Competition and Product StrategyMichael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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Chapter 2
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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Product Strategy and Management
Success comprises seven components. S for Survival – the most basic instinct, the main driver of competition “the survival of the fittest”.
U stands for Uncertainty. Uncertainty is everywhere – especially in a dynamic, competitive environment. It is uncertainty that requires us to make decisions and creates the need for professional managers capable of making good decisions under conditions of uncertainty. C is for Choice – the taking of decisions when more than one alternative course of action is available. C is for Consumption which is essential for survival. E is for Exchange – the best means of overcoming scarcity and equalising supply and demand. S is for Specialiation. Once markets have come into existence where people can exchange their surpluses then individuals can afford to specialise at doing those tasks for which they have the greatest aptitude so increasing their productivity and increasing supply. S is for Satisfaction – the state we all seek to achieve however we choose to define it.
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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do not come back to people
who do.
Product Strategy and Management
We have substituted the word “things” in this ‘anonymous’ definition because products usually has the connotation of a physical object.Basically, a product is anything that is produced and so includes both tangible products and intangible services. Unless specified to the contrary products will always include services as, in my view, the same principles apply equally to both. The implication of the definition is that if we receive something that gives satisfaction then the next time we experience the same need we will repeat our earlier behaviour as there will be less uncertainty and so less perceived risk. If the satisfaction received matches or exceeds our expectations then it will reinforce the correctness of the decision and increase the likelihood of repea behaviour until it becomes habitual.
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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Marketing is about the creation and maintenance of mutually satisfying exchange relationships.
(Baker, 1973)
Product Strategy and Management
Just in case you think relationship is a new concept ‘invented’ by Americans.
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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The ‘market’ is the place where Adam
Smith’s ‘invisible hand’ achieves an equilibrium between demand and supply.
Traditionally, demand has exceeded supply so it has determined which products are wanted most and for which most will be offered in exchange.
Product Strategy and Management
i.e. demand has always controlled supply and successful suppliers have always been ‘market oriented’.
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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The traditional demand curve
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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Price elasticity
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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of goods:
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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consumer is familiar and ‘as soon as he recognises
the want, the demand becomes clearly defined in
his mind. Furthermore, he usually desires the
prompt satisfaction of the want’.
Convenience goods tend to be of low unit price
and are purchased frequently. They are sometimes referred to as ‘low involvement’. The widest possible distribution is necessary to maximize sales
opportunities.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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‘Shopping goods are those for which the consumer desires
to compare prices, quality and style at the time of purchase’.
Shopping goods differ from convenience goods in several ways:
The exact nature of the want may not be defined clearly in advance, i.e. you may know the product category but need to establish what is on offer before making a decision.
Therefore : A special shopping trip may be organised and
several outlets visited before reaching a decision. Alternatively, customers collect information in the course of other shopping
trips (window shopping) until they have enough
background information to make a shopping trip.
Except in the case of distress purchases (where an immediate replacement is required) the decision can be delayed.
There is low frequency of purchase.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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‘Specialty goods are those which have some particular attraction for the consumer, other than price,
which induces him to put forth special effort to visit
the store in which they are sold and to make
the purchase without shopping’.
consumers have pre-determined what it is they want
to buy and will make a special effort to source the
product. Such products are sometimes called
‘high involvement’ products.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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marketing strategies:
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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7. Selection of an order routine
Evaluation of proposals and selection
of supplier(s)
Search for and qualification of potential sources
Description of characteristics and quantity
of needed items
Determination of characteristics and
quantity of needed items
Anticipation or recognition of a problem (need) and a general solution
Straight
rebuy
Modified 
rebuy
New
task
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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of tangible objects and the intangible outputs of persons
like lawyers and doctors. The latter he described as
‘unproductive of any value’.
might be intangible they created ‘utility’ and so had value.
Today, services are regarded as essentially intangible
activities or benefits provided by one party to another
that do not result in the ownership of anything. They may
or may not be associated with a tangible product.
Products and Services
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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Palmer (1994) defines services as:
‘The production of an essentially intangible benefit, either in its own right or as a significant element of
a tangible product, which through some form of exchange satisfies an identified consumer need’.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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‘Pure’ services are seen as having a number of characteristics that distinguish them from physical products, namely:
Intangibility
Inseparability
Variability
Perishability
Product Strategy and Management
Intangibility leads to customers having difficulty in comparing competing services; perceiving high levels of risk;placing great emphasis on mpersonal information sources and using price as a basis for assessing quality. Management’s response is to reduce service complexity; stress tangible cues; facilitate word of mouth recommendation and focus on service quality.
Inseparability leads to customers being co-producers of the service; often being co-consumers of the service with other consumers; often having to travel to the point of service production. Accordingly, management attempts to separate production and consumption; manage consumer – producer interaction; improve service delivery systems.
Services are seen as existing on a continuum of tangibility ranging from pure goods like salt to pure services like management consultancy.
It is the defining characteristics of services that moved Levitt to propose that wherever possible one should minimise them through ‘industrialisation’.
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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The paradox and challenge that marketing has to solve is that while objective differences are easier to perceive and evaluate it is these same characteristics that make them easier to copy or replicate.
As a result, the USP or JND factor, is likely to be the consequence of the customers’ perception and exists
in their minds as being associated with an image or identity. It is for this reason that BRANDING has assumed so much importance in modern marketing practice.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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their possessions.
could repeat purchase, and dissatisfied customers
could seek redress.
mid-nineteenth century.
Initially it operated mainly on a local or regional basis
and was restricted to a limited category of goods
like tobacco, beer and patent medicines.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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inter alia, to:
New retail formats
Improved standards of living
Development of trademark laws
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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In an increasingly competitive environment, brand building, especially of companies, is seen as the only sure road to survival and success. Only through brand building is it possible to:
Build stable, long-term demand
Develop a sound basis for future growth and expansion
Recruit the growing power of intermediaries
Become recognised as a company with a reputation that is going places and that people want to work for
Create a reputation as an organization that people will want to develop relationships with.
Product Strategy and Management
AQ: (l) - The fifth point 'Become....' is reframed and 'Creat... with' and for clarity. Please conform it.
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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or some combination which identifies the “product”
or a particular organization as having a sustainable
differential advantage’.
[Peter Doyle]
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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Successful brands are positive (and vice versa)
Brands can take many forms – not just names
The ‘product’ may just as easily be a service, an organization, or an aspiration
Brands are owned by organizations/people
Successful brands confer a sustainable differential advantage – an advantage that is not easily copied and so represents a barrier to entry in the market segment in which the brand competes.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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72% of customers will pay a 20% premium for their preferred brand.
50% will pay 25% more
40% will pay 30% more
25% say that price doesn’t matter
Over 70% use brands to guide a buying decision
And 50% are brand driven.
Davis 2002
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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of a strong brand:
Strong brands lend immediate credibility to new product introductions
Strong brands allow for greater shareholder and stakeholder value
Strong brands embody a clear, valued, and sustainable point of differentiation
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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brand execution
if a company makes a mistake
Brand strength is a lever for attracting the best
employees and keeping satisfied employees
70 per cent of customers use a brand to guide a
purchase
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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Quality
Differentiation
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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While a brand may be represented by a logo or
icon it invariably has a name.
A name ‘symbolizes the sum of the attributes that make up the brand and quickly becomes synonymous with the satisfactions that the brand delivers’.
(Blackett 1989)
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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A promise of a certain level of consistency in performance
Reassurance as to the authenticity and performance of
the product
the product.
As a result buyers can develop attitudes towards a brand’s performance and quality even when it is difficult
to assess this objectively.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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Descriptive qualities
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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Descriptive qualities:
Descriptive brand names are viewed positively whereas unfamiliar words or objects are viewed negatively.
In low involvement decisions evaluation of an object’s intrinsic properties is not worth the effort.
Accordingly, extrinsic properties dominate so that the brand name has particular importance.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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as their first priority.
its competitors.
But, in some product categories, similar sounding names can help reduce perceived risk – e.g.
‘Pal’, ‘Chum’, ‘Chappie’ for dog foods.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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International Applicability
When competing in global markets it is important to choose names that are universally acceptable.
The following are unlikely to succeed in the UK:
Pschitt (France) – a soft drink
Sic (France) – a soft drink
Skum (Denmark) – confectionery
Bums (Sweden) – biscuits
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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Simplicity
Brand names should be simple and easy to pronounce. Otherwise customers will not risk embarrassment through mis-pronouncing the name.
It also helps if the name is short and easy to write.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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that is easy to recognise in any language using
the roman alphabet.
with a logo or other distinctive icon (the ‘golden
arches’ of McDonalds).
statement.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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A product brand is one where an organization gives a unique name to every product in its portfolio. Davis (2002) cites Procter and Gamble as the classic example with the following list:
Laundry and cleaning: Bounce, Cheer, Cascade,
Comet, Era, Dawn, Joy, Tide
Health care: Ivory, Crest
Food and beverage: Pringles, Folgers
Paper: Pampers, Luvs, Always.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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for each product include:
between the individual items.
Less risk that a failure of one brand will hurt the reputation
of the others.
The opportunity to offer variants of the same product at
different price points appealing to different market segments and so enabling the firm to secure more space in the retail outlet.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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The disadvantages of using a different name for each product include:
Loss of scale economies.
Inability to draw on the reputation of other established products in the portfolio.
The need to build a new identity and reputation for every new addition to the portfolio.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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A corporate brand exists where an organization
uses its name and reputation to endorse all of the products and services that it offers for sale. All communications, both internal and external, seek to convey a single and unified message designed to build confidence and trust in the organization. Sony, Marriott and G.E. are good examples.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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It’s you we answer to (British Telecom)
We won’t make a drama out of a crisis (Commercial Union)
Everything we do is driven by you (Ford)
The more we progress the further you go (Michelin)
Helping you control your world (Honeywell)
A place of useful learning (Strathclyde University)
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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The brand is a summary statement of a complex
bundle of attributes and benefits.
Once learned and preferred a brand will lead to identification, loyalty and repeat purchase.
Such brands possess sustainable differential advantage (SDA) and may be considered assets in the balance sheet, just like plant and equipment.
Brands require constant investment to maintain their differential advantage.
Product Strategy and Management
Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, © Pearson Education Limited 2007
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Booz Allen and Hamilton (1982) identified six kinds of new products:
New to the world
Improvements and revisions to existing products
Repositionings