THE PRODUCT

Reeva Paul Choudhary Phd Sem I University Business School

WHAT IS A PRODUCT
A product is a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers and is received in exchange for money or some other unit of value. How an organization views a product depends upon its perspective.

Production-oriented : resources used to produce it Marketing oriented : consumers perspective as of functional as well as emotional benefits

CLASSIFICATION OF PRODUCTS
On

the basis of nature of product Tangible Vs. Intangible

Goods

Vs Services

On

the basis of type of consumer

Consumer Product Vs. Industrial (Business to Business Product) e.g. Shampoo Vs. Printing Press Durable Vs. Non-Durable TV Set Vs. Toothpaste

On

the basis of durability of goods

CLASSIFICATION OF PRODUCTS
o

Shopping habits classification

Convenience goods, shopping goods, specialty goods and unsought goods

Convenience goods
Fairly Inexpensive Goods and services that consumers buy frequently, quickly, and with a minimum of effort Further divided into staples, impulse goods and emergency goods

Staples: These include goods that consumers buy on a regular basis Examples would be bread, rice, atta, toothpaste and so on Availability is important: hence distribution strength is a great advantage Sales promos and advertising important too Differentiation

CLASSIFICATION OF PRODUCTS

Impulse goods
Goods that consumers pick up without planning, on a sudden urge Availability is important here too Display is key Hence, chocolate always kept in the front Wrigleys has attractive storage POP material important Attractive packaging

CLASSIFICATION OF PRODUCTS

Emergency goods
These are goods that one would not normally need, but due to some sudden circumstances, may need desperately e.g. umbrella when it rains, medicine when you are sick Preempt the need . Duckback should offer deals now on raincoats Can charge a premium when it rains However, poor relationship marketing Auto drivers are notorious for this Govt can also come down hard on you if you do this e.g. Vegetables in SARS-hit Singapore Availability is important

CLASSIFICATION OF PRODUCTS

Shopping goods are those that are bought relatively infrequently,

consumers put in some time and effort for these, clothing, furniture, TV Price is important Advertising is very important, as is promotion, Consumers may go to a different store, if favorite brand is not available Building brand image is key, hence less dependent on the dealer Need to have variety, features and models to suit different tastes Nallis for instance has thousands of designs

CLASSIFICATION OF PRODUCTS

Specialty goods
Goods and Services consumers value and see as unique, so they are willing to spend considerable time and effort when purchasing them Examples would be luxury cars, fancy accessories like Louis Vuitton and pens like Mont Blanc High price and quality to match Need to have plenty of brand building activities like advertising Should not be available everywhere Hence, exclusive distribution the norm Ambience, shopping experience, dcor, music Eg 7star hotel

CLASSIFICATION OF PRODUCTS

Unsought goods are those that consumers are unaware of, have not thought of buying or find that they need to solve an unexpected problem
Examples would be when death occurs in family and life insurance Consumer education is key Insurance companies spend a lot on personal selling

LEVELS OF A PRODUCT

LEVELS OF A PRODUCT

Core Benefit The need that is satisfied by the product Eg Car Transportation Basic or Generic Product The fundamental element(s) that make(s) the product what it is Here, the body, the chassis, the engine

Expected Product The basic product alone is not enough Consumers expect some features Good mileage

LEVELS OF A PRODUCT

Augmented Product

Certain Features that go beyond customer expectations or example, high power and a music system todays augmented product will become tomorrows expected product e.g. airbags

Potential Product
all possible enhancements a marketer can add to value package futuristic in nature must be consumer-centric

ANALYZING THE PORTFOLIO: PORTFOLIO ANALYSIS

Compare SBUs by relative marketing share

market share compared to share of largest competitor

Compare SBUs by market growth rate Combine and map into a Portfolio Matrix

CORPORATE AND DIVISION STRATEGIC PLANNING

The Boston Consulting Groups Growth-Share Matrix

STAR
Strong

relative market share High rate of market growth Goal is to maintain its market position and increase sales volumes Key to the future Requires extra money investment Attracts competitors

CASH COW
Low market growth High relative market share Likely to be in mature stage of product life cycle Established market positions, so therefore dont need a lot of advertising expenditures High earnings and depreciation allowances generate cash surpluses

QUESTION MARK
Low

relative market share Fast growing market Potential to become star of the future or failure Usually absorbs more cash then it generates Goal is to increase relative market share and move it into star category but this can be expensive

DOGS
Low-growth Low

relative market share Often in decline phase of product life cycle Can become cash trap Usually sell or de-emphasize

CIBA-GEIGY
33 SBUs Five categories: Growth - diagnostics Pillar - pharmaceutical Niche - animal health Core - dyes, polymers, and pigments Development proprietary pharmaceutical

BALANCING THE PRODUCT PORTFOLIO

High A Star Question Mark ?
Present position

Market Growth Rate %

D
Desired or expected position

Cash Cow

Dog E

C
Low 10x 4x 2x 1x 0.4x Relative Market Share

Divestment

0.1x

ANALYZING THE PRODUCT PORTFOLIO: PLC

$ Sales and profits
Introduction Growth Maturity Decline

Business unit sales

Business unit profits

0 Losses

10

Time in years

PRODUCT LIFE-CYCLE STRATEGIES

PLC Stages
Product development Introduction Growth Maturity Decline

Begins when the company develops a new-product idea Sales are zero Investment costs are high Profits are negative

PRODUCT LIFE-CYCLE STRATEGIES

9 - 27

PLC Stages
Product development Introduction Growth Maturity Decline

Low sales High cost per customer acquired Negative profits Innovators are targeted Little competition

PRODUCT LIFE-CYCLE STRATEGIES

9 - 28

PLC Stages
Product development Introduction Growth Maturity Decline

Rapidly rising sales Average cost per customer are reduced Rising profits Early adopters are targeted Growing competition

PRODUCT LIFE-CYCLE STRATEGIES

9 - 29

PLC Stages
Product development Introduction Growth Maturity Decline

Sales peak Low cost per customer High profits Middle majority are targeted Competition begins to decline

PRODUCT LIFE-CYCLE STRATEGIES

9 - 30

PLC Stages
Product development Introduction Growth Maturity Decline

Declining sales Low cost per customer Declining profits Laggards are targeted Declining competition

PRODUCT CANNIBALISM
Product cannibalization occurs when a company decides to replace an existing product and introduce a new one in its place, regardless of its position in the market (i.e. the products life cycle phase does not come into account). This is due to newly introduced technologies and it is most common in high tech companies. There is negative and positive cannibalization.

NEUTRAL CANNIBALIZATION

In the normal case of cannibalization, an improved version of a product replaces an existing product as the existing product reaches its sales peak in the market. The new product is sold at a high price to sustain the sales, as the old product approaches the end of its life cycle. Nevertheless there are times that companies have introduced a new version of a product, when the existing product is only start to grow. In this way the company sustain peak sales all the time and does not wait for the existing product to enter its maturity phase. Such as when Coke introduced Diet Coke, which at first lowered sales of the originial coke, however, it opened up an entirely new diet soft drinks market.

Dolce and Gabbana invested nearly $100 million into D&G and initially developed it to provide clothing which was more casual, youthful and less expensive than Dolce and Gabbana. D&G in fact ended up being a vital part of the overall Dolce and Gabbana business, as shown by the 2009 figures. In 2009, D&G accounted for 45% of Dolce and Gabbana's $2.22 billion wholesale revenue. Usually when fashion lines introduce a new, lower priced brand, it is essentially to attract a wider group of consumers. However, it is important to distinguish that second brand from the original and therefore it acts as its own line. However, Dolce and Gabbana named their second brand D&G and since the names were fairly similar, many would confuse both brands as the same. The initial investment in D&G by Dolce and Gabbana also resulted in clothing to be a bit more expensive in order to cover costs, so therefore the price points between D&G and Dolce and Gabbana branded clothing were fairly the same. Those two key mistakes (similar name and price points) were poor business decisions by Dolce and Gabbana and therefore they have now chosen to fold the D&G brand and begin making clothing under the Dolce and Gabbana brand line to serve the needs of the consumers of D&G.

UNFAVORABLE EFFECTS OF CANNIBALIZATION

The new product contributes less to profit than the old one Technology changes can force a product to be cannibalized by a completely new one. The new product requires significant retooling: When a new product requires a different manufacturing process, profit is lower The new product has greater risks: This can happen in high-tech companies

Apple introduced the more feature-rich iPhone and iPods that ate up sales for its lower end iPods, including the nano, shuffle and classic series.

OFFENSIVE CANNIBALIZATION STRATEGIES

Cannibalization favors the attacker. For companies that are trying to gain market share or establish themselves into a market. The usual practice is the marketer waits. It is thought that a company should acquire and develop a new technology that will produce a newer and better product than an existing one and then wait. Then as competitors surface and attack market share, cannibalization of a product is ripe. But this strategy does not always work since delays will allow the competition to grab a substantial piece of the market before the market leader can react.

DEFENSIVE CANNIBALIZATION STRATEGIES

Controlled cannibalization can be a good way to repel attackers as deforesting can repel fire. A market leader has many defensive cannibalization strategies Cannibalize before competitors do. A good strategy is for a company, that is the market leader, to cannibalize its products as competitors start to catch up in terms of technology advancements. (For example Intel Corporation cannibalized its 8088 processor in favor of the 80286 after 2 years. Management of cannibalization rate through pricing Minimization of cannibalization by introducing of the new product to certain market segments

PRODUCT DECISIONS : DECISION TREE ANALYSIS

IN THE EXAMPLE IN FIGURE 2

The value for 'new product, thorough development' is:

0.4 (probability good outcome) x $1,000,000 (value) = $400,000 0.4 (probability moderate outcome) x $50,000 (value) =$20,000 0.2 (probability poor outcome) x $2,000 (value) =$400 Total $420,400

NEW PRODUCT DEVELOPMENT: STAGES

PRODUCT-MIX The Committee on Definitions of the American Marketing Association has defined product-mix as the composite of products offered for sale by a firm or business unit. The same committee has defined product-line as a group of products that are closely related either because they satisfy a class of need, are used together, are sold to the same customer groups, are marketed through the same type of outlet or fall within given price range Product width Length Depth Consistency

PRODUCT-POLICY/STRATEGY ISSUES AT THE PRODUCT-MIX LEVEL

Highest order Which product categories should we offer? Will we function primarily as a supplier of materials and components or as a manufacturer of end products? What are the groups and classes of customers for which our products are intended to serve? Do we seek to serve our markets as full-line suppliers or limited line specialists? Closely allied to this is the degree of custom manufacturing to meet the needs of individual buyers versus quantity production of a limited range of product types. Will we attempt to take a position of technical leadership or will we achieve greater success as a follower? What are the business characteristics (criteria) such as target rate of profit, payback period on investment, minimum sales volume, etc., that each product line must meet in order to be included in the product mix (portfolio)?

DECISIONS
Addition Divestment or divestiture Diversification

DECISIONS AT THE PRODUCT LINE LEVEL

What is the limit beyond which no product should be added? What is the number of different products to be offered in the line and to what extent should they be differentiated? What is the number of different versions (models) to be offered for each product in the line? What are the business criteria (for example, minimum profitability, minimum sales volume) that each product must meet in order to be included in the line? In how many segments should we compete in order to maintain a secure overall cost and market position vis-vis competitors? Should we keep in the line unprofitable products in order to keep a customer happy or should we let the competitors have them?

PRODUCT LINE EXTENSION

Line stretching occurs when the company stretches its product line beyond its current range.
Downward stretch :Mercedes Benz in cooperation with Swatch launched Smart Upward stretch : Toyota introduced Lexus

Line filling Product Cannibalizing

Cannibalizing an existing market to attack the market leader Introducing a new technology first

DECISIONS ABOUT THE TANGIBLE/PHYSICAL & INTANGIBLE/AUGMENTED PRODUCT

Quality, Functional Features Style

Branding, Packaging And Product Services.

STRATEGIC BRANDING DECISIONS

First, should we establish our own brand names or should we engage exclusively in reseller brands (private labels or own label brands)? Secondly, should we make products for reseller brands similar to those bearing our own brand? Thirdly, should we establish a family brand (multiproduct brand) over all types of products offered or should we create a special brand for each type of product (multibrand product)?

A family or umbrella brand can take the following three forms:

Corporate/house trade name (for example, United Colors of Benetton). A combination of a corporate/house trade name with individual product name these are brand names with strong company endorsement (for example, Vodafone 60 Promo, Vodafone SMS 150). A combination of a common trade name with individual product names (for example, Nescaf Classic, Nescaf Select, Nescaf Gold Blend from Nestl).

An alternative branding strategy is the development of individual brand names (for example, Ariel, Bold, Tide) for a specific product (Procter & Gambles detergents). These are brand names with no

company endorsement whatsoever.

Fourthly, should we use our existing brand name to introduce additional items in the same product category? Companies usually decide to use an existing brand name to launch additional items in the same product category. For example, a sugar confectionery brand (for example, Halls) is can be further extended into new flavours (for example, Halls Cherry, Halls Fruit Breezers).

BRAND EXTENSIONS
Fifthly should we use a new brand name for launching products in a new category? The use of an existing brand name for entering a new product category is called brand extension. This strategy has gained much attention by the research community in the last decade.

Sixthly, should we follow a co-branding strategy in cooperation with other. An example of a co-branded credit card is the Citi/AAdvantage Visa gold card which was created with the cooperation of Citibank and American Airlinesr enterprises/ organizations?

TACTICAL BRANDING DECISIONS

Tactical issues include selecting the brand name, the brand symbol/logo, registering a trademark and finally monitoring brand acceptance.

Use many vowels that makes its pronunciation easier (for example, Ikea).
Brand names must be preferably short (for example, Fiat). Brand names should not carry negative or offensive meanings (for example, Seats Mlaga series could not be used in the Greek market because it sounds very much like an offensive Greek word). Artificial brand names ensure that they are not used by another company (for example, Kodak). Brand names may describe certain product characteristics or uses (for example, Everyday).

Brand names may suggest the impact they have on people (for example, Jetlite).
Brand names should not be similar to competitive brands for avoiding customer confusion (for example, B.F. Goodrich and Goodyear tyre manufacturers usually cause confusion).

SELECTING A BRAND SYMBOL/LOGO

Corporate names or trade names rendered in a distinctive typographic form (for example, CocaCola, Mars). Visual devices divorced from the corporate name, but with a close and obvious association with the name or the activities of the business (for example, the dough boy of Pillsbury). Abstract logos that have no obvious relation to the corporate or product name (for example, the Peugeot lion). Instead, such logos reflect the brands values (namely, Peugeot vehicles have the strength of a lion).

PACKAGING
Containment and protection Transportation and distribution Management refers to efficiency in stock-listing, pricing and ordering and covers some aspects of labelling (for example, bar-codes). Aesthetic value and sales power, recognition, information and product description. Opening and possible re-shutting by the customer as well as unit size. Disposal

PRODUCT SERVICES
Product performance enhancing services Product life prolonging services and Product risk reducing services.

DECISIONS ABOUT THE TANGIBLE/PHYSICAL

SERVICE

facility exterior (for example, car park, signing); facility interior (for example, lighting, temperature, interior design); tangibles (for example, brochures, business documents, personnel uniforms). SERVQUAL, which identifies five broad dimensions of service quality, namely:

tangibles (for example, modern-looking equipment, visually appealing); reliability (for example, showing a sincere interest in solving customers problems); responsiveness (for example, willingness to help customers); assurance (for example, knowledge to answer customer questions); empathy (for example, to give customers individual attention).

DECISIONS ABOUT THE INTANGIBLE/AUGMENTED SERVICE