DESIGNING AND MANAGING

PRODUCTS

“At the heart of great

brand is a great product”
Tes l a ’s M od e l 3 set o u t to p ro v e
th a t ma s s -p rod u ced ,
en vi ro n men ta l l y so u n d el ect ri c
ca rs c an s u cces s fu l l y an d
p ro fi t a bl y p i lf er ma rk et s h a re
from p ro d u cers of t rad i t i on a l
ga s o l i ne - p owered v eh i cl es .
I n M a rc h 2 0 1 6 , Te s l a re v e a l e d t h e l o n g - a w a i t e d M o d e l 3 , t h e
vehicle that the company hopes will ultimately take the
e l e c t r i c c a r t o t h e m a s s c o n s u m e r. P r i c e d s t a r t i n g a t $ 3 5 , 0 0 0
( a f t e r $ 8 , 0 0 0 c re d i t s a n d f u e l s a v i n g s we re f a c t o re d i n ) , M o d e l
3 a i m e d t o d i s r u p t t h e a u t o i n d u s t r y b y p ro v i n g t h a t m a s s
p ro d u c i n g a n e n v i ro n m e n t a l l y f r i e n d l y v e h i c l e i s b o t h f e a s i b l e
a n d p ro f i t a b l e . Te s l a ’s n e w m a s s m a r k e t c a r c re a t e d a l o t o f
e x c i t e m e n t , g e n e r a t i n g o v e r h a l f a m i l l i o n p re - o r d e r s , 1 0 0 , 0 0 0
o f wh i c h w e re p l a c e d b e f o re t h e M o d e l 3 w a s re v e a l e d .
 • Lack of direct competition

• The combination of Tesla’s image as a luxury brand

and the (relatively) low price point made it the only
option for customers who were looking for an all-
electric sedan priced around $40,000.
The customer appeal of
Model 3 stemmed from • To achieve its goal of building 5,000 vehicles a
week, Tesla invested close to $1 billion to build its
several factors.
first Gigafactory— a lithium-ion battery and
vehicle assembly factory near Reno, Nevada.

• To achieve its goal of building 5,000 vehicles a

week, Tesla invested close to $1 billion to build its
first Gigafactory— a lithium-ion battery and
vehicle assembly factory near Reno, Nevada.
PRODUCT
DIFFERENTIATION
Differentiation can be of many types
• We ll - di ff e re n tia te d p ro d u c ts ca n c re ate s ign ific a nt c om p e titive a d va nt ag es .

• C r a fti n g a d i st inc tiv e au r a fo r a p ro d u c t th a t h e lp s d ist an c e it fro m c om p e titor s c a n

i n v o l v e m o v e s th at ra n ge fro m im p res s ive te c hn olo gic al ad va nc e s lik e I n tu it ive S u r gic al’s
d a Vi n c i ro b ot ic sy st em f or min im ally in va s iv e s ur g e r y to s imp le tw e ak s lik e p u ttin g a
C h i q ui t a s ti c k e r on a b an an a .
 Core Functionality
For 14 years, Nokia dominated cell phone sales as the world’s industry leader,
before being surpassed by Samsung. Once the pride of Finland, the company has
found itself outsold by Samsung even on its home soil. How could such a high-
flying brand come crashing to earth? In a nutshell, it failed to innovate and stay
relevant. Nokia did not respond to the wildly successful iPhone and the shifting
consumer demand that accompanied it. The company thought the iPhone was too
expensive to manufacture and was not up to its own product standards. The iPhone
reportedly failed Nokia’s “drop test,” in which a phone is dropped on concrete from
a height of five feet at different angles. Nokia had actually spent
$40 billion on R&D over the preceding decade and was a smart-phone pioneer, but
it chose not to invest in devices that anticipated what the iPhone eventually became.
Without the right new products, Nokia began to be associated by consumers with an
earlier era of technology, a fatal blow in the fast-moving, technologically intensive
smart-phone market.
• Most products can be offered with varying features that supplement their basic
function.

• A company can identify and select appropriate new features by surveying recent
buyers and then calculating customer value versus company cost for each
potential feature.

• Marketers should consider how many people want each feature, how long it
would take to introduce it, and whether competitors could eas- ily copy it.

Features
Features 2

TO AVOID “FEATURE FATIGUE,” THE MARKETERS MUST ALSO THINK IN COST OF

COMPANY MUST PRIORITIZE TERMS OF FEATURE BUNDLES OR CUSTOMIZATION/STANDARIZATION
FEATURES AND TELL CONSUMERS PACKAGES.
HOW TO USE AND BENEFIT FROM
THEM.
• Quality is growing increasingly important for differentiation as companies adopt
a value model and provide higher quality for less money.

• Firms should design a performance level appropriate to the target market and
competition

Performance Quality
M e rc e d e s - B e n z I n t h e m i d s t o f t h e f i r s t d e c a d e o f t h i s c e n t u r y,
M e rc e d e s - B e n z e n d u re d o n e o f t h e m o s t p a i n f u l s t re t c h e s i n i t s
h i s t o r y. T h e c o m p a n y s a w i t s re p u t a t i o n f o r s t e l l a r q u a l i t y t a k e a
beating in J. D. Power and other surveys, and BMW surpassed it in
g l o b a l s a l e s . To re c o v e r, a n e w m a n a g e m e n t t e a m w a s o r g a n i z e d
a ro u n d f u n c t i o n a l e l e m e n t s — m o t o r s , c h a s s i s , a n d e l e c t ro n i c s y s t e m s
— i n s t e a d o f m o d e l l i n e s . E n g i n e e r s n o w b e g i n t e s t i n g e l e c t ro n i c
s y s t e m s a y e a r e a r l i e r a n d p u t e a c h n e w m o d e l t h ro u g h 1 0 ,0 0 0
d i a g n o s t i c s t h a t r u n 2 4 h o u r s a d a y f o r t h re e we e k s . M e rc e d e s - B e n z
a l s o t r i p l e d i t s n u m b e r o f p ro t o t y p e s f o r n e w d e s i g n s , a l l o w i n g
e n g i n e e r s t o d r i v e t h e m 3 m i l l i o n m i l e s b e f o re p ro d u c t i o n . Wi t h
t h e s e a n d o t h e r c h a n g e s , t h e n u m b e r o f f l a w s i n t h e c o m p a n y ’s c a r s
d ro p p e d 7 2 p e rc e n t f ro m t h e 2 0 0 2 p e a k , a n d w a r r a n t y c o s t s
d e c re a s e d 2 5 p e rc e n t . A s a n i n t e re s t i n g s i d e e f f e c t , M e rc e d e s - B e n z
d e a l e r s h a v e h a d t o c o n t e n d w i t h a s i z a b l e d ro p i n t h e i r re p a i r a n d
service businesses
Form & Style

Style describes the product’s look and feel

to the buyer and creates distinctiveness that
Form: Many products can be differentiated is hard to copy. Car buyers pay a premium
by form—the size, shape, or physical for Jaguars because of their extraordinary
structure of a product. looks. Aesthetics plays a key role for such
brands as Apple computers, Godiva
chocolate, and Harley-Davidson motorcycles
Product 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 the way

consumers perceive a product’s look, feel, and
function.

• Design offers functional and aesthetic benefits and

appeals to both our rational and emotional sides.
• 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.

Design Thinking
 G E H e a l t h c a r e D i a g n o s t i c i ma g i n g  

M a ny c h i l d r e n w e r e o b s e r v e d c r y i n g d ur i n g l o n g
p r o c e d u r e s i n c o l d , d a r k r o o ms w i t h fl i c ke r i n g fl u o r e s c e nt
l i g h t s . C o n s i d e r i n g t h i s , G E H e a l t h c a r e ’s t e a m o b s e r v e d
c h i l d r e n i n va r i o u s e nv i r o n me n t s , s p o ke t o e x p e r t s , a n d

Design i n t e r v i e we d h o s p i t a l s t a ff t o g a i n mo r e i n s i g h t i nt o t he i r
experiences.

G E H e a l t h c a r e l a u n c he d t h e “A d v e n t u r e S e r i e s .” T hi s

Thinking r e d e s i g n i n i t i a t i v e f o c u s e d o n ma k i ng ma g ne t i c r e s o n a n c e
i ma g i n g ( M R I ) ma c h i n e s mo r e c h i l d - f r i e nd l y.

Examples
Fo r e x a mp l e , t h e “ P i ra t e A d v e n t u r e ” t ra n s f o r ms M R I
ma c h i n e s f r o m d a r k , b l a c k h o l e s t o p i ra t e s hi p s wi t h
s c e n e r y o f b e a c h e s , s a n d c a s t l e s , a n d t h e o c e a n. B y
e mp a t h i z i n g w i t h c h i l d r e n’s p a i n p o i n t s , G E H e a l t h c a r e
wa s a b l e t o c ra f t a c r e a t i v e s o l u t i o n t h a t wa s n o t o n l y f un
but increased patient satisfaction scores by 90 percent.  
 Star ted by only making around $200 a week.

To empathize with customers, the founders

spent time traveling to each location, imagining
what users look for in a temporar y place to
stay. Their solution? Invest in a high-quality
camera and take pictures of what customers

Airbnb want to see, based on their travel

obser vations. For example, showing ever y room
rather than a select few, listing special features
like a hot tub or pool in the description, and
highlighting the neighborhood or areas in close
proximity to the residence. The result? A week
later, Airbnb’s revenue doubled.
S a m s u n g M u c h o f S a m s u n g ’s r e m a r k a b l e m a r k e t i n g s u c c e s s c o m e s f ro m
i n n o v a t i v e n e w p ro d u c t s t h a t h a v e c a p t u re d t h e i m a g i n a t i o n o f
consumers all over the world. The company has invested heavily in
R&D and in design capabilities, with big payoffs. It has a clear design
philosophy it calls “Design 3.0” and an internal design slogan, “Make it
M e a n i n g f u l , ” t h a t re f l e c t s i t s r e l e n t l e s s f o c u s o n m a k i n g b e a u t i f u l a n d
i n t u i t i v e p ro d u c t s t h a t w i l l b e i n t e g r a t e d i n t o c u s t o m e r s ’ l i f e s t y l e s .
S a m s u n g a p p l i e s t h re e d e s i g n c r i t e r i a . I t s p ro d u c t s a r e ( 1 ) s i m p l e a n d
intuitive, (2) efficient and long lasting, and (3) adaptive and engaging .
Like its chief rival, Apple, the company organizes its design efforts
t h ro u g h a c ro s s - d i v i s i o n a l c o r p o r a t e D e s i g n c e n t e r t h a t re p o r t s d i re c t l y
to the CEO. The corporate Design center aligns the design efforts of
v a r i o u s d i v i s i o n s a n d a n a l y z e s c u l t u r a l t re n d s t o h e l p f o re c a s t t h e
f u t u re o f d e s i g n . I t a l s o c o o r d i n a t e s t h e w o r k d o n e a t S a m s u n g ’s f i v e
Global Design centers, located in London, San Francisco, Shanghai,
To k y o , a n d D e l h i .
 Product Portfolio
and Product Lines

• M o s t p ro d u c t s e x i s t a s a p a r t o f
a c o m p a n y ’s p ro d u c t p o r t f o l i o
a n d / o r p ro d u c t l i n e .

• E a c h p ro d u c t m u s t b e re l a t e d t o
o t h e r p ro d u c t s t o e n s u re t h a t a
firm is offering the optimal set
o f p ro d u c t s t o f u l f i l t h e n e e d s o f
i t s d i f f e re n t c u s t o m e r s e g m e n t s .
A COMPANY’S PRODUCT
PORTFOLIO HAS A
CERTAIN WIDTH,
LENGTH, DEPTH, AND
CONSISTENCY.
Product
• Upselling
Line • Cannibalization

Analysis
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.
• First, a company may notice strong growth opportunities in the lower-tier
market and enter this market to capture some of this growth.

• Alternatively, a company might be forced to move downscale because the middle

market is stagnating or declining

• Finally, a company might stretch its product line downscale to tie up lower-end
competitors who might otherwise try to move up-market. Indeed, when a
company has been attacked by a low-end competitor, it often decides to
counterattack by entering the low end of the market.

Down-Market Stretch
Branding Choices in Down-market Stretch

• One option is to use the parent brand name on all its offerings. Sony has used its
name on products in a variety of price tiers

• An alternative approach is to introduce lower-priced offerings using a sub-brand

name

• Another option is to introduce the lower-priced offerings under a different name

UP- Market
Stretch
• Companies may wish to enter the
high end of the market to achieve
m o re g ro w t h , r e a l i z e h i g h e r m a r g i n s ,
or simply position themselves as
full-line manufacturers.

• In order to signal consumers that

t h e re ’s b e e n a q u a l i t y i m p ro v e m e n t ,
some brands have used modifiers
like “new” or “enhanced.”
Managing Packaging and Labelling
• Many marketers view packaging and labelling as an
important element of product strategy

• “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 pack- age draws the consumer in and

encourages product choice. In effect, it can act as a
“five-second commercial” for the product.
factors contribute to the growing use of packaging
as a marketing tool.

• Consumer affluence : Affluent consumers are willing

to pay a little more for the convenience, appearance,
dependability, and prestige of better packaging.

• Company and brand image: Packaging contributes to

instant recognition of the company or brand.

• Innovation opportunity : 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.
Color and Packaging
• Colour is a particularly important aspect of
packaging and carries different meanings in different
cultures and market segments.

• As one expert says, “Colour is all-pervasive. It is

language-neutral but loaded with meaning.
COMMON
COLORS AND
THEIR MEANING
• This powerful color is associated with
excitement, energy, power, fearlessness, and
passion.

• In sales, call-to-action buttons use red to

empower shoppers to convert because it
exudes a sense of urgency. 

• However, red can foster negative feelings just

as powerfully. It represents anger, warnings,
danger, defiance, aggression, and pain.
• This bright color conveys confidence, creativity, and
courage. And because of its fun nature, it works well
with noncorporate brands. Orange also produces a
warm feeling since it’s associated with the sun.

• Yet the color also has some not-so-sunny

connotations. It can generate feelings of frustration,
deprivation, and sluggishness. It may come across
as immature or ignorant. 
• Similar to orange, yellow represents
youthfulness and happiness. It’s the
color of smiley faces, sunflowers, and
rubber ducks. Brands use yellow to tap
into optimism, creativity, extroversion,
and warmth.

• However, yellow branding could also

foster feelings of fear, irrationality, and
anxiety. Police tape, traffic lights, and
street signs all feature yellow.
• Without exaggeration, green
represents life. Reminiscent of grass,
trees, and bushes, green brings upon
feelings of relaxation, health,
prosperity, hope, and freshness.

• But because of its primitive nature,

the color can also represent
boredom, stagnation, and blandness. 
• Blue ranks as the world’s
favorite color, with men
preferring it more than
women.
• Blue brings up feelings of
security, strength, wisdom,
and trust. Social media
companies — like Facebook
and Twitter — frequently
choose blue to make them
appear dependable, a crucial
trait for businesses that store
a ton of user data.
• On the other hand, blue also
has negative connotations.
There are few blue foods in
nature, so the color
suppresses our appetites. It
can also convey feelings of
coldness and unfriendliness.
• The color purple symbolizes royalty and
superiority. In the Roman Empire, high-ranking
officials wore Tyrian purple, which cost more
than gold at the time.

• Queen Elizabeth I even banned anyone outside

the royal family from wearing purple.
 
• Due to these ancient associations, purple
generates a wise, wealthy, and sophisticated aura.
Brands can use the color to signal a superior
service, product, or experience.

• But purple can also represent decadence,

moodiness, and excess — so take care to strike a
balance when using this color.
• The most popular color to represent femininity,
pink can work for any brand looking for a more
youthful, imaginative, and quirky feel. 

• Yet pink also generates childish or rebellious

vibes. Its initial exposure has shown to wane as
shoppers get used to the color.
• On websites, emails, and logos,
you’ll find black everywhere. Black
as a staple color can make a brand
appear sophisticated, powerful, and
elegant. Many luxury companies use
black to make their logos look sleek
and refined.

• But black also represents oppression

and coldness. People could even
perceive black as emblematic of evil.
• If your business is aiming for a clean,
simplistic vibe, white may be an ideal
choice. Alongside black, white evokes a
modern feel and can help achieve a pure,
innocent, and pristine look. 

• On the other hand, white can feel sterile —

like a hospital. Without colors, it might
make your brand seem plain, boring, and
empty.
DESIGNING AND
MANAGING
SERVICES
Service
• A service is an act that one entity performs for
another that is essentially intangible and does not
result in the ownership of anything.

• It may or may not be tied to a physical product.

THE SERVICE ASPECT OF AN OFFERING

• Service can be a major or minor component of a company’s offering.

• Based on the degree to which they involve a service, we distinguish five

categories of offerings:
A pure tangible good

Such as soap , toothpaste , or salt , with virtually

no accompanying services.
A tangible good with accompanying services

• Like a car, computer, or cell phone with a

warranty or specialized customer-service contract.
Typically, the more technologically advanced the

• Product, the greater the need for high-quality

supporting services.
A hybrid offering

Like a restaurant meal, of equal parts

goods and services. People patronize

Restaurants for both the food and its

preparation.
A major service with accompanying minor goods and services

• Like air travel with sup- porting goods such as

snacks and drinks.

• This offering requires a capital-intensive good—

an airplane for its realization, but the primary
item is a service.
A pure
service
• Primarily an intangible
service, such as bank,
psychotherapy, or
massage.
DISTINCTIVE
Researchers delineate four key characteristics that
CHARACTERIS
distinguish services from products: intangibility,

TICS OF inseparability, variability , and perishability.

SERVICES
Intangibility

Service providers often

choose brand elements such
as logos, symbols,
characters, and slogans to
make the service and its key
benefits more tangible
Inseparability

• Yield management—a pricing strategy that aims to optimize customer demand

based on the available capacity of the service provider.

• service providers use variable pricing to influence consumer behavior by setting

a price point at which consumer demand matches a company’s capacity.
Variability
• Invest in good hiring and training procedures

• Standardize the service-performance process

throughout the organization. A service blueprint

• Monitor customer satisfaction

NEW SERVICE
REALITY
 • Technology is changing the rules of the game for
INCREASING services in a very fundamental way.

ROLE OF • Banking, for instance, is being transformed by the

ability to bank online and via mobile apps; some

TECHNOLOG customers rarely see a bank lobby or interact with

an employee anymore.

Y
The internet and cloud computing enable firms to improve their service
offerings and strengthen their relationships with customers by allowing for true
interactivity, customer-specific and situational personalization, and real-time
adjustments of the firm’s offerings.

But as companies collect, store, and use more information about customers,
concerns about security and privacy arise.

Companies must incorporate the proper safeguards and reassure customers

about their efforts to keep customers’ private information secure.
CUSTOMER
EMPOWERMENT
 Customers are becoming more
sophisticated about buying
product-support services and
are pressing for “unbundled
services” and the right to select
CUSTOMER the elements they want.
EMPOWERMENT Most important, social media
have empowered customers by
letting them send their
comments around the world
with a mouse click
CUSTOMER
COPRODUCTION
• The reality is that customers do not merely
purchase and use a service; they play an active
role in its delivery.

• Their words and actions affect the quality of

their service experiences and those of others, as
well as the productivity of frontline employees.

• One study estimated that one-third of all service

problems are caused by the customer.
MANAGING
SERVICE QUALITY
• The service quality of a firm is tested at each service encounter.

• Flawless service delivery is the ideal output for any service organization.
Service
Quality
Model
GAP 1

Gap between consumer expectation and management perception

Management does not always correctly perceive what customers want. Bank
administrators may think customers want better branch environment, but
customers may be more concerned with faster service.
Gap between management perception and service-quality specification

Management might correctly perceive customers’ wants but not set a uniform
performance standard. Bank administrators may tell the staff to give “fast” service
without specifying speed in minutes

GAP 2
GAP 3

Gap between service-quality specifications and service delivery

Employees might be poorly trained; they might be incapable of meeting, or

unwilling to meet, the standard; or they may be held to conflicting standards. staff
might be confused about whether they should take time to listen to customers or
give them fast service.
Gap between service delivery and external communications

Consumer expectations are affected by statements made by company

representatives and ads. If a bank brochure shows a premium brand but the
customers finds it cheap and tacky, external communications have distorted the
customer ’s expectations.

GAP 4
GAP 5

Gap between perceived and expected service

The consumer may misperceive the service quality. The staff may keep calling the
customer to show care, but the customer may interpret this as an indication of
overselling efforts.
DETERMINANTS
OF SERVICE
QUALITY
• The ability to perform the promised service dependably and accurately.

• This involves providing the service as promised, offering dependability in

handling customers’ service problems

• performing services right the first time, providing services at the promised time,
maintaining error-free records,

• hiring employees who have the knowledge to answer customers’ questions.

Reliability
Responsiveness

• The willingness to help customers and provide prompt service.

• This involves keeping customers informed about when services will be

performed, giving prompt service to customers, being willing to help customers,
and showing readiness to respond to customers’ requests.
• The knowledge and courtesy of employees and their ability to convey trust and
confidence.

• Employees who exhibit assurance instil confidence in customers and are

consistently courteous, making customers feel safe in their transactions.

Assurance
Empathy

• The provision of caring, individualized attention to customers.

• This involves giving customers individual attention, dealing with customers in a

caring fashion, having the customer ’s best interests at heart, understanding the
needs of customers, and offering convenient business hours.
• The appearance of physical facilities, equipment, staff, and communication
materials.

• Tangibles include modern equipment, attractive facilities, employees with a neat,

professional appearance, and visually appealing materials associated with the
service.

Tangibles
SERVQUAL