Chapter 10 Product Decisions McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Product Design Decisions for Competitive Advantage • • A product can be defined as anything that satisfies a want or need through use, consumption, or acquisition. What is important is how the consumer perceives the product as satisfying a need, not how the seller sees the product. 10-2 Product Design Decisions for Competitive Advantage • Benefits and features are not the same. – Features are the tangible or intangible attributes given the product by its designers. – Benefits are the solutions to customer problems or needs delivered by the product. 10-3 The Augmented Product Concept 10-4 Product Design Decisions for Competitive Advantage • Goods and Services – Services can be thought of as intangibles versus goods as tangibles. – The two most important reasons for the growth of services are economic growth and lifestyle changes. – When we say product in this book we mean both goods and services. 10-5 Product Design Decisions for Competitive Advantage • Product quality and features decisions – A well-developed positioning statement or value proposition plays an important role in designing products. – Positioning makes clear how the product is to be differentiated. – Most products use only a few dimensions of quality as the basis on which they compete. – “Feature fatigue.” 10-6 Product Design Decisions for Competitive Advantage • Branding decisions – – – – Branding identifies and helps differentiate the goods or services of one seller from those of another. A brand name is the part that can be vocalized. A brand mark is something that cannot be verbalized. A trademark is a brand or some part of a brand that legally belongs exclusively to a given seller. 10-7 Product Design Decisions for Competitive Advantage • Branding is important to consumers because it: – – – – – Simplifies shopping. Facilitates the processing of information concerned with purchase options. Provides confidence that the consumer has made the right decision. Helps to ensure quality. Often satisfies certain status needs. 10-8 Product Design Decisions for Competitive Advantage • Branding benefits sellers by enhancing: – – – – – The effectiveness of their marketing programs. Brand loyalty. The opportunities for successfully launching brand extensions. Prices and margins resulting from a competitive advantage. Channel relationships. 10-9 Product Design Decisions for Competitive Advantage • Branding Strategies – – – Individual branding requires the company to provide each product or product line with a distinctive name. Family branding uses the same brand name to cover a group of products or product lines. Other strategies include cobranding and globalization. 10-10 Product Design Decisions for Competitive Advantage • • Corporate identity—together with a strong corporate brand that embodies that identity—can help a firm stand out from its competitors and give it a sustainable advantage. Growth of retailer and distributor brands versus national brands. 10-11 Product Design Decisions for Competitive Advantage • Packaging decisions – Functions of a product’s package: • • • • Protecting the product. Facilitating use of the product. Promoting the product. Providing information about the product and its use. – Increasingly firms are recognizing the need to use environmentally sensitive packages. 10-12 Product Design Decisions for Competitive Advantage • Services decisions and warranties – Companies that excel at providing service find it a substantial competitive advantage. – Common service components of a product are delivery reliability; warranty; repair and maintenance; efficient handling of complaints and returns; credit availability; prompt inquiries handling etc. 10-13 Managing Product Lines for Customer Appeal and Profit Performance • Whether a product line is too short or too long depends on: – The extent to which the market can be segmented. – How the company wants to position itself. – The stage of product-market evolution. • More and more companies are pursuing product expansion strategies. 10-14 Managing Product Lines for Customer Appeal and Profit Performance • Line filling – Lengthens the product line by adding items within the present range. – Aims to satisfy more customers, to increase sales and profits, to placate dealers, and to ward off competitors. • Line stretching – Lengthening the line beyond its current range. – Such stretching may be up or down or both. 10-15 Managing Product Lines for Customer Appeal and Profit Performance • Line extensions – Introducing new products that differ significantly from those in the existing line by more than just size and price. – Involves greater costs and financial risks than line filling or stretching strategies. – Provides an extended technological base for the firm and is more likely to tap new market segments. 10-16 Managing Product Lines for Customer Appeal and Profit Performance • Brand extensions – Using a brand name established in one product class as a vehicle to enter another. – Rationale: The contribution of the brand name to the extension will be positive. • Dropping products – The criteria for identifying weak products focus largely on the trend of the product’s contribution to profit. 10-17 Managing Product Lines for Customer Appeal and Profit Performance • Product systems – Selling a product and providing complementary products and service as a package. – Requires a strong compatibility between the various components of the system. – Such a strategy could produce scale economies and a closer, more enduring relationship between buyer and seller. 10-18 New Product Development Process Decisions • New products and long-term profitability – – – – • • New to the world New to the firm Product-line extensions Product improvements Only a small percentage of products are new to the world. The vast majority are either product-line extensions or product improvements. 10-19 New Product Development Process Decisions • New product success and failure – More than half of new product introductions fail. – A crucial factor in successful new product development is to ensure that an adequate understanding of customer needs, preferences, and requirements is developed. 10-20 New Product Development Process Decisions • Organizing for new product development – Decide whether to keep development activities in-house or use subcontracting or some form of joint venture. – The trend toward cocreation. – Collective customer commitment – Cross-functional teams – time-to-market and cost considerations. 10-21 New Product Development Process Decisions • • Key decisions Managing the Stage-Gate Process – Clear milestones are set at each gate to encourage new product teams to move quickly through the necessary activities to get through the next gate. 10-22 New Product Development Process Decisions • Managing the Stage-Gate Process (cont.) – – – Resource commitments are made along the way to ensure that inadequate resources, whether human or financial, do not delay promising products. Concurrent engineering is employed, whereby both market analyses and technical progress proceed concurrently. Deciding who staffs the gates, and how many gates 10-23 Stage-Gate New Product Development System 10-24 Product Decisions over the Product Life Cycle • The product life cycle – – Introductory stage: A new product’s purchase is limited because members are insufficiently aware of its existence; also, the product often lacks easy availability. Growth stage: As more people learn about the product and it becomes more readily available, sales increase at a progressively faster rate. 10-25 Product Decisions over the Product Life Cycle – – – At the end of the growth period the shakeout or competitive turbulence stage occurs. The mature stage is reached when the net adoption rate holds steady. When dropouts begin to exceed new firsttime users, the sales rate declines and the product is said to have reached its final or decline stage. 10-26 Product Decisions over the Product Life Cycle • • Many products do not go through the product life cycle curve because a high percentage are aborted after an unsatisfactory introductory period. Fads experience strong and quick enthusiasm, peak early, and enter the decline stage shortly thereafter. 10-27 Generalized Product Life Cycle 10-28 10-29 Product Decisions over the Product Life Cycle • Product life cycle framework - Limitations – Major weakness lies in its normative approach to prescribing strategies based on assumptions about the features or characteristics of each stage. – It fails to take into account that the product life cycle is driven by market forces expressing the evolution of consumer preferences, technology, and competition. 10-30 Take-Aways • Decisions about product design are among the most critical in differentiating one’s brand from others to achieve competitive advantage. 10-31 Take-Aways • While speed to market is important in today’s fast-paced business climate, bringing the right products to market and keeping them current are far more important than seeking first-mover advantage for a product that customers don’t want. 10-32 Take-Aways • • Decisions about the depth and breadth of product lines must be carefully considered in market segmentation terms. Customer-driven innovation approaches like cocreation and collective customer commitment can reduce the likelihood of new product failure and create high levels of customer engagement. 10-33 Take-Aways • How the new product development process is managed, from a process perspective, is as important as what product decisions are made. The stagegate system helps companies strike a balance between entrepreneurial creativity and business discipline in their new product efforts. 10-34 Take-Aways • Though new products constitute the lifeblood of long-term success for most firms, most new products fail! Thus, product decisions, in both content and process terms, are critical to the successful implementation of business strategies. 10-35 Take-Aways • Regardless of the nature of the playing field, developing and regularly updating winning marketing strategies are important, too! – Marketing decision makers are more likely to win the competitive war by adjusting their strategies as the markets and industries in which they compete evolve through the stages of the product life cycle. 10-36