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Product Management, Product Management, & & New Product New Product Development Development
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Page 1: Product

Product Management, Product Management, & & New Product New Product Development Development

Page 2: Product

Product & Service Product & Service

Product - Anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need, it includes physical objects, services, persons, places, organizations and ideas.

Service - Any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything.

Generic differences between products and services :

There are generally four generic difference which distinguish services from products IntangibilityIntangibility – it is difficult to have ownership on service. HeterogeneityHeterogeneity (variability) – it is difficult to imitate a service PerishabilityPerishability of output – service cannot be inventoried. SimultaneitySimultaneity of production and consumption – participation of consumer in the process of service generation.

Page 3: Product

Five Product LevelsFive Product Levels

Potential product

Augmented product

Expected product

Basic product

Core product

Page 4: Product

Product LevelsProduct Levels

Five level of the product constitute a CUSTOMER VALUE HIERARCHY.

1. Core product : At the fundamental level, it offers service or benefit that the customer is really buying.

2. Basic / actual product : At the second stage the marketer has to turn the core benefit into a basic or actual product.

3. Expected product : At the third level the marketer prepares an expected product, a set of attributes and conditions buyers normally expects.

4. Augmented product : At the fourth level the marketer prepares an augmented product that exceeds customer expectations.

5. Potential product : At the fifth level stands the potential product which encompasses all the possible augmentations and transformations the product or offering might undergo in the future.

Page 5: Product

Product Classification Product Classification

Products can be classified on the basis of durability, tangibility and use (consumer or industrial).

Durability and tangibility : Products can be classified into three groups according to durability and tangibility.

Non-durable goods – these are tangible goods. Durable goods – these are also tangible goods and survive longer durations. Services – these are intangible, inseparable, variable and perishable products.   Consumer-goods classification : the goods consumers buy can be classified on the basis

of shopping habits. Convenience goods : these are the ones consumers usually purchase frequently,

immediately and with a minimum effort. Staple - these fall under buyers’ regular shopping listImpulse goods – are purchased without any planning : cold drinks, candyEmergency goods – purchased when a need is urgent : umbrella for rainy season.

Page 6: Product

Product Classification contd..Product Classification contd..

Shopping goods : these are the goods that the customer in the process of selection and purchase characteristically compares on such bases as suitability, quality, price and style.

Specialty goods : these goods have unique characteristics or brand identifications for which a sufficient number of buyers are willing to make a special purchase effort.

Unsought goods : these goods the consumers does not know about or does not normally think of buying.

Industrial-goods classification : industrial goods can be classified in terms of how they enter the production process and their relative costliness.

Materials and parts : industrial products that enter the manufacturer’s product completely, including raw materials and manufactured materials and parts.

Capital items : industrial products that partly enter the finished product, including installation and accessory equipment.

Supplies and services : industrial product that does not enter finished product at all.

Page 7: Product

Product MixProduct Mix

Product mix is the set of all products and items that a particular seller offers for sale. A company’s product mix has certain width, length, depth and consistency.

The width of a product mix refers to how many different product lines the company carries.

The length of a product mix refers to the total number of items in a particular product line.

The depth of a product mix refers to how many variants are offered of each product in the line.

The consistency of the product mix refers to how closely relate the various product lines are in end use, production requirements, distribution channels, or some other way.

Page 8: Product

HLL Product Mix HLL Product Mix

PRODUCT MIX WIDTH

PRODUCTLINE LENGTH

Product Line –1Bath soaps

Product Line –2Fabric wash

Product Line –3Beverages

DoveLirilLe sancyPearsRexonaLifebuoyHamamBreezeJaiMoti

BruBrook Bond Red LevelLipton Green Level3 RosesTazzaDeepamTaj MahalSuper DustRuby DustA 1

SurfRinWheelSunlightAla501

Page 9: Product

Product-MixProduct-Mix

Product line decisionsIn offering a product line companies normally develop a basic platform and module that can be added to meet different customer requirements. Product-line lengthA product line is too short if profits can be increased by adding items; the line is too long if profits can be increased by dropping items. Line stretchingLine stretching occurs when the company lengthen its product line beyond its current length. Down market stretch A company position in the middle market may want to introduce a lower price line for any of three reasons :1. Company may notice strong growth opportunities down the line.2. Company may wish to tie up lower end competitors who may otherwise try to move up market and thus offer low priced offering.3. The company may find that the middle market is stagnating or declining.

Page 10: Product

Product-MixProduct-Mix

Up market stretch

Companies may wish to enter the high end of the market for more growth, higher margins or simply to position themselves as full-line manufacturers.

Two way stretch

Company serving the middle market might decide to stretch their line in both directions.

Line fillingLine filling

A product line can be also be lengthened by adding more items within the present range e.g., Maruti introduces Alto in between Zen and 800.

Page 11: Product

Brand Brand DDecisionsecisions

““An orange is an orange…. is an orange. Unless,….that orange happens to be An orange is an orange…. is an orange. Unless,….that orange happens to be Sunkist, a name 80% of consumers know and trust.”Sunkist, a name 80% of consumers know and trust.”

Russell Hanlin, CEO of Sunkist Growrs.

What is a brand?

Brand is a unique symbol conveying the following meanings :Attributes – Maruti 800 suggests inexpensive, small, entry-level car.Benefits – fuel-efficient, hence low operational cost.Values – Mercedes stands for high performance, safety and prestige.Culture – The Ambassador represents traditional Indian culture of joint

family and values.Personality – Mercedes may suggest a no nonsense boss (person).

Page 12: Product

Brand EquityBrand Equity

Brands vary in the amount of power and value they have in the marketplace and customers will pay more for a strong brand. The variables for brad equity:

Brand awareness Brand acceptability Brand preference Brand loyalty

According to David Aaker, there are five levels of customers’ attitude towards brand.1. Customer will change brand, especially for price reasons. No brand loyalty2. Customer is satisfied no reason to change the brand.3. Customer is satisfied and would suffer a cost if change of brand is required.4. Customer values a brand and sees it as a friend.5. Customer is devoted to the brand.

Page 13: Product

Value of Value of BBrand rand EEquityquity

Brand equity is the positive differential effect that knowing the brand name has on customer response to the product or service.

The extent to which the customers are willing to pay more on a particular brand is measure of brand equity.

But Brand Valuation, which is different from brand equity, is the measure of the total value of the brand in the marketplace.

In 2001, Coco-cola’s brand value was $69 billion, Microsoft $65 billion.

Brand equity is a major contributor to customer equity, which can again be measured in terms of Customer Lifetime Value.

Page 14: Product

Brand Brand NName ame DDecisionecision

Four strategies are available : Individual name e.g., Zen, Esteem, Surf, Lux etc. A major advantage of the individual name

strategy is that the company do not tie its reputation to the products. Blanket family names e.g., General Electric, Mercedes Benz, Campbell, Maruti, Honda, Nirma,

Tata etc. Separate family names for all products e.g., Sears, Pantaloon, Walmart Corporate name combined with the individual product name e.g., Maruti 800, Honda

City,Tata Sumo, Tata Safari, Microsoft office etc. Among the desirable qualities for a brand name are the following: It should suggest something about the product’s benefit It should suggest the product r service category It should suggest concrete, ‘high imagery’ qualities It should be easy to spell, pronounce, recognize and remember It should be distinctive It should not carry poor meaning in other countries or languages

Page 15: Product

Brand Strategy Decisions Brand Strategy Decisions

Brand strategy will vary with whether the brand is a fnctional brand, an imagebrand, or an experiential brand.Functional brand : satisfy a functional need such as Matuti 800 fuel efficiency.Image brand : associated with a celebrity/ designer/ powerful advertising e.g, Raymond suiting, McKinsey & Co., Pierre cardin Experiential brand : e.g., Disney land, Barista, Amby Valley Brand can be further developed as :

Line extension : existing brand name extended to new sizes or flavor in the existing category, e.g., surf excel

Brand extension : brand name extended to nw product category Honda car & Honda Motor byke, Nature Fresh sunflower Oil & Nature Fresh Flour.

Multi brand : Maruti zen, Maruti 800, Maruti Esteem, Titan & Sonata Co brand : Maruti Suzuki, Tata-IBM, Brla-AT&T etc.

Page 16: Product

Brand Strategy Decisions contd..Brand Strategy Decisions contd..

Lineextension

Brand extension

Multi brands

New brands

Existing New

New

Existing

Brand name

Product category

Page 17: Product

Product Life Cycle Product Life Cycle

& &

Marketing Strategies Marketing Strategies

Page 18: Product

Product Life CycleProduct Life Cycle

The concept of the product that passes through changes in its total life known asProduct Life Cycle (PLC) is based on the following facts :

Product has a limited lifeA product sale passes through distinct stagesProfits rise and fall at different stages of Product Life CycleProducts requires different marketing, financial, manufacturing, purchasing and

human resource strategies in each life cycle stage.

Page 19: Product

Demand / Demand / TTechnology echnology LLife ife CCycleycle

Certain basic needs remains unchanged over a long period of time but due to change in technology the matching product for the need category goes through changes. Hence there are technology life cycles giving rise to demand / technology cycle which leads to product life cycle as shown in the curves below :

Sale

s

Demand technology cycle

Demand life cycle

E

G1

G2

MD

T1

T2

Time

Page 20: Product

Demand / Demand / TTechnology echnology LLife ife CCycleycle contd.. contd..

Demand technology cycle

Demand life cycle

P1

Time

Sale

s P2

P3P4

Product life cycle

Page 21: Product

Product Life CycleProduct Life Cycle

Each products life is typically divided into four stages :

Introduction : a period of slow saes growth as the product is introduced in the market. Profits are non-existent because of heavy expenses incurred with product introduction.

Growth : a period of rapid market acceptance and substantial profit improvement. Maturity : a period of a slowdown in sales growth because the product has

achieved acceptance by most potential buyers. Profits stabilize or decline because of increased competition.

Decline : the period when the sales show a downward drift and profits erode.

Page 22: Product

Product Life Cycle cond..Product Life Cycle cond..

Sales

Profit

Introduction

Sale

s an

d pr

ofits

($)

Growth Maturity Decline

Time

Page 23: Product

TheThe Life Cycle Life Cycle ModelModel

Development Growth Maturity Shakeout Decline

Few trials of early adopters

Growing adopters Trial of product/ service

Growing selectivity of purchase

Saturation of users Repeat purchase Reliance

Drop-offIn usage

Entry of competitors

Attempt to achieve trial

May be many Fight to maintain share

Exit of some competitors

Likely price cutting for volume

Difficulties in gaining / taking share

Selective distribution

Users buyers

Competitive conditions Few

competitorsFight for share Shakeout of

weakest competitorsUndifferentiated

products / services

Emphasis on efficiency / low cost

Page 24: Product

Marketing Marketing SStrategies trategies

Introduction stage: Sales growth is slowProfits are negative or very lowPromotional expenditure is their highest ratio to sales Prices tends to be high because costs are high Pioneer advantage : Early users will recall the pioneer’s brand name if product satisfies them The pioneer’s brand may set the standard Pioneer’s brand normally aims at the middle of the market so captures more

users Due to inertia customer may stick to Pioneer brand Producers get advantages of economies of scale, technological leadership,

patent rights.

Page 25: Product

Marketing Marketing SStrategies trategies contd..contd..

Growth : Rapid climb in sales Consumption increases New competitors enter with new product feature and expanded distribution

Maturity stage : Most products are their maturity stage in the life cycle and most marketing managers cope with the problem of marketing the mature product. Market modification – expand market with the two factors that make up sales volume :Volume = number of brand user x usage rate per userHow to increase number of brand users? Converting non-users Entering new market segments Winning competitors’ customers.

Page 26: Product

Marketing Marketing SStrategies trategies contd..contd..

How to increase usage rate of current users? Use the product on more occasions Use more of the product in each occasions Use the product in new waysProduct modification – at the maturity stage sales can be stimulated by modifying

the product’s characteristics by quality improvement, feature improvement or style improvement. Quality improvement : aims at increasing the product’s functional performance –

‘stronger’, ‘bigger’, ‘better’, ‘new and improved’. Feature improvement – aims at adding new features – size, weight, power steering,

improves safety. Style improvement – aims at improving the product’s aesthetic appeal – car body style,

car interior

Page 27: Product

Marketing Marketing SStrategies trategies contd..contd..

Marketing mix modification – sales can also be stimulated by modifying othermarketing mix elements such as Prices Distribution Advertising Sales promotion Personal selling ServicesDecline stage : Sales decline because of : Technological advances Shifts in the consumer taste and preferences Increased competition Emergence of substitute products

Page 28: Product

Product Life CycleProduct Life Cycle

Introduction Growth Maturity Decline

Characteristics Sales Low sales Rapidly rising

salesPeak sales Declining sales

Cost High cost per customer

Average cost per customer

Low cost per customer

Low cost per customer

Profits Negative Rising profits High profits Declining profits

Customers Innovators Early adopters Middle majority Laggards

Competitors Few Growing number

Stable number beginning to decline

Declining number

Marketing objectives Create product awareness and trial

Maximize market share

Maximize profit while defending market share

Reduce expenditure and milk the brand

Page 29: Product

Product Life Cycle Product Life Cycle

Introduction Growth Maturity Decline

Strategies

Product Offer a basic product

Offer product extensions, service

Diversify brands and items models

Phase out weak

Price Charge cost plus Price to penetrate market

Price to match or best competitors

Cut price

Distribution Build selective distribution

Build intensive distribution

Build more intensive distribution

Go selecting : phase out unprofitable outlets

Advertising Build product awareness among early adopters and dealers

Build awareness and interest in the mass market

Stress brand differences and benefits

Reduce to level needed to retain hardcore loyal

Sales promotion

Use heavy sales promotion to entice trial

Reduce to take advantage of heavy consumer demand

Increase to encourage brand switching

Reduce to minimal level

Page 30: Product

New New PProduct roduct DDevelopmentevelopment

Categories of new productNew to the world products : new products that create an entirely new marketNew product lines : new product that allows a company to enter an established

market for the first time.Additions to the existing product lines : new products that supplement a

company’s existing product line (package sizes, flavours, and so on).Improvements and revisions of existing products : new products that provide

improve performance or greater perceived value and replace existing product.Repositionings : existing products that are targeted to new markets or new market

segments.Cost reductions : new products that provide similar performance at lower cost.

Page 31: Product

Why Do New Product Fail ?Why Do New Product Fail ?

Product development influenced by senior management despite negative market report.

Overestimated market size

Wrong positioning of the new product

Development cost overshoot expectation

Triggers hyper competitive market position

Page 32: Product

What Stops New Product Development?What Stops New Product Development?

Lack of ideas

Social and governmental constraints

Technological constraints

Too high developmental cost

Capital shortage

Faster time required from idea to product

Shorter product life cycle

Page 33: Product

What Are the Criteria for New Product What Are the Criteria for New Product Development?Development?

Specific time frame

Optimum potential market and growth rate

Minimum return on sales ad return on investments

Should lead to market leadership position

Page 34: Product

New Product Development New Product Development decision decision ProcessProcess

Y

1. Idea generation

Is the idea worth

considering?

1. Idea generation

Is the idea worth

considering?

2. Idea screening

Is the product

idea compatible

with company

objectives, strategies

and resources?

2. Idea screening

Is the product

idea compatible

with company

objectives, strategies

and resources?

3. Concept developme

nt and testing

Can we find a good

concept for the product

that consumers

say they would try?

3. Concept developme

nt and testing

Can we find a good

concept for the product

that consumers

say they would try?

4. Marketing strategy

development

Can we find a cost-

effective, affordable marketing strategy?

4. Marketing strategy

development

Can we find a cost-

effective, affordable marketing strategy?

5. Business analysis

Will this product

meet our profit goal?

5. Business analysis

Will this product

meet our profit goal?

6. Product developme

nt

Have we developed

a technically

and commerciall

y sound product?

6. Product developme

nt

Have we developed

a technically

and commerciall

y sound product?

7. Market testing

Have product

sales met expectation

s?

7. Market testing

Have product

sales met expectation

s?

8. Commercial

isation

Are product sales

meeting expectation

s?

8. Commercial

isation

Are product sales

meeting expectation

s?

DropDrop

Should we send the idea back for product developme

nt?

Should we send the idea back for product developme

nt?

Would it help to

modify the product or marketing program?

Would it help to

modify the product or marketing program?

Lay future plans

Y

YYYY Y Y Y

Y

N

N

N N

N N N NN N

Page 35: Product

New Product Development ProcessNew Product Development Process

Idea generation : New product ideas can come from : Interacting with others (sales representatives and intermediaries) Creativity techniques – attribute listing, mind mapping,

Idea screening :

Marketing strategy : First phase : Describe the target market

Plan product position Plan market share, sales volume, profit goals

Second phase : Pricing strategy

Distribution strategy Marketing budget

Overall probability of success

Probability of technical completion

Probability of commercialisation given technical completion

= x Probability of economic success given commercialisation

x

Page 36: Product

New Product Development ProcessNew Product Development Process

Business analysis :

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Sales revenue 0 2,00,000 3,00,000 5,00,000 8,00,000 10,00,000

Cost of goods sold 0 80,000 1,20,000 1,75,000 2,80,000 3,30,000

Gross margin 0 1,20,000 1,80,000 3,25,000 5,20,000 6,70,000

Development costs

-50,000 0 0 0 0 0

Marketing costs 0 1,10,000 1,30,000 1,80,000 2,20,000 2,70,000

Allocated overhead

0 20,000 30,000 40,000 80,000 1,00,000

Contribution -50,000 -10,000 20,000 1,05,000 2,20,000 3,00,000

Discounted contribution (10%)

-50,000 -9,090 16,520 78,855 1,50,260 1,77,900

Projected five-year cash-flow statement (in rupees)

Page 37: Product

New Product Development ProcessNew Product Development Process

Product development : At this sage the company has to decide whether the product idea can be

translated into technically and commercially feasible product, as there will be a considerable jump in investment if the company wants to go ahead.

Also consumer testing has to be done in the form of bringing consumers into the laboratory for giving them samples to use in their homes or showing the product use.

Market testing : Sales-wave research : working with consumers who initially try the product at

low cost and when the product is re-offered at slightly reduced prices. Simulated test marketing : working with small number of qualified shoppers into

inducing them to buy the new brand and giving a comparative feedback with the existing brand.

Controlled test marketing : engaging number of stores that will carry the new product for a fee.

Test market : to test new product into full-blown test market by engaging company’s sales force. The company thus use advertising and promotional campaign in these markets.

Page 38: Product

New Product Development ProcessNew Product Development Process

Commercialisation :

Major decisions to be taken are : Timing of commercialisation, i.e., when to commercialise?

First entry Parallel entry Late entry

The geographic strategy, i.e., where to commercialise? Who are the target market, i.e., whom to commercialise? Introductory marketing strategy, i.e., how to commercialise?

Page 39: Product

New Product Development ProcessNew Product Development Process

Number of ideas

Pass ratio Cost per product idea

(Rs)

Total cost (Rs)

Stage

1. Idea screening 64 1:4 10,000 6,40,000

2.Concept testing 16 1:2 50,000 8,00,000

3.Product

development

8 1:2 2,00,000 16,00,000

4.Test marketing 4 1:2 5,00,000 20,00,000

5.National launch 2 1:2 50,00,000 1,00,00,000

57,60,000 1,50,40,000

The process of getting one successful new product

Page 40: Product

The The CConsumer-adoption onsumer-adoption PProcessrocess

Adoption is an individual’s decision to become regular user of a product. According to Rogers “innovation diffusion process is a spread of a new idea from its source of invention or creation to its ultimate users or adopters.”

An innovation is any good, service or idea that is perceived by someone as new.

Adoption of a new product generally follows a five-stage process: Awareness Interest Evaluation Trial Adoption

Factors influencing the adoption process: Readiness to try new product and personal influence Characteristics of the innovation Organization’s readiness to adopt innovations

Page 41: Product

Diffusion of Diffusion of IInnovationsnnovations

2 1/2% innovators 13 1/2%

Early Adopters

34% Early

majority

34% Late

majority

16% Laggards