978-0136074892 Solution Manual Chapter 07 Part 1

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Chapter 7: Product Decisions

Chapter Objectives

After reading this chapter, students should understand:

·The elements of brand equity, building strong brand equity, and leveraging

brand equity through brand extensions

·Developing perceptual maps to make positioning and repositioning decisions

·Global and technology-related issues in positioning and branding

·Product line management

·Issues in packaging and product design

Chapter Overview

The purpose of this chapter is focus on areas of product decision-making. Although

some product-related issues were discussed in Chapter 2 as part of the development of a

marketing strategy, this chapter expands those discussions and includes other relevant

topics for marketing managers.

Chapter Outline and Key Terms

Product Decisions

Key Terms:

·Product features

·Product line

·Packaging

·Product design

·Global marketing

·Position

·Joint space

·Multidimensional scaling (MDS)

·Original equipment manufacturer (OEM)

·Global marketing

·Product line strategy

·Cannibalization

·Mass customization

·Customerization

·Choiceboards

A. Definitions

1. Product features: Are the characteristics or attributes of a product or service.

2. Product line: A group of closely related products.

3. Packaging: The design of the container for the product in which it is

displayed in a retail environment.

4. Product design: Combines art, science, and technology to create tangible

three-dimensional goods.

5. Position: The communication of the value proposition to the customer,

which differentiates the product from competition in the mind of the

prospect.

6. Joint space: A perceptual map that contains both brand spatial locations as

well as consumer perceptions of their ideal brand.

7. Multidimensional scaling (MDS): Develop perceptual maps based on

customer-based judgments of brand similarity.

8. Original equipment manufacturer (OEM): A channel of distribution for

technology-based products; companies that purchase ingredients or

components (e.g., hard disk drives) from manufacturers.

9. Global marketing: A generic term encompassing any marketing activities

outside a company’s home market; also a standardization of the strategies

used to market a product around the world.

10. Product line strategy: A marketing strategy covering a set of related

products.

11. Cannibalization: The amount of sales for a new element of a product line

that is taken away from an existing element of the line.

12. Mass customization: Also called one-to-one marketing, a new marketing

process whereby a company takes a product or service that is widely

marketed and develops a system for customizing it to each customer’s

specifications.

13. Customerization: A process whereby a company takes a product or service

that is widely marketed and perhaps offered to many different configurations

and develops a system for customizing (or nearly customizing) it to each

customer’s specifications.

14. Choiceboards: Online, interactive systems that allow individual customers to

design their own products by choose from an array of attributes, delivery

options, and prices.

B. Branding

1. Why customers value brands:

·Reduced information search costs.

·Risk reduction.

·Expectations of quality

·Prestige and emotional needs

2. Types of brands

·Corporate brands: Company brands. (Companies like GE, Clorox, etc.,

are corporate names that are brands in themselves.)

·Corporate parent brands: Brand names where the corporate brand is

carried with individual product names. (Snap-on Tool’s heavy duty air

hammer is the PH2050 and referred to as the Snap-on PH2050.)

·Distinct product brands: Brand names separate from the corporate brand.

(Crest is not marketed with the Proctor & Gamble name.)

·Sub-brands: Include the name of the corporate brand along with the

distinct product brand. (Sony PlayStation, Nestle Kit Kat)

·Co-brands: Two independent companies have both brands highlighted in

a product. (Haagen-Daz’s ice cream and M&M’s)

·Ingredient brands: A special case of co-branding. (Intel, Dolby, DuPont’s

Gore-Tex)

3. Dimensions of brand equity

·Brand loyalty: Strongest measure of a brand’s value. How loyal

customers are.

·Brand awareness: Simplest form of brand equity is familiarity.

·Perceived quality: A quality association with the brand.

·Brand association: More subjective and emotional associations are

important parts of brand value.

·Other brand assets: Patents and trademarks are also valuable to products

and services.

·Figure 7.1 Page 181 Brand Equity. Demonstrates brand equity and the

associated dimensions.

· Illustration: Aflac, Inc., (www.aflac.com) Page 182

·Illustration: IKEA, (www.ikea.com) Page 183

4. Building strong brands

·Create brand identity: Differentiate brand from others

·Be consistent over time: Not changing advertising or selling messages

·Track the equity: Measuring the dimensions of equity over time relative

to competitors

·Assign responsibility for brand development activities: Assigning

someone to oversee the brand.

·Invest in the brands: Investing enough in the brand to keep it strong

5. Brand extensions

·Leveraging the brand into new product categories

·Illustration: Brand Extensions Page 184. Include:

·Montblanc wrist watches (from pens)

·ESPN cellular phone service

·Nike into clothing and sportswear

·IBM into IT consulting

·Michelin work boots

·M&M’s stereo ear buds

·Main considerations for fit of an extension to the parent brand category

include:

·Transferability of the associations

·Complementarity of the product

·Similarity of the users

·Transferability of the symbol

· Illustration: Virgin (www.virgin.com) Page 185

·Illustration: Mountain Dew Code Red (www.mountaindew.com)

6. Global Branding

·Theodore Levitt’s Model for Global Branding:

·Consumer convergence

·Demographic convergence

·Decline of the nuclear family

·The changing role of women

·Static populations

·Higher living standards

·Cultural convergence

·Illustration: Table 7.2 Page 188 Best Global Brands

·Illustration: L’Oreal (www.loreal.com) Page 188

·Illustration: Vodafone (www.vodafone.com) Page 188

7. Branding Issues

·Brand personality

·Brand person relationships

·Logos

·Illustration: Audi (www.audi.com) Page 192

C. Marketing Return on Investment (ROI) and Branding

1. In context of branding, there are two approaches to measuring brand equity:

·Behavioral measures: These represent how customers have actually

responded to the brand (Table 7.2 Page 188, Leading Global Brands,

demonstrates behavioral measures as related to customer activity.)

2. Alternative model (Developed by Young & Rubicam) is called the Brand

Asset Valuator). The BAV includes four key dimensions:

·Differentiation: How different or unique is the brand from the

competition?

·Relevance: How relevant is the brand to the target customer?

·Esteem: How high is the regard or value for the brand?

·Knowledge: How much information does the customer about the value

of the brand

D. Product Positioning

1. Concept of product positioning becomes clearer when thinking about

different steps involved in product positioning:

·Determine product’s current position.

·If you are satisfied with the position and brand performance, continue

with the current strategy and value proposition. The product is “well-

positioned.”

·If you are dissatisfied with the current position, the brand needs to be

repositioned and the value proposition may need to be modified.

·If the product is new, step 2 is irrelevant and step 3 becomes the position

you are creating for it.

2. Determining a product’s position:

·Attribute-based methods: Perceptual maps (Figure 7.5 Page 196 Credit

Card Joint Space: Attribute-based.) When an ideal “point” is plotted with

the brands, it is called joint space.

·Methods based on similarity judgments: Based on customer-based

judgments. This is called multi-dimensional scaling (MDS) (Figure 7.6

Page 197 Credit Card Joint Space: Multidimensional Scaling Version.)

3. Positioning decisions

·Positioning decisions can be linked to various stages of the product’s life

cycle (Figure 2.8)

·Multiple positions: When a product is being marketed to multiple target

markets, it normal for the value proposition and positioning to be different

·Illustration: Volkswagen Skoda (www.vw.com) Page 198

4. Product feature decisions

·Developing different product features for different segments is particularly

appealing for services and information goods

·Developing different product features for different segments for

manufactured goods can be expensive

·Product or services can be developed or modified for entirely different target

groups (Marriott’s different hotel brands)

5. Product line decisions

·Strategies may have to be developed for a group of closely related products

(product lines)

·Product lines may include complementary products, which are intended to

be used together but could also be marketed separately

·In developing a product line strategy, the marketing manager must address a

number of issues

·How many products should be in the line?

·How should the products in the line be targeted and differentiated?

·How should resources be allocated across the line to maximize profits or

market share?

6. Number of products and differentiation

·Add variants to the line as long as the incremental sales exceed the

incremental costs

·Unsuccessful additions can cost loss of goodwill and have long-term

negative consequences

·Some other negative aspects are in terms of cannibalization (sales of one

product at the expense of other existing products in the line)

·Adding products can have an effect on overall branding (adding a luxury

line for example)

7. Resource allocation

·Resource allocation depends on the nature of the product line

·If products are promoted as a single line, then a single marketing strategy

may be used

·When elements of the line appeal to different segments with different

characteristics such as growth rates or competition, then multiple strategies

or another approach might be used.

·Most popular approach to the above, would be the portfolio approach

(introduced by The Boston Consulting Group)