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.