CHAPTER 5: PRODUCT STRATEGY

Contents
5.0 Aims and Objectives
5.1 Introduction
5.2 What is a Product?
5.3 Product Classification
5.3.1 Consumer Goods Classification
5.3.2 Industrial Goods Classification
5.4 Production Mix and Product Line
5.5 New Product Development
5.5.1 New Product Development Process
5.5.2 Why New Product Fail?
5.6 Product Life cycle
5.7 Individual Product Decisions
5.7.1 Brand Decisions
5.7.2 Packaging Decisions
5.7.3 Labeling Decision

5.0 AIMS AND OBJECTIVES

The aim of this unit is to give a brief account on the first element of marketing mix-product. The
unit begins with a deceptively simple question, what is a product? After answering this question,
we look at ways to classify product in consumer and business market. Next we see that each
product requires several decisions that go beyond basic product design. This decision involves
branding, packaging and Labeling. Finally we move from product line & mix decision to product
lifecycle.

By the time you finish this unit you should be able to:
- define product;
- examine the various types of consumer and industrial products ;
- discuss product mix and product line decision;
- study the different types and stage of the product lifecycle;
 - define brand, package and Labels of a product;
- identify the peculiar features of services.

5.1 INTRODUCTION

Product strategy is a critical element of marketing and business strategy, since it is through the
sale of products and services that companies survive and grow. It also involves a systematic
decision-making pertaining to all aspects of the development and management of a firm’s
product.

5.2 WHAT IS A PRODUCT?

A product is anything that can be offered to a market for attention, acquisition, use or
consumption that might satisfy a want or a need. Products that are marketed include physical
goods, services, persons, organizations and ideas.

A tennis racquet, advice from attorney, Sony Video CD player and tax preparation services are
all products.

Five levels of a Product.

In planning its market offering, the marketer needs to think through five levels of the product.
Here, each level adds customer value, and the five constitute a customer value hierarchy. (Figure
5.1)

The most fundamental level is the core product, which focuses on what the product is to mean
for the customer not for the producer. The core product consists of the problem solving benefit
that consumers seek when they buy a product or service. Since every product the package of a
want satisfying service, the marketer’s job is to uncover the needs hiding under every product &
to sell benefit not features.

Example –When a carpenter buys a drill, he buys a hole.

-A hotel guest is buying “rest and sleep”

Basic Product: At the second level the product planner has to turn the core product in to a basic
(tangible) product. Computers, political candidates, Lipistic are all tangible products. A basic
product may have as many as five characteristics; a qualituy level, feature, styling, a brand name
& packaging.
Expected Product: At the third level, the marketer prepares an expected product, a set of
attributes and conditions that buyers normally expect & agree when they purchase a product.

Example –Hotel guests expect a clean bed, working lamps and silence.

Augmented Product: At the fourth level the marketer may offer additional services and benefits
that meet customers’ desires beyond their expectation. A hotel can augment its product by
including a TV set, fresh flowers & fine dinning room service. Product augmentation leads the
marketer to look at the buyer’s total system of consumption; the way a purchase of a product
perform the total task of whatever is that he/she is trying to accomplish when using the product.
In this way, the marketer well recognize many opportunities for augmenting its offer in a
competitively effective way.

The new competition is not between what companies produce in their factories, but between
what they add to their factory output in the form of packaging, after sale service, delivery
arrangement, warranty, warehousing and other things that people value. However, something
shjould be noted about product –augmentation strategy. First, each augmentation costs the
company money. The marketer has to ask whether customers will pay enough to cover the extra
cost. Second, augmented benefits soon become expected benefits. Thus a hotel guest today
expects a TV – set and other facilities in their room. This means that competitors will have to
search for still features and benefits to add to their offer.

Potential Product: At the fifth level stands the potential method, which encompasses all the
augmentation and transformations that the product might ultimately undergo in the future. While
the augmented product describes what is included in the product today, the potential product
points to its possible evolution. Here the most successful companies add benefit to their offering
that not only satisfy customer but also delight them.

Core
benefit
 Basic Products

Figure 5.1 five levels of a product

5.3 PRODUCT CLASSIFICATIONS

Marketers have traditionally classified products on the basis of varying product characteristics:
durability, tangibly and use (consumer or industrial). Each product type has its own marketing-
mix strategy.

A. Durability and Tangibility

Products can be classified in to three groups according to their durability and tangibility.
i. Durable good – these are tangible goods that can be used for an extended period of time or
survive many uses. Durable products normally require more personal selling or service,
command a higher margin and require more sellers guarantees.
Example – refrigerator, machine tool, clothing.
ii. Non-durable goods – These are tangible goods that are quickly consumed or worn out.
Example – beer, soap & salt. Since these goods are consumed quickly & purchased
frequently the appropriate strategy is to make them available in every locations, charge
only a small markup (margin) and advertise heavily to induce trial.
iii. Services – services are intangible, inseparable, variable and pershible. As a result, they
normally require more quality control, supplier credibility and adaptability. Examples
include haircut and repairs.

The four major characteristics of service that affect the design of their marketing program are:

a) Intangible -
Services are intangible. Unlike physical products they cannot be seen, tasted, felt, heard or
smelled before they are bought. A patenting in psychiatrist’s office cannot know the exact
outcome.

b) Inseparability -
Services are typically produced and consumed simultaneously. This is not true for physical
goods, which are manufactured, put in to inventory, distribute through multiple sellers, and
consumed still later. If a person renders service, then the provider is part of the service. Since the
client is also present as the service is produced, provider – client interaction is a special feature
of services marketing.

c) Variability
Because they depend on who provides them and when and where they are provided, services are
highly variable. For example some doctors have and excellent bedside manner and are very good
with children; other are more gruffer and have us patient with children. Service buyers are aware
of this high variability and frequently talk to others before selecting a service provider.

d) Perish ability
Service cannot be stored. Some doctors change patients for missed appointments because the
service value existed only at that point. The perish ability of services is not a problem when
demand is steady because it is easy to staff the service in advance.

B. Consumer Behavior
Products can be classified in to consumer goods and industrial goods according to their behavior.

5.3.1. Consumer good Classification

Consumer buys a rest array of goods. These goods can be classified in to four on the basis of
consumer shopping habits. These are

a) Convenience goods – These are goods that the consumer usually purchases with a minimum
of effort, where the buyer has knowledge of the product characteristics prior to shopping.
Convenience goods are generally low in price & frequently purchased by the customers. The
customer does not want additional information because the item has been bought before and will
accept a substitute.
  Staples – are goods that consumers purchase on a regular basis. For example, one buyer
might routinely purchase bread, soap. etc---.
 Impulse goods – are goods purchased without any planning or search effort. These goods
are usually displayed widely. Examples are chewing gum & magazines.
 Emergency goods – are goods purchased when a need is urgent. Umbrella during a rain
storm, boots & shovels during the first winter storm.

b) Shopping goods – They are also known as comparison product. In the process of selection
and purchase the customer characteristically compares the product of one business with its
competitors on such basis as quality. style, price and suitability. Shopping goods are purchased
less frequently than convince goods. Examples include furniture, clothing and major appliances.
c) Specialty goods – These are particular good or brands in which customers are loyal.
Consumers know the attribute of the product prior to their purchase decision. They are prepared
to make effort, pay a high price and do not accept a substitute.
A Mercedes, for example, is a specialty good because interested buyers will travel for to buy one
d) Unsought goods – are goods that the consumer does not know about or known about but does
not normally think of buying. A new products such as a smoke detector is unsought good
until the consumer is made aware of them through promotion. The classic example of known but
unsought good are life insurance and encyclopedias.

5.3.2. Industrial Goods Classifications

Industrial goods can be classified in terms of how they enter the production process & their
relative costliness. We can distinguish three groups of industrial good. These are

1. Materials and parts – are goods that enter the manufacture’s product completely. They fall in
to two classes; row materials & manufactured materials and parts.

Row materials are further fall in to two major classes; farm product (wheat, cotton, frits) and
natural products fish, lumber, crude oil). Each is marketed some whet differently. Raw materials
are basic materials that actually become part of the physical product. They are processed when
the industrial consumer buys them.

Manufactured materials & parts are divided it to two: Component materials and component parts.
Component materials are usually fabricated further, for example yarn is woven in to cloth while
component parts enter the finish product completely without further change in form as tires are
put on automobiles. Most manufactured materials and parts are sold directly to industrial users
with orders often placed a year or more in advance.

2. Capital items – They are long lasting items that do not go completely in to the production of
the product but they facilitate developing and/or managing the finished product. They include
installations and equipment.
3. Supplies and Business service – are short lasting goods and services that facilitate developing
and/or managing the finished product. This also does not go in to the production of materials.

5.4. PRODUCT MIX AND PRODUCT LINE

Product mix also called product assortment is a set of all products & items that a particular seller
offers for sale. For example Midroc – Construction, hotel service, & poultry farming….
The company’s product mix has a certain width, length, depth and consistency.
 Width of product mix - refers to the number of product line the company offers.
 Depth of product mix – refers to the variety of products under each product line.
 Length of a product mix – refers to the total number of items in the product mix i.e. the
summation of all product depth.
 Consistency of the product mix – which refers to the interrelatedness of the product lines
that the company is offering.
Example:
XYZ Company

Detergent Toothpaste Bar soap

Product lines
A B C X Y Z N M S R
Products 3
Depth ------------- 3 3 4

Length ----------- 10
These four dimensions of the product mix provide the handles for defining the company’s
product strategy. The company can expand its business in four ways. The company can add new
product lines, widening its product mix.
mix. The company can lengthen each product & deepen its
mix. Finally the company can pursue more product lines consistency or less, depending up on
whether it wants to acquire a strong reputation in a single field or participate in several fields.

Product Line – A product mix consists of various product lines. A product line is a group of
products that are closely related because they perform similar function, are sold to the same
customer group, are marketed through the same channel of distribution or fall within a given
price ranges.

An integral component of product line planning revolves around the question of how many
product variant should be included in the line. Manufacturing costs are usually minimized
through large volume production runs, and distribution costs tend to be lower if only one product
is sold, stocked and service. At a given level of sales, profit will usually be highest if these sales
have been achieved with a single product. However, many variant are offered by many firms.

There are three reasons why organization offer varying products within a given product line.
First, potential customers rarely agree on a single set of specifications regarding their ideal
product differing greatly in the importance and value they place on specific attributes. Second
customer prefers variety. For example, a person may like the Ethiopian cultural food but does not
want to only eat ‘Doro wet’. Third, the dynamics of competition lead to multi product lines. As
competitors seek to increase market share, they find it advantageous to introduce new products
that sub segment on existing market segment by offering more precisely tailored to the specific
needs of a portion of that segment.

Before reaching the decision on product line addition, organizations need to evaluate whether
total profit will decrease and/or the quality/value associated with current product will suffer.

5.5. NEW PRODUCT DEVELOPMENT

As you know a product is an entity with an accompanying set of image and service feature that
seeks to satisfy consumer needs. A new product involves an innovation or the modification of an
existing product that the consumer perceives as substantive. For a new product to succeed it must
have desirable attribute, be unique and able to have its features communicate to consumers.

New product may be developed by the company itself or purchased from another firms. In the
later case the Company may buy the firm outright, purchases the product or inter into a licensing
agreement.

There are various reasons for developing new products. This because there are consistent threats
from competitors, innovative development, saturated market for existing product and changes in
customer taste and need call for new product development.

5.5.1. New Product Development Process

There are stages that we follow in new product development. These include

1. Idea generations –
This is the continuous & systematic search few new product opportunities. It involves
delineating the sources of new ideas and methods for generating them.
Some of the major sources of new product are:
 Customer need – product idea can originate form customer need & wants through
research.
 Employees of the organizations are important sources of new ideas.
 Competitor’s products and services are also sources for idea generation by analyzing the
strength and weakness and studying the liking and disliking of customers associated with
competitors product.
 Sales representative and intermediaries – since they are closer to customers they can
provide new idea for the organization.
 Other sources – This include inventors, investors, Universities (Colleges), consultants
and advertising agencies.

2. Idea screening
After the firm has identified a set of potential product idea, it must screen them. In idea screening
poor, unsuitable or unattractive ideas are weeded out form further considerations. Moreover
screening requests for developing a checklist for requirements that the idea must fulfills and
product ideas that do not fulfill the criteria will be rejected.
3. Concept testing
A firm needs to acquire consumer feedback about its product idea so the screened ideas must be
tested with appropriate group of target consumers. For this consumers are asked about the
product idea and express their own opinion an enthusiasm about the product.

This stage involves asking potential consumers to react to the picture, written statement, or oral
description of the product, thus enabling the firm to determine initial attitude of consumer prior
to expensive and time consuming prototype development.

4. Business analysis
The stage requires the study of the attractiveness of the business such as the extent of demand for
the product; sales, cost and profit estimates.

5. Product development
This stage converts a product idea in to a physical form and identifies a basic marketing strategy.
The goal of product development is to find the prototype that the consumer sees embodying the
key attributes desired in the product concept. The prototype can be supplied to consumers so that
they can lest and give reactions.

6. Market testing
This involves placing a fully developed new product for sale in one or few selected area and
observing its performance. It helps to learn about consumer real behavior and competitor’s action
and responses.
Based on the result of market testing the firm can decide whether to go ahead with its plan
(production) in large sale, modify the product, modify the marketing plan or drop the product.

7. Commercialization
After testing is completed, the firm will be ready to introduce the product to its full target market
these stage requires considerable expenditure and commitment on promotion and distribution.

5.5.2 Why New Products Fail?

Despite improved marketing technology, the failure rate of new products remain as high as it was
before 20 or 30 yrs. Product failure is defined in two ways; absolute and relative failure.
 Absolute product failure occurs when a company is unable to recover its production and
marketing costs.

Relative product failure occurs when a company is able to make a profit on an item but the
product does not attain profit objectives and/or adversely affects the firm’s image.

Essentially new products fall for several reasons. The main reason is when the product is not
based on customer need & wants. Other common reasons for failure are;

 Inadequate product superiority and uniqueness.

 Failure to conduct proper marketing research.
 Failure of realistic forecast regarding the acceptable level of a product.
 Lack of allocation of adequate resource.
 Poor timing i.e. when the product enters the market early or late.

5.6. PRODUCT LIFE CYCLE

Product like any living things undergo life cycle. The concept of product life cycle PLC suggests
that any product or service move through identifiable stages including introduction, growth,
maturity and decline.

The discussion on product life cycle portrays the sales history of a typical product as following
an s-shaped curve.

Sales,
Profit

Sales

Introduction Growth Maturity Decline

Profit
 Time
Fig.- 5.2. Product life cycle
The product life cycle concept can be applied to what are known as styles, fashions and fads.
Their special life cycles are shown in the diagram below. Fig5.3

* A style is a basic and distinctive made of expression appearing in a field of human endeavor.
Once a style is invented, it may last for generations, coming in & out of vogue. It has a cycle
showing several periods of renewed interest.

* A fashion is a currently accepted or popular style in a given field.

* Fads are fashions-that come quickly to the public eye, are adopted with great zeal, peak early
& declines vary fast.

Style fashion Fad

Sales
Sales Sales

Time Time Time

Figure 8.3 Product life cycle for style, fashion & fad.

We now look at the characteristics & strategies for each of the stages of the product life cycle.

1. Introduction
The introduction stage starts when the new product is first distributed and made available for
purchase. It takes time to fill the dealer’s pipelines and roll out the product in several markets; so
sales growth is apt to be slow. In this stage profits one negative or low because of the low sales
volume and heavy distribution and promotion expenses. Promotional expenses are at their
highest ration to sales because of need for a high level of promotional effort to 1) inform the
potential consumers of the new & unknown product. 2) Induce trial of the new product and 3)
secure distribution in retail outlet. In the introduction stage the customers are the innovators and
those who are willing to take risks, and like to take the status of being first.
By considering only price and promotion management can pursue one of the following four
strategies.

A. A rapid skimming strategy

This strategy involves launching the new product at a high price and a high promotional level.
The firm charges high price in order to recover as much gross profit per unit as possible. It
spends much on promotion to convince the market of the products merit even at the high price
level.

B. A slow skimming strategy

This involves launching the new product at a high price and low promotion. The low promotion
keeps marketing expense down.

C. A rapid penetration strategy

This involves launching the new product at low price and spending heavily on promotion. This
strategy promises to bring about the fastest market penetration and the largest market share.

D. A slow penetration strategy

This involves launching a new product at a low price and low level of promotion. The low price
will encourage rapid product acceptance and the Company keeps its promotion cost down in
order to realize more profit.

2. Growth stage
The growth stage is marked by a rapid climb in sales. When early adopters like the product, the
middle majority consumer starts following their lead. New competitors enter in to the market
attracted by the opportunities for large-scale production & profit.

Price remains where it is or rise slightly as demand is increasing quite rapidly. Profit also
increase during this stage as promotion costs are spread over large volume of units.

Some of the strategies used by a firm so as to keep market growth are:

 The firm improves product quality and adds new product features.
 It enters new market segment
 It enters new distribution channels.
 It shifts its promotion from building awareness to persuading customers.
  It can also lower its price at the right time to attract the next layer of price sensitive
buyers.

3. Maturity stage
At some point the products rate of sales growth will slow down and the producer will enter a
stage of relative maturity. This normally lasts longer than the previous stages, and it poses
formidable challenges to marketers.

The maturity stage can be divided in to three phases. In the first phase, growth maturity the sales
growth rate starts to decline. There are no new distribution channels to fill, although some
laggard buyers (last people to purchase a product) still enter the market. In the second phase,
stable maturity, sales volume become level because of market saturation. In the third phase,
declining maturity, the absolute level of sales now starts to decline, and customers start moving
towards other products and substitutes.

Some companies give up on matured products, feeling there is little they can do. However,
marketer can apply any one (combination) of the following strategies in the stage of maturity

* The company can expand the number of brand users in three ways.
1. Convert the nonusers in to users of the product
2. The Company can enter a new market segment
3. The Company can work to attract the customers of its competitor.

 Volume can also be increased by getting current brand users to increase their anneal usage of
the brand.
 Managers also try to turn sales around by modifying the products chrematistics in a way that
will attract new users.
 The product managers may also try to stimulate sales through modifying one or more
marketing mix elements.

4. Decline stage
The product sales declines as substitutes enter the market or customers become dissatisfied or
shift to other products. As sales and profit decline, some firms withdraw from the market. Those
remaining may reduce the number of product offerings. They may drop smaller market segments
and weaker trade channels. They may also cut promotion budget and reduce their price further.
Unfortunately, most companies have not developed well – thought out policy for handling their
aging products.

Unless strong reasons for retention exist, carrying a week product is very costly to the firm. The
cost is not just amount of uncovered overhead and profit. The week product may consume a
disproportionate amount of management’s time; it often requires frequent price adjustment; it
requires both advertising and sales force attention that might be better diverted to making the
healthy products more profitable.

In this stage there are five strategies open to the firm.

 Increasing the firm’s investment so as to dominate or strengthen its competitive position.
 Maintaining the firm’s investment level until the uncertainties about the industry are resoled.
 Decreasing the firm’s investment level selectively , by sloughing off the unpromising
customer groups while simultaneously strengthening the firm’s investments posture with in
the uncreative niches of enduring customer demand.
 Harvesting (or milking) the firm’s investment to recover cash quickly, regardless of the
resulting investment posture.
 Diverting the business quickly by disposing of its asset as advantageously as possible.

The appropriate decline strategy is a function of the industry’s relative attractiveness and the
company is competitive strength in a given industry. For instance, a company that finds itself in
unattractive industry and yet has competitive strength should consider shirking selectively.

5.7. INDIVIDUAL PRODUCT DECISIONS

In developing a marketing strategy for individual product, the seller has to confront the branding,
packaging and labeling decisions.
5.7.1. Brand Decisions
Perhaps the most distinctive skill of professional marketers is their ability to create, maintain,
protect and enhance brand. Marketers say that “branding is the art and cornerstone of marketing.
The American marketing association defines a brand as follow:
A Brand is a name, design or symbol (or combination of these) that uniquely identifies the
product and service of one seller or a group of sellers and to differentiate them from those of
competitors.
There are three types of brand designations
1. A band name – is a word, letter (a group of words or letters) that can be voiced. Eg.
Mercedes
2. Brand Mark – is a symbol, design or distinctive coloring or lettering that can be seen but
not voiced. Eg. For Mercedes

3. Trade mark – is a brand name or brand mark or combination thereof that is given
legal protection. When it used a registered trade mark is followed by R
Eg. Coca – cola
R

In essence a brand identifies the seller or maker. It can be a name, trademark, logo or other
symbols. Under trademark law, the seller is granted exclusive right to the use of the brand in
perpetuity. Thus brand differs from other assets such as patent and copyrights, which have
expiration dates.

Why Branding?
Branding is essentially seller’s promise to consistently deliver a specific set of features, benefit
and services to the buyers. Some of the additional reasons for branding are;
 To facilitate product identification – customer can order a product by name instead of
description.
 To assure customers that a product/service has a certain level of quality and it is possible
for them to get comparable quality products by reordering the same brand.
 The firm responsible for the product will be known.
 Price comparisons are reduced, as customers perceive brand distinctiveness.
 It increases product prestige as the social visibility becomes meaningful.

Many companies make use of branding strategies in carrying out market and product
development strategies. The line extension approach uses a band name to facilities entry in to a
new market. An alternative to line extension is brand extension a current brand name is used to
enter a completely different product class. The third form of banding is franchise
extension/family branding where by a company attaches the corporate name to a product either
to enter a new market segment or a different product class.

Brand Equity
It is the level of measurement of brand loyalty by customers. It can also be viewed as a set of
assets (or liabilities) linked to the brand that adds (or subtract) value. The value of these assets
depends on the consequence or result of the market place’s relationship with a brand.

Brand equity is determined by the consumer and is the culmination of the consumer’s assessment
of the product, the companies that manufactures and market the product and all other variables
that impact on the product between manufacturing & consumer consumption.

To sum up, a brand requires careful brand management so that its equity does not depreciate.
This demands maintaining or improving brand awareness, brand perceived quality and
functionality. These indeed require continuous R&D, well developed advertisement and
excellent trade and consumer service.

5.7.2. Packaging Decisions

All physical products going to the market have to be packaged. Many marketers have called
packaging a fifth P, along with price, product, place & promotion. However, most marketers
treat packaging as an element of product strategy.

Packaging is the process of designing and producing the container or wrapper for a product. The
container or wrapper is called the package. The package might include up to three levels of
material. Thus a perfume is in a bottle (primary package), that is in carton box (secondary
package) that is in a corrugated box (shipping package) containing dozens of perfume.
In modern business a well-developed package can create convenience value for the consumer
and promotional value for the producer. Some of the factor which contributed for the growing
use of packaging as a marketing tool are;

a) Self – service – many products will be sold on a self service basis in supermarkets. Here the
package performs many of the sales task.
b) Consumer affluence – consumers are willing to pay a little more for the convenience
appearance and prestige of better package.

c) To increase company’s brand image – A well-designed package has the power to contribute
to recognition of the company’s brand.

Developing effective packaging may cost lots of money and take from a few months to a year.
The importance of packaging cannot be over emphasized considering the function it performs in
attracting customers. Companies should also give attention to the growing environmental
problems of packaging.

5.7.3 Labeling Decision

Labeling is a subset of packaging. A label is a tag attached to the product or an elaborately
designed graphic that is part of the package. Even if the seller prefers a simple label, the law may
require additional information.

Labels perform several functions; first, it identified the product or brand. The label might also
grade the product. The label might describe the product; who made it, where it was made, when
it was made, what is contains & how it is to be used. Finally, the label might promote the product
through its attractive graphics.

5.8 SUMMARY

Product planning is a systematic decision making pertaining to all aspects of the development
and management of the firms products. It allows the firm to pinpoint opportunities, develop
marketing program, developing new products and delate undesirable products. Here a product
should be defined based on its level.

Consumer products are goods and services for the final consumer. They can be classified as
convenience, shopping, specialty and unsought goods. These are products that are differentiated
on the basis of consumer awareness of alternatives and their chrematistics prior to shopping trip.
Where as industrial products are goods/services used in the production of other good & services,
in the operation of the business or for resale.
In developing a new product the Company can apply an innovation or modification to existing
products that the consumer pervious as substantiate. Companies objective for introducing new
products relates to sales, profit, less dependence on one product/product line, use of an
established company’s distribution system and/or image.

The product life cycle is a concept that seeks to describe the product’s sales, profit, customer
competitor and marketing emphasis from its inception until its removal from the market and this
life cycle goes through four stages: introduction, growth, maturity and decline.