Hult | Pride | Ferrell

marketing 16e
Part 4
Product
Decisions
 10: Product Decisions
11: Strategic Product Management
12: Services Marketing
13: Strategic Management of
Branding and Packaging

© 2012 South-Western, a part of Cengage Learning 11-2

 Learning Objectives
 To understand how companies manage
existing products through line extensions
and product modifications
 To describe how businesses develop a
product idea into a commercial product
 To understand the importance of product
differentiation and the elements that
differentiate one product from another
 To examine how product deletion is used to
improve product mixes
 To describe organizational structures used
for managing products
© 2012 South-Western, a part of Cengage Learning 11-3
 Managing Existing Products

© 2012 South-Western, a part of Cengage Learning 11-4

 Line Extension
The development of a product that is closely
related to existing products in the line, but is
designed specifically to meet different customer
needs
Many “new products” are really line
extensions
Are less expensive, lower-risk and more
common than new products
Downside is that unpopular line extensions
may result in negative evaluation of the core
product
© 2012 South-Western, a part of Cengage Learning 11-5
 Think About It
 Reese’s has introduced many line extensions to
its core product, the Peanut Butter Cup
• Pieces
• Miniatures
• Big Cup
• NutRageous
• Cereal
• Dark Chocolate
• White Chocolate

 Can you think of any line extensions?

© 2012 South-Western, a part of Cengage Learning 11-6
 Reasons for Line Extensions

 Focus on a different segment

 More precisely satisfy needs of current
segment
 Capture market share from competitors

© 2012 South-Western, a part of Cengage Learning 11-7

 Product Modifications
 Changes in one or more characteristics of a
product
 Differs from a line extension in that the
original product does not remain in the line
 Some requirements:
 Product must be modifiable
 Customers must be able to perceive a difference
 Modifications should produce greater customer
satisfaction
 Drawback is that consumers accustomed to
the original may resist the modified version
© 2012 South-Western, a part of Cengage Learning 11-8
 Quality Modifications

 Changes related to a product’s dependability

and durability
• Reducing a product’s quality may allow for a
lower price and appeal to a new target market
• Higher quality may allow a company to charge a
higher price through building loyalty and
lowering sensitivity to price
 Many firms look for ways to increase quality
while also cutting costs

© 2012 South-Western, a part of Cengage Learning 11-9

 Functional Modifications

 Changes affecting a product’s versatility,

effectiveness, convenience, or safety
 Benefits:
• Makes a product more useful and enlarges its market
• Places a product in a favorable competitive position
by providing benefits that competing brands do not
offer
• Helps an organization achieve a progressive image
 Modifications sometimes are made in response
to product shortcomings and potential lawsuits

© 2012 South-Western, a part of Cengage Learning 11-10

 Aesthetic Modification
 Changes the sensory appeal of a product by
altering taste, texture, sound, smell, or
appearance
• Sensory elements may strongly affect customers’
purchases
 Can help a firm:
 Differentiate its product from competing brands
 Gain market share
 Drawback is that what is aesthetically
appealing is subjective and varies between
consumers
© 2012 South-Western, a part of Cengage Learning 11-11
 Discussion Question

 Are Multi-Grain
Pringles a line
extension, a product
modification, or a
functional
modification?

© 2012 South-Western, a part of Cengage Learning 11-12

 Developing New Products

 New products enhance a firm’s product mix

and add depth to a product line
 The term “new product” can have more than
one meaning
• Innovative benefits
• Different and better than existing products
• Never been sold by any organization before
• Never been sold by a particular firm or in a
market before

© 2012 South-Western, a part of Cengage Learning 11-13

 Think About It

 Stonyfield Farm released new and improved

tasting yogurt
• Click here for a press release
 Since taste is so subjective, how do you
think the company determines that its yogurt
is “improved?”

© 2012 South-Western, a part of Cengage Learning 11-14

 Phases of the New Product
Development Process

© 2012 South-Western, a part of Cengage Learning 11-15

 Idea Generation

 Seeking product ideas that help to achieve

organizational objectives
• Very few ideas are good enough for commercial
success
 Some ideas come from pure chance
 Sources for new product ideas
• Internal (Managers, researchers, employees, sales
personnel)
• External (Customers, competitors, advertising
agencies, consultants)
© 2012 South-Western, a part of Cengage Learning 11-16
 Screening
 Choosing the ideas with greatest potential
for further review
 Do product ideas match organizational
objectives and resources?
• Concerns about cannibalization of existing
products
• Company capabilities to produce and market the
product
• Nature and wants of buyers
 Some firms use checklists of new product
requirements when making screening
decisions
© 2012 South-Western, a part of Cengage Learning 11-17
 Concept Testing

A small sample of potential buyers is presented

with a product idea to determine their attitudes
and buying intentions
Low-cost procedure to determine customers’
initial reaction to product idea
Identification of important product attributes
and benefits
Input from online communities can be helpful

© 2012 South-Western, a part of Cengage Learning 11-18

 Concept Test for a Flea and Tick
Control Product

© 2012 South-Western, a part of Cengage Learning 11-19

 Business Analysis
 The product idea is evaluated to determine
its potential contribution to sales, costs and
profits
 Does product fit in with existing product mix?
 Is demand strong and enduring enough to justify
entering the market?
 What types of environmental and competitive
changes can be expected?
 Is the firm capable of developing the product?
 What are the costs for developing and
marketing?
© 2012 South-Western, a part of Cengage Learning 11-20
 Product Development
 The phase in which the organization
determines if it is feasible and cost effective
to produce the product
• A prototype is used to reveal the tangible and
intangible attributes associated with the product
in consumers’ minds
• A product’s overall functionality (performance,
safety and convenience) must be tested
• A lengthy and expensive part of process
• Few product ideas make it to this stage
 How much quality to build into the product?
© 2012 South-Western, a part of Cengage Learning 11-21
 Think About It

 Why do you think Apple’s iPad made it

through the new product development
process?
 Does it satisfy a consumer need that was not
satisfied before?
 Is it better than competing products?

© 2012 South-Western, a part of Cengage Learning 11-22

 Test Marketing

A limited introduction of a product in

geographic areas chosen to represent the
intended market
Test markets must be a representative sample
of the target market
The aim is to determine the extent to which
customers will buy the product

© 2012 South-Western, a part of Cengage Learning 11-23

 Test Marketing Benefits and Risks
 Benefits
• Lets marketers measure sales performance in a
natural marketing environment
• An opportunity to identify weaknesses in the
product or marketing mix
• Allows for experimentation with advertising,
pricing and packaging
 Risks
• Expensive
• Competitors may interfere
• Gives competitors time to copy the product
 Simulated test marketing is a way to reduce
costs and risks
© 2012 South-Western, a part of Cengage Learning 11-24
 Popular Test Markets in the
United States

© 2012 South-Western, a part of Cengage Learning 11-25

 Commercialization
 Refining and finalizing plans and budgets for
full-scale manufacturing and marketing of a
product
• Marketing managers analyze test marketing
results and refine product/marketing mix before
full-scale release
 Decisions about warranties, repairs and
replacement parts are made early in this
stage
 Expenditures from this stage may not be
recovered for years
© 2012 South-Western, a part of Cengage Learning 11-26
 Gradual Product Introduction

 Roll-Out: Introducing a product in stages

across geographic areas
 Benefits
• Reduces the risks of introducing a new product
• No product can be simultaneously introduced
overnight because of distribution considerations
• Allows time to increase production capacity
 Risk
• Allows competitors to observe a firm’s tactics
and introduce competing products
© 2012 South-Western, a part of Cengage Learning 11-27
 Stages of Expansion Into a National
Market During Commercialization

© 2012 South-Western, a part of Cengage Learning 11-28

 Product Differentiation
 The process of creating and designing
products so customers perceive them as
different from competing products
 Customer perception is critical in
differentiating products
 Perceived differences include:
 Quality
 Features
 Styling
 Price
 Image
© 2012 South-Western, a part of Cengage Learning 11-29
 Product Quality

Quality
Characteristics of a product allowing it to
perform as expected in satisfying customer
needs
Level of Quality
The amount of quality a product possesses
Consistency of Quality
The degree to which a product has the same
level of quality over time
© 2012 South-Western, a part of Cengage Learning 11-30
 Product Design and Features
Product Design
How a product is conceived, planned and
produced
The total sum of a product’s physical
characteristics
Styling
Physical appearance of a product
Involves functioning and usefulness
Product Features
Specific design characteristics that allow a product
to perform certain tasks
Helps a company differentiate its products
© 2012 South-Western, a part of Cengage Learning 11-31
 Product Support Services

Support services can help a company

differentiate itself from competitors
Customer Services
Human or mechanical efforts or activities that
add value to a product
• All marketers of goods sell some degree
of customer services
• May be the only way to differentiate
between competing products
© 2012 South-Western, a part of Cengage Learning 11-32
 Discussion Question
 Do you think good customer support
services, through its Geek Squad, represents
a competitive advantage for Best Buy?

© 2012 South-Western, a part of Cengage Learning 11-33

 Product Deletion

 Eliminating a product from the product mix,

usually because it no longer satisfies a
sufficient number of customers
 Declining products reduce a firm’s
profitability and monopolizes resources that
should be distributed elsewhere
 It can be difficult to delete a product
• Some firms wait too long to delete
• A systematic review of products helps determine
when to make a deletion
© 2012 South-Western, a part of Cengage Learning 11-34
 Three Ways to Delete a Product

 Phase-Out: Allows the product to decline

without a change in the marketing strategy
• No attempt is made to give the product new life
 Run-Out: Exploits any strengths left in the
product
• Intensifying marketing efforts in core markets or
eliminating some marketing expenditures may
cause a jump in profits
 Immediate Drop: The best strategy when
losses are very great
© 2012 South-Western, a part of Cengage Learning 11-35
 Product Deletion Process

© 2012 South-Western, a part of Cengage Learning 11-36

 Organizing to Develop and
Manage Products
Product Manager
Responsible for a product, a product line, or
several distinct products that make up a group
Brand Manager
Responsible for a single brand
Market Manager
Responsible for managing the marketing activities
that serve a particular group of customers
Venture Teams
A cross-functional group that creates entirely new
products that may be aimed at new markets
© 2012 South-Western, a part of Cengage Learning 11-37
 Important Terms
Line extension Product differentiation
Product modification Quality
Quality modifications Level of quality
Functional modifications Consistency of quality
Aesthetic modifications Product design
New-product development Styling
process
Idea generation Product features
Screening Customer services
Concept testing Product deletion
Business analysis Product manager
Product development Brand manager
Test marketing Market manager
Commercialization Venture team

© 2012 South-Western, a part of Cengage Learning 11-38