Product Strategy
The Ins and Outs of “What”
Marketing Mix
1.Product
2. Price
3. Distribution
4. Promotion
Upcoming Schedule
Product Strategy
Tuesday 3/22
Lecture
Thursday 3/24
Class Discussion on “TruEarth Healthy Foods: Market
Research for a New Product Introduction”
Pricing Strategy
Tuesday 3/29
Lecture
Thursday 3/31
Class Discussion on “A.1. Steak Sauce: Lawry’s Defense”
Distribution Strategy
Tuesday 4/5
Lecture
Tuesday 4/7
Class Discussion on “Natureview Farm”
Promotion Strategy
Tuesday 4/12
Lecture
Thursday 4/14
Class Discussion on “Giant Consumer Products: The Sales
Promotion Resource Allocation Decision”
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 11
allows for greater market capture
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
Launched 9/13
• 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-anddevelopment costs
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
(~20,000 each year)
New Product Introductions and Claims
Tag or claim
2002 2003 2004
2005
2006 2007 2008 2009 2010
Premium/Upscale
Natural
Single serving
Private label
Fresh
Organic
6.6
9.0
8.1
2.1
4.2
3.2
9.7
8.4
6.9
2.6
3.4
3.4
8.7
7.6
6.2
1.6
3.3
3.0
% of total
10.8
12.9
8.2
8.1
6.5
6.8
1.5
2.0
3.5
3.4
3.4
3.6
Low or no sugar
No preservatives
Quick
Low or no trans fat
No Gluten
High-vitamin
TOTAL
2.1
3.1
3.2
0.1
3.1
44.8
2.8
3.5
3.2
0.4
1.0
4.2
49.5
2.4
3.1
2.9
1.4
1.0
4.0
45.2
3.5
2.8
2.9
2.4
1.2
3.9
50.6
Source: Datamonitor.
3.3
2.9
3.2
2.6
1.2
3.9
53.9
13.5
8.9
5.9
2.8
3.6
4.2
13.4
8.5
6.1
3.0
3.7
4.2
10.4
8.4
6.0
3.6
3.6
3.4
7.0
8.4
5.7
6.2
3.2
3.2
3.2
3.0
2.9
1.5
3.5
53.0
3.2
2.6
2.7
1.9
4.0
53.3
3.4
2.7
2.5
2.5
3.4
49.9
3.4
3.4
3.8
44.3
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
Low Effort/Risk
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
High Effort/Risk
• Although going from 1  7 the risk of failure increases, the
opportunities to gain a winning market position is higher
Types of New Products
1. Line Extensions
• Ex: New Flavors of ice cream or a new variety of
yogurt
• They require little/no research for their
development
• Little/no change in manufacturing processing
line
• Additional marketing costs may be trivial
• Same logistic/distribution systems can be used
• Same sales’ / buyers’ force
Types of New Products
2. Repositioning Existing Products
• Ex: Products containing soy can be repositioned as
dietary factors with “health” features
• R&D time/efforts minimal
• Manufacturing process unaffected
• Marketing costs may become larger (new strategy
because of the new image of the product)
• Same logistic/distribution systems can be used
• Sales may require reassessments
Types of New Products
3. New Form or Size of Existing Products
• Ex: Pre-peeled fruits; instant coffees & teas,
dehydrated spices for sauces
• Highly variable R&D costs depending upon
changes made
• Highly variable changes in
manufacturing/processing process depending
upon changes made
– purchase of some equipment may be necessary
• Marketing (and sales) resources may require
extensive reprogramming
Types of New Products
4. Repackaging of existing products
• Ex: Single-serving sizes; pillow pack for
food items; squeeze bottles for sauces
– double box of Cheerios made special for
wholesale club stores
• The R&D efforts may be variable
depending upon the amount of
innovation required.
• Some impact on process/plants – new
packaging equipment required.
• Little impact on marketing / sales
Types of New Products
5.
Reformulation of Existing Products
• Ex: Low-calorie products, lactose-free milk products, high fiber
products,…
–
66% of foods that formerly had trans fats in them have been reformulated as
of May 2013
• Moderate R&D necessary to match the goal of reformulation
–
Ex: Stevia tasted bad. Efforts have been made to “save it” by using related
plant compounds to round out the flavor
• Reformulation of new ingredients may require new FDA Generally
Recognized as Safe (GRAS) designation
–
takes ~ year
• Usually little impact on manufacturing/production processes
• Marketing costs may be unaffected
–
However, if reformulation comes with re-positioning (i.e. going after a
different target market) marketing costs may be larger.
Types of New Products
6. Innovative products
• Ex: Frozen dinners, canned snack food dips
• R&D efforts vary - may be substantial
• Highly variable impact on manufacturing
process
• Likely to have heavy impact on marketing costs
(new strategy necessary)
– must demonstrate how the product satisfies
customer/consumer needs
Types of New Products
7.
Creative Products
• Ex: Surimi; Soy bean curd; Short-chain fatty acid containing product; Health
enhancing products which require clinical trials for qualified health claims
• Usually requires very large R&D expenditures
• May require FDA GRAS approval if novel ingredients are developed
• Extensive development time is required
• May necessitate entirely new plants and equipment
• Total revision of marketing strategy necessary; it may even require the creation
of a new brand
• Likely to have heavy impact on marketing costs (new strategy necessary)
–
must overcome consumer unfamiliarity
•
•
remember soy and yogurt?
Danone’s Nutrica products
• High risk of failure
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
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 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 1– Established product
in a “safe” market – it could be
considered as the “home” market
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 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 4 – New Product,
expanded in a new marketplace.
Same target market, however, the
distribution and marketing costs may
be higher.
Source: Fuller (2011), New Food Product Development. pg. 15
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
40
Package Shape
41
Package Shape
• Vertical lengths are perceived to be greater
relative to horizontal lengths.
• Taller containers are perceived to be of
greater volume
Volume  Length  Height  Width
20  2 10 1 perceived to be of smaller volume
20  10  2 1 perceived to be of greater volume
42
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?
43
•
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
44
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
45
•
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
46
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
47
• 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.
48
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!
49
Multipacks and Package Size
• The “Costco Effect”
• Larger packages often accelerates inhome 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.