This post deals with the Third Week's material. It's full of ideas and terms to take away from your Textbook reading (Chapters 12 and 13).
Here also are my Lecture Notes and PowerPoint slides for the Third Week:
Look closely at the elements of Product Differentiation; they'll need to be part of your Business Plan's Strategic Concept submission. Also think about using the Perceptual Mapping "tool" for your market segmentation analysis. Finally, don't overlook your "Distribution Channel" as how you'll obtain and sustain your Competitive Advantage.
Here are some helpful hints for figuring this out...
Chapter Twelve (12)
You'll get your money's worth from this chapter. It introduces you to two of the biggest questions you'll face: "What's our Product?" and "Who's our customer?"
Note: When we refer to "product," we'll be including "service." It's simpler to use one word (product) than three (product and service).
Before we get too far, you're probably wondering which is the chicken and which is the egg? Does the product (chicken) come before the market (egg) or is it the other way round? Or do both happen at the same time and bounce back and forth?
Let's see if an answer appears as we plow through this week's material.
Product Line and Mix. Understand the difference between them. One is a tactical action that extends the use and economic "life" of a firm's core product (Line). The other is a strategic action intended to address a deficiency in the firm's core product or products (Mix).
Another way to keep them straight is to think about the resources necessary for each. Does a "Product Line Extension" require substantial amounts of new resources or is it a refinement of an existing competitive advantage? What about a "Product Mix Strategy?" Doesn't it require a set of financial and human resources that the firm might not have? How will those new resources "fit" with the firm's current (and presumably efficient) organization?
Product Life Cycle. This is a great strategic planning tool. We'll expand its application to a product's pre-development stage and use it to illustrate the differences between Product Line and Product Mix. What's the Life Cycle of your Product look like? What stage are you in? How accurate is your prediction of the Cycle's future direction and slope?
Product Differentiation. Think about all the differences between competing products. Sure, there's price, packaging and physical features, but what about "intangible attributes?" What about a product's warranty? What about "image" and "style?" And do the differences make a difference? Are the differences important to the only people whose opinions matter: your customers?
Brands and Branding. These terms introduce the idea that something can be valuable without having a physical presence. Can ideas or ways of doing things create value? If they do, won't you want to protect them from your competitors? How do you do that? Could you have it patented or trademarked? What does that get you? Why not have all your employees swear never to disclose any of your firm's trade secrets? Is that a better approach?
Market Segmentation. Who's your customer? Where are they at? Why will they like (or not like) your product? What do your customers look like and how do they act? Are they young or old, rich or poor, want prestige or not? What's happening to the scale of your market segment? Is it increasing or decreasing? Is your market share likely to be a small niche that might not be profitable? Or will your market share increase exponentially because your product transcends many market segments?
Pricing. You'll find plenty to chew on here. Don't worry about penetration, predatory or prestige pricing. But do think about the two ways in which you must price your product.
The first approach is external. What's the price being charged by your competitors? What's being sold for that price? How do you stack up against them? Is your price competitive? What's that mean? Are you delivering more "bang-for-the-customer's-buck?" Are your customers "price-sensitive" or "value conscious?"
The second approach to the pricing question is internal. Simply put, you've got to be able to produce and sell your product profitably. What are all your costs? Will your customers pay enough for your product that you can cover your costs and earn a satisfactory return on the time and money that's been invested.
Costs are usually fixed (don't vary with the volume of production) or variable (vary with the volume of production). Understanding the "mix" of fixed and variable costs is essential.
And, to make things even more interesting is understanding that the "amounts" and "mix" of your costs will change during stages of the Product Life Cycle. If there's one thing that's constant in business, it's that everything is always changing. Chances are you'll never have just one break-even point; it's a moving target determined by production volume, inventory costs and competitive pressures.
Chapter Thirteen (13)
After all the excitement in Chapter 12, I'll bet you can hardly wait for Lucky Number 13. Our focus here will be on Distribution Channels.
That means you can glide over Transportation (Section 3), Retailers (Section 5) and Wholesalers (Section 6). But dig into (1) what should be in your distribution channel? and (2) how are distribution channels organized?
Look at the levels of distribution channels. Why would you want to use a multi-level distribution channel? How could a new business benefit from a multi-level strategy? Will your innovation (and your competitive advantage) be adding more services to your distribution channel (UPS) or changing its arrangement (How does Costco do what it does? Do their customers find that valuable?)?
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