Chapter 10 Product Strategies: Basic Decisions & Product Planning

Chapter Outline What Is a Product? New Product Development Market Segmentation Product Adoption

Chapter Outline Theory of International Product Life Cycle - Stages and Characteristics - Validity of the IPLC - Marketing Strategies Product Standardization vs. Product Adaptation - Arguments for Standardization -Arguments for Adaptation

Chapter Outline A Move Toward World Product: International or National Product? Marketing of Services - Importance of Services - Types of Services -The Economic and Legal Environment -Marketing Mix and Adaptation -Market Entry Strategies

Product Product is anything that can be offered in a market for attention, acquisition, use, or consumption that might satisfy a need or want

New Product Development There are six distinct steps in new product development. generation of new product ideas screening of ideas business analysis product development test marketing full-scale commercialization

New Product Development The first step is the generation of new product ideas. Such ideas can come from any number of sources (e.g., salesperson, employees, competitors, governments, marketing research firms, customers).

New Product Development The first step is the generation of new product ideas. Such ideas can come from any number of sources (e.g., salesperson, employees, competitors, governments, marketing research firms, customers).

New Product Development The second step involves the screening of ideas. Ideas must be acknowledged and reviewed to determine their feasibility. To determine suitability, a new product concept may simply be presented to potential users, or an advertisement based on the product may be drawn and shown to focus groups.

New Product Development The third step is business analysis, which is necessary to estimate product features, cost, demand, and profit. Several competing teams of designers produce a prototype, and the winning model that meets preset goals then goes to the “product development” team.

New Product Development The fourth step is product development, which involves lab and technical tests as well as manufacturing pilot models in small quantities. At this stage, the product is likely to be handmade or produced by existing machinery rather than by any new specialized equipment. Ideally, engineers should receive direct feedback from customers and dealers.

New Product Development The fifth step involves test marketing to determine potential marketing problems and the optimal marketing mix. Anheuser Busch pulled Budweiser out of Germany after a six- month Berlin market test in Its Busch brand was another disappointment in France, where this type of beer did not yet correspond to French tastes.

New Product Development Finally, assuming that things go well, the company is ready for full-scale commercialization by actually going through with full-scale production and marketing. In any case, so many new products are tested and marketed each year. In Japan, because consumers constantly demand fresh, new products, some 700 to 800 drinks are launched annually. To keep pace, Coca-Cola has built a product development center which allows it to cut launch time for new drinks from ninety days to a month, enabling it to release fifty new beverages a year.

Market Segmentation Market segmentation is a concept to which marketers and academics like to pay a great deal of attention. For example, Visa has designed its consumer credit products and non-credit products for diverse market segments. Some of its products are: Visa Classic, Visa Gold, Visa Platinum, Visa Signature, Visa Infinite, Visa check card, and Visa Buxx. Marketers fail to realize that the purpose of segmentation is to satisfy consumer needs more precisely – not to segment the market just for the aim of the segmentation.

Market Segmentation In breaking into a foreign market, marketers should consider factors that influence product adoption. As explained by diffusion theory, at least six factors have a bearing on the adoption process

Product Adoption relative advantage compatibility trialability/divisibility observability complexity price

Relative advantage For a product to gain acceptance, it must demonstrate its relative advantage over existing alternatives.

Compatibility A product must also be compatible with local customs and habits. In Asia and such European countries as France and Italy, people like to sweep and mop floors daily, and thus there is no market for carpet or vacuum cleaners. A new product should also be compatible with consumers’ other belongings. If a new product requires a replacement of those other items that are still usable, product adoption becomes a costly proposition.

Trialability/divisibility A new product has an advantage if it is capable of being divided and tested in small trial quantities to determine its suitability and benefits. This is a product’s trialability/divisibility factor. Disposable diapers and blue jeans lend themselves to trialability rather well, but when a product is large, bulky, and expensive, consumers are much more apprehensive about making a purchase.

Observability Observation of a product in public tends to encourage social acceptance and reinforcement, resulting in the product’s being adopted more rapidly and with less resistance. If a product is used privately, other consumers cannot see it, and there is no prestige generated by its possession.

Complexity Complexity of a product or difficulty in understanding a product’s qualities tends to slow down its market acceptance. Perhaps this factor explains why ground coffee has had a difficult time in making headway to replace instant coffee in many countries

Price The first four variables are related positively to the adoption process. Like complexity, price is related negatively to product adoption. Prior to 1982, copiers were too big and expensive. Canon then introduced personal copiers with cartridges that customers could change. Its low price (less than $1000) was so attractive to consumers (but not to competitors) that Canon easily dominated the market.

Theory of International Product Life Cycle (IPLC) The international product life cycle theory, developed and verified by economists to explain trade in a context of comparative advantage, describes the diffusion process of an innovation across national boundaries. The life cycle begins when a developed country, having a new product to satisfy consumer needs, wants to exploit its technological breakthrough by selling abroad.

Theory of International Product Life Cycle (IPLC) Other advanced nations soon start up their own production facilities, and before long less developed countries do the same. Efficiency/comparative advantage shifts from developed countries to developing nations. Finally, advanced nations, no longer cost- effective, import products from their former customers..

Theory of International Product Life Cycle (IPLC) Stage 0-- Local Innovation Stage 1-- Overseas Innovation Stage 2-- Maturity Stage 3-- Worldwide Imitation Stage 4-- Reversal

Stage 0-- Local Innovation Regular and highly familiar product life cycle in operation within its original market. Innovations are most likely to occur in highly developed countries because consumers in such countries are affluent and have relatively unlimited wants. From the supply side, firms in advanced nations have both the technological know-how and abundant capital to develop new products.

Stage 1-- Overseas Innovation As soon as the new product is well developed, its original market well cultivated, and local demands adequately supplied, the innovating firm will look to overseas markets in order to expand its sales and profit. Thus this stage is known as a “pioneering” or “international introduction” stage.

Stage 2 – Maturity Growing demand in advanced nations provides an impetus for firms there to commit themselves to starting local production, often with the help of their governments’ protective measures to preserve infant industries. Thus these firms can survive and thrive in spite of relative inefficiency.

Stage 3 – Worldwide imitation This stage means tough times for the innovating nation because of its continuous decline in exports. There is no more new demand anywhere to cultivate.

Stage 4 – Reversal Not only must all good things end, but misfortune frequently accompanies the end of a favorable situation. The major functional characteristics of this stage are product standardization and comparative disadvantage. This innovating country’s comparative advantage has disappeared, and what is left is comparative disadvantage. This disadvantage is brought about because the product is no longer capital-intensive or technology-intensive but instead has become labor- intensive – a strong advantage possessed by LDCs.

Product Standardization vs. Product Adaptation Arguments for Standardization - simplicity and cost - consistent company or product image - musical recordings and works of art - industry specifications - cultural universals

Product Standardization vs. Product Adaptation Arguments for Adaptation - big-car syndrome - left-hand-drive syndrome

Mandatory Product Modification Government regulations Electrical current standards Measurement systems Operating systems

Optional Product Modification Physical distribution Local use conditions Climatic conditions Space constraint Consumer demographics as related to physical appearance

Optional Product Modification User's habits Environmental characteristics Price Limiting product movement across national borders (gray marketing) Historical preference or local customs and culture

International Product Strategies Standardized Product - Domestic product introduced internationally, with minor or no modification Localized Product - Domestic product adapted for foreign markets - Product designed specifically for foreign markets

International Product Strategies Global Product - Product designed with international (not national) markets in mind -Product having universal features -Product being adaptation-ready, when necessary