Business Marketing Programming Part Three Business Marketing Programming

Part Three Business Marketing Programming Copyright The McGraw-Hill Companies, Inc. Permission required for reproduction or display Part Three Business Marketing Programming Part 3 covers the key areas of business marketing programming. Chapter 8 Developing and Managing Products Chapter 14 Pricing and Negotiating for Value Chapter 9 Business Marketing Channels Chapter 10 Communicating with Customers (IMC) Particular Communication Vehicles: Advertising, Trade Shows, and PR (Chapter 11) Direct mail, Telephone, and Internet (Chapter 12 ) Personal Selling (Chapter 13)

Developing and Managing Products: What do Customers Want? Chapter Eight Developing and Managing Products: What do Customers Want?

Learning Objectives What is a Product? Managing Products Copyright The McGraw-Hill Companies, Inc. Permission required for reproduction or display Learning Objectives What is a Product? Managing Products Key product management decisions Product management levels Product management tools (portfolio and product life cycle) New Product Development Identify the process of developing products internally Discuss the importance of lead users to the product development process Indicate what partnering, with both suppliers and customers, means to the product development process

What is a Product How the Product or Service Satisfies BENEFIT: A Need A Bundle of Benefits and a Collection of Solutions to Needs and Wants PRODUCT: A Benefit That Satisfies a Customer Better than A Competitor’s Product Benefits COMPETITIVE ADVANTAGE:

Core Product & Augmented Product Product – A collection of features; A collection of advantages; A collection of buyer benefits including services. Core Product – the tangible item plus customary services Augmented Product – the tangible product plus customary and unique/customized services comprises the augmented product. A means of exceeding customer expectations Should be done on a customer-by-customer basis Is accomplished by adding unique/customized services to the core product Aiding in building strong customer partnerships E.g., computers + 2 hr free training is a core product or an augmented product?

Managing Products Key product management decisions Product management levels Management tools Product Portfolio – BCG and GE matrix Product Life Cycle

Key Product Management Decisions Which product to introduce Which products to keep Which product to promote What level of promotion to provide (low to high?) What products to continue or delete

Product Management Levels The product category The product line The technology platform The product itself

Product Management Tools Product Portfolio Management Tools BCG Matrix GE Matrix Product Life Cycle

The BCG Matrix Growth share matrix is a portfolio planning method that evaluates a company’s products in terms of their market growth rate and relative share. Products are classified as: Stars, Cash Cows, Question marks and Dogs Marketing efforts, or investments, will change, depending on the product’s classification

The BCG Matrix

The BCG Matrix Stars are high-growth, high-share businesses or products requiring heavy investment to finance rapid growth. They will eventually turn into cash cows. Cash cows are low-growth, high-share businesses or products that are established; require less investment to maintain market share in a stable market. Question marks are low-share business units in high-growth markets requiring a lot of cash to hold their share. Dogs are low-growth, low-share businesses and products that may generate enough cash to maintain themselves but do not promise to be large sources of cash. Not worth much investment.

The BCG Matrix Problems with Matrix Approaches Difficulty in defining SBUs and measuring market share and growth Time consuming Expensive Focus on current businesses, not future planning

GE Matrix A more advanced model developed by General Electric: measuring market attractiveness and business strength Market attractiveness is a composite measure of the potential for sales and profits in a particular market segment Business strength is the strength of our offering relative to other companies’ products GE Matrix is an expansion of the BCG matrix. The dimensions are more comprehensive and detailed.

GE Matrix GE Matrix Market Attractiveness Growth Diversity Competitive Structure Change Technology Change Social Environment Business Strength Size of Market & Share Company Growth Rate Profit Margins Technology Platform Image People

Product Life Cycle Product Life Cycle (PLC) – The cycle of product development, introduction, growth, maturity, and decline in sales PLC describes the sales history of a successful product The cycle can be applied to individual products or to product platforms or categories As products go through the life cycle, marketing emphases will change.

PLC Decision Points Rapid expansion of distributors Product line expansion Niche marketing Continued heavy promotion Sales force incentives and management Search for new sources for supply Need to balance supply and demand Stock-out and back-order damage control Strongly defend home-market niches Prune product lines Emphasize gross contribution rather than market share and sales volume Review logistics: prune costs Reduce pioneering sale force effort, more telemarketing More trade than consumer promotion Introduce flankers, private labels, generics Reinvest in market research & R&D Use promotions to increase heavy-user loyalty Freeze investment in plant Productivity review Special trade promotions to keep channels happy Focused attacks on vulnerable competitors Long-term price reduction or at least a short-term price promotion Keep plant at maximum capacity and subcontract excess Cut low-gross-margin products from the line Withdraw from channels in order of their unprofitability Freeze R& D and product modifications Freeze advertising and promotions Attempt to maintain price to the end Buy back remaining stock and redistribute Maintain spare parts and service Consider divesting while it is a going concern Sales Redirect focus & promotion Invest in expanding production Build inventory Expand distributor network Train expanded sales force Institute marketing controls Invest heavily in advertising Target on best prospects: innovators and enthusiasts Use most loyal distributors Use free samples Use public demonstrations and trade shows Use publicity and endorsements Use specialist media & catalogs Development Introduction Growth Maturity Decline Time

PLC – A new look Product Develop-ment R&D Test Marketing Introduction Growth Maturity Decline Kill the product Find New Uses Find New Markets Repeat Life Cycle

PLC – Recommendations for each stage Introduction – Profits are not expected; the focus is on building distribution channels; a truly innovative product must focus on stimulating primary demand Growth – Sales and profits increase at their fastest rate; product differentiation may be employed in an attempt to stimulate secondary demand Maturity – Sales level off; maintain/improve its profit position through product differentiation Decline – seek markets/applications for the product

Discussion Question Some authors have combined the life cycle and portfolio matrices into one model. How would you do that? What are some limitations of the model?

New Product Development The most basic decision: go – no go decision Risks involved in developing new products: Investment risk – we decide to go ahead with the product, it fails, and we lose some or all of our investment Opportunity risk – we decide to kill a product and thereby lose all of the revenue we would have gained if it had been a success

Product Development Process EVALUATION LAUNCH BETA TESTING PRODUCT DEVELOPMENT SPECIFYING FEATURES SCREENING AND PRELIMINARY INVESTIGATION IDEA GENERATION

New Product Development Process Internally developed products: Begin as an idea that must be screened to determine if it is worth further development (concept test) Features are specified and then a prototype is created A small run of the product is manufactured and beta, or field, tested – letting customers use in real-world conditions The product is launched and evaluated

Making a product successful Five factors are key to success: Company’s ability to identify needs and satisfy them Have close ties with a well defined market to anticipate customer needs. Company is highly integrated and market-oriented Company has a competitive advantage in technology and production capability Company’s ability to market products Company has a strong marketing proficiency New product launch adequately financed

Winning the new product contest FOCUS ON CORE COMPETENCY(WHAT YOU DO BEST FOR A COMPETITIVE ADVANTAGE) PLUS PROVIDE GREATEST VALUE TO CUSTOMER EQUALS SUCCESSFUL PRODUCT