PRODUCTS AND LIFE CYCLE STRATEGIES Products and product lines New products: Development, successes and failures The Product Life Cycle and Diffusion of Innovations Branding

Product Lines vs. Product Mix Product Line: A number of similar or related products—e.g., BIC writing utensils Boeing Commercial Aircraft (aircraft and parts) Nike shoes; Nike clothing Product Mix: assortment of different products offered E.g., “KFC—we do chicken right!” (Only one product line) 3M: Tapes, adhesives, Post-its, chemicals, computer disks, overhead projectors (things that are bonded together

Reasons for Product Failure Insignificant “Point of Difference” Incomplete prior market and product definition Insufficient market attractiveness Poor execution of the marketing mix Poor product quality or customer need sensitivity Bad timing Lack of economical access to customers

Stages in New Product Development Process Text, p. 279. Copyright © 2002 McGraw-Hill.

Idea Generation Sources of new ideas Customer based Outright suggestions Observation of customer problems and tasks Market research on processes and problems Supplier suggestions Employee suggestions R&D Breakthroughs Competitive ideas Adaptation of products seen in foreign markets

Screening Internal screening External screening Technical feasibility Consistency with strategic objectives External screening Marketing research Questionnaires Conjoint analysis (determines importance of attributes)

Business Analysis and Development Financial feasibility Legal issues Impact on sales of existing products Financial projections Development Design Prototypes Refinements

Test Marketing and Commercialization Limited regional release May pre-test prices and positioning Simulated test markets Laboratory Computer based Commercialization Positioning Launching product Risks Slotting fees Failure fees Withdrawal due to insufficient sales

The Product Life Cycle Text, p. 295. Copyright © 2002 McGraw-Hill.

Some PLC Stage Examples Color TVs: Maturity Black and white TVs: Decline HDTV: Growth VCRs: Decline DVD players: Growth Jeans: Maturity Fast food: Growth/maturity Traditional photography: Maturity Digital photography: Growth Fax machines: Maturity Internet access (U.S.) Dial-up: Mature DSL, Cable: Growth Travel agencies: Decline Autism education: Introduction Cranberry juice: Revitalization

The Product Life Cycle (PLC) involves ________ over time Demand for the product Awareness of the product Competition in supplying the product Price Features Differentiation Profitability Alternatives available to the product Investment opportunities (Boston Consulting Group model) Appropriate strategies

Dimensions of the Product Life Cycle (PLC) Length Tend to be increasingly short Especially short in Japan Shape Effects of learning opportunities Product level Class (e.g., TVs) Form (e.g., HDTV) Diffusion among consumer segments

The International Life Cycle Market for older technology tends to exist in less developed countries Manufacturing of older generation technology--e.g., Pentium I computers Resale of capital equipment—e.g., DC 8 aircraft, old three part canning machines Some countries tend to be more receptive to innovation than others “Leap frogging” Going directly from old technology to the very newest, skipping intermediate step (e.g., wireless rather than wired technology) Shortening of product life cycles

Types of Innovations Continuous--same product, just small improvements over time--e.g., typical automobile/stereo system model changes Dynamically continuous--product form changed, but function and usage are roughly similar--e.g., jet aircraft, ball point pen, word processor Discontinuous--entirely new product; usage approach changes (e.g., fax) Innovations can be classified into several different types, although lines may somewhat be a bit blurred. The continuous innovation implies the inclusion of some new technology or ideas without any fundamental way in the way the product, idea, or service, is used. For example, although there are great technological differences between the electric typewriter, with its many moving parts, and the electronic typewriter based more on circuits, the two products may work very similarly. Whether a car has a carburetor or fuel injection, again, may not constitute a highly visible difference for the consumer, with established methods of operation left unchanged. Dynamically continuous innovations involve some degree of change for the consumer, although such changes do not completely change existing ways of product usage. For example, digital watches, although different from electronic ones, basically serve the same purpose. The ball point pen, although somewhat more convenient, did not change the fundamental way people wrote. A discontinuous innovation, on the other hand, fundamentally changes the way things are done. For example, many consumers had difficulty understanding the concept of a microwave oven when this device first came out. 11

Some Diffusion Examples ATMs Easy observability Significant relative advantage Credit cards “Chicken-and-egg” problem Jump-starting the cycle Faded, torn jeans Fads Innovations do not have to be high tech Fax machines Network economies Rap music Low barriers to entry Spread to a new consumer group Hybrid corn Trialability Imitation

To Adopt or Not to Adopt: How Will Consumers Answer the Question? Some causes of resistance to adoption perceived risk--financial and social self image effort to implement and/or learn to use the product incompatibility inertia

Influences on the Speed of Diffusion Risk to expected benefit ratio (relative advantage) Product pricing Trialability Switching difficulties and learning requirements/ ease of use

Branding Brands Trade marks and “genericide” Product or product line specific brands E.g., Tide, DeWalt, Hayes modem International issues “Umbrella Brands” 3M National vs. regional National vs. international Store brands Trade marks and “genericide” Branding has been traced to whiskey casks that were identified for quality.

Brand as Category Label: A Mixed Blessing Brand names potentially in danger Coke (“cola drink”) Kleenex (“facial tissue”) FedEx (“overnight express”) Xerox (“photo copy”) Market share benefit of descriptive brand name Distributional Consumer “mind share”

Brand Value and Image Brand equity: Value added to product based on brand name Choice likelihood Ability to charge higher price Use of product as loss leader Benefit in market share, temporary revenue (Coca Cola) Possible damage to long term brand image (Louis Vuitton suitcases in Japan) Brand “personality:” Associations with product

Co-branding To take advantage of assets of both firms Types Distributional: Egalitarian: Carl’s Jr. and Green Taco Hierarchical: Kodak as official film of Disney Parks Line filling—e.g., airline code sharing Ingredients: Cooperative: Dreyers’ ice cream with Mars M&Ms Independent: Local computer maker advertises Maxtor hard drive components Intrusive: “Intel Inside” Partial: McD’s serves Coca Cola Sponsorship: Good Housekeeping seal of approval

Branding Issues To extend or not to extend? Congruence--are products consistent in image to be represented by the same brand name? Coke and Diet Coke Miller vs. Miller Light Beer Perception of ability to make product well Extention should not be exploitative (e.g., Heinecken Popcorn) Order of entry: First manufacturer of new to market product should not extend