Marketing of Core Products

Under the guidance of

Mr.Gurvishal Sinha

Submitted
by:

EKAL
SRIVASTAVA

06511g
 CIVIL
ENGINEERING

Core Products

Core products are developed into augmented products through branding. This is the process
which manufacturers and suppliers use to distinguish their products and services from
competitive offerings in the market place. It is important not to confuse product features and
benefits, as not all features will be regarded as benefits by consumers. For example, all cars
satisfy the need for transportation, yet each model of car has its own distinctive features
which confer different benefits to consumers. BMWs or Mercedes are seen as status symbols,
unlike a Volkswagen Golf which may be attractive on the grounds of its reliability.

Branding help consumers to make buying decisions, since they often associate functional or
emotional values to individual brands. However if a brand does not offer a competitive
differential advantage it is unlikely to succeed. Therefore the challenge in branding is to :
firstly, take a core product and consider the core benefit(s); secondly, examine ways of
differentiating the product by adding on various features (such as brand name and image,
delivery, service, guarantees, quality and design, and packaging, and any other non-essential
features); and thirdly, to consider additional ways of differentiating the product offering
beyond what customers might reasonably expect. It is essential to ensure that the augmented
product offering is unique, sustainable and at all times desirable.

Examples of firms and some of their core products include:

• 3M - substrates, coatings, and adhesives

• Black & Decker - small electric motors

• Canon - laser printer subsystems

• Matsushita - VCR subsystems, compressors

• NEC - semiconductors

• Honda - gasoline powered engines

The core products are used to launch a variety of end products. For example, Honda uses its
engines in automobiles, motorcycles, lawn mowers, and portable generators.

Because firms may sell their core products to other firms that use them as the basis for end
user products, traditional measures of brand market share are insufficient for
evaluating the success of core competencies.

Relationships among products

In most organisations more than one product is being marketed at any one time, therefore it is
important to be able to understand the relationships among products.

Product item - specific version of a product eg brand/size/model

Product line - a group of product items that are closely related in some way eg
marketing/technical/end use considerations

Product mix/range - the set of all product lines and individual product items that a company,
and can be described according to:

• width - the number of different product lines on offer

• depth - the number of product items in each product line

• consistency - the closeness of relationships between different product lines.

When establishing the most appropriate product mix marketing mangers need to consider the
depth and width of product lines. In reality most line decisions are taken in isolation with the
result that the product range is built up by default. Nevertheless there should be systematic
policies for changing product lines such as :

- line stretching - entails lengthening the product line either upwards into higher quality
items (can result in problem of original product being perceived to be of low quality) or
downwards into lower quality items (possible problem of devaluing quality image of lines
and sales being taken away from existing products) or in both directions at once
- line filling - here the basic length of the product line is not changed, instead gaps are filled
with new product items (must be clear that the products are different, otherwise there is the
risk of losing sales from existing products)

- brand extension - extending an existing brand name within a product line.

The Product Life Cycle Concept

If you take any large organisation and look at its products by age, it will be apparent that
some products may be new and not well known, most tend to be well established, while
others may be in decline and in the process of being phased out. According to the PLC
concept the sales history of successful products can be broken down into distinct stages of
introduction, growth, maturity and decline. The four distinct stages call for a reformulation of
marketing strategy as different opportunities or problems present themselves in the marketing
environment.

Understanding the PLC concept is important in product planning, yet it is one of the most
misunderstood concepts in marketing. The main benefit of the concept for marketing
managers is that by being able to identify the stage a product is currently in one is then in a
better position to formulate a better marketing strategy.

Although the PLC tends to follow the shape of a bell-shaped curve, the actual shape of the
curve will vary according to the type of product one is concerned with (eg style, fashion, fad),
as will the timespan. Setting these two factors aside, what is important is that firstly the
marketer recognises the need to develop an appropriate strategy for each stage, secondly s/he
recognises when a product moves from one stage to the next, and thirdly bears in mind the
general shape of the curve.

Research which has been undertaken to test the validity of the PLC concept by analysing
sales behaviour of a variety of products over time, has concluded that the general shape of the
bell-shaped curve has been followed and is generally supportive of the concept; nevertheless
there are different opinions regarding its usefulness.

Product range management

It is important to keep the product range fresh and appealing to new and existing customers
by making relevant additions, modifications and deletions to the range. Managing the product
range should be regarded as a means of winning customers as well as retaining them by
positioning products to meet changing needs and aspirations of the target market. It can also
be effective as a defensive strategy: comparing your company's product range against those
of competitors' may enable gaps to be located (line filling strategy) to ensure that there is no
room left for main competitors or even niche marketers.

Modifying existing products

more likely to occur in the maturity stage of the PLC in order to give the existing
product/brand a source of competitive advantage, and is generally less risky than developing
a new product. Can take the form of quality, functional or style modifications.

3 conditions are necessary for modification to take place: firstly the product must be
modifiable; secondly the modification must be perceptible to existing customers; and thirdly
it should result in greater consumer satisfaction.

Deleting existing products

For reasons such as product no longer satisfying target market needs, declining product
profitability levels, negative consumer attitudes towards certain product(s) which may rub off
onto other products in the range, or product being a drain on resources. Different strategies
can be used: phase out by letting product decline of its own accord, run down stocks through
price cuts, or dropping product.

Developing new products

Very expensive and very risky given the extremely high failure rate for new products (can be
in the region of 60-90%). Nevertheless new product development is necessary to ensure the
long term survival of an organisation because current products are mainly to be found in the
maturity and decline stages of the PLC and need to be replaced due to the dynamic
environment in which companies operate (eg changing consumer needs/tastes, new
technologies, shorter PLCs and increased competition). Therefore it is very risky not to
develop new products.
Product Levels
Core Competencies

In the 1990 article entitled, The Core Competence of the Corporation, C.K. Prahalad and
Gary Hamel coined the term core competencies, or the collective learning and coordination
skills behind the firm's product lines. They made the case that core competencies are the
source of competitive advantage and enable the firm to introduce an array of new products
and services.

According to Prahalad and Hamel, core competencies lead to the development of core
products. Core products are not directly sold to end users; rather, they are used to build a
larger number of end-user products. For example, motors are a core product that can be used
in wide array of end products. The business units of the corporation each tap into the
relatively few core products to develop a larger number of end user products based on the
core product technology. This flow from core competencies to end products is shown in the
following diagram:
Core Competencies to End Products

End Products

1 2 3 4 5 6 7 8 9 10 11 12

Business Business Business Business

1 2 3 4

Core Product
1

Core Product 2
 Competence Competence Competence Competence
1 2 3 4

The intersection of market opportunities with core competencies forms the basis for
launching new businesses. By combining a set of core competencies in different ways and
matching them to market opportunities, a corporation can launch a vast array of businesses.

Without core competencies, a large corporation is just a collection of discrete businesses.

Core competencies serve as the glue that bonds the business units together into a coherent
portfolio.

The Tests for Core Competence

 Essential to corporate survival in short and long term

 Invisible to competitors

 Difficult to imitate

 Unique to the enterprise

 Result from a mix of skills, resources and processes

 A capability which the organization can sustain over time

 Greater than the competence of an individual

 Essential to the development of core products

  Essential to the implementation of strategic intent

 Essential to the strategic choices of the enterprise

 Marketable and commercially viable

 Few in number

Developing Core Competencies

According to Prahalad and Hamel, core competencies arise from the integration of multiple
technologies and the coordination of diverse production skills. Some examples include
Philip's expertise in optical media and Sony's ability to miniaturize electronics.

There are three tests useful for identifying a core competence. A core competence should:

1. provide access to a wide variety of markets, and

2. contribute significantly to the end-product benefits, and

3. be difficult for competitors to imitate.

Core competencies tend to be rooted in the ability to integrate and coordinate various groups
in the organization. While a company may be able to hire a team of brilliant scientists in a
particular technology, in doing so it does not automatically gain a core competence in that
technology. It is the effective coordination among all the groups involved in bringing a
product to market that results in a core competence.

It is not necessarily an expensive undertaking to develop core competencies. The missing

pieces of a core competency often can be acquired at a low cost through alliances and
licensing agreements. In many cases an organizational design that facilitates sharing of
competencies can result in much more effective utilitization of those competencies for little
or no additional cost.
To better understand how to develop core competencies, it is worthwhile to understand what
they do not entail. According to Prahalad and Hamel, core competencies are not necessarily
about:

• outspending rivals on R&D

• sharing costs among business units

• integrating vertically

While the building of core competencies may be facilitated by some of these actions,
by themselves they are insufficient.

The Loss of Core Competencies

Cost-cutting moves sometimes destroy the ability to build core competencies. For example,
decentralization makes it more difficult to build core competencies because autonomous
groups rely on outsourcing of critical tasks, and this outsourcing prevents the firm from
developing core competencies in those tasks since it no longer consolidates the know-how
that is spread throughout the company.
Failure to recognize core competencies may lead to decisions that result in their loss. For
example, in the 1970's many U.S. manufacturers divested themselves of their television
manufacturing businesses, reasoning that the industry was mature and that high quality, low
cost models were available from Far East manufacturers. In the process, they lost their core
competence in video, and this loss resulted in a handicap in the newer digital television
industry.
Similarly, Motorola divested itself of its semiconductor DRAM business at 256Kb level, and
then was unable to enter the 1Mb market on its own. By recognizing its core competencies
and understanding the time required to build them or regain them, a company can make better
divestment decisions.
CASE STUDY 1: Black & Decker

In 1946 Black & Decker created the world's first portable electric drill for consumers,
effectively creating what is now known as the DIY market. The brand has since gone from
strength to strength, launching new products and creating new market categories including:
consumer power tools, accessories and fixings, outdoor power tools, household cleaning
products and more recently a new automotive and electronics range of tools.

Market
Black & Decker http://www.blackanddecker.eu has the largest branded share within the
categories in which it operates. This is a great achievement as there are many factors that
affect the health of the DIY market -- from the state of the housing market and the
performance of the economy, to weather conditions and the media.

The total DIY market has nearly doubled since 1998 from £4.9 billion to £8.1 billion (Source:
GfK Marketing Services). Over the past couple of years, the DIY market has begun to
stabilise and recent trends suggest that as DIY tasks become less cosmetic and start to
become more like renovations, this trend will generate new growth in the market.

Achievements

Black & Decker has won many awards both for its products and in recognition of its business
operations. Most recently, it has been awarded the prestigious 'Best of the Best' Award in the
2007 DIY Industry Awards, highlighting and recognising its achievements over the past 20
years.
Black & Decker has also recently been awarded the Good Housekeeping Institute logo for the
Dust buster Pivot handheld vacuum cleaner -- this is a highly regarded division of the Good
Housekeeping magazine which independently tests consumer products against competitors.

Furthermore, Black & Decker has been ranked as the number one DIY and household brand
by the Super brand consumer survey.

Product
Black & Decker is a global manufacturer of power tools, accessories, household cleaning
products, outdoor tools and more recently automotive tools. Over the 97 years since the
company was first established, many other successful global brands have been acquired,
expanding the Black & Decker portfolio.

Black & Decker uses the knowledge gained from extensive consumer research to create
powerful and practical solutions that make it easier and quicker for people to achieve good
DIY results. This process has led the company to being the number one brand in all of its
core product groups (Source: GfK Marketing Services).

Black & Decker constantly strives to create everyday power tool solutions for consumers.
Products launched over the years include the award-winning Mouse decorating tool, the
Scorpion powered hand saw, the Workmate workbench and more recently the Laserplus self
levelling laser level.

The launch of a complete range of patented self levelling lasers provided innovation that
excited and grew the spirit level market. This created a new market for lasers -- in which
Black & Decker are the number one branded supplier with 57 per cent share (Source: GfK
Marketing Services MAT May 06 -- April 07).

Black & Decker leads the market with powerful and innovative tools, most recently the
cyclonic action sander, new corded and cordless hammer drills and the Handi Saw -- a
compact and convenient powered saw. Black & Decker's garden range includes hedge
trimmers, grass trimmers, chainsaws, shredders and blower vacuums. Continuing with its
innovative culture, Black & Decker launched the award-winning Alligator powered lopper in
2006, which combines the power and results of a chainsaw with the safety of a manual
lopper. Black & Decker owns the sub-brand Strimmer, typically used to describe grass
trimmers and has released its latest range with an innovative mid-mount design, ensuring
balance and maximum comfort for the consumer. The outdoor range continues to expand its
cordless offering, with new additions such as the cordless powered hoe, to help with soil
maintenance and the powered sprayer which allows an easier application of water or
fertilisers to plants.

For household cleaning, Black & Decker's Dustbuster handheld vacuum cleaner range,
invented in 1979, has constantly been upgraded with improved technology, including
cyclonic action. In 2006 Black & Decker launched the innovative Dustbuster Pivot vacuum
cleaner with pivoting nose, allowing the consumer to reach into awkward spaces.

Recent developments
Black & Decker has recently launched a new range of automotive tools, including battery
boosters, jump starters, portable power and a selection of leisure products including lighting
and travel coolers/warmers. This new range is aimed at people on the go, whether it be by
car, boat or motor bike and consumers who enjoy outdoor activities, such as camping and
fishing. Continuing with its innovative culture, Black & Decker has launched the first product
of its kind: the Simple Start battery booster which charges a drained battery from inside the
car within 15 minutes so you can re-start the engine with no assistance required from another
vehicle, therefore delivering ultimate safety and security.

Ongoing market research has highlighted that consumers often get frustrated when trying to
find the correct setting on their tools for a certain application. This is why Black & Decker
has launched a new range of hammer drills and jigsaws which include
Autoselect( technology: the consumer now only needs to select an icon of the application
they require and the intelligent technology automatically adjusts the tool into the correct
setting, eliminating guesswork.

Promotion
Black & Decker recognises the importance of successful communication plans when
launching new products across all categories, therefore continually invests to drive the DIY
market forward by focusing on all aspects of the marketing mix from TV, radio and online
activity to best-in-class instore communication driven by a team of Field Marketing
Executives. Black & Decker continues to heavily invest in TV and in 2007 will maximise
brand exposure and sales through five TV campaigns during key periods.
In 2006 Black & Decker launched its most high performance range of cordless and corded
hammer drills which featured on the Talk Sport Radio breakfast show, targeting over 1.9
million listeners. This campaign also communicated Black & Decker being the official
sponsor of the Ferrari Challenge Trofeo Pirelli and the official technical tool supplier to
Fiorano Ferrari which continues until the end of 2008.

Brand values
Black & Decker is a well-established brand that aims to help consumers to confidently get the
best possible results from the tools they use, acting in a trustworthy way to deliver intelligent
products for the home with the power and performance for any task.

Case Study 2: Microsoft Corporation

Product Lines

Microsoft software products are divided into eight main families. These include Windows,

Servers, Business Solutions, MSN, Office, Developer Tools, Games and Xbox, Windows

The other software products and services are divided into four main categories.

These include Home and Entertainment, Hardware, Finance, Books and Training.

Among these end products, two operating segments, Client and Business Solutions,

contributed to the majority of the company’s revenue. Client consists of premium edition

operating systems, including Windows XP Professional, Media Center Edition, Tablet PC

Edition, and other standard Windows operating systems, including Windows XP Home.

Business Solutions include Microsoft Office, Microsoft Project, Microsoft Visio, SharePoint

Portal Server CAL, Microsoft Live Meeting, One Note, Office Communication Server,

Microsoft Dynamics AX, Microsoft Dynamics CRM, Microsoft Dynamics GP, Microsoft

Dynamics NAV, Microsoft Dynamics SL, Microsoft Dynamics Retail Management System,

Microsoft Partner Program, and Microsoft Office Small Business Accounting.

Core Competencies

Microsoft clearly recognizes their core competencies that bring them high revenue. In fact,

Microsoft provides a guide to earning competency, for their business partners, on their

website [2]. These competencies are known as Microsoft Competencies. According to

Microsoft, the objectives of the Microsoft competencies are to help business partners

differentiate their skills and expertise to customers, extend their market reach, align their

business with relevant Microsoft marketing initiatives and form closer relationships with

other partners. This is inline with the concept of core competency. Although the Microsoft

Competencies may not be the core competencies of the company, they are closely linked as

this is a strategy in which Microsoft harmonize the activities of its business partners to itself.

The end products in Client and Business Solutions operating segments can be found in

different market segments, generating USD13,209M and USD14,488M in revenue

respectively for the 2006 fiscal year [3]. Thus, the core competences that drive these products

provided access to wide variety of market for the company. The perceived customer benefits

of Microsoft products are primarily connected (connecting people, processes and systems),

productive (in managing business), and flexible (in use of software). The key products that

contribute to those customer benefits are the operating systems and office tools which are

driven by the core competencies. These core competencies are complex and supported by the

15% of revenue Microsoft invested in R&D. Thus it will be very difficult for competitors to

imitate.
Case Study 3: Creative Technology Limited

Product lines

Creative products are used in an array of solutions for PC entertainment, education, music,

Internet applications and services and productivity tools markets [4]. Creative’s product line

includes an array of PC upgrades, such as Sound Blaster audio cards, multi-channel speakers,

lifestyle digital entertainment products (such as the NOMAD line of portable digital audio

players and PC-CAM/DC-CAM and WebCam digital cameras) and a mix of other products,

including three-dimensional (3-D) graphics cards, modems, software, musical instruments,

computer mice and keyboards. The company markets its products to consumers and system

integrators, with worldwide distribution through traditional marketing channels, original

Core Competencies

In the SWOT Analysis of Creative by DataMonitor, the “Strengths” of Creative are listed as

Sound Blaster, Strategic Alliances, Strengthening Distribution Network, and Proven R&D

Skills. Using these factors and the end products, Exhibit 2 shows the mapping of Creative’s

capabilities to core competencies, to core products, and to the end products.

In 1995, U.S. News ranked Creative as the number one firm in U.S. for sales growth, profit

growth, and average on return of shareholders’ equity from 1991 to 1994 [5]. The growth was

due to the sales of Sound Blaster audio cards which became the number selling add-on card

in the PC market [6]. Creative’s Personal Digital Entertainment operating segment, which

included MP3 players, experienced growth of revenues from USD54M in FY2000 to reach an

annualized run rate of USD270M in 2003. The Sound Blaster family sound cards and MP3

players are the leading products of Creative that helped it reached the worldwide market.

Using the core competence tests, Creative’s strength in Digital Audio Solutions clearly fits

this bill, resulting in continuous improvements to their leading products. Customers also

perceive Creative for the quality of their sound cards and MP3 players.

Conclusion

Microsoft is able to identify its core competencies to develop a well-structured business

partners’ competencies guide. Microsoft continues to rip benefits from its core competences.
REFERENCES

• The Core Competence of the Corporation, C.K. Prahalad and Gary Hamel

• Andrew Campbell and Kathleen Sommers Luchs, Core Competency-Based Strategy

• Kotler, P and A R Andreasen (1991) Strategic Marketing for nonprofit organizations,

Englewood Cliffs, NJ: Prentice Hall.

• Marketing for Hospitality and Kotler, Bowen, and Makens