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Module 4

FORMULATING PRODUCT PLANNING

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Developing a Product Strategy-AnIntroductionIts the product/service offer from an industrial firm that ultimately

satisfy the customers' needs.

Product decisions tend to be the reskiest variable in the marketingmix.

Objectives considered for developing product strategies:

The product mix is in line with the overall marketing plan of thecompany

To evolve guidelines for reviewing the performance of the

existing products.

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Definition of an Industrial Product

Its not only a physical entity, but also a complex set of economic,technical, legal and personal relationship between the buyer andthe seller.

In customers' point of view: a product is a combination of

basic(fundamental benefit), enhanced(features, styling andquality) and augmented(intangible benefits) properties.

A successful marketer knows what constitutes a total productpackage in the minds of prospective customers.

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Booz, Allen & Hamilton have identified six categoriesof new product

New-to-the-world products

New product lines

Additions to existing product lines

Improvements in / revision in existing products

Repositioning

Cost reductions

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Types of New Products

20% NewProduct Lines

10% New tothe worldproducts

26%Revisions/Improvements to

the existingproducts

26%Additions toexistingproduct line

11% Costreductions 7%Repositioning

Low Newness to the market High

NewnesstotheC

ompany

Low

High

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Imporatance of Change in ProductStrategy Product strategy is flexible and dynamic

industrial firms are required to make changes in the productstrategy to remain competitive.

Factors Demanding Change in product Strategy:

Customer Needs

Technology

Govt. Policies

Product Life Cycle

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Industrial Product Life Cycle(PLC)

Its and important concept to determine different marketingstrategies at different stages of PLC

The behaviour of the PLC depends on:

Change in needs of the customer Change in Technology

Change in Competition

According to the concept the product tends to go through different

cycle/stages like (i)Introduction stage, (ii)Growth stage,(iii)Mature satge, (iv)Decline stage

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PLC concept highlights about the long term planning for a newproduct including the impact of profits at later stages.

PLC should be understood well to estimate the profit potentialand ROI.

PLC curve for a Hi-tech Product-Ex Electronics andTelecommunication, New Product Development cost and timeare high, Introduction and Growth stages are long but maturity

and decline is short. The profits from a product reaches the peak before the sales

reach the peak(growth stage)

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PLC of HiTech products like computer and telecommunication

D

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PLC of Commodity product like steel, cement, coal, crops etc.

Sales

Time

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Application of the PLC Theory toIndustrial Product StrategiesIntroduction Stage:Due to change in the user habits, industrial

products get accepted rapidly after introduction but some areaccepted slowly.

Ex:hand held electronic calculators replaced mechanical

calculators overnight, whereas electronic typewriters took 2decades to achieve market acceptance.

Product acceptance in industrial market is affected by how theproduct fits into the buyers' total use system.

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Growth Stage:In this stage, industrial marketer has to focusmarketing strategies on areas like:

Improve product design to offer more benefitsor product features to cover wider segments ofthe market

Improve distribution so that product availabilityto customers is strong

Reduce the price as increased volume ofproduction lowers the cost.

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Maturity Stage:As the product enters the maturity stage, thenumber of competitors entering the market increases resulting indecline in the growth of profits.

Strategies adopted are:

Enter new market Ex:If a product matures indomestic market, it may have a good export

market. Keep exixting customer satisfied

Cut costs in marketing, production and othercosts to maintain profit margins.

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Decline Stage:In this stage the competition is more severe, andconcurrently the sales and profits decline.

Strategies adopted are:

Withdraw the product from the market

Develop a substitute product for replacement

Further reduce the marketing and otherexpenses substantially to make some profits

The decline tend to proceed rapidly since new technologies makeproducts obsolete.

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Steps Involved in Locating Industrial Products in their LifeCycle

Develop a trend analysis for the past 3-5 yrs based on the valueof sales, profit as a percentage of sales, market share, prices andcompetitors.

Examine recent trends in the number and nature of competitors,

market share, rankings, their product performances

Analyze short term competitive tactics like new productdevelopment and plant expansion

Project product sales and profits for the next 3-5 yrs

Estimate the number of profitable yrs in the PLC of the productand fix the product's position in the life cycle curve

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Developing Product Strategies forExisting ProductsThe following steps are important part of the industrial marketing

plan:

Evaluate the performance of all the existing product lines byusing Product Evaluation Matrix

By using Perceptual Mapping Technique, examine the relativestrength and weakness of the product in comparison tocompetitors'

Based on the above analysis, decide the product strateegies for

the existing products.

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Product Evaluation Criteria

A.Market Criteria

Present size

Growth potential

Current or new customers

Amount of competition

Strength of competition

Price conciousness

Technical service

Channel Impact of present products

Variety of end users

B.Product/Technological

Degree of innovation

Differential advantages

Lead time over

competitionEstimate product life

Experience withtechnology

Technical feasibility

Competing technologies

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Product Evaluation Criteria

Financial Criteria

Initial Investment

Expected sales

revenue Sales-profit ratio

Estimated ROI

Manufacturer's cost to

price ratio

Expected cash flow

Payback period

Net gain/loss on other

perducts

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Product Evaluation Matrix

It evaluates the performance of the product. The matrix combines 4performance parameters of a product.

Industry sales-catagorised as Growth, Stable and Decline.

Company sales-catagorised as Growth, Stable and decline.

Market share-classified as as Leading, average and marginal Profitability-classified as below target, target or above target.

Ex:If the market share is 30% -Dominant

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Product Evaluation Matrix

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Perceptual Mapping Technique

It is used to study the strengths and weaknesses of a firm'sproduct in comparison to that of the competitors.

Ex:A firm's product quality is considered to be inferior to itscompetitors, however the after sales service is superior than thecompetitor. The firm can reposition itself by improving its product

quality substantially and maintaining its superior service.After improving the quality the firm can set price slightly higher

than the competitors, and can improve on its profitability.

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Deciding Product Strategies

Based on the two techniques, the industrial marketer can nowdecide on the strategy mentioned:

Continue/Maintain the product and its marketingstrategy

Modify the product and change the marketingstrategy

Eliminate the product or the product line

Add new products or product lines

F t R ibl f S

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Factors Responsible for Successand Failure of New Products

Failures:

New product do not satisfy the needs of many potentialcustomers

No significant difference between existing products and new

products

New products do not deliver the expected performance due topoor design

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The firms with weak new product development process arebeaten by competitors who copy the products but have superiorquality and market effectiveness.

Prices of the new products are much higher than the valueperceived by the customers.

The company wants to recover the cost of the productdevelopment too quickly.

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Success Factors:

Product superiority and uniqueness gives a competitive edge

over competitors. Market knowledge is important as the firm understands the

needs and wants of target markets

Technical and product capabilities are important as they are

required to translate the product concept into productdevelopment and commercial production.

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New Product Development Process.

The process by which potential ideas are generated,evaluated, directed and turned into products is calledNew Product Development Process.Stages in New Product Development Process:

Idea generation

Ideas screeening

Concept developmentand testing

Business Analysis

5)Product Development

6)Market Testing

7)Commercailisation

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Idea Generation:Any initial product idea should aim at solving aspecific problem and provide customer benefits.

The should support and enhance the firms strategic thrust.

The firm must defines its objectives of the new product clearly.

The new product ideas are often generated by sales persons,customers, distributors, suppliers, design engineers andmanagers.

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Idea Screening:The primary purpose of idea screening is to selectthose ideas which are likely to succeed.

Procedure for screening new product ideas: Is the new product idea in line company's

objectives?

Do we have adequate resources to make it

successful? Is the new product idea actually solving the

customer's problem?

Does it deliver value to the customer than the

competitor?

What is the future growth, competition andmarket size of the new product industry?

New Product Idea Rating Formula: 0 7=good

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New Product Idea Rating Formula: 0.7=good

New Product IdeaSignificant Factors

(A) ImportanceWeightage

(B)Company

capabilities for the

new product

(A*B)New Product Idea

Rating

1. CompanyObjectives andStrategy

0.20 0.70 0.14

2. MarketingExperience andeffectiveness

0.20 0.50 0.10

3. Productioncapabilities andfacilities

0.15 0.40 0.06

4. R&D 0.15 0.60 0.09

5. Availability ofraw materials

0.10 0.70 0.07

6. Financialresources andprofitability

0.20 0.80 0.16

TOTAL 1.00 0.62

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New Product Development

Classification: Products that are inovative and new to the world

Product that are new to the company and not newto the market

Improvements in the existing products in theexisting markets

Addition to the existing products with aditionalmarkets

Repositioning existing products to new markets

Products with substantial cost reduction withoutreduction in performance

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Concept Development and Testing:

In this step the product idea should be developed into productconcept.

The firm develops the new product into different alternative productconcepts.

Each product concept is tested with customer.

The concept with the strong customer appeal is choosen.

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Ex: A firm wants to develop a pallet truck to carry materials in theshop floor and warehouse, it creates the following concepts:

Concept 1. A manual truck-compact-low cost-max

load upto 20Kgs

Concept 2. An electric truck-medium cost-2 differentspeeds-max load upto 30Kgs

Concept 3. An electric truck-high cost-heavy duty-3speeds-max load upto 50Kgs

C t T ti th d t t t t d i th

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Concept Testing- the new product concepts are tested in theprospective customer organizations.

The concept testing is done by using a technique called virtual

reality. The customer can operate the simulated product.

The users and key decision makers are then interviewed and thefollowing questions are asked:

Do you understand the concept of pallet truck?

Whi h f th t did lik th t d

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Which of the concept did you like the most andwhy?

Are the products different or similar to theproducts used by you?

What improvements do you suggest in theproduct features?

For what uses you prefer the manual andelectric pallet truck?

The answers to these questions would help the company to decidewhich product concept has a strong appeal.

B i A l i Th f b i l i i t

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Business Analysis: The purpose of business analysis is todevelop an estimated projection of sales, cost, and profitabilityof the proposed product.

Its a detailed analysis in terms of:

Required investment in plant, equipment,working capital and market development

Market potential, sales forecast, customer and

competitor analysis

Costs of product development, manufacturingand marketing the product

Profitability and return on investments

Product Development: Its a process in which engineers and

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Product Development: Its a process in which engineers andtechnicians create the desired product.

R&D develops prototypes of the product concept.

It will confirm or negate the cost estimation of the product with theperformance parameters.

The marketing team will have constant touch with the R&D dept. toinform the requirements of the customer.

The challenge of the R&D is to achieve both performance and costobjectives.

Market Testing:Different testing methods adopted are: (a) Alpha

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Market Testing:Different testing methods adopted are: (a) Alphaand Beta testing, (b) Introduction of new products at tradeshows, (c) Testing in distributor/dealer showroom, (d) TestMarketing.

Alpha and Beta testing: Testing the product which are priced high,or with new technologies, internally in the company.

Its done to evaluate the performance parameters and operatingcosts.

If the results are satisfactory the company will go for second stageof beta testing at potential users' site.

Trade Shows:a large no of prospective buyers are

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Trade Shows:a large no of prospective buyers areexposed to the new product. It helps to findcustomers' reaction, purchase intentions and

placement of orders. The disadvantage is that thenew products get exposed to the competitors.

Dealer Showrooms:the product is sold through thedistribution channel and is tested at places, and can

gain information on customers' attitude, preferencesand actual sales.

Test Marketing: the product is tested in a limitedgeographical area under normal marketing

situations. The information received hepls themanagement to take effective decision when theproduct is launched.

Commercialisation:A product is commercialised or launched

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Commercialisation:A product is commercialised or launchedwhen it is introduced to target market.

Various activities developed in an action plan are:

Training of sales force

Product catalogues

Price lists

Introductory advertisements

Adequate stocks

Customer service

The new product marketing plan should clearly define:

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The new product marketing plan should clearly define:

The timing of market launch

Marketing objectives and goals Geographical strategy

Target market segments

Marketing mix strategies

B i S i M k ti

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Business Service Marketing

Classification of Industrial Services:

Products supported by services: Here a wide range of serviceelements accompany the physical products. Ex: Maintenanceand repairs, sales and services

Pure Services:these are marketed without any association witha physical product.Ex: MR, legal, audit, security, courier, travelbooking, and recruitment services.

I d t i l P d t S i Cl ifi ti

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Pure tangibleproducts Ex:materials andcomponents

Pure intangibleServices Ex: MR,Legal services

Major productswith minorservice

Equal parts ofproduct andservices

Major serviceswith minorproducts

Industrial Product Service Classification

Characteristics of Services and Marketing

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Characteristics of Services and MarketingImplications

CHARACTERISTICS EXAMPLES MARKETING IMPLICATIONS

1. Intangibility (Servicescannot be seen or feltbefore they arepurchased)

ManagementConsultancy,ExecutiveDevelopmentProgram

Buyers look for evidence of the servicequality.Service providers try to tangibalise theintangible.

2. Inseperability-Services are generallyproduced and consumedsimultainously

Machinery orEquipment repairs.Courier services

Effective buyer seller interaction dependson the service provider.

3. Variability-Quality of

services are highlyvariable depending onwho provides, when, andwhere they are provided

Marketing

research,ManagementEducation

Standardisation of output and uniformity in

quality are difficult to achieve.Service providers should emphasis onquality standards, develop systems tominimize errors, and try to automate.

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CHARACTERISTICS EXAMPLES MARKETING IMPLICATIONS

4. Perishability-Generallyservices cannot be stored Airlines empty seatsUnused warehouse space When demand fluctuatesservice firms, have difficultproblemsPlan capacity around peakdemandUse pricing and other methodsto achieve close matchbetween demand and capacity

5. Non-Ownership (Servicebuyers uses but not own theservices purchased

Use of hotel servicesUse of car rental services

Service marketer shouldcommunicate advantages ofnon ownership-reduction inlabour and overheads, andflexibility.

Marketing Strategies for Industrial

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g gService Firms

Segmenting and Targeting of Industrial Services: Characteristics:

Service organizations customer expect services to becustomised, and may result in narrow niche marketingstrategies.

Service market segmentation concentrates on needs of theindustrial customer.

Development of an appropriate service package will depend onunderstanding the service expectations of the buyingorganization.

Service Differentiation:

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Service Differentiation:

Most common method used is to conduct a MR to determineimportant attributes of the customer, and it varies according to

the type of industry.

Industrial customers choose customers whose perceived qualityof service meets or exceeds the expected quality.

The service package can include innovative features to

differentiate it from competitors.

Service delivery schedule can be achieved better than thecompetitors. The firm can develop a more comfortable physicalenvironment in which the service is defined.

4) Specialization and experience is consideredto assess the

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) p pservice provider's capability over the competitors

Service Packages: Its a product tool of service marketing.

The service firm develops a service package based on the steps:

In developing a new product or evaluating an existing industry,the firm must find out what core benefits the customer will derivefrom the service.

2) to decide what benefitsthe industrial service firmswill focus.

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3)to spell out the details of the benefits the service firms theservice firms will offer.

4)to decide how the service will be provided to thecustomer(service delivery system)

Service Pricing:Differential pricing strategy is used to manage thefluctuating demand.

Usually firms offer special pricing for various services dependingon the need basis.

Service Promotion:Similar to the product promotion. The industrial

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buyers are more influenced by the word of mouth communication.

The marketers promote the word of mouth communication from their

existing satisfied customers to talk to potential customers tofeature in the promotional brochures and advertisements.

Industrial customers prefer to deal with those who provide superiorservice. So service providers play major role in personal selling.

In service promotion the intangible items are translated into

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tangible attributes of service bu showing pictures of buildings,equipments and personnel.

Promoting customer contact people by including them in theadvertisement has found success in marketing of services.

Service Distribution:decisions on distribution are taken to makethe service package available to the target service buyers. Inthis method either the service buyer firm goes to the service

provider or vice-versa.

In the distribution channel, the intermediaries are used as itid id f k t t ff ti il bilit

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provides a wider coverage of market, cost effective, availabilityof bundeled services.

Ex:Airline booking, real estate buying or selling.Franchising is another channel of distribution. It helps in rapid

expansion of market without much capital investment.

Ex:Recruitment agencies, factory cleaning, housekeeping

distribute through franchise dealership.

Some Examples of the Service Industries Sectors

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Management Consultancy

(McKinsey, TATA strategic MgmtConsultancy Group, BostonConsulting Group, Booz AllenHamilton)

Some agricultural services(including landscaping and

horticulture)

Hotels and other places of lodging

Personal services (including drycleaning, tax preparation, and haircutting)

Business services (includingtemporary agencies and businesssoftware developers)

Automotive services

Miscellaneous repairs

Motion pictures

Amusements and recreation

Healthcare

Legal services

Private education

Social services

Museums, zoos, and

botanical gardens

Membership organizations(including houses of worshipand clubs)