Managing product lines, brands and packaging

Kibin Kepawitono, Contributor, Singapore

Three of the most important elements in the retail business are the product -- the focus of customers -- a distinct brand that gives it identity and its packaging.

These three elements are collectively called "merchandise".

The term "merchandise" is typically used to describe a product, but it has a broader meaning that embraces such factors as variety, price, quality, brand and packaging. Stemming from this context is "merchandising", which refers to the introduction of a merchandise into a market.

To some, merchandising is simply displaying the merchandise, while to others, the activity is much broader and may be defined as "getting the right product, with the right brand and packaging, to the right consumer at the right place, the right time and the right price".

Managing a merchandising strategy

Before launching any merchandise, it is necessary to develop a merchandising plan that includes product, venue, price and promotional strategy -- the factors that determine the successful launch of a product in a marketplace and the successful development of a brand image.

"Marketplace" is also rather broad in meaning and is not confined to the outlet where the manufacturer sells its product, and includes the following.

Managing the venue

To identify a market, a manufacturer would need to know its prevailing macro and micro conditions.

Macro conditions consist of many factors such as the demographic, economic, socio-cultural, legal, political and technological aspects.

Demographic data -- population distribution by age, sex, occupation and educational backgrounds, in addition to consumers' levels of disposable income and standards of living -- are used to determine consumer profiles, consumer trends and its implications on business in a particular market.

Furthermore, a customer's socio-cultural background, lifestyle and government policies may affect the market in general, such as interest rates and taxation policies.

The legal aspects concerning consumer protection, fair trade, health and safety, etc., are equally important considerations, in addition to technological advancements used in supply chain management.

Micro conditions comprise competitors and distribution channels. Competition exists in any market to satisfy consumer demands. Good competition enhances efficiency in many areas, but owing to unpredictable market forces, a manufacturer may not know the exact marketing strategies of its competitors.

Through experience and observation, a manufacturer can learn about their competitors' behavior, their products and marketing styles. It may measure the strength of the competition by determining their share of the market.

Meanwhile, consumers will form their own perceptions in regards their product, and it is difficult to gauge consumer perception.

Managing the product

Product types and quality are major determinants in retail and manufacturing, and the variety of merchandise has a great impact on how consumers perceive the product.

In developing and managing a product, a manufacturer looks at their range of product lines to identify a product that will meet challenges from competitors, will be profitable and one that is seen as value for money. Product quality alone is not a guarantee for success: The product must be reliable, lasting -- for durable goods -- provide customer satisfaction and meet consumer needs.

A product has a life cycle that spans introduction, growth, maturity and decline.

In the introduction stage, a product is brought into the market after design, setting a competitive price and allocating a budget for advertising and promotion to create product awareness.

In the growth stage, a product is ascending, gaining market share and keeping prices up to take advantage of market growth. During this time, the manufacture will normally reduce promotional efforts.

When it reaches maturity, the manufacturer will face the prospect of fighting off competition. At this point, it is necessary to start focusing on promotion to bring in more sales, to introduce new packaging or design to provide something "different" or new to consumers.

In the stage of product decline, the manufacturer needs to devise a strategy to revamp, increase promotion, reduce prices and, where appropriate, provide substitution or complimentary products. This downtrend can be avoided with the proper application of all measures to prevent declining sales.

Having studied the marketplace, a suitable product is selected.

It is advisable to introduce and market new products directly or through exclusive distributors to eliminate price instability and to ensure a successful launch. However, a manufacturer without a distribution network will find it difficult to conduct direct marketing, as it may not be familiar with local conditions.

Other constraints may also exist, such as an insufficient marketing personnel or transportation fleet, and it is also costly to maintain a direct presence in different marketing areas. So in practice, it is customary for a manufacturer to work with select distributors to market its products.

For a product to sell and become recognized, it is necessary for the manufacturer to create a brand image for the product, which is strengthened to instill customer confidence and establish a value-for-money perception in the product while maintaining product quality.

Creating and building a brand image is not easy as it involves many marketing strategies and costs to communicate the product to the consumers.

For the successful introduction of a brand, the packaging design is very important. The packaging will not only attract consumers to buy the product, but it also helps reinforce the brand image.

The consumers will eventually remember the brand rather than the product itself. Sometimes, product differentiation with different levels of quality is made for different market segments.

Managing the price

There are many factors that influence pricing decisions. The main factor is the cost of goods, while other factors that are equally important are target markets, competition, company objectives, consumer perception of the price and other external factors such as the level of interest and salaries.

When the manufacturer can keep the production cost to a minimum and at a level of efficiency to ensure its price is competitive, pricing will be easier.

If the need for pricing is to get the best possible price then low prices shall be offered. If service, status or exclusivity is required, then higher prices would be selected. However, normally, a manufacturer would look into the pricing structure and strategies of its competitors before deciding on prices.

When the manufacturer aims to aggressively pursue an increase in the market share, a lower price may be required and, conversely, if it is looking for a quick recovery of its investment, then a higher price will be set. Changes in market conditions may also influence the manufacturer to adjust the product price.

There are several ways of determining the product price. The most basic is cost-oriented pricing i.e. adding a certain percentage on to the product cost, but this does not take into account competitors' prices and/or demand for the product and is not recommended because it is hard to predict whether the product line can sell or not.

Demand-oriented pricing takes into account the anticipated demand for the product. The manufacturer must know how much customers are willing to pay. The product type, the marketing area and the timing of product launching also influence pricing.

Competition-oriented pricing is based on competitors' prices for a similar product. The manufacturer will set the price at or near competitors' prices depending on product quality. Again it will also take into account its production cost efficiency level and will charge a lower rate if it has a sufficient profit margin.

The best pricing strategy is to combine the above and we shall call it the multiple-pricing approach, which takes into account the cost, product quality, demand, competitor prices, profit objectives and promotional strategies.

In price setting, the manufacturer may either set a nationwide price or a flexible price, depending on its marketing strategy. The former is the standard price available for all the retailers regardless of location or purchase quantity. The other type of pricing is flexible and variable.

Selection of distributors is also crucial for the manufacturer because too many distributors in the same market or location will likely intensify internal competition among distributors, resulting in a distortion of the national prices and causing price instability in the market.

Consumers will get confused and may withhold buying the product hoping the price will go down further. It is best to select a few distributors in a pre-determined marketing area or the manufacturer can carry out its own nationwide distribution.

Depending on product demand elasticity, any change in prices may affect the manufacturer's turnover. If it can manage its product pricing well, it is likely that it will have a competitive advantage over competitors.

Managing the promotion

Promotion involves communication of the product to the consumers with a view to influence them to purchase the product and to develop a brand image. There are four basic promotional activities: advertising, personal selling, sales promotion and public relations.

The primary objectives of advertising are to project a good image and create a favorable impression of the manufacturer and its product.

Personal selling involves person-to-person communication for the purpose of explaining, informing and demonstrating a product to the customers in order to persuade them to use the product.

Sales promotion includes trade incentives, POS display, in- store direct promotion, new packaging design, discounts and free samples.

Public relations involves communication of a product or a brand to the general public. This can take the form of advertising, sponsorship of an event, or participation in charity drives, to name a few.

Conclusion: The above ideas offer a general understanding of how a product is successfully brought into a market and how to compete and maintain its existence in the market. There is no single correct strategy or approach to follow but the manufacturer who adapts to changes and stays close to the market will emerge as a winner.

The marketplace and market conditions change rapidly and it is important to know consumers' needs as a result of a change in macro, micro and socio-economic conditions.

The writer is a practitioner in the Fast Moving Consumer Goods (FMCG) industry and former senior investment banker and senior researcher/securities analyst with UK & U.S.-based investment banks.