MAJOR 4

“PRODUCT MANAGEMENT”

Larra Mae B. Biron BSBA MM – III 2 nd Sem: Prelim

CHAPTER I: Theoretical Foundations

Questions for Discussion #1 .

1. Summarize the factors which have given rise to the growth of global competition.
- The five sets of factors which give rise to the growth of global competition are:
 Environmental – it covers the rate of technological change, the nature of
competition, and the intensity of competition in external and internal
environment of a business or organization.
 Strategic – it is about the objectives and strategies in long-term and short
term planning of the business and/or the organizational product, market
and managerial strategy in achieving its objectives.
 Marketing – it includes the market plan, market research, and on how the
product and service be effective in marketing and increasing its profits and
sales.
 Organizational – it is how huge or small the organization. It includes the size,
structure, culture and manufacturing capability of its resources specially the
man power of an organization in its operations.
 Managerial – it includes communication, attitudes, and the leadership style
which basically performed and task to the managers.
This factors generally invoked in seeking to explain business performance.

2. Explain the notion of comparative advantage.

- Comparative advantage is defined as an economy's ability to produce a particular good or
service at a lower opportunity cost than its trading partners. Comparative advantage explains why
a country might produce and export something its citizens don't seem very skilled at producing
when compared directly to other brands which originated in other country. The concept of
comparative advantage is to introduce opportunity cost as a factor for analysis in choosing between
different options for production.

3. Discuss the contribution of marketing to competitive success.

- Marketing presents a huge contribution in competitive success which it makes a product
much more powerful in building the business brand which serves as a key component of
competitive advantage with other brands. It simply states that marketing is how you attract
customers which results in the growth of its business. If you successfully educate customers, keep
them engaged, create a strong reputation in their minds and smartly sell to them, your business will
most likely do well.

4. Why was the Club of Rome’s 1967 prediction of environmental collapse flawed?
- The Club of Rome’s 1967 it stated that if the world's consumption patterns and population
growth continued at the same high rates of the time, the earth would strike its limits within a
century. Essentially the underlying assumptions behind such predictions are that supply is fixed but
demand will continue to grow, often exponentially. There is considerable support for both these
assumptions, until we allow for the impact of innovation and technological change.
5. Describe the process of evolutionary change and explain the concept of life cycle associated
with such change.
- Evolution is a process that results in changes in the genetic material of a population over
time. Evolution reflects the adaptations of organisms to their changing environments and can result
in altered genes, novel traits, and new species. The value of the life cycle concept is the insight it
offers into the process of evolutionary change. Its weakness is that the misguided seek to use it as a
predictive device when, by definition, one can only establish the length of each phase of the life
cycle after the event.

6. Identify Porter’s ‘Five Forces’ and show how they govern competition in an industry.
- The five forces are:
1. Bargaining power of Suppliers. An assessment of how easy it is for suppliers to
drive up prices. This is driven by the: number of suppliers of each essential input;
uniqueness of their product or service; relative size and strength of the supplier; and cost of
switching from one supplier to another.
2. Bargaining power of customers. An assessment of how easy it is for buyers to
drive prices down. This is driven by the: number of buyers in the market; importance of
each individual buyer to the organisation; and cost to the buyer of switching from one
supplier to another. If a business has just a few powerful buyers, they are often able to
dictate terms.
3. Competitive rivalry. The main driver is the number and capability of
competitors in the market. Many competitors, offering undifferentiated products and
services, will reduce market attractiveness.
4. Threat of substitute products or services. Where close substitute products
exist in a market, it increases the likelihood of customers switching to alternatives in
response to price increases. This reduces both the power of suppliers and the attractiveness
of the market.
5. Threat of new entry. Profitable markets attract new entrants, which erodes
profitability. Unless incumbents have strong and durable barriers to entry, for example,
patents, economies of scale, capital requirements or government policies, then profitability
will decline to a competitive rate.

Porter’s ‘Five Forces’ helps organisations to understand the factors affecting profitability in
a specific industry, and can help to inform decisions relating to: whether to enter a specific
industry; whether to increase capacity in a specific industry; and developing competitive strategies.

7. Portray Ansoff’s growth vector matrix and summarize the nature of the strategic options
defined by it.
- Igor Ansoff identified four strategies for growth and summarized them in the so called
Ansoff Matrix. The Ansoff Matrix (also known as the Product/Market Expansion Grid) allows
managers to quickly summarize these potential growth strategies and compare them to the risk
associated with each one. The idea is that each time you move into a new quadrant (horizontally or
vertically), risk increases.
1. Market penetration: the company seeks increased sales for its present products in its
present markets through more aggressive promotion and distribution. It is about selling more of
the company’s existing products to existing markets. To penetrate and grow the customer base in
the existing market, a company may cut prices, improve its distribution network, invest more in
marketing and increase existing production capacity.
 2. Market development: the company seeks increased sales by taking its present products
into new markets. It is about selling more of the company’s existing products to new markets. This
strategy is about reaching new customer segments or expanding internationally by targeting new
geographic areas.
3. Product development: the company seeks increased sales by developing improved
products for its present markets. It is about developing and selling new products to existing
markets. Companies could for example make some modifications in the existing products to give
increased value to the customers for their purchase or develop and launch new products alongside
a company’s existing product offering.
4. Diversification: the company seeks increased sales by developing new products for new
markets. It is about entering new markets with new products that are either related or completely
unrelated to a company’s existing offering.

8. Discuss the proposition that there are only two basic sources of competitive advantage –
cost leadership and differentiation.
- Cost leadership is the strategy which seeks to achieve this position and is usually founded
on economies of scale and experience curve effects reinforced by more efficient and effective
management while differentiation may take in many forms such as an objective and tangible
difference intrinsic to the product itself which is the easiest to define and demonstrate, and this is
why product development as the key competitive strategy. Economic rationality dictates that if two
objects are perceived as identical in every respect by an intending purchaser then they will select
that with the lower price as it represents better value for money. But if an intending purchaser
perceives meaningful differences (either tangible or intangible, objective or subjective) between
two objects this will influence their perception of value such that they may well prefer the higher
priced object.

9. Why is product strategy central to business performance and success?

- By setting a product strategy, you can determine the direction of your product efforts. The
product strategy enables the company to focus on a specific target market and feature set, instead
of trying to be everything to everyone. It helps decide the exact steps to be taken in any event to
make the product a success. It prepares the company for response by competitors or towards
changing market conditions. It helps the company decide the target market and in market
penetration.

10. Outline the major changes that have occurred in the approach to innovation over the past
fifty years or so.
 First-Generation: Innovation Process as lasting from the 1950s to mid-1960s its
key characteristic is one of technology ‘push’ in which industrial innovation was
generally perceived as a linear progression from scientific discovery, through
technological development in firms, to the marketplace.
 Second-generation: Innovation Process is dated from the mid-1960s which was a
period of relative prosperity during which manufacturing productivity increased
considerably but manufacturing employment was more or less static. Supply and
demand were in balance.
 Third-generation: Innovation Process (early-1970s to mid-1980s) was a period of
demand saturation and high rates of inflation (stagflation) in which supply capacity
generally out-stripped demand with concomitant structural unemployment.
 Fourth-generation: Innovation Process (early-1980s to early-1990s) started with
economic recovery and an initial emphasis on core businesses and core technology.
 This led to recognition of the strategic importance of evolving generic technologies
with increased strategic emphasis on technological accumulation.
 Fifth-generation model: is a logical evolution of the fourth-generation approach
and emphasizes:
• Technological accumulation
• Strategic networking
• Time to market
• Integration of product and manufacturing strategies
• Flexibility and adaptability
• Quality and performance
• Regulatory responses, e.g. environmentalism.

CHAPTER II: Product in theory and practice

Questions for Discussion #2 .
1. What is ‘product’?
- Product is the object of the exchange process, the thing which the producer or supplier
offers to a potential customer in exchange for something else which the supplier perceives as of
equivalent or greater value.

2. Distinguish and define three broad categories of demand.

- The three broad categories of demand are namely the following:
 Effective – it is the kind of demand in which economists are primarily
interested and may be defined as ‘demand backed up by purchasing power’.
 Potential – potential demand consists of all those who can back up their
latent want with purchasing power.
 Latent – it may be thought of as one which the consumer is unable to satisfy,
usually for lack of purchasing power.

3. What is preference and how is it affected by the law of diminishing marginal utility?
- Preference defines the extent to which a consumer will favour one product over another,
while substitutability reflects how well one object may take the place of another, either directly or
indirectly. The law of diminishing marginal utility states that the marginal utility of a good or
service declines as more of its consumer. The marginal utility may decrease into negative utility, as
it may become entirely unfavourable to consume another unit of any product.

4. Discuss the factors which may influence demand.

- The broad factors which may influence demand are namely:
 Demographics – or the population. Effective demand is determined first by
population, and population forecasting is comparatively simple compared
with forecasting tastes or economic cycles.
 Buyer behaviour – the demand of a product or service may depend on how
consumers react towards its products and/or service.
 Availability (supply and channels of distribution) – demand can be
influenced by the availability of its supply and channel of distribution of a
product.

5. Suggest and explain a system for classifying products.

 - Convenience Products are usually low priced, easily available products that customer buys
frequently, without any planning or search effort and with minimum comparison and buying effort.
Such products are made available to the customers through widespread distribution channels-
through every retail outlets. This category includes fast moving consumer goods (FMCG) like soap,
toothpaste, detergents, food items like rice, wheat flour, salt, sugar, milk and so on.

6. Why has branding become so important in increasingly competitive market?

- Branding become so important in increasing competitive market because it not just makes
a memorable impression or reaction from the consumers but it also allows its clients to know what
to expect from a company. Having a strong brand which has a consistent identity throughout the
market helps a business or a company easily be recognize and distinguish from other competitors
which leads to a competitive advantage of a company.

7. Discuss the five characteristics used by Rogers for classifying new product.
- Based upon an extensive review of the characteristics of new products Rogers (1983)
developed a very useful framework which classifies characteristics under five headings:
• Relative advantage – it seeks to measure the economic benefit conferred upon or
available to the adopter of an innovation adjusted to take cognizance of the adopter’s
present situation.
• Compatibility – and complexity are both a dimensions of the degree of novelty
associated with an innovation, but tend to be inversely related to each other. The more
compatible a new product is with the existing system, the more likely it is to be readily
accepted.
• Complexity - defined as the degree of difficulty associated with full understanding
of the application of an innovation, does not automatically increase with novelty, this is
often the case. It certainly is true that the less compatible an innovation is with the existing
way of doing things, the more complex it is likely to seem to be.
• Divisibility – it measures the extent to which it is possible to try an innovation
before coming to a final adoption/rejection decision and it can have a significant influence
upon attitudes towards a new product.
• Communicability – it is heavily influenced by the preceding four factors, for it
reflects the degree of difficulty associated with communicating the benefits of an innovation
to prospective users, which, in turn, is a function of its relative advantage, compatibility,
complexity and divisibility.

8. Describe the Buygrid and discuss its implications for analysing buyer behavior.
- Buygrid uses two sets of variables distinguished as Buy Phases (Steps 1–8 on the vertical
axis) and Buy Classes which namely New Task, Modified rebuy, and Straight rebuy.
1. New task: The recognition of a purchasing problem which has not been
encountered previously. The buyer will face considerable uncertainty and will seek to
reduce this through the acquisition of as much information as possible from both personal
and impersonal sources. All the Buy Phases are likely to receive careful and explicit
attention.
2. Modified rebuy: The buyer has prior experience of the purchase problem but has
reason to re-evaluate this in light of some new information or stimulus. Some of the Buy
Phases may be truncated or omitted.
3. Straight rebuy: The buyer is satisfied with an existing source of supply and sees
no reason to change. Phases 4–7 are likely to be omitted altogether and only cursory
attention given to the others, i.e. purchase has become habitual and routinized.
9. Are services different?
- The major difference noted between the two is that a product is physical in nature and it is
tangible. On the other hand, it can be seen that a service is intangible and it cannot be held therefore
cannot be separated from the provider.

CHAPTER III: Buyer Behaviour

Questions for Discussion #3 .
1. Explain AIDA.
- The AIDA Model, which stands for Attention, Interest, Desire, and Action model, is an
advertising effect model that identifies the stages that an individual goes through during the
process of purchasing a product. It includes material cost, direct or service.

2. Identify the four science models of buyer behavior and describe their salient features.
- The four science models of buyer behavior are as follows:
 The Marshallian economic model – postulates that buying decisions are the
result of ‘rational’ and conscious economic calculations designed to
maximize the buyer’s utility or satisfaction. Industrial buying behaviour is
usually believed to be of this type.
 The Pavlovian learning model – it contains four central concepts: drive,
cue, response and reinforcement. Drives may be inherited or learned while
ambition is learned – but they are usually latent or passive until stimulated
by a cue. In the case of hunger, this may be internal (being physiologically
hungry) or external (the sight or smell of food), but either way a response is
called for. In Rogers’ model, this response is ‘trial’, for only if the outcome is
satisfactory will reinforcement occur and the new learned behaviour
become habitual, or, as Pavlov would have termed it, a conditioned
response.
 The Freudian psychoanalytic model – it is concerned with the
subconscious motivations which direct and condition behaviour.
 The Veblenian social-psychological model – it proposes that people’s
attitudes and behaviour are conditioned by the norms of the social
groupings to which they belong: culture, subculture, social class, reference
groups and family affiliations.

3. What is risk and how does it influence buyer behaviour?

- Risk takes on many forms but is broadly categorized as the chance an outcome or
investment's actual gain will differ from the expected outcome or return. As stated in the learning
material, it is not risk which bothers decision makers. It is their uncertainty on the product itself.

4. Discuss the nature of perception and the role it plays in the buyer decision process.
- Perception is the process through which one gathers, processes, and interprets
information from the environment. How a consumer perceives a particular product is important for
the marketer in the sense that it will affect consumer's decision. The perceptions consumers have of
a brand, its values and its products and services can have a dramatic impact on consumer purchase
behavior.

5. Describe and critique Baker’s composite model of buyer behaviour.

- 'composite' model of buyer behaviour is proposed that is perceived to be equally
applicable to all kinds of buying decisions. Baker model seeks to synthesize the key elements
discussed in the preceding pages, but to make the model work one must add an essential
ingredient: the specialized knowledge and experience of persons familiar with the specific product–
market interface in question.

6. Why do subjective factors play an important role in determining the buyer’s decision?
- The consumer decision process helps you understand the steps people go through when
they are deciding whether and what to buy. Subjective factors can play an important role in
determining the buyer’s decision because as stated by Gronroos’ service quality led him to conclude
that its principal components were technical quality, functional quality, and corporate image which
can be done in terms of objective and subjective factors.

7. Why may small firms be more receptive to innovation?

- The smaller workforce the tighter bonds it might be. Small firms are more receptive to
innovation than larger organization because larger companies are slow innovators for they have a
huge coverage of resources and management. While small companies are more nimble with less
bureaucracy and fewer organizational approvals to obtain before actually do a innovation.

8. Define adoption and diffusion. What value do these concepts have for the practising
marketer?
- Adoption is the decision-making process to make full use of an innovation as the best
course of action available. Adoption is generally defined as the decision to use a product or service
in preference to alternative or substitute goods which might be used to satisfy the same need.
Adoption is the outcome of a decision-making process in which the individual or firm is moved
from a state of unawareness about the existence of the product or service to a conscious decision to
prefer it to alternative or substitute products. Diffusion is the process by which an innovation is
communicated through certain channels overtime among the members of a social system. Diffusion
was noted that the concept is firmly founded in the biological sciences and that there is a great deal
of data to support the view that it is an accurate representation of the way in which products
develop, prosper, mature, decline and die.

9. What are the main lessons to be learned from the case study of aluminium sleeve bearings?
- This case study reinforces the advice that one must adopt a marketing approach and seek
to evaluate how the new product will be perceived by potential users and how this perception will
condition their reaction. The main lesson we can observed in the case study of aluminium sleeve
bearings is that one must research opportunities thoroughly and on a continuous basis if one is to
succeed in new product development.

10. Discuss the problems involved in introducing radical (discontinuous)innovations to the

marketplace and suggest ways of overcoming these.
- There are three major difficulties which are as follows:
 The problem of the selection of respondents
 The problem of the understanding of major innovations
 Problems concerning time and group aspects

To overcome the problem of selecting appropriate respondents it is proposed that one

should concentrate on need assessment research to establish the problem which consumers
experience as they are likely to be more closely related with their behaviour than expressed needs
and wants: ‘Confronted with a radically new technology, consumers may not understand what
needs the technology can satisfy.
 CHAPTER VI: The Product Life Cycle in the Theory and Practice
Questions for Discussion #4 .
1. What are the four ‘traditional’ stages in the PLC? What other stages are suggested in the
text? Why?
- The four traditional stages in the product life cycle (PLC) are: Introduction, Growth,
Maturity and Decline. The other suggested stages in the text are: Gestation, Introduction, Growth,
Maturity, Saturation, Decline and Elimination. The case for the existence of product life cycles rests
fundamentally on the fact that if one examines the sales trend for products, especially those which
have passed through most if not all the stages,.

2. Why is it unreasonable to try and use PLCs for predicting specific outcomes?
- The major drawback of the product life cycle is that one can never predict the time that a
product will take in each stage of the cycle. Sometimes it becomes difficult to distinguish one stage
from another because very few people are keen to pay details of the flow of goods and services in
the market.

3. What are the major managerial implications and applications of the PLC concept?
- The life cycle of a product is broken into four stages—introduction, growth, maturity, and
decline. This concept is used by management and by marketing professionals as a factor in deciding
when it is appropriate to increase advertising, reduce prices, expand to new markets, or redesign
packaging.

4. What were Dhalla and Yuspeh’s (1979) major criticisms of the PLC concept?
- Dhalla and Yuspeh’s (1979) major criticism of the PLC concept were that:
• Products are not living things, hence the biological metaphor is entirely
misleading.
• The life cycle of a product is the dependent variable, being a function of the way in
which the product is managed over time. It is certainly not an independent variable.
• The product life cycle cannot be valid for product class, product form and for
brands– indeed, an important function of a brand name is to create a franchise that has
value over time, permitting changes to take place in the product formulation.
• Trying to fit product life-cycle curves into empirical sales data is a sterile exercise
in taxonomy.
The main operative arguments include:
• The four phases or states in the life cycle are not clearly definable.
• It is impossible to determine at any moment in time exactly where a product is in
its life cycle hence:
• The concept cannot be used as a planning tool.
• There is evidence that companies who have tried to use the product life cycle as a
planning tool have made costly errors and passed up promising opportunities.

5. What other criticisms have been suggested?

- Doyle cited six reasons why PLC is not much use to marketing strategy which are
the following:
 Undefined concept
 No common shape
 Unpredictable turning points
 Unclear implications
  Not exogenous
 Product oriented

6. Explain why the PLC is a useful tool for helping managers organize their thinking about
product strategy and management.
- PLC is a useful tool for helping managers organize their thinking about product strategy
and management because one of the benefits of PLM include shortening product development
times, knowing when to ramp up or reduce manufacturing efforts, and how to focus marketing
efforts.

7. What are fads and fashions? Why do their life cycles deviate from the classic pattern?
- Fads are objects or activities that are popular with a group of people over a short period
of time. While on the other hand, Fashions are a related phenomenon and are defined as objects or
activities that become popular within larger groups over longer periods of time. Fashion life cycles
are usually supply-led by firms which substitute a new product for an existing product – hence no
introductory phase – and then withdraw the ‘new’ product at a sales peak to make way for yet
another product. As for fad products, Fads are usually driven by consumer support and immediate
brand popularity. It would seem these are the product of firms which have no clear idea of precisely
what the market wants and so practise what might be termed trial and error marketing, i.e. make it
available for sale and see if anyone wants it.

8. Does the existence of fads and fashions invalidate the PLC concept?
- The existence of fads and fashions doesn’t invalidate the PLC concept.

CHAPTER V: Product Portfolio

Questions for Discussion #5 .
1. Why should firms seek to develop a portfolio of products?
- A product portfolio is the range of items sold by a business. Firms seek to develop a
portfolio of products because of the benefits it may bring such as:
 Having different products can spread risk between markets. This mean there
is less chance of a company making losses
 Having a range of products can lead to greater brand awareness
 Can encourage customer loyalty as customers are more likely to buy
multiple products from the same brand
 Easier to launch new products due to greater brand awareness
 Can meet the needs to different market segments
 Can allow for seasonal fluctuations
 Allows for new products to replace products at the end of the product life
cycle
 Can increase profits from selling a range of different products

2. How does the idea of a product portfolio relate to that of an investment portfolio? Is the
analogy useful?
- The idea of a product portfolio relate to that of an investment portfolio is in where the
investor seeks to acquire a selection of stocks and share which will meet his or her needs which
usually embrace a desire for current income balanced by the desire for capital growth of its
products.
3. What is involved in developing a balanced portfolio?
- One needs a balanced portfolio and appropriate strategies for managing products at
different stages of their life cycle. A balanced portfolio involved these needs which will embrace a
desire for current income balanced by a desire for capital growth. A balanced investment strategy
combines asset classes in a portfolio in an attempt to balance risk and return. Typically, balanced
portfolios are divided between stocks and bonds, either equally or with a slight tilt.

4. What is market share? What problems might you encounter in defining and measuring it?
- Market sharing occurs when competitors agree to divide or allocate customers, suppliers
or territories among themselves rather than allowing competitive market forces to work. Many
businesses often get too caught up in measuring their performance using their market share. While
you'd think that this would be a reasonable method of measuring your success since it shows how
well you're doing in relation to your competitors, it can often skew your perception of what is
actually going on.

5. What is the experience effect? What implications does it have for managerial practice?
- A company that benefits from the effects of an experience curve enjoys several advantages
over its competitors. As the business grows and lowers its unit production costs, it will gain a bigger
market share over its rivals. It means that it will control a bigger portion of the market, increasing
its profit potential.

6. Describe the Boston Box.

- The Boston Box is a tool for portfolio management. The idea is to develop a balanced
portfolio of products or business units that either generate or consume cash. The Boston Matrix is a
model which helps businesses analyse their portfolio of businesses and brands.

7. Review the main criticism levelled against portfolio analysis.

- One of the disadvantages of portfolio management is it is not always easy to define and
categorize products. This can lead to subjective decisions about how to categories products and
services.

8. Describe and explain Shell’s Directional Policy Matrix.

- The Shell Directional Policy Matrix (DPM) is another refinement upon the Boston
Consulting Group (BCG) Matrix. Along the horizontal axis are prospects for business sector
profitability, and along the vertical axis is a company's competitive capability.

9. Compare Ansoff’s growth-vector matrix with other ‘box’ classifications. Which is to be

preferred? Why?
- The Boston and Ansoff Matrix offer ways to look at products and markets, and decide on a
future strategy for growth if necessary. The Boston Matrix focuses on products, and the Ansoff
Matrix adds in the market as well. Taken together, they can provide a useful support for decision-
making.