Chapter 5

Product and Service Strategy

and Brand Management
Importance of the Offering

The ultimate profitability of an

organization depends on its

product or service offering(s) and

the strength of its brand(s).

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Basic Offering-Related
Decisions

Modifying the Offering Mix

Positioning Offerings

Branding Offerings

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The Offering Concept

What is an offering? It consists of:

Tangible product or service

Related services (e.g.,
delivery and setup)
Brand name(s)
Warranties or guarantees
Packaging

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 The Offering Mix
(Portfolio)

The totality of a companys offerings is

known as its product or service offering
mix or portfolio

Consists of distinct offering lines

(product line width)

Each line consists of individual

offers or items (product line depth)

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 The Offering Portfolio

Bundling enhancing the offering mix

by providing two or more product or
service items as a package deal

McDonalds value meal

Travelocitys vacation packages

IBM hardware, software, and

maintenance contracts

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Modifying the Offering Mix
Major Decisions

Should the offering mix be modified?

If yes, what should be

added, modified, harvested,
or eliminated?

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Modifying the Offering Mix
Additions to the Offering Mix

How consistent is the new offering with

existing offerings?

Does the organization have the

resources to adequately introduce and
sustain the offerings?

Is there a viable market niche for the

offering?

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Modifying the Offering Mix
Additions to the Offering Mix

How consistent is the new

offering with existing offerings?

Cannibalization
Fit with sales and distribution
strategies
Consistency with target markets

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Modifying the Offering Mix
Additions to the Offering Mix

Does the organization have the

resources to adequately introduce
and sustain the offerings?

Financial strength outlays for

research, development, and
marketing
Market Growth
Competitive response
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Modifying the Offering Mix
Additions to the Offering Mix

Is there a viable market niche

for the offering?

Is there a relative advantage

over existing competitive
offerings?
Does a distinct buyer group
exist that is not being satisfied
with current offerings?
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Modifying the Offering Mix
New-Offering Development Process

1. Idea generation/idea screening

employees, buyers, competitors

2. Business analysis
forecasting sales, costs, profitability

3. Market testing
laboratory or field market tests

4. Commercialization
full-scale introduction of offering to
market
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 New-Offering
Development Process
Idea Generation & Screening
1. Does the offering have a relative
advantage?
2. Is the offering compatible with buyers
use or consumption behavior?
3. Is the offering simple enough for buyers to
understand and use?
4. Can the offering be tested on a limited
basis prior to actual purchase?
5. Are there immediate benefits from the
offering, once it is used or consumed?
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 New-Offering
Development Process
Business Analysis

Sales Forecasts
Profitability Analysis
Investment requirements
Breakeven analysis
Payback period
Return on investment (ROI)

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 New-Offering
Development Process
Test Marketing

Generate benchmark data for assessing

sales volume
Relative effectiveness of alternative
marketing programs can be examined
Incidence of offering trial by potential
buyers, repeat-purchasing behavior, and
quantities purchased
Results in a competitive response

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Modifying the Offering Mix
Life-Cycle Concept

A life cycle plots sales of an offering or a

product class over a period of time.

There are FOUR main stages:

1. Introduction
2. Growth
3. Maturity (Saturation)
4. Decline

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Modifying the Offering Mix
Life-Cycle Concept

Sales

Sales

Profits

Introduction Growth Maturity Decline

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Modifying the Offering Mix
Life-Cycle Concept

The sales curve can be viewed as

being the result of offering trial and
repeat-purchasing behavior.

Sales volume = (number of triers x average

purchase amount x price) + (number of
repeaters x average purchase amount x price)

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Modifying the Offering Mix
Modification

Trading up
Improving the product and increasing the price

Trading down
Reducing the number of features or quality
and reducing the price

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Modifying the Offering Mix
Harvesting

Harvesting should be considered when:

1. The market for the offering is stable

2. The offering is not producing good
profits
3. Market share is becoming difficult to
maintain
4. The offering provides other benefits
to the organization
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Modifying the Offering Mix
Elimination

Elimination is appropriate when the answer to

the following questions is very little or none:

1. What is the future sales potential of

the offering?
2. How much is the offering contributing
to the overall profitability of the
offering mix?

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Modifying the Offering Mix
Elimination

3. How much is the offering

contributing to the sales of other
offerings in the mix?
4. How much could be gained by
modifying the offering?
5. What would be the effect on
channel members and buyers?

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 Positioning Offerings

Weve already discussed as part of

Segmentation.

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 Brand Equity &
Brand Management
Brand Name
Any word, device (design, sound, shape,
or color), or combination of these
used to identify an offering
and set it apart from competing offerings.

Brand Equity
The added value a brand name bestows on a
product or service beyond the functional
benefits provided.
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Brand Equity & Brand Management
Creating and Valuing Brand Equity

Develop positive brand awareness and name-

product association (Gatorade, Kleenex)

Establish a brands meaning in the minds of

consumers (Nike)

Elicit the proper consumer responses to a

brands identity and meaning (Michelin)

Create a consumer-brand resonance (Harley-

Davidson, Apple, eBay)
 Customer-Based Brand Equity
Pyramid
Relationships:
Intense, active
What about
loyalty
you and me? Consumer
Brand
Resonance
Response: Positive,
What about accessible
you? Consumer Consumer reactions
Judgments Feelings
Strong,
Meaning: What favorable, and
Brand
are you? Brand Imagery unique brand
Performance
association

Deep, broad
Identity: Who
Brand Salience brand
are you?
awareness
 Brand Equity and
Brand Management
Branding Decisions

Assign one brand name all of the

organizations offerings (GE, Sony)
OR
Assign one brand name to each line of
offerings (Sears, Craftsman Tools)
OR
Assign individual names to each
offering (P&G, Unilever)

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 Brand Equity &
Brand Management
Branding Decisions
Using a single brand name
Advantage
Easier to introduce new offerings when
the brand name is familiar to buyers
Disadvantage
Can have a negative effect on existing
offerings if a new offering fails

Sub-branding
combining a family brand with a new
brand
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 Brand Equity &
Brand Management
Branding Decisions

Decide whether or not to supply an

intermediary with its own brand name.
What are the costs/revenues?
Is there excess capacity?
If we dont manufacture the brand, will
a competitor produce it?

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Brand Equity & Brand Mgmt
Brand Growth Strategies

New Existing
products products

New New Brand Fighting/Flanker

Brand Strategy Brand Strategy

Existing Brand Extension Line Extension

Brand Strategy Strategy

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Brand Equity & Brand Mgmt
Line Extension Strategy

Adding offerings with the same brand in a

product class that an organization currently
serves

Respond to customers desire for variety

Eliminate gaps in the product line
Lowers advertising and promotion costs

Consider possibilities of product cannibalism and

proliferation of offerings (Coke and Vanilla Coke)
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Brand Equity & Brand Mgmt
Brand Extension Strategy

The practice of using a current brand name

to enter a completely different product class

Reduced risk due to brand equity

Success depends on perceptual fit with
the original product class
e.g., Yamaha makes motorcycles, sound
equipment, computer peripherals, and
musical instruments

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Brand Equity & Brand Mgmt
Brand Extension Strategy: Co-branding

Co-branding
Pairing two brand names of two
manufacturers on a single product
e.g., General Mills and Hershey Foods
Reeses Peanut Butter Puffs

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Brand Equity & Brand Mgmt
New Brand Strategy

Involves the development of a new brand

and often a new offering for a product
class that has not been previously
served by the organization.

Most challenging strategy

Most costly
e.g., Lexus by Toyota

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Brand Equity & Brand Mgmt
Flanker/Fighting Brand Strategy

Flanker Brand Strategy

Involves adding a new brand on the high or
low end of a product line based on a price-
quality continuum (Marriott Hotels).

Fighting Brand Strategy

Involves adding a new brand whose sole
purpose is to confront competitive brands in a
product class being served by an organization.
(Frito-Lays Santitas used to fight regional
tortilla chip brands).
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