DEVELOPING AND MANAGING PRODUCTS

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DEVELOPING AND MANAGING PRODUCTS

• Products and product lines
• New products Development, successes and
  failures
• The Product Life Cycle and Diffusion of
  Innovations
• Branding

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Learning Objective 1

• The choices firms need to make on new product
  introductions

IMAGE/ POSITIONING
RISK CHOICES
BRANDING
DIFFEREN- TIATION
PRODUCT DECISIONS
BRAND EXTENSIONS
IDEAS AND EVALUATIONS
TEST MARKETING
COMPETITIVE RESPONSE
DISTRIBUTION
PRODUCT LINES
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Learning Objective 2

• Steering the product through the Product Life
  Cycle

BRAND STRUCTURE
FEATURES
DIFFEREN- TIATION
DIFFUSION
PRODUCT
IMAGE/ POSITIONING

• AWARENESS
• CATEGORY
• BRAND

PRICE
SUBSTITUTES
PARTNERSHIPS
COMPETITION
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Some Products That Are Surprisingly Difficult to
Make

• French fries
• Razor blades
• Nail polish
• Large aircraft wings

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Product Lines vs. Product Mix

• Product Line A number of similar or related
  productse.g.,
• BIC writing utensils
• Boeing Commercial Aircraft (aircraft and parts)
• Nike shoes Nike clothing
• Product Mix Assortment of different products
  offered
• E.g., KFCwe do chicken right! (Only one
  product line)
• 3M Tapes, adhesives, Post-its, chemicals,
  computer disks, overhead projectors (things that
  are bonded together

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Types of New Products

• New to the World (discontinuous innovations)
• New product lines (to firm)
• Additions to existing product lines
• Improvements/revisions to existing products
  (continuous innovations)
• Repositioned products
• Lower priced products

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NEW PRODUCT DEVELOPMENT SEQUENCE
STRATEGY
IDEA SCREENING
IDEA GENERATION
BUSINESS ANALYSIS
DEVELOP-MENT
TEST MARKETING
COMMERCIA- LIZATION
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Idea Generation

• Sources of new ideas
• Customer based
• Outright suggestions
• Observation of customer problems and tasks
• Market research on processes and problems
• Supplier suggestions
• Employee suggestions
• RD Breakthroughs
• Competitive ideas
• Adaptation of products seen in foreign markets

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Screening

• Internal screening
• Technical feasibility
• Consistency with strategic objectives
• External screening
• Marketing research
• Questionnaires
• Conjoint analysis (determines importance of
  attributes)

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Business Analysis and Development

• Financial feasibility
• Legal issues
• Impact on sales of existing products
• Financial projections

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Development

• Design
• Prototypes
• Refinements

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Test Marketing

• Limited regional release
• May pre-test prices and positioning
• Simulated test markets
• Laboratory
• Computer based

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Commercialization

• Positioning
• Launching product
• Risks
• Slotting fees
• Failure fees
• Withdrawal due to insufficient sales

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The Product Life Cycle (PLC)

• Products will generally be invented and start
  with low use.
• With decreased costs and improved technology,
  more people tend to adopt.
• The product life cycle can reach
• Plateau
• Decline
• Revitalization

Peak (Maturity)
Plateau
Revitali-zation
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Some PLC Stage Examples

• Color TVs Maturity
• Black and white TVs Decline
• HDTVs Growth
• VCRs Decline
• DVD players Growth or maturity.
• Jeans Maturity
• Fast food Growth/maturity
• Traditional photography Decline

• Digital photography Growth
• Fax machines Decline
• Internet access (U.S.)
• Dial-up Decline
• DSL, Cable Maturity
• Travel agencies Decline
• Cranberry juice Revitalization

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The Product Life Cycle (PLC) involves ________
over time

• Investment opportunities (Boston Consulting Group
  model)
• Appropriate strategies

• Demand for the product
• Awareness of the product
• Competition in supplying the product
• Price
• Features
• Differentiation
• Profitability
• Alternatives available to the product

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The International Life Cycle

• Leap frogging
• Going directly from old technology to the very
  newest, skipping intermediate step (e.g.,
  wireless rather than wired technology)
• Shortening of product life cycles

• Market for older technology tends to exist in
  less developed countries
• Manufacturing of older generation
  technology--e.g., Pentium III computers
• Resale of capital equipmente.g., DC 8 aircraft,
  old three part canning machines
• Some countries tend to be more receptive to
  innovation than others

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Types of Innovations

• Continuous--same product, just small improvements
  over time--e.g., typical automobile/stereo system
  model changes
• Dynamically continuous--product form changed, but
  function and usage are roughly similar--e.g., jet
  aircraft, ball point pen, word processor
• Discontinuous--entirely new product usage
  approach changes (e.g., fax)

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The Chicken-and-Egg Problem

• Some programs require two components, each of
  which must be present before the other can be
  attracted
• E.g., an online auction site needs both buyers
  and sellers. Buyers are less motivated to come
  when there are few sellers, but buyers are needed
  to attract sellers.
• A jump start may be needede.g., period of free
  service in return for early signup

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Examples of Chicken-and-Egg Vulnerable Ventures

• Personals sites
• Auction sites
• Text messaging systems
• Wiki projects
• Carpool systems
• Electric cars
• Computers and software
• Fashion

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Some Diffusion Examples

• ATMs ()
• Easy observability
• Significant relative advantage
• Credit cards ()
• Chicken-and-egg problem
• Jump-starting the cycle
• Faded, torn jeans
• Fads
• Innovations do not have to be high tech

• Fax machines ()
• Network economies
• Rap music
• Low barriers to entry
• Spread to a new consumer group
• Hybrid corn ()
• Trialability
• Imitation

You should be able to discuss these case
histories on the final
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SAMPLE EXAM QUESTION
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Diffusion Themes

• Observability Products that can be seen being
  used to others tend to spread faster
• Chicken-and-egg problem A certain
  infrastructure is needed to make adoption
  attractive, but motivation to provide the
  infrastructure depends on market sizee.g.,
• Coupons and clearinghouses
• Hydrogen/electric cars
• HDTV
• Entertainment media

• Trialability People tend to prefer trying out
  a potentially costly innovation rather than
  having to commit before trial
• Network economies Some innovations become more
  valuable when more others have that
  innovatione.g.,
• Text messaging
• E-mail
• Online personals sites
• Other online communities
• Auction sites

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To Adopt or Not to Adopt How Will Consumers
Answer the Question?

• Some causes of resistance to adoption
• Perceived risk--financial and social
• Self image
• Effort to implement and/or learn to use the
  product
• Incompatibility
• Inertia

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Influences on the Speed of Diffusion

• Risk to expected benefit ratio (relative
  advantage)
• Product pricing
• Trialability
• Switching difficulties and learning requirements/
  ease of use

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Branding

• Brands
• Product or product line specific brands
• E.g., Tide, DeWalt, Hayes modem
• International issues
• Umbrella Brands
• 3M
• National vs. regional
• National vs. international
• Store brands
• Trade marks and genericide

Branding has been traced to whiskey casks that
were identified for quality.
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Brand as Category Label A Mixed Blessing

• Brand names potentially in danger of genericide
  (loss of trademark protection resulting from
  failure among consumers to distinguish the brand
  name from the category name)
• Coke (cola drink)
• Kleenex (facial tissue)
• FedEx (overnight express)
• Xerox (photo copy)

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REMINDER

• If a brand name becomes synonymous with the
  product category among most consumers, the owner
  may lose trademark protection (genericide)

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Brand Value and Image

• Brand equity Value added to product based on
  brand name
• Choice likelihood
• Ability to charge higher price
• Use of product as loss leader
• Benefit in market share, temporary revenue (Coca
  Cola)
• Possible damage to long term brand image (Louis
  Vuitton suitcases in Japan)
• Brand personality Associations with product

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Co-branding

• To take advantage of assets of both firms
• Types
• Distributional
• Egalitarian Carls Jr. and Green Taco
• Hierarchical Kodak as official film of Disney
  Parks
• Line fillinge.g., airline code sharing

• Ingredients
• Cooperative Dryers ice cream with Mars MMs
• Independent Local computer maker advertises
  Maxtor hard drive components
• Intrusive Intel Inside
• Partial McDs serves Coca Cola
• Sponsorship Good Housekeeping seal of approval

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Brand Extensions

• Use of an existing brand name to a
  new-to-the-brand product category
• May lower cost of launching new product line and
  increase speed of market penetration, but
• Considerations
• Congruence Are products consistent in image to
  be represented by the same brand name?
• Coke and Diet Coke
• Miller vs. Miller Light Beer

• Perception of ability to make product well
• Extension should not be exploitativemaking a
  trivial product by high image brand (e.g.,
  Heineken Popcorn)
• Order of entry First manufacturer of new to
  market product should not extend an existing
  brandthis causes confusion

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International Brand Adaptations

• Chevy Nova did not do well in Latin America (no
  va.)

A Japanese soft drink which did not sell well in
English speaking countries
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Lessons from Japan

• Customers expect to see the actual product

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Lesson from Japan Purposes of Products
Relative bargain! Just 45 a box!
Strawberries--75 a box!
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Japan Product Adaptations
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Japan Serving an Aging Population
http//www.youtube.com/watch?v0qaDxPsdbkU
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Talking Robotic Dolls
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Daily Health Diary
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3G Phone
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Raku Raku (Easy as Pie) laptop
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(Geeky) Computer Grannies
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Brain Training Game"
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Some aging Japanese try to stay active
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Teapot will e-mail adult children if elderly
parents have not used it during the last 24 hours