UNIT I

D EFINITION

Any tangible or intangible offering that might satisfy the needs or aspirations of a consumer Want satisfying attribute a consumer receives in exchange

C OMPONENTS OF A P RODUCT

Special Features Physical Attributes Brand Guarantee/Warranty - Answer (warranty and guarantee are the same thing. A guarantee is a document to protect consumer rights. It is a promise by a seller with a buyer for complete replacement of the item/ article or product; usually guarantee is valid for a fixed period of time. It has a legal status, even if we do not pay for or it was offered free of cost by a seller. Warranty is also a document that protects consumer rights. It is more or less like insurance policy for that we have to pay certain amount to come into legal contract. So on the basis of this legal bond the company can be taken to court if it does not bound what has been agreed in the warranty document. Warranty covers only repair of the article. Guarantee is more in manufacture, Warranty is more in distribution and reselling parts; for example, a company manufacture a scooter is liable for manufacture guarantee,on the other hand, some importer or distributor resell the products will use warranty)

After Sale Services Safety Intangible or Psychological benefits Brand Image

C LASSIFICATION OF AN O FFERING
Depending on tangibility and durability an offering can be classified as:

Service: -Intangible, perishable, variable, inseparable Durable: -Tangible goods that survive many uses, Example Furniture

Non-Durable: -The ones that survive one or two uses only. Example Soap

C LASSIFICATION OF P RODUCTS

CONSUMER PRODUCTS Purchased for use by household and the ultimate users INDUSTRIAL PRODUCTS They help in producing other products or in rendering services

T YPES OF C ONSUMER P RODUCTS

Convenience Goods: - Staples (purchased regularly), Impulse (Without thinking or planning), Emergency (Umbrellas during rain)

Shopping Goods: - Homogenous (Similar in quality and different in price) and Heterogeneous (Different in product features and services that may be more important than price)

Specialty Goods: - Example Mercedes

Unsought Goods: - Buyer does not know about or does not normally think or buying. Example LIC, encyclopedia

T YPES OF I NDUSTRIAL P RODUCTS

Materials and Parts Capital Items: - Installations (major purchase) and Equipment (Tools)

Supplies and Business Services: - Maintenance and Repair Items, Operating Supplies and Business Advisory Services

C USTOMER VALUE H IERARCHY

Core Benefit Basic Product Expected Product Augmented Product Potential Product

E XAMPLE

OF

CVH: -

Shampoo clean should not damage hair properly packaged, easy to use color, hair fall, conditioner - encompasses all the possible augmentations and transformations

P RODUCT M IX & P RODUCT L INE

Product Line

A product line is a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges. For example, Nike produces several lines of athletic shoes, Motorola produces several lines of telecommunications products, and AT&T offers several lines of long-distance telephone services.
Product Mix

A product mix (or product assortment) consists of all the product lines and items that a particular seller offers for sale. Avons product mix consists of four major product lines: cosmetics, jewelry, fashions, and household items. Each product line consists of several sublines. A companys product mix has four important dimensions: width, length, depth, and consistency. Product mix width refers to the number of different product lines the company carries. For example, Procter & Gamble markets a fairly wide product mix consisting of many product lines, including paper, food, household cleaning, medicinal, cosmetics, and personal care products. Product mix length refers to the total number of items the company carries within its product lines. Procter & Gamble typically carries many brands within each line. For example, it sells eleven laundry detergents, eight hand soaps, six shampoos, and four dishwashing detergents.

Product line depth refers to the number of versions offered of each product in the line. Thus, Procter & Gambles Crest toothpaste comes in three sizes and two formulations (paste and gel). Finally, the consistency of the product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other way. Procter & Gambles product lines are consistent insofar as they are consumer products that go through the same distribution channels. The lines are less consistent insofar as they perform different functions for buyers.

P RODUCT L INE D ECISIONS

Product mix consists of various product lines. Companies normally develop a basic platform to meet different customer requirements : -

Product Line Analysis: - Product line managers need to know the sales and profits of each item in their line in order to determine which items to BUILD, MAINTAIN, HARVEST or DIVEST.
Sales and Profits:- Every companys product portfolio contains products with different margins. Therefore companies should recognize that these products differ in their potential for being priced higher or advertised more as to increase sales, profit or both.

Market Profile: -To understand competitors products, possible locations for new items helps in identifying market segments.

Product Line Length: - A product line is too short if products can be increased by adding items and vice versa. Company objectives influence product line length.

Product lines tend to lengthen over time

A company lengthens its product in two ways: -Line Stretching (Occurs when a company lengthens its product line beyond its current range) and Line Filling (Adding more items within the present range)

L INE S TRETCHING

Down market Stretch Upmarket Stretch Two-Way Stretch

D OWN

MARKET

S TRETCH

Company positioned in the middle may want to introduce a lower-priced line for any of the following reasons: The company may notice strong growth opportunities as mass-retailers

Company may wish to tie up lower end competitors who might otherwise try to move upwards. If the company has been attacked by a low-end competitor, it often decides to counter attack by entering the low end of the market.
May find that the middle market is stagnating or declining.

(A company faces a number of naming choices in deciding to move downwards, say Sony, uses the name Sony on all its product offerings introduce the lower-priced offering as Sony Value Line (loss of goodwill, brand image, introduce lower price range under a different name, leaving Sony, customers may not accept)

UP

MARKET

S TRETCH

Companies may wish to enter the high-end of the market for more growth, higher margins or simply to position themselves as full time manufacturing. Ex: - Starbucks in coffee, GE introduced GE profile brand for its large appliance offering

T WO WAY S TRETCH :

Companies serving the middle market might decide to stretch their line in both directions Ex.: - Texas Instruments introduced its first calculators in the medium-priced-medium quality end of the market, gradually added calculators at the lower-end, taking share away from Bowmar and high-end i.e. from Hewlett Packard

L INE F ILLING

A product line can also be lengthened by adding more items within the present range There are several motives for line filling: Reaching for incremental profits, trying to satisfy dealers who complain about lost sales because of missing items in the line, trying to utilize excess capacity, trying to be the leading full time company Line filling is overdone if it results in self cannibalization & customer confusion. The company needs to differentiate each item in

L INE M ODERNIZATION , F EATURING AND P RUNING

In rapidly changing times line modernization is carried on continuously since companies plan towards improvement to encourage customer migration to higher-valued items. Product line manager typically selects one or few items in the line to feature. Companies should promote items that sell well and try to prop up weak items. Product line managers should review the line for deadwood that is depressing profits.

M ANAGING P RODUCT I SSUES : Categories of New Products

New-to-the-World Products: -New products which create an entirely new market. New Product Lines: -New products that allow a company to enter an established market for the first time Additions to the Existing Product Lines: - New products that supplement a companys established product lines (package sizes, flavors, and so on). Improvements & Revisions of Existing Products: - New products that provide improved performance or greater perceived value and replace existing products. Repositioning: - Existing products that are targeted to new markets or market segments. Cost Reductions: - New products that provide similar performance at lower cost

W HY D O N EW P RODUCTS FAIL ?

A high level executive pushes a favorite idea through in spite of negative market research findings The idea is good but the market size is over estimated The product is not well-designed. The product is incorrectly positioned in the market; not advertised effectively or overpriced The product fails to gain sufficient distribution coverage

Development costs are higher than expected

Competitors fight back harder than expected

FACTORS WHICH TEND TO

HINDER NEW PRODUCT DEVELOPMENT: Shortage of important idea in certain areas

Fragmented Markets: - Companies have to aim their new products at smaller market segments and this can mean lower sales and profits for each product Social and Governmental Constraints: - New products have to satisfy consumer safety and environmental concerns Cost of Development: - A company typically has to generate many ideas to find just one worthy of development and often faces high R&D, manufacturing and marketing costs. Capital Shortages: -Some companies with good ideas cannot raise the funds needed to research and launch them. Faster Required development Time: - Companies must learn how to compress development time by using new techniques, strategic partners, early concept tests and advanced marketing planning. Shorter PLC: -When a new product is successful, rivals are quick in copying

PACKAGING

It is defined as the activity of designing and producing the container for a product Container is called package and it might include up to three levels of material. Ex. Perfume - Primary package (bottle), secondary package (cardboard) and shipping package (corrugated box).

W ELL

DESIGNED PACKAGES CAN CREATE

CONVENIENCE AND PROMOTIONAL

Various factors have contributed to the growing use of packaging as a marketing tool.

VALUE

Self-Service: -Package must perform many of the sales tasks like attract attention, describe the products features, create consumer confidence and make a favorable overall impression. Example: -On an average in a supermarket which stocks 15000 items, a shopper passes by some 300 items/minute. Given that 53% purchases are made on an impulse basis, the effective package operates as a 5 second commercial. Consumer Affluence: -Consumers are willing to pay a little more for the convenience, appearance, dependability and prestige. Company and Brand Image: - Packages contribute to instant recognition. Ex. Parachute oil, Maggi Innovation Opportunity: - Innovative packaging can bring large benefits to consumers and profits to producers. Ex. Fragrance industry new bottles.

D EVELOPING AN E FFECTIVE PACKAGE R EQUIRES S EVERAL D ECISIONS : -

Define what the package should basically be or do for the particular product. Size, shape, material, color, text and brand mark (Red-aggressive, yellow-medicinal and weak, blue-cool and serene, pastel-feminine, dark-masculine)

A FTER THE PACKAGING IS

DESIGNED IT MUST BE TESTED :

Engineering Tests: -To ensure that the packaging stands up under normal conditions Visual Tests: - To ensure that the script is legible and the colors harmonious Dealer Tests: -To ensure that dealers find the packages attractive and easy to handle

Consumer Tests: -To ensure favorable consumer response

P RODUCT P LANNING

Each product level must develop a marketing plan for achieving its goals Marketing Plan/ Business Plan/ Battle Plan Is the most important output of marketing process Becoming more customer and competitors oriented Better reasoned and realistic than in the past

Most marketing plans cover one year

Vary in length from 5-50 pages

Plans are useless but planning is indispensable

C ONTENTS OF THE M-Brief ARKETING Pgoals LAN Executive Summary and Table of Contents: summary of the main and: recommendations permit senior management to grasp the plans major thrust Current Marketing Situation: -Background data on sales, costs etc, helps in SWOT

Opportunity and Issue Analysis: - Management reviews the main opportunities found in the SWOT Analysis & identifies key issues likely to affect the organizations attainment of its objectives
Objectives: -Sales, volume

Marketing Strategy: -Game plan to accomplish the planned objectives (All this is done with inputs from other organizational areas or departments)
Action Programs: -Must specify the actual marketing programs derived from marketing strategy to be used in achieving the business objectives

Financial Projections: - Allows to build a supporting budget. This budget shows the forecasted sales volume in units and average price.
Implementation Controls: - Outlines the control for monitoring and adjusting implementation of the plan.

C ONSUMER A DOPTION P ROCESS

Process through which the potential consumers learn about new products try, adopt and reject them Consumer adoption process is later followed by consumer loyalty process, which is the concern of the established producer Years ago, new-product marketers used a mass market approach to launch products. (Drawbacks heavy marketing expenses, may involve many exposures which might go wasted) Drawbacks led to the second approach

Heavy User Target Marketing: -This approach makes sense when heavy users are identifiable and early adopters. However, even with the heavy user group many heavy users are loyal to the existing brands. New product marketers now aim at consumers who are Early Adopters.

S TAGES IN THE A DOPTION P ROCESS

Innovation: - Any good, service or idea that is perceived by someone as new Innovation Diffusion Process: -Spread of new idea from its source of invention or creation to its ultimate users or adopters.

The consumer-adoption process focuses on the mental process through which an individual passes from first hearing about an innovation to final adoption.

A DOPTERS OF NEW PRODUCTS HAVE BEEN OBSERVED TO MOVE THROUGH FIVE STAGES :

Awareness: - Consumer becomes aware of the innovation but lacks information about it Interest: - Consumer is stimulated to seek information about the innovation Evaluation: - Consumer considers whether to try innovation Trial: -Consumer tries the innovation to improve his/her estimate of its value

Adoption: - Consumer decides to make full and regular use of innovation

Innovators- 2.5% Early Adopters 13.5% Early Majority 34% Late Majority 34% Laggards 16%

FACTOR INFLUENCING THE A DOPTION P ROCESS :

Readiness to try new products and personal influence: - Innovativeness is the degree to which an individual is relatively earlier in adopting new ideas than the other members of his social system

--

- Personal Influence is the effect one person has on anothers attitude or purchase probability

Characteristics of the Innovation: - Some products can get on immediately while others take a long time in gaining acceptance: - Relative Advantage: -The degree to which the innovation appears superior to existing products. The greater the perceived relative advantage of using the PC say for financial records the quickly PCs will be adopted.

C ONTINUED ..
- Compatibility : -The degree to which the innovation matches the values and experience of the individuals. Ex. PCs are highly compatible with middle class lifestyles - Complexity: - The degree to which the innovation is relatively difficult to understand or use. Ex. PCs are complex and take longer time to penetrate into home use. - Divisibility: -The degree to which the innovation can be tried on a limited basis. The availability of rentals or friends computers increases their rate of adoption. - Communicability: - The degree to which the beneficial results of use are observable or describable to others. The other characteristics that influence the rate of adoption are cost, risk and uncertainty, scientific credibility and social approval.

C ONTINUED .

Organizations Readiness to Adopt Innovations: The creator of a new teaching method would want to identify innovative schools.

N EW P RODUCT P LANNING AND D EVELOPMENT

ORGANIZATIONAL ARRANGEMENTS MANAGING THE DEVELOPMENT PROCESS: IDEAS

N EW P RODUCT P LANNING AND D EVELOPMENT

ORGANIZATIONAL ARRANGEMENTS

- Budgeting for New Product Development: - Senior managers take an account of how much to budget, R&D outcomes are uncertain, difficult to use normal investment criteria - Organizing New Product Development: -Most companies assign responsibility for new products ideas to product managers.
A venture team is a cross functional group charged with developing a specific product or business. They are intrapreneurs relieved of their other duties and given a budget time frame & a skunkworks setting

The designation "skunk works or "skunkworks is widely used in business, engineering, and technical fields to describe a group within an organization given a high degree of autonomy and unhampered by bureaucracy, tasked with working on advanced or secret projects.
Intrapreneurship is the act of behaving like an entrepreneur, except within a larger organization. Intrapreneur - The spirit of entrepreneurship within an existing organization. Intrapreneur is a person who focuses on innovation and creativity and who transforms a dream or an idea into a profitable venture, by operating within the organizational environment.

C ONTINUED .

MANAGING THE DEVELOPMENT PROCESS: IDEAS -Idea Generation - Idea Screening

I DEA G ENERATION

Interacting with Others: - Ideas can come from customers, scientists, competitors, employees, channel members and top management. Example: -Kodak, Milliken give monetary, holiday or recognition awards to employees who give best ideas

Customer needs and wants are logical places to start the search for ideas. Toyota employee submit 2 million ideas annually over 85% of which are accepted.
Companies can also find good ideas by researching competitors products and services.

C ONTINUED .

Creativity Techniques: -

- Attribute Listing : -List the attributes of an object such as screw driver

- Forced Relationship: - List several ideas and consider each in relation to other ones. Example: - a desk, book separately and the same desk say with a built in file or bookcase - Morphological Analysis: -Start with a problem, getting something from one place to another via a powered vehicle. Through chair, cart, bed..medium(air, water)power source(compressed air, electric motor)

C ONTINUED .
- Reverse Assumption Analysis: - List all normal assumptions about an entity and then reverse them. (Restaurants may reverse the conditions by serving only what the cook has got from outside, may rent areas to the ones who get their own food)

- New Contexts: -Take familiar processes such as human helping services and put them into a new context. Imagining dogs and cats in place of people.
- Mind- Mapping: -Start with a new thought. Example Mercedes carnew associationnew idea generation

I DEA S CREENING

Ideas taken from allwritten down and reviewed idea committee.. Full scale screening process.. (promising ideas, marginal ideas and rejects)..surviving ideas then move to full scale screening process. Company must avoid 2 types of errors in such a situation: Drop-Error: occurs when the company dismisses an otherwise good idea. Easy to find fault in others Go-Error: -Occurs when the company permits a bad or poor idea to move into development and commercialization.

An absolute product failure loses money; its sales do not cover variable costs A partial product failure loses money, but sales cover all fixed and variable costs. A relative product failure yields a profit that is less than the companies target rate of return.

M ANAGING THE DEVELOPMENT P ROCESS : C ONCEPT TO STRATEGY

Concept Development and Testing Marketing Strategy Business Analysis

C ONCEPT D EVELOPMENT AND T ESTING

A product idea is a possible product the company might offer to the market. A product concept is an elaborated version of the idea expressed in meaningful consumer terms.

Concept development and Testing Consists of :

Concept Development Concept Testing

Conjoint Analysis

C ONCEPT D EVELOPMENT

To produce a powder to add to milk to increase its nutritional value. This is idea consumers buy products. Concept 1 Breakfast drink for adults Concept 2 Tasty snack drink for children

Concept 3- Health supplement for older adults

Each concept represents a category concept. i.e. against eggs, bacon, breakfast cereals

Brand concept is against existing brands, have to consider price, calorie context.

C ONCEPT T ESTING

Presenting product concept to consumers getting feedback Rapid Prototyping - Design products on a computer Virtual reality Use computers and other sensory devices (such as gloves and goggles) to stimulate reality Customer-driven Engineering - Gives importance to incorporating customer preferences After receiving this information, researchers measure product dimensions by having consumers respond to questions like communicability and believability, need level, gap level, perceived value, purchase intention, user targets, purchase occasions and purchase frequency

C ONJOINT A NALYSIS

Method used to measure the consumer preferences for alternative product Method for deriving the utility values that consumers attach to varying levels of a products attribute.

3 package designs, brand names, prices

M ARKETING

STRATEGY

Preliminary marketing strategy developed by product manager Parts of marketing strategy paln

- Target market, structure and behavior

- Planned price, distribution strategy and marketing budgeting

- Long run sales and profit goals and marketing mix strategy over time

B USINESS A NALYSIS

Estimating Total Sales Total estimated sales are the sums of estimated first-time sales, replacement sales and repeat sales.

Costs are estimated by R&D, manufacturing, marketing and finance departments.

M ANAGING THE DEVELOPMENT PROCESS :

DEVELOPMENT TO COMMERCIALIZATION

Product Development - Here the company determines whether the product idea can be translated into a technically and commercially feasible product The job of translating target customer requirements into a working prototype is helped by a set of methods known as quality function deployment (QFD). Methodology : - Take list of desired customer attributes (CAs) generated by market research and turns them into a list of engineering attributes (EAs) that the engineers can use.

The R&D dept. develops one or more physical versions of the product concept When the prototypes are ready they must be put through rigorous functional tests and customer tests. Alpha Testing Testing product within the firm to see how it performs in different applications. Beta Testing Enlists the set of customers to use the prototype and give feedback. It is more useful when potential customers are heterogenous.

M ARKET

TESTING

After management is satisfied with functional and psychological performance, product is ready to be dressed up with a brand name and packaging & put into a market test. Amount of market testing is influenced by: - Investment cost & risk (High investment higher is the risk associated with the product) - Time pressure and research cost (Market testing gets reduced if the company is under pressure and because of season)

C ONSUMER GOODS MARKET

TESTING

Testing consumer products (Company estimates 4 variables trial, first repeat, adoption and purchase frequency)

In many cases we have many consumers trying the product but few re buying it.
Methods Sales Wave Research, Simulated Test Marketing, Controlled Test Marketing and Test Marketing

S ALES

WAVE RESEARCH

Consumers who initially try the product at no cost are re offered the product or the competitors product at slightly reduced prices. They might be reoffered 3-5 times. Comes notes how many customers selected that product and their reported level of satisfaction. SWR includes Exposing consumer to one or more advertising concepts to see the impact of that advertising on repeat purchase SWR Can be implemented quickly, conducted with a fair amount of security, carried out without final packaging and advertising.

S IMULATED TEST MARKETING

Calls 30-40 shoppers, questioning about brand familiarity and preferences in a specific product category.

People are invited for a brief screening of both well known and new products commercials or ads..given money..asked to buy accordingly.. provides a measure of the ads relative effectiveness against competing ads in stimulating trial.
Re-invited after sum time

C ONTROLLED TEST
MARKETING

Research firm manages a panel of stores that will carry new products for a fee. Company with new products specifies the number of stores and geographic locations it wants to test. Research firm delivers the product to the participating stores and controls shelf positions, number of facings, displays and point of purchase promotion. Companies can evaluate impact of local advertising & promotions during the test

CTM : Allows company to test the impact of in-store factors and limited advertising on buying behavior Company does not have to use its own sales force

T EST

MARKETING

Choose few representative cities and the sales force tries to sell the trade on carrying the product and giving it good shelf exposure

Company puts on full advertising & promotion campaign, full scale test can cost over $1 million, depending on the number of test cities, test duration & the amount of data the company wants to collect

Management faces several decisions like here: - How many test cities? - Which cities? - Length of test? - What information?

- What action to take?

B USINESS GOODS MARKET

TESTING

Expensive industrial goods and new technology undergo alpha and beta testing Vendors technical people observe how test customers use the product, a practice that often exposes unanticipated problems of safety and servicing and alerts the vendor to customer training and servicing requirements Vendor can also observe how much value the equipment adds to the customers operations as a clue to subsequent pricing Vendor will ask the test customers to express their purchase intention and other reactions after the test. Vendors must carefully interpret the bets test results because only a small number of test customers are used, they are not randomly

C ONTINUED .

Risk is in the customers who are unsatisfied and may leak wrong news outside. Vendor can observe how much interest buyers show in the new product and how they react to various features and terms How many express purchase intentions or place orders New industrial products can be tested in distributor and dealer display rooms