Product & Brand Management
D.Bandopadhyay
Product Definition
• Product is the bundle of utilities by which it
can satisfy the needs of the users.
• Product is a set of tangible & intangible
attributes, including packaging, colour, price,
design, features, manufacturer’s reputation &
services, retailer’s reputation & services,
which the buyer may accept as offering
satisfaction of wants or needs.
• Product is anything that can be marketed in
terms of physical goods, services, experiences,
events, persons, places, organisations,
information & ideas.
Product Levels
• Core benefit
• Basic product
• Expected product
• Augmented product
• Potential product
Product Hierarchy – Life Insurance
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Need Family-------- security
Product Family----- savings & income
Product Class------- financial instruments
Product Line-------- life insurance
Product Type------- term insurance
Stock Keeping Unit (SKU) / Product Variant-------------- prudential renewable
term life insurance
Product Classifications
Based on durability & tangibility
• Non-durable goods
• Durable goods
• Service
Based on use
• Consumer goods
• Industrial goods
Types of use
Consumer goods
• Convenience goods
- Staples
- Impulse
- Emergency
• Shopping goods
• Specialty goods
• Unsought goods
Type of use (contd.)
Industrial goods
I. Raw materials
• Farm products
• Natural products
• Manufactured component materials
• Manufactured component parts
II. Capital items – installations & equipments
III. Supplies – MRO goods
IV. Business Services – M-R/ Advisory
Product Mix
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•
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Product mix consists of various product
lines.
(Yamaha has 3 product lines: Motorbikes,
Pianos & Guitars)
Width - different product lines
Length - total no of items in the mix
Depth – variants of each product in the line
Consistency – how closely related are
product lines
Product Line Decisions
Line Stretching:
• Down-market stretch
• Up-market stretch
• Two-way stretch
Product Line decisions (contd.)
• Line filling – adding more items
• Line modernisation
• Line featuring - flagships
Managing line extensions
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Customer segmentation
Consumer desires
Pricing breadth
Excess capacity
Short-term gain
Competitive intensity
Trade pressure
Emerging a brand
Variety fulfilment
Line extensions (contd.)
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Expanding /improving brand’s core promise
Managing true innovation
Blocking competitors
Managing dynamic environment
Testing ground for national launch
Product Life Cycle (PLC)
• Introduction : period of slow sales growth
• Growth: rapid market acceptance
• Maturity: slowdown in sales growth
• Decline: sales fall & profits erode
n
Growth
Maturity
Decline
Product A
Sales
Product B
STAGES OF PRODUCT LIFE CYCLE
PLC Patterns
• Growth-slump-maturity pattern
• Cycle-recycle pattern
• Scalloped pattern
(a) Growth- slumpmaturity pattern
(b) Cycle-recycle pattern
(C) Scalloped pattern
COMMON PRODUCT LIFE-CYCLE PATTERNS
Special categories of PLCs
• Style : home, clothing, art
• Fashion : distinctiveness, emulation, massfashion, decline
• Fad: limited following – rising fast & declining
fast
Style
Fashion
Fad
PRODUCT LIFE CYCLES IN TERMS OF STYLE, FASHION AND FAD
Marketing Strategies- stages of PLC
Introduction:
• Profits are negative or low
• Promotional expenditures are highest
Strategic options:
• Skimming – when cost structure is largely
variable – consumer electronics, industrial
products, with entry barriers
• Penetration – when fixed costs are high First mover advantage
PLC – Growth Strategies
• Improve quality, add product features,
improve styling
• Add new models & Flanker products (to
protect the main product)
• Enter new market segments
• Increase distribution coverage / enter new
distribution channels
• Shift from product awareness to product
preference advertising
• Lower prices to attract next layer of buyers
Strategies – Maturity (growth, stable
& decaying maturity)
• Sales slowdown creates overcapacity in the
industry, leading to intensified competition
• Increased advtg. & consumer promotion,
increased R&D for pdt. improvements/line
extensions, deals to supply private brands
• Industry is dominated by quality leader,
service leader or cost leader, surrounded by
market niches
• Companies abandon weaker products &
concentrate on profitable/new products
Strategies – Decline stage
• Increasing investment to dominate market
• Maintaining investment till uncertainties
about the industry are resolved
• Decreasing investment level selectively
(dropping unprofitable customer groups
etc)
• Harvesting investment to recover cash early
• Divesting the business quickly by disposing
of its assets as advantageously as possible
PLC – as management tool
Prolong the growth & maturity stages by:
• Modifying the product
• Encouraging frequency of use of product
• Cultivating a new market for it
• Finding new users & product modification –
product re-launch
Characteristics
Introduction
Growth
Maturity
Decline
Sales
low
Rapidly
rising
Peak
sales
Declining
sales
Cost
High cost
per
customer
Av. Cost Low cost
Per
Per
customer customer
High cost
Per
customer
Profits
Negative
Rising
profits
High
profits
Declining
profits
Customers
Innovators
Early
adopters
Middle
majority
Laggards
Competitors
Few
Growing
numbers
Stable
number
Declining
number
Marketing
Objectives
Create
awareness
& trial
Maximiz
e market
share
Max
profit &
Defend
Reduce
exp. &
milk
brand
Characteristics Introduction
Growth
Maturity
Decline
Product
Offer basic
product
extensio Diversify
nService, Brands
Warranty models
Price
Charge cost
plus
Price to
penetrat
e market
Price to
Cut
match
price
competito
rs
Distribution
Build
selective
distribution
More
intense
distributi
on
Intensive Selectivedistributio Phase out
n
Weak
outlets
Advertising
Pdt
awareness,
Induce trial
Awarene
ss,
interest
Brand
difference
s&
benefits
Reduce to
retain
hard core
loyals
Sales
promotion
Heavy SP
To entice
trial
Reduce
Encourag
e brand
switching
Reduce to
minimal
level
Phase out
weak
brands
New Product Development -stages
1.
2.
3.
4.
5.
6.
7.
8.
Idea generation
Screening
Concept development & testing
Marketing strategy formulation
Business analysis
Product development
Test marketing
Commercialisation
Incorporate ‘Stage Gate Process’ of
evaluation, at every stage, to minimize risk,
before moving on to the next stage of
development.
Idea generation
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R&D
Competitors
Employees
Customers (analysis of complaints)
Licensing – being a licensee
Top management
Agencies & consultants
External sources
Organised creativity
Ways to great new pdt. ideas
• Customers meeting company engineers &
designers – solutions are immediately tested
• Allow time off to technical people to pursue
their pet projects (3M allows 15% time off )
• Customer brainstorming sessions a standard
feature of plant tours
• Regularly survey your customers
• Undertake research with customers (HP)
• Routine key word search /trade shows /
visiting suppliers’ labs / allow employees to
review ideas & add constructive suggestions
Screening Ideas
• Promising ideas /marginal ideas /rejects
• Weighted score & ranking method
• Overall probability of success = (0.24)
(probty. of tech completion – 0.50) x
(probty of commercialisation – 0.65) x
(probty of economic success – 0.74)
• Drop-error : dropping futuristic ideas
• Go-error – absolute/partial/relative failure
• Software–NewProd: rate project on 50
screening criteria linked to comml. success
Concept development & testing
• Presenting the product concept to
appropriate target consumers & getting
their reactions
• Product concept can be tested symbolically,
physically or through virtual reality (e.g.,
Simul-Shop – recreating shopping
situations, developed by ‘Gadd
International’)
• Core Ideas – what the product can do
• Positioning Statement
Marketing Strategy Plan
Development
1. Describe the target market’s size, structure
and behaviour; planned product
positioning & sales, market share, profit
goals sought in the first few years.
2. Outline the planned price, distribution
strategy & marketing budget for the first
year.
3. Describe the long run sales & profit goals
and marketing mix strategy, over time.
Business Analysis – business
attractiveness
• Market Potential (MP) = N x P x Q
No. of possible buyers (N) x Av. selling price
(P) x Av. no. of units purchased by each
buyer (Q).
• Estimated total sales (first time sales,
replacement sales, repeat sales)
• Estimating costs & profits (break even
analysis)
• Risk analysis
Product Development
• Quality Function Deployment (QFD):
Customer attributes (CA) = Engineering
attributes (EA) , leading to developing a
prototype.
• Functional tests: Alpha testing & Beta
testing
• Consumer testing: through rank order,
paired comparison, rating scale etc.
• Adopt a modular approach of
development.
Market Testing
Method of testing a company’s marketing
plan for a new product before going
commercial.
• Designed to provide a reasonable estimate
of sales & profit potential.
• Helps management identify & correct any
problems with marketing plan & the
product, before full-scale production.
Consumer goods market testing
• Sales Wave Research:
Consumers who initially try the product at
no cost or try the free sample, are reoffered the product 3-5 times, called saleswaves, with the company noting how many
customers selected that company’s product
again & their reported level of satisfaction.
It can also include exposing consumers to 1
or more advtg concepts, to see the impact
of that advtg on repeat purchase.
• Lab./Simulated Test Marketing:
After
completing
a
self-administered
questionnaire concerned with their individual
demographics & purchase behaviour relative
to the product class of interest, respondents
are exposed to TV program containing a no. of
communications about brands in the product
class, including one for the brand in question.
Respondents visit the simulated store who
purchase (with fixed money given) brands of
their choice. Such purchase behaviour is then
analysed & follow up on repurchase behaviour
is made subsequently with such respondents.
Controlled Test Marketing
 Company with new product specifies the no. of
stores & locations it wants to test. The research
agency manages a panel of stores who will carry
the new product for a fee. They also control shelf
positions, point-of-purchase promotions, displays
and pricing. Sales results are measured through
electronic scanners at the checkout. The company
can also evaluate the impact of local advertising &
promotions during the test
 It allows the company to test the impact of instore factors & limited advtg. on buying behaviour.
A sample of buyers can also be interviewed.
Full Scale Test Marketing
• The company chooses a few representative
cities, and the sales force tries to sell the
product giving it a good shelf exposure. The
company puts on a full advtg. & promotion
campaign in such markets similar to one
that it would use in national marketing.
• Deciding what to measure ?
Test Marketing (contd.)
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Repeat purchases
Advertising effectiveness
Effectiveness of an introductory offer
Effectiveness of a trade offer
Share of the total market
Characteristics of buyers & rate of adoption
Reasons for not adopting or for
discontinuing usage
Selection of Test Markets
 The market should not be over tested
 Normal regarding historical development of
product class involved
 Typical regarding competitive advtg. situation
 No single industry should dominate the market
 Should have media pattern similar to national
media plan & should be self contained
 Should not be too small to provide meaningful
results or too large, that test becomes too
expensive
 Markets containing abnormal groups to be
avoided
Test Market Outcomes
• High trial & repurchase rate – product
should be launched nationally
• High trial rate but low repurchase rate –
consumers are not satisfied, product should
be redesigned or dropped
• Low trial rate & high repurchase rate –
product is satisfying but more people have
to try it – increase advtg. & sales promotion
• If trial & repurchase rates are both low –
product should be abandoned
Business goods market testing
Expensive industrial goods & new technologies
will normally undergo:
 Alpha testing (within company)
 Beta testing (with outside customers)
 Introduce the new product at Trade Shows
However, test marketing may not be necessary:
 Small number of potential customers or small
number accounting for large proportion of sales
 Potential buyer is generally involved in new
product development
 Some industrial products have very long life spans
Product Launching
When (Timing)
• First entry: enjoys advantage of early start,
engaging key distributors and customers &
establishing dominant market position
• Parallel entry: timing the entry to coincide
with competitor’s entry. Awareness will be
created faster with 2 companies advertising
the product.
• Late entry: Competitor’s product or
strategy may reveal faults that late entrant
may avoid
Product Launching (contd.)
Where (geographic strategy):
• Small companies will select an attractive
city first & then enter other cities, one by
one.
• Large companies will introduce into a
whole region & then move to next region
• Companies with national network will
launch in the national market
• If the product does well in domestic
market, companies consider international
markets
Product Launching (contd.)
To whom (Target Market):
• The company must target its initial distribution &
promotion to the best prospect groups like, early
adopters, heavy users & opinion leaders that could be
reached at a low cost.
How (introductory Market Strategy):
• Action plan for distribution, introductory price, promotion
campaign, product features & models
• Product availability is crucial in launching a new product
• Developing a master chart of simultaneous & sequential
activities that must take place for launching (critical path
scheduling)
Practice of Global Product
Development
• Till 2000: Co-location of cross-functional teams to
facilitate close collaboration among engineers,
marketing, manufacturing & supply chain
operations. Co-located PD teams could
concurrently execute the range of activities
involved which resulted in better product designs,
faster time to market & lower cost of production.
• Largely co-located teams.
• Uses engineering located in existing engineering
centres.
• Uses a combination of digital PD tools &
conventional
paper-based
processes
for
engineering.
GPD Practices (contd.)
Global Product Development (GPD)
• Globally distributed teams
• Takes advantage of engineering in multiple
geographic locations, including low, medium &
high cost regions.
• Uses an entirely digital PD process to facilitate
distributed,
collaborative
engineering
features, a highly distributed networked
development process, facilitated by fully
digital PD system.
Building GPD capabilities – 4 reasons
• Lower cost: by distributing activities to take
advantage of labour arbitrage or to access more
affordable capabilities ( low-cost to be 10-20% of
the equivalent engineer’s salary in US, mediumcost to be 20-50% of US wage rates).
• Improved process: The prospect of moving
design engineering to global manufacturing
locations can be attractive (Design For
Manufacturing/Time To Market).
• Global Growth: Locating some PD activities in
selected international locations can give
companies access to critical information about
markets in those regions. By using local
engineers, companies make direct connections
with potential new markets.
4 reasons (contd.)
Technology Access: Companies are using GPD to
develop integrated PD processes that include engineers
in regions where critical new technology has been
developed & where experts reside.
Haier, one of China’s largest manufacturers of
electronics & home appliances has an R&D centre in
New York & manufacturing plant in South Carolina,
both paying higher wages. But it has allowed them to
connect with American consumers & retailers,
understand American lifestyle & design products that
Americans are now buying.
Various modes of GPD
Centralized: All resources are owned by the
company but centralized operation can have
different project teams in multiple countries,
generally in high cost regions (US, Germany).
Local Outsourcing: Many large manufacturers use
on-site contractors to support their PD activities to gain access to specialized skills or to meet
temporary requirements for capacity.
Captive Offshoring: It is useful when a company
believes it should own a PD operation in a region
where it has not done business before. Cummins &
Textron have established centres in India, ABB &
Delphi have centres in China, Boeing & Airbus have
in Russia.
Modes (contd.)
Global Outsourcing: It gives many companies
early experience with GPD, without requiring
the commitment to establish a captive centre.
By using outsourced staff only at certain
points in the process, the company keeps
control of the PD process overall.
Many companies begin GPD with various trials
of outsourcing & tend to move toward the
captive offshore mode as a longer term
strategy to retain control over IPR, processes,
HR & capital resources.
Distribution of PD activities
Process Outsourcing The first approach involves
outsourcing of PD process steps, which allows
companies to work with outsourced service partners
that may be distributed globally. Stage 1A starts by
outsourcing simple tasks to an engineering services
provider. These tasks are easy to document and
separable from other activities, and they pose
relatively low risk to the critical PD activities. In
Stage 2A, as the organization gains more experience
with distributed PD, its managers outsource more
complex and integrated tasks, such as Computer
Aided Engineering (CAE) analysis or tooling design.
Component Outsourcing
• The second approach — also in the outsourcing
category — is to decompose the product into
components and modules. This path is generally
followed when a company is outsourcing
development work to component suppliers. In
Stage 1B, development of some simple
components is assigned to chosen suppliers
(which likely would also produce those
components). In Stage 2B, the design of
integrated components is outsourced. In Stage
3B, suppliers develop complete product modules,
such as the exhaust system for an internal
combustion engine or the circuit board for a
mobile phone.
Captive Design Center
• The third approach sees development of a captive global design
center — a strategic decision to invest in global engineering
capability. Many organizations take this route after learning to utilize
globally distributed resources for large parts of their PD processes.
Because the transition from outsourcing to a new captive center is
difficult, the center is likely to begin working at Stage 1C or 2C, in
parallel with outsourcing, to develop these important capabilities
first. In Stage 3C, the center executes complete subsystems, such as
the design of a control system for an electromechanical product. In
Stage 4, the center may take on complete design responsibility for
derivative products and/or ongoing engineering support for existing
products.
• Finally, in Stage 5, the center is fully able to develop new global
products, product platforms and next-generation innovations.
Market Potential & Forecasting
Potential :
 The maximum sales reasonably attainable under
a given set of conditions, within a specified
period of time – what you might or could achieve.
Forecast :
 The amount of sales expected to be achieved
under a set of conditions, within a specified
period of time – what you probably will achieve.
Quota :
 What an individual in the company, for example,
a salesman, is expected to achieve.
Potential vs. forecasts
Both depend on a set of conditions:
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What customers do
What the firm does
What competitors do
What occurs in the general environment
Potential & forecasts are time dependent
Major uses of Potential Estimates
 To make entry / exit decisions
 To make resource level decisions – depending
upon the stage of life cycle (e.g., running shoe
segment)
 To make location & other resource allocation
decisions
 To set objectives & evaluate performance – as per
difference between potential & actual sales
 As an input to forecasts – potential times %
expected to be achieved
Market Potential – information sources
 Govt. Sources – census, planning commission,
various reports issued by ministries / specific
govt. agencies
 Trade Associations
 Private Specialised Agencies
 Financial & Industry Analysts
 Business Press
 Internet
Potential for New / Growing Product
- with respect to competition
 Relative Advantage – usually increases over
time, with various modifications / line
extensions
 Compatibility – the fewer & less important the
changes required to understand & use a new
product, the faster it will be adopted
 Risk – financial, possible impact of product
quality failure etc.
 Role of analogous products – microwave oven
vs. dishwasher
Potential for mature products
 Market penetration - more use by different
segments of customers - more frequency of
use through more occasions of same use
(converting light users to heavy users) or more
use for different needs or inducing more
volume of use on each occasion
 Market expansion - more use in different
geographical regions
 Increasing frequency for replacing a worn out
product or replacing an outdated product
 Through modifications & line extensions
Estimating market potential
 Determine potential buyers or users of the product –
customers who have the need, the resources
necessary to use the product and the ability to pay
(likely laptop users – customer segments)
 Determine how many are in each potential group of
buyers – usually reveals a significant gap in the
market
 Estimating the purchasing or usage rate – may lead
to ways of making the product either more
affordable , more adoptable to the needs or for more
convenient for either more frequency of usage or
more volume of usage per occasion.
 Area Potential – may be based on a weighted index,
based on certain characteristics of the area.
Use of Sales Forecasts
 To answer ‘what If’ questions - -to estimate
outcome of various strategies & tactics, under
different situations
 To help set budgets – forecast become basis of
a budget
 To provide a basis for a monitoring system –
monitoring deviations from forecast
 To aid in production planning
 By financial analysts to value a company
Forecasts – level of accuracy needed
 When the price of the product is high in
absolute or relative terms
 When product demand is relatively volatile
 When cost of an error in forecasting is high –
including inventory cost, reorder cost or cost
of being out of stock, resulting into long term
cost of a disenchanted customer
 Cost increases, with more level of accuracy,
more items or product forms, more
complicated methods of forecast etc.
Judgment based methods
 Naïve extrapolation – add x % to last-period sales
level
 Sales force composite - sales people are often
asked about their own future sales & then such
individual forecasts are aggregated to create a
sales forecast for the product or product line.
 Jury of expert opinion – can be based on
weighted average, based on their individual level
of expertise.
 Delphi method – variation of the panel consensus
– individual forecasts are made to nearly conform
to the average forecast, through a repetitive
process, through an outside expert.
Customer-based Methods
 Market Testing / Market Surveys – involves
primary market research, through market
surveys (interacting at public places, at-home
or at-work situations, focus groups) – seeking
opinion about products, their likelihood of
purchase etc.
 Choosing representative samples from the
potential customer segments and determining
enough representation from each such
segment will determine the accuracy of the
estimates.
Sales Extrapolation Methods – time
series methods
 Moving Averages: essentially smooth out random
variations to make the past sales pattern (trends
or cycles) more apparent – for short & medium
term forecasts.
 Exponential smoothing – close relatives to
moving averages
 Regression analysis - for long term forecasts –
since the predictor variables are rarely known
with certainty, it is useful to construct both
optimistic and pessimistic scenarios and to
generate forecast based on them.
Using Forecasts – supplementary steps
 Do sensitivity analysis – ensure getting consistent
results with less or more historical data.
 Examine large residuals – residuals are individual
forecasting errors made for each period - by
examining characteristics of such periods, one
can often uncover omitted variables.
 Avoid silly precision – round off the forecast and
give an honest plus or minus range.
 Be tolerant to errors.
 Likelihood of missing the turning points.
 An average of a set of forecasts derived through
different methods, is a better option.