1. 1 2002 Edition Vitale and Giglierano Chapter 8 Planning and Positioning the Value Offer Prepared by John T. Drea, Western Illinois University

2. 2 Exhibit 8-1 The Product Life Cycle

3. 3 Exhibit 8-2 The Technology Adoption Life Cycle

4. 4 Basic Assumptions About the Product Life Cycle All products and offerings have a limited life. All products pass through different stages of evolution –For each stage, there is an idealized marketing mix that best fits the environment in that stage. Different stages offer different opportunities and threats – –Segmentation and targeting should reflect the changes Profits vary over the product life cycle.

5. 5 Offering Development Stage No sales volume – offering still being developed. Product is not yet completely defined. Profits do not exist. Price/value are being determined. Promotion may be oriented towards publicity about technological developments. Heavy investment to prepare the offering to satisfy customer needs.

6. 6 Offering Introduction Stage Low sales volume. Product is somewhat basic – little need for competitive differentiation. Profits are typically negative. Price/value are being determined Promotion is used to build awareness. If many offering elements have been outsourced or are part of a first-time value network, the logistical process experiences a learning curve.

7. 7 Offering Growth Stage Profits increase - new adopters accept product. Market penetration pricing may be appropriate as competitors bring pressure on high margins. Accordingly, product differentiation becomes important to distinguish the offering from competitors (and to help protect margins.) Promotion serves to remind/reinforce decisions. Distribution is often important in the training and education of customers.

8. 8 Key Issues As a Product Enters the Growth Stage Product Acceptance Product Acceptance Market pragmatists must now play catch-up or attempt to leap-frog market visionaries. Product Differentiation Product Differentiation Total offering attributes are important to differentiate the product. Economies of Scale Economies of Scale Growth is likely the function of a B2B customer specifying the product for inclusion in its offering. This creates a sudden growth in volume that will require economies of scale.

9. 9 Offering Maturity Stage Profits have peaked, competition fights over market share. Promotion reinforces buyer decisions and focuses on supplier reputation and value. Distribution strives to serve all market sub- segments. Price is a major component of the marketing mix. New customers do not replace sales volumes as old customers move to newer products

10. 10 Offering Decline Stage Consolidation usually occurs among suppliers Product line is reduced to minimize product variation – efforts are made by remaining competitors to operate at productive rates. Promotion reduced to minimal levels to accommodate existing customers. Price, particularly associate with a long-term contracts, is a major part of the marketing mix.

11. 11 How Can You Determine Where an Offering Is in the PLC? Develop and review trend information for the past 3-5 years or business cycles. Examine changes in the number and nature of competitors. Review short-term competitive tactics – are competitors pricing to utilize new capacity or improve short term sales volume? Are new product introductions aimed at segments currently served by existing offerings? How many years before a major consolidation occurs among suppliers? Will a competitor innovate your organization out of business?

12. 12 The New Product Development Process Stage1: Idea Generation Stage1: Idea Generation Stage 2: Product Screening Stage 2: Product Screening Stage 3: Business Case Analysis Stage 3: Business Case Analysis Stage 5: Test Market Stage 5: Test Market Stage 6: Product Launch Stage 6: Product Launch Stage 7: Hand-off to Customer Education Stage 7: Hand-off to Customer Education Stage 4: Product/Strategy/Plan Development Stage 4: Product/Strategy/Plan Development

13. 13 Two Approaches to Developing New Products Focus on the Technology or Product First Extensively Involve Existing and Prospective Customers Engineering-driven philosophies minimize customer input: A customer orientation maximizes customer input. ….product concept….….marketing concept….

14. 14 Team Approaches to New Product Development Companies have moved from separate silos (marketing, engineering, sales, customer service, etc.) to small cross- functional teams. Potential problems with a team approach New products usually need a champion Team process requires high-level support Different levels of management need input Team composition must reflect many demands

15. 15 Stage Gates –They are checkpoints after each stage of the product development process. –The new product development process is interrupted at certain milestones to ensure that the original goals and objectives are still viable, The new product development is still forecast to meet the expectations that were created as part of its initial approval.

16. 16 Concurrent Development Sequential Development (not concurrent) New Product Development Engineering + Production + Marketing + Sales 1.Concurrent development reduces development time. 2.Teams are critical to effective concurrent development. 3.There are no short-cuts in new product development. New Product Development Marketing Production Engineering Sales Etc. Concurrent Development

17. 17 Marketing and the Product Development Process In a market-driven organization, marketing continuously reviews customer needs and develops new offerings to meet those needs. However, many organizations minimize resources for marketing throughout the process. –22% of new product development projects reported no marketing study. –Another 46% reported poorly developed marketing plans. –Test marketing was omitted in 58% of studied projects

18. 18 How Should Marketing Serve the Organization? Understand the Technology in Depth Understand the Technology in Depth Guide New Product Development with Customer Needs Guide New Product Development with Customer Needs Screen and Select Ideas from All Sources Screen and Select Ideas from All Sources Motivate Other Company Departments & Organizations Motivate Other Company Departments & Organizations Define and Redefine Current and Future Customer Needs Define and Redefine Current and Future Customer Needs Reward the Efforts of Technical & Support Staff Reward the Efforts of Technical & Support Staff Catalyze Company Resources to Get the Right Resources Catalyze Company Resources to Get the Right Resources

19. 19 Reasons Why New Products Fail No Real Need Existed No Real Need Existed Market Would Not Pay Market Would Not Pay Missing Marketing Plan Missing Marketing Plan Offering Didn’t Meet Needs Adequately Offering Didn’t Meet Needs Adequately Overestimated Market Size or A “Me-Too” Product Didn’t Penetrate Overestimated Market Size or A “Me-Too” Product Didn’t Penetrate

20. 20 Exhibit 8-3 Make-or-Buy Decisions How much does the component contribute to our product’s value image in our customer’s view? Is it our kind of business? -Financial justification -Risk assessment -Stability of technology Are we good at it? Can we own the market for it? Can we or do we want to protect it? Major Yes Make it! Is the component unique to our markets? Purchase as a commodity. Develop partnership with qualified supplier(s). Collaborate in Development with Technology-oriented Supplier(s). No Minor No Yes

21. 21 Connecting the Supply Chain through Metrics The collected metrics should be extended to the firms suppliers and customers Customer needs to get the true metrics Involves TRUST & TECHNOLOGY Metrics should be shared in the Supply Chain Ultimately the Supply Chain will be ‘transparent’ Dot.coms failed to do this Visibility of the Supply Chain will be made real-time by technology and aggressive channel members