Product decisions,

1. CHAPTER 10
FRANCHEZKA PEGOLLO
Product Decisions

2. Product
 Anything offered to a market for attention, acquisition,
use, or consumption that might satisfy a need or want.
Service
 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.

3. THE THREE LEVELS OF PRODUCT

4. Product Classification
- Products and services fall into two broad classes
based on the types of consumers that use them---
consumer products and industrial products.

5. Consumer-products
Classification
 Consumer products are products and services bought
by final consumer for personal consumption.
 Consumer products include:
 Convenience products
 Shopping products
 Specialty products
 Unsought products

6. 1. Convenience products
 Consumer product that the customer usually buys
frequently, immediately, and with a minimum of comparison
and buying effort.
2. Shopping products
 Are less frequently purchased consumer products and
services that customers compare carefully on suitability,
quality, price, and style.

7. 3. Specialty products
 Consumer products with unique characteristics or brand
identification for which a significant group of buyers is
willing to make a special purchase effort.
4. Unsought products
 Consumer products that the consumer either does not know
about or knows about but does not normally think of buying.

8. Industrial-products
Classification
 Products bought by individuals and organizations for
further processing or for use in conducting a
business.
 The three groups of individual products and services
includes:
 Materials and parts
 Capital items
 Supplies and services

9. Eight Dimensions of Quality for Goods
1. Performance
2. Features
3. Reliability
4. Conformance
5. Durability
6. Serviceability
7. Aesthetics
8. Perceived quality

10. Five Dimensions of Service Quality
1. Tangibles
2. Reliability
3. Responsiveness
4. Assurance
5. Empathy

11. Branding Decisions
 Branding
 Identifies and helps differentiate the goods or services of one
seller from those of another.
 It consists of a name, sign, symbol, or some combination
thereof.
 Brand name
 is the part that can be vocalized.
 Brand mark
 Is something that cannot be verbalized, such as symbol,
design, or unique packaging.

12. Branding Strategies
1. Individual branding
 Requires the company to provide each product or product line
with a distinctive name.
 Ex. P&G – Tide and Ariel detergent, Head & Shoulders, and
Pantene shampoo, Safeguard.
2. Family branding
 Uses the same brand name to cover a group of products or
product lines.
 There are several variations of family branding including its use
primarily with related items, its use with all company items
regardless of whether they are use-related (General Electric),
and the use of a family name combined with individual product
name.

13. Packaging Decisions
 Packaging
 The activities of designing and producing the container or
wrapper for a product.
 A product’s package serves several functions:
 Protection
 Facilitating use
 Promoting the product
 Providing information about the product.

14. Managing Product Lines for Customer Appeal
and Profit Performance
 Product line
 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.
 Ex. Samsung produces several lines of telecommunications
product. Nike produces several lines of athletic shoes.
In order to increase profits, the company must manage its
product lines carefully. It can systematically increase the
length of its product line in two ways:
 Product line stretching
 Product line filling

15.  Product line stretching
 Occurs when a company lengthens its product line beyond its
current range.
 The company can stretch its line downward, upward, or both
ways.
 Ex. Mercedes-Benz and Toyota.
 Product line filling
 Adding more items within the present range of the line.
 The company should ensure that new items are noticeably
different from existing ones.
 Ex. Sony filled its Walkman line by adding solar-powered and
waterproof Walkmans and an ultralight model that attaches to a
sweatband.

16.  Line extension
 Using a successful brand name to introduce additional items in
a given product category under the same brand name, such as
new flavors, forms, colors, added ingredients, or package sizes.
 Brand extension
 Involves the use of a brand name established in one product
class as a vehicle to enter another product.
 Using a successful brand name to launch a new or modified
product in a new category.

17. New-Product Development Strategy
 A firm can obtain new products in two ways:
 Through acquisition – by buying a whole company, a patent, or a license
to produce someone else’s product.
 Through new product development
 In business, New Product Development (NPD) is the term
used to describe the complete process of bringing a new
product or service to market.

18. Coloured ketchup? Who would've anticipated it?
Heinz introduces green and purple ketchup.

19. New Product Development
Process
Idea
Generation
Idea
Screening
Concept
Development
and Testing
Marketing
Strategy
Business
Analysis
Product
Development
Test
Marketing
Commercialization

20. New Product Development Process
Step 1: Idea Generation
 Idea Generation is the systematic search for new
product ideas obtained internally and from:
C
U
S
T
O
M
E
R
S
C
O
M
P
E
T
I
T
O
R
S
D
I
S
T
R
I
B
U
T
O
R
S
S
U
P
P
L
I
E
R
S

21. New Product Development Process
Step 2: Idea Screening
 The purpose is to identify good ideas and drop poor ones
to avoid spending any more money on developing them
 Criteria used:
 •is the product truly useful to consumers & society
•availability of market
•does it mesh well with company’s objectives & strategies
•do we have the people, skills & resources to make it successful
•does it deliver more value to customers than competing products
•is it easy to advertise and distribute
•availability of technology
•availability of raw materials
•risk exposure, profitability, cost/benefit
•government priority
•CRITICAL SUCCESS FACTOR

22. New Product Development Process
 Step 3: Concept Development and Testing
 Product idea
 Is an idea for a possible product that the company can see itself
offering to the market.
 Product concept
 Is a detailed version of the idea stated in meaningful consumer
terms.
 Product image
 Is the way consumers perceive an actual or potential product.

23. New Product Development Process
1. Develop Product Ideas into
Alternative
Product Concepts
2. Concept Testing - Test the
Product Concepts with Groups
of Target Customers
3. Choose the Best One
 Step 3: Concept Development and Testing

24. New Product Development Process
 Step 4: Marketing Strategy Development
 Marketing Strategy Development
 Designing an initial marketing strategy for a new product based on
the product concept.
 Marketing Strategy Statement Formulation
Part One Describes Overall:
Target Market
Planned Product Positioning
Sales & Profit Goals
Market Share
Part Two Describes Short-Term:
Product’s Planned Price
Distribution
Marketing Budget
Part Three Describes Long-Term:
Sales & Profit Goals
Marketing Mix Strategy

25. New Product Development Process
 Step 5: Business Analysis
 A review of the sales, costs, and profit projections for a new product to
find out whether these factors satisfy the company’s objectives.
 Step 6: Product Development
 A strategy for company growth by offering modified or new products to
current market segments. Developing the product concept into physical
product in order to ensure that the product idea can be turned into a
workable product.

26. New Product Development Process
Business Analysis
Review of Product Sales, Costs,
and Profits Projections to See if
They Meet Company Objectives
If Yes, Move to
Product Development
If No, Eliminate
Product Concept
 Step 5: Business Analysis
 Step 6: Product Development

27. New Product Development Process
Standard
Test Market
Full marketing campaign
in a small number of
representative cities.
Simulated
Test Market
Test in a simulated
shopping environment
to a sample of
consumers.
Controlled
Test Market
A few stores that have
agreed to carry new
products for a fee.
 Step 7: Test Marketing
 The product and marketing program are tested in more realistic
market settings.

28. New Product Development Process
When? Where?
To
Whom? How?
 Step 8: Commercialization
 Commercialization is the introduction of the new product
into the marketplace.

29. PRODUCT LIFE-CYCLE (PLC)
The course of a product’s sales and profits over its
lifetime. It involves five distinct stages:
1. Product development
 Begins when the company finds and develops a new-product
idea. During product development, sales are zero and the
company’s investment costs mount.
2. Introduction
 Is a period of slow sales growth as the product is introduced in
the market. Profits are nonexistent in this stage because of the
heavy expenses of product introduction.
3. Growth
 A period of rapid market acceptance and substantial profit
improvement.

30. Product Life Cycle (cont.)
4. Maturity
–A period of slowdown in sales growth because the product
has achieved acceptance by most potential buyers. Profits
stabilize or even decline because of increased marketing outlays
to defend the product against competition.
5. Decline
–The period when sales show a downward drift and profits
erode

31. Figure 10.2
Stages of the PLC

32. Product Life-Cycle Strategies
 Introduction Stage
 Sales start at zero and begin to
climb slowly; profits continue to
decline due to costs of launching the
product
 The main promotional goal is to
make a big noise to attract attention
and to educate buyers about the
new product concept
 Market pioneers take the most risk
but may reap the biggest rewards,
eg. Chrysler minivan
 Few product variants, no
competition to speak of
 Pricing strategy: skimming or
penetration
 Distribution: not all outlets covered
as some may not want the risk
 Growth Stage
 Sales of the new product begin to
climb quickly as awareness within
the target market(s) builds
 Profits may become positive as
development and launch costs are
recovered and the company
achieves economies of scale
 Competition notices and rushes
their versions into production
 Product quality can be improved,
extra features and versions
developed to sustain growth and
differentiate from competition
 Distribution increases as the
product becomes more known
 Pressure on pricing as competition
increases

33.  Product – Offer a basic product
 Price – Skimming or penetration pricing
 Distribution – Build selective distribution
 Advertising – Build awareness among early adopters
and dealers/resellers
 Sales Promotion – Heavy expenditures to create trial
Marketing Strategies:
Introduction Stage

34.  Product – Offer product extensions, service,
warranty
 Price – Penetration pricing
 Distribution – Build intensive distribution
 Advertising – Build awareness and interest in the
mass market
 Sales Promotion – Reduce expenditures to take
advantage of consumer demand
Marketing Strategies:
Growth Stage

35. Product Life-Cycle Strategies
 Maturity Stage
Sales of the new product
continue to climb and then peak
as the majority of the target
market(s) have tried the product
Profits continue to grow and
stay positive throughout
Competition is most intense at
this stage; many versions and
brands
Strategies to prolong this stage:
 Modify the market
 Modify the product
 Modify the marketing mix
 Decline
 Sales of the new product drop
quickly as the target market(s)
move on to other things
 Profits decline as competitive
pressures force lower prices and
set promotional spending at a
level that maintains the share
 Competition has declined as
weaker brands have left the
market
 Decisions about the product
 Maintain spending levels to fight
it out for what is left
 Harvest by cutting spending and
riding it out
 Drop the product and move on
to the next thing

36. 10-36

37. Maturity Stage
Product Life-Cycle
Sales
Costs
Profits
Marketing Objectives
Product
Price
Peak sales
Low cost per customer
High profits
Maximize profit while defending
market share
Diversify brand and models
Price to match or best competitors
Distribution Build more intensive distribution
Advertising Stress brand differences and benefits
 Summary of Characteristics, Objectives, & Strategies

38. Decline Stage
Product Life-Cycle
Sales
Costs
Profits
Marketing Objectives
Product
Price
Declining sales
Low cost per customer
Declining profits
Reduce expenditure and milk the brand
Phase out weak items
Cut price
Distribution Go selective: phase out unprofitable
outlets
Advertising Reduce to level needed to retain
hard-core loyal customers
 Summary of Characteristics, Objectives, & Strategies