Product & Brand Management

D.Bandopadhyay

Product Definition

• Product is the bundle of utilities by which it can satisfy the needs of the users.

• Product is a set of tangible & intangible attributes, including packaging, colour, price, design, features, manufacturer’s reputation & services, retailer’s reputation & services, which the buyer may accept as offering satisfaction of wants or needs.

• Product is anything that can be marketed in terms of physical goods, services, experiences, events, persons, places, organisations, information & ideas.

Product Levels• Core benefit

• Basic product

• Expected product

• Augmented product

• Potential product

Product Hierarchy – Life Insurance• Need Family-------- security • Product Family----- savings & income• Product Class------- financial instruments • Product Line-------- life insurance • Product Type------- term insurance • Stock Keeping Unit (SKU) / Product

Variant--------------- prudential renewable term life

insurance

Product Classifications

Based on durability & tangibility• Non-durable goods• Durable goods• ServiceBased on use• Consumer goods• Industrial goods

Types of use

Consumer goods• Convenience goods - Staples- Impulse- Emergency• Shopping goods• Specialty goods • Unsought goods

Type of use (contd.)

Industrial goodsI. Raw materials• Farm products• Natural products• Manufactured component materials• Manufactured component partsII. Capital items – installations & equipmentsIII. Supplies – MRO goodsIV. Business Services – M-R/ Advisory

Product MixProduct mix consists of various product lines.(Yamaha has 3 product lines: Motorbikes, Pianos & Guitars)

• Width - different product lines• Length - total no of items in the mix• Depth – variants of each product in the line • Consistency – how closely related are

product lines

Product Line Decisions

Line Stretching:• Down-market stretch

• Up-market stretch

• Two-way stretch

Product Line decisions (contd.)

• Line filling – adding more items

• Line modernisation

• Line featuring - flagships

Managing line extensions• Customer segmentation• Consumer desires• Pricing breadth• Excess capacity• Short-term gain• Competitive intensity• Trade pressure• Emerging a brand• Variety fulfilment

Line extensions (contd.)

• Expanding /improving brand’s core promise• Managing true innovation• Blocking competitors• Managing dynamic environment• Testing ground for national launch

Product Life Cycle (PLC)

• Introduction : period of slow sales growth

• Growth: rapid market acceptance

• Maturity: slowdown in sales growth

• Decline: sales fall & profits erode

Introduction Growth Maturity Decline

Product A

Product B

STAGES OF PRODUCT LIFE CYCLE

Sales

PLC Patterns

• Growth-slump-maturity pattern

• Cycle-recycle pattern

• Scalloped pattern

(a) Growth- slump- maturity pattern (a) Growth- slump- maturity pattern

(b) Cycle-recycle pattern(b) Cycle-recycle pattern

(C) Scalloped pattern(C) Scalloped pattern

COMMON PRODUCT LIFE-CYCLE PATTERNS

Special categories of PLCs

• Style : home, clothing, art

• Fashion : distinctiveness, emulation, mass-fashion, decline

• Fad: limited following – rising fast & declining fast

Style Style Fashion Fashion

Fad Fad

PRODUCT LIFE CYCLES IN TERMS OF STYLE, FASHION AND FAD

Marketing Strategies- stages of PLC

Introduction: • Profits are negative or low• Promotional expenditures are highestStrategic options:• Skimming – when cost structure is largely

variable – consumer electronics, industrial products, with entry barriers

• Penetration – when fixed costs are high - First mover advantage

PLC – Growth Strategies• Improve quality, add product features,

improve styling• Add new models & Flanker products (to

protect the main product)• Enter new market segments• Increase distribution coverage / enter new

distribution channels• Shift from product awareness to product

preference advertising• Lower prices to attract next layer of buyers

Strategies – Maturity (growth, stable & decaying maturity)

• Sales slowdown creates overcapacity in the industry, leading to intensified competition

• Increased advtg. & consumer promotion, increased R&D for pdt. improvements/line extensions, deals to supply private brands

• Industry is dominated by quality leader, service leader or cost leader, surrounded by market niches

• Companies abandon weaker products & concentrate on profitable/new products

Strategies – Decline stage

• Increasing investment to dominate market• Maintaining investment till uncertainties

about the industry are resolved • Decreasing investment level selectively

(dropping unprofitable customer groups etc)

• Harvesting investment to recover cash early

• Divesting the business quickly by disposing of its assets as advantageously as possible

PLC – as management toolProlong the growth & maturity stages by:• Modifying the product• Encouraging frequency of use of product• Cultivating a new market for it• Finding new users & product modification –

product re-launch

Characteristics Introduction Growth Maturity Decline

Sales low Rapidlyrising

Peaksales

Declining sales

Cost High cost percustomer

Av. CostPercustomer

Low costPercustomer

High costPer customer

Profits Negative Risingprofits

Highprofits

Decliningprofits

Customers Innovators Early adopters

Middle majority

Laggards

Competitors Few Growingnumbers

Stable number

Declining number

MarketingObjectives

Createawareness& trial

Maximize marketshare

Max profit &Defend

Reduce exp. & milk brand

Characteristics Introduction Growth Maturity Decline

Product Offer basic product

extensionService,Warranty

DiversifyBrandsmodels

Phase out weakbrands

Price Charge cost plus

Price to penetrate market

Price to match competitors

Cutprice

Distribution Build selective distribution

More intense distribution

Intensive distribution

Selective-Phase outWeakoutlets

Advertising Pdt awareness,Induce trial

Awareness, interest

Brand differences & benefits

Reduce to retain hard core loyals

Sales promotion

Heavy SPTo enticetrial

Reduce Encourage brand switching

Reduce to minimallevel

New Product Development -stages 1. Idea generation2. Screening3. Concept development & testing4. Marketing strategy formulation5. Business analysis6. Product development7. Test marketing8. Commercialisation

Incorporate ‘Stage Gate Process’ of evaluation, at every stage, to minimize risk, before moving on to the next stage of development.

Idea generation• R & D• Competitors• Employees• Customers (analysis of complaints)• Licensing – being a licensee• Top management• Agencies & consultants• External sources• Organised creativity

Ways to great new pdt. ideas• Customers meeting company engineers &

designers – solutions are immediately tested• Allow time off to technical people to pursue

their pet projects (3M allows 15% time off )• Customer brainstorming sessions a standard

feature of plant tours• Regularly survey your customers• Undertake research with customers (HP)• Routine key word search /trade shows /

visiting suppliers’ labs / allow employees to review ideas & add constructive suggestions

Screening Ideas• Promising ideas /marginal ideas /rejects• Weighted score & ranking method• Overall probability of success = (0.24)

(probty. of tech completion – 0.50) x (probty of commercialisation – 0.65) x (probty of economic success – 0.74)

• Drop-error : dropping futuristic ideas • Go-error – absolute/partial/relative failure• Software–NewProd: rate project on 50

screening criteria linked to comml. success

Concept development & testing• Presenting the product concept to

appropriate target consumers & getting their reactions

• Product concept can be tested symbolically, physically or through virtual reality (e.g., Simul-Shop – recreating shopping situations, developed by ‘Gadd International’)

• Core Ideas – what the product can do• Positioning Statement

Marketing Strategy Plan Development

1. Describe the target market’s size, structure and behaviour; planned product positioning & sales, market share, profit goals sought in the first few years.

2. Outline the planned price, distribution strategy & marketing budget for the first year.

3. Describe the long run sales & profit goals and marketing mix strategy, over time.

Business Analysis – business attractiveness

• Market Potential (MP) = N x P x QNo. of possible buyers (N) x Av. selling price (P) x Av. no. of units purchased by each buyer (Q).

• Estimated total sales (first time sales, replacement sales, repeat sales)

• Estimating costs & profits (break even analysis)

• Risk analysis

Product Development• Quality Function Deployment (QFD):

Customer attributes (CA) = Engineering attributes (EA) , leading to developing a prototype.

• Functional tests: Alpha testing & Beta testing

• Consumer testing: through rank order, paired comparison, rating scale etc.

• Adopt a modular approach of development.

Market TestingMethod of testing a company’s marketing plan for a new product before going commercial.

• Designed to provide a reasonable estimate of sales & profit potential.

• Helps management identify & correct any problems with marketing plan & the product, before full-scale production.

Consumer goods market testing• Sales Wave Research:

Consumers who initially try the product at no cost or try the free sample, are re-offered the product 3-5 times, called sales-waves, with the company noting how many customers selected that company’s product again & their reported level of satisfaction. It can also include exposing consumers to 1 or more advtg concepts, to see the impact of that advtg on repeat purchase.

• Lab./Simulated Test Marketing:After completing a self-administered questionnaire concerned with their individual demographics & purchase behaviour relative to the product class of interest, respondents are exposed to TV program containing a no. of communications about brands in the product class, including one for the brand in question. Respondents visit the simulated store who purchase (with fixed money given) brands of their choice. Such purchase behaviour is then analysed & follow up on repurchase behaviour is made subsequently with such respondents.

Controlled Test Marketing Company with new product specifies the no. of

stores & locations it wants to test. The research agency manages a panel of stores who will carry the new product for a fee. They also control shelf positions, point-of-purchase promotions, displays and pricing. Sales results are measured through electronic scanners at the checkout. The company can also evaluate the impact of local advertising & promotions during the test

It allows the company to test the impact of in-store factors & limited advtg. on buying behaviour. A sample of buyers can also be interviewed.

Full Scale Test Marketing• The company chooses a few representative

cities, and the sales force tries to sell the product giving it a good shelf exposure. The company puts on a full advtg. & promotion campaign in such markets similar to one that it would use in national marketing.

• Deciding what to measure ?

Test Marketing (contd.)• Repeat purchases• Advertising effectiveness• Effectiveness of an introductory offer• Effectiveness of a trade offer• Share of the total market• Characteristics of buyers & rate of adoption• Reasons for not adopting or for

discontinuing usage

Selection of Test Markets The market should not be over tested Normal regarding historical development of

product class involved Typical regarding competitive advtg. situation No single industry should dominate the market Should have media pattern similar to national

media plan & should be self contained Should not be too small to provide meaningful

results or too large, that test becomes too expensive

Markets containing abnormal groups to be avoided

Test Market Outcomes• High trial & repurchase rate – product

should be launched nationally• High trial rate but low repurchase rate –

consumers are not satisfied, product should be redesigned or dropped

• Low trial rate & high repurchase rate – product is satisfying but more people have to try it – increase advtg. & sales promotion

• If trial & repurchase rates are both low – product should be abandoned

Business goods market testingExpensive industrial goods & new technologies will normally undergo:

Alpha testing (within company) Beta testing (with outside customers) Introduce the new product at Trade ShowsHowever, test marketing may not be necessary: Small number of potential customers or small

number accounting for large proportion of sales Potential buyer is generally involved in new

product development Some industrial products have very long life spans

Product LaunchingWhen (Timing)• First entry: enjoys advantage of early start,

engaging key distributors and customers & establishing dominant market position

• Parallel entry: timing the entry to coincide with competitor’s entry. Awareness will be created faster with 2 companies advertising the product.

• Late entry: Competitor’s product or strategy may reveal faults that late entrant may avoid

Product Launching (contd.)Where (geographic strategy):• Small companies will select an attractive

city first & then enter other cities, one by one.

• Large companies will introduce into a whole region & then move to next region

• Companies with national network will launch in the national market

• If the product does well in domestic market, companies consider international markets

Product Launching (contd.)To whom (Target Market):• The company must target its initial distribution &

promotion to the best prospect groups like, early adopters, heavy users & opinion leaders that could be reached at a low cost.

How (introductory Market Strategy):• Action plan for distribution, introductory price, promotion

campaign, product features & models• Product availability is crucial in launching a new product• Developing a master chart of simultaneous & sequential

activities that must take place for launching (critical path scheduling)

Practice of Global Product Development

• Till 2000: Co-location of cross-functional teams to facilitate close collaboration among engineers, marketing, manufacturing & supply chain operations. Co-located PD teams could concurrently execute the range of activities involved which resulted in better product designs, faster time to market & lower cost of production.

• Largely co-located teams.• Uses engineering located in existing engineering

centres.• Uses a combination of digital PD tools &

conventional paper-based processes for engineering.

GPD Practices (contd.)Global Product Development (GPD)• Globally distributed teams• Takes advantage of engineering in multiple

geographic locations, including low, medium & high cost regions.

• Uses an entirely digital PD process to facilitate distributed, collaborative engineering features, a highly distributed networked development process, facilitated by fully digital PD system.

Building GPD capabilities – 4 reasons• Lower cost: by distributing activities to take

advantage of labour arbitrage or to access more affordable capabilities ( low-cost to be 10-20% of the equivalent engineer’s salary in US, medium-cost to be 20-50% of US wage rates).

• Improved process: The prospect of moving design engineering to global manufacturing locations can be attractive (Design For Manufacturing/Time To Market).

• Global Growth: Locating some PD activities in selected international locations can give companies access to critical information about markets in those regions. By using local engineers, companies make direct connections with potential new markets.

4 reasons (contd.)Technology Access: Companies are using GPD to develop integrated PD processes that include engineers in regions where critical new technology has been developed & where experts reside.

Haier, one of China’s largest manufacturers of electronics & home appliances has an R&D centre in New York & manufacturing plant in South Carolina, both paying higher wages. But it has allowed them to connect with American consumers & retailers, understand American lifestyle & design products that Americans are now buying.

Various modes of GPDCentralized: All resources are owned by the company but centralized operation can have different project teams in multiple countries, generally in high cost regions (US, Germany).Local Outsourcing: Many large manufacturers use on-site contractors to support their PD activities - to gain access to specialized skills or to meet temporary requirements for capacity.Captive Offshoring: It is useful when a company believes it should own a PD operation in a region where it has not done business before. Cummins & Textron have established centres in India, ABB & Delphi have centres in China, Boeing & Airbus have in Russia.

Modes (contd.)Global Outsourcing: It gives many companies early experience with GPD, without requiring the commitment to establish a captive centre. By using outsourced staff only at certain points in the process, the company keeps control of the PD process overall.Many companies begin GPD with various trials of outsourcing & tend to move toward the captive offshore mode as a longer term strategy to retain control over IPR, processes, HR & capital resources.

Distribution of PD activitiesProcess Outsourcing The first approach involves outsourcing of PD process steps, which allows companies to work with outsourced service partners that may be distributed globally. Stage 1A starts by outsourcing simple tasks to an engineering services provider. These tasks are easy to document and separable from other activities, and they pose relatively low risk to the critical PD activities. In Stage 2A, as the organization gains more experience with distributed PD, its managers outsource more complex and integrated tasks, such as Computer Aided Engineering (CAE) analysis or tooling design.

Component Outsourcing• The second approach — also in the outsourcing

category — is to decompose the product into components and modules. This path is generally followed when a company is outsourcing development work to component suppliers. In Stage 1B, development of some simple components is assigned to chosen suppliers (which likely would also produce those components). In Stage 2B, the design of integrated components is outsourced. In Stage 3B, suppliers develop complete product modules, such as the exhaust system for an internal combustion engine or the circuit board for a mobile phone.

Captive Design Center• The third approach sees development of a captive global design

center — a strategic decision to invest in global engineering capability. Many organizations take this route after learning to utilize globally distributed resources for large parts of their PD processes. Because the transition from outsourcing to a new captive center is difficult, the center is likely to begin working at Stage 1C or 2C, in parallel with outsourcing, to develop these important capabilities first. In Stage 3C, the center executes complete subsystems, such as the design of a control system for an electromechanical product. In Stage 4, the center may take on complete design responsibility for derivative products and/or ongoing engineering support for existing products.

• Finally, in Stage 5, the center is fully able to develop new global products, product platforms and next-generation innovations.

Market Potential & ForecastingPotential : The maximum sales reasonably attainable under

a given set of conditions, within a specified period of time – what you might or could achieve.

Forecast : The amount of sales expected to be achieved

under a set of conditions, within a specified period of time – what you probably will achieve.

Quota : What an individual in the company, for example,

a salesman, is expected to achieve.

Potential vs. forecasts

Both depend on a set of conditions:

What customers do What the firm does What competitors do What occurs in the general environment

Potential & forecasts are time dependent

Major uses of Potential Estimates To make entry / exit decisions To make resource level decisions – depending

upon the stage of life cycle (e.g., running shoe segment)

To make location & other resource allocation decisions

To set objectives & evaluate performance – as per difference between potential & actual sales

As an input to forecasts – potential times % expected to be achieved

Market Potential – information sources Govt. Sources – census, planning commission,

various reports issued by ministries / specific govt. agencies

Trade Associations Private Specialised Agencies Financial & Industry Analysts Business Press Internet

Potential for New / Growing Product- with respect to competition

Relative Advantage – usually increases over time, with various modifications / line extensions

Compatibility – the fewer & less important the changes required to understand & use a new product, the faster it will be adopted

Risk – financial, possible impact of product quality failure etc.

Role of analogous products – microwave oven vs. dishwasher

Potential for mature products Market penetration - more use by different

segments of customers - more frequency of use through more occasions of same use (converting light users to heavy users) or more use for different needs or inducing more volume of use on each occasion

Market expansion - more use in different geographical regions

Increasing frequency for replacing a worn out product or replacing an outdated product

Through modifications & line extensions

Estimating market potential Determine potential buyers or users of the product –

customers who have the need, the resources necessary to use the product and the ability to pay (likely laptop users – customer segments)

Determine how many are in each potential group of buyers – usually reveals a significant gap in the market

Estimating the purchasing or usage rate – may lead to ways of making the product either more affordable , more adoptable to the needs or for more convenient for either more frequency of usage or more volume of usage per occasion.

Area Potential – may be based on a weighted index, based on certain characteristics of the area.

Use of Sales Forecasts To answer ‘what If’ questions - -to estimate

outcome of various strategies & tactics, under different situations

To help set budgets – forecast become basis of a budget

To provide a basis for a monitoring system – monitoring deviations from forecast

To aid in production planning By financial analysts to value a company

Forecasts – level of accuracy needed When the price of the product is high in

absolute or relative terms When product demand is relatively volatile When cost of an error in forecasting is high –

including inventory cost, reorder cost or cost of being out of stock, resulting into long term cost of a disenchanted customer

Cost increases, with more level of accuracy, more items or product forms, more complicated methods of forecast etc.

Judgment based methods Naïve extrapolation – add x % to last-period sales

level Sales force composite - sales people are often

asked about their own future sales & then such individual forecasts are aggregated to create a sales forecast for the product or product line.

Jury of expert opinion – can be based on weighted average, based on their individual level of expertise.

Delphi method – variation of the panel consensus – individual forecasts are made to nearly conform to the average forecast, through a repetitive process, through an outside expert.

Customer-based Methods Market Testing / Market Surveys – involves

primary market research, through market surveys (interacting at public places, at-home or at-work situations, focus groups) – seeking opinion about products, their likelihood of purchase etc.

Choosing representative samples from the potential customer segments and determining enough representation from each such segment will determine the accuracy of the estimates.

Sales Extrapolation Methods – time series methods

Moving Averages: essentially smooth out random variations to make the past sales pattern (trends or cycles) more apparent – for short & medium term forecasts.

Exponential smoothing – close relatives to moving averages

Regression analysis - for long term forecasts – since the predictor variables are rarely known with certainty, it is useful to construct both optimistic and pessimistic scenarios and to generate forecast based on them.

Using Forecasts – supplementary steps Do sensitivity analysis – ensure getting consistent

results with less or more historical data. Examine large residuals – residuals are individual

forecasting errors made for each period - by examining characteristics of such periods, one can often uncover omitted variables.

Avoid silly precision – round off the forecast and give an honest plus or minus range.

Be tolerant to errors. Likelihood of missing the turning points. An average of a set of forecasts derived through

different methods, is a better option.