Transcript .ESSENTIAS OF PLANNING - International University College

PRINCIPLES OF MARKETING-A2
Topic 6
Product Policy
Assoc. Prof. A. Popissakov
2009-2010
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1. Basic concept of Product
What is a Product?
is a multidimensional offering, a mix of:
tangible features
Basic Product (BP)
intangible services and attributes,
Basic physical
and benefits
bundling around a basic orfeatures
core benefit.
3 Levels of one product
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Basic concept of Product
Core Product (CP)
Basic physical
features and benefits
Core(Basic)
product
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Real (Embodied)
Product (RP)
Product make- up
Total (Augmented)
Product (TP)
Services and intangible
associations
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Core Product (CP)
represents the physical characteristics of a
good and basic (or most essential) benefit/s
of value to the customer, expressed in a
product form.
E.g. A cup of coffee:
Coffee as
the taste of coffee (benefit 1)
a Core
Product
refreshment effect (benefit 2)
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Real (Embodied) Product (RP)
Will comprise the Core product and additional
tangible features that make up the listed
product or service: design, colour, packing,
brand name, etc.
E.g A cup of coffee (Jacob’s coffee):
leading brand name
Coffee (CP) + 2
tangible features
attractive packing
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Real (Embodied) Product (RP)
E.g Jacob’s coffee :
taste + refreshment (benefit 1,2) + (brand name +
packing (tangible features 1,2) = Real
product
Jacob’s Coffee (benefits +tangible features)
transform it to a Real (Embodied)Product
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Total (Augmented) Product (TP)
Will add to the listed product some intangible
extra features through services:
credit and financial provisions
reputation of the seller
delivery services
custom services
replacement services
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quality assurance, etc.
Total (Augmented) Product (TP)
E.g. If Jacob’s coffee (Real product) is:
a) served for free in a supermarket for
promotional testing in a small plastic cup or
b) served in a luxury hotel lounge in gold
plated china
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Total (Augmented) Product (RP)
These are two different Total Products.
A) Jacob’s coffee at a supermarket
- as a commodity
B) Jacob’s coffee at a luxury hotel lounge
- as pleasure and prestige.
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2. Product Life Cycle (PLC)
Each new product goes though 4 main Phases
of PLC:
Introduction
Growth
Maturity
Decline
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Product Life Cycle (PLC) - chart
Sales
Profit
Revenue and profits
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Introduction
Growth
Maturity
Decline
time
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PLC - Introduction phase
Features:
this is post-launch period, after much
spending on new product R&D.
low sales
low revenue
profit might be negative
hard time for companies
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PLC - Growth phase
Features:
a product “takes off”
gaining market share and early majority of
buyers
revenue and profit grow
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PLC - Maturity phase
Features:
usually the longest phase for most products
(the longer the better)
beginning with continued sales growth
reach saturation (peak) of sales and profit
sales and profit dip at the end of phase.
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PLC - Decline phase
Features:
sales may fall rapidly or gradually
profit also follow the trend or could be
negative again
the product become a looser
give way to heavy losses for company.
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3. PLC Analysis
Mapping the PLC path of both company and
competitor brands, market researchers can
collect valuable information about:
 Better exploit current product potential
 Necessity of product modification
 Looking for mew markets
 Take decision about new product
development
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PLC Analysis
PLC Analysis can change the PLC
substantially and extending it.
E.g. WV “Beetle” car’s PLC:
a) A popular car, cheep, simple and easy to maintain – The
total product
b) New models introduced – Product modification
c) Painted in different colours for/by young ( first hippie car
in Europe) – Range extension
d) Shifting production to Brazil – New markets
e) Now brand new models in same shape and silhouette –
Model revival
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PLC Analysis
PLC Analysis can change the PLC substantially
and extending it.
Revenue and profits
E
B
A
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D
C
A
B
C
D
E
Original product
(maturity phase)
Product modification
Range extension
New markets
Model revival
time
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4. Classification of products
Just as market segmentation improve
marketing programs, it is helpful to
separate products into homogeneous
classifications.
Two groups;
consumer products
business products
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Classification of products
Consumer products are intended for use
by household consumers for non-business
purposes.
Business products are intended primarily
for use in producing other products or for
providing services in a business.
The fundamental basis for distinguishing between
the two groups is the ultimate user for which the
product is intended in its present form.
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Classification of products
Difficult distinction:
A personal computer may be considered a
Consumer good if it is purchased by a
student to use at home but
if his father uses it for accounting work for
his shop, it is classed as a Business product.
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Classification of Consumer products
4 groups:
A. Convenience goods
B. Shopping goods
C. Specialty goods
D. Unsought goods
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A. Convenience goods
Consumers have adequate knowledge of the
product before going to but it and they
purchased such products with a minimum of
efforts.
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A. Convenience goods
General Features:
no strolling around to buy
ready accessible
willing to accept several brands
low unit price
not bulky
not affected by fashion
no need of special promotion and
advertisement
purchased
frequently
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B. Shopping goods
Products for which customers usually wish to
compare quality, price and style in several
stores before purchase.
Furniture,
major home appliances
women’s apparel
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C. Specialty goods
Consumers have strong brand preferences
and are willing to spend special time and
efforts in purchasing them.
Stereo, video, photographic equipment
man’s suit
health food
new automobile(special offer)
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D. Unsought goods
2 sub-groups:
New products, customers are not aware of
(some latest model of Hi-Tech i-Phone or
palm computers)
Products that customers do not want right
now (burial insurance, gravestone,
declaration of will).
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Classification of business goods
(B2B goods)
5 groups:
A. Raw materials
B. Fabricating parts and materials
C. Installations
D. Accessory equipment
E. Operating supplies
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A. Raw materials
3 groups
goods found in their natural state (land,
water, oil, minerals, seas, forests)
agricultural products (wheat, cotton, fruits)
animal products (eggs, raw milk,)
Marketing is quite different for these groups.
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B. Fabricating parts and materials
Business goods that become part of a finished
product - 2 selections:
Fabricating materials - will go further
processing
e.g. flour becoming part of bread,
Fabricating parts – will be assembled with
no further change of form
zippers attached to clothing,
semiconductor
chips - to computers
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C. Installations
are manufactured business products – the
long-lived, expensive, major equipment of a
business user
factory building
large generators in a dam,
 jet airplanes, highways
container terminal, etc.)
Installations directly affect the scale of operation in a
firm.
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D. Accessory equipment
is used in the production operation of a
business firm, but it does not affect
significantly the scale of operations
cash register,
company car,
telephone network,
copy machine, etc)
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E. Operating supplies
are the “convenience goods” of the business
sector, help a firm’s operation but do not
become a part of finished product
short-lived, low-priced items;
pencils,
stationary,
toner,
washroom supplies, etc.)
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5. The NPD (New Product
Development)
What is a new product?
Three categories requiring different marketing
approach.
Really innovative products
Significantly different products
Imitative products
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Really innovative products
Truly unique products
hair restorer
cancer, (AIDS) cure
“time machine”, etc.
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Significantly different products
Replacements for existing products that are
significantly different.
Eye glasses - contact lenses
Tube TV – LCD, plasma TV
line phones - GSM
stereo record player - CD player
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Imitative products
New to a particular company but not new to
the market.
“Me-too products”
E.g.
Polaroid camera - audio/video cassettes, CD,
DVD, etc.
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5.2 New Product Development
Process
1. Idea generation
1, 2, 3 -Concept testing stage
2.Idea screening
and evaluation
3.Business
analysis
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Last turn
back point
4. Product
prototype
development
5.Test
marketing
6.
Commerci
alisation
4, 5-Most resource consuming stages
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Step 1. Generation of New
product idea
NP development starts with an idea.
Management responsibilities:
Develop a system within the organisation
for stimulation of NP idea generation.
Customers can also be encouraged to do so.
Allow freewheeling.
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Step 2. Screening and evaluation
of ideas
NP ideas are evaluated to determine which
one could be given further consideration.
Management responsibilities:
Technical feasibility - fly a car???
Social acceptance - cloning???
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Step 3. NP Business analysis
Management responsibilities: to converted
NP ideas into a concrete business
proposal.
Identify product features
8 criteria
(fits)
Estimate market demand
expressed in
figures
Evaluate competition,
Calculate profitability
 Establish a program for NP development
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Step 1+2+3 = Concept testing
phase
Pre-testing of the product idea
Most critical stage for a NP development.
75 % of NP ideas failed at this stage.
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Step 4. Product prototype
development
The product idea on-paper is converted into a
physical product.
pilot models manufacturing
small quantities
laboratory tests
technical and production evaluations, etc.
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Step 5. Test marketing
Market test (real marketing) in limited
geographic areas.
customers reaction and acceptance
production variables (colour,sizes, etc.)
price adjustments
final decision where to go on marketing the
product or stop. Last turn back point.
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Step 6. Commercialisation
Full-scale production and marketing
programs are planned and the product is
launched.
NP is “born” and enters its life cycle.
So far a company has complete control over
the product
 After commercialization it is subjected to
external competitive environment.
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Producer’s criteria for NP
As a part of NP Business analysis some basic
questions must be answered.
Should the NP be added to company’s
existing product assortment?
8 criteria or product’s
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fits:
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5.3. Producer’s criteria- 8 Fit for
a NP
1. Marketing fit
2. Financial fit
3. Standard fit
4. Fit company’s marketing structure
5. Fit company’s production structure
6. Fit the law
7. Company’s management fit
8. Fit company’s image and objectives
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Marketing fit
Do enough people really want this product?
Will the NP fit into our sales force?
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Financial fit
Is enough financing available?
Will the NP increase profitability?
Will the NP improve seasonal and cyclical
stability of the company?
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Standards fit
Will the NP meet current environmental and
social standards?
Safty
harmful
save energy features (class A+, A, B, C,)
recycling potential, etc.
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Fit company’s marketing
structure
Can the existing sales force be used?
Can the present channels of distribution be
used?
E.g. Children cloths - children toys/books.
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Fit company’s production
structure
Will the NP fits in with:
existing production facilities
labour force (skills)
management capabilities
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Fit the law
NP should not have any legal objections:
patents application
copy right application
packaging, labeling regulation, etc.
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Company’s management and
R&D fit
Will the management and/or R&D unit have
the time, expertise, ability, experience to
deal with the NP?
If “Yes” how shell these affect the other
products and processes?
If “No” - how shell we comply with leased
professionals, how much to pay?, etc.
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Fit company’s image and
objectives
Will the NP keep the company’s image and fit
with its objectives?
E.g. Low priced, low quality product could
not contribute to company’s prestige.
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Product selection criteria
1. Company corporate
objectives
2. Financial capability
3. Marketing capability
4. Relation to present
production
5. R&D, management fit
6. Manufacturing
capabilities
7. Suppliers / resources fit
8. Environment / social
standard competability
criteria
weight
Hypothetical example of NP idea rating sheet
A
4
score
criteria rating (B)
1
2
3
4
5
7
8
9
x
10
x
4
4
3
x
x
32
28
30
5
9
x
x
tot
al
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A*B
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16
16
x
x
2
2
1
1
6
172
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NP adoption and diffusion processes
Adoption process -decision making activity of
an individual through which the NP is
accepted.
Diffusion process - is the process by which
the NP is spread trough society over time.
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Stages in adoption process
Stage
1. Awareness

2. Interest

3. Evaluation

4. Trial

5. Adoption
Activity in than stage
Individual is exposed to the innovation, becomes a
prospect.
Prospect is interested enough to seek information
Prospect mentally measures relative merits
Prospect adopts the innovation on a limited
base.(buys sample or small quantity)
Prospect decides whether to use the innovation on a
full-scale basis.

6. Postadoption The innovation is adopted, then the user continues to
confirmation
seek assurance that the right decision was made.
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Adopter Categories
1. Innovators
2. Early adopters
3. Early majority
4. Late majority
5. Laggards
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Adopter Categories-Innovators
A venturesome group, about 3% of the
customers, first to adopt an innovation.
Features:
younger
higher social status
better financial position
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Adopter Categories-Early adopters
about 13% of the market - tent to be a part or
leaders of local social system.
(Doctors, mayors, MPs, artists, layers)
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Adopter Categories- Early majority
More deliberate group of 34% of the market accepting the innovation just before the
“average” adopters
above average in social and economic
measures
rely quite a bit on advertisements, and
contact with other people
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Adopter Categories- Late majority
More deliberate group of 34% of the market more skeptical.
Adopt to innovation in response of
economic necessity (mobile phones are
cheaper now)
rely on word-of-month information rather
than advertising
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Adopter Categories-Laggards
Tradition-bound group, 16% of the market,
are last to adopt if at all.
Suspicious,
older
usually at the low end of the social and
economic scale.
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Adopter Categories-Laggards
Normal distribution ‘Bell curve” for NP
diffusion process.
Adoption rate
Early majority Late majority
Early adopters
Innovators
3% 13% 34%
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Laggards
34%
16%
Time
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The End
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