outlet. – Shopping goods: are goods that consumer characteristically compares on such as suitability, quality, price, and style: furniture, clothing, used cars.
They can be similar in quality or different in price (homogeneous shopping goods) or differ in features and services that maybe more important than price (hoterogeneous shopping goods). The sales people needs to be well-trained to inform and advise customer. – Specialty goods: have unique features or famous brand that enough for customer to buy.
They just need to be known about the selling locations. – Unsought goods: are those people does not know about or does not think of buying, like smoke detectors. They require the personal selling support and advertising.
To manufacture, goods can be classified in 3 groups: Materials and parts fall into 2 groups: raw material such as cottons, fruits (farm products), lumber, iron ore (natural products) or manufactured materials and part such as tires, iron. In this group, price and service are more important than branding, advertising. Capital items are long-lasting goods that facilitate developing or managing the finished product.
They fall into 2 groups: first is installation consist of buildings (factories, office) and heavy equipment (generators, elevators) and second is equipment like hand tools, personal computers and desks.
The sales force tends to more important than advertising. And finally, supplies and business services are short-term goods or services that help developing or managing the product. Supplies are 2 kinds: maintenance and repair, operating supplies such as writing papers, pencils. Supplies’ price and service are more important. Similarly, business services include maintenance and repair services (window cleaning, copier repair) and business advisory services (legal, management consulting, advertising).
Business advisory services are usually purchased on the basis of the supplier’s reputation and staff.
DIFFERENTIATION To deepen the customer’s memories of the brand, product must be differentiated. The difference show in many aspects: First of all, it’s form. Form is one of the easiest ways to change a product like the size, shape or physical structure. For example, the trend of smart phone, particularly, Samsung S is more and more huge size of screen.
Secondly, most products can be changed Features that supplement its basic function. A company can survey recent customers and calculate the customer value and company cost.
The questions need to be answered are * How many people want each feature? * How long to introduce? * Whether could the competitor copy the feature easily? For example, one of the features that set Samsung S III off is the ability of Smart Stay that will keep the screen illuminated as long as you can look at it. Thirdly, it’s performance. The products can be in low, average, high or superior performance levels.
The performance quality is the level at that the product’s characteristics run. For example, normal smart phone must make web browsing, watching video, or viewing a photo a real joy.
And then, the consumers expect the products have to high Conformance quality, which is the level to which all the produced units are identical and meet the promised specification. The Samsung S III is designed to have Standby battery time $ weeks, 4 days and 22 hours, if every S III does, the model is said to have high conformance quality. On the other hand, Buyers normally will pay a premium for more reliable products. One of the important things that customers think of is the Repairability.
Ideal repairability would exist if the users could fix the product themselves with little cost in money or time.
Finally, the Style, it describes the product’s look and feel to the customer. If you have enough money, and love the beauty of technology, you cannot deny sensational S III. Now, we move on the other sides, Design and Services Differentiation. Design is total features that effect how product’s look and functions in term of customer’s requirement.
The designer must figure out how much to invest in form, feature development, performance, conformance,… To the company, a well-designed product is easy to manufacture and distribute. To the customer, it’s good looking, easy to open, install, use, repair and dispose of.
Besides, Service Differentiation is also extremely important, the key to competitive success may lie in the adding valued services and improving their quality: easy for the customer to place an order with the company; in the delivery process, it should include speed, accuracy, and care attending; ease to install the products; train the customer use the product properly and efficiently; good customer consulting. Now we will move to one of the main parts of chapter 12, PRODUCT ; BRAND RELATIONSHIPS Firstly, The product hierarchy, which reveals from basic need to particular items that can satisfy thoes need.
We have 6 level of product. Need family’s the core need underlieing the existence of a product family.
What’s product family? It’s all the product classes that can satisfy a core need. So, what’s product class? It’s a group of product which have functional cohereance. The fourth is product line which is a group of product within a product class that have close relation such as a similar function, the same customer groups… Product type is a group of items within a product line that share 1 of several possible form of the product.
Finally, item is a distinct unit within a brand or product line that discriminated by size, price, appearance… I will take SamSung’s product for an example. SamSung group has many many product but today we just focus on the need family that is COMFORTABLE Secondly, product systems which is a group of related items that function in a compatible manner. For example, when you buy a SamSung Galaxy phone, it includes headsets, ebook, MP3 players… Thirdly, product mix.
Take an example, the SamSung Home Appliances includes washing machine, microwave, stove…which can interact to help you.
Look at the above table, it’s a product mix which have 4 dimensions. […] So the company has 4 way to expand its scale: add new product line, lengthen each product line, add more item to each product and persue product consistancy. Next, product line analysis. Manager need to deeply understand about sales & profits of each item to make the right decision: build, maintain, harvest or divest.
Take a look at this graph […] Company can classify product portfolio in to 4 types: Core product: high sales volume, heavily promoted but low margins. (vi sp nay c? h tranh v? gia, k th? l? i nhi? u) Staples: lower sales volume, no promotion but higher margin. Specialties: lower sales volume, highly promoted. For example, SamSung have a service that they can bring various item to your house in case you want to stay at home chosing a phone. Convenience items: high sales volume, less promotion, higher margins.
For example, when buying a SamSung’s computer, you tend to buy sound card, upscale video and printer as well in order to be convenient. Next, market profile. It help marketers to identify market segments.
Take a look at the map above […] Next, product line length Company objectives influence product line length. The objectives is to create a product line to induce upselling, facilitate cross selling or protect against economic ups and downs.
There are 2 ways: The company can stretch its line down market, up market or both of them. There are 3 reasons that a company want to move down market _ They see the strong growth opportunities. _ They want to keep competitor who tend to move up market stay at down market. _ Middle market stagnate or decline.
There are 3 way to set the name in that situation _ Keep the name for all of offerings. _ Use sub brand name =; lose some of its quality image and buyer may switch to the lower price offerings =; be careful to except cannibalization.
_ Use a different name =; high cost to build up the new brand Company may want to move up market for more growth, higher margin. In this case, it is reasonable to use entirely new name. The company can fill product line by adding more items within the present range. The line modernization can perform piecemeal or all at once.
If chose the former, company can see how market accept the change, the cash flow slowly drain out but it allows competitors to see changes and start redesigning.
Company can selects 1 or a few items to feature, it may be the item sold well or poorly depend on its potential. Pruning is a strategy that weak items are cut down. Next, product mix princing Price product is always problem which any firms take interest in. First of all, price relates directly to revenue and profit of firm. Then, it is strong deciding buying power of consumer.
In every case, the firm must search methods that profits are maximized.
Product mix pricing is a difficult task because each product has different demand, cost and competition. Product mix pricing is a choice price levels in market. There are 6 situations, namely: product-line pricing, optional feature pricing, captive-product pricing, two part pricing, by product pricing, and product bundling pricing. The first situation is Product line pricing. Normally, Companies often establish different price levels for products level in one line. That aims to be diversified market share and bring many profits.
Moreover, product line pricing also causes customer to perceive ;nh? n th? c; quality differences that justify ;cm la dung; the price differences. For example, SAMSUNG launch SAMSUNG Galaxy S3 and SAMSUNG Galaxy S3 mini with the difference is about 7 million VND. Thus people want to own Galaxy S3 but their finance don’t enough, they can buy Galaxy S3 mini with the similar features. The next is Optional feature pricing. It talks about the pricing of additional features with the main products.
To put into effect faithfully this thing <th? c hi? dung>, we need decide which items are in standard price, which to be in options. With SAMSUNG Galaxy mini, price of white model is higher than other model. Because Galaxy mini White is liked more in market. You can own it, if you pay more money for white skin. <Captive product pricing> If a product cannot be used without a companion product or must have a commitment to use it, this is a captive product. The pricing depends on captive product as TV LED 3D of SAMSUNG and glasses 3D.
You cannot watch unless you have glasses 3D. In addition, you must buy more glasses.
Because there is only one attached glasses. Therefore, glasses are set high markups that produce the additional profit. <Two part pricing> One other form of product mix pricing is two part pricing. It consists of a fixed charge and a variable charge based on consumption.
The fixed charge pays for minimum consumption, the variable charge pay for excess consumption. Generally, price level for minimum service should set low to attract customer. Telecom companies, amusement park tend to set price like that. For instance, subscription postage <ti? n cu? > and entrance ticket <ve vao c? a> are minimum consumer prices. They are usually low. Contrary to fixed charge, accrued costs <chi phi phat sinh> like game fare, charges for calls beyond a certain area.
Thanks to that sales increase significant, revenue also raises. <By product pricing> Addition to products of certain goods, manufacturers also produce by-products if there is customer group seeking to purchase the by-products. Therefore, it can get more income from those products for company to charge lower price of main product.
From there company should value by product. With fast food restaurant like KFC, chicken thigh, breasts and wing are used as fried chicken; while crushed chicken is used as hamburger to save materials and costs.
Besides, KFC can decrease cost price of fried chicken and has income from hamburger. <Product bundling pricing> The final form is product bundling pricing. As we know, product bundling is a marketing strategy that involves offering several products for sale as one combined product. Bundling consists of 2 types: pure bundling and mixed bundling.
Pure bundling happens in case customer buys all-in bundle or nothing, mixed bundling happens when customer can choose between the buying all-in bundle and the buying each part of bundle.
SAMSUNG launch a duo, in which includes galaxy tab and keyboard dock. You have 2 choices when purchasing. You can purchase both of galaxy tab and keyboard dock with less price than if you purchase separate items. This is mixed bundling. Another case is a product hybrid between tablet and laptop, it is Ativ Smart PC.
With this product, you cannot purchase separately parts.
Either you purchase entire bundle or nothing. In this case, marketing strategy is used to be pure bundling. In spite of 2 types, we should promote purchasing entire bundle. The bundle price should be lower than the sum of individual products to encourage customer buying entire bundle. Finally, we’ll talk about Co-Branding and Ingredient-Branding.
At first, let take a look at Co-branding. Co-Branding-also called dual branding or brand bundling-in which two or more well-known existing brands are combined into a joint product and/or marketed together in some fashion.
There’re 4 form of Co-Branding: + same-company co-branding: This is when a company with more than one product promotes their own brands together simultaneously Ex: Pepsi – Mirinda + joint-venture co-branding: is another form of co-branding defined as two or more companies going for a strategic alliance to present a product to the target audience Ex: Michenlin – BMW + multiple-sponsor co-branding: this form of co-branding involves two or more companies working together to form a strategic alliance in technology, promotions, sales, etc. Ex: Microsofts – Samsung retail co-branding: two or more retail brand selling together Ex: KFC – Pepsi – The main advantages of co-branding are: + It will attract consumers more when multiple brands involved + Get greater sales from current target market as well as make opportunities to reach new market from allied brands. + Valuable chances to learn about consumers and the way other companies approach them.
– On the other hand, co-branding also brings a lot of disadvantages: + Easily become aligned with another brand in the minds of consumers + If something go wrong for any of the co-operate brands, it will affects all the brands involved. If the co-brand became ovesuccess, it may affect the company’s existing brands. – In other to have a co-branding success, two brands much been equal in the brand image and the combination of two brands must maximizes the advantages of the brands while minimizing the disadvantages. And don’t forget that consumers prefer two brands which are complementary to similar. Beside that, there’s a special case of co-branding, which’s called Ingredient branding. It involves creating brand equity for materials, components, or parts that are necessarily contained within other branded products.
An interesting take on ingredient branding is “self-branding” in which companies advertise and even trademark their-own branded ingredients. Ex: Samsung laptop promote for their RAM – However, ingredient brands could make consumers prefer to buy “host” products which contain the ingredient. It is not only the chance for ingredient brands to keep the contract with the host product if they can create a strong impact on the consumers but also the challenges for the host products if their consumer get used to with the ingredient, they will not but the product without it.
PACKAGING, LABELING, WARRANTIES & GUARANTEES Most marketers treat Packaging and labeling as an element of product strategy. Warranties and Guarantees can also be important part of the product strategy, which often appear on the package.
To define, packaging is all the activities of designing and producing the container of product. We can easily see a cell phone comes from is plastic or metal cover(primary package) that is in cardboard box(secondary package) that is in a corrugated box(shipping package) contain plenty of ones.
Various factors have contributed to the growing use of packaging as a marketing tool such as self service: an effective package should attract attention, describe the product’s feature, create consumer confident, and impress them. Customers are willing to pay more for better packages. Moreover, Packaging help recognizing of company or brand more easily.
Thus, innovative packaging can bring large benefits to the customers and profits to the producers. Packaging must achieve a number of purposes 1. Identify the brand, . Give product information 3. Ease to transport and protect the product 4.
Store the product at-home 5. Aid product consumption To attract the customer’s eyes, the way of packaging must be chosen carefully( color, structure) and after packing is designed, the product must be tested to ensure that the product can: stand up under normal condition( engineering test), be clear words and harmonious color( visual test), be attractive and easy to handle( dealer test), and have favorable customer response( customer test).
On the other hand, labeling is the last part to complete the product. However, label can be become outmoded and need to freshen up frequently. Label has several function.
First, the label indentifies the brand. The label may also grade the product like Galaxy note I, note II. The label might describe the product: who made it, where it was made, what it content, how it is to be used, and how to use it safely. Finally, the label can promote the product through attractive graphics.
Warranties are formal statements of expected product performance by the manufacturer.
The product under warranty can be returned to the manufacturer or repair center for repair, replacement, or refund. Guarantees reduce the buyer’s risk. Guarantees are most effective in 2 situation. The first is where the company or product is not well known. A “money-back guarantee if not satisfied” would make customer more confidence to buy the product. The second is where the product is superior to the competition.
What are you afraid off, if you are so strong?