SETTING PRODUCT

STRATEGY

Chapter 12
 Product Characteristics and Classifications
A product is anything that can be offered to the market to satisfy a want or a need. (physical
goods, services, experiences, events, persons, places, properties, organizations, information
and ideas).

Product Levels: The Customer value Hierarchy

In planning its market offering, a marketer has to take care of 5 product levels.
1. Core Benefit: the service or benefit the customer is really buying.
eg. A hotel guest is buying “rest and sleep” . Marketers must see themselves as
benefit providers.
2. Basic Product: Convert core benefit into a basic product.
eg. Hotel room has bed, bathroom, towels,etc.
3. Expected Product: Set of attributes and conditions expected by consumer.
(usually creating Points Of Parity)
eg. Hotel rooms must be clean, working lamps, hot water, etc.
4. Augmented Product: To exceed customer expectations (usually creating Points Of
Difference). Brand positioning and competition takes place at this level in developed
countries. In developing countries , competition takes place at Expected Product
level. Differentiation arises on the basis of product augmentation.
Product augmentations also makes marketer’s look at the user’s total consumption
system: the way the user performs the task of getting and using products and related
services.

Features of Product Augmentation strategy

• Each augmentation adds cost
• Soon become expected benefits i.e POPs
• As augmented products come at a premium, competition offers “stripped-down
versions” at lower prices.
5. Potential Product: encompasses all the augmentations and transformations that
the product might undergo in the future.
 Five product levels Potential
Augmented
Expected

Basic

Core
benefit

Components of market offering -

Value-based prices

Attractiveness
of market
Product features & quality offering Services mix & quality
Product Classifications
Classifications done on the basis of: Durability , tangibility and use (consumer or
industrial).

Durability and Tangibility:

1. Non durable goods : (tangible with one or few uses)(e.g.: soft drinks, soaps)
Strategy : make them available in many locations, charge small markup and advertise heavily.
2. Durable (tangible with high duration)e.g. – refrigerators
Strategy : more personal selling, high margin, require more seller guarantees
3. Services (intangible, perishable) e.g –legal advice,appliance repairs,etc.
Require more quality control, supplier credibility, adaptability.

Consumer Goods:
4. Convenience goods: Purchased frequently, immediately and with minimum effort. Further
subdivided into:
• Staples – purchased on regular basis (toothpaste, biscuits,etc.)
• Impulse – purchased w/o any planning.(Chocolates, candy bars, etc.)
• Emergency – purchased when need is urgent(umbrellas, rain coats,etc)
2. Shopping Goods: Consumer compares on the bases like quality, price, suitability, style etc.
• Homogenous (similar quality, differ in price)
• Heterogeneous (differ in product features & services )
3. Specialty goods: No comparisons. Consumers willing to make extra effort due to certain
unique characteristics or brand identification. eg. Cars, stereo, suits, etc. Dealers don’t
need convenient locations, however, they must let prospective buyers know their
locations.
4. Unsought goods: Which consumer normally doesn’t think of buying. eg. Insurance, smoke
detectors, etc. These require advertising and personal selling support.

Industrial Goods –
classified on the basis of relative cost and how they enter the production process.

4. Materials and parts: Further divided into raw materials and manufactured materials and
parts.
Raw materials : -- Farm products (wheat, cotton,etc)
-- Natural products (fish, lumber,etc)

Manufactured materials and parts : -- Materials – fabricated further (yarn, cement,wires)

-- Component parts (small motors, tires)

2. Capital Items: Long lasting and facilitate development of finished product.

• Installations: Consist of buildings (factories) and heavy equipment (drills,
elevators)
• Equipment: Portable factory equipment and tools (hand tools) and office
equipment (PCs, desks)
3. Supplies and business services: Short term, help in development or managing
finished product.
Supplies include:
• Maintenance and repair items (paints, nails, brooms)
• Operating supplies (lubricants, coal, pencils)
Similar to convenience good; purchased with minimum effort and usually straight
rebuys.
Business services include:
• Maintainence and repair services (repair of photocopying machine)
• Business advisory services (legal, consulting, advertising)
 Differentiation
Product differentiation
• Form – size, shape or physical structure. Eg Disprin differentiate itself as fastest acting drug for headache.
Sony VAIO- X the size zero lappy world’s slimest recently launched in india
• Features – features that supplement the product. Eg. Differentiation of a zen car model from lx to lxi
where in lxi you have features like power window power steering but in Lx its not
• Customization – customize them for the consumers. Eg. Subway.
Mass customization – the ability of a company to meet each customer’s requirements – to prepare on a
mass basis individually designed products, services, programs and communications.
• Performance Quality: It is the level at which a product’s primary characteristics operate.
• Conformance Quality: The degree to which all produced units are identical and meet the promised
specifications.
• Durability – measure of the product’s expected operating life cycle under natural or stressful conditions.eg
Nokia the mobile phone is known for its durability. Duracell is positioned as the long lasting battery.
• Reliability – measure of the probability that the product will not malfunction or fail within a specified
period of time. Blue dart a reliable source for courier if it says next business day delivery it make sure that
it provides that service
• Reparability – measure of ease of fixing the product when it malfunctions of fails. Like dell promise you
service at your home in next business day.
• Style -
Design

Design is the totality of features that affect how a product looks and functions in terms of customer requirements.
It includes all the qualities mentioned in the previous slide.
To the company a well designed product is the one that is easy to manufacture and distribute.
To the customer, a well designed product is the one that pleasant to look at and easy to open, install, use, repair
and dispose of.

Services Differentiation

• Ordering ease – how easy it is for customer to place an order with the company. Like pagalguy giving the option to
pay at delivery.
• Delivery – how well the product or service is brought to the customer. Dominnoe’s promises to deliver the pizza
within 30 mins else free.
• Installation – work done to make the product operational in its planned location. Aqua guard comes and install the
equipment at your place and give a detailed description about how to operate it in order to deliver best results
• Customer Training: Training the customer’s employees to use the vendor’s equipment properly and efficiently.
Most of the FMCD companies (electronics) provide you proper training after installation eg. AC
• Customer Consulting: Refers to data, information systems, and advice services that the seller offers to buyers.
• Maintenance and repair
• Returns (Read page 320,Kotler ed. 13 for better understanding )–
1. Controllable : result from problems of the seller and can be eliminated with proper strategies and programs by
the company or its supply chain partners.
2. Uncontrollable : cant be eliminated by the company in the short run.
Product Systems and Mixes
Product system : A group of diverse but related items that function in a compatible
manner.eg. Phones with headsets, cameras, etc.
A product mix/ product assortment is the set of all products and items a particular
seller offers for sale. A company’s product mix has a certain width, depth, length and
consistency.

Width: Number of product lines the company carries. Like HUL having different
product lines for home and personal care, food etc. within these categories they
further have wide range as personal wash, laundry, skin care, oral care etc. these lines
can be termed as width
Length: Total number of items in the mix. Eg like in case of personal wash for HUL it
has liril, lux, lifeboy , hamam,dove etc.
Depth: Number of variants offered of each product in the line.eg. Lux comes in 4
scents and 2 sizes and thus has a depth of 8.
Consistency: Refers to how closely related the various product lines are in end use,
production requirements, distribution channels or some other way.

These 4 product-mix dimensions allow companies to expand its business in four ways.
 Product and Brand Relationships
The Product Hierarchy ( Read Page 320, edition 13)
1. Need family: Core need. E.g. security
2. Product family: Product classes that can satisfy a given need with reasonable
effectiveness.eg. Savings and income
3. Product class: Group of products within the product family having functional
coherence.eg. Financial instruments
4. Product line: Group of products within same product class that are closely related
because they perform a similar function, are sold to the same customer groups,
are marketed through the same outlets and channels, or fall within given price
ranges.eg. Life insurance
5. Product type: Group of items within product lines. One of the forms of the
product.eg. Term life insurance
6. Item (also called stock keeping unit or product variant): A distinct unit in a brand or
product line distinguishable by size, price, appearance or some other attribute.eg.
ICICI Prudential renewable life insurance.
Product-Line Analysis
Modular design allows for creation of a product line (adding features to the basic model).
Product-line managers need to know the sales and profits of each item in their line to determine
which items to build, maintain, harvest, or divest.

SALES AND PROFITS

A company can classify its products into 4 types that yield different gross margins, based on sales
volume and promotion.

Core Product Basic product, high volumes, heavily

promoted and low margins because highly
undifferentiated.

Staples Lower sales volume, no promotion, higher

margins.eg. Faster CPUs.

Specialties Lower sales volume, Highly promoted.eg.

Moviemaking equipment or services like
installation, or on-site delivery. Eg the small
portable screens for cars.
Convenience items High volume, less promotion. Can carry high
margins.eg. Monitors, printers, etc.
• Eg consider the case of sony’s devision of
gaming consoles.
– Core product: PS2, PS3
– Staples: the special wireless and motion detector
remotes, memory devices (cards etc.)
– Specialties: PSP the portable version of PS2
– Convenience item: the games built by the Sony
digital team for Playstations.
MARKET PROFILE: Read diagram 12.4 ,Kotler , edition 13.
*******************************************************
Product-Line Length
Company objectives influence product-line length.
Objectives to create product line –
1. to induce upselling e.g. – Maruti trying to move customers from maruti 800 to alto to Zen.
2. to facilitate cross-selling e.g. – HP sells printers and computers.
3. to protect against economic ups and downs – e.g. videocon range of goods : fridge, TV , microwave
ovens, etc.

A company lengthens its product line in two ways: by line stretching and line filling.

LINE STRETCHING
Occurs when a company lengthens its product line beyond its current range.
Down market stretch: Introducing a lower-priced line. (use parent brand name, use sub-brand name ,
introduce under a different name.)
Up market stretch: High end lines for more growth, higher margins or other reasons.
Two way stretch: Companies in the middle market might decide to stretch their line in both directions.

LINE FILLING
Adding more items within the present range for incremental profits, to utilize excess capacity, to own a
full line, etc. Care should be taken to avoid self-cannibalization and customer confusion by creating a
just-noticeable difference in the consumer’s mind.
LINE MODERNIZATION, FEATURING AND PRUNING
For modernization, a company can overhaul the line piecemeal or all at
once. Piecemeal allows the company to see how the customers and
dealers react.
Product-line managers may select one or two items to feature in the line
and the deadweights in the product- line that are depressing profits
should be pruned.

Product-mix Pricing
Pricing for a product line involves various demand and cost inter-
relationships. Objective remains to maximize profits on the total mix.

1. Product-line Pricing: Introduce price steps for the product-line.eg.

Men’s shirts at Rs 500, Rs. 1000, and Rs. 1500 associated with low,
medium and high quality.
2. Optional-Feature Pricing: Price steps based on optional products, features and
services offered along with the main product.eg. Automobile features.

3. Captive-Product Pricing: Some products require ancillary or captive products.eg.

Razors are sold at lower prices and razor blades (captive) are sold at higher prices.
Danger with pricing the captive products too high is that it may give rise to piracy
and counterfeiting.

4. Two-Part Pricing: Fixed fee + Variable usage fee. eg. Mobile users.
Fixed fee should be low enough to induce the purchase.

5. By-product Pricing: Income on by-products produced during manufacturing can

be used to charge lower prices on the main products.eg. By-products of petroleum
refineries such as vaseline.

6. Product-Bundling Pricing: Pure bundling is when the firm offers its products only
as a bundle. It is a form of tied-in sales.
Mixed bundling is when the seller offers the goods both as a bundle as well as
individually. Normally, the bundle is cheaper than the combined price of individuals.
Co-Branding and Ingredient Branding

CO-BRANDING (also called dual branding or brand bundling)

Two or more well-known existing brands are combined into a joint product
and/or marketed together in some fashion. Types of co-branding:

Same company co-branding – Eureka Forbes water purifier and vacuum cleaner
Euroclean are jointly promoted.
Joint venture co-branding – Citibank and Indian oil co-branded credit cards.
Multiple sponsor co-branding – Talligent, an alliance of Apple, IBM and
Motorola.
Retail co-branding – Fast food restaurants, to optimize space and profits.
Advantages: Convincing positioning, greater sales, opening of new channels
and customer segments, reduced costs, and knowledge sharing.
Disadvantages: Brand dilution and possible lack of control.

For co-branding to be successful, both brands should be complementary

rather than similar and both should have strong brand equity individually.

INGREDIENT BRANDING
Special case of co-branding. Involves creating brand equity for parts,
components and materials that are necessarily contained within other
branded products.
eg. Dolby noise reduction systems
 Packaging, Labeling, Warranties and
Guarantees
Packaging
All the activities of designing and producing the container for a product.
cologne comes in a bottle (primary package), that is in a cardboard box
(secondary package), that is in a corrugated box (shipping package).
Various factors have contributed to the growing use of packaging as a
marketing tool:
• More and more products are sold on a self-service basis.
• Rising consumer affluence or willingness to pay more for the convenience,
appearance, dependability, and prestige of better packages.
• Company and brand image
• Innovation opportunity
Labeling
Labels perform the following functions:
• Identifies the product or the brand
• Grades the product
• Describes the product
• Promotes the product

Warranties and Guarantees

Warranties are 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. Warranties, implied or expressed, are legally enforceable.

Guarantees reduce the buyer’s risk. They suggest high quality and
dependability and companies might charge a premium for this.
Guarantees are most effective in two situations: when the product or
company is not well known or when the product’s quality is superior.