product management - nov2007

7/31/2019 Product Management - Nov2007

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Defining a Product

Product is an umbrella term covering

Goods

Services

Places Persons

Ideas

To further expand our definition, we treat each brandas a separate product.

e.g. Though a Kodak film or a Fuji film may look very similar and perform the samefunction,they are essentially different products.

CIFRAN, CIPROBID and QUINTOR are three drugs from three leading pharmaceuticalmanufacturers, Ranbaxy,Cadilla and Torrent respectively.Though their formulations are

identical, they are different products in the mind of the consumer as they see them to be

different.

A difference in the brandname suggests a product difference to the consumer. The customer

perceives the purchase of a product as a means of satisfaction of his wants. Some consumers

prefer one brand in favour of another brand of similar product.

Any change in a feature

Design

Colour

Size

Packaging

However minor, creates a new product in the eyes of the customer.

Each such change provides the seller with opportunity to use a new set of appeals to reachwhat essentially may be new markets.

For eample, the popular cold remedy Vicks is available in differentforms:

Vaporub

Inhaler

Formula 44 Cough Syrups

Cough Drops

Action 500

Why do you think the manufacturer is having so many products with essentially the samechemical content? It obviously increases costs be it manufacturing or marketing. It does so

because by making it available in so many forms, it reaches out to new customer segments.


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Comprehensive Definition

Product is a set oftangible and intangible attributes including-

Packaging

Colour Price

Quality

BrandPlus a sellers reputation and services.

Customers buy much more than a set of attributes when they buy a product. They buy want

satisfaction in the form of benefits they expect from a product.

PRODUCT

QUALITY

SELLERS

SERVICES

SELLERS

REPUTATION

COLOUR

PRODUCT

WARRANTY

DESIGN

PACKAGING

BRAND

PRICE

PHYSICAL CHARACTERISTICS

OF GOODS

THE WAY A CONSUMER SEES A PRODUCT


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Product Levels

Five Levels of Product

Each additional level adds more customer value and the five levels represent a customer

value hierarchy.

At the most fundamental level, core benefit signifies the fundamental service/benefit that

the customer is buying. A moviegoer is buying entertainment while an MBA student buyshope for the future.

For any business to succeed, the marketer must see theselves as providers of benefit and not

merely the providers of product.

At the second level, marketer has to turn the core benefitinto a basic product.

While the core benefit that a moviegoer seeks is entertainment,the basic product for herincludes

Screen

Sitting Chair

A running film

At the third level, the marketer prepares an expected product, a set of attributes andconditions buyers normally expect when they purchase the product.The expected product for

the moviegoer might include

Large 70 mm Screen

Unbroken Chairs

Generator backup during power shutdowns

Clean Toilets

BASIC

PRODUCT

EXPECTED

PRODUCT

AUGMENTED PRODUCT

POTENTIAL PRODUCT

CORE

PRODUCT


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At the fourth level, the marketer prepares an augmented productthat exceeds customerexpectations.

The augmented product for a moviegoer at a modern multiplex complex may include:

Huge Megasize Screen

Superior Bose Audio Screen Extremely comfortable airconditioning

Four movies running in one complex

Adjacent Shoppping Mall

McDonalds Restaurant within premises

Five Star Toilets

Seats 25 % wider than normal

Thick well maintained carpets

Ample well protected parking space

Todays competetition essentially is taking place at the product augmentation level while in

less developed markets,competition is taking place at the expected level.

Product augmentation leads marketers to study the users total consumption system.Two

notable points about the product augmentation strategy-

Each augmentation adds cost

Augmented benefits soon become benefits expected benefits

This gives rise to two phenomenon:

a. As prices rise because of augmentation, there arise scope for marketers to offer

stripped down versions at lower prices.

When Microsoft launched its Windows XP Starter Edition in 2005 in India, it was a

stripped down version. Unlike the full fledged version of Windows XP which supported

nine vernacular languages, the stripped-down budget-priced operating system was

originally available only in Hindi.The ability to do home networking and to create

multiple user accounts on a single PC has been removed, while display resolution is

capped at a maximum of 800 by 600 pixels. More important, users can run only three

programs or have three windows opened at once.

b. As competition rises at the product augmentation level,marketers need to continously

look at other features and benefits to differentiate themselves.

PRODUCT HIERARCHY

This term refers to the concept ofinterrelationships between products and studies

Needs and relates products to needs that they satisfy.


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PRODUCT MIX

The product mix (also called the product assortment) is the entire basket of products

A company offers to the market, For any large product company, a product mix

Would comprise severalproduct lines. A product line is a set of products that are

Closely related. The product mix can be defined through certain parameters.

Width of a product mix refers to the total number of different product lines of thecompany

Length of a product mix is total number of items in a product mix.

Depth of a product mix is total number ofvariants of each product in the line.

Consistency reflects the degree to which the various product lines enjoy similar endUses and marketing mixes.

Example: Hindustan Lever Ltd.(HLL)

Hindustan Levers product line consists of three broad product lines,homecare

Products,personal care products and (Food and beverages).

HLLs Product Line

These broad product lines are also called Product Categories.

A Product Category is the specific generic to which a good or service belongs.

PERSONAL

CAREFOODS &

BEVERAGES

HOMECARE

PRODUCTS


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HOMECARE PRODUCTS

Three Variants

Powder

Bar

Liquid

Let us now see the variants of the poular Lifebuoy soap.

Lifebuoy is available in three variants:

1. Lifebuoy Active Red2. Lifebuoy Active Orange

3. Lifebuoy International

Lifebuoy Active Red is available in three variants:1. 125 gm pack

2. 100 gm pack

3. 60 gm packLifebuoy International is available in two variants:1. Plus

2. Gold

The Lifebuoy Active Red 125 gm is a different product from the Lifebuoy Active Red

100 gm. The Lifebuoy Active Red is of course a different product from the Lifebuoy

International Plus..

HOUSEHOLD CARE

PRODUCTS

DETERGENTS

VIMUtensil Cleaner

DOMEXFloor/Toilet

Clearner

International Surf Excel

Surf

RinWheel

OK

501

Sunlight


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Each product is a different Stock Keeping Unit(SKU). SKU is a unique numericidentifier used commonly in business to refer to a specific product in inventory or in a

catalog. Shoppers Stop carries over 2,60,000 SKUs.

Each Lifebuoy variant is positioned differently.

Lifebuoy Active Orange: offers consumers a differentiated health perfume while offeringhealth benefits of LifeBuoy

Lifebuoy International Plus: Protection against germs which cause body odour

Lifebuoy International Gold: Protects against germs which causes skin blemishes

Similarly LUX comes in three variants:

1. LUX Pink

2. LUX White3. LUX Black

ClLOSE-UP is the first gel introduced in 1975 and remains the leader in its productCategory. CLOSE UP comes in three variants:

1. CLOSE UP TINGLY RED

2. CLOSE UP EUCALYPTUS WAVES3. CLOSE UP WHITENING

SIX LEVELS OF PRODUCT HIERARCHY

(1) Need Family

Products are part of the sameproduct family as they satisfy the samecore need.

(2) Product Family

All the product classes that satisfy a core need with reasonable effectiveness.

(3) Product Class

A group of products within a product family recognized as having a certain functional

Coherence.

(4) Product Line

A group of products within a product class that aee closely related :-

They perform a similar function

Are sold to the same customer groups

Marketed through the same channel.


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Fall within given price range

(5) Product Type

A group of items within a product line that share one of the possibleforms of the

Product.

(6) Item(Also calledStockKeeping Unit orProduct Variant)

A distinct unit within a brand or a product line distinguishable bysize,

price,appearance or some other attribute.

A Product Mix hasbreadth anddepth.

Breadth of the Product Mix is the number of product lines carried.

Depth of the Product Mix is the variety of sizes

colurs

modelsoffered within a product line.

Product Hierarchy may be defined from the point of view of

Manufacturer

Channel Member

End User

The product mix of a publisher(say Tata McGraw Hill) would refer to the entirerange of books published by TMH. The product mix of the bookseller may becompletely different. CrossWord is a renowned bookseller which sells books

published by TMH and various other publishers. So,the product mix of CrossWord

Would refer to the entire list of books (published by TMH and other book publishers)which are carried

PRODUCT CLASSIFICATION

Traditionally products have been classified on the basis of two types ofcharacteristics:

Durability and Tangibility

Type of Usage

The nature of the product has major influence on the appropriateness of the marketing

strategy to be employed abd therby thechoice of the marketing mix.


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Classification on the basis of durability and tangibility

(1) Nondurable Goods

Their characteristics are:(1) They are tangible

(2) They are consumed in one/few uses

Examples of nondurable products are:

Talcum Powder

Toothpowder

Bread

Appropriate marketing strategy for these products are:

Make them widely available

Moderate markups Heavy advertisement to induce trial and build brand preference.:

(2) Durable Products

Their characteristics are:

(1) They are tangible

(2) They survive many uses

(3) They require more personal selling/services

Examples of durable products are:

Airconditioners Motorcycles

Home Theater Systems

Appropriate marketing strategy for these products are:

Charge Higher Margins

Make available more seller guarantees

(3) Services

Their characretistics are:(1) They are intangible

(2) They are inseparable(3) They are variable

(4) They areperishable

Examples of services are:

Legal Services


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How soon want is Immediately Relatively Relatively

Satisfied after it arises long time long time

Are price and quality No Yes No

Compared?

Price Usually Low High High

Purchase Frequency Usually frequent Infrequent Infrequent

Marketing Considerations:

Length of Channel Long Short Short to

Very Short

Retailer Relatively Important Very

Unimportant Important

Number of Outlets As many as Few Few,

Possible often only

One inMarket

Stock Turnover High Lower Lower

Gross Margin Low High High

Responsibility Producers Retailers Joint

For advertising responsibility

POP Dispalys Very Less LessImportant Important Important

Brandname BrandName StoreName Both

Or Storename

Important

Packaging Very Important Less Important Less imp

(1) Convenience Goods

Consumers know enough about the product before going out to buy it. They buy

these goods withminimum of efforts. The advantage of shopping around is notconsidered worth the time and effort,The customer is usually willing to accept any of

the several brands and will buy the most accessible one.


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There are three types of convenience goods:

1. Staples

2. Impulse Goods

3. Emergency Goods

Staples are goods which are bought on a regular basis.Examples of staples are:

1. Red Label Tea

2. Kellogg Corn Flakes3. Saffola Cooking Oil

Impulse Goods are bought withoutplanning and search efforts.

Example of impulse goods are:1. Cadburys Chocolate

2. India Today Magazine

Emergency Goods are purchased only when the need is urgent.

Examples are:

1. Umbrellas2. Tubelights

3. Batteries

Convenience products typically have a low unit price and are not bulky. They arenot greatly affected by fads and fashion. They are usually purchased

frequently,though that is not a necessary characteristic.

Since consumer purchase often hinges on accessibility,the manufacturers need to

dtsribute it widely.Since most retail stores sell only a small volume of the total

output of a convenience good,it is not economical for manufacturers to sell directlyto all retailers. Hence producers relies on wholesalers to sell the product to selcted

retailers.As retailers carry several brands of the same convenience goods, they

seldom promote any single brand.The retailer is not interested in advertising forconvenience goods as many stores carry the same brands.

Convenience products are bought almost reflexively. How far out of your way,

would you go to buy your favourite brand of electric bulbs? Convenience goods arealso common vending machine items.

(2) Shopping Goods

They are purchased only after making comparisons as to the

- suitability- price

- quality


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INDUSTRIAL PRODUCTS

Industrial products are goods and services purchased for use in:

1. Production of other goods or services

2. Operation of a business3. For resale to other consumers

Some examples are : 1. Heavy Machinery

2. Raw Materials

3. Typewriters4. Security Services

5. ATMs

The customer may be a - 1. Manufacturer2.Wholesaler

3. Retailer4. Government5. NonProfit Organization

Industrial products may be of seven categories:1. Raw Materials

2. Component Materials

3. Fabricated parts

4. Installation5. Accessory Equipements

6. Supplies

7. Services

Raw Materials: These are goods that will be used in production of other goods.Such goods

may be:

1. Sold in their natural state or

2. Processed to the extent necessary to ensure safety or economy of shipping or handling

Raw materials could be of two categories:

1. Products found in natural state e.g. Ores,Oil and Timber

2. Livestock and Agricultural Products e.g. grains,fruits,tobacco,vegetable and cotton

Component Materials: These are semi manufactured goods that undergofurther changes in

form. Examples are : SteelCement

Wire

TextilesBasic Chemicals


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Fabricated Products:

They are placed in products without any further changes in form.

Examples are: Electric Motors

Vehicle Batteries

Refrigerator ThermostatsComputer Microprocessors

Installations

These are capital goods used in production process but does not become part of the finalproduct. They are usually so large that it affects the scope of manufacturing operations

Examples are : Blast Furnace

Factory BuildingsAssembly Line

Large Machine ToolsPrinting Presses

Accessory Equipments

Accessory equipments have certain characteristics common with installations.

Like installations accessory equipments are also :

1. Capital Goods

2. Used in the Production process

3. Do not become part of the final product.4. Does not Change Form

Unlike installations,accessory equipments are :1. Portable

3. Less costly

Usually accessory equipments are used tofacilitate rather than perform the basic operations.

Some examples of accessory equipments are :

1. Motor Trucks

2. Forklift Trucks3. Lathe Machines

4. Office Furniture

5. Computer6. Wall clocks


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Supplies

These are the convenience products of the industrial market. They are usually of low value

and are frequently bought in small quantities.

Supplies are usually expensed, rather than depreciated.

Examples are :Lubricating Oil

StationeryFloor Cleaning Liquid

Dusters

Liquid Soap in Toilets

Services

These are of two broad types :1. Maintenance and Repair Services

2. Business Advisory Services

Elements of a Product Mix

Product Item is a specific model/brand/size of a product the company sells.

Product Line : Usually a firm sells a group of closely related product items as a part of a

product line.

In each product line,the items have some common :1. Characteristics

2. Customers

And/or 3. Uses

They may share

1. Technologies2. Customers

3. Prices

4. Related Services

Product Mix consists of all different product lines a firm offer.

Width of a Product Mix refers to the number of different product lines a company offers.

Depth of a Product Mix refers to the number of product items within a product line.

Consistency of a Product Mix is based on the relationship among product lines in

sharing a common: End-Use

Distribution OutletsConsumer Group(s)

Price Range


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PRODUCT MIX ALTERNATIVES in terms of Width and Depth

DEPTH

SHALLOWDEEP

N

A

R

R

OW

W

I

D

E

ONE MODEL FOR EACH

OF A FEW SIMILAR

PRODUCT LINES

MANY MODELS FOR

EACH OF A FEW SIMILAR

PRODUCT LINES

ONE MODEL FOR

EACH OF SEVERAL

DIFFERENT PRODUCT

LINES

MANY MODELS FOR

EACH OF SEVERAL

DIFFERENT PRODUCT

LINES

WIDTH

A wide product mix enables a firm to :

1. Diversify

2. Appeal to needs of different consumer segments3. Appeal to the one-stop shopper

However for a firm to have a wide product line requires :

1. Capabilty to invest.2. Expertise in different product categories

Adeep product mix enables a firm to :1. Satisfy the needs of several consumer segments for the same product.

2. Maximize Shelf space

3. Discourage Competitors4. Suatain Dealer Support

However,for a firm to have a deep product mix requires higer costs in :


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1. Inventory

2. Product Alterations3. Order Processing

An additional difficulty faced is in differentiating two similar product lines.

Aconsistent product mix allows a firm to:

1. Concentrate on Marketing and Production Expertise2. Create a strong Image

3. Geenrate solid distributor relations

PRODUCT LINE DECISIONS

Among the decisions regarding the product lines are decisions regarding:

1. Length of the Product Line

2. Positioning of products within the product line3. Adding New Product/dropping existing products4. Whether existing products need to be modified

Decisions are based on changes in:

1. Consumer Behaviour2. Market Behaviour

3. Technological Development

Reasons for these changes include:

1. Tchnological Obsolescence in the face of new inventions(e.g. computers)

2. Style Obsolescence(e.g. Clothes)3. Changing Production Costs(decreasing/increasing)

Decreasing Production Costs: Digital Cameras

MP3 playersIncreasing Production costs: Tailored Suits

4. Need to fill gaps in the product line

5. Changes in consumer habits(The advent of cable television channels changing

Consumer behaviour)6. Activities of competitors

PRODUCT LINE LENGTHEach product line should be effectively targeted towards a defined market, to minimize

marketoverlap between products.

Ideally,product cannibalization should be avoided.Sometimes,however the marketer actively does product cannibalization. Their thinking goes

like this It is better to cannibalize your own product rather than to have someone else


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cannibalize it .If marketers do decide to offer items that compete with their own

products,they are gambling on capturing more sales from competitors than their ownproducts. To minimize cannibalization,marketers should avoid close identification between

existing products and new competing products.

What is the ideal product length?

This is a common question marketers face.

A golden Rule is: Consider your current product line.

It istoo short, if profits can be increased by adding items.

It istoo long, if profits can be increasd by reducing the number of items

A longer product line helps :

1. Induce Upselling2. Facilititates Cross-selling3. Recession-resistant product line.

Upselling refers to the basic practice of moving the customer from a less profitable item in a

category to a more profitable one. You walk in to a Maruti dealership with the idea of buyingan Alto LXi. The pleasant salesperson finally persuades you to purchase a Wagon R LXi

which costs substantially higher than the model you had originally planned to purchase.

Cross-selling refers to the strategy of pushing new products to current customers based on

their past purchases. Cross-selling is designed to widen the customers reliance on the

company and decrease the likelihood of the customer switching to competitors.Think of every retail bank like HDFC,ICICI or Citibank. All of them are pushing,in addition

to the traditional banking products, new products which have not been traditionally sold by

banks like Home Loans,Mutual Funds,Insurance etc.

Typically forces at work tend to lengthen product lines over time-this is often the might as

well phenomenon. Addition of products may appeal to be very natural.

Some common sentiments are:Might as Well use existing product expertise to serve a new market niche.

Might as Well use up idle Production capacity.

Might as well modify existing products to meet needs of another customer group.

This might as well strategy,followed without careful thought, often leads to an unwieldy

product line, failures of new product launches etc, reduced profitability etc.


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The so-called ideal product length is also a function of the firm objectives. If the firms

objective is to pursue high marketshare and high market growth,typically the firm wouldfollow the strategy of lengthening the product line. If the firm however, wants to pursue

high profitability strategy,the firm would typically shorten its product line.

STRETCHING THE PRODUCT LINE

A company would sometimes be lengthening the product line beyond its current range.

Downmarket Stretch

A company positioned in the upper or middle market may want to introduce a lower priced

line of product because of :

Strong Growth Opportunities in Value Priced Goods

Tie-Up Lower Priced Competitors

Upper/Middle Market stagnating or declining

In such situations, the firm has three naming choices:

(1) Use same name for all offerings e.g. SONY

(2) Use Sub-Brand name for lower-priced offerings e.g. Philips ValueLine

(3) Use Different name for lower-priced offerings e.g. AIWA

The danger of downmarket stretch is that higher-priced product line may be jeopardized by

the new,lower-quality product.

There are five conditions helpful in successful downmarket stretch:

(1) The new product should be in adistinctly different form from the original product.

(2) The buyer should easily be able to see value difference between the two.

(3) Different channels should be used to distribute the product.

(4) Different brandname should be used.(5) Different promotional orientation should be used.

Upmarket Stretch

Companies may wish to enter the high end of the market for :

More Growth

Higher Margins

Positioning as Full-Line manufacturers.

Many markets has seen sometimes surprising upscale segments e.g

Caf Ciffee Day


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the product to a different segment. Its once firm foundation of customer preference may get

lost ion the process.

Product Innovation and Beyond

The Need for Product Innovation

The Product Life Cycle Concept has two significant implications on product innovation:

(1) Every companys present product eventually becomes obsolete as their sales volume

and market share gets reduced by:a. Changing consumer desires

b. Superior Competing Products

(2) As a product ages, its profits often declines. Introducing a new product at the roghttime can help maintain/increase a companys profits.

Leading companies are setting for themselves targets for innovation. HP,for instance,targets60% of annual sales should come from products not more than 2years old. Johnson &

Johnson targets at least 40% of sales comes from products not more than 6 years old. Similar

targets are being set up by leading companies all over the world.

Product Innovations-Whose View?The definition of product innovation varies from whose prespective we are talking about.

Product innovation could be defined from four perspectives:

(1) Firm-oriented(2) Product-oriented

(3) Market-oriented

(4) Consumer-oriented

Firm-Oriented Definition

This perspective is from the point of view of the firm producing and marketing a product. Itignores whether or not the product is actually new to the marketplace(i.e. is it new for

competitors? Is it new for consumers?) . From this perspective,even copies or modifications

of competitors products also qualify as new product. This perspective is suitable when the

objective is to examine the impact that a new product has on the firm.. It is not very usefulwhen the goal is to understand customer acceptance of a new product.

Product-Oriented Definition

From this perspective, the focus is on:

(1) features in the product itself

(2) Effects these features are likely to have on consumers established usage patterns.


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One product-oriented framework considers the extent to which a new product is likely to

disrupt the established behavioural pattern..

There are three types of product innovation:

(1) Continous Innovation

(2) Dynamically Continous Innovation(3) Discontinous Innovation

DISCONTINOUS

INNOVATION

DYNAMICALLY

CONTINOUS

INNOVATION

CONTINOUS

INNOVATION

BREAKTHROUGH MAJOR CHANGEONGOING

ALTERATION

Continous Innovation

Characteristics are :1. Variations of existing products2. Least Disruption of Consumption patterns

Examples are :

1. Flat Panel Computer Screen2. The new Maruti Zen

3. Hero Honda Splendour +

Dynamically Continous InnovationCharacteristics are:

1. Improvement of performance through creation of new product or modification of

existing product.2. More disruptive than continous innovation but still does not alter established

Consumption patterns

Examples are:1. The Reva Hybrid Electric Engine Car

2. TiVo Personal Video Recorder

3. Disposable Diapers4. CD players


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Discontinous InnovationCharacteristics are:

1. New function not performed by any previous product.

2. Need for behavioural changes

Examples are:1. The Battey pacemaker

2. Apple iTunes3. Fax Machines

4. Airplanes

5. Radio6. Television

7. Internet

Market-Orineted Definition

From this perspective, newness of a product is judged in terms of how much exposure theconsumers have to the new product.A product is judged to be new if it has been:

(1) purchased by a relatively small(fixed) percentage of the potential market.

(2) in the market for a relatively short(specified) period of time.

Consumer-Oriented Definition

A new product is any product that a potential customer judges to be new. The newness isbased on the consumers perception of the product rather than on physical features or market

realities.

There are six categories of new products:

(1) New-to-the World products : These are new products that create anentirely new market.

(2) New product Lines: New products that allow a company to ener an

established market for the fist time(3) Additions to existing product lines These new products that supplements

a companys establsished product lien.

(4) Improvements in/revisions to existing product These are new products

that provide improved performanceor greater perceived value and replace.

(5) Repositioning These are existing products that are targeted to new

markets or market segments

(6)Cost Reductions: These are new products that provide similar performanceat a lower price.


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NEWNESS TO THE MARKETL H

20% 10%

26%26%

11% 7%

NEW PRODUCT

LINES

NEW-TO-WORLD

PRODUCTS

REVISIONS/

IMPROVEMENT TO

EXISTING PRODUCT

ADDITIONS TO EXISTING

PRODUCT LINE

COST REDUCTIONS REPOSITIONING


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product management - nov2007

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