Chapter 13:

―Conceiving, Developing,
and Managing Products‖

Chapter Objectives

• To learn about the Product Life Cycle

To learn the importance of new products and why new
products fail
• To understand the stages in the new-product planning
process
• To analyze the adoption process and diffusion process

Types of New Products

• Modifications: alterations/extensions in
existing products, such as new models
• Minor Innovations: items not previously
sold by a firm but sold by others
• Major Innovations: items not previous sold
by any firm

More than a good test question. Affects PLC issues

1
 The Product Life Cycle

• The product life cycle describes a product’s

sales, competitors, customers, and
marketing emphasis from its beginning until
it is removed from the market.
• Companies often desire a balanced product
portfolio. PLC helps allocate resources
• The life-cycle concept can be applied to a
product class, product form, product brand,
and country.

Selected Product Life Cycles

Traditional Boom or Classic Fad

Extended Seasonal or Fashion Revival Bust

Fad

Stages in Traditional Product Life Cycle

Introduction Growth Maturity Decline

S
A
L
E Sales
S

Profits
TIME

2
 Introduction
Initial customers innovators
None or one or two competitors
Profits negative
Only basic models sold

Growth Stage

Total profits high

Some competition
Expanding product line
Expand distribution

Mature Stage

Competition highest
Discounting popular
Maintain differential
advantage
Profits decreasing
Sales Stable
Full Product Line

3
 Decline Stage

Substitutes enter market

People lose interest

Harvest
Revive
Divest

The Pie
A firm can have expanding sales
while losing market share because
the pie is still growing in the growth
stage.

When the pie stops growing in the

mature stage, the firm’s market
share may be too small

I Love the PLC, why don’t you?

• Many firms may engage in a self-fulfilling

prophecy whereby they predict falling
sales and then ensure this by reducing or
removing marketing support.
• With proper marketing, some products
might not fail.

The criticisms may be valid, but an old map is better than no map

4
 Importance of New Products

To assure a firm’s survival, new products may:

– Offer differential advantages and capture the
market.
– Even out seasonal/business cycles.
– Increase profits through greater margins.
– Reduce risk through diversification.
– Improve distribution by spreading costs over
more products.
– Exploit technology.
– Utilize waste materials, e.g., pig poop fuel.
– Respond to consumer needs.
– Be a result of a government mandate.

Why Do Products Fail?

• Crummy marketing plan

• Lack of a differential
advantage
• Ignoring the CREST
variables
• Over-
attention/enthusiasm
• Bad timing
• Bad product

Types of Failures

• In absolute product failure,

marketing and production
costs are not regained.

• In relative product failure,

even though a profit may be
earned, goals are not met.

5
New-Product Planning Process

2. 3.
Product Concept
Screening Testing
1. 4.
Idea Business
Generation Analysis

5.
7. Product
6.
Development
Commercialization Test Marketing

1. Idea Generation

Continuous,
systematic search
for new product
opportunities from
the market or the
lab.

Idea
Generation

2. Product Screening

Poor, unsuitable
products weeded out
and patentability
determined

Product
Screening

6
Weighted Product/Market Attribute
Scores with Cut-off Points
Attribute Score Importance Total
Patentability 9 3 27

Above 200 points, pass go and collect $200, below

200, to the dumpster

3. Concept Testing
Present consumer
with mock-up,
photo, description
of proposed
product to measure
attitudes and
intentions

Concept
Testing Don’t forget to ask
about price

4. Business Analysis

Detailed review of
demand, costs, break-even
points, investments, and
potential profits for each
new product

Business OK, bean counters,

Analysis
it is all yours

7
5. Product Development

Converts product idea

into tangible form and
identifies basic marketing
strategy

Product
Development

6. Test Marketing

Involves placing product

into selected areas to
observe it under a proposed
marketing plan in the REAL
world to get customer and
competitor reactions

Competition may try to

interfere

Test
Marketing

7. Commercialization

The product’s
introduction to its
target market,
corresponding to the
introduction stage of
the product life cycle

Commercialization

8
 Adoption Process

• The rate of adoption will be rapid if

the new product is compatible with
current lifestyles

Diffusion Process

• The diffusion process describes how

different buyers accept and purchase a
product.
• It spans the time from product
introduction through market saturation .
• Consumer segments include:
– Innovators—12.5%
– Early Adopters—93.5%
– Early Majority—34.98502%
In addition to being a good
– Late Majority—34% test question, it has impact
– Laggards—56% on market segmentation and
sales/advertising methods

Interesting Stuff
• Do you know the stages of the PLC and what
goes on in each stage? Hope you do!
• How about the relevance of ―the pie?‖
• Do you know why new products fail and the
types of failure?
• And, do you know what goes on during the
different stages of the new product planning
process?
• What about the adoption and diffusion
processes?

9
 Chapter 14:
―Value Chain Management
and Logistics‖

Chapter Objectives
• To discuss the value chain and value delivery chain
• To explore distribution functions, selecting a
distribution channel, and the types of distribution
channels
• To consider channel conflict
• To examine logistics

The Distribution Process

Supplier/
Manufacturer
Goals
Value Chain
The Process

Distribution Total Delivered Level of

Intermediary Product Satisfaction
Goals

Value Delivery
Chain
Customer The People
Goals

10
 I Really Do Hate You!
Mfg. Goal
Hold Down Distribution & Inventory Costs
Optimize production to achieve economies
Large quantities, limited variety, few transactions
Intermediary
Efficient delivery & Inventory Management
Customer Goal
Items in-stock, incl. on sale items

Battle of brands is an example of channel conflict

Channel (Intermediary) Functions

Transactional function-The title
Buying from mfg
Selling to customers
Taking risk
Logistical Function-The goods
Collecting an assortment of products
Storing then in inventory
Sorting them (bulk breaking) into
smaller units
Transporting to customers
Facilitating
Marketing
Financing

The Sorting Process

Resolves the Conflict between Mfg. and Consumer

Accumulating small shipments from several firms so shipping

costs are lower
Allocation involves dividing goods for various markets

Assorting involves offering a range of products so consumers

have choices

11
 Distribution and the Web

The Internet affects channel functions

and logistics by:
– Improving communication with channel members.
– Allowing firms to reach distant parts of the world.
– Providing customers with the option of worldwide
vendors.
– Offering Web-enhanced services for each
distribution function.
– Allowing manufacturers to sell directly
to consumers

A Direct Distribution Channel

(Most Control Since You Own It)
Mfg Retailer Customer

In this direct channel, an

Manufacturer umbrella manufacturer
sells directly to final
consumers. It makes
200,000 separate
200,000 transactions, one for
Customers each customer.

An Indirect Distribution Channel

All Independent
Manufacturer In this indirect
channel, an
umbrella maker
Wholesaler Wholesaler Wholesaler Wholesaler has only 4
(East U.S.) (South U.S.) (North U.S.) (West U.S.) transactions. It
sells to regional
wholesalers,
50 Retailers 50 Retailers 50 Retailers 50 Retailers which resell to
50 retailers
1,000 1,000 1,000 1,000 each. The
Customers Customers Customers
per Retailer
Customers
per Retailer per Retailer
retailers each
per Retailer
sell to 1,000
final consumers.

12
Typical Indirect Channels of Distribution
Which is best, it depends

1 2
Manufacturer/ Manufacturer/
Service Provider Service Provider

Retailer Wholesaler

Final Consumer Retailer

Final
Consumer

Pushing Versus Pulling Strategies

You get an extra $50 for every one you sell
Pushing

Manufacturer/ Distribution
Consumers
Service Provider Intermediaries

Pulling

Manufacturer/ Distribution Consumers

Service Provider Intermediaries

Ask for it by name!

Intensity of Channel Coverage

A firm limits the number of resellers in

Exclusive an area. It seeks a prestige image, channel
Distribution control, and high profit margins and
accepts lower total sales.

A firm employs a moderate number of resellers in

Selective an area. It tries to combine some channel control
Distribution and a solid image with good sales volume
and profits.

A firm uses a large number of resellers in an area.

Intensive to have wide market coverage,
Distribution channel acceptance, and high total sales and
profits. Per-unit profits are low and there
is limited channel control.

13
 Dual Channel
(Multi-Channel)

Market Development Strategy

(Old Product/New Market)
Differentiated Marketing (aka Multiple
Segmentation Strategy)

Logistics

• Logistics (physical distribution)

activities necessary to efficiently
deliver raw materials, parts, semi-
finished items, and finished products
to designated places.
• It affects costs
• Involves the 5 “Rights”

Logistics and Other Functional Areas

There is a critical interaction between

logistics and each marketing function
requiring careful coordination.

Logistics planning is related to overall channel strategy.

– Product variations (color, size, features, styles) may

impose a burden on distribution facilities.
– Promotion campaigns must coordinate with logistics
delivery.
– Pricing – low prices may be the firm’s differential
advantage based on superior logistical service.

14
An Illustration of the Total-Cost Approach in
Distribution
Cheapest isn’t always best
Annual
freight
Carrier $100,000 costs

Annual
Air $1.5 mill $1.6 mill. warehousing
costs

Annual costs
of lost sales
Rail $300,000 $800,000 $300,000 $1.4mil. due to being
out of stock

Truck $500,00 $500,000 $1.2 mil.

$200,000

What Happens When a Firm Has Stock

Shortages

When a firm runs

out of stock,
customers can

Purchase a Switch to a new Permanently

Wait until
substitute seller while switch to a new
merchandise is
product from the merchandise is not seller for all
available.
same seller. available. purchases.

Most Desirable Action Least Desirable Action

Inventory Management
• Inventory management matches inventory quantity with
customer demand.

• Improves efficiency via just-in-time inventory system

and electronic data interchange but just-in-case. . . ..

15
 More Stuff you Learned
• The value chain and the value delivery chain and
cutting out the middleman.
• Reasons why these guys hate each other.
• The three functions of intermediaries, especially
the sorting function.
• (Dis)advantages of direct and indirect channels.
• The three levels of channel coverage
• Dual channel of distribution
• Push, pull and shove strategy.
• Logistics
• Total cost approach
• JIT vs JIC

Chapter 15:
―Wholesaling‖

Chapter Objectives

• To define wholesaling and show its

importance
• To describe the three broad categories
of wholesaling (manufacturer/service
provider wholesaling, merchant
wholesaling, and agents and brokers)
• To examine recent trends in
wholesaling

16
 The Domain of Wholesaling

• Wholesaling: the buying and/or

handling of goods for resale to
organizational users, retailers, and/or
other wholesalers—but not the sale of
significant volume to final consumers.
• Manufacturers and service providers
sometimes act as their own wholesalers;
other times, independent firms are
employed.
• Independents may or may not take title
or possession.

The Functions of Wholesalers

Facilitate
Process
local
returns Take
Provide a distribution
responsibility
trained
for inventory
sales force
obsolescence
Wholesalers
Provide provide some or all Handle
marketing & of these functions financial
research support records

Gather Provide
Purchase
assortments warehousing & Offer financing
large quantities
for customers delivery facilities

Selling TO Vs. Selling THROUGH the Man in

the Middle

Manufacturer/
Wholesaler Retailer
Service Provider

Selling TO the Wholesaler

The wholesaler is viewed as a customer who is
researched and satisfied.

Push strategy

17
 Selling TO Vs. Selling THROUGH the
Man in the Middle
Selling THROUGH the Wholesaler

The retailer (or final consumer) is the object of the manufacturer’s

interests. The needs of the wholesaler are considered unimportant.

Manufacturer Wholesaler Retailer

Pull Strategy

The Broad Categories of Wholesalers

• Manufacturer/Service
Provider Wholesaling
• Merchant Wholesaling
• Agents and Brokers
.

Manufacturer/Service Provider
Wholesaling

Control/ The manufacturer controls

Functions wholesaling and performs all marketing functions.

The manufacturer owns products until they

Ownership are bought by retailers or other organizational
consumers.

Best Use(s) The manufacturer deals with a small group of large

and geographically concentrated customers; rapid
expansion is not a goal.

18
 Merchant Wholesaling

Control/ The wholesaler controls wholesaling and

Functions performs many or all functions.

The wholesaler buys products from the

Ownership
manufacturer provider and resells them.

The manufacturer provider has a large product line that

Best Use(s) is sold through many small and geographically dispersed
customers; expansion is a goal.

Agents and Brokers

Control/ The manufacturer/service provider and wholesaler

Functions each have some control and perform some
functions.

The manufacturer/service provider owns the

Ownership
products and pays the wholesaler a fee/ commission.

The manufacturer/service provider does not

Cash Flow receive payment until products are sold.

The manufacturer/service provider is small, has

Best Use(s) little marketing expertise, and is relatively unknown
to potential customers; expansion is a goal.

The Future

The Internet Strikes Again…wholesalers

will be under pressure because folks
can sell direct

19
 Interesting Stuff?

• What the heck is a wholesaler. (A guy

who sells holes?)
• How wholesalers get caught in the
middle and get pushed and pulled
around.
• The three types of wholesaling.
• The Internet strikes again

Chapter 16:
―Retailing‖

Chapter Objectives

• To define retailing
• To discuss the different types of
retailers in terms of ownership and
store strategy mix
• To explore five major aspects of
retail planning: store location,
atmosphere, scrambled
merchandising, & the wheel of
retailing

20
 The Domain of Retailing

• Retailing: business activities

involved with selling to the final
consumer for personal, family, or
household use.
• It is the final stage in a channel of
distribution.

Retailing Goals to Increase Sales

Volume
• Focus on one-stop shopping.
• Increase frequency and get more family
members involved by broadening assortment

Key Retailing Functions

Collect product assortments

and offer them for sale.

Provide information.
Retailers
Store products, mark prices, and
pay for goods and services.

Conclude transactions with

final consumers.

21
 Categorizing Retailers

1. Method of Ownership: Independent,

chain, franchise

2. Store Strategy Mix: convenience

store, specialty story/category killer

Methods of Ownership

Independent
Operates only one outlet and offers personal service,
a convenient location, and close customer contact.

High failure rate due to inadequate

resources and high level of
competition, low barriers to entry.
POS has made flexibility less of an
advantage

Methods of Ownership
Chain
Common ownership of multiple outlets. It
usually has central purchasing and decision making.

Has bargaining power

22
 Methods of Ownership
Franchising
An arrangement between a franchisor & a franchisee,
which lets the latter run a business with a known name.

Strict operating controls, motivated

owners, prototype stores, training &
mgt help
Due Diligence!!!!

Store Strategy Mix

Convenience Store
A well-situated, food-oriented store with long
hours and a limited number of items.
Conventional Supermarket
A departmentalized food store with minimum annual sales
of $2 million, emphasizing food and related products.

Combination Store/Supercenter/Hypermarket
Unites food/grocery and general merchandise sales in one
facility, with nonfoods providing 25 to 40% of sales.

The mix consists of the 4 P’s

Represents a Segmentation Method

Store Strategy Mix (2)

Specialty Store/Category Killer
Concentrates on one product category.
Category Killer attracts from wide trade area because deep
and broad in category

Traditional Department Store

Has a great assortment of goods and services, offers many
services, is a fashion leader, and is often an anchor store.
Competes with specialty stores

Membership Warehouse Club

A format where final consumers and businesses pay
yearly dues to shop in a huge, austere warehouse.

23
 Considerations in Retail Planning

• Store Location
• Atmosphere
• Scrambled Merchandising
• Wheel of Retailing

Store Location

Isolated
Balanced
Store Tenancy
Least able to Central
Attract Customers Business District
Regional
Shopping Center
Secondary
Unplanned Business District
Community
Business Shopping Center
Neighborhood
District
Business District
Neighborhood
Shopping Center
Planned String
Riley’s Law
Shopping
Center

Retail Atmosphere

• Atmosphere (also known as

atmospherics) is the sum of the
physical attributes used to develop
an image and draw customers.
• It has four basic components:
– Exterior
– General Interior
– Store Layout
– Interior (Point-of-Purchase Displays)

24
 Scrambled Merchandising
(adding unrelated stuff)
Makes One-Stop Shopping Possible
2. Drugstores
1. Supermarkets
Lose health and beauty
Stock a full line of
aids sales. They scramble
health and beauty aids
into greeting cards,
to increase their profit
stamps, postcards,
margins.
magazines, and pens.

4. Gift Stores 3. Stationary Stores

Lose sales in traditional
lines. They scramble into
gum, candy, baked goods,
deli gift packs, and paper
goods for parties.
Lose sales in traditional
lines. They scramble into
gift items, toys, novelties,
perfume, and inexpensive
watches.

The Wheel of Retailing in Action

Evolution Through The PLC
Prestige Department Stores
(e.g., Neiman-Marcus) Traditional Department Stores
(e.g., Macy’s)

High-End
Strategy

Low End Full-Line

Strategy Discount Stores
(e.g., Wal-Mart)
Original Newer Discounters
Costco (e.g., Priceline.com)
Today’s Costco

Good Stuff About Retailing

• It is at the end of the line
• Goals revolve around one-stop shopping.
• Each type has advantages and disadvantages, e.g.,
independent, chain, franchise.
• Different types of retailers, e.g., category killer, traditional
department store, has its own retail strategy mix.
• Riley’s Law explains the relationship between store location
and trade area.
• Stores in planned shopping areas should complement each
other.
• Scrambled merchandising helps one-stop shop
• The wheel of retailing rolls.

25
 Chapter 17:
―Integrated Marketing Communications‖

Chapter Objectives
• To define promotion planning and
demonstrate the value of integrated
marketing communications
• To describe the general characteristics of
advertising, public relations, personal
selling, and sales promotion
• To explain the channel of communication
and how it functions
• To discuss the legal environment and
criticisms and defenses of promotion

Planning the Promotion Effort

• Promotion is any communication used to inform, persuade, and/or
remind people
• Promotion planning is systematic decision making relating to all
aspects of an organization’s communication efforts.

Advertising Public Relations

PROMOTION
MIX

Sales Promotion Personal Selling

26
 Word-of-Mouth Communication
Explains why customer
satisfaction, dissonance
reduction, and after-
care are important.

Integrated Marketing Communications

(IMC)
Integrated Marketing Communications (IMC)
―recognizes the value of a comprehensive
plan that evaluates the strategic roles of a
variety of communication disciplines—
advertising, public relations, personal
selling, and sales promotion—and combines
them to provide clarity, consistency, and
maximum communication impact.‖ or Know
what the other hand is doing!!!!

Benefits of an IMC Approach

 Pre-Purchase- Advertising
 Purchase- Selling and sales promotion
 Post-Purchase- All 3
 Customer: I walked in wanting to buy a Maytag, but I
ended up getting a GE (Pull)

 Salesperson: I got an extra $50 and points toward a free

cruise. That cut-away of the motor sure worked. (Push)

27
 Types of Promotion

Advertising Public Relations

PROMOTION
MIX

Sales Promotion Personal Selling

Promotion Objectives
Promotion objectives can
be divided into two
main categories:
stimulating demand
and enhancing
company image
(public relations).
Advertising, selling and
sales promotion can
fall into either
category.

Categorization is based on purpose

Advertising

Advertising is paid, nonpersonal

communication with an identified the
sponsor.

28
 Public Relations

Public relations includes any communication

(advertising, selling, sales promotion) to foster a
favorable image.
Publicity is the form of public relations that entails
nonpersonal communication that is not paid for and
therefore, not controlled

Personal Selling
Personal selling involves oral
communication with one or more
prospective buyers by paid representatives
for the purpose of making sales.

Sales Promotion

Sales promotion involves paid marketing

communication activities (other than advertising,
publicity, or personal selling) intended to stimulate
purchases and dealer effectiveness. Included are
trade shows, premiums, incentives, giveaways,
demonstrations and other efforts.

29
 Channel of Communication

Source- celebrity, actor, sales person

Message- one v two-sided (selling)
rational v. symbolic (psych & soc)
comparative (advertising)
Medium- print, electronic, sales person
Audience-target market
Feedback- sales, inquiries, MR

For Effective Communications

Good Bad

Promotion Goals

When a good service is little known, primary

demand should be sought. Primary demand is for a
product category.

When preference is the goal, selective demand

should be sought. This is demand for a particular
brand.

30
 Promotion Budgeting Techniques

All-You-Can-Afford Method
Firm first allots funds for other elements of marketing;
remaining marketing funds then go to the promotion budget.

Incremental Method
A percentage is added to or subtracted from this year’s budget
to determine next year’s.

Competitive Parity Method

Promotion budget is raised or lowered according to competitors’ actions.

Percentage-of-Sales Method
Promotion budget is tied to sales revenue.

Objective-and-Task Method
Firm sets promotion goals, determines the activities needed to satisfy
them, and then establishes the proper budget.

Budget Consideration

Legal Environment of Promotion

• Full disclosure requires that all data

necessary for a consumer to make a
safe and informed decision be
provided in a message.
• Substantiation requires a firm to be
able to prove all the claims it makes
in messages.
• Corrective advertising requires a
firm to run new ads to correct the
false impressions left by previous
ones.

31
 Detractors Feel That Promotion
• Criticism: Creates an obsession with material
possessions. Overemphasizes symbolism and status.
• Response: Responds to consumer desires for material
possessions. In affluent societies, these items are paid
for with discretionary earnings.
• Criticism: Is basically dishonest.
• Response: Is basically honest. The great majority of
companies abide by all laws and set strict self-
regulation.
• Criticism: Raises the prices of goods and services.
• Response: Increased consumer demand builds markets
and economies of scale.
• Criticism: Causes excessively high expectations.
• Response: Keeps expectations high, thus sustaining
consumer motivation and worker productivity.

More Good Stuff You Now Know

• What is meant by ―Promotion.‖
• The relationship between WOM and CS.
• How lack of IMC can cost a sale
• The types of promotion
• Image versus demand promotion
• The channel of communication and what makes
communication effective
• Types of messages
• Types of demand and the PLC
• Ways of budgeting and budgeting issues
• Legal issues
• Criticisms

32