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Product strategy

10 November 2019

In marketing theory, a "product" refers to the item a customer purchases.

In marketing language, the term "product" covers both tangible products (cars, soap powder, clothes, aircraft, nuts and bolts etc.) and intangible products such as services (car repairs, insurance, finance, legal services, travel etc.)

Tangible products

Physical (or tangible) products can be categorised in all sorts of ways. At the outset, we should cover the two main product groups...

Commodities

Commodities are products that vary little in their attributes irrespective of who supplies them. Typical examples are raw materials (for example crude oil. iron ore, grains, bauxite, sands - the products of primary production) and common processed products such as steel, cement, bricks. While they may vary in their grade, when negotiating trade of these commodities the grade is taken into account. Essentially they are all the same.

Branded goods

Branded goods covers every other type of physical products that have considerable added value where the attributes vary so considerably comparing one to the other is more complex. Indeed, the product (the thing that people buy) consists of both its tangible form and the brand itself. Hence, a person looking at two identical T-Shirts, one high priced branded "Gucci" and the other an unknown brand at a very cheap price; many people would buy the Gucci. Further, even if you told them they were both made in the same factory and are identical, some people would still buy the Gucci T-Shirt. Brands have value.

Intangible products

Services cannot be held in the hand and looked at, buying them is the ultimate in trust. Hence, branding is very important.
Due to their intangibility the product definition for services is dissected as...

  • Brand: Brand is part of the product concept.
  • People: People are involved in delivering services, hence a people strategy is an important component.
  • Process: Defines a standardised specification for how the service will be delivered.
  • Tangibles: Although services are intangible, there are some tangible aspects for example, a guide book describing the service, tickets, or booking office.

Product strategy

Marketing theory holds that in order to gain a competitive advantage you have four levers that can be manipulated to gain competitive advantage (i.e. develop a superior offer to your competition)...

  • Product
  • Price
  • Distribution
  • Promotion

Assuming all other levers are equal, clearly the customer will buy the superior product.

The product strategy consists of decisions made by the firm to match the specification of the product to the needs of a customer segment.

However, the strategy needs to take into account the cost of manufacture (in the case of a tangible product) or the cost of service delivery, and simply aiming to produce the highest specification product (highest quality, best performing etc.) is too simplistic as this may price the product beyond the amount the customer is prepared to pay.

The product strategy therefore embraces the concept of a value proposition.

McDonald's for example doesn't aim to produce the best quality hamburger available instead it aims to produce an acceptable quality product however differentiated by aiming for high consistency and speed of delivery. The combination of these attributes is a deliberate strategy (their "product strategy") and achieves a value proposition that clearly appeals to a large number of people.

Product strategy cannot be developed in isolation

Product strategy is very much linked to pricing strategy.

However, all 4 levers (product, price, distribution and promotion) are greatly intertwined.

For example, distribution (the strategy for making the product easily available to customers) adds cost to the end price. So, for example, the decision to appoint retail distributors must take into account that the retailer will need to add a margin to the product (anywhere from +30% to +100%) in order to serve their business needs. This adds to the final price paid by the end customer.

Similarly, the cost of promotion (advertising. paying sales people etc.) also adds cost that must be recovered in the product price.

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