PRODUCT, SERVICES ANDBRANDS- 2CREATING CUSTOMER VALUE
TOPICS TO BE COVERED INTHIS LECTURE Explain how companies find and develop new-product ideas. 2. List and define the steps in the new-productdevelopment process and the majorconsiderations in managing this process. 3. Describe the stages of the product life cycleand how marketing strategies change duringthe product’s life cycle. 5. Discuss two additional product and servicesissues: socially responsible product decisionsand international product and servicesmarketing.
NEW-PRODUCT DEVELOPMENTSTRATEGYA firm can obtain new products in two ways.1. Acquisition—by buying a whole company, apatent, or a license to produce someoneelse’s product.2. New-product development efforts.* There are a number of reasons new productsmay fail.
Product life cycleI. Product have limited lifeII. Product sales pass through distinctstages, each posing differentchallenges, opportunities, andproblems to seller.III. Profits rise and fall at different stagesof the product life cycle.IV. Products require different marketing,financial, manufacturing, purchasing,and human resource strategies in eachlife cycle stage.
Characteristics of the Productlife cycleStages Introduction Growth Maturity Decline1. Sales Low Sales RapidlyIncreasing SalesPeak Sales Declining Sales2. Costs High cost percustomerAverage cost percustomerLow cost percustomerLow cost percustomer3. Profits Negative More Profit High Profit Declining Profit4. Customer Innovators Early Adopters Early Majority +Late MajorityLaggards5. CompetitorFew More in number Stable number,beginning todeclineDecliningnumbers.
Characteristics of Introductory stagesof Product life cycle Higher investment, lesser profits Minimal Competition Company tries to Induce acceptance and gaininitial distribution Company needs Promotions targetedtowards customers to increase awareness anddemand for product Company needs Promotions targetedtowards channel to increase confidence in theproduct
Characteristics of Growth stage ofProduct life cycle Product is successfully launched Demand increases Distribution increases Competition intensifies Company might introduce secondaryproducts or support services. Better revenue generation and ROI
Characteristics of Maturity stages ofProduct life cycle Competition is high Product is established and promotionexpenditures are less Little growth potential for the product Penetration pricing, and lower profitmargins The major focus is towards extending thelife cycle and maintaining market share Converting customers product to yourown is a major challenge in maturitystage
Characteristics of Decline stages ofProduct life cycle Market is saturated Sales and profits decline Company becomes cost conscious A lot of resources are blocked in rejuvenating thedead product. There are only three options left with thecompany◦ Re positioning or Rebranding of the product to extendproduct life cycle◦ Maintain the product as it is and reduce costs to getmaximum profits till the product can produce profits◦ Take the product off the market.
Strategies of Product life CycleStages Introduction Growth Maturity Decline1. ProductOffer basicproductOffer productextension,service,warrantyDiversify brands/ modelsPhase out weakproducts2. PriceChange cost + Price topenetratemarketPrice to matchbettercompetitionCut price3. DistributionBuild selectivedistributionBuild intensivedistributionBuild moreintensivedistributionSelective phaseout ofunprofitable unit4. AdvertisingBuild productawarenessamong earlyadopters anddealersBuildawareness andinterest in massmarketStress on branddifference andbenefitsReduce toretain hard coreloyal’s5. SalesPromotionUse heavysales promotionto induce trialReduce salespromotion dueto increasedMore salespromotion toencourageReduce tominimum le
Product Life cycleEXAMPLE of APPLE The Ipad is a perfect example ofthe product life cycle. For example,currently, Apple faces fiercecompetition from comparableproducts. But recently, the iPadwas reintroduced with newfeatures and at a lower price. “One of the iPhone’s most belovedfeatures is its ultrasharp retina display.And while the iPad 2′s screen is nolightweight, a bump up in pixel density isone of the most hotly anticipated iPad 3improvements. MacRumors claims tohave obtained an iPad 3 display thatconfirms the bump in resolution. Thedisplay is the same size as iPad 1 and 2screens, but has double the resolution at2048×1536 with pixels about a quarterthe size of the iPad 2′s.Android tabletdisplays passed the iPad last summer,and since then have moved into 1080pterritory, so it seems far fetched thatApple would put off upgrading the iPad’sscreen another year.(Wagner, 2012)”
THE NEW-PRODUCT DEVELOPMENT PROCESSIdea generationNew product development starts with idea generation. Idea generation is the systematic search fornew product ideas.Major sources of new product ideas are-Internal idea sources: formal research and developmentExternal idea sources: distributors and suppliers, competitors & customersIdea screeningScreening new product ideas in order to spot good ideas and drop poor ones as soon as possible.Concept development and testingA detailed version of the new product idea stated in meaningful consumer terms.Testing new product concepts with a group of target consumers to find out if the concepts havestrong consumer appeal.Marketing strategyDesigning an initial marketing strategy for a new product based on the product concept.
Business analysisA review of sales, cost, and profit projections for a new product to find out whetherthese factors satisfy the company’s objectives.Product developmentDeveloping the product concept into a physical product in order to ensure that theproduct idea can be turned into workable product.Market testingThe stage of new product development in which the product and marketing programare tested in more realistic market settings.In market testing system there are three approaches-1. Standard test markets2. Controlled test markets3. Simulated test marketCommercializationIntroducing a new product into the market.
The three approaches to test marketingare:Standard test markets:the company finds a small number of representative testcities, conducts a full marketing campaign in these cities, anduses store audits, consumer and distributor surveys, and othermeasures to gauge product performance.Controlled test markets:several research firms keep controlled panels of stores thathave agreed to carry new products for a fee. The researchfirms track individual consumer behavior for new products.Simulated test markets:the company or research firm shows ads and promotions for avariety of products, including the new product being tested, toa sample of consumers. It gives consumers a small amount ofmoney and invites them to a real or laboratory store wherethey may keep the money or use it to buy items. Theresearchers note how many consumers buy the new productand competing brands.
MANAGING NEW-PRODUCT DEVELOPMENT Customer-Centered New-Product Development:solve customer problems and create morecustomer-satisfying experiences. Good new-product development also requires a total-company,cross-functional effort. Team-Based New-Product Development:company departments work closely together incross-functional teams, overlapping the steps in theproduct development process to save time andincrease effectiveness. Team-Based New-Product Development:1. It helps create an innovation-oriented companyculture.2. It will yield a larger number of new-product ideas,among which will be found some especially goodones.
Product Decisions & SocialResponsibility Marketers should consider public policyissues and regulations regarding acquiring ordropping products, patent protection, productquality and safety, and product warranties. Regarding new products, the governmentmay prevent companies from adding productsthrough acquisitions if the effect threatens tolessen competition. Manufacturers must comply with specific lawsregarding product quality and safety.
International Product andServices MarketingInternational product and service marketersface special challenges. They must figure out what products andservices to introduce and in which countries. They must decide how much to standardize oradapt their products and services for worldmarkets. Packaging presents new challenges forinternational marketers.