PRODUCT MANAGEMENT

Directorate of Distance Education MBA Paper 4.11

MBA PAPER 4.11 ELECTIVE GROUP A PRODUCT MANAGEMENT SYLLABUS UNIT 1 Product: classification, benefits product line decisions product mix decisions product modification product differentiation product elimination product management structure role of product managers. Product life cycle use as a strategic tool product positioning developing product plans product policy new product development need, risks and uncertainty classification of new product. New product development process: generation of ideas screening of ideas feasibility testing concept development and testing marketing strategy development business analysis - product development test marketing commercialization launching mistakes successful launches. Diffusion of innovation: venture teams organisatoin for NPD top management contribution 7S framework and its use in NPD team working. New product success and failures product research areas of product research Branding: selection of brand name brand valuation brand image brand equity brand positioning strategies packaging latest trends in packaging future trends in product management.

UNIT 2

UNIT 3

UNIT 4

UNIT 5 UNIT 6

1. Contents

UNIT I

1. Introduction to Product Management 2. Product Line and Mix Decisions 3. Product Modification and Differentiation 4. Product Elimination 5. Organising Product Function and the Role of Product Managers UNIT II 6. Product Life Cycle 7. Product Positioning 8. Product Planning 9. Product Policy UNIT III 10. New Product Development-an Overview 11. NPD 1 : Idea Generation 12. NPD 2 : Idea Screening 13. NPD 3 : Concept Development and Marketing Strategy Development 14. NPD 4 : Business Analysis 15. NPD 5 : Product Development and Test Marketing 16. NPD 6 : Test Marketing for New Product 17. NPD 7 : Commercialization and Launch Strategies UNIT IV 18. Diffusion of Innovation 19. Teams in NPD 20. Top Management Contribution 21. Mickinseys 7s Framework and NPD UNIT V 22. New Product Successes 23. New Product Failures 24. Product Research UNIT VI 25. Introduction to Branding 26. Brand Equity 27. Brand Positioning 28. Packaging 29. Future Trends in Product Management

Lesson 1 Introduction to Product Management Introduction As the liberalization, privatization and globalization becomes prominent, companies are gearing to face them by becoming more specialized. Hence the marketing department becomes mo0re professionalized and in this context, product management gains prominence. The expanding markets based on liberalization, privatization, and globalization needs a professional approach coupled with the sophistication in technology and consumers becoming more educated, this development in product management is inevitable. Product Levels According to Philip Kotler, there are five levels of a product. Marketing managers need to think, their way around five different levels of product when working through the essentials of the offer which is going to be made to the customers. They are: The core benefit: The basic benefit which is what the customer really wants when deciding on a particular product. For example, a toothpaste which is able to clean the teeth. The generic product: This is the basic version of the actual physical product, for example, an electric cooker. The expected product: A set of attributes and conditions that buyers normally agree to when they purchase a product. For example, a soap is expected to last long and at the same time does not wear away due to water. The augmented product: The product includes additional services and benefits which help to distinguish it from competitive offerings, for example, a manufacturer of television might extend the normal warranty period from one year to say three years. In fact, SHARP television offered seven years warranty. The potential product: At the final level stands the product of the future, namely all the transformations and augmentations that a particular product might undergo in the future. This is where the companies search for new ways to satisfy their customers and differentiate their products. The emergence of Hyper markets is one example. Dominiquez conceives product management as a hexagon and found to have the following as the important aspects: Product Forecasting Planning Market Profit and Coordination

Nuances in Product Management Ensuring over time that a product or service profitably meets the needs of customers by continually monitoring and modifying the elements of the marketing mix, including the product and its features, the communications strategy, distribution channels and price is the job of product management. Product Manager is The person assigned responsibility for overseeing all of the various activities that concern a particular product. Sometimes called a brand manager in consumer packaged goods firms. For this a Product Plan with detailed summary of all the key elements involved in a new product development effort such as product description, schedule, resources, financial estimations and interface management plan is

prepared. Product Platforms Underlying structures or basic architectures that are common across a group of products or that will be the basis of a series of products commercialized over a number of years are called product platforms. Product Development A pre-determined list of activities and disciplines responsible for completing those activities used as a guideline to ensure that all the tasks of product development are considered prior to commercialization. The collection of new product concepts and projects that are within the firms ability to develop, are most attractive to the firms customers and deliver short and long-term corporate objectives, spreading risk and diversifying investments. Product Development Process is a disciplined and defined set of tasks, steps, ad phases that describe the normal means by which a company repetitively converts embryonic ideas into salable products or services. Product Development Strategy is the strategy that guides the product innovating program. Product Development Team comprises of a multifunctional group of individuals charted to plan and execute a new product development project. The entire task is undertaken during the NPD stages. It is hence important to know them now.

Lesson 2 Product Line and Mix Decisions Introduction Product is any thing that can be offered to a market to satisfy a want or need. Product that are marketed included physical goods, services, experiences, event persons, places, properties, organizations, information, and ideas. A product mix (also called product assortment) is the set of all products and items that a particular seller offers for sale. A product line is an element in the product mix where a single line like soaps are product line for a company, e.g., Kodaks product mix consists of two strong product lines: information products and image products. A companys product mix had a certain width, length, depth and consistency. These concepts are illustrated below: Width The width of the product mix refers to how many different product lines the company carries. Example : Hindustan lever limited has different product lines. It offers different products for the consumers. Some product lines offered by HINDUSTAN LEVEL LIMITED are Detergents, Toothpaste, Bar soap etc. Length The length of a product mix refers to the total number of items in the mix. This is obtained by dividing the total length by the number lines. Depth The depth of a product mix refers to how many variants are offered of each product in the line. Example : Hindustan Lever Limited offers tooth paste named Close Up at different sizes like 20 grams, 50 grams, 150 grams etc. In this case HTL has a product depth of three. Consistency The consistency of the product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other way. P&Gs product lines are consistent insofar as they are consumer goods that go through the same distribution channels. The lines are less consistent insofar as they perform different functions for the buyers. These four product mix dimensions permit the company to expand its business in four ways. It can add new product lines, thus widening its product mix. It can lengthen each product line. It can add more product variants to each product and deepen its product mix. Finally, a company can pursue more product-line consistency. Product Mix Strategies Godrej offers different brands of refrigerators, soaps and other things to its consumers. Did this diverse assortment of products developed by accident? No it reflects a planned strategy by the company. To be successful in marketing, producers and middlemen need carefully planned strategies for managing their product mixes. Positioning the product Managements ability to bring attention to the product and to differentiate it in a favourable way from similar products goes a long way toward determining that products revenues and the companys profits. Thus management needs to engage in positioning, which means developing the image that a product projects in relation to competitive products and to the firms other products. Marketing executives can choose from a variety of positioning strategies. Sometimes they decide to use more than one for a particular product. Here are several positioning strategies. Positioning in relation to a competitor For some product the position is directly against the competition. The strategy is especially suitable for a firm that already has a already has a solid differential advantage or is trying to solidify such an advantage. To fend off rival maker of microprocessors, Intel corp. launched a campaign to convince buyers that its product is superior to

competitors. The company even paid computer makers to include the slogan. Intel inside, in their ads. Coca-Cola and Pepsi-Cola compete directly with each other in virtually every element of the marketing mix (even celebrity endorsers). For other products head-to-head positioning is exactly what not to do, especially when a competitor has a strong market position. Positioning in relation to a product class or attribute Sometimes a companys positioning strategy entails associating its product with (or disassociating it from) a product class or attribute. Some firms promote their wares as being in a desirable class, such as Made in Japan, or having an attractive attribute, such as low energy consumption e.g. Philips launched tube lights stating that it will consume only less electricity. Some having an attractive attribute, such as environmentally friendly, e.g., Hero Honda launched its two wheeler vehicle starting that it is environment friendly. This strategy is widely used not for food products. For example Sunflower and Saffola introduced oil with one common denominator they contain no cholesterol. Positioning by price and quality Certain products and retailers are known for their high-quality products and high prices. In the retailing field, Raymond offers quality, products but its products are priced high. Peter England had factory retail shop which offers high quality products at higher price. In the automotive field, positioning by price and quality is common. In recent years, luxury cars that accentuate quality and carry comparatively high prices have proliferated; Infiniti and Lexus are the latest noteworthy entries. However, the makers of luxury cars are having trouble differentiating themselves from each other with respect ot important attributes such as performance, comfort, and safety. As a result, consumers are confused. Positioning in relation to a target market Regardless of which positioning strategy is used, the needs of the target market always must be considered. This positioning strategy doesnt suggest that the other one ignore target markets. Rather, with this strategy, the target market-rather than another factor such as competition is the focal point in positioning product. Nestle offers different products using this strategy that address different consumers desire regarding taste, calories and price. Product-mix expansion Product-mix expansion is accomplished by increasing the depth within a particular line and/or the number of lines a firm offers to consumers. Lets look at these options. When a company adds a similar items to an existing product line with the same brand name, this termed a line extension. For illustrations, pull the coupons insert out of your Sunday news paper. For example Pepsi-cola company introduced many new flavours for its drink like Diet Pepsi, Lehar Team etc. Like wise Coca-Cola company introduced news flavours like sprite, diet coke etc. The line extension strategy is also used by organizations in services fields. For example, universities now offer programs to appeal to prospective older students, and the roman catholic church broadened its line of religious services by adding Saturday and Sunday evening masses. There are many reasons for line extensions. The main one is that the firm wants to appeal to more market segments by offering a wider range of choices for a particular product. Line extensions might be the most pronounced trend in marketing during the early 1990s As discussed in the nearby box, line extensions have becomes so common as to raise questions about their effectiveness. Another way to expand the product mix, referred to as mix extension, is to add a news product line to the companys present assortment. To illustrate, when Johnson & Johnson introduced a lilne of Acuvue disposable contact lenses, that was mix extension because it added another product to the companys product mix. In contrast, line extension adds more items within the same product line. When J&J adds new version of baby soaps, thats line extension.

Under a mix-extension strategy, the new line may be related or unrelated to current products. Furthermore, it may carry one of the companys existing brand names or may be given an entirely new name. here are examples of these four alternatives. Related product, same brand: Pepsi colas pepsi, mirinda, lehar 7up, Diet pepsi, etc. Smithkline beechams Horlicks, Boost etc. Unrelated product, same brand: Godrej produces many unrelated products like refrigerators, soaps etc. Related product, different brand: Procter & Gamble introduces Luvs as a companions to its disposable diapers. Unrelated product, different brand: McDonalds testing leaps and bounds, an indoor playground for children and their parents. Most often, the new line is related to the existing product mix because the company wants to capitalize in its expertise and experience. Trading Up and Trading Down The product strategies of trading up and trading down involve a change in producer positioning and an expansion of the product line. Trading up means adding a higher price product to a line to attract a broader market. Also, the seller intends that the new products prestige will help the sale of its existing lower-price products. Trading down means adding a lower-price product to a companys product line. The firm expects that people who cannot afford the original higher-price product. The reason: the lower-price product carries some of the status and some of the other more substantive benefits (such as performance) of the higher-price items, Some times the effect of trading down can be achieved through advertising, without introducing new, lower-prices products. A manufacturer of fine or chinaware might accomplish this by advertising some of the lower-price in its existing product lines. Trading up and trading down are perilous strategies because the new products may confuse buyers, resulting in negligible net gain. It is equally undesirable if sales of the new item or line are generated at the expense if the established products. When trading down, the new offering may permanently hurt the firms reputation and that of its established high-quality product. To reduce this possibility, new lower-price products may be given brand names unlike the established brands. In trading up, on the other hand, the problem depends on whether the new product or line carries the established brand or is given a new name. if the same brand name is used, the firm must change its image enough so that new customers will accept the higher-price product. At the same time, the seller does not want to lose its present customers. The new offering may present a cloudy image, not attracting new customers but driving away existing customers. If a different brand name is used, the company must create awareness for it and then stimulate consumers to buy the new product. Alteration of Existing Products As an alternative to developing a completely new product, management should take a fresh look at the organizations existing products. Often, improving an established product-product alternation can be more profitable and less risky than developing a completely. New one. However product alternation is not with out risks. When Coca-Cola co. modified the formula for its leading product and changed its name to new coke, sales suffered so much that the old formula was brought back 3 months later under the Coca-Cola classic name. Product Mix Contraction

Another product strategy, product mix contraction, is carried out either by eliminating an entire line or by simplifying the assortment with in a line. Thinner and/or shorter product lines or mixes can weed our low-profit and unprofitable products. The intended result of product-mix contraction is higher profits from fewer products. E.g., Unilever has announced that it would prune its brand portfolio by 75% from 1,600 to 400. In service fields, some travel agencies have shifted from selling all modes of travel to concentrate on specialized tours and trips to exotic places. And, to reduce their liability risks and insurance costs, many physicians have stopped offering obstetrical service. During the early 1990s most companies expanded-rather than contracted-their product mixes. Numerous line extensions document this trend. As firms find that they have an unmanageable number of products or that various items or lines are unprofitable, or both, product-mix pruning is likely. The result in man organizations will be fewer product lines, with the remaining lines thinner and shorter. How many Products are too Many? Whether it is Hindustan lever, Procter & Gamble, Colgate-Palmolive, Godrej soaps or Marico, the story is same. With a plethora of brands fighing for that shrinking share space on retail shelves, companies are reworking their array of brands. Analysts tracking the sector view this as part of natural market cycle. Post liberalization, when multinationals entered the country in hordes, there were product launches by the day. To compete, domestic companies offered the same. As a result there was intense competition. To generate more excitement and get consumers to talk about their product, companies launched variants. These came in the form of a different flavour, new packaging, or a slight change in the product formulation. And now its tome for brand shakeout companies are rationalizing, consolidating their brand portfolios. Internationally, brand rationalization has been on companies agendas for some time In September 1999, Unilever announced that it would prune its brand portfolio by 75% - from 1600 to 400. The basket of 400 include brands like Dove, Lux, and the Calvin Klein range of fragrances. According to Procter & Gamble, extensions are a companys way of responding to consumers desires, which are often gauged through research. Still, many consumers cannot differentiate across the numerous alternatives and get frustrated or angry in the process. The large number of new offerings also poses problems for many retailers. Supermarkets, in particular, lack of shelf space to add all or even most of the new products. Supermarket managers may squeeze more separate items into their stores by reducing the average amount of space allocated to each item.

Lesson 3 Product Modification and Differentiation Introduction Managers try to stimulate sales by modifying the products characteristics through quality improvement, features improvement, or style improvement. This strategy has several advantages. New features build the companys image as innovator and win the loyalty of market segments that value these features. They provide a opportunity for free publicity and they generate sales and distributor enthusiasm. The chief disadvantage is that feature improvements are early imitated: unless there is permanent gain from being first, the feature improvement might not pay off in the long run. Differentiation is the act of designing a set of meaningful differences to distinguish the companys offerings from competitors offerings. Differentiation of physical products takes place in a continuum. The main product differentiations are Features, Performance, Conformance, Durability, Reliability, Reparability, Style and Design. Features Features are characteristics that supplement the products basic function. The starting point of features differentiation is a stripped down version of the product. The company can create additional versions by adding extra features. A company can identify and select new features by contacting recent buyers and asking them questions as to what they like about the product, its good and bad features, etc. the next task for the company is to decide which factors are worth adding. The company also needs to consider how many people want each feature, how long it would take to introduce each feature, whether competitors could easily copy the feature, etc. Performance Quality Products are established at four performance levels, low, average, high and superior. Performance quality refers to the level at which the products primary characteristics operate. A Company must decide to manage performance quality through time. Three strategies are available. First, where the manufacturer continuously improves the product, often improves the product, often produces the highest return and market share. The second strategy is to maintain product quality at a given level. Third strategy is to reduce product quality to offset rising costs, hoping the buyers will not notice and difference. Others reduce the quality deliberately to increase their current profits although it increases their long run profitability. Conformance Quality Conformance quality is the degree to which all the product units are identified and meet the promise target specifications. Durability Durability is a very important product attributes to most buyers. Durability is a measure of the products expected operating life under natural or stressful conditions. Buyers will pay more for products that have more durability. Reliability Reliability is a measure of the profitability that product will not malfunction or fall within a specified time period. Buyers want to avoid the high costs of breakdowns and repair time. Repair ability Repairability is a measure of the ease of fixing a product that malfunctions or fails. Ideal repariability would exist if users could fix the product themselves with little or no cost or time lost. Style Buyers are wiling to pay high price for products that are attractively styled. Style describes the products looks and feel to the buyer. Style has the advantage if creating product distinctiveness that is difficult to copy.

Design Design is the totality of features that affect how a product looks and functions in terms of customer requirements. Design is important in making and marketing durable equipment, apparel, retain services and packaged goods. Jack Trouts Differentiation Jack Trout has been a proponent of the Differentiation strategies followed among products. In the book Differentiate or Die he has given the different kinds of sacrifice a company has to make while following differentiation strategies. They are of three kindsProduct sacrifice Staying focused on one kind of product is far superior to the everything-for-everyone approach (unless you use multiple brands): Duracell in alkaline batteries, KFC in chicken, Foot Locker in athletic shoes, White Castle in small hamburgers. Subaru in four-wheel-drive cars, Southwest Airlines in short-haul air travel. The company can become different as the expert and the best of the breed in this kind of product. Attribute sacrifice Staying focuses on one kind of product attribute is superior to telling a multiple attribute story. It enables one to be different by taking ownership of a perceived benefit. Volvo took ownership of safety in automobiles. Crest took ownership of cavity prevention. Nordstrom took ownership of service. Dell took ownership of selling direct. The product might offer more than one attribute, but the message should be focused on the point that one wants to preempt. Target market sacrifice Staying focused on one target segment in a category enables the company to be different by becoming the preferred product by the segment: Pepsi for the younger generation, Corvette for the generation that wants to be young. If one looks for another target segment, chances are the original customer will be lost. There is chance of undermining the basic differentiation idea when too much versions are added. If, as in Marlboros case, they stand for full flavor, but when they offered other flavours the focus shifted. Michelob was once a very successful, expensive full-flavored beer. Then it introduced Michelob Light and Michelob Dry. The brand went downhill. Heineken, another expensive full-flavored beer, obviously learned from that mistake. Their light beer was called Amstel Light, which is doing very nicely with the brilliant differentiating idea 95 calories never tasted so imported. Once Eveready had a strategy to offer whatever kind of battery that was required. They introduced Duracell. They sacrificed a lot of business and offered only alkaline batteries. Duracell became the specialist in long-lasing alkaline batteries and a differentiated success. But they were not the leader and had nothing to lose. As you saw in an earlier chapter, the need for growth tends to make market leaders vulnerable. Rather than give up anything, they kept adding more. Most failed brands once had a differentiating idea that they destroyed by adding more and more versions. So even if one differentiates one should bring too many versions which kills the focus. Product Differentiation in Refrigerator Industry in India Refrigerator Industry The Product Differentiation is very evident in this closely competitive sector. The players like Godrej, BPL, Whirlpool, Videocon and Voltas have achieved economies of scale. Godrej has a capacity utilization of 75% and the highest capacity in the industry. This declines their unit cost of every function of business and enables them to keep their prices low. The companies like Godrej, BPL and Videocon, being very old players in the Indian market enjoy high brand awareness and consumer loyalties. These brand names are associated with trust and reliability in the Indian market. The Korean players like LG and Samsung who engaged in heavy advertising and brand promotion during the last year have also created a niche for them in the premium segment.

Product differentiation LG-LG 18/20 CU ft Top mount w/ Fast fresh cooling These premium refrigerators offer an extensive array of sophisticated features including exclusive Fast Fresh Door Cooling. This LG innovation provides a second cooling element in the refrigerator door that chills from the front of compartment, to reinforce the standard cooling from the back and increase cool air circulation evenly through our the interior. It means everything is cooled more quickly and stays cool consistently (including items stored in the door shelves), to maintain freshness, texture, and nutritional value even when the refrigerator door is opened often. Some of the features offered are: FastFresh Door Cooing System Quiet Operation Sound power 40.9 dB Americas New Quietest Energy Star Reversible door Modern & Elegant Round-Door Design Long Vertical Grip Handles Embossed Coated Metal Finish/VCM Finish

Whirlpool whirlpool water filtration refrigerator solution The Whirlpool UltraEase Water Filtration system uses a sediment and activated carbon filter to remove dirt, rust, chlorine, odor and lead. The long, torpedo-shaped filter enables water to keep in contact with the activated carbon longer for effective filtration resulting in clear, better-tasting water. BPL It has launched its Converti model with a freezer that can, at the switch of a button, function like any other part of the refrigerator. BPL is now looking at models based on non-CFC technologies. This activity in the frost-free segment is only to be expected. Godrej-GE Godrej has launched designer refrigerators with colour images on door panels. The various innovative features, recently added, include: A curd-o-matic-a special area to make curds/yogurt A deodorizer-to keep away foul odors A humidity control switch to keep vegetable crisper A flexible shelf mechanism Four temperature zones

Samsung India electronics It has launched new high-end top-of-the-line frost-free refrigerators. They launched five new frost-free models of refrigerators in 400 litres of 640 liters. The new, top-of-the-line frost-free models in 640 liters (SG 648) and 570 liters come with Samsungs patented twin cooling technology. The 400 and 440 litre bio fresh refrigerators models come with unique bio friendly features.

Product Differentiation in Washing Machine in India 1. LG electronics effectively applied the various rules of brand creating to create a company brand and became Indias second largest consumer electronics brand only next to BPL with Videocon at the third spot. In an environment where their consumer was being given various exchange offers, LG differentiated their products on the basis of technology. They realized that the Indian customer was not price but value conscious. The washing machine were launched with the chaos punch plus three technology. In semi automatic washing machine instead of launching a 4.5 kg machine that dominated the entire market, LG launched 6 kg machine which was more convenient for large Indian households. 2. LG Washer/Dryer Combo This Compact 24 unit houses and advanced-design asher and dryer in one-an amazing combination of efficient space usage and fine fabric care. The washer features a vertical basket that gently and thoroughly rotates even your most delicate clothes-rather than violently agitating them. Then it rinses and dries them in one simple automatic operations. All using one-third of the water of a conventional machine. Electrolux plans to introduce low-end top loading, twin-tub machines; a fully automatic machine and a range of front-loading washing machines from Italys Portryal. The company has launched a new model washing machine 1045 model that provides four rinses as against three rinses of all other washing machines. The fourth rise removes the dirt and soap residues completely from the fabric. 3. Videocon, which had pioneered washing machines in India, was the market leader with its range of low-priced washers (spinning tubs) and semi-automatic machines, which required manual supervision and some labour and claims to be the first company in India to introduce fully automatic washing machines. 4. IFB BOSCH fully automatic washing machines is another premium brand that has successfully differentiated itself on product features. It has gained a distinct competitive edge by offering features like an in-built geyser for not water washing required for removal of grease, tumble wash facility, a choice of two speeds for drying, and a front loading facility available only in IFB at the moment. 5. Whirlpool Whirlpool introduced Washing machines with a 1-2, 1-2 Hand Wash Agitator System as it wanted to induce the feeling of washing with hands. Whirlpools another offering is the Whitemagic aquashower range of semi-automatic washing machines. The machine offers a hotwash facility and is equipped with an inbuilt heater. The new wash system is a combination of the unique Agitator and the special Aquashower. Other features of the machine include the uni-mix detergent dispenser which ensures the uniform mixing of detergent and water as the water flows into the wash tub. 6. Samsung India Electronics Ltd. has launched the new WA 75K5 and WA 75K4 washing machines which have been customized to suit Indian requirements by being equipped with a new memory back-up feature which offers programme settings. Cost between Rs. 14,400 to Rs. 17,500. Product differentiation in Television Sector in India LG The televisions were launched with the digital flatiron TV with Golden eye technology. Innovative features are constantly adde3d to their models. The most imaginative of these was in field of television; multilingual screen display (the menu appears on the screen in five Indian languages). BPL Ltd. India largest color television (CTV) manufacturer. When CTVs the company has a wide range of product catering to all segments of the market. The company has also entered into the net savvy technology WEB TV and interactive TVs, multimedia TV, which combines the latest in television and computer technology. However these products are more to cater to the market craze and have yet to turn commercially viable. Samsung India electronics Ltd. Samsung launched its new, advanced, digital ready range of Flat Colour Television (Plano) and Projection televisions in the market.

Onida They have come with different versions for different segments of people. For the upgraders there is Igo. The style conscious teenager has Candy a 14inch TV with Earphones. The KY Thunder is meant for those who want their music to sound like heavenly rage. A new range is also planned for the premium segment- the Gulliano Bellini designed range. Then there are unique collections with models which can be hung on the wall (Pure Flat) or turned at angles to suit viewing (Twister with swivel base). Product Differentiation in Microwave Sector in India The microwave oven market is in a nascent stage of development in the country. However, with consumers in a mood to buy household goodies, many players have entered the market in the past few months. And in consonance with the demand-supply theory, prices have come down. However, the microwave oven, when first launched in India, did not get an enthusiastic response. Industry sources believe that the reason might well have been the high-prices and the fact that the average Indian household was not yet ready to change its food habits. There is no practice of using leftovers or frozen foods or food in any unprocessed form. Moreover, Indian cuisine normally involves constant stirring or frying and one cannot stir or fry food in the microwave. The microwave could not replace usual cooking methods. In addition, the microwave requires special containers for use. So microwaves were generally used for reheating in Indian kitchens. LG It has three varieties of microwave ovens in its kitty-solo model, grill variety and convector variant. LG microwave have a robo grill an auto-moving heather that can be set at various angles. It also has an anti-bacteria cavity, which prevents the growth of bacteria inside the cavity and absorbs odour. LG also offers an Over-the-Range Microwave with Sensor, In yet another stunning display of LG innovation, this microwave is arrayed with a network of sensors that detect the exact amount of time to cook a given food item by monitoring gasses released from food as it cooks. Samsung models of Microwave Ovens have a special features and that is that they have a ceramic enamel cavity. As a result, the conductivity is 2.4 times less than stainless steel, which means less time and hence less power consumption. The cavity is so scratchproof that the user does not have the problem of getting spilled food stuck in crevices. It also has a 3D-shower wave for uniform heating. French company Moulinex has also made its mark in India. Its microwave have two shelves so that one can cook two dishes simultaneously. This is a unique feature and is not available in any other microwave. IFB The Megatron and the Electron models from IFB are without grill. The Neutron, Proton and the Position have an auto-cook memory along with grill and browning facility. The Proton has a 100% convection system. Whirlpool launched Magicook cooking range Whirlpool has announced the launch of its Magicook cooking range. The inside walls of the cooking range are coated with a special porcelain enamel that automatically vapourises food stains from the oven walls. The Innovation Series These models feature the new, time-saving Jet Defrost System. Innovative technology and European design permit defrosting up to 70% faster than other previous microwave ovens. Whirlpool Gold model A new Tupper Wave Oval Steamer not is included with the unit. This new feature makes it quick and easy for consumers to prepare healthful tearned vegetables, rice, pasta, fish, shrimp, and many other foods. And with the Tupper Ware Oval Steamer, there is no need for any other small steaming appliances.

Lesson 4 Product Elimination Introduction Product deletion is some thing which is an integral part of product management. It plays a vital role in keeping the profit margin of the organisation high. For an organisation which is a continuous entity, the customers are very precious. So are the customer preferences. In the modern context of business, the worth of the business is calculated on terms of the share value that the organisation fetches. Also in the context of increased competition, a teeny tiny flaw found in the main competitor is over blown and shown to the share holding public as a major disaster etc. this causes the organisation to loose its image in the public. In all these contexts, the product deletion process gains more relevance. Product deletion strategies mainly include the following Price adjustments Product reformulation Revised distribution etc When a product dies or when companies merge, what does one do with a product when its profitability declines steadily and cannot be revived. Obviously, the product should be eliminated. Yet most companies, do not have a wellplanned procedure for handling products that are in decline. American industry has traditionally paid less attention to establishing formal procedures for eliminating products than to establishing procedures for developing new products. Need for Product Deletion Product deletions can occur due to many things. Or these, those pertaining to the markets are the most important ones. Though we can attribute the need to be due to many reasons, market acceptance and rejection is the key cause for all indicators. We can categorize the need to delete the product as the following. 1. Market rejection 2. Technological improvements / obsolescence 3. Macro economic factors 4. Governmental regulations 5. Ecological / Environmental Considerations 6. Non-availability of raw materials Market rejection Market rejection can occur due to many factors. The marketer may be blinded of many factors in the market that may go against the product and launch the product. Then the adverse factors may come into play and the complete rejection of he product is the result. Then the company has to withdraw the product. Here there is no strategy is need as there is no relevance of the product. Technological improvements\obsolescence The advancements in the technological fields can render a product useless. Customers may find a better product, at a better price, due to technological advancement. An apt example for this in the Indian market is the Pagers. BPL had a pager service network in India. Because of the rapid technological advancement that happened in the field of communications, there is no need to carry a pager. Yet another example will be the handsets by Iridium technologies. The handsets were thought to be of very high use as it could revolutionize the communications technology because of the Global Positioning System of GPS. But the handset was too heavy and the company had to drop that product because of the rapid advancement made by Sony & Co. in miniaturizing the mobile.

Strategies to be applied In this case there are certain strategies which cold be applied. This is important because there may be many a brand loyal customers who would not like to change their product. Their support and satisfaction is important for the company to survive. Hence the company has to strategize the withdrawal of the product. Increasing the price This could to be applied in the case of products which are price sensitive. This will cause the customer to move away from the product, which will ultimately result in the death of the product. Decreasing the quality This could the applied in the spread between upper segments to the price sensitive segment. Though this could affect the company in adverse way also, the company could say that it is withdrawing the product because of the decreased quality. Macro economic factors The environmental factors such as Global environment, the Political environment etc may lead to the deletion of the product. Macro economic factors may affect the company and the many factors which may affect the company. For example a company which is operating in the foreign markets may be affected by the new quality standards set by the Government there. An example would be the rejection of the Indian Garments by the US Govt, which has practically led the Indian manufacturers to close down their factories. Governmental regulations Governmental regulations in a specific industry etc can act as the death knell to the product. There are many products which have gone to the darkness of the unknown due to this particular factor. Ecological/environmental conditions The products which are causing damages to the environment may be withdrawn by the company. When it was known that the CFC which is being used in the fridges is causing the environmental damage, the fridge manufacturers wanted to make changes and this had affected the chemical companies which had been supplying the material to the Fridge Manufacturers. Again the production of DDT, a harmful product has been stopped due to the environmental factors. Non availability of raw materials This is a factor which is increasingly affecting the small scale industry which maintains the bare minimum stocks. When this continues for a while, the company has to stop the production as the demand for the product may have died out the customers might have found alternate product etc. Benefits of Product Deletion 1. Perhaps the most obvious benefit to be derived from a formalized product deletion plan is the potential effect on profitability. This is perhaps most often true during a merger or acquisition when there is generally a great deal of product redundancy. Reducing the number of products offered streamlines the new companys product line and can improve efficiency as well as profitability. 2. Often a large percentage of firms product mix accounts for a small percentage of its total sales and profits. This suggests that at least some of these products are unprofitable or have an unacceptably low return on investment. For example, one firm with annual sales of $40 million eliminated 16 products that accounted for only eight percent of its sales volumes. Within three years, the firms profits increased 20-fold: aggressive product abandonment was cited by management as the prime reason. 3. Since weak product can consumer important company resources, deleting them can spur overall sales by freeing up resources for more promising uses. Also, marginal products tie up sale personnel, warehouse space, advertising budgets, equipment, raw materials, and other resources to the same extent as strong

products. Weak products also tend to require a disproportionate amount of management time. Finally, failure to dump weak products may delay an aggressive search for more profitable products. 4. Establishing procedures for determining under what circumstances a product should be eliminated offers other benefits as well. It may cause a firm to analyze for the first time why certain products need to be dropped. As a result, past mistakes are more likely to be identified and practices instituted to prevent a recurrence of the same problems. Reasons for Product Deletions Eventually all products reach the end of profitable lives. Whatever the reason for the demise phasing out, the weak products calls for careful planning. Candidates for elimination from a firms line are identified through managements regular monitoring of product performance. Once such candidates have been identified, there are typically considerable resources at stake when the product drop decisions are made. Decisions to drop a product are difficult. Some times powerful arguments for retaining the products are given by the sales force, by manufacturing and by other areas of organisation. Further more the measurement of product performance is complex. A products real contribution to operating results is difficult to determine because the products sales and cost are interrelated with those of other products. Yet the elimination of a product can make important profit contributions and free scarce marketing resources for higher priority needs. Deleting a product is a difficult decision to make because dropping even a single product will alter the product line and product portfolio. However, there are certain warning premonitions that a company cannot leave alone. They are: Declining sales Declining prices declining product profitability Declining prices Increasing effective alternatives or substitutes Devotion of excessive attention to otherwise weak link product due to emotional influences

But too many companies ignore these warnings. Products are maintained in the companys line because of concern that the customers who still buy them may be upset if they are no longer available that their decision may have a negative affect on sales of the firms other products, or that the sales force of distributors will object to the loss of old familiar standbys. This suggests the need to establish a product deletion process that is just as comprehensive and through. Revitalizing a Declining Product There may be ways to revitalize a decline product. Production cost may be reduced through value analysis. Joint cost might be reallocated. The product might be positioned as in the case of Fa cosmetics range or re-launched in a foreign market. The product might be made more profitable in its waning years by raising its price as in the case of old-Cinthol soap from Godrej, by cutbacks in promotion expense or through more economical distribution, such as consolidating field inventories in a central ware house. The drain on companys resources might be reduced and customer demand still met by subcontracting production of the product to another manufacturer. But when these alternatives hold little hope, the best approach is to program the products elimination in such a way that the least disturbance is created for the company, its distributors and customers and so that replacement and repair parts will still be available to customers. One technique for doing is to authorize another company, which can operate profitability serving the remaining core market, to take over the product. As a part of the marketing control process, product performance should be evaluated against standards on a regular basis. The results of such evaluations can lead to three possible actions like continue to market the product in the market, modify the producer to remedy the problem, or phase out the product. This is explained in the below flow chart. The option selected depends on what shows up during the evaluation. In order to determine the impact on production operations and marketing activities, the demands on management time, servicing requirements and the alternative uses of resou8rces made available by a drop.

As a part of the marketing control process, product performance should be evaluated against standards on a regular basis. The results of such evaluations can lead to three possible actions like continue to market the product in the market, modify the product to remedy the problem, or phase out the product. This is explained in the below flow chart. The option selected depends on what shows up during the evaluation. In order to determine the impact on production operations and marketing activities, the demands on management time, servicing requirements and the alternative uses of resources made available by a drop. Channel participants and suppliers: assessment is made of the impact of a producer drop on channel relationships, sales and profit impact of drop on channel members and the probable reaction of suppliers to a drop. Competitive: Advantages that a drop provides to competition are assessed.

Some of these criteria can be quantified and for others such as the impact of a proposed product drop on channel relationships, only a more subjective evaluation is possible. The selection of the criteria for a product drop should be based on assessment of the factors that relate to the product performance in a particular firm. Since these factors may involve economic, market and technical performance a team of executives representing the top management and various other functional areas of the firm should select and assign weights to the criteria. Formal procedures should be established for monitoring of the products of the firm. An evaluation team made up of representatives of the key functional areas in the firm can review data on the performances of the product and apply the criteria. The frequency of meeting of this team depends on the rate of change in the product life cycle and in historical product performance, this varies from firm to firm. An annual review is usually the minimum time span longer intervals may be appropriate, depending on the situation. Matching criteria with performance the criteria set by management are used to measure the performance of the existing products. When a company has a large product mix, the performance assessment should be done in steps of which the first step is to quickly screen for possible drop candidates. It would be too costly and time consuming to perform a comprehensive analysis for each product of a wholesale food or drug firm because of thousands of products involved. Computer models have been developed for screening when evaluative criteria and performance information be quantified. The Product Review and Evaluation Subsystem (PRESS) model is one computerized approach to identify the product. Deletion candidates. It utilizes the standard cost accounting and marketing informations to generate product rankings. The products with low selection indexes are considered for elimination from the product line of the firm. The selection index (SIN) is calculated by the formula; Where, SINi Cmi Fci Cmi Fci = selection index number for product i, = contribution margin for product i, = facilities costs for product i, = summation of contribution margins of all products = summation of facilities cost of all products

If products A and B have equal contribution margins, but As facilities costs are double those of B, then As SIN value will be half that of B. Depending on the particular evaluation criteria that the appropriate in a given firm, factors other than facilities costs could be used, such as shelf space of floor space in a retail firm. The PRESS model can also apply available subjective and historical date to examine price-volume relationships, sales trends and product complimentarily and sustainability. Evaluation terms help ensure that the assessment process considers the impact of a proposed product drop on various areas of the firm. Since it is impossible to quantify all of the evaluation criteria, the teams must subjectively assess the impact of the drop on customers, competitors and suppliers. Planning a product phaseout: The phaseout of a product must be planned for and coordinated. Management may choose one of the three possible strategies.

1. Selling the product to another firm may enhance the financial attractiveness of the product elimination decision. This strategy has been followed by many firms seeking to restructure their product mixes. 2. If selling a product is not feasible, management may decide to drop the product gradually, allowing time for inventory reduction, facilities conversion, assisting the customers in finding the new sources of supply and other internal restructuring. 3. It may be necessary in some instances to bite the bullet by rapidly eliminating the product and accepting the consequences Product Deletion Stages The product deletion strategies follow four stages each stage in essential if a clear decision is to be made: Recognize weak products This determination should been made as part of a continuing and systematic monitoring of all company products. Products are to live up to the expectations for profitability sales growth and market share and consumer attitude. Portfolio techniques like BCG matrix will help identify these weak links. Analysis of weak products Management must examine the products identified in the above step to determine why they are falling short. Before product deletion, other possibilities like product modification, repositioning and improved marketing mix strategies needs to be found. In other words, the cost of resources, executive time and likely need to be considered for the deletion decision. Cause and effect evaluation If repositioning, product modification in the marketing mix seem unlikely to salvage be product, the next obvious step is to consider the implication of cause effect of product deletion. The influence of product deletion upon the entire company in terms of finance, resources, marketing and management are to be analysed. The potential fallout on the financial positions, the influence and impact of the top management commitment on the deletion will have to be studied and analysed. Implementation of the deletion decision After the decision is made through all the above steps the timing and the procedure of elimination must be planned in order to minimize the disruption from the constituents of the relationship marketing. This stage may be used to sell the product to some interested party, perhaps including patents and production and distribution facilities. Harvesting strategy Before product elimination company should recover the cost incurred in producer development, promotional expenses, management expenses etc. Before deletion, the company can fix high price to de-motivate the customer to purchase a product. A company may be prevented from implementing the harvesting strategy if there are exit barriers to reckon with, since they reduce the firms strategic flexibility Exit barriers refer to circumstances within an industry that discourage the exist of competitors whose performance in the particular business may be marginal. There types of exit barriers are: a. A thin resale market for the assets involved b. Intangible strategic barriers (eg. Value of distribution network, customer goodwill for the other product of the company, or strong corporate identification with the products of a company, or strong corporate identification with the product) as deterrents to timely exit; and c. Managements reluctance to terminate a sick line. When the exit barriers disappear, or their effect ceases to be of concern, the harvesting strategy may be pursued.

A research was conducted on product elimination by the researchers in the American University. The outcome of that research is as follows. The product elimination decision is a decision of great strategic importance in todays

increasingly competitive marketplace. The purpose of this manuscript is to examine whether marketing decisionmakers assess the relative correctness or appropriateness of such strategically important decisions following their implementation. An after-the-fact or post-hoc analysis of recent product elimination decisions was conducted among American manufacturing firms. The product itself had been eliminated with the focal pint for the study being the decision-making process used to do so. Example for Product Elimination Strategy When the Indian automobile industry was opened up along with the other global players, Ford motors also launched their most tried and tested escort. The product was positioned along with Opel Astra and Mitusbishi Lancer initially Escort was successful in bringing revenue to the company but later on it showed a declining trend. The company adopted various strategies to revive the product has reached the deletion stage and launched ford ikon replacing ford ikon replacing the old ford. Similar case was found on PAL Peugeot 709. This model was initially success but with years, but later it was found that showing decline trend. Now company is tied with TELCO. Now Peugeot is not releasing car pegeout 709 cars at present. Hindustan motors deleted the Ambassodor car-delux model now they released the model called Ambassodor-classic. Kawasaki SX Endura was deleted from its product line after certain years as a part of product mix strategies. Sun TV network launched new channel Sun Movies and Sun Music channels were heavily cannibalizing the parent channel Sun TV. They decided to delete the channels from the product line. When Hewlett Packard introduced the printer-HP DJ-500. After going through the first quardent of the model the printer failed to bring in profits to the firm, irrespective of heavy promotional efforts. HP finalized with the strategy of product deletion. HLL : In the annual meeting 2001, the companys plan is to reduce down the product portfolio from 110 to 36, over a three years period. Of these 18 will be international brands, while the remaining will be home-grown. To ensure that the company does not lose sales by not supporting non-core brands. Lever plans to subsume some equities through an umbrella-branding exercise. For instance, in branded staples, kissan Annapurna will be the core brand. In 2001 Lever will have access to yet another brand in the branded staples business, Captain cook, through its acquisition of International Best Foods. Over a three-year period, the company will attempt to bring the captain cook franchise under Kissan Annapurna and phase out the former. The core brand strategy will ensure that bigger brands get for greater support. Innovation efforts will also be streamlined. Earlier, if a research manager worked on four different projects, he would now probably work on one big project. The result of the focus are bound to be far more effective, says a Lever executive. An analysis showed that all personal products division had 21 brands in all, but only nine brands made up 85-90% of sales. Clearly, the core brands were being deprived of adequate support to develop newer brands. Cadbury has withdrawn its product Mocka, year and a half ago. BPL Sanyo Tech has pruned the number of models from the earlier 40 to 11 in its old cassette player-based audio systems. This strategy is to focus on CD player segment than the Stereo segment in the audio market. The companys turnover has dropped to Rs. 83.22 crore, or half of what it used to be two year ago. BPLs market share in audio segment also reduce to 20% in terms of value. Aiwa is the single reason why BPL Sanyo Techs has dropped its turnover. Suzuki automobile dropped its two wheeler Suzuki sogun and Suzuki shaolin. Maruti Udyog Ltd. dropped Maruti 1000 due to problem in the engine. Pepsico and Coca-fola dropped it diet Pepsi and diet Coke respectively due to nonacceptance by our customers.

Lesson 5 Organising Product Function and the Role of Product Managers Introduction Even though product managers are within the marketing department, they are having considerable autonomy in their functioning. This lesson looks at the determinants of their work, their position in the organisation and the work related activities of them in detail. Determinants of work Several different factors determine how many sales persons have to work under a product manager. We should keep in mind that this consideration is for a period of time, since there could be temporary overloads. Anything beyond a few weeks will cause significant deterioration in performance. Customer mix First among the considerations is the customer. To know what is the customer mix one has to check the companys relation with their customer. That includes whether the company sells them a wide variety of products and services, or do the customers all buy a relatively small number of the quantities purchased etc. Or are the firms customers govtal agencies? Consumers? Non profit organisatoins? Any mix of types will complicate customer relationship. And there are numerous ways to mix, even within categories. Each type of entity has specific requirements, in terms of products or services and requirements for business dealings. In other words the organisation must be sensitive to the organizational cultures of its customers. In the final analysis that alone is the key. With a range of customers and relationship complexities it is impossible to standardize the manner in which customers are handled. So it will be impossible to have one type of sales procedure or one type of sales personnel. Someone has to be there to track down all these. Naturally this falls under the sales manager. It is impossible for him to keep track of that many levels if so many people too are working under him. Actually the sales function by definition requires more human efforts than neatly any other function in the company. Product mix This depends on the variety of products offered by the company. When the company is selling a very low number of different items the task will be relatively simple for the sales function in general and the product manager in particular. Only the customer mix adds to the complexity. Product life cycle On each level like setting up or declining stage the product function will be different. Naturally the product manager will be working more closely with the sales force during difficult times. Now with a wide variety of products this becomes even more complex. These kinds of complexities are found in both small as well as large firms. That is why and how quality of supervision will have a direct relationship to the quantity and quality of the work accomplished by the sales function, especially over long period of time. Effect of geography It almost goes without saying that the geographical area for which a product manager is responsible will affect how many people can be effectively supervised. The only solution for the product manager to spend even more time with the sales people in the field. If not in field the product managers must spend more time communicating with them both verbally and in writing. Organisation types There are three types of organizational structures. In simple terms organizational structure refers to how organizational lines will be drawn. Line In this type all employees report to a superior and there is no formal communication between levels of the organisation. The sales person covering one area wil not have any direct communication with any other subordinate

or superiors. All the work is done by the sales people. There is no support staff. The advantage of this system is its simplicity. So there is no duplication of work. Everyones responsibility is sales results in the short term. But this type of organisatoin is slower to develop and respond to product and market opportunities. Its very simplicity and lean structure also means that its primary concern is short term results. Here all of them have only direct link with Sales manager and Product managers does not have much role. Combination line-staff Many organizations experience a great deal of success with a combination tailored for their particular needs. A combination structure allows for the staff support specialists to assist the line people, or sales people, at the appropriate level in the company to meet their needs. Flexibility to meet changing needs is built in. Staff and line personnel can establish communication and interact at any level of the two groups as needed. The extent of up-down communications across staff boundaries will strictly a result of the organizational culture. Thus there is a minimum of outside influence determining the flow of communication. Organizing the product department Another series of issues must be explored before decision can be made about the sales department organisation. These questions deal with the deployment of the field sales force. In most cases, those issues can be dealt with separately from those determinants explored previously. An alternative way to define this step is to revisit the objective of the sales function. Lets deal with it in detail. Function One option it to structure the roles the salespeople along functional lines. That is, some sales person will specialize in new account establishments. Their main duty is to sign up new customers. Often this strategy is called blitz because frequently the company will put several new account specialists into an area at one time. If the companys objective is to build long term relationship with customers, this tactic works well. In a function oriented sales force some sales people will specialize in managing established accounts. Their role will be to ensure that the customer is deriving maximum convenience and benefit from the relationship with the company. Many firms allow inside sales persons to do this duty. These sales positions will concentrate their efforts on telemarketing and is also helpful for new trainees. They may also coordinate communications between the administrative staff and the outside sales people. When customers do visit the companys facilities these inside sales people will handle all aspects of the visit. When the firm serves a wide geographic area dividing the sales force between inside and outside is often economical and efficient. Products When the sales volume will support it, having the sales people specialize by products can be efficient. The more complex the more increased specialization makes sense. Thus each sales group will be extremely proficient in its application. And customers will be benefited from this expertise. But when the customer has wide range of activity then there could be duplications that is more than one sales person could visit the very same customer. Usually if it can be justified on an economic basis, the customer will benefit and at little cost to the supplier company. Customers Dividing the sales force along customer lines again requires volumes. In a business environement the customers really are divided by SIC (Standard Industry Classification) codes, lines of business. The customers principal business interest will be the criterion for dividing accounts. Two possible problems may arise.first, the customer may be in more than one business. Then either two or none will visit the customer thinking the other will go. Secondly the sales person could pass up some customers thinking that particular customers may not fall into certain specific categories. Nevertheless concentrating on one particular type of customers allows the sales person to build a high degree of knowledge of the customers challenges and opportunities. Geographic organisation Dividing sales responsibilities among geographic lines is the most efficient in terms of travel time and coverage concentration and make the most sense in most situations ingnoring the considerations of the other methods. It is certainly the simplest to operate and administer. The sense of concern responsibility, and responsiveness is definitely

highest when this strategy is employed. The sales person will not be able to become as familiar with a given customer group. Or a product or technique for opening new accounts or maintaining old customers. Combination It goes without saying that most firms will need to employ some type of combination reflecting the realities of their particular marketplace and their product service mix. A company may choose to specialize or divide the functions differently when analyzing different customer groupings or different geographic areas or any number of other considerations. Functional Product company General Manager

Manager Sales production

Sales manager

Director product

Manager Distribution

Sales people

Sales people

Fig. 5.1 Role of product managers 1. Creating a product plan on an annual basis 2. Developing demand planning and forecasting for the product category 3. Discussing the forecast with the production department and agreeing on schedules 4. Knowledge of the industry where the product manager is wo0rking 5. Creating innovating marketing strategies for the respective products in consultations with the marketing chief 6. Discussing about packaging with production, advertising/ marketing departments 7. Responsible for product line extensions/stretching 8. New product identification and working on the development process 9. Preparing communication and working on the development process 10. Proposing sales promoting plant to the sales/marketing department 11. Establishing sales force training management with sales/marketing department 12. Conducting marketing research with the agency concerned 13. Setting up controls to monitor performance.

Geographical Organisation Structures

Product Manager

ManagerSales

Distribution Manager

Regional sales Manager - West

Regional sales Manager - East

Regional sales Manager - North

Regional sales Manager - South

District managers

District managers

District managers

District managers

Sales Executive

Sales Executive

Sales Executive

Sales Executive

Fig. 5.2 Robert Rudolph summed up the product managers responsibilities as: 1. Product strategy 2. Product planning 3. Product development monitoring 4. Product marketing and 5. Product business activities The various interfaces of the Product manager with are: 1. Top management on guidance and mission / vision achievement 2. Sales department for implementing product strategies 3. Marketing department for marketing plans and strategies 4. Legal department for contracts 5. Finance department for getting the budgets cleared and on return on investment 6. Research and Design for new product development activities 7. Production and Materials departments for manufacturing according to schedule

Lesson 6
Product Life Cycle Introduction The product life cycle reflects sales and profits of a product over a period of time. Generally, most products follow an established path or when their sales are plotted against time, one gets an S-shaped curved as shows in Figures. Another approach to examining product mix is to look at the life cycle phase of each product. Each product goes through a life cycle. It shows introductions, growth, maturity and decline during its period of existence.

Sales Maturity Decline Sales

Growth Introduction

Time Fig. 6.1 However, there are exceptions when the product may not follow this path. As shown in Figures, there are products that either show a sharp growth and then sharp decline or remain in a maturity phase for a long time and in fact may never faced a decline. While fads and fashions can be grouped in the first category, products in a closed and sheltered market or in a monopolistic market represent the second type. One may aloso have commodities like steel, cement and food products where the demand remain inelastic relative to other manufactured products. In India, Premier and Ambassador cars, refrigerators and many other products sales did not experience a decline until the competition set in following liberalization and opening of the economy in 1980s but more specifically after 1991. Another factors that has to be borne in mind is that profits from a product peak before its sales. Profits never or rarely appear in the introduction phase, Growth phase brings profits and by the time product enters later part of growth or early maturity, profits start declining. Figure shows this relationship between sales, profit and time.

Fig. 6.2

Fig. 6.3

Fig 6.4 Why Profits Peak Before Sales A question that intrigues marketers is that sales maximization does not mean profit maximization. One of the reasons for profits maturing even before sales is the competition rather the intensity of inter-firm rivalry in a product market situation. Most competition in all imitation route and tend to draw away customers from the pioneer firm with an

attraction of low price, or better service or better distribution network, or aggressive promotions. To fight back competition and retain market share, the pioneer firm, (i.e. the firm launched the product first time in a market) has to spend more money on media, distribution channels and sales force. The irony is that the firm has to either retain its current price level or reduce it to remain competitive in the market place. In either case, the sales revenue generated is not enough to meet or marketing cost and hence profits start eroding. Another reason is shifting customer preference and loyalties. As competition intensifies, better and more efficient products are made available to the market by rival firms. These firms are use state of the art technology and customers preference change. Consider for example, the watch industry: with the introduction of quartz technology in the watch industry, mechanical watches faced a decline. And once a firm like Titan entered the Indian market, the leader HMT (Hindustan Machine Tools) lost out as it has focused primarily on mechanical watches for a long time, even after Titan had been launched, senior HMT to exclusive believed that an average Indian consumer cannot afford. A quartz watch priced affords of Rs. 350.But with TS watch and later introduction Timex quartz watches by Titan at price level lower than Rs. 350, the market scenario changed dramatically and mechanical watches now became outdated HMT kept loosing the markets share and profits. Thus customer preference change and there is know loyalty in the market which cannot be bought with a better technology marketed at an affordable price.

Fig. 6.5

It is for the above reasons competition and customer preferences that firms have to evolve strategies to reduce their break even time and also the introduction phase. The firm has to start early in production modifications and adapting to new technology if it has to maintain study flow of profits and growth rate. Most progressive and market driven firms follow this rout only and there one sees product life cycle curve as shown in figure. This modification could be in packaging are in the product from like from solid to liquid (example antacid which were originally available in liquid form now available in tablet parag, the leader in the pan masala segment, according to industry sources, grew by more than 25% when the farm strted using sachets of different sizes to pack the product. And the scales and profits further jumped as it introduced a new flavour for tobacco addicts called pan parag zarda. Like wise, Rasna, a leader in soft drink for tobacco addicts called pan parag grow meteorically as it increased the numbers of flavours available to the customers and also extend its usage to antoher situations too. Thus, a market driven firm anticipates competition and evolves strategy to preempt any competitive moves. To have a better under standing of the concept of product life cycle, lets understand the condition prevailing in each of the four phase and the strategies available to a firm. Rapid Skimming This strategy of high promotion effectively works only when the customer awareness for the product is not very high, and among those who are aware, willingness to pay any price to possess or buy it is high. This strategy also works when the market size for the product is large and thread from competition is imminent. Most consumer electronics and non-durables could be classified in this group. Thats the reason why most consumer electronics like T.V., VCR, Music System, Video Games, etc., are initially priced high and then gradually reduced to maintain market share. Since the thread from competition is real, the pioneer firm always try to rap[idly skin the cream off the market as it will help to reduce the firms break even time and hence more profits. The strategy also works in situations where the firms the objective is short term, i.e., sales or profit maximization in the short-term or where the firms basic strategy is to fight a guerilla warfare. While we shall learn more about it in the chapter on marketing strategy, it is sufficient to say that a guerilla always vacates before the going gets tough for him or her. A large number of die manufacturers, specifically H acid used in textiles and leather garments, adopted this strategy when dies where included on the export priority list following chemical firms vacating this sector in the developed countries. Most of these firms went

out the business in five years as their plants got totally corroded and more efficient and low cost firms came in the business. They also exited is more environmental friendly substitutes were developed. Slow skimming This strategy is based on the assumption that the firm has sufficient time to recover its pre-launch expenses. This happens when either the technology being used by the firm is highly sophisticated and competition will have to invest substantial resources to get this technology. Further most competitions may not have the required quantum or resources, competition may be limited to just one or tow large companies. another environmental characteristic supporting this strategy is that the market size for the product is limited and those who are aware are willing to pay any price to buy it. Many of the industrial products, more specifically renewable energy resources or laser technology or petrochemicals may fall in this category. In consumer products, this strategy may work in a closed and protected market as India has been until recently. Rapid penetration strategy This strategy of rapid penetration is based on the same assumptions and environmental conditions as the one mentioned under the rapid skimming strategy. The only difference between the rapid skimming and penetration is the firms long term objectives. If the objectives is market share and profit maximization in the run and the market is characterized by intensive competition or other entry barriers, a firm may choose to enter the market with this strategy. Japanese firms adopted this strategy to launch their products in North America and Europe. Later in the 1980s South Koreans, Taiwanese and Hong Kong firms used the same strategy to uproot Japanese and other local competitor firms from these markets. The same strategy of uproot Japanese and other local competitor firms from these markets. The same strategy is now being used by these firms from Southeast Asia to penetrate the Indian Market. The leading example of Indian firms having adopted this strategy is one of Nirma and T-series audio cassette. Both these firms have successfully used high promotion low price strategy to grow in the price sensitive Indian market. Slow penetration strategy This strategy delivers results when the thread from competition is minimal, market size is large, market is predominantly price sensitive and majority of the market is familiar with the product. The firms objectives is maximize sales or profits in the long run. Thus, some of the considerations at the introduction stage revolve around pricing and promotion levels. As we mentioned earlier, affirm offers only a limited version of the product at this stage. Consider the example of Maruti. Initially the firm, Maruti Udyog., offered only one version of Suzuki 800 Car and was priced not at the common mans level. The firm offered tangible benefits of fuel efficiency and safety over the existing products. The firms initial production levels could not meet their demand generated in the market and we all know how people made money on the Suzuki allotment letters. Growth Phase Once the product crosses the introduction phase, it enters the growth phase. As we shall learn in our next chapter on New products, the introduction phase is indeed the most crucial one. For more than 95% of products fail at this phase only. However, those 5% lucky products who enter the growth phase meet with a more strengthened and increased competition. This competition now offers greater choice to the customer in the form of different product types, packaging and prices. More trade channels are now willing to keep the product and one generally observes softening of prices. Organizationally, the pioneer firm now operates at economical levels. There are lesser production bottlenecks and hence costs are lower now. To remain competitive over a period of time, the pioneer firm initiates the product improvement or modification programme. The sales and profit grow exponentially. But profits taper off at the end of this phase. The marketing task is that of cultivating selective demand. This involves, in some cases, niche marketing and in others, focused marketing strategies. Whatever be the ultimate choice of the strategist, one thing emerges, that growth phase also marks an end to standardization or mass marketing approach. The growth phase involves strategy of product modification, enlarging distribution and service network and maintaining a competitive price level. The

strategy also involves one of extending product to different use situation s and considering newer packaging alternatives to attract more and more new customers. Maturity Phase Most products that survive the heat of competition and customers passion to acquire them now enter the maturity phase. This phase is characterized by slowing of growth rates of sales and profits. In fact, the decline in profits seem to appear now. This phase is also marked by a cut throat competition which often tends to narrow down to price and promotion war. As mentioned earlier, it is an irony that when the firm has established its product and generated customer preference for its brad, competition gets intensified and the firm has not other alternative but to invest resources in service augmentation and also simultaneously undertake the task of cost reduction and hence price reduction. Maturity phase also sees a boom in the market demand as more and more customers are now willing to accept the product. Internally, the firm derives benefits of economics of scale in production and distribution. Product modification programme is at a much higher level and the firm also introduces a modified product during this phase. As was mentioned earlier, profits and margins are low now, in fact on the decline, as the firm continues to invest resources to maintain its competitive position in the market place. The marketing task is one of adopting a segmental approach. In fact, carving a niche even within a specific market segment, service augmentation, image marketing, and creating a new value image are critical tools to retain competitive edge. Strengthening the brand through repositioning or making changes in the channels of distribution (e.g. moving from indirect to direct or shortening the length of the channel) now become imperative for while the firm has to fight competition and take its product nearer to the customer, it has to also make adequate profits to remain in the business. Decline Phase This is the phase when sales decline because customer preferences have changed in favor of more efficient and better products. The umber of competing firms also get reduced and generally the industry now has limited product versions available to the customer. Customers value perception of the product also undergoes a change. However, the firm may get a kink in its profit curve largely coming from people who will be willing to pay a higher price to possess either for its antique value or because they resist any change. The marketing task is one of diverting and gradual withdrawal of the product. To cater to a small niche, a firm may consider generating primary demand for the product rather than the brand demand. Nonetheless, products having entered a decline phase need to be pruned. The Reasons for Changes Occurring in The Product Life Cycle: As may be evident, the most important factors leading to changes in a products life cycle are Changing customers need and Better and more efficient user friendly products.

Changing customer needs The most fundamental of all the environmental factors is the customers needs, that shape the products life cycle over a period of time. These needs change as customers become more aware and have higher disposable incomes loading to a change in their life-style and aspirations. Today, we are noticing this change occurring all over in the country, largely because of the wider reach of television a single source of mass media that the revolutionized markets and products. Satellite communications, dish antenna, cable T.V., Video-on-wheels, and other telecommunication products are changing customers needs and expectations all over India and consequently many of he products that saw their sales stagnating now find spurt, in their sales largely coming form hitherto unexplored markets. While customers in metro cities are looking for more sophisticated products, the urban and other rural customers are seeking basic product versions. Firms that are sensitive to these changing customer needs are able to incorporate them in their (firms) product strategies. The most interesting example is provided by Sonys Chairman Akio Morita in his book Made in Japan 4. Giving the example of walkmans development, Morita says that her wife. He had seen a large number of people in New York hang large portable music systems on their back with music

blaring from them. The same sight was visible all over the world capitals and major towns. So, Sony decided to develop a personal portable music systems-now known to world generically as walkman. Further, needs get developed over a period of time as customer uses the product and finds that there are other situations too in which he or she can use it. Better and more efficient product Today technology offers phenomenal opportunities to firms to develop more user friendly, low prices and attractive looking products. Developments in packaging is one such example that Parle Bottling used to successfully launch their mango drink Frooti, Tetrapack did wonders for Frooti. This made the product convenient, easy to use and carry and also more attractive than just a mango drink in a glass bottle. The product caught customers fancy and was successful. Likewise, using computers and user friendly packages in retail banking made Hongkong Banks Any Time Money (new phrase for Automated Teller Machine concept) successful in all major cities in India. Likewise, we find that success of other products, be they agricultural like nitrogen based fertilizers of more urban products like credit cards, can be explained by technology that has been used to serve customers more efficiently. Plc-a critical assessment PLC is an important strategic tool in marketing. However, in their article Forget the Product Life Cycle, Dhaila and Yuspeh argued that the concept was essentially descriptive and if the management used it as perceptive tool, it will be making a grievous mistake. A firm could commit blunders which may affect its bottom line too. Some of these blunders are: Too much of emphasis on new product development as against continuing the revitalization process of existing brands. As we mentioned earlier, more than 95% of new products fall. Hence, pursuing the path of new product development at the cost of building current brands can be a costly and risky affair. Besides, all new products are going to have shorter lives as competitions catch and limit ate the pioneer firm. Executive brands and products may still have several unexplored uses and user groups. Firms that blindly follow the PLC concept may find themselves in a strategic trap. Arising out of the above the an obsession for PLC, may lead a firm to kill its product or brand in the belief that it has reached the decline phase. Stagnation in sales or negative growth rates in sales may lead management to belief so. What is important is to look at the background or backdrop of the product, i.e. the market and explore new uses and users for the product. But most firms ignore this aspect and hence get trapped in their own self-fulfilling prophecies. But Levitt believes that PLC is a planning tool and not just a descriptive tool. To view the concept of PLC as a fixed pattern for all product types or brands is an error in marketing thinking. It should be seen as a trend of sales over time, that suggests different opportunities at different phases of a products existence. The goal of the marketer should be to alter the shape and duration of the life cycle curve by.

1. Promoting more frequent usage of the product among existing customers. 2. Developing more uses or varied usage of product among current users 3. Creating new users for the product by expanding the market, and 4. Finding new uses for the product. Defending the strategy of new product development or extension strategy, Levitt believes that the planning for extension should begin at the pre launch stage itself. For, such planning can be useful in three ways; It generates a proactive rather than a reactive product policy. It lays out a long-term plan designed to infuse new life into the product at the right time, with the right degree of care and with the right amount of effort. Extending or market stretching can help a firm take a wider view of the nature of product it is dealing with an in turn help fight myopia.

Thus, PLC is indeed an important planning tool and firms need to use it. As we mentioned, PLC should be seen as providing opportunities to a firm. To do so, it is important for the marketer to examine his or her brands fit with the industrys product life cycle. For, it is not necessary that the brand be in the same phase of its life cycle as the industrys product. Exhibit 1 shows hot to use PLC as an indication of opportunities. Exhibit 1. PLC : Indication of Opportunities Brands Position in Life Cycle Growth Growth (a) Market Development (b) Differentiation Maturity (a) Category Repositioning (Identify new uses, reasons to buy and new customers) (a) Product Line Extension and Product Modification (b) Price Warfare Decline (a) Repositioning revision of brand and promotion strategy Promotion (a) Quit Decline Build Brand Image

Maturity

(a) Brand Positioning (b) Flank Clones

(a) Category Repositioning

(a) Reposition/ Revision

Thus the final decision to dump the brand should be taken only when the brand and the products are in the decline phase. Lets consider a few examples to illustrate the above matrix. Onida T.V. ONIDA was launched in later part of 1984 when the colour T.V. market was saturated with more than a hundred brands of whom at least a dozen were national brands. The market opportunity that was created in 1982 at the time of Asian Games and subsequently in 1983 with commercialization and the dawn of soap operas on T.V. and almost dried up in late 1984. So, when Onida entered the market it was not the first, nether was it that the market was eagerly looking forward to it. In fact, the trade refused to even provide shelf space to Onida and offered to deal in the brand only on consignment basis. So, faced with an indifferent dealer network and customer and large nmber of established brands like Crown, Weston, Solidiare, Nelco, Bush, etc. the management decided to position Onida in a different way. All along till then all brands highlighted their features and claimed that theirs was the largest selling brand. None of the brands was advertised on television. Onida was the first to be advertised on television and through their advertising messages like it wasnt that the boss was late. It was other who arrived in a hurry and owners pride, neighbours envy or Dont Envy buy it, the company did a category repositioning by giving a new reason for people to buy the reason being status. It was a bold strategy an positioning strategies, all other brands followed suit. But here was a brand that entered a matured market, provided new reasons to customers to buy and used life style marketing to emerge a leader in the market. Wimco safety matches Another example of using PLC as an indicator of opportunities is that of WIMCOs safety matches. Both, the brands of WIMCO and the safety matches, are in the maturity phase Much of the growth in safety matches has got eroded because of usage of gas lighter by urban housewives and a general decline in cigarette smoking in urban areas. In an urban area, safety matches are used in emergency situations (like an electricity failure) to provide the light and also to light a candle at the deity. In rural areas and states perennially short of power, safety matches are still and essential grocery item of a household. WIMCO faces competition in these markets form a large number of small safety matches manufacturers who market their product at a much lower price in Safety matches by coming with a bigger pack containing tow hundred sticks and launched a product improvement programme which included

carbonization of match sticks making them absolutely safe, using cardboard which have the product a better appeal and also a new wrapper for wholesale packing. Pan parag Pan Parag a pan masala has been able to grow by consistently adding new ingredient to it like zarda or tobacco, thereby attracting new customer groups and also by ching its packaging to make it more economical and easy to use. Introduction of sachet packing helped Pan Parag reduce its price and also attract more buyers who were hesitant to buy a tin can containing 100gms of masala. Product Evolutionary Cycle Divergence Development Differentiation Demise Stabilization Locating products in their life cycle 1. Analyse past performance Sales growth progression since introduction. Any design problems and technical building that need to be sorted out. Sales and profit history of skilled products. No of years the product has been on the market Casualty history of similar products in the pats.

2. Review the competition Profit history Ease with which investment needed to enter the business Number of competitors and their strength Number of competitors and their strength Number of competitors that have left the industry Life cycle of the industry Critical success factors in the business

3. Understand Current Position 4. Match this information with the Characteristics of a particular stage of PLC

Product Life Cycle and Portfolio Position Product classification Question mark Star Cash cow Dog Life cycle stage Growth Growth Maturity Maturity Product stage Introduction Growth Maturity Decline Strategy guideline Investment Maintanance Harvesting Withdrawal

Product Life Cycle the Case of Nylon Nylon was a product that was primarily used for the military purposes to make parachutes, and ropes. Then it was extended to circular knit market that is womens history. At that stage, the necessity for the growth of nylon was found. Then there are steps taken to vitalize nylon. Steps Taken To Vitalise Nylon Frequent usage Then steps were taken to vitalize nylon. The usage of nylon was increased and the convenience that nylon had created a market for itself. Frequent usage of nylon was promoted the bare laggardness of the users were used. The stockings were promoted using that. Varied usage Nylon was promoted as a fashion product. This product is perceived as a hosiery functional product. The clothing function of it was to promote as a large extent. There the varied usage of the nylon was stressed to the users and was promoted in the market. New users The users of the nylon products were first the military, the it was targeted at history function and fashion users, and younger teenagers and substitutes were using those products. New uses New uses were created for the nylon, it was stretched and socks, tires and bearings there uses of the nylon which was created to promote it wrap knits were invented in 1945 and nylon tire cord was invented in 1948. Nylon textured yarns were invented in 1955 and carpet yarns were invented in 1958. As a result of this in 1962 the sales went up of to 500 million pounds which was previously 50 million pounds.

Fig. 6.6

Additional Information Product life cycle operates a three levels 1. Product level 2. Product sub-category level 3. Brand level It can be explained with the help of an example : Computers 1. Product category: It involves all configuration of computers super computers, mainframes, micro/mini and personal computers. 2. Product sub category: The Sub-category is personal computers within computers. Within the sub category of PC, it involves brands like HCL, Wipro and Siva. 3. Brand level : At the brand level; HCL, Wipro and Siva brands are having their own paths. So, when a company wants to project its life cycle (i.e.) Wipro wants to project the life cycle of its PC, it cannot make a realistic analysis unless it studies are life cycle of a product sub-category personal computers as a whole. Wipros life cycle at the brand level cannot evolve totally independent of other PCs in the market. So, when the life cycle of brand is assessed, it is essential to study the life cycle of the product category and the product sub category as well.

However, an idea of the likely life cycle of the main product category of computers is helpful in understanding the course of the sub category personal computers. In concluding that, a meaningful picture of the path the brand is taking, it has to be studied in the context of the life cycle of the product sub category and product category.

Lesson 7 Product Positioning Introduction This topic speaks about the method of positioning the products in the market. Positioning is the act of fixing the exact locus of the product offer in the chosen market; it decides how and around what distinctive features, the product offer has to be couched and communicated to the consumers. While positioning its product, a firm analyses the competitors positions, searches its own competitive advantages and then identify the best possible position for the product. The significance of product positioning can be easily understood from the David Ogilvys words; the results of your campaign depends less on how we write your advertising than on how your product is positioned. Positioning is the art of designing the companys offering and image to occupy a distinctive place in the target markets mind. The end result of positioning is the successful creation of a market a focused value proposition, cogent reasons why the target market should buy the product. Two advertising executives, Al Ries and Jack Trout, popularized the word positioning. They see positioning as a creative exercise done with an existing product. Positioning starts with a product. A piece of merchandise, service, a company, an institution, or even a person... But positioning is not what you do to a product. Positioning is what you do to the mind of the prospect. That is, you position the product in the mind of the prospect. Ries and Trout argue that well known products generally hold a distinctive position in consumers minds. For example: Coca-cola as the worlds largest soft drink company. Brands like these own these positions and it would be hard for a competitor to claim them. A competitor has three strategic alternatives. They are Strengthen its own current positions in the consumers mind. To grab an unoccupied position To deposition or reposition the competiton

All product can be differentiated to some extend. But not all brand differences worthwhile or meaningful. A difference is worth establishing to the extend that it satisfies any of the following criteria. Important the difference delivers a highly valued benefit to a sufficient number of buyers. Distinctive the difference is delivered in a distinctive way. Superior the difference is superior to other ways of obtaining the benefit. Preemptive- the difference cannot be easily copied by competitors Affordable the buyer can afford to pay for the difference Profitable the company will find it profitable to introduce he difference. How Many Differences to Promote? Each company must decide how many differences (example., benefits, features) to promote to its target customers. Many marketers advocate promoting only one central benefit (Unique selling proposition). Ries and Trout Favour one consist positioning message. Each brand should select an attribute and tout itself as number one on that message. Number one positioning include best quality, best service, lowest price, best value, safest, more customized, most convenient and most advance technology. If a company hammers away at one of these positioning and delivers on it, it will probably be best known and recalled for this strength. Not every one agrees that benefit positioning is not always best. Double positioning may be necessary if two or more firms claim to be best on the same attribute. For example, Volvo positions its automobiles as safest and most durables.

There are even cases of successful triple positioning. For example, Smithkline Beecham positioned its Aqua fresh toothpaste as offering three benefits; anti-cavity protection, better breath and whiter teeth. As companies increase, the number of claims for their brand, they risk disbelief and a loss of clear positioning. In general, a company must avoid four major positioning errors. 1. Underpositioning: Some companies discover that buyers have only a vague idea of the brand. The brand is seen as just another entry in crowed market place. 2. Overpositioning: Buyers may have too narrow an image of the brand. Thus a consumer might think that diamond rings at Tiffany start at $5000 when infact Tiffany now offers affordable diamond rings starting at $1000. 3. Confusedpositioning: Buyers might have a confused image of the brand resulting from the companys making too many claims or changing the brands positioning too frequently. 4. Doubtfulpositioning: Buyers may find it hard to believe the brand claims in view of the products features, price, or manufacturer. Different Types of Positioning Strategies Attribute positioning A company position itself on an attribute, such as size or number of years in existence. Raymonds and other companies, with long period of service, appealing to the customer that they had been serving the customer for quite a long time. Benefit positioning The product is positioned as the leader in a certain benefit. Various automobile products like Hero Honda position themselves as better in mileage. Use or application positioning Positioning the product as best for some use or application. D cold was positioned as a vapourub or adults. User positioning Positioning the product as best for some user group. Business Today position itself as a business magazine used by the top managers. Competitor positioning The product claims to be better in some way than a named competitor. For example, Pepsodent position itself as being able to reduce the number of germs in the teeth of the users when compared to the other brands of toothpaste. Product category positioning The product is positioned, as the leader in a certain product category. Aquafresh position its dental paste not as toothpaste but rather a mouth paste. Quality or price positioning The product is positioned as offering the best value. Bajaj scooters position itself as a product that offers value to the customers money. Which Differences to Promote? Suppose a company has identified four alternative positioning platforms technology, cost quality and service as shown in following table. It has one major competitor. Both companies stand at 8 as technology (1 = low score, 10high score), which means they both have good technology. The competitor has a better standing on cost (8 instead of 6). The company offers higher quality than its competitor (8 compared to 6). Finally both companies provide below average service.

It would seem that the company should go after cost or same to improve its market appeal. However, other considerations arise. The first is how target consumers feel about improvements in each of these attributes. Column 4 indicates that improvements in cost and service would be of high performance to customers. But can the company afford to make the improvements in cost and service, and how fast can it provide them? Column 5 shows that improving service would have high affordability and speed. But would the competitor be able to match the improved service? Column 6 shows that the competitors ability to improve service is low. Based on this information, column 7 shows that the appropriate actions to take with respect to each attribute. The one that makes the most sense is for the company to improve its service and promote this improvement. (1) Competitive advantage (2) Comp-any standing (3) Competitor standing (4) Importance of Improving standing HM-L L H L H (5) Affordability and speed H-M-L (6) Competitors ability to improve standing HM-L M M H H (7) Recommended action

Technology Cost Quality Service

8 6 8 4

8 8 6 3

L M L H

Hold Monitor Monitor Invest

H-high M-medium L-low

Communicating the Companys Positioning Once the company has developed a clear positioning strategy, it must communicate that positioning effectively. Suppose a company chooses the best in quality strategy. Quality is communicated by choosing those physical signs and uses that people normally use to judge quality. Quality is also communicated through other marketing elements. A high price usually signals a premium-quality product to buyers. The products quality image is also afforded by packaging, distribution, advertising and promotion. A manufacturers reputation also contributes to the perception of quality. Certain companies are stickles for quality, consumers expect Nestle and IBM product to be well made. Advantages It helps to focus the product on a specific target customer. It offers the product a new appeal in the market A distinctive place can be occupied in the target markets mind. Successful creating of the market.

Disadvantages It is not possible to offer a product wholly for a specific type of customers. The wrong positioning has affected a number of products.

Examples: The positioning of great shake When Great shake the soya milk was launched, it was positioned as a health drink, and positioned against milk. The manufacturers knew that in India milk is given a high score as a complete nutrition food. So anything that establishes a claim of equality to or superiority over milk, gains the attractions and patronage of a big health conscious market. The launching campaign of soya milk claimed: Although most of us grow up on daily milk, recent medical research has shown that soya milk could be a healthier alternative. To start with, dairy milk contains cholesterol, which we all know, has been linked to hypertension and hardening of the

arteries. On the other hand, soya milk has absolutely no cholesterol and even the low fat content in soya mils is almost entirely made up of polyunsaturated. The beneficial effects of polyunsaturated fatty acids in protecting against heart disease are medically recognized. Thus soya milk was positioned against a universal product, milk, appealing to a health conscious market.

Positioning of complain The same was the case with the positioning of Complan. It was also positioned against milk and as a health builder. Complain claimed superiority over milk. The promotion listed out the additional nutritive agents it possessed over milk, and positioned it as a product superior to milk in health building.

Amul milk powder Amul milk powder on the other hand, which was also positioned vis--vis milk, we positioned as a convenient and ready substitute to milk and not as one superior to milk. Amul milk powder, the Milk man for thousands of house holds, was not positioned as a health builder either, where as Complan was positioned as a health builder.

Lesson 8 Product Planning Introduction Product planning may be defined as the act of making out and supervising the search, screening, development and commercialization of new products, the modification of existing lines; and he discountinuance of marginal or unprofitable items. The product planning involves three important considerations namely, 1. The development and introduction of new products. 2. The modification of existing lines as may be required in terms of changing customer needs and preference. 3. The discontinuance of elimination of marginal product or unprofitable products. The objective is to study the process of product planning, the steps involved in the product planning and the strategies followed. Product planning basically development as a marketing plan for a particular product. The marketing plan is one of the most important outputs of the marketing process. Marketing planning procedure and content vary considerably among companies. the plan is variously called as business plan, marketing plan and sometimes called as bottle plan. Most marketing plan covers one year, the plans vary in length from under 5 pages to over 50 pages. Some companies take their plans very seriously whereas other see them as only a rough guide to action. The most frequently cited shortcomings of current marketing plans, according to marketing executives are lack of realism, insufficient competitive analysis and a short-run focus. Process Involved In Product Planning Each product level within a business unit must develop a marketing plan for achieving its goals. The marketing plan is one of the most important outputs of the marketing process, and it should contain the following elements. 1. Executive summary and table of contents The marketing plan should open with a brief summary of the plans main goal and recommendations. The executive summary permits senior management to grasp the plans major thrust. A table of contents should follow the executive summary. 2. Current marketing situation This section presents relevant background data on sales, costs, profits, the market competitors, distribution and the macro environment. The data are drawn from a product fact book maintained by the product managers. 3. Opportunity and issues analysis After summarizing the current marketing situation the product manager proceeds to indentify the major opportunities / threats strengths / weakness and issues facing the product line. 4. Objectives Once the product managers has summarized the issues, he or she must decide on the plans financial and marketing objectives. 5. Marketing strategy The product managers is responsible for the broad marketing strategy or game plan to accomplish the plans objectives. In developing the strategy, the coordination of product manager, production manager and buyers are needed. The product manager also needs to talk to the sales manager to obtain sufficient sales force support and to the financial officer to obtain sufficient funds for advertising and promotion.

6. Action programs The marketing plans should specify the broad marketing programs for s achieving the business objectives. Each marketing strategy should be focused in such a way that the action to be done, when and how it is to be done should be planned. 7. Projected profit and loss statement Action plans allow the product manager to build a supporting budget. On the revenue side, this budget shows the forecasted sales volumes in units and the average price. On the expense side, it shows the cost of production, physical distribution, and marketing broken into finer categories. The difference between revenue and sales is projected profit. Once approved, the budget is the basis for developing plans and schedules for material procurement, production schedule, employee recruitment, and marketing operations. 8. Control The last section of the market plan outlines the control for monito0ring the plan. Typically the goals and budget are spelled out for each month or quarter. Senior management can review the results each period. Some control sections include Contingency plans. A Contingency plan outlines the steps management would take in response to specific adverse developments, such as price war or strikes. The matrices used for planning Strategy is central theme, which established in effective and efficient match between the firms competencies and opportunities and risk create by environmental changes. It is a link between the multiple goals and objectives pursued by the firm to satisfy its various constituents and the plans and policies used by it to quite its daily operations. Aim Resource development as an important component of strategy and emphasizes that competitive advantages can stem not only from product or market positioning but also from unique resources developments. Thus, the ultimate success of the firm may not simply depends on scope but it can also be greatly influences by competitive advantages and resource development. The four components of strategy can be seen as influences on the firms effectiveness and efficiency. The firms effectiveness is determined by the combined influence of scope, distinctive competence and competitive advantages. Objective of resource development Implementing corporate level strategy Resource development very helpful implements corporate level strategy. Corporate level strategy is to determine what business to go into and relative allocation of resource and management of synergies among them. Direct interaction with scope and resources deployment They should there fore be considered at the corporate level and should not be treated as functional area policy decisions to be decided at lower levels. Business level strategy focuses on how to compete in a particular product / market segment or industry. Competitive advent ages and distinctive competencies thus become dominant strategic concerns at this level. At functional level, the primary focus of strategy is efficiency. BCG :- Boston Consulting Group The business policy portfolio models are most popular useful to understand the firms strategic concerns and choices. They defined the firms scope or domain by highlighting the inter relatedness of diverse factors such as 1. Market growth 2. Market share 3. Cash and Cash flow pattern 4. Capital intensity 5. Product maturity etc.

Relative market share Market growth High Low High Star Cash flow Low Question mark Dog

Star Star are high growth High market share business which may or may not be self sufficient in term of cash flow. This cell corresponds closely to the growth phase or product life cycle. Cashcows As the term indicates, cashcows are business which generate large amounts of cash but their rate of growth is slow In terms of PLC, these are generally mature business which are reaping the benefits of experience curve. The cash generation exceeds the reinvestment that could profitably be made into cash cows Question marks Business with high industry growth but low market share for companies are question marks or problem children. They required large amount of cash to maintain or gain market share. Question mark are usually new products or services which have a good commercial potential. Dogs Those businesses, which are related to slow growth industries and where a company has a low relative market share, are termed as dogs. They neither generate nor require large amounts of cash. In terms of PLC, the dogs are usually products in the late maturity or declining stage. The firm should hold its dominant market position by reducing prices and thus keeping away the high cost competitors. Cash flows are likely to be negative during the growth phase in a dominant market since the firm will have to keep in investing to maintina its competitive edge. Dominant position generates positive cash flows, during the mentioned stage of life cycle. The BCG matrix makes it very clear that a firm for its ultimate success needs a balanced portfolio of products or businesses. The individual businesses are analyzed to form a corporate portfolio which should act as a guide to commit the firms resources. Portfolio should be balanced in terms of profit, cash flows, and overall corporate risk. GE Nine Cell Matrix Another corporate portfolio analysis techniques are based on the pioneering effort of general electric (GE) company of the united state supported by the consulting firm of Mckinsey & Company. The vertical axis represents industry attractiveness, which is a weighted composite rating based on eight different factors. These factors are:1. Market size and growth rate 2. Industry profit margins 3. Competitive intensity 4. Seasonably 5. Cyclicality 6. Economics of Scale 7. Technology and 8. Social, environmental, legal and human impacts.

The horizontal axis represents business strength competitive position, which is again a weighted composite rating based on seven factors These factors are: 1. Relative market share 2. Profit margins 3. Ability to compete on price and quality 4. Knowledge of customer & market 5. Competitive strength and weakness 6. Technological capacity and 7. Caliber of management The two composite values for industry attractiveness and business strength / competitive position are plotted for each business in a companys portfolio. The PIE charts (Circles) denote the proportional size of the industry and the dark segments represent the companys market share.The nine cells of the GE matrix are grouped on the basis of low to high industry attractiveness and were to thrown business strength three zones of three calls each are made denoting different conditions represented by green yellow and red colors for this reason, the matrix is also known as the stoplight strategy matrix. Based on the three zone, the signal is go ahead to grow and build indicating expansion strategies business in the green zone attract major investment for the yellow zone, the signal Wait and See indicate hold and maintain type of strategies aimed at stability and consolidation for the red zone the signal is top indicate achievement strategies of divestment and liquidation or rebuilding approach for adopting turnover strategies. Advantages 1. It compared to the BCG matrix it offers intermediate classification of medium and average rating. 2. It incorporates a large variety of strategic variables like market there & Industry size. Draw back It only provide broad strategic prescriptions rather than the specific or business strategy. DP Matrix (Directional Policy Matrix) The directional policy matrix (DPM) developed by shell chemicals, UK, uses the two parameters of Business sector prospects and companys competitive abilities and a member of factors such as:1. Market growth 2. Market quality 3. Market supply etc. Advantages The advantages of the DPM is that one or its extension, size matrix provides an alternative way to analyze environmental size. In a risk matrix, environmental size is taken as the third dimension and is dividend into four categories from low risk to very high risk. Each risk position is determined on the basis of environmental threats and the probability of their occurrence. Technology S Curve Technology performance improvements tend to progress over time in the form of an S curve. When first invented, technology performance improves slowly and incrementally. Then, as experience with a new technology accrues, the rate of performance increase grows and technology performance increases by leaps and bounds. Finally, some of the performance limits of a new technology start to be reached and performance growth slows. At some point, the limits of the technology may be reached and further improvements are not made. Frequently, the technology then becomes vulnerable to a substitute technology that is capable of making additional performance improvements. The substitute technology is usually on the lower, slower portion of its own S curve and quickly overtakes the original technology when performance accelerates during the middle (vertical portion of the S.

Lesson 9 Product Policy Introduction Product policy is developed by an organisation keeping in mind the various capabilities of the firm, the practices followed by them and also the unique strategies followed for some of the flagship products of the company. They can even decide based on the new product development activities of the company. Practices Followed Methods, tools or techniques that are associated with improved performance. In new product development, no one tool or technique assures success; however a number of them are associated with higher probabilities of achieving success. Best practices likely are at least somewhat context specific. Sometimes called effective practice. Benchmarking is a process of collecting process performance data, generally in a confidential, blinded fashion, from a number of organizations to allow them to assess their performance individually and as a whole. A process of studying successful organizations and selecting the best of their actions or processes for emulation is known as Best Practice Study. In new product development it means finding the best process practices, adapting them and adopting them for internal use. Competence of Organizations A forward-looking activity that monitors the skill sets and effective resource capacity of the organization. For product development, the objective is to manage the flow of projects through development such as none of the functions (skill sets) creates a bottleneck to timely completion is done based on capacity planning. Necessary in optimizing the project portfolio. Core Competence is that capability at which a company does better than other firms, which provides them with a distinctive competitive advantage and contributes to acquiring and retaining customers. Something that a firm does better than other firms. The purest definition adds and is also the lowest cost provider. Corporate Culture is The feel o fan organization. Culture arises from the belief system through which an organization operates. Corporate culture are variously described as being authoritative, bureaucratic, and entrepreneurial. The firms culture frequently impacts the organizational appropriateness for getting things done. Sometimes the organisation resorts to Outsourcing which is the process of procuring a good or service from someone else, rather than the firm producing it themselves. Product Policy Development The most important activity of the Product manager is out of the vast number of products for which there is potential demand, the company is producing the particular types or varieties of products that will make the most profitable use of its resources. This is a very important fundamental aspect in the overall management of any business. Product policy in hence first concerned first with the type of product for example a two wheeler or a washing machine and then, within that type, the range and particular versions that should be produced. Having determined the most suitable types and varieties of products it is, of course, equally important that they should be designed and presented in the most suitable way to win favorable buying decisions. The objective of the product policy is to ensure that, in the light of the ever-changing conditions in the market, the companys resources continue to be used in the most profitable way. The achievement of this objective requires not only a knowledge of what is happening outside the company in the market, but also a complete understanding of the precise nature and extent of the companys internal resources. A company was producing a wide variety of mens and womens footwear. The range extended from womens fashion shoes at one extreme to heavy industrial and agricultural boots at the other end. Both the market share and profitability varied considerably for different varieties of footwear. The company was one of the larger producers in its home market and has modest export sales. The overall return on capital was low and a reorganization was carried in order to improve the companys financial position.

The first step in examining a market is to divide it into its various sectors. In this case, the first and most important division was between male and female purchasers. Each buys entirely different varieties from the other and there is no overlapping. Each of these divisions was then further sub-divided into types of purchaser and types of purchasers. The particular factors that were influencing the purchasers buying decisions were then determined and defined. It was found that many of these were subconscious factors of which the purchasers themselves were quite unaware and that there were considerable differences between one sector and another. The companys resources were then examined in relation to the many different needs of the market. It was found that the companys principal weaknesses were in the field of womens fashion shoes. In these shoes, frequent changes in design and style were necessary and sales depend largely upon the extent to which the designers have been able to predict the trend in fashions and colors for the ensuring season. Production skills were also weak on some of the finer work required for this kind of footwear. However, one of the companys most important strengths in relations to competitors was the production efficiency. The examination of the market showed that, at that time, there was a rapidly expanding demand for womens casual footwear both at home and overseas. Based on this the company took a decision to abandon many of the fashion shoes and concentrate on the production of this type of footwear. Two new ranges were developed with a variety of styles and designs respectively. A new brand name was accorded. Sales then went high in the overseas market. A new range of mens footwear designed based on the market feedback, which eventually became a hit. The company is today producing less than one-quarter of the number of varieties it had previously been producing. All the less profitable varieties have been eliminated and the company is making a more than adequate return on its capital investment. In many respects the company is operating efficiently, all this is lacking is a co-ordinate product policy and once cleared showed the most profitable way of functioning.

Lesson 10 New Product Development An Overview Technology eventually renders all developments (no matter how innovative they may be) obsolete. Accordingly, the development of new products is essential to any organisations long-term profitability. Whilst investment is always needed to develop new products the withholding of this investment, resulting in the absence of new products/models can be disastrous. NEW PRODUCTS DRIVERS

DEFENSIVE FINANCIAL STRATEGIC PERFORMANCE GAP EXTERNAL TREAT

OFFENSIVE ACCELERATED GROWTH STRENGTHENED POSITION

REACTIVE STRATEGIES Fig. 10.1

PROACTIVE STRATEGIES

More specifically, new product initiatives are most often driven by financial targets (to meet growth targets or steam deteriorating results), competitive threats (e.g. a lower cost or more benefit-laden product), emerging technologies (that may pose threats or opportunities), customer requests, or enacted legal requirements (e.g. mandated safety requirements). New product Development is a marketing procedure in which new ideas are developed into viable new products or extensions to existing products or product ranges. New ideas, which are generated either internally (e.g. by scientific research) or by feedback from consumers, are first screened for primal facie viability; the few that remain are further reduced by concept tests and detailed analysis of their potential profitability. Any ideas that survive these obstacles are subjected to extensive product development. Prototypes are made and tested within the company and among consumers, and improvements made. This cycle is repeated until satisfactory marketing research results are obtained, when the new product will be launched (possibly at first in a restricted area). Type of new products Truly Unique Products requires changes in lifestyle, satisfies a need that hasnt been satisfied before. Replacements products that are significantly different from an existing product. Imitative products that are new to a particular company, but may not be new to the consumer. New and improved versions would also qualify.

There are three overarching product management priorities: 1. Developing a steady stream of value creating products for high potential markets 2. Aggressively managing products through their life cycles to maximize long run 3. Assembling a strategically strong and financially viable portfolio of complementary products. The first management priority is developing a steady stream of value creating products for high potential markets. Most companies invest substantial time and effort in new product development. In general, their motivations may be strategic (enhance competitive position) or financial (maximize profitability), and may be reactively defensive (protect current positions) or proactively offensive (establish better positions). In fact, though, effective new product development is a blend of creatively (creating a new world) and analysis (fitting an existing world) that maximizes potential while containing risk.

NPD Process

Idea

Screen

Design

Test

Lunch

Concept

Projects

Prototypes

Revisions

Products

Blend creativity & systematic rigor to increase odds of success

New Product Development in Indian Scenario For corporate labs in search of new products which will revolutionise the market place, the truth does not lie in between. It lies at both extremes. New product development is both perspiration and inspiration. Both work and play. In April 1999, Mahindra & Mahindra unveiled the Bijlee, the first ever commercially viable electrically operated 3 wheeler, a classic skunk work project, worked on by a 14 member team, without a deadline, budget or even assurance of success. The project took exactly 6 months. Titan industries which develops between 70 and 100 new watches every year every new model flows from 3 central strategic considerations. Boosting brand value Lifting market share Adding to profits

Whether the starting point is customer need mapping or a spark of genius, the three fundamental requirements, Top quality Best speed Lowest cost must be met Cost in particular has become a single most important consideration for new product development today. Steepling competition in every business is amking it imperative for companies to offer the highest value at the lowest price, since it is at the development stage that 80% of the cost of manufacturing a product is decided economizing must begin in the labs. That is why for instance, TVS Suzuki and Bajaj Auto use the technique of target costing determining the price of the product and working backwards to fix the maximum acceptable cost to develop new products. Designing according to cost yokes product development firmly to strategy. In January 1997, the Chennai based TI cycles needed a new product to meet a dire need. Reviving the geared cycle segment exactly one year later, it had put the Hercules top gear in shops, a product that has fuelled 20 fold growth in the segment. The answer lay in understanding the real impediment to the acceptance of the product so that it didnt waste its resources on abortive designs. When this was identified as the lack of reliability of gears, TI cycle decided to use the best and safest gears and design its product around its component. Managing cost was a critical issue, because the gears were being imported. This was achieved by maintaining best control on material cost and cheaper outsourcing. Both the decision taken as a part of product development and not as a production process. Strategic Rules for New Product Development 1. Manage new product development as any other process with cost, quality, time, targets. 2. Determine the manpower and money upfront to ensure that resources are available 3. Integrate the process with all the other functions instead of running it as a black box.

4. Use gateways along the way to ensure that all critical performance parameters are met. Indian examples When Dr. Reddys laboratories started its drug discovery in 1993, its priorities were clear. Finding a breakthrough product with least number of players. The product should offer an opportunity for achieving critical mass. The companys resource should not be spread too thin if its effort had to succeed. There was no point in pursuing half a dozen ideas. The resource had to be focused where we had a real chance of achieving a stream of breakthroughs. Inspiration comes with market feedback in Marico industries new product development. For example, Parachutes brand expansion, for instance began life as a realization that the consumer group believed whole-heartedly the brands coconut properties. The product developed from this discovery was then subjected to a quality function deployment exercise to check whether its features corresponded to customer needs mapped earlier. The brand may be global, but the product is localized, extensively. Thus it studied the washing habits of 3000 customers in the target segment for its middle market laundry brand. Ariel Gain Super Soaker, to identify the one critical need removing grease stains that the brand addresses. At HLL it was the sheer systematic approach to idea management that ensured the development of Close up toothpaste sachet with a nozzle. Following the system, the idea for the product, originating with a marketing team, was forwarded to the relevant one of the 3 innovation centres in HLL a cross functional team examined it, approved it and allotted the required resources. Dabur developed new food products because it wants to. The genesis of its Lemoneez lemon juice lay in its strategic plan to get into the kitchen with branded substitutes bought as commodities. The next step was use market research to identify the gaps felt most keenly by its target customer, as she worked in the kitchen. From this process the idea for Lemoneez, the lemon substitute converted into a product by its labs. Operations rules of NPD 1. Use cross functional development teams for simultaneous instead of serial processing. 2. Benchmark against the best on different product and performance parameters 3. Use infotech to facilitate real time collaboration of geographically dispersed team members. 4. Check the manufacturability of the product continuously during the development process. Creativity rules of NPD 1. Provide skunk work projects, the freedom to experiment and to make mistakes. 2. Set up system to ensure that the ideas keep flowing and are converted to product concepts. 3. Encourage innovation initially, narrowing down the focus as resource hungry stage occurs. 4. Build hierarchies of decision making not reporting lines in development. A potent technique for ensuring product quality at the development stage is benchmarking. For instance M&M is benchmarking Scorpio against Sumo for passenger comfort against its own vehicle for fuel economy, against the Maruti Gypsy for comfort and ease of driving, against Tata Sierra for acceleration. Philips applies the fault mode effect analysis technique to check the various things that could go wrong with a specified product and chalk out an option solution. Illustrations for New Product Development in Indian Scenario SOFTELS MinerWa (new to the world product) Miner Wa, a miniature mineral water machine launched by Softel was commercially launched almost three years after the concept stage. The launch of the product was even selective at Chennai and Ahmedabad as the total dissolved solids in case of Chennai would be about 2500 3000 pp, while that in Ahmedabad would be 1100 2000.

The handy mineral water manufacturer had a capacity of 6 8 litresch per hour. As for the water treatment procedure Miner Wa treated only 25 litre out of every 100 litres of water. The rest being flushed out as various salts and other particles. The selection of franchisees was based on the requirement that they should be experts in the field of water treatment and have a scientific temperament. L.G. electronics new products LG Electronics was set to enter into the Indian kitchen with products like dishwashers, cooking ranges, hobs and rice cookers. The other products included high end MP3 players, monitors and LCD projectors. The existing product lines too were spruced up. These included the introduction of refurbished CTV range, LG flatiron being repositioned to give the company absolute leadership. In the refrigerator segment LG planned to introduce eight new models in the frost free segment. Three front loading machines were being developed to challenge IFBs leadership. Five variants of vacuum cleaners were being rolled out. The mid market CTV brand Sampoorna, directed at rural and semi urban consumers v, was repositioned to appeal to middle and lower middle income urban consumers too. The Sampoorna brand alone was expected to have three additional extensions. Nirmas new soap variants Nrima launched a new carbolic soap, Nirma winner priced at par with HLLs Lifebuoy, at Rs. 8.50 for a 150 gm bar in 1999. The ambition was to attack HLLs brand in the value segment of the Rs. 4265 crore soaps market. HLL took the firstshot with Jai lime. Nirma retaliated with Nima fresh, it own lime variant. This forced Jai to come back with a new fragrance. Nirma brought in a new rose variant to snatch volumes from HLLs other value brand, Breeze. New upgraded version from Intel, Pentium 3 at reduced cost Pentium 3 was launched at the end of February, 1999 in two versions 450 MHz and 500 MHz clock speeds. It was supposed to be the new paradigm in computing based on P6 micro architecture with many additional benefits. The chips internet steaming SIMD extensions. There were 70 new instructions which could enhance the performance of advanced imaging, audio, video and speech recognition applications. For web surfers P-3 significantly increased search and navigation capabilities and animation and 3D are entirely a new experience. On April 1999, less than two months after their launch Intel cot the price of the 450 MHz P-3 processor by 20% and the 500 MHz version by 10%. Branded P-3 versions ranged from around Rs. 90,000 upwards to over Rs. 1 lakh, while the unbranded ones at about Rs. 65,000. The difference in price between a P-2 and P-3 processor is just about 6-7% whereas the performance boost was about 20%. The technology also allowed for easy upgradability, just replace the earlier chipset with a P-3. Fords Ikon India was considered to be the lead market for Ikon and has been designed keeping in mind the Indian motoring conditions, though Ford itself was looking at exporting it to more mature markets as well. Fords extensive study showed that customers want value for money. Research indicated that a three box design found favour than a hatchback. Apart from more space for luggage, consumers felt the boot also provided more safety than a hatch. Indian customers also told Ford that rear seats used quite a bit 70% of the time, a learning also from the Escort experience. In other markets the rear sent is used less than 10% of the time, whereas in India it is used extensively to cram in people. So, the Ikon was to have a roomier rear seat with full roll down windows, reading lights and comfortable centre seating as well. And the rear door openings were claimed to be the largest in the industry while the height of the chasis was such that it will be easy to get in and out. The cars design, had also taken care of the flooed road conditions during the monsoons in India.

Where the Ikon could make a radical departure form the way the Escort was marketed was in its communications strategy. In the Ikon, Ford was looking to appeal a younger crowd, probably a 30 40 year old customers whose more outgoing as an active lifestyle and is a trend setting type of individuals. This segment expects their cars to be durable and safe and good value for money, yet stylish and contemporary. This, for Ford, is a distinct positioning statement from what Escort stood for. Having defined its target audience, the communication for the Ikon was fashioned in a 3 stage manner. Its initial advertising showed sections of the car, just a teaser to get recognition for the Ikon name. the objective was to reveal the name in an interesting manner and also to create a sense of anticipation. The 3 ad series revealed some of the distinctive parts of the car as a tear away in the visual. Then came the ads with the Ikon behind the faces and the faces behind the Ikon, lines, apartial reveal campaign which acted as teaser. This campaign focused on the mood of optimism, the positive feeling among the people involved in making the car, the Ford employees, the dealers and the suppliers. The car, partially hidden photographs of happy people in a work scenario, was meant to express this feeling of optimism. This campaign was also to purely demonstrate that Ford is more than just a corporation and it is made up of people and their efforts that there are real actual people behind the corporation. The exercise was also done to humanize Ford India and demonstrate that we are human than just faceless corporation. It also had to do with Fords reputation of being conservative and stolid. It needed an image makeover and this the Ikon was expected to do. The 4 Strategic rules of NPD Manage product development like any other process, with cost-quality time targets Determine the manpower and money up-front to ensure tht resources are available. Integrate the process with all the other functions instead of running it as a black box. Use gateways along the way to ensure that all critical performance parameters are met.

Every attempt to develop a new product needs to be structured according to its needs. Thats because the linkages run across the organisation. Since strategy begins with the customer, working its way backwards to align the organizations activities to meet her needs, the connection between product development and strategy is a visible one. In fact it is the companys strategic objectives that must necessarily determine its approach to new product development today.

Lesson 11 NPD I : Idea Generation

Introduction While there are a great number of new products every year, history shows that less than 30% of new products and services actually generate enough sales to stay afloat. So, the question of how to design a new product or service has been one of the most puzzling questions. To untangle this question, and try to provide insight into how to understand what customers really want, lets consider a systematic approach to understanding customer needs. Using a systematic approach will overthrow the trap of thinking that customers dont know what they want. Companies will come out with product that customers really want or need. But there is one more important benefit. By using a systematic approach, companies are more likely to generate more ideas, more effective ideas, and increase the chance for success. Types Of Customer Needs To find new product ideas one has to start by thinking about the different types of customer needs. For example, we can think of at least four different types of needs. Current Needs or the needs already recognized by customers Potential Needs the needs other than current needs, but not recognized by customers yet. Problem Needs the needs related to recognized problems (these are typically the ones that improve existing products) Potential Problem Needs or how to add value to current product or usage.

All the different types of needs arise at various points along a consumption chain. For example, a customer may find it inconvenient to shpt around for a product, and they may also experience problems when they try to dispose of a product. Therefore we need to understand where, in terms of time, the need is coming from. For example needs can arise: Before Purchase During Purchase During Use During Disposal During Repurchase

Another way is to ask the following 5 questions to really understand whats going on. Why why did a customer buy a product? When when did they buy it? Where where did they buy it? How how did they buy it (what steps did they go through)? Who who bought it? If we take the ideas we just discussed, and put them in a picture form, we could come up with a way to visualize where customer needs come from. One way is to ask people more insightful questions than why did you buy my product? instead, approach the situation by focusing on various parts of the cube. For example, start with current customer needs and ask customers why are they using the product, when are they sing it, where, etc. One would also ask them about, say, the product

during purchase, disposal and repurchase. Lets make this more concrete by focusing on just 1 dimension of this cube : Current Needs, but asking the type of journalist questions we talked about above. Why are you using this product and what do you gain by it? (why) On what occasions do you use this product? (When) Where do you usually use this product? (Where) Tell me in detail exactly how you use this product, and are there other products you use with this product? (How) Who are the usual users of this product? (Who)

We just looked at one small dimension of this 3 dimensional cube; so imagine doing this for all possible combinations. Now you can start to see why we said that this process generates a lot of information about customer needs. A fundamental marketing principle is that products must be benefits-based. That is, they must deliver benefits which customers desire (and are willing and able to pay for), and must do so at the right cost (i.e. utilizing cost-effective designs and methods which enable profitable sales). So, from a strategic perspective, products can be considered benefit bundles. Customers buy products not for their features (e.g. Pentium 4 chip) or their specific functionalities (e.g. pc processor speed), but rather for the perceived benefits that products deliver. A products features and functions which are often the focus of design specifications are simply the envelope for delivering the benefits that are desired by customers. The classic example is that people dont buy a drill to have a drill, but rather to have the capability to make holes. Solutions to Customer Needs When we think about it, there are a reasonably limited number of ways to solve a customers problems. Wherever the need comes from, the following different types of solutions can satisfy them: Reduction of Time required Reduction of Effort required (including physical, mental, and emotional) Reduction of Financial (including complementary products, maintenance and repair) Enhancement of sensory benefits (including visual, taste, texture, sound etc.)

So now, imagine how we might solve the various customer needs we talked about before, using all the dimensions of the cube, and satisfy9ing these needs through either reduction of time, effort, costs or enhancement of sensory benefits. This is the challenge of new product ideas, a broader ways of thinking about this problem and feel optimistic that uncover the need s of customers and build products that dont failf in the market. The NFD process starts with the generation of prsualbe ideas. This initial phase often referred to as the fuzzy front end is typically the most frustrating for left brained managers who self describe themselves as long on analytical skills, but short on creativity. ANALYTICAL High Blue Sky Practical Breakthru

CREATIVE

Failure Neatcertain

Low

Incremental Change

Create a New World

Fit Existing World Fig. 11.1 The inspiration for the new product ideas can come form a driven leader (top-down) or can bubble up from trenches (bottom-up).

And while ideas can occasionally emerge from near-divine spontaneous inspiration, most mere mortals have to resort to systematic idea generation processes that range from traditional market research techniques (surveys and observation) that tend to find the white spaces in the existing world to mind stretching analyses and technological trends and scenarios that provide for-reaching directional visions of the future. A few empirical observations that are commonly drawn with respect ideation are: Internal company thinking tends to be very conservative, staying within a comfort zone by incremental zing past successes. Similarly, most market research tends to be understandably near in (focusing on current dis-satisfiers and unmet needs) since customers thinking is contained by their bases of experience and technical knowledge. Pure marketing initiatives often require invention or an impossible combination of features and costs Technology-driven ideas often lack a clear target market or require an impractical level of market development. Idea Generation Information Expressed desires of current customers Desires of lead and heavy users Desires of lead and heavy users Unrecognized desires of future users Scenarios of future markets Source Traditional research Rigorous customer interaction Expert observation Empathic study Futures visioning

The most effective ideation is multi-disciplinary (technology and marketing), externally focused (especially on competitors and high impact customers), and thought-stretching within practical boundaries.

Lesson 12 NPD 2 : Idea Screening Introduction As a general rule, more tends to be appropriate during the ideation stage when the classic NPD question is whether success is built on the quantity of ideas goal is creativity bounded only by a modicum of practicality (innocent until proven guilty). But, successful companies are reported to put 10 times fewer new product ideas into development per successful product as unsuccessful companies. So, an effective NPD process is, in effect, a funnel with a large number of initial ideas sequentially pared down to the chosen few with the highest potential. The screening stage is the first tollgate in the paring process. In essence, the process of screening and prioritizing NPD ideas is a function of three factors: Strategic attractive: Does the initiative enhance the companys competitive position by leveraging existing (or prospective) strengths to capitalize on an opportunity, or neutralize a competitive or technological threat? Financial attractiveness: Are profits (long and short-run) sufficiently high relative to required front-end investment (ROI) when project risk is considered? Capability to execute: Does the company have the requisite skills and necessary resources to compete the project and support the launched product?

These factors which are invariably blends of hard (quantitative, objective) and soft (qualitative, subjective) inputs must be consolidated and critically assessed in absolute (vis--vis pre-defined benchmarks or hurdle rates) and relatively (project to project rankings). Pitfalls in Screening Companies often fall for predictable traps during the screening process: Focusing disproportionately on financial attractiveness, favoring incremental initiatives with smaller investments and quicker apparent paybacks (and unfortunately high vulnerability to cleverly managed projections). Stressing questionable strategic attractiveness (e.g. must match competition, must offer a full line) when financials are unacceptable. Overestimating execution skills and underestimating required time and resources, putting projects in a vulnerable position from the start. Succumbing to organizational politics and managers clout that polarizes judgments and biases project evaluations.

Again, the management key is to have a structured screening process in place that includes predefined evaluative criteria, rigorous fact-based scrutiny of inputs, and a formal method tracking of results (an invisible hand that may contain unwasrranted initial optimism). Idea Screening in Titan Industries At Titan Industries, which develops between 70 and 100 new model watches every year, every new model flows from three central strategic considerations. Boosting brand value Lifting market share Adding profits

It was the freedom to experiment that led to the development of Titan Industrys metal plated Fastrack watches. The designers were trying out a gold plating process-named Physical Vapour Deposition. It involves vaporizing the gold at high temperatures for even deposition with other metals, and found, to their delight, that it could be made to work to produce coatings of other colours too. So it was applied to create the multi coloured Fastrack range.

At Titan, the ideas originate with the marketing brief; on the shop floor, as a spin off from a new material or process; in the lab, as an R&D idea, as was the case with an ultra slim movement that led to the design of new range of products; or from the design group. No matter where it comes from, every idea is made to pass through a stringent 5-point test, Covering style Costing Sourcing Scheduling Resource requirements.

Only then does the development process actually get underway. The ideas that come through these processes are then filtered through discussions, where people from marketing design and manufacturing were present. They look at the ideas, vet them and decide which ones are immediately possible to implement, and which will take more time. Only the best ideas will survive. Common Forms of Idea Generation The most common methods of idea generations in companies are: Brain storming The method developed by Alex Osborn uses the recognition that the really new ides often mix several ideas to product something that is non-obvious and exciting. Group discussions are held to generate as many new ideas as possible. The group generally consists to six to ten people. The group members are encouraged to be as wild as they want in suggesting solutions. No idea is criticized and hence n ideas are held back. As ideas start to flow, one leads to another. Within a short time, hundreds of ideas can e on the table. Only after ideas are generated freely, the group can then look forward to critically evaluate later on for the purposes of practicability. A specific problem or goal is set at the beginning of the meeting, which is known as synectics. Market research Companies have to identify the needs of the customers through the use of market research. Most of the companies rely on this method since the customer analysis is the best way of offering a product to their need. Nowadays, there are many consultants and agencies that provide the necessary support to companies. the Persona toothpaste from Amway uses acupressure point was developed based on market research. The research revealed that people tend to apply excessive pressure while brushing. This adversely impacts teeth and gums. The acupressure point in Persona toothbrushes allows the brush to bend, absorbing excess pressure. In addition to the USP of acupressure point, the Persona toothbrush has an angular design, and a slender neck, which allow easy access to all regions of the mouth. The toothbrush also has rounded bristles, which prevent gums from being grazed. A non-ship grip helps support the thumb, providing for better control. Long range planning studies Often a long term forecasting by companies can yield the required results. The customer life style changes over the years, the changing societal trend etc., can be forecasted and products brought accordingly. Dishwashers, Microwave ovens are examples to this category of research. Market gap analysis Gap analysis is a technique which plans maps of the market and used to determine how various products are perceived by how they are positioned on the market map. This method helps in understanding the flaws in the existing products and the need for a new product. The advent of Satellite television showed the need of nearly 100 channels and host of other attributes which was immediately worked upon by companies like BPL, Onida etc. Dabur developed Lemoneez lemon juice using market research to identify the gaps felt most keenly by its target customer, as the lady in a house worked in the kitchen. From this process the idea for Lemoneez, the lemon substitute converted into a product by its laboratories.

Think tank Companies are now employing the use of think tanks that assess the companys resources and objectives and devise concepts. Some times, top managers of the companies often act as the source of new product ideas by identifying the consumer needs and changing society. They also act as the think tanks. Activity analysis This technique is used by companies in ascertaining the usage of a product. Maruti Omni was intended as a cargo vehicle but however, the usage of the product showed that it was more used as a passenger vehicle. Hence the positioning and the product itself was changed to the requirement. P & G studied the washing habits of 3000 customers in the target segment for its middle market laundry brand, Ariel Gain Super Soaker, to identify the one critical need removing grease stains that the brand address. Foreign search Some times, many multi national companies translate their experience from another country. Some Indian companies search the various products, which are not available in India and offer this product after obtaining the necessary agreements. It is often found that many products, which are successful in one country, may not succeed in another due to the cultural and social differences. Soya bean milk was successful in USA but when in India, it failed confirming the above reasons. Morphological analysis This method analysis the structural dimensions of the product, which helps in getting to the relationships between them. When a writing instrument is analyzed, the extent of its length, clarity and convenience become the relationship factors from where a new product can be found out. Research on the old Ford Escort indicated that a three box design found favour than a hatchback. Apart from more space for luggage, consumers felt the boot also provided more safety than a hatch. Indian customers also told Ford that rear seats used for 70% of the time. In other markets, the rear seat is used less than 10% of the time, whereas in India it is used extensively to cram in people. So, the Ikon was to have a roomier rear seat with full roll down windows, reading lights and comfortable centre seating as well. And the rear door openings were claimed to be the largest in the industry while the height of the chassis was such that it will be easy to get in and out. The new Ford Ikon cars design had also taken care of the poor road conditions during the monsoons in India. Screening Process Stage gate process : A widely employed product development process that divides the effort in to distinct timesequenced stages separated by management decision gates. Multifunctional terms must successfully complete a prescribed set of related cross-functional tasks in each stage prior to obtaining management approval to proceed to the next stage of product development. The framework of the Stage-Gate process includes work-flow and decision flow paths and defines the supporting systems and practices necessary to ensure the processs on going smooth operation. Gate : The point at which a management decision is made to allow the product development project to proceed to the next stage, to recycle back into the current stage to better complete some of the tasks, or to terminate. The number of gates varies by company. Fuzzy gates: Fuzzy gates are conditional or situational, rather than full go decisions. Their purpose is to try to balance timely decisions and risk management. Conditional go decisions are go, subject to a task being successfully completed by a future, but specified date. Situational gates have some criteria that must be met for all projects, and others that are only required for some projects. For example, a new-to-the world product may have distribution feasibility criteria that a line extension will not have.

NPD 3: Concept Development and Marketing Strategy Development Introduction The output of the screening phase is a reduced set of projects passing through to a formal design process that includes developing product specifications, selecting technologies, compiling drawings, and building prototypes. Recognizing that customer perceptions are paramount and that roughly 75-80% of a products ultimate costs are hard wired in during the design phase, there are four complementary concept that frame the design process: Quality function deployment (QFD) QFD is a structured process for getting the product right by translating customer benefits into engineering requirements and product specifications. The essence of QFD is, first, to specify products in consumer speak that reflect the end benefits that are most important to potential buyers, paying particular attention to quality cues, those attributes that most powerfully communicate a products overall level of quality (e.g. the firmness of key on a laptop pc). Engineers then translate these consumer benefits into a more technical definition of requirements. Finally, the engineering definitions are translated into very precise specifications that provide the measurements for implementing and monitoring the manufacturing process.Once the product is technically right, the process is reversed and communications convey back to the customers that the benefits have been delivered in the product. Target costing Target costing is a formal process that attempts to mesh a propose products features (benefits) with a viable market price that achieves the companys profitability goals by: 1. Determining a price point (or range of price) for an approximate combination of features and benefits. 2. Subtracting a desired profit from the market price to determine the maximum bearable level of costs. 3. Iterating the product design eliminating or reducing unnecessary attributes with costs that cant be recovered in higher prices until the cost target is met. 4. Revalidating the viability of the market price for the redesigned product. Design for manufacturing (DFM) Design for manufacturing is the concurrent considerations of what a product is and how it is made, in order to insure quality, minimize costs and maximize flexibility. Narrowly defined, DFM focuses on such things as repeatable tolerance (making sure that parts are not so precisely designed that they cant be produced in mass quantities), ease of assembly (e.g. efficient sequencing of doable operatins), and adaptability to high-speed automation (which may improve both cost and quality at high volumes). More broadly, given a growing trend towards mass customization (near infinite product variations for segments of size one), DFM includes: Common components and standardized part across products, enabling more stable forecasting (the pooling effect) and efficient management of shared inventories. Modular platforms that include base models and a variety of add-ons that can be pre-assembled and managed virtually. Postponement of product differentiation until the latest possible stage in the manufacturing process (end of line customization), enabling both a high degree of standardized production and a highly customized product.

Rapid prototyping In combination, QFD, target costing, DFM, and rapid prototyping match product to market requirements, support the firms profitability objectives, and reduce the risk of a subsequent failure. Example of Amtrex

At air conditioner marker Hitachi Appliances, it is difficult to pinpoint wehre a new product life begins. For, in the team of Accelerated Innovation (TAI) approach it uses, a cross-functional task force ensures the constant involvement of every function in the company in the development process. The TAI is split into three stages: (TAI-1) Idea -to-Concept Finalization (TAI-2) Prototype to lunch (TAI-3) Launch-to-Customer Satisfaction

None of these stages is limited to any particular department although the responsibilities are, obviously, distributed differently at each stage. Says Vinay Chauhan, Head, (Innovation Process), Amtrex Hitachi, who has overall responsibility for new product development. This way, we are a spider organization, focusing on teamwork and constant networking, steeped in the belief that creating a new product is a company-wide responsibility. Its called concurrent engineering. The new product development is a continuous activity, working constantly in conjunction with the other functions to design, prototype, test, modify and improve the product. Thus the marketing people will be test marketing a product on a sample customer base even before it has reached the final prototype. Even before that, the vendors will be working on designing components for the new product, and sending their feedback so that the developers can modify their design accordingly. Its said that even the packaging team at an early stage whether the product is too heavy given the materials they want to use. Amtrex Hitachi has a system of gateways at every stages of the development of a new product. Sure, this makes for some extra work to pass the test, but it is crucial in order to avoid cost-and-time consuming downstream rework. For instance, changes after the prototyping stages can bleed the company because the dyes and moulds have to be recut. Amtrex Hitachi ahs as many as 8 gates for each new product. GATE 1 : to consolidate all the needs that the new product will serve, and decide if they merit spending time and money. GATE 2 : Reviews the design brief, based on studies of the market, uses and competing products. GATE 3 & 4 : Concept is developed and a detail design is created

GATE 5 : sees the prototype going through it. GATE 6 : Works at component sourcing and production GATE 7 : Trial production, followed by field tests and design validation are the key factors. GATE 8 : Gives the go ahead, after reviewing the final design, for mass production.

Depending on the gate, one or more of the key people such as the heads of marketing, manufacturing and quality assurance or the CEO sometimes, all of them are present for the clearance. Conclusion In order to be successful, companies have to use the following guidelines: Concept generation: How candidate concepts for new products are generated or acquired. New product concepts are generated jointly by employees, customers and suppliers. New product concepts are based on anticipated industry technological capabilities. New product concepts are explored in an unconstrained manner

Concept selection: How candidate product concepts are screened and concepts selected for further development. Concept are selected using multiple, explicit criteria. Concept selection is based on simultaneous evaluation of multiple concepts. Concept selection occurs after manufacturability issues have been addressed. Agreement on concept selection is in the form of explicit (documented) buy in from all departments.

Lesson 14 NPD 4 : Business Analysis Introduction In business analysis, the company decides whether the new product will fit well within the companys product line, distribution methods, and promotion methods. Marketers also further test the potential for sales, profits, market growth, and competitiveness. Human welfare is also considered in the operations of the company. The ideas are made more specific in this stage. Examples Universal Air Technology, an Indian American firm is the USA has developed an innovative new technology called Phototech using the concept it disinfects and cleans indoor air by photocatalytic oxidation. It is a revolutionary concept that is effective against indoor air pollutants such as bacteria, viruses, and molds, dust mite allergens and odors. Ti won the 1999 New Product Award in the small business category by the National Society of Professional Engineers. This was made possible only after the deluge of ideas were carefully screened and developed further into a business proposition. This is the stage where the concept has to be further refined and made into business terms. The aspects that need to be formulated for making an idea into a concept are: Targets audience of the new product The primary benefit of the new product The usage pattern of the new product

Based on these, once the concept has been developed, it has to be tested. Consumer reactions are obtained by using a verbal description or a picture of the product and asking for unbiased opinions. In the major manufacturing industry, the products are brought to business or industrial consumers at a designated test sites, and developers work closely with these consumers to spot the problems and refine the designs. After this, the company has to project costs, profits, return on investment and cash flow if the product is placed on the market. Projections of potential sales at various prices need to be made, as well as detailed cost projection for different volumes of production. Start-up and continuing costs, fixed and variable costs and the impact of economies of scale need to be determined. Tentative marketing plans need to be set, along with the costs associated with them. Lastly, a set of full-blown budgets is required to estimate the potential return on the product. Thus business analysis must include an assessment of the amount of risk the company will face if the new product is introduced. If the new product can be produced using existing production and marketing capabilities, the risk is lower. Less investment in new plant and equipment will be needed, and the marketer can benefit from already acquired knowledge of the market. TVS Suzuki and Bajaj Auto use the technique of target costing to determine the price of the product and working backwards to fix the maximum acceptable cost to develop new products.

Lesson 15 NPD 5: Product Development and Test Marketing Introduction Product development is vital for the health of firms which want to grow by internal means. It is, of course not the only way for a business to grow market share. In recent years the pace of product change has accelerated considerably in manufacturing. Often the need for such change has been forced on a previously sleepy domestic industry by foreign competition. When the home-based firms have failed to respond they have been wiped out or very seriously damaged. The effect of foreign competition forced restructuring across a wide range of manufacturing firms in India including pharmaceutical firms, in the early 1990s. Need for Product Development 1. The traditional asset-based approach of simply building on existing product lines and technical know-how is no longer sufficient. 2. Successful product developers look first at their actual potential markets. This guide them in determining appropriate product offering for selected customers rather than building simple product lines. 3. Successful product developers look for an appropriate mix of competitive development strategies involving line extensions and new product developments, as well as careful cost reductions. 4. Successful product developers ensure they understand and act on three major business factors: The benefits looked for by their target customers. The economies of their own supply system and The actual and potential reaction of their competitors. Market Based Product Development Many business which are growing really fast of a new approach to product development. Such business adopt more than an internal or asset-based view of business opportunities. They consider not only the newness of products and the newness of markets. The novelty of their approach lies in conceiving product development variants on the basis of benefits offered to specific target markets. This is quite different from concentrating attention on traditional product development inputs (such as technology for example). Market Based Competitive Strategies Operationally the market based competitive approach uses one of four differing strategies shown in figure. Two of these strategies rely heavily on product development for success. First a strategy which differentiates product features above all other attributes. This involves developing a better product offering (1). A market based approach to the main types of product offerings Product 1. Differentiated Product (merchandise) 3. Undifferentiated Product (merchandise) Fig. 15.1 System 2. Product System Offering Offering 4. Services Commodity Offering Offering

Source: Mathus, S.S. (1988) How firms compete: a new classification of generic strategies, Journal of General Management, 14(1), 30-57 The second strategy involves offering customers a tailor-made unique package of product features plus special support. Like others, Mathus refers to this strategy as a System offering (2), because it permits customers to benefit from a whole customers are offered products with support on how they might be best installed, operated, or serviced. Of the other competitive strategies a commodity offering (3) rules first and foremost on price (because the product is offered without support and is undifferentiated from that of other suppliers). A service offering (4) relies first and foremost on advice concerning how the produce can be used best. Check- list for option choices Some highly successful product developer firms using check-lists to evaluate different product development options. These check-lists are usually made up to two sets of elements, as is shown in figure. First there is a consideration of the offering system, which is concerned with attributes of importance to specific customer groups. This represents the start of the option choice process. The offering system considers features that are likely to be important to customers in selecting one brand or product above another. These will commonly include performance features as well as other features which predispose buyers towards a particular brand. The next step in using a check-list is to consider ones own supply system. This is undertaken to search for economies of scale which can be built on as far as ones own operations are concerned, as well as goodness of fit with existing capabilities and resources. For each product development option it will then be possible to estimate likely resulting profits. It has already been stressed that a manufacturers supply system is of secondary importance to the bundle of benefits demanded by target customers. Despite this, many manufacturing still mistakenly start the product option choice process by considering their own value chain. The check-list shows schematically how option choices can be determined. We say such check-list methods being applied successfully in several high achieving firms. Check-list for product development choices Offering looked for by target customers Supply-side questions for manufacturing Product development decision

erformance and design features Delivery features Pricing features Pre-sale features After-sale service Promoted image

In house manufacture or subcontract Direct supply or use distributors? Invest in stock? Differentiated by market segment? Other technical advice? Subcontract? Media budget? Direct sales? Product improvement or a New product Development

Selecting the Most Effective Competitive Option Really successful product development does not just lead to extra sales, volume, or to a temporary improvement in competitive position. Successful product development provides a manufacturer with defensible competitive advantage. Careful analysis of the competitive situation, therefore, provides another essential input for framing successful product development options, as is shown in figure. First, they reflect explicitly on the sort of existing and emerging customer benefits which present opportunities for product development. The purpose of this is to clarify the way in which products will need to be offered to meet the preferences of customers in particular target groups. Second, they undertake a careful analysis of three value chains: (1) those of their target customers, (2) their own and (3) those of their suppliers. The purpose of this is to identify and build on possible synergies between these three sets of value chains. Third, they undertake a careful analysis of the capabilities and preferred combative modes of competitors. Doing this allow them to gauge the likelihood of counter attacks by competitors, both from within an established industry set, and also form a potential new set of competitors. An explicit Product Development Strategy An explicit strategy: Product improvement efforts are under pinned by an explicit strategy, formulated by the heads of the firms key functions and spearheaded by top management. Such detailed strategy provides the focus for idea generation in selected markets and helps to prioritize projects. Sponsoring top management: an explicit strategy enables top management to relinquish day-to-day control of particular projects. Instead, top management exerts control via the clear strategies objectives against which progress is checked. Top management thereby becomes the sponsor of development, unknotting any major problems. Shared ownership : An explicit strategy and a supportive top management lays the groundwork for generating the shared valued necessary to push development projects through operational hurdles. Teamwork: Teams of functional specialists are brought together to work on development projects. Such teamwork cater for the iterative and problem-solving process of product improvement, in which a whole series of options and solutions need to be discussed quickly. Marketing and technical skill inputs: Product improvement demands a detailed understanding of current markets to maximize synergies between existing and upgraded product offerings. Systematic flexibility: Procedures ensure that key issues are addressed formally during development, but nevertheless allow development teams the freedom to solve problems in their own way.

Product Development at Philips VCR Philips, the giant Dutch consumer electronics company, marketed the first practical videocassette recorder in 1972, gaining a three-year lead on its Japanese competitors. But in the seven years that it tool Philips to develop its second generation of VCR models, Japanese manufactures had launched at least three generations of new products. A victim of its own creaky product-development process, Philips never recovered from the Japanese onslaught. In todays fast changing, fiercely competitive world, turning out new products too slowly can result in product failures, lost sales and profits, and crumbling market positions. Today many companies are moving from a sequential to a simultaneous product-development approach. Top management establishes a cross-functional team and challenges it with stiff and seemingly contradictory goals-turn out carefully planned and superior new products, but do it quickly. The team becomes a driving force that pushes the product forward. In the sequential process, a bottleneck at one phase can seriously slow or even halt the entire project. In the simultaneous approach, if one functional areas hits the snags, it works to resolve them while the team moves on.

The Japanese are masters at this team approach. In an industry that has typically taken five or six years to turn our a new model, Mazda now brags about two-to-three year product development cycles-a-feat that would be impossible without simultaneous development. Fuji Xerox cut its development time of the FX3500 copier from the 38 months required using the sequential process to 24 months under a parallel development method termed the sashimi approach. Other companies employing similar approaches include Honda (City automobile), NEC (PC 8000 personal computer), Matsushita (Automatic Home Bakery), Epson (EP101 printer), and Canon (AE-1 camera and Mini copier). The team approach allows more ideas to be generated. Different perspectives can be brought to bear on market analysis, competitor analysis, market targeting, pricing and so on. Shared division of labour and shared information also makes the approach more sensitive to market changes. In fact, suppliers may also be brought into the development process to form part of the team. Members can also participate in the project from inception to completion, allowing for a smoother flow of development activity. Intense interaction with the team can also enhance problem-solving effectiveness and innovation process, making its steps visible to all involved, and clarifying the project leaders and teams responsibilities at each point.

Lesson 16 NPD 6: Test Marketing for New Product Introduction Prior to full-scale product launches, many companies put new products and their supporting marketing programs through validating test. For example, packaged goods companies, such as P &G, traditionally test market new products in isolated geographic areas that are considered broadly representative (i.e. have characteristics common with other markets). In concept, the test markets provide a shake out of the actual product, allow experimentation with alternative marketing programs (e.g. different prices or different levels of advertising support), and provide results that may be projected to other markets. But, test marketing per se has become less common for three fundamental reasons: Front-end market research and design methodologies have tightened the link with customers, making market responses somewhat more predictable. Competitors market surveillance has become more sophisticated, alerting them to test market activity and allowing them to influence (i.e. contaminate) test market result. Competitors benefit from a heads up that may signal the need to launch a fast-follow product of their own.

Nonetheless, for high technology products, it is common to beta test radically new products. The beta tests put nearcomplete products (such as software) in the hands of impact users to surface any remaining bugs and establish a reference base for the product. Test marketing is a tool for new product launch and new product development. The company can develop new product is own laboratories and independent researcher develops a new product. There a above facets can develop the product. Test marketing have many alternative forever like advertisement with coupon and samples. Launching the new product in the market is risky one, Because the product development are variable to changing customer needs and taste, New technology, shortage product life cycle, and lastly the increased domestic and foreign competition. Seventh aspect of product development is launching the market product. Objectives of Test Marketing Find out the consumer needs of buying Evaluate impact of local advertising and promotion during the test. Evaluate the market potential for other competition product Find out the coverage for sales Find the consumer ability to buy the product based on price.

Meaning of Test Market Test marketing is the process of introducing a new product or service to a small test market (i.e..) considered to be representative of the large target market. Test marketing gives the firm the change to train a small sales for develop local advertising and sales presentations and measures consumer reactions. The market testing means the survey the market position of product and competitions positions so How to introduced the product decision, But in the case of test marketing is select the few slops and gives the product or samples on the old ways of product. If the survey fails the product launch showed stopped or changing the methods of product and distributions. Process of Test Marketing 1. City selection 2. Select the sales representatives

3. Duration of the test 4. Select suitable data 5. Implementation Based on the some factors should select the cities in testing the market. The tested market have some advantages, diversified industry, Good media, coverage, co-operative chain stores, Average competitive activity, based on factors may considered while selecting the cities for testing. Launch the product in selected market after that they survey whether the product moves success fully to. Repurchase frequency are more More Profit then other product The consumer satisfaction Appreciation by the customer, leaders, whole seller and the sales representatives.

Controlling the test market The controlled test marketing allows the company to the insure factors (i.e.) Alpha testing which means the testing for with in the company) and limited advertising on buying behaviour. A sample of consumer can tested or interviewed later to give their impression of the product. However, the controlled test marketing provides no information on how to sell the trade on carrying the new product these techniques also exposes the product and product features to competition specify of the companies product. Even the company does not have to use its own sales force, give trade allowances and buying distributions. Simulated test marketing When means 30 and 40 qualified shoppers have to select and questioning then about brand familiarity and preferences in specified consumer of product. Which means the product simultaneous shoppers have to interviewed about which product is moves fast and how to issued to new product in the market. Consumers receive a small amount of money and are invited in to a store where they may buy the product or any item of product. Some weeks later, they are interviewed by phone to determined product attribute usage, satisfaction and repurchase frequently and are offered a opportunity for repurchasing of the product, results are incorporated in fare casting to the sells levels. If its not satisfied the Management can discontinued the distribution and alternative source may follow like. Again we tested the market More samples Increase the local advertising and Personal demonstration of the new product,

Examples The Colgate Palmolive used a different marketing mix in each four cities like. An average amount of adevertising coupled are samples Heavy advertising with free samples Average amount of advertising linked with redemagic samples An average advertising with no the other special offer.

Examples The Colgate Palmolive used a different marketing mix in each four cities like. An average amount of advertising coupled free samples. Heavy advertising with free samples

Average amount of advertising linked with redemagic samples An average advertising with no the other special offer.

Colgate Palmolive offer launching a new product in set of small lead corners and keeps rolling it out if the proves successful, and general mills have launched new product area too large for rivals to distribute. Nabisco foods company case Actually the Nabisco Foods company hit a marketing home run with its Teddy grahams Teddy-bear-shopped grahorn cracker is several difference flavours, so the company has decided to external teddy grahams in to a new area, But in 1989 they have introduced chocolate, china non and honey Vs of break fast bears graham cereal. Pepsi Ltd The Pepsi Tested the mountain Due sport drink in monopoly a trade centre attract famously with coupon and advertisement. Conclusion There are many advantages and disadvantages of the test marketing behaviourist the expensive and non-unavailable one. The product developments of new from the idea generation to the launching the product in to the market are risky one. But the test marketing is lively one, many companies are skipping test marketing and reaching on faster and more economical market testing method. When the product once out The consumer did not like the taste enough so the manager and product developers went beak to the kitchen and modified the formula. But did not test is. The final reset users Nabisco product was disaster, but the cereat may have tasted better their other, The super market manager soon refused to re stock and lastly the Nabisco excurives has decided it was to late to re-formula the product again. The new product should full fill the consumer needs and requirements. At the industrial goods we may adopt the two ways or testing through the data testing and alpha testing. The beta testing dales about survey and identify the product performance with in the company but alpha testing needs to testing to out side of the company like Competitional product and market Potential for some product (bill launch produce) though finally the manufactures come close to using full test marketing when they give a limited supply of the product to the sales force to sell in the limited numbers of areas and that can receive the catalogue sheet. In this way management can make the commercial of product launch and when and where to be launch the product.

Lesson 17 NPD 7: Commercialization and Launch Strategies Introduction At this stage, complete final plans for production and marketing has to be done. The product team if necessary needs to be expanded to cover all the departments of the company. This is the stage where the right individuals are identified who would take over the successful marketing of the product and who have the capacity to coordinate with other departments of the company. A complete activity schedule has to be prepared. Feed back mechanism has to be developed for effective control. The product has to be ready for meeting any competitive pressures and changing internal problems. In terms of launching or commercializing the product, there are two main alternatives. During the launch phase, there are two dominating objectives: Secure an adequate distribution base (i.e. get intermediaries to carry the product) Build and convert purchase intention across potential buyers.

Intermediaries are gatekeepers for new product. For upstart or unproven brands, signing up intermediaries may be a formidable challenge. For large national brands (e.g. Black & Decker), broad scale distribution support is relatively assured based on prior performance (reputation) and established account relationships. Many companies solicit intermediaries input early-on in design process to benefit from their perspective and induce eventual buy in. Creating and converting purchase intention typically follows the hierarchical sequence of building brand and product awareness among potential customers, communicating the products distinctive benefits and value proposition, and informing customers when and where the product can be bought. The level of resources (time, money, people) required to launch a product can be substantial, including dedicated sales people (to secure distribution), advertising (to build awareness and purchase intentions), promotional incentives (e.g. introductory allowances to create urgency), and merchandising support (product displays or in-store demonstrators). Accordingly, product launches can range from a big bang release into all markets, or sequential phasing by geographic market, channel of distribution, or customer segment. For example, a product may be launched in a confined region and then rolled out to other areas, or select intermediaries (like Wal-mart) may get initial exclusive rights to the product, or current customers may be given an early opportunity to upgrade legacy versions of the product. Phased Roll Out Typically, a phased rollout is most appropriate when: Required launch resources (e.g. ad budgets or dedicated sales people) are substantial The ramping up of production and distribution capacity is progressive, but slow time is not of the essence (e.g. competitors are not likely to be first-in to deferred markets) The product must be proven for widespread acceptance by intermediaries and end-users.

The line between phased and big bank launches is blurring. While product may be launched in strategic phases, the time between phases is typically getting shorter (i.e. the launch cycle is faster). New products can be minor incremental refinements to existing products (cost reductions, features enhancements), imitative products that are new to the company, or bold concepts that are new to the world.

Types of New Products Improvements & revisions Line extensions New to the company Cost reductions New to the world Repositioning 26% 26% 20% 11% 10% 7%

Many studies conclude that less than 1 in 3 new products are truly new to the company, let alone new to the world, prompting experts like Theodore Levitt to observe that: Breakthrough innovation receives more attention in the press than it deserves. The greatest flow of newness comes from imitation, not innovation, and most progress results from imitating something that already exists. The bias to incrementalize is understandable since, by some estimates, almost half of all resource allocated to product development and commercialization by U.S. firms is spent on products that are cancelled or fail to yield an adequate financial return. So, companies often favor projects that offer quicker, more certain paybacks and avert the risk incumbent to bold strokes. These risks are significant since that failure rate on new products is very high: for every 4 to 5 projects that enter development, only 1 gets launched in the market. For an average consumer goods company, only 15% of the new product concepts that make it to the design phase end up as marketplace successes. New Products Success Rage Development Stage Design Market Test Introduction Overall Probability of Success Consumer 50% 45% 70% 15% Industrial 60% 65% 75% 30%

These high failure rates can typically be traced to a few recurring reasons: Technology, rather than customer-oriented marketing, drives the new product process resulting in better mousetraps that nobody wants or products in search of markets. Unambitious me too products (incremental changes) lack distinguishing advantage versus entrenched competitive products, or competitors quickly follow with one up products that cannibalize the innovation. Products miss performance specifications (that may be changed excessively during the project), or are overengineered, missing cost targets (resulting in unsatisfactory margins, or unacceptably high recovery prices). Projects are under planned, under funded, understaffed (too few people, too much churning of the project team), or unrealistic with respect to timing or technical feasibility.

The key to overcoming the traditional failure rate is following a structured new product development process that blends creativity and systematic rigor to increase the odds of success.

The various criteria for New Product Development are: Adequate market demand Satisfy a return on investment Compatible with environmental standards Fits with companys marketing An effective NPD process is characterized by: Top management commitment: willingness to assume prudent risk and drive the organization to demanding NPD objectives. Disciplined process, fast pace: sensitive to both the need for thoroughness (all critical steps taken) and the need for speed (shortened development and life cycles). Practical creativity, rigorous analysis: stretch to find the while spaces but cull out inherently bad initiatives. Proven or predictable technology: avoiding the need for high cost, high risk invention on demand. Explicit multifunctional coordination: recognizing the product is unique among the Ps in that it touches most organization functions. Realistic time schedules and budgets: drive for heroic performance, but dont stretch to breaking point. Predetermined milestones & decision criteria: avoid setting go / no go criteria in the heat of battle when the natural bias is to continue on course. Sufficient & scaleable launch resources: providing the critical mass of initial support, and having the wherewithal to ramp-up if successful. Team continuity before & after launch: avoiding the temptation to shift the key players and their accumulated knowledge prematurely

Relentless attention to detail, the difference between success and failure lies in execution, which is inherently detailed oriented.

Lesson 18 Diffusion of Innovation Introduction In product management new product is a main concept. In Indian companies are concentrating the new products developments. Innovation is way for introducing new products in the market. Good research and development facilities and ideas are the important elements for a new product. Companies are set up separate base for R&D and spend more amount of money for new product development. Product Innovations The innovativeness of the products is considered with reference to the company and the market. Market perception of the buyers is the ultimate test of the innovativeness. A new product becomes an existing product after some time, e.g. cellular phones are common abroad. A company has a mix of the six categories. Really Innovativeness is restricted to the product rather than creating new products. It is large a process of improving the existing product rather than creating new products. Truly Innovativeness products involve the greatest risk and cost. Their Innovativeness is yet to be accepted by the market. Innovativeness can be considered with reference to the company. They can be considered with reference to the product. Product innovations when they disturb the existing pattern the least-they are just modifications. Product Innovativeness are dynamical continuous when the disrupt a continuous innovations some what but still do not change the established behavior pattern. E.g. Sony Handy cam. CD players, Disposable Diapers. Product Innovativeness can be discontinuous when the consumers reference to the market means either it has been purchased by a small percentage of the total potential market has been on the market relatively short period of time. Innovativeness is more appropriate defined with reference to consumers perceptions. In order to survive in a competitive environment, a company must innovate. Its a choice between innovate or perish. Many companies get their substantial sales volume and profits through products that did not exist a decade ago. Growth industries are those that are oriented to new products. Instead of developing new products by itself, the company can acquire existing business for adding new products. E.g. P&G acquires Vicks. Some times, instead of a whole business a patent for a product is acquired. Still there is one more option-be a license or franchise of an existing company. Business Innovations Innovation is not limited to products and markets. There are other dimensions like process Innovativeness, strategy Innovativeness and structure Innovativeness. If companies decide not to innovate in these competitive times, they are exposing themselves to a great risk. The existing product range needs to keep pace consumer needs, changing technology, the competitive pressure and ever shortening product life cycle. Though Innovativeness is necessary, it is not without it is risks. The failure rate of new products of new products introduced is very high. Barriers to the Successful NPD Lack of ideas Social and government constraints Prohibitive costs of developments Niche and fragmented marketing Shortened PLC

Innovation Pyramid

Sure pay off

Few big projects

20-30% may be success Fig. 18.1 Consumer Innovation

Portfolio of prototype incremental

The diffusion process describe how an innovation spreads among potential buyers and users. Whether diffusion proceeds quickly or slowly is governed y the patterns of usage. There fore the diffusion of an Innovativeness bears a strong affinity for the product life cycle. Innovativeness in consumer product can be in be both goods as well as services their adoption usually refers to trial and continued usage by individual consumers. However their adoption is the results of the Innovativeness itself may hastern the diffusion process. Some products are almost immediately accepted e.g. Maggi noodles where as others take longer e.g. Brylcream. There for it shows the characteristics of the new products effect its rate of adoption. Characteristics of innovativeness Relative advantage Compatibility Complexity Divisibility Communicability

Some other characteristics are price, technology, credibility and social approves. Industrial Innovation Industrial innovation is two types: product and process. These new products and process are quite sensitive to factors of price and quality, and potential returns. Therefore the rate of diffusion varies widely depending upon the industry and particular Innovativeness: in question. However, diffusion of industrial Innovativeness is a relatively slow process in general. For example studies reveal that Innovativeness of Iron and Steel, coal, petroleum and rail road took twentieth or more years process. Factors Determining the Industrial Innovativeness Economic advantage Commitment Uncertainty Risk reduction

Adoption of industrial Innovativeness is also influenced by the buyer organizations characteristics, such as size, economic strength; age, education, values and attitudes of its administrators. Diffusion of Innovation Rogers has suggested the use of diffusion of innovation method for launching a new product. Not-all-potential users of a new product or a new generation of a technology adopt the new product at the same time. Consequently, on the basis of the stage at which they adopt the new product, adopters traditionally are classified into five categories; innovators, early adopters, early majority, late majority and laggards. Assuming that the adopter distribution over the time follows a normal distribution as in Figure 1, Rogers has suggested that for every new product, 2.5% of the adopters are innovators, 13.5% are early adopters, 34% are early majority, 34% are late majority and 16% are laggards. However, a later study done by Mahajan et al reveals that the relative size of the various segments depends on the product type and ranges. Hence the same categories will have 2% to 3% of innovators, 9% to 20% of early adopters, 29% to 32% of early majority, 29% to 32% of late majority and 21% to 23% for laggards. Innovators tend to be the smallest segment of the five-adopter categories. However, despite its small size, it is often the main target of the marketing efforts of firms that wish to sell a new product. The reason is that not only are innovators, even a small fraction of early adopters are ready to take risks and are not price sensitive. They also influence the early majority and late majority in purchasing the new product. It is hence optimal in a new product launch to allocate relatively more marketing efforts and resources to the innovators and early adopters. However, as per Mahajan et al. the results suggests that if the intensity of influence of the innovators on the majority does not decrease as more consumers adopt the product, despite the small size of the innovator group, it is always optimal for a company to allocate relatively more of its marketing efforts and resources to the innovators than to the majority. Even in the presence of competition, it is better to target the innovators. Only when the intensity of the influence of the innovators on the majority decreases as penetration increases should a company consider targeting the majority than the innovators. Company targeted the majority in 1994 in USA, with the 486s when the Pentium chip was already available. This product sold partly as an industrial product to companies and partly as a consumer product to homes and individuals. Innovators really like to be the first to try new products. They tend to be better educated and are ready to risk buying an innovative product. The early adopters are very sociable and they influence the people. The key to diffusion of innovations is to find the innovators and early adopters.

Fig. 18.2 I Innovators EA Early adopters EM Early Majority LM Late Majority L Laggards - Mean of the adopter normal distribution - Standard deviation

Rogers suggests that the rate of ease of adoption of a new idea depends on the following elements:

Relative advantage: The degree to which the idea is perceived as better than the one it supersedes. The grater the relative advantage an idea has, the faster it will be adopted. Windows 95 was more user friendly than WordStar and hence the relative advantage made the adoption faster. Compatibility: The degree to which the idea is perceived a being consistent with existing values, past experiences, and needs of potential adopters. The more compatible a new idea is, the faster the rate of adoption. Kelloggs answered the needs of the Indian customers by offering the varieties in Basmati rice and like which immediately got the attention of the customer. Complexity: The degree ot which the Idea is perceived as difficult to understand and/or use. The less complex a new idea is, the faster the rate of adoption. Mach III with its easy maneuverability makes the product less complex. The fax modems are less complex s compared to the cable modems in India. Trialability: The degree to which the idea can be tested. The easier it is to experimentally test a new idea, the faster it will be adopted. Many of the FMCG goods offered in sachets and packets have made the trialabilty easier. Even the car manufacturers are offering demonstration cars for trial. Observability: The degree to which the results of an innovation are visible to others. The more observable these results, the faster the idea will be adopted. Providing the free samples, trial packs make the product visible. High decibel advertising also helps in observability. Adoption curve The phases through which consumers or a market proceed in deciding to adopt a new product or technology. At the individual level, each consumer must more from a cognitive state (becoming aware of an knowledge about), to an emotional state (liking and then preferring the product) and into a conative, or behavioural state (deciding and then purchasing the product). At the market level, the new product is first purchased by the innovators in the marketplace, which are generally thought to constitute about 2.5% of the market. Early adopters (13.5% of the market) are the next to purchase, followed by the early majority (34%), late majority (34%) and finally, the laggards (16%).

Lesson 19 Teams in NPD Introduction Innovation is the key for organizational growth and survival. Innovation occurs incrementally, having a cumulative effect over time. The early fax machines were single-copy feed and had the capability to store fax numbers. Todays fax machines are multifunction and go beyond faxing to include copying and scanning facilities. Gillettes commitment to research, development and technical supremacy results in new products that cannibalize current product success; like that of Mach 3 in the place of Mach 2 shaving blades. The level of innovation within a market can be categorized as: Continuous innovation where, no new behaviour is really required of the customer and does not involve in serious decision making. The developments in the FMCG goods are an example. Dynamically continuous innovations are significant innovations and require some adaptation in consumer behaviour. The home PC and electric rice cookers are some examples of this type. Discontinuous innovations are totally new innovation. There is a complete change in the behaviour of the consumer is expected. All that technology driven products when introduced first had undergone this innovation only. Organizational innovation according to Barton Tretheway is a six-step progrmme. Vision leads to objectives, which yields to strategy, and that leads to implementations support and enhancement of the original idea. An individual who recognizes the power of innovation might build support for change within the firm. Tretheway identified the following as the innovation best practices: Senior management commitment Funding the programme Motivation and rewards Cross-functional teams Dedicated resources Return on innovation measures Customer value added Systematic processes Innovation goals, objectives and strategies and Innovations roles and screens

Sabine Kuester et al., in their study on retaliatory behaviour to new product entry cited that the degree of innovation plays a vital role in the extent to competitive activity for market share. Market growth has a positive effect on both product retaliation and reaction speed. This signifies that the market growth rate signals potential profitability and hence provides industry players with an incentive to defend their position in the market. Threatening moves, such s new product introductions and price decreases, have a potentially negative impact on profitability of other players in the industry and hence countermoves must be expected. The significant effects of market growth on product retaliation and reaction speed highlight those firms competing in a highly competitive environment must focus on creative innovation and organizational responsiveness. Organising the New Product Management In many companies, responsibility for new products takes one of four basic methods. Product manager approach Each manager has complete responsibility for one product or brand determining objectives, developing strategies, setting prices and advertising budgets and working with the sales force. The manager is also responsible for creating new-product concepts and putting them across the development process. Some companies understanding the problems, use a system in which each new product is given to another manager after it has been successfully launched.

New product committees These committees comprise of top managers from several departments. These committees meet to develop new ideas; once the task is complete, their members return to their regular positions. This approach some time takes valuable executive time and committee members have a tendency to put their own interests above those of other members. Full time new product department This departments usually is set up comprising top managers and have a higher hierarchy in companies. some times, it works in conjunction with a temporary new product committee. Generally this department plans and coordinates all the activities involved in new product department from generating ideas to supervising the development process. Venture teams A group of managers who are specialists in a certain area are given the task of the new product development activities. The team combines needed resources and expertise, such as product design, engineering, capital management, market analysis, accounting and marketing. This team disbands once the new product is handed over to the marketing and production department. Autonomous team A completely self-sufficient project team with very little, if any link to the funding organization. Frequently used as an organizational model to bring a radical innovation to the marketplace. Sometimes called a tiger team. Collaborative product development When who firms work together to develop and commercialize a specialized product. The smaller firm may contribute technical or creative expertise, while the larger firm may be more likely to contribute capital, marketing, and distribution capabilities. When two firms of more equal size collaborate, they may each bring some specialized technology capability to the table in developing some highly complex product or system requiring expertise in both technologies. Collaborative product development ahs several variations. In customer collaboration, a supplier reaches out and partners with a key or lead customer. In supplier collaboration, a company partners with the provider(s) of technologies, components, or services to create an integrated solution. In collaborative contract manufacturing, a company contracts with a manufacturing partner to produce the intended product. Collaborative development (also known as co-development) differs from simple outsourcing in its levels of depth of partnership in that the collaborative firms are linked in the process of delivering the final solution to the intended customer. Cross-functional team A team constisting of representatives from the various functions involved in product development, usually including members from all key functions required to deliver a successful product, typically including marketing, engineering, manufacturing operations, finance, purchasing, customer support, and quality. The team is empowered by the departments to represent each functions perspective in the development process. Integrated product development (IPD) A philosophy that systematically employs an integrated team effort from multiple functional disciplines to develop effectively and efficiently new products that satisfy customer needs.

Lesson 20 Top Management Contribution Introduction According to Kevin J. Dooley, there are three key concepts that directly impact NPD improvement: 1. What is done a best practice is a tactic or method that has been shown through real-life implementation to be successful. 2. How well the organization does what it does 3. How widely and often the organization performs the best practice. This shows clearly that the success of NPD lies solely on the commitment and vision of the top management. While examining successful and unsuccessful NPD practices at US West, the regional Bell telephone operating company in USA, John Mullins et al identified five key practices that can guide managers as they struggle with the challenges of uncertain and rapidly changing markets. Focus on probing and not measuring the process Limit large scale, quantitative research and emphasis qualititative methods Make a little and sell a little Stage the firms resource commitment over the life of the NPD process Build distribution channels appropriate for each new product, including direct marketing strategies

Charlie Fine suggested that strategic thinking around partnering is a leading factor in a companys success. Professor Fine presented an analysis of how market pressures are changing the way companies must think about their supply chains. Compressed cycle times, markets that rise and mature in months, and smaller first mover advantages are all contributing to shorten the rign of competitive advantage? Because competitive advantage is fleeting, a nimble supply chain becomes an absolute necessity and can be competitive differentiation in itself. Because of this dynamic supply chain configuration, the product development process must incorporate three-dimensional engineering the concurrent, development of product, process, and supply chain design. The ability to execute three-dimensional engineering, to forecast demand, and to anticipate opportunity will determine the victors in the evolving business landscape. Ways of New Product Development AC company can add new products through acquisition and/or new product development. The acquisition route can take three forms the company can buy other companies, it can acquire patents from companies or it can buy a license or franchise from another company. The new product development route can take tow forms the company can develop in its own laboratories or it can contract with independent researchers or new product developers firms to develop specific products for the company. Acquisition as a Route to New Products As the Indian companies try to gear up for competition in the wake of the government signing the WTO accord and subsequent liberalization process, traditional growth from organic expansion is no longer enough, and has opted for acquisition as a route to consolidation. The benefits of acquisitions are: Rationalizing historical portfolios and modernize Earlier successes of the acquisition route Acquisitions provide a great entry strategy which otherwise would have had entry barriers. Immediate access to infrastructure and increase in capacity Easy to buy loss-making companies for tax reasons In related, the products will add to the existing portfolio

Acquisitions allow for increased presence on a global level

A major problem that is expected in this process is the management of human resource. If it is handled well, then half the problems that could arise will be solved. Successful acquisitions require an all-round approach. Voltas took over Hyderabad Allwyn during April 1994. The company overcame problems on every front. A VRS reduced the workforce from 5,000 to 4,000. Production was increased and costs were cut; rejection rates were slashed from 15 to 1 percent, while a change to a more efficient design brought about a 6 per cent cost saving. A backlog of 24,000 complaints was handled in the first month, and the dealer network was increased from 800 to 2,500. The company grew 50 per cent against an industry rate of 15 per cent and increased market share from 8.5 per cent to 11 per cent by 1995-96. Voltas took this issue as new product for the company. Strategy led acquisitions are another areas for new product focus. The Ahmadabad based Torrent group is a classic example. Torrent being a pharmaceutical company took over India Infusions Limited, as related acquisition. However over the years, Torrent acquired companies like Maharashtra Electricals Ltd. and renamed it Torrent Cables and also Gujarat Lease Financing Ltd. Hindustan Lever Limited acquired Tata group company Tobacco, took 80% share in ice cream market by acquiring Kwality. Milkfood and Dollops. In foods, it has taken over the UB groups Kissan, Kothari General foods instant coffee unit and Caption Cook salt. Sun Pharma also has recently acquired brands from the Hyderabad based Natco Pharma. The brands acquired by Sun Pharma include some of the leaders in their respective segments, like Suminat (antimigraine), Splanz (lansoprazole), Coldact (cough and cold), Natamox (anti-infective). Sun had also acquired some cardio logical products, Cardicap TR and Betacap TR along with the anti-emetic leader Zofer. The acquisition includes minor overlap of products, however, it offers new markets with a high growth potential in the higher th th realization segment. With these brands acquisitions the company will move its ORG ranking from 19 to the 12 position. Further, the acquisition will also result in the number of production top 259 products increasing from two to three. The poor performance of the formulations division is a cause for concern, but the restructuring planned to bring back lost market share and the new product launches and acquisition of brands by Sun Pharma ensures that the company will have a good medium to long term growth.

Lesson 21 McKinseys 7S Framework and NPD McKinseys 7S framework McKinsey & Cos 7S framework provides a useful framework for anyalysing the strategic attributes of an organisation. The McKinsey Consulting Firm identified strategy as only one of seven elements exhibited by the best managed companies. strategy, structure and system s can be considered the hardware of success whilst style, staff, skills and shared values can be seen as the software. Companies, in which these soft elements are present, are usually more successful at the implementation of strategy. The 7-Ss are: Shared values Structure Systems Style Staff Skills and Strategy

There is no particular order to the 7Ss. Each of the 7Ss is elaborated on below: Shared Values Shared values means that the employees share the same guiding values. Values are things that you would strive for even if they were demonstrably not profitable. (Example: The Christians being fed to the Lions.) Values act as in organizations conscience, providing guidance in times of crisis. Example: The famous Johnson & Johnson Tylenol case is an example where a credo helped provide guidelines for practical decision making. When tainted Tylenol was discovered J&J leaders could quickly make a decision to immediately, publicly, remove all Tylenol from the nations shelves, because they were following the organizations credo which said that J&Js first responsibility was to provide quality products to doctors, nurses and patients. This dramatic action helped unsure a reinstatement of both public trust and employee pride in the integrity of the company, and led to higher long term sales. Strategy The integrated vision and direction of the company, as well as the manner in which it derives, articulates, communicates and implements that vision and direction. Structure The policies and procedures which govern the way in which the organisation acts within itself and within its environment. The organigram (e.g. hierarchical or flat) as well as the group and ownership structure are included here. Also note Porters categorization of group structures: Efficient allocators of Capital; Allocation of Resources, etc. Systems The decision making systems within the organisation can range from management intuition, to structure computer systems to complex expert systems and artificial intelligence. It includes Computer Systems

 Style

Operational Systems HR Systems, etc.

Style refers to the employees shared and common way of thinking and behaving unwritten norms of behaviour and thought: Skills Skills refers to the fact that employees have the skills needed to carry out the companys strategy. Training and Development ensuring people know how to do their jobs and stay up to date with the latest techniques. Staff Staff means that the company has hired able people, trained them well and assigned them to the right jobs. Selection, training, reward and recognition, retention, motivation and assignment to appropriate work are all key issues. Strategy and NPD An act of imaging, guided by both foresight and informed discernment, that reveals the possibilities as well as the practical limits in new product development is known as vision of an organisation. It depicts the most desirable, future state of a product or organization. Leading innovators in their industries, they rank first or second in market share, profitability, growth, and shareholder performance are the visionary companies. A substantial portion (e.g., 30% or more) of their sales are from products introduced in the last three years. Many firms want to benchmark these firms. Based on strategy, a firms operation across multiple levels of the value chain. In the early 1900s, Ford Motor Company extremely vertically integrated, as it owned forests and operated logging and wood finishing and glassmaking businesses. They made all of the components that went into automobiles, as well as most of the raw materials used in those components. Companies follow Total Quality Management which is a business improvement philosophy that comprehensively and continuously involves all of an organizations functions in improvement activities. Sometimes they resort to Strategic Partnering where an alliance or partnership between two firms (frequently one large corporation and one smaller, entrepreneurial firm) to create a specialized new product. Typically, the large firm supplies capital, and the necessary product development, marketing, manufacturing, and distribution capabilities, while the small firm supplies specialized technical or creative expertise. Systems and NPD The aspects that are important for a company while following 7S framework are: Systems Hierarchy Diagram: The diagram used to represent product architectures. This diagram illustrates how the product is broken into its chunks. Systems and Practices: Established methods, procedures, and activities that either drive or hinder product development. These may relate to the firms day-to-day business or may be specific to product development. Systems and Practices Team: Senior managers representing all functions who work together to identify and change those systems and practices hindering product development and who establish new tools, systems, and practices for improving product development. Keys to Improving New Product Success Through Market Insight 1. Senior management must demonstrate a commitment to creating a learning organization and promote the idea that customer knowledge drives innovation. Furthermore, product developers require a clear understanding of the connection between corporate strategy and product development initiatives. 2. Cross-functional teams are the best way to create market insight because of the diverse viewpoints of team members. At a minimum, a marketer and a technology expert should join the process of exploring customer Leadership Style Organizational Culture

needs. Successful teams spend time interacting with customers in their environments in order to identify unarticulated needs. 3. Market insight influences the entire product development process, not just idea generation. Integrating market knowledge with technology competencies ensures that new product are designed, produced, and launched with a sound understanding of the market. However, because markets are dynamic, insight must be refreshed during the process from concept to launch. 4. The role of the corporate market research department is amplified beyond providing data. As team members and facilitators, market researchers prepare other members for immersion into the customer environment and guide team members by interpreting their experiences. Best-practice market research departments approach their work from more of a consultative than analytical perspective. 5. Training cross-functional teams on market insight methods is crucial to success. Best practice in this area is to require basic education on market research techniques, with additional training and facilitation for product developers on an as-needed basis. 6. No single technique is best to create market insight. The results of this study suggest that using a combination of qualitative and quantitative methods yields maximum knowledge. Market insight comes as part of a process of exploring and defining opportunities by the product development team. Other types of information gathered in this process are technology landscapes, competitive analyses, and trends analyses. 7. The knowledge created by the various team efforts is a valuable resource of the corporation and should be managed accordingly. Best practice organizations have knowledge management systems in place to access both the tacit knowledge of team members and their documented findings. 8. Best-practice organizations believe that market insight improves productivity and profitability, helps bring the best ideas forward, and makes it easier to recognize high-potential concepts. As such, market insight can increase speed to profit and improve the probability of a successful product introduction. Benefits in Success Through NPD :Best-practice organizations share the following beliefs about creating and sustaining a successful market insight process: 1. Culturally, the organization must be committed at the highest levels to gathering and using market information for guiding R&D and product development. 2. Innovation is one of the organizations clearly stated strategic objectives. 3. The organizations values include customer focus. 4. There is a clearly defined and widely communicated set of processes for creating market insight and using it in new product development. 5. Market insight and other knowledge about competitors, technologies, and the business environment are managed and shared. 6. The cross-functional team is the basic unit of organization for a market insight initiative. 7. Product developers performance is measured in part on their skills in, and use of, market information is the product development process. 8. Product development initiative in general, and market insight projects in specific must be adequately funded to succeed. 9. Market researchers must be equal participants in cross-functional product development teams and must be highly skilled in both market research and facilitation. 10. Proven product development successes that used market insight are widely communicated through the organizations. 11. The organization has partnerships with outside organizations, including market research suppliers, vendors, and strategic partners for creating and sharing information.

Lesson 22 New Product Successes Introduction In todays fast-paced, technology-driven environment, firms must quickly envision, develop and deliver new products, is being first to market often determines a firms ultimate success. When operating at this breakneck pace, firms cannot afford to take the time to complete the traditional forms of qualitative and quantitative market research activities aimed at reducing a firms risk of failure. Taking 9 to 18 months to define and deliver a product is no longer an option. In many of todays industries products must be conceived and delivered within 6 months or less to give a company a first-to-market position. As a result, firms often eliminate or cut back on their customer research, taking on more risk than desired when rolling out their new products. With this added risk, firms are often forced to wait until the product is introduced to gain an accurate assessment as to how customers will respond. This is often a dangerous proposition. In the days and weeks that follow a products introduction, evaluations are published or reported by trade magazines, user groups, industry watchers, newsmagazines and other customer groups that have an interest in the product. Here-often for the first time companies are learning how potential customers perceive their products. Unfortunately, the news is rarely pleasant. According to statistics published by Kuczimarski & Associates, a Chicago-based consulting firm, organizations are experiencing 12 product failures for every 1 success. This failure rate is costing Fortune 1000 companies alone over $60 billion per year in wasted development effort. In addition, firms put in this position are burdened with inventory and other costs and must decide off the market or take other undesirable or costly courses of action. Once a product is introduced, customers and the media re quick to note any product deficiencies often to the different of product sales. A firms inability to predict the success of its products is often a costly liability. Reasons for the NPD Successes Imagine the benefits that would be realized if a company could successfully predict which product concepts will succeed and fail in the marketplace. With such power, a firm would possess the ability to pursue only those product and technologies that deliver great levels of customer value and forego those that will fail to produce the desired results. Product failure rates would decline; resources would be focused only on successful products dramatically improving productivity. Revenues would increase, as expenses are reduced all resulting in greater company profitability and increased levels of customer satisfaction. Obtaining such power should be the goal of any firm. So, what is preventing an organisation from predicting the success or failure of its products? Of course, the typical answer is a lack of psychic ability or a crystal ball. Fortunately, there is another explanation that is much less ethereal. The truth is most companies simply do not have the information they need at the time the information is needed to determine whether or not a product concept will ultimately succeed or fail in the marketplace. Many firms believe the information needed to make such a determination either does not exist or cannot be captured and therefore do not attempt to obtain it. To make matters worse, traditional methods of market research which have been used for years have essentially failed to help firms effectively predict the success of their products. With a typical 12 to 1 failure to success rate, leading companies have concluded that current methods of research are not all that helpful and that a high failure rate is simply a cost of business that cannot be overcome. Because the future cannot be predicted, most firms have concluded with seemingly infallible logic, that the ultimate success or failure of a product cannot be accurately predicted. This is a common, but unwarranted conclusion. Although the future cannot be predicted, it can be shaped and moulded by well-planned actions all geared toward achieving the criteria that define what is desired in the future. Likewise, a product can be shaped and created to meet the criteria that customers are going to use to judge its future value, thereby enabling a firm to predict a products relative success or failure. Consider the following. Customers use certain criteria to judge the value of a product. A products ability to meet these criteria reflects its relative value. if an organisatoin knew in advance what criteria customers were going to use to judge the value of its products, it could design its products to meet the stated criteria effect ensuring the success of the product.

Newly released product are often declared failures because of their inability to meet the criteria that define value in the eyes of the customer. It is at this point that companies often find out what criteria customers are using to judge the value of their products. One must ask, if these criteria can surface and be used to judge the value of a product shortly after its introduction, why cant they be uncovered and used to evaluate a products potential the day before it is introduced? Six months before? More to the point, why cant they be uncovered before a product is conceptualized and used to help define the concept itself? Indeed, this challenge is at the heart of the dilemma facing organizations attempting to successfully manage product innovations. Incredibly, these criteria can be uncovered when needed and used to define successful, even breakthrough products. When a developer of music media, for example, knew its products were going to be judged for their ability to provide access to a large number of songs, play without distortion, require minimal storage space and reproduce sound as if it were live, then designing them to meet these criteria ensured success along each of these important dimensions. The criteria that customers will use to judge the value of any product can be captured before a company sets out to define a next generation concept or create a product for a new market. Having access to this information at the right time opens the door to many new possibilities. Once obtained, a company can use this information to immediately determine how well a newly conceived product will achieve a customers desired outcomes. Weak product concepts are exposed, enabling firms to avoid the allocation of resources to concepts that would ultimately fail. Valued products are systematically identified or created. With this information in hand, a company can accurately measure the amount of value that will be delivered by a proposed product at the time it is conceptualized in advance of its introduction; in advance of deploying any resources; in advance of investing the first dollar in development. The music media manufacturer, for example, evaluated the potential of several concepts to provide access to a large number of songs, play without distortion, require minimal storage space and reproduce sound as if it were live giving the firm insight into which concepts would create the most value. organizations possessing this information can choose to pursue only those concepts that will create tremendous value and forego those that will deliver less than stellar results. Using these criteria, a company can, in effect, predict the success of the products it pursues by investing only in the most promising opportunities. Organizations typically develop products and services without knowing their customers desired outcomes, hence they are developed without knowing what criteria will be sued to judge the creation of value until it is too late. As a result, firms have no way of predicting the success or failure of their proposed products and are forced to live with costly and wasteful product failure rates. This inability is tied to involvement in an old paradigm. Innovation is no longer an art. It is a predictable, repeatable process an art evolved to a science. The ability to create value has become, and will continue to be, the primary source of sustainable competitive strength. Organizations possessing the ability to predict which products will succeed and which will fail in the marketplace are wll positioned to win todays battle for intellectual leadership and tomorrows battle for market dominance. Recognizing that a products ultimate success or failure can be predicted is an important step on the road to mastering the process of innovation. Reliance on luck, intuition and gut feel may have worked in the past but continued success will be dependent on out smarting old and new competitors with speed and precision. New thinking is paramount to success in a marketplace where the old rules no longer apply. Measuring Success of New Products Once youve introduced a new product or service or developed significant improvements existing ones, youll naturally want to do some follow-up to measure the success of the project. Whether the introduction is ultimately successful or not, you need to be able to learn from the process to achieve more success down the line. Most small companies cannot afford the complex and costly consumer tracking studied used by larger, more sophisticated competitors: Usage and attitude studies that examine consumer usage and attitude about products, advertising, brand awareness, and brand image at a given point in time.

Trial and repeat purchase tracking studies that record weekly purchases of similar products by target consumers, as well as the reasons for buying or not buying the products (this type of study is sometimes called a diary panel) Simulated test marketing called experimental primary lab research, which is usually conducted in store malls under controlled conditions. Controlled field testing called experimental primary field research, which is usually conducted in a controlled group of stores Advertising awareness and recall studies that examine the efficiency of print and electronic advertising on target buyers, often conducted by the market research companies. But small companies can conduct low-cost or free qualitative research.

Talk to buyers and consumers about product satisfaction and purchases. From a marketing research standpoint, this is biased, qualitative research without standard interview controls. But it is timely information and may be actionable. And it places you at point of purchase, close to your buyers (e.g. retailers) and end users. Conduct a test of advertising spending levels in different test markets or, with a single business in one location, over different time periods. It is relatively easy to vary introductory spending in each market, if you are testing a number of geographical markets. However, one should have significant spending differences of a least +/- 50 percent in each market for each spending variable. Small companies (e.g. one store) may have to vary spending levels over matched periods of time and compare sales results. For example, try increasing your local newspaper advertising spending 50 percent over the same quarter of the previous year. Examine weekly company sales receipts for new account sales,. Compared to receipts for reorders. This is in indirect, but free, way to measure initial purchase vs. reorder sales.

Successful NMPDs in the Indian Context A few successful products are mentioned below: COMPANY TITAN INDUSTRIES PRODUCT FEATURES PRICE Rs. 995/- to Rs. 1950/Brand Name Titan Fastrack Product Styles 20 nos.

TARGET AUDIENCE: 18 30 Year old, Fashion Conscious Female

POSITIONING: Television Print Youth Related Promotions Ad Budget Rs. 1.5 Crores

DISTRIBUTION: EXISTING DISTRIBUTION NETWORK

COMPANY HEWLETT-PACKARD PRODUCT FEATURES: Brand Name Feature - K-80 - Fax Scan Printing Copy Telecommunication PRICE Rs. 44,999/-

TARGET AUDIENCE SOHO (Small Office, Home Office) and Small & Medium Business Houses

POSITIONING: All-in-one

PROMOTION: Buy and Try Offer Television Print Youth Related Promotions Ad Budget Rs. 1.5 Crores

DISTRIBUTION Through existing network network of dealers

COMPANY SWATCH GROUP PRODUCT FEATURES PRICE Rs. 1,500/- to Rs. 5,000/Brand Name Swatch Models 200 nos.

TARGET AUDIENCE: Trend Conscious Youth, Trendy and Product Conscious women Working Men Household with monthly Income more than Rs. 50,000/-

POSITIONING: Watch Wardrobe

PROMOTION: Television Print

DISTRIBUTION: Existing Distribution Network of 60 Outlets in top cities.

COMPANY TOYOTA KIRLOSKAR MOTORS PRODUCT FEATURES PRICE Rs. 5,00,000/- to Rs. 9,00,000/Brand Name Toyota Qualis Feature 2,466 CC Diesel Engine 75 bhp

TARGET AUDIENCE: Upper Middle Class Family

POSITIONING: Multi Utility Vehicle; A Premium Car A vehicle which had comfort and reliability and a Low cost of Operation Touch and Try

DISTRIBUTION: -25 Retailers in India. Criteria for selecting retai9lers 3S (Sales, Services and Spares)

PROMOTION Television Print Trade Promotions

COMPANY HERO HONDA MOTORS PRODUCT FEATURES: PRICE Rs. 46,000/Brand Name Passion Feature 7.5 bhp 115 kg. - 100 CC

TARGET AUDIENCE: 18-30 Years Males

POSITIONING: Fuel efficient Reliable Environment Friendly When Style Matters ...go for Passion

PROMOTION Television Print Trade Promotions

DISTRIBUTION Existing Retail Network

OTHER STRATEGIES: Passion introduced as a Flanking Manoeuvre

COMPANY INDIAN SHAVING PRODUCTS LTD. PRODUCT FEATURES: PRICE Rs. 49/- to Rs. 160/- for Gel variants Brand Name Gillette Shaving Gel Features Thick Lather Makes Skin more Supple

TARGET AUDIENCE Male Indians, especially the Urban Market

POSITIONING: Aimed at changing the Indian consumers conventional Shaving habits For a Better Shave

PROMOTION: Television Print Media

DISTRIBUTION Existing Network of Retailers

Toilet Soap Market Successes Let us consider the success strategies of 3 soaps which are the undisputed leaders in this market. Lifebuoy: Lifebuoy is the largest selling soap in India. It is the most successful toilet soap brand in the country. It is a recruiting brand and any nonuser of soap who gets converted is first likely to buy Lifebuoy. It is priced low and hence in the reach of he common man. It is 150 gm soap and therefore offers value for money.

Besides being hardworking, it is long lasting which is another issue important from the target a Winner has an important role to play in its success. It also has successfully made itself contemporary without losing its core values. Since the 60s its Tandursthi ki Raksha pitch has not changed. Lux: Luxs success is by and large attributed to its positioning. Its positioning in the Indian and international markets is the same. The theme is basically that Lux holds the secret to the beauty of films star. It is difficult to get a more attractive proposition in a category where brands sell because of what they stand for rather than what they are. Pears: Pears is a success basically because it is a distinctive, unique product. Besides the product being good, it delivers a relevant benefit. The positioning is single mindedly medicinal and it does not offer any cosmetic benefit. It protects the skin because of its glycerin content. For this reason consumers switch to Pears in winter. It has tradition on its side being a very old soap in the market. It is high priced and hence is a profitable brand. Thus its unique product and distinct positioning are responsible for its success. Conclusion A marketer to ensure product success may use the following guidelines: 1. Distinguish your product from the competition in a consumer relevant way. 2. Capitalise on key corporate competencies and brand strength. 3. Develop and market products to peoples needs and habits. 4. Market to long-term trends, not fads 5. Dont ignore research, but dont be paralysed by it. 6. Make sure your timing is right 7. Be a marketing leader, not a distant follower. 8. Offer a real value to customers 9. Determine a products short-term and long-term sales potential 10. Gain legitimacy and momentum for the brand 11. Give the trade as good a deal as the customer 12. Clearly define, understand, and talk to your target. 13. Develop and communicate a distinctive and appealing brand character.... and stick to it. 14. Spend competitively and efficiently, behind a relevant proposition. Make sure the consumer is satisfied... and stays that way.

Lesson 23 New Product Failures Introduction A product is a failure when there is: Withdrawal of the product from the market Inability of a product to take-off toward anticipated market share Inability of a product to fulfill anticipated life cycle Failure of a product to achieve profitability (due to cost overruns)

Studies have shown that in a many industries 35-40% of new product effort fail. 46% of new product funding is wasted on failed or canceled projects. Failures are different from FADS (which have a naturally short life cycle). Failures are not necessarily financial failures, although bankruptey may be a subsequent event. Failure is through a flaw in the design/selection process, such as not enough or misdirected product research or market research. Failures include, but are not limited to, products and services which pose health and safety hazards. Failures are not necessarily bad technical ideas. The study of failures is important in that it can help us prevent future failures. Looking at a variety of past product failures may generate some insight into what aspects of the design process might warrant special attention in failure prevention. What went wrong with product X? was there something that the manufacturer/designer should have foreseen that would have avoided the failure? Should the manufacturer have discovered that failure was inevitable and abandoned the product, not spending any more money on it? Reasons for the Product Failure 1. The relationship of the company or its brands on the consumers will decide whether a product will be successful or not. Ponds decided to enter the tooth paste market because the consumers perception of Ponds as a talcum powder, not as a toothpaste. 2. Too small a target market, which is too specialized for the volumes originally planned. 3. Too many new products in quick succession. Bajaj auto, the biggest scooter maker during 1998 launched 4 models and 5 product upgrades. But none of them succeeded. 4. Insufficient differentiation from existing offerings, leading to another me-too product. Mac Industries diversified into papad business but lost out due to the grey market Ponds toothpaste was similar as Colgate. 5. Poor or inconsistent product quality. Grundig which came to India with 12 channels could not face the onslaught of the competition 6. No access to the market due to faults in the companys policies 7. Poor timing in terms of the industry life cycle 8. Launching the product too early. Ajanta Dtech toothbrushes were launched during the late eighties when the concept was not known. Kinetic Merlin which had both TV and VCR failed since it was launched during the late eighties when the Indian TV market was just growing. 9. Launching the product too late. Tide as a new product was launched in India oly during 2000 when other has offered better differentiation. General Electric came to India with their lighting products late after Philips had established. 10. Poor marketing and not enough attention was paid to the main competitive alternatives, leading to the marketing strategy that was unable to cut through competitors activities. Since rural people make chutney at home so HLLs Tom Pudina, a mint based Tomato ketchgup paints in sachets brought in, as alternative to chutney did not succeed. Philip-Morris brand of powdered drink Tank initially failed when launched in 1983 due to lack of marketing vision.

Lesson 24 Product Research Introduction Research should be done continuously to identify the lacunae in the existing products, the changing demand pattern of the consumers and the packaging trend etc. Hence it is mandatory that the company has all available reports in their hand before taking a crucial decisions. Factors Influencing Demand in Washing Machine Industry There are two basic parameters that influence demand in the washing machine industry. They are affordability and price. Affordability Disposable income of the population The disposable income of the average Indian household has been growing at a high rate on account of the sustained growth in GDP. As a result of rising disposable incomes, there has been a growing favourable attitude towards consumption as well as towards credit purchases. This will proper the growth of washing machine. Availability of consumer finance Consumer finance has picked up substantially in India. Consumers are not longer averse to the concept of buying now and paying late washing machine sales through consumer financing schemes have been increasing from 199596. In India, the availability of consumer credit has also increased over the last few years. A few banks in the public as well as private sectors have introduced various consumer-financing schemes. Non-banking finance companies and even dome dealers have floated their own financing schemes. HDFC, in joint venture with General Electric of USA has promoted country wide consumer Financial services whose main line of business is retail financing of consumer durables. Whirlpool India Ltd. has entered into a joint venture with Apple industries Ltd. For extending credit to its consumers. In future also, consumer finance is expected to be a major demand propellant for washing machine. Price Change in excise duty structure Excise duties along with sales tax constitute around 20% of the price of a washing machine consequently, any increase or decrease in the duty structure has a significant impact on prices and hence, on demand. Change in perception The entire range of white goods was perceived as luxury by the government and accordingly, it levied high duties on washing machine. The market was, then, largely restricted to the upper & upper middle classes. However, with the increase in the number of urban households and working women, washing machine have come to be recognized today as a necessary item in most middle class house. The government has accordingly reduced the excise duty applicable on it. Increase in competition with the entry on MNCs The entry of global white goods player like Whirlpool Electrolux, LG electronics Ltd., and Samsung along with the introduction of new models with additional features by the domestic players had increased the range of models available to the domestic consumer. Thus the availability of better options is expected to induce higher purchases from the replacement market. Besides, intense competition in this sector will lead to higher discounts, gifts, attractive exchange offers and even lower prices. This is expected to propel the demand for washing machine.

Factors Influencing Demand in Passenger Car Industry In the case of passenger cars, the twin factors of rising income and finance schemes have made it all the easier to buy a car and try to estimate likely demand levels in the future. First take income levels for instance. Ten years back, the country embarked on a policy of economic liberalization. Since then it has been seen that households have moved up the income ladder with the number of households in the lower income groups actually declining. Assuming that household will save 35% of its income to pay for annual loan installments, fuel and maintenance charges, then the following table suggests that the annual income will have to be around Rs. 260,000 for a new car and Rs. 150,000 for a second-hand car. As and when the prices of second hand passenger cars drop, a larger number of households will become eligible for owning a car. For example, if prices come down to around Rs. 75,000 levels, then a further one million households will become potential customers. Sales in 1999-2000 were 762,237 units. And marketers remain bullish on the market. The 2004-05 projection: over 1.3 million units. The Indian industrys production capacity is already close to this figure, so marketers may want to hurry things along. Also, crossing the 1 million mark is crucial for any industry to support so many carmakers. Across the world, the cares market is known to start booming after a country reaches a GDP-per-head figure of $1,000 (India is currently at around$415 per head). However, its not clear whether India will follow the same pattern. Besides, marketers are aware that they have to start building their brands ahead-of-the-curve. The segment of midsize sedans is expected to grow as a proportion of the total, as replacement purchases see better-off families shift from subcompacts to family cars. Meanwhile, the segment of multi-utility-vehicles (MUVs) and sports-utility-vehicles (SUVs) is likely to grow faster than the average. An interesting market is that of two-wheelers. At 3.8 million units in 1999-2000, this market overshot the projection by 500,000 units. The current compound annual growth rate (CAGR) is 12.5 per cent. If this rate is used to extrapolate the market, it should reach 6.5 million units in 2004-05. However, the pace will probably slow. Still, even 5.5 million is large by global standards affording Indian twowheeler manufacturers the sort of economies of scale that only global players have. The main trend in the Indian two-wheelers market has been the shift from scooters to motorcycles, as an image-conscious generation grows up. The mobike segment has grown at a CAGR of 23 per cent, almost twice the category rate. The emergence of several hybrid products and sub-segments (scooterettes, step-thrus and so on) has been the other interesting feature, Indias market is uniquely placed to support indigenous innovations. The future is likely to see more automatic transmission products. New Product Prototypes Successfully creating a real-life product that mirrors your new product concept and meets your companys cost parameters is difficult. It takes months and years, even for smaller companies to accomplish. Many low-and high-tech products lend themselves to measurable quantitative instrument testing to see how well the product really works and to benchmarking against current competitors products already in the marketplace. Even informal taste-tests of prototype products in food businesses can be done in-house prior to real consumer exposure. Stirring the magic kettle of product development requires dedication, commitment, and often courage to find ways to meet the promises of a good concept. Whats more, you may find that your requirements for the new product change as you move along. Preliminary Checklist for Product Prototype Development Key target consumers or buyers can validate that product features and benefits in your prototype confirm to the original concept and meet the customers needs as well. Youll need to be sure that: 1. Packaging, pricing, and brand positioning meet the accepted concept targets. 2. Manufacturing, sales and distribution are achievable and manageable with your companys resources. 3. Your company has at least the minimum resources needed to successfully introduce the new product into the competitive environment and targeted market segment. 4. New product features and benefits can be accurately communicated to the target buyer group.

5. Your company can enjoy new product exclusively long enough to recoup development investment and achieve company growth, sales and profit objectives for the new product. When testing new products, dont forget to test packaging, pricing, and advertising. Testing Packaging and Pricing Many companies, large and small, spend years successfully developing a new product with great market promise but do not adequately test their packaging, pricing, and advertising prior to introduction. Package testing: New products and their packaging should be tested under real-life conditions for: Storage under varying temperature, lighting, and humidity Shipping through all distribution channels, with roughest handling Retail environment tests under sun and fluorescent lighting conditions Shelf life studies for age deterioration

Price testing: New product pricing should be examined for: 1. Competitive advantage (i.e. how is your product a better value than the competitors?) 2. Parity vs. competitors (i.e. are you getting as much for your product as your competitor/) 3. Premiums vs. competitors with similar products or substitutes (i.e. are your customers paying more for the extra value they receive?) 4. Adequate margins for: Distributor and wholesaler pricing Marketing spending support Profits

5. Consistency with brand positioning (i.e. products positioned as upscale should be more expensive than similar products positioned as mass market.) Product Usage Analysis People often believe that consumers cant tell what they want. For this reason, firsm tend to think its of to just go ahead and manufacturer products or launch web sites without any research. This is go fundamental that the idea forms the basis why people think marketing is about creating needs, rather than fulfilling needs. Most of this flawed thinking is due to a misunderstanding of how to conduct research on consumers. To understand this, consider that you asked consumers, say back in 1995, whether they wanted to buy books over the Internet. Of course they would have said probably not. Companies interpret their response as evidence that people dont want the Internet as a shopping vehicle, but then couldnt it also be that consumers didnt know what the Internet was so how could they respond in any positive way? Often people believe that consumers could never have said in any marketing research study that they wanted a computer. But again, this is due to a flawed way that people tend to think about marketing research. By the way, if you asked people long ago whether they wanted some way to correct typing mistakes or more easily conduct what if scenarios on their handwritten spreadsheets they response would be different. Consumers cant tell what they want if you focus on your product. But if the company focus on the benefits of your solution, any consumer can be able to make a thoughtful and meaningful response. If a company sells something that businesses would use, watch people in their officers or in their manufacturing plant or wherever they might use your product. Companies who sell medical equipment, for example, often have their salespeople spend time in the operating room just to observe surgeons as they work. Companies sometimes watch customers when they are beta testing their product, but this is often too late. Even without a product in hand, one can obtain much better information about the value of their idea by watching prospective customers in their normal situation.

Tips to Understand Product Usage Some of the important tips on understanding the product usage of the customers: Do more listening than talking Act like youre from a foreign country, or better yet, from a different plannet. See the world for the first time. In this way, youll get past your selective perceptions and biases and just see customers the way they are. Youll also ask better and more open questions and focus less on your solution and more on customers problems Try a variety of research methods Rather than focusing on one way of conducting research, try a variety of methods. For example, instead of just surveying customers, conduct in-depth interviews, have them draw pictures, tell hypothetical stories, or use observation techniques. Engage customers imagination Potential customers either have the ability to solve many of their problems of the imagination to identify ways of solving these problems. Get them to solve their problems by asking them how they would do it. Weve done this in focus groups by asking participants for their solutions to a current business problem and they are able to do this quite well. Even more engaging is to tap into customers imagination. You might ask them to form visual images (pictures in the mind) of how to solve a problem. For example, say youre thinking about a new business where people can buy groceries on the web. Ask them to delve into their memory about grocery shopping experiences theyve had, and/or have them picture the various ways they interact with a grocery store. Probing this level of a customers mind will point you in the direction of how to create not only original, but more importantly, useful product/service ideas. These techniques willhelp uncover the problems that customers face. This is the so-called pain that form the basis of what solutions customers may look for. As you might know, recently there has been talk that companies should not focus on current paid, but on the paid that customers will face in the future. But, again, these writers are not thinking correctly about the needs of customers the techniques were discussing, which have long been used y solid marketing companies, are looking for enduring customers pain, not the little transient problems that are easily erased with a trivial solution. All of these techniques will get you closer to understanding what customers really want, and give you a whole new perspective on marketing. You wont say any longer that marketing is about creating needs. Instead youll see that customers have profound and enduring needs, and good research can uncover them. Product usage situations It refers to those setting where consumption occurs. In many instances, purchase and usage situations are vitally the same. But product consumption often occurs in settings that are quite removed, both physically and temporarily, from the setting in which the product is acquired. Even when the purchase and usage situations are distinct, the latter can still have a powerful influence as consumers take into account the intended usage situations during decision making. The social surroundings that characterize a usage situation can have an important influence on consumer behaviour. The time at which usage occurs may also affect consumer behaviour. In order to understand why behaviour is affected by usage situations, it is useful to examine how the importance consumers attach to product attributes and their beliefs about a products performance may change across various settings. Morphological analysis This method analysis the structural dimensions of the product, which helps in getting to the relationsips between them. When a writing instruments is analyzed, the extent of its length, clarity and convenience become the relationship factors from where a new product can be found out. Research on the old Ford Escort indicated that a three box design found favour than a hatchback. Apart from more space for luggage, consumers felt the boot also provided more safety than a hatch. Indian customers also told Ford that rear seats used for 70% of the time. In other markets, the rear seat is used less than 10% of the time, whereas in India it is used extensively to cram in people. So, the Ikon was to have a roomier rear seat with full roll down windows, reading lights and comfortable centre seating as well. And the rear door openings were claimed to be the largest in the industry while the height of the chassis was

such that it will be easy to get in and out. The new Ford Ikon cars design and also taken care of the poor road conditions during the monsoons in India. What do Customers Really Buy? One of the most fundamental questions in marketing is what do customers buy? When thinking about a product or service, we can characterize the answer to this question in essentially two different ways: Product attributes (also called features) and benefits. In marketing, we first focus on the benefits that customer desire (since this is what really motivates purchase decisions), and later, as a tactical issue, we focus on the product or service attributes that provide those benefits. In my experience, people have trouble understanding the difference between these various ideas, so the discussion below is my attempt to help. Concrete and Abstract Product Attributes vs. Customer Benefits The first thing to note is that product attributes reside in the product, while benefits reside in the customer. For example, a car can have 4-wheel drive (a concrete attribute) and provide a benefit to a customer of being able to go various places. A computer can have a microprocessor with a fast clock speed (a concrete attribute) and provide the benefit of being ale to get your job done faster. You will note that product attributes tend to be concrete, but they can also be abstract. Think, for example, of a fast microprocessor. There is a more abstract way of thinking of this attribute by using the term performance. Benefits are always abstract, and they are often the result of a cluster of product attributes, some of which may be abstract attributes. For example, think of safety (say in a car). There is a cluster of concrete product attributes (e.g., air bags, brakes,. And body construction) that give rise to the more abstract concept of the benefit of safety. But note that safety can also be applied to the car (so its an abstract product attribute). Many times, abstract product attributes are closely related to benefits. When they are, you do not get much benefit out of making a distinction between attributes and benefits. It is often easier to think about what a customer buys by thinking along the continuum of concrete versus abstract ideas, regardless of whether we label it an attribute or a benefit. Since what customers buy are abstract concepts, it is easy to think in terms of concepts that are simply at too high a level of abstraction. Several of these concepts are well known. Take for example the generic words value and quality. What do these mean? Well, in fact, if you ask people to define these concepts you will likely find several answers, since they are so general that they are often meaningless. But are these useful to marketing a product? With this technique in mind, you might now consider the other major ideas that typically follow under the heading of customer benefits (but are simply too high). These include: reputation, or the ultimately useless idea (that I often hear) it works the way I expect it to work. Wall Street Journal studies shows that people consider reputation to have many aspects, including a reputation for vision/leadership, social responsibility, emotional appeal, and products. That is, benefits that are useful to marketing decisions are those which vary along a dimension. This is because an important aspect of marketing is understanding how firms or brands stand in their perceived delivery of benefits. The point is that the benefits that customers use to judge products and services vary along relevant dimensions, and thus we need to identify not just the general dimension, but the endpoints as well. Finally, note that these endpoints can usually be discovered by again asking the question What do you mean by that?

Lesson 25 Introduction to Branding Introduction Brand is a name term, sign, symbol, or design or a combination of theme intended to identify the goods or service of one seller or group of sellers and to differentiate them from those of competitors. In essence the brand identifies the seller (or) maker. Branding is a major issue in product strategy on the one hand, developing a branded product requires a great del of long term investments especially for promotion, advertising and packaging. On the other hand manufacturers eventually learn market power lies with building their own brand. Even when the companies can no longer afford to manufacture their products in their homelands, the brand name continues to command customer loyalty. A brand is essentially a sellers promise to deliver a specific set of features; benefits services consistently to the buyers. The best brand conveys warranty of quality. Brands convey even more meanings up to six levels. Attributes Benefits to the customer Producers values Culture Personality User

Steps and Operational Issues in Branding The steps in branding consists of the making the following decisions, which also form challenges to the marketers. Branding decisions-whether to or not to brand. Brand sponsor decision-who is to brand the product Brand names decision-what type of brand name Brand strategy decision Brand repositioning decision

Branding decision The first decision is whether the company should develop a brand name for its product. Branding is such a strong force that hardly anything goes unbranded. In some cases however there has been no branding of certain staple consumer goods and pharmaceuticals generics are unbranded, plainly packaged, less expensive versions of common products. They offer standard or low quality at a price that may be as much as 20 percent to 40 percent lower than nationally advertised brands and 10 percent to 20 percent lower than retailer private label brands. The lower price is made possible by lower quality ingredients, lower cost labeling and packaging, minimal advertising. Brand sponsor decision There are several options with respect to brand sponsorship. The product can be launched as any of the following types of brands. Manufacturer brand-called sometimes as a national brand like the Blowplast Industries VIP. Distributor brand-also called reseller, store, house (or) private brand Licensed rand name. although manufacturer brands dominate, large retailers have been developing their own brands by contracting production from willing manufacturers.

In year past, customers viewed brands in a category arranged in a brand ladder with their favorite brand at the top and remaining brands in descending order of preference. Now the brand ladder concept is being replaced by brand parity that many brands are equivalent. Qualities of a brand name are as follows Should suggest something about products benefits like fairever or fair & lovely Should suggest product qualities such as action or color like sunsilk, head and shoulders Should be easy to pronounce like Tide surf Should be distinctive like Rin, Lux Should not carry poor meanings in other countries and language.

Brand strategy decision A company has five choices with regards to brand strategy. They are, Lime extensions: existing brand name extended to new sizes of flavors in the existing product category the Cinthol cologne, Cinthol lime. Extensions may lead to the brand name losing in specific meaning

However there is a much higher chance of survival than brand new products. Brand extensions: where a company may use its existing brand name to launch new products in other categories like the brand Rin being extended to both detergent powders, detergent cakes. The new product may disappoint buyers and damage their report for the companys other products. The brand name may be in appropriate to the new product. The brand name may also lose its special positioning in consumers mind through over extension. Brand dilution occurs when consumers no longer associate a brand with a specific product or highly similar products. Multi-brands: A company will often introduce additional brands in the same product category. Sometimes the company is trying to establish different features or appeal to different buying motives. A multi-branding strategy also enables the company to lock up more distributor shelf space and to protect its major brand by setting up flanker brand. Hindustan lever limited produces three different brands of detergent powders. Company inherits different brand name in the process of acquiring competitors./ smithKline Beecham consumer health care owns the acquired brand names like Vita, Moltova. Hindustan Lever Ltd. owns acquired brand names like Brook Bond, Hamam Kissan. A major pitfall introducing multi-brand entries is that each might obtain only a small market share and none may be particularly profitable. The company will have dissipated its resources over several brands instead of building a few highly profitable brands. New Brands: New Brands are created when company launches products in a new category it may find that none of its current brand names are appropriate. Yet, the cost of establishing a new brand name in the market place is costly. Co-Brands: A co-brand is a combination of two or more well-known brands in an offer like the combination of SBI and GE Capital in the issue of SBI credit cards. Brand repositioning However well a brand is currently positioned, the company may have to reposition it later when facing new competitors or changing customer preferences. The UB groups McDowells Mera no.1 brand was once positioned for people with ecstatic moods but not it has been repositioned as a drink for socially responsible individuals.

Co-branding Co-Branding is an emerging phenomenon. It is also called duel branding. Here two or more well-known brands are combined in an offer. Each brand sponsor expects that the other brand same will strengthen preference or purchase intention. In case of co-packaged products, each brand hopes it might be reaching a new audience by associating with other brand. Types of co-branding: Co branding takes a variety of forms. Some are, 1. Ingredient co-branding is where one of the combining brands advertising that it uses the other brand(s) as its ingredient (s), like IBM (or) Compaq advertising that it uses the Intel chip by displaying Intel Inside. 2. Same company co-branding where two or more brands of the same company will combine in an offer like Godrej Sara Lees Good Knight mosquito repellent liquid and Godrej soaps Fairglow combining on a free offer. 3. Joint venture co-branding where two or more brands will combine for a specific cause like Punjab National Bank combining with HSBC for the issue of International credit cards. 4. Multiple sponsor co-branding where more than two brands combine for a specific cause, like Citibank combining with Indian Oil corporation and MTNL in the issue of Citibank card whereby the bills of MTNL can be paid at IOC outlets using Citibank card. Benefits of Branding 1. Branding makes it causes for the seller to process orders and track down problem. 2. The sellers brand name and trademark provide legal protection of unique product features. 3. Branding gives the seller the opportunity to attract a loyal profitable set of customers. 4. Branding helps the seller segment markets 5. Strong brands help build the corporate image, making it easier to launch new brands and gain acceptance by distributors and consumers Brand Extension A well established brand is a major asset. Brands exist for the long-term. They establish trust in consumers minds. They are a companys most valuable assets and they should be treated very carefully. Every change to the brand should be viewed in terms of its long-term impact on consumers. A well-managed brand will still be there long after its guardians have moved on. Brand extension is certainly a way in which the brand can be made much stronger but it also has the potential to dilute the brand equity or cannibalize sales of the parent brand. Too much brand extension that we se nowadays could be viewed as indicative or poor brand practice. Clearly brand extension is an area that has to be approached with a degree of caution. The maintenance of long-term brand health is of paramount importance and should never be sacrificed for short-term advantage when there is pressure to deliver. One of the ways in which this may be achieved is to analyze the reasons why brands are extended. Sometimes brands are extended for the wrong reasons such as technology enabling new forms of product delivery or simply to create a story for the trade or press. A successful brand extension will address genuine consumer needs and should be developed from the consumer demand side not the supply side. Developments such as technology should enable consumer needs to be fulfilled rather than simply tying to sell a new product into the market. Effective brand extension strengthens the brand franchise Brand extensions should be able to take the existing brand and make it stronger. This could be through addressing additional consumer opportunities or finding new uses. Bringing new users to the brand is one of the benefits of brand extension but it is important that existing consumers are not disenfranchised by the extension.

The reverse effect- dilution One of the principal dangers of brand extension is that the parent brand equity may be diluted. If there is a misunderstanding of consumers perception of the brand, it could be moved into a sector that consumers view as inappropriate. Quite often the parent brand will have been available for some time, enabling it to build a level of equity and trust with consumers. It will have strong credentials. Over time, its marketing has sought to build and secure these credentials within its target market. An irrelevant positioning has the ability to undermine the parents credentials. Creating a category This may be one of the ways in which brand extension can be successful. A brand that is moved into an existing product or service category may end up as a me-too unless it is able to achieve significant differentiation from the competitors. The new variant must be able to promise something different such as simplicity or sustained added value compared with existing brands in the sector. Types of Brand Extension Brand extensions are of two types: 1. Extension into related categories 2. Extension into unrelated categories Related extensions could further take two routes: 1. Extension into the same product category. This could be called category related extension 2. Extension into a category that is different but similar in benefits, association and appeal to the parent brand. This could be called image related extension. Need for Brand Extension The cost of establishing a new brand especially in the international markets is enormous. It is also a known fact that about one in ten product launches meet with success. This makes the proposition of launching a new brand risky. Often marketers tend to play safe by extending the brand to either the same category or a different category that is in line with the parent brand promise.

BRAND EXTENTION

Related

Unrelated

Category related

Image related
Parent and brand extension different (Tata steel) Product different (Tata tea) Fig. 25.1 Benefit (Products unrelated)

Parent brand (Cinthol) Same product (Toilet soaps) New variant (cinthol cologne)

Parent brand (Cinthol) Different product (Cinthol talcum powder) Comparable benefit (both cosmetic)

The following could also be the reasons for brand extension: Energising a brand A brand want to increase visibility. It extends into more variants. (e.g. Ponds Dream Flower Talc extends to Ponds Magic) Expanding core promise to new users A brand name might means a salient idea or a core promise. Godrej shaving cream was extended into a shaving cake to accommodate the price sensitive buyers.

Blocking or inhibiting competition Sometimes when competition is intense it becomes necessary to cover every niche. This can be seen in the detergent powder market. E.g. Surf has been extended to Surf Easy wash and Surf ultra and Ariel into Ariel supersoaker. Managing a dynamic environment A new trend brought in by competition, if ignored, might fundamentally alter the market. When such an outcome is feared, a product similar to the competitors is launched as a brand extension. Close-up created a new segment in the toothpaste market namely the gel segment. Colgate had to launch Colgate gel to protect its turf. When Palmolive soap was launched in three variants for three different types of skin, Lux struck back with the same three variants. When a consumer considers an extension like Nirma detergent cake after the successful acceptance of the parent Nirma detergent powder, the product similarity dimension induces acceptance. On the other hand, when the same Nirma tried to become beauty soap, the market took several years to accept the offering because of the perceived mismatch in the concept consistency dimension. It is for this very reason Colgate toothbrush is acceptable as a brand extension of Colgate toothpaste. There is perceived concept consistency in the extension. Pros and Cons of Brand Extension The most important benefit form consumes side and producers side due to brand extension is that the risk is minimized. The second advantage is the cost of the extension involved. This is much less in case of extension than in new brands. However there are contrary viewpoints as well. Extensions rarely expand category demand and retailers cannot provide more shelf space to a category just because there are more variants. The costs of over extension can remain hidden. There are many doubts about what to extend to. It might seem that the best thing to do is to go for category related extension. If that doesnt find favour then an image related and after that an unrelated extension. Some time this vew may not be always correct. If this were true, it would be difficult to explain the success of Tata and Godrej whose brand names appear on so many successful but unrelated products. The same is true for internationally true brand names like Honda, Sony, Yamaha and Panasonic. Thus the most important thing for the success of a brand extension is that the consumers should see some thing good in it and something common with its parent. Different Types of Brand Extensions 1. Category related These types of products have a same use with / slightly different benefit, for some or different set of customers. 2. Image related This is a relationship that transfers the emotional benefits and image of the parent to the extension. 3. Unrelated brands For this types of products there is no relationships except brand name. Brand Godrej shaving cream Category related Godrej shaving cake Image related Godrej hair dye Unrelated Godrej electronic typewriters

Usha ceiling fan

Usha table fan

Usha sewing machine

Usha industrial pumps

Parent extension image fit In this category the customer looks for in the parent when he/she compares it with the brand extension. In some cases there is some cases, the consumer is ready to accept brand extension into any product category because of the credibility of the parent brand. Brand name Bata Titan Lux Preferred extension product category Leather clothing, hand bag Wall clock, refrigerator Shampoo, nail polish

Category related extension Category related extension is the other name for a variant. For instance, Ponds talcum powder launching the sandalwood variant. This is done when. 1. The brand is seen to have lost some of its luster. 2. The brand volumes are slipping and the organisatoin suspects that it is lack of variety in the brand that causes this. 3. Competition has come too close or launched a brand similar to the parent. Example: Nirma powder to nirma detergent cake Both have been hugely successful, the cake being the less expensive one. The reason for the powders success was the price difference between the leading the then leading brand surf and Nirma The cake found ready acceptance in price-sensitive households, though they too are increasingly switching over to washing powder not. The main reason for the success of the extension are product form, credible brand name and affordable price. Image related extension In image related extension it is true that the image of the extension should match with the parent, at what level of abstraction it should match is something that can only be guessed. This helps in saving costs. it is easy to promote. There is a high probability of success for this kind of product. Example: Cinthol soap to talcum powder Cinthol as a soap has been a successful brand. However its talcum powder is far behind the leader Ponds. cinthol talc is seen more in league with smaller players in the talcum powder market like Liril, Cuticura etc. however the brand image fits the extension and that is most important consideration in any brand extension exercise. Indications are that this extension is supported adequately through advertising, product development etc. Unrelated extensions This it the most difficult extension to handle either in terms of predicting success or in terms of imaging the possible brand extension category. The name Tata or Mitsubishi is acceptable in a host of unrelated products. The name Tata has been extended from steel to salt to chemicals to cement. There are several reasons. First Tata and Godrej are age old brands. The fact that they have survived long gives the brand name an image of quality. Further when Tatas branded sales there was no other company that nationally did the same and succeeded. In other words Tatas were one of the very first to brand sale nationally. This is a case of

branding a hitherto unbranded product and besides the Tata name had the advantage of being unidentified with quality. This came in handy and the combination was a success. A quick look at the Indian brands suggest that umbrella branding in its most comprehensive sense (that is branding consumer softs, durables and industrial products with the same name) is best done using the names of BUSINESS HOUSES or ORGANIZATIONS. Examples Parrys (ceramics, tea, chocolates) Parrys as an organisation has been successful in almost all areas of operation. It is difficult to assess the role of brand image in the string of successes. For instance the customer for chocolate is different from the one for sanitaryware or tea. Nevertheless, the basket of products has made Parrys a respected name. Brand extensions might be successful more because products have managed well rather than on account of commonality of brand name. reasons for success might lie in better management at the individual product level rather than at the brand level.

Lesson 26 Brand Equity Introduction Brands have been a major aspect of marketing reality not for over a hundred years. The theory of branding came some time later. David Ogilvy was talking about the importance of brand image as early as 1951. It was first fully articulated, by Burleigh Gardner & Sidney Levy in their classic Harvard Business Review paper of 1955. But despite such distinguished origins, the concept of brand image remained until recently peripheral to the mainstream of advertising theory and evaluation. Although it was endorsed from the 1960s onward by the British Account Planning movement, it was also seen by many advertisers and researchers (especially in the United States) as a rather wooly theory the sort of thing advertising agency people talked airily abut when they failed to get a hard product massage across or to convert prospects or to make sales, as they were supposed to be doing. Brand image was associated with expressions like the soft sell and the weak theory of advertising, which gave it, for many, the air of a whimsical luxury that a businesslike advertiser could hardly afford. Then, in the 1980s the hardnosed business people began to notice that brands appeared to be changing hands for huge sums of money! As take-over fever spread, the difference between balance sheet valuations and the prices paid by predators was substantially attributed to the value of brands. Suddenly, the brand stopped being an obscure metaphysical concept of dubious relevance. It was something that was worth money. This shift of perception was reflected in the way that the traditional expression brand image (with its suggestion of a ghostly illusion), was increasgingly displace by its solid financial equivalent, brand equity. It is not clear who invented the expression, but few uses of it have been traced before the mid-80s. it achieved respectability when it was taken up by the prestigious Marketing Science Institute, which held a major seminar on the subject in 1988, and has been going strong ever since. In fact, the last few years have seen brand equity become one of the hottest topics in business. In America, there is a now an influential body called the Coalition for Brand Equity (founded 1991), which evangelises for the importance of building brand relationships and brand loyalty. Excellent (and very different) books have been published on the subject. It has spawned numerous conferences and seminars. It has attracted a lot of interest from academic researchers, although the greatest part of their work has been connected with brand equity as applied to brand extensions. Meanwhile commercial researchers have been busily designing and selling methods for measuring, tracking, and optimizing brand equity. All of this is fundamentally a good thing. It represents a long overdue shift in business and advertising thinking: from focus on making a sale, to creating and keeping a customer; from a purely short-terms perspective to one that includes the longer term profitability of the business; away from volume alone to recognize the importance of price and loyalty. (The brand equity movement, especially in the States, comes as a necessary reaction to a decade of ever-greater dependence on sales promotion) it has legitimized the idea that the consumers perceptions are more important than objective reality. And it raises serious questions about the adequacy of ways of evaluating advertising that focuses purely on message communications, conversion, or short-term incremental sales response. There are questions in brand equity that have still not been answered: What exactly do we mean by the term brand equity and do we all mean the same thing? How far can we expect to measure brand equity in an objective way?

Need for Brand Equity Karl Popper warned against a common mistake made by philosophers, which he called nominalism. The mistake is supposing that you will find the truth by starting with a word and arguing about what it really means. But words mean just what their users want them to mean. They can gave various different meanings, and it is pointless to argue about which is right or wrong. When a common expression does have distinct meanings, however, it is as well to be aware of the fact so as to avoid unnecessary confusion. This is true of the expression brand equity, which seems to be used in three quite distinct senses (and each of these three has several further nuances of meaning).

These are: a= b= c= the total value of a brand as a separable asset when it is sold, or included on a balance sheet a measure of the strength of consumers attachment to a brand. a description of the associations and beliefs the consumer has about the brand.

Of these three concepts, the firs could less ambiguously be called brand valuation (and often is). For the present it shall be referred to it as brand value. The concept of measuring the consumers level of attachment to a brand can be called brand loyalty although this phrase is almost as ambiguous as brand equity itself. Brand strength is preferable for this sense, and although this is also potentially confusing. The third could be called by the traditional name of brand image, but for clarity it may be referred to as brand description. This reflects its fundamental difference from the other two senses of brand equity. Brand value could also be seen as the old one out in another way, as it refers to an actual or notional business transaction while the other two focus on the consumer. In fact, brand strength and brand description are sometimes referred to as consumer brand equity to distinguish them from the asset valuation meaning. One concept expect these three concepts to be completely independent of each other. Brand strength should be one of the factors affecting the overall brand value; brand description might be expected to affect, or at least to explain, some of the brand strength. Underlying much of the talk about brand equity, and some of the more elaborate proposals for measuring it, such as the Yankelovich methodology. It is necessary to treat these three meaning of brand equity as distinct concepts, which require separate discussion. For each one, the questions of definition and measurement are closely linked; an operational definition, after all, means just knowing (or at least agreeing) on how something is to be measured. Brand strength will be the one examined at the greatest length because it is the central meaning of brand equity Joel Axelrod defines brand equity as the incremental amount you customer will pay to obtain your brand rather than a physically comparable product without your brand name. in order to measure this, customers are divided into different cells and shown different combinations of the test brand and competitors at different price levels and express preference using a constant sum technique. Jim Crimmins of DDB Needham (1992) has a somewhat similar approach to measuring the amount of value added by a brand name (to his credit, he avoids the dreaded E word!) The interviewing approach sound similar to Axelords. the output is an estimation of the price at which the test brand and each competitor are equally likely to be chosen. Notice that this measure of brand value added is not absolute, but varies according to which competitor is taken as the comparison. Crimmins reports that the value added by the number one brand in a market averages at 40% compared with store brands, but only average 10% compared with the number two brand; in both cases there is a wide variation around this median figure. Steve Roth describes the use of Brand Price Trade-off analysis to estimate brand equity. In this approach respondents choose their preferred brand at various different sets of price levels. By pooling all the respondents individual decision processes the computer can simulate market outcomes at any set of prices. From a brand equity viewpoint, this micro modeling approach shows that a brand can have different equity for different respondents. In looking at behavioral or attitudinal loyalty measures, any serious investigator into quantifying consumers degree of attachment to a brand is likely to discover this unsurprising truth that some customers will be far more attached to the brand than others. It follows from this that figures which average all customers to provide a total brand score may be misleading. Conversely, the process of decomposing a brands user base into more or less loyal users may be valuable in itself in planning marketing strategy. It may be that one of the main benefits of some brand equity research lies in this area, rather than the quest for a single yardstick for measuring brand strength.

Components of Brand Equity Brand Awareness Brand Identity

Brand Equity

Perceived Quality Fig. 25.2 Perceived quality

Brand Loyalty

One of the desired associations a firm seeks for its brand is customers perception of high quality. For, if the brand is perceive to be or premium quality, the customer will be willing to pay a premium for it. The firm will have greater trade leverage and channel members are going to have greater interest in dealing in such brands. A high quality brand also provides and adequate reason for the customer to buy it. It is important to note that perceived quality is not necessarily the same as manufacturing quality or product based quality. Perceived quality is how the customers evaluate different brands on quality and hence need not be as objectives as the other two are. High perceived means higher return on investment. Brand awareness Brand awareness is key strategic asset. In some industries where there is product parity, awareness provides a sustainable competitive difference. Brand awareness can provide a host of competitive advantages. First, awareness provides the brand with a sense of familiarity, and people like the familiar ones. For low involvement products such as soap or soft drinks, familiarity can drive the buying decision. Second, name awareness can be a signal of presence, commitment, and substance, attributes that can be very important even to industrial buyers of big items and consumer buyers of durable. This logic is in large part behind the successful efforts to brand companies such as Honda and Intel inside. Third, the salience of a brand will determine if it is recalled at a key time in the purchasing process. For instance, the initial step in selecting an advertising agency, a car to test drive or a computer system is to decide on which brands to consider. The extreme case is name dominance, where the brand is the only one recalled when a product class is thought of. At one stage Ambassador in cars, Bajaj in scooters, Scissors in cigarettes were only recalled. Brand awareness is an asset that can be remarkable durable and thus sustainable. It can be very difficult to dislodge a brand that has achieved a dominant awareness level. Brand identity A key enduring business asset can be its identity; the associations attached to a firm and its brands. A brand association is anything that is directly or indirectly linked in memory to the brand. Consumers associate a brand with certain tangible and intangible attributes. Most of these associations are derived from brand identity and brand image. Each company has to carve a brand identity and develop it further to build strong brands. A brands associations are assets that can differentiate, provide reasons to buy, instill confidence and trust, affect feelings toward a product and the use experience, and provide the basis for the brand extensions. The most common association is that of product attributes or customer benefits Denim as masculine, Pepsi is for youth, Philips for technology and innovation etc. in addition to product attribute and customer benefit and associations, brands gain strategic position by association with: User or application (Nestle Milo with sports activities) Product class (Maggi as instant noodles) Product user (Lifebuoy for the working class) Life style and feelings (the Pepsi generation)

Personality (Surf for quality conscious, upmarket ladies) Symbol (Penguin of Kelvinator fame)

Other associations stimulate positive feelings that are then transferred to a brand and to its use experience. Celebrities like Sachin Tendulkar, symbols such as the Gattu, or slogans like Come share the experience can stimulate positive feelings. The associations and their companion feelings then become linked to the brand. Associations can create positive feelings during the use experience, serving to transform a product into something different from what it might otherwise be. Advertising, for example, can make the experience of drinking Pepsi seem more fun and driving a Bolero more adventure some than without the advertising. An association can provide the basis for the extension. Hondas experience in small motors makes extensions from motorcycles to outboard motors and lawn mowers plausible. Brand loyalty A customer orientation will lead to concern for existing customers and programs to generate brand loyalty. A prime enduring asset for some businesses is the loyalty of the installed customer base. Competitors may duplicate or surpass a product or service, but they still face the task of making customers switch brands. Switching costs would be a consideration for a software user, for example, when a substantial investment has already been made in training employees to learn a particular software system. Brand loyalty can develop in many ways. The consumer may try a brand and on being satisfied with the use experience, repeat the purchase. In other cases, he may compare the attributes of different brands available in terms of their ability to render the desired service, choose one and repeatedly purchase it. Other factors like image of the manufacturer, price of the brand, perceived quality and packaging might also influence the choice of the brand. Absolute brand loyalty is rare but every marketer tries to approach it. Three levels of brand loyalty are identified: brand loyal, brand insisters and brand referrers. Customers who will not buy another brand if their brand is not available are brand loyal. When a customer looks for his brand at other outlets if it is not available at one shop before eventually purchasing another brand of the product is a brand insister. Brand preference is where the customer asks for his brand and on its non-availability purchases some other brand from the same shop.Brand loyalty provides the time to competitive moves-it gives a firm some breathing room. If a competitor develops a superior product, a loyal following will allow the firm the time needed to respond by matching or neutralizing. For example, some newly developed high-tech markets have customers who are attracted by the most advanced product of the moment; there is little brand loyalty in this group. In contract, other markets have loyal, satisfied customers who will not be looking for new products and thus may not learn of advancement. Furthermore, they will have little incentive to change even of brand loyalty; a firm can allow itself the luxury of pursuing a less risky follower strategy.The management of brand loyalty is a key to achieving strategic success. It involves placing a value on the future purchases expected from a customer so those existing customers receive appropriate resources. Measurement of brand loyalty should include not only sensitive indicators of customer satisfaction but also measures of the relationship between the customers and the brand. Brand loyal customers could still derive higher satisfaction when the marketing strategies of the brand managers provide more benefits than expected, leading to customer delight, and to the contentment stage of satisfaction. There is a minimum threshold of satisfaction before any brand loyalty sets in. once this threshold is achieved, the brand loyalty increases with the increase in the satisfaction level. It thus become increasingly difficult to take away satisfied customers from their brands as satisfaction increases. Loyalty is a core dimension of brand equity and is a way to gauge the strength of a brand. It represents a barrier to entry, a basis for a price premium, and time to respond to competitive innovations. The advantages of brand loyalty are: 1. Reduces the marketing costs. 2. Creates substantial entry barriers 3. Provides for trade leverage 4. Augments customers retailer choice 5. Large satisfied customer base boosts the image and acceptance 6. Time to respond to competitive threats (BPL used advertising to counter LG)

Lesson 27 Brand Positioning Perceptual Mapping To position the brand a technique called perceptual mapping is commonly used. This technique involves studying the consumers perception of the product and competitors brands and based on it identifying vacant slots : specifically this involves the following: 1. Studying the ideal product perception this involves studying both tangible and intangible attributes that a customer looks for while buying a product. Among the tangibles are product features, performance levels, style and aesthetics of the product packaging, product components and even price and distribution. The intangibles will include the services that a customer looks for, like after sales service, training on how to use the product, financing assistance etc. 2. Get the customers to rank these attributes in the order of importance to them 3. Customers knowledge of the competitors brands. 4. How do the competitors brand favour in the ideal product map. Here the customers are asked to assess competitors brands and specify how close or far they are on each attribute to the ideal product. 5. Based on the assessment of competitors brands on the ideal product map, product managers identify vacant slots and then build the positioning strategy by filling these up. It is important to note here that if an attribute sought by a customer is not high on his/her priority and the firm feels it has the strength in it and should be considered by the customers, the firm can adopt a strategy to help change this perception. But the customer perceptions should be continued for, changing customer perceptions in a long drawn out strategy involving substantial resources. After this perceptual mapping is done, the marketer uses statistical techniques to arrive at a position. Positioning in relation to product categories Each product category attempts on different positioning strategies. The case of positioning could be continued with taking the consumer durable sector as the category. Positioning in consumer durable sectorProducts like refrigerators, washing machines, television sets are by and large infrequently purchased by most customers, who invariably gather a fair amount of information prior to the purchase. Positioning tries to win over the consumer by projecting the brands superiority over others on certain selected dimensions. Most Common Positioning Strategies in the Consumer Durable Sector Liking to uses This strategy is based on identifying the possible uses to which the firms brand can be put to. In a way it may appear same as use situations but differs from it because this talks on all the possible uses of a product or brand. For e.g. since video cassette recorders (VCRs) could be used in playing, recording and regulating the pace at which the different scenes can be watched (like pause, forward etc) most customers saw it as a distinct development over the video cassette player and the demand for VCR boomed. Head on competitive positioning This is the strategy of placing a firms brand next to the leader in the market and trying to uproot it on a specific tangible variable. For eg. Onida was positioned against the giants in television industry through this strategy. For Onida colour TV was laumnched on the message that all others were clones and only Onida was the leader and the message said the boss wasnt late; it was others who arrived in a hurry and later followed it with the envy concept. Today, Onida has been able to uproot all the yesteryears leaders in the TV market.

Life style positioning A firm may even position the brand as a lifestyle contemporary of futuristic. Many of todays new kitchen appliances like microwave ovens are positioned accordingly. Positioning by corporate identity This type of positioning is seen very much with consumer durables when a tried and trusted corporate identity or source which has become a household name for products like Philips for radios and lamps is used to imply the competitive superiority of newer products bearing that name: Philips mixies, Philips electric irons, Philips refrigerator. Godrej company also often uses this strategy in positioning their product. By stressing on the Godrej product. BPL too uses this corporate identity. It says From BPL. Positioning by versatility of usage Many consumer durables are positioned on the basis of the versatility of usage. For eg:- Prestige pressure pan is positioned in such a way that the product is designed specifically to give the benefit of versatile usage to the consumer. Surrogate positioning In this kind of positioning the product cant be positioned differently on the basis of attributes but differentiated by positioning them on the surrogates for the attributes. The claim would be that our product is better or different from others. For eg. The Futura pressure cooker is advertised based on this surrogate ideas. It uses two kinds of surrogate ideas predecessor the popular and trusted Hawkins association and Endorsement because Indians admire Western designs and are impressed by the western names. The positioning strategies adopted by consumer durables depend a lot on usage, economy and corporate identity of which a well established brand surely projects the identity of the product in terms of which corporate house the product is from. Benefit or usage is the next positioning strategy used. For eg. BPL Converti projects out the multistage of the product. Brand Positioning in TV Sector The Indian colour television industry actually developed in 1982 during the asian games when a large number of CTVs got imported due to the concessional duties allowed during the duration of the games. After this a number of companies entered the market. In mid eighties the CTV sector was dominated by companies like Weston, Texla, Dynaro and Nelco. Videocon and Onida gained acceptance after some time. In the late eighties adequate attention was paid by serious manufacturers like BPL, Videocon and Onida to logistics, economies of scale and brand equity. BPL BPL Limited operates in the areas of consumer electronics viz colour and B/W TVs, audio equipments, VCRs etc. BPl Sanyo Home Appliances Ltd is a joint venture between the BPL and Sanyo of Japan and it operates in the home appliances and refrigeration segments viz refrigerators, washing machines, vacuum cleaners, microwave ovens etc. currently BPL Ltd is the leader in the colour TV and second in the B/W market. Strategies used BPL has projected itself as a technology leader with emphasis on quality. Technoloy leadership does not mean premium products for the different sectors of the society only. It means giving the technology and quality to the consumer in the entire range of products, both hi-end and or low-end. To achieve this BPL launched the most advanced and contemporary models in the hi-end market to demonstrate its technological superiority. The premium image thus has an impact on all the models of the company in the lower price segments also and helps BPL to gain volumes there, BPL uses this strategy not only for CTVs but for all its products which resulted in tremendous brand equity for BPL. Thus by introducing newer and newer models BPL has adopted PACE as a major strategy for battling competition and this has further reinforced its image as a technology leader eg. The latest BPL home theater.

By theory durables are bought mainly on rational ground but emotional involvement is found to have assumed importance in recent years. It was possible that consumer say BPL as a smaller brand than its rivals, simply because they made more noise in the media. Market research by BPL showed that despite its efficient marketing and its image as a quality brand, it was perceived as an unemotive and humorless brand especially among the youth. In contrast Videocon has constantly been perceived more as an amenable and home brand because of its warm advertising. BPL thus changed its positioning strategies into more of a home brand in 1994, along with this BPL has also been wooing the youth by sponsoring music shows. It also sponsored programmes on TV like BPL Oye and flashed the logo across movie halls screening the megahit speed everywhere in India. This gave a fashionable image to BPL which is drawing the youth to it. Philips Philips is now shaking off its old image of a lethargic Indian company and is projecting itself as an aggressive technology oriented multinational. The TV is not only sought to be projected as reliable (which wsa the earlier image) but also the trendy and a quality product at competitive price. So the slogan sems to be Best value for money without compromising on quality. Philips is also launching new models from its world wide stable to give a variety of latest products. The company is also using its new high value premium products to build its brand image. The USP of the Philips Crown TV is its sound fidelity and effects. Thus the company point apart form its other features. Thus the company advertises on this sound quality as a strong point apart from its other features. Even today Videocon stick to its value for money slogan. It is this image that Videocon wants to develop and make it a household name. it introduced the concept of surround sound, Bazooka and Clear Definition TV (CDTV) to cater to the premium segment. Onida If BPL stands for technology leadership, and Videocon for value for money, Onida stands for snobbery i.e., it has projected itself as a premium brand for the premium end of the market. Going on with its image, Onida is known for the quality and aesthetics of its products and has become a status symbol. However Onidas exclusive image is now facing competition from BPLs image of technology leadership both of which seem to be similar (especially with both launching high priced feature rich models) as opposed to Videocons value for money image. Onidas image has been spectacular and is most vividly recalled. Its advertising campaign featuring the Devil consistently with the now legendary phase Neighbours envy, owners pride has been effective in harnessing the concept of snobbery in the consumers mind.

Lesson 28 Packaging Introduction In recent times, packaging has become a vey important part of product management. With competition increasing, marketers are turning to innovative packaging to establish a distinctive edge. Marketers are providing value addition to products and greater benefits to consumers through packaging, thereby attempting to increase brand value. Packaging as an industry has two sectors those who make packaging material and those who convert these materials into packages. A package is both a medium of communication and a message. With the advent of selfservicing in retail outlets across the country, it is now important that the companies concentrate on pulling the consumer to their brands through the use of effective packaging. Importance of Packaging Packaging performs variety of functions and hence it is inevitable that a manufacturer concentrates on this aspect. Packaging not only give protection to the product, but also adds value through tits aesthetic appeal. Good packaging covers an ideal of the quality of the product; it has a value, which is distinct from the value of the product. The widespread use of self-service and automatic vending machines has made packaging to do the selling job at the point of purchase. The increase in the lifestyles of the people has forced them to pay a little more for convenience, appearance, dependability and prestige. Packaging gains importance in those products where there can be a possibility of interactions or create an odour etc. Packaging aids in positioning and differentiations of the particular brand. Packaging can also be sued to avoid direct price comparison with the competing products. For those products, which extensively rely on the sales promotional efforts, importance of packaging is instrumental in the success of the sales promotion. Advantage of Packaging 1. Packaging is the one, which conveys the brand message at the time of ultimate purchase. It is found that over 50% of all purchases are impulse purchases. These impulse purchases are highly affected by well-designed packaging that has impact and creates a favorable appeal. One of the important considerations at this stage is that the brand should complete with other brands for attention. It is at this point that packaging plays a vital role. 2. For those consumers who are specifically looking for a brand or type of product, packaging is important. This self-selection makes the package audience the most valuable group of people a marketer can target. 3. Well-designed packages help consumers quickly identify a brands unique selling points with various phrases like :More, Cleans hard stains, Chemicals free, Used Through recycled material etc. 4. Brand identity is communicated better and cheaply for some products. Marketing research has found that consumers often cannot remember the brand name of products they use, but they can describe the package. 5. For heavily advertised brands, packaging provides the link between advertising and the product. Advertising informs the products benefits, but the packaging shows customers what to look for to get these benefits. 6. The visual impact provided through packaging is an important form of persuasive non-verbal communication. 7. The package can add value to the product it contains. Nescafe bottles are being reused in homes whereby it provides value to the consumer over and above the premium attached to the brand. Factors to be Considered in Packaging Whenever a company plans a new product, once in the product development stage, packaging is discussed. Each company tends to develop a somewhat unique approach to packaging. But there are common steps. First, a packaging person is put on a new product team. Field trips are mandatory. The process for package development resembles that for the product itself. Tests include dummy packages, in-store displays, color tests, visual tests, psychographic tests, physical tests etc. The packaging involves mainly three areas, which need to be given importance, or care should be taken. They are :

Package materials Wood is the earliest form of packaging. It slowly gave way to paper and paper boards and is the most popular packaging material in India now. Paper board cartons, paper bags and corrugated boards are the sought after forms of packaging for a variety of products from groceries to garments. Metal container and jute are also preferred as the packaging material. Metal containers constitute an excellent packaging medium for processed foods, fruits, vegetables, meant products, oil paints etc. However acute shortage of Tin makes this material more costly. Aluminum based packaging has entered the markets. Most of the fruit juice come in this material. Films of low density and highdensity polyethylene, metalized polyester film, metalized polyester laminates and polypropylene have become preferred packaging medium for several products. Many of these synthetic package materials have several merits like waterproof, moisture proof, attractiveness and transparency, alkali and acid proof and lightweight and thermal stability. Packaging aesthetics With the advent of super markets and retail chains where the role of the seller is limited and the decisions are taken only by the consumers, packaging aesthetics are inevitable. Packaging serves as a potent tool for sales appeal in terms of brand identification, product differentiation and merchandising. Thus using this aesthetics, the package acts as a silent salesperson. When the shape of the product is integral to appeal, innovative packaging can greatly help in generating trials. The recently launched soap, Maxim had a very flexible packaging that a consumer can actually feel the product. Another brand, Palmolive introduced a transparent package for a consumer to see the product. Le Sancy soap was packaged in a transparent polyethene with its unique bean shape and got the attention of the customers. The size the shape of the package, the material used, the finish, the color, the labeling, the branding followed on the package are all influential in the total sales appeal of the product. Package design A good package design must be attractive and eye catching. Packaging design is critical to the success of a brand and without giving it the right investment in time, money and resources, companies will miss the potential for the brands success. It should not be a strain for the consumers who look at it and examine. A bad package design may harm the total product message. Package design and colour have to be blend optimally to make package communications effective. Logo, pictures, labels and other illustrious on the package increases its communication value. the fiercely competitive detergent cake market is an example. The packaging is simple and of lower quality material keeping in mind the price wars. They highlight the brand name in larger sizes than usual and bright colors like yellow are used. The inside of the Medimix soap wrapper clearly depicts the information on how to use the soap for the purpose of removing dandruff. The colours used in the tooth paste market is predominantly red and white. Normally white lettering is used. Red denotes excitement and hyperactive. The packaging of Cinthol has a glossy look. The packaging may not include flashy colour and eye catching designs, but those designed for the high life style groups are usually elegant, stylish and simple. Color is a factor, which is used in packaging to augment the appeal that the product has. The Fair and Lovely soap and fairness cream have pink color. This highlights the base concept of fair skin. Colors must be chosen in a way that they are attractive and catch the attention of the consumer. There are several legal aspects, which needs to be incorporated in the packages, which are enforced from time to time. They need to be shown on a secondary package at least.

Lesson 29 Future Trends in Product Management Future Trends in Marketing Market researchers, ad agencies and many others have been tying to figure out what consumers want since the opening of the first store. Valuable as traditional qualitative techniques such as focus groups and in-depth interviews are, there is another way to study consumer behaviour that can get at otherwise unobtainable truths. On-site observations, or research by watching people, gives researchers the chance to observe and learn about consumers purchasing decisions as they are being made. This is most effective if done in a supermarket situation where consumers can walk around and decide on their purchases. The best approach is for the resear5cher or manager or whoever, to be in, say, a supermarket at that moment and present himself or herself as a shopper who needs advice for making a decision. The consumer identifies the researcher as someone who deserves assistance, and no long introductions are required. If the trained researcher asks the right questions about the product, the answers will come naturally. Shoppers tell about prices, taste, quality, health, ingredients, packaging and so on just what researchers want to know. Moreover, unlike focus groups, consumers will tell spontaneously without feeling that they must give an acceptable response because they are being paid or because they like to show off. Nor will there by any problems with their recall about a product or how often they have really used it. Finally, if an interview is unproductive e, moving on is easy. Just take your shopping cart and approach someone else. A skilled researche can do about 35 interviews a day in several supermarkets with minimal overhead costs, an excellent yield for qualitative work. Of course, when it comes to testing a new product, exploring certain concept sin depth and having members of a group bounce ideas off each other, there is no substitute for focus groups. But on site observation has many benefits and should be used far more often. Doing so, however, is not that easy. This type of research requires intensive training in interviewing and observational techniques. The researcher only has about three seconds in which to make eye contact, introduce himself and pop the question that will determine receptiveness. He must know, by sizing up the shopper according to dress, demeanor, contents of their cart, the neighborhood the store is in, age, gender etc. The marketing scenario has changed today with an increasing emphasis on customer delight rather than jus customer satisfaction. Today, companies need to put in additional effort to learn the likes / dislikes of their customers. In an age where product differentiation is tending to zero and brand promiscuity is a marketers recurring nightmare, it is the customers relationship with the brand that is becoming increasingly important. Companies are looking at ways and means of entering into a regular dialogue with their customers, to build this ever-so-important relationship. One way of entering into a dialogue with customer is by running loyalty programmes. These are essentially marketing exercises carried out by a company to provide value added services to its customers for being loyal to the brand. The value-added services can be in the form of discount coupons, loyalty points for repeat purchases that can be redeemed against gifts, providing information updates to consumers based on their requirements, invitations to special promotional events, trade-up schemes, customer-get-customer schemes and so on. Loyalty programmes normally manifest themselves as loyalty cards, special mailers and the like. The underlying reason in all the effort is to be in constant touch with the customer, thereby ensuring top-of-the-mind recall and also moving the brand to the next level of relationship with the customer, beyond just the product attributes and benefits, Until today, loyalty programmes have been the forte of companies dealing with high value premium products and services such as hotels, airlines and credit cards. These companies service a relatively small, niche and upwardly mobile target audience with high purchasing power. While there could be any number of stated reasons, the one logical reason most own up to is costs. offline loyalty programmes are extremely expensive to run and maintain, especially in terms of cost per contact.

Internet Prognosis for the Product Manager As a product manager. The future primary responsibilities are: Strategy development: He will oversee the long-term strategy for the product category, like specific competitive strategies for different market segments as well as develop product line extensions and project demand. Consumer understanding: he will maintain close contact with the consumer and develop and intimate knowledge of consumer attitudes and behavior. He will champion the cause of the consumer in the business. Product innovation: His awareness of consumer needs gaps and appreciation of technological possibilities will impact the product development team and help bring about innovations with tangible benefits to the consumer. Brand equity management and communication: As a custodian of the brand, he will build the image and personality of the brand and communicate it consistently through advertising over different media. He will be responsible for optimizing advertising spends and the selection of the right media mix to reach the specific target audience. Team leadership: An excellent team leader and team player, he will co-ordinate with the sales and product development teams to facilitate and implement business initiatives I these areas.

MODEL QUESTION PAPER Paper 4.11 PRODUCT MANAGEMENT Time : 3 hours Part A Answer any Five questions Note: All questions carry equal marks All questions carries equal marks 1. 2. 3. 4. 5. 6. 7. 8. What are the duties of the product manager? Why product modification is resorted to by companies? What is product policy? Mention some of the idea generating methods. What are the launch mistakes? What is 7S framework? What are venture teams? What are the various areas of product research? Part B Answer any Four questions Note : All questions carry equal marks Question No. 15 is Compulsory 9. 10. 11. 12. 13. 14. 15. Explain the reasons and implications of product deletion. Describe product life cycle as a potent tool. Explain how product planning can be undertaken? Describe the various test marketing strategies. Trace the new product successes and failure in the Indian context. Why Top management has to consider NPD seriously? Justify. Analyse the give case and answer the questions given below. (4 x 15 = 60) Maximum Marks : 100 (5 x 8 = 40)