The Offering Portfolio: Product and Service Strategy and Brand Management

5/19/2017
Product and Service AFTER READING THIS CHAPTER

CHAPTER 5 Strategy and Brand YOU SHOULD BE ABLE TO:
Management
1. Explain the offering concept and
offering mix portfolio.
2. Describe how the marketing
manager modifies the offering mix.
3. Identify and describe the stages
in the new-offering development
process.
4. Identify and describe the stages
in the product life cycle.
© 2010 Pearson Education, Inc. publishing as Prentice Hall Slide 5-1 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 5-2
AFTER READING THIS CHAPTER THE IMPORTANCE OF OFFERING-

YOU SHOULD BE ABLE TO: RELATED STRATEGY DECISIONS
5. Explain the types of positioning

 The ultimate profitability an firm depends
strategies. on its offering(s) and the strength of its
6. Define the concepts of brand and brand(s)
brand equity.  Marketers face three offering-related strategy
decisions
7. Describe how brand equity is
created as well as its value to
Modifying the Positioning Branding
organizations. Offering Mix Offerings Offerings
8. Explain the types of branding and
brand growth strategies.
THE OFFERING PORTFOLIO
The Offering Concept
 A bundle of benefits or satisfaction provided to

target markets by a firm
 Helps analyze competitors’ offerings, identify unmet
THE OFFERING needs and design new offerings
 It contains the following elements:
PORTFOLIO
Tangible Related Brand
Product/Service Services Name(s)
Warranties/
Packaging Other Features
Guarantees
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THE OFFERING PORTFOLIO THE OFFERING PORTFOLIO
Offering Mix/ The totality of a firm’s offerings Offering Mix/Portfolio Decisions Involve:
Portfolio in its all offerings’ lines
Width The total number of offering lines
(Breadth)
Groups of offerings similar
Offering in terms of usage, buyers
Lines marketed to, or technical Length The number of items in each line
characteristics
The extent to which offerings satisfy
Consistency similar needs, appeal to similar buyer
A specific product or groups, or use similar technologies
Offering
service noted by a
Items brand, size, or price Depth The number of variants of each item
THE OFFERING PORTFOLIO THE OFFERING PORTFOLIO
Offering Mix/Portfolio Decisions Based on: Bundling
Organizational Competitive  The marketing of two or more items in a single

Resources Situation “package” that creates a new offering
• Consumers value the package more due to:
Marketing – Lower total cost
Strategy – No separate purchases
– Satisfaction from one item given the presence of another
• Lower marketing costs to sellers
One High-Profit or Complete
High-Volume – Examples: McDonald’s “value meal”
Offering Offerings
Lines
MODIFYING THE OFFERING MIX
Should the offering mix be modified?

Single
Adding to the New Offering Offering
Offering Mix Development Entire

Line
MODIFYING THE Modifying

Trading
Up
the Offering
OFFERING MIX If Yes,
which one
Trading
Down
Harvesting
the Offering
Eliminating
the Offering
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Additions to the Offering Mix Additions to the Offering Mix
Single Offering Consistency

 Additions take the form of:
Entire Line  Does the new offering substitute or complement
 Ask three questions: sales/demand?
• Eastman Kodak cameras (Cannibalization effect )
How consistent is the new offering with
Consistency
existing offerings?  Does it fit the existing selling and distribution
strategies of the firm?
Does the firm have resources to introduce
Resources • Metropolitan Life Insurance (Fit)
and sustain the offering?
 Does it satisfy the target market currently served?
Market Is there a viable market for the offering? • Metropolitan Life Insurance (Will new offering satisfy target
markets currently served?)
Additions to the Offering Mix Additions to the Offering Mix
Resources Market
 Consider financial strength--initial outlays for
R&D, and marketing programs  Consider whether an effective market exists
• Gillette--$200 mm ad for Gillette Fusion razor
 Consider whether the new offering has a CA
 Consider the speed and magnitude of the
competitive response  Consider if there is a distinct market segment for
• RC Cola--Can in 1954, Diet in 1962, Caf-free cola in 1980 which no present offering is satisfactory
 Consider the market growth rate

• Miller Lite
Stages in the New-offering Stages in the New-offering

Development Process Development Process
Idea
Generation Idea Generation
Idea
Screening  Sources of new offering ideas include:
Business Employees Suppliers Buyers Competitors

Analysis
Market
Testing  Formal source (marketing research) and
informal sources
Commercial-
ization
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Idea Screening Idea Screening

 The match between prospective buyers and offering
characteristics is assessed by the questions:
 Ideas are screened based on:
• Does it have a relative advantage over existing offerings?
• Organizational definition • Is it compatible with buyers’ use or consumption?
• Organizational capability • Is it simple enough for buyers to understand and use?
• Viewpoint of prospective buyers • Can it be tested prior to actual purchase?
• Are there immediate benefits from it once consumed?
 If “yes” and the offering satisfies a felt need,

then go to the business analysis stage

Business Analysis
Business Analysis
The number of years required

 Assess financial viability based on estimated Payback
sales, costs and profits Period = for a firm to recapture its initial
offering investment
• Difficult to forecast the sales for new offerings
 Profitability analysis relates to investment, Total Fixed

break-even point, ROI and payback period Costs
Payback
Period =
Cash Flows

Business Analysis Market Testing
The ratio of average annual net  Testing product concept or buyer preference
ROI = earnings divided by average annual
in a laboratory situation or test market
investment, discounted to the PV
• A test market is a scaled-down implementation of one
or more alternative marketing strategies for a new
Annual Net offering
Earnings
ROI = ×
Discount  Ideas that pass through this stage are then
Factor
Annual commercialized
Investment
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Market Testing Commercialization
 Generates benchmark data to assess sales volume  3,000 raw ideas are needed to produce a
 Examines the relative impacts of alternative
single commercially successful new offering
marketing strategies and programs
 New offering success depends on a fit with:
 Assesses trial and repeat-purchase rates, and
quantities to be purchased by potential buyers • Market needs
• Organizational strengths and resources
 Informs competitors of the firm’s activities
Exhibit 5.1: General Form of a Product

Life-Cycle Concept Life Cycle
Sales
 A life cycle plots the sales curve of an offering

or a product class over a period of time
 Life cycles are divided into 4 stages:
• Introduction
• Growth
• Maturity-saturation
• Decline
Introduction Growth Maturity-Saturation Decline
Time
Life-Cycle Concept Life-Cycle Concept
Introduction Stage
The sales curve is the result of offering trial
and repeat purchasing behavior.
 Focus on stimulating trial of the offering by:
Sales
• Advertising
Repeater • Giving out free samples
Volume
• Obtaining adequate distribution

Trier
 The vast majority of sales volume is due to

Volume
Time
trial purchases
(Number of triers × average purchase amount × price) +
Sales volume =
(number of repeaters × average purchase amount × price)
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Life-Cycle Concept Life-Cycle Concept
Growth Stage Maturity-Saturation Stage
 An increasing share of volume is due to

repeat purchases There is an increase in the:
 Proportion of repeat purchasers
 Marketers focus on retaining existing buyers
through:  Standardization of production operations and product-
service offerings
• Modifications of offering
• Enhanced brand image  Incidence of aggressive pricing activities by
competitors
• Competitive pricing of offering
Life-Cycle Concept Modifying the Offerings
Maturity-Saturation Stage
Adding new features,
higher-quality materials or
Marketers: Trading augmenting the offering with
Up attendant services and then
 Find new buyers for the offering raising the price
 Significantly improve the offering Modifying
the Offering
 Increase usage frequency among current buyers
Reducing the number of
Trading features or quality of an
Down offering and lowering the
Decline Stage
price
Marketers decide to harvest or eliminate the offering
Harvesting the Offerings Harvesting the Offerings
Harvesting should be considered when:

 The strategic decision to reduce the  The market for the offering is stable
investment for cutting costs and/or
improving CF  The offering is not producing good profits
 Market share becomes increasingly costly
 The decision is not to abandon the offering to defend from competitors
outright but to minimize resources allocated
to it  The offering enhances the firm’s image
 The offering provides a full product line
despite a poor future
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Eliminating the Offerings
An offering may be dropped if the answers are

“very little” or “none.”
 What is the sales potential of the offering?
 How much is the offering contributing to offering mix
profitability?
 How much is the offering contributing to the sale of
POSITIONING OFFERINGS
other offerings in the mix?
 How much could be gained by modifying the offering?
 What would be the effect on channel members and
buyers?
Positioning Offerings Positioning Approaches
 Strategies include positioning by:

Positioning is the act of designing Nescafe: 3-1
the company’s offer and image so that BMW: The

Ultimate
Driving
Attribute or Use or Product or
Benefit Application Brand User
it occupies a distinct and valued place Machine
Häagen-
in the target customers’ minds Product or
Competitors
Price and Dazs: Much
more for
Service Class Quality much more
 Marketers often combine two or more of these

strategies when positioning an offering
Positioning Approaches Positioning Approaches
Positioning by Attribute or Benefit Positioning Matrix
 Most frequently used  A matrix that relates attributes of the offering to

market segments (see Exhibit 5.2)
 Requires determining:
• Which attributes are important to target markets  Benefits of the positioning matrix:
• Which attributes competitors emphasize • Can spot the potential opportunities for new
offerings
• How the offering can be fitted into this offering-
target market environment • Can estimate whether a new offering might
cannibalize existing offerings
 Design an offering that contains or stresses the
appropriate attributes • Can judge the competitive response to a new
offering
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Exhibit 5.2: Attributes and Marketing

Segment Positioning Positioning Statement
Market Segments
Toothpaste
Attributes Teens;
Children Family Adults
Young Adults
Positioning statement identifies:
Flavor 
Color   The target market and needs satisfied
Whiteness of Teeth 
 The product class/category in which the firm’s
Fresh Breath  offering competes
Decay Prevention 
Price   The offering’s unique attributes/benefits
Plaque Prevention 
Stain Prevention 
Principal Brands Ultra Brite; Topol;
Aim; Stripe Colgate; Crest
for Each Segment McCleans Rembrandt
NOTE: A check ( ) indicates principal benefits sought by each market segment.

Positioning Statement Making the Positioning Decision
Positioning strategy decision depends on:

Takes this form:
 Who are the likely competitors, what are their
“For (target market and need), the (product, service, marketplace positions, and how strong are they?
brand name) is a (product/service class or category)
that (statement of unique attributes or benefits  What are the preferences of the target consumers
and how do they perceive competitors’ offerings?
provided).”
 What position does the firm already have in the target
FOR THE IS A THAT consumers’ mind?
Implementing the Positioning Success of the Positioning

Decision Decision
Positioning strategy implementation decisions The success depends on:

depend on:
 The position must be clearly communicated to
 What position do we want to own? and valued by targeted customers
 Which competitors must be outperformed if  Frequent changes should be avoided since

positioning development is lengthy and expensive
we establish the position?
 The position taken in the marketplace should be
 Do we have the marketing resources to occupy sustainable and profitable
and hold the position?
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Repositioning
 Is necessary when:
• The initial positioning is no longer competitively
sustainable or profitable
• Better positioning opportunities arise

BRAND EQUITY AND
 It takes time and is costly to establish a new BRAND MANAGEMENT
position
J & J repositioned the aspirin from one for babies to an
adult “Low Strength Aspirin” to reduce the risk of heart
problems or strokes, which produced boost in sales.
What is a Brand? What is Brand Equity?

A name, term, sign, symbol or design, or a  The added value endowed on products and
combination of them, intended to identify the goods services beyond functional benefits provided
or services of one seller or group of sellers and to
 The difference between perceived value and
differentiate them from those of competitors.
intrinsic value of a brand
 The premium a brand can command
 Brand equity is reflected in the:
• The summation of all the perceptions, • Way consumers, think, feel, and act with respect to the
brand and
experiences, and beliefs associated
with a product, service, or entity that • Prices, market share, and profitability the brand
commands
makes it distinct.
Advantages of Brand Equity Creating and Valuing Brand Equity

This model views brand building as four steps
from bottom to top:
1. Develop positive brand awareness and link it with a
 Two basic marketing advantages: product class or create identity (Gatorade)
• Provides a competitive advantage 2. Establish a brand’s meaning in customers’ minds by
• Can charge a premium price since consumers linking a host of tangible and intangible brand
associations (Nike: Authentic athletic performance)
see brand different
3. Elicit proper consumer responses to a brand’s identity
and meaning in terms of brand-related judgment and
feelings (Michelin)
4. Convert customers’ brand response to create brand
resonance and an intense, active loyalty relationship
(Apple and Sony)
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Exhibit 5.3: Customer-Based Brand

Equity Pyramid
Branding Strategy
Stages of Brand Development Branding Objective at
Each Stage
Relationships:
Intense, active
What about
loyalty Multiproduct A firm uses one name for all
you and me? Consumer
Brand Branding its products in a product class
Resonance
Response: Positive,
What about accessible
you? Consumer Consumer reactions A firm gives each product or
Judgments Feelings Multibranding product line a distinct name
Strong,
Meaning: favorable, and
Brand
What are you? Brand unique brand
Performance A firm supplies a reseller with
Imagery association Private
a product bearing a brand name
Deep, broad
Branding chosen by the reseller
Identity: Who
Brand Salience brand
are you?
awareness
Branding Strategy Branding Strategy
Multiproduct Branding Multiproduct Branding
 Called family or corporate branding Sub-branding:

 Establishes dominance in an offering class
 Combines a corporate brand with a new brand name
 Lowers promotion costs and raises brand awareness
 Builds favorable associations while differentiating
 Allows buyers to transfer the brand equity of one the new offering
offering to others with the same name
 Differentiates offerings along a price-quality
 Helps build a global brand with a global message continuum by adding high-end or low-end offerings
 Dilutes the meaning of a brand if there are too many
uses for one brand name
Branding Strategy Branding Strategy
Multibranding Private Branding
 The manufacturer supplies a reseller with an offering

 Each brand is intended for a different market bearing a brand name chosen by the reseller
segment
 Reseller can avoid price competition as the offering is
 Often arises from company acquisitions not an identical brand
 The failure of one brand will not transfer to other  Reseller enjoys the buyer goodwill attributed to the
brands offering
 Complex to implement  Retailer enjoys buyer loyalty to the offering
 Higher promotional costs  Resellers must locate a willing manufacturer
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Branding Strategy Brand Growth Strategies

Product/Service Class
Private Branding Served by the Organization
New Product Class Existing Product Class
Dangers in producing private brands:
New Fighting/
New Brand Brand Flanker
 Revenues may be curtailed if a reseller switches
Strategy Brand Strategy
suppliers or produces its own
Brand Name
 May adversely affect the relationship between a Brand Line
producer and reseller Existing Brand Extension Extension
Strategy Strategy
Fig: Four Strategic Options for Growing Brands

Brand Growth Strategies Brand Growth Strategies
Line Introducing additional offerings with the same Line Extension Strategy
Extension brand in a product class that it currently serves
Brand Using a current brand name to enter a

Consists of new or different flavors, forms, colors,
Extension completely different product class ingredients, features, and package sizes. This strategy:
 Responds to customers’ desire for variety

New Developing of a new brand and often a new
Brand offering for a product class not yet served by firm  Eliminates gaps in a product line
Creating a new brand to attract specific consumer  Lowers advertising and promotion costs
Fighting/
segments not served by a firm’s existing brands
Flanker Brand to counteract competitors’ brands  Risks product cannibalism
 Can create production and distribution problems
Brand Extension Strategy Brand Extension Strategy
 Provides consumers with the familiarity of an

established brand when introducing a new Allows for co-branding, which:
offering
 Pairs the two brand names of two manufacturers
(General Mills and Hershey’s) on a single product
 Requires the perceptual fit, and core product
(Reese’s Puffs)
benefit of the brand transferring to the new
product class  Permits firms to enter a new product class (Hershey’s—
cereal) and capitalize on an already established brand
 Dilutes the meaning of a brand for buyers if the name (Hershey’s—Reese’s)
brand name has too many uses
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New Brand Strategy Flanker/Fighting Brand Strategy
 Used when existing brand names are not Adding new brands on the high or
extendable to a new product class for which it is Flanker Brand low end of a product line based on
targeted a price-quality continuum
 This strategy is akin to diversification
Adding a new brand to confront
 May be the most challenging and costly to
Fighting Brand competitive brands in a product
successfully implement
class being served by a firm
BRAND EQUITY AND BRAND BRAND EQUITY AND BRAND

MANAGEMENT MANAGEMENT
Fighting Brand Strategy Flanker/Fighting Brand Strategy
Introduced when:  Fighting and flanker brand strategies can

 A firm has a high relative market share of the sales cannibalize the sales of other lower-priced
in a product class brands
 Dominant brand is susceptible to having its high  A preemptive cannibalism strategy is the
market share reduced by competitors through practice of stealing sales from a firm’s existing
aggressive pricing or promotion brands to keep buyers from switching to
 The firm wishes to preserve its profit margins on
competitors’ brands
its existing brand
All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
© 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 5-71
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The Offering Portfolio: Product and Service Strategy and Brand Management

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5/19/2017

Product and Service AFTER READING THIS CHAPTER

AFTER READING THIS CHAPTER THE IMPORTANCE OF OFFERING-

5. Explain the types of positioning

THE OFFERING PORTFOLIO

The Offering Concept

 A bundle of benefits or satisfaction provided to

THE OFFERING PORTFOLIO THE OFFERING PORTFOLIO

THE OFFERING PORTFOLIO THE OFFERING PORTFOLIO

Offering Mix/Portfolio Decisions Based on: Bundling

Organizational Competitive  The marketing of two or more items in a single

MODIFYING THE OFFERING MIX

Should the offering mix be modified?

Offering Mix Development Entire

MODIFYING THE Modifying

Additions to the Offering Mix Additions to the Offering Mix

Single Offering Consistency

Additions to the Offering Mix Additions to the Offering Mix

 Consider the market growth rate

Stages in the New-offering Stages in the New-offering

Business Employees Suppliers Buyers Competitors

Stages in the New-offering Stages in the New-offering

Idea Screening Idea Screening

 If “yes” and the offering satisfies a felt need,

Stages in the New-offering Stages in the New-offering

The number of years required

 Profitability analysis relates to investment, Total Fixed

Stages in the New-offering Stages in the New-offering

Business Analysis Market Testing

Stages in the New-offering Stages in the New-offering

Market Testing Commercialization

Exhibit 5.1: General Form of a Product

 A life cycle plots the sales curve of an offering

Life-Cycle Concept Life-Cycle Concept

• Obtaining adequate distribution

 The vast majority of sales volume is due to

Life-Cycle Concept Life-Cycle Concept

Growth Stage Maturity-Saturation Stage

 An increasing share of volume is due to

Life-Cycle Concept Modifying the Offerings

Harvesting the Offerings Harvesting the Offerings

Harvesting should be considered when:

Eliminating the Offerings

An offering may be dropped if the answers are

Positioning Offerings Positioning Approaches

 Strategies include positioning by:

the company’s offer and image so that BMW: The

 Marketers often combine two or more of these

Positioning Approaches Positioning Approaches

Positioning by Attribute or Benefit Positioning Matrix

 Most frequently used  A matrix that relates attributes of the offering to

Exhibit 5.2: Attributes and Marketing

NOTE: A check ( ) indicates principal benefits sought by each market segment.

Positioning Statement Making the Positioning Decision

Positioning strategy decision depends on:

Implementing the Positioning Success of the Positioning

Positioning strategy implementation decisions The success depends on:

 Which competitors must be outperformed if  Frequent changes should be avoided since

• Better positioning opportunities arise

What is a Brand? What is Brand Equity?

Advantages of Brand Equity Creating and Valuing Brand Equity

Exhibit 5.3: Customer-Based Brand

Branding Strategy Branding Strategy