Chapter 5 - Product Strategy Study Guide

This chapter explores the multifaceted world of product strategy, covering everything from
defining a product to its lifecycle and the development of new offerings.
1. Overview of Product
1.1. Definition of a Product
A product is anything that can be offered to a market to attract attention, be acquired, used,
or consumed in order to satisfy a need or want. This means products aren't just physical
items; they can also be services, experiences, or ideas.
1.2. Levels of Product and Services
Products and services can be viewed on three levels, each adding more customer value:
 Core Customer Value: This is the fundamental benefit or service the customer is
really buying. It answers the question: "What is the buyer really buying?" For
example, someone buying a drill is buying "holes."
 Actual Product: This is the tangible product or service that delivers the core value. It
includes features, design, quality level, branding, and packaging. For the drill
example, this is the physical drill itself, its brand name, its design, etc.
 Augmented Product: This level includes additional customer services and benefits
built around the core and actual product. This could be a warranty, delivery service,
customer support, or installation for the drill.
(Activity Suggestion: Consider analyzing the three product levels for items like MAC Lipstick,
iPhone 15, Hao Hao Instant Noodles, or VietNutri Soy Milk as suggested in the slides ).
2. Product and Service Classifications
Products can be classified in several ways:
2.1. Based on Durability and Tangibility
 Non-durable products: These are tangible goods that are typically consumed
quickly, in one or a few uses (e.g., soap, beer, food items).
 Durable products: These are tangible goods that are intended for long-term use and
last for many years (e.g., refrigerators, cars, furniture).
 Services: These are intangible products. Their key characteristics are:
o Intangibility: Services cannot be seen, tasted, felt, heard, or smelled before
purchase.
o Inseparability: Services are often produced and consumed simultaneously;
they cannot be separated from their providers.
o Variability: The quality of services depends on who provides them, as well as
when, where, and how they are provided.
o Perishability: Services cannot be stored for later sale or use.
2.2. Based on Customer Type (Market/Customer-Based Classification)
 Consumer product: A product bought by final consumers for their personal
consumption.
 Industrial product: A product bought by individuals and organizations for further
processing or for use in conducting a business.
o Types of Industrial Products:
 Equipment:
 Installations, machines: Fixed equipment like factories,
offices, generators, elevators.
 Accessory equipment: Mobile production equipment and tools
(e.g., forklifts) and office equipment (e.g., computers, desks).
 Raw Materials & Processed Materials:
 Raw materials: Agricultural products (e.g., wheat, cotton) and
natural products (e.g., fish, wood, oil).
 Processed materials and components: Includes processed
materials (e.g., steel, cement) and manufactured components
(e.g., motors, tires).
 Supplies and Services:
 Operating supplies: Items like coal, paper, or pens.
 Maintenance and repair items: Such as paint, nails, or
brushes.
 Business services: Include maintenance and repair services
(e.g., cleaning) and professional services (e.g., legal,
advertising).
2.3. Other Market Offerings
Marketing is not limited to physical products and services. It also includes:
 Organisations: Organisation marketing aims to enhance public image, raise funds, or
attract members (e.g., PR sponsorships, corporate advertising).
 Persons: Person marketing focuses on building personal credibility and reputation for
individuals like presidents, artists, or professionals.
 Places: Place marketing is used to attract tourists, investment, new residents, or host
events in locations like cities, regions, or nations.
 Ideas (Social Marketing): Social marketing aims to influence social behavior to
improve societal well-being, covering areas like public health, environment, or human
rights.
3. Product Decisions
Companies make product decisions at three levels: for individual products, for product lines,
and for the overall product mix.
3.1. Product Mix / Product Portfolio Decisions
 Product Mix (or Product Portfolio): This includes all the product lines and
individual items that a specific seller offers for sale.
 Product Line: A group of closely related products that function in a similar way, are
sold to the same customer groups, are marketed through the same types of outlets, or
fall within given price ranges.
 Product Item: A specific version of a product that can be designated as a distinct
offering among an organization’s products. It satisfies particular consumer needs.
Key dimensions of a product mix include:
o Width: The number of different product lines the company offers.
o Length: The total number of items across all product lines.
o Depth: The number of versions offered for each product within a line (e.g.,
different colors, sizes).
o Consistency: The degree of similarity between product lines in terms of their
use, production, distribution channels, etc.
Product Mix Development Strategies:
o Increase width by adding a new product line.
o Increase length by adding new products to an existing line.
o Increase depth by adding more versions of existing products.
o Increase consistency by making product lines more similar or unified.
(Example: For Coca-Cola, "Soft Drinks" and "Minute Maid" could be two product lines,
contributing to the width. The different flavors under Minute Maid like Guava, Orange,
Mango, Mixed Fruit contribute to its depth. The total number of all individual products
(Coca-Cola, Fanta, Sprite, Diet Coke, Coke Zero, Guava, Orange, etc.) constitutes the
product length ).
3.2. Product Line Decisions
These decisions involve managing the items within a product line.
 Product Line Length: The number of items in a product line.
o A line is too short if profits can be increased by adding items.
o A line is too long if profits can be increased by removing items.
o Company goals and resources influence line length.
 o Managers must regularly analyze the revenue and profit of each item and
understand its contribution.
 Decisions on Product Line Length include:
o Product Line Stretching: Lengthening the product line beyond its current
range.
 Downward Stretch: A company targeting the high-end market adds
products for lower-end segments. Objectives include preventing
market erosion, responding to competitors, expanding the customer
base, and promoting lower-segment development.
 Upward Stretch: A company targeting the low-end market adds
products for higher-end segments. Objectives include enhancing brand
image, tapping into higher profit margins, and seizing growth
opportunities.
 Both Directions Stretch: Companies in the middle of the market add
products to both upper and lower ends.
o Product Line Filling (Line Filling): Adding more items within the current
range of the product line. Objectives include increasing profits, utilizing
production scale, meeting distributor demand, strengthening market presence,
and closing gaps to deter competitors.
o Decision to Shorten the Product Line: Eliminating items that sell poorly,
have low profit margins, or overlap with other items, with the goal of
optimizing the brand portfolio. Profitability and cost analysis are used for this.
o Decision to Modernise the Product Line: Regularly updating individual
items or the entire line by introducing upgraded versions with higher quality.
Strategic timing of these updates is crucial for business efficiency.
3.3. Individual Product Item Decisions
These decisions focus on specific aspects of a single product:
 Product Attributes:
o Product Quality: Characteristics that relate to a product's ability to satisfy
customer needs.
 Total Quality Management (TQM): An organizational commitment
to continuous improvement in product/service quality and processes.
 Performance Quality: The product's ability to perform its functions.
 Conformance Quality: Consistency in production and delivery within
established standards (i.e., free from defects, uniform quality).
o Product Features: Companies identify new features to add and decide which
are essential. This involves surveying consumers and evaluating the customer
value of each feature against the cost of adding it.
 o Product Style and Design:
 Style: The external appearance of a product (e.g., shape, color). It can
attract attention but may not improve functionality.
 Design: Goes beyond appearance to include internal structure and
functionality, contributing to user-friendliness and performance. The
goal is to match design with customer expectations for both aesthetic
and functional value. (Example: The upside-down ketchup bottle
design improved usability and significantly increased sales and
purchase intent ).
 Branding:
o Brand: A name, term, symbol, logo, design, or a combination of these that
identifies and differentiates a product, service, or company.
o A brand creates an impression, helps distinguish from competitors, and can
enhance product value.
o Brand Name Requirements:
 Easy to remember and associated with the product.
 Easy to pronounce, read, and write.
 Distinctive.
 Flexible for product line extensions.
 Globally adaptable.
 Legally protectable.
 Packaging:
o Packaging: The activity of designing and producing containers or wrappers
for a product.
o Functions of Packaging:
 Protect and preserve the product.
 Perform sales functions (attract attention, present the product, support
selling).
 Serve as a medium of communication (carry brand and promotional
messages).
o In modern business, packaging is often called the "silent salesperson."
 Labeling: (Information on labeling is part of product item decisions and practice
notes )
o Labels identify the product or brand, describe attributes, and promote the
product.
 o Considerations for label design:
 Pay attention to form and function.
 Be creative.
 Focus on clarity and conciseness in the product message.
 Product Support Services:
o Designing the support service system involves:
 Helping customers evaluate and select current products/services and
orienting them to new ones.
 Providing consultation and supplementary services tailored to
customer needs.
 Utilizing communication tools like phone, email, internet, etc.
3.4. Social Responsibility in Product Decisions
Product decisions must consider public policy and legal regulations, including:
 Competition law for product additions via mergers & acquisitions.
 Obligations to stakeholders when withdrawing products.
 Laws on patents, copyrights, and trademarks for new product development.
 Product quality and safety standards (e.g., for cosmetics, food, toys).
 Minimum legal standards for warranties.
4. Product Life-Cycle (PLC)
The Product Life-Cycle (PLC) describes the evolution or trajectory of a product’s revenue
and profit over its lifetime in the market. It typically includes five stages:
1. Product Development: The initial stage where the new product idea is developed.
Sales are zero, and investment costs mount.
2. Introduction: The product is first launched. Revenue growth is slow, production and
marketing costs are high, and profits are low or negative. The market is not yet ready
for mass adoption, with purchases mainly by innovators. Competition is usually low.
3. Growth: The product starts to gain market acceptance. Revenue increases rapidly,
production cost per unit decreases, marketing communication costs are moderate, and
profits increase. The market expands, and competitors start to enter.
4. Maturity: This is often a prolonged stage. Revenue growth slows or stagnates,
production costs are low, but marketing costs may increase to defend market share.
Profits can decrease due to intense competition.
5. Decline: Revenue eventually declines, which can happen slowly or rapidly. Profits
decrease, and competition remains intense, though some competitors may exit the
market.
(The "New Tide" or "New OMO" advertisements are often strategies to revitalize products in
the maturity stage or extend their life cycle ).

4.1. Special Types of PLCs

 Style: A basic and distinctive mode of expression that appears over time. Styles can
last long but may fluctuate in popularity (e.g., minimalist design, streetwear).
 Fashion: A currently accepted or popular style in a specific field during a particular
period. Fashions tend to rise slowly, peak, and then decline gradually (e.g., high-
waisted jeans).
 Fad: A temporary period of unusually high sales driven by consumer enthusiasm and
immediate product popularity. Sales rise quickly, peak sharply, and then fall rapidly.
Fads usually don’t follow the full PLC (e.g., slime toys, fidget spinners).
4.2. Marketing Strategies According to PLC Stages
 Introduction Stage:
o Characteristics: Slow revenue growth, high production & marketing costs,
low/negative profit, few competitors.
o What to do:
 Identify the Unique Selling Point (USP) – what makes the product
different and better.
 Build strong promotion messages.
 Focus on market penetration strategies.
  Use penetration pricing policies; consider distribution partnerships.
 Growth Stage:
o Characteristics: Rapid revenue increase, decreasing unit production cost,
moderate marketing cost, increasing profit, expanding market, increasing
competitors.
o What to do:
 Standardize and improve product quality.
 Build the brand.
 Establish production processes for mass customization.
 Maturity Stage:
o Characteristics: Slow/stagnant revenue, low production cost, increased
marketing cost, decreasing profit, intense competition.
o What to do:
 Re-segment the market.
 Adjust pricing strategies.
 Innovate product ideas.
 Expand market coverage.
 Apply customer psychology theories based on usage behavior.
 Decline Stage:
o Characteristics: Declining revenue & profit, intense competition (some
exits).
o What to do:
 Lower product price.
 Reduce costs.
 Plan to withdraw or divest investment.
 Eliminate weak product lines.
 Focus on remaining profitable segments.