117091485 product-and-brand-management


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117091485 product-and-brand-management

  1. 1. PRODUCT MANAGEMENTBLOCK 1: PRODUCT MANAGEMENT — INTRODUCTION Unit 1: Introduction to Product Management Unit 2: Product Management Process Unit 3: The Product Planning SystemBLOCK 2: MANAGING PRODUCTS Unit 4: Product Line Decisions Unit 5: Product Life Cycle Unit 6: Product Portfolio Unit 7: Product PricingBLOCK 3: BRANDING AND PACKAGING DECISIONS Unit 8: Branding Decisions Unit 9: Positioning Decisions Unit 10: Brand Equity Unit 11: Packaging DecisionsBLOCK 4: NEW PRODUCT DEVELOPMENT Unit 12: Organizing for New Product Development Unit 13: Generation, Screening and Development of New Product IdeasBLOCK 5: IMPLEMENTING NEW PRODUCT DECISION Unit 14: Concept Development and Testing Unit 15: Pre-test Marketing and Test Marketing Unit 16: Product Launch 1
  2. 2. Block 1: PRODUCT MANAGEMENT —INTRODUCTIONUnit 1: Introduction to Product ManagementUnit 2: Product Management ProcessUnit 3: The Product Planning System 2
  3. 3. 1. UNIT I: Introduction to Product ManagementLearning Objectives  To understand how Product Management evolved  What a Product Manager has to do.  To understand the linkages of Product Management with other functions in the organisation.Structure 1. Product Management 2. Historical Background 2.1. Your Learning 3. Product Management and its Interface with Other Organisational Functions 3.1. Identifies a market problem 3.2. Quantifies the opportunity 3.3. Communicates the market opportunity to the top management 3.4. Communicates the problem to Product Development team 3.5. Communicates to Advertising/ Promotion team 3.6. Empowers the sales team 4. Your Learning 5. Summary 6. Key Words 7. Exercises 8. Further Reading 1. Product ManagementProduct Management is a function within a company that deals with theplanning or marketing or forecasting of a product or products through at allstages of the product lifecycle.Product management and product marketing are different yet complementaryefforts with the objective of maximizing sales revenues, market share, andprofit margins. Product Management has several roles which cover manyactivities from identification to development, to launch and even supportduring its life cycle. The issues handled by the product management team vary 3
  4. 4. from being strategic and/or tactical in nature depending on the type oforganisation and where in the organizations hierarchy the function lies. Productmanagement can be a separate function or a part of marketing or engineeringfunctions.Since better and new products are a key differentiator in the market and arewhat drives company‘s profits Product Managements main focus is on newproduct development. However since they are the ones who know most of theproduct and the basis of its origin the Product management is responsible forthe growth and development of the product in the market and sometimes theymay even be responsible for the bottom line generated by the product. 2. Historical BackgroundBusiness executives throughout industry spend more and more time trying toanswer one basic question: ―How can I assure continued profitable growth ofmy business?‖ The answer to this question is quite simple: ―By providing theoptimum solution to the market needs.‖Market needs are classified as Goods or Services. All these have a tangiblevalue and can be commercially produced and marketed profitably. For ourpurpose, we shall classify both – goods and services – as products. Hence, ifwe were to answer the above question again, it could be: ―By providing acontinual flow of new products to satisfy market needs or desires.‖ Thequestion then arises: ―Now where will these products come from?‖In the early 1900s, new products were created by gifted inventors who workedwith crude equipment and facilities but were creative geniuses withdetermination and vision to follow their discoveries in spite of tremendousdifficulties. Men like Edison, Watt, and Marconi created products like theelectric bulb, steam engine and the telegraph. All their products came fromyears of hard work and hit and trial experiments. Once these basic inventionswere developed, new products evolved. For example, after the steam engine,motorised transportation in the form of cars became a reality, and steam boatsreplaced horses and sailboats.By the end of World War I, new technologies had become so complex and thespeed at which new developments were made became so rapid, that theindividual inventor became less and less relevant. Instead, companies startedorganised development of products. World War II gave a further impetusto the development and refinement of products. However, most of these werebased on Research and Development (R&D) in a given manufacturing companyand were not driven by customer needs. The R&D product planning programswere expensive and slow, and they often were unproductive. Managementsthen concluded that a new approach was needed to make product developmentmore productive. They realised that to be successful they needed to identifyproducts that could satisfy the customer’s needs and desires, and which 4
  5. 5. could, at the same time, match the companys manufacturing capabilitieskeeping in mind the constantly changing market conditions.Thus, it was no longer a case of merely reacting to market conditions. Acompany needed to stay ahead by creating new markets while continuingto dominate existing ones. Hence, what was needed was a formal approach toProduct Planning and Management.The formal process of Product Planning & Its Management is led by a ProductManager whose primary role is to serve as the ―Voice of the Customer‖. Heis responsible for the ―4P’s” of Product Management: – Price – Place – Product – PromotionNote: This includes indirect management and cooperation with other membersof various groupsIn this book we will go through the various aspects of Product Management asis now undertaken in this complex business environment. The book has beenstructured in five broad areas. The first being the introduction to the basicsubject itself where we will not only have a look at the historical backgroundand how product management has come out from being a product of ‗creativegeniuses to a well structured process with a reasonably well defined interfacewithin the organisation. In the chapter 2 and 3 the whole process involved inmanaging product development and how once we have decided what productto make the organisation needs to function in order to bring our the product tothe market in the shortest and most efficient manner. It also discusses how theproduct launch can be staggered to provide a strategic advantage to theMarketer.Once we are through the basics we go to the next section consisting of units 4,5, 6 which will discuss in greater detail how we must organise ourselves todevelop new products and go through the process of generating new ideas andevaluating which of them is economically viable before actually taking up thedevelopmental effort of time and money.The next section with units 7, 8, 9, and 10 will help you understand how fromthe concept we actually undertake the development of the product, and pre-test or test market the product before we actually launch it in the market.Once we find that eh product meets our marketing objectives the steps weneed to follow to launch the product.Now that we have launched our products we need to understand how tomanage these products that are in the markets. The units 11, 12, 13 and 14will give you an insight into where new products should be added, when shouldyou support them in their life cycle and when should you decide to withdraw 5
  6. 6. the product. In this section we will also understand how to balance theproduct portfolio and the factors affecting the pricing decisions.We know that in addition to the product it is equally important to package andbrand the product in a manner that it fits in the product positioning that hasbeen decided by the product management team. So the Units 15, 16, 17 and18 will take you through the processes followed to arrive at branding,positioning and packaging decisions. 2.1. Your Learning 1. What was the need for an organised product management process? 2. Do you think that with today‘s organised product management process we are able to address customer needs better? 3. Product Management and its Interface with Other Organisational Functions Though all the ―P‘s‖ are interlinked and affect each other, it is the Productthat has the most profound effect on all the other functions. Hence thestudy of the product management process is an extremely important process.It is this function that has a large impact on the bottom line of the organisationand also whether the company is able to stay ahead of competition giving thecompany a strategic advantage to leverage.Product Management interfaces with other functions in the following manner: 3.1. It identifies a market problem/ customer needs This means that the Product Management team uses methods and techniques that help it to identify the problems that the customer would like to have a solution for. Once they identify this, they create a product that will resolve the problem or satisfy that particular customer need. 3.2. It quantifies the opportunity Any new product development that will resolve a customer problem will need a company‘s resources in terms of time, people and money. The company‘s decision to invest in these costs will depend on the business opportunity that could be created by this product. The Return on Investment (ROI) must be large enough for them to make sufficient profits in order to recover the initial investment costs within the break- even period and then convert it into a profit making proposition. 6
  7. 7. 3.3. It communicates the market opportunity to the top managementSince only the top management can commit resources for new productdevelopment, the product management team must provide them withthe business rationale for following the opportunity and give them abusiness plan to convince them to commit resources for research anddevelopment.3.4. It communicates with the Product Development teamOnce the top management has given their approval for development, theproduct development team must be explained what the marketrequirements of the finished product are so that they are clear aboutwhat they need to develop. Let us take an example: In the initial stagesof the development of mobile phones, the customer had to hold thephone to his ear to listen to the other person. Phone companiesunderstood the market need of their customers not wanting to hold thephone to their ears. They communicated the product development teamthat they need a product that fdoes not force the customer to hold thephone to his ear. The product development team developed an earphonethat was linked to the phone through a thin wire plugged to the phone.While this was better than the earlier system where the customer had tohold the phone to his ear, the Product Management team wanted afurther improvement since the wires always interfered while handling themobile phone, and in any case, the customer had to continue to hold thephone in his hand. The product development team then came out with acordless earpiece that solved this problem.3.5. It communicates to Advertising/ Promotion teamEach product is positioned for a specific category of customers. TheProject Management team shares its vision with the publicity / salespromotion team giving them the positioning of the product. E.g.: AMaruti 800 is positioned for a middle class customer while a HondaAccord is positioned for the high income customer. They type ofadvertising communication for each type of customer is different andhence the Product Management team must explain the positioning to theAdvertising team so that the right communication can be generated.3.6. It empowers the sales teamThe sales team also needs to understand the product so that they caneffectively sell the product to the customer. That is again theresponsibility of the Project Management team – to define the salesprocess and identify the necessary sales tools to sell to thecustomer. A Maruti 800 customer will focus mostly on price and may 7
  8. 8. not be so feature conscious while the Honda Accord customer will focusmore on features, styling, and comfort. Hence the selling tools for boththe products will be different.3.7. Your Learning 1. How does Product Management function impact Marketing of a product? 2. How does the top management benefit from a separate product management team? Fig: 1.1 Product Managements Role 4. What a good Product Management must doA good Product Management Team or a good Product Manager must workin order to keep his company ahead of competition and help provide acompetitive edge to the company. Some of the characteristics thatdifferentiate a good product management from a bad one are:a. Realize your product is not the centre of your customer’s worlds A good product manager must realize that his product is most probably one of many products which a customer uses every day. A product manager is likely to think about his product all day, every day. It is very unlikely that the customer think about or uses this product nearly that much; to them, it is more likely just one of the many products in the market. Thus decisions about product design and features must keep this in mind. If we are over absorbed about our product and think the customer will understand everything or will find everything we develop useful, we may create problems for ourselves. For example:  We can add features that we consider useful but if the customer does not use them then it is of no use putting the feature no matter how useful we think it is.  If we use very specific terminology (which sometimes gets developed internally in the organisation during the development phase of the product or may be a technical term not generally used) which is not easily recognized by anyone new to the product. Then this may not be understood by the customer. 8
  9. 9.  If we get too involved with our product we may miss identifying how it can be used with other products thus missing potential business opportunities. Hence a wise product manager will generally:  Use existing standards whenever they are relevant and applicable. If we have a standard QWERTY key board for computers and we change this for some other purpose then it may become difficult for customers to use this.  Realize that products work with other products which the organization produces as well as products and systems created by others — including your competitors.b. Save some features for later It‘s important to include enough features when a product is first released, and delaying the release of some features helps because:  Customers have difficulty in grasping too many features at once. Also extra features may distract the customer towards the less important features and make him miss the truly differentiating features.  If features are added with passage of time then product life can be extended by giving the customer an improved version of the product. Many times these can be given as priced value additions.  Giving some features later may also provide the opportunity to upgrade or modify existing features that may be needed by the current market customer expectations. It is not possible for the product manager to know and plan for all features needed by the market and hence this enables him to keep his product abreast with the market and deliver a better bottom line.c. Product management is more than prioritizing product features Product managers needs to have a much broader view and needs to see and understand everything from the basic customer needs to the business model to the product roadmap to the go-to-market strategy. Unfortunately, many product managers take the easy feature-focused development mode. As a result they do not see their function in a holistic manner.d. Differentiate to avoid being a ―me too‖ 9
  10. 10. A good product manager must try to differentiate his product and avoid being a ―me too.‖ Getting into the market speedily is definitely important; however it is always better to come into the market later with a better product than slightly faster with something that does not stand out. Being first is good but it is no guarantee of success. Amazon.com was not the first online bookseller; Google was not the first search engine; the iPod was not the first portable MP3 player; the list can go on and on. In “Product Leadership: Creating and Launching Superior New Products , Robert Cooper” offers some amazing statistics on ―truly superior, differentiated products‖: One of the top success factors we uncovered is delivering a differentiated product with unique customer benefits and superior value for the user. … Our NewProd projects studies show that such superior products have five times the success rate, over four times the market share, and four times the profitability as products lacking this ingredient. “Truly Superior, Differentiated Products” had an average 98% success rate and 53.5% market share, while “Me-Too” Products averaged an 18.4% success rate and 11.6% market share. Though the desire for quick revenue and immediate return within organizations is often strong, though there is good cause for launching the “right” product. In the end, the extra effort put into figuring out how to differentiate a product will be well worth the effort.e. Reinforce your product-related communication Product managers have to ensure that any communication they send out must be clear and consistent. They need to do this in order to avoid confusion over action proposed or being taken. The product manager has to ensure that any communication he sends out must be understood and taken note of by all concerned with the product – be it sales, or distributors or even the internal departments like engineering, R&D, marketing etc. So that all of them are on the same page. We all know that communication is one of the most difficult things to do and many times people do not get the communication in one go. Thus the product manager must follow up and make sure that the communicated information has been received and understood by the recipient. 10
  11. 11. f. Do not think that a single product will solve all problems for customers We may like to make a single product that will solve all customer problems since this way our development costs would be minimum and profits would be maximum. However, trying to make it everything for everyone usually results in a product that does nothing for no one. In order to make a product do everything for everyone we would need to add a lot of features to it making it extremely complicated for most. And it makes it difficult or the marketer to sell the differentiating factor to the customer. We can see that today we are seeing more and more products that are focussed on a specific benefit – eg anti dandruff shampoos (Head and Shoulders, Clinic All clear), powders for heat problems (Navratan), soaps with cream (Dove), Fairness cream for Men, etc. This is not to say that an all-in-one strategy is always bad. Product managers can still choose to follow an all-in-one strategy; they just must be aware of the impact it may have on the perceptions of customers. Even then, an all-in-one product should be that way because it provides value and solves specific problems for the customer, not just all-in-one for the sake of being all-in-oneg. Define the problem before solving it Product managers and many others unfortunately assume the problem is clear and jump straight away to solving it. However, improperly-defined problems lead to improper solutions. Albert Einstein is supposed to have said that, given one hour to save the world, he would spend 55 minutes defining the problem and 5 minutes finding the solution. This quote does illustrate an important point: before jumping right into solving a problem, we should step back and invest time and effort to improve our understanding of it. The first and foremost thing to be done before solving the problem is to define it correctly. This definition should neither be too narrow or too broad. A narrow definition will limit the scope of the solution and similarly a very broad definition will give us solutions that may not be relevant to the problem. Going too far in either extreme may be unproductive and inefficient in many situations. Product managers must not be in a hurry to write down features without clearly defining the problem. Relooking at problems can always provide a fresh perspective and give interesting solutions. Many times the product manager should take the help of research to 11
  12. 12. clarify and define issues. The time spent in defining problems in the early stages always helps save time spent later in resolving issues. 5. Summary Historically product development was dependent on work undertaken by inventors and geniuses. Later with the advent of competition it became more organised. Products were developed in research laboratories of large companies. However these were products that could be developed rather than what was needed by the customer. As competition increased further companies were forced to understand what were the customer needs and develop products that were needed by him. This led to the creation of the Product development function. The product development function is an important function that needs to interface with all functions of an organisation. 6. Key Words1. Goods and Services – Goods and services are the outputs offered by businesses to satisfy the demands of consumer and industrial markets. They are differentiated on the basis of four characteristics:a. Tangibility: Goods are tangible products such as cars, clothing, and machinery. They have shape and can be seen and touched. Services are intangible. Hair styling, pest control, and equipment repair, for example, do not have a physical presence.b. Perishability: All goods have some degree of durability beyond the time of purchase. Services do not; they perish as they are delivered.c. Separability: Goods can be stored for later use. Thus, production and consumption are typically separate. Because the production and consumption of services are simultaneous, services and the service provider cannot be separated.d. Standardization: The quality of goods can be controlled through standardization and grading in the production process. The quality of services, however, is different each time they are delivered.2. Continual flow of new products – The customer needs to get something new in order to stay interested in a company‘s product. This can be in the form of new features, new shapes, new products and even a new price. This innovation is the continual flow of new products.3. Voice of Customer – is a term used in business to describe the process of capturing a customers requirements. Specifically, the Voice of the Customer is a market research technique that produces a detailed set of customer wants and needs. Voice of the Customer studies typically 12
  13. 13. consist of both qualitative and quantitative research steps. They are generally conducted at the start of any new product, process, or service design initiative in order to better understand the customer‘s wants and needs, and as the key input for new product definition, and the setting of detailed design specifications.4. Return on Investment is usually expressed in percentage. It is the percentage of money gained or lost on an investment relative to the amount of money invested5. Breakeven Point is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even".6. Business Rationale defines the fundamental reason or reasons why developing the product will be beneficial to the business. It outlines a reasoned step by step explanation.7. Business Plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.8. Product Positioning means the process by which marketers try to create an image or identity in the minds of their target market for their product, brand, or organization. The objective of this to ensure that the consumer remembers the product or brand in spite of the noise created by the communication clutter.9. Sales Process is a systematic approach to selling a product or service. It includes all aspects of sales and helps in creating standardized processes which allow monitoring of processes and in enhancing sales.10. Sales Tools All factors that help in selling a product are the sales tools. These include consumer schemes (e.g. buy one get one free, buy a car and get a chance to win a TV, etc) advertising, printed leaflets, banners, channel push, etc. 7. Exercises1. How can the product management team help in defining the sales process?2. How can the sales tools be developed by the product management team?3. How is the product management team different from the product development team?4. The product management can help improve sales? Do you agree or disagree with this statement and why?5. What is the importance of Product Development? Do you think that an organised process of development is helping us develop products that the customer needs? 13
  14. 14. 8. Further Reading1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India:Response Books Page 1-6, 17-203. Gorchels, Linda, (2006) The Product Managers Handbook, New York,USA: McGraw-Hill Chapter 14. Mukherjee, Kaushik (2009) Product Management , New Delhi, India: PHILearning Pvt. Ltd Pg 4 – 105. Lehmann, Donald R and Winer, Russel S, (1997) Product Management,Singapore, Irwin/ McGraw-Hill Pages 15 – 186. Crawford, Merle and Benedetto, Anthony Di (2004) New ProductManagement Singapore, McGraw Hill Page 5 – 10 14
  15. 15. 2. UNIT II - Product Management Process 3. Learning Objectives  The Product Management Cycle and its significance in Product Development.  Management of the Product Development Process.  Some key issues to be considered while discontinuing an existing product and launching a new one. Structure 1. Introduction 2. Product Management Cycle 2.1. New Product Identification 2.2. New Product Definition 2.3. Product Development 2.4. Product Launch and Growth 2.5. Product Discontinuation 3. Your learning 4. Summary 5. Key Words 6. Exercises 7. Further Reading1. Introduction We have seen that a company needs to stay ahead not only in its existing markets but also in new markets that it expands into. In order to stay ahead, it needs newer products on an ongoing basis that meet the needs of a continually changing market. We have also seen that the product development process has become a complicated and expensive process. Hence a structured approach to product development is needed. This is also called the Product Management Process. 15
  16. 16. The Product Management Process is cyclical in nature – this means that product development is a continual and ongoing process which goes through a cycle. As old products die new ones are born and so the cycle goes on. This process of managing the entire lifecycle of a product from its conception, through design and manufacture, to service and disposal integrates people, data, processes and business systems and provides a product information backbone for companies and their extended enterprise2. Product Management Cycle The ―Product Management Cycle‖ has five stages: i. New Product Identification ii. New Product Definition iii. Product Development iv. Product Launch and Growth v. Product Discontinuation1. New Product Identification Phase This is the phase in which the company conducts various activities in order to understand the customer’s needs and desires and define the functional requirements of the product. The product management group is entrusted with the task of creating a systematic process to understand the customer requirements and create a document that outlines what the product functions should be. During this phase the product development personnel and people from top management undertake some of the following activities: i. Customer surveys and responses to existing products so that improvements to existing products can be undertaken. They also try to understand what the customer feels are his pain areas (areas where the customer has problems). Many times it is the solution of the pain area of the customer that gives rise to new innovations. When a company is selling a product in its target segment then this product will fulfil all the needs of a part of this segment, most of the needs of a large part of this segment and some of the needs of the balance. In order to know whether the company‘s products are meeting the customer‘s expectations the company‘s sales force or an agency appointed by the product management team. These people 16
  17. 17. generate a feedback from the customers some of which is extremely useful in generating new ideas. ii. They read journals, magazines, books, and also go to international exhibitions, conferences and see what innovations are being displayed and discussed by eminent scientists, business associates and competitors. This helps them keep abreast with the latest developments around the world so that they can use some of these in their own products. It also helps understand what the competition could possibly develop in terms of new products. iii. Companies create think tanks that take in all the data that comes in from various sources and come up with various ideas. This consists of cross functional teams – teams consisting of people from various departments – many of whom may eventually be involved in the development of the product. These cross functional teams get all the inputs that is available for product development and they also bring into the team their knowledge and experience. Using this they debate and come up with ideas for new produce development. iv. All interesting information is collated and circulated organisation- wide – usually strategic planners or technology policy makers. Organisations generally circulate information about products, technologies, business processes, competition, etc within the organisation. This not only helps people keep abreast with the latest trends but also allows the germination of new ideas. During this phase several product ideas are generated and there is a fuzzy view of each of these products.2. Product Definition Phase During this phase various ideas for products generated in the first phase are discussed and evaluated so that the final product is finalised. During this phase the following activities are undertaken: i. The high level functions of the product are defined. High level specifications mean that these specifications are an overview of all the functions desired in the product. These are stated simply and are meant so that everyone in the organisation can understand the functions are and how it solves the customer’s problems. For example when the Nano was planned by the Tatas a high level specification would have given that they need to develop a car that will cost only Rs one lakh to the customer, would look modern, have the basic comforts, and that it would be positioned for a two wheeler owner who would aspire for a four 17
  18. 18. wheeler or an existing small car buyer who would like to buy a more economical more modern design.ii. A business case is made for the new product. This business case defines the size of the market, the segment for which the product has been defined, what are the investments needed to make and sell the product and what will be the profit that the product make during its life cycle. It also outlines what are the competitive products currently and also likely to be launched by the competitor. Once the basic product has been defined like the Nano the product management team will have to make a detailed report in which they will have to evaluate whether this product will make business sense. At the end of the day the business needs to make a profit and if a product cannot make profit it will not be considered for the next stage of development. The study done in this phase is relatively preliminary and is done to understand the basics of the economic feasibility.iii. In this stage the product management team has to sell the idea of the product to various people in the organisation – sales, production, R&D, HR, etc. Once the Product Development team has determined that the product is viable it has to convince the management that the product not only meets the strategic objectives but also the profit objectives of the organisation. Until the management is convinced the financial commitment needed to commence product development cannot be made. The presentation to the management will also have details of the financial support needed for development, the time by which the product will be developed, the business prospects and the techno-commercial feasibility. During this phase, the Technology group with industrial engineering group conduct a feasibility study; In addition, an economic study is done. Let us say in the case of the Nano once the basic product idea had been agreed to in principle the product development team would have conducted a study as to understand how they can meet the given objectives of the product specification and yet make the product feasible. This is done in consultation with the technical teams of the organisation like R&D, operations, procurement etc in order to understand broadly if the product can be made economically, At this stage many assumptions are made based on which the decision is taken. For example the product management team will assume that a certain technology needed to manufacture the product will be available at a certain cost and base their calculations on that. This assumption is based on the experience of the people in the organisation and no formal quotation is taken since it has 18
  19. 19. not been decided for sure that this is the technology that will be used or some other option will be taken. Later once the decision is taken then the organisation tries to get the technology for a price below the figure taken in the assumptions.3. Product Development Phase Once the product‘s high level specifications have been finalised and the top management has approved this product and committed resources for its development, the Product Management Group involves the Product Development Team. This team consists of people from R&D, Manufacturing, Industrial Engineering and Sales. They are given the high level specifications of the product and given the tasks of creating the actual physical product. During this phase: i. The various functions involved in the Product Development Team make a detailed specification of the product. They also define the look and feel of the product. The task of converting a high level specification as given in 2.3.2.i into a detailed product specification is not a small task. It involves a detailed process in which several functional areas are involved. Each functional area provides inputs in the best way of meeting the products objectives and the Product Development team considers all the inputs and decides on what options to take. During this period the product specifications may undergo minor changes keeping in view the strengths of an organisation – however the overall functional requirements will remain the same. ii. They evaluate the various options in manufacturing processes and the need for any new technology to make the product. They also evaluate the impact of various options in making the product in terms of investment needed, profits generated, etc. While making the detailed product specifications the management also evaluates the manufacturing options it has for the new products. They need to evaluate whether the existing manufacturing processes are adequate for making the new product, or they need to expand the manufacturing set up or they need to create an altogether new facility. Many times it happens that new technology needed to manufacture the new product has a significant impact on the existing processes and so the management needs to evaluate whether such a technology should be used or not, whether this is going to be beneficial to the organisation in the long term, since it may involve a lot of retraining of its manpower for using the new technology. iii. The first prototype of the product is developed and evaluated to see if the product meets all the functional requirements set out in the initial 19
  20. 20. document. This is an important stage in the product development cycle. This product is put through functional trials to see if the specifications laid out at the beginning are met – not only form the engineering point of view but also from the customer‘s requirements point of view. At this stage sometimes a few chosen customers are also shown the product for their feedback. The feedback from testing and the customer is considered by the product management team and they decide on the changes to be incorporated in the product. iv. At this stage the product is more or less finalised and the product functionality frozen. However some fine tuning may continue till the product launch and even during the life of the product. These modifications are done to suit the conveniences of manufacturing or additional features needed by Sales. v. Once the final product comes out of the factory it is once again shown to some key partners (much larger numbers than before) in the market and sometimes test marketed in a small area to get the more feedback. Test marketing is usually done so that the actual user experience is received. It is normally done in a small representative market away from the main market of the company. The reason for doing the test away from the main market is that in case the test fails or has a negative impact the main market (which is significantly larger) must not be affected. This feedback also is discussed internally and the relevant parts are incorporated in the product. i. The product is then ready for launch.4. Product Launch and Growth Phase The product launch needs a lot of preparation so as to ensure that the product succeeds in the market. Just making a good product is not enough to ensure its success. Thus by the time the final product is ready, the Product Management group has to develop the support needed to launch the product in the market. They have to: 20
  21. 21. i. The product management team knows how they have positioned the product and what their target segment is. Along with the advertising department they have to develop the campaign needed to launch the product. Now keeping with the company‘s overall business objective they know how much they can spend on this campaign and so they plan the media according to this need. ii. The entire sales force, the channel partners must know what product they are selling and how it compares to competition. The customers must be able to understand the product they are buying. Hence the Product Management team must also develop the tools needed by the sales team and channel partners to sell the product effectively and for customers to understand them. They create tools like sales catalogs, leaflets, comparison charts with competition, explaining application areas and target segments for the product, they provide the pricing strategy, etc. iii. The Product Management group continues to provide support to the product throughout the life of the product by determining ways to improve sales, profitability of the product. Many times they have built in features in the product that have not been released with the initial launch of the product. These features are added into the product in a phased manner so as to stay ahead of competition and keep the customer interested in the product. iv. They also keep taking a feedback from the customer so that small incremental improvements can be made to the product thus increasing its life and profitability of the company while keeping it ahead of competition. v. We know that capital is scarce and new product development is expensive. Thus if we can prolong the life of the product it can help the company make profits while staying ahead of its competition. The products life and success will depend to a large extent on the ground work undertaken by the Product Management Group from the time of its development to its launch and stay in the market.5. Product Discontinuation Phase This is a critical phase in the management of products. This is the phase when the product is to be discontinued and a new product has to be introduced. This seems to be quite simple but in reality it is a difficult decision. The reason is that on one hand we have a product that is established in the market and has customer acceptance, and, on the other hand, the new product has still to be 21
  22. 22. accepted by the customer. If the current product is discontinued and the newproduct is not accepted by the customer, it can cause a major setback for thecompany. If we take the example of the Maruti 800 car – it is a car that hasbeen selling in large numbers, even though competition has introduced manyproducts. Now if Maruti introduces a new product in its place they are not surehow the customers will feel about. We know that the Maruti 800 is a car thathas excellent availability of spares and maintenance. Even the roadsidemechanic can repair it and so there is no problem in using it anywhere in thecountry – city, town or village. Any new car will take some time to penetratethe market so much. It will also take some time for Maruti to train itsengineers in their service establishments across the country. Thus there isalways some danger of losing a part of the market share to competitors. Hencesome of the considerations in this phase are: i. Availability of a new product – The foremost consideration in introducing a new product is its availability. ii. Awareness of the Competitor’s Products - At the same time we need to see what the competitor is doing. If the competitor has already launched a new product, it will force the company‘s hand in launching its own product. For example when Apple launched its iPhone with a large touch screen technology, other phone manufacturers were forced to launch similar products within a very short time. iii. Customer Maturity - Even though a new product may be ready, it may not be possible to launch it because the customers are not ready for it. E.g.: consumer durable manufacturers had washing machines ready in their product portfolio but could not launch it since the Indian customer was not ready for it. The Indian customer at that time felt that washing by hand was the done thing and that a washing machine never washed the clothes properly and that they never came out clean. iv. Adequate Training - In addition before discontinuing an existing product and launching a new product the organisation needs to be trained in it – E.g.: the manufacturing team must know how to make it, the sales team and its distributors must understand how to sell the product. If it is a product that needs installation and maintenance then this team must also be trained. v. Adequate stock must lie in the distribution channel so that once the product is launched and the campaign breaks out, sales must not be lost due to non -availability at the retail end. 22
  23. 23. Nowadays, because of the speed at which the market is changing and competition is responding, existing products are discarded even when they have not completed their economic life. This puts more pressure on the Product Management Group to develop newer products that will give returns in shorter and shorter periods of time. We therefore see that many CEO‘s make the product management team report directly to them since it has one of the most profound effects on the bottom line of the company. Fig 2.1 Product Management Cycle3. Your Learning 1. It is said that the product discontinuation phase is one of the most important phases in Product development? Why is this so? Please discuss whether you agree or not and why. 2. During the growth phase of the product what are the activities that can be done by the product management team to increase its sale?4. Summary The product management process is an important process in order for the company to stay ahead of its competitors. This process is divided into five phases starting from the need identification to defining the product, which is then developed. This developed product is the launched in the market and all activities are undertaken to ensure its growth. At the end as customer acceptance drops the product is discontinued. This is an important phase as in this phase the company has to ensure that another product is ready to take over the market being vacated by the existing product. Also the company must ensure that other infrastructure needed to support the new product is ready and in place e.g. training of manpower, distribution channel with adequate stocks, etc5. Key words 1. Pain Areas – these are the areas where the customer has a problem. These create opportunities for companies create a product. For example – people wanted to make calls more conveniently and did not want to walk up to a fixed line phones. This gave an opportunity to make cordless phones. These could be 23
  24. 24. used inside the house but could not go very far. These phones were the precursors of mobile phones.2. Think tanks – are a set of people whose job is to think / develop/ create new products or concepts.3. High Level Specifications – these are broad specifications for product usually used for one that is under development. These are created in the initial stages to give an a broad idea of the product features and design. These specifications are then used to develop the detailed specifications.4. Business case is a proposal developed by a specific department to justify its proposal as making business sense. This is used by the management to decide whether to go ahead with the project or not5. Size of market is the total possible sale that a product can have in a given market. This is given in terms of a Rupee value. For example we can say that the market for FMCGs is Rs 40,000 crores.6. Competitive products are competitor‘s products for a given category of products. These are the products that will compete in the market with the company‘s products. For example a there are several motorcycles in the 200 cc category made by various companies. These are competitive products.7. Feasibility study is the study conducted to understand if it is feasible to manufacture a certain product. This is done before a technical development or project implementation.8. Economic study once a feasibility study has found the project feasible an economic study is done to see if the project is economically viable.9. Industrial Engineering is a branch of engineering that concerns with the development, improvement, implementation and evaluation of integrated systems of people, money, knowledge, information, equipment, energy, material and process. It also deals with designing new prototypes to help save money and make the prototype better.10. Look and Feel is a term used to describe products in fields of product design, marketing, branding etc. to describe the main features of its appearance.11. Prototype is an initial product usually made to show a typical impression of the product.12. Product Functionality gives the various functions of a product. When the product functionality is modified it means that some functions of this product are changed because of some 24
  25. 25. customer feedback or lack of technology to manufacture the product or the cost needed to make this product does not make economic sense. 13. Test Marketing is a sample marketing undertaken when a product is being introduced for the first time. This is done in a small area which is representative of the market in which the product has to be finally used. However this market is usually not so large that in case the test marketing fails it impacts the launch of another modified product. It enables a company to check how the product will be accepted by the customers. 14. Campaign in the context of product management is usually used for a sales or marketing promotional set of activities. These could include advertising, consumer schemes, ground demonstration activities, etc to make the customer aware about the product and its features. 15. Customer Maturity as a person becomes more mature with age so do customers become more mature when they become more exposed to different types of products. They understand how to evaluate products and companies and are not easily misled by the jargon of marketers.6. Exercises 1. How does understanding the Product Management Cycle help in undertaking effective product management? 2. During the product development phase which are the departments involved and why does the product undergo changes in specifications and functionality? 3. Please explain in what ways the product management group can provide support to increase sales and profitability of a product? 4. How do you think feedback about the product can be taken from the customer? Once this feedback is taken what process will we follow to decide what feedback needs to be considered and what not? 5. Why is test marketing done and what are the benefits for the company?7. Further Reading 1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India: Response Books Pg 25-36 2. Mukherjee, Kaushik (2009) Product Management , New Delhi, India: PHI Learning Pvt. Ltd Pg 35 - 37 25
  26. 26. 3. Crawford, Merle and Benedetto, Anthony Di (2004) New Product Management Singapore, McGraw Hill Page 25 – 324. Gorchels, Linda, (2006) The Product Managers Handbook, New York, USA: McGraw-Hill Pages 71-74, 26
  27. 27. 4. UNIT III – The Product Planning System5. Learning Objectives  To understand the importance of Product Development  To understand how Planning is done for Product Development  To understand the Process which is used to Develop a Product  To understand who is Responsible for the Product DevelopmentStructure 1. Product Planning 2. Customer Requirement Document 3. Need for Customer Requirement Document 4. Contents of Customer Requirement Document 5. Development of Customer Requirement Document 6. Strategic Advantage of a Good Customer Requirement Document 7. Use of Archived Products in Product Development 8. Summary 9. Your learning 10. Key Words 11. Exercises 12. Further Reading 1. Product PlanningAll Product Planning is done to keep the company ahead of its competitionand to give it a competitive advantage. The Product Planning system mustdovetail into the business plan of the company. The success of thecompany is determined by the success of its products. Effective product plansare those which not only take care of market and customer needs but alsosupport company’s growth strategy. Now in order to create effective theproduct plans the product management team and the top management mustwork in close co-ordination with each other since 1. The product management team has the market information that he top management will need to create effective business strategy. 2. The top management is in a position to give a clear understanding of the company’s objectives and direction to assist the product 27
  28. 28. management team to develop the right products that will assist business strategy. 3. Based on the understanding the top managements objective and direction the product management team will also be in a position to develop the appropriate execution strategy and milestones in its execution.The Product Management team‘s job is to keep a track of the marketrequirements and map them against the managements objectives anddirection so that they can provide the right inputs on products to bedeveloped to the top management. The product management team collates theinformation from: 1. Customers a. By way of an unsolicited feedback from customers b. Customer surveys c. Customer needs as identified by sales or marketing teams of the company. 2. Think tanks in companies are always evaluating the environment and aligning these with the companies objectives and directions and creating product ideas for the product management team to evaluate. 3. Trade fairs – the product management team also visits various trade fairs as this not only tell them what the competition is planning but also gives them a new insight into new technologies and developments happening all over the world. This also assists them in creating business ideas that will give their company a competitive edge. 4. Competitors activities – since one of the primary objects of product development is to provide the company a competitive edge to the company, understanding the competitors activities is very important. Competitor‘s activities also are a source of product ideas. These are found from some announcements that the competitor makes in the press, from the sales channel since the distributors are amongst the first to know if a competitor is planning something new, or from some test marketing that the competitor undertakes, and many times from raw material suppliers. Raw material suppliers visit similar companies and come to know of new developments because they are the one who need to supply material and components for new products. 5. R&D or technology development by the company – every company that has kept ahead of competition has also undertaken some form of research and development of new products. Technology that is developed in-house is also a great source of product development. 28
  29. 29. 6. Patents and technology search allow the product management team to know what technologies and processes are available for use. Sometimes the purchase of a patent/ development of a technology allows the company to develop products for which the competition may not be able to have an immediate answer. For example when the Xerox Corporation developed their copier technology there was no other company in the world which had a similar process and Xerox had a virtual monopoly over the product sales for many years. It is only later when Xerox became over confident and stopped investing in the brand and the technology that other companies like cannon, Toshiba came and overtook them.The Product Management team continuously evaluates the inputs received by itfrom various sources round the year. This information is used by it to developnew products that have a strategic fit with the business objectives of thecompany.All these activities lead to the identification of the product and thecommencement of the developmental process. This process is a much morecomplex process as compared with the initial steps taken in identifying andfreezing the customer requirement. These requirements form a part of a veryimportant document called the ‗Customer Requirement Document‘. Thisdocument if created in the right manner can help a Product Manager get theproduct to the market in the most economical manner and also help himmanage the product through its life giving the company maximum returns. 2. Customer Requirement DocumentAt the heart of the whole process of product planning is the development ofthe product. Any delay in the development of the product has a cascadingimpact on the company‘s sales and profitability. Hence it is important thatbefore anything else, the decision on what product has to be developed istaken quickly; this decision pertains to the product‘s broad specificationsand marketing objectives. Once all these have been defined, the actualdevelopment of the product must be undertaken in a manner that reducesthe time to market.This phase of product development is the first operational phase where timeand money will begin to be committed by the company; the longer and more 29
  30. 30. complicated the process, the longer it is likely to take. The ProductDevelopment Process is led by a Product Development Team. This teamconsists of people from R&D, Manufacturing, Industrial Engineering,Quality Control, Sales and Marketing. It is often seen that delays inproduct development occur because of one or both factors listed below: 1. There is lack of clarity on what needs to be developed 2. There is poor co-ordination between the members of the Product Development Team Their first task is therefore is to create a single composite documentthat will lay out what the customer wants and how the company is going tobenefit from it, what functionality needs to be inbuilt for the customer, etc. 3. Need for Customer Requirement DocumentWe have seen that the Project Management Process has five stages whichtake the product from its inception to its final withdrawal from the market.In all this, there is one document that virtually holds the entire processtogether. This document lays down what each functional area (within theorganisation) has to undertake. It also documents the commitments made intime and cost by each functional area. This is called the CustomerRequirement Document (CRD). The advantages of this document are listedbelow:  It allows you to completely think out the product and strategy in advance  It makes sure you do your groundwork before any activity (commitment in terms of time and money) starts  It gives everyone involved an idea of the various aspects of the product the Product Manager is working on 4. Contents of Customer Requirement DocumentThough we need to have a comprehensive document that must contain all thenecessary elements, it is also important that this document is brought outquickly and must contain the commitments of all the stake holders inthe Product Development Team. The reasons for this urgency are:  If we take too much time in getting out the CRD then it may become outdated since the market is moving so fast and priorities are changing very rapidly.  Also all the stake holders in the product development process i.e. R&D, Manufacturing, Industrial Engineering, Quality Control and Sales must give their inputs and commitments to time taken and costs likely to be incurred. 30
  31. 31.  Thus the development of the CRD must be an interactive process between all the stake holders. 5. Development of Customer Requirement DocumentThe prime responsibility for the development of the CRD is with theProduct Manager who is functionally a part of the Marketing Department. TheCRD can be developed in two ways:  The Product Manager can develop the complete document on his own marking the activities to be done by various other departments and put time frames in which he needs the product.  The Product Manager can create a broad overview document and then sit along with the other departments involved in its development and create the detailed document.In the first process, where the Product Manager makes the complete CRDhimself, the document may be more weighted from the Marketing and Salespoint of view, and when it reaches the other functional departments they mayor may not agree with the possibility of creating functionalities, time and costestimates specified by the Product Manager. This can thus lead to a lot ofrework and disagreements in the team leading to delays or the finaldevelopment of products that may not have features that the Marketing teamwas depending on to promote the product. Also since the complete documenthas to be made in detail it is likely that the Product Manager will take muchlonger to get the document ready – thus leading to the possibility ofmaking a document that has lost touch with the market before it is ready.The other way is for the Product Manager to make a CRD quickly is to make adocument that has separate sections with large amount offunctionality. Each of these documents is further broken down into small welldefined tasks. The smaller documents are created along with the peoplefrom the department that is going to be involved in the development of thatfunction. The documents involved with each functional area are livedocuments that may continuously be updated as the product developmenttakes place. This way the team is able to start the work quickly and at thesame time keep the changing market conditions in view. The process followedhere is: 1. The CRD lists out all the functions and features that the product must have. 2. Each of these functions must be listed by priority i.e. the highest priority first and then the next and so on. 3. Now the Product Manager starts from the highest priority feature and breaks it down in to tasks that need to be done in order to accomplish it. This listing of tasks is done along with the persons who have to work on it. The advantage of this is that it brings in their commitment and ownership and the document is not one where the Product Manager has thrust on the other departments. 31
  32. 32. 4. During the discussions the developer gives an indication of the time and resources needed to complete the task. 5. Once this is complete the Product Manager signs off with the developer and the signed off document is circulated within the team while the developer commences his task. This allows the other team members to understand how the development of the feature will impact their functional areas and make the necessary preparation to be ready when it comes to their functional area. For example, if the R&D team has circulated a signed off document giving the type of development that is going to be made available, the Production and Quality Control teams can begin to understand how they will be impacted by the new technology and prepare for it. 6. The Product Manager moves onto the person/ department who will take on the development of the next most important task and so on this process carries on till all the features are accounted for. 7. Another advantage of this process is that we can involve the customer at any stage of the design to get him to meet the person developing the feature. This is beneficial since it helps the developer get a clear understanding of the customer‘s needs.Many times, the market conditions force us to release products that are notfully ready. This may be due to some activities of the competition or anexisting product of ours not doing too well in the market. This process allowsus to launch products with the key features and add more features asthey are developed. 6. Strategic Advantage of a Good Customer Requirement DocumentThis process has the following advantages over the method of a ProductManager making a complete CRD document and then sending it to theconcerned stake holders for development: 1. The Product Manager is much more closely involved with the development team from the beginning and so has a clear idea of what is possible and what is not. 2. Since the Product Manager has prioritised the development of the features he can release the product even if all the features are not ready and can strategically keep on adding more features as time goes along. 3. Even when the product is launched with a few features it does not create a major upheaval in the development team since they are developing the feature in sequence of importance. 4. We can bring in customers to meet developers so that they can be sure that features desired by the customers are developed in a manner that is needed by the customer and not as convenient to the developer. 32
  33. 33. 5. This way the customers also feel more committed to purchasing the product as they feel it has been developed for them. 6. The commitments on time, etc are given by the development team and so they are more committed to meeting the deadlines. 7. The Product Manager is involved in managing several small functions of manageable proportions. He is also in a position to decide the strategic launch of the product rather than having to wait for the full development of the product. 8. The progress of the whole project can be measured in a more accurate manner. 9. During the development process the other departments involved in the development, quality control, sales, and technology development can work together and in anticipation of each completing the task.However, like all processes, this also has its set of disadvantages: 1. This process requires a lot of co-ordination on part of the Product Manager. 2. It becomes very critical that the agreements generated between the Product Manager and the developers are circulated in time and appropriately amongst the whole team. 3. In this method, unless the Product Manager and the developers agree with each other, it is not possible to move ahead. Hence it takes a lot of give and take. 4. There is no single comprehensive document to review but many small ones. 7. Use of Archived Products in Product DevelopmentNow we must realise that though it seems that product development is asimple and straight forward process it is not always that we get products thatcan be commercialised.There are many reasons for not commercializing products. Some are 1. The products developed do not meet the customer’s requirement. Many times a customer may want a product with certain properties but it may not be technically feasible to get a product with desired features. 3M was asked by one of its customers to develop an adhesive with certain properties but the product developed did not meet the customer‘s requirements. 2. Some products are developed as a by-product of another development and so have no commercial value. 3. Some products are too expensive for current usage and cannot find applications today for example the use of solar cars. These cars are very expensive as compared to existing cars which are based on 33
  34. 34. cheap fossil fuel. The solar cars will find an application as fossil fuel becomes more expensive and global warming makes use of these cars more difficult. 4. Sometimes the cost of commercialisation is very high for example the use of wind power was known for many years but the cost was too high as compared to cheap fossil fuel. However today with the increase in cost of fossil fuel, the possibility of its finishing in the next 50 years or so the use of wind power is becoming more prevalent.Products that are developed but are not commercialised archived and alsoform a pool of resource which comes in handy for the development of newproducts.In Figure 3.0 you can see that product conceptualisation is a combination of apractical (consumer) need real or perceived and some naturalphenomenon which comes from creativity, ingenuity and out of the boxthinking. It is not always that a product developed has the necessaryrequirements for commercialisation. So these products are archived. Nowit has been seen many times that from these archives some excellent productshave been developed.Let us take the example of Post-it notes. A Post-it note is a piece ofstationery with a re-adherable strip of adhesive on the back, designed fortemporarily attaching notes to documents and to other surfaces: walls, desks,computer displays, and so forth. 34
  35. 35. Post-it® Notes were not a planned product. A man named Spencer Silver was working in the 3M research laboratories in1970 trying to find a strong adhesive. Silver developed a new adhesive, but itwas even weaker than what 3M already manufactured. It stuck to objects, butcould easily be lifted off. It was super weak instead of being super strong. Noone knew what to do with the adhesive, but Silver didnt discard it. Then oneSunday four years later, another 3M scientist named Arthur Fry who was a newproduct researcher with a knack for inventing things was singing in thechurchs choir. He used small strips of paper to mark his place in the hymnbook, but they kept falling out of the book.He knew that Silvers adhesive did not bond permanently or leave a stickymess and he soon realised that if he applied a thin coating of the glue on astrip of paper it would also be re-useable. He need not lose his place in hishymn book againIt still took a long time and a lot of effort on the part of Art Fry and hisaccomplices to persuade 3M that their product would work. There were manydifficulties to overcome, and at each stage of the way Fry would have toconvince the engineers and product developers to press on and find a way toproduce the blocks of notes 35
  36. 36. It was finally Introduced to the market in 1980, one year later Post-it Noteswere named 3Ms Outstanding New Product, despite the fact that at first theyhad to be given away free, to demonstrate their usefulness.This was ten years after Silver developed the super weak adhesive. Todaythey are one of the most popular office products available. 8. SummaryThe actual process of product planning begins much before the creation of aCustomer Requirement Document. It begins with the definition of businessobjectives by the top management and in order to fulfil these objectives theproduct management team undertakes an elaborate exercise not only fortracking customer requirements but also to scan competitors activities,technologies evolving, etc to make sure that they have the products that willgive the organisation a competitive edge over its competitors. In this wholeprocess of planning and execution it is the creation of a Customer RequirementDocument that helps the product Managers to stay on course. This documentassists the Product Manager in developing the product by helping him create aroad map for the process. In addition it allows other functional departmentswho are involved in the product development understand how they areinterlinked in the whole process of product development. The advantages ofthis document are also that it allows the product manager to plan how featureswill be released in the market to ensure that the product meets its revenueand profit goals. 9. Your Learning 1. What is a Customer Requirement document? What is it used for? 2. How does having a Customer Requirement help? 3. Why must the requirements of the Customer Requirement Document be an interactive process and contain commitments of all the stake holders? 4. What process do you think the process manager must follow to make the CRD on his own or he must involve other departments which will be involved in product development? 5. What are the contents of the Customer Requirement Document? Who is responsible for getting it made? 6. What are the advantages of having a good Customer Requirement Document? 36
  37. 37. 7. Take a product that needs to be developed and write how you would go about making a customer requirement document. 10. Key Words1. Time to market – is the time taken to bring the product into the market from the time of its inception. Companies always work minimising this time. This helps them reduce development costs, pre-empt competition from getting new products into the market before them.2. Single Composite Document – Composite means made up of separate parts or elements. So a single composite document means that there is one single document that contains inputs from different departments but is comprehensive about all the activities that need to be done.3. Inception means from the beginning or the start.4. Stake Holders are all those who will be responsible for or benefit from an activity.5. Prime Responsibility means the main responsibility. This is usually with the person who is driving the project.6. Live Documents – these are documents that are continuously being modified along with the ground reality of the situation. This is different from changing a document without justification. Usually a liv document would be changed if say the market conditions changed dramatically or technology was not available for manufacture or it became uneconomical, etc.7. Sign-off – signals that some activity is complete or that an understanding has been arrived at.8. Archived Products – Archives are places where things that have no use or are old have been stored. So sometimes products that are developed but do not find use are stored. These products are the archived products. 11. Exercises1. What are the strategic advantages of creating a good Customer Requirement Document?2. In the CRD functionality is written in order of importance. Why is this done? How does this benefit the company in the rollout of the product? 37
  38. 38. 3. How does using Archived products in product development benefit the product development process. Does this turn out to be more cost effective or does it only impact time of development?4. Once a product manager signs of with the product developer why is it necessary to circulate this acceptance to all the other members of the product development team? How does this benefit the company? 12. Further Reading1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India: Response Books pg 29 – 38, 41 – 45,2. Mukherjee, Kaushik (2009) Product Management , New Delhi, India: PHI Learning Pvt. Ltd Pg 21 – 30, 73 – 763. Lehmann, Donald R and Winer, Russel S, (1997) Product Management, Singapore, Irwin/ McGraw-Hill 32 – 344. Gorchels, Linda, (2006) The Product Managers Handbook, New York, USA: McGraw-Hill p 90-96 38
  39. 39. 6. 7. BLOCK 2: MANAGING PRODUCTS 8. Unit 4: Product Line Decisions 9. 10. Unit 5: Product Life Cycle 11. 12. Unit 6: Product Portfolio 13.Unit 7: Product Pricing 39
  40. 40. 14. Unit IV - Product Line Decisions15. Learning Objectives  To understand what is a ‗Product Line‘ and its relevance in Product Management  To understand what how product line can be managed.  To understand difference between product mix and product line  Concepts in product line managementStructure 1. Product Decisions 2. Product Mix 3. Product Line 4. Product Line Decisions 4.1. Withdrawing Products 4.2. Increasing Products 4.3. Product Contribution 5. Summary 6. Your learning 7. Key Words 8. Exercises 9. Further Reading1. Product DecisionsDecisions regarding the product, price, promotion and distribution channels aredecisions on the elements of the "marketing mix". We can say that decisionsabout the product are amongst the important ones since they affect themarket planning of the company. If the wrong products are introduced in themarket it can have catastrophic consequences for the company. For examplecomputers may be totally unsuitable for rural areas where electricity is notavailable and where incomes are low; and the attempt to sell products tocustomers without considering their cultural values and needs both can havenegative consequences on sales and achievement of business objectives.However today‘s markets are a complex mix of aspirations and productrequirements and hence decisions are not so simple since the customer‘srequirement lies somewhere between his aspirations and his need for aproduct. Hence the marketer tends to introduce several products in his desireto meet the aspirations and needs of his target market. 40
  41. 41. Product modification decisions are based on how much an organisation has tostay close to a standardised product (just by extending it) or how much it hasto move towards innovation (by making something new). So betweenextension and innovation there is a whole spectrum of possibilities for differentproducts. The closer a company‘s products stay to extension the lower the costand the closer it gets towards innovation the higher is the cost of introductionor decisions.Product modification decisions revolve around decisions regarding the physicalproduct (size, style, specification, etc.) and product line management.2. Product MixThe product mix of a company is defined as the total set of products offered byit. The product mix consists of product lines and individual products. Forexample, all the courses a college offers makes up its product mix; courses inthe marketing department make a product line; and the basic marketingcourse is an individual product. Product decisions at these three levels (productmix, product line and product) are generally of two types: i. Decisions that involve width and depth of the product line and ii. Decisions that involve changes in the product mix occur over time – adding, removing products or enhancing the range (width).The depth of the product mix refers to the number of product items offeredwithin each line; the width refers to the number of product lines a companyhas. For example, Table 1 illustrates the hypothetical product mix of a college. P o li ti c a l Human Resources Mathematics S ci e n c e P ol iti Basics of HR Calculus I c al T 41
  42. 42. Political Human Resources MathematicsScienceheoryIndianGov HRM and Business Calculus IernmentIntern Recruitment anda Selection TrigonometrytionalRel 42
  43. 43. Political Human Resources MathematicsScienceationsStateR Internship Math TheoryelationsStati Employee Relations Calculus IIsticsHist Training techniques DifferentiationoryE Culture and Statistics 43
  44. 44. Political Human Resources MathematicsSciencen CommitmentglishIndianC Organisational HRM AlgebraultureInternati Quantumo Managing Diversity Mechanicsnalculture 44
  45. 45. Political Human Resources MathematicsScienceGlobal Performanceis Analytic Geometry ManagementationGameTheoryan Geometric Developing Peopled ConceptsPoliticalTheory 45
  46. 46. Table 1: Wide Width and Average DepthThe product lines are defined in terms of departments. The depth of each lineis shown by the number of different product items — courses offered — withineach product line. The college has decided to offer a diverse marketing mix.Because the college has a number of departments, it can appeal to a largecross-section of potential students. This college has decided to offer a wideproduct line (academic departments), but the depth of each department(course offerings) is only average. MathematicsPhysics Geometric ConceptsIntermediate Physics Analytic GeometryAdvanced Physics Calculus IQuantum Mechanics I Calculus IIPhysics and Astronomy Calculus IIIThermodynamics Numerical AnalysisCondensed Matter Physics II Differential EquationsElectromagnetic Theory Matrix TheoryQuantum Mechanics II Table 2: Narrow width, large depthSome other concepts in a product mix are family branding – If a line ofproducts is sold with the same brand name, this is referred to as familybranding. For example Nescafe has several products under its main brandNescafe – classic, gold, espresso, cappuccino, taster‘s choice, etc.When we add a new product to a line, it is referred to as a line extension.When we add a line extension that is of better quality than the other productsin the line, this is referred to as trading up or brand leveraging. When weadd a line extension that is of lower quality than the other products of the line,this is referred to as trading down. When we trade down, there are chancesthat it can lead to a reduction in the brand equity. We may get sales in theshort term but in the longer term it may harm the brand if we are not carefulon how we are going to use this lower quality/ price product. 46
  47. 47. Image anchors are highly promoted products within a line that define theimage of the whole line. Image anchors are usually from the higher end of thelines range. So when the company promotes them their values rub off ontoproducts lower down in the range and customer‘s perception for these productsis enhanced. So when a car company promotes its model it shows the top mostmodel in the range with a rider that all accessories are not a part of standardequipment. This helps to sell the lower end models of the same car.When we add a new product within the current range of an incomplete line,this is referred to as line filling.Price lining is the use of a limited number of prices for all your productofferings. Its underlying rationale is that these amounts are seen as suitableprice points for a whole range of products by prospective customers. It has theadvantage of ease of administering, but the disadvantage of inflexibility,particularly in times of inflation or unstable prices.Product-mix management and responsibilitiesIt is extremely important for any organization to have a well-managed productmix. Product-mix decisions are concerned with the combination of product linesoffered by the company. Management of the company‘s product mix is theresponsibility of top management. Some basic product-mix decisions include: i. Reviewing the mix of existing product lines; ii. Adding new lines to and deleting existing lines from the product mix; iii. Determining the relative emphasis on new versus existing product lines in the mix; iv. Determining the appropriate emphasis on internal development versus external acquisition in the product mix; v. Gauging the effects of adding or deleting a product line in relationship to other lines in the product mix; and vi. Forecasting the effects of future external change on the companys product mix.3. Product LineProduct Line is defined as a group of products that are closely related to eachother. They function in the same manner and are sold to the same customergroups. These products are marketed from the same types of outlets and fallwithin a specified price range. The product line has i. Line depth refers to the number of product variants in a line. ii. Line consistency refers to how closely related the products that make up the line are. 47
  48. 48. iii. Line vulnerability refers to the percentage of sales or profits that are derived from only a few products in the line. Ideally a company would like to get an even amount of sales from each product but many times one or two products do much better and so contribute a much higher percentage of sales. The company must evaluate if the other products not contributing much in terms of sales are contributing in margins. If not they must question the rationale for keeping such products in their product line.4. Product Line DecisionsSince products are in some way fulfilling the customer‘s aspirations and needsany change in any one or both of these will lead to changes in the productspecifications. This change is what leads to the introduction and withdrawal ofproducts from the market. Hence Product line decisions can be broadlyclassified under three categories:  Product Withdrawal/ Demise  Increase in Products  Item Contribution 4.1. Withdrawing Products Product withdrawal is as much a planned activity as introduction of a new product. Companies in-build the time of withdrawal of a product in their business strategy and link it with the introduction of a new product. Though companies would like the decision to withdraw a product to be a planned one sometimes competitive pressures either force companies to withdraw existing products or their sale decreases so much that there is no sense in continuing with the product in the market. The demise of the product can also be attributed to changes in the environment – attitudes and needs of the customer – which have been accelerated by market forces like competition, arrival of new technology, etc. Decisions on when to withdraw the product depend on several factors: i. Business objectives Profit/ sales ii. Strategic objectives – new prod ready, competitive product launched iii. New technology availability 48
  49. 49. iv. Need for variety by the customer or sales channel/ retailers.Product withdrawal even in a planned manner has its own risks because anexisting product already has an acceptance in the market and isestablished. It is giving the company some sales and profits. By this time itis likely that the product development costs have been recovered and theamount of money needed for supporting the product is not so much as thecustomers are already aware of the product. In addition the company hasbecome adept in manufacturing and selling the product. Once it iswithdrawn the company will need to introduce another product in its place.How this new product will fare in the market is not known thus there is arisk in its introduction. For this new product the company will need to spendlarge sums to promote it and generate enough sales to recover the costs ofdevelopment. The manpower and the sales channel will need to be retrainedin order to understand the product and its benefits thus involving cost. Howthe customer will take to this new product is not known for certain until themarket performance actually shows it.If the company plans to withdraw a product in a planned manned it mustevaluate the following: i. Has the product met its business objectives in terms of sales and profits? ii. Can the product continue to do so in the face of competition and changing market environment? iii. Can the product support the marketing expenditure being done in order to promote it. iv. Does the presence of the product help in selling other products of the company even if it is not making any money (Loss leader chapter 7) v. Does the company have a product that can fill the space vacated by this product? vi. Can/ should the company reposition this product? Is it economical for the company to do so? vii. Is the business strategy dictating the withdrawal of the product? 49
  50. 50. Thus we can see that the withdrawal of the product is a complex a task asintroducing a new one and yet it is linked with the introduction of a newproduct and the business strategy of the company. 4.2. Increasing ProductsNew product introduction is the logical extension of a product withdrawal. Acompany with finite resources can support only a limited number of products inthe market. Thus as newer products are introduced older products must bewithdrawn to make place for them. New products can be introduced in aproduct line in several ways: i. Stretching the product line: Stretching is a product lengthening beyond the current price range A company‘s product line may cover a certain range of the products offered within the industry as a whole. This may cover the range of price from the low to medium to high price. An example will be the Honda Accord, Honda Civic, Honda City and Honda Jazz starting from the highest price to the lowest price. However in this range the ultra high and very low segment are not covered. There are three ways to stretch the product line:  Stretching Down  Stretching Upwards  Two Way Stretching Stretching Down: If the company adds a product, at a price point, below the Honda Jazz model it will mean a downwards stretching of the product line. 50
  51. 51. Many companies launch their products at the upper price spectrum of the market and stretch their product lines downwards. They do this because: a. They try to respond to attacks to in their current upper price segment by launching a lower end product. b. They try and fill an empty price point before competitors can do so. c. To increase the number of products for expanding their market share. d. To counter the attack from lower priced copies being made by other manufacturers. The problems associated with a downwards stretch are: a. The competition may counteract by entering the upper price segment in which the company is. b. The company‘s sales channel – sales force and dealers may not be able to handle a low prices segment. c. The low end price products may eat into the sales of products from the upper segment thus lowering the sales of this segment.Stretching Upwards: If the company adds a product above the Honda Accordthen it would mean stretching upwards the product line. 51