Operating Statistics: Electrical Utility - Glendale Water & Power

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© IMM Graduate School of Marketing Marking Memorandum: 1

st Semester 2012 PM / PM001

ASSIGNMENT MEMORANDUM

SUBJECT : PRODUCT MANAGEMENT (PM) PRODUCT MANAGEMENT (PM001)

ASSIGNMENT : 1ST SEMESTER 2012

References are to the prescribed textbook: Lehmann, D.R., and Winer, R.S., 2005. Product Management. 4th ed. McGraw-Hill.

QUESTION 1 [20]

Refer to Lehman and Winer (2005, Chapter 1) (for the basic outline of the trends only). Students had to write an essay on the impact and use of social media in product management. They had to identify the key ways in which social media can be used to facilitate and enhance product management and the product manager‟s tasks. It was essential that they conducted further research on this topic when answering this question. There is not sufficient information in Lehman & Winer (2005). The correct referencing method must be used. Please be on the lookout for plagiarism. Mark allocation to be based on the quality of the answer. Make sure that there is a definite discussion on the two components and that there is a link between them. Students must not discuss the two topics separately and neglect to make the link between them.

Total = 20 marks

The following excerpt from an article simply serves to highlight some points that could have been considered. Each student will identify different sources and thus have widely differing answers. Research is the key focus. The topic of Social Media is one that is highly relevant to product managers. It provides new opportunities and challenges in how products are designed, developed and deployed. Traditional boundaries are being dismantled and customers are able to share their thoughts and views with brands – and each other – more quickly and easily than ever

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before. Smart product managers monitor trends and sentiments and keep tabs on competitors. Social media provides product managers with opportunities to engage in collaborative conversations with customers, colleagues, partners and the wider community. New tools and technologies help facilitate these conversations and can help the product manager achieve their goal of defining, developing and deploying products that are more relevant and compelling for customers. Applications for product managers When we look at the role of product management we see the primary function is to deliver products to the market place that return a financial benefit to the business. To do this successfully, the product manager must continue to deliver and maintain products in their target markets that: 1. Deliver more value than the competition (user focus) 2. Create a sustainable competitive difference (buyer focus) 3. Generate business benefit to the organisation (financial focus) There are a number of key tasks, actions and steps that product managers work through to define, develop and deploy compelling products and services. These are illustrated at a high level below in the Product Delivery Cycle model:

Social media can be used at any stage of this model to help product managers achieve their goals. We have found that those product managers who have made the best use of social media are the ones who identified how social media can fit into their existing job tasks and responsibilities. April Dunford, Founder and Principal Consultant at Rocket Launch Marketing explains: “Now we’ve got social media that allows both B2C and B2B marketers to

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engage in dialogue with individual customers and users to give them a much deeper, more nuanced understanding of the products and services being offered and in turn gain a deeper understanding of what customers like and dislike about the offerings.” How product managers are using social media Denise Zimmerman of NetPlus Marketing says “Social media can be an enabler and an accelerator of existing core capabilities, values, attributes and plans. It can even be a catalyst for change. But it can‟t magically create what doesn‟t exist.” This echoes for those in the product management profession. It‟s one thing to recognise and understand customer problems, needs and wants. It‟s another to create products and services that satisfy these customers. Social media provides product managers with new ways in which to help improve the definition, development and deployment of products and services. Research suggests that product managers use social media in four ways:

Monitoring & Listening

Promoting & Sharing

Gathering feedback

Collaborating

1. Monitoring and listening A critical part of social media in product management is monitoring and listening. New tools and technologies present efficient and low-cost ways to improve our understanding of the problems, needs and wants that customers and non-customers are experiencing. Rather than simply use official communication channels such as company websites, support numbers or brochures, customers are now using blogs and microblogs, social networks, review sites and online communities to share their thoughts, comments, concerns and ideas. “The massive impact of social media and online communities enables customers to connect with each other to propose new ideas, share trusted recommendations, and get faster and better-informed answers.” A few hours spent searching online can reveal a huge amount of information about the sentiment of people in your target market. It‟s not important – or possible – to take heed of every single reference to your product or every reference that is relevant. It‟s more important to take a high level view and be aware of the key thoughts, sentiments, feelings and conversations taking place. These „trending‟ topics can alert you to potential opportunities or flag any issues that may have or may in future have an impact on your operations. It‟s also possible to keep tabs on what your competitors are up to, as well as what‟s

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happening in your market from a community perspective. 2. Promoting and sharing One of the more commonly known and used functions of social media is to promote and share information about a brand, product or service. Tapping into online conversations has the potential to spread your message across your target market. As interested individuals learn more about what you‟re saying, they may pass this on to their networks. The interest in your message, increases traffic which helps those searching for your product to find it more easily. In discussions with members of the product management community, this function is often regarded as a stepping stone to developing and managing a comprehensive social media strategy. As such, it‟s unsurprising that this function rated highly as it requires very little effort to begin to implement and results can be seen fairly quickly – although accurate measurement poses a tougher challenge. We‟d point out that product managers should ensure that their social media efforts don‟t amount solely to „talking‟ – i.e. blasting out statements, messages and press releases. No one likes a conversation where one person does all the talking. As we‟ve stated, it‟s equally – if not more – important that product managers listen as well as talk. 3. Gathering feedback A fundamental aspect of product management is to understand what problems customers are experiencing and what they need and want. Talking with customers is a powerful way to do this but can be complex, costly or time-consuming. Product managers are beginning to use new tools and technologies to help test idea concepts, refine business cases and define market or product requirements. These tools help synthesise large volumes of information and provide the insight needed to ensure product development and ongoing product management remains customer-centric. More and more product managers are beginning to invite customers into earlier stages of product development using these tools. Concerns raised include keeping confidential information from competitors so some product managers are inviting customers to use secure and gated tools so that feedback can be gathered without information easily leaking.

Tom Grant of Forrester Research says: “Social media – blogs, wikis, forums, social networking, RSS feeds, and so forth – can supplement traditional sources of product requirements, filling in many of the gaps. This data will not only allow you to create a more accurate overall picture, it will also expand that picture’s scope, providing better insights about customers.”

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4. Collaborating Social media provides an opportunity for product managers to collaborate directly and effectively across internal and external organisational boundaries. Tools such as wikis allow product managers to involve others in the process of defining, developing and deploying new products and services. Service teams can provide direct input based on their interactions with customers; marketing teams can get involved in the process of establishing value propositions and messaging and loop back with creative campaign concepts; operations teams can help ensure that product requirements are understood by and incorporated into business process. Saeed Khan from On Product Management explains: “Social media provides the means to create ongoing connections with people. For any ongoing project, use it to create and build communities of people who can help move your project forward.” Externally, suppliers, partner organisations, customers and the wider community can be invited to take part in the entire product delivery process. Fans and power users can be invited to help define and develop new services and various product or marketing concepts can be tested with different audiences. Using social media throughout the product delivery process Social Media can be used at all stages of the product delivery process, from ideation and concept testing through to product launch and day-to-day product management. Many of the discussions surrounding social media focus on who should own social media initiatives. High profile cases are frequently reported in which organisations find their social media activities put them off-side with customers or the wider community. As organisations become more involved in their use of social media, it is important to ensure that employees who will be involved are aware of their responsibilities and the potential consequences of these. There are risks associated with social media, as with all product management and marketing activities. It is important that organisations seek to establish policies and guidelines and to provide training for employees and collaborators who will use social media in their roles. Both product managers and product marketers should have ownership of these initiatives as they relate to their products. That said, associated colleagues from customer service to PR and marketing communications should be involved and asked to contribute when this helps provide more value to customers and others with whom the brand is interacting with. The Product Delivery Cycle model below illustrates key steps in the product definition, development and deployment process, and a number of potential opportunities and challenges involved at each step are given overpage.

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The model below is derived from research into the functional applications of social media in product management and marketing and presents a „journey‟ that can be followed. No matter where they are in this journey, product managers and marketers are encouraged to consider new ways in which social media can be integrated into their role.

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Conclusion Social Media brings new opportunities to product managers. It is enabling more open, collaborative conversations between sellers, buyers, users as well as partners, collaborators and wider communities. At the same time however, this restructuring of traditional buyer-seller relationships means that customers are more able to talk, learn from and share with each other. Review sites generally outrank product information sites; blogs and tweets reach wider audiences than official marketing messages and open-source software has demonstrated how users are collaborating with each other to develop their own products and services. It appears that product managers are noticing these changes and developments. Their use of social media is becoming more significant in both breadth and depth of application. Product managers are engaging with customers in ways that were unimaginable just a few years ago. These collaborative conversations will continue to enable product managers to improve their understanding of customer problems, needs and wants. Social media tools facilitate more discussion and testing of requirements and enable more accurate and focused efforts. Done well, this can help in the definition, development and deployment of products and services that are more relevant and compelling for customers. Adapted from source: [Online] Available from: http://www.brainmates.com.au/wordpress/wp-content/uploads/2010/08/2011-BM-White-Paper_Social-Media.pdf . [Accessed 07 July 2011]

QUESTION 2 [15]

Refer to Lehmann and Winer (2005, Chapter 4, pp.79-81). Students had to discuss how the threat of new entrants can influence the attractiveness of a product category. They should have applied their discussion of each barrier that they discussed to Nivea Visage Young. Take note that the students were not required to discuss all elements of Porter‟s model. They only had to discuss the threat of new entrants. They should not receive any marks for any of the other factors if they discussed them Allocate roughly 3 marks for the explanation of each barrier relating to the threat of new entrants based on the quality of the answer and insight shown. They only have to address five barriers. It was important that students briefly explained the theory and then gave insightful practical application.

Total = 15 marks

http://www.brainmates.com.au/wordpress/wp-content/uploads/2010/08/2011-BM-White-Paper_Social-Media.pdf

http://www.brainmates.com.au/wordpress/wp-content/uploads/2010/08/2011-BM-White-Paper_Social-Media.pdf

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The following should have been addressed: A major force shaping competition within an industry is the threat of new entrants. The threat of new entrants is a function of both barriers to entry and the reaction from existing competitors. There are several types of entry barriers (only five required):

Economies of scale. Economies of scale act as a barrier to entry by requiring the entrant to come in on a large scale, risking strong reaction from existing competitors, or alternatively to come in on a small scale accepting a cost disadvantage. Economies of scale refer to the decline in unit costs of a product or service (or an operation, or a function that goes into producing a product or service).

Product differentiation. Product differentiation creates a barrier to entry by forcing entrants to incur expenditure to overcome existing customer loyalties. New entrants must spend a great deal of money and time to overcome this barrier.

Capital requirements. The capital costs of getting established in an industry can be so large as to discourage all but the largest companies.

Cost advantages independent of scale. Existing firms may have cost advantages not available to potential entrants regardless of the entrant‟s size. These advantages can include access to the best and cheapest raw materials, possession of patents and proprietary technological know-how, the benefits of learning and experience curve effects, having built and equipped plants years earlier at lower costs, favourable locations, and lower borrowing costs.

Switching costs. Switching costs refer to the one-time costs that buyers of the industry‟s outputs incur if they switch from one company‟s products to another‟s. To overcome the switching cost barrier, new entrants may have to offer buyers a bigger price cut or extra quality or service. All this can mean lower profit margins for new entrants.

Access to distribution channels. Access to distribution channels can be a barrier to entry because of the new entrant‟s need to obtain distribution for its product. A new entrant may have to persuade the distribution channels to accept its product by providing extra incentives which reduce profits.

Governmental and legal barriers. Government agencies can limit or even bar entry by requiring licenses and permits. National governments commonly use tariffs and trade restrictions (antidumping rules, local content requirements, and quotas) to raise entry barriers for foreign firms.

The effectiveness of all these barriers to entry in excluding potential entrants depends upon the entrant‟s expectation as to possible retaliation by established firms. Retaliation against a new entrant may take the form of aggressive price-cutting, increased advertising, or a variety of legal manoeuvres.

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QUESTION 3 [20]

Refer to Lehmann and Winer (2005, Chapter 6, pp.153-158). Using Nivea Visage Young as the product, students had to discuss the concept of customer value. They had to pay particular attention to describing the three sources of customer value, and the manifestations of customer value. Mark allocation:

10 marks for the discussion on the sources of customer value

10 marks for the manifestations of customer value. Practical application was essential.

TOTAL = 20 marks

1. General introduction to customer value

Importance of usage situation

Effectiveness of the product category in the situation

Relative effectiveness of the brand in the situation. 2. Sources of customer value

Economic o The fundamental economic benefit gained from using the product. o Is the face wash worth the money spent?

Functional o The value provided by the product through the performance of its

features. o Does the product satisfy the person‟s need in terms of cleansing her

skin and removing oils and dirt?

Psychological o This source of value is the image of the product and whether that image

matches the image the customer wants to project. o Does the customer feel like she is benefiting from the use of the

product? Do other people view them as being positive examples in terms of prestige from using the Visage Young range?

3. Manifestations of customer value

Price

Price sensitivity

Complaints and compliments

Word-of-mouth

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Margin/profit contribution

Rand sales

Competitive activity

Repeat purchase rate. QUESTION 4 [12]

Refer to Lehmann and Winer (2005, Chapter 6, pp.140-144). Using Nivea Visage Young as their point of reference, the students had to explain, in detail, what the product manager needs to consider in order to answer the question “Who buys and uses the product?” General impression mark. Mark allocation is at the discretion of the marker – approximately 6 marks per the topics identified below. It is however important that the bulk of the topics be covered and that the answer be related to Nivea Visage Young.

TOTAL = 12 marks

The following topics should have been addressed in the student‟s answer: 1. Who buys and uses the products?

Buyers versus users o Initiator o Influencer o Decider o Purchaser o User.

Descriptive variables – consumer products o Demographic o Socio-economic o Personality o Psychographics and values.

Please note that it was unnecessary to discuss the descriptive variable relating to industrial products as it should be obvious that Nivea Visage Young is not an industrial product. Students should be penalised 2 marks should they have not recognised this point.

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QUESTION 5 [23] 5.1

Refer to Lehmann and Winer (2005, Chapter 8, pp.228-231). Students had to develop four product objectives for the Nivea Visage Young product line. They were not required to discuss the theoretical issues relating to product objectives – practical application only. However, if they did give a theoretical discussion they can be awarded a maximum of three (3) marks for the theory, provided they did develop the practical objectives for the Nivea Visage Young. Award two (2) marks per objective developed – (if correctly formulated and relevant to the identified product).

TOTAL = 8 marks

The following theoretical issues relating to the development of objectives can be identified and need to be considered when setting product objectives: (Discussion of the theoretical points was not asked – just use as a framework) 1. Hierarchy of objectives

Objectives differ according to the level in the organisation at which they are being set.

Objectives are set at the corporate, divisional, product/brand, and tactical levels.

The two most common objectives for products or services are growth (in terms of sales revenue or market share) and profitability.

Distinguish between primary and secondary objectives. 2. Characteristics of good objectives

Should have quantified standards of performance.

Should be challenging, but not unrealistic.

Should have a time frame within which to achieve the objectives. 3. Key questions to address with respect to objectives

Which objectives should be pursued (sales volume, market share, profit)?

How high a target should be set (how ambitious)? 4. Basic examples of possible product objectives for Nivea Visage Young

Increase the sales of the Nivea Visage Young range product to the female teenager market by 8% (of 2011 sales figures) per annum for the next three years.

Increase the market share of Nivea Visage Young in the female teenager market from 18% to 20% by the year 2014.

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Students could also have mentioned the non-economic or non-quantitative objectives that could be pursued. These include quality, customer satisfaction objectives, or brand equity maintenance. 5.2

Refer to Lehmann and Winer (2005, Chapter 8, pp.231–233). Using the Nivea Visage Young product line, students had to describe the strategies they would develop in order to increase sales and market share. They had to actually develop the strategies. Students were not specifically asked to discuss the theory at all, they simply had to identify the strategy alternatives to achieve growth and then develop the strategy. Their answer had to focus on increasing sales/market share. Increasing profitability was NOT asked. Detailed practical application and examples were the main focus of the question and will receive the bulk of the marks. Students who only gave theoretical discussion should be heavily penalised. The following can be used as an approximate guide for the mark allocations:

Market development strategies 8 marks

Market penetration strategies 7 marks The mark allocations are flexible to an extent and the marker should use his/her discretion to allocate marks based on the quality and depth of the answer given. Total marks must not exceed 15.

Total = 15 marks

This is not a new topic to the students. They were expected to read up further on the topic of growth strategies for a more comprehensive answer. The following strategic alternatives should have been addressed: 1. Increasing sales/market share Market development strategies:

New segments

Convert non-users. Market penetration strategies:

Existing customers

Competitor‟s customers. PRESENTATION [10]

Operating Statistics: Electrical Utility - Glendale Water & Power

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