Introducing and Managing the Product

LEARNING OBJECTIVES

After reading this chapter, you should be able to:

• look at the meaning of the term "product" from three different perspectives: the manufacturer, the consumer, and the public
• understand the three levels inherent in all products
• learn the classification systems that are used to identify products and suggest appropriate marketing strategies
• clarify the difference between goods, products, and service products
• study some of the processes involved in product planning and strategy formulation: determination of product objectives and identification and resolution of factors that have an impact on the product
• understand the eight steps that makeup the new product development system

 This text was adapted by Saylor Academy under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work's original creator or licensor.

JAPANESE CARS ON THE DECLINE

Japan's auto dealers have tried just about everything to revive sales. One Toyota Motor Corporation dealership in Tokyo throws monthly festivals in its parking lot and offers discounts of as much as $2,500 on new models. But potential customers such as Kai Matsuda, a smartly dressed 28 year old, is not buying. Sure, after spending a recent Sunday touring Toyota's swank four-story Amlux showroom in Tokyo, Matsuda came away impressed. The building housed everything from rugged recreational vehicles to sleek luxury sedans such as the $37,000 Aristo. Matsuda would love to buy a new car: "if I had the money". However, with Japan's economy on the skids, he does not.

For Japanese carmakers preparing to roll out their new fleets at the Tokyo Motor Show, consumers such as Matsuda illustrate why 2000 was such a tough year. Despite a flurry of new launches, the recent increase in Japan's consumption tax from 3% to 5% has caused car sales to decline for six months in a row. Dealers sold 9% fewer cars in September then in the same month a year earlier, and several have now fallen into the red or have gone bankrupt.

So carmakers are desperately hoping their 2000 models will boost sales. The Motor Show's new lines have the latest in breaking, engine, transmission technology, more sporty designs, and more environmentally friendly engines - including a "hybrid" car that can get 66 miles per gallon on a combination of gasoline and electricity. "Every maker is preparing new launches to keep sales from falling through the floor," says Christopher Redl, automotive analyst at ING Barrings Limited.

But Japanese consumers are already overwhelmed with choices. "There are now over 190 car models available in the market," says Atsushi Fuyi, member of the board of directors in charge of domestic sales at Nissan Motor Company, "and the average consumer can only remember about 11 of them".

Yet at the Motor Show, Japanese carmakers will be coming out with even more. Toyota wants to target young people with fun European-looking models and convertible sports car. Toyota also plans to roll out the world's first mass-produced hybrid, with sales projected at 1,000 a month. The company admits it will see the hybrid as one-third of the world's auto market by 2005. After working out the kinks in the hybrid in Japan, Toyota plans to take it for a spin in overseas markets. However, analysts worry the hybrid could cannibalize sales of other models. "Why would you want to buy a Corona when you might be able to buy a hybrid car for just about the same price?" asks Edward Brogan, automotive analyst at Salomon Brothers Inc.

In this chapter we will look at the special challenges that the marketing of products possess. Moreover, we will delineate the unique characteristics associated with products as they pass through the various stages of their lives. Particular attention will be given to the kinds of decisions that are necessary through this process.

INTRODUCTION

This chapter begins our discussion of the functional areas of marketing. Why do we begin our discussion with product rather than with promotion, distribution, or pricing? The answer is quite obvious. None of those other functions serve any useful purpose without a company product that provides consumer satisfaction. Without a product, there is nothing to promote, nothing to distribute, nothing to price. This does not suggest that product is more important, rather, it is the impetus for the other marketing functions. Logically, we should start at the beginning, and the beginning of a market place is a set of correct decisions about the product offerings of the firm.

DEFINING THE PRODUCT

In essence, the term "product" refers to anything offered by a firm to provide customer satisfaction, be it tangible or intangible. It can be a single product, a combination of products, a product-service combination, or several related products and services. It normally has at least a generic name (e.g. banana) and usually a brand name (e.g. Chiquita). Although a product is normally defined from the perspective of the manufacturer, it is also important to note two other points-of-view, those of the consumer and other relevant publics.

For a manufacturer like Kraft Foods, their macaroni and cheese dinner reflects a food product containing certain ingredients packaged, distributed, priced and promoted in a unique manner, and requiring a certain return on their investment. For the consumer, the product is a somewhat nutritious food item that it is quick and easy to prepare and is readily consumed by the family, especially the kids. For a particular public, such as the US Food and Drug Administration, this product reflects a set of ingredients that must meet particular minimum standards in terms of food quality, storage and distribution.

Making this distinction is important in that all three perspectives must be understood and satisfied if any product will survive and succeed. Furthermore, this sensitivity to the needs of all three is the marketing concept in action. For example, a company might design a weight-reduction pill that not only is extremely profitable but also has a wide acceptance by the consumer. Unfortunately, it cannot meet the medical standards established by the US Federal government. Likewise, Bird's Eye Food might improve the overall quality of their frozen vegetables and yet not improve the consumers' tendency to buy that particular brand simply because these improvements were not perceived as either important or noticeable by the consumer. Therefore, an appraisal of a company's product is always contingent upon the needs and wants of the marketer, the consumer, and the relevant publics. We define product as follows: anything, either tangible or intangible, offered by the firm; as a solution to the needs and wants of the consumer; is profitable or potentially profitable; and meets the requirements of the various publics governing or influencing society.

There are four levels of a product: core, tangible, augmented, and promised (see Figure 7.1). We begin with the notion of the core product, which identifies what the consumers feel they are getting when they purchase the product. The core benefits derived when an overweight 45-year-old male purchases a $250 ten-speed bicycle is not transportation; it is the hope for better health and improved conditioning. In a similar vein, that same individual may install a $16,000 swimming pool in his backyard, not in order to obtain exercise, but to reflect the status he so desperately requires. Both are legitimate product cores. Because the core product is so individualized, and oftentimes vague, a full-time task of the marketer is to accurately identify the core product for a particular target market.

Figure 7.1 Levels of the product.

 

Once the core product has been indicated, the tangible product becomes important. This tangibility is reflected primarily in its quality level, features, brand name, styling, and packaging. Literally every product contains these components to a greater or lesser degree. Unless the product is one-of-a-kind (e.g. oil painting), the consumer will use at least some of these tangible characteristics to evaluate alternatives and make choices. In addition, the importance of each will vary across products, situations, and individuals. For example, for Mr Smith at age 25, the selection of a particular brand of new automobile (core product = transportation) was based on tangible elements such as styling and brand name (choice = Corvette); at age 45, the core product remains the same, while the tangible components such as quality level and features become important (choice = Mercedes).

At the next level lies the augmented product. Every product is backed up by a host of supporting services. Often, the buyer expects these services and would reject the core-tangible product if they were not available. Examples would be restrooms, escalators, and elevators in the case of a department store, and warranties and return policies in the case of a lawn mower. Dow Chemical has earned a reputation as a company that will bend over backwards in order to service an account. It means that a Dow sales representative will visit a troubled farmer after-hours in order to solve a serious problem. This extra service is an integral part of the augmented product and a key to their success. In a world with many strong competitors and few unique products, the role of the augmented product is clearly increasing.

The outer ring of the product is referred to as the promised product. Every product has an implied promise. An implied promise is a characteristic that is attached to the product over time. The car industry rates brands by their trade-in value. There is no definite promise that a Mercedes-Benz holds its value better than a BMW. There will always be exceptions. How many parents have installed a swimming pool based on the implied promise that their two teenagers will stay home more or that they entertain friends more often?

Having discussed the components of a product, it is now relevant to examine ways of classifying products in order to facilitate the design of appropriate product strategies.

CLASSIFICATION OF PRODUCTS

It should be apparent that the process of developing successful marketing programs for individual products is extremely difficult. In response to this difficulty, a variety of classification systems have evolved that, hopefully, suggest appropriate strategies. The two most common classifications are: (1) consumer goods versus industrial goods, and (2) goods products (i.e. durables and nondurables) versus service products.

Consumer Goods and Industrial Goods

The traditional classification of products is to dichotomize all products as being either consumer goods or industrial goods. When we purchase products for our own consumption or that of our family with no intention of selling these products to others, we are referring to consumer goods. Conversely, industrial goods are purchased by an individual or organization in order to modify them or simply distribute them to the ultimate consumer in order to make a profit or meet some other objective.

Classification of Consumer Goods

A classification long used in marketing separates products targeted at consumers into three groups: convenience, shopping, and specialty. A convenience good is one that requires a minimum amount of effort on the part of the consumer. Extensive distribution is the primary marketing strategy. The product must be available in every conceivable outlet and must be easily accessible in these outlets. Vending machines typically dispense convenience goods, as do automatic teller machines. These products are usually of low unit value, are highly standardized, and frequently are nationally advertised. Yet, the key is to convince resellers, i.e. wholesalers and retailers, to carry the product. If the product is not available when, where, and in a form desirable by the consumer, the convenience product will fail.

From the consumer's perspective, little time, planning, or effort go into buying convenience goods. Consequently, marketers must establish a high level of brand awareness and recognition. This is accomplished through extensive mass advertising, sales promotion devices such as coupons and point-of-purchase displays, and effective packaging. The fact that many of our product purchases are often on impulse is evidence that these strategies work. Availability is also important. Consumers have come to expect a wide spectrum of products to be conveniently located at their supermarkets, ranging from packaged goods used daily, e.g. bread and soft drinks, to products purchased rarely or in an emergency such as snow shovels, carpet cleaners, and flowers.

In contrast, consumers want to be able to compare products categorized as shopping goods. Automobiles, appliances, furniture, and homes are in this group. Shoppers are willing to go to some lengths to compare values, and therefore these goods need not be distributed so widely. Although many shopping goods are nationally advertised, often it is the ability of the retailer to differentiate itself that creates the sale. The differentiation could be equated with a strong brand name, such as Sears Roebuck or Marshall Field; effective merchandising; aggressive personal selling; or the availability of credit. Discounting, or promotional price-cutting, is a characteristic of many shopping goods because of retailers' desire to provide attractive shopping values. In the end, product turnover is slower, and retailers have a great deal of their capital tied-up in inventory. This combined with the necessity to price discount and provide exceptional service means that retailers expect strong support from manufacturers with shopping goods.

Specialty goods represent the third product classification. From the consumer's perspective, these products are so unique that they will go to any lengths to seek out and purchase them. Almost without exception, price is not a principle factor affecting the sales of specialty goods. Although these products may be custom-made (e.g. a hairpiece) or one of-a-kind (e.g. a statue), it is also possible that the marketer has been very successful in differentiating the product in the mind of the consumer. Crisco brand shortening, popular in the US, may be considered to be a unique product in the mind of a consumer and the consumer would pay any price for it. Such a consumer would not accept a substitute and would be willing to go to another store or put off their pie baking until the product arrives. Another example might be the strong attachment some people feel toward a particular hair stylist or barber. A person may wait a long time for that individual and might even move with that person to another hair salon. It is generally desirable for a marketer to lift her product from the shopping to the specialty class (and keep it there). With the exception of price-cutting, the entire range of marketing activities are required to accomplish this goal.

Classification of Industrial Goods

Consumer goods are characterized as products that are aimed at and purchased by the ultimate consumer. Although consumer products are more familiar to most readers, industrial goods represent a very important product category, and in case of some manufacturers, they are the only product sold. The methods of industrial marketing are somewhat more specialized, but in general the concepts presented in this text are valid for the industrial marketer as well as for the consumer goods marketer.

Industrial products can either be categorized from the perspective of the producer and how they shop for the product or from the perspective of the manufacturer and how they are produced and how much they cost. The latter criteria offers a more insightful classification for industrial products.

Farms, forests, mines, and quarries provide extractive products to producers. Although there are some farm products that are ready for consumption when they leave the farm, most farm and other extractive products require some processing before purchase by the consumer. A useful way to divide extractive products is into farm products and natural products, since they are marketed in slightly different ways.

Manufactured products are those that have undergone some processing. The demands for manufactured industrial goods are usually derived from the demands for ultimate consumer goods. There are a number of specific types of manufactured industrial goods.

Semi-manufactured goods are raw materials that have received some processing but require some more before they are useful to the purchaser. Lumber and crude oil are examples of these types of products. Since these products tend to be standardized, there is a strong emphasis on price and vendor reliability.

Parts are manufactured items that are ready to be incorporated into other products, For instance, the motors that go into lawn mowers and steering wheels on new cars are carefully assembled when they arrive at the manufacturing plant. Since products such as these are usually ordered well in advance and in large quantities, price and service are the two most important marketing considerations.

Process machinery (sometimes called "installations") refers to major pieces of equipment used in the manufacture of other goods. This category would include the physical plant (boilers, lathes, blast furnaces, elevators, and conveyor systems). The marketing process would incorporate the efforts of a professional sales force, supported by engineers, technicians, and a tremendous amount of personalized service.

Equipment is made up of portable factory equipment (e.g. fork, lift trucks, fire extinguisher) and office equipment (e.g. computers, copier machines). Although these products do not contribute directly to the physical product, they do aid in the production process. These products may be sold directly from the manufacturer to the user, or a middleman can be used in geographically dispersed markets. The marketing strategy employs a wide range of activities, including product quality and features, price, service, vendor deals, and promotion.

Supplies and service do not enter the finished product at all but are nevertheless consumed in conjunction with marking the product. Supplies would include paper, pencils, fuel oil, brooms, soap, and so forth. These products are normally purchased as convenience products with a minimum of effort and evaluation. Business services include maintenance (e.g. office cleaning), repairs (e.g. plumbing), and advisory (e.g. legal). Because the need for services tends to be unpredictable, they are often contracted for a relatively long period of time.

Goods Versus Services

Suggesting that there are substantial differences between goods, products, and service products has been the source of great debate in marketing. Opponents of the division propose that "products are products", and just because there are some characteristics associated with service products and not goods products and vice-versa, does not mean customized strategies are generally necessary for each. Advocates provide evidence that these differences are significant. It is the position in this book that service products are different than goods products, and that service products represent an immense market sector.

Service products are reflected by a wide variety of industries: utilities, barbers, travel agencies, health spas, consulting firms, medical care, and banking, to name but a few, and they account for nearly 50% of the average consumer's total expenditures, 70% of the jobs, and two-thirds of the US Gross National Product (GNP). Clearly, the service sector is large and is growing. While all products share certain common facets, service products tend to differ from goods products in a number of ways.

Characteristics of Service Products

PRODUCT PLANNING AND STRATEGY FORMULATION

The ultimate purpose of this chapter is to introduce the idea that products are planned, and that a whole series of decisions go into this planning process-from the moment the product idea is first conceptualized to the day it is finally deleted. The particular label placed on the company's plan for marketing its product is the product strategy. It is part of the marketing strategy and should harmonize with it. Like the marketing strategy, it contains three important elements. (1) the determination of product objectives, (2) the development of product plans that will help reach product objectives, and (3) the development of strategies appropriate for the introduction and management of products.

The Determination of Product Objectives

There are a great many objectives that relate to the product management effort. Rather than attempting to provide a complete list, a discussion of the most common product objectives will provide an adequate illustration.

It is safe to conclude that a universal objective is growth in sales as a result of the introduction of a new product or the improvement of an existing product. Certainly, there is little need to engage in either product activity unless this objective is present.

An objective related to growth in sales is finding new uses for established products. Since this process is generally easier than developing new products, the search for new uses of older products goes on endlessly. For example, Texas Instruments has found numerous uses for their basic product, the semiconductor.

Using excess capacity is another commonly stated product objective. This objective is prompted by the rapid turnover of products and the resulting changes in market share. Of course, such utilization is always a short-run consideration. In the long run, only those products that can generate a continuing level of profitability should be retained, regardless of the problem of excess capacity.

Maintaining or improving market share may also be an objective shared by many companies. In such cases, the emphasis of the firm is on their competitive position rather than attaining a target level of profits. Creating product differentiation is often the primary strategy employed to reach this objective.

Developing a full line of products is another typical objective. A company with a partial product line may well consider the objective of rounding out its product offerings. Often, the sales force provides the impetus for this objective in that they may need a more complete product line to offer their customers or the resellers themselves may request a greater assortment.

Expanding a product's appeal to new market segments is a common objective. John Deere is attempting to increase its small share of the consumer power products market by aiming at suburbanites and women farmers. They have introduced a series of redesigned lawn and garden tractors, tillers, and snow blowers that are easier for women to operate.

Although this represents a limited selection of objectives, it does suggest that there must be a reason for all product-related activities. These reasons are best expressed in the form of specific objectives.

The Product Plan

Once a marketer has determined a set of product objectives, it is then possible to initiate the activities that constitute the product plan. Although there are a number of ways to look at this process, we have elected to explain this process through the product lifecycle concept (PLC). It should be noted that the value of the PLC framework as a planning tool lies at the industry and/or product category level.

The Product Lifecycle

A company has to be good at both developing new products and managing them in the face of changing tastes, technologies, and competition. Evidence suggests that every product goes through a lifecycle with predictable sales and profits, as illustrated in Figure 7.3. As such, the manager must find new products to replace those that are in the declining stage of the product lifecycle and learn how to manage products optimally as they move from one stage to the next.

The five stages of the PLC and their components can be defined as follows:

It should be noted that the predictive capabilities of the product lifecycle are dependent upon several factors, both controllable and uncontrollable, and that no two companies may follow the same exact pattern or produce the same results. For example, differences in the competitive situation during each of these stages may dictate different marketing approaches. Some argue that the competitive situation is the single most important factor influencing the duration of height of a product lifecycle curve. A useful way of looking at this phenomenon is in the terms of competitive distinctiveness. Several years ago, Dean suggested that a separation exists between products of lasting and perishable distinctiveness. Often, new products may, upon introduction, realistically expect a long period of lasting distinctiveness or market protection - through such factors as secrecy, patent protection, and the time and cash required to develop competitive products. However, almost all new products can expect fewer than 5, 10, or 15 years of market protection.

Of course, changes in other elements of the marketing mix may also affect the performance of the product during its lifecycle. For example, a vigorous promotional program or a dramatic lowering of price may improve the sales picture in the decline period, at least temporarily. The black-and-white TV market illustrated this point. Usually the improvements brought about by non-product tactics are relatively short-lived and basic alterations to product offerings provide longer benefits.

Whether one accepts the S-shaped curve as a valid product-sales pattern or as a pattern that holds only for some products (but not for others), the product lifecycle concept can still be very useful. It offers a framework for dealing systematically with product management issues and activities. Thus, the marketer must be cognizant of the generalizations that apply to a given product as it moves through the various stages. This process begins with product development and ends with the deletion (discontinuation) of the product.

Product Strategies

Product planning should be an ongoing process that consistently evaluates existing products, modifies where necessary deletes products that no longer contribute to the firm, and introduces new products. Since most companies have at least one product line (and perhaps several), each containing several items, product management is a necessary activity - a daily activity. The task involves gathering the necessary data, utilizing a framework to evaluate it in light of a particular product or groups of products, selecting an appropriate strategy, and implementing that strategy. In general, there are two product strategy issues: approaches to the market and key product decisions.

Approaches to the Market

The primary task of a product is to facilitate the success of a particular market strategy. A market strategy delineates what the seller wants to accomplish relative to buyers. Strategy is partly based on the approach used to represent the product. There are three general approaches, each of which may change during the life of the product.

Product differentiation is used when a marketer chooses to appeal to the whole market by attempting to cater to the particular desires of all the buyers who hopefully would prefer his brand. This strategy is appropriate if the brand is widely popular and can be continued in general market leadership through strong promotion. Crest toothpaste is an example of a product that has successfully engaged in this strategy. Minor taste changes and formula changes have differentiated a basic product in the minds of many Crest users.

Market extension is a second approach available to the product manager. This entails attracting additional types of buyers into the market or discovering and promoting new uses of the product. Sometimes the addition of new buyers itself provides new uses for the product. 3M's Scotch tape, for example, expanded its uses when it became popular with the general consumer as well as the business consumer. Unfortunately, market extension strategies are extremely easy for competitors to copy. Thus, the brand promoting the new use is benefiting competitors as well.

Market segmentation is the final approach. As discussed in an earlier chapter, segmentation is identifying a group of consumers that tend to respond to some aspect of the market mix in a similar way. Rather than trying to appeal to the whole market, you concentrate your efforts and resources on a part of that market. The trend towards segmenting markets occurs most among branded goods. Even industrial products, such as the many varieties of diesel trucks, is an industry in which small firms survive by concentrating on some special segment of that heterogeneous total market. A company like the Coca-Cola Company found that there were pockets of consumers that, for various reasons, did not purchase Coke. Through the introduction of Tab many years ago, followed by Diet Coke and Caffeine-Free Coke, they feel that most of the market is now covered.

Key Product Management Decisions

Strategies for Developing New Product

For several decades, business has come increasingly to the realization that new and improved products may hold the key to their survival and ultimate success. Consequently, professional management has become an integral part of this process. As a result, many firms develop new products based on an orderly procedure, employing comprehensive and relevant data, and intelligent decision making.

Review

1. A product is anything, either tangible or intangible, offered by the firm as a solution to the needs and wants of the consumer, that is profitable or potentially profitable and meets the requirements of the various publics, governing, or influencing society. There is a core product, a tangible product, an augmented product, and a promised product.
2. Consumer goods are purchased for personal consumption.
3. Industrial goods are modified or distributed for resale.
4. Service products, in contrast to goods product, are characterized as being intangible and having simultaneous production/consumption, little standardization, and high buyer involvement.
5. The product plan process includes the following:
   1. determination of product objectives,
   2. development of product plans to reach objectives,
   3. development of appropriate strategies.

Defining the "New" in a New Product

The determination of what constitutes a "new" product remains one of the most difficult questions faced by the marketer. Does the most recent TV model introduced by Sony represent a new product even though 95% of the product remains the same as last year's model? Are packaged salads a new product, or is the package the only part that is really new?

Indeed, companies have often been guilty of using the word "new" in conjunction with some questionable products. For example, older products have simply been marketed in new packages or containers but have been identified as new products by the manufacturer. Flip-top cans, plastic bottles, and screw-on caps have all been used to create this image of newness. Industrial companies have been guilty of similar actions. Computer manufacturers, for instance, have slightly modified some of the basic hardware or developed some software for a particular customer (banks, churches), and have felt free to claim newness. Finally, manufacturers may add an existing product to their product line and call it new, even though it is not new to the consumer.

Does technology make a product new, or features, or even the price? It is important to understand the concept of "new" in a new product, since there is sufficient evidence that suggests that each separate category of "newness” may require a different marketing strategy.

Perhaps the best way to approach this problem is to view it from two perspectives; that of the consumer and that of the manufacturer.

The Consumer's Viewpoint There are a variety of ways that products can be classified as new from the perspective of the consumer. Degree of consumption modification and task experience serve as two bases for classification. Robertson provides an insightful model when he suggests that new products may be classified according to how much behavioral change or new learning is required by the consumer in order to use the product.10

The continuum proposed by Robertson and shown in Figure 7.4 depicts the three primary categories based on the disrupting influence the use of the product has on established consumption patterns. It is evident that most new products would be considered continuous innovations. Annual model changes in automobiles, appliances, and sewing machines are examples. Portable hair dryers, diet soda, and aerobic dance CDs reflect products in the middle category. True innovations are rare.

Although conceptualizing new products in terms of how they modify consumer consumption patterns is useful, there is another basis for classification. New task experience can also be a criterion. An individual may live in a house for several years without ever having to repair a broken window. One day a mishap occurs, and Mr. Smith is forced to go to the hardware store to buy the necessary supplies required to install a new window pane. As he has no experience at all with this task, all those products are new to Mr. Smith. The glazing compound, the new glass and molding, and metal tacks, as well as the appropriate tools, are as new to Mr. Smith as a home computer. Using the model proposed by Robertson, products can also be placed on a continuum according to degree of task experience. Clearly, a product that has existed for a great many years, such as a carpenter's level, may be perceived as totally new by the person attempting to build a straight wall. In this case, newness is in the eye of the beholder.

The obvious difficulty with this classification is that it tends to be person-specific. Just because replacing a new washer in your bathroom faucet constitutes a new product for you does not mean it is a new product for me. However, it is conceivable that marketing research would show that for certain types of products, large groups of people have very limited experience. Consequently, the marketing strategy for such products might include very detailed instructions, extra educational materials, and sensitivity on the part of the sales clerk to the ignorance of the customer.

Another possible facet of a new task experience is to be familiar with a particular product but not familiar with all of its functions. For example, a homemaker may have a microwave oven which she uses primarily for reheating food items and making breakfast foods. Suppose that one afternoon her conventional oven breaks and she must deliver several cakes she has donated to a church bazaar. Unfortunately, she has not baked them yet and is forced to use her microwave, a brand-new task.

Figure 7.4 Continuum for classifying new products.

The Firm's Viewpoint

Classifying products in terms of their newness from the perspective of the manufacturer is also important. There are several levels of possible newness that can be derived through changes either in production, marketing, or some combination of both.

Based on a schema developed by Eberhard Scheuing, new products, from the perspective of the business, can take the following forms:

A final consideration in defining "new" is the legal ruling provided by the Federal Trade Commission. Since the term is so prevalent in product promotion, the FTC felt obliged to limit the use of "new" to products that are entirely new or changed in a functionally significant or substantial respect. Moreover, the term can be used for a six-month period of time. Given the limited uniqueness of most new products, this ruling appears reasonable.

Strategies for Acquiring New Products

Most large and medium-sized firms are diversified, operating in different business fields. It would be unrealistic to assume that the individual firm is either capable or willing to develop all new products internally. In fact, most companies simultaneously employ both internal and external sources for new products. Both are important to the success of a business.

Internal Sources Most major corporations conduct research and development (R&D) to some extent. However, very few companies make exclusive use of their own internal R&D. On the contrary, many companies make excellent use of specialists to supplement their own capabilities. Still, to depend extensively upon outside agencies for success is to run a business on the blink of peril. Ideally, the closer the relationship between the new business and existing product lines, the better the utilization of R&D will be. The US National Science Foundation (NSF) (1957-77) divides R&D into three parts:

1. Basic research: original investigations for the advancement of scientific knowledge that do not have specific commercial objectives, although they may be in fields of present or potential interest to the reporting company.
2. Applied research: directed toward practical applications of knowledge, specific ends concerning products and processes.
3. Development: the systematic use of scientific knowledge directed toward the production of useful materials, devices, systems, or methods, including design and development of prototypes and processes.

External Sources External approaches to new product development range from the acquisition of entire businesses to the acquisition of a single component needed for the internal new product development effort of the firm. The following external sources for new products are available to most firms.

AD 7.2 The "Got Milk" campaign made an old product new.

1. Mergers and acquisitions. Acquiring another company already successful in a field a company wishes to enter is an effective way of introducing products while still diversifying. Research suggests that mergers and acquisitions can take place between companies of various sizes and backgrounds and that first experiences with this process tend to be less than satisfactory. Even large marketers such as General Motors engage in acquisitions.
2. Licenses and patents. A patent and the related license arise from legal efforts to protect property rights of investors or of those who own inventions. A patent is acquired from the US Patent Office and provides legal coverage for a period of seventeen years, which means all other manufacturers are excluded from making or marketing the product. However, there are no foolproof ways to prevent competition. There are two main types of patents: those for products and those for processes. The first covers only the product's physical attributes while the latter covers only a phase of a production procedure, not the product. The patent holder has the right to its assignment or license. An assignment is any outright sale, with the transfer of all rights of ownership conveyed to the assignee. A license is a right to use the patent for certain considerations in accordance with specific terms, but legal title to the patent remains with the licensor.
3. Joint ventures. When two or more companies create a third organization to conduct a new business, a joint venture exists. This organization structure emerges, primarily, when either the risk or capital requirements are too great for any single firm to bear. Lack of technical expertise, limited distribution networks, and unfamiliarity with certain markets are other possible reasons. Joint ventures are common in industries such as oil and gas, real estate, and chemicals, or between foreign and domestic partners. Joint ventures have obvious application to product development. For example, small firms with technological resources are afforded an opportunity to acquire capital or marketing expertise provided by a larger firm.

 

The New Product Development Process

Evidence suggests that there may be as many varieties of new product development systems as there are kinds of companies. For the most part, most companies do have a formal comprehensive new product development system, and the evolution of such systems was not necessarily the result of systematic planning. The list of activities suggested in Figure 7.5 illustrates the extensiveness of this process. Because of the complexity of the process, it is important that the general guidelines of effective management be applied to new product development.

 

Figure 7.5 The new product development process. 

 

 

Before starting our discussion of the eight-step process of new product development, a necessary caveat should be considered: a great many new products fail. Depending on definitions used for products actually introduced, failure rates range between 20% and 30%, but have been as high as 80%. Of more concern than the level of failure are the reasons for failure. Possibilities include: technical problems, bad timing, misunderstanding the consumer, actions by competitors, and misunderstanding the environment.

  

Step 1: Generating New Product Ideas

Generating new product ideas is a creative task that requires a specific way of thinking. Gathering ideas is easy, but generating good ideas is another story. Examples of internal sources are:

External sources of new product ideas are almost too numerous to mention. A few of the more useful are:

There are probably as many approaches to collecting new product ideas as there are sources. For most companies, taking a number of approaches is preferable to a single approach. Still, coming up with viable new product ideas is rare (see Newsline).

Newsline: New ideas are rare

New product ideas can come from anywhere and everywhere. It is exciting when a new product idea comes from out of the blue, prototypes test well among consumers, and purchase interest scores are off the charts. But relying on the "anywhere and everywhere" approach will not do in the long run. What is required for product development are methodologies that enable us to systematically discover new product opportunities.
One such method is the category appraisal, which points to new product opportunities within an existing category and sometimes to opportunities in a new, adjacent category. The objective of the category appraisal study is to this what makes the category "tick". Questions to ask include:

• What drives consumer acceptability?
• What are the strengths and weaknesses of each product in the category?
• What are the opportunities to outperform existing products?
• To what extent does brand equity play a role in product acceptability?
• Does collected data point to unexplored regions of the category "space" that new products can successfully fill?

An example from the confectionery industry illustrates this technique. The mission was to identify the properties of a new candy item for consumers who buy candy in supermarkets, convenience stores, and movie theaters. A database of in-depth sensory profile of a wide range of candy products and "liking scores" of each of those products was created. The researchers shopped 'till they dropped. They thoroughly filled a sensory space in terms of texture, flavor, size, and appearance with 25-30 products.
A questionnaire was developed that required quantitative ratings (such as 100% scale rating) of product attributes that were unique to some products. There were questions about hardness, chewiness, crispness, flavor intensity, degree of fruit flavor, sweetness, tartness, color, and many more. Overall liking for each product was also measured.
How well each product and brand performed - the overall liking score for each product - was not an objective of the study. The point was to discover the most generalized drivers of consumer acceptability in the confectionery category. Products were ranked by their performance and key sensory properties. Close study of the data revealed that these consumers were not the least bit influenced by brand. Overall taste was the dominant factor. Second, a new chocolate product held the most promise. Of all flavors explored, chocolate captivated consumers most. In fact, the ideal product is chocolate - filled chocolates with chocolate dipping sauce.

Step 2: Screening Product Development Ideas

The second step in the product development process is screening. It is a critical part of the development activity. Product ideas that do not meet the organization's objectives should be rejected. If a poor product idea is allowed to pass the screening state, it wastes effort and money in subsequent stages until it is later abandoned. Even more serious is the possibility of screening out a worthwhile idea.

There are two common techniques for screening new product ideas; both involve the comparison of a potential product idea against criteria of acceptable new products. The first technique is a simple checklist. For example, new product ideas can be rated on a scale ranging from very good to poor, in respect to criteria such as: value added, sales volume, patent protection, effect on present products, and so forth. Unfortunately, it is quite difficult for raters to define what is fair or poor. Also, it does not address the issue of the time and expense associated with each idea, nor does it instruct with regard to the scores. A second technique goes beyond the first: the criteria are assigned importance weights and then the products are rated on a point scale measuring product compatibility. These scores are then multiplied by their respective weights and added to yield a total score for the new product idea. Table 7.1 provides an example of both these techniques for screening new product ideas.

Table 7.1 Screening product ideas

Step 8: Commercialization

At last the product is ready to go. It has survived the development process and it is now on the way to commercial success. How can it be guided to that marketing success? It is the purpose of the lifecycle marketing plan to answer this question. Such a complete marketing program will, of course, involve additional decisions about distribution, promotion, and pricing.

Review

1. New product strategies begin by putting "new" on a continuum.
2. There are both internal and external sources for acquiring new products.
3. The new product development process includes the following steps:
   1. generate new product ideas
   2. screen ideas
   3. perform a business analysis
   4. technical and marketing development
   5. manufacturing planning
   6. marketing planning
   7. test marketing
   8. commercialization

The Wall Street Journal (wsj.com)

In practice

Additional sites

Deliverable

Discussion Questions

1. How do organizations identify product objectives when developing a product strategy? Why are these objectives important?

2. What impact do market trends have on new product development? How do organizations decide whether to introduce a new product or extend an existing product line?

3. How does the media react to new products like Apple's iMac? What about product failures like Coca-Cola's New Coke? Use the Interactive Journal to find articles about these companies and products.

SUMMARY

The ability of the organization to consistently produce new products and effectively manage existing products looms as one of the most important and difficult tasks faced by the company. This chapter provides an overview of the components that constitute a product, and the product planning process.

The process begins with the task of defining the product. In order to provide an accurate portrayal of the product, it is important to consider the perspective of the consumer, the manufacturer, and the various publics. All three perspectives must be understood and satisfied. In addition, the three components of the product are discussed. The core product identifies what the consumer expects when purchasing the product. The tangible product is reflected in its quality level, features, brand name, styling, and packaging. The augmented product is reflected by the services supporting the core/tangible product. The promised product suggests what the product delivers in the long term.

There are also several classification schemes that are useful in improving our understanding of the product into three categories: convenience, shopping, and specialty. A convenience good is one that requires a minimum amount of effort on the part of the consumer. In contrast, consumers want to be able to compare products categorized as shopping goods. Specialty goods are so unique, at least from the perspective of the consumer, that they will go to great lengths to seek out and purchase them.

Another relevant classification scheme has been applied to business goods. Three characteris tics of business products are: (1) demand is derived from purchase of another product, (2) demand tends to be price-inelastic, and (3) tendency toward pure competition. Business products are classified as extractive products and manufactured products.

Goods products versus service products is the final categorization. Although there is still controversy about the validity of this separation, we contend that the differences justify adjustments in the marketing strategy for service products. Services are intangible, require simultaneous production and consumption, cannot be easily standardized, and require high consumer involvement.

This chapter continues with a discussion of the product planning process. Three elements were delineated: (1) the determination of product objective, (2) the identification and resolution of factors that have an impact on the product, and (3) the development of programs appropriate for that particular product. Examples of product objectives, as well as a discussion of the importance of product objectives, are provided. The third element of program development provides the basis for the two chapters that follow. The continuing development of successful new product looms as the most important factor in the survival of the firm. This chapter introduces the concept of a "new" product as well as the process of actually producing a new product.

It is noted that what constitutes a new product must be appraised from both the consumer's point of view as well as that of the manufacturer. In the former case, newness is measured in respect to: (1) degree of consumption modification and (2) the extent of new task experience. The firm defines product in terms of: (1) changes in the marketing mix, (2) modifications, (3) differentiation, and (4) diversification.

New products can be acquired from several internal and external resources. The firm can employ basic research, applied research, and development to develop new products. Or they can use the external route: mergers and acquisitions, licenses and patents, and joint ventures.

MARKETER'S VOCABULARY

Product Anything, either tangible or intangible, offered by the firm as a solution to the needs and wants of the consumer, that is profitable or potentially profitable and meets the requirements of the various publics governing or influencing society.

Consumer goods Products purchased for personal consumption with no intention of selling to others.

Industrial goods Products purchased by an individual or organization in order to modify the product or distribute it for a profit.

Packaging Provides protection, containment, communication, and utility for the product.

Product lifecycle A product planning tool that parallels the stages of the human lifecycle.

Brand Identifies the product and distinguishes it from competitors.

Position A strategic management decision that determines the place a product should occupy in a given market.

DISCUSSION QUESTIONS

1. What overriding objectives should be kept in mind when designing a product strategy?
2. How do the strategies of market extension and market segmentation differ?
3. Identify the steps a product manager should take in deciding how to position a product.
4. In what kind of market situation will a strategy of product differentiation be most effective?
5. What are the four product mix strategies discussed in the chapter? Name three reasons why a company might decide to alter its product mix.
6. What factors would impact a marketing manager's decision to engage in a temporary or permanent price change for a mature product?
7. How would you define the term "product"? Differentiate between the points of view of the manufacturer and the customer.
8. Distinguish between convenience goods, shopping goods, and specialty goods. Can you think of examples that belong in each category, other than those discussed in the chapter?
9. Compare and contrast the consumer's view and the firm's view of a new product.
10. Describe the steps in the new product development process. Are all these steps necessary?

PROJECT

Identify a product that you feel is in the maturity or decline stage. Determine the characteristics of this product in light of the discussion throughout this chapter. Write a three to five page analysis.

CASE APPLICATION

HERSHEY CHOCOLATE MILK

Hershey Foods Corporation is making an unusual move in using national TV advertising for its chocolate milk, a product that historically has not received much ad support. The national TV commercial, which first aired in June 1983, was shot in 12 weeks in London by Clearwater Productions. Doyle Dane Bernbach (DDB) in New York developed the commercial, which has been shown nationally on a children's network and in the early fringe time period. 

"The commercial's creative; it's aggressive. It breaks one cardinal rule by not mentioning this new product until 75% into the commercial. But the commercial works. We think its unique", says Bob Jeffery, DDB VP account supervisor. He admits that the Hershey packaging also has had an important consumer impact. "The carton practically screams chocolate".

According to Hershey sales figures, Hershey chocolate milk is the number-one chocolate milk in the country. These results are indeed admirable considering the gamble Hershey took with their chocolate milk. It was the first time Hershey had attempted to sell a premixed beverage or promote a product not under its direct control. Hershey is licensing the use of its name on the chocolate milk another big first for the company. Hershey sells powdered chocolate to large dairies which mix the product with their milk, package it, and handle distribution. Following strict standards, Hershey has selected only certain dairies to be licensed to use the Hershey chocolate powder and label. Each dairy must follow detailed specification on mixing. To make sure there are no slip-ups, Hershey has printed a toll-free telephone number for consumers to call if they have complaints about the chocolate milk.

For Hershey, the taste of success is sweet.

Questions:

1. What type of innovation is Hershey chocolate milk?
2. How would you describe the product development process Hershey followed?
3. Describe any potential problems.