Product Development, Management, and Strategy

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• Product Development, Management, and Strategy

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Product Lines Defined

• Proprietary or catalog Standard products offered
  to many customers and usually inventoried in
  anticipation of sales orders.
• Custom-built Different variations of accessories
  and options to complement proprietary or catalog
  products offered.

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Product Lines Defined

• Custom-designed Products designed for (and
  usually only for) a particular user.
• Industrial services Intangibles, i.e.,
  maintenance, machine repair, consulting.

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New Product Approaches

• Technology push
• When perceived value of particular technology is
  great firm has only a vague notion of possible
  applications, and usually not much more.
• Market pull
• Primarily the result of marketing research
  methodologies of interviewing potential users
  about their needs, then developing solutions to
  those perceived market needs.

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Phases of New Product Development

• Idea and concept generation
• Screening and evaluation
• Business analysis
• Product development
• Product testing
• Product commercialization and introduction

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Organization of the New Product Effort

• Product manager
• Individuals responsible for four Ps marketing
  mix decisions for specific product line as it
  travels through life cycle responsibility often
  extends to new product development.
• New product committee
• Part-time interdisciplinary management group
  reviews new product proposals advantages
  outweigh disadvantages because committee is most
  common form of organizational structure for
  managing new products.

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Organization of the New Product Effort

• New product department
• Specific department generates and evaluates new
  product ideas, directs and coordinates
  development work, and implements field testing
  and precommercialization of new product allows
  for maximum effort in new product development,
  but at expense of major overhead costs.
• New product venture team
• Task force representing various departments
  responsible for new product development and
  implementation normally dissolved once new
  product is established in market.

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Product Life Cycle
Introduction Growth Maturity Decline
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Product Life Cycle
Actual PLC curves can be any shapefrom product
that doesnt sell at all, to fad that grows fast
but has short life, to seasonal product, etc.
Company depends on its marketers to understand
what factors determine success and to make
appropriate strategic decisions. It is often
tempting for new students to want to learn PLC
superficially, but in real world many people
depend on in-depth understanding.
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Stages in Adoption Process

• Awareness
• Buyer learns of new product, but lacks
  information.
• Interest
• Buyer seeks out or requests additional
  information.
• Evaluation
• Buyer (or member of buying team)
  considers/evaluates usefulness of product
  consideration might be given to value-analysis
  project or make-buy situation.
• Trial
• Buyer adopts product on limited basis.
• Adoption
• If trial purchase worked, then buyer decides to
  make regular use of product.

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Factors InfluencingRate of Adoption-Diffusion

• Diffusion
• Spread of new product, innovation, or service
  throughout an industry over time.
• Diffusion speed varies among industries
• fast in electronics, slow in domestic steel.
• As the marketer you must know, evaluate impact
  of, monitor, and where possible affect factors
  that influence adoption/diffusion rate.

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BCG SBU Portfolio Business Strategy
High
Growth rate, Cash use
Low
Moo!
High
Low
Relative Market share, Cash generation
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Characteristics Strategic Implications of Each
BCG Quadrant
Quadrant Investment Characteristics Earning Characteristics Cash-Flow Characteristics Strategy Implication
Stars Continue to expand capacity Low to High Negative to Break-even Heavy promotions
Cash Cows Capacity maintenance expenditures High Positive Maintain market share
Question Marks Heavy initial capacity costs High RD Negative to Low Negative Promotions distribution
Dogs Deplete capacity to meet demand High to Low Positive to Break-even to Negative Reduce distribution max cash
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BCG Business SBU Portfolio Strategy
High
Use cash to make into star
Defend position
Growth rate, Cash use
Low
Nurture to feed cash to?
Fix or abandon
High
Low
Relative Market share, Cash generation
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Problems with Using the BCG Matrix

• Only measures revenues, not profitability
• Only focuses on the firm as a source of capital
  ignores capital markets
• Market growth rate is an inadequate descriptor of
  overall industry attractiveness
• Offers strategies, but not means of implementation

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Important Characteristics of Business Services

• Intangibility
• Freight forwarding, consulting, repair, etc. can
  seldom be tried out/tested in advance of
  purchase instead, buyers must view advertising
  copy, listen to sales presentation, or consult
  current users to gain insight into expected
  performance.
• Heterogeneity
• A service is an experience and thus cannot be
  duplicated difficult to standardize and thus
  output quality may vary.

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Important Characteristics of Business Services

• Perishability
• Services cannot be stored and markets fluctuate
  by day, week, or season idle service capacity is
  business that is lost foreverno inventory
  buffer.
• Simultaneity (Inseparability)
• Production and consumption of services are
  inseparable this typically puts marketer in very
  close contact with customer, requiring them to be
  highly professional.

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5 Levels of a Product

• Core Benefit
• The fundamental service or benefit that the
  customer is really buying.
• Basic Product
• Actual product that offers the core benefit

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5 Levels of a Product

• Expected Product
• A set of attributes and conditions that buyers
  normally expect and agree to when they purchase
  this product.
• Augmented Product
• Product that meets customers desires beyond
  their expectations.

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5 Levels of a Product

• Potential Product
• Encompasses all the augmentations and
  transformations that the product might ultimately
  undergo in the future.
• Augmented describes the product today.
• Potential points to its possible evolution.