Notes on Product Strategy

At the heart of a great brand is a great product. Product is a key element in the
market offering. To achieve market leadership, firms must offer products and services of
superior quality that provide unsurpassed customer value. Marketing planning begins with
formulation of an offering (product) to meet target customers’ needs or wants.

Products
A product can be defined as anything that is offered to a market for consumption
(in one form or another) and that satisfies a need. It can include physical goods,
services, experiences, events, persons, places, properties, organizations, information
and ideas.
Product Levels: The Customer Value Hierarchy
In planning its market offering, the marketer needs to address five product levels.
Each level adds more customer value, and the five constitute a customer value
hierarchy.

Exhibit1: Customer Value Hierarchy

The fundamental level is the core benefit: The core product is what consumers are
actually buying—it serves a direct, primary, benefit. Marketers must see themselves as
benefit providers. The purchaser of a drill is buying holes. A hotel guest is buying rest and
sleep. A person buying a watch wants to know the time. Someone buying car is buying
transport.
At the second level, the marketer has to turn the core benefit into a basic product. The
basic / generic product is a combination of elements required to participate in the market. Some refer to
this as features needed to deliver the core benefit of the product. For example, a pen has to disperse ink
evenly across the page and a cola drink has to provide the expected sensation in the consumer’s mouth.
A product planner must think about product and service features, design, quality level,

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brand name and packaging. Thus, a hotel room includes a bed, bathroom, towels, desks
and closet. A car needs to have tires, seats, doors, engines. Watches will have straps /
bracelets, cases etc.
At the third level, the marketer prepares an expected product, a set of attributes
and conditions buyers normally expect when they purchase this product. Hotels guests
minimally expect a clean bed, fresh towels, working lamps. A car buyer expects air condition,
sound systems. Watch buyers expects seconds, minute and hour displays. These are very
much related to the Point-of-Parities (POP).
At the fourth level, the marketer prepares an augmented product that exceeds
customer expectations to include unexpected value-enhancing elements. This is the additional
services and benefits of a product. Product augmentation can come in a variety of ways
such as customer service, installation, repair and delivery services, warranties, and credit
possibilities. As products mature and competitors are introducing me-too products that
efficiently deliver the same core product attributes, firms can use such augmentations to
create a sustainable differentiated offering. Intangibles like brands and services are often
particularly helpful differentiation tools because they are relatively hard to copy by
competitors. Because of the relatively high costs associated with building brands or
offering quality customer service, and because of the uncertain pay-off for such
investments, competitors are often reluctant to match those expenses in the short run.
For hotels, spas, Michelin star restaurants can add extra benefit for the hotel guest.
Automakers uses sunroof, navigation system to differentiate their product. A watchmaker
can provide extra functions such as dual time and chronograph. In developed countries,
brand positioning and competition take place at this level hence differentiation arises on the
basis of product augmentation. However, augmented benefits soon become expected
benefits and necessary points-of- parity.
At the fifth level stands the potential product that encompasses all the possible
augmentations and transformations the product or offering might undergo i n t h e future
to attract and hold customers. The potential product is one that is augmented, but in a way
that goes beyond what most people might conceive of as possible. Here is where companies
search for new ways to satisfy customers and distinguish its individual offer. A hotel might
offer free IPad / Laptops in its guest rooms, a car providing auto parking assistance, a watch
maker can include additional functions which are not common today (for example, using
watches to test blood sugar or blood pressure levels for the wearer).
Product Classifications
Marketers have traditionally classified products along a number of dimensions:
durability, tangibility, level of involvement in the purchase process and nature of
consumer buying behavior. Each product type has an appropriate marketing-mix
strategy.
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Durability and Tangibility
Products can be classified into three groups, according to durability and tangibility:
A) Nondurable goods: tangible goods consumed in one or a few uses such as soft drinks
and shampoo. As 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 promote trial and build preference.
B) Durable goods: tangible goods that normally survives many uses. Televisions,
laptops, clothing are common durable goods. Durable goods require more personal
selling and service, command a higher margin, and require more seller guarantees.
C) Services: intangible, inseparable, variable, and perishable products that require more
quality control, supplier credibility, and adaptability. Examples include haircuts,
doctor visits and education
In practice, many products have both a tangible and an intangible component.
Examples are everywhere: coffee shops sell coffee in a comfortable atmosphere and
often allow customers to stick around as long as they want, elevator companies usually
sell lifts with the promise of free check-ups and discounted repair services, and
restaurants often offer to box leftovers.
Buying Involvement
Products are often characterized as either low involvement, meaning requiring
little deliberation by customers, or high involvement, meaning that customers invest
significant time and effort in the purchase process.
Consumer-Goods Based on Buying Behavior
The vast array of goods consumers buy can be classified on the basis of shopping
habits.

Marketers typically speak of convenience goods when products are frequently

purchased without much deliberation. Such goods are typically widely available. It
includes staples, items that consumer buys regularly (toothpaste, soaps), impulse goods
– products purchased without any planning like chocolates or ice-cream and emergency
goods which are purchased when a need is urgent such as umbrellas during rainstorms,
bandages during cuts, medicines during illness.

The purchase of shopping goods involves more planning and some comparison
shopping by customers. These are the goods that the consumers buy less frequently and
in the process of selection and purchase, characteristically compares on such basis as
suitability, quality, price, and style. Examples include furniture, clothing, and appliances.

Specialty goods are characterized by relatively inelastic demand and little or no

comparison shopping. They are only available in selected outlets. These products have
unique characteristics or brand identification for which a sufficient number of buyers are
willing to make a special purchasing effort. Examples include specific brand of cars or
designer clothes.
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 Unsought goods are those that the consumer does not know about or does not
normally think of b u y i n g . The classic examples of known but unsought goods are life
insurance, vaccinations, home safety deposit box, etc.,.
While it is often helpful to think of these product classes, it is important to recognize
that different customers may place the same products in entirely different classes.
PRODUCT AND SERVICE DIFFERENTIATION
To be branded, products must be differentiated. Physical products vary in
potential for differentiation. Here the seller faces an abundance of differentiation
possibilities, including form, features, customization, performance quality, conformance
quality, durability, reliability, r e p a r a b i l i t y , and style.
Product Differentiation
Form: Many products can be differentiated in form—the size, shape, or physical
structure of a product. Car companies offer products such as sedan, SUV, vans, two door,
convertible, etc. Soaps are sold as bar or liquid format. Lift companies introduced capsule lifts
which are better looking than traditional lifts.
Features: Most products can be offered with varying features that supplement its
basic function. Mobiles phones and computers are sold at different feature levels.
Customization: Marketers can differentiate products by making them customized to
an individual. Dells has adopted mass customization as they are able to meet each
customer’s requirements in terms of specification of PCs. Certain banks such as EBL now
offers the option to customize credit card with client’s picture.
Performance Quality: Most products are established at one of four performance
levels: low, average, high, or superior. Performance quality is the level at which the
product’s primary characteristics operate. The manufacturer must design a performance
level appropriate to the target market and competitors’ performance levels. A company
must manage performance quality through time. Quality is becoming an increasingly
important parameter for differentiation as companies adopt a value model and provide
higher quality for less money.
Conformance Quality: Buyers expect products to have a high conformance quality—
the degree to which all the product units are identical and meet the promised
specifications. Suppose HungryNaki promises to deliver food at your door step within one
hour of order placement. If every order is delivered within 1 hour, HungryNaki is said
to have high conformance quality. A product with low conformance quality will disappoint
some buyers.
Durability: A measure of the product’s expected operating life under natural or
stressful conditions. Durability is a valued attribute for certain products such as cars,
computers, and home appliances. Buyers will generally pay more for products that have a
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reputation for being long lasting.
Reliability: Buyers normally will pay a premium for more reliable products. Reliability
is a measure of the probability that a product will not malfunction or fail within a specified
time period. GE selling jet engines need to ensure reliability before able to sell any jet
engines to aircraft manufacturers.
Repairability: Is the measure of the ease of fixing a product when it malfunctions
or fails. Some products include a diagnostic feature that allows users to correct problem.
Many computer hardware and software companies now offer technical support over the
phone or web.
Style: Describes the product’s look and feel to the buyer. Style creates distinctiveness
that is hard to copy. Strong style does not always mean high performance.
Design: 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
how a product looks and functions in terms of customer requirements. To the company, a
well-designed product is one that is easy to manufacture and distribute. To the customer,
a well-designed product is one that is pleasant to look at and easy to open, install, use,
repair, and dispose of. Design can shift consumer perceptions to make brand experiences
more rewarding.

Services Differentiation
When the physical product cannot easily be differentiated, the key to competitive
success may lie in adding valued services and improving quality. The main service
differentiators are ordering ease, delivery, installation, customer training, customer
consulting, and maintenance a n d repair.
Ordering Ease: Ordering ease refers to how easy it is for the customer to place
an order with the company. Food Panda and Pathao has immense ordering ease
which is resulting widespread adoption of their services.
Delivery: refers to how well the product or service is brought to the customer.
Dominos Pizza is known for the ability to deliver pizza in 30 minutes. FedEx can deliver
package within 24 hours to any part of the world.
Installation: Refers to the work done to make the product operational. Ease of
installation is a t r u e selling point for technology novices.
Customer Training: Refers to the training the customer’s employees undergo to
use the vendor’s equipment properly and efficiently.
Customer consulting: Refers to data, information systems, and advice services
that the seller offe rs to the buyers. Architectural or law firms are prime example.
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 Maintenance and Repair: Describes the service program for helping customers
keep purchased products in good working order.
Returns: An unavoidable reality of doing business. Companies can have
controllable returns which results from problems made by the seller or customer and
can mostly be eliminated with improved handling or better packaging. Uncontrollable
returns result from the need for customers to actually see, try or experience products
in a person to determine suitability. For example, buying clothing and returning due to
misfit.

Product Decisions

How does a company decide the types of products or services it will sell? More
specifically, how does it decide how many product lines it will develop, and how many
different items to offer within each line? These fundamental decisions constitute a
company’s product policy. Over time, management must revisit these decisions and adapt
the line through addition, deletion, or modification of products for sale.

As you will see, most companies are multiproduct organizations, often producing a
variety of different product lines. This means that policy decisions may be made at the
level of individual products, product lines, or the company’s entire product mix. Individual
product items have separate designations on the seller’s list and include different flavors
or colors, different forms of the same product, and different sizes.

Companies will also have product lines, which are a group of different products that
a particular company sells that are related in the sense that they satisfy a particular class
of need, are used together, and possess common physical or technical characteristics.
They are sold to the same customer groups through the same distribution channels, and
fall within specific price ranges.

All product lines make up the company’s product mix, therefore, a company’s
product mix consists of all the products offered by the firm. Although a particular product
item—or even an entire product line—may not be profitable in itself, the product mix as
a whole should be the optimal mix to ensure the overall profitability of the firm.

Consider how the products offered by Bose Acoustics developed and evolved. In
1964, Amar Bose founded his company after he purchased stereo speakers for his own
use that he found disappointing. Bose Acoustic’s mission would be to create “better, more
lifelike sound.” Four years later, its initial product offering, the 901 speakers, garnered
critical acclaim. Bose later expanded its product offerings to include the less expensive,
smaller 301 Bookcase speaker.

Then, in 1978, Amar Bose again had a disappointing audio experience, this time
with the airline-provided headphones he received on a transatlantic flight. This launched
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the company into research on noise-canceling headphones, resulting first in products for
the aviation and military markets, and later in the Quiet Comfort line of headphones for
the consumer market. Over the years, the Quiet Comfort line was improved and expanded
to include in-ear, around-ear, and on-ear models. Throughout, Bose retained its focus on
“better, more lifelike sound” rather than on price: in 2014, for example, its noise-canceling
line started at $299.95, about 30% higher than well-known brands such as Sony and Beats.
Later, Bose moved beyond the audio domain to “leverage the company’s intellectual
assets in broader ways,” such as researching whole-body vibration and designing a seat
for heavy-duty truckers.

Note how each point in the Bose story was, in effect, a decision about what the
company’s product policy would be. First, Bose decided what business it wanted to be in;
initially, this was home speakers for consumers. Second, it made a targeting decision—to
serve both home dwellers with the 901 and apartment dwellers with the smaller 301
speakers. Over time, Bose expanded the kinds of markets it addressed—moving to
professional sound and later beyond sound with its truck-seat design. Finally, for each
item offered, such as the 301 speakers, Bose had to set the optimal product design given
the market to be served, making trade-offs between cost and performance along the way.

The Bose product policy decisions made over decades have today resulted in its
product mix—the set of all products the company offers. Exhibit 2 shows three key policy
decisions that companies like Bose make to arrive at such a product mix.

Exhibit 2: Product policy Decision

In the exhibit, we see a company’s three key decisions:

1. Product mix breadth refers to the variety and number of product lines offered. To
arrive at the product mix breadth, managers must ask themselves: How many

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 columns are there going to be (how many product lines will be offered?)? What is
the relationship, if any, between the lines?

2. Product line depth (aka product line length) is the number of items in a given
product line. To arrive at the product line depth, managers will ask themselves:
Within a given column, how many rows (items) will there be in the line? How is
the line to serve customer segments of varying tastes or willingness to pay?

3. Product item design refers to the product’s design specifications. Also refer as
depth of product mix, it designates the number of versions of each product (e.g.,
sizes, weights, colors) offered in each product line / length often termed through
stock keeping unit (SKU).To determine the product item design, managers will ask
themselves: What will the design or specifications be for each cell in the matrix
(meaning each item within a product line)? Note that for a multi-item line,
decisions about an item’s design should be made in light of the design of other
items to create an optimal overall offering to the market. An item can further be
disaggregated into stock-keeping units (SKUs) as it is offered, for example, in a
variety of package sizes.

Product Mix Breadth:

Firms differ greatly in the product mix, or variety, of products offered. For example,
General Electric (GE) generated its $146 billion in sales for 2013 based on a product mix
of 21 different product categories, including aviation (such as engines for Airbus, Boeing,
and fighter planes), health care (PET and CT scanners), home improvement (GE silicone
caulks), power and water (nuclear power plants), and transportation (locomotives). Coca-
Cola Company, in contrast, generated its $46 billion in sales by concentrating on a single
product category, beverages. The company is relatively consistent in its product form,
from soft drinks and water to juice, energy drinks, and tea.

Why and when do companies decide to expand the number of product lines
offered? Often the decision results from a specific favorable economic opportunity to
draw on the company’s existing skills, even if there is little linkage to the company’s
current business. Greater benefit, however, is usually derived from developing a new
product that connects in some way with the company’s existing products. Consider the
following three ways that such connections might arise:

1. Undertaking a business whose profit stream will probably correlate negatively

with the profit stream of existing businesses—thereby reducing the overall risk of
the enterprise. For example, a beverage company developing a strong position in
the water market helps offset risk of decline in the soda market if hydration habits
move heavily to water.

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 2. Leveraging a key asset of the company that underlies the current product
offerings. For example, Procter & Gamble (P&G) has a wide variety of products
across four sectors that the company claims “share common technologies”:
beauty, hair, and personal care; baby, feminine, and family care; health and
grooming; and fabric and home care. Because many of these products also share
the same distribution system, P&G is able to leverage its established retailer
relationships to market and sell its products.

3. Tapping into complementary-in-use products and thus enabling the firm to be a

“total solution supplier.” For example, Adobe acquired Omniture to develop a
software line measuring the effect of marketing content to complement its
leading position as provider of software for content development. Procter &
Gamble explained the acquisition of the Gillette Company and its Oral-B
toothbrush line by noting that the union of Oral-B and Crest placed P&G oral care
as the market leader and the only major oral care company with a breadth of
products across every category: toothpaste, toothbrushes, whitening, rinse,
denture care, and floss.

In all these cases, managers must carefully analyze the interrelationship between
product lines to ensure that positive links are taken advantage of and to guard against
potential negative links—for example, competition for scarce resources that could
damage overall product mix.

Once a company has determined its product mix breadth, it must then consider
the second major decision it must make about its product policy: how many items it will
include within each product line (product line length).

Product Line Length

Apart from product mix decision, companies will also focus on product line
decisions. Product line decision will involve product line length – the number of items in
the product line. The line is too short if the manager can increase profits by adding more
items; the line is too long if the manager can increase profits by dropping items.
Managers need to analyze their product line periodically to assess each item’s sales and
profits and its contribution to the line’s overall performance.

A company can expand its product line in two ways: by line filling or line stretching.
Product line filling involves adding more items within the present range of the line (within
certain price, same distribution and same branding target to same customer groups).
Coca-Cola's offering of Coke, Diet Coke, and Caffeine-free versions of each is a horizontal
differentiated product line. The products do not differ in inherent quality, e.g. in no
objective sense is one better than the other. It is a matter of consumer taste whether
Coke is “better” than Diet Coke or vice-versa. Coke is attempting to serve various

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 segments of the market with the array of offerings.

Product line stretching occurs when a company lengthens its product line beyond
its current range and create a vertical differentiation (at a different price range, targeted
to a different customer segment, distributed through a different retail outlet or using a
different brand name). The company can stretch its line downwards, upwards or both
ways.

When Sealed Air Corporation began making protective packaging for items being
shipped or mailed, it offered eight grades, or strengths, of bubble wrap. The lightest
grade, suitable for protecting a lightweight, inexpensive item, was priced at $30 per 1,000
square feet, while the heavy-duty product, for heavier, more fragile, and expensive
items, was priced at $141 per 1,000 square feet.

Even with eight offerings of protective wrap, some customers requested products
that more precisely met their needs.

If Sealed Air was to add a new item to the line, it had three options:

1. An upward stretch of the product line, adding an item at a higher price and
performance level, able to meet the performance requirements of more
demanding applications.

2. A downward stretch of the line, adding a lower-priced item still capable of

satisfying the needs of some applications.

3. A product line fill, inserting an item of a price and performance level that fills a gap
between two existing items.

In Sealed Air’s case, the elements in the line were differentiated vertically—
higher-priced items offered more protection. The reason there were eight items in the
line was that, for some applications, less protection was perfectly adequate. Over time,
Sealed Air perceived more opportunity at lower price and performance points, so it
executed a downward stretch of the line.

Companies located at the upper end of the market can stretch its line downward
(Rolex launching a new brand of watch Tudor at a lower price). Companies can also
stretch their product lines upwards (Nokia launched a high-end brand of phones- Vertu).
Companies serving the middle market might stretch their line in both directions. Gap
launched a lower price brand called Old Navy and a higher price brand called Banana
Republic. Similarly, Toyota has a lower priced brand called Scion and a higher priced
brand called Lexus, targeting different customer groups.

Over time, lines typically proliferate; it is harder to delete an item from a line than
to add one. Recent purchasers of the product may feel abandoned or poorly served by
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the company since a salesperson allowed them to buy a product on the “to be
discontinued” list. The trade reaction will likely be to force its inventories of the
discontinued items back on the firm. However, a strong product line planning process
includes systematic investigation of a line for deletion opportunities which will ease
customers’ decision making and improve the overall economics of the line.

Product line length decisions are driven by how many different segments within
the target market the firm chooses to serve. Unless the product line is well managed,
management’s desire to serve customers (or retail partners) with precisely the right
product for them can lead to excessively long product lines.

Consider, for example, whether Samsung’s sales would decline if it offered only 48
different television set models in the rather than its current 49. The answer is “not
likely”—and thus we could say that perhaps Samsung need not have expanded the length
of its television product line to the extent that it has. Product line length decisions,
therefore, must be carefully analyzed and planned—and should be guided by a vision for
what the product line is to become over time.

PACKAGING, LABELING, WARRANTIES, AND GUARANTEES

Most physical products have to be packaged and labeled. Many marketers have
called packaging a fifth P. Most marketers, however, treat packaging and labeling as
an element of p r o d u c t strategy.
Packaging
Packaging includes all the activities of designing and producing the container for a
product. The package is the buyer’s first encounter with the product. A good package
draws the consumer in a n d e n c o u r a g e s p r o d u c t c h o i c e . In e f f e c t , t h e y c a n
a c t as five-second commercials for the product. Packaging also affects consumers’
l a t e r product experiences when they go to open the package and use the product at
home.
Self-service shopping model and company and brand image have contributed
to the growing use of packaging as a marketing tool. To achieve these objectives and
satisfy consumers’ desires, marketers must choose the aesthetic and functional
components of packaging correctly.

Aesthetic considerations relate to a package’s size and shape, material, color,

text, and graphics. Functionally, structural design is crucial. The packaging elements
must harmonize with each other and with pricing, advertising, and other parts of the
marketing program.

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Labeling
The label can be a simple attached tag or an elaborately designed graphic that
is part of the package. It might carry a great deal of information, or only the brand
name. Even if the seller prefers a simple label, the law may require more. Labels
perform several functions. At the very least, the label i d e n t i f i e s the product or brand.
The label might also describe several things about the product – who made it, where it
was made, when it was made, its contents, how it is to be used, and how to use it
safely. The label might help to promote the brand, support its positioning and connect
with customers.
Warranties and Guarantees
All sellers are legally responsible for fulfilling a buyer’s normal or reasonable
expectations. Warranties are formal statements of expected product performance by
the manufacturer. Warranties, whether expressed or implied are legally enforceable.
Extended warranties and service contracts can be extremely lucrative for manufacturers
and retailers. Many sellers offer either general guarantees or specific guarantees.
Guarantees reduce the buyer’s perceived risk. Guarantees are most effective in two
situations: where the company or the product is not well-known and where the product’s
quality is superior to the competition.

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