Designing and Managing Products 1 What is a

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Designing and Managing Products 1

Designing and Managing Products 1

What is a Product? • A Product is anything that can be offered to

What is a Product? • A Product is anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a want or need. • Includes: – – – – Physical Objects Services Events Persons Places Organizations Ideas Combinations of the above 2

Product Anything that can be offered to a market that can satisfy a need

Product Anything that can be offered to a market that can satisfy a need or want

Core Product Facilitating Products -must be present for the guest to use the core

Core Product Facilitating Products -must be present for the guest to use the core service Supporting Products -Add value to the core product Augmented Product -physical environment, accessibility, interactions, physical environment 4

Five Product Levels Potential product Augmented product Expected product Basic product Core benefit

Five Product Levels Potential product Augmented product Expected product Basic product Core benefit

Product Mix Set of all product that any given seller offers for sale to

Product Mix Set of all product that any given seller offers for sale to the market

Introduction PRODUCT DECISIONS We define product decision as every conscious decision made by a

Introduction PRODUCT DECISIONS We define product decision as every conscious decision made by a company for a product. There are many different such decisions. At one extreme there are such things as a minor modification of the label or colour of the package. At the other extreme, there are such things as diversification into new business fields, either through internal R&D or mergers and acquisitions.

There is a three-fold classification of product decisions: • � What are the decisions

There is a three-fold classification of product decisions: • � What are the decisions that a company should make about the product types? • � What are the decisions that a company should make about the tangible/physical product? • � What are the decisions that a company should make about the intangible/ augmented product?

Product Decisions

Product Decisions

Decisions about the product types The management must first decide what products to offer

Decisions about the product types The management must first decide what products to offer in the market place before other intelligent product decisions pertaining to the product’s physical attributes, packaging, branding, and so on, can be made. There are two distinct levels at which such changes take place, namely: the product-mix level and � the product-line level. � American Marketing Association has defined product-mix as ‘the composite of products offered for sale by a firm or business unit’. The American Marketing Association has defined product-line as ‘a group of products that are closely related either because they satisfy a class of need, are used together, are sold to the same customer groups, are marketed through the same type of outlet or fall within given price range’

A company’s product mix refers to the total number of products that are offered

A company’s product mix refers to the total number of products that are offered for sale. The product mix has certain width, length, depth and consistency. The width of a product mix refers to the total number of different product lines � of the company. For example, width = 2 (pasta and pasta sauces). The length of a product mix refers to the total number of brands in all of the � company’s product lines. For example, length = 5 (three pasta brands and two brands of pasta sauce). The depth of a product mix refers to the average number of variants of the � company’s products. For example, depth = 4 (three pasta brands, each marketed in two sizes: 3 × 2 = 6 and 2 pasta sauce brands, each marketed in 1 size: 2 × 1 = 2 means 6 + 2 = 8/2 = 4). The consistency of a product mix refers to how closely related are the � company’s product lines in terms of characteristics, production process, distribution channels to name just a few.

Decisions on a product-mix level Product decisions at the product-mix level tend to determine

Decisions on a product-mix level Product decisions at the product-mix level tend to determine the width of a company’s product-mix. The basic product-policy/strategy issues at the product-mix level cluster around the following questions: 1 Which product categories should we offer? Will we function primarily as a supplier of materials and components or as a manufacturer of end products? 2 What are the groups and classes of customers for which our products are intended to serve? 3 Do we seek to serve our markets as full-line suppliers or limited line specialists? 4 Will we attempt to take a position of technical leadership or will we achieve greater success as a follower? 5 What are the business characteristics (criteria) such as target rate of profit, payback period on investment, minimum sales volume, etc. , that each product line must meet in order to be included in the product mix (portfolio)?

Decisions on a product-line level Important and complex decisions are also made at the

Decisions on a product-line level Important and complex decisions are also made at the product line level, which tend to determine the length of a company’s product mix. The basic product policy strategy issues at the product line level cluster around the following questions: 1 What is the limit beyond which no product should be added? 2 What is the number of different products to be offered in the line and to what extent should they be differentiated? 3 What is the number of different versions (models) to be offered for each product in the line? 4 What are the business criteria (for example, minimum profitability, minimum sales volume) that each product must meet in order to be included in the line? 5 In how many segments should we compete in order to maintain a secure overall cost and market position vis-à-vis competitors? 6 Should we keep in the line unprofitable products in order to keep a customer happy or should we let the competitors have them?

Product quality In formulating a product quality policy, management must answer the following questions:

Product quality In formulating a product quality policy, management must answer the following questions: 1 What level of quality should the company offer compared with what is offered by the competitors? 2 How wide a range of quality should be represented by the company’s offerings? 3 How frequently and under what circumstances should the quality of a product (line) be altered? 4 How much emphasis should the company place on the quality in its sales promotion? 5 How much risk of product failure should the company take in order to be first with some basic improvements in product quality?

The functional features of a product Another set of decisions revolves around the functional

The functional features of a product Another set of decisions revolves around the functional characteristics of the product. The selection of functional features depends very much on the company’s design policy, which should give answers to the following questions: 1 What specific product features should be developed and made ready for the next product change? 2 Which of our competitors’ product changes should we copy? 3 Should we hold back certain new product features – and which ones – for possible slowdown in sales? 4 What product features should our company emphasize? Functional features can make the product more attractive to customers. Functional features modification has several competitive advantages and may assist the company, among other things, to find new applications for its product.

The style of the product Finally, another set of decisions relating to a product’s

The style of the product Finally, another set of decisions relating to a product’s physical configuration involves style decisions, which aim at improving the aesthetic appeal of the product rather than its functional performance. Decisions about style may render a product ‘different’ in terms of its functional capacity and quality level. Style decisions again depend on the company’s design and induced obsolescence policies. For example, frequent changes in style can make a product out of date and thus increase the replacement market.

Decision about Branding, Packaging and Labeling As far as the product variable is concerned,

Decision about Branding, Packaging and Labeling As far as the product variable is concerned, the key characteristics external to the physical product that offer a company means of achieving a competitive plus are: 1 branding, 2 packaging and 3 product Services. A brand is a name, sign, symbol or design or a combination of them which is intended to identify the goods or services of one manufacturer or group of manufacturers and to differentiate them from those of competitors. Management should make some more fundamental policy or strategic decisions pertaining to branding

First, should we establish our own brand names or should we engage exclusively in

First, should we establish our own brand names or should we engage exclusively in reseller brands (private labels or own label brands)? Secondly, should we make products for reseller brands similar to those bearing our own brand? Thirdly, should we establish a ‘family’ brand (multiproduct brand) over all types of products offered or should we create a special brand for each type of product (multibrand product)?

A ‘family’ or ‘umbrella’ brand can take the following three forms: Corporate/house trade name

A ‘family’ or ‘umbrella’ brand can take the following three forms: Corporate/house trade name (for example, United Colors of Benetton). � A combination of a corporate/house trade name with individual � product names(for example TATA Gold Tea, TATA Premium Tea etc. A combination of a common trade name with individual product � names (for example, Nescafé Classic, Nescafé Select, Nescafé Gold Blend from Nestlé).

Fourthly, should we use our existing brand name to introduce additional items in the

Fourthly, should we use our existing brand name to introduce additional items in the same product category? Companies usually decide to use an existing brand name to launch additional items in the same product category. For example, a sugar confectionery brand (for example, Halls) is can be further extended into new flavours (for example, Halls Cherry, Halls Fruit Breezers). Fifthly should we use a new brand name for launching products in a new category?

New Product Development Process Marketing Strategy Development Concept Development and Testing Idea Screening Idea

New Product Development Process Marketing Strategy Development Concept Development and Testing Idea Screening Idea Generation Business Analysis Product Development Market Testing Commercialization 21

New Product Development Process Step 1. Idea Generation is the Systematic Search for New

New Product Development Process Step 1. Idea Generation is the Systematic Search for New Product Ideas Obtained Internally From Employees and Also From: Customers Competitors Distributors Suppliers 22

New Product Development Process Step 2. Idea Screening • Process to spot good ideas

New Product Development Process Step 2. Idea Screening • Process to spot good ideas and drop poor ones as soon as possible. • Many companies have systems for rating and screening ideas which estimate: – Market Size – Product Price – Development Time & Costs – Unit Costs – Rate of Return • Then, the idea is evaluated against a set of general company criteria. 23

New Product Development Process Step 3. Concept Development 1. Develop New Product Ideas into

New Product Development Process Step 3. Concept Development 1. Develop New Product Ideas into Alternative Detailed Product Concepts 2. Concept Testing - Test the New Product Concepts with Groups of Target Customers 3. Choose the One That Has the Strongest Appeal to Target Customers 24

New Product Development Process Step 4. Marketing Strategy Part One Describes Overall: Target Market

New Product Development Process Step 4. Marketing Strategy Part One Describes Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share Part Two Describes First-Year: Product’s Planned Price Distribution Marketing Budget Part Three Describes Long-Term: Sales & Profit Goals Marketing Mix Strategy 25

Step 5. Business Analysis Step 6. Product Development Business Analysis Review of Product Sales,

Step 5. Business Analysis Step 6. Product Development Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives If No, Eliminate Product Concept If Yes, Move to Product Development 26

Product Development Process Step 7. Test Marketing is the Stage Where the Product and

Product Development Process Step 7. Test Marketing is the Stage Where the Product and Marketing Program are Introduced into More Realistic Market Settings. Product Budget Levels Atmosphere Branding Pricing Elements that May be Test Marketed by a Company Positioning Advertising Location 27

New Product Development Process Step 8. Commercialization is the Introduction of the New Product

New Product Development Process Step 8. Commercialization is the Introduction of the New Product into the Marketplace. When is the Right Time to Introduce Product? Where to Launch a New Product? 28

Causes of New Product Failures • • • Overestimation of Market Size Product Design

Causes of New Product Failures • • • Overestimation of Market Size Product Design Problems Product Incorrectly Positioned, Priced or Advertised Costs of Product Development Competitive Actions • To create successful new products, the company must: – understand it’s customers, markets and competitors – develop products that deliver superior value to customers.

Product-Mix Strategies

Product-Mix Strategies

Product Mix and Product Line • The product mix is the set of all

Product Mix and Product Line • The product mix is the set of all products product mix offered for sale by a company. • A product mix has two dimensions: – – Breadth - the number of product lines carried. Breadth Depth - the variety of sizes, colours, and Depth models offered within each product line. • A product line is a broad group of products, product line intended for similar uses and having similar characteristics.

Product Mix - An Example TH ENT P E D ORTM INE) (ASS IN

Product Mix - An Example TH ENT P E D ORTM INE) (ASS IN A L H WIT BREADTH (DIFFERENT LINES) Lawn mowers Gardening tools Lawn furniture Power rotary Power reel Hand-powered Each in various sizes and prices Rakes Hoes Shovels Chairs Chaise lounges Benches Various sizes and prices in redwood or Each in various aluminium with sizes and prices plastic webbing

Product Mix Strategies Positioning the Product • In Relation to a Competitor • In

Product Mix Strategies Positioning the Product • In Relation to a Competitor • In Relation to a Product Class or Attribute • In Relation to a Target Market • By Price and Quality Product-Mix Expansion • Line Extension • Mix Extension

Expanding the Product Mix-extension strategies include: Mix-extension strategies – – Same brand, related product

Expanding the Product Mix-extension strategies include: Mix-extension strategies – – Same brand, related product (Tim Horton coffeemaker) Same brand, unrelated product (Swiss Army watch) Different brand, unrelated product (Pepsi & KFC) Different brand, related product (P&G adds Luvs diapers; already makes Pampers)

Trading Up and Trading Down • Trading up: Adding a higher-priced product Trading up:

Trading Up and Trading Down • Trading up: Adding a higher-priced product Trading up: to a line to attract a higher-income market and improve the sales of existing lowerpriced products. • Trading down: Adding a lower-priced item Trading down: to a line of prestige products to encourage purchases from people who cannot afford the higher-priced product, but want the status.

Other Product Mix Strategies • Alteration of Existing Products: – Improve an established product

Other Product Mix Strategies • Alteration of Existing Products: – Improve an established product with new design, new package, new uses. • Product-Mix Contraction: – Eliminate an entire line or reduce assortment within it. – Pruning to reduce similar brands. – Dump unprofitable or indistinct brands.

Product Life Cycle Sales and Profits Over the Product’s Life From Inception to Demise

Product Life Cycle Sales and Profits Over the Product’s Life From Inception to Demise Sales and Profits (Rs. ) Sales Profits Time Product Development Introduction Growth Maturity Decline Losses/ Investments ($) 37

Introduction Stage of the PLC Sales Low sales Costs High cost per customer Profits

Introduction Stage of the PLC Sales Low sales Costs High cost per customer Profits Negative Marketing Objectives Create product awareness and trial Product Offer a basic product Price Use cost-plus Distribution Build selective distribution Advertising Build product awareness among early adopters and dealers

Growth Stage of the PLC Sales Rapidly rising sales Costs Average cost per customer

Growth Stage of the PLC Sales Rapidly rising sales Costs Average cost per customer Profits Rising profits Marketing Objectives Maximize market share Product Offer product extensions, service, warranty Price to penetrate market Distribution Build intensive distribution Advertising Build awareness and interest in the mass market

Maturity Stage of the PLC Sales Peak sales Costs Low cost per customer Profits

Maturity Stage of the PLC Sales Peak sales Costs Low cost per customer Profits High profits Marketing Objectives Maximize profit while defending market share Product Diversify brand models Price to match or best competitors Distribution Build more intensive distribution Advertising Stress brand differences and benefits

Decline Stage of the PLC Sales Declining sales Costs Low cost per customer Profits

Decline Stage of the PLC Sales Declining sales Costs Low cost per customer Profits Declining profits Marketing Objectives Reduce expenditure and milk the brand Product Phase out weak items Price Cut price Distribution Go selective: phase out unprofitable outlets Advertising Reduce to level needed to retain hard core loyal customers

The Product Life Cycle • the concept of the product life cycle applies to

The Product Life Cycle • the concept of the product life cycle applies to product categories, not to brands; it is related to the concept of diffusion of innovation • different products will have differently-shaped life cycle curves; will diffuse at different rates • a product is normally perceived to pass through four stages over its life cycle; introduction, growth, maturity, and decline • each stage requires different marketing strategies

Product Life Cycle Stages • Introduction—most risky and expensive. Introduction • Growth—both sales and

Product Life Cycle Stages • Introduction—most risky and expensive. Introduction • Growth—both sales and profits rise, often Growth rapidly. • Maturity—sales increase at a decreasing Maturity rate and profits decline. • Decline—demand drops, often because of Decline another product development.

Product Life Cycle Curve INTRODUCTION GROWTHMATURITY DECLINE Dollars Sales Volume Profit 0 Loss Time

Product Life Cycle Curve INTRODUCTION GROWTHMATURITY DECLINE Dollars Sales Volume Profit 0 Loss Time in years

Strategic Implications of the Stages • introductory stage: developing the market, • • •

Strategic Implications of the Stages • introductory stage: developing the market, • • • creating awareness, reaching the innovators growth stage: competition begins, sales grow quickly, profits peak, market penetration maturity stage: competition is intense, sales slow down, differentiated product offerings, customers are brand loyal, few new entrants decline stage: customers move to other options, competitors leave, profits are low, consider exit

Characteristics of Life Cycles • length of the life cycle will vary across markets;

Characteristics of Life Cycles • length of the life cycle will vary across markets; some are quite short and may be getting shorter • some fads have very short life cycles, while other products stay at maturity for years • in high-tech markets, life cycles are very short • some products do not make it through all four stages; they may fail in introduction • the life cycle must be considered in relation to a specific market; stage may vary across markets

Managing the Life Cycle Successful life-cycle management requires predicting the shape of the curve

Managing the Life Cycle Successful life-cycle management requires predicting the shape of the curve and then successfully adapting strategies at each stage. • when to consider entering the market • how to manage to capitalize on growth • it is possible to develop strategies that will extend the maturity stage; modify the product, devise new uses, or design new appeals – greatest challenge comes at the decline stage which may result in product abandonment

Aggregate sales Different Life Cycles Part a - Extended introduction stage Part b -

Aggregate sales Different Life Cycles Part a - Extended introduction stage Part b - Fad Aggregate sales Time in years Part c - Indefinite maturity stage Time in years

Branding, Packaging & Labelling

Branding, Packaging & Labelling

American Marketing Association defined brand as “a name, term, sign, symbol, or design, or

American Marketing Association defined brand as “a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competition. ”

Brand • Brands are among a company’s most valuable assets • A Brand represents

Brand • Brands are among a company’s most valuable assets • A Brand represents what the company is and what it stands for • A Brand implies trust , consistency, and a defined set of expectations • The strongest brands own a place in the customer’s mind • From Scott Davis, Brand Asset Management 51

Branding Consistency Quality & Value Attributes Advantages of Brand Names Identification High Brand Loyalty

Branding Consistency Quality & Value Attributes Advantages of Brand Names Identification High Brand Loyalty Brand Equity Strong Brand Association Name Awareness Perceived Quality 52

Conditions That Support Branding • Product is easy to identify • Product is perceived

Conditions That Support Branding • Product is easy to identify • Product is perceived to be the best value for the price • Quality and standards are easy to maintain • Demand is enough to support branding effort • There are economies of scale 53

A brand mark refers to that part of brand which is not made up

A brand mark refers to that part of brand which is not made up of words, but can be a symbol or design such as swoosh mark of Nike, or Golden Arches of Mc. Donald’s. A trademark is a legal registration indicating the owner’s exclusive right to use a brand or some part of brand. A trade name is the full and legal name of a firm, such as Maruti Udyog Ltd. , and not the specific name of a product.

Brand Identity “A unique set of brand associations that the brand strategist aspires to

Brand Identity “A unique set of brand associations that the brand strategist aspires to create or maintain. These associations represent what the brand stands for and imply a promise to customers from the organisation members. ” Brand identity and brand image are sometimes used interchangeably in different texts. Brand identity refers to an insider’s concept reflecting brand manager’s decisions of what the brand is all about. Brand image reflects the perceptions of outsiders, that is customers, about the brand.

According to Jean-Noel Kepferer, a brand is complex symbol and capable of conveying up

According to Jean-Noel Kepferer, a brand is complex symbol and capable of conveying up to six dimensions or meanings: v Physique v Personality v Culture v Relationship v Reflection v Self-Image

Brand Equity Kevin Lane Keller defines brand equity: “The added value that a brand

Brand Equity Kevin Lane Keller defines brand equity: “The added value that a brand gives to a product in the marketplace Brand equity is the intangible value of a particular company or product based on consumer perception in the marketplace. Many different factors contribute to brand equity including advertising, consumer reviews, and publicity. A brand with strong equity tends to be well-known and thought of positively by many consumers.

Brand name awareness Brand loyalty Brand Equity Perceived quality Brand associations Components of Brand

Brand name awareness Brand loyalty Brand Equity Perceived quality Brand associations Components of Brand Equity

Five dimensions of customer-based brand equity: v Performance v Social image v Value v

Five dimensions of customer-based brand equity: v Performance v Social image v Value v Trustworthiness v Identification

Brand Image Brand image is the key concept intervening between the brand its equity.

Brand Image Brand image is the key concept intervening between the brand its equity. It is the driver of brand equity. Types of brand associations can be hard and soft and brand subimages consist of three elements: v image of provider, v image of product, and v image of user.

Brand image management requires determining brand concept. This concept embodies the central meaning of

Brand image management requires determining brand concept. This concept embodies the central meaning of the brand that the company chooses and is derived from basic consumer needs. The more strongly the brand satisfies these needs, the more differentiated and strong the brand image customers carry. These needs can be put under three broad groups. v Functional needs v Symbolic needs v Experiential needs

Types of Brand There are several brand options that include manufacturer brand (also called

Types of Brand There are several brand options that include manufacturer brand (also called national brand), private brand (also called distributor, reseller, store, or house brand), or a licensed brand. Manufacturer brands are initiated by manufacturers and identify the producer. Private brands is that they are resellers initiated brands. Licensed brand is a relatively new trend and involves licensing of trademarks.

Brand Name Selection Companies have four strategic options in choosing a brand name: v

Brand Name Selection Companies have four strategic options in choosing a brand name: v Company Name v Individual Names v Separate Brand Family Names v Combination of Company Name and Product Name v Desirable Qualities of Brand Names

Branding Strategies Different companies adopt different strategies, and since there is no best strategy

Branding Strategies Different companies adopt different strategies, and since there is no best strategy for all types of products, a company may adopt different branding strategies across its product mix.

Product Branding Strategy This strategy focuses on promoting the brand exclusively so that it

Product Branding Strategy This strategy focuses on promoting the brand exclusively so that it reflects its own personality, identity, associations, and image. The brand does not take on company associations and any benefits from its name.

Line Branding Strategy (Line Extension) The term ‘line branding’ is altogether different than what

Line Branding Strategy (Line Extension) The term ‘line branding’ is altogether different than what product line refers to in the context of product mix. In line branding, products share a common concept. Line brands start with a single product conveying a concept and later the brand name extends to other complementary products.

Range Branding Strategy (Brand Extension) This strategy seems to resemble line branding but is

Range Branding Strategy (Brand Extension) This strategy seems to resemble line branding but is significantly different. It is also called brand extension. Product categories are different but brand name is the same, such as carrying the brand name Maggi is a range of different products: noodles, sauce, soup, Dosa mixes, etc. In case of range branding, it is not the product concept but “the area of expertise. ” This strategy permits expanding into products that do not complement each other.

Umbrella Branding Strategy The approach is driven by economic considerations. The company name itself

Umbrella Branding Strategy The approach is driven by economic considerations. The company name itself is the brand name for all products across diverse categories. Investment in building one brand proves far more economical than investing in building several brands.

Double Branding Strategy This approach combines umbrella branding and product branding. Along with the

Double Branding Strategy This approach combines umbrella branding and product branding. Along with the product brand name, the company name is associated to create double branding, such as Tata Indica and, Bajaj Pulsar.

Endorsement Branding Strategy This is a minor variation of double branding strategy. The product

Endorsement Branding Strategy This is a minor variation of double branding strategy. The product brand name gains a dominant position, while the company name merits a lower profile.

Factors Influencing Branding Strategies v Market Size v Competitive Situation v Company Resources v

Factors Influencing Branding Strategies v Market Size v Competitive Situation v Company Resources v Product Newness v Innovativeness and Technology

Packaging & Labelling Packaging includes all activities that focus on the development of a

Packaging & Labelling Packaging includes all activities that focus on the development of a container and a graphic design for a product. A package may have three levels; the primary package is the container of the product such as a bottle, jar, or tube, the secondary package is the box of cardboard or some other material containing the primary package; and the last is shipping package that contains more units of secondary package.

Labelling A label may be a part of package or it may be a

Labelling A label may be a part of package or it may be a tag attached to the product. The labels perform a descriptive function relating to a product’s source, its contents, important features and benefits, use instructions, cautions or warnings, storage instructions, batch number, date of manufacture, and date of expiry.

Elements that enhance positioning and create augmented products • Atmosphere • Customer interaction with

Elements that enhance positioning and create augmented products • Atmosphere • Customer interaction with service delivery system • Customer interaction with other customers • Customer co-production 74