TOPIC 4
DEVELOPING PRODUCT
STRATEGIES
Prepared by :[Link] Aljonaid
Content:
Objectives Introduction
Developing Product Strategies
Product Life Cycle
Introductory Stage
Growth Stage
Maturity Stage
Decline Stage
Product Strategies over the Life Cycle
Product Development
Introduction Strategies
Growth Strategies
Maturity Strategies
Decline Stage Strategies
Product Modification
Product Line Extension
Customer Segmentation
Consumer Desires
Pricing Breadth
Excess Capacity
Short-term Gain
Competitive Intensity
Trade Pressure
1. Developing Product Strategies
There are six primary product development strategic orientations:
1. Time-to-Market
2. Low Product Cost
3. Low Development Cost
4. Product Performance, Technology & Innovation
5. Quality, Reliability, Robustness
6. Service, Responsiveness & Flexibility
1. Cont.
Time-to-Market: This involves an orientation to getting a product to market fastest. This is
typical of companies involved with rapidly changing technology or products with rapidly
changing fashion.
Low Product Cost: This orientation is focused on developing the lowest cost or highest value
product. This is typical of companies with commodity type products, products reaching a mature
phase in their life cycle, or where there is consolidation or a shrinking market.
Low Development Cost: This orientation focuses on minimizing development cost or developing
products within a constrained budget.
Product Performance, Technology & Innovation: This orientation focuses on having the highest
level of product performance, the highest level of functionality or functions and features, the
latest technology or the highest level of product innovation.
Quality, Reliability, Robustness: This orientation focuses on assuring high levels of product
quality, reliability and robustness.
Service, Responsiveness & Flexibility: This orientation focuses on providing a high level of
service, being very responsive to customer requirements as part of development, and maintaining
flexibility to respond to new customers, new markets and new opportunities.
4.2. PRODUCT LIFE CYCLE
Sales and
Profits ($)
Sales
Profits
Time
Product Introduction Growth Maturity Decline
Develop-
ment
Losses/
Investments ($)
2. PRODUCT LIFE CYCLE
Firstly a product is launched; it grows, attains maturity, then starts declining and
finally is ironed out. Accordingly the product life cycle is explained by the following
stages:
[Link] stage
[Link] stage
[Link] stage
4. Decline stage.
INTRODUCTION STAGE OF THE PLC
Sales
Sales Low
Low sales
sales
Costs
Costs High
High cost
cost per
per customer
customer
Profits
Profits Negative
Negative
Create
Create product
product awareness
awareness
Marketing
Marketing Objectives
Objectives and
and trial
trial
Product
Product Offer
Offer aa basic
basic product
product
Price
Price Use
Use cost-plus
cost-plus
Distribution
Distribution Build
Build selective
selective distribution
distribution
Advertising Build
Build product
product awareness
awareness among
among early
early
Advertising adopters and dealers
adopters and dealers
4.2.1INTRODUCTORY STAGE
The introductory stages of a product are believed to be relatively slow, even after its
technical problems have been ironed out, due to a number of marketing forces and
consumer behaviour factors.
The major marketing obstacle to rapid introduction of a product is often distribution.
Retail outlets are often reluctant to introduce new products, and may prefer to wait until
a track record has been established before including them
Consumer acceptance of new products tends to be relatively slow. The newer the
product, the greater the marketing effort required to create the demand for it.
At this stage it is usually assumed that there are no competitors, the market structure is
defined as ‘Virtual Monopoly’. But there are very few really radical innovations with no
existing substitutes.
Growth
Growth Stage
Stage of
of the
the PLC
PLC
Sales
Sales Rapidly
Rapidly rising
rising sales
sales
Costs
Costs Average
Average cost
cost per
per customer
customer
Profits
Profits Rising
Rising profits
profits
Marketing
Marketing Objectives
Objectives Maximize
Maximize market
market share
share
Offer
Offer product
product extensions,
extensions, service,
service,
Product
Product warranty
warranty
Price
Price Price
Price to
to penetrate
penetrate market
market
Distribution
Distribution Build
Build intensive
intensive distribution
distribution
Advertising Build
Build awareness
awareness and
and interest
interest in
in the
the
Advertising mass
mass market
market
4.2.2Growth Stag
The growth stage begins when demand for the new product starts increasing rapidly.
Innovators are satisfied with the trial, they move to repeat purchase.
They then influence others by word-of- mouth, which is often considered the most
effective mode of communication
The product availability and visibility in distribution and in use (e.g., new cars on the
road) tend to bring new tries into the market.
At this stage, the entry of competitors increase the total demand for the product
through their advertising and promotional efforts.
Maturity
Maturity Stage
Stage of
of the
the PLC
PLC
Sales
Sales Peak
Peak sales
sales
Costs
Costs Low
Low cost
cost per
per customer
customer
Profits
Profits High
High profits
profits
Marketing Maximize
Maximize profit
profit while
while defending
defending
Marketing Objectives
Objectives market
market share
share
Product
Product Diversify
Diversify brand
brand and
and models
models
Price
Price Price
Price to
to match
match or
or best
best competitors
competitors
Distribution
Distribution Build
Build more
more intensive
intensive distribution
distribution
Advertising
Advertising Stress
Stress brand
brand differences
differences and
and benefits
benefits
Decline
Decline Stage
Stage of
of the
the PLC
PLC
Sales
Sales Declining
Declining sales
sales
Costs
Costs Low
Low cost
cost per
per customer
customer
Profits
Profits Declining
Declining profits
profits
Marketing
Marketing Objectives
Objectives Reduce
Reduce expenditure
expenditure and
and milk
milk the
the brand
brand
Product
Product Phase
Phase out
out weak
weak items
items
Price
Price Cut
Cut price
price
Go
Go selective:
selective: phase
phase out
out unprofitable
unprofitable
Distribution
Distribution outlets
outlets
Advertising
Advertising Reduce
Reduce to
to level
level needed
needed toto retain
retain
hard-core
hard-core loyal
loyal customers
customers
4.2.3 MATURITY STAGE
The maturity or saturation stage occurs when distribution has reached its planned or unplanned peak
and the percentage of total population that is ever going to buy the product has been reached. .
Volume (reflecting the number of customers, quantity purchased, and frequency of purchase) is stable.
At this stage it becomes difficult to maintain effective distribution, and price competition is quite
common.
4.2.4 Decline Stage
Changes in competitive activities, consumer preferences, product technology and other
environmental forces tend to lead to the decline of most mature products. .
. If decline is for a product and not brand, producers may withdraw from that product
category.
Product decline occurs even when most customers no longer buy the product, only few
loyal customers remain. .
The latter continue buying the product in spite of no advertising or promotional campaign. .
Self Assessment
Choose the appropriate answer:
The primary product development strategic orientation:
Low Development Cost
Product Performance, Technology & Innovation
Quality, Reliability, Robustness
All of the above
Out of the following which one is not a stage of PLC
Introduction stage (ii) Maturity stage
(iii) Group (iv) All of the above
4.3. PRODUCT STRATEGIES OVER THE LIFE CYCLE
4.3.1Product Development
Development is necessary to fulfill the old and new wants as well as to adjust with the
changes in the customers’ demands or with an object of greater production efficiency
and more profits. In other words, the aim of product development is:
1. Production of goods to meet market demand.
2. Adjusting with the variation in quantity required.
3. Right Pricing of the products
Categories of Product Development
Product development can be divided into mainly two categories:
1. Introduction of new products
2. Improvement of existing products
[Link] CATEGORIES OF PRODUCT DEVELOPMENT
To Introduce New Products: There should be sufficient market research and
development work before introducing any product in the market. It is
essential because the chances of a new product failing in the market are very
high.
Improvement of Existing Product: Change is the law of nature. Similarly,
every manufacturer continuously endeavours to bring about changes and
improvements in his product
For example, around 1920, there were two-wheeler brakes like in sedans rood esters, etc.
which were replaced within a short period, by four wheeler brakes with self starter. Gradually, by
the 1950s, power brakes, power steering and stream lining were introduced. Over a period of time,
a number of developments in the automobile industry took place. Air-conditioned cars with
improved tires came into use. Similarly, refrigerators with larger freezing units; typewriters and
quickly detachable bars and other electronic equipments developed with the passage of time.
Probably, the most important factor contributing towards product development is the work going
into the improvement of the existing product by way of improved ideas, systems, techniques, etc.
[Link] STAGES OF PRODUCT DEVELOPMENT
Product development comprises of following stages:
Find Consumer Desire: Product development depends on the consumers’ attitudes and
desires with regard to the products. The product designer should keep this fact in mind
while developing a new product.
Analysing Feasibility: The technical, operational and economical feasibility of
developing the product should be considered while preparing plans for product
development.
Design: The design of the product depends on the consumers’ needs and it is also based
on the report submitted by the research department.
Selection of Process and Production Systems:The type of process and production
systems basically depend on the nature of the product.
Process Development: In this stage, the company has to select a suitable process by
using different systems like production and control systems.
[Link] PRODUCT DEVELOPMENT PROCESS
Idea Generation and Screening
Concept Development and Testing
Marketing Strategy
Business Analysis
Product Development
Test Marketing
Commercialization
New
New Product
Product Development
Development Process
Process
Step
Step 1.
1. Idea
Idea Generation
Generation
• Systematic Search for New Product
Ideas
• Internal sources
• Customers
• Competitors
• Distributors
• Suppliers
New
New Product
Product Development
Development Process
Process
Step
Step 2.
2. Idea
Idea Screening
Screening
Process to spot good ideas and drop poor ones
Criteria
Market Size
Product Price
Development Time & Costs
Manufacturing Costs
Rate of Return
New
New Product
Product Development
Development Process
Process
Step
Step 3.
3. Concept
Concept Development
Development &
& Testing
Testing
1.
1. Develop
DevelopProduct
ProductIdeas
Ideasinto
into
Alternative
Alternative
Product
ProductConcepts
Concepts
2.
2. Concept
ConceptTesting
Testing--Test
Testthe
the
Product
ProductConcepts
Conceptswith
withGroups
Groups
of Target Customers
of Target Customers
3.
3. Choose
Choosethe
theBest
BestOne
One
New
New Product
Product Development
Development Process
Process
Step
Step 4.
4. Marketing
Marketing Strategy
Strategy Development
Development
Marketing Strategy Statement Formulation
Part
Part One
One -- Overall:
Overall:
Target
Target Market
Market
Planned
Planned Product
Product Positioning
Positioning
Sales
Sales &
& Profit
Profit Goals
Goals
Market
Market Share
Share
Part
Part Two
Two -- Short-Term:
Short-Term:
Product’s
Product’s Planned
Planned Price
Price
Distribution
Distribution
Marketing
Marketing Budget
Budget
Part
Part Three
Three -- Long-Term:
Long-Term:
Sales
Sales &
& Profit
Profit Goals
Goals
Marketing
Marketing Mix
Mix Strategy
Strategy
New
New Product
Product Development
Development Process
Process
Step
Step 5.
5. Business
Business Analysis
Analysis
Step
Step 6.
6. Product
Product Development
Development
Business
Business Analysis
Analysis
Review
Review of
of Product
Product Sales,
Sales, Costs,
Costs,
and
and Profits
Profits Projections
Projections to
to See
See ifif
They
They Meet
Meet Company
Company Objectives
Objectives
IfIf No,
No, Eliminate
Eliminate
Product
Product Concept
Concept
IfIf Yes,
Yes, Move
Move to
to
Product
Product Development
Development
New
New Product
Product Development
Development Process
Process
Step
Step 7.
7. Test
Test Marketing
Marketing
Standard
Standard Controlled
Test Controlled
TestMarket
Market Test
TestMarket
Market
Full
Fullmarketing
marketingcampaign AAfew
campaign fewstores
storesthat
thathave
have
in
in a small numberof
a small number of agreed to carry new
agreed to carry new
representative cities. products
representative cities. productsfor
foraafee.
fee.
Simulated
Simulated
Test
TestMarket
Market
Test
Testin
inaasimulated
simulated
shopping environment
shopping environment
to
toaasample
sampleofof
consumers.
consumers.
[Link] PROCESS OF NEW PRODUCT DEVELOPMENT
There are several stages in the new product development process...not always followed in
order:
1. Ideas for new products can be obtained from customers (employing user innovation),
the company’s R&D department, competitors, focus groups, employees, salespeople,
corporate spies, trade shows, or through a policy of Open Innovation.
2. Formal idea generation techniques can be used, such as attribute listing, forced
relationships, brainstorming, morphological analysis and problem analysis.
3. Idea Screening with the objective to eliminate unsound concepts prior to devoting
resources to them.
4. Concept Development and Testing to develop the marketing and engineering details.
5. Business Analysis to estimate likely selling price based upon competition and customer
feedback; sales volume based upon size of market; profitability and breakeven point.
[Link] CONT.
6. Beta Testing and Market Testing to produce a physical prototype or mock-up to test the
product (and its packaging) in typical usage situations by conducting focus group customer
interviews or introductions at trade show, making adjustments where necessary and
produce an initial run of the product and sell it in a test market area to determine customer
acceptance.
7. Technical Implementation including new program initiation, resource estimation,
requirement publication, engineering operations planning , department scheduling, supplier
collaboration, logistics plan, resource plan publication, program review and monitoring,
contingency planning, what-if planning.
8. Commercialization including launch of the product, produce and place advertisements
and other promotions, fill the distribution pipeline with product, critical path analysis is
most useful at this stage.
4.3. 2 INTRODUCTION STRATEGIES
Introductory stage in the life cycle has several characteristics.
[Link] are often few competitors, perhaps only one.
[Link] increases slowly due to the small number of firms marketing the
product and the reluctance on the part of customers to purchase it.
What are the core strategy options at this stage? There are two well-
known options:
[Link]
[Link]
[Link] skimming strategy assumes a product feature-based differential advantage that allows the
product manager to enter and stay in the market during the introductory period with a high
price
2.A penetrationstrategy is more appropriate when fixed costs are high (e.g., many services,
general purpose computer software). When a broad segment is being pursued it is important to
obtain wide distribution and thus spend heavily on trade-oriented promotion.
4.3. 3 GROWTH STRATEGIES
The growth phase of the product life cycle encompasses two different kind of
market behavior:
[Link] growth: The phase just following the introductory phase
[Link] growth: The phase in which the rapid increase in sales begin to flatten out.
[Link] Strategies
The maturity stage of the life cycle is characteristic of most products particularly consumer
products.
Product categories exhibiting fierce battles for market share and access to distribution
channels, large amounts of money spent on trade and customer promotion, and aggressive
pricing are often in this stage of the product life cycle.
4.3.5 Decline Stage Strategies
In the decline stage of the life cycle, sales of the category are dropping. So is the
number of competitors. Markets reach the decline stage for a variety of reasons.
Perhaps the most obvious is technological obsolescence.
Perhaps the clearest strategy is to try to be the last in the market. By being last,
a product gains monopoly rights to the few customers left. This, of course.
Results in the ability to charge commensurately high prices.
4.4. PRODUCT MODIFICATION
What are the driving forces causing companies to seek new and weird ways to change
the product so they can keep selling more?
1. The intensity of competition: The Competitive Environment, – in a globalized
community of businesses all interlinked, it becomes easier and easier to copy other
people’s products, especially consumer electronics, so once you have launched a new
product – there is a very short time before someone else will make a knock-off copy, or
even make a slight improvement to capture your customers.
2. The continued advances in technology: The Technological Environment. Technology
makes it easier and easier to copy other products. Also, advanced in technology make
it more possible to have to features to add on to a product that is several months old.
3. The Economic Environment: The need for companies to make more money selling a
product (maybe because the cycle was too short).
4. The Social/Cultural Environment: After the product has been used by the early
adopters, it might the possible that other customer groups have slightly different uses,
and this can be accommodated if the product packaging or features are altered slightly
to make it more appealing to other demographics.
4.5. PRODUCT LINE EXTENSION
A product line extension is the use of an established product’s brand name for a new
item in the same product category.
The following seven important factors make companies pursue line extensions as a
significant element of their marketing strategies:
1. Customer segmentation
2. Consumer desires
3. Pricing breadth
4. Excess capacity
5. Short-term gain
6. Competitive intensity
7. Trade pressure