Ch 13 SETTING PRODUCT STRATEGY

13.6 ​________ are the four​ product-mix dimensions that permit a company to expand its business.

Adding new product​ lines, lengthening each product​ line, adding more​ variants, and pursuing more​ product-line consistency

13.1 Questions Which one of the following are​ long-lasting goods that facilitate developing or managing the finished​ product?

Capital items

13.5 In addition to changing the manufacturing​ process, what other steps are manufacturers taking to be more environmentally​ friendly?

Changing ingredients that go in to products

13.7 Co-Branding and Ingredient Branding

CO-BRANDING Marketers often combine their products with products from other companies in various ways. In co-branding—also called dual branding or brand bundling—two or more well-known brands are combined into a joint product or marketed together in some fashion. - EXAMPLES: One form of co-branding is same-company co-branding, as when General Mills advertises Trix cereal and Yoplait yogurt. Another form is joint-venture co-branding, such as General Electric and Hitachi lightbulbs in Japan or the Citi Platinum Select AAdvantage Visa Signature credit card in which three different parties are involved. - There is multiple-sponsor co-branding, such as Taligent, a one-time technological alliance of Apple, IBM, and Motorola. Finally, there is retail co-branding in which two retail establishments use the same location to optimize space and profits, such as jointly owned Pizza Hut, KFC, and Taco Bell restaurants. Make sure the value of the bundle is easily understood. Bundles can streamline choices and make it easier for a consumer to appreciate different sets of benefits. Remember costs play a role. If marginal costs for the products are low—such as for proprietary software components that can be easily copied and distributed—a bundling strategy can be preferable to a pure component strategy where each component is purchased separately. - Co-branding can generate greater sales from the existing market and open opportunities for new consumers and channels. It can also reduce the cost of product introduction because it combines two well-known images and speeds adoption. And co-branding may be a valuable means to learn about consumers and how other companies approach them. Companies in the automotive industry have reaped all these benefits. The potential disadvantages of co-branding are the risks and lack of control in becoming aligned with another brand in consumers' minds. Consumer expectations of co-brands are likely to be high, so unsatisfactory performance could have negative repercussions for both brands Financial arrangements between brands vary; one common approach is for the brand more deeply invested in the production process to pay the other a licensing fee and royalty. Brand alliances require a number of decisions.75 What capabilities do you not have? What resource constraints do you face (people, time, money)? What are your growth goals or revenue needs? Ask whether the opportunity is a profitable business venture. How does it help maintain or strengthen brand equity? Is there any risk of diluting brand equity? Does the opportunity offer extrinsic advantages such as learning opportunities? ----------- INGREDIENT BRANDING Ingredient branding is a special case of co-branding.76 It creates brand equity for materials, components, or parts that are necessarily contained within other branded products. - Successful ingredient brands include Dolby noise reduction technology, GORE-TEX water-resistant fibers, and Scotchgard fabrics. - An interesting take on ingredient branding is self-branded ingredientsthat companies advertise and even trademark.79 Westin Hotels advertises its own "Heavenly Bed"—a critically important ingredient to a guest's good night's sleep. The brand has been so successful that Westin now sells the bed, pillows, sheets, and blankets via an online catalog, along... - Ingredient brands try to create enough awareness and preference for their product so consumers will not buy a host product that doesn't contain it. DuPont has introduced a number of innovative products, such as Corian® solid-surface material, for use in markets ranging from apparel to aerospace. What are the requirements for successful ingredient branding? - Consumers must believe the ingredient matters to the performance and success of the end product. Ideally, this intrinsic value is easily seen or experienced. Consumers must be convinced that not all ingredient brands are the same and that the ingredient is superior. A distinctive symbol or logo must clearly signal that the host product contains the ingredient. Ideally, this symbol or logo functions like a "seal" and is simple and versatile, credibly communicating quality and confidence. A coordinated "pull" and "push" program must help consumers understand the advantages of the branded ingredient.

13.5 Many colleges around the country have banned the sale of plain bottled water. What has the bottled water been replaced​ with?

Hydration stations

13.4 MARKETING LUXARY BRANDS

In post-communist Russia for a time, as in China, the bigger and gaudier the logo, the better. But in the end, luxury brand marketers have to remember they are often selling a dream, anchored in product quality, status, and prestige. Just like marketers in less expensive categories, those guiding the fortunes of luxury brands operate in a constantly evolving marketing environment. Globalization, new technologies, financial crises, shifting consumer cultures, and other forces require them to be skillful and adept at their brand stewardship to succeed. GUIDELINES: - Maintaining a premium image for luxary brands is crucial; controlling that image is a priority. - Luxury branding typically includes the creation of many intangible brand associations and an aspirational image. - All aspects of the marketing program for luxury brands must be aligned to ensure high-quality products and services and pleasurable purchase and consumption experiences. - Besides brand names, other brand elements—logos, symbols, packaging, signage—can be important drivers of brand equity for luxury products. - Secondary associations from linked personalities, events, countries, and other entities can boost luxury-brand equity as well. - Luxury brands must carefully control distribution via a selective channel strategy. -Luxury brands must employ a premium pricing strategy, with strong quality cues and few discounts and markdowns. - Brand architecture for luxury brands must be managed carefully. - Competition for luxury brands must be defined broadly because it often comes from other categories. - Luxury brands must legally protect all trademarks and aggressively combat counterfeits. ------- One trend for luxury brands is to wrap personal experiences around the products. Top-end fashion retailers are offering such experiences alongside their wares, expecting that customers who have visited a workshop or met the designer will feel closer to the brand. Gucci is inviting its biggest spenders to fashion shows, equestrian events, and the Cannes Film Festival Some fashion brands have begun to go beyond glossy magazine spreads to listening to and communicating with consumers through Facebook, Twitter, Foursquare, and other digital and social media channels. Coach and Tiffany are two luxury brands praised for their Web site and digital operations. E-commerce has also begun to take hold for some luxury brands. Sites such as Gilt Groupe and Ideel now offer new ways for fashion brands to move high-end goods.

13.1 Product classifications

Marketers classify products on the basis of 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: 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. Durable goods are tangible goods that normally survive many uses: refrigerators, machine tools, and clothing. 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. ------ 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. The consumer usually purchases convenience goods frequently, immediately, and with minimal effort. Examples include soft drinks, soaps, and newspapers. Convenience Goods Staples are convenience goods consumers purchase on a regular basis. Impulse goods are purchased without any planning or search effort, like candy bars and magazines. Emergency goods are purchased when a need is urgent—umbrellas during a rainstorm, boots and shovels during the first winter snow. Shopping Goods 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 goodsare similar in quality but different enough in price to justify shopping comparisons. 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. Speciality Goods 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. Specialty goods don't require comparisons; buyers invest time only to reach dealers carrying the wanted products. Dealers don't need convenient locations, though they must let prospective buyers know where to find them. unsought goods ------- 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. 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. The homogeneity of natural materials limits the amount of demand-creation activity. Price and reliable delivery are the major factors influencing the selection of suppliers. -- 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. 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). - 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 don't become part of a finished product. They have a shorter life than installations but a longer life than operating supplies.lthough 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. -- 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). 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.

13.6 The location of various product lines of a​ company, along with the product lines of​ competitors, can be found​ where?

On a product map

13.7 The main advantage to​ co-branding is that a product might be​ ________.

One of the main advantages of​ co-branding, a process in which two or more​ well-known existing brands are combined into a joint product​ and/or marketed together in some​ fashion, is that a product might be convincingly

Which one of the following is an objective of​ packaging?

Packaging should facilitate product transportation and protection.

Which one of the following has made it illegal to use labels that are​ false, misleading, or​ deceptive?

The Federal Trade Commission Act

13.4 Why do luxury brands attempt to wrap personal experiences with a product through such venues as fashion​ shows?

To encourage the customer to feel closer to the brand

Warranties and guarantees are most effective at reducing the​ buyer's perceived risk in what two​ situations?

When the company or product is not well known or when the​ product's quality is superior to the competition

13.2 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 highdifferentiation, 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. Product Differentiation - 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. - Features: Most products can be offered with varying features that supplement their basic function. 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 benefit from them.9 Marketers must also think in terms of feature bundles or packages - Each company must decide whether to offer feature customization at a higher cost or a few standard packages at a lower cost. - Performance Quality: 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. 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 - Conformance quality: Buyers expect a high conformance quality, the degree to which all produced units are identical and meet promised specifications. - EX: 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. Firms thoroughly test finished products to ensure conformance. - 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 fordurability 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. - Reliability: Reliability is a measure of the probability that a product will not malfunction or fail within a specified time period. - Repairability: 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. -Style: Style describes the product's look and feel to the buyer and creates distinctiveness that is hard to copy. Strong style does not always mean high performance, however. A car may look sensational but spend a lot of time in the repair shop. - CUSTOMIZATION: customized products and marketing allow firms to be highly relevant and differentiating by finding out exactly what a person wants—and doesn't want—and delivering on that

The level at which a good or​ service's primary characteristics operate is considered to be the​ ________ of a product.

performance quality

13.3 What is the slogan Samsung uses in its Design 3.0​ philosophy?

​"Make It​ Meaningful"

For a product to be​ branded, it must be differentiated. Which of the following most fully lists potential ways to​ differentiate?

​Form, features,​ customization, performance​ quality, conformance​ quality, durability,​ reliability, repairability, and style

13.5 Which company is known for making sustainability a​ company-wide priority and has several products that reflect that​ philosophy?

​Levi-Strauss

13.6 When firms use fixed fees plus a variable usage​ fee, ________ pricing strategy is being used.

​two-part pricing

13.5 How much plastic is used in disposable water bottles per​ year?

2.7 million tons

13.8 Labelling

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. A long history of legal concerns surrounds labels and packaging. In 1914, the Federal Trade Commission Act held that false, misleading, or deceptive labels or packages constitute unfair competition. The Fair Packaging and Labeling Act, passed by Congress in 1967, set mandatory labeling requirements, encouraged voluntary industry packaging standards, and allowed federal agencies to set packaging regulations in specific industries.

13.6 Example: savings and income.

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 ** EXAM (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. Michelin has three product lines: tires, maps, and restaurant-rating services. - A company's product mix has a certain width, length, depth, and consistency. The width of a product mix refers to how many different product lines the company carries. The length of a product mix refers to the total number of items in the mix. 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 variants. 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. 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.

13.8 Warranties and Gaurantees

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. 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. Many sellers offer either general or specific guarantees. 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.

13.3 Design** Exam

As competition intensifies, design offers a potent way to differentiate and position a company's products and services. Design is the totality of features that affect the way a product looks, feels, and functions to a consumer. As holistic marketers recognize the emotional power of design and the importance to consumers of look and feel as well as function, design is exerting a stronger influence in categories where it once played a small role. Some countries have developed strong reputations for their design skills and accomplishments, such as Italy in apparel and furniture and Scandinavia in products designed for functionality, aesthetics, and environmental consciousness. In a visually oriented culture, transmitting brand meaning and positioning through design is critical. "In a crowded marketplace," writes Virginia Postrel in The Substance of Style, "aesthetics is often the only way to make a product stand out." Design is especially important with long-lasting durable goods such as automobiles. As GM's VP of Design Ed Welburn notes, ". . . every car has its own mood, whether it's a van for India or a Cadillac for China, and needs to connect with customers at an emotional level." ----- Design should penetrate all aspects of the marketing program so all design aspects work together. To the company, a well-designed product is easy to manufacture and distribute. To the customer, it is pleasant to look at and easy to open, install, use, repair, and dispose of. The designer must take all these goals into account. Design thinking is a very data-driven approach with three phases: observation, ideation, and implementation. Design thinking requires intensive ethnographic studies of consumers, creative brainstorming sessions, and collaborative teamwork to decide how to bring the design idea to reality.

Introduction notes

At the heart of a good brand is a great product EX: Lexus (product quality, customer care) Marketing planning begins with formulating an offering to meet target customers needs or wants. Customer will judge the offering based off of : product features and quality, service mix and quality, and price.

13.4 Luxury Products ** exam

Design is often an important aspect of luxury products, though these products also face some unique issues. They are perhaps one of the purest examples of the role of branding because the brand and its image are often key competitive advantages that create enormous value and wealth. Characterizing Luxury Brands Significantly higher priced than typical items in their categories, luxury brands for years were about social status and who a customer was—or perhaps wanted to be. Times have changed, and especially in the aftermath of a crippling recession, luxury for many has become more about style and substance, combining personal pleasure and self-expression. A luxury shopper must feel he or she is getting something truly special. Thus the common denominators of luxury brands are quality and uniqueness. A winning formula for many is craftsmanship, heritage, authenticity, and history, often critical to justifying a sometimes extravagant price. Company Examples: - Patrón tequila. Named Patrón to convey "the boss, the cool guy," the smooth agave tequila comes in an elegant hand-blown decanter and is sold in individually numbered bottles for $45 or more. - Montblanc luxury goods. The goal of Montblanc, whose products now range from pens to watches to leather goods and fragrances, is to be a strong luxury brand to as many classes of luxury customers as possible, while still retaining a prominent public image. The brand promise is that "the product you buy is of highest esteem, based on its timeliness, elegant design and the high quality, which is derived from the excellence of our craftsmen."

13.5 Environemental Issues

Environmental issues are also playing an increasingly important role in product design and manufacturing. Many firms are considering ways to reduce the negative environmental consequences of conducting business, and some are changing the manufacture of their products or the ingredients that go into them Perhaps the most important lesson here is that environmental concerns matter to consumers, and they expect companies to make changes to address their concerns. Second, competition will emerge in all forms as companies try to find ways to better suit consumers' unmet needs, even for a sip of water.

13.6 Product line analysis

In offering a product line, companies normally develop a basic platform and modules that can be added to meet different customer requirements and lower production costs. Homebuilders show a model home to which buyers can add additional features. Product line managers need to know the sales and profits of each item in their line to determine which items to build, maintain, harvest, or divest. They also need to understand each product line's market profile and image. ----- - SALES AND PROFITS Figure 13.3 shows a sales and profit report for a five-item product line. The first item accounts for 50 percent of total sales and 30 percent of total profits. The first two items account for 80 percent of total sales and 60 percent of total profits. If these two items were suddenly hurt by a competitor, the line's sales and profitability could collapse. These items must be carefully monitored and protected. - Every company's product portfolio contains products with different margins. Supermarkets make almost no margin on bread and milk, reasonable margins on canned and frozen foods, and better margins on flowers, ethnic food lines, and freshly baked goods. Companies should recognize that different items will allow for different margins and respond differently to changes in level of advertising. --- MARKET PROFILE AND IMAGE The product line manager must review how the line is positioned against competitors' lines. The product map in Figure 13.4 shows the location of the various product line items of company X and four competitors, A, B, C, and D. The product map also shows which competitors' items are competing against company X's items. The map also reveals possible locations for new items. Another benefit of product mapping is that it identifies market segments. . Figure 13.4 shows the types of paper, by weight and quality, preferred by the general printing industry, the point-of-purchase display industry, and the office supply industry. The map shows that company X is well positioned to serve the needs of the general printing industry but less effective in serving the other two markets.

13.1 product characteristics and classifications 'Product levels: The customer value hierarchy'

In planning its market offering, the marketer needs to address five product levels Each level adds more customer value, and together the five constitute a customer-value hierarchy. Imagine it as circles within circles; with the core benefit in the middle. The fundamental level: 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. 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. 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. 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. In developing and emerging markets such as India and Brazil, however, competition takes place mostly at the expected product level. The fifth level: 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. As some companies raise the price of their augmented product, others offer a stripped-down version for less

13.8 Packaging, Labeling, Warranties, and Guarantees ** EXAM

Packaging includes all the activities of designing and producing the container for a product. 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. 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. 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: Identify the brand. Convey descriptive and persuasive information. Facilitate product transportation and protection. Assist at-home storage. Aid product consumption. Functionally, structural design is crucial. The packaging elements must harmonize with each other and with pricing, advertising, and other parts of the marketing program. Aesthetic considerations relate to a package's size and shape, material, color, text, and graphics. --- color wheel of branding White connotes purity, innocence, and cleanliness. Blue, as the color of the sky and sea, is associated with dependability, trust, competence, and integrity. Purple has symbolized nobility, wealth, and wisdom. It combines the stability of blue and the energy of red. Orange connotes friendliness and fun. It combines the energy of red and the warmth of yellow. ----- After the company designs its packaging, it must test it. Engineering tests ensure that the package stands up under normal conditions; visual tests, that the script is legible and the colors harmonious; dealer tests, that dealers find the packages attractive and easy to handle; and consumer tests, that buyers will respond favorably.

- 13.6 Product Mix Pricing ** EXAM

Product line analysis provides information for two key decision areas: product line length and product mix pricing. --- Marketers must modify their price-setting logic when the product is part of a product mix. In product mix pricing, the firm searches for a set of prices that maximizes profits on the total mix. The process is challenging because the various products have demand and cost interrelationships and are subject to different degrees of competition. We can distinguish six situations calling for product-mix pricing: product line pricing, optional-feature pricing, captive-product pricing, two-part pricing, by-product pricing, and product-bundling pricing. - PRODUCT LINE PRICING Companies normally develop product lines rather than single products, so they introduce price steps. A men's clothing store might carry men's suits at three price levels: $300, $600, and $900, which customers associate with low, average, and high quality. The seller's task is to establish perceived quality differences that justify the price differences. - OPTIONAL-FEATURE PRICING Many companies offer optional products, features, and services with their main product. Pricing options is a sticky problem because companies must decide which to include in the standard price and which to offer separately. Many restaurants price their beverages high and their food low. The food revenue covers costs, and the beverages—especially liquor—produce the profit. This explains why servers often press hard to get customers to order drinks. Other restaurants price their liquor low and food high to draw in a drinking crowd. - CAPTIVE-PRODUCT PRICING Some products require the use of ancillary or captive products. Manu-facturers of razors often price them low and set high markups on razor blades. Movie theaters and concert venues often make more from concessions and merchandise sales than from ticket receipts. If the captive product is priced too high in the aftermarket, however, counterfeiting and substitutions can erode sales. Consumers now can buy cartridge refills for their printers from discount suppliers and save 20 percent to 30 percent off the manufacturer's price. - TWO-PART PRICING Service firms engage in two-part pricing,consisting of a fixed fee plus a variable usage fee. Cell phone users may have to pay a minimum monthly fee plus charges for calls that exceed their allotted minutes. Amusement parks charge an admission fee plus fees for rides over a certain minimum. The service firm faces a problem similar to captive-product pricing—namely, how much to charge for the basic service and how much for the variable usage. The fixed fee should be low enough to induce purchase; profit can then come from the usage fees. - BY-PRODUCT PRICING The production of certain goods—meats, petroleum products, and other chemicals—often yields by-products that should be priced on their value. Any income earned on the by-products will make it easier for the company to charge a lower price on its main product if competition forces it to do so - The company began to sell by-products of its sugar cane; waste sugar cane fiber was used to manufacture wallboard. Today, through product development and acquisition, the renamed CSR has become one of the top 10 companies in Australia selling building and construction materials. - PRODUCT-BUNDLING PRICING Sellers often bundle products and features.70 Pure bundling occurs when a firm offers its products only as a bundle. Providers of aftermarket products for automobiles increasingly are bundling their offerings in customizable three-in-one and four-in-one programs, especially second-tier products such as tire-and-wheel protection and paintless dent repair.

13.6 Product line length

Product line analysis provides information for two key decision areas: product line length and product mix pricing. --- Company objectives influence product line length. One objective is to create a product line to induce up-selling. - EX: Mercedes C-Class plays a critical function as an entry point to the brand. It also opens the Benz brand to potential future buyers by catching them while they're young with the hopes that they upgrade as they get more affluent and older. A different objective is to create a product line that facilitates cross-selling: Hewlett-Packard sells printers as well as computers. Still another is to protect against economic ups and downs: Electrolux offers white goods such as refrigerators, dishwashers, and vacuum cleaners under different brand names in the discount, middle-market, and premium segments, in part as a hedge when the economy moves up or down. Companies seeking high marketshare and market growth will generally carry longer product lines. Those emphasizing high profitability will carry shorter lines consisting of carefully chosen items. Product lines tend to lengthen over time. Excess manufacturing capacity puts pressure on the product line manager to develop new items. The sales force and distributors also lobby for a more complete product line to satisfy customers. But as items are added, costs rise for design and engineering, inventory carrying, manufacturing changeover, order processing, transportation, and new-item promotions. Similarly, if product quality in an assortment is high, consumers actually prefer fewer choices. Those with well-defined preferences may benefit from more-differentiated products that offer specific benefits, but others may experience frustration, confusion, and regret. - Smart marketers realize it's not just product lines making consumer heads spin—many products themselves are too complicated. ----- A company lengthens its product line in two ways: line stretching and line filling. ** EXAM --- LINE STRETCHING Every company's product line covers a certain part of the total possible range. For example, Mercedes automobiles are located in the upper price range of the automobile market. Line stretching occurs when a company lengthens its product line beyond its current range, whether down-market, up-market, or both ways. - Down-Market Stretch A company positioned in the middle market may want to introduce a lower-priced line for any of three reasons: 1. company notices strong growth opportunities 2. company wishes to tie up loewr end competitors who might otherwise try to move up-market. 3. company finds the middle market is stagnating - choices to move down-market 1. use the parent brand name on all the offerings. 2. introduce lower-priced offerings using a sub-brand name, such as P&G's Charmin Basic and Bounty Basic. 3. Introduce lower priced offerings under a different name, such as Gap's 'old navy'. This strategy is expensive to implement and means brand equity will have to be built from scratch, but the equity of the parent brand name is protected. - Up-Market Stretch - Companies may wish to enter the high end of the market to achieve more growth, realize higher margins, or simply position themselves as full-line manufacturers. Many markets have spawned surprising upscale segments: Starbucks in coffee, Häagen-Dazs in ice cream, and Evian in bottled water. - The leading Japanese auto companies each introduced a highly successful upscale automobile nameplate: Toyota's Lexus, Nissan's Infiniti, and Honda's Acura. - Some brands have used modifiers to signal a quality improvement, such as Ultra Dry Pampers, Extra Strength Tylenol, and Power Pro Dustbuster Plus. -Two-Way Stretch: Companies serving the middle market might stretch their line in both directions. - COMPANY EXAMPLE : Purina Dog Food has stretched up and down to create a product line differentiated by benefits to dogs, breadth of varieties, ingredients, and price: - Pro plan $38.99 per bag - Purina One $23.99 per bag - Purina dog Chow $12.24 per pag - Alpo by Purina $8.69 per bag ----- LINE FILLING - A firm can also lengthen its product line by adding more items within the present range. Motives for line filling include reaching for incremental profits, satisfying dealers who complain about lost sales because of items missing from the line, utilizing excess capacity, trying to become the leading full-line company, and plugging holes to keep out competitors. - Line filling is overdone if it results in cannibalization and customer confusion. The company needs to differentiate each item in the consumer's mind with a just-noticeable difference. LINE MODERNIZATION, FEATURING, AND PRUNING Product lines regularly need to be modernized. The question is whether to overhaul the line piecemeal or all at once. - In rapidly changing markets, modernization is continuous. Companies plan improvements to encourage customer migration to higher-value, higher-price items. - The product line manager typically selects one or a few items in the line to feature. Best Buy will announce a special low-priced big-screen TV to attract customers. At other times, managers will feature a high-end item to lend prestige to the product line. Sometimes a company finds one end of its line selling well and the other end selling poorly. - It may try to boost demand for slower sellers, especially if a factory is idled by lack of demand, but it could be counterargued that the firm should promote strong sellers rather than prop up weak ones. - Using sales and cost analysis, product line managers must periodically review the line for deadwood that depresses profits - Multi-brand companies all over the world try to optimize their brand portfolios. This often means focusing on core brand growth and concentrating resources on the biggest and most established brands.

13.6 Product and Brand Relationships ** exam

The Product Hierarchy** EXAM 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: Need family: the core need that underlies the existence of a product family. Example: security. Product family: all the produce classes that can satisfy a core need with reasonable effectiveness. Example: savings and income. 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. 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. Product type—A group of items within a product line that share one of several possible forms of the product. Example: term life insurance. 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.

​________ is the most important requirement for​ co-brands to succeed.

The most important requirement is a logical fit between the two​ brands, to maximize the advantages of each while minimizing disadvantages. Consumers are more apt to perceive​ co-brands favorably if they are complementary and offer unique​ quality, rather than being overly similar and redundant.

Which of the following is a disadvantage to​ co-branding?

The potential disadvantages of​ co-branding are the risks and lack of control in becoming aligned with another brand in​ consumers' minds. Consumer expectations of​ co-brands are likely to be​ high, so unsatisfactory performance could have negative repercussions for both brands.

13.4 Growing Luxury Brands

The recent recession challenged many luxury brands as they tried to justify their value proposition and avoid discounting their products Those that had already successfully extended their brands vertically across a range of price points were usually the most immune to economic downturns. Company Example: The Armani brand has extended from high-end Giorgio Armani and Giorgio Armani Privé to mid-range luxury with Emporio Armani to affordable luxury with Armani Jeans and Armani Exchange. Clear differentiation exists between these brands, minimizing the potential for consumer confusion and brand cannibalization. Ralph Lauren, however, has successfully marketed an aspirational luxury brand with wholesome all-American lifestyle imagery across a wide range of products. Besides clothing and fragrances, Lauren boutiques sell linens, candles, beds, couches, dishware, photo albums, and jewelry. Calvin Klein has adopted a similarly successful expansive strategy, though with different lifestyle imagery. CHINA: China has overtaken the United States as the world's largest luxury market; it's forecast that one-third of all high-end goods will be sold there in the coming years.Although initially very "logo-driven" and interested in conspicuous brand signals, Chinese luxury consumers have also become more quality and design conscious, like luxury consumers in other parts of the world

13.2 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: Ordering ease describes how easy it is for the customer to place an order with the company. - EX: Many financial service institutions offer secure online sites to help customers get information and complete transactions more efficiently. Delivery: 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: 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: Customer training helps the customer's employees use the vendor's equipment properly and efficiently. - EX: General Electric not only sells and installs expensive X-ray equipment in hospitals, it also gives users extensive training. Customer consulting: 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. Maintenance and repair: Maintenance and repair programs help customers keep purchased products in good working order. These services are critical in business-to-business settings. 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. -Of course, product returns do have an upside. Physically returning a product can get the consumer into the store, maybe for the first time. -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.

13.4 How do luxury brands communicate pricing​ strategy?

With strong quality cues and few discounts

When two or more​ well-known brands are combined into a joint product or marketed together in some​ fashion, ________ is taking place.

co-branding

13.4 Luxury marketers are learning​ that, as for all​ marketers, success depends on getting the right balance of classic and contemporary imagery and​ ________ in marketing programs and activities.

continuity and change

Packaging must go through​ ________ tests to make sure it is attractive and​ easy-to-handle.

dealer

13.3 The totality of features that affect the way a product​ looks, feels, and functions is called​ ________.

design

13.3 A​ data-driven approach to​ design, which includes three​ phases: observation,​ ideation, and​ implementation, is known as​ ________.

design thinking

13.3 Product design is a competitive force for a​ company's products and services because it offers an important way to​ ________.

differentiate and position

Each type of product has an appropriate marketing mix strategy. Marketers classify products on the basis of​ ________.

durability, tangibility, and use​ (consumer/industrial

Which of the following are means of differentiating​ products?

features, reliability, conformance quality, and style

The physical size or shape of a product is considered which element of product​ differentiation?

form

13.4 In addition to​ brand, ________ is a key competitive advantage for luxury products.

image

13.2 Questions Work done to make a product operational in its planned location takes place during which type of service differentiation​ practice?

installation

13.3 Good design factors should penetrate all aspects of the​ ________ so that all design aspects work together.

marketing program

13.5 In addition to keeping plastic out of​ landfills, ________ is being saved by using glass bottles that are refillable instead of plastic bottles that are recyclable.

oil

Marketers need to include​ ________ in a competitively attractive market offering in order to satisfy consumer needs or wants.

product features and​ quality, service mix and​ quality, and price

13.6 A group of diverse but related products that function in a compatible manner is a​ ________.

product system

13.4 The common denominator in luxury brands is​ ________.

quality and uniqueness

When two retail establishments use the same location to optimize space and​ profits, ________ is taking place.

retail co-branding

A product is anything that can be offered to a market to​ ________, including physical​ goods, services,​ experiences, events,​ persons, places,​ properties, organizations,​ information, and ideas.

satisfy a want or need

For​ co-branding to​ succeed, the two brands​ ________ (adequate brand awareness and a sufficiently positive brand​ image).

separately must have brand equity

Products that are​ intangible, variable, and​ perishable, that normally require more quality control and​ adaptability, are considered to be​ ________.

services

13.6 The terms​ "width," "length,"​ "depth," and​ "consistency" refer to​ ________.

the dimensions of the product mix

13.8 Most physical products have to be packaged and labeled. Most​ marketers, however, treat packaging and labeling as elements of​ ________.

the product strategy