Product Management

Product Management
Concepts
Product Management
• Introduction to Product Management
• Product Function and Organisational Interfaces
• Product Management Process
Learning Objectives

• To understand how Product Management

evolved
• To understand the linkages of Product
Management with other functions in the
organisation.
• The Product Management Cycle and its
significance in Product Development.
What is Product Management?
• Product Management is a function within a
company that deals with the planning or
marketing or forecasting of a product or
products through at all stages of the
product lifecycle.
• Product Management has several roles
which cover many activities from
identification to development, to launch
and even support during its life cycle.
What is Product Management?
• The issues handled by the product management
team vary 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 technical 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.
 What is Product Management?
• Product management and product marketing
are different yet complementary efforts with
the objective of maximizing sales revenues,
market share, and profit margins.

• Product management is also responsible for

the growth and development of the product
in the market and even responsible for the
bottom line generated by the product.
Product Management and its Interface
with Other Organisational Functions
• It identifies a market problem/ customer needs/
Market Opportunity
• It quantifies the opportunity
• It communicates the market opportunity to the
top management
• It communicates with the Product Development
team
• It communicates to Advertising/ Promotion team
• It empowers the sales team
Product Management Cycle

The ―Product Management Cycle has five

stages:
• Product Identification
• Product Definition
• Product Development
• Product Launch and Growth
• Product Discontinuation
Product Organisation

Product
Strategy
(Senior
Management Project Management Team
)

Product
Management

Product
Development Product
( Technical Marketing
and (Marketing
Production Team)
Team)
Managing Products
Learning Objectives
• Defining a Product
• To understand what is a Product Line and
Product Mix, and its relevance in Product
Management
• To understand difference between product
mix and product line
• Concepts in product line management
• To understand how product line can be
managed.
What is a Product? Anything that is
offered to the
market which
Four Levels will satisfy the
of Product needs and wants
of target
consumers.

Core
Product

Peripheral
Product
.
Augmented It can be a
Product physical good, a
Product service, a
Potential concept or an
Road Map
Product idea.
Car as a Product?

( Speed,
Safety or
Convenience)

( Shape & Style,

Colour, Branding)

Warrenties,
Free Service)

Air Bags, Bullet

Proof Glasses
Product Decisions

Product modification decisions are based on

how much an organisation has to stay close to
a standardised (existing) product (just by
extending it) or how much it has to move
towards innovation (by making something
new).
• Product Extension ( Introducing variants in
size, colour, fragrance, etc.)
• Product Innovation ( Where product
ingredients, packaging, etc is changed.)
Managing Products
• Product Mix Decisions
• Product Line, Product Length, Product
Depth, Product Width, Line Consistency
• Product Life Cycle
• Product Portfolio
• Product Pricing
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, operations
department, Finance Department, etc.
make a product line; and the Basic
marketing course is an individual product.
Product Line
• It is a set of products that are similar to
each other.
• Similarity may be in Common Customer/
Market Segment or Same Product Category
or some other factors which enable
grouping such as same channel of
distribution, same price bucket, etc.
 Product Mix Concepts
• Product Width – No. of Product Lines in the
Mix
• Product Depth – No of variants (sub-
category) offered in a product line. E.g.
Sports Shoes (Nike)– Basketball shoes,
Tennis shoes, athletics shoes.
• Product Length – No. of different Product in
the Line (range)
Product Line Concepts
• Line consistency refers to how close or
different to each other are products in a
particular product line.
• 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.
Product Line Concepts
• Family branding – If a line of products is sold
with the same brand name, this is referred to as
family branding. For example Nescafe has several
products under its main brand Nescafe – classic,
gold, espresso, cappuccino, taster‘s choice, etc.

• When we add a new product to a line, it is

referred to as a line extension.

• When we add a line extension that is of better

quality than the other products in the line, this is
referred to as trading up or brand leveraging.
Product Line Concepts
• When we add a line extension that is of lower
quality than the other products of the line, this is
referred to as trading down.

• 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 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.
Product Line Concepts
• 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.
Product Line Decisions
• Product line decisions can be broadly
classified under three categories:
1. Product Withdrawal
2. Increase in Products
3. Product Contribution
1. Withdrawing Products
• Product withdrawal is as much a planned
activity as introduction of a new product.
Companies in-build the time of withdrawal
of a product in their business strategy and
link it with the introduction of a new
product.
Withdrawing Products
• Decisions on when to withdraw the
product depend on several factors:
i. Business objectives Profit/ sales
ii. Strategic objectives – new prod ready,
competitive product launched
iii. New technology availability
iv. Need for variety by the customer or sales
channel/ retailers.
Questions to be asked before
Withdawal?
• If the company plans to withdraw a product in a
planned manned it must evaluate the following:
i. Has the product met its business objectives in
terms of sales and profits?
ii. Can the product continue to do so in the face of
competition and changing market environment?
iii. Can the product support the marketing
expenditure being done in order to promote it.
Questions to be asked before
Withdawal?
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)
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?
vii. Is the business strategy dictating the withdrawal
of the product?
Viii. Has it managed to recover its development
Cost?
2. Increase in Products
i. Stretching the product line:
• Stretching is a product line length beyond the
current price range A company‘s product line
may cover a certain range of the products
offered within the industry as a whole. This may
cover the range of price from the low to medium
to high price.
• An example will be the Honda Accord, Honda
Civic, Honda City and Honda Jazz starting from
the highest price to the lowest price. However in
this range the ultra high and very low segment
are not covered.
Increase in Products
• There are three ways to stretch the
product line:
– Stretching Down
– Stretching Upwards
– Two Way Stretching
Increase in Products
• Stretching Down: If the company adds a
product, at a price point, below the Honda Jazz
model it will mean a downwards stretching of
the product line.
• Many companies launch their products at the
upper price spectrum of the market and stretch
their product lines downwards.
Increase in Products
• Pros:
a. They try to respond to attacks to in their
current upper price segment by launching a
lower end product.
b. They try and fill an empty price point before
competitors can do so.
c. To increase the number of products for
expanding their market share.
d. To counter the attack from lower priced copies
being made by other manufacturers.
Increase in Products
• Cons:
a. The competition may counteract by entering the
upper price segment in which the company is.
b. The company‘s sales channel – sales force and
dealers may not be able to handle a low prices
segment.
c. The low end price products may eat into the
sales of products from the upper segment thus
lowering the sales of this segment.
Increase in Products
• Stretching Upwards: If the company
adds a product above the Honda Accord
then it would mean stretching upwards
the product line.
• 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.
Increase in Products
• Pros:
a. Higher margins in the upper price
segments.
b. Create an image of classiness for their
company by this upper price product.
c. Complete the range of products offered
by the company so as to tap all segments
in the market.
Increase in Products
• Cons:
a. The competition may respond by entering the
middle price category.
b. Company‘s existing customers may not believe
that it is capable of creating upper price end
products.
c. The company‘s sales force and distribution
channel may not be trained to handle the new
product.
d. Other companies may also be entering the
upper price segment.
Increase in Products
• Two-Way Stretch: Sometimes
companies that introduce products in the
middle price ranges decide to stretch their
products simultaneously in the lower and
upper ranges. This is a two way stretch.
Increase in Products
• Pros:
a. To target different markets at the same
time.
b. To keep competition away from the
segments in which the company is.
c. To test how each market is at the same
time.
Increase in Products
• Cons:
a. Some of the company‘s existing customers
prefer to buy company‘s cheaper products.
Hence there is a loss of sales to the existing
product.
b. Because now customers begin to look at new
products of the company they may compare
them with competitor‘s products and switch to
new brands and thus be a loss of customers.
c. The sale of higher category products shifts to
the lower priced products.
Increase in Products
• Example Two-Way Stretch: Marriott Hotel’s
case
• The Marriott Hotel group performed a two-way
stretch of its hotel product line. Along with the
regular Marriott Hotel it added the Marriott
Marquise line to serve the upper end of the
market, the Courtyard, Residence Inn and Fairfield
to serve the low-end of market.
• 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.
Increase in Products
• Marriott Hotel’s case : Contd.

• 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.
Increase in Products
ii. Filling the product line:
• Unlike the Line stretching where the new
product is introduced at another price
range category in product line filling new
products are added to the existing product
line (within the existing product range)
 Increase in Products
• Example: 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.
Increase in Products
• Pros:
a. Try to get higher profits from a particular
product category.
– The base model is priced so as to attract the
customer and cover the basic production and
overhead costs of the company. Hence the cost of
adding a few features to the LX and DX models is not
much. However from the customer‘s point of view it
has a much higher value. Hence the company is in a
position to charge much higher than its cost and thus
enhance its profits for that product category.
Increase in Products
b. It allows the company to sell more products
thus making a better utilisation of the company‘s
manufacturing resources.
– This also spreads the company‘s overheads over a
much larger product base lowering the costs and
enhancing profits.
c. Product line filling is done many times to satisfy
the company‘s dealers who are constantly asking
for newer products.
- Since developing a completely new product is much
more expensive as compared to modifying an existing
product and creating its variant.
Increase in Products
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.
e. It also helps in keeping out competitors from
different segments.
- It is not that competition can now not enter such
segments but it makes it that much harder and
expensive for a new entrant to enter the market.
Increase in Products
iii. Product line modernisation
• Product Line Modernisation involves a
complete overhaul of the product lines.
Here the company undertakes the
complete overhaul of the product line and
not by either product stretching or by
product filling.
Increase in Products
• This type of overhaul allows the company
to take a comprehensive view of the
customers‘, markets, competitor‘s
perspectives before undertaking this
change.
• This type of overhaul is not usual and is
seldom undertaken. It may be done if the
company passes through an economic
crisis or bankruptcy.
3. Product Performance
(Contribution/ Break-Even Point)
• 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.
• Some make a greater contribution to the
sales and some to the profit.
Product Contribution
• 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.
Product Contribution

• 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.
• Helps manager meet his business goals
in terms of profits and recoveries of the
development costs.
Product Contribution
• 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.
• This analysis may be done on an individual basis
and also on a cumulative basis to understand its
past and present behaviour. It can then be used
to predict the possible future of the product.
Recap
• What is Product Management?
• Understanding Product Organisation
• Product Management Lifecycle
• Product Lifecycle versus Product Management Lifecycle
• Managing Products
– Product Mix
– Product Line Concepts ( Line extension, Trading Up, Trading
Down, Price Lining, Image Anchor, etc)
– Product Line Length, Product Depth, Product Width, Line
Consistency
– Product Portfolio
– Product Decisions ( Withdrawing Products, Adding Products,
Modifying Products, Product Performance – BEP,
Contribution as % of Sales, NPV, Sensitivity Analysis)
Rogers’s Innovation Diffusion
& Adoption Theory
Types of Innovation
• Discontinuous Innovation – major technological
change that need radical change in behaviour
e.g. steam engines, motor car, PC, mobile
phones, Television, Microchips, plastic, etc
• Dynamically Continuous Innovation – further
development of known technology e.g. TV to
Color TV, PC to Laptops, Cassette to CDs
• Continuous Innovation – minor modifications to
existing products with minor change in
technology e.g. enzymes in detergents, squeezy
bottles for ketchups, liquid soap, liquid hand-
wash, etc.
Roger’s Bell Curve
Microsoft Windows Diffusion
Product Diffusion
Roger’s Five Factors of Innovation Diffusion
Product Life Cycle
Learning Objectives

• To understand Product Life Cycle (PLC)

• The various types of PLC
• To understand what how different stages
of PLC affect strategy.
• To understand the difference between
Industry PLC and individual product PLC
Structure

• Basics of Product Life Cycle (PLC)

• Types of Customers at different stages
• Strategy at different stages of the PLC
• Application of the PLC
• Limitations of the PLC
• Keywords
Basics of Product Life Cycle
(PLC)
Product Lifecycle
• Products have lifecycle
• Life Period
• Life Roles – Sales, Profits, Organisational
Objectives
Product Life Cycle Stages

• Introduction
• Growth (Early Growth & Late Growth)
• Maturity
• Decline
Introduction Phase: Features
• Product category has recently been
introduced into the market - consumers are
unaware of the product.
• Proper capitalization is important.
• Industry sales are low, but growing.
• Industry profits are negative.
• Advertising usually tries to develop the
primary demand.
Introduction Phase: Features
• Creating awareness and trial are common
marketing objectives.
• Sales promotion is used to trigger product
trial.
• Opportunity to take Leadership Position
Growth Phase: Features
• Sales are rising rapidly.
• Profits appear, peak, and begin to decline
just before the end of the period.
• Profit possibilities attract competitors, but
many competitors will be ―shaken out
during this phase as well. (Late Growth
phase)
• Promotion shifts from primary to selective
demand.
Growth Phase : Features
• Building market share is a common
marketing objective.
• Follower Competitors
• Followers have no development cost
Maturity Phase : Features
• Sales rise to their peak, then level off.
• Industry profits are in a slow decline.
• Competition increases.
• 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.
Maturity Phase: Features
• 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.
Maturity Phase : Features
• 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:
1. Reducing prices – A reduced price means
that the company’s margins come down and
so its ability to undertake other activities in
the market needed to promote the product
gets limited.
Maturity Phase : Features
2. Enhancing the value proposition of their product –
the other way of benefiting a customer is to provide
him some features that he may value and be willing
to pay the additional premium over the competitor‘s
product.
• During the product development many more
features are planned than are launched during the
initial launch.
Maturity Phase : Features
• The reason for this is that these enhanced features
can be released in a gradual manner to the
customer. This allows the company to keep the
customer engaged by offering him innovations.

• The reason for this is that these enhanced features

can be released in a gradual manner to the
customer. This allows the company to keep the
customer engaged by offering him innovations.

• Maintain their bottom line in the face of

competition
Maturity Phase : Features
3. Launching consumer schemes – In order to stay
ahead of competition the company may launch
consumer schemes which gives a consumer the
feeling of getting a benefit without actually reducing
price
• Example in a shampoo a company brings in a
product that says ―additional 20% free. This way
the company is putting in additional 20% shampoo
in the packaging but it saves in all other costs like
distribution channel cost, transportation cost,
manufacturing cost and the only cost is the cost of
the extra material.
Maturity Phase : Features
4. Enhancing Advertising – With the increased sales
volumes the company begins to get enhanced
revenues.
• Increased advertising is used to increase reach
within the target segment and support the
dropping rate of growth in sales.
Maturity Phase : Features

5. Increasing channel benefits – Several times the

distribution channel is in a position to push sales.

• The distributor has limited resources and he would

like to maximise his returns. Thus he will tend to
push those products that will fetch him the
maximum returns.
Decline: Features
• 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.
Types of customers at different
stages
Introduction Phase
• Innovators are willing to take risks in
trying out new products. These types of
buyers are predominant during the
introduction of the product.
• 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.
Introduction Phase
• They are
a. Usually the youngest in age
b. Belong to the highest social class
c. Financially they are sound and have
significant surplus.
d. Are very social and keep abreast with the
latest products and innovations.
Growth Phase - Early Adopters
• This category of individuals is second
fastest to adopt an innovation and follow
the Innovators.
• They have a greatest influence on the
opinion amongst the others in the target
segment.
• Others look at them for their opinion of
the product for adopting or not it.
Early Growth Phase - Early Adopters
• Like the innovators the Early adopters are
a. Typically younger in age
b. Have a high social status
c. Advanced education
d. Are also financially sound and have surplus
e. They are more socially forward than late
adopters
• Both the Early Adopters and Early Majority
are a significant part of the growth phase of
the product.
Late Growth Phase- Early Majority

• Individuals in this category adopt an

innovation after a varying degree of time.

• This time of adoption is significantly longer

than the innovators and early adopters.

• Early Majority tend to be slower in the

adoption process.
Late Growth Phase- Early Majority
• The Early Majority have
a. Above average social status
b. They are influenced by the Early adopters
and are usually in contact with them
c. This category also influences the opinion of
other categories of adopters though to a
lesser extent.
Maturity Phase - Late Majority
• The Late Majority customers will enter the
market during the maturity phase of the
product life cycle.
• 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.
Maturity Phase - Late Majority
• The Late Majority are
a. Generally suspicious of an innovation or
new product
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
Decline Phase - 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.
Decline Phase - Laggards
• 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.
Strategy at different stages of
the PLC
Product Lifecycle Strategies
• 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 Phase
• Innovators buy the product
• Create Demand
• Advertising campaign launched
• Costs are high
• Slow sales volume
• Little or no competition
• Customers to be prompted to try the
product
• Company makes no profit at this stage
Growth Phase
• Early adopters and Early Majority begin to buy
• Public awareness increases due to advertising
and word of mouth.
• Sales volumes increases significantly
• Profitability begins to rise
• Costs reduce because of economies of scale.
• Competition begins to increase with a few new
players entering the market.
• Increased competition compels the company to
reduce price.
 Maturity Phase
• Late majority begins to buy the product.
• Advertising focussed on brand diversification and
feature diversification to maintain or increase market
share.
• Sales volume peaks and market saturation is reached.
• Costs are lowered as a result of production volumes
increasing and experience in product manufacturing
and handling.
• Increase in competitors entering the market.
• Prices tend to drop due to the increase in number of
competing products.
• Net profit per product goes down but if overall sales
remains high profit increases
Decline Phase
• Laggards enter the market
• Sales volume decline or stabilise
• In order to promote the product much more
advertising is needed which may not be justified.
• Costs become sub-optimal meaning they are
higher than desired.
• Prices, profitability keep falling.
• It becomes a challenge to find ways to earn
profit rather than produce and distribute the
product efficiently.
Thank You