Download Ch11 Product Decisions

Ch11 Product Decisions
11.1: Product Design Decisions for Competitive Advantage
 A product can be defined as anything that satisfies a want or need through use, consumption, or
acquisition. Thus, products include goods (TVs, radios, cars), services (medical, educational), places (New
York, Moscow), people (David Cameron and other politicians everywhere), activities (entering a contest or
visiting a weight-loss clinic), and ideas (have you hugged your kids today?).
 Conceptually, products should be thought of as problem solvers since they are purchased because of the
core benefits they provide – not because of the product per se.
 The seller must turn the wanted benefits into a tangible product with features or attributes that will provide
the intended satisfaction better than competitive products. But benefits and features are not the same.
Features are the tangible or intangible attributes given the product by its designers. Benefits are the
solutions to customer problems or needs delivered by the product.
 Most customers are far more interested in benefits than they are in features, though marketers sometimes
forget this fact in designing ads or other marketing communications messages.
 Well-managed marketers give explicit attention to all of the attributes of their products, choosing product
features, packaging, warranties and services, and brand names that will help deliver the benefits sought by
the product’s target market.
I.
Goods and Services: Are the Product Decisions the Same?
 Services can be thought of as intangibles versus goods as tangibles. Thus, services can rarely be
experienced in advance of the sale, while tangible goods can be directly experienced, even tested, before
purchase.
 Finally, the increase in the number and complexity of goods has stimulated an increase in demand for
repair services. Business services (maintenance, financing, marketing research, and advertising) have also
grown at a high rate.
II.
Product Quality and Features Decisions
 A well-developed positioning statement. It tells the product’s designers what benefits are to be delivered,
so designers can imbue the product with the necessary features or other attributes. Positioning makes clear
how the product is to be differentiated from other products in its category.
 One important dimension on which goods or services are physically differentiated is on the basis of quality
– seeking to be better in the customers’ eyes than competing products. Differentiating on quality can occur
on any of the eight dimensions of quality for goods or the five dimensions of service quality.
 Consumers’ choice criteria are limited to relatively few attributes or quality dimensions for a given product
category. Thus, most products use only a few dimensions of quality as the basis on which they compete.
Attempting to differentiate on too many features can be confusing to consumers and can lead to ‘feature
fatigue.
 Decisions about which dimensions of quality should be designed into a product are driven by earlier
choices about the product’s target market and positioning. When the product and product category, its users
and its uses are well understood, the marketing research techniques.
 In some situations, especially when the task is to design a breakthrough product that differs significantly
from prior products, traditional marketing research is less likely to elicit the information needed to design a
new product. For such situations, new techniques have been developed to go beyond what consumers can
easily articulate and uncover needs they may not have yet identified. Empathic design, one such technique
that observes customers or prospective customers in their own environments at home, at work, or wherever.
The use of techniques such as empathic design is one way to respond to critics who charge that excessively
customer-led decision processes can blind companies to the needs of customers it does not currently serve.
Companies that adopt a true market orientation use techniques such as these to obtain a broader view of
their markets than their current customers can provide.
Exhibit 11.4 Eight dimensions of quality for goods
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1.
Performance has to do with a product’s basic operating characteristics. For a car, this translates into such traits as acceleration, miles per gallon, ease
in handling and comfort. The individual and the use environment determine what traits are important as well as how important.
2.
Features are secondary product characteristics that are designed to enhance the product’s basic functioning. In cars, examples include a rear window
defroster, power steering and cruise
control.
3.
Reliability is the probability that a product will perform satisfactorily over a given period. Because of the cost of repair and downtime, reliability is
an extremely important dimension for cars and heavy machinery.
4.
Conformance is the extent to which a product’s operating characteristics meet certain
specifications.
5.
Durability is a measure of the life of a product. It has both technical (replacement) and economic (repair costs) dimensions.
6.
Serviceability is concerned with the speed and ease of obtaining competent repair.
7.
Aesthetics has to do with how a product looks, feels, sounds, tastes and smells. These ratings are subjective and are related to how the consumer
perceives quality.
8.
Perceived quality frequently results from the use of indirect measures since the consumer may lack or not understand information about a product’s
attributes. Thus, perceptions may derive from such cues as price, brand name, advertising, reputation and country of origin.
Exhibit 11.5 Five dimensions of service quality
1.
2.
3.
4.
5.
Tangibles are the appearance of physical characteristics associated with the service. For a dentist, tangibles include the décor of the office, the
comfort and conditions of the equipment and facilities, and the appearance of the dentist and dental assistants.
Reliability is the dependability entailed in the service performed. Does the dentist’s work last over many years? Is the work pain-free once the
office ordeal is over?
Responsiveness is the promptness and helpfulness of the service deliverers. Does the dentist keep patients waiting or see them on schedule?
Does he or she see patients quickly in an emergency?
Assurance is the competence, courtesy, and credibility with which the service is provided. Is the dentist properly trained and certified? Is the
staff courteous?
Empathy is the degree to which the service provider communicates with the customer and understands the customer’s needs and concerns.
Does the dentist offer and explain the merits of different treatment options? Does he or she carefully answer patients’ questions?’
III.
Branding Decisions
 Branding identifies and helps differentiate the goods or services of one seller from those of another. It
consists of a name, sign, symbol, or some combination thereof.
 A brand name is the part that can be vocalized (BIC, Benetton, Sony). A brand mark is something
that cannot be verbalized, such as a symbol, design, or unique packaging (Red Bull silver can, the
McDonald’s arches, the Pillsbury Dough Boy). A trademark is simply a brand or some part of a
brand that legally belongs exclusively to a given seller.
 Branding is important to consumers because it simplifies shopping, facilitates the processing of
information concerned with purchase options, provides confidence that the consumer has made the right
decision, helps to ensure quality, and often satisfies certain status needs. Branding also benefits sellers by
enhancing:
 The effectiveness of their marketing programmes – particularly those concerned with promotion.
 Brand loyalty, which leads to greater profitability because generally it costs less to retain
customers than to acquire new ones.
 The opportunities for successfully launching brand extensions.
 Prices and margins resulting from a competitive advantage.
 Channel relationships.
 Through its branding efforts, a company improves its brand equity position, which consists of four major
asset- brand name awareness, brand loyalty, perceived quality, and brand association.
- Branding Strategies
 Individual branding requires the company to provide each product or product line with a
distinctive name. This type of branding is practiced by such firms as Procter & Gamble, Diageo
(Smirnoff vodka, Guinness stout, Bailey’s Irish Cream, Jose Cuervo tequila), and Accor hotels
(Mercure, Novotel, Motel 6).
o Individual branding reduces a company’s risk in that a failure of one brand is not readily
associated with the firm’s other products. Further, it enables a firm to compete via
multiple entries, each positioned differently, within the same product class.
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o
When developing a new brand, whether in a new or existing company, one key decision
is whether to have the brand clearly indicate what the product is or stands for or to
develop a brand whose meaning must be built. The former approach may make it easier
and less costly to build market awareness and gain customer trial at the outset, but it can
limit the flexibility to adapt to changing market conditions.
o Positioning guru Al Ries argues that the latter approach, whereby a brand is based on its
own distinctive name (eBay, Amazon), is probably better than the indicative approach
(Auction.com, Books.com) in today’s rapidly changing and highly competitive
marketplace
 Family branding uses the same brand name to cover a group of products. There are several
variations of family branding including its use primarily with related items, its use with all
company items regardless of whether they are use-related (General Electric is an example), and
the use of a family name combined with individual product names (Kellogg’s Raisin Bran
cereal).
o The major arguments for using family branding are reduced costs and transfer of
customer satisfaction from one product to another bearing the same name. The latter
makes it easier to launch product modifications such as new package sizes and types,
or new flavors and varieties, and new products as when Nike extended its brand to
cover athletic clothing. Family branding can also increase the impact of shelf facings in
stores and make feasible the promotion of a product line comprising many low-volume
items.
o Family branding is not a good strategy. For instance, when the family brand covers
products that vary in quality, consumers become confused about what quality to
expect. Also, extending a brand name to an inadequate product may tarnish the quality
reputation of the entire line.
 Building a global brand is often difficult for a variety of reasons: the meaning of the brand name
evoking negative associations in some countries; the presence of strong local brands; and the
heavy investments required. Still, if successful, the scale effects can dramatically enhance sales
and profits. The most successful global brands include Coca-Cola, Kellogg’s, Nike, Starbucks,
McDonald’s, Marlboro, IBM, American Express, Sony, Mercedes-Benz, and Nescafé
- Retailer and Distributor Brands
 High quality store brands have gained considerable ground versus national brands.
 The explanation for the increasing importance of store brands is that during the 1980s the
national and global brands regularly increased their prices along with massive distributions of
coupons, thereby training consumers to shop on price. They also undertook large numbers of
line extensions and, in general, focused less on brand equity.
 The reasoning behind such acquisitions is the high cost of creating a well-known brand and the
low success rate of new products. Thus, buying popular brands can be a shortcut to growth.
IV.
Packaging Decisions
 A product’s package serves several functions – protecting, facilitating use of, and promoting the product,
as well as providing information about the product and its use. The protection function is critical in both
transport and storage. Protecting an item under a variety of temperatures and moisture conditions and
against being crushed or dropped during handling is no small undertaking.
 Packages have become an extension of the product and a way of identifying and differentiating products
that can lead to increased loyalty. Packaging often facilitates use of the product, as in aerosol cans and
disposable and unbreakable bottles. Packaging can also increase consumer safety, as proved by childproof tops on drugs and tamper-resistant packages.
 Packaging can give a product strong promotional support at the point of purchase. Many more sellers are
attempting to develop a common package design for their products, thereby creating a greater impact on
the consumer. Because consumers purchase a high percentage of supermarket items on impulse,
packaging is especially important for such items. Packaging also can play an important role in the
marketing of services.
V.
Services Decisions and Warranties
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 The service component of a product can include a variety of activities; the following are among the
more common:
 Delivery reliability.
 Warranty.
 Repair and maintenance (including response time, spare parts availability, and effectiveness).
 Efficient complaint handling.
 Credit availability.
 Prompt handling of enquiries.
 Buyer personnel training.
 Prompt claim settlement.
 Fast price quotations.
 Fast order processing.
 Companies that excel at providing service find it a substantial competitive advantage.
 Service is not just a competitive weapon; it also strongly affects the overall level of profitability since
it typically costs more to get a new customer than to keep an old one. The more service-sensitive the
market, the greater the opportunity for profits.
 Warranties can play important roles in reducing the customer’s risk of purchase and enhancing quality
perceptions, thereby enhancing sales.
11.2: Managing Product Lines for Customer Appeal and Profit Performance
 A product line is too short or too long depends on the extent to which the market can be segmented and
how the company wants to position itself. Much also depends on what stage the product-market evolution
is in. A short product line is desirable during the early stages, given the difficulties of managing a long line.
It is also more profitable given the economies of scale and that it simplifies the inventories of both the
company and its channel members.
 Short lines must be uniquely positioned against competitors – and the firm must be able to maintain the
line’s differential advantage.
 More and more companies are pursuing product expansion strategies. They do so to grow by catering to
more segments, to minimize competitive threats to small lines, to satisfy the demands of some customers
for a variety of goods under a single brand, and as a short-term weapon to gain more control over limited
shelf space, thereby making it more difficult for a competitor to expand its line.
 The problem is that as a line increases, it becomes more difficult to position individual products to prevent
cannibalization that reduces the scale effects realized by the older product, thus affecting the net
profitability of the line. Aside from the short-line/long-line strategy issue, other product-line decisions
including line filling, line stretching, line extension and product abandonment. All but the last involve
adding to the length of the present line.
1. Line Filling
 This strategy lengthens the product line by adding items within the present range. Its objective is to satisfy
more customers, to increase sales and profits, to placate dealers who want a full-line supplier, and to ward
off competitors.
 Line filling often results in too long a line from an economic viewpoint; hence the need for a periodic
product-line analysis.
2. Line Stretching
 This strategy involves lengthening the product line beyond its current range of variables, such as size and
price.
 An upward stretch can also consist of trading up, as in the addition of higher price lines.
 A downward stretch involves adding products to serve the lower end of the market.
 The risks involved with a downward stretch are primarily that the lower quality of the new product may
diminish the company’s overall quality image and that channel intermediaries may not support the move
because of lower margins.
 Firms practice two-way stretches when they have a midrange offering and seek market dominance by
expanding both up and down.
 Both up and down line-stretching strategies are essentially incremental. Firms can thus exploit their
current technological, manufacturing, and marketing resources, reducing the risks inherent in the
introduction of new products.
3. Line Extensions
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 This strategy consists of introducing new products that differ significantly from those in the existing line by
more than just size and price.
 A product-line extension strategy involves greater costs and financial risks than product-line filling or
stretching strategies. It provides, however, an extended technological base for the firm and is more likely to
tap new market segments. It also provides a new anchor point in the product space from which product-line
filling or stretching strategies can be based, thereby minimizing the danger of cannibalizing existing
products.
4. Brand Extensions
 Brand extension involves the use of a brand name established in one product class as a vehicle to enter
another product class. A majority of the new products introduced to supermarkets and drugstores fall in this
category.
 The rationale for an extension is that the contribution of the brand name to the extension will be positive.
 Brand extensions can facilitate the acceptance of a new product by providing it with instantaneous
familiarity. Bad brand extensions occur when the name adds little or no benefit to the extension and may
cause confusion and, at worst, stimulate negative attribute association.
5. Dropping Products
 Too few companies subject their product lines to a regular audit to determine which products, if any, should
be dropped. Too often a firm rationalizes the continuation of certain products on the basis that they are at
least covering direct costs, perhaps even making a contribution to fixed costs. Such reasoning overlooks the
opportunity costs of not getting rid of them, including the disproportionate amount of management time
spent on weak products.
 The criteria for identifying weak products focus largely on the trend of the product’s contribution to profit.
Each such item should then be evaluated on such considerations as future sales of the item’s product type
or class, its future market share assuming no changes in the product or its marketing, future market share
assuming certain product and marketing changes, anticipated changes in the marketing of competitive
products (including the price), the effect of dropping the product on the company’s channels of
distribution, the cost of dropping the item (layoffs and inventory clearances), and the effect of dropping the
product on the sales and profits of the firm’s other items, because of joint costs or other factors.
6. Product Systems
 This strategy consists of selling a product and providing complementary products and service as a package.
 A product-system strategy requires a strong compatibility between the various components of the system.
When properly implemented, such a strategy produces scale economies (in contrast to individual
consumers’ attempts to put together their own systems) and a closer, more enduring relationship between
buyer and seller. Implementing a product system successfully requires an in-depth understanding of
customers’ needs; a well-trained, high-level salesforce; and sufficient funds to finance the sale of a system,
which often is a time-consuming process.
11.3: New Product Development Process Decisions
 Developing new products is a costly and risky undertaking as companies around the world have learned.
I.
The Importance of New Products to Long-Term Profitability
 New products constitute the lifeblood of long-term firm success and provide a central mechanism for firms’
adaptation to rapidly changing markets and the opportunities they offer.
 There are a number of ways to classify new products. One of the simplest ways is to divide new products
into four major classes: new to the world, new to the firm, product-line extensions, and product
improvements. Only a small percentage of products are new to the world.
 The vast majority are either product-line extensions or product improvements. The rationale for this
focus on line extensions is – Why spend a lot of time and money to introduce a new product when most fail
and it’s much less expensive and faster to introduce an extension or an improvement? But is this the way to
go?
II.
New Product Success and Failure
 Differences in failure estimates are also influenced by how the new product is defined, the type of product,
and the channels involved.
 The biggest cause of failure, is the introduction of me-too products that sell for the same or for a higher
price but do not outperform products already on the market.
 The key to developing a successful new product is to link a superior product to an attractive market where
there is little or no competition. Some marketing capabilities are also an important success determinant.
 Given the high risk involved, there must be strong reasons firms spend large amounts of time and money on
new product development. Most of these considerations are related to external forces that affect a firm’s
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IV.
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sales, profitability, and competitive-position objectives. Marketers identify many of these forces by market
opportunity analysis, especially analyses of changes in the firm’s macro environment. Changes in
technology are among the most important driving forces in new product development because of their
impact on existing products and a shortening of the product life cycle.
Other macro-environment factors affecting the development of new products are government regulations,
changing costs of raw materials, demographics, and lifestyle. The introduction of new products by
competitors may force a firm to respond with its own entry. Customers and suppliers can also cause a firm
to develop new products.
Organizing for New Product development
At the outset of the development process, the firm must decide whether to keep its development activities
in-house or go outside via subcontracting, outsourcing or some form of joint venture.
The rationale for the latter is that large integrated bureaucratic companies find it difficult during times of
rapid technological changes to compete against smaller, more focused companies that are highly flexible
and can motivate their employees using stock incentives and bonuses.
On the other hand, managing a systematic innovation under one roof facilities developing the needed
process technology concurrent with the R&D for the new product, thereby resulting in faster introductions
and lower costs to inhibit competition.
Finally the development of successful innovative process technologies that can be protected by patents or
that are difficult to duplicate can block or stymie a potential competitor.
Empirical research suggest that relatively bureaucratic structures may be better when less-innovative
products are involved such as line extensions and product improvements
The research suggest that the better the fit between the “newness” of the product concept and
organizational structure used to manage its development, the more efficient in terms of costs and time is the
development process.
One of the advantages of using teams is their ability to reduce the time of the new product development
process by fostering closer relations between the various functional areas. Advances in computer network
technology have made it easier for team members to communicate with one another as well as members of
their departments.
A reduction in time to market can have a strong, positive effect on the product’s profitability, especially in
fast-cycle industries in which product life cycles are short. Improved profitability results from extending
the product’s sales life, creating opportunities to charge a premium price, providing for development and
manufacturing cost advantages, and reducing the risks of a marketing shift since the development process
started.
Key Decisions in the New Product Development Process
Stage-gate systems for managing new product development from idea generation to product launch.
In a stage-gate system an idea for a new product must pass through a series of gates at each of which its
merit is examined before it is allowed to continue its journey toward market introduction. Between each
gate, various analyses and development activities are conducted. The point is to ‘kill’ ideas that lack
strategic or market potential early in the process, before significant resources are spent on these ideas, as
well as to pave the way for high-potential ideas so that they not only get to market quickly but also have
the ‘right’ attributes to enhance their likelihood of market success. Simple new products, such as line
extensions or product improvements, sometimes skip stages in the process, going directly from idea status
to stage 2, 3, or 4, for example. More innovative products whose market acceptance is unclear or whose
product performance is uncertain typically must pass muster at each gate. Similarly, stages in the process
are sometimes conducted concurrently, and backward loops in the process are common when the results of
the analysis at a given stage do not support passing the product to the next stage.
Exhibit 11.9 Stage-gate new product development system
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Managing the Stage-Gate Process
 A principal goal of using such processes is to improve the speed with which a firm brings new
products to market this is accomplished in three principal ways.
o First, clear milestones are set at each gate to encourage new product teams to move
quickly through the necessary activities to get through the next gate.
o Second, resource commitments are made along the way to ensure that inadequate
resources, whether human or financial, do not delay promising products.
o Third, concurrent engineering is employed, whereby both market analyses and technical
progress proceed concurrently.
 In some fast-moving markets, firms seek first-mover advantage, whereby theirs is the first entrant
in a new product category. There is much talk, especially in high technology and Internet marketing
circles, about the importance of first-mover advantage.
 Bringing the right product to market and updating it to keep it ahead of competing products are far
more important in the long run than being first to market, especially with a product that does not
offer what customers really want or need.
Deciding Who Staffs the Gates and How Many Gates
 In most companies or business units using stage-gate systems, a cross-disciplinary team is appointed
to staff the gates. As new product ideas pass through the process, this team considers market,
technical, and manufacturing or service deliverability criteria in deciding which ideas should pass
through to the next stage.
 One study showed that selecting gatekeepers who score high on measures of creativity, such as the
MBTI® Creativity Index, enhances both the speed and productivity of the new product development
process.
Gate 1: Idea Generation and Initial Screening Decisions
 A substantial number of new product ideas must be generated to get one successful product. Ideas
for new products can come from customers; from the company’s own staff, R&D people, the
salesforce, product managers, and marketing researchers; from members of its distribution channels;
even from competitors.
 Whatever the source, at Gate 1, an initial screening is made to determine the idea’s strategic fit.
Does the idea align with the company’s mission, does it take advantage of or strengthen its
competencies, and are the resources needed to develop and market the product available? If the
answer to any of these questions is, No, the idea will likely be rejected.
Gate 2: Secondary Screening Decisions
 In Stage 1, prior to reaching Gate 2, managers are typically asked to undertake preliminary
assessments of the idea’s technical and market feasibility.
o First, can the product be developed and delivered? For a high-technology product, will the
technology pan out?
o Second, how large is the market, and what is the estimated market potential for the
proposed product? Will customers like it? This screening is typically based largely or
entirely on secondary data and on the market and technical know-how resident in the
company.
 To invest new product development resources wisely, it is necessary to ‘kill’ weak ideas at Gate 2,
because significant resources in marketing research and in product development are likely to be
incurred for products that pass this gate. Thus, a weak screening process can waste resources on
obvious losers or misfits and can lead to a creeping commitment to the wrong projects. An overly
rigid process, on the other hand, can lead to lost opportunities.
Gate 3: Decisions on the Business Case
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
If an idea successfully passes the tests at Gate 2, a more detailed investigation, the subject of Stage
2, is made into the market potential for the proposed product. Such an investigation includes a
comprehensive customer, market, and competitive analysis using the tools and analytical
frameworks.
 Primary research is customarily done at this stage. Thus, some resources are now invested in
research, and development of product prototypes is sometimes done to support these research
efforts. For many technology-based products, development before this point has likely been limited
to basic research, and actual development of a truly functional product has awaited confirmation of
the business case. Decisions at Gate 3, while based on similar criteria as those at Gate 2, are based
on greater depth of information and are the last chance to stop before proceeding with full-scale
development of the product and of the marketing plan for introducing it.
- Gate 4: Post-development Review Decisions
 During Stage 3, the technological development of the actual product design proceeds, and a
marketing plan, including a total product/service offering (as we noted earlier in this module) is
developed. A critical decision here is to settle on the product’s design and its particular features.
 An analysis of more than 200 new products revealed that product design was the most important
single factor in their success for a number of reasons.
o First, it can influence costs by its choice of materials and shapes, which strongly influence
the manufacturing processes.
o Second, it can call favorable attention to the product in a crowded marketplace, as was the
case with Swatch, which used a number of unusual forms to call attention to its line of
watches.
o Third, it creates impressions concerning other product attributes. For example, the first
Apple iPhone had a simple compact form designed to emphasize that it was user friendly.
o Fourth, product design enhances our lives by the satisfaction we derive from seeing and
using beautiful artistic products.
 The major objective of industrial design was to design a product compatible with the company’s
manufacturing resources and attractive to the eye. But increasingly the charge to the designer is to
enhance the product’s usability, thereby making the product easier to market.
 Additional marketing research may be needed to complete this process. These technological and
marketing activities proceed in tandem, with considerable communication along the way, so that the
‘over the wall’ problem is avoided. There are two possible causes why a product would fail to pass
Gate 4, as many do.
o The first is that stumbling blocks are encountered with the technology or product design or
with the projected costs of the final version of the product, thereby calling into question
whether the product will actually work as planned or whether it will provide target
customers with good value for the money.
o The second is the discovery, during marketing planning, that market or competitive
conditions that now prevail raise questions about the marketability of the product.
 Gatekeepers at Gate 4 must take a careful look at whether the product is likely to perform, whether the
marketing plan is likely to lead to market acceptance for the product, and whether the degree of acceptance
is sufficient to merit further development.
- Gate 5: Pre-commercialization Business Analysis Decisions
 Gate 5 is the last hurdle before the product is rolled out. To clear Gate 5, the product typically must pass
muster in a test market, in companies with budgets large enough to afford this step. Two major kinds of
test markets are commonly used by large consumer products firms to prepare for Gate 5: field and
laboratory test markets. Smaller firms, whose budgets may not allow for formal market tests, may simply
begin marketing the product, assessing early results as they go. With the advent of the Internet, some firms
now turn the stage-gate process upside down and simply begin selling on the Internet or in limited channels
as a form of market learning quite different from traditional marketing research. One such effort that led to
a successful introduction of an upscale scooter to ‘hip’ urban markets
 In a field test market, the marketing plan for the product is typically implemented in a small geographical
area to ensure that it will deliver the expected results. This test seeks to obtain an estimate of the sales that
will be achieved once the product is rolled out into the broader market, given the planned marketing
strategy and marketing budget.
 In laboratory test markets, which are used most commonly for packaged consumer products, the procedure
measures the process by which a consumer adopts a new product, consisting of three major steps:
awareness, trial and repeat buying.
 Marketing managers working toward Gate 5, or in entrepreneurial companies such as Nova Cruz Products
are faced with decisions about whether and how to use scarce resources for market testing, in order to
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reduce the risk of a possibly unsuccessful market launch. Decisions about whether to conduct a market test,
and whether to do so in the field or in a laboratory, must consider the likelihood of competitive interference
with a field test, competitors’ ability to benefit themselves from such a test, and the company’s willingness
and ability to spend money on test marketing.
- Stage 5: Commercialization Decisions
 Commercialization requires considerable coordination between the various functional areas. Large sums
are required even if the new product is a brand extension. Because marketing is responsible for making the
new product available, developing awareness of its unique properties, inducing trial, and fostering repeat
purchases, its role is critical.
 There are a number of different commercialization strategies. One is to forgo market testing and move
directly to a rollout region by region or nationally or internationally from the outset. Such a strategy is used
when there is little risk, as is usually the case with brand extensions and when copying a competitor’s
product that has experienced successful test marketing.
 Another Commercialization strategy involves using different kinds of test market. Some companies use a
rollout test versus a more elaborate market test, provided the results from the market stimulation studies are
strongly positive.
 This strategy is often favored by large manufacturers of personal care items, food, and packaged household
products because of the rapidity with which rivals can imitate any product and the substantial scale
economies involved.
 Finally, it’s a good idea in a company to conduct a post-implementation review to assess how the launch is
going and make any necessary adjustments. Even in small or young companies whose resources are
limited, the simultaneous creativity and discipline entailed in stage-gate thinking can serve as a foundation
for entrepreneurial initiative while balancing these factors with some measure of discipline. Such a balance
can help mitigate the risk costly new product failures that could lead a precarious young company to
bankruptcy.
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