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Chapter
8
Developing and managingproducts
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Learning objectives
1 Define the termsproduct item,product lineandproduct mix
2 Explain the concept of product life cycles
3 Explain the importance of developing newproducts
4 Describe the six categories of new products
5 Explain the steps in the new-product
development process6 Explain the diffusion process through which
new products are adopted
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1Define the termsproduct item,
product line andproduct mix
Learning objective
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1 Product items, lines and
mixes
Product item
Product line
Product mix
A specific version of a productthat can be designated as a
distinct offering among anorganisations products.
A group of closely relatedproduct items.
All products that anorganisation sells.
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1 Benefits of product lines
Why form product lines?
advertising economies
package uniformity standardised components
efficient sales and distribution
equivalent quality
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1 Product mix width
The number of product lines anorganisation offers:
diversifies risk capitalises on established reputations.
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1 Adjustments
Productmodification
Productrepositioning
Product lineextension or
contraction
Adjustments toproduct items,lines and mixes
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1 Product modifications
Quality modification
Functional modification
Style modification
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1 Planned obsolescence
The practice of modifying products sothose that have already been sold
become obsolete before they actuallyneed replacement.
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1 Repositioning
Why reposition established brands?
changing demographics
declining sales changes in social environment.
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1 Product line extension
Adding additional products to anexisting product line in order to
compete more broadly in the industry.
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1 Product line contraction
Symptoms of product line over-extension
some products have low sales or cannibalisethe sales of other items
resources are disproportionately allocated toslow-moving products
items have become obsolete because ofnew-product entries.
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2Explain the concept of
product life cycles
Learning objective
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2 Product life cycle
A concept that provides a way to tracethe stages of a products acceptance,
from its introduction (birth)to its decline (death).
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2 Product life cycle (cont.)
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2 Introductory stage
Full-scale launch of new products High-failure rates
Little competition
Frequent product modification
Limited distribution
High marketing and production costs
Negative profits
Promotion focuses on awareness andinformation
Intensive personal selling to channels
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2 Growth stage
Second stage Increasing rate of sales
Entrance of competitors
Market consolidation
Initial healthy profits
Promotion emphasises brand ads
Goal is wider distribution
Prices normally fall
Development costs are recovered
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2 Maturity stage
A period during which sales increase ata decreasing rate Declining sales growth
Saturated markets Extending product line
Stylistic product changes
Heavy promotions to dealers and consumers
Marginal competitors drop out Prices and profits fall
Niche marketers emerge.
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2 Decline stage
Where sales keep declining over arelatively long period of time
Long-term drop in sales Large inventories of unsold items
Elimination of all nonessential marketingexpenses
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2 Product category
All brands that satisfy a particular typeof need.
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2 Product category (cont.)
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3Explain the importance of developing new
products
Learning objective
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3 Why new products?
New products are needed to sustaingrowth, profits and replace obsolete
items Ultimately in a FMCG market nine out of
ten new listed products fail
Product death occurs due to market
changes and the decline in quality,quantity and viability of consumerresearch.
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4Describe the six categories
of new products
Learning objective
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4 New product
A product new-to-the-world, themarket, the producer, the seller or some
combination of these.
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4 Categories of new products
Six categories of new products:
1 new-to-the-world
2 New-product lines3 product line additions
4 improvements/revisions
5 repositioned products
6 lower-priced products.
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5Explain the step in the
new-product development process
Learning objective
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5 Successful new-product
development process
New-product success factors:
long-term commitment
New-product strategy
capitalise on experience
establish an environment.
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5 New-product
development process New-product strategy
Idea generation
Idea screening
Business analysis
Development
Test marketing Commercialisation
New product.
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5 Idea generation
Sources of new-product ideas:
customers
employees distributors
competitors
research and development
consultants
creative thinking.
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5 Brainstorming
The process of getting a group to thinkof unlimited ways to vary a product or
solve a problem.
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5 Idea screening
The first filter in the product-development process, which eliminates
ideas that are inconsistent with theorganisations new-product strategy, orare inappropriate for some otherreason.
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5 Concept test
A test to evaluate a new-product idea,usually before any prototype has been
created.
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5 Business analysis
Considerations in business analysisstage:
preliminary demand cost
sales
profitability.
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5 Development
Creation of prototype
Marketing strategy
Technical production feasibility Final government approvals, if required.
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5 Test marketing
The limited introduction of a productand a marketing program to determine
the reactions of potential customers in amarket situation.
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5 Choosing a test market
Similar to planned distribution
Relative isolation and free of influences
Advertising availability; multiple media Diversified cross-section
No atypical purchase habits
Representative population/income
Not overly used or easily jammed Year-round sales stability
Available research/audit and retailers.
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5 Alternatives to test
marketing Single-source research using
supermarket scanner data
Simulated (laboratory) market testing.
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5 Commercialisation
Steps in marketing a new product:
production
inventory build-up distribution shipments
sales training
trade announcements
customer advertising.
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6Explain the diffusion process through
which new products are adopted
Learning objective
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6 Diffusion
The process by which the adoption of aninnovation spreads.
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6 Categories of adopters
Categories of adopters in the diffusionprocess:
innovators early adopters
early majority
late majority
laggards.
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6 Categories of adopters
(cont.)
Percentage
ofa
dopters
Time
Innovators2.5%
Earlyadopters13.5%
Latemajority
34%
Earlymajority
34%
Laggards16%
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6 Product characteristics and
the rate of adoption Product characteristics predict rate of
adoption.
Complexity Compatibility
Relative advantage
Observability
Triability.
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6 Marketing implications of
the adoption process Communication aids the diffusion
process
Word-of-mouth Direct from marketer.