UNIVERSITY OF CEBU – MAIN

GRADUATE SCHOOL

MARKETING MANAGEMENT (BM 207)

Reporter: SIEGA, MARA SHAIRA A. Date: January 28, 2018

Topic: Setting Product Strategy Schedule: Blk 1 7:30 - 12:00 (SUN)

Product characteristics and classifications

Product is everything that can be offered to market to satisfy a want or need. Products that are marketed include physical
goods, services, experiences, events, persons, places, properties, organizations, information and ideas.

Product levels: The Customer-Value Hierarchy

 Fundamental level: Core benefit - the service or benefit the customer is really buying (marketers – benefit
providers);
 Second level: Basic product - to turn the core benefit into a basic product;
 Third level: Expected product - a set of attributes and conditions buyers normally expect when they purchase this
product;
 Fourth level: Augmented product - exceeds customer expectations (differentiation);
Consumption system: the way the user performs the task of getting and using product and related services;
It is necessary to know that:
 Each augmentation adds costs;
 Augmented benefits soon become expected benefits and necessary points-of parity;
 As companies raise the price of their augmented product, some companies offer a stripped-down version at a
much lower price.
 Fifth level: Potential product - encompasses all the possible augmentations and transformations the product or the
offering might undergo in the future.

Product classifications
Each product type has an appropriate marketing-mix strategy.
 Durability and tangibility:
 Nondurable goods: tangible goods normally consumed in ne or a few uses (beer and soap). These goods are
consumed quickly and purchased frequently. Appropriate strategy: make them available in many locations,
charge only a small markup, and advertise heavily to induce trial and build preference.
 Durable goods: tangible goods that normally survive many uses (refrigerators, clothing). Appropriate
strategy: require more personal selling and services, command a higher margin, and require more sells
guarantees.
 Services: intangible, inseparable, variable, and perishable products. Appropriate strategy: require more
quality control, supplier credibility, and adaptability (haircuts, legal advice).
 Consumer-goods classification:
The consumer usually purchases convenience goods frequently, immediately, and with a minimum of effort.
 Staples are goods consumers purchase on a regular basis.
 Impulse goods are purchased without any planning or search effort.
 Emergency goods are purchased when a need is urgent – umbrellas during a rainstorm. Manufacturers of
impulse and emergency goods will place them in those outlets where consumers are likely to experience an
urge or compelling need to make a purchase.
 Shopping goods are goods that consumer characteristically compares on such bases as suitability, quality, price
and style. Examples include furniture, clothing, used cars and major appliances. We further divide this category:
 Homogeneous shopping goods are similar in quality but different enough in price to justify shopping
comparisons.
 Heterogeneous shopping goods differ in product features and services that may be more important than price.
 Specialty goods have unique characteristics or brand identification for which a sufficient number of buyers
are willing to make a special purchasing effort. Examples include: cars and photographic equipment
  Unsought goods are those the consumers do not know about or does not normally think of buying, such as
smoke detectors. The classic examples of known but unsought goods are life insurance and encyclopedias.
Unsought goods require advertising and personal-selling support.
 Industrial-goods classification:
Industrial goods can be classified in terms of their relative cost and how they enter the production process:
material and parts, capital items and supplies and business services.
 Material and parts are goods that enter the manufacturer’s product completely. They fall into two classes:
o Raw materials: farm products and natural products;
o Manufactured materials and parts: component materials and components parts.
 Capital items are long-lasting goods that facilitate developing or managing the finished product. They include
two groups:
o Installations
o Equipment
 Supplies and business services are short-term goods and services that facilitate developing or managing the
finished product. Supplies are of two kinds:
o Maintenance and repair items
o Operating supplies

Differentiation

To be branded, products must be differentiated. The seller faces an abundance of differentiation possibilities, including
form, features, customization, performance quality, conformance quality, durability, reliability, repairability and style.
Design has become increasingly important.

Product differentiation
 Form – any products can be differentiated in form (the size, shape, or physical structure);
 Features – Most products can be offered with varying features that supplement their basic function. The marketer
must be aware of customer value versus company cost for each potential feature. Each company must decide
whether to offer feature customization at a higher cost or a few standard packages at a lower cost.
 Customization – marketers can differentiate products by making them customized to any individual;
 Mass customization – is the ability of a company to meet each customer’s requirements (to prepare on a mass
basis individually designed products, services, programs and communications);
 Performance quality - most products are established at one of four performance levels: low, average, high or
superior. Performance quality is the level at which the product’s primary characteristics operate. The
manufacturer must design a performance level appropriate to the target market and competitors’ performance
levels;
 Conformance quality – buyers expect products to have a high conformance quality, which is the degree to which
all the produced units are identical and meet the promised specifications;
 Durability – is a measure of the product’s expected operating life under natural or stressful conditions, is a valued
attribute for certain products;
 Reliability – buyers normally will pay a premium for more reliable products. Reliability is a measure of the
probability that a product will not malfunction or fail within a specified time period;
 Repairability – is a measure of the ease of fixing a product when it malfunctions or fails;
 Style – describes the products look and feel to the buyer.

Service Differentiation
When the physical product cannot easily be differentiated, the key to competitive success may lie in adding valued
services and improving their quality. The main services differentiators are ordering ease, delivery, installation, customer
training, customer consulting and maintenance and repair.
 Ordering ease: how easy it is for the customer to place an order with the company.
 Delivery: how well the product or service is brought to the customer. It includes speed, accuracy and care
throughout the process. Two tools that help the delivery process are: Quick Response Systems (QRS) and Global
Positioning System (GPS).
 Installation: the work done to make a product operational in its planned location.
  Customer training: training the customer’s employee to use the vendor’s equipment properly and efficiently.
 Customer consulting: data, information system and advice services that the seller offer to buyers.
 Maintenance and repair: service program for helping customers keep purchased products in good working order.
 Return: product returns in two ways:
 Controllable returns results from problems, difficulties or errors of the seller or customer and cam mostly be
eliminated with proper strategies and programs;
 Uncontrollable returns can’t be eliminated by the company in the short-run through any of the
aforementioned means.

Design

As competition intensifies, design offers a potent way to differentiate and position a company’s products and services. In
increasingly fast-paced markets, price and technology are not enough. Design is the factor that will often give a company
its competitive edge. Design is the totality of features that affect how a product looks, fells, and functions in terms of
customer requirements.

In the firm’s point of view, a well-design product is the one that is easy to manufacture and distribute. In the customer’s
point of view a well-design product is pleasant to look at and easy to open, install, use, repair and dispose of. Holistic
marketers recognize the emotional power of design and the importance to customers of how things look and fell. In
summary, in an increasingly visually oriented culture, translating brand meaning and positioning through design is
critical.

Product and Brand Relationship

Each product can be related to other products to ensure that a firm is offering and marketing the optimal set of products.

The Product Hierarchy

It stretches from basic needs to particular items that satisfy those needs. It has six levels and we will use a cosmetic
example in order to better explain:
1. Need family: underlies the existence of a product family. PERSONAL CARE
2. Product family: product classes that can satisfy a core need with reasonable effectiveness. COSMETICS, SKIN
CREAMS, SHAMPOOS, CONDITIONERS, SOAPS
3. Product class: a group of products within the product family recognized as having a certain functional
coherence. HAIR CLEANING AGENTS
4. Product line: a group of products class that are closely related because they perform a similar function, are sold
to the same customer groups, are marketed through the same outlets or channels, or fall within given price ranges.
SHAMPOOS (SEDA, MONANGE, ALL CLEAR ETC)
5. Product type: a group of items within a product line that share one of several possible forms of the product.
DANDRUFF CONTROL SHAMPOOS
6. Item: a distinct unit, distinguishable by size, price, appearance or some other attribute. A SACHET OF CLINIC
ALL CLEAR
Product System and Mixes
A product system is a group of diverse but related items that function in a compatible manner. The product mix means a
set of all products and items a particular seller offers for sale. It consists of various product lines. The product mix has
four dimensions:
• Width: how many different product lines the company carries.
• Length: the total number of items in the mix.
• Depth: refers to how many variants are offered of each product in the line.
• Consistency: how closely related the various product lines are in end use, production requirements, distribution
channels or some other way.
The product mix dimension permits the company to expand its business in four ways: add new product line, lengthen each
product line, add more product variants and deepen its product mix and pursue more product line consistency. For
instance, Avon’s product mix consists of four major product lines: cosmetics, jewelry, fashions, and household items.

Product Line Analysis

Product-line managers need to know the sales and profits of each item in their line in order to determine which items to
build, maintain, harvest, or divest.
 Sales and profits: it is possible for companies to know how well its lines are performing by the sales and profit
report. Every company's product portfolio contains products with different margins. A company can classify its
products into four types that yield different gross margins, depending on sales volume and promotion:
 Core products: high sales volume, heavily promoted, low margins;
 Staples: lower sales volume and no promotion, higher margin;
 Specialties: lower sales volume, highly promoted;
 Convenience items: high volume, less promotion, higher margins.
 Market Profile: how the line is positioned against competitors' lines. The product map shows which competitors'
items are competing against a regarding company’s items. Another benefit of product mapping is that it identifies
market segments.
Product-line analysis provides information for two key decision areas-product-line length and product-mix pricing.

Product-Line Length
One objective is to create a product line to induce up-selling. A different objective is to create a product line that
facilitates cross-selling. Another objective is to create a product line that protects against economic ups and downs.
Companies seeking high market share and market growth will generally carry longer product lines. Product lines tend to
lengthen over time. Excessive manufacturing capacity puts pressure on the product-line manager to develop new items. A
company lengthens its product line in two ways: line stretching and line filling.
 Line Stretching - occurs when a company lengthens its products line beyond its current range. The company can
strength its line down-market, up-market or both ways.
 Down-Market - A company positioned in the middle market may want to introduce a lower-priced line for
any of three reasons:
1- The company may notice strong growth opportunities as mass retailers.
2- The company may wish to tie up lower-end competitors who might otherwise try to move up-market.
3- The company may find that the middle market is stagnating or declining.
A company faces a number of naming choices in declining to move a brand down-market:
1- Use the parent brand name on all its offerings;
2- Introduce lower-priced offerings using a sub brand name;
3- Introduce the lower-priced offerings under a different name.
Moving down-market carries risks and it can cannibalize its core brand.
 Up – Market Stretch - Companies may wish to enter the high end of the market to achieve more growth, to
realize higher margins, or simply to position themselves as full –line manufactures.
 Two – Way Stretch - Companies serving the middle market might decide to stretch their line in both
directions.
 Line Filling - A firm can also lengthen its product line by adding more items within the present range. There are
several reasons for line filling: reaching for incremental profits. Line filling is overdone if it results in self-
cannibalization and customer confusion. The company needs to differentiate each item in the consumer’s mind
with a just-noticeable difference. According to Weber’s law, consumers are more attuned to relative then absolute
difference.
 Line modernization, featuring, and pruning - Product lines need to be modernized. The issue is whether to
overhaul the line piecemeal or all at once. A piecemeal approach allows the company to see how customers and
dealers tae to the new style. It is also less draining on the company’s cash flow, but it allows competitors to see
changes and to start redesigning their own lines.

Product-Mix Pricing
Marketers must modify their price-setting logic when the product is part of a product mix. In product-mix pricing, the firm
searches for a set of prices that maximizes profits on the total mix. Six situations calling for product-mix pricing: product-
line pricing, optional-feature pricing, captive-product pricing, two-part pricing, by-product pricing, and product-bundling
pricing.
 Product – line pricing- Companies normally develop product lines rather than single products and introduce prices
steps. The seller’s task is to establish perceived quality differences that justify the price differences.
 Optional – feature pricing - Many companies offer optional products, features and services along with their main
product.
  Captive – product pricing - Some products require the use of ancillary products, or captive products.
Manufactures of razors, digital phones, and cameras often price them low and set high markups on razor blades
and film. There is a danger in pricing the captive product too high in the aftermarket, however. If parts and
service are too expensive, counterfeiting and substitutions con erode sales.
 Two-part pricing - Service firms engage in two-part pricing consisting of a fixes fee plus a variable usage fee.
Telephone users pay a minimum monthly fee plus charges for call beyond a certain area.
 By-product pricing - The production of certain goods-meats, petroleum products, and other chemicals often
results in by-products. If the by-products have value to a consumer group, they should be priced on their value.
Any income earned on the byproducts will make it easier for the company to charge a lower price on its main
product if competition forces it to do so.
 Product-bundling pricing - Sellers bundles products and features. Pure bundling occurs when a firm offers its
products only as a bundle. It can be a kind of tied-in sales, when a product is sold accompanied with other
products. In mixed bundling, the seller offers goods both individually and in bundles. The seller normally charges
lees for the bundle than if the item were purchase separately.

Co-Branding
Marketers often combine their products with products from other companies in various ways. In co-branding – also
called dual branding or brand bundling – two or more well-known brands are combined into a joint product or marketed
together in some fashion. There are various ways to form a combination: same-company cobranding, joint-venture co-
branding, multiple- sponsor co-branding, or retail cobranding.

Co-branding can generate greater sales, reduce cost of product introduction, and may be a valuable means to learn about
consumers and how other companies approach them. The potential disadvantages of co-branding are the risk and lack of
control in becoming aligned with another brand in the minds of consumers, do not overcome the consumer’s expectations
generating dissatisfaction affecting both brand negatively. For co-branding succeed, the two brands must separately have
brand equity a logical fit between them.

Ingredient Branding
Ingredient branding is a special case of co-branding. It creates brand equity for materials, components, or parts that are
necessarily contained within other branded products.
An interesting take on ingredient branding, as exposed in Activia`s example, is "selfbranding" in which companies
advertise and even trademark their own branded ingredients. It`s a way to create individual identity to the product,
protection it from competitors.

Ingredient branding has the follow requirements to be successful:

1. Consumers must perceive that the ingredient matters to the performance and success of the end product.
Ideally, this intrinsic value is easily seen or experienced.
2. Consumers must be convinced that not all ingredient brands are the same and that the ingredient is superior.
3. A distinctive symbol or logo must clearly signal to consumers that the host product contains the ingredient.
Ideally, the symbol or logo would function like a "seal" and would be simple and versatile and credibly
communicate quality and confidence.
4. A coordinated "pull" and "push" program must help consumers understand the importance and advantages of
the branded ingredient. Channel members must offer full support. Often this will require consumer advertising
and promotions and - sometimes in collaboration with manufacturers - retail merchandising and promotion
programs.

Packaging, Labeling, Warranties and Guarantees

Most physical products must be packaged and labeled. Due to this fact, many marketers have called packaging a fifth P,
along with price, product, place, and promotion. Most marketers, however, treat packaging and labeling as an element of
product strategy. Warranties and guarantees can also be an important part of the product strategy, which often appear on
the package.

Packaging
We define packaging as all the activities of designing and producing the container for a product. Packages might include
up to three levels of material. Cool Water cologne comes in a bottle (primary package) in a cardboard box (secondary
package) in a corrugated box (shipping package) containing six dozen boxes.

Well-designed packages can build brand equity and drive sales. The package is the buyer's first encounter with the product
and is capable of turning the buyer on or off.

Various factors have contributed to the growing use of packaging as a marketing tool:
 Self-service: package provides the sales in a self-service basis, like in a supermarket where consumers buy
directly from the shelf.
 Consumer affluence: consumers are willing to pay more for the convenience, appearance, dependability, and
prestige of better packages.
 Company and brand image: packages contribute to instant recognition of the company or brand.
 Innovation opportunity: innovative packaging can bring large benefits to consumers and profits to producers.

From the perspective of both the firm and consumers, packaging must achieve a number of objectives:
1. Identify the brand.
2. Convey descriptive and persuasive information.
3. Facilitate product transportation and protection.
4. Assist at-home storage.
5. Aid product consumption.

Marketers must choose the aesthetic and functional components of packaging correctly. Aesthetic considerations relate to
a package's size and shape, material, color, text, and graphics. The packaging elements must harmonize with each other
and with pricing, advertising, and other parts of the marketing program.

After the company designs its packaging, it must test it. Engineering tests ensure that the package stands up under normal
conditions; visual tests, that the script is legible and the colors harmonious; dealer tests, that dealers find the packages
attractive and easy to handle; and consumer tests, that buyers will respond favorably.

Companies must pay attention to growing environmental and safety concerns to reduce packaging. Fortunately, many
companies have gone "green" and are finding new ways to develop their packaging.

Labeling
The label may be a simple tag attached to the product or an elaborately designed graphic that is part of the package. It
might carry only the brand name, or a great deal of information. Even if the seller prefers a simple label, the law may
require more.

Labels perform several functions:

 Identifies the product or brand;
 Grade the product;
 Describe the product;
 Promote the product;
Labels eventually become outmoded and need freshening up.

Warranties and Guarantees

All sellers are legally responsible for fulfilling a buyer's normal or reasonable expectations. Warranties are formal
statements of expected product performance by the manufacturer. Products under warranty can be returned to the
manufacturer or designated repair center for repair, replacement or refund.

Extended warranties can be sold by the retailer or manufacturer to customers and can be extremely lucrative for them. It
represented 30% of Best Buy`s operating profits in 2005.
Guarantees reduce the buyer's perceived risk. They suggest that the product is of high quality and that the company and its
service performance are dependable. They can be especially helpful when the company or product is not that well known
or when the product's quality is superior to competitors.

Guarantees is more than legal statements that guides the warranties, they can be seen as extra benefits to induce consumer
to buy the product. For instance, Procter & Gamble promises complete satisfaction without being more specific (General
Guarantee) and A. T. Cross guarantees its Cross pens and pencils for life, repairing and replacing at no charges (Specific
Guarantee).

UNIVERSITY OF CEBU – MAIN

GRADUATE SCHOOL

MARKETING MANAGEMENT (BM 207)

Reporter: SIEGA, MARA SHAIRA A. Date: January 28, 2018

Topic: Introducing New Market Offerings Schedule: Blk 1 7:30 - 12:00 (SUN)

The Innovation Imperative

In an economy of rapid change, continuous innovation is a necessity. Highly innovative firms are able to identify
and quickly seize new market opportunities. They create a positive attitude toward innovation and risk taking, routinize
the innovation process, practice teamwork, and allow their people to experiment and even fail.
Innovation is about “creating new choices” the competition doesn’t have access to, says IDEO’s CEO Tim
Brown. It isn’t about brilliant people spontaneously generating new ideas, he argues, but about finding hidden
assumptions and ignored processes that can change the way a company does business.

New-Product Success
Most established companies focus on incremental innovation, entering new markets by tweaking products for new
customers, using variations on a core product to stay one step ahead of the market, and creating interim solutions for
industry-wide problems.
Newer companies create disruptive technologies that are cheaper and more likely to alter the competitive space.
Established companies can be slow to react or invest in these disruptive technologies because they threaten their
investment. Then they suddenly find themselves facing formidable new competitors, and many fail. To avoid this trap,
incumbent firms must carefully monitor the preferences of both customers and noncustomers and uncover evolving,
difficult-to-articulate customer needs.

*Seven Notions of Innovation

 See the future through the eyes of your customer
 Intellectual property and brand power are key assets
 Use digital technology to create tools for customers
 Build a championship team
 Innovation is a state of mind
 Speed is critical, so push your organization
 Partner up if you’re not the best

New-Product Failure
 Shortage of important ideas in certain areas. There may be few ways left to improve some basic products (such as
steel or detergent).
 Fragmented markets. Companies must aim their new products at smaller market segments, which can mean lower
sales and profits for each product.
 Social, economic, and governmental constraints. New products must satisfy consumer safety and environmental
concerns. They must also be resilient if economic times are tough.
  Cost of development. A company typically must generate many ideas to find just one worthy of development and
thus often faces high R&D, manufacturing, and marketing costs.
 Capital shortages. Some companies with good ideas cannot raise the funds to research and launch them.
 Shorter required development time. Companies must learn to compress development time with new techniques,
strategic partners, early concept tests, and advanced marketing planning.
 Poor launch timing. New products are sometimes launched after the category has already taken off or when there
is still insufficient interest.
 Shorter product life cycles. Rivals are quick to copy success. Sony used to enjoy a three-year lead on its new
products. Now Matsushita can copy them within six months, barely leaving Sony time to recoup its investment.
 Organizational support. The new product may not mesh with the corporate culture or receive the financial or other
support it needs.

Organizational Arrangements
Many companies use customer-driven engineering to develop new products, incorporating customer preferences
in the final design. Some rely on internal changes to develop more successful new products. New-product development
requires senior management to define business domains, product categories, and specific criteria.

Budgeting for New-Product Development

R&D outcomes are so uncertain that it is difficult to use normal investment criteria when budgeting for new-
product development. Some companies simply finance as many projects as possible, hoping to achieve a few winners.
Other companies apply a conventional percentage-of-sales figure or spend what the competition spends. Still others
decide how many successful new products they need and work backward to estimate the required investment

Organizing New-Product Development

Companies handle the organizational aspect of new-product development in several ways. Many assign
responsibilities to product managers. But product managers are often busy managing existing lines and may lack the skills
and knowledge to develop and critique new products.

*Venture Teams
These are cross-functional groups charged with developing a specific product or business. These “intrapreneurs”
are relieved of other duties and given a budget, time frame, and “skunkworks” setting. Skunkworks are informal
workplaces, sometimes garages, where intrapreneurial teams attempt to develop new products. Cross-functional teams can
collaborate and use concurrent new-product development to push new products to market. Cross-functional teams help
ensure that engineers are not driven to create a “better mousetrap” when potential customers don’t need or want one.

*The New-Product Development Decision Process

Managing the Development Process: Ideas

Generating Ideas
The new-product development process starts with the search for ideas. Some marketing experts believe the
greatest opportunities and highest leverage with new products are found by uncovering the best possible set of unmet
customer needs or technological innovation. New-product ideas can come from interacting with various groups and using
creativity-generating techniques.
Erich Joachimsthaler believes some of the best new-product opportunities are right in front of marketers’ eyes.
The mistake too many make, he says, is to view the world from the perspective of their own products and services and
search for customers for them. His demand-first innovation and growth (DIG) framework is designed to provide
companies with an unbiased view and an outside-in perspective of demand opportunities.
It has three parts:
1. The demand landscape—Use observational, anthropological, and ethnographic methods or consumer self-
reports to map consumer needs, wants, and even beyond.
2. The opportunity space—Use conceptual lens and structured innovative-thinking tools to achieve market
perspectives from different angles.
3. The strategic blueprint—Think about how the new product can fit into customers lives and how it can be
distinguished from competitors.

*Idea Generation: Creativity Techniques

 Attribute listing. List the attributes of an object, such as a screwdriver. Then modify each attribute, such as
replacing the wooden handle with plastic, providing torque power, adding different screw heads, and so on.
 Forced relationships. List several ideas and consider each in relationship to each of the others. In designing new
office furniture, for example, consider a desk, bookcase, and filing cabinet as separate ideas. Then imagine a desk
with a built-in bookcase or a desk with built-in files or a bookcase with built-in files.
 Morphological analysis. Start with a problem, such as “getting something from one place to another via a powered
vehicle.” Now think of dimensions, such as the type of platform (cart, chair, sling, bed), the medium (air, water,
oil, rails), and the power source (compressed air, electric motor, magnetic fields). By listing every possible
combination, you can generate many new solutions.
 Reverse assumption analysis. List all the normal assumptions about an entity and then reverse them. Instead of
assuming that a restaurant has menus, charges for food, and serves food, reverse each assumption. The new
 restaurant may decide to serve only what the chef bought that morning and cooked; may provide some food and
charge only for how long the person sits at the table; and may design an exotic atmosphere and rent out the space
to people who bring their own food and beverages.
 New contexts. Take familiar processes, such as people-helping services, and put them into a new context. Imagine
helping dogs and cats instead of people with day care service, stress reduction, psychotherapy, funerals, and so
on. As another example, instead of sending hotel guests to the front desk to check in, greet them at curbside and
use a wireless device to register them.
 Mind mapping. Start with a thought, such as a car, write it on a piece of paper, then think of the next thought that
comes up (say Mercedes), link it to car, then think of the next association (Germany), and do this with all
associations that come up with each new word. Perhaps a whole new idea will materialize.

Managing the Development Process: Concept to Strategy

Attractive ideas must be refined into testable product concepts. A product idea is a possible product the company
might offer to the market. A product concept is an elaborated version of the idea expressed in consumer terms.

Concept Development
Concept development is a necessary but not sufficient step for new product success. Marketers must also
distinguish winning concepts from losers. Let us illustrate concept development with the following situation: A large
food-processing company gets the idea of producing a powder to add to milk to increase its nutritional value and taste.
This is a product idea, but consumers don’t buy product ideas; they buy product concepts. A product idea can be turned
into several concepts. The first question is: Who will use this product? It can be aimed at infants, children, teenagers,
young or middle-aged adults, or older adults. Second, what primary benefit should this product provide: Taste, nutrition,
refreshment, or energy? Third, when will people consume this drink: Breakfast, midmorning, lunch, midafternoon, dinner,
late evening? By answering these questions, a company can form several concepts:
• Concept 1. An instant drink for adults who want a quick nutritious breakfast without preparation.
• Concept 2. A tasty snack for children to drink as a midday refreshment.
• Concept 3. A health supplement for older adults to drink in the late evening before they go to bed.
Each concept represents a category concept that defines the product’s competition. Next, the product concept
becomes a brand concept.

Concept Testing
Concept testing means presenting the product concept to target consumers, physically or symbolically, and getting
their reactions. The more the tested concepts resemble the final product or experience, the more dependable concept
testing is. Concept testing of prototypes can help avoid costly mistakes, but it may be especially challenging with radically
different, new-to-the-world products. Visualization techniques can help respondents match their mental state with what
might occur when they are actually evaluating or choosing the new product.
Concept testing presents consumers with an elaborated version of the concept. After receiving this information,
researchers measure product dimensions by having consumers respond to questions like these:
1. Communicability and believability—“Are the benefits clear to you and believable?” If the scores are low, the
concept must be refined or revised.
2. Need level—“Do you see this product solving a problem or filling a need for you?” The stronger the need, the
higher the expected consumer interest.
3. Gap level—“Do other products currently meet this need and satisfy you?” The greater the gap, the higher the
expected consumer interest. Marketers can multiply the need level by the gap level to produce a need-gap score.
A high score means the consumer sees the product as filling a strong need not satisfied by available alternatives.
4. Perceived value—“Is the price reasonable in relationship to value?” The higher the perceived value, the higher
is expected consumer interest.
5. Purchase intention—“Would you (definitely, probably, probably not, definitely not) buy the product?”
Consumers who answered the first three questions positively should answer “Definitely” here.
6. User targets, purchase occasions, purchasing frequency—“Who would use this product, when, and how often?”

Conjoint Analysis
 Consumer preferences for alternative product concepts can be measured with conjoint analysis, a method for
deriving the utility values that consumers attach to varying levels of a product’s attributes. Conjoint analysis has become
one of the most popular concept-development and testing tools.

Marketing Strategy Development

Following a successful concept test, the new-product manager will develop a preliminary three-part strategy plan
for introducing the new product into the market. The first part describes the target market’s size, structure, and behavior;
the planned product positioning; and the sales, market share, and profit goals sought in the first few years. The second part
outlines the planned price, distribution strategy, and marketing budget for the first year. The third part of the marketing
strategy plan describes the long-run sales and profit goals and marketing-mix strategy over time.

Business Analysis
After management develops the product concept and marketing strategy, it can evaluate the proposal’s business
attractiveness. Management needs to prepare sales, cost, and profit projections to determine whether they satisfy company
objectives. If they do, the concept can move to the development stage. As new information comes in, the business analysis
will undergo revision and expansion

Managing the Development Process: Development to Commercialization

Up to now, the product has existed only as a word description, a drawing, or a prototype. The next step represents
a jump in investment that dwarfs the costs incurred so far. The company will determine whether the product idea can
translate into a technically and commercially feasible product. If not, the accumulated project cost will be lost, except for
any useful information gained in the process.

Product Development
The job of translating target customer requirements into a working prototype is helped by a set of methods known
as quality function deployment (QFD). The methodology takes the list of desired customer attributes (CAs) generated by
market research and turns them into a list of engineering attributes (EAs) that engineers can use.
When the prototypes are ready, they must be put through rigorous functional and customer tests before they enter
the marketplace. Alpha testing tests the product within the firm to see how it performs in different applications. After
refining the prototype further, the company moves to beta testing with customers.

Market Testing
Consumer-products tests seek to estimate four variables: trial, first repeat, adoption, and purchase frequency.
Many consumers may try the product but not rebuy it, or it might achieve high permanent adoption but low purchase
frequency (like gourmet frozen foods). Here are four major methods of consumer-goods market testing, from least to most
costly.
 Sales-Wave Research - Consumers who initially try the product at no cost are reoffered it, or a competitor’s
product, at slightly reduced prices. The offer may be made as many as five times (sales waves), while the
company notes how many customers select it again and their reported level of satisfaction. Sales-wave research
can be implemented quickly, conducted with a fair amount of security, and carried out without final packaging
and advertising. However, because customers are preselected, it does not indicate trial rates the product would
achieve with different sales incentives, nor does it indicate the brand’s power to gain distribution and favorable
shelf position.
 Simulated Test Marketing - This method can give some surprisingly accurate results on advertising effectiveness
and trial rates (and repeat rates if extended) in a much shorter time and at a fraction of the cost of using real test
markets. As media and channels grow more fragmented, however, it will become harder to truly simulate market
conditions with only traditional approaches.
 Controlled Test Marketing - The company with the new product specifies the number of stores and geographic
locations it wants to test. A research firm delivers the product to a panel of participating stores and controls shelf
position, pricing, and number of facings, displays, and point-of-purchase promotions. Electronic scanners measure
sales at checkout. The company can also evaluate the impact of local advertising and promotions and interview a
sample of customers later to get their impressions of the product. It does not have to use its own sales force, give
trade allowances, or “buy” distribution. However, controlled test marketing provides no information about how to
sell the trade on carrying the new product. It also exposes the product and its features to competitors’ scrutiny.
 Test Markets - The ultimate way to test a new consumer product is to put it into full-blown test markets. The
company chooses a few representative cities and puts on a full marketing communications campaign, and the
 sales force tries to sell the trade on carrying the product and giving it good shelf exposure. Test marketing also
measures the impact of alternative marketing plans by implementing them in different cities.

Commercialization
Commercialization incurs the company’s highest costs to date. The firm will need to contract for manufacture or
build or rent a full-scale manufacturing facility.

WHEN (TIMING)
Suppose a company has almost completed the development work on its new product and learns a competitor is
nearing the end of its development work. The company faces three choices:
1. First entry—The first firm entering a market usually enjoys the “first mover advantages” of locking up key
distributors and customers and gaining leadership. But if rushed to market before it has been thoroughly
debugged, the first entry can backfire.
2. Parallel entry—The firm might time its entry to coincide with the competitor’s entry. The market may pay
more attention when two companies are advertising the new product.
3. Late entry—The firm might delay its launch until after the competitor has borne the cost of educating the
market, and its product may reveal flaws the late entrant can avoid. The late entrant can also learn the size of the
market.
If a new product replaces an older product, the company might delay until the old product’s stock is drawn down.
If the product is seasonal, it might wait until the season arrives; often a product waits for a “killer application” to occur.
Many companies are now encountering competitive “design-arounds”—rivals are making their own versions just different
enough to avoid patent infringement and royalties

WHERE (GEOGRAPHIC STRATEGY)

Most companies will develop a planned market rollout over time. In choosing rollout markets, the major criteria
are market potential, the company’s local reputation, the cost of filling the pipeline, the cost of communication media, the
influence of the area on other areas, and competitive penetration. Small companies select an attractive city and put on a
blitz campaign, entering other cities one at a time. Large companies introduce their product into a whole region and then
move to the next. Companies with national distribution networks, such as auto companies, launch new models nationally.
With the Web connecting far-flung parts of the globe, competition is more likely to cross national borders.
Companies are increasingly rolling out new products simultaneously across the globe. However, masterminding a global
launch poses challenges, and a sequential rollout across countries may still be the best option.

TO WHOM (TARGET-MARKET PROSPECTS)

Within the rollout markets, the company must target initial distribution and promotion to the best prospect groups.
Ideally, they should be early adopters, heavy users, and opinion leaders it can reach at low cost. Few groups include all
these, so the company should rate prospects and target the best group. The aim is to generate strong sales as soon as
possible to attract further prospects.
HOW (INTRODUCTORY MARKET STRATEGY)
To coordinate the many tasks in launching a new product, management can use network-planning techniques such
as critical path scheduling (CPS), which develops a master chart showing the simultaneous and sequential activities that
must take place. By estimating how much time each activity takes, planners estimate completion time for the entire
project. Any delay in any activity on the critical path—the shortest route to completion—will delay the project. If the
launch must be completed sooner, the planner searches for ways to reduce time along the critical path.

The Consumer Adoption Process

Adoption is an individual’s decision to become a regular user of a product and is followed by the consumer-
loyalty process. New-product marketers typically aim at early adopters and use the theory of innovation diffusion and
consumer adoption to identify them.

*Stages in the Adoption Process

1. Awareness—The consumer becomes aware of the innovation but lacks information about it.
2. Interest—The consumer is stimulated to seek information about the innovation.
3. Evaluation—The consumer considers whether to try the innovation.
4. Trial—The consumer tries the innovation to improve his or her estimate of its value.
 5. Adoption—The consumer decides to make full and regular use of the innovation.

*Adopter Groups
 Innovators are technology enthusiasts; they are venturesome and enjoy tinkering with new products and mastering
their intricacies. In return for low prices, they are happy to conduct alpha and beta testing and report on early
weaknesses.
 Early adopters are opinion leaders who carefully search for new technologies that might give them a dramatic
competitive advantage. They are less price sensitive and willing to adopt the product if given personalized
solutions and good service support.
 Early majority are deliberate pragmatists who adopt the new technology when its benefits are proven, and a lot of
adoption has already taken place. They make up the mainstream market.
 Late majority are skeptical conservatives who are risk averse, technology shy, and price sensitive.
 Laggards are tradition-bound and resist the innovation until the status quo is no longer defensible.

*Characteristics of Innovation
 Relative advantage—the degree to which the innovation appears superior to existing products.
 Compatibility—the degree to which the innovation matches the values and experiences of the individuals.
 Complexity—the degree to which the innovation is difficult to understand or use.
 Divisibility—the degree to which the innovation can be tried on a limited basis.
 Communicability—the degree to which the benefits of use are observable or describable to others.
Other characteristics that influence the rate of adoption are cost, risk and uncertainty, scientific credibility, and social
approval. The new-product marketer must research all these factors and give the key ones’ maximum attention in
designing the product and marketing program.