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PRODUCT
Ashok Leyland is known
for its products
What is a Product?
A product is anything that can be offered to a market to satisfy a want or need, including physical goods, services,
experiences, events, persons, places, properties, organizations, information, and
ideas.
Figure 12.1 Components of the Market Offering
Attractiveness of the market
offering
Value-based prices
Product features and quality
Services mix and quality
Figure 12.2 Five Product Levels
Product Classification Schemes
Durability
Use
Tangibility
Durability and Tangibility
Nondurable
goods
ServicesDurable
goods
Consumer Goods Classification
Convenience
Unsought
Shopping
Specialty
Industrial Goods Classification
Materials and parts
Supplies/
business servicesCapital items
Developing products for rural markets
• Products should be designed keeping in mind the rural conditions
• Packaging is one of the key drivers of success in rural areas
Issue of transfer and storage: Rugged packing
The issue of affordability: small-unit packs• Brand elements should be decided keeping in
mind rural consumers
Product Line and Product Mix
• Product Item– A specific version of a product
• Product Line– A group of closely related product items
viewed as a unit because of marketing, technical, or end-use considerations
WholeMilk
Whole
MilkSkimMilk
2%Milk
• Product Mix– The total group of products that an organization
makes available to customers– Width of product mix
• The number of product lines a company offers
– Depth of product mix• The average number of different products in each product
line
The Concepts of Product Mix Width and DepthApplied to Selected U.S. Proctor & Gamble
Products
FIGURE 10.1Source: Reprinted by permission of Proctor & Gamble.
Line Stretching
Down-Market StretchDown-Market Stretch
Up-Market StretchUp-Market Stretch
Product Life Cycles and Marketing Strategies
• Product Life Cycle–The progression of a product through four stages: introduction, growth, maturity, and decline.
MP3s
DVDs
CDs
Cassettes
LP records
The Four Stages of the Product Life Cycle
FIGURE 10.2
Claims of Product Life Cycles
• Products have a limited life
• Product sales pass through distinct stages each with different challenges and opportunities
• Profits rise and fall at different stages
• Products require different strategies in each life cycle stage
The Product Life Cycle
• Introduction– The initial stage of a product’s life cycle—its
first appearance in the marketplace—when sales start at zero and profits are negative
– Why new products fail• Lack of resources, knowledge, and marketing skills
to successfully launch the product• High pricing to recoup research and development
costs
• Strategies at various stages of PLC
Introduction
Build sales by expanding market for the product
Heavy expenditure on promotion
Stimulate trial
Attract distribution channel partners
Prices high or low depending on imminent competition
Product Life Cycle (Contd.)
The Product Life Cycle (cont’d)
• Growth– The stage of a product’s life cycle when sales
rise rapidly and profits reach a peak and then start to decline
• More competitors enter the market• Product pricing is aggressive• Brand loyalty becomes important• Gaps in market coverage are filled• Promotion expenditures moderate• Production efficiencies lower costs
GrowthCustomers aware of the product Build sales and market share by building brand preference
Segmentation emerges
Product redesigned to create differentiation Promotion lays stress on the benefits of the
differentiated product Focused competitors emerge Distribution will be widened to serve new segments.Product made available in different retail formats as customers of different segments buy differently
Product Life Cycle (Contd.)
• Maturity– The stage of a product’s life cycle when the sales curve peaks
and starts to decline and profits continue to fall• Intense competition• Emphasis on improvements and differences in competitors’
products• Weaker competitors lose interest and exit the market• Advertising and dealer-oriented promotions predominate• Distribution sometimes expands to the global market
– Strategic objectives for maturity stage• Generate cash flow• Maintain market share• Increase share of customer
MaturityMarket does not grow in this stageSales only at the expense of competition Focus on ensuring repeat purchases Strong brand helps fight competitionMaintaining brand loyalty, stimulate repeat
purchases Intense competition, often price warsCompany should focus on strengthening its
brand by differentiationLasts for a long timeCompanies should set realistic growth ratesLow cost manufacturing and marketing
infrastructure
Product Life Cycle (Contd.)
• Decline– The stage of a product’s life cycle when sales
fall rapidly• Pruning items from the product line• Cutting promotion expenditures• Eliminating marginal distributors• Planning to phase out the product
– Strategic choices• Harvesting the product’s remaining value• Divesting the product when losses are
sustained and a return to profitability is unlikely
Decline
Anticipate the impending decline in sales
Analyze changing customer requirements
Exit immediately / gradual withdrawal / Exploit brand loyalty
Product Life Cycle (Contd.)
• Uses of PLC
Emphasizes the need for product planning
Planning for competition
Products have limited life cycle
Plan for the future as growth phase will end
Adapt marketing strategies as market and competitive conditions change
Product Life Cycle (Contd.)
• Limitations of PLC
Not all products follow the classic S-shaped PLC curve
PLC is the result of marketing activities, and is not the cause of variability in sales
Duration of PLC stages is unpredictable
Strict adherence to PLC can lead a company to misleading objectives and strategy prescriptions
Product Life Cycle (Contd.)
Categories of New Products
New-to-the-world
Cost reductions
New product lines
Additions
Improvements
Repositionings
Moser Baer has moved from making optical storage media to selling home entertainment
The World’s Most Innovative Companies
• Apple• Google• Toyota• General Electric• Microsoft• Procter & Gamble• 3M• Walt Disney
• IBM• Sony• Wal-Mart• Honda • Starbucks• Target• BMW• Samsung
Seven Notions of Innovation• See the future through the eyes of your
customer• Intellectual property and brand power are key
assets• Use digital technology to create tools for
customers• Build a championship team• Innovation is a state of mind• Speed is critical, so push your organization• Partner up if you’re not the best
The New Product Development Decision Process
Mahindra and Mahindra followed a thorough product
development process for ‘Scorpio’
Ways to Find Great New Ideas
• Run informal sessions with customers
• Allow time off for technical people to putter on pet projects
• Make customer brainstorming a part of plant tours
• Survey your customers
• Undertake “fly on the wall” research to customers
More Ways to Find Great Ideas
• Use iterative rounds with customers
• Set up a keyword search to scan trade publications
• Treat trade shows as intelligence missions
• Have employees visit supplier labs
• Set up an idea vault
Drawing Ideas from Customers
• Observe customers using product
• Ask customers about problems with products
• Ask customers about their dream products
• Use a customer advisory board or a brand community of enthusiasts to discuss product
• Idea generation Look outside current markets
Modify product form
Question conventional price and performance relationships
Imagine unarticulated customer needs rather than simply following them
Examine competitors’ products at frequent intervals
Retailers as a source of ideas for NPD
Customers as a source of ideas for NPD
Utilize MR effectively
Managing The Innovation Process (Contd.)
• Idea screening
Evaluate commercial worth of ideas
Use criteria to evaluate attractiveness of market for the proposed market
Basis such as return on assets, sales growth etc.
Idea for NPD should be in alignment with the company’s objectives and competencies
Should have reasonable chances of success
• Concept testing
Each basic product idea can be expanded into several product concepts
Each product concept can be compared by testing with target customers
Product concept is a particular combination of features, benefits, and price
Allows views of customers to enter the NPD process at an early stage
Use research to gather customer opinions
• Business analysis
Estimates of sales, cost and profits
Identifies the product target market, its size, and projected product acceptance over a number of years
Study various prices and their implications on sales revenues
Conduct sensitivity analysis
Estimate revenues and profits to justify the expenses of development and marketing
• Product development
New product concept is developed into a physical product
Multi-disciplinary project teams established
Product testing focuses on the functional aspects of the product and consumer acceptance
R&D focuses on functional aspects of product and marketing keeps the project team aware of psychological factors
Products set up to fail at this stage:Developers become their own during this
stage
Developers are wary of showing their incomplete designs to other people in the organization
Both customer needs and technologies are likely to change during the development process itself
A description of the product can never match the physical product in eliciting real reactions of customers
A company should be willing to do ‘anything’ to increase the probability of success of a new product
• Market testing
Simulated market test
Launch the new product in a limited way
Key success indicators such as penetration and repeat purchase can be ascertained
Launch of new product in one or few geographical areas chosen to be representative of
its intended market
Facing competition in retail outlets
Information provided by test marketing facilitates the go / no go national launch decision
• Commercialization and diffusion of innovation
Diffusion is how a new product spreads throughout a market over time
Buyer at different stages of buying readiness
In initial phase of launch target customers who are more likely to buy the new product than others
Adoption slower if company targets complete market initially
What is Adoption?
• Adoption is an individual’s decision to become a regular user of a product.
Stages in the Adoption Process
Awareness
Interest
Evaluation
Trial
Adoption
Adopter Categorization
Innovators: Most likely to buy the new product
Early adopters: Set of customers who buy the product next
Early and late majorities form the bulk of the customers
Laggards are tradition bound
Diffusion of innovation categories play crucial role in the choice of target markets
Key is to understand the characteristics of the innovator and early adopter categories and target them at launch
Adopter categories can provide basis of segmenting the target market
Diffusion curve linked to the product life cycle
Characteristics of the product being launched also affects diffusion rate
Choice of marketing strategy to establish a differential advantage to be made
Product’s communicability affects adoption of new product
Characteristics of an Innovation
• Relative advantage• Compatibility• Complexity• Divisibility• Communicability
• Idea generation Look outside current markets
Modify product form
Question conventional price and performance relationships
Imagine unarticulated customer needs rather than simply following them
Examine competitors’ products at frequent intervals
Retailers as a source of ideas for NPD
Customers as a source of ideas for NPD
Utilize MR effectively
Managing The Innovation Process (Contd.)
• Idea screening
Evaluate commercial worth of ideas
Use criteria to evaluate attractiveness of market for the proposed market
Basis such as return on assets, sales growth etc.
Idea for NPD should be in alignment with the company’s objectives and competencies
Should have reasonable chances of success
Managing The Innovation Process (Contd.)
• Concept testing
Each basic product idea can be expanded into several product concepts
Each product concept can be compared by testing with target customers
Product concept is a particular combination of features, benefits, and price
Allows views of customers to enter the NPD process at an early stage
Use research to gather customer opinions
Managing The Innovation Process (Contd.)
• Business analysis
Estimates of sales, cost and profits
Identifies the product target market, its size, and projected product acceptance over a number of years
Study various prices and their implications on sales revenues
Conduct sensitivity analysis
Estimate revenues and profits to justify the expenses of development and marketing
Managing The Innovation Process (Contd.)
• Product development
New product concept is developed into a physical product
Multi-disciplinary project teams established
Product testing focuses on the functional aspects of the product and consumer acceptance
R&D focuses on functional aspects of product and marketing keeps the project team aware of psychological factors
Managing The Innovation Process (Contd.)
Products set up to fail at this stage:Developers become their own during this
stage
Developers are wary of showing their incomplete designs to other people in the organization
Both customer needs and technologies are likely to change during the development process itself
A description of the product can never match the physical product in eliciting real reactions
of customers
A company should be willing to do ‘anything’ to increase the probability of success of a
new product
Managing The Innovation Process (Contd.)
• Market testing
Simulated market test
Launch the new product in a limited way
Key success indicators such as penetration and repeat purchase can be ascertained
Launch of new product in one or few geographical areas chosen to be representative of
its intended market
Facing competition in retail outlets
Information provided by test marketing facilitates the go / no go national launch decision
Managing The Innovation Process (Contd.)
• Commercialization and diffusion of innovation
Diffusion is how a new product spreads throughout a market over time
Buyer at different stages of buying readiness
In initial phase of launch target customers who are more likely to buy the new product than others
Adoption slower if company targets complete market initially
Managing The Innovation Process (Contd.)
Innovators: Most likely to buy the new product
Early adopters: Set of customers who buy the product next
Early and late majorities form the bulk of the customers
Laggards are tradition bound
Diffusion of innovation categories play crucial role in the choice of target markets
Key is to understand the characteristics of the innovator and early adopter categories and target them at launch
Managing The Innovation Process (Contd.)
Adopter categories can provide basis of segmenting the target market
Diffusion curve linked to the product life cycle
Characteristics of the product being launched also affects diffusion rate
Choice of marketing strategy to establish a differential advantage to be made
Product’s communicability affects adoption of new product
Managing The Innovation Process (Contd.)
