ROYAL COLLEGE

CHAPTER ONE:
1. INTRODUCTION TO PRODUCT PLANNING AND
DEVELOPMENT
Chapter objective:
Up on the completion of this unit, the learner would be able to:
 Introduction
 Meaning of Product
 Classification of Product planning and development
 Product planning and development
1.1. Introduction:
A product is anything that can be offered to a market for attention, acquisition, use, or
consumption and that might satisfy a want or need. It includes physical objects, services,
persons, places, organizations, and ideas.’ Pure' Services are distinguished from 'physical'
products on the basis of intangibility, inseparability, variability and perish ability.
Services are a form of product that consist of activities, benefits, or satisfactions offered for
sale that are essentially intangible and do not result in the ownership of anything.
Product is a complex concept that must be carefully defined. As the first of the four
marketing mix variables, it is often where strategic planning begins. Product strategy calls for
making coordinated decisions on individual products, product lines, and the product mix.
1.2. Product and Concepts related to Product
1.2.1. Product:
The word “product” can be defined in many ways. The definitions differ according to
the difference in the connotation in which it is being used.
Technically, a product can be defined as anything that is produced, whether as the result
of generation, growth, labor, or thought, or by the operation of involuntary causes; as, the
products of the season, or of the farm; the products of manufactures; the products of the
brain.
In manufacturing, products are purchased as raw materials and sold as finished goods.
In project management, products are the formal definition of the project deliverables that
make up or contribute to delivering the objectives of the project.
In marketing, a product is anything that can be offered to a market that might satisfy a want
or need.

Complied By: Fitsum B. 1

ROYAL COLLEGE

Notes: Commodities are usually raw materials such as metals and agricultural products,
but a commodity can also be anything widely available in the open market.
From all the above connotations, we can say that in general usage, product may refer to a
single item or unit, a group of equivalent products, a grouping of goods or services, or an
industrial classification for the goods or services.
1.2.1. Levels of Product and Services
Therefore product planners need to think about products and services on three levels:
I. The core product is the core, problem solving benefits that consumers are really buying
when they obtain a product or service. It answers the question what is the buyer really
buying?
II.The actual product may have as many as five characteristics that combine to deliver core
product benefits. They are:
a. Quality level.
b. Features
c. Design.
d. Brand name
e. Packaging.
III. The augmented product includes any additional consumer services and benefits built
around the core and actual products. Therefore, a product is more than a simple set of
tangible features. Consumers tend to see products as complex bundles of benefits that
satisfy their needs. When developing products, marketers must:
- Identify the core consumer needs that the product will satisfy.
- Design the actual product and finally
- Find ways to augment the product in order to create the bundle of benefits that
will best satisfy consumer’s desires for an experience. For example, a Sony
camcorder is an actual product. Its name, parts, styling, features, packaging, and
other attributes have all been combined carefully to deliver the core benefit a
convenient, high-quality way to capture important moments.
Therefore, a product is more than a simple set of tangible features. Consumers tend to see
products as complex bundles of benefits that satisfy their needs. When developing products,
marketers first must identify the core consumer needs the product will satisfy. They must
then design the actual product and find ways to augment it in order to create the bundle of
benefits that will best satisfy consumers.

Complied By: Fitsum B. 2

ROYAL COLLEGE

1.3. Classification Product:

There are three basic types of product classifications.
- Consumer products
- Industrial product
- Organization, person, places and Ideas
I. Consumer products:
Consumer products: are those bought by final consumers for personal consumption.
Marketers usually classify these goods further based on how consumers go about buying
them. Consumer products include convenience products, shopping products, specialty
products, and unsought products. These products differ in the ways consumers buy them
and therefore in how they are marketed.
a. Convenience products are consumer products and services that the customer usually
buys frequently, immediately, and with a minimum of comparison and buying effort.
Examples include soap, candy, newspapers, and fast food. Convenience products are
usually low priced, and marketers place them in many locations to make them readily
available when customers need them.
b. Shopping products are less frequently purchased consumer products and services that
customers compare carefully on suitability, quality, price, and style. When buying
shopping products and services, consumers spend much time and effort in gathering
information and making comparisons. Examples include furniture, clothing, used cars,
major appliances, and hotel and motel services.
c. Specialty products are consumer products and services with unique characteristics or
brand identification for which a significant group of buyers is willing to make a special
purchase effort. Examples include specific brands and types of cars, high priced
photographic equipment, designer clothes, and the services of medical or legal
specialists.
d. Unsought products are consumer products that the consumer either does not know about
or knows about but does not normally think of buying. Most major new innovations are
unsought until the consumer becomes aware of them through advertising. Classic
examples of known but unsought products and services are life insurance and blood
donations to the Red Cross. By their very nature, unsought products require a lot of
advertising, personal selling, and other marketing efforts.

Complied By: Fitsum B. 3

ROYAL COLLEGE

II. Industrial Products:

Industrial Products: are those purchased for further processing or for use in conducting a
business. Thus, the distinction between a consumer product and an industrial product is based
on the purpose for which the product is bought. If a consumer buys a lawn mower for use
around home, the lawn mower is a consumer product. If the same consumer buys the same
lawn mower for use in a landscaping business, the lawn mower is an industrial product.
The three groups of industrial products and services include.
a. Materials and parts: include raw materials and manufactured materials and parts. Raw
materials consist of farm products (wheat, cotton, livestock, fruits, vegetables) and natural
products (fish, lumber, crude petroleum, iron ore). Manufactured materials and parts
consist of component materials (iron, yarn, cement, wires) and component parts (small
motors, tires, castings). Most manufactured materials and parts are sold directly to
industrial users. Price and service are the major marketing factors; branding and
advertising tend to be less important. The demand for industrial products is derived from
the demand for consumer products. This is known as "derived demand."
b. Capital items are industrial products that aid in the buyer's production or operations,
including installations and accessory equipment. Installations consist of major purchases
such as buildings (factories, offices) and fixed equipment (generators, drill presses, large
computer systems, and elevators). Accessory equipment includes portable factory
equipment and tools (hand tools, lift trucks) and office equipment (fax machines, desks).
They have a shorter life than installations and simply aid in the production process.
c. Supplies and services. Supplies include operating supplies (lubricants, coal, paper,
pencils) and repair and maintenance items (paint, nails, brooms). Supplies are the
convenience products of the industrial field because they are usually purchased with a
minimum of effort or comparison. Business services include maintenance and repair
services (window cleaning, computer repair) and business advisory services (legal,
management consulting advertising). Such services are usually supplied under contract.
III. Organizations, Persons, Places, and Ideas:
In addition to tangible products and services, in recent years marketers have broadened the
concept of a product to include other "marketable entities” namely, organizations, persons,
places, and ideas.

Complied By: Fitsum B. 4

ROYAL COLLEGE

a. Organizations often carry out activities to "sell" the organization itself. Organization
marketing consists of activities undertaken to create, maintain, or change the attitudes and
behavior of target consumers towards an organization. Both profit and nonprofit
organizations practice organizational marketing.
b. People can also be thought of as products. Person marketing consists of activities
undertaken to create, maintain, or change attitudes or behavior toward particular people.
All kinds of people and organizations practice person marketing.
c. Ideas can also be marketed. In one sense, all marketing is the marketing of an idea,
whether it is the general idea of brushing your teeth or the specific idea that Crest
provides the most effective decay prevention.
1.4. Product planning and development:
1.4.1. Product planning:
New product introduction or, as it is more generally referred to, new product development is
the process involved in bringing any new product into being and then launched onto the
market. So it is more than simply designing and then developing the product itself, it
involves defining the market for the product, testing the market, bringing the product to the
commercial market and advertising it and so on.
1.4.2. Product Development:
Product development is the process of designing, building, operating, and maintaining a
good or service. Product development adds things like pricing, marketing, and customer
support to the technology to create a complete product.
The companies world over, use a product development process to ensure that they are not
just manufacturing a product that people will want to buy but also one that people would
like to continue to use. To be sure, a base technology is at the heart of the product, but
product development ensures that the customer’s voice is not lost in the rush to an exciting
technology.
Product development is performed by a multi-disciplinary team whose goal is building,
operating, and maintaining the product. Team members may include product managers,
product developers, project managers, product operations engineers, customer support
managers, quality assurance managers, user interface design engineers, marketers, financial
personnel, graphic artists, etc.
There are 7 stages of new product development and they are as follows.
i. Idea generation:

Complied By: Fitsum B. 5

ROYAL COLLEGE

In this you are basically involved in the systematic search for new product Ideas. A company
has to generate many ideas in order to find one that is worth pursuing. The Major sources of
new product ideas include internal sources, customers, competitors, distributors and
suppliers.
Almost 55% of all new product ideas come from internal sources according to one study.
Companies like 3M and Toyota have put in special incentive programs or their employees to
come up with workable ideas.
Almost 28% of new product ideas come from watching and listening to customers.
Customers: even create new products on their own, and companies can benefit by finding
these products and putting them on the market.
Example: Pillsbury gets promising new products from its annual Bake-off. One of Pillsbury’s
four cake mix lines and several variations of another came directly from Bake-Off winners’
recipes.
ii. Idea Screening:
The second step in new product development is Idea screening. The purpose of idea
generation is to create a large pool of ideas. The purpose of this stage is to pare these down to
those that are genuinely worth pursuing. Companies have different methods for doing this
from product review committees to formal market research.
It, is helpful at this stage to have a checklist that can be used to rate each idea based on the
factors required for successfully launching the product in the marketplace and their relative
importance.
Against these, management can assess how well the idea fits with the company’s marketing
skills and experience and other capabilities. Finally, the management can obtain an overall
rating of the company’s ability to launch the product successfully.
iii. Concept Development and Testing:
The third step in new product development is Concept Development and Testing. An
attractive idea has to be developed into a Product concept. As opposed to a product idea that
is an idea for a product that the company can see itself marketing to customers, a product
concept is a detailed version of the idea stated in meaningful consumer terms.
This is different again from a product image, which is the consumers’ perception of an actual
or potential product. Once the concepts are developed, these need to be tested with consumers
either symbolically or physically. For some concept tests, a word or a picture may be
sufficient, however, a physical presentation will increase the reliability of the concept test.

Complied By: Fitsum B. 6

ROYAL COLLEGE

After being exposed to the concept, consumers are asked to respond to it by answering a set
of questions designed to help the company decide which concept has the strongest appeal.
The company can then project these findings to the full market to estimate sales volume.
iv. Marketing Strategy Development:
This is the next step in new product development. The strategy statement consists of three
parts: the first part describes the target market, the planned product positioning and the sales,
market share and profit goals for the first few years.
The second part outlines the product’s planned price, distribution, and marketing budget for
the first year. The third part of the marketing strategy statement describes the planned long-
run sales, profit goals, and the marketing mix strategy.
Business Analysis: Once the management has decided on the marketing strategy, it can
evaluate the attractiveness of the business proposal.
Business analysis involves the review of projected sales, costs and profits to find out whether
they satisfy a company’s objectives. If they do, the product can move to the product
development stage.
v. Product Development:
Here, R&D or engineering develops the product concept into a physical product. This step
calls for a large investment. It will show whether the product idea can be developed into a
full- fledged workable product.
First, R&D will develop prototypes that will satisfy and excite customers and that can be
produced quickly and at budgeted costs. When the prototypes are ready, they must be tested.
Functional tests are then conducted under laboratory and field conditions to ascertain whether
the product performs safely and effectively.
vi. Test Marketing:
If the product passes the functional tests, the next step is test marketing: the stage at which
the product and the marketing program are introduced to a more realistic market settings.
Test marketing gives the marketer an opportunity to tweak the marketing mix before the
going into the expense of a product launch.
The amount of test marketing varies with the type of product. Costs of test marketing can be
enormous and it can also allow competitors to launch a “me-too” product or even sabotage
the testing so that the marketer gets skewed results. Hence, at times, management may decide
to do away with this stage and proceed straight to the next one:
vii. Commercialization:

Complied By: Fitsum B. 7

ROYAL COLLEGE

The final step in new product development is Commercialization. Introducing the product to
the market it will face high costs for manufacturing and advertising and promotion. The
company will have to decide on the timing f the launch (seasonality) and the location
(whether regional, national or international). This depends a lot on the ability of the
company to bear risk and the reach of its distribution network.
Today, in order to increase speed to market, many companies are dropping this sequential
approach to development and are adopting the faster, more flexible, simultaneous
development approach. Under this approach, many company departments work closely
together, overlapping the steps in the product development process to save time and
increase effectiveness.
Above was the complete process of new product development. You can also read this
related article on why new product development is necessary for survival.

Complied By: Fitsum B. 8