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Product Management Block 1 Product Manag
Product Management Block 1 Product Manag
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Block 1: PRODUCT MANAGEMENT —
INTRODUCTION
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1. UNIT I: Introduction to Product Management
Learning Objectives
To understand how Product Management evolved
What a Product Manager has to do.
To understand the linkages of Product Management with other functions
in the organisation.
Structure
1. Product Management
2. Historical Background
2.1. Your Learning
3. Product Management and its Interface with Other Organisational
Functions
3.1. Identifies a market problem
3.2. Quantifies the opportunity
3.3. Communicates the market opportunity to the top
management
3.4. Communicates the problem to Product Development team
3.5. Communicates to Advertising/ Promotion team
3.6. Empowers the sales team
4. Your Learning
5. Summary
6. Key Words
7. Exercises
8. Further Reading
1. Product Management
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from being strategic and/or tactical in nature depending on the type of
organisation and where in the organizations hierarchy the function lies. Product
management can be a separate function or a part of marketing or engineering
functions.
Since better and new products are a key differentiator in the market and are
what drives company‘s profits Product Managements main focus is on new
product development. However since they are the ones who know most of the
product and the basis of its origin the Product management is responsible for
the growth and development of the product in the market and sometimes they
may even be responsible for the bottom line generated by the product.
2. Historical Background
Business executives throughout industry spend more and more time trying to
answer one basic question: ―How can I assure continued profitable growth of
my business?‖ The answer to this question is quite simple: ―By providing the
optimum solution to the market needs.‖
Market needs are classified as Goods or Services. All these have a tangible
value and can be commercially produced and marketed profitably. For our
purpose, we shall classify both – goods and services – as products. Hence, if
we were to answer the above question again, it could be: ―By providing a
continual flow of new products to satisfy market needs or desires.‖ The
question then arises: ―Now where will these products come from?‖
In the early 1900s, new products were created by gifted inventors who worked
with crude equipment and facilities but were creative geniuses with
determination and vision to follow their discoveries in spite of tremendous
difficulties. Men like Edison, Watt, and Marconi created products like the
electric bulb, steam engine and the telegraph. All their products came from
years of hard work and hit and trial experiments. Once these basic inventions
were developed, new products evolved. For example, after the steam engine,
motorised transportation in the form of cars became a reality, and steam boats
replaced horses and sailboats.
By the end of World War I, new technologies had become so complex and the
speed at which new developments were made became so rapid, that the
individual inventor became less and less relevant. Instead, companies started
organised development of products. World War II gave a further impetus
to the development and refinement of products. However, most of these were
based on Research and Development (R&D) in a given manufacturing company
and were not driven by customer needs. The R&D product planning programs
were expensive and slow, and they often were unproductive. Managements
then concluded that a new approach was needed to make product development
more productive. They realised that to be successful they needed to identify
products that could satisfy the customer’s needs and desires, and which
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could, at the same time, match the company's manufacturing capabilities
keeping in mind the constantly changing market conditions.
The formal process of Product Planning & Its Management is led by a Product
Manager whose primary role is to serve as the ―Voice of the Customer‖. He
is responsible for the ―4P’s” of Product Management:
– Price
– Place
– Product
– Promotion
Note: This includes indirect management and cooperation with other members
of various groups
The next section with units 7, 8, 9, and 10 will help you understand how from
the concept we actually undertake the development of the product, and pre-
test or test market the product before we actually launch it in the market.
Once we find that eh product meets our marketing objectives the steps we
need to follow to launch the product.
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3.3. It communicates the market opportunity to the top
management
Since only the top management can commit resources for new product
development, the product management team must provide them with
the business rationale for following the opportunity and give them a
business plan to convince them to commit resources for research and
development.
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If we get too involved with our product we may miss
identifying how it can be used with other products thus missing
potential business opportunities.
Hence a wise product manager will generally:
Use existing standards whenever they are relevant and
applicable. If we have a standard QWERTY key board for
computers and we change this for some other purpose then it
may become difficult for customers to use this.
Realize that products work with other products which the
organization produces as well as products and systems created
by others — including your competitors.
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A good product manager must try to differentiate his product and
avoid being a ―me too.‖ Getting into the market speedily is definitely
important; however it is always better to come into the market later
with a better product than slightly faster with something that does not
stand out. Being first is good but it is no guarantee of success.
Amazon.com was not the first online bookseller; Google was not the
first search engine; the iPod was not the first portable MP3 player; the
list can go on and on.
In “Product Leadership: Creating and Launching Superior New Products ,
Robert Cooper” offers some amazing statistics on ―truly superior,
differentiated products‖:
One of the top success factors we uncovered is delivering a
differentiated product with unique customer benefits and superior
value for the user. … Our NewProd projects studies show that such
superior products have five times the success rate, over four times
the market share, and four times the profitability as products
lacking this ingredient.
“Truly Superior, Differentiated Products” had an average 98%
success rate and 53.5% market share, while “Me-Too” Products
averaged an 18.4% success rate and 11.6% market share. Though
the desire for quick revenue and immediate return within
organizations is often strong, though there is good cause for
launching the “right” product. In the end, the extra effort put into
figuring out how to differentiate a product will be well worth the
effort.
We may like to make a single product that will solve all customer
problems since this way our development costs would be minimum
and profits would be maximum. However, trying to make it everything
for everyone usually results in a product that does nothing for no one.
In order to make a product do everything for everyone we would need
to add a lot of features to it making it extremely complicated for
most. And it makes it difficult or the marketer to sell the
differentiating factor to the customer.
We can see that today we are seeing more and more products that
are focussed on a specific benefit – eg anti dandruff shampoos (Head
and Shoulders, Clinic All clear), powders for heat problems
(Navratan), soaps with cream (Dove), Fairness cream for Men, etc.
5. Summary
Historically product development was dependent on work undertaken by
inventors and geniuses. Later with the advent of competition it became
more organised. Products were developed in research laboratories of
large companies. However these were products that could be developed
rather than what was needed by the customer. As competition increased
further companies were forced to understand what were the customer
needs and develop products that were needed by him. This led to the
creation of the Product development function. The product development
function is an important function that needs to interface with all functions
of an organisation.
6. Key Words
1. Goods and Services – Goods and services are the outputs offered by
businesses to satisfy the demands of consumer and industrial markets.
They are differentiated on the basis of four characteristics:
a. Tangibility: Goods are tangible products such as cars, clothing, and
machinery. They have shape and can be seen and touched. Services are
intangible. Hair styling, pest control, and equipment repair, for example,
do not have a physical presence.
b. Perishability: All goods have some degree of durability beyond the time
of purchase. Services do not; they perish as they are delivered.
c. Separability: Goods can be stored for later use. Thus, production and
consumption are typically separate. Because the production and
consumption of services are simultaneous, services and the service
provider cannot be separated.
d. Standardization: The quality of goods can be controlled through
standardization and grading in the production process. The quality of
services, however, is different each time they are delivered.
2. Continual flow of new products – The customer needs to get
something new in order to stay interested in a company‘s product. This
can be in the form of new features, new shapes, new products and even
a new price. This innovation is the continual flow of new products.
3. Voice of Customer – is a term used in business to describe the process
of capturing a customer's requirements. Specifically, the Voice of the
Customer is a market research technique that produces a detailed set of
customer wants and needs. Voice of the Customer studies typically
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consist of both qualitative and quantitative research steps. They are
generally conducted at the start of any new product, process, or service
design initiative in order to better understand the customer‘s wants and
needs, and as the key input for new product definition, and the setting of
detailed design specifications.
4. Return on Investment is usually expressed in percentage. It is the
percentage of money gained or lost on an investment relative to the
amount of money invested
5. Breakeven Point is the point at which cost or expenses and revenue
are equal: there is no net loss or gain, and one has "broken even".
6. Business Rationale defines the fundamental reason or reasons why
developing the product will be beneficial to the business. It outlines a reasoned
step by step explanation.
7. Business Plan is a formal statement of a set of business goals, the
reasons why they are believed attainable, and the plan for reaching
those goals. It may also contain background information about the
organization or team attempting to reach those goals.
8. Product Positioning means the process by which marketers try to
create an image or identity in the minds of their target market for their
product, brand, or organization. The objective of this to ensure that the
consumer remembers the product or brand in spite of the noise created
by the communication clutter.
9. Sales Process is a systematic approach to selling a product or service.
It includes all aspects of sales and helps in creating standardized
processes which allow monitoring of processes and in enhancing sales.
10. Sales Tools All factors that help in selling a product are the sales
tools. These include consumer schemes (e.g. buy one get one free, buy a
car and get a chance to win a TV, etc) advertising, printed leaflets,
banners, channel push, etc.
7. Exercises
1. How can the product management team help in defining the sales
process?
2. How can the sales tools be developed by the product management team?
3. How is the product management team different from the product
development team?
4. The product management can help improve sales? Do you agree or
disagree with this statement and why?
5. What is the importance of Product Development? Do you think that an
organised process of development is helping us develop products that
the customer needs?
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8. Further Reading
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2. UNIT II - Product Management Process
3. Learning Objectives
The Product Management Cycle and its significance in Product
Development.
Structure
1. Introduction
2. Product Management Cycle
2.1. New Product Identification
2.2. New Product Definition
2.3. Product Development
2.4. Product Launch and Growth
2.5. Product Discontinuation
3. Your learning
4. Summary
5. Key Words
6. Exercises
7. Further Reading
1. Introduction
We have seen that a company needs to stay ahead not only in its existing
markets but also in new markets that it expands into. In order to stay ahead, it
needs newer products on an ongoing basis that meet the needs of a continually
changing market. We have also seen that the product development process
has become a complicated and expensive process. Hence a structured
approach to product development is needed. This is also called the Product
Management Process.
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The Product Management Process is cyclical in nature – this means that
product development is a continual and ongoing process which goes through a
cycle. As old products die new ones are born and so the cycle goes on. This
process of managing the entire lifecycle of a product from its conception,
through design and manufacture, to service and disposal integrates people,
data, processes and business systems and provides a product information
backbone for companies and their extended enterprise
v. Product Discontinuation
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generate a feedback from the customers some of which is extremely
useful in generating new ideas.
iii. Companies create think tanks that take in all the data that comes in
from various sources and come up with various ideas. This consists of
cross functional teams – teams consisting of people from various
departments – many of whom may eventually be involved in the
development of the product. These cross functional teams get all the
inputs that is available for product development and they also bring
into the team their knowledge and experience. Using this they debate
and come up with ideas for new produce development.
During this phase several product ideas are generated and there is a fuzzy
view of each of these products.
i. The high level functions of the product are defined. High level
specifications mean that these specifications are an overview of all the
functions desired in the product. These are stated simply and are meant
so that everyone in the organisation can understand the functions are
and how it solves the customer’s problems. For example when the
Nano was planned by the Tatas a high level specification would have
given that they need to develop a car that will cost only Rs one lakh to
the customer, would look modern, have the basic comforts, and that it
would be positioned for a two wheeler owner who would aspire for a four
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wheeler or an existing small car buyer who would like to buy a more
economical more modern design.
ii. A business case is made for the new product. This business case
defines the size of the market, the segment for which the product has
been defined, what are the investments needed to make and sell the
product and what will be the profit that the product make during its life
cycle. It also outlines what are the competitive products currently and
also likely to be launched by the competitor. Once the basic product has
been defined like the Nano the product management team will have to
make a detailed report in which they will have to evaluate whether this
product will make business sense. At the end of the day the business
needs to make a profit and if a product cannot make profit it will not be
considered for the next stage of development. The study done in this
phase is relatively preliminary and is done to understand the basics of
the economic feasibility.
iii. In this stage the product management team has to sell the idea of the
product to various people in the organisation – sales, production, R&D,
HR, etc. Once the Product Development team has determined that the
product is viable it has to convince the management that the product not
only meets the strategic objectives but also the profit objectives of the
organisation. Until the management is convinced the financial
commitment needed to commence product development cannot be
made. The presentation to the management will also have details of the
financial support needed for development, the time by which the product
will be developed, the business prospects and the techno-commercial
feasibility.
iii. The first prototype of the product is developed and evaluated to see if
the product meets all the functional requirements set out in the initial
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document. This is an important stage in the product development cycle.
This product is put through functional trials to see if the specifications
laid out at the beginning are met – not only form the engineering point
of view but also from the customer‘s requirements point of view. At this
stage sometimes a few chosen customers are also shown the product for
their feedback. The feedback from testing and the customer is
considered by the product management team and they decide on the
changes to be incorporated in the product.
iv. At this stage the product is more or less finalised and the product
functionality frozen. However some fine tuning may continue till the
product launch and even during the life of the product. These
modifications are done to suit the conveniences of manufacturing or
additional features needed by Sales.
v. Once the final product comes out of the factory it is once again shown to
some key partners (much larger numbers than before) in the market and
sometimes test marketed in a small area to get the more feedback.
Test marketing is usually done so that the actual user experience is
received. It is normally done in a small representative market away from
the main market of the company. The reason for doing the test away
from the main market is that in case the test fails or has a negative
impact the main market (which is significantly larger) must not be
affected. This feedback also is discussed internally and the relevant
parts are incorporated in the product.
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i. The product management team knows how they have positioned the
product and what their target segment is. Along with the advertising
department they have to develop the campaign needed to launch the
product. Now keeping with the company‘s overall business objective they
know how much they can spend on this campaign and so they plan the
media according to this need.
ii. The entire sales force, the channel partners must know what product
they are selling and how it compares to competition. The customers
must be able to understand the product they are buying. Hence the
Product Management team must also develop the tools needed by the
sales team and channel partners to sell the product effectively and
for customers to understand them. They create tools like sales
catalogs, leaflets, comparison charts with competition, explaining
application areas and target segments for the product, they provide the
pricing strategy, etc.
iv. They also keep taking a feedback from the customer so that small
incremental improvements can be made to the product thus increasing
its life and profitability of the company while keeping it ahead of
competition.
The products life and success will depend to a large extent on the
ground work undertaken by the Product Management Group from the
time of its development to its launch and stay in the market.
iii. Customer Maturity - Even though a new product may be ready, it may
not be possible to launch it because the customers are not ready for it.
E.g.: consumer durable manufacturers had washing machines ready in
their product portfolio but could not launch it since the Indian customer
was not ready for it. The Indian customer at that time felt that washing
by hand was the done thing and that a washing machine never washed
the clothes properly and that they never came out clean.
v. Adequate stock must lie in the distribution channel so that once the
product is launched and the campaign breaks out, sales must not be lost
due to non -availability at the retail end.
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Nowadays, because of the speed at which the market is changing and
competition is responding, existing products are discarded even when they
have not completed their economic life. This puts more pressure on the
Product Management Group to develop newer products that will give returns in
shorter and shorter periods of time. We therefore see that many CEO‘s make
the product management team report directly to them since it has one of the
most profound effects on the bottom line of the company.
3. Your Learning
1. It is said that the product discontinuation phase is one of the most
important phases in Product development? Why is this so? Please discuss
whether you agree or not and why.
2. During the growth phase of the product what are the activities that can
be done by the product management team to increase its sale?
4. Summary
The product management process is an important process in order for
the company to stay ahead of its competitors. This process is divided into
five phases starting from the need identification to defining the product,
which is then developed. This developed product is the launched in the
market and all activities are undertaken to ensure its growth. At the end
as customer acceptance drops the product is discontinued. This is an
important phase as in this phase the company has to ensure that
another product is ready to take over the market being vacated by the
existing product. Also the company must ensure that other infrastructure
needed to support the new product is ready and in place e.g. training of
manpower, distribution channel with adequate stocks, etc
5. Key words
1. Pain Areas – these are the areas where the customer has a
problem. These create opportunities for companies create a
product. For example – people wanted to make calls more
conveniently and did not want to walk up to a fixed line phones.
This gave an opportunity to make cordless phones. These could be
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used inside the house but could not go very far. These phones were
the precursors of mobile phones.
2. Think tanks – are a set of people whose job is to think / develop/
create new products or concepts.
3. High Level Specifications – these are broad specifications for
product usually used for one that is under development. These are
created in the initial stages to give an a broad idea of the product
features and design. These specifications are then used to develop
the detailed specifications.
4. Business case is a proposal developed by a specific department to
justify its proposal as making business sense. This is used by the
management to decide whether to go ahead with the project or not
5. Size of market is the total possible sale that a product can have
in a given market. This is given in terms of a Rupee value. For
example we can say that the market for FMCGs is Rs 40,000
crores.
6. Competitive products are competitor‘s products for a given
category of products. These are the products that will compete in
the market with the company‘s products. For example a there are
several motorcycles in the 200 cc category made by various
companies. These are competitive products.
7. Feasibility study is the study conducted to understand if it is
feasible to manufacture a certain product. This is done before a
technical development or project implementation.
8. Economic study once a feasibility study has found the project
feasible an economic study is done to see if the project is
economically viable.
9. Industrial Engineering is a branch of engineering that concerns
with the development, improvement, implementation and
evaluation of integrated systems of people, money, knowledge,
information, equipment, energy, material and process. It also deals
with designing new prototypes to help save money and make the
prototype better.
10. Look and Feel is a term used to describe products in fields
of product design, marketing, branding etc. to describe the main
features of its appearance.
11. Prototype is an initial product usually made to show a
typical impression of the product.
12. Product Functionality gives the various functions of a
product. When the product functionality is modified it means that
some functions of this product are changed because of some
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customer feedback or lack of technology to manufacture the
product or the cost needed to make this product does not make
economic sense.
13. Test Marketing is a sample marketing undertaken when a
product is being introduced for the first time. This is done in a
small area which is representative of the market in which the
product has to be finally used. However this market is usually not
so large that in case the test marketing fails it impacts the launch
of another modified product. It enables a company to check how
the product will be accepted by the customers.
14. Campaign in the context of product management is usually
used for a sales or marketing promotional set of activities. These
could include advertising, consumer schemes, ground
demonstration activities, etc to make the customer aware about
the product and its features.
15. Customer Maturity as a person becomes more mature with
age so do customers become more mature when they become
more exposed to different types of products. They understand how
to evaluate products and companies and are not easily misled by
the jargon of marketers.
6. Exercises
7. Further Reading
1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India:
Response Books Pg 25-36
2. Mukherjee, Kaushik (2009) Product Management , New Delhi, India: PHI
Learning Pvt. Ltd Pg 35 - 37
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3. Crawford, Merle and Benedetto, Anthony Di (2004) New Product
Management Singapore, McGraw Hill Page 25 – 32
4. Gorchels, Linda, (2006) The Product Managers Handbook, New York,
USA: McGraw-Hill Pages 71-74,
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4. UNIT III – The Product Planning System
5. Learning Objectives
To understand the importance of Product Development
To understand how Planning is done for Product Development
To understand the Process which is used to Develop a Product
To understand who is Responsible for the Product Development
Structure
1. Product Planning
2. Customer Requirement Document
3. Need for Customer Requirement Document
4. Contents of Customer Requirement Document
5. Development of Customer Requirement Document
6. Strategic Advantage of a Good Customer Requirement Document
7. Use of Archived Products in Product Development
8. Summary
9. Your learning
10. Key Words
11. Exercises
12. Further Reading
1. Product Planning
All Product Planning is done to keep the company ahead of its competition
and to give it a competitive advantage. The Product Planning system must
dovetail into the business plan of the company. The success of the
company is determined by the success of its products. Effective product plans
are those which not only take care of market and customer needs but also
support company’s growth strategy. Now in order to create effective the
product plans the product management team and the top management must
work in close co-ordination with each other since
1. The product management team has the market information that he
top management will need to create effective business strategy.
2. The top management is in a position to give a clear understanding of the
company’s objectives and direction to assist the product
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management team to develop the right products that will assist business
strategy.
3. Based on the understanding the top managements objective and
direction the product management team will also be in a position to
develop the appropriate execution strategy and milestones in its
execution.
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6. Patents and technology search allow the product management team to
know what technologies and processes are available for use. Sometimes
the purchase of a patent/ development of a technology allows the
company to develop products for which the competition may not be able
to have an immediate answer. For example when the Xerox Corporation
developed their copier technology there was no other company in the
world which had a similar process and Xerox had a virtual monopoly over
the product sales for many years. It is only later when Xerox became
over confident and stopped investing in the brand and the technology
that other companies like cannon, Toshiba came and overtook them.
All these activities lead to the identification of the product and the
commencement of the developmental process. This process is a much more
complex process as compared with the initial steps taken in identifying and
freezing the customer requirement. These requirements form a part of a very
important document called the ‗Customer Requirement Document‘. This
document if created in the right manner can help a Product Manager get the
product to the market in the most economical manner and also help him
manage the product through its life giving the company maximum returns.
This phase of product development is the first operational phase where time
and money will begin to be committed by the company; the longer and more
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complicated the process, the longer it is likely to take. The Product
Development Process is led by a Product Development Team. This team
consists of people from R&D, Manufacturing, Industrial Engineering,
Quality Control, Sales and Marketing. It is often seen that delays in
product development occur because of one or both factors listed below:
advance
It makes sure you do your groundwork before any activity
(commitment in terms of time and money) starts
It gives everyone involved an idea of the various aspects of the
product the Product Manager is working on
If we take too much time in getting out the CRD then it may become
outdated since the market is moving so fast and priorities are changing
very rapidly.
Also all the stake holders in the product development process i.e. R&D,
Manufacturing, Industrial Engineering, Quality Control and Sales must
give their inputs and commitments to time taken and costs likely to
be incurred.
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Thus the development of the CRD must be an interactive process
between all the stake holders.
and put time frames in which he needs the product.
The Product Manager can create a broad overview document and
then sit along with the other departments involved in its
development and create the detailed document.
In the first process, where the Product Manager makes the complete CRD
himself, the document may be more weighted from the Marketing and Sales
point of view, and when it reaches the other functional departments they may
or may not agree with the possibility of creating functionalities, time and cost
estimates specified by the Product Manager. This can thus lead to a lot of
rework and disagreements in the team leading to delays or the final
development of products that may not have features that the Marketing team
was depending on to promote the product. Also since the complete document
has to be made in detail it is likely that the Product Manager will take much
longer to get the document ready – thus leading to the possibility of
making a document that has lost touch with the market before it is ready.
The other way is for the Product Manager to make a CRD quickly is to make a
document that has separate sections with large amount of
functionality. Each of these documents is further broken down into small well
defined tasks. The smaller documents are created along with the people
from the department that is going to be involved in the development of that
function. The documents involved with each functional area are live
documents that may continuously be updated as the product development
takes place. This way the team is able to start the work quickly and at the
same time keep the changing market conditions in view. The process followed
here is:
1. The CRD lists out all the functions and features that the product
must have.
2. Each of these functions must be listed by priority i.e. the highest
priority first and then the next and so on.
3. Now the Product Manager starts from the highest priority feature and
breaks it down in to tasks that need to be done in order to accomplish it.
This listing of tasks is done along with the persons who have to
work on it. The advantage of this is that it brings in their commitment
and ownership and the document is not one where the Product
Manager has thrust on the other departments.
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4. During the discussions the developer gives an indication of the time
and resources needed to complete the task.
5. Once this is complete the Product Manager signs off with the
developer and the signed off document is circulated within the team
while the developer commences his task. This allows the other team
members to understand how the development of the feature will impact
their functional areas and make the necessary preparation to be ready
when it comes to their functional area. For example, if the R&D team has
circulated a signed off document giving the type of development that is
going to be made available, the Production and Quality Control teams
can begin to understand how they will be impacted by the new
technology and prepare for it.
6. The Product Manager moves onto the person/ department who will take
on the development of the next most important task and so on this
process carries on till all the features are accounted for.
7. Another advantage of this process is that we can involve the customer
at any stage of the design to get him to meet the person developing the
feature. This is beneficial since it helps the developer get a clear
understanding of the customer‘s needs.
Many times, the market conditions force us to release products that are not
fully ready. This may be due to some activities of the competition or an
existing product of ours not doing too well in the market. This process allows
us to launch products with the key features and add more features as
they are developed.
This process has the following advantages over the method of a Product
Manager making a complete CRD document and then sending it to the
concerned stake holders for development:
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5. This way the customers also feel more committed to purchasing
the product as they feel it has been developed for them.
6. The commitments on time, etc are given by the development team and
so they are more committed to meeting the deadlines.
7. The Product Manager is involved in managing several small functions
of manageable proportions. He is also in a position to decide the
strategic launch of the product rather than having to wait for the full
development of the product.
8. The progress of the whole project can be measured in a more accurate
manner.
9. During the development process the other departments involved in the
development, quality control, sales, and technology development can
work together and in anticipation of each completing the task.
However, like all processes, this also has its set of disadvantages:
There are many reasons for not commercializing products. Some are
3. Some products are too expensive for current usage and cannot
find applications today for example the use of solar cars. These cars
are very expensive as compared to existing cars which are based on
33
cheap fossil fuel. The solar cars will find an application as fossil fuel
becomes more expensive and global warming makes use of these cars
more difficult.
Products that are developed but are not commercialised archived and also
form a pool of resource which comes in handy for the development of new
products.
34
Post-it® Notes were not a planned product.
He knew that Silver's adhesive did not bond permanently or leave a sticky
mess and he soon realised that if he applied a thin coating of the glue on a
strip of paper it would also be re-useable. He need not lose his place in his
hymn book again
It still took a long time and a lot of effort on the part of Art Fry and his
accomplices to persuade 3M that their product would work. There were many
difficulties to overcome, and at each stage of the way Fry would have to
convince the engineers and product developers to press on and find a way to
produce the blocks of notes
35
It was finally Introduced to the market in 1980, one year later Post-it Notes
were named 3M's Outstanding New Product, despite the fact that at first they
had to be given away free, to demonstrate their usefulness.
This was ten years after Silver developed the super weak adhesive. Today
they are one of the most popular office products available.
8. Summary
The actual process of product planning begins much before the creation of a
Customer Requirement Document. It begins with the definition of business
objectives by the top management and in order to fulfil these objectives the
product management team undertakes an elaborate exercise not only for
tracking customer requirements but also to scan competitors activities,
technologies evolving, etc to make sure that they have the products that will
give the organisation a competitive edge over its competitors. In this whole
process of planning and execution it is the creation of a Customer Requirement
Document that helps the product Managers to stay on course. This document
assists the Product Manager in developing the product by helping him create a
road map for the process. In addition it allows other functional departments
who are involved in the product development understand how they are
interlinked in the whole process of product development. The advantages of
this document are also that it allows the product manager to plan how features
will be released in the market to ensure that the product meets its revenue
and profit goals.
9. Your Learning
1. What is a Customer Requirement document? What is it used for?
4. What process do you think the process manager must follow to make the
CRD on his own or he must involve other departments which will be
involved in product development?
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7. Take a product that needs to be developed and write how you would go
about making a customer requirement document.
4. Stake Holders are all those who will be responsible for or benefit from
an activity.
8. Archived Products – Archives are places where things that have no use
or are old have been stored. So sometimes products that are developed
but do not find use are stored. These products are the archived products.
11. Exercises
37
3. How does using Archived products in product development benefit the
product development process. Does this turn out to be more cost
effective or does it only impact time of development?
38
6.
9.
11.
13.
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14. Unit IV - Product Line Decisions
Structure
1. Product Decisions
2. Product Mix
3. Product Line
4. Product Line Decisions
4.1. Withdrawing Products
4.2. Increasing Products
4.3. Product Contribution
5. Summary
6. Your learning
7. Key Words
8. Exercises
9. Further Reading
1. Product Decisions
Decisions regarding the product, price, promotion and distribution channels are
decisions on the elements of the "marketing mix". We can say that decisions
about the product are amongst the important ones since they affect the
market planning of the company. If the wrong products are introduced in the
market it can have catastrophic consequences for the company. For example
computers may be totally unsuitable for rural areas where electricity is not
available and where incomes are low; and the attempt to sell products to
customers without considering their cultural values and needs both can have
negative consequences on sales and achievement of business objectives.
However today‘s markets are a complex mix of aspirations and product
requirements and hence decisions are not so simple since the customer‘s
requirement lies somewhere between his aspirations and his need for a
product. Hence the marketer tends to introduce several products in his desire
to meet the aspirations and needs of his target market.
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Product modification decisions are based on how much an organisation has to
stay close to a standardised product (just by extending it) or how much it has
to move towards innovation (by making something new). So between
extension and innovation there is a whole spectrum of possibilities for different
products. The closer a company‘s products stay to extension the lower the cost
and the closer it gets towards innovation the higher is the cost of introduction
or decisions.
Product modification decisions revolve around decisions regarding the physical
product (size, style, specification, etc.) and product line management.
2. Product Mix
The product mix of a company is defined as the total set of products offered by
it. The product mix consists of product lines and individual products. For
example, all the courses a college offers makes up its product mix; courses in
the marketing department make a product line; and the basic marketing
course is an individual product. Product decisions at these three levels (product
mix, product line and product) are generally of two types:
i. Decisions that involve width and depth of the product line and
ii. Decisions that involve changes in the product mix occur over time –
adding, removing products or enhancing the range (width).
The depth of the product mix refers to the number of product items offered
within each line; the width refers to the number of product lines a company
has. For example, Table 1 illustrates the hypothetical product mix of a college.
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Table 1: Wide Width and Average Depth
The product lines are defined in terms of departments. The depth of each line
is shown by the number of different product items — courses offered — within
each product line. The college has decided to offer a diverse marketing mix.
Because the college has a number of departments, it can appeal to a large
cross-section of potential students. This college has decided to offer a wide
product line (academic departments), but the depth of each department
(course offerings) is only average.
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Image anchors are highly promoted products within a line that define the
image of the whole line. Image anchors are usually from the higher end of the
line's range. So when the company promotes them their values rub off onto
products lower down in the range and customer‘s perception for these products
is enhanced. So when a car company promotes its model it shows the top most
model in the range with a rider that all accessories are not a part of standard
equipment. This helps to sell the lower end models of the same car.
When we add a new product within the current range of an incomplete line,
this is referred to as line filling.
Price lining is the use of a limited number of prices for all your product
offerings. Its underlying rationale is that these amounts are seen as suitable
price points for a whole range of products by prospective customers. It has the
advantage of ease of administering, but the disadvantage of inflexibility,
particularly in times of inflation or unstable prices.
3. Product Line
Product Line is defined as a group of products that are closely related to each
other. They function in the same manner and are sold to the same customer
groups. These products are marketed from the same types of outlets and fall
within a specified price range. The product line has
i. Line depth refers to the number of product variants in a line.
ii. Line consistency refers to how closely related the products that
make up the line are.
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iii. Line vulnerability refers to the percentage of sales or profits that
are derived from only a few products in the line. Ideally a company
would like to get an even amount of sales from each product but
many times one or two products do much better and so contribute a
much higher percentage of sales. The company must evaluate if the
other products not contributing much in terms of sales are
contributing in margins. If not they must question the rationale for
keeping such products in their product line.
Increase in Products
Item Contribution
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iv. Need for variety by the customer or sales channel/ retailers.
Product withdrawal even in a planned manner has its own risks because an
existing product already has an acceptance in the market and is
established. It is giving the company some sales and profits. By this time it
is likely that the product development costs have been recovered and the
amount of money needed for supporting the product is not so much as the
customers are already aware of the product. In addition the company has
become adept in manufacturing and selling the product. Once it is
withdrawn the company will need to introduce another product in its place.
How this new product will fare in the market is not known thus there is a
risk in its introduction. For this new product the company will need to spend
large sums to promote it and generate enough sales to recover the costs of
development. The manpower and the sales channel will need to be retrained
in order to understand the product and its benefits thus involving cost. How
the customer will take to this new product is not known for certain until the
market performance actually shows it.
i. Has the product met its business objectives in terms of sales and
profits?
iii. Can the product support the marketing expenditure being done in
order to promote it.
iv. Does the presence of the product help in selling other products of the
company even if it is not making any money (Loss leader chapter 7)
v. Does the company have a product that can fill the space vacated by
this product?
vi. Can/ should the company reposition this product? Is it economical for
the company to do so?
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Thus we can see that the withdrawal of the product is a complex a task as
introducing a new one and yet it is linked with the introduction of a new
product and the business strategy of the company.
Stretching Down
line:
Stretching Upwards
Two Way Stretching
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Many companies launch their products at the upper price spectrum of the
market and stretch their product lines downwards. They do this because:
Stretching Upwards: If the company adds a product above the Honda Accord
then it would mean stretching upwards the product line.
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Again many companies find it more convenient to commence their business at
the middle of the price range segment as it gives a reasonable balance of
volumes and margins. Later they enter the upper price segments. The reasons
for entering this are:
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Some of the reasons for a two way stretch of the product line are:
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Decision was to establish particular set of services in each segment of hotels to
mould the loyalty of customers in such a way that they would continue to stay
with the group no matter what price point of hotel they want to stay in.
Here the possible after effects are that price conscious customers may soon
discover the reasonably-priced rooms of the lower chain and tend to move
there.
Reasoning used for justification of the stretch: ―Marriott would rather capture
its own customers who move downward than passing them to competitors‖
So if Honda has Honda City a base model and to this it adds an LX model
having more features than the base model whith a slightly higher price
and a DX model having more features than the LX model with a price
higher than the LX model yet the price range remaining within the
category pricing. This price of the DX model will be much lower than the
price of the base model of the next higher category the Honda Civic. This
would lead to a product line filling.
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d. It also helps the company to give the customer an impression that
its range of products is complete and comprehensive. This is good
for the overall image of the company.
For a company to modify, add or delete a product in the product line they must
analyse how the product is performing in terms of sales and profit. Is it
contributing a sufficient amount to be retained or is it fulfilling some business
objective for it to be retained or dropped. This analysis is done by evaluating
the contribution margin of a product – higher the contribution margin is (the
lower variable costs are as a percentage of total costs), faster the profits
increase with sales. The Contribution margin analysis allows an analysis of how
growth in sales will translate into growth in profits. This is also called an
operating leverage and measures how risky (volatile) a company's operating
income is to changes in market conditions.
Contribution margin is calculated as the product's price minus its total variable
costs.
This allows a manager to evaluate what will be the breakeven point in terms of
sales for a particular product. Knowing the breakeven point he is in a position
to target the sales he desires – one that will help him meet his business goals
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in terms of profits and recoveries of the development costs. It also helps the
manager plan his selling schemes better by knowing to what extent he will be
able to reward his channel partners and sales team by way of commissions and
incentives.
If these options are not possible, the manager may decide to drop the
unprofitable product in order to introduce an alternate product with a higher
contribution margin.
5. Summary
The product forms an important part of the marketing mix. A company needs
to have several products in order to serve the complete range of customers.
The set of products that the company has in its armoury is called the product
mix. This product mix may consist of various product lines or individual
products. The more numbers of lines and products a company has the wider is
said to be its product mix. A product line is a set of products that are linked to
each other since they tend to address similar customers. A product line may
have depth that means a number of products at various price points.
6. Your learning
1. What is a product mix? Why is it needed by an organisation?
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2. Why do we need to take considered decisions while withdrawing
products?
7. Key Words
6. Price spectrum – The range of prices for a product line from the
lowest priced product in the line to the highest priced product give the
price spectrum of the product line.
7. Eat into sales – Means that a new product will take away the sales
that was happening for an existing product when another one is
introduced above or below it by customers who wanted a cheaper of
more expensive product.
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8. Exercises
1. How does filling a product line help the company retain customers?
9. Further Reading
1. Lehmann, Donald R and Winer, Russel S, (2005) Product Management,
New Delhi, India, Tata McGraw-Hill Page 257 - 280
2. Majumdar, R, (1998), Product Management in India, New Delhi, India,
Prentice Hall of India, Page 29-39, 66-71
3. Lehmann, Donald R and Winer, Russel S, (1997) Product Management,
Singapore, Irwin/ McGraw-Hill Page 244-250, 263 – 269
4. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 399-404
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16. UNIT – V Product Life Cycle
Structure
1. Introduction
2. Basics of Product Life Cycle (PLC)
3. Types of Customers at different stages
4. Strategy at different stages of the PLC
5. Application of the PLC
6. Limitations of the PLC
7. Summary
8. Your learning
9. Key Words
10. Exercises
11. Further Reading
1. Introduction
Product Life Cycle – as the name suggests every product has a life cycle. This
life cycle commences from the time the product is launched in the market till
the time it is ultimately withdrawn from it. During this period it passes
through several phases each of which is important and needs different
strategies if the product has to remain in the market and grow into the next
phase. This is very similar to a human being who also passes through several
phases from birth to death and the strategies or activities needed for each
phase of life are different from each other and need a successful management
of each phase.
We can generalise various phases of life as childhood, youth, adult hood, old
age and based on the total population make a generalised period for each
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stage and life expectancy of the individual. However for an individual each
phase may not be of the same duration or intensity as the standard one. An
individual may have a very short youth because of certain conditions in his life
or family, or a person may die a premature death due to illness or accident.
Similarly a for products we can make a standardised life cycle based on the
industry in which it is but an individual product may not follow the
standard life cycle pattern an may live much longer or may perish much
earlier.
2.1. Introduction
In this phase the product is introduced in the market. Once the product has
been developed the Product Manager has to decide when he wants to
introduce the product to the market. The timing of introduction is a critical
decision since it may involve the phasing out of another product from the
market or the product being introduced is designed to counter a
competitor‘s product and the right timing is an important consideration for
success. If the product is introduced too late because our product has not
been phased out the company may lose profits that it could have made with
the new product or if it was meant to counter a competitor‘s then it is
possible that our customers have shifted to some competitor‘s product and
getting them back will be difficult. When Nirma initially launched its washing
powder in the Rural Markets Hindustan Lever never paid attention to it
because it did not think that the Rural market had that much potential and
underestimated the rural populations desire for a quality product. They
continued to concentrate on urban markets. This allowed Nirma to
consolidate its position by way of improved product, manufacturing facilities
and distribution system. By the time Hindustan Lever responded to the
threat by launching a lower priced washing powder it was too late to
dislodge a well entrenched Nirma. In fact now Nirma was able to enter the
urban markets also since it was an established product and financially it was
much stronger to resist Hindustan Lever in the market.
2.2. Growth
In this stage the product is advertised vigorously by the company and
grows rapidly in sales with more and more customers coming to know about
it and beginning to try it. This is an important stage where the product is
either accepted or rejected by the customer. An acceptance will continue
to see a growth in its sales otherwise the product will continue to try and
sell but will soon fail and be withdrawn from the market.
Usually the customers in this phase are the early adopters or those who
like to experiment and are comfortable with innovation. They are also those
people who are fashion conscious and trend leaders.
Thus the Growth phase is a critical phase and companies must ensure that
before they introduce a product they have enough resources to see the
products launch to success.
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Profit possibilities attract competitors, but many competitors will be
―shaken out‖ during this phase as well.
Promotion shifts from primary to selective demand.
Building market share is a common marketing objective.
2.3. Maturity
The introduction of the product sees a period of rapid growth when the sales
increase. But as time passes more and more competitors enter the
market with similar products. The sale is then divided amongst many
products and the rate of growth of sales begins to slow down. During
this phase those customers from the total target segment who are the
early majority begin to use the product. Though the rate of growth of
sales begins to slow down the total market share of the product
continues to rise. In this phase the company needs to put in a lot of
effort in order to maintain growth in sales. Several strategies may need
to be adopted. These may take several forms like:
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Promotional costs increase (selective demand), and sales promotion
to trigger switching is more common (companies motivate customers
to come and change their old products with new ones)
Products become more homogenous, triggering price competition.
Need to differentiate brand.
Diversify brand and models.
Can be difficult to enter the market in this phase (capturing vs.
retaining share). It is easier to retain share than to capture share
because for capturing a competitors share the company has to spend
some money, but in this phase profits margins are very tight.
Efficiency is a key factor for staying alive in this phase.
2.4. Decline
Despite the company‘s best efforts the growth in sales of the product begins
to slow down and plateau. This may happen due to the product becoming
out dated and newer products becoming available. It may also happen
because of a new technology becoming available. As we know when mobile
phones were introduced they were large bulky and did not have much back
up. As soon as smaller and more efficient phones became available
consumers switched to the newer phones and the larger ones went into
decline.
In this phase the late majority and the stragglers of the total target
segment are the likely consumers of the product. These people are not
likely to experiment with a new technology and so they will wait for the
technology to stabilise and prices to come down. They will also not
change their products or brands easily and so in a way are a loyal part of
the company’s products and efforts should be made to retain them.
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of Lifebuoy soap – this product has remained between the maturity and
decline phase for a very long time.
Lifebuoy was sold in India as early as 1895 when the country was in the
grip of a plague epidemic, but was officially launched and marketed from
1935.
Lifebuoy had a 21% market share in the overall soap market and was a
category leader in the carbolic soap segment with a 95% market share. For
over hundred years since the brand first came to India, Lifebuoy has been
associated with health and well-being. Its ads reiterated the message that
Lifebuoy washed away germs and kept one protected and healthy. The
brand went through a major re-launch for the first time in 1964, with a
change in product formulation, shape, and packaging.
But the health advantage was lost over time as competitors came out with
soaps that promised both health and beauty.
The brand passed through prolonged stages of growth and maturity during
most of the second half of 20th century. It was faced with a decline stage
during the last stages of the 20th century and early 21st century with sales
falling at a very rapid rate of 15%–20% per year. The downward trend of
Lifebuoy ‗carbolic soap’ sales made Hindustan Lever Ltd. reposition the
product during 2002 and rejuvenate the brand with prudent marketing
strategies by optimally utilising the brand image.
In 2002 the product moved from being a hard soap to a mild soap that
delivered a significantly superior bathing experience. The new soap had a
refreshing fragrance and its overall positioning changed, painting its
promise of health in softer, more versatile and responsible hues—for the
entire family.
The packaging was also changed: The rugged looking packs were soon
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replaced with a softer pinkish cover. This was followed by a series of ads
highlighting the soap‘s germ fighting benefits.
Lifebuoy had become a family soap with hygiene as its core promise. A soap
that had been relegated to toilets, Lifebuoy has added new values in an age
where more consumers are getting more and more concerned about germs
and cleanliness.
Sales decrease.
Profits decrease and eventually disappear.
Declining numbers of competitors.
Spend enough on promotion to retain hard core brand loyal
customers.
Eliminate unprofitable outlets.
Marketing objective: reduce costs and milk the brand, or drop it.
Innovators
Innovators are a very small part of the total target audience but they are
a very important part. They the first individuals to adopt an innovation
or product and in a way prompt the others to begin to use the product.
Innovators are willing to take risks in trying out new products. These
types of buyers are predominant during the introduction of the product.
They are
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c. Financially they are sound and have significant surplus.
d. Are very social and keep abreast with the latest products and
innovations.
Early Adopters
Both the Early Adopters and Early Majority are a significant part of the
growth phase of the product.
Early Majority
Late Majority
The Late Majority customers will enter the market during the maturity
phase of the product life cycle. Individuals in this category will adopt an
innovation after a large part of the adopters have already adopted the
product. These individuals look at an innovation or a new product with a
high degree of suspicion about its effectiveness and begin to use the
product only after the majority of society has adopted the innovation or
product. The Late Majority are
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b. Belong to a below average social status,
c. They do not have very much financial surplus
d. They are in contact with others in late majority and early majority,
e. They have very little opinion leadership.
Laggards
The Laggards enter the market near the end of the maturity phase of
during the decline phase of the PLC. They will wait for the product to be
absolutely tried and tested and for the prices to have come down to
the minimum. Individuals in this category are the last to adopt an
innovation. Individuals in this category show little to no opinion leadership.
These individuals typically
a. Have an dislike for change of any type and tend to resist change.
b. They tend to be older in age.
c. These individuals in general tend to be focused on traditions
d. And they are at the lowest social status and lowest financial
surplus
e. They are usually in contact with only family and close friends and
exert very little to no opinion leadership.
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4. Strategies at different stages of the PLC
Just like the human life cycle where each stage of life requires different
strategies and different skills the various stages of the Product Life Cycle also
need different professional disciplines, and requires many skills, tools and
processes. The Product life cycle (PLC) has to do with the life of a product in
the market with respect to business/commercial costs and sales measures. As
the product passes through various stages of its life cycle we see that:
Each stage has a limited period,
Each stage poses different challenges, provides opportunities, and
creates problems to the seller,
The profits rise and fall at different stages of product life cycle, and
Products require different marketing, financial, manufacturing,
purchasing, and human resource strategies in each life cycle stage.
Introduction Stage
6. Little or no competition
Growth Stage
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6. Competition begins to increase with a few new players entering the
market.
Maturity Stage
7. Net profit per product goes down but if overall sales remains high profit
increases
Decline Stage
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maturity stage for a long time with constant or slow growth in sales. The shape
of such a PLC would again be significantly different from the standard curve.
Every product is launched grows and at some point of time dies. However even
though the product dies its category does not die. For example a phone may
die but the communications category will remain. A particular juice may die but
not the juice category as a whole.
Hence to conclude we can say that the standard PLC must be used as a
guide by the Product Management team to understand the strategies,
tools and tactics to be used at different times of the PLC while factoring in
the variations of a specific product or industry category and not get bogged
down by the standard PLC.
7. Summary
In each stage of the market there are different types of customers who are
predominant in the market. Each of these types of customer have their
specified behavioural pattern and a marketer must be able to exploit these to
promote the brand.
8. Your learning
1. What is the Product Life Cycle?
2. What are the main stages of the PLC and how does sales behave in each
of these stages?
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3. How many types of customers are there in the market? Do they in any
way affect the PLC?
9. Key Words
1. Capitalization – This is usually used to mean Market capitalization (also
referred to as market cap) This is a measure of the size of a business
and is equal to the share price multiplied by the number of shares at
have been bought by the share holders.
5. Selective demand - Demand for a specific brand that occurs after the
primary demand (for the product class) in a product's life cycle.
8. Cannibalise – where the sales of a new product eats into the sales of
another products within the same line. If the total sales revenue of
that product line increases, then the line extension is justifiable.
9. Level off – when the sales stops increasing and begins to remain the
same they are said to level off. It is similar to water which attains its
level which is virtually flat.
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that after increasing for a certain time the sales begins to become
flat. This means the sales has reached a plateau.
12. Hard core brand loyal – a consumer who is absolutely loyal to the
brand. He is so loyal that if he does not find his preferred brand he
will not buy the product.
10. Exercises
1. Can we use the PLC for deciding the brand promotion strategy? How will
the market and brand influence the PLC?
3. Can a product stay in the maturity phase for an extended period of time?
If yes what must be some of the key factors that can help it stay in this
phase.
4. Why does a marketer have to be careful in using the PLC while planning
in promotion strategy?
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18. Unit VI – PRODUCT PORTFOLIO
Structure
Let us see what all effects a new product would have on an existing product:
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i. A new product will need to be advertised more than an existing
product in order to make the customer aware about it.
ii. In the distribution channel the distributor will have to allocate some
resources in terms of storage space, finance, selling and delivery
effort to this new product.
iii. The new product will also occupy shelf space and may displace an
existing product.
iv. The production facility will have to allocate resources for
manufacturing the product storing raw material and finished
goods.
v. The profitability of each product is not the same and so if sales of a
new product which is not as profitable affects another much more
profitable product it is not for the overall benefit of the company.
Hence the company always analyses and tries to ensure that any new product
that is launched must not have a negative effect on its existing product
range and that the overall profit of the company increases with this
introduction.
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v. The competitor’s products available in the market and likely
response from competition.
This is a good tool not only for product portfolio but also to helps decide
where to apply other finite resources: people, time and equipment.
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To understand the Boston Matrix we categorise products into four groups along two
axes first Market Growth and Market Share. The Market share is plotted on the X- Axis
and the Market Growth on the Y-Axis.
If a product is in this quadrant the product has a weak market presence. In order to
make the customer notice this product it will take a lot of work and effort by the
company. Making profits will be difficult since it will not get the company
economies of scale. A larger competitor with a larger market share may be making
more profits with the same selling price because of his economies of scale reduce his
input costs and a larger sale giving him more overall profit. All this is further
complicated because the overall market growth is low and getting sales will be highly
competitive – the company will have to cut prices or provide incentives to the
customer to buy his product. In these products we may have to reinvest the profits in
order to sustain the product thus virtually making no profits
The product in this quadrant is well established and because of its large sales
would be making profit. The company is in a position to consider investing money
in its growth or new products or in the company‘s star products. However one has
to be careful since the market is not expanding and the competitive scenario would
not be allowing the company to make large profits. Also the company must weigh
the consequences of adding a new product in a low growth market where it already
has a high market share because the market opportunities would be limited.
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3. Stars: High Market Share / High Market Growth
In this quadrant the products have a high share of a market and are in the growth
stage of the market. These products need capital to finance their growth which
may sometimes mean spending more than what the immediate returns are but have
potential for high sales and profit. However the product is well established with a
potential to achieve much more and the company should make its best efforts in
order to achieve this.
4. Question Marks (Problem Child): Low Market Share / High Market Growth
Products in this quadrant have a low market share in a high growth market.
These products are opportunities which the company can encash. Since market
share is low the revenue generated is also low but the possibility is high due to high
growth of the market. Hence in order to convert these into Stars the company needs
to inject funds/ effort. This could be in form of an increased sales and distribution
effort, more promotion, etc.
Question Marks might become Stars and eventual Cash Cows, but if not
handled properly they could fall behind and become Dogs. These opportunities
need serious thought as to whether increased investment is needed or not.
The BCG Matrix oversimplifies the problem where the problem is a set of
complex decisions. We should use it as a planning tool but must not be
overwhelmed by its decisions. Some market sense must be used with it.
Strengths and weaknesses are internal factors – those that are within the
control of the organisation. Opportunities and threats are external factors
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which the company must take into account but does not have too much control
over.
Build on Strengths.
Exploit Opportunities
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Figure 2: Typical elements in SWOT
When we undertake the analysis of the internal and external situation it can
produce a large amount of information. A lot of this may not be very
relevant to the product portfolio decision. The SWOT analysis serves as a tool
that helps interpret and filter to the large amount of information such that
it becomes manageable with focus on key issues. Strengths can serve as a
foundation to build a competitive advantage, and weaknesses may not allow us
to do so. By understanding these four aspects of its product, a company
can better leverage its strengths, correct its weaknesses, capitalize on
golden opportunities, and deter potentially devastating threats.
Internal Analysis:
The internal analysis is a comprehensive evaluation of the internal
environment's potential strengths and weaknesses. Factors should be
evaluated across the organization in areas such as:
Company culture
Company image
Organizational structure
Key staff
Access to natural resources
Position on the experience curve
Operational efficiency
Operational capacity
Brand awareness
Market share
Financial resources
Exclusive contracts
Patents and trade secrets
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The SWOT analysis summarizes the internal factors of the firm as a list of
strengths (positive) and weaknesses (Negative).
External Analysis:
An opportunity is the chance to introduce a new product or service that can
generate superior returns. Opportunities can arise when changes occur in the
external environment. Many of these changes can be perceived as threats to
the market position of existing products and may necessitate a change in
product specifications or the development of new products in order for the firm
to remain competitive. Changes in the external environment may be related
to:
Customers
Competitors
Market trends
Suppliers
Partners
Social changes
New technology
Economic environment
Political and regulatory environment
The last four items in the above list are macro-environmental variables, and
are addressed in a PEST analysis. The SWOT analysis summarizes the external
environmental factors as a list of opportunities and threats.
In undertaking a Product analysis, the Product Committee make detailed
profiles of each competitive product focusing on their strengths and
weaknesses using the SWOT analysis. They will examine competitions
resources, competencies, positioning of the product and its
differentiation over other products in the market, they will also look at
competitions cost structure and sources of profit. This is done by analysing
documents available in public domain and the various announcements made by
competition in press or to government and factoring in the company‘s own
understanding. The Product Committee also considers how competitors have
responded in the past to industry developments. This gives them key
indications as to the posible reaction when the company introduces a new
product.
Many times the company may have to undertake a market research in order
to validate some information or assumptions being made for the product
portfolio decisions.
Some common techniques to conduct market research are:
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Qualitative market research, such as focus group
discussions
Quantitative market research, such as statistical surveys,
customer surveys, market size analysis
Experimental techniques such as test marketing to
understand customer tastes and preferences and the price points
at which the customer will buy
Observational techniques such as ethnographic (on-site)
observation – this is the science that studies people, ethnic groups
and other ethnic formations, composition, resettlement, social
welfare characteristics, as well as their material and spiritual
culture.
Product managers may also design and oversee various
environmental scanning and competitive intelligence
processes to help identify trends and inform the company's
marketing analysis.
Like any tool that is used in a complex market the SWOT analysis cannot give
a definitive answer. Its use must be tempered with the Product Managers
own wisdom. This is because at the time of making the SWOT analysis a
degree of subjectivity is introduced in the analysis. This will vary from
person to person.
iii. Use SWOT to compare competitive products better or worse than our
own product.
Strengths
Strong core brand
Strong market position
Solid brand portfolio
Strong revenue growth
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Economies of scale
Cooperative and Progressive Corporate Cuture
Filtered Water instead of Spring Water makes the production, logistics, and
profit margins a lot greater on their bottled water
Weaknesses
Concentrated in North America (US, Canada, Mexico), where almost 70%
of revenues come from
Health Craze will hurt soft drink sales.
Opportunities
Acquisitions & alliances
Bottled water growth
Hispanic growth in the US and Pepsi's ability to meet their tastes with
current product lines (i.e., Sabritas chips)
Growth in emerging markets
Growing consumer health consciousness - i.e., consumer focus on non-
carbonated beverages like Gatorade, Aquafina, Litpon, Quaker Oats, etc
Threats
Declining economy/recession
Sluggish growth of carbonated drinks
Coca-Cola & other smaller, more nimble operators
Commodity price increases, fluctuating oil prices effect production and
distribution (gas, plastic)
o Ensure that the company remains the main player in markets that
are growing
o In markets that have become mature and are not growing anymore
we reposition the company‘s product so that the competitor is not
able to sell and the company‘s takes over its market share. This is
not easy as it requires an aggressive marketing strategy to make the
market unattractive for competitors
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o The same product can be repackaged or remodelled
The matrix shows us that risk increases the further the strategy moves
away from known quantities - the existing product and the existing market.
Thus, product development and market extension usually involve a
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greater risk than penetration and diversification generally carries the
greatest risk of all.
While penetration are usually need the same technical, financial, and
merchandising resources which are used for the original product line,
diversification usually requires new skills, new techniques, and new facilities.
As a result it almost invariably leads to physical and organizational changes in
the structure of the business which represent a distinct break with past
business experience.
5. Summary
A company has a variety of customers each of whose need is a little different
from the other customer. It is therefore not possible for the company to satisfy
all customers with one product. This is possible only by a set of products called
the product portfolio. The product portfolio is also important since every
product has a life cycle and before an existing product goes into decline or is
forced into decline by a competitor the company must be able to bring in
another product to take its place and allow the company t fulfill its business
and strategic objectives.
There are several tools like the SWOT analysis, BCG matrix or the Ansoff‘s
matrix that help the product manager evaluate his product with the market, its
strength and the competitor to make a decision. However these tools can only
provide a general guidance and cannot give exact solutions since the actual
market is a highly complex one and all its variables cannot be quantified. The
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marketer has ultimately has to use his knowledge and experience to arrive at a
conclusion or decision.
The marketer must be careful while using the tools since many times they get
so carried away by their own convictions that they do not evaluate rationally
the conclusions or indications of the tools.
6. Your learning
1. What is the importance of Product Portfolio?
3. How does using tools help us in evaluating new products for our
portfolio?
7. Key Words
1. Product pipeline - A product pipeline is a series of products developed
and sold by a company, ideally in different stages of their life cycle.
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5. Final objective – The ultimate destination.
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8. Exercises
1. Why is product portfolio management linked closely to business strategy?
2. What must the company do to ensure that new products in its portfolio
are developed on time?
4. What is the difference between the BCG and Ansoff‘s matrix? What
factors determine which tool we should use?
6. How does knowing the threats in the market help in the development of
the product portfolio?
9. Further Reading
1. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 68-73
2. Gupta, C B Dr. And Rajan Nair, N Dr. (2009) Marketing Management, New
Delhi, India. Sultan Chand and Sons Page 7.9 – 7.14
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20. UNIT VII - PRODUCT PRICING
21.
Structure
1. What is Pricing?
Pricing is the process of determining the value that the company will receive
for the product in such a manner that it will meet the company‘s business
objectives. Pricing takes into consideration manufacturing cost, market place,
competition, market condition, and quality of product.
Pricing is an important part of the marketing mix as it is one of the four Ps.
The other three aspects are product, promotion, and place. Price is the only
revenue generating element amongst the four Ps, the rest being cost centres.
A well chosen price should do three things:
Help in achieving the company‘s business objectives in terms of
profitability.
It should be such that the consumer will buy the product in relation to
other products in the market place.
It should be consistent with its positioning and marketing variables.
So we can say that Strategic Pricing is the effective, proactive use of product
pricing to drive sales and profits, and to help establish the parameters for
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product development. It is powerful tool for successful marketing strategies if
used judiciously.
5. Product Lifecycle – we have seen that the price of the product varies
through the Product Life Cycle of the product. Hence the pricing strategy
must factor in the stage in PLC while pricing. As the product moves from
growth to decline the price of the product usually goes down because by
this time competition has similar products and consumers have
understood the product and the competitors‘ product and can now truly
value the differences. Thus large perceived differences in prices can
become reasons for shifting brands.
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3. Product Pricing
The ideal price for any product or service is one that is acceptable to both
buyer and seller.
From the buyer's point of view the right price depends on the buyer‘s perceived
value of the product and what competitive products are available in the
market.
The seller has several objectives in pricing the product. However the main
objective is to ensure growth in sales and profits. In companies that are multi
product they also have to ensure that one product does not eat into the other
products sales.
The following steps can be used for determination of product pricing for any
size business:
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organised the prices must be correct. This may not be correct and so the
companies must rely on their own analysis to do the costing of costs and
overheads.
Several objectives need to be addressed in determining correct product
pricing:
It must be competitive.
It should cover the cost of producing the goods or services.
It must cater for marketing and overhead expenses.
It must meet the profit objectives set at the time of planning.
It should be able to cater to distribution margins and discounts.
Once we have arrived at a price based on all the above factors we need
to once again evaluate the effect of different levels on sales before
taking a final decision.
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Another example is that of gourmet food products which have many
distinct and unique attributes in any given category. Consumers shop for
gourmet products because they are usually looking for new, unique
products — "something out of the ordinary." Here the consumer is not
likely to change his brand because of small differences in price. Here
changes will occur only at significant difference in price.
In order to understand how a new product or feature will be perceived by
the consumer the Product Manager can always undertake some form of
Test Marketing or Field Testing in a small market.
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The secondary costs vary from industry to industry and the product
manager must be aware of the industry practices while pricing his
product.
The secondary margins are calculated as a ―mark-up‖ or markdown‖
on the selling price. Mark-up means that the margin is added to the
selling price or cost. Hence a product being sold for 100 Rs with a
mark-up of 20% will have a selling price of Rs 120. This mark up may
be on selling price or on cost of product.
Markdown means that the margin is a percentage of the selling price.
Hence a product selling at Rs 120 with a markdown of 20% will give a
margin of Rs 24 to the retailer and the company will get only Rs 94.
Markups, like all pricing strategies, depend on three influences —
cost, competition, and demand. Products/ Brands that are unknown
usually have to give higher mark-ups than well known brands. The
reason could well be that the retailer will have to make the effort to
stock and sell an unknown product – it may not sell also thus the risk
and so a higher mark-up to cover the risk. Whereas in the case of a
well known brand the company is advertising and the consumer
knows about the product. He may come and ask for the product or
the retailer with little effort may be able to sell the product thus has a
lower risk and so a corresponding lower margin (mark-up)
While selecting a distribution channel the company must ensure that
i. It has the lowest costs possible
ii. It must allow the product to enter the market easily despite
competition
iii. The distribution channel must be able to provide adequate sales
volume to meet company‘s objectives
iv. The company makes a sufficient margins after paying costs of the
distribution channel.
v. The channel is committed to the company‘s product and will meet
their financial commitments to the company.
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If we see high technology categories like mobile phones these categories
are introduced with high prices and within 6 to 8 months the prices
come down significantly as newer products reach the market and
competitive products saturate the market. Sometimes because of the
small product life cycle companies may find it difficult to predict sales or
recover costs of development.
In more stable markets like say automobiles prices do not vary so much
but in order to maintain prices as the product moves towards maturity
the company has to add more features or change the cosmetic
appearance of the car to keep getting the same price.
Many product categories have significant evolution and life cycles that
may affect pricing decisions.
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4. Types of Pricing
Several types of pricing is undertaken by the marketer the main objective
being an increase in the overall profit of the business. Some of the types are:
i. Loss Leader: A loss leader is a product that has a price set below the
operating margin - not necessarily below cost. This results in a loss to
the enterprise on that particular item in the hope that it will draw more
customers and that some of those customers will buy other, higher
margin items.
The marketer expects that the typical customer will purchase other items
at the same time as the loss leader and that the profit made on these
items will be such that an overall profit is generated for the vendor.
The firm tries to maintain a current analysis of its accounts for both the
loss lead and the associated items, so it can monitor how well the
scheme is doing, as quickly as possible, thereby never suffering an
overall net loss.
An example is a retailer may sell bread or eggs at a very low price and so
customers who come to buy eggs and bread will also buy their other
requirements. This will help the retailer make up the loss and enhance
sales of his outlet.
ii. Premium pricing: Premium pricing is the strategy of consistently
pricing at, or near, the high end of the possible price range to help
attract status-conscious consumers. Examples of companies which
partake in premium pricing in the marketplace include Tanishq, BMW,
Cross pens and Bentley. People will buy a premium priced product
because:
a. They believe the high price is an indication of good quality;
b. They believe it to be a sign of self worth - "They are worth it;" it
authenticates the buyer's success and status; it is a signal to others
that the owner is a member of an exclusive group;
c. They require flawless performance in this application - The cost of
product malfunction is too high to buy anything but the best -
example : heart pacemaker.
iii. Promotional Pricing: The final price of the product can always be
adjusted through Promotional Pricing. This pricing is unlike the standard
corrections in price which will see a permanent upward or a downwards
movement. Promotional pricing is only temporary in nature and always
downwards. Promotional pricing therefore refers to a temporary
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reduction of prices in order to simulate product demand. However
marketers should be careful not to overuse promotional programs that
temporarily reduce selling price. If promotional pricing is used too
frequently customers may become conditioned to anticipate the
reduction. This results in buyers withholding purchases until the product
is again offered at a lower price. Since promotional pricing often means
the marketing organization is making very little profit from each item
sold, regularly selling at a low price could jeopardize the company‘s
ability to meet their financial objectives.
The options for promotional pricing include:
Markdowns – This is the most common method of promotional pricing
used for stimulating customer demand. There are three types of
markdowns
o Temporary Markdown – These are normally for a specified period of
time at the end of which the product price will be raised back to the
normal selling price.
o Seasonal Markdown – These are price markdowns for specified
periods of the year e.g. festivals, end of season, special events, etc.
o Permanent Markdown – Unlike the temporary markdowns where the
prices are reverted back to their original here the prices are
permanently reduced. This may be done if a clear an old stock to
replace with a new stock, it may also be done to sell perishable
products, or when a new technology arrives and the old technology
products need to be sold.
Bundle Pricing – This type of pricing is done when the marketer does not
want to reduce the price of its product but yet wants to promote it. A
customer sees the reduction in price as a reduction in quality. And so
bundling it with another product helps create the perception that the
overall cost of both the products is reduces without creating the
impression that one products price has been reduced. For example the
concept of ―buy one get one free‖ is a much used technique in garments.
The customer sees the price and mentally calculates how much two
garments would cost and how much one set is costing. Similarly
computer sellers or home theatre sellers give a large number of DVDs
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free along with their system. If the customer had bought these
separately he would definitely have paid more for both.
This type of pricing is also used many times to sell or introduce
products that are complementary to the main product. For buyers,
the overall cost of the purchase shows a savings compared to
purchasing each product individually.
Dynamic Pricing – this type of pricing has become possible with the
availability of information technology. In this type of pricing the
price may vary depending upon the type of customer that you are –
existing or new, how often do you purchase how much do you buy,
etc. Using technology pricing the selling price is decided based on
the customer fulfilling certain criteria.
We can compare this to the age old process of bargaining where
the price was fixed by the seller depending on the type of customer
you were and how much you could bargain.
Some of the ways in which Dynamic pricing is done is by the use of
loyalty cards – where a specified discount is given to customers
who fulfil certain conditions. So let us say you are a frequent visitor
to Barista and have a loyalty card then every time you go there and
use your card your price will be 10% lower than any other
customer without a loyalty card. Similarly we see airlines selling
tickets on the internet at much lower cost when you buy them early
and more expensive as we buy the ticket as we come closer to the
date of departure.
5. Summary
Pricing is an important part of the marketing mix as it is one of the four P‘s.
Price is the only revenue generating element amongst the four Ps, the rest
being cost centres.
A well chosen price should do three things:
Help in achieving the company‘s business objectives in terms of
profitability.
It should be such that the consumer will buy the product in relation to
other products in the market place.
It should be consistent with its positioning and marketing variables.
So we can say that Strategic Pricing is the effective, proactive use of product
pricing to drive sales and profits, and to help establish the parameters for
product development. It is powerful tool for successful marketing strategies if
used judiciously.
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However in order to price a product the marketer has to start at the product
development stage, and consider the costs, the competition, the price
sensitivity of the product and its category, the distribution channel and its
costs and finally the product life cycle of the product.
There are several types of pricing each of which has its advantages and
disadvantages. The marketer has to decide how the pricing of one product will
affect the other products in its portfolio. He has to work in such a manner that
it leads to an overall improvement in profits for the company or a meeting of
the company‘s business objectives.
6. Your learning
1. Why is pricing an important aspect of marketing?
3. If a loss leader is making a loss why should the company introduce such
a product?
7. Key Words
1. Strategic pricing – It is the relationship between market segmentation
and price, and delivers the tools the company needs to stay focused on
value as it determines break-even, defines price elasticity, and analyses
the tradeoffs between features and price points. Using strategic pricing
tools yields a better positioning approach.
4. Life style items – products that reflect fashion and trends. Also it refers
to a way a person lives so items that show or are used to show this are
life style items
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5. Perceived differences – perceive is to feel, understand or become
aware of something. This is based on our interaction with the people or
environment around us. These may or may not be based on actual facts.
6. Ideal price – this is a price in which all factors are in favour of the
company. For example it could mean it is lowest in the market yet giving
the highest profit, etc. Usually it is not possible to get an ideal price but
the company‘s objective is to come s close as possible to this.
10. Gourmet is a cultural ideal associated with the art of cooking fine
food and drink, which is characterised by elaborate preparations and
presentations. The term and its associated practices are usually used
positively to describe people of refined taste and passion.
8. Exercises
1. Why should pricing commence at product development stage?
2. Why should we evaluate if the product has price elasticity or not. How
can this influence our product decisions?
5. What is the benefit of using bundling pricing over the normal sales
promotion?
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9. Further Reading
1. Lehmann, Donald R and Winer, Russel S, (2005) Product Management,
New Delhi, India, Tata McGraw-Hill Page 291-315
2. Saxena, Rajan (2009) Marketing Management, New Delhi, India, Tata
McGraw Hill Education Pvt. Ltd Page 314-333
3. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 455-476
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23.
26.
28.
30.
1.
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32. UNIT VIII – BRANDING DECISIONS
Structure
1. Introduction to Branding
2. Branding decisions
3. Branding – how does it help
4. Summary
5. Your learning
6. Key Words
7. Exercises
8. Further Reading
1. Introduction to Branding
A brand allows buyers to distinguish itself from its competitor. Brands develop
over time by:
Advertising in various media
Customer‘s real-life experiences of using a product or service
Word of mouth recommendations from friends, family members or
colleagues
Interactions with a company and its representatives
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A Brand once developed can be used to launch several products – Hewlett-
Packard has now developed into a strong brand offering a very wide range of
printers, scanners faxes, photocopiers etc.
Here we must understand that though the product is one of the most visible
parts of the brand and it is easy for people to refer to it as the brand – the
product is only a part of the brand. The brand stands for much more than the
product in terms of its personality, its emotional benefits, customer
associations etc.
A product is at the centre of the brand and has its attributes, conforms to
certain quality norms and has some uses (In the case of McDonald (value for
money, always hot, good tasting, consistent across the world, fast service in a
clean environment). However a brand is much more and has its own
personality (e.g. McDonalds has Family Oriented, genuine, wholesome,
cheerful, fun personality), its emotional benefits (Kids fun , Feeling of special
family times, Link to family events and experiences reinforced by emotional
advertising), its symbols (logo with Golden Arches, and its character Ronald
McDonald) and relationship with the customer.
Since the brand needs so many elements all of which needed to work in
harmony together in addition to the product creating a rand needs many
decisions. Thus branding decisions are an important part of ensuring a
successful product management.
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2. Branding Decisions
Depending on the type of company launching a new product the company may
or may not have an existing brand. Let us take the example of a new company
being setup – they would have no existing brand while if we take Hewlett-
Packard they have a very strong brand which they can use to launch a product.
Having said that a strong brand also has its limitations – so let us say that
Hewlett-Packard wants to launch a new solar panel (since green energy is
much a part of the future) it will find it difficult to use its existing brand since
this brand is very strongly associated with the IT sector.
Thus any company launching a new product will have to consider some of the
following decisions:
ii. The brand name should be easy to pronounce. Tide, Lux, Wheel.
iii. The brand should be distinctive – that is the brand should look
different from its competitors. In addition it should not remind the
customer of some other brand in another category. For instance,
the New Delhi based Ochoa Laboratories recently changed the
brand name of their Iron(III) hydroxide polymaltose with Folic acid
tablets from TRUFER to UFER, as the former name was being
confused with the similar formulation TRIFER tablets of the
Chennai-based Apex Laboratories. (Indian Journal of Pharmacology
2002; 34: 367-368)
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The decision to create a private brand depends on the
capability of a company to promote and sell the brand.
company desires.
Other benefit is the financial advantage provided by the alliance.
It comes from the sharing space in market, this lowers
operating costs and maximizes marketing spends through joint
promotions thus increasing market exposure with one product
carrying both brand names.
So if we see the matrix below we will see that there are four
quadrants which are made of a combination of the brand name and
product being new or existing. These four combinations are:
– Line extensions
– Brand extensions
– New brands
– Multiple brands
Product
Category
Brand
Existing New
Name
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new customers to use their product even in Urban areas. Recently
Kissan has taken out its ketchup in a plastic bottle and they have
also taken out a metallised pack as a refill to a bottle – plastic or
glass. This is a line extension of the Kissan Ketchup In this the
major cost is that of the development of a new packing because the
product is well known and it has its own set of dedicated customers
who will definitely use the product but in addition there will be may
other customers who may find the usefulness of the product and so
increase the total customer base.
New Brands with a new product category are the most difficult
and expensive way to launch a product. Here the uncertainty is
very high since neither is the product known and neither is the
brand known. The company must undertake meticulous planning in
order to ensure the success of the product. A proper market survey
along with a test marketing in a smaller market is usually
undertaken when new products are launched with a new brand.
Building a brand name is important because it‘s only through a brand name
that a business can hope to communicate the positive attributes of its products
or services to consumers. Quality and prices do affect customer-buying
behaviour, but since it‘s the brand name that brings in most new customer
traffic, businesses cannot afford to ignore the merits of building a proper brand
name for their products or services.
By building a good brand name, businesses will also be able to control and
reduce their overall marketing budgets, because once the brand becomes a
household name, it will automatically lead to consumer generated referrals, a
method that works better than the standard marketing initiatives and
something that costs virtually nothing as far as the business is concerned.
4. Summary
Decisions about branding are important from the point of view of establishing a
long term presence in the market. Branding helps a company reap the benefits
of its efforts over a long period of time. A brand once established not only
benefits the existing product but many other subsequent activities that the
company is likely to undertake in the future.
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It for this reason that companies that launch future products want to align it
with its business strategy because apart from the immediate objectives of
sales and profit achievement the company also seeks to continue its
competitive advantage in future also by leveraging its spends on brands today.
In order for the company to sustain its contact and visibility it must therefore
make decisions today that it can sustain r those for which it can get a
competitive advantage and so create the structure that will help in maintaining
the relationship with the customer. Thus allowing the company to increase its
sale, while at the same time reducing relatively it budget spends.
5. Your learning
1. How is a product different from a brand?
2. Does creating a brand help the company? Explain the advantages to the
company.
3. How is the matrix between product category and brand name helping us
evolve a brand strategy?
34.
6. Key Words
1. Symbols – A symbol is something such as an object, picture, written
word, sound, or particular mark that represents something else by
association, resemblance, or convention.
10. Reinvent the wheel – the wheel was invented many, many
centuries ago. Each time we use the wheel we do not go about inventing
it again but use it just as a wheel. So reinventing the wheel is used to
show that a company is going about restarting the development of a
product/ technology/ process which can be used as it is and therefore
wasting resources.
7. Exercises
1. Why is the decision whether to create or not to create a brand important
for a company?
4. Does co-branding provide companies with any benefit? What benefits can
you list for this type of branding?
5. What is the difference between private brands and other brands? Why for
companies want private brands.
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6. How does using an existing brand help a company in reducing
uncertainty and costs in product management?
8. Further Reading
1. Majumdar, R, (1998), Product Management in India, New Delji, India,
Prentice Hall of India, Page 43-64
2. Lehmann, Donald R and Winer, Russel S, (2005) Product Management,
New Delhi, India, Tata McGraw-Hill Page 291-315
3. Saxena, Rajan (2009) Marketing Management, New Delhi, India, Tata
McGraw Hill Education Pvt. Ltd Page 276- 283
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35. UNIT IX – POSITIONING DECISIONS
Structure
1. What is Positioning
2. Product Positioning Process
2.1. Define the market
2.2. Identify product attributes that define product 'space'
2.3. Collect information about customer perception
2.4. Determine each product's share of mind
2.5. Determine each product's current location in the
product space
2.6. Determine the target market's preferred combination of
attributes
2.7. Examine the fit and Position
3. Positioning and Repositioning
4. Summary
5. Your learning
6. Key Words
7. Exercises
8. Further Reading
1. What is Positioning
A customer buys a product to fulfil his needs or expectations. Now in a market
that is full of products and brands how can he differentiate between what he
should buy and what not to buy. In addition a customer makes his decisions
not in a logical manner but in an emotional manner. He does not go very much
in the specific merits of a product but rather he makes his decision based on
perceptions about a product and its qualities. Thus it is very important for a
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brand to create the right perception about their product in the customers mind
so that when he thinks about a particular need he recalls the marketer‘s brand.
Now since the customer must remember the image or identity of the product
or service the positioning must be distinct from other similar products or
services. If this is not distinct it will lead to confusion in the customers mind.
Thus a marketer‘s job is to position the product in such a way that it can
project its uniqueness over other products, services or brands. This chapter will
examine the ways positioning can be done and utilised.
Before the product or service is positioned, the marketer should answer the
following strategic questions about his market and his products or services:
What's the customer really buying from him? We all know that
McDonald's is not just selling french-fries and burgers. It sells fast food
that tastes the same, regardless of when or where it's ordered, and
served in an environment that is clean and friendly to families and
children.
Once these strategic questions have been answered based on the market
research, the marketer can begin developing a positioning strategy for the
business plan. The positioning statement for the business plan should not to be
long or elaborate, but it must point out
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2.2. Identify product attributes that define product 'space'
When we define the market we consider ‖all the products and services
that can interchangeably be used by the customer‖ and we know that
each product comprises of several attributes. Thus we can say that the
market in which the product exists is a space made up of a combination
of attributes. In order to define the boundaries of the space in which the
product will function if we can define the right attributes it will help us in
defining the competition better and therefore positioning our product.
Generally this process is done at the time of product development since
based on the attributes desired the functionality and other features of
the product may be defined. If it is not possible for the company to
attain these attributes then the product itself may not be developed.
Of these few, the cars that you are most familiar with will have the
greatest proportion of your mind share. Marketers try to maximize their
product's share in the customers mind.
^
Very Safe
| Lexus
| Mercedes
| BMW
| Honda
Maruti |
Nano |
Cheap--------------------------------------------------Expensive
|
|
|
|
|
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|
|
Very Unsafe
Cars that are positioned close to each other are seen as similar on the
relevant dimensions by the consumer. For example consumers see
Mercedes, BMW, and Lexus as similar. They are close competitors and
form a competitive grouping. A company considering the introduction of
a new model will look for an area on the map free from competitors like
Nano was introduced in the cheap end of the map since no product
existed there. Some perceptual maps use different size circles to indicate
the sales volume or market share of the various competing products.
This two dimensional plot allows a marketer to define the space that he
may want his product to occupy.
Perceptual Maps can be of more than two dimensions also each
dimension representing an attribute these are more complex to create
and interpret.
Many perceptual maps – multi dimensional scaling, display several ideal
points these are some points seen as ideal by customers. Each point
reflecting a customer perception. When plotted we will always find some
clusters on the map. These clusters represent customer or market
segments and marketers will try and create products that will meet the
customer needs in a given cluster while at the same time comparing its
offering with what competitors are offering in that segment.
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Some maps plot ideal vectors instead of ideal points. The map below –
Preference regression, displays various brands on the dimensions of
effectiveness and gentleness. It also shows two ideal vectors. The slope
of the ideal vector indicates the preferred ratio of the two dimensions by
those consumers within that segment. This map shows there is one
segment that is more concerned with effectiveness than harshness, and
another segment that is more interested in gentleness than strength.
More Gentle
Brand1
Maruti
Brand2
Brand4
Brand3
Less Gentle
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2.6. Determine the target market's preferred combination
of attributes
For every target market there is a combination of attributes that is
ideally preferred. In order to achieve a position of strength and occupy a
large space in the consumers mind the positioning must aim to come as
close to this ideal combination of attributes as possible. If we undertake
the preference regression to map the market the ideal vector will give us
the direction for positioning.
However we still need to arrive at a set of attributes that we must
consider based on research that has been conducted amongst the target
audience/ market segment. The most important of these must be
considered while making a perceptual map for arriving at an ideal vector.
Here we will see that Product C has the highest match on the ideal vector
while Product B has lesser and Product A has the least. While product A
has the highest match on attribute 2 and product C has the least match
on Attribute 2.
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2.7. Examine the Fit and Position
Once all the data is available about the attributes desired by the
customer in the target market and the competing products in the market
with the space they are already occupying the marketer is ready to
position his product. He has with him the ideal vector desired and also
the spaces available in the market where he can position his product.
ii. It may not be possible for the company to produce a product that
will be close to the ideal vector
iii. The customer expectation may not be realisable given the stage of
technology available at present.
Example 1
Example 3
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independent of the maid and her whims. The brand, therefore, was
repositioned from a sophisticated, aristocratic product to one that is
functional and relevant to the Indian housewife.
Example 2
Dettol toilet soap was positioned as a beauty soap initially. This was
not in line with its core values. Dettol, the parent brand (anti-septic
liquid) was known for its ability to heal cuts and gashes. The
extension's 'beauty' positioning was not in tune with the parent‘s
―germ-killing‖ positioning.
4. Summary
Every product must create some image in the customers mind so that
whenever he needs the product this image is recalled and he remembers
the product. Along with this image will be the attributes and emotional
connect with the product. Thus wile launching any product the company
has to ensure that the image – positioning – is right. It should not only
be able to create this image but also sustain it over time.
Each market has certain attributes that the customer associates with and
against each attribute he has some perceptions which need to be mapped
using perceptual mapping techniques for the most important attributes
since we can map only a limited set of attributes.
Once we have this we evaluate how much our product offering fits in with
the target markets needs and perceptions. Based on the data available
we can modify or tailor our product specifications to become more
aligned to the required parameters. And use these for product
development and marketing it.
5. Your learning
1. How does knowing what the customer is buying from us help us in
positioning the product?
3. What do you understand the product space? How does this space help in
product positioning?
6. Key Words
1. Emotional manner – Emotional decisions are decisions that are not
based entirely based on logic.
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2. Unique Selling Proposition – It is what makes you different from your
competitors and persuades the customer to exchange money for product.
3. Sphere – a sphere is a round shape in the form of a ball. Just like the
ball encloses a space around its centre similarly a sphere of activity is
the space in which this activity will take place.
6. Clusters
37.
7. Exercises
1. Find out what is an ideal vector in product positioning? Why is it
important in product positioning?
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2. If we have already positioned the product why do we need to reposition
the product?
8. Further Reading
1. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 285-296
2. Lehmann, Donald R and Winer, Russel S, (2005) Product Management,
New Delhi, India, Tata McGraw-Hill Page 234-241
3. Saxena, Rajan (2009) Marketing Management, New Delhi, India, Tata
McGraw Hill Education Pvt. Ltd Page 278-283
4. Majumdar, R, (1998), Product Management in India, New Delji, India,
Prentice Hall of India, Page 72-83
1.
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38. UNIT X – BRAND EQUITY
Structure
To maintain this brand equity companies spend a lot of time, effort and money
because ultimately the brand equity is the sum total of the consumer‘s
perceptions about the product and service.
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There are four key areas that affect the brand equity:
Thus the objective of building a Brand Equity is to create a set of assets that
create a value for the customer and the company and all of these must be
connected with the logo or the symbols of the company. There are a variety of
assets which can be created by the company and each must be evaluated
carefully while creating Brad Equity.
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In this model brands in a product class are plotted on recognition
versus recall graph. If we measure the recall and recognition of
several brands of a product class and these measurements are used
to position each brand on the graph. One consistent finding we will
find across most product classes is that brands tend to follow the
curved line shown in the figure, with two important exceptions.
The first exception is the niche brands, where the brand has relatively
little overall recognition among the mass of consumers, but has very
high recall among the loyal group of key users. In this case the low
recognition is not indicative of poor performance. A healthy niche
player can sometimes expand its recognition and thus their customer
base. These niche brands can make higher profits than some very well
recognised customer brands.
The second exception the graveyard, this is in the upper left hand
corner of the graph. Brands that lie in this area have high recognition
but a low recall. Customers know about these brands but do not recall
them at the time of purchase.
Creating Brand awareness is not an easy task considering the fact that
today‘s media is extremely fragmented and is becoming even more
fragmented as companies look for positions that they can hold onto
uniquely. Ultimately fragmenting the markets further. If we take a look at
the markets about 30 or 40 years ago in India we had only one TV
channel – Doordarshan and one radio channel – AIR and a limited
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number of newspapers and magazines. It was easy for the advertiser to
insert an advertisement and be sure that it would be read by a large
percent in his target segment. Here he spent less money and ensures a
viewership of his ads.
Today we have over 100 TV channels and radio stations. The number of
newspapers and magazines has exploded each covering a specialised
segment. In TV even within news we have several channels, so in
entertainment, movies, etc. etc. Now is an advertiser wants to advertise
he is not sure of the channels he must advertise in and also needs to
spend much larger sums of money in order to be seen and heard.
The company may work on those aspects of the quality that the
customer does not value and so it has no impact on his perception of the
quality of the brand in his mind. So if a car company improves the
quality of the base coating technique for its paint shop it will improve the
quality of the product but it is not likely to have any impact on the
customer‘s perception of the quality of the brand.
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Customers make most decisions on an emotional platform when it comes
to buying products. Their choices and decisions on quality are not
necessarily rational. This is partly because he has neither time nor the
complete information to undertake a rational analysis of a product.
Secondly he is influenced by other factors such as opinion of friends and
relatives, instances in the markets, his own personality in making these
decisions.
Ensuring that the customers continue to buy its products despite the
competition‘s efforts. The value of a loyal customer is not only from the
point of view of the current product buy but translates into the ‗Lifetime
Value of a Customer‘. This means the total value of products that a loyal
customer will buy from the company over his lifetime. When we see the
loyal customer in this light we can see the significant loss we have in
losing a customer.
Passively loyal – they buy the company‘s product because they are used
to it and not because they have evaluated it.
Fence sitters – those customers who tend to buy whatever brand they
find first. They are not fussy about the brand they use once they know
that the difference between the brands is not significant.
Committed – those who are committed to the brand and will forgo their
purchase if they do not find the brand of their choice.
Out of these types of customers if the company can make sure that the price
switchers, passively loyal and fence sitters consistently buy their product it can
make a great difference to their sales and brand equity. The company should
however ensure that they do not forget their committed customers since losing
even one of them is an expensive proposition.
This desire of the company to create the right brand associations drives
their choice of brand ambassador. That is why we see that sometimes when
a brand gets involved in some wrong activities companies tend to change
the brand ambassador since the negative effects rub off onto the product.
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2. Why Companies find it difficult to create or maintain a brand
Brand building has become a complicated and complex task. Whether it is
existing companies or new ones the tasks of creating or maintaining a brand is
difficult. There are many reasons for this and some of them are
Bias against innovation – This just the opposite of the above point where
the company does not like to change anything about the brand because
it has been performing so well in the past. They do not look at the
changed market realities and are likely to fall prey to a aggressive
competitor.
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Short term Pressures – Brand building is a long term activity and needs a
vision and resources. However resources are always in short supply and
so immediate requirements tend to take precedence over brand building.
However just because a brand is well known it does not have a strong or
growing brand equity. Sometimes a wrong handling of the brand can weaken a
strong brand. If a brand loses its position in the customers mind the
differentiation is lost and the product becomes like any other unbranded
product and can then sell only on the basis of price rather than value.
Customer finds no value in remaining loyal and so market share of the product
decreases. This has a significant impact on the profitability of the brand. Thus
any decisions regarding the brand must be taken in keeping with the
company‘s understanding on how it will impact the customer‘s perception of
the brand and its attributes. This is the brand equity.
Measurement
There are many ways to measure a brand. Some measurements are financial
in nature while others approaches are more emotional based on awareness and
recall.
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Product Level: At the product level brand measurement is undertaken by
comparing the price of an unbranded or private label product to an
"equivalent" branded product. The difference in price, assuming all things
equal, is due to the brand.
Consumer Level: At the consumer level the effort is to map the mind of the
consumer to find out what associations with the brand the consumer has. This
approach measures the awareness (recall and recognition) and brand image
(the overall associations that the brand has). Free association tests and
projective techniques are commonly used to uncover the tangible and
intangible attributes, attitudes, and intentions about a brand. Brands with high
levels of awareness and strong, favourable and unique associations are high
equity brands.
The measurements at the consumer levels are those that are most relevant to
the marketer for promoting his product and brand. It also helps him keep in
focus if his efforts are being done in the right direction because if the
customer‘s perceptions are going down or if the brand equity is getting eroded
the marketer must sit up and evaluate what he is doing wrong.
Hence if the company has to benefit from the relationship between the brand
and the customer it has to continuously work towards building a relationship or
loyalty towards the brand. This relationship or loyalty will be established with
the company only if the customer recognises the company‘s band, tries the
product and then feels satisfied that the product is actually delivering what he
expects from the brand. This cycle of awareness trial and satisfaction gradually
leads to a brand name and positive perception linkage between product and
customer and is the key to relationship building.
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However in order to commence the process for a positive perception building
the company has to start from the definition of what attributes the company
wants to project itself to the customers. Once defined the company must make
sure that all its activities are focussed towards this definition – form product
offering, to advertising and promotion to customer support to manpower
orientation. When all of this works in one unison to provide support of the
defined objective the company will be able to achieve a strong brand equity.
40.
As we have seen earlier the brand is much more than a product. The definition
of the product is limited by its scope, attributes, uses etc. However the brand
has many more attributes linked to it eg emotional benefits, imagery, symbols,
country of origin.
So how does a company build up its brand equity what part of the brand
should they use in order to build this brand equity.
In order to understand this let us see how we define a brand. David Aaker
defines the brand identity as ―a unique set of brand associations that the brand
desires to create or maintain. These associations represent what the brand
stands for and imply a promise to the customers from the organisation”. A
brands identity has many aspects which give a brand it‘s look and feel and its
texture. A brand identity has many individual elements but the whole is equally
important. Let us take the example of an individual – his identity is not only in
his name or physical appearance or his behaviour or his intelligence. Though
each is in a way defining his identity but it is the combination of the whole that
completes his identity. In addition just as the individual has certain physical
aspects that are clearly visible, he also has some aspects that are emotional
those that are not visible but only felt. Similarly in a brand‘s identity there are
elements that are visible and some emotional benefits that are not explicit but
only felt. This identity of the brand usually remains constant throughout the life
of the brand unless some very compelling reasons require a change.
Companies document this identity so that successive managers do not
interpret the identity form their own perspectives and make fine changes which
over a period of time make significant cumulative changes to the entire brand‘s
identity. The brand identity is the guiding parameter that helps companies stay
focused on the right path through its life while brand building.
Let us examine the identity of McDonalds. At the centre of this identity are the
central values of the brand. Values in the central part of the identity are usually
the softer values that is those that cannot be touched and can be felt.
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Core Identity
A. Value Offering:
b. Product
B. Food Quality
a. Always hot,
b. Good tasting
C. Service
D. Cleanliness
E. Users
Around these central are values that provide the texture to the brand and have
the more physical aspects of the brand. These aspects are more easily
communicated or are more easily combined to create the communication to
express the central aspects of the brand or communicate the Unique Selling
Propositions.
Extended Identity
A. Convenience
a. Quick service
b. Close location
B. Product Scope
C. Sub Brands
E. Logo
a. Golden Arches
F. Character
G. Functional Benefits
H. Emotional Benefits
Using the Brand Identity a brand manager will define the brand position to use
in brand building. The brand position can be changed without affecting the
brand identity. Aaker defines brand position as ‗Brand position is the part of
the brand identity and value proposition that is to be actively communicated
to the target audience and that demonstrates an advantage over
competing brands‘.
Now as we see there are four important aspects of the brand position that are
to help build brand equity.
Actively communicated
Target Audience
First of all we have to decide which part of the brand identity we have to
communicate to the consumers. This is important as all aspects of the brand
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identity are not such that can easily be communicated and also all parts of the
identity if communicated may not be understood by the consumer.
Hence in order to build brand equity we need to look at the brand identity and
identify an important part of it that will be used in communicating the message
to the customer. The brand identity has several aspects of the brand that can
be effectively used. If we see the brand identity of McDonalds the identity has
the fact that food is always served hot, has a good taste and is consistent
across the world. However these aspects are not easy to communicate in any
communication. These can be experienced by the customer when he visits
McDonalds. This experience he will carry with him and will help strengthen the
long term bond. However the fact that it is for family and kids – birthdays,
family events, relationship with Ronald McDonald are easy to communicate and
have an emotional appeal. A low cost is another customer benefit that can
easily be communicated.
Thus the part being communicated must have a value for the customer, while
being able to build a bond with the customer in the form of a long term
relationship and value for him.
Once we have decided what to communicate we have to make sure that this is
actively communicated. Meaning that this has to become a part of every
communication of the company whether it is an advertisement or a pamphlet
or a catalog or any other form of communication in the company or retail
outlet.
The part of the brand identity that is being actively communicated must be
designed for and directed towards the target audience. Any communication
must take into account the nature of the target audience so that the
communication can be designed in such a manner that the information being
communicated reaches the targeted audience without distorting the message.
The brand position that the company wants to create ultimately leads to the
creation of brand equity in the customers. Hence in order to see that the
communication is effective the company must measure the extent of equity
created by the communication as a measure of its effectiveness.
The brand position must target a part of the brand‘s target audience and
communication must be directed to them. McDonalds communicates to
children or to the family. However their target segment is not limited to them.
The part of the customer segment they are communicating with are the
primary segment however the others – young adults, and individuals form the
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secondary segment. Communication when it is being designed must ensure
that the secondary segment is not offended by it.
Brands that become strongly embedded in the customers mind are those that
communicate in a manner that provides a cohesive and interpretable grouping
of the brands core values. If we take the McDonalds brand the brand has three
basic building blocks around which the brand offerings are structured. Firstly
Value offering, secondly the service and thirdly the users.
Each of these three fit into each other in a complimentary manner. And each
part is meaningful on its own. And yet the collective has an equal relevance.
5. Summary
Brand Equity is the perception of the brand and its values in the customers
mind. It is affected by the awareness of the brand, perception of its quality,
customer‘s loyalty to the brand and his association with the brand.
The brand equity can be measured in financial terms for a brand and an
organisation but it is measure of the customers perception that is the most
helpful in creating the brand.
The process of creating the brand equity begins from the definition of the
brands identity. This identity has many elements and textures that can be used
for brand building. Using this identity the brand manager creates the brand
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position with the USP focussed for the target segment to which it is actively
communicated. This brand positions communication is regularly monitored to
see if it is creating the right brand equity so as to reinforce the communication
or to fine tune it as required.
6. Your learning
1. What is brand equity? Why is it important for the Brand?
7. Key Words
1. Niche - A niche market or brand is a focused, targetable portion of a
market or brand. A business that focuses on a niche market is
addressing a need for a product or service that is not being addressed by
most providers. You can think of a niche market as a narrowly defined
group of potential customers. For example, instead of offering cleaning
services, a business might establish a niche market by specializing in
office complex window cleaning services.
2. Graveyard – This is the place where people are buried after they die. So
when a brand reaches the graveyard it is dead – the customers do not
bother about it anymore.
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5. Aspects – A way in which we can look at a problem, idea, situation.
8. Exercises
1. Why is the brand larger than the product? What does the brand have in
addition to the product?
9. Further Reading
1. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 405-407
2. Evans, Joel R and Berman, Barry (2007) Marketing Management, New
Delhi, India, Cengage Learning, Page 42, 303-304
3. Lehmann, Donald R and Winer, Russel S, (2005) Product Management,
New Delhi, India, Tata McGraw-Hill Page 241-249
4. Saxena, Rajan (2009) Marketing Management, New Delhi, India, Tata
McGraw Hill Education Pvt. Ltd Page 278-283
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41. UNIT XI – PACKAGING DECISIONS
Structure
1. Packaging
2. Objectives of Packaging
3. Types of Packaging
3.1. By function
3.2. By type
4. Packaging Design Considerations
5. Symbols used on packages
6. Future of Packaging
7. Summary
8. Your learning
9. Key Words
10. Exercises
11. Further Reading
1. Packaging
Packaging is the science and technology of protecting products for distribution,
storage, sale, and use by the end consumer. Packaging also refers to the
process of design, evaluation, and production of packages. Packaging can be
described as a coordinated system of preparing goods for transport,
warehousing, logistics, sale, and end use. Packaging contains, protects,
preserves, transports, informs, and sells.
2. Objectives of Packaging
There are several objectives of packaging. Each type has a function to perform
sometimes one type of packaging may perform more than one objective. Let
us see the various types of packaging:
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i. To provide an impermeable protective barrier around the product. This
type of packing is needed for items that would get spoilt or
contaminated by the surrounding atmosphere for example food items,
medicines, sanitised items, etc. This type of packaging is useful in
some food items as it allows us to fill the contained with specialised
gasses that help in extending the life of the product.
ii. Many times we need packaging that can protect the product from
physical damage because of transportation, or environment. So let us
say when we transport a refrigerator from the factory to the retailer
and then to the customer we do not want the refrigerator to get
scratched, or dented before it reaches the end user. Her we want a
packing that will make sure that the packaging protects it from
shocks, damages due to handling, ease of handling (so that the
delicate parts like door handle are not used for lifting or unloading the
refrigerator.)
iv. It is also used to bulk pack several small items to ensure ease of
handling and transportation. Let us say a strip of medicine contains 10
tablets. If we handle each such strip individually it will be very difficult
to handle all. So what is done is to bulk pack 10 or 20 such strips of
10 tablets each into a small box. Several such boxes go into a larger
box which is then used for transportation. Here the initial box where
we have put the 10 or 20 strips is performing the job of holding/
containing a certain minimum together.
vi. Like containment that allows the manufacturer to easily handle the
material another important reason is to make a packaging such that
the product is easy to move through the distribution channel right
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upto the customer. So if we take the case of a desk top computer it is
packaged in a nicely rectangular boxes while the actual computer has
several items like the keyboard, mouse, tower and the monitor – each
of which is of irregular shape. But a good packaging design allows
several irregularly shaped items to be packed in such a manner that it
can be easily stacked during transport, storage, at the distribution and
retail points and be safely opened an resealed if required.
vii. We can also have tamper proof packaging so that when the
consumer gets the package he understands that no one else has used
a part of the product before he has been able to do so. We can see
that under a bottle cap like Pepsi, Coke, Bisleri – we have a plastic
ring that is attached with the cover. Once the bottle has been opened
it detaches and cannot be attached again. Hence anyone buying the
bottle can assure himself that the bottle has not been opened before.
3. Types of packaging
There are two ways in which we can classify packaging. It can be classified
either by the type of packaging or by the function the packaging performs.
3.1. By function
Packaging types can be classified from the function they perform starting from
the first layer
Primary packaging – This is the first layer of packaging over the product. If we
take the example of the medicine strip – the covering over the medicine is the
primary packaging. Similarly if we take the example of a desk top computer
the first covering over the keyboard or mouse is the primary packaging.
Tertiary Packaging – This is the packaging that is usually used for bulk
transport. In the case of the medicine strip several boxes each containing 10 or
20 strips will be packed in a larger carton and then shipped to the destination
usually a wholesaler who will then take out the smaller boxes and send them
to the retailers. In the case of the desktop no additional packing layer will be
added but these cartons will be stacked onto a palette and shrink wrapped.
Shrink wrapping is a process by which a polymer film is wrapped on certain set
of products. This is then heated to a low temperature and the film tightens on
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the contents and holds them tightly. We nowadays see several soda bottles or
coke cans wrapped together like this.
3.2. By Type
Another way to identify packaging types is to classify them by their type:
Blister packaging – it has a preformed shape that is open from one side and is
used to contain the product. The other side is flat and is used to seal it so that
product cannot come out unless desired. Typically used for small products like
medicines, small consumer electronics like pen drives, etc,
Vacuum packing – This type of packing is used in areas where we do not want
air to interact with the product and spoil it. Hence it is usually used for storing
and preserving food. IN this type of packing after the vacuum is created
another gas is added to modify the atmosphere to increase the shelf life of the
product.
This packing can be made in different thicknesses and strengths which can be
described a ―ply‖. So we can have a 5ply or a 7 ply carton and a 7 ply carton
being stronger than a 5 ply.
Sometimes we make a 3 ply carton also but this is used for internal packing or
retail display. This type of packing is used for internal packing because it has
some amount of cushioning effect because of its construction and can bear
vibration and impact during handling and transportation. It is especially useful
for fragile items like glass, crockery, decorative items, etc.
Also because of its construction it has strength which allows a 3 ply carton
using what we call ‗micro fluting‘ to be used for making open cut out packing
that we typically see for say a toy which we can see through a window. The
need to use this type of packing is because when you put a transparent
window the overall strength of the box comes down and so a 3 ply carton
provides the additional strength needed by the box.
Bottle packing – is used to pack liquids. This is the simplest form of packing for
liquids and it serves the additional purpose of being the product dispenser.
Traditionally bottles used to be of glass only but with the availability of low cost
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impact resistant plastics plastic bottles have made a huge inroads into this
category. The use of plastic bottles reduces breakages during transportation
and handling not only be the company but also be the consumer. Plastics
however increase the environmental problems because of the non
biodegradable nature of plastics.
Cans – Cans were an extensively used mechanism for packing products in the
early part of the industrial development especially for foodstuff. These cans
were tough, did not allow air, water and light ingress. They were extensively
used for food packing. However at that time because of the technology their
shelf life was not very long. In addition cans needed a can opener to open
them. Today the technology has improved significantly improving the shelf life
of these cans in addition technology has provided a mechanism of allowing a
consumer to open these cans without a can opener. Because of the
improvement in material that have become lighter, stronger and cheaper it has
now become possible to use these cans for aerated drinks also.
In order to pack material onto a palette the material is stacked on the palette
and this material is then secures with straps, stretch film or shrink wrapping.
Refrigerators when they are transported from the factory they are put on a
palette and bolted onto it from the bottom. The cardboard carton of the
refrigerator covers it from the top and then all this is strapped onto the palette
so that it is further secured on it. Similarly when we export say garments – the
garments are packed into cartons. These cartons are stacked on the palette.
This is then secured on the palette using stretch film which is stretched and
wrapped around the boxes and palette. This film tightens itself on the boxes
and does not allow them to fall or move. The whole palette is then moved
using a forklift or other similar devices.
Each of the above types of packaging has wide applications and cost
implications and so we must choose wisely which packaging is most suited to
the product.
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4. Packaging Design Considerations
Packaging design and development is usually done at the time of product
development since it helps in the comprehensive development of the product
and understanding of all costs and issues related to the products performance
in the market.
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machine and move it. If these things are not thought of at the
design stage it will not be possible to move the machine later.
Shelf life – is the length of time that food, drink, medicine and
other perishable items are given before they are considered
unsuitable for sale or consumption. In some products, a best
before, use by or freshness date is required on packaged
perishable foods.
Since it is not always possible that the customer will buy the
product it becomes important that the packaging assist in
extending the shelf life of the product. As we have see above
there are several ways to do this and depending on the
product and the use we must design the packaging
accordingly.
End use the end use of the product is important while designing
packaging. For example if we are designing a packaging for a
shampoo – we know that this will be used while having a bath
where there will be water and so a chance of slipping from the
hand. Hence while designing we need to identify an packing
material that will not break on falling down, in addition we must
make sure that it is easy to hold and take out the shampoo even if
it is slippery – thus defining its shape and texture.
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years man has severely harmed the environment to the point that
our air, water and soil have become full of pollution.
ii. The design made for the product must meet the performance criteria
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iv. The resources available and the cost targets must also be met
In business for any activity resources are limited and so is the case
for the development of the product. The company must ensure that
packaging is developed using the resources available with the
company or those that the company can get for itself. However having
said this the packing being designed also has a cost target. This
means that the designed packing cannot cost more than a specified
amount otherwise the product will become unviable in the market.
This cost limit is also specified by the product development team at
the start of the project.
Below are a number of symbols often seen on packaging. Each has a specific meaning. The symbols
are normally very simple and easy to understand.
This symbol reminds those handling the package to keep out of the rain and not to store it in damp
conditions. It is normally found on cardboard based packages which would be damaged if placed in
contact with water.
The broken wine glass suggests that the product inside the packaging could be easily damaged if
dropped or handled without care and attention. The contents are fragile
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The two hands holding or protecting the package is another reminder that the contents should be
handled with care.
This is to show that the package that it must be stored the correct way up. The arrows point towards
the top of the package.
The symbol showing the thermometer is found mainly on packages containing food and drink. The
symbol tells us that the contents should be stored at a temperature between the two temperatures
mentioned (10 and 20 degrees (centigrade) in this case).
Below are a number of symbols often seen on packaging. Each has a specific meaning. The symbols
are normally very simple and easy to understand.
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These are internationally recognisable symbols for recycling and are used on many packages.
It is used to remind the customer that the material with this sign must be discarded in the recycling
bin and not general waste bin.
This symbol is also for a recyclable material. However, the letters ‘alu’ mean aluminium. Thus
helping disposal in the appropriate manner.
Cold drinks cans are usually manufactured from aluminium and may have this symbol.
These symbols say that the product carrying this symbol has been tested to British and European
safety standards. These symbols that are usually applied to non-food products such as electronic
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products or toys. However, they may still be applied to the packaging to indicate that the package
itself is safe
This symbol is used to denote that the product is heavy and must not be lifted. In many countries
law provides that nobody should lift by hand any load more than a certain weight. This is 25 Kg for
EU.
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6. Future of Packaging
The packaging industry is very dynamic and has undergone a great deal of
change because of the changing world around it. Laws and regulations, new
products, the globalization of technologies, and a general increase in
competitiveness have accelerated in the last 10 years, and there are greater
concerns with health and reliability issues.
However since the packing industry is a large one with each player working in
a small area of the whole industry they usually do not take a holistic view of
the problems or the possibilities of the industry. There's a need for a more
comprehensive and integrated view for the packaging industry to plan on a
more informed and inclusive basis. The following areas are where the impact of
packaging is going to play an important role in the near future:
Environment: Environment has played a large role for several decades and
continues to do so on packaging – for example, the current availability of
bottled water is producing 1.5 million tons of plastic waste each year. In many
parts of the country, the most visible kind of trash on the street is plastic water
bottles. This is creating a large environmental problem and if the industry
doesn't start resolving the environmental concerns it will cause a catastrophe.
Also, the different types of plastics are becoming a virtual nuisance in society
and are affecting the ground, ground water, and river water of the country.
While we try to deal with the situation, the waste heaps continue to grow
larger. Something will have to be done to clean them up.
For example Nike offended Muslims in June, 1997 when the "flaming air" logo
for its Nike Air sneakers looked too similar to the Arabic form of God's name,
"Allah". Nike had to pull out more than 38,000 pairs of sneakers from the
market.
Energy. The idea of rationing energy use or carbon dioxide production has
increased from a possibility to a probability, which will have a direct effect on
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packaging. Years ago, the availability of cheap energy and low awareness of its
impact on carbon dioxide generation meant that the average product was
excessively packaged. Even today, though to a lesser there is excessive
packaging, which translates into a waste of energy and a source of carbon
dioxide production as the material is burned.
Legal regulations: Over the next few years and decades we will see that in
the domestic and export markets regulations will require compliances in three
areas:
production
Reclamation – is the recovery of useful substances from waste products
or recovering usable parts.
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Intelligent packing is going to become more and more important as technology
advances. This type of packing will allow products to talk with the devices that
are around it. For example the products will be able to talk to the retail counter
and as each is removed from the counter it will be able to update the stock of
the product in the warehouse which will then automatically reorder the product
to the vendor. When the vendor sends the material and as it comes into the
store warehouse it will automatically update the stock in the warehouse and as
it moves from the warehouse to the retail shelf it will also reduce the stock of
the warehouse and update the stock on the shelves.
Intelligent packing will also be able to monitor the shelf life of the product and
as it nears its expiry date automatically reduce prices of the product.
The objective of such a packing will be to reduce human effort and monitoring.
7. Summary
Packaging is an important aspect of marketing since it carries out several
marketing functions and helps fulfill Governmental regulations. It helps to
protect, preserve, transmit information, bulk pack, move the material through
the distribution channel and to ensure that the product is not tampered before
the consumer begins to use it.
The packaging must also address the environmental issues and the end use of
the product.
In future energy and environment are going to be very critical and any
packaging must conserve energy to the extent possible and must not degrade
the environment for these legal requirements are going to become stricter.
New technology in packaging will have a significant impact on the way material
is packed and handled and so marketers must keep abreast with it.
8. Your learning
1. What is the importance of packaging?
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3. What is the need of governmental regulations specifying what must be
disclosed on packaging by the company?
9. Key Words
1. Impermeable – Something through nothing can pass. Especially a fluid
like air, water, etc.
8. Inert gas – a gas that does not react with its surroundings of with the
products that are packed in it.
10. Exercises
1. Why do we use symbols on packaging?
4. Do all products small and large have to be packed? What will we need to
do if we want to transport a large machine? Will we need to pack this
also? Why and in your opinion how?
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11. Further Reading
1. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 418-421
2. Evans, Joel R and Berman, Barry (2007) Marketing Management, New
Delhi, India, Cengage Learning, Page 312-317
3. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India:
Response Books pg 155-516
4. Gupta, C B Dr. and Rajan Nair, N Dr. (2009), Marketing Management,
New Delhi, India, Sultan Chand and Sons page 7.21-7.26
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43.
46.
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48. UNIT XII – ORGANISING FOR NEW PRODUCT DEVELOPMENT
Structure
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will meet this requirements and along with this also help the company meet its
business objectives like profit, sales, market penetration, market share, etc.
When we talk and say that we need to gather information from the customer,
analyse it seems to be a simple task. However behind the simple sentence the
amount of work that is actually needed on ground is enormous. It first requires
the understanding of
How does this customer purchase? Where does he purchase? When does
he purchase?
Based on this the company has to decide how to find out the information
on customer needs of the customer. Will it be from
o Group discussions
o Etc.
Depending on the way the company wants to find out the information
from the customer it needs to put in place a mechanism to gather this
information. This information could be gathered on a regular basis or on
a one time basis depending on the company‘s decision.
The ideas that come out from this analysis need to be disseminated
across the specified persons in the company in order to get their
feedback or comments on these ideas before they can be taken any
further.
So we see that just a small spoken sentence needs a series of steps in order to
bring the tasks to fruition. All of this cannot be done by one person in an
organisation since product development is not a onetime activity. It is an
ongoing process of development. In this process we undertake some activities
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for the immediate requirement, some for the midterm and some for the long
term.
2. Types of Structures
The nature of the product varies from company to company. Some companies
have products that need extensive research; some need more customer
research, while some need more in terms of development and testing. Thus
depending on the type of effort needed the company must build the necessary
capabilities to be able to carry out the tasks.
Since product types vary from one extreme to another, we can define a series
of organizational structures between two extremes, functional organizations on
one end and product organizations on the other.
In the functional organization, each job becomes the focus point. People
performing similar functions and specialisations are put together in
departments.
The functional areas will have personnel with varied skills, but those skills
are grouped on their similarities. The people who have identical skills can
be grouped easily and they can be placed in separate units and this
creates an organizational structure. The top management coordinates
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with all levels for various activities. When an organization handles a
single product, the functional organizational structure is most suited and
most frequently used.
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The development of professional expertise attained by
clustering specialists in the present function as a single unit
In these structures the project manager is usually more senior than the
corresponding person involved in product development in a functional
structure. This is because he does not have the direct access to the
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resources of the department and therefore needs the additional authority
to get the work done.
Product Based companies are much more focussed towards the customer
and each product manager is responsible for ensuring the success of the
product. However resources like finance, marketing, manufacturing are in
the common pool. This leads to competition for centralised resources.
Individual team members may get cut off from their functional area and
so may lose some of their cutting edge knowledge of the function.
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Figure 3: Matrix Organisation
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done to get the product developed and into production. In such a
case various departments perform their own tasks. These tasks
have mostly a low workload. Here employees cannot work full-time
on one product since they are a part of the department and have
other functions also to complete. This creates a complex situation
because allocation of resources is not a simple task because of
fluctuation of work load on a daily basis.
iv. The product is complex. Here typically the total work would
be high. Employees can thus work on a full-time basis. A project
organization is the best suited organizational structure for these
kinds of products.
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ii. Does the work involve a large amount of coordination amongst
various functions – if a large amount of coordination is required then a
product organisation will be more suited rather than a functional
organisation.
i. Customer – the customer is the one who has to use the product and
it is the customer‘s needs that we need to fulfill and so he is the best
person to ask for what he wants. Unfortunately we do not have only
one customer and each customer will
Each customer‘s need will not be the same and will differ from a
little bit to a lot.
Some customers may not be able to put their need in words on the
other hand some customers may describe it in too much detail. Too
much detail is also not good as it tends to cloud the thinking of the
product developers.
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Some customers may not be even aware of a certain latent need
e.g. in the case of the Fair and Handsome cream for men. Till
sometime back no one thought that men would also use a cream to
become fair. This was totally created by the advertising which
possibly fanned a latent desire.
Now in order to capture information from any of the above areas the
company must create a system where the data is captured in a
Formatted manner – this is important since the customer will give the
information in several ways but the company cannot analyse the
information that comes in different formats.
There is someone who is assigned the task of collecting and collating the
information
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The information captured must be analysed and stored in a manner that
is useful for the company.
However in order to get this information the company must again put
certain processes in place so that eh employees contribute their ideas
Many times companies only reward success and no scope is left for
failure and to learn from this failure to enable the company or its
employees to do better next time. This in a way stifles innovation
because when an employee or his team innovates there are
chances of failure. Of course we have to take all the necessary
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precautions to ensure that this does not happen but here is still a
possibility. This scope of error helps employees improve their
ability to take correct decisions and therefore helps in product
development.
Lastly all ideas will not work and it is only one in many which will
give a reward. If a company or its management make negative
remarks for ideas that do not work then employees will stop giving
suggestions because they do not want to be ridiculed in the
organisation.
Thus in order to protect these innovations companies can use the protection
offered by Intellectual Property Right protection.
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5.1. Copyrights
Copyright is a set of exclusive rights granted to the author or creator of
an original work, including the right to copy, distribute and adapt the
work. Copyright does not protect ideas, only once they have been
created. The Copyright is automatically obtained as soon as the idea has
been created and does not need to be registered. Once the work comes
into public domain copyright owners have the exclusive right to control
over copying and other exploitation of the works for a specific period of
time.
Initially copyright law only applied to the copying of books. However over
a period of time it became applicable to other uses such as translations
and derivative works were made subject to copyright and copyright now
covers a wide range of works, including maps, dramatic works, paintings,
photographs, sound recordings, motion pictures and computer programs.
5.3. Patents
A patent is a set of exclusive rights granted by the government to an
inventor for a limited period of time in exchange for a public disclosure of
an invention. Typically, however, a patent application must include one or
more claims defining the invention which must be new, non-obvious, and
useful or industrially applicable.
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5.4. Industrial Design Rights
Industrial design is a combination of a design and science, whereby the
looks, design and usability of products may be improved for increasing its
marketability and ease in production. An Industrial design right is an
intellectual property right that protects the visual design of objects that
are not purely utilitarian. An industrial design consists of the creation of a
shape, configuration of prototype or color, or in three dimensional form
containing aesthetic value. An industrial design can be a two- or three-
dimensional pattern used to produce a product, industrial commodity or
handicraft.
6. Summary
Product development in today‘s competitive world must be engineered through
a systematic and structured process. The business processes and markets are
so competitive that any development left to chance or not monitored properly
could go out of control in terms of time and cost. Since new products are a key
factor in helping companies meet their business objectives a delay in the
development of new products can have disastrous consequences.
Depending on the type of product the company is developing and the type of
its customers the companies can be organised around different structures since
they would be the most efficient way of developing and delivering products to
customers. Functional organisations are structured as typical organisations
along with departments where people are structured based on their
functionality however at the other end we have organisations that use a set of
common resources but are structured with separate heads that look after the
complete development and delivery of the product. Here people from different
departments join the product development team and are the key interfaces for
getting work done in their departments. However we find that the most
efficient can be the matrix organisations that use a combination of functional
and product organisations.
Once products are created they must be protected from copying and plagiarism
to ensure that the company‘s efforts in time and money are protected.
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7. Your learning
1. Why can we not develop products without having a structure in the
organisation for its development?
3. How does a Matrix organisation provide the best mix between the
functional and product organisation?
8. Key Words
1. Tasks to fruition – Jobs that are taken to completion.
6. Low complexity – products that are simple or those which are not
complicated
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9. Exercises
1. If companies are creating an organisation structure for product
development how should they ensure that the customers inputs are
always captured?
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50. UNIT XIII – GENERATION, SCREENING AND DEVELOPMENT
OF NEW PRODUCT IDEAS
Structure
1. Product Development
2. Generation of ideas
3. Screening of ideas
4. Development of Product Ideas
5. Customer Requirement Document
6. Summary
7. Your learning
8. Key Words
9. Exercises
10. Further Reading
1. Product Development
The product development process is a critical process as new products are
needed for the companies to stay ahead of competition and also ensure
continued growth in sales and profit. It is a critical process since an error while
taking decisions can lead to the company spending its money on an unviable or
unnecessary product. The company must have a well defined organisational
structure and processes to undertake the whole process of product
development. As each stage of product development is progressed through it
means spending more time and money on wrong decisions. Wrong decisions at
any stage are expensive but at wrong decisions at later stages can be critical
especially for small and medium companies because they have limited
resources and cannot commence development all over again. This many times
leads to companies launching products thay know are not the best but because
they have spent a lot of money on it they hope to recover the costs of
development by launching it. Even one product failure in a small company may
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threaten its survival if a large amount of time, scarce resources, and personnel
are committed to it.
2. Generation of Ideas
This is the phase in which the company conducts various activities in order to
understand the customer’s needs and desires and define the functional
requirements of the product.
iii. Companies create think tanks that take in all the data that comes in
from various sources and come up with various ideas. This consists of
cross functional teams – teams consisting of people from various
departments – many of whom may eventually be involved in the
development of the product. These cross functional teams get all the
inputs that is available for product development and they also bring
into the team their knowledge and experience. Using this they debate
and come up with ideas for new produce development.
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iv. All interesting information is collated and circulated organisation-
wide – usually strategic planners or technology policy makers.
Organisations generally circulate information about products,
technologies, business processes, competition, etc within the
organisation. This not only helps people keep abreast with the latest
trends but also allows the germination of new ideas.
During this phase several product ideas are generated and there is a fuzzy
view of each of these products.
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lower price at earlier bookings and at a higher price closer to date
of travel.
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14. Product extensions – Product Extensions happens when a
company introduces additional items in the same product category
under the same brand name such as new flavors, forms, colors,
added ingredients, package sizes. Eg Surf, Sure Excel and Surf
Excel Blue, or Nescafe, Nescafe Classic, Nescafe Gold, Nescafe
Cappuccino.
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3. Screening of ideas
The purpose of screening ideas is to identify and drop poor ideas while
selecting the right ones for development as early as possible since the cost of
product development rises substantially at each successive development stage.
Many times when products reach later stages of development, management
feels that it has invested so much time and money in development that the
product should be launched to recover some of the investment. However this
may mean spending more money on a product that the management knows is
not right just in the hope of recovering some money. The chances are that it
may land up losing more money rather than recovering any.
Ideas generated may seem interesting but for a company to decide to take any
idea forward the idea must be in line with its business objectives, and the
organisation must have the necessary resources and competencies to develop,
manufacture and sell the product successfully. For evaluating each idea the
company must have a set of parameters against which it should measure itself
to understand if it meets its business objectives or matches its competencies.
While screening the company has to make sure that the process followed is not
so stringent that it decides not to undertake good ideas and neither is it too
lenient that a poor idea is let go to the development and implementation
stages.
There are several methods to screen or evaluate ideas However we may
undertake the following broad processes.
i. Does the product idea fit with the business strategy – Ideas must be
in consonance with the company‘s business strategy as it lends
synergy with the company‘s existing efforts. In order to check this the
following questions must be answered:
Does the product meet the needs of the of the target buyer?
Define positioning of the product and see if the product has any
strengths/ USPs.
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What will be the price quality equation of the product.
ii. New products must meet a minimum benchmark on sales and profits
– Every product development is a process that consumes company‘s
time and money and unless it is able to give a certain return on that
investment in terms of sales and profits it is not worth the effort. The
benchmark sale and profit varies from company to company
depending on its size and market position.
iii. Discuss the product idea with key customers/ channel partners – The
new product is being designed to fulfil an unmet customer who then is
best judge of whether it meets the needs. This feedback can
sometimes help the company add some functionalities that may have
been missed out or it may add some features that will add value to
the product. It may also lead to the change in the weightage in the
importance of features because of customer feedback.
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Generally, during focus group discussions ideas are presented to a group
as a concept or storyboard – for example, customers may be shown a
concept as drawings of a product idea or an advertisement showing the
product. Sometimes focus groups are shown a dummy of the idea, which
is a physical but generally non-functional version of product idea. During
focus groups with customers the marketer tries to find information like:
Are there any barriers to entry for the new product, i.e. design
patents; trademarks, etc. If not, how easy it might be for someone
to reverse engineer and copy the new product?
What are the product features that will be claimed? Can these be
substantiated through scientific and other evidence?
Which are the major factors that influence potential users? Price,
quality, brand name, service, etc.? Does the product meet these
requirements?
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What are the alternative plans if the sales, market share, profit,
growth projections are not met?
Once all the data has been collected we need to interpret the data. While
interpreting the data we need to follow the following steps:
Express the need in terms of what the product has to do and not how to
do.
Express the need a the raw data has been collected and not by
interpreting it. This is because each person‘s interpretation may be
different and so this may change the whole meaning of the customers
feedback.
Use positive and not negative phrasing e.g. the customer wants the
feature and not as customer does not like the feature
Avoid using words like ‗must‘ and ‗should‘. These words means that it is
necessary for the product to have the feature and can become limiting
factors.
When we have documented all the information then this information need to be
Then all needs are grouped according to similarity. These groups must be
based on how the customer thinks and not by technology, material used
or by department responsible, etc. This helps understand the importance
of a particular need – the more the similar needs the greater the
importance of the need. It also helps in reducing the number of variables
that the company has to deal with.
In case the number of groups is still very large (More than 20) then
these should be further grouped in super groups.
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So using the above hierarchy and grouping the needs statement must be
categorised by relative importance of needs. This relative importance can be
decided based on
All ideas selected will be laid down in order of priority the most important being
on top and the least at the bottom. Each of these ideas will be taken through
the evaluation at the development phase to see if it can be taken forward.
The market surveys must determine the total size of the market for the
product, the other possible uses for it – since it can help define additional
functionalities or features, seasonality of demand, quality, price
customer will be willing to pay etc.
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Apart from technology the company must also undertake an analysis of
what will be the costs of the product. By the time the company reaches
this stage it has a fair idea about the structure of the product and hence
it can go about estimating its cost. Many times companies which are in a
product category already know the raw material suppliers and they can
get a fair idea of the material cost. Once these costs have been received
the Industrial engineering department or the production department of
the company will be able to arrive at a fairly accurate cost of the product
including manufacturing costs.
Let us take the case of a soft drink bottling plant – in case it needs to
bottle only one type of drink and in one size then the machinery/
technology requirement will be different from that of a company bottling
several types of drinks each with different sizes. Similarly the quality
standards and precision of a company making equipment for a space
program will be considerably more stringent than a company making
equipment for a cloth cutting machine.
At this planning stage the company can also use an iterative process to
arrive at possible sales targets which the company must aim at so that it
will justify the introduction of the product. It can thus evaluate if it has
the resources – manpower, machines, money – needed to achieve the
sales needed by the product.
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It will also be possible for the company to calculate the breakeven point
and know whether the breakeven sales is within its reach or not. Any
product that has a very high breakeven point will mean that it is a much
more risky project as compared to a product with a low breakeven point.
Once all the ideas have been evaluated to match with business objectives and
meet customer requirements the company may reset the priorities for each
ideas thus lowering some and increasing the others in priority.
1Idea 1 Idea 2
2Idea 2 Idea 1
3Idea 3 Idea 3
The product that provides the best fit on various parameters should be
selected.
1. The CRD lists out all the functions and features that the product
must have.
2. Each of these functions must be listed by priority i.e. the highest
priority first and then the next and so on.
3. It contains the commitments of all the stake holders in the Product
Development Team
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4. This document starts from the highest priority feature and breaks it
down in to tasks that need to be done in order to accomplish it. This
listing of tasks is done along with the persons who have to work
on it. The advantage of this is that it brings in their commitment and
ownership and the document is not one which the Product Manager has
thrust on the other departments.
5. This document also contains commitments by the developer departments
on indication of the time and resources needed to complete the
task.
We must remember that many times during product development we may get
unexpected results while this is not necessarily a good or bad thing, it is
something that tends to be a distraction as work temporarily stops and in
extreme cases can be totally diverted by it. The correct thing to do is to
discuss with the team all results expected or unexpected and only after due
consideration proceed. It is important for the product manager or the team
leader to keep his focus on the requirements laid down in the Customer
Requirement Document and how he can fulfill this rather than be led by the
unexpected development. However please note that such an unexpected
development can be an excellent source ideas – for the current or future
products and must not necessarily be discarded.
6. Summary
Product Development is an important part of the marketing mix. It is amongst
the 4 Ps of Marketing. A good product helps the company achieve its business
objectives while at the same time it enables the company to stay ahead of the
competition. The generation of product ideas starts from the understanding of
the customer requirements and is mixed with the new concepts and
technologies entering the market. The job of creating these new ideas is given
to think tanks within the organisation that collate information and circulate to
people within the organisation in order to take their inputs and generate a list
of desired ideas.
These ideas are evaluated using asset of given criteria so as to ensure that
good ideas are selected to move to the next stage. The objective of these
criteria is to ensure that good ideas go through while poor ones are left out.
This is important since at every stage companies spend money on product
screening and development and they do not want to waste money on products
that will not benefit them.
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Once ideas are shortlisted they must be evaluated on various parameters
market size cost of technology, cost of the product, and business likely to be
generated. Once products ideas are valid on these parameters the best idea is
taken forward for product development. The basis of product development is
controlled by the creation of a Customer Requirement Document which is a
comprehensive document that allows the product manager to control
development and launch of the product.
7. Your learning
1. Why is generation of ideas a difficult task? How do magazines and
journals help?
8. Key Words
1. Eminent scientists – outstanding, or high ranking or important
scientists.
9. Exercises
1. Why should an idea fit into the business strategy?
2. What would happen if product ideas are not discussed with customers?
Are all ideas of the customer important enough to be accepted?
3. How can patents and trademarks prevent product development? Can the
company use these patents or trademarks to make competitive
products?
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52.
55.
57.
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59. UNIT XIV – CONCEPT DEVELOPMENT AND TESTING
Structure
In concept development and testing we have not only to discuss the concept
with the customer it may also involve showing him the prototype of the
product or other methods of making him understand the product, its utility and
thus getting the relevant feedback from him.
Based on the feedback we receive from the customer the company should be
able to evaluate the customers acceptance of the product, its potential sale
and hence the fit into the business objectives of the company.
This concept testing may or may not be carried out. The decision to carry it out
or not depends on
All questions in the survey‘s design will have a bearing on the product and
along with it the business strategy of the company. For example if the
product meets the customer‘s needs but is not likely to generate sales then
the purpose of development is lost.
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extremely important step. This is because we are going to base the entire
product development concept on the feedback received from this customer
sample. If we have chosen the customer sample wrongly this customer
sample gives the wrong feedback and it will be disastrous for the product
development and the company. For example if the customer sample with
whom we have discussed the concept likes the product and approves it but
these customers do not represent the target market segment because of a
wrong selection then the product will most likely fail.
o If the test is done during the early part of the developmental process
o If the test is only to gather some qualitative data about the product
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o If the investment needed to develop and launch the product is high eg
an aeroplane, medical equipment, car, etc.
Face to face interaction – this type of surveys are the most common
and by far the most effective method. In this method the surveyor meets
the customer face to face and ask him the questions which have been
decided in the questionnaire. Just before beginning the detailed
questionnaire the customer is asked a few questions to confirm that he is
actually from the target segment for which the questionnaire is planned.
So the customer may be asked general questions about his age, income,
education, whether he is the user of a certain product category, etc. to
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validate him. If this is the customer from our target segment then the
survey continues or else it stops. The face to face interaction with the
customer can be done by meeting him in
o Retail outlets, malls, or other public areas where the customer may
be.
o Trade show booth – these are good places to talk to the customer
since here we have a relevant customer. In the trade show companies
show their prototypes or concept products. Here customers are
focussed on the product and are likely to give more relevant answers.
The focus groups have an advantage that they are better for
presenting several alternatives to the concept and getting a
separate feedback on each, or they can also be sued for getting
ideas in improving the product.
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o Or we can make cold calls – meaning that we call without pre-
categorisation and once we get responses we set them off depending
on the response category.
Postal mail – this was an option that used to be followed in earlier days
when the prevalence of electronic media was not so pervasive. Earlier a
telephone was only land line based and so who would answer a phone
was not certain and so asking questions on phones was not simple. It
was therefore better to send a questionnaire to a customer and along
with that send him a prepaid return envelope and hope that the
customer will fill the questionnaire and send it back. In most cases it was
seen that the response was not more than 1-2% and it was slow. In
order to increase the responses companies sometimes gave incentives to
customers to send in their responses.
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In cases like software companies sometimes release a beta version on
the net for people to download and use before giving their comments
on its features and benefits.
Each method of gathering information has a bias towards the type of customer
it is suited for – internet/ email is more suited towards technology savvy
customers, the focus group discussions are good for products where the
product development team needs feedback on qualitative characteristics of the
product. However even though each process has some limitations, for some
products it is a good idea to use a test method with a limitations because for
using the product this functionality is needed e.g. a software based product
needs ability in the customer to use technology. However it is not such a good
idea if TV based internet (IPTV) is to be tested.
Open ended interactive formats are better in the concept development stage
since it allows the customer to choose his reply himself.
As tests get more focussed a more structured format can be used. For these
type of surveys a market research company can be hired.
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customer different colours and also the detail of some functional or
ergonomic features.
Video – the advantage of a video is to show how the product works and
how it can be used. This method is used where it is difficult to take the
actual product to the customers. For example if we want to show how a
machine works it is easier to take a video of the machine and its
functionality and show it to customers at different locations.
In simulation a user may actually control the use of a product and get a
real feel of how the product will respond. This can give him a near real
feeling of the product. Simulation is used in safety engineering and tests,
for training, development, etc. For exapmle we have a flight simulator in
which pilots train how to fly aircrafts before that actually go on a plane.
During product development this method is used where the system can
be used to show the effect of using different use parameters e.g. in a
chemical process where the change in parameters can lead to different
consequences.
The product development team can also use a combination of Video plus
simulation to explain the concept better.
The choice of the survey format must match the communication method used
because how we show the product concept to the customer depends on how
we are asking him to respond. So for example we cannot demonstrate a
working model while using a phone survey.
In addition to this we must take care that while showing or communicating the
product concept to the customer:
Must give only that much information as much as the customer will get
during selling. This ensures that the responses from the customer will be
similar to the way he will respond when he gets the advertising stimulus.
Price must not be given but customer must be asked for it. Giving a price
to the customer tends to undervalue or overvalue the product depending
on how the customer perceives the price. SO in order to overcome this
problem it is better to ask the customer what he is willing to pay for the
product.
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2.5. Capturing customer response
The product development team must faithfully capture the customer
response in order to ensure that the development progresses in the right
direction. Here in order to capture the information is the right manner the
tests are made with formats that provide for
In order to ensure that the answers given by the customer are validated
as correct and consistent the questionnaire also has questions that ask
asks why he gave the answer.
The questionnaire also captures the intention of the customer to buy the
product, the frequency of purchase, the certainty of purchase, etc. Here
we may capture answers like
o Definitely buy
o Probably buy
Depending on the method used in interacting with the customer the product
development team in addition to structured responses from the customer
interaction can also capture of a large amount of unstructured data. This
data is also important and needs to be recorded and analysed.
If manufacturing costs are very different and price of the product has not
been communicated to the customer during the survey then the company
must use its own judgement in proceeding ahead with one of the products
selected by the customer.
In case the company has no history of the product and neither does the
market then care must be taken
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All results whether used or not must be documented so that they are
available for similar products in the future.
Another learning that the product development can get is that their results
for the tests can be compared with future results. This benefits the team
because testing in future can benefit from the experience in analysing the
difference between forecast and actual.
3. Summary
Many people ask is there a difference between development of an idea and
testing of the concept. They say that ultimately in both we are taking inputs for
the customer and analysing his responses and arriving at decisions on how to
take the product development forward. This is true however at the time of the
generation of the idea the concept is in a fuzzy stage and no clear cut decisions
are available. In that stage we are still trying to work through a large number
of options to arrive at a few shortlisted options. The process of concept
development begins from here and takes forward the development. During the
concept development stage all interaction with the customer takes place with a
view of understanding on how to develop or improve on the few options that
have been shortlisted.
This kind of testing can be done at various stages in the development of the
product – meaning that the product development team can interact with the
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customer just after the ideas have been finalised in order to understand the
functionality needed in the product or they can meet him towards the end of
the development of the product so as to get a more clear feedback on the
acceptance of the product by the customer and the amount of sales that can
be expected so that the necessary changes can be incorporated before launch.
There is a six step method that can be used to collect this information from the
customer.
4. Your learning
1. Do you think that there is a difference between idea generation and
concept testing? Please explain how.
5. Please state the best method of showing the customer the concept for
the method of information gathering chosen in your answer above?
5. Key Words
1. Judgemental – Someone who tends to make moral judgements, or
showing an attitude where judgements about other things are made
6. Exercises
1. If we use a focus group discussion what will be the advantages of this
over getting the same information over the phone from the customer?
4. Why does the product development team have to document and save the
results of the tests? How does this help the company?
7. Further Reading
1. Evans, Joel R and Berman, Barry (2007) Marketing Management, New
Delhi, India, Cengage Learning, Page 356-363
2. Ulrich Karl T and Eppinger, Steven D, (2000) Product Design and
Development, New York, USA, Irwin McGraw – Hill page 107-159
3. Crawford, Merle and Benedetto, Anthoni Di, (2004) New Products
Management, New York, USA, Page 83-91, 118-130
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61. UNIT XV – PRE-TEST MARKETING AND TEST MARKETING
Structure
One of the ways for companies to be more sure that the product the product
will be accepted by the customers is to undertake a test marketing programme
before a formal launch of the product.
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So we can define Test Marketing as the Product development stage where the
product and its marketing plan are exposed to a carefully chosen sample of the
population for deciding if the product will be accepted by the customer or not
before its final launch. Test marketing is an experiment conducted in a test
market which comprises of actual stores and real-life buying situations, without
the buyers knowing they are participating in an evaluation exercise.
The product is sold to the ultimate market-mix to understand the consumer
reaction. Test marketing may last from few weeks to several months
depending on the product and the extent of information needed to take a
decision. Due to its high cost, however, test marketing is not suitable for all
products. It is undertaken by the company when it lacks experience in a
product and wants to reassure itself or the cost of an error is very high and so
it must test market to make the product just right.
The three key aspects to be kept in consideration for test marketing are:
i. The composition of the population in the test market must be
demographically similar to the final market in which the product will
be sold.
Population size
Demographic composition
Lifestyle considerations
Competitive situation
ii. This test market must be small enough so that advertising is effective
but not so small that the market behaviour is not representative to
the main market.
iii. It should be far enough from the main markets of the product so that
any negative effect of the product during test marketing does not
impact the main market.
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During the period of test marketing the company can evaluate several aspects
like:
iv. The price point – If the price is too high the customers will not buy
it and if the price is too low not only will the company lose
potential profits but the customer may devalue the product (in his
eyes) considering it a cheap product or of low quality (many times
people see a higher priced product to be of higher quality). Hence
the company has to find out whether the price is right or too high
or low. Here again the company must set its parameters on what
factors will lead them to understand that price is accepted by the
customers. Generally the company has made an estimation of sales
per customer during its product development stage while
estimating the amount of business a product will generate. This is
a good starting point for evaluation and can be improved on as
more refined tests are undertaken.
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i. By geography (including international) – a town, specific market,
residential neighborhood, media coverage area, etc
ii. By application – the test market may be chosen based on the
application of the product. So if we have a farm based product like
a tractor or a cultivator testing it in a city would have no relevance.
Also testing it in an area where tractors will not sell due to a low
income availability will also not make sense.
iii. By influence – If the company has an area of influence where it can
sell the product then it must know that these people will approve
of the product. So say some company has its influence of selling in
the Defense then it must test the product there.
iv. By trade channel – Sometimes some channels are specialized for a
specific product eg a marketing channel, a distribution channel, a
delivery channel, etc.
Sometimes companies may choose areas that are not representative or areas
that are hard to sell in so as to understand the problems in these areas and
what can be done to overcome them.
The advantages of undertaking test marketing in a small market are:
• Small market or town so easy to control various sales and distribution
parameters.
• Low chance of being detected by the competition since mostly companies
focus their efforts and energies on larger markets since maximum sales
and profits are generated there.
• Distribution is forced (guaranteed) because of a small market it is
possible fort eh company to ensure that its product is in all possible
areas where the product needs to be placed.
The Advantages of Using Controlled Method of Test Marketing
• Reduced costs because the resources are used only over a small area
• Shorter time period needed for reading test market results – sine the
markets are smaller the data collection and collation is much faster.
• Increased secrecy from competitors
• No distraction of company salespeople from regular product lines
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3. Decisions needed to Test Markets
Like any test or research that the company undertakes here also the company
must be clear on its objectives and what it aims to achieve from this exercise.
This is because apart from the fact that this an expensive way to undertake
any test this test also lets the competition know about the company‘s plan to
launch a product.
Thus before the company launches its test marketing it must be sure about:
ii. What characteristics will be tested? – are we going to test the price
point, or customers reaction on the features, or the stock levels
needed in the channel, or the problems in distribution, or
effectiveness of advertising communication any other characteristic
or combination thereof.
iii. How long will the test last? – will it be a short test in which the
company quickly enters and comes out after evaluating the
necessary factors or will it be a detailed test. A we know the time
needed for detailed tests varies with each product category and
can vary from a few weeks to a few months.
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decide that they will take inputs upto a pint and incorporate
changes and retest the product.
v. What criteria will be taken to decide that the test is over and
objectives are met? – the company must finalise the criteria
needed to move from a test marketing stage to a full launch stage.
Hence before they commence the test they must identify the
process and parameters that will be used to view the test market
as complete. Some of eth factors that they may use are – meeting
of the objectives for sales, communication, distribution
effectiveness, customer acceptance for product or price.
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answer is that it is likely to make a large difference the test
marketing must not be undertaken.
Here are some examples of what competitors have done while companies have
undertaken test marketing:
• Kellogg tracked the sale of General Foods' Toast-Ems while they were in
test market. Noting they were becoming popular, they went national
quickly with Pop-Tarts before the General Foods' test market was over.
• While Procter & Gamble was busy test-marketing its soft chocolate chip
cookies, both Nabisco and Keebler rolled out similar cookies nationwide.
• The same thing happened with P&G‘s Brigade toilet-bowl cleaner. It was
in test marketing for three years, during which time both Vanish and Ty-
D-Bol became established in the market.
• General Foods' test market results for a new frozen baby food were very
encouraging--until it was learned that most of the purchases were being
made by competitors Gerber, Libby, and Heinz!
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Since there are so many possible risks why should companies undertake any
market testing at all.
228
6. Various Methods used in Test Marketing
Test marketing can be done in several ways depending on the objectives and
the products being tested.
230
New and emerging technologies now allow companies to
undertake test marketing in ways that allow them more control
and secrecy over it. This technique is much cheaper than the
traditional method of test marketing because it does not need the
company to undertake a marketing campaign neither does it need
to fill the sales channel (which also needs training, promotional
material).
In this type of test marketing the company uses a Direct
marketing company for test marketing its product concept and its
4Ps via a direct marketing campaign. In the camping the direct
marketing company sends out mailers to prospective customers
in the target segment. This is followed up with tele-calling to find
out the customers response and desire to buy the product. In
some types of products the customer is sold the product and after
delivery and use his feedback is sought to collate information.
This type of method has more secrecy than by any other
controlled sale method and the feedback is very fast. Since the
positioning of the product is not being communicated to the
whole market (via advertising) the company is in a position to try
several combinations of 4Ps and variations of product
specifications before arriving at the final combination.
The technique matches today's growing technologies of credit
card marketing, telephone ordering, and database compilation.
iv. Test Marketing in Minimarkets
This type of test marketing is similar to the conventional test
marketing except in that the whole town would be taken for test
marketing. In the case of Mini Markets the town would be
replaced by a few strategic retailers in the whole town. In a way
defining a mini- market or a small market.
Here also we do not use regular local TV or newspaper
advertising, but chosen outlets can advertise product in their own
flyers and windows. They undertake special display of the product
on their retail shelves and may undertake a special localised
promotion near or outside their shop to highlight the product.
These retailers will also use various techniques to get customer
information about those who undertake trial or show interest on
its use.
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The retailer may also motivate the customer‘s first trial by using
trial period discounts, or by giving coupons that can be redeemed
for a discount within a certain trial period.
The advantage of this type of test marketing is that it is more
difficult for the competition to detect and requires a significantly
less effort on the part of the company in manpower terms but
also in terms of monetary resources committed. This type of test
is as close as possible to a real market test without needing a
large effort. There is a greater possibility of saving money at the
end of the test.
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We can also undertake test marketing by taking an actual user
feedback. This is usually undertaken for FMCG products which can
be taken to the consumer for trial and feedback. SO let us say a
company wants to introduce a new flavour of tea in the market.
They can install kiosks in market places where the consumer
frequents. Here the sales persons at the kiosks make the
consumers try the new flavour and also take their feedback.
This type of test can be undertaken where the cost of developing
the product is not high or it an extension of the company‘s
existing product line.
7. Summary
Test marketing is a process that companies undertake sometimes in order to
reduce their financial risk in launching their product. Though there are other
reasons like maintaining channel relationships or enhancing the role of the
sales force, these reasons are generally secondary factors in undertaking test
marketing.
In order to overcome some of these problems there are other forms of test
marketing which can help the company get accurate information and reduce
the cost of test marketing. Some of these use latest communication and
information technologies to assist companies in undertaking test marketing.
8. Your learning
1. What is Test Marketing and what is its significance to
product development?
233
3. Why should test marketing be undertaken in a small
market?
9. Key Words
234
9. Areas that are not representative – an area that
does not represent the target segment of the company. In this
market the larger part of the target segment will be different from
that of the company‘s target segment.
10. Exercises
1. What types of risks does test marketing reduce?
235
4. How can we use different types of test marketing for
keeping the information about new product launch from the
competition?
63.
1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India:
Response Books pg 161-164
2. Crawford, Merle and Benedetto, Anthoni Di, (2004) New Products
Management, New York, USA, Page 449-464
3. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice
Hall of India, page 348-350
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64. UNIT XVI – PRODUCT LAUNCH
Structure
1. Learning Objectives
2. Product Launch and its Objectives
3. Preparation for Launch
3.1. The Competitive Strategy
3.2. The Market Strategy
3.3. The Company Analysis
4. The Final Decisions
4.1. Product Related
4.2. Pricing Related
4.3. Promotion Related
4.4. Distribution Related
5. The Launch Process
6. New Technologies for Product Launches
7. Summary
8. Your learning
9. Key Words
10. Exercises
11. Further Reading
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Promotion often begins prior to product launch as marketers prime the
market. At this stage emphasis may be on public relations in an attempt to
encourage the media to discuss the product prior to launch.
The success of a new product depends not only on the idea behind the product,
but also on the marketing of the new product before, during and after the
product launch. New Product Launching (NPL) is part of the New Product
Development.
―In the modern world of business, it is useless to be a creative original thinker
unless you can also sell what you create. Management cannot be expected to
recognize a good idea unless it is presented to them by a good salesman.‖
David M. Ogilvy
If we look at the market today, we observe that there is major competition for
virtually all types of products. This major competition has motivated companies
to continue coming out with new and innovative products in order to have an
edge over competition. This can give companies sustained success amongst a
competitive market. That is why having a product launch plan is very
important for the success of a product.
Here are four easy ways to get started with a successful product launch plan.
When the company creates a product launch plan, it is very important that it
has an understanding of its target market. If the company releases a product
amongst an audience that has no interest in its product, then the product
launch plan will be a tragic failure. Therefore, the company must really know
its target audience before it comes up with a product launch plan. Also, it is
important that the company launches its product during a time when there is
maximum demand for its product in the market.
With a good product launch plan, it is necessary that the company market and
presell its product before the actual launch date. During this time, the
company must use as many methods of advertising as it can to get send out
the message. Remember, that a successful product launch plan always takes
into account the target audience that it is marketing to.
The company should always include attractive bonus offers with its product
when it begins to come up with the product launch plan. Including bonuses and
attracting offers with the product will improve the chances of success and
earnings gained from the launch. Another proven product launch plan idea is to
keep the price low initially during the launch, then raising the price to its
normal price after a few days.
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The objectives of the launch are:
iii. To use the opportunity to get some pre-booking for the product.
iv. To fill the distribution channel by telling all channel partners that
after the launch customers will want the product immediately.
In the preparation for the product launch the company must ensure that
New Product Strategy – The New Product Strategy is developed right at the
start of the development process and it is fine tuned throughout the
development process. This strategy provides the long term vision of the
product and how this fits with the business objectives of the company. At the
end when the product is ready for launch it is this strategy that forms the basis
for its launch. The components of this strategy are:
This definition of the products USP in the market is defined at the time
the product is approved for development and the Customer Requirement
Document is frozen. Subsequently as it passes through the various
development phases it might undergo subtle changes depending on how
the development takes place. If for example there is a road block in the
development of the product – a specific material is not available or is too
expensive, or a technology needed is not available because of licensing
issues or any other problem and so the product specifications are
modified marginally the effort is to ensure that the competitive strategy
is not changes. If some fine changes are made needing some fine tuning
the strategy may also be fine tuned along with the development process.
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See how Tata Motors got their competitive edge through their Chairman
Mr. Ratan Tata‘s vision at the end of this chapter.
The market strategy analyses the various aspects of the market and its
customers. Form this the company evaluates what types of customers
are available in the market, it also tries to uncover if there are any new
applications or customer types that can be added to the new product
being planned, since this will enhance the area in which the product can
be sold thereby increasing the possibility of the products success.
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Customer Characteristics – first of all we need to define if our
customer is a business to business customer or a business to
consumer customer. A business to business customer would be
if a hotel buys bathing soap from a company. Here the
company‘s customer is buying in bulk and may be needing a
special packing, and also a special price since the business
customer is buying in bulk. However the same soap if it is
bought by an end consumer who is buying the product for his
own use then he will be a business to consumer type of
consumer. He will buy in much smaller quantities, prices will be
different, and the way of selling and promoting the product will
be different from the business customer.
We also need to define the demographic characteristics
of the customer along with the area in which the
customer is since both these factors have a significant
effect on the buying process of the customer.
The Buying process – every type of customer has their and this
process varies from product to product. So if a customer is
buying a bathing soap the process, effort and involvement the
customer will have will be significantly different from that of
buying a car, or a consumer durable. So the company must
evaluate
Who is the decision making person? In a Business-to-
Business the decision may be taken by the manager so
we must know which one is important to take the
product decision to him. In a Business-to-Customer
situation the decision may be taken by the family or
may be taken by one person in the family – the father,
mother or even the child. The more the people involved
in the decision making the more complicated the
process.
At what time or periodicity does he buy? The frequency
of the purchase can have a significant effect in the
company‘s strategy. For example a large number of
products are sold during the marriage season or the
festival season. This will vary with the demographics of
the population – Diwali and Eid come at different times
of the year and so the purchase pattern in
demographically different area will vary.
How does he buy? Depending on the different types of
products and the customer category the process of
purchase will vary. It can be impulsive at one end of
the spectrum and highly considered at the other end of
the spectrum. So if a person has to buy an ice cream
he may buy it on an impulse but if he has to buy a
house he may consider various options and look at
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each of them and take his time before taking a
decision.
How does he pay? Once the customer decides to
purchase the product he must pay for it. It has been
seen that if the payment can be facilitates it can lead
to an enhanced sales. About two or three decades ago
all payments were in cash. And so if a customer did not
have cash he could not buy a product until he saved
enough money to buy the product. However over the
last 10 to 15 years we have seen the introduction of
various options in payment. The introduction of credit
cards, debit cards, loans for consumer durables, homes
and now internet banking has facilitated the sales of
many products. If we see car sales companies analysed
that customers do not have all the cash needed for
purchasing cars and so they tied up with financing
companies to provide loans for their products. These
loans were provided at the sales outlet of the
companies with the customer not having to run around
banks to get loans. Because of this convenience the
customers began to buy cars in a much larger number
in comparison to what was being bought earlier.
Market analysis – The company does not intend to sell to only
one person. So it must know the customer‘s profile, thus it
now has to group all the persons sharing the same profile: It
is called the customer market segment.
A market is a group of customers (or prospects)
sharing their characteristics all of whom get the
benefits offered by the product or service.
Thus the company must first define the market for the
company‘s product. When we begin to group customers we
see that we find that for some product categories the user
cannot be categorised while in some cases we can do so. We
thus have two broad categories of customer markets:
The Undifferentiated markets – these are the markets
in which the product is used by all categories of people
without discrimination of age, sex, income, social standing. It
has a benefit for all categories or segments of the markets.
For example Coco-Cola, Pepsi – these are consumed by
virtually all segments of customers.
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based on its requirement of application of the product. These
parameters could be
Once this has been done the company must finally decide the 4Ps of the
product. Here all the analysis that the company has undertaken till date will
come into play. The difference is that before the product has been launched we
can change all parameters without having any significant impact on the
product. However once the product has been launched it becomes difficult to
change parameters drastically without having a negative impact on the product
and its performance in fulfilling its business objectives. All the fine tuning that
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the company needs or can undertake is specified in a Tactical Plan. This plan
consists of moving the 4Ps to the best advantage of the company.
Hence the areas in which the company needs to take a final decision are:
Finalise the price – the criteria for defining the price commence
from the various costs in developing, manufacturing, storing,
distributing and marketing the product. However the final price is
dependent on what the customer is willing to pay for the product.
This means that no matter what the cost if the customer is not
willing to pay the price of the product the company cannot sell it.
So if we take an example of a product whose cost of raw material,
manufacturing, selling etc is say Rs 100 but the customer is willing
to pay only Rs 90 then the company will not be able to make a
profit on this product. However it is also possible that the customer
is willing to pay Rs 200 in this case to company has the flexibility
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of pricing its product anywhere between 100 and 200 Rs. The final
price would depend on the strategy the company wants to use of
keeping a high price and taking profits or of keeping a low price
and penetrating the market. Sometimes a combination of both is
used by initially introducing the product at a higher price and then
later lowering the price.
Define the sales force needed during promotion – Any new product
launch needs an additional amount of sales force in order to ensure
that placement of the product in the market and at appropriate
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places on the shelves, to undertake special promotions, on ground,
to ensure that the channel understands the benefits of the product
especially in financial terms, etc. In order to undertake this the
sales force has to be trained and knowing how many people is
important – sometimes companies hire additional people for the
initial launch period by using companies specialised in such
activities.
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information can be used in calculating the price level of the
product.
i. The period just before launch: This is a small period of time a few
days or weeks before the actual launch/ announcement date. This
period is concerned with the logistics of the actual launch. In this
period the full scale production of the product starts with the variants
that the company has decided to launch at the initial stage. The
product is dispatched to the various parts of the market and the sales
channel is filled. Only the last mile – that is the actual delivery of the
product to the retailer is not undertaken.
Even though the retailer does not have the product he is aware of the
new product likely to arrive and has already been explained how to sell
the product. His initial orders are pre-booked so as to dispatched them
as soon as the product is launched.
During this period the promotion of the product is also put in place. All
advertising is discussed with the releasing company and the exact
schedule of advertising is planned for TV, newspapers and magazines.
Any ground activity needed to support the product is also given the
necessary tools and sent on location. If any additional manpower is
needed it is hired and trained for demonstrating the product to the
customers or to the retailers. This is necessary to produce a big impact
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on the market and the customers so that they become aware of the
product and also get interested in undertaking the first trials of the
product.
Any initial offers to customers and to channel partners are also initiated.
So the customers may find that if they buy the initial lot of the product
the prices may be lower than the actual price of the product. Sometimes
companies also combine the new product with an existing established
product. This way the customer feels that he can try the new product
and even if he does not like the new product at least he is getting an
existing product which he is using and so it not a total loss.
The actual product launches are of several types – in some cases the
product is just sent into the market and launch is communicated through
the commencement of advertising (the launch of the Chevrolet Optra), in
other cases launch is undertake at a formal location and in a very formal
manner – like in the case of the launch of the Nano car which was
launched through a well choreographed launch in a hotel. If the launch is
of the latter type this must be prepared for in this phase.
ii. The actual product launch – The launch of the product is the
simultaneous execution of the advertising of the product along with an
announcement of the product.
As soon as the product is launched the sales force ensures that the
product is dispatched to the retailer from the distributor. They also
ensure that the product is placed in the right placed on the retailers‘
shelves – so that it is convenient for the customers to see and try. The
sales force also makes sure that the retailer has displayed all the
promotional material prominently for the customer to see. Since the
sales force cannot be at all the retail stores at the same time they
prioritise the outlets by importance in terms of sales. They visit the most
important ones first and work their way to the least important at the last.
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opportunity to book some orders during the launch. Te people who are
present are presented with an offer that dives them some benefit based
on their order. The product launch is an instant in the life of the product.
It is meant to provide an initial momentum to the product. This is the
momentum that will induce the initial lot of customers to try the product
and begin the process of trial acceptance and repurchase.
iii. The period just after the launch – This is the period of a few weeks or
months after the product launch. It is a very critical period in the life
of the product because it is in this period that the company realises if
the product has been accepted or rejected by the customer. During
this period the company must
In this period the competition will also react. Now for all the
scenarios of the competition the company may have planned eh
competition may do something very similar or absolutely different.
If it is something on expected lines the response will be easier.
However if it is radically different the company will have to act
extremely fast to counter it.
If a new and unexpected segment gets added with the use of the
product then a modified approach may need to be evolved.
The Internet itself – The internet has given the companies the
ability to disseminate information like never before. One of the big
advantages of the Internet is that information can be customised in
a manner that is needed by the viewer. So if we want we can link
the product information to different sites in a different manner –
let us imagine that there is a site that is frequented by younger
people and the company puts its link on that site. Any person
clicking on the link will see the information that has been displayed
keeping a young profile. Similarly this link can be put on a site
frequented by middle aged people them the information displayed
on clicking will be seen from the point of view of a middle aged
person. Similar breakup can be done sex wise ie separate for males
and separate for females.
The social networking sites like Facebook, Twitter, Ibibo, etc. Today
social networking sites allow companies to interact with customers
directly and engage with them by answering their queries and
gently direct them in taking decisions to purchase the product. This
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type of interaction allows customers to share their experience on
using the product. This interaction has more credibility that the
organisations communication since customers always feel that the
company will always talk positively about their product but
customers will give real feedback. Companies nowadays use
agencies who try and take the discussion in the right direction.
The email marketing another tool that has been created by the
arrival of communication technology is the targeting of customers
by sending them emails with product information. It can also
provide information on where and how to buy the product. This
information can be tailored for the target segment by screening the
email addresses by the target segment criteria.
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6. Summary
The Product launch is the culmination of a series of activities that the company
has undertaken from the commencement of the product development. In
today‘s competitive market scenario a product launch ensures that the product
is given the initial momentum in the market so as to help it establish itself. It
allow all the participants in the market – the channel, the retailer, the customer
and also the sales force to be informed about the new product in the market
and thus all of them make an effort to know and sell the product in one unison.
In the preparation of the launch which begins with the commencement of the
development the company must have in place the competitive strategy, the
marketing strategy and also an analysis of the companies capabilities. Though
all of these would have been created at the commencement of the product but
they must be once again evaluated before product launch for any missing links
or changes brought about because of market forces.
Once these are found in order the company must not take the final decisions
on the various aspects of the 4Ps – price, promotion, place and product. These
are the market variables that the company can fine tune before launch.
Though the company executives would have made several estimations on
these aspects while planning the product all those estimations were still within
the company‘s four walls and could be changes as many times without any
impact on the product. But once launched in the market changes are very
difficult and so the final decisions must be taken very carefully.
Finally all the launch activities must be planned and undertaken. Once
launched the company must continue to evaluate the performance of the
product in the market so as to continue to fine tune all requirements and help
the product establish itself. In this stage the company also has a chance to
respond to any actions that the competitor may have taken post the product
launch.
Today many new technologies are available that help the product manager in
lowering the cost of product launch while helping him penetrate the market
better and also customise the message to each category of customer
separately.
Finally after a wait of five years, crossing all financial and technological
barriers, Mr. Ratan Tata kept his promise and unveiled Tata Nano on 10th
January 2007, at the 9th Auto Expo 2008 in New Delhi.
Tata Motor‘s - Tata Nano is worlds cheapest car with a price of around Rs
100,000.
While designing the car the company had a clear target market based on which
it started developing the car.
1. The low-cost car was intended for the masses. To be used by a family of
four that would otherwise have to use a scooter, precariously balancing a
child in the front and the wife‘s on the pillion holding a baby in her lap.
The reason for selecting this was that the first-time car buyer in India is
a huge market.
2. This car would also attract the small cars buyers who currently had no
option but to buy products like the Maruti 800.
Now why is it that consumers in India would buy this product and not stay with
the two wheelers that are significantly cheaper than the Nano car? There are
several factors which need to be looked at to understand the background:
We need to look at the economic factors before the great depression of the
2008.
During the early part of the 21st Century, after the removal of several barriers
of the license raj, the Indian economy continued to register an impressive GDP
growth. Although during this period the economy continued showing
inflationary trends because of the increase in the cost of raw materials and
energy. But seeing India, a huge economy with 400 million plus middle income
group grow, investment flows into India had gone up to a record level of about
Rs. 120,000 Crores an increase of 20%.
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The Booming of the Automobile Industry
During this period the Indian automotive sector also continued to grow at
around 15% year on year with substantial growth in new passenger car
introductions and the light commercial vehicles sector.
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India which was till now considered as a low potential market because of
the domination of the Ambassador and Premier brands of cars began to be
recognized as a potential emerging automobile market. Foreign players also
began to invest or to enhance their investments in Indian auto industry.
The various tax reliefs and liberalization policy provided by the Govt. of
India in recent years had made remarkable impacts on Indian Automobile
Industry. The Indian auto industry, because of its high growth per annum
and the large size of the population, had become a preferred destination for
several global automobile players like Volvo, General Motors and Ford.
The company
When TATA looked at the competition in cars they had two options one was
to go for the top end segment of the market since they were already
catering to the middle end with their Tata Indica range of cars. Otherwise
they could go to the lower end of the cars which was currently dominated
by the Maruti 800. Now in order to compete with this product the company
would have to do something drastic to break into the market.
Hence Tata Moors initially targeted the Nano car as the least expensive car
to be produced in the world— aiming for a starting price of Rs 100,000
despite rapidly rising material prices.
Here Tata Motors used all their engineering and developmental skills to
overcome the challenges posed by such a low price and desire for high
quality and performance standards.
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o Uses vertical-integration to ensure reduction in costs
The advantage of this price point is that within the two-wheelers segment,
motorcycles contribute 80% of the segment size. These motorcycles are not
very far below in terms of prices from the Rs 100,000 price targeted for the
Nano. This allows potential customers of motorcycles to upgrade themselves
to a car. Also by being at that price point they are also able to break the
customers for the Maruti 800 (which is the largest selling car in numbers).
The company had another advantage and that was that the Nano being the
world‘s cheapest car and also complying with the Euro 4 norms had a huge
export potential. Now because of the growing automobile industry‘s
reputation and many foreign manufacturers, who were already in India to
take advantage of the growing Indian market and its cheap resources –
labour, manufacturing costs, etc., export of cars was becoming a growing
reality.
Thirdly Tata Motors also planned to launch an electric version of this car at a
later date. This version has the potential to become an even greater hit
because of its low pollution which is something needed in the world today.
Even internationally countries which are battling to meet the UN‘s global
emission norms agreed in the Kyoto Protocol are waiting to buy this
product.
The road to the launch was not an easy one with many inside and outside
the company whether the company ill be able to live up to its promise.
During the development stages many competitors made several comments
some encouraging and some trying to say that the product will not work:
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o Jagdish Khattar, Former MD of Maruti Udyog Limited said ―Meeting the
proper quality and safety standards is not feasible at all in such a
model.‖
Thus Tata Motors with the inspiration from its Chairman‘s vision have
positioned a product in a competitive space which has provided then the
opportunity to bring them to the forefront of the industry globally.
As customers gain more power, they will demand more value-added service
and customisation to meet their needs. Companies that innovate in this
area are likely to greatly benefited.
After 100 years to Henry Ford, Ratan Tata has proved himself – not only did
he exceed in expectations but has also created a platform for Indian auto
sector in the world.
8. Your learning
9. Key Words
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1. Signifies – to mean or to be an indication of, or to involve or indicate by
inference, association, or necessary consequence rather than by direct
statement
2. Marketers prime the market – To prepare the market for the product
launch typically by supplying them with relevant information, sending
the initial product lots to the distributors, etc
4. Bonus offers – An additional offer along with the new product with an
intention of motivating the buyer to purchase the product.
7. Subtle – Very fine changes. Changes that are not very obvious.
10. Exercises
2. What are the activities we need to undertake after the actual launch of
the product?
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4. How does the reaction of competition affect activities that the company is
undertaking after product launch?
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