CHAPTER 5
Product and Service
Strategy and Brand
Management
AFTER READING THIS CHAPTER
YOU SHOULD BE ABLE TO:
1. Explain the offering concept and
offering mix portfolio.
2. Describe how the marketing
manager modifies the offering mix.
3. Identify and describe the stages
in the new-offering development
process.
4. Identify and describe the stages
in the product life cycle.
© 2013 Pearson Education, Inc. publishing as Prentice Hall
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AFTER READING THIS CHAPTER
YOU SHOULD BE ABLE TO:
5. Explain the types of positioning
strategies.
6. Define the concepts of brand and
brand equity.
7. Describe how brand equity is
created as well as its value to
organizations.
8. Explain the types of branding and
brand growth strategies.
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OFFERING STRATEGY DECISIONS
 An organization’s profitability depends
on its product or service offering(s)
and the strength of its brand(s)
 Marketers face three offeringrelated strategy decisions:
Modifying the
Offering Mix
Positioning
Offerings
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Branding
Offerings
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CHAPTER 5: PRODUCT AND SERVICE
STRATEGY AND BRAND MANAGEMENT
THE OFFERING
PORTFOLIO
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THE OFFERING PORTFOLIO
The Offering Concept
 An offering consists of the benefits or satisfaction
provided to target markets by an organization
 It contains the following elements:
Tangible
Product/Service
Related
Services
Brand
Name(s)
Warranties/
Guarantees
Packaging
Other Features
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ELEMENTS OF OFFERING
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THE OFFERING PORTFOLIO
The Offering Concept
 Focusing on an offering’s benefits or
satisfaction establishes a conceptual
framework for marketers
 This framework is useful in:
• Analyzing competing offerings
• Identifying target market unmet needs and wants
• Developing new products or services
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THE OFFERING PORTFOLIO
Offering Mix/
Portfolio
The totality of an organization’s
offerings
Offering
Lines
Groups of offerings similar
in terms of usage, buyers
marketed to, or technical
characteristics
Offering
Items
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A specific product or
service noted by a
brand, size, or price
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THE OFFERING PORTFOLIO
Offering Mix/Portfolio Decisions
Width
(Breadth)
Depth
Consistency
The number of offering lines
The number of items in each line
The extent to which offerings satisfy
similar needs, appeal to similar buyer
groups, or use similar technologies
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THE OFFERING PORTFOLIO
Offering Mix/Portfolio Decisions Based on:
Organizational
Resources
Competitive
Situation
Marketing
Strategy
One
Offering
High-Profit or
High-Volume
Offerings
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Complete
Lines
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CHAPTER 5: PRODUCT AND SERVICE
STRATEGY AND BRAND MANAGEMENT
MODIFYING THE
OFFERING MIX
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ADDITIONS TO THE OFFERING MIX
New Additions to the Offering Mix
 Additions take the form of:
Single
Offering
Entire
Line
 Questions to ask:
Consistency
Resources
Market
How consistent is the new offering with
existing offerings?
Does the organization have the resources
to introduce and sustain the offering?
Is there a viable market for the new
offering?
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ADDITIONS TO THE OFFERING MIX
Consistency
 Consider demand interrelationships
(offering substitutes or complements)
—the cannibalization effect
 Consider the degree to which the new
offering fits the organization’s existing
selling and distribution strategies
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ADDITIONS TO THE OFFERING MIX
Resources
 Consider the firm’s financial strength
 Consider the large initial cash outlays for a
new offering’s R&D and marketing program
 Consider the speed and magnitude of the
competitive response
 Consider the market growth rate
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ADDITIONS TO THE OFFERING MIX
Market
 Consider whether a market exists
(consumer willingness and ability to buy)
 Consider whether the new offering has
a competitive advantage
 Consider if there is a distinct market
segment for which no present offering
is satisfactory
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STAGES IN THE NEW-OFFERING
DEVELOPMENT PROCESS
Idea
Generation
Idea
Screening
Business
Analysis
Market
Testing
Commercialization
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P&G’S VICKS BRAND
Sinex Product
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STAGES IN THE NEW-OFFERING
DEVELOPMENT PROCESS
Idea Generation
 Sources of new offering ideas include:
Employees
Suppliers
Buyers
Competitors
 Ideas are obtained through marketing
research (formal) and informal means
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STAGES IN THE NEW-OFFERING
DEVELOPMENT PROCESS
Idea Screening
 Assess the match between prospective buyers
and the proposed offering:
• Does it have a relative advantage over existing offerings?
• Is it compatible with buyers’ use or consumption?
• Is it simple enough for buyers to understand and use?
• Can it be tested prior to actual purchase?
• Are there immediate benefits from it once consumed?

If “yes” and the offering satisfies a felt need, then go
to the business analysis stage
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STAGES IN THE NEW-OFFERING
DEVELOPMENT PROCESS
Business Analysis
 Assess financial viability based on estimated:
Sales
Costs
Profits
 Forecasting sales is difficult for new offerings
 Profitability analyses relate to:
Investment
Break-even
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Payback Period
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STAGES IN THE NEW-OFFERING
DEVELOPMENT PROCESS
Business Analysis
Payback
Period
Payback
Period
=
The number of years required
for an organization to recapture
its initial offering investment
Total Fixed
Costs
=
Cash Flows
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STAGES IN THE NEW-OFFERING
DEVELOPMENT PROCESS
Business Analysis
Return on
Investment
(ROI)
Return on
Investment
(ROI)
=
The ratio of
net earnings (return) divided by
total investment.
Net Earnings
×
=
Investment
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STAGES IN THE NEW-OFFERING
DEVELOPMENT PROCESS
Market Testing
 May include product concept or buyer
preference tests in a laboratory situation
or field test market
 A test market is a scaled-down
implementation of one or more alternative
marketing strategies for a new offering
 Ideas that pass through this stage are
then commercialized
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STAGES IN THE NEW-OFFERING
DEVELOPMENT PROCESS
Commercialization
 3,000 raw ideas are needed to produce a
single commercially successful new offering
 New offering success depends on a fit with:
• Market needs
• Organizational strengths and resources
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LIFE-CYCLE CONCEPT
 A life cycle plots the sales curve of
an offering or a product class over
a period of time
 Life cycles are divided into 4 stages:
Introduction
Growth
MaturitySaturation
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Decline
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EXHIBIT 5.1: GENERAL FORM OF A
PRODUCT LIFE CYCLE
Sales
Introduction
Growth
Maturity-Saturation
Decline
Time
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LIFE-CYCLE CONCEPT
Introduction Stage
 Focus on stimulating trial of the offering by:
• Advertising
• Giving out free samples
• Obtaining adequate distribution
 The vast majority of sales volume is due to
trial purchases
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LIFE-CYCLE CONCEPT
Growth Stage
 An increasing share of volume is due
to repeat purchases
 Marketers focus on retaining existing
buyers of the offering through offering:
• Modifications
• Enhanced brand image
• Competitive pricing
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LIFE-CYCLE CONCEPT
Maturity-Saturation Stage
There is an increase in the:
 Proportion of buyers who are repeat
purchasers
 Standardization of production operations
and product-service offerings
 Incidence of aggressive pricing activities
by competitors
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LIFE-CYCLE CONCEPT
Maturity-Saturation Stage
Marketers:
 Find new buyers for the offering
 Significantly improve the offering
 Increase usage frequency among current buyers
Decline Stage
Marketers decide to harvest or eliminate the offering
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MODIFYING, HARVESTING, AND
ELIMINATING OFFERINGS
Trading
Up
Modifying
the Offering
Trading
Down
Involves adding new
features and higherquality materials or
augmenting the
offering with
attendant services
and then raising the
price
Is the process of
reducing the number
of features or quality
of an offering and
lowering the price
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MODIFYING, HARVESTING, AND
ELIMINATING OFFERINGS
Eliminating the Offering
An offering may be dropped from the offering mix if the
answers to these questions are “very little” or “none.”
 What is the offering’s future sales potential?
 How much is the offering contributing to offering mix
profitability?
 How much is the offering contributing to the sale of other
offerings in the mix?
 How much could be gained by modifying the offering?
 What would be the effect on channel members and buyers?
© 2013 Pearson Education, Inc. publishing as Prentice Hall
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CHAPTER 5: PRODUCT AND SERVICE
STRATEGY AND BRAND MANAGEMENT
POSITIONING OFFERINGS
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POSITIONING OFFERINGS
Positioning is the act of
designing an organization’s
offering and image so that it
occupies a distinct and
valued place in the target
customer’s mind relative to
competitive offerings.
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POSITIONING OFFERINGS
Positioning by Attribute or Benefit
 Is the strategy most frequently used
 Requires determining:
• Which attributes are important to target markets
• Which attributes competitors emphasize
• How the offering can be fitted into this offeringtarget market environment
 Accomplished by designing an offering that
contains or stresses the appropriate attributes
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POSITIONING OFFERINGS
Positioning Matrix
 Develop a matrix relating attributes of the offering
to market segments (see Exhibit 5.2)
 Benefits of the positioning matrix:
• Can spot potential opportunities for new offerings
and determine if a market niche exists
• Can estimate the extent to which a new offering
might cannibalize existing offerings
• Can judge the competitive response to a new
offering more effectively
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EXHIBIT 5.2: ATTRIBUTES AND
MARKETING SEGMENT POSITIONING
Toothpaste
Attributes
Flavor
Color
Market Segments
Children
Teens;
Young Adults
Family




Whiteness of Teeth
Fresh Breath


Decay Prevention
Price


Plaque Prevention
Stain Prevention
Principal Brands
for Each Segment
Adults
Aim; Stripe
Ultra Brite;
McCleans
Colgate; Crest
Topol;
Rembrandt
NOTE: A check () indicates principal benefits sought by each market segment.
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POSITIONING OFFERINGS
Positioning Statement
“For (target market and need), the
(product, service, brand name) is a
(product/service class or category)
that (statement of unique attributes
or benefits provided).”
Volvo’s position statement: For upscale
American families, Volvo is the family
automobile that offers maximum safety
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POSITIONING OFFERINGS
Making the Positioning Decision
The choice of which positioning strategy to
use can be made by answering the following:
 Who are the likely competitors, what are their
marketplace positions, and how strong are they?
 What are the preferences of the target consumers
and how do they perceive competitors’ offerings?
 What position, if any, does the organization already
have in the target consumers’ mind?
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CHAPTER 5: PRODUCT AND SERVICE
STRATEGY AND BRAND MANAGEMENT
BRAND EQUITY AND
BRAND MANAGEMENT
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BRAND EQUITY AND BRAND
MANAGEMENT
Brand
Brand Equity
A brand name is any
word, “device”
(design, sound,
shape, or color), or
combination of these
that are used to
identify an offering
and set it apart from
competing offerings.
Brand equity is the
added value a brand
name bestows on a
product or service
beyond the functional
benefits provided.
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BRAND EQUITY AND BRAND
MANAGEMENT
Brand Equity
Has two marketing advantages:
 Provides a competitive advantage,
such as signifying quality
 Can charge a higher price since
consumers are often willing to pay
for the brand’s equity premium
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BRAND EQUITY AND BRAND
MANAGEMENT
Branding Strategy
Multiproduct
Branding
Multibranding
Private
Branding
A firm uses one name for all
its products in a product class
A firm gives each product or
product line a distinct name
A firm supplies a reseller with
a product bearing a brand name
chosen by the reseller
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BRAND EQUITY AND BRAND
MANAGEMENT
Multiproduct Branding
 Also called family branding/corporate branding
 Establishes dominance in an offering class
 Allows buyers to transfer the good brand equity
of one offering to others with the same name
 Lowers promotion costs and raises brand
awareness since the same name is used
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Family Branding
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BRAND EQUITY AND BRAND
MANAGEMENT
Multibranding
 Is a useful strategy when each brand is
intended for a different market segment
or uniquely positioned in the marketplace
 Often arises from company acquisitions
 Increases promotional costs since
consumers and distributors must accept
each new brand of the firm
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Multibranding
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BRAND EQUITY AND BRAND
MANAGEMENT
Multibranding
Advantage
Reduced risk that one brand’s
failure will transfer to the firm
itself or to its other brands
• The strategy is complex
to implement
Disadvantages
• Promotional costs are higher
than with multiproduct branding
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BRAND EQUITY AND BRAND
MANAGEMENT
Private Branding
Private branding (or private labeling)
involves a manufacturer supplying
a reseller (retailer, wholesaler, or
distributor) with an offering bearing
a brand name chosen by the reseller.
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Private Branding
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BRAND EQUITY AND BRAND
MANAGEMENT
Private Branding
If a reseller carries its own private brands:
 Avoids price competition with other resellers
since they don’t carry an identical brand
 Accrues brand goodwill attributed to the
offering to the reseller, not the manufacturer
 Must locate a willing manufacturer
© 2013 Pearson Education, Inc. publishing as Prentice Hall
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BRAND EQUITY AND BRAND
MANAGEMENT
Brand Growth Strategies
Line
Extension
Introducing additional offerings with the same
brand in a product class that it currently serves
Brand
Extension
Using a current brand name to enter a
completely different product class
New
Brand
Fighting/
Flanker Brand
Developing of a new brand and often a new offering
for a product class not yet served by the firm
Creating a new brand to attract specific consumer
segments not served by a firm’s existing brands
to counteract competitors’ brands
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EXHIBIT 5.4: BRAND GROWTH
STRATEGIES
Product/Service Class
Served by the Organization
New Brand
New Product Class
Existing Product Class
New
Brand
Strategy
Fighting/
Flanker
Brand Strategy
Brand
Extension
Strategy
Line
Extension
Strategy
Brand Name
Existing Brand
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BRAND EQUITY AND BRAND
MANAGEMENT
Line Extension Strategy
Consists of new or different flavors, forms, colors,
ingredients, features, and package sizes. This strategy:
 Responds to customers’ desire for variety
 Eliminates gaps in a product line
 Lowers advertising and promotion costs
 Risks product cannibalism
 Can create production and distribution problems
 e.g., new bitter chocalate of Nestle, new Magnum
ice cream, orange flavoured Absolute
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Line Extention
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BRAND EQUITY AND BRAND
MANAGEMENT
Brand Extension Strategy
 Provides consumers with the familiarity
of an established brand when introducing
it in a new market
 Requires that the perceptual fit and core
product benefit of the brand transfers to
the new product class
 Dilutes the meaning of a brand for buyers
if the brand name has too many uses
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BRAND EQUITY AND BRAND
MANAGEMENT
Brand Extension Strategy
 e.g., Google car, Nestle water, Ferrari perfumes
 Renault & Samsung cooperation Samsung
branded cars
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BRAND EQUITY AND BRAND
MANAGEMENT
New Brand Strategy
 Used when existing brand names are not
extendable to a new product class for
which it is targeted
 May be the most challenging to
successfully implement and the most
costly: $50 to $100 million for a new brand
 This strategy is akin to diversification
 e.g., P&G acquired Duracell and Gillette
and Unilever acquired Vaseline
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BRAND EQUITY AND BRAND
MANAGEMENT
Flanker/Fighting Brand Strategy
Flanker Brand
Adding new brands on the high end
of a product line based on
a price-quality continuum
Fighting Brand
Adding a new brand whose sole
purpose is to confront competitive
brands in a product class being
served by an organization
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New Brand Strategy
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BRAND EQUITY AND BRAND
MANAGEMENT
Fighting Brand Strategy
Introduced when:
 An organization has a high relative market share
of the sales in a product class
 Its dominant brand is susceptible to having its
high market share reduced by competitors
through aggressive pricing or promotion
 The organization wishes to preserve its profit
margins on its existing brand
Fighting and flanker brand strategies risk cannibalizing
other lower-priced brands in a product line
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Fighter & Flanker brands
Fighter brands:
- Turkish Airlines-Anadolu Jet
- Renault-Dacia
- Intel: Celeron chip
Flanker brands:
- Hyundai-Genesis
- Toyota-Lexus
- Ariel and Alo laundry detergent brands of
P&G
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All rights reserved. No part of this publication may be reproduced, stored in a
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mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
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