Part Five Product Decisions 12 Developing and Managing Products

Copyright © Houghton Mifflin Company. All rights reserved.12 | 2 Objectives 1.To understand how companies manage existing products through line extensions and product modifications 2.To describe how businesses develop a product idea into a commercial product 3.To understand the importance of product differentiation and the elements that differentiate one product from another

Copyright © Houghton Mifflin Company. All rights reserved.12 | 3 Objectives (cont’d) 4.To explore how products are positioned and repositioned in the customer’s mind 5.To understand how product deletion is used to improve product mixes 6.To describe organizational structures used for managing products

Copyright © Houghton Mifflin Company. All rights reserved.12 | 4 Chapter Outline Managing Existing Products Developing New Products Product Differentiation Through Quality, Design, and Support Services Product Positioning and Repositioning Product Deletion Organizing to Develop and Manage Products

Copyright © Houghton Mifflin Company. All rights reserved.12 | 5 Managing Existing Products Line Extension –Development of a product that is closely related to existing products in the line but meets different customer needs Is a less expensive, low-risk alternative May focus on the same or a new segment Can be used to counter competing products –Many “new products” are really line extensions. “Cheerios” “Honey-Nut Cheerios”

Copyright © Houghton Mifflin Company. All rights reserved.12 | 6 Managing Existing Products (cont’d) Product Modifications –A change in one or more characteristics of the product and the elimination of the original product from the product line. Product must be modifiable. Customer must be able to perceive modification has been made. Modified product more closely satisfies customers’ needs. Tide Tide with bleach

Copyright © Houghton Mifflin Company. All rights reserved.12 | 7 Product Modifications Quality Modifications –Changes in material or production processes related to a product’s dependability and durability Reducing quality to offer a lower price to customers Increasing quality to gain a competitive advantage

Copyright © Houghton Mifflin Company. All rights reserved.12 | 8 Product Modifications (cont’d) Functional Modifications –Changes affecting a product’s versatility, effectiveness, convenience, or safety; usually requiring redesign of the product Aesthetic Modifications –Changes to the sensory appeal of a product such as altering taste, texture, sound, smell, or appearance

Copyright © Houghton Mifflin Company. All rights reserved.12 | 9 Developing New Products Benefits –Enhances product mix –Increases depth in product line –Attracts new customers –Increases market and customer share Risks –Expensive to develop –Creates risk of market failure –Loss of market share without new products

Copyright © Houghton Mifflin Company. All rights reserved.12 | 10 Phases of New- Product Development FIGURE 12.1

Copyright © Houghton Mifflin Company. All rights reserved.12 | 11 Phases of New-Product Development (cont’d) Idea Generation –Seeking product ideas to achieve objectives Internal sources: marketing managers, researchers, sales personnel, and engineers External sources: customers, competitors, advertising agencies, consultants, and new-product alliances

Copyright © Houghton Mifflin Company. All rights reserved.12 | 12 Phases of New-Product Development (cont’d) Screening –Choosing the most promising ideas for further review Concerns about cannibalization of existing products Company capabilities to produce and market the product Nature and wants of buyers

Copyright © Houghton Mifflin Company. All rights reserved.12 | 13 Phases of New-Product Development (cont’d) Concept Testing –Seeking potential buyers’ responses to a product idea Low cost determination of initial reaction to product idea Identification of important product attributes and benefits

Copyright © Houghton Mifflin Company. All rights reserved.12 | 14 Concept Test for a Tick and Flea Control Product FIGURE 12.2

Copyright © Houghton Mifflin Company. All rights reserved.12 | 15 Phases of New-Product Development (cont’d) Business Analysis –Assessing the potential of a product idea for the firm’s sales, costs, and profits Does the product fit in with existing product mix? Is demand strong enough to enter the market? How will introducing the product change the market? Is the firm capable of developing the product? What are the costs for developing and marketing?

Copyright © Houghton Mifflin Company. All rights reserved.12 | 16 Phases of New-Product Development (cont’d) Product Development –Determining if producing a product is feasible and cost effective Construction of a prototype, or working model Testing of the prototype’s overall functionality Determining the level of product quality Branding, packaging, labeling, pricing, and promotion decisions

Copyright © Houghton Mifflin Company. All rights reserved.12 | 17 Phases of New-Product Development (cont’d) Test Marketing –Introducing a product on a limited basis to measure the extent to which potential customers will actually buy it Sample launch of entire marketing mix Lessens risk of larger market failure Is expensive; simulated test marketing is an alternative

Copyright © Houghton Mifflin Company. All rights reserved.12 | 18 Phases of New-Product Development (cont’d) Commercialization –Deciding on full-scale manufacturing and marketing plans and preparing budgets Modifications indicated by test marketing are incorporated into the production design. Marketing, distribution, and servicing plans are finalized. Product roll-out occurs in stages to lessen the risks of introducing the new product.

Copyright © Houghton Mifflin Company. All rights reserved.12 | 19 Stages of Expansion into a National Market During Commercialization FIGURE 12.3

Copyright © Houghton Mifflin Company. All rights reserved.12 | 20 Product Differentiation Through Quality, Design, and Support Services Product Differentiation –Creating and designing products so that customers perceive them as different from competing products Perceived differences in product quality, product design and features, and product support services Branding—a crucial way to differentiate a product Horizon Organic Milk Borden Milk

Copyright © Houghton Mifflin Company. All rights reserved.12 | 21 Product Differentiation Product Quality –The overall characteristics of a product that allow it to perform as expected in satisfying customer needs –Level of quality is the relative amount of quality a product possesses. –Consistency of quality is the degree to which a product has the same level of quality over time.

Copyright © Houghton Mifflin Company. All rights reserved.12 | 22 Product Differentiation (cont’d) Product Design and Features –Product design How a product is conceived, planned, and produced Good design provides a strong competitive advantage. Customers typically desire products with good designs and that function well. –Styling is the physical appearance of a product. –Product features include specific design characteristics that allow a product to perform certain tasks.

Copyright © Houghton Mifflin Company. All rights reserved.12 | 23 Product Differentiation (cont’d) Product Support Services –Customer services Human or mechanical efforts or activities that add value to a product Delivery and installation, financing, customer training, warranties and guarantees, repairs, online product information A competitive advantage when all other product features are equally matched by competitors

Copyright © Houghton Mifflin Company. All rights reserved.12 | 24 Product Positioning and Repositioning Product Positioning –Creating and maintaining a certain concept of a product in customers’ minds –A product’s position results from customers’ perceptions of a product’s attributes relative to those of competing products. Marketers emphasize characteristics most desired by the target market (or segment) in advertising.

Copyright © Houghton Mifflin Company. All rights reserved.12 | 25 Hypothetical Perceptual Map for Pain Relievers FIGURE 12.4 Perceptual maps show marketers how closely products are conceptually positioned by consumers to “ideal points,” to their own products, and to competitors’ products.

Copyright © Houghton Mifflin Company. All rights reserved.12 | 26 Product Positioning and Repositioning (cont’d) Repositioning a Product –Adjusting a product’s present position can strengthen/increase its market share and profitability. Repositioning is accomplished by changing the product’s features, price, distribution, or image. Adding new products to the line may necessitate the repositioning of older products.

Copyright © Houghton Mifflin Company. All rights reserved.12 | 27 Product Deletion –The process of eliminating a product from the product mix –Reasons to remove a product: Slow sales create higher unit-production costs, inventory costs, and distribution costs. To prevent negative feelings from affecting the company’s other products.

Copyright © Houghton Mifflin Company. All rights reserved.12 | 28 Product Deletion Process FIGURE 12.5 Source: Martin L. Bell, Marketing: Concepts and Strategy, 3rd ed., p. 267; Copyright © 1979, Houghton Mifflin Company. Reprinted by permission of Mrs. Martin L. Bell.

Copyright © Houghton Mifflin Company. All rights reserved.12 | 29 Organizing to Develop and Manage Products Product/Brand Manager Approach –Product manager The person responsible for a product, a product line, or several distinct products that make up a group –Brand manager The person responsible for a single brand –Market manager The person responsible for managing the marketing activities that serve a particular group of customers –Venture team A cross-functional group that creates entirely new products that may be aimed at new markets

Copyright © Houghton Mifflin Company. All rights reserved.12 | 30 After reviewing this chapter you should: Understand how companies manage existing products through line extensions and product modifications Be able to describe how businesses develop a product idea into a commercial product Understand the importance of product differentiation and the elements that differentiate one product from another

Copyright © Houghton Mifflin Company. All rights reserved.12 | 31 After reviewing this chapter you should: Know how products are positioned and repositioned in the customer’s mind Understand how product deletion is used to improve product mixes Be able to describe organizational structures used for managing products