04/19/23 1

Topic 6Topic 6 Product PolicyProduct Policy

Assoc. Prof. A. Popissakov2009-2010

PRINCIPLES OF MARKETING-A2

04/19/23 2

1. Basic concept of Product

Basic Product (BP)

Basic physical features and benefits

What is a Product?is a multidimensional offering, a mix of:tangible featuresintangible services and attributes, bundling around a basic or core benefit.

3 Levels of one product

04/19/23 4

Basic concept of Product

Core(Basic)product

Core Product (CP)

Basic physical features and benefits

Real (Embodied) Product (RP)

Product make- up

Total (Augmented) Product (TP)

Services and intangible associations

04/19/23 5

represents the physical characteristics of a good and basic (or most essential) benefit/s of value to the customer, expressed in a product form.

E.g. A cup of coffee:the taste of coffee (benefit 1)refreshment effect (benefit 2)

Core Product (CP)

Coffee as

a Core Product

04/19/23 6

Real (Embodied) Product (RP)

Will comprise the Core product and additional tangible features that make up the listed product or service: design, colour, packing, brand name, etc.

E.g A cup of coffee (Jacob’s coffee):

leading brand name

attractive packing

Coffee (CP) + 2

tangible features

04/19/23 7

Real (Embodied) Product (RP)

E.g Jacob’s coffee :

taste + refreshment (benefit 1,2) + (brand name + packing (tangible features 1,2) = Real product

Jacob’s Coffee (benefits +tangible features) transform it to a Real (Embodied)Product

04/19/23 8

Total (Augmented) Product (TP)

Will add to the listed product some intangible extra features through services:

credit and financial provisionsreputation of the sellerdelivery servicescustom servicesreplacement servicesquality assurance, etc.

04/19/23 9

Total (Augmented) Product (TP)

E.g. If Jacob’s coffee (Real product) is:

a) served for free in a supermarket for promotional testing in a small plastic cup or

b) served in a luxury hotel lounge in gold plated china

04/19/23 10

Total (Augmented) Product (RP)

These are two different Total Products.

A) Jacob’s coffee at a supermarket

- as a commodity

B) Jacob’s coffee at a luxury hotel lounge

- as pleasure and prestige.

04/19/23 11

2. Product Life Cycle (PLC)

Each new product goes though 4 main Phases of PLC:

IntroductionGrowthMaturityDecline

04/19/23 12

Product Life Cycle (PLC) - chart

Sales Profit

time

Revenue and profits

IntroductionGrowth Maturity Decline

04/19/23 13

PLC - Introduction phase

Features:this is post-launch period, after much

spending on new product R&D.low saleslow revenueprofit might be negativehard time for companies

04/19/23 14

PLC - Growth phase

Features:a product “takes off”gaining market share and early majority of

buyersrevenue and profit grow

04/19/23 15

PLC - Maturity phase

Features:usually the longest phase for most products

(the longer the better)beginning with continued sales growthreach saturation (peak) of sales and profitsales and profit dip at the end of phase.

04/19/23 16

PLC - Decline phase

Features:sales may fall rapidly or graduallyprofit also follow the trend or could be

negative againthe product become a loosergive way to heavy losses for company.

04/19/23 20

3. PLC Analysis

Mapping the PLC path of both company and competitor brands, market researchers can collect valuable information about:

Better exploit current product potential Necessity of product modification Looking for mew markets Take decision about new product

development

04/19/23 21

PLC Analysis

PLC Analysis can change the PLC substantially and extending it.

E.g. WV “Beetle” car’s PLC:a) A popular car, cheep, simple and easy to maintain – The total

product

b) New models introduced – Product modification

c) Painted in different colours for/by young ( first hippie car in Europe) – Range extension

d) Shifting production to Brazil – New markets

e) Now brand new models in same shape and silhouette – Model revival

04/19/23 22

PLC AnalysisPLC Analysis can change the PLC substantially

and extending it. Revenue and profits

A

BC

D

E

time

A Original product(maturity phase)

B Product modificationC Range extensionD New marketsE Model revival

04/19/23 23

4. Classification of products

Just as market segmentation improve marketing programs, it is helpful to separate products into homogeneous classifications.

Two groups;consumer productsbusiness products

04/19/23 24

Classification of products

Consumer products are intended for use by household consumers for non-business purposes.

Business products are intended primarily for use in producing other products or for providing services in a business.

The fundamental basis for distinguishing between the two groups is the ultimate user for which the product is intended in its present form.

04/19/23 25

Classification of products

Difficult distinction:A personal computer may be considered a

Consumer good if it is purchased by a student to use at home but

if his father uses it for accounting work for his shop, it is classed as a Business product.

04/19/23 26

Classification of Consumer products

4 groups:

A. Convenience goods

B. Shopping goods

C. Specialty goods

D. Unsought goods

04/19/23 27

A. Convenience goods

Consumers have adequate knowledge of the product before going to but it and they purchased such products with a minimum of efforts.

04/19/23 28

A. Convenience goods

General Features:no strolling around to buyready accessiblewilling to accept several brandslow unit pricenot bulkynot affected by fashionno need of special promotion and

advertisementpurchased frequently

04/19/23 29

B. Shopping goods

Products for which customers usually wish to compare quality, price and style in several stores before purchase.

Furniture,major home applianceswomen’s apparel

04/19/23 30

C. Specialty goods

Consumers have strong brand preferences and are willing to spend special time and efforts in purchasing them.

Stereo, video, photographic equipmentman’s suithealth foodnew automobile(special offer)

04/19/23 31

D. Unsought goods

2 sub-groups:New products, customers are not aware of

(some latest model of Hi-Tech i-Phone or palm computers)

Products that customers do not want right now (burial insurance, gravestone, declaration of will).

04/19/23 32

Classification of business goods(B2B goods)

5 groups:

A. Raw materials

B. Fabricating parts and materials

C. Installations

D. Accessory equipment

E. Operating supplies

04/19/23 33

A. Raw materials

3 groupsgoods found in their natural state (land,

water, oil, minerals, seas, forests)agricultural products (wheat, cotton, fruits)animal products (eggs, raw milk,)

Marketing is quite different for these groups.

04/19/23 34

B. Fabricating parts and materials

Business goods that become part of a finished product - 2 selections:

Fabricating materials - will go further processing

e.g. flour becoming part of bread,

Fabricating parts – will be assembled with no further change of form

zippers attached to clothing, semiconductor chips - to computers

04/19/23 35

C. Installations

are manufactured business products – the long-lived, expensive, major equipment of a business user

factory buildinglarge generators in a dam, jet airplanes, highwayscontainer terminal, etc.)Installations directly affect the scale of operation in a

firm.

04/19/23 36

D. Accessory equipment

is used in the production operation of a business firm, but it does not affect significantly the scale of operations

cash register, company car, telephone network, copy machine, etc)

04/19/23 37

E. Operating supplies

are the “convenience goods” of the business sector, help a firm’s operation but do not become a part of finished product

short-lived, low-priced items;pencils, stationary, toner, washroom supplies, etc.)

04/19/23 38

5. The NPD (New Product Development)

What is a new product?

Three categories requiring different marketing approach.

Really innovative productsSignificantly different productsImitative products

04/19/23 39

Really innovative products

Truly unique products hair restorercancer, (AIDS) cure “time machine”, etc.

04/19/23 40

Significantly different products

Replacements for existing products that are significantly different.

Eye glasses - contact lensesTube TV – LCD, plasma TVline phones - GSMstereo record player - CD player

04/19/23 41

Imitative products

New to a particular company but not new to the market.

“Me-too products”

E.g.

Polaroid camera - audio/video cassettes, CD, DVD, etc.

04/19/23 42

5.2 New Product Development Process

1. Idea generation

2.Idea screening

and evaluation

3.Business analysis

4. Product prototype

development

5.Test marketing

6. Commercialisation

1, 2, 3 -Concept testing stage

4, 5-Most resource consuming stages

Last turn back point

04/19/23 43

Step 1. Generation of New product idea

NP development starts with an idea.

Management responsibilities:Develop a system within the organisation

for stimulation of NP idea generation.Customers can also be encouraged to do so.Allow freewheeling.

04/19/23 44

Step 2. Screening and evaluation of ideas

NP ideas are evaluated to determine which one could be given further consideration.

Management responsibilities:Technical feasibility - fly a car???Social acceptance - cloning???

04/19/23 45

Step 3. NP Business analysis

Management responsibilities: to converted NP ideas into a concrete business proposal.

Identify product featuresEstimate market demandEvaluate competition,Calculate profitability Establish a program for NP development

8 criteria (fits)

expressed in figures

04/19/23 46

Step 1+2+3 = Concept testing phase

Pre-testing of the product idea Most critical stage for a NP development.75 % of NP ideas failed at this stage.

04/19/23 47

Step 4. Product prototype development

The product idea on-paper is converted into a physical product.

pilot models manufacturingsmall quantitieslaboratory teststechnical and production evaluations, etc.

04/19/23 48

Step 5. Test marketing

Market test (real marketing) in limited geographic areas.

customers reaction and acceptanceproduction variables (colour,sizes, etc.)price adjustmentsfinal decision where to go on marketing the

product or stop. Last turn back point.

04/19/23 49

Step 6. Commercialisation

Full-scale production and marketing programs are planned and the product is launched.

NP is “born” and enters its life cycle.So far a company has complete control over

the product After commercialization it is subjected to

external competitive environment.

04/19/23 50

Producer’s criteria for NP

As a part of NP Business analysis some basic questions must be answered.

Should the NP be added to company’s existing product assortment?

8 criteria or product’s fits:

04/19/23 51

5.3. Producer’s criteria- 8 Fit for a NP

1. Marketing fit2. Financial fit3. Standard fit 4. Fit company’s marketing structure5. Fit company’s production structure 6. Fit the law7. Company’s management fit8. Fit company’s image and objectives

04/19/23 52

Marketing fit

Do enough people really want this product?Will the NP fit into our sales force?

04/19/23 53

Financial fit

Is enough financing available?

Will the NP increase profitability?

Will the NP improve seasonal and cyclical stability of the company?

04/19/23 54

Standards fit

Will the NP meet current environmental and social standards?

Saftyharmfulsave energy features (class A+, A, B, C,)recycling potential, etc.

04/19/23 55

Fit company’s marketing structure

Can the existing sales force be used?

Can the present channels of distribution be used?

E.g. Children cloths - children toys/books.

04/19/23 56

Fit company’s production structure

Will the NP fits in with:

existing production facilities

labour force (skills)

management capabilities

04/19/23 57

Fit the law

NP should not have any legal objections:

patents application

copy right application

packaging, labeling regulation, etc.

04/19/23 58

Company’s management and R&D fit

Will the management and/or R&D unit have the time, expertise, ability, experience to deal with the NP?

If “Yes” how shell these affect the other products and processes?

If “No” - how shell we comply with leased professionals, how much to pay?, etc.

04/19/23 59

Fit company’s image and objectives

Will the NP keep the company’s image and fit with its objectives?

E.g. Low priced, low quality product could not contribute to company’s prestige.

04/19/23 60

Hypothetical example of NP idea rating sheet

Product selection criteria

crite

ria

wei

ght

criteria rating (B)score

A 1 2 3 4 5 6 7 8 9 10 A*B1. Company corporate

objectives4 x 36

2. Financial capability 4 x 323. Marketing capability 4 x 284. Relation to present

production3 x 30

5. R&D, management fit 2 x 166. Manufacturing

capabilities2 x 16

7. Suppliers / resources fit 1 x 58. Environment / social

standard competability1 x 9

total

172

04/19/23 62

NP adoption and diffusion processes

Adoption process -decision making activity of an individual through which the NP is accepted.

Diffusion process - is the process by which the NP is spread trough society over time.

04/19/23 63

Stages in adoption process Stage Activity in than stage

1. Awareness Individual is exposed to the innovation, becomes aprospect.

2. Interest Prospect is interested enough to seek information

3. Evaluation Prospect mentally measures relative merits

4. Trial Prospect adopts the innovation on a limited

base.(buys sample or small quantity)

5. Adoption Prospect decides whether to use the innovation on afull-scale basis.

6. Postadoptionconfirmation

The innovation is adopted, then the user continues toseek assurance that the right decision was made.

04/19/23 64

Adopter Categories

1. Innovators

2. Early adopters

3. Early majority

4. Late majority

5. Laggards

04/19/23 65

Adopter Categories-Innovators

A venturesome group, about 3% of the customers, first to adopt an innovation.

Features:youngerhigher social statusbetter financial position

04/19/23 66

Adopter Categories-Early adopters

about 13% of the market - tent to be a part or

leaders of local social system.

(Doctors, mayors, MPs, artists, layers)

04/19/23 67

Adopter Categories- Early majority

More deliberate group of 34% of the market - accepting the innovation just before the “average” adopters

above average in social and economic measures

rely quite a bit on advertisements, and contact with other people

04/19/23 68

Adopter Categories- Late majority

More deliberate group of 34% of the market - more skeptical.

Adopt to innovation in response of economic necessity (mobile phones are cheaper now)

rely on word-of-month information rather than advertising

04/19/23 69

Adopter Categories-Laggards

Tradition-bound group, 16% of the market, are last to adopt if at all.

Suspicious,

older

usually at the low end of the social and economic scale.

04/19/23 70

Adopter Categories-Laggards

Normal distribution ‘Bell curve” for NP diffusion process.

3% 34% 34% 16%13%

LaggardsInnovators

Early majority Late majority

Early adopters

Adoption rate

Time

04/19/23 71

The End