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Chapter-by-chapter aids: Chapter 9
Instructor's Manual to Accompany Essentials of Marketing IV-9-1
CHAPTER 9: PRODUCT MANAGEMENT AND NEW-PRODUCT
DEVELOPMENT
CHAPTER 9 – COMMENTS ON QUESTIONS AND PROBLEMS
9- 1. This is just a review question. See section “Managing Products over Their Life Cycles” for
relationships. It is important to recognize that market profits start declining in the market growth
stage. This point is often missed and is crucial for understanding why competition begins to get
stiffer toward the end of the market growth stage and certainly in market maturity. Market
was happening during the market growth stage. "Trend Extenders" are especially frustrated
with what begins to happen in the market maturity stage. They may have experienced
attractive profit rates during market growth – or seen others earning attractive profits and
9- 2. This question is intended to encourage class discussion after the students have committed to
examples. Actually, it is not nearly as easy as it seems because the stage of the product life
cycle depends on how the related market is defined and how specifically the product is
identified. Automobiles, for example, may be in the market maturity stage in the United States,
This question can lead to a "rich" (but hard to manage because of the subtleties involved) class
discussion about the meaning of the product life cycle concept and its potential for marketing
should be related to specific markets as well as to specific product concepts. For example, in
the U.S. the gas-powered car is probably at the mature – or even decline - stage of the life
cycle. However, the electric car appears to be just catching on (although the idea has been
change came from the provinces, where many consumers felt that they had not participated in
the benefits of (or income from) the economic growth that had increased opportunities in other
parts of the country.
product life cycle. Just because a product is new for a firm does not mean that it will ever
achieve sales or profit growth. If it does not compete with other offerings on the market in
meeting customer needs, it will fail. Further, even if a firm is the first to introduce a new product
product life cycle. The examples that students give here are likely to vary. Many electrical
appliances and most consumer-packaged goods – including most food products – are at the
mature stage of the life cycle. Thus, just about any example of a new brand in these markets
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Part IV
in spite of the fact that sales in the overall market are stagnant – and any growth in sales will
come at the expense of some other brand's share of the market. And if the brand is not
9- 5. See section “Planning for Different Stages of the Product Life Cycle.” Briefly, when the
personal computer was first introduced, there was little direct competition. Potential customers
did not know what it could do. Pioneering promotion was required to inform them and to
stimulate primary demand. Intermediaries did not exist and so new channels of distribution had
entered the market with similar products. More variety was introduced as different firms tried to
find ways to meet customers' needs. Different channels of distribution were developed
(different types of retailers, mail order, direct sales, etc.) and distribution became more
in the market for personal computers has slowed, and industry profits have begun to fall off as
the market becomes more and more competitive. The competition and dropping profit margins
have driven many computer dealers out of business. At this stage, the really successful new
dramatically, especially in relation to the performance of the machines.
9- 6. A product may move more quickly through the product life cycle
1) if it has a comparative advantage over existing products (DVDs offered higher quality for
movies than VHS tapes and had more space for extra features like behind the scenes
interviews with actors);
2) if it is easy to use (DVDs could be popped in a machine and it would automatically start to
play, or could be controlled with a visual interface and remote control);
3) if its advantages are easy to communicate (a consumer can see the difference in quality that
a DVD makes, and the image doesn’t degrade when a movie is played many times);
5) if it is compatible with the values and experiences of the target customers (cable TV did not
require customers to do anything different than they did with regular TV – it just gave them
more choices).
Note that these characteristics are always viewed from the perspective of potential customers.
Thus, in different countries the various characteristics might be viewed quite differently. For
related to faster adoption of the product.
9- 7. This is basically a review question. See section “New-Product Planning.” The important point is
to identify for whom the product is new. A product might be new for a firm, while being a
"me-too" product that will not be seen as "new" by any consumers or intermediaries. As
new solution to the felt needs of a market.
suggested to make the discussion more concrete. The importance of designing a whole
Chapter-by-chapter aids: Chapter 9
marketing strategy, including the selection of target market, not just a physical product, should
be stressed throughout.
development process discussed in the text (see Exhibit 9-4 and section “An Organized New-
Product Development Process Is Critical”). [Some of the authors' students have taken this
question as quite a challenge – as the motivation to come up with an idea for how to make
(for example, sailing or swimming lessons for kids), 2) what has been successful in some other
market (catering services for beach picnics or cookouts)or 3) surveys of past visitors or
residents of the town (safe, fun daytime or evening child care). Similarly, screening could be
a more detailed "fleshing out" of the concept, i.e., exactly how would the service be provided,
by whom, when, etc. The development phase might involve some "tests" or prototypes of the
service, perhaps very early in the summer or with some "friendly" customers to work out the
commercialization.
9-10. See section “Need for Product Managers.” Product managers are not usually put in charge of
new-product development efforts.
9-11. This is a much more complex question than will be apparent to most students – at least at first.
It provides an excellent basis for discussion of whether or not "global" strategies are feasible at
all, and if so, how the marketing organization can be set up to implement them.
The heart of this question is: can the firm obtain some sort of competitive advantage (such as
economies of scale and/or greater sales revenue potential) by presenting a uniform image and
homogeneous marketing mix to target markets in different countries – or are the customers in
different places different enough that they are likely to require uniquely tailored strategies?
media, etc.), as well as the specifics of consumer behavior (attitudes, beliefs, sources of
information used, etc.).
Firms – such as Coke and Gillette – that present the same basic brand image in different parts
of the world may try to maintain a certain consistency in promotion – especially advertising –
market selection – usually requires important fine-tuning in different countries. (Note: the
introduction to Chapter 11, which focuses on Coke, highlights these issues by explaining how
the emphasis of Coke's distribution effort varies among different countries.)
the present American habits in this regard are highly wasteful, but it is extremely difficult to
draw a line at a particular place. The idea of psychological satisfaction enters the picture. This
may not be a question for marketing or even for business to decide. Their role is to cater to
Part IV
IV-9-4 Perreault, Cannon, & McCarthy
The new interest in "quality of life" may lead to less emphasis on material values and "planned
obsolescence.” From a macro-marketing viewpoint, if it is business's responsibility to satisfy
customer needs, then it will have to adjust its strategies to the "new consumers.” If this means
less "planned obsolescence," so be it. But if consumers come to demand more variety, then
9-13. The major advantage of total quality management as an approach for implementing a
marketing plan is that it should help reduce the cost of lost customers. It should accomplish
that by helping everyone in the organization to focus on the root causes of customer
dissatisfaction, and what can be done to fix the problems. The concept of continuous
improvement is a key issue here. TQM keeps managers from being satisfied, constantly
refocusing attention on the next problem to solve.
A potential limitation of (problem with) total quality management type approaches is that they
do take time and resources to implement. They focus on measuring and calibrating many
different, detailed activities. That doesn't happen automatically. Time (money) might be spent
more effectively on other matters if people could solve the quality problems on their own
without having all of the data to guide the "detective work.” Further, some firms get so caught
up in the "quality" process that they lose sight of the reasons for worrying about it in the first
place: to satisfy customers by meeting their requirements.
DISCUSSION OF COMPUTER-AIDED PROBLEM 9: GROWTH STAGE
COMPETITION
This revealing problem puts the student in the role of a manager whose innovative new agricultural
fertilizer product is entering the growth stage of the product life cycle. The PLUS program simulates
changes in price, promotion, costs, and profit for the manager's firm and competitors over time. The
student uses sensitivity analysis to study what is likely to happen to the firm's market share and profit as
competitors enter the market – and what happens to industry profits as price competition forces lower
prices.
The "generating" model here involves some simplifications relative to what one might observe in real
markets. These simplifications make it easier for a student to "follow" the changes taking place. Further,
these simplifications are not very critical relative to the basic purpose of the simulation: to give students
experience with the dynamics of how the competitive situation, the firm's profits, and industry sales and
profits change over time. Students who spend some time thinking about this problem – and the analysis
presented – will develop a deeper understanding of the “why” behind some of the changes that occur
over the product life cycle. It is a good problem for some class discussion. The main points to bring out in
a discussion are covered, along with the answers to specific questions for the problem.
Answers to Computer-Aided Problem 9:
The initial spreadsheet for this problem follows:
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter-by-chapter aids: Chapter 9
Instructor's Manual to Accompany Essentials of Marketing IV-9-5
P L U S - Spreadsheet
DATA
CURRENT SITUATION: Unit Sales
1000000
*
Expected Unit Growth Each Year
200000
*
Current Price
13.00
*
Unit Cost
4.00
*
Current Promotion Spending
900000.00
*
Overhead Costs
1200000.00
*
Number of Years in the Future
0
*
Firms in the Market
1
Price that Year
13.00
Industry Unit Sales
1000000
Industry Sales Revenue
13000000.00
AgriChem's Share (percent) of Market
100.00
AgriChem's Unit Sales
1000000.00
AgriChem's Total Revenue
13000000.00
AgriChem's Promotion Spending
900000.00
AgriChem's Total Cost
6100000.00
AgriChem Profit
6900000.00
Ratio of AgriChem Profit to Revenue
0.53
Total Industry Profit
6900000.00
a. By changing the "number of years in the future" variable to 1, the student gets a spreadsheet that
characterizes what the marketing managers should expect (given their assumptions) in the coming
year. See below.
P L U S - Spreadsheet
DATA
CURRENT SITUATION: Unit Sales
1000000
*
Expected Unit Growth Each Year
200000
*
Current Price
13.00
*
Unit Cost
4.00
*
Current Promotion Spending
900000.00
*
Overhead Costs
1200000.00
*
Number of Years in the Future
1
*
Firms in the Market
2
Price that Year
12.22
Industry Unit Sales
1200000
Industry Sales Revenue
14664000.00
AgriChem's Share (percent) of Market
81.67
AgriChem's Unit Sales
980040.00
AgriChem's Total Revenue
11976088.80
AgriChem's Promotion Spending
990000.00
AgriChem's Total Cost
6110160.00
AgriChem Profit
5865928.80
Ratio of AgriChem Profit to Revenue
0.49
Total Industry Profit
7063271.06
The answers are summarized in the table below. In the current year, AgriChem's market share is 100
percent – as the innovator here it has all of the market – and its profits are $6,900,000. The following
competition has forced prices down. Specifically, AgriChem profit drops from $6,900,000 to
$5,865,928.80 – a decrease in profits of about 15 percent!
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Part IV
