Chapter 12 Developing and Managing Products

12 | 3Copyright © Houghton Mifflin Company. All rights reserved. Objectives Understand how companies manage existing products through line extension and product modifications Describe the development of product ideas into commercial products Understand importance of product differentiation and elements that differentiate products Examine use of product deletion to improve product mix Describe organizational structures used for managing products

12 | 4Copyright © Houghton Mifflin Company. All rights reserved. Managing Existing Products Line Extensions Product Modifications Quality Modifications Functional Modifications Aesthetic Modifications

12 | 5Copyright © Houghton Mifflin Company. All rights reserved. Line Extension Development of a product that is closely related to existing products in the line but is designed specifically to meet different customer needs.

12 | 6Copyright © Houghton Mifflin Company. All rights reserved. Purpose of Line Extensions  Focus on different segment  More precisely satisfy needs of current segment  Capture market share from competitors  Might result in negative view of core product

12 | 7Copyright © Houghton Mifflin Company. All rights reserved. Product Modification Changes in one or more characteristics of a product.

12 | 8Copyright © Houghton Mifflin Company. All rights reserved. Conditions Of Product Modification  Must be modifiable  Perceive modification has occurred  Makes product more consistent with customers’ desires  Risk = previous purchaser may view as riskier purchase

12 | 9Copyright © Houghton Mifflin Company. All rights reserved. Methods Of Product Modification  Quality  Functional  Aesthetic

12 | 10Copyright © Houghton Mifflin Company. All rights reserved. Quality Modifications Changes relating to a product’s dependability and durability. –Reducing quality = lower price –Increasing quality = competitive edge

12 | 11Copyright © Houghton Mifflin Company. All rights reserved. Functional Modifications Changes affecting a product’s versatility, effectiveness, convenience, or safety.

12 | 12Copyright © Houghton Mifflin Company. All rights reserved. Benefits Of Functional Modifications Stronger competitive position Achieve/maintain progressive image Reduce possibility of product liability lawsuits

12 | 13Copyright © Houghton Mifflin Company. All rights reserved. Aesthetic Modifications Changes relating to the sensory appeal of a product. Such as taste, texture, sound, smell, and appearance.

12 | 14Copyright © Houghton Mifflin Company. All rights reserved. Aesthetic Modifications Benefit  Differentiate product Drawback - Value is subjective

12 | 15Copyright © Houghton Mifflin Company. All rights reserved. Developing New Products New product development process –A seven-phase process for introducing products: idea generation, screening, concept testing, business analysis, product development, test marketing, and commercialization

12 | 16Copyright © Houghton Mifflin Company. All rights reserved. Phases Of New-Product Development

12 | 17Copyright © Houghton Mifflin Company. All rights reserved. Idea Generation Seeking product ideas to achieve organizational objectives. Magazine of Innovation

12 | 18Copyright © Houghton Mifflin Company. All rights reserved. Screening Selecting the ideas with the greatest potential for further review.

12 | 19Copyright © Houghton Mifflin Company. All rights reserved. Concept Testing Seeking a sample of potential buyers’ responses to a product idea.

12 | 20Copyright © Houghton Mifflin Company. All rights reserved. Concept Test For A New Product

12 | 21Copyright © Houghton Mifflin Company. All rights reserved. Business Analysis Evaluating the potential impact of a product idea on the firm’s sales, costs, and profits

12 | 22Copyright © Houghton Mifflin Company. All rights reserved. Product Development Determining if producing a product is feasible and cost effective.

12 | 23Copyright © Houghton Mifflin Company. All rights reserved. Test Marketing A limited introduction of a product in geographic areas chosen to represent the intended market.

12 | 24Copyright © Houghton Mifflin Company. All rights reserved. Benefits Of Test Marketing Expose product to marketing environment and assess sales performance Identify weaknesses in product or marketing mix Experiment with variations in marketing mix Reduce risk of failure

12 | 25Copyright © Houghton Mifflin Company. All rights reserved. Popular Test Markets

12 | 26Copyright © Houghton Mifflin Company. All rights reserved. Commercialization Refining and finalizing plans and budgets for full-scale manufacturing and marketing of a product

12 | 27Copyright © Houghton Mifflin Company. All rights reserved. National Market Commercialization

12 | 28Copyright © Houghton Mifflin Company. All rights reserved. Product Differentiation through Quality, Design, and Support Services Product Differentiation –Creating and designing products so that customers perceive them as different from competing products.

12 | 29Copyright © Houghton Mifflin Company. All rights reserved. Product Differentiation  Quality- characteristics to perform as expected - Level - Consistency  Design and features - Styling - Features  Support services- add value

12 | 30Copyright © Houghton Mifflin Company. All rights reserved. Product Quality Quality – characteristics of a product allowing it to perform as expected in satisfying customer needs Level of quality – the amount of quality a product possesses Consistency of quality – the degree to which a product has the same level of quality over time

12 | 31Copyright © Houghton Mifflin Company. All rights reserved. Product Design and Features Product design – conception, plan, and production of a product Styling – physical appearance of a product Product features – specific design characteristics that allow a product to perform certain tasks Customer services – human or mechanical efforts or activities that add value to a product

12 | 32Copyright © Houghton Mifflin Company. All rights reserved. Product Deletion Eliminating a product from the product mix when it no longer satisfies a sufficient number of customers.

12 | 33Copyright © Houghton Mifflin Company. All rights reserved. Product Deletion Process

12 | 34Copyright © Houghton Mifflin Company. All rights reserved. Organizing To Develop And Manage Products  Product Manager  Brand Manager  Market Manager  Venture Team  18 Steps 18 Steps © Royalty-Free, The Studio Dog/Getty Images