Chapter 3THE BUSINESS OF PRODUCT

MANAGEMENTDIPLOMA IN INTERNATIONAL BUSINESS

(BUS2513)

Part 1 of 3

Product Concept

2

3

Strategic Planning for Product

PlaceProduct PricePromotion

Brand

Type of Brand:Individual or family

Manufacturer or dealer

Warranty

None, full, orlimited

Package

Protection,Promotion,

(or both)

Target Market

ProductIdea

Physicalgood/service

FeaturesQuality levelAccessoriesInstallationInstructionsProduct line

4

What Is A Product?

It can be anything that can be offer to consumer.Good- Tangible physical entityService- Intangible result of the application of

human and mechanical efforts to people or objectsIdea- Concept, philosophy, image, or issue

5

Classifying Products

Consumer- products purchased to satisfy personal and family needs

Business- products brought to use in an organization’s operations, to resell, or to make other products

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ConsumerProductClasses

Convenience

Specialty

Unsought

Shopping

Consumer Product Classes

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Basic Categories of Consumer ProductsBasic Categories of Consumer Products

CategoryCategory

Convenience

Type ofType ofPurchasePurchaseDecisionDecision

Shopping

Specialty

Relatively low

PricePrice PromotionPromotionPlacement orPlacement orDistributionDistribution

Moderate

Relatively expensive

Little information sought

Mass media

Mass media; some emphasis on personal selling

Widely available

More information sought

Lots of information sought

Mass media; more emphasis on personal selling

Selectively available

Exclusively available

Unsought Immediate Decision

It might be low or high

More emphasis on personal selling

Selected

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Convenience Products

Relatively inexpensive, frequently purchased items for which buyers exert only minimal purchasing effort

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Convenience ProductStrategy Implications

Retail outletsLow per-unit gross marginsLittle promotion effortPackaging important

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Shopping Products

Items for which buyers are willing to expend considerable effort in planning and making purchases

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Shopping ProductMarketing Implications

No brand loyalty

Fewer retail outlets than convenience

Lower inventory turnover

Higher gross margins

Personal selling

Channel member cooperation

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Specialty Products

Items with unique characteristics that buyers are willing to expend considerable effort to obtain.

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Specialty ProductMarketing Implications

Limited retail outlets

Lower inventory turnover

High gross margins

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Unsought Products

Products purchased to solve a sudden problem, products of which customers are unaware, and products that people do no necessarily think of buying.

15

Unsought ProductsMarketing Implications

Build trust with consumer by:

Recognizable brand

Superior performance

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BusinessProductClasses

Installations

ComponentParts andMaterials

AccessoriesProfessional Services

RawMaterials

MROSupplies

Business Products

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Basic Categories of Industrial ProductsBasic Categories of Industrial Products

CategoryCategory

Installation

Type ofType ofPurchasePurchaseDecisionDecision

Accessory equipment

Raw materials

Not as important

PricePrice PromotionPromotion

Very important

Multiple members of buying center

Personal Selling

Few members of buying center

May be important

Advertising

Component Parts and materials

Several members of buying center

May be important

Personalselling

Frequent; complexity varies

Supplies Simple; frequent; may be a single buyer

Important

Personalselling

Advertising

Business services

Varies Varies Varies

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Business Products

Installations- facilities & nonportable equipmentAccessory equipment- not part of final productRaw materials- natural materials part of productComponent parts- finished items ready for

assembly or need little processingProcess materials-used in production but not

identifiableMRO supplies-maintenance, repair, and

operating items not part of final productServices-intangible products in operations

Product Based Classifications

Durable goods: refers to tangible good that get used repetitively over a long period of time (eg. computers, cars, electrical items, furniture, etc.)

Non-durable goods: tangible goods that are normally consumed relatively fast in one or few uses. Repeat purchase might be occur (eg. Groceries, foods, stationeries, etc.)

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Services: refers to activities, benefits or satisfactions that are on offer by a company. It is tangible and does not result in the ownership of anything (eg. Hair cut, consultancy, dentist, etc.)

4 unique characteristics:

1. Intangibility

2. Inseparability

3.Vaiability

4.perishability

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Goods and ServicesGoods and Services

Durable Goods

Non-Durable Goods

Services

Fantastic Sam’s HaircutAirline Taxi Ride

RestaurantMeal

Kleenex TissuesScott Towels

Pair ofGlasses

Sealy MattressMaytag Washer

AutoRepair

Levels of Product

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23

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Product Line And Product Mix

Item- specific version of product

Line- closely related items viewed as a unit

Mix- total group of products

Width of mix- number to lines

Depth of mix- number of different products in line

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Product Mixes and Product LinesProduct Mixes and Product Lines

Source: Courtesy of P. Gayle Fuguitt, Marketing Research Director, Big “G” Division, General Mills

Ready-to-EatCereals

ConvenienceFoods

Snack Foods BakingProducts

DairyProducts

Total

Wheaties

Lucky Charms

Cinnamon Toast Crunch

Cheerios

Kix

Trix

Hamburger Helper

Suddenly Salad

Betty Crocker Cake Mixes

Creamy Deluxe Frosting

Dessert Mixes

Pop Secret Popcorn

Fruit Rollups

Nature Valley Granola Bars

Bisquick

Gold Medal Flour

Yoplait Yogurt

Colombo Yogurt

Width (MIX)

DEPTH

LINE

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Product Width/DepthOf Proctor & Gamble

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Stages OfProduct Adoption Process

1. Awareness

2. Interest

3. Evaluation

4. Trial

5. Adoption

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Adopter Categories

Innovators- first adopters

Early Adopters- careful choosers

Early Majority- deliberate and cautious

Late Majority- skeptics who only adopt when necessary

Laggards- distrust new products

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Product Adopter Categories

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Why SomeProducts Fail/Succeed

Failure to match product to needsFailure to send right messageTechnical/design problemsPoor timingOverestimate marketIneffective promotionInsufficient distribution

Can you list any product successand fail in the market?

Success Failed

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Part 2 of 3Developing and

Managing Products

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Managing Existing Products

Line ExtensionsProduct ModificationsQuality ModificationsFunctional ModificationsAesthetic Modifications

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Line Extension

Development of a product that is closely related to existing products in the line but is designed specifically to meet different customer needs.

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Purpose of Line Extensions

Focus on different segment

More precisely satisfy needs of current segment

Capture market share from competitors

Might result in negative view of core product

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Product Modification

Changes in one or more characteristics of a product.

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Conditions OfProduct Modification

Must be modifiable

Perceive modification has occurred

Makes product more consistent with customers’ desires

Risk = previous purchaser may view as riskier purchase

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Methods OfProduct Modification

Quality

Functional

Aesthetic

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Quality Modifications

Changes relating to a product’s dependability and durability.Reducing quality = lower price

Increasing quality = competitive edge

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The Eight Dimensions of QualityThe Eight Dimensions of Quality

Performance

FeaturesOverallEvaluation

Conformance

Durability

Reliability

Serviceability

Aesthetics

Chrysler

DuraCell

Sears Die Hard

Singapore Airlines

Walt Disney World

PerceivedQuality

Ralph Lauren

Midas

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Functional Modifications

Changes affecting a product’s versatility, effectiveness, convenience, or safety.

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Benefits OfFunctional Modifications

Stronger competitive position Achieve/maintain progressive image Reduce possibility of product liability

lawsuits

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Aesthetic Modifications

Changes relating to the sensory appeal of a product. Such as taste, texture, sound, smell, and appearance.

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Aesthetic Modifications

Benefit Differentiate product

Drawback

- Value is subjective

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Developing New Products

New product development processA seven-phase process for introducing

products: idea generation, screening, concept testing, business analysis, product development, test marketing, and commercialization

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Types of New ProductsTypes of New Products

New-to-the-WorldProducts

New

Categ

ory

En

tries

Additions to

the

Product L

ineProduct

Improvement

Rep

osi

tio

nin

gs

New!

47Faisal Zulhumadi (3298) A072 2007/2008

New-Product Development Process

IdeaGeneration

Ideas from:Customers and usersMarketing

researchCompetitorsOther

marketsCompany

peopleIntermediaries

Screening

Strengthsand

weaknessesFit with

objectivesMarket

trendsRough ROI

estimate

IdeaEvaluation

Concepttesting

Customerreactions

Roughestimatesof cost, sales,

profits

Development

R & DDevelop

model orserviceprototype

Testmarketingmix

Revise plansas needed

ROI estimate

Commercial-ization

Finalizeproduct andmarketingplan

Startproduction

and marketing

“Roll out” in selectmarkets

Final ROIestimate

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Idea Generation

Seeking product ideas to achieve organizational objectives.

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TechniqueTechnique

Delphi Method

Benefit Analysis

DescriptionDescription

A panel of experts fills out a questionnaire; a researcher tabulates the results and sends them to panel members. Repeat the process until the panel reaches a consensus or an impasse.

Use Analysis

Relative Brand Profile

Unique properties

Techniques for Generating IdeasTechniques for Generating Ideas

List all the benefits customers receive from the product under study. Think of benefits that are currently missing from the list.

Ask customers how they use the product under study. List the various uses.

Ask target markets whether the brand name makes sense for other product categories under consideration. A stretch of the brand name that makes sense to potential buyers can be the basis for a new product.

List all the properties held in common by a product or material currently on the market. Look for unique properties of the organization’s product.

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TechniqueTechnique

Achilles heel

FreeAssociation

DescriptionDescription

List the weaknesses of a product or product line (for the organization and its competitors). Prune the list to the one or two weaknesses most likely to inspire a response from competitors. Identify product concepts that could result from correcting these weaknesses.

Study of other people’s failures

Study products that have failed. Look for ways to solve the problems that led to failure.

Stereotypeactivity

Write down one aspect of the product situation–a product attribute, use or user. Let the mind roam and jot down every idea that surfaces. Repeat the process for other aspects of the product situation.

Ask, “How would ________do it?” –referring to how a member of some group or a particular person would use the product. Example: What type of bicycle would a senator ride? Can also ask what the stereotype would not do.

Techniques for Generating IdeasTechniques for Generating Ideas

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Screening

Selecting the ideas with the greatest potential for further review.

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Concept Testing

Seeking a sample of potential buyers’ responses to a product idea.

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Business Analysis

Evaluating the potential impact of a product idea on the firm’s sales, costs, and profits

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Product Development

Determining if producing a product is feasible and cost effective.

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Test Marketing

A limited introduction of a product in geographic areas chosen to represent the intended market.

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•• A standard test market is the practice of offering a A standard test market is the practice of offering a new product through normal distribution channels in a new product through normal distribution channels in a limited area.limited area.

•• A controlled test market is the practice of offering a A controlled test market is the practice of offering a new product through a set of retailers who have been new product through a set of retailers who have been paid to set aside shelf space for the product in a paid to set aside shelf space for the product in a desirable area of the store.desirable area of the store.

•• A simulated test market is an experiment in which a A simulated test market is an experiment in which a sample of consumers has an opportunity to select sample of consumers has an opportunity to select products.products.

Types of Test MarketsTypes of Test Markets

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Benefits Of Test Marketing

Expose product to marketing environment and assess sales performance

Identify weaknesses in product or marketing mix

Experiment with variations in marketing mix

Reduce risk of failure

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Commercialization

Refining and finalizing plans and budgets for full-scale manufacturing and marketing of a product

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Product Differentiation through Quality, Design, and Support Services

Product DifferentiationCreating and designing products so that

customers perceive them as different from competing products.

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Product Differentiation

Quality- characteristics to perform as expected- Level- Consistency

Design and features- Styling- Features

Support services- add value

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Product Quality

Quality – characteristics of a product allowing itto perform as expected in satisfying customer needs

Level of quality – the amount of quality a product possesses

Consistency of quality – the degree to which a product has the same level of quality over time

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Product Design and Features

Product design – conception, plan, and production of a product

Styling – physical appearance of a product

Product features – specific design characteristics that allow a product to perform certain tasks

Customer services – human or mechanical efforts or activities that add value to a product

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Product Deletion

Eliminating a product from the product mix when it no longer satisfies a sufficient number of customers.

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Product Deletion Process

Part 3 of 3Branding And Packaging

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Branding Terminology

Brand - a name, term, design, symbol, or another feature that identifies one seller’s good or service as distinct from other sellers. (e.g. Coca Cola)

Brand Name - that part of a brand that can be spoken. (e.g. the word Coke)

Brand Mark - that part of a brand that cannot be spoken. (e.g. the flowing script used to write Coca Cola)

Trademark - a brand that has legal status by virtue of it’s being registered with the federal government. (e.g. Coca Cola)

Trade name - the legal name under which a company operates. (e.g. The Coca Cola Company)

Brand extension - the practice of using an existing brand name for a new product. (e.g. Cherry Coke, Diet Coke, Caffeine Free Coke)

Service mark - a brand for a service that has legal status by virtue of its being registered with the federal government.

Family brand - the use of the same brand name for an entire product line.

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BrandBrandStructureStructure

PrivateBrands

GenericBrands

Sambal

Sambal Machang

Types of BrandsTypes of Brands

Manufacturer’sBrands

Sambal Machang Cek Nab

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Value of Branding – Buyer

Identify specific products

Form of self-expression

Evaluate product

Reduce perceived risk of purchase

Status

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Value Of Branding – Seller

Identify product

Aids in new product introduction

Facilitates promotion

Fosters brand loyalty

Cultural branding

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Brand Loyalty

A customer’s favorable attitude toward a specific brand.Recognition – aware brand exists and is

alternative if preferred brand unavailable

Preference – preferred over competitive offerings

Insistence – strongly preferred, no substitute

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Brand Equity

The marketing and financial value associated with a brand’s strength in a market.

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Elements of Brand EquityElements of Brand Equity

Provides value to customer by Enhancing Customer’s:

Interpretation/Processing of information

Confidence in the Purchase Decision

Use Satisfaction

Provides value to firm by Enhancing:

Efficiency and effectiveness of Marketing Programs

Brand Loyalty

Prices/Margins

Brand Extensions

Trade Leverage

Competitive Advantage

BrandLoyalty

NameAwareness

PerceivedQuality Brand

AssociationsOther Proprietary Brand Assets

Brand Equity

Name Symbol

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Major ElementsOf Brand Equity

Adapted with the permission of The Free Press, a division of Simon & Schuster Adult Publishing Group, from Managing Brand Equity: Capitalizing on the Value of a Brand Name by David A. Aaker. Copyright © 1991 by David A. Aaker. All rights reserved.

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Types Of Brands

Manufacturer- initiated by its producerPrivate distributor- initiated and owned

by a resellerGeneric- indicating only a product category

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What Kind of Brand to Use?

Generic

FamilyBrand

IndividualBrand

BrandChoices

Manufacturer Dealer

??

?

?

? ?

?

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ConsumerPerceptions Of Brands

“Store Brands at the Turning Point,” Consumer Research Network, 3624 Market Street, Philadelphia, PA.

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Selecting A Brand Name

Easy to say, spell, recallIndicate major benefits- suggest in

positive way products’ uses and special characteristics

Recognizable in all types of media

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Selecting a BrandSelecting a Brand

A good brand name has several characteristics:

1. It should imply product benefits.

2. It should be positive, distinctive, easy to say and easy to remember.

3. It should be consistent with the image of the product and manufacturer.

4. It should be legally protectable and permissible.

5. It should translate well, if the product is to be offered globally.

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Branding Policies

Individual- each product given a different name

Family- all of a firm’s products with the same name or part of the name

Extension- organization uses one of its existing brands to brand a new product in a different category

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Co-BrandingUsing two or more brands on one product.

Brand Licensing

•An agreement whereby a company permits another organization to use its brand on other products for a licensing fee.

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Brand Licensing

An agreement whereby a company permits another organization to use its brand on other products for a licensing fee.

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Packaging Functions

1. Protect product and maintain functional form

2. Offer convenience

3. Promote product

4. Communicate quality or premium nature of product

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Convenient packages are easier to use, making purchase decisions easier for the customer as well.

The Strategic Importance of Packaging

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Packaging Considerations

CostTamper-resistantDesign consistencyPromotional role- colorNeeds of resellersEnvironmentally responsible

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Companies That SpendThe Most On Packaging

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Packaging AndMarketing Strategies

AlteringSecondary-UseCategory-ConsistentInnovativeMultiple PacksHandling -Improved

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Criticisms Of Packaging

Not functionalSafetyDeceptiveCost

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Labeling

Labeling- identifying, promotional, or other information on package

Universal Product Code (UPC)- electronically readable lines identifying product and inventory/pricing information

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Labeling Laws

Fair Packaging and Labeling Act (1966)Nutrition Labeling Act (1990)

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Branding

Rejection

Nonrecognition

Recognition

Preference

Insistence

Change Position

Increase Awareness

Continue Education

Maintain Availability

Develop High Brand Equity

Focus:

Focus:

Focus:

Focus :

Focus :

91

Universal Product CodesUniversal Product Codes

0 12345 67890 5

Identify ManufacturerAssigned by the Uniform Code Council

Identify ProductAssigned by the Manufacturer

Check Digit