1. Five Product Levels
Potential product – all possible
Augmented product – fresh flowers
Expected product – clean bed
Basic product – hotel room
Core benefit - Sleep
2. Product Mix
Width - number of
different product lines
Length - total number of
items
within the lines
Depth - number of
versions of each
product
Product Mix all the product
lines offered
3. Brand
Equity
Devoted
to Brand
Values the Brand
(brand as friend)
Satisfied & Switching Cost
Satisfied Customer
(no reason to change)
No Brand Loyalty
(customer will change)
5. The Buyer Decision Process for New
Products
• The adoption process is the mental process
that an individual passes through from first
learning about a new product to final
adoption (making the decision to become a
regular user).
• Consumers go through five stages in the
process of adopting a new product;
– awareness: the consumer becomes aware of the
new product but does not have information.
6. – interest: the consumer seeks information about the
new product.
– evaluation: the consumer considers whether trying
the new product is a good idea.
– trial: the consumer tries the new product to
understand its value.
– adoption: the consumer decides to make regular use
of the new product.
(AIETA)
7. Individual Differences in
Innovativeness
• People differ in their readiness to try new products.
After a slow start, an increasing number of people
adopt the new product. The number of adopters
reaches a peak and then drops off as very little
adopters remain.
• There are five adopter categorization on the basis of
time of adoption of innovations;
– Innovators: are the first 2.5 percent of the buyers, they are
adventurous, take risk, relatively younger, better educated,
have higher income, are more receptive to
8. –
–
–
–
unfamiliar things, rely more on their own values and
judgement, are less brand loyal and more likely to tae
advantage of special promotions e.g. discounts.
Early adopters: are the next 13.5 percent, are opinion
leaders in their communities and adopt new ideas
early but carefully.
Early majority: are rarely leaders but adopt new ideas
before the average person.
Late majority: adopt an innovation only after a
majority of people have tried it.
Laggards: are suspicious of changes and adopt the
innovation only when it has become tradition.
9. Adopter categorization on the basis of relative
time of adoption of innovations
13.5 %
early
innovators
2.5%
34%
34%
early late
majority majority
adopters
16%
laggards
10. BCG & GE Matrix
Relative Position
Business Strength
Market Attractiveness
Market Growth
(Market Share)
11. About GE Matrix
Developed by McKinsey & Company in
1970’s.
GE is a model to perform business portfolio
analysis on the SBU’s.
GE is rated in terms of ‘Market Attractiveness &
Business Strength’
It is an Enlarged & Sophisticated version of BCG.
14. Business Strength
Current market share
Brand image
Brand equity
Production capacity
Corporate image
Profit margins relative to competitors
R & D performance
Managerial personal
Promotional effectiveness
15. THE BCG GROWTH-SHARE
MATRIX
• It is a portfolio planning model which is based on the
observation that a company’s business units can be classified
in to four categories:
Stars
Question marks
Cash cows
Dogs
• It is based on the combination of market growth and market
share relative to the next best competitor.
16.
17. STARS
High growth, High market share
• Stars are leaders in business.
• They also require heavy investment, to
maintain its large market share.
• It leads to large amount of cash
consumption and cash generation.
• Attempts should be made to hold the
market share otherwise the star will
become a CASH COW.
18. CASH COWS
Low growth , High market share
• They are foundation of the company and
often the stars of yesterday.
• They generate more cash than required.
• They extract the profits by investing as little
cash as possible
• They are located in an industry that is
mature, not growing or declining.
19. DOGS
Low growth, Low market share
• Dogs are the cash traps.
• Dogs do not have potential to bring in
much cash.
• Number of dogs in the company should be
minimized.
• Business is situated at a declining stage.
20. QUESTION MARKS
High growth , Low market share
• Most businesses start of as question marks.
• They will absorb great amounts of cash if the
market share remains unchanged, (low).
• Why question marks?
• Question marks have potential to become star
and eventually cash cow but can also become
a dog.
• Investments should be high for question
marks.
21. WHY BCG MATRIX ?
To assess :
Profiles of products/businesses
The cash demands of products
The development cycles of products
Resource allocation and divestment
decisions
22. LIMITATIONS
• BCG MATRIX uses only two dimensions,
Relative market share and market growth rate.
• Problems of getting data on market share and
market growth.
• High market share does not mean profits all
the time.
• Business with low market share can be
profitable too.
23. BCG Matrix
(Three Paths to Success)
• Continuously generate cash cows and use the
cash throw-up by the cash cows to invest in
the question marks that are not selfsustaining
• Stars need a lot of reinvestments and as the
market matures, stars will degenerate into
cash cows and the process will be repeated.
• As for dogs, segment the markets and nurse
the dogs to health or manage for cash
24. Three Paths to Success (cont’d)
Relative Market Share
High
Low
High
Market
Growth
Rate
Low
25. BCG Matrix
(Three Paths to Failure)
• Over invest in cash cows and under invest
in question marks
– Trade further opportunities for present cash
flow
• Under invest in the stars
– Allow competitors to gain share in a high
growth market
• Over milked the cash cows
26. Three Paths to Failure (cont’d)
Relative Market Share
High
Low
High
Market
Growth
Rate
Low
27. GE Multifactor Portfolio Matrix
Industry Attractiveness
High
High
Medium
Protect
Position
Build
selectively
Medium
Invest to
Build
Selectively
manage for
earnings
Low
Build
selectively
Limited
expansion or
harvest
Invest/Grow
Selectivity
/earnings
Low
Protect &
refocus
Manage for
earnings
Divest
Harvest
/Divest
28. Major Stages in New-Product
Development (Fig. 9.1, p. 340)
Marketing
Strategy
Concept
Development
and Testing
Idea
Screening
Idea
Generation
Business
Analysis
Product
Development
Test
Marketing
Commercialization
29
29. New Product Development Process
New Product Development Process Step 1.
Idea Generation
Idea Generation is the Systematic Search for New
Product Ideas Obtained Internally From Employees and
Also From:
Customers
Competitors
Distributors
Suppliers
30
30. Step 1: Idea Generation/ NewProduct Strategies
Strategies for Obtaining New Product Ideas
Acquired
Companies
Original
Products
Acquired
Patents
Product
Improvements
Acquired
Licenses
Product
Modifications
New
Brands
31
31. New Product Development Process Step 2.
Idea Screening
• Process to spot good ideas and drop poor ones as
soon as possible.
• Many companies have systems for rating and
screening ideas which estimate:
–
–
–
–
–
Market Size
Product Price
Development Time & Costs
Manufacturing Costs
Rate of Return
• Then, the idea is evaluated against a set of general
company criteria.
32
32. New Product Development Process Step 3.
Concept Development
1. Develop New Product Ideas
into Alternative Detailed
Product Concepts
Product Image is the Way
Consumers Perceive an
Actual or Potential Product
2. Concept Testing - Test the
New Product Concepts with
Groups of Target Customers
3. Choose the One That Has the
Strongest Appeal to Target
Customers
33
33. New Product Development Process Step 4.
Marketing Strategy
Part One Describes Overall:
Target Market
Planned Product Positioning
Sales & Profit Goals
Market Share
Part Two Describes First-Year:
Product’s Planned Price
Distribution
Marketing Budget
Part Three Describes Long-Term:
Sales & Profit Goals
Marketing Mix Strategy
34
34. Step 5. Business Analysis
Step 6. Product Development
Business Analysis
Do Projected Sales, Costs, & Profits Meet Company Objectives?
Methods: payback, ROI, BE, NPV, IRR, project numbers
If No, Eliminate
Product Concept
If Yes, Move to
Product Development
35
35. New Product Development Process
Step 7. Test Marketing
Test Marketing is the Stage Where the Product and Marketing
Program are Introduced into More Realistic Market Settings.
Budget Levels
Packaging
Product
Elements that May
be Test Marketed
by a Company
Branding
Positioning
Advertising
Pricing
Distribution
36
36. New Product Development Process
Step 7. Test Market Types
Standard
Test Market
Controlled
Test Market
Full marketing campaign
in a small number of
representative cities.
A few stores that have
agreed to carry new
products for a fee.
Electronic Test
Market
Simulated
Test Market
Use split-cable
technology and
scanner
data
Test in a simulated
shopping environment
to a sample of
consumers.
37
37. Step 7: Test Marketing
• Characteristics of Good Test Markets
– .2 to 1.5% of the population
–
–
–
–
Good media coverage
Appropriate demographics
* Isolated media and distribution *
Length of the test = repurchase cycle
–
–
–
–
–
Expensive
Delays to market
Sabotage
Artificial
Industrial products
• Limitations of Test Markets
38
38. New Product Development Process
Step 8. Commercialization
Commercialization is the Introduction of
the New Product into the Marketplace.
When is the
Right Time to
Introduce
Product?
Where to
Launch a
New
Product?
39
