Post on 27-Jan-2015
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Issues in Product Management What is a product?
– 5 Levels of a product (core, actual, and augmented)– Product Classification (goods vs services, durable vs
nondurable, consumer vs industrial, etc.)
PLC and Managing the product through its Life Cycle
Product Portfolio Analysis & Basic Growth Strategies
Five Levels of a Product
Core Product • fundamental benefit that the customer is buying
Basic Product• Form in which the core benefit is offered
Expected Product• Set of attributes that buyers normally expect
Augmented Product• Product attributed/features that exceeds expectations
Potential Product• Future augmentations/transformations
Stages in a Product life cycle
Marketing objective
Marketing objective
Gain Awareness
Gain Awareness
Stress differentiation
Stress differentiation
Maintain brand loyalty
Maintain brand loyalty
Harvesting, deletion
Harvesting, deletion
CompetitionCompetition NoneNone GrowingGrowing ManyMany ReducedReduced
ProductProduct OneOne More versionsMore versions Full product line
Full product line Best sellersBest sellers
PricePrice Skimming or penetration
Skimming or penetration Gain share, dealGain share, deal Defend share,
profitDefend share, profit Stay profitableStay profitable
PromotionPromotion Inform, educateInform, educate Stress competitive differences
Stress competitive differences
Reminder oriented
Reminder oriented Minimal
promotionMinimal promotion
Place(distribution)
Place(distribution) LimitedLimited More outletsMore outlets Maximum
outletsMaximum outlets Fewer outletsFewer outlets
Stage of the product life cycleSa
les
reve
nue
or p
rofi
t Introduction Growth Maturity Decline
+0–
Total industrysales revenue
Total industry profit
?The Boston Consulting Group Matrix
Relative Competitive Position/Market Share
Bu
sin
ess
Gro
wth
Rat
e
Basic Product Portfolio Strategies Build
Expand marketing effort to increase market share, particularly question marks.
Hold Preserve existing market share, especially strong cash cows.
Harvest Increase short-term cash flow, especially weak cash cows.
Divest Sell or liquidate product, appropriate for dogs.
Issues in Product Management Product Line Decisions
– Line Stretching (upward, downward, 2-way, etc.)– Line Filling (JND)– Line Pruning, etc.
Product Mix Decisions– Width, Length, Depth & Consistency
Product Design, Packaging, Labeling & Warranty Decisions
Product Mix
Width: number of different
product lines
Length: total number of
items within lines
Depth: number of versions of
each product
Product Mix:all product
lines offered
Co
nsi
sten
cy
Issues in Product Management Branding Decisions
– Brand Equity, Branding Strategies– Brand Extensions
New Product Development– Diffusion of Innovations
Pioneering Advantage
Product Bundling & Co-Branding
What is Brand Loyalty?
No brand loyalty(customer will change)
Satisfied customer(no reason to change)
Satisfied andswitching cost
Values the brand
Devoted to brand
Brand Equity
BRAND EQUITY . . . .BRAND EQUITY . . . .
The added value a given brand The added value a given brand provides a product beyond the provides a product beyond the functional benefits provided.functional benefits provided.
Brand Equity
Name Awareness Perceived Quality Brand Associations Other Brand Assets (logo, slogan, etc.) Brand Loyalty
Good Brand Names:
Suggest product benefits
Become distinctive
Are free from poor foreignlanguage meanings
Suggest product qualities
Are easy to pronounce,recognize, remember
Four criteria for pickinga good brand name
Describe product benefitsDescribe product benefits
Be memorable, distinctive, and positiveBe memorable, distinctive, and positive
Fit the company or product imageFit the company or product image
Have no legal restrictionsHave no legal restrictions
A good brand name should . . . .
A good brand name should . . . .
Alternative branding strategies
Family/Blanket branding strategy
Sunbeam makes:Sunbeam ironsSunbeam toastersSunbeam crockware
GE makes:TVVCRMicrowave Washer/Dryer
Family/Blanket branding strategy
Sunbeam makes:Sunbeam ironsSunbeam toastersSunbeam crockware
GE makes:TVVCRMicrowave Washer/Dryer
Individual/ Multi-brand strategy
Anheuser-Busch makes:
BudweiserBuschMichelobWurtburgerHofbrau
Procter & Gamble makes:
TideCheerIvory SnowOxydol
Individual/ Multi-brand strategy
Anheuser-Busch makes:
BudweiserBuschMichelobWurtburgerHofbrau
Procter & Gamble makes:
TideCheerIvory SnowOxydol
Private branding/separate family strategy
A&P has:Ann Pagecanned goodsEight O’Clock coffee
Sears has:Kenmore appliancesCraftsman tools
Private branding/separate family strategy
A&P has:Ann Pagecanned goodsEight O’Clock coffee
Sears has:Kenmore appliancesCraftsman tools
Mixed branding strategy
Honda makes:AccordCivicPreludeS-2000Odyssey
Kellogg’s makes:
Rice KrispiesRaisin BranCorn Flakes
Mixed branding strategy
Honda makes:AccordCivicPreludeS-2000Odyssey
Kellogg’s makes:
Rice KrispiesRaisin BranCorn Flakes
Generic branding strategy
Dog foodPeanut butterGreen beansPaper towelsAspirinCola
Generic branding strategy
Dog foodPeanut butterGreen beansPaper towelsAspirinCola
Branding strategyBranding strategy
Manufacturer branding strategyManufacturer branding strategy
Line and brand extension
Line extension . . . .Line extension . . . .
The use of a current brand to enter a new market segment in its product class
The use of a current brand to enter a new market segment in its product class
Brand extension . . . .Brand extension . . . .
The use of a current brand name to enter a completely different product class
The use of a current brand name to enter a completely different product class
Issues in Brand Extensions
Existence of Negative/Undesirable Associations
Fit • Complement, Substitute, Transfer
Common Consumer Franchise Market Conditions
• Stage in the PLC• Competition
What is a New Product? New-to-the-world Products (Inventions)
New-to-the-market Products
New-to-the-firm Products (New Category Entries)
Product Improvements & Line Extensions
Repositionings
New Product Generation
Conceptdevelopmentand testing
Ideascreening
IdeaGeneration
Marketingstrategy
developmentBusinessanalysis
Productdevelopment
Commercialization
Markettesting
New Product Development & Management
Opportunity Identification
Product Design
Product Testing
Product Introduction
Life-cycle Management
The Consumer Adoption Process
AwarenessAwareness
InterestInterest
EvaluationEvaluation
AdoptionAdoption
TrialTrial
Laggards:Fear of debt, neighbors and friends are information sources
Laggards:Fear of debt, neighbors and friends are information sources
Early adopters:Leaders in social setting, slightly above average education
Early adopters:Leaders in social setting, slightly above average education
Late majority:Skeptical, below average social status
Late majority:Skeptical, below average social status
Innovators:Venturesome, higher educated, use multiple information sources
Innovators:Venturesome, higher educated, use multiple information sources
Early majority:Deliberate, many informal social contacts
Early majority:Deliberate, many informal social contacts
Time
Innovators2.5%
Early adopters13.5%
Early majority34%
Late majority34%
Laggards16%
Diffusion of Innovation
Factors that Influence Rate of Adoption
The following characteristics influence the rate of adoption:
– Relative advantage
– Compatibility
– Complexity
– Divisibility
– Communicability
New Product Strategies
Proactive VS Reactive
Pionnering VS Second But Better– VCR - Ampex (1956)– Microwave Ovens - Raytheon (1946) /Amana (1966)– Dishwasher - Crescent Washing Machine Co. (1900)– Fax - Xerox (1964)– PCs - MITS (1975)– Disposable Diapers - Chux (1950)– Diet Cola - Kirsch’s No-cal Cola (1952)
Advantages of Being a Pioneer
Brand Association & Preference Formation
Economies of Scale Benefits
Learning Curve Benefits
Barriers to Entry
Switching Costs
Dis-Advantages of Being a Pioneer
Uncertainity– Consumer wants & needs– Channel Reaction– Potential Competitors Moves
Free Rider Problem
Shifts in Technology & Consumer Needs
Incumbent Inertia (e.g., early sunk costs)
Product Bundling
Perception of Value
Ease of Information Processing
Reduction in Perceived Risk
Ability to control & smoothen demand
Product-Service continuum
TeachingNursing
The theatreAdvertising agency
Air travelTelevision
Fast-food restaurantTailored suit
AutomobileHouse
Dog foodNecktie
Salt
Balanced itemequally weighedbetween goodsand services
Service-dominatedService-dominateditem (intangible) item (intangible)
Good-dominatedGood-dominateditem (tangible) item (tangible)
Balanced
The Four I’s of Service
Intangibility Services cannot be held, touched, orseen before the purchase decision.
Inconsistency Service quality varies with the (Variability) capabilities of the people who
provide the service.
Inseparability The consumer cannot separate the deliverer of the service from the service itself.
Inventory The inventory cost of a service is (Perishability) the cost of paying the person used
to provide the service along with the cost of any needed equipment, and issues associated with perishability.
Factors Influencing Pricing Decisions
Economic Factors– Total Income; Discretionary Income; Budgeted Income– Buyer Spending Power (Financing, Type of product --
e.g., Value Meal, Target Market Selection)
Channel Factors– Markups & Margins– Price Increases & Price Cuts
Psychological Factors
Setting Pricing Policy1. Selecting the pricing
objective1. Selecting the pricing
objective
2. Determining demand2. Determining demand
3. Estimating costs3. Estimating costs
4. Analyzing competitors’ costs, prices, and offers
4. Analyzing competitors’ costs, prices, and offers
5. Selecting a pricingmethod
5. Selecting a pricingmethod
6. Selecting final price6. Selecting final price
Selecting the Price Objective
Survival Survival
Maximum market skimming
Maximum market skimming
Product-quality leadership
Product-quality leadership
Maximum current profit
Maximum current profit
Maximum market share
Maximum market share
Determining Demand
Demand curve - illustrates relation between alternate prices and current demand
Price sensitivity Price elasticity of demand
Price Elasticity Price Elasticity, or the elasticity of demand with
respect to price, relates price to quantity sold and hence to revenues– If the percentage change in demand is greater than the
percentage change in price, the demand is said to be elastic– If the percentage change in demand is less than the
percentage change in price, the demand is said to be inelastic
– When demand is Elastic, Price & Revenue are inversely related
– When demand is inealstic, Price & Revenue are directly related
Price Elasticity Price Elasticity is defined as the ratio of the
percentage change in quantity demanded for a given percentage change in price.
Elasticity can be calculated using the formula:Num = {Q2 - Q1}/{Q1}Den = -{P2 - P1}/{P1}Elasticity E = [Num]/[Den]
If E> 1, then the demand is said to be elastic. If E<1, it is inelastic
Points to Note Regarding Elasticity Ceteris is never paribus
– Other factors do not remain constant as assumed Long-run elasticity may differ from measured value Demand curve aren’t smooth in real life
– Indifference Zone
– Breakthrough price -- below which the market just takes off (Video Movies)
– Price Ceiling -- above which the demand just dies (Del Monte Green Beans VS Kroger green beans)
P.E. in the upward direction may not be the same as the P.E. in the downward direction -- particularly for low-end products with poor equity
Asymmetry in Price Effects -- do not provoke the market leader into a price war
Indifference zones are wider for costlier items Elasticity may vary across time (seasons) Brand Elasticity need not be the same as product-
level elasticity Cross-Price Elasticity
Estimating CostsDefine each of the following: Fixed costs Variable costs Total costs Average cost Accumulated production Differentiated marketing offers Target costing
Selecting a Pricing Method
Costs Competitors’prices andprices ofsubstitutes
Customers’assessmentof uniqueproductfeatures
Low Price
No possibleprofit at
this price
High Price
No possibledemand atthis price
The Three Cs Pricing Model
Selecting a Pricing Method
markup pricing and target-return pricing perceived-value pricing value pricing; Going rate pricing; Sealed-Bid pricing?
Selecting the Final Price Psychological pricing
– Sometimes price is equated to quality Influencing of other marketing-mix elements
– The brand’s quality and advertising relative to competition must be considered
Company pricing policies– Must be consistent with company goals
Impact of price on other parties such as dealers and distributors
Factors Influencing Pricing Decisions
Psychological Factors– “Winning a Good Deal”
– Reference Price (price establishes value)
– Limited attention and information retention
– Image & Expectation (pricing hamburger in different settings)
– Price as a cue to quality
– “Throw-ins” vs Price-cuts
– Buying Situation (for self, gift, on vacation)
Pricing Issues & Strategies Setting Price Levels – Demand; Cost; Competition New Product Pricing Product Line Pricing – Price Points Reference Price; Price Ceiling & Floor Price Optional - Feature Pricing
– Base Product + Accessories Captive - Product pricing 2-Part Pricing By-Product Pricing Pricing a Product Bundle Incremental/Discriminatory Pricing
Conditions Favorable for Incremental Pricing
Excess capacity
Heavy fixed costs
Price-sensitive segment
Ability to isolate from core market
Initiating Price Changes
Initiating price cutsInitiating price cuts
Low quality trapLow quality trap
Shallow-pockets trap
Shallow-pockets trap
Fragile-market-share trap
Fragile-market-share trap
Initiating Price Changes
Initiating price increasesInitiating price increases
Reduction of discounts
Reduction of discounts
Escalator clausesEscalator clauses
UnbundlingUnbundling
Delayed quotation pricing
Delayed quotation pricing
Responding toCompetitors’ Price Changes
Reduce priceReduce price
Increase price and improve
quality
Increase price and improve
quality
Maintain priceMaintain price
Launch a low-price fighter lineLaunch a low-
price fighter line
Maintain price and add valueMaintain price and add value $$ $$
Alternatives to Price Promotions
Change Size and/or Content Change Price & Product Features Simultaneously
– Automobile Yearly Model Change Change Payment Terms & Financing Terms Increase/Decrease availability of “Economy
Models”– Toyota Tercel EZ
Move Excess Inventory through alternate channels
Key Functions ofChannel Members
Gather information about customers, competitors, and other players
Develop and disseminate communications Reach agreement on price and terms Place orders with manufacturers Acquire funds to finance inventories Assume risks Provide for product storage and movement Provide for buyers’ bill payments Oversee transfer of ownership
Market Channel Functions Transaction Functions
– Buying– Selling– Risk taking
Logistical Functions– Assorting– Storing– Sorting– Transporting
Facilitating Functions– Financing– Grading– Marketing Research
Reducing the Number of Channel Transactions
Number of contacts without a distributor: M x C = 3 X 3 = 9
1
32
456
789
Manufacturer Customers
Reducing the Number of Channel Transactions
1
3
2
4
6
5
Manufacturer Customers
Store
Number of contacts with a distributor M x C = 3 + 3 = 6
Consumer Marketing Channels
ConsmrMfgr.0-level channel
2-level channel
3-level channel
1-level channel
Whlslr Jobber Retailer ConsmrMfgr.
Retailer ConsmrMfgr.
Whlslr Retailer ConsmrMfgr.
Channel-Design Decisions
Analyzing customers’ desired service output levels
Analyzing customers’ desired service output levels
Establishing objectives and constraints
Establishing objectives and constraints
Identifying major channel alternatives
Identifying major channel alternatives
Evaluating major alternativesEvaluating major alternatives
Channel-Design Decisions: Service Output Channels
Spatial convenience
Spatial convenience
Product variety
Product variety
Lot sizeLot size
Service backupService backup
Waiting timeWaiting time
Distribution Coverage
Intensive Distribution– Large number of middlemen
Selective Distribution– Moderate number of middlemen
Exclusive Distribution– One or two middlemen in a trading area
Major Distribution Issues
Control
Coverage
Cost
Channel Conflict
Horizontal
Vertical
Multichannel
Gray Market
Unauthorized middlemen who circumvent authorized marketing channels by buying in low-price markets and reselling in high-price markets
– Cameras
– Watches
Conventional Distribution vs. Vertical Marketing Systems
Verticalmarketingchannel
Manufacturer
Retailer
Conventionalmarketingchannel
Consumer
Manufacturer
Consumer
Retailer
Wholesaler Wholesaler
Types of Vertical Marketing Systems
ContractualContractual Agreement Among
Channel Members
CorporateCommon ownership at different levels of
the channel
AdministeredLeadership is assumed by one or
a few dominant members
Types of RetailersSpecialty stores
Narrow product line, deep assortmentSpecialty stores
Narrow product line, deep assortment
Department stores Wide variety of product lines
Department stores Wide variety of product lines
Supermarkets Variety of food, laundry, household products
Supermarkets Variety of food, laundry, household products
Convenience storesLimited line of high-turnover convenience goods
Convenience storesLimited line of high-turnover convenience goods
Types of RetailersDiscount stores
Broad product line, low margin, high volumeDiscount stores
Broad product line, low margin, high volume
Off-price retailerInexpensive, overruns, irregulars, leftovers
Off-price retailerInexpensive, overruns, irregulars, leftovers
SuperstoresLarge assortment of routinely purchased food
and nonfood products, plus services
SuperstoresLarge assortment of routinely purchased food
and nonfood products, plus services
Catalog showroomBroad selection, fast turnover, discount prices
Catalog showroomBroad selection, fast turnover, discount prices
Retailing Trends
Shorter retail life cycles
Polarity of retailing
Nonstore retailing
De-Malling & Open Malls
Retail Technology
Marketing Decisions
Promotion decision
Promotion decision
Target marketTarget market Price decisionPrice decision
Product assortment and
procurement
Product assortment and
procurement
Services and store atmosphere
Services and store atmosphere Place decisionPlace decision
How Many Outlets Do You Need?
How many retail outlets will your production capacity support?
How many RO will your market potential support? How will an increase or decrease in the number of
RO affect your profitability?
That depends on:
You need to get an estimate of the
SALES VOLUME PER OUTLET
How many outlets will your production capacity support? Number of outlets =
(Capacity/Avg. sales per outlets)
How many outlets will your market potential support?
Number of outlets = (Market Potential / Avg. sales per outlet)
Turnover = (Sales / Avg. inventory)
Integrated Marketing Communications
The concept of designing marketing activities –advertising, personal selling, sales promotion,and public relations -- to provide a consistentmessage across all audiences is referred to as integrated marketing communications (IMC).
Integrated Marketing Communications
Overview of Eight Steps to Effective Communication
Identify target audience
Determine objectives
Select communication channels
Design the message
Effectively manage the process
Develop communications mix
Establish communications budget
Measure results
Determining Communication Objectives
Models of consumer-response stages are – AIDA model– Hierarchy-of-effects model– Innovation-adoption model– Communications model
The models assume that buyers pass through these stages:
– Cognitive stage– Affective stage– Behavior stage
Designing the Message
ction
nterest
esire
ttention
Deciding on Communications Mix
AdvertisingPublic, pervasive, expressive, impersonal
Sales promotionCommunication, incentive, invitation
Public relations and publicityCredibility, surprise, dramatization
Deciding on Communications Mix
Personal SellingPersonal confrontation,
cultivation, response
Personal SellingPersonal confrontation,
cultivation, response
Direct MarketingNonpublic, customized,up-to-date, interactive
Direct MarketingNonpublic, customized,up-to-date, interactive
Promotional Mix
Personal Selling
Telemarketing
Advertising
Publicity
Sales Promotions
Evaluating Promotional Activities Reach (Coverage)
– How much of the intended audience do you reach?
Effectiveness– How effectively do you communicate with the audience that
you reach?– Frequency: How often do you reach audience members?– Impact: How effective is each message?
Cost: What is the cost per message?
Appropriate Use of Each Type
Personal Selling
– Most effective form of communication– Relatively very expensive– To be used as a primary means of promotion
for customers who spend enough to justify the cost
– Used extensively in industrial marketing situations
Telemarketing
Telemarketing– Less effective than PS -- less personal– More effective than advertising -- interactive– Can be used to “qualify” prospects for personal
sales calls– Can be used to handle in-bound, self-service
orders for the delivery of goods– Cost falls in between PS and Advertising
Advertising Advertising
– Less effective than PS or TM– But, Cheaper than either– Offers a way to reach a large number of potential
customers in a very short period of time– Primary means of promoting to customers who do
not spend enough to justify PS or TM– Should be used to create brand awareness and
educate customers of product features/benefits
Publicity Publicity
– Less effective than advertising because it offers limited control of the message, timing and the media
– cannot be used to send a repetitive message
– But, Cheaper than advertising
– Often more credible to buyers
– Most useful in establishing credibility for providers of professional services
– Can be used as a low cost alternative to advertising
Sales Promotions
Sales Promotions– Good short term competitive tactic– Help clear slow-moving or seasonal inventory– Help generate quick cash flow, if required– SP such as “Sweepstakes” or “Contests” can be
used to add excitement to advertising– Not much value in terms of communication– Do not build a long term image for the brand
Push vs. Pull Strategies Push Strategy
– Spending major part of promotional expenses on distributors and retailers
Pull Strategy– Spending major part of promotional expenses on the
consumer
A comparison of push and pullpromotional strategies
ManufacturerManufacturer
WholesalerWholesaler
RetailerRetailer
ConsumerConsumer
Flow ofpromotion;mainlypersonalsellingdirected tointermediaries
Flow ofdemand
stimulation
ManufacturerManufacturer
WholesalerWholesaler
RetailerRetailer
ConsumerConsumer
Flow ofpromotion;mainly advertisingdirected toconsumers
Flow ofdemand
stimulation
A. Push strategy B. Pull strategy
Promotion Objectives
Communication Objectives– To inform
– To remind
– To persuade
Behavior Objectives– To sell
– To take some action
Setting Advertising Budgets
Percent of Sales What is the percent of present or forecasted sales?
Competitive Parity Are we in line with our competition?
Affordable Method What can we afford to spend on advertising this year?
Objective and Task
Message Decisions
Message Execution Theme and types of messages
Message Structure One-sided vs. two-sided, types of arguments
Message Generation Creative process of developing different
message ideas
The language of the media buyer
Term What It Means Reach The number of different people or households exposed to an advertisement.
Rating The percentage of households in a market that are tuned to a particular TV show or radio station.
Frequency The average number of times an individual isexposed to an advertisement.
Gross rating points Reach (expressed as a percentage of the total(GRPs) market) multiplied by frequency.
Cost per thousands The cost of advertising divided by the number (CPM) of thousands of individuals or households who
are exposed.
Scheduling the Advertising
Steady (“drip”) Schedule-- Steady schedule throughout the year.
Flighting (“intermittent”) Schedule-- Advertising reflects seasonal demand
Blitzing
Pulse (“burst”) Schedule-- Steady and flighting schedules are combined
Advertising’s Role in Industrial Marketing
Create favorable climate for salespeople
Stimulate derived demand
Project favorable corporate image
Reach inaccessible buyers
Functions of Salespeople
ProspectingProspecting
ServicingServicing
Gathering informationGathering
information
AllocatingAllocating
TargetingTargeting
CommunicatingCommunicating
SellingSelling
Steps in Selling ProcessProspecting and Qualifying
Approach
Presentation
Handling Objections
Closing the Sale
Follow-up
Prospecting Stage
Lead
Prospect with need for your product
Qualified Lead
Prospect with need and can afford your product
Approach Stage
Preapproach Action before calling on prospect
– Buyer needs– Buying styles– Call objectives
Approach Meeting and greeting the buyer
– Salesperson’s appearance– Opening lines– Key questions
Sales Presentations
Stimulus-response
Need-satisfaction
Handling Objections
Acknowledge and convert
Postpone
Agree and neutralize
Ignore the objection
Closing the Sale
Trial close Would you prefer blue or green?
Assumptive close What type of finance do you want?
Urgency close This is the last model we have in stock
Follow-Up Stage
Phone call
Letter or card
Questionnaire
Personal call
Sales Promotion Activities
Aimed at consumers
Aimed at trade
Aimed at company’s own sales force
Consumer Sales Promotion
Point-of-purchase materials
Mfrs’ coupons
Free samples
Sponsored events
Premiums
Trade Sales Promotion
Trade shows
Sales contests
Display allowances
Bulk discounts
Internal Sales Promotion
Contests
Sales aids
Training material
Bonuses
Displays
Benefits of Direct Marketing to Consumers
Fun, convenient, hassle-freeFun, convenient, hassle-free
Saves timeSaves time
Larger merchandise selectionLarger merchandise selection
Comparison shoppingComparison shopping
Ease of ordering productsEase of ordering products
Benefits of Direct Marketing to Companies
Mailing lists for any marketMailing lists for any market
Can achieve higher readershipCan achieve higher readership
Alternative media and message testingAlternative media and message testing
PrivacyPrivacy
Measurable responseMeasurable response
Ongoing relationships with customersOngoing relationships with customers
Customized offersCustomized offers