Chapter 7 Product Management (PDF)

 Chapter 7 Product management Learning outcomes Explain the term ‘product’ in a marketing context. Highlight the differences between consumer products and business products. Distinguish between different product levels. Distinguish between the terms ‘product line’ and ‘product mix’....

 Chapter 7 Product management Learning outcomes Explain the term ‘product’ in a marketing context. Highlight the differences between consumer products and business products. Distinguish between different product levels. Distinguish between the terms ‘product line’ and ‘product mix’. Provide an exposition of the different stages of the product life cycle. Demonstrate an understanding of the importance of new product development for business firms. 3 Learning outcomes (continued) Outline the new product development process. Describe the value of effective branding. Distinguish between the different types of brands. Explain what a brand extension is. Describe the purpose and process of co-branding. Explain what brand licensing is. Provide appropriate practical examples to illustrate any marketing principle or concept. Provide a marketing management solution related to any of the above outcomes. 4 Introduction A Product is the manifestation of a firm’s physical attempt to satisfy the needs of consumers. Firms must develop an appropriate product strategy to satisfy the needs of their target market. This strategy must be developed before the other marketing mix elements can be put into place. Product strategy is the core of the marketing mix and largely dictates the nature of the pricing, marketing communication and distribution strategy. The marketing communication strategy must inform, persuade and remind. 5 What is a product? A product is defined as anything a consumer receives in exchange for (usually) money. Marketers typically create product value by ‘building’ need-satisfying features and characteristics, Products can have both tangible and intangible features. 6 Classifying products Consumer products Finished products that are used by the consumer and not bought for any other subsequent commercial process Types of consumer products: Convenience products Staple products Shopping products Impulse Unsought Speciality Homogeneous products products products Emergency Heterogeneous products 7 Consumer products 8 Product levels Potential product Future product developments Attributes that exceed the buyer’s Augmented product expectations Expected product Attributes that the buyer expects Basic product Basic features of the product Core product Most fundamental value of the product 9 Product levels (continued) 1 0 Product levels (continued) 1 1 Product levels Potential product Future product developments Attributes that exceed the buyer’s Augmented product expectations Expected product Attributes that the buyer expects Basic product Basic features of the product Core product Most fundamental value of the product 1 2 Product strategy Product line Product mix Product mix width Appropriate product mix length Product mix depth. 1 3 1 4 Product life cycle 1 6 Product life cycle (PLC) Introduction – product is Growth – sales increase launched. rapidly and profits start to sales can be expected to be rise. low. Levels of competition start Invest greatly in marketing to increase. communication activities Additional features and (coupons, free samples etc) to support services may be educate customers on the new added to the product to products. differentiate it from the Usually follow a market- emerging competition. skimming price strategy to Change distribution from recover development costs selective to more intensive. 1 7 PLC continued Maturity Decline the rate of growth of sales decreases sales start to drop off and significantly. market is approaching saturation subsequently product profits also start to decrease. current and new competitors may have developed competing products sales start to drop off and need to make changes to the subsequently product profits marketing strategy (particularly the also start to decrease. 4Ps) in order to maintain its current profits rejuvenate the product by pricing may be used as a adding new features and competitive strategy to maintain alternative uses. sales 1 8 New product development Categories of new products: New-to-the world products New product lines Additions to existing product lines or line extensions Improvements and revisions of existing products Repositioned products Lower-priced products. https://www.easymarketinga2z.com/2019/01/new-product-development-process-examples.html https://maze.co/collections/product-development/examples/ 1 9 The importance of new products Consumers’ needs and wants change. Existing technology may become obsolete. All products reach the end of their product life cycle. Competitors are active in the market. An existing product may be experiencing problems. To pursue specific objectives of the business, new products may be necessary. 2 0 The new product development process Stage 1: Stage 2: Stage 3: Idea generation Idea screening Business analysis Stage 4: Stage 5: Concept development Commercialisation and testing 2 1 Step 1: Idea generation The new product development process starts with the generation of ideas for new products. New ideas can emanate from various sources, including the following: Customers Employees Suppliers Competitors R&D environment 2 2  Idea generation continued Customers, as users of existing products, often have useful ideas for new products. The challenge is to tap into these ideas. In the age of the internet, organisations can make use of online crowdsource platforms to gain insights from customers on new product ideas. Employees often have good ideas for new products. Google offers a number of channels to their employees to stimulate innovation. Suppliers can be asked to suggest new product ideas by means of interviews and informal discussions. Suppliers often interact directly and regularly with end-users. These regular interactions can generate insights into future needs and wants. the products of competitors are an important source of information in the process of developing differentiated products. Most major organisations have a research and development (R&D) department whose specific purpose is to conduct scientific research to identify new product ideas. 2 3 Step 2: Screening of ideas Does the product create new/different value for the customer? Which new needs of customers does the product satisfy? How important are these new needs to the customer? Will the new product contribute to the realisation of the marketing objectives? Does the organisation have the resources to manufacture the new product? How easy would it be for competitors to imitate the new product? 2 4  Step 3: Business analysis The marketing and financial ‘viability’ of the ideas that passed through the idea screening stage are evaluated. Only ideas that score high on the marketing and financial criteria will proceed to the next stage of the process. From a marketing perspective, new product ideas can be evaluated against the following criteria: How much investment is necessary to further develop the new product idea into a final product? How much will it cost to manufacture a single unit of the product? What is the maximum price the product can be sold for? How much will it cost to launch the new product? How soon after the launch will the development costs be recouped? 2 5 Step 4: Concept development and testing Prototypes (working examples) are usually developed for trials, which includes testing against product regulations in a specific industry as well as consumer-based testing, where potential customers use and evaluate the products. Insights obtained through feedback from potential customers can be used to evaluate further the potential for success and to assist in refinement of the product. 2 6 Step 5: Commercialisation This stage includes all the activities that are necessary to manufacture and market the new product, such as producing it, planning and implementing its launch strategy, and shipping it to distribution points such as wholesalers and retailers. 2 7 Branding Brand A name, term, design, symbol or any other feature that identifies one marketer’s product as distinct from other products Branding Creating a unique name and image for the product in the consumer’s mind, mainly using advertising The value of branding: A brand can signal quality. A brand can help shoppers to identify their preferred product. A brand can decrease the effort of making a purchase decision. 2 8 Types of branding Manufacturer Distributor brands Generic brands brands 3 1 Types of brands Manufacturer brands. Distributor brands private label brands or store As the name suggests, brands and are created by these are brands organisations that are members developed by of a distribution channel. In this way, wholesalers, manufacturers. distributors, dealers and Examples include Coca- retailers can have their own Cola, Cadbury, Kellogg’s brands (e.g. Pick n Pay’s No Name brand). The advantage and Mercedes-Benz. for a distributor is that it can retain the profit typically due to the manufacturer or other distributors. 3 2 Types of brands continued Generic brands. These are products without any branding (brand name, logos, unique colours) or any other means of identifying the organisation. The packaging of the product displays only the minimum information required by law. For example, only the word cola is displayed on the bottle of a generic soft drink manufacturer. Another example is headache pills with only the words ‘Paracetamol’ and the dosage (e.g. ‘TABLETS 500 mg’) printed on the packet. The advantage of developing generic brands is that the products can be sold at a lower price because expensive promotions are seldom used. 3 3 Brand extensions Brand extensions Ways of capitalising on the recognition, goodwill and any positive associations of an established brand Conditions for successful brand extensions: The quality of the parent brand is high. The brand has previously successfully implemented brand extensions. The parent brand conviction is high. Sufficient marketing support is allocated. Success of the brand extension depends on retailer acceptance. The fit between parent brand and brand extension is high. The risk of failure of the extension for the parent brand is low. Consumer innovativeness is high. 3 4 Co-branding The pairing of two or more branded products to form a separate and unique brand Engage in co-branding to: grow market exposure fend off the threat of competing private label brands share expensive promotional costs with partners. 3 5 Digital perspectives The product levels of the online service must be developed. Online firms can also extend the online product range by adding digital products, such as software and electronic books to the product mix. In the case of a multichannel business, the firm can offer an expanded product mix online in addition to the offline offering through traditional ‘brick and mortar’ retailers. In the online environment, firms can implement the ‘longtail’ effect in the product mix. Online firms can often customise products. 3 6 Summary Products constitute the need-satisfying element of the marketing mix. Considering this important fact and that competitors’ products may be satisfying the same needs, marketers must devote sufficient time and resources to formulating their product strategy. This investment of resources includes developing the product levels, planning the product mix and growing the firm’s brand. Furthermore, marketers must continually introduce new products to satisfy customers’ needs, manage the life cycle of current products, plan brand extensions and co-branding agreements, and consider brand licensing opportunities. Once the product strategy has been finalised, the marketer can start planning the promotion, distribution and pricing strategies to realise the firm’s marketing objectives. 3 7