MARKETING 4

PRODUCT MANAGEMENT
WRITTEN REPORT

~1~
 Chapter Nine
New Products

A. PRODUCT MODIFICATIONS
The following phrases below all point towards modifying the product:
 Continuous Quality Improvement
 Redesign
 Updated Styling

3 Types of Modifications:
 Clearly Better (an upgrade)
 Different (a styling or ingredient change that is likely to appeal more to
some customers and less to others)
 Inferior (the substitution of a less expensive ingredient or aspects of the
offering)

Groups of customers to consider in assessing the desirability of a product

change:
 Loyal Customers
 Occasional Customers
 Current Noncustomers

Product Stages
1. Idea Generation
- the process of creating new ideas about products

2. Concept Development
- is the detail version of idea, explained keeping in mind
consumers’ needs

3. Feasibility Screening
– the investigation that is carried out before a study begins to
determine if it will be a success or not

~2~
 4. Concept Testing
– Process in which a new product idea is thoroughly analyzed
with the help of a mockup and/or computer models

5. Product Development
– the process of creating or improving a product and managing
it during all stages from design through marketing

6. Product Testing
- scientific testing of a new product to check, for example, that
it is safe and works correctly

7. Market Testing
- is an experiment conducted before the commercialization
(launch) of a new product to find out the facts about the product
such as is the product the right one? Is the product reasonably
priced? etc. On the basis of such findings, the firm may either
accept or drop the product idea

8. Go-No Go Decision
- designating a situation in which one must decide whether or
not to continue with a particular course of action, or the
moment when such a decision must be made

Packaging
- he wrapping material around a consumer item that serves to contain,
identify, describe, protect, display, promote and otherwise make the
product marketable and keep it clean

– is an integral part of the product and is also a dispensing mechanism

with appeal of its own

B. LINE EXTENSIONS
- introducing additional product variants that use the existing brand name
- is a popular way to capitalize on the original brand’s equity

Many products actually are product families with a number of close

relatives designed to appeal various segments.

~3~
 The reason for using multiple versions:
 They can appeal to multiple segments, either increasing potential sales
(the customer base) or allowing for price discrimination among users
with slightly different needs and preferences.
 They also allow for the provision of a full line of products under a
single name, making shopping easier and hence potentially building
customer loyalty and brand equity.

The reasons for not using multiple versions:

 Efficiency of operation (production, inventory, distribution) is
enhanced when there are fewer versions to worry about.
 Overuse of a brand may dilute and weaken brand equity, especially
when the line elements differ in important ways.
 Too many options confuse customers.

Adding a Product Variant

- adding a variations of a product with different attributes like size or
color to attract new customers
- the need for both customer and cost data to evaluate effect of adding a
product variant

Dropping a Product Variant

- the decision to drop a variant (product deletion), typically one with
slow sales or low profits

- considerations include how customers of the old version will react, as

well the cost and operational issues

- is an admission of failure and may be seen by customers or distribution

channels as an indication of reduced commitment to the product category

C. GETTING IDEAS FOR NEW PRODUCT

1. Customer Analysis
- in particular, usage/needs analysis and surveys of attitudes and attribute
importance, including both unstructured (focus groups) and structured
(conjoint analysis) approaches

- many companies maintain facilities where customers are less

obtrusively observed using company products or product mock-ups
~4~
2. Competitor Analysis
- specifically studying what competitors sell or are working on

- most new products are copies of competitor’s products

3. Active Search
- particularly of new products and processes in other areas with an eye
towards incorporating them in the company’s own product

4. Category Analysis
- examining changing social trends and technologies

5. Brainstorming
- generating ideas for new products can be difficult

 New Market/Customer Acquisition: Who else can we sell it to?

 Customer Expansion: What else can we sell them?
 Product Variants and Line Extensions: What different features
can we add, replace, or displace?
 Value Chain Changes: How else can we get it to the customer?

Sources often present ideas, suggestions, and complaints that lead to new
products:
1. Customers
- and often more importantly, ex-noncustomers who reject
current products

2. Employees
- especially the sales force

3. Suppliers
– who are also a good source of information about competitors

4. Distribution Channels

5. Operations People
– who often suggest ways to simplify a process

6. Internal and External R&D

- including technological breakthroughs
~5~
 7. Design
- a field which has recently taken on increased importance in
many categories

8. Entrepreneurs
- who often approach larger companies with ideas or products

D. TESTING SLIGHTLY NEW PRODUCTS

Concept Testing
- is the investigation of potential consumers' reactions to a proposed
product before introducing the product or service to market

- is a valuable step to identify perceptions, wants and needs associated

with a product

Main purposes of concept test are:

1. choose the most promising from a set of alternatives
2. get an initial notion of the commercial prospects of a concept
3. find out who is most interested in the concept
4. indicate what direction further development work should take

Surveys
- are useful for getting large samples for projection purposes

- difficult to effectively convey a concept in a survey, especially an

impersonal one

4 Types of reactions:
1. Attitude (Is the product good/bad?)
2. Uniqueness/Differentiation (How unique is this product?)
3. Relevance (How relevant is the product to you?)
4. Intention (Will you buy the Product?)

Focus Groups
- the strength of focus groups is their diagnostic power in that they can
be used to get detailed discussions of various aspects of the concept

~6~
 Demonstrations
- a popular way to present a concept is to gather a group of
consumers, present them with a “story” about the new product

Questions asked typically relate the following:

1. Do they understand the concept?
2. Do they believe the concept?
3. Is the concept different from other products in an important
way?
4. If different, is the difference beneficial?
5. Do they like or dislike the concept? Why?
6. What could be done to make the product more acceptable?
7. How would they like to see the product (color, size, etc.)?
8. Would they buy it?
9. What price would they expect to pay for it?
10.What would their usage be in terms of volume, purpose, source
of purchase, and so forth?
11.Where would they shop?

Product Testing
- is a process of measuring the properties or performance of products

Main purposes of product test is to:

1. uncover product shortcomings
2. evaluate commercial prospects
3. evaluate alternative formulations
4. uncover the appeal of the product to various market segments
5. if lucky, gain ideas for other elements of the marketing program

Discrimination
- is the ability to correctly identify differences from the product
alone, without cues such as brand name and ingredients

When a product formulation is changed, a crucial issue is the

customer reaction.

Reaction has 3 aspects:

 Discrimination (Can they tell the difference?)
 Preference (Which version do they prefer, and by how much?)

~7~
  Reaction to change perse (Are they basically pro change, or is
any change upsetting?)

Market Tests
Purpose of such test:
- predict sales and profits from a major product launch
- “practice” so that marketing, distribution, and production skills
are developed before entering full-scale operations

E. FORECASTING
- is the use of historic data to determine the direction of future trends.
Businesses utilize forecasting to determine how to allocate their budgets or
plan for anticipated expenses for an upcoming period of time. This is
typically based on the projected demand for the goods and services they
offer

4 Basic factors are the keys to eventual sales:

1. Awareness.
2. The eventual proportion of consumers who try the products
(trial).
3. The proportion of triers who remain with the brand (repeat).
4. The usage rate of the product category among eventual users.

F. BRAND EXTENSIONS
Extending brands beyond their original category has been increasingly
popular. These decisions are generally both riskier than adding variants and
beyond control of a product manager. The success of an extension also seems to
depend on the order in which extensions occur. On study found that brand
extensions work best in more mature markets for frequently purchased consumer
goods and generally outperform new products.

The managers provide data on:

1. Product offered (‘focal” products) and whether or not they were
extensions.
2. Other products using the same brand name or company logo as the
focal product.
3. Age of focal product.

~8~
 4. Number of competitors of the focal product and extensions.
5. Advertising/sales ratio of the focal products and extensions.
6. Market shares of the focal products and extensions.

G. REALLY NEW PRODUCTS

Really new products really are different. They
1. Create or expand a new category, thereby making cross-category
competition the key (fruit teas versus soft drinks).

2. Are new to customers for whom substantial learning is often required

(what it can be used for, what it competes with, why is it useful).
3. Raise broad issues such as the appropriate channels of distribution and
organizational responsibility.

4. Create (sometimes) a need for infrastructure, software, and add-ons.

Getting Ideas for Really New Products

Emphasis may be on:
1. Asking (or listening to) dissatisfied customers.

2. Asking non representative customers.

3. Using open-ended, qualitative (versus structured survey) procedures.

4. Involving customers as co-developers (especially for industrial

products).

5. Listening to scientists and newcomers rather than the engineers and

experts.

6. Scanning the literature (technology) for interesting possibilities.

Evaluating Really New products:

1. Relative advantage.
- the benefits of the product it replaces

~9~
2. Compatibility.
- the ability of the consumer to use it in a way consistent with the
past behavior, which increases the chances of adoption

3. Risk.
- works against adoption\

4. Complexity.

5. Observability/communicability.
- the ability to explain and see the benefits in simple, clear terms

6. Trialability/divisibility.
- the ability to sample the product without a major commitment

~ 10 ~