McGraw-Hill/Irwin Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved.

Business Marketing

Programming

Part Three

Part Three

Business Marketing Programming• Chapter 8 Developing and Managing Products

• Chapter 9 Business Marketing Channels

• Chapter 10 Creating Customer Dialogue

• Chapter 11 Communicating via Advertising,

Trade Shows, and PR

• Chapter 12 The One-to-One Media

• Chapter 13 Sales and Sales Management

• Chapter 14 Pricing and Negotiating for Value

Chapter 8

Developing and Managing Offerings:

What do Customers Want?

THE OFFERING CONCEPT

COMPETITIVEADVANTAGE:

PRODUCT: A Bundle of Benefits and a CollectionA Bundle of Benefits and a Collectionof Solutions to Needs and Wantsof Solutions to Needs and Wants

How the Product or Service Satisfies

a NeedBENEFIT:

A Benefit That Satisfies a CustomerBetter than a Competitor’s ProductBenefits

8-5

ACTIVITIES IN MANAGING PRODUCTS

• UNDERSTAND THE PRODUCT LIFE CYCLE (PLC) AND APPLY IT TO PRODUCT STRATEGY

• UNDERSTAND THE CONCEPT OF PRODUCT PORTFOLIOS

• KNOW WHEN TO HARVEST A PRODUCT

8-6

• In planning its market offering, the marketer needs to address five product levels. Each level adds more customer value, and the five constitute a customer value hierarchy.

Product Levels: The Customer Value Hierarchy

12-7

Figure 12.2 Five Product Levels

Product Levels: The Customer Value Hierarchy

• Core benefit: Service customer buys

• Turned into basic product

• Expected product - attributes expected

• Augmented product - exceeds expectations

• Potential product- all possible future

augmentations & transformations of productCopyright © 2009 Pearson Education South Asia Pte Ltd 12-8

PRODUCT LIFE CYCLE DECISION POINTS

Rapid expansion of distributorsProduct line expansionNiche marketingContinued heavy promotionSales force incentives and managementSearch for new sources for supplyNeed to balance supply and demandStock-out and back-order damage control

Development Introduction Growth Maturity Decline Time

Strongly defend home-market nichesPrune product linesEmphasize gross contribution rather than market share and sales volumeReview logistics: prune costsReduce pioneering sale force effort, more telemarketingMore trade than consumer promotionIntroduce flankers, private labels, genericsReinvest in market research & R&DUse promotions to increase heavy-user loyaltyFreeze investment in plantProductivity reviewSpecial trade promotions to keep channels happyFocused attacks on vulnerable competitorsLong-term price reduction or at least a short-term price promotionKeep plant at maximum capacity and subcontractexcess

Cut low-gross-margin products from the lineWithdraw from channels in order of their unprofitabilityFreeze R& D and product modificationsFreeze advertising and promotionsAttempt to maintain price to the endBuy back remaining stock and redistributeMaintain spare parts and serviceConsider divesting while it is a going concern

Redirect focus & promotionInvest in expanding productionBuild inventoryExpand distributor networkTrain expanded sales forceInstitute marketing controlsInvest heavily in advertisingTarget on best prospects: innovators and enthusiastsUse most loyal distributorsUse free samplesUse public demonstrations and trade showsUse publicity and endorsementsUse specialist media & catalogs

Sales

Exhibit 8-28-9

THE BCG MATRIX: MEASURING MARKET GROWTHAND MARKET SHARE

Market GrowthRate

Stars

CashCows Dogs

QuestionMarks

Market Share Relative to Nearest Competitor

BCG Matrix

Exhibit 8-3

8-10

GE MATRIX MEASURING MARKET ATTRACTIVENESS AND BUSINESS STRENGTH

Market Attractiveness• Growth• Diversity• Competitive• Structure

Change• Technology Change• Social Environment Business Strength

• Size of Market & Share

• Company Growth Rate

• Profit• Margins• Technology Platform• Image• People

GE Matrix

Exhibit 8-3

Unattractive

Weak

Strong

Attractive

8-11

Exhibit 8-4

PRODUCT DEVELOPMENT PROCESS:A NEW LOOK

EVALUATION

LAUNCH

BETA TESTING

PRODUCT DEVELOPMENT

SPECIFYING FEATURES

SCREENING AND PRELIMINARY INVESTIGATION

IDEA GENERATION

8-12

QUALITY FUNCTION DEPLOYMENT

Exhibit 8-5

Customers’ desired benefits

Linked to product

characteristics

Broken down into

component part

characteristics

Process Characteristics

Production Controls

8-13

MAKING A PRODUCT SUCCESSFUL

1. HAVE CLOSE TIES WITH A WELL DEFINED MARKET TO ANTICIPATE CUSTOMER NEEDS.

2. COMPANY IS HIGHLY INTEGRATED AND MARKET-ORIENTED

3. COMPANY HAS A COMPETITIVE ADVANTAGE IN TECHNOLOGY AND PRODUCTION CAPABILITY

4. COMPANY HAS A STRONG MARKETING PROFICIENCY

5. STRONG FINANCIAL SUPPORT

Exhibit 8-8

8-14

KEYS TO PRODUCT INNOVATION

AN INNOVATIVE COMPANY MUST HAVE

• A CORPORATE CULTURE THAT SUPPORTS INNOVATION – a desire for growth, improvement

• A FOCUS ON OPPORTUNITY RISK INSTEAD OF INVESTMENT RISK

• A VISION OF WHAT THE NEW PRODUCT IS TO ACCOMPLISH

• A STRUCTURED DEVELOPMENT PROCESS

• A LONG-TERM PERSPECTIVE

8-15

KEY PRODUCTMANAGEMENT DECISIONS

1. WHICH PRODUCT TO INTRODUCE

2. WHICH PRODUCTS TO KEEP

3. WHICH PRODUCTS TO PROMOTE

4. WHAT LEVEL OF PROMOTION TO PROVIDE (LOW TO HIGH)

5. WHAT PRODUCTS TO CONTINUE OR DELETE

8-16

WINNING THE NEW PRODUCT CONTEST

• FOCUS ON CORE COMPETENCY(WHAT YOU DO BEST FOR A COMPETITIVE ADVANTAGE)

PLUS

• PROVIDE GREATEST VALUE TO CUSTOMER

EQUALS

• SUCCESSFUL PRODUCT

8-17

Discussed questions

2. A big issue for salespeople who work on straight commission is this: On what products will they place their emphasis during a sales call? For these salespeople, time with the customer is their most important resource, so they have to choose how to use that time. Draw a blank product portfolio matrix and decide how much time should be spent on products within each square, assuming equal numbers of products in each of the quadrants. What are your reasons for each decision?

3. Can a product enjoy multiple life cycles? If so, how? If you were a salesperson with a product in each stage of the product life cycle, what percentage of your selling time would you allocate to each product?

4. Some authors have combined the life cycle and portfolio matrices into one model. How would you do that? What are some limitations of the model?

Discussed Questions

5. The chief engineer for Portland Purifiers, a maker of industrial water filters with annual sales of $5 million, has an idea for a new product that would represent a major (and patentable) improvement over current market offerings. She estimates that the development of the product will cost half a million dollars, including tooling the manufacturing line. The last product launch cost about $200,000 in marketing and promotion costs. She thinks the product would sell for about $50,000 and should sell 75 units in year 1, 140 in year 2, and then level out at 200 per year. Contribution margin is 40 percent.

Should the company continue with this project? What do you need to know about the company in order to understand its decision to go or not go ahead? What is the payback period?