Module 4
FORMULATING PRODUCT PLANNING
Developing a Product Strategy-An Introduction
Its the product/service offer from an industrial firm that ultimately satisfy the customers' needs.
Product decisions tend to be the reskiest variable in the marketing mix. Objectives considered for developing product strategies: The product mix is in line with the overall marketing plan of the company To evolve guidelines for reviewing the performance of the existing products.
Definition of an Industrial Product
Its not only a physical entity, but also a complex set of economic, technical, legal and personal relationship between the buyer and the seller.
In customers' point of view: a product is a combination of basic(fundamental benefit), enhanced(features, styling and quality) and augmented(intangible benefits) properties.
A successful marketer knows what constitutes a total product package in the minds of prospective customers.
Booz, Allen & Hamilton have identified six categories of new product
New-to-the-world products
New product lines Additions to existing product lines Improvements in / revision in existing products Repositioning Cost reductions
Types of New Products
20% New Product Lines
Newness to the Company
High
10% New to the world products
26% Revisions/Imp rovements to the existing products
26% Additions to existing product line
Low
11% Cost reductions
7% Repositioning
Low
Newness to the market
High
Imporatance of Change in Product Strategy
Product strategy is flexible and dynamic
industrial firms are required to make changes in the product strategy to remain competitive.
Factors Demanding Change in product Strategy:
Customer Needs Technology Govt. Policies Product Life Cycle
Industrial Product Life Cycle(PLC)
Its and important concept to determine different marketing strategies at different stages of PLC
The behaviour of the PLC depends on:
Change in needs of the customer
Change in Technology Change in Competition
According to the concept the product tends to go through different cycle/stages like (i)Introduction stage, (ii)Growth stage, (iii)Mature satge, (iv)Decline stage
PLC concept highlights about the long term planning for a new product including the impact of profits at later stages.
PLC should be understood well to estimate the profit potential and ROI. PLC curve for a Hi-tech Product-Ex Electronics and Telecommunication, New Product Development cost and time are high, Introduction and Growth stages are long but maturity and decline is short. The profits from a product reaches the peak before the sales reach the peak(growth stage)
PLC of HiTech products like computer and telecommunication
NPD
I&G
PLC of Commodity product like steel, cement, coal, crops etc.
Sales
Time
Application of the PLC Theory to Industrial Product Strategies
Introduction Stage:Due to change in the user habits, industrial products get accepted rapidly after introduction but some are accepted slowly.
Ex:hand held electronic calculators replaced mechanical calculators overnight, whereas electronic typewriters took 2 decades to achieve market acceptance. Product acceptance in industrial market is affected by how the product fits into the buyers' total use system.
Growth Stage:In this stage, industrial marketer has to focus marketing strategies on areas like:
Improve product design to offer more benefits or product features to cover wider segments of the market Improve distribution so that product availability to customers is strong Reduce the price as increased volume of production lowers the cost.
Maturity Stage:As the product enters the maturity stage, the number of competitors entering the market increases resulting in decline in the growth of profits. Strategies adopted are:
Enter new market Ex:If a product matures in domestic market, it may have a good export market. Keep exixting customer satisfied
Cut costs in marketing, production and other costs to maintain profit margins.
Decline Stage:In this stage the competition is more severe, and concurrently the sales and profits decline. Strategies adopted are:
Withdraw the product from the market Develop a substitute product for replacement Further reduce the marketing and other expenses substantially to make some profits
The decline tend to proceed rapidly since new technologies make products obsolete.
Steps Involved in Locating Industrial Products in their LifeCycle
Develop a trend analysis for the past 3-5 yrs based on the value of sales, profit as a percentage of sales, market share, prices and competitors. Examine recent trends in the number and nature of competitors, market share, rankings, their product performances Analyze short term competitive tactics like new product development and plant expansion Project product sales and profits for the next 3-5 yrs
Estimate the number of profitable yrs in the PLC of the product and fix the product's position in the life cycle curve
Developing Product Strategies for Existing Products
The following steps are important part of the industrial marketing plan:
Evaluate the performance of all the existing product lines by using Product Evaluation Matrix By using Perceptual Mapping Technique, examine the relative strength and weakness of the product in comparison to competitors'
Based on the above analysis, decide the product strateegies for the existing products.
Product Evaluation Criteria
A.Market Criteria
B.Product/Technological
Present size
Growth potential Current or new customers
Degree of innovation
Differential advantages Lead time over competition Estimate product life Experience with technology Technical feasibility Competing technologies
Amount of competition
Strength of competition Price conciousness
Technical service
Channel Impact of present products
Variety of end users
Product Evaluation Criteria
Financial Criteria
Initial Investment Expected sales revenue Sales-profit ratio Estimated ROI Manufacturer's cost to price ratio Expected cash flow
Payback period Net gain/loss on other perducts
Product Evaluation Matrix
It evaluates the performance of the product. The matrix combines 4 performance parameters of a product.
Industry sales-catagorised as Growth, Stable and Decline. Company sales-catagorised as Growth, Stable and decline.
Market share-classified as as Leading, average and marginal
Profitability-classified as below target, target or above target.
Ex:If the market share is <10% -Minimal
If market share is between 10%-30%- Marginal If market share is >30% -Dominant
Product Evaluation Matrix
Perceptual Mapping Technique
It is used to study the strengths and weaknesses of a firm's product in comparison to that of the competitors.
Ex:A firm's product quality is considered to be inferior to its competitors, however the after sales service is superior than the competitor. The firm can reposition itself by improving its product quality substantially and maintaining its superior service. After improving the quality the firm can set price slightly higher than the competitors, and can improve on its profitability.
Perceptual Mapping Technique
Deciding Product Strategies
Based on the two techniques, the industrial marketer can now decide on the strategy mentioned:
Continue/Maintain the product and its marketing strategy Modify the product and change the marketing strategy
Eliminate the product or the product line
Add new products or product lines
Factors Responsible for Success and Failure of New Products
Failures:
New product do not satisfy the needs of many potential customers
No significant difference between existing products and new products
New products do not deliver the expected performance due to poor design
The firms with weak new product development process are beaten by competitors who copy the products but have superior quality and market effectiveness.
Prices of the new products are much higher than the value perceived by the customers. The company wants to recover the cost of the product development too quickly.
Success Factors:
Product superiority and uniqueness gives a competitive edge over competitors. Market knowledge is important as the firm understands the needs and wants of target markets Technical and product capabilities are important as they are required to translate the product concept into product development and commercial production.
New Product Development Process
.
process by which potential ideas are generated, evaluated, directed and turned into products is called New Product Development Process. Stages in New Product Development Process:
The
Idea generation
Ideas screeening Concept development and testing Business Analysis
5)Product Development
6)Market Testing
7)Commercailisation
Idea Generation:Any initial product idea should aim at solving a specific problem and provide customer benefits.
The should support and enhance the firms strategic thrust.
The firm must defines its objectives of the new product clearly.
The new product ideas are often generated by sales persons, customers, distributors, suppliers, design engineers and managers.
Idea Screening:The primary purpose of idea screening is to select those ideas which are likely to succeed. Procedure for screening new product ideas:
Is the new product idea in line company's objectives? Do we have adequate resources to make it successful?
Is the new product idea actually solving the customer's problem?
Does it deliver value to the customer than the competitor? What is the future growth, competition and market size of the new product industry?
New Product Idea Rating Formula: <0.4=Poor,0.7=fair,>0.7=good
New Product Idea Significant Factors (A) Importance Weightage (B) Company capabilities for the new product (A*B) New Product Idea Rating
1. Company Objectives and Strategy 2. Marketing Experience and effectiveness 3. Production capabilities and facilities 4. R&D 5. Availability of raw materials 6. Financial resources and profitability
0.20 0.20 0.15 0.15 0.10 0.20 1.00
0.70 0.50 0.40 0.60 0.70 0.80
0.14 0.10 0.06 0.09 0.07 0.16 0.62
TOTAL
New Product Development
Classification:
Products that are inovative and new to the world Product that are new to the company and not new to the market Improvements in the existing products in the existing markets
Addition to the existing products with aditional markets
Repositioning existing products to new markets
Products with substantial cost reduction without reduction in performance
Concept Development and Testing:
In this step the product idea should be developed into product concept.
The firm develops the new product into different alternative product concepts.
Each product concept is tested with customer. The concept with the strong customer appeal is choosen.
Ex: A firm wants to develop a pallet truck to carry materials in the shop floor and warehouse, it creates the following concepts:
Concept 1. A manual truck-compact-low cost-max load upto 20Kgs Concept 2. An electric truck-medium cost-2 different speeds-max load upto 30Kgs Concept 3. An electric truck-high cost-heavy duty-3 speeds-max load upto 50Kgs
Concept Testing- the new product concepts are tested in the prospective customer organizations.
The concept testing is done by using a technique called virtual reality. The customer can operate the simulated product. The users and key decision makers are then interviewed and the following questions are asked:
Do you understand the concept of pallet truck?
Which of the concept did you like the most and why?
Are the products different or similar to the products used by you? What improvements do you suggest in the product features? For what uses you prefer the manual and electric pallet truck?
The answers to these questions would help the company to decide which product concept has a strong appeal.
Business Analysis: The purpose of business analysis is to develop an estimated projection of sales, cost, and profitability of the proposed product.
Its a detailed analysis in terms of:
Required investment in plant, equipment, working capital and market development Market potential, sales forecast, customer and competitor analysis Costs of product development, manufacturing and marketing the product
Profitability and return on investments
Product Development: Its a process in which engineers and technicians create the desired product.
R&D develops prototypes of the product concept.
It will confirm or negate the cost estimation of the product with the performance parameters.
The marketing team will have constant touch with the R&D dept. to inform the requirements of the customer. The challenge of the R&D is to achieve both performance and cost objectives.
Market Testing:Different testing methods adopted are: (a) Alpha and Beta testing, (b) Introduction of new products at trade shows, (c) Testing in distributor/dealer showroom, (d) Test Marketing. Alpha and Beta testing: Testing the product which are priced high, or with new technologies, internally in the company.
Its done to evaluate the performance parameters and operating costs. If the results are satisfactory the company will go for second stage of beta testing at potential users' site.
Trade Shows:a large no of prospective buyers are exposed to the new product. It helps to find customers' reaction, purchase intentions and placement of orders. The disadvantage is that the new products get exposed to the competitors.
Dealer Showrooms:the product is sold through the distribution channel and is tested at places, and can gain information on customers' attitude, preferences and actual sales. Test Marketing: the product is tested in a limited geographical area under normal marketing situations. The information received hepls the management to take effective decision when the product is launched.
Commercialisation:A product is commercialised or launched when it is introduced to target market.
Various activities developed in an action plan are:
Training of sales force
Product catalogues Price lists
Introductory advertisements
Adequate stocks Customer service
The new product marketing plan should clearly define:
The timing of market launch Marketing objectives and goals
Geographical strategy
Target market segments Marketing mix strategies
Business Service Marketing
Classification of Industrial Services:
Products supported by services: Here a wide range of service elements accompany the physical products. Ex: Maintenance and repairs, sales and services Pure Services:these are marketed without any association with a physical product.Ex: MR, legal, audit, security, courier, travel booking, and recruitment services.
Industrial Product Service Classification
Pure tangible products Ex: materials and components
Pure intangible Services Ex: MR, Legal services
Major products with minor service
Equal parts of product and services
Major services with minor products
Characteristics of Services and Marketing Implications
CHARACTERISTICS 1. Intangibility (Services cannot be seen or felt before they are purchased) EXAMPLES Management Consultancy, Executive Development Program MARKETING IMPLICATIONS Buyers look for evidence of the service quality. Service providers try to tangibalise the intangible.
2. InseperabilityServices are generally produced and consumed simultainously
Machinery or Equipment repairs. Courier services
Effective buyer seller interaction depends on the service provider.
3. Variability-Quality of services are highly variable depending on who provides, when, and where they are provided
Marketing research, Management Education
Standardisation of output and uniformity in quality are difficult to achieve. Service providers should emphasis on quality standards, develop systems to minimize errors, and try to automate.
CHARACTERISTICS
EXAMPLES
MARKETING IMPLICATIONS
4. Perishability-Generally services cannot be stored
Airlines empty seats Unused warehouse space
When demand fluctuates service firms, have difficult problems Plan capacity around peak demand Use pricing and other methods to achieve close match between demand and capacity
5. Non-Ownership (Service buyers uses but not own the services purchased
Use of hotel services Use of car rental services
Service marketer should communicate advantages of non ownership-reduction in labour and overheads, and flexibility.
Marketing Strategies for Industrial Service Firms
Segmenting and Targeting of Industrial Services: Characteristics:
Service organizations customer expect services to be customised, and may result in narrow niche marketing strategies. Service market segmentation concentrates on needs of the industrial customer. Development of an appropriate service package will depend on understanding the service expectations of the buying organization.
Service Differentiation: Most common method used is to conduct a MR to determine important attributes of the customer, and it varies according to the type of industry. Industrial customers choose customers whose perceived quality of service meets or exceeds the expected quality.
The service package can include innovative features to differentiate it from competitors.
Service delivery schedule can be achieved better than the competitors. The firm can develop a more comfortable physical environment in which the service is defined.
4) Specialization and experience is consideredto assess the service provider's capability over the competitors
Service Packages: Its a product tool of service marketing.
The service firm develops a service package based on the steps:
In developing a new product or evaluating an existing industry, the firm must find out what core benefits the customer will derive from the service.
2) to decide what benefitsthe industrial service firmswill focus.
3)to spell out the details of the benefits the service firms the service firms will offer.
4)to decide how the service will be provided to the customer(service delivery system)
Service Pricing:Differential pricing strategy is used to manage the fluctuating demand. Usually firms offer special pricing for various services depending on the need basis.
Service Promotion:Similar to the product promotion. The industrial buyers are more influenced by the word of mouth communication.
The marketers promote the word of mouth communication from their existing satisfied customers to talk to potential customers to feature in the promotional brochures and advertisements. Industrial customers prefer to deal with those who provide superior service. So service providers play major role in personal selling.
In service promotion the intangible items are translated into tangible attributes of service bu showing pictures of buildings, equipments and personnel.
Promoting customer contact people by including them in the advertisement has found success in marketing of services. Service Distribution:decisions on distribution are taken to make the service package available to the target service buyers. In this method either the service buyer firm goes to the service provider or vice-versa.
In the distribution channel, the intermediaries are used as it provides a wider coverage of market, cost effective, availability of bundeled services.
Ex:Airline booking, real estate buying or selling. Franchising is another channel of distribution. It helps in rapid expansion of market without much capital investment. Ex:Recruitment agencies, factory cleaning, housekeeping distribute through franchise dealership.
Some Examples of the Service Industries Sectors
Management Consultancy (McKinsey, TATA strategic Mgmt Consultancy Group, Boston Consulting Group, Booz Allen Hamilton)
Miscellaneous repairs Motion pictures Amusements and recreation Healthcare Legal services Private education
Some agricultural services (including landscaping and horticulture)
Hotels and other places of lodging
Personal services (including dry cleaning, tax preparation, and hair cutting)
Business services (including temporary agencies and business software developers) Automotive services
Social services
Museums, zoos, and botanical gardens Membership organizations (including houses of worship and clubs)
