Lecture 6 and 7 All about Products and Brands:

Building Customer Value

Overview

In the first five lectures of this course we have learnt about the context of marketing;
more specifically, we have explained what marketing is and how it creates and
captures customer value; we tried to understand marketing strategy; marketing
environment; managing marketing information to gain customer insights; learn about
customer behaviour and development of customer driven strategy. The next six
lectures will be devoted to the discussion of Marketing Mix, popularly known as the
4Ps, namely product, price, placement and promotion.
These two lectures focus on the first of the 4Ps, the product. Every day, we all use
various types of products to fulfill specific needs and enable us to get on with life. Of
necessity, marketers need to classify this diverse range of products as the nature of
the product is a major determinant of customers buying behaviour and as such, can
affect their marketing mix decisions. Note that four Ps are basically producer
oriented; to customers 4Ps correspond to 4Cs reflecting slightly different meaning of
each P. For example, product refers to customer solution; price is cost; promotion is
communication and place stands for convenience (channels).

Lecture objectives
1.
2.

Define product and the main classifications of products and services.

Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.

3.

Identify the characteristics that affect the marketing of a service and the
additional marketing considerations that services require.

4.

Discuss branding including brand strategy and building and managing brands.

5.

Explain new product; the new-product development process and

the major considerations in managing this process.

6.

Explain the product life cycle and how marketing strategies change during
the product life cycle.

7.

Discuss two additional product issues: socially responsible product

decisions and international product and services marketing.

Definition of Product

Broadly defined - A product is anything that can be offered to a market for

attention, acquisition, use, or consumption that might satisfy a want or need.
Products are bundles of benefits in the form of goods and services.
Services, are 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.
A companys market offering often includes both tangible goods and services.
At one extreme, the offer may consist of a pure tangible good, such as soap

or toothpaste. At the other extreme are pure services, for which the offer
consists primarily of a service.
It is important to note that most products combine some amount of tangibility
as well as intangibility. To differentiate their offers, marketers are creating and
managing customer experiences with their brands or company. For example,
many retail stores attempt to create an atmosphere that enhances the
shopping experience. In the context of today products also include ideas,
events, persons, places, organisations or mixes of these.

Levels of Product and Services

Marketers have to consider their products and services on three levels, each adding
more value:
1. Core customer value - what is the buyer really buying? (Core Benefit or
Service, problem-solving dimension that makes the purchased product
valuable to consumers)
2. Actual product - it is the actual form in which the product is purchased
including:
- Features combination of product attributes
- Styling consists of products design and aesthetic aspects
- Quality refers to product performance
- Brand name may help consumers position and identify the product
- Packaging protect the product and to promote it to consumers
3. Augmented product, which is created around the core benefit and
actual product by offering additional consumer services and benefits ie.
Installation, warranty, delivery & credit help the consumer put the
actual product to sustained use.
Today most competition takes place at the product augmentation level.
Eg. QANTAS:
- Core product time critical transportation
- Actual product seat allocation, meals, safety record, schedules, booking
system, inflight services
- Augmented product tours, holiday packages, Qantas club, frequent flyer
scheme

Product and service classifications

In seeking to develop marketing strategies for their products and services,

marketers have classified products and services into two broad categories:
1. Consumer products - are products and services bought by the final
consumers for personal use or consumption. These types of products have
been further classified based on how consumers go about buying them.
Convenience products - are consumer goods and services that the
customer usually buys frequently, immediately, and with a minimum of
comparison and buying effort. These are usually low priced and widely
available (milk, bread, newspapers) and can be further divided into
staples, impulse products and emergency products.
Shopping products - are goods and services that the consumer, in the
process of selection and purchase, usually compares on bases such as
suitability, quality, price and style. Consumers usually spend a
considerable amount of time and effort gathering information and
making comparisons eg. Furniture, clothing.
Specialty products - are consumer goods and services that have unique
characteristics or brand identification for which a significant group of
buyers is willing to make a special purchase effort. Buyers do not
normally compare specialty products; they invest only the time needed
to reach dealers carrying the wanted products. Eg. Specific car,
designer clothes, services of medical specialists
Unsought products are consumer goods and services that the

consumer either does not know about or knows about but does not
normally think of buying. They require a special marketing effort eg.
Preplanned funeral services, blood donations to the Red Cross

2. Industrial
products - are
goods that are purchased for further processing or for use in conducting a
business. Industrial products can be classified according to how they enter the
production process and according to what they cost.
Materials and parts include raw materials such as farm products and
natural products and manufactured materials and parts such as
component materials ie. Cement and component parts ie. Tyres. Usually
are bulky, have low unit value and require lots of transportation to move
them from producer to user.
Capital items are industrial products that aid in the buyers production or
operations and include installations such as buildings/fixed equipment
and accessory equipment such as portable factory equipment and tools
and office equipment. These are industrial goods and services that aid in
the production process.
Supplies and services are industrial goods and services that do not enter
the finished product at all; they are the convenience product of the
business market and are usually purchased with minimum effort or
comparison. Business services include maintenance and repair services
and business advisory services, usually under contract.

Extending the goods and services classification in marketing:

Organisations, Persons, Places, Events and Ideas
Organisation marketing consists of activities undertaken to create, maintain, or
change the attitudes and behaviour of target consumers toward an organisation
(e.g. Sydney Bus Service/ ANZ Bank).
Person marketing consists of activities undertaken to create, maintain, or change
attitudes or behaviour toward particular people (for example, celebrities - Oprah
Winfrey, Angelina Jolie; sports stars - Tiger Woods; politicians - Julia Gillard,
Barack Obama; business leaders - Bill Gates, Donald Trump.
Place marketing involves activities undertaken to create, maintain, or change
attitudes or behaviour toward particular places. Marketing of tourism destinations
such as that undertaken by Tourism Australia (consider the PR blitz surrounding
Oprah filming two episodes of her final series in Australia), or the award winning
Youll love every piece of Victoria pitch as two recent examples of place marketing.
Event and experience marketing is often linked to other market offerings, for
example major sporting events such as the Cricket World Cup often include
destination marketing, and marketing communications to involve the local
community. Promotional campaigns often highlight the cultural and entertainment

highlights of the host city while promoting the event.

Ideas can also be marketed - for example, political policies and environmental
and social causes.
Social marketing is the use of commercial marketing concepts and tools in programs
designed to bring about social change. Public health campaigns to reduce speeding
and drink driving, along with environmental campaigns to reduce pollution or food
waste are just some of the many examples of social marketing activities.
Non-profit marketing involves activities by not-for-profit organisations such as Red
Cross in fund raising.

Product and Service Decisions (5)

1. Product and service attributes
Developing a product or service involves defining the benefits that will be offered to
the marketplace. These benefits are communicated and delivered by product
attributes such as quality, features, style and design. Decisions about these attributes
greatly affect consumer reactions to a product.
Product quality refers to the characteristics of a product or service that bear on
its ability to satisfy stated or implied customer needs includes durability,
reliability, precision, ease of operations etc. Level and consistency of quality are
the two dimensions used in the measurement of product quality. Quality is a
major positioning tool for marketers led to the adoption of TQM.
Product features refer to technical characteristics of the offering. Consumers
seek value and need-satisfaction. A product can be offered with varying
features. Product feature decisions must reflect consumer needs and
perceptions, affordable value and company cost. Starting with a stripped-down
model a company can create higher-level models by adding more features to
suit diverse customer needs which may help the company better compete in
the marketplace.
Product style and design adds to product distinctiveness. While style simply
describes the appearance of a product, design is a much broader concept. A
sensational and eye-catching style may grab attention, but it does not
necessarily make the product perform better.
2. Branding
A brand is a name, term, sign, symbol, design, or a combination of these, that
identifies the goods or services of one seller or group of sellers and differentiates them
from those of competitors.
Brand has become a buzzword in modern marketing. Branding can add value to a
product and as such, has become a major issue in product strategy, requiring a
number of decisions.
Powerful brand names have consumer franchise - they gain brand recognition and can
ultimately command strong consumer loyalty. Manufacturers often find it easier and
less expensive to make the product and let others do the brand building. On the other
hand, most manufacturers eventually learn that the power lies with the companies
that control the brand names. Perhaps the most distinctive skill of professional
marketers is their ability to create, maintain, protect and enhance brands.
3. Packaging
Many products offered to the market have to be packaged. Packaging involves
designing and producing the container or wrapper for a product. Often called the fifth
P along with price, product, place and promotion, packaging is more often treated as
part of the product strategy. The package may include the products primary
container, a secondary package that is thrown away when the product is about to be
used and the shipping package necessary to store, identify and ship the product.

Labelling is also a part of packaging and consists of printed information appearing on

or with the package.
4. Labelling
Product labelling broadly refers to identifying the product or the brand; describing who
made it, where it was made, when it was made, its contents, how it is to be used and
how to use it safely. . It might also be used for grading the product (food items). Labels
may range from simple tags attached to products to complex graphics that are part of
the package. They perform several functions, and the seller has to decide which ones
to use. Finally, the label might promote the product with attractive graphics. Hence it
is not surprising that when labels seem old-fashioned, they need freshening up.
There are also legal concerns with labels and there are laws that govern labelling,
particularly for food and medicines. Labels are affected by unit pricing, open dating
(shelf life), nutritional labelling, and energy consumption levels.
5. Product support services
Customer service is another element of product strategy. Good customer service is
good for business as it costs less to keep the existing customers than it does to attract
new customers or regain lost customers. Companies that provide high-quality service
usually outperform their less service-oriented competitors. A company should design
its product support services to meet the needs of target customers.
Customers vary in the value they assign to different services. The first step is to
determine the services valued by target consumers and the relative importance of
these services. Determining customers service needs involves more than simply
monitoring complaints that come in over toll-free telephone lines or on comment
cards. The company should periodically survey its customers to get ratings of current
services as well as ideas for new ones. Products can often be designed to reduce the
amount of required servicing. Companies need to coordinate their product-design and
service-mix decisions. A key to successful service strategy is to design products that
are easily installed, rarely break down and are easily fixable with little service
expense.
Many companies have set up strong customer service operations to handle complaints
and adjustments, credit service, maintenance service, technical service and consumer
information. An active customer service operation coordinates all the companys
services, creates consumer satisfaction and loyalty, and helps the company to set
itself further apart from competitors.

Product line decisions

A product line refers to a group of products that are closely related because they
function in a similar manner, are sold to the same customer groups, are marketed
though the same types of outlets, or fall within given price ranges. Product strategy
also calls for sound product line strategies involving product line length and product
line featuring.
Product line length is influenced by the companys objectives and has to be carefully
decided. A product line is too short if adding items increases profits, it is too long if
dropping items increases profits. The company must plan line growth carefully; it can
increase the length either by line filling or line stretching. Companies that want to be
positioned as full-line companies or that are seeking high market share and market
growth, are likely to carry longer lines.
Line Filling is the process whereby a product line can also be lengthened by adding

more items within the current range. Line filling is overdone if it results in
cannibalisation or customer confusion. The new items should be noticeably
different from the current items.
Line stretching occurs when a company lengthens its line beyond its current range;
downwards or upwards. Many companies initially locate at the high end of the
market and later stretch their lines downward. Companies in the middle may decide
to stretch the lines in both directions, employing a two-way stretch strategy.Line
stretching has several risks. The new low-end product added by a high-end product
manufacturer may cannibalise higher-end items leaving the company worse off. Also,
the low- end item might provoke competitors making lower-end product to
counteract by moving into the higher end. If this happens, customers might not
believe the newcomer can produce quality products and the companys salespeople
might not be able to serve the higher end of the market due to a lack of talent or
training. Also in both cases, the dealers may not be willing or able to handle the new
stretched products.
Line featuring refers to the strategy in which certain items in a companys product
line are given special promotional attention, either to boost interest (at the lower end
of the line) or image (at the upper end).

Product mix decisions

A product mix, also known as a product portfolio, refers to the set of all product lines
and items that a particular seller offers for sale to buyers. A companys product mix
can be described as having certain breadth (or width, meaning number of product
lines), length (meaning total number of items), depth (meaning number of versions
of each product in line) and consistency (meaning relatedness of various product
lines in end use, production requirements, distribution channels or another way). For
example, Unilever has several product lines (breadth) with more than 40 items
(length) and between 1 and 14 versions of each product (depth).
A company can adapt its product strategy in four ways:
1. It can add new product lines, widening its product mix.
2. It can lengthen its existing product lines.
3. It can add more versions of each product, deepening its product mix.
4. It can pursue more product line consistency.

Services Marketing

Services now account for more than 70 per cent of GDP in Australia and New
Zealand. Three in every four people are employed in the sector, and that number is
growing. Service industries range from government services (including hospitals,
schools, and the military) to private not- for-profit organisations (including charities,
churches and universities) to business organisations (including airlines, banks,
professional services and entertainment).
A company must consider four service characteristics when designing marketing
programs:

intangibility, inseparability, variability, and perishability.

1. Service intangibility refers to almost pure services, e.g., a haircut, has no

physical element like coffee meaning that services cannot be seen, tasted,
felt, heard, or smelt before they are bought.
2. Service inseparability means that services cannot be separated from their
providers, whether the providers are people or machines. Because the
customer is also present as the service is produced, provider-customer
interaction and synchronous delivery and consumption (for example,
cleaning of teeth or receiving driving lesson) are two special feature of
service inseparability characteristic.
3. Service variability means that the quality of services depends on who
provides them as well as when, where, and how they are provided; e.g., a
restaurant or ocean cruise involve interaction between a patron/guest and
customer service personnel. They are not necessarily the same every time.
4. Service perishability means that services cannot be stored for later sale or
use; e.g., a rock concert, cannot be stored like coffee. Once the concert is
over, only its memory is left

Marketing Strategies for Service Firms

The Service-Profit Chain

In a service business, the customer and front-line service employee interact to create
the service. Hence service firms profit comes from effective employee and customer
satisfaction. Hence, it is necessary to understand the service-profit chain
consisting of five links:
1. Internal service quality: superior employee selection and training, a quality
work environment, and strong support for those dealing with customers, which
in turn results in...
2. Satisfied and productive service employees: more satisfied, loyal, and
hardworking employees, which results in...
3. Greater service value: more effective and efficient customer value creation and
service delivery, which results in...
4. Satisfied and loyal customers: satisfied customers who remain loyal, repeat
purchase, and refer other customers, which results in...
5. Healthy service profits and growth: superior service firm performance.

In addition to external marketing (what we are covering in this course)

service marketing also requires internal marketing and interactive
marketing:

Internal marketing means that the service firm must orient and motivate its
customer-contact employees and supporting service people to work as a
team to provide customer satisfaction.
Frontline (Interactive) marketing means that service quality depends heavily
on the quality of the buyer-seller interaction during the service encounter.
There are three major marketing tasks that service marketers face in this
context. They need to increase their service differentiation, service
quality, and service productivity.
- Managing Service Differentiation: Service companies can differentiate
their service delivery by having better trained and reliable customercontact people, by developing a superior physical environment in
which the service is delivered, or by designing a superior delivery
process. Service companies can also differentiate their images through
symbols and branding.

Managing Service Quality: Service quality will always vary, depending

on the interactions between employees and customers and is harder
to define and judge than product quality. Good service recovery can
turn angry customers into loyal ones.
Managing Service Productivity: Service firms are under great pressure
to increase service productivity. They can train current employees
better or hire new ones who will work harder or more skilfully. They can
increase the quantity of their service by giving up some quality. They
can harness the power of technology.

Branding Strategy: Building Strong Brands

To many modern day marketers and analysts, brands are the major enduring asset of
a company. Brand Equity is the positive differential effect that knowing the brand
name has on customer response to the product or service. High brand equity provides
a company with many competitive advantages.
- High level of consumer brand awareness and loyalty.
- More leverage in bargaining with resellers.
- More easily launch line and brand extensions.
- Defence against fierce price competition.
- Forms the basis for building strong and profitable customer relationships.
The fundamental asset underlying brand equity is customer equitythe value of
the customer relationships that the brand creates.
Brand valuation is the process of estimating the total financial value of a brand.
Young & Rubicams Brand Asset Evaluator measures brand strength along four
consumer perception dimensions:
1. differentiation (what makes the brand stand out),
2. relevance (how consumers feel it meets their needs)
3. knowledge (how much consumers know about the brand), and
4. esteem (how highly consumers regard and respect the brand).

Building Strong Brands

Brand Positioning: Marketers can position brands at any of three levels.
They can position the brand (i) on product attributes; (ii) with a desirable
benefit and (iii) on beliefs and values.
Brand Name Selection: Desirable qualities for a brand name include the
following:
1.
2.
3.
4.
5.
6.

It should suggest something about the products benefits and qualities.

It should be easy to pronounce, recognise, and remember.
The brand name should be distinctive.
It should be extendable.
The name should translate easily into foreign languages.
It should be capable of registration and legal protection.

Brand Sponsorship: A manufacturer has four sponsorship options: (i) he can

launch the product as a manufacturers brand (or national brand); (ii) may sell
to resellers who give it a private brand (also called a store brand or distributor
brand); (iii) can market licensed brands; and finally (iv) can join forces with
another company and co-brand a product. National brands (or manufacturers
brands) have long dominated the retail scene. However, in recent times, an
increasing number of retailers and wholesalers have created their own store

brands (or private brands) capturing about 23 per cent of all supermarket food
sales in Australia. Retailers using store brands have many advantages. They
can price their store brands lower than national brands; they yield higher
profit margins for the reseller and they give resellers exclusive products that
cannot be bought from competitors.
Brand Development: A company has four choices when it comes to
developing brands.

(i) Line extensions occur when a company extends existing brand names to new
forms, colours, sizes, ingredients, or flavours of an existing product category; (ii)
brand extensions extend a current brand name to new or modified products in a
new category; (iii) multibrands involve introduction of additional brands in the same
category; Finally (iv) Companies may create new brands.
Marketers often use the megabrand strategy when they weed out weaker brands to
focus their attention only on brands that can achieve the number one or number two
market share positions in their categories.
Marketers must carefully manage their brands. They must ensure brand
experience for their customers, i.e., making them know their brand through a
wide range of contacts and touch points. Companies need to periodically audit
their brands strengths and weaknesses.

New products
New-product development strategy
Given the rapid changes in tastes, technology and competition, customers want and
expect new and improved products from marketers and companies must oblige their
customers. A company can obtain new products in two ways; first through acquisition
- buying a whole new company, patent or licence to produce someone elses product
and second, by developing new product themselves. In the context of marketing, the
term new product may mean (i) of original products; (ii) product improvements (iii)
product modifications and (iv) new brands through the companys own R&D efforts.
New-product success and failure: Developing new products or innovation can be
very risky; new products continue to fail at a disturbingly high rate. There are several
reasons for product failure. For example, the market size may be overestimated, the
actual product may be improperly designed well, the product may have been overpriced or poorly advertised, costs of development could have been higher than
expected, or perhaps competitors fought back harder than expected.
One way to identify successful new products is to find out what they have in common.
Research studies have identified t key success factors such as a unique superior
product having higher quality, new features and higher value in use; and a welldefined product concept prior to development, in which the company carefully
designs and assesses the target market, the product requirements and the benefits
before proceeding. Hence, in order to create successful new products, a company
must understand its consumers, markets and competitors and develop products that
deliver superior value to customers. Successful new-product development may be
even more difficult in the future. Keen competition leading to increasing market
fragmentation (too many small segments); along with growing social and
governmental constraints, such as consumer safety and ecological standards will be

important factors to consider in developing new products.

The new-product development process (NPD)

The new-product development process consists of eight major steps described
below.
Step 1: Ideas generation

(i)

(ii)
(iii)
(iv)
(v)

This first step in the NPD refers to the systematic search for new product ideas. A
company must systematically generate many ideas in order to find a few good
ones based on what it wants from these future products - high cash flow, market
share or some other objective.
Common sources of new product ideas include the following:
Internal idea sources such as the companys R&D methods; brains of scientists,
engineers, and manufacturing people; executives, sales people or from
brainstorming sessions. Salespeople are another good source.
Crowdsourcing, a modern business term coined in 2005, defined as the process of
obtaining needed services, ideas, or content by soliciting contributions from a large
group of people, and especially from an online community, rather than from
traditional sources listed above; has become a popular source of idea generation
these days.
Customers views may be obtained from consumer surveys or through interviews
and focus groups.
Competitors ads and other communications may provide clues about their new
products. Companies can buy competitors new products, take them apart, and see
how they work.
Distributors and suppliers can pass along information about consumer problems
and new-product possibilities. Suppliers can tell the company about new
concepts, techniques and materials that can be used to develop new products.
Other sources such as trade magazines, shows, seminars, government agencies,
new- product consultants, advertising agencies, marketing-research firms,
university and commercial laboratories, and inventories can also provide good
ideas.

Step 2: Idea screening

The purpose of idea screening, the second stage of NPD is to reduce that number in
order to spot good ideas and drop poor ones as soon as possible. Most companies
require their executives to write up new-product ideas on a standard form that
describes the product, the target market and the competition, and makes rough
estimates of market size, product price, development time and costs, manufacturing
costs and rate of return. The new product development committee evaluates the
idea against a set of general criteria.

Step 3: Concept development and testing

Ideas found attractive at stage 2 must now be developed into product concepts. In
this context it is important to distinguish three closely related terms - product idea,
product concept and product image are very different things. Product idea refers to
an idea for a possible product that the company can see itself offering to the market;
product concept, on the other hand, refers to a detailed description of an idea stated
in meaningful consumer terms from the perspective of the customer which will help
the company to test and evaluate how responsive the market will be to the proposed

product. Product image refers to the way consumers perceive an actual or potential
product which helps product differentiation and positioning. Customers do not buy a
product idea; they buy a product concept. The marketers task is to develop this idea
into several alternative product concepts, find out how attractive each concept is to
customer and choose the best one.
Hence, concept testing means testing new-product concepts with a group of target
consumers to find out if the concepts have strong consumer appeal. Concepts may
be presented through word or picture descriptions. Consumers may be asked to react
to this concept by answering questions which will help the company decide which
concept has the strongest appeal.

Step: 4 Marketing strategy development

This fourth step of NPD involves designing an initial marketing strategy for a new
product based on the product concept. The marketing strategy statement consists of
three parts, namely (i) describing the target market, the planned product positioning,
and the sales, market-share and profit goals for the first few years; (ii) outlining the
products planned price, distribution and marketing budget for the first year; and
finally (iii) describing the planned long-run sales, profit goals and marketing mix
strategy.

Step 5: Business analysis

Business analysis, step 5 of the NPD process, involves a review of the sales, costs
and profit projections for a new product to find out whether these factors satisfy the
companys objectives. To estimate the sales, the company should look at the sales
history of similar products and should survey market opinion. It should estimate
minimum and maximum sales to learn the range of risk. After preparing the sales
forecast, management can estimate the expected costs and profits for the product.
The costs are estimated by the R&D, manufacturing, accounting and finance
departments. The planned marketing costs are included in the analysis. The company
then uses the sales and costs figures to analyse the new products financial
attractiveness.

Step 6: Product development

Once the objectives of business analysis are satisfied, the product concept passes
the business test and is ready to move into step 6, product development. At this
stage the companys R&D or engineering people develop the product concept into a
physical product in order to assure that the product idea can be turned into a
workable product. Essentially, it is a strategy for promoting company growth by
offering modified or new products to current market segments.
Companies often develop more than one workable prototype hoping that the design
prototype will not only satisfy and excite consumers but can also be produced quickly
and at budgeted costs. Time taken to develop a successful prototype may range from
a few days to even years. When the prototypes are ready, they are tested for
functionality tests both under laboratory and field conditions to make sure that
products perform safely and effectively. Consumer tests are conducted as well where
consumers rate the attributes of the product.
When designing products, the company should look beyond simply creating products
that satisfy consumer needs and wants; they must show adequate concern about how

the designs will be produced. DFMA (design for manufacturability and assembly), a
recent development, enables companies develop products that satisfy the consumer
and are easy to manufacture. This often results not only in lower costs but also in
higher quality and more reliable products.

Step 7: Test marketing

Once the product passes functional and consumer tests in step 6, the NPD process
moves into the next step - test marketing. This is the stage at which the product and
marketing programs are introduced into more realistic settings. Test marketing lets
the marketer get experience with marketing the product in a real marketplace, find
potential problems and learn where more information is needed before going to the
great expense of full introduction.

Step 8: Commercialisation

Results of test marketing gives management the necessary information required to

make a final decision about commercialisation of the product, i.e., whether to launch
the new product in the real market. The company launching a new product must
make the following four decisions.
i. When? What is the right time to lunch the product commercially?
ii. Where? Should the product be lunched in a single location, a region, several regions,
the national market or the international market? Considering the level of confidence,
capital and capacity to launch new products into full national distribution many
companies develop a planned market roll-out over time. Small companies may select
an attractive city and conduct a blitz campaign, and then enter other cities one at a
time. Large companies with national distribution networks often launch their new
products nationally. Companies with international distribution systems may begin
with one or a few countries before expanding.
iii. To whom? Within the roll-out markets, the company must target its distribution and
promotion to the best prospect groups. The company already profiled the prime
prospects in earlier test marketing, now they just have to fine-tune their targets,
looking for early adopters, heavy users and opinion leaders.
iv. How? The company must also develop an action plan for introducing the new
product into the selected markets.

Managing new-product development

Firms introducing new products use an innovative process that has interlocking
stages where each of the phases takes centre-stage at different times but all
contribute through the process until the actual product launch.
Customer-centred new-product development focuses on finding new
ways to solve customers problems and create more customersatisfying experiences.
Team-based new-product development is an approach in which
company departments work together in cross-functional teams,
overlapping the steps in the product development process to save
time and increase effectiveness.
Systematic new-product development is a necessity for NPD success.
Without a holistic and systematic NPD in place, few new ideas will
surface and many good ones that do emerge may falter and die.

Common organisational arrangement for New Product

Development
How companies organize their NPD process is also important for its success.

Commonly used organisational arrangements are briefly described below. The NPD
process may be run by:
Product Managers. He/she is closest to the market and as such is the most
knowledgeable of all. However he/she may be preoccupied with existing products and
lack specific knowledge and skills related to new product development.
New-Product Managers. A new manager assigned to the task of new product
development; however, he/she might think in terms of modifications and line
extensions.
New-Product Committees. Uses specialists from several functional areas to
evaluate new product concepts and plans.
New-Product Departments. Sets up a separate department with the line and staff
authority to develop new products. The departmental manager also has access to
top management.

New-Product Venture Teams. Brings together specialists from other operating

departments and reassigns them to the venture team.

Product life-cycle strategies (PLC)

Products are not expected to last forever, but they have a life and a life cycle. After
launching the new product, management wants the product to enjoy a long and
happy life so that it can earn a decent profit to cover all the effort and risk that went
into it. Product life cycle (PLC) is a curve that describes the course of a products
sales and profits during its lifetime. It involves five distinct stages:
1. Product development - the company finds and develops a new product idea.
2. Introduction - slow sales growth as the product is introduced into the
market.
3. Growth - period of rapid market acceptance and increasing profits.
4. Maturity - slowdown in sales growth because the product has achieved
acceptance, profits level off or decline.
5. Decline - period when sales fall off and profits drop.
Product life cycle varies from product to product. Some are introduced and die
quickly, some stay mature for a long, long time; some enter the decline stage and
are cycled back into the growth stage through repositioning or strong marketing.
The PLC can describe a product class, product form, or a brand, but it applies
differently in each case. Classes have the longest life cycles, forms tend to have the
standard shape and brand life cycles can change quickly because of changing
competitive attacks and responses.
It is important to note that the life-cycle concept can also be applied to styles,
fashions and fads. Style refers to a basic and distinct mode of expression. Once
invented it may last for a long time and cycle back in and out of interest. Fashion is a
currently accepted or popular style in a given field; they tend to grow slowly, remain
popular for a while and then decline slowly. Fads refer to fashions that enter quickly,
are adopted with great zeal, peak early and decline fast.

Applying the product life-cycle concept

Marketers can apply the product life cycle concept as a useful framework for
describing how products and markets work. However, using this concept for

forecasting product performance can create problems. It is not easy to identify which
stage of the cycle the product is in, when the stage changes and what affects the
changes. Using the life cycle for development of a marketing strategy can also be
difficult because strategy is a cause as well as a result of the life cycle.
Introduction stage: It is the stage when the new product is first distributed and
made available for purchase. It is characterized by slow sales growth (new product,
not many people are aware of it) and low profits (because of low sales and high
distribution and promotion expenses).
A company might adopt one of several marketing strategies for introducing a new
product. The company can set a high or low level for each component of the
marketing mix (i.e., price, promotion, distribution and quality). A company may
introduce the product with a high price to recover some of the money spent on
development, or they may set a low price to allow penetration of the market. A
company must choose its strategy carefully.
Growth stage: If the new product satisfies the market, it will enter a growth stage in
which sales will start climbing quickly. Sales volume starts to pick up as early
adopters continue to buy and later buyers will their lead, especially with favourable
word-of-mouth advertising. Profits increase during this stage as promotion costs are
spread over a large volume and manufacturing costs per unit fall.
However, as profit opportunities in the market attract new competitors, they
introduce new features, expanding the market. As prices may remain unchanged
or fall slightly, companies keep their promotion spending at the same or slightly
higher level.
There are several strategies companies may use to sustain rapid market growth:
entering new market segments and distribution channels shifts some advertising
from building product awareness to product conviction and purchase, and it lowers
its prices at the right time. The company with a product in the growth stage faces a
trade-off between high market share and high current profit.
Maturity stage: At some point a product will enter a maturity stage in which sales
growth slows down or levels off. This stage normally lasts longer than the previous
stages and poses strong challenges to marketing management. Most products are in
this stage.
Presence of many sellers in the market causes overcapacity and greater
competition. Sales growth slows; prices go down; it becomes necessary to increase
their advertising and sales promotion, and push up R&D budgets to find better
versions of the product. Consequently, profit drops forcing weaker competitors out
of business. Eventually the industry contains only well-established competitors.
High-tech products need to move towards more customised solutions that focus on
specific adaptations of the infrastructures for added value though mass
customisation. Market extension occurs through more targeted niche-based
strategies. Managers should not simply defend the market; attack is the best defence
for them.
a) Market modification: During this stage the company tries to increase consumption of
the current product. It looks for new users and market segments. The product
manager also looks for ways to increase usage among present customers. Or the

company may reposition the brand to appeal to a larger or faster-growing segment.

b) Product modification: The company may also change products characteristics - such
as quality, features or style - to attract new users and more usage. Quality
improvement aims to increase product performance: durability, reliability, speed, and
taste and is effective when the quality can be improved; buyers are likely to believe
the claims of improved quality and when enough buyers want higher quality. Feature
improvement adds new features that expand the products usefulness, safety or
convenience. Style improvement aims to increase the attractiveness of the product.
c) Marketing-mix modification: The company may try to improve sales by changing
one or more marketing-mix elements. Prices can be cut, a better advertising
campaign can be launched and aggressive sales promotions can be used. The
company can also move into larger market channels or offer new or improved
services to the buyers.
Decline stage: Most product forms and brands eventually dip. The decline may be
slow, or sales may plunge to zero, or just to a low level where they continue for
many years.
Sales may decline for many reasons including technological advances, shifts in
consumer tastes and increased competition. As sales and profits decline, some
companies withdraw from the market; those who remain in the market tend to
reduce the number of their product offerings or drop the smaller market segments
and marginal trade channels, or cut the promotion budget and reduce their prices
further. Carrying a weak product can be very costly to a firm due to many hidden
costs such as too much of managements time, price and inventory adjustments,
unnecessary advertising and sales force attention that might be used elsewhere, and
its failing reputation causing customer concerns about the company and other
products. Keeping weak products delays the search for replacement, creates a
lopsided product mix, hurts current profits and weakens the companys foothold on
the future.
For these reasons, companies need to pay more attention to their ageing products.
The first task is to identify those in the decline stage then decide whether to
maintain, harvest or drop them.
Management may decide to maintain its brand without change in the hope that
competitors will leave the industry. Or they may reposition the brand in the belief it
will move back into the growth stage of the life cycle. Management may harvest a
product, which means reducing various costs and hoping sales hold up. If successful,
harvesting will increase the companys profits in the short run. Finally, the company
can drop the product from the line. It can sell it to another firm or simply liquidate it
at salvage value.

Additional product and service considerations

Product decisions and social responsibility: Marketers need to consider public
policy issues and regulations regarding adding or dropping products, patent
protection, product quality and safety, and product warranties. Governments may
prevent companies from adding products through acquisitions if the effect threatens
to lessen competition. Governments may also introduce specific laws regarding
product quality and safety which must be adhered to. Legal considerations have
resulted in huge increases in product liability insurance premiums, causing big

problems in some industries. Many companies are now appointing product stewards,
whose job is to protect consumers from harm and the company from liability by
proactively ferreting out potential product problems.
International product and service marketers face special challenges.
Marketers operating in the international markets must figure out what products and
services to introduce and in which countries. They must decide how much to
standardize or adapt their products and services for world markets. Packaging and
labeling often present new challenges for international marketers. The trend toward
growth of global service companies will continue, especially in banking, airlines,
telecommunications, and professional service.