MODULE

LESSON 4
PRODUCT STRATEGY

OVERVIEW
A product strategy outlines a company's strategic vision for its product offerings by
stating where the products are going, how they will get there and why they will succeed.
The product strategy enables you to focus on a specific target market and feature set, instead of
trying to be everything to everyone.
This module presents the concepts on product strategy which includes the definition ,
types and levels of products , Maslow’s hierarchy of need model, new product opportunity , new
product development , product life cycle , branding , packaging, managing product line and
green products .

MODULE OBJECTIVES :
At the end of the module , the students are expected to :
 Learn and understand the importance of product strategy for a specific target market
 Learn the types and classification of products
 Know how to illustrate and describe every stage of product life cycle
 Learn the steps process for developing new product .
 Learn the importance of branding and packaging for a product .
 Learn the impact of green marketing in product formulation and development .

COURSE MATERIALS
4. PRODUCT STRATEGY

4.1 PRODUCT
A product is defined as :
a: (1) something produced; especially: commodity
(2)something(service) that is marketed or sold as a commodity
b: something resulting from or necessarily following from a set of conditions

Good Products exist to satisfy the needs and wants of the target market.
It is important for the marketers to answer two fundamental product questions :

1. Who are my target market or customers?

2. What are their needs and wants?

Why is Product Strategy Important?

A product strategy serves three main valuable business purposes.

1. It provides clarity for your company.
2. It helps you prioritize your product roadmap.
3. It improves your team’s tactical decisions.

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4.1.1 MASLOW’S HIERARCHY OF NEEDS

Abraham Maslow in his 1943 paper “A Theory of Human Motivation”

The key is to understand that consumers have different levels of need and each
segment of the market may be an opportunity for the firm to launch new products and
dominate.

4.1.2 THREE TYPES OF PRODUCTS

A.. Durables - Have a long interval between repeat purchases because of the long-
lasting nature of the products
 Floor Polisher,Cars,TV

B.. Non-durables- Have a stronger repeat purchases because products are

consumable.
 Detergents,,Processed meats,Snacks
C. Services- Essentially intangible because there are no physical products involved.
 Auto Service centers,Beauty Parlor,Training Services,Call center

Two Dimensions of Distinguishing Products:

A. Effort – The amount of money, time and energy the buyer is willing to spend to
purchase a given product.
B. Risk – The buyer’s subjective feeling about the consequences of making a purchasing
mistake..

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 By combining products using effort and risk, we end up with FOUR CATEGORIES:

A. Convenience products
The lowest risk and lowest effort products where either none or very small decision-
making is made by target consumer before buying the products.
Types:
a. Staple goods- Goods that are bought and consumed on a regular basis such as
milk, bread, sugar.
b. Impulse goods- Retail items known for their unplanned purchases and,
therefore, kept near the checkout counters, such as candy, chocolate,
magazines, novelties, snacks.

B. Preference products
Consumers have specific preference for brands or suppliers but are willing to make
substitutions when necessary.

C. Shopping products
Products that consumers feel are worth the time and effort to compare with other
competing products.
Decision-making :
• Rational ( quality, warranty)
• Emotional (colors, design)
D. Specialty products
Unique, customized products which have their own niches. These command the highest
levels of effort and risk in buying.

4.1.3 THREE LEVELS OF PRODUCTS

a. Core
b. Augmented
c. Formal

Exhibit 1 . Three levels of Products

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Exhibit 2.Customer-Oriented Product Framework

Change gear- is a salesman technique that highlights the major capabilities of a

product and dwarfs the lesser differentiated features.
Two methods of Satisfying customer’s needs and wants :
1. Problem Solving Method- identifies and satisfies an actual or existing need and want
of a customer
2. Creating Dissatisfaction Method- introduces new ways of doing things to customers
which would convert customer’s existing satisfaction level to a dissatisfaction level.

 Quality
 Profit Impact on Marketing Strategy (PIMS) studies have shown that company with
quality scores in top third out-earn those in the bottom third by a 2-to-1 margin.

 PIMS co-author Robert Buzzell and Frederick Wiersema found that companies showing
market share gains typically outperformed their competitors in three areas: new product
activity, relative product quality, and marketing expenditures.

 Quality, therefore is an important competitive weapon that can result in increased market
shares for the firm.
 Quality can be achieved by “delivering the right product, satisfying customer needs,
meeting customer expectations, and treating every customer with integrity, respect, and
courtesy”.

 Attribute that signal quality have often been divided into intrinsic and extrinsic
cues.
Intrinsic cues involve the physical composition of the product such as the (flavor, color
and sweetness in orange drink)
Extrinsic cues are product-related but not part of the physical product itself such as the
brand name, price, warranty, product form and level of advertising.
Acts as a substitute when intrinsic cues are not available at the point of purchase.

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Consumers would normally use intrinsic cues first to determine quality at the point of
purchase or at the point of consumption.

 Cost of Quality and Non-quality

 Product quality has an indirect beneficial impact on cost. Because of the positive
impact of quality on market share and negative impact of market share on direct
cost. Quality and market shares, therefore, are complementary.
 The cost of quality among manufacturers is normally seen in terms of quality
control inspection and testing expense, plus the amount of production
waste and rejects. These costs, however, are only related to the finished
product and do not take into consideration the “hidden cost” of quality which
may far outweigh tangible costs.
 “Quality is doing the right thing, doing it the right way, doing it right the first time
and doing it on time” every time.

 Look-Alike Products
 Technology enables products to be imitated and counterfeited more easily
nowadays.
 Some of the products that enjoy wide brand recall and market acceptability,
makes them primary targets of unscrupulous manufacturers selling look-alike
products.

 ISO
 An important development in quality is the ISO family of standards.
 Formulated by the Geneva-based International Organization for Standardization (ISO)
 It is a series of quality management and assurance standards which define the elements
required to achieve a quality system regardless of the product manufactured or the
technology used.
 By adopting ISO standards, a company is able to establish its reliability as a supplier
with a quality system that conforms to international standards.
 Companies adopt the ISO on a voluntary basis.

4.1.4 NEW PRODUCT OPPORTUNITY

What product should be launched in the marketplace?

Existing market Market Penetration Existing

Product

New product Product development market development new market

Exhibit 3. Internally-generated growth opportunities

New products must either be related to existing market such as having new, improved
features, new technology, or new brands(brand proliferation) or even new market.

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 3 Questions that must be asked before a major opportunity be considered for

adoption for product or market
 Can it add value to either the business unit or the corporation as a whole?
 Can the benefit outweigh the cost, meaning, can it be profitable?
 Can it have significant competitive advantage?

 New Product Development

Exhibit 4. Factors to consider in new product development

 Satisfying company’s need is the Push Portion of the new product development because
new products are introduced to satisfy the company’s needs by identifying relevant
customer needs and wants.
 Utilize existing facilities more effectively, requiring lower capital investment, lower risk
 This Company-based strategy is also known as company expansion
 Satisfying customer’s need and wants is the PULL portion of new product development
because new product are introduced by identifying and then satisfying customer’s needs
and wants.
 Need to expand/acquire new facilities, which will entail higher capital investment, higher
risk.
 Customer-based strategy is also called Diversification.

 New Product Development Program is needed for three purposes:

 To effectively respond to changing customer’s needs and wants;
 To effectively respond or preempt competitors and other threats fast
 To effectively respond to company’s expansion plan.

Marketing strategy formulation must begin outside of the firm so that the business is
constantly focused on marketing opportunities. In order to do this, environmental analysis and
assumptions that can predict demand should be done.

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Customer lifestyle Macro and micro Raw materials costs,

economics availability and limitations
Competition Technology Social forces
Government
Exhibit 5.Environmental analysis and assumptions for product development

4.1.5 NEW PRODUCT DEVELOPMENT PROCESS

A seven-step process for developing new products

May be revised and adapted to the unique needs of each company
 Product Criteria
 Idea Generation
 Idea Screening
 Business Analysis
 Prototype Development
 Market Test
 Full Commercialization

 Step 1 : Product criteria

 Product criteria define the kinds of products a firm will be selling or won't be selling. This,
in turn, defines the business in the future.
 The marketer should identify their relevant strengths which will form the basis for
developing product criteria.

It can be divided into:

“Must” Criteria - mandatory or non-negotiable
“Wants” Criteria - desirable but negotiable

 Step 2 : Idea generation

From a marketing standpoint, new ideas can be sourced by combining answers to the
questions:
“who” ( target market )
“what” ( value proposition )
“how and where” ( business system )

 Marketing techniques that can also be used to get new product ideas:
1. Mission Statement
- The mission statement of any company will dictate what type of products or services they
will offer.
- A three-dimensional mission structure identifying customer benefit, customer groups,
and substitutes is suggested to define possible mission statement products.

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2. Focus Group Discussions

- This popular qualitative research method was originally based on clinical psychology
and was altered for use in marketing.
- Involves gathering together several small groups of 6-12 people who all have some similar
characteristics of interest to the marketer.
Marketers must be able to answer questions such as:
What are their problems associated with the product?
Why are they having these problems?
How important are these problems?

Note: A quantitative research must still be conducted to validate the extent of acceptability
or non-acceptability of an idea.
3. Competitive Products Segmentation
Grouping products that compete in a specific market to define segments based on product
identities rather than on individual consumer attributes.
4. Perceptual Mapping
An alternative to doing competitive product segmentation which concentrates only on the
determinant attributes of a product.
5. Items by Use
The objective is to find an unoccupied market niche and its starting point is to determine
how existing consumers see existing products.

 Step 3 : Idea Screening

Idea screening procedures are needed to eliminate ideas generated with poor or low
potential and allow those with superior potential to go further.
Since product criteria are defined, the natural first step is to compare new product idea
versus defined product criteria.
- Weighted average screening method
- Product concept paper

 Step 4 : Business Analysis

This is a critical “stage gate” of new product development defining more parameters before
an actual prototype will be assembled.

During this phase, three important things must be defined.

 Target market
 Communication plan
Describes the product positioning strategy and how the product will be
distinguished from competitive products.
 Financial analysis and marketing mix plan

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This is the step where the preliminary estimates and intelligent guesses are derived
from. This is also the stage that a budding product champion may meet all key company
decision makers (or venture capitalists) for the first time.
It is advisable to use 'build-up' model to make it easy for the top management (or
venture capitalist) to examine each step of the way.

Exhibit 4. BUILD-UP MODEL (for sales and market shares)

 Step 5 : Prototype development

Marketers must know the basic as well as the motivating features of a product

Conjoint analysis
One of the most successful product design tools, also known as Tradeoff Study.
This technique is designed to identify the motivating and key features customers
use to differentiate products.
Can also be used for other purposes such as competitive analysis, pricing,
market segmentation, and repositioning.

Product brief
After business analysis, it is submitted by the marketing man to their technical
product researchers to formalize prototype development.

Product prototype testing

it is important to ensure the product actually works, works well, and is safe to use
and can easily be operated or figured out by customer.

Product reformulation - brought about, for instance, by scarcity of raw materials,

avoiding of price increases, etc.

 Step 6 : Market test and full commercialization

Exposing of products that pass the prototype development to a portion of the actual
customers within a realistic market environment.
Exceptions: (1) High investment products because of prohibitive cost
(2) Fashion items and products that are easily imitated or manufactured
within a short time are also likely not to be tested.
What to test?

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Both the marketing mix as well as the assumptions in the “build-up” model in
the business analysis section must be tested.

Duration of test marketing

Marketer may decide to end test marketing and go into full commercialization:
(1) When the confidence level in the test marketing results is high, or
(2) When the risk factor for full commercialization is low.

4.1.6 PRODUCT LIFE CYCLE

 Must be considered in developing new products and in anticipating future market
developments
 Shows the process where both the customers and suppliers change their behavior while
interacting in the market.
 Primarily determined by the rate of new product development in a particular market.
 An industry does not have a product life cycle, and neither do brands. It is the various
products forms or products categories within the industry that have life cycle.
 Howard reported that psychologists found that consumers learned concepts and images,
“first of the product category and then of the brands as they go through the product life
cycle.”
 Each of the stages of the product life reflects specific patterns of problem solving or
decision making on the part of the buyer: initially, extensive problem solving EPS, then
limited problem solving LPS and finally, routine problem solving RPS. Calling them
Product Growth Cycle

Exhibit – Characteristics of stages of decision

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Exhibit .PRODUCT LIFE CYCLE CURVE

Stages in Product Life Cycle

Market characteristics Introductory Growth Maturity Decline
Growth in total market sales slowly rapidly slowly declining
Growth in profit slowly rapidly slowly declining
Cash flow slowly low high low
Quantity of new competition none/few increasing decreasing decreasing
Product line constant increasing constant decreasing
Distribution Expansion slowly rapidly slowly shrinking
Prices stable declining erratic stable
Promotion high moderate high low
Advertising basic major new new
Message benefits features uses uses
Exhibit . Guide to Product Life Cycle

4.2 BRANDING
The American Marketing Association (AMA) defines a brand as a "name, term, sign,
symbol or design, or a combination of them intended to identify the goods and services
of one seller or group of sellers and to differentiate them from those of other sellers.

Therefore it makes sense to understand that branding is not about getting your target
market to choose you over the competition, but it is about getting your prospects to see
you as the only one that provides a solution to their problem.

 Reasons why Brands Exist

 For Identification
 For Protection
 For Positioning

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 Criteria for choosing a Brand name

Distinctive Word Association
Pronounciability Memorability
Legal Requirements Limitations

Product Concept
- Refers to a new product idea.
Brand Concept
- Reflects a general meaning or image associated with the brand.

 Three Brand Concepts

1.Functional needs
-are those that motivate the search for products that solve or prevent consumption-
related problem.
2.Symbolic needs
-involves desires for products that fulfil internally generated needs for self-
enhancement, role position, group membership or ego-identification.
3.Experiential needs
- are desires for products that provide sensory pleasure, variety and/or cognitive
stimulation.
Brand Equity

Brand equity is a phrase used in the marketing industry which describes the value of
having a well-known brand name, based on the idea that the owner of a well-known
brand name can generate more money from products with that brand name than from
products with a less well known name, as consumers believe that a product with a well-
known name is better than products with less well-known names.

4.3 PACKAGING
- The silent “ Salesman” in the store.

 Packages can be divided into:

UNIT PACKS -like the Silent Sales man in the store
OUTER PACKS - protect the unit packs

STAGES Performance Requirements:

1. In the Factory CONVENIENCE: Will the pack be convenient for filling,sealing,stamping?
LIMITATIONS: Will the pack destroy or alter quality and specifications?

2. In transit PROTECTION: Is the product breakable or flammable?

SPACE: Can it fit comfortably and efficiently?

3. In the Store PROTECTION: Can consumers destroy your product and risk the safety
of the product?
LIMITATIONS: Can dealer shelves accommodate package size?
4. In the Home CONVENIENCE: Is package easy to open?
LIMITATIONS: Should the package be destroyed after use or can it be
re-used?
Exhibit .Performance requirements for unit packs

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 Criteria for choosing packaging Materials

o Protection - Can the package give ample protection to the product?
o Display Value - Can it attract consumers?
o Cost - Will it be Cost- efficient?
o Convenience - Is it easy to carry?
o Size - What is minimum order quantity?

 Packaging brief

Like the product brief a packaging brief is prepared in writing .

o 1.Overall Objective-
o 2. Rationale-
o 3.Primary Target Competition-
o 4.Primary Target Market-
o 5.Performance Objectives-
o 6. Timetable-
describes the result expected.
discusses the background
identifies the principal competition
defines the most logical consumer.
outline the packaging features.
defines evaluation and estimated launch date

 Label Development Process

Initial Design
Consumer Test
Final design
Proofing
Delivery and Quality Check

4.4 MANAGING PRODUCT LINES

 Boston Consulting Group Grid

Introduced by Bruce Henderson in the mid 1960’s, the Boston Consulting Group (BCG)
Grid uses two key success factors in any business to plot the competitive position of products in
their industries. The general purpose of analysis is to help understand, which brands the firm
should invest in and which one should be divested.
BCG GRID

 How to perform BCG Grid Analysis

Step 1. Choose the unit. BCG matrix can be used to analyze SBUs, separate brands, products
or a firm as a unit itself. Which unit will be chosen will have an impact on the whole analysis.
Therefore, it is essential to define the unit for which you’ll do the analysis.
Step 2. Define the market. Defining the market is one of the most important things to do in this
analysis. This is because incorrectly defined market may lead to poor classification.
Step 3. Calculate relative market share. Relative market share can be calculated in terms of
revenues or market share. It is calculated by dividing your own brand’s market share (revenues)
by the market share (or revenues) of your largest competitor in that industry. It’s top left corner
is set at 1, midpoint at 0.5 and top right corner at 0

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Step 4. Find out market growth rate. The industry growth rate can be found in industry
reports, which are usually available online for free. It can also be calculated by looking at
average revenue growth of the leading industry firms. Market growth rate is measured in
percentage terms. The midpoint of the y-axis is usually set at 10% growth rate, but this can
vary.
Step 5. Draw the circles on a matrix. After calculating all the measures, you should be able to
map your brands on the matrix. You should do this by drawing a circle for each brand. The size
of the circle should correspond to the proportion of business revenue generated by that brand.

 General Electric Matrix

One major criticism of the Boston Consulting Group Grid is that there are several
attributes that can make the market attractive besides market growth rate. General Electric and
McKinsey and Company took the BCG Grid a step ahead further with their market
attractiveness-business strength matrix called the General Electric Matrix.
5-step Guidelines
1. Identify key factors for market attractiveness.
2. Identify key factors for business strengths.
3. Give % breakdown to key factors identified. Total must be equivalent to 100%.
4. Rank according to strength or attractiveness as follows:

5-point scale Attractiveness Strengths

5 Extremely Attractive Extremely Strong
4 Generally Attractive Generally Strong
3 Neutral Neutral
2 Generally Unattractive Generally Not Strong
1 Extremely Unattractive Extremely Not Strong

5. Get weighted average.

4.5 GREEN MARKETING

One that is focus on environment products and quality as it relates to the quality of life.
Green Products -having relatively less impact on Earth and the consumer

 Some of the more popular “ Green Threats ” are as follows:

o Global Warming and Ozone Depletion
o Acid
o Water Pollution
o Air
o Over- Packaging

 Action Plan
 Voluntary
o Manufacturers can adopt environment- friendly products, packages, and
processes
o Consumers can write to their favorite consumer good companies and tell them
how they expect them to be more “earth friendly “
o
 Involuntary
o Government can enact laws that require strict compliance to environmental
sustainability .

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o Organizations can adopt polices where they will give preference to companies
with ISO 14000 or buy from suppliers passing the “ green standard “.
o Filipinos can also start providing young children with better awareness early on.

Companies must not go “Green” because it is profitable to do so.

Companies must go “Green” because it makes good business sense.
Caring for our children’s future will always make good sense.

ACTIVITIES / ASSESSMENTS

I. Thinking Application

1. Illustrate the typical product life cycle and label it .

II. TRUE OR FALSE

1. A product in the growth stage usually faces competition from similar offerings by
other companies.
2. Sales of a product reach their highest , then start to decline in the maturity phase of
its lifestyle.
3. The length of the product life cycle differs from product to product , but all products go
through the entire life cycle .
4. All products have brand names ..
5. The purpose of packaging is strictly functional- to hold and protect the product .

III. MULTIPLE CHOICE . Choose the letter only.

1. Which does not belong to the group,

A. Lifestyle b. Motivation c. Learning d. Beliefs and attitude

` 2. Consumers generally spend time and effort to compare and select goods and services
classified as :
A. Convenience products B. specialty products C. comparison products
D. shopping products

3 .Most consumers would use limited decision making for which of the following category of
products?.
A. Specialty B. expensive C. shopping D. convenience

4.Inexpensive goods and services that consumers buy often without much thought and
effort are called: A. everyday products B. consumer items C. convenience
products D. shopping products

5.A group of related goods or services offered by a firm is called is its :

A. Product line B. product collection C. Product mix D. product
offering

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6. The product life cycle stage in which sales of a product reach a peak and profits decline is
the
A. Introduction B. Growth C. Maturity D. Decline

7 The product life cycle in which sales generally increase an a product begins to bring a profit
is the _________stage .
A. Introduction B. Growth C. Maturity D. Decline

8. All of the following can be a brand except

A. a symbol B. a name C. a design D. a copyright

9. The extent to which a consumer prefers a particular brand is called:

A .brand loyalty B. consumer buying behavior C. consumer preference D. brand
commitment

10 . A firm that uses the same brand for most or all of its products uses
A. Group branding B. Generic branding C. Individual branding D. Family
branding

IV. Enumerate the following :

1. Three reasons why a brand exists.

2. Three possible brand concept.
3. Seven-step process for developing new products
4. Three types of product
5. Three levels of product
6. Five criteria for choosing a packaging materials

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