Learning objectives

1 Define the terms product item, product line and product mix

2 Explain the concept of product life cycles3 Explain the importance of developing new

products4 Describe the six categories of new products5 Explain the steps in the new-product

development process6 Explain the diffusion process through which

new products are adopted

1Define the terms product item,

product line and product mix

Learning objective

1 Product items, lines and mixes

Product item

Product line

Product mix

A specific version of a product that can be designated as a distinct offering among an organisation’s products.

A group of closely related product items.

All products that an organisation sells.

1 Benefits of product lines

• Why form product lines?– advertising economies– package uniformity– standardised components– efficient sales and distribution– equivalent quality

1 Product mix width

• The number of product lines an organisation offers:– diversifies risk– capitalises on established reputations.

1 Product line depth

• The number of product items in a product line:– attracts buyers with different preferences– increases sales/profits by further

market segmentation – capitalises on economies of scale– evens out seasonal sales patterns.

1 Adjustments

Product modification

Productrepositioning

Product lineextension or contraction

Adjustments to product items,lines and mixes

1 Product modifications

• Quality modification• Functional modification• Style modification

1 Planned obsolescence

• The practice of modifying products so those that have already been sold become obsolete before they actually need replacement.

1 Repositioning

• Why reposition established brands?– changing demographics– declining sales– changes in social environment.

1 Product line extension

• Adding additional products to an existing product line in order to compete more broadly in the industry.

1 Product line contraction

• Symptoms of product line over-extension– some products have low sales or cannibalise

the sales of other items– resources are disproportionately allocated

to slow-moving products– items have become obsolete because of

new-product entries.

2Explain the concept of

product life cycles

Learning objective

2 Product life cycle

• A concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death).

2 Product life cycle (cont.)

2 Introductory stage

• Full-scale launch of new products– High-failure rates– Little competition– Frequent product modification– Limited distribution– High marketing and production costs– Negative profits– Promotion focuses on awareness and

information– Intensive personal selling to channels

2 Growth stage

• Second stage– Increasing rate of sales– Entrance of competitors– Market consolidation– Initial healthy profits– Promotion emphasises brand ads– Goal is wider distribution– Prices normally fall– Development costs are recovered

2 Maturity stage• A period during which sales increase at

a decreasing rate– Declining sales growth– Saturated markets– Extending product line– Stylistic product changes– Heavy promotions to dealers and consumers– Marginal competitors drop out – Prices and profits fall– Niche marketers emerge.

2 Decline stage

• Where sales keep declining over a relatively long period of time– Long-term drop in sales– Large inventories of unsold items– Elimination of all nonessential marketing

expenses

2 Product category

• All brands that satisfy a particular type of need.

2 Product category (cont.)

3Explain the importance of developing new

products

Learning objective

3 Why new products?

• New products are needed to sustain growth, profits and replace obsolete items

• Ultimately in a FMCG market nine out of ten new listed products fail

• Product death occurs due to market changes and the decline in quality, quantity and viability of consumer research.

4Describe the six categories

of new products

Learning objective

4 New product

• A product new-to-the-world, the market, the producer, the seller or some combination of these.

4 Categories of new products

• Six categories of new products:1 new-to-the-world2 New-product lines3 product line additions4 improvements/revisions5 repositioned products6 lower-priced products.

5Explain the step in the

new-product development process

Learning objective

5 Successful new-product development process

• New-product success factors:– long-term commitment– New-product strategy– capitalise on experience– establish an environment.

5 New-product development process

• New-product strategy• Idea generation• Idea screening• Business analysis• Development• Test marketing• Commercialisation• New product.

5 Idea generation

• Sources of new-product ideas: – customers– employees– distributors– competitors– research and development– consultants– creative thinking.

5 Brainstorming

• The process of getting a group to think of unlimited ways to vary a product or solve a problem.

5 Idea screening

• The first filter in the product-development process, which eliminates ideas that are inconsistent with the organisation’s new-product strategy, or are inappropriate for some other reason.

5 Concept test

• A test to evaluate a new-product idea, usually before any prototype has been created.

5 Business analysis

• Considerations in business analysis stage:– preliminary demand– cost– sales– profitability.

5 Development

• Creation of prototype• Marketing strategy• Technical production feasibility• Final government approvals, if required.

5 Test marketing

• The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation.

5 Choosing a test market

• Similar to planned distribution• Relative isolation and free of influences• Advertising availability; multiple media• Diversified cross-section• No atypical purchase habits• Representative population/income• Not overly used or easily ‘jammed’• Year-round sales stability• Available research/audit and retailers.

5 Alternatives to test marketing

• Single-source research using supermarket scanner data

• Simulated (laboratory) market testing.

5 Commercialisation

• Steps in marketing a new product:– production– inventory build-up– distribution shipments– sales training– trade announcements– customer advertising.

6Explain the diffusion process through

which new products are adopted

Learning objective

6 Diffusion

• The process by which the adoption of an innovation spreads.

6 Categories of adopters

• Categories of adopters in the diffusion process:– innovators– early adopters– early majority– late majority– laggards.

6 Categories of adopters (cont.)

Perc

en

tag

e o

f ad

op

ters

Time

Innovators2.5%

Earlyadopters13.5%

Latemajority

34%

Earlymajority

34%Laggards

16%

6 Product characteristics and the rate of adoption

• Product characteristics predict rate of adoption.– Complexity– Compatibility– Relative advantage– Observability– Triability.

6 Marketing implications of the adoption process

• Communication aids the diffusion process– Word-of-mouth– Direct from marketer.