Product Decisions

Managing the Product

Meaning And Nature of Product

A product may be defined as a bundle of utilities consisting of various product features and accompanying services. The seller provides the bundle of utilities or the physical and psychological satisfaction that a buyer receives when he sells a particular product. The customer does not buy merely the physical and chemical attributes of a product. He is really buying to want satisfaction. He will buy a product, which can offer him expected satisfaction. In other words, what a buyer buys is a mixture of expected physical and psychological satisfaction. Therefore, the term 'product' does not mean only the physical product but the total product including brand, package, label, the status of manufacturer and distributor and services offered to the customer, in addition to the physical product. The term product is inclusive. it means not physical goods such as fan and cycle but also services-(agent, property dealer, retailer), credit cards, financial services, persons ( Amitabh Bachan, Kapil Dev, M.F.Hussain, Philip Kotler), Place(hotel, fan, private bungalows), Organization (company acquisitions, mergers), and ideas( neighborhood watch scheme, switch-off something, pollution control, and no smoking zones).

According to Philip Kotler, "A product is anything that can be offered to the market for attention acquisition, use or consumption that might satisfy a want or a need".

Components of Product Decision

The decision of the product line and the individual products

A growth business has to undertake a constant appraisal of its existing product line. No product runs for all time to come and no product line is perfect eternally. Change in the business environment, changes in customer tastes and preferences, the extent of competition building around all these factors exercise some pressure on the product policy of a firm.

The decision on product differentiation

Product Positioning

Brand Decision

Decision on Packaging

The decision on new product development

Understanding the product development life cycle

Product Life Cycle

A product passes through distinct stages during its life & is called the product life cycle. The PLC is normally presented as a sales curve spanning the product‘s course from introduction to exit. The PLC concept says that each stage in the cycle is characterized by a typical marketer behavior & each stage leads to a distinctive marketing strategy.

A product passes through 4 stages:–

(a) Introduction

(b) Growth

(c) Maturity

(d) Decline

(a) Introduction Stage: The product is an introductory stage. At this stage, there may not be a ready market for the product. Sales are low. Profit seems a remote possibility, demand has to be created & developed & consumers have to be prompted to try out the product. One of the crucial decisions to be taken in this stage is the pricing strategy to be adopted either market skimming or market penetration. The skimming strategy involved high price, taking advantage of early entry & the novelty of the product.

Penetration pricing involves low prices with a view to having good market coverage. It also aims at keeping the competition out.

(b) Growth Stage: During the market growth stage, demand for the product increases & the size of the market grows. The sales & profits also go up. But by the time the marketer settles down with his product, competitors may enter the scene with similar or slightly improved versions. The marketer has to stay ahead of his competitor & has to reconsider his pricing strategy. He follows competition oriented pricing because the total market is being shared among many firms. Marketing & distribution efficiency becomes a decisive factor at this state.

(c) Maturity Stage: In the maturity stage, the demand tends to reach a saturation point & there is enough supply from competitive sources. Price competition becomes intense & exploits brand loyalty. The marketer tries out product & packaging modification, & promotional. Deals & make special offers to new market segments so that his sales volume do not shrink. Long term & short term marketing plans are implemented to profitably prolong the maturity stage.

(d) Decline Stage: In the decline stage, sales begin to fall. The demand for the product shrinks, probably due to new & functionally advanced products, becoming available in the market. The prices & margins get depressed, total sales & profits diminish. But some firms at this stage may try to link up the sales of these products with some other premium products they have developed & thus try to stretch the life of the decline product.

Thus, the PLC concept helps & is used as a tool in formulating& implementing marketing strategy.

It facilitates pre-planning the product launch.

Facilitates prolonging the profitable phase.

Facilitates investment decisions on products.

Facilitates the choice of appropriate entry strategy.

Facilitates choice of the right time to exit.

Provides useful clues for managing customers.

various stages in New Product Development.

The various stages in NPD are:-

(1) Generating New Product Ideas: New product ideas may come from customers, dealers, in company sources including the market research group & external research organization. Customer‘s problems are the most fertile ground for the generation of new product ideas. In a variety of product, ranging from shampoos to computers, company workforce, market research staff, R&D staff & salesmen are also sources of new product ideas. Market research group are particularly useful sources. They conduct frequent studies on the consumers, products, competition etc. These studies often reveal product gaps- gaps between the existing supply of products.

Gravity techniques like brainstorming & synectics are also used for product idea generation. In brainstorming, a small group of people is encouraged to come up with ideas on a specified problem. In synectics, the real problems are initially kept away from the group & only a broader framework is given to them. Sometimes new product ideas come out just as a matter of happening.

Eg. Portable stereo cassette player of Sony of Japan.

(2) Idea Screening: In this stage, various new products ideas are put under rigorous screening by evaluation committees. Answers are sought like:

It there a felt need for the new product? It is an improvement over the new product? etc.

(3) Concept Testing: Concept testing is different from market test/test marketing. What is tested at this stage is the product concept itself, whether the prospective customers understand the product ideas, whether they are receptive forwards the ideas; whether they actually need a product. This exercise helps the firm to thrash out much of the vagueness associated with the new product idea. Concept testing is of special importance when a totally new product in contrast to a ―mee too‖ product – is being planned for introduction.

(4) Business / Market Analysis: This stage is of vital importance because several important decisions regarding the project are undertaken based on the analysis done at this stage.

This stage will decide whether, from the financial & marketing point of view, the project is worth proceeding with. Investment analysis & profitability analysis of the project under difference assumptions are made at this stage.

(5) Estimating the Demand for New Product: Firms usually, take up estimating the demand for the new product as a part of business analysis/market analysis. There are 2 methods to estimate the demand for new products:-

(a) Substitution method

(b) End-use method

In the substitution method, the demand for the existing product is forecasted using standard forecasting method. Based on that, an idea of the demand for the new product is gained. The analysis will show which products & the market is open for substitution by the new product. The estimated demand for the existing product can serve as the maximum limit for the demand for the new product.

In, end use method, products that have an altogether new end users do come to the marketer once in a while. The only way to assess the demand for such products is to define the end use of the new product & to locate the potential customers for it. The aggregate of potential customers in each use category is taken as the potential demand in that category. By adding the demand in the various use categories, one can get an indication of the total potential demand for the new product. This is to be taken as the upper limit of potential. In this method, the forecaster has to be particularly cautious in defining the end use for the product.

(6) Actual Development of the Product: In this stage, the firm develops the product as such. In the actual development, production & marketing departments are actively involved besides R & D.

(7) Market Test: Now, the new product has to be tried out in selected market segments. The market test is essentially a risk control tool. It is experimental marketing at minimum cost & risk. When firms decide on full-scale manufacturing & marketing of the product on the basis of the results of the experiment, it helps avoid costly business errors.

(8) Test Marketing: In test marketing, the new product, with the support of the chosen marketing mix is actually launched & marketed in a few selected cities/towns/ territories. Test marketing needs careful handling. Care is required in the first place in selecting the test markets. Test marketing is also a time-consuming process, it has to be carried out for a fairly long duration in order to obtain reliable indications. Eg. HUL introduced organics but failed.

(9) Commercialization: At this stage, the company takes the decision to go in for large scale manufacturing & marketing of the product. At this stage, the company fully commits itself to commercialize the new product with the required investment in manufacturing & marketing.

main decision areas in packaging

Packaging & labeling is an important part of the product management

main decision areas in packaging & labeling.

The packaging is defined as all the activities of designing& producing the container for a product. In modern days packaging has become an important part of product management. With competition increasing marketers are turning to innovative packaging to establish a distinctive edge. This is especially so in the marketing of consumer products like processed foods, soft drinks, toiletries, cosmetics & other personal care products. The following are the main decision areas in packaging.

(a) Package Materials

(b) Package Aesthetics

(c) Package Size & Convenience

(a) Package Materials: Changing trends - from wood to paper & plastics – In the earlier days, wood was the main material Paperboard cartons, paper bags, have become popular forms of packaging for a variety of products from groceries to garments. Metal containers are an excellent packaging medium for processed goods, fruits, vegetables, oil, paint etc. Aluminum foil, the packaging is used in products like tea, coffee & spices.

Plastics, the New Packaging Material : Plastics as a group is now dominating the packaging field in India. Popular brands like Tata Tea, Nescafe, Dalda, Amul Milk chocolates have gone for plastic packaging. They have several merits likes waterproof & moisture proof 2) capacity to provide resistance to sun exposure 3) lightweight 4) Thermal stability 5) attractiveness & transparency.

Tetra Packs: Frooti, Slice, Amul‘s buttermilk, Fruit Juices like really have gone for tetra packs.

(b) Package Aesthetics: For enhancing the sales appeal of the package, more & more attention is now being given to the packaging. For Eg. Doy soap with different animal structures. For the first time in the soap category, the customer could see the shapes, color & appearance of the product.

(c) Package Size & Convenience :

Eg.

(i) Pond‘s cold cream & Bryl cream In tube‘s

(ii) Application conveyance of Harpic.

(iii) The cold drink cans.

(iv) Economy packs

(v) Sachets

(vi) Reusable containers

(viii) Refill packs.

Labeling: Sellers must label products. The label may be a simple tag attached to the product or an elaborately designed graphics. The label might carry the brand name or a great deal of information. Labels identify the product or the brand. Eg. The name frooti is stamped on Mango Juice. The label might grade the product, they might describe the product, who made it, where it was made when it was made, expiry date, what it contains, how it is to be used. Finally, the label should promote the product through graphics. It is mandatory to print MRP on all packaged products.

various tasks in product line appraisal

 Company objectives influence product line length. One objective is to create a product line to induce up selling. Thus, Maruti would like to move customers up from Maruti 800 to Alto to Zen. Thus, increasing the line length adds more & more products/brands to the line to capture new marketing opportunities.

Eg. Videocon offers a wide range of products such as refrigerators, washing machines, televisions, microwave, & air conditioners under different brand names to cater to the needs of entry-level, middle level & premium segments. Line stretching & line filling – Two ways of increasing line length:

Line Stretching: Line stretching is a measure firm undertake frequently in product mgmt. The aim is to enter a new price slot & a new market segment. Stretching occurs in two ways-

(i) Stretching up

(ii) Stretching down

At times, a company which has initially taken its position in the high price slot stretches the line downwards by offering products in the same line for the lower end markets. This is called stretching down. Eg. Kodak introduced Kodak fun time film to counter lower priced brands.

In some other instance, a company which has initially positioned its products for the lower end markets, decides to make higher-priced offers for the top slots. This is called stretching up. Many markets have spawned surprising upscale segments Starbucks in coffee. Toyota's Lexus, Honda‘s Acura.

Two Way Stretch: Companies serving the middle market might decide to stretch their line in both directions. Texas Instruments introduced its first calculators in the medium price medium quality end of the market. Gradually it added calculators at the lower end taking market share from Bowmar & at the higher end to complete with Hewlett Packard.

Line Filling: In line filling the firm introduces more items to the line to plug certain gaps in its current range of offers to plug holes to keep out competitors. Line filling is overdone if it results in confusion of consumer. The company needs to differentiate each item in the consumer‘s mind.

Eg. Videocon has several product lines & room air conditioners are one of them. Videocon entered the market for air conditioners with just two or three models, but later on, introduced dozens of models.

Line Modernization Featuring & Pruning: Product lines need to be modernized. Companies plan improvements to encourage customer migration to a higher value, higher priced items. Companies like Microsoft & Oracle introduces more advanced versions of their products. This is product modernization. Line pruning is the opposite of line stretching. Here a consumers decision is taken to reduce the no. of items in the line, the company is trying to save cost maximizes efficiency in production.

(a) Brand Equity

(b) Product Differentiation

(c) Product Mix

(d) Product Planning

 (a) Brand Equity: David Aakar defines brand equity as a unique set of brand assets & liabilities that is linked to a brand. According to Aakar, brand equity is the net result of al the investment of effort that a marketer puts into building a band. It is made up of:-

User ship of the brand

Consumers loyalty

Perceived quality

Positive symbols & favorable associations around the brand. Brand equity also adds to the bottom line on a long term basis. For, when a brand has high brand equity, it means that consumers are willing to pay a premium for the brand & its extensions. The values of brands owned by firms, like HLL, ITC, & the IT majors like Infosys & Wipro are many times their total assets.

Brand equity can be measured & quantified. Through it is an asset, traditionally, brand equity has been omitted from the balance sheets because of its intangibility. Criteria such as market share, market ranking, brand stability & track record, the stability of product category, international market trends, advertising & promotional support & legal protection are used for measuring brand equity.

(b) Product Differentiation: Product differentiation & product positioning are central themes in the marketing strategy. Product differentiation is one of the basic routes to marketing strategy. The major attraction & the major benefit in resorting to differentiation is that it takes the firm away from a total price based competition. Products can be differentiated on the basis of a number of different product or service dimensions such as product features, performance, conformance durability, reliability, style & design. Besides these specific concerns, on more general positioning for brands is as ―best quality‖. The strategic planning studied the impact of higher relative product & found a significantly positive correlation between relative product based on differentiation.

(i) Close up with getting – Colgate, the leader in the industry was compelled to copy this differentiation as its market share fill at the hands of the new brand.

(ii) Vatika with herbal ingredients.

(iii) TTK prestige with Teflon.

(iv) Titan matches (differentiation based on product design.

(v) Ray-Ban (Differentiation on the basis of glass).

There are two conditions for differentiation to exceed:-

(i) differentiation should be perceptible

(ii) Should be rooted in competitive advantage

(c) Product Mix: A product mix is the set of all products & items a particular seller offers for sale. A product mix consists of the various product line. A company‘s product mix has a certain width, length, depth & consistency. Eg. These concepts are illustrated through an example of Hindustan Unibuer Ltd. (HUL).

The width of a product mix refers to how many different products lines the company carries. The length of the product mix refers to the total number of items in the mix. This is obtained by dividing the total length (25) by the number of lines (11) or an average product length of less than 3.

The depth of the product mix refers to how many variants are offered of each product in the line. Since lux comes in 4 scents (exotic flower petals & jojoba oil, almond oil & milk cream, fruit extracts & honey & sandal saffron in milk cream), it has a depth of 8. The consistency of the product mix refers to how closely related the various product lines are.

(d) Product Planning: To carry out the responsibilities, marketing managers follow a marketing process & the product managers come up with a marketing plan for individual product lines, brands, channels or customer groups. Each product level must develop a marketing plan for achieving its goals. A marketing plan is a written document that summarizes what the marketer has learned about the market place & indicates how the firm plans to reach its marketing objectives. It is one of the most important outputs of the marketing process. Marketing plans & product planning is becoming more customer & competitor-oriented & is becoming a continuous process to respond to rapidly occurring & changing market conditions.

Contents of Marketing Plans :

(a) Executive Summary & Table of Contents: The marketing plan should open with a brief summary of the main goals & recommendations. A table of contents outlines the rest of the plan & all the supporting & operational details.

(b) Situation Analysis: This section presents relevant background data on sales, costs the market, competitors & various forces in the macro environment. All this information is used to carry out a SWOT Analysis.

(c) Marketing Strategy: Here, the product manager defines the mission & marketing & financial objectives. The manager also defines those groups & needs that the market offerings are intended to satisfy. The manager then establishes the product lines competitive positioning which will inform the game plan to accomplish the plan‘s objectives.

(d) Financial Projections: Financial projections include a sales forecast, an expense forecast & a break-even analysis on the

revenue side, the projections show the forecasted sales volume by month & product category. On the expense side, the projections show the expected costs of marketing.

(e) Implementation Control: This section outlines the controls for monitoring & adjusting the implementation of the plan. Typically the goals & budgets are spelled out for each month or quarter so management can review each period‘s result & take corrective actions as needed.