1. Copyright © 2012 Pearson Canada Inc.8 - 1 Developing and Managing Products and Services Chapter 8

2. Copyright © 2012 Pearson Canada Inc.8 - 2 What is a Product? it is more than physical products; includes services, places, persons, and ideas it is easy to visualize the products of Esso, but more difficult to describe those of the Winnipeg Symphony Orchestra, UNICEF, or the Salvation Army some products are sold only to consumers, while others are sold to organizations whether a product is a consumer product or a business product depends on how it is used

3. Copyright © 2012 Pearson Canada Inc.8 - 3 Seller’s services Seller’s services Product quality Product quality Physical characteristics of goods Physical characteristics of goods Price Brand Design Packaging Product warranty Product warranty Seller’s reputation Seller’s reputation Colour The Total Product

4. Copyright © 2012 Pearson Canada Inc.8 - 4 Consumer Goods Classes Consumer products can be classified by the buying behaviour of the consumers: Convenience goodsConvenience goods are bought with little time and effort, such as milk, bread, a chocolate bar. Shopping goodsShopping goods are those where extensive comparison is the norm-- cars, furniture, clothes. Specialty goodsSpecialty goods are those for which consumers have a strong brand preference. BMW, Armani. Unsought goodsUnsought goods are those now unknown to the consumer or, if known, undesired.

5. Copyright © 2012 Pearson Canada Inc.8 - 5 Classifying Business Products raw materialsraw materials: unprocessed, become part of other manufactured products manufactured parts and materials:manufactured parts and materials: processed products that become part of other products installations:installations: major buildings and equipment accessory equipment:accessory equipment: used in operations, include computers, desks, tools operating suppliesoperating supplies: low value, used by most firms, convenience products for businesses

6. Copyright © 2012 Pearson Canada Inc.8 - 6 New-Product Development Strategy New-product development: –The development of original products, improvements, modifications, and new brands through the firm’s product-development efforts New product innovation is expensive and risky –Estimated 80% of all new products fail or dramatically underperform

7. Copyright © 2012 Pearson Canada Inc.8 - 7 Criteria for New Products there must be adequate market demand: this is necessary but not sufficient for success must satisfy key financial criteria must be compatible with environmental standards must fit with the company’s marketing structure should also be compatible with production capabilities, satisfy legal requirements, and fit with corporate goals and objectives

8. Copyright © 2012 Pearson Canada Inc.8 - 8 New-Product Development Process Major stages in new-product development:

9. Copyright © 2012 Pearson Canada Inc.8 - 9 Identify the strategic role of new products, then... Identify the strategic role of new products, then... 1. Idea generation 1. Idea generation 2. Screening of ideas 2. Screening of ideas 3. Business analysis 3. Business analysis 4. Prototype development 4. Prototype development 5. Market Tests 5. Market Tests 6. Commer- cialization 6. Commer- cialization The New Product Development Process

10. Copyright © 2012 Pearson Canada Inc.8 - 10 New Product Development Commercialization Product and marketing plan, production, launch, final ROI estimate Development R&D, prototype, test marketing mix, revise, ROI estimate Idea evaluation Testing, customer reaction, cost, sales and profit estimates Screening Strengths, weaknesses, organizational “fit”, market trends, ROI estimate Idea generation Customers, market research, competitors, other market, employees

11. Copyright © 2012 Pearson Canada Inc.8 - 11 New-Product Development Process Idea generation: –Internal sources: Company employees at all levels –External sources: Customers Competitors Distributors and suppliers Others (including trade magazines and shows, advertising agencies, marketing research firms, laboratories, and inventors)

12. Copyright © 2012 Pearson Canada Inc.8 - 12 New-Product Development Process Idea screening: –Process used to spot good ideas and drop poor ones –Describe product or service, target market, and competition –Estimate market size, price, development time and costs, manufacturing costs, rate of return –Evaluate new-product ideas against a set of company criteria

13. Copyright © 2012 Pearson Canada Inc.8 - 13 New-Product Development Process Concept development and testing: –Product concept: Detailed version of the new-product idea stated in meaningful consumer terms –Concept testing: Testing new-product concepts with groups of potential consumers to find out if the concepts have strong consumer appeal

14. Copyright © 2012 Pearson Canada Inc.8 - 14 New-Product Development Process Marketing strategy development: –Involves designing an initial marketing strategy and a three part marketing strategy statement 1.Describe the target market, planned value proposition, sales, market share, and profit goals 2.Outline the product’s planned price, distribution, and marketing budget 3.Describe the planned long-run sales and profit goals, marketing mix strategy

15. Copyright © 2012 Pearson Canada Inc.8 - 15 New-Product Development Process Business analysis: –Review of the sales, costs, and profit projections to assess fit with company objectives –If results are positive, project moves to the product development phase

16. Copyright © 2012 Pearson Canada Inc.8 - 16 New-Product Development Process Product development: –Develops concept into a physical product –Calls for a large investment –Prototypes are developed and tested –Prototypes must have required functional features and convey psychological characteristics

17. Copyright © 2012 Pearson Canada Inc.8 - 17 New-Product Development Process Test-marketing: –Product and marketing program are introduced into a realistic market setting –Not needed for all products –Provides marketing experience before going to the expense of full introduction Commercialization: –Full-scale introduction of the product into the market

18. Copyright © 2012 Pearson Canada Inc.8 - 18 Managing New-Product Development Customer centered approach: –Focuses on solving customer problems and offers compelling customer value proposition Team-based approach: –Departments work together, overlapping steps to save time and increase effectiveness Systematic approach: –Innovation management systems collect, review, evaluate, manage new-product ideas

19. Copyright © 2012 Pearson Canada Inc.8 - 19 New Product Organization Companies take a variety of approaches to organizing the new product function: product-planning committees new-product departments cross-functional new venture teams product managers –many larger firms are replacing the product manager with category managers

20. Copyright © 2012 Pearson Canada Inc.8 - 20 1. Ford’s Edsel automobile. 2. Dupont’s Corfam synthetic leather. 3. Polaroid’s Polavision. 4. United Artist’s Heaven’s Gate western movie. 5. RCA’s Videodisc. 6. Time’s TV-Cable Week magazine. 7. IBM’s PCjr. 8. New Coke. 9. R.J. Reynolds’ Premier cigarette. 10. Nutrasweet’s Simplesse fat substitute. Ten World-Class Product Failures

21. Copyright © 2012 Pearson Canada Inc.8 - 21 Product Life Cycle Decline Sales fall, profits drop, competitors leave, prices drop, promotion budget cut Maturity Slow down in sales and profit, achieved acceptance by most potential buyers, profits level (or decline), competition (weak ones drop out) Growth period of rapid market acceptance and increasing profit, competitors enter market, unit cost decrease Introduction Slow sales growth, no profits, heavy expenses (distribution, promotion), create awareness and trial Product Development New idea, no sales, investment costs rise

22. Copyright © 2012 Pearson Canada Inc.8 - 22 Product and Service Decisions Decisions about individual products involve: –Product attributes such as quality, features, style and design –Packaging (bi-lingual in Canada) –Labeling (identify, describes, and promotes brand) –Product support services (customer phone or email)

23. Copyright © 2012 Pearson Canada Inc.8 - 23 Product and Service Decisions Decisions about product lines involve: –Product line length –Line filling or line stretching Product mix has four dimensions: –Width –Length –Depth –Consistency

24. Copyright © 2012 Pearson Canada Inc.8 - 24 Services Marketing Services are the most important industry in Canada’s economy and includes: –Government services, hospitals, military, police, Canada Post, schools, not-for-profit organizations –Business services segment (for-profit companies) such as banks, airlines, hotels, real-estate firms

25. Copyright © 2012 Pearson Canada Inc.8 - 25 Services Marketing Consider four characteristics when designing services marketing programs:

26. Copyright © 2012 Pearson Canada Inc.8 - 26 The Service-profit chain Internal service quality Satisfied service employees Greater service value Satisfied customers Profits

27. Copyright © 2012 Pearson Canada Inc.8 - 27 Services Marketing Service marketing faces three major marketing tasks, to increase: –Service differentiation –Service quality –Service productivity