Download Product Lifecycle Management

Edmundas Radavicius
PRODUCT LIFECYCLE
MANAGEMENT
S CIENCE E CONOMY C OHESION
UNIVERSITY OF APPLIED
SOCIAL SCIENCES
EUROPEAN UNION
Creating the Future of Lithuania
UNIVERSITY OF
APPLIED SOCIAL
SCIENCES
COURSE HANDBOOK
S CIENCE E CONOMY C OHESION
EUROPEAN UNION
Creating the Future of Lithuania
UNIVERSITY OF APPLIED
SOCIAL SCIENCES
UNIVERSITY OF
APPLIED SOCIAL
SCIENCES
SMK University of Applied Social Sciences
UNIVERSITY OF APPLIED
SOCIAL SCIENCES
Edmundas Radavicius
UNIVERSITY OF
APPLIED SOCIAL
SCIENCES
PRODUCT LIFECYCLE MANAGEMENT
Course handbook
Klaipeda, 2015
1
Edmundas Radavicius
PRODUCT LIFECYCLE MANAGEMENT
Course handbook
Approved by the decision of the Academic Board of SMK University of Applied
Social Sciences, 15th April 2014, No. 4.
The publication is financed within project „Joint Degree Study programme
“Technology and Innovation Management “ preparation and implementation“
No. VP1-2.2-ŠMM-07-K-02-087 funded in accordance with the means VP1-2.2SMM-07-K “Improvement of study quality, development of Internationalization”
of priority 2 “Lifelong Learning” of the Action Programme of Human Relations
Development 2007 – 2013.
© Edmundas Radavicius, 2015
© SMK University of Applied Social Sciences, 2015
ISBN 978-9955-648-64-2
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CONTENTS
INTRODUCTION ........................................................................................................ 4
Part 1: The content and classification of produc ................................................... 5
Part 2: The content and classification of service .............................................. 45
Part 3: Phases of product lifecycle ....................................................................... 64
Part 4: Marketing strategies used in product lifecycle phases ................................ 82
TASKS FOR INDIVIDUAL/GROUP WORKS ............................................ 110
REFERENCE OUTLINE ....................................................................................... 147
QUESTIONS FOR ANALYSIS .......................................................................... 184
CLASSROOM ACTIVITIES ............................................................................... 186
LITERATURE ............................................................................................................. 187
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INTRODUCTION
The period of time over which an item is developed, brought to market and eventually removed from the market. First, the idea for a product undergoes research
and development. If the idea is determined to be feasible and potentially profitable,
the product will be produced, marketed and rolled out. Assuming the product becomes successful; its production will grow until the product becomes widely available. Eventually, demand for the product will decline and it will become obsolete.
The aim of the students independent work is to provide student with knowledge,
expertise and practical skills through mastering of the key concepts and classification of a product and service used in marketing, to develop a systematic understanding of the phases of product lifecycle and fundamentals of their use in practice, to reveal the characteristics of marketing strategies used in different product
lifecycle stages and causal relationship between successes and failures.
The course deals with the concept and classification of a product and service. The
students learn about the basic phases of product lifecycle. The students’ ability to
apply in practice the marketing strategies used in different phases of product lifecycle is developed.
Course unit study outcomes:
1. Is able to apply modern marketing theories in identifying the concepts and
kinds of product and service.
2. Is able to apply innovative product and service marketing concepts highlighting the key product and service lifecycle phases.
3. Is able to evaluate the market changes properly and to apply appropriate
marketing strategies used in different product and service lifecycle phases.
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Part 1
The content and classification of product
Objective outline:
1. Define product and major classifications of products and services.
2. Describe the decisions companies make regarding their individual products
and services, product lines and product mixes.
3. Analyze the product strategies.
Chapter Glossary
New product development process – the stages people in the organization go
through in order to create and market new products or services.
Product – all things a buyer receives in an exchange, good and bad, intended and
unintended.
Cross-functional teams – product development teams that include representatives from all or most the functional areas in the organization including R&D,
Manufacturing, Finance, Marketing, and others.
Product positioning - the image of a product in the mind of the target customer
in relation to competing products and other products of the same company.
How do companies decide what products and services to market?
In this chapter we begin a series of chapters on the components of the marketing
mix: Product, Price, Distribution, and Promotion. Our emphasis in this chapter
will be the product or service that the organization markets and how products are
envisioned, created and commercialized. 1
In this chapter, we will review the process of product development and how companies manage that process. While the process is similar for consumer marketers
and organizational marketers, there are significant differences in how different
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companies approach this function.1
We will define ‘product’ as all things the buyer receives in an exchange, bad and
good, intended and unintended. Products include all things the buyer receives
including the physical attributes (a new car) and the intangible attributes (a warranty and a financing contract). It is sometimes helpful to list the main (sometimes called ‘salient’) attributes for purposes of performing both upstream activities (for example, concept development) and downstream activities (for example,
advertising and personal sales presentations).1
In this chapter we will discuss the following areas related to managing new product development (NPD):
- the ideal climate for NPD
- the NPD process
- pitfalls in the NPD
- the role of product positioning in NPD1
The ideal climate for NPD
There are several characteristics that help describe an ideal climate for the new
product development process. A list of these characteristics follows;
a.Goal clarity – the objectives of the task are jointly understood
b.Resources – adequate economic and non-economic support for the task
c.Encouragement – sincere emotional support for the task
d.Freedom – the ability to explore whatever directions of inquiry that are
needed
e.Integrity – management does what it says it will do.2;3
Stages in a typical new product development process (NPD)
The NPD is basically an exercise in idea management. Thus, the process proceeds
from stage to stage. However, frequently a new product team may skip around
stages when playing with a new product idea.1
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1.Idea generation – conceptualize a list of new product ideas
2.Idea assessment – evaluate the ideas based on a previously created list of
criteria. In this stage ideas that are judged not to meet the criteria are removed
from consideration.
3.Concept testing – the idea is assessed through discussion with potential
customers or users. Or, representatives of the organization explore the product idea and assess its overall potential (No physical product yet exists).
4.Idea choice – one or more ideas are selected for initial investment
5.Idea prototype development – an initial working model of the product is
created for testing and evaluation
6.Final version development – a model of the final version of the product is
created
7.Commercialization – the product is put into production and the distribution of the new product to customers begins.1
Each stage should feedback information into the previous stages and this information should be organized and retained for future use.
Idea generation
The idea generation stage is the first stage in the NPD. However, in an organization with a healthy environment for creative thinking, new ideas abound, and only
rarely is it necessary to have a formal meeting to generate ideas. New ideas flow
from every day activities within the organization.4
Ideally, idea generation should be fun and naturally occurring. This is why a ‘formal meeting for idea generation’ should be somewhat of an oxymoron in healthy,
creative organizations. There are many creative problem-solving (CPS) techniques
that provide extra stimulation for generating ideas for new products and services.
The Couger Center for the Study of Creativity and Innovation has applied over
thirty CPS techniques in organizations with success. CPS approaches fall along a
continuum from intuitive to analytical. For example, a commonly used analytical CPS technique is the “5 W’s and H” technique. Rudyard Kipling even wrote a
poem about this technique. The ‘wishful thinking’ technique is a more intuitive
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CPS approach. The appendix to this chapter describes how to use each of these
two techniques.4
Idea assessment
Most organizations have extensive guidelines concerning the criteria for new
product ideas. Some typical criteria are: potential estimated demand for the product, cost/revenue expectations, fit with the organization’s business and marketing
strategy (you may want to go back and review compatibility in the discussion of
requirements for effective segmentation in Chapter Three.) Many product ideas
may not match with the firm’s current product line and there should be guidance
about what to do if this happens. Some organizations broker or sell new product
ideas that don’t entail serving current or planned future customer segments.5
Creative ideas are judged on two criteria: Novelty and Value (or utility). We have
found that business firms primarily put more importance on the expected economic returns (value) of a new idea than whether the idea is particularly novel or
new. However, in a context of the arts, this emphasis is usually reversed. That is, in
the arts, judges often look to novelty first and value later. This point brings about
an underlying problem in judging new ideas. Novelty can usually be judged fairly
early on, whereas, value is sometimes difficult to assess for some time.5
In order to have a steady flow of new ideas, organizations must establish a clear
understanding with personnel responsible for new product development how
these two dimensions will be assessed. 5
Concept testing
In this stage, employees play with the idea and have fun considering its potential.
The rationale underlying concept testing is that organizations are much wiser to
explore the idea thoroughly before actually building a physical prototype. Often
the ‘Five W’s and H’ technique, described in Chapter Eleven, can be helpful in
fleshing out the new product idea. If customers are involved in this stage, ‘projective techniques’ can often be used to illicit the opinions of customers about new
product ideas without asking the customers directly.6
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We have mentioned two types of thinking: convergent and divergent. Convergent
thinking is the type of thinking with which most people in the U.S. culture are most
familiar. In this approach to thinking the mind or minds of those involved follows
a linear process of reasoning ultimately arriving at a point of conclusion. Divergent thinking is quite different in that it requires the participant or participants
to ‘play’ with ideas going off in unexpected directions. DeBono is well known
for coining the term “lateral thinking” which is a type of divergent thinking (see:
http://www.edwdebono.com/ and review DeBono’s “Six Hats Method”).7
Note that when involved in the ideal approach to creative thinking, people feel
they have time to ‘play’ with ideas and forget about ‘hard work’ or “the expected
conclusion.” This fact might trouble some managers, but the endeavor is usually
well worth the time expended. Particularly, in the U.S. we constantly and incorrectly equate ‘hard work’ with ‘no fun’ and something to be feared or dreaded.7
The NPD process should begin with divergent thinking and then apply convergent thinking with a careful recording of all new ideas as the process proceeds.
Unfortunately, in the U.S. culture, people who are expert ‘idea destroyers’ are often
rewarded informally and formally in many organizations. That is, in our culture
there is often more reward for observing what is wrong with an idea, rather than
stating what right about it. Many great ideas with considerable positive potential
are rejected every day in organizations, not because the idea isn’t any good, but
because people in the organization are more oriented to idea destruction than
idea construction.1
Idea Choice
During this stage, the organization decides where its resources are best invested.
A multiattribute model similar to the one we discussed in chapter three is often
used to make such decisions. The major criteria for choice are listed and an importance weight is assigned to each attribute. Then competing ideas are assessed
on this basis. Obviously, this process requires a healthy climate for creativity and
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innovation within which employees can ‘let go’ of personal ownership of ideas and
judge the ideas on an objective basis.1
Idea prototype development
During this stage working models of the new product are created to assess the feasibility of mass production of the product. We should note that the same activity
could be engaged with services. In fact, it is easier with services, usually, than with
tangible products. For example, if I restaurant is in the process of developing new
menu items, it can prepare different variations of the items and let the restaurant
staff sample the items. In some cases a restaurant may maintain a panel of expert
tasters comprised of current customers to assist in determining which new dishes
to put on the menu.1
Final version development
Because learning takes place in each stage of NPD, a final version of the product
is created to assess whether or not to take the product into the full commercialization stage. For example, in our restaurant example above, one can see that a trial
run of preparing dishes from supply to delivery and sampling should take place
to identify possible bottlenecks and problems in the process before an item is adopted for inclusion in the menu.1
In the case of physical products, this stage is usually worthwhile to identify possible problems but also to assess whether the organization should make a commitment to full commercialization. As the reader is no doubt aware, companies often
adopt a test marketing approach, which in many ways is the same of ‘final version
development’ except that test marketing entails a trial run of the total marketing
mix.1
Commercialization
After the organization has refined its production and distribution systems, it only
remains to enter the commercialization stage. This stage usually is implemented
in small increments in order to further refine all systems involved in marketing
the new product or service. A notable exception is when a firm seeks full-scale
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commercialization as soon as possible with its product or service. Examples of
this strategy include new products for the cinema and products that are low in
uniqueness and thus will be copied quickly by competitors if initially successful.1
Common pitfalls in the NPD Process
Various pitfalls can occur during the process of new product development. An
easy way to identify these barriers to new product development is to apply a CPS
technique called the ‘problem reversal technique’ and ‘reverse’ the characteristics
of an ideal climate described earlier considering the outcome of any of these
characteristics being absent in the organization. The following list may help
explain how an absence of these characteristics can discourage new product
development.
1.Lack of Goal clarity – the objectives of the task are not jointly understood,
so people in the process are confused and disagree about what they are expected to accomplish.
2.Lack of Resources – there is inadequate economic and non-economic support for the task so that the NPD process is doomed from its beginning.
3.Lack of Encouragement – management does not provide sincere emotional
support for the task thus employees on the NPD team feel ‘unconnected’ and
‘neglected’ by management feeling that no one values their activity.
4.Lack of Freedom – absence of the ability to explore whatever directions of
inquiry are needed. Members of the NPD team constantly feel restricted in
considering novel approaches to problem solving because they may be seen by
others as not relevant and ‘too playful’.
5.Lack of Integrity – management repeatedly fails to follow through on promises made, thus leaving members of the NPD team frustrated and neglected
– this if often the cause of total ‘shutdown’ of creativity of the NPD team.1
Several roles are commonly adopted on new product development teams.
Unfortunately some of these roles are counterproductive and should be purposely
deleted from the process. Although there are many different possible roles in the
idea generation stage of the NPD, we will identify and discuss a few of the most
common roles:
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Positive roles: enhance new idea generation and product development
Willie, the wild idea man – lots of ideas, likes to have fun, gets bored easily with
details
Inga, the analytical – constantly asks questions such as “exactly what do
you mean by that?”, “How would that work?”
Edith, the encourager – may often say “Yeah, that is a great idea!”
Pam, the peacemaker – unconsciously reduces conflict by focusing on ideas, not
people
Otto, the observer – says very little but is engaged in the process and has many
ideas which must be actively drawn out by others.1
Negative Roles: discourage new idea generation and product development
Doubtful David – fearful, always hesitant to approve of a new idea
Serious Sandra – has trouble with Willie’s glee and Inga’s constant questions,
constantly says, “Okay, let’s get to work and stop playing around”
Patty the parent – similar to Sandra but feels compelled to ‘take the group in hand
and manage it’ – believes she is ‘responsible’
Nasty Nick - never approves of anyone’s ideas but his own. Always has a snide
comment about other peoples’ ideas, often offered as humor
War Story Wally – always has a story about ‘how we did it back then’.1
Of course, all of the positive roles are nice to have on a NPD team. However,
Doubtful David, Patty the Parent, and Knowing Nick have no legitimate place
on an idea generation or even NPD team. The roles of David and Wally can be
tolerated if other team members can cope with them. These roles or roles similar
to them tend to be present on most new product teams and can either facilitate the
process or retard it.1
Organizing for New Product Development
Just as everyone in the organization is responsible for customer satisfaction, everyone in the organization should be responsible for new product ideas. The task
of conceptualizing ideas about new products should not be reserved for the few
people who are members of the NPD teams. Primary success in managing the
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NPD Process has been realized through the use of Cross-functional Teams. These
groups are comprised of people with different educational backgrounds and different organizational areas, which make them more productive, and more challenging to conduct at the same time. For example, at Daimler-Chrysler/US, NPD
teams have members from most organizational functions including design, engineering, marketing, manufacturing, and finance. While this approach introduces
the potential for more chaotic group meetings, it also introduces the potential for
a rich cauldron for the creation of ideas.1
The role of product positioning in NPD
Product positioning can be defined as the image of a product in the mind of the
target customer in relation to competing products and other products of the same
company. For example, if someone says “Mercedes-Benz” you might think “luxurious and expensive.” Then, if someone says “luxurious and expensive,” you might
respond by saying BMW, Lexus, or Cadillac, as well as, Mercedes-Benz. Thus
product positioning is a critical part of understanding how to focus the new idea
generation process. We often think in terms of new benefits we can provide customers or new ways of providing those benefits. For example, a traditional benefit
sought with new cars is personal safety. One new product design team in the car
industry sought out and hired as a consultant, a retired U.S. Air Force officer who
had spent his career in aircraft escape systems to stimulate the team’s ideas about
new features in car safety.1
Examining the relative positions of products in the marketplace can be of great
assistance in new product idea generation. Whether you realize it or not, you already have a rich understanding of product positioning through your everyday
activities as a consumer. For example, think about breakfast cereals. Breakfast
cereals are available in many different types: sugar-added/no sugar added (is this
segmentation based on ‘benefits sought?’); vitamin enriched versus ‘all natural’ (is
this segmentation based on ‘lifestyle?”); and finally, some cereals may encourage
‘overall regularity’ like bran cereals; still another segment. Thus, you, as a marketing student should be aware of segmentation approaches, and should be able to
use positioning concepts as a way to understand where your product should ‘fit
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in’ in the marketplace. Do a keyword search internet using “product positioning”
and “perceptual mapping.” (Be sure to put your keyword in quotation marks to
avoid references to other, non-related areas.1
Lack of ideas versus lack of climate for creativity: Is lack of ideas a sign of lack of
ability of employees or a lack of willingness on the part of employees?
Organizations with a paucity of new product ideas should not assume that their
employees are ‘just not creative.’ We have conducted studies on many different
organizations and employees indicate that the larger problem for them personally
is not new ideas, but the fact that they don’t believe their new ideas will be adopted
or even seriously considered by management.8
Product attributes
Developing a product or service involves defining the benefits that it will give.
These benefits are communicated and delivered by product attributes such as
quality, features and style and design. In other words, product attributes are was
of adding customer value to a product.8
Product quality:
Quality is one of the marketer’s positioning tool. Quality may be defined as “freedom from defects”. However, most customer centred companies go beyond this
narrow definition. Instead, they define quality in terms of creating customer value
and satisfaction.8
Product features
Features are competitive tool for differentiating the company’s product from the
competitors’ products. Being the first producer to introduce a valued new feature
is one of the most effective ways to compete.8
Product style and design:
Another way to add customer value is through distinctive product style and design. Design is a layer concept than style. Style simply describes the appearance of
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a product. Style can be eye catching. A sensational style may grasp attention and
produce pleasing aesthetics, but does not necessarily make the product perform
better.
Design unlike style goes deep to the very heart of the product. Good design contributes to a product’s usefulness as well as to its looks. Good design begins with
deep understanding of customers need.8
Types and classification of motives
Generally, motives are forces initiating behaviour, without which no act of human
behaviour can take place. Product buying motives or buying motives or product
motives are all synonymous and may be defined as all impulses, desire and considerations of the customer, which includes the purchase of good and services.
Buying motives explain why customers buy, whereas buying habit which we shall
examine subsequently refers to how, when and where customer buy. There are
several ways to classify product motives but we shall discuss only three of them as
follows:
1.Emotional and rational product motives
2.Operational and socio-psychological product motives
3.Conscious and unconscious product motives (Dormant motives)8
Emotional product motives
Emotional product motives are those forces which induce the customers to purchase without giving much thought to the reasons for and against there action.
Such motives are aroused by non-rational process of the thought. Thus buying out
of fear of being look upon as being very poor, desire to emulate others, desire for
fashion, affection, are all examples of emotional product motives. For example,
a beautiful girl is pictured in the advertisement on the TV as a user of Joy soap.
The purpose the advertisement being to suggest to the customers that they can be
equally beautiful as the girl pictured in the advertisement if they use Joy soap.8
If the customers after watching the advert, are moved and charmed by it, they
may develop a favorable emotional impression about the product and go ahead to
buy it without actually going through any rational thought. These suggest that the
advertisement is successful. But if some customers after watching the commercial,
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stop to think about the message contained in the advertisement, they may discover that there is only very little in the implied relationship.8
After all, a customer who was born ugly with a flat nose can not turn out to beautiful over night simply because she uses “Joy soap”. Ant consumer going through the
rational process of thought is unlikely to buy the soap and therefore, unlikely to
respond to the emotional appeal of beauty. Again consider another advertisement
in Times Magazine in which an emotional appeal to imagination is made, calling
on smokers to smoke a certain brand of cigarette made in USA and have a taste of
America. The Aim of the advertisement is to suggest that if you smoke that brand
of cigarette, you will have a taste of America. If the ad is successful, the smoker
will respond to the emotional appeal and buy the cigarette to get the imaginary
taste of USA.8
A times, a consumer may be so much sold by the appeal that he may consciously
or unconsciously start behaving and taking in slang’s as though he or she is an
American at the times of smoking the cigarettes, but if the advert is unsuccessful,
it means that smoker fail to respond to the emotional appeal because there is only
very little in the implied relationship of smoking a cigarette and having the taste
of USA.8
Rational product motive
Rational product motives are those forces which induce customers to purchase after carefully going through a rational process of thought i.e. (after considering the
reasons for and against the action). Rational product motives are aroused through
appeals to reasons. It involves a conscious reasoning about a course of action.8
When appeal is made on rational product motives, the consumers are made to feel like
they are reaching the buying decision purely by themselves, and primarily through a
rational process of thought. To arouse such feelings, it is absolutely necessary to present
valid reasons indicating the rational for taking the action as suggested in the appeal. For
example, an advertisement for a Panasonic tape recorder may stress flexibility (in the
sense that it can be operated with batteries and electricity, economy to the use of power,
durability and perhaps, guaranteed for life.8
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The aim of the advertisement is to get the reader to reason along the same line and
probably respond to a combination of rational appeal and come up with a decision
that it is the right product to buy. Other rational product motives include convenience, availability of spare parts and repair services.8
Operational and socio-psychological product motives
A second classification of motives is on the belief that the consumer’s satisfaction from a product comes partly from the physical performance of the product
and partly from his “social and psychological interpretation of the product and
its performance. For example, a young man who bought a high quality stereo set
as the most efficient way to entertain himself and his visitors is influenced by the
operational product motive.
In contrast, the young lady who receives psychological satisfaction from the bottle
of expensive French perfume because she associates it with an advertisement picturing a heavy romance or because of her believe in social prestige of the perfume
is motivated by a socio-psychological product motives.8
Conscious and unconscious motives (Dormant motives)
Another classification of product buying motives is based upon the fact that while
some motives are within the level of awareness of the consumer, other is not.
Conscious motives are those that are within the level of awareness of the consumer. The consumer is so conscious of the motive or motives that he dose not
need to be aroused through any marketing strategy variable before a decision to
purchase is made. Knowledge of buying motives enables the right motives to the
target market to get them to take buying decision.8
Classification of products
Broadly speaking, products or goods may be classified into two major categories:
consumer products and industrial product (goods). Consumer products are products and services bought by final consumer’s for personal consumption whereas
industrial products or goods are destined for use in further production of (goods)
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products and services. An adding machine or calculator purchased by a wholesaler for use in the office, a car purchased by a taxi driver for use in transportation
of passengers and raw materials, or spare parts purchased by a manufacturer are
all industrial goods or product.9
However, a calculator purchased by a student to help him in doing a course in statistic, a car purchased by a lecturer for household use and spare parts purchased
by him for maintenance of his vehicle are all customer good and products. This
suggest that often, it is not possible to place a product permanently in one class or
the other until the purpose for which the product is purchased is known. Later we
shall examine how each of those major product categories is further classified.9
Buying habits and classification of consumer products
It is not enough for the manufacturers and middlemen to know the buying motives of consumers; they should also be familiar with their buying habits. Buying
habits generally refers to how, when and where consumers buy. They apply both to
buyers of industrial and consumers goods as well. However, the purchasing habits
of an industrial buyer or user when analyzed in terms of how, when and where are
quite different from that of the buyer or users of the consumer goods. Buying habits are being discussed in this section with reference to consumer’s goods only.8
In other words, to find out how the consumers buy, we may ask the following
questions:
•
How does the consumer buy impulsively?
•
Does he buy once a week?
To find out where the consumer shops, you may ask:
•
Where does he buy his men’s clothing ( from department stores, speciality
stores “e.g. boutiques”, discount stores or where?
To find out when he buys, they following questions may be raised:
•
When does he shop (end of the week, or end of the month)?
If the consumers are fund of buying impulsively or at the most accessible or convenient store, the manufacturer of the consumer goods will seek for maximum
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exposure for their goods. But if consumers are in the habit of going out of their
way, simply because they want quality women’s outfit, and they can afford a considerable searching time for it, then the manufacturers of such outfit may restrict
their distributive outlets to one or two stores in the city.8
Based on this line of thought, Prof. Copeland of USA stated that the first step a
manufacturer of consumer goods should take in selecting a trade channel is to
classify his products on the basis of consumers buying habits. As an aid to such a
step, he developed a three step classification of consumers goods based on buying
habits, as follows:
• Convenient goods,
• Shopping goods and
• Specialty goods.
However, unsought goods have been added more recently, bringing the classification to be four.8
Convenient goods:
Are those goods which consumers often desire to buy without much bother to
themselves, at the most convenient and accessible stores. Usually, the product are
of low unit values and are purchased as soon as the desire for it arises. Examples include soap, candy, chewing gum, ice cream, newspaper, cigarettes and fast food.8
Marketing of convenient goods:
Since the consumers wish to buy good with minimum of effort, the manufacturers of convenient goods should attempt to secure maximum exposure for their
products. With regards to distribution intensity, it is more feasible that the manufacturers to engage in intensive distribution. This implies that the product should
be distributed in as many stores as possible. The stores should be located to the
consumers as close as possible, since the unit value of the convenient goods are
low, an indirect or long channel of distribution is recommended.8
Shopping goods:
Shopping goods are less frequently purchased customer products and services that
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consumers would desire to buy only after comparing quality, style, price and suitability of this product in different stores. Usually, these products are of high unit
value. They are purchased once in a while unlike convenience goods which are
purchased as soon as the idea enters the mind of the consumers. Examples include
furniture, clothing, rugs, men’s clothing, stereo sets and electrical appliances.8
Marketing of shopping goods:
Since consumers of shopping goods like to compare prices and quality in different stores, stores engaged in selling shopping goods often congregate in shopping
centers in big cities. Usually, these stores perform better when they are located in
few hundred meters away from each other. The manufacturer of such goods are
not interested in a wide spread of distribution as in convenient goods. Rather they
are more interested in the quality of the stores that handle these goods. Therefore,
the distribution intensity should be selective in which case; few stores are chosen
to distribute the products. There are no good examples of such stores in Botswana. Department deal mainly on shopping goods. A larger percentage of shopping
goods are sold directly from the manufacturers to the larger scale retailer (department stores) without the aid of middlemen. Stores handling shopping goods are
usually very large-scale retailers. They have the buying capacity, a factor which encourages direct sale and permits shipments from the manufacturers on economic
basis.8
Specialty goods:
These are consumer products with unique characteristics or brand identification
for which a significant group of buyers is willing to make a special purchase effort.
In other words, the buyers of such goods are willing to go a long way to searching
for it. Examples are expensive women’s fine watches, designer clothes, services of
medical or legal specialists, high quality men’s and women’s clothing, high quality
musical instruments, shoes etc. The unit values of these products are very high.8
Marketing of specialty goods:
Since the consumers of such products have formed the habit of going a long way
searching for it, the manufacturers of such goods neither need wide-spread (intensive) distribution as required in convenient goods nor do they need the major
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outlets, in shopping areas that are required for marketing of shopping goods. Consequently, they use exclusive agency whereby only one dealer is made to be sole
representative for certain areas (exclusive distribution).8
Unsought products:
These are consumers products that the consumer either does not know about or
knows about but does not normally thinks of buying. Classic examples of unknown but unsought products and services, blood donation of Red Cross. By their
very nature, unsought products require a lot of advertising, personal selling and
other marketing efforts.8
Industrial goods:
Industrial goods are those purchased for further processing or for use in conducting
of business. The three groups of industrial product and services include materials
and parts, capital items and supplies and services. Materials and parts include
raw materials and manufactured materials include cement, wires, component
parts, tires. Capital item are industrial products that aids the buyer in production.
It includes installation and accessory equipment. Installations consist of major
purchases such as buildings (factories, offices) and fixed equipment such as elevators,
generators, large computer system. Accessory equipment includes portable factory
equipment and tools (hand tools, lift trucks) and office equipment (computers,
fax machines, desk). They have a shorter life than installations supplies: includes
operating supplies (lubricants, coal, paper, pencil) and repair and maintenance
items (paint, nails, brooms). They are convenient product of the industrial field
because they are usually purchase with minimum of effort or comparison.8
Product development:
New product development consists of the company seeking increased sales by
developing new or improved product for its currents market.10
There are three possibilities
- The company can develop new product features or content, through attempting to adapt, modify, magnify, minify, substitute, re-arrange, reverse or
21
combine existing features.
- The company can create different quality version of the product.
- The company can develop additional models and sizes.10
Pricing objectives:
In the case of a profit oriented enterprise, the pricing objectives may be the following:
• pricing to the maximum,
• pricing to maintain market share
• pricing to achieve a target return on investment or net sales
• pricing to stabilize price
• Pricing to meet or prevent competition.11
Product development and Product life cycle
Product development involves developing the product concept into physical product in order to ensure that the product idea can be turned into a workable product.8
•
Calls for large jump in investment.
•
Prototypes are made.
•
Prototype must have correct physical features and convey psychological characteristics8
Eg: Gillette uses employee volunteers to test new shaving products. Every working
day at Gillette, 200 volunteers from various departments come to work unshaven.
The volunteers are given razors, shaving cream or after shave to use. The volunteers evaluate razors for sharpness of blade, smoothness of glide, ease of handling.
In a nearby shower room, woman performs the same ritual on their legs, underarms, and what the company delicately refers to as “Bikini area”.12
After launching the new product, management wants the product to enjoy a long
and happy life. Although the company doesn’t expect its product to sell forever,
the company wants to earn a decent profit to cover all the effort and risk that went
into launching it.12
22
Product Life Cycle (PLC) is the course of a products sales and profits over its lifetime. It involves five distinct stages: product development, introduction, growth,
maturity and decline.
Figure given below shows a typical product life cycle (PLC) although its exact
length and shape is not known in advance.12
Figure 1. Product Life Cycle12
Introduction Stage of PLC
The introduction stage starts when the new product is first launched. Introduction
takes time, and sales growth is apt to be slow. Products such as Instant coffee, frozen foods etc lingered for many years before they entered a stage of rapid growth.
In this stage, as compared to the others, profits are negative or low because of the
low sales and high distribution and promotion expenses. Much money is needed
to attract distributors and build their own inventories.12
Promotion spending is relatively high to inform consumers of the new product
and get them to try it.12
Growth Stage of PLC
If the new product satisfies the market, it will enter a new growth stage in which
sales will start climbing quickly. The early adopters will continue to buy and later buyers will start following their lead, especially if they hear favorable word of
mouth.
23
Attracted by the opportunities for profit, new competitors will enter the market.
They will introduce new product features, and the market will expand.
The increase in competitors will lead to increase in the number of distribution
outlets, sales jump just to build reseller inventories.
Prices remain same or fall only slightly. Companies keep their promotion spending at the same or a slightly higher level.
Profits increase during the growth stage, as promotion expenses are spread over a
large volume and as unit manufacturing costs fall. The firm uses several strategies
to sustain rapid market growth rate as long as possible.12
Maturity Stage of PLC
At this stage of PLC, product sales growth will slow down. The maturity stage
normally lasts longer than the previous stages and poses strong challenges to marketing management. In any market, most products are in the maturity stages of
the life cycle. Therefore, most of the marketing management deals with mature
product.
Competitors begin marking down prices, increasing their advertising and sales
promotion and allocate their R&D budgets to find better versions of the product.
These steps lead to a drop in profit. Some of the weaker competitors start dropping
out, and the industry eventually contains only well established competitors.12
Decline Stage of PLC
The sales of most product forms and brands eventually dip. The decline may be
slow or rapid depends on the products. Sales may plunge to zero or they may drop
to a level where they continue for many years. This stage is the decline stage.
As sales and profits decline, some firms withdraw from the market.
Carrying a weak product can be very costly to the firm, and not just in profit
terms. A weak product often requires frequent price and inventory adjustments. A
products falling reputation can cause customers concern about the company and
its products.
For these reasons, companies need to pay more attention to their aging products.
The firm’s first task is to identify those products in the decline stage by regularly
24
reviewing sales, market shares, costs and profit trends.12
Generic Strategy: Types of Competitive Advantage
Basically, strategy is about two things: deciding where you want your business to
go, and deciding how to get there. A more complete definition is based on competitive advantage, the object of most corporate strategy:
Competitive advantage grows out of value a firm is able to create for its buyers that
exceeds the firm’s cost of creating it. Value is what buyers are willing to pay, and
superior value stems from offering lower prices than competitors for equivalent
benefits or providing unique benefits that more than offset a higher price. There are
two basic types of competitive advantage: cost leadership and differentiation.
-- Michael Porter, Competitive Advantage, 1985, p.3
The figure below defines the choices of “generic strategy” a firm can follow. A
firm’s relative position within an industry is given by its choice of competitive advantage (cost leadership vs. differentiation) and its choice of competitive scope.
Competitive scope distinguishes between firms targeting broad industry segments
and firms focusing on a narrow segment. Generic strategies are useful because
they characterize strategic positions at the simplest and broadest level. Porter
maintains that achieving competitive advantage requires a firm to make a choice
about the type and scope of its competitive advantage. There are different risks
inherent in each generic strategy, but being “all things to all people” is a sure recipe
for mediocrity - getting “stuck in the middle”.12
Treacy and Wiersema (1995) offer another popular generic framework for gaining
competitive advantage. In their framework, a firm typically will choose to emphasize one of three “value disciplines”: product leadership, operational excellence,
and customer intimacy.13
25
COMPETITIVE ADVANTAGE
Lower Cost
Differentiation
Broad
Target
1. Cost Leadership
2. Differentiation
Narrow
Target
3A. Cost Focus
3B. Differentiation
Focus
COMPETITIVE
SCOPE
Figure 2. Porter’s Generic Strategies (Porter, 1985)13
Conceptual Strategy Frameworks: How Competitive Advantage is Created
Frameworks vs. Models
We distinguish here between strategy frameworks and strategy models. Strategy
models have been used in theory building in economics to understand industrial
organization. However, the models are difficult to apply to specific company situations. Instead, qualitative frameworks have been developed with the specific goal
of better informing business practice. In another sense, we may also talk about
“frameworks” in this class as referring to the guiding analytical approach you take
to your project (i.e. decision analysis, economics, finance, etc.).13
Some Perspective on Strategy Frameworks: Internal and External Framing for
Strategic Decisions
It may be helpful to think of strategy frameworks as having two components: internal and external analysis. The external analysis builds on an economics perspective of industry structure, and how a firm can make the most of competing in that
structure. It emphasizes where a company should compete, and what’s important
when it does compete there. Porter’s 5 Forces and Value Chain concepts comprise
the main externally-based framework. The external view helps inform strategic
26
investments and decisions. Internal analysis, like core competence for example,
is less based on industry structure and more in specific business operations and
decisions. It emphasizes how a company should compete. The internal view is
more appropriate for strategic organization and goal setting for the firm.13
Porter’s focus on industry structure is a powerful means of analyzing competitive
advantage in itself, but it has been criticized for being too static in an increasingly
fast changing world. The internal analysis emphasizes building competencies,
resources, and decision-making into a firm such that it continues to thrive in
a changing environment. Though some frameworks rely more on one type of
analysis than another, both are important. However, neither framework in itself
is sufficient to set the strategy of a firm. The internal and external views mostly
frame and inform the problem. The actual firm strategy will have to take into
account the particular challenges facing a company, and would address issues
of financing, product and market, and people and organization. Some of these
strategic decisions are event driven (particular projects or reorgs responding to the
environment and opportunity), while others are the subject of periodic strategic
reviews.13
Porter’s 5 Forces & Industry Structure
What is the basis for competitive advantage?
Industry structure and positioning within the industry are the basis for models of
competitive strategy promoted by Michael Porter. The “Five Forces” diagram captures the main idea of Porter’s theory of competitive advantage. The Five Forces
define the rules of competition in any industry. Competitive strategy must grow
out of a sophisticated understanding of the rules of competition that determine an
industry’s attractiveness. Porter claims, “The ultimate aim of competitive strategy
is to cope with and, ideally, to change those rules in the firm’s behavior.” (1985, p.
4) The five forces determine industry profitability, and some industries may be
more attractive than others. The crucial question in determining profitability is
how much value firms can create for their buyers, and how much of this value will
be captured or competed away. Industry structure determines who will capture
the value. But a firm is not a complete prisoner of industry structure - firms can
27
influence the five forces through their own strategies. The five-forces framework
highlights what is important, and directs manager’s towards those aspects most
important to long-term advantage. Be careful in using this tool: just composing
a long list of forces in the competitive environment will not get you very far – it’s
up to you to do the analysis and identify the few driving factors that really define
the industry. Think of the Five Forces framework as sort of a checklist for getting
started, and as a reminder of the many possible sources for what those few driving
forces could be. 13
Entry Barriers
• Economies of scale
• Proprietary product differences
• Brand identity
• Switching costs
• Capital requirements
• Access to distribution
• Absolute cost advantages
Proprietary learning curve
Access to necessary inputs
Proprietary low-cost product design
• Government policy
• Expected retaliation
Suppliers
New Entrants
Threat of
New Entrants
Industry
Competitors
Bargaining Power
of Suppliers
Intensity
of Rivalry
Determinants of Supplier Power
• Differentiation of inputs
• Switching costs of suppliers and firms in the industry
• Presence of substitute inputs
• Supplier concentration
• Importance of volume to supplier
• Cost relative to total purchases in the industry
• Impact of inputs on cost or differentiation
• Threat of forward integration relative to threat of
backward integration by firms in the industry
Threat of
Substitutes
Substitutes
Determinants of Substitution Threat
• Relative price performance of substitutes
• Switching costs
• Buyer propensity to substitute
Rivalry Determinants
• Industry growth
• Fixed (or storage) costs / value added
• Intermittent overcapacity
• Product differences
• Brand identity
• Switching costs
• Concentration and balance
• Informational complexity
• Diversity of competitors
• Corporate stakes
• Exit barriers
Bargaining Power
of Buyers
Buyers
Determinants of Buyer Power
Bargaining Leverage
• Buyer concentration vs.
firm concentration
• Buyer volume
• Buyer switching costs
relative to firm
switching costs
• Buyer information
• Ability to backward
integrate
• Substitute products
• Pull-through
Price Sensitivity
• Price/total purchases
• Product differences
• Brand identity
• Impact on quality/
performance
• Buyer profits
• Decision maker’s
incentives
Figure 3. Porter’s 5 Forces - Elements of Industry Structure (Porter, 1985)13
How is competitive advantage created?
At the most fundamental level, firms create competitive advantage by perceiving
or discovering new and better ways to compete in an industry and bringing them
to market, which is ultimately an act of innovation. Innovations shift competitive
28
advantage when rivals either fail to perceive the new way of competing or are unwilling or unable to respond. There can be significant advantages to early movers
responding to innovations, particularly in industries with significant economies
of scale or when customers are more concerned about switching suppliers. The
most typical causes of innovations that shift competitive advantage are the following:
• new technologies
• new or shifting buyer needs
• the emergence of a new industry segment
• shifting input costs or availability
• changes in government regulations.13
How is competitive advantage implemented?
But besides watching industry trends, what can the firm do? At the level of strategy implementation, competitive advantage grows out of the way firms perform
discrete activities - conceiving new ways to conduct activities, employing new
procedures, new technologies, or different inputs. The “fit” of different strategic
activities is also vital to lock out imitators. Porters “Value Chain” and “Activity
Mapping” concepts help us think about how activities build competitive advantage.13
The value chain is a systematic way of examining all the activities a firm performs
and how they interact. It scrutinizes each of the activities of the firm (e.g. development, marketing, sales, operations, etc.) as a potential source of advantage. The
value chain maps a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. Differentiation results, fundamentally, from the way a firm’s product, associated services, and other activities affect its buyer’s activities. All the activities in
the value chain contribute to buyer value, and the cumulative costs in the chain
will determine the difference between the buyer value and producer cost.13
A firm gains competitive advantage by performing these strategically important
activities more cheaply or better than its competitors. One of the reasons the value
29
chain framework is helpful is because it emphasizes that competitive advantage
can come not just from great products or services, but from anywhere along the
value chain. It’s also important to understand how a firm fits into the overall value
system, which includes the value chains of its suppliers, channels, and buyers.13
With the idea of activity mapping, Porter (1996) builds on his ideas of generic
strategy and the value chain to describe strategy implementation in more detail.
Competitive advantage requires that the firm’s value chain be managed as a system rather than a collection of separate parts. Positioning choices determine not
only which activities a company will perform and how it will configure individual
activities, but also how they relate to one another. This is crucial, since the essence of implementing strategy is in the activities - choosing to perform activities
differently or to perform different activities than rivals. A firm is more than the
sum of its activities. A firm’s value chain is an interdependent system or network
of activities, connected by linkages. Linkages occur when the way in which one
activity is performed affects the cost or effectiveness of other activities. Linkages
create tradeoffs requiring optimization and coordination.13
Porter describes three choices of strategic position that influence the configuration of a firm’s activities:
• variety-based positioning - based on producing a subset of an industry’s
products or services; involves choice of product or service varieties rather
than customer segments. Makes economic sense when a company can produce particular products or services using distinctive sets of activities. (i.e.
Jiffy Lube for auto lubricants only)
• needs-based positioning - similar to traditional targeting of customer segments. Arises when there are groups of customers with differing needs, and
when a tailored set of activities can serve those needs best. (i.e. Ikea to meet
all the home furnishing needs of a certain segment of customers)
• access-based positioning - segmenting by customers who have the same
needs, but the best configuration of activities to reach them is different. (i.e.
Carmike Cinemas for theaters in small towns).13
30
Porter’s major contribution with “activity mapping” is to help explain how different strategies, or positions, can be implemented in practice. The key to successful
implementation of strategy, he says, is in combining activities into a consistent
fit with each other. A company’s strategic position, then, is contained within a
set of tailored activities designed to deliver it. The activities are tightly linked to
each other, as shown by a relevance diagram of sorts. Fit locks out competitors by
creating a “chain that is as strong as its strongest link.” If competitive advantage
grows out of the entire system of activities, then competitors must match each
activity to get the benefit of the whole system.13
Porter defines three types of fit:
• simple consistency - first order fit between each activity and the overall strategy
• reinforcing - second order fit in which distinct activities reinforce each other
• optimization of effort - coordination and information exchange across activities
to eliminate redundancy and wasted effort.13
How is competitive advantage sustained?
Porter (1990) outlines three conditions for the sustainability of competitive advantage:
• Hierarchy of source (durability and imitability) - lower-order advantages
such as low labor cost may be easily imitated, while higher order advantages
like proprietary technology, brand reputation, or customer relationships require sustained and cumulative investment and are more difficult to imitate.
• Number of distinct sources - many are harder to imitate than few.
• Constant improvement and upgrading - a firm must be “running scared,”
creating new advantages at least as fast as competitors replicate old ones.13
Core Competence and Capabilities
Proponents of this framework emphasize the importance of a dynamic strategy
in today’s more dynamic business environment. They argue that a strategy based
on a “war of position” in industry structure works only when markets, regions,
products, and customer needs are well defined and durable. As markets fragment
and proliferate, and product life cycles accelerate, “owning” any particular mar31
ket segment becomes more difficult and less valuable. In such an environment,
the essence of strategy is not the structure of a company’s products and markets
but the dynamics of its behavior. A successful company will move quickly in and
out of products, markets, and sometimes even business segments. Underlying it
all, though, is a set of core competencies or capabilities that are hard to imitate
and distinguish the company from competition. These core competencies, and
a continuous strategic investment in them, govern the long term dynamics and
potential of the company.13
What are core competencies and capabilities?
• Prahalad and Hamel (1990) speak of core competencies as the collective
learning in the organization, especially how to coordinate diverse production
skills and integrate multiple streams of technology. These skills underlie a
company’s various product lines, and explain the ease with which successful
competitors are able to enter new and seemingly unrelated businesses. Three
tests can be applied to identify core competencies: (1) provides potential access to wide variety of markets, (2) makes significant contribution to end user
value, and (3) difficult for competitors to imitate.
• Examples of core competence: Sony in miniaturization, allowing it to make
everything from Walkmans to video cameras to notebook computers. Canon’s
core competence in optics, imaging, and microprocessor controls have enabled
it to enter markets as seemingly diverse as copiers, laser printers, cameras, and
image scanners.
• Stalk, Evans, and Schulman (1992) speak of capabilities similarly, but defined more broadly to encompass the entire value chain rather than just specific technical and production expertise.
• Examples of capabilities: Wal-mart in inventory management, Honda in
dealer management and product realization.13
Implications for strategy?
• Portfolio of competencies. An essential lesson of this framework is that competencies are the roots of competitive advantage, and therefore businesses
should be organized as a portfolio of competencies (or capabilities) rather
32
than a portfolio of businesses. Organization of a company into autonomous
strategic business units, based on markets or products, can cripple the ability
to exploit and develop competencies - it unnecessarily restricts the returns to
scale across the organization. Core competence is communication, involvement, and a deep commitment to working across organizational boundaries.
• Products based on competencies. Product portfolios (at least in technologybased companies) should be based on core competencies, with core products
being the physical embodiment of one or more core competencies. Thus, core
competence allows both focus (on a few competencies) and diversification (to
whichever markets firm’s capabilities can add value). To sustain leadership in
their chosen core competence areas, companies should seek to maximize their
world manufacturing share in core products. This partly determines the pace at
which competencies can be enhanced and extended (through a learning-bydoing sort of improvement).
• Continuous investment in core competencies or capabilities. The costs of losing a core competence can be only partly calculated in advance - since the
embedded skills are built through a process of continuous improvement, it is
not something that can be simply bought back or “rented in” by outsourcing.
Wal-mart, for example, has invested heavily in its logistics infrastructure, even
if the individual investments could not be justified by ROR analysis. They
were strategic investments that enabled the company’s relentless focus on customer needs. While Wal-mart was building up its competencies, K-mart was
outsourcing whenever it was cheapest.
• Caution: core competencies as core rigidities. Bowen et al. talk about the
limitations to restricting product development to areas in which core
competencies already exist, or core rigidities. Good companies may try to
incrementally improve their competencies by bringing in one or two new core
competencies with each new major development project they pursue.13
Resource-Based View of the Firm (RBV)
What is RBV?
The RBV framework combines the internal (core competence) and external (industry
structure) perspectives on strategy. Like the frameworks of core competence and
33
capabilities, firms have very different collections of physical and intangible assets
and capabilities, which RBV calls resources. Competitive advantage is ultimately
attributed to the ownership of a valuable resource. Resources are more broadly
defined to be physical (e.g. property rights, capital), intangible (e.g. brand names,
technological know how), or organizational (e.g. routines or processes like lean
manufacturing). No two companies have the same resources because no two
companies have had the same set of experience, acquired the same assets and
skills, or built the same organizational culture. And unlike the core competence
and capabilities frameworks, though, the value of the broadly-defined resources
is determined in the interplay with market forces. Enter Porter’s 5 Forces. For a
resource to be the basis of an effective strategy, it must pass a number of external
market tests of its value.13
Collins and Montgomery (1995) offer a series of five tests for a valuable resource:
1.Inimitability - how hard is it for competitors to copy the resource? A company
can stall imitation if the resource is (1) physically unique, (2) a consequence of
path dependent development activities, (3) causally ambiguous (competitors
don’t know what to imitate), or (4) a costly asset investment for a limited
market, resulting in economic deterrence.
2.Durability - how quickly does the resource depreciate?
3.Appropriability - who captures the value that the resource creates: company,
customers, distributors, suppliers, or employees?
4.Substitutability - can a unique resource be trumped by a different resource?
5.Competitive Superiority - is the resource really better relative to competitors?13
Similarly, but from a more external, economics perspective, Peteraf (1993) proposes four theoretical conditions for competitive advantage to exist in an industry:
1.Heterogeneity of resources => rents exist
A basic assumption is that resource bundles and capabilities are heterogeneous
across firms. This difference is manifested in two ways. First, firms with superior
resources can earn Ricardian rents (profits) in competitive markets because they
34
produce more efficiently than others. What is key is that the superior resource
remains in limited supply. Second, firms with market power can earn monopoly
profits from their resources by deliberately restricting output. Heterogeneity in
monopoly models may result from differentiated products, intra-industry mobility barriers, or first-mover advantages, for example.
2.Ex-post limits to competition => rents sustained
Subsequent to a firm gaining a superior position and earning rents, there must be
forces that limit competition for those rents (imitability and substitutability).
3.Imperfect mobility => rents sustained within the firm
Resources are imperfectly mobile if they cannot be traded, so they cannot be bid
away from their employer; competitive advantage is sustained.
4.Ex-ante limits to competition => rents not offset by costs
Prior to the firm establishing its superior position, there must be limited competition for that position. Otherwise, the cost of getting there would offset the benefit
of the resource or asset.13
Implications for strategy?
• Managers should build their strategies on resources that pass the above tests. In determining what are valuable resources, firms should look both at external
industry conditions and at their internal capabilities. Resources can come
from anywhere in the value chain and can be physical assets, intangibles, or
routines.
• Continuous improvement and upgrading of the resources is essential to
prospering in a constantly changing environment. Firms should consider industry structure and dynamics when deciding which resources to invest in.
• In corporations with a divisional structure, it’s easy to make the mistake of
optimizing divisional profits and letting investment in resources take a back
seat.
• Good strategy requires continual rethinking of the company’s scope, to
make sure it’s making the most of its resources and not getting into markets
where it does not have a resource advantage. RBV can inform about the risks
and benefits of diversification strategies.13
35
Alternative Frameworks: Evolutionary Change and Hypercompetition
Recently, strategy literature has focused on managing change as the central strategic challenge. Change, the story goes, is the striking feature of contemporary
business, and successful firms will be the ones that deal most effectively with
change, not simply those that are good at planning ahead. When the direction of
change is too uncertain, managers simply cannot plan effectively. When industries are rapidly and unpredictably changing, strategy based on industry analysis,
core capabilities, and planning may be inadequate by themselves, and would be
well complemented by an orientation towards dealing with change effectively and
continuously.13
Evolutionary Change
Theories that draw analogies between biological evolution and economics or business can very satisfying: they explain the way things work in the real world, where
analysis and planning is often a rarity. Moreover, they suggest that strategies based
on flexibility, experimentation and continuous change and learning can be even
more important than rigorous analysis and planning. Indeed, overplanning is a
danger to be avoided.
In Competing on the Edge, Eisenhardt (1998) advocates a strategy based on what
she calls “competing on the edge,” combining elements of complexity theory with
evolutionary theory. In such a framework, firms develop a “semi-coherent strategic direction” of where they want to go. They do this by having the right balance
between order and chaos - firms can then successfully evolve and adapt to their
unpredictable environment. By competing at the “edge of chaos,” a firm creates
an organization that can change and produce a continuous flow of competitive
advantages that form the “semi-coherent” direction. Firms are not hindered by
too much planning or centralized control, but they have enough structure so that
change can be organized to happen. They successfully evolve, because they pursue a variety of moves, and in doing so make some mistakes but also relentlessly
reinvent the business by discovering new growth opportunities. This strategy is
characterized by being unpredictable, uncontrolled, and inefficient, but it works.
It’s important to note that firms should not just react well to change, but must also
36
do a good job of anticipating and leading change. In successful businesses, change
is time-paced, or triggered by the passage of time rather than events.13
In Built to Last, Collins and Porras (1994) outline habits of long-successful, visionary companies. Underlying the habits is an orientation towards evolutionary
change: try a lot of stuff and keep what works. Evolutionary processes can be a
powerful way to stimulate progress. Importantly, though, Collins and Porras also
find that successful companies each have a core ideology that must be preserved
throughout the progress. There is no one formula for the “right” set of core values, but it is important to have them. In strategy-speak, it is this core ideology
that most fundamentally differentiates the firm from competitors, regardless of
which market segments they get into. They are deeply held values that go beyond “vision statements” - they are mechanisms and systems that are built into the
system over time. Attention to the core beliefs may sometimes defy short-term
profit incentives or conventional business wisdom, but it is important to maintain
them. Examples of core ideologies are: HP’s commitment to making an “original
technical contribution” in every market they enter, Wal-mart’s “exceed customer
expectations,” Boeing’s “being on the leading edge of aviation,” and 3M’s “respect
for individual initiative.” Notice the “maximize shareholder wealth” is not an adequate core ideology - it does not inspire people at all levels and provides little
guidance.13
In the context of strategy and planning, this book offers a couple of important lessons:
• Unplanned, evolutionary change can be an important component to success. Strategy and planning should foster and complement such change, not
suffocate it.
• Certain core beliefs are fundamental to organizations, and should be preserved at all costs. Not everything about an organization is a candidate for
change in considering alternative strategies.13
37
Hypercompetition
Traditional approaches to strategy stress the creation of advantage, but the concept of hypercompetition teaches that strategy is also the creative destruction of an
opponent advantage. This is because in today’s environment, traditional sources
of competitive advantage erode rapidly, and sustaining advantages can be a distraction from developing new ones. Competition has intensified to make each
of the traditional sources of advantage more vulnerable; the traditional sources
are: price & quality, timing and know-how, creation of strongholds (entry barriers
have fallen), and deep pockets. The primary goal of this new approach to strategy
is disruption of the status quo, to seize the initiative through creating a series of
temporary advantages. It is the speed and intensity of movement that characterizes hypercompetition. There is no equilibrium as in perfect competition, and
only temporary profits are possible in such markets.13
Successful strategy in hypercompetitive markets is based on three elements:
• Vision for how to disrupt a market (setting goals, building core competencies necessary to create specific disruptions)
• Key capabilities enabling speed and surprise in a wide range of actions
• Disruptive tactics illuminated by game theory (shifting the rules of the
game, signaling, simultaneous and strategic thrusts).13
Additional Tools for Strategic Thinking and Analysis
Game Theory
Game Theory in Strategy
Game theory helps analyze dynamic and sequential decisions at the tactical level. The main value of game theory in strategy is to emphasize the importance of
thinking ahead, thinking of the alternatives, and anticipating the reactions of other players in your “game.” Key concepts relevant to strategy are the payoff matrix,
extensive form games, and the core of a game. Application areas in strategy are:
• new product introduction
• licensing versus production
• pricing
• R&D
38
• advertising
• regulation13
The Importance of Understanding “The Game”
Successful strategy cannot depend just on one firm’s position in industry, capabilities, activities, or what have you. It depends on how others react to your moves,
and how others think you will react to theirs. By fully understanding the dynamic
with others, you can recognize win-win strategies that make you better off in the
long term, and signaling tactics that avoid lose-lose outcomes. Moreover, if you
understand the game, you can take actions to change the rules or players of the
game in your favor. Brandenburger and Nalebuff (1995) give some good examples
of this. One way a company can change the game and capture more value is by
changing the value other players can bring to it, as the Nintendo example illustrated. In summary, companies can change their game of business in their favor
by changing:
• players (“Value Net”) - customers, suppliers, substitutors, and complementors (not just the competitors)
• added values - the value that each player brings to the collective game
• rules - laws, customs, contracts, etc. that give a game its structure
• tactics - moves used to shape the way players perceive the game and hence
how they play
• scope - boundaries of the game.13
Game theory has been a burgeoning branch of economics in recent years. It is
a complex subject that spans games of static (one-time) and dynamic (repeated)
nature under perfect or imperfect information. The references below will be helpful for those wishing to explore the theory and modeling of game theory in more
detail. For strategy, though, it can often be a major step just to recognize certain
situations as games, and thinking about how a player can set out to change the
game.13
39
Options
Options theory has influenced corporate strategy unlike any other paradigm coming from Wall Street. The “real option” is analogous to the financial option in that
a company with an investment opportunity holds the right but not the obligation
to purchase an asset at some time in the future. Business schools have taught
managers to analyze/evaluate investment decisions using net present value (NPV),
which assumes one of two things: 1) the investment is reversible or 2) if not, it is
a now-or-never proposition. In fact, most investment decisions are irrevocable
allocations of resources and capable of being delayed. Dixit and Pindyck (1995)
discuss how the options approach to capital investment provides a richer framework that allows managers to address the issues of irreversibility, uncertainty, and
timing more directly.13
The options framework places value on flexibility (keeping the investment option
alive) and modularity (creating options):
Flexibility examples: 1) Investments in R&D can create options that allow the
company to undertake other investments in the future should market conditions
be favorable. 2) A mining facility operating at a loss given current prices may be
deliberately kept open because closure would incur the opportunity cost of giving
up the option to wait for higher future prices.13
Modularity examples: 1) A land purchase could lead to development of mineral
reserves. 2) An electric utility could invest in small additions to capacity as needed to meet uncertain demand instead of building expensive, large-scale plants.
The option is structured such that the company can exercise it when profitable
and let it expire when it is not, depending on how uncertainty is resolved. As long
as there are some contingencies under which the company would choose not to
invest, the option has value. Thus, options theory captures the fact that the greater
the uncertainty, the greater the value of the opportunity and the greater the incentive to wait and keep the option alive rather than exercise it.13
40
Implications for strategy?
• The options approach is particularly appropriate for companies in very volatile and unpredictable industries, such as electronics, telecommunications,
biotech, and pharmaceutical industries.
• When raising capital, greater value should be placed on investments that
create options, compared to those that exercise options.
• Options are especially appropriate for analyzing a series of phased investments.
• Options theory helps us understand how traditional discounted cash flow
analysis systematically underestimates the benefits of waiting.
• Real options also provide a means for evaluating disinvestment, an often
overlooked opportunity to avoid future losses (e.g., closing a facility in response to a market downturn).
• Consider whether the client would be in a better position after some uncertainty is resolved. In framing alternatives, consider strategies that include
downstream decisions. Options might be the ideal way to model such decision opportunities.13
Strategic Scenarios
Scenarios are powerful vehicles for challenging our mental models of the world.
The value is not in predicting the future, but in making better decisions today. The
decision makers could be individuals, businesses, or policy makers. Scenarios are
a nice complement to the principles of decision analysis: the DA cycle ends in decisions and insights, while the scenario process ends in a scenario.13
Why Develop Scenarios? - Uncovering the Decision
Besides predicting the future, scenarios aid in strategic decision making:
• Make the decision conscious. The first step in the scenario process is making
the decision conscious. People’s decision agenda is often unconscious, and
people should not avoid a decision just because they feel powerless.
• Articulate current mindsets. Scenarios are like stories we can tell ourselves
- they are a powerful way of suspending disbelief and avoiding the dangers of
denial. Often, people may refuse to think about possibilities that are unap41
pealing to them. The process of scenario building, considering both optimistic and pessimistic and just plain different futures, overly exposes “mental
models” and assumptions that may be inbred in the organization.
• Develop insights and solid instincts. Insights come from asking the right
questions - from having to consider more than one scenario. Also, scenario
building helps develop a gut feeling for a situation, and assures us that we’ve
been comprehensive in covering the bases relevant to our decision.13
How to Develop Scenarios?
Developing scenarios is similar to developing and pruning influence diagrams in
DA, but the scope of consideration is a little broader with scenarios. Still, scenario
builders should consider both narrow (situation specific) and broad questions.
Typically, the scenario building exercise will result in no more than four scenarios
- any more is too complex to draw insights. The set of scenarios should span a
range of outcomes; typically something like “same but better,” “worse,” and “different but better.”13
Steps to developing scenarios are as follows:
1.Identify the focal issue or decision. (DA analogue: frame the decision)
2.Identify the basic driving forces influencing the outcome: social, technological, economic, political, environmental. (DA analogue?)
3.Identify the key forces in the local environment: determining the predetermined elements and critical uncertainties. (DA analogue: identify the uncertainties)
4.Rank the uncertainties in order of importance. (DA analogue: tornado diagram)
5.Selecting scenario plots (logics). Scenario plots typically run according to
certain logics, like:
winners & losers, challenge & response, evolution, revolution, cycles, etc.
6.Flesh out scenarios. Each plot will lead to a different decision today. From
the different plots, narrow and combine them to form two or three coherent
scenarios.
7.Assess implications of scenarios on decision.
42
8.Identify leading indicators and signposts. Learn to notice symptoms, cues,
and warning signals of certain plots unraveling before you.13
Chapter Exercises
1.Do an internet search on the term “new product development” and prepare
a one-page summary of your findings.
2.Do an internet search on the term “idea generation” and prepare a one-page
summary of your findings.
3.Have you ever been in a situation at work or in a university organization
in which you were attempting to identify new ideas that were creative? Use
the dimensions of an ideal creative environment to identify which dimension
existed in your situation and which ones did not.
4.You, as a consumer, see new products everyday. Choose a new product and
describe what new additional benefits it purports to provide to consumers
that its competitors do not. Be sure to try to focus your description on
‘new benefits’ not ‘new features.’
5.Conceptualize a new product or new service for which you think there is a
need. Describe the segment to which this new product or service will appeal
and what additional benefits will accrue to these potential customers. Use the
“Five W’s and H” technique to flesh out your answer.
6.The keyword “idea generation” and describe your findings in a one-page
report.
7.Go to your favorite drugstore and outline the product positions that are
used either for toothpaste or shampoo. Describe the different benefits customers are seeking in each different position.
8.Explain how a market segment relates to a product position
9.Create a skit to perform in your class that demonstrates the idea generation
process and the ten roles in the process described in the chapter.
REFERENCES
The context of this part has been adapted from the following product(s):
1.How do companies decide what products and services to market?, The access via Internet: www.principlesofmarketing.com/word/Chapter-Six.doc
43
2.Krishnan, V; Ulrich, Karl (2001). “Product development decisions: A review of the literature”. Management science 47 (1): 1–21. doi:10.1287/
mnsc.47.1.1.10668.
3.Kenneth, B. Kahn (2013). The PDMA handbook of new product development (Third edition ed.). Hoboken, New Jersey: John Wiley & Sons Inc. p. 21.
ISBN 978-0-470-64820-9.
4.Koen et al. (2007). “Providing clarity and a common language to the ‘fuzzy
front end’”. Research Technology Management 44 (2): 46–55.
5.Bruiyan, Nadia (2011). “A framework for successful new product development”. Journal of industrial engineering and management 4 (4): 746–770.
6.Cooper, Robert (1990). “Stage-gare systems: A new tool for managing new
products”.Business Horizons 33 (3): 44–55. doi:10.1016/0007-6813(90)90040-i.
7.Author Unknown (2009). Strategies of Divergent Thinking. University of
Washington. Retrieved August 6, 2009.
8.Principles of marketing. Access via Internet: www.exalogics.com/.../notes/
PRINCIPLES-OF-MARKETING-Notes.doc
9.Kotler, P., Armstrong, G., Brown, L., and Adam, S. (2006) Marketing, 7th
Ed. Pearson Education Australia/Prentice Hall.
10. Krishnan, V; Ulrich, Karl (2001). “Product development decisions: A
review of the literature”. Management science 47 (1): 1–21. doi:10.1287/
mnsc.47.1.1.10668
11. Pricing decisions. Access via Internet: www.icaiknowledgegateway.org/littledms/download.php?id=2919
12. New-Product Development and Product Life-Cycle Strategies. Access via
Internet: surejpjohn.com/website/wp-content/uploads/.../Chapter-8-summary.doc
13. Strategy and Marketing Primer. Access via Internet: web.stanford.edu/
class/msande473/483primerV3.doc
FURTHER READING
1.Lambin, J-J. Market-Driven Management. Strategic & Operational Marketing. London: Macmillan Press Ltd., 2000.
2.McDonald, M. Marketing Plans. How to Prepare Them: How to Use Them
44
(3rd edition). Oxford: Butterworth-Heinemann. 1997.
3.Riezebos, R., Kit, B., Kootstra, G. Brand Management: A Theoretical And
Practical Approach. Essex: Pearson Education Limited, 2003.
Part 2
The content and classification of service
Objective outline:
1.Explain the importance of understanding definition of service.
2.Identify the five core marketing and other business strategies of services.
3.Discuss about differences between product and services.
4.Identify strategies for creating value for customers and capturing value from
customers in return.
Chapter Glossary
Services marketing mix - is an extension of the 4-Ps framework. The essential
elements of product, promotion, price and place remain but three additional variables – people, physical evidence and process – are included to 7–Ps mix.
People – because of the simultaneity of production and consumption in services the CE staff occupy the key position in influencing customer’s perceptions of
product quality.
Physical evidence – this is the environment in which the service is delivered and
any tangible goods that facilitate the performance and communication of the service.
Physical evidence – this is the environment in which the service is delivered and
any tangible goods that facilitate the performance and communication of the service.
Process – this means procedures, mechanism and flow of activities by which a
service is acquired.
45
This part discusses the special issues concerning the marketing of services. This is
not to imply that the principles of marketing covered in the previous chapters of
this Handbook do not apply to services rather it reflects the particular characteristic of services in addition to those typical for products.1
The provision of the continuing education contains the element of the tangible
and intangible. It usually provides a learning materials (physical good) and also
numbers of the service activities (teaching processes, contact with customers, organisation of the courses, etc.). The distinction between physical and service offering can, therefore, be best understood as a matter of degree rather those in
absolute terms. The continuing education is service –based since the value of this
product is dependent on the design and delivery of the CE courses rather than the
cost of the physical product (teaching materials, CDs, etc.).1
The services marketing mix is an extension of the 4-Ps framework. The essential elements of product, promotion, price and place remain but three additional
variables – people, physical evidence and process – are included to 7–Ps mix. The
need for the extension is due to the high degree of direct contact between the
CE providers and the customers, the highly visible nature of the service process,
and the simultaneity of the production and consumption. While it is possible to
discuss people, physical evidence and process within the original-Ps framework
(for example people can be considered part of the product offering) the extension
allows a more thorough analysis of the marketing ingredients necessary for successful services marketing.1
People – because of the simultaneity of production and consumption in services the CE staff occupy the key position in influencing customer’s perceptions of
product quality. In fact the service quality is inseparable from the quality of service
provider. An important marketing task is to set standards to improve quality of
services provided by employees and monitor their performance. Without training
and control employees tend to be variable in their performance leading to variable
service quality. Training is crucial so that employees understand the appropriate
forms of behaviour and trainees adopt the best practices of the andragogy.
Physical evidence – this is the environment in which the service is delivered and
any tangible goods that facilitate the performance and communication of the ser46
vice. Customers look for clues to the likely quality of a service also by inspecting
the tangible evidence. For example, prospective customers may look to the design
of learning materials, the appearance of facilities, staff, etc.
Process – this means procedures, mechanism and flow of activities by which a service
is acquired. Process decisions radically affect how a service is delivered to customers.
The service in CE includes several processes e.g. first contact with customers, administrative procedure regarding course delivery, preparation, delivery and evaluation of
the courses. The following guideline can be useful for successful CE management:
• ensure that marketing happens at all levels from the marketing department
to where the service is provided
• consider introducing flexibility in providing the service; when feasible customize the service to the needs of customers
• recruit high quality staff treat them well and communicate clearly to them:
their attitudes and behavior are the key to service quality and differentiations
• attempt to market to existing customers to increase their use of the service,
or to take up new service products
• sep up a quick response facility to customer problems and complaints
• employ new technology to provide better services at lower costs
• use branding to clearly differentiate service offering from the competition
in the minds of target customers.1
Team Assignment – people, physical evidence and process
Identify six most important marketing mix elements (people, psychical evidence
and process) for your selected market segments.
The differential advantage and branding
Only few products are unique. Often the challenge lays in finding a way to differentiate your products from a rival’s near-identical offerings. The basic question
says: “How can I get an advantage over the competition?”1
When your products are better than those of your competitors, and when customers recognize this superiority, you have a real advantage. Few organisations
are in this position. Most find that there is a little or nothing to distinguish their
47
own products from competitor’s. To gain competitive advantage, uncover not just
differences but also attributes that customer’s value. Make sure the differences are
meaningful to customers, so that your product is preferable to the others available.1
Often it is the little things that count. Customers may choose your product over a
competitor’s identical product because they prefer your lecturers or because you
give them coffee while delivery of the courses. Pay attention to details that could
make a difference. A genuine customer-centric approach will differentiate you
from competitors. Show your commitment to customers and ensure that staffs are
emphatic. Review company systems and processes to make them more customers
focused.1
Team Assignment – differentiate your product
Answering the following questions, try to identify the differential advantage of
your CE centre:
Why should customers buy from us rather than from our competitors?
What makes us different from our competitors?
How are we better than our rivals?
What strengths do we have that we can effectively capitalize on?
Strong, well-known products provide companies with a real competitive advantage. Use the power of branding to imbue your products with personality and
meaning, ensuring they achieve a prominent position in the marketplace.
The right name helps to sell products and service. It bestows individuality and
personality, enabling customers to identify with your offerings and to get to know
them. It makes products and services tangible and real. Choose name that enhance
your company image and that are appropriate for the products and its positioning
in the marketplace.1
Establish trust in your brand and customers will remain loyal.
Branding means developing unique attributes so that your products are instantly recognizable, memorable, and evoke positive association. Some brands have a
48
solid and reliable personality, others are youthful and fun. Choose your company
and product name, corporate colors, logo, design and promotional activity to help
convey a personality and build a brand. Customers should be able to look at one
of your products and assimilate all that you stand for in a second by recalling the
brand values. But remember: A strong brand is not a substitute for quality but an
enhancement to it.
The service attributes are e.g. friendless, creativity, courtesy, helpfulness and
knowledge ability.
The creation of a corporate identity is a vital element of branding. Present an integrated, strong, instantly recognizable, individual image that is regarded in a
positive way by your customers, and seize every opportunity to strengthen your
corporate identity. It is important to maintain corporate identity consistently by
issuing written guidelines for staff. 1
Marketing strategy
Marketing strategy is the fundamental goal of increasing sales and achieving a
sustainable competitive advantage.2 Marketing strategy includes all basic, shortterm, and long-term activities in the field of marketing that deal with the analysis
of the strategic initial situation of a company and the formulation, evaluation and
selection of market-oriented strategies and therefore contribute to the goals of the
company and its marketing objectives.3
The process generally begins with a scan of the business environment, both internal
and external, which includes understanding strategic constraints.4 It is generally
necessary to try to grasp many aspects of the external environment, including
technological, economic, cultural, political and legal aspects.5 Goals are chosen.
Then, a marketing strategy or marketing plan is an explanation of what specific
actions will be taken over time to achieve the objectives. Plans can be extended to
cover many years, with sub-plans for each year, although as the speed of change in
the merchandising environment quickens, time horizons are becoming shorter.3
Ideally, strategies are both dynamic and interactive, partially planned and partially
unplanned, to enable a firm to react to unforeseen developments while trying to
keep focused on a specific pathway; generally, a longer time frame is preferred.
There are simulations such as customer lifetime value models which can help
49
marketers conduct “what-if ” analyses to forecast what might happen based on
possible actions, and gauge how specific actions might affect such variables as the
revenue-per-customer and the churn rate. Strategies often specify how to adjust
the marketing mix; firms can use tools such as Marketing Mix Modeling to help
them decide how to allocate scarce resources for different media, as well as how to
allocate funds across a portfolio of brands. In addition, firms can conduct analyses
of performance, customer analysis, competitor analysis, and target market analysis.
A key aspect of marketing strategy is often to keep marketing consistent with a
company’s overarching mission statement.6
Marketing strategy should not be confused with a marketing objective or mission.
For example, a goal may be to become the market leader, perhaps in a specific
niche; a mission may be something along the lines of “to serve customers with
honor and dignity”; in contrast, a marketing strategy describes how a firm will
achieve the stated goal in a way which is consistent with the mission, perhaps by
detailed plans for how it might build a referral network, for example. Strategy varies by type of market. A well-established firm in a mature market will likely have a
different strategy than a start-up. Plans usually involve monitoring, to assess progress, and prepare for contingencies if problems arise. A strategy gives business a
defined route to follow and a clear destination. Build a marketing strategy and you
will ensure that marketing is a long-term way of working, not a one-off activity.1
A marketing strategy provides organization with shared vision of the future. All
too often, an organization will perform a marketing task, such a direct mail shot,
then sit back and see what happens. A strategic approach will ensure that you
maximise returns on your marketing spending and boost the profits of your organisation.
Strategic marketing manager
• has a clear picture of the future
• anticipates changes in the market
• works towards clear long/term goals
Non-strategic marketing manager
• lives day to day without planning
50
• reacts to changes in the market
• has only short-term objectives
During the creating of the marketing strategy the marketing manager should proceed as follows:
1.create the team
2.review current situation
3.set objectives
4.plan action
5.implement strategy
6.review strategy1
Create your team
The first steps during preparation of the marketing strategy are the hardest part. It
is important to bring together a strong team to help to prepare the marketing plan.
The strategic elements must be understood by every member of team in order to
assure the marketing success.
It is important to involve the people whose function touches on marketing, and
those whose job involves considerable customer contact. Before embarking on
your marketing strategy, establish common ground by agreeing definitions and
purpose. Build the team unity; perhaps by organizing an away day at a pleasant
venue to discuss shared marketing issues and concerns. Show that you recognise
the contribution each team member can offer.1
Review current situation - perform a SWOT analysis
• SWOT (Strengths, Weaknesses, Opportunities and Threats)
Analysis of these four factors provides information on how to shape your marketing strategy. Devise objectives aimed at strengthening weak areas, exploiting strengths, seizing opportunities, and anticipating threats.
51
Team Assignment – Marketing SWOT analysis
Identify your 4 strengths, weaknesses, opportunities and threats
answering the questions below:
1.Do you sue your strengths to full advantage? Could you do more to capitalise
on them?
2.Are there current or future opportunities you could exploit? Are new markets
emerging or are there existing, untapped customer groups?
3.What threats do your competitors pose? What threats exist in wider marketplace?
4.What lets you down? What are you not good at? What do your competitors do
better?
Setting objectives
Draw up your objectives carefully, because your entire marketing strategy will
be structured around them, and ensure that they are measurable so that you can
evaluate their success.7
Short-term objective can be staging posts on the way towards fulfilling long-term
goals. Analyze your situation and then ask: “What if we do nothing?” Will products become out of date? Will your competitors grow more powerful? Spend time
asking “what if?” to help you realize the effects of not keeping up with customer
needs and competitor activities. It can serve to spur action.7
If you have devised a set of objectives around which to build your marketing strategy, seek agreement for them across the organisation. Marketing is a discipline
that cuts through many departmental boundaries. Marketing activity will have a
knock-on effect in various parts of the operation so, for it to be effective, you will
need the support of colleagues. Ensure they understand the need for these objectives and the impact they may have on their work.7
Plan action - investigate constraints, such as time and money, and then create a
timetable of activity to give you a working marketing plan.
The activities on your marketing timetable should be manageable and workable.
52
The costs of not undertaking certain marketing activities, both in missed opportunities and the effect on your reputation, should be taken into consideration.7
Look at your marketing ideas and work out the costs of each. Remember that
marketing involves meeting customer need at a profit. To be justified, marketing
activity should have a positive impact on the balance sheet. Examine not only the
costs but also the benefit. An advertising company may cost a lot of money, but if
it reaps profit amounting to several times its costs, is it cheap.7
Table 1. The example of marketing plan7
Activity
Priority
Organise lunch for
Medium
top ten customers
Produce new broHigh
chure
Update mailing
list ready for new
brochure
Mail new
brochure
Start date
by the end of February
Mid-January
High
High
Completion Date
end March
end March
Early April
Implementing strategy
Some organizations invest considerable effort in developing a strategy but enthusiasm and energy wane when it comes to implementation. Ensure that your marketing strategy is put into the action, not let to gather dust on a shelf. Assign each
task or activity due for implementation within the next 12 months to a named
person.7
Review strategy
The world is not static. Things within your organisation or within your market are
likely to change over the time. If they do, you might need to redefine your objectives. Review your objectives six-monthly or annually to check that you are till on
track.8
53
Answering the following questions will help you evaluate the success of your marketing strategy:
1.Have profits increased since the strategy was implemented?
2.Have we seen an increase in our customer base?
3.Have we attracted a greater number of orders, or larger individual orders?
4.Has the number of product/service enquiries risen?
5.Has awareness of our organisation and its products or services increased?8
Team assignment - Assess your marketing ability
Answer the questions below. If your answer is “never: , mark Option 1, and so on.
Use the Analysis at the end of the questionnaire to identify your potential weaknesses in the area of marketing.
OPTIONS:
1
Never
2
Occasionally
3
Frequently
4
Always
I. We research customer needs before developing new products and services
1
2
3
4
II.Our CE centre considers customer “buying points” when promoting products.
1
2
3
4
III. Our CE centre ensures that orders are processed swiftly as well as
accurately.
1
2
3
4
IV. Our CE center obtains customer information and use it to influence d
ecisions.
1
54
2
3
4
V. Our CE Centre set standards to ensure effective customer care.
1
2
3
4
VI. Our CE centre take action to make sure that every customer is a satisfied
customer.
1
2
3
4
VII. Our CE centre measure performance against the standards of customer
care.
1
2
3
4
VIII. Our CE center take the complains of customers very seriously.
1
2
3
4
IX. Our CE centre monitor the number of customer complaints that we receive.
1
2
3
4
X. Our CE center tries to see if there is anything we can learn from a customer’s complaints.
1
2
3
4
XI. Our CE center finds reasons to keep in touch with customers.
1
2
3
4
XII. Our CE center tries to turn one-off customers into regular ones.
1
2
3
4
XIII. Our CE center keeps a record of key customer contact.
1
2
3
4
XIV. Our CE centre asks customers whether they will recommend us
1
2
3
4
55
XV. Our CE centre shows customers that their business is value.
1
2
3
4
XVI. Our CE centre tries to find out why we have a lost a customer.
1
2
3
4
XVII. Our CE centre attempts to win back lost customers.
1
2
3
4
XVIII. Our CE centre is already looking for the new customers.
1
2
3
4
XIX. Our CE centre tries to nurture customer’s loyalty.
1
2
3
4
XX. Our CE centre seeks customer comment and feedback.
1
2
3
4
XXI. Our CE centre listens what customer say.
1
2
3
4
XXII. Our CE centre pay attention to the little details that make all the difference.
1
2
3
4
XXIII. Our CE centre tries to add value to our services.
1
2
3
4
XXIV. Our CE center emphasizes benefits, not features.
1
2
3
4
XXV. Our CE centre use public relations techniques to boost marketing effectiveness
1
56
2
3
4
XXVI. Our CE centre draws up a pricing strategy for every new product marketed.
1
2
3
4
XXVII. Our CE centre set objectives for publicity campaigns.
1
2
3
4
XXVIII.Our CE centre carefully target mail shots.
1
2
3
4
XXIX. Our CE centre takes care to select the right envelope for direct mail
campaign.
1
2
3
4
XXX. Our CE centre tests mail shots to find the most successful combination.
1
2
3
4
XXXI. Our CE centre measures the overall effectiveness of a publicity campaign.
1
2
3
4
XXXII. Our CE centre keeps non-marketing colleagues informed of key marketing activity.
1
2
3
4
57
ANALYSIS
32-64: try to take a more organised, planned, methodical, and measured approach
to improve your effectiveness
65-95: some of your marketing activity is a success, but you need to develop your
skills to become wholly effective
96-128: you have adopted a thoroughly professional strategic approach to marketing and are running successful marketing campaigns. Keep up the good work to
stay ahead of the competition.
Marketing in non-profit organizations
Nonprofit organization is an organization that uses its surplus revenues to further
achieve its purpose or mission, rather than distributing its surplus income to the
organization’s directors (or equivalents) as profit or dividends. This is known as
the distribution constraint. The decision to adopt a nonprofit legal structure is one
that will often have taxation implications, particularly where the nonprofit seeks
income tax exemption, charitable status and so on.9
The nonprofit landscape is highly varied, although many people have come to associate NPOs with charitable organizations. Although charities do comprise an
often high profile or visible aspect of the sector, there are many other types of
nonprofits. Overall, they tend to be either member-serving or community-serving. Member-serving organizations include mutual societies, cooperatives, trade
unions, credit unions, industry associations, sports clubs, retired serviceman’s
clubs and peak bodies – organizations that benefit a particular group of people
– the members of the organization. Typically, community-serving organizations
are focused on providing services to the community in general, either globally or
locally: organizations delivering human services programs or projects, aid and development programs, medical research, education and health services, and so on.
It could be argued many nonprofits sit across both camps, at least in terms of the
impact they make.10 For example, the grassroots support group that provides a
lifeline to those with a particular condition or disease could be deemed to be serving both its members (by directly supporting them) and the broader community
(through the provision of a helping service for fellow citizens).
Many NPOs use the model of a double bottom line in that furthering their cause
58
is more important than making a profit, though both are needed to ensure the
organization’s sustainability.11;12
Although NPOs are permitted to generate surplus revenues, they must be retained
by the organization for its self-preservation, expansion, or plans.13 NPOs have controlling members or a board of directors. Many have paid staff including management, whereas others employ unpaid volunteers and even executives who work
with or without compensation (occasionally nominal).14 In some countries, where
there is a token fee, in general it is used to meet legal requirements for establishing
a contract between the executive and the organization.15
Designation as a nonprofit does not mean that the organization does not intend
to make a profit, but rather that the organization has no ‘owners’ and that the
funds realized in the operation of the organization will not be used to benefit any
owners. The extent to which an NPO can generate surplus revenues may be constrained or use of surplus revenues may be restricted.15
Non-profit organization attempt to achieve some other objectives than profit. This
does not mean that they are uninterested in income as they have to generate cash
to survive. However their primary goal is non – economic, e.g. to provide education.16
Marketing is of growing importance to many non-profit organizations because of
the need to generate funds in an increasingly competitive arena. Even organization who rely on government - sponsored grants need to show how their work is of
benefit to society: they must meet the needs of their customers. Many non-profit
organizations rely on membership fees or donations, which means that communication to individuals and organization is required, and they must be persuaded to
join or make a donation. This require marketing skills , which are being increasingly applied.16
Characteristics of non-profit marketing :
• Education versus meeting current needs
Some non-profit organizations see their role as not only meeting current needs of
their customers but also educating tem in new ideas and issues, cultural development and social awareness. It can be done in harmony with providing CE as an
additional value of CE course.
59
• Multiple publics
Most non-profit organization serve several groups or publics. The two broad
groups are donors , who may be individuals, trust , companies and governmental
bodies, and clients, who include audiences and beneficiaries. The need is to satisfy
both donors and clients, complicating marketing task. For example a community
association providing also the CE courses may be partly funded by the local authority and partly by other donors (individuals or companies) and partly by clients. To succeed all the groups must be satisfied.
• Measurement of success and conflicting objectives
For profit oriented organizations success is measured ultimately on profitability.
For non-profit organizations measuring success is not so easy. In universities , for
example, is success measured in research terms, number of students taught, the
range of qualifications or the quality of teaching? The answer is that it is a combination of these factors, which can lead to conflict: more students and larger of
courses may reduce the time needed for research. Decision making is therefore
complex in non-profit oriented organization.
• Public scrutiny
While all organization are subject to public scrutiny, public sector non-profit organization are never far from public’s attention. The reason is that they are publicity funded from taxes. This gives them extra newsworthiness as all tax-payers are
interested in how their money is being spent. They have to be particularly careful
that they do not become involved in controversy, which can result in bed publicity.16
Marketing procedures for non-profit organizations
Despite these differences the marketing procedures relevant to profit oriented
companies can also be applied to non-profit organizations. Target marketing,
differentiations and marketing mix decision need to be made. These issues will
be discussed with reference to the special characteristics of non-profit organizations.16
• Target marketing and differentiation
Non-profit organization can usefully segment their target publics into donors and
clients (customers). Within each group, sub segments of individuals and organiza60
tion need to be identified. These will be the target for persuasive communications,
and the development of services. The need of each group must be understood. For
example the donors can judge which non-profit CE centre to give the support n the
basis of awareness and reputation, the confidence that funds will not be wasted on
excessive administration, and the perceive worthiness of the cause. That is why the
CE center needs not only to promote itself but also to gain publicity for its cause.
Its level of donor funding will depend upon both of these factors. The brand name
of CE centre is also important (it has been discussed n previous parts).
• Developing the marketing mix
Many non-profit organizations are skilled at event marketing . Events are organized to raise the funds, including dinners, dances, coffee mornings, book ales,
sponsored walks and others.
The pricing god the services provided by non-profit organizations may not follow
the guidelines applicable to profit oriented pricing. For example the price of CE
curse organized by non-profit CE center for Gypsies may be held low to encourage
poor families to take advantage of this opportunity. Some non-profit organization
even provide free access to services.
Like most services, distribution systems for many non-profit organizations are
short, with production and consumption simultaneous. This is the case also of
education. Such organization have to think carefully about how to deliver their
services with the convenience that customers require. For example, although the
CE center is based in big city, over half of the courses for ethnic minorities may be
delivered in small villages around the city.
Many non-profit organizations are adept at using promotion to further their needs.
The print media are popular with organization seeking donations for cases that are
in common interest of whole society (education for gypsies, raising awareness in
the area of abused children or women, courses to support and educate the political
refugees …).
Direct mail is also used to raise the funds. Mailing lists of past donors are useful
here, and some organization use lifestyle geodemographic analysis to identify the
type of person who is more likely to respond to direct mailing. Non-profit organization must be also aware of public opportunities which may arise because of
their activities.
61
Pubic relations has an important role to play to generate positive word-of-mouth
communications and to establish the identity of the non-profit organization. A
key objective of communications effort should be to produce a positive assessment
of the fund-raising transaction and to reduce the perceived risk of the donation
so that donors develop trust and confidence in the organization and become
committed to the cause.16
Team assignment – marketing of non-profit organization
Consider that your CE center is non-profit organization. How does marketing in
non-profit organization differ from that in profit –oriented organizations? Discuses
the extend to which marketing principles can be applied and try to identify 2
marketing procedures which fit mostly for non-profit organizations.
REFERENCES
The context of this part has been adapted from the following product(s):
1. The services marketing mix. Accsess via Internet: acru.uvlf.sk/doc/CME_
Present/BB_Marketing.doc
2. Baker, Michael The Strategic Marketing Plan Audit 2008. ISBN 1-902433-998. p.3
3. Homburg, Christian; Sabine Kuester, Harley Krohmer (2009): Marketing
Management - A Contemporary Perspective (1st ed.), London.
4. Aaker, David Strategic Market Management 2008. ISBN 978-0-470-05623-3.
5. Aaker, David Strategic Market Management 2008. ISBN 978-0-470-05623-3
6. Baker, Michael The Strategic Marketing Plan Audit 2008 ISBN 1-902433-998. p. 27
7. Marketing
effectively.
Accsess
via
Internet:
https://books.google.lt/
books?isbn=1405352213
8. Marketing. Accsess via Internet: acru.uvlf.sk/doc/CME_Present/Marketing_
Natasa.ppt
9. Bijan Vasigh; Ken Fleming; Liam Mackay (2010). Foundations of Airline Finance: Methodology and Practice. Ashgate Publishing. p. 19. ISBN 0754677702.
10.Hansmann, R. B. (1980). The role of nonprofit enterprise. Yale law journal,
835-901.
62
11.Lyons, Mark. Third Sector: The contribution of nonprofit and cooperative
enterprises in Australia. Allen & Unwin, 2001.
12.The Nonprofit Handbook: Everything You Need to Know to Start and Run
Your Nonprofit Organization (Paperback), Gary M. Grobman, White Hat Communications, 2008.
13.“not-for-profit - definition of not-for-profit in English from the Oxford dictionary”. Retrieved 14 May 2015.
14.“Publication 4220 (Rev. 8-2009)” (PDF). Retrieved 31 July 2010.
15. Drucker, Peter (1989). “What Business Can Learn from Nonprofits”. Harvard Business Review: 1–7.
16.Marketing II. Access via Internet: acru.uvlf.sk/doc/CME_Present/Marketing_Natasa.ppt
FURTHER READING
1. Malamut, Michael E. and Blach, Thomas J. (2008). “ABA Code Revision
Raises Concerns for Democracy and Parliamentary Law in Nonprofits”. National Parliamentarian, Volume 69, No. 1.
2. Charity on Trial: What You Need to Know Before You Give / Doug White
(2007) ISBN 1-56980-301-3.
3. Edwards, M. and Hulme, D. (2002) NGO Performance and Accountability: Introduction and Overview. In: Edwards, M. and Hulme, D., ed. 2002. The
Earthscan Reader on NGO Management. UK: Earthscan Publications Ltd.,
Chapter 11.
4. Becchetti, Castriota, & Depedri. Working in the For-Profit versus Not-ForProfit Sector: What Difference Does it Make?http://icc.oxfordjournals.org/content/early/2013/11/28/icc.dtt044
5. Cohen, R. Nonprofit Salaries: Achieving Parity with the Private Sectorhttps://nonprofitquarterly.org/management/5506-nonprofit-salaries-achieving-parity-with-the-private-sector.html
6. Coffman, S. Nonprofits Can Compete with Employee Benefitshttp://www.
bizjournals.com/columbus/stories/2002/12/23/focus4.html?page=all
7. Frumkin, Peter (2005). On Being Nonprofit: A Conceptual Primer. Harvard
University Press.
63
8. Glasius, Marlies, Mary Kaldor and Helmut Anheier (eds.) “Global Civil Society 2006/7”. London: Sage, 2005.
9. Drayton, W: “Words Matter”. Alliance Magazine, Vol. 12/No.2, June 2007.
10.Ramirez, Jr., L:”The Case for Social Benefit Organizations”.MiniDonations.
org Blog, February 2010.
11.Alvarado, Elliott I.: “Nonprofit or Not-for-profit -- Which Are You?”, page
6-7. Nonprofit World, Volume 18, Number 6, November/December 2000.
12. Bruiyan, Nadia (2011). “A framework for successful new product development”. Journal of industrial engineering and management 4 (4): 746–770.
13.Cooper, Robert (1990). “Stage-gare systems: A new tool for managing new
products”.Business Horizons 33 (3): 44–55. doi:10.1016/0007-6813(90)90040-i.
14.Kenneth, Kahn (2013). The PDMA handbook of new product development
(Third edition ed.). Hoboken, New Jersey: John Wiley & Sons Inc. p. 34. ISBN
978-0-470-64820-9.
Part 3
Phases of product lifecycle
Objective outline:
1.Describe the environmental forces that affect the company’s ability to serve
its customers.
2.Explain how changes in the demographic and economic environments affect strategies of product lifecycle.
3.Discuss bout each phase of product lifecycle management.
Chapter Glossary
Project planning and initiation - this phase includes important planning, organization and administration tasks.
Project execution and control - this phase is primarily focused on carrying out
the project plans documented in the Project Charter.
Project closure - the primary purpose of this phase is to administratively close
down the project and to evaluate how effective the project execution was.
64
Life cycle costing - can apply to products, services, customers, projects or assets
and, as its name implies, it cost the cost object over its projected life.
Planning tool - it characterizes the marketing challenges in each stage and poses
major alternative strategies.
Control tool - the launched PLC concept allows the company to measure product
performance against similar products launched in the past.
Forecasting tool - it is less useful because sales histories exhibit diverse patterns
and the stages vary in duration.
Relationship of PMLC to the Product Development Life Cycle (PDLC)
The scope of project management is not the technical work which prepares the
information technology based products. Rather, the domain of project management
is the management of all the factors which surround and enable the technical
development work to be accomplished. These factors include project resources,
time, cost, schedule and quality. Project success is often defined as meeting the
project cost, schedule and quality constraints.1
The scope of the Product Development Life Cycle (PDLC) is all of the project
technical functions that have to be performed to produce, maintain and support
the expected product deliverables. These functions include business analysis,
functional and technical requirements definition, system design, construction,
rollout/release and maintenance.1
During the formation and execution of a project, the activities in the PMLC and
PDLC are integrated, i.e., all technical activities are planned (using the PDLC as a
source of technical activities to be performed) and executed using the planning,
execution and control methods defined in the PMLC.1
If PMLC and PDLC activities are integrated during a project, why are they separated in the methodology? They are separated in order to:
65
* Recognize the natural separation of project work between technical and
project
management activities. And to facilitate the training and use of these activities
by the project members responsible for them.
* Recognize the importance of both the technical and management work.
And ensure that project management activities are clearly identified and performed. Too often the technical work is stressed and the project management
work is “forgotten”. Through practical project experience, the implementation
of systems engineering standards, and development of systems engineering
theory, the software industry has recognized the importance of project management.
* Facilitate the effective maintenance (improvement) of both life cycles. If
they are kept separate in the methodology, the changes in one life cycle are
much less likely to affect the other.1
Relationship of PMLC to Supporting Processes
The PMLC documents project management phases, tasks, activities, expected
inputs and outputs (deliverables) and organizational participation in these. The
PMLC does not contain the detailed description of every method used within the
life cycle. These detailed method descriptions are contained in the Supporting
Processes section of the methodology. When needed, the PMLC references these
Supporting processes. Methods such as project planning, project estimation, project scheduling, risk management, resource management, cost management, time
management, project reporting, configuration management, incident reporting,
tracking and resolution, etc. are part of the Supporting Processes.1
What Needs to be Managed?
Projects are organized and staffed by people of varying skills, responsibilities and
roles. In order to perform their work, these people use processes (ad hoc or standardized) and tools.1
Projects are constrained by many factors. The common ones are time, cost, re66
sources, product requirements and quality. The ultimate goal of a project team is
to deliver a product on time, within budget, that meets the product requirement
and quality constraints. To achieve this goal the team must use effective methods
to manage the people, processes and tools used for the project. The following need
to be considered for each:
People
* Identification of roles, responsibilities, and skills needed for the project.
* Identification of types and numbers of people resources needed to meet
project roles, responsibilities and skill requirements- technical development (architects, analysts, programmers, etc.), managerial (senior management, project
management), quality assurance, product marketing, operations, etc.
* Identification of staffing sources - use of existing organizational resources,
contractors, new hires
* Organization of people resources into effective teams with the necessary
communication interfaces.
* Communication of project mission and individual team assignments
* Communication of project values/expectations - quality, quantity of work,
communication, teamwork, etc.
* Training on project methods (management and technical), communication
skills, technology and tools
* Communication on project status, issues, problems and changes. Effective
communication to all project team members.
* Communication on effectiveness of project methods, tools and work environments.
* Implementation of methods, tools and work environment improvements
* Measurement of team and individual performance (based on project values/expectations); implementation of performance improvements.
* Monitoring of project staffing/skill needs; maintaining necessary staffing
levels and/or re-assigning roles and responsibilities.1
Processes
* Definition of the management and technical methods needed for the project
67
* Selection of the appropriate management and technical methods from the
organizational Product Development Process
* Acquisition and/or development of project specific methods not available
in the organizational Product Development process
* Implementation of process effectiveness measurements
* Monitoring of process effectiveness, implementation of process improvements.1
Tools
* Evaluation of project tools required to support chosen management and
technical methods
* Selection, implementation and administration of project tools. Tools to be
considered include:
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Process Management
Estimating
Risk Management
Project Management
Prototyping
Requirements Definition
Technical Analysis and Design
Code Generation
Code Library Generation and Maintenance
Data Base Managers
QA (Test Management, Reviews, Inspections, Audits)
Configuration Management
Document Control
Incident Reporting, Tracking and Resolution
*
Product Installation1
Phases of Project Management
The Project Management Life Cycle naturally breaks into three major phases Project Planning and Initiation, Project Execution and Control, and Project Closure. These are described briefly below.1
68
Project Planning and Initiation
This phase includes important planning, organization and administration tasks.
The phase begins when authorization is given by management to formally start
a new project. In order to start this phase, the necessary up-front business planning and cost justification analysis that occurs in the Business Analysis Phase of
the Product Development Life Cycle (PDLC) should have taken place and been
approved by management. The key deliverables from the Business Analysis Phase
- the beginning Project Charter and product functional requirements - should be
available as input into this phase.1
The key to project success is the adequate planning of the project. The planning
tasks include the definition of project scope, deliverables and constraints (what
will be done), the selection of management and technical methods that will be
used (how it will be done), the definition and organization of the project team
(who will do it), the estimation of effort and resources required (how much it will
cost), and the determination of project milestones and schedules (when it will be
done). This project planning foundation has to be laid to ensure the success of the
project execution. The planning information will be documented in the key deliverable of this phase - the Project Charter. The Project Charter is reviewed and
approved by the designated participants before the project team is formed and
the project is initiated. After approval of the Project Charter, the project team is
formed and the project is initiated.1
Project Execution and Control
This phase is primarily focused on carrying out the project plans documented in
the Project Charter. All of the work required to define, design, construct, test and
deploy the product is done during this PMLC phase. Successful project execution
will require the use of the management and control methods identified in this
phase.1
The primary purpose of project management during this phase is to monitor,
69
evaluate and communicate project progress and to define and implement corrective measures if progress does not meet the expectations defined in the Project
Charter. These include expectations for product functionality, performance, quality, cost of development, and development/deployment schedules. Project issues,
problems and change requests have to be identified, evaluated and resolved. These
have to be communicated to all project team members (organizational technical
and management, and contractors) involved in evaluating and resolving them.
Improvement measures may be applicable to individual project teams, working
environments, processes and tools.1
Organizational Product Development Process methods employed during this
phase include those for Project reporting, Verification and Validation, Risk Management, Configuration Management, Document Control, Project and Product
metrics, Contractor Management, Project Estimation, Project Scheduling, Tools
Evaluation and Acquisition, peer Reviews, Audits, Incident Tracking, Reporting
and Resolution, Time Management, and Cost Management.1
The Project Charter continues to serve as the primary communication vehicle for
project plans and progress. It is a dynamic document during this phase and is updated when necessary to reflect changes in project scope, constraints, deliverables,
and progress.1
Project Closure
The primary purpose of this phase is to administratively close down the project
and to evaluate how effective the project execution was. Administrative closure
includes the updating of project metrics, cleanup and archiving of all project documentation, libraries and repositories, and the release of project resources.2
Evaluation of project effectiveness includes a Project Post-Mortem evaluation.
The purpose of the evaluation is to determine “what went right” (and to carry this
forward to other projects), “what went wrong” (and to keep it from happening
again), and what was produced that may be reusable by other projects. This evaluation serves as a primary improvement vehicle for all organizational projects. A
Project Post-Mortem Report is generated that contains evaluation findings and
70
other projects), "what went wrong" (and to keep it from happening again), and what was
produced that may be reusable by other projects. This evaluation serves as a primary
recommended actions.2 Life cycle costing is a technique which takes account of
improvement vehicle for all organizational projects. A Project Post-Mortem Report is
the total cost of making a product or owning a physical asset, during its economic
generated that contains evaluation findings and recommended actions.2 Life cycle costing
life. The production and sale of many products follow a cycle over their economic
is a technique which takes account of the total cost of making a product or owning a
lives. Normally,
start outlife.
slow,
rapidly
as of
themany
product
is popularised
physical
asset, duringsales
its economic
Theexpand
production
and sale
products
follow
off rapidly
as aNormally,
better product
becomes
available
or a new
product
a and
cyclethen
over drop
their economic
lives.
sales start
out slow,
expand rapidly
as the
emerges
in the market.
Therefore,
takes
a number
of available
years (accountproduct
is popularised
and then
drop off each
rapidlyproduct
as a better
product
becomes
or
to complete
cycle.Therefore,
The figure
given
below
shows
through
different
a ing
newperiods)
product emerges
in thethe
market.
each
product
takes
a number
of years
(accounting
periods)
to complete
the too
cycle.
figurephases.
given The
below
showsofthrough
phases in the
life cycle,
a product
hasThe
similar
length
the product
2 of the
different
in thebylife
a product
too has similar
phases.
length
cycle isphases
governed
thecycle,
rate of
(a) technological
change
(b) The
market.
product
cycle is governed by the rate of (a) technological change (b) market.2
S
A
L
E
S
&
P
R
O
F
I
T
(Rs.)
RECYCLE
III
IV
II
PROFIT
I
Figure 4. Product Life Cycle Curve2
Figure 4. Product Life Cycle Curve2
State I Introduction (childhood)
II
Growth (Adulthood)
State I Introduction
(childhood)
III
Maturity (Manhood)
IIIV Growth
Decline(Adulthood)
(Old age and death)
III Maturity (Manhood)
Acceptance
IV Decline
(Old age and
and (c) competition.
By death)
and large, consumer products have shorter life
cycle than basic industry goods which have a longer life cycle. The product life cycle
concept is a and
very (c)
useful
concept in sales
forecasting,
planning andproducts
control ashave
current
Acceptance
competition.
By and
large, consumer
shorter
2
company
products
cannot
hold the
market
position
life
cycle than
basic
industry
goods
which
haveindefinitely.
a longer life cycle. The product life
cycle concept is a very useful concept in sales forecasting, planning and control as
The concept of life cycle costing involves:
current company products cannot hold the market position indefinitely.2
The concept of life cycle costing involves:
69
(a) identify product life cycle and estimating number of units to be produced
per period over the life cycle of the product;
71
Life cycle costing --- introduction
(b) estimating the costs involved for the same; and
Life cycle(c)
costing
can apply to products, services, customers, projects or assets and,
determining the average cost of production over the product life.2
as its name implies, it cost the cost object over its projected life. The aim is to adopt a
cyclewill
costing
--- introduction
policy Life
which
maximize
the return over the cost object’s total life. To a certain
extent capital budgeting attempts to de this but often a project’s complete life is not
Life cycle costing can apply to products, services, customers, projects or assets
coasted as a cut off time is used. For example any inflows after year 5 to 10 are
and, as its name implies, it cost the cost object over its projected life. The aim is to
ignored because they are assumed to be too uncertain or insignificant. More
adopt a policy which will maximize the return over the cost object’s total life. To a
importantly,
capital
budgeting
techniques
simply
project
expected
costs and
certain normal
extent capital
budgeting
attempts
to de this
but often
a project’s
complete
revenues
order
to make
an off
assessment
of For
profitability
in inflows
advanceafter
of year
the project.
life in
is not
coasted
as a cut
time is used.
example any
5
are ignored
they are assumed
too uncertain
or insignificant.
They to
do10not
attempt because
to maximize
profit byto be
minimizing
costs
and maximizing
More importantly, normal capital budgeting techniques simply project expected
revenues over the life cycle by applying planning and control techniques. This
costs and revenues in order to make an assessment of profitability in advance of
deliberate attempt to maximize profitability is the key to life cycle costing.2
the project. They do not attempt to maximize profit by minimizing costs and max-
Projecting
costs
and over
revenues
theapplying
cost object’s
life control
span runs
counter to
imizing
revenues
the life over
cycle by
planning and
techniques.
traditional
accounting,
which
up costs
and revenue
into
time
periods
– a2 month,
This deliberate
attempt
to chops
maximize
profitability
is the key
to life
cycle
costing.
and revenues
over theofcost
life span runsofcounter
to
a yearProjecting
etc. Thiscosts
prevents
consideration
theobject’s
total profitability
an individual
accounting,
chops the
up costs
revenue
into
timeIfperiods
–
producttraditional
or service
and doeswhich
not allow
total and
picture
to be
seen.
a snapshot
is
a month, a year etc. This prevents consideration of the total profitability of an
taken on one particular day an organization will have a number of different projects,
individual product or service and does not allow the total picture to be seen. If
products, customers, etc all of which have different life span : see Figure 5.
a snapshot is taken on one particular day an organization will have a number of
different projects, products, customers, etc all of which have different life span: see
Figure 5.
P4
P3
P2
P1
1
2
3
4
Figure 5. Time period -- years2
72
70
The important of life cycle costing lies in the consideration of the whole life cycle.
2
Figure
5. Time and
period
-- years
When viewed as a whole cost
reduction
minimization
opportunities as well
as revenue extension opportunities will present themselves. These are unlike to be
The important of life cycle costing lies in the consideration of the whole life cycle.
found when management is focusing on maximising profit on a period by period
When viewed as a whole cost reduction and minimization opportunities as well as
basis.1
revenue extension opportunities will present themselves. These are unlike to be found
when management is focusing on maximising profit on a period by period basis.1
The old adage, time is money, still holds true. The management of time is parThe oldimportant
adage, time in
is money,
holds true.
The management
of time is particularly
ticularly
lifecyclestill
costing
if profit
is to be maximized.
An increase
in lifecycle
costing if profit
is causes
to be maximized.
An in
increase
in atime
during in
in important
time during
the development
stage
an increase
cost or
decrease
the development
increase inincost
or a Time
decrease
in revenue,
whichfactor
in
revenue,
which in stage
turn causes
causes an
a reduction
profit.
is often
the causal
causes a in
reduction
in profit.anTime
is often
the causal
factorthe
ofeffect
a reduction
in if
of turn
a reduction
profit whereas
increase
in costs
is merely
or result
2
whereas
an increase
in costs is merely the effect or result if an increase in time.
2
anprofit
increase
in time.
2
This
sectionwill
will look
lifelife
cycle
costing
for products
and customers.
This
section
lookspecifically
specificallyat at
cycle
costing
for products
and custom-
ers.2
Product life cycle costing
Product life cycle costing
All product have a life cycle chart that looks something like Figure 6 In reality the
time span may be only a few months or years, as in the case of novelty products
All product have a life cycle chart that looks something like Figure 6 In reality the
and
toys, or it may last for more than 100 years, as in the case of products such as
time span may be only a few months or years, as in the case of novelty products and
2
binocular
marmite.
toys, or and
it may
last for more than 100 years, as in the case of products such as
binocular and marmite.2
£’000
2
4
6
8
10
12
14
Figure 6. The product life cycle2
Figure 6. The product life cycle2
71
73
are incurred initially, followed by a profit that gradually tapers off once the product
enters its maturity stage.
Figure 6 shows a product that has a research and development stage prior to the
commencement of production in year 4 when revenue begin to be generated.
Figure
a product
thatbyhas
several
differenttapers
life cycle;
Losses7 areillustrates
incurred initially,
followed
a profit
that gradually
off oncethe
the original life
product
maturity because
stage. the organization found new uses for the product.
cycle
has enters
been its
extended
One of the classic examples of this is the manufacture of nylon, which was developed
Figure 7 illustrates a product that has several different life cycle; the original life
just before the Second World War. Its first use was in parachutes for the armed force,
cycle has been extended because the organization found new uses for the prod-
its uct.
nextOne
useofwas
in ladies’
stockings,
was followed
bywhich
car tires
the classic
examples
of this isand
thethis
manufacture
of nylon,
was carpets and
2
developed
just before the Second World War. Its first use was in parachutes for the
clothes.
armed force, its next use was in ladies’ stockings, and this was followed by car tires
carpets and clothes.2
£’000
Figure 7. Extending the product life cycle time2
Figure 7. Extending the product life cycle time2
Figure 8 highlights the danger of product proliferation, when products are update or
Figure 8 highlights
the danger
of product
when
products
are update
superseded
too quickly,
the product
lifeproliferation,
cycle is cut
short
so that
the product hardly
or superseded too quickly, the product life cycle is cut short so that the product
has time to generate a profit. The product barely covers the R & D costs before its
hardly has time to generate a profit. The product barely covers the R & D costs
2
successor
launched
on the market.
before itsissuccessor
is launched
on the market.2
£’000
Sales revenue
74
superseded too quickly, the product life cycle is cut short so that the product hard
has time to generate a profit. The product barely covers the R & D costs before
successor is launched on the market.2
£’000
£’000
Sales revenue
profit
Figure 7. Extending the product life cycle time2
Figure 8. Product life cycle when product proliferation occurs2
Figure 8 highlights the danger of product proliferation, when products are up
superseded too quickly, the product life cycle is cut short so that the product
There
aretoa number
need
to be managed
in orderthe
to maximise
a
has
time
generateof afactors
profit.that
The
product
barely covers
R & D costs
be
product’s returns
over itson
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These2 are:
successor
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market.
• £’000
maximize the length of the life cycle itself.
•
design costs out of the product
•
minimize the time to market
•
manage the product’s cash flows.2
Sales revenue
Generally the longer the life greater the profit that will be generated, assuming
that production ceases one the product goes into decline and becomes unprofitable. One way to maximizes the life cycle is to get the product to market as quickly
as possible because this should maximise the time in which the product generates
a profit. This is discussed below 4.11 illustrates another way of extending a product’s life , by finding other uses, or markets, for the product. Other product uses
may not be obvious when the product is still in its planning stage and need to be
planned and managed later on. On the other hand, it may be possible to plan for
a staggered entry into different markets at the planning stage. Many organisations
stagger the launch of their products in different world markets in order to reduce
75
costs, increase revenue and prolong the overall life of the product. A current example is the way in which new films are released in the USA months before the
UK launch. This is done to build up the enthusiasm for the film and to increase
revenues overall. Other companies may not have the funds to launch world-wide
at the same moment and may be forced to stagger it.2
Skimming the market is another way to prolong life and to maximise the revenue
over the product’s life. This was discussed in the chapter in pricing.2
Design costs out of the product
It was stated earlier that between 80 per cent and 90 per cent of a product’s costs
were often at the design and development stages of its life. This is decision made
then committed the organization to incurring the costs at a later date, because
the design of the product determines the number of components, the production
method, etc. it is absolutely vital therefore the design teams do not work in isolation but as part of cross-functional team in order to minimise costs over the whole
life cycle.2
Minimise the time to market
In a world where competitors watch each other keenly to see what new products will be launched, it is vital to get any new product into the market place as
quick as possible. The competitors will monitor each other closely so that they
can launched rival products as soon as possible in order to maintain profitability,
it is vital, therefore, for the first organisation to launch its product as quickly as
possible after the concept has been developed, so that it has as long as possible to
establish the product in the market and to make a profit before the rival’s product
is launched. Often it is not so much costs that reduce profit as time wasted. A Mckinsey study revealed that if a product was launched six months behind schedule
33 per cent of after-tax profit was lost if on the other hand product development
cost 50 per cent more than planned, profits reduce by just 3.5 per cent. All new
product development should have a planned time to market and events should be
monitored closely to make sure that the planned timing is adhered to. This can be
done using Gantt charts. Nowadays simultaneous engineering is often used in the
planning, development and testing stages, which allows for several activities to be
76
performed at the same time rather than sequentially, thus speeding the product on
to the market. Alternatively cross-functional development teams, which operate
simultaneously, are used to shorten the time to market.2
Manage the product’s cash flows
In order to manage the life cycle of their products Hewlett-Packed developed
what they termed the return map. House & Price (1991) describe how this was
developed in order to minimize the time to market and to maximize the return
over the product’s life cycle. It was developed to help employees focus on the issue
profit over time. This y-axis is the measurement of money and is normally drawn on a
of developing products that would make the most profit in the least time. The relogarithmic scale to capture cumulative sales and investment adequately.2
turn map measures both money and time (see Figure 9), and plots the cumulative
The return map measures several key time periods, the first of which is the time to
investment, sales and profit over time. This y-axis is the measurement of money
market (TM). Other key measures that are shown on the chart in Figure 5 are
and is normally drawn on a logarithmic scale to capture cumulative sales and inbreakeven time (BET), breakeven time after release (that is after the product is
vestment adequately.2
launched) (BEAR), and return factor (RF), which is the excess of profit the
investment.2
The return map measures several key time periods, the first of which is the time
to market (TM). Other key measures that are shown on the chart in Figure 5 are
breakeven time (BET), breakeven time after release (that is after the product is
launched) (BEAR), and return factor (RF), which is the excess of profit the investment.2
100
sales
Cumulative
costs &
revenues
£’000
profit
10
(RF)
investment
1
(MR)
(BEAR)
Concept
6
(TM)
Development
12
Time
Manufacturing-sales
18
24
30
Manufacturing release
2
Figure
9.The
Thereturn
returnmap
map
2
Figure 9.
House & Price (1991) recount the history of the ultra-second machine that had a time
77
to machine (TM) of nine months when the product was proposed. Two months into
House & Price (1991) recount the history of the ultra-second machine that
had a time to machine (TM) of nine months when the product was proposed. Two
months into the project’s development Hewlett- Packard ad breakthrough in technology that would give clear pictures. The management decided to incorporate
this, and so the TM was extended by four months despite the fact that the return
map showed that the return factor would reduce slightly.2
Customer Life cycle costing
Not all investment decisions involve large initial capital outflows or involve the
Not all investment decisions involve large initial capital outflows or involve the
purchase of physical assets. The decision to serve and retain customers can also be a
purchase of physical assets. The decision to serve and retain customers can also be
capital budgeting decision even through the initial outlay may be small. For example a
a capital budgeting decision even through the initial outlay may be small. For ex-
credit card company or an insurance company will have to choose which customers
ample a credit card company or an insurance company will have to choose which
they take on and then register them on the company’s record. The company incurs
customers they take on and then register them on the company’s record. The com-
initial costs due to the paperwork, checking creditworthiness, opening policies, etc.
pany incurs initial costs due to the paperwork, checking creditworthiness, open-
For new
It For
takes
some
time before
these
initial
recouped.
ingcustomers.
policies, etc.
new
customers.
It takes
some
timecosts
beforearethese
initial costs
3
Research
also shown
to the company.
arehas
recouped.
Research
has also shown to the company.3
Net cash flow
generated by
customer
£
1,000
500
1
2
3
4
5
6
Years
7
8
Figure 10. Customer Life cycle costing3
Figure 10. Customer Life cycle costing3
Figure 10 shows this and that customers become more profitable year after year. Thus
78 important to retain customer, whether by goods service, discounts. Other
it becomes
Figure 10 shows this and that customers become more profitable year after year.
Thus it becomes important to retain customer, whether by goods service, discounts.
Other benefits, etc. A customer’s life can be discounted and decisions made as to
the value of, say, a five-year-old’ customer. Eventually a point arise where profit no
longer continues to grow; this plateau is reached between about 5 years and 20
years depending on the nature of the business. Therefore by studying the increase
revenue and decreased costs generated by an ‘old’ customer, management can find
strategies to meet their needs better and to retain them.3
Many manufacturing companies only supply a small number of customers, say
between six and ten, and so they can cost customers relatively easily. Other companies such as banks and supermarkets have many customers and cannot easily
analyse every single customer. In this case similar customers are grouped together
to from category types and these can then be analyzed in terms of profitability.
For example, the UK banks analyze customers in terms of fruits, such as oranges,
lemons, plums, etc. Customers with large mortgages, for example, are more valuable to bank than customers who do not have a large income and do not borrow
money. Banks are not keen on keeping the latter type of customer.3
The cost per unit varies significantly from year to year because of the impact of
fixed cost on production. But if life cycle costing is followed the cost of the product over its life cycle would be as follows irrespective of fluctuations in production
(demand) from year to year.3 79
cost on production.
But
if life
cycle
costing is from
followed
costbecause
of the product
over itsof fixed
The cost per
unit
varies
significantly
year the
to year
of the impact
life cyclecost
would
be as follows
of fluctuations
production
on production.
But ifirrespective
life cycle costing
is followedinthe
cost of the(demand)
product over its
from yearlife
to year.
cycle3 would be as follows irrespective of fluctuations in production (demand)
QUESTION AND DISCUSSION:
from year to year.3
QUESTION AND DISCUSSION:
Summarise
the product
cycle (PLC) characteristics and state how the PLC
QUESTION
ANDlife
DISCUSSION:
Summarise the product life cycle (PLC) characteristics and state how the PLC concept
concept is used by marketing manager product and market dynamics.
productproduct
life cycle
characteristics
is used bySummarise
marketingthe
manager
and(PLC)
market
dynamics. and state how the PLC concept
is used by marketing manager product and market dynamics.
Answer:
The wise
stagecharacteristic
wise characteristic
can be summarised
Answer:
The stage
can be summarised
as follows : as follows:
Answer: The stage wise characteristic can be summarised as follows :
Sales
Maturity
Decline
Maturity
Decline
Introduction
Sales
Introduction
Growth
Growth
Time
Time
S T A G E S
S T A G E S
Low
Sales
Rapidly
Peak
Low Rising
RapidlySales
Sales Sales
Rising
Sales
Peak
Sales
Declining
Sales
Sales
Declining
Sales
High Cost
Average
Low cost
Low cost
Cost
High Cost
Low cost Per
Low cost
Per
Cost per Average
Per
Customer Per Customer Cost per
CustomerPer
CustomerPer
Customer
Customer
Customer
Customer
Negative
Rising
Profit
High
Profit
Decline
Profit
Sales
Cost
Profits
77
Innovators
Early
Adopters
Middle
Majority
Few
Growing
Number
State Number
Uses of the Product Life Cycle :
Laggards
Customer
Declining
Number
beginning
Decline
Competitors
to
Uses of the Product Life Cycle :
⇒ as a Planning tool, it characterises the marketing challenges in each stage and
poses major alternative strategies.
▶ as a Planning tool, it characterises the marketing challenges in each stage and
⇒ major
as a Control
tool, strategies.
the launched PLC concept allows the company to measure
poses
alternative
product performance against similar products launched in the past.
80
⇒ as a Forecasting tool, it is less useful because sales histories exhibit diverse
patterns and the stages vary in duration.
77
▶ as a Control tool, the launched PLC concept allows the company to measure
product performance against similar products launched in the past.
▶ as a Forecasting tool, it is less useful because sales histories exhibit diverse
patterns and the stages vary in duration.
REFERENCES
The context of this part has been adapted from the following product(s):
1.Project management life cycle. Access via Internet: www.heinsights.com/
sitebuildercontent/sitebuilderfiles/pmlifecy.doc
2.Performance management: managerial level. Access via Internet: https://
books.google.lt/books?isbn=1856177793
3.Management accounting decision management. Access via Internet: https://
books.google.lt/books?isbn=0750680474
FURTHER READING
1.Edward, J. and William J. (1963): Fundamentals of Marketing; NewYork,
Mc Graw- Hill, Inc.
2.Cunha, Luciano. “Making PLM and ERP work together” (PDF). onwindows.com. p. 18. Retrieved 25 February 2012.
3.Hill, Jr., Sidney (May 2003). “How To Be A Trendsetter: Dassault and IBM
PLM Customers Swap Tales From The PLM Front”. COE newsnet. Archived
from the original on 13 February 2009. Retrieved 25 February 2012.
4.Karniel, Arie; Reich, Yoram (2011). Managing the Dynamic of New Product Development Processes. A new Product Lifecycle Management Paradigm.
Springer. p. 13. ISBN 978-0-85729-569-9. Retrieved 25 February 2012.
5.Day, Martyn (15 April 2002). “What is PLM”. Cad Digest. Retrieved 25 February 2012.
81
Part 4
Marketing strategies used in product lifecycle phases
Objective outline:
1.Explain company – wide strategic planning and its four steps.
2.Discuss how design business portfolios and develop growth strategies.
3.Explain marketing’s role in strategic planning and how marketing works
with its partners to create and deliver customer value.
4.Describe the elements of a customer – driven marketing strategy.
Chapter Eleven Glossary
Marketing management - the process allocating the resources of the organization
toward marketing activities
Marketing plan - a document that describes the activities leading to customer
satisfaction the organization anticipates intends to engage in a coming time period,
usually one-year.
The Meaning of the terms Marketing Manager and Marketing Management
Traditionally if a person had the title of “manager,” it meant that s/he had responsibility for helping guide the activities of at least some number of employees.
While this terminology has changed over the years, we still consider someone
who has the title of ‘manager’ to be responsible for overseeing the allocation of
resources for the organization. For example, as an ‘individual contributor’ I might
have the responsibility of performing certain work (for example, writing marketing literature for the firm’s products), but not be responsible for the activities of
anyone other than myself. In high technology industries, the word manager is
often replaced with “Director” to indicate that a person has primary responsibility for a certain organizational function. For example, the ‘marketing director’
may be responsible for all marketing activities in the firm. At other firms, the
term ‘marketing manager’ would be used to describe the same thing. In some
organizations, the Vice-President of Marketing may perform the same functions.1
The term Product Manager is often used in high technology industries to assign
82
responsibility to a specific individual or group for the successful supervision of all
marketing activities related to a specific product or service. Sometimes the product manager’s responsibility is defined in terms of the product s/he is overseeing
and sometimes the responsibility is defined in terms of a specific technology. For
example, one high-tech firm might use the title of Product Manager-Digital Systems to describe the job of the person who is responsible for digital versus analog
customer solutions. This brings up still another consideration. The use of titles
varies across industries and size of organizations. We will discuss how different
firms organize the marketing function in a later chapter.1
What is marketing management?
We will use the following definition of marketing management: “Marketing
management is the process allocating the resources of the organization toward
marketing activities.” Thus, a marketing manager is someone who is responsible
for directing expenditures of marketing funds. Related to the term ‘management’
is the term ‘strategy.’ Many words in the vocabulary of business management were
taken from the field of military science. For example, the word ‘strategy’ has been
used in the military for many decades to indicate a long-term commitment of
resources toward accomplishing a certain goal. Thus it is often said that management
is responsible for conceptualizing strategies, and other employees are responsible
for implementing those strategies. The time-honored Management-by-Objectives
programs in which a supervisor will formulate strategies and other employees will
choose the method of reaching those objectives is an example of this relationship
in action. As the reader can see, a discussion of ‘strategy, objectives, and goals’ can
very quickly develop into a miasma of terms and confusion. Thus, we will use the
following definitions. First, we will consider goals and objectives to be identical
terms. Second, we will use the term ‘objective’ to refer to a broad-based design of
where the organization would like to be at some point in the future. For example,
as an objective, the organization might decide to be the ‘leader in product quality as
judged by customer surveys of our organization and our five leading competitors.’
We will define the term ‘strategy’ as a method used to reach an objective. For
example, to reach our product quality objective, our organization might decide
83
to enroll in a ‘total quality program’ offered by most large consulting firms. Thus,
strategy will have two meanings. First, it is the overall orientation an organization
choosing to allocate its resources, and second, strategy is a specific action used to
implement plans. Thus, there is a two-tiered nature to strategy. One at the top, as
a broad guide to preferred action, and one below helping to implement objectives.
Use ‘strategy’ as a keyword search on the internet and see what you find.2
In marketing, we often use the ‘four P’s’ to designate the areas of control a marketing manager has at his/her command. The ‘four P’s’ as you probably already
know are: Product, Price, Promotion, and Place. The ‘four P’s’ represents a convenient way to summarize the main factors involved in any ‘marketing strategy.’
However, seen in a contemporary sense, the four P’s may mistakenly be limited to
downstream marketing activities only and as Chapter One indicates, there are also
upstream marketing activities that are related to the marketing mix.2
The Marketing Management Cycle
The planning cycle is composed of five basic steps. First, planning is the process
of examining and understanding the surroundings within which the organization
functions. For example, “environmental scanning” is the process of studying and
making sense of all the things that might impact the firm’s operation that are external to the firm. This would include studying and gaining an understanding of
such things as: competition, legislation and regulation, social and cultural trends,
and technology. Both present and developing trends in each of these areas must
be identified and monitored.2
Second, Implementation is the process of putting plans that have been made into
action. It is the transition from expected reality to existing reality.2
Third, Monitoring is the process of tracking plans and identifying how plans map
to changes that take place during program operation when more information is
acquired. Correction is the stage in which we take action to return our plan to
the desired state based on feedback obtained in the monitoring stage. If we find
that return to the planned state is not practicable, we may adjust our planning
outcomes. Thus, Monitoring and Correction may be considered two stages because after plans are put into action, one must continually monitor performance
and make adjustments to the plan based on the feedback gathered through these
84
monitoring activities. In summary, the marketing management cycle composed
of planning, implementing, monitoring, and correcting. We use the use the term
‘PIMC’ as a device to remember the stages.2
An example of the marketing management cycle in action:
Let’s Get It Together Family Organization Services2
The organizational mission of this service firm is: “We provide families with means
to improve their peace of mind and quality of life.” Representatives of the firm
meet with families, question them to understand how the family operates at present, do an on-site ‘activities audit’ that models patterns of daily life for the family,
and then offer suggestions about how the family can be better organized and more
efficient in its use of time. Let’s Get It Together is owned and operated by a mother
of three children. After conducting several informal focus groups, she decided
to start this business because she realized that her family and most other families
she observed lived in a state of chaos. After attending a seminar on creativity and
innovation, she decided that there was a real need in the marketplace for a notfor-profit educational institution to pass along all of the knowledge families have
about how to manage their household activities more effectively.
After she came up with the idea, the owner realized that she must get organized
herself, thus based on the “Five W’s and H Technique” (Who, What, Where, When,
Why, and How) she composed the following questions:
What will the customer satisfaction entail, that is, what are the needs I am trying
to meet?
Who will receive customer satisfaction?
Why will my organization deliver this particular customer satisfaction?
Who will deliver customer satisfaction?
Where will I deliver customer satisfaction?
When will I deliver customer satisfaction?
How will I deliver customer satisfaction?
The owner then modeled the marketing management cycle as follows:
Planning: First answer the seven questions I have formulated.
85
Answers to questions:
Question # 1: What will the customer satisfaction entail, that is, what are the needs
I am trying to meet?
Answer: Provide easy-to-follow guidance on improving family organization
Question # 2: Who will receive customer satisfaction?
Answer: Families who perceive a need for being better organized
Question # 3: Why will my organization deliver customer satisfaction?
Answer: First, there is a already perceived need to be better organized. Second,
there are ways to fulfill that need that are not being provided to families.
Question # 4: Who will deliver customer satisfaction?
Answer: Let’s get it together, through a small staff of highly trained and ethical
individuals, will provide this service to families
Question # 5: Where will I deliver customer satisfaction?
Answer: The service will be provided through small introductory seminars and
through meetings in the homes of the families, if preferred.
Question # 6: When will I deliver customer satisfaction?
Answer: Customer satisfaction will start with the first seminar and continue
through a continuing association with Let’s get it together.
Question # 7: How will I deliver customer satisfaction?
Answer: Through a personal and caring approach with my clients involving
seminars and continuing personal contacts
If you review the seven questions, and the answers above, you can see that some of
the planning has been done. What remains is to identify specific actions that must
take place to ensure success such as identifying the characteristics of the best candidates for our service, creation of the service materials (seminar materials, etc.)
and details of the logistics by which the service will be promoted and provided.
A brief example of one aspect of this organization’s marketing planning is:
“We will provide seminars that last one-half day to families who perceive the need
for help in organizing their activities, thus we must identify likely places to offer
these seminars. We have obtained a list of community centers, where space is provided free-of-charge for such activities, and will offer our seminars there, initially.
86
However, we may change that approach after initial seminars are offered (monitoring and correction) and move our seminars to more centrally located sites such
as hotels and churches.”
The business plan is an overall blueprint for the anticipated activities for the organization over a coming time period, usually one-year (short term) or five-year
(long-term). We should mention that many businesses are moving their long term
planning periods to ten years and beyond in order to better prepare for the future.
These businesses often make use of creativity techniques to attempt to outline
what changes may occur in their respective environments and how the organization should respond to those changes.
The Marketing Plan
To formulate effective marketing programs an organization needs to create and
follow a marketing plan. A marketing plan is a document that describes the activities in which the organization intends to engage in a coming time period, usually
one-year. However, there are often situations in which an organization will have a
medium-term marketing plan (two to five years) and a long-term marketing plan
that covers plans for a five-year period or greater.2
While there are many different approaches to preparing a marketing plan, the following conditions should exist:
1.those who do the plan are responsible or accountable for the plan’s implementation
2.this same group is committed to the plan’s success
3.management is committed to the plan’s success and is willing to expend the
necessary resources for its implementation
4.the marketing plan is created in the context of the organization’s overall
business plan
5.people in the organization share a similar orientation to the marketing function.2
If these five conditions are met, the organization is much more likely to be able to
successfully create and implement its marketing plan.2
An example for the marketing is as follows:
1.Executive summary (a one-page to two-page overview of the contents of the
plan)
87
2.Vision for the marketing plan (a paragraph that briefly describes the aspirations for the coming time period and the theme of the plan)
3.SWOT analysis outlining the strengths and weaknesses (internal to the organization) of the organization and the opportunities and threats (external to
the organization) that the organization faces.
4.Description of market/customer types and products/services that will provide satisfaction to those markets and customers
a. Market grid of markets and customers
b. Product/service positioning strategy
5.Marketing objectives for the coming period (objectives should be “SUMAC”
or specific, understandable, measurable, attainable, and consistent)
6.Description of marketing programs with timeline (a calendar of major marketing events planned, with a description of each event)2
This outline should be combined with the PIMC model described earlier in the
chapter. The PIMC serves as a good guide for on-going implementation of the
marketing plan.2
While the outline above is simplified, it touches on the critical areas for a marketing plan. It is important to point out, however, that a plan is only as good as its
implementation, thus, it is usually better to have a poor plan and good implementation than a great plan that never gets implemented.2
The Advertising Life Cycle
It is important to consider what point of the cycle the product is in.
Initially, a new product enters a pioneering stage, which is an introductory stage.
During this stage the intent is to introduce ideas and educate the consumer as to
the new product/service. There is heavy advertising and promotional expenses
required during this stage to create awareness. Usually the product is not usually
profitable during this stage as the research and development costs still need to be
off-set.2
It is during the competitive stage that the product reaches usefulness but not until
88
the benefits over other brands must be established. Most advertising for the product occurs during this stage.2
The final stage, the retentive stage, attempts to retain patronage merely on the
strength of reputation. Little, or reminder, advertising is used. Many products
stay in this stage for years (i.e., Morton’s Salt, Rumford Baking Powder).2
At the end of the retentive stage a product may have passed its market life and die
or may lose market share but still remain profitable or enter a newer pioneering
stage and expand the market. This may be done by product modification or by
simply using new advertising. Think of how Bayer aspirin entered a new pioneering stage when the advertising stressed the value of the aspirin in preventing heart
attacks and strokes. The product was not changed but the message was. Hence it
is not necessary to change a product to enter a new pioneering stage.2
A newer competitive stage focuses on purchasing intent and a newer retentive
stage relies on existing prestige to keep customers. The stage that the product is in
dos not have to do with time but rather what the consumer attitude and perception is at that point in time. Creating brand awareness is a popular advertising
objective as it is an indicator of consumer knowledge about the existence of the
brand.2
Strategic brand planning has to do with developing the brand identity. Product
differentiation began in the last quarter of the 19th century with Levi’s branding in
1873, Budweiser in 1876, Coca-Cola in 1886. The brand is the most valuable asset
a marketer has and it is created, where as a product is manufactured. A product
may change, but the brand remains. The brand is a durable identity.2
The Inner Brand is a tangible asset that no other brand owns and could include
the package graphics, logo or even color (i.e., Coca Cola red, Pepsi blue, Avis red,
Hertz yellow),all of which establish an image.2
A brand has both a rational (content and theme of the brand’s communication
and are the most visible part of the brand) and also emotional elements (how the
brand is expressed through the style, tone and less visible elements). Interestingly
in supermarkets 81 of the top 100 items purchased are branded and in pharmacies
92 are branded.
A customer will repeatedly use a brand it if continues to suit their needs, however
needs do change. Integrated communications refers to an approach in which all
89
messages directed to a consumer on behalf of a brand (i.e., media advertising,
public relations, direct response). It is aimed at building brand equity, that is the
value that the consumer feels about the brand in relation to the competition.2
Master brands compete across product segments within a category (i.e. Crest
toothpaste, toothbrushes, tooth strips, mouthwash). Global brands compete on a
global basis (i.e., Coca-Cola). To do so, the company must be conscious of local
attitudes and cultural differences. Some amazing mistakes have been made by
global companies – amazing because these companies spend enormous amount
of money to enter international markets and yet.2
Gerber began selling baby food in Africa, and was using the same packaging that
they used in the USA – that of a baby on the label. It was not until later that
Gerber’s discovered that in Africa, companies often placed pictures on the label
of what was inside since many African consumers can not read. GM brought the
Chevy Nova into South America and did not realize that “no va” in Spanish means
“won’t go. When the car was not selling, the company changed the name to Caribe in its Latin markets.2
New Product Diffusion Models
Diffusion of innovations is a theory that seeks to explain how, why, and at what
rate new ideas and technology spread through cultures. Everett Rogers, a professor of communication studies, popularized the theory in his book Diffusion of
Innovations; the book was first published in 1962, and is now in its fifth edition
(2003).3 Rogers argues that diffusion is the process by which an innovation is
communicated through certain channels over time among the participants in a
social system. The origins of the diffusion of innovations theory are varied and
span multiple disciplines. Rogers proposes that four main elements influence the
spread of a new idea: the innovation itself, communication channels, time, and a
social system. This process relies heavily on human capital. The innovation must
be widely adopted in order to self-sustain. Within the rate of adoption, there is a
point at which an innovation reaches critical mass. The categories of adopters are:
innovators, early adopters, early majority, late majority, and laggards.4 Diffusion
manifests itself in different ways in various cultures and fields and is highly subject
to the type of adopters and innovation-decision process.
90
The diffusion process is the spread of an idea or the penetration of a market by
refersfrom
to theitsdecision
to creation
use an innovation
regularly,
diffusion
is
aadoption
new product
source of
to its ultimate
userswhereas
or adopters.
Note
4
onlyadoption
concernedrefers
with initial
of the to
product.
that
to thetrial
decision
use an innovation regularly, whereas diffu-
sion is only concerned with initial trial of the product.4
There are two types of diffusion effects:
•
Innovation:
trial of product caused by advertising and promotions
There are two types of diffusion effects:
Innovation:
of product
caused
advertising and
promotions
• •
Imitation:
trial trial
of product
caused
bybyword-of-mouth
recommendations
and
4
•reputation.
Imitation:
trial of product caused by word-of-mouth recommendations and
reputation.4
Prior to Bass (1969), diffusion models were either pure innovative (assume diffusion
Prior to Bass (1969), diffusion models were either pure innovative (assume difonly caused by external forces) or pure imitative (assume diffusion only caused by
fusion only caused by external
forces) or pure imitative (assume diffusion only
5
imitation / word of mouth). The Bass model combines innovative and imitative
caused by imitation / word of mouth).5 The Bass model combines innovative and
behavior into one model:
imitative behavior into one model:
q
n(t ) = N&(t ) = p(m − N (t )) + N (t )(m − N (t ))
m
innovation
effect
or
external
influence
imitation
effect
or
internal
influence
where:
n(t ) = N&(t )
= Magnitude of trial demand (= the number of adopters at time t =
N (t )
derivative of N with respect to t)
= Cumulative number of adopters
p
= Potential number of ultimate adopters
= Influence parameter for innovation
q
= Influence parameter for imitation
m
Thisexpression
expression can
can be
berewritten
rewritten for
foradditional
additional intuitive
intuitive understanding
understanding using
This
usingthe
the
equivalent representation:
representation:
equivalent
q
N&(t ) = [m − N (t )][ p + X (t )]
m
unpenetrated
market size
adoptive pressure
p=innovative
q=imitative
Terms can be interpreted as representing one group of innovators and one group of
imitators, or as representing both the internal and external influences on all adopters.
5
91
Terms can be interpreted as representing one group of innovators and one group
of imitators, or as representing both the internal and external influences on all
adopters.5
Important Guidelines for Market Forecasting
• The model forecasts total market potential for a product, not sales for a particular company. Company sales would depend on market share of the total,
which depends on particular product variables like quality, cost, and promotion, and distribution. Diffusion models only help with the big picture; use
conjoint analysis or other methods to forecast market share.
• In practice the actual coefficients are usually estimated by analogy to past
products. Coefficients for past products are generally available in tables, or
may be estimated by regression.
• Remember that diffusion models only represent demand associated with
the trial of a product. Additional terms need to be added to account for repeat purchase. A model that takes into consideration both trial and repeat
purchase demand would be a complete sales forecast.
• The Bass model is a predictive model that is most appropriate for forecasting sales of a discontinuous new technology or durable product that has no
competitors. In such situations, the success of the product may be particularly uncertain, and the Bass model forecast may only depict one possible outcome.
• Where you are in the product life cycle dictates the marketing and customer
segmentation strategy. With discontinuous innovations different marketing
strategies are called for at different stages of the technology life cycle to ensure
that the product reaches a mass market.6
More recent research has focused on relaxing the assumptions of the Bass model:
• Allowing market potential to vary over time
• Not restricting that diffusion of an innovation be independent of all other
innovations
• Allowing geographical boundaries of the system in which diffusion takes
place to vary over time
92
• Incorporating the effect of marketing actions such as pricing, advertising,
etc. on the diffusion process
• Considering supply restrictions
• Consideration of uncertainty
• Consider variations in diffusion rates in different countries
• Allow word of mouth effects to vary over time.6
The area of marketing planning modeling includes the incorporation of feedback
effects into diffusion models to turn advertising and pricing decisions over time
into optimal control problems.6
Conjoint Analysis
Conjoint analysis is a statistical technique used in market research to determine
how people value different attributes (feature, function, benefits) that make up an
individual product or service.7
The objective of conjoint analysis is to determine what combination of a limited
number of attributes is most influential on respondent choice or decision making.
A controlled set of potential products or services is shown to respondents and by
analyzing how they make preferences between these products, the implicit valuation of the individual elements making up the product or service can be determined. These implicit valuations (utilities or part-worths) can be used to create
market models that estimate market share, revenue and even profitability of new
designs.7
Conjoint originated in mathematical psychology and was developed by marketing professor Paul Green at the Wharton School of the University of Pennsylvania
and Data Chan. Other prominent conjoint analysis pioneers include professor V.
“Seenu” Srinivasan of Stanford University who developed a linear programming
(LINMAP) procedure for rank ordered data as well as a self-explicated approach,
Richard Johnson (founder of Sawtooth Software) who developed the Adaptive
Conjoint Analysis technique in the 1980s and Jordan Louviere (University of
Iowa) who invented and developed Choice-based approaches to conjoint analysis
and related techniques such as MaxDiff.7
Today it is used in many of the social sciences and applied sciences including
93
marketing, product management, and operations research. It is used frequently
in testing customer acceptance of new product designs, in assessing the appeal of
advertisements and in service design. It has been used in product positioning, but
there are some who raise problems with this application of conjoint analysis (see
disadvantages).8
Conjoint analysis techniques may also be referred to as multiattribute compositional modelling, discrete choice modelling, or stated preference research, and
is part of a broader set of trade-off analysis tools used for systematic analysis of
decisions. These tools include Brand-Price Trade-Off, Simalto, and mathematical approaches such as AHP, evolutionary algorithms or Rule Developing Experimentation.8
Conjoint analysis is market research methodology for modeling the market. A
quantitative, grass-roots approach, conjoint analysis is used to predict consumer
preferences for multiattribute alternatives. It is based on economic and psychological research on consumer behavior, especially at the individual level, which is
considered key to making accurate predictions of the total market. The subject of
a conjoint study can be either a physical product or a service, and the market can
include both new and existing products/services.8
What is conjoint analysis?
Think of the decision process that consumers go through when choosing between
complex alternatives. Products vary in terms of their features, performance, and
quality and thus are offered at various prices. Conjoint analysis considers a product in terms of a bundle of attributes, or characteristics. Through an interview,
data are collected from respondents to capture the tradeoffs they make between
attributes. These data are processed to estimate a utility function that expresses
each respondent’s value for product attributes. These utility values are then used
in a market model or simulator to make predictions about how consumers would
choose among new, modified, and existing products. Conjoint analysis allows
us to analyze future market scenarios based on primary market research. Other
techniques, such as historical analysis, would be insufficient to forecast the market
for new products, whereas conjoint analysis can model consumers’ reaction to
hypothetical products that may not yet exist.6
94
Conjoint analysis is a decompositional model in that values are derived from consumers’ responses to interview questions, as compared to asking consumers to
directly estimate model parameters. In direct assessment, respondents are asked
how likely they are to buy a certain product or how much they would be willing to
pay for a product with an attribute improvement. This technique is limited in that
products are not shown in a competitive context and these questions do not generally represent realistic purchase decisions. Alternatively, conjoint analysis uses
inference, which provides a more accurate picture of consumers’ buying behavior.
In the analysis of responses to questions about hypothetical product concepts,
we can infer the value to each respondent of having each attribute level. Rather
than expecting respondents to provide direct assessments, they are asked to make
a number of decisions that are more realistic and natural. In a typical pairwise
comparison, two product concepts are considered jointly.6
Which drug treatment would you prefer?6
Major side effects
Minor side effects
High efficacy
Moderate efficacy
A
B
Implications for strategy?
The scope of product planning issues addressed with conjoint analysis ranges from
the tactical level to the strategic level. The following is a list of some of the product
planning decisions for which conjoint analysis is currently used worldwide:
• Pricing
• New product design
• Product positioning
• Competitive strategy
• Marketing strategies
95
• Market segmentation
• Investment decisions
• Sales forecasting
• Capacity planning
• Distribution planning9
Conjoint analysis is a widespread, time-proven strategic tool. To ensure success,
practitioners must carefully set client expectations regarding what conjoint can
and cannot do. Conjoint simulators are directional indicators that can provide
significant insight into the relative importance of product features and preferences
for product configurations. These market simulators predict preference share, that
is market share potential. Many internal and external influences such as awareness, marketing, sales force effectiveness, and distribution drive market share in
the real world. Unless these effects are explicitly modeled in, care should be taken
to regard the model results as preference shares that assume perfect market penetration.9
The Four P’s of the Marketing Mix
The phrase “the four p’s” is an easy way to remember and characterize the four
most important marketing decision variables. The four P’s are price, product,
promotion, and place:
“Price” variables:
• Allowances and deals
• Distribution and retailer markups
• Discount structure10
“Product”variables:
• Quality
• Models and sizes
• Packaging
• Brands
• Service10
96
“Promotion” variables:
• Advertising
• Sales promotion
• Personal selling
• Publicity10
“Place” variables:
• Channels of distribution
• Outlet location
• Sales territories
• Warehousing system10
Market-Oriented Strategic Planning
“Market-oriented strategic planning is the managerial process of developing and
maintaining a viable fit between the organization’s objectives, skills, and resources
and its changing market opportunities. The aim of strategic planning is to shape
and reshape the company’s businesses and products so that they yield target profits and growth.”16
Three key ideas:
• Manage the company’s business as an investment portfolio.
• Assess the future profit potential of each business by consider the market
growth rate and the company’s fit.
• Develop a strategic game plan that makes sense in light of the company’s
industry position, objectives, skills, and resources.11
Business
mission
External
environmental
analysis
Internal
environmental
analysis
Goal
formulation
Strategy
formulation
Program
formulation
Implementation
Feedback
and control
12
Figure
11. The
business
strategic
planning
process
Figure
11. The
business
strategic
planning
process12
Boston Consulting Group Growth-Share Matrix: “Invest in the stars, get rid of the
dogs!” The framework promotes the importance of market growth rate and market
97
Figure 11. The business strategic planning process12
Boston
Group
Growth-Share
Matrix:Matrix:
“Invest “Invest
in the stars,
get stars,
rid of get
the rid of the
BostonConsulting
Consulting
Group
Growth-Share
in the
dogs!”
promotes
the importance
of market
and market
dogs!”The
Theframework
framework
promotes
the importance
of growth
marketrate
growth
rate and mar-
Market Growth Rate
0%
10%
20%
12;13
share
in determining
the strategic
importanceimportance
of a product.of
ket share
in determining
the strategic
a product.12;13
Stars
Question
Marks
Cash Cows
Dogs
10x
1x
.1x
Relative Market Share
15
12. Boston
Consulting
Group
Growth-Share
Matrix
FigureFigure
12. Boston
Consulting
Group
Growth-Share
Matrix
15
Alternative
views
of the
value
creation
process:
Alternative
views
of the
value
creation
process:
One traditional business approach ignores the impact of marketing research on
One traditional business approach ignores the impact of marketing research on
product design. Under this framework, the first step is to make the product, and
product design. Under this framework, the first step is to make the product, and then
then the second step is to figure out how and to whom it will be sold. This is still
the second step is to figure out how and to whom it will be sold. This is still a
a common problem in many companies today. A more sophisticated paradigm
common problem in many companies today.
A more sophisticated paradigm
recognizes that the consumer demand should drive product design. Marketing
recognizes that the consumer demand should drive product design.
Marketing
research, segmentation, positioning, and conjoint analysis are all examples of
research, segmentation, positioning, and conjoint analysis are all examples of this
this more sophisticated approach. The diagrams below illustrate the two para-
more sophisticated approach. The diagrams below illustrate the two paradigms.17
digms.17
Make the Product
Make the Product
Design
Procure
Make
Price
Sell
product Design
Procure
Make
Price
product
Sell the product
Sell the product
Advertise/
Distribute
Service
Promote
Advertise/
Distribute
Service
Sell
Promote
Figure 13. Traditional physical process sequence17
17
Figure 13. Traditional physical process sequence
Figure 13. Traditional physical process sequence17
95
Choose the value
Provide the value
Communicate the value
Choose the value
Provide the value
Communicate the value
Sourcing
Distributing
Advertising
Market
Sales
Customer
Value
Product
Service
Pricing
Salesforce promotion
Sourcing
selection/
Distributing
Advertising
segmentation
Positioning
devel
devel
Market
Customer
Value
Product
Service
Sales
Making
Servicing
Pricing
Salesforce promotion
focusselection/ Positioning
segmentation
devel
devel
Making
Servicing
focus
Figure 14. The value creation and delivery sequence17
Figure 14. The value creation and delivery sequence17 17
Figure 14. The value creation and delivery sequence
98
Figure 14. The value creation and delivery sequence
Market Segmentation, Targeting, and Positioning
Market Segmentation, Targeting, and Positioning
“STP Marketing” is one way to characterize the modern strategic marketing ap-
“STP Marketing” is one way to characterize the modern strategic marketing approach.
proach. STP stands for Segmenting, Targeting, and Positioning. The idea is to use
STP stands for Segmenting, Targeting, and Positioning. The idea is to use a more
a more direct “rifle” approach instead of an undirected “shotgun” approach:
direct “rifle” approach instead of an undirected “shotgun” approach:
Market Segmentation
Market Targeting
Market Positioning
1.
Identify segmentation
variables and segment the
market.
1.
Evaluate the
attractiveness of
each segment.
1.
Identify possible
positioning concepts
for each target segment.
2.
Develop profiles of
resulting segments.
2.
Select the target
segment(s).
2.
Select, develop, and communicate
the chosen positioning concept.
Figure 15. STP stands for Segmenting, Targeting, and Positioning18
Figure 15. STP stands for Segmenting, Targeting, and Positioning18
Additional notes on segmentation, targeting and positioning:
The following
notes provides
a brief
outline
some of the key ideas in this
Additional
notesset
on of
segmentation,
targeting
and
positioning:
area.
The following set of notes provides a brief outline some of the key ideas in this area.
Alternative approaches to marketing strategy:
• Mass marketing: one product for all customers
Alternative
approaches marketing: a
to marketing variety
strategy:
• Product-variety
of products for customers to choose from
•
Mass
marketing:
one product forproducts
all customers
• Target
marketing: targeted
for specific customer groups.18
•
Product-variety marketing: a variety of products for customers to choose from
•Patterns
Targetofmarketing:
targeted products for specific customer groups. 18
market segmentation:
• Homogeneous preferences
• Diffused preferences
96
• Clustered preferences18
Market segmentation procedure (one common approach) (Kotler, 1997):
1)Survey Stage: Exploratory interviews and focus groups, followed by questionnaires to assess:
• Attributes and their importance ratings
• Brand awareness
• Product-usage patterns
• Attitudes toward the product category
• Demographics, etc.
99
•
Brand awareness
•
Product-usage patterns
•
Attitudes
2)Analysis
Stage: toward the product category
•
Demographics,
• Factor
analysis
appliedetc.
to remove highly correlated variables.
2)•
Analysis
Stage: applied to “create a specific number of maximally different
Cluster
analysis
•
Factor analysis applied to remove highly correlated variables.
segments”.
•
Cluster analysis applied to “create a specific number of maximally
different segments”.
3)Profiling Stage: Each cluster is profiled in terms of its distinguishing atti-
3)
Profiling Stage: Each cluster is profiled in terms of its distinguishing
tudes, behavior. Each cluster is a market segment.1818
attitudes, behavior. Each cluster is a market segment.
Market
targeting:
3 criteria
for evaluating
market segments:
Market
targeting:
3 criteria
for evaluating
market segments:
Segment
size
growth
• • Segment
size
andand
growth
Segment
structural
attractiveness (Porter’s
• • Segment
structural
attractiveness
(Porter’s 5 forces) 5 forces)
Company
objectives
and resources
• • Company
objectives
and resources
M1 M2 M3
M1 M2 M3
M1 M2 M3
M1 M2 M3
M1 M2 M3
P1
P1
P1
P1
P1
P2
P2
P2
P2
P2
P3
P3
P3
P3
P3
Single-segment
concentration
Single-segment
concentration
P = Product
Market
specialization
Product
specialization
Full coverage
M = Market
Figure 16. Five patterns of target market selection18
Developing a positioning strategy:
97
• “Positioning is the act of designing the company’s offer and image so that it
occupies a distinct and valued place in the target customers’ minds.” (Kotler)
• USP: Unique Selling Position. Promotion of a single benefit to the marketplace. Effective strategy (as opposed to touting multiple benefits).18
Positioning strategies:
• Attribute positioning
• Benefit positioning
• Use/application positioning
• User positioning
• Competitor positioning
100
• Product category positioning
• Quality/price positioning18
Three steps:
1.Identify differences
2.Choose most important differences
3.Effectively signal differences to the target market18
Economics: Differentiation → premium pricing
Treacy and Wiersema: 3 strategies that lead to successful differentiation and
market leadership:
• Operational excellence
• Customer intimacy
• Product leadership18
Differentiation:
• Product differentiation;
• Service differentiation;
• Personnel differentiation;
• Image differentiation.18
Analyzing Industries and Competitors
Industries and competition play a central role in strategic analysis. The following
notes reiterate these ideas from a marketing perspective.19
Industry concept of competition - factors affecting industry structure and competition:
• Number of sellers and degree of differentiation
• Entry and mobility barriers
• Exit and shrinkage barriers
• Cost structures
• Vertical integration
• Global reach
101
Industry structure types:
• Pure monopoly
• Pure oligopoly
• Differentiated oligopoly
• Monopolistic competition
• Pure competition19
Market concept of competition: It may be important to consider competitors
which make different products but which meet similar needs. This is different
from an industry perspective when the view of competition is limited to those
firms offering the same or very similar products.19
Product segmentation
Market segmentation
Competitive intelligence: gathering data about competitors. Benchmarking.
True market orientation balances consumer and competitor considerations.
Changing consumer needs and latent competitors are key factors and can be more
devastating than existing competitor actions.20
The Technology Adoption Life Cycle: Discontinuous Innovations
Some basic marketing concepts should be considered when thinking about market
forecasts and new product strategies. For instance, thinking of the new product
diffusion cycle (Bass model) as an inevitable cycle of sales can be very misleading.
First of all, the diffusion model forecasts total market potential, and says nothing
about the market share at a particular company. Second, the decisions of the firm
can influence the sales. This is fairly obvious when it comes to the influence of
product quality and cost, but marketing strategy is also critically important when
introducing new products that are discontinuous innovations. In these cases, the
market is not yet aware of the need for the new product, and an understanding of
102
how a product moves through the technology life cycle will help a product reach
its full potential faster and with higher likelihood of success.19
Geoff Moore, in his books Crossing the Chasm (1991) and Inside the Tornado
(1995), draws on marketing theory and high-tech experience to describe the elements of the product life cycle for technology innovations. His work examines
how communities respond to discontinuous innovations - or any new products or
services that require the end user in the marketplace to dramatically change their
past behavior. He describes how companies must position their products differently through the cycle to reach their full sales potential and become an industry
standard instead of a novelty. Many new hi-tech products start along a classic new
product diffusion curve, but fail soon thereafter. Anyone developing strategy for
discontinuous innovations should be familiar with the ideas Moore writes about.
Through the various phases of the technology adoption life cycle, very different
strategies for product and service offering and positioning are called for.19
The basis of the technology adoption life cycle is similar to the basis for diffusion
models: different groups of potential customers react differently to innovations,
and adoption proceeds from most enthusiastic to most conservative. Communities respond to discontinuous innovation - when confronted with the opportunity
to switch to a new infrastructure paradigm, customers self-segregate along an axis
of risk-aversion. Moore separates customers into five categories, along which the
cycle of new technology adoption proceeds:
1. Innovators - technology enthusiasts who are fundamentally committed
to new technology on the grounds that sooner or later it will improve their
lives.
2.Early Adopters - visionaries and entrepreneurs in business and government
who want to use the innovation to make a break with the past and start an
entirely new future
3.Early Majority - pragmatists who make up the bulk of all technology infrastructure purchases; their purchasing behavior is based on evolution rather
than revolution, and they buy only when there is a proven track record of useful productivity improvement.
4.Later Majority - conservatives who are very price sensitive and pessimistic
103
about the added value of the product; they buy only when technology has
been simplified and commoditized.
5.Laggards - skeptics who are not really potential customers; goal is not to sell
to them, but sell around their constant criticism.19
The customer segments correspond to zones in the “landscape” figure below. In
addition, there is a sixth zone that Moore calls the “chasm,” separating adoption by
the early market customers (1,2) from adoption by the early majority (3). Moore
describes the chasm as follows:
Whenever truly innovative high-tech products are first brought to market, they
will initially enjoy a warm welcome in an early market made up of technology enthusiasts and visionaries but then will fall into a chasm, during which sales will falter and often plummet. If the products can successfully cross this chasm, they will
gain acceptance within a mainstream market dominated by pragmatists and conservatives. Since for product-oriented enterprises virtually all high-tech wealth
comes from this third phase of market development, crossing the chasm becomes
ofanmarket
development,
crossing(1995,
the chasm
organizational
imperative.
p.19) becomes an organizational imperative.
(1995, p.19)
Main Street
The
Tornado
Early Market
The
Chasm
End of Life
6
6
17. The
Landscape
theTechnology
Technology Adoption
Lifecycle
FigureFigure
17. The
Landscape
ofofthe
Adoption
Lifecycle
Thestrategy
strategyforfor"crossing
“crossingthe
thechasm,"
chasm,”asaswell
wellas
as the
the strategy
strategyfor
for each
each of
of the
the other
other
The
19
19
“zones”,are
arevery
veryparticular
particular
to where
product
inlife
thecycle.
life cycle.
"zones",
to where
thethe
product
is inisthe
104
The
figure 18 below emphasizes the different value disciplines required at different
The
figure
1818below
The
figure
belowemphasizes
emphasizesthe
thedifferent
differentvalue
valuedisciplines
disciplinesrequired
requiredatatdifferent
different
stages.
thethe
cycle
stages.Note
Notethat
thatthe
thesource
sourceofofcompetitive
competitiveadvantage
advantagechanges
changesthrough
through
cycle- -inin
Porter
terms,
it it
draws
Porter
terms,
drawsononvarious
variouscombinations
combinationsofofcompeting
competingon
oncost
cost (operational
(operational
6
excellence),
differentiation
(product
leadership),
and focus
(customer
intimacy).
excellence),
differentiation
(product
leadership),
and focus
(customer
intimacy).6
Product Leadership
&
Operational Excellence
Operational Excellence
&
Customer Intimacy
Product
Leadership
only
Product Leadership
&
Customer Intimacy
Figure 18. Value Disciplines and the Life Cycle 6
Characterizes the zones as follows:
102
• The Early Market .
A time of great excitement when customers are technology enthusiasts and visionaries looking to be first to get on board with the new paradigm. Visionaries
are willing to work through bugs and put in effort themselves to make the solution
work. The product sells itself.
• The Chasm .
A time of great despair, when the early market’s interest wanes but the mainstream
market is still not comfortable with the immaturity of the solutions available. The
only safe way to cross the chasm is to put all your eggs in one basket - target a
single beachhead of pragmatist customers in a mainstream market segment and
accelerate the formation of 100 percent of their whole product.
• The Bowling Alley A period of niche-based adoption in advance of the general marketplace, driven by
105
compelling customer needs and the willingness of vendors to craft niche-specific
whole products. A whole product is the minimum set of products and services
necessary to ensure that the target customer will achieve his or her compelling
reason to buy. Pragmatists want a whole product, with the necessary user infrastructure and customer support. At this stage, companies should resist the temptation to try to provide a general purpose whole product and simplify the whole
product challenge. To get customers on board, service content is high, ROI to
end user must be high, and partnerships with other companies may be called for.
Success in the niche can then be leveraged elsewhere. The two keys to targeting
the right niche customers here are (1) the segment has a compelling reason to buy,
and (2) the segment is not currently well served by any competitor.
• The Tornado An ugly and frenzied period of mass-market adoption, when the general marketplace (early majority customers) switches over to the new infrastructure paradigm. It’s a herd mentality. Keys to success in this period are to ignore customer
needs and product modifications and just ship, riding the wave. Market share is
critical at this stage to lock out competitors, and partners should be eliminated.
Companies entering the tornado should expand distribution channels, attack the
competition, and price to maximize market share.
• Main Street . A period of aftermarket development, when the base infrastructure has been deployed and the goal is now to flesh out the potential. Another reversal of strategy
is needed back to niche-based marketing. Before the product becomes obsolete,
there is an opportunity to settle into a profitable period of differentiating the commoditized whole product with extensions focusing on the end user.6
End of Life.
.
Which comes too soon in high-tech. Companies should find caretakers that can
take over a fully commoditized product with low profit margin.6
106
Chapter Exercises
1.Call your local grocery or supermarket and ask to interview the store manager. Schedule an interview and in the interview ask the manager how s/he
would define marketing management. And how his/her job relates to marketing management.
2.If you have an industry of interest, explore the definition of marketing management in that industry by interviewing someone who works in that industry.
3.Apply the PIMC planning cycle (planning, implementation, monitoring,
and correction) to model the actions necessary for a ten year old to set up a
lemonade stand. Write a one-page essay on your analysis, identifying activities
conducted in each step in the PIMC cycle.
4.Use the marketing plan outline in the chapter to prepare a marketing plan
for the lemonade stand. Limit your marketing plan to two pages using keywords to describe your plan.
5.Search the internet for the term “Product manager” and write a one-page
summary of your findings.
6.Write a job description for a marketing manager of the marketing function.
How does it compare to the description you gave in answer to question six in
chapter one?
7.In a one page essay, make observations on ‘Let’s Get It Together’ Family Organization Services,’ including the benefits families can expect from participation and your estimate of demand for this new service. To what segment, if
any, do you believe this service will appeal? Describe this segment of families
using factors like family income, education, lifestyle, etc.
REFERENCES
The context of this part has been adapted from the following product(s):
1.How do companies decide what products and services to market? Access
via Internet: http://www.principlesofmarketing.com/Full.htm
2.Principles of marketing. Access via Internet: www.principlesofmarketing.
com/word/Chapter-Two.doc
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3.Rogers, Everett (16 August 2003). Diffusion of Innovations, 5th Edition.
Simon and Schuster. ISBN 978-0-7432-5823-4.
4.Kinnunen, J. (1996). “Gabriel Tarde as a Founding Father of Innovation Diffusion Research”. Acta Sociologica 39 (4): 431. doi:10.1177/000169939603900
404.
5.Valente, T.; Rogers, E. (1995). “The Origins and Development of the Diffusion of Innovations Paradigm as an Example of Scientific Growth”. Science
Communication 16: 245–246.
6.Types of competitive advantage. Access via Internet: web.stanford.edu/class/
msande473/483primerV3.doc
7.Johnson, Richard M. (September 2001). “History of ACA”. Proceedings of
the Sawtooth Software Conference. Victoria, BC, Canada. pp. 205–212.
8. Ijzerman MJ, van Til JA, Bridges JF. (212). “A comparison of analytic hierarchy process and conjoint analysis methods in assessing treatment alternatives for stroke rehabilitation”. Retrieved 4 July 2013.
9.Conjoint analysis. Access via Internet: www.trizsigma.com/conjoint.html
10. Marketing’s Four P’s: First Steps for New Entrepreneurs. Access via Internet: https://www.extension.purdue.edu/extmedia/ec/ec-730.pdf
11. Henderson, Bruce D. “The Product Portfolio”. Retrieved 16 May 2013.
12. Mintzberg, Henry and, Quinn, James Brian (1996). The Strategy Process:
Concepts, Contexts, Cases.
13. Competitor-oriented Objectives: The Myth of Market Share http://cogprints.org/5196/1/myth_of_market_share.pdf
14. Henderson, Bruce. “The Product Portfolio”. Retrieved 3 April 2013.
15. Fripp, Geoff.“BCG Matrix and the Experience Curve” Guide to the BCG
Matrix
16. Philip Kotler (1986), “Megamarketing” In: Harvard Business Review.
(March—April 1986)
17. V. Krishnan; Karl T. Ulrich. Product Development Decisions: A Review of
the Literature. Management Science (2001) Vol. 47, No. 1, January 2001 pp.
1–21
18. What is STP process. Access via Internet: http://www.segmentationstudyguide.com/stp-process/what-is-the-stp-process/
108
19. Generic strategy: types of competitive advantage. Access via Internet: web.
stanford.edu/class/msande473/483primerV3.doc
20. Marketing management. Access via Internet: https://books.google.lt/
books?isbn=0070153272
FURTHER READING
1.Ryan, B.; Gross, N. (1943). “The diffusion of hybrid seed corn in two Iowa
communities”. Rural Sociology 8.
2.Greenhalgh, T.; Robert, G.; Macfarlane, F.; Bate, P.; Kyriakidou, O.; Peacock,
R. (2005). “Storylines of Research in Diffusion of Innovation: A Meta-narrative Approach to Systematic Review”. Social Science & Medicine 61: 417–430.
doi:10.1016/j.socscimed.2004.12.001.
3.Berwick, DM. (2003). “Disseminating Innovations in Health Care”. The Journal of the American Medical Association 289 (15): 1969-1975. doi:10.1001/
jama.289.15.1969.PMID 12697800.
4.Pemberton, H. E. (1936) ‘The Curve of Culture Diffusion Rate’, American
Sociological Review, 1 (4): 547–556.
5.Rogers, E.; Shoemaker, F. (1971). Communication of innovations: a crosscultural approach. Free Press.
6.Srinivasan, V. (1988), A Conjunctive-Compensatory Approach to the SelfExplication of Multiattributed Preferences, Decision Sciences, Vol. 19, Spring
1998, 295-305. [dead link]
7.Green, P. E. and Srinivasan V. (1990) Conjoint Analysis in Marketing: New
Developments with Implications for Research and Practice, Journal of Marketing, Vol. 54, October 1990, 3-19.
8.John Naisbitt (1982). Megatrends: Ten New Directions Transforming our
Lives. Macdonald.
9.T. Levitt (1960) “Marketing myopia”, In: Harvard Business Review, (July—
August 1960)
10. M. Lorenzen (2006). “Strategic Planning for Academic Library Instructional Programming.” In: Illinois Libraries 86, no. 2 (Summer 2006): 22-29.
11. L. Fahey and V. K. Narayman (1986). Macroenvironmental Analysis for
Strategic Management”. West Publishing.
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12. R. F. Lusch and V. N. Lusch (1987). Principles of Marketing. Kent Publishing,
13. Brian Tracy (2000). The 100 Absolutely Unbreakable Laws of Business Success. Berrett, Koehler Publishers.
14. Michael Allison and Jude Kaye (2005). Strategic Planning for Nonprofit
Organizations. Second Edition. John Wiley and Sons.
TASKS FOR INDIVIDUAL/GROUP WORKS
By and large these can be answered by referring to the text so no further comment
is necessary.
Case Studies
Lecturers often prefer to set their own questions on case studies. Here I restrict
myself to making some general observations on the case studies which may be
useful in answering many questions that may be posed and related to the case
studies.
Mirela Fashions
1.The organization is constantly trying to identify and explore opportunities
in order to survive and be profitable.
2.Yes. Its manager focuses on the market and tries to identify opportunities
which the organization can explore and face market threats.
3.Yes. The owner knows that the organization cannot compete successfully
with the high demand for imported fashion brands and hence, it decided instead to focus on satisfying the needs of those customers that want madeto-measure garments i.e. wedding dresses, evening gowns, and any made-to
measure clothing item.
4. Increase of imports of both reputable fashion brands and wedding dresses.
Increase of competition may lead to a decrease in the prices of imported goods
and hence there may no longer be a demand for made-to-measure clothes.
Perhaps the organization should consider expanding its operations in new
markets.
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5.Customers: good quality products, affordable prices (the organization
should explore ways to keep costs to a minimum in order to be able to be more
competitive).
Employees: job security (the organization can perhaps expand its operations to new
markets – demographic and geographic – in order to increase its customer base).
Local community: Offer employment to local people.
King Olaf ’s Hall
The major issue here is what should be done to increase the revenue stream from
activities that are acceptable to the stakeholders. Many suggestions may be considered but essentially the building is of historical and cultural interest and the main
desire of most of the stakeholders might be to use the Hall for purposes that fit
with this image. Wrestling, boxing and pop music events are not the order of the
day but exhibitions of paintings, sculptures and chamber music would fit better
with the cultural image. The Law Courts are of historical and educational interest
and might be marketed as such to visitors.
A major problem, however, is how does the Hall make sufficient money from these
kinds of activities to make itself self-financing? The market for such activities as
those listed above may be comparatively small and may not be capable of generating the desired income stream.
Given the proximity to the museums, art galleries and library there may be opportunities for synergy in developing joint strategies with the latter establishments.
Acme (A) & Acme (B)
Use here can be made of the spreadsheets illustrating the BCG and DPM matrices. (see BCG Chapter 2, DPM Chapter 2 & DPM Example Chapter 2).
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Barrington Breweries
The problems of the company are to be found in the last paragraph. These problems need to be addressed. Tied estate creates difficulties for the company and it
may well be worth the company’s while disposing of some of its tied assets and
ploughing the monies generated into new profitable ventures. Stakeholders in the
company need to be persuaded that change is necessary … particularly shareholders. Shareholders are interested in the long term future of the company and if they
can be persuaded that the current strategy is likely to prove less than productive
in the future they will be happy to give their backing to new ventures. Some new
ideas are required and these need to be explained to stakeholders before a change
in attitude may come about.
The spreadsheets Organisational Health Chapter 3, Scorecard Chapter 3, & Chapter 3 Stakeholder Benefits may be adapted for use in this case.
Avila Batteries
The idea here is to get student’s to review the block to creative thinking in an organisation mentioned. The founder obviously had his own approach to business
and his own ideas about what he wanted the firm to be and where he wanted it to
go. This could have created a mindset for the whole organisation. The new supremo may have his own ideas and certainly needs to change the direction of the firm
given its current performance. If he hasn’t any definite ideas then just observing
what competitors are doing may give him ideas. Alternatively, talking to distributors will obviously be helpful.
Keeping the business under the control of the family as has been done in the past
has resulted in the firm missing opportunities. A willingness to share the control
of the enterprise and bring in new blood can be beneficial but sometimes such
decisions are made too late in the day. Of course, such a strategy can have risks,
too.
There many aspects to the car and automotive industry that company could think
of moving into from its base as a battery manufacturer. Products could be made
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under license or alternatively imported. Home manufactured finished products of
other manufacturers might be marketed along side the batteries.
Stelco
A change in company structure with a holding firm and several different firms
specialising in producing products for certain different markets might be a possible strategy to pursue. Certainly aiming to be a fully integrated business operation is not the order of the day. By fragmenting into separate operating companies
more flexibility can be introduced and the firms would be more open to new possibilities in terms of developing products and serving markets.
ABC Ltd
The spreadsheet SPACE ANALYSIS Chapter 4 can be used as a template for constructing a SPACE analysis for the firm in the case study. Note that some degree of
subjective estimating is required and also that not all the categories in the spreadsheet can be fully assessed.
Majestic Tobacco Company
The firm should consider diversifying its product market scope for long term profitability since the medium and long term prospects for tobacco products is very
uncertain.
Cometex
Door to door selling of products is less popular than it used to be years ago in developed countries. The advent of large supermarkets and the fact that fewer people
are at home in the day has eroded the door to door selling approach. Nevertheless,
its very decline in popularity has made it an innovative way of gaining distribution for products. Catalogue selling and Internet selling are now a popular way
of selling items that the door to door approach could have favoured in the past.
Nevertheless, certain products and services are still sold door to door.
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There may be more scope for door to door selling in the developing world though
cultural factors may influence its acceptability. In many developing countries good
access to the Internet is available and traders have a wide variety of means to engage with customers.
In developing countries market information on market sizes may be sparse. One
cannot assume that the same kind of data can be acquired from secondary information sources as one can in the more developed countries. Sample surveys and
informed opinion are more the order of the day in some cases.
Ecoprods
People are becoming more aware of the need to use green products but awareness
alone will not guarantee that they will use or buy such products. Not only may
the relative cost of such products be a factor but there may be many other factors,
too.
Finding out how many people might buy the product in this case would have to
be assessed by a sample survey of motorists. Even then it would be a matter of
estimating what proportion of those motorists who would say they would buy
the product would actually do so. With a new product the proportion would vary
from one product to another.
Forecasting Demand for part-time university MBA places
The data is suitable for analysis using multiple regression analysis in the way indicated in the text of the chapter. See Forecasting Car sales Chapter 5 spreadsheet.
Laiki
The Porter’s model of competition helps the organization identify five important
factors relating to the profitability of the organization: rivalry among competitors,
bargaining power of customers, bargaining power of suppliers, threat of new en114
trants, and the threat of substitute products or services. Clearly the bank needs
to identify its competitors and the degree of rivalry among them. The model will
enable the organization to assess the degree of rivalry in the market.
Information regarding: sales, market share, profit margin, return on investment,
cash-flow, new investments is required.
The degree of competition needs to be assessed by using data from the following
sources: public (for example articles and newspaper reports); trade and professional sources (for example distributors, the trade press and even customers); government and investors.
Cyproswim
An intimate knowledge of the market and what competitors are doing seems essential. Such information would be gained by personal experience of the executives
of the firms operating in the swimming pool market and would be gained from
interaction with clients, distributors and competitors’ staff. All the companies do
of course produce brochures illustrating and describing their swimming pools
so that it is easy to match product quality with list prices. Inspection of installed
swimming pools and a knowledge of the prices charged may provide ideas on
what competitors are really giving customers in terms of value for their money.
An interesting question to ask is whether a swimming pool in the setting is a “designer product”? Can customers have a hand in designing their own swimming
pools and what is available in the way of say computer software to enable them to
see the end result of their dream pool before it is ever produced and installed?
The Porter’s five forces model will enable the organisation to understand the competition in the industry. The model will enable the management team to decide
what direction to follow in terms of its competitive strategy. The organization
should also identify the five levels of competition in order to be able to develop an
effective competitive strategy.
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Cartech
Many unusual products that are produced may just seem to be gimmicks. As such
they may have very short life cycles and prove to be unprofitable ventures as far
as their owners are concerned. Audible signalling devices, however, do provide a
useful functions and probably even more so when they actually imitate the voice
and convey useful information to people. Attachments to a reversing vehicle, for
example, which warn people that the vehicle is approaching and whether it intends to move to the left , right or keep on coming in the same direction would be
a case in point. Whether or not product applications of this type are perceived by
buyers to be any more useful than those which simply emit sounds seems to be
the issue here. Perhaps a market survey may help throw some light on the matter.
What certainly would be useful would be situations where it is necessary to issue
definite instructions or give out very specific information.
Evaluating competitive forces
Union Assurance Company
The spreadsheet Cross Impact Chapter 7 might be modified and developed to
assess the impact of the PEST and other factors here. The case also presents an
opportunity to construct a TOWS matrix. This might be coupled with the brainstorming of further ideas with respect to threats, opportunities, weaknesses and
strengths identified in the four cells of the matrix.
The Foldaway Company
Tony’s experience to date relates to items for the home. He could consider applications for the office, workshop or any other place of work where economy of space
is an issue. Shortage of space for living and work is the main issue here.
Choosing a holiday – part of a focus group discussion
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People have different interests and tastes but there are always people who have
the same interests and tastes in common. Holidays, too, are opportunities to gain
new experiences or socialize for many people. The case illustrates that people have
many different expectations from a holiday. Holiday companies need to be sufficiently creative to be able to identify means of fulfilling these expectations.
While packaged holidays may still be popular, the growth of the Internet has
brought a new product into the arena - self-service holidays. People now find it
easy to arrange their own holidays via the Internet on a ‘pick and mix’ basis. This
has implications for providers and some interesting developments may be noted.
Brittany Ferries, for example, not only provides cross Channel travel facilities but
also networks with a large number of hoteliers and self catering establishments to
provide a comprehensive overall service.
Office Improvements
Business to business selling has some commonalities with selling to consumer
markets but in many ways it is different. Finding the locus of decision making
in commercial, industrial or business organizations is usually one of the critical
success factor. Looking at who influences, decides, buys, authorizes, uses, etc. the
product or service needs to be thoroughly understood. Rarely is it a single person
so the seller has much research to do find the key personnel. Moreover, the people
involved in the decision making may all have different ideas of what is required
and this has to be uncovered and understood by the sales person.
Barney Malone
Management succession in the running and managing of businesses is always a
problem. This is particularly the case where the founder of the business is involved. In this case there is a gap produced by the departure of Molly and there
does not appear to be anyone to fill it. In very small businesses of this type having
a good strategy alone is not sufficient one also needs to have the personnel capable
of running the business whatever direction it takes. One option might be for Bar117
ney to sell off the beauty salon and invest the money produced in a venture where
he or his wife has the necessary skills to develop it. Businesses do not need to sell
complementary products though this can often create synergies.
The Competitive Advantage Grid Chapter 9 spreadsheet may be developed and
modified to illustrate the issues in this case.
Singapore Sam
In small businesses such as this the core competencies are usually those relating to
the personal interests and experiences of the owners of the business. In this case
those relating to antique market and those relating top IT. In the case of the IT
experience this is a fast moving area and it seems likely that whatever competencies Sam acquired from his experiences in this connection may soon become out
of date and no longer be classifiable as competencies at all.
The decision seems to rest on whether the interest in antiques and the financial
and other opportunities it affords are sufficient to motivate Sam to pursue his current line of business. Returning to the IT field and setting up a business in that
connection is obviously still a possibility but the decision to do so needs to be
taken quickly.
The Competitive Advantage Grid Chapter 9 spreadsheet may be developed and
modified to illustrate the issues in this case.
Home Baker
We live in a world where convenience has become an important criterion when
it comes to shopping but at the same time people still enjoy creative recreational
pursuits which may have practical applications and uses. This is particularly the
case with hobbyists who often make, repair or simply create products which they
could just as easily purchase off the shelf in its completed form.
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Most people like to express themselves in a creative way and arguably this could
be the case when it comes to home baking. Indeed, a person who does not appear
to be creative at all may suddenly find this activity a means of achieving selfexpression.
There may not be any well defined ways of identifying the users for such a product
and using simple demographic segmentation methods on their own may not be
productive. Life style and general psychographic approaches may be more productive but these may be then linked to certain demographic profiles.
The Observatory – segmentation strategy
The observatory offers basically two products – an exploration of the universe
and extensive facilities to study shrubs and plants. This is an unusual combination
yet at the same time one could see it as all being a window on the “natural world”.
If the organization were to define its business as being that of giving people first
hand experience of the natural world then the two products could be identified as
two product market segments. It may even be possible to introduce new products
which differ from the existing one but constitute new market segments. The existing two market segments can of course be further segmented themselves.
The case presents an opportunity to consider how both existing and new productsmarket segments might be segmented and even how products may be designed or
modified to stimulate interest.
Casa resort
Key areas/issues for discussion/analysis:
1. Casa’s strength in defining a focused target market.
- Delineating the target market is the first step towards strategizing marketing
programs effectively. Specific definition of target market helps in prioritising
strategies and implementing effective programs.
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- Marketing programs that flow from the management’s vision and mission
and corporate objectives is critical in ensuring corporate success.
- Management needs become clearer when specific programs especially those
relating to marketing flows from corporate goals.
2. The dynamic environment typical in the hospitality industry has to be addressed. Although Casa is currently enjoying success with its present strategies,
there is no guarantee that they will continue to enjoy this in the future. Competitors will come in even though Port Dickson already has a number of hotels
and resorts. It is not impossible for Casa to lose its appeal if it stops to innovate
in its offerings and loyal customers may migrate to newer and more attractive
offerings.
3. Developing loyal customers and sustaining them is not an easy task. Casa’s
ability to retain customers who keep coming back to the resort is a signal that
something is going right but this will not continue if Casa stops strategizing effectively. Thus, the need to continuously assess new market, create innovative
activities, develop creative marketing programs and training activities aimed at
retaining loyal and experienced personnel are key ingredients in ensuring long
term survival.
Possible answers to questions
1. Repositioning implies that Casa has to move away from its present position of targeting to corporations. It is now positioned as ‘the place’ to carry out
organizational events like family days or sports carnival etc. A possible repositioning strategy is to offer new services such as personalized tours and accommodation package for tourists from Singapore or other ASEAN countries that
make up the majority of visitors to Malaysia. Linking itself with relevant bodies
such as the state Tourism Board or the local authority may be a good alternative
where specific events can be planned for Port Dickson town whilst ensuring
that Casa is given special privileges to address specific clients. In this way, both
the town and the resort can benefit from this win-win collaboration. Loyalty
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programs, relationship marketing, Customer Relationship Management (CRM)
are but some of the initiatives that Casa must now seriously consider. It is no
longer adequate to plan strategies to satisfy customers but the move must now
gear towards delighting customers through extensive personalization or even
customerization of services. Personalization efforts such as these must now be
a priority if Casa wants to be the driver of innovation.
2. Diverting to a new target market may well be a strategy that Casa needs
to undertake. Targeting to other target market such as specific international
market like the Chinese market (visitors from China are increasing in numbers
over the years) or group visitors/tourists in package tours may be an alternative
worth considering. Casa therefore has to link with tour operators for this purpose.
3. Training and retraining of its personnel is necessary if Casa wants to retain
experienced staff. Experienced staff who understand the requirements of the
hospitality industry is a key ingredient in attracting new customers and sustaining loyal ones. Facilities management and enhancement must also be a priority.
Guests to resorts such as Casa are attracted to visit because of the facilities and
the infrastructure at the resort that not only meet the needs of guests but are
also well maintained. There is noting more disturbing to a guest than a resort
or a hotel where facilities such as elevators, parking areas, swimming pools, etc.
are not well maintained.
Inova
1. The company is attempting to identify and target those segments from
which there is demand for its products and services. An organisation can not
fully satisfy the needs of all the customers in the market therefore it needs to
segment the market in order to identify and understand customers’ needs and
match its products/services to their needs.
2. The Company has gained a competitive advantage by offering services tailored to local cultures and needs. The organisation has realised that they key to
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globalisation, is the adoption of a local approach to its products or services.
3. No. It has adopted target marketing. The organisation targets specific market segments with specific products/services that satisfy their needs.
4. By positioning its products/services in such a way that appear to be different/superior/unique. There is a need to study the competition and its products/
services. Differentiation will be achieved on the basis of Inova’s strengths, customers’ needs and competitors’ product’s.
Eau de nuit
Innovative distribution and marketing can sometimes produce good results as the
case indicates. Any product which appeals to a specific, identifiable group who
use particular facilities in a similar manner might be approached in this way. Golf
accessories are a case in point.
Longevity bulbs
Such bulbs might be distributed and sold through as many different outlets as
possible. A push strategy whereby merchandising help and discount incentives to
retailers is likley to produce the best results. A premium can be charged for such
bulbs but not so much as to make the bulbs so much more expensive than traditional bulbs. Bulbs need to be made to meet the requirements of a wide range of
fittings and intensity of lighting conditions.
Remote Applications
Technology advances with amazing rapidity and new innovations soon become
standard applications. One needs to look carefully at exactly what this product
does and how it actually works before thinking about how one sets about marketing the product. Is there really a demand for such a product in the home?
There may be more applications for such a product in the business / industrial
world. Certainly the ability to turn an appliance off at the mains plug outlet with122
out having to move from the position where one is using the appliance could be
very useful. From the consumer market perspective this kind of products requires
the use to identify useful applications for the product.
One might market the product through DIY shops and any electrical retail outlets
providing push support in terms of promotion.
Surplus Garden Furniture
Most of the garden furniture sold by DIY and garden centres may be of the cheap
foreign imported variety designed only to last for a season or two. As such the
strategy of selling it off cheap at the end of the season may be the most suitable approach to take. For more durable furniture such as that offered by the firm in this
instance there may be some mileage in thinking of operating internationally and
even shipping items among outlets.
Electric Cars
This is an instance where the innovation adoption curve can be illustrated. The
product is of interest to those with plenty of money but will it appeal to the all
important next groups of people in the innovation adoption curve? The entirely
electric car certainly has many limitations but possibly over time many of these
can be removed and the product made more useful to the bulk of people who will
want to use it to replace petrol and diesel fuelled cars. It is hard to estimate how
long this will be since the technology to do so appear to be lacking at the outset.
One has to remember, however, that in the very early days TVs and computers
faced similar kinds of problems.
Just as interesting is the use of intermediate technology mentioned in the case and
used by some manufacturers with some degree of usefulness by the consuming
public.
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MANUFACTURER ACI
Key areas/issues for discussion/analysis:
1.ACI is not currently in total control of its distribution channel. Although
the subsidiaries are its main distribution arm, it is still the wholesalers who
will be responsible for ensuring wide distribution. Yet, existing wholesalers
are not necessarily loyal to ACI brands and can easily switch their concentration on other manufacturers’ brands. There is perhaps a need for some formal
relationship between the regional subsidiaries and the wholesalers and this
could be in the form of collaboration or some form of administered relationship that will allow channel members to work together on particular functions
like cooperative advertising or joint sales promotional efforts.
2.New product development is costly but highly profitable if a manufacturer
can strike a winning product that has clear competitive advantages. This however is not easy to achieve. Thus, there is a need to involve channel members in new product development so that relevant inputs including feedbacks
from consumers can be used strategically in developing the new product. ACI
should incorporate the views of the subsidiaries and their wholesalers when
planning new products. There is no point in aggressively pursuing new product development if these are not readily accepted by distributors.
3.Direct distribution to the high traffic outlets has become a necessary
distribution arrangement which the high traffic outlets or the big retailers
seek. Relationship marketing is very much a part of this type of channel
arrangement as the big retailers are looking for long term relationship where
suppliers understand their needs and therefore, supply efficiency will be
enhanced. Efficient consumer response also demands established long term
channel arrangement where the use of information linkages like electronic
data interchange between supplier and distributor is possible for inventory
management and stock replenishment purposes.
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Possible answers to questions
1.It is possible for ACI to pursue some form of strategic collaboration with
the wholesalers so that they will be more committed to the distribution arrangement outlined by ACI. Without any formal linkage such as this, there
are no formal ties that will bind the wholesalers to ACI. Alternatively, ACI can
also develop formal arrangement through relationship marketing. Relationship marketing is capable of getting wholesalers to actively support ACI and
its products and therefore they are more inclined to be brand loyal. The sharing of knowledge and expertise between ACI and the distributors can create
long term bonds. At the extreme end, ACI may consider vertical integration
or vertical marketing system where the wholesaling function is incorporated
into its distribution structure and the thirteen subsidiaries might expand their
function into wholesaling as well.
There is definitely room for relationship marketing to develop in ACI’s current
channel relationships. At one end, relationship marketing between ACI and the
high traffic outlets can be well established whilst on the other end, the thirteen
subsidiaries and the wholesalers can also develop relationship marketing on a formal basis. Relationship marketing can improve the current distribution efficiency
as interdependence and cooperation is enhanced between channel members.
WAN MART
Key areas/issues for discussion/analysis:
1.The dilemma faced by the small retailers with the existence of larger retail
competitors dictate the need for them to be innovative in strategizing their
business operation. Wan Mart’s diversion in concentrating more on their supply business is perhaps an innovative attempt to ensure sustainability in light
of the competitive environment.
2.Business relationships that are well established is an essential ingredient in
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ensuring effective business operations that are not only long term but will also
develop trust and commitment amongst the players. This is key to the development of relationship marketing in the distribution channel where channel members develop long term partnership which is likely to create efficient
channel operations. Wan Mart’s firm relationship with Ramly transcends the
boundary of transactional relationships and have now move into the realm of
long term partnership.
3.Competition will always be present in any business environment and Wan
Mart must deal with such competition by looking beyond the traditional mode
of managing their business. If in the past they have been concentrating on end
users in their mini market operations, they must now focus on how best to
strategize the distribution business where their main clientele are other business operators including the burger stall owners, the restaurant operators and
the caterers who will seek Wan Mart for their supply of frozen burgers.
Possible answers to questions
1.The similarity of relationship marketing and Chinese business philosophy
lies in the recognition that establishing, developing and maintaining long
term relationship is important in strengthening business relationship. Commitment and trust for example, are typical constructs in relationship marketing and these are also present in Chinese business philosophy.
2.The concepts of trust and cooperation are essential in relationship marketing. A supportive culture helps in strengthening the relationship and in the
case of Wan Mart, their well established relationship with Ramly that has been
cultivated over the years will help them in sustaining their business operation
for a long term period.
Folix: transition from growth to maturity
This is an opportunity to look at all those things which contribute to blinkered
thinking and lack of creativity in an organisation. All these factors contribute to
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lack of innovation and an inability to get to grips with the demands of a changing
environment as the industry moves to a different stage in its life cycle.
Maturity to decline
Issues of family control of the business and personal preferences of the owner are
important issues here. Operating in declining markets is a viable strategy until the
market becomes too small to provide an organisation with the kind of returns on
investment it requires. Downsizing the scale of operation and becoming a leaner
and fitter organisation may provide a temporary solution but an exit strategy will
probably be required in the long term.
Wanting to operate close to local markets may be a somewhat out of date desire
these days. Internet marketing and speedy and reliable delivery services can offset
the attractiveness of simply working in close proximity to the market. Video conferencing and similar links which facilitate examining machines and parts from a
distance make it easier to assess the nature of work to be carried out.
Successful SMEs
The TOWS matrix may well be a useful tool for explaining what the firms have
achieved but the success of both firms seems to be attributable to the development
of good relationships with customers thereby arguing the case that relationship
marketing is very important to such firms.
The Wildlife Centre
The report may not stand up to scrutiny and many of the so called achievements
may well be attributable to other activities than the marketing undertaken.
Extending the product life cycle
A Kellogg’s case study
(Source: http://businesscasestudies.co.uk/kelloggs/extending-the-product-life-cycle/introduction.html#axzz3g5Pso6Bn)
127
Introduction
Businesses need to set themselves clear aims and objectives if they are going to
succeed. The Kellogg Company is the world’s leading producer of breakfast cereals
and convenience foods, such as cereal bars, and aims to maintain that position.
In 2006, Kellogg’s had total worldwide sales of almost $11 billion (£5.5 billion). In
2007, it was Britain’s biggest selling grocery brand, with sales of more than £550
million. Product lines include ready-to-eat cereals (i.e. not hot cereals like porridge) and nutritious snacks, such as cereal bars.
Kellogg’s brands are household names around the world and include Rice Krispies,
Special K and Nutri-Grain, whilst some of its brand characters, like Snap, Crackle
and Pop, are amongst the most well-known in the world.
Kellogg’s has achieved this position, not only through great brands and great brand
value, but through a strong commitment to corporate social responsibility. This
means that all of Kellogg’s business aims are set within a particular context or set
of ideals. Central to this is Kellogg”s passion for the business, the brands and the
food, demonstrated through the promotion of healthy living.
The market
The company divides its market into six key segments. Kellogg’s Corn Flakes has
been on breakfast tables for over 100 years and represents the ‘Tasty Start’ cereals that people eat to start their day. Other segments include ‘Simply Wholesome’
products that are good for you, such as Kashi Muesli, ‘Shape Management’ products, such as Special K and ‘Inner Health’ lines, such as All-Bran. Children will
be most familiar with the ‘Kid Preferred’ brands, such as Frosties, whilst ‘Mum
Approved’ brands like Raisin Wheats are recognised by parents as being good for
their children.
Each brand has to hold its own in a competitive market. Brand managers monitor
the success of brands in terms of market share, growth and performance against
the competition. Key decisions have to be made about the future of any brand that
is not succeeding.
128
competition. Key decisions have to be made about the future of any brand that is not
succeeding.
This case study is about Nutri-Grain. It shows how Kellogg’s recognised there was
This case study is about Nutri-Grain. It shows how Kellogg's recognised there was a
a problem with the brand and used business tools to reach a solution. The overall
problem with the brand and used business tools to reach a solution. The overall aim
aim was to re-launch the brand and return it to growth in its market.
was to re-launch the brand and return it to growth in its market.
product
cycle
The The
product
lifelifecycle
Each product has its own life cycle. It will be ‘born’, it will ‘develop’, it will ‘grow old’
Each product has its own life cycle. It will be 'born', it will 'develop', it will 'grow old'
and, eventually, it will ‘die’. Some products, like Kellogg’s Corn Flakes, have retained
and, eventually, it will 'die'. Some products, like Kellogg's Corn Flakes, have retained
theirtheir
market
position for a long time. Others may have their success undermined
market position for a long time. Others may have their success undermined by
by falling
share
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falling market
market share
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Figure19.
19.Life
Life cycle extension
Figure
extension
The product life cycle shows how sales of a product change over time. The five
typical stages of the life cycle are shown on the graph. Not all products126follow
these stages precisely and time periods for each stage will vary widely. Growth, for
example, may take place over a few months or, as in the case of Nutri-Grain, over
several years.
However, perhaps the most important stage of a product life cycle happens before
this graph starts, namely the research and development (R&D) stage. Here the
company designs a product to meet a need in the market. The costs of market research - to identify a gap in the market and of product development to ensure that
the product meets the needs of that gap - are called ‘sunk’ or start-up costs.
Nutri-Grain was originally designed to meet the needs of busy people who had
missed breakfast. It aimed to provide a healthy cereal breakfast in a portable and
convenient format.
129
missed breakfast. It aimed to provide a healthy cereal breakfast in a portable and
convenient format.
1. Launch - Many products do well when they are first brought out and NutriLaunch
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was immediately successful, gaining almost 50% share of the growing cereal bar
immediately successful, gaining almost 50% share of the growing cereal bar market in
market in just two years.
just two years.
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2. Growth - Nutri-Grain's sales steadily increased as the product was promoted and
2. Growth
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became well known. It maintained growth in sales until 2002 through expanding the
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from
a “missed breakfast” product to an ‘all-day’ healthy snack.
3. Maturity - Successful products attract other competitor businesses to start selling similar products. This indicates the third stage of the life cycle - maturity. This
is the time of maximum profitability, when profits can be used to continue to build
the brand. However, competitor brands from both Kellogg’s itself (e.g. All Bran
bars) and other manufacturers (e.g. Alpen bars) offered the same benefits and this
slowed down sales and chipped away at Nutri-Grain’s market position. Kellogg’s
continued to support the development of the brand but some products (such as
Minis and Twists), struggled in a crowded market. Although Elevenses continued
to succeed, this was not enough to offset the overall sales decline.
4. Saturation - This is the fourth stage of the life cycle and the point when the
market is ‘full’. Most people have the product and there are other, better or cheaper
130
competitor products. This is called market saturation and is when sales start to
fall. By mid-2004 Nutri-Grain found its sales declining whilst the market continued to grow at a rate of 15%.
5. Decline - Clearly, at this point, Kellogg’s had to make a key business decision.
Sales were falling, the product was in decline and losing its position. Should Kellogg’s let the product ‘die’, i.e. withdraw it from the market, or should it try to extend its life?
Strategic use of the product life cycle
When a company recognizes that a product has gone into decline or is not performing as well as it should, it has to decide what to do. The decision needs to be
made within the context of the overall aims of the business.
Figure 21. Kellogg's | Extending the product life cycle
Figure 21. Kellogg’s | Extending the product life cycle
Strategically,
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131
Kellogg's decided to try to extend the life of the product rather than withdraw it from
the development of great brands, great brand value and the promotion of healthy
living.
Kellogg’s decided to try to extend the life of the product rather than withdraw it
from the market. This meant developing an extension strategy for the product.
Ansoff ’s matrix is a tool that helps analyse which strategy is appropriate. It shows
both market-orientated and product-orientated possibilities.
Extending the Nutri-Grain cycle - identifying the problem
Kellogg’s had to decide whether the problem with Nutri-Grain was the market,
the product or both. The market had grown by over 15% and competitors’ market
share had increased whilst Nutri-Grain sales in 2003 had declined.
The market in terms of customer tastes had also changed more people missed
breakfast and therefore there was an increased need for such a snack product.
Extension strategies
The choice of extension strategy indicated by the matrix was either product
development or diversification. Diversification carries much higher costs and
risks.
Kellogg’s decided that it needed to focus on changing the product to meet the
changing market needs. Research showed that there were several issues to
address:
1.The brand message was not strong enough in the face of competition. Consumers were not impressed enough by the product to choose it over competitors.
2.Some of the other Kellogg’s products (e.g. Minis) had taken the focus away
from the core business.
3.The core products of Nutri-Grain Soft Bake and Elevenses between them
represented over 80% of sales but received a small proportion of advertising
and promotion budgets. Those sales that were taking place were being driven
by promotional pricing (i.e discounted pricing) rather than the underlying
strength of the brand.
132
Implementing the extension strategy for Nutri-Grain
Having recognised the problems, Kellogg’s then developed solutions to re-brand
and re-launch the product in 2005.
Fundamental to the re-launch was the renewal of the brand image. Kellogg’s
looked at the core features that made the brand different and modelled the new
brand image on these. Nutri-Grain is unique as it is the only product of this kind
that is baked. This provided two benefits:
• The healthy grains were soft rather than gritty
• The eating experience is closer to the more indulgent foods that people
could be eating (cakes and biscuits, for example)
• The unique selling point, hence the focus of the brand, needed to be the ‘soft
bake’.
Researchers also found that a key part of the market was a group termed ‘realistic
snackers’. These are people who want to snack on healthy foods, but still crave a
great tasting snack. The re-launched Nutri-Grain product needed to help this key
group fulfill both of these desires.
Kellogg’s decided to re-focus investment on the core products of Soft Bake Bars
and Elevenses as these had maintained their growth (accounting for 61% of Soft
Bake Bar sales). Three existing Soft Bake Bar products were improved, three new
ranges introduced and poorly performing ranges (such as Minis) were withdrawn.
New packaging was introduced to unify the brand image. An improved pricing
structure for stores and supermarkets was developed.
The marketing mix
Using this information, the re-launch focused on the four parts of the marketing
mix:
• Product improvements to the recipe and a wider range of flavours,
repositioning the brand as ‘healthy and tasty’, not a substitute for a missed
breakfast
133
• Promotion a new and clearer brand image to cover all the products in the
range along with advertising and point-of-sale materials
• Place better offers and materials to stores that sold the product
• Price new price levels were agreed that did not rely on promotional pricing.
This improved revenue for both Kellogg’s and the stores
As a result Soft Bake Bar year-on-year sales went from a decline to substantial
growth, with Elevenses sales increasing by almost 50%.
The Nutri-Grain brand achieved a retail sales growth rate of almost three times
that of the market and most importantly, growth was maintained after the initial
re-launch.
Conclusion
Successful businesses use all the tools at their disposal to stay at the top of their
chosen market.
Kellogg’s was able to use a number of business tools in order to successfully relaunch the Nutri-Grain brand. These tools included the product life cycle, Ansoff ”s
matrix and the marketing mix. Such tools are useful when used properly.
Kellogg’s was able to see that although Nutri-Grain fitted its strategic profile a
healthy, convenient cereal product it was underperforming in the market. This information was used, along with the aims and objectives of the business, to develop
a strategy for continuing success.
Finally, when Kellogg’s checked the growth of the re-launched product against its
own objectives, it had met all its aims to:
• re-position the brand through the use of the marketing mix
• return the brand to growth
• improve the frequency of purchase
• introduce new customers to the brand.
134
Nutri-Grain remains a growing brand and product within the Kellogg’s product
family.
Case study - Nestlé
Securing customers’ interests through mutual ownership
(Sourse: download.businesscasestudies.co.uk/retrieve_nestle_10)
Introduction
Consumer research shows that people are looking to adopt healthier lifestyles.
Newspapers and television channels bombard us with health information and
messages about the benefits of healthier living. Governments, keen to ensure that
people are looking after their health in order to ease the burden on public health
services, are also reinforcing these messages. As a result, many people are taking
positive steps to lead healthier lives. They are starting to take appropriate exercise;
to find ways of relaxing and to eat a balanced, nutritious diet.
When millions of people decide to change their lifestyle and their buying habits
market-led companies are certain to notice and to respond. This is because their
ability to stay in business depends on providing goods and services that meet customers’ needs and to respond to changing requirements.
Nestlé is the world’s biggest food and beverage company and produces a wide
range of products. Many of its best known brands are household names, although
you may perhaps not realise, that some of them are part of the Nestlé portfolio.
The Nestlé organisation operates through product divisions. These include:
You will be familiar with many of the brands, which include
• Nescafé (coffee)
• Smarties, KitKat (confectionery)
135
• Perrier, Buxton (water)
• Buitoni (pasta)
• Sveltesse (chilled dairy)
• Shredded Wheat (cereals).
Henri Nestlé developed the first infant food in 1867 to save the life of a friend’s
baby who could not be breastfed. Since then, the company has looked to build on
a tradition of providing nutritious products. It builds its business around:
• discovering what customers want
• identifying pressures for change e.g. government campaigns, health education initiatives
• responding to changes in the market place.
Today, in Lausanne (Switzerland), Nestlé operates the world’s largest nutrition
based science research unit. Over 600 scientists and food technicians work there
developing and improving products.
This Case Study focuses on how Nestlé, one of the world’s leaders in consumer-led
approaches to product development, continually seeks to provide products that
meet consumers’ changing requirements. In particular, it also looks at how Nestlé
use its vast scientific and consumer knowledge to make products that make it
easier for consumers to be healthier.
Responding to market demands
A market led company like Nestlé is continually monitoring customer attitudes
and requirements through market research. This research takes two main forms:
• Qualitative research. This involves setting up small focus groups of consumers who express their ideas and opinions about their needs and views on
different products. At one level, this might involve asking groups of athletes
to talk about their lifestyles, dietary habits and training regimes. At another
level, it could involve a consumer focus group discussing the quality of the
nutritional labelling on a yoghurt drink.
136
• Quantitative research. Whereas qualitative research involves only relatively
few people, quantitative research involves much bigger numbers. For example,
professional market researchers may interview thousands of people through
postal or telephone interviewing.
Nestlé regularly uses both forms of research to gain a clear idea of consumer opinions and trends. Market research helps the company to keep in touch with an ever
changing environment in which social attitudes and buying patterns are continually shifting.
Nestlé’s market researchers do not work in isolation. They liaise closely with the
company’s product developers, food scientists and technologists. In this way the
company can design products to meet market needs.
Nestlé spends more on Research and Development (R&D) than any other company in the food industry. It is constantly looking at ways to improve its products.
Using this market-led approach, Nestlé introduced and developed its Sveltesse
(‘slimness’ or ‘elegance’ in French) range. The range began with yoghurts and dairy
products and globally now includes bottled water, ice cream, cereal bars and frozen prepared meals.
In developing Sveltesse, the emphasis is concentrating on an appealing taste combined with a low or no fat, low calorie option.
Strategic development
A strategy is the means by which an organisation achieves particular ends. An
agreed strategy answers the question “By what means are we going to achieve our
objective?”. For example, Nestlé’s market research confirms that increasing numbers of consumers want to buy good tasting foods that can allow them to have
healthier diets. Nestlé is keen to capture a greater share of this growing market.
So Nestlé’s ongoing strategy is to develop a ‘Wellness’ approach that builds on its
tradition of producing nutritional products.
137
Wellness is a condition of enhanced health, a physical state which is maintained
by good diet, exercise and life habits. Wellness is also associated with a feeling of
vitality and being in good shape.
In 2001, Nestlé’s Chief Executive set out the company’s vision when he stated: ‘We
want to grow from the respected and trustworthy food company that we are known
as now, into a respected and trustworthy food, nutrition and Wellness company’.
Nestlé’s development of a strategy to promote Wellness is an evolution of the company’s original commitment to nutrition and health.
Ensuring strategic fit
An Environment, Value and Resources (EVR) fit is a simple but useful business
tool to decide whether a proposed strategy is appropriate.
The strategy the business chooses must match these three elements.
For example, Nestlé’s Wellness strategy must:
▶ Match the strategy to the prevailing Environment, in which the business operates. In this case, it is a social environment, in which consumers are seeking nutritional products to complement a healthy lifestyle.
▶ Ensure the strategy is consistent with the organisation’s Values. Nestlé worldwide adheres to a set of business principles that have long underpinned the way
the company operates. One key principle is that of meeting consumers’ needs for
nutrition, enjoyment and quality they can trust. This is why the company places
so much emphasis on market research and on the best ways to communicate with
customers. Principles that underpin consumer communication include:
• stressing moderation in food consumption
• depicting children in healthy, energetic pursuits.
Nestlé is clear, for example, that its advertising must not look to encourage children to eat snack foods instead of meals.
138
▶ Ensure the company has the necessary Resources to support the strategy. With
its science and technology base, Nestlé is well equipped to develop the required
science-based improvements to existing products. It can also handle the development of new products that contribute to Wellness.
Personal health and Wellness are powerful, universal, human needs. With its
strong brands, wide product portfolio and R&D competence, Nestlé is well positioned to benefit from a growing market. It has the values and the resources to
meet customer requirements in an environment in which more and more people
are seeking health and Wellness.
Implementing the strategy
Having developed a clear strategy, it is important to implement it. Nestlé will look
to ensure that going forward all its products retain a superior taste profile while
providing enhanced nutritional benefits.
This will involve:
1.retain certain products
2.product reformulations (including salt, sugar, fat reduction)
3.launching new products with scientifically proven nutritional benefits.
Nestlé’s product research and development network ensures it is well placed
to meet the challenge of changes in consumer expectations. The Company’s
Wellness strategy is carefully geared to delivering what consumers want in
relation to the foods they eat - a high nutritional value and a positive contribution to their general wellness.
This has led to the following three-part strategy:
Clinutren has been formulated for patients with increased energy and protein
requirements and supports the nutrition of people suffering from a series of
medical conditions or recovering from operations. Fitnesse is a 99% fat free cereal.
Sveltesse is a range of low or fat-free products (e.g. yoghurt and fromage frais).
139
Using this approach, over the past five years Nestlé has developed or reformulated
over 700 products so that they have a lower fat, sugar and salt content.
In addition, the Company looks to educate consumers about healthy lifestyles and
proper nutrition. Its initiatives include:
• the Nestlé Trust supporting a number of initiatives focused on developing
nutritional awareness, often these are aimed at young people
• a website focused on providing nutritional information
• on-pack nutrition information.
As the Wellness approach is now central to everything that Nestlé does, the company has set up a Strategic Wellness Unit. Its job is to promote the Wellness approach both internally and outside the organisation, so that everyone knows what
it means and how to implement it.
Conclusion
Consumer interest in the nutritional quality and health impact of foods has probably never been greater and for good reason. Governments have been busy ‘spreading the message’ that healthy foods and a balanced diet are vital for good physical
and mental health and a general feeling of Wellness.
Nestlé is one of the world’s leading food companies and intends to remain so. Its
commitment to high quality market research ensures that it remains fully aware
of changes in consumer behaviour and consumer tastes. Its excellent product research and development network ensures that it is well placed to meet the challenge of changes in consumer expectations. The company’s Wellness strategy is
carefully geared to delivering to customers what they now clearly want in relation
to the foods they eat; a high nutritional value and a positive contribution to their
general Wellness.
140
Practical exercises
Product design, management, and ownership instruction
An effective product owner has diverse responsibilities
Product developing owner role actively directs the planning, design, and incremental development of a product that emerges incrementally. This is a new role
not common in software development before and not commonly understood today.
An effective product owner
•
balances the concerns of a variety of stakeholders, customers, and users
•
synthesizes business goals, user goals, and their understanding of the potential
use of the system to envision a solution that could be built by the team
•
guides incremental development and validation of the software.
Product ownership is a challenging role that requires a blend of subject matter
expertise, product design, planning, and software development management.
It’s difficult to acquire skills necessary to be an effective product owner
Sadly those placed into the role often have no idea of the challenges that await
them. Development as a process, and its process points, but don’t teach the skills
necessary to confidently fulfill the product owner role.
Product owner course from the topics below
What follows is a list of course topics designed to train product owners, members
of the product owner team, and all others participating process with interested
in the product ownership role. These classes emphasize software product design
and planning and how the results of that work enter a process, generally as user
stories. The courses help those in the product owner team identify problems to
solve, software solutions to those problems, and tactics for developing and validating those solutions.
141
To construct a course for your organization, choose from among the buffet of topics described below. All are valuable. Most can be tailored to fit your organization’s context and your team’s existing skills. Use this list of courses as a guide to
start planning, then continue the conversation with me to tailor your course.
context and your team’s existing skills. Use this list of courses as a guide to start
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(Source:
Course Topics & Timing
(Source: www.agileproductdesign.com/consulting/patton_training_workshops.doc)
Course
Topics & Timing
Layers
of planning and the product development lifecycle (45 minutes)
(Source: www.agileproductdesign.com/consulting/patton_training_workshops.doc)
Layers of planning and the product development lifecycle (45 minutes)
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142
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to help
participants
understand
and leverage
these
concepts.
Driving Prioritization from goals (1.5 hours) cepts.
Show and discuss models to help participants understand and leverage these concepts.
Understanding
the
goals
Driving Prioritization
from of
goals (1.5
Driving Prioritization from goals (1.5 hours)
organizations
paying for software and
hours)
Understanding
the
goals
of
using
software
is
critical
to
making
Understanding
goals ofandorganizaorganizations
payingthe
for software
choices about what to build and how
tionssoftware
paying for
software
using softusing
is critical
to and
making
to prioritize specific details of a
choices
whattotomaking
build andchoices
how about
ware isabout
critical
prospective software solution. This
towhat
prioritize
specific
details
of a
to build
and how
to prioritize
spediscussion
and
exercise
helps
prospective
software
This
cific details
of a solution.
prospective
participants
understand
goals as not software
discussion
and
exercise
helps
solution.
discussion
the
software This
we intend
to build,and
but exercise
participants understand goals as not
helps
participants
understand
the benefit we hope to realize after the software is
put into
use. Participants
will learn goals as
the software we intend to build, but
how the
to validate
goals with
metrics
that we
helphope
identify
progress after the
not
softwareandwesupport
intendtheir
to build,
but the
benefit
to realize
the benefit we hope to realize after the software is put into use. Participants will learn
towards their
realization.
software
is put
into
use. Participants
will learn
validate
support their
how to validate
and support
their goals with
metricshow
that to
help
identifyand
progress
Modeling
Customers, that
users, and use (3 hours)
goals
with
towards
theirmetrics
realization. help identify progress towards their realization.
In software product design we need to
Modeling Customers, users, and use (3 hours)
balance the goals and desired of users
InModeling
software product
design we
needand
to use (3
Customers,
users,
with those paying for the software.
balance
hours)the goals and desired of users
Users also have particular knowledge,
with
paying
for the design
software.
In those
software
product
characteristics,
biases,
and workingwe need
Users also have particular knowledge,
to balance
desired of usconstraints
thatthe
willgoals
affect and
our solution
characteristics, biases, and working
ers with
those
paying
for the
design
choices.
In this
discussion
andsoftware.
constraints that will affect our solution
supporting
exercises
Users also
have participants
particular will
knowledge,
design choices. In this discussion and
learn
the difference
between
a
characteristics,
and
supporting
exercises biases,
participants
will working
customer who makes buying decisions and a user engaged in using the system.
constraints
that will between
affect oura solution
learn
the difference
Participants learn how to model customers and users in a concise and relevant way so
choices.
In this
and
customer who makes buying decisions and a design
user engaged
in using
the discussion
system.
those models can be used to help drive design for and validate prospective solutions.
Participants learn
how to participants
model customers
andlearn
users in
and relevant
wayasocustomer
supporting
exercises
will
thea concise
difference
between
In exercises, participants will identify user types, add detail to them to create user
thosemakes
models buying
can be used
to help and
driveadesign
for and validate
prospective
solutions.
who
decisions
user engaged
in using
the system.
Participants
profiles, and leverage that detail to create useful user personas.
In exercises,
will identify
user
types,
detail toand
themrelevant
to createway
user
learn
how toparticipants
model customers
and
users
inadd
a concise
Modeling
software use
with user so those
profiles, and leverage that detail to create useful user personas.
stories and story maps (2 - 3 hours)
143
Modeling software use with user
Development user stories are used to
learn
the
difference
between
a
customer who makes buying decisions and a user engaged in using the system.
models
canlearn
be used
tomodel
help drive
design
prospective
solutions.
In
Participants
how to
customers
and for
usersand
in avalidate
concise and
relevant way
so
exercises,
participants
will
userfor
types,
add detail
to them
to create user
those models
can be used to
helpidentify
drive design
and validate
prospective
solutions.
In exercises,
will detail
identifytouser
types,
add detail
to them to create user
profiles,
andparticipants
leverage that
create
useful
user personas.
profiles, and leverage that detail to create useful user personas.
Modeling
Modelingsoftware
softwareuse
use with
with user
user
stories and story maps (2 - 3 hours)
stories
and story maps (2 - 3 hours)
Development user stories are used to
Development user stories are used to de-
describe how users might use software
scribe how users might use software to
meet their goals. Participants will learn
140
to write high level user stories
that de-
scribe activities and user tasks engaged
in by users. Using these high level user
to meet their goals. Participants will learn to write high level user stories that describe
stories, participants will create a useful
activities and user tasks engaged in by users. Using these high level user stories,
map of the full system that’s valuable for telling big stories about the end to end
participants will create a useful map of the full system that’s valuable for telling big
use of the entire system. Story maps form useful backdrops for discussion. Use
stories about the end to end use of the entire system.
Story maps form useful
conversation
around a story
map to identify
opportunities
backdrops for discussion.
Use conversation
around problems
a story mapand
to identify
problems in exist-
ing
systems, check
for completeness
of completeness
your user stories,
andstories,
understanding
of
and opportunities
in existing
systems, check for
of your user
and
users
and use.
understanding
of users and use.
Envisioning and validating use using paper prototyping (3 - 4.5 hours)
To
envision software
that solves user’s
Envisioning
and validating
use using
and
problems
need to
per business’
prototyping
(3 - 4.5wehours)
pa-
begin thinking about possible concrete
To envision software that solves user’s
solutions.
Writing
textual
user
and business’ problems we need to begin
scenarios
allows
us
to
quickly,
thinking about possible concrete solu-
cheaply, and iteratively imaging the
tions.with
Writing
textual solution
user scenarios
world
a new software
in
al-
lows us
to quickly,
cheaply,
and iterativeplace.
Quick
to build paper
prototypes
ly imaging
the world
a new
allow
us to envision
the with
specific
user software
interface that supports use. Placing simple prototypes
of users
and to
asking
solutionininfront
place.
Quick
build
paper
them to try to
meetusgoals
as you move
paper simulating
the computer’s
response
prototypes
allow
to envision
the specific
user interface
that supports
use. Placallows
you toprototypes
validate the in
success
prospective
solution.
will learn
ing
simple
frontofofyour
users
and asking
themParticipants
to try to meet
goals as you
scenario writing, paper prototyping, and light weight usability testing.
move paper simulating the computer’s response allows you to validate the success
of your prospective solution. Participants will learn scenario writing, paper prototyping, and light weight usability testing.
Incremental release planning to maximize value and reduce risk (2 - 3 hours)
144
A tenet of company development is
Incremental release planning to maximize value and reduce risk (2 - 3 hours)
AIncremental
tenet of company
releasedevelopment
planning to ismaximize
releasing
software
users(2frequently.
value and
reduceto risk
- 3 hours)
Incremental releases increase return on
A tenet of company development is re-
investment and reduce project risks.
leasing software to users frequently. In-
Participants
will
learn
about
the
cremental releases increase return on
benefits
of
incremental
release,
investment and reduce project risks.
strategies for thinning incremental
Participants
learnapproach
about the
releases,
and awill
simple
to
benefits
of incremental release, strategies for thinning incremental releases, and a simple
141
approach to leverage your story maps to identify releases that take into account
the entire
breadth
of the
system.releases
Participants
incremental
releases not
leverage
your
story maps
to identify
that takewill
intoexpress
account the
entire breadth
asthe
piles
of features,
but will
as roadmaps
that express
how
user goals are
of
system.
Participants
express incremental
releases
notbusiness
as piles ofand
features,
but
as roadmaps
that express how business and user goals are reached over time.
reached
over time.
Driving solution development with tactical user stories (1.5 – 3 hours)
Building
from development
a
foundational
Driving solution
with tactical
understanding of business goals, users,
user stories (1.5 – 3 hours)
use, and some vision of the final
Building from a foundational under-
solution, tactical user stories allow us
standing of business goals, users, use, and
to being to support that use by building
some vision of the final solution, tactical
software. Participants will learn how
user stories
being to
express
story allow
details us
as toacceptance
support
that use
by atbuilding
software.
criteria
arrived
through conversation
Partici-
with
and other
pantsdevelopers,
will learntesters,
how express
story
team members.
Participants will learn strategies
for thinning
storiesarrived
to allow
as acceptance
criteria
at
details
through
development
to proceed
quicker to a testers,
solution that
be validated
through actual
use.
conversation
with developers,
andcan
other
team members.
Participants
will
A product owner will spend a great deal of their time collaborating with the team to
learn strategies for thinning stories to allow development to proceed quicker to a
write acceptance criteria, answer questions during development, and review working
solution that can be validated through actual use.
software to confirm it meets its acceptance criteria, and ultimately helps users reach
A product owner will spend a great deal of their time collaborating with the team
their goals.
Participants will begin to feel the rhythm of driving software
to write acceptance criteria, answer questions during development, and review
development using user stories.
workingcollaboratively
software to (3
confirm
Working
hours) it meets its acceptance criteria, and ultimately helps
users reach their goals. Participants will
begin toproduct
feel the rhythm
driving softEffective
owners ofelicit
ware development using user stories. information
from
stakeholders,
communicate,
then
and
a
variety
of
synthesize,
leverage
that
information to make good product
decisions.
Product owners facilitate
145
development using user stories.
Working collaboratively (3 hours)
Effective
product owners
elicit
Working collaboratively
(3 hours)
information
from owners
a variety
Effective product
elicitofinformastakeholders,
then
synthesize,
tion from a variety
of stakeholders,
then
communicate,
and
leverage
that
synthesize, communicate, and leverage
information to make good product
that information to make good prod-
decisions.
Product owners facilitate
uct decisions.
Product owners facilitate
to gather information,
workshops
workshops
gather
information,
create
models,to and
build
common
create
models, and build
understandunderstanding
amongcommon
stakeholders,
and within the team. Effective product ownersing
are among
good collaborators
that can
work
stakeholders,
and
within
the
with others
to create
models,owners
plans, and
working software
team.
Effective
product
areultimately
good collaborators
thatthat’s
can better
workthan
with others
anycreate
single individual
to
models, could
plans,create.
and ultimately working software that’s better than any
single individual could create.
Class format
142
Classes
are taught workshop style by alternating short
Class format
periods of lecture and discussion with collaborative
Classes are taught workshop style by alternating short
hands on exercises. Slides favor the use of simple
periods of lecture and discussion with collaborative
models and photographs to help cement participants’
hands on exercises. Slides favor the use of simple
mental models or envision the practice of a technique.
models and photographs to help cement participants’
Simple games are used to teach card modeling
mental models
or envision
theclass
practice
techniques
used throughout
various
topics.of a technique.
Simple games are used to teach card modeling tech-
niques used throughout various class topics.
The design problem used in this course
For hands on exercises to be most productive, these courses use an example customer
with design
a real business
be solved with a software solution. When I
The
problemproblem
used inthat
thiscan
course
teachhands
courseson
within
a single
valuable tothese
tailor acourses
problemuse
based
the
For
exercises
tocompany,
be mostit’s
productive,
anon
example
cusproduct and business problems participants work on in their daily work life. When
tomer with a real business problem that can be solved with a software solution.
tailoring a custom course, consider tailoring a design problem that allows your
When I teach courses within a single company, it’s valuable to tailor a problem
participants to get the most out of the training.
based on the product and business problems participants work on in their daily
work life. When tailoring a custom course, consider tailoring a design problem
that allows your participants to get the most out of the training.
REFERENCE OUTLINE
1) What are the two ways that a company can obtain new products?
A) line extension and brand management
B) internal development and brand management
C) new-product development and acquisition
D) service development and product extension
E) market mix modification and research and development
146
Answer: C
REFERENCE OUTLINE
1) What are the two ways that a company can obtain new products?
A) line extension and brand management
B) internal development and brand management
C) new-product development and acquisition
D) service development and product extension
E) market mix modification and research and development
Answer: C
2) Product improvements, product modifications, and original products can all be
classified as ________.
A) pioneer products
B) new products
C) product concepts
D) product ideas
E) test products
Answer: B
3) Which of the following is NOT a potential reason for a new product to fail?
A) an underestimated market size
B) a poorly designed product
C) an incorrectly positioned product
D) higher than anticipated costs of product development
E) ineffective advertising
Answer: A
4) Which of the following is NOT a challenge presented by the product life cycle
that a firm must face?
A) All products eventually decline.
B) Changing tastes, technologies, and competition affect the marketing of the
product as it passes through lifecycle stages.
C) A firm must be good at developing new products to replace aging ones.
147
D) A firm must be good at adapting its marketing strategies.
E) It is difficult to plot the stages as a product goes through them.
Answer: E
5) The creation of a successful new product depends on a company’s understanding of its ________ and its ability to deliver ________ to customers.
A) competitors, distributors, and employees; new styles
B) customers, brands, products; product images
C) customers, competitors, and markets; superior value
D) product, marketing mix, and marketing strategy; functional features
E) product life cycle, legal responsibilities, and social responsibilities; innovations
Answer: C
6) New product development starts with ________.
A) idea generation
B) idea screening
C) concept development
D) concept testing
E) test marketing
Answer: A
7) Executives, manufacturing employees, and salespeople are all examples of
________.
A) external sources for new-product ideas
B) internal sources for new-product ideas
C) core members of innovation management systems
D) research and development team members
E) new-product committee members
Answer: B
8) Your company decides to use internal sources for developing new product ideas.
Which of the following would NOT be consulted?
148
A) executives and professionals
B) company records and data
C) intrapreneurial programs
D) suppliers
E) salespeople
Answer: D
9) Which of the following is perhaps the most important external source of newproduct ideas?
A) engineers
B) customers
C) competitors
D) trade magazines, shows, and seminars
E) distributors and suppliers
Answer: B
10) Which of the following is NOT a recommended method for companies to tap
into their customers as sources for new-product ideas?
A) analyzing customer complaints and questions
B) relying heavily on customers to know what types of technical products they
need
C) working alongside customers to get ideas and suggestions
D) turning customers into cocreators
E) putting customer-created products on the market
Answer: B
11) Your firm asks you to consult external sources for new product ideas. All of
the following are common external sources EXCEPT ________.
A) customers
B) suppliers
C) competitors
D) trade shows and magazines
E) the firm’s executives
Answer: E
149
12) The purpose of idea generation is to create a ________ number of ideas. The
purpose of succeeding stages is to ________ that number.
A) small number; reduce
B) small number; increase
C) large number; increase
D) large number; reduce
E) limited number; sustain
Answer: D
13) GrayBerry Gifts has just brainstormed a large number of ideas for adding new
products and services after visiting several buying fairs. The owners will begin
the first idea-reducing stage, called ________, to arrive at a realistic number to
adopt.
A) business analysis
B) idea generation
C) concept testing
D) idea screening
E) concept development
Answer: D
14) Which of the following is most likely to be included in an executive’s write up
of a new-product idea to be presented to a new-product committee?
A) the proposed customer value proposition
B) the product image
C) the marketing strategy
D) the business analysis
E) the planned marker rollout
Answer: A
15) A detailed version of a new idea stated in meaningful customer terms is called
a ________.
A) product idea
B) product concept
150
C) product image
D) product proposal
E) product movement
Answer: B
16) A ________ is the way consumers perceive an actual or potential product.
A) product idea
B) product concept
C) product image
D) test market
E) concept test
Answer: C
17) An attractive idea must be developed into a ________.
A) product idea
B) product concept
C) product image
D) test market
E) product strategy
Answer: B
18) ________ calls for testing new-product concepts with groups of target consumers.
A) Concept development
B) Concept testing
C) Idea generation
D) Idea screening
E) Test marketing
Answer: B
19) In the concept testing stage of new-product development, a product concept
in ________ form is presented to groups of target consumers.
A) physical or symbolic
151
B) prototype
C) final
D) market-tested
E) commercial
Answer: A
20) With what groups do firms conduct concept testing for new products?
A) suppliers
B) employees
C) target customers
D) manufacturers
E) competitors
Answer: C
21) For some ________, a simple description consisting of a word or picture might
be sufficient.
A) concept tests
B) product concepts
C) marketing strategies
D) product developments
E) business analyses
Answer: A
22) After concept testing, a firm would engage in which stage in developing and
marketing a new product?
A) idea screening
B) marketing strategy development
C) business analysis
D) product development
E) test marketing
Answer: B
23) The first part of the marketing strategy statement describes the target market;
the planned product positioning; and goals for sales, profits, and ________.
152
A) market share
B) competition
C) secondary market
D) competition’s anticipated reaction
E) life-cycle duration
Answer: A
24) The second part of the marketing strategy statement outlines the product’s
planned price, distribution, and ________ for the first year.
A) advertising
B) promotion
C) marketing budget
D) positioning
E) target market
Answer: C
25) The third part of the marketing strategy statement includes all of the following
EXCEPT ________.
A) long-run sales
B) profit goals
C) marketing mix strategies
D) short-run sales
E) A and C
Answer: D
26) A review of the sales, costs, and profit projections for a new product to find out
whether they satisfy the company’s objectives is called a ________.
A) business feasibility plan
B) marketing strategy development
C) business analysis
D) product acceptance
E) proposal
Answer: C
153
27) During which stage of new-product development will management most likely estimate minimum and maximum sales to assess the range of risk in launching
a new product?
A) concept testing
B) marketing strategy development
C) business analysis
D) product development
E) test marketing
Answer: C
28) Once managers of The Grecian Urn have decided on their product concept
and marketing strategy, they can evaluate the business attractiveness of the proposal in the ________ stage of the new-product development process.
A) business feasibility
B) feasibility study
C) business analysis
D) product acceptance
E) concept testing
Answer: C
29) New World Releases is conducting a business analysis to determine which of
the many new songs available to management should be released. Sales must be
estimated before costs can be estimated. Which of the following did your text recommend for forecasting sales?
A) conducting surveys of competitors
B) considering the history of market opinions
C) considering the sales history of similar products and conducting surveys of
market opinions
D) applying the PLC concept
E) none of the above
Answer: C
30) Once the product or service passes the business analysis test, it moves into
what stage?
154
A) concept development
B) product development
C) market testing
D) strategy development
E) product proposal
Answer: B
31) In the ________ stage of new-product development, products undergo rigorous tests to make sure that they perform safely and effectively or that consumers
will find value in them.
A) business analysis
B) idea generation
C) concept development and testing
D) product development
E) marketing mix
Answer: D
32) Once the prototype of Wainwright Industries’ new riding lawnmower, made
especially for women, passes product tests, the next step is ________.
A) test marketing
B) focus group surveys
C) commercialization
D) post-testing
E) business analysis
Answer: A
33) Bonneville Communications is concerned about test marketing its new device. Which of the following is NOT a disadvantage of test marketing that would
likely concern Bonneville Communications?
A) Test marketing costs can be high.
B) It can take a lot of time to test market.
C) Test marketing allows time for competitors to spy and gain advantages.
D) People who are surveyed tend to tell less than the truth.
155
E) Test marketing does not guarantee success.
Answer: D
34) Under what circumstances might it be wise for a company to do little or no
test marketing?
A) when a new product requires a major investment
B) when management is not sure of the product
C) when management is not sure of the marketing program
D) when the product has no substitutes and is new in its category
E) when the costs of developing and introducing the product are low
Answer: E
35) Although test marketing costs can be high, they are often small when compared with ________.
A) the final results
B) the costs of a major mistake
C) management’s approval and acceptance
D) stockholders’ confidence
E) research and development costs
Answer: B
36) Many marketers are now using new interactive technologies, such as FritoLay’s online virtual convenience store, to reduce the cost of ________.
A) concept development
B) concept testing
C) marketing strategy development
D) product development
E) test marketing
Answer: E
37) The major purpose of test marketing is to provide management with the information needed to make a final decision about ________.
A) how to develop a market strategy
156
B) which market to compete in
C) whether to launch the new product
D) how to compete in the market
E) how long to compete in the market
Answer: C
38) Introducing a new product into the market is called ________.
A) test marketing
B) new product development
C) experimenting
D) commercialization
E) marketing development
Answer: D
39) Which of the following costs is most likely associated with the commercialization stage of new-product development?
A) building or renting a manufacturing facility
B) paying groups of target customers for product feedback
C) determining the product’s planned price, distribution, and marketing budget
D) developing a prototype of the product
E) identifying target markets
Answer: A
40) A company getting ready to launch a new product must make several decisions. The company must first decide on ________.
A) whether to launch the product in a single location
B) whether to launch the product in a region
C) whether to launch the product into full national distribution
D) when to time the new product introduction
E) when to develop a planned market rollout
Answer: D
41) Following the decision to “time” the introduction of the new product, a company must decide ________ to launch the new product.
157
A) where
B) how
C) to what degree
D) why
E) all of the above
Answer: A
42) Which of the following is necessary for successful new-product development?
A) a holistic and sequential product development approach
B) a customer-centered, team-based, systematic approach
C) a team-based, innovation-management approach
D) a market pioneer mindset and a holistic approach
E) an innovation management system and sequential product development
Answer: B
43) Which stage of the new-product development process focuses on finding new ways
to solve customer problems and create more customer-satisfying experiences?
A) concept testing
B) new-product development
C) customer-centered new-product development
D) sequential product development
E) team-based new-product development
Answer: C
44) ________ is a new-product development approach in which one company department works to complete its stage of the process before passing the new product along to the next department and stage.
A) Team-based product development
B) Simultaneous product development
C) Sequential product development
D) Product life-cycle analysis
E) Micromarketing
Answer: C
158
45) In order to get their new products to market more quickly, many companies
are adopting a faster, team-oriented approach called ________.
A) simulated new-product development
B) sequential product development
C) team-based new-product development
D) phased-in new-product development
E) market development
Answer: C
46) The team-based new-product development approach is faster because departments work closely together through ________.
A) team efforts
B) a step-by-step process
C) the help of a consultant
D) cross-functional teams
E) departmentalization
Answer: D
47) The team-based new-product development approach uses cross-functional teams that overlap the steps in the process to achieve which of the following
goals?
A) save time and reduce errors
B) save time and increase effectiveness
C) increase effectiveness and employee satisfaction
D) speed product to market and reduce costs
E) B and D
Answer: B
48) Which of the following is a disadvantage of a team-based approach to newproduct development?
A) It takes longer to get the right products to market.
B) The development effort is not as effective because of team members’ lack of
expertise.
159
C) Levels of risk can be more easily controlled.
D) Organizational confusion and tension can affect the process.
E) The process does not work with the shorter life cycles of many of today’s products.
Answer: D
49) The innovation management system approach yields two favorable outcomes:
it helps create an innovation-oriented company culture, and it ________.
A) clearly assigns responsibility for the process
B) yields a larger number of new-product ideas
C) guarantees successful products
D) frees up senior management time
E) requires less budget support
Answer: B
50) The search for new-product ideas should be ________ rather than haphazard.
A) intermittent
B) systematic
C) segmented
D) strategically planned
E) rare
Answer: B
51) ________ is the product life cycle period when sales fall off and profits drop.
A) Introduction
B) Growth
C) Maturity
D) Decline
E) Development
Answer: D
52) Increasing profits will most likely occur at which stage of the PLC?
A) introduction
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B) maturity
C) growth
D) decline
E) product development
Answer: C
53) Which stage in the PLC is characterized by rapid market acceptance and increasing sales?
A) introduction
B) maturity
C) growth
D) decline
E) development
Answer: C
54) Some products that have entered the decline stage have been cycled back to
the growth stage through ________.
A) promotion or repositioning
B) concept testing
C) business analysis
D) innovation management
E) customer-centered product development
Answer: A
55) All of the following are stages in the PLC EXCEPT ________.
A) introduction
B) growth
C) maturity
D) adoption
E) decline
Answer: D
56) Which stage of the typical consumer product life cycle is out of order below?
A) product development
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B) introduction
C) maturity
D) growth
E) decline
Answer: C
57) Which of the following CANNOT be described using the PLC concept?
A) product class
B) product form
C) product image
D) brand
E) styles
Answer: C
58) All of the following are accurate descriptions of a style product, EXCEPT
which one?
A) Style products appear in home, clothing, and art.
B) Once a style is invented, it may last for generations.
C) A style has a cycle showing several periods of renewed interest.
D) Styles last only a short time and tend to attract only a limited following.
E) Styles are basic and distinctive modes of expression.
Answer: D
59) The PLC concept can be applied by marketers as a useful framework for describing how ________.
A) to forecast product performance
B) to develop marketing strategies
C) products and markets work
D) concept testing is conducted
E) product ideas are developed
Answer: C
60) Using the PLC concept to develop marketing strategy can be difficult because
strategy is both a ________ and a(n) ________ of the product’s life cycle.
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A) mirror image; cause
B) cause; result
C) result; mirror image
D) beginning; end
E) purpose; effect
Answer: B
61) In which stage of the PLC will promotional expenditures be especially high in
an attempt to create consumer awareness?
A) growth
B) product development
C) maturity
D) introduction
E) adoption
Answer: D
62) In the ________ stage, the firm faces a trade-off between high market share
and high current profit.
A) growth
B) decline
C) maturity
D) introduction
E) adoption
Answer: A
63) In which stage of the PLC will promotional expenditures be high in an attempt
to respond to increasing competition?
A) growth
B) decline
C) maturity
D) product development
E) adoption
Answer: A
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64) Which stage in the PLC normally lasts longer and poses strong challenges to the
marketing managers?
A) growth
B) decline
C) maturity
D) phase-in
E) adoption
Answer: C
65) Which of the following would lead to greater competition in the maturity stage
of the PLC?
A) overcapacity
B) market pioneers
C) poor management
D) inadequate promotion
E) diminishing budgets
Answer: A
66) Most products in the marketplace are in the ________ stage of the product life cycle.
A) growth
B) decline
C) maturity
D) introduction
E) development
Answer: C
67) When a product enters the maturity stage, the company should consider
________.
A) harvesting the product
B) modifying the product, market, or marketing mix
C) divesting the product
D) maintaining the product
E) dropping the product
Answer: B
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68) Sales decline in the decline stage of the PLC because of technological advances, increased competition, and ________.
A) shifts in the economy
B) shifts in unemployment
C) shifts in consumer tastes and preferences
D) inventory costs
E) new market pioneers
Answer: C
69) Which of the following best represents the options a company has when a
product is declining?
A) maintain or harvest the product
B) harvest or drop the product
C) maintain, harvest, or drop the product
D) maintain or pioneer the product
E) pioneer, harvest, or maintain the product
Answer: C
70) A manufacturer with a product in the decline stage of the product life cycle
might decide to ________ if it has reason to hope that competitors will leave the
industry.
A) harvest the product
B) maintain the product without change
C) drop the product
D) search for replacements
E) delay planning
Answer: B
71) Manufacturers must comply with specific laws regarding ________.
A) price structures
B) product quality and safety
C) product placement
D) distribution channels
E) product life cycles
Answer: B
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72) Because of ________, a company cannot make its product illegally similar to
a competitor’s already established product.
A) anti-monopoly laws
B) patent laws
C) the Consumer Product Safety Act
D) product warranties
E) product liability
Answer: B
73) Which of the following best describes the role of a product steward?
A) to protect consumers from harm
B) to evaluate new-product ideas against a set of general criteria
C) to develop a new-product concept into a physical product
D) to protect the company from liability by identifying and solving potential product problems
E) A and D
Answer: E
74) The advantages of standardizing an international product include all of the
following EXCEPT ________.
A) the development of a consistent image
B) lower product design costs
C) the adaptation of products to different markets
D) decreased manufacturing costs
E) lower marketing costs
Answer: C
75) Because names, labels, and colors may not easily translate from one country to
another, international marketers must carefully assess ________.
A) product standardization
B) market rollout
C) the product life cycle
D) packaging
E) styles
Answer: D
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76) Your firm added three new products earlier this year to increase variety for
customers. Two of them failed to reach even minimal sales. Which of the following is LEAST likely to have been the cause of their failure?
A) The products were priced too high.
B) The products were advertised incorrectly.
C) Competitors fought back harder than expected.
D) Research was too extensive.
E) The product launch was ill-timed.
Answer: D
77) Which of the following is the most likely reason that employees at your firm
regularly attend trade shows and seminars?
A) to analyze the product life cycle
B) to test new-product concepts
C) to get new-product ideas
D) to test market new products
E) to implement a team-based new-product development approach
Answer: C
78) Which of the following statements best explains why idea screening may be
the most import step of new product development?
A) It increases the number of ideas generated.
B) Some potentially profitable ideas may be ill perceived by the idea screeners.
C) Some ideas that will become market disasters may be originally viewed favorably by the idea screeners.
D) It gives research and development team members an opportunity to gather
consumer feedback.
E) It saves the company money in product development costs by giving the green
light to only the product ideas that are likely to be profitable.
Answer: E
79) JoAnn Fabrics, Inc., has just created a new combination of colors and fabric
types. The firm wants to be sure of the way consumers perceive its new product.
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The firm is concerned with the product ________.
A) idea
B) concept
C) image
D) proposal
E) presentation
Answer: C
80) Which of the following is a product concept?
A) a battery-powered all-electric car
B) a pocket-size digital music player
C) an energy efficient humidifier
D) a thin, lightweight laptop with extended battery life appealing to students and
young professionals who want access to their computer anywhere, anytime
E) a high-tech, stylish running shoe with built-in sensors to record the distance
the wearer has walked or run
Answer: D
81) Wainwright Industries will build a new prototype riding lawnmower especially for women. In the product development stage, Joe Wainwright and his staff
will incorporate the functional features and convey the ________.
A) brand image
B) advertising
C) safety features
D) intended psychological characteristics
E) visual characteristics
Answer: D
82) Skippy Peanut Butter has a new peanut butter and bacon product and finds a
small number of representative test cities. They plan to use the results to forecast
national sales and profits. Skippy is using ________.
A) controlled test markets
B) simulated test markets
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C) standard test markets
D) random test markets
E) single-city test markets
Answer: C
83) Anita’s DayCare plans to offer third-shift childcare, based upon the opening
of two new manufacturing plants in her area. Together the plants will hire 423
employees and run all three shifts. Initial test marketing results look promising. In
considering launching this new service, Anita must first decide on ________.
A) timing
B) expansion costs
C) hiring suitable employees
D) checking local and state regulations
E) food costs
Answer: A
84) Atlas Steel Corporation lacks the confidence, capital, and capacity to launch its
new steel product into full national or international distribution. Even though test
market results look promising, what will be management’s next step?
A) retest the product in additional markets
B) develop a planned market rollout over time
C) secure a loan to provide confidence, capital, and capacity
D) seek the help of a nationally known consultant
E) develop a prototype
Answer: B
85) At Fantastic Flavors, a large regional chain of candy stores, employees from
marketing, design, production, and finance work in a cross-functional group to
save time and money in the new-product development process. Fantastic Flavors
uses a(n) ________ approach.
A) customer-centered new-product development
B) sequential new-product development
C) team-based new-product development
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D) innovation management system
E) consumer composite
Answer: C
86) Sherri’s Exclusives sells currently accepted and popular clothing items in given
fields. What does she stock in her store?
A) styles
B) fashions
C) fads
D) exclusives
E) services
Answer: B
87) Flurrbies, a winter accessory which fell in and out of favorability with customers quickly, are an example of a ________.
A) style
B) fashion
C) fad
D) product idea
E) market strategy
Answer: C
88) Big Moose Toys is a market pioneer introducing a modern version of Bullwinkle the Moose, a character from an animated television series originally broadcast
in the 50s and 60s. Their version of Rocky the Flying Squirrel, another character
from the show, targeted to baby boomers was a strong success. They need to make
the new launch strategy for Bullwinkle consistent with the intended ________.
A) promotion campaign
B) product positioning
C) company image
D) target market
E) use
Answer: B
89) Apple’s iPod has been called “one of the greatest consumer electronics hits
of all time.” More than 120 million iPods have been sold, and the iPod captures
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more than 70 percent of the music player market. This success has attracted many
large, resourceful competitors. The iPod is in the ________ stage of the product
life cycle.
A) introduction
B) product development
C) maturity
D) decline
E) adoption
Answer: C
90) Mattel’s Barbie is an example of an age-defying product. Barbie, simultaneously timeless and trendy, is in the ________ stage of the PLC.
A) introduction
B) growth
C) maturity
D) decline
E) adoption
Answer: C
91) Over the past 100 years or so, Binney and Smith’s Crayola crayons have become a household staple in more than 80 countries around the world. Crayola
crayons are in the ________ stage of the PLC.
A) introduction
B) growth
C) maturity
D) decline
E) incubation
Answer: C
92) When Heinz introduced EZ Squirt packaging and new colors such as Blastin’ Green and Awesome Orange to revitalize consumer buying, the company was
________.
A) modifying the market
B) modifying the pricing strategy
C) modifying the distribution
D) modifying the product
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E) dropping the product
Answer: D
93) It’s What’s Hip, a chain of 18 music and CD stores, has discovered that carrying a weak product during the decline stage of the PLC can be very costly to a
firm, and not just in profit terms. Which one of these is NOT likely to be one of
those costs?
A) takes up much of management’s time
B) frequent price and inventory adjustment
C) requires advertising and sales force attention
D) few concerns about company image and other products
E) all of the above
Answer: D
94) Superior Luggage Company has undertaken the task of identifying its products in the decline stage of the PLC. Which of the following should NOT be done
in the identification process?
A) regularly reviewing sales
B) regularly reviewing market share
C) regularly reviewing costs and profit trends
D) regularly reviewing management’s pet projects
E) all of the above
Answer: D
95) Proctor & Gamble has sold off a number of lesser or declining brands such as
Oxydol detergent and Jif peanut butter. In these examples, management decided
to ________ the products.
A) further test
B) maintain
C) drop
D) harvest
E) ignore the test market results of
Answer: C
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96) When Kraft focused on cost-cutting with its older and established brands,
leaving them to wither without much investment or modification, Kraft had decided to ________ the older products.
A) extend
B) maintain
C) drop
D) harvest
E) review
Answer: D
97) CellTones, a new company selling several lines of cellular phones, has closely
modeled its products after successful products that are already in the marketplace.
As it prepares to enter the market with its new products and services, which of the
following should concern CellTones the most?
A) legal obligations to suppliers and dealers
B) patent laws
C) the Federal Food, Drug, and Cosmetic Act
D) product liability suits
E) limited warranties
Answer: B
Refer to the scenario below to answer the following questions.
Most people laughed when Evelyn Ringler explained her product idea: a solarpowered vacuum cleaner. But the concept was practical and the technology used
in the vacuum was the same as that used in many children’s toys. After setting up a
demonstration booth in a mall in a Chicago suburb, Evelyn felt more assured than
ever that her idea would be a hit. Consumers seemed receptive and offered helpful
pieces of advice, such as how much they would pay for the vacuum, what colors
they would prefer, and why they would not buy the vacuum.
The vacuum itself was dome-shaped, something like a small saucer, with a filter
bag on top and sensory nodes along the edges. After being charged in the sunlight,
the vacuum could run for 10 hours, covering a floor area of 600 square feet. As
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the apparatus lightly bumped into table legs, chairs, and so on, the sensory nodes
allowed the vacuum to move around the objects in various directions. This is the
same type of technology used in the manufacture of children’s race cars and walking dolls.
Evelyn knew that the solar-powered vacuum would be especially helpful to both
elderly consumers, who may have a more difficult time with vacuuming, and
on-the-go consumers who lead busy lives. The price would be above average but
would likely reduce after Evelyn recouped some of her costs.
After a 500-unit production run and a substantial financial investment, Evelyn
Ringler set up a multiple-city test market, in a Chicago mall and in an appliance
store in New Jersey. “It’s such a novel idea,” Evelyn added. “People will notice it,
even if they don’t buy it right away.”
98) Evelyn’s ________ is the practical use of solar power in a vacuum cleaner that
is designed to effortlessly sweep the floors of on-the-go and elderly consumers.
A) product idea
B) product concept
C) product image
D) prototype
E) promotional product
Answer: B
99) When Evelyn set up a demonstration booth to learn about consumers’ feelings
toward her vacuum cleaner, she was doing which of the following?
A) concept testing
B) marketing strategy development
C) idea screening
D) product development
E) test marketing
Answer: A
100) Evelyn’s vacuum is at the ________ stage of the product life cycle.
A) product development
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B) introduction
C) growth
D) adoption
E) incubation
Answer: A
101) A firm can obtain new products in two ways: acquisition or new-product
development.
Answer: TRUE
102) Up to 90 percent of all new consumer products fail.
Answer: TRUE
103) New product development begins with a systematic search for new product
ideas through idea generation.
Answer: TRUE
104) Malibu Beach Parties finds that the tastes and preferences of its customers
change more rapidly than in the past. The manager should constantly look for external ideas from customers, suppliers, and the competition.
Answer: TRUE
105) Companies rarely solicit ideas from customers during the idea generation
stage of product development.
Answer: FALSE
106) Blair House wares wants to add new lines of products to its 46-store chain.
Managers are correct in believing that the purpose of idea generation is to create a
few ideas, and the purpose of succeeding stages is to increase that number.
Answer: FALSE
107) A product idea is an idea for a possible product a company can offer the market, while a product concept is a detailed version of the idea stated in meaningful
consumer terms.
Answer: TRUE
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108) Concept testing works best with people who are familiar with the new idea
and the new product’s purpose. This generally includes top management, the sales
force, and research and development.
Answer: FALSE
109) GreenTree Lawn and Garden Products is engaged in marketing strategy development. Management should first create a statement outlining the product’s
planned price, distribution, and marketing budget for the first year.
Answer: FALSE
110) GreenTree Lawn and Garden Products is engaged in a review of the sales,
costs, and profit projections for some new products to find out whether they satisfy the company’s objectives. This activity is called business product development.
Answer: FALSE
111) The business analysis stage represents the first large jump in financial investment in the new-product development process.
Answer: FALSE
112) The stage at which new product and marketing programs are introduced into
realistic market settings is called concept testing.
Answer: FALSE
113) A company launching a new product into the market must first decide on
when to launch the product.
Answer: TRUE
114) JumBo Games is launching a new set of game toys in the commercialization
stage. The first decision to make is introduction timing and the second is where to
launch the new product.
Answer: TRUE
115) Sequential product development has the advantage of not only being a teamoriented approach, but it is also faster in bringing products to market.
Answer: FALSE
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116) To avoid too few new product ideas and the failure of many good ideas, management should install an innovation management system that collects, reviews,
evaluates, and manages new-product ideas.
Answer: TRUE
117) Using the PLC concept to develop marketing strategy can be problematic
because strategy is both a cause and a result of the product’s life cycle.
Answer: TRUE
118) Profits rise during the growth stage of the PLC because promotion costs are
spread over a large volume and unit manufacturing costs fall.
Answer: TRUE
119) Although products that remain in the maturity stage of the PLC seem unchanged, the most successful ones actually evolve to meet changing consumer
needs.
Answer: TRUE
120) When sales of a product falter during the PLC, a company can take several
approaches. The more common ones are to modify the marketing mix, modify the
product, or modify the market.
Answer: TRUE
121) Sales for the time-tried household cleansers made by Brite and New, Inc.,
have been declining for some time. If these products are typical, sales are declining because of technological advances, shifts in consumer tastes, and lack of raw
materials from foreign suppliers.
Answer: FALSE
122) Companies need to pay attention to their aging products. Management
should regularly review sales, market shares, costs, and profit trends, and then
decide whether to maintain, harvest, or drop these declining products.
Answer: TRUE
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123) When a company decides to maintain a product in the decline stage, it will
reduce costs and hope that sales hold up to increase the profits in the short run.
Answer: FALSE
124) The federal government may prevent a company from adding products
through acquisitions if acquisition threatens to lessen competition.
Answer: TRUE
125) The international growth of many professional and business services such as
accounting, consulting, and advertising led to the globalization of the client companies they serve.
Answer: FALSE
126) Explain why so many new products fail and how a company can improve its
odds of new product success.
Answer: Although an idea may be good, the market size may have been overestimated. Other possible reasons for failure include the following: the actual product was
not designed as well as it should have been; the product may have been incorrectly
positioned in the market, priced too high, or advertised poorly; a high-level executive
might have pushed a favorite idea despite poor marketing research findings; the costs
of product development were higher than expected; or competitors fought back harder than expected. One way to improve the odds is to identify successful new products
and find out what they have in common. Another is to study new product features to
see what lessons can be learned. A company must understand its customers, markets,
and competitors and deliver superior value to customers.
127) Briefly describe the steps in the new-product development process.
Answer: New-product development starts with idea generation from internal and/
or external sources. Next, the ideas must be reduced through idea screening. Once
the new ideas are decided upon, the product concept must be developed and tested. A
marketing strategy must be developed to introduce the product to the market. Once
the product concept and marketing strategy are chosen, a business analysis is conducted to review the sales, costs, and profit projections to see if they will satisfy the
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company’s objectives. A prototype will next be created in the product development
stage. Test marketing will follow, introducing the new product and its marketing program into more realistic market settings. The last step is to launch or not launch the
new product. If the company decides to launch the product, it will go ahead with the
commercialization stage and later test its sales and profit results.
128) Provide the major sources of external new product ideas and explain why
these sources offer advantages over internal sources.
Answer: The major sources of new product ideas from external sources include customers, suppliers/distributors, competitors, and research firms. These sources are
close to the market and tend to reflect current tastes and preferences. Firms can better match their product offerings to customer needs and wants. Consumers may also
create new products and services on their own.
129) Distinguish among a product idea, a product concept, and a product image.
Answer: A product idea is an idea for a product that a company can imagine itself
offering to the market. A product concept takes the idea several steps further, with a
detailed version of the idea stated in meaningful consumer terms. Finally, a product
image is the way consumers perceive an actual or potential product.
130) Explain concept testing.
Answer: Concept testing calls for testing new product concepts with groups of target
consumers. The concepts may be presented physically or symbolically. A more concrete and physical presentation, however, will increase the reliability of the concept
test. After being exposed to the concept, consumers are asked questions about it; their
answers reveal to the marketer whether the concept needs to be altered in any way.
131) Define commercialization. Explain the two important issues on which the
company must decide during this stage.
Answer: Introducing a new product into the market is called commercialization. The
company launching a new product must first decide on introduction timing. Next,
the company must decide where to launch the new product–in a single location, a
region, the national market, or the international market. Confidence, capital, and
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capacity are required to launch new products on a large-scale basis. Hence, firms
plan a market rollout over time.
132) What are the two advantages of an innovation management system for developing new products? Provide four ideas for a company to use to establish a
successful system.
Answer: The first advantage of an innovation management system is that it helps
create an innovation-oriented company culture. It shows that top management supports, encourages, and rewards innovation. The second advantage is that it will yield
a larger number of ideas, among which will be found some especially good ones. As
the system matures, ideas will flow more freely. To establish a successful system a
company can do the following: (1) Appoint a respected senior person to be the company’s idea manager; (2) create a cross-functional innovation management committee with people from each department; (3) set up a Web site for anyone who wants to
become involved in finding and developing new products; (4) encourage all company
stakeholders to send their ideas to the idea manager; and (5) set up formal recognition programs to reward those who contribute the best new ideas.
133) Each product will have a life cycle, although its exact shape and length is not
known in advance. Briefly explain each step in the PLC.
Answer: Product development begins when the company finds and develops a new
product idea. Sales are zero and the company’s investment costs mount. Introduction
is a period of slow sales growth as the product is introduced in the market. Profits
are nonexistent in this stage because of the heavy expenses of product introduction.
Growth is a period of rapid market acceptance and increasing profits. Maturity is
a period of slowdown in sales growth because the product has achieved acceptance
by most potential buyers. Profits level off or decline because of increased marketing
outlays to defend the product against competition. Decline is the period when sales
fall off and profits drop. A company may seek to reinvigorate a product in decline or
maintain it hoping competition will diminish or harvest it or drop it.
134) PLC can be applied to more than just brands. Your assignment is to prepare
a presentation about the application of the PLC to as many of your company’s op180
erations as possible. What would you include?
Answer: The PLC can be applied to new product and services. It can also be applied
to product class, a product form, or a brand. The PLC concept lends itself to styles,
fashions, and fads. The concept can be used as a useful framework for describing how
products and markets work, as well as developing marketing strategy for each stage
of the product life cycle. Managers may have difficulties using the PLC concept to
forecast product performance or develop general marketing strategies.
135) Describe three public policy issues or regulations that marketers should carefully consider as they make decisions about adding or dropping products.
Answer: The government may prevent companies from adding products through acquisitions if the effect threatens to lessen competition. On the other hand, companies
dropping products must be aware that they have legal obligations to their suppliers,
dealers, and customers who have a stake in the dropped product. Companies must
also obey U.S. patent laws when developing new products, meaning that a company
cannot make its product illegally similar to another company’s established product.
Manufacturers must also comply with specific laws regarding product quality and
safety. The Federal Food, Drug, and Cosmetic Act and the Consumer Product Safety
Act are just two of many laws that protect consumers from potentially harmful products. If consumers have been injured by a product that has a defective design, they
can sue manufacturers or dealers.
136) How might a firm benefit from implementing an “intrapreneurial” program?
Answer: Such programs encourage employees to be innovative and to develop newproduct ideas.
137) How might competitors be a good external idea source?
Answer: Marketers can pay particular attention to competitors’ ads to get clues about
their new products. In addition, salespeople in the field can learn about competitors’
plans if prospects purposefully, or even inadvertently, reveal them.
138) You have recently sent a proposal for a fictional novel to an editor at a major
publishing firm. The editor, alone, will carry out the idea screening. Why might
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you feel this process is unfair?
Answer: The success of your proposal, or at least the likelihood that your novel will
be published, is at the mercy of that one individual. A screening committee might
give the proposal a more accurate and fair assessment.
139) What elements may help to create a product image?
Answer: Any number of product attributes, as well as packaging and intended use,
create product image; the promotional campaign also affects product image.
140) The potential market strengths and weaknesses are being determined for a
new-product idea at Art for Kids. In what stage of the new-product development
process does this occur?
Answer: It occurs in the business analysis stage of the new product development
process.
141) What may be learned in a test market?
Answer: Test marketing lets a company assess customer response to its product and
the effectiveness of its positioning strategy, advertising, distribution, pricing, branding, and packaging.
142) A marketer has selected a single city in which to conduct a test market. What
might we conclude from this choice of a single-city test market?
Answer: The marketer may feel assured that consumers in that city are typical of the
overall market.
143) A marketer has chosen a multiple-city test market. What might we conclude
from this choice of a multiple-city test market?
Answer: The marketer likely understands that the product being tested will be perceived differently in different geographic regions.
144) Why might a company choose to develop a planned market rollout?
Answer: A company without the confidence, capacity, or capital to introduce its
product in several regions or the full national market may find it less risky and more
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manageable to enter attractive cities or regions one at a time, using success in regional markets to build up to a larger market rollout.
145) Why might individual departments prefer sequential product development?
Answer: This process allows individual departments to work individually with a
new idea, completing its stage of development before passing the product on; other
departments are less likely to interfere.
146) Explain how the PLC applies differently to a product class than to a product
form.
Answer: Product classes have longer life cycles, while product forms tend to have the
standard PLC shape.
147) Why might ad expenditures be high for products in the introduction stage
of the PLC?
Answer: Consumers have very little awareness about such products; promotional
spending can enhance customer awareness.
148) Why might ad expenditures remain high in the growth stage of the PLC?
Answer: Though sales are increasing for such products, competition becomes fierce
as competitors attempt to enter the market; therefore, ad dollars remain high in an
effort to offset competitive threats.
149) Marketers can prolong the lives of many products in the maturity or decline
stages of the PLC, sometimes even moving these products back into the growth
stage. How can this happen?
Answer: Marketers can change any element of the marketing mix, change the number of uses or the number of users, or even change the frequency of product use.
150) Why has the cost of product liability insurance risen so dramatically?
Answer: Consumers who have been injured by a product with a defective design can
sue manufacturers or dealers of the product; though manufacturers are only found to
be at fault in a small percentage of cases, the average jury award is $1.5 million.
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Answers to Questions and Exercises
Questions for Review
1. What are the various classifications of consumer and industrial products?
Give an example of a good and a service for each category other than those in
the text.
Consumer Products
Convenience goods and services – candy, ATM services
Shopping goods and services – clothing, car repair
Specialty goods and services – houses, interior design
Industrial Products
Expense items – inventory, repair bills
Capital items – computer servers, long-term maintenance contracts
QUESTIONS FOR ANALYSIS
1. Select an everyday product. Show how different versions of your product
are aimed toward different market segments. Explain how the marketing mix
differs for each segment.
Answers will vary, but students should focus on product and package characteristics, price levels, promotional tools, and distribution options. They should also
discuss demographics and psychographics of the target market and the way they
influence marketing mix decisions.
2. If you were starting your own small business, which of the forces in the external marketing environment would you believe to have the greatest potential
impact on your success?
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Answers will vary.
3. How would you expect the branding and packaging of convenience, shopping, and specialty goods to differ? Why? Give examples to illustrate your
answers.
Convenience goods, such as candy bars, should have very prominent branding and
packaging elements in order to spur impulse purchases. Shopping goods, such as
computers and clothing, should be branded and packaged to clearly communicate
their unique features and benefits since shoppers engage in comparisons. Specialty goods, such as high-end cosmetics in top department stores, should be branded
and packaged in a way that reinforces their mystique.
Application Exercises
4. Interview the marketing manager of a local business. Identify the degree to
which this person’s job is focused toward each element in the marketing mix.
Answers will vary, but students should address how the person’s job relates to
product, price, promotion, and place, and how the person monitors decisions in
each area to determine when change is necessary.
5. Select a product made by a foreign company and sold in the United States.
What is the product’s target market? What is the basis on which the target
market is segmented? Do you think that this basis is appropriate? How might
another approach, if any, be beneficial? Why?
Answers will vary based on the nature of the product and the business.
Answers to Building Your Business Skills
1. Which location did you choose? Describe the market segmentation factors
that influenced your decision.
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Answers will vary, but students should have specific information for each of the
market segmentation factors.
2. Identify the two most important variables that you believe will have the greatest impact on the dealership’s success. Why are these factors so important?
Answers will vary.
3. Which factors were least important? Why?
Answers will vary.
4. When equipment manufacturers advertise residential H/AC products, they
often show them in different climate situations. Which market segments are
these ads targeting? Describe these segments in terms of demographic and
psychographic characteristics.
These ads are likely targeted to middle-to-higher income owners of older homes
who need to replace heating or air conditioning systems or are willing to pay for
upgraded equipment for greater comfort. They may also target affluent buyers
who are building a home.
CLASSROOM ACTIVITIES
1. Break the class into small groups and assign each group a specific industry.
Have each group discuss the marketing strategies that they believe important to
the effective marketing of products in that industry.
2. Divide the class into three-member groups. Ask each group to bring three
similar products (or packages of those products) to class. Examples might include
breakfast cereals, soft drinks, or laundry detergent. Ask each group to analyze
the target market for each of their three products. Then, based on who they have
186
identified as the target market for each product, ask each group to discuss each
element of the marketing mix – explaining how the marketing mix was “built” for
each product.
LITERATURE
Part 1
1. How do companies decide what products and services to market?, The access
via Internet: www.principlesofmarketing.com/word/Chapter-Six.doc
2. Krishnan, V; Ulrich, Karl (2001). “Product development decisions: A review of
the literature”. Management science 47 (1): 1–21. doi:10.1287/mnsc.47.1.1.10668.
3. Kenneth, B. Kahn (2013). The PDMA handbook of new product development
(Third edition ed.). Hoboken, New Jersey: John Wiley & Sons Inc. p. 21. ISBN
978-0-470-64820-9.
4. Koen et al. (2007). “Providing clarity and a common language to the ‘fuzzy front
end’”. Research Technology Management 44 (2): 46–55.
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PRINCIPLES-OF-MARKETING-Notes.doc
9. Kotler, P., Armstrong, G., Brown, L., and Adam, S. (2006) Marketing, 7th Ed.
Pearson Education Australia/Prentice Hall.
10. Krishnan, V; Ulrich, Karl (2001). “Product development decisions: A review of
the literature”. Management science 47 (1): 1–21. doi:10.1287/mnsc.47.1.1.10668
11. Pricing decisions. Access via Internet: www.icaiknowledgegateway.org/littledms/download.php?id=2919
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13. Strategy and Marketing Primer. Access via Internet: web.stanford.edu/class/
msande473/483primerV3.doc
Part 2
1. The services marketing mix. Accsess via Internet: acru.uvlf.sk/doc/CME_Present/BB_Marketing.doc
2. Baker, Michael The Strategic Marketing Plan Audit 2008. ISBN 1-902433-99-8. p.3
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Your Nonprofit Organization (Paperback), Gary M. Grobman, White Hat Communications, 2008.
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Part 3
1. Project management life cycle. Access via Internet: www.heinsights.com/sitebuildercontent/sitebuilderfiles/pmlifecy.doc
2. Performance management: managerial level. Access via Internet: https://books.
google.lt/books?isbn=1856177793
3. Management accounting decision management. Access via Internet: https://
books.google.lt/books?isbn=0750680474
Part 4
1. How do companies decide what products and services to market? Access via
Internet: http://www.principlesofmarketing.com/Full.htm
2. Principles of marketing. Access via Internet: www.principlesofmarketing.com/
word/Chapter-Two.doc
3. Rogers, Everett (16 August 2003). Diffusion of Innovations, 5th Edition. Simon
and Schuster. ISBN 978-0-7432-5823-4.
4. Kinnunen, J. (1996). “Gabriel Tarde as a Founding Father of Innovation Diffusion Research”. Acta Sociologica 39 (4): 431. doi:10.1177/000169939603900404.
5. Valente, T.; Rogers, E. (1995). “The Origins and Development of the Diffusion
of Innovations Paradigm as an Example of Scientific Growth”. Science Communication 16: 245–246.
6. Types of competitive advantage. Access via Internet: web.stanford.edu/class/
msande473/483primerV3.doc
7. Johnson, Richard M. (September 2001). “History of ACA”. Proceedings of the
Sawtooth Software Conference. Victoria, BC, Canada. pp. 205–212.
8. Ijzerman MJ, van Til JA, Bridges JF. (212). “A comparison of analytic hierarchy process and conjoint analysis methods in assessing treatment alternatives for
stroke rehabilitation”. Retrieved 4 July 2013.
9. Conjoint analysis. Access via Internet: www.trizsigma.com/conjoint.html
10. Marketing’s Four P’s: First Steps for New Entrepreneurs. Access via Internet:
https://www.extension.purdue.edu/extmedia/ec/ec-730.pdf
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11. Henderson, Bruce D. “The Product Portfolio”. Retrieved 16 May 2013.
12. Mintzberg, Henry and, Quinn, James Brian (1996). The Strategy Process:
Concepts, Contexts, Cases.
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org/5196/1/myth_of_market_share.pdf
14. Henderson, Bruce. “The Product Portfolio”. Retrieved 3 April 2013.
15. Fripp, Geoff.“BCG Matrix and the Experience Curve” Guide to the BCG Matrix
16. Philip Kotler (1986), “Megamarketing” In: Harvard Business Review.
(March—April 1986)
17. V. Krishnan; Karl T. Ulrich. Product Development Decisions: A Review of the
Literature. Management Science (2001) Vol. 47, No. 1, January 2001 pp. 1–21
18. What is STP process. Access via Internet: http://www.segmentationstudyguide.
com/stp-process/what-is-the-stp-process/
19. Generic strategy: types of competitive advantage. Access via Internet: web.
stanford.edu/class/msande473/483primerV3.doc
20. Marketing management. Access via Internet: https://books.google.lt/
books?isbn=0070153272
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Edmundas Radavicius
Product Lifecycle Management
Course handbook
ISBN 978-9955-648-64-2
This Course Handbook was prepared with support from the European Structural
Funds. This publication reflects the views only of the author, and the SMK
University of Applied Social Sciences cannot be held responsible for any use
which may be made of the information contained therein.
Order no. 150730331
S. Jokužys Publishing-Printing House. 2015.
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