Transcript Ch. 30 Product Mix Strategies

Good Afternoon
• Please take out your ch. 30 notes and be
ready to start! Turn to Product Mix
Strategies.
• I will be leaving halfway through the hour
so we need to get started ASAP.
• PPT will be on my website (pull up my site
now – we will use it)
We now know that a companies Product
Mix is defined by the width and depth of its
line(s), but how do companies determine
what to make or stock?
-Low costs, creative ideas,
customer engagement
Have you voted for a new flavor/color (M&M,
Crayola, Ben & Jerry’s)? What are the benefits of
recruiting outsiders and especially current
customers to generate new product ideas?
Product Mix Strategies
A product mix strategy is a plan for determining
which products a business will make or stock.
Some businesses will change their lines by
modifying products, creating new ones, and/or
dropping old ones. (NEW, EXISTING, DELETE)
EX 1: P&G 15% of Research & Dev. Budget goes to developing new
products
EX 2: Starbucks uses “Crowdsourcing” – Use Social Media/blogs to gain
feedback on ideas – LINK ON MY WEBSITE
/
Marketing Essentials Chapter 30, Section 30.1
I. Developing New Products
(Today – 2&3 tom)
According to one study, new products (those less
than five years old) account for about 35 percent
of total sales for major consumer and industrial
goods companies.
*70% of new product introductions fail at the
retail level.
Kelloggs has a
400,000 sq ft
devoted to
global product
dev.
Marketing Essentials Chapter 30, Section 30.1
Developing New Products
New product development generally involves
seven key steps:
1. Generating ideas
2. Screening ideas
3. Developing a business proposal
4. Developing the product
5. Testing the product with consumers
6. Introducing the product
(commercialization)
7. Evaluating customer acceptance
Marketing Essentials Chapter 30, Section 30.1
Developing New Products
1. Generating Ideas
New product ideas can come from a
variety of different sources including:
• Customers (focus groups/panels)
• Competitors
• Channel members
• Employees
Marketing Essentials Chapter 30, Section 30.1
•Consumer
Products:
Products
bought from retail stores
Developing
New
Products
for personal,
family,
or household
use. (why
do you
Many
companies
that manufacture
consumer
packaged
goods
use
a task
forceDiff
approach
to new product development,
think
tf used?
background/training
bring in
bringing together employees from different departments (i.e.
strengths/weaknesses)
sales, marketing, manufacturing, finance, and research and
development)
to take a concept from the idea stage through
vs.
the steps of product development.
Why use task
•Industrial products: Products companies purchase
to
force/venture?
make other products, which they then sell. (why vent?
Dev new products so need to be free from dept
Companies that manufacture and sell industrial products often
influences)
use
venture teams that are independent of any particular
department. These teams often develop products not currently
•Best buy- employees (engineers, programmers, sales
part of the existing business.
people) live in housing “idea incubators” until establish
an idea.
Marketing Essentials Chapter 30, Section 30.1
Developing New Products
2. Screening Ideas
• Ideas for new products are screened and evaluated, and
matched against the company's overall objectives to see if they
fit.
• Some ideas are eliminated. The best ideas are put through
further evaluation.
• Finally, one or two ideas are selected for development.
• a lot of ideas are thrown out!
• Ideas are also checked to see if they could potentially conflict
with existing products (ex. manufacture of digital thermometers
– new way to measure temp) .
• Screening may involve concept testing with consumers (likes
and dislikes) Marketing Essentials Chapter 30, Section 30.1
Developing New Products
3. Developing a Business Proposal
Products that made it through screening in terms of PROFIT potential
A business proposal is developed to evaluate the
new product in terms of the:
• Size of the market and potential sales
• Costs and profit potential
• Technological trends
• Overall competitive environment and level of risk
*Must also consider production requirements –
time frame and efficiency/competitive pricing
Marketing Essentials Chapter 30, Section 30.1
Developing New Products
4. Developing the Product
• During product development, the new product idea
takes on a physical shape (Prototype- model of
new product), and marketers develop a marketing
strategy.
• The company makes plans relating to production,
packaging, labeling, branding, promotion, and
distribution.
difficulty when first developing
• Had
Technical
evaluations are made
because while cherries did not work
to see if the product is practical
coated in choc (too large for machine) –
to make.
choc
would break off – after numerous
tests
them
(ex.finally
B&J’s added
technical
evalseparately.
of
the flavor Cherry Garcia)
Marketing Essentials Chapter 30, Section 30.1
Developing New Products
The products are also tested to see how they will hold up
during normal and not-so-normal use by the consumer.
• If applicable, goods are also tested for side effects during
this stage (ex. medicines, hygiene products, etc).
• Problems should be detected at this stage so they can be
corrected before full-scale use (ex. Toyota's lawsuit $1.2 B)
Millions can be
spent on this
stage!
Ex. recall on Toyata –
biggest fine ever –
billion dollars
Prototype Ex: “Concept Car”
Marketing Essentials Chapter 30, Section 30.1
Government Required Testing
• Extensive scientific testing in various stages: Prescription
drugs & genetically engineered food products.
– Genetically modifying foods or food crops can enhance taste and quality,
increase nutrients or improve resistance to pests and disease. In some
cases, GM foods help conserve natural resources, because the altered
version might require less water or energy for processing.
• Tests end with testing on human beings to determine side
effects and product safety.
• Can take years to get approval from gov’t
Developing New Products
5. Testing the Product With Consumers
• New products frequently are test-marketed in
certain geographic locations to see whether
consumers will accept them. (Not every new product
needs to be test-marketed).
•
A focus group evaluation can also provide additional
input and uncover potential problems before
production.
• Large companies establish Research &
Development Departments (work with marketing
and marketing research staff and outside researching
companies)
PepsiCo – Developed low cal drink combination in Europe.
Took over 2 years of testing in market!
•International customers do not typically like diet bevs
Developing New Products
Marketers may forgo testing because:
• the costs of test marketing, focus groups, or direct
marketing tests are too high
• Or because the product isn’t ready yet or they do not
want to give competitors information they could use.
Smart Phone Focus Groups
Developing New Products
6. Introducing the Product
• Commercialization is the stage involving
introducing a new product to the public.
• Can be expensive!
How much do you think it cost P&G to develop
their Crest White Expressions campaign?? 80M
• Advertisements should emphasize the product’s
Citrus herbal
benefits to consumers.
cinnamon
• A new or revised distribution network may be
needed.
• Training programs may need to be developed for
sales force.
Why do you think its important
companies get products into the
market as quickly as possible?
• Pay off costs
• The first company to introduce a new
product has an advantage (acquiring
customers and brand loyalty
– Hard to switch from the originator and you just
build a bond/comfort with it
Developing New Products
7. Evaluating Customer Acceptance
One way to obtain customer responses to a new product
is to study sales information. These reports can help
answer key questions such as:
• How often do customers buy the new product?
• When did customers last buy the new product?
• Where are the best customers for out new product?
• What new products are customers buying?
Computer systems allow for this (reports)
Marketing Essentials Chapter 30, Section 30.1
II. Developing Existing Products
Companies constantly review their mix to see if they can
further expand (extend) their product lines or modify
existing products.
• This is done to build on an already established image,
appeal to new markets, and increase sale/profits
Disadvantages:
• Cost - increase in inventory, promotion, storage, and
distribution
• May take sales from existing products
• Risk if brand/corporate image is unpopular, poorly made,
or harmful (all other products may suffer)
*Disadvantages still don’t usually keep companies from improving
existing products
Marketing Essentials Chapter 30, Section 30.1
Developing Existing Products
Line Extensions
Line extensions add new product lines, items, or
services.
• Ex. Tylenol Flu, Tylenol Cold, and Tylenol Allergy Sinus
are line extensions of the original Tylenol product. Plus,
a variety of forms, tablets, caplets, and gel caps.
A line extension is intended to be a different product that
appeals to different needs of consumers.
Goal is to provide a wider range of choices = Increase
Product depth
Marketing Essentials Chapter 30, Section 30.1
Developing Existing Products
product
modification
An alteration
in a
company’s
existing
product.
Product Modification
A product modification - is an alteration in a
company’s existing product. Modified products may
be offered in new and different:
• Varieties and formulations
• Colors and styles
• Features and sizes
 Quick an easy way to add to a company’s product
line
 The old product may be phased out.
 Packaging can also be modified to attract
consumers to the new product
Marketing Essentials Chapter 30, Section 30.1
Both
• DIFFERENT
products appeal • Build on
to somewhat
established image
different
• Meet customers
needs
needs
• Appeal to new
• Increase
markets
product depth
• Increase sales and
within a line
profits
• Change to
an EXISTING
product
• May offer new
colors, sizes, or
features
• Relatively
quick and
easy
III. Deleting a Product or Product Line
Companies will sometimes decide to stop production of
a product or line due to:
• Obsolescence (no longer useful)
• Loss of appeal
• Changes in company objectives
• Replacement with new products
• Lack of profit
• Conflict with other products in the line
Marketing Essentials Chapter 30, Section 30.1
Deleting a Product or Product Line
Obsolescence
• Changes in technology has cause many products to be discontinued
over time (ex. Listening devices- records, albums, cassette tapes, CDs – to
MP3 & computer downloads)
– Many analysts say land line phones are on their way to obsolescence.
Planned/Perceived Obsolescence
Loss of Appeal
•
•
•
Consumer taste and interest change
Some older products may have lasting loyalties,
but manufacturers must decide if they are
worth keeping around
Ex’s: video games with better visual
effects/features
Deleting a Product or Product Line
Changes in the Company
• Sometimes a product or entire mix no longer matches the company’s
current objectives.
– Ex. Wendy’s closed its 70 restaurants after operating in Japan for 30
years. Decided to focus more on other restaurants
Lack of Profit
• Product developers may drop products when sales reach such a low
level that the return on sales does not meet objectives.
Conflict With Other Products in the Line
• Increased sales of one product may cause decreased sales of
another in that line
Replacement With New Products
• Companies may choose to totally replace an existing product with
one meeting current company objectives.