Product Management

(For 2nd semester)

Product Concept
Thus, a product can be -- a physical entity (e.g., computer, shirt, soap),
- some service (e.g., healthcare, education, bank),
- a retail store (e.g., music store, locality grocer,
supermarket),
- a person (e.g., a singer, physician, or politician),
- an organisation (e.g., business organisation, trade
organisation, or not-for-profit organisation),
- a place (e.g., village, city, country),
- an idea (e.g., social issues, concepts, population
control).
We use the word product innumerably in everyday life.

Product Levels (Levitt)

Product Levels (example)

Product Levels

(example)
showing an additional level

Core benefit - Sleep

Product Levels (example)

Product Classification
Products can be grouped under one of the two general
categories:
Consumer products are those that we buy for our
personal or family use or consumption.
Organisational products represent those products that
firms and institutions buy to produce other products, to
resell, or to run day-to-day operations.

Product classification
Nondurable
Goods
(FMCG)

Services

Durable
goods

Consumer Goods Classification

Convenience
Staples
Impulse goods
Emergency good

Specialty

Shopping
Unsought

Consumer Goods Classification

MARKET
CONSIDERATIO
N

CONVENIENCE

Consumer
Frequent purchase,
buying behavior little planning or

shopping efforts

Price

Distribution

Low price

SHOPPING

SPECIALITY

Less frequent
Strong brand preference
purchase, much
& loyalty, special
planning and
purchase efforts, little
shopping efforts,
comparisons of brands
comparison of brands
High price

High price

Widespread
Selective distribution Exclusive distribution in
distribution,
in fewer outlets
only 1 or few outlet per
convenient location
market area

Promotion

Mass promotion by
the producer

Example

Tooth paste,
magazines,
detergents.

Advertisement and
personal selling by
both producer and
reseller

More careful targeted

promotion by both
producer and seller

Major appliances such Luxury goods such as

as television,
Rolex watches or fine
furniture, clothing
crystal

UNSOUGHT

Little product
awareness
knowledge

Varies
Varies

Aggressive
advertisement and
personal selling by
producer and reseller
Life insurance, red
cross blood
donations

Industrial Goods Classification

Product Hierarchy
Need Family (Protection from elements): the core
need that underlies the existence of a product family.

Product Family/Category (Clothing): all the

product classes that can satisfy a core need.

Product Class (Cotton Clothing): group of products

with certain functional coherence.

Product Line (Shirt): a closely related group of products for

essentially similar use, and technical and marketing considerations.

Product Type (Wrinkle free full sleeve): group of

items within a product line that share one of several possible forms of
the product.

Item (Turtle Wrinkle Free): a member or distinct unit in a

product line.

Product Mix

Product Mix

Consistency

Width
Width -- number
number
of
of different
different
product
product lines
lines

Length
Length -- total
total

number
number of
of items
items
within
within the
the lines
lines

Depth
Depth -- number
number
of
of versions
versions of
of
each
each product
product

Product
Product Mix
Mix -all
all the
the product
product
lines
lines offered
offered

Product-Mix

Product-Mix Width and Product-Line

Length

PRODUCT-LINE
LENGTH

for Proctor & Gamble Products

Product-Mix Width
Detergents

Toothpaste

Disposab
le Bar
Soap

Ivory Snow
(1930)

Gleem
(1952)

Ivory
(1879)

Pampers Charmin
(1961)
(1928)

Crest (1955)

Kirks
(1885)

Luvs
(1976)

Dreft (1933)
Tide
(1946)

Paper
Diapers Tissue

Puffs
(1960)

Lava
(1893)

Banner
(1982)

Camay
(1926)

Summit
(1992)

Cheer (1950)

Line Stretching
Downward Stretch

High

Present Product

Price

Upward Stretch

High

New Product

Low

High
Quality

New Product

High

Price

Low New Product

Both-Way Stretch

Price

Present Product

Low
Present Product
High

Low
Quality

Low New Product

Low

High
Quality

Line Filling: for incremental profits, demands from dealers, utilizing excess
capacity, be the leading full-line company, keep out competitors
Just-noticeable difference (j.n.d.) (overdone: self cannibalization & customer confusion)

Line pruning: is just the opposite to line stretching and involves a deliberate
decision to cut down the number of items in product line(s).

Two-Way Product-Line Stretch: Marriott

Hotels
Quality

Economy

Standard

Good

Price

High
Marriott
(Middle
managers)

Above
average
Courtyard
(Salespeople)

Average
Low

Fairfield Inn
(Vacationers)

Superior
Marriott
Marquis
(Top
executives)

Ansoffs Product-Market Matrix

The BCG Portfolio Matrix

The Product Life Cycle

The concept of the product life cycle applies to product
categories, not to brands; it is related to the concept of
diffusion of innovation
Different products will have differently-shaped life cycle
curves; will diffuse at different rates
A product is normally perceived to pass through four
stages over its life cycle; introduction, growth, maturity,
and decline
Each stage requires different marketing strategies

The Product Life Cycle

GROWTH

MATURITY

Sales

INTRODUCTION

0
Loss

Time in years

DECLINE

The Product Life Cycle

The introductory stage is viewed as fairly risky and quite expensive because large
amounts of money is spent on advertising and other tools of marketing communications
to create consumer awareness in sufficiently large numbers, and encourage trial.
The growth stage of life cycle is characterised by a sharp rise in sales. Only a small
percentage of new products introduced survive to reach the growth stage.
Most products after surviving competitive battles, winning customer confidence and
successful through growth phase enter their maturity stage. The sales plateau, and this
flattening of sales usually lasts for some time because most products in the category
have reached their maturity stage, and there is stability in terms of demand,
technology, and competition.
Decline stage sets in when customer preferences change due to the availability of
technologically superior products and consumers shift in values, beliefs, and tastes to
products offering more value.

The Product Life Cycle (Examples)

INTRODUCTION

GROWTH

MATURITY

DECLINE

Third generation
mobile phones

Portable DVD
Players

Personal
Computers

Typewriters

E-conferencing

Email

Faxes

Handwritten
letters

All-in-one racing
skin-suits

Breathable
synthetic fabrics

Cotton t-shirts

Shell Suits

iris-based personal
identity cards

Smart cards

Credit cards

Cheque books

The Introductory stage

Sales
Sales

Low
Low sales
sales

Costs
Costs

High
High cost
cost per
per customer
customer

Profits
Profits
Product
Product

Negative
Negative
Create
Create product
product awareness
awareness
and
and trial
trial
Offer
Offer aa basic
basic product
product

Price
Price

Use
Use cost-plus
cost-plus

Distribution
Distribution
Advertising
Advertising

Build
Build selective
selective distribution
distribution

Marketing
Marketing Objectives
Objectives

Build
Build product
product awareness
awareness among
among
early
early adopters
adopters and
and dealers
dealers

The Growth stage

Sales
Sales

Rapidly
Rapidly rising
rising sales
sales

Costs
Costs

Average
Average cost
cost per
per customer
customer

Profits
Profits

Rising
Rising profits
profits

Marketing
Marketing Objectives
Objectives

Maximize
Maximize market
market share
share

Product
Product

Offer
Offer product
product extensions,
extensions,
service,
service, warranty
warranty
Price
Price to
to penetrate
penetrate market
market

Price
Price
Distribution
Distribution
Advertising
Advertising

Build
Build intensive
intensive distribution
distribution
Build
Build awareness
awareness and
and interest
interest in
in
the
the mass
mass market
market

The Maturity stage

Sales
Sales

Peak
Peak sales
sales

Costs
Costs

Low
Low cost
cost per
per customer
customer

Profits
Profits

High
High profits
profits

Marketing
Marketing Objectives
Objectives

Product
Product

Maximize
Maximize profit
profit while
while defending
defending
market
market share
share
Diversify
Diversify brand
brand and
and models
models

Price
Price

Price
Price to
to match
match competitors
competitors

Distribution
Distribution
Advertising
Advertising

Build
Build more
more intensive
intensive distribution
distribution
Stress
Stress brand
brand differences
differences and
and
benefits
benefits

The Decline stage

Sales
Sales

Declining
Declining sales
sales

Costs
Costs

Low
Low cost
cost per
per customer
customer

Profits
Profits

Declining
Declining profits
profits

Marketing
Marketing Objectives
Objectives

Product
Product

Reduce
Reduce expenditure
expenditure and
and milk
milk the
the
brand
brand
Phase
Phase out
out weak
weak items
items

Price
Price

Cut
Cut price
price

Distribution
Distribution
Advertising
Advertising

Go
Go selective:
selective: phase
phase out
out
unprofitable
unprofitable outlets
outlets
Reduce
Reduce to
to level
level needed
needed to
to retain
retain
hard-core
hard-core loyal
loyal customers
customers

PLC
length of the life cycle will vary across markets; some
are quite short and may be getting shorter
some fads have very short life cycles, while other
products stay at maturity for years
in high-tech markets, life cycles are very short
some products do not make it through all four stages;
they may fail in introduction
the life cycle must be considered in relation to a
specific market; stage may vary across markets

Extending the Product Life Cycle

Market
Modification

1. Increase frequency of use

by present customers
2. Add new users
3. Find new uses

Product
Modification

4. Change product quality or

packaging (innovation),
Rejuvenation, Repositioning

Purpose: to sell more product and cover original investment

Extending the PLC

Sales

Sales

Time
Cycle-Recycle Pattern

Time
Innovative Maturity or
Scalloped Pattern

First Mover and Follower Advantages

First Mover
First choice of market segments.

Follower
Can bring in superior technology.

Influence on consumer attitudes and Can take advantage of pioneers

choice criteria.
product mistakes.
Pioneer defines the rules of the
game.

Ability to take advantage of

pioneers positioning mistakes.

Switching costs higher for early

adopters of pioneers product.

Ability to take advantage of

pioneers marketing mistakes.

Gaining distribution advantage.

Can take advantage of pioneers

resources limitations.

Economies of scale and more

experience.
Possibility of pre-empting scarce
resources and suppliers.

Packaging

All the activities of designing and producing

the container for a product.

Labelling
(Functions of labels)

Identifies
Grades
Describes
Promotes

New product
New product:
New to the World Products
New Product Lines
Additions to Existing Product Lines
Improvements in or Revisions of Existing
Products
Repositioning
Cost Reductions

New product Development Phases

Phases

Marketing Activities

Idea Generation

Searching for new product ideas from internal and external sources.

Idea Screening

Select the most promising ideas and drop those with only limited potential. Study
the needs and wants of potential buyers, the environment, and competition.

Concept Testing

Describe or show product concepts and their benefits to potential customers and
determine their responses. Identify and drop poor product concepts. Gather useful
information from product development and its marketing personnel.

Business
Analysis

Assess the products potential profitability and suitability for the market-place.
Examine the companys research, development, and production capabilities.
Ascertain the requirements and availability of funds for development and
commercialisation. Project ROI.

Product
Development

Determine technical and economic feasibility to produce the product. Convert the
product idea into a prototype. Develop and test various marketing mix elements.

Test Marketing

Conduct market testing. Determine target customers Reactions. Measure its sales
performance. Identify Weaknesses in product or marketing mix.

Commercialisati Make necessary cash outlay for production facilities. Produce and market the
product in the target market and effectively communicate its benefits.
on

PLC & Diffusion of Innovations

PLC

InnovaEarly
Early
Late
tors
Adopters Majority Majority

Laggards

Factors affecting Diffusion of

Innovations
The rate at which the diffusion of an innovation takes place is a
function of the following key factors:
Type of target group
Extent of marketing efforts involved
Need fulfillment
Compatibility
Relative advantage
Complexity
Triability
Perceived risk
PLC stages

Introduction

Growth

Maturity

Decline

Adopter
groups

Innovators

Early
adopters

Early
majority

Late
majority

Laggards

Percentages

(2.5%)

(13.5%)

(34.0%)

(34.0%)

(16.0%)

Adopter groups
The late majority

Early
Innovators adopters
constitute,
on an
average the
first 2.5%
of all those
consumers
who adopt
the new
product
and are
technology
enthusiasts

tend to be
opinion
leaders in
local
reference
groups
and
represent,
on an
average
the next
13. 5%
who adopt
the new
product

The early

majority
tend to be
deliberate
and
cautious
with
respect to
innovation
s and
represents
34.0%

(34.0%) are skeptical

about innovative
products, rely on
tradition and
generally adopt
innovations in
response to group
norms and social
pressure, or due to
decreased
availability of the
previous product
rather than positive
evaluation of the
innovation.

Laggards
represent the
last 16.0% of
adopters. Like
innovators,
they are the
least inclined
to rely on the
groups
norms.
Laggards are
tradition
bound, tend to
be dogmatic
and make
decisions in
terms of the
past.

Sales Forecasting
A sales forecast refers to an estimate of sales in monetary terms or
physical units, in a future period of time, under an assumed set of
macro-environmental factors influencing the business unit for which
the forecast is made, under a given marketing programme.
Company sales forecast represents the sales estimate that the
company actually expects to achieve, based on market conditions,
the companys resources, and its marketing programme.
Market potential (industry potential) refers to the highest possible
expected industry sales of a product or service.

Forecasting Methods
Two types of forecasting methods are used to prepare the sales forecast:
Qualitative or Judgemental Methods.
Quantitative Methods.
Qualitative Methods
Qualitative or judgemental methods consider factors related to expertise and human
judgement. These methods are generally used in conjunction with some others to build
more confidence in the forecast.
Jury of Executive Opinion
This forecasting method is quite simple and uses the experience and expertise of senior
managers from many functional areas.
Delphi Method
A group of experts expresses their views on different relevant issues such as the
expected direction of future business conditions, technology, business activities, new
product development, and expected market changes.

Sales Force Composite Method

The assumptions in using this method are that sales people are the companys
ambassadors in close contact with customers and prevailing market conditions and best
qualified to estimate future sales in their individual territories.
Quantitative Methods
The advantage of using quantitative methods of forecasting eliminates any subjectivity
that is not possible with qualitative methods.
Survey of Buyers Intentions
The sample of current or potential customers is asked how much of a particular product
they would buy at a certain price during a specified future period.
Simple Projection Method
In its simplest form, adding some fixed percentage of sales growth over the last years
sales arrives at the sales forecast.
Time Series Analysis
Using this method, the forecaster studies the past sales data of the company and
attempts to discover a pattern or patterns in the companys sales over time.
Time series approach generally involves trend analysis, cycle analysis, seasonal
analysis, and random factor analysis.

Regression Analysis (Correlation Method)

The forecaster attempts to detect any relationship in historical sales data, that is,
between past sales and one or more variables such as population, per capita income, or
GDP.
Econometric Models
In developing econometric models, sales are considered as the dependent variable
influenced by many factors that perpetually interact and cause sales. Factors causing
sales are independent variables and can be non-economic and economic in nature, such
as natural factors, employment, income etc.
Market Tests
This method involves making the product available to potential customers in one or
more test markets to measure their response to price, promotion, and distribution.

Thank You, Class