chapter 10

Part 4: Shaping the Market Offerings

Setting Product
Strategy and Marketing
Through the Life Cycle
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. How can a company build and manage its product mix and product lines?
4. How can companies use packaging, labeling, warranties, and guarantees

as marketing tools?
5. What strategies are appropriate for new product development and through
the product life cycle?

Marketing Management at Ford

Ford Motor Company endured tough times during the years when gas prices were going up and vehicle
sales were going down. Perhaps the biggest concern was public perception that Ford products were not high
quality. Rejecting government bailouts during the recent recession created some goodwill, but the CEO
knew reliable, stylish, and affordable vehicles that performed well would make or break the companys
fortunes. A redesigned high-mileage Ford Fusion with innovative electronics and an environmentally
friendly hybrid option caught customers attention, as did the hip, urban-looking seven-seat Ford Flex SUV.
The CEO planned to use Fords vast infrastructure and scale to create vehicles that, with small
adjustments, could easily be sold all over the world. The result of extensive global research, the Ford Fiesta
hatchback was a striking example of this world-car concept. The company knew it had a winner when the
Fiesta was well received in China, Europe, and the United States. Ford also relied on experiential and
social media marketing. Before the U.S. launch, Ford sent 150 Fiestas on tour for test drives and gave 100
to bloggers who shared their experiences online. At a time when the rest of the U.S. auto industry was
struggling, the Fiesta garnered thousands of preorders and helped Ford return to profitability.1
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he customer will judge the offering by three basic elements: product features and quality,
services mix and quality, and price, which must be meshed into a competitively attractive
offering. To achieve market leadership, firms must offer products and services of superior
quality that provide unsurpassed customer value. This chapter discusses product concepts and
decisions, new product development, and the product life cycle. Chapter 11 examines services
and Chapter 12 explores price.

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.

Product Levels
In planning its market offering, the marketer needs to address five product levels (see
Figure 10.1).2 Each level adds more customer value, and the five constitute a customer-value
hierarchy. The fundamental level is the core benefit: the service or benefit the customer is really
buying. A hotel guest is buying rest and sleep. The purchaser of a drill is buying holes. Marketers
must see themselves as benefit providers.
At the second level, the marketer must turn the core benefit into a basic product. Thus a
hotel room includes a bed, bathroom, and towels. At the third level, the marketer prepares an
expected product, a set of attributes and conditions buyers normally expect when they purchase
this product. Hotel guests expect a clean bed, fresh towels, and so on. At the fourth level, the
marketer prepares an augmented product that exceeds customer expectations. In developed
countries, brand positioning and competition take place at this level. In developing and emerging markets, competition takes place mostly at the expected product level. At the fifth level is
the potential product, all the possible augmentations and transformations the offering might
FIGURE 10.1 Five Product Levels
tial product
Poten
mented product
Aug
ected product
Exp
sic product
Ba

Core
benefit

Chapter 10 Setting Product Strategy and Marketing Through the Life Cycle
undergo in the future. Here is where companies search for new ways to satisfy customers and
distinguish their offering.
Differentiation arises and competition increasingly occurs on the basis of product augmentation, which also leads the marketer to look at the users total consumption system: the way the
user gets and uses products and related services.3 Each augmentation adds cost, however, and
augmented benefits soon become expected benefits, forcing competitors to search for still other
features and benefits to differentiate themselves. As some companies raise the price of their augmented product, others offer a stripped-down version for less.

Product Classifications
Marketers classify products on the basis of durability, tangibility, and use (consumer or industrial). Each type has an appropriate marketing-mix strategy.4
Durability and tangibility. Nondurable goods are tangible goods normally
consumed in one or a few uses, such as beer and shampoo. Because these are
purchased frequently, the appropriate strategy is to make them available in many
locations, charge a small markup, and advertise to induce trial and build preference.
Durable goods are tangible goods (such as appliances) that survive many uses,
require personal selling and service, command a higher margin, and require more
seller guarantees. Services are intangible, inseparable, variable, and perishable products
(such as legal advice) that normally require more quality control, supplier credibility,
and adaptability.
Consumer-goods classification. Classified according to shopping habits, these
products include convenience goods (such as soft drinks), which are purchased
frequently, immediately, and with minimal effort; shopping goods (such as major
appliances) that consumers compare on the basis of suitability, quality, price, and style;
specialty goods (such as cars) with unique characteristics or brand identification for
which enough buyers are willing to make a special purchasing effort; and unsought
goods (such as smoke detectors), which the consumer does not know about or normally
think of buying.
Industrial-goods classification. Materials and parts are goods that enter the
manufacturers product completely. Raw materials can be farm products (wheat) or
natural products (iron ore). Manufactured materials and parts can be either
component materials (cement) or component parts (small motors). Capital items
are long-lasting goods that facilitate developing or managing the finished product,
including installations (factories) and equipment (trucks). Supplies and business
services are short-term goods and services that facilitate developing or managing the
finished product.

Product and Services Differentiation

To be branded, products must be differentiated. At one extreme are products that allow little
variation, such as chicken, aspirin, and steel. Yet even here, some differentiation is possible:
Perdue chickens, Bayer aspirin, and Indias Tata Steel have carved out distinct identities.
At the other extreme are products capable of high differentiation, such as automobiles and
furniture.

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Product Differentiation
Marketers face an abundance of differentiation possibilities, including form, features, customization, performance quality, conformance quality, durability, reliability, repairability, and style.5
Form. Form refers to the products size, shape, or physical structure. For example, aspirin
can be differentiated by dosage size, shape, color, coating, or action time.
Features. Most products can be offered with varying features that supplement their
basic function. A company can identify and select new features by surveying buyers and
calculating customer value versus company cost for each potential feature. It should
consider how many people want each feature, the time needed to introduce it, and
whether competitors could easily copy it.6 To avoid feature fatigue, the company must
prioritize features and tell consumers how to use and benefit from them.7
Customization. With mass customization a company meets each customers requirements, on a mass basis, by individually designing products, services, programs, and
communications.8 Customers must know how to express their personal product preferences, however, or be given assistance to best customize a product.9
Performance quality. Performance quality is the level at which the products primary
characteristics operate. Firms should design a performance level appropriate to the target
market and competition (which is not necessarily the highest level possible) and manage
performance quality over time.
Conformance quality. Buyers expect a high conformance quality, the degree to which
all produced units are identical and meet promised specifications. A product with low
conformance quality will disappoint some buyers.
Durability. Durability, a measure of the products expected operating life under natural
or stressful conditions, is a valued attribute for vehicles and other durable goods. The
extra price for durability must not be excessive, however, and the product must not be
subject to rapid technological obsolescence.
Reliability. Buyers normally will pay a premium for reliability, a measure of the probability that a product will not malfunction or fail within a specified period.
Repairability. Repairability measures 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. Style describes the products look and feel to the buyer. It creates distinctiveness
that is hard to copy, although strong style doesnt always mean high performance. Style
plays a key role in the marketing of many brands, including Apple.

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. The main service differentiators are
ordering ease, delivery, installation, customer training, customer consulting, and maintenance
and repair.
Ordering ease. How easy is it for the customer to place an order with the company?
Delivery. How well is the offering delivered to the customer? Todays customers have
grown to expect speed: eyeglasses made in one hour. Accuracy and care are important,
as well.