Product StrategyThe Ins and Outs of “What”

Overview

1. What is a product?

2. Product types

3. New Product Types

4. Product Life-Cycle

5. Packaging

• Special behavioral considerations

What is a Product?• Product: Bundle of physical, service, and symbolic

attributes designed to enhance buyers’ “want satisfaction”

• People buy “need satisfaction,” not objects

– Consumers buy televisions because they want entertainment, not because they want a box with a screen

• Service: Intangible task that satisfies customers’ needs

• Goods-services continuum: Device helping marketers to visualize the differences and similarities between goods and services

Brand Image and Identity

• … a major part of what a product is.

– recall individual factors of perception

• What is Mountain Dew’s brand image?

– http://www.youtube.com/watch?v=vblCMmZxPF0

Classifying Goods and Services for Consumers and Business Markets

• Consumer Products: Products destined for use by the ultimate consumers

• Business Products: Those that contribute directly or indirectly to the output of other products for resale

– Also called industrial or organizational products

– Ex: Ingredients, equipment,…

• Some goods (and services) fall in both categories

• We are mostly going to focus on Consumer Products

Types of Consumer Products

1. Convenience Products: Good or service that consumers want to purchase frequently, immediately, and with minimal effort

• Impulse goods and services – purchased on the spur of the moment

• Staples – convenience goods and services that consumers constantly replenish to maintain a ready inventory

• Emergency goods and services – bought in response to unexpected and urgent needs

Types of Consumer Products

2. Shopping product: Good or service purchased only after the customer compares competing offerings from competing vendors on such characteristics as price, quality, style, and color

– Food shoppers often rely on previous comparisons

• Shopper lacks complete information and gathers information during the buying process

• What products aren’t shopping products?

• Cost more or less than convenience items (by markup)?

Types of Consumer Products

3. Specialty product: Good or services with unique characteristics causing the buyer to value it and make a special effort to obtain it– Usually higher-end items. Why?

4. Unsought product: Good or service marketed to consumers who may not yet recognize the need for it or know of it– “Huh. I’ll give this a try.”

– often unique new products• the goal of heavy introductory marketing is to

make the product a sought item

– often unfamiliar or ethnic products

The Product Mix• The portfolio of products sold by a company

– has to fit the company’s capabilities and its marketing goals

• Successful companies tend to offer an assortment of products (individual offerings) and product lines to reach their target market(s) more effectively.

• Product Line – a group of closely related products– Ex: Yoplait’s Greek yogurt selection

– Benefits of product lines:• advertising economies

• uniform quality meet consumer expectations

• marketing efficiencies, such as distribution

• do not have to negotiate for shelf space for each product in the line

• uniform packaging allows for lower costs and increases salience

• allows for greater market capture

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Dimensions of the Product Mix• Width – the number of product lines offered

– Ex: Yogurt, Milk, frozen dairy,…

• Depth – the number of variations in each product line that a firm markets in its mix

– Ex: Number of Greek yogurt flavors/low-fat offerings

• Length – the number of different products the firm sells (total)

– Length = Width1 × Depth1 + Width2 × Depth2 + ….

– Ex: Greek yogurt, drinkable yogurt, regular yogurt, fruit on the bottom…

• Some examples:

– Pepperidge Farm

– Stonyfield

– Hershey’s

Product Life-Cycle• Progression of products through (1)

introduction, (2) growth, (3) saturation, (4) maturity, and (5) decline.

• Profits are likely to be negative during the introduction stage and early growth stage (still paying off R&D + large promotional expenses).

• Companies can launch new products/extend product lines to revive sale trends which are wearing off positive profits for a product in the growth stage can be reinvested in launching new products to keep profitability alive.

Stages of the Product Life-Cycle

1. Introduction

• A firm works to stimulate demand for the new market entry

• Promotional campaigns stress attributes– explains what the product is

• be generous with free samples

• Additional promotions to intermediaries attempt to induce them to carry the product– often the biggest barrier to entry is getting the retailer to stock the

item• often have to pay them slotting fees

• Although prices are typically high, financial losses are common due to heavy promotional and research-and-development costs

Launched 9/13

Stages of the Product Life-Cycle

2. Growth

• Sales volume rises rapidly

• Firm begins to realize substantial profits (hopefully)

• Success attracts competitors

• Firm may need to make improvements to the product

• Additional spending on promotion and distribution may be necessary to protect market gains

Stages of the Product Life-Cycle

3. Saturation

• Industry sales continue to grow, but eventually reach a plateau

• Many competitors have entered the market, and profits began to decline

• Differences between competing products diminish

• Available supplies exceed industry demand for the first time

• Competition intensifies and heavy promotional outlays are common

Stages of the Product Life-Cycle

4. Maturity

• profits remain high

• brand is very strong

• market position is defended

• increased focus on consumption rates

• struggles to avoid complacency and market myopia

Stages of the Product Life-Cycle

5. Decline

• Innovations or shifts in consumer preferences cause an absolute decline in industry sales

• Industry profits fall - sometimes become losses

• Firms cut prices in a bid for the dwindling market

• Efforts to revitalize the product

• Manufacturers gradually drop the declining items from their product lines

Product Deletion Decision• Marketers delete product lines and eliminate marginal

products to preserve limited resources.

• At times firms may carry poor performing items to carry a complete product line.

– Ex: Grocery stores carry bulky, low-unit value items like salt to meet shopper demand.

• Shortages of raw materials (production problems) can prompt a firm to discontinue production

• Firm may drop products that don’t fit into the direction in which it plans to grow

– dropped to protect future brand identity and equity• often reformulation offers a quick fix

Extending the Product Life-Cycle

• Marketers usually try to extend each stage of the life-cycle for their products as long as possible (except intro)

• Product life cycles can stretch indefinitely as a result of decisions designed to:

– Increase the frequency of use by current customers

– Increase the number of users of the product

– Change package sizes, labels, or product quality

• a.k.a. revitalize

Red Lobster Extends its Life• Red Lobster use to emphasize

low costs

• The brand was dwindling

• Market research revealed that consumers are not interested in low cost seafood

– they want high quality “fresh” seafood

• Red Lobster revitalized their brand by

– giving their buildings a fresh look

– emphasizing fresh all over the place• ex: catch of the day

New Food Products

New Product Introductions and Claims

Tag or claim 2002 2003 2004 2005 2006 2007 2008 2009 2010

% of total

Premium/Upscale 6.6 9.7 8.7 10.8 12.9 13.5 13.4 10.4 7.0

Natural 9.0 8.4 7.6 8.2 8.1 8.9 8.5 8.4 8.4

Single serving 8.1 6.9 6.2 6.5 6.8 5.9 6.1 6.0 5.7

Private label 2.1 2.6 1.6 1.5 2.0 2.8 3.0 3.6 6.2

Fresh 4.2 3.4 3.3 3.5 3.4 3.6 3.7 3.6 3.2

Organic 3.2 3.4 3.0 3.4 3.6 4.2 4.2 3.4 3.2

Low or no sugar 2.1 2.8 2.4 3.5 3.3 - - - -

No preservatives 3.1 3.5 3.1 2.8 2.9 3.2 3.2 3.4 3.4

Quick 3.2 3.2 2.9 2.9 3.2 3.0 2.6 2.7 -

Low or no trans fat 0.1 0.4 1.4 2.4 2.6 2.9 2.7 2.5 -

No Gluten - 1.0 1.0 1.2 1.2 1.5 1.9 2.5 3.4

High-vitamin 3.1 4.2 4.0 3.9 3.9 3.5 4.0 3.4 3.8

TOTAL 44.8 49.5 45.2 50.6 53.9 53.0 53.3 49.9 44.3

Source: Datamonitor.

(~20,000 each year)

Product Life-Cycle Planning

• As a firm’s offerings enter the maturity and decline stages of the product life cycle, it must add new items to continue to prosper

Alternative Product Development Strategies

Source: Boone and Kurtz (2010), Contemporary marketing 14th edition

Old Product Development Strategies

• Market Penetration (old product, old market)

– requires aggressive marketing to gain more of the market you’re already in

– requires a high degree of strategic competitive behavior

– may result in backlash from competitors who were happy with the status quo

• Ex: your simulation, Pepsi vs. Coke “Cola Wars”

Old Product Development Strategies• Market Development (old product, new market)

– find a new market for an existing product

• can be a new segment-wise: geographically, psychographically, etc.

– Ex: Asian-markets use to target only Asian customers; but many have found success going after your professor.

– Ex: Coke is making an absolute killing in developing countries, especially China.

New Product Development Strategies

• Product development (new product, old market)

• Product positioning: consumers’ perceptions of a product’s attributes, uses, quality, and advantages and disadvantages in relation to those of competing brands

– very important

– Firms must avoid cannibalization: introducing a new product that adversely affects sales of existing products.

• Product diversification (new product, new market)

– Difficult because of unfamiliarity with market and there are inherent uncertainty with new products

New Food Products Types

1. Line Extensions

2. Repositioning of existing products

3. New form or size of existing products

4. Repackaging of existing products

5. Reformulation of existing products

6. Innovative products

7. Creative products

• Although going from 1 7 the risk of failure increases, the opportunities to gain a winning market position is higher

Low Effort/Risk

High Effort/Risk

Difficulties Introducing a Food Product

1. Marketplace Complexity

– How many (close) competitors are there?

– What warehousing technology is needed

– Is the economic climate conducive to our product?

– Who will sell our product?

– Etc….

Difficulties Introducing a Food Product

2. Technical Complexity – the more innovative the products are the more complexity they will involve (from a technical standpoint);

– consumers & customers may need to acquire new skills or to be “educated” about the new product to use it more creative marketing efforts needed

– Provide recipes/cooking instructions; include in kits; give demonstrations

– Trade demonstrations

– Ex: Birds Eye

Difficulties Introducing a Food Product

3. Consumer Elusivity – relates to the recalcitrance and fickleness of consumers

– some of them will stick with existing trends and are not open to innovations

– others are willing to embrace the new, especially if they perceive the additional value

• closely linked to most of the trends we have discussed in class

– Provide samples

Source: Fuller (2011), New Food Product Development. pg. 15

Product 2 – Different marketplace: the company may not be familiar with the new market. No development costs needed, just adopt marketing strategies to target buyers (same target customers) in the new market

Product 1– Established product in a “safe” market – it could be considered as the “home” market

Product 3 – Same market, same customers, different product (more complex): increased cost to add value to the product and to promote the new features of the product to the customers

Product 4 – New Product, expanded in a new marketplace. Same target market, however, the distribution and marketing costs may be higher.

Product 5 – The product has found a new niche, i.e. is targeting a different group of consumers – it is still sold in a “familiar” marketplace: repositioning can be risky and require additional marketing costs…

Product 6 – The company may decide to move its new “value added” product, to target more elusive consumers in a new market to the company.

Product Packaging• Packaging is particularly important for food products.

• It has three main purposes:

1. Protection against damage, spoilage, and pilferage

2. Assistance in marketing the product (not only for the images on the labels, also for EASE OF USE!!!)

3. Cost effectiveness

• It is a tool of product identification, but also a source of product differentiation

– Unique shapes of jars / bottles.

– Extension of shelf life is a way to differentiate the product;

– Remember Labeling?

• Can change in packaging be considered a product innovation?

Package Shape

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Package Shape

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Package Shape

• Vertical lengths are perceived to be greater relative to horizontal lengths.

• Taller containers are perceived to be of greater volume

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20 2 10 1 perceived to be of volume

20 10 2 1 perceived to be of volume

Volume Length Height Width

smaller

greater

Package Shape: “Bottoms Up!” (Wansink, 2003)

Experiment 1: Children

• Portion controlling 12-17 y.o. trying to lose weight at a health and fitness camp were randomly given tall or short 22.3 oz. cups as they went through the breakfast cafeteria line.

• Very few poured more than 14 oz.

– Cup size was not a constraint

• What do you think happened?

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• 97% drank it all, even thought they poured more than they intended

• Tall glass group thought they poured more than they did pour and consume.

• Short glass group thought they poured less than they did pour and consume.

• Short cup group poured and consumed 74% more than tall cup group, but perceived themselves to have poured less (7.04 oz. vs. 7.54 oz.)!

• Perhaps children lack the lifelong experience to overcome this illusion

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Package Shape: “Bottoms Up! (Wansink, 2003)

Experiment 2: Adults

• Same as experiment 1 except

– with adults aged 16-82; average age = 37

– attending a jazz improve camp

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• 98% drank it all, even though they poured more than they intended

• Again, tall glass group thought they poured more than they did pour and consume.

• Again, short glass group thought they poured less than they did pour and consume.

• Short cup group poured and consumed 19% more than tall cup group, and again perceived themselves to have poured less (5.76 oz. vs. 7.15 oz.)!

• Typical responses: “You’re kidding!” “Really?!” “Can you weigh it and show me?”

• Perhaps we need to bring in professional pourers

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Package Shape: “Bottoms Up!” (Wansink, 2003)

Experiment 3: Bartenders

• Bartenders were asked to pour 1.5 oz. (standard amount) into 12 oz. highball (tall) glasses and 12 oz. tumbler (short) glasses.

• In this experiment, subjects all think they have poured 1.5 oz.

• To see if experience can overcome the optical illusion, bartenders are broken up into 2 groups:

– <5 yrs experience

– >5 yrs experience

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• They over-poured in both tall and short cases. Why?

• Way off the mark for short glasses

– poured 27% more into short glasses

– but experience helps

• Even experienced bartenders pour more into short glasses than tall ones.

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Package Shape• There is no escaping our perceptual biases

• Tall skinny packages appear to contain more.

– Boxed cereal is vertically orientated even though they are most likely to tip over in that orientation.

• Elongated glasses in restaurants will result in greater customer satisfaction, and/or allow less quantity to be served (i.e. lower costs).

– Counter examples? (depends on consumer needs)

• These biases can be used to the marketer’s advantage

– Use tall packages so consumers think they are getting more increased satisfaction

– Save costs with less product in taller packages

• Packaging matters!

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Multipacks and Package Size

• The “Costco Effect”

• Larger packages often accelerates in-home consumption rates– total long run sales increase

– i.e. people aren’t just stocking up

• Theories why?– larger packages signal lower price

– consumption amounts are based on references quantities

– over pouring

– less rationing due to impending household stock out

Source: Wansink, B. 1996, “Can Package Size Accelerate Usage Volume?”,Journal of Marketing, Vol 60: 1-14

Taste Sensations

• Strong flavors

– may be liked, but…

– will not be consumed in large quantities

– will not be consumed at high frequency

• Coke hired the best food/taste scientists in the world to determine what makes Coke so popular

– finding: it provides balanced mouthfeel and flavors, and is bland

• not too sweet, not too “spicy,” not too flavorful

Bibliography

• Fuller, G.W., 2011, “New Food Product Development: From Concept to Marketplace,” CRC Press, 3rd edition.

• Boone and Kurtz, 2010, “Contemporary Marketing,” 14th

edition.

• Wansink, B. 1996, “Can Package Size Accelerate Usage Volume?”, Journal of Marketing, Vol 60: 1-14.