PSM NOTES

Strategic Planning

Definition: Market oriented strategic planning is the managerial process of developing and
maintaining a strategic fit between the organization’s objectives, skills and resources and it’s
changing opportunities. The aim of strategic planning is to shape the company’s businesses and
products so that they yield target profits and growth. Everything revolves around analyzing the
Environment.

Steps in Strategic Planning:

Tasks in Strategic Planning: There are 6 tasks in SP. They are—

1. Clarifying the mission: An organization exists to accomplish something: to make cars, lend
money, provide a night's lodging, and so on. Its specific mission or purpose is usually clear
when the business starts. Over time the mission may lose its relevance because of changed
market conditions or may become unclear as the corporation adds new products and
markets to its portfolio. Organizations develop mission statements to share with managers,
employees and customers. A well-worked-out mission statement provides employees with a
shared sense of purpose, direction, and opportunity.
Good mission statements have three major characteristics. First, they focus on a limited
number of goals. Second, mission statements stress the major policies and values that the
company wants to honour. Third, they define the major competitive scopes within which the
company will operate.
EXAMPLE--------
Google’s mission is:
"To organize the world's information and make it universally accessible and useful."

2. Defining the business: This step involves identifying the industry, target market, and key
customer needs the company serves. It ensures that the business is aligned with its market
demands. This step involves identifying what business the company is really in and what
core value it provides to customers. Companies that fail to redefine their business model
often struggle when industries change.
EXAMPLE--------
 Netflix started as a DVD rental service but redefined its business model into a digital
streaming platform. Today, Netflix defines itself as an entertainment technology company,
focusing on streaming and producing original content.
By shifting its business definition, Netflix successfully transformed into a global leader in
entertainment.

3. Surveying the environment: This involves analysing external factors like market trends,
competition, economic conditions, and technological advancements using tools like PESTEL
and SWOT analysis. Businesses operate in a dynamic environment influenced by various
internal and external factors. To make effective strategic decisions, companies must conduct
a thorough analysis of both:
 Microenvironment – Factors that directly affect the business (industry-level).
 Macroenvironment – Broader external forces that shape the overall business
landscape (economy, society, technology, etc.).

EXAMPLE---------

Tesla constantly surveys the EV industry, monitoring government policies, battery technology,
and competitors like BYD and traditional automakers.

For instance, Tesla expanded in India in 2024 after recognizing government incentives for EV
manufacturers, ensuring market alignment.

4. Internal Appraisal of the firm: This step assesses the company’s strengths and weaknesses in
terms of resources, capabilities, and competitive advantages.
EXAMPLE-------
Apple’s internal appraisal focuses on R&D capabilities, brand loyalty, and supply chain
efficiency.
 Strength: Premium brand, innovation, ecosystem of devices
 Weakness: Dependence on China for manufacturing
Apple recently diversified its supply chain by expanding production in India and Vietnam,
addressing internal risks related to dependency on China.

5. Designing the Business Portfolio: A company must decide which business units (SBUs) to
invest in, divest from, or expand, ensuring a balanced portfolio. This is often done using the
BCG Matrix. A Strategic Business Unit (SBU) is a distinct, autonomous division within a larger
company that operates independently and focuses on a specific product line, market, or
industry segment. Each SBU has its own strategy, competitors, customers, and profit targets,
but it is still managed under the umbrella of the parent company.
EXAMPLE------
Amazon operates in various business areas:
 Stars (High Growth, High Market Share): AWS (Cloud computing)
 Cash Cows (Low Growth, High Market Share): E-commerce
 Question Marks (High Growth, Low Market Share): Amazon Fresh (Grocery)
 Dogs (Low Growth, Low Market Share): Kindle e-readers
Amazon shut down its e-commerce operations in India’s wholesale business (2023) due to
poor performance, showing how businesses adjust portfolios strategically.
 6. Analysing the current SBUs: Companies regularly evaluate their SBUs’ performance to
determine growth strategies—whether to expand, divest, or restructure them. This is done
through the various methods they are:
 The BCG Model: The Boston Consulting Group (BCG), a leading management
consulting firm, developed and popularized the growth-share matrix.

The growth share matrix was built on the logic that market leadership results in
sustainable superior returns. Ultimately, the market leader obtains a self-reinforcing
cost advantage that competitors find difficult to replicate. These high growth rates
then signal which markets have the most growth potential.
The matrix reveals two factors that companies should consider when deciding where
to invest—company competitiveness, and market attractiveness—with relative
market share and growth rate as the underlying drivers of these factors.
Each of the four quadrants represents a specific combination of relative market
share, and growth:

1. Stars (High Growth, High Market Share)

 These are market leaders in fast-growing industries.

 Require significant investment to maintain their position.

 Have the potential to become Cash Cows when market growth slows.

 Example: Apple’s iPhone (when smartphones were growing rapidly).

Strategy: Continue investing in them to maintain dominance.
2. Cash Cows (Low Growth, High Market Share)

 These are well-established, mature products with strong market presence.

 Generate consistent cash flow with minimal investment.

 Profits from Cash Cows are often used to fund Stars and Question Marks.

 Example: Coca-Cola (soft drinks industry is mature, but Coca-Cola dominates).

Strategy: "Milk" them for profits, maintain them with minimal investment.

3. Question Marks (High Growth, Low Market Share)

 Products in a fast-growing market but with low market share.

 Can become Stars with proper investment, or fail and become Dogs.

 Risky but have potential if managed well.

 Example: Tesla’s CyberTracker (new market with uncertain demand).

Strategy: Decide whether to invest heavily or divest.

4. Dogs (Low Growth, Low Market Share)

 Products with poor performance in a stagnant or declining market.

 Often generate little or no profit.

 Usually phased out unless they serve a strategic purpose.

 Example: DVD players (obsolete technology, declining demand).

Strategy: Divest or reposition.

 The GE Model: The GE McKinsey Matrix is a strategic framework that helps multi-
business corporations manage portfolios and prioritize investments across products
and SBUs (Strategic Business Units).
 The model uses a 3x3 matrix with two key dimensions:

1. Industry Attractiveness (Y-axis) → Evaluates external factors like market size, growth rate,
competition, and profitability.

2. Business Unit Strength (X-axis) → Evaluates internal factors like brand strength, market
share, R&D capabilities, and cost structure.

Key Components of the GE Model

A. Industry Attractiveness Factors

 Market growth rate

 Industrial Potential

 Current Size

 Industrial Structure

 Profitability of the industry

B. Business Strength Factors

 Current Market share

 Growth Rate

 Differentiation Strength

 Brand Image

 Corporate Image

Strategic Implications

Zone Strategy

Invest heavily in these business units to expand market share and

Grow/Invest (Green)
profitability.

Selective/Manage Invest cautiously and focus on improving profitability and

(Yellow) efficiency.

Harvest/Divest (Red) Reduce investments, cut costs, or divest from these units.

Advantages of the GE Model

✅ More detailed than BCG Matrix (uses multiple factors, not just market growth and share).
✅ Helps prioritize investments based on multiple strategic dimensions.
✅ Balances risk and reward by evaluating external and internal factors.

Limitations of the GE Model

 ❌ Subjective analysis – Industry attractiveness and business strength depend on qualitative
judgments.
❌ Complexity – Requires a lot of data and research to assess all relevant factors.
❌ Static approach – Doesn’t adapt to rapidly changing market conditions.

 The Ansoff Product-market expansion grid: The Ansoff Matrix is a strategic tool that
helps businesses decide their growth strategies based on products and markets. It
was developed by Igor Ansoff in 1957.

1. Market Penetration (Existing Product, Existing Market)

 Focus: Increasing market share for existing products in existing markets.

 Strategies:

o Increase marketing efforts (advertising, promotions).

o Lower prices to attract more customers.

o Improve product quality or customer service.

o Encourage more frequent use by existing customers.

 Example: Cadbury applies Market Penetration by increasing sales of existing products in

current markets through aggressive advertising (e.g., "Kuch Meetha Ho Jaye" campaign),
 festive promotions (Cadbury Celebrations), wider distribution, new pack sizes, and
competitive pricing strategies.

2. Market Development (Existing Product, New Market)

 Focus: Expanding existing products into new customer segments or geographical areas.

 Strategies:

o Enter new geographic markets (international expansion).

o Target a different demographic group.

o Find new distribution channels (online sales, partnerships).

 Example: The Parachute oil example relates to market development because the brand
expanded beyond its traditional coconut oil segment by entering new markets, such as urban
areas and international regions, and targeting new customer segments with different
packaging and product variations.

3. Product Development (New Product, Existing Market)

 Focus: Developing and introducing new products to current markets.

 Strategies:

o Invest in R&D to create new or improved products.

o Extend product lines (e.g., different flavours, sizes).

o Introduce complementary products.

 Example: Dettol's product development strategy is evident in how it expanded its product
line beyond antiseptic liquid to new products like hand sanitizers, soaps, surface
disinfectants, and wipes, catering to evolving consumer needs while staying within the same
market.

4. Diversification (New Product, New Market)

 Focus: Entering entirely new markets with new products (high risk, high reward).

 Types:

o Related Diversification: New products related to the existing business (e.g., a sports
brand launching energy drinks).

o Unrelated Diversification: Entering completely different industries (e.g., a telecom

company starting a financial services arm).

 Example: Adani Group exemplifies diversification by expanding from its core business of
ports and logistics into energy, agribusiness, real estate, defence, and telecom, including
unrelated sectors like media and data centres. This showcases both related and unrelated
diversification, reducing risks and capturing new market opportunities.
  Michael Porter’s 5 Forces Model: Michael Porter's Five Forces Model is a strategic
tool used to analyse the competitive forces shaping an industry. It helps businesses
assess the attractiveness and profitability of an industry by examining five key forces:

1. Competitive Rivalry (Industry Competition)

 Definition: The intensity of competition among existing firms in the industry.

 Factors Affecting Rivalry:

o Number of competitors and their market share.

o Industry growth rate.

o Product differentiation and brand loyalty.

o Switching costs for customers.

o Exit barriers (high investment, government regulations).

 Impact: Higher competition reduces profitability as companies engage in price wars,

innovation, and marketing battles.

2. Threat of New Entrants

 Definition: The likelihood of new companies entering the industry.

 Factors Affecting Threat:

o High entry barriers (capital investment, brand loyalty, economies of scale).

o Government regulations and legal restrictions.

o Access to distribution channels.

o Technology and expertise required.

  Impact: If entry barriers are low, new players can enter easily, increasing competition and
reducing profitability.

3. Bargaining Power of Suppliers

 Definition: The power suppliers have to influence prices and supply terms.

 Factors Affecting Supplier Power:

o Number of suppliers available.

o Uniqueness of supplier’s product/service.

o Availability of substitute suppliers.

o Importance of supplier’s product to the buyer.

 Impact: If suppliers have high bargaining power, they can demand higher prices, affecting the
company’s profit margins.

4. Bargaining Power of Buyers (Customers)

 Definition: The power of customers to influence prices and demand better quality or
services.

 Factors Affecting Buyer Power:

o Number of buyers relative to sellers.

o Availability of substitute products.

o Price sensitivity of customers.

o Switching costs for buyers.

 Impact: Strong buyer power forces companies to lower prices, improve quality, or offer
better services, reducing profit margins.

5. Threat of Substitutes

 Definition: The risk of customers switching to alternative products or services.

 Factors Affecting Threat:

o Availability of substitutes with better price or quality.

o Customer loyalty to existing products.

o Cost of switching to substitutes.

 Impact: If substitute products are easily available, companies must innovate and differentiate
to retain customers.
New Product Development

Why Develop new product?

Developing new products is essential for businesses to stay competitive, grow, and meet evolving
customer needs. Here are some key reasons why new product development (NPD) is necessary:

1. Changing Customer Needs & Preferences

 Consumer preferences evolve due to trends, technology, lifestyle changes, and
societal shifts.
 Businesses must introduce new products to keep customers engaged and satisfied.
2. Market Competition
 Competitors continuously innovate to attract customers.
 To maintain or increase market share, businesses need to develop unique and
improved offerings.
3. Technological Advancements
 Rapid technological progress creates opportunities for improved or completely new
products.
 Businesses that leverage new technology can enhance efficiency, quality, and
customer experience.
4. Business Growth & Expansion
 New products open up new revenue streams and markets.
 Diversification reduces dependency on a single product and minimizes business risks.
5. Product Lifecycle Limitations
 Products have a limited lifespan due to obsolescence or saturation.
 Businesses must introduce new products to replace declining ones and sustain
profitability.
6. Regulatory & Environmental Factors
 New laws, sustainability concerns, and safety regulations require product
modifications or entirely new products.
 Eco-friendly and sustainable products attract environmentally conscious customers.
7. Brand Image & Customer Loyalty
 Innovative companies build a strong reputation, attracting new customers while
retaining existing ones.
 A brand known for innovation can differentiate itself in a crowded market.
8. Profitability & Cost Efficiency
 New products can offer higher margins due to increased demand and premium
pricing.
 Process improvements in new products can reduce production costs.
How Novel is New Idea / Classification/ Types of NPD
(EXAM)

70% of new products involve modifications within existing product lines.

30% are new to the organization, meaning they are being introduced for the first time.

Only 10% of new products arise from technological breakthroughs

1. New-to-the-World Products (Disruptive Innovations) [10%]

✅ Definition:
These are completely new products that create an entirely new market or significantly
change consumer behaviour.

✅ Characteristics:

 Highly innovative and groundbreaking.

 No direct competitors initially.
 High risk but also high reward if successful.
✅ Examples:
 First smartphone (iPhone revolutionized communication).
 Electric cars (Tesla disrupted the automobile industry).
 First digital camera (Replaced traditional film cameras).
2. New Product Lines (Category Extensions) [20%]
✅ Definition:
These are products that a company has never offered before but exist in the market. The
company enters a new product category to expand its business.
✅ Characteristics:
 Helps businesses diversify.
 Creates new revenue streams.
 Competes with existing brands in that category.
✅ Examples:
 Apple entering the smartwatch industry with the Apple Watch.
 Nike launching fitness apps in addition to sportswear.
 Google launching Pixel phones, despite being a software company.

3. Addition to Existing Product Lines (Product Line Extensions) [26%]

✅ Definition:
These are new products added to an already existing product line. Companies introduce
variations, new features, or different versions to expand their product offerings within the
same category.
✅ Characteristics:
 Targets new customer segments.
 Helps retain existing customers by offering variety.
 Can be in the form of new flavors, sizes, colors, or models.
✅ Examples:
 Apple introducing iPhone Mini and iPhone Pro models – Expands the iPhone lineup
for different budgets.
 Coca-Cola launching Diet Coke, Coke Zero, and flavored Coke – Offers options for
health-conscious consumers.
 Nike adding new designs and materials to its Air Jordan series – Keeps the brand
relevant and trendy.
 Samsung launching foldable smartphones alongside regular ones – Expands the
smartphone lineup for innovation-seeking customers.

4. Improvements or Revisions of Existing Products [26%]

✅ Definition:
These are updates, upgrades, or modifications of existing products to enhance performance,
quality, or design. Companies refine their products based on customer feedback,
technological advancements, or market trends.
✅ Characteristics:
 Enhances product quality or functionality.
 Maintains customer loyalty by offering better versions.
 Often involves upgrading software, materials, or efficiency.
✅ Examples:
 iPhone introducing better cameras, faster processors, and improved battery life
each year – Keeps customers upgrading.
 Microsoft launching new versions of Windows (Windows 10 → Windows 11) –
Enhances performance, security, and UI.
  Tesla updating its cars with over-the-air software upgrades – Improves features like
self-driving and battery life.
 Gillette upgrading razors (Mach 3 → Fusion 5, with more blades and comfort
features) – Offers a better shaving experience.

5. Repositioned Products (Rebranding or Repackaging) [11%]

✅ Definition:
Existing products marketed for a new use, audience, or perception.
✅ Characteristics:
 No major product change, only a marketing shift.
 Helps attract a new customer base.
 Can revive an underperforming product.
✅ Examples:
 Baking soda repositioned from baking ingredient to cleaning agent.
 Johnson’s baby shampoo marketed for adults as a mild hair care product.
 Red Bull originally a health drink in Thailand, repositioned as an energy drink.

6. Cost-Reduced Products (Affordable Versions) [7%]

✅ Definition:
A lower-cost version of an existing product that keeps essential features while reducing price.
✅ Characteristics:
 Targets price-sensitive customers.
 Usually involves removing premium features or using cheaper materials.
 Helps companies compete in budget segments.
✅ Examples:
 iPhone SE, a cheaper alternative to flagship iPhones.
 Tesla Model 3, a more affordable version of Tesla cars.
 Netflix ad-supported subscription, offering a lower-cost plan.

New Product Development strategies (EXAM)

Blocks / Barriers in NPD

New product development (NPD) is a challenging process because of several barriers. Let’s break
them down with simple explanations and examples:
  Shortage of Ideas
Sometimes, companies struggle to find innovative and unique ideas for new products.
Example: A smartphone company wants to launch a new model, but all features like better
cameras, bigger screens, and fast charging are already available in the market. They don’t
know what new feature to add.
 Fragmented Markets
Customers today have different needs and preferences, making it difficult to create one
product that appeals to everyone.
Example: A food company wants to launch a new snack, but some people prefer healthy
options, some like spicy flavours, and others want gluten-free snacks. It becomes hard to
satisfy all groups.
 Social and Governmental Constraints
Rules, regulations, and public opinions can restrict product development.
Example: A company wants to introduce a new energy drink, but government laws require
strict testing and approval, delaying the launch.
 Cost of Development
Developing a new product requires a lot of money for research, testing, production, and
marketing.
Example: A car company wants to make an electric vehicle, but designing the battery
technology and testing it costs millions of dollars.
 Capital Shortages
Even if a company has a great idea, they may not have enough funds to develop and launch
the product.
Example: A small startup invents a smart wearable device, but they don’t have enough
money to manufacture it in large quantities.
 Faster Required Development Time
Companies need to bring new products to market quickly because competition is high.
Example: A mobile company plans a new model, but if they take too long to develop it, other
brands will launch similar models first, making their product outdated.
 Shorter Product Life Cycle
Many products become outdated quickly because of changing technology and trends.
Example: A fashion brand launches a trendy clothing line, but within months, new styles
become popular, and the old stock does not sell.

These barriers make it difficult for companies to develop successful new products, but businesses
that overcome them can create innovative and profitable products.

Causes of New Product Failures

Many new products fail despite careful planning. Here are the main reasons for new product failures,
explained with simple examples:

1. Poor Market Research

 Companies fail to understand customer needs, preferences, or market demand.

  Example: Pepsi launched "Crystal Pepsi," a clear cola drink, assuming people would like it.
But customers were confused because they expected cola to be dark-colored. The product
failed.

2. Lack of Differentiation

 If a product is too similar to existing ones, customers have no reason to switch.

 Example: Microsoft launched the "Zune" MP3 player to compete with Apple’s iPod, but it
didn’t offer anything significantly better. People stuck with iPods, and Zune failed.

3. High Price

 If a product is too expensive compared to competitors, people won’t buy it.

 Example: Google Glass, a smart wearable device, was priced at $1,500. Most people found it
too expensive, and it failed in the market.

4. Poor Timing

 Launching a product too early or too late can lead to failure.

 Example: Apple’s Newton PDA (a digital assistant) launched in the 1990s when people
weren’t ready for touchscreen technology. It flopped, but years later, smartphones with
similar technology became popular.

5. Technical Issues or Poor Quality

 If a product has defects or doesn’t work as expected, customers lose trust.

 Example: Samsung’s Galaxy Note 7 had battery explosion issues. Despite being a powerful
smartphone, safety concerns forced Samsung to recall the product, leading to huge losses.

6. Weak Marketing and Promotion

 Even a great product can fail if people don’t know about it or don’t find it appealing.

 Example: McDonald's launched the "Arch Deluxe" burger, targeting adults with a premium
taste. However, its marketing was unclear, and most customers stuck to regular McDonald's
meals. It failed.

7. Strong Competition

 If competitors already dominate the market, a new product may struggle.

 Example: Nokia introduced smartphones, but they couldn’t compete with Apple and
Samsung, who had better technology and apps. Nokia lost its market share.

8. Failure to Adapt to Customer Feedback

 If companies ignore customer suggestions and complaints, the product may fail.

 Example: BlackBerry refused to adopt touchscreen technology and stuck with physical
keyboards, while iPhones and Android phones evolved. As a result, BlackBerry lost
popularity.

9. Legal and Regulatory Issues

  Some products face government restrictions or lawsuits, leading to failure.

 Example: A pharmaceutical company launches a new drug, but later, tests show serious side
effects. The government bans the drug, causing financial losses.

Improving New Product Success

Improving the success of a new product requires careful planning, understanding customer needs,
and overcoming common barriers. Here are key ways to increase the chances of success:

1. Understanding Customer Needs

 Before developing a product, companies should research what customers truly want.

 Example: A company planning to launch a new smartphone should survey users to find out
what features they need, such as longer battery life or a better camera.

2. Strong Market Research

 Studying competitors, market trends, and customer preferences helps in making better
decisions.

 Example: A coffee brand launching a new flavour should analyse which flavours are trending
and what competitors are offering.

3. Clear Value Proposition

 The product should offer something unique and valuable to customers.

 Example: The iPhone became successful because it provided a user-friendly design,

advanced technology, and an exclusive brand experience.

4. Efficient Product Development Process

 Companies should reduce delays, test prototypes, and quickly bring products to market.

 Example: Tesla tests its electric vehicles with customers before launching them to identify
and fix any problems.

5. Effective Marketing and Promotion

 A great product needs strong advertising, branding, and promotion to reach the right
audience.

 Example: When Nike releases new shoes, they collaborate with athletes and influencers to
create excitement and demand.

6. Competitive Pricing Strategy

 The price should match the product’s value and what customers are willing to pay.

 Example: Netflix offers different subscription plans to attract both budget-conscious and
premium customers.

7. Quality and Customer Satisfaction

  Ensuring high-quality products and excellent customer service leads to repeat purchases and
positive reviews.

 Example: Apple provides strong after-sales service, which makes customers trust and stick
with their products.

8. Adapting to Market Changes

 Companies should be flexible and update their products based on feedback and trends.

 Example: Instagram started as a photo-sharing app but adapted by adding Reels and Stories
to compete with TikTok and Snapchat.

9. Testing and Prototyping

 Before launching, businesses should test their products with real customers to fix any issues.

 Example: Car companies release test versions of vehicles to get feedback before mass
production.

10. Strong Distribution and Availability

 Even a great product can fail if it's not easily available to customers.

 Example: Amazon ensures its products are delivered quickly worldwide, making shopping
convenient.

Organizational arrangements for the success of NPD

For the success of New Product Development (NPD), an organization needs the right structure,
resources, and collaboration. Here are five key organizational arrangements that help:

1. Dedicated NPD Team

 A cross-functional team with experts from different departments (R&D, marketing, finance,
operations) ensures smooth product development.

 Example: Apple’s NPD team includes engineers, designers, and marketers who work together
to create innovative products like the iPhone.

2. Clear Leadership and Support

 Strong leadership ensures the team has direction, resources, and motivation. Senior
management should actively support NPD efforts.

 Example: Elon Musk’s leadership at Tesla pushes innovation in electric vehicles and ensures
continuous improvement.

3. Efficient Communication and Collaboration

 Open communication between departments reduces delays and misunderstandings.

 Example: Google encourages brainstorming sessions and idea-sharing to improve product

innovation, like Google Maps and Google Assistant.

4. Stage-Gate Process for Development

  A structured process with key stages (idea generation, prototype, testing, launch) ensures
quality and minimizes risk.

 Example: A pharmaceutical company follows strict testing stages before launching a new
medicine to ensure safety and effectiveness.

5. Strong Market and Customer Focus

 Organizations should integrate customer feedback and market trends into the NPD process.

 Example: Netflix tracks user behaviour and preferences to develop new features and
content, making it more customer-centric.

New Product Development Process (EXAM)

1. Idea Generation

Idea generation refers to brainstorming new product ideas or strategies to innovate an existing
product. The different internal and external sources through which a company generates ideas for a
new product are customers, distributors, suppliers, competitors, etc. Before creating any product,
companies evaluate market conditions, perform studies, understand the users’ wants and needs, and
then suggest possible solutions. SWOT analysis is a very effective technique to discover the weak
aspects of the product as well as to explore where significant opportunities exist. A SWOT Analysis is
a framework to evaluate the organisation’s Strengths, Weaknesses, Opportunities, and Threats. At
last, this stage aims to generate as many ideas as possible which are feasible and deliver value to
consumers. The need for high-quality photography among consumers, for instance, can inspire a
mobile phone maker to develop the idea of a smartphone with a novel camera system.

2. Idea Screening

The second stage is called Idea Screening. This stage involves screening and reviewing all of the ideas
generated in the first step and selecting only those with the best probability of success. Many factors
are kept in mind while deciding which ideas to accept and which to reject. These factors include
projected advantages to consumers, necessary product innovations, technical viability, and
feasibility for marketing. The stage of idea screening is best performed within the company. Experts
from several teams also assist the company in assessing the requirement of resources, the need for
technology, and the marketability of the proposal. For instance, an automobile manufacturer may
evaluate potential concepts for electric vehicles before manufacturing electric cars while considering
factors, like the availability of batteries, their affordability, and how well they would appeal to
consumers.

3. Concept Development and Testing

After all the ideas pass through the stage of idea screening, these ideas are evolved into concepts. A
product concept is a detailed version of the product idea and contains a precise explanation of the
idea. It should highlight the target audience, the pricing for the product, and the characteristics and
advantages of the product that could be valuable for the customers. Generating various product
concepts assist the companies in determining how attractive each concept is to buyers and selecting
the one that will bring them the most value. Once the concepts are generated, they are tested within
a select group of consumers. Concept testing is a great technique for validating product ideas with
users before committing time and resources to develop them. For instance, any business producing
sportswear products might create a concept for a light running shoe and seek opinions from
athletes concerning the product’s comfort, toughness, and design.

A product idea, product concept, and product image are different from each other. A product idea is
an idea for a possible product a company can see itself offering to the customers. A product concept
is a detailed version of the product idea and contains a precise explanation of the idea. However, a
product image is the way customers perceive a potential or an actual product.

4. Marketing Strategy Development

Once a concept is selected and well-validated, it is essential to develop a preliminary marketing

strategy to launch the product to the market based on the product concept and assess the worth of
the product from a business point of view. The marketing strategy helps in deciding
pricing, positioning, and promoting the product. A marketing strategy statement includes three
parts:

 The first part of the statement describes the target market, the firm’s planned value
proposition, and its sales, market share and profit goals for the first few years.

 The second part of the statement includes the product’s planned price, its distribution, and
marketing budget for the first year.

 The last part of the statement consists of the planned long-run sales, marketing mix strategy,
and profit goals.
Once the marketing strategy has been developed, product management can assess the economic
desirability of the product.

5. Business Analysis

Once the marketing strategy has been developed it is important to assess the worth of the product
from a business point of view. An assessment of the sales projections, estimated expenses, and
anticipated profits are included in the business analysis. And, If they meet the goals of the company,
the product can proceed to the product development stage. For instance, a food company would
assess the profitability of a new snack by looking at the expenses associated with ingredient
sourcing, production, packaging, and distribution.

6. Product Development

The next stage is Product Development. In this stage, the R&D or engineering department converts a
product concept into a physical product. This step involves a huge jump in investment as it shows
whether or not the product idea can be turned into a workable product. The R&D Department tries
to design a prototype to satisfy customer needs and excite them in buying the product, and can also
be produced quickly and within budget. For this, the department runs tests on one or more physical
versions of the product concept. Development of a successful prototype may take time (days, weeks,
months, or even years). The companies can do product testing on their own or can outsource testing
from a third party/firm which specialises in testing. For instance, a tech business might create test
versions of a new smartwatch, evaluate how well it works, and then make design changes that can
satisfy the customer’s needs.

7. Test Marketing

The next step is Test Marketing. Test Marketing refers to the process of testing the product and
marketing program in realistic market settings. With this step, the marketer can have the experience
of marketing the product in the market at a small scale before spending huge money on its full
introduction. Simply put, test marketing lets the organisation test its product and its marketing
program including targeting, positioning strategy,
distribution, advertising, branding, pricing, packaging, and budget levels.

The cost of performing test marketing can be high, and as it takes time, it can give The need for test
marketing and the level of test marketing varies with the product. When the cost of developing and
introducing the product is low, or when the management is confident about the product’s success,
the company may do no or little test marketing. However, when the introduction of a new product
requires a big investment, risks are high, or when the management is not confident about the
product and its marketing program, it may do a lot of test marketing. For instance. a cosmetics
company might launch a new skincare product in a particular area and collect information on
consumer reaction, usage trends, and sales.

8. Product Launch

At the final stage, companies are now prepared to launch the new product onto the market. For
a successful launch, a company must ensure that the product, marketing, sales, and support teams
are well-placed and should keep good track of its performance. Companies must frequently monitor
and evaluate the success of the product launch and make modifications if it fails to accomplish the
expected goals. For instance, a software provider might monitor sales, client feedback, and user
satisfaction polls to assess the effectiveness of a recently introduced productivity tool.
Product Adoption Process (EXAM)
The Product Adoption Process refers to the mental stages a consumer goes through before accepting
a new product. According to Kotler, this process consists of five key stages:

1. Awareness

 Definition: The consumer learns about the product but lacks detailed information.

 Goal: Generate brand/product awareness through advertising, social media, and word-of-
mouth.

 Example: Seeing a new smartphone ad on YouTube.

2. Interest

 Definition: The consumer becomes interested and seeks more information.

 Goal: Provide accessible and engaging information (e.g., website, influencers, brochures).

 Example: Watching product reviews or reading about features online.

3. Evaluation

 Definition: The consumer considers the product’s value and compares it with alternatives.

 Goal: Highlight product benefits, competitive edge, and positive customer feedback.

 Example: Comparing the smartphone with competitors like Samsung or Apple.

4. Trial

 Definition: The consumer tries the product on a limited basis to test its performance.

 Goal: Facilitate trial through free samples, demos, or money-back guarantees.

 Example: Using a demo phone at a store or trying a free sample app.

5. Adoption

 Definition: The consumer decides to make full and regular use of the product.

 Goal: Ensure satisfaction and encourage repeat use through after-sales service, loyalty
programs.

 Example: Buying the full version of the smartphone and using it daily.
Diffusion of Innovation
Diffusion of Innovation is the process by which a new idea, product, or service spreads among
members of a social system over time.

The Five Adopter Categories

Kotler classifies consumers into five segments based on how quickly they adopt a new product. Each
group has different characteristics, attitudes, and risk tolerance.

1. Innovators (2.5%)

 Traits: Adventurous, risk-takers, tech-savvy.

 Behaviour: First to try new products, even before proven successful.

 Influence: Not influenced by social norms.

 Example: Someone who buys a brand-new gadget on launch day, like the first foldable
smartphone.

2. Early Adopters (13.5%)

 Traits: Opinion leaders, socially connected, more cautious than innovators.

 Behaviour: Adopt new ideas early but only after careful evaluation.

 Influence: Strong influencers of later groups.

 Example: Influencers or reviewers who try products early and shape others’ decisions.

3. Early Majority (34%)

 Traits: Deliberate, pragmatic, risk-averse.

 Behaviour: Adopt products after seeing success stories from early adopters.

 Influence: Heavily influenced by peer recommendations.

 Example: People who buy a new iPhone model a few months after launch once reviews are
positive.

4. Late Majority (34%)

 Traits: Sceptical, conservative, resistant to change.

 Behaviour: Adopt only after a product is well-established and widely accepted.

 Influence: Influenced by pressure from peers and fear of missing out.

 Example: Those who finally switch from keypad phones to smartphones once everyone else
has.
5. Laggards (16%)

 Traits: Traditional, very cautious, often elderly or less tech-inclined.

 Behaviour: Last to adopt, often when product is near obsolescence.

 Influence: Influenced by tradition, not peers or trends.

 Example: Someone who just started using online banking during COVID-19.

Why is this Important for Marketers?

 Helps segment the market and tailor communication strategies.

 Shows how to position and time product launches.

 Indicates where to focus promotion and education.

Example: Apple iPhone Launch

 Innovators: Tech geeks who queued overnight for the first iPhone in 2007.

 Early Adopters: Trendsetters and influencers who blogged about it.

 Early Majority: General consumers who bought it after initial success.

 Late Majority: People who switched only after Android vs iPhone debates were settled.

 Laggards: Elderly users or tech-averse people who moved to smartphones in the 2010s.

Factors influencing adoption process

1. Characteristics of Innovation:
 Relative advantage: It is important to appreciate that the higher the perceived advantage of
an innovation over the existing alternatives or products, the faster is the pace of its adoption
 and diffusion. This advantage has to be tangible. For example, personal computers are being
adopted faster because of their multiple advantages to the user-word processing,
computations and financial planning, Internet, to name just a few. In industrial marketing,
the cost advantage that PET bottles and tetra packs offered over metal cans and glass bottles
made them a common packing material for liquids like edible oil, soft drinks and milk.

 Compatibility: This refers to the extent to which an innovation is compatible to users' values
and experiences. Consider the example of personal computers, again, which match the
values and experiences of the professionals - a growing segment in India.

 Complexity: The more complex and difficult to understand the innovation is, the more time
it will take to get diffused in society.

 Divisibility: This is the degree to which an innovative product can be used on a multiple
basis. The more the users and purchase options available, the faster the diffusion of the
innovation.

 Communicability: This refers to the degree to which benefits of an innovation can be

observed and communicated to others. For example, if a cardiac surgeon observing a
remarkable improvement in a patient being treated with a new technique called angioplasty,
communicates this with his colleagues, the diffusion of this innovation in treating angina will
be faster.

2. Readiness to Try New Products

 Definition: This refers to the innate willingness or psychological openness of consumers to

try something new.

 Explanation: People differ in their levels of innovativeness:

o Innovators and early adopters are more open.

o Laggards resist change unless absolutely necessary.

 Influencing Factors:

o Personality traits (openness to experience)

o Socioeconomic status

o Past experiences with innovations

 Example: A tech-savvy youth is more likely to try a newly launched AI-powered wearable
compared to an elderly person.

3. Personal Influence (Social Influence)

 Definition: The effect of opinions, advice, and behaviour of others on a person’s decision to
adopt.
 Explanation:

o Highly relevant in high-involvement or high-risk products (e.g., health, finance,

electronics).

o Opinion leaders (bloggers, influencers, tech reviewers) can speed up adoption.

o Reference groups and family strongly influence evaluation and trial stages.

 Example: A consumer may try a new skincare product only after a trusted beauty influencer
or friend recommends it.

4. Cost of Adoption

 Definition: The monetary, time, and effort costs associated with trying and using the new
product.

 Explanation:

o High cost = greater resistance, unless benefits clearly outweigh.

o Adoption is slower if switching costs or learning costs are high.

 Types of Costs:

o Purchase cost: Price of the product.

o Implementation cost: Installation, setup, training.

o Opportunity cost: Giving up an existing product/service.

 Example: Electric cars are often resisted due to high upfront cost and lack of charging
infrastructure, even if they offer long-term savings.

5. Risk and Uncertainty

 Definition: Concerns about unforeseen problems or negative outcomes from adopting the
new product.

 Types of Risk:

o Functional risk: Will it perform as promised?

o Financial risk: Will I lose money?

o Social risk: Will others think poorly of me?

o Physical risk: Will it cause harm?

o Psychological risk: Will I regret it?

 Example: A new medication may face slow adoption due to fear of side effects, despite
strong marketing.
6. Scientific Credibility / Technical Validation

 Definition: The extent to which the product is supported by scientific proof or technical data
that enhances trust.

 Explanation:

o Especially important in health, biotech, food, energy, and tech sectors.

o Increases the likelihood of adoption among rational or risk-averse consumers.

 Example: A new vaccine is more widely accepted if clinical trials and endorsements from
scientific bodies are published and transparent.

7. Social Approval / Cultural Acceptance

 Definition: The extent to which a product or behaviour is socially or culturally accepted in a

community.

 Explanation:

o If the innovation aligns with local norms and values, adoption is smoother.

o If it clashes (e.g., ethical, religious issues), resistance is higher.

 Example:

o Meat alternatives are easily adopted in vegetarian-friendly cultures but may face
resistance in regions where meat is culturally dominant.

o Contactless digital payments spread faster in urban areas where they’re trendy, but
slower in rural regions.

8. Organizational Readiness to Adopt Innovation (For B2B or Institutional Products)

 Definition: The internal preparedness of a firm or institution to embrace and implement

new technologies.

 Explanation:

o Involves leadership mindset, culture of innovation, employee skill levels, IT

infrastructure, and budget.

o Bureaucracy, legacy systems, and rigid structures can delay adoption.

 Key Factors:

o Top management support

o Availability of resources

o Employee training

 Example:
 o A hospital adopting a new AI diagnostic tool will need IT systems, trained staff, and
regulatory compliance in place—if not, adoption is delayed.

Product Life Cycle

The stages through which a product moves during it’s time in the market is called as Product
Life Cycle. Each product goes through a life cycle. It shows the introduction, growth, maturity and
decline during its period of existence. The product life cycle reflects sales and profits of a product
over a period of time. Generally, most products follow an established path, and when their sales are
plotted against time, we get an S-shaped curve as shown below.

We will study all these 4 stages in accordance with Market objectives, 4 Ps, Nature of sales, cost and
profit.

Aspect / Stage Introduction Growth Maturity Decline

Marketing Create product Maximize market Maximize profit, Start reducing the
Objective awareness & trial share defend share expenses on product.
Find new products

Product Offer a basic product Improved versions, Diversified models, Limited, phasing out
with limited features new features & strong brand
services

Price Usually, high price using Price to penetrate the Discounts, Reduce the price
COST+ formula market competitive pricing

Place Availability at dealers Increase number of Build intensive Few selective outlets
(Distribution) and retailers distributors distribution and phase out
unprofitable outlets

Promotion Build product Build interest and Stress on brand Reduce to a level to
awareness among early awareness in the mass differences and target loyal customers
(Advertisement)
adopters and dealers market benefits

Sales Low and slow-growing Rapidly increasing Peak and stable Declining

Cost Very high cost/ Average cost/ Low cost/ customer Lowest cost/ customer
customer customer

Profit Negative or very low Increasing profits High profits Declining profits

Example Product Electric flying cars Smartwatches Smartphones (e.g., DVD players
iPhone)

Key strategic approaches to extend the maturity phase

1. Modify the Marketing Mix

This involves tweaking the 4 Ps (Product, Price, Place, Promotion) to revitalize interest and
increase usage among existing or potential customers.

Strategies:

 Price Promotions & Discounts: Attract price-sensitive segments.

 Repositioning through Promotion: Changing the messaging or ad channels to reach a new

perception.

 New Distribution Channels: Expanding to e-commerce, partnerships, or global markets.

  Bundling & Packaging Innovations: Bundle with complementary products or introduce eco-
friendly packaging.

📌 Example:

 Coca-Cola Zero Sugar: Coca-Cola rebranded “Coke Zero” as “Coca-Cola Zero Sugar” and
promoted it with a new taste claim and modern packaging, targeting health-conscious
youth.

 Colgate frequently runs promotional campaigns, bundle offers, and limited-edition flavors to
keep interest alive despite being in the maturity stage for decades.

2. Modify the Market

Here, companies attempt to find new customer segments, geographies, or usage occasions
to expand the market.

Strategies:

 Target New Segments: Demographics, psychographics, or income groups that were not
targeted before.

 Enter New Geographies: Expand into emerging or untapped international/local markets.

 Encourage More Usage: Promote new use-cases to increase consumption frequency.

📌 Example:

 Maggi (India): Nestlé repositioned Maggi noodles not just as a snack, but as a versatile
cooking ingredient (e.g., Maggi bhel, Maggi pizza), boosting usage frequency.

 Apple iPhone: Expanded aggressively into India and Southeast Asia with lower-priced older
models and exchange offers to reach new markets.

3. Modify the Product

This strategy involves changing the product itself — whether through features, quality, style,
or packaging — to refresh customer interest.

Strategies:

 Product Line Extensions: Add new variants, flavors, or features.

 Improved Features: Add tech upgrades, convenience features.

 Aesthetic or Functional Redesigns: New colors, materials, or sustainability changes.

 Co-branding or Collaborations: Partnering with other brands or influencers to bring

freshness.

📌 Example:

 Oreo: Constantly introduces limited-edition flavors like Red Velvet, Lady Gaga edition, or
Wasabi (in Asia) to keep excitement high.
  Tata Nexon (SUV): Despite being mature in the Indian market, it got a facelift with new
design & tech features in 2023 to remain competitive.

Key strategic approaches for the decline phase

The Decline phase of the Product Life Cycle (PLC) is a critical point where companies must make
strategic decisions about aging or outdated products. At this stage, sales drop, profits decline, and
customer interest wanes due to changing technologies, tastes, or market conditions.

1. Maintain Strategy (Support for a Niche or Loyal Base)

🔹 Objective:

Continue selling the product with minimal changes, usually targeting loyal or niche customers who
still value it.

🔹 Tactics:

 Focus on selective distribution (cut underperforming outlets).

 Minimal promotional spend (e.g., direct marketing or digital retargeting).

 Slight modifications or bundling to extend use.

 Possibly shift to online-only sales to cut costs.

🔹 Example:

🔸 Microsoft Windows 7 (after Windows 10 launched)

 Microsoft extended support for business users (paid extended security updates).

 Did not fully kill the product; served the loyal enterprise segment.

🔸 Landline Phones

 Still sold in some markets and businesses where stability and security are essential.

 No new features but retained for reliability.

🟡 2. Reduce Strategy (Harvest or Divest)

🌿 a. Harvest Strategy

Gradually reduce investment, extract as much remaining profit or cash flow as possible.

🔹 Tactics:

 No new product development.

 Minimize marketing and production costs.

  Increase price slightly if inelastic.

 Use existing inventory to fulfil sales.

🔹 Example:

🔸 iPod Classic

 Apple stopped innovating; let it ride out until demand dropped to nearly zero.

 Loyal users still bought remaining stock.

🔸 Yahoo Messenger

 Reduced resources before final shutdown.

 Let the remaining user base use it with limited updates.

🚪 b. Divest Strategy

Completely sell off or discontinue the product or business unit.

🔹 Tactics:

 Sell the product line to another company.

 Shut down production and liquidate assets.

 Redirect resources to growing areas.

🔹 Example:

🔸 Ford discontinuing sedan models (like Fusion)

 Divested or discontinued to focus on SUVs and electric vehicles.

🔸 Kodak’s traditional film business

 Eventually shut down many of its film-related operations due to digital disruption.

🟢 3. Increase Investment (Revitalize or Reposition)

Though rare, companies sometimes invest in reviving a declining product by finding new markets,
repositioning, or rebranding it.

🔹 Tactics:

 Add new features or redesign the product.

 Rebrand to target new demographics.

 Enter emerging or international markets.

 Convert into a retro or premium product.

🔹 Example:
🔸 LEGO

 Faced major decline in early 2000s.

 Repositioned with movie tie-ins (LEGO Movie), adult collector sets, and e-commerce.

 Turned into a growing lifestyle brand.

🔸 Polaroid Cameras

 Originally declined with the rise of digital.

 Revived with nostalgia marketing, influencer campaigns, and appeal to Gen Z.