Brand: Managing Product Lines

Question 1

Product Line

Answer 1

a set of related offerings that function in a similar manner - are sold to same target customers, distributed through same channels

focus on managing vertical and horizontal extensions, managing product-line cannibalization, and using product lines to gain and defend market position

the company needs to develop a product-line strategy that delineates the relationships among the individual offerings in the company’s product line.

thing proctor and Gamble

Question 2

Purpose of product line management

Answer 2

1 to optimize the value delivered by the individual offerings in a company’s product line.

2 help companies gain and sustain market position

Company: more sources of revenue, less competition
Customers: more offerings to choose from
collaborators: company can customize to fit needs of different collaborators

Question 3

The key principle to product line management

Answer 3

targeting

each offering must be optimized with respect to a particular target segment, such that each offering has its own unique value proposition that fits the needs of a particular customer segment.
This should also create value for company and collaborators

Question 4

2 types of extensions

Answer 4

1 horizontal

2 vertical

Question 5

vertical product line expansion

Answer 5

adding new offerings that are in different price tiers

1 upscale extensions in which the newly added offering is in a higher price tier (you could acquire someone like Gap’s purchase of Banana Republic and Marriott’s acquisition of Ritz-Carlton)

2 downscale extensions in which the new offering is in a lower price tier.

Question 6

horizontal product line expansion

Answer 6

differentiated offerings typically belong to the same price tier and differ primarily in the type of benefits they offer.

Question 7

key concern for downscale extensions

Answer 7

cannibalization

there is a break-even rate of cannibalization: maximum amount of cannibalization of an existing offering by a new one

eg. five-bladed Gillette Fusion, which inevitably cannibalized the sales of the three-bladed Gillette Mach3

Question 8

break-even rate of cannibalization

Answer 8

the maximum proportion of the new offering’s sales volume that could come from the existing offering(s) without the company incurring a loss.

BER = Margin of new offering/ margin of old offering

recall that margin is the how much revenue each product brings in - variable costs to make it (unit contribution)

eg. no more than 25% of the sales volume of the new offering could come from the current offering. at least 75% of the sales volume should come from new customers (stolen share or market increased)

Question 9

3 most popular competitive product-line strategies

Answer 9

1 fighting brand strategy
2 sandwich strategy
3 good better best strategy

Question 10

Attraction Effect:

Answer 10

Williams-Sonoma, which used to offer one home bread maker priced at $275. Later, it extended its product line by adding a second home bread maker that had similar features, was slightly larger size, and was priced more than 50% higher than the original bread maker. The company did not sell many of the new (relatively overpriced) bread makers, but the sales of the less expensive bread maker nearly doubled.2

Question 11

compromise effect

Answer 11

People’s tendency to avoid options with extreme values in favor of the option with moderate values on all attributes.

Question 12

Attribute Balance Effect

Answer 12

For example, consider three snacks; one has 6g fat and 6g sugar, the second one has 5g fat and 7g sugar, and the third one has 4g fat and 8g sugar. The first snack is typically viewed as the compromise option that offers the optimal balance of fat and sugar among the three options even though in reality it is an extreme option that has the highest amount of fat and the lowest amount of sugar (the “real” compromise option is the second snack).4

Question 13

Diversification Effect

Answer 13

People’s tendency to overestimate their future variety- seeking behavior. To illustrate, people tend to buy a greater variety of yogurt for future consumption than they do if they buy it on a day-to-day basis, when they tend to display much less variety seeking.

Question 14

product line management drawbacks & risks

Answer 14

1. increase in product development, production, distribution, and management costs.
   2 instead of stimulating new customer demand, the new offerings will ultimately cannibalize sales of the company’s existing offerings
   3customer confusion
   4 vertical channel conflict: resistance from channel partners’ profit-optimization strategy to carry only the most profitable offerings

Question 15

The Fighting-Brand Strategy

Answer 15

A popular strategy to compete with low-priced rivals involves launching a fighting brand—an offering that matches or undercuts the competitor’s price

eg. Procter & Gamble launched Oxydol laundry detergent as a low-price alternative to its flagship brand Tide.

Question 16

The Sandwich Strategy

Answer 16

The sandwich strategy involves introducing a two-tier product line comprising a high-quality offering and a low-priced offering, effectively sandwiching low-priced competitors.

eg. in anticipation of an inflow of cut-price competitors following the patent expiration of its blockbuster prescription drug Prilosec, AstraZeneca introduced a low-priced, over-the-counter version (Prilosec OTC) and at the same time replaced Prilosec with Nexium—a premium-priced and slightly more effective version of the drug.

Question 17

The Good-Better-Best Strategy

Answer 17

The good-better-best strategy involves introducing a downscale offering (fighting brand) as well as an upscale offering (premium brand) while preserving the core brand.

eg. Apple’s response to low- priced competitors of its iPod music player. Instead of directly competing with lower priced offerings, Apple extended its product line downscale by first introducing the iPod Nano and then the iPod Shuffle.