STRATEGIC MARKETING PROBLEMS by KERIN and PETERSON (12Th ED.)

STRATEGIC MARKETING PROBLEMS BY KERIN AND PETERSON (12th ED.)

LECTURE NOTES

Assoc. Prof. Dr. Teoman Duman

Students: Mela Hadrović, Mirza Dedić

Chapter 5: Product and Service Strategy and Brand Management

Profitability of an organization depends on its products or service offerings and the strengths of its brands.

Three concepts discussed in Chapter 5 are:

§  Modifying the offering mix

§  Positioning offerings

§  Branding offerings

THE OFFERING PORTOFOLIO

·  An offering consists of the benefits or satisfaction provided to target market by an organization (consists of tangible product or service plus related service, such as delivery, brand name, etc.)

The offering mix

·  Organizations tend to market many product or service offerings.

·  Offering mix or portfolio represents totality of an organization’s offerings.

·  This mix usually consists of distinct offering lines -. groups of offerings similar in terms of usage, technical characteristics, etc.

·  Offering lines represent width of offering, while each offering consists of individual items – depth.

·  Bundling – creating new offer by marketing two or more products or service items in a single “package”

MODIFYING THE OFFERING MIX

·  The marketing manager must continually monitor target markets and offerings in order to determine when new offering should be introduced and existing modified or eliminated.

Additions to the Offering Mix

·  When considering new offerings, three questions should be addressed:

Ø  How consistent is the new offering with existing offerings?

Ø  Does the organization have the resources to introduce and sustain the offering?

Ø  Is there a viable market for the offering?

·  Consistency - is new offering going to substitute or complement existing offers?

does new offering fit the organization’s existing selling and distribution strategies?

·  Resources – New offerings often require large cash outflows – required to analyze financial strength of the organization

·  Market – It has to be determined whether a market exists for the new offering.

-  Does the new offering have a relative advantage over competitive offerings at a price buyers are willing to pay?

-  Is there a distinct buyer group for which no present offering is satisfactory?

New-Offering Development Process

1)  Idea generation – ideas obtained from many sources, such as employees, suppliers, buyers and competition

2)  Idea screening – in terms of organizational definition and capability and from the viewpoint of buyers. Incompatible ideas are being directly eliminated.

3)  Business analysis – assessing financial viability in terms of estimated sales, costs and profitability

4)  Development – ideas that have passed the business analysis are developed into prototypes

5)  Market testing – marketing-related tests, such as testing buyers preferences in a laboratory situation

6)  Commercialization – product commercially introduced into the market place

Two major factors that contribute to the success of new offerings are:

-  A fit with market needs

-  A fit with organizational strengths and resources

Business Analysis and Market Testing

Profitability analysis:

·  Break-even procedures are determining the number of units that must be sold to cover fixed and variable costs.

·  Payback period refers to number of years required to recapture initial offering investment.

·  ROI represents the ratio of average annual net earnings and annual investment, discounted to the present time.

Market testing:

-  Generates benchmark data for assessing sales volume when the product is introduced

-  If alternative marketing strategies are tested , the relative impact of two can be examined

Life-Cycle Concept

1)  Introduction – Management focuses on stimulating trial of the offering by advertising, giving out free samples

2)  Growth – an increasing share of volume mostly comes from repeated purchases, offering modification, enhanced brand image, and competitive pricing.

3)  Maturity – this stage is indicated by an increase in the portion of buyers who are repeat purchasers, an increase in the standardization of product operations and an increase in the incidence of aggressive pricing activities by competitors.

4)  Decline – Modifying, harvesting and eliminating offers

Modifying, Harvesting and Eliminating Offerings

·  Modification decisions usually focus on trading up and trading down

Ø  Trading up – improving an offering by adding new features and higher-quality materials and increasing price

Ø  Trading down – reducing the number of features or quality and lowering the price

·  Harvesting – involves reducing investment in a business entity aiming to cut costs and/or improve cash flow

Harvesting should be considered when market for the offering is stable, the offering is not producing good profits, the offering has small market share and if the offering provides benefits.

·  Elimination – the offering is dropped from the organizational offerings. An offering should be dropped if it has “very little” or “none” sales potential and if it does not contribute much to profitability of offering mix.

POSITIONING OFFERINGS

Positioning is an 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.

Positioning approaches

Offerings can be positioned by:

Ø  attribute or benefit

Ø  use or application

Ø  product or brand user

Ø  product or service class

Ø  competitors

Ø  price and quality

Crafting a 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).

Example: For upscale American families who desire a carefree driving experience, Volvo is a premium-priced automobile that offers the utmost in safety and dependability.

Repositioning

Repositioning is required when the initial positioning of the product is no longer competitively sustainable or profitable, or if better positioning opportunities arise.

Making the Positioning Decision

·  Manager making decision which positioning is the most appropriate in a given situation

Questions to be answered:

·  Who are the competitors and what position have they staked out and how strong are they?

·  What are the preferences of the target customers and how they perceive competitive offerings?

·  What position do we already have in customers mind?

When these questions are answered, focus should move on series of implementation questions:

·  What position do we want?

·  What competitors must be outperformed if we are to establish the position?

·  Do we have the marketing resources to occupy and hold the position?

BRAND EQUITY AND BRAND MANAGEMENT

Brand Equity:

·  Added value a brand name bestows on a product or service beyond the functional benefits provided.

o  Market advantages: Competitive advantage

Consumers willing to pay to pay a higher price

·  Creating Brand Equity:

Ø  Step 1: Develop positive brand awareness in consumer`s minds.

Ø  Step 2: Marketer establishing a brand`s meaning (functional, performance-related; abstract, imagery-related dimension) in the minds of consumers.

Ø  Step 3: Elicit the proper consumer responses to brand`s identity and meaning.

Ø  Step 4: Create a consumer-brand resonance evident in an intense, active loyalty relationship between consumers and a brand

·  Valuing Brand Equity - Financial benefit for a brand owner for assets of economic value

1.  Competitive advantage by earnings and cash flows of intangible in excess of the return on its tangible (plant and equipment) assets;

2.  Strategic marketing decisions to buy and sell brands.

Branding Strategies

·  Multiproduct Branding (family branding; corporate branding): One name for its entire product in a product class; in most cases company trade name is used.

Ø  Advantages:

Capitalizing on brand equity: Consumers transfer their positive attitude with one product to another offering with the same name

Global brand: brand marketed under the same name in multiple countries with similar and centrally coordinated marketing programs.

Sub-branding: Combining a corporate or family brand with a new brand; to differentiate offering by price-quantity (higher-end, midlevel, and lower-end)

Ø  Risks - Too many uses for one brand name can dilute the meaning of a brand for consumers

·  Multibranding: Giving each product a distinct name

o  Useful strategy when each brand associates his name to specific markets.

·  Private Branding (Private labeling): manufacturer supplying a reseller with a product bearing a brand name chosen by the reseller.

Brand Growth Strategies

ü  Four strategic options for growing its brands

·  Line Extension Strategy: occurs when an organization introduces additional offerings with the same brand in a product class that it currently serves; responds to customer`s desire for variety.

Ø  This strategy lowers advertising and promotion costs because the same brand is used on all items, raising the level of brand awareness.

·  Brand Extension Strategy: strong brand equity makes possible this strategy; current brand name entering completely different product class

Co-branding: variation on brand extensions; the pairing of two brand names of two manufacturers on a single product.

·  New Brand Strategy: organization concludes that its existing brand name cannot be extended to a new product class;

o  Development of a new brand and often a new offering for a product class that hasn`t been previously served by the organization.

Ø  Most challenging and the most costly brand growth strategy for implementation.

Flanker/Fighting Brand Strategy:

·  Flanker Brand Strategy: Involved by firm`s adding a new brand on the high or low end of a product line based on a price-quality continuum.

·  Fighting Brand Strategy: Involves by firm`s adding a new brand whose sole purpose is to confront competitive brands in a product class being served by an organization.

v  Introduced by:

1.  Organization having a high relative share of the sales in a product class

2.  Dominant brand is susceptible to having this high share sliced away by aggressive pricing or promoting by competitors

3.  To preserve profit margins on its existing brand

4