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  1. 1. Module- 03 Product and Pricing Decisions Concept of Product
  2. 2. What is a product? <ul><li>A product is any offering by a company to a market that serves to satisfy customer needs and wants. </li></ul><ul><li>It can be an object, service, idea, etc. </li></ul><ul><li>what you buy, that satisfies what you want to be able to do </li></ul><ul><li>it can be “good feeling” cause you bought some cosmetics and someone said you looked pretty </li></ul><ul><li>it could be a happy stomach cause you bought a meal that tasted great </li></ul><ul><li>it could be easier homework cause you bought new software for your computer </li></ul>
  3. 3. Difference between goods and services <ul><li>Goods - things you can touch - “tangible” </li></ul><ul><li>Services - things you can’t touch - but you can see their effect “intangible” “… services are not physical, they are intangible…” </li></ul>
  4. 4. Classes of Consumer Products Impulse Products Convenience Shopping Specialty Goods Services 14-1 POP $ $ ATM
  5. 5. <ul><li>Convenience goods and services </li></ul><ul><ul><ul><li>things consumer wants to buy frequently </li></ul></ul></ul><ul><ul><ul><li>minimum effort, low risk </li></ul></ul></ul><ul><ul><ul><li>small amount of money, not much time three types 1. Staples - bought routinely 2. Impulse products - unplanned purchases 3. Emergency products - bought immediately </li></ul></ul></ul>
  6. 6. <ul><li>Shopping goods and services </li></ul><ul><ul><ul><li>“ stuff” people buy after they “shop & compare” </li></ul></ul></ul><ul><ul><ul><li>they have the time to compare prices </li></ul></ul></ul><ul><ul><ul><li>Homogenous - stuff that is the same simply pick the lowest price eg. Condensed milk, </li></ul></ul></ul><ul><ul><ul><li>Heterogeneous - stuff that is different, so the customer will take time to compare features and prices - “some retailers carry competing brands” </li></ul></ul></ul>
  7. 7. <ul><li>Specialty goods and services </li></ul><ul><ul><ul><li>jewellery, special clothing </li></ul></ul></ul><ul><ul><ul><li>special entertainment </li></ul></ul></ul><ul><ul><ul><li>“ Willingness to search, not extent of searching, makes it a specialty product” </li></ul></ul></ul><ul><ul><ul><li>if people are willing to look and look at different products, before they commit, it is a specialty item </li></ul></ul></ul>
  8. 8. <ul><li>Unsought </li></ul><ul><ul><ul><li>things people don’t want to buy, but forced to buy. </li></ul></ul></ul><ul><ul><ul><li>eg. Auto insurance, funeral plan </li></ul></ul></ul><ul><ul><ul><li>the only way to sell this is to convince people of the benefit because the benefit is not easily seen by the average person </li></ul></ul></ul>
  9. 9. <ul><li>New Product Development </li></ul>
  10. 10. New Product Development <ul><li>Most new product development is an improvement on existing products </li></ul><ul><li>Less than 10% of new products are totally new concepts. </li></ul><ul><li>Development of original products, product improvements, product modifications, and new brands through the firm’s own R & D efforts . </li></ul>
  11. 11. Success rate of new products <ul><li>The success rate of new products is very low – less than 5%. ‘You have to kiss a lot of frogs to find a prince.” </li></ul><ul><li>Product obsolescence is rapid with improvements in technology </li></ul><ul><li>Shorter PLCs </li></ul>
  12. 12. <ul><li>New products can be obtained via acquisition or development. </li></ul><ul><li>New products suffer from high failure rates. </li></ul><ul><li>Several reasons account for failure . </li></ul>New Product Development Strategy
  13. 13. Causes of New Product Failures <ul><li>Overestimation of Market Size </li></ul><ul><li>Product Design Problems </li></ul><ul><li>Product Incorrectly Positioned, Priced or Advertised </li></ul><ul><li>Costs of Product Development </li></ul><ul><li>Competitive Actions </li></ul><ul><li>To create successful new products, the company must: </li></ul><ul><ul><li>understand it’s customers, markets and competitors </li></ul></ul><ul><ul><li>develop products that deliver superior value to customers. </li></ul></ul>
  14. 14. Major Stages in New-Product Development
  15. 15. Product Development Stages <ul><li>Idea generation </li></ul><ul><li>Idea screening </li></ul><ul><li>Concept development and testing </li></ul><ul><li>Concept testing </li></ul><ul><li>Conjoint analysis – to find out the best valued attributes by consumers </li></ul>
  16. 16. Step 1. Idea Generation <ul><li>Systematic Search for New Product Ideas </li></ul><ul><li>Internal sources </li></ul><ul><li>Customers </li></ul><ul><li>Competitors </li></ul><ul><li>Distributors </li></ul><ul><li>Suppliers </li></ul>
  17. 17. Step 2. Idea Screening <ul><li>Process to spot good ideas and drop poor ones </li></ul><ul><li>Criteria </li></ul><ul><ul><li>Market Size </li></ul></ul><ul><ul><li>Product Price </li></ul></ul><ul><ul><li>Development Time & Costs </li></ul></ul><ul><ul><li>Manufacturing Costs </li></ul></ul><ul><ul><li>Rate of Return </li></ul></ul>
  18. 18. s tep 3. Concept Development & Testing 1. Develop Product Ideas into Alternative Product Concepts 2. Concept Testing - Test the Product Concepts with Groups of Target Customers 3. Choose the Best One
  19. 19. Step 4. Marketing Strategy Development Part Two - Short-Term: Product’s Planned Price Distribution Marketing Budget Part Three - Long-Term: Sales & Profit Goals Marketing Mix Strategy Marketing Strategy Statement Formulation Part One - Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share
  20. 20. s tep 5. Business Analysis Step 6. Product Development Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives If Yes, Move to Product Development If No, Eliminate Product Concept
  21. 21. Step 7. Test Marketing Standard Test Market Full marketing campaign in a small number of representative cities . Simulated Test Market Test in a simulated shopping environment to a sample of consumers. Controlled Test Market A few stores that have agreed to carry new products for a fee .
  22. 22. Business analysis <ul><li>The most customer appealing offer is not always the most profitable to make </li></ul><ul><li>Estimate on costs, sales volumes,pricing and profit levels are made to find out the optimal price – volume mix. </li></ul><ul><li>Breakeven and paybacks </li></ul><ul><li>Discounted cash flow projections </li></ul>
  23. 23. Market testing <ul><li>Test markets </li></ul><ul><li>Test periods </li></ul><ul><li>What information to gather? </li></ul><ul><li>What action to take? </li></ul>
  24. 24. Commercialization <ul><li>When? (Timing) </li></ul><ul><li>Where? (Which geographical markets) </li></ul><ul><li>To whom? (Target markets) </li></ul><ul><li>How? (Introductory Marketing strategy) </li></ul>
  25. 25. Product Levels <ul><li>Customer value hierarchy </li></ul><ul><li>Core benefit </li></ul><ul><li>Basic product </li></ul><ul><li>Expected product </li></ul><ul><li>Augmented product </li></ul><ul><li>Potential product </li></ul>
  26. 26. Customer Delight <ul><li>When you exceed customer expectations </li></ul>
  27. 27. Product Hierarchy <ul><li>Need </li></ul><ul><li>Product family </li></ul><ul><li>Product class </li></ul><ul><li>Product Line </li></ul><ul><li>Product type </li></ul><ul><li>Brand </li></ul><ul><li>Item </li></ul>
  28. 28. Product classification <ul><li>Durable </li></ul><ul><li>Non – durable </li></ul><ul><li>Services </li></ul>
  29. 29. Consumer goods classification <ul><li>Convenience goods </li></ul><ul><li>Shopping goods </li></ul><ul><li>Specialty goods </li></ul><ul><li>Unsought goods </li></ul>
  30. 30. Industrial goods classification <ul><li>Materials and Parts </li></ul><ul><li>- raw materials </li></ul><ul><li>- manufactured materials and parts </li></ul><ul><li>Capital items </li></ul><ul><li>Supplies and business services </li></ul>
  31. 31. Product Mix <ul><li>The assortment of products that a company offers to a market </li></ul><ul><li>Width – how many different product lines? </li></ul><ul><li>Length – the number of items in the product mix </li></ul><ul><li>Depth – The no. of variants offered in a product line </li></ul><ul><li>Consistency – how closely the product lines are related in usage </li></ul>
  32. 32. Product Line decisions <ul><li>Product rationalization </li></ul><ul><li>Market rationalization </li></ul><ul><li>Product line length </li></ul><ul><li>too long – when profits increase by dropping a product in the line </li></ul><ul><li>too short – when profits increase by adding products to the product line </li></ul><ul><li>Line pruning – capacity restrictions to decide </li></ul>
  33. 33. Brand <ul><li>A name becomes a brand when consumers associate it with a set of tangible and intangible benefits that they obtain from the product or service </li></ul><ul><li>It is the seller’s promise to deliver the same bundle of benefits/services consistently to buyers </li></ul>
  34. 34. Brand Equity <ul><li>When a commodity becomes a brand, it is said to have equity. </li></ul><ul><li>The premium a brand can command in the market </li></ul><ul><li>The difference between the perceived value and the intrinsic value </li></ul>
  35. 35. Levels of meaning <ul><li>Attributes </li></ul><ul><li>Benefits </li></ul><ul><li>Values </li></ul><ul><li>Culture </li></ul><ul><li>Personality </li></ul><ul><li>Users </li></ul>
  36. 36. Brand Power <ul><li>Customer will change brands for price reasons </li></ul><ul><li>Customer is satisfied. No reason to change. </li></ul><ul><li>Customer is satisfied and would take pains to get the brand </li></ul><ul><li>Customer values the brand and sees it as a friend </li></ul><ul><li>Customer is devoted to the brand </li></ul>
  37. 37. Brand Equity – Competitive Advantages <ul><li>Reduced marketing costs </li></ul><ul><li>Trade leverage </li></ul><ul><li>Can charge a higher price </li></ul><ul><li>Can easily launch brand extensions </li></ul><ul><li>Can take some price competition </li></ul>
  38. 38. Managing Brand Equity <ul><li>Brand Equity needs to be nourished and replenished. We must not flog the brand for equity to be diluted or dissipated </li></ul><ul><li>Store brands </li></ul>
  39. 39. Advantages of branding <ul><li>Easy for the seller to track down problems and process orders </li></ul><ul><li>Provide legal protection of unique product features </li></ul><ul><li>Branding gives an opportunity to attract loyal and profitable set of customers </li></ul><ul><li>It helps to give a product category at different segments, having separate bundle of benefits </li></ul><ul><li>It helps build corporate image </li></ul><ul><li>It minimises harm to company reputation if the brand fails </li></ul>
  40. 40. Brand parity <ul><li>Consumers buy from a set of acceptable/ preferred brands </li></ul>
  41. 41. Umbrella Brand <ul><li>Products from different categories under one brand </li></ul><ul><li>Dangerous to the brand if the principal brand fails </li></ul><ul><li>Sometimes the company name is prefixed to the brand. In such cases the company name gives it legitimacy. The product name individualises it. </li></ul>
  42. 42. Naming the Brand <ul><li>Product benefits </li></ul><ul><li>Product qualities </li></ul><ul><li>Easy to pronounce </li></ul><ul><li>Should be distinctive </li></ul><ul><li>Should not have poor meanings in other languages and countries </li></ul>
  43. 43. Brand strategy <ul><li>Line extension – existing brand name extended to new sizes in the existing product category </li></ul><ul><li>Brand extension – brand name extended to new product categories </li></ul><ul><li>Multibrands – new brands in the same product category </li></ul><ul><li>New brands – new product in a different product category </li></ul><ul><li>Cobrands –brands bearing two or more well known brand names </li></ul>
  44. 44. Brand Repositioning <ul><li>This may be required after a few years to face new competition and changing customer preferences </li></ul>
  45. 45. Packaging <ul><li>Includes the activities of designing and producing the container for a product </li></ul><ul><li>Packaging is done at three levels </li></ul><ul><li>- primary </li></ul><ul><li>- secondary </li></ul><ul><li>- shipping </li></ul>
  46. 46. Packaging as a marketing tool <ul><li>Self service </li></ul><ul><li>Consumer affluence </li></ul><ul><li>Company and brand image </li></ul><ul><li>innovation </li></ul>
  47. 47. Designing packaging <ul><li>Packaging concepts </li></ul><ul><li>Technical specifications </li></ul><ul><li>Engineering tests </li></ul><ul><li>Visual tests </li></ul><ul><li>Dealer tests </li></ul><ul><li>Consumer tests </li></ul><ul><li>Packaging innovations </li></ul><ul><li>Environmental considerations </li></ul>
  48. 48. Labels <ul><li>Identification </li></ul><ul><li>Grade classification </li></ul><ul><li>Description of product </li></ul><ul><li>Manufacturer identity </li></ul><ul><li>Date of mfg., batch no. </li></ul><ul><li>Instructions for use </li></ul><ul><li>Promotion </li></ul>
  49. 49. Labels as a marketing tool <ul><li>Labels need to change with time or packaging changes to give it a contemporary and fresh look </li></ul>