1. 8-1 © 2006 by Nelson, a division of Thomson Canada Limited 9/17/2015 Slides developed by: Peter Yannopoulos Chapter 8 Product Strategy

2. 8-2 © 2006 by Nelson, a division of Thomson Canada Limited Product A product is a bundle of benefits that provide customer satisfaction

3. 8-3 © 2006 by Nelson, a division of Thomson Canada Limited New Product Development Approaches Market pull New Product DevelopmentApproaches Technology push

4. 8-4 © 2006 by Nelson, a division of Thomson Canada Limited Classification of New Products New product lines Classification of New Products New-to-the- world products Additions to existing product lines Improvements to existing products Repositioning Cost reductions

5. 8-5 © 2006 by Nelson, a division of Thomson Canada Limited Marketing managers must be aware that: New products must fit the vision, goals, distinctive competencies, and value proposition of the organization New products must fit the vision, goals, distinctive competencies, and value proposition of the organization

6. 8-6 © 2006 by Nelson, a division of Thomson Canada Limited In managing new products it is important that: Management must decide its innovation strategy and what the role of new products in that strategy will be Management must decide its innovation strategy and what the role of new products in that strategy will be

7. 8-7 © 2006 by Nelson, a division of Thomson Canada Limited Importance of New Products There is evidence that new products help firms increase their market share and profitability There is evidence that new products help firms increase their market share and profitability A lack of successful new products may threaten highly successful companies Examples: Wang Laboratories and Polaroid A lack of successful new products may threaten highly successful companies Examples: Wang Laboratories and Polaroid

8. 8-8 © 2006 by Nelson, a division of Thomson Canada Limited New Product Strategy The new product strategy reflects the value proposition, positioning, and distinctive competencies of the organization The new product strategy reflects the value proposition, positioning, and distinctive competencies of the organization

9. 8-9 © 2006 by Nelson, a division of Thomson Canada Limited Major Objective of the New Product Strategy To help manage the new product development process To help manage the new product development process

10. 8-10 © 2006 by Nelson, a division of Thomson Canada Limited Elements of a New Product Strategy New product objectives Area of search for new products Behaviour of team members Speed of new product introduction Timing of entry into market

11. 8-11 © 2006 by Nelson, a division of Thomson Canada Limited The Stage-Gate New Product Development System Preliminary Gate Assessment Gate Product Gate Validation Gate Commercial Gate Assessment 1 2 Development 3 4 Launch 5

12. 8-12 © 2006 by Nelson, a division of Thomson Canada Limited Timing of Market Entry Strategies First mover Late mover Timing of Market Entry Strategies Timing of Market Entry Strategies

13. 8-13 © 2006 by Nelson, a division of Thomson Canada Limited First Mover Advantages Barriers to entry Switching costs Consumer search costs Buyer uncertainty Image and reputation First choice of market segments and position Preempt scarce resources

14. 8-14 © 2006 by Nelson, a division of Thomson Canada Limited Late Mover Advantages Let the first mover enter first and test the waters Let first movers face the uncertainty Avoid being locked into an obsolete product design

15. 8-15 © 2006 by Nelson, a division of Thomson Canada Limited The introduction stage is characterized by high: Competitive uncertainty IntroductionStage Market uncertainty Technological uncertainty

16. 8-16 © 2006 by Nelson, a division of Thomson Canada Limited Tasks to be accomplished during the introduction stage include: Tasks to be accomplished during the introduction stage include: Decide on an entry strategy Choose a pricing strategy Establish distribution Design a promotional strategy

17. 8-17 © 2006 by Nelson, a division of Thomson Canada Limited The growth stage is characterized by a reduction in: Market uncertainties Technological uncertainties Competitive uncertainties Market uncertainties Technological uncertainties Competitive uncertainties

18. 8-18 © 2006 by Nelson, a division of Thomson Canada Limited Determine value proposition Raise barriers to entry Create brand loyalty and favourable attitudes Do not lose customer focus Improve product and operations Fine-tune prices and expand distribution Determine value proposition Raise barriers to entry Create brand loyalty and favourable attitudes Do not lose customer focus Improve product and operations Fine-tune prices and expand distribution Tasks to be accomplished during the growth stage include: Tasks to be accomplished during the growth stage include:

19. 8-19 © 2006 by Nelson, a division of Thomson Canada Limited Additional tasks to be accomplished during the growth stage include: Avoid complacency Improve the product or service Fine-tune operations Build loyalty and customer relationships Avoid complacency Improve the product or service Fine-tune operations Build loyalty and customer relationships

20. 8-20 © 2006 by Nelson, a division of Thomson Canada Limited A common problem during the growth stage is: The loss of customer focus due to more pressing internal concerns, such as building volume, reducing costs and meeting production schedules The loss of customer focus due to more pressing internal concerns, such as building volume, reducing costs and meeting production schedules

21. 8-21 © 2006 by Nelson, a division of Thomson Canada Limited The basic marketing tasks during the shakeout stage are: Rationalize product lines Lower prices Marketing tasks in shakeout stage

22. 8-22 © 2006 by Nelson, a division of Thomson Canada Limited The maturity stage is characterized by: Stability in buying patterns High degree of market, competition, and technical stability Price competition Product commoditization

23. 8-23 © 2006 by Nelson, a division of Thomson Canada Limited Tasks to be accomplished during the maturity stage include: Appeal to selected segments Differentiate product and reduce costs Find new ways of increasing sales

24. 8-24 © 2006 by Nelson, a division of Thomson Canada Limited Ways of Increasing Sales in Mature Markets Promote new uses to existing product users Encourage customers to increase their usage of the product Promote more frequent use of the product Promote the product for use in different occasions Reach market segments whose needs are ignored or underserved

25. 8-25 © 2006 by Nelson, a division of Thomson Canada Limited Ways of Increasing Sales in Mature Markets (continued) Broaden the customer base by converting non-users Attract users of competitors’ brands Expand product line by adding new items, sizes, or flavours Enhance product appeal by improving quality and service or adding new features Replace product with superior new products

26. 8-26 © 2006 by Nelson, a division of Thomson Canada Limited The decline stage is caused by: Changes in tastes and preferences Product substitution Demographic changes

27. 8-27 © 2006 by Nelson, a division of Thomson Canada Limited Product Line Strategies Trade-down strategy Product Line Strategies Trade-up strategy Product-line extension strategy

28. 8-28 © 2006 by Nelson, a division of Thomson Canada Limited Reasons Companies Pursue Trade up Strategies Lack of growth opportunities in low end Add prestige to product line To become a full line competitor

29. 8-29 © 2006 by Nelson, a division of Thomson Canada Limited Risks of Trade up Strategies High competitive intensity in high end High-end competitors may counteract Lack of credibility in high end Lack of resources for supporting the move Alienation of existing customers

30. 8-30 © 2006 by Nelson, a division of Thomson Canada Limited Reasons Companies Pursue Trade Down Strategies Limited growth opportunities To become full line competitor Blocking or fighting brand Advertise as starting at a low price Attract first-time buyers

31. 8-31 © 2006 by Nelson, a division of Thomson Canada Limited Risks of Trade Down Strategies Tarnish image Cannibalization of sales of high-end product Inconsistency in quality

32. 8-32 © 2006 by Nelson, a division of Thomson Canada Limited Reasons Companies Pursue Product Line Extension Strategies Strengthen product line Lower costs Enhance perceived value Fill market gaps or pre-empt shelf space

33. 8-33 © 2006 by Nelson, a division of Thomson Canada Limited Risks of Product Line Extension Strategies Overextension Cannibalization

34. 8-34 © 2006 by Nelson, a division of Thomson Canada Limited Service Characteristics and Marketing Challenges Service characteristicMarketing Problem IntangibilityNo storage No patents Difficult to communicate Difficult to price Customers can’t take possession Service heterogeneityDifficult to standardize Quality control is difficult

35. 8-35 © 2006 by Nelson, a division of Thomson Canada Limited Service Characteristics and Marketing Challenges (concluded) Simultaneous production Lack of mass production and consumptionConsumer presence Other customers affect outcome Difficult to distribute Front line employees important for service delivery PerishabilityServices cannot be inventoried Difficult to match demand and supply

36. 8-36 © 2006 by Nelson, a division of Thomson Canada Limited Marketing Mix Strategies for Services Pricing of services Marketing Mix Strategies for Services Product strategies Distribution of services Promotion of services