Product & Brand Managementy Module-I

Product: Basic concept, New Product Development process, Research techniques used in the process, Product development strategies: Idea generation, Concept testing, Concept evaluation, Product testing, Pre-test Marketing and Test Marketing, Launching strategies for new product

Concept of Product*A product is anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. It includes physical objects, services, persons, places, organisations and ideas. *Products that are used over an extended period are known as durable products. *Products consumed in a single use or on few occasions are non-durable, or Fast-moving Consumer Goods (FMCG).

Producty Products are almost always combinations of the

tangible and intangible. The entire package is sometimes referred to as the augmented product.y The mix of tangibles and intangibles in the augmented

product varies from one product or service to another

Five Levels of a ProductPotential Product Augmented Product Expected Product CCcCcc Core benefit Basic Product Core Product

FIVE LEVELS OF THE PRODUCTy (1) Core Product / Core Benefit : The

fundamental service or benefit that the customer is really buying. y (2) Basic Product : At the same level, the marketer has to turn the core benefit into a basic product. y (3) Expected Product : A set of attributes and conditions buyers normally expect when they purchase this product.

FIVE LEVELS OF THE PRODUCTy (4) Augmented Product : The marketer prepares

an augmented product that exceeds customer expectations. y 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 ) y 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 PRODUCTSome things should be noted about productaugmentation strategy : y First, each augmentation adds cost. The marketer has to ask whether customers will pay enough to cover the extra cost. y 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 ) y Third, as companies raise the price of their augmented product, some competitors can offer a Stripped-down 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 PRODUCTy (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. y ( 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 DIFFERENTIATIONThe challenge before the product marketers is to create relevant and distinctive product differentiation. The product differentiation may be based on : y Physical Differences ( eg., features, performance, conformance, durability, reliability, design, style, packaging ) y Availability Differences ( eg., available from stores or orderable by phone, mail, fax, internet )

PRODUCT DIFFERENTIATIONy Service Differences ( e.g., delivery, installation,

training, consulting, maintenance, repair )y Price Differences ( e.g., very high price, medium

price, low price, very low price )y Image Differences ( e.g., symbols, events, media )

CHALLENGES FOR PRODUCT INNOVATORSAny successful differentiation will tend to draw imitators. The innovator faces three choices :y Lower the price to protect market share and

accept lower profits. y Maintain the price and lose some market share and profits. y Find a new basis to differentiate the product and maintain current price.

Traditional Product classificationProducts can be classified into three groups according to their durability and tangibility. 1. Nondurable goods: are tangible goods that normally are consumed in one or few uses 2.Durable goods: are tangible goods that normally survive many uses. 3.Services: are intangible, inseparable, variable and perishable. As a result, they normally require more quality control, supplier credibility, and adaptability.

Product ClassificationsPRODUCTS

Consumer Products

Business Products

Convenience Products

Shopping Products

Specialty Products

Unsought Products

(1) CONVENIENCE GOODSy are goods that the customer usually purchases

frequently, immediately, and with a minimum of efforts. y (A) Staples: Consumers purchase on a regular basis. y (B) Impulse Goods: are purchased without any planning or search efforts. y (C) Emergency Goods: are purchased when a need is urgent.

(2) SHOPPING GOODSy are goods that the customer , in the process of

selection and purchase, compares on the basis of suitability, quality, price and style. y (A) Homogeneous Shopping Goods: are similar in quality but different enough in price to justify shopping comparisons. y (B) Heterogeneous Shopping Goods: differ in product features and services that may be more important than price.

(3) SPECIALITY GOODSy are goods with unique characteristics or brand

identification for which buyer is willing to make a special purchasing effort.

(4) UNSOUGHT GOODSy are goods the consumer does not know about or

does not normally think of buying. These goods require advertising and personal selling support.

Industrial ProductsMaterials and Parts

Types of Industrial Products Supplies and Services

Capital Items

Materials and Partsy Materials & parts are goods that enter the manufacturer s

product completely. They fall into two classes: y Raw materials fall into two major classes: Farm product (e.g., wheat, cotton, livestock etc.) and natural products (e.g. , fish ,lumber, crude petroleum) y Manufactured materials and parts

Supplies and business servicesy Are short lasting goods and services that facilitates

developing or managing finished product.

Categories of New Product1. New to the World y Inventions 2. New Category Entries y Products that take the firm into a category 3. Additions to Product Lines y Products that are line extensions in the firm s current markets 4. Product Improvements y Represents existing products that have been made better 5. Repositioning y Products that are retargeted for new use, application, or to a new user

New Product Development Strategyy Customers want and expect the new and improved

products that competition will do its best to provide. A company can obtain new products in two ways. y One is through acquisition buying a whole new company, patent or licence to produce someone else s product. y The other is through new product development development of original products, product modifications and new brands through the company s own R&D efforts.

New Product Success and Failurey Innovation can be very risky. New products continuex1

to fail at a disturbing rate. One recent study estimated that new consumer packaged goods (consisting mostly of line extension) fail at a rate of 80%. .There are several reasons why so many new products fail: y the market size was overestimated, y the actual product was not designed well, y it may have been priced too high, y or poorly advertised, y costs of development were higher than expected, y or perhaps competitors fought back harder than expected.

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New Product Success and FailureOne study found the number one success factor is y A unique superior product, y one with higher quality, y new features and y higher value in use. y Another key success factor is a well-defined product concept prior to development, in which the company carefully designs and assesses the target market, the product requirements and the benefits before proceeding.

Innovators Dilemma in the Light of Management Demands

New Product Development (NPD) ProcessMarketing Strategy Concept Development and Testing Business Analysis Product Development

Idea Screening

Test Marketing

Idea Generation

Commercialisation

BEST PRACTICE SOURCESCompany Visits Workshops & Meetings BMP Program EST P ACTICES Technology Vendors

Conferences

Literature Review Panel of Experts

Corporate Handbooks Telephone Discussions

Consulting Experience

Idea Generationy is often called the "fuzzy front end" of the NPD processy Ideas for new products can be obtained from basic research

using a SWOT analysis. (Strengths, Weaknesses, Opportunities & Threats), Market and consumer trends, company's R&D department, competitors, focus groups, employees, salespeople, corporate spies, trade shows, or Ethnographic discovery methods (searching for user patterns and habits) may also be used to get an insight into new product lines or product features. y Lots of ideas are being generated about the new product. Out of these ideas many ideas are being implemented. The ideas use to generate in many forms and their generating places are also various. Many creative techniques are implemented for generation of an idea.

Techniques for idea generation .y Attribute Listing: It calls for listing an existing

product s major attributes and then modifying each attribute in the search for an improved product y Forced relationships: In this several objectives are considered in relation to one another to create a new product y Morphological analysis: It calls for identifying the structural dimensions of a problem and examining the relationships among them y Need/problem identification:- it calls for identifying the needs, problems and new ideas of the customer & try to develop product idea based on this

y Brain storming: Group creativity can be stimulated

through brain storming techniques developed by Alex Osborn. The usual brain storming group consists of 610 people discussing a problem

Idea screeningy The object is to eliminate unsound concepts prior to

devoting resources to them. y The screeners should ask several questions: y Will the customer in the target market benefit from the product? y What is the size and growth forecasts of the market segment/target market? y What is the current or expected competitive pressure for the product idea? y What are the industry sales and market trends the product idea is based on? y Is it technically feasible to manufacture the product? y Will the product be profitable when manufactured and delivered to the customer at the target price?

The company collect the ideas from different sources and reviewed each week by an idea reviewed committee which should short the idea into three groups: y Promising idea: *Go error *Drop error y Marginal ideas y Rejects

DEVELOPING AN IMPROVEMENT PLANCURRENT SITUATION GAP BEST PRACTICES

IMPROVEMENT PLANProduct Development Assessment

What s possibleBusiness Strategy (Strategic Levers)

What the weaknesses are

What s important

1. Assess current situation

3. Develop a plan to close gap

2. Determine priorities based on strategy & Best Practices

Concept Development and Testingy Attractive ideas may not be developed into attractiveproduct concepts. It is important to distinguish between a product idea, a product concept and a product image. y Product idea An idea for a possible product that the company can see itself offering to the market. y Product concept The idea that consumers favour and that offer the most quality, performance and features and that the organisation should therefore devote its energy to making continuous product improvements; a detailed version of the new product idea stated in meaningful consumer terms. y Product image The way consumers perceive an actual or potential product.

Concept Developmenty Many companies today are using an approach called

customer driven engineering to design new products. Customer driven engineering is engineering effort that attaches high importance to incorporating customer preferences in final design. y The desire and expectations are called customer attributes(CAs). The marketing department turns the CAs over to engineers, who convert them into engineering attributes (EAs). y Customer driven engineering involves turning the CAs into EAs and determining the best trade-offs given the attributes and their cost

Concept testingConcept calls for testing product concepts with an appropriate group of target customers, then getting those customer s reaction. The concept can be presented symbolically or physically.y Physical prototype : y Virtual reality

Conjoint Analysisy Consumer preference for alternative product concepts

can be measured through a popular research technique called conjoint analysis, a method for deriving the utility values that consumer attach to variety levels of a product s attributes. Respondents are shown different hypothetical offers formed by combining varieties of attributes, then asked to rank the various offers. Management can use the results to determine the most appealing offer and the estimated market share & profit the company might realize.

Marketing Strategy Developmenty After a concept has been chosen, the next step is marketing strategy development designing an initial marketing strategy for a new product based on the product concept. y The marketing strategy statement consists of three parts:y The first part describes the target maket, the planned

product positioning, and the sales, market-share and profit goals for the first few years. y The second part of the marketing strategy statement outlines the product s planned price, distribution and marketing budget for the first year. y The third part of the marketing strategy statement describes the planned long-run sales, profit goals and marketing mix strategy.

Business Analysisy Once management has decided on its product concept and marketing strategy, it can evaluate the business attractiveness of the proposal. y Business analysis involves a review of the demand/sales, costs and profit projections for a new product to find out whether these factors satisfy the company s objectives. y To estimate the sales, the company should look at the sales history of similar product and should survey market opinion. y Sales estimation method depends on whether the product is one time purchased product, an infrequent purchased product, or a frequently purchased product.

y Estimating Total Sales: Total estimated sales are the

sum of the following y Estimating first time sales y Estimating replacement sales y Estimating repeat salesy Estimating cost and profit:

After preparing the sales forecast, the management should estimate the expected cost and profit. The cost are estimated by the R&D, manufacturing, marketing and finance departments. y companies use various financial measure to evaluate the merit of a new product proposal.

y The simplest is break-even analysis, in which

management estimates how many units f product the company would have to sell to break even with the given price and cost structure. y The most complex method of estimating profit is risk analysis. Here three estimates (optimistic, pessimistic and most likely) are obtain for each uncertain variable affecting profitability under an assumed marketing environment & marketing strategy for the planned period.

Product Developmenty If the product concept passes the business test , it

moves to R&D or engineering to be developed into a physical product. Up to now it has existed only as a word description, a drawing or a prototype. At this stage the company will determine whether the product idea can be translated into a technically & commercially feasible product. y When the prototypes are ready, they must be put through rigorous functional & consumer test.

y Functional method: are conducted are under

laboratory and field conditions to make sure that product perform safely & effectively y Consumer testing: take a variety of forms, from bringing consumer into a laboratory to giving them samples to use in their homes. Techniques for measuring consumer preference: y The simple rank method y The paired comparison method y The monadic rating method

Test Marketingy If the product passes functional and consumer tests, the next step is test marketing y Test marketing is the stage at which the product and marketing programs are introduced into more realistic settings y Test marketing lets the marketer get experience with marketing the product, finding potential problems and learning where more information is needed before going to the great expense of full introduction

Consumer-goods market testingy In testing consumer products, the company seeks to

estimate four variables: trial, first repeat, adoption & first purchase. The company hopes to find all these variables at high level. Following are some methods of consumer good test marketing y Sales wave research: consumer who initially try the product at no cost are reoffered the product or a competitors product as many as three times, at a slightly reduced prices. The company noting how many customers selected the product again and their reported level of satisfaction.

Consumer goods market testingy Standard Test Markets: tests the new consumer

product in a situation like those it would in a full scale launch. y Controlled Test Markets: where the new products are tested in a limited number of stores. y Simulated Test Markets: the product is tested in a simulated shopping situation.

Decision for a Test Marketingy How many test cities? y Which cities? y Length of test? y What information? y What action to take?

Business good market testingy Alpha Testing: It refers in company product testing to

measure and improve product performance, reliability, design and operating cost. Following satisfactory result company will initiate beta testing y Beta Testing: which involves inviting potential adopters to conduct confidential testing at their sites. The vendor can get an overall idea about subsequent pricing, purchase intention and other reaction after test. y Trade show testing: Trade shows draw a large number of buyers, who view new product in a few concentrated days

y Distributor & dealer display: New product can also

be tested in distributor and display rooms, where they may stand next to the manufacturer s other products and possibly competitor's product

Commercialisationy Test marketing gives management the information

needed to make a final decision about whether to launch the new product. y If the company goes ahead with commercialisation introducing the new product into the market it will face high costs. y Activity considerations The company launching a new product must make four decisions: when, where, to whom and how.

y WHEN (Timing): In commercializing a new product

market entry is vital & critical. When the competitor s product is ready for launching in the market, the company faces three choices y First entry y Parallel entry y Late entryy WHERE (Geographical strategy): The company must

decide whether to launch the new product in a single locality, a region, several regions, the national market or the international market

y TO WHOM (Target market prospects): Within the roll

y y y y

out market the company must target its distribution and promotion to the best prospect groups. Prime prospect for a new consumer product would ideally have the following characteristics: They would be early adopters They would be heavy users They would be opinion leaders They could be reached at a low cost.

y HOW (Introductory market strategy):

Sequential versus Simultaneous New-Product Developmenty Many companies organise their new-product development process into an orderly sequence of steps (ideas generation to commercialisation) y Under this sequential product development approach one company department works individually to complete its stage of the process before passing the new product along to the next department and stage y Currently, many companies prefer the faster, more flexible simultaneous product development approach where various company departments work closely together, overlapping the steps in the product development process to save time and increase effectiveness

Consumer Adoption Processy Adoption is an individual s decision to become a

regular user of a product.y The Adoption process is the mental process through

which an individual passes from first learning about an innovation to final adoption.

Stages in the Adoption Process1. Awareness: the consumer becomes aware but 2. 3. 4. 5.lacks information about the product. Interest: the consumer seeks information about the new product. Evaluation: the consumer considers the new product. Trial: the consumer trials on a small scale to estimate value. Adoption: the consumer decides to make full use of the product.

Launching strategies for new producty To sequence and coordinate many activities involved

in launching a new product, management can use network planning techniques such as Critical Path Scheduling .y Critical Path Scheduling : calls for developing a

master chart showing the simultaneous and sequential activities that must take place to launch product. By estimating each activity takes, the planner estimate completion time for the entire project