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SETTING
PRODUCT
STRATEGY
CHAPTER – 12
M A R K E T I N G M A N AG E M E N T - KOT L E R , K E L L E R
INTRODUCTION
• Many people think a product is tangible, but a product is
anything that can be offered to a market to satisfy a want
or need, including physical goods, services, experiences,
events, persons, places, properties, organizations,
information, and ideas.

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INTRODUCTION
• At the heart of a great brand is a great product (offering).
• To achieve market leadership, firms must offer products
and services of superior quality that provide unsurpassed
customer value.

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PRODUCT LEVELS: THE CUSTOMER-
VALUE HIERARCHY
In planning its market offering, the marketer needs to
address 5 product levels which constitute a customer-
value hierarchy:

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 PRODUCT LEVELS: THE CUSTOMER-
VALUE HIERARCHY
1. Core Benefit: A restaurant customer is buying food.
2. Basic Product: The marketer may come up with a burger
for meeting the need for food.
3. Expected Product: The burger is hygienic and looks
attractive. It also comes with sauce.
4. Augmented Product: French fries might be served with the
burger. Or there might be extra cheese on it.
5. Potential Product: It encompasses all the possible
augmentations and transformations the product or offering
might undergo in the future. Example - ? 5
PRODUCT LEVELS: THE CUSTOMER-
VALUE HIERARCHY
• In developing and emerging markets, competition takes
place mostly at the Expected Product level.
• In developed countries, brand positioning and
competition take place at Augmented Product level.
• Each augmentation adds cost, however, and augmented
benefits soon become expected benefits.
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PRODUCT CLASSIFICATION
According to Durability and Tangibility-
1. Non-durable Goods: Soap, Shampoo etc.
Tangible; normally consumed quickly; purchased
frequently; strategy for marketing – wide availability,
small charge, heavy advertisement.
2. Durable Goods: Refrigerator, Television etc.
Tangible; survives long; strategy for marketing –
personal selling and service, more seller guarantee. 7
PRODUCT CLASSIFICATION
According to Durability and Tangibility-
3. Services: Haircut, Bank transaction etc.
Intangible; require better quality control and
adaptability.

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PRODUCT CLASSIFICATION
Consumer Goods Classification:
1. Convenience Goods: purchased frequently,
immediately and with minimal effort. Three types:
i. Staples: rice, toothpaste (routinely purchase)
ii. Impulse Goods: Candies (purchased without and
planning or effort)
iii. Emergency Goods: Medicine (purchased on
urgent needs)
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PRODUCT CLASSIFICATION
Consumer Goods Classification:
4. Shopping Goods: characteristically compared
by consumers. Two types:
i. Homogeneous: Automobile tires and rims
(Similar in quality but different in pricing)
ii. Heterogeneous: Clothes, furniture (Differ in
product features)
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PRODUCT CLASSIFICATION
Consumer Goods Classification:
5. Specialty Goods: Cars (Buyers are willing to
make special purchasing effort)
6. Unsought Goods: Life insurance, grave plot
(Consumers usually do not know about them,
Require advertising and person-selling support)

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PRODUCT CLASSIFICATION
Industrial Goods Classification:
1. Materials and part
2. Capital items
3. Supplies and business services

NOTE: These are further classified.

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PRODUCT CLASSIFICATION
Industrial Goods Classification:
1. Materials and part
i. Raw Material
a) Farm Product: Vegetables, livestock
b) Natural Product: Fish, petroleum, iron
ii. Manufactured Part and Material
a) Component Material: Steel (made from pig iron)
b) Component Part: Tires (used in automobiles) 13
PRODUCT CLASSIFICATION
Industrial Goods Classification:
2. Capital Items
i. Installations
Example: Buildings, central air conditioning unit
ii. Equipment
Example: Portable factory tools (hand tools), office
equipment (Desk, PC)
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PRODUCT CLASSIFICATION
Industrial Goods Classification:
3. Supplies & Business Service
i. Supply
a) Maintenance and repair items: paint, brooms
b) Operating supplies: fossil fuel, paper, pencil
ii. Business service
a) Maintenance and repair service: refrigerator
maintenance
b) Business advisory service: advertising 15
PRODUCT DIFFERENTIATION

Form Feature Customization

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PRODUCT DIFFERENTIATION

Performance
Conformance Durability
Quality

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PRODUCT DIFFERENTIATION

Reliability Repairability Style

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SERVICES DIFFERENTIATION

Ordering Customer
Delivery Installation
Ease Training

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SERVICES DIFFERENTIATION

Customer Maintenance and

Returns
Consulting Repair

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DESIGN
The totality of features that affect how a product look, feels
and functions to a consumer.

Design Offers:
• Functional and Aesthetic benefits
• Appeals to both our Rational & Emotional sides

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DESIGN
To the company:
a well-designed product is easy to manufacture and
distribute

To the customer:
a well-designed product is pleasant to look at and easy
to use
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PRODUCT HIERARCHY
• Need Family: Need of hearing music
• Product Family: Music playing devices
• Product Class: MP3 Player
• Product Line: iPod
• Product Type: iPod Shuffle
• Item: iPod Shuffle 4th Gen (2GB)

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PRODUCT SYSTEM
A group of diverse but related items that function in a
compatible manner
Example: The extensive iPod product system includes
• Headphones and headsets
• Cables
• Armbands
• Cases
• Power and car accessories
• Speakers
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 PRODUCT MIX
The set of all products and items a particular seller offers for sale.

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PRODUCT MIX
Dimensions of Product mix−
1. Width: Number of product lines in the company.
2. Length: Total Number of Products in the mix.
3. Depth: The number of variant offered for each
product in the line.
4. Consistency: Refers how closely the product lines
are related in various aspects like end use, distribution
channel.
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PRODUCT MIX

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PRODUCT LINE LENGTH
Usually lengthens over time due to−
• Excess manufacturing capacity
• Pressure from sales force and distributors to develop complete
product line to satisfy customers

Problems faced in lengthening Product line−

• Lengthening increases cost
• Customers sometimes might not like too long or dense product
line
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PRODUCT LINE LENGTH
Influenced by company objective:
1. Creating product line to induce up-selling
Example: BMW would like to move customers up from a 3-
series vehicle to a 5-series.
2. Facilitate cross-selling
Example: HP selling computers and printers.
3. To protect against economic ups and downs
Example: Electrolux sells electronic items under different
brand names in different market segments.
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PRODUCT LINE LENGTH
Ways to Lengthen Product Line:
1. Line Stretching: Lengthening the product line beyond the
company’s current range.
It can be:
a) Down-market Stretch
b) Up-market Stretch
c) Two-way Stretch
2. Line Filling: Adding more items within the present range.
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PRODUCT LINE LENGTH
1.a) Down-market Stretch
Lengthening the product line below its current range.

Reasons:
• Strong growth opportunities
• To counterattack lower-end competitors
• Stagnation or decline in market of current range

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PRODUCT LINE LENGTH
1.a) Down-market Stretch
Choices:
• Using the parent brand name on all product
Example : SONY
• Introduce lower-priced offerings using a sub-brand name
Example: P&G’s Charmin Basics
• Introducing lower-priced offering under a different name
Equity of parent brand name is protected but it is Expensive
Example: Gap’s Old Navy brand 32
PRODUCT LINE LENGTH
1.a) Down-market Stretch
Risks:
• If not matched properly, countering lower brand
competitors might be difficult
• Chance of cannibalizing and hurting core brand

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PRODUCT LINE LENGTH
1.b) Up-market Stretch
Lengthening the product line above its current range.

Reasons:
• Greater growth
• Higher margin
• Positioning as full-line manufacturers
Examples: Toyota’s Lexus
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PRODUCT LINE LENGTH
1.c) Two-way Stretch
Product line stretched to both upwards and downwards
Possible for companies in middle markets.
Example:
o A restaurant might offer cheap set menu for students
o It may offer buffet service for high end customers

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PRODUCT LINE LENGTH
2) Line Filling
Adding more items within the present range.

Example: Inclusion of Tide by P & G when it already has Ariel

Risks:
If overdone, can cause−
• Cannibalization
• Customer Confusion
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PRODUCT LINE LENGTH
2) Line Filling
Reasons:
• Satisfying dealers
They complain of lost sales due to items missing from line
• Using excess capacity
• Trying to become leading full-line company
• To keep competitors out

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LINE MODERNIZATION
Can be done piecemeal or all at once.

Piecemeal approach:
• Allows companies to see how customers and dealers
take the new style
• Less draining on the company’s cash flow
• Also lets competitors see changes and they start
redesigning theirs as well
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LINE FEATURING AND PRUNING
Featuring:
Only a few items in the line are featured.
Those might be−
• Low-end items to attract sales; e.g. Tata Nano
• High-end item to lend prestige; e.g. Porsche
Pruning:
Only the items with justified profit and sales should remain
in the product line and other items should be discarded.
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PRODUCT MIX PRICING
Firm searches for a set of prices that maximizes
profits on the total mix.
6 Situations are:
1. Product Line Pricing
2. Optional-feature Pricing
3. Captive-Product Pricing
4. Two-part Pricing
5. By-Product Pricing
6. Product-bundling Pricing
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 PRODUCT MIX PRICING
1. Product Line Pricing
Involves price steps based on quality.
Example: T-shirts priced 500,1200 & 3000 BDT
2. Optional-feature Pricing
• Companies offer optional products or features
with their main product.
• Companies must decide what to include in
standard price and what to offer separately.
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PRODUCT MIX PRICING
3. Captive-Product Pricing
Some products require the use of ancillary
i.e. supporting items.
4. Two-part Pricing
• Consists of a fixed fee plus a variable usage
fee.
• Fixed cost should be low to encourage
purchase.
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PRODUCT MIX PRICING
5. By-Product Pricing
• Many manufacturing companies has by-products.
• Appropriate pricing strategy should be adapted.
6. Product-bundling Pricing
• Sellers often bundle products and features.
• In mixed bundling, the seller offers goods both
individually and in bundles

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PACKAGING
• It includes all the activities of designing and producing the
container for a product.
• First encounter of customer with product; also known as
“fifth P” and act as “five-second commercials”.
• Layers of Packaging:
1. Primary
2. Secondary
3. Shipping
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PACKAGING
Factors offered by packaging as a marketing tool:
1. Self-service
Attracts the customer; provides product description; make favorable
impression.
2. Consumer Affluence
Provides customers convenience, prestige, dependability.
Customers are willing to pay more for these.
3. Company & Brand Image
Helps instant recognition of company or brand.
4. Innovation Opportunity
Can bring big benefit to consumers.
For example: Re-sealable packet of nuts. 45
 PACKAGING

Packaging must achieve a number of objectives:

1. Identify the brand.
2. Convey descriptive and persuasive information.
3. Facilitate product transportation and protection.
4. Assist at-home storage.
5. Aid product consumption.

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PACKAGING
Tests for packaging:
1. Engineering tests
Ensures package stands up under normal conditions.
2. Visual tests
Checks whether the script is legible and colors are harmonious.
3. Dealer tests
Checks whether the dealers like the package in terms of ease of
handle.
4. Consumer test
Checks whether consumers respond positively. 47
LABELING
Label can be−
• Simple attached tag OR
Elaborately designed graphics.
Label may carry−
• A great deal of information OR
only the brand name.

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LABELING

“Even if the seller prefers a simple label,

the law may require more”
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LABELING
Functions of labeling−
1. Identifies product or brand
2. Grades the product
3. Describe the product
Producer; origin; how to use; ingredient
4. Promotes the product
• Through attractive graphics
• Greater amount of information

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WARRANTY
• Formal statements of expected product
performance by the manufacturer.
• Products under warranty can be
returned to the manufacturer or
designated repair center for repair,
replacement, or refund.

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WARRANTY
Warranties−
• are legally enforceable
• gives customers peace of mind
• generates more sales

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GUARANTEE
• Provided by seller
• Reduces buyer’s perceived risks
• Helpful when
– Product or brand is not known
– Product’s quality is superior to the competitor
• Guarantee suggests
– Product is of high quality
– Its service performance are dependable
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CHECK YOUR CONCEPT

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