Previous Page Table of Contents Next Page

Chapter 7
Product Management

One of the most important concepts in marketing is that of the marketing mix. The elements of this mix are: pricing, the product, promotion and distribution. By altering one or more of these ingredients changes the nature of the market offering. The challenge to marketing management is to find the mix which simultaneously optimises customer utility and help the organisation achieve its objectives. Discussion of the four elements of the marketing mix begins, in this textbook, with an account of product management decisions. Having stressed the need to move away from a product orientation in the opening chapter, it therefore may appear to be a contradiction to deal with the product first among the four elements since this implies an order of priority. However, although the product is only one part of the overall marketing mix, decisions about the other three elements, price, promotion and distribution, centre around the product offered. Thus, there is a natural logic in beginning the discussion of the marketing mix with the product.

Chapter Objectives

This chapter is intended to provide:

Structure Of The Chapter

The chapter begins with a discussion of the nature of products and the various levels at which they can be marketed. There then follows an explanation of why enterprises tend to develop a portfolio of products and how these are managed. The factors influencing the decision as to whether particular products should be branded are identified and the process of branding products is described. Lastly, the role of packaging, as an important component of product strategy, is discussed.

The product

Many enterprises take too myopic a view of what their product actually comprises and, therefore, their view of how it can be marketed is similarly myopic. We should think of a given product on three levels: the core product, the tangible product and the augmented product. The base level is the core benefit which, in essence, is what the customer really buys. It is productive to think of a product as merely the mechanism by which the benefit the customer is demanding is delivered. Thus, people do not buy toothpaste (the product), they buy confidence that their breath is inoffensive to others (the benefit); the farmer doesn't buy fertilizer, he buys extra grain in the store; a mother does not buy baby food, she demonstrates the virtues of a loving and conscientious mother, and a buyer of premium priced foods is not simply satisfying his/her hunger for food but also, perhaps, a hunger for status. Hence the need to know what the customer is buying and market those benefits, not products.

Care must be taken that any benefit that is marketed is valued by the potential consumer. Manilay relates how, in the Philippines, an improved milling machine which produced a better quality end product and reduced grain losses failed in the market place because broken and discoloured rice kernels were not perceived to be a problem by consumers, who were more interested in rice varieties and aromas. This example illustrates that it is the consumer and not the engineer, scientist or marketer who decides, in the market place, what is of benefit to him/her.

The core benefit has to be converted into a tangible product to become the carrier of the benefit. Corn oil, cotton shirts, poultry feeds, seed planters and meat pies are all tangible products. According to Kotler2 tangible products have as many as five characteristics: a quality level, features, styling, a brand name and packaging. These too can be marketed to potential customers if they differentiate the product from that of competitors, so long as this differentiation is both meaningful and valued by consumers.

Figure 7.1 The product concept

Figure 7.1

Additional services and benefits might need to be offered to differentiate a product from that of competitors to give it a competitive edge. That is, an augmented product is offered. The cotton available to international buyers from the Zimbabwe Cotton Marketing Board is also available from other countries and suppliers. However, Zimbabwe's CMB have augmented their product with an advisory service to merchants and spinners which helps them choose the right cotton for a specific application3. Similarly, the agrochemical manufacturer who builds in a metering device into his product's packaging is augmenting his product; the tractor manufacturer/dealer who gives an extended warranty or performs a pre-delivery inspection is augmenting his product, and the food manufacturer who offers wholesalers/retailers a sale-or-return deal on products which they carry is augmenting the product offered.

Product augmentation reflects a wider view of what the customer wants. Levitt4 suggests that:

“The new competition is not between what companies produce in their factories, but between what they add to their factory output in the form of packaging, services, advertising, customer advice, financing, delivery arrangements, warehousing and other things that people value.”

Caterpillar's oil-analysis service is an interesting example of product augmentation. Owners of Caterpillar machines are encouraged to take periodic samples of oil from the machine's engine and to send this off to Caterpillar. The oil is subjected to chemical analysis and the incidence of certain elements, such as metal content, is plotted on a graph. Over successive samples, a picture of the condition of the engine can be built up. Engine breakdowns are invariably preceded by an upward step in the graph as the metal content of the oil increases substantially. Customers are thus able to anticipate potentially serious engine damage and can respond by commissioning remedial maintenance before a vastly more expensive major engine overhaul becomes necessary. Caterpillar machines are expensive to purchase but the durability of the machine combined with the early-warning oil-analysis service serves to convince customers that the product will prove economic over the longer term.

Thus we see that products can be marketed on several levels. If it is found that the product is perceived, by potential customers, to be similar to those of competitors at one level then the offensive differentiation can take place at another level. The key questions are whether the basis of our product differentiation is meaningful and valued by our prospective customers.

The product mix

Single product organisations are, in practice, fairly rare. We have already encountered the product life cycle concept and this alone should warn of the dangers of relying upon a single product. One reason for the rarity of single product firms is the inherent seasonality of agricultural products be they inputs or outputs. Another major reason for offering a complementary range of products is to gain entry to the channels of distribution. Most distributors will want to handle a product range rather than a single item. This is because the distributor's customers expect to be able to satisfy a number of their needs on the occasion of a single visit to the sales outlet. If the distributor does not carry a full product line, not only is a potential sale lost but the credibility of that distributor, as a source of knowledge on that product category and its applications, is called into question. Credibility as a source of information is particularly important where products are augmented by technical advice, as in the case of agricultural equipment, agrochemicals and other agricultural inputs. Hence, the more successful agribusinesses have a reasonably broad product portfolio.

A product mix is an assortment of types of products and product lines. A product line is a series of related products. For example, a dairy company might offer a product line of full fat milk, semi-skimmed milk and skimmed milk. The same dairy company might have a second, and distinct product line of yoghurts, plain yoghurt, vanilla flavoured yoghurt and yoghurt with nuts. Figure 7.2 illustrates the difference between a product line and a product mix.

Figure 7.2 The product line and the product mix

Figure 7.2

The width of a product mix refers to how many different product lines an organisation carries (in this illustration there are three product lines). Product line depth indicates the number of product variations within a particular product line (here we have three product lines and three product variations within each).

Case 7.1 The Tree Lifter
    A manufacturer of a range of agricultural machinery components was greatly attracted by an opportunity to make and market what would have been its first complete machine. An innovative farmer had developed a tree lifting machine for his own use around the farm. He then began to consider whether other people might not find this machine useful. He realised that whilst he had developed a working prototype, he had neither the skill nor the resources to design the tree lifter for mass production or to commercially exploit the machine, and so he approached the manufacturer.
    The tree lifter was however a survey of a sample of machinery dealers revealed that few of them currently handled tree equipment. They intimated to the manufacturer that they were unlikely to stock the tree lifter unless it were, supplied with a range of complementary items. Their argument was that potential customers would not buy equipment from an outlet that they did not perceive to have specialist knowledge in the field of tree care. Offering a single tree care product would not in the view of the dealers be enough to establish their credentials as a reliable source of technical backup. capable of uprooting semi-mature trees with their root balls intact. The trees could then be transplanted to other locations.
    The potential applications were many farmers could relocate trees which were inconveniently sited rather than simply destroying them, nurseries would be able to move trees around to more suitable areas as they grew, local authorities could reposition trees to make way for new developments and the forestry commission could replant thriving trees in the course of thinning out the crop. The most likely distribution channel for the tree lifter would be agricultural machinery outlets.

Product line extensions

The decision as to whether a given product line should be extended is a strategic issue. There are several reasons why firms would consider adding to the number of product lines (breadth) and/or to the number of variants (depth) within a product mix. By extending the range of products offered, a company might gain entry to as new segment of the market. It may be necessary to attract distributors who are interested in offering a full product line, or the business may have spare productive capacity and wish to increase the contribution to fixed costs by increasing the level of capacity utilisation. Alternatively, they may need to bring in products to support other product lines, or as part of their competitive strategy they want to fill gaps in the market which otherwise might give others a foothold in their market.

Whatever the motivation for extending the product line or mix, it has to be recognised that supplying more products (or product variations) carries costs as well as opportunities. The organisation's inventories, and those of its distributors, will increase; there is added complexity in production scheduling and the costs of production/manufacturing, with larger stocks of raw materials and work-in-progress. Rather than expanding its markets, the product additions merely cannabilise the sales of its own existing product lines. Moreover, rather than offering the consumer greater choice, a plethora of similar products could have the negative effect of causing customer confusion.

Clearly, the product mix must be managed carefully. At any point, the product or marketing manager must know the sales (in volume and value terms) and profit for each product line and item. He/she must also be aware of the percentage of both sales and profits which each product contributes. Using techniques such as Lorenz curves (see appendix 7A), often reveals that a relatively small number of products, within the total product range, accounts for the larger proportion of both sales and profits.

Management must be aware of how each product within the portfolio is positioned against those of competitors. This is essential for the development of an effective marketing strategy. A simple, but useful, approach is to draw a two dimensional grid, like that illustrated in figure 7.3, and label the axis according to what market research has shown are key product attributes. The company's product(s) within a given category, can then be ‘mapped’ against those of competitors. The product map allows management to visualise the intensity of competition in each segment of the market and perhaps also to identify new market opportunities in segments where there is little, or even no competition.

Figure 7.3 Product map of competing yoghurt lines

Figure 7.3

In the case of this hypothetical yoghurt example, there is fairly intense competition in both the long-life and pasteurised sectors of the market, especially in the flavoured-pasteurised segment. With such intense competition, profit margins are likely to be low and management would want to look closely at their product in this segment to assess its sales and profit contributions. At the same time, relatively little competition exists within the ‘live’ yoghurt markets and no competitor currently offers a fresh fruit ‘live’ yoghurt. Marketing research would have to be carried out to determine if these segments represented a profitable market opportunity. The product map would have given direction to the company's marketing research efforts.

Product line deletions

Adding new products to a company's portfolio is a positive and creative course of action and most marketing managers find this easier to do than deleting products from their range. There are many reasons for this, but perhaps foremost among them is the reluctance to prune products from the line whilst they make some, even if modest, level of profit/contribution. In the end, however, ‘sick dogs’ and ‘problem children’ will sap and organisation's resources. Quelch and Kenny5 cite the following costs of product line proliferation:

Where items within a product line no longer have a clear role, it is in the long term interests of the organisation to either harvest or divest themselves of these items. Techniques such as Lorenz curves and the Boston Matrixa can help identify products that ought to be removed from the product line.

a The Boston Matrix was discussed in Chapter 4 New Product Development

Branding products

According to the American Marketing Association6 a brandis “a name, term, sign, symbol or design, or a combination of them intended to encourage prospective customers to differentiate a producer's product(s) from those of competitors.”

Murphy7 defines a brand as:

“A trademark which … comes into the mind of the consumer to embrace a particular and appealing set of values and attributes, both tangible and intangible. It is therefore much more than the product itself; it is much more than merely a label. To the consumer it represents a whole host of attributes and a credible guarantee of quality and origin. To the brand owner it is in effect an annuity, a guarantee of future cash flows.”

Murphy views branding as the output of a commitment by management to invest in the development of an asset. In some parts of the world, established brands are appearing as assets on balance sheets and are being assessed for their profit earning capability.

Branding can add value to a product and is, therefore, an important aspect of product management. For example, most farmers would perceive Monsanto's herbicide brand Roundup as a quality product from a reliable company; but the same chemical formulation in an unmarked drum is unlikely to gain the same level of farmer confidence. Branding can also provide the basis for non-price competition.

The initial decision is whether to brand or not. Historically, most unprocessed agricultural outputs have been sold as generic products i.e. unbranded. Agricultural product is frequently marketed as a commodity where within particular grade bands a product from one source is considered identical to that from another source. This is true, for instance, of black tea and green coffee beans. Blue Mountain Arabica from Kenya is a perfect substitute for Blue Mountain from Colombia, and vice versa. Similarly, the same grade of B.O.P. (Broken Orange Pekoe) from Sri Lanka and from India are ready substitutes for one another. Until relatively recently, most fruit and vegetables were largely unbranded. The exceptions have been fruit and vegetables marketed by multinational companies like United Fruits with the Chiquita brand and Geest. Some country exporters such as South Africa (Cape brand) and Israel (Jaffa and Carmel brands) broke from tradition at an early stage and adopted a strategy. Recently there has been a remarkable increase in the interest in branding amongst other exporting countries. A few years ago, Algeria decided to brand their dates so that consumers could identify both the variety and the country of origin. Previously most of their date exports went to France where they were mixed with dates from other regions and branded by the French.

The advantages and disadvantages of branding

All of this raises several questions about the need to brand, the benefits of branding and the steps involved in branding a product. The truly marketing orientated organisation will be especially concerned with the question of how branding serves the consumer.

Branding can help consumers in a number of ways. Brand names tell the consumer something about the product's characteristics and assure them that if they buy the same brand they will get the same product characteristics each time. As the number of competing products increases branding can increase the shoppers' efficiency by helping them to differentiate between products and identify that which best meets their needs. Brand names also help draw consumers' attention to new products which might meet, or better meet, their needs.

Producers and suppliers can also benefit from branding their products. Branding makes it easier for a producer or seller to match his/her products to the customers' needs. For instance, if a food manufacturer produces three blends of instant coffee (1) 70% robusta, 30% arabica, (2) 80% robusta, 20% arabica, and (3) 85% robusta, 15% chicory, if each has a distinctive brand name it is easier for the buyer to indicate the nature of the product he/she wants. The ultimate objective is to establish a measure of loyalty among consumers towards the brand. After all, a product will only prove profitable if a sizeable proportion of the market can be persuaded to repeatedly purchase it. (Appendix 7B demonstrates one approach to modelling the levels and effects of brand loyalty).

Case 7.2 Pinklady Apples
    The Pinklady apple variety was developed in Australia and introduced in 1993. Since its launch the new brand has been achieving premium prices in export markets.
    The trademark is registered and its owners seek to appoint licensed distributors within each of their export markets. In this way they are able to tighten their control of the marketing of the product. With a strong brand identity any benefits gained from being first in the market accrue to the brand.
    Even if competing growers eventually replicate the variety as often happens in the fruit and vegetable industries, these can only be introduced under another name and so would not benefit from the investment of the Australian owners in the name given to the new variety9.

A distinctive seller's brand name and trademark make it possible to legally protect unique product features. Branding also provides a basis for non-price competition by removing a product from the commodity category8. Lastly, market segmentation and target marketing are made more effective because branding enables the producer to serve separate markets with separate products.

There are also potential disadvantages attached to branding, for both producers and consumers. In the case of the consumer, there are at least two possible disadvantages. These are:

  1. Higher prices: In most cases branded products carry higher retail prices than their generic equivalents. In part, the higher price is explained by the additional production costs and marketing expenditures incurred by the supplier in developing and supporting the brand. The higher price sometimes also carries a premium for the unique benefits and/or features of the brand. Whether or not these higher prices can be justified depends on the customer's perception of the added value he/she receives in return for the price premium.

  2. Brand proliferation: Whilst consumers generally like to have a degree of choice when buying products, does encourage a proliferation of products. There is a real danger that so many brands are on offer that the consumer becomes confused thus negating some of the benefits of branding mentioned previously, especially shopping efficiency aiding to product differentiation. The dangers of brand proliferation are only realised when the differences between brands are either marginal or are not meaningful to the consumer and yet, the supplier continues to support the brand rather than let market forces dictate that it ought to be deleted from the organisation's product portfolio.

The possible disadvantages of branding for manufacturers, producers or suppliers include;

  1. Higher costs: Branded products tend to require heavy promotional support and more stringent quality control to ensure the consistency of the brand. Moreover, both production and marketing costs are higher where several brands of a product type are offered rather than a single product. However, if the brand is truly distinctive and offers potential buyers benefits and/or features which they value, then additional costs can usually be recovered through premium pricing.

  2. Adverse publicity: The relationship between the product and the enterprise which produces and/or markets it is all the more apparent when that product is branded. Brands which fail in the market place can place a stigma on an organisation which makes distributors and consumers cautious about handling or purchasing new products/brands which that organisation subsequently launches. It is for this reason that pre-market testing must be all the more rigorous in the case of branded products.

Branding decisions

There are some basic product characteristics which will help determine whether branding is feasible. First, it must be possible to identify at least one unique dimension in the product. This can be in the core benefit, the product features and/or in the augmented product. Moreover, these unique selling propositions must be meaningful to the target market. There is little point in seeking to brand a maize seed if the only distinguishing feature is that it is dyed blue, unless the market displays a penchant for blue maize seed. Second, it must be possible to consistently replicate the distinguishing characteristics of the brand. For instance, if a cheese brand is sold on the basis of its sharp taste, due to the high acidity of the cheese, but the manufacturer's production processes cannot guarantee that exact same level of acidity in every batch, then the reputation of the brand will quickly suffer.

The decisions to be made in brand management are many. Figure 7.4 indicates the main ones. It can be seen that having made the initial decision to brand the product there are then several other related decisions to make, the most important of which are:

Brand ownership: There are three possibilities. The product can carry a manufacturer's brand name, that of a middleman (often termed a private brand, a distributor's brand or a dealer's brand) or the manufacturer might put some of the product under his/her own name and some under that of a middleman.

Figure 7.4 Branding decisions

Figure 7.4

The competition between middlemen and manufacturer brands can be intense. Middlemen usually work on the premise of contracting manufacturers with excess production capacity to supply own-label products, at relatively low prices. When selling, middlemen's own-labels are normally priced below that of the labels belonging to comparable manufacturer's brands. Where they exist, large scale retailers, such as supermarket chains, are sometimes able to demand that they be supplied with own-label products since they control limited shelf space. Many manufacturers, especially those new to a market and smaller operations, experience difficulty in getting access to the market throught the distribution channel. Branding products for middlemen may be an appropriate market entry strategy for these smaller agribusinesses. However, the smaller scale manufacturer is only likely to be successful in supplying own-labels to middlemen who want to position their private label as a premium priced private brand because the unit production costs of smaller manufacturers and processors are usually too high for them to supply brands which can be priced to undercut the manufacturer brands of larger scale businesses.

Brand quality: When developing a brand, the manufacturer has to choose a quality level that will support the brand's position in the target market. Some markets are more quality conscious than others and even within the same market some consumers will prefer premium brands (i.e. high quality, high priced) and others will choose economy brands.

Brand name strategy: Producers who brand their products also have to decide what brand name strategy to pursue. The choices include:

If a company has a distinctive product with actual or protential sizeable demand it is probably best to develop a separate brand identity for each such product. Using a blanket family name reduces the costs of introducing the product because there is no need to create brand recognition or preference. Moreover, if the manufacturer's name is strong the product will achieve a certain level of immediate acceptance. When a company produces a range of quite different products it is best to use family brand names for each product line. Finally, some manufacturers elect to preface all brand names with the company name to benefit from the carry-over effect of an established and trusted corporate identity.

Brand positioning and repositioning: The position of a product in the market place is multidimensional in nature. For example, a food manufacturer could develop a milk-based drink which is fortified with vitamins. The product could be positioned in one of several markets. It could be promoted as an infant food, a health food or a food for those active in sport. Whichever market is selected, the product could be priced at the top, middle or bottom end of the market and it could be formulated as a powder, fresh or UHT milk, skimmed, semiskimmed or full fat.

Brand extension opportunities: A brand extension strategy is one where an already successful brand name is used to launch new or modified products. The American confectionery company Mars have enjoyed long running success with their Mars Bar. More recently they have launched a Mars Bar flavoured milk drink and a Mars Bar flavoured ice cream. The Jaffa brand which was originally attached solely to oranges from Israel, and then later was extended to grapefruit, has more recently been used to gain consumer acceptance of a new fruit which is a cross between an orange and a grapefruit and branded Jaffa Sweetie. Both the Outspan and Jaffa brand names have been franchised to the food giant Gerber for use on a range of fruit juices.

Multitibranding: A multibrand strategy is one where the producer develops two or more brands in the same product category. This is useful in market segments where there is a good deal of brand switching among consumers. Moreover, a multibrand strategy creates healthy competition between brand managers within the organisation and each brand can be developed to present different attributes and appeals to the market place. However, there is always the danger of cannibalising is own sales. This means that a new brand gains market share primarily at the expense of the firm's own established brand(s) rather than from competitors' brands.

However well a brand is initially positioned in the market, it may be necessary to reposition it at some time. Competitors may introduce similar products or consumer preferences change. For instance, a maize biscuit may have been positioned as a food for all the family then repositioned as a highly nutritious food for growing children. It is sometimes better to reposition exiting products before incurring the risks and expense of launching new ones. In this way, the company can build upon existing brand recognition and consumer loyalty.

Among the desirable features of a brand name are that:

Brand names communicate denotative and/or connotative meaning. Denotative meaning is the literal and explicit meaning of a name. Connotative meaning is the imagery which the brand name conjures up in the mind of the prospective buyer. The brand name Easi-Cook Rice is both denotative and connotative. It is suggestive of a product which gives maximum performance with minimum care and effort. Kenya's Tusker beer carries a connotative brand name which suggests that the product has some of the characteristics of the elephants, e.g. strength, nobility, imposing and on nature.

It remains the case, however, that no matter how good a product's brand name, it will not compensate for inadequacies in that product, but an unimaginative or inappropriate brand name can adversely affect the prospects of a good product.

Case 7.3 The Lobster's Tail
    Interbras is an export promotions board set up by the Brazilian government in 1976. One of its most successful ventures has been to organise the collective marketing and branding of tails. This organisation exists to increase the level of foreign exchange flowing into Brazil from its exports.
    Interbras felt that there were opportunities to increase Brazil's penetration of the large US market for lobster tails so they set about organising the fishermen in such a way as to ensure reliable supplies and to develop a strong brand identity. Previously, around 15 US importers were buying direct from individual Brazilian fishermen. Interbras was initially able to convince about 50 percent of the fishermen to give them exclusive rights to export their lobster tails to the US. In return, interbras gave them a better margin than the fishermen had been getting through the importers. The product was then sold to US brokers whose trading areas did not overlap with one another and so an element of price competition was removed. Interbras offered a firm price to both the fishermen and to the brokers and in each case that price was guaranteed for a three month period. In this way, some stability was brought to the market for the first time and this helped make the scheme popular with both buyers and sellers. Moreover, whenever Interbras exceeded its target margin, surplus profits were channelled back to the fishermen.
    Importation of South African lobsters had for some years been exclusively handled by the South African Seafood Association and Interbras had been impressed by their success in promoting a quality image and obtaining a premium price for their product Consequently, Brazilian Seafood Marketing Associates (Brasmar) was formed. Brazilian lobsters were packed in good quality cartons bearing the ‘Brasmar’ label giving the product a single brand identity. The product was promoted on its quality attributes and so was positioned as a direct competitor to South African lobsters. A rigorous quality control system was instituted to ensure that the brand image was sustained. Suppliers who consistently failed to meet the quality standards set by interbras were ultimately excluded from the scheme. As for the South African product, restaurateurs are the principal buyers of Brazilian lobsters.
    Brasmar recognised that in addition to reliability of quality, the restuarants wereconcerned about portion control and were therefore interested in buying a product of uniform size. Interbras developed a grading system with 14 size categories instead of the 6 category system used by others. This augmentation of their product was well received by buyers who could then purchase a carton of lobsters knowing that it contained lobsters of uniform size.
    The success of Brasmar can be measured in a number of ways. Perhaps the most important of these is that 85–90 percent of Brazil's lobster fishermen now collectively market through Brasmar and the organisation is able to claim that their marketing system brought US$6 million more into the country than did the system it largely displaced10.

Brand Loyalty Models

At least four levels, of brand loyalty may be distinguished:

  1. Brand Loyal: purchase sequence- A-A-A-A-A-A.

  2. Divided Loyalty: purchase sequence- A-B-A-B-A-B.

  3. Unstable Loyalty: purchase sequence- A-A-A-B-B-B.

  4. No Loyalty: purchase sequence- A-B-C-D-E-F.

Suppose research reveals that for some product (e.g. brakfast cereals) a family purchased brands A, B, and C, in the following sequence:


The question arises as to how this purchase history can be modelled and what can be deduced about the family's future purchasing behaviour. If this, or any other purchase sequence is to be described and future brand choice predicted, some starting point is necessary. This starting point is commonly referred to as a state. A state can be defined in a number of ways. For example, it might be defined as a purchase, in this case brand A. Or, it might be defined as pairs of purchases, e.g., AB. Other definitions could also be used.

A brand loyalty model also requires some mechanism to describe the relations among states at different points in time. The connecting mechanisms that are most commonly used are transitional probabilities. Assume for example, that a family has the following purchase history: A-A-A-A-A-B-A-C-A-A. Given this past behaviour, it may be stated that the probability of the family buying brands A,B, or C on the next occasion are 0.6, 0.3 and 0.1 respectively.

Table 7.1 Transitional probabilities

 Brand Purchased at Time t
Brand Purchased at time t-1631

Different assumptions can be made concerning the characteristics of the transitional probabilities. For example, it might be assumed that brand choice at any point in time is completely independent of brand choices in the past. Or it might be assumed that only the most recent purchase influences the next brand choice. Or again, the assumption could be made that the previous 2,3, or 4 purchases affect brand choice on the next buying occasion.

Some assumption must also be made about the behaviour of transitional probabilities over time. For example, it could be assumed that the probabilities are constant or stationary from one state to the next (stationarity assumption). Conversely, it could be assumed that probabilities change over time (time-variant assumption).

Finally, it is necessary to make assumptions concerning the representativeness of the transitional probabilities among consumers comprising a market segment. That is, we have to take into account the degree of homogeneity/geneity within the segment. If we assume that all consumers in the segment have the same transitional probabilities then we have the homogeneity assumption and if we assume that they vary from one consumer to another we have the heterogeneity assumption.

In designing a brand loyalty model then, decisions need to be made concerning how states are defined, as well as the determinants of the connecting mechanisms (transitional probabilities) and their behaviour over time. The brand loyalty models most frequently in use can be differentiated primarily in terms of the assumptions which are made about each of these factors.

Homogenous First-Order Markov Models

Markov chain analysis is a basic extension of probability theory developed in 1907 by the Russian mathematician A.A. Markov was attempting to understand and predict the movement of gas particles in a container. Using the location of particles at one point in time (state 1) and the probabilities that the particles would remain stationary or move at subsequent states (transitional probabilities), Markov found that he could predict the concentration of gas particles at various points in time. A general Markov chain, then, is a way of describing a phenomenon moving from one state to another. The process begins at one of the states with a given probability according to a given probability distribution and then moves to the next state according to transitional probabilities of the next state given the present state.

Marketing researchers have come to recognise the potential of this model in predicting the movement of buyers from one brand to another. Indeed this model has become one of the most commonly used to describe and predict brand loyalty. (Note that the model describes rather than explains brand loyalty behaviour).

Consider 100 consumers buying any one of three brands, A, B, and C. Assume that in period 1,50 consumers bought brand A, 25 bought brand B and 25 purchased brand C. Assume that in period 2, of the 50 buyers of brand A in period 1, 25 repurchased brand A, 5 switched to brand B and the remaining 20 bought C. Similarly, of the 25 initial buyers of brand B in period 1, 5 switched to brand A in period 2, 15 bought brand B again and 5 switched to brand C. Of the 25 consumers buying brand C in period 1, 5 switched to A, 10 switched to B, and 10 repurchased C during period 2. The table 7.2 summarizes the brand loyalty behaviour we have just described. Within the matrix the sum of each row indicates the number of initial buyers of A, B, and C during period 1. The sum of each column yields the number of consumers buying the three brands in period 2.

Table 7.2 Homogenous first-order Markov models

Brand bought in Period 1Brand bought in Period 2

The data in table 7.2 can be used to develop estimates of purchase-to-purchase transition probabilities. If each entry in the table is divided by the sum of the row in which it occurs, the result is a matrix describing the likelihood of a consumer buying any given brand on the next purchase occasion given only information about the brand bought on the previous purchase. The transitional probabilities from table 7.1 are shown in the table below.

Table 7.3 Homogenous first-order Markov chain probabilities: Brand switching P1 to P2

Brand bought in Period 1Brand bought in Period 2

If the number of buyers, for each brand, in period 1 is known, (e.g. 50, 25, and 25) and the transition probabilities are also known, the number of buyers in period 2 can be determined. The number of purchasers of brand A in period 2 is calculated as follows:

Buyers of brand A in period 2 = 50 × .5 + 25 × .20 + 25 × .20 = 35

Buyers of brand B in period 2 = 50 × .10 + 25 × .60 + 25 × .40 = 30

Buyers of brand C in period 2 = 50 × .40 + 25 × .20 + 25 × .40 = 35

If it is assumed that the transitional probabilities are constant from one period to another the data in table 7.3 can be used to calculate the number of buyers of the three brands in succeeding periods. For example, by applying the stationary probabilities to the number of buyers in period 2, the number of purchasers of brands A, B, and C in period 3 can be calculated. As table 7.4 indicates, in period 3, 30.5 consumers would buy brand A, 35.5 brand B and 34.0 brand C.

Table 7.4 Homogenous first-order Markov chain probabilities: Brand switching P2 to P3

Period 3 Brand Bought In Period 2 Brand bought in

By the end of the third period one of the basic characteristics of stationary first-order Markov chains has become apparent i.e. the percentage of buyers in each period will change. For example, the number of purchasers of brand B changed from 25 to 30 to 35.5 over the first three periods. If these calculations were continued then the purchasing level of a brand become smaller from period to period until, eventually, a steady state of the purchasing level for each brand is reached in the long run. Table 7.5 shows that, in the case of our example, the steady state for brands A, B, and C would approximate 29, 39 and 32 respectively.

Table 7.5 Calculating the steady state

Brand12345678Steady State

Higher-order Markov models

As we have seen, first-order Markov models assume that transition probabilities are affected only by the immediately preceding purchase. Since there is some evidence that purchases prior to the immediately preceding purchase (i.e. 2nd last purchase, 3rd purchase etc.) may affect brand loyalty, higher-order Markov chains can be used.

Table 7.6 A second-order Markov matrix of transition probabilities

 Purchases In Periods 2 & 3
Brands Bought In Periods 1 & 2AAABBABB

Higher-order models define as some series of purchases rather than as a single purchase. For example, a second-order model of a 2 brand market is shown in table 7.6. The table contains pairs of purchase of brands A and B for pairs of periods I and II, and II and III. Some combinations cannot occur. For example, it would not be possible to move from state AA to BA because the model does not permit both A and B to be purchased during period II.

Market analysts are not limited to second-order models. Third-order, fourth-order to n-th order Markov chain models can be built. Until relatively recently higher-order Markov chains were considered impractical because since the transitional matrices were intolerably large. For example, a 9 brand, third-order model would have 729 states! Thus, the amount of data required to estimate transition probabilities was unmanageable. However, the computing power available to contemporary analysts has made the use of higher-order Markov chains a feasible technique for modelling brand loyalty. Having said this, there is little evidence that practicing marketing researchers have reassessed the potential of Markov chains. Certainly there are few published studies which have incorporated higher-order Markov chains. The reasons for this apparent lack of interest in the technique are not at all clear but it is not the case that it has been rejected on the basis of empirical evidence.


McCarthy's11 original classification of the marketing mix into the 4 Ps product, price, promotion and place is constantly under review. Some authorities want to expand to a fifth P to include packaging, but most continue to view it as a component of product strategy. Coles and Beharrell12 give emphasis to the importance of packaging when they state that:

“It is the package that communicates more to the consumer than the actual product, at the point of purchase where the consumer decides.”

Whilst this comment was made in the context of consumer food products, it also has validity with respect to agricultural inputs. When the farmer visits the agricultural merchant it is the package which conveys the features, benefits, applications and, sometimes, quality of inputs such as seeds, agrochemicals, animal feeds, dairy hygiene and animal health products. There are four levels of packaging:

  1. Primary packaging: i.e. that which comes into direct contact with the product

  2. Secondary packaging: i.e. that containing the primary packaging

  3. Display packaging: e.g. crates/boxes, pallet, roll container and

  4. Shipping packaging: e.g. container.

The functions of packaging

The protective function of packaging: Packaging provides physical protection for the product. The typical product is handled many times between production and consumption. Perishable produce has to be protected from excessive moisture, heat or cold, ultra violet light, pathological, physiological and/or mechanical damage in transit, storage or when awaiting purchase. In the case of horticultural produce, the demands on packaging can be great. A package may have to facilitate both the rapid cooling of the contents from high field temperatures, for example under conditions of forced air cooling, and the maintenance of low storage or transit temperatures. It must allow removal of metabolic heat during storage and transport, and may have to contain the product throughout the ripening process, if it is a climacteric or ripening fruit. For effective ripening the product requires exposure to increased temperature in a uniform manner, and to ethylene gas. Such packaging must therefore have adequate ventilation capability, for effective warming and gassing.

Some commodities are highly sensitive to ethylene gas and hence need to avoid gas build-up in transit (e.g. avocado). In these cases the packaging must allow for effective air ventilation. A package may also have to protect the produce from moisture loss. Polyethylene liners, usually with perforations to allow gaseous exchange, are used for some commodities. Other commodities have special treatments which must be taken into account when designing the package, for example sulphur dioxide treatment of grapes, and in-pack use of ethylene absorbents.

Another important function some packing provides relates to pilfering. Packages have intentionally been designed oversized to make it more difficult for shoplifters to conceal products about their person.

Packaging also serves to protect the consumer. Product tampering has forced many food companies to develop tamper resistant packages, many of which warn consumers not to purchase packs which have broken seals. Resealable packaging has been developed to preserve the product and keep it in good condition whilst it is in the process of being used. For example, Tetra Pak has recently developed resealable milk and fruit juice cartons.

The packaging-distribution interface:

All participants in the supply chains for agricultural and food products are interested in any contribution packaging can make to improving profitability and the efficiency of the physical distribution function Packaging design is capable of contributing to the improved performance of the supply chain in a variety of ways. By altering the shape and dimensions of the packaging more product can be displayed on retailers' shelves (e.g. changing from round to square jars helps maximise the use of limited retailing space since far more square glass jars can be placed on a given area of retail display space than can round shaped jars).

The stacking strength of outer packaging can be increased so that warehouse space is optimised and other elements of the physical distribution system, such as roll cages, pallets, and transport containers, can be better utilised.

One can argue that packaging innovations are chiefly market-led only if the definition of the “market”, relates to all parties in the marketing channel which the firm seeks to serve. It is vitally important that the aesthetic appeal and functional performance of packaging proves appropriate to customer needs. At the same time, the distribution channel also has exacting demands to make on packaging. Indeed, for distributors the packaging is the product and they seek characteristics which aid the distribution process.

Not unnaturally, members of the distribution channel are concerned with maximising operational efficiency and the contribution which packaging can make in reducing costs. Packaging that helps reduce costs by making handling easier and/or reducing handling. Coles and Beharrell12 have highlighted the advances made by the food packaging industry. They state, for example, that:

“During the past five years the number of products in a supermarket has doubled on the same surface area.”

The same authors add:

“Outer packaging is being minimised for direct transfer of product from lorry to shelf display. The consequent requirement for increased quality of primary packaging also serves to present innovation opportunities.”

It is true that these remarks were made in the context of the European food industry but they serve to underline the fact that the technology exists and since the companies involved in packaging tend to operate internationally that same packaging technology is available throughout the world.

Product packaging is frequently viewed as wasteful and an unnecessary expense for which the consumer, ultimately, pays. In fact, packaging can serve to add value to products. Coles and Beharrell cite the case of the company, Premier Brands, who redesigned their Typhoo tea box because the original carton was undermining the brand's image as a good quality, fresh product. Research showed that the plastic overwrap made the box difficult to open; its thin gauge card allowed the box to easily deform, making it look shoddy and unattractive, and it leaked tea dust, creating a messy appearance and calling into question the freshness of the product. The company also discovered that most caddies hold approximately 50 tea bags whilst the box held 80 bags. The bags which had to remain in the box quickly went stale. The redesigned carton was more rigid, with no film wrap, a perforated tear strip, better quality filter papers and foil sachets containing 40 tea bags. The labels and colour combinations were redesigned to improve their visual impact.

The package must be capable of performing under all the temperature and humidity conditions that are likely to be encountered by the produce as it passes through the channels of distribution. This means that to select or design appropriate packaging for particular products/produce, the chosen distribution channel and its environmental conditions must be thoroughly described and understood.

Packaging and product differentiation: Product packaging also has a role in helping differentiate products where there are a large number of brands competing in the same market segment. Distinctive product packaging, be it in the form of shape, size, colouring, materials and/or print, can help in the positioning of a product and in its differentiation. Suppliers of fresh produce, such as fruits, find that it is difficult to effectively brand the product without packaging.

Packaging has aesthetic properties in that attractively shaped and brightly coloured packages can enhance the product's appeal. Moreover, the quality of the packaging is often used by the prospective purchaser as an indication of the quality of the contents. A good deal of market research has to go into packaging if it is to be used to best effect as a marketing tool. Colour associations will differ by culture. In some cultures, dark colours evoke a quality image and bright colours can communicate cleanliness and purity.

Another example of aggressive packaging strategies is that of the Swiss agrochemical company Ciba. Some of Ciba's products perform in a similar way to those of leading rivals such as Monsanto, Scherings, ICI and Hoechst, Instead of pursuing product advantage claims, which would be difficult to sustain, Ciba have often developed innovative packages with built-in applicators or automatic metering devices.

Manufacturers are also aware of the potential of adding to a product's utility by providing reusable packaging. Plastic containers are often preferred to cardboard cartons by consumers, because these can be used to carry and/or store other liquids.

The product-packaging interface: In certain cases packaging has evolved from being merely a container to becoming an extension of the product itself. An obvious example of this is the Coca Cola bottle. With its distinctive shape the bottle is recognised the world over and is viewed as an integral part of the product. In recent years ownership of microwave ovens has encouraged food manufacturers to develop convenience foods, or ready-prepared meals, and to use crystalline polyethylene terephalate (CPET) for the packaging. This allows the product to be put straight into a microwave oven.

Case 7.4 Um Bongo Fruit Drink
    Libby's products are all based around fruit juices. Some are pure juices whilst others are fruit juice drinks which are made from concentrates to which are added sweeteners, colourings, preservatives and vitamin supplements. There are many suppliers to this market and each has a fairly extensive range of fruit juice products.
    In such a competitive market, innovation is difficult. uices and variations appear to have been introduced. Yet, innovation is central to the survival of industries as well as companies. Libby, knowing that blended juices were increasingly in demand, took the radical approach of basing innovation on the packaging rather than the product. Indeed the blended drink which Libby launched is in no significant or substantial way different from many other blended drinks on the market. The company decided that it was the children's market that was under-exploited Every type of fruit juice, combinations of fruit and developed the idea of a fun drink. It is said that the brand name, packaging and graphic designs were all determined before the flavour of the drink was decided upon. The brand name Um Bongo, with its vague African connotations, was generated. Cartoon graphics, depicting jungle animals, further enhanced the ‘fun’ concept. Tetra Pak cartons were used to add the ‘modern’ dimension. Um Bongo was a pure marketing/packaging innovation.12

The sealed unit developed by Schering is a good example of a situation where the packaging has become an integral part of the product. Many other examples can be cited: pump action packs that dispense creams, sauces and other food liquids, agrochemical containers with in-built metering systems, insecticidal sprays for the treatment of parasites on farm animals, etc.

Packaging technology

The choice of material to be used in packaging can have a tremendous impact on total costs. Du Pont12 conducted a study which:

“…indicated a 100 per cent cost advantage for aseptic (laminated card) versus glass and a 30 per cent cost advantage for aseptic versus canned one litre size containers.”

The total systems cost for aseptic packaging (i.e. including equipment, materials, distribution etc.) was calculated to be about half that of either glass or steel cans. At the same time, it has to be recognised that Du Pont's research takes no account of third world circumstances. In these countries the raw materials for glass making may be more readily available than paperboard and it could be that the economic arguments are completely turned around. Moreover, even if Du Pont's claim that paperboard has cost advantages over glass and steel apply in developing nations, this might be outweighted by the fact that glass costs far less to dispose of than paperboard. Thus, it is possible, although not proven, that the cost saving accuring to manufacturer and distributors, from using paperboard, may be outweighed by the total cost to society which has to include the cost of waste management and pollution.

These are important considerations, especially for a developing country where packaging materials are often imported and where the nature of physical distribution systems demands robustness of the packaging. Whilst we expect packaging to perform a number of functions in marketing, it must do so at a reasonable cost.

Recent developments in packaging

Among the more recent packaging developments is the increased use of polyethylene terephalate (PET). PET bottles and jars have been around for a little while now and have been extensively used to package carbonated beverages and fruit drinks, but the introduction of an oxygen barrier polymer has extended its use to oxygen-sensitive products, such as beers.

Case 7.5 An Agrochemical Sealed Unit
    Schering, a German manufacturer of agrochemicals which trades worldwide, has recently developed a stainless steel drum container for its products. Like all of their competitors. Schering's have previously used plastic non-returnable packaging. However, plastics packs are difficult for customers to dispose of without creating a certain amount of environmental damage.
    The stainless steel drum will be refilled by the manufacturer. The contents are discharged into the spraying equipment through a specially designed coupling. This means that the operator never comes into direct contact with the chemical and so the drum offers a safety benefit as well as being environmentally friendly, and removes the problem of pack disposal.

Reductions in produce losses and extended shelf-life can be achieved by modifying the atmosphere. This can mean controlling temperature and/or humidity, the removal of ethylene, in the case of fresh fruit and vegetables, or as is the current trend for meat, salad and vegetable products, adopting the sous-vide vacuum packaging system.

Flexible laminates, like polypropylene and metallised polyester, are able to extend the shelf-life of products. A very recent innovation has been active packaging. ‘Active packaging’ seeks to go beyond simply extending the shelf-life of fresh and pre-cooked foods and conserve quality attributes e.g. colour, flavour, nutrients. Mitsubishi's ‘Ageless’ system, for example, is a sachet containing iron. The sachet is a scavenger that is placed in the pack. Another form of ‘active packaging’ is to put a time-temperature indicator on the pack to warn consumers that when the product is in a certain condition it should not be eaten.

Packaging technology continues to change and marketing managers must be aware of the opportunities for increased effectiveness and efficiency that these developments present if they are to remain competitive in the market place.

Chapter Summary

A product can be marketed on three levels. The core product is the benefit which the product delivers to customers. It is benefits which customers actually buy and not products, so benefits and not products should be marketed. A product's physical features represent the tangible product, i.e. quality, style, dimensions, packaging etc. This is the second product level on which a marketing strategy may be built. Marketers can add to their product to make it more competitive in the market place. The augmented product is the third level and can take the form of extended guarantees, installation services, sale-or-return arrangements, free delivery, etc.

Whilst it is usually necessary for an enterprise to market a range of products, firms need to guard against the proliferation of products to the extent that over all profitability is adversely affected. New products can help gain entry to new market segments but when the product portfolio is too large, stockholding and physical distribution costs can rise to excessive levels. The role of each product within the portfolio should be explicitly stated and understood by management. A product map may be used to better understand its competitive position relative to others on the market.

Branding serves to differentiate a product from its competitors. Brand names help customers associate given characteristics or attributes with a particular product and/or supplier and select those which best meet their needs. Buyers may find, however, that they are asked to pay higher prices for branded products than for their generic equivalents. In highly competitive markets their may be a plethora of brands on the market and the customer becomes confused over the differences, if any, between them. Sellers benefit from branding in several ways, including having a basis for differentiating their products and segmenting the market, being able to legally protect unique product features and providing a means of moving away from price-based competition. At the same time, sellers can find that marketing branded products involves higher costs than marketing commodities or generic products. There is also the danger that products will fail in the market place and customers confidence in the sponsors of these products can quickly be eroded when the failure is readily associated with a producer or manufacturer through branding.

The key decisions, when a product is to be branded, relate to the ownership of the brand, its quality level, where the product should be positioned in the market, whether a successful brand's identity can be extended to other products and the need to develop several brands for different segments.

Packaging is an integral part of the product and often conveys the essential product benefits and features to prospective buyers. The pack can be used to help in establishing product differentiation. Packaging also serves to protect the product during handling, transit and storage. Good packaging design can help lower distribution costs through lower handling costs, minimal wastage and pilferage, and suitability for bulk handling. There is a need to continually evaluate the materials being used in packaging since the relative costs and benefits of alternative materials is ever changing. However, the cost savings accruing to manufacture and distributors, from using a particular packaging material, must be balanced against the total cost to society which has to include the cost of waste management and pollution. Packaging technology continues to change and marketing managers must be aware of the opportunities for increased effectiveness and efficiency which these developments present if they are to remain competitive in the market place.

Key Terms

Augmented ProductFamily brandsProduct line
BrandGeneric productsTangible product
CannibalisationMarket segmentationTrademark
Core benefitMarketing conceptProduct differentation
Differentiated marketingMarketing mix 

Review Questions

From your knowledge of the material in this chapter, give brief answers to the following questions below.

  1. Define the three levels at which a product can be marketed.

  2. Differentiate between a product mix and a product line.

  3. What are the potential benefits of extending the product line?

  4. In what ways might consumer interests be adversely affected by extending product mixes and/or lines?

  5. Define the term ‘brand’.

  6. What basic information should a manager have about his/her products?

  7. What costs could be incurred as a result of extending the product range?

  8. What are the potential advantages and disadvantages of branding to consumers?

  9. What are the potential advantages and disadvantages of branding to sellers?

  10. What are the main branding decisions which marketing management has to make?

  11. To what extent can a good brand name compensale for a poor or mediocre product?

  12. What are the functions of packaging?

  13. What is the relationship between cost and the choice of packaging material?

  14. Why should marketing managers be motivated to keep informed of developments in packaging technology?

Chapter References

1. Manilay, A.A. (1987), “Market Research for Grain Postharvest Systems”. In: Market Research For Food Products and Processes in Developing Countries: Proceedings of a Workshop Held in Singapore 1–4 April 1986. Ottawa, Ontario, IDRC, p 35.

2. Kotler, P. (1988), Marketing Management: Analysis, Planning and Control, 6th edition. (Ed) New Jersey, Prentice-Hall International Inc., p.71.

3. Abbott, J.C. (1987), Agricultural Marketing Enterprises for the Developing World, pp. 152–157.

4. Levitt, T. (1969), The Marketing Mode. McGraw-Hill, p1.

5. Quelch, J.A. and Kenny, D. (1994), “Extend Profits, Not Product Lines”, Harvard Business Review, September-October, p.156.

6. American Marketing Association, (1994), Marketing Definations: A Glossary of Marketing Terms, 1960, p.9.

7. Murphy, J.M. Brand Strategy, Director Books, Cambridge, U.K. 1990.

8. de Chernatony, L. and McDonald, M. (1992), Creating Powerful Brands: The Strategic Route to Success in Customer, Industrial and Service Markets, Butterworth Heinemann, Oxford, U.K.

9. Best, R.A. (1993), “The Development of Branding in the UK Fresh Fruit Market”. In: Unpublished MSc Thesis, Cranfield University,. p36.

10. Levy, D. (1985), “A Lobster Tale: The Collective Marketing of Brazilian Seafood”. In: Successful Agribusiness Management, Gower Publishing Company Ltd, pp. 116–121.

11. McCarthy, (1981), Basic Marketing: A Managerial Approach, 9th edition, Homewood III.: Richard D. Irwin.

12. Coles, R.C. and Beharrell, B. (1992), “Packaging Innovation in the Food Industry.” British Food Journal, 92, .pp. 21–32.

Previous Page Top of Page Next Page