Product Strategy

MKTG 5200
 CUSTOMER ANALYSIS COMPETITOR ANALYSIS COMPANY ANALYSIS P.E.S.T. ANALYSIS
Statistics Direct / indirect competitors Objectives Political
Shopping / usage behavior Their current / previous strategies Strengths / weaknesses Economic
Buying process
Importance of this market to them Current / past performance Social
Likely actions and reactions Fit with other products Technological
SEGMENTATION
Possible segments
Size of segments
Growth potential
Analysis

DIFFERENTIATION IMPLICATIONS FOR

TARGET MARKETING STRATEGY
MARKET
Benefits valued by customer
SELECTION Product
Added value from specific
Price
combinations of benefits
Distribution channels
Promotion
- advertising
POSITION - sales force

Decisions
OUTCOMES
Financial
Other

Outcomes
Marketing Decision Framework
 Analysis

IMPLICATIONS FOR
MARKETING STRATEGY

Product

Decisions

Marketing Decision Framework (Showing Area of Outcomes

Focus for this Lecture)
What is a Product?
• Anything that can be offered to a market
to satisfy a want or need

Typically this means goods or services,

but it can also include…
Experiences
Events
Places Places
Organizations
People
Ideas
Product: Going Beyond the Basics
• Companies often think about their products in terms of
components and costs

• But customers are more apt to think about them as

bundles of benefits that make their life easier / better
Product: Going Beyond the Basics
• Businesses with a cost advantage have
the power to compete on price
– Access to low-cost materials or labour
– Access to better technology
– Economies of scale / scope

• But most organizations prefer to compete via a differentiated

offering (easier to do, tends to produce higher margins)
Let’s consider an example…
 Product: Going Beyond the Basics
Core Benefit
Rest and Sleep

Basic Product
Bed, Bathroom & Towels

Expected Product
Competition (Attributes & conditions
that consumers expect)
based on price
Bed clean, Bathroom clean,
Core
Towels fresh, Toiletries, TV Benefit
Augmented Product
(Attributes & conditions
that exceed expectations)
Wireless Internet, Pool,
Competition Continental breakfast, Free calls,
based on Club lounge, Robe & slippers
differentiation
Potential Product
(Possible ways the product could
be enhanced in the future)
Basic Product:
Bed, Bathroom, Towels
Expected Product
Clean, Well-Maintained, with Toiletries
Augmented Product
e.g., Long-term Stay Suite Hotels
Potential Product
e.g., Immersive Experience Hotels
How Do Customers Evaluate Products?
• Products succeed for different reasons…it’s helpful to retain
mental prototypes of the various paths to success

Better Better Better Better

Physical Product Service Experience Brand Image Value
 ASK YOURSELF:

What’s my competitive
advantage?
Can I improve my offering
on any of these dimensions?

Better Better Better Better

Physical Product Service Experience Brand Image Value
Types of Products
Different Products, Different Strategies
• Your marketing approach needs to account for the
nature of your product:
1. Degree of durability / tangibility
How often does it need to be replaced?
2. Type of customer
Is it being purchased by a business or an individual?
3. Purchase process
How much effort goes into the buying decision?
Consider Durability / Tangibility
• Nondurable goods – tangible goods that are normally
consumed after one or a few uses; e.g., soft drinks, soap
NON-DURABLE GOODS

Keys to success: Wide availability, small markup,

heavy advertising
Consider Durability / Tangibility
• Durable goods – tangible goods that normally survive
many uses; e.g., refrigerators, clothing, computers
DURABLE GOODS

Keys to success: Personal selling to help consumers choose

and product guarantees to reassure. Confidence in their
purchase makes consumers willing to pay higher markups.
Consider Durability / Tangibility
• Services – intangible products that are typically produced
and consumed at the same time; e.g., haircuts, legal advice
SERVICES

Keys to success: Supplier credibility and consistent quality

Consider the Type of User
Industrial goods Consumer goods
Used to produce or deliver Purchased by the
products for resale final consumer
INDUSTRIAL PRODUCTS

B.C. Box Organizational Chart

Canadian Division Manager

FLYNN Canadian Manager of

Canadian Purchasing Agent
Vancouver Plant Manager Engineering Services

JACK WOOD ARCHIE

Maintenance Supervisor Plant Engineer Factory Superintendent

Keys to success: Identify key individuals and

their role in the decision-making process
CONSUMER PRODUCTS

Keys to success: Depends on the type of product

Types of Consumer Goods
• Convenience good
Items the consumer purchases frequently and with a minimum
of shopping effort

• Shopping good
Items for which the consumer compares several alternatives on
criteria such as price, quality, or style

• Specialty good
Items that a consumer makes a special effort to seek out and buy

• Unsought good
Items the consumer either does not know about or knows about
but does not initially want
 Types of Consumer Goods
CONVENIENCE SHOPPING SPECIALTY UNSOUGHT
Toothpaste, cake mix, Cameras, TVs, Luxury cars,
Product Funeral insurance
hand soap, detergent luggage, clothing expensive watches

Price Relatively inexpensive Fairly expensive Very expensive Varies

Place Widespread; many Large number of

Very limited Often limited
(distribution) outlets selective outlets

Price, availability, & Differentiation from Uniqueness of brand Awareness is

Promotion
awareness stressed competitors stressed and status stressed essential

Brand loyalty of Brand a factor, but will Prefer specific brands; Very brand loyal; will
Will accept substitutes
consumers accept substitutes will accept substitutes not accept substitutes

Buying behavior Frequent purchases; Infrequent purchases; Infrequent purchases; Very infrequent; some
of consumers minimal time & effort need time to compare need lots of time comparison shopping
End of Lecture
Managing the Product Mix
MKTG 5200
Managing the Product Mix
• Most organizations offer more than one product
• Hence, a key task of the marketing team is to manage the
portfolio of offerings—i.e., the product mix
Product Management Terminology
• Product Mix – The set of all products a particular seller offers;
it consists of various product lines

mouthwash
bar soap dishwasher
shampoo & detergent
dental floss
body wash
liquid hand
soap
toothpaste
dish soap

tooth whitener
Product Management Terminology
• Product Line – A group of products, marketed by a firm, that share
common characteristics, customers, and/or uses, and frequently
common underlying technologies, distribution channels, etc.
– e.g., Colgate-Palmolive’s toothpaste line, or sometimes more specific,
e.g., Crest’s ‘Whitening Expressions’ line of toothpastes

toothpaste
Product Management Terminology
• Line Extension – When an existing brand is used to target a new
market segment in a product category currently served by that brand
– e.g., Coca-Cola introduces Coca-Cola with Coffee
Product Management Terminology
• Brand Extension – When a brand is used in a product category
where the brand has not previously had a presence
– e.g., Jell-o introduces Jell-o Pudding Pops
Product Management Terminology
• Width of the Product Mix – The total number of product lines
sold by a firm
Width = 9 lines

mouthwash
bar soap dishwasher
shampoo & detergent
dental floss
body wash
liquid hand
soap
toothpaste
dish soap

tooth whitener
Product Management Terminology
• Length of the Product Mix – the total number of product variants
sold by a firm
Length = 164 SKUs
Product Management Terminology
• Line Depth – The number of product variants in a line

Depth = 20
SKUs
Product Management Terminology
• Line Consistency – The degree to which items in a product line
are similar in terms of end use, production requirements, distribution
channels, etc…
Product Management Terminology
• Line Vulnerability – The percentage of sales or profits that
are derived from only a few products in a line
Product Management Terminology
Enhance sales volume by… Increase margins by…

 Adding new lines

 Adding new variants



 Enhancing
consistency
Manage Your Product Lines
• Pay careful attention to…
1. Sales and profits associated with each item in the product line
2. Market opportunities created by new technologies, consumer
trends, and the actions of competitors

Then decide whether to

build, maintain, harvest or divest…
P&G to review Brand Portfolio
CINCINNATI―Procter and Gamble, the world's consumer product research firm, revealed
largest consumer products company, is reviewing homemade breakfasts that included coffee
its 300 plus brand portfolio. Equity analysts and dropped from 33 percent to 30 percent from 2000
investors say P&G must rid itself of brands that to 2007, while restaurant breakfasts with coffee
aren't growing and invest in profitable brands to climbed from 37 percent to 39 percent.
enable to company to hit its $100 billion annual Coffee chains such as Starbucks and Dunkin'
revenue target by 2010. Donuts are the real beneficiaries of the growth in
Among the reported brands that are up for coffee-drinking, reports the Enquirer.
auction are coffee brand Folgers and potato snack Also, Folgers failed to penetrate markets such Sometimes,
Pringles. In recent years, P&G sold Jif peanut as Asia and Latin America, which are growing the need is to
butter and Sunny Delight beverage to other faster. Pringles, on the other hand, are sold slim down
companies. internationally.
“It's a growth rate issue, not an absolute product NPD said Pringles faces profit issues similar to
positioning issue. The ones they're selling aren't Folgers: "People are eating just as many potato
growing as fast as some other brands,” Bret Parrish, chips, but a generation of young adults starting
principal and portfolio manager at Johnson their own households is stocking pantries with
Investment Counsel in Monfort Heights, told the brands that tout themselves as healthy choices."
Cincinnati Enquirer. To update its line of salty snacks, P&G
P&G's strategy is to hit its Chief Executive A.G. launched new varieties such as Pringles Select
Leafley's $100 billion annual revenue goal by 2010. gourmet label and Pringles Stix, which are baked
Though Folgers led in the U.S. homemade and come in 90-calorie packs.
coffee market, a study by NPD Group, a New York
Campbell’s Launches Sippable Soup
TORONTO – Campbell’s continues to Campbell’s Soup at Hand reflects the growing
revolutionize the soup industry in Canada with its demand from consumers for more convenient,
latest product introduction, Soup at Hand, a new line on-the-go foods they can feel better about
of portable, sippable soups. choosing. Twenty per cent of Canadians look for
Packaged in microwaveable, coffee cup shaped convenience when deciding which food
containers, Soup At Hand is designed to be hand- products to buy.
held and enjoyed on the go. In preliminary testing, 80 per cent of consumers
“Soup at Hand continues a Campbell tradition of who tried Campbell’s Soup at Hand said
soup innovation by providing a hot, satisfying they would buy the product in stores. Other times, it
solution to the daily dilemma of eating well while makes sense
on the run,” says Steve Graham, Vice President, to bulk up
Research and Development with Campbell’s
Canada.
“Campbell’s has a long history of providing
consumers with appealing food choices that fit
demanding lifestyles, from the introduction of
condensed soup more than 100 years ago to the
more recent innovations of ready-to-serve soups
with pop-top lids, cooking broths in a variety of
tastes and
formats and blended vegetable soups in recyclable
cartons.”
Line Filling & Pruning
• Line Filling – adding more items within the present range
 prevents lost sales due to missing products in the line
 helps keep competitors out
 can be a good use of excess production capacity
 risks confusing / overwhelming consumers if overdone
 risks dividing management attention across too many products
Line Filling & Pruning
• Line Pruning – eliminating underperforming products
 often done when company is short of production capacity
 helps keep company focused on critical success factors
Line Stretching
• Up-Market Stretch – introducing a higher-priced product to the line
 generally offers higher margins
 provides a ‘halo effect’ for lower-end products
 difficult to do and not always successful

 HYUNDAI GENESIS  VOLKSWAGEN PHAETON

Line Stretching
• Down-Market Stretch – introducing a lower-priced product to the line
 often provides good opportunities for growth
 ties up low-end competitors and keeps them from moving up
 attracts young / first-time buyers to the brand
 may cannibalize higher-priced products
 can damage brand image
BMW 1 SERIES MERCEDES A CLASS
End of Lecture
Product Life Cycle
MKTG 5200
The Product Life Cycle
• Describes four distinct phases that products typically
go through during their existence, from introduction to
eventual removal from the market
The Product Life Cycle
• The basic notion:
1. Products have a limited life
2. Products pass through distinct and predictable stages
with respect to sales and profits
3. Products require different marketing, financial, manufacturing,
purchasing, and human resource strategies depending on
where they are in their life cycle
Caveats
• Product Life Cycle analysis is not an exact science…
– Not all products follow the typical product life cycle
– Not all products end up being withdrawn from the market
– It’s not always clear which stage a particular product is at
– It’s hard to predict how long a product will spend at each stage
Typical Product Life Cycle
Related Concept
Rogers’ Diffusion of Innovation Theory

• Adoption of a new product, idea, or

behavior doesn’t happen
simultaneously by all actors in a
social system
• Instead, some people are more apt to
adopt the innovation than others
• Research has found that certain types
of people are likely to adopt an
innovation earlier than others
• This—along with price drops that
become possible with economies of
scale—helps explain why the product
life cycle exists
Alternative Product Life Cycles
Typical Product Life Cycle
Phase 1: Introduction

• Low sales
• High costs per
customer
• Negative profits
• Innovator customers
• Few competitors
Phase 1: Introduction
Marketing Focus:
Create awareness & trial
• Offer a basic product
• Price at cost-plus
• Use selective distribution
• Focus on dealers and
early adopters
• Induce trial via heavy
sales promotion
Phase 2: Growth

• Rising sales
• Average costs
• Rising profits
• Early adopter customers
• Growing competition
Phase 2: Growth
Marketing Focus:
Maximize market share
1. Introduction
• Offer high service levels,
2. Growth product extensions, warranty
3. Maturity • Price to penetrate
4. Decline • Use intensive distribution
• Focus on building awareness
and interest (mass market)
• Scale back promotions as
demand increases
Phase 3: Maturity

• Peak sales
• Low costs
• High profits
• Middle majority customers
• Stable/declining competition
Phase 3: Maturity
Marketing Focus:
Maximize profit & defend share
• Diversify brands/versions
• Price to match/beat competition
• Use intensive distribution
• Stress brand differences
• Increase promotions to
encourage switching to
your brand
Phase 4: Decline

• Declining sales
• Low costs
• Declining profits
• Laggard customers
• Declining competition
Phase 4: Decline
Marketing Focus:
Reduce costs & harvest
• Cut (or drastically raise) prices
• Scale back variety of
models / options offered
• Revert to selective distribution
• Reduce promotions to
minimal levels
• Phase out
Extending Your Product’s
Life Cycle
Extending Your Product’s Life Cycle
There are several strategies you can use to stave off decline
without radically changing your product
1. Add new features
Extending Your Product’s Life Cycle
There are several strategies you can use to stave off decline
without radically changing your product
2. Keep improving the product’s performance specs
Extending Your Product’s Life Cycle
There are several strategies you can use to stave off decline
without radically changing your product
3. Refresh your advertising and/or packaging
Extending Your Product’s Life Cycle
There are several strategies you can use to stave off decline
without radically changing your product
4. Find new uses for the product / Target new segments
End of Lecture
Introducing New Products
MKTG 5200
New Products are Critical to Success

INSTEAD OF RISKING ANYTHING NEW,

LET’S PLAY IT SAFE BY CONTINUING OUR
SLOW DECLINE INTO OBSOLESCENCE.
New Products are Critical to Success
1. They’re key vehicles for growth
2. They enable the organization to replace sales of products
that reach the end of their life cycle
3. They prevent the organization from becoming
overly dependent on any one product
4. They encourage a culture of innovation
New Products are Critical to Success
New Products are Critical to Success
New Products are Critical to Success
New Products are Critical to Success
New Products are Critical to Success
New Products are Critical to Success
New Products are Critical to Success
New Products are Critical to Success
New Products are Critical to Success
New Products are Critical to Success
New Products are Critical to Success
New Products are Critical to Success

(?)
But…
What is ‘New’?
What is ‘New’?
FROM THE MAKERS OF
“MINT WHITENING,”
8 TYPES OF NOW THERE’S
INNOVATION “WHITENING
WITH MINT”

INCREMENTAL LINE EXTENSION

OUR ORIGINAL
CONCEPT WAS
A DRONE

COPYCAT WATERED DOWN FAD

WE’D BETTER LET’S ADD MORE THAT’LL
DO ANOTHER FEATURES ON NEVER
IN-HOME WORK
THE BACK
TRIAL TO TEST
THE FONT.

OVERANALYZED OVERCOMPLICATED BREAKTHROUGH

Degrees of ‘Newness’

LESS LEARNING MORE LEARNING

NEEDED NEEDED

Continuous Dynamically Discontinuous

Innovation Continuous Innovation
Innovation
Degrees of ‘Newness’
• Discontinuous innovation
“New to the world”
Fundamentally changes behavior.
Establishes new consumption patterns.

Implications for Marketing:

Need to educate customers through
sampling, market trials, personal selling
Before
After
Before
After
Degrees of ‘Newness’
• Discontinuous innovation
“New to the world”
Fundamentally changes behavior.
Establishes new consumption patterns

Implications for Marketing:

Need to educate customers through
sampling, market trials, personal selling
1970
1985
2005
Today
Degrees of ‘Newness’
• Continuous innovation
Revision to an
existing product
Requires no new
learning to use

Implications for Marketing:

Focus on generating awareness,
distribution, and brand loyalty
Degrees of ‘Newness’
• Continuous innovation
Revision to an
existing product
Requires no new
learning to use

Implications for Marketing:

Focus on generating awareness,
distribution, and brand loyalty
Degrees of ‘Newness’
• Dynamically continuous innovation
New product that differs
from, but resembles,
an existing category
Changes customers’
routines but does not
demand that they
reconfigure their lives Implications for Marketing:
Advertise benefits to customers, stressing points
to accommodate it of differentiation and benefits of upgrading
Degrees of ‘Newness’
• Dynamically continuous innovation
New product that differs
from, but resembles,
an existing category
Changes customers’
routines but does not
demand that they
reconfigure their lives Implications for Marketing:
Advertise benefits to customers, stressing points
to accommodate it of differentiation and benefits of upgrading
Where do new product opportunities
come from?
Sources of New Product Opportunity
1. Customers develop a new need
2. A previously unidentified need is identified
3. Customers’ tastes change
4. Economic / environmental conditions change
5. Technology makes it possible to deliver new benefits
6. Technology makes it possible to cut costs
The New Product
Development Process
Step 1: Idea Generation
• Mandate of development team may be specific or general:
– Product to address a particular customer need, or;
– Some way to make money in a promising market

• Sources for ideas:

 R&D Breakthroughs
 Competitive Intelligence
 Suggestions from Suppliers, Buyers and Entrepreneurs
 Customer Co-creation
Step 1: Idea Generation
Engage with Suppliers, Buyers, and Employees

Companies like Procter

& Gamble and Unilever
engage their suppliers,
buyers, and employees
in the new product
development process
Step 1: Idea Generation
Customer Co-Creation

Brands like Lego, DHL,

BMW, and DeWalt are
leaders in leveraging
customer insight
communities to co-
create new product ideas
Step 2: Idea Screening
• Separating the good ideas from the bad
– “Reining in” the brainstorming

• Key questions…
 Does the product meet a need and/or offer superior value?
 Will it deliver sales volume, sales growth, and profit?
 What is the likelihood of success?
 Does the company have the necessary resources to pursue the concept?
Step 3: Concept Development & Testing
Online Concept Tests: External evaluation of product ideas

Market research
specialists like
Ipsos offer
platforms to get
quick feedback from
customers on new
product concepts
Step 3: Concept Development & Testing
Virtual Reality Concept Testing

Virtual reality offers

intriguing opportunities
to test new product
concepts.

Marriott used SecondLife

to gather feedback on
their aLoft concept years
before a single hotel was
ever built.
Step 4: Marketing Strategy Development
• Specify target market: size, structure, and behavior
• Determine positioning strategy for the product
• Set goals (sales, market share, and profit)
Step 5: Business Analysis
• Sales, cost, and profit projections
• Break-even analysis
• Risk / sensitivity analysis
– Optimistic
– Pessimistic
– Most likely
Step 6: Product Development
• Key question: “Can this idea be translated into
a technically and commercially feasible product?”
– Consider manufacturing equipment & processes
as well as the product itself

• Prototype development
• Functional and customer tests
– Alpha testing
– Beta testing
Step 6: Product Development
Rapid Prototyping

3D printers and similar

systems make it possible
to create functional
prototypes of physical
products that can be
tested by customers for
the purposes of
collecting feedback
Step 7: Market Testing
• Testing of the overall marketing mix
– Pricing
– Promotion
– Distribution channels

• Several methods available…

– Sales Wave Research
– Simulated Test Marketing
– Controlled Test Markets
– Test Markets
Step 8: Commercialization
• Positioning and launching the final product
– Sequential roll-out reduces risk and allows for adjustments
(do it, try it, fix it) but also tips off competitors

• Costs may extend beyond development

and advertising / sales
 Slotting Fees
 Failure Fees
And Finally…Sprinkle Fairy Dust (as Needed)

NOW LET’S CLOSE OUR EYES AND

THINK WONDERFUL THOUGHTS WHILE
MARKETING SPRINKLES FAIRY DUST
ON OUR NEW PRODUCT
End of Lecture