QUESTIONS ONE 1. What is a product?

A product is anything tangible that can be offered to a market that might satisfy a want or need. It can also be defined as a thing produced by labor or effort or the "result of an act or a process" 2. Discuss new product development process New product development process is used to describe the complete process of bringing a new product to market There are two parallel parts involve in the new product development process a) Idea generation, product design and detail engineering b) Market research and marketing analysis The process involves the following seven steps for developing and introducing new product. STEP 1: IDEA GENERATION

The first step of new product development requires gathering ideas to be evaluated as potential product options. For many companies idea generation is an ongoing process with contributions from inside and outside the organization. Many market research techniques are used to encourage ideas including: running focus groups with consumers, channel members, and the company’s sales force; encouraging customer comments and suggestions via toll-free telephone numbers and website forms; and gaining insight on competitive product developments through secondary data sources. One important research technique used to generate ideas is brainstorming where openminded, creative thinkers from inside and outside the company gather and share ideas. The dynamic nature of group members floating ideas, where one idea often sparks another idea, can yield a wide range of possible products that can be further pursued. STEP 2: SCREENING

In this step, ideas generated in Step 1 are critically evaluated by company personnel to isolate the most attractive options. Depending on the number of ideas, screening may be done in rounds with the first round involving company executives judging the feasibility of ideas while successive rounds may utilize more advanced research techniques.

As the ideas are whittled down to a few attractive options, rough estimates are made of an idea’s potential in terms of sales, production costs, profit potential, and competitors’ response if the product is introduced. Acceptable ideas move on to the next step. STEP 3: CONCEPT DEVELOPMENT AND TESTING

With a few ideas in hand the marketer now attempts to obtain initial feedback from customers, distributors and its own employees. Generally, focus groups are convened where the ideas are presented to a group, often in the form of concept board presentations (i.e., storyboards) and not in actual working form. For instance, customers may be shown a concept board displaying drawings of a product idea or even an advertisement featuring the product. In some cases focus groups are exposed to a mock-up of the ideas, which is a physical but generally non-functional version of product idea. During focus groups with customers the marketer seeks information that may include: likes and dislike of the concept; level of interest in purchasing the product; frequency of purchase (used to help forecast demand); and price points to determine how much customers are willing to spend to acquire the product. STEP 4: DETERMING MARKETING STRATEGY

It refers to a strategy that integrates an organization's marketing goals into a cohesive whole. Ideally drawn from market research, it focuses on the ideal product mix to achieve maximum profit potential. The marketing strategy is set out in a marketing plan.



At this point in the new product development process the marketer has reduced a potentially large number of ideas down to one or two options. Now in Step 4 the process becomes very dependent on market research as efforts are made to analyze the viability of the product ideas. (Note, in many cases the product has not been produced and still remains only an idea.) The key objective at this stage is to obtain useful forecasts of market size (e.g., overall demand), operational costs (e.g., production costs) and financial projections (e.g., sales and profits). Additionally, the organization must determine if the product will fit within the company’s overall mission and strategy. Much effort is directed at both internal research, such as discussions with production and purchasing personnel, and external marketing research, such as customer and distributor surveys, secondary research, and competitor analysis.



Ideas passing through business analysis are given serious consideration for development. Companies direct their research and development teams to construct an initial design or prototype of the idea. Marketers also begin to construct a marketing plan for the product. Once the prototype is ready the marketer seeks customer input. However, unlike the concept testing stage where customers were only exposed to the idea, in this step the customer gets to experience the real product as well as other aspects of the marketing mix, such as advertising, pricing, and distribution options (e.g., retail store, direct from company, etc.). Favorable customer reaction helps solidify the marketer’s decision to introduce the product and also provides other valuable information such as estimated purchase rates and understanding how the product will be used by the customer. Reaction that is less favorable may suggest the need for adjustments to elements of the marketing mix. Once these are made the marketer may again have the customer test the product. In addition to gaining customer feedback, this step is used to gauge the feasibility of large-scale, cost effective production for manufactured products. STEP 7: MARKET TESTING

Products surviving to Step 6 are ready to be tested as real products. In some cases the marketer accepts what was learned from concept testing and skips over market testing to launch the idea as a fully marketed product. But other companies may seek more input from a larger group before moving to commercialization. The most common type of market testing makes the product available to a selective small segment of the target market (e.g., one city), which is exposed to the full marketing effort as they would be to any product they could purchase. In some cases, especially with consumer products sold at retail stores, the marketer must work hard to get the product into the test market by convincing distributors to agree to purchase and place the product on their store shelves. In more controlled test markets distributors may be paid a fee if they agree to place the product on their shelves to allow for testing. Another form of market testing found with consumer products is even more controlled with customers recruited to a “laboratory” store where they are given shopping instructions. Product interest can then be measured based on customer’s shopping response. Finally, there are several high-tech approaches to market testing including virtual reality and computer simulations. With virtual reality testing customers are exposed to a computer-projected environment, such as a store, and are asked to locate and select products. With computer simulations customers may not be directly involved at all. Instead certain variables are entered into a sophisticated computer program and estimates of a target market’s response are calculated.



If market testing displays promising results the product is ready to be introduced to a wider market. Some firms introduce or roll-out the product in waves with parts of the market receiving the product on different schedules. This allows the company to ramp up production in a more controlled way and to fine tune the marketing mix as the product is distributed to new areas. 3. Discuss the Product decisions a marketer must make.
a) Decisions about product design – including product features, brand names, related

services, and warranties, for both goods and services – are among the most critical in differentiating one’s product from others to achieve competitive advantage.
b) Decisions about the depth and breadth of product lines must be carefully

considered in market segmentation terms. Product lines that are too long or too short can place the company at a competitive disadvantage. c) How the new product development process is managed From a process perspective is as important as what product decisions are made. The stage-gate system helps companies strike a balance between entrepreneurial creativity and business discipline in their new product efforts. Though new products constitute the lifeblood of long-term success for most firms, most new products fail! Thus, product decisions, in both content and process terms, are critical to the successful implementation of business strategies. d) Pricing Decisions Pricing decisions involve an inherent conflict between (1) The need to win customers by allowing them to retain a portion of the value inherent in a product or service. (2) The need to maintain profit margins sufficient to compensate employees, fund growth, and satisfy the firm’s various stakeholders. The price of a good or service must be high enough to cover per unit costs – at least in the long term – but cannot exceed its value as perceived by the customer. Therefore, the region between unit cost and perceived value represents the range of feasible prices.

The decision about what price to select from within the range of feasible prices should be based on a careful analysis of competitors’ costs and prices, the product’s strategic objectives, and consistency with other components of the marketing plan. Perhaps the key concept in setting a price is the notion of perceived value. An essential purpose of the price set by a marketing manager should be to enable the firm to capture a fair share of the value of the product as perceived in the mind of the customer. The final step in deciding what price to charge for a product or service involves the development of a price structure that adapts the price to variations in cost and demand across geographic territories, national boundaries, customer segments, and items within the product line. e) Distribution Channel Decisions The importance of good distribution decisions in designing a marketing plan is simple: Customers won't buy your good or service unless it is conveniently available when and where they want to buy it. Distribution channel decisions have a major economic impact because distribution costs, many or which do not even appear in the firm’s income statement, often exceed the costs of producing a good or service. Channel design involves decisions about the appropriate types and numbers of middlemen to include in the distribution channel in order to link the marketing strategy for the good or service to the needs of the target customers. f) Integrated Promotion Decisions Marketing managers in most companies face fundamental strategic decisions about whether to emphasize advertising or personal selling in their promotion mix. Identifying the strategic circumstances provides direction for these decisions. 4. Identify the various categories of classifying the Product. Categories of Business Products The amount spent on business purchasing far exceeds consumer purchasing. Products sold within the b-to-b market fall into one of the following categories:
• •

Raw Materials – These are products obtained through mining, harvesting, fishing, etc., that are key ingredients in the production of higher-order products. Processed Materials – These are products created through the processing of basic raw materials. In some cases the processing refines original raw materials while in other cases the process combines different raw materials to create something new. For instance, several crops including corn and sugar cane can be processed to create ethanol which has many uses including as a fuel to power car and truck engines.

Equipment – These are products used to help with production or operations activities. Examples range from conveyor belts used on an assembly line to large buildings used to house the headquarters staff of a multi-national company. • Basic Components – These are products used within more advanced components. These are often built with raw material or processed material. Electrical wire is an example. • Advanced Components – These are products that use basic components to produce products that offer a significant function needed within a larger product. Yet by itself an advanced component does not stand alone as a final product. In computers the motherboard would be an example since it contains many basic components but without the inclusion of other products (e.g., memory chips, microprocessor, etc.) would have little value. • Product Component – These are products used in the assembly of a final product though these could also function as stand alone products. Dice included as part of a children’s board game would be an example. • MRO (Maintenance, Repair and Operating) Products – These are products used to assist with the operation of the organization but are not directly used in producing goods or services. Office supplies, parts for a truck fleet and natural gas to heat a factory would fall into this category. 5. Expound on products positioning for competitive advantage.

Product Positioning Product positioning is how your product occupy the consumers’ mind and leave them to think that it’s only your product that can satisfy their need than those of your competitors. Recall that successful product positioning strategies should differentiate your product, address important customer buying criteria, and articulate key product attributes. To achieve all three objectives, you must have an in-depth understanding of: • How your target market makes purchasing decisions • How your competition positions their products • What your product has to offer When carrying out project positioning one need to answer the following questions. • • • • • Why will customers buy your product? What value does your product offer? Are there additional values that enhance your product positioning? Can your product be positioned to compete? Do you have the resources in place to compete on pricing?

To answer the above questions, you need to deploy the following; 1. Product design differentiation

Product differentiation is the process of distinguishing a product or offering from others, to make it more attractive to a particular target market. The major sources of product differentiation are as follows.
• • • • •

Differences in quality which are usually accompanied by differences in price Differences in functional features or design Ignorance of buyers regarding the essential characteristics and qualities of goods they are purchasing Sales promotion activities of sellers and, in particular, advertising Differences in availability (e.g. timing and location).

Service design differentiation Differentiated Service is a design pattern for business services and software, in which the service varies automatically according to the identity of the consumer and/or the context in which the service is used. The main factors which can be used for service differentiation are: 1. Ordering ease: Refers to how easy it is for you to place an order with the company. Baxter Healthcare has eased the ordering process by supplying hospitals with computer through which they send orders directly to Baxter; consumers can now order and receive groceries without going to the supermarket through web-based service such as peapod and net grocer. Thus these services have differentiated themselves through ease of ordering. 2. Delivery: It is related to how well the product or service is delivered to the customer, covering speed, accuracy and customer care. Deluxe check printer, inc., has built an impressive reputation for shipping out its checks one day after receiving an order- without being late once in 18 years. 3. Installation: refers to the work done to make a product operational in its planned location. Buyers of heavy equipment expect good installation service. Differentiation by installation is particularly important for companies that offer complex products such as computers. 4. Customer training: refers to how the customer’s employees are trained to use the vendor’s equipment properly and efficiently. General Electric not only sells installs expensive X-rays equipment in hospitals, but also gives extensive training to users of this equipment. 5. Customer consulting refers to data, information system and advising services that the seller offers to buyers. For example, the Rite aid drugstore chain’s communications program, called the Vitamin Institute, provide customers with research so they can make more educated judgments and fell comfortable asking for help. On the Web, Rite Aid has teamed with to offer even more health-related information.

6. Maintenance and repair: describes the service program for helping customers keep purchasing products in good working order, an important consideration for many products. Personnel differentiation Companies can gain a strong competitive advantage through having better-trained people. Singapore Airlines enjoys an excellent reputation in large part because of its flight attendants. The following ways are used for personnel differenciation; • Competence:

Staff should possess the required skills and knowledge. They should be courteous, friendly, respectful, and considerate with credibility. They need to show trustworthy, reliable and perform the service consistently and accurately. • Responsiveness:

The staff should learn to respond quickly to customers’ requests and problems; • Communications:

They should make an effort to understand the customer and communicate clearly. Retailers, in particular, are likely to use their front-line employees as a means of differentiating and positioning their brand.

Image differentiation
A person responds differently to company and brand images. Identity comprises the ways that a company aims to identify or position itself or its product, whereas image is the way the public perceives the company or its products. The following are some of the way to improve company’s image;

1. The corporate identity should clearly be mirrored in the logo. 2. -Brand consistency is important. Businesses should carefully design their points of customer contact. All of the business’s promotional materials should be identifiable as coming from the same company. 3. -Each business should have a “story” which describes their company. The story should be unique and must be very different from the ones that are created by the competitors. 4. -Promote your business by attending local events and industry trade shows. These places are the best medium for market exposure. This also helps develop company reputation by demonstrating community interest.

6. Product life cycle

The classic product life cycle has four stages (illustrated in the diagram below): introduction; growth; maturity and decline

Introduction Stage At the Introduction (or development) Stage market size and growth is slight. it is possible that substantial research and development costs have been incurred in getting the product to this stage. In addition, marketing costs may be high in order to test the market, undergo launch promotion and set up distribution channels. It is highly unlikely that companies will make profits on products at the Introduction Stage. Products at this stage have to be carefully monitored to ensure that they start to grow. Otherwise, the best option may be to withdraw or end the product. Growth Stage The Growth Stage is characterized by rapid growth in sales and profits. Profits arise due to an increase in output (economies of scale) and possibly better prices. At this stage, it is cheaper for businesses to invest in increasing their market share as well as enjoying the overall growth of the market. Accordingly, significant promotional resources are traditionally invested in products that are firmly in the Growth Stage. Maturity Stage The Maturity Stage is, perhaps, the most common stage for all markets. it is in this stage that competition is most intense as companies fight to maintain their market share. Here, both marketing and finance become key activities. Marketing spend has to be monitored carefully, since any significant moves are likely to be copied by competitors. The Maturity Stage is the time when most profit is earned by the market as a whole. Any expenditure on

research and development is likely to be restricted to product modification and improvement and perhaps to improve production efficiency and quality. Decline Stage In the Decline Stage, the market is shrinking, reducing the overall amount of profit that can be shared amongst the remaining competitors. At this stage, great care has to be taken to manage the product carefully. It may be possible to take out some production cost, to transfer production to a cheaper facility, sell the product into other, cheaper markets. Care should be taken to control the amount of stocks of the product. Ultimately, depending on whether the product remains profitable, a company may decide to end the product. The table below summarizes the product life cycle and their characteristics Stage Characteristics 1. costs are very high 2. slow sales volumes to start 3. little or no competition 4. demand has to be created 5. customers have to be prompted to try the product 6. 1. 2. 3. 4. 5. makes no money at this stage costs reduced due to economies of scale sales volume increases significantly profitability begins to rise public awareness increases competition begins to increase with a few new players in establishing market

1. Market introduction stage

2. Growth stage

3. Maturity stage

6. increased competition leads to price decreases 1. costs are lowered as a result of production volumes increasing and experience curve effects 2. sales volume peaks and market saturation is reached 3. increase in competitors entering the market 4. prices tend to drop due to the proliferation of competing products 5. brand differentiation and feature diversification is emphasized to maintain or increase market share 6. 1. 2. 3. Industrial profits go down costs become counter-optimal sales volume decline prices, profitability diminish

4. Saturation and decline stage

4. profit becomes more a challenge of production/distribution

efficiency than increased sales

1. 2. Philip Kotler, Philip.; Kevin Lane Keller (2006). Marketing Management, 12th edition Pearson Prentice Hall. ISBN 0-13-1457578. 3. Keller, Kevin Lane (2002). Strategic Brand Management, 2nd edition 4.
On The Mark 2005