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Lecture 6 and 7 – All about Products and Brands: Building Customer Value

OverviewIn the first five lectures of this course we have learnt about the context of marketing; more specifically, we have explained what marketing is and how it creates and captures customer value; we tried to understand marketing strategy; marketing environment; managing marketing information to gain customer insights; learn about customer behaviour and development of customer driven strategy. The next six lectures will be devoted to the discussion of ‘Marketing Mix’, popularly known as the 4Ps, namely product, price, placement and promotion.

These two lectures focus on the first of the 4Ps, the product. Every day, we all use various types of products to fulfill specific needs and enable us to get on with life. Of necessity, marketers need to classify this diverse range of products as the nature of the product is a major determinant of customers’ buying behaviour and as such, can affect their marketing mix decisions. Note that four Ps are basically producer oriented; to customers 4Ps correspond to 4Cs reflecting slightly different meaning of each P. For example, product refers to customer solution; price is cost; promotion is communication and place stands for convenience (channels).

Lecture objectives1. Define product and the main classifications of products and services.2. Describe the decisions companies make regarding their individual products and services, product

lines, and product mixes.

3. Identify the characteristics that affect the marketing of a service and the additional marketing considerations that services require.

4. Discuss branding including brand strategy and building and managing brands.

5. Explain new product; the new-product development process and the major considerations in managing this process.

6. Explain the product life cycle and how marketing strategies change during the product life cycle.

7. Discuss two additional product issues: socially responsible product decisions and international product and services marketing.

Definition of Product Broadly defined - A product is anything that can be offered to a market for attention, acquisition,

use, or consumption that might satisfy a want or need. Products are bundles of benefits in the form of goods and services.

Services, are a form of product that consists of activities, benefits, or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything.

A company’s market offering often includes both tangible goods and services. At one extreme, the offer may consist of a pure tangible good, such as soap or toothpaste. At the other extreme are pure services, for which the offer consists primarily of a service.

It is important to note that most ‘products’ combine some amount of tangibility as well as intangibility. To differentiate their offers, marketers are creating and managing customer experiences with their brands or company. For example, many retail stores attempt to create an atmosphere that enhances the shopping experience. In the context of today “products” also include ideas, events, persons, places, organisations or mixes of these.

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Levels of Product and ServicesMarketers have to consider their products and services on three levels, each adding more value:

1. Core customer value - what is the buyer really buying? (Core Benefit or Service, problem-solving dimension that makes the purchased product valuable to consumers)

2. Actual product - it is the actual form in which the product is purchased including:- Features – combination of product attributes- Styling – consists of product’s design and aesthetic aspects- Quality – refers to product performance- Brand name – may help consumers position and identify the product- Packaging – protect the product and to promote it to consumers

3. Augmented product, which is created around the core benefit and actual product by offering additional consumer services and benefits ie. Installation, warranty, delivery & credit – help the consumer put the actual product to sustained use.

Today most competition takes place at the product augmentation level.

Eg. QANTAS:- Core product – time critical transportation- Actual product – seat allocation, meals, safety record, schedules, booking system, inflight services- Augmented product – tours, holiday packages, Qantas club, frequent flyer scheme

Product and service classificationsIn seeking to develop marketing strategies for their products and services, marketers have classified products and services into two broad categories:

1. Consumer products - are products and services bought by the final consumers for personal use or consumption. These types of products have been further classified based on how consumers go about buying them.

Convenience products - are consumer goods and services that the customer usually buys frequently, immediately, and with a minimum of comparison and buying effort. These are usually low priced and widely available (milk, bread, newspapers) and can be further divided into staples, impulse products and emergency products.

Shopping products - are goods and services that the consumer, in the process of selection and purchase, usually compares on bases such as suitability, quality, price and style. Consumers usually spend a considerable amount of time and effort gathering information and making comparisons eg. Furniture, clothing.

Specialty products - are consumer goods and services that have unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort. Buyers do not normally compare specialty products; they invest only the time needed to reach dealers carrying the wanted products. Eg. Specific car, designer clothes, services of medical specialists

Unsought products are consumer goods and services that the consumer either does not know about or knows about but does not normally think of buying. They require a special marketing effort eg. Preplanned funeral services, blood donations to the Red Cross

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2. Industrial products - are goods that are purchased for further processing or for use in conducting a business. Industrial products can be classified according to how they enter the production process and according to what they cost.

Materials and parts include raw materials such as farm products and natural products and manufactured materials and parts such as component materials ie. Cement and component parts ie. Tyres. Usually are bulky, have low unit value and require lots of transportation to move them from producer to user.

Capital items are industrial products that aid in the buyer’s production or operations and include installations such as buildings/fixed equipment and accessory equipment such as portable factory equipment and tools and office equipment. These are industrial goods and services that aid in the production process.

Supplies and services are industrial goods and services that do not enter the finished product at all; they are the convenience product of the business market and are usually purchased with minimum effort or comparison. Business services include maintenance and repair services and business advisory services, usually under contract.

Extending the goods and services classification in marketing: Organisations, Persons, Places, Events and IdeasOrganisation marketing consists of activities undertaken to create, maintain, or change the attitudes and behaviour of target consumers toward an organisation (e.g. Sydney Bus Service/ ANZ Bank).Person marketing consists of activities undertaken to create, maintain, or change attitudes or behaviour toward particular people (for example, celebrities - Oprah Winfrey, Angelina Jolie; sports stars - Tiger Woods; politicians - Julia Gillard, Barack Obama; business leaders - Bill Gates, Donald Trump.Place marketing involves activities undertaken to create, maintain, or change attitudes or behaviour toward particular places. Marketing of tourism destinations such as that undertaken by Tourism Australia (consider the PR blitz surrounding Oprah filming two episodes of her final series in Australia), or the award winning “You’ll love every piece of Victoria” pitch as two recent examples of place marketing.Event and experience marketing is often linked to other market offerings, for example major sporting events such as the Cricket World Cup often include destination marketing, and marketing communications to involve the local community. Promotional campaigns often highlight the cultural and entertainment highlights of the host city while promoting the event.Ideas can also be marketed - for example, political policies and environmental and social causes.Social marketing is the use of commercial marketing concepts and tools in programs designed to bring about social change. Public health campaigns to reduce speeding and drink driving, along with environmental campaigns to reduce pollution or food waste are just some of the many examples of social marketing activities.Non-profit marketing involves activities by not-for-profit organisations such as Red Cross in fund raising.

Product and Service Decisions (5)1. Product and service attributesDeveloping a product or service involves defining the benefits that will be offered to the marketplace. These benefits are communicated and delivered by product attributes such as quality, features, style and design. Decisions about these attributes greatly affect consumer reactions to a product.

Product quality refers to the characteristics of a product or service that bear on its ability to satisfy stated or implied customer needs includes durability, reliability, precision, ease of operations etc. Level and consistency of quality are the two dimensions used in the measurement of product quality. Quality is a major positioning tool for marketers – led to the adoption of TQM.

Product features refer to technical characteristics of the offering. Consumers seek value and need-satisfaction. A product can be offered with varying features. Product feature decisions must reflect consumer needs and perceptions, affordable value and company cost. Starting with a ‘stripped-down’ model a company can create higher-level models by adding more features to suit diverse

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customer needs which may help the company better compete in the marketplace. Product style and design adds to product distinctiveness. While style simply describes the

appearance of a product, design is a much broader concept. A sensational and eye-catching style may grab attention, but it does not necessarily make the product perform better.

2. BrandingA brand is a name, term, sign, symbol, design, or a combination of these, that identifies the goods or services of one seller or group of sellers and differentiates them from those of competitors.Brand has become a buzzword in modern marketing. Branding can add value to a product and as such, has become a major issue in product strategy, requiring a number of decisions.Powerful brand names have consumer franchise - they gain brand recognition and can ultimately command strong consumer loyalty. Manufacturers often find it easier and less expensive to make the product and let others do the brand building. On the other hand, most manufacturers eventually learn that the power lies with the companies that control the brand names. Perhaps the most distinctive skill of professional marketers is their ability to create, maintain, protect and enhance brands.

3. PackagingMany products offered to the market have to be packaged. Packaging involves designing and producing the container or wrapper for a product. Often called the fifth P along with price, product, place and promotion, packaging is more often treated as part of the product strategy. The package may include the product’s primary container, a secondary package that is thrown away when the product is about to be used and the shipping package necessary to store, identify and ship the product. Labelling is also a part of packaging and consists of printed information appearing on or with the package.

4. LabellingProduct labelling broadly refers to identifying the product or the brand; describing who made it, where it was made, when it was made, its contents, how it is to be used and how to use it safely. . It might also be used for grading the product (food items). Labels may range from simple tags attached to products to complex graphics that are part of the package. They perform several functions, and the seller has to decide which ones to use. Finally, the label might promote the product with attractive graphics. Hence it is not surprising that when labels seem old-fashioned, they need freshening up.There are also legal concerns with labels and there are laws that govern labelling, particularly for food and medicines. Labels are affected by unit pricing, open dating (shelf life), nutritional labelling, and energy consumption levels.

5. Product support servicesCustomer service is another element of product strategy. Good customer service is good for business as it costs less to keep the existing customers than it does to attract new customers or regain lost customers. Companies that provide high-quality service usually outperform their less service-oriented competitors. A company should design its product support services to meet the needs of target customers.

Customers vary in the value they assign to different services. The first step is to determine the services valued by target consumers and the relative importance of these services. Determining customers’ service needs involves more than simply monitoring complaints that come in over toll-free telephone lines or on comment cards. The company should periodically survey its customers to get ratings of current services as well as ideas for new ones. Products can often be designed to reduce the amount of required servicing. Companies need to coordinate their product-design and service-mix decisions. A key to successful service strategy is to design products that are easily installed, rarely break down and are easily fixable with little service expense.

Many companies have set up strong customer service operations to handle complaints and adjustments, credit service, maintenance service, technical service and consumer information. An active customer service operation coordinates all the company’s services, creates consumer satisfaction and loyalty, and helps the company to set itself further apart from competitors.

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Product line decisionsA product line refers to a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed though the same types of outlets, or fall within given price ranges. Product strategy also calls for sound product line strategies involving product line length and product line featuring.

Product line length is influenced by the company’s objectives and has to be carefully decided. A product line is too short if adding items increases profits, it is too long if dropping items increases profits. The company must plan line growth carefully; it can increase the length either by line filling or line stretching. Companies that want to be positioned as full-line companies or that are seeking high market share and market growth, are likely to carry longer lines.

Line Filling is the process whereby a product line can also be lengthened by adding more items within the current range. Line filling is overdone if it results in cannibalisation or customer confusion. The new items should be noticeably different from the current items.

Line stretching occurs when a company lengthens its line beyond its current range; downwards or upwards. Many companies initially locate at the high end of the market and later stretch their lines downward. Companies in the middle may decide to stretch the lines in both directions, employing a two-way stretch strategy.Line stretching has several risks. The new low-end product added by a high-end product manufacturer may cannibalise higher-end items leaving the company worse off. Also, the low- end item might provoke competitors making lower-end product to counteract by moving into the higher end. If this happens, customers might not believe the newcomer can produce quality products and the company’s salespeople might not be able to serve the higher end of the market due to a lack of talent or training. Also in both cases, the dealers may not be willing or able to handle the new ‘stretched’ products.

Line featuring refers to the strategy in which certain items in a company’s product line are given special promotional attention, either to boost interest (at the lower end of the line) or image (at the upper end).

Product mix decisionsA product mix, also known as a product portfolio, refers to the set of all product lines and items that a particular seller offers for sale to buyers. A company’s product mix can be described as having certain breadth (or width, meaning number of product lines), length (meaning total number of items), depth (meaning number of versions of each product in line) and consistency (meaning relatedness of various product lines in end use, production requirements, distribution channels or another way). For example, Unilever has several product lines (breadth) with more than 40 items (length) and between 1 and 14 versions of each product (depth).

A company can adapt its product strategy in four ways:1. It can add new product lines, widening its product mix.2. It can lengthen its existing product lines.3. It can add more versions of each product, deepening its product mix.4. It can pursue more product line consistency.

Services MarketingServices now account for more than 70 per cent of GDP in Australia and New Zealand. Three in every four people are employed in the sector, and that number is growing. Service industries range from government services (including hospitals, schools, and the military) to private not- for-profit organisations (including charities, churches and universities) to business organisations (including airlines, banks, professional services and entertainment).A company must consider four service characteristics when designing marketing programs:

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intangibility, inseparability, variability, and perishability.1. Service intangibility refers to almost pure services, e.g., a haircut, has no physical element like

coffee meaning that services cannot be seen, tasted, felt, heard, or smelt before they are bought.

2. Service inseparability means that services cannot be separated from their providers, whether the providers are people or machines. Because the customer is also present as the service is produced, provider-customer interaction and synchronous delivery and consumption (for example, cleaning of teeth or receiving driving lesson) are two special feature of service inseparability characteristic.

3. Service variability means that the quality of services depends on who provides them as well as when, where, and how they are provided; e.g., a restaurant or ocean cruise involve interaction between a patron/guest and customer service personnel. They are not necessarily the same every time.

4. Service perishability means that services cannot be stored for later sale or use; e.g., a rock concert, cannot be stored like coffee. Once the concert is over, only its memory is left

Marketing Strategies for Service FirmsThe Service-Profit ChainIn a service business, the customer and front-line service employee interact to create the service. Hence service firms’ profit comes from effective employee and customer satisfaction. Hence, it is necessary to understand the service-profit chain consisting of five links:

1. Internal service quality: superior employee selection and training, a quality work environment, and strong support for those dealing with customers, which in turn results in...

2. Satisfied and productive service employees: more satisfied, loyal, and hardworking employees, which results in...

3. Greater service value: more effective and efficient customer value creation and service delivery, which results in...

4. Satisfied and loyal customers: satisfied customers who remain loyal, repeat purchase, and refer other customers, which results in...

5. Healthy service profits and growth: superior service firm performance.

In addition to external marketing (what we are covering in this course) service marketing also requires internal marketing and interactive marketing:

Internal marketing means that the service firm must orient and motivate its customer-contact employees and supporting service people to work as a team to provide customer satisfaction.

Frontline (Interactive) marketing means that service quality depends heavily on the quality of the buyer-seller interaction during the service encounter. There are three major marketing tasks that service marketers face in this context. They need to increase their service differentiation, service quality, and service productivity.

- Managing Service Differentiation: Service companies can differentiate their service delivery by having better trained and reliable customer-contact people, by developing a superior physical environment in which the service is delivered, or by designing a superior delivery process. Service companies can also differentiate their images through symbols and branding.

- Managing Service Quality: Service quality will always vary, depending on the interactions between employees and customers and is harder to define and judge than product quality. Good service recovery can turn angry customers into loyal ones.

- Managing Service Productivity: Service firms are under great pressure to increase service productivity. They can train current employees better or hire new ones who will work harder or more skilfully. They can increase the quantity of their service by giving up some quality. They can harness the power of technology.

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Branding Strategy: Building Strong BrandsTo many modern day marketers and analysts, brands are the major enduring asset of a company. Brand Equity is the positive differential effect that knowing the brand name has on customer response to the product or service. High brand equity provides a company with many competitive advantages.

- High level of consumer brand awareness and loyalty.- More leverage in bargaining with resellers.- More easily launch line and brand extensions.- Defence against fierce price competition.- Forms the basis for building strong and profitable customer relationships.

The fundamental asset underlying brand equity is customer equity—the value of the customer relationships that the brand creates.

Brand valuation is the process of estimating the total financial value of a brand. Young & Rubicam’s Brand Asset Evaluator measures brand strength along four consumer perception dimensions:1. differentiation (what makes the brand stand out),2. relevance (how consumers feel it meets their needs)3. knowledge (how much consumers know about the brand), and4. esteem (how highly consumers regard and respect the brand).

Building Strong BrandsBrand Positioning: Marketers can position brands at any of three levels. They can position the brand (i) on product attributes; (ii) with a desirable benefit and (iii) on beliefs and values.

Brand Name Selection: Desirable qualities for a brand name include the following:1. It should suggest something about the product’s benefits and qualities.2. It should be easy to pronounce, recognise, and remember.3. The brand name should be distinctive.4. It should be extendable.5. The name should translate easily into foreign languages.6. It should be capable of registration and legal protection.

Brand Sponsorship: A manufacturer has four sponsorship options: (i) he can launch the product as a manufacturer’s brand (or national brand); (ii) may sell to resellers who give it a private brand (also called a store brand or distributor brand); (iii) can market licensed brands; and finally (iv) can join forces with another company and co-brand a product. National brands (or manufacturers’ brands) have long dominated the retail scene. However, in recent times, an increasing number of retailers and wholesalers have created their own store brands (or private brands) capturing about 23 per cent of all supermarket food sales in Australia. Retailers using store brands have many advantages. They can price their store brands lower than national brands; they yield higher profit margins for the reseller and they give resellers exclusive products that cannot be bought from competitors.

Brand Development: A company has four choices when it comes to developing brands.(i) Line extensions occur when a company extends existing brand names to new forms, colours, sizes, ingredients, or flavours of an existing product category; (ii) brand extensions extend a current brand name to new or modified products in a new category; (iii) multibrands involve introduction of additional brands in the same category; Finally (iv) Companies may create new brands.Marketers often use the megabrand strategy when they weed out weaker brands to focus their attention only on brands that can achieve the number one or number two market share positions in their

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categories.Marketers must carefully manage their brands. They must ensure brand experience for their customers, i.e., making them know their brand through a wide range of contacts and touch points. Companies need to periodically audit their brands’ strengths and weaknesses.

New productsNew-product development strategyGiven the rapid changes in tastes, technology and competition, customers want and expect new and improved products from marketers and companies must oblige their customers. A company can obtain new products in two ways; first through acquisition - buying a whole new company, patent or licence to produce someone else’s product and second, by developing new product themselves. In the context of marketing, the term ‘new product’ may mean (i) of ‘original products; (ii) product improvements (iii) product modifications and (iv) new brands … through the company’s own R&D efforts.

New-product success and failure: Developing new products or innovation can be very risky; new products continue to fail at a disturbingly high rate. There are several reasons for product failure. For example, the market size may be overestimated, the actual product may be improperly designed well, the product may have been over-priced or poorly advertised, costs of development could have been higher than expected, or perhaps competitors fought back harder than expected.One way to identify successful new products is to find out what they have in common. Research studies have identified t key success factors such as a unique superior product having higher quality, new features and higher value in use; and a well-defined product concept prior to development, in which the company carefully designs and assesses the target market, the product requirements and the benefits before proceeding. Hence, in order to create successful new products, a company must understand its consumers, markets and competitors and develop products that deliver superior value to customers. Successful new-product development may be even more difficult in the future. Keen competition leading to increasing market fragmentation (too many small segments); along with growing social and governmental constraints, such as consumer safety and ecological standards will be important factors to consider in developing new products.

The new-product development process (NPD)The new-product development process consists of eight major steps described below.

Step 1: Ideas generationThis first step in the NPD refers to the systematic search for new product ideas. A company must systematically generate many ideas in order to find a few good ones based on what it wants from these future products - high cash flow, market share or some other objective.Common sources of new product ideas include the following:

(i) Internal idea sources such as the company’s R&D methods; brains of scientists, engineers, and manufacturing people; executives, sales people or from brainstorming sessions. Salespeople are another good source.Crowdsourcing, a modern business term coined in 2005, defined as the process of obtaining needed services, ideas, or content by soliciting contributions from a large group of people, and especially from an online community, rather than from traditional sources listed above; has become a popular source of idea generation these days.

(ii) Customers’ views may be obtained from consumer surveys or through interviews and focus groups.(iii) Competitors’ ads and other communications may provide clues about their new products. Companies can

buy competitors’ new products, take them apart, and see how they work.(iv) Distributors and suppliers can pass along information about consumer problems and new-product

possibilities. Suppliers can tell the company about new concepts, techniques and materials that can be used to develop new products.

(v) Other sources such as trade magazines, shows, seminars, government agencies, new- product consultants, advertising agencies, marketing-research firms, university and commercial laboratories,

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and inventories can also provide good ideas.

Step 2: Idea screeningThe purpose of idea screening, the second stage of NPD is to reduce that number in order to spot good ideas and drop poor ones as soon as possible. Most companies require their executives to write up new-product ideas on a standard form that describes the product, the target market and the competition, and makes rough estimates of market size, product price, development time and costs, manufacturing costs and rate of return. The new product development committee evaluates the idea against a set of general criteria.

Step 3: Concept development and testingIdeas found attractive at stage 2 must now be developed into product concepts. In this context it is important to distinguish three closely related terms - product idea, product concept and product image are very different things. Product idea refers to an idea for a possible product that the company can see itself offering to the market; product concept, on the other hand, refers to a detailed description of an idea stated in meaningful consumer terms from the perspective of the customer which will help the company to test and evaluate how responsive the market will be to the proposed product. Product image refers to the way consumers perceive an actual or potential product which helps product differentiation and positioning. Customers do not buy a product idea; they buy a product concept. The marketer’s task is to develop this idea into several alternative product concepts, find out how attractive each concept is to customer and choose the best one.Hence, concept testing means testing new-product concepts with a group of target consumers to find out if the concepts have strong consumer appeal. Concepts may be presented through word or picture descriptions. Consumers may be asked to react to this concept by answering questions which will help the company decide which concept has the strongest appeal.

Step: 4 Marketing strategy developmentThis fourth step of NPD involves designing an initial marketing strategy for a new product based on the product concept. The marketing strategy statement consists of three parts, namely (i) describing the target market, the planned product positioning, and the sales, market-share and profit goals for the first few years; (ii) outlining the product’s planned price, distribution and marketing budget for the first year; and finally (iii) describing the planned long-run sales, profit goals and marketing mix strategy.

Step 5: Business analysisBusiness analysis, step 5 of the NPD process, involves a review of the sales, costs and profit projections for a new product to find out whether these factors satisfy the company’s objectives. To estimate the sales, the company should look at the sales history of similar products and should survey market opinion. It should estimate minimum and maximum sales to learn the range of risk. After preparing the sales forecast, management can estimate the expected costs and profits for the product. The costs are estimated by the R&D, manufacturing, accounting and finance departments. The planned marketing costs are included in the analysis. The company then uses the sales and costs figures to analyse the new product’s financial attractiveness.

Step 6: Product developmentOnce the objectives of business analysis are satisfied, the product concept passes the business test and is ready to move into step 6, product development. At this stage the company’s R&D or engineering people develop the product concept into a physical product in order to assure that the product idea can be turned into a workable product. Essentially, it is a strategy for promoting company growth by offering modified or new products to current market segments.Companies often develop more than one workable prototype hoping that the design prototype will not only satisfy and excite consumers but can also be produced quickly and at budgeted costs. Time taken to develop a successful prototype may range from a few days to even years. When the prototypes are ready, they are tested for functionality tests both under laboratory and field conditions to make sure that

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products perform safely and effectively. Consumer tests are conducted as well where consumers rate the attributes of the product.When designing products, the company should look beyond simply creating products that satisfy consumer needs and wants; they must show adequate concern about how the designs will be produced. DFMA (design for manufacturability and assembly), a recent development, enables companies develop products that satisfy the consumer and are easy to manufacture. This often results not only in lower costs but also in higher quality and more reliable products.

Step 7: Test marketingOnce the product passes functional and consumer tests in step 6, the NPD process moves into the next step - test marketing. This is the stage at which the product and marketing programs are introduced into more realistic settings. Test marketing lets the marketer get experience with marketing the product in a ‘real marketplace’, find potential problems and learn where more information is needed before going to the great expense of full introduction.

Step 8: CommercialisationResults of test marketing gives management the necessary information required to make a final decision about commercialisation of the product, i.e., whether to launch the new product in the real market. The company launching a new product must make the following four decisions.

i. When? What is the right time to lunch the product commercially?ii. Where? Should the product be lunched in a single location, a region, several regions, the national market

or the international market? Considering the level of confidence, capital and capacity to launch new products into full national distribution many companies develop a planned market roll-out over time. Small companies may select an attractive city and conduct a blitz campaign, and then enter other cities one at a time. Large companies with national distribution networks often launch their new products nationally. Companies with international distribution systems may begin with one or a few countries before expanding.

iii. To whom? Within the roll-out markets, the company must target its distribution and promotion to the best prospect groups. The company already profiled the prime prospects in earlier test marketing, now they just have to fine-tune their targets, looking for early adopters, heavy users and opinion leaders.

iv. How? The company must also develop an action plan for introducing the new product into the selected markets.

Managing new-product developmentFirms introducing new products use an innovative process that has interlocking stages where each of the phases takes centre-stage at different times but all contribute through the process until the actual product launch.

Customer-centred new-product development focuses on finding new ways to solve customers’ problems and create more customer-satisfying experiences.

Team-based new-product development is an approach in which company departments work together in cross-functional teams, overlapping the steps in the product development process to save time and increase effectiveness.

Systematic new-product development is a necessity for NPD success. Without a holistic and systematic NPD in place, few new ideas will surface and many good ones that do emerge may falter and die.

Common organisational arrangement for New Product DevelopmentHow companies organize their NPD process is also important for its success. Commonly used organisational arrangements are briefly described below. The NPD process may be run by:Product Managers. He/she is closest to the market and as such is the most knowledgeable of all. However he/she may be preoccupied with existing products and lack specific knowledge and skills related to new product development.New-Product Managers. A new manager assigned to the task of new product development;

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however, he/she might think in terms of modifications and line extensions.New-Product Committees. Uses specialists from several functional areas to evaluate new product concepts and plans. New-Product Departments. Sets up a separate department with the line and staff authority to develop new products. The departmental manager also has access to top management.New-Product Venture Teams. Brings together specialists from other operating departments and reassigns them to the venture team.

Product life-cycle strategies (PLC)Products are not expected to last forever, but they have a life and a life cycle. After launching the new product, management wants the product to enjoy a long and happy life so that it can earn a decent profit to cover all the effort and risk that went into it. Product life cycle (PLC) is a curve that describes the course of a product’s sales and profits during its lifetime. It involves five distinct stages:

1. Product development - the company finds and develops a new product idea.2. Introduction - slow sales growth as the product is introduced into the market.3. Growth - period of rapid market acceptance and increasing profits.4. Maturity - slowdown in sales growth because the product has achieved acceptance, profits level off

or decline.5. Decline - period when sales fall off and profits drop.

Product life cycle varies from product to product. Some are introduced and die quickly, some stay mature for a long, long time; some enter the decline stage and are cycled back into the growth stage through repositioning or strong marketing.

The PLC can describe a product class, product form, or a brand, but it applies differently in each case. Classes have the longest life cycles, forms tend to have the standard shape and brand life cycles can change quickly because of changing competitive attacks and responses.

It is important to note that the life-cycle concept can also be applied to styles, fashions and fads. Style refers to a basic and distinct mode of expression. Once invented it may last for a long time and cycle back in and out of interest. Fashion is a currently accepted or popular style in a given field; they tend to grow slowly, remain popular for a while and then decline slowly. Fads refer to fashions that enter quickly, are adopted with great zeal, peak early and decline fast.

Applying the product life-cycle conceptMarketers can apply the product life cycle concept as a useful framework for describing how products and markets work. However, using this concept for forecasting product performance can create problems. It is not easy to identify which stage of the cycle the product is in, when the stage changes and what affects the changes. Using the life cycle for development of a marketing strategy can also be difficult because strategy is a cause as well as a result of the life cycle.

Introduction stage: It is the stage when the new product is first distributed and made available for purchase. It is characterized by slow sales growth (new product, not many people are aware of it) and low profits (because of low sales and high distribution and promotion expenses).A company might adopt one of several marketing strategies for introducing a new product. The company can set a high or low level for each component of the marketing mix (i.e., price, promotion, distribution and quality). A company may introduce the product with a high price to recover some of the money spent on development, or they may set a low price to allow penetration of the market. A company must choose its strategy carefully.

Growth stage: If the new product satisfies the market, it will enter a growth stage in which sales will start climbing quickly. Sales volume starts to pick up as early adopters continue to buy and later buyers will their lead, especially with favourable word-of-mouth advertising. Profits increase during this stage as

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promotion costs are spread over a large volume and manufacturing costs per unit fall.However, as profit opportunities in the market attract new competitors, they introduce new features, expanding the market. As prices may remain unchanged or fall slightly, companies keep their promotion spending at the same or slightly higher level.There are several strategies companies may use to sustain rapid market growth: entering new market segments and distribution channels shifts some advertising from building product awareness to product conviction and purchase, and it lowers its prices at the right time. The company with a product in the growth stage faces a trade-off between high market share and high current profit.

Maturity stage: At some point a product will enter a maturity stage ‘in which sales growth slows down or levels off. This stage normally lasts longer than the previous stages and poses strong challenges to marketing management. Most products are in this stage.Presence of many sellers in the market causes overcapacity and greater competition. Sales growth slows; prices go down; it becomes necessary to increase their advertising and sales promotion, and push up R&D budgets to find better versions of the product. Consequently, profit drops forcing weaker competitors out of business. Eventually the industry contains only well-established competitors.High-tech products need to move towards more customised solutions that focus on specific adaptations of the infrastructures for added value though mass customisation. Market extension occurs through more targeted niche-based strategies. Managers should not simply defend the market; attack is the best defence for them.

a) Market modification: During this stage the company tries to increase consumption of the current product. It looks for new users and market segments. The product manager also looks for ways to increase usage among present customers. Or the company may reposition the brand to appeal to a larger or faster-growing segment.

b) Product modification: The company may also change product’s characteristics - such as quality, features or style - to attract new users and more usage. Quality improvement aims to increase product performance: durability, reliability, speed, and taste and is effective when the quality can be improved; buyers are likely to believe the claims of improved quality and when enough buyers want higher quality. Feature improvement adds new features that expand the product’s usefulness, safety or convenience. Style improvement aims to increase the attractiveness of the product.

c) Marketing-mix modification: The company may try to improve sales by changing one or more marketing-mix elements. Prices can be cut, a better advertising campaign can be launched and aggressive sales promotions can be used. The company can also move into larger market channels or offer new or improved services to the buyers.

Decline stage: Most product forms and brands eventually dip. The decline may be slow, or sales may plunge to zero, or just to a low level where they continue for many years.Sales may decline for many reasons including technological advances, shifts in consumer tastes and increased competition. As sales and profits decline, some companies withdraw from the market; those who remain in the market tend to reduce the number of their product offerings or drop the smaller market segments and marginal trade channels, or cut the promotion budget and reduce their prices further. Carrying a weak product can be very costly to a firm due to many hidden costs such as too much of management’s time, price and inventory adjustments, unnecessary advertising and sales force attention that might be used elsewhere, and its failing reputation causing customer concerns about the company and other products. Keeping weak products delays the search for replacement, creates a lopsided product mix, hurts current profits and weakens the company’s foothold on the future.

For these reasons, companies need to pay more attention to their ageing products. The first task is to identify those in the decline stage then decide whether to maintain, harvest or drop them.Management may decide to maintain its brand without change in the hope that competitors will leave the industry. Or they may reposition the brand in the belief it will move back into the growth stage of the life cycle. Management may harvest a product, which means reducing various costs and hoping sales hold up. If successful, harvesting will increase the company’s profits in the short run. Finally, the

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company can drop the product from the line. It can sell it to another firm or simply liquidate it at salvage value.

Additional product and service considerationsProduct decisions and social responsibility: Marketers need to consider public policy issues and regulations regarding adding or dropping products, patent protection, product quality and safety, and product warranties. Governments may prevent companies from adding products through acquisitions if the effect threatens to lessen competition. Governments may also introduce specific laws regarding product quality and safety which must be adhered to. Legal considerations have resulted in huge increases in product liability insurance premiums, causing big problems in some industries. Many companies are now appointing product stewards, whose job is to protect consumers from harm and the company from liability by proactively ferreting out potential product problems.

International product and service marketers face special challenges. Marketers operating in the international markets must figure out what products and services to introduce and in which countries. They must decide how much to standardize or adapt their products and services for world markets. Packaging and labeling often present new challenges for international marketers. The trend toward growth of global service companies will continue, especially in banking, airlines, telecommunications, and professional service.