FREE ESSAY ON EXTEND PROFITS, NOT PRODUCT LINES

EXTEND PROFITS, NOT PRODUCT LINES

Extend Profits, Not Product Lines
Market Segmentation
To compete successfully in today's volatile and competitive business markets, mass
marketing is no longer a viable option for most companies. Marketers must attack niche
markets that exhibit unique needs and wants. Market segmentation is the process of
partitioning markets into groups of potential customers with similar needs or
characteristics who are likely to display similar purchase behavior.
Market segmentation is the foundation on which all other marketing actions can be based.
It requires a major commitment by management to customer-oriented planning, research,
implementation, and control.
The overall objective of using a market segmentation strategy is to improve your
company's competitive position and better serve the needs of your customers. Some
specific objectives may include increased sales, improves market share, and enhanced
image. 
The authors, John A. Quelch and David Kenny do confess the lure of product line
extensions. Line extensions come closer to meeting the needs of smaller and smaller
market groups. Such products allow for something different. They sanction pricing
breadth, aiming higher prices at select markets, with superior quality. They aid in
fixing the excess capacity many firms are experiencing today. They offer short-term
(short-lived) gain at low cost, catering to the desires of today's managers. They help to
assure sufficient shelf space. Product line extensions also help to meet retailer's
demands, providing packaging that will suit their particular marketing needs.
Product Optimization
Today, more than ever, the ability to develop and launch new products successfully and
quickly is the key to business success. What makes a new product a success? What can be
done to improve the odds of winning at new products in your company?
A highly regarded success factor is product superiority. Premium products that deliver
real and unique benefits to users are far more successful that me too products. It is
impossible to pursue every market opportunity so you must make strategic choices based on
customer needs, competitive opportunities, corporate objectives, and your firm's
financial, technical, and marketing resources.
Product Positioning
You may accomplish an effective position by searching out unique marketing advantages,
seeking new market segments that competitors are not, or developing new approaches to old
problems. Your position must be based on real (e.g., lower cost, superior quality) or
intangible (e.g., company reputation) competitive advantage. 
Product positioning is an important strategy for achieving differential advantage.
Positioning reflects the place a product occupies in a market or segment. A successful
position has characteristics that are both differentiating and important to consumers.
Every product has some sort of position-whether intended or not. Positions are based upon
consumer perceptions, which may or may not reflect reality. A position is effectively
built by communicating a consistent message to consumers about the product and where it
fits into the market-through advertising, brand name, and packaging.
Positioning is inextricably linked with market segmentation. You can't define a good
position until you have divided the market into unique segments and selected your target
segments.
Brand Equity and Image Assessment
The most important assets of any business are intangible-including its base of loyal
customers, brands, symbols, and slogans-and the brand's underlying image, personality,
identity, attitudes, familiarity, associations, and name awareness. These assets-along
with patents, trademarks, and channel relationships-comprise brand equity, and are a
primary source of competitive advantage and future earnings.
The brand is a distinguishing name and/or symbol (logo, trademark, or package design)
intended to identify the origin of the goods or services-and to differentiate those goods
or services from those of competitors. A brand signals to the customer the source of the
product-and protects both the customer and producer from competitors who would attempt to
provide products that appear to be identical.
By developing strong and consistent images, well-regarded brands generate hidden
assets-or brand equity-that give them distinct advantages. Brand equity is a form of
wealth that is closely related to what accountants call goodwill.
A brand is a promise made to its customers and shareholders. Promises that are kept yield
loyal customers and produce steady streams of profits. Brand equity is initially built by
laying a foundation of brand awareness-eventually forming positive brand images-and is
ultimately maximized by high levels of brand loyalty.
Brand image is everything. It is the sum of all tangible and intangible traits-the ideas,
beliefs, values, prejudices, interests, features, and history that make it unique. A
brand image visually and collectively represents all internal and external
characteristics-the name, symbol, packaging, literature, signs, vehicles, and culture.
It's anything and everything that influences how a brand or a company is perceived by its
target constituents-or even the individual customer. 
Brand image may be the best, single marketable investment a company can make. Creating or
revitalizing a positive brand image is a basic component of every business-and lays a
foundation on which companies can build their future. With this in mind, it is critical
to the welfare of the business that a line extension idea is efficiently
evaluated-success being assured-before takeoff.
It is obvious why line extensions can be so tempting and are so popular, but too often
the additions to the line do not receive the careful management essential. Product line
extensions do serve as a fine decoy, but up they are often not as charming. Many times
line extensions confuse customers, yielding weak line logic. They lower brand loyalty by
inviting customers to try something different from what they have been using all along,
which is the real definition of brand loyalty. Managers may actually harm a potentially
profitable idea by thinking short-term risk management instead of long-term capacity.
Line extensions fail to increase demand; you are not encouraging more frequent use of the
product, instead you are dispersing the consumer over the entire category. When customers
are not able to make sense of the product and are unclear about its benefits, it tends
not to sell. Retailers do not have shelf space to spare for slow-moving products. Often
times extensions are underexploited product ideas and they may give a competitor the
opportunity to develop his or her own strategy. On top of it all, they tend to carry with
them hidden costs including poorly focused application, production complexities,
logistics complexities, higher supplier costs, and deviation from research and
development of new products. 
In illustration of how to create a profitable, workable market strategy, the authors use
a snack foods company, Snacko. An action agenda is proposed in an attempt to harmonize
the conflicting motives. Improve cost accounting; understand and evaluate the absolute
and incremental costs associated with production and distribution. Balance support to
benefit winners; try to stay away from favoring core brands. Research consumer behavior;
you want to learn how the customer perceives and uses each item. Apply a line logic test;
make sure that your salespeople are able to state a strategic role for each item in the
product line. Coordinate marketing efforts across the line; in an effort to be more clear
and convincing, price your brand consistently. Work with channel partners; develop teams
within the firm so that you can work efficiently at producing a winning product. Expect
product line turnover; anticipate product line deletions-keep it simple or you will incur
costs. Manage the deletions; deletions allow for the better management of new items, but
be aware of costs associated with taking a product off the line.
Ultimately, it comes down to what you know. You need to be aware of how marketing is done
effectively and efficiently. Check your motives-are you in this business for quick cash
or to satisfy. There is a lot of money to be made out there, but if you are not careful,
there is just as much-or more-money to be lost. It is no longer about your share of the
shelf space-it's about profit.