LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. What are the characteristics of products, and how do marketers classify products?
2. How can companies differentiate products?
3. Why is product design important, and what are the different approaches taken?
4. How can marketers best manage luxury brands?
5. What environmental issues must marketers consider in their product strategies?
6. How can a company build and manage its product mix and product lines?
7. How can companies combine products to create strong co-brands or ingredient
brands?
8. How can companies use packaging, labeling, warranties, and guarantees as marketing
tools?
CHAPTER SUMMARY
1. Product is the first and most important element of the marketing mix. Product strategy
2. In planning its market offering, the marketer needs to think through the five levels of
3. Products can be nondurable goods, durable goods, or services. In the consumer-goods
category are convenience goods (staples, impulse goods, emergency goods), shopping
4. Brands can be differentiated on the basis of product form, features, performance,
5. Design is the totality of features that affect how a product looks, feels, and functions.
C H A P T E R
13
SETTING PRODUCT
STRATEGY
7. Products and their packaging must be designed to reduce adverse environmental
impact as much as possible.
8. Most companies sell more than one product. A product mix can be classified
according to width, length, depth, and consistency. These four dimensions are the
9. A company can change the product component of its marketing mix by lengthening its
10. Brands are often sold or marketed jointly with other brands. Ingredient brands and co-
11. Physical products must be packaged and labeled. Well-designed packages can create
convenience value for customers and promotional value for producers. Warranties and
guarantees can offer further assurance to consumers.
OPENING THOUGHT
Students will be familiar with the “idea” of a tangible product—the physical
manifestation—a cell phone or a pair of favorite jeans or shoes. However, students may
have trouble understanding the “totality” of the product physically demonstrated—the
core benefit, the basic product, expected product, augmented, and potential product. The
instructor is encouraged to use the class period to allow the students to try to uncover or
explore these additional components of the “product” concept so that the students will
begin to understand these dimensions better.
TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
1. At this point for the semester-long project, students should have set their group
2. In planning its market offering, the marketer needs to address five product levels:
core benefit, basic product, expected product, augmented product, and potential
3. Sonic Smartphone Marketing Plan: Decisions about products are critical elements of
any marketing plan. During the planning process, marketers must consider issues
related to product mix and product lines. Product marketers distinguish five levels of
product, each adding more customer value: core benefit, basic, expected, augmented,
and potential. In assessing product strategy:
• How would you define the core benefit for Sonic 1000?
• How would you define the augmented product for Sonic 2000, the second product
to be launched by Sonic next year?
Write your answers to the questions in a written marketing plan or enter it in the Product
Offering and Marketing Mix sections of Marketing Plan Pro.
ASSIGNMENTS
Convenience items and capital good items can be seen as two ends of the “product
continuum.” Convenience items are purchased frequently, immediately, and with
minimum effort. Capital goods are those items that last a long period of time and are
purchased infrequently by consumers. Students should select a convenience good and a
capital good of their choice and compare and contrast the consumers’ value hierarchy and
users total consumption system for each item using the concepts presented in this chapter.
When the physical product cannot easily be differentiated, the key to competitive success
may lie in adding valued services and improving their quality. Examples of adding value
in the service component of a product include computers, education, and pizzas. Each
student is to select a product in which they think that the additional value present lies in
the service and quality components. Students should be prepared to defend their
selections using the material presented in this chapter.
END–OF–CHAPTER SUPPORT
MARKETING DEBATE—With Products, Is It Form or Function?
The “form versus function” debate applies in many arenas, including marketing. Some
marketers believe that product performance is the end all and be all. Other marketers maintain
that the looks, feel, and other design elements of products are what really make the difference.
Take a position: Product performance is the key to brand success versus product aesthetics are
the key to brand success.
Suggested Response
Pro: Consumers buy products to satisfy a need. A consumer uses products and decides on a
product based upon their own consumption system—the way the product is by the consumer
(getting the product, using the product, and disposing of the product). Additionally, the
MARKETING DISCUSSION – Product and Service Differentiation
Consider the many means of differentiating products and services. Which ones have the most
impact on your choices? Why? Can you think of certain brands that excel on a number of
these means of differentiation?
Student answers will differ according to the product/services chosen. However, student
answers should encompass the following distinctions:
Products differentiation includes:
• Form
• Features
Services differentiation includes:
• Ordering ease
Marketing Excellence: CATERPILLAR
1. What were some of the key steps that made Caterpillar the industry leader in earth-
moving machinery? Explain how Caterpillar’s products differ from competitors’.
Suggested Answer: In terms of the concept of “product,” Caterpillar has re-invented its
2. Discuss Caterpillar’s future. What should it do next with its product line? Where is the
future growth for this company?
Suggested Answer: Student’s answers will vary but good students will cite material from
Marketing Excellence: TOYOTA
1. Toyota has built a huge manufacturing capacity that can produce millions of cars each
year for a wide variety of consumers. Why was it able to become so much bigger than
any other auto manufacturer?
Suggested Answer: Toyota has built a huge manufacturing company that can produce
2. Has Toyota done the right thing by manufacturing a car brand for everyone? Why or
why not?
Suggested Answer: Student answers will vary but one opinion is that yes, Toyota has
Division.
DETAILED CHAPTER OUTLINE
Opening vignette: At the heart of a great brand is a great product. To achieve market
leadership, firms must offer products and services of superior quality that provide
unsurpassed customer value. Lexus formulated an offering to meet target customers’
needs or wants. The customer will judge the offering on three basic elements: product
features and quality, service mix and quality, and price, which must be meshed into a
competitively attractive market offering.
I. Product Characteristics and Classifications: A product is anything that can be
offered to a market to satisfy a want or need, including physical goods, services,
experiences, events, persons, places, properties, organizations, information, and
ideas.
A. Product Levels: The Customer-Value Hierarchy
a. The fundamental level is the core benefit: the service or benefit the
customer is really buying. Marketers must see themselves as benefit
providers.
b. At the second level, the marketer must turn the core benefit into a basic
product.
B. Product Classifications
a. Durability and Tangibility: Products fall into three groups according to
durability and tangibility:
i. Nondurable goods are tangible goods normally consumed in one or
a few uses, such as beer and shampoo. Because these goods are
iii. Services are intangible, inseparable, variable, and perishable
products that normally require more quality control, supplier
credibility, and adaptability.
b. Consumer-Goods Classification
i. Convenience goods are purchased frequently, immediately, and
with minimal effort.
c. Industrial-Goods Classification
i. Materials and parts are goods that enter the manufacturer’s product
completely.
2. Manufactured materials and parts fall into two categories:
component materials and component parts.
ii. Capital items are long-lasting goods that facilitate developing or
managing the finished product.
1. They fall into two groups: installations and equipment.
3. Equipment includes portable factory equipment and tools
and office equipment.
iii. Supplies and business services are short-term goods and services
that facilitate developing or managing the finished product.
1. Supplies are of two kinds: maintenance and repair items
II. Differentiation
A. To be branded, products must be differentiated.
a. Differentiated products can create significant competitive advantages.
b. Means for differentiation include form, features, performance quality,
B. Product Differentiation
a. Form: the size, shape, or physical structure of a product.
b. Features: a company can identify and select appropriate new features by
primary characteristics operate: low, average, high, or superior.
d. Conformance Quality: the degree to which all produced units are identical
and meet promised specifications.
e. Durability: a measure of the product’s expected operating life under
B. Services Differentiation: main service differentiators are ordering ease, delivery,
installation, customer training, customer consulting, maintenance and repair, and
returns.
a. Ordering Ease: describes how easy it is for the customer to place an
order with the company.
b. Delivery: refers to how well the product or service is brought to the
customer, including speed, accuracy, and care throughout the process.
III. Design, the totality of features that affect the way the product looks, feels, and
functions, offers a potent way to differentiate and position a company’s products
and services.
A. Design Leaders: the emotional power of design and the importance to consumers
of look and feel as well as function, so design is exerting a stronger influence in
categories where it once played a small role.
B. Power of Design: In a visually oriented culture, transmitting brand meaning and
positioning through design is critical.
C. Approaches to Design: a well-designed product is easy to manufacture and
distribute. To the customer, it is pleasant to look at and easy to open, install, use,
repair, and dispose of. The designer must take all these goals into account.
IV. Luxury Products face some unique issues
A. Characterizing Luxury Brands
i. Higher priced; often about social status and who a customer was—or
perhaps wanted to be
B. Growing Luxury Brands: luxury brands that successfully extended their brands
vertically across a range of price points are usually the most immune to economic
downturns
a. Clear differentiation must exists between these brands, minimizing the
potential for consumer confusion and brand cannibalization.
C. Marketing Luxury Brands
a. Globalization, new technologies, financial crises, shifting consumer
cultures, and other forces require luxury brand marketers to be skillful and
adept at their brand stewardship to succeed.
b. Luxury brand marketers have been issued the following guidelines:
i. Maintain a premium image for luxury brands; control the image.
ii. Create many intangible brand associations and an aspirational
image.
channel strategy.
vii. Luxury brands must employ a premium pricing strategy, with
strong quality cues and few discounts and markdowns.
c. Trend for luxury brands is to wrap personal experiences around the
products.
d. Some luxury marketers have struggled to find the appropriate online
selling and communication strategies for their brand
e. Success depends on getting the right balance of classic and contemporary
imagery and continuity and change in marketing programs and activities.
V. Environmental Issues: many firms are considering ways to reduce the negative
environmental consequences of conducting business, and some are changing the
manufacture of their products or the ingredients that go into them.
VI. Product and Brand Relationships: each product can be related to other products to
ensure that a firm is offering and marketing the optimal set of products.
A. The Product Hierarchy: Six Levels
a. Need family—The core need that underlies the existence of a product
family.
b. Product family—All the product classes that can satisfy a core need with
reasonable effectiveness.
c. Product class—A group of products within the product family recognized
as having a certain functional coherence, also known as a product
category.
B. Product Systems and Mixes
a. Product system is a group of diverse but related items that function in a
compatible manner
b. Product mix (aka product assortment) is the set of all products and items a
particular seller offers for sale.
the mix
iii. The depth of a product mix refers to how many variants are offered
of each product in the line.
iv. The consistency of the product mix describes how closely related
c. These four product mix dimensions permit the company to expand its
business in four ways.
i. It can add new product lines, thus widening its product mix.
ii. It can lengthen each product line.
iii. It can add more product variants to each product and deepen its
product mix.
iv. It can pursue more product line consistency.
C. Product Line Analysis: product line managers need to know the sales and profits
of each item in their line to determine which items to build, maintain, harvest, or
divest and they need to understand each product line’s market profile and image
a. Sales and Profits: Every company’s product portfolio contains products
with different margins. Companies should recognize that different items
will allow for different margins and respond differently to changes in level
of advertising.
b. Market Profile and Image: The product line manager must review how the
line is positioned against competitors’ lines.
D. Product Line Length
a. One objective is to create a product line to induce up-selling.
b. A different objective is to create a product line that facilitates cross-selling
c. Companies seeking high market share and market growth will generally
carry longer product lines
A. Line Stretching occurs when a company lengthens its product line beyond its
current range, whether down-market, up-market, or both ways.
a. Down-Market Stretch: A company positioned in the middle market may
want to introduce a lower-priced line for any of three reasons:
iii. The company may find the middle market stagnating or declining.
b. Marketers face a number of naming choices in deciding to move a brand
down-market
i. Use the parent brand name on all its offerings.
ii. Introduce lower-priced offerings using a sub-brand name
c. Risks associated with down-market stretching
i. Not pricing low enough
ii. Cannibalizing sales
iii. Consumers not understanding how different offerings are
compartmentalized/differences between them.
d. Up-Market Stretch: enter the high end of the market to achieve more
growth, realize higher margins, or simply position themselves as full-line
manufacturers.
e. Two-Way Stretch: companies serving the middle market might stretch
their line in both directions.
f. Line Filling: lengthening the product line by adding more items within the
present range; overdone if it results in cannibalization and confusion
g. Line Modernization, Featuring, and Pruning: product lines regularly need
to be modernized.
i. A piecemeal approach allows the company to see how customers
and dealers take to the new style and is less draining on the
company’s cash flow
ii. The downside is it lets competitors see changes and start
redesigning their own lines
B. Product Mix Pricing: the firm searches for a set of prices that maximizes profits
on the total mix.
a. Product Line Pricing
b. Optional-Feature Pricing
c. Captive-Product Pricing
ii. Mixed bundling
C. Co-Branding and Ingredient Branding
a. Co-Branding: also called dual branding or brand bundling—two or more
well-known brands are combined into a joint product or marketed together
in some fashion.
i. Same-company co-branding
ii. Joint-venture co-branding
b. Co-Branding Advantages:
i. Product can be convincingly positioned by virtue of the multiple
brands.
c. Co-Branding Disadvantages:
i. Risks and lack of control in becoming aligned with another brand
in consumers’ minds
ii. Consumer expectations of co-brands are likely to be high, so
unsatisfactory performance could have negative repercussions for
both brands.
iii. If the other brand enters a number of co-branding arrangements,
overexposure may dilute the transfer of any association. It may
also result in a lack of focus on existing brands.
iv. Consumers may feel less sure of what they know about the brand.
d. For co-branding to succeed, the two brands must separately have brand
equity—adequate brand awareness and a sufficiently positive brand
image.
e. The most important requirement is a logical fit between the two brands, to
maximize the advantages of each while minimizing disadvantages.
i. Consumers are more apt to perceive co-brands favorably if they are
complementary and offer unique quality, rather than being overly
f. Ingredient Branding: special case of co-branding that creates brand equity
for materials, components, or parts that are necessarily contained within
other branded products.
i. For host products whose brands are not that strong, ingredient
brands can provide differentiation and important signals of quality
ii. An interesting take on ingredient branding is self-branded
ingredients that companies advertise and even trademark
iii. Ingredient brands try to create enough awareness and preference
for their product so consumers will not buy a host product that
doesn’t contain it.
iv. Many manufacturers make components or materials that enter final
branded products but lose their individual identity.
g. What are the requirements for successful ingredient branding?
i. Consumers must believe the ingredient matters to the performance
and success of the end product. Ideally, this intrinsic value is easily
seen or experienced.
ii. Consumers must be convinced that not all ingredient brands are the
VII. Packaging, Labeling, Warranties, and Guarantees
A. Packaging: a fifth P; part of product strategy, it includes all the activities of
designing and producing the container for a product.
a. Packaging is important because it is the buyer’s first encounter with the
product.
i. Draws the consumer in and encourages product choice
ii. Acts as a “five–second commercial” for the product
b. Several factors contribute to the growing use of packaging as a marketing
tool.
i. Self-service (more choices; less explanation)
ii. Consumer affluence (increases willingness to pay for the
convenience, appearance, dependability, and prestige of better
packages).
iii. Company and brand image (recognition of the company or brand)
iv. Innovation opportunity (make products more convenient and easier
to use)
c. Packaging must achieve a number of objectives:
i. Identify the brand.
B. Labeling: A label performs several functions
a. It identifies the product or brand
b. The label might describe the product: who made it, where and when, what
it contains, how it is to be used, and how to use it safely.
c. The label might promote the product through attractive graphics.
d. In 1914, the Federal Trade Commission Act held that false, misleading, or
deceptive labels or packages constitute unfair competition.
C. Warranties and Guarantees
a. Warranties are formal statements of expected product performance by the
manufacturer.
i. Products under warranty can be returned to the manufacturer or
designated repair center for repair, replacement, or refund.
b. Many sellers offer either general or specific guarantees.
i. Guarantees reduce the buyer’s perceived risk.
ii. They suggest that the product is of high quality and the company