CHAPTER 7

PRODUCT MANAGEMENT
 LEARNING OBJECTIVES
• Types of products
• Characteristics of technology products,
commodity products and customized products
• The concept of a product and a brand
• Various elements of the product line and the
product mix
• Decisions regarding product mix modifications
• The issue of excessive product variants, and its
management
 Learning Objectives (Contd.)

• Managing the product lines and brands over a

period of time: The concept of the product life
cycle
• Managing product and brand portfolios in multi-
product, multi-brand companies
• Deciding product strategies for planning growth in
existing and new markets
• Planning and managing product recalls
 PRODUCT
• Product is the most important element in the
marketing mix
• Product provides the functional
requirements sought by consumers
• Product is the reason the customer gets
interested in the company
• Devote best people and systems to develop
products for customers
 Benefits associated with Product

• Tangible Benefits
•

» Core Benefits

•
Example of Product Levels:
Mobile handsets

1. Core benefit: Communication

2. Basic product: Features and design – small size, sliding, flip open, etc.
Quality level – excellent quality
Brand name – Nokia, LG, Sony, Samsung, Apple
Packaging – attractive outer package
3. Expected product: Looks good, light weight, easy to operate, battery durable
with long standby time, colour display, polyphonic ring tones.
4. Augmented product: With FM Radio, MP3 player, camera, voice dialling, android etc.
5. Potential product: With Internet, e-mail, camcorder for videos, TV channels,
Global Positioning System (GPS)
 Role of a Product Manager
 Responsible for the management of the
product.
 Build strategy development and review process
 take into account the areas of potential conflict
Reporting to the top management about all the
details
Establish a system of measuring the results with
the product managers responsibility.
 Classification of Product

Durability & Consumer Industrial

Tangibility Goods Goods

a)Non-Durable Goods a)Convenience Goods a)Materials & Parts

b)Durable Goods b) Shopping Goods b) Capital Items
c) Services c) Specialty Goods c) Supplies &
Services
d) Unsought Goods
Consumer Products … end users.
Durable & Non Durable Consumer Products
Durable
goods

Non durable
Services goods

Short Time of consumption

 Consumer Product Goods
Classification (M. Copeland)

Shopping Specialty
Convenience
Products Products
Products

Is based on Level of Effort expended

. . To satisfy information needs & buying motives

 CONVENIENCE GOODS
Convenience goods – consumers use
minimal effort for frequently purchased low
cost items

 Staples - goods purchased on a regular

basis (ex. milk, eggs)
MILK

 Emergency goods - purchased when the need is

urgent (ex. umbrella, boots)
 Convenience Products

Strategy Implications
- Provide convenient locations and hours of
operation
- Mass Distribution/Pre Sold
TOM’S
- Self-Service/Brand Name MARKET
- Low Markup
- Substantial substitution Open
24 hrs.
 Impulse Purchase
(no conscious pre planning effort)
 Convenience Products

Strategy Implications
- Provide convenient locations and hours of
operation
- Mass Distribution/Pre Sold
TOM’S
- Self-Service/Brand Name MARKET
- Low Markup
- Substantial substitution Open
24 hrs.
 Shopping Products
Shopping goods - consumers make a
considerable effort to evaluate
Consumers make product comparison(s),

They seek information before purchase,

they are not impulsive

Moderate substitutions are made

Product’s last a considerable time

Monetary & social costs may be high

Shopping Good Principles
 Homogeneous shopping goods (TV’s, cars, alcohol)
have a lot of substitutes, which are similar in
quality and features but they are different in price.
Principle: you need to find a way to make your
good stand out and make people want it

Strategy Implications (Principles)

- Product Differentiation (Quality,design,etc.)
- Selective Distribution
- Brand Name Focus
- Somewhat Knowledgeable sales force
 Specialty Products
 Specialty goods - consumers make a
significant effort to acquire the desired
brand.

• infrequently (seldom) purchased

• relatively expensive

•
Specialty Products have a high Level
of Involvement
– “High” visibility to others

 High financial commitment

 High need/want intensity and duration

 High involvement/Well informed
 Specialty Products
Strategy Implications (Principles)
- Have a knowledgeable sales force
- Limited Distribution
- Be Innovative
- Maintenance of differential advantage (product
improvements)
Unsought Goods
Consumer Products
 BUSINESS PRODUCT AND
CONSUMER PRODUCT
• Business products are used to manufacture other
goods or services, to facilitate an organization’s
operations, or to resell to other customers
• Consumer products are bought to satisfy an
individual’s personal wants
• Same product can be classified as business
product or consumer product depending on
intended use
TECHNOLOGY PRODUCTS
• Control-Chaos
• Freedom-Enslavement
• New-Obsolete
• Intelligence-Stupidity
• Efficiency-Inefficiency
• Fulfilling needs-Creating new needs
• Assimilation-Isolation
• Engagements-Disengagements
 CUSTOMIZED PRODUCTS
• Customers do not want more choices
• Match or make a product which is suitable for
the customer
• Have a learning relationship with the customer
• Customization through modular design
• Customization easier and less costly in digital
products
• Learning relationships with customers
CUSTOMIZED PRODUCTS
CUSTOMIZED PRODUCTS
 PRODUCT LINE AND
PRODUCT MIX

• Product item
• Product line
• Depth of a product line
• Product mix
• Width of product mix
 PRODUCT-MIX
MODIFICATIONS
• Product mix expansion
• Line extension
• Mix extension
• Trading up - Increasing the Number of features.
• Trading down
• Product mix contraction
• Repositioning
• Planned obsolescence
 Expansion of Product Mix:
Expansion of product mix implies increasing the number of product lines. New lines may be related or
unrelated to the present products. For example, Bajaj Company adds car (unrelated expansion) in its
product mix or may add new varieties in two wheelers and three wheelers. When company finds it
difficult to stand in market with existing product lines, it may decide to expand its product mix.

Contraction of Product Mix:

Sometimes, a company contracts its product mix. Contraction consists of dropping or eliminating one
or more product lines or product items. Here, fat product lines are made thin. Some models or varieties,
which are not profitable, are eliminated. This strategy results into more profits from fewer products. If
Hindustan Unilever Limited decides to eliminate particular brand of toilet shop from the toilet shop
product line, it is example of contraction.

Product Differentiation:
This is a unique product mix strategy. This strategy involves no change in price, qualities, features, or
varieties. In short, products are not undergone any change. Product differentiation involves establishing
superiority of products over the competitors.
By using rigorous advertising, effective salesmanship, strong sales promotion techniques, and/or
publicity, the company tries to convince consumers that its products can offer more benefits, services,
and superior performance. Company can communicate the people the distinct benefits of its products.
Trading Up:
Trading up consists of adding the high-price-prestige products in its
existing product line. The new product is intended to strengthen the
prestige and goodwill of the company. New prestigious product
increases popularity of company and improves image in the mind of
customers. By trading up product mix strategy, demand of its cheap
and ordinary products can be encouraged.

Trading Down:
The trading down product mix strategy is quite opposite to trading
up strategy. A company producing and selling costly, prestigious,
and premium quality products decides to add lower- priced items in
its costly and prestigious product lines.
Those who cannot afford the original high-priced products can buy
less expensive products of the same company. Trading down
strategy leads to attract price-sensitive customers. Consumers can
buy the high status products of famous company at a low price.
Repositioning of Products
EXCESSIVE PRODUCT
VARIANTS
 PRODUCT LIFE CYCLE
(PLC)
• Stages of PLC

Introduction

Growth

Maturity

Decline
 Product Life Cycle (Contd.)

• Strategies at various stages of PLC

Introduction

Build sales by expanding market for the product

Heavy expenditure on promotion

Stimulate trial

Attract distribution channel partners

Prices high or low depending on imminent

competition
 Product Life Cycle (Contd.)

Growth
Customers aware of the product
Build sales and market share by building
brand preference
Segmentation emerges
Product redesigned to create differentiation
Promotion lays stress on the benefits
of the differentiated product
Focused competitors emerge
Distribution will be widened to serve new
segments
Product made available in different retail
formats as customers of different
segments buy differently
 Product Life Cycle (Contd.)
Maturity
Market does not grow in this stage
Sales only at the expense of competition
Focus on ensuring repeat purchases
Strong brand helps fight competition
Maintaining brand loyalty, stimulate repeat
purchases
Intense competition, often price wars
Company should focus on strengthening its brand
by differentiation
Lasts for a long time
Companies should set realistic growth rates
Low cost manufacturing and marketing
infrastructure
 Product Life Cycle (Contd.)

Decline

Anticipate the impending decline in sales

Analyze changing customer requirements

Exit immediately / gradual withdrawal / Exploit

brand loyalty
 Product Life Cycle (Contd.)
• Uses of PLC

Emphasizes the need for product planning

Planning for competition

Products have limited life cycle

Plan for the future as growth phase will end

Adapt marketing strategies as market and

competitive conditions change
 Product Life Cycle (Contd.)

• Limitations of PLC
Not all products follow the classic S-shaped
PLC curve
PLC is the result of marketing activities,
and is not the cause of variability in sales
Duration of PLC stages is unpredictable
Strict adherence to PLC can lead a company
to misleading objectives and strategy
prescriptions
Classification of
Adopters.
 Innovators: The Risk Takers Innovators are venturesome – They are
willing to try new products at some risk. The first users of the new
product are called innovators. They tend to be younger people with
relatively high incomes, who are willing to spend more than normal
sums of money for the product, and take pride in being the first
among their peers to own a particular new product. Consequently,
they are the opinion leaders.

Early Adopters: The Opinion Leaders Early adopters are guided by respect. They
are opinion leaders in their communities and adopt new products early but carefully.
Early adopters make up 13.5% of the total purchasers. Although they do not move as
quickly as innovators, they try a new product early in its life cycle without waiting
for many people to accept it. As innovators, they are reasonably affluent and want to
be among the first to purchase a new product. Along with the innovators, they are
opinion leaders for their friends and colleagues to purchase and use the product type.
One of the significant differences between innovators and early adopters is that they
are not as anxious to be the first purchaser. They are rather content to be second and
do not actively seek new products to the extent innovators do
Early Majority: The Cautious Adopters The early majority are
deliberated. Although they are rarely leaders, they adopt a new
product before the average person. They account for the next 34% to
enter the market. They are distinctly different from the previous two
groups of buyers – innovators and early adopters. This group is more
deliberate in its purchase decisions, looking to the innovators and early
adopters for buying cues, and is more price sensitive. The early
majority adopt the product only after it has been widely accepted.
These consumers perceive more risk in new products than innovators
and early adopters. Because this group is so large, it decides whether
the product will succeed in general use or serve a narrow market
niche.
Late Majority: The Skeptics The late majority are sceptical. They
adopt an innovation only after a majority of people have tried it. This
group comprises another 34% of the total market. This group sees
even more risk in new products than do those in the early majority.
Customers in this category tend to be quite conservative and sceptical
of new products, although the product can hardly be considered new
by this time in the life cycle. Moreover, they tend to be very price-
sensitive and are generally unwilling to buy until they are convinced
that the price is at its lowest point. Members of the late majority do
not view the product in terms of its life cycle.
Laggards: The Last to Try New Products, Tradition-Bound Adopters
Laggards are tradition-bound. They are suspicious only when it has
become something of a tradition itself. The last group of buyers
makes up the last 16% make their purchases. They are the individuals,
households, or organizations that resist or never adopt the new
product. The most distinguishing characteristic of this group is their
highly traditional buying patterns. They are likely to wait until they
are sure a product has been accepted. This group comprises older
people with lower incomes, yet buying power is not the main reason
laggards are so cautious – they are tied to the past. Although laggards
may be timid by nature, that is not necessarily why they reject an
innovation. Some products are of little interest to certain customers,
are not needed, or are too expensive.
New-Product Development Strategy

A firm can obtain new products through:

• Acquisition
• New-product development

9-4
New-Product Development Strategy

Acquisition refers to the buying of a whole company, a

patent, or a license to produce someone else’s
product

New product development refers to original

products, product improvements, product
modifications, and new brands developed from the
firm’s own research and development

9-5
New-Product Development Strategy

Reasons for new product failure

9-6
New-Product Development Strategy

Reasons for new product failure

9-6
 Reasons for new product failure
New-Product Development Strategy

9-6
New-Product Development Strategy

Reasons for new product failure

• Overestimation of market size
• Poor design
• Incorrect positioning
• Wrong timing
• Priced too high
• Ineffective promotion
• Management influence
• High development costs
• Competition
9-6
New-Product Development Process

1. Idea generation
2. Idea screening
3. Concept development and testing
4. Marketing strategy development
5. Business analysis
6. Product development
7. Test marketing
8. Commercialization
9-7
 New-Product Development Process
Idea Generation

New idea generation is the systematic

search for new product ideas

Sources of new-product ideas

• Internal
• External

9-8
New-Product Development Process

Idea Generation

Internal sources refer to the company’s own formal

research and development, management and staff,
and intrapreneurial programs

External sources refer to sources outside the

company such as customers, competitors,
distributors, suppliers, and outside design firms

9-9
 New-Product Development Process

Idea Screening

Idea screening refers to reviewing new-

product ideas in order to drop poor ones
as soon as possible

9-10
New-Product Development Process

Concept Development and Testing

Product idea is an idea for a possible product that the

company can see itself offering to the market

Product concept is a detailed version of the idea

stated in meaningful consumer terms

Product image is the way consumers perceive an

actual or potential product

9-11
 New-Product Development Process

Concept Development and Testing

Concept testing refers to new-product

concepts with groups of target
consumers

9-12
 New-Product Development Process

Marketing Strategy Development

Marketing strategy development refers to

the initial marketing strategy for introducing
the product to the market

9-13
New-Product Development Process

Marketing Strategy Development

Marketing strategy statement

• Part 1:
• Description of the target market
• Product positioning, sales, market share, and profit goals
• Part 2:
• Price, distribution, and budget
• Part 3:
• Long-term sales, profit goals, and marketing mix strategy

9-14
New-Product Development Process

Marketing Strategy Development

Business analysis involves a review of the

sales, costs, and profit projections to find
out whether they satisfy the company’s
objectives

9-15
New-Product Development Process

Marketing Strategy Development

Product development involves the creation

and testing of one or more physical versions
by the R&D or engineering departments
• Requires an increase in investment

9-16
New-Product Development Process
Marketing Strategy Development

Test marketing is the stage at which the

product and marketing program are
introduced into more realistic marketing
settings

Test marketing provides the marketer with

experience in testing the product and entire
marketing program before full introduction

9-17
New-Product Development Process
Marketing Strategy Development

When firms test market

• New product with large investment
• Uncertainty about product or marketing program

When firms may not test market

• Simple line extension
• Copy of competitor product
• Low costs
• Management confidence
9-18
 New-Product Development Process
Marketing Strategy Development

Approaches to test marketing

• Standard test markets
• Controlled test markets
• Simulated test markets

9-19
New-Product Development Process

Marketing Strategy Development

Standard test markets are small representative

markets where the firm conducts a full marketing
campaign and uses store audits, consumer and
distributor surveys, and other measures to gauge
product performance. Results are used to forecast
national sales and profits, discover product
problems, and fine-tune the marketing program.

9-20
New-Product Development Process

Marketing Strategy Development

Challenges of standard test markets

• Cost
• Time
• Competitors can monitor the test
• Competitor interference
• Competitors gain access to the new product before
introduction

9-21
New-Product Development Process

Marketing Strategy Development

Controlled test markets are panels of stores

that have agreed to carry new products for a
fee
• Less expensive than standard test markets
• Faster than standard test markets
• Competitors gain access to the new product
9-22
New-Product Development Process

Marketing Strategy Development

Simulated test markets are events where the

firm will create a shopping environment and
note how many consumers buy the new
product and competing products. Provides
measure of trial and the effectiveness of
promotion. Researchers can interview
consumers.
9-23
New-Product Development Process

Marketing Strategy Development

Advantages of simulated test markets

• Less expensive than other test methods
• Faster
• Restricts access by competitors
Disadvantages
• Not considered as reliable and accurate due to the
controlled setting

9-24
New-Product Development Process

Marketing Strategy Development

Commercialization is the introduction of the

new product
• When to launch
• Where to launch
• Planned market rollout

9-25
Managing New-Product
Development

Successful new product development should be:

• Customer-centered
• Team-centered
• Systematic

9-26
 PRODUCT RECALLS
• Meticulous planning in advance to ensure
prompt action
• All possible precautions to ensure that products
that reach customers are of good quality and are
safe
• React promptly and appropriately, else face
severe backlash and legal complications
• Understand the link between recalls and
customer satisfaction and safety, and the effect
of the recall on company success
 Product Recalls (Contd.)

• Ready response team with a senior manager

heading it
• Keep major stakeholders abreast of company’s
plans and actions during the recall
• Build company credibility
• Logistics and information system notified
about recall
 Product Recalls (Contd.)

• After recall, communication focus on

restoring and strengthening company’s
reputation in the market, particularly
regarding the product in question
• But, first a recall should be avoided