AIMA-CME Product concept Product Life-Cycle Strategies New-Product Development Product Concepts 3 Learning Objectives 1. Define the term product. 2. Classify consumer products. 3. Define the terms product item, product line, and product mix. 4. Describe marketing uses of branding. Learning Objectives (continued) 5. Describe marketing uses of packaging and labeling. 6. Discuss global issues in branding and packaging. 7. Describe how and why product warranties are important marketing tools. Product Everything, both favorable and unfavorable, that a person receives in an exchange. What is a Product? Product is the “heart” of Marketing Mix Price Promotion Place (Distribution) THE PRODUCT Products are almost always combinations of the tangible and intangible. The entire package is sometimes referred to as the augmented product. The mix of tangibles and intangibles in the augmented product varies from one product or service to another. THE PRODUCT Product is a key element in the market offering. Marketing mix planning begins with formulating an offering to meet target customers’ needs or wants. The customer will judge the offering by three basic elements : product features and quality, services mix and quality, and price appropriateness. COMPONENTS OF THE MARKET OFFERING Value based pricing Attractiveness of the market offering Product features and quality Services mix and quality PRODUCT LEVELS In planning its market offering, the marketer needs to think through five levels of the product. Each level adds more customer value, and the five constitute a customer value hierarchy. ( Contd… ) FIVE LEVELS OF THE PRODUCT (5) Potential Product (1) Core Product (2) Basic Product (4) Augmented Product (3) Expected Product FIVE LEVELS OF THE PRODUCT (1) Core Product / Core Benefit : The fundamental service or benefit that the customer is really buying. (2) Basic Product : At the same level, the marketer has to turn the core benefit into a basic product. (3) Expected Product : A set of attributes and conditions buyers normally expect when they purchase this product. FIVE LEVELS OF THE PRODUCT (4) Augmented Product : The marketer prepares an augmented product that exceeds customer expectations. Today’s competition essentially takes place at the product-augmentation level. ( In less developed countries, competition takes place mostly at the expected product level ). ( Contd.….. ) FIVE LEVELS OF THE PRODUCT ( Augmented Product ) According to Levitt : The new competition is not between what companies produce in their factories, but between what they add to their factory output in the form of packaging, services, advertising, customer advice, financing, delivery arrangements, warehousing, and other things that people value. FIVE LEVELS OF THE PRODUCT Some things should be noted about product-augmentation strategy : First, each augmentation adds cost. The marketer has to ask whether customers will pay enough to cover the extra cost. Second, augmented benefits soon become expected benefits. For gaining competitive advantage one will have to search for still other features and benefits. FIVE LEVELS OF THE PRODUCT ( product-augmentation strategy ) Third, as companies raise the price of their augmented product, some competitors can offer a “ Strippeddown ” version at a much lower price. Thus alongside the growth of fine products we see the emergence of lower-cost products for the clients who simply want the basic product. FIVE LEVELS OF THE PRODUCT (5) Potential Product : encompasses all the possible augmentations and transformations the product might undergo in the future. Companies search for new ways to satisfy customers and distinguish their offer. ( Successful Companies add benefits to their offering that not only satisfy customers but also surprise and delight them. ) “ The best way to hold customers is to constantly figure out how to give them more for less. ” PRODUCT DIFFERENTIATION The challenge before the product marketers is to create relevant and distinctive product differentiation. The product differentiation may be based on : Physical Differences ( eg., features, performance, conformance, durability, reliability, design, style, packaging ) Availability Differences ( eg., available from stores or orderable by phone, mail, fax, internet ) PRODUCT DIFFERENTIATION Service Differences ( eg., delivery, installation, training, consulting, maintenance, repair ) Price Differences ( eg., very high price, medium price, low price, very low price ) Image Differences ( eg., symbols, atmosphere, events, media ) CHALLENGES FOR PRODUCT INNOVATORS Any successful differentiation will tend to draw imitators. The innovator faces three choices : Lower the price to protect market share and accept lower profits. Maintain the price and lose some market share and profits. Find a new basis to differentiate the product and maintain current price. PRODUCT CLASSIFICATION ON THE BASIS OF PRODUCT CHARACTERISTICS :DURABILITY, TANGIBILITY AND USE (consumer or industrial ) (1) NON-DURABLE (2) DURABLE (3) SERVICES ( CONTD . ) (1) NON-DURABLES These are tangible goods normally consumed in one or few uses. Because these goods are consumed quickly and purchased frequently, the appropriate strategy is to make them available at many locations, charge only a small mark up and advertise heavily to induce trial and build preference. (2) DURABLES These are tangible goods that normally survive many uses. Normally require more personal selling and service, command a higher margin, and require more seller guarantees. (3) SERVICES These are intangible, inseperable, variable and perishable products. Normally require more quality control, superior credibility, and adaptability. PRODUCT CLASSIFICATION ON THE BASIS OF CUSTOMER SHOPPING HABITS : (1) CONVENIENCE GOODS (2) SHOPPING GOODS (3) SPECIALITY GOODS (4) UNSOUGHT GOODS (1) CONVENIENCE GOODS are goods that the customer usually purchases frequently, immediately, and with a minimum of efforts. (A) Staples: Consumers purchase on a regular basis. (B) Impulse Goods: are purchased without any planning or search efforts. (C) Emergency Goods: are purchased when a need is urgent. (2) SHOPPING GOODS are goods that the customer , in the process of selection and purchase, characteristically compares on such basis as suitability, quality, price and style. (A) Homogeneous Shopping Goods: are similar in quality but different enough in price to justify shopping comparisons. (B) Heterogeneous Shopping Goods: differ in product features and services that may be more important than price. (3) SPECIALITY GOODS are goods with unique characteristics or brand identification for which buyer is willing to make a special purchasing effort. (4) UNSOUGHT GOODS are goods the consumer does not know about or does not normally think of buying. These goods require advertising and personal selling support. PRODUCT STRATEGY Calls for coordinated decisions on (1) Product Mix (2) Product Line (3) Individual Product (4) Service Product PRODUCT MIX A product mix (also called product assortment) is the set of all products and items that a particular seller offers for sale. A total group of products that an organization markets. A company’s product mix has a certain width, length, depth and consistency. DIMENSIONS OF PRODUCT MIX The width of company’s (say HLL’s) product mix refers to how many different product lines the company carries, such as bathing soap, detergents, shampoos, toothpaste, food products. DIMENSIONS OF PRODUCT MIX The length of a company’s product mix refers to the total number of items in its product mix. Thus in each of the product line HLL has a number of product items. Eg., in the product line of bathing soaps, HLL has several product items like Lux, Liril, Lifebuoy, Pears. DIMENSIONS OF PRODUCT MIX The depth of a company’s product mix refers to how many variants are offered of each product in the line. Thus if close up toothpaste comes in three formulations and in three sizes, Close up has a depth of nine (3x3). The average depth of HLL product mix can be calculated by averaging the number of variants within the brand groups. DIMENSIONS OF PRODUCT MIX The Consistency of the product mix refers to how closely related the various product lines are in end-use, production requirements, distribution channels, or some other way. HLL’s product lines are consistent insofar as they are consumer goods that go through the same distribution channels. DIMENSIONS OF PRODUCT MIX These four dimensions of the product mix provide the handles for defining the company’s product strategy. The company can expand its business in four ways. 1. The Co. can add new product lines, thus widening its product mix. 2. The Co. can lengthen each product line. 3. The Co. can add more product variants to each product and deepen its product mix. 4. The Co. can pursue more productline consistency or less, depending upon whether it wants to acquire a strong reputation in a single field or participate in several fields. PRODUCT LINE A product line is a group of products that are closely related, because they perform a similar function, are sold to the same customer groups, are marketed through the same channels or fall within the given price ranges. The product mix may be composed of several product lines. PRODUCT LINE ANALYSIS Product line managers need to know the sales and profits of each item in their line in order to determine which items to build, maintain, harvest,, or divest. They also need to understand each product’s market profile, i.e. how their product line is positioned against competitors’ product lines (The Product Map). PRODUCT PORTFOLIO MANAGEMENT Product Line Length : . Downward Line Stretching . Upward Line Stretching . Two Way Stretching High New Present New Product Price Present New Product Low Low Present New High Quality (Downward) (Upward) (Two Way) Portfolio Analysis Boston Consulting Group’s Market Growth- Market Share Matrix Product-Market Growth (%) High Low A strategic planning tool based on the philosophy that a product’s market growth rate and market share are important in determining marketing strategy High Relative Market Share Low Increase market share, increase economies of scale, increase profits Market Growth – Market Share Matrix Product-Market Growth (%) High PROBLEM CHILD STARS Low market share in growth mkt needs much cash to incr mkt sh CASH COWS DOGS Low High Relative Market Share Low Source: Perspectives. No. 66. “The Product Portfolio.” Reprinted by permission from the Boston Consulting Group, Inc. Boston, MA Copyright 1970. The BCG Matrix method is the most well-known portfolio management tool. It is based on product life cycle theory. It was developed in the early 70s by the Boston Consulting Group. The BCG Matrix can be used to determine what priorities should be given in the product portfolio of a business unit. To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. The Boston Consulting Group Matrix has 2 dimensions: market share and market growth. The basic idea behind it is: if a product has a bigger market share, or if the product's market grows faster, it is better for the company. The four segments of the BCG Matrix Placing products in the BCG matrix provides 4 categories in a portfolio of a company: Stars (high growth, high market share) Stars are using large amounts of cash. Stars are leaders in the business. Therefore they should also generate large amounts of cash. Stars are frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold your market share in Stars, because the rewards will be Cash Cows if market share is kept. Cash Cows (low growth, high market share) Profits and cash generation should be high. Because of the low growth, investments which are needed should be low. Cash Cows are often the stars of yesterday and they are the foundation of a company. Cash Cows (low growth, high market share) Profits and cash generation should be high. Because of the low growth, investments which are needed should be low. Cash Cows are often the stars of yesterday and they are the foundation of a company. Dogs (low growth, low market share) Dogs (low growth, low market share) Avoid and minimize the number of Dogs in a company. Watch out for expensive ‘rescue plans’. Dogs must deliver cash, otherwise they must be liquidated. Question Marks (high growth, low market share) Question Marks have the worst cash characteristics of all, because they have high cash demands and generate low returns, because of their low market share. If the market share remains unchanged, Question Marks will simply absorb great amounts of cash. Either invest heavily, or sell off, or invest nothing and generate any cash that you can. Increase market share or deliver cash. The aim of a portfolio analysis is: 1) Analyze its current business portfolio and decide which SBU's should receive more or less investment, and 2) Develop growth strategies for adding new products and businesses to the portfolio 3) Decide which businesses or products should no longer be retained. The BCG Matrix (Boston Consulting Group Matrix) is the best-known portfolio planning framework. The GE / McKinsey Matrix is a later and more advanced form of the BCG Matrix. The McKinsey matrix / General Electric Matrix The GE / McKinsey Matrix is more sophisticated than the BCG Matrix in three aspects: 1. Market (Industry) attractiveness replaces market growth as the dimension of industry attractiveness. Market Attractiveness includes a broader range of factors other than just the market growth rate that can determine the attractiveness of an industry / market. 2. Competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. Competitive strength likewise includes a broader range of factors other than just the market share that can determine the competitive strength of a Strategic Business Unit. 3. Finally the GE / McKinsey Matrix works with a 3*3 grid, while the BCG Matrix has only 2*2. This also allows for more sophistication. The GE Model Weak Medium Strong Strong Medium Weak Business Strength Typical (external) factors that affect Market Attractiveness: - Market size Market growth rate Market profitability Pricing trends Competitive intensity / rivalry Overall risk of returns in the industry Entry barriers Opportunity to differentiate products and services Demand variability Segmentation Distribution structure Technology development Typical (internal) factors that affect Competitive Strength of a Strategic Business Unit: Strength of assets and competencies - Relative brand strength (marketing) - Market share - Market share growth - Customer loyalty - Relative cost position (cost structure compared with competitors) - Relative profit margins (compared to competitors) - Distribution strength and production capacity - Record of technological or other innovation - Quality - Access to financial and other investment resources - Management strength six-step approach to implementation of portfolio analysis (using the GE / McKinsey Matrix) could look like this: 1. Specify drivers of each dimension. The corporation must carefully determine those factors that are important to its overall strategy 2. Weight drivers. The corporation must assign relative importance weights to the drivers 3. Score SBU's each driver 4. Multiply weights times scores for each SBU 5. View resulting graph and interpret it 6. Perform a review/sensitivity analysis using adjusted other weights (there may be no consensus) and scores. PRODUCT LIFE CYCLE The Product Life Cycle ( PLC ) is an important concept in marketing that provides insights into a product’s competitive dynamics. To fully understand the concepts of PLC , one should first understand its parent concept, the demand and technology life cycles. DEMAND / TECHNOLOGY LIFE CYCLE Marketing thinking should not begin with a product or even a product class, but rather with a need. The product exists as one solution among many to meet a need. A need is satisfied by some product/ technology. Each new product/technology normally satisfies the need in a superior way and it shows a demand-product life cycle. The PLC portrays distinct stages in the sales history of a product. DEMAND-TECHNOLOGY-PRODUCT LIFE CYCLES Sales Time STAGES IN THE PRODUCT LIFE CYCLE Sales & Profits Time Introduction Growth Maturity Decline The Product Life Cycle Market Introduction Market Growth Market Maturity Sales Decline Total Industry Sales + Rs Sales/ Profit – Total Industry Profit Time Product Life Cycle Sales and Profits ($) Sales Profits Product Development Introduction Growth Maturity Time Decline Losses/ Investments ($) Sales and Profits Over the Product’s Lifetime Stages in the Product Life Cycle Introduction Growth Maturity Decline Color TV Digital cameras Mini-disc Electric cars DVD The time at each stage varies greatly Planning for Life Cycle Stages Introducing New Products Focus: Managing Mature Products Focus: Budget / Rate of Growth Persuasion / Less Profit Focus: Future Adaptation New Markets Dying Products 10-3 New or Improve? Focus: New Strategies Focus: Phase Out Alternative PLC Shapes Introduction Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Low Costs High cost per customer Profits Negative Marketing Objectives Create product awareness and trial Product Offer a basic product Price Use cost-plus formula Distribution Build selective distribution Promotion Heavy to induce product trial Growth Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Rapidly rising Costs Average cost per customer Profits Rising Marketing Objectives Maximize market share Product Offer extension, service, warranty Price Penetration strategy Distribution Build intensive distribution Promotion Reduce to take advantage of demand Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Peak Costs Low cost per customer Profits High Marketing Objectives Maximize profits while defending market share Product Diversify brand and models Price Match or best competitors Distribution Build more intensive distribution Promotion Increase to encourage brand switching Extending the Product Life Cycle Market Modification 1. Increase frequency of use by present customers 2. Add new users 3. Find new uses Product Modification 4. Change product quality or packaging Purpose: to sell more product and cover original investment Maturity Stage of the PLC Modifying the Market: Increase the consumption of the current product. How? Look for new users and market segments Reposition the brand to appeal to larger or faster-growing segment Look for ways to increase usage among present customers Maturity Stage of the PLC Modifying the Product: Changing characteristics such as quality, features, or style to attract new users and to inspire more usage. How? Improve durability, reliability, speed, taste Improve styling and attractiveness Add new features Expand usefulness, safety, convenience Modifying the Product Crayola has added a steady stream of new colors, forms, and packages Maturity Stage of the PLC Modifying the Marketing Mix: Improving sales by changing one or more marketing mix elements. How? Cut prices Launch a better ad campaign Move into larger market channels Offer new or improved services to buyers Decline Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Declining Costs Low cost per customer Profits Declining Marketing Objectives Reduce expenditures and milk the brand Product Phase out weak items Price Cut price Distribution Selective: phase out unprofitable outlets Promotion Reduce to minimum level Overlap of Life Cycle for Products A and B WINDOWS 95 WINDOWS EXP 1995 1997 2004 2005 Practical Problems of PLC Hard to identify which stage of the PLC the product is in Hard to pinpoint when the product moves to next stage Hard to identify factors that affect product’s movement through stages Hard to forecast sales level, length of each stage, and shape of PLC Strategy is both a cause and result of the PLC Product Life Cycle Applications Product class has the longest life cycle (e.g., gaspowered cars) Product form tends to have the standard PLC shape (e.g., dial telephone) Brand can change quickly because of changing competitive attacks and responses (e.g., Tide, Cadbury) Style is a basic and distinctive mode of expression (e.g., formal clothing, Danish modern furniture) Fashion is a popular style in a given field (e.g., business casual) Fad is a fashion that enters quickly, is adopted quickly, and declines fast (e.g., pet rocks) STAGES IN THE PRODUCT LIFE CYCLE By identifying the stage that a product is in, or may be headed toward, companies can formulate better marketing plans. Products require different marketing, financial, manufacturing, purchasing and personnel strategies in each stage of their life cycle. Marketers must pursue appropriate marketing strategies in each stage of PLC. Today, in order to succeed, it is absolutely essential to constantly improve products to increase the value offered to customers, ( V = B/P ). The success of competitors is based on creating value for the customer by differentiating their product,( Competitive Differential ). EXTENDING THE PRODUCT LIFE CYCLE Sales Time •( When the sales of a product starts declining marketers may choose suitable strategy for further growth of product /business/enterprise.) PRODUCT LIFE CYCLE Reasons for change in behavior of PLC : --Changes in the consumer needs and preferences --Advancing Technology --Competition, Government Policies etc. --Changes in number of potential buyers Stages in PLC : Introduction, Growth, Maturity, And Decline. MARKETING STRATEGIES IN THE INTRODUCTION STAGE Promotion High Price Low High Low Rapid Skimming Strategy Rapid Penetration Strategy Slow Skimming Strategy Slow Penetration Strategy MARKETING STRATEGIES IN THE GROWTH STAGE It improves product quality and adds new product features and improved styling. It adds new models and flanker products (i.e., products of different sizes, flavors, and so forth that protect the main product ) It enters new market segments. It increases its distribution coverage and enters new distribution channels. It lowers prices to attract the next layer of price-sensitive buyers. It shifts from product-awareness advertising to product-preference advertising. MATURITY STAGE Sales are increasing but at a decreasing rate. Profits are beginning to decline. Price competition increases. The manufacturer assume a greater share of the total promotional effort in the fight to retain dealers and shelf space in their stores. MATURITY STAGE To understand better, we can devide Maturity Stage into three stages : Growth Maturity : When the rate of sales growth starts to decline because of distribution saturation. Stable Maturity : When the rate of sales growth starts declining due to market saturation. Decaying Maturity : The sales level starts to decline as some of the customers move towards other competitive and substitute products. MARKETING STRATEGIES IN THE MATURITY STAGE Market Modification Product Modification Marketing Mix Modification MARKETING STRATEGIES IN THE MATURITY STAGE Market Modification Expand number of users : - Convert non-users - Enter new market segments - Win competitors’ customers Increase annual usage : - More frequent use - More usage per occasion - New and more varied uses MARKETING STRATEGIES IN THE MATURITY STAGE Product Modification A strategy of quality improvement aims at increasing the product’s functional performance - its durability, reliability, speed, taste. A strategy of feature improvement aims at adding new features ( for example - size, weight, materials, additives, accessories ) that expand the product’s versatility, safety, or convenience. MARKETING STRATEGIES IN THE MATURITY STAGE Product Modification (contd.) A strategy of style improvement aims at increasing the product’s aesthetic appeal. The periodic introduction of new car models amounts to style competition rather than quality or feature competition. MARKETING STRATEGIES IN THE MATURITY STAGE Marketing Mix Modification Prices Distribution Advertising Sales Promotion Personal Selling Services MARKETING STRATEGIES IN THE DECLINE STAGE Identifying the Weak Products To do this, many companies appoint a product-review committee with representatives from marketing, R&D, manufacturing and finance. The product review committee makes a recommendation for each dubious product--leave it alone, modify its marketing strategy, or drop it. MARKETING STRATEGIES IN THE DECLINE STAGE (Contd.) Determining Marketing Strategies : ( Go Strategy ) Continuation Strategy : -Increasing the firm’s investment ( to dominate the market or strengthen the competitive position ) - Maintaining the firm’s investment level until the uncertainties about the industry are resolved. MARKETING STRATEGIES IN THE DECLINE STAGE (Contd) Determining Marketing Strategies : ( Go Strategy ) Concentration Strategy : - Decreasing the firm’s investment level selectively, by dropping unprofitable customer groups, while simultaneously strengthening the firm’s investment in lucrative niches. Harvesting Strategy : - Divesting the business quickly by disposing of its assets as advantageously as possible. PRODUCT PORTFOLIO MANAGEMENT Filling in the Product Line ( adding more items within the present range of line ) Product Line Modernization Product Line Featuring Product Line Pruning INDIVIDUAL PRODUCT DECISIONS Product Attribute Decisions Brand Decisions Brand Positioning Packaging and Labeling DEFINITION OF BRAND American Management Association defines brand as follows : “ A brand is a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competitors. ” THE MEANING OF BRAND The brand is not a product but it gives the product meaning and defines its identity in both time and space. Brands are a direct consequence of the strategy of market segmentation and product differentiation. Companies want to stamp their mark on different sectors and set their imprint on their products. BUILDING THE BRAND “The art of marketing is the art of brand building. When something is not a brand, it will probably viewed as a commodity. Then price is what counts. When price is the only thing that counts, the only winner is the low-cost producer.” . ( Philip Kotler ) BRAND NAME DECISIONS Individual Names Blanket Family Names Separate Family Names for all products Company Trade name combined with individual product names. BRAND NAME It should suggest something about the product’s benefits. It should suggest something about product qualities. It should be easy to pronounce, recognize and remember. It should be distinctive. It should not carry poor meanings in other countries and languages. BRAND IDENTITY AND ASSOCIATION A brand identity or association is anything that is directly or indirectly linked in memory to a brand. The most common association is that of product attributes or customer benefits. A brand’s associations are assets that can differentiate, provide reasons to buy, instil confidence and trust, affect feelings towards a product and the use experience, and provide the basis for brand extension. BENEFITS OF BRAND AWARENESS First, awareness provides the brand with a sense of familiarity, and people like the familiar. Second, name awareness can be a signal of presence, commitment, and substance. The logic is that if a name is recognized, there must be a reason. Third, the salience of a brand will determine if it is recalled at a key time in the purchasing process. BRAND LOYALTY First, brand loyalty reduces the marketing costs of doing business, since existing customers are relatively easier to hold. Second, brand loyalty represents a substantial barrier to competitors. Excessive resources are required when entering a market in which existing customers must be enticed away from an established brand that they are loyal to. Third, Brand loyalty provides trade leverage. Fourth, a relatively large, satisfied customer base provides an image of a brand as an accepted, successful, and enduring product. Finally, brand loyalty provides the time to respond to competitive moves. DEFINITION OF BRAND EQUITY Brand equity is a set of assets and liabilities linked to a brand’s name and symbol that add to or substract from the value provided by a producer or service to a firm and / or that firm’s customers. Brand equity generates value to the customer that can emerge either as a price premium or enhanced brand loyalty. BRAND EQUITY Brand Awareness Brand Identity Brand Equity Perceived Quality Brand Loyalty ( Powerful brands have high brand equity, higher brand loyalty.) TOOLS FOR BUILDING BRAND Advertising Sponsorship of games and events Social Causes Public Facilities Founder’s personality BRAND STRATEGY DECISIONS Line Extensions Brand Extensions Multibrands New brands Co-brands BRAND STRATEGY DECISIONS Product Category Existing Existing Brand Name New Line Extension Multibrands New Brand Extension New Brand Names LINE EXTENSION Line extension occurs when a company introduces additional items in the same product category under the same brand name, usually with new flavours, forms, colours, added ingredients, package sizes and so on. Line extensions generally have a higher chance of survival than new products. On the down side extensions may lead to the brand name losing its specific meanings; Ries and Trout call this “ Line Extension Trap .” BRAND EXTENSION Brand Extension occurs when a company decides to use an existing brand name to launch a product in the new category. Brand Extension offers a number of advantages. -Instant recognition and earlier acceptance -Saves considerable advertisement costs BRAND EXTENSION Brand Extension also involves risks. - The new product might disappoint buyers and damage their respect for company’s other products. - The brand name may loose its special positioning in the consumer’s mind through over extension - a phenomenon called “ brand dilution .” MULTI BRANDS A company will often introduce additional brands in the same product category. - One of the motives for multibranding is to establish different features and/or appeal to different buying motives. - It also enables the company to lock up more distributor shelf space and protest its major brand by setting up flanker brands. NEW BRANDS When a company launches products in a new category, it may find that none of its current brand names are appropriate. When the present brand image is not likely to help the new product, companies are better off creating new brand names. CO-BRANDS Co-branding occurs when two different companies pair their respective brands in a collaborative marketing effort. Each brand sponsor expects that other brand name will strengthen brand preference or purchase intention. MARKETING STRATEGIES IN THE DECLINE STAGE (Contd) The Drop Strategy - When a company decides to drop a product, it faces further decisions. If the product has strong distribution and residual goodwill, the company can probably sell it to another firm. - If the company can’t find any buyers, it must decide whether to liquidate the brand quickly or slowly. It must also decide on how much parts inventory and service to maintain for past customers. NEW PRODUCT DEVELOPMENT Explain how companies find and develop new-product ideas. List and define the steps in the newproduct development process. Describe the stages of the product life cycle. Describe how marketing strategies change during the product’s life cycle. New-Product Development Strategy Strategies for Obtaining New-Product Ideas Acquisition of: New Products: Companies Original Products Patents Improvements Licenses Modifications New-Product Failures Only 10% of new products are still on the market and profitable after 3 years. Failure rate for industrial products is as high as 30%. Why? Overestimation of market size Design problems Incorrectly positioned, priced, or advertised Pushed despite poor marketing research findings Development costs Competition Major Stages in New-Product Development New-Product Development Process Idea Generation Ideas from: Customers and users Marketing research Competitors Other markets Company people Intermediaries Screening Idea Evaluation Strengths and weaknesses Fit with objectives Market trends Rough ROI estimate Concept testing Customer reactions Rough estimates of cost, sales, profits Development R&D Develop model or service prototype Test marketing mix Revise plans as needed ROI estimate Commercial -ization Finalize product and marketing plan Start production and marketing “Roll out” in select markets Final ROI estimate Flow of Ideas and Product Company Employees Customers Competitors Distributors Suppliers Idea Screening Process to spot good ideas and drop poor ones. Develop system to estimate: market size, product price, development time and costs, manufacturing costs, and rate of return. Evaluate these findings against set of company criteria for new products. Concept Development and Testing Product Idea: idea for a possible product that the company can see itself offering. Product Concept: detailed version of the idea stated in meaningful consumer terms. Product Image: the way consumers perceive an actual or potential product. Marketing Strategy Development Part One Describes: The Target Market Planned Product Positioning Sales, Market Share, & Profit Goals Part Two Outlines the First-Year’s: Product’s Planned Price Distribution Marketing Budget Part Three Describes Long-Run: Sales & Profit Goals Marketing Mix Strategy Business Analysis Involves a review of the sales, costs, and profit projections to assess fit with company objectives. If yes, move to the product development phase. Product Development Develop concept into physical product Calls for large jump in investment Prototypes are made Prototype must have correct physical features and convey psychological characteristics Test Marketing Product and program introduced in more realistic market setting. Not needed for all products. Can be expensive and time consuming, but better than making major marketing mistake. Test Marketing Nokia test-marketed its new N-Gage cell phone/mobile game player extensively before introducing it worldwide. Commercialization Must decide on timing (i.e., when to introduce the product). Must decide on where to introduce the product (e.g., single location, state, region, nationally, internationally). Must develop a market rollout plan. Organizing New-Product Development Sequential Approach: each stage completed before moving to next phase of the project. Simultaneous Approach: Cross-functional teams work through overlapping steps to save time and increase effectiveness. NEW PRODUCT DEVELOPMENT PROCESS (1) Idea Generation (2) Screening (3) Concept Development and Testing (4) Marketing Strategy (5) Business Analysis (6) Product Development (7) Market Testing (8) Commercialization THEORY OF DIFFUSION OF A NEW PRODUCT 21/2 % INNOVATORS 131/2% EARLY ADOPTERS 34% EARLY MAJORITY 34% LATE MAJORITY 16% LAGGARDS THE CONSUMER ADOPTIONPROCESS (STAGES IN THE ADOPTION PROCESS ) Awareness : The consumer becomes aware of the innovation but lacks information about it. Interest : The consumer is stimulated to seek information about the innovation. Evaluation : The consumer considers whether to try the innovation. Trial : The consumer tries the innovation to improve his or her estimate of its value. Adoption : The consumer decides to make full and regular use of the innovation.