PRODUCT

Ashok Leyland is known for its products

What is a Product? A product is anything that can be offered to a market to satisfy a want or need, including physical goods, services, experiences, events, persons, places, properties, organizations, information, and ideas.

Figure 12.1 Components of the Market Offering Attractiveness of the market offering Value-based prices Product features and quality Services mix and quality

Figure 12.2 Five Product Levels

Product Classification Schemes Durability Use Tangibility

Durability and Tangibility Nondurable goods Services Durable goods

Consumer Goods Classification Convenience Unsought Shopping Specialty

Industrial Goods Classification Materials and parts Supplies/ business services Capital items

Developing products for rural markets Products should be designed keeping in mind the rural conditions Packaging is one of the key drivers of success in rural areas Issue of transfer and storage: Rugged packing The issue of affordability: small-unit packs Brand elements should be decided keeping in mind rural consumers

Product Line and Product Mix Product Item –A specific version of a product Product Line –A group of closely related product items viewed as a unit because of marketing, technical, or end-use considerations Whole Milk Skim Milk 2% Milk

Product Mix –The total group of products that an organization makes available to customers –Width of product mix The number of product lines a company offers –Depth of product mix The average number of different products in each product line

The Concepts of Product Mix Width and Depth Applied to Selected U.S. Proctor & Gamble Products FIGURE 10.1 Source: Reprinted by permission of Proctor & Gamble.

Line Stretching Down-Market Stretch Up-Market Stretch

Product Life Cycles and Marketing Strategies Product Life Cycle –The progression of a product through four stages: introduction, growth, maturity, and decline. MP3s DVDs CDs Cassettes LP records

The Four Stages of the Product Life Cycle FIGURE 10.2

Claims of Product Life Cycles Products have a limited life Product sales pass through distinct stages each with different challenges and opportunities Profits rise and fall at different stages Products require different strategies in each life cycle stage

The Product Life Cycle Introduction –The initial stage of a product’s life cycle—its first appearance in the marketplace—when sales start at zero and profits are negative –Why new products fail Lack of resources, knowledge, and marketing skills to successfully launch the product High pricing to recoup research and development costs

Strategies at various stages of PLC Introduction Build sales by expanding market for the product Heavy expenditure on promotion Stimulate trial Attract distribution channel partners Prices high or low depending on imminent competition Product Life Cycle (Contd.)

The Product Life Cycle (cont’d) Growth –The stage of a product’s life cycle when sales rise rapidly and profits reach a peak and then start to decline More competitors enter the market Product pricing is aggressive Brand loyalty becomes important Gaps in market coverage are filled Promotion expenditures moderate Production efficiencies lower costs

Growth Customers aware of the product Build sales and market share by building brand preference Segmentation emerges Product redesigned to create differentiation Promotion lays stress on the benefits of the differentiated product Focused competitors emerge Distribution will be widened to serve new segments. Product made available in different retail formats as customers of different segments buy differently Product Life Cycle (Contd.)

Maturity –The stage of a product’s life cycle when the sales curve peaks and starts to decline and profits continue to fall Intense competition Emphasis on improvements and differences in competitors’ products Weaker competitors lose interest and exit the market Advertising and dealer-oriented promotions predominate Distribution sometimes expands to the global market –Strategic objectives for maturity stage Generate cash flow Maintain market share Increase share of customer

Maturity Market does not grow in this stage Sales only at the expense of competition Focus on ensuring repeat purchases Strong brand helps fight competition Maintaining brand loyalty, stimulate repeat purchases Intense competition, often price wars Company should focus on strengthening its brand by differentiation Lasts for a long time Companies should set realistic growth rates Low cost manufacturing and marketing infrastructure Product Life Cycle (Contd.)

Decline –The stage of a product’s life cycle when sales fall rapidly Pruning items from the product line Cutting promotion expenditures Eliminating marginal distributors Planning to phase out the product –Strategic choices Harvesting the product’s remaining value Divesting the product when losses are sustained and a return to profitability is unlikely

Decline Anticipate the impending decline in sales Analyze changing customer requirements Exit immediately / gradual withdrawal / Exploit brand loyalty Product Life Cycle (Contd.)

Uses of PLC Emphasizes the need for product planning Planning for competition Products have limited life cycle Plan for the future as growth phase will end Adapt marketing strategies as market and competitive conditions change Product Life Cycle (Contd.)

Limitations of PLC Not all products follow the classic S- shaped PLC curve PLC is the result of marketing activities, and is not the cause of variability in sales Duration of PLC stages is unpredictable Strict adherence to PLC can lead a company to misleading objectives and strategy prescriptions Product Life Cycle (Contd.)

Johnson & Johnson Emphasizes New Product Development

Categories of New Products New-to-the-world Cost reductions New product lines Additions Improvements Repositionings

Moser Baer has moved from making optical storage media to selling home entertainment

The World’s Most Innovative Companies Apple Google Toyota General Electric Microsoft Procter & Gamble 3M Walt Disney IBM Sony Wal-Mart Honda Starbucks Target BMW Samsung

Seven Notions of Innovation See the future through the eyes of your customer Intellectual property and brand power are key assets Use digital technology to create tools for customers Build a championship team Innovation is a state of mind Speed is critical, so push your organization Partner up if you’re not the best

The New Product Development Decision Process

Mahindra and Mahindra followed a thorough product development process for ‘Scorpio’

Ways to Find Great New Ideas Run informal sessions with customers Allow time off for technical people to putter on pet projects Make customer brainstorming a part of plant tours Survey your customers Undertake “fly on the wall” research to customers

More Ways to Find Great Ideas Use iterative rounds with customers Set up a keyword search to scan trade publications Treat trade shows as intelligence missions Have employees visit supplier labs Set up an idea vault

Drawing Ideas from Customers Observe customers using product Ask customers about problems with products Ask customers about their dream products Use a customer advisory board or a brand community of enthusiasts to discuss product

Idea generation Look outside current markets Modify product form Question conventional price and performance relationships Imagine unarticulated customer needs rather than simply following them Examine competitors’ products at frequent intervals Retailers as a source of ideas for NPD Customers as a source of ideas for NPD Utilize MR effectively Managing The Innovation Process (Contd.)

Idea screening Evaluate commercial worth of ideas Use criteria to evaluate attractiveness of market for the proposed market Basis such as return on assets, sales growth etc. Idea for NPD should be in alignment with the company’s objectives and competencies Should have reasonable chances of success

Concept testing Each basic product idea can be expanded into several product concepts Each product concept can be compared by testing with target customers Product concept is a particular combination of features, benefits, and price Allows views of customers to enter the NPD process at an early stage Use research to gather customer opinions

Business analysis Estimates of sales, cost and profits Identifies the product target market, its size, and projected product acceptance over a number of years Study various prices and their implications on sales revenues Conduct sensitivity analysis Estimate revenues and profits to justify the expenses of development and marketing

Product development New product concept is developed into a physical product Multi-disciplinary project teams established Product testing focuses on the functional aspects of the product and consumer acceptance R&D focuses on functional aspects of product and marketing keeps the project team aware of psychological factors

Products set up to fail at this stage: Developers become their own during this stage Developers are wary of showing their incomplete designs to other people in the organization Both customer needs and technologies are likely to change during the development process itself A description of the product can never match the physical product in eliciting real reactions of customers A company should be willing to do ‘anything’ to increase the probability of success of a new product

Market testing Simulated market test Launch the new product in a limited way Key success indicators such as penetration and repeat purchase can be ascertained Launch of new product in one or few geographical areas chosen to be representative of its intended market Facing competition in retail outlets Information provided by test marketing facilitates the go / no go national launch decision

Commercialization and diffusion of innovation Diffusion is how a new product spreads throughout a market over time Buyer at different stages of buying readiness In initial phase of launch target customers who are more likely to buy the new product than others Adoption slower if company targets complete market initially

What is Adoption? Adoption is an individual’s decision to become a regular user of a product.

Stages in the Adoption Process Awareness Interest Evaluation Trial Adoption

Adopter Categorization

Innovators: Most likely to buy the new product Early adopters: Set of customers who buy the product next Early and late majorities form the bulk of the customers Laggards are tradition bound Diffusion of innovation categories play crucial role in the choice of target markets Key is to understand the characteristics of the innovator and early adopter categories and target them at launch

Adopter categories can provide basis of segmenting the target market Diffusion curve linked to the product life cycle Characteristics of the product being launched also affects diffusion rate Choice of marketing strategy to establish a differential advantage to be made Product’s communicability affects adoption of new product

Characteristics of an Innovation Relative advantage Compatibility Complexity Divisibility Communicability

Idea generation Look outside current markets Modify product form Question conventional price and performance relationships Imagine unarticulated customer needs rather than simply following them Examine competitors’ products at frequent intervals Retailers as a source of ideas for NPD Customers as a source of ideas for NPD Utilize MR effectively Managing The Innovation Process (Contd.)

Idea screening Evaluate commercial worth of ideas Use criteria to evaluate attractiveness of market for the proposed market Basis such as return on assets, sales growth etc. Idea for NPD should be in alignment with the company’s objectives and competencies Should have reasonable chances of success Managing The Innovation Process (Contd.)

Concept testing Each basic product idea can be expanded into several product concepts Each product concept can be compared by testing with target customers Product concept is a particular combination of features, benefits, and price Allows views of customers to enter the NPD process at an early stage Use research to gather customer opinions Managing The Innovation Process (Contd.)

Business analysis Estimates of sales, cost and profits Identifies the product target market, its size, and projected product acceptance over a number of years Study various prices and their implications on sales revenues Conduct sensitivity analysis Estimate revenues and profits to justify the expenses of development and marketing Managing The Innovation Process (Contd.)

Product development New product concept is developed into a physical product Multi-disciplinary project teams established Product testing focuses on the functional aspects of the product and consumer acceptance R&D focuses on functional aspects of product and marketing keeps the project team aware of psychological factors Managing The Innovation Process (Contd.)

Products set up to fail at this stage: Developers become their own during this stage Developers are wary of showing their incomplete designs to other people in the organization Both customer needs and technologies are likely to change during the development process itself A description of the product can never match the physical product in eliciting real reactions of customers A company should be willing to do ‘anything’ to increase the probability of success of a new product Managing The Innovation Process (Contd.)

Market testing Simulated market test Launch the new product in a limited way Key success indicators such as penetration and repeat purchase can be ascertained Launch of new product in one or few geographical areas chosen to be representative of its intended market Facing competition in retail outlets Information provided by test marketing facilitates the go / no go national launch decision Managing The Innovation Process (Contd.)

Commercialization and diffusion of innovation Diffusion is how a new product spreads throughout a market over time Buyer at different stages of buying readiness In initial phase of launch target customers who are more likely to buy the new product than others Adoption slower if company targets complete market initially Managing The Innovation Process (Contd.)

Innovators: Most likely to buy the new product Early adopters: Set of customers who buy the product next Early and late majorities form the bulk of the customers Laggards are tradition bound Diffusion of innovation categories play crucial role in the choice of target markets Key is to understand the characteristics of the innovator and early adopter categories and target them at launch Managing The Innovation Process (Contd.)

Adopter categories can provide basis of segmenting the target market Diffusion curve linked to the product life cycle Characteristics of the product being launched also affects diffusion rate Choice of marketing strategy to establish a differential advantage to be made Product’s communicability affects adoption of new product Managing The Innovation Process (Contd.)