mktg pp ch08-developing+&+managing+products

8/7/2019 MKTG PP Ch08-Developing+&+Managing+Products

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Chapter

8

Developing and managingproducts



Learning objectives

1 Define the terms product item, product lineand product mix

2 Explain the concept of product life cycles

3 Explain the importance of developing newproducts

4 Describe the six categories of new products

5 Explain the steps in the new-product

development process6 Explain the diffusion process through which

new products are adopted



1Define the terms product item,

product line and product mix

Learning objective



1 Product items, lines and

mixes

Product item

Product line

Product mix

A specific version of a productthat can be designated as a

distinct offering among anorganisation’s products (DOCOMO)

A group of closely relatedproduct items (Swift Desire)

All products that anorganisation sells.



1 Benefits of product lines

• Product line pricing is a pricing strategy that uses oneproduct with various class distinctions. An example wouldbe a car model that has various model types that changewith performance and quality. This pricing process is

evaluated through consumer value perception, productioncosts of upgrades, and other cost & demand factors.

• Why form product lines?– advertising economies– package uniformity

– standardised components– efficient sales and distribution– equivalent quality



1 Product mix width

• The number of product lines anorganisation offers:

– diversifies risk– capitalises on established reputations.



1 Adjustments

Productmodification

Productrepositioning

Product lineextension or

contraction

Adjustments toproduct items,lines and mixes



1 Product modifications

• Quality modification

• Functional modification

• Style modification



1 Planned obsolescence

• The practice of modifying products so thosethat have already been sold become obsoletebefore they actually need replacement.

• Obsolescence is the state of a being whichoccurs when an object, service or practice isno longer wanted even though it may still bein good working order. Obsolescence

frequently occurs because a replacement hasbecome available that is superior in one ormore aspects.



1 Repositioning

• Why reposition established brands?

– changing demographics

– declining sales– changes in social environment.



1 Product line contraction

• Symptoms of product line over-extension

– some products have low sales or cannibalisethe sales of other items

– resources are disproportionately allocated toslow-moving products

– items have become obsolete because of new-product entries.



2Explain the concept of

product life cycles

Learning objective



2 Product life cycle

• A concept that provides a way to tracethe stages of a product’s acceptance,

from its introduction (birth)to its decline (death).



2 Product life cycle (cont.)



2 Introductory stage

• Full-scale launch of new products– High-failure rates

– Little competition

– Frequent product modification

– Limited distribution

– High marketing and production costs

– Negative profits

– Promotion focuses on awareness andinformation

– Intensive personal selling to channels



2 Growth stage

• Second stage– Increasing rate of sales

– Entrance of competitors

– Market consolidation

– Initial healthy profits

– Promotion emphasises brand ads

– Goal is wider distribution

– Prices normally fall

– Development costs are recovered



2 Maturity stage

• A period during which sales increase ata decreasing rate– Declining sales growth

– Saturated markets– Extending product line

– Stylistic product changes

– Heavy promotions to dealers and consumers

– Marginal competitors drop out– Prices and profits fall

– Niche marketers emerge.



2 Decline stage

• Where sales keep declining over arelatively long period of time

– Long-term drop in sales– Large inventories of unsold items

– Elimination of all nonessential marketingexpenses



2 Product category

• All brands that satisfy a particular typeof need.



3Explain the importance of developing new

products

Learning objective



3 Why new products?

• New products are needed to sustaingrowth, profits and replace obsolete

items (3G to replace 2G soon)• Ultimately in a FMCG market nine out of

ten new listed products fail

• Product death occurs due to market

changes and the decline in quality,quantity and viability of consumerresearch.



4Describe the six categories

of new products

Learning objective



4 New product

• A product new-to-the-world, themarket, the producer, the seller or some

combination of these.



4 Categories of new products

• Six categories of new products:

1 new-to-the-world (Ex. Flat bed travel inlong haul flights)

2 New-product lines

3 product line additions

4 improvements/revisions

5 repositioned products6 lower-priced products.



5Explain the step in the

new-product development process

Learning objective



5 New-product

development process• New-product strategy

• Idea generation

• Idea screening

• Business analysis

• Development

• Test marketing• Commercialisation

• New product.



5 Idea generation

• Sources of new-product ideas:

– customers

– employees– distributors

– competitors

– research and development

– consultants

– creative thinking.



5 Idea screening

• The first filter in the product-development process, which eliminates

ideas that are inconsistent with theorganisation’s new-product strategy, orare inappropriate for some otherreason.



5 Concept test

• A test to evaluate a new-product idea,usually before any prototype has been

created.



5 Business analysis

• Considerations in business analysisstage:

– preliminary demand– cost

– sales

– profitability.



5 Development

• Creation of prototype

• Marketing strategy

• Technical production feasibility• Final government approvals, if required.



5 Test marketing

• The limited introduction of a productand a marketing program to determine

the reactions of potential customers in amarket situation.



5 Choosing a test market

• Similar to planned distribution

• Relative isolation and free of influences

• Advertising availability; multiple media• Diversified cross-section

• No atypical purchase habits

• Representative population/income

• Not overly used or easily ‘jammed’ • Year-round sales stability

• Available research/audit and retailers.



5 Alternatives to test

marketing• Single-source research using

supermarket scanner data

• Simulated (laboratory) market testing.



5 Commercialisation

• Steps in marketing a new product:

– production

– inventory build-up– distribution shipments

– sales training

– trade announcements

– customer advertising.



6Explain the diffusion process through

which new products are adopted

Learning objective



6 Diffusion

• The process by which the adoption of aninnovation spreads.



6 Categories of adopters

• Categories of adopters in the diffusionprocess:

– innovators– early adopters

– early majority

– late majority

– laggards.



6 Categories of adopters

(cont.)

Pe rc e nt a g e o f a

d o p t e rs

Time

Innovators2.5%

Earlyadopters13.5%

Latemajority

34%

Earlymajority

34%

Laggards16%



6 Product characteristics and

the rate of adoption• Product characteristics predict rate of

adoption.

– Complexity– Compatibility

– Relative advantage

– Observability

– Triability.



6 Marketing implications of

the adoption process• Communication aids the diffusion

process

– Word-of-mouth– Direct from marketer.

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