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5: Product Policies and Strategies

Decisions about products are a marketing matter: while engineering, production, and finance are most closely involved with the development and manufacturing of the physical product, marketing is ultimately responsible to getting the product into the hands of the consumer, and to do so, the product itself must be appealing to the prospective buyer. And of all departments, marketing is "closest" to the consumer and mist informed about their needs and desires.

The term "product policy" is used because it pertains to an entire product line, including not only to the sales of existing products, but also to their design, modification, and discontinuation as well as the consideration of new products the firm may offer.

What is a Product?

The author defines a product as a "bundle of satisfactions," which implies that it may not be a physical object at all (in that customers buy services as well) an that customers are not driven to acquire objects, but to satisfy needs, and that they physical artifact is merely a means to an end.

Of chief importance is that the product is consistent with the needs of the buyer. The author refers to Kotler and Armstrong, who define three levels of a product: the core product that provides a basic level of satisfaction (information about restaurants), the actual product that is a solution to the need (the yellow pages), and an augmented product that represents a package of values (updated monthly, also contains coupons).

There is also a classification system for products:

• Consumer Goods - Purchased by individuals for personal consyumption
  • Convenience Goods - Purchased frequently, with minimal thought, and for immediate consumption (e.g., a soft drink)
  • Shopping Goods - Purchased less often and generally with some degree of consideration and comparison to alternatives (e.g., clothing)
  • Specialty goods - Products with unique characteristics for which buyers invest a higher degree (e.g., an automobile)
• Business Goods - Purchased by organizational buyers for use in their business or organization.
  • Installations - Long-lasting capital purchases (e.g., manufacturing equipment)
  • Accessories - Shorter-liver capital items (e.g. a desk)
  • Raw Materials - Used to produce their product (e.g., timber)
  • Components - Also used to produce their product, but require more manufacture (e.g., a circuit board)
  • Supplies - Relatively inexpensive items that are consumed but not used in manufacturing (e.g. copier paper)
• Services - Pertain to the purchase of an activity undertaken for the customer's benefit, whether for consumers (hair styling, dry cleaning, etc.) or organizations (payroll preparation, security, etc.) or both (airline travel, parcel post, etc.). In recent years, this has been an area of rapid expansion

(EN: This classification is arbitrary, and seems to be a combination of the target market and intended benefit. I've seen other classification schema, including more detailed ones, though I suppose it's arbitrary, as the taxonomy is less important than understanding a specific product's market and value proposition)

The Product Life Cycle

(EN: The author switches away from his definition of product as need-satisfaction to product in the sense of a specific item.)

It has been found that products generally follow the same life cycle, from the time when they are first introduced to the time when customers abandon them for better alternatives, though they tend to vary greatly. Some products have an extremely short life cycle (generally novelty items such as the furbee), others have a very long cycle (basic necessities, such as bread), and some may undergo multiple cycles.

There is an aside about technology products and their short life-cycle, not due to fashion./novelty but because the rapid pace of progress leads to fast obsolescence (EN: I think this takes an even more narrow definition of "product," such as a specific model of cell phone rather than cell phones in general)

The product life cycle is divided into four stages:

1. Introduction - The product is new to the market, and the marketer must create awareness and demand, starting from nothing. More than half of new products fail because they do not "catch on" in significant volume to justify continued development
2. Growth - The product breaks through initial resistance and is rapidly adopted by a large number of consumers. The high demand and profitability attract competition.
3. Maturity - The market becomes saturated, as virtually anyone who could benefit from the product is using as much of it as they are likely to use. Sales volume declines and margins are trimmed as competitors compete on price.
4. Decline - Newer alternatives emerge for satisfying the core needs for which the product was originally purchased, and customers migrate away. Those who remain in the market must struggle to general a narrow profit margin while remaining competitive.

It's noted that some products can make a "comeback" - such as a clothing fashion that comes back into style. Another example is baking soda, which declined as consumers started purchasing bread rather than baking it, then had a resurgence as a refrigerator deodorant, then as a toothpaste ingredient.

Product Strategy

There are three decisions in managing product lines: to modify an existing product, to delete it, or to add a new product. The decisions are largely based on whether the product can be profitably marketed, given the target market and the competition, though an unprofitable product may be perpetuated if it is complementary to an existing one, or if the company wishes to retain the customers for transition to a different product at a later time.

No firm can expect to remain competitive in the market by relying on its current product line and markets. Companies generally seek to grow by one of four methods:

1. Market penetration (increase market share of current products ion current markets) - this can be done by persuading current customers to use more of the product or attracting customers away from competitors. The latter action is seen as aggressive, and competitors will respond in kind, resulting in "wars" between products (generally, price wars, though some are waged on brand preference)
2. Market development (seek new markets for the present product) - This may be done by geographic expansion (taking a domestic product overseas) or by seeking to appeal to additional market segments within existing markets.
3. Product Development (offer new products to the present market) - The company leverages its brand equity by extending its brand to other products that may be needed by its present market.
4. Diversification (develop new products for new markets) - A company will take on a green-field venture to pioneer an new product in a new market, or it may seek to acquire another company in a different industry. This tends to be more viable if the two are relatively closely related (Hummer, which manufactures military vehicles, offers a new product for civilian drivers) and may be disastrous if there is too great a difference (Coca Cola's ill-fated attempt to launch a clothing line)

New-Product Development

Few companies stake themselves on a single product, as the company seeks long-term success even if its products eventually fall from favor. It's noted that "the majority" of companies today receive "more than half" their sales from products that did not exist ten years ago. (EN: The vagueness of those assertions and the lack of substantiation smells fishy, but the theory seems sound, as I can think of only a handful of single-product companies.)

It's noted that new-product development is very risky: many fail and only a few become commercial successes. For this reason,. Most established companies move lethargically through a process that involves a great deal of research and test marketing before attempting to do a large-scale launch.

The author defines a process for new-product development:

1. Idea Generation - Companies seek to generate ideas, either from internal sources or customer research, or ideas may simply arise from either inside or outside
2. Screening - The company considers whether an idea is a good fit for the corporate mission, has sufficient appeal, is feasible to manufacture, etc. (EN: This seems a bit random, and I expect it to be so in practice)
3. Analysis - The company considers the cost of acquiring the resources to produce the product and the potential revenue it could generate and does a basic ROI analysis
4. Development - The company develops prototypes for testing and refines the design. The marketing department may work out strategies for branding, packaging, distribution, etc.
5. Test Marketing - The product is released in a limited market (often a specific geographic area) for further analysis and refinement
6. Commercialization - If the test market proves successful, the firm will attempt to commercialize the product. Companies tend to do this gradually rather than all at once to mitigate the risk.

Product Modification

The same kind of methodical procedure applies to the modification of a product. While there is less risk involved, a change to the product requires changes to business operations and may have unintended consequences.

Product Deletion

Deletion of a product is generally done because it is no longer profitable, though there are instances in which a product is deleted because it isn't profitable enough, and the company world prefer to free its resources to pursue other opportunities. There are also instances in which a "weak" product is carried to round out a product line, serve a few large customers, to maintain ownership of a trademark for later revival, or for image/emotional reasons (an association of a brand with a once-popular product).

Branding

The author defines "brand" as the words, symbols, shapes, or other elements that identify the goods or services of a particular seller.

A fundamental choice is whether a company wishes to have a blanket brand (one brand for all products), family brands (a different brand for each product line), or individual brands (a different brand for each product). Fundamentally, a common brand marries multiple products together in the minds of the consumer, which facilitates product introduction because the buyer is familiar with the brand and transposes their trust to the new product. However, this can also be counterproductive if one of the products fails, it harms other products marketed under the same brand. It can also be harmful to companies that attempt to extend a brand to dissimilar products (motor oil and baby food cannot be sold under the same brand).

In previous years, companies often created different brands for different geographic markets, but the trend in recent years is for a brands to become "global." (EN: The author mentions this, but does not explore the matter. Chances are, it works the same way, though it seems likely that the appeal of a "foreign" product is less in some markets than others, and the company's success may be married to the politics of nations.)

Another significant recent trend is co-branding, an example being that, as spicy foods have become fashionable, many products are co-branding with Tabasco in producing "spicy" versions of their products - ketchup, potato chips, even olives.

Packaging

The author lumps packaging in with branding, because the visual design of packaging is an expression of the brand. It is especially important for consumer products sold in retail locations to be distinctive and recognizable.

Packaging is also a utilitarian choice, as the products packaging also serves functions such as protecting the product in transit, keeping the content fresh, making the product easier to use or apply. There is also the topic of container re-use (the use of ice cream tubs and coffee cans as storage containers).

The author touches briefly on the topic of multi-unit packaging (such that the consumer must buy a dozen eggs, eight hot dogs, etc.) as well as the concept of "bundling" products in physical packaging. The latter concept has been applied even in the service industry, in which multiple services are "bundled" together.

(EN: This section has been a complete succotash of information, loosely on the topic of "packaging." - some interesting factoids but there doesn't seem to be a cohesive point).