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Part 4 - Shaping the Market Offerings
Chapter 10 - Setting Product Strategy and Marketing
through the Life Cycle
I..................................... Chapter Overview/Objectives/Outline
A. Overview
Most firms recognize the necessity for and advantages of regularly developing new products
and services. Mature and declining products eventually must be replaced with newer products.
New product development strategy thus is one of the most important activities for any firm in
the contemporary marketplace. If the firm does not obsolete its own products, eventually
someone else will, and all firms should remember that a good idea might not be a good
investment.
New products can fail, and the risks of innovation are as great as the rewards. The key to
successful innovation lies in developing better organizational arrangements for handling new
product ideas and developing sound research and decision procedures at each stage of the
new-product-development process.
The new-product-development process consists of eight stages: idea generation, idea screening,
concept development and testing, marketing strategy development, business analysis, product
development, market testing, and commercialization. The purpose of each stage is to decide
whether the idea should be further developed or dropped. The company should minimize the
chances that poor ideas will move forward and good ideas will be rejected.
With regard to the adoption of new products, consumers and/or organizations respond at
particularly those with opinion leader characteristics.
Products and markets have life cycles that call for changing marketing strategies over time.
Every new need follows a demand life cycle that passes through the states of emergence,
accelerating growth, decelerating growth, maturity, and decline. Each new technology that
emerges to satisfy that need exhibits a demand-technology life cycle. Particular product forms
the company attempts to improve the product, enter new market segments and distribution
channels, and reduce its prices slightly. There follows a maturity stage in which sales growth
slows down and profits stabilize. The company seeks innovative strategies to renew sales
growth, including market, product, and marketing-mix modification. Finally, the product enters
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company’s task during this period is to identify the truly weak products; develop for each one a
strategy of continuation, focusing, or niching; and finally phase out weak products in a way
that minimizes the hardship to company profits, employees, and customers.
Not all products pass through an S-shaped PLC. Some products show a growth-slump-maturity
of the chosen marketing strategies.
Product life-cycle theory must be broadened by a theory of market evolution. The theory of
market evolution holds that new markets emerge when a product is created to satisfy an unmet
need. The innovator usually develops a product for the mass market. Competitors enter the
discovery of superior technologies.
Companies must try to anticipate new attributes that the market wants. Profits go to those who
introduce new and valued benefits early. The’ search for new attributes can be based on
customer survey work, intuition, dialectical reasoning, or needs-hierarchy reasoning.
B. Learning Objectives
Understand the characteristics of a product and how products are classified.
Recognize the main risks in developing new products and the new-product-development
process.
.......................................................Understand the elements of the consumer-adoption process.
discern differentiation attributes
C. Chapter Outline
I. Introduction
Short discussion which provides an example of how Ford maximizes customer value.
By not accepting Federal Bailout money and focusing on the customer, ford brought a
market research.
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II. Product Characteristics and Classifications
A product is anything that can be offered to a market to satisfy a want or a need
figure 10.1)
sleep
2. Basic product - hotel room includes a bed, bathroom, and towels
and towels
4. Augmented product - exceeds customer expectations, turned down
complimentary staple goods
5. Potential product - prototype, experimental, e.g., one-of-a-kind luxurious
suite
B. Product classifications
1. Durability and tangibility
a) Nondurable goods - consumed quickly, purchased frequently.
understanding) Strategy - more intensive personal selling,
guarantee offerings, higher margins
c) Services - intangible, inseparable (i.e., produced and consumed
simultaneously), variable, perishable. Strategy-quality control,
flexibility, build trust with consumer
2. Consumer goods classification (classified by consumer shopping habits)
newspapers, coffee, milk)
b) Shopping goods - requires some research and decision making
(e.g. home furnishings, clothing)
identification (e.g., automobiles, jewelry)
d) Unsought goods - (e.g., smoke detector)
3. Industrial goods classification (materials and parts that enter the
manufacturer’s product completely)
component parts (small motor)
c) Capital items - long-lasting goods that facilitate manufacturing,
include installations (factory) and equipment (trucks) with much
personal selling involvement
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services.
III. Product and Services Differentiation
A. Product Differentiation – possible approaches to differentiate
1. Form – refer to the product’s size, shape or physical structure
2. Features – additions to basic function. Avoid “feature fatigue”.
closely meets their needs
characteristics operate
identical and meet promised specifications
natural or stressful conditions
malfunctions or fails
B. Services Differentiation – possible approaches to differentiate
1. Ordering ease
2. Delivery – with the Internet, today’s expectations are one of speed
3. Installation – ease of installation is a true selling point
4. Customer Training – training on optimal use of product
services
6. Maintenance and Repair – include 24/7 and online technical support
C. Design Differentiation
1. Design is the totality of features that affect how a product looks, feels,
and functions to the customer.
2. Design offers functional and aesthetic benefits and appeals to both
rational and emotional sides.
3. To the company, a well designed product is easy to manufacture and
distribute
4. To the customer, a well-designed product is pleasant to look at and easy
to open, install, use, repair and dispose of.
IV. Product relationships
Product mix (also called a product assortment) is the set of all products and items that
are offered for sale. A product system is a group of diverse but related items that
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function in a compatible manner. A product mix (also called a product assortment) is
the set of all products and items a particular seller offers for sale. It can be described in
terms of width (number of product lines), length (total number of items in the mix),
depth (number of product variants), and consistency (product line similarity regarding
end use). Product line is a group of products within a product class that are closely
related because they perform a similar function. A product type is a group of items
within a product line that share one of several possible forms of the product. An item is
a distinct unit within a product line distinguishable by size, appearance or other
attribute.
A. Product line analysis - develop a basic platform and modules that can be
changed to meet different customer requirements. Product maps show which
competitive products compete against the company’s products.
B. Product line length
1. Line stretching - increase offering of a product line in either or both
directions relative to current line in terms of value to the customer (e.g.,
more expensive product offerings such as Lexus by Toyota (i.e., higher
end) or Four Points by Sheraton (more moderately priced)
2. Line filling - add more offerings within current range
C. Line modernization, featuring, and pruning
1. Modernize - adjust to rapidly changing markets
sales of lower selling items
3. Pruning - eliminate weak offerings, reduce offerings in market
slowdowns or low production capacity
D. Product Mix Pricing
Must take into account the toal product mix when setting prices. Six
product-mix pricing situations are shown in Table 10.1
E. Co-branding and Ingredient Branding
company
a. Advantages include increase in sales, from exiting market and new
opportunities in other markets, reduced costs due to economies of
scale with two rather than one brand and provides deeper insights
into the consumer.
complementary and not similar
2. Other forms of Co-branding include
a. Joint-venture co-branding, e.g. Citibank with AAdvantage credit
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card
space and profits
c. Multi-sponsor co-branding
3. Ingredient branding – special case of co-branding that involves creating
brand equity for materials, components, or parts that are necessarily
contained within other branded products. (e.g. “Intel inside”)
V. Packaging, Labeling, Warranties, and Guarantees
A. Packaging
b) Increasing consumer affluence has created a demand for more
convenience, appearance, dependability, and prestige in
packaging
c) The package supports brand recognition and can help build
awareness
well as consumers
B. Labeling (can be simple or complex)
1. Identifies the product or brand
2. Demonstrate product grading (e.g., A, B, C)
3. Describe the product, define use and precautions as well as origin
4. Can facilitate promotion through attractive design
ingredient percentage
C. Warranties and guarantees
1. Warranty - formal or implied promise of product performance by
manufacturer with remedy to resolve non-performance
2. Guarantees reduce buyer’s perceived risk. Can be used to differentiate.
match, delivery, installation, etc.
VI. Managing New Products - six categories of new products are: 1) new to the world (address
entirely new market), 2) new product lines, 3) additions to existing product lines, 4)
improvements and revisions of existing products, 5) re-positioning, 6) cost reductions
(similar performance at lower cost)
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1. 95% failure rate in the United States (Europe rate = 90%)
2. Failures - ignoring or misinterpreting market research, market size
over-estimations, sub-optimal distribution performance, poor design,
incorrect positioning, development costs, ineffective advertising, pricing
issues, and competition fighting back
those with a minimal advantage (18% success).
4. Incremental Innovation – entering new markets by tweaking products
for new customers, introducing variations on a core product, and
creating interim solutions for industry-wide problems.
analysis, need/problem identification, brainstorming, and synectics
2. Idea screening - not all ideas can be pursued, but must be sent to a
committee where they are considered either promising, marginal, or a
rejected. In this stage the company runs the risk of either accepting a bad
idea or rejecting a good one
final design. Consumer preferences can be measured through conjoint
analysis. (Refer to figure 10.3 for a product positioning map example)
4. Marketing strategy development – (three-part preliminary plan)
a) Describe target market size, structure, and behavior
b) Product positioning
5. Business analysis
a) Performing sales, cost, and profit projections on the proposed
product to determine satisfaction of company objectives
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profit
c) Estimating costs and profits - break-even analysis and risk
analysis
6. Product development
a) Represents a substantial jump in investment
b) Determine feasibility
c) Translate requirements into prototype (quality function
testing
7. Market Testing - Techniques for measuring consumer preferences -
simple rank-order method, paired comparison, and monadic-rating
functional, psychological, and feasibility requirements are
“dressed up” with branding and packaging and used in market
tests to assess four variables: trial, first repeat purchase,
include:
(1) Sales-wave research - consumers try product at no cost
and then are offered the product (or a competitor’s
given money to purchase product, and product purchases
as well as repeat purchase intentions are evaluated
evaluated
(4) Test markets - select geographic areas, usually cities that
are a representation of the targeted market, are used to
evaluate marketing mix and consumer purchase activity
b) Business goods –
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8. Commercialization – costliest stage
manage product implementation
9.
VII The Consumer-Adoption Process - How do potential customers learn about new
products, try them, and adopt or reject them? Followed by a consumer-loyalty process
A. Stages in the adoption process - innovation diffusion process (spread of a new idea
B. Factors influencing the adoption process
1. Person’s innovativeness (degree of adopting) relative to peer consumers.
2. Personal influence - effect one consumer has over another in terms of
influencing the latter’s behavior. Very important in evaluation stage
3. Five factors that can influence adoption:
values and experiences
c) Complexity - ease or difficulty of understanding or using
d) Divisibility - degree to which consumers can try on limited basis
e) Communicability - degree to which the benefits are observable or
describable to others
VIII. Marketing Through the Product Life Cycle
A. Product life cycles
decline
B. Marketing strategies: Introduction stage and the pioneer advantage
1. Marketing strategies in the introduction stage - rapid-skimming,
slow-skimming, rapid-penetration, and slow-penetration
2. Market pioneers - research shows those first in the market gain the
greatest advantages, both consumer and producer oriented
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stability, commodity competition, and withdrawal
C. Marketing strategies: growth stage - A wide variety of strategies available
D. Marketing strategies: maturity stage
1. Market modification
2. Product modification
3. Marketing mix modification
E. Marketing strategies: decline stage
strategies
2. Increasing investment, maintaining investment, decreasing investment,
harvesting, divesting, and the “drop” decision
F. Critique of the Product Life Cycle concept PLC (refer to Table 10.3 for
summary of characteristics, objectives and strategies in the four product
life-cycle stages
1. Good for planning control.
IX Executive Summaryn
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