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  1. 1. CHAPTER 10 FRANCHEZKA PEGOLLO Product Decisions
  2. 2. Product  Anything offered to a market for attention, acquisition, use, or consumption that might satisfy a need or want. Service  A form of product that consists of activities, benefits or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything.
  4. 4. Product Classification - Products and services fall into two broad classes based on the types of consumers that use them--- consumer products and industrial products.
  5. 5. Consumer-products Classification  Consumer products are products and services bought by final consumer for personal consumption.  Consumer products include:  Convenience products  Shopping products  Specialty products  Unsought products
  6. 6. 1. Convenience products  Consumer product that the customer usually buys frequently, immediately, and with a minimum of comparison and buying effort. 2. Shopping products  Are less frequently purchased consumer products and services that customers compare carefully on suitability, quality, price, and style.
  7. 7. 3. Specialty products  Consumer products with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort. 4. Unsought products  Consumer products that the consumer either does not know about or knows about but does not normally think of buying.
  8. 8. Industrial-products Classification  Products bought by individuals and organizations for further processing or for use in conducting a business.  The three groups of individual products and services includes:  Materials and parts  Capital items  Supplies and services
  9. 9. Eight Dimensions of Quality for Goods 1. Performance 2. Features 3. Reliability 4. Conformance 5. Durability 6. Serviceability 7. Aesthetics 8. Perceived quality
  10. 10. Five Dimensions of Service Quality 1. Tangibles 2. Reliability 3. Responsiveness 4. Assurance 5. Empathy
  11. 11. Branding Decisions  Branding  Identifies and helps differentiate the goods or services of one seller from those of another.  It consists of a name, sign, symbol, or some combination thereof.  Brand name  is the part that can be vocalized.  Brand mark  Is something that cannot be verbalized, such as symbol, design, or unique packaging.
  12. 12. Branding Strategies 1. Individual branding  Requires the company to provide each product or product line with a distinctive name.  Ex. P&G – Tide and Ariel detergent, Head & Shoulders, and Pantene shampoo, Safeguard. 2. Family branding  Uses the same brand name to cover a group of products or product lines.  There are several variations of family branding including its use primarily with related items, its use with all company items regardless of whether they are use-related (General Electric), and the use of a family name combined with individual product name.
  13. 13. Packaging Decisions  Packaging  The activities of designing and producing the container or wrapper for a product.  A product’s package serves several functions:  Protection  Facilitating use  Promoting the product  Providing information about the product.
  14. 14. Managing Product Lines for Customer Appeal and Profit Performance  Product line  A group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges.  Ex. Samsung produces several lines of telecommunications product. Nike produces several lines of athletic shoes. In order to increase profits, the company must manage its product lines carefully. It can systematically increase the length of its product line in two ways:  Product line stretching  Product line filling
  15. 15.  Product line stretching  Occurs when a company lengthens its product line beyond its current range.  The company can stretch its line downward, upward, or both ways.  Ex. Mercedes-Benz and Toyota.  Product line filling  Adding more items within the present range of the line.  The company should ensure that new items are noticeably different from existing ones.  Ex. Sony filled its Walkman line by adding solar-powered and waterproof Walkmans and an ultralight model that attaches to a sweatband.
  16. 16.  Line extension  Using a successful brand name to introduce additional items in a given product category under the same brand name, such as new flavors, forms, colors, added ingredients, or package sizes.  Brand extension  Involves the use of a brand name established in one product class as a vehicle to enter another product.  Using a successful brand name to launch a new or modified product in a new category.
  17. 17. New-Product Development Strategy  A firm can obtain new products in two ways:  Through acquisition – by buying a whole company, a patent, or a license to produce someone else’s product.  Through new product development  In business, New Product Development (NPD) is the term used to describe the complete process of bringing a new product or service to market.
  18. 18. Coloured ketchup? Who would've anticipated it? Heinz introduces green and purple ketchup.
  19. 19. New Product Development Process Idea Generation Idea Screening Concept Development and Testing Marketing Strategy Business Analysis Product Development Test Marketing Commercialization
  20. 20. New Product Development Process Step 1: Idea Generation  Idea Generation is the systematic search for new product ideas obtained internally and from: C U S T O M E R S C O M P E T I T O R S D I S T R I B U T O R S S U P P L I E R S
  21. 21. New Product Development Process Step 2: Idea Screening  The purpose is to identify good ideas and drop poor ones to avoid spending any more money on developing them  Criteria used:  •is the product truly useful to consumers & society •availability of market •does it mesh well with company’s objectives & strategies •do we have the people, skills & resources to make it successful •does it deliver more value to customers than competing products •is it easy to advertise and distribute •availability of technology •availability of raw materials •risk exposure, profitability, cost/benefit •government priority •CRITICAL SUCCESS FACTOR
  22. 22. New Product Development Process  Step 3: Concept Development and Testing  Product idea  Is an idea for a possible product that the company can see itself offering to the market.  Product concept  Is a detailed version of the idea stated in meaningful consumer terms.  Product image  Is the way consumers perceive an actual or potential product.
  23. 23. New Product Development Process 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  Step 3: Concept Development and Testing
  24. 24. New Product Development Process  Step 4: Marketing Strategy Development  Marketing Strategy Development  Designing an initial marketing strategy for a new product based on the product concept.  Marketing Strategy Statement Formulation Part One Describes Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share Part Two Describes Short-Term: Product’s Planned Price Distribution Marketing Budget Part Three Describes Long-Term: Sales & Profit Goals Marketing Mix Strategy
  25. 25. New Product Development Process  Step 5: Business Analysis  A review of the sales, costs, and profit projections for a new product to find out whether these factors satisfy the company’s objectives.  Step 6: Product Development  A strategy for company growth by offering modified or new products to current market segments. Developing the product concept into physical product in order to ensure that the product idea can be turned into a workable product.
  26. 26. New Product Development Process 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  Step 5: Business Analysis  Step 6: Product Development
  27. 27. New Product Development Process 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.  Step 7: Test Marketing  The product and marketing program are tested in more realistic market settings.
  28. 28. New Product Development Process When? Where? To Whom? How?  Step 8: Commercialization  Commercialization is the introduction of the new product into the marketplace.
  29. 29. PRODUCT LIFE-CYCLE (PLC) The course of a product’s sales and profits over its lifetime. It involves five distinct stages: 1. Product development  Begins when the company finds and develops a new-product idea. During product development, sales are zero and the company’s investment costs mount. 2. Introduction  Is a period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction. 3. Growth  A period of rapid market acceptance and substantial profit improvement.
  30. 30. Product Life Cycle (cont.) 4. Maturity –A period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits stabilize or even decline because of increased marketing outlays to defend the product against competition. 5. Decline –The period when sales show a downward drift and profits erode
  31. 31. Figure 10.2 Stages of the PLC
  32. 32. Product Life-Cycle Strategies  Introduction Stage  Sales start at zero and begin to climb slowly; profits continue to decline due to costs of launching the product  The main promotional goal is to make a big noise to attract attention and to educate buyers about the new product concept  Market pioneers take the most risk but may reap the biggest rewards, eg. Chrysler minivan  Few product variants, no competition to speak of  Pricing strategy: skimming or penetration  Distribution: not all outlets covered as some may not want the risk  Growth Stage  Sales of the new product begin to climb quickly as awareness within the target market(s) builds  Profits may become positive as development and launch costs are recovered and the company achieves economies of scale  Competition notices and rushes their versions into production  Product quality can be improved, extra features and versions developed to sustain growth and differentiate from competition  Distribution increases as the product becomes more known  Pressure on pricing as competition increases
  33. 33.  Product – Offer a basic product  Price – Skimming or penetration pricing  Distribution – Build selective distribution  Advertising – Build awareness among early adopters and dealers/resellers  Sales Promotion – Heavy expenditures to create trial Marketing Strategies: Introduction Stage
  34. 34.  Product – Offer product extensions, service, warranty  Price – Penetration pricing  Distribution – Build intensive distribution  Advertising – Build awareness and interest in the mass market  Sales Promotion – Reduce expenditures to take advantage of consumer demand Marketing Strategies: Growth Stage
  35. 35. Product Life-Cycle Strategies  Maturity Stage Sales of the new product continue to climb and then peak as the majority of the target market(s) have tried the product Profits continue to grow and stay positive throughout Competition is most intense at this stage; many versions and brands Strategies to prolong this stage:  Modify the market  Modify the product  Modify the marketing mix  Decline  Sales of the new product drop quickly as the target market(s) move on to other things  Profits decline as competitive pressures force lower prices and set promotional spending at a level that maintains the share  Competition has declined as weaker brands have left the market  Decisions about the product  Maintain spending levels to fight it out for what is left  Harvest by cutting spending and riding it out  Drop the product and move on to the next thing
  36. 36. 10-36
  37. 37. Maturity Stage Product Life-Cycle Sales Costs Profits Marketing Objectives Product Price Peak sales Low cost per customer High profits Maximize profit while defending market share Diversify brand and models Price to match or best competitors Distribution Build more intensive distribution Advertising Stress brand differences and benefits  Summary of Characteristics, Objectives, & Strategies
  38. 38. Decline Stage Product Life-Cycle Sales Costs Profits Marketing Objectives Product Price Declining sales Low cost per customer Declining profits Reduce expenditure and milk the brand Phase out weak items Cut price Distribution Go selective: phase out unprofitable outlets Advertising Reduce to level needed to retain hard-core loyal customers  Summary of Characteristics, Objectives, & Strategies