WHAT PRODUCT-LINE DECISIONS & ANALYSIS ?

A product mix consists of various product lines. In general electric's consumer Appliance Division, there is product-line managers for refrigerators stoves, and washing machines.

In offering a product line, companies normally develop a basic platform and modules that can be added to meet different customer requirements. Car manufacturers build their cars around a basic platform. Home builders show a model home to which additional features can be added. This modular approach enables the company to offer variety while lowering production costs.

 

Product-line analysis

Product-line managers need to know the sales and profits of each item in their line in order to determine which items to build, maintain, harvest, or divest. They also need to understand each product line's market profile.

SALES AND PROFITS: 

 shows a sales and profit report for a five-item prod­uct line. The first item accounts for 50 percent of total sales and 30 percent of total profits. The first two items account for 80 percent of total sales and 60 percent of total profits. If these two items were suddenly hurt by a competitor, the line's sales and profitability could collapse. These items must be carefully monitored and protected. At the other end, the last item delivers only 5 percent of the product line's sales and profits. The product line manager may consider dropping this item unless it has strong growth potential.

Every company's product portfolio contains products with different margins. Supermarkets make almost no margin on bread and' milk; reasonable margins on canned and frozen foods; and even better margins on flowers, ethnic food lines, and freshly baked goods. A local telephone company makes different margins on its core telephone service, call waiting, caller ID, and voice mail.

A company can classify its products into four types that yield different gross mar­gins, depending on sales volume and promotion. To illustrate with personal computers:

§  Core product: Basic computers that produce high sales volume and are heavily promoted but with low margins because they are viewed as undifferentiated commodities.

§  Staples: Items with lower sales volume and no promotion, such as faster CPUs or bigger memories. These yield a somewhat higher margin.

§  Specialties: Items with lower sales volume but which might be highly promoted, such as digital movie-making equipment; or might generate income for services, such as personal delivery, installation, or on-site training.

§  Convenience items: Peripheral items that sell in high volume but receive less promotion, such as computer monitors, printers, upscale video or sound cards, and software. Consumers tend to buy them where they buy the original equipment because it is more convenient than making further shopping trips. These items can carry higher margins.

The main point is that companies should recognize that these items differ in their potential for being priced higher or advertised more as ways to increase their sales, margins, or both.

PRODUCT-LINE LENGTH

A product line is too short if profits can be increased by adding items; the line is too long if profits can be increased by dropping items.

Company objectives influence product-line length. One objective is to create a product line to induce up selling: Thus BMW would like to move customers up from the BMW 3 series to the 5 to 7 series. A different objective is to create a product line that facilitates cross-selling: Hewlett-Packard sells printers as well as computers. Still another objective is to create a product line that protects against economic ups and downs; thus the GAP runs various clothing-store chains (Old Navy, GAP, banana republic) covering different price points in case the economy moves up or down. Companies seeking high market share and market growth will generally carry longer product lines. Companies that emphasize high profitability will carry shorter lines consisting of carefully chosen items.

Product lines tend to lengthen over time. Excess manufacturing capacity puts pressure on the product-line manager to develop new items. The sales force and distributors also pressure the company for a more complete product line to satisfy customers; but as items are added, several costs rise: design and engineering costs, inventory-carrying costs, manufacturing-changeover costs, order-processing costs, transportation costs and new-item promotional costs. Eventually, someone calls a halt: Top management may stop development because of insufficient funds or manufacturing capacity. The controller may call for a study of money-losing items. A pattern of product-line growth followed by massive pruning may repeat itself many times.

A company lengthens its product line in two ways: by line stretching and line filling.

LINE STRETCHING: 

Every company's product line covers a certain part of the total possible range. For example, BMW automobiles are located in the upper price range of the automobile market. Line stretching occurs when a company lengthens its product line beyond its current range. The company can stretch its line down-market, up market, or both ways.

Down-market Stretch 

A company positioned in the middle market may want to intro­duce a lower-priced line for any of three reasons:

1. The company may notice strong growth opportunities as mass-retailers such as Wal-Mart, Best Buy, and others attract a growing number of shoppers who want value-priced goods.

2. The company may wish to tie up lower-end competitors who might otherwise try to move up the market. If the company has been attacked by a low-end competitor, it often decides to counterattack by entering the low end of the market.

3. The company may find that the middle markets stagnating or declining.

A company faces a number of naming choices in deciding to move down-market. Sony, for example, faced three choices:

1. Use the name Sony on all of its offerings. (Sony did this.)

2. Introduce the lower-priced offerings using a sub-brand name, such as Sony Value Line. Other companies have done this, such as Gillette with Gillette Good News and United Airlines with United Express. The risks are that the Sony name loses some of its quality image and that some Sony buyers might switch to the lower-priced offerings.

3. Introduce the lower-priced offerings under a different name, without mentioning Sony; but Sony would have to spend a lot of money to build up the new brand name, and the mass merchants may not even accept a brand that lacks the Sony name.

Up market Stretch 

Companies may wish to enter the high end of the market for more growth, higher margins, or simply to position themselves as full-line manufacturers. Many markets have spawned surprising upscale segments: Toyota's Lexus; Nissan's Infinity; and Honda's Acura. Note that they invented entirely new names rather than using or including their own names.

Other companies have included their own name in moving upmarket. Two-Way Stretch Companies serving the middle market might decide to stretch their line in both directions..        ­

The Marriott Hotel group also has performed a two-way stretch of its hotel product line. Marriott International develops lodging brands in the most profitable segments in the industry. In order to determine where these opportunities lie, Marriott conducts extensive consumer research to uncover distinct consumer targets and develop products targeted to those needs in the most profitable areas. Examples of this are the development of the JW Marriott line in the upper upscale segment, Courtyard by Marriott in the upper mid-scale segment and Fair field Inn in the lower mid-scale segment. By basing the development of these brands on distinct consumer targets with unique needs, Marriott is able to ensure against overlap between brands.

LINE FILLING: 

A product line can also be lengthened by adding more items within the present range. There are several motives for line filling: reaching for incremental profits, trying to satisfy dealers who complain about lost sales because of missing items in the line, trying to utilize excess capacity, trying to be the leading full-line company, and try­ing to plug holes to keep out competitors.

Line filling is overdone if it results in self-cannibalization and customer confusion. The company needs to differentiate each item in the consumer's mind. Each item should possess a just-noticeable difference. The company should also check that the proposed item meets a mar­ket need and is not being added simply to satisfy an internal need.

Line modernization, featuring, and pruning

Product lines need to be modernized. A company's machine tools might have a 1950s look and lose out to newer-styled competitors' lines. The issue is whether to overhaul the line piecemeal or all at once. A piecemeal approach allows the company to see how customers and dealers take to the new style. It is also less draining on the company's cash flow, but it allows competitors to see changes and to start redesigning their own lines.

In rapidly changing product markets, modernization is carried on continuously. Companies plan improvements to encourage customer migration to higher-valued, higher-priced items. Microprocessor companies such as Intel and Motorola, and software companies such as Microsoft and Lotus, continually introduce more advanced versions of their products. A major issue is timing improvements so they do not appear too early (damaging sales of the current line) or too late (after the competition has established a strong reputation for more advanced equipment). The product-line manager typically selects one or a few items in the line to feature. Sears will announce a special low-priced washing machine to attract customers. At other times, managers will feature a high-end item to lend prestige to the product line. Sometimes a company finds one end of its line selling well and the other end selling poorly. The company may try to boost demand for the slower sellers, especially if they are produced in a factory that is idled by lack of demand. This situation faced Honeywell when its medium-sized computers were not selling as well as its large computers, but it could be counter-argued that the company should promote items that sell well rather than try to prop up weak items.

Product-line managers must periodically review the line for deadwood that is depressing profits. Unilever recently cut down its portfolio of brands from 1,600 to 970 and may even prune more, to 400 by 2005. The weak items can be identified through sales and cost analysis. A chemical company cut down its line from 217 to the 93 products with the largest volume, the largest contribution to profits, and the greatest long-term potential. Pruning is also done when the company is short of production capacity. Companies typically shorten their product lines in periods of tight demand and lengthen their lines in periods of slow demand.

WHAT IS PRODUCT LIFE CYCLE ?

PRODUCT LIFE CYCLE

Every product has its life. Industrial goods may have a longer life than consumer goods. When a product idea is commercialized, the product enters into the market and competes with the rivals for making sales earning profits.. Products, like human beings have length of life. This has been described as life-cycle in human beings and when applied to products, it is called as product life-cycle.  The product life cycle is generally termed, as product market life cycle because it is called to particular market. For, instance, an old product in the market of Mumbai, may have a new life in a remote village. The product life-cycle may be short for some products and long for some other products. The period may differ from product to product. Every product posses through certain stages collectively, knew as product life cycle stages. These stages include.

(i)  Introduction
(ii) Growth
(iii) Maturity
(iv) Decline

SIGNIFICANCE OF PRODUCT LIFE CYCLE

        The concept of product life cycle highlights that sooner or, later all products die and that if management wishes to sustain' its revenues, it must replace .the declining products with the new ones. The product lifecycle concept 'indicates as to what can be expected in the market for a new product at various stages i.e., introduction, growth, maturity and decline.  Thus, the concept of product life-cycle can be used as a forecasting tool. It can alert management that its product will inevitably face saturation and decline, and the host of problems these stages pose. The product life-cycle is also a useful framework for describing' the typical evolution of marketing strategy over the stages of product lifecycle. This will help in taking sound marketing decisions at different stages of the product lifecycle.

After a product has been developed, it is launched in the market with the help of various promotional devices such 'as 'advertising, sales promotion, publicity and personal selling. In other words, product development (some people call it incubation, stage of product life-cycle) must be followed by the successful introduction of the product ill, the market. For this, planning\for introduction of the product starts during the process of product development itself. Every firm makes sale projections during introduction" growth and maturity stage of the product life-cycle. To achieve the projected sales target, ' it formulates promotional, pricing and distribution policies. Thus, the concept of product life-cycle facilitates integrated marketing policies relating to product, price, promotion and distribution.

       

The advantages of "Product Life Cycle" to a firm are as follows:  

1. When the "product life-cycle" is predictable, the management must be cautious in taking advance steps before the decline stage, by adopting product modification, pricing strategies, style, quality change, etc.
2. The firm can prepare an effective product, plan by known the product life-cycle of a product.

3. The management can find new uses of the product for the expansion of market during growth stage and for extending the maturity stage.

4. The management can adopt latest technological changes to improve the product quality, features and design.

PRODUCT LIFE CYCLE

With the development of product and start of commercial production, life-cycle of the product begins with its introduction in the market. As shown, in Fig. 1, every product moves through the four stages, namely, introduction, growth, maturity, and decline. As the product moves through different stages of its life-cycle, sales volume and profitability change from stage to stage. The management emphasis on the marketing mix elements also undergoes sub­stantial changes from stage to stage. A brief discussion of the marketing strategies in different stages of the product life-cycle is given below:

                                        (Stages of Product Life Cycle)

1. Introduction Stage

The first stage of a product life-cycle' is the introduction or pioneering stage. Under this stage, competition is almost or non-existent prices are relatively high, markets are limited and the product, innovation in not known much. The growth in sales volume is at a lower rate because of lack of knowledge on the part of the customers and difficulties in making, the product available to the customers. During this stage, high expenditure has to be incurred on advertising and other promotional techniques.  Prices are usually high during the introduction stage because of small scale of production, technological problems-and heavy promotional expenditure.

            To introduce the product successfully the following strategies may be adopted:
 (i) Advertisement and publicity of the product Money back guarantee may be offered to stimulate the people try the product.

(ii) Attractive gift to customers as an ‘introductory offer’.

(iii) Selective distribution and attractive discount to dealers.

(iv) Higher price of product to earn greater profit during the initial stages i.e., skimming the cream pricing policy.

2. Growth Stage.

 As the product grows in popularity it moves into the second phase of its life-cycle, i.e., the growth stage. In this stage, the demand expands rapidly, prices fall, competition increases, and distribution is greatly widened the marketing management focuses its attention on improving the market share by deeper penetration into the existing markets and entry into new markets.  The falling ratio of promotional expenditure to sale leads to increase in profitability during this stage.
(i) The product is advertised heavily it to stimulate sales.

(ii) New versions of the product are introduced-to cater to the require­ments of different types of customers.

(iii) The channels of distribution are strengthened so that the product is easily available wherever required.

(iv) Brand image if product is created through Promotional activities

(v) The price of product is competitive

(vi) There is greater emphasis on customer service.

3. Maturity Stage. 

The product enters into maturity stage as competition intensifies further and market gets stabilized. Profits come down because of stiff competition, and marketing expenditures rise. The prices are decreased because of competition and innovations in technology. There is saturation in the market as there is no possibility of sales increase. This-stage may last for a long period as in the case of many products with long-run demand characteristics. But sooner or later, demand of the product starts declining as new products are introduced in the market. Product differentiation, identification of new, segments and product improvement are emphasized during this stage.  In order to lengthen-the period of maturity stage, the following strategies may be adopted:
(1) Product may be differentiated from the competitive products and brand image may be emphasized more.

(ii) The warranty period may be extended. For instance manufacturers of typewriters have introduced the concept' of life-time warranty.

(iii) Reusable packaging may be introduced.

(iv) New market may be developed.

(v) New uses of the product may be developed.

4. Decline Stage.

This stage is characterized by either the product's gradual displacement by some new products or change in consumer buying behavior. The sales fall down sharply and the expenditure on promotion has to be cut down dramatically. The decline may be rapid with the product soon passing out of market or slow if new uses of the product are found. To avoid sharp decline in sales, to following strategies may be used:

(i) New features may be added to the product and its packaging may be made more attractive.

(ii) Economy packs or models maybe introduced to revive the market.

(iii) The promotion of the product should be selective to reduce dis­tribution costs;

5. Abandonment of Product.

 Many firms abandon the product-in order to put their resources to better use.  The demands of the people change and, new innovations come to the market to take place of the abandoned products, As, far as possible, attempts should be made to ,postpone the decline stage. But if the decline is rapid, the product model may be abandoned and the new model with unique features may be introduced. Lt it is not possible or there are heavy losses, the manufacturer may seek merger with a strong firm.

Tag: Product Life cycle, Product life, stages of Project life cycle, Product decline stage, Product maturity stage , Product growth stage, MBA marketing, MBA marketing Notes

WHAT IS PRODUCT DEVELOPMENT

Product development

Product development includes a number of decisions, namely, what to manufacture or buy, how to have its packaging, how to fix its price and how to sell it, In case of a manufacturing organization, the production department will develop and produce products on the advice of the marketing department because it is the marketing department which knows better the requirements of the customer. In case of purely trading organization, the purchase department will procure those products as are suggested by the marketing department. The work of product planning and development will be performed by the marketing department itself.

Product development process

  New product development consists of the creation  of new ideas, their evaluation in terms of sales potentials an profitability, production facilities, resources available, designing and production testing and marketing  of the product,. The main task of the product planners is to identify specific customer needs and expectations and align company’s capabilities with the changing market demand. In each of these stages, the management must decide:

(a) Whether to more on to the next stag, (b) to abandon the product, or (c) to seek additional information.

    Whatever may be nature of operation of a concern, product, planning and development is necessary for its survival and growth in the long-run. Every product has a life-cycle and it becomes obsolete after the competition of its life-cycle., Therefore, it is essential to develop new products and' alter or    improve the existing ones to meet the requirements of customers.   

One of the most common product planning problems relates with additional of new products to the existing product line. Addition of new products involves generation of new' product ideas, appraisal of various possibilities, economic analysis, product development, product testing, test marketing and developing markets. Another important problem of product planning is modification-­or elimination of existing products. The need for continuous modification of the product is great because society's needs are 'always changing and improved products must be introduced to fulfill them. All products have certain deficiencies as they are the result of a great many compromises. The perfect product has yet to be made. Research makes possible the reduction of these deficiencies and brings about improved products.

STAGES IN NEW PRODUCT development

        Product development does not just happen, it bas to be planned. Dynamic Firms plan their innovations for five to ten year in advance.  They have a definite idea of exactly what product developments they want and what new products they will need to cater to the demands of their customers. Experience has shown that those firms which are most successful .in developing marketable products are the ones which have formally recognized the function of product planning and development. The function of planning and developing new products involves six stages.

(i) Generation of New Product Ideas: 

The product planners must visualize new product ideas" Ideas may be contributed by professional designers, scientists, customers, sales force, dealers, competitors,  etc.  Ideas may also come from brainstorming sessions of management. It may be noted that the source of ideas is not as important as the firm's system for stimulating new ideas and then acknowledging them and reviewing them promptly.

        New product ideas may come from company's research and development department, managers, salespersons, consumers or industrial users, mid­dlemen, company suppliers of raw material governmental agencies, com­pany competitors and their ,products, trade associates, private research organizations, inventors, exhibits and, trade fairs, wholesaler's and  retailer’s advertising agencies, commercial laboratories and trade journals, etc. Ideas may also come from "brainstorming”, sessions of management suggestions from employees, engineers, and other outside' sources of both solicited and unsolicited. Consumers', complaints or dissatisfaction can also be the source of new ideas. The consumers are said to be one of the sources. As would be clear from the observation made by Cannon and Wichert, "A meat packer began producing onion soup at the suggestion of a, company executive's wife. A pottery manufacturer produced a new vase after 'viewing museum exhibit. A producer of office machinery developed an envelope opening device as a result of thorough examination of a wholesaler's catalogues and several interviews with office managers. A chemical firm began manufacturing a detergent after extensive laboratory research.

(ii) Detailed Study of New Product Ideas: 

The ideas generated at the first stage are examined to eliminate those which have no potential or which are capable of making any significant contribution to the marketing objec­tives; the ideas should be screened properly because any idea passing this stage would cost the firm both money arid time. This involves evaluating the company's capabilities with respect to scientific knowledge and technical skills in terms of possible new products and product improvements. The basic idea is to find out which ideas warrant further study. The screening should be rigorous enough to eliminate poor stuff, but not so rigorous as to eliminate potential good possibilities. The list of information required in evaluating new product possibilities should be' drawn up-in such a way as to throw some light on the profit possibilities, the risk arid cost of capital involved.

(iii) Commercial Feasibility. 

The product planners evaluate the nature and importance of market needs and appraise the extent to which present - products fulfill them. They evaluate new ideas in the light of the company’s capability with respect to scientific knowledge, technological skills and finan­cial resources. Only the most feasible and profitable ideas are picked up for further detailed investigation.

(iv) Product Development. 

This phase relates to actual development of the new product based on the product data evaluation system. A program is made for the proper development of the product. , First of all, precise description of the features of the proposed product should be studied. After this, selected consumers 'may be called upon to offer their comments on the proposed product. Decisions regarding branding, packaging, labeling, etc., are also made during this phase. When the product likes a tangible form, consumer testing can be done. Consumer testing will provide the ground for final selection of the product for mass production and 'distribution.

(v) Test Marketing. 

Test marketing is necessary to find out viability of marketing program for large-scale distribution. Before the product is widely distributed, it is tried in a selected market. It is also known as mini-market testing. Customers’ reaction may be noted and product may be improved further, if necessary.

Test marketing allows greater control over the new product. If there are defects in the product, it could be withdrawn from the market quickly without ­ any loss to the reputation of the firm. Test marketing is generally. done by consumer  goods companies rather than by industrial goods firms who usually tryout new products with selected customers or obtain general reactions by having their sales people demonstrate products when they make their rounds. The following precautious must be observed during the stage of test marketing:

(a) Don't confuse 'test-marketing ' with 'concept testing'. Test market­ing is supposed to test the complete plan, not simply the 'product concept'"

 (b) Don't test too early in the development program. Wait till the complete entry plan has been prepared.    

(c) Don't select test markets without careful study.

(d) Don't move in haste. Allow enough time to get results.

(e) Don't forget to have a control market. It is important for estimating' the impact of competitive efforts, personality. Etc.     

The possible benefits of test marketing areas under:

(i) It offers an opportunity to examine the product in a natural marketing environment to obtain a measure of its sales perfor­mance.

(ii) It can identify weakness in the product or in the overall marketing plan.

(iii) It helps the management to develop, a profile of potential cus­tomers and their purchasing habits.

(iv) It enables the marketing manager to evaluate, alternative marketing strategies.

 (v) It offers an opportunity to compare consumer reactions to the test product and competing product

(vi) Commercialization. After the test marketing gives green signal for the introduction of product in the national market, the firm may proceed to finalize all features of the product. The marketing department will launch a full fledged production promotion, campaign for mass distribution. Distribu­tion' channels will be chosen to make available the product wherever it is demanded. After this, the life cycle of the product will start and the marketing manager will adopt different strategies during different stages of the product life cycle to maximize sales volume. Necessary improvements in the product may also be introduced as and when necessary in the light of changed customer requirements and innovations in technology.      

Each of the above stages becomes progressively more expensive in terms of money and scarce manpower. But once the produce idea passes through these stages and careful analysis has been .done at each stage, the chances of product failure will be reduced considerably.

 

Tag: Product Life cycle, Product development, product development Process, MBA marketing, Product development cycle, Product development ideas