CHAPTER 7: PRODUCT STRATEGY AND NEW-PRODUCT DEVELOPMENT Part 3: Develop the Value Offering—The Product Experience McGraw-Hill Education 1 Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

LEARNING OBJECTIVES  Understand the essential role of the product experience in marketing  Define the characteristics of a product  Recognize how product strategies evolve from one product to many products  Understand the life of a product and how product strategies change over time  Recognize the importance of new-product development to long-term success  Understand the new product development process  Identify how new products become diffused in a market 2

Product Characteristics  A product is anything that delivers value to satisfy a need or want and includes physical merchandise, services, events, people, places, organizations, information, or ideas. 3

Product Characteristics  Defining the Product  Essential Benefit is the fundamental need met by the product (getting from point A to point B on an Southwest Airlines)  Core Product is the physical, tangible elements. (One kind of aircraft, low fares, good website)  Enhanced Product includes additional features, designs, and innovation that exceed expectations. (Frequent flyer program, fun and entertaining flight attendants) 4

Four Products and Their Essential Benefits 5

CHAPTER 01 DEFINING THE PRODUCT AT SOUTHWEST AIRLINESEXHIBIT 7.2 Enhanced Product Experiences exceed minimum expectations Frequent flyer programs Reserved seating Enhanced Product Experiences exceed minimum expectations Frequent flyer programs Reserved seating Core Product On time Safe Experience matches expectations Core Product On time Safe Experience matches expectations Essential Benefit Moving from Point A to Point B Essential Benefit Moving from Point A to Point B 6

Product Classifications  Tangibility – physical aspects of the product experience  Durability – product usage 7

Product Classifications  Consumer Goods Convenience Goods Shopping Goods Specialty Goods Unsought Goods 8

Product Classifications  Business Goods MaterialsParts MRO Supplies Capital Goods 9

Product Discrimination: Create a Point of Differentiation FormFeatures Performance Quality Conformance Quality DurabilityReliabilityRepairabilityStyle

Product Plan: Moving from One Product to Many Products  Product Line: A group of products linked through usage, customer profile, price points, and distribution channels or needs satisfaction  Product Mix: all the products offered by a company 11

Product Decisions Affect other Marketing Mix Elements  Pricing  Individual product pricing within the product line  “good, better, best” product line strategy  Technology companies face special challenges as newer models have better features and lower prices  Marketing Communications  Focus on a single product or the brand?  Allocation of budget: Most popular products? Entire line? New products? 12

BUILDING THE PRODUCT EXPERIENCE  Product Life Cycle  Product Life Cycle Sales Revenue and Profitability  Product Life Cycle Timeline  Product Life Cycle Caveats 13

CHAPTER 01 THE PRODUCT LIFE CYCLE EXHIBIT 7.12 Reprinted from Roger Kerin, Steven Hartley and William Rudelius, Marketing 9E,

Product Life Cycle  Introduction Phase Market Conditions Strategy ProductPrice Marketing Communications Distribution

Product Life Cycle  Growth Phase Market Conditions Strategy ProductPrice Marketing Communications Distribution 16

Product Life Cycle  Maturity Phase  Phase defined by the sales growth of the product category 1. Relative Market Expansion 2. Market Stability 3. Market Deterioration 17

Product Life Cycle  Maturity Phase Market Conditions Strategy ProductPrice Marketing Communications Distribution 18

Product Life Cycle  Decline Phase Market Conditions Strategy ProductPrice Marketing Communications Distribution 19

New Products Defined  Company Perspective New-to-the-World Disruptive Innovation are so innovative they create a fundamental change in the marketplace. Ex. Cell phones, tablets Sustaining Innovations are newer, better faster versions of existing products or additions to existing product lines. Ex. Diet Coke, Coke Zero Reposition Existing Products Add new market segments Ex. Cell phones from business usage to adults to teens Cost Reduction Introduce lower cost products with fewer features or scaled back warranty or service 20

New Products Defined  Customer’s Perspective The customer’s perspective is much more narrow and self directed. The customer is most interested in an answer to the fundamental question—is this new product new to me? First purchase of a cell phone, house or auto can be a intimidating experience 21

Why do Products Fail? 22

New Product Development Process  The three major activities in new product development are: 1. Identify Product Opportunities 2. Define the Product Opportunity 3. Develop the Product Opportunity 23

Identify Product Opportunities 24  Generate New Ideas InternalExternal CustomersDistributors

 Screen and Evaluate Ideas Go-to-Market Mistake Firm fails to keep a bad product idea from moving into product development Stop-to-Market Mistake A good idea is eliminated prematurely 25 Identify Product Opportunities

 Screen and Evaluate Ideas  Prioritize ideas that pass initial screening and evaluation Time to market (how long will it take to develop and get the product to market). ROI (what is the expected return for the dollars invested in the project). New product fit with overall company product portfolio. 26

Define the Product Opportunity  Define the Product Opportunity  Define and test the product idea  Create a marketing strategy  Analyze the product’s business case 27

Define the Product Opportunity  Define and Test the Product Concept  Product Definition Objectives Define the value proposition Identify the target market and purchase frequency Delineate the product characteristics Look, feel, physical characteristics, features 28

Define the Product Opportunity  Create the Marketing Strategy 29 Budget Promotion Place Price Product TargetMarketTargetMarket

Define the Product Opportunity  Define the Product Opportunity  Conduct Business Case Analysis Total Demand New purchases Repeat purchases Replacement purchases Profitability Analysis Long and short term analysis 30

Define the Product Opportunity  Define the Product Opportunity  Conduct Business Case Analysis Total Demand New purchases Repeat purchases Replacement purchases Profitability Analysis 31

Develop the Product Opportunity  Develop the Product Opportunity  Develop The Product Product Testing: alpha and beta Test the Market Consumer Product Market Tests Business Product Market Tests Product Launch 32

CONSUMER ADOPTION AND DIFFUSION PROCESS  Consumer Product Adoption Process  Innovation diffusion process is how long it takes a product to move from first purchase to last purchase (the last set of users to adopt the product).  An individual moves through five stages before adopting a product. 33 AwarenessInterestEvaluationTrialAdoption

The Diffusion of Innovations 34