Chapter 11, Class Notes

Contents For Chapter 11 Notes

• Introduction
• Differences between Goods and Services
• Classifying Products
• Elements of the Product Mix
• Product Positioning and Repositioning
• Positioning Existing Products
• Positioning New Products
• Developing and Managing New Products
• Developing New Products
• Why New Products Fail?
• Seven Phases to New Product Development
• New Product Strategy Development
• Idea Generation
• Product Screening and Evaluation
• Business Analysis
• Product Development
• Test Marketing
• Commercialization
• Buyers' Production Adoption Process
• Diffusion Process
• Please Email alex@udel.eduany comments
• Return to Syllabus
• Return to Homepage

Introduction

First element...The Product!!

Product Planning refers to the systematic decision making related to all aspects of the development and management of a firms products including branding and packaging.

Each product includes a bundle of attributes capable of exchange and use.

Product definition:
A product is a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers and is received in exchange for money or some other unit of value.

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Differences between Goods and Services

Services are intangible. The result of human or mechanical efforts to people or objects.

Major distinguishing characteristics of Services:

• Intangibility-major component of a service is intangible
• Pershibality-many cannot be stored for future sales Airline/Amusement ride
  Number of hair cut hours in one week: i.e., if Christies employs 3 people, who work forty hours per week, they have potentially 120 hair cut hours to offer. If they do not have any customers at a particular period during the day, they will lose the opportunity to cut hair at that time and therefore the opportunity to generate revenue...the opportunity has perished...they no longer have the ability to earn revenue from 120 hair cut hours that week!!
• Inseparability-customer contact is often the integral part of the service...Legal services/hair dresser, therefore often a direct channel of distribution.
• Variability-in service quality, lack of standardization, because services are labor intensive.

Levels of Product

• Core Product- Marketers must first define what the core BENEFITS the product will provide the customer.
• Actual Product-Marketer must then build the actual product around the core product. May have as many as five characteristics:
  • Quality level
  • Features
  • Brand name
  • Packaging
  all combined to carefully deliver the core benefit(s).
• Augmented Product-offer additional consumer benefits and services.
  • Warranty
  • Customer training

• Core--the ability to take video pictures conveniently
• Actual--Sony Handycam (brand name), packaged, convenient design so you can hold it, play back features etc. that provide the desired benefits, high quality etc.
  
• Augmented--receive more than just the camcorder. Give buyers a warranty on parts and workmanship, free lessons on how to use the camcorder, quick repair service when needed and toll free telephone number when needed.

Classifying Products

• Consumer products: destined for the final consumer for personal, family and household use.
• Business to business products: are to satisfy the goals of the organization.

The following are classifications for consumer products:

• Convenience: Packaging is important to sell the product. Consumers will accept a substitute. Marketers focus on intense distribution, time utility. Convenience products can be categorized into staple (milk), impulse (not intended prior to shopping trip).
• Shopping: Consumers expend considerable effort planning and making purchase decisions. IE appliances, stereos, cameras. Consumers are not particularly brand loyal. Need producer intermediary cooperation, high margins, less outlets than convenience goods. Use of sales personnel, communication of competitive advantage, branding, advertising, customer service etc. Attribute based (Non Price Competition), product with the best set of attributes is bought. If product attributes are judged to be similar, then priced based.
• Specialty: Buyer knows what they want and will not accept a substitute, IE Mercedes. Do not compare alternatives. Brand, store and person loyal. Will pay a premium if necessary. Need reminder advertising.
• Unsought: Sudden problem to resolve, products to which consumers are unaware, products that people do not necessary think of purchasing. Umbrellas, Funeral Plots, Encyclopedia!!

The following are classifications for Business to Business products:

• Production Goods
  • Raw Materials:
  • Component parts: becomes part of the physical product
  • Process materials: not readily identifiable part of the production of other products
• Support Goods
  • Major Equipment:
  • Accessory Equipment: Type writers and tools
  • Consumable Supplies: IE Paper, pencils or oils
  • Business to Business services: Financial, legal marketing research etc.

Elements of a Product Mix

• Product item--a single product
• Product line--all items of the same type
• Product mix--total group of products that an organization markets

Width measures the # of product lines a company offers. Enables a firm to diversify products, appeals to different consumer needs and encourages one stop shopping.

Proctor & Gamble example in class.
Why so many different products?
Different needs of different target markets for the same product. Channels of distribution economies etc.
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Product Positioning and Product Repositioning

How new and current items in the product mix are perceived, in the minds of the consumer, therefore reemphasizing the importance of perception!!

New Product--need to communicate benefits
Established Products--need to reinforce benefits

Ideal Characteristics

Consumers desires refer to the attributes consumers would like the products to possess--IDEAL POINTS.
Whenever a group of consumers has a distinctive "ideal" for a product category they represent a potential target market segment.
A firm does well if its attributes (of the product) are perceived by consumers as being close to their ideal. The objective is to be "more ideal" than the competitors.

Each product must provide some unique combination of new features desired by the target market.

Instead of allowing the customer to position products independently, marketers try to influence and shape consumers concepts and perceptions.

Marketers can use perception maps.
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Existing Products

Handout...Here Comes the Sun to Confound Health-Savvy Lotion Makers

                              ^
                              |
                              |
     Old Position             |         New Position
                              |
                              |
                              |
Glamour--------------------------------------------------Health
                              |
                              |
                              |
                              |
                              |
                              |
                              |

• Change Promotion: "Tan don't Burn" The St. Tropez Tan vs. Ultra Sweat Proof Serious tan for...Be Sun Smart
• Change Product: Sunscreen and sunless tanning agent.

Handout...BMW Banks on Affordability...

                              ^
                         Very Safe
                              |         Lexus/infiniti
                              |                   Mercedes
                              |                      BMW
                              |
                              |
                              |
Cheap--------------------------------------------------Expensive
                              |
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                              |
                              |
                              |
                              |
                              |
                         Very Unsafe

Why did they repositition?
Safety
Affordability
Competitors include Infiniti, Lexus, Mercedes Benz and Aurora

If you already have a brand in the market, must be sure to avoid cannibalization. Attributes and brand image should give a product distinct appeal.

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New Product Positioning

Second, identify important features/benefits used in making purchase decisions.

Determine the overall ranking of features by importance and relate the importance of each feature to its "uniqueness".

For example you wouldn't buy a spreadsheet program that if it didn't perform basic math, so basic math is very important.
However since every spreadsheet has that its an "important fundamental feature", instead of an "important differentiating feature".

The flip side would be a spreadsheet that displays all numbers in binary (0-1) instead of "normal" numbers (0-9). This is unique but not important.

The evaluation becomes a 2 x 2 matrix with uniqueness on the X-axis and importance on the Y-axis.

                              ^
X                        Important to TM (Stockbroker)           X
Math functions                |                        Import Data
                              |
                              |              
                              |
                              |
                              |
----------------------------------------------------------Unique
                              |
                              |
                              |
                              |
                              |
                              |
                              |                           X
                                                       Binary Data

This is known as feature positioning, as opposed to product positioning. One can then see what type of customer needs the important (and perhaps unique) features.

If your spreadsheet accepts continuous data in real-time (such as stock market data) while Lotus 1-2-3 doesn't, you'd position your spreadsheet as a "real-time spreadsheet with all calculations needed by Wall Street."

Its a claim that tells something unique about your product, who it's for, and by implication, that Lotus 1-2-3 can't do it.

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Developing and Managing Products

Need to understand competition and customer attitudes and preferences.

Handout...At Timex, They're...

DID NOT KEEP UP WITH WATCHES EVOLUTION FROM A FUNCTIONAL OBJECT TO A FASHION ACCESSORY.

Now consumer owns 5 watches up from 1.5 30 years ago (emphasizing fashion need). Timex has acquired Guess and Monet Jewellers (distribution outlets) in an effort respond to change.
Product mix:
Dressy watches to Walt Disney Character watches, Indigo. Now have 1,500 styles, 300 in 1970.
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Developing New Products

• Continuous Innovation...No new buyer behavior to learn, i.e. -products not previously marketed by the firm, but by others
• Dynamic Continuous Innovation...minor education needed for consumers to adopt product
• Discontinuous Innovation...entirely new consumption patterns

  Handout...In Battle over Video Disk Standard

  What will be the winning format?
  New Product (Technology)
  Need to appeal to:
  • Hollywood
  • Ultimate consumers
  Battle between:
  • Sony and Phillips
  • Toshiba, Pioneer and Time Warner
  Swing voter...Matsushita Electric Industry (Toshiba/Pioneer)
  DVD could transform movie business (like CDs for music) Movie studios can resell all movies in new format therefore very important to them, also sell through market, video rentals are decreasing, due to competing service.

  Set of requirements:

  • 135 mins on 1 disc
  • quality superior to vhs
  • cd quality audio
  • able to add multiple languages
  • parent lockout system
  • iron clad copying protection
  Sony announced going ahead (Vaporware!)
  If 2 systems go to market, best system will win, only one technology can survive, WINNER WINS BIG...LOSER LOSES BIG (DUE TO INVESTMENT) VHS vs Betamax

For a new product to succeed it must have:

• desirable attributes
• be unique
• have its features communicated to the consumer (mkt support necessary)

Firms develop new products in two ways:

• By acquisition, i.e. Timex bought Guess and Monet Jewellers in 1992, bringing in new products to their product mix.
• Internal development, this is what we are going to focus on.

Why New Products Fail

• Lack of differentiating advantage
• Poor marketing plan
• Poor timing
• Target market too small
• Poor product quality
• No access to market

Seven phases to new product development:

1. New Product Strategy Development

   Only a few ideas are good enough to reach commercialization. Ideas can be generated by chance, or by systematic approach. Need a purposeful, focused effort to identify new ways to serve a market. New opportunities appear from the changes in the environment.
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2. Idea Generation

   Continuous systematic search for new product opportunities.
   • Marketing oriented sources--identify opportunities based on consumer needs, lab research is directed to satisfy that research. 1-800#s, research etc.
     
   • Laboratory oriented sources--identify opportunities based on pure research or applied research.
   • Intrafirm devises--brain storming, incentives and rewards for ideas. 3Ms Post it, from choir practice. Hewlett Parkards lab is open 24 hrs. day. Analyzing existing products, reading trade publications.
     Brainstorming for your group project. Ideas should not be criticized, no matter how off-beat they are.
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3. Product Screening and Evaluation

   New product check list; list new product attributes considered most important and compare each with these attributes. Check list is standardized and allows ideas to be compared.
   --General characteristics, Marketing Characteristics and Production Characteristics.

   Ideas with the greatest potential are selected for further research.

   Do they match the organizations goals (DuPont and ICI have many patents that they have not exploited for this very reason.)

   Look at companies ability to produce and market the product.

   Need to look at the nature and wants of the buyers and possible environmental changes.

   Concept Testing

   Sample of potential buyers is presented with the product idea through a written or oral description to determine the attitudes and initial buying intentions.

   This is done before investing considerable sums of money and resources in Research and Development.

   Can better understand product attributes and the benefits customers feel are most important.

   Would you buy the product?
   Would you replace your current brand with the new product?
   Would this product meet real needs?
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4. Business Analysis

   Analyze potential contribution to sales, costs and profits.

   Does the product fit into the current product mix?
   What kind of environmental and competitive changes can be anticipated?
   How will these changes effect sales etc.?
   Are the internal resources adequate?
   Cost and time line of new facilities etc.?
   Is financing available?
   Synergies with distribution channel etc.
   MIS to determine the market potential sales etc.
   Patentability should be determined, last 17 years, 14 years for a pharmaceutical product.
   Find out if it is technically feasible to produce the new product.
   If you can produce the new product at a low enough cost so as to be able to make a profit.
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5. Product Development

   Develop a prototype, working model, lab test etc.

   Attributes that consumers have identified that they want must be communicated through the design of the product.

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6. Test Marketing

   Can observe actual consumer behavior.
   Limited introduction in geographical areas chosen to represent intended market.
   Aim is to determine the reaction of probable buyers.
   It is the sample launch of the Marketing Mix.
   Determine to go ahead, modify product, modify marketing plan or drop the product.

   PROS are:
   

   • Lessens the risk of product failure.
   • Reduces the risk of loss of credibility or undercutting a profitable product.
   • Can determine the weaknesses in the MM and make adjustments.
   • Can also vary parts of the MM during the test market.
   • Need to select the appropriate MM and check the validity.
   CONS are:
   
   • Test market is expensive.
   • Firm's competitors may interfere.
   • Competitors may copy the product and rush it out. IE Clorox detergent with bleach P&G. "In a live test you've tipped your hand, and believe me, the competition is going to come after you. Unless you have patented chemistry, they can rip you off and beat you to a national launch" -Director of Marketing at Gillette's Personnel division.
   Alternatively can use a simulated test market. Free samples offered in the mall, taken home and interviewed over the telephone later.

   Handout...Miller's Momemtum....

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7. Commercialization

   Corresponds to introduction stage of the Product Life Cycle.
   Plans for full-scale marketing and manufacturing must be refined and settled.
   Need to analyze the results of the test market to determine any changes in the marketing mix.
   Need to make decisions regarding warranties etc (reduces consumers risk). Warranties can offer a competitive advantage.

   Spend alot of $s on advertising, personnel etc. Combined with capital expenditure makes commercialization very expensive.

   Handout...American Express To Try a Credit Card...

   All stages above are identified in this article except market testing.

• the speed of acceptance among consumers and channel members;
• intensity of distribution,
• production capabilities,
• promotional capabilities,
• prices,
• competition,
• time period to profitability and commercialization costs.

Buyers' Product Adoption Process

1. Awareness

   Buyers become aware of the product

2. Interest

   Buyers seek information and is receptive to learning about product

3. Evaluation

   Buyers consider product benefits and determines whether to try it

4. Trial

   Buyers examine, test or try the product to determine usefulness relative to needs

5. Adoption

   Buyers purchase the product and can be expected to use it when the need for the general type of product arises.

Diffusion Process

1. Innovators

   Techno-savvies first customers to buy a product, 2.5 % of consumers

2. Early Adopters

   Tend to be opinion leaders. Adopt new products but use discretion, 13.5%

3. Early Majority

   34% of consumers, first part of the mass market to buy the product

4. Late Majority

   Less cosmopolitan and responsive to change, 34%

5. Laggards

   Price conscious, suspicious of change, 16%, do not adopt until the product has reached maturity.