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PRODUCT STRATEGY AND NEW PRODUCT

DEVELOPMENT

MANAGING
THE PRODUCT

NEW PRODUCT
DEVELOPMENT

PRODUCT

MANAGING
THE PRODUCT
LIFE CYCLE

Introduction

Major objectives
(i) To ensure that the product-mix is in line with the overall
company and marketing objectives
(ii) To evolve guidelines for reviewing the performance of
the existing products by using such factors as, sales,
profits, competition and customer acceptance

Based on these objectives,


the product strategies are
decided
--- which existing products should be continued, or
modified or dropped
--- which new products need to be developed

B2B Product
The augmented product includes intangible
benefits such as technical assistance,
availability of spare parts, maintenance and
repair services, warranties, training, timely
delivery, and attractive commercial
payment terms.

Augmented
properties
Enhanced
properties

Generic products are made differentiable


by adding tangible enhanced properties
such as product features, styling, and
quality

Basic
Properties
Basic properties are included in the generic
product, with fundamental benefits sought
by the customer

Cummins India Ltd. Has a successful product strategy because it has understood
the customers perception and offered both tangible and intangible benefits to
the target industrial customers far superior than the customers.

CHANGES IN PRODUCT STRATEGY

Factors demanding changes in product strategy

Customer
needs

Technology

Government
policy/laws

Product lifecycle

Making changes in the product in line with the changes


in customer needs
E.g. Increased cost of land leading to restructuring
stores to increase stacking levels

Changes in technology can require either product


modification or making existing products obsolete
E.g. The jelly filled telecom cables are getting replaced
by fibre optic telecom cables.
Many companies have changed over from main frame
computers to PCs to Laptops
Change in government policies and laws enacted by
Indian Parliament requires change in product strategy
E.g. Policy of liberalisation permitted private sector to
enter various sectors original reserved for public
sectors.
In order to maintain growth in sales and profits,
industrial firms decide to drop, modify or develop new
(substitutes) products when the existing products
reach maturity or decline stages in product lifecycles

NEW PRODUCT DEVELOPMENT

Classification of New Products

(i)

Products that are innovative and new to the world

(ii) Products that are new to the Company but not new to the market
(iii) Revision or improvements to the existing products in the
existing markets

(iv) Addition to the existing product lines with additional markets


(v) Repositioning existing products to new market segments
(vi) Product with substantial cost reductions without reduction in
performance

Factors responsible for Success and Failure of New Industrial Products


FAILURE :
Product not
satisfying
consumer needs

Resulting from an inadequate coordination between R & D


and Marketing (marketing research) functions

Product not
significantly
different

They are similar and perhaps imitations of the existing


products

Product do not
deliver expected
performance

Products fail to meet the expectations due to poor design

Weak
development
process

Competitors copy their products but have superior quality


and marketing effectiveness

Prices are much


higher than
value perceived

This might be because the companies want to recover the


cost of design, product development and market
introduction immediately

Factors responsible for Success and Failure of New Industrial Products


SUCCESS:

Product
superiority &
uniqueness

Superior quality and new product features that give the


product substantial competitive advantage

Market
knowledge

The company understands the needs and wants of target


markets. Defines the same at the product concept stage of
the new product development process, and translates this
knowledge into marketing strategies and action plans

Technical &
production
capabilities

They are required to translate the product concept into


product development and commercial production

NEW PRODUCT DEVELOPMENT AND MANAGEMENT

STAGES IN NEW PRODUCT DEVELOPMENT

IDEAS GENERATION

IDEA SCREENING

CONCEPT DEVELOPMENT AND TESTING

CONCEPT TESTING

BUSINESS ANALYSIS

PRODUCT DEVELOPMENT

MARKET TESTING

COMMERCIALISATION

IDEAS GENERATION
Source
--- Sales persons
--- Customers
--- Distributors
--- Suppliers
--- Design engineers
--- Managers

Attracting good ideas by using techniques such as

Brainstorming

Attribute listing

IDEA SCREENING
To select those ideas which
are likely to succeed

Screening is done in two stages

the product is in line with long term


objectives & objectives

Stage I

Checking the
product ideas
to ascertain if

resources are adequate to make it


successful
it is useful to customers

it delivers more value


if there is future growth, market size, and
competition in the new product industry

:
(A) The relative importance of these factors
by giving weight ages out of a total
weight of 1

Stage II

Rating of
new ideas
on

B) The management rates how well the new


product is in line with the companys
profile on each factor on a scale of 0.0 to
1.0
(C) Eventually the scores in (A) & (B) are
multiplied to get a total score for the new
product idea

CONCEPT DEVELOPMENT AND TESTING


After a new product idea passes the
screening stage, the idea should be
developed into a product concept
A product concept is a detailed version of the
product state in meaningful customers terms

The product concept is tested by getting


reaction from customers

The concept that has the strongest appeal from


the customers is chosen

CONCEPT TESTING
The new product is tested in prospective
customers organization
The CONCEPTS CAN BE PRESENTED BY
DEVELOPING MODELS THROUGH
TECHNIQUES CALLED

STERIOLITHOGRAPHY

VIRTUAL REALITY

Creates three computer -generated


three-dimensional plastic prototype .
This techniques is used for smallsized products

In this technique a software


package is used to design the
product on a computer

BUSINESS ANALYSIS
The purpose of business analysis is to develop
an estimated projection of sales, cost and
profitability in the proposed new product over
the next 5-7 years
The analysis covers aspects like ;
(a) Required investment in plant, equipment, working capital and
market development
(b) Market potential sales forecast customer and competitive
analysis
(c) Costs of product development, manufacturing and marketing
the product
(d) Likely price levels, profitability and return on investment

PRODUCT DEVELOPMENT
Process in which engineers and technicians
create the desired product
The R & D department develops one or more
prototypes of the product concept
The development of the prototype will confirm
or negate its ability to produce the product
within the cost estimate and performance
parameters previously established
In today's competitive environment the success
of the new product depends on how fast it is
developed
All this is done to ensure that the new products
are developed and launched in the market
before competitors

MARKET TESTING
Different methods of product testing are

Alfa and Beta


Testing

Alfa testing consists of testing the products internally in


the company
Beta testing is the second stage of testing at the potential
buyers site

Trade shows

Introduce new products at trade shows wher large


number of prospective buyers are exposed to the new
product

Dealers show
room

If the new industrial product is sold through the


distribution channel, it can be tested at their show room

Test marketing

This method is used by certain industrial marketers to


test their product in a limited geographical area through
their sales force in normal market situations

COMMERCIALISATION
A product is commercialised or launched when
it is introduced to a target market
It involves various activities developed in an
action plan as part of the marketing plan
Activities include :
Training of sales force
Product catalogues
Price lists
Introductory advertisements
Adequate stocks at warehouses/distributors shops

The marketing activities should be


synchronized with production to ensure market
entry timing

CONCEPTUAL MODEL FOR NEW PRODUCT


DEVELOPMENT

MARKET
SURVEY

DEVELOP
FEATURES

CUSTOMER
ATTRIBUTES

FEEDBACK

DESIGN

ENGINEERING
ATTRIBUTES

FINAL
PRODUCT

TEST
MARKETING
LAUNCHING

PRODUCT LAUNCH

SALES
EXCELLENT

MARKET
TEST

SALES
FAIR

LAUNCH
PRODUCT

ORGANISE NEW
MARKET
TEST

SALES FAIR
SALES POOR

MODIFY
PRODUCT

SALES
POOR

SALES
EXCELLENT

MODIFY
PRODUCT
DROP THE
PRODUCT

MARKET
TEST
MARKET
TEST

MANAGING THE PRODUCT LIFE CYCLE

PRODUCT LIFE CYCLE

INTRODUCTION

GROWTH MATURITY/
DECLINE
SATURATION

SALE &
PROFIT

SALE

PROFIT

TIME

INTRODUCTORY STAGE

Situation
There may not be ready market for the product
Sales are low
Products undergoes teething troubles
Profit seems a remote possibility

Strategy
--- Crucial decision is on pricing strategy to be adopted
(i) Market skimming or
(ii) market penetration
--- spend a lot on physical distribution and promotion to create an
awareness and acceptance of the product

GROWTH STAGE
Situation
sales shoot up. we are happy with profit generated by the product
competitors will enter with new product features
Cannot dictate price to the customer/channel

Strategy
--- Alteration of marketing strategies
--- Competition oriented pricing
--- Product improvement necessary.
--- Maintain same level promotional expenditure
--- Marketing and distribution efficiency

--- Product improvement necessary.


--- Maintain same level promotional expenditure

MATURITY STAGE

Situation
SLOW DOWN IN THE GROWTH RATE OF SALES
DEALERS MAY DICTATE TERMS
PRICE COMPETITION BECOMES INTENSE

Strategy
DECLINE CAN BE ARRESTED BY BY IMPROVEMENTS IN PRODUCT AND
PROMOTION

THINK OF NEW PRODUCT MIX.


ELIMINATION OR REDESIGN OF CURRENT PRODUCT

DECLINE STAGE

Situation
DECLINE MAY BE SLOW OR RAPID
MAY BE DUE TO BETTER SUBSTITUTES,BETTER COMPETITION,
TECHNOLOGICAL ADVANCES

Strategy
CONSIDER ELIMINATION OF SUCH MARGINAL OR UNPROFITABLE PRODUCTS

LAST RESORT REDUCE THE PRICE TO PROP UP THE PRODUCTS SALES

OPTIONS IN DECLINE STAGE

1)

IMPROVE PRODUCT QUALITY

2)

ADD NEW PRODUCT FEATURES RESULTING IN EXTRA BENEFITS

3)

PENETRATE NEWMARKET SEGMENTS

4)

GIVE INCENTIVES TO DISTRIBUTION CHANNELS

5)

EXPAND THE NUMBER VOF DISTRIBUTION CHANNELS

6)

IMROVE ADVERTISING AND SALES EFFORTS

PLC as a concept as a tool in formulating and implementing Marketing Strategy

---- Facilitates pre-planning the product launch


---- Facilitates prolonging the profitable base
---- Facilitates investment decisions on products
---- Facilitates choice of appropriate entry strategy
---- Facilitates choice of right time to exit

---- Provides useful clues for managing customers