Book Chapter 13: Setting Product Strategy

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.
Product Characteristics and Classifications
Many people think a product is tangible, but technically a product is 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.

 PRODUCT LEVELS: THE CUSTOMER-VALUE HIERARCHY

In planning its market offering, the marketer needs to address
five product levels (see Figure 13.2). 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. The purchaser of a drill is buying holes. Marketers must
see themselves as benefit providers.
• 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.
Differentiation arises and competition increasingly occurs on the basis of product augmentation. Each
augmentation adds cost, however, and augmented benefits soon become expected benefits and necessary
points-of-parity in the category. If today’s hotel guests expect large-screen HD TVs, wireless Internet
access, and a fully equipped fitness center, competitors must search for still other features and benefits
to differentiate themselves.
 PRODUCT CLASSIFICATIONS
Marketers classify products based on durability, tangibility, and use (consumer or industrial). Each type has an
appropriate marketing-mix strategy. Durability and Tangibility 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.
1
 CONSUMER-GOODS CLASSIFICATION
When we classify the vast array of consumer goods on the basis of shopping habits, we distinguish
among convenience, shopping, specialty, and unsought goods.
Convenience goods are usually purchased by the consumers 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 grocery items tomato ketchup, Close Up toothpaste, and crackers.
Impulse goods are purchased without any planning or search effort, like candy bars, ice cream and
magazines.
Emergency goods are purchased when a need is urgent—umbrellas during a rainstorm, boots and
shovels during the first winter snow. Manufacturers of impulse and emergency goods will place them
where consumers are likely to experience an urge or compelling need to purchase.

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. Some examples of homogeneous shopping products include automobile tires and electric
appliances. Electrical appliances like washing machines and refrigerators, ceiling and pedestal fans and
microwaves are good examples. Look at each product which has some basic qualities. The product
marketing mix strategy can play an important role in differentiating these consumer products from its
competitors.
Heterogeneous shopping goods differ in product features and services that may be more important
than price. The seller of heterogeneous shopping goods carries a wide assortment to satisfy individual
tastes and trains salespeople to inform and advise customers. To give you better understand of
heterogeneous shopping goods, take a shirt, jeans and coat. These items must be required in a certain
size, style, quality and color. These type of shopping products are not alike and non-standardize.
Suppose, furniture does not have any specific standard. For example, the two different families can buy
the same refrigerator but cannot choose the same furniture. Because both families will need furniture
according to available space, design color and material wooden, bamboo, metal, blackwood or Bombay
furniture.
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. A Mercedes is a specialty good because interested buyers will travel far to buy one. Specialty
goods do not require comparisons; buyers invest time only to reach dealers carrying the wanted
products. Dealers do not need convenient locations, though they must let prospective buyers know
where to find them.
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. Unsought
goods require advertising and personal-selling support.

2
 INDUSTRIAL-GOODS CLASSIFICATION
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). Farm products are
supplied by many producers, who turn them over to marketing intermediaries, who provide assembly,
grading, storage, transportation, and selling services. The perishable and seasonal nature of farm
products gives rise to special marketing practices, whereas their commodity character results in
relatively little advertising and promotional activity. Natural products are limited in supply. They
usually have great bulk and low unit value and must be moved from producer to user. Fewer and larger
producers often market them directly to industrial users.
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. Most manufactured materials and parts are
sold directly to industrial users. Price and service are major marketing considerations, with branding and
advertising less important.
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). Installations are major purchases. They are usually bought
directly from the producer, whose sales force includes technical staff, and a long negotiation precedes
the typical sale. Producers must be willing to design to specification and to supply postsale services.
Advertising is much less important than personal selling.
Equipment includes portable factory equipment and tools (hand tools, lift trucks) and office
equipment (desktop computers, desks). These types of equipment do not become part of a finished
product. They have a shorter life than installations but a longer life than operating supplies. Although
some equipment manufacturers sell direct, more often they use intermediaries because the market is
geographically dispersed, buyers are numerous, and orders are small. Quality, features, price, and
service are major considerations. The sales force tends to be more important than advertising, though
advertising can be used effectively.
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.
Supplies are the equivalent of convenience goods; they are usually purchased with minimum effort on a
straight-rebuy basis. They are normally marketed through intermediaries because of their low unit value
and the great number and geographic dispersion of customers. Price and service are important
considerations because suppliers are standardized and brand preference is often not high.
Business services include maintenance and repair services (window cleaning, copier repair) and
business advisory services (legal, management consulting, advertising). Maintenance and repair services
are usually supplied under contract by small producers or from the manufacturers of the original
equipment. Business advisory services are usually purchased on the basis of the supplier’s reputation
and staff.
3
Differentiation
To be branded, products must be differentiated. At one extreme are products that allow little variation:
chicken, aspirin, and steel. Yet even here, some differentiation is possible: Perdue chickens, Bayer
aspirin, and India’s Tata Steel have carved out distinct identities in their categories. Procter & Gamble
makes Tide, Cheer, and Gain laundry detergents, each with a separate brand identity. At the other
extreme are products capable of high differentiation, such as automobiles, commercial buildings, and
furniture. Here the seller faces an abundance of differentiation possibilities. Means for differentiation
include form, features, performance quality, conformance quality, durability, reliability,
repairability, and style. Design has become an increasingly important differentiator, and we discuss it
separately later in the chapter.

 PRODUCT DIFFERENTIATION
Many products can be differentiated in form—the size, shape, or physical structure of a product.
Consider the many possible forms of aspirin. Although essentially a commodity, it can be differentiated
by dosage, size, shape, color, coating, or action time.
Most products can be offered with varying features that supplement their basic function. A company
can identify and select appropriate new features by surveying recent buyers and then calculating
customer value versus company cost for each potential feature. Marketers should consider how many
people want each feature, how long it would take to introduce it, and whether competitors could easily
copy it. To avoid “feature fatigue,” the company must prioritize features and tell consumers how to use
and get benefit from them. Marketers must also think in terms of feature bundles or packages. Auto
companies often manufacture cars at several “trim levels” ( Trim levels are used by manufacturers to identify
a vehicle's level of equipment or special features. The equipment/features fitted to a particular vehicle also
depend on any options packages or individual options that the car was ordered with ). This lowers
manufacturing and inventory costs. Each company must decide whether to offer feature customization at
a higher cost or a few standard packages at a lower cost.
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. Quality is growing
increasingly important for differentiation as companies adopt a value model and provide higher quality
for less money. Firms should design a performance level appropriate to the target market and
competition, however, not necessarily the highest level possible. They must also manage performance
quality through time. Continuously improving the product can produce high returns and market share;
failing to do so can have negative consequences.
Buyers expect a high conformance quality, the degree to which all produced units are identical and
meet promised specifications. Suppose a Porsche 911 is designed to accelerate to 60 miles per hour
within 10 seconds. If every Porsche 911 coming off the assembly line does this, the model is said to
have high conformance quality. A product with low conformance quality will disappoint some buyers.
Firms thoroughly test finished products to ensure conformance. Although men account for almost three-
quarters of the world’s beer sales, SABMiller found that women were actually more sensitive to levels
of flavor in beer and thus were better product testers.
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. The extra price for durability
must not be excessive, however, and the product must not be subject to rapid technological
obsolescence, as personal computers, televisions, and cell phones have sometimes been.

4
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. Maytag has an
outstanding reputation for creating reliable home appliances. Its long-running “Lonely Repairman” ad
campaign was designed to highlight that attribute.
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. Some products
include a diagnostic feature that allows service people to correct a problem over the telephone or advise
the user how to correct it. Many computer hardware and software companies offer technical support
over the phone, by fax or e-mail, or via real-time chat online.
Style describes the product’s look and feel to the buyer and creates distinctiveness that is hard to copy.
Car buyers pay a premium for Jaguars because of their extraordinary looks. Aesthetics play a key role
for such brands as Apple computers, Godiva chocolate, and Harley-Davidson motorcycles. Strong style
does not always mean high performance, however. A car may look sensational but spend a lot of time in
the repair shop.

 SERVICES DIFFERENTIATION
When the physical product cannot easily be differentiated, the key to competitive success may lie in
adding valued services and improving their quality. The main service differentiators are ordering ease,
delivery, installation, customer training, customer consulting, maintenance and repair, and returns.
Ordering ease describes how easy it is for the customer to place an order with the company. Many
financial service institutions offer secure online sites to help customers get information and complete
transactions more efficiently.
Delivery refers to how well the product or service is brought to the customer, including speed, accuracy,
and care throughout the process. Today’s customers have grown to expect speed: pizza delivered in half
an hour, eyeglasses made in 60 minutes, cars lubricated in 15 minutes.
Installation refers to the work done to make a product operational in its planned location. Ease of
installation is a true selling point for technology novices and for buyers of complex products like heavy
equipment.
Customer training helps the customer’s employees use the vendor’s equipment properly and
efficiently. General Electric not only sells and installs expensive X-ray equipment in hospitals, it also
gives users extensive training. McDonald’s requires its new franchisees to attend Hamburger University
in Oak Brook, Illinois, for two weeks to learn how to manage the franchise properly (Franchising is an
arrangement where franchisor (one party) grants or licenses some rights and authorities to franchisee
(another party). Franchising is a well-known marketing strategy for business expansion. A
contractual agreement takes place between Franchisor and Franchisee. Franchisor authorizes franchisee
to sell their products, goods, services and give rights to use their trademark and brand name. And these
franchisee acts like a dealer. In return, the franchisee pays a one-time fee or commission to franchisor and
some share of revenue. Some advantages to franchisees are they do not have to spend money on training
employees, they get to learn about business techniques).

Customer consulting includes data, information systems, and advice services the seller offers to buyers.
Technology firms such as IBM, Oracle, and others have learned that such consulting is an increasingly
essential—and profitable—part of their business.

5
Maintenance and repair programs help customers keep purchased products in good working order.
These services are critical in business-to-business settings. Makers of luxury products such as Air-
condition, television, refrigerator etc. especially recognize the importance of a smooth repair process.
Many firms offer online technical support, or “e-support,” for customers, who can search an online
database for fixes or seek online help from a technician. Appliance makers such as LG, Kenmore, and
Miele have introduced products that can transmit self-diagnostic data over the phone to a customer
service number that electronically describes the nature of any technical problems.
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. Returns can add up. One estimate is that 10 percent to 15 percent of overall holiday sales come
back as returns or exchanges, and the total annual cost may be $100 billion.
To the consumer, returns can be inconvenient, embarrassing, or difficult to complete. Returns have a
downside for merchants too, when the returned merchandise is not in re-sellable condition, lacks proper
proof of purchase, or is returned to the wrong store. It may even be used or stolen. Yet if the merchant is
reluctant to accept returns, customers can become annoyed. Of course, product returns do have an
upside. Physically returning a product can get the consumer into the store, maybe for the first time. One
research study found that a lenient return policy left customers more willing to make other purchases
and refer the company to others.
We can think of product returns in two ways:
• 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.

6
Product and Brand Relationships
Each product can be related to other products to ensure that a firm is offering and marketing the optimal
set of products.
 THE PRODUCT HIERARCHY
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.
 PRODUCT SYSTEMS AND MIXES
A product system is a group of diverse but related items that function in a compatible manner. For
example, the extensive iPod product system includes headphones and headsets, cables and docks,
armbands, cases, power and car accessories, and speakers.
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. These concepts are
illustrated in Table 13.2 for selected
Procter & Gamble consumer products.

• The width of a product mix refers to

how many different product lines the
company carries. Table 13.2 shows a
product mix width of five lines. (In
fact, P&G produces many additional lines.)
• The length of a product mix refers to the total number of items in the mix. In Table 13.2, it is 20. We
can also talk about the average length of a line. We obtain this by dividing the total length (here 20) by
the number of lines (here 5), for an average product line length of 4.
• The depth of a product mix refers to how many variants are offered of each product in the line. If Tide
came in two scents (Clean Breeze and Regular), two formulations (liquid and powder), and with two
additives (with or without bleach), it would have a depth of eight because there are eight distinct

7
variants. We can calculate the average depth of P&G’s product mix by averaging the number of variants
within the brand groups.
• 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. P&G’s product lines are
consistent in that they are consumer goods that go through the same distribution channels. The lines are
less consistent in the functions they perform for buyers.
These four product mix dimensions permit the company to expand its business in four ways. It can add
new product lines, thus widening its product mix. It can lengthen each product line. It can add more
product variants to each product and deepen its product mix. Finally, a company can pursue more
product line consistency. To make these product and brand decisions, marketers can conduct product
line analysis.

Packaging, Labeling, Warranties, and Guarantees

Some product packages—such as the Coke bottle and Red Bull can—are world famous. Many marketers
have called packaging a fifth P, along with price, product, place, and promotion. Most, however, treat
packaging and labeling as an element of product strategy. Warranties and guarantees can also be an
important part of the product strategy and often appear on the package.

 PACKAGING
Packaging includes all the activities of designing and producing the container for a product. Packages
might have up to three layers. Cool Water by Davidoff For Men cologne comes in a bottle (primary
package) inside a cardboard box (secondary package), shipped in a corrugated box (shipping package)
containing six dozen bottles in cardboard boxes.
Packaging is important because it is the buyer’s first encounter with the product. A good package draws
the consumer in and encourages product choice. In effect, it can act as a “five-second commercial” for
the product. It also affects consumers’ later product experiences when they open it and use what’s
inside. Some packages can even be attractively displayed at home. Distinctive packaging like that for
Kiwi shoe polish, Altoids mints, and Absolut vodka is an important part of a brand’s equity.
Several factors contribute to the growing use of packaging as a marketing tool.
• Self-service. In an average supermarket, which may stock 15,000 items, the typical shopper passes
some 300 products per minute. Given that 50 percent to 70 percent of all purchases are made in the
store, the effective package must perform many sales tasks: attract attention, describe the product’s
features, create consumer confidence, and make a favorable overall impression.
• Consumer affluence. Rising affluence means consumers are willing to pay a little more for the
convenience, appearance, dependability, and prestige of better packages.
• Company and brand image. Packages contribute to instant recognition of the company or brand. In the
store, they can create a billboard effect, as Garnier Fructis does with its bright green packaging in the
hair care aisle.
• Innovation opportunity. Unique or innovative packaging can bring big benefits to consumers and
profits to producers. Companies are always looking for a way to make their products more convenient
and easier to use—often charging a premium when they do so.
Formally, packaging must achieve a number of objectives:
1. Identify the brand.
2. Convey descriptive and persuasive information.
3. Facilitate product transportation and protection.
4. Assist at-home storage.

8
5. Aid product consumption.

9
 LABELING
The label can be a simple attached tag or an elaborately designed graphic that is part of the package. It
might carry a great deal of information, or only the brand name. Even if the seller prefers a simple label,
the law may require more.
A label performs several functions. First, it identifies the product or brand—for instance, the name
Sunkist stamped on oranges. It might also grade the product; canned peaches are grade-labeled A, B,
and C. The label might describe the product: who made it, where and when, what it contains, how it is to
be used, and how to use it safely. Finally, the label might promote the product through attractive
graphics. Advanced technology allows 360-degree shrink-wrapped labels to surround containers with
bright graphics and accommodate more product information, replacing glued-on paper labels.

 WARRANTIES AND GUARANTEES

All sellers are legally responsible for fulfilling a buyer’s normal or reasonable expectations. Warranties
are formal statements of expected product performance by the manufacturer. Products under warranty
can be returned to the manufacturer or designated repair center for repair, replacement, or refund.
Whether expressed or implied, warranties are legally enforceable.
Extended warranties and service contracts can be extremely lucrative for manufacturers and retailers.
Analysts estimate that warranty sales have accounted for a large percentage of Best Buy’s operating
profits. Despite evidence that extended warranties do not pay off for them, some consumers value the
peace of mind. These warranties still generate multibillion dollars in revenue for electronic goods in the
United States, though the total has declined as consumers have become more comfortable seeking
solutions to technical problems online or from friends.

Many sellers offer either general or specific guarantees. A company such as Procter & Gamble
promises general or complete satisfaction without being more specific—“If you are not satisfied for any
reason, return for replacement, exchange, or refund.” A. T. Cross guarantees its Cross pens and pencils
for life. The customer mails the pen to A. T. Cross (mailers are provided at stores), and the pen is
repaired or replaced at no charge.

Guarantees reduce the buyer’s perceived risk. They suggest that the product is of high quality and the
company and its service performance are dependable. They can be especially helpful when the company
or product is not well known or when the product’s quality is superior to that of competitors. Hyundai’s
and Kia’s highly successful 10-year or 100,000-mile power train warranty programs were designed in
part to assure potential buyers of the quality of the products and the companies’ stability.

10