unit ii - product development

7/28/2019 Unit II - Product Development

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SEMESTER - II

MARKETING MANAGEMENT

UNIT - II


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What is product?

Anything that can be offered to a market for attention, acquisition, use, or

consumption that might satisfy a want or need.

Product: A bundle of attributes

The Total Product

Tangible attributes: materials, size, weight, design, packaging,

performance, comfort

Intangibles: brand image, styling, other benefits (installation, delivery,credit, warranty, after-sale service, return policy)

ServiceAny activity or benefit that one party can offer to another that is

essentially intangible and does not result in the ownership of anything.

Service and Experience


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Product Related Global Drivers

Demand Drivers

Higher expectations More information

Higher switching costs

Full-service expectations

Supply Drivers

Fast-paced innovations

Frequent product modifications

Manufacturing rationalization

Outsourcing coordination

Strategic Alliances


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Global Product Decisions Existing Products

Product phase - out

Product modification Product introduction into new markets

Product performance management

New Product

Product development

Product introduction

Product performance management

Global Product Development

1. Standardization- developing same product for multiple countries

2. Product Adaptation- modifying product to reflect characteristics of a market


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Components of the Market Offering

Value-based prices

Services mix

and quality

Product features

and quality

Attractivenessof the

market offering


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International Product Policy

1. What to Sell ?2. International Product Strategies

3. Standardization versus Customization

4. Managing an International Brand Portfolio5. Product Packaging and Labeling

6. Managing International Product Lines

7. Timing of Foreign Entry


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1. What to Sell ? The international marketer needs to determine what the market offering

should be in a foreign market :

Defining the product offering

Products versus Services/Rights


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Consumer Goods Classes

Consumer products can be classified by the buying behaviour of the consumers:

Convenience goods are bought with little time and effort, such as milk, bread, achocolate bar.

Shopping goods are those where extensive comparison is the norm-- cars, furniture,clothes.

Specialty goods are those for which consumers have a strong brand preference.BMW, BENZ

Unsought goods are those now unknown to the consumer or, if known, undesired.

Classifying Business Products Raw materials: unprocessed, become part of other manufactured products

Manufactured parts and materials: processed products that become part of otherproducts

Installations: major buildings and equipment

Accessory equipment: used in operations, include computers, desks, tools

Operating supplies: low value, used by most firms, convenience products for businesses

Product Planning and Development


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Specialty Products Unsought Products

Shopping Products

Buy less frequently> Gather product information> Fewer purchase locations> Compare for:

Suitability & Quality Price & Style

Convenience Products

Special purchase efforts> Unique characteristics> Brand identification> Few purchase locations

New innovations> Products consumers dont

want to think about.>Require much advertising &

personal selling

Buy frequently & immediately> Low priced> Many purchase locations> Includes:

Staple goods Impulse goods Emergency goods

Consumer-Goods Classification


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Consumer-Goods Market Testing

Sales-Wave

ResearchTest offering trail to

a sample ofconsumers insuccessive

periods.

SimulatedTest Market

Test in a simulatedshopping environment

to a sample ofconsumers.

Standard

Test MarketFull marketing campaign

in a small number ofrepresentative cities.

ControlledTest Market

A few stores that haveagreed to carry newproducts for a fee.


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Diversification

Market Penetration Market Development

Product Development

Existing Markets New Markets

NewP

roducts

Ansoffs Matrix (Product/Market Matrix)


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New Product DevelopmentDevelopment of original products, product improvements, product modifications,

and new brands through the firms own R & D efforts.

Original products

Product improvements

Product modifications

New brands that the firm develops through its own research and development efforts

What is new product?

1. Idea generation

2. Idea screening

3. Concept development and testing

4. Marketing strategies

5. Business analysis

6. Product development

7. Test marketing

8. Commercialization

Major stages in new product development


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The New Product Development Process


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Concept Development & Testing

1. Develop Product Ideas intoAlternative Product Concepts

2. Concept Testing - Test the ProductConcepts with Groups of Target Customers

3. Choose the Best One


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Sales and Profits

Over A Products Life


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Product Life-Cycle Strategies

1. Product development

Introduction

Growth

Maturity

Decline

Begins when the company

develops a new-product idea

Sales are zero

Investment costs are high

Profits are negative

PLC Stages


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Product development

2. Introduction

Growth

Maturity

Decline

Low sales

High cost per customeracquired

Negative profits

Innovators are targeted

Little competition

PLC Stages

Product Offer a basic product

Price Use cost-plus basis to set

Distribution Build selective distribution

Advertising Build awareness among early adopters and dealers/resellers

Sales Promotion Heavy expenditures to create trial

Marketing Strategies: Introduction Stage



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Four Introductory Marketing Strategies

Rapid-skimmingstrategy

Rapid-penetration

strategy

Slow-penetration

strategy

Slow-skimmingstrategy

Price

Low

High

Promotion

High Low


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Product development

Introduction

3. Growth

Maturity

Decline

Rapidly rising sales Average cost per customer

Rising profits

Early adopters are targeted

Growing competition

PLC Stages

Marketing Strategies: Growth Stage

Product Offer product extensions, service, warranty

Price Penetration pricing

Distribution Build intensive distribution Advertising Build awareness and interest in the mass market

Sales Promotion Reduce expenditures to take advantage ofconsumer demand


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Product development

Introduction

Growth

4. Maturity

Decline

Sales peak

Low cost per customer

High profits

Middle majority are targeted

Competition begins to decline

PLC Stages

Marketing Strategies: Maturity Stage

Product Diversify brand and models Price Set to match or beat competition

Distribution Build more intensive distribution

Advertising Stress brand differences and benefits

Sales Promotion Increase to encourage brand switching


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Product development

Introduction

Growth

Maturity

5. Decline

Declining sales

Low cost per customer

Declining profits

Laggards are targeted

Declining competition

PLC Stages

Marketing Strategies: Decline Stage

Product Phase out weak items Price Cut price

Distribution Use selective distribution: phase out unprofitable outlets

Advertising Reduce to level needed to retain hard-core loyalists

Sales Promotion Reduce to minimal level


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2. International Product Strategies

StraightExtension

Product ProductAdaptation Innovation

The firm adoptsthe same policy

used in its home

market.

The company catersto the needs and wants

of its foreign customers.

The firm designs aproduct from scratch

for foreign customers.

3. Standardization versus Customization

Although the products sold abroad generally are not identical to their domestic

counterparts, there is always a core of expertise that the firm can carry abroad.

Principle " All Business is local.


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Developing New Products

for Global Markets Identifying New Product Ideas

4 Cs:

Company

Customers

Competition

Collaborators

New Product Development (NPD) Process

Screening

Concept Testing

Conjoint Analysis

To Standardize or not to Standardize

Test Marketing

Timing of Entry: Waterfall versus Sprinkler Strategies

Waterfall Strategy: Global phased rollout where new products trickledown in a cascade-like manner

Sprinkler Strategy: Simultaneous worldwide entry


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Global Product Strategies

Three global strategies to penetrate foreign markets:

Extension strategy

Adaptation strategy

Invention strategy

Five strategic options for the global marketplace: Strategic Option 1: Product and Communication Extension -- Dual Extension

Strategic Option 2: Product Extension -- Communications Adaptation

Strategic Option 3: Product Adaptation -- Communications Extension

Strategic Option 4: Product and Communications Adaptation -- Dual

Adaptation Strategic Option 5: Product Invention


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New Product Adoption and Diffusion

Adoption process: The decision-making activity ofan individualthroughwhich the new product is accepted.

Diffusion: The process by which an innovation is spread through a socialsystem over time.

Stages in the Adoption Process1. Awareness: customer is exposed to the product2. Interest: interest and information seeking3. Evaluation: assessment of the advantages and disadvantages of the new

product

4. Trial: customer tries the product in low-risk situation; may be a sample ortest drive5. Adoption: customer decides to buy the product6. Confirmation: customer decides to stay with the product; attempts

dissonance reduction

Adopter Categorization of the Basis of Relative Time of


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2 1/2%Innovators

13 1/2%Early

adopters

34%Early

majority

34%Late

majority

16%Laggards

Time of adoption innovations

Adopter Categorization of the Basis of Relative Time of

Adoption of InnovationsResearchers have identified five categories of individual adopters for new products:

Innovators3% of the market.

Early adopters

13% of the market.Early majority34% of the market.

Late majority34% of the market.

Laggards16% of the market.

In addition, some individuals non adoptersnever accept the innovation.


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Probability of Success

Probability

of technical

completion

Overall

probability

ofsuccess=Probability of

commercializationgiven technical

completionX

Probability of

economicsuccess given

commercializationX

Multinational Diffusion

The Adoption of new products is drivenby three types of factors:

Individual Differences Personal Influences

Product Characteristics1. Relative advantage

2. Compatibility

3. Complexity

4. Trial ability

5. Observability

Other country characteristics used topredict new product penetration patterns

include:

Homogeneous population

Lead countries

Lag countries


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4. Managing An International Brand Portfolio


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5. Product Packaging and Labeling

Protection

Legal ConstraintsPromotion

Climate

Transport & HandlingBuyer's slow usage rate

Lack of storage facilites

Merchandising ( income level, shopping habits)

Minimum breakage / theft

Ease of handling

Multilingual Labels to Convey an International

Image

Recycling of Packaging

(Duales System, Eco-Emballage)

Regulations on consumer info.

(Origin, weight, ingredients)


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International Product Line Planning

The foreign product line is frequently smaller than the domestic linebecause of financial and market limitations.

By introducing a limited product line into foreign markets the firm can

test the market before taking a bigger plunge.

6.Managing International Product

Lines

Deciding on the right individual product for world markets is only one aspectof product policy.

The next step is to decide what family of products should be offered


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Product-line decision

Product mix

Product-line analysis

Productline length

Product mix(assortment)

The set of all products and items that a particular seller offers for sale.A companys product mix has a certain width, length, depth, and consistency.

Width: how many different product lines.

Length: the total number of items.

Depth: how many variants are offered of each product in the line. Consistency: how closely related the various product lines are in end use,

production requirement, distribution channels, or some other way.

Product-line analysis

Sales and profit

Market profile


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Product Mix

Width - number ofdifferent product lines

Length - total number ofitems

within the lines

Depth - number ofversions of each

product

Product Mix -all the product

lines offered


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Sellers

services

Product

quality Physicalcharacteristics

of goods

Price

Brand

Design

PackagingProductwarranty

Sellers

reputation

Colour

The Total Product


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Product-Line Length

Line Stretching

Line Filling

Line Modernization

Line Featuring & Line Pruning

Line stretching

1. Downmarket stretch

2. Upmarket stretch

3. Two-way stretch

Line filling

Qualityprice analysis


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Two-Way Product-Line Stretch: Marriott Hotels

QualityEconomy SuperiorStandard Good

Price

High

Aboveaverage

Average

Low Fairfield Inn

(Vacationers)

Courtyard(Salespeople)

Marriott(Middle

managers)

MarriottMarquis

(Topexecutives)

B d


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Brand

Attributes Benefits Values

Culture

User

Personality

Brand is a name, term, sign, symbol, or design, or a combination of them, intended

to identify the goods or services of one seller or group of sellers and differentiate

them from those of competitors.


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Brand Positioning

Perceived fit between a particular product

offering and the needs of target market

Positioning is defined relative to:

competitive offerings

consumer needs

1. Global brand

2. Tiered branding3. Co-branding

4. Brand extensions

Types of Brands

Positioning Strategy

Attribute or Benefit

Quality and Price

Use or User

Types of Brand Positioning1. Physical Positioning

How a firms product compares to the

competitions on some set of objective

physical characteristics

2. Perceptual Positioning

How a firms product compares to the

competitions on some set of subjective

characteristics


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An Overview of

Branding Decisions

BrandingDecision

Brand

No brand

Brand-SponsorDecision

Manu-facturerbrand

Distribu-tor

(private)brand

Licensedbrand

Brand-Name

Decision

IndividualbrandnamesBlanketfamilynameSeparatefamilynamesCompany-individualnames

Brand-Repositioning

Decision

Reposi-tioning

Noreposi-tioning

Brand-StrategyDecision

Lineextension

Brandextension

Multi-

brandsNewbrands

Cobrands


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Good Brand Names:

SuggestProductBenefits

Distinctive

Lack PoorForeign

LanguageMeanings

SuggestProductQualities

Easy to:

PronounceRecognizeRemember


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Brand Strategies

BrandExtension

New

Bra

ndName

Product Category

LineExtension

Existing

Existing

MultibrandsNew NewBrands


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Why Package Crucial as a Marketing Tool

Self-service

Consumer affluence

Company & brand image Opportunity for innovation


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Labels

Identify

Describe

Promote


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Product/Brand Strategic Alternatives

Local Transnational

Multinational Global

Same

Different

Brand

Same

Different

Product

h I f L h


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The Importance of Launches

A company.must choose a launch strategy that is consistent with its intendedpositioning. The launch strategy should be the first step in a grand plan for life-

cycle marketing.

Philip Kotler

Marketing Management

Does your product launch plan reflect all of the money

and time put into developing the product?


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Launch Objectives

Unite company around shared objective: making the launch successful

Provide strategy evidence of the companys intent, and right, to be a marketsegment leader in product/service category

Build independent third-party validation, and strategy evidence, of

positioning strategy

Start the buzz, market pull with a consistent message architecture

Support long lead time sales cycles

Facilitate fundraising

Establish core technology/system as an extensible platform for future

products and partnerships

Establish broad-based awareness and credibility with xxx customer segment

Generate market momentum/Accelerate the sales cycle for Product XXX;

delay customer purchase commitments to competitors


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New Venture Launch Phases

Company funding announcements: PWC Money Tree, Venture Wire, etc.

Company: Stealth mode Identify system lite: business cards, industry event attendance

Content-free micro website: contact info, investors, team, etc. (note: mayhave password-protected real site)

Phone listing

Company launch: Seeding the market

Company: team, market vision Technology platform Product category, general problem addressed

Product launch: Going public

Positioning strategy: problem solved, market and market entry customersegment, competitive differentiation

Product details: architecture, technology and product roadmap Key customers and partners (especially channels) Pricing and product availability information A grown-up website


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Pre-Announcing Tips

Do Describe key elements of technology

Explain benefits of technology/potential applicationsenabled

Articulate initial total product assumptions (services,

standards, partnerships, etc.)

Dont Name product, provide specifications

Announce pricing Provide precise launch date

Launch Dependencies: Strategy Evidence


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Launch Dependencies: Strategy Evidence

ProductConcept

PreliminaryPositioning

Strategy

BusinessModel

Product &

ReferenceCustomers

PositioningStrategy

ValidationLaunch

Planning

Go/No Go

Go/No Go

Go/No Go

Go/No Go

LaunchDate

Ongoing MarketReinforcement

18 months

Be prepared to postpone for key

pieces of strategy evidence!

Strategic

Partnerships(channel)

Post SalesSupport

Plan


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Launch Plan Outline

Positioning Strategy Statement and Message Architecture

Objectives and Strategies

Competitors/Competitive Response

Market leverage/Influencer plan

Sales training and lead generation (closed loop)

Marketing programs materials

Schedule/Timeline

Momentum milestones

Appendix

- positioning toolkit- customer segment profile

- buying decision process

Launch Checklist: Some Strategy Evidence Options


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Positioning Tool kit

Sales, channel strategy

Product Release schedule

Programs Ads, site sponsorships CD, Flash demo Customer seminars Data sheets, application notes

Direct mail, e-mail, list promotions Newsletters Sales, channel launch; training Trial, swap-up program Trade shows, conferences, events; suite

briefings Advance press and analyst tour

Speaker program Regional field sales champions User groups, customer councils Webcasts/Webinars with guestexperts: customers, analysts, partners

Lead management systemsalesforce.com,

eloqua, etc.

Materials Brochures Data sheets, application notes Presentations Price lists Product catalogs

Product demonstrations Product roadmap Press releases Technical articles Technology, company backgrounders Testimonials

White papers Web site update

Launch Checklist: Some Strategy Evidence Options


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LaunchProgram

Manager

Launch Manager is Command and Control

Creative,

Website,

Interactive

Marketing

Product

Development/Technical

Marketing: Data

Sheets & Demos

Press/Analyst

Relations,

MaterialsProduction

Strategic

Partners, Investor

Relations

Shows,

Conferences,

Events

CTO/Guru:

White Papers,

Simulation

Strategies

Sales:

Customer

Advocates

Content

Weekly Status and

Project Management


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Summary and Wrap-Up

The Launch Plan is the chance to get the company and productoff to a good start in the market!


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Low High

Low

High

Economy Strategy

e.g. Air Arabia Airline

Penetratione.g. Co-operative

Products

Skimminge.g. New film or

album

Premiume.g. MBA first

class

Price

Quality

Pricing Decisions

Cost Determinants of Price


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Cost Determinants of Price

01 2 3 4 5 6 7 8 9 10

50

100

150

200

Dollars

Quantity

MC

ATCAVC

AFC

Break-Even Analysis


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Break Even Analysis

Quantity (units)

Price($)

Fixed Costs

Total Revenue

Total Costs

Profits

Losses

Break Even

Steps in Setting the Right Price


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Steps in Setting the Right Price

$ $ $ $ $ $ $ $

Fine-Tune Base Price

Choose Strategy

Estimate Demand, Costs,and Profits

Establish Pricing Goals

Right Price

Legal and Ethical Issues in Pricing


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Legal and Ethical Issues in Pricing

Unfair Trade Practices

Key Legal

and EthicalIssuesRelated to

Price

Price Fixing

Price Discrimination

Predatory Pricing

Discounts Allowances and Rebates


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Cash

Discount

QuantityDiscount

FunctionalDiscount

Trade Loading

EDLP(Every Day Low Pricing)

SeasonalDiscounts

PromotionalAllowances

Rebates

Discounts, Allowances, and Rebates

PriceReductions

Geographic Pricing


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Geographic Pricing

Basing-Point

Freight-Absorption

Zone Pricing

Uniform Delivered

FOB (Free On Board)Origin

PricingTactics

Based onGeography

Special Pricing Tactics


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Special Pricing Tactics

Odd-EvenPricing

Two-PartPricing

BundlePricing

Bait (andSwitch)Pricing

PriceLining

FlexiblePricing

ProfessionalServices

LeaderPricing

SinglePrice

Common

Special Pricing

Tactics

Pricing strategies


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Premium pricing

Uses a high price, but gives a good product/service exchange e.g. Concorde,

The Ritz Hotel

Penetration pricing

offers low price to gain market share - then increases price

e.g. France Telecom - to attract new corporate clients (or Telewest cable)

Economy pricing

placed at no frills, low price

e.g. Soups, spaghetti, beans - economy brands

Price skimming

where prices are high - usually during introduction

e.g new albums or films on release

ultimately prices will reduce to the parity

Psychological pricing to get a customer to respond on an emotional, rather than rational basis

.e.g 99p not 1.01 price point perspective

Product line pricing

rationale of a product range

e.g. MARS 32p, Four-pack 99p, Bite-size 1.29

Pricing variations


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Pricing variations

off-peak pricing, early booking discounts,etc

e.g Grundig offers a cash back incentive for expensive goods

Optional product-pricing

e.g. optional extras - BMW famously under-equipped

Captive product pricing

products that complement others

e.g Gillette razors (low price) and blades (high price)

Product-bundle pricing

sellers combine several products at the same price

e.g software, books, CDs.

Promotional pricing

BOGOF e.g. toothpaste, soups, etc

Geographical pricing

different prices for customers in different parts of the world

e.g.Include shipping costs, or place onPLC

Value pricing

usually during difficult economic conditions

e.g. Value menus at McDonalds

Ten ways to increase prices without


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Ten ways to increase prices without

increasing price - Winkler

Revise the discount structure

Change the minimum order size

Charge for delivery and special services

Invoice for repairs on serviced equipment

Charge for engineering, installation

Charge for overtime on rushed orders

Collect interest on overdue accounts

Produce less of the lower margin models in the line Write penalty clauses into contracts

Change the physical characteristics of the product

unit ii - product development

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