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. Product Life Cycle Introduction Growth Maturity Decline 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 Influencing Rate 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 High Growth rate, Cash use Low Moo! High Relative Market share, Cash generation Low Characteristics & Strategic Implications of Each BCG Quadrant Investment Earning Characteristics Characteristics Cash-Flow Characteristics Strategy Implication Stars Continue to Low to High expand capacity 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 Dogs Deplete capacity High to Low to meet demand Quadrant Positive to Break-even to Negative Promotions & distribution Reduce distribution; max cash BCG Business SBU Portfolio Strategy High Growth rate, Cash use Low Use cash to make into star Defend position Nurture to feed cash to? Fix or abandon High Relative Market share, Cash generation Low Problems 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 Benefit: The fundamental service or benefit that the customer is really buying. • Basic Product: Actual product that offers the core benefit 5 Levels of a Product • Expected Product: A set of attributes and conditions that buyers normally expect and agree to when they purchase this product. • Augmented Product: Product that meets customers’ desires beyond their expectations. 5 Levels of a Product • Potential 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.