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CHAPTER 10
FRANCHEZKA PEGOLLO
Product Decisions
Product Anything offered to a market for attention,
acquisition, use, or consumption that might satisfy a need or want.
Service A form of product that consists of activities,
benefits or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything.
THE THREE LEVELS OF PRODUCT
Product Classification
- Products and services fall into two broad classes based on the types of consumers that use them---consumer products and industrial products.
Consumer-productsClassification
Consumer products are products and services bought by final consumer for personal consumption.
Consumer products include: Convenience products Shopping products Specialty products Unsought products
1. Convenience products Consumer product that the customer usually buys
frequently, immediately, and with a minimum of comparison and buying effort.
2. Shopping products Are less frequently purchased consumer products
and services that customers compare carefully on suitability, quality, price, and style.
3. Specialty products Consumer products with unique characteristics or
brand identification for which a significant group of buyers is willing to make a special purchase effort.
4. Unsought products Consumer products that the consumer either does
not know about or knows about but does not normally think of buying.
Industrial-productsClassification
Products bought by individuals and organizations for further processing or for use in conducting a business.
The three groups of individual products and services includes: Materials and parts Capital items Supplies and services
Eight Dimensions of Quality for Goods
1. Performance2. Features3. Reliability4. Conformance5. Durability6. Serviceability7. Aesthetics8. Perceived quality
Five Dimensions of Service Quality
1. Tangibles2. Reliability3. Responsiveness4. Assurance5. Empathy
Branding Decisions
Branding Identifies and helps differentiate the goods or services
of one seller from those of another. It consists of a name, sign, symbol, or some
combination thereof. Brand name
is the part that can be vocalized. Brand mark
Is something that cannot be verbalized, such as symbol, design, or unique packaging.
Branding Strategies
1. Individual branding Requires the company to provide each product or
product line with a distinctive name. Ex. P&G – Tide and Ariel detergent, Head & Shoulders,
and Pantene shampoo, Safeguard.
2. Family branding Uses the same brand name to cover a group of
products or product lines. There are several variations of family branding
including its use primarily with related items, its use with all company items regardless of whether they are use-related (General Electric), and the use of a family name combined with individual product name.
Packaging Decisions
Packaging The activities of designing and producing the
container or wrapper for a product.
A product’s package serves several functions: Protection Facilitating use Promoting the product Providing information about the product.
Managing Product Lines for Customer Appeal and Profit Performance
Product line A group of products that are closely related because
they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges. Ex. Samsung produces several lines of telecommunications
product. Nike produces several lines of athletic shoes.
In order to increase profits, the company must manage its product lines carefully. It can systematically increase the length of its product line in two ways: Product line stretching Product line filling
Product line stretching Occurs when a company lengthens its product line beyond
its current range. The company can stretch its line downward, upward, or
both ways. Ex. Mercedes-Benz and Toyota.
Product line filling Adding more items within the present range of the line. The company should ensure that new items are noticeably
different from existing ones. Ex. Sony filled its Walkman line by adding solar-powered and
waterproof Walkmans and an ultralight model that attaches to a sweatband.
Line extension Using a successful brand name to introduce additional
items in a given product category under the same brand name, such as new flavors, forms, colors, added ingredients, or package sizes.
Brand extension Involves the use of a brand name established in one
product class as a vehicle to enter another product. Using a successful brand name to launch a new or
modified product in a new category.
New-Product Development Strategy
A firm can obtain new products in two ways: Through acquisition – by buying a whole company, a patent, or
a license to produce someone else’s product. Through new product development
In business, New Product Development (NPD) is the term used to describe the complete process of bringing a new product or service to market.
Coloured ketchup? Who would've anticipated it?Heinz introduces green and purple ketchup.
New Product Development Process
IdeaGeneration
IdeaScreening
ConceptDevelopmentand Testing
MarketingStrategy
BusinessAnalysis
ProductDevelopment
TestMarketing
Commercialization
New Product Development Process
Step 1: Idea GenerationIdea Generation is the systematic search for
new product ideas obtained internally and from:
CUSTOMERS
CUSTOMERS
COMPETITORS
COMPETITORS
DISTRIBUTORS
DISTRIBUTORS
SUPPLIERS
SUPPLIERS
New Product Development Process
Step 2: Idea Screening The purpose is to identify good ideas and drop poor ones
to avoid spending any more money on developing them Criteria used:
•is the product truly useful to consumers & society•availability of market•does it mesh well with company’s objectives & strategies•do we have the people, skills & resources to make it successful•does it deliver more value to customers than competing products•is it easy to advertise and distribute•availability of technology•availability of raw materials•risk exposure, profitability, cost/benefit•government priority•CRITICAL SUCCESS FACTOR
New Product Development Process
Step 3: Concept Development and Testing Product idea
Is an idea for a possible product that the company can see itself offering to the market.
Product concept Is a detailed version of the idea stated in meaningful
consumer terms. Product image
Is the way consumers perceive an actual or potential product.
New Product Development Process
1. Develop Product Ideas into Alternative
Product Concepts
1. Develop Product Ideas into Alternative
Product Concepts
2. Concept Testing - Test theProduct Concepts with Groups
of Target Customers
2. Concept Testing - Test theProduct Concepts with Groups
of Target Customers
3. Choose the Best One3. Choose the Best One
Step 3: Concept Development and Testing
New Product Development Process
Step 4: Marketing Strategy Development Marketing Strategy Development
Designing an initial marketing strategy for a new product based on the product concept.
Marketing Strategy Statement FormulationPart One Describes Overall:
Target MarketPlanned Product Positioning
Sales & Profit Goals Market Share
Part One Describes Overall:Target Market
Planned Product PositioningSales & Profit Goals
Market Share
Part Two Describes Short-Term:Product’s Planned Price
DistributionMarketing Budget
Part Two Describes Short-Term:Product’s Planned Price
DistributionMarketing Budget
Part Three Describes Long-Term:
Sales & Profit GoalsMarketing Mix Strategy
Part Three Describes Long-Term:
Sales & Profit GoalsMarketing Mix Strategy
New Product Development Process
Step 5: Business Analysis A review of the sales, costs, and profit projections for a new
product to find out whether these factors satisfy the company’s objectives.
Step 6: Product Development A strategy for company growth by offering modified or new
products to current market segments. Developing the product concept into physical product in order to ensure that the product idea can be turned into a workable product.
New Product Development Process
Business Analysis
Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives
Business Analysis
Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives
If Yes, Move to Product Development
If Yes, Move to Product Development
If No, Eliminate Product Concept
If No, Eliminate Product Concept
Step 5: Business AnalysisStep 6: Product Development
New Product Development Process
StandardTest Market
Full marketing campaignin a small number of representative cities.
StandardTest Market
Full marketing campaignin a small number of representative cities.
SimulatedTest Market
Test in a simulated shopping environment
to a sample of consumers.
SimulatedTest Market
Test in a simulated shopping environment
to a sample of consumers.
Controlled Test Market
A few stores that have agreed to carry newproducts for a fee.
Controlled Test Market
A few stores that have agreed to carry newproducts for a fee.
Step 7: Test Marketing The product and marketing program are tested in more
realistic market settings.
New Product Development Process
When?When? Where?Where? To Whom?
To Whom? How?How?
Step 8: Commercialization Commercialization is the introduction of the new
product into the marketplace.
PRODUCT LIFE-CYCLE (PLC)
The course of a product’s sales and profits over its lifetime. It involves five distinct stages:
1. Product development Begins when the company finds and develops a new-
product idea. During product development, sales are zero and the company’s investment costs mount.
2. Introduction Is a period of slow sales growth as the product is
introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction.
3. Growth A period of rapid market acceptance and substantial
profit improvement.
Product Life Cycle (cont.)
4. Maturity–A period of slowdown in sales growth because
the product has achieved acceptance by most potential buyers. Profits stabilize or even decline because of increased marketing outlays to defend the product against competition.
5. Decline–The period when sales show a downward drift
and profits erode
Figure 10.2Stages of the PLC
Product Life-Cycle Strategies
Introduction Stage Sales start at zero and begin to
climb slowly; profits continue to decline due to costs of launching the product
The main promotional goal is to make a big noise to attract attention and to educate buyers about the new product concept
Market pioneers take the most risk but may reap the biggest rewards, eg. Chrysler minivan
Few product variants, no competition to speak of
Pricing strategy: skimming or penetration
Distribution: not all outlets covered as some may not want the risk
Growth Stage Sales of the new product
begin to climb quickly as awareness within the target market(s) builds
Profits may become positive as development and launch costs are recovered and the company achieves economies of scale
Competition notices and rushes their versions into production
Product quality can be improved, extra features and versions developed to sustain growth and differentiate from competition
Distribution increases as the product becomes more known
Pressure on pricing as competition increases
Product – Offer a basic productPrice – Skimming or penetration pricingDistribution – Build selective distributionAdvertising – Build awareness among early
adopters and dealers/resellersSales Promotion – Heavy expenditures to
create trial
Marketing Strategies:Introduction Stage
Product – Offer product extensions, service, warranty
Price – Penetration pricingDistribution – Build intensive distributionAdvertising – Build awareness and interest in
the mass marketSales Promotion – Reduce expenditures to
take advantage of consumer demand
Marketing Strategies: Growth Stage
Product Life-Cycle StrategiesMaturity Stage
Sales of the new product continue to climb and then peak as the majority of the target market(s) have tried the product
Profits continue to grow and stay positive throughout
Competition is most intense at this stage; many versions and brands
Strategies to prolong this stage:
Modify the market Modify the product Modify the marketing mix
Decline Sales of the new product
drop quickly as the target market(s) move on to other things
Profits decline as competitive pressures force lower prices and set promotional spending at a level that maintains the share
Competition has declined as weaker brands have left the market
Decisions about the product Maintain spending levels to
fight it out for what is left Harvest by cutting spending
and riding it out Drop the product and move
on to the next thing
10-36
Maturity StageProduct Life-Cycle
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Peak salesPeak sales
Low cost per customerLow cost per customer
High profitsHigh profits
Maximize profit while defending market share
Maximize profit while defending market share
Diversify brand and modelsDiversify brand and models
Price to match or best competitorsPrice to match or best competitors
DistributionDistribution Build more intensive distributionBuild more intensive distribution
AdvertisingAdvertising Stress brand differences and benefits
Stress brand differences and benefits
Summary of Characteristics, Objectives, & Strategies
Decline StageProduct Life-Cycle
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Declining salesDeclining sales
Low cost per customerLow cost per customer
Declining profitsDeclining profits
Reduce expenditure and milk the brand
Reduce expenditure and milk the brand
Phase out weak itemsPhase out weak items
Cut priceCut price
DistributionDistribution Go selective: phase out unprofitable outlets
Go selective: phase out unprofitable outlets
AdvertisingAdvertising Reduce to level needed to retain hard-core loyal customers
Reduce to level needed to retain hard-core loyal customers
Summary of Characteristics, Objectives, & Strategies