Setting Product Strategy

LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. What are the characteristics of products, and how do marketers classify products?
2. How can companies differentiate products?
3. Why is product design important and what factors affect a good design?
4. How can a company build and manage its product mix and product lines?
5. How can companies combine products to create strong co-brands or ingredient
brands?
6. How can companies use packaging, labeling, warranties, and guarantees as marketing
tools?
CHAPTER SUMMARY
1. Product is the first and most important element of the marketing mix. Product strategy
calls for making coordinated decisions on product mixes, product lines, brands, and
packaging and labeling.
2. In planning its market offering, the marketer needs to think through the five levels of
the product: the core benefit, the basic product, the expected product, the augmented
product, and the potential product, which encompasses all the augmentations and
transformations the product might ultimately undergo.
Products can be nondurable goods, durable goods, or services. In the consumer-goods
category, products are convenience goods (staples, impulse goods, emergency goods),
shopping goods (homogeneous and heterogeneous), specialty goods, or unsought goods.
The industrial-goods category has three subcategories: materials and parts (raw materials
and manufactured materials and parts), capital items (installations and equipment), or
supplies and business services (operating supplies, maintenance and repair items,
maintenance and repair services, and business advisory services).
4. Brands can be differentiated on the basis of a number of different product or service
dimensions: product form, features, performance, conformance, durability, reliability,
repairability, style, and design, as well as such service dimensions as ordering ease,
delivery, installation, customer training, customer consulting, and maintenance and
repair.
5. Design is the totality of features that affect how a product looks, feels, and functions. A
well-designed product offers functional and aesthetic benefits to consumers and can be an
important source of differentiation.
C H A P T E R 12 SETTING PRODUCT
STRATEGY

6. Most companies sell more than one product. A product mix can be classified according
to width, length, depth, and consistency. These four dimensions are the tools for
developing the company’s marketing strategy and deciding which product lines to grow,
maintain, harvest, and divest. To analyze a product line and decide how many resources
should be invested in that line, product-line managers need to look at sales and profits
and market profile.
7. A company can change the product component of its marketing mix by lengthening its
product via line stretching (down-market, up-market, or both) or line filling, by
modernizing its products, by featuring certain products, and by pruning its products to
eliminate the least profitable.
8. Brands are often sold or marketed jointly with other brands. Ingredient brands and cobrands
can add value assuming they have equity and are perceived as fitting
appropriately.
9. Physical products have to be packaged and labeled. Well-designed packages can create
convenience value for customers and promotional value for producers. Warranties and
guarantees can offer further assurance to consumers.
OPENING THOUGHT
Students will be familiar with the “idea” of a tangible product—the physical
manifestation—a cell phone or a pair of favorite jeans or shoes.
However, students may have trouble understanding the “totality” of the product
physically demonstrated—the core benefit, the basic product, expected product,
augmented, and potential product. The instructor is encouraged to use the class period to
allow the students to try to uncover or explore these additional components of the
“product” concept so that the students will begin to understand these dimensions better.
Students should have no problems understanding the concepts of durability and
reliability, nor should they have problems with brands differentiation or product line
depth and breadth.
Perhaps, the most challenging concept of the chapter is the concept of line stretching,
and/or line filling. Again, the instructor is encouraged to use examples from
manufacturers’ and/or personal experience to communicate these concepts successfully.
Finally, the labeling of a product includes both advertising copy and governmental
regulations. This will be new material for many students.
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TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
1. At this point for the semester-long project, students should have set their group
project’s product or service strategy. Instructors are to evaluate their submissions on
the product (or services) features, quality, and price and the other considerations of
“product” found in this chapter.
2. In planning its market offering, the marketer needs to address five product levels:
core benefit, basic product, expected product, augmented product, and potential
product. Students should select a firm within an industry and through research
(Internet and other formats) outline the firm’s five product levels for its products. In
their research, students should be challenged to discover the firm’s perception of the
customer’s value hierarchy and total consumption system.
3. Sonic PDA Marketing: Plan Decisions about products are critical elements of any
marketing plan. During the planning process, marketers must consider issues related
to product mix and product lines. Product marketers distinguish five levels of product,
each adding more customer value: core benefit, basic, expected, augmented, and
potential. In assessing product strategy:
• How would you define the core benefit for Sonic 1000?
• How would you define the augmented product for Sonic 2000, the second product
to be launched by Sonic next year?
Write your answers to the questions in a written marketing plan or enter it in the Product
Offering and Marketing Mix sections of Marketing Plan Pro.
ASSIGNMENTS
Convenience items and capital good items can be seen as two ends of the “product
continuum.” Convenience items are purchased frequently, immediately, and with
minimum effort. Capital goods are those items that last a long period of time and are
purchased infrequently by consumers. Students should select a convenience good and a
capital good of their choice and compare and contrast the consumers’ value hierarchy and
users total consumption system for each item using the concepts presented in this chapter.
Assign the following readings to students: Robert Bordley, “Determining the Appropriate
Depth and Breadth of a Firm’s Product Portfolio,” Journal of Marketing Research, 40
(February), 2003, pp. 39-53 or Peter Boatwright and Joseph C. Nunes, “Reducing
Assortment: An Attribute-Based Approach,” Journal of Marketing, 65 (July), 2001, pp.
50-63. After reading each article, students should submit a paper summarizing their
findings and illustrating the concepts exposed in these papers to the material covered in
this chapter.

When the physical product cannot easily be differentiated, the key to competitive success
may lie in adding valued services and improving their quality. Examples of adding value
in the service component of a product include computers, education, and pizzas. Each
student is to select a product in which they think that the additional value present lies in
the service and quality components. Students should be prepared to defend their
selections using the material presented in this chapter.
In the Marketing Memo entitled, Making Ingredient Branding Work, the authors list four
requirements for success in ingredient branding. As a group, students should collect
examples of ingredient branding currently present in the marketplace (supermarkets,
hotels/motels, automobile companies, and causal dining establishments are good places to
start) and examine these examples versus the four requirements stated in the memo.
Students should be able to defend their positions in comparing these products to the
statements in the Marketing Memo.
Product differentiation is essential to the branding process. In choosing to differentiate a
product, a marketer has the choice of form, features, performance quality, conformance
quality, durability, reliability, repairability, and style. Collect examples of currently
produced products that have been differentiated and branded for each of these design
parameters.
END-OF-CHAPTER SUPPORT
MARKETING DEBATE—With Products, Is It Form or Function?
The “form versus function” debate applies in many arenas, including marketing. Some
marketers believe that product performance is the end all and be all. Other marketers maintain
that the looks, feel, and other design elements of products are what really make the difference.
Take a position: Product functionality is the key to brand success versus product design is the
key to brand success.
Suggested Response
Pro: Consumers buy products to satisfy a need. A consumer uses products and decides on a
product based upon their own consumption system—the way the product is by the consumer
(getting the product, using the product, and disposing of the product). Additionally, the
customer value hierarchy (core benefit, basic product, expected product, augmented product,
and potential product) enters into the decision-making process for a consumer. Therefore, a
product must perform to an acceptable level according to the consumer’s perception of
benefits in their customer value hierarchy. A low price, low function product, like a disposable
razor must at least perform the task to which it was created. A more expensive product, an
electric razor, must meet the function to which it was created, although these functions are at a
higher level than the disposable razor. If either product does not perform to the consumer’s
basic product definition then the product will be discarded and not re-purchased.
Con: Products have unique characteristics and specific brand identifications that meet
consumers’ needs that are not related to functionability. Such needs as status, selfactualization,
and style appeal to a wide audience. For example, most automobiles will
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perform the task of taking a person from point A to point B. However, it is the design of the
automobile (specific make/type: i.e., sports car, luxury car) that appeals to the buyer. For many
consumers style plays a more important role, for some, the only role in their buying decision.
A well-designed product can also be a point-of-difference in the marketplace aiding consumer
acceptance through its ease of use, durability, reliability, or packaging. A well-designed
product can be a competitive advantage for smaller firms.
Whatever, the design, however, the product must at least meet the consumers’ definition of a
basic product. Once that definition is met, design can be a powerful marketing asset.
MARKETING DISCUSSION
Consider the diverse means of differentiating products and services. Which ones have the
most impact on your choices? Why?
Student answers will differ according to the product/services chosen. However, student
answers should encompass the following distinctions:
Products differentiation includes:
• Form
• Features
• Performance quality
• Conformance quality
• Durability
• Reliability
• Repairability
• Style
Services differentiation includes:
• Ordering ease
• Delivery installation
• Customer training
• Customer consulting
• Maintenance and repair
Marketing Excellence: CATERPILLAR
1) What were some of the key steps that led to Caterpillar’s becoming the industry
leader in earth-moving machinery?
Suggested Answer: In terms of the concept of “product,” Caterpillar has re-invented its
product—from the physical product, to its services provided, to its research and

development, to its “local” emphasis with its equipment, CAT today has a different line
up of products than the CAT of old. Examples include: 56% of its business is in capital
equipment and the remaining percentage in services. CAT is focused on high-tech
machinery i.e.,: hybrid, and has divided its product strategy into three segments to meet
the needs of its customers.
2) Discuss Caterpillar’s future. What should it do next with its product line? Where
is the future growth for this company?
Suggested Answer: Student’s answers will vary but good students will cite material from
this chapter regarding the customer-value hierarchy—core benefit, basic product,
expected product, augmented product, and potential product to defend their positions on
where Caterpillar’s future lies.
Marketing Excellence: TOYOTA
1) Toyota has built a huge manufacturing company that can produce millions of cars
each year for a wide variety of consumers. Why was it able to grow so much
bigger than any other auto manufacturer?
Suggested Answer: Toyota has built a huge manufacturing company that can produce
millions of cars each year for a wide variety of consumers and has products for different
price points demanded by consumers.
The firm is the master of lean manufacturing and continuous improvement. Its plants can
make as many as eight different models at the same time, bringing huge increases in
productivity and market responsiveness.
Designing these different products means listening to different customers, building the
cars they want, and then crafting marketing to reinforce each make’s image. Toyota is
integrating its assembly plants around the world into a single giant network. The plants
will customize cars for local markets and shift production quickly to satisfy any surges in
demand from markets worldwide.
2) Has Toyota done the right thing by manufacturing a car brand for everyone? Why
or why not?
Suggested Answer: Student answers will vary but one opinion is that yes, Toyota has
done the right thing by manufacturing a car brand for everyone. It has been successful
because has products for different price points demanded by consumers. And Toyota
understands that each country defines perfection differently—for example in its Lexus
Division.
3) No doubt Toyota will feel the impact of its massive recall for a long time. Did
Toyota grow too quickly as Toyota suggested? What should the company do over the
next year, 5 years, or 10 years? How can growing companies avoid quality problems in
the future?
Suggested Answer: Student’s answers will vary but to be consistent with this chapter’s
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subject, student answers should refer to Toyota’s need to keep their product’s selection
and quality superior to their competition and to deliver to the consumer, the consumer’s
definition of potential product.
DETAILED CHAPTER OUTLINE
At the heart of a great brand is a great product. Product is a key element in the market offering.
To achieve market leadership, firms must offer products and services of superior quality that
provide unsurpassed customer value.
Marketing planning begins with formulation of an offering to meet target customers’ needs or
wants. The customer will judge the offering by three basic elements: product features and
quality, services mix and quality, and price.
PRODUCT CHARACTERISTICS AND CLASSIFICATIONS
A product is anything that can be offered to a market to satisfy a want or need.
A) Products that are marketed include:
1) Physical goods
2) Services
3) Experiences
4) Events
5) Persons
6) Places
7) Properties
8) Organizations
9) Information
10) Ideas
Product Levels: The Customer Value Hierarchy
In planning its market offering, the marketer needs to address five product levels. Each
level adds more customer value, and the five constitute a customer value hierarchy.
A) The fundamental level is the core benefit: The service or benefit the customer is really
buying. Marketers must see themselves as benefit providers.
B) At the second level, the marketer has to turn the core benefit into a basic product.
C) At the third level, the marketer prepares an expected product, a set of attributes and
conditions buyers normally expect when they purchase this product.
D) At the fourth level, the marketer prepares an augmented product that exceeds customer
expectations.

E) At the fifth level stands the potential product that encompasses all the possible
augmentations and transformations the product or offering might undergo in the
future.
1) Here is where companies search for new ways to satisfy customers and distinguish
its individual offer.
Differentiation arises on the basis of product augmentation. Product augmentation also leads
the marketer to look at the total consumption system: the way the user performs the tasks of
getting and using products and related services.
a. First, each augmentation adds costs.
b. Second, augmented benefits soon become expected benefits and necessary
points-of-parity.
c. Third, as companies raise the price of their augmented product, some
competitors offer a “stripped-down” version at a much lower price.
Product Classifications
Marketers have traditionally classified products on the basis of characteristics: durability,
tangibility, and use. Each product type has an appropriate marketing-mix strategy.
Durability and Tangibility
Products can be classified into three groups, according to durability and tangibility:
A) Nondurable goods: tangible consumed in one or a few uses.
B) Durable goods: tangible that normally survives many uses. Durable goods require
more personal selling and service, command a higher margin, and require more seller
guarantees.
C) Services: intangible, inseparable, variable, and perishable products that require more
quality control, supplier credibility, and adaptability.
Consumer-Goods Classification
The vast array of goods consumers buy can be classified on the basis of shopping habits.
A) Convenience goods are purchased frequently, immediately, and with a minimum of
effort.
1) Staples
2) Impulse goods
3) Emergency goods
B) Shopping goods are goods that the consumer, in the process of selection and purchase,
characteristically compares on such basis as suitability, quality, price, and style.
1) Homogeneous shopping goods are similar in quality but different enough on price
to adjust shopping comparisons.
2) Heterogeneous shopping goods differ in product features and services that may be
more important than price.
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C) Specialty goods have unique characteristics or brand identification for which a
sufficient number of buyers are willing to make a special purchasing effort.
D) Unsought goods are those that the consumer does not know about or does not
normally think of buying. The classic examples of known but unsought goods are life
insurance and cemetery plots.
Industrial-Goods Classification
We classify industrial goods in terms of their relative cost and how they enter the
production process: materials and parts, capital items, and supplies and business services.
A) Materials and parts
1) These are goods that enter the manufacturer’s product completely. They fall into
two major groups:
a. Raw materials include:
1. Farm products—commodity characteristics.
2. Natural products—are in limited supply.
- great bulk
- low unit value
-must be moved from producers to user
b. Manufactured materials and parts fall into two categories:
1. Component materials.
2. Component parts.
B) Capital items are long-lasting goods that facilitate developing or managing the
finished product. They include:
1) Installations.
2) Equipment.
C) Supplies and business services are short-term goods and services that facilitate
developing or managing the finished product. There are two kinds of supplies:
1) Maintenance and repair items (including business advisory services such as legal,
consulting, and advertising).
2) Operating supplies.
3) Business services include maintenance and repair services and business advisory
services are usually purchased on the basis of the supplier’s reputation and staff.
PRODUCT DIFFERENTIATION
To be branded, products must be differentiated. Physical products vary in potential for
differentiation.

A) Here the seller faces an abundance of differentiation possibilities, including form,
features, customization, performance quality, conformance quality, durability,
reliability, repairability, and style.
Product Differentiation
A) Form: Many products can be differentiated in form—the size, shape, or physical
structure of a product.
B) Features: Most products can be offered with varying features that supplement its basic
function.
1) A company can identify and select appropriate features by surveying buyers and
then calculating customer value versus company cost for each feature.
2) To avoid “feature fatigue,” the company must prioritize features and tell
consumers how to use and benefit from them.
3) Each company must decide whether to offer feature customization at a higher cost
or a few standard packages at a lower cost.
C) Customization: marketers can differentiate products by making them customized to an
individual.
1) Mass customization is the ability of a company to meet each customer’s
requirements.
D) Performance Quality: Most products are established at one of four performance levels:
low, average, high, or superior.
1) Performance quality is the level at which the product’s primary characteristics
operate.
2) The manufacturer must design a performance level appropriate to the target
market and competitors’ performance levels.
3) A company must mange performance quality through time.
a. Quality is becoming an increasingly important parameter for differentiation as
companies adopt a value model and provide higher quality for less money.
E) Conformance Quality: Buyers expect products to have a high conformance quality—
the degree to which all the product units are identical and meet the promised
specifications.
F) Durability: A measure of the product’s expected operating life under natural or
stressful conditions.
1) Durability is a valued attribute for certain products.
2) Buyers will generally pay more for products that have a reputation for being long
lasting.
G) 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.
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H) Repairability: Is the measure of the ease of fixing a product when it
malfunctions or fails.
I) Style: Describes the product’s look and feel to the buyer.
1) Style creates distinctiveness that is hard to copy.
2) Strong style does not always mean high performance.
Services Differentiation
When the physical product cannot easily be differentiated, the key to competitive success
may lie in adding valued services and improving quality.
The main service differentiators are ordering ease, delivery, installation, customer
training, customer consulting, and maintenance and repair.
1) Ordering Ease: Ordering ease refers to how easy it is for the customer to place an order
with the company.
2) Delivery: refers to how well the product or service is brought to the customer.
3) Installation: Refers to the work done to make the product operational.
4) Customer Training: Refers to the training the customer’s employees undergo to use the
vendor’s equipment properly and efficiently.
5) Customer consulting: Refers to data, information systems, and advice services that the
seller offers to the buyers.
6) Maintenance and Repair: Describes the service program for helping customers keep
purchased products in good working order.
7) Returns: An unavoidable reality of doing business
a) Controllable returns
b) Uncontrollable returns
DESIGN
A) As competition intensifies, design offers a potent way to differentiate and position a
company’s products and services.
B) Design is the totality of features that affect how a product looks and functions in terms
of customer requirements.
C) To the company, a well-designed product is one that is easy to manufacture and
distribute.
D) As holistic marketers recognize the emotional power of design and the importance to
consumers of how things look and feel as well as work, design is exerting a stronger
influence in categories where it once played a smaller role.
E) In an increasingly visually oriented culture, transmitting brand meaning and
positioning through design is critical.
F) Design can shift consumer perceptions to make brand experiences more rewarding.

G) Design should penetrate all aspects of the marketing program so that all design aspects
work together.
H) Given the creative nature of design, it’s no surprise that there isn’t one widely adopted
approach. Some firms employ formal, structured processes.
I) Design thinking is a very data-driven approach with three phases: observation,
ideation, and implementation.
J) To the customer, a well-designed product is one that is pleasant to look at and easy to
open, install, use, repair, and dispose of.
PRODUCT AND BRAND RELATIONSHIPS
Each product can be related to other products to ensure that a firm is offering and
marketing the optimal set of products.
The Product Hierarchy
The product hierarchy stretches from basic needs to particular items that satisfy those
needs. We can identify six levels of the product hierarchy.
A) Need family
B) Product family
C) Product class
D) Product line
E) Product type
F) Item, also called stockkeeping unit (SKU) or product variant
Product Systems and Mixes
A product system is a group of diverse but related items that function in a compatible
manner.
A) A product mix consists of various product lines.
B) A company’s product mix has a certain width, length, depth, and consistency.
C) The width of a product mix refers to how many different product lines the company
carries.
1) The length of a product mix refers to the total number of items in the mix.
a. We can also talk about the average length of a line. This is obtained by
dividing the total length by the number of lines.
D) The depth of a product mix refers to how many variants are offered of each product in
the line.
E) The consistency of the product mix refers to how closely related the various product
lines are in end use, production requirements, distribution channels, or some other
way.
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F) These four product-mix dimensions permit the company to expand its business in four
ways. It can add new product lines, thus widening its product mix. It can lengthen
each product line. It can add more product variants to each product and deepen its
product mix. Finally, a company can pursue more product-line consistency.
Product-Line Analysis
A) In offering a product line, companies normally develop a basic platform and modules
that can be added to meet different customer requirements.
B) Product-line managers need to know the sales and profits of each item in their line in
order to determine which items to build, maintain, harvest, or divest.
Sales and Profits
Every company’s product portfolio contains products with different margins.
A) A company can classify its products into four types that yield different gross margins,
depending on sales volume and promotion.
1) Core products
2) Staples
3) Specialties
4) Convenience items
Market Profile
The product-line manager must review how the line is positioned against competitors’
lines.
A) The product map shows which competitors’ items are competing against company X’s
items.
A) The map also reveals possible locations for new items.
B) Another benefit of product mapping is that it identifies market segments.
C) Product-line analysis provides information for two key decision areas—product-line
length and product-mix pricing.
Product-Line Length
A) Company objectives influence product-line length.
B) One objective is to create a product line to induce upselling.
C) A different objective is to create a product line that facilitates cross selling.
D) Still another objective is to create a product line that protects against economic ups
and downs.
E) Product lines tend to lengthen over time.
F) A company lengthens its product line in two ways: by line stretching and line filling.
Line Stretching

A) Line stretching occurs when a company lengthens its product line beyond its current
range.
Down-market stretch
A) Is when a company positioned in the middle market may want to introduce a lowerpriced
line for any of three reasons:
B) Shoppers want value-priced goods
C) Wish to tie up lower-end competitors
D) Find that the middle market is stagnating or declining
A company faces a number of choices in deciding to move a brand down-market:
A) Use the parent name on all offerings
B) Use a sub-brand name
C) Introduce lower-price goods under a different brand name
Moving down-market carries risk.
Up-Market stretch
Companies may wish to enter the high end of the market for:
1) More growth
2) Higher margins
3) Simply to position themselves as a full-line manufacturer
Two-way stretch
A) Is where companies serving the middle market might decide to stretch the line in both
directions.
B) Research has shown that a high-end model of a low-end brand is favored over a lowend
model of a high-end brand.
Line Filling
A) A product line can also be lengthened by adding more items within the present range.
There are several motives for line filling:
1) Reaching for incremental profits.
2) Trying to satisfy dealers who complain about lost sales because of
missing items in the line.
3) Trying to utilize excess capacity.
4) Trying to be the leading full-line company.
5) Trying to plug holes to keep out competitors.
B) Line filling is overdone if it results in self-cannibalization and customer confusion.
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C) The company needs to differentiate each item in the consumer’s mind with a justnoticeable
difference.
D) The company should also check that the proposed item meets a market need and is not
being added simply to satisfy an internal need.
Line Modernization, Featuring, and Pruning
Product lines need to be modernized. In rapidly changing product markets, modernization
is continuous.
A) Companies plan improvement to encourage customer migration to higher-valued,
higher-priced items.
B) The product-line manager typically selects one or a few items in the line to feature.
C) Product-line managers must periodically review the line for deadwood that is
depressing profits.
Product-Mix Pricing
A) Marketers must modify their price-setting logic when the product is part of a product
mix.
B) Product-mix pricing is when the firm searches for a set of prices that maximizes
profits on the total mix.
C) Pricing is difficult because the various products have demand, cost interrelationships,
and are subject to different degrees of competition.
We can distinguish six situations involving product-mix pricing:
A) Product-line pricing
1) Companies normally develop product lines rather than single
products and introduce price steps.
2) In many lines of trade, sellers use well-established price points for
the products in its personal line.
3) The seller’s task is to establish perceived-quality differences that
justify the price differences.
B) Optional-feature pricing
1) Many companies offer optional products, features, and services along with their
main product.
2) Pricing is a sticky problem, because companies must decide which items to
include in the standard price and which to offer as options.
C) Captive-product pricing
1) Some products require the use of ancillary or captive products.
2) There is a danger in pricing the captive product too high in the aftermarket.
D) Two-part pricing
1) Service firms often engage in two-part pricing, consisting of a
fixed fee plus a variable usage fee.

E) By-product pricing
1) The production of certain goods often results in by-products. If the by-products
have value to a customer group, they should be priced on their value.
F) Product-bundling pricing
1) Sellers often bundle product and features.
2) Pure bundling occurs when a firm only offers its products as a bundle (tied-in
sales).
3) In mixed bundling, the seller offers goods both individually and in bundles.
4) When offering a mixed bundle, the seller normally charges less for the bundle than
if the items were purchased separately.
5) Some customers will want less than the whole bundle.
Co-Branding and Ingredient Branding
Products are often combined with products from other companies in various ways.
A) Co-branding is also called dual branding or brand bundling.
1) Is in which two or more well-known existing brands are combined into a joint
product and/or marketed together in some fashion.
B) One form of co-branding is same-company co-branding.
C) Still another form is joint-venture co-branding.
D) Another form of co-branding is called multi-sponsor co-branding.
E) Finally there is retail co-branding where two retail establishments use the same
location to maximize sales.
F) The main advantage to co-branding is that a product may be convincingly positioned
by virtue of the multiple brands involved.
G) Co-branding can generate greater sales from the existing target market as well as open
additional opportunities with new consumers and channels.
1) Co-branding can also reduce the cost of product introduction because two wellknown
images are combined, accelerating potential adoption.
H) The potential disadvantages of co-branding are:
a. The risks and lack of control from becoming aligned with another brand in the
minds of consumers.
b. Consumer expectations about the level of involvement and commitment with
co-brands are likely to be high, so unsatisfactory performance could have
negative repercussions for the brands involved.
c. Risk of overexposure if the other brand has entered into a number of cobranding
arrangements.
d. It may also result in a lack of focus on existing brands.
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I) For co-branding to succeed, the two brands separately must have brand equity—
adequate brand awareness and a sufficiently positive brand image.
a. The most important requirement is that there is a logical fit between the two
brands to maximize the advantages of each while minimizing disadvantages.
b. Managers must enter co-branding ventures carefully, looking for the right fit in
values, capabilities, and goals and an appropriate balance of brand equity.
c. Research studies show that consumers are more apt to perceive co-brands
favorably if the two brands are complementary rather than similar.
d. Co-branding ventures must be entered into and executed carefully.
Ingredient Branding
Ingredient branding is a special case of co-branding. It creates brand equity for materials,
components, or parts that are necessarily contained within other branded products.
A) An interesting take on ingredient branding is “self-branding” in which companies
advertise and even trademark their own branded ingredients.
B) Ingredient brands attempt to create sufficient awareness and preference for their product
such that consumers will not buy a “host” product that does not contain the ingredient.
What are the requirements for successful ingredient branding?
1. Consumers must believe the ingredient matters to the performance and success of
the end product. Ideally, this intrinsic value is easily seen or experienced.
2. Consumers must be convinced that not all ingredient brands are the same and that
the ingredient is superior.
3. A distinctive symbol or logo must clearly signal that the host product contains the
ingredient. Ideally, this symbol or logo functions like a “seal” and is simple and
versatile, credibly communicating quality and confidence.
4. A coordinated “pull” and “push” program must help consumers understand the
advantages of the branded ingredient. Channel members must offer full support
such as consumer advertising and promotions and—sometimes in collaboration
with manufacturers—retail merchandising and promotion programs.
PACKAGING, LABELING, WARRANTIES, AND GUARANTEES
Most physical products have to be packaged and labeled. Many marketers have called
packaging a fifth P. Most marketers, however, treat packaging and labeling as an element
of product strategy.
Packaging
A) Packaging includes all the activities of designing and producing the container for
a product.
B) The package is the buyer’s first encounter with the product.

C) A good package draws the consumer in and encourages product choice. In effect,
they can act as “five-second commercials” for the product.
D) Packaging also affects consumers’ later product experiences when they go to open
the package and use the product at home.
E) Various factors have contributed to the growing use of packaging as a marketing
tool:
1) Self-service
2) Consumer affluence
3) Company and brand image
4) Innovation opportunity
F) To achieve these objectives and satisfy consumers’ desires, marketers
must choose the aesthetic and functional components of packaging
correctly.
G) Aesthetic considerations relate to a package’s size and shape, material,
color, text, and graphics.
H) Functionally, structural design is crucial. The packaging elements must harmonize
with each other and with pricing, advertising, and other parts of the marketing
program.
I) After packaging is designed, it must be tested.
1) Engineering tests are conducted to ensure that the package stands up under normal
conditions.
2) Visual tests are used to ensure that the script is legible and the colors harmonious.
3) Dealer tests are performed to ensure that dealers find the packages attractive and
easy to handle.
4) Consumer tests ensure favorable consumer response.
Labeling
The label can be a simple attached tag or an elaborately designed graphic that is part of
the package. It might carry a great deal of information, or only the brand name. Even if
the seller prefers a simple label, the law may require more.
A) Sellers must label products
B) Labels perform several functions:
1) The label identifies the product or brand
2) The label might also grade the product
3) The label might describe the product
4) Finally, the label might promote the product through attractive graphics
C) Labels eventually need freshening up
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D) Companies with labels that have become icons need to tread very carefully when
initiating a redesign.
E) The Fair Packaging and Labeling Act of 1967, set mandatory labeling requirements,
and allows federal agencies to set packaging regulations in specific industries.
F) The Food and Drug Administration (FDA) sets other labeling requirements.
G) Consumerists have lobbied for additional labeling laws to require:
1) Open dating
2) Unit pricing
3) Grade labeling
4) Percentage labeling
Warranties and Guarantees
All sellers are legally responsible for fulfilling a buyer’s normal or reasonable
expectations.
Warranties are formal statements of expected product performance by the manufacturer.
Warranties, whether expressed or implied are legally enforceable.
Extended warranties and service contracts can be extremely lucrative for manufacturers
and retailers.
Many sellers offer either general guarantees or specific guarantees.
A) Guarantees reduce the buyer’s perceived risk.
B) Guarantees are most effective in two situations:
1) Where the company or the product is not well-known.
2) Where the product’s quality is superior to the competition.