PRODUCT MANAGEMENT
BLOCK 1: PRODUCT MANAGEMENT — INTRODUCTION
Unit 1: Introduction to Product Management
Unit 2: Product Management Process
Unit 3: The Product Planning System
BLOCK 2: MANAGING PRODUCTS
Unit 4: Product Line Decisions
Unit 5: Product Life Cycle
Unit 6: Product Portfolio
Unit 7: Product Pricing
BLOCK 3: BRANDING AND PACKAGING DECISIONS
Unit 8: Branding Decisions
Unit 9: Positioning Decisions
Unit 10: Brand Equity
Unit 11: Packaging Decisions
BLOCK 4: NEW PRODUCT DEVELOPMENT
Unit 12: Organizing for New Product Development
Unit 13: Generation, Screening and Development of New
Product Ideas
BLOCK 5: IMPLEMENTING NEW PRODUCT DECISION
Unit 14: Concept Development and Testing
Unit 15: Pre-test Marketing and Test Marketing
Unit 16: Product Launch
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Block 1: PRODUCT MANAGEMENT —
INTRODUCTION
Unit 1: Introduction to Product Management
Unit 2: Product Management Process
Unit 3: The Product Planning System
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1.
UNIT I: Introduction to Product Management
Learning Objectives
 To understand how Product Management evolved
 What a Product Manager has to do.
 To understand the linkages of Product Management with other functions
in the organisation.
Structure
1. Product Management
2. Historical Background
2.1.
Your Learning
3.
Product Management and its Interface with Other Organisational
Functions
3.1.
Identifies a market problem
3.2.
Quantifies the opportunity
3.3.
Communicates the market opportunity to the top
management
3.4.
Communicates the problem to Product Development team
3.5.
Communicates to Advertising/ Promotion team
3.6.
Empowers the sales team
4. Your Learning
5. Summary
6. Key Words
7. Exercises
8. Further Reading
1. Product Management
Product Management is a function within a company that deals with the
planning or marketing or forecasting of a product or products through at all
stages of the product lifecycle.
Product management and product marketing are different yet complementary
efforts with the objective of maximizing sales revenues, market share, and
profit margins. Product Management has several roles which cover many
activities from identification to development, to launch and even support
during its life cycle. The issues handled by the product management team vary
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from being strategic and/or tactical in nature depending on the type of
organisation and where in the organizations hierarchy the function lies. Product
management can be a separate function or a part of marketing or engineering
functions.
Since better and new products are a key differentiator in the market and are
what drives company‘s profits Product Managements main focus is on new
product development. However since they are the ones who know most of the
product and the basis of its origin the Product management is responsible for
the growth and development of the product in the market and sometimes they
may even be responsible for the bottom line generated by the product.
2. Historical Background
Business executives throughout industry spend more and more time trying to
answer one basic question: ―How can I assure continued profitable growth of
my business?‖ The answer to this question is quite simple: ―By providing the
optimum solution to the market needs.‖
Market needs are classified as Goods or Services. All these have a tangible
value and can be commercially produced and marketed profitably. For our
purpose, we shall classify both – goods and services – as products. Hence, if
we were to answer the above question again, it could be: ―By providing a
continual flow of new products to satisfy market needs or desires.‖ The
question then arises: ―Now where will these products come from?‖
In the early 1900s, new products were created by gifted inventors who worked
with crude equipment and facilities but were creative geniuses with
determination and vision to follow their discoveries in spite of tremendous
difficulties. Men like Edison, Watt, and Marconi created products like the
electric bulb, steam engine and the telegraph. All their products came from
years of hard work and hit and trial experiments. Once these basic inventions
were developed, new products evolved. For example, after the steam engine,
motorised transportation in the form of cars became a reality, and steam boats
replaced horses and sailboats.
By the end of World War I, new technologies had become so complex and the
speed at which new developments were made became so rapid, that the
individual inventor became less and less relevant. Instead, companies started
organised development of products. World War II gave a further impetus
to the development and refinement of products. However, most of these were
based on Research and Development (R&D) in a given manufacturing company
and were not driven by customer needs. The R&D product planning programs
were expensive and slow, and they often were unproductive. Managements
then concluded that a new approach was needed to make product development
more productive. They realised that to be successful they needed to identify
products that could satisfy the customer’s needs and desires, and which
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could, at the same time, match the company's manufacturing capabilities
keeping in mind the constantly changing market conditions.
Thus, it was no longer a case of merely reacting to market conditions. A
company needed to stay ahead by creating new markets while continuing
to dominate existing ones. Hence, what was needed was a formal approach to
Product Planning and Management.
The formal process of Product Planning & Its Management is led by a Product
Manager whose primary role is to serve as the ―Voice of the Customer‖. He
is responsible for the ―4P’s” of Product Management:
–
–
–
–
Price
Place
Product
Promotion
Note: This includes indirect management and cooperation with other members
of various groups
In this book we will go through the various aspects of Product Management as
is now undertaken in this complex business environment. The book has been
structured in five broad areas. The first being the introduction to the basic
subject itself where we will not only have a look at the historical background
and how product management has come out from being a product of ‗creative
geniuses to a well structured process with a reasonably well defined interface
within the organisation. In the chapter 2 and 3 the whole process involved in
managing product development and how once we have decided what product
to make the organisation needs to function in order to bring our the product to
the market in the shortest and most efficient manner. It also discusses how the
product launch can be staggered to provide a strategic advantage to the
Marketer.
Once we are through the basics we go to the next section consisting of units 4,
5, 6 which will discuss in greater detail how we must organise ourselves to
develop new products and go through the process of generating new ideas and
evaluating which of them is economically viable before actually taking up the
developmental effort of time and money.
The next section with units 7, 8, 9, and 10 will help you understand how from
the concept we actually undertake the development of the product, and pretest or test market the product before we actually launch it in the market.
Once we find that eh product meets our marketing objectives the steps we
need to follow to launch the product.
Now that we have launched our products we need to understand how to
manage these products that are in the markets. The units 11, 12, 13 and 14
will give you an insight into where new products should be added, when should
you support them in their life cycle and when should you decide to withdraw
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the product. In this section we will also understand how to balance the
product portfolio and the factors affecting the pricing decisions.
We know that in addition to the product it is equally important to package and
brand the product in a manner that it fits in the product positioning that has
been decided by the product management team. So the Units 15, 16, 17 and
18 will take you through the processes followed to arrive at branding,
positioning and packaging decisions.
2.1.
Your Learning
1. What was the need for an organised product management process?
2. Do you think that with today‘s organised product management process
we are able to address customer needs better?
3. Product Management and its Interface with Other
Organisational Functions
Though all the ―P‘s‖ are interlinked and affect each other, it is the Product
that has the most profound effect on all the other functions. Hence the
study of the product management process is an extremely important process.
It is this function that has a large impact on the bottom line of the organisation
and also whether the company is able to stay ahead of competition giving the
company a strategic advantage to leverage.
Product Management interfaces with other functions in the following manner:
3.1.
It identifies a market problem/ customer needs
This means that the Product Management team uses methods and
techniques that help it to identify the problems that the customer would
like to have a solution for. Once they identify this, they create a product
that will resolve the problem or satisfy that particular customer need.
3.2. It quantifies the opportunity
Any new product development that will resolve a customer problem will
need a company‘s resources in terms of time, people and money. The
company‘s decision to invest in these costs will depend on the business
opportunity that could be created by this product. The Return on
Investment (ROI) must be large enough for them to make sufficient
profits in order to recover the initial investment costs within the breakeven period and then convert it into a profit making proposition.
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3.3. It communicates the market opportunity to the top
management
Since only the top management can commit resources for new product
development, the product management team must provide them with
the business rationale for following the opportunity and give them a
business plan to convince them to commit resources for research and
development.
3.4. It communicates with the Product Development team
Once the top management has given their approval for development, the
product development team must be explained what the market
requirements of the finished product are so that they are clear about
what they need to develop. Let us take an example: In the initial stages
of the development of mobile phones, the customer had to hold the
phone to his ear to listen to the other person. Phone companies
understood the market need of their customers not wanting to hold the
phone to their ears. They communicated the product development team
that they need a product that fdoes not force the customer to hold the
phone to his ear. The product development team developed an earphone
that was linked to the phone through a thin wire plugged to the phone.
While this was better than the earlier system where the customer had to
hold the phone to his ear, the Product Management team wanted a
further improvement since the wires always interfered while handling the
mobile phone, and in any case, the customer had to continue to hold the
phone in his hand. The product development team then came out with a
cordless earpiece that solved this problem.
3.5. It communicates to Advertising/ Promotion team
Each product is positioned for a specific category of customers. The
Project Management team shares its vision with the publicity / sales
promotion team giving them the positioning of the product. E.g.: A
Maruti 800 is positioned for a middle class customer while a Honda
Accord is positioned for the high income customer. They type of
advertising communication for each type of customer is different and
hence the Product Management team must explain the positioning to the
Advertising team so that the right communication can be generated.
3.6. It empowers the sales team
The sales team also needs to understand the product so that they can
effectively sell the product to the customer. That is again the
responsibility of the Project Management team – to define the sales
process and identify the necessary sales tools to sell to the
customer. A Maruti 800 customer will focus mostly on price and may
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not be so feature conscious while the Honda Accord customer will focus
more on features, styling, and comfort. Hence the selling tools for both
the products will be different.
3.7. Your Learning
1. How does Product Management function impact Marketing of a
product?
2. How does the top management benefit from a separate product
management team?
Fig: 1.1 Product Managements Role
4. What a good Product Management must do
A good Product Management Team or a good Product Manager must work
in order to keep his company ahead of competition and help provide a
competitive edge to the company. Some of the characteristics that
differentiate a good product management from a bad one are:
a. Realize your product is not the centre of your customer’s
worlds
A good product manager must realize that his product is most
probably one of many products which a customer uses every day. A
product manager is likely to think about his product all day, every day.
It is very unlikely that the customer think about or uses this product
nearly that much; to them, it is more likely just one of the many
products in the market. Thus decisions about product design and
features must keep this in mind.
If we are over absorbed about our product and think the customer will
understand everything or will find everything we develop useful, we
may create problems for ourselves. For example:

We can add features that we consider useful but if the
customer does not use them then it is of no use putting the
feature no matter how useful we think it is.

If we use very specific terminology (which sometimes gets
developed internally in the organisation during the development
phase of the product or may be a technical term not generally
used) which is not easily recognized by anyone new to the
product. Then this may not be understood by the customer.
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
If we get too involved with our product we may miss
identifying how it can be used with other products thus missing
potential business opportunities.
Hence a wise product manager will generally:

Use existing standards whenever they are relevant and
applicable. If we have a standard QWERTY key board for
computers and we change this for some other purpose then it
may become difficult for customers to use this.

Realize that products work with other products which the
organization produces as well as products and systems created
by others — including your competitors.
b. Save some features for later
It‘s important to include enough features when a product is first
released, and delaying the release of some features helps because:

Customers have difficulty in grasping too many features at
once. Also extra features may distract the customer towards the
less important features and make him miss the truly
differentiating features.

If features are added with passage of time then product life
can be extended by giving the customer an improved version of
the product. Many times these can be given as priced value
additions.

Giving some features later may also provide the opportunity
to upgrade or modify existing features that may be needed by
the current market customer expectations. It is not possible for
the product manager to know and plan for all features needed
by the market and hence this enables him to keep his product
abreast with the market and deliver a better bottom line.
c. Product management is more than prioritizing product features
Product managers needs to have a much broader view and needs to
see and understand everything from the basic customer needs to the
business model to the product roadmap to the go-to-market strategy.
Unfortunately, many product managers take the easy feature-focused
development mode. As a result they do not see their function in a
holistic manner.
d. Differentiate to avoid being a ―me too‖
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A good product manager must try to differentiate his product and
avoid being a ―me too.‖ Getting into the market speedily is definitely
important; however it is always better to come into the market later
with a better product than slightly faster with something that does not
stand out. Being first is good but it is no guarantee of success.
Amazon.com was not the first online bookseller; Google was not the
first search engine; the iPod was not the first portable MP3 player; the
list can go on and on.
In “Product Leadership: Creating and Launching Superior New Products ,
Robert Cooper” offers some amazing statistics on ―truly superior,
differentiated products‖:
One of the top success factors we uncovered is delivering a
differentiated product with unique customer benefits and superior
value for the user. … Our NewProd projects studies show that such
superior products have five times the success rate, over four times
the market share, and four times the profitability as products
lacking this ingredient.
“Truly Superior, Differentiated Products” had an average 98%
success rate and 53.5% market share, while “Me-Too” Products
averaged an 18.4% success rate and 11.6% market share. Though
the desire for quick revenue and immediate return within
organizations is often strong, though there is good cause for
launching the “right” product. In the end, the extra effort put into
figuring out how to differentiate a product will be well worth the
effort.
e. Reinforce your product-related communication
Product managers have to ensure that any communication they send
out must be clear and consistent. They need to do this in order to
avoid confusion over action proposed or being taken. The product
manager has to ensure that any communication he sends out must be
understood and taken note of by all concerned with the product – be
it sales, or distributors or even the internal departments like
engineering, R&D, marketing etc. So that all of them are on the same
page.
We all know that communication is one of the most difficult things to
do and many times people do not get the communication in one go.
Thus the product manager must follow up and make sure that the
communicated information has been received and understood by the
recipient.
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f. Do not think that a single product will solve all problems for
customers
We may like to make a single product that will solve all customer
problems since this way our development costs would be minimum
and profits would be maximum. However, trying to make it everything
for everyone usually results in a product that does nothing for no one.
In order to make a product do everything for everyone we would need
to add a lot of features to it making it extremely complicated for
most. And it makes it difficult or the marketer to sell the
differentiating factor to the customer.
We can see that today we are seeing more and more products that
are focussed on a specific benefit – eg anti dandruff shampoos (Head
and Shoulders, Clinic All clear), powders for heat
problems
(Navratan), soaps with cream (Dove), Fairness cream for Men, etc.
This is not to say that an all-in-one strategy is always bad. Product
managers can still choose to follow an all-in-one strategy; they just
must be aware of the impact it may have on the perceptions of
customers. Even then, an all-in-one product should be that way
because it provides value and solves specific problems for the
customer, not just all-in-one for the sake of being all-in-one
g. Define the problem before solving it
Product managers and many others unfortunately assume the
problem is clear and jump straight away to solving it. However,
improperly-defined problems lead to improper solutions.
Albert Einstein is supposed to have said that, given one hour to save
the world, he would spend 55 minutes defining the problem and 5
minutes finding the solution. This quote does illustrate an important
point: before jumping right into solving a problem, we should step back and
invest time and effort to improve our understanding of it.
The first and foremost thing to be done before solving the problem is
to define it correctly. This definition should neither be too narrow or
too broad. A narrow definition will limit the scope of the solution and
similarly a very broad definition will give us solutions that may not be
relevant to the problem.
Going too far in either extreme may be unproductive and inefficient in
many situations.
Product managers must not be in a hurry to write down features
without clearly defining the problem. Relooking at problems can
always provide a fresh perspective and give interesting solutions.
Many times the product manager should take the help of research to
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clarify and define issues. The time spent in defining problems in the
early stages always helps save time spent later in resolving issues.
5. Summary
Historically product development was dependent on work undertaken by
inventors and geniuses. Later with the advent of competition it became
more organised. Products were developed in research laboratories of
large companies. However these were products that could be developed
rather than what was needed by the customer. As competition increased
further companies were forced to understand what were the customer
needs and develop products that were needed by him. This led to the
creation of the Product development function. The product development
function is an important function that needs to interface with all functions
of an organisation.
1.
a.
b.
c.
d.
2.
3.
6. Key Words
Goods and Services – Goods and services are the outputs offered by
businesses to satisfy the demands of consumer and industrial markets.
They are differentiated on the basis of four characteristics:
Tangibility: Goods are tangible products such as cars, clothing, and
machinery. They have shape and can be seen and touched. Services are
intangible. Hair styling, pest control, and equipment repair, for example,
do not have a physical presence.
Perishability: All goods have some degree of durability beyond the time
of purchase. Services do not; they perish as they are delivered.
Separability: Goods can be stored for later use. Thus, production and
consumption are typically separate. Because the production and
consumption of services are simultaneous, services and the service
provider cannot be separated.
Standardization: The quality of goods can be controlled through
standardization and grading in the production process. The quality of
services, however, is different each time they are delivered.
Continual flow of new products – The customer needs to get
something new in order to stay interested in a company‘s product. This
can be in the form of new features, new shapes, new products and even
a new price. This innovation is the continual flow of new products.
Voice of Customer – is a term used in business to describe the process
of capturing a customer's requirements. Specifically, the Voice of the
Customer is a market research technique that produces a detailed set of
customer wants and needs. Voice of the Customer studies typically
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consist of both qualitative and quantitative research steps. They are
generally conducted at the start of any new product, process, or service
design initiative in order to better understand the customer‘s wants and
needs, and as the key input for new product definition, and the setting of
detailed design specifications.
4. Return on Investment is usually expressed in percentage. It is the
percentage of money gained or lost on an investment relative to the
amount of money invested
5. Breakeven Point is the point at which cost or expenses and revenue
are equal: there is no net loss or gain, and one has "broken even".
6. Business Rationale defines the fundamental reason or reasons why
developing the product will be beneficial to the business. It outlines a reasoned
step by step explanation.
7. Business Plan is a formal statement of a set of business goals, the
reasons why they are believed attainable, and the plan for reaching
those goals. It may also contain background information about the
organization or team attempting to reach those goals.
8. Product Positioning means the process by which marketers try to
create an image or identity in the minds of their target market for their
product, brand, or organization. The objective of this to ensure that the
consumer remembers the product or brand in spite of the noise created
by the communication clutter.
9. Sales Process is a systematic approach to selling a product or service.
It includes all aspects of sales and helps in creating standardized
processes which allow monitoring of processes and in enhancing sales.
10.
Sales Tools All factors that help in selling a product are the sales
tools. These include consumer schemes (e.g. buy one get one free, buy a
car and get a chance to win a TV, etc) advertising, printed leaflets,
banners, channel push, etc.
7. Exercises
1. How can the product management team help in defining the sales
process?
2. How can the sales tools be developed by the product management team?
3. How is the product management team different from the product
development team?
4. The product management can help improve sales? Do you agree or
disagree with this statement and why?
5. What is the importance of Product Development? Do you think that an
organised process of development is helping us develop products that
the customer needs?
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8. Further Reading
1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India:
Response Books Page 1-6, 17-20
3. Gorchels, Linda, (2006) The Product Managers Handbook, New York,
USA: McGraw-Hill Chapter 1
4. Mukherjee, Kaushik (2009) Product Management , New Delhi, India: PHI
Learning Pvt. Ltd Pg 4 – 10
5. Lehmann, Donald R and Winer, Russel S, (1997) Product Management,
Singapore, Irwin/ McGraw-Hill Pages 15 – 18
6. Crawford, Merle and Benedetto, Anthony Di (2004) New Product
Management Singapore, McGraw Hill Page 5 – 10
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2.
3.



UNIT II - Product Management Process
Learning Objectives
The Product Management
Development.
Cycle
and
its
significance
in
Product
Management of the Product Development Process.
Some key issues to be considered while discontinuing an existing product
and launching a new one.
Structure
2.1.
2.2.
2.3.
2.4.
2.5.
1. Introduction
2. Product Management Cycle
New Product Identification
New Product Definition
Product Development
Product Launch and Growth
Product Discontinuation
3.
4.
5.
6.
7.
1.
Your learning
Summary
Key Words
Exercises
Further Reading
Introduction
We have seen that a company needs to stay ahead not only in its existing
markets but also in new markets that it expands into. In order to stay ahead, it
needs newer products on an ongoing basis that meet the needs of a continually
changing market. We have also seen that the product development process
has become a complicated and expensive process. Hence a structured
approach to product development is needed. This is also called the Product
Management Process.
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The Product Management Process is cyclical in nature – this means that
product development is a continual and ongoing process which goes through a
cycle. As old products die new ones are born and so the cycle goes on. This
process of managing the entire lifecycle of a product from its conception,
through design and manufacture, to service and disposal integrates people,
data, processes and business systems and provides a product information
backbone for companies and their extended enterprise
2.
1.
Product Management Cycle
The ―Product Management Cycle‖ has five stages:
i. New Product Identification
ii. New Product Definition
iii. Product Development
iv. Product Launch and Growth
v. Product Discontinuation
New Product Identification Phase
This is the phase in which the company conducts various activities in order to
understand the customer’s needs and desires and define the functional
requirements of the product.
The product management group is entrusted with the task of creating a
systematic process to understand the customer requirements and create a
document that outlines what the product functions should be. During this
phase the product development personnel and people from top management
undertake some of the following activities:
i. Customer surveys and responses to existing products so that
improvements to existing products can be undertaken. They also try
to understand what the customer feels are his pain areas (areas
where the customer has problems). Many times it is the solution of
the pain area of the customer that gives rise to new innovations.
When a company is selling a product in its target segment then this
product will fulfil all the needs of a part of this segment, most of the
needs of a large part of this segment and some of the needs of the
balance. In order to know whether the company‘s products are
meeting the customer‘s expectations the company‘s sales force or an
agency appointed by the product management team. These people
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2.
generate a feedback from the customers some of which is extremely
useful in generating new ideas.
ii. They read journals, magazines, books, and also go to
international exhibitions, conferences and see what innovations
are being displayed and discussed by eminent scientists, business
associates and competitors. This helps them keep abreast with the
latest developments around the world so that they can use some of
these in their own products. It also helps understand what the
competition could possibly develop in terms of new products.
iii. Companies create think tanks that take in all the data that comes in
from various sources and come up with various ideas. This consists of
cross functional teams – teams consisting of people from various
departments – many of whom may eventually be involved in the
development of the product. These cross functional teams get all the
inputs that is available for product development and they also bring
into the team their knowledge and experience. Using this they debate
and come up with ideas for new produce development.
iv. All interesting information is collated and circulated organisationwide – usually strategic planners or technology policy makers.
Organisations generally circulate information about products,
technologies, business processes, competition, etc within the
organisation. This not only helps people keep abreast with the latest
trends but also allows the germination of new ideas.
During this phase several product ideas are generated and there is a fuzzy
view of each of these products.
Product Definition Phase
During this phase various ideas for products generated in the first phase are
discussed and evaluated so that the final product is finalised. During this phase
the following activities are undertaken:
i. The high level functions of the product are defined. High level
specifications mean that these specifications are an overview of all the
functions desired in the product. These are stated simply and are meant
so that everyone in the organisation can understand the functions are
and how it solves the customer’s problems. For example when the
Nano was planned by the Tatas a high level specification would have
given that they need to develop a car that will cost only Rs one lakh to
the customer, would look modern, have the basic comforts, and that it
would be positioned for a two wheeler owner who would aspire for a four
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wheeler or an existing small car buyer who would like to buy a more
economical more modern design.
ii. A business case is made for the new product. This business case
defines the size of the market, the segment for which the product has
been defined, what are the investments needed to make and sell the
product and what will be the profit that the product make during its life
cycle. It also outlines what are the competitive products currently and
also likely to be launched by the competitor. Once the basic product has
been defined like the Nano the product management team will have to
make a detailed report in which they will have to evaluate whether this
product will make business sense. At the end of the day the business
needs to make a profit and if a product cannot make profit it will not be
considered for the next stage of development. The study done in this
phase is relatively preliminary and is done to understand the basics of
the economic feasibility.
iii. In this stage the product management team has to sell the idea of the
product to various people in the organisation – sales, production, R&D,
HR, etc. Once the Product Development team has determined that the
product is viable it has to convince the management that the product not
only meets the strategic objectives but also the profit objectives of the
organisation. Until the management is convinced the financial
commitment needed to commence product development cannot be
made. The presentation to the management will also have details of the
financial support needed for development, the time by which the product
will be developed, the business prospects and the techno-commercial
feasibility.
During this phase, the Technology group with industrial engineering
group conduct a feasibility study; In addition, an economic study is
done. Let us say in the case of the Nano once the basic product idea had
been agreed to in principle the product development team would have
conducted a study as to understand how they can meet the given
objectives of the product specification and yet make the product feasible.
This is done in consultation with the technical teams of the organisation
like R&D, operations, procurement etc in order to understand broadly if
the product can be made economically, At this stage many assumptions
are made based on which the decision is taken. For example the product
management team will assume that a certain technology needed to
manufacture the product will be available at a certain cost and base their
calculations on that. This assumption is based on the experience of the
people in the organisation and no formal quotation is taken since it has
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3.
not been decided for sure that this is the technology that will be used or
some other option will be taken. Later once the decision is taken then
the organisation tries to get the technology for a price below the figure
taken in the assumptions.
Product Development Phase
Once the product‘s high level specifications have been finalised and the top
management has approved this product and committed resources for its
development, the Product Management Group involves the Product
Development Team. This team consists of people from R&D, Manufacturing,
Industrial Engineering and Sales. They are given the high level
specifications of the product and given the tasks of creating the actual physical
product. During this phase:
i. The various functions involved in the Product Development Team make a
detailed specification of the product. They also define the look and
feel of the product. The task of converting a high level specification as
given in 2.3.2.i into a detailed product specification is not a small task. It
involves a detailed process in which several functional areas are involved.
Each functional area provides inputs in the best way of meeting the
products objectives and the Product Development team considers all the
inputs and decides on what options to take. During this period the
product specifications may undergo minor changes keeping in view the
strengths of an organisation – however the overall functional
requirements will remain the same.
ii. They evaluate the various options in manufacturing processes and
the need for any new technology to make the product. They also
evaluate the impact of various options in making the product in terms
of investment needed, profits generated, etc. While making the detailed
product specifications the management also evaluates the manufacturing
options it has for the new products. They need to evaluate whether the
existing manufacturing processes are adequate for making the new
product, or they need to expand the manufacturing set up or they need
to create an altogether new facility. Many times it happens that new
technology needed to manufacture the new product has a significant
impact on the existing processes and so the management needs to
evaluate whether such a technology should be used or not, whether this
is going to be beneficial to the organisation in the long term, since it may
involve a lot of retraining of its manpower for using the new technology.
iii. The first prototype of the product is developed and evaluated to see if
the product meets all the functional requirements set out in the initial
19
4.
document. This is an important stage in the product development cycle.
This product is put through functional trials to see if the specifications
laid out at the beginning are met – not only form the engineering point
of view but also from the customer‘s requirements point of view. At this
stage sometimes a few chosen customers are also shown the product for
their feedback. The feedback from testing and the customer is
considered by the product management team and they decide on the
changes to be incorporated in the product.
iv. At this stage the product is more or less finalised and the product
functionality frozen. However some fine tuning may continue till the
product launch and even during the life of the product. These
modifications are done to suit the conveniences of manufacturing or
additional features needed by Sales.
v. Once the final product comes out of the factory it is once again shown to
some key partners (much larger numbers than before) in the market and
sometimes test marketed in a small area to get the more feedback.
Test marketing is usually done so that the actual user experience is
received. It is normally done in a small representative market away from
the main market of the company. The reason for doing the test away
from the main market is that in case the test fails or has a negative
impact the main market (which is significantly larger) must not be
affected. This feedback also is discussed internally and the relevant
parts are incorporated in the product.
i. The product is then ready for launch.
Product Launch and Growth Phase
The product launch needs a lot of preparation so as to ensure that the product
succeeds in the market. Just making a good product is not enough to ensure
its success. Thus by the time the final product is ready, the Product
Management group has to develop the support needed to launch the product in
the market. They have to:
20
5.
i. The product management team knows how they have positioned the
product and what their target segment is. Along with the advertising
department they have to develop the campaign needed to launch the
product. Now keeping with the company‘s overall business objective they
know how much they can spend on this campaign and so they plan the
media according to this need.
ii. The entire sales force, the channel partners must know what product
they are selling and how it compares to competition. The customers
must be able to understand the product they are buying. Hence the
Product Management team must also develop the tools needed by the
sales team and channel partners to sell the product effectively and
for customers to understand them. They create tools like sales
catalogs, leaflets, comparison charts with competition, explaining
application areas and target segments for the product, they provide the
pricing strategy, etc.
iii. The Product Management group continues to provide support to the
product throughout the life of the product by determining ways to
improve sales, profitability of the product. Many times they have built
in features in the product that have not been released with the initial
launch of the product. These features are added into the product in a
phased manner so as to stay ahead of competition and keep the
customer interested in the product.
iv. They also keep taking a feedback from the customer so that small
incremental improvements can be made to the product thus increasing
its life and profitability of the company while keeping it ahead of
competition.
v. We know that capital is scarce and new product development is
expensive. Thus if we can prolong the life of the product it can help
the company make profits while staying ahead of its competition.
The products life and success will depend to a large extent on the
ground work undertaken by the Product Management Group from the
time of its development to its launch and stay in the market.
Product Discontinuation Phase
This is a critical phase in the management of products. This is the phase when
the product is to be discontinued and a new product has to be introduced. This
seems to be quite simple but in reality it is a difficult decision. The reason is
that on one hand we have a product that is established in the market and has
customer acceptance, and, on the other hand, the new product has still to be
21
accepted by the customer. If the current product is discontinued and the new
product is not accepted by the customer, it can cause a major setback for the
company. If we take the example of the Maruti 800 car – it is a car that has
been selling in large numbers, even though competition has introduced many
products. Now if Maruti introduces a new product in its place they are not sure
how the customers will feel about. We know that the Maruti 800 is a car that
has excellent availability of spares and maintenance. Even the roadside
mechanic can repair it and so there is no problem in using it anywhere in the
country – city, town or village. Any new car will take some time to penetrate
the market so much. It will also take some time for Maruti to train its
engineers in their service establishments across the country. Thus there is
always some danger of losing a part of the market share to competitors. Hence
some of the considerations in this phase are:
i. Availability of a new product – The foremost consideration in
introducing a new product is its availability.
ii. Awareness of the Competitor’s Products - At the same time we need
to see what the competitor is doing. If the competitor has already
launched a new product, it will force the company‘s hand in launching its
own product. For example when Apple launched its iPhone with a large
touch screen technology, other phone manufacturers were forced to
launch similar products within a very short time.
iii. Customer Maturity - Even though a new product may be ready, it may
not be possible to launch it because the customers are not ready for it.
E.g.: consumer durable manufacturers had washing machines ready in
their product portfolio but could not launch it since the Indian customer
was not ready for it. The Indian customer at that time felt that washing
by hand was the done thing and that a washing machine never washed
the clothes properly and that they never came out clean.
iv. Adequate Training - In addition before discontinuing an existing
product and launching a new product the organisation needs to be
trained in it – E.g.: the manufacturing team must know how to make it,
the sales team and its distributors must understand how to sell the
product. If it is a product that needs installation and maintenance then
this team must also be trained.
v. Adequate stock must lie in the distribution channel so that once the
product is launched and the campaign breaks out, sales must not be lost
due to non -availability at the retail end.
22
Nowadays, because of the speed at which the market is changing and
competition is responding, existing products are discarded even when they
have not completed their economic life. This puts more pressure on the
Product Management Group to develop newer products that will give returns in
shorter and shorter periods of time. We therefore see that many CEO‘s make
the product management team report directly to them since it has one of the
most profound effects on the bottom line of the company.
Fig 2.1 Product Management Cycle
3.
Your Learning
1. It is said that the product discontinuation phase is one of the most
important phases in Product development? Why is this so? Please discuss
whether you agree or not and why.
2. During the growth phase of the product what are the activities that can
be done by the product management team to increase its sale?
4.
Summary
The product management process is an important process in order for
the company to stay ahead of its competitors. This process is divided into
five phases starting from the need identification to defining the product,
which is then developed. This developed product is the launched in the
market and all activities are undertaken to ensure its growth. At the end
as customer acceptance drops the product is discontinued. This is an
important phase as in this phase the company has to ensure that
another product is ready to take over the market being vacated by the
existing product. Also the company must ensure that other infrastructure
needed to support the new product is ready and in place e.g. training of
manpower, distribution channel with adequate stocks, etc
5.
Key words
1. Pain Areas – these are the areas where the customer has a
problem. These create opportunities for companies create a
product. For example – people wanted to make calls more
conveniently and did not want to walk up to a fixed line phones.
This gave an opportunity to make cordless phones. These could be
23
used inside the house but could not go very far. These phones were
the precursors of mobile phones.
2. Think tanks – are a set of people whose job is to think / develop/
create new products or concepts.
3. High Level Specifications – these are broad specifications for
product usually used for one that is under development. These are
created in the initial stages to give an a broad idea of the product
features and design. These specifications are then used to develop
the detailed specifications.
4. Business case is a proposal developed by a specific department to
justify its proposal as making business sense. This is used by the
management to decide whether to go ahead with the project or not
5. Size of market is the total possible sale that a product can have
in a given market. This is given in terms of a Rupee value. For
example we can say that the market for FMCGs is Rs 40,000
crores.
6. Competitive products are competitor‘s products for a given
category of products. These are the products that will compete in
the market with the company‘s products. For example a there are
several motorcycles in the 200 cc category made by various
companies. These are competitive products.
7. Feasibility study is the study conducted to understand if it is
feasible to manufacture a certain product. This is done before a
technical development or project implementation.
8. Economic study once a feasibility study has found the project
feasible an economic study is done to see if the project is
economically viable.
9. Industrial Engineering is a branch of engineering that concerns
with the development, improvement, implementation and
evaluation of integrated systems of people, money, knowledge,
information, equipment, energy, material and process. It also deals
with designing new prototypes to help save money and make the
prototype better.
10.
Look and Feel is a term used to describe products in fields
of product design, marketing, branding etc. to describe the main
features of its appearance.
11.
Prototype is an initial product usually made to show a
typical impression of the product.
12.
Product Functionality gives the various functions of a
product. When the product functionality is modified it means that
some functions of this product are changed because of some
24
customer feedback or lack of technology to manufacture the
product or the cost needed to make this product does not make
economic sense.
13.
Test Marketing is a sample marketing undertaken when a
product is being introduced for the first time. This is done in a
small area which is representative of the market in which the
product has to be finally used. However this market is usually not
so large that in case the test marketing fails it impacts the launch
of another modified product. It enables a company to check how
the product will be accepted by the customers.
14.
Campaign in the context of product management is usually
used for a sales or marketing promotional set of activities. These
could include advertising, consumer schemes, ground
demonstration activities, etc to make the customer aware about
the product and its features.
15.
Customer Maturity as a person becomes more mature with
age so do customers become more mature when they become
more exposed to different types of products. They understand how
to evaluate products and companies and are not easily misled by
the jargon of marketers.
6.
Exercises
1. How does understanding the Product Management Cycle help in
undertaking effective product management?
2. During the product development phase which are the departments
involved and why does the product undergo changes in specifications and
functionality?
3. Please explain in what ways the product management group can provide
support to increase sales and profitability of a product?
4. How do you think feedback about the product can be taken from the
customer? Once this feedback is taken what process will we follow to
decide what feedback needs to be considered and what not?
5. Why is test marketing done and what are the benefits for the company?
7.
Further Reading
1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India:
Response Books Pg 25-36
2. Mukherjee, Kaushik (2009) Product Management , New Delhi, India: PHI
Learning Pvt. Ltd Pg 35 - 37
25
3. Crawford, Merle and Benedetto, Anthony Di (2004) New Product
Management Singapore, McGraw Hill Page 25 – 32
4. Gorchels, Linda, (2006) The Product Managers Handbook, New York,
USA: McGraw-Hill Pages 71-74,
26
UNIT III – The Product Planning System
4.
5.




Learning Objectives
To understand the importance of Product Development
To understand how Planning is done for Product Development
To understand the Process which is used to Develop a Product
To understand who is Responsible for the Product Development
Structure
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Product Planning
Customer Requirement Document
Need for Customer Requirement Document
Contents of Customer Requirement Document
Development of Customer Requirement Document
Strategic Advantage of a Good Customer Requirement Document
Use of Archived Products in Product Development
Summary
Your learning
Key Words
Exercises
Further Reading
1. Product Planning
All Product Planning is done to keep the company ahead of its competition
and to give it a competitive advantage. The Product Planning system must
dovetail into the business plan of the company. The success of the
company is determined by the success of its products. Effective product plans
are those which not only take care of market and customer needs but also
support company’s growth strategy. Now in order to create effective the
product plans the product management team and the top management must
work in close co-ordination with each other since
1. The product management team has the market information that he
top management will need to create effective business strategy.
2. The top management is in a position to give a clear understanding of the
company’s objectives and direction to assist the product
27
management team to develop the right products that will assist business
strategy.
3. Based on the understanding the top managements objective and
direction the product management team will also be in a position to
develop the appropriate execution strategy and milestones in its
execution.
The Product Management team‘s job is to keep a track of the market
requirements and map them against the managements objectives and
direction so that they can provide the right inputs on products to be
developed to the top management. The product management team collates the
information from:
1. Customers
a. By way of an unsolicited feedback from customers
b. Customer surveys
c. Customer needs as identified by sales or marketing teams of the
company.
2. Think tanks in companies are always evaluating the environment and
aligning these with the companies objectives and directions and creating
product ideas for the product management team to evaluate.
3. Trade fairs – the product management team also visits various trade fairs
as this not only tell them what the competition is planning but also gives
them a new insight into new technologies and developments
happening all over the world. This also assists them in creating business
ideas that will give their company a competitive edge.
4. Competitors activities – since one of the primary objects of product
development is to provide the company a competitive edge to the
company, understanding the competitors activities is very
important. Competitor‘s activities also are a source of product ideas.
These are found from some announcements that the competitor makes
in the press, from the sales channel since the distributors are amongst
the first to know if a competitor is planning something new, or from
some test marketing that the competitor undertakes, and many times
from raw material suppliers.
Raw material suppliers visit similar
companies and come to know of new developments because they are the
one who need to supply material and components for new products.
5. R&D or technology development by the company – every company
that has kept ahead of competition has also undertaken some form of
research and development of new products. Technology that is developed
in-house is also a great source of product development.
28
6. Patents and technology search allow the product management team to
know what technologies and processes are available for use. Sometimes
the purchase of a patent/ development of a technology allows the
company to develop products for which the competition may not be able
to have an immediate answer. For example when the Xerox Corporation
developed their copier technology there was no other company in the
world which had a similar process and Xerox had a virtual monopoly over
the product sales for many years. It is only later when Xerox became
over confident and stopped investing in the brand and the technology
that other companies like cannon, Toshiba came and overtook them.
The Product Management team continuously evaluates the inputs received by it
from various sources round the year. This information is used by it to develop
new products that have a strategic fit with the business objectives of the
company.
All these activities lead to the identification of the product and the
commencement of the developmental process. This process is a much more
complex process as compared with the initial steps taken in identifying and
freezing the customer requirement. These requirements form a part of a very
important document called the ‗Customer Requirement Document‘. This
document if created in the right manner can help a Product Manager get the
product to the market in the most economical manner and also help him
manage the product through its life giving the company maximum returns.
2. Customer Requirement Document
At the heart of the whole process of product planning is the development of
the product. Any delay in the development of the product has a cascading
impact on the company‘s sales and profitability. Hence it is important that
before anything else, the decision on what product has to be developed is
taken quickly; this decision pertains to the product‘s broad specifications
and marketing objectives. Once all these have been defined, the actual
development of the product must be undertaken in a manner that reduces
the time to market.
This phase of product development is the first operational phase where time
and money will begin to be committed by the company; the longer and more
29
complicated the process, the longer it is likely to take. The Product
Development Process is led by a Product Development Team. This team
consists of people from R&D, Manufacturing, Industrial Engineering,
Quality Control, Sales and Marketing. It is often seen that delays in
product development occur because of one or both factors listed below:
1. There is lack of clarity on what needs to be developed
2. There is poor co-ordination between the members of the Product
Development Team
Their first task is therefore is to create a single composite document
that will lay out what the customer wants and how the company is going to
benefit from it, what functionality needs to be inbuilt for the customer, etc.
3. Need for Customer Requirement Document
We have seen that the Project Management Process has five stages which
take the product from its inception to its final withdrawal from the market.
In all this, there is one document that virtually holds the entire process
together. This document lays down what each functional area (within the
organisation) has to undertake. It also documents the commitments made in
time and cost by each functional area. This is called the Customer
Requirement Document (CRD). The advantages of this document are listed
below:



It allows you to completely think out the product and strategy in
advance
It makes sure you do your groundwork before any activity
(commitment in terms of time and money) starts
It gives everyone involved an idea of the various aspects of the
product the Product Manager is working on
4. Contents of Customer Requirement Document
Though we need to have a comprehensive document that must contain all the
necessary elements, it is also important that this document is brought out
quickly and must contain the commitments of all the stake holders in
the Product Development Team. The reasons for this urgency are:


If we take too much time in getting out the CRD then it may become
outdated since the market is moving so fast and priorities are changing
very rapidly.
Also all the stake holders in the product development process i.e. R&D,
Manufacturing, Industrial Engineering, Quality Control and Sales must
give their inputs and commitments to time taken and costs likely to
be incurred.
30

Thus the development of the CRD must be an interactive process
between all the stake holders.
5. Development of Customer Requirement Document
The prime responsibility for the development of the CRD is with the
Product Manager who is functionally a part of the Marketing Department. The
CRD can be developed in two ways:


The Product Manager can develop the complete document on his
own marking the activities to be done by various other departments
and put time frames in which he needs the product.
The Product Manager can create a broad overview document and
then sit along with the other departments involved in its
development and create the detailed document.
In the first process, where the Product Manager makes the complete CRD
himself, the document may be more weighted from the Marketing and Sales
point of view, and when it reaches the other functional departments they may
or may not agree with the possibility of creating functionalities, time and cost
estimates specified by the Product Manager. This can thus lead to a lot of
rework and disagreements in the team leading to delays or the final
development of products that may not have features that the Marketing team
was depending on to promote the product. Also since the complete document
has to be made in detail it is likely that the Product Manager will take much
longer to get the document ready – thus leading to the possibility of
making a document that has lost touch with the market before it is ready.
The other way is for the Product Manager to make a CRD quickly is to make a
document that has separate sections with large amount of
functionality. Each of these documents is further broken down into small well
defined tasks. The smaller documents are created along with the people
from the department that is going to be involved in the development of that
function. The documents involved with each functional area are live
documents that may continuously be updated as the product development
takes place. This way the team is able to start the work quickly and at the
same time keep the changing market conditions in view. The process followed
here is:
The CRD lists out all the functions and features that the product
must have.
2. Each of these functions must be listed by priority i.e. the highest
priority first and then the next and so on.
3. Now the Product Manager starts from the highest priority feature and
breaks it down in to tasks that need to be done in order to accomplish it.
This listing of tasks is done along with the persons who have to
work on it. The advantage of this is that it brings in their commitment
and ownership and the document is not one where the Product
Manager has thrust on the other departments.
1.
31
During the discussions the developer gives an indication of the time
and resources needed to complete the task.
5. Once this is complete the Product Manager signs off with the
developer and the signed off document is circulated within the team
while the developer commences his task. This allows the other team
members to understand how the development of the feature will impact
their functional areas and make the necessary preparation to be ready
when it comes to their functional area. For example, if the R&D team has
circulated a signed off document giving the type of development that is
going to be made available, the Production and Quality Control teams
can begin to understand how they will be impacted by the new
technology and prepare for it.
6. The Product Manager moves onto the person/ department who will take
on the development of the next most important task and so on this
process carries on till all the features are accounted for.
7. Another advantage of this process is that we can involve the customer
at any stage of the design to get him to meet the person developing the
feature. This is beneficial since it helps the developer get a clear
understanding of the customer‘s needs.
4.
Many times, the market conditions force us to release products that are not
fully ready. This may be due to some activities of the competition or an
existing product of ours not doing too well in the market. This process allows
us to launch products with the key features and add more features as
they are developed.
6. Strategic Advantage of a Good Customer Requirement
Document
This process has the following advantages over the method of a Product
Manager making a complete CRD document and then sending it to the
concerned stake holders for development:
1. The Product Manager is much more closely involved with the
development team from the beginning and so has a clear idea of what
is possible and what is not.
2. Since the Product Manager has prioritised the development of the
features he can release the product even if all the features are not
ready and can strategically keep on adding more features as time goes
along.
3. Even when the product is launched with a few features it does not
create a major upheaval in the development team since they are
developing the feature in sequence of importance.
4. We can bring in customers to meet developers so that they can be sure
that features desired by the customers are developed in a manner
that is needed by the customer and not as convenient to the
developer.
32
5. This way the customers also feel more committed to purchasing
the product as they feel it has been developed for them.
6. The commitments on time, etc are given by the development team and
so they are more committed to meeting the deadlines.
7. The Product Manager is involved in managing several small functions
of manageable proportions. He is also in a position to decide the
strategic launch of the product rather than having to wait for the full
development of the product.
8. The progress of the whole project can be measured in a more accurate
manner.
9. During the development process the other departments involved in the
development, quality control, sales, and technology development can
work together and in anticipation of each completing the task.
However, like all processes, this also has its set of disadvantages:
1. This process requires a lot of co-ordination on part of the Product
Manager.
2. It becomes very critical that the agreements generated between the
Product Manager and the developers are circulated in time and
appropriately amongst the whole team.
3. In this method, unless the Product Manager and the developers agree
with each other, it is not possible to move ahead. Hence it takes a lot of
give and take.
4. There is no single comprehensive document to review but many small
ones.
7. Use of Archived Products in Product Development
Now we must realise that though it seems that product development is a
simple and straight forward process it is not always that we get products that
can be commercialised.
There are many reasons for not commercializing products. Some are
1. The products developed do not meet the customer’s requirement.
Many times a customer may want a product with certain properties
but it may not be technically feasible to get a product with desired
features. 3M was asked by one of its customers to develop an
adhesive with certain properties but the product developed did not
meet the customer‘s requirements.
2. Some products are developed as a by-product
development and so have no commercial value.
of
another
3. Some products are too expensive for current usage and cannot
find applications today for example the use of solar cars. These cars
are very expensive as compared to existing cars which are based on
33
cheap fossil fuel. The solar cars will find an application as fossil fuel
becomes more expensive and global warming makes use of these cars
more difficult.
4. Sometimes the cost of commercialisation is very high for example
the use of wind power was known for many years but the cost was too
high as compared to cheap fossil fuel. However today with the
increase in cost of fossil fuel, the possibility of its finishing in the next
50 years or so the use of wind power is becoming more prevalent.
Products that are developed but are not commercialised archived and also
form a pool of resource which comes in handy for the development of new
products.
In Figure 3.0 you can see that product conceptualisation is a combination of a
practical (consumer) need real or perceived and some natural
phenomenon which comes from creativity, ingenuity and out of the box
thinking. It is not always that a product developed has the necessary
requirements for commercialisation. So these products are archived. Now
it has been seen many times that from these archives some excellent products
have been developed.
Let us take the example of Post-it notes. A Post-it note is a piece of
stationery with a re-adherable strip of adhesive on the back, designed for
temporarily attaching notes to documents and to other surfaces: walls, desks,
computer displays, and so forth.
34
Post-it® Notes were not a planned product.
A man named Spencer Silver was working in the 3M research laboratories in
1970 trying to find a strong adhesive. Silver developed a new adhesive, but it
was even weaker than what 3M already manufactured. It stuck to objects, but
could easily be lifted off. It was super weak instead of being super strong. No
one knew what to do with the adhesive, but Silver didn't discard it. Then one
Sunday four years later, another 3M scientist named Arthur Fry who was a new
product researcher with a knack for inventing things was singing in the
church's choir. He used small strips of paper to mark his place in the hymn
book, but they kept falling out of the book.
He knew that Silver's adhesive did not bond permanently or leave a sticky
mess and he soon realised that if he applied a thin coating of the glue on a
strip of paper it would also be re-useable. He need not lose his place in his
hymn book again
It still took a long time and a lot of effort on the part of Art Fry and his
accomplices to persuade 3M that their product would work. There were many
difficulties to overcome, and at each stage of the way Fry would have to
convince the engineers and product developers to press on and find a way to
produce the blocks of notes
35
It was finally Introduced to the market in 1980, one year later Post-it Notes
were named 3M's Outstanding New Product, despite the fact that at first they
had to be given away free, to demonstrate their usefulness.
This was ten years after Silver developed the super weak adhesive. Today
they are one of the most popular office products available.
8. Summary
The actual process of product planning begins much before the creation of a
Customer Requirement Document. It begins with the definition of business
objectives by the top management and in order to fulfil these objectives the
product management team undertakes an elaborate exercise not only for
tracking customer requirements but also to scan competitors activities,
technologies evolving, etc to make sure that they have the products that will
give the organisation a competitive edge over its competitors. In this whole
process of planning and execution it is the creation of a Customer Requirement
Document that helps the product Managers to stay on course. This document
assists the Product Manager in developing the product by helping him create a
road map for the process. In addition it allows other functional departments
who are involved in the product development understand how they are
interlinked in the whole process of product development. The advantages of
this document are also that it allows the product manager to plan how features
will be released in the market to ensure that the product meets its revenue
and profit goals.
9. Your Learning
1. What is a Customer Requirement document? What is it used for?
2. How does having a Customer Requirement help?
3. Why must the requirements of the Customer Requirement Document be
an interactive process and contain commitments of all the stake holders?
4. What process do you think the process manager must follow to make the
CRD on his own or he must involve other departments which will be
involved in product development?
5. What are the contents of the Customer Requirement Document? Who is
responsible for getting it made?
6. What are the advantages of having a good Customer Requirement
Document?
36
7. Take a product that needs to be developed and write how you would go
about making a customer requirement document.
10. Key Words
1. Time to market – is the time taken to bring the product into the market
from the time of its inception. Companies always work minimising this
time. This helps them reduce development costs, pre-empt competition
from getting new products into the market before them.
2. Single Composite Document – Composite means made up of separate
parts or elements. So a single composite document means that there is one
single document that contains inputs from different departments but is
comprehensive about all the activities that need to be done.
3. Inception means from the beginning or the start.
4. Stake Holders are all those who will be responsible for or benefit from
an activity.
5. Prime Responsibility means the main responsibility. This is usually
with the person who is driving the project.
6. Live Documents – these are documents that are continuously being
modified along with the ground reality of the situation. This is different
from changing a document without justification. Usually a liv document
would be changed if say the market conditions changed dramatically or
technology was not available for manufacture or it became
uneconomical, etc.
7. Sign-off – signals that some activity is complete or that an
understanding has been arrived at.
8. Archived Products – Archives are places where things that have no use
or are old have been stored. So sometimes products that are developed
but do not find use are stored. These products are the archived products.
11.
Exercises
1. What are the strategic advantages of creating a good Customer
Requirement Document?
2. In the CRD functionality is written in order of importance. Why is this
done? How does this benefit the company in the rollout of the product?
37
3. How does using Archived products in product development benefit the
product development process. Does this turn out to be more cost
effective or does it only impact time of development?
4. Once a product manager signs of with the product developer why is it
necessary to circulate this acceptance to all the other members of the
product development team? How does this benefit the company?
12.
Further Reading
1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India:
Response Books pg 29 – 38, 41 – 45,
2. Mukherjee, Kaushik (2009) Product Management , New Delhi, India: PHI
Learning Pvt. Ltd Pg 21 – 30, 73 – 76
3. Lehmann, Donald R and Winer, Russel S, (1997) Product Management,
Singapore, Irwin/ McGraw-Hill 32 – 34
4. Gorchels, Linda, (2006) The Product Managers Handbook, New York,
USA: McGraw-Hill p 90-96
38
6.
7.
BLOCK 2: MANAGING PRODUCTS
8.
Unit 4: Product Line Decisions
9.
10.
Unit 5: Product Life Cycle
11.
12.
Unit 6: Product Portfolio
13.
Unit 7: Product Pricing
39
14.
15.




Unit IV - Product Line Decisions
Learning Objectives
To understand what is a ‗Product Line‘ and its relevance in Product
Management
To understand what how product line can be managed.
To understand difference between product mix and product line
Concepts in product line management
Structure
1.
2.
3.
4.
5.
6.
7.
8.
9.
1.
Product Decisions
Product Mix
Product Line
Product Line Decisions
4.1.
Withdrawing Products
4.2.
Increasing Products
4.3.
Product Contribution
Summary
Your learning
Key Words
Exercises
Further Reading
Product Decisions
Decisions regarding the product, price, promotion and distribution channels are
decisions on the elements of the "marketing mix". We can say that decisions
about the product are amongst the important ones since they affect the
market planning of the company. If the wrong products are introduced in the
market it can have catastrophic consequences for the company. For example
computers may be totally unsuitable for rural areas where electricity is not
available and where incomes are low; and the attempt to sell products to
customers without considering their cultural values and needs both can have
negative consequences on sales and achievement of business objectives.
However today‘s markets are a complex mix of aspirations and product
requirements and hence decisions are not so simple since the customer‘s
requirement lies somewhere between his aspirations and his need for a
product. Hence the marketer tends to introduce several products in his desire
to meet the aspirations and needs of his target market.
40
Product modification decisions are based on how much an organisation has to
stay close to a standardised product (just by extending it) or how much it has
to move towards innovation (by making something new). So between
extension and innovation there is a whole spectrum of possibilities for different
products. The closer a company‘s products stay to extension the lower the cost
and the closer it gets towards innovation the higher is the cost of introduction
or decisions.
Product modification decisions revolve around decisions regarding the physical
product (size, style, specification, etc.) and product line management.
2.
Product Mix
The product mix of a company is defined as the total set of products offered by
it. The product mix consists of product lines and individual products. For
example, all the courses a college offers makes up its product mix; courses in
the marketing department make a product line; and the basic marketing
course is an individual product. Product decisions at these three levels (product
mix, product line and product) are generally of two types:
i. Decisions that involve width and depth of the product line and
ii. Decisions that involve changes in the product mix occur over time –
adding, removing products or enhancing the range (width).
The depth of the product mix refers to the number of product items offered
within each line; the width refers to the number of product lines a company
has. For example, Table 1 illustrates the hypothetical product mix of a college.
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Table 1: Wide Width and Average Depth
The product lines are defined in terms of departments. The depth of each line
is shown by the number of different product items — courses offered — within
each product line. The college has decided to offer a diverse marketing mix.
Because the college has a number of departments, it can appeal to a large
cross-section of potential students. This college has decided to offer a wide
product line (academic departments), but the depth of each department
(course offerings) is only average.
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Table 2: Narrow width, large depth
Some other concepts in a product mix are family branding – If a line of
products is sold with the same brand name, this is referred to as family
branding. For example Nescafe has several products under its main brand
Nescafe – classic, gold, espresso, cappuccino, taster‘s choice, etc.
When we add a new product to a line, it is referred to as a line extension.
When we add a line extension that is of better quality than the other products
in the line, this is referred to as trading up or brand leveraging. When we
add a line extension that is of lower quality than the other products of the line,
this is referred to as trading down. When we trade down, there are chances
that it can lead to a reduction in the brand equity. We may get sales in the
short term but in the longer term it may harm the brand if we are not careful
on how we are going to use this lower quality/ price product.
46
Image anchors are highly promoted products within a line that define the
image of the whole line. Image anchors are usually from the higher end of the
line's range. So when the company promotes them their values rub off onto
products lower down in the range and customer‘s perception for these products
is enhanced. So when a car company promotes its model it shows the top most
model in the range with a rider that all accessories are not a part of standard
equipment. This helps to sell the lower end models of the same car.
When we add a new product within the current range of an incomplete line,
this is referred to as line filling.
Price lining is the use of a limited number of prices for all your product
offerings. Its underlying rationale is that these amounts are seen as suitable
price points for a whole range of products by prospective customers. It has the
advantage of ease of administering, but the disadvantage of inflexibility,
particularly in times of inflation or unstable prices.
Product-mix management and responsibilities
It is extremely important for any organization to have a well-managed product
mix. Product-mix decisions are concerned with the combination of product lines
offered by the company. Management of the company‘s product mix is the
responsibility of top management. Some basic product-mix decisions include:
i. Reviewing the mix of existing product lines;
ii. Adding new lines to and deleting existing lines from the product mix;
iii. Determining the relative emphasis on new versus existing product
lines in the mix;
iv. Determining the appropriate emphasis on internal development
versus external acquisition in the product mix;
v. Gauging the effects of adding or deleting a product line in relationship
to other lines in the product mix; and
vi. Forecasting the effects of future external change on the company's
product mix.
3.
Product Line
Product Line is defined as a group of products that are closely related to each
other. They function in the same manner and are sold to the same customer
groups. These products are marketed from the same types of outlets and fall
within a specified price range. The product line has
i. Line depth refers to the number of product variants in a line.
ii. Line consistency refers to how closely related the products that
make up the line are.
47
iii. Line vulnerability refers to the percentage of sales or profits that
are derived from only a few products in the line. Ideally a company
would like to get an even amount of sales from each product but
many times one or two products do much better and so contribute a
much higher percentage of sales. The company must evaluate if the
other products not contributing much in terms of sales are
contributing in margins. If not they must question the rationale for
keeping such products in their product line.
4.
Product Line Decisions
Since products are in some way fulfilling the customer‘s aspirations and needs
any change in any one or both of these will lead to changes in the product
specifications. This change is what leads to the introduction and withdrawal of
products from the market. Hence Product line decisions can be broadly
classified under three categories:



Product Withdrawal/ Demise
Increase in Products
Item Contribution
4.1.
Withdrawing Products
Product withdrawal is as much a planned activity as introduction of a new
product. Companies in-build the time of withdrawal of a product in their
business strategy and link it with the introduction of a new product. Though
companies would like the decision to withdraw a product to be a planned
one sometimes competitive pressures either force companies to withdraw
existing products or their sale decreases so much that there is no sense in
continuing with the product in the market.
The demise of the product can also be attributed to changes in the
environment – attitudes and needs of the customer – which have been
accelerated by market forces like competition, arrival of new technology,
etc.
Decisions on when to withdraw the product depend on several factors:
i. Business objectives Profit/ sales
ii. Strategic objectives – new prod ready, competitive product
launched
iii.
New technology availability
48
iv.
Need for variety by the customer or sales channel/ retailers.
Product withdrawal even in a planned manner has its own risks because an
existing product already has an acceptance in the market and is
established. It is giving the company some sales and profits. By this time it
is likely that the product development costs have been recovered and the
amount of money needed for supporting the product is not so much as the
customers are already aware of the product. In addition the company has
become adept in manufacturing and selling the product. Once it is
withdrawn the company will need to introduce another product in its place.
How this new product will fare in the market is not known thus there is a
risk in its introduction. For this new product the company will need to spend
large sums to promote it and generate enough sales to recover the costs of
development. The manpower and the sales channel will need to be retrained
in order to understand the product and its benefits thus involving cost. How
the customer will take to this new product is not known for certain until the
market performance actually shows it.
If the company plans to withdraw a product in a planned manned it must
evaluate the following:
i. Has the product met its business objectives in terms of sales and
profits?
ii. Can the product continue to do so in the face of competition and
changing market environment?
iii. Can the product support the marketing expenditure being done in
order to promote it.
iv. Does the presence of the product help in selling other products of the
company even if it is not making any money (Loss leader chapter 7)
v. Does the company have a product that can fill the space vacated by
this product?
vi. Can/ should the company reposition this product? Is it economical for
the company to do so?
vii.
Is the business strategy dictating the withdrawal of the product?
49
Thus we can see that the withdrawal of the product is a complex a task as
introducing a new one and yet it is linked with the introduction of a new
product and the business strategy of the company.
4.2.
Increasing Products
New product introduction is the logical extension of a product withdrawal. A
company with finite resources can support only a limited number of products in
the market. Thus as newer products are introduced older products must be
withdrawn to make place for them. New products can be introduced in a
product line in several ways:
i. Stretching the product line:
Stretching is a product lengthening beyond the current price range A
company‘s product line may cover a certain range of the products offered
within the industry as a whole. This may cover the range of price from
the low to medium to high price. An example will be the Honda Accord,
Honda Civic, Honda City and Honda Jazz starting from the highest price
to the lowest price. However in this range the ultra high and very low
segment are not covered. There are three ways to stretch the product
line:
 Stretching Down
 Stretching Upwards
 Two Way Stretching
Stretching Down: If the company adds a product, at a price point, below
the Honda Jazz model it will mean a downwards stretching of the product
line.
50
Many companies launch their products at the upper price spectrum of the
market and stretch their product lines downwards. They do this because:
a. They try to respond to attacks to in their current upper price
segment by launching a lower end product.
b. They try and fill an empty price point before competitors can do so.
c. To increase the number of products for expanding their market
share.
d. To counter the attack from lower priced copies being made by
other manufacturers.
The problems associated with a downwards stretch are:
a. The competition may counteract by entering the upper price
segment in which the company is.
b. The company‘s sales channel – sales force and dealers may not be
able to handle a low prices segment.
c. The low end price products may eat into the sales of products from
the upper segment thus lowering the sales of this segment.
Stretching Upwards: If the company adds a product above the Honda Accord
then it would mean stretching upwards the product line.
51
Again many companies find it more convenient to commence their business at
the middle of the price range segment as it gives a reasonable balance of
volumes and margins. Later they enter the upper price segments. The reasons
for entering this are:
a. They are attracted to the higher margins in the upper price
segments.
b. They want to create an image of classiness for their company by
this upper price product.
c. They want to complete the range of products offered by the
company so as to tap all segments in the market.
The limitations of this strategy are that:
a. The competition may respond by entering the middle price
category.
b. Company‘s existing customers may not believe that it is capable of
creating upper price end products.
c. The company‘s sales force and distribution channel may not be
trained to handle the new product.
d. Other companies may also be entering the upper price segment.
Two-Way Stretch: Sometimes companies that introduce products in the
middle price ranges decide to stretch their products simultaneously in the
lower and upper ranges. This is a two way stretch.
52
Some of the reasons for a two way stretch of the product line are:
a. To target different markets at the same time.
b. To keep competition away from the segments in which the
company is.
c. To test how each market is at the same time.
The limitations of this strategy are that:
a. Some of the company‘s existing customers prefer to buy
company‘s cheaper products. Hence there is a loss of sales to the
existing product.
b. Because now customers begin to look at new products of the
company they may compare them with competitor‘s products and
switch to new brands and thus be a loss of customers.
c. The sale of higher category products shifts to the lower priced
products.
Marriott Hotel’s case
The Marriott Hotel group performed a two-way stretch of its hotel product line.
Along with the regular Marriott Hotel it added the Marriott Marquise line to
serve the upper end of the market, the Courtyard, Residence Inn and Fairfield
to serve the low-end of market.
53
Decision was to establish particular set of services in each segment of hotels to
mould the loyalty of customers in such a way that they would continue to stay
with the group no matter what price point of hotel they want to stay in.
Here the possible after effects are that price conscious customers may soon
discover the reasonably-priced rooms of the lower chain and tend to move
there.
Reasoning used for justification of the stretch: ―Marriott would rather capture
its own customers who move downward than passing them to competitors‖
ii. Filling the product line:
Unlike the Line stretching where the new product is introduced at
another price range category in product line filling new products are
added to the existing product line (within the existing product range)
So if Honda has Honda City a base model and to this it adds an LX model
having more features than the base model whith a slightly higher price
and a DX model having more features than the LX model with a price
higher than the LX model yet the price range remaining within the
category pricing. This price of the DX model will be much lower than the
price of the base model of the next higher category the Honda Civic. This
would lead to a product line filling.
Product line filling is done by companies to:
a. Try to get higher profits from a particular product category. The
base model is priced so as to attract the customer and cover the
basic production and overhead costs of the company. Hence the
cost of adding a few features to the LX and DX models is not much.
However from the customer‘s point of view it has a much higher
value. Hence the company is in a position to charge much higher
than its cost and thus enhance its profits for that product category.
b. It allows the company to sell more products thus making a better
utilisation of the company‘s manufacturing resources. This also
spreads the company‘s overheads over a much larger product base
lowering the costs and enhancing profits.
c. Product line filling is done many times to satisfy the company‘s
dealers who are constantly asking for newer products. Since
developing a completely new product is much more expensive as
compared to modifying an existing product and creating its variant.
54
d. It also helps the company to give the customer an impression that
its range of products is complete and comprehensive. This is good
for the overall image of the company.
e. It also helps in keeping out competitors from different segments. It
is not that competition can now not enter such segments but it
makes it that much harder and expensive for a new entrant to
enter the market.
iii. Product line modernisation
Product Line Modernisation involves a complete overhaul of the product
lines. Here the company undertakes the complete overhaul of the
product line and not by either product stretching or by product filling.
This type of overhaul allows the company to take a comprehensive view
of the customers‘, markets, competitor‘s perspectives before undertaking
this change. This type of overhaul is not usual and is seldom undertaken.
It may be done if the company passes through an economic crisis or
bankruptcy.
4.3.
Product Contribution
Every product in a Product Line makes a contribution to its sale and profit.
Some make a greater contribution to the sales and some to the profit.
For a company to modify, add or delete a product in the product line they must
analyse how the product is performing in terms of sales and profit. Is it
contributing a sufficient amount to be retained or is it fulfilling some business
objective for it to be retained or dropped. This analysis is done by evaluating
the contribution margin of a product – higher the contribution margin is (the
lower variable costs are as a percentage of total costs), faster the profits
increase with sales. The Contribution margin analysis allows an analysis of how
growth in sales will translate into growth in profits. This is also called an
operating leverage and measures how risky (volatile) a company's operating
income is to changes in market conditions.
Contribution margin is calculated as the product's price minus its total variable
costs.
This allows a manager to evaluate what will be the breakeven point in terms of
sales for a particular product. Knowing the breakeven point he is in a position
to target the sales he desires – one that will help him meet his business goals
55
in terms of profits and recoveries of the development costs. It also helps the
manager plan his selling schemes better by knowing to what extent he will be
able to reward his channel partners and sales team by way of commissions and
incentives.
So let us look at a situation in which a business manager calculates that a
particular product has a 30% contribution margin, which is below that of other
products in the company's product line. This figure can then be used to
determine whether variable costs for that product can be reduced, or if the
price of the end product could be increased.
If these options are not possible, the manager may decide to drop the
unprofitable product in order to introduce an alternate product with a higher
contribution margin.
This analysis may be done on an individual basis and also on a cumulative
basis to understand its past and present behaviour. It can then be used to
predict the possible future of the product.
5.
Summary
The product forms an important part of the marketing mix. A company needs
to have several products in order to serve the complete range of customers.
The set of products that the company has in its armoury is called the product
mix. This product mix may consist of various product lines or individual
products. The more numbers of lines and products a company has the wider is
said to be its product mix. A product line is a set of products that are linked to
each other since they tend to address similar customers. A product line may
have depth that means a number of products at various price points.
Several product decisions need to be taken in terms of withdrawal or
introduction of a product. Important considerations must be kept in mind
whether withdrawing or introducing products. Products can be increased above
below or at the same level of existing products.
Another important consideration for taking product decisions is the contribution
margin which helps in deciding whether the product will meet the sales and
profitability objectives of the company.
6.
Your learning
1. What is a product mix? Why is it needed by an organisation?
56
2. Why do we need to take considered decisions while withdrawing
products?
3. Stretching a product line downwards has some limitations in
managing the image of the brand. Why is it so and what should you
do to avoid this?
4. How do we link business objectives to product decisions?
7.
Key Words
1. Catastrophic failure – A catastrophic failure is a sudden and total
failure of some system from which recovery is impossible
2. Revolve around – to be the focus of something of to be centered on
something - Her entire attention centered on her children; Our day
revolved around our work
3. Diverse marketing mix – A wide range in the marketing mix
4. Large cross-section – A cross section is a sample meant to be
representative of a whole population something that shows the variety
of the population. So a Large cross section represents a wide range.
5. In build – Something that is inbuilt or inherent in the product. Some
property or quality that is built into the product at the time of
designing it.
6. Price spectrum – The range of prices for a product line from the
lowest priced product in the line to the highest priced product give the
price spectrum of the product line.
7. Eat into sales – Means that a new product will take away the sales
that was happening for an existing product when another one is
introduced above or below it by customers who wanted a cheaper of
more expensive product.
8. Mould the loyalty – To modify the loyalty of the customers in such a
manner that it suits the requirements of the company
57
8.
Exercises
1. How does filling a product line help the company retain customers?
2. Why do companies think of line extensions or product withdrawals and
not go in for Product line modernisation?
3. If the company withdraws a product is it necessary for it to have
another product to fill its place? If yes why and if no why not?
4. Why must a company analyse the line vulnerability? What would
happen if they were not to undertake such an analysis?
9.
1.
2.
3.
4.
Further Reading
Lehmann, Donald R and Winer, Russel S, (2005) Product Management,
New Delhi, India, Tata McGraw-Hill Page 257 - 280
Majumdar, R, (1998), Product Management in India, New Delhi, India,
Prentice Hall of India, Page 29-39, 66-71
Lehmann, Donald R and Winer, Russel S, (1997) Product Management,
Singapore, Irwin/ McGraw-Hill Page 244-250, 263 – 269
Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 399-404
58
UNIT – V Product Life Cycle
16.
17.




Learning Objectives
To understand Product Life Cycle (PLC)
The various types of PLC
To understand what how different stages of PLC affect strategy.
To understand the difference between Industry PLC and individual
product PLC
Structure
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Introduction
Basics of Product Life Cycle (PLC)
Types of Customers at different stages
Strategy at different stages of the PLC
Application of the PLC
Limitations of the PLC
Summary
Your learning
Key Words
Exercises
Further Reading
1. Introduction
Product Life Cycle – as the name suggests every product has a life cycle. This
life cycle commences from the time the product is launched in the market till
the time it is ultimately withdrawn from it. During this period it passes
through several phases each of which is important and needs different
strategies if the product has to remain in the market and grow into the next
phase. This is very similar to a human being who also passes through several
phases from birth to death and the strategies or activities needed for each
phase of life are different from each other and need a successful management
of each phase.
We can generalise various phases of life as childhood, youth, adult hood, old
age and based on the total population make a generalised period for each
59
stage and life expectancy of the individual. However for an individual each
phase may not be of the same duration or intensity as the standard one. An
individual may have a very short youth because of certain conditions in his life
or family, or a person may die a premature death due to illness or accident.
Similarly a for products we can make a standardised life cycle based on the
industry in which it is but an individual product may not follow the
standard life cycle pattern an may live much longer or may perish much
earlier.
2. Basics of the Product Life Cycle (PLC)
The Product Life Cycle consists of four stages – Introduction, Growth, Maturity
and Decline.
2.1.
Introduction
In this phase the product is introduced in the market. Once the product has
been developed the Product Manager has to decide when he wants to
introduce the product to the market. The timing of introduction is a critical
decision since it may involve the phasing out of another product from the
market or the product being introduced is designed to counter a
competitor‘s product and the right timing is an important consideration for
success. If the product is introduced too late because our product has not
been phased out the company may lose profits that it could have made with
the new product or if it was meant to counter a competitor‘s then it is
possible that our customers have shifted to some competitor‘s product and
getting them back will be difficult. When Nirma initially launched its washing
powder in the Rural Markets Hindustan Lever never paid attention to it
because it did not think that the Rural market had that much potential and
underestimated the rural populations desire for a quality product. They
continued to concentrate on urban markets. This allowed Nirma to
consolidate its position by way of improved product, manufacturing facilities
and distribution system. By the time Hindustan Lever responded to the
threat by launching a lower priced washing powder it was too late to
dislodge a well entrenched Nirma. In fact now Nirma was able to enter the
urban markets also since it was an established product and financially it was
much stronger to resist Hindustan Lever in the market.
Some of the key features of this stage are:



Product category has recently been introduced into the market consumers are unaware of the product.
Proper capitalization is important.
Industry sales are low, but growing.
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



Industry profits are negative.
Advertising usually tries to develop the primary demand.
Creating awareness and trial are common marketing objectives.
Sales promotion is used to trigger product trial.
2.2.
Growth
In this stage the product is advertised vigorously by the company and
grows rapidly in sales with more and more customers coming to know about
it and beginning to try it. This is an important stage where the product is
either accepted or rejected by the customer. An acceptance will continue
to see a growth in its sales otherwise the product will continue to try and
sell but will soon fail and be withdrawn from the market.
Usually the customers in this phase are the early adopters or those who
like to experiment and are comfortable with innovation. They are also those
people who are fashion conscious and trend leaders.
In this phase the company who is an innovator or a market leader should
expect to recover its costs of development by keeping margins high.
However a word of caution here is that sometimes companies have spent so
much on development that they do not have sufficient resources to sustain
the investment needed to push the growth over its critical mass and fail
because the product revenues needed for sustenance take time to build.
This phase also witnesses the introduction of competitor’s (followers)
products who have either developed a similar product or find it simple to
copy the market leaders product make some changes and introduce it as
their own product. For those companies who have only copied the market
leaders product there is virtually no development cost and they can use
all their resources to promote their product. In addition since they do not
have to recover any development costs they have much less at stake in a
higher pricing of the product. Thus their product can be much cheaper.
Thus the Growth phase is a critical phase and companies must ensure that
before they introduce a product they have enough resources to see the
products launch to success.
Some of the key features of this stage are:


Sales are rising rapidly.
Profits appear, peak, and begin to decline just before the end of the
period.
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


Profit possibilities attract competitors, but many competitors will be
―shaken out‖ during this phase as well.
Promotion shifts from primary to selective demand.
Building market share is a common marketing objective.
2.3.
Maturity
The introduction of the product sees a period of rapid growth when the sales
increase. But as time passes more and more competitors enter the
market with similar products. The sale is then divided amongst many
products and the rate of growth of sales begins to slow down. During
this phase those customers from the total target segment who are the
early majority begin to use the product. Though the rate of growth of
sales begins to slow down the total market share of the product
continues to rise. In this phase the company needs to put in a lot of
effort in order to maintain growth in sales. Several strategies may need
to be adopted. These may take several forms like:
i.
Reducing prices – this may seem to be the simplest form of
enhancing sales but in effect it is quite complicated. A reduced
price means that the company’s margins come down and so its
ability to undertake other activities in the market needed to
promote the product gets limited. This can be done if the
production volumes allow a reduced production cost and so a
part of this can be passed on to the customer without in any
way seriously jeopardising the margins.
From the customer‘s point of view however reduced prices are
always welcome but it always puts a quantifiable value to the
benefit. In place of reducing the price if the company is able to
give the customer an enhanced benefit the customer may put a
value to this benefit at a much higher value than the reduction in
price.
ii.
Enhancing the value proposition of their product – thus the
other way of benefiting a customer is to provide him some
features that he may value and be willing to pay the additional
premium over the competitor‘s product. We have seen earlier that
during the product development many more features are planned
than are launched during the initial launch. The reason for this is
that these enhanced features can be released in a gradual manner
to the customer. This allows the company to keep the customer
engaged by offering him innovations while at the same time
62
being able to maintain their bottom line in the face of
competition.
iii.
Launching consumer schemes – In order to stay ahead of
competition the company may launch consumer schemes which
gives a consumer the feeling of getting a benefit without actually
reducing price for example in a shampoo a company brings in a
product that says ―additional 20% free‖. This way the company is
putting in additional 20% shampoo in the packaging but it saves in
all other costs like distribution channel cost, transportation cost,
manufacturing cost and the only cost is the cost of the extra
material. Thus for a small incremental cost the customer feels
he is getting a much higher value. Schemes could be in form of
a gift or a scratch card with every product purchased. A Scratch
card is a card put with the product which the customer gets an
option to scratch and win the prize mentioned on the card.
iv.
Enhancing Advertising – With the increased sales volumes the
company begins to get enhanced revenues. Increased advertising
is used to increase reach within the target segment and support
the dropping rate of growth in sales.
v.
Increasing channel benefits – Several times the distribution
channel is in a position to push sales. The distributor has
limited resources and he would like to maximise his returns.
Thus he will tend to push those products that will fetch him the
maximum returns. In order to motivate the distributor the
company tend to give volume based benefits to them. This
means that the distributor will get a defined percentage as an
additional value over and above the normal percentage if he
achieves a certain volume of sales. This percentage increases his
Return on Investment and he is motivated. The caution here is that
if the company has multiple products with the same distributor
they must ensure that he does not cannibalise their other
products at the expense of this product.
Some of the key features of this stage are:



Sales rise to their peak, then level off.
Industry profits are in a slow decline.
Competition increases.
63





Promotional costs increase (selective demand), and sales promotion
to trigger switching is more common (companies motivate customers
to come and change their old products with new ones)
Products become more homogenous, triggering price competition.
Need to differentiate brand.
Diversify brand and models.
Can be difficult to enter the market in this phase (capturing vs.
retaining share). It is easier to retain share than to capture share
because for capturing a competitors share the company has to spend
some money, but in this phase profits margins are very tight.
Efficiency is a key factor for staying alive in this phase.
2.4.
Decline
Despite the company‘s best efforts the growth in sales of the product begins
to slow down and plateau. This may happen due to the product becoming
out dated and newer products becoming available. It may also happen
because of a new technology becoming available. As we know when mobile
phones were introduced they were large bulky and did not have much back
up. As soon as smaller and more efficient phones became available
consumers switched to the newer phones and the larger ones went into
decline.
In this phase the late majority and the stragglers of the total target
segment are the likely consumers of the product. These people are not
likely to experiment with a new technology and so they will wait for the
technology to stabilise and prices to come down. They will also not
change their products or brands easily and so in a way are a loyal part of
the company’s products and efforts should be made to retain them.
Depending on product to product – from here on the product may go into a
gradual or a rapid decline till it is withdrawn from the market. By this phase
the company has recovered its development costs and has made profit
on the product. The company has to take a decision on how long it would
like to sustain this product. Companies have to see whether they can
continue to support their products profitably or not. Many times
products that have become strong consumer brands can be retained for a
sustained period of time profitably. This does not mean that the company
does not have to innovate. Sometimes companies make some adjustments
in its product‘s positioning to remain in the market. Let us take the example
64
of Lifebuoy soap – this product has remained between the maturity and
decline phase for a very long time.
Lifebouy – resurgence after decline
Lifebuoy was sold in India as early as 1895 when the country was in the
grip of a plague epidemic, but was officially launched and marketed from
1935.
With its positioning as a powerful germicidal and disinfectant, and with a
strong carbolic smell, it was what the nation was looking for at that time.
Lifebuoy, rapidly grew as a reliable brand of India, reaching millions of rural
customers with a promise of ‗health and hygiene‘ as a platform of its
business. Its famous advertising jingle, ―tandurusti ki raksha karta hai
Lifebuoy‖… was so famous that it enabled the brand ‗Lifebuoy‘ to be
perceived as a ‗red carbolic soap‘ for several decades.
Lifebuoy had a 21% market share in the overall soap market and was a
category leader in the carbolic soap segment with a 95% market share. For
over hundred years since the brand first came to India, Lifebuoy has been
associated with health and well-being. Its ads reiterated the message that
Lifebuoy washed away germs and kept one protected and healthy. The
brand went through a major re-launch for the first time in 1964, with a
change in product formulation, shape, and packaging.
But the health advantage was lost over time as competitors came out with
soaps that promised both health and beauty.
The brand passed through prolonged stages of growth and maturity during
most of the second half of 20th century. It was faced with a decline stage
during the last stages of the 20th century and early 21st century with sales
falling at a very rapid rate of 15%–20% per year. The downward trend of
Lifebuoy ‗carbolic soap’ sales made Hindustan Lever Ltd. reposition the
product during 2002 and rejuvenate the brand with prudent marketing
strategies by optimally utilising the brand image.
In 2002 the product moved from being a hard soap to a mild soap that
delivered a significantly superior bathing experience. The new soap had a
refreshing fragrance and its overall positioning changed, painting its
promise of health in softer, more versatile and responsible hues—for the
entire family.
The packaging was also changed: The rugged looking packs were soon
65
replaced with a softer pinkish cover. This was followed by a series of ads
highlighting the soap‘s germ fighting benefits.
Lifebuoy had become a family soap with hygiene as its core promise. A soap
that had been relegated to toilets, Lifebuoy has added new values in an age
where more consumers are getting more and more concerned about germs
and cleanliness.
Lifebuoy has 112
reinvigorated itself.
years
of
existence
in
India
and
has
constantly
Some of the key features of this stage are:






Sales decrease.
Profits decrease and eventually disappear.
Declining numbers of competitors.
Spend enough on promotion to retain hard core brand loyal
customers.
Eliminate unprofitable outlets.
Marketing objective: reduce costs and milk the brand, or drop it.
3. Types of customers at different stages
The Product Life Cycle is closely linked to the type of buyer. We will see that
depending on the stage in the products life cycle a certain type of buyer
within the total target segment of a company will be predominant and will
have a certain type of mindset. This influences the purchasing behaviour
and also the product life cycle of the product.
Innovators
Innovators are a very small part of the total target audience but they are
a very important part. They the first individuals to adopt an innovation
or product and in a way prompt the others to begin to use the product.
Innovators are willing to take risks in trying out new products. These
types of buyers are predominant during the introduction of the product.
They are
a. Usually the youngest in age
b. Belong to the highest social class
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c. Financially they are sound and have significant surplus.
d. Are very social and keep abreast with the latest products and
innovations.
Early Adopters
This category of individuals is second fastest to adopt an innovation and
follow the Innovators. They have a greatest influence on the opinion
amongst the others in the target segment. Others look at them for their
opinion of the product for adopting or not it. Like the innovators the Early
adopters are
a.
b.
c.
d.
e.
Typically younger in age,
Have a high social status,
Advanced education,
Are also financially sound and have surplus
They are more socially forward than late adopters
Both the Early Adopters and Early Majority are a significant part of the
growth phase of the product.
Early Majority
Individuals in this category adopt an innovation after a varying degree
of time. This time of adoption is significantly longer than the innovators
and early adopters. Early Majority tend to be slower in the adoption
process. The Early Majority have
a. Above average social status,
b. They are influenced by the Early adopters and are usually in contact
with them.
c. This category also influences the opinion of other categories of adopters
though to a lesser extent.
Late Majority
The Late Majority customers will enter the market during the maturity
phase of the product life cycle. Individuals in this category will adopt an
innovation after a large part of the adopters have already adopted the
product. These individuals look at an innovation or a new product with a
high degree of suspicion about its effectiveness and begin to use the
product only after the majority of society has adopted the innovation or
product. The Late Majority are
a. Generally suspicious of an innovation or new product
67
b.
c.
d.
e.
Belong to a below average social status,
They do not have very much financial surplus
They are in contact with others in late majority and early majority,
They have very little opinion leadership.
Laggards
The Laggards enter the market near the end of the maturity phase of
during the decline phase of the PLC. They will wait for the product to be
absolutely tried and tested and for the prices to have come down to
the minimum. Individuals in this category are the last to adopt an
innovation. Individuals in this category show little to no opinion leadership.
These individuals typically
a.
b.
c.
d.
Have an dislike for change of any type and tend to resist change.
They tend to be older in age.
These individuals in general tend to be focused on traditions
And they are at the lowest social status and lowest financial
surplus
e. They are usually in contact with only family and close friends and
exert very little to no opinion leadership.
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4. Strategies at different stages of the PLC
Just like the human life cycle where each stage of life requires different
strategies and different skills the various stages of the Product Life Cycle also
need different professional disciplines, and requires many skills, tools and
processes. The Product life cycle (PLC) has to do with the life of a product in
the market with respect to business/commercial costs and sales measures. As
the product passes through various stages of its life cycle we see that:




Each stage has a limited period,
Each stage poses different challenges, provides opportunities, and
creates problems to the seller,
The profits rise and fall at different stages of product life cycle, and
Products require different marketing, financial, manufacturing,
purchasing, and human resource strategies in each life cycle stage.
Introduction Stage
1. Innovators buy the product
2. Demand has to be created
3. Advertising campaign launched
4. Costs are high
5. Slow sales volume to start with
6. Little or no competition
7. Customers have to be prompted to try the product
8. Company makes no profit at this stage
Growth Stage
1. Early adopters and Early Majority begin to buy
2. Public awareness increases due to advertising and word of mouth.
3. Sales volumes increases significantly
4. Profitability begins to rise
5. Costs reduce because of economies of scale.
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6. Competition begins to increase with a few new players entering the
market.
7. Increased competition compels the company to reduce price.
Maturity Stage
1. Late majority begins to buy the product.
2. Advertising focussed on brand diversification and feature diversification
to maintain or increase market share.
3. Sales volume peaks and market saturation is reached.
4. Costs are lowered as a result of production volumes increasing and
experience in product manufacturing and handling.
5. Increase in competitors entering the market.
6. Prices tend to drop due to the increase in number of competing products.
7. Net profit per product goes down but if overall sales remains high profit
increases
Decline Stage
1. Laggards enter the market
2. Sales volume decline or stabilise
3. In order to promote the product much more advertising is needed which
may not be justified.
4. Costs become sub-optimal meaning they are higher than desired.
5. Pries, profitability keep falling.
6. It becomes a challenge to find ways to earn profit rather than produce
and distribute the product efficiently.
5. Application of the Product Life Cycle
Every Product has a life of its own. When we talk of the Product Life Cycle and
the shape of the curve that defined the PLC we generally take a very
generalized view.
The Product Life Cycle offers a useful 'model' for managers to understand
and keep at the back of their mind. It allows them to understand what to do
if their products are in the introductory or growth phases, or in that of decline,
70
it perhaps should be at the top of their mind; managing the important features
of these phases will be critical in differentiating between the life and death of a
product. Understanding the PLC allows managers to understand that a product
may die prematurely if they are not able to undertake key actions at the right
time.
However, an important aspect of product life-cycles is that, even under
normal conditions, for all practical purposes often do not exist in the way
we study them. In most markets the majority of the major brands have held
their position for at least two decades. The dominant product life-cycle, that of
the brand leaders which almost monopolize many markets, is therefore one of
continuity.
Hence the PLC is dependent on what market actions are taken or not
taken. The PLC is not a given pattern to which companies should adapt their
marketing programs. The Product Manager through skillful use of his marketing
management can change the shape and duration of a brand's life cycle.
Hence product life cycle may be useful as a tool to understand the product‘s
stage and actions needed, but cannot be used as a given pattern the product
will follow. The PLC should be under the Product Managers control and
should be defined by him by the actions taken in the market from time to
time.
Many times especially for strong brands the PLC is much longer than the
planning cycle which means that say the growth stage of the product will last
for much longer than the time horizon for which they will plan. Hence knowing
where they are on the PLC does not have significant impact on their planning
since not too many changes will take place during the planning period for
which they are panning. Thus in these cases knowing where you are on the
PLC is not as critical as understanding how to continue activities that will affect
the product positively during the planning period. They will not look at the
complete PLC of the product.
6. Limitations of the PLC
The fact is that the PLC has its importance to the Product Manager in
marketing a product. However it is not easy for a Product manager to
determine at which stage the product is very easily or accurately. Decrease or
increase in sales is not necessarily an indication of the product being in the
growth or decline stage – this could be for a variety of other reasons. Many
strong brands have not shown a decline despite being in the market for many
years. Products like Colgate, Coke, Pepsi have been in the market for several
decades but are still popular. They are mature products and show no likelihood
of decline.
In addition to this stages of the product life cycle being the same, different
product categories will show significantly different PLC shapes. A high
technology or high fashion product will show a steep growth and a rapid
decline after a short maturity with the arrival of new technology or fashion.
While as we have seen some products with strong brands may remain in the
71
maturity stage for a long time with constant or slow growth in sales. The shape
of such a PLC would again be significantly different from the standard curve.
Every product is launched grows and at some point of time dies. However even
though the product dies its category does not die. For example a phone may
die but the communications category will remain. A particular juice may die but
not the juice category as a whole.
Hence to conclude we can say that the standard PLC must be used as a
guide by the Product Management team to understand the strategies,
tools and tactics to be used at different times of the PLC while factoring in
the variations of a specific product or industry category and not get bogged
down by the standard PLC.
7. Summary
The Product Life Cycle is an important tool in understanding what
marketing tools to use in increasing the sales and profit of an organisation.
In each of the four stages of Introduction, Growth, Maturity and Decline the
marketer must use the appropriate tools and strategies in order to stay
ahead of competition. However The PLC applies to product categories and
not to specific brands In addition the category specific PLC also varies with
the market in which it is being considered. So a product may be in a maturity
phase in a certain market but may be in the introduction phase in another
market. The PLC is not a determined its phases can be modified by




Increase in frequency of use by current customers
Addition of new users to the product.
Addition of new uses for the product.
Packaging/quality improvements (industry-wide) which add significant
consumer benefits.
In each stage of the market there are different types of customers who are
predominant in the market. Each of these types of customer have their
specified behavioural pattern and a marketer must be able to exploit these to
promote the brand.
8. Your learning
1. What is the Product Life Cycle?
2. What are the main stages of the PLC and how does sales behave in each
of these stages?
72
3. How many types of customers are there in the market? Do they in any
way affect the PLC?
9. Key Words
1. Capitalization – This is usually used to mean Market capitalization (also
referred to as market cap) This is a measure of the size of a business
and is equal to the share price multiplied by the number of shares at
have been bought by the share holders.
2. Primary demand – the direct demand by consumers for products is
called primary demand.
3. Advertised vigorously – forceful, active, advertising which is used to
push awareness of a product.
4. Critical mass - is a term used to describe the existence of sufficient
momentum in a system so that the momentum becomes selfsustaining and ensures continuous growth.
5. Selective demand - Demand for a specific brand that occurs after the
primary demand (for the product class) in a product's life cycle.
6. Quantifiable value to the benefit – When a customer evaluates a
product he considers what benefit he will get from the b product. This
benefit if it can be termed into a value it will become quantifiable.
Something on which he can put a value.
7. Consumer schemes – These are programs initiated by the company in
the market to attract the customers by offering them additional
benefits that they would not get normally in purchasing their product.
This way they want to entice the customer into buying their product.
8. Cannibalise – where the sales of a new product eats into the sales of
another products within the same line. If the total sales revenue of
that product line increases, then the line extension is justifiable.
9. Level off – when the sales stops increasing and begins to remain the
same they are said to level off. It is similar to water which attains its
level which is virtually flat.
10.
Homogenous - Items of a group all of which are similar,
interchangeable, or uniform
11.
Plateau - A plateau, is an area of highland, usually consisting of
relatively flat terrain. So when we refer to a sales plateau it means
73
alike,
that after increasing for a certain time the sales begins to become
flat. This means the sales has reached a plateau.
12.
Hard core brand loyal – a consumer who is absolutely loyal to the
brand. He is so loyal that if he does not find his preferred brand he
will not buy the product.
10. Exercises
1. Can we use the PLC for deciding the brand promotion strategy? How will
the market and brand influence the PLC?
2. Evaluate what techniques can be implemented by the marketer to extend
a product‘s life.
3. Can a product stay in the maturity phase for an extended period of time?
If yes what must be some of the key factors that can help it stay in this
phase.
4. Why does a marketer have to be careful in using the PLC while planning
in promotion strategy?
5. What is the advantage of Innovators for a company launching a new
product?
6. What is the advantage of Laggards for any brand?
11. Further Reading
1. Majumdar, R, (1998), Product Management in India, New Delji, India,
Prentice Hall of India, Page 94-97
2. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India:
Response Books pg 181 – 200
3. Londhe, BR, (2007). Product Management, Hyderabad, India, page 2134, 55-64
74
Unit VI – PRODUCT PORTFOLIO
18.
19.



Learning Objectives
To understand Product Portfolio and its need
To understand who is responsible for product portfolio decisions
To understand the tools used in evaluating products
Structure
1.
2.
3.
4.
5.
6.
7.
8.
9.
What is Product Portfolio
Responsibility for Product Portfolio Management
Tools for analysis
3.1.
BCG Matrix
3.2.
SWOT Analysis
3.3.
Ansoff‘s Matrix
Process for Product Portfolio Selection
Summary
Your learning
Key Words
Exercises
Further Reading
1. What is Product Portfolio
As we have seen a product is born lives for some time and then dies. The next
product that is born is not assured of success and so if a company has only
one product then it becomes a very risky proposition for the company. In
addition a company has a range of customers. All customers do not have the
same requirement and taste, thus it is not possible for the company to
satisfy all of them with one product only. Hence the range of products
that a company has in the market in order to conduct its business
profitably is known as its Product Portfolio. It also referred to as Product
Mix. Each product in the portfolio has an impact on the other as each
competes for the company‘s resources and time. In addition every
additional product forces the customer to choose a product at the expense of
the company‘s other products thus affecting the sales of that product
negatively.
Let us see what all effects a new product would have on an existing product:
75
i. A new product will need to be advertised more than an existing
product in order to make the customer aware about it.
ii. In the distribution channel the distributor will have to allocate some
resources in terms of storage space, finance, selling and delivery
effort to this new product.
iii. The new product will also occupy shelf space and may displace an
existing product.
iv. The production facility will have to allocate resources for
manufacturing the product storing raw material and finished
goods.
v. The profitability of each product is not the same and so if sales of a
new product which is not as profitable affects another much more
profitable product it is not for the overall benefit of the company.
Hence the company always analyses and tries to ensure that any new product
that is launched must not have a negative effect on its existing product
range and that the overall profit of the company increases with this
introduction.
2. Responsibility for Product Portfolio Management
Product Portfolio Management is the responsibility of the senior management
team of an organization or business unit. This team, which is undertakes this
process, is normally called the Product Committee. This committee meets at
regular intervals to manage the product pipeline and makes decisions about
the product portfolio.
The process of Portfolio Management starts at the time of
i. This starts at the planning stage where the basic product objectives
are defined. In this stage the amounts needed to develop the
product, its expected sales and profits are laid down.
ii. Product Strategy needed to meet this is outlined by defining
customers, markets, competitor analysis, the competitive need for the
product etc.
iii. The next step is to understand the resources/ budget available
given the fact that several products (existing and new) may need to
be supported in the market.
iv. The product must now be evaluated for the investment needed, the
profit it is likely to generate and the risks associated with the
product.
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v. The competitor’s products available in the market and likely
response from competition.
3. Some tools that are used in the analysis
In order to make decisions on the Product portfolio there are several tools that
we may use. These tools are used to understand the various factors that are
interplaying with the product and the market so as to take decisions that will
help in maximisation of profit for the company.
3.1.
The BCG Matrix
The BCG Matrix or the Boston Consulting Group Matrix is a well known method
of evaluating products. This system was developed by the Boston Consulting
Group in the 1970‘s and provided for a clear and simple method for
companies to decide which part of their business to allocate resources. It
provides a useful way of screening the opportunities available, and helps
think about where we can best allocate resources to maximize profit in the
future.
This is a good tool not only for product portfolio but also to helps decide
where to apply other finite resources: people, time and equipment.
To understand the Boston Matrix we need to understand how market share
and market growth are interrelated.
Market share is the percentage of the total market that is being serviced by
the company, measured either in revenue terms or unit volume terms. The
higher the market share, the higher the percentage of market controlled by the
company.
The Boston Matrix assumes that if the company has a high market share it
will be making profit. This assumption is based on the fact that a higher
market share will be achieved over a larger period of time and by that time the
company would have achieved its economies of scale and would have learnt
about how to make money from the product. So we have to decide do we
spend money on products that are already making money or not or spend
money on newer products that are not yet tested in the market. In order to
decide this we need to understand the second factor that is Growth. Market
Growth is used as a measure of the market’s attractiveness. For a market
to be attractive or having high growth it must be expanding and so it will be
easier for the company to make a more profits even if their market share
remains the same. Whereas in markets where there is no or low growth the
company has to fight its competition hard in order to get sales. Sales may be
achieved only after giving discounts thus reducing the profitability of the
company. Hence a high growth market is much more attractive than a low
growth market.
Understanding the Matrix
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To understand the Boston Matrix we categorise products into four groups along two
axes first Market Growth and Market Share. The Market share is plotted on the X- Axis
and the Market Growth on the Y-Axis.
1. Dogs: Low Market Share / Low Market Growth
If a product is in this quadrant the product has a weak market presence. In order to
make the customer notice this product it will take a lot of work and effort by the
company. Making profits will be difficult since it will not get the company
economies of scale. A larger competitor with a larger market share may be making
more profits with the same selling price because of his economies of scale reduce his
input costs and a larger sale giving him more overall profit. All this is further
complicated because the overall market growth is low and getting sales will be highly
competitive – the company will have to cut prices or provide incentives to the
customer to buy his product. In these products we may have to reinvest the profits in
order to sustain the product thus virtually making no profits
2. Cash Cows: High Market Share / Low Market Growth
The product in this quadrant is well established and because of its large sales
would be making profit. The company is in a position to consider investing money
in its growth or new products or in the company‘s star products. However one has
to be careful since the market is not expanding and the competitive scenario would
not be allowing the company to make large profits. Also the company must weigh
the consequences of adding a new product in a low growth market where it already
has a high market share because the market opportunities would be limited.
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3.
Stars: High Market Share / High Market Growth
In this quadrant the products have a high share of a market and are in the growth
stage of the market. These products need capital to finance their growth which
may sometimes mean spending more than what the immediate returns are but have
potential for high sales and profit. However the product is well established with a
potential to achieve much more and the company should make its best efforts in
order to achieve this.
4. Question Marks (Problem Child): Low Market Share / High Market Growth
Products in this quadrant have a low market share in a high growth market.
These products are opportunities which the company can encash. Since market
share is low the revenue generated is also low but the possibility is high due to high
growth of the market. Hence in order to convert these into Stars the company needs
to inject funds/ effort. This could be in form of an increased sales and distribution
effort, more promotion, etc.
Question Marks might become Stars and eventual Cash Cows, but if not
handled properly they could fall behind and become Dogs. These opportunities
need serious thought as to whether increased investment is needed or not.
The Limitations of the BCG Matrix:


It assumes that a higher market share will necessarily give a higher
profit. This is not the case always. When Boeing launches a new plane it
may get a high market share but may not make a profit since large
development costs may not have been recovered.
The BCG Matrix oversimplifies the problem where the problem is a set of
complex decisions. We should use it as a planning tool but must not be
overwhelmed by its decisions. Some market sense must be used with it.
3.2.
SWOT Analysis
SWOT analysis was developed by Albert Humphrey from Stanford
University during 1960 and 1970. It is an analytical tool for auditing a
product or organization and its environment. It is the first stage of planning
and helps marketers to focus on key issues. SWOT stands for strengths,
weaknesses, opportunities, and threats. Using this tool involves specifying
the objective of the product and identifying the internal and external factors
that are favorable and unfavorable to achieve that objective.
Strengths and weaknesses are internal factors – those that are within the
control of the organisation. Opportunities and threats are external factors
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which the company must take into account but does not have too much control
over.
SWOT analysis starts with the definition of the final objective to be
achieved. It therefore begins at the strategic planning stage. First, the
decision makers have to determine whether the objective is attainable,
given the SWOTs. If the objective is not attainable a different objective
must be selected and the process repeated. Identification of SWOTs are
essential at the initial stage because subsequent steps in the process of
planning for achievement of the selected objective may be derived from the
SWOTs.




Strengths: Are attributes of the product that are helpful to achieving
the objective(s).
Weaknesses: Are attributes of the product that are harmful to
achieving the objective(s).
Opportunities: Are external conditions that are helpful to achieving
the objective(s).
Threats: Are external conditions which could do damage to the
objective(s).
We can say the a company should




Build on Strengths.
Resolve/ remove Weaknesses
Exploit Opportunities
Avoid/ Minimise Threats
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Figure 2: Typical elements in SWOT
When we undertake the analysis of the internal and external situation it can
produce a large amount of information. A lot of this may not be very
relevant to the product portfolio decision. The SWOT analysis serves as a tool
that helps interpret and filter to the large amount of information such that
it becomes manageable with focus on key issues. Strengths can serve as a
foundation to build a competitive advantage, and weaknesses may not allow us
to do so. By understanding these four aspects of its product, a company
can better leverage its strengths, correct its weaknesses, capitalize on
golden opportunities, and deter potentially devastating threats.
Internal Analysis:
The internal analysis is a comprehensive evaluation of the internal
environment's potential strengths and weaknesses. Factors should be
evaluated across the organization in areas such as:













Company culture
Company image
Organizational structure
Key staff
Access to natural resources
Position on the experience curve
Operational efficiency
Operational capacity
Brand awareness
Market share
Financial resources
Exclusive contracts
Patents and trade secrets
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The SWOT analysis summarizes the internal factors of the firm as a list of
strengths (positive) and weaknesses (Negative).
External Analysis:
An opportunity is the chance to introduce a new product or service that can
generate superior returns. Opportunities can arise when changes occur in the
external environment. Many of these changes can be perceived as threats to
the market position of existing products and may necessitate a change in
product specifications or the development of new products in order for the firm
to remain competitive. Changes in the external environment may be related
to:









Customers
Competitors
Market trends
Suppliers
Partners
Social changes
New technology
Economic environment
Political and regulatory environment
The last four items in the above list are macro-environmental variables, and
are addressed in a PEST analysis. The SWOT analysis summarizes the external
environmental factors as a list of opportunities and threats.
In undertaking a Product analysis, the Product Committee make detailed
profiles of each competitive product focusing on their strengths and
weaknesses using the SWOT analysis. They will examine competitions
resources, competencies, positioning
of the
product and
its
differentiation over other products in the market, they will also look at
competitions cost structure and sources of profit. This is done by analysing
documents available in public domain and the various announcements made by
competition in press or to government and factoring in the company‘s own
understanding. The Product Committee also considers how competitors have
responded in the past to industry developments. This gives them key
indications as to the posible reaction when the company introduces a new
product.
Many times the company may have to undertake a market research in order
to validate some information or assumptions being made for the product
portfolio decisions.
Some common techniques to conduct market research are:
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
Qualitative
discussions
market
research,
such
as
focus
group

Quantitative market research, such as statistical surveys,
customer surveys, market size analysis

Experimental techniques such as test marketing to
understand customer tastes and preferences and the price points
at which the customer will buy

Observational techniques such as ethnographic (on-site)
observation – this is the science that studies people, ethnic groups
and other ethnic formations, composition, resettlement, social
welfare characteristics, as well as their material and spiritual
culture.

Product managers may also design and oversee various
environmental scanning
and
competitive intelligence
processes to help identify trends and inform the company's
marketing analysis.
Like any tool that is used in a complex market the SWOT analysis cannot give
a definitive answer. Its use must be tempered with the Product Managers
own wisdom. This is because at the time of making the SWOT analysis a
degree of subjectivity is introduced in the analysis. This will vary from
person to person.
Some simple rules to a successful SWOT analysis
i.
Be as realistic as possible about the strengths and weaknesses
ii. Avoid grey areas as they tend to introduce subjectivity.
iii. Use SWOT to compare competitive products better or worse than our
own product.
iv. Do not over analyse or over complicate the SWOT.
v. Remember SWOT is subjective
SWOT analysis for Pepsi
Strengths




Strong core brand
Strong market position
Solid brand portfolio
Strong revenue growth
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

Economies of scale
Cooperative and Progressive Corporate Cuture
Filtered Water instead of Spring Water makes the production, logistics, and
profit margins a lot greater on their bottled water
Weaknesses


Concentrated in North America (US, Canada, Mexico), where almost 70%
of revenues come from
Health Craze will hurt soft drink sales.
Opportunities





Acquisitions & alliances
Bottled water growth
Hispanic growth in the US and Pepsi's ability to meet their tastes with
current product lines (i.e., Sabritas chips)
Growth in emerging markets
Growing consumer health consciousness - i.e., consumer focus on noncarbonated beverages like Gatorade, Aquafina, Litpon, Quaker Oats, etc
Threats




Declining economy/recession
Sluggish growth of carbonated drinks
Coca-Cola & other smaller, more nimble operators
Commodity price increases, fluctuating oil prices effect production and
distribution (gas, plastic)
3.3.
Ansoffs Matrix
The Ansoff Product-Market Growth Matrix is a marketing tool developed by
Igor Ansoff in 1957. This matrix allows Product Committees to consider ways
to expand their business using current and/or new products, in existing
and/or new markets. This matrix uses a combination of Product and Market
to help define strategy. This matrix gives us four possible combinations which
help companies decide what action to take based on what they are doing at
present. Each of these combinations gives possible strategies:

Market penetration (existing markets, existing products): when
companies sell more of its product in the same market it means that
they are penetrating the market. A penetration strategy will lead to an
increase in the market share of the product. This is because
additional sale in an existing market is likely to come by taking the
competitors share, or making the company‘s existing customers buy
more of the product by way of promotion or advertising.
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Market penetration strategy has four main objectives:
o
Maintain or increase the market share of current products – this
can be achieved by a combination of competitive pricing strategies,
advertising, sales promotion
o
Ensure that the company remains the main player in markets that
are growing
o
In markets that have become mature and are not growing anymore
we reposition the company‘s product so that the competitor is not
able to sell and the company‘s takes over its market share. This is
not easy as it requires an aggressive marketing strategy to make the
market unattractive for competitors
o
Increase usage by existing customers – for example by introducing
promotional and loyalty schemes. Amul cheese had a campaign on
using cheese spread on bread, on paratha, or just plain this gives
ideas to customers who may use it in new ways.
A market penetration marketing strategy is easier to execute since the
business is focusing on markets and products it knows well. It is likely to
have large amount of information on competitors and on customer
needs. Hence the company may not need to spend too much on new
market research.


Product development (existing markets, new products): When a
company with a existing product launches a new product in its
existing market. These products can be similar to existing products –
eg if Colgate-Palmolive were to launch a new flavour of toothpaste. They
are already in the same business and adding new toothpaste could help
them get new customers or entice their existing customers to try the
new flavour.
The Product Development strategy may require the development of
new competencies and also requires the business to develop
modified products which can appeal to existing markets. Hence, new
product development can be a crucial business development strategy for
firms to stay competitive.
Market development (new markets, existing products): When a
company wants to sell its existing products in new markets.
This strategy can be undertaken in several ways:
o
The existing product can be sold in a completely new
geographical markets – in another state; country; territory;
channel; etc.
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
o
The same product can be repackaged or remodelled
o
It can be made available in Different/ New distribution channels
o
Different pricing policies to attract different customers or create
new market segments
Diversification (new markets, new products): In this strategy the
company enters a new market with a new product. This strategy is
the riskiest of all. In order to undertake this strategy the company
must be very clear about what its objectives are and must study and
assess all opportunities and risks. Before undertaking this strategy it
must also have its risk mitigation strategy in place at the same time
of introduction of new products.
Virgin Cola, Virgin Megastores, Virgin Airlines, Virgin Telecommunications
are examples of new products created by the Virgin Group of UK, to
leverage the Virgin brand. This resulted in the company entering new
markets where it had no presence before.
The matrix shows us that risk increases the further the strategy moves
away from known quantities - the existing product and the existing market.
Thus, product development and market extension usually involve a
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greater risk than penetration and diversification generally carries the
greatest risk of all.
While penetration are usually need the same technical, financial, and
merchandising resources which are used for the original product line,
diversification usually requires new skills, new techniques, and new facilities.
As a result it almost invariably leads to physical and organizational changes in
the structure of the business which represent a distinct break with past
business experience.
For this reason, most marketing activity revolves around penetration.
4. Process for Product Portfolio Selection
Product Managers have the primary responsibility of deciding whether to build,
maintain, harvest or divest products.
To do this it requires a clear
understanding of the products capabilities in the market vis-a-vis its
competitors, its ability to generate profits, sales in the short and long run.
The strategic objective of the product portfolio is to enhance value
creation for the company. In order to have the right portfolio the company
must continuously:





Identify new market opportunities
Must have a clear understanding of the markets and competitors in which
the products will be launched and the factors in the market that can have
an impact on the success and failure of the product.
The company must also make and evaluation of how much sale and
profit will the product make for it and how the product fits into its
business objectives.
If the company‘s business objectives are not fully met by the product it
must evaluate and answer how these will be made up.
The company has therefore to work towards setting for itself priorities in
the products it needs to develop to meet its product portfolio objectives.
Thus in order to manage the product portfolio the company has to start at the
first stage that is
1. Strategic Planning – At this stage it must evaluate how its new
products will affect its competitive position. This means will the company
stay ahead of completion or will it begin go lag or wil this new product
add a new market which the company is already strong or will it take it
to new unchartered markets.
2. Balance the Product Portfolio – At any time the company will be
evaluating and developing new products and each product has a different
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need of time and money for development. However in order to generate
the right portfolio the company must ensure that it has the right balance
of investment across:
a. Products, technologies and markets (new and existing)
b. Customer segments and regions
c. Innovation Level, Project Stage, Timing and Risk
d. Business Unit
3. Focus on Research and Development – The company must ensure
that the necessary Research and Development activities needed for
development of their products has clear objectives so that the necessary
developments are ready on time for product development.
4. Continuous evaluation of New Product Development – Every new
product being developed must be evaluated at each stage of
development for them consumed, costs incurred, and ability to meet
business and financial goals. Products that do not neet the necessary
requirements must be rejected even though the company may have
spent some resources on it. This will ensure that only the best products
are finally completed and it also ensures that the company does not keep
spending money on projects that will not meet the requirements in the
end.
5. Sharing of information across the company – In order to speed up
product development we must ensure that mistakes are not repeated
and good practices are duplicated across the company. Hence knowledge
of product development must be shared across the company.
5. Summary
A company has a variety of customers each of whose need is a little different
from the other customer. It is therefore not possible for the company to satisfy
all customers with one product. This is possible only by a set of products called
the product portfolio. The product portfolio is also important since every
product has a life cycle and before an existing product goes into decline or is
forced into decline by a competitor the company must be able to bring in
another product to take its place and allow the company t fulfill its business
and strategic objectives.
There are several tools like the SWOT analysis, BCG matrix or the Ansoff‘s
matrix that help the product manager evaluate his product with the market, its
strength and the competitor to make a decision. However these tools can only
provide a general guidance and cannot give exact solutions since the actual
market is a highly complex one and all its variables cannot be quantified. The
88
marketer has ultimately has to use his knowledge and experience to arrive at a
conclusion or decision.
The marketer must be careful while using the tools since many times they get
so carried away by their own convictions that they do not evaluate rationally
the conclusions or indications of the tools.
Managing the product portfolio is an important aspect fro meeting the
company‘s business objectives and so its evaluation starts with the formation
of the business objectives and thus the company has to provide adequate
financial and commitment efforts to ensure that the products needed by the
company to stay ahead of its competition are delivered by the product
development team on time and within the cost estimates helping te company
have a balanced product portfolio.
6. Your learning
1. What is the importance of Product Portfolio?
2. What are the steps a company should take to maintain a product
Portfolio?
3. How does using tools help us in evaluating new products for our
portfolio?
7. Key Words
1. Product pipeline - A product pipeline is a series of products developed
and sold by a company, ideally in different stages of their life cycle.
2. Risks associated – risks linked with a certain set of activities
3. Finite resources – limited resources. Resources that are not infinite
4. Market’s attractiveness – Measure of the profit possibilities that lie
within the structure of a particular industry or market. There are many
different factors that contribute to market attractiveness. These
include: (1) market factors such as growth rate and size of the
market; (2) economic factors such as investment potential and
industry saturation or rates of inflation affecting consumers'
purchasing power; (3) technological factors such as availability of raw
materials; (4) competitive factors including the types of rival business
and the bargaining power of suppliers; and (5) environmental factors
such as the existing regulatory climate and the degree of social
acceptance for a product within a particular market
89
5. Final objective – The ultimate destination.
6. Overwhelmed - To be confronted with more than one can bear or
handle. So the information received from a tool must not be taken so
literally that we go totally by it and do not use our own judgement at
all.
7. Capitalize – take advantage of any opportunities that may come along
or be noticed
8. Deter – to dissuade or discourage a person or company from
undertaking certain activity or function
9. Competitive intelligence – Information acquired about a competitor
with which it competes by the company. Competitive intelligence might
include pricing, advertising strategies, names of clients, technical
advantages and disadvantages, market strengths and weaknesses,
10. Environmental scanning – Here the environment referred to is the
business environment. Scanning means to continuously monitor this
environment for changes in customer behaviour or requirement,
competitive activities, governmental policies, etc so that the company
is at all times aware of them.
11. Degree of subjectivity – subjectivity is a decision based on a
person‘s feelings and impression and not based on facts. Hence a
degree of subjectivity is a certain amount of subjectivity. The amount
will increase or decrease with the increase or decrease in degree.
12. Definitive answer – An answer about one is sure. This type of
answer is given when one is sure of the outcome of the decision based
on the answer.
13. Risk mitigation strategy – risk mitigation is to reduce the chances
or effects of the risk. Whenever we execute a new project there is
always an element of risk which comes from how the factors that are
unknown or over which we have little or no control will affect the
project by the way they unfold or behave. The risk mitigation strategy
lays down actions to be taken if these factors unfold or behave in a
certain manner. This way the negative effect of these factors is
mitigated or reduced.
14. Continuity – something that keeps on going on. Hence if there is
continuity in a product it goes on and does not decline.
90
8. Exercises
1. Why is product portfolio management linked closely to business strategy?
2. What must the company do to ensure that new products in its portfolio
are developed on time?
3. Why is a marketers experience important in taking decisions about the
product portfolio despite having tools that can help him?
4. What is the difference between the BCG and Ansoff‘s matrix? What
factors determine which tool we should use?
5. Why should we consider the internal factors in a SWOT analysis while
developing a product since we already know them?
6. How does knowing the threats in the market help in the development of
the product portfolio?
9. Further Reading
1. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 68-73
2. Gupta, C B Dr. And Rajan Nair, N Dr. (2009) Marketing Management, New
Delhi, India. Sultan Chand and Sons Page 7.9 – 7.14
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20.
UNIT VII - PRODUCT PRICING
21.
22.




Learning Objectives
To understand Pricing
The objectives of Pricing
Steps to undertake Product Pricing
To understand types of pricing and the benefits of these
Structure
1.
2.
3.
4.
5.
6.
7.
8.
9.
What is Product Pricing
Key Elements of Pricing Strategy
Product Pricing
Types of Pricing
Summary
Your learning
Key Words
Exercises
Further Reading
1. What is Pricing?
Pricing is the process of determining the value that the company will receive
for the product in such a manner that it will meet the company‘s business
objectives. Pricing takes into consideration manufacturing cost, market place,
competition, market condition, and quality of product.
Pricing is an important part of the marketing mix as it is one of the four Ps.
The other three aspects are product, promotion, and place. Price is the only
revenue generating element amongst the four Ps, the rest being cost centres.
A well chosen price should do three things:



Help in achieving the company‘s business objectives in terms of
profitability.
It should be such that the consumer will buy the product in relation to
other products in the market place.
It should be consistent with its positioning and marketing variables.
So we can say that Strategic Pricing is the effective, proactive use of product
pricing to drive sales and profits, and to help establish the parameters for
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product development. It is powerful tool for successful marketing strategies if
used judiciously.
2. Key Elements of Pricing Strategy
One of the most important tasks in front of Marketers, Product Managers and
CEOs is to develop the right pricing strategy. This is easier said than done
because in a real market place the complexities are so many that it is not
possible to factor in all variables. Hence any decision based on models
developed by the company may not be able to give the absolute determination
of price. However in order the undertake pricing Marketers rely on certain basic
principles:
1. Understand pricing before commencing development – The first and
most important part of creating a pricing strategy is done at the planning
stage. The basic pricing strategy should be developed at the planning
stage itself. This way the Product Manager can get an insight into what
will be the development costs, understand how much he will need to
spend on advertising, what will be the manufacturing costs and in return
what price he can expect thus what profit he will make.
2. Costs – In order to arrive at product costs we should not rely on
historical costing. Today‘s actual costs and the possible future costs must
be taken for costing and creating a pricing strategy. .
3. Competition – We must be aware what the competition is doing in terms
of pricing. This must be factored into our strategy but we must be careful
not to copy them blindly.
4. Price Sensitivity – We must be aware of the price sensitivity of our
product since the shift of buyers to other products is dependent on this
factor. We must understand what are the factors that influence this
sensitivity and control such factors. A product is said to be price
Sensitive if a small change in price makes consumers change the brand.
While a product is not sensitive to price if a change in price does not
make its consumers change the brand. Usually daily need items are more
sensitive to price change and so our product must be priced close to the
competitor‘s price. While fashion or lifestyle items are not sensitive to
price. And so our product can be priced significantly different from the
competitors price without losing consumers.
5. Product Lifecycle – we have seen that the price of the product varies
through the Product Life Cycle of the product. Hence the pricing strategy
must factor in the stage in PLC while pricing. As the product moves from
growth to decline the price of the product usually goes down because by
this time competition has similar products and consumers have
understood the product and the competitors‘ product and can now truly
value the differences. Thus large perceived differences in prices can
become reasons for shifting brands.
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3. Product Pricing
The ideal price for any product or service is one that is acceptable to both
buyer and seller.
From the buyer's point of view the right price depends on the buyer‘s perceived
value of the product and what competitive products are available in the
market.
The seller has several objectives in pricing the product. However the main
objective is to ensure growth in sales and profits. In companies that are multi
product they also have to ensure that one product does not eat into the other
products sales.
The following steps can be used for determination of product pricing for any
size business:
3.1. Analyze Size and Composition of Target Market
The first step in any product price estimation we need to estimate the
potential for the product in the target market segment. We need to
understand how big the market for the product is and see if this is a
growing, stagnant or receding market. The market potential must be
evaluated at different price points and also understand current
competitive products. This will help us understand if we will have
adequate customers for our product.
The competitor‘s strengths weaknesses as company must be evaluated
and specific importance must be laid on the specific product against
which the product is to be positioned in order to find a way to position/
price our product. This type of information is gathered from the sales
force and by conducting a market research.
3.2. Analyzing Your Costs and Overhead
The most basic part of pricing is to have the correct costs and
overheads. Overheads are costs that are not directly associated with the
production cost of the product. If these costs are not correctly analysed
it may lead to losses or overpricing of the product.
Many times companies make mistakes in costing by basing their costs
on historic pricing rather than on current or future costs. Historic costs
are costs that the company may have incurred on a similar process or
component in the past. This cost may not be valid at current levels and
so must be updated before costing a new product.
Many times companies, especially small companies, emulate the
competitions prices hoping that since they are bigger and more
94
organised the prices must be correct. This may not be correct and so the
companies must rely on their own analysis to do the costing of costs and
overheads.
Several objectives need to be addressed in determining correct product
pricing:





It must be competitive.
It should cover the cost of producing the goods or services.
It must cater for marketing and overhead expenses.
It must meet the profit objectives set at the time of planning.
It should be able to cater to distribution margins and discounts.
Once we have arrived at a price based on all the above factors we need
to once again evaluate the effect of different levels on sales before
taking a final decision.
3.3. Evaluate the Product's Uniqueness
The more our product resembles the competitors product the lesser will
be the difference in price. The product manager must ensure that the
difference he creates between his product and the competitors product
must not only be recognisable by the buyer but they must also put a
value for this difference. Unless they can do this the company will not be
able to get an additional price for its products or the customer to switch
his brand. Here the Product Manager has to be careful because
depending on the category even recognisable differences may not get
him a price premium or a customer to change his choice of brand.
We see that consumers easily interchange brands of most daily use
products that are sold through grocery stores, chain stores, and vending
outlets. The distinctiveness amongst these brand are generally very
small differences and most consumers are not looking for new or
distinctive features in these categories. Let us take the example of
bathing soap – if a consumer walks into a store and does not find the
brand of his choice he is likely to take another soap of another brand
without much thinking. However in case of consumer durables a
consumer is more likely to look at and compare the features and service
network of several competing products before making a purchase. Here if
the consumer has had a good experience with a certain brand making
him to switch to another brand will be that much harder given the same
price and features.
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Another example is that of gourmet food products which have many
distinct and unique attributes in any given category. Consumers shop for
gourmet products because they are usually looking for new, unique
products — "something out of the ordinary." Here the consumer is not
likely to change his brand because of small differences in price. Here
changes will occur only at significant difference in price.
In order to understand how a new product or feature will be perceived by
the consumer the Product Manager can always undertake some form of
Test Marketing or Field Testing in a small market.
3.4. Understand Product Price Elasticity
If demand for the product or service changes significantly with slight
changes in price, the product category is considered to be elastic with
respect to price. If no significant volume changes occur, even with
significant price changes, the category is inelastic.
What does price elasticity mean for product pricing? The greater
the price elasticity, the closer you should price your products to similar
competitive products and vice versa. While the product may be unique,
consumers will not pay much of a premium for it if there are similar
competitive choices at lower prices.
In order to know the price elasticity of the product the company has to
undertake a market research or in some cases research organisations
keep data for certain category of products.
3.5. Select the Distribution Channels
Distribution channels are a cost for the product however this channel
can also be a great strength. Distribution channels allow a company to
quickly get access to several buyers in a market or to several different
markets.
The distribution channel has two types of costs which one must be
aware of:
i.
The primary cost: this is the cost incurred in handling, transporting
the product from the manufacturing unit to the wholesaler or the
distributor.
ii.
The secondary cost: this is the cost of margins that the company
has to build into the selling price of the product for the distributor and
the retailer.
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The secondary costs vary from industry to industry and the product
manager must be aware of the industry practices while pricing his
product.
The secondary margins are calculated as a ―mark-up‖ or markdown‖
on the selling price. Mark-up means that the margin is added to the
selling price or cost. Hence a product being sold for 100 Rs with a
mark-up of 20% will have a selling price of Rs 120. This mark up may
be on selling price or on cost of product.
Markdown means that the margin is a percentage of the selling price.
Hence a product selling at Rs 120 with a markdown of 20% will give a
margin of Rs 24 to the retailer and the company will get only Rs 94.
Markups, like all pricing strategies, depend on three influences —
cost, competition, and demand. Products/ Brands that are unknown
usually have to give higher mark-ups than well known brands. The
reason could well be that the retailer will have to make the effort to
stock and sell an unknown product – it may not sell also thus the risk
and so a higher mark-up to cover the risk. Whereas in the case of a
well known brand the company is advertising and the consumer
knows about the product. He may come and ask for the product or
the retailer with little effort may be able to sell the product thus has a
lower risk and so a corresponding lower margin (mark-up)
While selecting a distribution channel the company must ensure that
i.
It has the lowest costs possible
ii.
It must allow the product to enter the market easily despite
competition
iii.
The distribution channel must be able to provide adequate sales
volume to meet company‘s objectives
iv.
The company makes a sufficient margins after paying costs of the
distribution channel.
v.
The channel is committed to the company‘s product and will meet
their financial commitments to the company.
3.6. Stage in Product Life Cycles
With increased competition and desire of companies to stay ahead of
competition the product life cycles are changing. Companies like to
introduce new products or new features very quickly. Because of this the
companies have to adjust their pricing strategies along with the stage of
the product life cycle in which their product is.
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If we see high technology categories like mobile phones these categories
are introduced with high prices and within 6 to 8 months the prices
come down significantly as newer products reach the market and
competitive products saturate the market. Sometimes because of the
small product life cycle companies may find it difficult to predict sales or
recover costs of development.
In more stable markets like say automobiles prices do not vary so much
but in order to maintain prices as the product moves towards maturity
the company has to add more features or change the cosmetic
appearance of the car to keep getting the same price.
Many product categories have significant evolution and life cycles that
may affect pricing decisions.
3.7. Estimating Sales at Different Prices
Before finalising the price of the product we need to make a final analysis on
how much sales the company is likely to achieve. This must be analysed at
several price points and then matched with the company‘s objectives. This
price must help objectives like:





Meet the profit objectives
Cover cost of goods and overheads
Allow adequate marketing spending to promote the product
Pay for sales commissions and distributor markups
Transportation costs to distributors
In addition we must analyse the competitors and their pricing strategy and
value offering as perceived by the consumer and plot our price value
perception alongside in order to see the effect on sales.
The length of time various brands have been on the market, their relative
market share, brand loyalty factors, advertising and promotion spending levels,
sales support, merchandising efforts, distribution penetration levels/market all
have an influence on the pricing versus volume equation
Lastly since price elasticity can have a significant effect on sales volume
depending on the price elasticity of the market we must factor in the Price
sensitivity of the market or category into the understanding of the price versus
sales equation. Though it may not be easy to build an accurate model because
of a vast variety of factors the experience of eh marketer will come into play
and his knowledge of the market will help in taking the decision.
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4. Types of Pricing
Several types of pricing is undertaken by the marketer the main objective
being an increase in the overall profit of the business. Some of the types are:
i. Loss Leader: A loss leader is a product that has a price set below the
operating margin - not necessarily below cost. This results in a loss to
the enterprise on that particular item in the hope that it will draw more
customers and that some of those customers will buy other, higher
margin items.
The marketer expects that the typical customer will purchase other items
at the same time as the loss leader and that the profit made on these
items will be such that an overall profit is generated for the vendor.
The firm tries to maintain a current analysis of its accounts for both the
loss lead and the associated items, so it can monitor how well the
scheme is doing, as quickly as possible, thereby never suffering an
overall net loss.
An example is a retailer may sell bread or eggs at a very low price and so
customers who come to buy eggs and bread will also buy their other
requirements. This will help the retailer make up the loss and enhance
sales of his outlet.
ii. Premium pricing: Premium pricing is the strategy of consistently
pricing at, or near, the high end of the possible price range to help
attract status-conscious consumers. Examples of companies which
partake in premium pricing in the marketplace include Tanishq, BMW,
Cross pens and Bentley. People will buy a premium priced product
because:
a. They believe the high price is an indication of good quality;
b. They believe it to be a sign of self worth - "They are worth it;" it
authenticates the buyer's success and status; it is a signal to others
that the owner is a member of an exclusive group;
c. They require flawless performance in this application - The cost of
product malfunction is too high to buy anything but the best example : heart pacemaker.
iii. Promotional Pricing: The final price of the product can always be
adjusted through Promotional Pricing. This pricing is unlike the standard
corrections in price which will see a permanent upward or a downwards
movement. Promotional pricing is only temporary in nature and always
downwards. Promotional pricing therefore refers to a temporary
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reduction of prices in order to simulate product demand. However
marketers should be careful not to overuse promotional programs that
temporarily reduce selling price. If promotional pricing is used too
frequently customers may become conditioned to anticipate the
reduction. This results in buyers withholding purchases until the product
is again offered at a lower price. Since promotional pricing often means
the marketing organization is making very little profit from each item
sold, regularly selling at a low price could jeopardize the company‘s
ability to meet their financial objectives.

The options for promotional pricing include:
Markdowns – This is the most common method of promotional pricing
used for stimulating customer demand. There are three types of
markdowns
o
o
o


Temporary Markdown – These are normally for a specified period of
time at the end of which the product price will be raised back to the
normal selling price.
Seasonal Markdown – These are price markdowns for specified
periods of the year e.g. festivals, end of season, special events, etc.
Permanent Markdown – Unlike the temporary markdowns where the
prices are reverted back to their original here the prices are
permanently reduced. This may be done if a clear an old stock to
replace with a new stock, it may also be done to sell perishable
products, or when a new technology arrives and the old technology
products need to be sold.
Sales Promotions – these are several types of promotions possible to
promote sales. This could be in the form of a consumer scheme,
discounts, coupons, trade-in, loyalty programs, etc
Bundle Pricing – This type of pricing is done when the marketer does not
want to reduce the price of its product but yet wants to promote it. A
customer sees the reduction in price as a reduction in quality. And so
bundling it with another product helps create the perception that the
overall cost of both the products is reduces without creating the
impression that one products price has been reduced. For example the
concept of ―buy one get one free‖ is a much used technique in garments.
The customer sees the price and mentally calculates how much two
garments would cost and how much one set is costing. Similarly
computer sellers or home theatre sellers give a large number of DVDs
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free along with their system. If the customer had bought these
separately he would definitely have paid more for both.
This type of pricing is also used many times to sell or introduce
products that are complementary to the main product. For buyers,
the overall cost of the purchase shows a savings compared to
purchasing each product individually.
Dynamic Pricing – this type of pricing has become possible with the
availability of information technology. In this type of pricing the
price may vary depending upon the type of customer that you are –
existing or new, how often do you purchase how much do you buy,
etc. Using technology pricing the selling price is decided based on
the customer fulfilling certain criteria.
We can compare this to the age old process of bargaining where
the price was fixed by the seller depending on the type of customer
you were and how much you could bargain.
Some of the ways in which Dynamic pricing is done is by the use of
loyalty cards – where a specified discount is given to customers
who fulfil certain conditions. So let us say you are a frequent visitor
to Barista and have a loyalty card then every time you go there and
use your card your price will be 10% lower than any other
customer without a loyalty card. Similarly we see airlines selling
tickets on the internet at much lower cost when you buy them early
and more expensive as we buy the ticket as we come closer to the
date of departure.
5. Summary
Pricing is an important part of the marketing mix as it is one of the four P‘s.
Price is the only revenue generating element amongst the four Ps, the rest
being cost centres.
A well chosen price should do three things:



Help in achieving the company‘s business objectives in terms of
profitability.
It should be such that the consumer will buy the product in relation to
other products in the market place.
It should be consistent with its positioning and marketing variables.
So we can say that Strategic Pricing is the effective, proactive use of product
pricing to drive sales and profits, and to help establish the parameters for
product development. It is powerful tool for successful marketing strategies if
used judiciously.
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However in order to price a product the marketer has to start at the product
development stage, and consider the costs, the competition, the price
sensitivity of the product and its category, the distribution channel and its
costs and finally the product life cycle of the product.
There are several types of pricing each of which has its advantages and
disadvantages. The marketer has to decide how the pricing of one product will
affect the other products in its portfolio. He has to work in such a manner that
it leads to an overall improvement in profits for the company or a meeting of
the company‘s business objectives.
6. Your learning
1. Why is pricing an important aspect of marketing?
2. What can be the impact of incorrect pricing of a product on the
company?
3. If a loss leader is making a loss why should the company introduce such
a product?
4. Why is promotional pricing an important aspect of a marketer‘s tools?
7. Key Words
1. Strategic pricing – It is the relationship between market segmentation
and price, and delivers the tools the company needs to stay focused on
value as it determines break-even, defines price elasticity, and analyses
the tradeoffs between features and price points. Using strategic pricing
tools yields a better positioning approach.
2. Historical costing – Costing that is based on historical or old data. This
data may not be upto date and hence may give wrong indications on
profit or cost.
3. Copy them blindly – copy without looking at the actual merits or
demerits of the case or to copy without thinking.
4. Life style items – products that reflect fashion and trends. Also it refers
to a way a person lives so items that show or are used to show this are
life style items
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5. Perceived differences – perceive is to feel, understand or become
aware of something. This is based on our interaction with the people or
environment around us. These may or may not be based on actual facts.
6. Ideal price – this is a price in which all factors are in favour of the
company. For example it could mean it is lowest in the market yet giving
the highest profit, etc. Usually it is not possible to get an ideal price but
the company‘s objective is to come s close as possible to this.
7. Perceived value – Perception is a feeling or understanding that a
person may have about a product which may be based on past
experience, feeling or fact. Many times a customer attaches a value to a
product which is based on his experience with it or on how he perceives
it. For example a person buying a fashion garment for several lacs or
rupees buys it because of his perceived value whereas it may cost only a
fraction of the selling price.
8. Emulate the competitions – to do the same thing that the competition
is doing.
9. Interchange brands – change brands amongst products. So if you are
buying a soap in place of Lux you could buy Dove or Liril or any other
brand there by interchanging brands.
10.
Gourmet is a cultural ideal associated with the art of cooking fine
food and drink, which is characterised by elaborate preparations and
presentations. The term and its associated practices are usually used
positively to describe people of refined taste and passion.
8. Exercises
1. Why should pricing commence at product development stage?
2. Why should we evaluate if the product has price elasticity or not. How
can this influence our product decisions?
3. Since all consumer products have to go through a distribution channel
why should we evaluate the distribution costs while costing the product?
4. How has new technology like computers, internet, mobile phones
changes the way we can undertake pricing?
5. What is the benefit of using bundling pricing over the normal sales
promotion?
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9. Further Reading
1. Lehmann, Donald R and Winer, Russel S, (2005) Product Management,
New Delhi, India, Tata McGraw-Hill Page 291-315
2. Saxena, Rajan (2009) Marketing Management, New Delhi, India, Tata
McGraw Hill Education Pvt. Ltd Page 314-333
3. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 455-476
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23.
24. BLOCK 3: BRANDING AND PACKAGING
DECISIONS
25.
Unit 8: Branding Decisions
27.
Unit 9: Positioning Decisions
29.
Unit 10. Brand Equity
31.
Unit 11: Packaging Decisions
26.
28.
30.
1.
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UNIT VIII – BRANDING DECISIONS
32.
33.




Learning Objectives
To understand Branding
The objectives of Branding
What type of decisions are made
How the company benefits from branding
Structure
1.
2.
3.
4.
5.
6.
7.
8.
Introduction to Branding
Branding decisions
Branding – how does it help
Summary
Your learning
Key Words
Exercises
Further Reading
1. Introduction to Branding
A brand is a set of symbols, words, marks, perceptions and images that
represent a company, product or service. While many people think of a brand
as only a logo, tag line or an audio jingle, a brand is actually much larger. A
brand is the core value or promise of what will be delivered to or experienced
by the customer. It creates associations and expectations amongst customers
for products made by a company.
A brand allows buyers to distinguish itself from its competitor. Brands develop
over time by:




Advertising in various media
Customer‘s real-life experiences of using a product or service
Word of mouth recommendations from friends, family members or
colleagues
Interactions with a company and its representatives
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A Brand once developed can be used to launch several products – HewlettPackard has now developed into a strong brand offering a very wide range of
printers, scanners faxes, photocopiers etc.
Marketers work hard to create a brand identity as it helps in making
advertising and brand development consistent over a period of time. Just like a
person‘s identity helps to identity and understand the person by answering
questions like what his values are, what he stands for, what is his purpose,
what does he want to be known for, etc – similarly the brand identity also
provides a direction about the direction, meaning and purpose of the brand. It
helps us identify what it stands for, what are its core values, and what
associations it wants to convey.
Brand identity is a unique set of brand associations that a brand manager
would like to create and maintain in the customers mind. These associations
convey to the brands customers the company‘s promise and reinforce what the
brand stands for.
Here we must understand that though the product is one of the most visible
parts of the brand and it is easy for people to refer to it as the brand – the
product is only a part of the brand. The brand stands for much more than the
product in terms of its personality, its emotional benefits, customer
associations etc.
A product is at the centre of the brand and has its attributes, conforms to
certain quality norms and has some uses (In the case of McDonald (value for
money, always hot, good tasting, consistent across the world, fast service in a
clean environment). However a brand is much more and has its own
personality (e.g. McDonalds has Family Oriented, genuine, wholesome,
cheerful, fun personality), its emotional benefits (Kids fun , Feeling of special
family times, Link to family events and experiences reinforced by emotional
advertising), its symbols (logo with Golden Arches, and its character Ronald
McDonald) and relationship with the customer.
Fig: 8.1 A brand is much more than the product
Since the brand needs so many elements all of which needed to work in
harmony together in addition to the product creating a rand needs many
decisions. Thus branding decisions are an important part of ensuring a
successful product management.
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2. Branding Decisions
Depending on the type of company launching a new product the company may
or may not have an existing brand. Let us take the example of a new company
being setup – they would have no existing brand while if we take HewlettPackard they have a very strong brand which they can use to launch a product.
Having said that a strong brand also has its limitations – so let us say that
Hewlett-Packard wants to launch a new solar panel (since green energy is
much a part of the future) it will find it difficult to use its existing brand since
this brand is very strongly associated with the IT sector.
Thus any company launching a new product will have to consider some of the
following decisions:
2.1.
Brand or No brand
The first and foremost decision is whether to brand or not to brand a
product. To many people this may seem to be a very unnecessary question.
However we must see these decisions from the perspective of all companies
big and small. As we have seen earlier that a brand is much more than the
product and in order to communicate various aspects of the brand to the
customer it needs time and money. This is an element that all companies
may not have. Thus a company while launching a new product may just
decide to name a product and not brand it. The money saved in the
branding exercise – advertising, promotion, etc. – can be used more
suitably in giving discounts to the trade or customers to build sales. This
money is spent in relation to the sale that is taking place and so the
company is able to control the money spent in selling. While in advertising
the money spent does not give an immediate return. And in case the
company is not able to sustain advertising till it begins to get a return the
company itself will close. If we take the case of Nirma – when they started
selling they did not undertake any advertising. Using their manufacturing
and distribution strength they built up the company. It was only when they
began to enter urban markets and competing against well established
brands that they started a vigorous advertising campaign.
2.2.
Brand name selection
Once the company has decided to brand its product it becomes important to
choose the right brand name. A brand name once chosen is something that
will stay with the product forever. The company is going to spend money in
telling the customers about it and building a relationship with customers
based on this name. Over a period of time any name chosen will become
popular given the right type of advertising and money spent. However in
today‘s highly fragmented and cluttered media a brand name that the
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customer finds easy to remember, associate, differentiate and pronounce
will take less time and money than otherwise. This is unlike a couple of
decades ago when the number of competing brands was much less, the
media was not so fragmented (we had only one Doordarshan channel, only
a few magazines and newspapers) and so brand building was faster and
much cheaper. Hence some of the considerations that we must keep in mind
as we select a brand name are:
i. The Brand name should suggest the product benefits or qualities.
Head and Shoulders for anti dandruff shampoos, Real juices
implying juices are made from real natural fruits, Kissan – from the
farm, Fair & Lovely – makes you look nice and fair etc.
ii. The brand name should be easy to pronounce. Tide, Lux, Wheel.
iii. The brand should be distinctive – that is the brand should look
different from its competitors. In addition it should not remind the
customer of some other brand in another category. For instance,
the New Delhi based Ochoa Laboratories recently changed the
brand name of their Iron(III) hydroxide polymaltose with Folic acid
tablets from TRUFER to UFER, as the former name was being
confused with the similar formulation TRIFER tablets of the
Chennai-based Apex Laboratories. (Indian Journal of Pharmacology
2002; 34: 367-368)
iv. It should be possible to register the brand with the trademarks
authorities to offer it legal protection from copycats or people/
companies wanting to copy the products. Counterfeiting is rife for
brands, copyrights, patents and other forms of Intellectual
Property. We find so many instances of good brands being copied
and so causing loss of sales to the original company.
2.3.
Brand promoter / benefactor
For every product and its brand there must be a promoter/ benefactor. This
defines who is going to spend the money and receive the benefits of the
brand. Each type of brand has some distinctive advantages
i.
Manufacturer‘s brand – These brands are those that are
created by manufacturing companies. Manufacturers not only
develop the product but also spend money on developing the
brand. Manufacturer‘s brands have a competitive advantage in
product quality and innovation, and in integrating their
marketing communication strategy. They spend money on
creating, promoting and building loyalty to their brand name.
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This allows them to continue to add new products under the
umbrella brand. For example HP is known for printing
technology but when it launched different types of printers it
was able to make sub brands like HP inkjet, deskjet, when
scanners were added they created HP scanjet and yet later
when they combined scanners, printers and photocopiers all
into one they created HP officejet.
In addition to allowing companies to launch several types of
products under an umbrella brand Manufacturers also benefit
tremendously by an increased value of the brand in terms of
money and brand recall by the customer. Loyal customers of
the brand know what to expect from the company – values,
benefits, etc. However the manufacturers brands bring in
lower margins to the manufacturer because he not only has to
promote the product but he is also increasing competition of
his product as many retailers will have to sell the product. In
case the manufacturer is dependent on a distribution chain to
sell the product he will also have to cater for their margins in
the total cost. The manufacturer however makes up by selling
more units of the product than the retailer.
Some successful companies are HP, IBM, Microsoft, Nokia,
Maruti, Reliance, etc.
ii.
Private brand – These are brands that are usually
created by retailers. Recently, because the size of retail has
increased, private brands started to have particular
importance by creating unique identities among retailers. The
idea of creating these brands is that the product is then
available only with the retailer and allows the retailer to
charge a higher margin on the product. In addition for these
products retailers do not have the restrictions manufacturers
put on their products as far as discounts, promotion.
For private brands retailers have control over manufactured
quality and so can fine tune and position themselves against
manufacturer‘s brands. The advantage that the retailers have
is that they can decide the shelf space that will be given to
their own brands and manufacturers brands. So they may,
while undertaking promotions, position their brands at
premium positions as compared to manufacturer brands.
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The decision to create a private brand depends on the
capability of a company to promote and sell the brand.
Private brands on an average make up 25% of purchases in
the US and about 45% in Europe. In India organised retail is
still in its infancy and private labels form a small percentage of
the total sales.
Some successful retailers who have developed private brands
with their own name on it are Costco, Wal-Mart and JC Penny.
iii.
Licensed brand – Licensed brands are those brands that
are owned by companies that have over the years created a
well recognised brand or product. For a company to use a
licensed brand the advantage is that they do not have to
spend time and money in recreating the product and/or
technology. For the company that is licensing its brand it can
earn revenues without having to make significant investments.
Let us take the case of McDonalds – it is one of the most
famous brands that uses the licensing format to grow its
business. McDonalds provides to a licensor the brand name,
advertising, the systems and processes, training, pricing and
product standardisation. The licensor uses these and can sell
the product by using his own manpower, premises, etc. This
removes the need for the licensor to go and reinvent the
wheel.
Licensing is also used in the manufacture of high technology
items – for example India manufactures the MIG 29 fighter
aircraft in India under licence from the Russian Govt. If India
had to develop this aircraft on its own it would have taken
several decades and many thousand crores of rupees.
Licensing is also done for simple things like cartoons – Walt
Disney licenses companies to create comics, TV shows using
their comic characters, etc.
iv.
Co-branding – In an attempt to build a strong brand
image marketers are using co-branding as a strategic option.
Co-branding, co-partnering or dual branding is the act of using
two established brand names of different companies on the
same product. It has made inroads into nearly every industry,
from automotive and high-tech internet companies to banking
and fast food. Many well-known firms choose this marketing
strategy in order to draw new customers, to increase the
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brand awareness, to support the customer loyalty or to win
some other individual advantages offered by the partnership.
The concept of co-branding consists of taking a product
developed by one company, and changing its look and feel to
match that of another company. The detailed co-branding
process results in a product that is fully customized to meet
the particular needs of a specific company with a few changes
to the basic product, technology or processes. The basic idea
of co-branding is that consumers recognise brands and
associate values with it. Thus by combining two brands on the
same product the marketer aims at having the benefits of both
the product reflect from the product. This type of branding is
done where two companies known for dissimilar products want
to attract customers from both their segments to buy the
product.
The most important aim of co-branding is to attract more
customers and to maximize the power and prestige that each
brand has to offer. The partnership helps in opening up new
markets and marketing opportunities. Co-branding is a good
way to influence customers and subtly give them the
impression that their favourite brand has a lot more to offer.
Both companies benefit from the partnership and so also the
customer as Co-branding provides two distinctive benefits.


A company benefits by instant brand recognition in markets
where there may not be any consumer awareness (at the
launching stage) or a lesser degree of consumer awareness a
company desires.
Other benefit is the financial advantage provided by the alliance.
It comes from the sharing space in market, this lowers
operating costs and maximizes marketing spends through joint
promotions thus increasing market exposure with one product
carrying both brand names.
Some of the examples of co-branding are credit cards where
an airline may launch a credit card with a bank. When
customers use their car to buy tickets of this airline they get
some reward points which can be encashed for benefits or say
co branding a hotel like Maurya Sheraton would benefit the
hotel by getting customers of both the Maurya and Sheraton
chain using the hotel and the customers would benefit by the
expertise of both the groups and by some specific benefits
which each type of hotel providing to their customers being
available in the hotel. This is useful for customers who travel
extensively since they can get they find the facilities similar
and so are more comfortable. Each hotel provides a certain
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type of mattress for sleeping. Now if a frequent traveller goes
to different hotels and finds different types of mattresses he
needs to adjust to each one. But by going to the same chain of
hotels he finds the same type of mattress and so sleeps better
and thus would like to use this hotel chain more. Now by Cobranding the hotel is able to create products like this which
help the hotel to get more customers and therefore profit.
2.4.
Brand strategy
Another important decision that the marketer must take while
taking Branding decisions is how he must leverage or not leverage
his existing brands. There are four ways to look at the product
brand matrix and each of these has different implications for the
brand and the product.
So if we see the matrix below we will see that there are four
quadrants which are made of a combination of the brand name and
product being new or existing. These four combinations are:
–
–
–
–
Line extensions
Brand extensions
New brands
Multiple brands
Product
Category
Brand
Name
Existing
New
Existing
Line Extension
Brand Extension
New
Multiple Brands
New Brands
A line extension is when we extend an existing brand name to a
new form, size, flavour, etc of an existing product category using an
existing brand name. For example many years ago the shampoo
companies introduced small sachet for a shampoo to allow rural
customers to use their product. This has now become a tool to get
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new customers to use their product even in Urban areas. Recently
Kissan has taken out its ketchup in a plastic bottle and they have
also taken out a metallised pack as a refill to a bottle – plastic or
glass. This is a line extension of the Kissan Ketchup In this the
major cost is that of the development of a new packing because the
product is well known and it has its own set of dedicated customers
who will definitely use the product but in addition there will be may
other customers who may find the usefulness of the product and so
increase the total customer base.
Virtually no additional advertising is needed except some at the
retail outlet level and the use of a good display of the new product
extensions at the retail outlet.
A brand extension is when an existing brand name is extended to
new product categories. This has been done very successfully by
Reliance which has extended its name to brand name ―BIG‖ to radio
– BIG FM 92.7; DTH for TV – BIG TV and Film making; BIG Cinema
– Cinema hall screens; BIG Pictures – to film production. Each of
the product categories has a common thread that it is in
entertainment but each is a new product category in itself.
The advantage here is that it becomes relatively easier for a known
brand to bring in new products categories under its banner. The
customers already know the brand and know what it stands for.
Hence for the new product category also the customer begins to
expect the same characteristics. It becomes that much simpler and
economical for the company to get its product accepted by the
customer.
Multiple brands are done when the company introduces new
brands in an existing product category. Let us see the case of
Hindustan Unilever Limited which has introduced several brands of
bathing soaps in the market. The objective of doing this is to try
and increase the company‘s overall market share. We all know that
it is not possible to satisfy all customers in the market with one
single product. Now to get the other customers our product must
have some distinctive features. A product with different features
cannot be introduced under the same brand. Thus it becomes
imperative to introduce a new brand. This decision is not easy firstly
because creating a new brand is very expensive. Secondly The
distribution channel has a limited product carrying capacity. If too
many products are introduced they begin by cannibalising each
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other or only the fast moving products moving and other products
stagnating in the channel. Hence sometimes a new brand needs a
different channel and creating this again is not a simple or cheap
task.
New Brands with a new product category are the most difficult
and expensive way to launch a product. Here the uncertainty is
very high since neither is the product known and neither is the
brand known. The company must undertake meticulous planning in
order to ensure the success of the product. A proper market survey
along with a test marketing in a smaller market is usually
undertaken when new products are launched with a new brand.
3. Branding – How does it help
So, how exactly does ‗branding‘ help? Well, most customers prefer buying only
those products and services that they are familiar with. Since branding helps
the target audience become familiar with the brand, it has an important role in
determining customer-buying behaviour - and consequently the success of the
business.
Building a brand name is important because it‘s only through a brand name
that a business can hope to communicate the positive attributes of its products
or services to consumers. Quality and prices do affect customer-buying
behaviour, but since it‘s the brand name that brings in most new customer
traffic, businesses cannot afford to ignore the merits of building a proper brand
name for their products or services.
By building a good brand name, businesses will also be able to control and
reduce their overall marketing budgets, because once the brand becomes a
household name, it will automatically lead to consumer generated referrals, a
method that works better than the standard marketing initiatives and
something that costs virtually nothing as far as the business is concerned.
4. Summary
Decisions about branding are important from the point of view of establishing a
long term presence in the market. Branding helps a company reap the benefits
of its efforts over a long period of time. A brand once established not only
benefits the existing product but many other subsequent activities that the
company is likely to undertake in the future.
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It for this reason that companies that launch future products want to align it
with its business strategy because apart from the immediate objectives of
sales and profit achievement the company also seeks to continue its
competitive advantage in future also by leveraging its spends on brands today.
A brand builds a familiarity or relationship with the customer and as we are
comfortable with people we know so is the customer comfortable with brands
he knows. For these brands the customer will be willing to pay a little premium
over those brands he is not familiar with.
In order for the company to sustain its contact and visibility it must therefore
make decisions today that it can sustain r those for which it can get a
competitive advantage and so create the structure that will help in maintaining
the relationship with the customer. Thus allowing the company to increase its
sale, while at the same time reducing relatively it budget spends.
5. Your learning
1. How is a product different from a brand?
2. Does creating a brand help the company? Explain the advantages to the
company.
3. How is the matrix between product category and brand name helping us
evolve a brand strategy?
34.
6. Key Words
1. Symbols – A symbol is something such as an object, picture, written
word, sound, or particular mark that represents something else by
association, resemblance, or convention.
2. Tag line - A tagline is a modified version of a branding slogan usually
used in marketing literature and advertising. The idea is to create a
memorable phrase that will sum up the tone and promise of a brand or
product or to reinforce the audience's memory of a product eg Gillette –
the bast a man can get, Lifebuoy – Tandurusti ki Raksha karta hai
Lifebuoy, Nirma – Doodh si Safedi
3. Jingle - It is a memorable short tune with a lyric
used in radio and
television advertisements, which are usually intended to convey an advertising
slogan.
4. Unique – being one of its kind, unmatched, unequalled.
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5. Harmony – Means to be in agreement in feeling or opinion; or to have
a pleasing combination of elements in a whole
6. Vigorous – Something that is done with a Strong, energetic, and active
in mind or body or is done with force and energy
7. Fragmented and Cluttered media – the media is broken into many
small parts eg the TV now has so many channels and even within the
channels there are so many news channels, so many movie channels, so
many entertainment channels, similarly for the magazines and
newspapers. So the media is highly fragmented. In addition within each
channel there are so many advertisements that they are now very
cluttered and it is difficult to see and remember the ads.
8. Counterfeiting – to make an imitation of what is genuine with the
intent to fraud.
9. Umbrella brand - An umbrella brand is a parent brand that is used on a
number of products each may have separate brand images.
10.
Reinvent the wheel – the wheel was invented many, many
centuries ago. Each time we use the wheel we do not go about inventing
it again but use it just as a wheel. So reinventing the wheel is used to
show that a company is going about restarting the development of a
product/ technology/ process which can be used as it is and therefore
wasting resources.
11.
Cannibalising – to use resources meant for one part in another is
to cannibalise the resources.
7. Exercises
1. Why is the decision whether to create or not to create a brand important
for a company?
2. Why is selecting a name so important to branding and success of the
product?
3. What is co-branding? When should a company undertake co-branding?
4. Does co-branding provide companies with any benefit? What benefits can
you list for this type of branding?
5. What is the difference between private brands and other brands? Why for
companies want private brands.
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6. How does using an existing brand help a company in reducing
uncertainty and costs in product management?
8. Further Reading
1. Majumdar, R, (1998), Product Management in India, New Delji, India,
Prentice Hall of India, Page 43-64
2. Lehmann, Donald R and Winer, Russel S, (2005) Product Management,
New Delhi, India, Tata McGraw-Hill Page 291-315
3. Saxena, Rajan (2009) Marketing Management, New Delhi, India, Tata
McGraw Hill Education Pvt. Ltd Page 276- 283
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35.
36.



UNIT IX – POSITIONING DECISIONS
Learning Objectives
To understand Positioning
To understand the process of positioning
To understand repositioning and why we need to do it
Structure
1.
2.
3.
4.
5.
6.
7.
8.
What is Positioning
Product Positioning Process
2.1.
Define the market
2.2.
Identify product attributes that define product 'space'
2.3.
Collect information about customer perception
2.4.
Determine each product's share of mind
2.5.
Determine each product's current location in the
product space
2.6.
Determine the target market's preferred combination of
attributes
2.7.
Examine the fit and Position
Positioning and Repositioning
Summary
Your learning
Key Words
Exercises
Further Reading
1. What is Positioning
A customer buys a product to fulfil his needs or expectations. Now in a market
that is full of products and brands how can he differentiate between what he
should buy and what not to buy. In addition a customer makes his decisions
not in a logical manner but in an emotional manner. He does not go very much
in the specific merits of a product but rather he makes his decision based on
perceptions about a product and its qualities. Thus it is very important for a
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brand to create the right perception about their product in the customers mind
so that when he thinks about a particular need he recalls the marketer‘s brand.
It is this creation of an image or identity for the product, service, brand or
organisation in the minds of the target customer that is called positioning.
Now since the customer must remember the image or identity of the product
or service the positioning must be distinct from other similar products or
services. If this is not distinct it will lead to confusion in the customers mind.
Thus a marketer‘s job is to position the product in such a way that it can
project its uniqueness over other products, services or brands. This chapter will
examine the ways positioning can be done and utilised.
A company's positioning strategy is affected by a number of variables related
to customers' motivations and requirements, as well as by its competitors'
actions.
Before the product or service is positioned, the marketer should answer the
following strategic questions about his market and his products or services:



What's the customer really buying from him? We all know that
McDonald's is not just selling french-fries and burgers. It sells fast food
that tastes the same, regardless of when or where it's ordered, and
served in an environment that is clean and friendly to families and
children.
How is the product or service different from those of the
competitor? A burger is a burger, you may think. But just see how
McDonald's, and Nirula‘s differentiate their fast food. They offer different
side dishes (free ketchup, mustard, chilli flakes at Nirula‘s, french-fried
potatoes at McDonald's), different toys with kids' meals at McDonalds (a
big incentive for children under 12 years of age).
What makes the product or service unique? In India McDonalds is
the only fast food place to have an exclusive children‘s play area.
Whereas Nirula‘s also provides ice creams in their outlets.
Once these strategic questions have been answered based on the market
research, the marketer can begin developing a positioning strategy for the
business plan. The positioning statement for the business plan should not to be
long or elaborate, but it must point out
i. What the target market is
ii. How will we reach the target customers
iii. What is the customer really buying from the company
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iv. Who are the competitors and
v. What is the Unique Selling Proposition of the product
Please understand that the right image or positioning is powerful marketing
tool. To make it work the marketer must follow these steps:





Create a positioning statement for the company. A short statement
that differentiates the product or company from your competition.
Test the positioning statement. Does this positioning appeal to or
resonate with the target audience or not? This process must be repeated
until we have a statement that communicates the fulfilment of
customer‘s wants and needs.
Use the positioning statement in every form of communication that
the marketer makes to the customers. This reinforces the message at
several levels to the customers.
Create visual materials that communicate your positioning to your
customer and sales channel. A visual is remembered far more than a
written communication and so must be used effectively.
Include your people while creating the communication – both
visual and written – plan. This helps employees understand how to
communicate your positioning to customers.
2. Product Positioning Process
Generally, the product positioning process involves:
2.1.
Define the market
The first step in defining the positioning is to define the market in which
the product, service or brand will compete. We must understand who the
buyers are in the market. This market comprises of all the products and
services that can interchangeably be used by the customer because of
similar usage characteristics or prices. The market needs to be defined
because it is in this sphere that all products and services will compete
with each other for business and market share. The extent of competition
and substitute products in this market will determine the pricing of the
product and the premium over other organisations that the company may
be able to charge.
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2.2.
Identify product attributes that define product 'space'
When we define the market we consider ‖all the products and services
that can interchangeably be used by the customer‖ and we know that
each product comprises of several attributes. Thus we can say that the
market in which the product exists is a space made up of a combination
of attributes. In order to define the boundaries of the space in which the
product will function if we can define the right attributes it will help us in
defining the competition better and therefore positioning our product.
Generally this process is done at the time of product development since
based on the attributes desired the functionality and other features of
the product may be defined. If it is not possible for the company to
attain these attributes then the product itself may not be developed.
2.3.
Collect information about customer perception
Customers perception about products is an important element in the
positioning of the product. In order to position we need to understand
which attributes the customer gives greater weight age. One important
tool used to map these is the technique of Perceptual mapping. In order
to make the perceptual maps we need to collect customer information
about his perceptions about each attributes not only for the company‘s
product but also about competing products. However since perceptual
maps have a limitation in terms of how many attributes can be shown at
any time, we must select key attributes that will have a significant
impact on positioning and provide a position that is sustainable in the
long term.
A sustainable positioning will also impact profitability of the product and
company. Information on customer perceptions is collected through
detailed market surveys and several statistical methods but we must be
careful to construct the research carefully otherwise data collected will
give data that will seem to validate decisions that the company already
knows.
The data collection can be done based on perceived differences between
products or between perceived similarities between them from a sample
of customers by surveying them about their perceptions of each product
on the relevant attributes.
2.4.
Determine each product's share of mind
One of the main objectives of advertising and promotion is to establish
what is called share of mind. When people think of examples of a type or
category of product, they think of a limited list of products or brands. Any
product included in this list has mind share. For example, if you are
considering purchasing a car, you have several brands to choose from.
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However those you recall out of the complete list of brands will have your
mind share.
Of these few, the cars that you are most familiar with will have the
greatest proportion of your mind share. Marketers try to maximize their
product's share in the customers mind.
Hence while positioning it is important to estimate the various mind share
of competing products and to see what position you can create for your
product that will be distinct from others and will be sustainable over the
life of the product.
Sometimes in certain product categories a certain product or brand has a
dominant mind share. A dominant mind share is when a product or
brand name becomes synonymous with the category, for example,
Kleenex brand tissue was only a brand but it has since become a
common to use it as a term to identify any tissue similarly Xerox has
become synonymous with photocopying. Dettol with liquid antiseptic.
While positioning displacing a dominant brand is extremely difficult and
unless the company has a significant advantage- financial or
technological it must try and stay away from this position.
2.5.
Determine each
product space
product's current
location in the
For a marketer to understand the relative position of various products in
the market becomes easier if we plot these attributed on a two
dimensional plot called a Perceptual Map. Perceptual mapping is a
graphics technique used by marketers to visually display the perceptions
of customers or potential customers relative to their competition.
^
Very Safe
|
Lexus
|
Mercedes
|
BMW
|
Honda
Maruti
|
Nano
|
Cheap--------------------------------------------------Expensive
|
|
|
|
|
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|
|
Very Unsafe
Cars that are positioned close to each other are seen as similar on the
relevant dimensions by the consumer. For example consumers see
Mercedes, BMW, and Lexus as similar. They are close competitors and
form a competitive grouping. A company considering the introduction of
a new model will look for an area on the map free from competitors like
Nano was introduced in the cheap end of the map since no product
existed there. Some perceptual maps use different size circles to indicate
the sales volume or market share of the various competing products.
This two dimensional plot allows a marketer to define the space that he
may want his product to occupy.
Perceptual Maps can be of more than two dimensions also each
dimension representing an attribute these are more complex to create
and interpret.
Many perceptual maps – multi dimensional scaling, display several ideal
points these are some points seen as ideal by customers. Each point
reflecting a customer perception. When plotted we will always find some
clusters on the map. These clusters represent customer or market
segments and marketers will try and create products that will meet the
customer needs in a given cluster while at the same time comparing its
offering with what competitors are offering in that segment.
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Some maps plot ideal vectors instead of ideal points. The map below –
Preference regression, displays various brands on the dimensions of
effectiveness and gentleness. It also shows two ideal vectors. The slope
of the ideal vector indicates the preferred ratio of the two dimensions by
those consumers within that segment. This map shows there is one
segment that is more concerned with effectiveness than harshness, and
another segment that is more interested in gentleness than strength.
More Gentle
Brand1
Maruti
Less
Effective
More effective
Brand2
Brand4
Brand3
Less Gentle
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2.6.
Determine the target market's preferred combination
of attributes
For every target market there is a combination of attributes that is
ideally preferred. In order to achieve a position of strength and occupy a
large space in the consumers mind the positioning must aim to come as
close to this ideal combination of attributes as possible. If we undertake
the preference regression to map the market the ideal vector will give us
the direction for positioning.
However we still need to arrive at a set of attributes that we must
consider based on research that has been conducted amongst the target
audience/ market segment. The most important of these must be
considered while making a perceptual map for arriving at an ideal vector.
Perceptual Space Mapping of Products on Attributes
Here we will see that Product C has the highest match on the ideal vector
while Product B has lesser and Product A has the least. While product A
has the highest match on attribute 2 and product C has the least match
on Attribute 2.
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2.7.
Examine the Fit and Position
Once all the data is available about the attributes desired by the
customer in the target market and the competing products in the market
with the space they are already occupying the marketer is ready to
position his product. He has with him the ideal vector desired and also
the spaces available in the market where he can position his product.
Now following an iterative process of positioning his product in a position
and evaluating it in comparison with other competing positions and the
ideal vector he must arrive at a position that can be used by the
company to profitably launch and sustain the product through its life
cycle. It may ot always be possible to get an ideal fit because
i. Some competitor may already be occupying a position close to the
ideal vector.
ii. It may not be possible for the company to produce a product that
will be close to the ideal vector
iii. The customer expectation may not be realisable given the stage of
technology available at present.
3. Positioning and Repositioning
Positioning means creating a position, image or identity in the consumer‘s
mind. Most of the time and effort of a marketer is spent in creating this
position or reinforcing it. The marketers objective is to overcome the noise that
exists in the market because of the claims of all competing and non competing
products and make himself heard and more importantly remembered by the
consumer.
Positioning is an important part of the product strategy and must be
undertaken carefully because any change in the position is an expensive,
difficult and time consuming process. We are not sure that a change in position
will be accepted by the customer.
Repositioning – competitive pressures – because of new competitor entering
the market, new channels and changing customers needs sometimes push the
marketers towards wanting to reposition the brand. However this is not an
easy task. Many marketers despite their increased spend on trying to
reposition their brand are not successful. Some of the key factors to be kept in
mind while repositioning the brand are:
127




Any change in positioning must continue to stay relevant to the
customer. The Marketer must evaluate
the customer‘s current
attitudes and the status of the market with its competing products.
Any brand repositioning must be a logical extension of the existing
position. If the customer sees that the position does not have a
relevance to the earlier position then he will reject the product. The
product will therefore lose its existing set of loyal customers.
The company or product must be able to live up to the new position
created. For the company to ensure that they are delivering on the
new positioning they must closely monitor the market an also give the
customer enough metrics by which to measure/ understand that the
company is delivering on the new positioning.
The repositioning must be based on goals that the company sees as
realistic rather than exclusively on what the management think they
want the goal to be.
Example 1
Many years ago General Motors wanted to reposition it
brand
―Oldsmobile‖ because of changes in the market and wanted to target
a younger set of customers. They improved styling and added new
features hoping to attract the young at the same time launched a
campaign with the tagline ― Not your father‘s Oldsmobile‖. However
the younger generation could not see the connect between the old
and new positions as the product modifications and new styling was
not attractive enough to the younger generation which it was
targeting. Eventually General Motors was not able to rejuvenate its
brand and eventually shut it down.
Example 3
When a dishwasher was launched by Maharaja, in its initial stages, it
was probably seen as an exotic product. So, Maharaja positioned it
as a product aimed at the upper crust of customers. The positioning
statement created was ―your guests get Swiss cheese, Italian Pizza
...... you get stained glassware.'' But Indians were reluctant to use
dishwashers because of deeply embedded cultural reasons. The
product did not appeal. Later, the message had to be changed to
appeal to the common Indian housewife. Hence the positioning was
changed to ―Bye, Bye Kanta Bai''. The idea was to communicate that
now the Indian housewife could use the dishwasher to become
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independent of the maid and her whims. The brand, therefore, was
repositioned from a sophisticated, aristocratic product to one that is
functional and relevant to the Indian housewife.
Example 2
Dettol toilet soap was positioned as a beauty soap initially. This was
not in line with its core values. Dettol, the parent brand (anti-septic
liquid) was known for its ability to heal cuts and gashes. The
extension's 'beauty' positioning was not in tune with the parent‘s
―germ-killing‖ positioning.
The soap, therefore, had to be repositioned as a ―germ-killing‖ soap.
Here, the soap had to be repositioned for image mismatch. The soap
it has performed extremely well after repositioning.









There are several reasons for repositioning‖
Mostly falling or stagnant sales is responsible for repositioning exercises.
Image mismatch between current and desired position
For increasing product relevance to the consumer
For increasing occasions for use
Making the brand serious
Bringing in new customers into the target segment
Making the brand contemporary
Differentiate the brand from other brands
Changed market conditions.
4. Summary
Every product must create some image in the customers mind so that
whenever he needs the product this image is recalled and he remembers
the product. Along with this image will be the attributes and emotional
connect with the product. Thus wile launching any product the company
has to ensure that the image – positioning – is right. It should not only
be able to create this image but also sustain it over time.
In a market that is getting cluttered with products and brands it is
becoming a challenge for marketers to find a vacant position that is
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unique and provides a competitive edge to it. Thus in order to find the
right position the marketer has to start by defining the market in which
his product must compete. This helps him identify the characteristics his
product must have and the target customers likes and dislikes. It also
helps him define the competition and so its strengths and weaknesses.
Each market has certain attributes that the customer associates with and
against each attribute he has some perceptions which need to be mapped
using perceptual mapping techniques for the most important attributes
since we can map only a limited set of attributes.
Using this mapping we understand the customer‘s share of mind for
existing products and our ability to create a share of mind on a
sustainable basis for vacant positions. Here we are able to evaluate how
our product is related to the competing products and how much share of
mind does each competing product have.
Once we have this we evaluate how much our product offering fits in with
the target markets needs and perceptions. Based on the data available
we can modify or tailor our product specifications to become more
aligned to the required parameters. And use these for product
development and marketing it.
Sometimes a product positioning may become obsolete with time of the
positioning may not have been done correctly in the first place. In these
cases the product needs to be repositioned. Care must however be taken
that while repositioning this repositioning must stay relevant to the
customer and must be a logical extension of the existing position – eg
Maharaja changed it from an elitist positioning to a common housewife‘s
positioning.
5. Your learning
1. How does knowing what the customer is buying from us help us in
positioning the product?
2. Why do we create a positioning statement for the product?
3. What do you understand the product space? How does this space help in
product positioning?
6. Key Words
1. Emotional manner – Emotional decisions are decisions that are not
based entirely based on logic.
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2. Unique Selling Proposition – It is what makes you different from your
competitors and persuades the customer to exchange money for product.
3. Sphere – a sphere is a round shape in the form of a ball. Just like the
ball encloses a space around its centre similarly a sphere of activity is
the space in which this activity will take place.
4. Attributes - is a specification that defines a property of an object,
element, It is often treated as equivalent to a property depending on the
technology or product. A characteristic. In a word processing application,
an underlined word would be said to have the underline attribute. In
database systems, a field can have various attributes. For example, if it
contains numeric data, it has the numeric attribute.
5. Perceptual mapping - Marketing research technique in which
consumer's views about a product are traced or plotted (mapped) on a
chart. Respondents are asked questions about their experience with the
product in terms of its performance, packaging, price, size, etc. Theses
qualitative answers are transferred to a chart (called a perceptual map)
using a suitable scale (such as the Likert scale), and the results are
employed in improving the product or in developing a new one. See also
mapping.
6. Clusters
7. Vectors - In regression analysis, a vector is a geometric object that has
both a length and direction. A vector is generally represented by a line
segment with a definite direction, or graphically as an arrow, the length
of the arrow gives the amount or extent of the characteristic and the
direction gives or the extent of match with a certain characteristic which
it is representing.
8. Preference regression - Preference regression is a statistical
technique used by marketers to determine consumers‘ preferred core
benefits. It usually supplements product positioning techniques like multi
dimensional scaling or factor analysis and is used to create ideal vectors
on perceptual maps.
37.
7. Exercises
1. Find out what is an ideal vector in product positioning? Why is it
important in product positioning?
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2. If we have already positioned the product why do we need to reposition
the product?
3. How often can we reposition the product? What would happen if we
repositioned the product every year when we make a new
advertisement?
4. When should we undertake the product positioning activity during the
product life cycle of the product and when should we reposition the
product, if needed during the Product Life cycle.
1.
2.
3.
4.
8. Further Reading
Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 285-296
Lehmann, Donald R and Winer, Russel S, (2005) Product Management,
New Delhi, India, Tata McGraw-Hill Page 234-241
Saxena, Rajan (2009) Marketing Management, New Delhi, India, Tata
McGraw Hill Education Pvt. Ltd Page 278-283
Majumdar, R, (1998), Product Management in India, New Delji, India,
Prentice Hall of India, Page 72-83
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UNIT X – BRAND EQUITY
Learning Objectives
To understand what is Brand Equity
How brand equity helps us with product management
To understand the value of how to create Brand Equity
Structure
1. What is Brand Equity
1.1.
Awareness of the brand
1.2.
Perception about Brand‘s quality
1.3.
Customer‘s Loyalty for the Brand
1.4.
Customers Association with the Brand
2. Why Companies find it difficult to build or maintain a Brand
3. Measuring and Protecting Brand Equity
4. Building Brand Equity
5. Summary
6. Your learning
7. Key Words
8. Exercises
9. Further Reading
1. What is Brand Equity
Brand equity refers to the intangible values that are linked to the company‘s
brand or symbol or logo as a result of its successful efforts to establish a
strong brand. This Brand equity adds value in a customer‘s perception about a
company‘s product, service or technology.
A brand is a name, symbol, or other features that distinguishes the company's
goods or services in the marketplace. Consumers often rely upon brands to
guide their purchase decisions. The positive feelings consumers accumulate
about a particular brand are what makes the brand a valuable asset for the
company that owns it.
To maintain this brand equity companies spend a lot of time, effort and money
because ultimately the brand equity is the sum total of the consumer‘s
perceptions about the product and service.
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There are four key areas that affect the brand equity:
i. Awareness of brand name
ii. Perception of the brands quality
iii. Customer‘s loyalty for the brand
iv. Customers association with the brand
Thus the objective of building a Brand Equity is to create a set of assets that
create a value for the customer and the company and all of these must be
connected with the logo or the symbols of the company. There are a variety of
assets which can be created by the company and each must be evaluated
carefully while creating Brad Equity.
1.1. Awareness of the Brand
Brand Equity depends on the customer‘s awareness level about the brand.
The greater the awareness about a brand the stronger is the brand equity.
Though awareness can be measured in different ways there are two main
aspects of it that can impact a brand.
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Recognition: This type of awareness means that when the customer
sees the brand he feels that he has seen the band somewhere but he
may not remember where and when he saw the brand. He may also
not associate any qualities or values to the brand.
This is type of awareness is better than having no awareness at all.
Customers tend to purchase things that they are familiar with and so
a brand they recognise will always have a preference over a brand
that they have never seen before. However this type of awareness is
lower in importance to a brand recall.
Recall: In a brand recall the customer associates a product category
to a particular brand. So Head and Shoulders may be recalled while
purchasing an anti dandruff shampoo by a customer.
Recall is
important as it has direct impact on purchase behaviour because if at
the time of requirement the customer does not recall the brand he is
not likely to purchase it. As the customer becomes more familiar with
the brand and recognises more and more his recall of the brand
increases. A relationship between the recognition and recall showing a
‗graveyard model‘ was developed Young and Rubicam Europe under
the guidance of Jim Williams
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In this model brands in a product class are plotted on recognition
versus recall graph. If we measure the recall and recognition of
several brands of a product class and these measurements are used
to position each brand on the graph. One consistent finding we will
find across most product classes is that brands tend to follow the
curved line shown in the figure, with two important exceptions.
The first exception is the niche brands, where the brand has relatively
little overall recognition among the mass of consumers, but has very
high recall among the loyal group of key users. In this case the low
recognition is not indicative of poor performance. A healthy niche
player can sometimes expand its recognition and thus their customer
base. These niche brands can make higher profits than some very well
recognised customer brands.
The second exception the graveyard, this is in the upper left hand
corner of the graph. Brands that lie in this area have high recognition
but a low recall. Customers know about these brands but do not recall
them at the time of purchase.
This model gives us several indicators firstly a high recognition is by
itself not the mark of a strong brand. This makes the decision making
tougher for the marketer – for him the problem arises because if the
customers feel they know enough about the brand they may not have
enough interest to listen to any new information the about brand the
marketer may want to tell them. The Graveyard model also allow the
marketer to analyse when brands are slipping into the graveyard
(slipping market share and sales) since it needs immediate action.
Fig: Graveyard Model
Creating Brand awareness is not an easy task considering the fact that
today‘s media is extremely fragmented and is becoming even more
fragmented as companies look for positions that they can hold onto
uniquely. Ultimately fragmenting the markets further. If we take a look at
the markets about 30 or 40 years ago in India we had only one TV
channel – Doordarshan and one radio channel – AIR and a limited
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number of newspapers and magazines. It was easy for the advertiser to
insert an advertisement and be sure that it would be read by a large
percent in his target segment. Here he spent less money and ensures a
viewership of his ads.
Today we have over 100 TV channels and radio stations. The number of
newspapers and magazines has exploded each covering a specialised
segment. In TV even within news we have several channels, so in
entertainment, movies, etc. etc. Now is an advertiser wants to advertise
he is not sure of the channels he must advertise in and also needs to
spend much larger sums of money in order to be seen and heard.
Hence companies tend to use existing brands and leverage them to
launch new products. The limitations are that as long as the company
remains in the same product category it is not a problem but any
additions become a problem. If we see what HP has done in printers –
from HP printers when it changed technology they called them HP bubble
jet, inkjet etc. but when it added a scanner to its printer instead of
launching a new brand it called it HP Scan Jet. But when a copier,
scanner and printer were combined all into ne it called it an HP Office Jet.
This helped in maintaining a high level of brand awareness.
1.2. Perception about Brand’s Quality
Perceptions of a Brand‘s quality have a very strong linkage with Brand
Awareness. A good quality is something that a customer always desires and
if he associates a brand for this it will give the brand a strong thrust in
increasing its sales. An improvement in quality is usually a strong business
thrust of any organisation and is one that remains on a path of continual
improvement.
However for a brand to be able to substantiate its claims about quality a
company has to make sure that quality is inbuilt into the products. In order
to do this the company has to understand what the customer perceives as
quality since it is only then they can understand what they must build in.
This is complicated by the fact that
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The company may work on those aspects of the quality that
customer does not value and so it has no impact on his perception of
quality of the brand in his mind. So if a car company improves
quality of the base coating technique for its paint shop it will improve
quality of the product but it is not likely to have any impact on
customer‘s perception of the quality of the brand.
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the
the
the
the
the
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Customers make most decisions on an emotional platform when it comes
to buying products. Their choices and decisions on quality are not
necessarily rational. This is partly because he has neither time nor the
complete information to undertake a rational analysis of a product.
Secondly he is influenced by other factors such as opinion of friends and
relatives, instances in the markets, his own personality in making these
decisions.
Lastly his perception of quality may be affected by his own previous
experiences or negative reputation of the product since it is not easy to
remove these perceptions from the customers mind. For example – a In
2010 Toyota recalled several million vehicles because of faulty
accelerator pedals that may cause runaway acceleration and faulty
software that may cause braking to be delayed; In October 2009 October
- some Acer Aspire laptops were recalled for overheating problems; In
June 2006 Cadbury-Schweppes announced that there has been a
salmonella scare in their products, causing millions of chocolate bars
from stores across Ireland and the UK to be recalled.
1.3. Customer’s Loyalty for the Brand
The higher the brand equity the higher the brand loyalty and similarly the
higher the brand loyalty the higher is the brand equity. Hence maintaining
customer loyalty is an extremely important aspect of continued brand
equity.
Brand loyalty helps a brand by
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Ensuring that the customers continue to buy its products despite the
competition‘s efforts. The value of a loyal customer is not only from the
point of view of the current product buy but translates into the ‗Lifetime
Value of a Customer‘. This means the total value of products that a loyal
customer will buy from the company over his lifetime. When we see the
loyal customer in this light we can see the significant loss we have in
losing a customer.
In addition it is much cheaper to retain a customer than to break a
competitor‘s customer. Hence money required to maintain a loyal
customer base is lesser and gives a life time value.
Since it is much more expensive to break a competitor‘s customer it
provides the company an entry barrier from competition in entering the
same product segment.
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So if we look at a complete customer segment we can break into the following
types of customers:
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Non customers – they are not customers of the company.
Price switchers – they will change their brand if price is changed
Passively loyal – they buy the company‘s product because they are used
to it and not because they have evaluated it.
Fence sitters – those customers who tend to buy whatever brand they
find first. They are not fussy about the brand they use once they know
that the difference between the brands is not significant.
Committed – those who are committed to the brand and will forgo their
purchase if they do not find the brand of their choice.
Out of these types of customers if the company can make sure that the price
switchers, passively loyal and fence sitters consistently buy their product it can
make a great difference to their sales and brand equity. The company should
however ensure that they do not forget their committed customers since losing
even one of them is an expensive proposition.
In order to maintain brand loyalty companies indulge in several activities like
customer clubs, frequent flyer programs, database marketing (sending
information about benefits to specified customers selected from their customer
list based on their profiles)
1.4. Customers association with the brand
Ultimately brand equity is created by the associations/ experiences the
customer has with the brand. This associations may be his/ or his kwon
persons use of the product, his experience in a company retail outlet, or the
interaction with the company on some quality or other issue.
This desire of the company to create the right brand associations drives
their choice of brand ambassador. That is why we see that sometimes when
a brand gets involved in some wrong activities companies tend to change
the brand ambassador since the negative effects rub off onto the product.
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2. Why Companies find it difficult to create or maintain a brand
Brand building has become a complicated and complex task. Whether it is
existing companies or new ones the tasks of creating or maintaining a brand is
difficult. There are many reasons for this and some of them are
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Pressure to compete on price – Customers always like to get their value
of money. When two similar brands offer their products one of the first
things the customers compare is the price. A higher priced product is less
likely to have a trial as compared to a low priced product. In addition the
sales channel‘s pressure on the company when asked to increase sales is
for a reduction in prices and an increase in advertising and promotion.
However once the company reduces prices its gross margins go down
and so the amounts available for advertising and promotion is lesser.
Building brands is a long term activity in which returns do not come in
the same year. Thus business requirements of immediate sales outweigh
over long term benefit from brand building.
Increase in competitors – Newer companies enter the market they need
to find positions that are unique and so markets tend to get more and
more segmented with a larger number of competitors. As competitors
increase the choice for a customer also increases. Each competitor‘s
product is not much different from the each other. Hence creating a
unique selling proposition in the customers mind becomes all the more
difficult and expensive.
Fragmentation of Markets and media – about three or four decades ago
we had only one TV channel (Doordarshan) and only one Radio station
(All India Radio) in addition the number of magazines and newspapers
were limited. Any advertisement released in say Doordarshan was
potentially seen by the whole target segment. Today we have over 120
TV channels and a large number of Radio channels, magazines and
newspapers. Even within the TV channels we have many channels on
entertainment, news, sports, cartoons, etc. A customer who earlier had
no choice but the see the channel now switches channels as soon as an
advertisement appears. Hence for companies to make their presence felt
they must send a lot of money over several channels and yet they will
not be sure that the complete target segment is seeing them. This makes
brnad building very expensive and difficult.
Complex brand relationships and strategies – Since brand building is
difficult companies try to leverage existing brands and create sub brands
under a mega brand. For example if we see Nescafe – under this brand
the company has launched – Gold, Classic, Cappuccino, Espresso,
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Taster‘s Choice, etc. This causes strategies in brand building to become
more complicated as different products will have a larger customer
preference in some markets and others in other market. Sometimes
building one sub brand may eat into the sales of the other sub brands.
This is a complicated matrix which has no simple solution.
Bias towards changing strategies – As a product goes through its life
cycle it is handled by different people at different points of time (simply
because people come and go within an organisation). Each person who
comes in new would like to do something new so as to enhance the
brand equity just because he has come in freshly and must show his
worth.
Also managers are under pressure from the top management,
sales team and the channel partners to do something new. If
the same advertisement or concept is carried forwards they are
not happy.
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This is not necessarily good for the brand. Since a changed
position again needs money to be spent and also some existing
customers leaving the brand with no certainty of new customers
coming onto the brand bandwagon.
Bias against innovation – This just the opposite of the above point where
the company does not like to change anything about the brand because
it has been performing so well in the past. They do not look at the
changed market realities and are likely to fall prey to a aggressive
competitor.
Pressure to invest elsewhere – once strong brands are established
companies begin to feel that they do not have to spend money on them
in order to maintain it. They tend to take the money needed for
promotion and invest it in other areas.
If we take the example of Xerox they had at one point of time
the best technology, almost 100 percent market share, very
good distributors but once the brand was established they
invested the money needed for innovation and promotion into
another product category – furniture. Since they did not
undertake innovation in some years companies like cannon
entered the markets with better technology and cheaper
products. This completely wiped out the brand.
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Short term Pressures – Brand building is a long term activity and needs a
vision and resources. However resources are always in short supply and
so immediate requirements tend to take precedence over brand building.
3. Measuring and Protecting Brand Equity
Measuring the brand equity is not an easy process because it can be
represented by different factors in different industries and different companies.
It can be represented best by market share or customer satisfaction or
consumer service, etc. However the right measure of the brand equity can help
marketers understand if they are heading in the right direction because a
falling equity is negative while a growing equity is positive. Many times the
brand equity vs profit relationship may not work together i.e. profits may not
rise even though the brand equity is rising and vice versa. A rising brand
equity will definitely lead to increased profits in the future. Thus if a marketer
can find the right method of measuring his brand equity he will be able to see
if the brand is doing fine or is likely to be in trouble and thus take the
appropriate action of pushing ahead or taking corrective measures.
However just because a brand is well known it does not have a strong or
growing brand equity. Sometimes a wrong handling of the brand can weaken a
strong brand. If a brand loses its position in the customers mind the
differentiation is lost and the product becomes like any other unbranded
product and can then sell only on the basis of price rather than value.
Customer finds no value in remaining loyal and so market share of the product
decreases. This has a significant impact on the profitability of the brand. Thus
any decisions regarding the brand must be taken in keeping with the
company‘s understanding on how it will impact the customer‘s perception of
the brand and its attributes. This is the brand equity.
Measurement
There are many ways to measure a brand. Some measurements are financial
in nature while others approaches are more emotional based on awareness and
recall.
Organisational Level: At the organisational level the brand as a financial
asset. Here measurement of the brand value is treated as an intangible asset
of the company. Here the brand value is calculated by taking the market
capitalisation and subtracting form this the tangible assets of the company. The
residual value will be the brand equity of the company. An international
company Interbrand calculates the value by discounting projected profits to a
present value. The discounting rate is a subjective rate which is determined by
the company in consultation with other market specialists and reflects the risk
profile, market leadership, stability and global reach of the brand.
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Product Level: At the product level brand measurement is undertaken by
comparing the price of an unbranded or private label product to an
"equivalent" branded product. The difference in price, assuming all things
equal, is due to the brand.
Consumer Level: At the consumer level the effort is to map the mind of the
consumer to find out what associations with the brand the consumer has. This
approach measures the awareness (recall and recognition) and brand image
(the overall associations that the brand has). Free association tests and
projective techniques are commonly used to uncover the tangible and
intangible attributes, attitudes, and intentions about a brand. Brands with high
levels of awareness and strong, favourable and unique associations are high
equity brands.
All of these calculations are, at best, approximations. A more complete
understanding of the brand can occur if multiple measures are used.
The measurements at the consumer levels are those that are most relevant to
the marketer for promoting his product and brand. It also helps him keep in
focus if his efforts are being done in the right direction because if the
customer‘s perceptions are going down or if the brand equity is getting eroded
the marketer must sit up and evaluate what he is doing wrong.
4. Building Brand Equity
Since Brand equity depends on consumers perceptions any activity that
enhances the perception of the customer will enhance Brand Equity. Since
perceptions depend on relationships and experience a company has to build
strong relationships with its customers based on positive experiences. A
customer will choose a brand over its competitors based on his or her
perception of the brand and may even be willing to pay a higher price based on
his perception that the brand is providing value for his money. The lifetime
value of a customer will be huge for a brand if it is able to maintain the
perception with the customer that it is providing value. In order to maintain
the customer‘s loyalty the company has to make sure that the product or
brand continues to provide him with the benefits associated with the brand.
Hence if the company has to benefit from the relationship between the brand
and the customer it has to continuously work towards building a relationship or
loyalty towards the brand. This relationship or loyalty will be established with
the company only if the customer recognises the company‘s band, tries the
product and then feels satisfied that the product is actually delivering what he
expects from the brand. This cycle of awareness trial and satisfaction gradually
leads to a brand name and positive perception linkage between product and
customer and is the key to relationship building.
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However in order to commence the process for a positive perception building
the company has to start from the definition of what attributes the company
wants to project itself to the customers. Once defined the company must make
sure that all its activities are focussed towards this definition – form product
offering, to advertising and promotion to customer support to manpower
orientation. When all of this works in one unison to provide support of the
defined objective the company will be able to achieve a strong brand equity.
40.
As we have seen earlier the brand is much more than a product. The definition
of the product is limited by its scope, attributes, uses etc. However the brand
has many more attributes linked to it eg emotional benefits, imagery, symbols,
country of origin.
Fig: 8.1 A brand is much more than the product
So how does a company build up its brand equity what part of the brand
should they use in order to build this brand equity.
In order to understand this let us see how we define a brand. David Aaker
defines the brand identity as ―a unique set of brand associations that the brand
desires to create or maintain. These associations represent what the brand
stands for and imply a promise to the customers from the organisation”. A
brands identity has many aspects which give a brand it‘s look and feel and its
texture. A brand identity has many individual elements but the whole is equally
important. Let us take the example of an individual – his identity is not only in
his name or physical appearance or his behaviour or his intelligence. Though
each is in a way defining his identity but it is the combination of the whole that
completes his identity. In addition just as the individual has certain physical
aspects that are clearly visible, he also has some aspects that are emotional
those that are not visible but only felt. Similarly in a brand‘s identity there are
elements that are visible and some emotional benefits that are not explicit but
only felt. This identity of the brand usually remains constant throughout the life
of the brand unless some very compelling reasons require a change.
Companies document this identity so that successive managers do not
interpret the identity form their own perspectives and make fine changes which
over a period of time make significant cumulative changes to the entire brand‘s
identity. The brand identity is the guiding parameter that helps companies stay
focused on the right path through its life while brand building.
Let us examine the identity of McDonalds. At the centre of this identity are the
central values of the brand. Values in the central part of the identity are usually
the softer values that is those that cannot be touched and can be felt.
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Core Identity
A. Value Offering:
a. Value for money
b. Product
c. Buying experience given the price
B. Food Quality
a. Always hot,
b. Good tasting
c. Consistent across the world
C. Service
a. Fast, Accurate, Friendly, Hassle free
D. Cleanliness
a. Clean on both sides of the counter
E. Users
a. Family and Kids are focussed but serve a wide clientele
Around these central are values that provide the texture to the brand and have
the more physical aspects of the brand. These aspects are more easily
communicated or are more easily combined to create the communication to
express the central aspects of the brand or communicate the Unique Selling
Propositions.
Extended Identity
A. Convenience
a. Quick service
b. Close location
B. Product Scope
a. Fast food, Children's entertainment
C. Sub Brands
a. Big Mac, Happy meals,
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D. Brand Personality
a. Family Oriented, genuine, wholesome, cheerful, fun
E. Logo
a. Golden Arches
F. Character
a. Ronald McDonald, McDonald toys and dolls
G. Functional Benefits
a. Good Tasting hamburgers, fries and drinks that provide value
b. Extras like playgrounds, prizes, games, etc
H. Emotional Benefits
a. Kids fun – Birthday parties, relationship with Ronald McDonald
b. Feeling of special family times
c. Link to family events and experiences reinforced by emotional
advertising
Using the Brand Identity a brand manager will define the brand position to use
in brand building. The brand position can be changed without affecting the
brand identity. Aaker defines brand position as ‗Brand position is the part of
the brand identity and value proposition that is to be actively communicated
to the target audience and that demonstrates an advantage over
competing brands‘.
Now as we see there are four important aspects of the brand position that are
to help build brand equity.
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Part of brand identity
Actively communicated
Target Audience
Demonstrated an advantage over competing brands
First of all we have to decide which part of the brand identity we have to
communicate to the consumers. This is important as all aspects of the brand
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identity are not such that can easily be communicated and also all parts of the
identity if communicated may not be understood by the consumer.
Hence in order to build brand equity we need to look at the brand identity and
identify an important part of it that will be used in communicating the message
to the customer. The brand identity has several aspects of the brand that can
be effectively used. If we see the brand identity of McDonalds the identity has
the fact that food is always served hot, has a good taste and is consistent
across the world. However these aspects are not easy to communicate in any
communication. These can be experienced by the customer when he visits
McDonalds. This experience he will carry with him and will help strengthen the
long term bond. However the fact that it is for family and kids – birthdays,
family events, relationship with Ronald McDonald are easy to communicate and
have an emotional appeal. A low cost is another customer benefit that can
easily be communicated.
Thus the part being communicated must have a value for the customer, while
being able to build a bond with the customer in the form of a long term
relationship and value for him.
Once we have decided what to communicate we have to make sure that this is
actively communicated. Meaning that this has to become a part of every
communication of the company whether it is an advertisement or a pamphlet
or a catalog or any other form of communication in the company or retail
outlet.
The part of the brand identity that is being actively communicated must be
designed for and directed towards the target audience. Any communication
must take into account the nature of the target audience so that the
communication can be designed in such a manner that the information being
communicated reaches the targeted audience without distorting the message.
The brand position that the company wants to create ultimately leads to the
creation of brand equity in the customers. Hence in order to see that the
communication is effective the company must measure the extent of equity
created by the communication as a measure of its effectiveness.
The brand position must target a part of the brand‘s target audience and
communication must be directed to them. McDonalds communicates to
children or to the family. However their target segment is not limited to them.
The part of the customer segment they are communicating with are the
primary segment however the others – young adults, and individuals form the
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secondary segment. Communication when it is being designed must ensure
that the secondary segment is not offended by it.
The brand position must be such that it is able to demonstrate an
advantage over its competitors to its consumers. This advantage must
resonate with the customers and they should feel the value of it. In the case of
McDonalds of they communicate that they have a family restaurant that has a
special treat for children and is value for money.
Brands that become strongly embedded in the customers mind are those that
communicate in a manner that provides a cohesive and interpretable grouping
of the brands core values. If we take the McDonalds brand the brand has three
basic building blocks around which the brand offerings are structured. Firstly
Value offering, secondly the service and thirdly the users.
Each of these three fit into each other in a complimentary manner. And each
part is meaningful on its own. And yet the collective has an equal relevance.
5. Summary
Brand Equity is the perception of the brand and its values in the customers
mind. It is affected by the awareness of the brand, perception of its quality,
customer‘s loyalty to the brand and his association with the brand.
The brand equity can be measured in financial terms for a brand and an
organisation but it is measure of the customers perception that is the most
helpful in creating the brand.
Brand equity can be measured in several ways at the organisational, product or
consumer level. However from the marketing point of view it is the brand
equity at the consumer level that is most important. By monitoring this a
brand manager can determine if the brand is heading in the right direction. SO
if the activities that the brand manager is doig to promote the brand are
leading to the increase in brand equity he can be sure that in the long term it
is good for the brand and the product. However if the brand equity in the
consumers mind is going down then there is something for him to worry
because a dropping brand equity is sooner than later going to show in drop in
sales and profits for the product and brand.
The process of creating the brand equity begins from the definition of the
brands identity. This identity has many elements and textures that can be used
for brand building. Using this identity the brand manager creates the brand
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position with the USP focussed for the target segment to which it is actively
communicated. This brand positions communication is regularly monitored to
see if it is creating the right brand equity so as to reinforce the communication
or to fine tune it as required.
However in today‘s competitive scenario companies find it difficult to maintain
brand equity because of pressures of today for performance and profit need to
be balanced with the needs and investments of the future. All this is further
complicated because of the fragmentation of the media.
However a systematic approach in creating the brand equity can be done by
creating a well documented brand identity and then using it in a systematic
and consistent manner to build the brand and consequently brand equity.
6. Your learning
1. What is brand equity? Why is it important for the Brand?
2. What is the Graveyard Model? How does it help?
3. What is a Niche segment? Does branding help in a Niche segment?
7. Key Words
1. Niche - A niche market or brand is a focused, targetable portion of a
market or brand. A business that focuses on a niche market is
addressing a need for a product or service that is not being addressed by
most providers. You can think of a niche market as a narrowly defined
group of potential customers. For example, instead of offering cleaning
services, a business might establish a niche market by specializing in
office complex window cleaning services.
2. Graveyard – This is the place where people are buried after they die. So
when a brand reaches the graveyard it is dead – the customers do not
bother about it anymore.
3. Substantiate – to support with proof or evidence. To verify. To establish
as genuine or real.
4. Perceives as quality - To understand as quality of; To become aware of
the quality directly through any of the senses, especially sight or
hearing.
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5. Aspects – A way in which we can look at a problem, idea, situation.
6. Immediate sales outweigh – Immediate sales become more important
than other considerations. Sales get the maximum weightage in all
decision making.
7. Fragmentation – Broken up in small parts.
So when the media
fragments – it has broken up into many additional channels and
magazines each of which occupies a small part of the market.
8. Exercises
1. Why is the brand larger than the product? What does the brand have in
addition to the product?
2. Is only the media fragmented or is it the market that is fragmented or
are both fragmented? How does this affect brand development?
3. Why is it so difficult to create a brand? Which in your opinion s the most
difficult part of this and why?
4. What is the difference between brand identity and brand position?
1.
2.
3.
4.
9. Further Reading
Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 405-407
Evans, Joel R and Berman, Barry (2007) Marketing Management, New
Delhi, India, Cengage Learning, Page 42, 303-304
Lehmann, Donald R and Winer, Russel S, (2005) Product Management,
New Delhi, India, Tata McGraw-Hill Page 241-249
Saxena, Rajan (2009) Marketing Management, New Delhi, India, Tata
McGraw Hill Education Pvt. Ltd Page 278-283
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41.
42.



UNIT XI – PACKAGING DECISIONS
Learning Objectives
The importance of Packaging
The various types of packaging
How to decide about packaging
Structure
1.
2.
3.
Packaging
Objectives of Packaging
Types of Packaging
3.1.
By function
3.2.
By type
4. Packaging Design Considerations
5. Symbols used on packages
6. Future of Packaging
7. Summary
8. Your learning
9. Key Words
10. Exercises
11. Further Reading
1. Packaging
Packaging is the science and technology of protecting products for distribution,
storage, sale, and use by the end consumer. Packaging also refers to the
process of design, evaluation, and production of packages. Packaging can be
described as a coordinated system of preparing goods for transport,
warehousing, logistics, sale, and end use. Packaging contains, protects,
preserves, transports, informs, and sells.
2. Objectives of Packaging
There are several objectives of packaging. Each type has a function to perform
sometimes one type of packaging may perform more than one objective. Let
us see the various types of packaging:
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i. To provide an impermeable protective barrier around the product. This
type of packing is needed for items that would get spoilt or
contaminated by the surrounding atmosphere for example food items,
medicines, sanitised items, etc. This type of packaging is useful in
some food items as it allows us to fill the contained with specialised
gasses that help in extending the life of the product.
ii. Many times we need packaging that can protect the product from
physical damage because of transportation, or environment. So let us
say when we transport a refrigerator from the factory to the retailer
and then to the customer we do not want the refrigerator to get
scratched, or dented before it reaches the end user. Her we want a
packing that will make sure that the packaging protects it from
shocks, damages due to handling, ease of handling (so that the
delicate parts like door handle are not used for lifting or unloading the
refrigerator.)
iii. Packaging is also used to transmit information from the company to
the customer. It contains basic information about the brand name,
model name, quantity, price, how to transport, which side to keep up,
whether it is fragile or not, and statutory information like price, net
weight, gross weight, and for food products and medicines expiry
dates, etc.
iv. It is also used to bulk pack several small items to ensure ease of
handling and transportation. Let us say a strip of medicine contains 10
tablets. If we handle each such strip individually it will be very difficult
to handle all. So what is done is to bulk pack 10 or 20 such strips of
10 tablets each into a small box. Several such boxes go into a larger
box which is then used for transportation. Here the initial box where
we have put the 10 or 20 strips is performing the job of holding/
containing a certain minimum together.
v. Packaging also has an important marketing function. The surface of
the packaging is an excellent place to put marketing communication
as it will not only inform the customer but also attract him.
Companies constantly strive to put interesting and new
communication on the packaging as it is not only cost effective but
also serves to attract and satisfy the customer.
vi. Like containment that allows the manufacturer to easily handle the
material another important reason is to make a packaging such that
the product is easy to move through the distribution channel right
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upto the customer. So if we take the case of a desk top computer it is
packaged in a nicely rectangular boxes while the actual computer has
several items like the keyboard, mouse, tower and the monitor – each
of which is of irregular shape. But a good packaging design allows
several irregularly shaped items to be packed in such a manner that it
can be easily stacked during transport, storage, at the distribution and
retail points and be safely opened an resealed if required.
vii.
We can also have tamper proof packaging so that when the
consumer gets the package he understands that no one else has used
a part of the product before he has been able to do so. We can see
that under a bottle cap like Pepsi, Coke, Bisleri – we have a plastic
ring that is attached with the cover. Once the bottle has been opened
it detaches and cannot be attached again. Hence anyone buying the
bottle can assure himself that the bottle has not been opened before.
3. Types of packaging
There are two ways in which we can classify packaging. It can be classified
either by the type of packaging or by the function the packaging performs.
3.1.
By function
Packaging types can be classified from the function they perform starting from
the first layer
Primary packaging – This is the first layer of packaging over the product. If we
take the example of the medicine strip – the covering over the medicine is the
primary packaging. Similarly if we take the example of a desk top computer
the first covering over the keyboard or mouse is the primary packaging.
Secondary packaging – This is the packaging that is outside the primary
packaging. In the case of the medicine strip it is the box that collates the 10 or
20 strips and in the case of the desktop computer it is the cardboard carton
that is the secondary packaging.
Tertiary Packaging – This is the packaging that is usually used for bulk
transport. In the case of the medicine strip several boxes each containing 10 or
20 strips will be packed in a larger carton and then shipped to the destination
usually a wholesaler who will then take out the smaller boxes and send them
to the retailers. In the case of the desktop no additional packing layer will be
added but these cartons will be stacked onto a palette and shrink wrapped.
Shrink wrapping is a process by which a polymer film is wrapped on certain set
of products. This is then heated to a low temperature and the film tightens on
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the contents and holds them tightly. We nowadays see several soda bottles or
coke cans wrapped together like this.
3.2.
By Type
Another way to identify packaging types is to classify them by their type:
Blister packaging – it has a preformed shape that is open from one side and is
used to contain the product. The other side is flat and is used to seal it so that
product cannot come out unless desired. Typically used for small products like
medicines, small consumer electronics like pen drives, etc,
Skin packaging – Skin forming is a form of visual carded display packaging
that tightly locks the product to the bottom board by using a at formed film
that virtually sticks to the contours of the product. This type of packaging can
be done for small and medium products. The difference between skin and
blister packing is that in the latter case we have to get the blister pre-shaped
for a product which can be done only if there is a certain minimum volume.
While in the case of the skin packaging it can be done for any shape as long as
the film width is adequate for covering the product. This type of packaging is
done for
auto parts, arts and crafts, ceramics, glass, food stuff, etc.
Vacuum packing – This type of packing is used in areas where we do not want
air to interact with the product and spoil it. Hence it is usually used for storing
and preserving food. IN this type of packing after the vacuum is created
another gas is added to modify the atmosphere to increase the shelf life of the
product.
Box packing – This type of packing is used as an outer or consolidation packing
system. This type of box is usually made of a thin but stiff paper that is strong
enough to hold the product but not strong enough for transportation. This type
of packaging we see on display on retail counters and has the branding of the
product including all the retail and Govt. mandated information. This type of
packing has two functions:


It helps in making small units handlable for example if we want to sell
thread or medicine – since these items are small first of all we need to
consolidate them so that we do not have to handle too many pieces it so
as we saw above we put 10 or 20 medicine strips into a box.
It makes products of irregular shape into regular shapes that can be
further packed or handled in transportation and storage. Let us take the
example of a toothpaste tube – it has an irregular shape and is difficult
to store, handle or transport by itself. So we put it in a box that allows it
to be stored, transported and easily displayed on retail shelves.
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Carton packing This type of packing is strong and has the ability to withstand
impact. This type of packing allows the damage free movement of goods from
the manufacturer to the retailer. This type of packing is usually the outer most
layer of packing for most products. Though for some products it is also used
for internal packing and retail display. When it is used as an outer layer it is
generally used for transportation.
This packing can be made in different thicknesses and strengths which can be
described a ―ply‖. So we can have a 5ply or a 7 ply carton and a 7 ply carton
being stronger than a 5 ply.
Sometimes we make a 3 ply carton also but this is used for internal packing or
retail display. This type of packing is used for internal packing because it has
some amount of cushioning effect because of its construction and can bear
vibration and impact during handling and transportation. It is especially useful
for fragile items like glass, crockery, decorative items, etc.
Also because of its construction it has strength which allows a 3 ply carton
using what we call ‗micro fluting‘ to be used for making open cut out packing
that we typically see for say a toy which we can see through a window. The
need to use this type of packing is because when you put a transparent
window the overall strength of the box comes down and so a 3 ply carton
provides the additional strength needed by the box.
Metallised film packaging is a relatively recent innovation where a polymer
film is laminated with an aluminium layer. This metallised film has excellent
properties of being tough, reducing permeability to air, water and light. Hence
it used to pack food and also for speciality applications including insulation and
electronics sometimes also used for decorative purposes. This type of packing
provides a glossy metallic appearance of an aluminium foil and has a low cost
and weight. This film can easily be printed and hence becomes an ideal
packing medium. We see this packing being used extensively on food items like
chips, snacks, etc where it to only provides the flexibility of packing irregularly
shaped items but at the time of packing some gas is also filled into the
packing. This gas is an inert gas that prevents the food item coming into
contact with air or water so that its shelf life is enhanced. In addition this gas
serves another purpose it prevents the chips or any other items in the packing
from getting crushed during handling and transportation.
Bottle packing – is used to pack liquids. This is the simplest form of packing for
liquids and it serves the additional purpose of being the product dispenser.
Traditionally bottles used to be of glass only but with the availability of low cost
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impact resistant plastics plastic bottles have made a huge inroads into this
category. The use of plastic bottles reduces breakages during transportation
and handling not only be the company but also be the consumer. Plastics
however increase the environmental problems because of the non
biodegradable nature of plastics.
Cans – Cans were an extensively used mechanism for packing products in the
early part of the industrial development especially for foodstuff. These cans
were tough, did not allow air, water and light ingress. They were extensively
used for food packing. However at that time because of the technology their
shelf life was not very long. In addition cans needed a can opener to open
them. Today the technology has improved significantly improving the shelf life
of these cans in addition technology has provided a mechanism of allowing a
consumer to open these cans without a can opener. Because of the
improvement in material that have become lighter, stronger and cheaper it has
now become possible to use these cans for aerated drinks also.
Palletising – This is a form of packing that is used to aggregate packets into a
bulk form in such a manner that it becomes possible to use a forklift, palette
jack, front loader or any other device to lift, move and store the products. A
palette is a flat structure with feet in rows which allow a fork lilts fork enough
space to enter. It is made of wood, plastic or metal. The material used for the
palette depends on the product that will be loaded onto the palette. Many
times palettes are also used for storage of material in large warehouses.
In order to pack material onto a palette the material is stacked on the palette
and this material is then secures with straps, stretch film or shrink wrapping.
Refrigerators when they are transported from the factory they are put on a
palette and bolted onto it from the bottom. The cardboard carton of the
refrigerator covers it from the top and then all this is strapped onto the palette
so that it is further secured on it. Similarly when we export say garments – the
garments are packed into cartons. These cartons are stacked on the palette.
This is then secured on the palette using stretch film which is stretched and
wrapped around the boxes and palette. This film tightens itself on the boxes
and does not allow them to fall or move. The whole palette is then moved
using a forklift or other similar devices.
Each of the above types of packaging has wide applications and cost
implications and so we must choose wisely which packaging is most suited to
the product.
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4. Packaging Design Considerations
Packaging design and development is usually done at the time of product
development since it helps in the comprehensive development of the product
and understanding of all costs and issues related to the products performance
in the market.
i. Packaging design begins by understanding the requirements of the
product to be packed and identify requirements related to:




Marketing – The marketing requirements of the product must be
met. If the new product is from an existing family of products then
its packaging cannot be significantly different from the earlier
products otherwise the customer may not recognise it.
Product display – Depending on the product type the product needs
to be displayed at the retail counter. Now the retail counter is of
standard shapes and sizes and hence must be designed in a
manner it is easy and yet prominent at the display. The product
packing must be able to display the brand and the marketing
message clearly to the customer.
Ensuring quality of delivery – packing must be developed in a
manner that ensure that the product is delivered from manufacture
to the customer in a safe manner that is free from any form of
damage minor or major. We know that during the products transit
fro the manufacturing unit to the end consumer the product will be
handled several times. The people handling the product will not
always take the best care and so the product must be packed so
that despite these glitches it reaches the customer safely.
Transportation – during transportation the product has to be loaded
and unloaded onto transport and moved to and from the
warehouse. Now depending on the product and its size and weight
we may need the use of specialised equipment to handle the
product. The packaging must therefore be designed in such a
manner that equipment needed to handle the product has the
necessary tackles and handles.
Let us take the example of a heavy machine that needs to be
packed. Once this machine is packed it needs to be lifted – for
this the packing design must provide that it is either put on a
palette so that it can be moved by a forklift or it must provide
for a hook at some place that will allow a crane to lift the
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
machine and move it. If these things are not thought of at the
design stage it will not be possible to move the machine later.
Govt. Regulatory requirements – These are some of the mandatory
requirements that every manufacturer has to display on the
product. These have been mandated by the government so as to
inform and protect the consumer so that the manufacturer or the
retailer does not take unfair advantage of the consumer. These are
things like Price, Net Weight, Gross weight, composition of
contents, expiry date, storage conditions, health hazards, etc.
Any packaging design must ensure that there is adequate
space on it to display all such mandatory information.



In addition Govt. also lays down parameters in terms of what
type of packaging is suitable for what types of product
especially food.
Shelf life – is the length of time that food, drink, medicine and
other perishable items are given before they are considered
unsuitable for sale or consumption. In some products, a best
before, use by or freshness date is required on packaged
perishable foods.
Since it is not always possible that the customer will buy the
product it becomes important that the packaging assist in
extending the shelf life of the product. As we have see above
there are several ways to do this and depending on the
product and the use we must design the packaging
accordingly.
End use the end use of the product is important while designing
packaging. For example if we are designing a packaging for a
shampoo – we know that this will be used while having a bath
where there will be water and so a chance of slipping from the
hand. Hence while designing we need to identify an packing
material that will not break on falling down, in addition we must
make sure that it is easy to hold and take out the shampoo even if
it is slippery – thus defining its shape and texture.
Environmental issues – Environmental concerns are growing by the
day. We now know that we are living in a finite environment and
we cannot undertake infinite pollution. As it is over the last 100
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years man has severely harmed the environment to the point that
our air, water and soil have become full of pollution.
A metallised film, or a plastic container, or a blister pack are
such materials that do not degrade on their own and cause
environmental problems. Marketers and business heads are
now more than ever concerned and are being held accountable
for the company‘s impact on environment. Hence at the design
stage we need to evolve packing materials that will serve our
business needs of shelf life, handling, transportation while at
the same time being environmentally friendly.
In many countries internationally companies contribute a part
of the cost of the product towards systems that allow the
company to bring back products that are non bio-degradable
back into the manufacturing recycling system and do not
pollute the environment. One such system is the Green Dot
which the license symbol of a European network of industryfunded systems for recycling the packaging materials of
consumer goods. The logo is trademark protected worldwide.
ii. The design made for the product must meet the performance criteria
Any packing design must be able to meet the performance desired
from it. If we look at the shampoo example – we know that the
shampoo bottle has to be opened and closed several times before it
becomes empty. Now the bottle cap that is designed in such a way
that it will remain intact and will not break away from the bottle.
Similarly the bottle must also be strong enough to last its life. If we
take the example of a laptop now the laptop is a sensitive piece of
equipment and cannot withstand rough handling hence its packaging
must ensure that the lap top is adequately protected from all sided
from impact etc. However if the packaging does not perform to its
performance criteria the lap top will get damaged during transit.
iii. The design must meet the time targets
Any development takes time from concept to completion. However
since we have a product to launch it is imperative that the product
packaging is released on time. The product development team must
freeze the time target with the team developing the packaging as any
other milestone in the product development and this must be adhered
to.
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iv. The resources available and the cost targets must also be met
In business for any activity resources are limited and so is the case
for the development of the product. The company must ensure that
packaging is developed using the resources available with the
company or those that the company can get for itself. However having
said this the packing being designed also has a cost target. This
means that the designed packing cannot cost more than a specified
amount otherwise the product will become unviable in the market.
This cost limit is also specified by the product development team at
the start of the project.
5. Symbols used on packages
Symbols are used as a universal language. It allows people to understand its
meaning even without knowing the language of the place of origin of the
product. It also allows for recognition from a distance and can be put on
packages of different sizes conveniently.
Below are a number of symbols often seen on packaging. Each has a specific meaning. The symbols
are normally very simple and easy to understand.
This symbol reminds those handling the package to keep out of the rain and not to store it in damp
conditions. It is normally found on cardboard based packages which would be damaged if placed in
contact with water.
The broken wine glass suggests that the product inside the packaging could be easily damaged if
dropped or handled without care and attention. The contents are fragile
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The two hands holding or protecting the package is another reminder that the contents should be
handled with care.
This is to show that the package that it must be stored the correct way up. The arrows point towards
the top of the package.
The symbol showing the thermometer is found mainly on packages containing food and drink. The
symbol tells us that the contents should be stored at a temperature between the two temperatures
mentioned (10 and 20 degrees (centigrade) in this case).
Below are a number of symbols often seen on packaging. Each has a specific meaning. The symbols
are normally very simple and easy to understand.
POLYTHENE TEREPHTHALATE (PET) is a material widely used for packaging, especially
drinks containers. The symbol is used to remind the consumer that it is 90% recyclable so that he
may discard it in the recyclable materials bin.
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These are internationally recognisable symbols for recycling and are used on many packages.
It is used to remind the customer that the material with this sign must be discarded in the recycling
bin and not general waste bin.
This symbol is also for a recyclable material. However, the letters ‘alu’ mean aluminium. Thus
helping disposal in the appropriate manner.
Cold drinks cans are usually manufactured from aluminium and may have this symbol.
These symbols say that the product carrying this symbol has been tested to British and European
safety standards. These symbols that are usually applied to non-food products such as electronic
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products or toys. However, they may still be applied to the packaging to indicate that the package
itself is safe
This symbol represents the centre of gravity of a heavy substance
This symbol represents that the product must be kept dry
This symbol is used to denote that the product is heavy and must not be lifted. In many countries
law provides that nobody should lift by hand any load more than a certain weight. This is 25 Kg for
EU.
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6. Future of Packaging
The packaging industry is very dynamic and has undergone a great deal of
change because of the changing world around it. Laws and regulations, new
products, the globalization of technologies, and a general increase in
competitiveness have accelerated in the last 10 years, and there are greater
concerns with health and reliability issues.
However since the packing industry is a large one with each player working in
a small area of the whole industry they usually do not take a holistic view of
the problems or the possibilities of the industry. There's a need for a more
comprehensive and integrated view for the packaging industry to plan on a
more informed and inclusive basis. The following areas are where the impact of
packaging is going to play an important role in the near future:
Environment: Environment has played a large role for several decades and
continues to do so on packaging – for example, the current availability of
bottled water is producing 1.5 million tons of plastic waste each year. In many
parts of the country, the most visible kind of trash on the street is plastic water
bottles. This is creating a large environmental problem and if the industry
doesn't start resolving the environmental concerns it will cause a catastrophe.
Also, the different types of plastics are becoming a virtual nuisance in society
and are affecting the ground, ground water, and river water of the country.
While we try to deal with the situation, the waste heaps continue to grow
larger. Something will have to be done to clean them up.
Globalization: As companies go global the challenges for packaging become
much more complex. This is partially due to the fact that different countries
have different legal requirements and different connotations for different
names, numbers and colours. Like in India red is an auspicious colour while in
Pakistan it would be green, similarly in the US 13 is an unlucky number in
India any number ending with 1 is auspicious like 101, 21. All these relate to
the culture of the country which companies must take cognisance of.
For example Nike offended Muslims in June, 1997 when the "flaming air" logo
for its Nike Air sneakers looked too similar to the Arabic form of God's name,
"Allah". Nike had to pull out more than 38,000 pairs of sneakers from the
market.
As businesses globalize, they must accommodate their packaging to reflect the
culture.
Energy. The idea of rationing energy use or carbon dioxide production has
increased from a possibility to a probability, which will have a direct effect on
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packaging. Years ago, the availability of cheap energy and low awareness of its
impact on carbon dioxide generation meant that the average product was
excessively packaged. Even today, though to a lesser there is excessive
packaging, which translates into a waste of energy and a source of carbon
dioxide production as the material is burned.
Today there is a global movement towards sustainability and packaging while
having to satisfy its needs in the market will have to make sure that it is
scoring high on the sustainability scale. This will mean that the energy
consumption and thus the carbon dioxide generation of each packaging and
the product will come under greater scrutiny over the years.
Legal regulations: Over the next few years and decades we will see that in
the domestic and export markets regulations will require compliances in three
areas:

Recycling – involves processing used, unwanted or waste materials into
new products to reduce the consumption of fresh raw materials, reduce
energy usage, reduce air pollution (from burning waste) and water pollution
(from land filling) and lower greenhouse gas emissions as compared to fresh
production

Reclamation – is the recovery of useful substances from waste products
or recovering usable parts.

Remanufacturing – Many formal definitions of remanufacturing exist in
the literature, but the first published report on remanufacturing, by R. Lund
(1998), describes remanufacturing as ―… an industrial process in which wornout products are restored to like-new condition. Through a series of industrial
processes in a factory environment, a discarded product is completely
disassembled. Useable parts are cleaned, refurbished, and put into inventory.
Then the product is reassembled from the old parts (and where necessary,
new parts) to produce a unit fully equivalent and sometimes superior in
performance and expected lifetime to the original new product.‖
Recycling is well known with packaging, but reclamation and remanufacturing
will largely apply to the things that are packaged. As reclamation and
remanufacturing occur, there's going to be a need for packaging that allows
the consumer to send things back to the manufacturer or to the
manufacturer's reclamation station.
Technology: New technologies like radio frequency identification (RFID) and
others will allow organisations to manage stock where a product leaving the
warehouse or the factory is never touched by a human hand until the
consumer receives it. This is possible by integrating radio frequency
identification within the entire transportation system.
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Intelligent packing is going to become more and more important as technology
advances. This type of packing will allow products to talk with the devices that
are around it. For example the products will be able to talk to the retail counter
and as each is removed from the counter it will be able to update the stock of
the product in the warehouse which will then automatically reorder the product
to the vendor. When the vendor sends the material and as it comes into the
store warehouse it will automatically update the stock in the warehouse and as
it moves from the warehouse to the retail shelf it will also reduce the stock of
the warehouse and update the stock on the shelves.
Intelligent packing will also be able to monitor the shelf life of the product and
as it nears its expiry date automatically reduce prices of the product.
The objective of such a packing will be to reduce human effort and monitoring.
Managements must begin to take account of these concerns in order to design
new packaging that will address these concerns while reducing costs of
negative impact on society and environment.
7. Summary
Packaging is an important aspect of marketing since it carries out several
marketing functions and helps fulfill Governmental regulations. It helps to
protect, preserve, transmit information, bulk pack, move the material through
the distribution channel and to ensure that the product is not tampered before
the consumer begins to use it.
Packaging can be classified in by function or by type of packaging. Its design is
depends on its need in the market – for marketing, product display, or to
ensure its quality till delivery and to ensure that the Govt. Regulations can be
displayed in an adequate manner.
The packaging must also address the environmental issues and the end use of
the product.
In future energy and environment are going to be very critical and any
packaging must conserve energy to the extent possible and must not degrade
the environment for these legal requirements are going to become stricter.
New technology in packaging will have a significant impact on the way material
is packed and handled and so marketers must keep abreast with it.
8. Your learning
1. What is the importance of packaging?
2. How many types of packaging exist? And why do we need so many
different types?
165
3. What is the need of governmental regulations specifying what must be
disclosed on packaging by the company?
9. Key Words
1. Impermeable – Something through nothing can pass. Especially a fluid
like air, water, etc.
2. Sanitised items – items that are made acceptable by removing
unacceptable features like germs, bacteria, etc
3. Tamper proof – something that cannot be tampered with, or something
that we cannot tinker with to spoil or harm the product.
4. Adequate – enough to meet a requirement or need.
5. Withstand impact – must be able bear a collision with another object.
6. Permeability - The ability of a substance to allow another substance to
pass through it, product dispenser. Usually this product does not allow
light, air and water to pass.
7. Extensively – to a large extent.
8. Inert gas – a gas that does not react with its surroundings of with the
products that are packed in it.
9. Mandated – an authorisation to carry out a certain task or function.
10. Exercises
1. Why do we use symbols on packaging?
2. How does packaging help a marketer in his marketing efforts?
3. Does packaging have any effect on the retailing of the product? If so
how?
4. Do all products small and large have to be packed? What will we need to
do if we want to transport a large machine? Will we need to pack this
also? Why and in your opinion how?
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1.
2.
3.
4.
11. Further Reading
Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 418-421
Evans, Joel R and Berman, Barry (2007) Marketing Management, New
Delhi, India, Cengage Learning, Page 312-317
Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India:
Response Books pg 155-516
Gupta, C B Dr. and Rajan Nair, N Dr. (2009), Marketing Management,
New Delhi, India, Sultan Chand and Sons page 7.21-7.26
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43.
44. BLOCK 3: NEW PRODUCT DEVELOPMENT
45.
Unit 12: Organizing for New
Product Development
46.
47.
Unit 13: Generation,
Screening and Development of New Product Ideas
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48.
49.
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UNIT XII – ORGANISING FOR NEW PRODUCT DEVELOPMENT
Learning Objectives
Structures for Product Development
Why we need a structure for Product Development
Types of Structure and some key elements needed in the structure for
ongoing innovation and protection of innovation
Structure
1. Why have a structure for Product Development
2. Types of Structures
2.1.
Functional Organisation
2.2.
Product Organisation
2.3.
Matrix Organisation
2.4.
Alternative Classification of Structure
3.
Need for Ideas
4. Protection for Innovation
4.1.
Copyright
4.2.
Trade Marks
4.3.
Patent
4.4.
Industrial Design Rights
5. Summary
6. Your learning
7. Key Words
8. Exercises
9. Further Reading
1. Why have a structure for Product Development
As we read at the beginning of the book product development is no longer
associated with inventors or great men getting good ideas. It has now become
a scientific exercise in first understanding the requirements of the customer or
his unfulfilled needs and then go about systematically creating a product that
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will meet this requirements and along with this also help the company meet its
business objectives like profit, sales, market penetration, market share, etc.
When we talk and say that we need to gather information from the customer,
analyse it seems to be a simple task. However behind the simple sentence the
amount of work that is actually needed on ground is enormous. It first requires
the understanding of
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Who the customer is? An exact definition is needed in terms of his
demographic, psychographic, geographic characteristics.
How does this customer purchase? Where does he purchase? When does
he purchase?
Based on this the company has to decide how to find out the information
on customer needs of the customer. Will it be from
o The sales force
o The market channel
o The customer himself
o Group discussions
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o Etc.
Depending on the way the company wants to find out the information
from the customer it needs to put in place a mechanism to gather this
information. This information could be gathered on a regular basis or on
a one time basis depending on the company‘s decision.
Once the information has been collected this information must be
analysed for its relevance to the company‘s business and for any ideas
for product development. For undertaking this, the company needs a
team of people who can do the analysis.
The ideas that come out from this analysis need to be disseminated
across the specified persons in the company in order to get their
feedback or comments on these ideas before they can be taken any
further.
So we see that just a small spoken sentence needs a series of steps in order to
bring the tasks to fruition. All of this cannot be done by one person in an
organisation since product development is not a onetime activity. It is an
ongoing process of development. In this process we undertake some activities
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for the immediate requirement, some for the midterm and some for the long
term.
Hence such planned efforts in product development needs a formal structure
within the organisation which is entrusted with the task of undertaking product
development.
2. Types of Structures
The nature of the product varies from company to company. Some companies
have products that need extensive research; some need more customer
research, while some need more in terms of development and testing. Thus
depending on the type of effort needed the company must build the necessary
capabilities to be able to carry out the tasks.
Since product types vary from one extreme to another, we can define a series
of organizational structures between two extremes, functional organizations on
one end and product organizations on the other.
Functional organizations are organized according to functional disciplines.
Senior functional managers are responsible for allocating resources. A single
person does not have the responsibility for the total product. Detailed
specifications, procedures and rules, meetings (ad hoc and structured) and
shared traditions among engineers allow for effective coordination amongst
team members. Products which need specialized knowledge for its
development require a functionally organized organisation structure.
2.1.
Functional Organisations
This type of organisation structure is usually divided by function and each
function carries out a specialised functions
This type of organisation needs an organisation structure for achieving
common goals – it is structured hierarchically with a strong concept of
subordination. Most companies in the modern era rely upon this
functional/hierarchical model.
In the functional organization, each job becomes the focus point. People
performing similar functions and specialisations are put together in
departments.
The functional areas will have personnel with varied skills, but those skills
are grouped on their similarities. The people who have identical skills can
be grouped easily and they can be placed in separate units and this
creates an organizational structure. The top management coordinates
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with all levels for various activities. When an organization handles a
single product, the functional organizational structure is most suited and
most frequently used.
When product development is required, each specialised activity is
performed inside a single departmental unit. If there is a need for taking
information or help from other departments for developing the product,
it is done by requesting assistance from the other unit. The procedure for
getting this cooperation between departments is to route the request
through the head of the unit to the other head of the other unit from
whom the information is sought. In other situations, the communication
flow is restricted inside the functionally of the department.
Coordination occurs through rules and procedures, detailed specifications,
shared traditions among engineers and meetings. Products which need
specialized knowledge for its development require a functionally
organized organisation structure.
In this structure a product manager is added and it is he who coordinates
the
product
development
activities
through
interaction
with
representatives from each function. The main tasks of the product
manager are: to collect information, to solve conflicts and to facilitate
achievement of overall project objectives. Their influence and status in
the organisation is less as compared to functional managers. This is
because here they have no direct access to working level people.
Fig 2: Functional Organisations
The benefits in utilizing a structure which relies upon the
functional model are:
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The chain of command is linear and sound
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The human resource abilities are constantly nurtured by
concentrated tutoring, leadership, and guidance
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Professional
similarities
between
the
organizational
participants in each of the different functional offices
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The development of professional expertise attained
clustering specialists in the present function as a single unit
by
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Provides an easy path for the employees to grow within the
organization sideways as well as upwards in the organizational tree
The drawbacks of the functional organizational structure are
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The decision making process is bureaucratic and is slow
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The flow of communication and synchronization between
functional departments is complicated
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The speed of resolving problem is slow and inefficient
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Grouping based on functions results in a lack of broader view
from employees resulting in narrowed vision of overall
organizational objective
2.2.
Product Organisations
In this type of organisation product development is treated as a project
and structures and information flows are designed in a manner that helps
in the movement of people and information expeditiously. Here the
structure consists of separate product oriented teams. A product
organisation exists because of product oriented flows: project and teams.
The project members move out of their functional departments and
dedicate all their time to the product development. The product team sits
together in a separate location and work towards developing the product.
The people in this organisation bring in the necessary skills from their
functional departments and are responsible for any work that needs to be
done from that functional area. For example if a functional manager in
the project team is from the manufacturing department and the product
development team needs any work to be done by the manufacturing
department then the functional manager on this team from the
manufacturing department will be responsible for getting the work done
in that department. In addition to this necessary inputs such as the
organisations ability to manufacture the new product, capacity available,
manpower sills in manufacturing will also be provided by this person to
the product development team.
In these structures the project manager is usually more senior than the
corresponding person involved in product development in a functional
structure. This is because he does not have the direct access to the
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resources of the department and therefore needs the additional authority
to get the work done.
Product Based companies are much more focussed towards the customer
and each product manager is responsible for ensuring the success of the
product. However resources like finance, marketing, manufacturing are in
the common pool. This leads to competition for centralised resources.
Fig 2: Product Organisations
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The advantages of product organisations are
Resources can be optimally utilised in an organisation
They can also be optimally allocarted within the project team
Technical and market tradeoffs can be evaluated more quickly
Information movement across the organisation is speeded up.
The limitations of such an organisation structure are
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Individual team members may get cut off from their functional area and
so may lose some of their cutting edge knowledge of the function.
2.3.
Matrix Organisations
The matrix organisation attempts to ensure satisfactory control of
products while utilising resources effectively and efficiently.
The company is organised into functional units, such as marketing,
finance, development, etc. For each product or a group of products the
company is involved with has a product manager. It is the function of the
product managers to ensure products they are responsible for progress
satisfactorily.
Functional managers are primarily responsible for managing their staff,
ensuring correct procedures and levels of quality are maintained, etc.
Product managers are responsible for managing products, that is
ensuring tasks are completed on time, budgets are met, etc.
If the Product manager encounters a problem it must be resolved
between the functional managers, the product manager and the
individuals involved. Product managers need to have good negotiating
skills. Managers of departments and Products managers must co-operate.
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Product managers and functional managers have direct communication
links with senior management, including direct access to the managing
director.
In Figure3, it is assumed four projects are in progress. Where line
intersects are denoted by a star it means the function is being used on
the project.
Product 2 is using marketing, finance, and quality, implying the project is
in production and development has finished.
Note that in this type of organisation, product managers would normally
be expected to manage several products concurrently.
The organisational structure of a company organised on the matrix
principle is shown in Figure 3.
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Figure 3: Matrix Organisation
2.4.
Alternative Classification of Structure
Though companies generally classified as per their organisation structure
we can also view them in a different manner. They can be classified
based on the nature of the projects undertaken/ products developed. We
distinguish projects by the number of employees needed to undertake
the tasks, or amount of work involved in developing them, and the
number of tasks needed for development that are fundamentally different
in nature.
Another way to classify organization structure is by one of the following
four categories:
i.
The product to be developed can be understood by one
person. This one person is likely to have all the knowledge needed
to develop, manufacture and assemble. The company‘s
development department which undertake these kinds of projects
are usually very small. Companies that have more than one
department are usually structured as a functional organization.
ii.
The product to be developed has a reasonably low
complexity, but total amount of work needed to complete the
product is high. In this case these types of products are likely to be
developed within one functional department. A research
department can also be an example of a department in which these
types of projects are done. The light weight matrix structure is
preferred if more than one departments are involved. Usually here
employees are involved on a full-time basis. Tasks involved in
product development may be performed concurrently.
iii.
If the product to be developed has of a lot of different parts,
such as software, PCB, power supply and mechanical structure.
Though the parts are many, however it is clear what needs to be
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done to get the product developed and into production. In such a
case various departments perform their own tasks. These tasks
have mostly a low workload. Here employees cannot work full-time
on one product since they are a part of the department and have
other functions also to complete. This creates a complex situation
because allocation of resources is not a simple task because of
fluctuation of work load on a daily basis.
Setting up separate cross-functional engineering teams is the right
way to develop products. However, the drawback is commencing of
too many project at the same time. This causes key people from
marketing, manufacturing, and engineering work at several
projects at once thereby limiting the time given to each product
and in the overall context lengthens the product development time.
iv.
The product is complex. Here typically the total work would
be high. Employees can thus work on a full-time basis. A project
organization is the best suited organizational structure for these
kinds of products.
3. Choosing an organisation Structure
Which organisational structure is most suited for the organisation depends on
the performance parameters that are most critical to the success of an
organisation. Functional organisations have a focus on specialisation of
function while coordination is a slow tedious. In product organisations the
focus is on quick decisions and effective co-ordination amongst different
functions. Matrix organisation by their definition can have a mix of both the
functional and product organisation characteristics. However in order to decide
which structure to use we must answer the following:
i. Can an individual in a product organisation be fully utilised for the
duration of the project – If a person is deputed from his function and
is to be used in a project then he must have enough work on the
project to justify his deputation. We may find that in a product team
some functions have a lot of work which can justify their use but
some functions which do not have much work. In this case functions
which have less work may be structured as a function and the others
as a product structure.
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ii. Does the work involve a large amount of coordination amongst
various functions – if a large amount of coordination is required then a
product organisation will be more suited rather than a functional
organisation.
iii. Does the work involve a large amount of specialisation – when
specialisation of services is needed on a regular basis across the
organisation then a functional organisation is more suited. For
example in a car manufacturing company the design department will
be working over several products and the skill needed in design will
be highly specialised.
iv. Is speed of development a critical factor – since product organisations
can resolve conflicts more quickly because of their structure they are
more preferred in case the time to market is small. Let us say the
electronic industry where new products are needed every six months
here the product structure will be most suited.
4. Need for Ideas
Ultimately an organisation can only develop products from ideas. So where do
we get these ideas. As we have seen in Chapter 2, companies have various
sources to get this information. However this is easier said than done and so it
is important to have a part of the organisation structured towards gathering
this information, collating it and then evaluating it keeping in mind the
business type and objectives of the company. There are two key places from
where information can be gathered
i. Customer – the customer is the one who has to use the product and
it is the customer‘s needs that we need to fulfill and so he is the best
person to ask for what he wants. Unfortunately we do not have only
one customer and each customer will
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Explain his need in his own way.
Each customer‘s need will not be the same and will differ from a
little bit to a lot.
Some customers may not be able to put their need in words on the
other hand some customers may describe it in too much detail. Too
much detail is also not good as it tends to cloud the thinking of the
product developers.
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Some customers may not be even aware of a certain latent need
e.g. in the case of the Fair and Handsome cream for men. Till
sometime back no one thought that men would also use a cream to
become fair. This was totally created by the advertising which
possibly fanned a latent desire.
Some markets may be behind other markets and so may not be
ripe for products already existing in those markets. E.g. MNCs had
several home appliances and consumer durables available in
international markets like – microwave ovens, washing machines,
mixer grinders, etc. which they brought into India only when the
market was ripe for their acceptance.
So asking a customer is not so simple. Organisations must therefore
create a system of collecting this information from their customers on an
ongoing basis so that the customers inputs are captured. Companies may
capture the information in several ways:
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Customer surveys – customer surveys can be carried out by the
organisation itself if it has the capability otherwise this can be
carried out by specialised organisations on behalf of the company.
The important part of the survey is that it must be structured
in the right. This is because the wrong type of questions may
lead us to collect information the wrong type of information
(that we already know or the information that we would like to
hear). The right questions allow the company to test
hypothesis, concepts and new ideas. It also helps companies
to uncover new areas in which products can be positioned,
positions where no other customer is focussing. A consumer
survey also gives the company an opportunity to collect more
information that what it needs for its immediate decision so as
to use it at a later point of time.
Customer feedback from retail outlets – when customers buy
products from retail outlets they discuss with the retailer the
limitations of the existing products and also offer suggestions for
improvements and new products. By putting in place a system of
capturing this information and bringing it back to the organisation
can help the company get many valuable ideas.
Customer feedback from customer service department – similarly
when a customer is using a product he begins to get ideas of how
it should operate to improve it. So when the product has a failure
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and the customer service engineer visits the customer he has a lot
of ideas which he gives to the engineer. Unfortunately companies
generally do not implement systems to capture this data. This also
has another problem, this is that a new product development is the
realm of the marketing department and the credit for developing
an excellent new product will go to them. Hence there is little
incentive for the service department to provide inputs for new
products. This is where the role of top management is important in
creating systems where the credit can be shared and it is for them
to motivate people in companies to work as a team rather than as
individual departments.
Customer feedback received directly from a customer writing to the
company – many times we have enterprising customers who write
directly to the company. Though this is generally to complain about
lack of service but we also have some writing with new ideas of
products that they want. Some companies May take them into
consideration and some may not take any further action.
Customer clubs – Large consumer base companies try and get
customers engaged in customer clubs. This set of customers get
company promotions, information about new products and
activities of the company. It is possible to use these clubs for
feedback and information. These feedback are valuable because
unlike a consumer survey where we do not know if the consumer
being surveyed is our customer or not, here we know that the user
is using our product and so the feedback is qualified. Standard
Chartered bank credit card team used to send a questionnaire to
its select customers every year to get a feedback on various
aspects of the card.
Now in order to capture information from any of the above areas the
company must create a system where the data is captured in a
Formatted manner – this is important since the customer will give the
information in several ways but the company cannot analyse the
information that comes in different formats.
There is a fixed periodicity for collecting the information
There is someone who is assigned the task of collecting and collating the
information
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The information captured must be analysed and stored in a manner that
is useful for the company.
All information is then classified and stored so that it can be retrieved
when required.
ii. Within the organisation – this is an area which many companies
neglect but can become an excellent source of information. Imagine
that all the employees of the company are aware of the company‘s
products on one hand and on the other hand they are also consumers
of various similar and possible also the company‘s product. The
company‘s employees know about the company‘s product in much
more detail than any consumer, plus they also know what the
company‘s capabilities are and so what they can manufacture. Thus
they are in the best position to advise the company on what products
it can make in order to capture the customer‘s money.
However in order to get this information the company must again put
certain processes in place so that eh employees contribute their ideas
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Just as we survey customers by making an attempt to go out to
them and seek their ideas the company must go out and seek its
employee‘s ideas also.
Many times the company does not undertake such an exercise
because they feel that employees will want an award for their ideas
– while it is not a bad idea to reward employees who give a good
idea because this will bring in profit for the company. However
many employees do not seek a monetary award but recognition
within the company for their ideas. The company can do this
through a news letter or a felicitation ceremony.
The concept of quality circles in manufacturing has helped
companies a great deal in using the brain power of their employees
who are actually working on the shop floor to improve
manufacturing processes and quality. Similar groups in product
development can bring about tremendous benefit for companies.
Many times companies only reward success and no scope is left for
failure and to learn from this failure to enable the company or its
employees to do better next time. This in a way stifles innovation
because when an employee or his team innovates there are
chances of failure. Of course we have to take all the necessary
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precautions to ensure that this does not happen but here is still a
possibility. This scope of error helps employees improve their
ability to take correct decisions and therefore helps in product
development.
Lastly all ideas will not work and it is only one in many which will
give a reward. If a company or its management make negative
remarks for ideas that do not work then employees will stop giving
suggestions because they do not want to be ridiculed in the
organisation.
Here again as in the case of customers there must be a system to
collect, analyse and store the information for use. However we need
one extra aspect in the case of internal employees – this is the
factor of recognition of employees who contribute good ideas. This
is a hugely motivating factor for them and can have long term
benefits in motivation and team building.
If companies follow the process of gathering information in a
systematic manner it can lead to an ongoing process of
development and improvement for companies.
5. Protection of Product Innovation
Companies spend a large amount of effort and money in developing new
products. This effort comes by way of creating structure in the organisation,
training its manpower, interacting with customers, and finally spending its time
and money on the actual development process. If after spending so much time
and effort on a product innovation some competitor were to come and copy the
product the company would not be able to recover its investment. Over a
period of time companies would not be interested in spending this time and
effort on developing new products.
Thus in order to protect these innovations companies can use the protection
offered by Intellectual Property Right protection.
Intellectual property (IP) is a term referring to a number of different and
unique types of creations of the mind for which property rights are recognized
by law. Under intellectual property law, owners are granted certain exclusive
rights to a variety of intangible assets, such as musical, literary, and artistic
works; discoveries and inventions; and words, phrases, symbols, processes
and designs. Common types of intellectual property include copyrights,
trademarks, patents and industrial design rights.
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5.1.
Copyrights
Copyright is a set of exclusive rights granted to the author or creator of
an original work, including the right to copy, distribute and adapt the
work. Copyright does not protect ideas, only once they have been
created. The Copyright is automatically obtained as soon as the idea has
been created and does not need to be registered. Once the work comes
into public domain copyright owners have the exclusive right to control
over copying and other exploitation of the works for a specific period of
time.
Initially copyright law only applied to the copying of books. However over
a period of time it became applicable to other uses such as translations
and derivative works were made subject to copyright and copyright now
covers a wide range of works, including maps, dramatic works, paintings,
photographs, sound recordings, motion pictures and computer programs.
5.2.
Trade Marks
A trademark is a distinctive sign or indicator used by an individual,
business organization, or other legal entity to identify that the products
or services to consumers with which the trademark appears originate
from a unique source, and to distinguish its products or services from
those of other entities.
A trademark is typically a name, word, phrase, logo, symbol, design,
image, or a combination of these elements
5.3.
Patents
A patent is a set of exclusive rights granted by the government to an
inventor for a limited period of time in exchange for a public disclosure of
an invention. Typically, however, a patent application must include one or
more claims defining the invention which must be new, non-obvious, and
useful or industrially applicable.
Under the World Trade Organization's (WTO) Agreement on Trade-Related
Aspects of Intellectual Property Rights, patents should be available in
WTO member states for any inventions, in all fields of technology, and
the term of protection available should be the minimum twenty years.
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5.4.
Industrial Design Rights
Industrial design is a combination of a design and science, whereby the
looks, design and usability of products may be improved for increasing its
marketability and ease in production. An Industrial design right is an
intellectual property right that protects the visual design of objects that
are not purely utilitarian. An industrial design consists of the creation of a
shape, configuration of prototype or color, or in three dimensional form
containing aesthetic value. An industrial design can be a two- or threedimensional pattern used to produce a product, industrial commodity or
handicraft.
6. Summary
Product development in today‘s competitive world must be engineered through
a systematic and structured process. The business processes and markets are
so competitive that any development left to chance or not monitored properly
could go out of control in terms of time and cost. Since new products are a key
factor in helping companies meet their business objectives a delay in the
development of new products can have disastrous consequences.
Depending on the type of product the company is developing and the type of
its customers the companies can be organised around different structures since
they would be the most efficient way of developing and delivering products to
customers. Functional organisations are structured as typical organisations
along with departments where people are structured based on their
functionality however at the other end we have organisations that use a set of
common resources but are structured with separate heads that look after the
complete development and delivery of the product. Here people from different
departments join the product development team and are the key interfaces for
getting work done in their departments. However we find that the most
efficient can be the matrix organisations that use a combination of functional
and product organisations.
However any product development depends on the generation of new ideas
and so companies must put in place mechanisms that help them systematically
gather information from customers and employees within the organisation
since these are the two key people who are with the product the most and are
ideally suited to give good ideas.
Once products are created they must be protected from copying and plagiarism
to ensure that the company‘s efforts in time and money are protected.
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7. Your learning
1. Why can we not develop products without having a structure in the
organisation for its development?
2. What is a functional organisation? What are its advantages and
disadvantages?
3. How does a Matrix organisation provide the best mix between the
functional and product organisation?
4. What is the product manager‘s role in a product organisation?
8. Key Words
1. Tasks to fruition – Jobs that are taken to completion.
2. Entrusted – Given a task job or responsibility. Entrusted a task.
3. Extensive research – a large amount and detailed of research
4. Synchronization – to time the happening of one activity along with
another activity so that both the activities happen at the correct or same
time.
5. Expeditiously – to undertake a job promptly, with efficiency and with
speed
6. Low complexity – products that are simple or those which are not
complicated
7. Cross-functional – activities that are undertaken along with persons
from several functional areas. So a cross functional team will have people
from say marketing, production, quality, finance so that each can provide
the expertise from his area.
8. Concurrent – something that is happening at the same time. Acting
together or in agreement with each other
9. Periodicity – working at a fixed interval of time. Happening at regular
intervals.
10. Collating – to tabulate data in a proper form to compare it to note the
similarities and differences.
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9. Exercises
1. If companies are creating an organisation structure for product
development how should they ensure that the customers inputs are
always captured?
2. In order to make a motivated organisation that is generating ideas from
its employees what additionally must the organisation do over and above
what it does to get this information from customers? Expand your ideas.
3. Who is in a better position to generate new product ideas the customer
or the company‘s employees? Give reasons for your answer.
4. If the company has created a consumer product what type of Intellectual
Property must it file for?
5. If this product is an Industrial product what additional protection can it
get?
10. Further Reading
1. Karl T Ulrich, Second Edition, Product Design and Development, New
Delhi, India: Irwin McGraw Hill, page 45-49
2. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India:
Response Books Page 1-6, 17-20
3. Crawford, Merle and Benedetto, Anthony Di (2004) New Product
Management Singapore, McGraw Hill Page 299 – 305
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50.
UNIT XIII – GENERATION, SCREENING AND DEVELOPMENT
OF NEW PRODUCT IDEAS
51.
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

Learning Objectives
Steps in idea generation
Steps in screening ideas
Steps in development of product ideas
Structure
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Product Development
Generation of ideas
Screening of ideas
Development of Product Ideas
Customer Requirement Document
Summary
Your learning
Key Words
Exercises
Further Reading
1. Product Development
The product development process is a critical process as new products are
needed for the companies to stay ahead of competition and also ensure
continued growth in sales and profit. It is a critical process since an error while
taking decisions can lead to the company spending its money on an unviable or
unnecessary product. The company must have a well defined organisational
structure and processes to undertake the whole process of product
development. As each stage of product development is progressed through it
means spending more time and money on wrong decisions. Wrong decisions at
any stage are expensive but at wrong decisions at later stages can be critical
especially for small and medium companies because they have limited
resources and cannot commence development all over again. This many times
leads to companies launching products thay know are not the best but because
they have spent a lot of money on it they hope to recover the costs of
development by launching it. Even one product failure in a small company may
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threaten its survival if a large amount of time, scarce resources, and personnel
are committed to it.
2. Generation of Ideas
This is the phase in which the company conducts various activities in order to
understand the customer’s needs and desires and define the functional
requirements of the product.
The product management group is entrusted with the task of creating a
systematic process to understand the customer requirements and create a
document that outlines what the product functions should be. During this
phase the product development personnel and people from top management
undertake some of the following activities:
i. Customer surveys and responses to existing products so that
improvements to existing products can be undertaken. They also try
to understand what the customer feels are his pain areas (areas
where the customer has problems). Many times it is the solution of
the pain area of the customer that gives rise to new innovations.
When a company is selling a product in its target segment then this
product will fulfil all the needs of a part of this segment, most of the
needs of a large part of this segment and some of the needs of the
balance. In order to know whether the company‘s products are
meeting the customer‘s expectations the company‘s sales force or an
agency appointed by the product management team. These people
generate a feedback from the customers some of which is extremely
useful in generating new ideas.
ii. They read journals, magazines, books, and also go to
international exhibitions, conferences and see what innovations
are being displayed and discussed by eminent scientists, business
associates and competitors. This helps them keep abreast with the
latest developments around the world so that they can use some of
these in their own products. It also helps understand what the
competition could possibly develop in terms of new products.
iii. Companies create think tanks that take in all the data that comes in
from various sources and come up with various ideas. This consists of
cross functional teams – teams consisting of people from various
departments – many of whom may eventually be involved in the
development of the product. These cross functional teams get all the
inputs that is available for product development and they also bring
into the team their knowledge and experience. Using this they debate
and come up with ideas for new produce development.
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iv. All interesting information is collated and circulated organisationwide – usually strategic planners or technology policy makers.
Organisations generally circulate information about products,
technologies, business processes, competition, etc within the
organisation. This not only helps people keep abreast with the latest
trends but also allows the germination of new ideas.
During this phase several product ideas are generated and there is a fuzzy
view of each of these products.
Some of the ways in which ideas can be generated are:
1. To simplify an existing product – for example earlier suitcases and
bags did not have wheels to drag them around, adding wheels was
a simple extension of an existing product. Cars had separate levers
for indicators, light dipper and on off switches and now all have
been combined into one lever.
2. Innovate packaging, distribution – when telecom companied
launched their pre-paid and post paid cards they thought of selling
and activating them through their own or franchised outlets. But
they found this restrictive in terms of meeting the high demand
from customers and reaching them easily since they had a limited
reach. They then changed the distribution pattern by proliferating
this task to a large number of small retailers who could sell the
cards and also activate them on behalf of the customer by calling a
company operated helpline number. Shampoos earlier had screwon cap but now they have been replaced by a clip on for ease of
opening and closing.
3. Replacement Parts – New products as replacement of existing or
new products are a booming business e.g. printer cartridges,
batteries for laptop computers, mobile phones, cars, etc
4. Variety through variety in colours – Product variety can be
enhanced by creating the same model in a variety of colours.
Different colour cars, different colour mobile phone covers, watches
with attractive dials for the same watch, soaps of different colours,
etc.
5. Same product of lesser value – Now with the advent of Internet we
are able to create products that can have differential pricing based
on certain criteria. For example airline seats are available for a
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lower price at earlier bookings and at a higher price closer to date
of travel.
6. Make products more communicative by putting interesting colours,
slogans, designs – We now see that slogans are being put on
several new places that was once not thought possible. This gives
rise to several new combination of products. Earlier we saw slogans
and logos only on products like T-shirts and bags now we have a
variety of designs, logos and slogans on some new types of busses,
taxis, etc.
7. Concept of being ecofriendly – Today everyone is talking about
preserving the environment and products that can benefit the
environment form very good ideas. Organic farming, CFC/ HCFC
free refrigerators, etc
8. Explore other cultures and markets for existing products – The
Basmati Rice and Darjeeling Tea that were the creations of India
have become famous all over the world.
9. Go back in history – today a lot of music is a remix of yesteryears,
similarly many design ideas for consumer products can be taken
from the past – we have seen that fashion tends to repeat itself
after several years – loose trousers and then tight ones to loose
once again.
10.
Size reduction – Another option is to reduce the size of an
existing product. We have seen that the sachet created initially by
shampoo manufacturing companies is now being used in many
products – mouth fresheners, ketchup, mustard, etc.
11.
Combination of multiple categories – In earlier times printers
could only print they can now scan, photocopy and print
simultaneously, health equipment is beginning to get electronic
displays, games are being used to teach children, etc.
12.
We can add uses to an existing product - Mobile phones
were initially only for talking but are now used for messaging,
seeing videos, listening to music, as a calculator, a watch, alarm
clock, reminder of things to do.
13.
Can we make a children‘s version of the product – toy cars,
toy phones, kid meals like McDonalds, children‘s watches,
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14.
Product extensions – Product Extensions happens when a
company introduces additional items in the same product category
under the same brand name such as new flavors, forms, colors,
added ingredients, package sizes. Eg Surf, Sure Excel and Surf
Excel Blue, or Nescafe, Nescafe Classic, Nescafe Gold, Nescafe
Cappuccino.
15.
Combine several functions into one product – The most
famous example of this is a Swiss Knife that has a scissors, a knife,
file, a tin opener, a bottle opener, etc. We also have a drill machine
that can drill several different sizes and different types of material.
We also have blender in the kitchen which can be used for several
functions like blending, grinding, juicing, etc.
16.
Help to reduce time – Earlier in order to tighten a nut a
spanner had to be used. Now in industrial situations where large
productivity is needed pneumatic spanners are used. These work
using compressed air and speed up the process of tightening
significantly.
17.
Make the product do-it-yourself – In many applications it is
possible to make products in a manner that the end user is able to
undertake the final assembly of the product himself. This saves the
company the cost of assembling the product, also the product can
be packed in a more compact manner thus saving transportation
costs. For example a bed, or a table can be sent with its legs,
headboard, footboard and flat bed separately in a manner that
they can be tightened by screws by the customer himself.
18.
Make a free product – Anything that is free will be loved by
the customers. So how does this work – it works by providing the
service free to the consumers and leveraging this through a
separate business model to generate revenue. So services like
Google, Skype, Wikipedia, etc are free. Google provides the service
free to its customers buy charges companies for advertising on its
site thus generating revenue.
19.
Add value to packaging – Generally packaging is thrown away
once the product has been taken out. If we are able to design the
packaging in a manner that the customer has a use of the
packaging then he may buy the product as it packaging has a
value to the customer.
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3. Screening of ideas
The purpose of screening ideas is to identify and drop poor ideas while
selecting the right ones for development as early as possible since the cost of
product development rises substantially at each successive development stage.
Many times when products reach later stages of development, management
feels that it has invested so much time and money in development that the
product should be launched to recover some of the investment. However this
may mean spending more money on a product that the management knows is
not right just in the hope of recovering some money. The chances are that it
may land up losing more money rather than recovering any.
Ideas generated may seem interesting but for a company to decide to take any
idea forward the idea must be in line with its business objectives, and the
organisation must have the necessary resources and competencies to develop,
manufacture and sell the product successfully. For evaluating each idea the
company must have a set of parameters against which it should measure itself
to understand if it meets its business objectives or matches its competencies.
While screening the company has to make sure that the process followed is not
so stringent that it decides not to undertake good ideas and neither is it too
lenient that a poor idea is let go to the development and implementation
stages.
There are several methods to screen or evaluate ideas However we may
undertake the following broad processes.
i. Does the product idea fit with the business strategy – Ideas must be
in consonance with the company‘s business strategy as it lends
synergy with the company‘s existing efforts. In order to check this the
following questions must be answered:
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
Does the product meet the needs of the of the target buyer?
Which unmet needs of the customer will it fulfill?
Is there sufficient data to substantiate that these are ―Truly Unmet‖
needs for the customer?
The products performance should be measured against measurable
business objectives like market share, sales, profits, growth, etc.
Define positioning of the product and see if the product has any
strengths/ USPs.
What is the amount of money the company will spend on
marketing the product. How does this compare with the
competitors spend for similar products.
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What will be the price quality equation of the product.
ii. New products must meet a minimum benchmark on sales and profits
– Every product development is a process that consumes company‘s
time and money and unless it is able to give a certain return on that
investment in terms of sales and profits it is not worth the effort. The
benchmark sale and profit varies from company to company
depending on its size and market position.
Sometimes what the competition is using as a benchmark can be a good
reference mark, however we must be careful in adopting the norm
without proper thought since they could be making an error.
iii. Discuss the product idea with key customers/ channel partners – The
new product is being designed to fulfil an unmet customer who then is
best judge of whether it meets the needs. This feedback can
sometimes help the company add some functionalities that may have
been missed out or it may add some features that will add value to
the product. It may also lead to the change in the weightage in the
importance of features because of customer feedback.
Bouncing product ideas off key customers is also important because at
times managements get so involved with their own ideas that they give
the go ahead for the development and land up making mistakes.
Customer surveys can be done using field surveys, personal interviews
and focus group discussions. All of these help get the customers point of
view into product development. This also allows the marketer to get an
outsiders view on his thoughts. Though field surveys and personal
interviews are an important way of getting customer feedback, these
methods are usually administered by market researchers and the
information is then collated and analysed for getting feedback. However
in Focus Group Discussions the marketer can be personally present and
so can hear the feedback directly and so there is no loss in transmission
from surveyor to the marketer.
Focus Group Discussions are an important method of screening ideas
because it allows an interaction with multiple customers whose
interaction and discussion helps the marketer get a feedback on multiple
parameters at the same time. Focus group discussions are done by
identifying a set of people from the target segment and calling them to a
common place and showing these people the concept and discussing with
them the product concept.
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Generally, during focus group discussions ideas are presented to a group
as a concept or storyboard – for example, customers may be shown a
concept as drawings of a product idea or an advertisement showing the
product. Sometimes focus groups are shown a dummy of the idea, which
is a physical but generally non-functional version of product idea. During
focus groups with customers the marketer tries to find information like:




The likes and dislikes of the concept;
Level of interest in purchasing the product;
Frequency of purchase (used to help forecast demand);
And price points to determine how much customers are willing to
spend to purchase the product.
iv. Some other key questions that need to be answered are




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
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

Is there sufficient data to substantiate that these are truly Unmet
needs for the customer
Are there any barriers to entry for the new product, i.e. design
patents; trademarks, etc. If not, how easy it might be for someone
to reverse engineer and copy the new product?
What are the product features that will be claimed? Can these be
substantiated through scientific and other evidence?
Who is your competition?
How can they affect the new product's sales?
What are the most effective channels of distribution?
Which are the major factors that influence potential users? Price,
quality, brand name, service, etc.? Does the product meet these
requirements?
What is the best way to enter this market?
Are there any drawbacks of selling in this market?
Does the company have required experience, know-how and
resources for effectively marketing /selling and distributing the new
product?
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
What are the alternative plans if the sales, market share, profit,
growth projections are not met?
Once all the data has been collected we need to interpret the data. While
interpreting the data we need to follow the following steps:

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

Express the need in terms of what the product has to do and not how to
do.
Express the need a the raw data has been collected and not by
interpreting it. This is because each person‘s interpretation may be
different and so this may change the whole meaning of the customers
feedback.
Use positive and not negative phrasing e.g. the customer wants the
feature and not as customer does not like the feature
Write the need as an attribute of the product
Avoid using words like ‗must‘ and ‗should‘. These words means that it is
necessary for the product to have the feature and can become limiting
factors.
When we have documented all the information then this information need to be

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Organised in a hierarchy of primary and secondary needs. This
classification is done on an intuitive basis.
Form these needs we remove the redundant needs
Then all needs are grouped according to similarity. These groups must be
based on how the customer thinks and not by technology, material used
or by department responsible, etc. This helps understand the importance
of a particular need – the more the similar needs the greater the
importance of the need. It also helps in reducing the number of variables
that the company has to deal with.
In case the number of groups is still very large (More than 20) then
these should be further grouped in super groups.
Based on this hierarchy the company needs to create and needs
statement. This must be based on customer need or market segment.
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So using the above hierarchy and grouping the needs statement must be
categorised by relative importance of needs. This relative importance can be
decided based on


The product development teams consensus based on their experience
It can also be based on a further study of the consumers.
Between the two the trade off is speed versus accuracy.
All ideas selected will be laid down in order of priority the most important being
on top and the least at the bottom. Each of these ideas will be taken through
the evaluation at the development phase to see if it can be taken forward.
4. Development of the Product Ideas
The idea screening process is a complex process of going back and forth on the
possibilities of developing a product. The ideas selected must be evaluated
thoroughly for economic viability, fit with business objectives, strategic
advantage over competition, etc.
In order to determine this the company must


Undertake market survey in order to understand market size. The
company must be sure that the market size is large enough for its new
product, its features or enhanced functionality. Here the company may
conduct independent market surveys for itself or they may buy market
reports for certain type of products. These market reports that are
bought are taken from market research companies that conduct regular
reports on specified product categories on a regular basis and provide
these reports for a price.
The market surveys must determine the total size of the market for the
product, the other possible uses for it – since it can help define additional
functionalities or features,
seasonality of demand, quality, price
customer will be willing to pay etc.
Production costs and technologies – Based on the volumes that the
company is likely to need initially and its projections for the future the
type of technology needed for the manufacture of the product will vary
and along with it the cost of the product will vary. Hence an evaluation of
the various technologies available have to be evaluated by the R&D or
Industrial Engineering or Production Department of an organisation to
evaluate what technology will give the best return.
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Apart from technology the company must also undertake an analysis of
what will be the costs of the product. By the time the company reaches
this stage it has a fair idea about the structure of the product and hence
it can go about estimating its cost. Many times companies which are in a
product category already know the raw material suppliers and they can
get a fair idea of the material cost. Once these costs have been received
the Industrial engineering department or the production department of
the company will be able to arrive at a fairly accurate cost of the product
including manufacturing costs.
Companies that keep themselves abreast with the latest developments
are also in a position to factor in at this stage any new technology that
can help them in manufacturing the product more economically or faster
than existing processes within the organisation. Any new technology will
need an investment to acquire, install and operate. The company then
has to evaluate whether this new technology will be more economical
than the existing processes. For this information from the market as to
the volumes of production, seasonality of demand and level of quality
needed by the customer will play an important part in decision making.

Let us take the case of a soft drink bottling plant – in case it needs to
bottle only one type of drink and in one size then the machinery/
technology requirement will be different from that of a company bottling
several types of drinks each with different sizes. Similarly the quality
standards and precision of a company making equipment for a space
program will be considerably more stringent than a company making
equipment for a cloth cutting machine.
Business likely to be generated – a Once the company has an idea of the
costs of the product, it is in a position to determine the amount of profits
it is likely to make based on the sales it expects. Hence the estimation of
sales and hence profits is an important variable that helps determine
whether to accept the idea or to reject it. Estimation of sales and profits
also helps to quantify as to how much of the business objectives the
product will help fulfil.
At this planning stage the company can also use an iterative process to
arrive at possible sales targets which the company must aim at so that it
will justify the introduction of the product. It can thus evaluate if it has
the resources – manpower, machines, money – needed to achieve the
sales needed by the product.
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It will also be possible for the company to calculate the breakeven point
and know whether the breakeven sales is within its reach or not. Any
product that has a very high breakeven point will mean that it is a much
more risky project as compared to a product with a low breakeven point.
Having knowledge of the market, cost of production, technology needed, if any,
the sales and profits likely to be generated and the company‘s capability to
achieve it enables the company to evaluate if the product fits into its business
strategy or not. If it does it is the idea is right for introduction. If it does not
fit fully the company must evaluate what is the percentage fit and evaluate this
percentage fit in comparison with other product ideas that the company is
evaluating.
Once all the ideas have been evaluated to match with business objectives and
meet customer requirements the company may reset the priorities for each
ideas thus lowering some and increasing the others in priority.
S. No.Initial Priority
Changed Priority
1Idea 1
Idea 2
2Idea 2
Idea 1
3Idea 3
Idea 3
The product that provides the best fit on various parameters should be
selected.
5. Creation of the Customer Requirement Document
Once the idea has been selected we need to make the Customer Requirement
Document (CRD). This is a comprehensive document that contains all the
necessary data needed for development of the product such as:
1. The CRD lists out all the functions and features that the product
must have.
2. Each of these functions must be listed by priority i.e. the highest
priority first and then the next and so on.
3. It contains the commitments of all the stake holders in the Product
Development Team
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4. This document starts from the highest priority feature and breaks it
down in to tasks that need to be done in order to accomplish it. This
listing of tasks is done along with the persons who have to work
on it. The advantage of this is that it brings in their commitment and
ownership and the document is not one which the Product Manager has
thrust on the other departments.
5. This document also contains commitments by the developer departments
on indication of the time and resources needed to complete the
task.
We must remember that many times during product development we may get
unexpected results while this is not necessarily a good or bad thing, it is
something that tends to be a distraction as work temporarily stops and in
extreme cases can be totally diverted by it. The correct thing to do is to
discuss with the team all results expected or unexpected and only after due
consideration proceed. It is important for the product manager or the team
leader to keep his focus on the requirements laid down in the Customer
Requirement Document and how he can fulfill this rather than be led by the
unexpected development. However please note that such an unexpected
development can be an excellent source ideas – for the current or future
products and must not necessarily be discarded.
6. Summary
Product Development is an important part of the marketing mix. It is amongst
the 4 Ps of Marketing. A good product helps the company achieve its business
objectives while at the same time it enables the company to stay ahead of the
competition. The generation of product ideas starts from the understanding of
the customer requirements and is mixed with the new concepts and
technologies entering the market. The job of creating these new ideas is given
to think tanks within the organisation that collate information and circulate to
people within the organisation in order to take their inputs and generate a list
of desired ideas.
These ideas are evaluated using asset of given criteria so as to ensure that
good ideas are selected to move to the next stage. The objective of these
criteria is to ensure that good ideas go through while poor ones are left out.
This is important since at every stage companies spend money on product
screening and development and they do not want to waste money on products
that will not benefit them.
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Once ideas are shortlisted they must be evaluated on various parameters
market size cost of technology, cost of the product, and business likely to be
generated. Once products ideas are valid on these parameters the best idea is
taken forward for product development. The basis of product development is
controlled by the creation of a Customer Requirement Document which is a
comprehensive document that allows the product manager to control
development and launch of the product.
Many times during product development some new unexpected development
happen and the development team must not get distracted by these
developments but consider if they have a value or not before using them. Many
times such developments provide excellent ideas for current or future
products.
7. Your learning
1. Why is generation of ideas a difficult task? How do magazines and
journals help?
2. How can competitors be a source of product ideas for the company?
3. How does variety in colours help create new products?
4. Explore the concept of Do-it-yourself concept? See how many products
you can find are do-it-yourself.
8. Key Words
1. Eminent scientists – outstanding, or high ranking or important
scientists.
2. Cross functional teams – a is a group of people with different
functional expertise working toward a common goal. It may include
people from several departments like marketing, production, finance,
etc
3. Collated – to arrange in a proper sequence. Or to arrange information
is a logical sequence.
4. Germination – to start the process of growing or developing, to create
5. fuzzy – blurred, not clear, lacking a clarity in the definition
6. Competencies – possession of the needed skills, knowledge or
qualification.
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7. Stringent – strict, constraining, restrictive
8. Consonance – in agreement with various other parts.
9. Synergy – combined functioning of several parts in harmony with each
other.
10.
Functionalities – capabilities pertaining to different functions of a
product or an organisation.
11.
Redundant – something that is not required or something that is in
excess.
12.
Consensus – General agreement amongst various parts,
departments, persons.
9. Exercises
1. Why should an idea fit into the business strategy?
2. What would happen if product ideas are not discussed with customers?
Are all ideas of the customer important enough to be accepted?
3. How can patents and trademarks prevent product development? Can the
company use these patents or trademarks to make competitive
products?
4. How does the Customer Requirement Document help in keeping the
product development on course?
10. Further Reading
1. Evans, Joel R and Berman, Barry (2007) Marketing Management, New
Delhi, India, Cengage Learning, Page 356-363
2. Ulrich Karl T and Eppinger, Steven D, (2000) Product Design and
Development, New York, USA, Irwin McGraw – Hill page 107-159
3. Crawford, Merle and Benedetto, Anthoni Di, (2004) New Products
Management, New York, USA, Page 83-91, 118-130
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52.
53. BLOCK 5: IMPLEMENTING NEW
PRODUCT DECISION
54.
Unit 14: Concept
Development and Testing
55.
56.
and Test Marketing
Unit 15: Pre-test Marketing
57.
58.
Unit 16: Product Launch
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59.
60.
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UNIT XIV – CONCEPT DEVELOPMENT AND TESTING
Learning Objectives
The difference between idea generation and concept testing
To understand how to undertake Concept testing
Structure
1.
2.
3.
4.
5.
6.
7.
Difference between Concept Testing and Idea Generation
Concept Development and Testing Process
2.1.
Define the purpose of the concept test
2.2.
Choose the target customer to survey
2.3.
Decide the method of information gathering
2.4.
Communicate the concept to the customer
2.5.
Capture the customers response
2.6.
Interpret the results
Summary
Your learning
Key Words
Exercises
Further Reading
1. Difference between Concept Testing and Idea Generation
During the idea generation stage a company may have several ideas, however
they will go through all the ideas and arrive at only a few that will be taken up
in the next stage. In this stage the development team tries and get responses
of the various product ideas/ concepts from some potential customers in the
target market. This testing allows the product development team to
understand if the concept meets the customers expectations, whether it can be
improved and to get an idea of the potential sales of the product. In this phase
product concept can be discussed with the customer at several points in the
development for example in the initial stage the product may only be described
to a customer verbally to get a feedback on whether the product actually
meets the customer‘s expectations as is being thought by the company
because this is the basis on which the company is developing the product. The
product can also be shown to the customer once it has been partially
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developed in order to get a more clear response from the customer and also an
indication of the potential sales that the company can get from the product.
Concept testing closely follows the process of generating ideas. Idea
generation and concept testing both are similar in nature because both aim to
reduce the number of concepts under consideration. However concept testing
is different from Idea generation because idea generation is more judgemental
while concept testing is based on getting a direct feedback from potential
customers and so is not so judgemental. Now we cannot go to the customer
will a large number of ideas as it will confuse him and not allow a clear decision
to be taken. Hence at the idea generation stage itself the company must
screen ideas and shortlist only a few that can be taken for concept testing to
the customer.
In concept development and testing we have not only to discuss the concept
with the customer it may also involve showing him the prototype of the
product or other methods of making him understand the product, its utility and
thus getting the relevant feedback from him.
Based on the feedback we receive from the customer the company should be
able to evaluate the customers acceptance of the product, its potential sale
and hence the fit into the business objectives of the company.
This concept testing may or may not be carried out. The decision to carry it out
or not depends on

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
The type of product and
Time available for development
Cost of development versus the cost of launch
Cost of failure vs cost of development
For example if we launch a website and there is an error it can be corrected at
a later point of time also but if we launch medical equipment on which life
depends and it malfunctions the consequences can be very serious.
2. Concept Development and Testing Process
Concept testing can be carried out by following the following steps:
i. Define the purpose of the concept test
ii. Choose the target customer to survey
iii.
Decide the method of gathering information
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iv.
Communicate the concept to the customer
v. Capture the customers response
vi.
Interpret the results
2.1.
Define the purpose of the concept test
The first step in concept testing is to define what and why we want to test
about the concept. The product development team must know what the
areas they want to test are and for what areas they need answers. It is only
then that the test can be structured in a proper manner. The concept test is
an experimental process and like for any experiment its objective must be
defined before we undertake the test. It is the definition of the test that will
tell us how to measure the responses of the customer. For example if the
company is developing a new washing machine it may need to know how
much piped water is available in houses in that country or region. If we do
not define this parameter in the test we may just discuss the concept
without determining the amount of water available. In other words we will
not measure the water availability in the test. Generally a product concept
test will need an answer to the following primary questions:
i.
Does the product meet the customers need?
ii.
How can the product be improved?
iii.
Can the product be enhanced to meet additional needs?
iv.
How frequently will the customer need the product?
v.
How much sales will the product generate?
vi.
Should the development be continued or not?
All questions in the survey‘s design will have a bearing on the product and
along with it the business strategy of the company. For example if the
product meets the customer‘s needs but is not likely to generate sales then
the purpose of development is lost.
2.2.
Choose the target customer to survey
Once we have decided what we want to ask the customers we have to
choose the customers from whom we will ask the information. Choosing the
target customer sample who will be surveyed for testing the concept is an
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extremely important step. This is because we are going to base the entire
product development concept on the feedback received from this customer
sample. If we have chosen the customer sample wrongly this customer
sample gives the wrong feedback and it will be disastrous for the product
development and the company. For example if the customer sample with
whom we have discussed the concept likes the product and approves it but
these customers do not represent the target market segment because of a
wrong selection then the product will most likely fail.
In order to overcome such a problem companies undertaking such a survey
like to include as many potential target segments in a survey as possible.
However such a survey is very expensive and it is not possible for all
companies to undertake it. So many times companies try and include two or
three major segments in the survey. This allows the company to get a mix
of opinions and so arrive at a more balanced decision.
Another important factor while undertaking the survey is to decide the
number of customers to be surveyed. Naturally the more the customers
who are surveyed the greater is the possibility of a more unbiased or
balanced decision. Here again more customers to survey means more cost
and so a trade off needs to be arrived at between number of customers to
be surveyed and cost to be spent. The factors which determine the size of
the test consumers are:

Factors for selecting a small sample size
o If the test is done during the early part of the developmental process
o If the test is only to gather some qualitative data about the product
o If it is expensive or time consuming to survey customers

o If the investment needed for developing the product is small
Factors for selecting a large sample size
o If the test is being carried out at a later stage of development. In later
stages of the development we have moved ahead on the development
and now have certain definite questions to be answered to proceed to
the next stage of development. This needs a larger number to answer
them so as to get the information without bias.
o If we are trying to get an estimate of the demand of the product.
o If it is possible to survey customers quickly and without much cost.
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o If the investment needed to develop and launch the product is high eg
an aeroplane, medical equipment, car, etc.
So the actual numbers of customers surveyed will vary drastically from a
small number to a very large number depending on the above mentioned
factors. Let us see what would happen if we develop a website and host it
quickly after conducting a brief survey of only a few customers. It is
possible that because all information on the needs of the customer was
not captured due to a small sample and also due to the speed of the
development some aspects of the website do not function properly. In
such a situation the company developing the website can continue to
correct it in stages since the information is not critical. However if we
were to do this for say a medical equipment on which life depended and
this machine did not give all the needed functions because we did not ask
enough customers or were in a hurry to launch it the consequences
would be disastrous.
2.3.
Decide the method of gathering information
Once the customer sample has been decided we now have the task of
actually going out and collecting the information. The product
development team has the responsibility of determining the best way to
collect the information since they are the ones who are setting up this
‗experiment‘. In the initial stages of the product development information
is taken in a more unstructured manner this means that the questions
are such that can have qualitative answers and are not so easily
quantifiable. In the later stages of development questions can be more
structured. This means that in the initial stages the interaction with the
customer must be done by the development team themselves while a
more structured survey done at later stages can be given to a research
agency for collecting and collating the information.

There are many ways in which information can be collected
Face to face interaction – this type of surveys are the most common
and by far the most effective method. In this method the surveyor meets
the customer face to face and ask him the questions which have been
decided in the questionnaire. Just before beginning the detailed
questionnaire the customer is asked a few questions to confirm that he is
actually from the target segment for which the questionnaire is planned.
So the customer may be asked general questions about his age, income,
education, whether he is the user of a certain product category, etc. to
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validate him. If this is the customer from our target segment then the
survey continues or else it stops. The face to face interaction with the
customer can be done by meeting him in
o Retail outlets, malls, or other public areas where the customer may
be.
o Trade show booth – these are good places to talk to the customer
since here we have a relevant customer. In the trade show companies
show their prototypes or concept products. Here customers are
focussed on the product and are likely to give more relevant answers.
o Focus groups – These are a set of customers (between 5 to 10 at a
time) from the target segment who are invited by the company to
come to a fixed location where all of them are explained or shown the
product concept. During their session the concept is discussed with
them and their responses are recorded. Since this is a face to face
discussion the product development team is able to get a lot of
qualitative inputs from the customers. Inputs may be on does the
customer find the product useful, what needs it fulfils, what more
should be in the product, what kind of colours are suited for the
product, does the customer find it easy to use, etc.
Generally the price is not discussed because it tends to either
over value or undervalue the product in the consumer‘s eye
even before he begins to answer the questions. If price needs to
be determined then the customer must be asked to specify what
he would pay for the product.

The focus groups have an advantage that they are better for
presenting several alternatives to the concept and getting a
separate feedback on each, or they can also be sued for getting
ideas in improving the product.
Telephone – today technology is also being used for trying to reduce
the time needed in getting a feedback on a product concept. Telephones
can be sued where the product concept can easily be explained to
consumers without actually having to see a prototype, or drawing, etc.
In using telephones the calls can be made to a
o Predetermined set of customers like young men, or young women, or
college going students, etc.
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o Or we can make cold calls – meaning that we call without precategorisation and once we get responses we set them off depending
on the response category.



Today mobile phones have allowed companies to target questions to
specific categories of customers by profiling their mobile numbers
based on their age, sex, profession, income category, etc. However
the limitation is that because of its overuse customers are not always
willing to respond to such calls.
Postal mail – this was an option that used to be followed in earlier days
when the prevalence of electronic media was not so pervasive. Earlier a
telephone was only land line based and so who would answer a phone
was not certain and so asking questions on phones was not simple. It
was therefore better to send a questionnaire to a customer and along
with that send him a prepaid return envelope and hope that the
customer will fill the questionnaire and send it back. In most cases it was
seen that the response was not more than 1-2% and it was slow. In
order to increase the responses companies sometimes gave incentives to
customers to send in their responses.
Email – this is option is an improved version of the postal mail. It has
virtually the same issues as the postal mail system. Here people have
the option to put filters in their mail to block unwanted mail. However
this remains a quick and cost effective option to collect feedback from
customers. It also has the advantage that data collected can be
integrated into the database without needing to actually feed the data
into it.
Internet – the internet can be used very effectively in getting a
feedback from the customer. Here the product development team can
put not only a questionnaire but can also show images of the product‘s
concept or simulated videos showing how the product will work and what
benefits the customer can get from it. Here the customers can be asked
to comment on the product or fill the feedback form that is on the
website. Filling this form automatically updates the information database.
In addition today the internet blogs provide a virtual space where
potential customers can come and discuss products and provide
suggestions and solutions. In a way we can say that these are similar
to the focus groups that companies use for getting a feedback.
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In cases like software companies sometimes release a beta version on
the net for people to download and use before giving their comments
on its features and benefits.
Each method of gathering information has a bias towards the type of customer
it is suited for – internet/ email is more suited towards technology savvy
customers, the focus group discussions are good for products where the
product development team needs feedback on qualitative characteristics of the
product. However even though each process has some limitations, for some
products it is a good idea to use a test method with a limitations because for
using the product this functionality is needed e.g. a software based product
needs ability in the customer to use technology. However it is not such a good
idea if TV based internet (IPTV) is to be tested.
Open ended interactive formats are better in the concept development stage
since it allows the customer to choose his reply himself.
As tests get more focussed a more structured format can be used. For these
type of surveys a market research company can be hired.
2.4.
Communicate the concept
So we have decided what to ask, to whom to ask and how to ask. The next
step is how to show him the concept. Please note that the concept must be
communicated to the customer in such manner that the ideas of the product
development team do not dominate his thoughts. The customer should have
the freedom to use his own thoughts to give the feedback. Some of the ways
in which the concept can be shown to the customer are:



Verbal description – here the customer is given a verbal description of
the product. This is usually done in the initial stages of the products
development and when the product is still in the conceptual stage of
development and no firm description is available.
Sketch – The product concept can also be shown as a single or a series
of sketches. These can show the concept and how it can be used. This
type is again used in the initial stages of the product development.
Photo and rendering – Sometimes product concepts can be shown as
images that have been developed on computer simulation. This allows
the customer to get a more realistic impression of the product. This type
of visualisation allows the product development team to show the
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
customer different colours and also the detail of some functional or
ergonomic features.
Storyboard – a storyboard is a concept that was first developed for
making cartoons by Walt Disney and later for films.
According to Christopher Finch in The Art of Walt Disney (Abrams, 1974),
Disney credited animator Webb Smith with creating the idea of drawing
scenes on separate sheets of paper and pinning them up on a bulletin
board to tell a story in sequence, thus creating the first storyboard.


So the product development team uses the storyboarding method to
show the concept to the customers who can by seeing this understand
what the product can do.
Video – the advantage of a video is to show how the product works and
how it can be used. This method is used where it is difficult to take the
actual product to the customers. For example if we want to show how a
machine works it is easier to take a video of the machine and its
functionality and show it to customers at different locations.
Simulation - It is the imitation of some real thing or process. The act of
simulating
something
generally
means
showing
certain
key
characteristics or behaviours of a selected physical or abstract system.
In simulation a user may actually control the use of a product and get a
real feel of how the product will respond. This can give him a near real
feeling of the product. Simulation is used in safety engineering and tests,
for training, development, etc. For exapmle we have a flight simulator in
which pilots train how to fly aircrafts before that actually go on a plane.
During product development this method is used where the system can
be used to show the effect of using different use parameters e.g. in a
chemical process where the change in parameters can lead to different
consequences.
Simulation is also used when the real system cannot be engaged,
because it may not be accessible, or it may be dangerous or
unacceptable to engage. Interactive media
The product development team can also use a combination of Video plus
simulation to explain the concept better.
Developing simulation is expensive. This type of method is used in highly
technical products where the cost of developing the simulation is
significantly lower than the cost of developing the product.
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

Physical appearance models – In this method the concept is shown as
a model of the product. At times this model also has some functions also
incorporated in them so that customers can get an idea of how the
product will work.
Generally this type of method is used either when the product
development team has a clear idea of what they have to develop or it is
in the later stages of the development of the product by which time a
large extent of the work has been done.
Working prototypes – This type of method is used when the product
development is almost complete and the product development needs the
final inputs for the customer. However care must be taken because
customers tend to equate this product with the final product – so the
positives and negatives of the prototype rub off onto their judgement
and feedback. Secondly since the prototype is generally one of the few
products developed by the product development team and all care has
been taken and probably better material has been used to manufacture it
this prototype may perform better than the final product that comes off
the actual production.
The choice of the survey format must match the communication method used
because how we show the product concept to the customer depends on how
we are asking him to respond. So for example we cannot demonstrate a
working model while using a phone survey.
In addition to this we must take care that while showing or communicating the
product concept to the customer:



Must not oversell the concept to the customer.
Must give only that much information as much as the customer will get
during selling. This ensures that the responses from the customer will be
similar to the way he will respond when he gets the advertising stimulus.
Price must not be given but customer must be asked for it. Giving a price
to the customer tends to undervalue or overvalue the product depending
on how the customer perceives the price. SO in order to overcome this
problem it is better to ask the customer what he is willing to pay for the
product.
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2.5.
Capturing customer response
The product development team must faithfully capture the customer
response in order to ensure that the development progresses in the right
direction. Here in order to capture the information is the right manner the
tests are made with formats that provide for




Questions with multiple choice answers.
In order to ensure that the answers given by the customer are validated
as correct and consistent the questionnaire also has questions that ask
asks why he gave the answer.
The questionnaire also has similar questions in different parts of the
questionnaire that ask similar information in a slightly different manner.
This again helps the development team to validate and understand the
correctness and consistency of the customers thinking.
The questionnaire also captures the intention of the customer to buy the
product, the frequency of purchase, the certainty of purchase, etc. Here
we may capture answers like
o Definitely buy
o Probably buy
o Might or might not
o Probably would not buy
o Definitely not buy
Depending on the method used in interacting with the customer the product
development team in addition to structured responses from the customer
interaction can also capture of a large amount of unstructured data. This
data is also important and needs to be recorded and analysed.
2.6.
Interpret results
Once the information has been captured it must be collated and structured.
This information must then be structured in a hierarchy of importance. This
hierarchy must be segregated by primary and secondary needs. From the
responses the redundant responses must be removed and further all
information should be categorised by customer need so that we can see
what important needs have to be worked upon first and what can be worked
on later.
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Since customers are shown multiple options, results must be interpreted
based on the difference in responses and the concept preferred by the
customers. They must also factor in cost of manufacturing and other
considerations (Like possible sales, customer acceptance, profit, etc).
If manufacturing costs are very different and price of the product has not
been communicated to the customer during the survey then the company
must use its own judgement in proceeding ahead with one of the products
selected by the customer.
Some factors like sales of the product have to be calculated by using
various forecasting methods. However even this data needs to be compared
with the sales data that the company may have had for similar products or
industry data that exists in the market to check if this bears out the
forecast.
In case the company has no history of the product and neither does the
market then care must be taken
In concept testing models we are not able to factor in




Effect of word of mouth – especially when product benefits are not
obvious word of mouth plays an important role in promoting the products
Fidelity of concept description – if the final product differs substantially
from the one described in the test – forecast may differ
Pricing – if price deviates significantly from that indicated in survey or
from customer expectations
Level of premium – spending on advertising and promotion can add to
the cost of the product. This is weakly accounted in forecasting models
by factoring in awareness/ availability term and via materials used to
present the concept(s)
A Team must reflect on results and qualitative and quantitative results
obtained. In order to be sure that th answers received are true they must
ask two key questions
o Was the concept communicated in the way that the customer
response is likely to be true?
o Is the resulting forecast consistent with the observed sales rate of
similar products?
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All results whether used or not must be documented so that they are
available for similar products in the future.
Another learning that the product development can get is that their results
for the tests can be compared with future results. This benefits the team
because testing in future can benefit from the experience in analysing the
difference between forecast and actual.
The benefits from this survey is
o Overall size of market – can be increased by considering alternative
markets
o Availability/ awareness of the product – can be enhanced through
distribution and promotion
o Fraction of consumers likely to purchase – can be enhanced by
changes in product design(and advertising) that improve the
attractiveness of the product
3. Summary
Many people ask is there a difference between development of an idea and
testing of the concept. They say that ultimately in both we are taking inputs for
the customer and analysing his responses and arriving at decisions on how to
take the product development forward. This is true however at the time of the
generation of the idea the concept is in a fuzzy stage and no clear cut decisions
are available. In that stage we are still trying to work through a large number
of options to arrive at a few shortlisted options. The process of concept
development begins from here and takes forward the development. During the
concept development stage all interaction with the customer takes place with a
view of understanding on how to develop or improve on the few options that
have been shortlisted.
It is during this phase of development that the company actually begins to
commit financial resources for the development of the product. This phase of
the development is a more experimental phase in which interaction with the
customer is planned to determine the answers to a few predetermined
questions. The need for such an interaction with the customer arises when the
product development team needs to clarify the choices they have to make in
the development of the product.
This kind of testing can be done at various stages in the development of the
product – meaning that the product development team can interact with the
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customer just after the ideas have been finalised in order to understand the
functionality needed in the product or they can meet him towards the end of
the development of the product so as to get a more clear feedback on the
acceptance of the product by the customer and the amount of sales that can
be expected so that the necessary changes can be incorporated before launch.
There is a six step method that can be used to collect this information from the
customer.
4. Your learning
1. Do you think that there is a difference between idea generation and
concept testing? Please explain how.
2. Do you think we can get the information needed in concept development
at the stage of customer contact in the idea generation stage?
3. Why do we need to define the purpose of the concept test?
4. If you were gathering information for a consumer durable product which
method of information gathering method would you use? Why would you
choose this option?
5. Please state the best method of showing the customer the concept for
the method of information gathering chosen in your answer above?
5. Key Words
1. Judgemental – Someone who tends to make moral judgements, or
showing an attitude where judgements about other things are made
2. Prototype – one of the first units manufactured of a product, which is
tested so that the design can be changed if necessary before the product
is manufactured commercially
3. Disastrous – To have an extremely unfortunate effect or dire
consequences that can lead to complete breakdown
4. Quantifiable – something that can be measured accurately or
something that can be mentioned as a quantity
5. Structured – Having a clearly defined structure, anything composed of
parts arranged together in some organised way.
6. Surveyor – someone who conducts a survey, a supervisor who is
responsible for the inspection of something for purposes of measurement
and valuation
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7. Validate – a to make valid to substantiate or to confirm
6. Exercises
1. If we use a focus group discussion what will be the advantages of this
over getting the same information over the phone from the customer?
2. Why do we have to make sure that the concept is communicated in the
way that the customer response is likely to be true?
3. What are the benefits of conducting these customer surveys to the
company?
4. Why does the product development team have to document and save the
results of the tests? How does this help the company?
7. Further Reading
1. Evans, Joel R and Berman, Barry (2007) Marketing Management, New
Delhi, India, Cengage Learning, Page 356-363
2. Ulrich Karl T and Eppinger, Steven D, (2000) Product Design and
Development, New York, USA, Irwin McGraw – Hill page 107-159
3. Crawford, Merle and Benedetto, Anthoni Di, (2004) New Products
Management, New York, USA, Page 83-91, 118-130
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61.
62.



UNIT XV – PRE-TEST MARKETING AND TEST MARKETING
Learning Objectives
To understand the concept of Test Marketing
To understand how it helps marketers
To understand the risks and problems associated with Test Marketing
Structure
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
What is Test Marketing
Uses of Test Marketing
Decisions needed to Test Markets
Risks involved in Test Marketing
Advantages of Test Marketing
Various Methods Used in Test Marketing
Summary
Your learning
Key Words
Exercises
Further Reading
1. What is Test Marketing
Product Development is a process that is under the company‘s control and any
modifications in its features and capabilities and values can be inbuilt during
this development phase. However the purchase of the product by the customer
is not in the company‘s control. This is affected by many variables – the price,
the market, the competition, the customer himself, etc. Despite all the surveys
undertaken at the time of development by the company it cannot be 100%
sure that the product will succeed. This is because the finished product has to
be accepted by the customer in the presence of all market factors.
One of the ways for companies to be more sure that the product the product
will be accepted by the customers is to undertake a test marketing programme
before a formal launch of the product.
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So we can define Test Marketing as the Product development stage where the
product and its marketing plan are exposed to a carefully chosen sample of the
population for deciding if the product will be accepted by the customer or not
before its final launch. Test marketing is an experiment conducted in a test
market which comprises of actual stores and real-life buying situations, without
the buyers knowing they are participating in an evaluation exercise.
The product is sold to the ultimate market-mix to understand the consumer
reaction. Test marketing may last from few weeks to several months
depending on the product and the extent of information needed to take a
decision. Due to its high cost, however, test marketing is not suitable for all
products. It is undertaken by the company when it lacks experience in a
product and wants to reassure itself or the cost of an error is very high and so
it must test market to make the product just right.
The three key aspects to be kept in consideration for test marketing are:
i. The composition of the population in the test market must be
demographically similar to the final market in which the product will
be sold.




Population size
Demographic composition
Lifestyle considerations
Competitive situation
ii. This test market must be small enough so that advertising is effective
but not so small that the market behaviour is not representative to
the main market.
iii. It should be far enough from the main markets of the product so that
any negative effect of the product during test marketing does not
impact the main market.
2. Uses of Test Marketing
Test Marketing is done so that the data collected during test marketing can be
extrapolated for its use over the entire territory eg Nation, or state or any
other area and be used for a launch of the product in the larger area. These
decisions also help the company understand if there are any significant
problems with the product that need to be addressed before the full launch.
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During the period of test marketing the company can evaluate several aspects
like:
i. Effectiveness of the advertising – The effectiveness of any
communication is judged by the fact that its message is
understood by the customer in the manner it was intended by the
company. Whether the message is being interpreted by the
customer in the manner that the company intends it to be can be
tested in the test marketing phase in a relatively cost effective
manner since it is being undertaken in a limited market. During
this phase the company would need to use specific channels or
media that address the test market defined for the test marketing.
This area is much smaller than the complete market and hence
advertisement spend is lesser. For the company to evaluate the
effectiveness is also much easier.
ii. Problems likely to occur in the distribution channel – The
distribution channel is the key for a product to reach the customer.
Because companies tend to use the same channel for all their
products it is possible that this channel is over loaded and so it is
important to judge whether the system of distribution is adequate
after adding the new product or not. It can also be used to
evaluate what are the requirements that the distribution channel
needs in addition to its existing systems and how can this be
validated during the test, how much stock must lie in the channel
for the sales to be effective, what kind of retailers will be most
effective in selling the product, will the distributors have to be
given some specific training to sell the product, whether the
training that has been given has been effective or the training
programme needs a modification, etc.
iii. Customer response to the product and services – The success or
failure of the product is ultimately decided by the customer. Hence
the customers response is a crucial factor of the test marketing.
Here the company uses parameters like sales, repurchase,
customer satisfaction, etc to understand whether the customers
have accepted the product, or do they feel that the product is
wanting in some aspects, what do they feel about the price and
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quality. The necessary parameters to decide what will constitute
that the customer has accepted the product and has found the
price right must be set at the beginning of the test period.
iv. The price point – If the price is too high the customers will not buy
it and if the price is too low not only will the company lose
potential profits but the customer may devalue the product (in his
eyes) considering it a cheap product or of low quality (many times
people see a higher priced product to be of higher quality). Hence
the company has to find out whether the price is right or too high
or low. Here again the company must set its parameters on what
factors will lead them to understand that price is accepted by the
customers. Generally the company has made an estimation of sales
per customer during its product development stage while
estimating the amount of business a product will generate. This is
a good starting point for evaluation and can be improved on as
more refined tests are undertaken.
v. The behaviour of the product in a real market like situation –
during previous interactions with the customers (during surveys,
group discussions, etc.) or earlier market researches the conditions
are more controlled and the product shown or discussed with the
customer may only be a prototype so the reaction of the
prospective customers not actual as to what it will be to the final
product. But when the customer sees the final product in an actual
market condition his reactions will be important to decide how the
product will perform in an actual market.
In order to undertake a comprehensive test marketing the company should
duplicate the complete system from product launch to distribution to
placement in order to understand its behaviour.
Since test marketing has to be undertaken in a limited area we need to define
the area so that it is a representative area and yet insular – insulated from the
main markets of the company thereby containing any negative effects of a
wrong product test market to that area itself. The test area could be:
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i. By geography (including international) – a town, specific market,
residential neighborhood, media coverage area, etc
ii. By application – the test market may be chosen based on the
application of the product. So if we have a farm based product like
a tractor or a cultivator testing it in a city would have no relevance.
Also testing it in an area where tractors will not sell due to a low
income availability will also not make sense.
iii. By influence – If the company has an area of influence where it can
sell the product then it must know that these people will approve
of the product. So say some company has its influence of selling in
the Defense then it must test the product there.
iv. By trade channel – Sometimes some channels are specialized for a
specific product eg a marketing channel, a distribution channel, a
delivery channel, etc.
Sometimes companies may choose areas that are not representative or areas
that are hard to sell in so as to understand the problems in these areas and
what can be done to overcome them.
The advantages of undertaking test marketing in a small market are:
•
Small market or town so easy to control various sales and distribution
parameters.
•
Low chance of being detected by the competition since mostly companies
focus their efforts and energies on larger markets since maximum sales
and profits are generated there.
•
Distribution is forced (guaranteed) because of a small market it is
possible fort eh company to ensure that its product is in all possible
areas where the product needs to be placed.
The Advantages of Using Controlled Method of Test Marketing
•
Reduced costs because the resources are used only over a small area
•
Shorter time period needed for reading test market results – sine the
markets are smaller the data collection and collation is much faster.
•
Increased secrecy from competitors
•
No distraction of company salespeople from regular product lines
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3. Decisions needed to Test Markets
Like any test or research that the company undertakes here also the company
must be clear on its objectives and what it aims to achieve from this exercise.
This is because apart from the fact that this an expensive way to undertake
any test this test also lets the competition know about the company‘s plan to
launch a product.
Thus before the company launches its test marketing it must be sure about:
i. In which market will the test be undertaken? – depending on the
factor to be evaluated the market will be selected accordingly. Let
us say we want to evaluate the effectiveness of the media
communication then we need to identify a market that is influenced
by a particular one or a set of media channels; if we want to see
how the consumer off-take is then we must take a geographic area
and so on.
ii. What characteristics will be tested? – are we going to test the price
point, or customers reaction on the features, or the stock levels
needed in the channel, or the problems in distribution, or
effectiveness of advertising communication any other characteristic
or combination thereof.
iii. How long will the test last? – will it be a short test in which the
company quickly enters and comes out after evaluating the
necessary factors or will it be a detailed test. A we know the time
needed for detailed tests varies with each product category and
can vary from a few weeks to a few months.
iv. Will modifications be undertaken midway and some aspects
repeated? – The company must decide if it is willing to take into
consideration the customer feedback midway through its test and
incorporate these into the product and retest the product. Most of
the times companies keep on compiling the data till the end of the
test and collate and discuss in one go the improvements or
modifications needed in the whole system – product,
positioning, advertising, etc – before going into a full launch.
its
Sometimes however because of the technical nature of the
product and keeping in view that for these products the customer
requirements can be very clear and stringent the companies may
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decide that they will take inputs upto a pint and incorporate
changes and retest the product.
v. What criteria will be taken to decide that the test is over and
objectives are met? – the company must finalise the criteria
needed to move from a test marketing stage to a full launch stage.
Hence before they commence the test they must identify the
process and parameters that will be used to view the test market
as complete. Some of eth factors that they may use are – meeting
of the objectives for sales, communication, distribution
effectiveness, customer acceptance for product or price.
4. Risks involved in Test Marketing
However as we have defined Test Marketing it must undertake all the activities
during the test marketing that it will undertake while launching on a larger
market. This has several risks for the company.
i. The biggest risk is that the competition will come to know




About the company‘s intention to launch the product.
It will also come to know the entire strategy of the company
from advertising to distribution to positioning on the retailer
shelves.
The competition will try and subvert the test marketing by
dubious means. The competition may give unreasonable
responses which it would not give in the larger market because
of the costs and consequences for its own image. The
competition may also undertake to buy its competitor‘s products
in the test market to give unrealistic figures of sales to the
company.
It gives competition time to react with the development of its
own product.
ii. The second problem is that test marketing is an expensive process.
It involves the cost of the manpower, advertising, launch, etc. and
hence the company must weigh how much difference the Test
Marketing will make to the final launch of the product. Unless the
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answer is that it is likely to make a large difference the test
marketing must not be undertaken.
iii. By the time test marketing is undertaken anyway most of the
development cost has already been incurred on the product
development and manufacturing facilities and no major changes
can be undertaken anyway. At most the company may undertake
some fine tuning to the product.
iv. Test marketing is a time consuming exercise and may go on from a
few weeks to several months. Thus giving time to competition to
gear itself up and respond to what the company is planning to do.
v. Any test market will at best be a market similar to the larger
market. It cannot behave and be exactly like the larger market.
Hence the lessons learnt in this market may not apply in totality in
the larger market.
vi. Although companies expect to save some cost in the development
and launch of the product the costs are still significant. Thus the
company needs to weigh if the cost of test marketing versus the
benefits that it is likely to get.
Here are some examples of what competitors have done while companies have
undertaken test marketing:
•
Kellogg tracked the sale of General Foods' Toast-Ems while they were in
test market. Noting they were becoming popular, they went national
quickly with Pop-Tarts before the General Foods' test market was over.
•
After having invented freeze-dried coffee, General Foods was testmarketing its own Maxim brand when Nestle bypassed them with Taster's
Choice, which went on to be the leading brand.
•
While Procter & Gamble was busy test-marketing its soft chocolate chip
cookies, both Nabisco and Keebler rolled out similar cookies nationwide.
•
The same thing happened with P&G‘s Brigade toilet-bowl cleaner. It was
in test marketing for three years, during which time both Vanish and TyD-Bol became established in the market.
•
General Foods' test market results for a new frozen baby food were very
encouraging--until it was learned that most of the purchases were being
made by competitors Gerber, Libby, and Heinz!
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Since there are so many possible risks why should companies undertake any
market testing at all.
5. Advantages of Test Marketing
Companies undertake these because it does have some advantages and if
undertaken in the right manner it can give results that can give companies
more profits. Some of the advantages that companies have in test marketing
are:
i. Reduces Risk – A company‘s decision to undertake test marketing‘s
is to reduce its risk. Though monetary risks are the most
significant that the company wants to reduce there are other non
monetary risks also that they would like to reduce before any
implementation. Thus the risks that get mitigated are:

Monetary risk – A national launch of a product means that the
company has to have a large budget for its launch, in addition
the entire sales channel must be filled to an extent so that as
soon as the advertising starts and the consumer asks for the
product it is available, thus the investment in the product
needed to fill the channel is also needed. For any new product
the sales channel and the sales force needs to be trained and
ground level activities need to be performed along with the
launch of the product. This takes time, effort and even money.
It also takes the sales team away from their existing work thus
has the potential of affecting current sales.

If for some reason the product the launch does not succeed
the loss to the company is quite large. Thus undertaking test
marketing in a small area where the investment in terms of
money and need of the sales force is limited the error can be
corrected and without having an impact on its larger market
and also saving it money which it would have needed to fill
the channel and to undertake advertising on a national scale.
Channel relationships – A company is dependent on its channel
for sales. Hence maintaining these relationships are important
for it. New products are a risk not only for the company but also
for the sales channel since they also have to invest into it. Thus
a product that is not likely to be successful is a problem with the
channel partners also.
A company does not refund any
investment made by the channel partners in case a product
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does not succeed. However a company is responsible for the
success of the product and so if it does not work the channel is
not happy because its money gets stuck. However if the
company undertakes a test marketing exercise in a limited area
it sometimes assures the channel partners that they will help
them recover the money. This is possible because the
company‘s investment is limited to a small area.

A test marketing exercise thus helps to reduce the fears of
the channel and enhances the company‘s relationship by
indirectly conveying that ‗we care for you, and so we
undertake this test marketing to make sure that your money
is not blocked or lost.‘
Sales force morale – The sales force is the company‘s interface
with the channel, customers, etc. They are the ones who are the
key in making a product a success in the market by using the
right tactics, motivating the right channel, by bringing the right
feedback from the customer and competitors activities on time.
Hence a motivated sales force is very important fort eh
company‘s success.
The involvement of the sales force in a test marketing
exercise is absolutely necessary. This involvement gives the
sales force the feeling that the company considers them
important to take their views into consideration and consults
them. This can be a huge motivating factor for the sales
force leading to an enhanced morale.
ii. Strategic improvement

Marketing Mix – Many times test marketing is not done for
launching an absolutely new product. Many times it is done to
change the marketing mix for the product. The company may
want to evaluate a change in pricing, positioning, features. It
may want to test new distribution channels to see if they are
more effective or if they can add to sales.
Traditionally if we wanted to withdraw money from a bank we
would have to go to the bank and get the money from the
counter or if we wanted to make a payment we would have
to make a cheque and give it to the person for whom it was
meant and he would have to go and deposit it in his account
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for the money to get transferred to his account. When the
internet became available the banks got an opportunity to
use another channel for the same activities. To Understand if
this would be beneficial to the bank and if the customers
would accept such a system the banks had to test market
their new delivery system for existing products through
internet banking. In the initial stages they had to give
incentives to customers to use this product they had to
assure customers that this product was safe. The test
marketing showed that this new delivery of an existing
product was not only more convenient to the customers but
also much cheaper for the banks since the banks did not

have to increase the size of their offices with the increase in
customers saving money on manpower and real estate costs.
Banks have now successfully expanded these products and
have added many more because of the success of standard
products.
Production facilities – A test marketing programme allows the
company to test if its production facilities are capable of
manufacturing the product in the desired quality and features
planned. It also allows them to evaluate these facilities in an
integrated manner along with the production of existing
products in real time performance.
In case any new technology has been incorporated along
with an existing technology it allows the company to
understand any limitations that the new technology might
have in working with its existing systems.

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6. Various Methods used in Test Marketing
Test marketing can be done in several ways depending on the objectives and
the products being tested.
i. Open Market Sale in a Test market
This type of test marketing is generally undertaken for consumer
products where the final customer is not identified as an
individual but is identified as a target segment with a certain set
of characteristics.
In this type of testing the a test market similar to the final
market is selected. The combination of the 4Ps of the product is
employed. The sales channel is stocked which in turn puts the
product on the retail shelves and a mini product launch is
undertaken – limited to the test market only. The product sales is
monitored in the same manner as it would be ultimately. The
retailers are restocked as their products are sold. The company
monitors the buying pattern and behaviour of the customer. They
also interview some customers who are buying the product to get
their immediate feedback on the product and their reasons for
purchasing the product. This data is then analysed and
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extrapolated for a larger market and for making any changes in
the product before the final launch.
ii. Test Marketing by Informal Selling
This type is used both for consumer durables and industrial
products. In this type of test marketing the product information is
given to the customer directly with an objective to inform him
about its features, prices, varieties, etc. and he is then free to
take a purchase decision.
The sales people may be trained on the product and given the
necessary promotional material which they will use to educate the
customer so as to help him decide about the purchases.
In the case of Industrial products the sales persons may go and
make presentations to the ultimate customers to get their
feedback. They may also induce trial purchases with customers to
get feedback from them.
Many times products may be displayed in trade shows where
potential customers see the product and are interactively
engaged to get feedback and book trial orders.
In the case of consumer products informal selling may be done by
setting up kiosks in some key markets and displaying the product
in them. As customers pass they become aware of the kiosk and
the products and interact with the sales people in the kiosk. They
tell the customer about the product, its features and prices. They
are likely to get customer feedback and trial which is a more
direct way of getting customer information.




These trials when conducted over several markets and customers
give valuable and more real information to the company. This
kind of test marketing is done when:
The company has a close relationship with the customer
When products are technically complex
When large amounts of money cannot be spent on test
marketing of products
When we want to get some specific information from the
customer.
iii. Test Marketing by Direct Marketing
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New and emerging technologies now allow companies to
undertake test marketing in ways that allow them more control
and secrecy over it. This technique is much cheaper than the
traditional method of test marketing because it does not need the
company to undertake a marketing campaign neither does it need
to fill the sales channel (which also needs training, promotional
material).
In this type of test marketing the company uses a Direct
marketing company for test marketing its product concept and its
4Ps via a direct marketing campaign. In the camping the direct
marketing company sends out mailers to prospective customers
in the target segment. This is followed up with tele-calling to find
out the customers response and desire to buy the product. In
some types of products the customer is sold the product and after
delivery and use his feedback is sought to collate information.
This type of method has more secrecy than by any other
controlled sale method and the feedback is very fast. Since the
positioning of the product is not being communicated to the
whole market (via advertising) the company is in a position to try
several combinations of 4Ps and variations of product
specifications before arriving at the final combination.
The technique matches today's growing technologies of credit
card marketing, telephone ordering, and database compilation.
iv. Test Marketing in Minimarkets
This type of test marketing is similar to the conventional test
marketing except in that the whole town would be taken for test
marketing. In the case of Mini Markets the town would be
replaced by a few strategic retailers in the whole town. In a way
defining a mini- market or a small market.
Here also we do not use regular local TV or newspaper
advertising, but chosen outlets can advertise product in their own
flyers and windows. They undertake special display of the product
on their retail shelves and may undertake a special localised
promotion near or outside their shop to highlight the product.
These retailers will also use various techniques to get customer
information about those who undertake trial or show interest on
its use.
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The retailer may also motivate the customer‘s first trial by using
trial period discounts, or by giving coupons that can be redeemed
for a discount within a certain trial period.
The advantage of this type of test marketing is that it is more
difficult for the competition to detect and requires a significantly
less effort on the part of the company in manpower terms but
also in terms of monetary resources committed. This type of test
is as close as possible to a real market test without needing a
large effort. There is a greater possibility of saving money at the
end of the test.
v. Test Marketing by Scanner Market Testing




This type of test marketing is used to test products over different
markets. It is most suited when a company want to reposition its
existing product for say – price, packaging, features, etc. and see
the effect different positions may have on sales. In this type the
product with different positions is launches in different markets of
the company and sales data is audited over various stores within
or across markets. Data may be collected by the sales executives
or it could be collected from the company‘s MIS system. The
objectives could be to
Use the data to replace a mini-market test
It can compare sales in cities where differing levels of sales
support are provided.
It can monitor sales during a rollout from one region to the next
It can monitor performance of different positions of the product.
Here the product are monitored on several parameters like sales,
returns, repurchases, support, discounts needed to sell,
promotion, etc the company is able to evaluate the products
performance and make necessary changes or modifications in the
product, promotion or other parameters.
vi. Test marketing by actual user feedback
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We can also undertake test marketing by taking an actual user
feedback. This is usually undertaken for FMCG products which can
be taken to the consumer for trial and feedback. SO let us say a
company wants to introduce a new flavour of tea in the market.
They can install kiosks in market places where the consumer
frequents. Here the sales persons at the kiosks make the
consumers try the new flavour and also take their feedback.
This type of test can be undertaken where the cost of developing
the product is not high or it an extension of the company‘s
existing product line.
7. Summary
Test marketing is a process that companies undertake sometimes in order to
reduce their financial risk in launching their product. Though there are other
reasons like maintaining channel relationships or enhancing the role of the
sales force, these reasons are generally secondary factors in undertaking test
marketing.
Test marketing is used to understand various factors line the effectiveness of
the advertising, the effectiveness of the distribution channel for the product,
what is the customer‘s response to the product and whether the price at which
the company intends to sell the product is right or not, etc. In short the
company tries to understand the behaviour of the product under real life
situation. However this type of test marketing has the single biggest
disadvantage that the competitor comes to know about the company‘s plans
ahead of the full launch. It gives the competition time to react and plan its
own products.
In order to overcome some of these problems there are other forms of test
marketing which can help the company get accurate information and reduce
the cost of test marketing. Some of these use latest communication and
information technologies to assist companies in undertaking test marketing.
8. Your learning
1.
What is Test Marketing and what is its significance to
product development?
2.
How does Test Marketing help Marketers?
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3.
market?
Why should test marketing be undertaken in a small
4.
What criteria should we use in defining the test area?
5.
Why is test marketing also considered a risk?
6.
How does informal method of test marketing reduce
the risk of a company?
9. Key Words
1.
Exposed – To shown to people. Exposed to a target
segment means that the product or its communication is shown to
the target segment.
2.
Comprises – consists of or includes. If the test market
consists of actual stores means that actual retail outlets are used.
3.
Evaluation exercise – the process of undertaking an
examining and judging carefully or estimating the customer‘s
reaction without their knowing that this is being done.
4.
Ultimate market-mix – The final combination of the
4Ps that the company is likely to follow in the final market.
5.
Composition – the combination of the various parts
of the markets that combine to make the whole market. A
demographic composition is the various types of people that
combine to make the complete market.
6.
Impact – the effect or the power to make an
impression. To have an impact on means to have an effect on.
7.
Extrapolated – to estimate by extending or projecting
the known information. To use the data on the customers behaviour
in a smaller market to understand/ estimate the behaviour in a
bigger market.
8.
Relatively cost effective – to be cost effective in
relation to another market or area. If advertising had to be tested in
a larger area it would have been more expensive and so in relation
testing in a smaller area is more cost effective.
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9.
Areas that are not representative – an area that
does not represent the target segment of the company. In this
market the larger part of the target segment will be different from
that of the company‘s target segment.
10.
Collation of data – To assemble data in proper
numerical or logical sequence so as to examine and compare it. To
find points of agreement and disagreement and help in taking
decisions.
Adequate – sufficient to satisfy a requirement or meet
11.
a need.
12.
Insulated – something that does not allow the
passage of information or any other thing like electricity, heat,
sound. An insulated market is one where information on activities
being conducted within do not go outside the market.
13.
Representative area – A area that is a smaller
version of a larger area in terms of features or characteristics.
Where if some activities are performed the reactions of the
customers would be similar to the larger market it represents.
14.
Aspects – A way in which something will be viewed by
the mind eg viewed all aspects of the situation.
15.
Subvert - to spoil or destroy by wrong means, to
corrupt. Subvert the test marketing means to spoil it by trying to
generate wrong information for the company by using unfair means
in the market.
16.
Dubious – something that is of questionable nature.
Something that arouses doubt in the mind.
10.
1.
Exercises
What types of risks does test marketing reduce?
2.
How does test marketing help improve channel
relationships and sales force morale?
3.
What other avenues of test marketing can be use by
using today‘s technologies?
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4.
How can we use different types of test marketing for
keeping the information about new product launch from the
competition?
11.
Further Reading
63.
1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India:
Response Books pg 161-164
2. Crawford, Merle and Benedetto, Anthoni Di, (2004) New Products
Management, New York, USA, Page 449-464
3. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 348-350
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64.
65.



UNIT XVI – PRODUCT LAUNCH
Learning Objectives
To understand the how a Planned Product Launch is beneficial
To understand the various elements of a Product launch
To understand some key decisions needed in Product Launch
Structure
1. Learning Objectives
2. Product Launch and its Objectives
3. Preparation for Launch
3.1.
The Competitive Strategy
3.2.
The Market Strategy
3.3.
The Company Analysis
4. The Final Decisions
4.1.
Product Related
4.2.
Pricing Related
4.3.
Promotion Related
4.4.
Distribution Related
5. The Launch Process
6. New Technologies for Product Launches
7. Summary
8. Your learning
9. Key Words
10. Exercises
11. Further Reading
1. Product Launch and its Objectives
The product Launch is the final stage of the new product development process
in which the decision is made to put the new product into full scale production
and to launch it into the market. The product launch signifies the point at
which consumers first have access to a new product.
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Promotion often begins prior to product launch as marketers prime the
market. At this stage emphasis may be on public relations in an attempt to
encourage the media to discuss the product prior to launch.
The success of a new product depends not only on the idea behind the product,
but also on the marketing of the new product before, during and after the
product launch. New Product Launching (NPL) is part of the New Product
Development.
―In the modern world of business, it is useless to be a creative original thinker
unless you can also sell what you create. Management cannot be expected to
recognize a good idea unless it is presented to them by a good salesman.‖
David M. Ogilvy
If we look at the market today, we observe that there is major competition for
virtually all types of products. This major competition has motivated companies
to continue coming out with new and innovative products in order to have an
edge over competition. This can give companies sustained success amongst a
competitive market. That is why having a product launch plan is very
important for the success of a product.
Here are four easy ways to get started with a successful product launch plan.
When the company creates a product launch plan, it is very important that it
has an understanding of its target market. If the company releases a product
amongst an audience that has no interest in its product, then the product
launch plan will be a tragic failure. Therefore, the company must really know
its target audience before it comes up with a product launch plan. Also, it is
important that the company launches its product during a time when there is
maximum demand for its product in the market.
With a good product launch plan, it is necessary that the company market and
presell its product before the actual launch date. During this time, the
company must use as many methods of advertising as it can to get send out
the message. Remember, that a successful product launch plan always takes
into account the target audience that it is marketing to.
The company should always include attractive bonus offers with its product
when it begins to come up with the product launch plan. Including bonuses and
attracting offers with the product will improve the chances of success and
earnings gained from the launch. Another proven product launch plan idea is to
keep the price low initially during the launch, then raising the price to its
normal price after a few days.
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The objectives of the launch are:
i. To give the product some momentum in the market.
ii. To announce it to all the customers
iii. To use the opportunity to get some pre-booking for the product.
iv. To fill the distribution channel by telling all channel partners that
after the launch customers will want the product immediately.
v. To inform internal customers that the development phase is over
and that the product is being commercialised.
2. Preparation for Launch
In order to launch the product in an effective manner the company as to
undertake a large amount of ground work before the launch date. The product
launch strategy is a culmination of a lot of work done on the product since its
conceptualisation through its development and testing and finally to its launch.
In order to launch a product we need to work with funding, marketing, public
relations, development and many other channels to get the product off the
ground.
In the preparation for the product launch the company must ensure that
i. It has the right strategy for the product launch
ii. It has the right combination of the 4Ps so as to have a competitive
edge in the market.
New Product Strategy – The New Product Strategy is developed right at the
start of the development process and it is fine tuned throughout the
development process. This strategy provides the long term vision of the
product and how this fits with the business objectives of the company. At the
end when the product is ready for launch it is this strategy that forms the basis
for its launch. The components of this strategy are:

2.1.
The Competitive Strategy
The competitive strategy defines for the company how the product will
be differentiated in the market from its competitors. It defines its
positioning and what values the customer will seek in the product. A lot
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of this is also based on the strengths of the company and what it is
capable of providing to its customers. The basis of defining the
competitive strategy is how the company wants the products success to
be measured. Does the company look at the product in terms of adding
for the company the top line (sales) or bottom line (profit) or it expects
to capture a large market share, or it wants the product to help the
company‘s market penetration objectives.
This definition of the products USP in the market is defined at the time
the product is approved for development and the Customer Requirement
Document is frozen. Subsequently as it passes through the various
development phases it might undergo subtle changes depending on how
the development takes place. If for example there is a road block in the
development of the product – a specific material is not available or is too
expensive, or a technology needed is not available because of licensing
issues or any other problem and so the product specifications are
modified marginally the effort is to ensure that the competitive strategy
is not changes. If some fine changes are made needing some fine tuning
the strategy may also be fine tuned along with the development process.
This must outline the


Functional benefits of the product – these are benefits that can be
measures in physical terms as time, money, duration, etc
Psychological benefits – these are those that gives to the customer a
pleasant feeling such as self esteem, feeling of power, pleasant view and
so on
The objective of the competitive strategy is to place the product in the
market in such a way that it allows the company to have an advantage
over the competitor. The competitive strategy consists of:





An analysis of competition their products and competencies
A SWOT analysis of their products
A statement of areas where the company has an advantage over
competition
It also gives how the new product will be positioned as compared to
competitive products.
It also gives a scenario of the current market and a projection of the
scenario by the time the new product will be ready.
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See how Tata Motors got their competitive edge through their Chairman
Mr. Ratan Tata‘s vision at the end of this chapter.
2.2.
The Market Strategy
This strategy outlines activities the company will need to take in order to
meet its marketing objectives defined in the competitive strategy. This
document will define the sales channels that the company will need in
order to sell the product, the amount of advertising it will need, methods
it will use to approach customers, what after sale services will the
company need in order to support the product, in short all market related
activities. This document aims at positioning the company/ brand and the
product vis-a-vis the competition in the market space.
The market strategy analyses the various aspects of the market and its
customers. Form this the company evaluates what types of customers
are available in the market, it also tries to uncover if there are any new
applications or customer types that can be added to the new product
being planned, since this will enhance the area in which the product can
be sold thereby increasing the possibility of the products success.
We know that any new product development originates from a customer
need or unfulfilled desire. The study and analysis of these unfulfilled
desires has already led us to begin new product development whose
competitive advantages we have outlined in the competitive strategy.
Now added to this competitive advantage that the company wishes to
deliver to the customers it must also evaluate its own strength, the
various types of customers that can be targeted in addition to the initial
segment that the product was aimed for. Based on this analysis the
company must find the best way of delivery of the new product if it has
to succeed in making a name for itself and ensuring that the product is
successful in the market.
The company must undertake an analysis of the following areas for
making a successful marketing strategy:

Consumer analysis – In order to be able to sell to the
customer the company must know the customer. They must
know his characteristics, his buying process and what type of
benefits he seeks – physical or emotional
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

Customer Characteristics – first of all we need to define if our
customer is a business to business customer or a business to
consumer customer. A business to business customer would be
if a hotel buys bathing soap from a company. Here the
company‘s customer is buying in bulk and may be needing a
special packing, and also a special price since the business
customer is buying in bulk. However the same soap if it is
bought by an end consumer who is buying the product for his
own use then he will be a business to consumer type of
consumer. He will buy in much smaller quantities, prices will be
different, and the way of selling and promoting the product will
be different from the business customer.
We also need to define the demographic characteristics
of the customer along with the area in which the
customer is since both these factors have a significant
effect on the buying process of the customer.
The Buying process – every type of customer has their and this
process varies from product to product. So if a customer is
buying a bathing soap the process, effort and involvement the
customer will have will be significantly different from that of
buying a car, or a consumer durable. So the company must
evaluate
Who is the decision making person? In a Business-toBusiness the decision may be taken by the manager so
we must know which one is important to take the
product decision to him. In a Business-to-Customer
situation the decision may be taken by the family or
may be taken by one person in the family – the father,
mother or even the child. The more the people involved
in the decision making the more complicated the
process.
At what time or periodicity does he buy? The frequency
of the purchase can have a significant effect in the
company‘s strategy. For example a large number of
products are sold during the marriage season or the
festival season. This will vary with the demographics of
the population – Diwali and Eid come at different times
of the year and so the purchase pattern in
demographically different area will vary.
How does he buy? Depending on the different types of
products and the customer category the process of
purchase will vary. It can be impulsive at one end of
the spectrum and highly considered at the other end of
the spectrum. So if a person has to buy an ice cream
he may buy it on an impulse but if he has to buy a
house he may consider various options and look at
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each of them and take his time before taking a
decision.
How does he pay? Once the customer decides to
purchase the product he must pay for it. It has been
seen that if the payment can be facilitates it can lead
to an enhanced sales. About two or three decades ago
all payments were in cash. And so if a customer did not
have cash he could not buy a product until he saved
enough money to buy the product. However over the
last 10 to 15 years we have seen the introduction of
various options in payment. The introduction of credit
cards, debit cards, loans for consumer durables, homes
and now internet banking has facilitated the sales of
many products. If we see car sales companies analysed
that customers do not have all the cash needed for
purchasing cars and so they tied up with financing
companies to provide loans for their products. These
loans were provided at the sales outlet of the
companies with the customer not having to run around
banks to get loans. Because of this convenience the
customers began to buy cars in a much larger number
in comparison to what was being bought earlier.
Market analysis – The company does not intend to sell to only
one person. So it must know the customer‘s profile, thus it
now has to group all the persons sharing the same profile: It
is called the customer market segment.
A market is a group of customers (or prospects)
sharing their characteristics all of whom get the
benefits offered by the product or service.
Thus the company must first define the market for the
company‘s product. When we begin to group customers we
see that we find that for some product categories the user
cannot be categorised while in some cases we can do so. We
thus have two broad categories of customer markets:

The Undifferentiated markets – these are the markets
in which the product is used by all categories of people
without discrimination of age, sex, income, social standing. It
has a benefit for all categories or segments of the markets.
For example Coco-Cola, Pepsi – these are consumed by
virtually all segments of customers.

Segmented markets – these are markets where
products can be targeted to specific customer segments or
grouping of customers based on some parameters. The
company must segment the market into different segments
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based on its requirement of application of the product. These
parameters could be



Demographic parameters – divide the population on measurable
variables such as age, sex, income, educational level and so on.
Psychographic parameters – These parameters are emotional
and difficult to measure but sometimes can give valuable
information based on the type of product.
Geographical parameters – customers by area, city, state,
country, market, etc.
Based on this definition the company must evaluate the total
size of the market.
While segmenting the market the company must ensure that
each segment must be:
-Homogeneous: It means that a segment must be clearly
different from other segments in the same broad market. For
example, a segment having people income ranging from Rs
20,000 to Rs 200,000 is not homogeneous and not useful for
a marketing strategy.
-Consistent: A segment must have a large number of
prospects to allow a company to make profit.
The factors which can influence the size of a segment are the
increase in population, the situation of employment and the
changes in income, the supply of resources, the evolution of
laws, the consumer tastes and preferences.
-Profitable: A segment must generate profit. It means that
the prospects in the segment must have a sufficient income
with regard of the product price. If you sell luxury car, it's not
a good idea to choose a segment which only contains middle
income people.
-Executable: It means that the company can reach the
segment through advertising, sales force, distribution. It does
not make sense to choose a segment if it is unable to reach
the people who are in the segment. For example, if we want
to sell a toy in Japan and if we do not understand the
Japanese culture we will never be able to sell in that market.
Once we have finalised the segment, the first task is to evaluate
the size of the segment. This is important as our sales
projections are dependent on the total requirement. From this we
need to remove the quantities being sold by competing products or
companies. This will then finally give the gap available to us for
selling.
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Once the market size has been evaluated the company must
analyse the growth trend of similar products in the industry and the
industry as a whole.
2.3.
Company Analysis
Introduction of the product needs to be fully backed by a company‘s
strengths and abilities. Hence the company must analyse its capabilities
and see if these are in line for example if a company does not have the
ability to undertake extensive distribution then either the product must
not be one that needs distribution or it must then select channels that do
not depend on distribution or the must tie up with a partner that will be
able to help in overcoming the company‘s weakness in distribution.
The company must analyse the following






Synergy with business strategy
Synergy with existing products
Manufacturing capability for new product
Ability to distribute the product
Ability to support the product in after sales
Knowledge of its manpower and its distribution channel regarding the
product.
3. The Final Decisions
The broad elements of the strategy have already been laid at the beginning of
the product development product. However since the product development
takes some time and markets are dynamic and constantly changing the
company must once again make a check on the relevance to the current
market situation. If no change exists then there is no concern, if there is then
the necessary changes need to be incorporated.
Once this has been done the company must finally decide the 4Ps of the
product. Here all the analysis that the company has undertaken till date will
come into play. The difference is that before the product has been launched we
can change all parameters without having any significant impact on the
product. However once the product has been launched it becomes difficult to
change parameters drastically without having a negative impact on the product
and its performance in fulfilling its business objectives. All the fine tuning that
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the company needs or can undertake is specified in a Tactical Plan. This plan
consists of moving the 4Ps to the best advantage of the company.
Hence the areas in which the company needs to take a final decision are:
3.1.
Product Related
The two key decisions that the company needs to take for the product
are


Brand – what brand will be used to launch the product. Will it be a
main brand or a sub brand e.g. HP is a main brand but HP Deskjet
is a sub brand. The company must take these decisions based on
the parameters discussed under Branding Decisions discussed in
Chapter VIII
Product breadth – At the time of launch the company has to finally
position the product amongst the various other products that the
company. It must finally decide what will be the initial features of
the product and how many variants (bigger, smaller, etc.) of this
product will the company launch. Even if the variants are not
launched immediately the company must have a plan on the timing
that it will use for launching these features. Various aspects
discussed in Product Line (chapter IV) and Product Portfolio
(Chapter VI) decisions must be taken into consideration.
3.2.
Pricing Related
Pricing decisions are amongst the most important ones that the company
has to make. Price is the first parameters that the customer uses to
evaluate the product. A very high price and the customer will not buy the
product and a very low price the company may not meet its profit or
business objectives. Hence before the product launch the company must

Finalise the price – the criteria for defining the price commence
from the various costs in developing, manufacturing, storing,
distributing and marketing the product. However the final price is
dependent on what the customer is willing to pay for the product.
This means that no matter what the cost if the customer is not
willing to pay the price of the product the company cannot sell it.
So if we take an example of a product whose cost of raw material,
manufacturing, selling etc is say Rs 100 but the customer is willing
to pay only Rs 90 then the company will not be able to make a
profit on this product. However it is also possible that the customer
is willing to pay Rs 200 in this case to company has the flexibility
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of pricing its product anywhere between 100 and 200 Rs. The final
price would depend on the strategy the company wants to use of
keeping a high price and taking profits or of keeping a low price
and penetrating the market. Sometimes a combination of both is
used by initially introducing the product at a higher price and then
later lowering the price.

Pricing Policy – The Company will need to make several decisions
on price once the product is in the market. These decisions will be
needed to counter competition, to cater to different customer
groups, or to the sales channel, or large institutional buyers. It is
also possible to create different price levels for different customer
groups and geographical locations.
Hence in order to take these decisions the company must create
a policy that helps guide its employees who are at different parts
of the organisation. It allows for a consistent decision making
process. The objective of this policy is to create attractive
opportunities for consumers, so that they tend to buy the product
faster.
3.3.
Promotion Related
Based on the product being launched, the company‘s resources, the
market conditions, customers, etc the company must decide on the type
of promotion and extent of promotion. Thus the company must decide on



Promotion budget – The promotion budget outlines the total
resources the company is willing to commit on the launch of the
product and to see it through the initial stages of its growth. How
this is spent depends on the tactical plan laid out in the detailing of
the various activities laid out in the launch related promotional
activities.
Define the promotion costs and activities to be undertaken at
launch – This is a part of the tactical plan and lays out the specific
activities, and their cost, that the company plans to undertake
while launching the product. Defining the promotion expenditures
gives a clear view on the costs for promoting the new product. This
information can be used in calculating the price level of the
product.
Define the sales force needed during promotion – Any new product
launch needs an additional amount of sales force in order to ensure
that placement of the product in the market and at appropriate
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places on the shelves, to undertake special promotions, on ground,
to ensure that the channel understands the benefits of the product
especially in financial terms, etc. In order to undertake this the
sales force has to be trained and knowing how many people is
important – sometimes companies hire additional people for the
initial launch period by using companies specialised in such
activities.
3.4.
Distribution Related
The product has to pass through the distribution channel in order to
reach the ultimate customer. The effectiveness and ability of the channel
to move the product is important. Hence the company has to decide


Choice of channel – There are several types of distribution
channels. Each type has different capabilities. Some can handle
consumer durables, some FMCG, some industrial products. Some
channel partners are cash rich – and have enough additional
resources to invest in new products – some are not – and so new
products means that some existing product will suffer at this
expense – some do not have the technical expertise to handle a
specified product, and so on. Hence the company must make a
choice of the channel to use. Existing channels are the simplest to
use but they may not always be the best suited. Many times
adding a new product also motivates the channel partners and so
leaving them out of a new product because that are financially
weak or not trained on the product is not very good. So companies
must evaluate a complex set of issues and decide on the channel.
In combination with the ―channel expenses‖ and ―distribution
intensity‖, it forms a distribution plan. This plan contains
information about the organization of the distribution of the new
product and is part of the tactical plan.
Channel margins and other channel expenses – The objective of
the company are to minimise the cost of distribution. However if
the channel margins are not attractive enough the channel
partners will not be motivated enough to push the product. Hence
the company must balance between the cost of the channel versus
how much it wants the channel partners to feel motivated to push
the product. We must realise that after all this is a cost and will
need to be passed on to the customer. The customer will pay only
as long as he sees value in it. Defining the channel expenses gives
a clear view on the costs for distributing the new product. This
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information can be used in calculating the price level of the
product.

Lastly the company needs to define the channel/ distribution
intensity – this means that the company must evaluate how much
territory a given distributor will cover will it be a state, a city, or a
market. This intensity may or may not need the addition of another
layer in the distribution channel (a super distributor). However for
a product like a soap which is needed by virtually every retail
outlet the distribution intensity may be high while for a product like
a TV, Refrigerator the distribution intensity may be low since the
number of outlets in a market will be limited.
4. The Launch Process
The actual launch process commences a few weeks before the actual launch of
the product in the market and continues till the product has been successfully
launched inn the market. The period can vary from a few weeks to a few
months. SO we can break the launch into three zones:
i. The period just before launch: This is a small period of time a few
days or weeks before the actual launch/ announcement date. This
period is concerned with the logistics of the actual launch. In this
period the full scale production of the product starts with the variants
that the company has decided to launch at the initial stage. The
product is dispatched to the various parts of the market and the sales
channel is filled. Only the last mile – that is the actual delivery of the
product to the retailer is not undertaken.
Even though the retailer does not have the product he is aware of the
new product likely to arrive and has already been explained how to sell
the product. His initial orders are pre-booked so as to dispatched them
as soon as the product is launched.
During this period the promotion of the product is also put in place. All
advertising is discussed with the releasing company and the exact
schedule of advertising is planned for TV, newspapers and magazines.
Any ground activity needed to support the product is also given the
necessary tools and sent on location. If any additional manpower is
needed it is hired and trained for demonstrating the product to the
customers or to the retailers. This is necessary to produce a big impact
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on the market and the customers so that they become aware of the
product and also get interested in undertaking the first trials of the
product.
Any initial offers to customers and to channel partners are also initiated.
So the customers may find that if they buy the initial lot of the product
the prices may be lower than the actual price of the product. Sometimes
companies also combine the new product with an existing established
product. This way the customer feels that he can try the new product
and even if he does not like the new product at least he is getting an
existing product which he is using and so it not a total loss.
Since it is not possible to go to a large number of dealers and give them
the in shop promotional material immediately after the launch of the
product, this material is provided to the retailer during this time. This
helps him put it up in his shop as soon as the product is formally
launched in the market.
The actual product launches are of several types – in some cases the
product is just sent into the market and launch is communicated through
the commencement of advertising (the launch of the Chevrolet Optra), in
other cases launch is undertake at a formal location and in a very formal
manner – like in the case of the launch of the Nano car which was
launched through a well choreographed launch in a hotel. If the launch is
of the latter type this must be prepared for in this phase.
ii. The actual product launch – The launch of the product is the
simultaneous execution of the advertising of the product along with an
announcement of the product.
As soon as the product is launched the sales force ensures that the
product is dispatched to the retailer from the distributor. They also
ensure that the product is placed in the right placed on the retailers‘
shelves – so that it is convenient for the customers to see and try. The
sales force also makes sure that the retailer has displayed all the
promotional material prominently for the customer to see. Since the
sales force cannot be at all the retail stores at the same time they
prioritise the outlets by importance in terms of sales. They visit the most
important ones first and work their way to the least important at the last.
If the company undertakes a formal launch process in an specified
location like a hotel, auditorium, etc. then it provides them the
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opportunity to book some orders during the launch. Te people who are
present are presented with an offer that dives them some benefit based
on their order. The product launch is an instant in the life of the product.
It is meant to provide an initial momentum to the product. This is the
momentum that will induce the initial lot of customers to try the product
and begin the process of trial acceptance and repurchase.
iii. The period just after the launch – This is the period of a few weeks or
months after the product launch. It is a very critical period in the life
of the product because it is in this period that the company realises if
the product has been accepted or rejected by the customer. During
this period the company must

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
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


Monitor sales and evaluate if they are up to the mark expected by
the company before the launch of the product.
They must evaluate the markets purchasing the product to see
which segments are actually buying the product.
They must evaluate and rectify any limitations in the distribution
channel.
If any drastic feedback is received from the customers then the
necessary modifications to it need to be undertaken on a war
footing.
In this period the competition will also react. Now for all the
scenarios of the competition the company may have planned eh
competition may do something very similar or absolutely different.
If it is something on expected lines the response will be easier.
However if it is radically different the company will have to act
extremely fast to counter it.
If a new and unexpected segment gets added with the use of the
product then a modified approach may need to be evolved.
Advertising needs to be monitored for its relevance and quantity.
After all we do not want to continue an ineffective advertising nor
do we want to do so much that it wastes resources.
At the same time all necessary information and learning‘s – new
customer segment, new application, any problems, etc must be
communicated not only to the top management in the company
but also to other parts of the company for people to take
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advantage of the benefits and not make the same mistakes. This
allows for enhanced teamwork and synergy between different parts
of the organisation.


Constantly review the product with the channel partners, sales
team and even with a few select customers to get a sense of the
product over and above just numbers. This is important as it allows
for the launch of different variants and also to proactively solve
problems which the customers are likely to point out later. A
customer pointing out a problem always reduces the image of the
company. Self correction always enhances it in the eyes of the
customer.
As the product passes from the introduction stage to the growth
stage the company must review all the parameters set out for the
product and see how many have been met and what more can be
done to enhance the performance of the product.
5. New Technologies for product Launches
Today there are several new technologies that can be used to launch and
support a product. These technologies allow for a cheap dissemination of
information and also allow us to present information in a manner that is
needed by the target segment. Some of these technologies are


The Internet itself – The internet has given the companies the
ability to disseminate information like never before. One of the big
advantages of the Internet is that information can be customised in
a manner that is needed by the viewer. So if we want we can link
the product information to different sites in a different manner –
let us imagine that there is a site that is frequented by younger
people and the company puts its link on that site. Any person
clicking on the link will see the information that has been displayed
keeping a young profile. Similarly this link can be put on a site
frequented by middle aged people them the information displayed
on clicking will be seen from the point of view of a middle aged
person. Similar breakup can be done sex wise ie separate for males
and separate for females.
The social networking sites like Facebook, Twitter, Ibibo, etc. Today
social networking sites allow companies to interact with customers
directly and engage with them by answering their queries and
gently direct them in taking decisions to purchase the product. This
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type of interaction allows customers to share their experience on
using the product. This interaction has more credibility that the
organisations communication since customers always feel that the
company will always talk positively about their product but
customers will give real feedback. Companies nowadays use
agencies who try and take the discussion in the right direction.
Any new product that the company wants to launch can be
announced on these sites and can spread very fast with almost
no cost to the company.




The email marketing another tool that has been created by the
arrival of communication technology is the targeting of customers
by sending them emails with product information. It can also
provide information on where and how to buy the product. This
information can be tailored for the target segment by screening the
email addresses by the target segment criteria.
SMS marketing is another variation to the email marketing and is
sent on the mobile phone instead of the computer. This again is a
powerful tool in informing customers about approaching product
launches. Interested customers can be indiced to buy the product
and they may even forward this message to friends and relatives
making the job easier and cost effective for the company.
Association with various interactive TV shows – today many TV
shows are interacting with their customers- eg Indian Idol – this
platform is also being used to cross promote various products.
Amir Khan used one of the shows to promote his new film ‗Peepli
Live‘. On this show not only the director and the cast were present
but he himself was present. They all talked about the film and
showed parts of it. Since the viewership of the programme was
high the film got its share of promotion prior to launch.
Promotion through radio jockey linked promotions – similar to TV
now-a-days radio stations also take on the job of promoting
several products. They in build the promotion along with the radio
jockey‘s interaction with the audience. This is again used for launch
of films, to give positive reviews of new films so that people are
motivated to go and see it. People listening to the radio jockey
assume that it is his opinion and not that of the company launching
the film and so it has a much greater credibility.
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6. Summary
The Product launch is the culmination of a series of activities that the company
has undertaken from the commencement of the product development. In
today‘s competitive market scenario a product launch ensures that the product
is given the initial momentum in the market so as to help it establish itself. It
allow all the participants in the market – the channel, the retailer, the customer
and also the sales force to be informed about the new product in the market
and thus all of them make an effort to know and sell the product in one unison.
In the preparation of the launch which begins with the commencement of the
development the company must have in place the competitive strategy, the
marketing strategy and also an analysis of the companies capabilities. Though
all of these would have been created at the commencement of the product but
they must be once again evaluated before product launch for any missing links
or changes brought about because of market forces.
Once these are found in order the company must not take the final decisions
on the various aspects of the 4Ps – price, promotion, place and product. These
are the market variables that the company can fine tune before launch.
Though the company executives would have made several estimations on
these aspects while planning the product all those estimations were still within
the company‘s four walls and could be changes as many times without any
impact on the product. But once launched in the market changes are very
difficult and so the final decisions must be taken very carefully.
Finally all the launch activities must be planned and undertaken. Once
launched the company must continue to evaluate the performance of the
product in the market so as to continue to fine tune all requirements and help
the product establish itself. In this stage the company also has a chance to
respond to any actions that the competitor may have taken post the product
launch.
Today many new technologies are available that help the product manager in
lowering the cost of product launch while helping him penetrate the market
better and also customise the message to each category of customer
separately.
7. The Nano Car – Tata’s Competitive Edge
THE NANO CAR – TATA’S COMPETITIVE EDGE
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The concept of the Nano car was first thought of by Mr. Ratan Tata, Chairman
Tata Motors in 2003. He dream was to provide customers with a safe,
affordable Car for the common man.
Finally after a wait of five years, crossing all financial and technological
barriers, Mr. Ratan Tata kept his promise and unveiled Tata Nano on 10th
January 2007, at the 9th Auto Expo 2008 in New Delhi.
Tata Motor‘s - Tata Nano is worlds cheapest car with a price of around Rs
100,000.
While designing the car the company had a clear target market based on which
it started developing the car.
1. The low-cost car was intended for the masses. To be used by a family of
four that would otherwise have to use a scooter, precariously balancing a
child in the front and the wife‘s on the pillion holding a baby in her lap.
The reason for selecting this was that the first-time car buyer in India is
a huge market.
2. This car would also attract the small cars buyers who currently had no
option but to buy products like the Maruti 800.
Now why is it that consumers in India would buy this product and not stay with
the two wheelers that are significantly cheaper than the Nano car? There are
several factors which need to be looked at to understand the background:
The buoyancy of the Indian Economy
We need to look at the economic factors before the great depression of the
2008.
During the early part of the 21st Century, after the removal of several barriers
of the license raj, the Indian economy continued to register an impressive GDP
growth.
Although during this period the economy continued showing
inflationary trends because of the increase in the cost of raw materials and
energy. But seeing India, a huge economy with 400 million plus middle income
group grow, investment flows into India had gone up to a record level of about
Rs. 120,000 Crores an increase of 20%.
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The Booming of the Automobile Industry
During this period the Indian automotive sector also continued to grow at
around 15% year on year with substantial growth in new passenger car
introductions and the light commercial vehicles sector.
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India which was till now considered as a low potential market because of
the domination of the Ambassador and Premier brands of cars began to be
recognized as a potential emerging automobile market. Foreign players also
began to invest or to enhance their investments in Indian auto industry.
The various tax reliefs and liberalization policy provided by the Govt. of
India in recent years had made remarkable impacts on Indian Automobile
Industry. The Indian auto industry, because of its high growth per annum
and the large size of the population, had become a preferred destination for
several global automobile players like Volvo, General Motors and Ford.
The Indian automobile market can be divided broadly in three segments –
the commercial vehicles, the passenger car and the two/ three wheeler
segment. At the time of the commencement of the development of the
Nano Tata Motors were already market leaders in commercial vehicles and
were a very strong contender for one of the top slots in the passenger car
segment.
The company
Tata Motors which started in 1945 when it started manufacturing
locomotives made its first commercial vehicle in 1954 with the collaboration
of Daimler Benz. By now they had expanded from one facility in Pune to
Jamshedpur, Pantnagar and Lucknow also. Their desire to be number one
was very strong. In order to become number one they would have to create
a product that will give numbers and capitalise on the trust of the Tata
name.
When TATA looked at the competition in cars they had two options one was
to go for the top end segment of the market since they were already
catering to the middle end with their Tata Indica range of cars. Otherwise
they could go to the lower end of the cars which was currently dominated
by the Maruti 800. Now in order to compete with this product the company
would have to do something drastic to break into the market.
Hence Tata Moors initially targeted the Nano car as the least expensive car
to be produced in the world— aiming for a starting price of Rs 100,000
despite rapidly rising material prices.
Here Tata Motors used all their engineering and developmental skills to
overcome the challenges posed by such a low price and desire for high
quality and performance standards.
o
The Tata Nano uses adhesives and plastics instead of welding.
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o
Uses vertical-integration to ensure reduction in costs
o
It also partially using inexpensive polymers instead of a full metalbody.
o
It has no power steering, no Air Conditioning, no power windows, etc.
The advantage of this price point is that within the two-wheelers segment,
motorcycles contribute 80% of the segment size. These motorcycles are not
very far below in terms of prices from the Rs 100,000 price targeted for the
Nano. This allows potential customers of motorcycles to upgrade themselves
to a car. Also by being at that price point they are also able to break the
customers for the Maruti 800 (which is the largest selling car in numbers).
The company had another advantage and that was that the Nano being the
world‘s cheapest car and also complying with the Euro 4 norms had a huge
export potential. Now because of the growing automobile industry‘s
reputation and many foreign manufacturers, who were already in India to
take advantage of the growing Indian market and its cheap resources –
labour, manufacturing costs, etc., export of cars was becoming a growing
reality.
Thirdly Tata Motors also planned to launch an electric version of this car at a
later date. This version has the potential to become an even greater hit
because of its low pollution which is something needed in the world today.
Even internationally countries which are battling to meet the UN‘s global
emission norms agreed in the Kyoto Protocol are waiting to buy this
product.
The road to the launch was not an easy one with many inside and outside
the company whether the company ill be able to live up to its promise.
During the development stages many competitors made several comments
some encouraging and some trying to say that the product will not work:
o
o
Rajesh Jejurikar, Managing Director, Mahindra and Renault ―It‘s a good
product but it‘s still too early to say whether it will overtake the 800
because it caters to a totally new market segment.‖
Andreas Prinz, Managing Director, Volkswagen India said ―I think it is
a great thing for India because mobility is generating fresh
opportunities. I hope Tata Nano achieves great success with the Rs
one lakh car, but it is not a part of our plan.‖
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o
Jagdish Khattar, Former MD of Maruti Udyog Limited said ―Meeting the
proper quality and safety standards is not feasible at all in such a
model.‖
Thus Tata Motors with the inspiration from its Chairman‘s vision have
positioned a product in a competitive space which has provided then the
opportunity to bring them to the forefront of the industry globally.
They have leveraged emerging markets which always become excellent
ground for innovation. The challenge is in reaching a dispersed, low-income
consumer base in emerging markets. This has spurred significant innovation
in several areas.
As customers gain more power, they will demand more value-added service
and customisation to meet their needs. Companies that innovate in this
area are likely to greatly benefited.
World is getting tougher day by day being unique is a competitive
advantage. The development of the Nano has proved this.
After 100 years to Henry Ford, Ratan Tata has proved himself – not only did
he exceed in expectations but has also created a platform for Indian auto
sector in the world.
8. Your learning
1. Why do we need a product launch?
2. What are the objectives of a product launch?
3. Why do we have to prepare for a product launch?
4. When does the preparation start for a product launch?
5. What all needs to be ready before we can consider launching a product
launch?
6. Why do we have to ―prime the market‖ before a product launch?
9. Key Words
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1. Signifies – to mean or to be an indication of, or to involve or indicate by
inference, association, or necessary consequence rather than by direct
statement
2. Marketers prime the market – To prepare the market for the product
launch typically by supplying them with relevant information, sending
the initial product lots to the distributors, etc
3. Virtually all types – almost all types of products. A variety of products.
4. Bonus offers – An additional offer along with the new product with an
intention of motivating the buyer to purchase the product.
5. Momentum - The driving force gained by the product or the activity by
carrying out certain process or course of events.
6. Culmination – The highest point of an activity where things come to
completion. The culmination of an activity or all the activities
undertaken for developing and launching the product.
7. Subtle – Very fine changes. Changes that are not very obvious.
8. Unfulfilled desires – Not having fully utilized or exploited one's desires.
Those desires which the customer has not been fulfilled.
9. Periodicity – Something that happens at a periodic or fixed interval.
10. Impulsive – something that is done without much thought.
11. One end of the spectrum – Used to classify something, or suggest
that it can be classified, in terms of its position on a scale between two
extreme or opposite points.
12. Highly considered – where the decision is taken after a lot of
thought and consideration.
10.
Exercises
1. Why do we need to understand our customer in order to have a
successful product launch?
2. What are the activities we need to undertake after the actual launch of
the product?
3. What is the importance of monitoring the product after the product
launch?
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4. How does the reaction of competition affect activities that the company is
undertaking after product launch?
5. Do new technologies available in assisting the product launch help the
product manager? How does it help him?
6. Do you think new technologies help companies reduce the cost of
marketing at the time of product launch? Please explain your answer.
11. Further Reading
1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India:
Response Books pg 164-180
2. Crawford, Merle and Benedetto, Anthoni Di, (2004) New Products
Management, New York, USA, chapter 17, 18, 21
3. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 348-350
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