Marketing - Lesson 7

Product differentiation

Product differentiation can be made on the basis of form, features, Performance, conformance, durability, reliability, reparability, style, and design.

·         Form

It essentially means differentiating on the basis of size, shape, physical structure.

·         Features

These are characteristics that supplement the product’s basic functions.

·         Performance Quality

It refers to the level at which the product’s primary characteristics operate. Study shows a significantly positive correlation between relative product quality and ROI.

Three strategies are available:

o   Where the manufacturer continuously improves the product, often produces the highest return and market share.

o   To maintain product quality at a given level.

o   To reduce product quality through time. Some companies cut quality to offset rising costs; others reduce quality deliberately in order to increase current profits, although this course of action hurts long-run profitability.

·         Conformance Quality

Buyers expect products to have a high conformance quality, which is the degree to which all the produced units are identical and meet the promised specifications. The problem with low conformance quality is that the product will disappoint some buyers.

·         Durability

Durability, a measure of the product’s expected operating life under natural or stressful conditions, is a valued attribute for certain products. Buyers will generally pay more for products that have a long-lasting reputation. However, this rule is subject to some qualifications. The extra price must not be excessive. Furthermore, the product must not be subject to rapid technological obsolescence.

·         Reliability

Buyers normally will pay a premium for more reliable products. Reliability is a measure of the probability that a product will not malfunction or fail within a specified time period.

·         Reparability

Buyers prefer products that are easy to repair. Reparability is a measure of the ease of fixing a product when it malfunctions or fails. Ideal reparability would exist if users could fix the product themselves with little cost or time.

·         Style

Style describes the products look and feel to the buyer. Buyers are normally willing to pay a premium for products that are attractively styled. Style has the advantage of creating distinctiveness that is difficult to copy. On the negative side strong style, does not always mean high performance. We must include packaging as a styling weapon, especially in food products, cosmetics, toiletries, and small consumer appliances. The package is the buyer’s first encounter with the product and is capable of turning the buyer on or off.

·         Design

As competition intensifies, design offers a potent way to differentiate and position a company’s products and services.

Services Differentiation

When the physical product cannot easily be differentiated, the key to competitive success may lie in adding value added services and improving their quality. The main service differentiators are ordering ease, delivery, installation, customer training, customer consulting, and maintenance and repair.

o   Ordering Ease

Ordering ease refers to how easy it is for the customer to place an order with the company.

o   Delivery

It refers to how well the product or service is delivered to the customer. It includes speed, accuracy, and care attending the delivery process.

o   Installation

It refers to the work done to make a product operational in its planned location. Differentiating at this point in the consumption chain is particularly important for companies with complex products. Ease of installation becomes a true selling point especially when the target market is technology novices.

o   Customer Training:

Refers to training the customer’s employees to use the vendor’s equipment properly and efficiently.

o   Customer Consulting:

Refers to data, information systems and advising services the seller offers to the buyers.

o   Maintenance and Repair:

It describes the service program for helping customers keep purchased products in good working order.

o   Miscellaneous Services:

Companies can find other ways to differentiate customer services. They can offer an improved product warranty or maintenance contract.

PERSONNEL DIFFERENTIATION

Companies can gain strong competitive advantage through having better trained people. Better-trained personnel exhibit 6 characteristics:

·         Courtesy: Respectful, friendly and considerate

·         Competence: Skill and knowledge

·         Credibility: Trustworthy

·         Reliability: perform service consistently and accurately

·         Responsiveness: Quick response to customer problems

·         Communication: Make an effort to understand the customer and communicate clearly

CHANNEL DIFFERENTIATION:

Companies can gain competitive advantage through the way they design their distribution channels’ coverage, expertise and performance.

IMAGE DIFFERENTIATION:

Buyers respond differently to company and brand images. Identity and Image need to be distinguished. Identity is the way the company aims to identify or position itself or its product. Image is the way the public perceives the company and its products. An effective image does 3 things:

·         Establishes product character and value proposition

·         Conveys the character in distinctive way so as not to confuse it with competitors’

·         Delivers and emotional power beyond mental image

DEVELOPING AND COMMUNICATING A POSITIONING STRATEGY

All products can be differentiated to some extent. But not all differences are meaningful or worthwhile. A difference is worth establishing to the extent that it satisfies the following criteria:

·         Important: the difference delivers a highly valued benefit to a sufficient number of buyers

·         Distinctive: the difference is delivered in a distinctive way

·         Superior: the difference is superior to other ways of obtaining the benefit

·         Preemptive: the difference cannot be easily copied by competitors

·         Affordable: the buyer can afford to pay the difference

·         Profitable: the company will find it profitable to introduce the difference

Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the target market’s mind. The companies must avoid 4 major positioning errors:

Under Positioning: some companies discover that buyers have only a vague idea of the brand. The brand is seen as just another entry in a crowded marketplace.

Over Positioning: buyers have too narrow an image of the brand. E.g. – consumer might think that diamond rings at Tiffany start at $5,000 when in fact tiffany now offers affordable rings starting at $1,000

Confused Positioning: confused image of the brand resulting from the company making too many claims or changing the brand’s positioning too frequently.

Doubtful Positioning: buyers may find it hard to believe claims in view of the product’s features, price or manufacture.

The different positioning strategies that are available are:

Attribute positioning: Company positions itself on attribute, such as size or number of years in existence.

Benefit positioning: - The product is positioned as a leader in a certain benefit.

Use or application positioning: - Positioning the product as best for some use or application

User positioning: - Positioning the product as best for some user group

Competitor positioning: - The product claims to be better than the competitor

Product category positioning: - The product is positioned as the leader in a certain product category

Quality or price positioning: - The product is positioned as offering the best value

Four stages of a product life cycle:

·         Introduction: A period of slow sales growth as the product is introduced in the market. Profits are nonexistent at this stage because of the heavy expenses done for the product introduction

·         Growth: - period of rapid market acceptance and substantial profit improvement

·         Maturity: - period of slowdown in the sales growth because the product has achieved acceptance by most potential buyers. Profits decline or stabilize

·         Decline: - Sales show a downward drift and profits erode

 MARKETING STRATEGIES: INTRODUCTION STAGE

Sales growth tends to be slow at this stage because it takes time to roll a new product and fill dealer pipelines. The key reasons are:

·         Delays in the production capacity

·         Technical problems

·         Delays in obtaining adequate distribution through retail outlets

·         Customer reluctance to change established behaviours

·         Product complexity

• Fewer buyers

Strategies that can be pursued:

·         Rapid skimming: Launching a new product at a high price and a high promotional level

·         Slow skimming: Launching the new product at a high price and low promotional

·         Rapid promotion: Launching the product at a low price and spending heavily on promotion

·         Slow penetration: Launching the new product at a low price and low level of promotion

MARKETING STRATEGIES: GROWTH STAGE

The salient features of the growth stage are:

·         Rapid climb in sales

·         New competitors enter the market and introduce new product thereby expanding distribution

·         Prices almost remain the same

·         Promotional expenditures remain the same

·         Decline in Promotion-sales ratio

·         Profits increase because of promotion

·         Unit-manufacturing cost falls

Strategies used at this stage:

Sustain rapid market growth through

·         Improves product quality

·         Add new features

·         Enter new segments

·         Increase distribution coverage

·         Lower price to attract buyers

MARKETING STRATEGIES: MATURITY STAGE

The salient features are:

·         Sales growth will slow down

·         This stage lasts longer

·         Challenges to marketing management

·         Overcapacity because of sales slow down

·         Intense competition

·         Increase advertising and R&D budgets

·         Weaker competitors withdraw from the market

·         Basic market drive is to increase market share

·          Abandon weaker products and concentrate on profitable products

Three sub stages in this stage:

Growth phase:

a. Sales growth rate starts to decline.

b. No new channels of distribution

Stable phase:

a. Sales flatten because of market saturation.

b. Future sales governed by replacement demand and population growth only.

Maturity phase:

a. Absolute level of sales starts to decline

b. Customer start switching to new products and substitutes.

Strategies

The strategies for the managers to face this situation is to adopt

A) Market modification

B) Product modification and

C) Marketing mix modification

A) Market modification:

Now in order to expand the market volume the company follows the strategy formulated as

Volume = number of brand users x usage rate per user

Expand the number of brand users by

1. Trying to convert nonusers.

2. Enter new market segments.

3. Win competitors customers.

Expand Volume by

1. Get the new customers to increase the usage.

2. Interest users to use more of the product on each occasion.

3. Try to discover new product uses and then convince people to use them.

B) Product modification:

This can be done through

1. Improving quality

This basically aims at increasing the product’s functional performance through durability, reliability, speed and taste.

2. Feature improvement

This aims at adding new features like size, weight, additives, accessories etc., this expands product’s versatility, safety and convenience.

Advantages of the strategy:

a) Build company’s image

b) Win loyalty of market segments

Disadvantage:

a) Feature improvements are easily imitated

b) Needs first mover advantage

3.Style improvement

This aims at increasing the product’s aesthetic appeal.

Advantages are:

a) This gives a unique market identity.

Disadvantages are:

a) Difficult to predict the liking of people.

b) Requires discontinuing of old style risking losing customers.

C) Marketing mix modification

This is done through asking question on certain marketing mix elements.

a) Prices:

Would a cut attract new customers?

Is it better to raise price to signal quality?

b) Distribution:

Can more outlets be penetrated?

Can the company obtain more market support?

c) Advertising:

Should the expenditures be increased?

Should the media mix be changed?

d) Sales promotion:

Should we set up sales promotion?

e) Personal selling:

Should the number or quality of sales people be increased?

Can we improve sales planning?

f) Services:

Can the company speed up the sales delivery.

Can we extend more credit?

Harrigan’s five decline strategies

·         Increase firm’s investment (to dominate market).

·         Maintain the firm’s investment level until the uncertainties are resolved.

·         Decrease firm’s investment level selectively, by dropping unprofitable customer groups, while strengthening the firm’s investment in lucrative business.

·         Harvesting the firm’s investment to recover cash quickly.

·         Divesting the business quickly by disposing off its assets as advantageously as possible.

But the appropriate decline strategy depends on the industry’s relative attractiveness and the company’s competitive strength.

Harvesting or divesting strategies

Harvesting calls for gradually reducing a products or businesses costs while trying to maintain sales. Company can reduce quality, sales force etc.

If the company were planning to divest, it would first look for a buyer and would try to increase the business attractiveness.