part five product decisions 12 developing and managing products

Part FivePart FiveProduct Decisions

1212Developing and Managing Products

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Objectives

1. To understand how companies manage existing products through line extensions and product modifications

2. To describe how businesses develop a product idea into a commercial product

3. To understand the importance of product differentiation and the elements that differentiate one product from another


Objectives (cont’d)

4. To explore how products are positioned and repositioned in the customer’s mind

5. To understand how product deletion is used to improve product mixes

6. To describe organizational structures used for managing products


Chapter Outline

• Managing Existing Products

• Developing New Products

• Product Differentiation Through Quality, Design, and Support Services

• Product Positioning and Repositioning

• Product Deletion

• Organizing to Develop and Manage Products


Managing Existing Products

• Line Extension– Development of a product that is closely related to

existing products in the line but meets different customer needs• Is a less expensive, low-risk

alternative• May focus on the same or a new

segment• Can be used to counter

competing products

– Many “new products” are really line extensions.

““Cheerios”Cheerios”

““Honey-NutHoney-NutCheerios”Cheerios”


Managing Existing Products (cont’d)

• Product Modifications– A change in one or more characteristics of

the product and the elimination of the original product from the product line.• Product must be modifiable.• Customer must be able to

perceive modification has been made.

• Modified product more closely satisfies customers’ needs.

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Product Modifications

• Quality Modifications– Changes in material or production

processes related to a product’s dependability and durability• Reducing quality to offer a

lower price to customers• Increasing quality to gain a

competitive advantage


Product Modifications (cont’d)

• Functional Modifications– Changes affecting a product’s versatility,

effectiveness, convenience, or safety; usually requiring redesign of the product

• Aesthetic Modifications– Changes to the sensory appeal

of a product such as altering taste, texture, sound, smell, or appearance


Developing New Products

• Benefits– Enhances product mix– Increases depth in product

line– Attracts new customers– Increases market and customer

share

• Risks– Expensive to develop– Creates risk of market failure– Loss of market share without new products


Phases of New-Product Development

FIGURE 12.1


Phases of New-Product Development (cont’d)

• Idea Generation– Seeking product ideas to achieve

objectives• Internal sources: marketing

managers, researchers, sales personnel, and engineers

• External sources: customers, competitors, advertising agencies, consultants, and new-product alliances



• Screening– Choosing the most promising ideas for

further review• Concerns about cannibalization

of existing products• Company capabilities to produce

and market the product• Nature and wants of buyers



• Concept Testing– Seeking potential buyers’ responses to a

product idea• Low cost determination of initial

reaction to product idea• Identification of important

product attributes and benefits


Concept Test for a Tick and Flea Control Product

FIGURE 12.2



• Business Analysis– Assessing the potential of a product idea for the

firm’s sales, costs, and profits• Does the product fit in with existing product mix?• Is demand strong enough to enter

the market?• How will introducing the product change

the market?• Is the firm capable of developing

the product?• What are the costs for developing and

marketing?



• Product Development– Determining if producing a product is

feasible and cost effective• Construction of a prototype, or working model• Testing of the prototype’s overall

functionality• Determining the level of product

quality• Branding, packaging, labeling,

pricing, and promotion decisions



• Test Marketing– Introducing a product on a limited basis to

measure the extent to which potential customers will actually buy it• Sample launch of entire marketing mix• Lessens risk of larger market failure• Is expensive; simulated test marketing is an

alternative



• Commercialization– Deciding on full-scale manufacturing and

marketing plans and preparing budgets• Modifications indicated by test marketing are

incorporated into the production design.• Marketing, distribution, and servicing plans are

finalized.• Product roll-out occurs in stages to lessen the

risks of introducing the new product.


Stages of Expansion into a National Market During Commercialization

FIGURE 12.3


Product Differentiation Through Quality, Design, and Support Services

• Product Differentiation– Creating and designing products so that

customers perceive them as different from competing products• Perceived differences in product quality,

product design and features, and product support services

• Branding—a crucial way to differentiate a product

HorizonOrganicMilk

BordenMilk


Product Differentiation

• Product Quality– The overall characteristics of a product

that allow it to perform as expected in satisfying customer needs

– Level of quality is the relative amount of quality a product possesses.

– Consistency of quality is the degree to which a product has the same level of quality over time.


Product Differentiation (cont’d)

• Product Design and Features– Product design

• How a product is conceived, planned, and produced• Good design provides a strong competitive advantage.• Customers typically desire products with good designs

and that function well.

– Styling is the physical appearance of a product.

– Product features include specific design characteristics that allow a product to perform certain tasks.


Product Differentiation (cont’d)

• Product Support Services– Customer services

• Human or mechanical efforts or activities that add value to a product

• Delivery and installation, financing, customer training, warranties and guarantees, repairs, online product information

• A competitive advantage when all other product features are equally matched by competitors


Product Positioning and Repositioning

• Product Positioning– Creating and maintaining a certain concept

of a product in customers’ minds– A product’s position results from

customers’ perceptions of a product’s attributes relative to those of competing products.• Marketers emphasize characteristics most

desired by the target market (or segment) in advertising.


Hypothetical Perceptual Map for Pain Relievers

FIGURE 12.4

Perceptual maps show marketers how closely products are conceptually positioned by consumers to “ideal points,” to their own products, and to competitors’ products.


Product Positioning and Repositioning (cont’d)

• Repositioning a Product – Adjusting a product’s present position can

strengthen/increase its market share and profitability.• Repositioning is accomplished by changing the

product’s features, price, distribution, or image.

• Adding new products to the line may necessitate the repositioning of older products.


Product Deletion

• Product Deletion– The process of eliminating a product from

the product mix– Reasons to remove a product:

• Slow sales create higher unit-production costs, inventory costs, and distribution costs.

• To prevent negative feelings from affecting the company’s other products.


Product Deletion Process

FIGURE 12.5

Source: Martin L. Bell, Marketing: Concepts and Strategy, 3rd ed., p. 267; Copyright © 1979, Houghton Mifflin Company. Reprinted by permission of Mrs. Martin L. Bell.


Organizing to Develop and Manage Products

• Product/Brand Manager Approach– Product manager

• The person responsible for a product, a product line, or several distinct products that make up a group

– Brand manager• The person responsible for a single brand

– Market manager• The person responsible for managing the marketing

activities that serve a particular group of customers

– Venture team• A cross-functional group that creates entirely new

products that may be aimed at new markets


After reviewing this chapter you should:

• Understand how companies manage existing products through line extensions and product modifications

• Be able to describe how businesses develop a product idea into a commercial product

• Understand the importance of product differentiation and the elements that differentiate one product from another


After reviewing this chapter you should:

• Know how products are positioned and repositioned in the customer’s mind

• Understand how product deletion is used to improve product mixes

• Be able to describe organizational structures used for managing products

part five product decisions 12 developing and managing products

Documents

product line

product ideas

original product

product mixes

commercial product

modified product

product decisions

product development