Topic 5: Crafting customer value - offerings and brands

Question 1

Define product and describe the major classifications of products and services.

Answer 1

Broadly defined, a product is anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. Products include physical objects but also services, events, persons, places, organizations, ideas, or mixtures of these entities. Services are products that consist of activities, benefits, or satisfactions offered for sale that are essentially intangible, such as banking, hotel, tax preparation, and home-repair services.

Products and services fall into two broad classes based on the types of consumers who use them.

• Consumer products – those bought by final consumers – are usually classified according to consumer shopping habits (convenience products, shopping products, specialty products, and unsought products).
• Industrial products – those purchased for further processing or for use in conducting a business – include materials and parts, capital items, and supplies and services.

Other marketable entities – such as organizations, persons, places, and ideas – can also be thought of as products.

Question 2

What are the three levels that product planners need to think about products and services on?

Answer 2

1. Core customer value, which addresses the question: what is the buyer really buying?
2. actual product: product and service features, design, quality level, brand name, packaging.
3. augmented product built around the core benefit and actual product by offering additional consumer services and benefits.

Question 3

What is social marketing?

Answer 3

This is the use of commercial marketing concepts and tools in programs designed to influence individuals’ behavior to improve their well-being and that of society.

Question 4

Describe the decisions companies make regarding their individual products and services, product lines, and product mixes.

Answer 4

Individual product decisions involve product attributes, branding, packaging, labeling, and product support services.

1. Product attribute decisions involve product quality, features, and style and design.
2. Branding decisions include selecting a brand name and developing a brand strategy.
3. Packaging provides many key benefits, such as protection, economy, convenience, and promotion.
4. Package decisions often include designing labels, which identify, describe, and possibly promote the product.
5. Companies also develop product support services that enhance customer service and satisfaction and safeguard against competitors.

Most companies produce a product line rather than a single product. A product line is a group of products that are related in function, customer-purchase needs, or distribution channels. All product lines and items offered to customers by a particular seller make up the product mix. The mix can be described by four dimensions: width, length, depth, and consistency. These dimensions are the tools for developing the company’s product strategy.

• Product mix width refers to the number of different product lines the company carries.
• Product mix length refers to the total number of items a company carries within its product lines.
• Product mix depth refers to the number of versions offered for each product in the line.

Question 5

What is product quality?

Answer 5

These are the characteristics of a product or service that bear on its ability to satisfy stated or implied customer needs. Product quality has two dimensions: level and consistency.

1. In developing a product, the marketer must first choose a quality level that will support the product’s positioning. Here, product quality means performance quality – the product’s ability to perform its functions.
2. Beyond quality level, high quality also can mean high levels of quality consistency. Here, product quality means conformance quality – freedom from defects and consistency in delivering a targeted level of performance. All companies should strive for high levels of conformance quality.

Question 6

What is Total Quality Management (TQM)?

Answer 6

Total quality management (TQM) is an approach in which all of the company’s people are involved in constantly improving the quality of products, services, and business processes.

Question 7

What is a brand?

Answer 7

A brand is a name, term, sign, symbol, or design, or a combination of these, that identifies the products or services of one seller or group of sellers and differentiates them from those of competitors. Consumers view a brand as an important part of a product, and branding can add value to a consumer’s purchase. Customers attach meanings to brands and develop brand relationships. As a result, brands have meaning well beyond a product’s physical attributes.

Question 8

What is packaging?

Answer 8

Packaging includes the activities of designing and producing the container or wrapper for a product. Companies are realizing the power of good packaging to create immediate consumer recognition of a brand.

Question 9

Identify the four characteristics that affect the marketing of services and the additional marketing considerations that services require.

Answer 9

Services are characterized by four key aspects:

1. Intangible: Services cannot be seen, tasted, felt, heard, or smelled before they are bought.
2. Inseparable: Services are produced and consumed at the same time and cannot be separated from their providers.
3. Variable: The quality of services may vary greatly depending on who provides them and when, where, and how they are provided.
4. Perishable: Services cannot be stored for later sale or use.

Each characteristic poses problems and marketing requirements. Marketers work to find ways to make the service more tangible, increase the productivity of providers who are inseparable from their products, standardize quality in the face of variability, and improve demand movements and supply capacities in the face of service perishability. Good service companies focus attention on both customers and employees. They understand the service profit chain, which links service firm profits with employee and customer satisfaction. Services marketing strategy calls not only for external marketing but also for internal marketing to motivate employees and interactive marketing to create service delivery skills among service providers.

To succeed, service marketers must create competitive differentiation, offer high service quality, and find ways to increase service productivity.

Question 10

What is the service profit chain and what do the links consist of?

Answer 10

The service profit chain is the chain that links service firm profits with employee and customer satisfaction. This chain consists of five links:

1. Internal service quality. Superior employee selection and training, a quality work environment, and strong support for those dealing with customers, which results in …
2. Satisfied and productive service employees. More satisfied, loyal, and hardworking employees, which results in …
3. Greater service value. More effective and efficient customer value creation, engagement, and service delivery, which results in …
4. Satisfied and loyal customers. Satisfied customers who remain loyal, make repeat purchases, and refer other customers, which results in …
5. Healthy service profits and growth. Superior service firm performance.

Question 11

What else does service marketing require, aside from traditional external marketing using the four Ps?

Answer 11

Service marketing also requires internal marketing and interactive marketing.

1. Internal marketing means that the service firm must orient and motivate its customer-contact employees and supporting service people to work as a team to provide customer satisfaction. Marketers must get everyone in the organization to be customer centered. In fact, internal marketing must precede external marketing.
2. Interactive marketing means that service quality depends heavily on the quality of the buyer–seller interaction during the service encounter. In product marketing, product quality often depends little on how the product is obtained. But in services marketing, service quality depends on both the service deliverer and the quality of delivery. Service marketers, therefore, have to master interactive marketing skills.

Question 12

Discuss branding strategy – the decisions companies make in building and managing their brands.

Answer 12

Some analysts see brands as the major enduring asset of a company. Brands are more than just names and symbols; they embody everything that the product or the service means to consumers. Brand equity is the positive differential effect that knowing the brand name has on customer response to the product or the service. A brand with strong brand equity is a very valuable asset.

In building brands, companies need to make decisions about brand positioning, brand name selection, brand sponsorship, and brand development.

• Brand positioning can be at three levels:
  
  • Product attributes
  • Benefits
  • The most powerful brand positioning builds around strong consumer beliefs and values.
• Brand name selection involves finding the best brand name based on a careful review of product benefits, the target market, and proposed marketing strategies.
• A manufacturer has four brand sponsorship options:
  
  • it can launch a national brand (or manufacturer’s brand)
  • sell to resellers that use a private brand
  • market licensed brands
  • join forces with another company to co-brand a product.
• A company also has four choices when it comes to developing brands. It can introduce line extensions, brand extensions, multibrands, or new brands.

Companies must build and manage their brands carefully. The brand’s positioning must be continuously communicated to consumers. Advertising can help. However, brands are not maintained by advertising but by customers’ engagement with brands and customers’ brand experiences. Customers come to know a brand through a wide range of contacts and interactions. The company must put as much care into managing these touch points as it does into producing its ads. Companies must periodically audit their brands’ strengths and weaknesses.

Question 13

What is brand equity?

Answer 13

Brand equity is the positive differential effect that knowing the brand name has on customer response to the product or the service. A brand with strong brand equity is a very valuable asset.

High brand equity provides a company with many competitive advantages. A powerful brand enjoys a high level of consumer brand awareness and loyalty. Because consumers expect stores to carry the particular brand, the company has more leverage in bargaining with resellers. Because a brand name carries high credibility, the company can more easily launch line and brand extensions. A powerful brand also offers the company some defense against fierce price competition.

Above all, however, a powerful brand forms the basis for building strong and profitable customer relationships. The fundamental asset underlying brand equity is customer equity – the value of customer relationships that the brand creates. A powerful brand is important, but what it really represents is a profitable set of loyal customers. The proper focus of marketing is building customer equity, with brand management serving as a major marketing tool. Companies need to think of themselves not as portfolios of brands but as portfolios of customers.

Question 14

How does ad agency Young & Rubicam’s BrandAsset Valuator measure brand strength?

Answer 14

Ad agency Young & Rubicam’s BrandAsset Valuator measures brand strength along four consumer perception dimensions: differentiation (what makes the brand stand out), relevance (how consumers feel it meets their needs), knowledge (how much consumers know about the brand), and esteem (how highly consumers regard and respect the brand). Brands with strong brand equity rate high on all four dimensions. The brand must be distinct, or consumers will have no reason to choose it over other brands. However, the fact that a brand is highly differentiated doesn’t necessarily mean that consumers will buy it. The brand must stand out in ways that are relevant to consumers’ needs. Even a differentiated, relevant brand is far from a shoe-in. Before consumers will respond to the brand, they must first know about and understand it. And that familiarity must lead to a strong, positive consumer–brand connection.

Question 15

What is brand value?

Answer 15

Brand value is the total financial value of a brand.

Question 16

What is a store brand (or private brand)?

Answer 16

This is a brand created and owned by a reseller of a product or service.

Question 17

What is co-branding?

Answer 17

This is the practice of using the established brand names of two different companies on the same product.

Question 18

What are line extensions?

Answer 18

Line extensions occur when a company extends existing brand names to new forms, colors, sizes, ingredients, or flavors of an existing product category. For example, over the years, KFC has extended its “finger lickin’ good” chicken lineup well beyond original recipe, bone-in Kentucky fried chicken. It now offers grilled chicken, boneless fried chicken, chicken tenders, hot wings, chicken bites, and, most recently, KFC Go Cups – chicken and potato wedges in a handy car-cup holder that lets customers snack on the go.

A company might introduce line extensions as a low-cost, low-risk way to introduce new products. Or it might want to meet consumer desires for variety, use excess capacity, or simply command more shelf space from resellers. However, line extensions involve some risks. An overextended brand name might cause consumer confusion or lose some of its specific meaning.

Question 19

What is a brand extension?

Answer 19

A brand extension extends a current brand name to new or modified products in a new category. For example, Starbucks has extended its retail coffee shops by adding packaged supermarket coffees, a chain of teahouses (Teavana Fine Teas + Tea Bar), and even a single-serve home coffee, espresso, and latte machine – the Verismo. And P&G has leveraged the strength of its Mr. Clean household cleaner brand to launch several new lines: cleaning pads (Magic Eraser), bathroom cleaning tools (Magic Reach), and home auto cleaning kits (Mr. Clean AutoDry). It even launched Mr. Clean-branded car washes.

Question 20

What is multibranding?

Answer 20

This is when a company markets many different brands in a given product category. For example, in the United States, PepsiCo markets at least eight brands of soft drinks (Pepsi, Sierra Mist, Mountain Dew, Manzanita Sol, Mirinda, IZZE, Tropicana Twister, and Mug root beer), three brands of sports and energy drinks (Gatorade, AMP Energy, Starbucks Refreshers), four brands of bottled teas and coffees (Lipton, SoBe, Starbucks, and Tazo), three brands of bottled waters (Aquafina, H2OH!, and SoBe), and nine brands of fruit drinks (Tropicana, Dole, IZZE, Lipton, Looza, Ocean Spray, and others).

Multibranding offers a way to establish different features that appeal to different customer segments, lock up more reseller shelf space, and capture a larger market share. For example, although PepsiCo’s many brands of beverages compete with one another on supermarket shelves, the combined brands reap a much greater overall market share than any single brand ever could. Similarly, by positioning multiple brands in multiple segments, Pepsi’s eight soft drink brands combine to capture much more market share than any single brand could capture by itself.

A major drawback of multibranding is that each brand might obtain only a small market share, and none may be very profitable. The company may end up spreading its resources over many brands instead of building a few brands to a highly profitable level. These companies should reduce the number of brands they sell in a given category and set up tighter screening procedures for new brands. e.g. GM

Question 21

How can a firm obtain new products?

Answer 21

A firm can obtain new products in two ways:

1. Acquisition: buying a whole company, a patent, or a license to produce someone else’s product.
2. New product development

Question 22

Explain how companies find and develop new product ideas (idea generation).

Answer 22

Companies find and develop new product ideas from a variety of sources.

1. Many new product ideas stem from internal sources. Companies conduct formal R&D, or they pick the brains of their employees, urging them to think up and develop new product ideas.
2. Other ideas come from external sources. Companies track competitors’ offerings and obtain ideas from distributors and suppliers who are close to the market and can pass along information about consumer problems and new product possibilities.
3. Perhaps the most important sources of new product ideas are customers themselves. Companies observe customers, invite them to submit their ideas and suggestions, or even involve customers in the new product development process. Many companies are now developing crowdsourcing or open-innovation new product idea programs, which invite broad communities of people – customers, employees, independent scientists and researchers, and even the general public – into the new product innovation process. Truly innovative companies do not rely only on one source or another for new product ideas.

Question 23

List and define the steps in the new product development process and the major considerations in managing this process.

Answer 23

The new product development process consists of eight sequential stages.

1. The process starts with idea generation.
2. Next comes idea screening, which reduces the number of ideas based on the company’s own criteria.
3. Ideas that pass the screening stage continue through product concept development, in which a detailed version of the new product idea is stated in meaningful consumer terms. This stage includes concept testing, in which new product concepts are tested with a group of target consumers to determine whether the concepts have strong consumer appeal.
4. Strong concepts proceed to marketing strategy development, in which an initial marketing strategy for the new product is developed from the product concept.
5. In the business-analysis stage, a review of the sales, costs, and profit projections for a new product is conducted to determine whether the new product is likely to satisfy the company’s objectives.
6. With positive results here, the ideas become more concrete through product development (Developing the product concept into a physical product to ensure that the product idea can be turned into a workable market offering) and (7) test marketing (The stage of new product development in which the product and its proposed marketing program are tested in realistic market settings) and finally are launched during (8) commercialization (Introducing a new product into the market).

New product development involves more than just going through a set of steps. Companies must take a systematic, holistic approach to managing this process. Successful new product development requires a customer-centered, team-based, systematic effort.

Question 24

What is customer-centered new product development?

Answer 24

This is new product development that focuses on finding new ways to solve customer problems and create more customer-satisfying experiences.

Question 25

What is team-based new product development?

Answer 25

This is new product development in which various company departments work closely together, overlapping the steps in the product development process to save time and increase effectiveness.

In the team-based approach, if one area hits snags, it works to resolve them while the team moves on.

The team-based approach does have some limitations, however. For example, it sometimes creates more organizational tension and confusion than the more orderly sequential approach. However, in rapidly changing industries facing increasingly shorter product life cycles, the rewards of fast and flexible product development far exceed the risks. Companies that combine a customer-centered approach with team-based new product development gain a big competitive edge by getting the right new products to market faster.

Question 26

Describe the stages of the product life cycle and how marketing strategies change during a product’s life cycle.

Answer 26

Each product has a life cycle marked by a changing set of problems and opportunities. The sales of the typical product follow an S-shaped curve made up of five stages.

1. The cycle begins with the product development stage in which the company finds and develops a new product idea.
2. The introduction stage is marked by slow growth and low profits as the product is distributed to the market. The introduction stage is the PLC stage in which a new product is first distributed and made available for purchase.
3. If successful, the product enters a growth stage, which offers rapid sales growth and increasing profits.
4. Next comes a maturity stage in which the product’s sales growth slows down and profits stabilize.
5. Finally, the product enters a decline stage in which sales and profits dwindle. The company’s task during this stage is to recognize the decline and decide whether it should maintain, harvest, or drop the product.

The different stages of the PLC require different marketing strategies and tactics.

Question 27

The PLC concept can also be applied to what?

Answer 27

1. Style: a basic and distinctive mode of expression
2. Fashion: a currently accepted or popular style in a given field
3. Fad: a temporary period of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity.

Question 28

What are the marketing strategies for the different stages of the product life cycle?

Answer 28

1. Introduction stage:

In this stage, as compared to other stages, profits are negative or low because of the low sales and high distribution and promotion expenses. Much money is needed to attract distributors and build their inventories. Promotion spending is relatively high to inform consumers of the new product and get them to try it. Because the market is not generally ready for product refinements at this stage, the company and its few competitors produce basic versions of the product. These firms focus their selling on those buyers who are the most ready to buy.

A company, especially the market pioneer, must choose a launch strategy that is consistent with the intended product positioning. It should realize that the initial strategy is just the first step in a grander marketing plan for the product’s entire life cycle. If the pioneer chooses its launch strategy to make a “killing,” it may be sacrificing long-run revenue for the sake of short-run gain. The pioneer has the best chance of building and retaining market leadership if it plays its cards correctly from the start.

2. Growth stage: The early adopters will continue to buy, and later buyers will start following their lead, especially if they hear favorable word of mouth. Attracted by the opportunities for profit, new competitors will enter the market. They will introduce new product features, and the market will expand. The increase in competitors leads to an increase in the number of distribution outlets, and sales jump just to build reseller inventories. Prices remain where they are or decrease only slightly. Companies keep their promotion spending at the same or a slightly higher level. Educating the market remains a goal, but now the company must also meet the competition.
3. Maturity stage: This maturity stage normally lasts longer than the previous stages, and it poses strong challenges to marketing management. Most products are in the maturity stage of the life cycle, and therefore most of marketing management deals with the mature product.

The slowdown in sales growth results in many producers with many products to sell. In turn, this overcapacity leads to greater competition. Competitors begin marking down prices, increasing their advertising and sales promotions, and upping their product development budgets to find better versions of the product. These steps lead to a drop in profit. Some of the weaker competitors start dropping out, and the industry eventually contains only well-established competitors.

Although many products in the mature stage appear to remain unchanged for long periods, most successful ones are actually evolving to meet changing consumer needs. Product managers should do more than simply ride along with or defend their mature products – a good offense is the best defense. They should consider modifying the market, product offering, and marketing mix.

In modifying the market, the company tries to increase consumption by finding new users and new market segments for its brands. For example, brands such as Harley-Davidson and Axe fragrances, which have typically targeted male buyers, are introducing products and marketing programs aimed at women. Conversely, Weight Watchers and Bath & Body Works, which have typically targeted women, have created products and programs aimed at men.

The company may also look for ways to increase usage among present customers.The company might also try modifying the product – changing characteristics such as quality, features, style, packaging, or technology platforms to retain current users or attract new ones. For example, to freshen up their products for today’s technology-obsessed children, many classic toy and game makers are creating new digital versions or add-ons for old favorites. Finally, the company can try modifying the marketing mix – improving sales by changing one or more marketing mix elements. The company can offer new or improved services to buyers. It can cut prices to attract new users and competitors’ customers. It can launch a better advertising campaign or use aggressive sales promotions – trade deals, cents-off, premiums, and contests. In addition to pricing and promotion, the company can also move into new marketing channels to help serve new users.

4. Decline stage: The sales of most product forms and brands eventually dip. The decline may be slow, as in the cases of stamps and oatmeal cereal, or rapid, as in the cases of VHS tapes. Sales may plunge to zero, or they may drop to a low level where they continue for many years.

Sales decline for many reasons, including technological advances, shifts in consumer tastes, and increased competition. As sales and profits decline, some firms withdraw from the market. Those remaining may prune their product offerings. In addition, they may drop smaller market segments and marginal trade channels, or they may cut the promotion budget and reduce their prices further.

Carrying a weak product can be very costly to a firm, and not just in profit terms. There are many hidden costs. A weak product may take up too much of management’s time. It often requires frequent price and inventory adjustments. It requires advertising and sales-force attention that might be better used to make “healthy” products more profitable. A product’s failing reputation can cause customer concerns about the company and its other products. The biggest cost may well lie in the future. Keeping weak products delays the search for replacements, creates a lopsided product mix, hurts current profits, and weakens the company’s foothold on the future.

For these reasons, companies must identify products in the decline stage and decide whether to maintain, harvest, or drop them. Management may decide to maintain its brand, repositioning or reinvigorating it in hopes of moving it back into the growth stage of the product life cycle. Management may decide to harvest the product, which means reducing various costs (plant and equipment, maintenance, R&D, advertising, sales force), hoping that sales hold up. If successful, harvesting will increase the company’s profits in the short run. Finally, management may decide to drop the product from its line. The company can sell the product to another firm or simply liquidate it at salvage value.

Question 29

Discuss two additional product issues: socially responsible product decisions and international product and services marketing.

Answer 29

Marketers must consider two additional product issues.

1. The first is social responsibility. This includes public policy issues and regulations involving acquiring or dropping products, patent protection, product quality and safety, and product warranties.
2. The second involves the special challenges facing international product and services marketers. International marketers must decide how much to standardize or adapt their offerings for world markets.