Issues in Product Management What is a product?

– 5 Levels of a product (core, actual, and augmented)– Product Classification (goods vs services, durable vs

nondurable, consumer vs industrial, etc.)

PLC and Managing the product through its Life Cycle

Product Portfolio Analysis & Basic Growth Strategies

Five Levels of a Product

Core Product • fundamental benefit that the customer is buying

Basic Product• Form in which the core benefit is offered

Expected Product• Set of attributes that buyers normally expect

Augmented Product• Product attributed/features that exceeds expectations

Potential Product• Future augmentations/transformations

Stages in a Product life cycle

Marketing objective

Marketing objective

Gain Awareness

Gain Awareness

Stress differentiation

Stress differentiation

Maintain brand loyalty

Maintain brand loyalty

Harvesting, deletion

Harvesting, deletion

CompetitionCompetition NoneNone GrowingGrowing ManyMany ReducedReduced

ProductProduct OneOne More versionsMore versions Full product line

Full product line Best sellersBest sellers

PricePrice Skimming or penetration

Skimming or penetration Gain share, dealGain share, deal Defend share,

profitDefend share, profit Stay profitableStay profitable

PromotionPromotion Inform, educateInform, educate Stress competitive differences

Stress competitive differences

Reminder oriented

Reminder oriented Minimal

promotionMinimal promotion

Place(distribution)

Place(distribution) LimitedLimited More outletsMore outlets Maximum

outletsMaximum outlets Fewer outletsFewer outlets

Stage of the product life cycleSa

les

reve

nue

or p

rofi

t Introduction Growth Maturity Decline

+0–

Total industrysales revenue

Total industry profit

?The Boston Consulting Group Matrix

Relative Competitive Position/Market Share

Bu

sin

ess

Gro

wth

Rat

e

Basic Product Portfolio Strategies Build

Expand marketing effort to increase market share, particularly question marks.

Hold Preserve existing market share, especially strong cash cows.

Harvest Increase short-term cash flow, especially weak cash cows.

Divest Sell or liquidate product, appropriate for dogs.

Issues in Product Management Product Line Decisions

– Line Stretching (upward, downward, 2-way, etc.)– Line Filling (JND)– Line Pruning, etc.

Product Mix Decisions– Width, Length, Depth & Consistency

Product Design, Packaging, Labeling & Warranty Decisions

Product Mix

Width: number of different

product lines

Length: total number of

items within lines

Depth: number of versions of

each product

Product Mix:all product

lines offered

Co

nsi

sten

cy

Issues in Product Management Branding Decisions

– Brand Equity, Branding Strategies– Brand Extensions

New Product Development– Diffusion of Innovations

Pioneering Advantage

Product Bundling & Co-Branding

What is Brand Loyalty?

No brand loyalty(customer will change)

Satisfied customer(no reason to change)

Satisfied andswitching cost

Values the brand

Devoted to brand

Brand Equity

BRAND EQUITY . . . .BRAND EQUITY . . . .

The added value a given brand The added value a given brand provides a product beyond the provides a product beyond the functional benefits provided.functional benefits provided.

Brand Equity

Name Awareness Perceived Quality Brand Associations Other Brand Assets (logo, slogan, etc.) Brand Loyalty

Good Brand Names:

Suggest product benefits

Become distinctive

Are free from poor foreignlanguage meanings

Suggest product qualities

Are easy to pronounce,recognize, remember

Four criteria for pickinga good brand name

Describe product benefitsDescribe product benefits

Be memorable, distinctive, and positiveBe memorable, distinctive, and positive

Fit the company or product imageFit the company or product image

Have no legal restrictionsHave no legal restrictions

A good brand name should . . . .

A good brand name should . . . .

Alternative branding strategies

Family/Blanket branding strategy

Sunbeam makes:Sunbeam ironsSunbeam toastersSunbeam crockware

GE makes:TVVCRMicrowave Washer/Dryer

Family/Blanket branding strategy

Sunbeam makes:Sunbeam ironsSunbeam toastersSunbeam crockware

GE makes:TVVCRMicrowave Washer/Dryer

Individual/ Multi-brand strategy

Anheuser-Busch makes:

BudweiserBuschMichelobWurtburgerHofbrau

Procter & Gamble makes:

TideCheerIvory SnowOxydol

Individual/ Multi-brand strategy

Anheuser-Busch makes:

BudweiserBuschMichelobWurtburgerHofbrau

Procter & Gamble makes:

TideCheerIvory SnowOxydol

Private branding/separate family strategy

A&P has:Ann Pagecanned goodsEight O’Clock coffee

Sears has:Kenmore appliancesCraftsman tools

Private branding/separate family strategy

A&P has:Ann Pagecanned goodsEight O’Clock coffee

Sears has:Kenmore appliancesCraftsman tools

Mixed branding strategy

Honda makes:AccordCivicPreludeS-2000Odyssey

Kellogg’s makes:

Rice KrispiesRaisin BranCorn Flakes

Mixed branding strategy

Honda makes:AccordCivicPreludeS-2000Odyssey

Kellogg’s makes:

Rice KrispiesRaisin BranCorn Flakes

Generic branding strategy

Dog foodPeanut butterGreen beansPaper towelsAspirinCola

Generic branding strategy

Dog foodPeanut butterGreen beansPaper towelsAspirinCola

Branding strategyBranding strategy

Manufacturer branding strategyManufacturer branding strategy

Line and brand extension

Line extension . . . .Line extension . . . .

The use of a current brand to enter a new market segment in its product class

The use of a current brand to enter a new market segment in its product class

Brand extension . . . .Brand extension . . . .

The use of a current brand name to enter a completely different product class

The use of a current brand name to enter a completely different product class

Issues in Brand Extensions

Existence of Negative/Undesirable Associations

Fit • Complement, Substitute, Transfer

Common Consumer Franchise Market Conditions

• Stage in the PLC• Competition

What is a New Product? New-to-the-world Products (Inventions)

New-to-the-market Products

New-to-the-firm Products (New Category Entries)

Product Improvements & Line Extensions

Repositionings

New Product Generation

Conceptdevelopmentand testing

Ideascreening

IdeaGeneration

Marketingstrategy

developmentBusinessanalysis

Productdevelopment

Commercialization

Markettesting

New Product Development & Management

Opportunity Identification

Product Design

Product Testing

Product Introduction

Life-cycle Management

The Consumer Adoption Process

AwarenessAwareness

InterestInterest

EvaluationEvaluation

AdoptionAdoption

TrialTrial

Laggards:Fear of debt, neighbors and friends are information sources

Laggards:Fear of debt, neighbors and friends are information sources

Early adopters:Leaders in social setting, slightly above average education

Early adopters:Leaders in social setting, slightly above average education

Late majority:Skeptical, below average social status

Late majority:Skeptical, below average social status

Innovators:Venturesome, higher educated, use multiple information sources

Innovators:Venturesome, higher educated, use multiple information sources

Early majority:Deliberate, many informal social contacts

Early majority:Deliberate, many informal social contacts

Time

Innovators2.5%

Early adopters13.5%

Early majority34%

Late majority34%

Laggards16%

Diffusion of Innovation

Factors that Influence Rate of Adoption

The following characteristics influence the rate of adoption:

– Relative advantage

– Compatibility

– Complexity

– Divisibility

– Communicability

New Product Strategies

Proactive VS Reactive

Pionnering VS Second But Better– VCR - Ampex (1956)– Microwave Ovens - Raytheon (1946) /Amana (1966)– Dishwasher - Crescent Washing Machine Co. (1900)– Fax - Xerox (1964)– PCs - MITS (1975)– Disposable Diapers - Chux (1950)– Diet Cola - Kirsch’s No-cal Cola (1952)

Advantages of Being a Pioneer

Brand Association & Preference Formation

Economies of Scale Benefits

Learning Curve Benefits

Barriers to Entry

Switching Costs

Dis-Advantages of Being a Pioneer

Uncertainity– Consumer wants & needs– Channel Reaction– Potential Competitors Moves

Free Rider Problem

Shifts in Technology & Consumer Needs

Incumbent Inertia (e.g., early sunk costs)

Product Bundling

Perception of Value

Ease of Information Processing

Reduction in Perceived Risk

Ability to control & smoothen demand

Product-Service continuum

TeachingNursing

The theatreAdvertising agency

Air travelTelevision

Fast-food restaurantTailored suit

AutomobileHouse

Dog foodNecktie

Salt

Balanced itemequally weighedbetween goodsand services

Service-dominatedService-dominateditem (intangible) item (intangible)

Good-dominatedGood-dominateditem (tangible) item (tangible)

Balanced

The Four I’s of Service

Intangibility Services cannot be held, touched, orseen before the purchase decision.

Inconsistency Service quality varies with the (Variability) capabilities of the people who

provide the service.

Inseparability The consumer cannot separate the deliverer of the service from the service itself.

Inventory The inventory cost of a service is (Perishability) the cost of paying the person used

to provide the service along with the cost of any needed equipment, and issues associated with perishability.

Factors Influencing Pricing Decisions

Economic Factors– Total Income; Discretionary Income; Budgeted Income– Buyer Spending Power (Financing, Type of product --

e.g., Value Meal, Target Market Selection)

Channel Factors– Markups & Margins– Price Increases & Price Cuts

Psychological Factors

Setting Pricing Policy1. Selecting the pricing

objective1. Selecting the pricing

objective

2. Determining demand2. Determining demand

3. Estimating costs3. Estimating costs

4. Analyzing competitors’ costs, prices, and offers

4. Analyzing competitors’ costs, prices, and offers

5. Selecting a pricingmethod

5. Selecting a pricingmethod

6. Selecting final price6. Selecting final price

Selecting the Price Objective

Survival Survival

Maximum market skimming

Maximum market skimming

Product-quality leadership

Product-quality leadership

Maximum current profit

Maximum current profit

Maximum market share

Maximum market share

Determining Demand

Demand curve - illustrates relation between alternate prices and current demand

Price sensitivity Price elasticity of demand

Price Elasticity Price Elasticity, or the elasticity of demand with

respect to price, relates price to quantity sold and hence to revenues– If the percentage change in demand is greater than the

percentage change in price, the demand is said to be elastic– If the percentage change in demand is less than the

percentage change in price, the demand is said to be inelastic

– When demand is Elastic, Price & Revenue are inversely related

– When demand is inealstic, Price & Revenue are directly related

Price Elasticity Price Elasticity is defined as the ratio of the

percentage change in quantity demanded for a given percentage change in price.

Elasticity can be calculated using the formula:Num = {Q2 - Q1}/{Q1}Den = -{P2 - P1}/{P1}Elasticity E = [Num]/[Den]

If E> 1, then the demand is said to be elastic. If E<1, it is inelastic

Points to Note Regarding Elasticity Ceteris is never paribus

– Other factors do not remain constant as assumed Long-run elasticity may differ from measured value Demand curve aren’t smooth in real life

– Indifference Zone

– Breakthrough price -- below which the market just takes off (Video Movies)

– Price Ceiling -- above which the demand just dies (Del Monte Green Beans VS Kroger green beans)

P.E. in the upward direction may not be the same as the P.E. in the downward direction -- particularly for low-end products with poor equity

Asymmetry in Price Effects -- do not provoke the market leader into a price war

Indifference zones are wider for costlier items Elasticity may vary across time (seasons) Brand Elasticity need not be the same as product-

level elasticity Cross-Price Elasticity

Estimating CostsDefine each of the following: Fixed costs Variable costs Total costs Average cost Accumulated production Differentiated marketing offers Target costing

Selecting a Pricing Method

Costs Competitors’prices andprices ofsubstitutes

Customers’assessmentof uniqueproductfeatures

Low Price

No possibleprofit at

this price

High Price

No possibledemand atthis price

The Three Cs Pricing Model

Selecting a Pricing Method

markup pricing and target-return pricing perceived-value pricing value pricing; Going rate pricing; Sealed-Bid pricing?

Selecting the Final Price Psychological pricing

– Sometimes price is equated to quality Influencing of other marketing-mix elements

– The brand’s quality and advertising relative to competition must be considered

Company pricing policies– Must be consistent with company goals

Impact of price on other parties such as dealers and distributors

Factors Influencing Pricing Decisions

Psychological Factors– “Winning a Good Deal”

– Reference Price (price establishes value)

– Limited attention and information retention

– Image & Expectation (pricing hamburger in different settings)

– Price as a cue to quality

– “Throw-ins” vs Price-cuts

– Buying Situation (for self, gift, on vacation)

Pricing Issues & Strategies Setting Price Levels – Demand; Cost; Competition New Product Pricing Product Line Pricing – Price Points Reference Price; Price Ceiling & Floor Price Optional - Feature Pricing

– Base Product + Accessories Captive - Product pricing 2-Part Pricing By-Product Pricing Pricing a Product Bundle Incremental/Discriminatory Pricing

Conditions Favorable for Incremental Pricing

Excess capacity

Heavy fixed costs

Price-sensitive segment

Ability to isolate from core market

Initiating Price Changes

Initiating price cutsInitiating price cuts

Low quality trapLow quality trap

Shallow-pockets trap

Shallow-pockets trap

Fragile-market-share trap

Fragile-market-share trap

Initiating Price Changes

Initiating price increasesInitiating price increases

Reduction of discounts

Reduction of discounts

Escalator clausesEscalator clauses

UnbundlingUnbundling

Delayed quotation pricing

Delayed quotation pricing

Responding toCompetitors’ Price Changes

Reduce priceReduce price

Increase price and improve

quality

Increase price and improve

quality

Maintain priceMaintain price

Launch a low-price fighter lineLaunch a low-

price fighter line

Maintain price and add valueMaintain price and add value $$ $$

Alternatives to Price Promotions

Change Size and/or Content Change Price & Product Features Simultaneously

– Automobile Yearly Model Change Change Payment Terms & Financing Terms Increase/Decrease availability of “Economy

Models”– Toyota Tercel EZ

Move Excess Inventory through alternate channels

Key Functions ofChannel Members

Gather information about customers, competitors, and other players

Develop and disseminate communications Reach agreement on price and terms Place orders with manufacturers Acquire funds to finance inventories Assume risks Provide for product storage and movement Provide for buyers’ bill payments Oversee transfer of ownership

Market Channel Functions Transaction Functions

– Buying– Selling– Risk taking

Logistical Functions– Assorting– Storing– Sorting– Transporting

Facilitating Functions– Financing– Grading– Marketing Research

Reducing the Number of Channel Transactions

Number of contacts without a distributor: M x C = 3 X 3 = 9

1

32

456

789

Manufacturer Customers

Reducing the Number of Channel Transactions

1

3

2

4

6

5

Manufacturer Customers

Store

Number of contacts with a distributor M x C = 3 + 3 = 6

Consumer Marketing Channels

ConsmrMfgr.0-level channel

2-level channel

3-level channel

1-level channel

Whlslr Jobber Retailer ConsmrMfgr.

Retailer ConsmrMfgr.

Whlslr Retailer ConsmrMfgr.

Channel-Design Decisions

Analyzing customers’ desired service output levels

Analyzing customers’ desired service output levels

Establishing objectives and constraints

Establishing objectives and constraints

Identifying major channel alternatives

Identifying major channel alternatives

Evaluating major alternativesEvaluating major alternatives

Channel-Design Decisions: Service Output Channels

Spatial convenience

Spatial convenience

Product variety

Product variety

Lot sizeLot size

Service backupService backup

Waiting timeWaiting time

Distribution Coverage

Intensive Distribution– Large number of middlemen

Selective Distribution– Moderate number of middlemen

Exclusive Distribution– One or two middlemen in a trading area

Major Distribution Issues

Control

Coverage

Cost

Channel Conflict

Horizontal

Vertical

Multichannel

Gray Market

Unauthorized middlemen who circumvent authorized marketing channels by buying in low-price markets and reselling in high-price markets

– Cameras

– Watches

Conventional Distribution vs. Vertical Marketing Systems

Verticalmarketingchannel

Manufacturer

Retailer

Conventionalmarketingchannel

Consumer

Manufacturer

Consumer

Retailer

Wholesaler Wholesaler

Types of Vertical Marketing Systems

ContractualContractual Agreement Among

Channel Members

CorporateCommon ownership at different levels of

the channel

AdministeredLeadership is assumed by one or

a few dominant members

Types of RetailersSpecialty stores

Narrow product line, deep assortmentSpecialty stores

Narrow product line, deep assortment

Department stores Wide variety of product lines

Department stores Wide variety of product lines

Supermarkets Variety of food, laundry, household products

Supermarkets Variety of food, laundry, household products

Convenience storesLimited line of high-turnover convenience goods

Convenience storesLimited line of high-turnover convenience goods

Types of RetailersDiscount stores

Broad product line, low margin, high volumeDiscount stores

Broad product line, low margin, high volume

Off-price retailerInexpensive, overruns, irregulars, leftovers

Off-price retailerInexpensive, overruns, irregulars, leftovers

SuperstoresLarge assortment of routinely purchased food

and nonfood products, plus services

SuperstoresLarge assortment of routinely purchased food

and nonfood products, plus services

Catalog showroomBroad selection, fast turnover, discount prices

Catalog showroomBroad selection, fast turnover, discount prices

Retailing Trends

Shorter retail life cycles

Polarity of retailing

Nonstore retailing

De-Malling & Open Malls

Retail Technology

Marketing Decisions

Promotion decision

Promotion decision

Target marketTarget market Price decisionPrice decision

Product assortment and

procurement

Product assortment and

procurement

Services and store atmosphere

Services and store atmosphere Place decisionPlace decision

How Many Outlets Do You Need?

How many retail outlets will your production capacity support?

How many RO will your market potential support? How will an increase or decrease in the number of

RO affect your profitability?

That depends on:

You need to get an estimate of the

SALES VOLUME PER OUTLET

How many outlets will your production capacity support? Number of outlets =

(Capacity/Avg. sales per outlets)

How many outlets will your market potential support?

Number of outlets = (Market Potential / Avg. sales per outlet)

Turnover = (Sales / Avg. inventory)

Integrated Marketing Communications

The concept of designing marketing activities –advertising, personal selling, sales promotion,and public relations -- to provide a consistentmessage across all audiences is referred to as integrated marketing communications (IMC).

Integrated Marketing Communications

Overview of Eight Steps to Effective Communication

Identify target audience

Determine objectives

Select communication channels

Design the message

Effectively manage the process

Develop communications mix

Establish communications budget

Measure results

Determining Communication Objectives

Models of consumer-response stages are – AIDA model– Hierarchy-of-effects model– Innovation-adoption model– Communications model

The models assume that buyers pass through these stages:

– Cognitive stage– Affective stage– Behavior stage

Designing the Message

ction

nterest

esire

ttention

Deciding on Communications Mix

AdvertisingPublic, pervasive, expressive, impersonal

Sales promotionCommunication, incentive, invitation

Public relations and publicityCredibility, surprise, dramatization

Deciding on Communications Mix

Personal SellingPersonal confrontation,

cultivation, response

Personal SellingPersonal confrontation,

cultivation, response

Direct MarketingNonpublic, customized,up-to-date, interactive

Direct MarketingNonpublic, customized,up-to-date, interactive

Promotional Mix

Personal Selling

Telemarketing

Advertising

Publicity

Sales Promotions

Evaluating Promotional Activities Reach (Coverage)

– How much of the intended audience do you reach?

Effectiveness– How effectively do you communicate with the audience that

you reach?– Frequency: How often do you reach audience members?– Impact: How effective is each message?

Cost: What is the cost per message?

Appropriate Use of Each Type

Personal Selling

– Most effective form of communication– Relatively very expensive– To be used as a primary means of promotion

for customers who spend enough to justify the cost

– Used extensively in industrial marketing situations

Telemarketing

Telemarketing– Less effective than PS -- less personal– More effective than advertising -- interactive– Can be used to “qualify” prospects for personal

sales calls– Can be used to handle in-bound, self-service

orders for the delivery of goods– Cost falls in between PS and Advertising

Advertising Advertising

– Less effective than PS or TM– But, Cheaper than either– Offers a way to reach a large number of potential

customers in a very short period of time– Primary means of promoting to customers who do

not spend enough to justify PS or TM– Should be used to create brand awareness and

educate customers of product features/benefits

Publicity Publicity

– Less effective than advertising because it offers limited control of the message, timing and the media

– cannot be used to send a repetitive message

– But, Cheaper than advertising

– Often more credible to buyers

– Most useful in establishing credibility for providers of professional services

– Can be used as a low cost alternative to advertising

Sales Promotions

Sales Promotions– Good short term competitive tactic– Help clear slow-moving or seasonal inventory– Help generate quick cash flow, if required– SP such as “Sweepstakes” or “Contests” can be

used to add excitement to advertising– Not much value in terms of communication– Do not build a long term image for the brand

Push vs. Pull Strategies Push Strategy

– Spending major part of promotional expenses on distributors and retailers

Pull Strategy– Spending major part of promotional expenses on the

consumer

A comparison of push and pullpromotional strategies

ManufacturerManufacturer

WholesalerWholesaler

RetailerRetailer

ConsumerConsumer

Flow ofpromotion;mainlypersonalsellingdirected tointermediaries

Flow ofdemand

stimulation

ManufacturerManufacturer

WholesalerWholesaler

RetailerRetailer

ConsumerConsumer

Flow ofpromotion;mainly advertisingdirected toconsumers

Flow ofdemand

stimulation

A. Push strategy B. Pull strategy

Promotion Objectives

Communication Objectives– To inform

– To remind

– To persuade

Behavior Objectives– To sell

– To take some action

Setting Advertising Budgets

Percent of Sales What is the percent of present or forecasted sales?

Competitive Parity Are we in line with our competition?

Affordable Method What can we afford to spend on advertising this year?

Objective and Task

Message Decisions

Message Execution Theme and types of messages

Message Structure One-sided vs. two-sided, types of arguments

Message Generation Creative process of developing different

message ideas

The language of the media buyer

Term What It Means Reach The number of different people or households exposed to an advertisement.

Rating The percentage of households in a market that are tuned to a particular TV show or radio station.

Frequency The average number of times an individual isexposed to an advertisement.

Gross rating points Reach (expressed as a percentage of the total(GRPs) market) multiplied by frequency.

Cost per thousands The cost of advertising divided by the number (CPM) of thousands of individuals or households who

are exposed.

Scheduling the Advertising

Steady (“drip”) Schedule-- Steady schedule throughout the year.

Flighting (“intermittent”) Schedule-- Advertising reflects seasonal demand

Blitzing

Pulse (“burst”) Schedule-- Steady and flighting schedules are combined

Advertising’s Role in Industrial Marketing

Create favorable climate for salespeople

Stimulate derived demand

Project favorable corporate image

Reach inaccessible buyers

Functions of Salespeople

ProspectingProspecting

ServicingServicing

Gathering informationGathering

information

AllocatingAllocating

TargetingTargeting

CommunicatingCommunicating

SellingSelling

Steps in Selling ProcessProspecting and Qualifying

Approach

Presentation

Handling Objections

Closing the Sale

Follow-up

Prospecting Stage

Lead

Prospect with need for your product

Qualified Lead

Prospect with need and can afford your product

Approach Stage

Preapproach Action before calling on prospect

– Buyer needs– Buying styles– Call objectives

Approach Meeting and greeting the buyer

– Salesperson’s appearance– Opening lines– Key questions

Sales Presentations

Stimulus-response

Need-satisfaction

Handling Objections

Acknowledge and convert

Postpone

Agree and neutralize

Ignore the objection

Closing the Sale

Trial close Would you prefer blue or green?

Assumptive close What type of finance do you want?

Urgency close This is the last model we have in stock

Follow-Up Stage

Phone call

Letter or card

Questionnaire

Personal call

Sales Promotion Activities

Aimed at consumers

Aimed at trade

Aimed at company’s own sales force

Consumer Sales Promotion

Point-of-purchase materials

Mfrs’ coupons

Free samples

Sponsored events

Premiums

Trade Sales Promotion

Trade shows

Sales contests

Display allowances

Bulk discounts

Internal Sales Promotion

Contests

Sales aids

Training material

Bonuses

Displays

Benefits of Direct Marketing to Consumers

Fun, convenient, hassle-freeFun, convenient, hassle-free

Saves timeSaves time

Larger merchandise selectionLarger merchandise selection

Comparison shoppingComparison shopping

Ease of ordering productsEase of ordering products

Benefits of Direct Marketing to Companies

Mailing lists for any marketMailing lists for any market

Can achieve higher readershipCan achieve higher readership

Alternative media and message testingAlternative media and message testing

PrivacyPrivacy

Measurable responseMeasurable response

Ongoing relationships with customersOngoing relationships with customers

Customized offersCustomized offers