MARKETİNG MANAGEMENT BY KOTLER AND KELLER (12TH ED.) LECTURE NOTES Chapter 12. Setting Product Strategy  PRODUCT CHARACTERİSTİCS AND CLASSİFİCATİONS Many people think that a product is a tangible offering, but a product can be more than that. A product is anything that can be offered to market to satisfy a want or need. Products that are marketed include physical goods, services, experiences, events, persons, places, properties, organizations, information and ideas.  A-) Product levels: The Customer Value Hierarchy In planning its market offering, the marketer needs to address five product levels. Each level adds more customer value and the five constitute a customer value hierarchy.  Customer Value Hierarchy  Core benefit the fundamental level is the core benefit: the service or benefit the customer is really buying. A hotel guest is buying rest and sleep. Marketers must see themselves as benefit providers.  Basic product The marketer has to turn the core benefit into a basic product. Thus a hotel room includes a bed, bathroom, towels, desk, dresser and closet.  Expected product The marketer prepares an expected product, a set of attributes and conditions buyers normally expect when they purchase this product. Hotel guest expect a clean bed, fresh towels, working lamps and a relative degree of quiet.  Augmented product the marketer prepares an augmented product that exceeds customer expectations.  Potential product At the fifth level stands the potential product, which encompasses all the possible augmentations and transformations the product or offering might undergo in the future. Here is where companies search for new ways to satisfy customers and distinguish their offer.

 B-) Product classifications Marketers have traditionally classified products on the basis of characteristics: durability, tangibility and use ( consumer and industrial). Each product type has an appropriate marketing mix strategy?

 Durability And Tangibility

 Nondurable goods Nondurable goods are tangible goods normally consumed in one or a few uses, like a beer and soap. Because these goods are consumed quickly and purchased frequently.  Durable goods Durable goods are tangible goods that normally survive many uses: refrigerators, machine tools and clothing. Durable products normally require more personal selling and service and require more seller guarantees.  Services Services are intangible, inseparable, variable and perishable products. As a result, they normally require more quality control, supplier credibility and adaptability. Examples include haircuts, legal advice and appliance repairs.  Use 1-) Consumer Goods Classification The vast array of goods consumers buy can be classified on the basis of shopping habits. We can distinguish among convenience, shopping, specialty and unsought goods.  Convenience goods The customer usually purchases convenience goods frequently, immediately and with minimum of effort. Examples include tobacco products, soaps and newspapers.  Shopping goods shopping goods are that the consumer, in the process of selection and purchase, characteristically compares on such bases as suitability, quality, price and style. Examples include furniture, clothing, used cars and major appliances.  Specialty goods have unique characteristics or brand identification for which a sufficient number of buyers are willing to make a special purchasing effort. Examples include cars, stereo components, photographic equipment and men’s suits.  Unsought goods are those the consumer does not know about or does not normally think of buying, like smoke detectors. Unsought goods require advertising and personal-selling support. 2-) Industrial Goods Classification Industrial goods can be classified in terms of how they enter the production process and their relative costliness. We distinguish three groups of industrial goods: materials and parts, capital items and supplies and business services.  Materials and parts are goods that enter the manufacturer’s product completely. They fall into two classes: raw materials and manufactured materials and parts. Raw materials fall into two major groups: farm products (example; wheat, cotton, livestock, fruits and vegetables) and natural products (example; fish, lumber, crude petroleum, iron ore). Natural products are limited in supply. They usually have great bulk and low unit value and must be moved from producer to user.  Manufactured materials and parts fall into two categories: component materials (iron, yarn, cement, wires) and component parts (small motors, tires, castings). Component materials are usually fabricated further—pig iron is made into steel, and yarn is woven into cloth.  Capital items are long-lasting goods that facilitate developing or managing the finished product. They include two groups: installations and equipment. Installations consist of building (factories, offices) and heavy equipment (generators, drill presses, mainframe computers, elevators).  Supplies and business services are short – term goods and services that facilitate developing or managing the finished product. Supplies are of two kinds : maintenance and repair items (paint, nails, brooms) and operating supplies (lubricants, coal, writing paper, pencils). Together, they go under the name of MRO goods. Business services include maintenance and repair services ( window cleaning, copier repair) and business advisory services ( legal, management consulting, advertising).

 DİFFERENTİATİON Products must be differentiated to be branded. Physical products vary in their potential for differentiation. And there are some differentiation ways.  Product Differentiation:

 FORM: Many products can be differentiated in form - the size, shape or physical structure of a products. Consider the many possible forms taken by products such as aspirin.  PERFORMANCE QUALİTY: Most products are established at one of four performance levels ( low, average, high or superior. Performance quality is the level at which the product’s primary characteristics operate.  Reliability : Reliability is a measure of the probability that a product will not malfunction or fail within a specified time period. Buyers will pay a premium for more reliable products  Repairability is a measure of the ease of fixing a product when it malfunctions or fails. Ideal repairability would exist if users could fix the product themselves with little cost in money or time.  Style describes the product’s look and feel to the buyer. Style has the advantage of creating distinctiveness that is difficult to copy . On the negative side, strong style does not always mean high performance.  Design: The Integrative Force Design is the totality of features that affect how a product looks and functions in terms of customer requirements. Design offers a potentent way to differentiate and position a company’s products and services.  Services Differentiation when the physical product cannot easily be differentiated, the key to competitive success may lie in adding valued services and improving their quality. There are some differentiators service.  Ordering Ease refers to how easy it is for the customer to place an order with the company. Baxter healthcare has eased the ordering process by supplying hospitals with computer terminals through which they send order directly to baxter.  Delivery refers to how well the product or service is delivered to the customer. It includes speed, accuracy and care attending the delivery process. Today’s customers have grown to expect delivery speed: pizza delivered in one- half hour, firm developed in one hour.  Installation refers to the work done to make a product operational in its planned location. Buyers of heavy equipment expect good installation service. Example, for customers wishing to connect to the internet using a high – speed digital subscriber line (DSL), Pacific Bell developed installation kits that included an interactive software setup program so customer could complete their DSL setup in less than an hour.  Customer Training refers to training the customer’s employees to use the vendor’s equipment properly and efficiently. General Electric not only sells and installs expensive x-ray equipment in hospitals; it also gives extensive training to users of this equipment.  Costumer Consulting refers to data, information systems and advice services that the seller offers to buyers.  Maintenance and repair describes the service program for helping customers keep purchased products in good working order. Hewlett –Packard offers online technical support or e- support for its customers. In this service, customers can use various online tools to find a solution.

 PRODUCT AND BRAND RELATİONSHİPS Each product can be related to other product.  The Product Hierarchy We can identify six level of the product hierarchy ( for using example: life insurance)  Need family- The core need that underlies the existence of a product family. Example: security  Product family- All the product classes that can satisfy a core need with reasonable effectiveness. Example: saving and income  Product Class- A group of products within the product family recognized as having a certain functional coherence. Also known as product category. Example: financial instruments.  Product line- A group of products within a product class that are closely related because they perform a similar function, are sold to same customer groups, are marketed through the same outlets or channels or fall with given ranges. A product line may be composed of different brands or a single family brand or individual brand that has been line extended.  Product type- A group of items within a product line that share one of several possible forms of the product. Example: term life insurance.  Item- A distinct unit within a brand or product line distinguishable by size , price, appearance or some other attribute. Example : prudential renewable term life insurance.

 Product Systems and Mixes A product system is a group of diverse but related items that function in a compatible manner. For example, PalmOne handheld and smartphone product lines come with attachable products including headsets, cameras, keyboards, presentation projectors, e- books, mp3 players and voice recorders. A product mix is the set of all products and items a particular seller offers for sale. A product mix consists of various product lines. In General Electric’s consumer appliance division, there are product line managers for refrigerators, stoves and washing machines.  Product Line Analysis In offering a product line, companies normally develop a basic platform and modules that a can be added to meet different customer requirements. Product line managers need to know the sales and profits of each item in their line. In order to determine which item to build, maintain. They also need to understand each product line’s market profile.  Sales and Profits sales and profit report for a five-item product line. The first item accounts for 50 percent of total sales and 30 percent of total profits. The first two items account for 80 percent of total sales and 60 percent of total profits. If these two items were suddenly hurt by a competitor, the line's sales and profitability could collapse. These items must be carefully monitored and protected. The main point is that companies should recognize that these items differ in their potential for being priced higher or advertised more as ways to increase their sales, margins or both.  Market Profile The product-line manager must review how the line is positioned against competitors’ lines. Product-line analysis provides information for two key decision areas; product-line length and product-mix pricing.  Product-Line Length Company objectives influence product-line length. One objective is to create a product line to induce upselling. A company lengthens its product line in two ways: by line stretching and line filling.  Line stretching Every company’s product line covers a certain part of the total possible range. For example, BMW automobiles are located in the upper price range of the automobile market.  Line filling A product line can also be lengthened by adding more items within the present range. Line filling is overdone if it results in self-cannibalization and customer confusion. The company needs to differentiate each item in the consumer’s mind.  Product-Mix Pricing Price-setting logic must be modified when the product is part of a product mix. In this case, the firm searches for a set of prices that maximizes profits on the total mix. Pricing is difficult because the various products have demand and cost interrelationships and are subject to different degrees of competition. We distinguish some situations involving product-mix pricing.  Product-Line Pricing: Companies normally develop product lines rather than single products and introduce price steps. Example; A men’s clothing store might carry men’s suits at three price levels: 200, 400 and 600 dollars. Customers will associate low-, average-, and high- quality suits with the three price points. Here, the seller’s task is to establish perceived quality differences that justify the price differences.  Optional-Feature Pricing many companies offer optional products, features and services along with their main product. The automobile buyer can order electric window controls, defoggers, light dimmers and extended warranty. Here pricing is a sticky problem, because companies must decide which items to include in the standard price and which to offer as options.  Captive-Product Pricing some products require the use of captive products.  Two-Part Pricing service firms often engage in two-part pricing, consisting of a fixed fee plus a variable usage fee. Telephone users pay a minimum monthly fee plus charges for calls beyond a certain area.  Product-Bundling Pricing sellers often bundle products and features. Pure bundling occurs when firm only offers its products as a bundle.

 Co-Branding and Ingredient Branding  Co-branding : Products are often combined with products from other companies in various ways. A rising phenomenon is the emergence of co-branding—also called dual branding or brand bundling— in which two or more well-known existing brands are combined into a joint product and/or marketed together in some fashion.32 One form of co-branding is same-company co-branding, as when General Mills advertises Trix and Yoplait yoğurt.  Ingredient branding : Ingredient branding is a special case of co-branding. It involves creating brand equity for materials, components, or parts that are necessarily contained within other branded products. Some successful ingredient brands include Dolby noise reduction, Gore-Tex water-resistant fibers, and Scotchgard fabrics. Some popular ingredient-branded products are Betty Crocker baking mixes with Hershey's chocolate syrup, Lunchables lunch combinations with Taco Bell tacos, and Lay's potato chips made with KC Masterpiece barbecue sauce.

 Packaging, Labeling, Warranties and Guarantees Most physical products have to be packaged and labeled. Some packages—such as the Coke bottle and the L'eggs container—are world famous. Many marketers have called packaging a fifth P, along with price, product, place, and promotion. Most marketers, however, treat packaging and labeling as an element of product strategy. Warranties and guarantees can also be an important part of the product strategy, which often appear on the package.

 Packaging:

We define packaging as all the activities of designing and producing the container for a product. Well-designed packages can create convenience and promotional value. We must include packaging as a styling weapon, especially in food products, cosmetics, toiletries, and small consumer appliances.

 Labeling :

Sellers must label products. The label may be a simple tag attached to the product or an elaborately designed graphic that is part of the package. The label might carry only the brand name or a great deal of information. Even if the seller prefers a simple label, the law may require additional information.

 Warranties and Guarantees :

All sellers are legally responsible for fulfilling a buyer's normal or reasonable expectations. Warranties are formal statements of expected product performance by the manufacturer. Products under warranty can be returned to the manufacturer or designated repair center for repair, replacement, or refund. Warranties, whether expressed or implied, are legally enforceable.

Many sellers offer either general guarantees or specific guarantees.51 A company such as Procter & Gamble promises general or complete satisfaction without being more specific— "If you are not satisfied for any reason, return for replacement, exchange, or refund." Other companies offer specific guarantees and in some cases, extraordinary guarantees: Guarantees reduce the buyer's perceived risk. They suggest taht the product is of high quality and taht the company and its service performance are dependable. All this enables the company to charge a higher price than a competitor who is not offering an equivalent guarantee.

Written by Ahmet Kantürk