PRODUCT
Ashok
Leyland
is known
for its
products
What is a Product?
A product is anything that can be offered
to a market to satisfy a want or need,
including physical goods, services,
experiences, events, persons, places,
properties, organizations, information, and
ideas.
Figure 12.1 Components of the
Market Offering
Value-based prices
Attractiveness
of the market
offering
Product
features
and quality
Services
mix and
quality
Figure 12.2 Five Product Levels
Product Classification Schemes
Durability
Tangibility
Use
Durability and Tangibility
Nondurable
goods
Durable
goods
Services
Consumer Goods Classification
Convenience
Shopping
Specialty
Unsought
Industrial Goods Classification
Materials and parts
Capital items
Supplies/
business services
Developing products for rural
markets
• Products should be designed keeping in mind
the rural conditions
• Packaging is one of the key drivers of
success in rural areas
Issue of transfer and storage: Rugged
packing
The issue of affordability: small-unit packs
• Brand elements should be decided keeping in
mind rural consumers
Product Line and Product Mix
• Product Item
– A specific version of a product
Whole
Milk
• Product Line
– A group of closely related product items
viewed as a unit because of marketing,
technical, or end-use considerations
Skim
Milk
2%
Milk
Whol
e
Milk
• Product Mix
– The total group of products that an
organization makes available to customers
– Width of product mix
• The number of product lines a company offers
– Depth of product mix
• The average number of different products in each
product line
The Concepts of Product Mix Width and Depth
Applied to Selected U.S. Proctor & Gamble
Products
Source: Reprinted by permission of Proctor & Gamble.
FIGURE 10.1
Line Stretching
Down-Market Stretch
Up-Market Stretch
Product Life Cycles and
Marketing Strategies
• Product Life Cycle
–The progression of a product
through four stages: introduction,
growth, maturity, and decline.
MP3s
DVDs
CDs
Cassettes
LP records
The Four Stages of the Product Life Cycle
FIGURE 10.2
Claims of Product Life Cycles
• Products have a limited life
• Product sales pass through distinct stages
each with different challenges and
opportunities
• Profits rise and fall at different stages
• Products require different strategies in
each life cycle stage
The Product Life Cycle
• Introduction
– The initial stage of a product’s life cycle—its
first appearance in the marketplace—when
sales start at zero and profits are negative
– Why new products fail
• Lack of resources, knowledge, and marketing skills
to successfully launch the product
• High pricing to recoup research and development
costs
Product Life Cycle (Contd.)
• Strategies at various stages of PLC
Introduction
Build sales by expanding market for the product
Heavy expenditure on promotion
Stimulate trial
Attract distribution channel partners
Prices high or low depending on imminent
competition
The Product Life Cycle (cont’d)
• Growth
– The stage of a product’s life cycle when sales
rise rapidly and profits reach a peak and then
start to decline
•
•
•
•
•
•
More competitors enter the market
Product pricing is aggressive
Brand loyalty becomes important
Gaps in market coverage are filled
Promotion expenditures moderate
Production efficiencies lower costs
Product Life Cycle (Contd.)
Growth
Customers aware of the product
Build sales and market share by building
brand preference
Segmentation emerges
Product redesigned to create differentiation
Promotion lays stress on the benefits of the
differentiated product
Focused competitors emerge
Distribution will be widened to serve new segments.
Product made available in different retail formats as
customers of different segments buy differently
• Maturity
– The stage of a product’s life cycle when the sales curve peaks
and starts to decline and profits continue to fall
• Intense competition
• Emphasis on improvements and differences in competitors’
products
• Weaker competitors lose interest and exit the market
• Advertising and dealer-oriented promotions predominate
• Distribution sometimes expands to the global market
– Strategic objectives for maturity stage
• Generate cash flow
• Maintain market share
• Increase share of customer
Product Life Cycle (Contd.)
Maturity
Market does not grow in this stage
Sales only at the expense of competition
Focus on ensuring repeat purchases
Strong brand helps fight competition
Maintaining brand loyalty, stimulate repeat
purchases
Intense competition, often price wars
Company should focus on strengthening its
brand by differentiation
Lasts for a long time
Companies should set realistic growth rates
Low cost manufacturing and marketing
infrastructure
• Decline
– The stage of a product’s life cycle when sales
fall rapidly
•
•
•
•
Pruning items from the product line
Cutting promotion expenditures
Eliminating marginal distributors
Planning to phase out the product
– Strategic choices
• Harvesting the product’s remaining value
• Divesting the product when losses are
sustained and a return to profitability
is unlikely
Product Life Cycle (Contd.)
Decline
Anticipate the impending decline in sales
Analyze changing customer requirements
Exit immediately / gradual withdrawal / Exploit
brand loyalty
• Uses of PLC
Product Life Cycle (Contd.)
Emphasizes the need for product planning
Planning for competition
Products have limited life cycle
Plan for the future as growth phase will end
Adapt marketing strategies as market and
competitive conditions change
Product Life Cycle (Contd.)
• Limitations of PLC
Not all products follow the classic Sshaped PLC curve
PLC is the result of marketing activities,
and is not the cause of variability in sales
Duration of PLC stages is unpredictable
Strict adherence to PLC can lead a
company to
misleading objectives and
strategy prescriptions
Johnson & Johnson Emphasizes
New Product Development
Categories of New Products
New-to-the-world
New product lines
Additions
Improvements
Repositionings
Cost reductions
Moser Baer has moved from
making optical storage media
to selling home entertainment
The World’s
Most Innovative Companies
•
•
•
•
•
•
•
•
Apple
Google
Toyota
General Electric
Microsoft
Procter & Gamble
3M
Walt Disney
•
•
•
•
•
•
•
•
IBM
Sony
Wal-Mart
Honda
Starbucks
Target
BMW
Samsung
Seven Notions of Innovation
• See the future through the eyes of your
customer
• Intellectual property and brand power are key
assets
• Use digital technology to create tools for
customers
• Build a championship team
• Innovation is a state of mind
• Speed is critical, so push your organization
• Partner up if you’re not the best
The New Product Development Decision Process
Mahindra and Mahindra followed a thorough product
development process for ‘Scorpio’
Ways to Find Great New Ideas
• Run informal sessions with customers
• Allow time off for technical people to putter
on pet projects
• Make customer brainstorming a part of
plant tours
• Survey your customers
• Undertake “fly on the wall” research to
customers
More Ways to Find Great Ideas
• Use iterative rounds with customers
• Set up a keyword search to scan trade
publications
• Treat trade shows as intelligence missions
• Have employees visit supplier labs
• Set up an idea vault
Drawing Ideas from Customers
• Observe customers using product
• Ask customers about problems with
products
• Ask customers about their dream products
• Use a customer advisory board or a brand
community of enthusiasts to discuss
product
• Idea generation
Managing The Innovation Process (Contd.)
Look outside current markets
Modify product form
Question conventional price and performance
relationships
Imagine unarticulated customer needs rather
than simply following them
Examine competitors’ products at frequent
intervals
Retailers as a source of ideas for NPD
Customers as a source of ideas for NPD
Utilize MR effectively
• Idea screening
Evaluate commercial worth of ideas
Use criteria to evaluate attractiveness of
market for the proposed market
Basis such as return on assets, sales
growth etc.
Idea for NPD should be in alignment with
the
company’s objectives and
competencies
Should have reasonable chances of
success
• Concept testing
Each basic product idea can be expanded
into
several product concepts
Each product concept can be compared
by testing with target customers
Product concept is a particular
combination of
features, benefits, and
price
Allows views of customers to enter the
NPD
process at an early stage
Use research to gather customer opinions
• Business analysis
Estimates of sales, cost and profits
Identifies the product target market, its
size,
and projected product acceptance
over a number of years
Study various prices and their implications
on sales revenues
Conduct sensitivity analysis
Estimate revenues and profits to justify
the
expenses of development and
marketing
• Product development
New product concept is developed into a
physical product
Multi-disciplinary project teams
established
Product testing focuses on the functional
aspects of the product and consumer
acceptance
R&D focuses on functional aspects of
product and marketing keeps the project
team aware of psychological factors
Products set up to fail at this stage:
Developers become their own during this
stage
Developers are wary of showing their
incomplete designs to other people in the
organization
Both customer needs and technologies are
likely
to change during the development
process itself
A description of the product can never
match the physical product in eliciting real
reactions of
customers
A company should be willing to do
‘anything’
to increase the probability of
success of a new
product
• Market testing
Simulated market test
Launch the new product in a limited way
Key success indicators such as penetration
and
repeat purchase can be ascertained
Launch of new product in one or few
geographical areas chosen to be
representative of
its intended market
Facing competition in retail outlets
Information provided by test marketing
facilitates
the go / no go national launch
decision
• Commercialization and diffusion of
innovation
Diffusion is how a new product spreads
throughout a market over time
Buyer at different stages of buying
readiness
In initial phase of launch target customers
who
are more likely to buy the new
product than others
Adoption slower if company targets
complete
market initially
What is Adoption?
• Adoption is an individual’s decision to become
a regular user of a product.
Stages in the Adoption Process
Awareness
Interest
Evaluation
Trial
Adoption
Adopter Categorization
Innovators: Most likely to buy the new
product
Early adopters: Set of customers who buy the
product next
Early and late majorities form the bulk of the
customers
Laggards are tradition bound
Diffusion of innovation categories play crucial
role in the choice of target markets
Key is to understand the characteristics of the
innovator and early adopter categories and
target
them at launch
Adopter categories can provide basis of
segmenting the target market
Diffusion curve linked to the product
life cycle
Characteristics of the product being
launched also affects diffusion rate
a
Choice of marketing strategy to establish
differential advantage to be made
Product’s communicability affects
adoption of
new product
Characteristics of an Innovation
•
•
•
•
•
Relative advantage
Compatibility
Complexity
Divisibility
Communicability
• Idea generation
Managing The Innovation Process (Contd.)
Look outside current markets
Modify product form
Question conventional price and performance
relationships
Imagine unarticulated customer needs rather
than simply following them
Examine competitors’ products at frequent
intervals
Retailers as a source of ideas for NPD
Customers as a source of ideas for NPD
Utilize MR effectively
Managing The Innovation Process (Contd.)
• Idea screening
Evaluate commercial worth of ideas
Use criteria to evaluate attractiveness of
market for the proposed market
Basis such as return on assets, sales
growth etc.
Idea for NPD should be in alignment with
the
company’s objectives and
competencies
Should have reasonable chances of
Managing The Innovation Process (Contd.)
• Concept testing
Each basic product idea can be expanded
into
several product concepts
Each product concept can be compared
by testing with target customers
Product concept is a particular
combination of
features, benefits, and
price
Allows views of customers to enter the
NPD
process at an early stage
Use research to gather customer opinions
Managing The Innovation Process (Contd.)
• Business analysis
Estimates of sales, cost and profits
Identifies the product target market, its
size,
and projected product acceptance
over a number of years
Study various prices and their implications
on sales revenues
Conduct sensitivity analysis
Estimate revenues and profits to justify
the
expenses of development and
marketing
Managing The Innovation Process (Contd.)
• Product development
New product concept is developed into a
physical product
Multi-disciplinary project teams
established
Product testing focuses on the functional
aspects of the product and consumer
acceptance
R&D focuses on functional aspects of
product and marketing keeps the project
team aware of psychological factors
Managing The Innovation Process (Contd.)
Products set up to fail at this stage:
Developers become their own during this
stage
Developers are wary of showing their
incomplete designs to other people in the
organization
Both customer needs and technologies are
likely
to change during the development
process itself
A description of the product can never
match the physical product in eliciting real
reactions of
customers
A company should be willing to do
‘anything’
to increase the probability of
Managing The Innovation Process (Contd.)
• Market testing
Simulated market test
Launch the new product in a limited way
Key success indicators such as penetration
and
repeat purchase can be ascertained
Launch of new product in one or few
geographical areas chosen to be
representative of
its intended market
Facing competition in retail outlets
Information provided by test marketing
facilitates
the go / no go national launch
decision
Managing The Innovation Process (Contd.)
• Commercialization and diffusion of
innovation
Diffusion is how a new product spreads
throughout a market over time
Buyer at different stages of buying
readiness
In initial phase of launch target customers
who
are more likely to buy the new
product than others
Adoption slower if company targets
complete
market initially
Managing The Innovation Process (Contd.)
Innovators: Most likely to buy the new
product
Early adopters: Set of customers who buy the
product next
Early and late majorities form the bulk of the
customers
Laggards are tradition bound
Diffusion of innovation categories play crucial
role in the choice of target markets
Key is to understand the characteristics of the
innovator and early adopter categories and
target
them at launch
Managing The Innovation Process (Contd.)
Adopter categories can provide basis of
segmenting the target market
Diffusion curve linked to the product
life cycle
Characteristics of the product being
launched also affects diffusion rate
a
Choice of marketing strategy to establish
differential advantage to be made
Product’s communicability affects
adoption of
new product