Chapter Four

SETTING PRODUCT STRETEGY

New product development process

Managing new product development
Product life cycle
 NEW-PRODUCT DEVELOPMENT STRATEGY
• A firm can obtain new products in two ways.
1.Acquisition—by buying a whole company, a patent,
or a license to produce someone else’s product.

2.New-product development efforts.

New products are original products, product improvements,
product modifications, and new brands that the firm
develops through its own research-and-development efforts.
 THE NEW-PRODUCT DEVELOPMENT PROCESS
There are eight major steps in the new-product development process. This systematic process is
for finding and growing new products. The major steps of new product development are:
1. Idea generation
2. Idea screening
3. Concept development and testing
4. Marketing strategy development
5. Business analysis
6. Product development
7. Test marketing
8. Commercialization
 1. IDEA GENERATION
`
• New product development starts with Idea
generation-The systematic search for new
product ideas. A company typically has to
generate many ideas in order to find a few good
ones.
• Major sources for new ideas include internal
sources and external sources such as customers,
competitors, distributors, and suppliers, and
others.
Internal Idea Sources:
• Internal sources include company employees at all
levels. Companies can pick the brains of its executives,
scientists, engineers, manufacturing staff, and sales
people.
 ….cont’d
External Idea Sources
• Customers – Good new product ideas also come from
watching and listening to customers.
• Competitors - Companies look competitor’s adds to get
clues about their new products.
• Distributors & Suppliers - Resellers are those close to the
market and can pass along information about customer
problems and new product possibilities. Suppliers can tell
company about new concepts, techniques, and materials
that can be used to develop new products.
• Outsourcing - Many companies are now outsourcing some
of their new product innovation to outside developers.
 ….cont’d
• Other idea sources include Trade magazines, shows,
seminars, government agencies, new product
consultants, advertising agencies, marketing
research firms, university and commercial
laboratories, and inventors.
 2. IDEA SCREENING
• Process used to spot good ideas and drop poor
ones.
• Executives provide a description of the product along with
estimates of market size, product price, development time and
costs, manufacturing costs, rate of return, Usefulness to
consumers, Good for company, Fit with objectives and
strategies, Have the resources, Add value
• New ideas are evaluated against a set of company criteria for
new products.
“Is the product truly useful to the consumers and
society?”,
“Do we have the people, skills, resources, to make it
proceed?”
 3. CONCEPT DEVELOPMENT AND TESTING
• In concept development, several descriptions of the
product are generated to find out how attractive each
concept is to customers.
• From these concepts, the best one is chosen. An attractive
idea must be developed into a product concept.
• It is important to distinguish between product idea,
product concept, and a product image.
• Product Idea: idea for a possible product that the company
can see itself offering.
• Product Concept: detailed version of the idea stated in
meaningful consumer terms.
• Product Image: the way consumers perceive an actual or
potential product.
 ….cont’d
Concept Testing:
• Concept testing calls for testing new-product concepts with
groups of target consumers.
• Sometimes, a word description or picture is used. At other
times the physical representation of the object is shown to
consumers, increasing the reliability of the concept test.
 4. MARKETING STRATEGY
The next step is marketing strategy development which is designing
an initial marketing strategy for a new product based on the product
concept.
 The marketing strategy statement consists of three parts.
1.A description of the target market; the planned value proposition;
and the sales, market share, and profit goals for the first few years.
2.Outline of the product’s planned price, distribution, and marketing
budget for the first year.
3.Description of the planned long-run sales, profit goals, and
marketing mix strategy.
 
 5. Business Analysis

• Business analysis involves a review of the

sales (review the sales history of similar
products and conduct market surveys), costs
(e.g. marketing, R&D, operations, finance and
other costs), and profit projections for a new
product to find out whether they satisfy the
company’s objectives. If they do, the product
can move to the product development stage.
 6. Product Development
• In product development, R&D or engineering develops
the product concept into a physical product.

• The product development step calls for a large jump in investment.

• Often, products undergo rigorous tests to make sure they perform
safely and effectively.
• Building a prototype
• The new product must have the required functional features and
the intended psychological characteristics
• Testing for safety, durability, and acceptability
 7. Test marketing:
• Test marketing is the stage at which the product and
marketing program are introduced into realistic market settings
• It tests the product and its entire marketing program–
targeting and positioning strategy, advertising, distribution,
pricing, branding, packaging and budgeting. But, companies
often do not test-market simple line extensions or when
management is already confident about the new product.
• When using test marketing, consumer products companies
usually choose one of the following approaches: standardized
test markets, controlled test markets and simulated test
markets.
 ….cont’d
Drawbacks/disadvantages include:
•Costly
•Time consuming
•Competitors can monitor results
•Competitors get an early look at your new product

Test marketing also does not guarantee

success.
 8. Commercialization:
• Introducing a new product into the market
• Decisions must be made concerning:
• Timing (e.g. if the economy is down, the company
may delay the launch),
• Where to launch the new product (in a single location,
region, country or international market)
• Market rollout (rollout could be in stages)
 MANAGING NEW-PRODUCT
DEVELOPMENT
• Companies must manage this process with a customer-centered,
team-based and systematic effort.

1. Customer-Centered New-Product Development

• New-product development must be customer centered. It must
not just rely on technical research in R&D labs.
• Customer-centered new-product development focuses on
finding new ways to solve customer problems and create more
customer-satisfying experiences.
 ….cont’d
2. Team-Based New-Product Development
In order to get their new products to market more quickly, many
companies use a team-based new-product development
approach. Under this approach, company departments work
closely together in cross-functional teams, to save time and
increase effectiveness.

3. Systematic New-Product Development

• An innovation management system can be used to collect,
review, evaluate, and manage new-product ideas, so that new
ideas will be encouraged and these ideas will not be lost. It can
be web-based and encourage all company stakeholders to be
involved in finding and developing new products.
 THE PRODUCT LIFE CYCLE (PLC)
• After launching the new product, management wants the
product to enjoy a long and happy life.
• The product moves through the four
stages namely, introduction, growth,
maturity and decline.
• As the product moves through different
stages of its life cycle, sales volume and
profitability change from stage to stage.
• The firm’s emphasis on the marketing mix
elements also undergoes substantial
changes from stage to stage.
 Product Life-Cycle Strategies
• Product life cycle (PLC): the course of a product’s sales and profits over its life
 Stages of PLC
1. Introduction is a period of slow sales growth as the
product is introduced in the market. Profits are nonexistent
in this stage because of the heavy expenses of product
introduction.
2. Growth is a period of rapid market acceptance and
increasing profits.
3. Maturity is a period of slowdown in sales growth because
the product has achieved acceptance by most potential
buyers. Profits level off or decline because of increased
marketing outlays to defend the product against
competition.
4. Decline is the period when sales fall off and profits drop.
 MARKETING STRATEGIES OF PLC STAGES
1. Introduction Stage:
• The first stage of a product life cycle is the introduction
or pioneering stage.
• Under this state the fixed costs of marketing and
production will be high, competition is almost non-
existent, markets are limited and the product is not
known much.
• Prices are relatively high because of small scale of
production, technological problems and heavy
promotional expenditure.
• Profits are usually non-existent as heavy expenses
are incurred for introducing the product in the market.
 ….cont’d
Marketing strategies at Introduction Stage:
a. Advertisement and publicity of the product.
b. Attractive gift to customers as an ‘introductory offer’.
c. Attractive discount to dealers.
d. Higher price of product to earn more profit during the
initial stages.
 ….cont’d

Growth Stage:
• The sales as well as the profits increase rapidly as the
product is accepted in the market.
• The promotional expenses remain high although they tend
to fall as a ratio to sales volume.
• Quite often, smaller firms move into the market during the
growth phase.
• With their flexibility they can move very quickly and
capture a valuable part of the market without the huge
investment risks of the development phase.
 ….cont’d
Marketing strategies at Growth stage:
a. The product is advertised heavily to stimulate sale.
b. New versions of the product are introduced to cater to
the requirements of different types of customers.
c. The channels of distribution are strengthened so that
the product is easily available wherever required.
d. Brand image of the product is created through
promotional activities.
e. Price of the product is competitive.
f. There is greater emphasis on customer service.
 ….cont’d

Maturity Stage:
•The product enters into maturity stage as competition
intensifies further and market gets stabilized.
•There is saturation in the market as there is no possibility
of sales growth.
•The product has been accepted by most of the potential
buyers.
•Profits come down because of stiff competition and
marketing expenditures rise.
•The prices are decreased because of competition and
innovations in technology.
•This stage may last for longer period as in the case of
many products with long-run demand characteristics.
 ….cont’d
Marketing strategies at Maturity stage:
• In order to lengthen the period of maturity stage, the following
strategies may be adopted:

a. Product may be differentiated from the competitive products

and brand image may be emphasized more.
b. The warranty period may be extended.
c. Reusable packaging may be introduced.
d. New markets may be developed.
e. New uses of the product may be developed
 ….cont’d

Decline Stage:
• This stage is characterized by either the product’s gradual
displacement by some new products or change in consumer
buying behavior.
• The sales fall down sharply and the expenditure on
promotion has to be cut down drastically. The decline may be
rapid with the product soon passing out of market or slow if
new uses of the product are found.
• Profits are much smaller and companies need to assess their
investment policies, looking towards investing in newer and
more profitable product lines.
 ….cont’d
Marketing strategies at Decline stage
a. The promotion of the product should be selective.
Wasteful advertising should be avoided.
b. All the good features may be retained in the new
model of the product.
c. Economical packaging should be introduced to revive
the product.
d. The manufacturer may seek merger with a strong
firm.
 Summary of PLC
Characteristics: Introduction Growth Maturity Decline
Sales Low Rapidly rising sales Peak Declining sales
Costs High cost Average cost Low cost Low cost
per customer per customer per customer per customer
Profits Negative Rising profits High profits Declining profits
Customers Innovators Early adopters Middle majority Laggards
Competitors Few Growing number Stable number Declining number

Marketing objectives:
Create product Maximize market Maximize profit & Reduce expenditure
awareness and trial share defend market share & milk brand

Strategies:
Product Offer basic product Offer product Diversify brand and Phase out weak
extensions, service models items
Price Use cost-plus Price to penetrate Price to match or Cut price
market best competitors
Distribution Build selective Build intensive Build more Selective; phase out
distribution distribution intensive distribution unprofitable outlets
Advertising Build awareness Build awareness & Stress brand differences Reduce to level needed
early adopters/dealers interest mass market and benefits to retain hard-core loyals
Sales promotion Heavy sales promotion Reduce promotion due Increase to encourage Reduce to minimal
to entice trial to heavy demand brand switching level
 ADVANTEGES OF PRODUCT LIFE CYCLE
• 1. When the PLC is predictable, the marketer must be
cautious in taking advance steps before the decline stage,
by adopting product modification, pricing strategies,
distinctive style, quality change, etc.
• 2. The firm can prepare an effective product plan by
knowing the PLC of a product.
• 3. The marketer can find new uses of the product for the
expansion of market during growth stage and for
extending the maturity stage.
• 4. The firm can adopt latest technological changes to
improve the product quality, features and design.
 DISADVANTEGE OF PLC
1. Hard to identify which stage of the PLC the
product is in.
2. Hard to pinpoint when the product moves to
the next stage.
3. Hard to identify factors that affect product’s
movement through stages.
4. Hard to forecast sales level, length of each
stage, and shape of PLC.
5. Strategy is both a cause and result of the PLC.
 
 Chapter Five
Designing and Managing Services
 Definition of Service:
• We can observe services wherever you imagine, like the
government sector, with its courts, employment services,
hospitals, loan agencies, military services, police and fire
departments, postal service, regulatory agencies, and schools, is
in the service business.
• The private nonprofit sector, with its museums, charities,
churches, colleges, foundations, and hospitals, is in the service
business.

Definition:
• A service is any act or performance one party
can offer to another that is essentially intangible
and does not result in the ownership of anything.
• Its production may or may not be tied to a
physical product.
 Categories of Service Mix
1] Pure Tangible good:-The offering consists primarily of a tangible
good no services accompany this product.
2] Tangible good with accompanying service:-The offering consists of
a tangible good accompanied by one or more services.
Typically the more technologically advanced the product, the greater
the need for a broad range of high quality supporting services.
Services often crucial for cars, computers and cell phones

3] Hybrid-The offering consist of equal parts goods and services.

People patronize restaurants for both the food and its preparations.
4] Major services with accompanying minor goods and services:-
The offering consist of a major service along with additional services or
supporting goods
A flight journey includes a few tangibles such as snacks and drinks
5] Pure Services-The offering consist of primarily of service-
Psychotherapy and Massage
 service categorization:
• 1. Services vary as to whether they are equipment based
(automated car washes, vending machines) or people
based (window washing, accounting services).
• 2. Service companies can choose among different processes to
deliver their service. Restaurants have developed cafeteria-style,
fast-food, buffet, and candlelight service formats.
• 3. Some services need the client's presence, some doesn't.
• 4. Services may meet a personal need (personal services) or a
business need (business services). Service providers typically
develop different marketing programs for personal and business
markets.
• 5. Service providers differ in their objectives (profit or nonprofit)
and ownership (private or public).
 Distinctive Characteristics of Services
• Services have four distinctive characteristics that greatly affect the design of
marketing programs: 1.intangibility 2. inseparability
3. variability 4. Perishability
1) INTANGIBILITY
• Unlike physical products, services cannot be seen,
tasted, felt, heard, or smelled before they are
bought. To reduce uncertainty, buyers will look for
evidence of quality by drawing inferences from the
place, people, equipment, communication material,
symbols, and price.
Therefore, the service provider's task is to "manage
the evidence," to "tangibilize the intangible."
• Service companies can try to demonstrate their service quality
through physical evidence and presentation. Service marketers must
be able to transform intangible services into concrete benefits and a
well-defined experience
 Distinctive Characteristics of Services
2) INSEPARABILITY
services are typically produced and
consumed simultaneously. Because the client
is also often present as the service is
produced, provider-client interaction is a
special feature of services marketing.
•In the case of entertainment and professional services, buyers are
very interested in the specific provider. When clients have strong
provider preferences, the provider can raise its price to ration its
limited time.
•Several strategies exist for getting around the limitations of
inseparability. The service provider can learn to work with
larger groups. The service organization can train more
service providers and build up client confidence
 Distinctive Characteristics of Services
3. Variability:-
Services are highly variable, because the quality of service depends on
who provides them, when and where and to whom.
•Three steps service firms can take to increase quality control
1] Invest in good hiring and training procedures:-
•Recruiting the right employees and providing with excellent training is
crucial, regardless of whether employees are highly skilled
professional or low skilled workers.
•Better trained personnel exhibit six characteristics
•Competence:-They possess the required skill and knowledge
•Courtesy:-They are friendly, respectful and considerate
•Credibility:-They are trust worthy
•Reliability:-They perform the service consistently and accuracy
•Responsiveness:-They respond quickly to customer’s requests and problems
•Communication:-They make an effort to understand the customer and
communicate clearly.
 ….cont’d
2]Standardize the service-performance throughout the
organization:-
A service blueprint can simultaneously map out the services
process, the points of customer conduct and evidence of the
service from customer point of view.
 Service blue prints can be helpful in developing new service,
supporting a “Zero defects” culture and devising service recovery
strategies.

3] Monitor Customer Satisfaction:-

• Employ suggestion and complaint systems, customer surveys and
comparison shopping.
 Distinctive Characteristics of Services
4) Perishability
•Services cannot be stored, so their perishability can be a problem when
demand fluctuates.
•Demand or yield management is critical-the right services must be available to
the right customers at the right places at the right times and right prices to
maximize profitability.

Strategies must be designed to match between demand and supply

in a service business.
 Service Marketing Mix
An expanded marketing mix for services was proposed by Booms
and Bitner (1981), consisting of the 4 traditional elements–
product, price, place, and promotion and three additional
elements–physical evidence, participants, and process.

These additional 3 variables beyond the traditional 4 Ps

distinguish ‘customer service’ for service firms from that of
manufacturing firms.
1. Product/Service
Most services are intangible because they are performances rather
than objects, precise manufacturing specifications concerning
uniform quality can rarely be set. Because of this intangibility, the
firm may find it difficult to understand how consumers perceive
their services
2. Price
Because of the intangible nature of the service–price becomes a
pivotal quality indicator in situations where other information is
not available. It is essential, therefore that the service firm engage
in competitive pricing. Being an important tangible cue, price of
the service is an area in which the service marketer can
concentrate to get a competitive edge
 ….cont’d
3. Place
Because services are performances that cannot be stored,
service businesses frequently find it difficult to synchronize
supply and demand. Also, services cannot be inventoried for
the same reason. Consequently the service firms must make
simultaneous adjustments in demand and capacity to achieve
a closer match between the two.
4. Promotion
The service marketer should constantly simulate word-of-
mouth communications apart from using regular advertising.
Communication includes informing the customers in a
language they can understand. Especially in services post-
purchase communication is very important, because retaining
existing customers is as important, as or even more
important than attracting potential customers.
5. Physical Evidence
Physical evidence, as already discussed under the services
marketing mix, like the environmental decor and design significantly
influence the customer’s expectations of the service. Since services
cannot be readily displayed, firms should create a conducive
environment that help the customers to develop a positive
perception of the service. For example, people would not like to wait
for a medical service or a legal service, if the atmosphere of the
place they are made to wait is unpleasant. 

6. People
Most services are highly labour intensive; the behaviour of the
personnel providing the service and the customers involved in
production (due to the inseparable nature of services), have an effect
on providing efficient customer service. To achieve customer-
oriented personnel, the organisation needs to recruit and select the
right people, and offer an appropriate package of employment, in
order to enhance their skills and encourage them.
7. Process
In the ‘how’ of the service delivery is extremely important
because the service and the seller are inseparable. The
functional quality, or the ‘how’ of service delivery is
especially important to service industries, as it is difficult to
differentiate the technical quality, or the ‘what’ of service
delivery. Previous experience with a service also influences
the expectations of the customer.
 MANAGING SERVICE QUALITY
The service quality of a firm is tested at each service
encounter. If service personnel are bored, cannot answer
simple questions, or are visiting with each other while
customers are waiting, customers will think twice about
doing business again with that seller.
Customer Expectations
Customers form service expectations from many sources,
such as past experiences, word of mouth, and advertising.
1.In general, customers compare the perceived service with
the expected service.
2.If the perceived service falls below the expected service,
customers are disappointed.
3.Successful companies add benefits to their offering that
not only satisfy customers but surprise and delight them.
4.Delighting customers is a matter of exceeding
expectations.
The Service-Quality GAP Model
1. Gap between consumer expectation and
management perception. :Management does
not always correctly perceive what customers
want.
2. Gap between management perception and
service-quality specification: Management might
correctly perceive customers' wants but not set a
performance standard.
3. Gap between service-quality specifications and
service delivery: Personnel might poorly trained,
or incapable offer unwilling to meet the standard;
or they may be held conflicting standards, such
as taking time to listen to customers and serving
them faster.
4. Gap between service delivery and external communications:
Consumer expectation is affected by statements made by
company representatives and ads.

5. Gap between perceived service and expected service: This

gap occurs when the consumer misperceives the service
quality the physician may keep visiting the patient to show car
but the patient may interpret this as an indication that
something really is wrong.
 DETERMINANTS OF SERVICE QUALITY
Based on this service-quality model,
researchers identified the following five
determinants of service quality, in order of
importance:
I. Reliability: The ability to perform the promised
service dependably and accurately
II. Responsiveness: The willingness to help
customers and to provide prompt service.
III. Assurance: The knowledge and courtesy of
employees and their ability to convey them and
confidence.
 ….cont’d

• IV. Empathy: The provision of caring, individualized

attention to customers.

• V. Tangibles: The appearance of physical facilities,

equipment, personnel, and communication materials.