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Marketing planning begins by formulating an offering to meet the needs and wants of the target customers.

As shown in Figure 12.1 the customer will judge the offering’s: product features and quality, services mix and quality, and price.

As discussed in chapter 1, a product is anything that can be marketed to satisfy a want or need, including physical goods, services, experiences, events, persons, places, properties, organizations, information, and ideas.

Figure 12.2 shows the five levels of a product. Each of these will be illustrated in more depth on the next slide.

Products are comprised of 5 levels. Each level adds more customer value. Here are the product levels using a hotel as an example.

Core benefit: service or benefit the customer is really buying.

Basic product: marketers turn core benefit into a basic product at this level.

Expected product: attributes and conditions buyers expect when they purchase this product. Competition takes place at this  level in developing countries.

Augmented product: : attributes and conditions exceed customer expectations. Competition takes place at this level in developed countries..

Potential product: various augmentations that could be incorporated in the future. Here is where companies search for new ways to satisfy customers and distinguish their offering.

Durability, tangibility, and use (consumer or industrial).

Consumers purchase convenience goods frequently, immediately, and with minimal effort.

Consumers compare shopping goods based on suitability, quality, price, and style.

Consumer make special purchasing effort to buy specialty goods due to their unique characteristics or brand identification.

Consumer does not normally know or buy unsought goods. As such these goods require advertising and personal-selling support. 

Materials and parts are goods that enter the manufacturer’s product completely.

Capital items are long-lasting goods that facilitate developing or managing the finished product.

Supplies and business services are short-term goods and services that facilitate developing or managing the finished product.

For a product to be branded it must be differentiated from competitors.

Products can be differentiated in many ways including: Form, features, customization, performance quality, conformance quality, durability, reliability, repairability, and style.

The main service differentiators are ordering ease, delivery, installation, customer training, customer consulting, and maintenance and repair.

The key to competitive success may lie in adding valued services and improving product quality.

Design is the totality of features that affect how a product looks, feels, and functions to a consumer. Design is often an important aspect of luxury products.

The product hierarchy stretches from basic needs to particular items that satisfy those needs.

A product system is a group of diverse but related items that function in a compatible manner. A product mix is the set of all products and items a particular seller offers for sale.

Product line analysis: companies develop a basic platform and modules of a product line that can be added to meet different customer requirements and lower production costs. Managers need to know the sales and profits of each item in their line to determine which items to build, maintain, harvest, or divest, as well as each product line’s market profile.

Product line length is influenced by company objectives and tend to lengthen over time.

In product-mix pricing, the firm searches for a set of prices that maximizes profits on the total mix.

In Co-branding: two or more well known brands are combined into a joint product or marketed together in some fashion.

The product hierarchy stretches from basic needs to particular items that satisfy those needs. E.g., life insurance.

A product system is a group of diverse but related items that function in a compatible manner.

A product mix is the set of all products and items a particular seller offers for sale. A company’s product mix has a certain width, length, depth, and consistency. These concepts are illustrated in Table 12.2 for selected Procter & Gamble consumer products.

Table 12.2 shows the product mix for P&G.

In conducting product line analysis managers must examine each product in terms of how it contributes to overall sales and profits. Products that are responsible for a large percentage of sales and profits must be carefully monitored and protected. Products that deliver on a small percentage may be candidates for being dropped, unless strong growth potential is possible. Figure 12.3 highlights

A product line manager must examine how the line is positioned against competitors. One tool that managers can employ is a product map, which shows competitors’ items in relation to firm’s items. This also allows for identifying market segments.

Product line analysis is helpful in two key decision areas – product line length and product mix pricing.

Figure 12.3 highlights the sales and profits of a 5-item product line. Item 1 accounts for 50% of total sales and 30% of total profits.

Figure 12.4 shows the location of the various product line items of company X and four competitors, A, B, C, D. Competitor A sells two product items in the extra-high weight class ranging from medium to low finish quality. The product map shows which competitors’ items are competing against company X’s items.

Line stretching – company lengthens its product line beyond its current range.

Line filling – company lengthens its product line by adding more items within the present range.

Line modernization, featuring, and pruning – Companies  continuous modernize product lines to encourage customer migration to higher-valued, higher-priced items; boost demand  for certain product lines by featuring them; and optimize their brand portfolios by focusing on core brand growth and concentrating resources on the biggest and most established brands.

In product-mix pricing, the firm searches for a set of prices that maximizes profits on the total mix.

Product line pricing – develop product lines rather than single products and introduce price steps.

Optional-feature pricing – offer optional products, features, and services with their main product.

Captive-product pricing – price the main products low and set high markups  on the aftermarket products.

Two-part pricing – consists of a fixed fee plus a variable usage fee.

By-product pricing – charge low price for the main products and earn income on the by-products .

Product-bundling pricing – offer goods as a bundles and charges less for the bundle than if the items were purchased separately.

Co-branding - Brand bundling or Dual branding

Same-company- When brands owned by the same company are used together. Example, General Mills launched a Trix branded Yoplait yogurt.

Joint venture co-branding – Where brands owned by different companies are combined. Example, American Airlines and Citibank launching the Citibank AAdvantage credit card.

Multi-sponsor – An alliance between three or more partners.

Retail co-branding – Where two retail establishments use the same location to optimize space and profits. Pizza Hut, KFC, and Taco Bell often share the same retail space.

Ingredient branding is a special case of co-branding and involves the linking of one brand with another. KC Masterpiece barbecue sauce was combined with Lay’s potato chips is an example.

The package is the customers first encounter with the product and a good package draws the customer in, encouraging product choice. Packaging also influences customers when they go to open and use the product at home. Distinctive packaging, Altoids mints and Absolut vodka serve as an important part of a brand’s equity.

Labeling – FDA requires that labels on all processed foods contain nutritional information.

Warranties and guarantees – A warranty is a formal statement of expected product performance, and are legally enforceable. Guarantees help reduce a buyers perceive risk by suggesting that the product is high quality and that the manufacturer is dependable.