product decisions

CHAPTER 10

FRANCHEZKA PEGOLLO

Product Decisions

Product Anything offered to a market for attention,

acquisition, use, or consumption that might satisfy a need or want.

Service A form of product that consists of activities,

benefits or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything.

THE THREE LEVELS OF PRODUCT

Product Classification

- Products and services fall into two broad classes based on the types of consumers that use them---consumer products and industrial products.

Consumer-productsClassification

Consumer products are products and services bought by final consumer for personal consumption.

Consumer products include: Convenience products Shopping products Specialty products Unsought products

1. Convenience products Consumer product that the customer usually buys

frequently, immediately, and with a minimum of comparison and buying effort.

2. Shopping products Are less frequently purchased consumer products

and services that customers compare carefully on suitability, quality, price, and style.

3. Specialty products Consumer products with unique characteristics or

brand identification for which a significant group of buyers is willing to make a special purchase effort.

4. Unsought products Consumer products that the consumer either does

not know about or knows about but does not normally think of buying.

Industrial-productsClassification

Products bought by individuals and organizations for further processing or for use in conducting a business.

The three groups of individual products and services includes: Materials and parts Capital items Supplies and services

Eight Dimensions of Quality for Goods

1. Performance2. Features3. Reliability4. Conformance5. Durability6. Serviceability7. Aesthetics8. Perceived quality

Five Dimensions of Service Quality

1. Tangibles2. Reliability3. Responsiveness4. Assurance5. Empathy

Branding Decisions

Branding Identifies and helps differentiate the goods or services

of one seller from those of another. It consists of a name, sign, symbol, or some

combination thereof. Brand name

is the part that can be vocalized. Brand mark

Is something that cannot be verbalized, such as symbol, design, or unique packaging.

Branding Strategies

1. Individual branding Requires the company to provide each product or

product line with a distinctive name. Ex. P&G – Tide and Ariel detergent, Head & Shoulders,

and Pantene shampoo, Safeguard.

2. Family branding Uses the same brand name to cover a group of

products or product lines. There are several variations of family branding

including its use primarily with related items, its use with all company items regardless of whether they are use-related (General Electric), and the use of a family name combined with individual product name.

Packaging Decisions

Packaging The activities of designing and producing the

container or wrapper for a product.

A product’s package serves several functions: Protection Facilitating use Promoting the product Providing information about the product.

Managing Product Lines for Customer Appeal and Profit Performance

Product line A group of products that are closely related because

they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges. Ex. Samsung produces several lines of telecommunications

product. Nike produces several lines of athletic shoes.

In order to increase profits, the company must manage its product lines carefully. It can systematically increase the length of its product line in two ways: Product line stretching Product line filling

Product line stretching Occurs when a company lengthens its product line beyond

its current range. The company can stretch its line downward, upward, or

both ways. Ex. Mercedes-Benz and Toyota.

Product line filling Adding more items within the present range of the line. The company should ensure that new items are noticeably

different from existing ones. Ex. Sony filled its Walkman line by adding solar-powered and

waterproof Walkmans and an ultralight model that attaches to a sweatband.

Line extension Using a successful brand name to introduce additional

items in a given product category under the same brand name, such as new flavors, forms, colors, added ingredients, or package sizes.

Brand extension Involves the use of a brand name established in one

product class as a vehicle to enter another product. Using a successful brand name to launch a new or

modified product in a new category.

New-Product Development Strategy

A firm can obtain new products in two ways: Through acquisition – by buying a whole company, a patent, or

a license to produce someone else’s product. Through new product development

In business, New Product Development (NPD) is the term used to describe the complete process of bringing a new product or service to market.

Coloured ketchup? Who would've anticipated it?Heinz introduces green and purple ketchup.

New Product Development Process

IdeaGeneration

IdeaScreening

ConceptDevelopmentand Testing

MarketingStrategy

BusinessAnalysis

ProductDevelopment

TestMarketing

Commercialization


Step 1: Idea GenerationIdea Generation is the systematic search for

new product ideas obtained internally and from:

CUSTOMERS

CUSTOMERS

COMPETITORS

COMPETITORS

DISTRIBUTORS

DISTRIBUTORS

SUPPLIERS

SUPPLIERS


Step 2: Idea Screening The purpose is to identify good ideas and drop poor ones

to avoid spending any more money on developing them Criteria used:

•is the product truly useful to consumers & society•availability of market•does it mesh well with company’s objectives & strategies•do we have the people, skills & resources to make it successful•does it deliver more value to customers than competing products•is it easy to advertise and distribute•availability of technology•availability of raw materials•risk exposure, profitability, cost/benefit•government priority•CRITICAL SUCCESS FACTOR


Step 3: Concept Development and Testing Product idea

Is an idea for a possible product that the company can see itself offering to the market.

Product concept Is a detailed version of the idea stated in meaningful

consumer terms. Product image

Is the way consumers perceive an actual or potential product.


1. Develop Product Ideas into Alternative

Product Concepts

1. Develop Product Ideas into Alternative

Product Concepts

2. Concept Testing - Test theProduct Concepts with Groups

of Target Customers

2. Concept Testing - Test theProduct Concepts with Groups

of Target Customers

3. Choose the Best One3. Choose the Best One

Step 3: Concept Development and Testing


Step 4: Marketing Strategy Development Marketing Strategy Development

Designing an initial marketing strategy for a new product based on the product concept.

Marketing Strategy Statement FormulationPart One Describes Overall:

Target MarketPlanned Product Positioning

Sales & Profit Goals Market Share

Part One Describes Overall:Target Market

Planned Product PositioningSales & Profit Goals

Market Share

Part Two Describes Short-Term:Product’s Planned Price

DistributionMarketing Budget

Part Two Describes Short-Term:Product’s Planned Price

DistributionMarketing Budget

Part Three Describes Long-Term:

Sales & Profit GoalsMarketing Mix Strategy

Part Three Describes Long-Term:

Sales & Profit GoalsMarketing Mix Strategy


Step 5: Business Analysis A review of the sales, costs, and profit projections for a new

product to find out whether these factors satisfy the company’s objectives.

Step 6: Product Development A strategy for company growth by offering modified or new

products to current market segments. Developing the product concept into physical product in order to ensure that the product idea can be turned into a workable product.


Business Analysis

Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

Business Analysis

Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

If Yes, Move to Product Development

If Yes, Move to Product Development

If No, Eliminate Product Concept

If No, Eliminate Product Concept

Step 5: Business AnalysisStep 6: Product Development


StandardTest Market

Full marketing campaignin a small number of representative cities.

StandardTest Market

Full marketing campaignin a small number of representative cities.

SimulatedTest Market

Test in a simulated shopping environment

to a sample of consumers.

SimulatedTest Market

Test in a simulated shopping environment

to a sample of consumers.

Controlled Test Market

A few stores that have agreed to carry newproducts for a fee.

Controlled Test Market

A few stores that have agreed to carry newproducts for a fee.

Step 7: Test Marketing The product and marketing program are tested in more

realistic market settings.


When?When? Where?Where? To Whom?

To Whom? How?How?

Step 8: Commercialization Commercialization is the introduction of the new

product into the marketplace.

PRODUCT LIFE-CYCLE (PLC)

The course of a product’s sales and profits over its lifetime. It involves five distinct stages:

1. Product development Begins when the company finds and develops a new-

product idea. During product development, sales are zero and the company’s investment costs mount.

2. Introduction Is a period of slow sales growth as the product is

introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction.

3. Growth A period of rapid market acceptance and substantial

profit improvement.

Product Life Cycle (cont.)

4. Maturity–A period of slowdown in sales growth because

the product has achieved acceptance by most potential buyers. Profits stabilize or even decline because of increased marketing outlays to defend the product against competition.

5. Decline–The period when sales show a downward drift

and profits erode

Figure 10.2Stages of the PLC

Product Life-Cycle Strategies

Introduction Stage Sales start at zero and begin to

climb slowly; profits continue to decline due to costs of launching the product

The main promotional goal is to make a big noise to attract attention and to educate buyers about the new product concept

Market pioneers take the most risk but may reap the biggest rewards, eg. Chrysler minivan

Few product variants, no competition to speak of

Pricing strategy: skimming or penetration

Distribution: not all outlets covered as some may not want the risk

Growth Stage Sales of the new product

begin to climb quickly as awareness within the target market(s) builds

Profits may become positive as development and launch costs are recovered and the company achieves economies of scale

Competition notices and rushes their versions into production

Product quality can be improved, extra features and versions developed to sustain growth and differentiate from competition

Distribution increases as the product becomes more known

Pressure on pricing as competition increases

Product – Offer a basic productPrice – Skimming or penetration pricingDistribution – Build selective distributionAdvertising – Build awareness among early

adopters and dealers/resellersSales Promotion – Heavy expenditures to

create trial

Marketing Strategies:Introduction Stage

Product – Offer product extensions, service, warranty

Price – Penetration pricingDistribution – Build intensive distributionAdvertising – Build awareness and interest in

the mass marketSales Promotion – Reduce expenditures to

take advantage of consumer demand

Marketing Strategies: Growth Stage

Product Life-Cycle StrategiesMaturity Stage

Sales of the new product continue to climb and then peak as the majority of the target market(s) have tried the product

Profits continue to grow and stay positive throughout

Competition is most intense at this stage; many versions and brands

Strategies to prolong this stage:

Modify the market Modify the product Modify the marketing mix

Decline Sales of the new product

drop quickly as the target market(s) move on to other things

Profits decline as competitive pressures force lower prices and set promotional spending at a level that maintains the share

Competition has declined as weaker brands have left the market

Decisions about the product Maintain spending levels to

fight it out for what is left Harvest by cutting spending

and riding it out Drop the product and move

on to the next thing

10-36

Maturity StageProduct Life-Cycle

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Peak salesPeak sales

Low cost per customerLow cost per customer

High profitsHigh profits

Maximize profit while defending market share

Maximize profit while defending market share

Diversify brand and modelsDiversify brand and models

Price to match or best competitorsPrice to match or best competitors

DistributionDistribution Build more intensive distributionBuild more intensive distribution

AdvertisingAdvertising Stress brand differences and benefits

Stress brand differences and benefits

Summary of Characteristics, Objectives, & Strategies

Decline StageProduct Life-Cycle

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Declining salesDeclining sales

Low cost per customerLow cost per customer

Declining profitsDeclining profits

Reduce expenditure and milk the brand

Reduce expenditure and milk the brand

Phase out weak itemsPhase out weak items

Cut priceCut price

DistributionDistribution Go selective: phase out unprofitable outlets

Go selective: phase out unprofitable outlets

AdvertisingAdvertising Reduce to level needed to retain hard-core loyal customers

Reduce to level needed to retain hard-core loyal customers

Summary of Characteristics, Objectives, & Strategies

product decisions

Marketing

product lines

new products

modified product

form of product

elses product

levels of product

product line filling

group of products