Chapter five

Industrial Product Decisions

Product defined
 Product is anything that can be offered to the market
for attention, acquisition consumption or use that
might satisfy a need or want.
 Industrial product is defined as a complex set of
economic, technical, legal, and personal relationship
between the buyer and the seller.
 Three broad groups, they are;
1. Materials and parts,
2. Capital Items, and
3. Supplies & services.
 Cont..d
 Materials & Parts: Goods that enter the product that
directly consist of raw materials, manufactured materials
and component parts.
 Raw Materials: These are the basic products that enter the
production process with a very little alteration or without
any alteration.
 They include both farm products and natural products.
Examples. raw materials; the basic products like iron ore,
copper, gold, silver, crude oil, fish, fruits, vegetables etc.
 Manufactured Materials & Parts undergo more initial
processing before entering the manufacturing process.
 E.g Acids, fuel oil & Steel.
 Component parts include TV tubes, Tyrese, batteries,
small motors and gauges which can be installed directly
into products with little or no additional changes
 Cont..d
 Capital Items: Capital items are those which are used in
the production processes and when they worn-out a portion
of their original cost is assigned to the production process
as deprecation.
 Capital items include; a) Heavy Equipment/Installations, b)
Light equipment/Accessories c) Plant & Building
 Heavy Equipment/Installations: Installations are major and
long-term investment items such as fixed equipment's like
machines, turbines, generators, furnaces, and earth moving
equipment.
 Accessories/Light Equipment: Light equipment and tools
which have lower purchase prices and are not considered as
part of fixed plant, are power operated hand tools, small
electric motors, dies; jigs, typewriters and computer
terminals.
 Cont..d
Plant and Buildings: These are the real estate property of
a business/ organization.
It includes the firm‘s offices, plants (factories),
warehouses, housing, parking lots.
 Supplies and Services
Supplies and services sustain the operation of the
purchasing organization. They do not become a part of
the finished product.
Supplies: Items such as paints, soaps, oils and greases,
pencils, typewriter ribbons, stationery and paper clips
come under this category.
 Services: Companies need a broad range of services like
building maintenance services, auditing services, legal
services, courier services, marketing research services
and others.
 Cont..d
• What Is a Product Line?
 A product line is a group of related products all marketed under
a single brand name that is sold by the same company.
 It is a group of product closely related because they satisfy a
class of needs, are used together, are sold to the same
customer group, are distribute to the same outlet, or fall
within a given price range.
 Companies sell multiple product lines under their various brand
names, seeking to distinguish them from each other for better
usability for consumers.
 Microsoft Corporation (MSFT) as a brand sells several highly
recognized product lines including Windows, MS Office, and
the Xbox.
 A company's blend of product lines is known as its product mix
or product portfolio.
 Product mix is the set of all product lines and item offered for
sale.
 Cont..d
 Types of Industrial Product Lines:
 Product lines of industrial firms differ from those of consumer
firms. Industrial Product lines can be categorized in to four types.
 Proprietary or Catalog Products: These items are offered only in
certain configurations and produced in anticipation of orders.
Product line decisions include the addition, deletion or repositioning
of products within the line.
Custom built Products: These items offered as a set of basic units
with numerous accessories and options. The product line decisions
in case of such products center on offering the proper mix of
options and accessories.
Custom Design Products: These Products are created to meet
the requirements of one or a few of customers.
Industrial Services: Here, the firm provides not an actual
product but its capability on area such as maintenance, technical
services etc.
 Product Life Cycle Analysis
• Product Life Cycle – shows the stages
that products go through from development
to withdrawal from the market
• Product Portfolio – the range of products
a company has in development or available
for consumers at any one time
• Managing product portfolio is important
for cash flow
 Cont’d
• Product Life Cycle (PLC):
Each product may have a different life cycle
PLC determines revenue earned
Contributes to strategic marketing planning
May help the firm to identify when a product needs
support, redesign, reinvigorating, withdrawal, etc.
May help in new product development planning
May help in forecasting and managing cash flow
 Cont’d
The Stages of the Product Life Cycle:
Development
Introduction/Launch
Growth
Maturity/Saturation
Decline/Withdrawal
 Cont’d
The Development Stage:
 Initial Ideas – possibly large number
 May come from any of the following –

Market research – identifies gaps in the

market

Monitoring competitors
Planned research and development (R&D)
Creative thinking – inventions, feeling
Futures thinking – what will people be
 Cont’d
Introduction/Launch:
 Advertising and promotion campaigns
 Monitor initial sales
 Maximise publicity
 High cost/low sales
 For slowly accepted industrial products
marketing strategies should concentrate on
market development efforts.
 Cont’d
Growth:
 Increased consumer awareness
 Sales rise
 Revenues increase
 Competitors inter in to the market
 Monitor market – competitors reaction?
 During the growth state the marketing strategies of an
industrial marketer should focus on three important areas;
 Improve Product design to offer more benefits
 Improve distribution network to enable the
customers‘ easy availability of the product.
 As a result of increased volume of production the
cost will be lowered. Hence price should be
reduced.
 Cont’d
Maturity:
 Sales reach peak
 Cost of supporting the product declines
 Sales growth likely to be low
 Market share may be high
 Competition likely to be greater
 Price elasticity of demand?
 The marketing strategies to be adopted for an
industrial product in the maturity stage are;
 To enter the new market
 To find out the ways and means of satisfying the
existing customers
 To cut production, marketing and other costs to
maintain profit margins
 Cont’d
Decline and Withdrawal:
o Product outlives/outgrows its usefulness/value
o Fashions change
o Technology changes
o Sales decline
o Cost of supporting starts to rise too far
Under this stage an industrial marketer should
adopt the strategy of withdrawing the existing
product from the market or introduce a new
product as a replacement or reduce
marketing or other costs to make some
profits.
 Product Life Cycles and the Boston Matrix
Sales
Development Introduction Growth
Maturity
Decline

Time
 Product Portfolio Classification, and Strategy
The Boston Matrix

 Product portfolio is a complete list of products offered

by a company. A menu of good and service that a firm
produces and offers for sale.
 A means of analysing the product portfolio and
informing decision making about possible marketing
strategies.
 One of the most popularly used classifications of the
product portfolio is the BCG growth-market share
matrix that was developed by Boston Consulting
 There BCG matrix consists of two axes –the X-axis
that represents the relative market share and the Y-
axis that represents the expected market growth rate.
 The Boston Matrix
 Classifies Products into four simple categories:
 Stars – products in markets experiencing high
growth rates with a high or increasing share of
the market
 Potential for high revenue growth which
generate high income but also consume large
amounts of company cash
The Boston Matrix

Cash Cows:
– High market share
– Low growth markets –
maturity stage of PLC
– Low cost support
– High cash revenue –
positive cash flows
 The Boston Matrix
Dogs:
Products in a low growth
market
Have low or declining
market share (decline
stage of PLC)
Associated with negative
cash flow
May require large sums of
money to support the Is your product starting to
business. embarrass your company?
 The Boston Matrix
 Problem Child:
 Products having a high
growth market but the
company does not maintain
a large market share
 Need money spent to
develop them
 Potential for the future?
 Does the company can gain
adequate market share and
be profitable? If yes, the firm
come up with cash to build
the market share
 The Boston Matrix
Marketing Implications: Stars
• Build: Invest more money in a product's marketing
to boost its market share
Huge potential
May have been expensive to develop
All types of marketing, sales promotion and advertising
strategies are used for Stars
 It require significant investment to retain their market
position, boost growth, and maintain a 
competitive advantage.
E.G Mercedes Benz.
 The Boston Matrix
Marketing Implications: Cash Cows:
 Harvest: For cash cows, it may be sensible to cut
your investment and harvest the maximum
revenues from the product.
 Low marketing cost
 Customer satisfaction programs, loyalty programs
and other such promotional methods form the
core of the marketing plan for a cash cow product
/ SBU.
 Milked to support other SBU that need resource
 Need to monitor their performance – the
long term?
 At the maturity stage of the PLC?
 The Boston Matrix
Marketing Implications: Problem Children: hold
 The market of the product is in question – whether it
will grow further or decline.
 New Customer acquisition strategies are the best
strategies for converting Question marks to Stars or
Cash cows.
 Furthermore, time to time market research also helps
in determining consumer psychology for the product.
 What are the chances of these products securing a
hold in the market?
 E.g desktop computers
 The Boston Matrix
Marketing Implications: Dogs:
 Divestment strategy is used.
 Divest the business of failing products (dogs)
and release the money that's tied up in them.
 The company can either divest the product
altogether or it can revamp the product through
rebranding/innovation/adding features etc.
 However, moving a dog towards a star or a cash
cow is very difficult.
 It can be moved only to the question mark
region
 New Product Development

Definition
 Development of original products, product
improvements, product modifications, and new
brands through the firm’s
own R & D efforts.
 New products can be obtained via acquisition or
development

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 Cont..d
 Factors responsible for the success and failure of
new industrial products: The success rate for consumer
products is above 25% while the success rate for new
Industrial Products is around 45%.
 The factors responsible for the failure of new
industrial products are listed below.
 Most of the new products are blind imitations of the
existing products and they are not predominantly different
from the existing product.
 Due to poor product design and other reasons the new
industrial products are failed to understand the market
expectations, hence failed to deliver expected performance.

 Most of the industrial products failed to satisfy the potential

customers. The major reason for such failure is inadequate 10- 26
 Cont..d

The Success factors for the new Industrial Products:

 The uniqueness from the product superiority over the
existing products is the most important success factor.
 The level of understanding of the company about
the needs and wants of the target markets and
converting the same in to action plans.
 To convert the product concept in to product
development and commercialize the same, technical and
production capabilities are required. The team of
specialists is needed to achieve the synergy between
commercial and technical functions. 10- 27
 Major Stages in
New-Product Development
 Cont’d
 NDP is the process by which the product ideas
are generated, assessed, directed and
converted into products.
 Stage 1: Idea Generation
 Internal idea sources: sales staff that is close
to customers, R&D experts, from top
management
External idea sources:
Customers,
competitors, dealer or supplier

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 Cont’d
 Stage 2: Idea Screening
 Specified criterion and procedure should be set for
screening new product ideas.
 Major considerations; expected profit, the
competitive situation, the general adoptability of
the company to the new product and the volume
of investment that would be necessary for the
implementation of the new product idea.
 Marketing consideration includes the size of the
market, marketing methods etc.
 Production considerations such as facilities
required, cost of production, and availability
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 Cont’d
 Stage 3: Concept Development and Testing
 should be developed into a product concept
 A Product concept is a detailed version of the product idea
that is expressed in a meaningful terms.
 Stage 4: Marketing Strategy Development
Strategy statements describe:
• The target market, product positioning, and
sales, share, and profit goals for the first few
years.
• Product price, distribution, and marketing
budget for the first year.
• Long-run sales and profit goals and the
marketing mix strategy.
 Cont’d
 Stage 5: Business Analysis
– Sales, cost, and profit
projections
 Stage 6: Product Development
– Prototype development
and testing
 Stage 7: Test Marketing
 Market testing is done by using different methods
such as,
 Alpha & Beta Testing,
 Introduction of the new Product at trade shows,
 Testing in distributor/dealer show rooms,
 Test Marketing.
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 Cont’d
Alpha and Beta Testing: When a product is tested
internally with in the organization which as characteristic of
high price with new technologies. For assess the operating
cost and performance standards.
If the results of Alpha testing is satisfactory the company
will go for the next stage of Beta testing at the potential
users‘ organization.
Dealer show rooms: The distributors or dealers show
rooms or display rooms can be considered as best spots for
product testing
Trade Shows: introduction of the new product at trade
shows where usually large number of prospective
customers is exposed to the new product.
Test Marketing: In normal marketing situations the test
marketing method is used to test the product in a limited
geographical area. This method is used by many industrial
marketers through their sales force 10- 33
 Cont’d
 What is Product Deletion?
 Product deletion is the process through
which a product or an entire product line is
removed from the product portfolio either
through product elimination or product
replacement.
 Product deletion is done when a product
reaches the decline or death stage of the
product life cycle or there is a dramatic
decline in its sales and profits

10- 34
 Cont’d
 Product Deletion Stages
 Product deletion has four distinct stages:
1. Identification of products to be
deleted.
2. Analysis of products to be deleted.
3. The decision to remove the product
4.  Implementation of the deletion
process

10- 35
 Cont’d
Importance of Product Deletion
If a product is not at a proper position in the market and not generating
enough revenue, then all the resources invested in it are washed out
which could have been used for the production of some other product.
Sometimes, there is a presence of a lot of products in the product line
which leads to increased use of capital and resources being distributed
too thinly. In these cases, the deletion of some products is essential.
A weak product demands more managerial efforts with respect to
different marketing decisions and may also lead to debilitation of the
company's image and dissatisfaction of its shareholders.
As the taste and preference of consumers change, there arises a need
of deleting some products which no longer appeal to the new
preferences

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 Ethiopia
Ethiopia will prevail!!!
will prevail!!!

Thank you!!! Peace for all!!!

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