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Copyright © 2007 McGraw-Hill Ryerson Limited Objectives To understand: The meaning of the word “product” in its fullest sense. The classification of consumer and business products. The major product-mix strategies. The importance of product innovation. Copyright © 2007 McGraw-Hill Ryerson Limited

Copyright © 2007 McGraw-Hill Ryerson Limited Objectives To understand: The steps in the product-development process. Organizational structures for product planning and development. Adoption and diffusion processes for new products. Managing products throughout the life cycle. Copyright © 2007 McGraw-Hill Ryerson Limited

Copyright © 2007 McGraw-Hill Ryerson Limited The Meaning of Product The essence of what the company is offering the consumer. The consumer is buying the benefit provided by the product attributes. Copyright © 2007 McGraw-Hill Ryerson Limited

Copyright © 2007 McGraw-Hill Ryerson Limited Product Attributes Copyright © 2007 McGraw-Hill Ryerson Limited

Copyright © 2007 McGraw-Hill Ryerson Limited The Meaning of Product A product… Can be a physical item or a service, place, person, or idea. Has a set of tangible attributes, including packaging, colour, price, quality, brand, and the services and reputation of the seller. Copyright © 2007 McGraw-Hill Ryerson Limited

Product Classification Systems Whether a product is considered a consumer or business good depends on the intended target market, how it is used, and by whom. Often one product can be both a consumer and business good. Copyright © 2007 McGraw-Hill Ryerson Limited

Classification of Consumer Goods Classification is based upon the nature of the buying process. Convenience Goods – purchased with minimum effort. Shopping Goods – purchased after the buyer has spent some time and effort. Specialty Goods – purchased after some special effort made; unsought, consumer not aware, does not yet want. Copyright © 2007 McGraw-Hill Ryerson Limited

Classification of Business Goods Classification based on goods’ broad uses. Raw Materials – unprocessed, become part of other manufactured products. Manufactured Parts and Materials – processed products that become parts of other products. Installations – long-lived major capital goods. Accessory Equipment – used in operation. Operating Supplies – short-lived, low-priced items; convenience goods for businesses. Copyright © 2007 McGraw-Hill Ryerson Limited

Strategic Decisions Pertaining to the Organization’s Products The product mix is a collection of products offered for sale, and has both breadth and depth. Breadth  number of product lines offered. Depth  the assortment within the line. Product line  group of related products Copyright © 2007 McGraw-Hill Ryerson Limited

Product Mix – Breadth and Depth Copyright © 2007 McGraw-Hill Ryerson Limited

Copyright © 2007 McGraw-Hill Ryerson Limited Product Positioning The ability to appropriately position a product is a major determinant of company profitability. Positioning in relation to a competitor– by drawing comparisons. Positioning in relation to a product class or an attribute – by stressing certain attractive characteristics. Positioning in relation to a target market. Positioning by price and quality. Copyright © 2007 McGraw-Hill Ryerson Limited

Product-Mix Expansion Increasing the depth within a particular product line and/or the number of lines. Line extensions Mix extensions Copyright © 2007 McGraw-Hill Ryerson Limited

Mix-Extension Strategies Related-product, same brand. Unrelated product, same brand. Unrelated product, different brand. Related product, different brand. Copyright © 2007 McGraw-Hill Ryerson Limited

Other Product-Mix Strategies Trading up Trading down Modification of existing products Product-mix contraction Copyright © 2007 McGraw-Hill Ryerson Limited

Developing New Products Changing consumer needs and competition renders company’s current products obsolete. As product ages, profitability declines. Copyright © 2007 McGraw-Hill Ryerson Limited

Copyright © 2007 McGraw-Hill Ryerson Limited Risks 95% of new products FAIL: Not perceived as new Do not deliver on promise Market too small Poor positioning Lack of marketing support Poor value Copyright © 2007 McGraw-Hill Ryerson Limited

Copyright © 2007 McGraw-Hill Ryerson Limited What is NEW? Truly innovative – truly unique. Replacements that are significantly different. Imitative products that are new to the company. Copyright © 2007 McGraw-Hill Ryerson Limited

Criteria for New Products Adequate market demand. Must satisfy key financial criteria. Must be compatible with environmental standards. Must fit with the company’s marketing structure. Copyright © 2007 McGraw-Hill Ryerson Limited

New Product Strategy Statement A statement that identifies the role the new product is expected to play in achieving company and marketing goals. Copyright © 2007 McGraw-Hill Ryerson Limited

New Product Development Process Generating new product ideas Screening ideas Business analysis Prototype development Market tests Commercialization Copyright © 2007 McGraw-Hill Ryerson Limited

Organizing for Product Innovation There must be strong, long-term commitment. Companies take a variety of approaches to organizing the new product function: Product-planning committee New-product department Venture teams Product manager Copyright © 2007 McGraw-Hill Ryerson Limited

New Product Adoption and Diffusion Product Adoption  A set of successive decisions a customer makes before accepting a new product. Product Diffusion  The process by which the innovation spreads through the market. Copyright © 2007 McGraw-Hill Ryerson Limited

Stages in the Adoption Process Awareness – customer is exposed to the innovation. Interest – customer is interested and seeking information. Evaluation – assessment of the advantages and disadvantages of the new product. Trial – customer adopts the product on a limited basis; may be sample or test. Adoption – customer decides whether to use full scale. Confirmation – customer becomes a user and seeks immediate assurance that the decision was correct. Copyright © 2007 McGraw-Hill Ryerson Limited

Copyright © 2007 McGraw-Hill Ryerson Limited Adopter Categories People adopt an innovation at different points in time: Innovator Early Adopter Early Majority Late Majority Laggard Copyright © 2007 McGraw-Hill Ryerson Limited

How New Product Characteristics Affect Adoption Relative advantage Compatibility Complexity Trialability Observability Copyright © 2007 McGraw-Hill Ryerson Limited

Copyright © 2007 McGraw-Hill Ryerson Limited The Product Life Cycle The concept of the product life cycle applies to product categories, not to brands. It consists of the aggregate sales over time for all brands. A product will pass through four stages over its life cycle: Introduction Growth Maturity Decline Each stage requires different marketing strategies. Copyright © 2007 McGraw-Hill Ryerson Limited

Typical Life Cycle of a Product Category Copyright © 2007 McGraw-Hill Ryerson Limited

Characteristics of the Stages Introductory Stage – developing the market. Reaching the innovators Growth Stage – competition begins, sales grow quickly, profits peak and decline. Reaching the early and late majority. Copyright © 2007 McGraw-Hill Ryerson Limited

Characteristics of the Stages Maturity Stage – competition is intense, sales slow down, differentiated product offerings, few new entrants. Reaching the late majority and laggards. Decline Stage – customers move to other options, competitors leave, profits low, consider exit. Copyright © 2007 McGraw-Hill Ryerson Limited

Length of Product Life Cycle Length of the life cycle will vary. Some are quite short, may be getting shorter Copyright © 2007 McGraw-Hill Ryerson Limited

Copyright © 2007 McGraw-Hill Ryerson Limited Life Cycle Management The shape of the sales and product curves for a product category can be controlled through the collective action of the competing firms. Individual firms attempt to develop strategies to maximize success for their own brands. Copyright © 2007 McGraw-Hill Ryerson Limited

Copyright © 2007 McGraw-Hill Ryerson Limited Life Cycle Management Predict the shape of the proposed product cycle before it is introduced. Adapt strategies at each stage. Copyright © 2007 McGraw-Hill Ryerson Limited

Life Cycle Stage Strategies Entry strategies – what stage to enter at? Managing on the rise Managing during maturity Surviving decline Copyright © 2007 McGraw-Hill Ryerson Limited