Product Development, Management, and Strategy

Product Lines Defined

• Proprietary or catalog: Standard products offered to many customers and usually inventoried in anticipation of sales orders.

• Custom-built: Different variations of accessories and options to complement proprietary or catalog products offered.

Product Lines Defined

• Custom-designed: Products designed for (and usually only for) a particular user.

• Industrial services: Intangibles, i.e., maintenance, machine repair, consulting.

New Product Approaches

• Technology push: – When perceived value of particular technology

is great; firm has only a vague notion of possible applications, and usually not much more.

• Market pull: – Primarily the result of marketing research

methodologies of interviewing potential users about their needs, then developing solutions to those perceived market needs.

Phases of New Product Development

Idea and concept generation

Screening and evaluation

Business analysis

Product development

Product testing

Product commercialization and introduction

Organization of the New Product Effort

• Product manager: – Individuals responsible for four P’s marketing mix

decisions for specific product line as it travels through life cycle; responsibility often extends to new product development.

• New product committee: – Part-time interdisciplinary management group reviews

new product proposals; advantages outweigh disadvantages because committee is most common form of organizational structure for managing new products.

Organization of the New Product Effort

• New product department: – Specific department generates and evaluates new

product ideas, directs and coordinates development work, and implements field testing and precommercialization of new product; allows for maximum effort in new product development, but at expense of major overhead costs.

• New product venture team: – Task force representing various departments

responsible for new product development and implementation; normally dissolved once new product is established in market.

Introduction Growth Maturity Decline

Product Life Cycle

Product Life Cycle

Actual PLC curves can be any shape—from product that doesn’t sell at all, to fad that grows fast but has short life, to seasonal product, etc. Company depends on its marketers to understand what factors determine success and to make appropriate strategic decisions. It is often tempting for new students to want to learn PLC superficially, but in real world many people depend on in-depth understanding.

Stages in Adoption Process• Awareness:

– Buyer learns of new product, but lacks information.• Interest:

– Buyer seeks out or requests additional information.• Evaluation:

– Buyer (or member of buying team) considers/evaluates usefulness of product; consideration might be given to value-analysis project or make-buy situation.

• Trial: – Buyer adopts product on limited basis.

• Adoption: – If trial purchase worked, then buyer decides to make

regular use of product.

Factors InfluencingRate of Adoption-Diffusion

• Diffusion: – Spread of new product, innovation, or service

throughout an industry over time.• Diffusion speed varies among industries

– fast in electronics, slow in domestic steel.• As the marketer you must know, evaluate

impact of, monitor, and where possible affect factors that influence adoption/diffusion rate.

BCG SBU Portfolio Business Strategy

Low

High

High Low

Relative Market shareRelative Market share,Cash generation

Growth Growth raterate,Cash use

Moo!

Characteristics & Strategic Implications of Characteristics & Strategic Implications of Each BCG QuadrantEach BCG Quadrant

QuadrantInvestment

CharacteristicsEarning

CharacteristicsCash-Flow

CharacteristicsStrategy

Implication

Stars Continue to expand capacity

Low to High Negative to Break-even

Heavy promotions

Cash Cows Capacity maintenance expenditures

High Positive Maintain market share

Question Marks

Heavy initial capacity costs

High R&D

Negative to Low Negative Promotions & distribution

Dogs Deplete capacity to meet demand

High to Low Positive to Break-even to Negative

Reduce distribution; max cash

BCG Business SBU Portfolio Strategy

Low

High

High Low

Relative Market shareRelative Market share,Cash generation

Nurture to feed cash to?

Use cash to make into star

Defend position

Fix or abandon

Growth Growth raterate,Cash use

Problems with Using the BCG MatrixProblems with Using the BCG Matrix

• Only measures revenues, not profitability

• Only focuses on the firm as a source of capital – ignores capital markets

• Market growth rate is an inadequate descriptor of overall industry attractiveness

• Offers strategies, but not means of implementation

Important Characteristics of Business Services

• Intangibility: – Freight forwarding, consulting, repair, etc. can

seldom be tried out/tested in advance of purchase; instead, buyers must view advertising copy, listen to sales presentation, or consult current users to gain insight into expected performance.

• Heterogeneity: – A service is an experience and thus cannot be

duplicated; difficult to standardize and thus output quality may vary.

Important Characteristics of Business Services

• Perishability: – Services cannot be stored and markets

fluctuate by day, week, or season; idle service capacity is business that is lost forever—no inventory buffer.

• Simultaneity (Inseparability): – Production and consumption of services

are inseparable; this typically puts marketer in very close contact with customer, requiring them to be highly professional.

5 Levels of a Product

• Core BenefitCore Benefit::The fundamental service or benefit that the customer is really buying.

• Basic ProductBasic Product::Actual product that offers the core benefit

5 Levels of a Product

• Expected ProductExpected Product::A set of attributes and conditions that buyers normally expect and agree to when they purchase this product.

• Augmented ProductAugmented Product::Product that meets customers’ desires beyond their expectations.

5 Levels of a Product

• Potential ProductPotential Product::Encompasses all the augmentations and transformations that the product might ultimately undergo in the future.

Augmented describes the product today.

Potential points to its possible evolution.