PRODUCT MANAGEMENT

BLOCK 1: PRODUCT MANAGEMENT INTRODUCTION Unit 1: Introduction to Product Management Unit 2: Product Management Process Unit 3: The Product Planning System BLOCK 2: MANAGING PRODUCTS Unit 4: Product Line Decisions Unit 5: Product Life Cycle Unit 6: Product Portfolio Unit 7: Product Pricing BLOCK 3: BRANDING AND PACKAGING DECISIONS Unit 8: Branding Decisions Unit 9: Positioning Decisions Unit 10: Brand Equity Unit 11: Packaging Decisions BLOCK 4: NEW PRODUCT DEVELOPMENT Unit 12: Organizing for New Product Development Unit 13: Generation, Screening and Development of New Product Ideas BLOCK 5: IMPLEMENTING NEW PRODUCT DECISION Unit 14: Concept Development and Testing Unit 15: Pre-test Marketing and Test Marketing Unit 16: Product Launch

Block 1: PRODUCT MANAGEMENT INTRODUCTION

Unit 1: Introduction to Product Management

Unit 2: Product Management Process

Unit 3: The Product Planning System

1.

UNIT I: Introduction to Product Management

Learning Objectives To understand how Product Management evolved What a Product Manager has to do. To understand the linkages of Product Management with other functions in the organisation.

Structure 1. Product Management 2. Historical Background 2.1. Your Learning 3. Product Management and its Interface with Other Organisational Functions 3.1. Identifies a market problem 3.2. Quantifies the opportunity 3.3. Communicates the market opportunity to the top management 3.4. Communicates the problem to Product Development team 3.5. Communicates to Advertising/ Promotion team 3.6. Empowers the sales team 4. Your Learning 5. Summary 6. Key Words 7. Exercises 8. Further Reading

1. Product Management Product Management is a function within a company that deals with the planning or marketing or forecasting of a product or products through at all stages of the product lifecycle. Product management and product marketing are different yet complementary efforts with the objective of maximizing sales revenues, market share, and profit margins. Product Management has several roles which cover many activities from identification to development, to launch and even support during its life cycle. The issues handled by the product management team vary
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from being strategic and/or tactical in nature depending on the type of organisation and where in the organizations hierarchy the function lies. Product management can be a separate function or a part of marketing or engineering functions. Since better and new products are a key differentiator in the market and are what drives companys profits Product Managements main focus is on new product development. However since they are the ones who know most of the product and the basis of its origin the Product management is responsible for the growth and development of the product in the market and sometimes they may even be responsible for the bottom line generated by the product.

2. Historical Background Business executives throughout industry spend more and more time trying to answer one basic question: How can I assure continued profitable gro wth of my business? The answer to this question is quite simple: By providing the optimum solution to the market needs. Market needs are classified as Goods or Services. All these have a tangible value and can be commercially produced and marketed profitably. For our purpose, we shall classify both goods and services as products. Hence, if we were to answer the above question again, it could be: By providing a continual flow of new products to satisfy market needs or desires. The question then arises: Now where will these products come from? In the early 1900s, new products were created by gifted inventors who worked with crude equipment and facilities but were creative geniuses with determination and vision to follow their discoveries in spite of tremendous difficulties. Men like Edison, Watt, and Marconi created products like the electric bulb, steam engine and the telegraph. All their products came from years of hard work and hit and trial experiments. Once these basic inventions were developed, new products evolved. For example, after the steam engine, motorised transportation in the form of cars became a reality, and steam boats replaced horses and sailboats. By the end of World War I, new technologies had become so complex and the speed at which new developments were made became so rapid, that the individual inventor became less and less relevant. Instead, companies started organised development of products. World War II gave a further impetus to the development and refinement of products. However, most of these were based on Research and Development (R&D) in a given manufacturing company and were not driven by customer needs. The R&D product planning programs were expensive and slow, and they often were unproductive. Managements then concluded that a new approach was needed to make product development more productive. They realised that to be successful they needed to identify products that could satisfy the customers needs and desires , and which
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could, at the same time, match the company's manufacturing capabilities keeping in mind the constantly changing market conditions. Thus, it was no longer a case of merely reacting to market conditions. A company needed to stay ahead by creating new markets while continuing to dominate existing ones. Hence, what was needed was a formal approach to Product Planning and Management. The formal process of Product Planning & Its Management is led by a Product Manager whose primary role is to serve as the Voice of the Customer. He is responsible for the 4Ps of Product Management: Price Place Product Promotion

Note: This includes indirect management and cooperation with other members of various groups In this book we will go through the various aspects of Product Management as is now undertaken in this complex business environment. The book has been structured in five broad areas. The first being the introduction to the basic subject itself where we will not only have a look at the historical background and how product management has come out from being a product of creative geniuses to a well structured process with a reasonably well defined interface within the organisation. In the chapter 2 and 3 the whole process involved in managing product development and how once we have decided what product to make the organisation needs to function in order to bring our the product to the market in the shortest and most efficient manner. It also discusses how the product launch can be staggered to provide a strategic advantage to the Marketer. Once we are through the basics we go to the next section consisting of units 4, 5, 6 which will discuss in greater detail how we must organise ourselves to develop new products and go through the process of generating new ideas and evaluating which of them is economically viable before actually taking up the developmental effort of time and money. The next section with units 7, 8, 9, and 10 will help you understand how from the concept we actually undertake the development of the product, and pretest or test market the product before we actually launch it in the market. Once we find that eh product meets our marketing objectives the steps we need to follow to launch the product. Now that we have launched our products we need to understand how to manage these products that are in the markets. The units 11, 12, 13 and 14 will give you an insight into where new products should be added, when should you support them in their life cycle and when should you decide to withdraw
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the product. In this section we will also understand how to balance the product portfolio and the factors affecting the pricing decisions. We know that in addition to the product it is equally important to package and brand the product in a manner that it fits in the product positioning that has been decided by the product management team. So the Units 15, 16, 17 and 18 will take you through the processes followed to arrive at branding, positioning and packaging decisions. 2.1. Your Learning 1. What was the need for an organised product management process? 2. Do you think that with todays organised product management process we are able to address customer needs better?

3. Product Management and its Interface with Other Organisational Functions Though all the Ps are interlinked and affect each other, it is the Product that has the most profound effect on all the other functions. Hence the study of the product management process is an extremely important process. It is this function that has a large impact on the bottom line of the organisation and also whether the company is able to stay ahead of competition giving the company a strategic advantage to leverage. Product Management interfaces with other functions in the following manner:

3.1.

It identifies a market problem/ customer needs

This means that the Product Management team uses methods and techniques that help it to identify the problems that the customer would like to have a solution for. Once they identify this, they create a product that will resolve the problem or satisfy that particular customer need.

3.2. It quantifies the opportunity

Any new product development that will resolve a customer problem will need a companys resources in terms of time, people and money. The companys decision to invest in these costs will depend on the business opportunity that could be created by this product. The Return on Investment (ROI) must be large enough for them to make sufficient profits in order to recover the initial investment costs within the breakeven period and then convert it into a profit making proposition.

3.3. It communicates the market opportunity to the top management

Since only the top management can commit resources for new product development, the product management team must provide them with the business rationale for following the opportunity and give them a business plan to convince them to commit resources for research and development.

3.4. It communicates with the Product Development team

Once the top management has given their approval for development, the product development team must be explained what the market requirements of the finished product are so that they are clear about what they need to develop. Let us take an example: In the initial stages of the development of mobile phones, the customer had to hold the phone to his ear to listen to the other person. Phone companies understood the market need of their customers not wanting to hold the phone to their ears. They communicated the product development team that they need a product that fdoes not force the customer to hold the phone to his ear. The product development team developed an earphone that was linked to the phone through a thin wire plugged to the phone. While this was better than the earlier system where the customer had to hold the phone to his ear, the Product Management team wanted a further improvement since the wires always interfered while handling the mobile phone, and in any case, the customer had to continue to hold the phone in his hand. The product development team then came out with a cordless earpiece that solved this problem.

3.5. It communicates to Advertising/ Promotion team

Each product is positioned for a specific category of customers. The Project Management team shares its vision with the publicity / sales promotion team giving them the positioning of the product. E.g.: A Maruti 800 is positioned for a middle class customer while a Honda Accord is positioned for the high income customer. They type of advertising communication for each type of customer is different and hence the Product Management team must explain the positioning to the Advertising team so that the right communication can be generated.

3.6. It empowers the sales team

The sales team also needs to understand the product so that they can effectively sell the product to the customer. That is again the responsibility of the Project Management team to define the sales process and identify the necessary sales tools to sell to the customer. A Maruti 800 customer will focus mostly on price and may
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not be so feature conscious while the Honda Accord customer will focus more on features, styling, and comfort. Hence the selling tools for both the products will be different.

3.7. Your Learning

1. How does Product Management function impact Marketing of a product? 2. How does the top management benefit from a separate product management team?

Fig: 1.1 Product Managements Role

4. What a good Product Management must do A good Product Management Team or a good Product Manager must work in order to keep his company ahead of competition and help provide a competitive edge to the company. Some of the characteristics that differentiate a good product management from a bad one are: a. Realize your product is not the centre of your customers worlds A good product manager must realize that his product is most probably one of many products which a customer uses every day. A product manager is likely to think about his product all day, every day. It is very unlikely that the customer think about or uses this product nearly that much; to them, it is more likely just one of the many products in the market. Thus decisions about product design and features must keep this in mind. If we are over absorbed about our product and think the customer will understand everything or will find everything we develop useful, we may create problems for ourselves. For example: We can add features that we consider useful but if the customer does not use them then it is of no use putting the feature no matter how useful we think it is.

If we use very specific terminology (which sometimes gets developed internally in the organisation during the development phase of the product or may be a technical term not generally used) which is not easily recognized by anyone new to the product. Then this may not be understood by the customer.

If we get too involved with our product we may miss identifying how it can be used with other products thus missing potential business opportunities.

Hence a wise product manager will generally: Use existing standards whenever they are relevant and applicable. If we have a standard QWERTY key board for computers and we change this for some other purpose then it may become difficult for customers to use this.

Realize that products work with other products which the organization produces as well as products and systems created by others including your competitors.

b. Save some features for later Its important to include enough features when a product is first released, and delaying the release of some features helps because: Customers have difficulty in grasping too many features at once. Also extra features may distract the customer towards the less important features and make him miss the truly differentiating features.

If features are added with passage of time then product life can be extended by giving the customer an improved version of the product. Many times these can be given as priced value additions.

Giving some features later may also provide the opportunity to upgrade or modify existing features that may be needed by the current market customer expectations. It is not possible for the product manager to know and plan for all features needed by the market and hence this enables him to keep his product abreast with the market and deliver a better bottom line.

c. Product management is more than prioritizing product features

Product managers needs to have a much broader view and needs to see and understand everything from the basic customer needs to the business model to the product roadmap to the go-to-market strategy. Unfortunately, many product managers take the easy feature-focused development mode. As a result they do not see their function in a holistic manner.

d. Differentiate to avoid being a me too

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A good product manager must try to differentiate his product and avoid being a me too. Getting into the market speedily is definitely important; however it is always better to come into the market later with a better product than slightly faster with something that does not stand out. Being first is good but it is no guarantee of success. Amazon.com was not the first online bookseller; Google was not the first search engine; the iPod was not the first portable MP3 player; the list can go on and on. In Product Leadership: Creating and Launching Superior New Products , Robert Cooper offers some amazing statistics on truly superior, differentiated products: One of the top success factors we uncovered is delivering a differentiated product with unique customer benefits and superior value for the user. Our NewProd projects studies show that such superior products have five times the success rate, over four times the market share, and four times the profitability as products lacking this ingredient. Truly Superior, Differentiated Products had an average 98% success rate and 53.5% market share, while Me-Too Products averaged an 18.4% success rate and 11.6% market share. Though the desire for quick revenue and immediate return within organizations is often strong, though there is good cause for launching the right product. In the end, the extra effort put into figuring out how to differentiate a product will be well worth the effort.

e. Reinforce your product-related communication Product managers have to ensure that any communication they send out must be clear and consistent. They need to do this in order to avoid confusion over action proposed or being taken. The product manager has to ensure that any communication he sends out must be understood and taken note of by all concerned with the product be it sales, or distributors or even the internal departments like engineering, R&D, marketing etc. So that all of them are on the same page. We all know that communication is one of the most difficult things to do and many times people do not get the communication in one go. Thus the product manager must follow up and make sure that the communicated information has been received and understood by the recipient.
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f. Do not think that a single product will solve all problems for customers We may like to make a single product that will solve all customer problems since this way our development costs would be minimum and profits would be maximum. However, trying to make it everything for everyone usually results in a product that does nothing for no one. In order to make a product do everything for everyone we would need to add a lot of features to it making it extremely complicated for most. And it makes it difficult or the marketer to sell the differentiating factor to the customer. We can see that today we are seeing more and more products that are focussed on a specific benefit eg anti dandruff shampoos (Head and Shoulders, Clinic All clear), powders for heat problems (Navratan), soaps with cream (Dove), Fairness cream for Men, etc. This is not to say that an all-in-one strategy is always bad. Product managers can still choose to follow an all-in-one strategy; they just must be aware of the impact it may have on the perceptions of customers. Even then, an all-in-one product should be that way because it provides value and solves specific problems for the customer, not just all-in-one for the sake of being all-in-one g. Define the problem before solving it Product managers and many others unfortunately assume the problem is clear and jump straight away to solving it. However, improperly-defined problems lead to improper solutions. Albert Einstein is supposed to have said that, given one hour to save the world, he would spend 55 minutes defining the problem and 5 minutes finding the solution. This quote does illustrate an important

point: before jumping right into solving a problem, we should step back and invest time and effort to improve our understanding of it.

The first and foremost thing to be done before solving the problem is to define it correctly. This definition should neither be too narrow or too broad. A narrow definition will limit the scope of the solution and similarly a very broad definition will give us solutions that may not be relevant to the problem. Going too far in either extreme may be unproductive and inefficient in many situations. Product managers must not be in a hurry to write down features without clearly defining the problem. Relooking at problems can always provide a fresh perspective and give interesting solutions. Many times the product manager should take the help of research to
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clarify and define issues. The time spent in defining problems in the early stages always helps save time spent later in resolving issues.

5. Summary Historically product development was dependent on work undertaken by inventors and geniuses. Later with the advent of competition it became more organised. Products were developed in research laboratories of large companies. However these were products that could be developed rather than what was needed by the customer. As competition increased further companies were forced to understand what were the customer needs and develop products that were needed by him. This led to the creation of the Product development function. The product development function is an important function that needs to interface with all functions of an organisation.

1. a.

b. c.

d. 2.

3.

6. Key Words Goods and Services Goods and services are the outputs offered by businesses to satisfy the demands of consumer and industrial markets. They are differentiated on the basis of four characteristics: Tangibility: Goods are tangible products such as cars, clothing, and machinery. They have shape and can be seen and touched. Services are intangible. Hair styling, pest control, and equipment repair, for example, do not have a physical presence. Perishability: All goods have some degree of durability beyond the time of purchase. Services do not; they perish as they are delivered. Separability: Goods can be stored for later use. Thus, production and consumption are typically separate. Because the production and consumption of services are simultaneous, services and the service provider cannot be separated. Standardization: The quality of goods can be controlled through standardization and grading in the production process. The quality of services, however, is different each time they are delivered. Continual flow of new products The customer needs to get something new in order to stay interested in a companys product. This can be in the form of new features, new shapes, new products and even a new price. This innovation is the continual flow of new products. Voice of Customer is a term used in business to describe the process of capturing a customer's requirements. Specifically, the Voice of the Customer is a market research technique that produces a detailed set of customer wants and needs. Voice of the Customer studies typically
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consist of both qualitative and quantitative research steps. They are generally conducted at the start of any new product, process, or service design initiative in order to better understand the customers wants and needs, and as the key input for new product definition, and the setting of detailed design specifications. 4. Return on Investment is usually expressed in percentage. It is the percentage of money gained or lost on an investment relative to the amount of money invested 5. Breakeven Point is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even". 6. Business Rationale defines the fundamental reason or reasons why
developing the product will be beneficial to the business. It outlines a reasoned step by step explanation.

7. Business Plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals. 8. Product Positioning means the process by which marketers try to create an image or identity in the minds of their target market for their product, brand, or organization. The objective of this to ensure that the consumer remembers the product or brand in spite of the noise created by the communication clutter. 9. Sales Process is a systematic approach to selling a product or service. It includes all aspects of sales and helps in creating standardized processes which allow monitoring of processes and in enhancing sales. 10. Sales Tools All factors that help in selling a product are the sales tools. These include consumer schemes (e.g. buy one get one free, buy a car and get a chance to win a TV, etc) advertising, printed leaflets, banners, channel push, etc. 7. Exercises 1. How can the product management team help in defining the sales process? 2. How can the sales tools be developed by the product management team? 3. How is the product management team different from the product development team? 4. The product management can help improve sales? Do you agree or disagree with this statement and why? 5. What is the importance of Product Development? Do you think that an organised process of development is helping us develop products that the customer needs?
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8. Further Reading 1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India: Response Books Page 1-6, 17-20 3. Gorchels, Linda, (2006) The Product Managers Handbook, New York, USA: McGraw-Hill Chapter 1 4. Mukherjee, Kaushik (2009) Product Management , New Delhi, India: PHI Learning Pvt. Ltd Pg 4 10 5. Lehmann, Donald R and Winer, Russel S, (1997) Product Management, Singapore, Irwin/ McGraw-Hill Pages 15 18 6. Crawford, Merle and Benedetto, Anthony Di (2004) New Product Management Singapore, McGraw Hill Page 5 10

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2.
3.

UNIT II - Product Management Process

Learning Objectives The Product Management Development.

Cycle

and

its

significance

in

Product

Management of the Product Development Process. Some key issues to be considered while discontinuing an existing product and launching a new one.

Structure 1. Introduction 2. Product Management Cycle New Product Identification New Product Definition Product Development Product Launch and Growth Product Discontinuation 3. 4. 5. 6. 7. Your learning Summary Key Words Exercises Further Reading

2.1. 2.2. 2.3. 2.4. 2.5.

1.

Introduction We have seen that a company needs to stay ahead not only in its existing markets but also in new markets that it expands into. In order to stay ahead, it needs newer products on an ongoing basis that meet the needs of a continually changing market. We have also seen that the product development process has become a complicated and expensive process. Hence a structured approach to product development is needed. This is also called the Product Management Process.

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The Product Management Process is cyclical in nature this means that product development is a continual and ongoing process which goes through a cycle. As old products die new ones are born and so the cycle goes on. This process of managing the entire lifecycle of a product from its conception, through design and manufacture, to service and disposal integrates people, data, processes and business systems and provides a product information backbone for companies and their extended enterprise 2. Product Management Cycle The Product Management Cycle has five stages: i. New Product Identification ii. New Product Definition iii. Product Development iv. Product Launch and Growth v. Product Discontinuation

1.

New Product Identification Phase This is the phase in which the company conducts various activities in order to understand the customers needs and desires and define the functional requirements of the product. The product management group is entrusted with the task of creating a systematic process to understand the customer requirements and create a document that outlines what the product functions should be. During this phase the product development personnel and people from top management undertake some of the following activities: i. Customer surveys and responses to existing products so that improvements to existing products can be undertaken. They also try to understand what the customer feels are his pain areas (areas where the customer has problems). Many times it is the solution of the pain area of the customer that gives rise to new innovations. When a company is selling a product in its target segment then this product will fulfil all the needs of a part of this segment, most of the needs of a large part of this segment and some of the needs of the balance. In order to know whether the companys products are meeting the customers expectations the companys sales force or an agency appointed by the product management team. These people
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generate a feedback from the customers some of which is extremely useful in generating new ideas. ii. They read journals, magazines, books, and also go to international exhibitions, conferences and see what innovations are being displayed and discussed by eminent scientists, business associates and competitors. This helps them keep abreast with the latest developments around the world so that they can use some of these in their own products. It also helps understand what the competition could possibly develop in terms of new products. iii. Companies create think tanks that take in all the data that comes in from various sources and come up with various ideas. This consists of cross functional teams teams consisting of people from various departments many of whom may eventually be involved in the development of the product. These cross functional teams get all the inputs that is available for product development and they also bring into the team their knowledge and experience. Using this they debate and come up with ideas for new produce development. iv. All interesting information is collated and circulated organisationwide usually strategic planners or technology policy makers. Organisations generally circulate information about products, technologies, business processes, competition, etc within the organisation. This not only helps people keep abreast with the latest trends but also allows the germination of new ideas. During this phase several product ideas are generated and there is a fuzzy view of each of these products. Product Definition Phase During this phase various ideas for products generated in the first phase are discussed and evaluated so that the final product is finalised. During this phase the following activities are undertaken: i. The high level functions of the product are defined. High level specifications mean that these specifications are an overview of all the functions desired in the product. These are stated simply and are meant so that everyone in the organisation can understand the functions are and how it solves the customers problems. For example when the Nano was planned by the Tatas a high level specification would have given that they need to develop a car that will cost only Rs one lakh to the customer, would look modern, have the basic comforts, and that it would be positioned for a two wheeler owner who would aspire for a four
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2.

wheeler or an existing small car buyer who would like to buy a more economical more modern design. ii. A business case is made for the new product. This business case defines the size of the market, the segment for which the product has been defined, what are the investments needed to make and sell the product and what will be the profit that the product make during its life cycle. It also outlines what are the competitive products currently and also likely to be launched by the competitor. Once the basic product has been defined like the Nano the product management team will have to make a detailed report in which they will have to evaluate whether this product will make business sense. At the end of the day the business needs to make a profit and if a product cannot make profit it will not be considered for the next stage of development. The study done in this phase is relatively preliminary and is done to understand the basics of the economic feasibility. iii. In this stage the product management team has to sell the idea of the product to various people in the organisation sales, production, R&D, HR, etc. Once the Product Development team has determined that the product is viable it has to convince the management that the product not only meets the strategic objectives but also the profit objectives of the organisation. Until the management is convinced the financial commitment needed to commence product development cannot be made. The presentation to the management will also have details of the financial support needed for development, the time by which the product will be developed, the business prospects and the techno-commercial feasibility. During this phase, the Technology group with industrial engineering group conduct a feasibility study; In addition, an economic study is done. Let us say in the case of the Nano once the basic product idea had been agreed to in principle the product development team would have conducted a study as to understand how they can meet the given objectives of the product specification and yet make the product feasible. This is done in consultation with the technical teams of the organisation like R&D, operations, procurement etc in order to understand broadly if the product can be made economically, At this stage many assumptions are made based on which the decision is taken. For example the product management team will assume that a certain technology needed to manufacture the product will be available at a certain cost and base their calculations on that. This assumption is based on the experience of the people in the organisation and no formal quotation is taken since it has
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not been decided for sure that this is the technology that will be used or some other option will be taken. Later once the decision is taken then the organisation tries to get the technology for a price below the figure taken in the assumptions.

3.

Product Development Phase

Once the products high level specifications have been finalised and the top management has approved this product and committed resources for its development, the Product Management Group involves the Product Development Team. This team consists of people from R&D, Manufacturing, Industrial Engineering and Sales. They are given the high level specifications of the product and given the tasks of creating the actual physical product. During this phase: i. The various functions involved in the Product Development Team make a detailed specification of the product. They also define the look and feel of the product. The task of converting a high level specification as given in 2.3.2.i into a detailed product specification is not a small task. It involves a detailed process in which several functional areas are involved. Each functional area provides inputs in the best way of meeting the products objectives and the Product Development team considers all the inputs and decides on what options to take. During this period the product specifications may undergo minor changes keeping in view the strengths of an organisation however the overall functional requirements will remain the same. ii. They evaluate the various options in manufacturing processes and the need for any new technology to make the product. They also evaluate the impact of various options in making the product in terms of investment needed, profits generated, etc. While making the detailed product specifications the management also evaluates the manufacturing options it has for the new products. They need to evaluate whether the existing manufacturing processes are adequate for making the new product, or they need to expand the manufacturing set up or they need to create an altogether new facility. Many times it happens that new technology needed to manufacture the new product has a significant impact on the existing processes and so the management needs to evaluate whether such a technology should be used or not, whether this is going to be beneficial to the organisation in the long term, since it may involve a lot of retraining of its manpower for using the new technology. iii. The first prototype of the product is developed and evaluated to see if the product meets all the functional requirements set out in the initial
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document. This is an important stage in the product development cycle. This product is put through functional trials to see if the specifications laid out at the beginning are met not only form the engineering point of view but also from the customers requirements point of vie w. At this stage sometimes a few chosen customers are also shown the product for their feedback. The feedback from testing and the customer is considered by the product management team and they decide on the changes to be incorporated in the product. iv. At this stage the product is more or less finalised and the product functionality frozen. However some fine tuning may continue till the product launch and even during the life of the product. These modifications are done to suit the conveniences of manufacturing or additional features needed by Sales. v. Once the final product comes out of the factory it is once again shown to some key partners (much larger numbers than before) in the market and sometimes test marketed in a small area to get the more feedback. Test marketing is usually done so that the actual user experience is received. It is normally done in a small representative market away from the main market of the company. The reason for doing the test away from the main market is that in case the test fails or has a negative impact the main market (which is significantly larger) must not be affected. This feedback also is discussed internally and the relevant parts are incorporated in the product. i. The product is then ready for launch.

4.

Product Launch and Growth Phase

The product launch needs a lot of preparation so as to ensure that the product succeeds in the market. Just making a good product is not enough to ensure its success. Thus by the time the final product is ready, the Product Management group has to develop the support needed to launch the product in the market. They have to:

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i. The product management team knows how they have positioned the product and what their target segment is. Along with the advertising department they have to develop the campaign needed to launch the product. Now keeping with the companys overall business objective they know how much they can spend on this campaign and so they plan the media according to this need. ii. The entire sales force, the channel partners must know what product they are selling and how it compares to competition. The customers must be able to understand the product they are buying. Hence the Product Management team must also develop the tools needed by the sales team and channel partners to sell the product effectively and for customers to understand them. They create tools like sales catalogs, leaflets, comparison charts with competition, explaining application areas and target segments for the product, they provide the pricing strategy, etc. iii. The Product Management group continues to provide support to the product throughout the life of the product by determining ways to improve sales, profitability of the product. Many times they have built in features in the product that have not been released with the initial launch of the product. These features are added into the product in a phased manner so as to stay ahead of competition and keep the customer interested in the product. iv. They also keep taking a feedback from the customer so that small incremental improvements can be made to the product thus increasing its life and profitability of the company while keeping it ahead of competition. v. We know that capital is scarce and new product development is expensive. Thus if we can prolong the life of the product it can help the company make profits while staying ahead of its competition. The products life and success will depend to a large extent on the ground work undertaken by the Product Management Group from the time of its development to its launch and stay in the market.

5.

Product Discontinuation Phase

This is a critical phase in the management of products. This is the phase when the product is to be discontinued and a new product has to be introduced. This seems to be quite simple but in reality it is a difficult decision. The reason is that on one hand we have a product that is established in the market and has customer acceptance, and, on the other hand, the new product has still to be
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accepted by the customer. If the current product is discontinued and the new product is not accepted by the customer, it can cause a major setback for the company. If we take the example of the Maruti 800 car it is a car that has been selling in large numbers, even though competition has introduced many products. Now if Maruti introduces a new product in its place they are not sure how the customers will feel about. We know that the Maruti 800 is a car that has excellent availability of spares and maintenance. Even the roadside mechanic can repair it and so there is no problem in using it anywhere in the country city, town or village. Any new car will take some time to penetrate the market so much. It will also take some time for Maruti to train its engineers in their service establishments across the country. Thus there is always some danger of losing a part of the market share to competitors. Hence some of the considerations in this phase are: i. Availability of a new product The foremost consideration in introducing a new product is its availability. ii. Awareness of the Competitors Products - At the same time we need to see what the competitor is doing. If the competitor has already launched a new product, it will force the companys hand in launching its own product. For example when Apple launched its iPhone with a large touch screen technology, other phone manufacturers were forced to launch similar products within a very short time. iii. Customer Maturity - Even though a new product may be ready, it may not be possible to launch it because the customers are not ready for it. E.g.: consumer durable manufacturers had washing machines ready in their product portfolio but could not launch it since the Indian customer was not ready for it. The Indian customer at that time felt that washing by hand was the done thing and that a washing machine never washed the clothes properly and that they never came out clean. iv. Adequate Training - In addition before discontinuing an existing product and launching a new product the organisation needs to be trained in it E.g.: the manufacturing team must know how to make it, the sales team and its distributors must understand how to sell the product. If it is a product that needs installation and maintenance then this team must also be trained. v. Adequate stock must lie in the distribution channel so that once the product is launched and the campaign breaks out, sales must not be lost due to non -availability at the retail end.

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Nowadays, because of the speed at which the market is changing and competition is responding, existing products are discarded even when they have not completed their economic life. This puts more pressure on the Product Management Group to develop newer products that will give returns in shorter and shorter periods of time. We therefore see that many CEOs make the product management team report directly to them since it has one of the most profound effects on the bottom line of the company.

Fig 2.1 Product Management Cycle

3.

Your Learning 1. It is said that the product discontinuation phase is one of the most important phases in Product development? Why is this so? Please discuss whether you agree or not and why. 2. During the growth phase of the product what are the activities that can be done by the product management team to increase its sale? Summary The product management process is an important process in order for the company to stay ahead of its competitors. This process is divided into five phases starting from the need identification to defining the product, which is then developed. This developed product is the launched in the market and all activities are undertaken to ensure its growth. At the end as customer acceptance drops the product is discontinued. This is an important phase as in this phase the company has to ensure that another product is ready to take over the market being vacated by the existing product. Also the company must ensure that other infrastructure needed to support the new product is ready and in place e.g. training of manpower, distribution channel with adequate stocks, etc

4.

5.

Key words 1. Pain Areas these are the areas where the customer has a problem. These create opportunities for companies create a product. For example people wanted to make calls more conveniently and did not want to walk up to a fixed line phones. This gave an opportunity to make cordless phones. These could be
23

used inside the house but could not go very far. These phones were the precursors of mobile phones. 2. Think tanks are a set of people whose job is to think / develop/ create new products or concepts. 3. High Level Specifications these are broad specifications for product usually used for one that is under development. These are created in the initial stages to give an a broad idea of the product features and design. These specifications are then used to develop the detailed specifications. 4. Business case is a proposal developed by a specific department to justify its proposal as making business sense. This is used by the management to decide whether to go ahead with the project or not 5. Size of market is the total possible sale that a product can have in a given market. This is given in terms of a Rupee value. For example we can say that the market for FMCGs is Rs 40,000 crores. 6. Competitive products are competitors products for a given category of products. These are the products that will compete in the market with the companys products. For example a there are several motorcycles in the 200 cc category made by various companies. These are competitive products. 7. Feasibility study is the study conducted to understand if it is feasible to manufacture a certain product. This is done before a technical development or project implementation. 8. Economic study once a feasibility study has found the project feasible an economic study is done to see if the project is economically viable. 9. Industrial Engineering is a branch of engineering that concerns with the development, improvement, implementation and evaluation of integrated systems of people, money, knowledge, information, equipment, energy, material and process. It also deals with designing new prototypes to help save money and make the prototype better. 10. Look and Feel is a term used to describe products in fields of product design, marketing, branding etc. to describe the main features of its appearance. 11. Prototype is an initial product usually made to show a typical impression of the product. 12. Product Functionality gives the various functions of a product. When the product functionality is modified it means that some functions of this product are changed because of some
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customer feedback or lack of technology to manufacture the product or the cost needed to make this product does not make economic sense. 13. Test Marketing is a sample marketing undertaken when a product is being introduced for the first time. This is done in a small area which is representative of the market in which the product has to be finally used. However this market is usually not so large that in case the test marketing fails it impacts the launch of another modified product. It enables a company to check how the product will be accepted by the customers. 14. Campaign in the context of product management is usually used for a sales or marketing promotional set of activities. These could include advertising, consumer schemes, ground demonstration activities, etc to make the customer aware about the product and its features. 15. Customer Maturity as a person becomes more mature with age so do customers become more mature when they become more exposed to different types of products. They understand how to evaluate products and companies and are not easily misled by the jargon of marketers. 6. Exercises 1. How does understanding the Product Management Cycle help in undertaking effective product management? 2. During the product development phase which are the departments involved and why does the product undergo changes in specifications and functionality? 3. Please explain in what ways the product management group can provide support to increase sales and profitability of a product? 4. How do you think feedback about the product can be taken from the customer? Once this feedback is taken what process will we follow to decide what feedback needs to be considered and what not? 5. Why is test marketing done and what are the benefits for the company? 7. Further Reading 1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India: Response Books Pg 25-36 2. Mukherjee, Kaushik (2009) Product Management , New Delhi, India: PHI Learning Pvt. Ltd Pg 35 - 37
25

3. Crawford, Merle and Benedetto, Anthony Di (2004) New Product Management Singapore, McGraw Hill Page 25 32 4. Gorchels, Linda, (2006) The Product Managers Handbook, New York, USA: McGraw-Hill Pages 71-74,

26

4.
5.

UNIT III The Product Planning System

Learning Objectives To understand the importance of Product Development To understand how Planning is done for Product Development To understand the Process which is used to Develop a Product To understand who is Responsible for the Product Development

Structure 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Product Planning Customer Requirement Document Need for Customer Requirement Document Contents of Customer Requirement Document Development of Customer Requirement Document Strategic Advantage of a Good Customer Requirement Document Use of Archived Products in Product Development Summary Your learning Key Words Exercises Further Reading

1. Product Planning All Product Planning is done to keep the company ahead of its competition and to give it a competitive advantage. The Product Planning system must dovetail into the business plan of the company. The success of the company is determined by the success of its products. Effective product plans are those which not only take care of market and customer needs but also support companys growth strategy. Now in order to create effective the product plans the product management team and the top management must work in close co-ordination with each other since 1. The product management team has the market information that he top management will need to create effective business strategy. 2. The top management is in a position to give a clear understanding of the companys objectives and direction to assist the product
27

management team to develop the right products that will assist business strategy. 3. Based on the understanding the top managements objective and direction the product management team will also be in a position to develop the appropriate execution strategy and milestones in its execution. The Product Management teams job is to keep a track of the market requirements and map them against the managements objectives and direction so that they can provide the right inputs on products to be developed to the top management. The product management team collates the information from: 1. Customers a. By way of an unsolicited feedback from customers b. Customer surveys c. Customer needs as identified by sales or marketing teams of the company. 2. Think tanks in companies are always evaluating the environment and aligning these with the companies objectives and directions and creating product ideas for the product management team to evaluate. 3. Trade fairs the product management team also visits various trade fairs as this not only tell them what the competition is planning but also gives them a new insight into new technologies and developments happening all over the world. This also assists them in creating business ideas that will give their company a competitive edge. 4. Competitors activities since one of the primary objects of product development is to provide the company a competitive edge to the company, understanding the competitors activities is very important. Competitors activities also are a source of product ideas. These are found from some announcements that the competitor makes in the press, from the sales channel since the distributors are amongst the first to know if a competitor is planning something new, or from some test marketing that the competitor undertakes, and many times from raw material suppliers. Raw material suppliers visit similar companies and come to know of new developments because they are the one who need to supply material and components for new products. 5. R&D or technology development by the company every company that has kept ahead of competition has also undertaken some form of research and development of new products. Technology that is developed in-house is also a great source of product development.

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6. Patents and technology search allow the product management team to know what technologies and processes are available for use. Sometimes the purchase of a patent/ development of a technology allows the company to develop products for which the competition may not be able to have an immediate answer. For example when the Xerox Corporation developed their copier technology there was no other company in the world which had a similar process and Xerox had a virtual monopoly over the product sales for many years. It is only later when Xerox became over confident and stopped investing in the brand and the technology that other companies like cannon, Toshiba came and overtook them. The Product Management team continuously evaluates the inputs received by it from various sources round the year. This information is used by it to develop new products that have a strategic fit with the business objectives of the company. All these activities lead to the identification of the product and the commencement of the developmental process. This process is a much more complex process as compared with the initial steps taken in identifying and freezing the customer requirement. These requirements form a part of a very important document called the Customer Requirement Document. This document if created in the right manner can help a Product Manager get the product to the market in the most economical manner and also help him manage the product through its life giving the company maximum returns.

2. Customer Requirement Document At the heart of the whole process of product planning is the development of the product. Any delay in the development of the product has a cascading impact on the companys sales and profitability. Hence it is important that before anything else, the decision on what product has to be developed is taken quickly; this decision pertains to the products broad specifications and marketing objectives. Once all these have been defined, the actual development of the product must be undertaken in a manner that reduces the time to market. This phase of product development is the first operational phase where time and money will begin to be committed by the company; the longer and more
29

complicated the process, the longer it is likely to take. The Product Development Process is led by a Product Development Team. This team consists of people from R&D, Manufacturing, Industrial Engineering, Quality Control, Sales and Marketing. It is often seen that delays in product development occur because of one or both factors listed below: 1. There is lack of clarity on what needs to be developed 2. There is poor co-ordination between the members of the Product Development Team Their first task is therefore is to create a single composite document that will lay out what the customer wants and how the company is going to benefit from it, what functionality needs to be inbuilt for the customer, etc. 3. Need for Customer Requirement Document We have seen that the Project Management Process has five stages which take the product from its inception to its final withdrawal from the market. In all this, there is one document that virtually holds the entire process together. This document lays down what each functional area (within the organisation) has to undertake. It also documents the commitments made in time and cost by each functional area. This is called the Customer Requirement Document (CRD). The advantages of this document are listed below: It allows you to completely think out the product and strategy in advance It makes sure you do your groundwork before any activity (commitment in terms of time and money) starts It gives everyone involved an idea of the various aspects of the product the Product Manager is working on

4. Contents of Customer Requirement Document Though we need to have a comprehensive document that must contain all the necessary elements, it is also important that this document is brought out quickly and must contain the commitments of all the stake holders in the Product Development Team. The reasons for this urgency are: If we take too much time in getting out the CRD then it may become outdated since the market is moving so fast and priorities are changing very rapidly. Also all the stake holders in the product development process i.e. R&D, Manufacturing, Industrial Engineering, Quality Control and Sales must give their inputs and commitments to time taken and costs likely to be incurred.
30

Thus the development of the CRD must be an interactive process between all the stake holders.

5. Development of Customer Requirement Document The prime responsibility for the development of the CRD is with the Product Manager who is functionally a part of the Marketing Department. The CRD can be developed in two ways: The Product Manager can develop the complete document on his own marking the activities to be done by various other departments and put time frames in which he needs the product. The Product Manager can create a broad overview document and then sit along with the other departments involved in its development and create the detailed document.

In the first process, where the Product Manager makes the complete CRD himself, the document may be more weighted from the Marketing and Sales point of view, and when it reaches the other functional departments they may or may not agree with the possibility of creating functionalities, time and cost estimates specified by the Product Manager. This can thus lead to a lot of rework and disagreements in the team leading to delays or the final development of products that may not have features that the Marketing team was depending on to promote the product. Also since the complete document has to be made in detail it is likely that the Product Manager will take much longer to get the document ready thus leading to the possibility of making a document that has lost touch with the market before it is ready. The other way is for the Product Manager to make a CRD quickly is to make a document that has separate sections with large amount of functionality. Each of these documents is further broken down into small well defined tasks. The smaller documents are created along with the people from the department that is going to be involved in the development of that function. The documents involved with each functional area are live documents that may continuously be updated as the product development takes place. This way the team is able to start the work quickly and at the same time keep the changing market conditions in view. The process followed here is: The CRD lists out all the functions and features that the product must have. 2. Each of these functions must be listed by priority i.e. the highest priority first and then the next and so on. 3. Now the Product Manager starts from the highest priority feature and breaks it down in to tasks that need to be done in order to accomplish it. This listing of tasks is done along with the persons who have to work on it. The advantage of this is that it brings in their commitment and ownership and the document is not one where the Product Manager has thrust on the other departments.
1.

31

During the discussions the developer gives an indication of the time and resources needed to complete the task. 5. Once this is complete the Product Manager signs off with the developer and the signed off document is circulated within the team while the developer commences his task. This allows the other team members to understand how the development of the feature will impact their functional areas and make the necessary preparation to be ready when it comes to their functional area. For example, if the R&D team has circulated a signed off document giving the type of development that is going to be made available, the Production and Quality Control teams can begin to understand how they will be impacted by the new technology and prepare for it. 6. The Product Manager moves onto the person/ department who will take on the development of the next most important task and so on this process carries on till all the features are accounted for. 7. Another advantage of this process is that we can involve the customer at any stage of the design to get him to meet the person developing the feature. This is beneficial since it helps the developer get a clear understanding of the customers needs.
4.

Many times, the market conditions force us to release products that are not fully ready. This may be due to some activities of the competition or an existing product of ours not doing too well in the market. This process allows us to launch products with the key features and add more features as they are developed. 6. Strategic Advantage of a Good Customer Requirement Document This process has the following advantages over the method of a Product Manager making a complete CRD document and then sending it to the concerned stake holders for development: 1. The Product Manager is much more closely involved with the development team from the beginning and so has a clear idea of what is possible and what is not. 2. Since the Product Manager has prioritised the development of the features he can release the product even if all the features are not ready and can strategically keep on adding more features as time goes along. 3. Even when the product is launched with a few features it does not create a major upheaval in the development team since they are developing the feature in sequence of importance. 4. We can bring in customers to meet developers so that they can be sure that features desired by the customers are developed in a manner that is needed by the customer and not as convenient to the developer.
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5. This way the customers also feel more committed to purchasing the product as they feel it has been developed for them. 6. The commitments on time, etc are given by the development team and so they are more committed to meeting the deadlines. 7. The Product Manager is involved in managing several small functions of manageable proportions. He is also in a position to decide the strategic launch of the product rather than having to wait for the full development of the product. 8. The progress of the whole project can be measured in a more accurate manner. 9. During the development process the other departments involved in the development, quality control, sales, and technology development can work together and in anticipation of each completing the task. However, like all processes, this also has its set of disadvantages: 1. This process requires a lot of co-ordination on part of the Product Manager. 2. It becomes very critical that the agreements generated between the Product Manager and the developers are circulated in time and appropriately amongst the whole team. 3. In this method, unless the Product Manager and the developers agree with each other, it is not possible to move ahead. Hence it takes a lot of give and take. 4. There is no single comprehensive document to review but many small ones. 7. Use of Archived Products in Product Development Now we must realise that though it seems that product development is a simple and straight forward process it is not always that we get products that can be commercialised. There are many reasons for not commercializing products. Some are 1. The products developed do not meet the customers requirement. Many times a customer may want a product with certain properties but it may not be technically feasible to get a product with desired features. 3M was asked by one of its customers to develop an adhesive with certain properties but the product developed did not meet the customers requirements. 2. Some products are developed as a by-product development and so have no commercial value. of another

3. Some products are too expensive for current usage and cannot find applications today for example the use of solar cars. These cars are very expensive as compared to existing cars which are based on
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cheap fossil fuel. The solar cars will find an application as fossil fuel becomes more expensive and global warming makes use of these cars more difficult. 4. Sometimes the cost of commercialisation is very high for example the use of wind power was known for many years but the cost was too high as compared to cheap fossil fuel. However today with the increase in cost of fossil fuel, the possibility of its finishing in the next 50 years or so the use of wind power is becoming more prevalent.

Products that are developed but are not commercialised archived and also form a pool of resource which comes in handy for the development of new products. In Figure 3.0 you can see that product conceptualisation is a combination of a practical (consumer) need real or perceived and some natural phenomenon which comes from creativity, ingenuity and out of the box thinking. It is not always that a product developed has the necessary requirements for commercialisation. So these products are archived. Now it has been seen many times that from these archives some excellent products have been developed. Let us take the example of Post-it notes. A Post-it note is a piece of stationery with a re-adherable strip of adhesive on the back, designed for temporarily attaching notes to documents and to other surfaces: walls, desks, computer displays, and so forth.

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Post-it Notes were not a planned product. A man named Spencer Silver was working in the 3M research laboratories in 1970 trying to find a strong adhesive. Silver developed a new adhesive, but it was even weaker than what 3M already manufactured. It stuck to objects, but could easily be lifted off. It was super weak instead of being super strong. No one knew what to do with the adhesive, but Silver didn't discard it. Then one Sunday four years later, another 3M scientist named Arthur Fry who was a new product researcher with a knack for inventing things was singing in the church's choir. He used small strips of paper to mark his place in the hymn book, but they kept falling out of the book. He knew that Silver's adhesive did not bond permanently or leave a sticky mess and he soon realised that if he applied a thin coating of the glue on a strip of paper it would also be re-useable. He need not lose his place in his hymn book again It still took a long time and a lot of effort on the part of Art Fry and his accomplices to persuade 3M that their product would work. There were many difficulties to overcome, and at each stage of the way Fry would have to convince the engineers and product developers to press on and find a way to produce the blocks of notes
35

It was finally Introduced to the market in 1980, one year later Post-it Notes were named 3M's Outstanding New Product, despite the fact that at first they had to be given away free, to demonstrate their usefulness. This was ten years after Silver developed the super weak adhesive. Today they are one of the most popular office products available. 8. Summary The actual process of product planning begins much before the creation of a Customer Requirement Document. It begins with the definition of business objectives by the top management and in order to fulfil these objectives the product management team undertakes an elaborate exercise not only for tracking customer requirements but also to scan competitors activities, technologies evolving, etc to make sure that they have the products that will give the organisation a competitive edge over its competitors. In this whole process of planning and execution it is the creation of a Customer Requirement Document that helps the product Managers to stay on course. This document assists the Product Manager in developing the product by helping him create a road map for the process. In addition it allows other functional departments who are involved in the product development understand how they are interlinked in the whole process of product development. The advantages of this document are also that it allows the product manager to plan how features will be released in the market to ensure that the product meets its revenue and profit goals.

9. Your Learning 1. What is a Customer Requirement document? What is it used for? 2. How does having a Customer Requirement help? 3. Why must the requirements of the Customer Requirement Document be an interactive process and contain commitments of all the stake holders? 4. What process do you think the process manager must follow to make the CRD on his own or he must involve other departments which will be involved in product development? 5. What are the contents of the Customer Requirement Document? Who is responsible for getting it made? 6. What are the advantages of having a good Customer Requirement Document?
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7. Take a product that needs to be developed and write how you would go about making a customer requirement document.

10. Key Words 1. Time to market is the time taken to bring the product into the market from the time of its inception. Companies always work minimising this time. This helps them reduce development costs, pre-empt competition from getting new products into the market before them. 2. Single Composite Document Composite means made up of separate parts or elements. So a single composite document means that there is one single document that contains inputs from different departments but is comprehensive about all the activities that need to be done. 3. Inception means from the beginning or the start. 4. Stake Holders are all those who will be responsible for or benefit from an activity. 5. Prime Responsibility means the main responsibility. This is usually with the person who is driving the project. 6. Live Documents these are documents that are continuously being modified along with the ground reality of the situation. This is different from changing a document without justification. Usually a liv document would be changed if say the market conditions changed dramatically or technology was not available for manufacture or it became uneconomical, etc. 7. Sign-off signals that some activity is complete or that an understanding has been arrived at. 8. Archived Products Archives are places where things that have no use or are old have been stored. So sometimes products that are developed but do not find use are stored. These products are the archived products. 11. Exercises

1. What are the strategic advantages of creating a good Customer Requirement Document? 2. In the CRD functionality is written in order of importance. Why is this done? How does this benefit the company in the rollout of the product?
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3. How does using Archived products in product development benefit the product development process. Does this turn out to be more cost effective or does it only impact time of development? 4. Once a product manager signs of with the product developer why is it necessary to circulate this acceptance to all the other members of the product development team? How does this benefit the company?

12.

Further Reading

1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India: Response Books pg 29 38, 41 45, 2. Mukherjee, Kaushik (2009) Product Management , New Delhi, India: PHI Learning Pvt. Ltd Pg 21 30, 73 76 3. Lehmann, Donald R and Winer, Russel S, (1997) Product Management, Singapore, Irwin/ McGraw-Hill 32 34 4. Gorchels, Linda, (2006) The Product Managers Handbook, New York, USA: McGraw-Hill p 90-96

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6.

7.
8. 9. 10. 11. 12. 13.

BLOCK 2: MANAGING PRODUCTS

Unit 4: Product Line Decisions

Unit 5: Product Life Cycle

Unit 6: Product Portfolio

Unit 7: Product Pricing

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14. 15.

Unit IV - Product Line Decisions

Learning Objectives To understand what is a Product Line and its relevance in Product Management To understand what how product line can be managed. To understand difference between product mix and product line Concepts in product line management

Structure 1. 2. 3. 4. Product Decisions Product Mix Product Line Product Line Decisions 4.1. Withdrawing Products 4.2. Increasing Products 4.3. Product Contribution Summary Your learning Key Words Exercises Further Reading

5. 6. 7. 8. 9.

1.

Product Decisions

Decisions regarding the product, price, promotion and distribution channels are decisions on the elements of the "marketing mix". We can say that decisions about the product are amongst the important ones since they affect the market planning of the company. If the wrong products are introduced in the market it can have catastrophic consequences for the company. For example computers may be totally unsuitable for rural areas where electricity is not available and where incomes are low; and the attempt to sell products to customers without considering their cultural values and needs both can have negative consequences on sales and achievement of business objectives. However todays markets are a complex mix of aspirations and product requirements and hence decisions are not so simple since the customers requirement lies somewhere between his aspirations and his need for a product. Hence the marketer tends to introduce several products in his desire to meet the aspirations and needs of his target market.
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Product modification decisions are based on how much an organisation has to stay close to a standardised product (just by extending it) or how much it has to move towards innovation (by making something new). So between extension and innovation there is a whole spectrum of possibilities for different products. The closer a companys products stay to extension the lower the cost and the closer it gets towards innovation the higher is the cost of introduction or decisions. Product modification decisions revolve around decisions regarding the physical product (size, style, specification, etc.) and product line management. 2. Product Mix

The product mix of a company is defined as the total set of products offered by it. The product mix consists of product lines and individual products. For example, all the courses a college offers makes up its product mix; courses in the marketing department make a product line; and the basic marketing course is an individual product. Product decisions at these three levels (product mix, product line and product) are generally of two types: i. Decisions that involve width and depth of the product line and ii. Decisions that involve changes in the product mix occur over time adding, removing products or enhancing the range (width). The depth of the product mix refers to the number of product items offered within each line; the width refers to the number of product lines a company has. For example, Table 1 illustrates the hypothetical product mix of a college. P o li ti c a l Human Resources S ci e n c e P ol iti Basics of HR c al T

Mathematics

Calculus I

41

P o li ti c a l Human Resources S ci e n c e h e o r y I n di a n G o v HRM and Business e r n m e n t I n t e r n Recruitment a Selection ti o n al R el

Mathematics

Calculus I

and

Trigonometry

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P o li ti c a l Human Resources S ci e n c e a ti o n s S t a t e R Internship el a ti o n s S t a ti Employee Relations st ic s H is t Training techniques o r y E Culture

Mathematics

Math Theory

Calculus II

Differentiation

and Statistics
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P o li ti c a l Human Resources S ci e n c e n Commitment gl is h I n di a n C Organisational HRM ul t u r e I n t e r n a ti o Managing Diversity n al c ul t u r e

Mathematics

Algebra

Quantum Mechanics

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P o li ti c a l Human Resources S ci e n c e G lo b al Performance is Management a ti o n G a m e T h e o r y a n Developing People d P ol iti c al T h e o r y

Mathematics

Analytic Geometry

Geometric Concepts

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Table 1: Wide Width and Average Depth

The product lines are defined in terms of departments. The depth of each line is shown by the number of different product items courses offered within each product line. The college has decided to offer a diverse marketing mix. Because the college has a number of departments, it can appeal to a large cross-section of potential students. This college has decided to offer a wide product line (academic departments), but the depth of each department (course offerings) is only average. MathematicsPhysics Geometric ConceptsIntermediate Physics Analytic GeometryAdvanced Physics Calculus IQuantum Mechanics I Calculus IIPhysics and Astronomy Calculus IIIThermodynamics Numerical AnalysisCondensed Matter Physics II Differential EquationsElectromagnetic Theory Matrix TheoryQuantum Mechanics II
Table 2: Narrow width, large depth

Some other concepts in a product mix are family branding If a line of products is sold with the same brand name, this is referred to as family branding. For example Nescafe has several products under its main brand Nescafe classic, gold, espresso, cappuccino, tasters choice, etc. When we add a new product to a line, it is referred to as a line extension. When we add a line extension that is of better quality than the other products in the line, this is referred to as trading up or brand leveraging. When we add a line extension that is of lower quality than the other products of the line, this is referred to as trading down. When we trade down, there are chances that it can lead to a reduction in the brand equity. We may get sales in the short term but in the longer term it may harm the brand if we are not careful on how we are going to use this lower quality/ price product.

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Image anchors are highly promoted products within a line that define the image of the whole line. Image anchors are usually from the higher end of the line's range. So when the company promotes them their values rub off onto products lower down in the range and customers perception for these products is enhanced. So when a car company promotes its model it shows the top most model in the range with a rider that all accessories are not a part of standard equipment. This helps to sell the lower end models of the same car. When we add a new product within the current range of an incomplete line, this is referred to as line filling. Price lining is the use of a limited number of prices for all your product offerings. Its underlying rationale is that these amounts are seen as suitable price points for a whole range of products by prospective customers. It has the advantage of ease of administering, but the disadvantage of inflexibility, particularly in times of inflation or unstable prices.

Product-mix management and responsibilities It is extremely important for any organization to have a well-managed product mix. Product-mix decisions are concerned with the combination of product lines offered by the company. Management of the companys product mix is the responsibility of top management. Some basic product-mix decisions include: i. Reviewing the mix of existing product lines; ii. Adding new lines to and deleting existing lines from the product mix; iii. Determining the relative emphasis on new versus existing product lines in the mix; iv. Determining the appropriate emphasis on internal development versus external acquisition in the product mix; v. Gauging the effects of adding or deleting a product line in relationship to other lines in the product mix; and vi. Forecasting the effects of future external change on the company's product mix. 3. Product Line

Product Line is defined as a group of products that are closely related to each other. They function in the same manner and are sold to the same customer groups. These products are marketed from the same types of outlets and fall within a specified price range. The product line has i. Line depth refers to the number of product variants in a line. ii. Line consistency refers to how closely related the products that make up the line are.
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iii. Line vulnerability refers to the percentage of sales or profits that are derived from only a few products in the line. Ideally a company would like to get an even amount of sales from each product but many times one or two products do much better and so contribute a much higher percentage of sales. The company must evaluate if the other products not contributing much in terms of sales are contributing in margins. If not they must question the rationale for keeping such products in their product line. 4. Product Line Decisions Since products are in some way fulfilling the customers aspirations and needs any change in any one or both of these will lead to changes in the product specifications. This change is what leads to the introduction and withdrawal of products from the market. Hence Product line decisions can be broadly classified under three categories: Product Withdrawal/ Demise Increase in Products Item Contribution 4.1. Withdrawing Products

Product withdrawal is as much a planned activity as introduction of a new product. Companies in-build the time of withdrawal of a product in their business strategy and link it with the introduction of a new product. Though companies would like the decision to withdraw a product to be a planned one sometimes competitive pressures either force companies to withdraw existing products or their sale decreases so much that there is no sense in continuing with the product in the market. The demise of the product can also be attributed to changes in the environment attitudes and needs of the customer which have been accelerated by market forces like competition, arrival of new technology, etc. Decisions on when to withdraw the product depend on several factors: i. Business objectives Profit/ sales ii. Strategic objectives new prod ready, competitive product launched iii. New technology availability
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iv.

Need for variety by the customer or sales channel/ retailers.

Product withdrawal even in a planned manner has its own risks because an existing product already has an acceptance in the market and is established. It is giving the company some sales and profits. By this time it is likely that the product development costs have been recovered and the amount of money needed for supporting the product is not so much as the customers are already aware of the product. In addition the company has become adept in manufacturing and selling the product. Once it is withdrawn the company will need to introduce another product in its place. How this new product will fare in the market is not known thus there is a risk in its introduction. For this new product the company will need to spend large sums to promote it and generate enough sales to recover the costs of development. The manpower and the sales channel will need to be retrained in order to understand the product and its benefits thus involving cost. How the customer will take to this new product is not known for certain until the market performance actually shows it. If the company plans to withdraw a product in a planned manned it must evaluate the following: i. Has the product met its business objectives in terms of sales and profits? ii. Can the product continue to do so in the face of competition and changing market environment? iii. Can the product support the marketing expenditure being done in order to promote it. iv. Does the presence of the product help in selling other products of the company even if it is not making any money (Loss leader chapter 7) v. Does the company have a product that can fill the space vacated by this product? vi. Can/ should the company reposition this product? Is it economical for the company to do so? vii. Is the business strategy dictating the withdrawal of the product?

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Thus we can see that the withdrawal of the product is a complex a task as introducing a new one and yet it is linked with the introduction of a new product and the business strategy of the company. 4.2. Increasing Products

New product introduction is the logical extension of a product withdrawal. A company with finite resources can support only a limited number of products in the market. Thus as newer products are introduced older products must be withdrawn to make place for them. New products can be introduced in a product line in several ways: i. Stretching the product line: Stretching is a product lengthening beyond the current price range A companys product line may cover a certain range of the products offered within the industry as a whole. This may cover the range of price from the low to medium to high price. An example will be the Honda Accord, Honda Civic, Honda City and Honda Jazz starting from the highest price to the lowest price. However in this range the ultra high and very low segment are not covered. There are three ways to stretch the product line: Stretching Down Stretching Upwards Two Way Stretching Stretching Down: If the company adds a product, at a price point, below the Honda Jazz model it will mean a downwards stretching of the product line.

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Many companies launch their products at the upper price spectrum of the market and stretch their product lines downwards. They do this because: a. They try to respond to attacks to in their current upper price segment by launching a lower end product. b. They try and fill an empty price point before competitors can do so. c. To increase the number of products for expanding their market share. d. To counter the attack from lower priced copies being made by other manufacturers. The problems associated with a downwards stretch are: a. The competition may counteract by entering the upper price segment in which the company is. b. The companys sales channel sales force and dealers may not be able to handle a low prices segment. c. The low end price products may eat into the sales of products from the upper segment thus lowering the sales of this segment. Stretching Upwards: If the company adds a product above the Honda Accord then it would mean stretching upwards the product line.

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Again many companies find it more convenient to commence their business at the middle of the price range segment as it gives a reasonable balance of volumes and margins. Later they enter the upper price segments. The reasons for entering this are: a. They are attracted to the higher margins in the upper price segments. b. They want to create an image of classiness for their company by this upper price product. c. They want to complete the range of products offered by the company so as to tap all segments in the market. The limitations of this strategy are that: a. The competition may respond by entering the middle price category. b. Companys existing customers may not believe that it is capable of creating upper price end products. c. The companys sales force and distribution channel may not be trained to handle the new product. d. Other companies may also be entering the upper price segment. Two-Way Stretch: Sometimes companies that introduce products in the middle price ranges decide to stretch their products simultaneously in the lower and upper ranges. This is a two way stretch.
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Some of the reasons for a two way stretch of the product line are: a. To target different markets at the same time. b. To keep competition away from the segments in which the company is. c. To test how each market is at the same time. The limitations of this strategy are that: a. Some of the companys existing customers prefer to buy companys cheaper products. Hence there is a loss of sales to the existing product. b. Because now customers begin to look at new products of the company they may compare them with competitors products and switch to new brands and thus be a loss of customers. c. The sale of higher category products shifts to the lower priced products. Marriott Hotels case The Marriott Hotel group performed a two-way stretch of its hotel product line. Along with the regular Marriott Hotel it added the Marriott Marquise line to serve the upper end of the market, the Courtyard, Residence Inn and Fairfield to serve the low-end of market.
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Decision was to establish particular set of services in each segment of hotels to mould the loyalty of customers in such a way that they would continue to stay with the group no matter what price point of hotel they want to stay in. Here the possible after effects are that price conscious customers may soon discover the reasonably-priced rooms of the lower chain and tend to move there. Reasoning used for justification of the stretch: Marriott would rather capture its own customers who move downward than passing them to competitors ii. Filling the product line: Unlike the Line stretching where the new product is introduced at another price range category in product line filling new products are added to the existing product line (within the existing product range) So if Honda has Honda City a base model and to this it adds an LX model having more features than the base model whith a slightly higher price and a DX model having more features than the LX model with a price higher than the LX model yet the price range remaining within the category pricing. This price of the DX model will be much lower than the price of the base model of the next higher category the Honda Civic. This would lead to a product line filling. Product line filling is done by companies to: a. Try to get higher profits from a particular product category. The base model is priced so as to attract the customer and cover the basic production and overhead costs of the company. Hence the cost of adding a few features to the LX and DX models is not much. However from the customers point of view it has a much higher value. Hence the company is in a position to charge much higher than its cost and thus enhance its profits for that product category. b. It allows the company to sell more products thus making a better utilisation of the companys manufacturing resources. This also spreads the companys overheads over a much larger product base lowering the costs and enhancing profits. c. Product line filling is done many times to satisfy the companys dealers who are constantly asking for newer products. Since developing a completely new product is much more expensive as compared to modifying an existing product and creating its variant.

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d. It also helps the company to give the customer an impression that its range of products is complete and comprehensive. This is good for the overall image of the company. e. It also helps in keeping out competitors from different segments. It is not that competition can now not enter such segments but it makes it that much harder and expensive for a new entrant to enter the market.

iii. Product line modernisation Product Line Modernisation involves a complete overhaul of the product lines. Here the company undertakes the complete overhaul of the product line and not by either product stretching or by product filling. This type of overhaul allows the company to take a comprehensive view of the customers, markets, competitors perspectives before undertaking this change. This type of overhaul is not usual and is seldom undertaken. It may be done if the company passes through an economic crisis or bankruptcy.

4.3.

Product Contribution

Every product in a Product Line makes a contribution to its sale and profit. Some make a greater contribution to the sales and some to the profit. For a company to modify, add or delete a product in the product line they must analyse how the product is performing in terms of sales and profit. Is it contributing a sufficient amount to be retained or is it fulfilling some business objective for it to be retained or dropped. This analysis is done by evaluating the contribution margin of a product higher the contribution margin is (the lower variable costs are as a percentage of total costs), faster the profits increase with sales. The Contribution margin analysis allows an analysis of how growth in sales will translate into growth in profits. This is also called an operating leverage and measures how risky (volatile) a company's operating income is to changes in market conditions. Contribution margin is calculated as the product's price minus its total variable costs. This allows a manager to evaluate what will be the breakeven point in terms of sales for a particular product. Knowing the breakeven point he is in a position to target the sales he desires one that will help him meet his business goals
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in terms of profits and recoveries of the development costs. It also helps the manager plan his selling schemes better by knowing to what extent he will be able to reward his channel partners and sales team by way of commissions and incentives. So let us look at a situation in which a business manager calculates that a particular product has a 30% contribution margin, which is below that of other products in the company's product line. This figure can then be used to determine whether variable costs for that product can be reduced, or if the price of the end product could be increased. If these options are not possible, the manager may decide to drop the unprofitable product in order to introduce an alternate product with a higher contribution margin. This analysis may be done on an individual basis and also on a cumulative basis to understand its past and present behaviour. It can then be used to predict the possible future of the product.

5. Summary The product forms an important part of the marketing mix. A company needs to have several products in order to serve the complete range of customers. The set of products that the company has in its armoury is called the product mix. This product mix may consist of various product lines or individual products. The more numbers of lines and products a company has the wider is said to be its product mix. A product line is a set of products that are linked to each other since they tend to address similar customers. A product line may have depth that means a number of products at various price points. Several product decisions need to be taken in terms of withdrawal or introduction of a product. Important considerations must be kept in mind whether withdrawing or introducing products. Products can be increased above below or at the same level of existing products. Another important consideration for taking product decisions is the contribution margin which helps in deciding whether the product will meet the sales and profitability objectives of the company.

6.

Your learning 1. What is a product mix? Why is it needed by an organisation?

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2. Why do we need to take considered decisions while withdrawing products? 3. Stretching a product line downwards has some limitations in managing the image of the brand. Why is it so and what should you do to avoid this? 4. How do we link business objectives to product decisions?

7.

Key Words 1. Catastrophic failure A catastrophic failure is a sudden and total failure of some system from which recovery is impossible 2. Revolve around to be the focus of something of to be centered on something - Her entire attention centered on her children; Our day revolved around our work 3. Diverse marketing mix A wide range in the marketing mix 4. Large cross-section A cross section is a sample meant to be representative of a whole population something that shows the variety of the population. So a Large cross section represents a wide range. 5. In build Something that is inbuilt or inherent in the product. Some property or quality that is built into the product at the time of designing it. 6. Price spectrum The range of prices for a product line from the lowest priced product in the line to the highest priced product give the price spectrum of the product line. 7. Eat into sales Means that a new product will take away the sales that was happening for an existing product when another one is introduced above or below it by customers who wanted a cheaper of more expensive product. 8. Mould the loyalty To modify the loyalty of the customers in such a manner that it suits the requirements of the company

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8.

Exercises 1. How does filling a product line help the company retain customers? 2. Why do companies think of line extensions or product withdrawals and not go in for Product line modernisation? 3. If the company withdraws a product is it necessary for it to have another product to fill its place? If yes why and if no why not? 4. Why must a company analyse the line vulnerability? What would happen if they were not to undertake such an analysis?

9. 1. 2. 3. 4.

Further Reading Lehmann, Donald R and Winer, Russel S, (2005) Product Management, New Delhi, India, Tata McGraw-Hill Page 257 - 280 Majumdar, R, (1998), Product Management in India, New Delhi, India, Prentice Hall of India, Page 29-39, 66-71 Lehmann, Donald R and Winer, Russel S, (1997) Product Management, Singapore, Irwin/ McGraw-Hill Page 244-250, 263 269 Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice Hall of India, page 399-404

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16. 17.

UNIT V Product Life Cycle

Learning Objectives To understand Product Life Cycle (PLC) The various types of PLC To understand what how different stages of PLC affect strategy. To understand the difference between Industry PLC and individual product PLC

Structure 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Introduction Basics of Product Life Cycle (PLC) Types of Customers at different stages Strategy at different stages of the PLC Application of the PLC Limitations of the PLC Summary Your learning Key Words Exercises Further Reading

1. Introduction Product Life Cycle as the name suggests every product has a life cycle. This life cycle commences from the time the product is launched in the market till the time it is ultimately withdrawn from it. During this period it passes through several phases each of which is important and needs different strategies if the product has to remain in the market and grow into the next phase. This is very similar to a human being who also passes through several phases from birth to death and the strategies or activities needed for each phase of life are different from each other and need a successful management of each phase. We can generalise various phases of life as childhood, youth, adult hood, old age and based on the total population make a generalised period for each
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stage and life expectancy of the individual. However for an individual each phase may not be of the same duration or intensity as the standard one. An individual may have a very short youth because of certain conditions in his life or family, or a person may die a premature death due to illness or accident. Similarly a for products we can make a standardised life cycle based on the industry in which it is but an individual product may not follow the standard life cycle pattern an may live much longer or may perish much earlier. 2. Basics of the Product Life Cycle (PLC) The Product Life Cycle consists of four stages Introduction, Growth, Maturity and Decline.

2.1.

Introduction

In this phase the product is introduced in the market. Once the product has been developed the Product Manager has to decide when he wants to introduce the product to the market. The timing of introduction is a critical decision since it may involve the phasing out of another product from the market or the product being introduced is designed to counter a competitors product and the right timing is an important consideration for success. If the product is introduced too late because our product has not been phased out the company may lose profits that it could have made with the new product or if it was meant to counter a competitors then it is possible that our customers have shifted to some competitors product and getting them back will be difficult. When Nirma initially launched its washing powder in the Rural Markets Hindustan Lever never paid attention to it because it did not think that the Rural market had that much potential and underestimated the rural populations desire for a quality product. They continued to concentrate on urban markets. This allowed Nirma to consolidate its position by way of improved product, manufacturing facilities and distribution system. By the time Hindustan Lever responded to the threat by launching a lower priced washing powder it was too late to dislodge a well entrenched Nirma. In fact now Nirma was able to enter the urban markets also since it was an established product and financially it was much stronger to resist Hindustan Lever in the market. Some of the key features of this stage are: Product category has recently been introduced into the market consumers are unaware of the product. Proper capitalization is important. Industry sales are low, but growing.
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Industry profits are negative. Advertising usually tries to develop the primary demand. Creating awareness and trial are common marketing objectives. Sales promotion is used to trigger product trial.

2.2.

Growth

In this stage the product is advertised vigorously by the company and grows rapidly in sales with more and more customers coming to know about it and beginning to try it. This is an important stage where the product is either accepted or rejected by the customer. An acceptance will continue to see a growth in its sales otherwise the product will continue to try and sell but will soon fail and be withdrawn from the market. Usually the customers in this phase are the early adopters or those who like to experiment and are comfortable with innovation. They are also those people who are fashion conscious and trend leaders. In this phase the company who is an innovator or a market leader should expect to recover its costs of development by keeping margins high. However a word of caution here is that sometimes companies have spent so much on development that they do not have sufficient resources to sustain the investment needed to push the growth over its critical mass and fail because the product revenues needed for sustenance take time to build. This phase also witnesses the introduction of competitors (followers) products who have either developed a similar product or find it simple to copy the market leaders product make some changes and introduce it as their own product. For those companies who have only copied the market leaders product there is virtually no development cost and they can use all their resources to promote their product. In addition since they do not have to recover any development costs they have much less at stake in a higher pricing of the product. Thus their product can be much cheaper. Thus the Growth phase is a critical phase and companies must ensure that before they introduce a product they have enough resources to see the products launch to success. Some of the key features of this stage are: Sales are rising rapidly. Profits appear, peak, and begin to decline just before the end of the period.
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Profit possibilities attract competitors, but many competitors will be shaken out during this phase as well. Promotion shifts from primary to selective demand. Building market share is a common marketing objective.

2.3.

Maturity

The introduction of the product sees a period of rapid growth when the sales increase. But as time passes more and more competitors enter the market with similar products. The sale is then divided amongst many products and the rate of growth of sales begins to slow down. During this phase those customers from the total target segment who are the early majority begin to use the product. Though the rate of growth of sales begins to slow down the total market share of the product continues to rise. In this phase the company needs to put in a lot of effort in order to maintain growth in sales. Several strategies may need to be adopted. These may take several forms like: i. Reducing prices this may seem to be the simplest form of enhancing sales but in effect it is quite complicated. A reduced price means that the companys margins come down and so its ability to undertake other activities in the market needed to promote the product gets limited. This can be done if the production volumes allow a reduced production cost and so a part of this can be passed on to the customer without in any way seriously jeopardising the margins. From the customers point of view however reduced prices are always welcome but it always puts a quantifiable value to the benefit. In place of reducing the price if the company is able to give the customer an enhanced benefit the customer may put a value to this benefit at a much higher value than the reduction in price. ii. Enhancing the value proposition of their product thus the other way of benefiting a customer is to provide him some features that he may value and be willing to pay the additional premium over the competitors product. We have seen earlier that during the product development many more features are planned than are launched during the initial launch. The reason for this is that these enhanced features can be released in a gradual manner to the customer. This allows the company to keep the customer engaged by offering him innovations while at the same time
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being able to maintain their bottom line in the face of competition. iii. Launching consumer schemes In order to stay ahead of competition the company may launch consumer schemes which gives a consumer the feeling of getting a benefit without actually reducing price for example in a shampoo a company brings in a product that says additional 20% free. This way the company is putting in additional 20% shampoo in the packaging but it saves in all other costs like distribution channel cost, transportation cost, manufacturing cost and the only cost is the cost of the extra material. Thus for a small incremental cost the customer feels he is getting a much higher value. Schemes could be in form of a gift or a scratch card with every product purchased. A Scratch card is a card put with the product which the customer gets an option to scratch and win the prize mentioned on the card. iv. Enhancing Advertising With the increased sales volumes the company begins to get enhanced revenues. Increased advertising is used to increase reach within the target segment and support the dropping rate of growth in sales. v. Increasing channel benefits Several times the distribution channel is in a position to push sales. The distributor has limited resources and he would like to maximise his returns. Thus he will tend to push those products that will fetch him the maximum returns. In order to motivate the distributor the company tend to give volume based benefits to them. This means that the distributor will get a defined percentage as an additional value over and above the normal percentage if he achieves a certain volume of sales. This percentage increases his Return on Investment and he is motivated. The caution here is that if the company has multiple products with the same distributor they must ensure that he does not cannibalise their other products at the expense of this product. Some of the key features of this stage are: Sales rise to their peak, then level off. Industry profits are in a slow decline. Competition increases.

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Promotional costs increase (selective demand), and sales promotion to trigger switching is more common (companies motivate customers to come and change their old products with new ones) Products become more homogenous, triggering price competition. Need to differentiate brand. Diversify brand and models. Can be difficult to enter the market in this phase (capturing vs. retaining share). It is easier to retain share than to capture share because for capturing a competitors share the company has to spend some money, but in this phase profits margins are very tight. Efficiency is a key factor for staying alive in this phase.

2.4.

Decline

Despite the companys best efforts the growth in sales of the product begins to slow down and plateau. This may happen due to the product becoming out dated and newer products becoming available. It may also happen because of a new technology becoming available. As we know when mobile phones were introduced they were large bulky and did not have much back up. As soon as smaller and more efficient phones became available consumers switched to the newer phones and the larger ones went into decline. In this phase the late majority and the stragglers of the total target segment are the likely consumers of the product. These people are not likely to experiment with a new technology and so they will wait for the technology to stabilise and prices to come down. They will also not change their products or brands easily and so in a way are a loyal part of the companys products and efforts should be made to retain them. Depending on product to product from here on the product may go into a gradual or a rapid decline till it is withdrawn from the market. By this phase the company has recovered its development costs and has made profit on the product. The company has to take a decision on how long it would like to sustain this product. Companies have to see whether they can continue to support their products profitably or not. Many times products that have become strong consumer brands can be retained for a sustained period of time profitably. This does not mean that the company does not have to innovate. Sometimes companies make some adjustments in its products positioning to remain in the market. Let us take the example

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of Lifebuoy soap this product has remained between the maturity and decline phase for a very long time. Lifebouy resurgence after decline Lifebuoy was sold in India as early as 1895 when the country was in the grip of a plague epidemic, but was officially launched and marketed from 1935. With its positioning as a powerful germicidal and disinfectant, and with a strong carbolic smell, it was what the nation was looking for at that time. Lifebuoy, rapidly grew as a reliable brand of India, reaching millions of rural customers with a promise of health and hygiene as a platform of its business. Its famous advertising jingle, tandurusti ki raksha karta hai Lifebuoy was so famous that it enabled the brand Lifebuoy to be perceived as a red carbolic soap for several decades. Lifebuoy had a 21% market share in the overall soap market and was a category leader in the carbolic soap segment with a 95% market share. For over hundred years since the brand first came to India, Lifebuoy has been associated with health and well-being. Its ads reiterated the message that Lifebuoy washed away germs and kept one protected and healthy. The brand went through a major re-launch for the first time in 1964, with a change in product formulation, shape, and packaging. But the health advantage was lost over time as competitors came out with soaps that promised both health and beauty. The brand passed through prolonged stages of growth and maturity during most of the second half of 20th century. It was faced with a decline stage during the last stages of the 20th century and early 21st century with sales falling at a very rapid rate of 15%20% per year. The downward trend of Lifebuoy carbolic soap sales made Hindustan Lever Ltd. reposition the product during 2002 and rejuvenate the brand with prudent marketing strategies by optimally utilising the brand image. In 2002 the product moved from being a hard soap to a mild soap that delivered a significantly superior bathing experience. The new soap had a refreshing fragrance and its overall positioning changed, painting its promise of health in softer, more versatile and responsible huesfor the entire family. The packaging was also changed: The rugged looking packs were soon
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replaced with a softer pinkish cover. This was followed by a series of ads highlighting the soaps germ fighting benefits. Lifebuoy had become a family soap with hygiene as its core promise. A soap that had been relegated to toilets, Lifebuoy has added new values in an age where more consumers are getting more and more concerned about germs and cleanliness. Lifebuoy has 112 reinvigorated itself. years of existence in India and has constantly

Some of the key features of this stage are: Sales decrease. Profits decrease and eventually disappear. Declining numbers of competitors. Spend enough on promotion to retain hard core brand loyal customers. Eliminate unprofitable outlets. Marketing objective: reduce costs and milk the brand, or drop it.

3. Types of customers at different stages The Product Life Cycle is closely linked to the type of buyer. We will see that depending on the stage in the products life cycle a certain type of buyer within the total target segment of a company will be predominant and will have a certain type of mindset. This influences the purchasing behaviour and also the product life cycle of the product. Innovators Innovators are a very small part of the total target audience but they are a very important part. They the first individuals to adopt an innovation or product and in a way prompt the others to begin to use the product. Innovators are willing to take risks in trying out new products. These types of buyers are predominant during the introduction of the product. They are a. Usually the youngest in age b. Belong to the highest social class
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c. Financially they are sound and have significant surplus. d. Are very social and keep abreast with the latest products and innovations.

Early Adopters This category of individuals is second fastest to adopt an innovation and follow the Innovators. They have a greatest influence on the opinion amongst the others in the target segment. Others look at them for their opinion of the product for adopting or not it. Like the innovators the Early adopters are a. b. c. d. e. Typically younger in age, Have a high social status, Advanced education, Are also financially sound and have surplus They are more socially forward than late adopters

Both the Early Adopters and Early Majority are a significant part of the growth phase of the product. Early Majority Individuals in this category adopt an innovation after a varying degree of time. This time of adoption is significantly longer than the innovators and early adopters. Early Majority tend to be slower in the adoption process. The Early Majority have a. Above average social status, b. They are influenced by the Early adopters and are usually in contact with them. c. This category also influences the opinion of other categories of adopters though to a lesser extent. Late Majority The Late Majority customers will enter the market during the maturity phase of the product life cycle. Individuals in this category will adopt an innovation after a large part of the adopters have already adopted the product. These individuals look at an innovation or a new product with a high degree of suspicion about its effectiveness and begin to use the product only after the majority of society has adopted the innovation or product. The Late Majority are a. Generally suspicious of an innovation or new product
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b. c. d. e.

Belong to a below average social status, They do not have very much financial surplus They are in contact with others in late majority and early majority, They have very little opinion leadership.

Laggards The Laggards enter the market near the end of the maturity phase of during the decline phase of the PLC. They will wait for the product to be absolutely tried and tested and for the prices to have come down to the minimum. Individuals in this category are the last to adopt an innovation. Individuals in this category show little to no opinion leadership. These individuals typically a. b. c. d. Have an dislike for change of any type and tend to resist change. They tend to be older in age. These individuals in general tend to be focused on traditions And they are at the lowest social status and lowest financial surplus e. They are usually in contact with only family and close friends and exert very little to no opinion leadership.

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4. Strategies at different stages of the PLC Just like the human life cycle where each stage of life requires different strategies and different skills the various stages of the Product Life Cycle also need different professional disciplines, and requires many skills, tools and processes. The Product life cycle (PLC) has to do with the life of a product in the market with respect to business/commercial costs and sales measures. As the product passes through various stages of its life cycle we see that:

Each stage has a limited period, Each stage poses different challenges, provides opportunities, and creates problems to the seller, The profits rise and fall at different stages of product life cycle, and Products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each life cycle stage.

Introduction Stage 1. Innovators buy the product 2. Demand has to be created 3. Advertising campaign launched 4. Costs are high 5. Slow sales volume to start with 6. Little or no competition 7. Customers have to be prompted to try the product 8. Company makes no profit at this stage Growth Stage 1. Early adopters and Early Majority begin to buy 2. Public awareness increases due to advertising and word of mouth. 3. Sales volumes increases significantly 4. Profitability begins to rise 5. Costs reduce because of economies of scale.

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6. Competition begins to increase with a few new players entering the market. 7. Increased competition compels the company to reduce price. Maturity Stage 1. Late majority begins to buy the product. 2. Advertising focussed on brand diversification and feature diversification to maintain or increase market share. 3. Sales volume peaks and market saturation is reached. 4. Costs are lowered as a result of production volumes increasing and experience in product manufacturing and handling. 5. Increase in competitors entering the market. 6. Prices tend to drop due to the increase in number of competing products. 7. Net profit per product goes down but if overall sales remains high profit increases Decline Stage 1. Laggards enter the market 2. Sales volume decline or stabilise 3. In order to promote the product much more advertising is needed which may not be justified. 4. Costs become sub-optimal meaning they are higher than desired. 5. Pries, profitability keep falling. 6. It becomes a challenge to find ways to earn profit rather than produce and distribute the product efficiently.

5. Application of the Product Life Cycle Every Product has a life of its own. When we talk of the Product Life Cycle and the shape of the curve that defined the PLC we generally take a very generalized view. The Product Life Cycle offers a useful 'model' for managers to understand and keep at the back of their mind. It allows them to understand what to do if their products are in the introductory or growth phases, or in that of decline,
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it perhaps should be at the top of their mind; managing the important features of these phases will be critical in differentiating between the life and death of a product. Understanding the PLC allows managers to understand that a product may die prematurely if they are not able to undertake key actions at the right time. However, an important aspect of product life-cycles is that, even under normal conditions, for all practical purposes often do not exist in the way we study them. In most markets the majority of the major brands have held their position for at least two decades. The dominant product life-cycle, that of the brand leaders which almost monopolize many markets, is therefore one of continuity. Hence the PLC is dependent on what market actions are taken or not taken. The PLC is not a given pattern to which companies should adapt their marketing programs. The Product Manager through skillful use of his marketing management can change the shape and duration of a brand's life cycle. Hence product life cycle may be useful as a tool to understand the products stage and actions needed, but cannot be used as a given pattern the product will follow. The PLC should be under the Product Managers control and should be defined by him by the actions taken in the market from time to time. Many times especially for strong brands the PLC is much longer than the planning cycle which means that say the growth stage of the product will last for much longer than the time horizon for which they will plan. Hence knowing where they are on the PLC does not have significant impact on their planning since not too many changes will take place during the planning period for which they are panning. Thus in these cases knowing where you are on the PLC is not as critical as understanding how to continue activities that will affect the product positively during the planning period. They will not look at the complete PLC of the product. 6. Limitations of the PLC The fact is that the PLC has its importance to the Product Manager in marketing a product. However it is not easy for a Product manager to determine at which stage the product is very easily or accurately. Decrease or increase in sales is not necessarily an indication of the product being in the growth or decline stage this could be for a variety of other reasons. Many strong brands have not shown a decline despite being in the market for many years. Products like Colgate, Coke, Pepsi have been in the market for several decades but are still popular. They are mature products and show no likelihood of decline. In addition to this stages of the product life cycle being the same, different product categories will show significantly different PLC shapes. A high technology or high fashion product will show a steep growth and a rapid decline after a short maturity with the arrival of new technology or fashion. While as we have seen some products with strong brands may remain in the
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maturity stage for a long time with constant or slow growth in sales. The shape of such a PLC would again be significantly different from the standard curve. Every product is launched grows and at some point of time dies. However even though the product dies its category does not die. For example a phone may die but the communications category will remain. A particular juice may die but not the juice category as a whole. Hence to conclude we can say that the standard PLC must be used as a guide by the Product Management team to understand the strategies, tools and tactics to be used at different times of the PLC while factoring in the variations of a specific product or industry category and not get bogged down by the standard PLC. 7. Summary The Product Life Cycle is an important tool in understanding what marketing tools to use in increasing the sales and profit of an organisation. In each of the four stages of Introduction, Growth, Maturity and Decline the marketer must use the appropriate tools and strategies in order to stay ahead of competition. However The PLC applies to product categories and not to specific brands In addition the category specific PLC also varies with the market in which it is being considered. So a product may be in a maturity phase in a certain market but may be in the introduction phase in another market. The PLC is not a determined its phases can be modified by Increase in frequency of use by current customers Addition of new users to the product. Addition of new uses for the product. Packaging/quality improvements (industry-wide) which add significant consumer benefits.

In each stage of the market there are different types of customers who are predominant in the market. Each of these types of customer have their specified behavioural pattern and a marketer must be able to exploit these to promote the brand. 8. Your learning 1. What is the Product Life Cycle? 2. What are the main stages of the PLC and how does sales behave in each of these stages?

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3. How many types of customers are there in the market? Do they in any way affect the PLC? 9. Key Words 1. Capitalization This is usually used to mean Market capitalization (also referred to as market cap) This is a measure of the size of a business and is equal to the share price multiplied by the number of shares at have been bought by the share holders. 2. Primary demand the direct demand by consumers for products is called primary demand. 3. Advertised vigorously forceful, active, advertising which is used to push awareness of a product. 4. Critical mass - is a term used to describe the existence of sufficient momentum in a system so that the momentum becomes selfsustaining and ensures continuous growth. 5. Selective demand - Demand for a specific brand that occurs after the primary demand (for the product class) in a product's life cycle. 6. Quantifiable value to the benefit When a customer evaluates a product he considers what benefit he will get from the b product. This benefit if it can be termed into a value it will become quantifiable. Something on which he can put a value. 7. Consumer schemes These are programs initiated by the company in the market to attract the customers by offering them additional benefits that they would not get normally in purchasing their product. This way they want to entice the customer into buying their product. 8. Cannibalise where the sales of a new product eats into the sales of another products within the same line. If the total sales revenue of that product line increases, then the line extension is justifiable. 9. Level off when the sales stops increasing and begins to remain the same they are said to level off. It is similar to water which attains its level which is virtually flat. 10. 11. Homogenous - Items of a group all of which are similar, interchangeable, or uniform alike,

Plateau - A plateau, is an area of highland, usually consisting of relatively flat terrain. So when we refer to a sales plateau it means
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that after increasing for a certain time the sales begins to become flat. This means the sales has reached a plateau. 12. Hard core brand loyal a consumer who is absolutely loyal to the brand. He is so loyal that if he does not find his preferred brand he will not buy the product.

10. Exercises 1. Can we use the PLC for deciding the brand promotion strategy? How will the market and brand influence the PLC? 2. Evaluate what techniques can be implemented by the marketer to extend a products life. 3. Can a product stay in the maturity phase for an extended period of time? If yes what must be some of the key factors that can help it stay in this phase. 4. Why does a marketer have to be careful in using the PLC while planning in promotion strategy? 5. What is the advantage of Innovators for a company launching a new product? 6. What is the advantage of Laggards for any brand? 11. Further Reading 1. Majumdar, R, (1998), Product Management in India, New Delji, India, Prentice Hall of India, Page 94-97 2. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India: Response Books pg 181 200 3. Londhe, BR, (2007). Product Management, Hyderabad, India, page 2134, 55-64

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18. 19.

Unit VI PRODUCT PORTFOLIO

Learning Objectives To understand Product Portfolio and its need To understand who is responsible for product portfolio decisions To understand the tools used in evaluating products

Structure 1. 2. 3. What is Product Portfolio Responsibility for Product Portfolio Management Tools for analysis 3.1. BCG Matrix 3.2. SWOT Analysis 3.3. Ansoffs Matrix Process for Product Portfolio Selection Summary Your learning Key Words Exercises Further Reading

4. 5. 6. 7. 8. 9.

1. What is Product Portfolio As we have seen a product is born lives for some time and then dies. The next product that is born is not assured of success and so if a company has only one product then it becomes a very risky proposition for the company. In addition a company has a range of customers. All customers do not have the same requirement and taste, thus it is not possible for the company to satisfy all of them with one product only. Hence the range of products that a company has in the market in order to conduct its business profitably is known as its Product Portfolio. It also referred to as Product Mix. Each product in the portfolio has an impact on the other as each competes for the companys resources and time. In addition every additional product forces the customer to choose a product at the expense of the companys other products thus affecting the sales of that product negatively. Let us see what all effects a new product would have on an existing product:
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i. A new product will need to be advertised more than an existing product in order to make the customer aware about it. ii. In the distribution channel the distributor will have to allocate some resources in terms of storage space, finance, selling and delivery effort to this new product. iii. The new product will also occupy shelf space and may displace an existing product. iv. The production facility will have to allocate resources for manufacturing the product storing raw material and finished goods. v. The profitability of each product is not the same and so if sales of a new product which is not as profitable affects another much more profitable product it is not for the overall benefit of the company. Hence the company always analyses and tries to ensure that any new product that is launched must not have a negative effect on its existing product range and that the overall profit of the company increases with this introduction.

2. Responsibility for Product Portfolio Management Product Portfolio Management is the responsibility of the senior management team of an organization or business unit. This team, which is undertakes this process, is normally called the Product Committee. This committee meets at regular intervals to manage the product pipeline and makes decisions about the product portfolio. The process of Portfolio Management starts at the time of i. This starts at the planning stage where the basic product objectives are defined. In this stage the amounts needed to develop the product, its expected sales and profits are laid down. ii. Product Strategy needed to meet this is outlined by defining customers, markets, competitor analysis, the competitive need for the product etc. iii. The next step is to understand the resources/ budget available given the fact that several products (existing and new) may need to be supported in the market. iv. The product must now be evaluated for the investment needed, the profit it is likely to generate and the risks associated with the product.

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v. The competitors products available in the market and likely response from competition. 3. Some tools that are used in the analysis In order to make decisions on the Product portfolio there are several tools that we may use. These tools are used to understand the various factors that are interplaying with the product and the market so as to take decisions that will help in maximisation of profit for the company.

3.1.

The BCG Matrix

The BCG Matrix or the Boston Consulting Group Matrix is a well known method of evaluating products. This system was developed by the Boston Consulting Group in the 1970s and provided for a clear and simple method for companies to decide which part of their business to allocate resources. It provides a useful way of screening the opportunities available, and helps think about where we can best allocate resources to maximize profit in the future. This is a good tool not only for product portfolio but also to helps decide where to apply other finite resources: people, time and equipment. To understand the Boston Matrix we need to understand how market share and market growth are interrelated. Market share is the percentage of the total market that is being serviced by the company, measured either in revenue terms or unit volume terms. The higher the market share, the higher the percentage of market controlled by the company. The Boston Matrix assumes that if the company has a high market share it will be making profit. This assumption is based on the fact that a higher market share will be achieved over a larger period of time and by that time the company would have achieved its economies of scale and would have learnt about how to make money from the product. So we have to decide do we spend money on products that are already making money or not or spend money on newer products that are not yet tested in the market. In order to decide this we need to understand the second factor that is Growth. Market Growth is used as a measure of the markets attractiveness. For a market to be attractive or having high growth it must be expanding and so it will be easier for the company to make a more profits even if their market share remains the same. Whereas in markets where there is no or low growth the company has to fight its competition hard in order to get sales. Sales may be achieved only after giving discounts thus reducing the profitability of the company. Hence a high growth market is much more attractive than a low growth market.
Understanding the Matrix 77

To understand the Boston Matrix we categorise products into four groups along two axes first Market Growth and Market Share. The Market share is plotted on the X- Axis and the Market Growth on the Y-Axis.

1. Dogs: Low Market Share / Low Market Growth If a product is in this quadrant the product has a weak market presence. In order to make the customer notice this product it will take a lot of work and effort by the company. Making profits will be difficult since it will not get the company economies of scale. A larger competitor with a larger market share may be making more profits with the same selling price because of his economies of scale reduce his input costs and a larger sale giving him more overall profit. All this is further complicated because the overall market growth is low and getting sales will be highly competitive the company will have to cut prices or provide incentives to the customer to buy his product. In these products we may have to reinvest the profits in order to sustain the product thus virtually making no profits 2. Cash Cows: High Market Share / Low Market Growth The product in this quadrant is well established and because of its large sales would be making profit. The company is in a position to consider investing money in its growth or new products or in the companys star products. However one has to be careful since the market is not expanding and the competitive scenario would not be allowing the company to make large profits. Also the company must weigh the consequences of adding a new product in a low growth market where it already has a high market share because the market opportunities would be limited. 78

3.

Stars: High Market Share / High Market Growth

In this quadrant the products have a high share of a market and are in the growth stage of the market. These products need capital to finance their growth which may sometimes mean spending more than what the immediate returns are but have potential for high sales and profit. However the product is well established with a potential to achieve much more and the company should make its best efforts in order to achieve this. 4. Question Marks (Problem Child): Low Market Share / High Market Growth Products in this quadrant have a low market share in a high growth market. These products are opportunities which the company can encash. Since market share is low the revenue generated is also low but the possibility is high due to high growth of the market. Hence in order to convert these into Stars the company needs to inject funds/ effort. This could be in form of an increased sales and distribution effort, more promotion, etc. Question Marks might become Stars and eventual Cash Cows, but if not handled properly they could fall behind and become Dogs. These opportunities need serious thought as to whether increased investment is needed or not. The Limitations of the BCG Matrix: It assumes that a higher market share will necessarily give a higher profit. This is not the case always. When Boeing launches a new plane it may get a high market share but may not make a profit since large development costs may not have been recovered. The BCG Matrix oversimplifies the problem where the problem is a set of complex decisions. We should use it as a planning tool but must not be overwhelmed by its decisions. Some market sense must be used with it.

3.2.

SWOT Analysis

SWOT analysis was developed by Albert Humphrey from Stanford University during 1960 and 1970. It is an analytical tool for auditing a product or organization and its environment. It is the first stage of planning and helps marketers to focus on key issues. SWOT stands for strengths, weaknesses, opportunities, and threats. Using this tool involves specifying the objective of the product and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. Strengths and weaknesses are internal factors those that are within the control of the organisation. Opportunities and threats are external factors
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which the company must take into account but does not have too much control over. SWOT analysis starts with the definition of the final objective to be achieved. It therefore begins at the strategic planning stage. First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is not attainable a different objective must be selected and the process repeated. Identification of SWOTs are essential at the initial stage because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs. Strengths: Are attributes of the product that are helpful to achieving the objective(s). Weaknesses: Are attributes of the product that are harmful to achieving the objective(s). Opportunities: Are external conditions that are helpful to achieving the objective(s). Threats: Are external conditions which could do damage to the objective(s).

We can say the a company should Build on Strengths. Resolve/ remove Weaknesses Exploit Opportunities Avoid/ Minimise Threats

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Figure 2: Typical elements in SWOT

When we undertake the analysis of the internal and external situation it can produce a large amount of information. A lot of this may not be very relevant to the product portfolio decision. The SWOT analysis serves as a tool that helps interpret and filter to the large amount of information such that it becomes manageable with focus on key issues. Strengths can serve as a foundation to build a competitive advantage, and weaknesses may not allow us to do so. By understanding these four aspects of its product, a company can better leverage its strengths, correct its weaknesses, capitalize on golden opportunities, and deter potentially devastating threats. Internal Analysis: The internal analysis is a comprehensive evaluation of the internal environment's potential strengths and weaknesses. Factors should be evaluated across the organization in areas such as:

Company culture Company image Organizational structure Key staff Access to natural resources Position on the experience curve Operational efficiency Operational capacity Brand awareness Market share Financial resources Exclusive contracts Patents and trade secrets
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The SWOT analysis summarizes the internal factors of the firm as a list of strengths (positive) and weaknesses (Negative). External Analysis: An opportunity is the chance to introduce a new product or service that can generate superior returns. Opportunities can arise when changes occur in the external environment. Many of these changes can be perceived as threats to the market position of existing products and may necessitate a change in product specifications or the development of new products in order for the firm to remain competitive. Changes in the external environment may be related to:

Customers Competitors Market trends Suppliers Partners Social changes New technology Economic environment Political and regulatory environment

The last four items in the above list are macro-environmental variables, and are addressed in a PEST analysis. The SWOT analysis summarizes the external environmental factors as a list of opportunities and threats. In undertaking a Product analysis, the Product Committee make detailed profiles of each competitive product focusing on their strengths and weaknesses using the SWOT analysis. They will examine competitions resources, competencies, positioning of the product and its differentiation over other products in the market, they will also look at competitions cost structure and sources of profit. This is done by analysing documents available in public domain and the various announcements made by competition in press or to government and factoring in the companys own understanding. The Product Committee also considers how competitors have responded in the past to industry developments. This gives them key indications as to the posible reaction when the company introduces a new product. Many times the company may have to undertake a market research in order to validate some information or assumptions being made for the product portfolio decisions. Some common techniques to conduct market research are:
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Qualitative discussions

market

research,

such

as

focus

group

Quantitative market research, such as statistical surveys, customer surveys, market size analysis Experimental techniques such as test marketing to understand customer tastes and preferences and the price points at which the customer will buy Observational techniques such as ethnographic (on-site) observation this is the science that studies people, ethnic groups and other ethnic formations, composition, resettlement, social welfare characteristics, as well as their material and spiritual culture.

Product managers may also design and oversee various environmental scanning and competitive intelligence processes to help identify trends and inform the company's marketing analysis.

Like any tool that is used in a complex market the SWOT analysis cannot give a definitive answer. Its use must be tempered with the Product Managers own wisdom. This is because at the time of making the SWOT analysis a degree of subjectivity is introduced in the analysis. This will vary from person to person. Some simple rules to a successful SWOT analysis i. Be as realistic as possible about the strengths and weaknesses

ii. Avoid grey areas as they tend to introduce subjectivity. iii. Use SWOT to compare competitive products better or worse than our own product. iv. Do not over analyse or over complicate the SWOT. v. Remember SWOT is subjective SWOT analysis for Pepsi Strengths

Strong core brand Strong market position Solid brand portfolio Strong revenue growth
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Economies of scale Cooperative and Progressive Corporate Cuture

Filtered Water instead of Spring Water makes the production, logistics, and profit margins a lot greater on their bottled water Weaknesses

Concentrated in North America (US, Canada, Mexico), where almost 70% of revenues come from Health Craze will hurt soft drink sales. Acquisitions & alliances Bottled water growth Hispanic growth in the US and Pepsi's ability to meet their tastes with current product lines (i.e., Sabritas chips) Growth in emerging markets Growing consumer health consciousness - i.e., consumer focus on noncarbonated beverages like Gatorade, Aquafina, Litpon, Quaker Oats, etc Declining economy/recession Sluggish growth of carbonated drinks Coca-Cola & other smaller, more nimble operators Commodity price increases, fluctuating oil prices effect production and distribution (gas, plastic)

Opportunities

Threats

3.3.

Ansoffs Matrix

The Ansoff Product-Market Growth Matrix is a marketing tool developed by Igor Ansoff in 1957. This matrix allows Product Committees to consider ways to expand their business using current and/or new products, in existing and/or new markets. This matrix uses a combination of Product and Market to help define strategy. This matrix gives us four possible combinations which help companies decide what action to take based on what they are doing at present. Each of these combinations gives possible strategies:

Market penetration (existing markets, existing products): when companies sell more of its product in the same market it means that they are penetrating the market. A penetration strategy will lead to an increase in the market share of the product. This is because additional sale in an existing market is likely to come by taking the competitors share, or making the companys existing customers buy more of the product by way of promotion or advertising.
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Market penetration strategy has four main objectives:

o

Maintain or increase the market share of current products this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion Ensure that the company remains the main player in markets that are growing In markets that have become mature and are not growing anymore we reposition the companys product so that the competitor is not able to sell and the companys takes over its market share. This is not easy as it requires an aggressive marketing strategy to make the market unattractive for competitors Increase usage by existing customers for example by introducing promotional and loyalty schemes. Amul cheese had a campaign on using cheese spread on bread, on paratha, or just plain this gives ideas to customers who may use it in new ways.

A market penetration marketing strategy is easier to execute since the business is focusing on markets and products it knows well. It is likely to have large amount of information on competitors and on customer needs. Hence the company may not need to spend too much on new market research.

Product development (existing markets, new products): When a company with a existing product launches a new product in its existing market. These products can be similar to existing products eg if Colgate-Palmolive were to launch a new flavour of toothpaste. They are already in the same business and adding new toothpaste could help them get new customers or entice their existing customers to try the new flavour. The Product Development strategy may require the development of new competencies and also requires the business to develop modified products which can appeal to existing markets. Hence, new product development can be a crucial business development strategy for firms to stay competitive.

Market development (new markets, existing products): When a company wants to sell its existing products in new markets. This strategy can be undertaken in several ways:
o

The existing product can be sold in a completely new geographical markets in another state; country; territory; channel; etc.
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o o o

The same product can be repackaged or remodelled It can be made available in Different/ New distribution channels Different pricing policies to attract different customers or create new market segments

Diversification (new markets, new products): In this strategy the company enters a new market with a new product. This strategy is the riskiest of all. In order to undertake this strategy the company must be very clear about what its objectives are and must study and assess all opportunities and risks. Before undertaking this strategy it must also have its risk mitigation strategy in place at the same time of introduction of new products. Virgin Cola, Virgin Megastores, Virgin Airlines, Virgin Telecommunications are examples of new products created by the Virgin Group of UK, to leverage the Virgin brand. This resulted in the company entering new markets where it had no presence before.

The matrix shows us that risk increases the further the strategy moves away from known quantities - the existing product and the existing market. Thus, product development and market extension usually involve a

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greater risk than penetration and diversification generally carries the greatest risk of all. While penetration are usually need the same technical, financial, and merchandising resources which are used for the original product line, diversification usually requires new skills, new techniques, and new facilities. As a result it almost invariably leads to physical and organizational changes in the structure of the business which represent a distinct break with past business experience. For this reason, most marketing activity revolves around penetration. 4. Process for Product Portfolio Selection Product Managers have the primary responsibility of deciding whether to build, maintain, harvest or divest products. To do this it requires a clear understanding of the products capabilities in the market vis-a-vis its competitors, its ability to generate profits, sales in the short and long run. The strategic objective of the product portfolio is to enhance value creation for the company. In order to have the right portfolio the company must continuously:

Identify new market opportunities Must have a clear understanding of the markets and competitors in which the products will be launched and the factors in the market that can have an impact on the success and failure of the product. The company must also make and evaluation of how much sale and profit will the product make for it and how the product fits into its business objectives. If the companys business objectives are not fully met by the product it must evaluate and answer how these will be made up. The company has therefore to work towards setting for itself priorities in the products it needs to develop to meet its product portfolio objectives.

Thus in order to manage the product portfolio the company has to start at the first stage that is 1. Strategic Planning At this stage it must evaluate how its new products will affect its competitive position. This means will the company stay ahead of completion or will it begin go lag or wil this new product add a new market which the company is already strong or will it take it to new unchartered markets. 2. Balance the Product Portfolio At any time the company will be evaluating and developing new products and each product has a different
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need of time and money for development. However in order to generate the right portfolio the company must ensure that it has the right balance of investment across: a. Products, technologies and markets (new and existing) b. Customer segments and regions c. Innovation Level, Project Stage, Timing and Risk d. Business Unit 3. Focus on Research and Development The company must ensure that the necessary Research and Development activities needed for development of their products has clear objectives so that the necessary developments are ready on time for product development. 4. Continuous evaluation of New Product Development Every new product being developed must be evaluated at each stage of development for them consumed, costs incurred, and ability to meet business and financial goals. Products that do not neet the necessary requirements must be rejected even though the company may have spent some resources on it. This will ensure that only the best products are finally completed and it also ensures that the company does not keep spending money on projects that will not meet the requirements in the end. 5. Sharing of information across the company In order to speed up product development we must ensure that mistakes are not repeated and good practices are duplicated across the company. Hence knowledge of product development must be shared across the company. 5. Summary A company has a variety of customers each of whose need is a little different from the other customer. It is therefore not possible for the company to satisfy all customers with one product. This is possible only by a set of products called the product portfolio. The product portfolio is also important since every product has a life cycle and before an existing product goes into decline or is forced into decline by a competitor the company must be able to bring in another product to take its place and allow the company t fulfill its business and strategic objectives. There are several tools like the SWOT analysis, BCG matrix or the Ansoffs matrix that help the product manager evaluate his product with the market, its strength and the competitor to make a decision. However these tools can only provide a general guidance and cannot give exact solutions since the actual market is a highly complex one and all its variables cannot be quantified. The
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marketer has ultimately has to use his knowledge and experience to arrive at a conclusion or decision. The marketer must be careful while using the tools since many times they get so carried away by their own convictions that they do not evaluate rationally the conclusions or indications of the tools. Managing the product portfolio is an important aspect fro meeting the companys business objectives and so its evaluation starts with the formation of the business objectives and thus the company has to provide adequate financial and commitment efforts to ensure that the products needed by the company to stay ahead of its competition are delivered by the product development team on time and within the cost estimates helping te company have a balanced product portfolio.

6. Your learning 1. What is the importance of Product Portfolio? 2. What are the steps a company should take to maintain a product Portfolio? 3. How does using tools help us in evaluating new products for our portfolio? 7. Key Words 1. Product pipeline - A product pipeline is a series of products developed and sold by a company, ideally in different stages of their life cycle. 2. Risks associated risks linked with a certain set of activities 3. Finite resources limited resources. Resources that are not infinite 4. Markets attractiveness Measure of the profit possibilities that lie within the structure of a particular industry or market. There are many different factors that contribute to market attractiveness. These include: (1) market factors such as growth rate and size of the market; (2) economic factors such as investment potential and industry saturation or rates of inflation affecting consumers' purchasing power; (3) technological factors such as availability of raw materials; (4) competitive factors including the types of rival business and the bargaining power of suppliers; and (5) environmental factors such as the existing regulatory climate and the degree of social acceptance for a product within a particular market
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5. Final objective The ultimate destination. 6. Overwhelmed - To be confronted with more than one can bear or handle. So the information received from a tool must not be taken so literally that we go totally by it and do not use our own judgement at all. 7. Capitalize take advantage of any opportunities that may come along or be noticed 8. Deter to dissuade or discourage a person or company from undertaking certain activity or function 9. Competitive intelligence Information acquired about a competitor with which it competes by the company. Competitive intelligence might include pricing, advertising strategies, names of clients, technical advantages and disadvantages, market strengths and weaknesses, 10. Environmental scanning Here the environment referred to is the business environment. Scanning means to continuously monitor this environment for changes in customer behaviour or requirement, competitive activities, governmental policies, etc so that the company is at all times aware of them. 11. Degree of subjectivity subjectivity is a decision based on a persons feelings and impression and not based on facts. Hence a degree of subjectivity is a certain amount of subjectivity. The amount will increase or decrease with the increase or decrease in degree. 12. Definitive answer An answer about one is sure. This type of answer is given when one is sure of the outcome of the decision based on the answer. 13. Risk mitigation strategy risk mitigation is to reduce the chances or effects of the risk. Whenever we execute a new project there is always an element of risk which comes from how the factors that are unknown or over which we have little or no control will affect the project by the way they unfold or behave. The risk mitigation strategy lays down actions to be taken if these factors unfold or behave in a certain manner. This way the negative effect of these factors is mitigated or reduced. 14. Continuity something that keeps on going on. Hence if there is continuity in a product it goes on and does not decline.
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8. Exercises 1. Why is product portfolio management linked closely to business strategy? 2. What must the company do to ensure that new products in its portfolio are developed on time? 3. Why is a marketers experience important in taking decisions about the product portfolio despite having tools that can help him? 4. What is the difference between the BCG and Ansoffs matrix? What factors determine which tool we should use? 5. Why should we consider the internal factors in a SWOT analysis while developing a product since we already know them? 6. How does knowing the threats in the market help in the development of the product portfolio? 9. Further Reading 1. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice Hall of India, page 68-73 2. Gupta, C B Dr. And Rajan Nair, N Dr. (2009) Marketing Management, New Delhi, India. Sultan Chand and Sons Page 7.9 7.14

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20. 21. 22.

UNIT VII - PRODUCT PRICING

Learning Objectives To understand Pricing The objectives of Pricing Steps to undertake Product Pricing To understand types of pricing and the benefits of these

Structure 1. 2. 3. 4. 5. 6. 7. 8. 9. What is Product Pricing Key Elements of Pricing Strategy Product Pricing Types of Pricing Summary Your learning Key Words Exercises Further Reading

1. What is Pricing? Pricing is the process of determining the value that the company will receive for the product in such a manner that it will meet the companys business objectives. Pricing takes into consideration manufacturing cost, market place, competition, market condition, and quality of product. Pricing is an important part of the marketing mix as it is one of the four Ps. The other three aspects are product, promotion, and place. Price is the only revenue generating element amongst the four Ps, the rest being cost centres. A well chosen price should do three things: Help in achieving the companys business objectives in terms of profitability. It should be such that the consumer will buy the product in relation to other products in the market place. It should be consistent with its positioning and marketing variables.

So we can say that Strategic Pricing is the effective, proactive use of product pricing to drive sales and profits, and to help establish the parameters for
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product development. It is powerful tool for successful marketing strategies if used judiciously. 2. Key Elements of Pricing Strategy One of the most important tasks in front of Marketers, Product Managers and CEOs is to develop the right pricing strategy. This is easier said than done because in a real market place the complexities are so many that it is not possible to factor in all variables. Hence any decision based on models developed by the company may not be able to give the absolute determination of price. However in order the undertake pricing Marketers rely on certain basic principles: 1. Understand pricing before commencing development The first and most important part of creating a pricing strategy is done at the planning stage. The basic pricing strategy should be developed at the planning stage itself. This way the Product Manager can get an insight into what will be the development costs, understand how much he will need to spend on advertising, what will be the manufacturing costs and in return what price he can expect thus what profit he will make. 2. Costs In order to arrive at product costs we should not rely on historical costing. Todays actual costs and the possible future costs must be taken for costing and creating a pricing strategy. . 3. Competition We must be aware what the competition is doing in terms of pricing. This must be factored into our strategy but we must be careful not to copy them blindly. 4. Price Sensitivity We must be aware of the price sensitivity of our product since the shift of buyers to other products is dependent on this factor. We must understand what are the factors that influence this sensitivity and control such factors. A product is said to be price Sensitive if a small change in price makes consumers change the brand. While a product is not sensitive to price if a change in price does not make its consumers change the brand. Usually daily need items are more sensitive to price change and so our product must be priced close to the competitors price. While fashion or lifestyle items are not sensitive to price. And so our product can be priced significantly different from the competitors price without losing consumers. 5. Product Lifecycle we have seen that the price of the product varies through the Product Life Cycle of the product. Hence the pricing strategy must factor in the stage in PLC while pricing. As the product moves from growth to decline the price of the product usually goes down because by this time competition has similar products and consumers have understood the product and the competitors product and can now truly value the differences. Thus large perceived differences in prices can become reasons for shifting brands.
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3. Product Pricing The ideal price for any product or service is one that is acceptable to both buyer and seller. From the buyer's point of view the right price depends on the buyers perceived value of the product and what competitive products are available in the market. The seller has several objectives in pricing the product. However the main objective is to ensure growth in sales and profits. In companies that are multi product they also have to ensure that one product does not eat into the other products sales. The following steps can be used for determination of product pricing for any size business: 3.1. Analyze Size and Composition of Target Market The first step in any product price estimation we need to estimate the potential for the product in the target market segment. We need to understand how big the market for the product is and see if this is a growing, stagnant or receding market. The market potential must be evaluated at different price points and also understand current competitive products. This will help us understand if we will have adequate customers for our product. The competitors strengths weaknesses as company must be evaluated and specific importance must be laid on the specific product against which the product is to be positioned in order to find a way to position/ price our product. This type of information is gathered from the sales force and by conducting a market research. 3.2. Analyzing Your Costs and Overhead The most basic part of pricing is to have the correct costs and overheads. Overheads are costs that are not directly associated with the production cost of the product. If these costs are not correctly analysed it may lead to losses or overpricing of the product. Many times companies make mistakes in costing by basing their costs on historic pricing rather than on current or future costs. Historic costs are costs that the company may have incurred on a similar process or component in the past. This cost may not be valid at current levels and so must be updated before costing a new product. Many times companies, especially small companies, emulate the competitions prices hoping that since they are bigger and more
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organised the prices must be correct. This may not be correct and so the companies must rely on their own analysis to do the costing of costs and overheads. Several objectives need to be addressed in determining correct product pricing: It must be competitive. It should cover the cost of producing the goods or services. It must cater for marketing and overhead expenses. It must meet the profit objectives set at the time of planning. It should be able to cater to distribution margins and discounts.

Once we have arrived at a price based on all the above factors we need to once again evaluate the effect of different levels on sales before taking a final decision.

3.3. Evaluate the Product's Uniqueness The more our product resembles the competitors product the lesser will be the difference in price. The product manager must ensure that the difference he creates between his product and the competitors product must not only be recognisable by the buyer but they must also put a value for this difference. Unless they can do this the company will not be able to get an additional price for its products or the customer to switch his brand. Here the Product Manager has to be careful because depending on the category even recognisable differences may not get him a price premium or a customer to change his choice of brand. We see that consumers easily interchange brands of most daily use products that are sold through grocery stores, chain stores, and vending outlets. The distinctiveness amongst these brand are generally very small differences and most consumers are not looking for new or distinctive features in these categories. Let us take the example of bathing soap if a consumer walks into a store and does not find the brand of his choice he is likely to take another soap of another brand without much thinking. However in case of consumer durables a consumer is more likely to look at and compare the features and service network of several competing products before making a purchase. Here if the consumer has had a good experience with a certain brand making him to switch to another brand will be that much harder given the same price and features.
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Another example is that of gourmet food products which have many distinct and unique attributes in any given category. Consumers shop for gourmet products because they are usually looking for new, unique products "something out of the ordinary." Here the consumer is not likely to change his brand because of small differences in price. Here changes will occur only at significant difference in price. In order to understand how a new product or feature will be perceived by the consumer the Product Manager can always undertake some form of Test Marketing or Field Testing in a small market. 3.4. Understand Product Price Elasticity If demand for the product or service changes significantly with slight changes in price, the product category is considered to be elastic with respect to price. If no significant volume changes occur, even with significant price changes, the category is inelastic. What does price elasticity mean for product pricing? The greater the price elasticity, the closer you should price your products to similar competitive products and vice versa. While the product may be unique, consumers will not pay much of a premium for it if there are similar competitive choices at lower prices. In order to know the price elasticity of the product the company has to undertake a market research or in some cases research organisations keep data for certain category of products. 3.5. Select the Distribution Channels Distribution channels are a cost for the product however this channel can also be a great strength. Distribution channels allow a company to quickly get access to several buyers in a market or to several different markets. The distribution channel has two types of costs which one must be aware of: i. The primary cost: this is the cost incurred in handling, transporting the product from the manufacturing unit to the wholesaler or the distributor. ii. The secondary cost: this is the cost of margins that the company has to build into the selling price of the product for the distributor and the retailer.

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The secondary costs vary from industry to industry and the product manager must be aware of the industry practices while pricing his product. The secondary margins are calculated as a mark-up or markdown on the selling price. Mark-up means that the margin is added to the selling price or cost. Hence a product being sold for 100 Rs with a mark-up of 20% will have a selling price of Rs 120. This mark up may be on selling price or on cost of product. Markdown means that the margin is a percentage of the selling price. Hence a product selling at Rs 120 with a markdown of 20% will give a margin of Rs 24 to the retailer and the company will get only Rs 94. Markups, like all pricing strategies, depend on three influences cost, competition, and demand. Products/ Brands that are unknown usually have to give higher mark-ups than well known brands. The reason could well be that the retailer will have to make the effort to stock and sell an unknown product it may not sell also thus the risk and so a higher mark-up to cover the risk. Whereas in the case of a well known brand the company is advertising and the consumer knows about the product. He may come and ask for the product or the retailer with little effort may be able to sell the product thus has a lower risk and so a corresponding lower margin (mark-up) While selecting a distribution channel the company must ensure that i. It has the lowest costs possible ii. It must allow the product to enter the market easily despite competition iii. The distribution channel must be able to provide adequate sales volume to meet companys objectives iv. The company makes a sufficient margins after paying costs of the distribution channel. v. The channel is committed to the companys product and will meet their financial commitments to the company. 3.6. Stage in Product Life Cycles With increased competition and desire of companies to stay ahead of competition the product life cycles are changing. Companies like to introduce new products or new features very quickly. Because of this the companies have to adjust their pricing strategies along with the stage of the product life cycle in which their product is.
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If we see high technology categories like mobile phones these categories are introduced with high prices and within 6 to 8 months the prices come down significantly as newer products reach the market and competitive products saturate the market. Sometimes because of the small product life cycle companies may find it difficult to predict sales or recover costs of development. In more stable markets like say automobiles prices do not vary so much but in order to maintain prices as the product moves towards maturity the company has to add more features or change the cosmetic appearance of the car to keep getting the same price. Many product categories have significant evolution and life cycles that may affect pricing decisions.

3.7. Estimating Sales at Different Prices Before finalising the price of the product we need to make a final analysis on how much sales the company is likely to achieve. This must be analysed at several price points and then matched with the companys objectives. This price must help objectives like:

Meet the profit objectives Cover cost of goods and overheads Allow adequate marketing spending to promote the product Pay for sales commissions and distributor markups Transportation costs to distributors

In addition we must analyse the competitors and their pricing strategy and value offering as perceived by the consumer and plot our price value perception alongside in order to see the effect on sales. The length of time various brands have been on the market, their relative market share, brand loyalty factors, advertising and promotion spending levels, sales support, merchandising efforts, distribution penetration levels/market all have an influence on the pricing versus volume equation Lastly since price elasticity can have a significant effect on sales volume depending on the price elasticity of the market we must factor in the Price sensitivity of the market or category into the understanding of the price versus sales equation. Though it may not be easy to build an accurate model because of a vast variety of factors the experience of eh marketer will come into play and his knowledge of the market will help in taking the decision.

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4. Types of Pricing Several types of pricing is undertaken by the marketer the main objective being an increase in the overall profit of the business. Some of the types are: i. Loss Leader: A loss leader is a product that has a price set below the operating margin - not necessarily below cost. This results in a loss to the enterprise on that particular item in the hope that it will draw more customers and that some of those customers will buy other, higher margin items. The marketer expects that the typical customer will purchase other items at the same time as the loss leader and that the profit made on these items will be such that an overall profit is generated for the vendor. The firm tries to maintain a current analysis of its accounts for both the loss lead and the associated items, so it can monitor how well the scheme is doing, as quickly as possible, thereby never suffering an overall net loss. An example is a retailer may sell bread or eggs at a very low price and so customers who come to buy eggs and bread will also buy their other requirements. This will help the retailer make up the loss and enhance sales of his outlet. ii. Premium pricing: Premium pricing is the strategy of consistently pricing at, or near, the high end of the possible price range to help attract status-conscious consumers. Examples of companies which partake in premium pricing in the marketplace include Tanishq, BMW, Cross pens and Bentley. People will buy a premium priced product because: a. They believe the high price is an indication of good quality; b. They believe it to be a sign of self worth - "They are worth it;" it authenticates the buyer's success and status; it is a signal to others that the owner is a member of an exclusive group; c. They require flawless performance in this application - The cost of product malfunction is too high to buy anything but the best example : heart pacemaker. iii. Promotional Pricing: The final price of the product can always be adjusted through Promotional Pricing. This pricing is unlike the standard corrections in price which will see a permanent upward or a downwards movement. Promotional pricing is only temporary in nature and always downwards. Promotional pricing therefore refers to a temporary
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reduction of prices in order to simulate product demand. However marketers should be careful not to overuse promotional programs that temporarily reduce selling price. If promotional pricing is used too frequently customers may become conditioned to anticipate the reduction. This results in buyers withholding purchases until the product is again offered at a lower price. Since promotional pricing often means the marketing organization is making very little profit from each item sold, regularly selling at a low price could jeopardize the companys ability to meet their financial objectives. The options for promotional pricing include:

Markdowns This is the most common method of promotional pricing used for stimulating customer demand. There are three types of markdowns
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Temporary Markdown These are normally for a specified period of time at the end of which the product price will be raised back to the normal selling price. Seasonal Markdown These are price markdowns for specified periods of the year e.g. festivals, end of season, special events, etc. Permanent Markdown Unlike the temporary markdowns where the prices are reverted back to their original here the prices are permanently reduced. This may be done if a clear an old stock to replace with a new stock, it may also be done to sell perishable products, or when a new technology arrives and the old technology products need to be sold.

Sales Promotions these are several types of promotions possible to promote sales. This could be in the form of a consumer scheme, discounts, coupons, trade-in, loyalty programs, etc Bundle Pricing This type of pricing is done when the marketer does not want to reduce the price of its product but yet wants to promote it. A customer sees the reduction in price as a reduction in quality. And so bundling it with another product helps create the perception that the overall cost of both the products is reduces without creating the impression that one products price has been reduced. For example the concept of buy one get one free is a much used technique in garments. The customer sees the price and mentally calculates how much two garments would cost and how much one set is costing. Similarly computer sellers or home theatre sellers give a large number of DVDs
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free along with their system. If the customer had bought these separately he would definitely have paid more for both. This type of pricing is also used many times to sell or introduce products that are complementary to the main product. For buyers, the overall cost of the purchase shows a savings compared to purchasing each product individually. Dynamic Pricing this type of pricing has become possible with the availability of information technology. In this type of pricing the price may vary depending upon the type of customer that you are existing or new, how often do you purchase how much do you buy, etc. Using technology pricing the selling price is decided based on the customer fulfilling certain criteria. We can compare this to the age old process of bargaining where the price was fixed by the seller depending on the type of customer you were and how much you could bargain. Some of the ways in which Dynamic pricing is done is by the use of loyalty cards where a specified discount is given to customers who fulfil certain conditions. So let us say you are a frequent visitor to Barista and have a loyalty card then every time you go there and use your card your price will be 10% lower than any other customer without a loyalty card. Similarly we see airlines selling tickets on the internet at much lower cost when you buy them early and more expensive as we buy the ticket as we come closer to the date of departure. 5. Summary Pricing is an important part of the marketing mix as it is one of the four Ps. Price is the only revenue generating element amongst the four Ps, the rest being cost centres. A well chosen price should do three things: Help in achieving the companys business objectives in terms of profitability. It should be such that the consumer will buy the product in relation to other products in the market place. It should be consistent with its positioning and marketing variables.

So we can say that Strategic Pricing is the effective, proactive use of product pricing to drive sales and profits, and to help establish the parameters for product development. It is powerful tool for successful marketing strategies if used judiciously.

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However in order to price a product the marketer has to start at the product development stage, and consider the costs, the competition, the price sensitivity of the product and its category, the distribution channel and its costs and finally the product life cycle of the product. There are several types of pricing each of which has its advantages and disadvantages. The marketer has to decide how the pricing of one product will affect the other products in its portfolio. He has to work in such a manner that it leads to an overall improvement in profits for the company or a meeting of the companys business objectives.

6. Your learning 1. Why is pricing an important aspect of marketing? 2. What can be the impact of incorrect pricing of a product on the company? 3. If a loss leader is making a loss why should the company introduce such a product? 4. Why is promotional pricing an important aspect of a marketers tools?

7. Key Words 1. Strategic pricing It is the relationship between market segmentation and price, and delivers the tools the company needs to stay focused on value as it determines break-even, defines price elasticity, and analyses the tradeoffs between features and price points. Using strategic pricing tools yields a better positioning approach. 2. Historical costing Costing that is based on historical or old data. This data may not be upto date and hence may give wrong indications on profit or cost. 3. Copy them blindly copy without looking at the actual merits or demerits of the case or to copy without thinking. 4. Life style items products that reflect fashion and trends. Also it refers to a way a person lives so items that show or are used to show this are life style items

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5. Perceived differences perceive is to feel, understand or become aware of something. This is based on our interaction with the people or environment around us. These may or may not be based on actual facts. 6. Ideal price this is a price in which all factors are in favour of the company. For example it could mean it is lowest in the market yet giving the highest profit, etc. Usually it is not possible to get an ideal price but the companys objective is to come s close as possible to this. 7. Perceived value Perception is a feeling or understanding that a person may have about a product which may be based on past experience, feeling or fact. Many times a customer attaches a value to a product which is based on his experience with it or on how he perceives it. For example a person buying a fashion garment for several lacs or rupees buys it because of his perceived value whereas it may cost only a fraction of the selling price. 8. Emulate the competitions to do the same thing that the competition is doing. 9. Interchange brands change brands amongst products. So if you are buying a soap in place of Lux you could buy Dove or Liril or any other brand there by interchanging brands. 10. Gourmet is a cultural ideal associated with the art of cooking fine food and drink, which is characterised by elaborate preparations and presentations. The term and its associated practices are usually used positively to describe people of refined taste and passion.

8. Exercises 1. Why should pricing commence at product development stage? 2. Why should we evaluate if the product has price elasticity or not. How can this influence our product decisions? 3. Since all consumer products have to go through a distribution channel why should we evaluate the distribution costs while costing the product? 4. How has new technology like computers, internet, mobile phones changes the way we can undertake pricing? 5. What is the benefit of using bundling pricing over the normal sales promotion?
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9. Further Reading 1. Lehmann, Donald R and Winer, Russel S, (2005) Product Management, New Delhi, India, Tata McGraw-Hill Page 291-315 2. Saxena, Rajan (2009) Marketing Management, New Delhi, India, Tata McGraw Hill Education Pvt. Ltd Page 314-333 3. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice Hall of India, page 455-476

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24. BLOCK 3: BRANDING AND PACKAGING DECISIONS

25. 26. 27. 28. 29. 30. 31. 1. Unit 11: Packaging Decisions Unit 10. Brand Equity Unit 9: Positioning Decisions Unit 8: Branding Decisions

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32. 33.

UNIT VIII BRANDING DECISIONS

Learning Objectives To understand Branding The objectives of Branding What type of decisions are made How the company benefits from branding

Structure 1. 2. 3. 4. 5. 6. 7. 8. Introduction to Branding Branding decisions Branding how does it help Summary Your learning Key Words Exercises Further Reading

1. Introduction to Branding A brand is a set of symbols, words, marks, perceptions and images that represent a company, product or service. While many people think of a brand as only a logo, tag line or an audio jingle, a brand is actually much larger. A brand is the core value or promise of what will be delivered to or experienced by the customer. It creates associations and expectations amongst customers for products made by a company. A brand allows buyers to distinguish itself from its competitor. Brands develop over time by:

Advertising in various media Customers real-life experiences of using a product or service Word of mouth recommendations from friends, family members or colleagues Interactions with a company and its representatives
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A Brand once developed can be used to launch several products HewlettPackard has now developed into a strong brand offering a very wide range of printers, scanners faxes, photocopiers etc. Marketers work hard to create a brand identity as it helps in making advertising and brand development consistent over a period of time. Just like a persons identity helps to identity and understand the person by answering questions like what his values are, what he stands for, what is his purpose, what does he want to be known for, etc similarly the brand identity also provides a direction about the direction, meaning and purpose of the brand. It helps us identify what it stands for, what are its core values, and what associations it wants to convey. Brand identity is a unique set of brand associations that a brand manager would like to create and maintain in the customers mind. These associations convey to the brands customers the companys promise and reinforce what the brand stands for. Here we must understand that though the product is one of the most visible parts of the brand and it is easy for people to refer to it as the brand the product is only a part of the brand. The brand stands for much more than the product in terms of its personality, its emotional benefits, customer associations etc. A product is at the centre of the brand and has its attributes, conforms to certain quality norms and has some uses (In the case of McDonald (value for money, always hot, good tasting, consistent across the world, fast service in a clean environment). However a brand is much more and has its own personality (e.g. McDonalds has Family Oriented, genuine, wholesome, cheerful, fun personality), its emotional benefits (Kids fun , Feeling of special family times, Link to family events and experiences reinforced by emotional advertising), its symbols (logo with Golden Arches, and its character Ronald McDonald) and relationship with the customer.

Fig: 8.1 A brand is much more than the product

Since the brand needs so many elements all of which needed to work in harmony together in addition to the product creating a rand needs many decisions. Thus branding decisions are an important part of ensuring a successful product management.
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2. Branding Decisions Depending on the type of company launching a new product the company may or may not have an existing brand. Let us take the example of a new company being setup they would have no existing brand while if we take HewlettPackard they have a very strong brand which they can use to launch a product. Having said that a strong brand also has its limitations so let us say that Hewlett-Packard wants to launch a new solar panel (since green energy is much a part of the future) it will find it difficult to use its existing brand since this brand is very strongly associated with the IT sector. Thus any company launching a new product will have to consider some of the following decisions: 2.1. Brand or No brand

The first and foremost decision is whether to brand or not to brand a product. To many people this may seem to be a very unnecessary question. However we must see these decisions from the perspective of all companies big and small. As we have seen earlier that a brand is much more than the product and in order to communicate various aspects of the brand to the customer it needs time and money. This is an element that all companies may not have. Thus a company while launching a new product may just decide to name a product and not brand it. The money saved in the branding exercise advertising, promotion, etc. can be used more suitably in giving discounts to the trade or customers to build sales. This money is spent in relation to the sale that is taking place and so the company is able to control the money spent in selling. While in advertising the money spent does not give an immediate return. And in case the company is not able to sustain advertising till it begins to get a return the company itself will close. If we take the case of Nirma when they started selling they did not undertake any advertising. Using their manufacturing and distribution strength they built up the company. It was only when they began to enter urban markets and competing against well established brands that they started a vigorous advertising campaign. 2.2. Brand name selection

Once the company has decided to brand its product it becomes important to choose the right brand name. A brand name once chosen is something that will stay with the product forever. The company is going to spend money in telling the customers about it and building a relationship with customers based on this name. Over a period of time any name chosen will become popular given the right type of advertising and money spent. However in todays highly fragmented and cluttered media a brand name that the
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customer finds easy to remember, associate, differentiate and pronounce will take less time and money than otherwise. This is unlike a couple of decades ago when the number of competing brands was much less, the media was not so fragmented (we had only one Doordarshan channel, only a few magazines and newspapers) and so brand building was faster and much cheaper. Hence some of the considerations that we must keep in mind as we select a brand name are: i. The Brand name should suggest the product benefits or qualities. Head and Shoulders for anti dandruff shampoos, Real juices implying juices are made from real natural fruits, Kissan from the farm, Fair & Lovely makes you look nice and fair etc. ii. The brand name should be easy to pronounce. Tide, Lux, Wheel. iii. The brand should be distinctive that is the brand should look different from its competitors. In addition it should not remind the customer of some other brand in another category. For instance, the New Delhi based Ochoa Laboratories recently changed the brand name of their Iron(III) hydroxide polymaltose with Folic acid tablets from TRUFER to UFER, as the former name was being confused with the similar formulation TRIFER tablets of the Chennai-based Apex Laboratories. (Indian Journal of Pharmacology 2002; 34: 367-368) iv. It should be possible to register the brand with the trademarks authorities to offer it legal protection from copycats or people/ companies wanting to copy the products. Counterfeiting is rife for brands, copyrights, patents and other forms of Intellectual Property. We find so many instances of good brands being copied and so causing loss of sales to the original company. 2.3. Brand promoter / benefactor

For every product and its brand there must be a promoter/ benefactor. This defines who is going to spend the money and receive the benefits of the brand. Each type of brand has some distinctive advantages i. Manufacturers brand These brands are those that are created by manufacturing companies. Manufacturers not only develop the product but also spend money on developing the brand. Manufacturers brands have a competitive advantage in product quality and innovation, and in integrating their marketing communication strategy. They spend money on creating, promoting and building loyalty to their brand name.
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This allows them to continue to add new products under the umbrella brand. For example HP is known for printing technology but when it launched different types of printers it was able to make sub brands like HP inkjet, deskjet, when scanners were added they created HP scanjet and yet later when they combined scanners, printers and photocopiers all into one they created HP officejet. In addition to allowing companies to launch several types of products under an umbrella brand Manufacturers also benefit tremendously by an increased value of the brand in terms of money and brand recall by the customer. Loyal customers of the brand know what to expect from the company values, benefits, etc. However the manufacturers brands bring in lower margins to the manufacturer because he not only has to promote the product but he is also increasing competition of his product as many retailers will have to sell the product. In case the manufacturer is dependent on a distribution chain to sell the product he will also have to cater for their margins in the total cost. The manufacturer however makes up by selling more units of the product than the retailer. Some successful companies are HP, IBM, Microsoft, Nokia, Maruti, Reliance, etc. ii. Private brand These are brands that are usually created by retailers. Recently, because the size of retail has increased, private brands started to have particular importance by creating unique identities among retailers. The idea of creating these brands is that the product is then available only with the retailer and allows the retailer to charge a higher margin on the product. In addition for these products retailers do not have the restrictions manufacturers put on their products as far as discounts, promotion. For private brands retailers have control over manufactured quality and so can fine tune and position themselves against manufacturers brands. The advantage that the retailers have is that they can decide the shelf space that will be given to their own brands and manufacturers brands. So they may, while undertaking promotions, position their brands at premium positions as compared to manufacturer brands.
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The decision to create a private brand depends on the capability of a company to promote and sell the brand. Private brands on an average make up 25% of purchases in the US and about 45% in Europe. In India organised retail is still in its infancy and private labels form a small percentage of the total sales. Some successful retailers who have developed private brands with their own name on it are Costco, Wal-Mart and JC Penny. iii. Licensed brand Licensed brands are those brands that are owned by companies that have over the years created a well recognised brand or product. For a company to use a licensed brand the advantage is that they do not have to spend time and money in recreating the product and/or technology. For the company that is licensing its brand it can earn revenues without having to make significant investments. Let us take the case of McDonalds it is one of the most famous brands that uses the licensing format to grow its business. McDonalds provides to a licensor the brand name, advertising, the systems and processes, training, pricing and product standardisation. The licensor uses these and can sell the product by using his own manpower, premises, etc. This removes the need for the licensor to go and reinvent the wheel. Licensing is also used in the manufacture of high technology items for example India manufactures the MIG 29 fighter aircraft in India under licence from the Russian Govt. If India had to develop this aircraft on its own it would have taken several decades and many thousand crores of rupees. Licensing is also done for simple things like cartoons Walt Disney licenses companies to create comics, TV shows using their comic characters, etc. iv. Co-branding In an attempt to build a strong brand image marketers are using co-branding as a strategic option. Co-branding, co-partnering or dual branding is the act of using two established brand names of different companies on the same product. It has made inroads into nearly every industry, from automotive and high-tech internet companies to banking and fast food. Many well-known firms choose this marketing strategy in order to draw new customers, to increase the
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brand awareness, to support the customer loyalty or to win some other individual advantages offered by the partnership. The concept of co-branding consists of taking a product developed by one company, and changing its look and feel to match that of another company. The detailed co-branding process results in a product that is fully customized to meet the particular needs of a specific company with a few changes to the basic product, technology or processes. The basic idea of co-branding is that consumers recognise brands and associate values with it. Thus by combining two brands on the same product the marketer aims at having the benefits of both the product reflect from the product. This type of branding is done where two companies known for dissimilar products want to attract customers from both their segments to buy the product. The most important aim of co-branding is to attract more customers and to maximize the power and prestige that each brand has to offer. The partnership helps in opening up new markets and marketing opportunities. Co-branding is a good way to influence customers and subtly give them the impression that their favourite brand has a lot more to offer. Both companies benefit from the partnership and so also the customer as Co-branding provides two distinctive benefits. A company benefits by instant brand recognition in markets where there may not be any consumer awareness (at the launching stage) or a lesser degree of consumer awareness a company desires. Other benefit is the financial advantage provided by the alliance. It comes from the sharing space in market, this lowers operating costs and maximizes marketing spends through joint promotions thus increasing market exposure with one product carrying both brand names. Some of the examples of co-branding are credit cards where an airline may launch a credit card with a bank. When customers use their car to buy tickets of this airline they get some reward points which can be encashed for benefits or say co branding a hotel like Maurya Sheraton would benefit the hotel by getting customers of both the Maurya and Sheraton chain using the hotel and the customers would benefit by the expertise of both the groups and by some specific benefits which each type of hotel providing to their customers being available in the hotel. This is useful for customers who travel extensively since they can get they find the facilities similar and so are more comfortable. Each hotel provides a certain
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type of mattress for sleeping. Now if a frequent traveller goes to different hotels and finds different types of mattresses he needs to adjust to each one. But by going to the same chain of hotels he finds the same type of mattress and so sleeps better and thus would like to use this hotel chain more. Now by Cobranding the hotel is able to create products like this which help the hotel to get more customers and therefore profit. 2.4. Brand strategy

Another important decision that the marketer must take while taking Branding decisions is how he must leverage or not leverage his existing brands. There are four ways to look at the product brand matrix and each of these has different implications for the brand and the product. So if we see the matrix below we will see that there are four quadrants which are made of a combination of the brand name and product being new or existing. These four combinations are: Line extensions Brand extensions New brands Multiple brands

Product Category Brand Name

Existing New Existing New

Line Extension Multiple Brands

Brand Extension New Brands

A line extension is when we extend an existing brand name to a new form, size, flavour, etc of an existing product category using an existing brand name. For example many years ago the shampoo companies introduced small sachet for a shampoo to allow rural customers to use their product. This has now become a tool to get
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new customers to use their product even in Urban areas. Recently Kissan has taken out its ketchup in a plastic bottle and they have also taken out a metallised pack as a refill to a bottle plastic or glass. This is a line extension of the Kissan Ketchup In this the major cost is that of the development of a new packing because the product is well known and it has its own set of dedicated customers who will definitely use the product but in addition there will be may other customers who may find the usefulness of the product and so increase the total customer base. Virtually no additional advertising is needed except some at the retail outlet level and the use of a good display of the new product extensions at the retail outlet. A brand extension is when an existing brand name is extended to new product categories. This has been done very successfully by Reliance which has extended its name to brand name BIG to radio BIG FM 92.7; DTH for TV BIG TV and Film making; BIG Cinema Cinema hall screens; BIG Pictures to film production. Each of the product categories has a common thread that it is in entertainment but each is a new product category in itself. The advantage here is that it becomes relatively easier for a known brand to bring in new products categories under its banner. The customers already know the brand and know what it stands for. Hence for the new product category also the customer begins to expect the same characteristics. It becomes that much simpler and economical for the company to get its product accepted by the customer. Multiple brands are done when the company introduces new brands in an existing product category. Let us see the case of Hindustan Unilever Limited which has introduced several brands of bathing soaps in the market. The objective of doing this is to try and increase the companys overall market share. We all know that it is not possible to satisfy all customers in the market with one single product. Now to get the other customers our product must have some distinctive features. A product with different features cannot be introduced under the same brand. Thus it becomes imperative to introduce a new brand. This decision is not easy firstly because creating a new brand is very expensive. Secondly The distribution channel has a limited product carrying capacity. If too many products are introduced they begin by cannibalising each
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other or only the fast moving products moving and other products stagnating in the channel. Hence sometimes a new brand needs a different channel and creating this again is not a simple or cheap task. New Brands with a new product category are the most difficult and expensive way to launch a product. Here the uncertainty is very high since neither is the product known and neither is the brand known. The company must undertake meticulous planning in order to ensure the success of the product. A proper market survey along with a test marketing in a smaller market is usually undertaken when new products are launched with a new brand. 3. Branding How does it help So, how exactly does branding help? Well, most customers prefer buying only those products and services that they are familiar with. Since branding helps the target audience become familiar with the brand, it has an important role in determining customer-buying behaviour - and consequently the success of the business. Building a brand name is important because its only through a brand name that a business can hope to communicate the positive attributes of its products or services to consumers. Quality and prices do affect customer-buying behaviour, but since its the brand name that brings in most new customer traffic, businesses cannot afford to ignore the merits of building a proper brand name for their products or services. By building a good brand name, businesses will also be able to control and reduce their overall marketing budgets, because once the brand becomes a household name, it will automatically lead to consumer generated referrals, a method that works better than the standard marketing initiatives and something that costs virtually nothing as far as the business is concerned.

4. Summary Decisions about branding are important from the point of view of establishing a long term presence in the market. Branding helps a company reap the benefits of its efforts over a long period of time. A brand once established not only benefits the existing product but many other subsequent activities that the company is likely to undertake in the future.

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It for this reason that companies that launch future products want to align it with its business strategy because apart from the immediate objectives of sales and profit achievement the company also seeks to continue its competitive advantage in future also by leveraging its spends on brands today. A brand builds a familiarity or relationship with the customer and as we are comfortable with people we know so is the customer comfortable with brands he knows. For these brands the customer will be willing to pay a little premium over those brands he is not familiar with. In order for the company to sustain its contact and visibility it must therefore make decisions today that it can sustain r those for which it can get a competitive advantage and so create the structure that will help in maintaining the relationship with the customer. Thus allowing the company to increase its sale, while at the same time reducing relatively it budget spends.

5. Your learning 1. How is a product different from a brand? 2. Does creating a brand help the company? Explain the advantages to the company. 3. How is the matrix between product category and brand name helping us evolve a brand strategy? 34. 6. Key Words 1. Symbols A symbol is something such as an object, picture, written word, sound, or particular mark that represents something else by association, resemblance, or convention. 2. Tag line - A tagline is a modified version of a branding slogan usually used in marketing literature and advertising. The idea is to create a memorable phrase that will sum up the tone and promise of a brand or product or to reinforce the audience's memory of a product eg Gillette the bast a man can get, Lifebuoy Tandurusti ki Raksha karta hai Lifebuoy, Nirma Doodh si Safedi 3. Jingle - It is a memorable short tune with a lyric
used in radio and television advertisements, which are usually intended to convey an advertising slogan.

4. Unique being one of its kind, unmatched, unequalled.

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5. Harmony Means to be in agreement in feeling or opinion; or to have a pleasing combination of elements in a whole 6. Vigorous Something that is done with a Strong, energetic, and active in mind or body or is done with force and energy 7. Fragmented and Cluttered media the media is broken into many small parts eg the TV now has so many channels and even within the channels there are so many news channels, so many movie channels, so many entertainment channels, similarly for the magazines and newspapers. So the media is highly fragmented. In addition within each channel there are so many advertisements that they are now very cluttered and it is difficult to see and remember the ads.
8. Counterfeiting to make an imitation of what is genuine with the

intent to fraud. 9. Umbrella brand - An umbrella brand is a parent brand that is used on a number of products each may have separate brand images. 10. Reinvent the wheel the wheel was invented many, many centuries ago. Each time we use the wheel we do not go about inventing it again but use it just as a wheel. So reinventing the wheel is used to show that a company is going about restarting the development of a product/ technology/ process which can be used as it is and therefore wasting resources. 11. Cannibalising to use resources meant for one part in another is to cannibalise the resources.

7. Exercises 1. Why is the decision whether to create or not to create a brand important for a company? 2. Why is selecting a name so important to branding and success of the product? 3. What is co-branding? When should a company undertake co-branding? 4. Does co-branding provide companies with any benefit? What benefits can you list for this type of branding? 5. What is the difference between private brands and other brands? Why for companies want private brands.
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6. How does using an existing brand help a company in reducing uncertainty and costs in product management?

8. Further Reading 1. Majumdar, R, (1998), Product Management in India, New Delji, India, Prentice Hall of India, Page 43-64 2. Lehmann, Donald R and Winer, Russel S, (2005) Product Management, New Delhi, India, Tata McGraw-Hill Page 291-315 3. Saxena, Rajan (2009) Marketing Management, New Delhi, India, Tata McGraw Hill Education Pvt. Ltd Page 276- 283

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35.

UNIT IX POSITIONING DECISIONS

36.

Learning Objectives To understand Positioning To understand the process of positioning To understand repositioning and why we need to do it

Structure 1. 2. What is Positioning Product Positioning Process 2.1. Define the market 2.2. Identify product attributes that define product 'space' 2.3. Collect information about customer perception 2.4. Determine each product's share of mind 2.5. Determine each product's current location in the product space 2.6. Determine the target market's preferred combination of attributes 2.7. Examine the fit and Position Positioning and Repositioning Summary Your learning Key Words Exercises Further Reading

3. 4. 5. 6. 7. 8.

1. What is Positioning A customer buys a product to fulfil his needs or expectations. Now in a market that is full of products and brands how can he differentiate between what he should buy and what not to buy. In addition a customer makes his decisions not in a logical manner but in an emotional manner. He does not go very much in the specific merits of a product but rather he makes his decision based on perceptions about a product and its qualities. Thus it is very important for a

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brand to create the right perception about their product in the customers mind so that when he thinks about a particular need he recalls the marketers brand. It is this creation of an image or identity for the product, service, brand or organisation in the minds of the target customer that is called positioning. Now since the customer must remember the image or identity of the product or service the positioning must be distinct from other similar products or services. If this is not distinct it will lead to confusion in the customers mind. Thus a marketers job is to position the product in such a way that it can project its uniqueness over other products, services or brands. This chapter will examine the ways positioning can be done and utilised. A company's positioning strategy is affected by a number of variables related to customers' motivations and requirements, as well as by its competitors' actions. Before the product or service is positioned, the marketer should answer the following strategic questions about his market and his products or services:

What's the customer really buying from him? We all know that McDonald's is not just selling french-fries and burgers. It sells fast food that tastes the same, regardless of when or where it's ordered, and served in an environment that is clean and friendly to families and children. How is the product or service different from those of the competitor? A burger is a burger, you may think. But just see how McDonald's, and Nirulas differentiate their fast food. They offer different side dishes (free ketchup, mustard, chilli flakes at Nirulas, french-fried potatoes at McDonald's), different toys with kids' meals at McDonalds (a big incentive for children under 12 years of age). What makes the product or service unique? In India McDonalds is the only fast food place to have an exclusive childrens play area. Whereas Nirulas also provides ice creams in their outlets.

Once these strategic questions have been answered based on the market research, the marketer can begin developing a positioning strategy for the business plan. The positioning statement for the business plan should not to be long or elaborate, but it must point out i. What the target market is ii. How will we reach the target customers iii. What is the customer really buying from the company
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iv. Who are the competitors and v. What is the Unique Selling Proposition of the product Please understand that the right image or positioning is powerful marketing tool. To make it work the marketer must follow these steps:

Create a positioning statement for the company. A short statement that differentiates the product or company from your competition. Test the positioning statement. Does this positioning appeal to or resonate with the target audience or not? This process must be repeated until we have a statement that communicates the fulfilment of customers wants and needs. Use the positioning statement in every form of communication that the marketer makes to the customers. This reinforces the message at several levels to the customers. Create visual materials that communicate your positioning to your customer and sales channel. A visual is remembered far more than a written communication and so must be used effectively. Include your people while creating the communication both visual and written plan. This helps employees understand how to communicate your positioning to customers.

2. Product Positioning Process Generally, the product positioning process involves: 2.1. Define the market

The first step in defining the positioning is to define the market in which the product, service or brand will compete. We must understand who the buyers are in the market. This market comprises of all the products and services that can interchangeably be used by the customer because of similar usage characteristics or prices. The market needs to be defined because it is in this sphere that all products and services will compete with each other for business and market share. The extent of competition and substitute products in this market will determine the pricing of the product and the premium over other organisations that the company may be able to charge.

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2.2.

Identify product attributes that define product 'space'

When we define the market we consider all the products and services that can interchangeably be used by the customer and we know that each product comprises of several attributes. Thus we can say that the market in which the product exists is a space made up of a combination of attributes. In order to define the boundaries of the space in which the product will function if we can define the right attributes it will help us in defining the competition better and therefore positioning our product. Generally this process is done at the time of product development since based on the attributes desired the functionality and other features of the product may be defined. If it is not possible for the company to attain these attributes then the product itself may not be developed.

2.3.

Collect information about customer perception

Customers perception about products is an important element in the positioning of the product. In order to position we need to understand which attributes the customer gives greater weight age. One important tool used to map these is the technique of Perceptual mapping. In order to make the perceptual maps we need to collect customer information about his perceptions about each attributes not only for the companys product but also about competing products. However since perceptual maps have a limitation in terms of how many attributes can be shown at any time, we must select key attributes that will have a significant impact on positioning and provide a position that is sustainable in the long term. A sustainable positioning will also impact profitability of the product and company. Information on customer perceptions is collected through detailed market surveys and several statistical methods but we must be careful to construct the research carefully otherwise data collected will give data that will seem to validate decisions that the company already knows. The data collection can be done based on perceived differences between products or between perceived similarities between them from a sample of customers by surveying them about their perceptions of each product on the relevant attributes.

2.4.

Determine each product's share of mind

One of the main objectives of advertising and promotion is to establish what is called share of mind. When people think of examples of a type or category of product, they think of a limited list of products or brands. Any product included in this list has mind share. For example, if you are considering purchasing a car, you have several brands to choose from.
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However those you recall out of the complete list of brands will have your mind share. Of these few, the cars that you are most familiar with will have the greatest proportion of your mind share. Marketers try to maximize their product's share in the customers mind. Hence while positioning it is important to estimate the various mind share of competing products and to see what position you can create for your product that will be distinct from others and will be sustainable over the life of the product. Sometimes in certain product categories a certain product or brand has a dominant mind share. A dominant mind share is when a product or brand name becomes synonymous with the category, for example, Kleenex brand tissue was only a brand but it has since become a common to use it as a term to identify any tissue similarly Xerox has become synonymous with photocopying. Dettol with liquid antiseptic. While positioning displacing a dominant brand is extremely difficult and unless the company has a significant advantage- financial or technological it must try and stay away from this position.

2.5. Determine each product space

product's current

location in the

For a marketer to understand the relative position of various products in the market becomes easier if we plot these attributed on a two dimensional plot called a Perceptual Map. Perceptual mapping is a graphics technique used by marketers to visually display the perceptions of customers or potential customers relative to their competition.

^ Very Safe | Lexus | Mercedes | BMW | Honda Maruti | Nano | Cheap--------------------------------------------------Expensive | | | | |

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| | Very Unsafe

Cars that are positioned close to each other are seen as similar on the relevant dimensions by the consumer. For example consumers see Mercedes, BMW, and Lexus as similar. They are close competitors and form a competitive grouping. A company considering the introduction of a new model will look for an area on the map free from competitors like Nano was introduced in the cheap end of the map since no product existed there. Some perceptual maps use different size circles to indicate the sales volume or market share of the various competing products. This two dimensional plot allows a marketer to define the space that he may want his product to occupy. Perceptual Maps can be of more than two dimensions also each dimension representing an attribute these are more complex to create and interpret. Many perceptual maps multi dimensional scaling, display several ideal points these are some points seen as ideal by customers. Each point reflecting a customer perception. When plotted we will always find some clusters on the map. These clusters represent customer or market segments and marketers will try and create products that will meet the customer needs in a given cluster while at the same time comparing its offering with what competitors are offering in that segment.

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Some maps plot ideal vectors instead of ideal points. The map below Preference regression, displays various brands on the dimensions of effectiveness and gentleness. It also shows two ideal vectors. The slope of the ideal vector indicates the preferred ratio of the two dimensions by those consumers within that segment. This map shows there is one segment that is more concerned with effectiveness than harshness, and another segment that is more interested in gentleness than strength.

More Gentle Brand1

Maruti Less Effective Brand2 Brand4 Brand3 Less Gentle More effective

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2.6. Determine the target market's preferred combination of attributes For every target market there is a combination of attributes that is ideally preferred. In order to achieve a position of strength and occupy a large space in the consumers mind the positioning must aim to come as close to this ideal combination of attributes as possible. If we undertake the preference regression to map the market the ideal vector will give us the direction for positioning. However we still need to arrive at a set of attributes that we must consider based on research that has been conducted amongst the target audience/ market segment. The most important of these must be considered while making a perceptual map for arriving at an ideal vector.

Perceptual Space Mapping of Products on Attributes Here we will see that Product C has the highest match on the ideal vector while Product B has lesser and Product A has the least. While product A has the highest match on attribute 2 and product C has the least match on Attribute 2.

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2.7.

Examine the Fit and Position

Once all the data is available about the attributes desired by the customer in the target market and the competing products in the market with the space they are already occupying the marketer is ready to position his product. He has with him the ideal vector desired and also the spaces available in the market where he can position his product. Now following an iterative process of positioning his product in a position and evaluating it in comparison with other competing positions and the ideal vector he must arrive at a position that can be used by the company to profitably launch and sustain the product through its life cycle. It may ot always be possible to get an ideal fit because i. Some competitor may already be occupying a position close to the ideal vector. ii. It may not be possible for the company to produce a product that will be close to the ideal vector iii. The customer expectation may not be realisable given the stage of technology available at present.

3. Positioning and Repositioning Positioning means creating a position, image or identity in the consumers mind. Most of the time and effort of a marketer is spent in creating this position or reinforcing it. The marketers objective is to overcome the noise that exists in the market because of the claims of all competing and non competing products and make himself heard and more importantly remembered by the consumer. Positioning is an important part of the product strategy and must be undertaken carefully because any change in the position is an expensive, difficult and time consuming process. We are not sure that a change in position will be accepted by the customer. Repositioning competitive pressures because of new competitor entering the market, new channels and changing customers needs sometimes push the marketers towards wanting to reposition the brand. However this is not an easy task. Many marketers despite their increased spend on trying to reposition their brand are not successful. Some of the key factors to be kept in mind while repositioning the brand are:
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Any change in positioning must continue to stay relevant to the customer. The Marketer must evaluate the customers current attitudes and the status of the market with its competing products. Any brand repositioning must be a logical extension of the existing position. If the customer sees that the position does not have a relevance to the earlier position then he will reject the product. The product will therefore lose its existing set of loyal customers. The company or product must be able to live up to the new position created. For the company to ensure that they are delivering on the new positioning they must closely monitor the market an also give the customer enough metrics by which to measure/ understand that the company is delivering on the new positioning. The repositioning must be based on goals that the company sees as realistic rather than exclusively on what the management think they want the goal to be. Example 1 Many years ago General Motors wanted to reposition it brand Oldsmobile because of changes in the market and wanted to target a younger set of customers. They improved styling and added new features hoping to attract the young at the same time launched a campaign with the tagline Not your fathers Oldsmobile. However the younger generation could not see the connect between the old and new positions as the product modifications and new styling was not attractive enough to the younger generation which it was targeting. Eventually General Motors was not able to rejuvenate its brand and eventually shut it down. Example 3 When a dishwasher was launched by Maharaja, in its initial stages, it was probably seen as an exotic product. So, Maharaja positioned it as a product aimed at the upper crust of customers. The positioning statement created was your guests get Swiss cheese, Italian Pizza ...... you get stained glassware.'' But Indians were reluctant to use dishwashers because of deeply embedded cultural reasons. The product did not appeal. Later, the message had to be changed to appeal to the common Indian housewife. Hence the positioning was changed to Bye, Bye Kanta Bai''. The idea was to communicate that now the Indian housewife could use the dishwasher to become
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independent of the maid and her whims. The brand, therefore, was repositioned from a sophisticated, aristocratic product to one that is functional and relevant to the Indian housewife. Example 2 Dettol toilet soap was positioned as a beauty soap initially. This was not in line with its core values. Dettol, the parent brand (anti-septic liquid) was known for its ability to heal cuts and gashes. The extension's 'beauty' positioning was not in tune with the parents germ-killing positioning. The soap, therefore, had to be repositioned as a germ-killing soap. Here, the soap had to be repositioned for image mismatch. The soap it has performed extremely well after repositioning.

There are several reasons for repositioning Mostly falling or stagnant sales is responsible for repositioning exercises. Image mismatch between current and desired position For increasing product relevance to the consumer For increasing occasions for use Making the brand serious Bringing in new customers into the target segment Making the brand contemporary Differentiate the brand from other brands Changed market conditions. 4. Summary Every product must create some image in the customers mind so that whenever he needs the product this image is recalled and he remembers the product. Along with this image will be the attributes and emotional connect with the product. Thus wile launching any product the company has to ensure that the image positioning is right. It should not only be able to create this image but also sustain it over time. In a market that is getting cluttered with products and brands it is becoming a challenge for marketers to find a vacant position that is
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unique and provides a competitive edge to it. Thus in order to find the right position the marketer has to start by defining the market in which his product must compete. This helps him identify the characteristics his product must have and the target customers likes and dislikes. It also helps him define the competition and so its strengths and weaknesses. Each market has certain attributes that the customer associates with and against each attribute he has some perceptions which need to be mapped using perceptual mapping techniques for the most important attributes since we can map only a limited set of attributes. Using this mapping we understand the customers share of mind for existing products and our ability to create a share of mind on a sustainable basis for vacant positions. Here we are able to evaluate how our product is related to the competing products and how much share of mind does each competing product have. Once we have this we evaluate how much our product offering fits in with the target markets needs and perceptions. Based on the data available we can modify or tailor our product specifications to become more aligned to the required parameters. And use these for product development and marketing it. Sometimes a product positioning may become obsolete with time of the positioning may not have been done correctly in the first place. In these cases the product needs to be repositioned. Care must however be taken that while repositioning this repositioning must stay relevant to the customer and must be a logical extension of the existing position eg Maharaja changed it from an elitist positioning to a common housewifes positioning.

5. Your learning 1. How does knowing what the customer is buying from us help us in positioning the product? 2. Why do we create a positioning statement for the product? 3. What do you understand the product space? How does this space help in product positioning?

6. Key Words 1. Emotional manner Emotional decisions are decisions that are not based entirely based on logic.
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2. Unique Selling Proposition It is what makes you different from your competitors and persuades the customer to exchange money for product. 3. Sphere a sphere is a round shape in the form of a ball. Just like the ball encloses a space around its centre similarly a sphere of activity is the space in which this activity will take place. 4. Attributes - is a specification that defines a property of an object, element, It is often treated as equivalent to a property depending on the technology or product. A characteristic. In a word processing application, an underlined word would be said to have the underline attribute. In database systems, a field can have various attributes. For example, if it contains numeric data, it has the numeric attribute. 5. Perceptual mapping - Marketing research technique in which consumer's views about a product are traced or plotted (mapped) on a chart. Respondents are asked questions about their experience with the product in terms of its performance, packaging, price, size, etc. Theses qualitative answers are transferred to a chart (called a perceptual map) using a suitable scale (such as the Likert scale), and the results are employed in improving the product or in developing a new one. See also mapping. 6. Clusters 7. Vectors - In regression analysis, a vector is a geometric object that has both a length and direction. A vector is generally represented by a line segment with a definite direction, or graphically as an arrow, the length of the arrow gives the amount or extent of the characteristic and the direction gives or the extent of match with a certain characteristic which it is representing. 8. Preference regression - Preference regression is a statistical technique used by marketers to determine consumers preferred core benefits. It usually supplements product positioning techniques like multi dimensional scaling or factor analysis and is used to create ideal vectors on perceptual maps. 37. 7. Exercises 1. Find out what is an ideal vector in product positioning? Why is it important in product positioning?

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2. If we have already positioned the product why do we need to reposition the product? 3. How often can we reposition the product? What would happen if we repositioned the product every year when we make a new advertisement? 4. When should we undertake the product positioning activity during the product life cycle of the product and when should we reposition the product, if needed during the Product Life cycle.

1. 2. 3. 4.

8. Further Reading Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice Hall of India, page 285-296 Lehmann, Donald R and Winer, Russel S, (2005) Product Management, New Delhi, India, Tata McGraw-Hill Page 234-241 Saxena, Rajan (2009) Marketing Management, New Delhi, India, Tata McGraw Hill Education Pvt. Ltd Page 278-283 Majumdar, R, (1998), Product Management in India, New Delji, India, Prentice Hall of India, Page 72-83 1.

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38. 39.

UNIT X BRAND EQUITY

Learning Objectives To understand what is Brand Equity How brand equity helps us with product management To understand the value of how to create Brand Equity

Structure 1. What is Brand Equity 1.1. Awareness of the brand 1.2. Perception about Brands quality 1.3. Customers Loyalty for the Brand 1.4. Customers Association with the Brand 2. Why Companies find it difficult to build or maintain a Brand 3. Measuring and Protecting Brand Equity 4. Building Brand Equity 5. Summary 6. Your learning 7. Key Words 8. Exercises 9. Further Reading

1. What is Brand Equity Brand equity refers to the intangible values that are linked to the companys brand or symbol or logo as a result of its successful efforts to establish a strong brand. This Brand equity adds value in a customers perception about a companys product, service or technology. A brand is a name, symbol, or other features that distinguishes the company's goods or services in the marketplace. Consumers often rely upon brands to guide their purchase decisions. The positive feelings consumers accumulate about a particular brand are what makes the brand a valuable asset for the company that owns it. To maintain this brand equity companies spend a lot of time, effort and money because ultimately the brand equity is the sum total of the consumers perceptions about the product and service.
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There are four key areas that affect the brand equity: i. Awareness of brand name ii. Perception of the brands quality iii. Customers loyalty for the brand iv. Customers association with the brand Thus the objective of building a Brand Equity is to create a set of assets that create a value for the customer and the company and all of these must be connected with the logo or the symbols of the company. There are a variety of assets which can be created by the company and each must be evaluated carefully while creating Brad Equity.

1.1. Awareness of the Brand Brand Equity depends on the customers awareness level about the brand. The greater the awareness about a brand the stronger is the brand equity. Though awareness can be measured in different ways there are two main aspects of it that can impact a brand. Recognition: This type of awareness means that when the customer sees the brand he feels that he has seen the band somewhere but he may not remember where and when he saw the brand. He may also not associate any qualities or values to the brand. This is type of awareness is better than having no awareness at all. Customers tend to purchase things that they are familiar with and so a brand they recognise will always have a preference over a brand that they have never seen before. However this type of awareness is lower in importance to a brand recall. Recall: In a brand recall the customer associates a product category to a particular brand. So Head and Shoulders may be recalled while purchasing an anti dandruff shampoo by a customer. Recall is important as it has direct impact on purchase behaviour because if at the time of requirement the customer does not recall the brand he is not likely to purchase it. As the customer becomes more familiar with the brand and recognises more and more his recall of the brand increases. A relationship between the recognition and recall showing a graveyard model was developed Young and Rubicam Europe under the guidance of Jim Williams
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In this model brands in a product class are plotted on recognition versus recall graph. If we measure the recall and recognition of several brands of a product class and these measurements are used to position each brand on the graph. One consistent finding we will find across most product classes is that brands tend to follow the curved line shown in the figure, with two important exceptions. The first exception is the niche brands, where the brand has relatively little overall recognition among the mass of consumers, but has very high recall among the loyal group of key users. In this case the low recognition is not indicative of poor performance. A healthy niche player can sometimes expand its recognition and thus their customer base. These niche brands can make higher profits than some very well recognised customer brands. The second exception the graveyard, this is in the upper left hand corner of the graph. Brands that lie in this area have high recognition but a low recall. Customers know about these brands but do not recall them at the time of purchase. This model gives us several indicators firstly a high recognition is by itself not the mark of a strong brand. This makes the decision making tougher for the marketer for him the problem arises because if the customers feel they know enough about the brand they may not have enough interest to listen to any new information the about brand the marketer may want to tell them. The Graveyard model also allow the marketer to analyse when brands are slipping into the graveyard (slipping market share and sales) since it needs immediate action.

Fig: Graveyard Model

Creating Brand awareness is not an easy task considering the fact that todays media is extremely fragmented and is becoming even more fragmented as companies look for positions that they can hold onto uniquely. Ultimately fragmenting the markets further. If we take a look at the markets about 30 or 40 years ago in India we had only one TV channel Doordarshan and one radio channel AIR and a limited
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number of newspapers and magazines. It was easy for the advertiser to insert an advertisement and be sure that it would be read by a large percent in his target segment. Here he spent less money and ensures a viewership of his ads. Today we have over 100 TV channels and radio stations. The number of newspapers and magazines has exploded each covering a specialised segment. In TV even within news we have several channels, so in entertainment, movies, etc. etc. Now is an advertiser wants to advertise he is not sure of the channels he must advertise in and also needs to spend much larger sums of money in order to be seen and heard. Hence companies tend to use existing brands and leverage them to launch new products. The limitations are that as long as the company remains in the same product category it is not a problem but any additions become a problem. If we see what HP has done in printers from HP printers when it changed technology they called them HP bubble jet, inkjet etc. but when it added a scanner to its printer instead of launching a new brand it called it HP Scan Jet. But when a copier, scanner and printer were combined all into ne it called it an HP Office Jet. This helped in maintaining a high level of brand awareness. 1.2. Perception about Brands Quality Perceptions of a Brands quality have a very strong linkage with Brand Awareness. A good quality is something that a customer always desires and if he associates a brand for this it will give the brand a strong thrust in increasing its sales. An improvement in quality is usually a strong business thrust of any organisation and is one that remains on a path of continual improvement. However for a brand to be able to substantiate its claims about quality a company has to make sure that quality is inbuilt into the products. In order to do this the company has to understand what the customer perceives as quality since it is only then they can understand what they must build in. This is complicated by the fact that The company may work on those aspects of the quality that customer does not value and so it has no impact on his perception of quality of the brand in his mind. So if a car company improves quality of the base coating technique for its paint shop it will improve quality of the product but it is not likely to have any impact on customers perception of the quality of the brand. the the the the the

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Customers make most decisions on an emotional platform when it comes to buying products. Their choices and decisions on quality are not necessarily rational. This is partly because he has neither time nor the complete information to undertake a rational analysis of a product. Secondly he is influenced by other factors such as opinion of friends and relatives, instances in the markets, his own personality in making these decisions. Lastly his perception of quality may be affected by his own previous experiences or negative reputation of the product since it is not easy to remove these perceptions from the customers mind. For example a In 2010 Toyota recalled several million vehicles because of faulty accelerator pedals that may cause runaway acceleration and faulty software that may cause braking to be delayed; In October 2009 October - some Acer Aspire laptops were recalled for overheating problems; In June 2006 Cadbury-Schweppes announced that there has been a salmonella scare in their products, causing millions of chocolate bars from stores across Ireland and the UK to be recalled.

1.3. Customers Loyalty for the Brand The higher the brand equity the higher the brand loyalty and similarly the higher the brand loyalty the higher is the brand equity. Hence maintaining customer loyalty is an extremely important aspect of continued brand equity. Brand loyalty helps a brand by Ensuring that the customers continue to buy its products despite the competitions efforts. The value of a loyal customer is not only from the point of view of the current product buy but translates into the Lifetime Value of a Customer. This means the total value of products that a loyal customer will buy from the company over his lifetime. When we see the loyal customer in this light we can see the significant loss we have in losing a customer. In addition it is much cheaper to retain a customer than to break a competitors customer. Hence money required to maintain a loyal customer base is lesser and gives a life time value. Since it is much more expensive to break a competitors customer it provides the company an entry barrier from competition in entering the same product segment.
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So if we look at a complete customer segment we can break into the following types of customers: Non customers they are not customers of the company. Price switchers they will change their brand if price is changed Passively loyal they buy the companys product because they are used to it and not because they have evaluated it. Fence sitters those customers who tend to buy whatever brand they find first. They are not fussy about the brand they use once they know that the difference between the brands is not significant. Committed those who are committed to the brand and will forgo their purchase if they do not find the brand of their choice.

Out of these types of customers if the company can make sure that the price switchers, passively loyal and fence sitters consistently buy their product it can make a great difference to their sales and brand equity. The company should however ensure that they do not forget their committed customers since losing even one of them is an expensive proposition. In order to maintain brand loyalty companies indulge in several activities like customer clubs, frequent flyer programs, database marketing (sending information about benefits to specified customers selected from their customer list based on their profiles)

1.4. Customers association with the brand Ultimately brand equity is created by the associations/ experiences the customer has with the brand. This associations may be his/ or his kwon persons use of the product, his experience in a company retail outlet, or the interaction with the company on some quality or other issue. This desire of the company to create the right brand associations drives their choice of brand ambassador. That is why we see that sometimes when a brand gets involved in some wrong activities companies tend to change the brand ambassador since the negative effects rub off onto the product.

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2. Why Companies find it difficult to create or maintain a brand Brand building has become a complicated and complex task. Whether it is existing companies or new ones the tasks of creating or maintaining a brand is difficult. There are many reasons for this and some of them are Pressure to compete on price Customers always like to get their value of money. When two similar brands offer their products one of the first things the customers compare is the price. A higher priced product is less likely to have a trial as compared to a low priced product. In addition the sales channels pressure on the company when asked to increase sales is for a reduction in prices and an increase in advertising and promotion. However once the company reduces prices its gross margins go down and so the amounts available for advertising and promotion is lesser. Building brands is a long term activity in which returns do not come in the same year. Thus business requirements of immediate sales outweigh over long term benefit from brand building. Increase in competitors Newer companies enter the market they need to find positions that are unique and so markets tend to get more and more segmented with a larger number of competitors. As competitors increase the choice for a customer also increases. Each competitors product is not much different from the each other. Hence creating a unique selling proposition in the customers mind becomes all the more difficult and expensive. Fragmentation of Markets and media about three or four decades ago we had only one TV channel (Doordarshan) and only one Radio station (All India Radio) in addition the number of magazines and newspapers were limited. Any advertisement released in say Doordarshan was potentially seen by the whole target segment. Today we have over 120 TV channels and a large number of Radio channels, magazines and newspapers. Even within the TV channels we have many channels on entertainment, news, sports, cartoons, etc. A customer who earlier had no choice but the see the channel now switches channels as soon as an advertisement appears. Hence for companies to make their presence felt they must send a lot of money over several channels and yet they will not be sure that the complete target segment is seeing them. This makes brnad building very expensive and difficult. Complex brand relationships and strategies Since brand building is difficult companies try to leverage existing brands and create sub brands under a mega brand. For example if we see Nescafe under this brand the company has launched Gold, Classic, Cappuccino, Espresso,
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Tasters Choice, etc. This causes strategies in brand building to become more complicated as different products will have a larger customer preference in some markets and others in other market. Sometimes building one sub brand may eat into the sales of the other sub brands. This is a complicated matrix which has no simple solution. Bias towards changing strategies As a product goes through its life cycle it is handled by different people at different points of time (simply because people come and go within an organisation). Each person who comes in new would like to do something new so as to enhance the brand equity just because he has come in freshly and must show his worth. Also managers are under pressure from the top management, sales team and the channel partners to do something new. If the same advertisement or concept is carried forwards they are not happy. This is not necessarily good for the brand. Since a changed position again needs money to be spent and also some existing customers leaving the brand with no certainty of new customers coming onto the brand bandwagon. Bias against innovation This just the opposite of the above point where the company does not like to change anything about the brand because it has been performing so well in the past. They do not look at the changed market realities and are likely to fall prey to a aggressive competitor. Pressure to invest elsewhere once strong brands are established companies begin to feel that they do not have to spend money on them in order to maintain it. They tend to take the money needed for promotion and invest it in other areas. If we take the example of Xerox they had at one point of time the best technology, almost 100 percent market share, very good distributors but once the brand was established they invested the money needed for innovation and promotion into another product category furniture. Since they did not undertake innovation in some years companies like cannon entered the markets with better technology and cheaper products. This completely wiped out the brand.

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Short term Pressures Brand building is a long term activity and needs a vision and resources. However resources are always in short supply and so immediate requirements tend to take precedence over brand building.

3. Measuring and Protecting Brand Equity Measuring the brand equity is not an easy process because it can be represented by different factors in different industries and different companies. It can be represented best by market share or customer satisfaction or consumer service, etc. However the right measure of the brand equity can help marketers understand if they are heading in the right direction because a falling equity is negative while a growing equity is positive. Many times the brand equity vs profit relationship may not work together i.e. profits may not rise even though the brand equity is rising and vice versa. A rising brand equity will definitely lead to increased profits in the future. Thus if a marketer can find the right method of measuring his brand equity he will be able to see if the brand is doing fine or is likely to be in trouble and thus take the appropriate action of pushing ahead or taking corrective measures. However just because a brand is well known it does not have a strong or growing brand equity. Sometimes a wrong handling of the brand can weaken a strong brand. If a brand loses its position in the customers mind the differentiation is lost and the product becomes like any other unbranded product and can then sell only on the basis of price rather than value. Customer finds no value in remaining loyal and so market share of the product decreases. This has a significant impact on the profitability of the brand. Thus any decisions regarding the brand must be taken in keeping with the companys understanding on how it will impact the customers perception of the brand and its attributes. This is the brand equity. Measurement There are many ways to measure a brand. Some measurements are financial in nature while others approaches are more emotional based on awareness and recall. Organisational Level: At the organisational level the brand as a financial asset. Here measurement of the brand value is treated as an intangible asset of the company. Here the brand value is calculated by taking the market capitalisation and subtracting form this the tangible assets of the company. The residual value will be the brand equity of the company. An international company Interbrand calculates the value by discounting projected profits to a present value. The discounting rate is a subjective rate which is determined by the company in consultation with other market specialists and reflects the risk profile, market leadership, stability and global reach of the brand.
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Product Level: At the product level brand measurement is undertaken by comparing the price of an unbranded or private label product to an "equivalent" branded product. The difference in price, assuming all things equal, is due to the brand. Consumer Level: At the consumer level the effort is to map the mind of the consumer to find out what associations with the brand the consumer has. This approach measures the awareness (recall and recognition) and brand image (the overall associations that the brand has). Free association tests and projective techniques are commonly used to uncover the tangible and intangible attributes, attitudes, and intentions about a brand. Brands with high levels of awareness and strong, favourable and unique associations are high equity brands. All of these calculations are, at best, approximations. A more complete understanding of the brand can occur if multiple measures are used. The measurements at the consumer levels are those that are most relevant to the marketer for promoting his product and brand. It also helps him keep in focus if his efforts are being done in the right direction because if the customers perceptions are going down or if the brand equity is getting eroded the marketer must sit up and evaluate what he is doing wrong.

4. Building Brand Equity Since Brand equity depends on consumers perceptions any activity that enhances the perception of the customer will enhance Brand Equity. Since perceptions depend on relationships and experience a company has to build strong relationships with its customers based on positive experiences. A customer will choose a brand over its competitors based on his or her perception of the brand and may even be willing to pay a higher price based on his perception that the brand is providing value for his money. The lifetime value of a customer will be huge for a brand if it is able to maintain the perception with the customer that it is providing value. In order to maintain the customers loyalty the company has to make sure that the product or brand continues to provide him with the benefits associated with the brand. Hence if the company has to benefit from the relationship between the brand and the customer it has to continuously work towards building a relationship or loyalty towards the brand. This relationship or loyalty will be established with the company only if the customer recognises the companys band, tries the product and then feels satisfied that the product is actually delivering what he expects from the brand. This cycle of awareness trial and satisfaction gradually leads to a brand name and positive perception linkage between product and customer and is the key to relationship building.
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However in order to commence the process for a positive perception building the company has to start from the definition of what attributes the company wants to project itself to the customers. Once defined the company must make sure that all its activities are focussed towards this definition form product offering, to advertising and promotion to customer support to manpower orientation. When all of this works in one unison to provide support of the defined objective the company will be able to achieve a strong brand equity. 40. As we have seen earlier the brand is much more than a product. The definition of the product is limited by its scope, attributes, uses etc. However the brand has many more attributes linked to it eg emotional benefits, imagery, symbols, country of origin.

Fig: 8.1 A brand is much more than the product

So how does a company build up its brand equity what part of the brand should they use in order to build this brand equity. In order to understand this let us see how we define a brand. David Aaker defines the brand identity as a unique set of brand associations that the brand desires to create or maintain. These associations represent what the brand stands for and imply a promise to the customers from the organisation. A brands identity has many aspects which give a brand its look and feel and its texture. A brand identity has many individual elements but the whole is equally important. Let us take the example of an individual his identity is not only in his name or physical appearance or his behaviour or his intelligence. Though each is in a way defining his identity but it is the combination of the whole that completes his identity. In addition just as the individual has certain physical aspects that are clearly visible, he also has some aspects that are emotional those that are not visible but only felt. Similarly in a brands identity there are elements that are visible and some emotional benefits that are not explicit but only felt. This identity of the brand usually remains constant throughout the life of the brand unless some very compelling reasons require a change. Companies document this identity so that successive managers do not interpret the identity form their own perspectives and make fine changes which over a period of time make significant cumulative changes to the entire brands identity. The brand identity is the guiding parameter that helps companies stay focused on the right path through its life while brand building. Let us examine the identity of McDonalds. At the centre of this identity are the central values of the brand. Values in the central part of the identity are usually the softer values that is those that cannot be touched and can be felt.
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Core Identity A. Value Offering: a. Value for money b. Product c. Buying experience given the price B. Food Quality a. Always hot, b. Good tasting c. Consistent across the world C. Service a. Fast, Accurate, Friendly, Hassle free D. Cleanliness a. Clean on both sides of the counter E. Users a. Family and Kids are focussed but serve a wide clientele Around these central are values that provide the texture to the brand and have the more physical aspects of the brand. These aspects are more easily communicated or are more easily combined to create the communication to express the central aspects of the brand or communicate the Unique Selling Propositions. Extended Identity A. Convenience a. Quick service b. Close location B. Product Scope a. Fast food, Children's entertainment C. Sub Brands a. Big Mac, Happy meals,
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D. Brand Personality a. Family Oriented, genuine, wholesome, cheerful, fun E. Logo a. Golden Arches F. Character a. Ronald McDonald, McDonald toys and dolls G. Functional Benefits a. Good Tasting hamburgers, fries and drinks that provide value b. Extras like playgrounds, prizes, games, etc H. Emotional Benefits a. Kids fun Birthday parties, relationship with Ronald McDonald b. Feeling of special family times c. Link to family events and experiences reinforced by emotional advertising

Using the Brand Identity a brand manager will define the brand position to use in brand building. The brand position can be changed without affecting the brand identity. Aaker defines brand position as Brand position is the part of the brand identity and value proposition that is to be actively communicated to the target audience and that demonstrates an advantage over competing brands. Now as we see there are four important aspects of the brand position that are to help build brand equity. Part of brand identity Actively communicated Target Audience Demonstrated an advantage over competing brands

First of all we have to decide which part of the brand identity we have to communicate to the consumers. This is important as all aspects of the brand
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identity are not such that can easily be communicated and also all parts of the identity if communicated may not be understood by the consumer. Hence in order to build brand equity we need to look at the brand identity and identify an important part of it that will be used in communicating the message to the customer. The brand identity has several aspects of the brand that can be effectively used. If we see the brand identity of McDonalds the identity has the fact that food is always served hot, has a good taste and is consistent across the world. However these aspects are not easy to communicate in any communication. These can be experienced by the customer when he visits McDonalds. This experience he will carry with him and will help strengthen the long term bond. However the fact that it is for family and kids birthdays, family events, relationship with Ronald McDonald are easy to communicate and have an emotional appeal. A low cost is another customer benefit that can easily be communicated. Thus the part being communicated must have a value for the customer, while being able to build a bond with the customer in the form of a long term relationship and value for him.

Once we have decided what to communicate we have to make sure that this is actively communicated. Meaning that this has to become a part of every communication of the company whether it is an advertisement or a pamphlet or a catalog or any other form of communication in the company or retail outlet. The part of the brand identity that is being actively communicated must be designed for and directed towards the target audience. Any communication must take into account the nature of the target audience so that the communication can be designed in such a manner that the information being communicated reaches the targeted audience without distorting the message. The brand position that the company wants to create ultimately leads to the creation of brand equity in the customers. Hence in order to see that the communication is effective the company must measure the extent of equity created by the communication as a measure of its effectiveness. The brand position must target a part of the brands target audience and communication must be directed to them. McDonalds communicates to children or to the family. However their target segment is not limited to them. The part of the customer segment they are communicating with are the primary segment however the others young adults, and individuals form the
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secondary segment. Communication when it is being designed must ensure that the secondary segment is not offended by it. The brand position must be such that it is able to demonstrate an advantage over its competitors to its consumers. This advantage must resonate with the customers and they should feel the value of it. In the case of McDonalds of they communicate that they have a family restaurant that has a special treat for children and is value for money.

Brands that become strongly embedded in the customers mind are those that communicate in a manner that provides a cohesive and interpretable grouping of the brands core values. If we take the McDonalds brand the brand has three basic building blocks around which the brand offerings are structured. Firstly Value offering, secondly the service and thirdly the users. Each of these three fit into each other in a complimentary manner. And each part is meaningful on its own. And yet the collective has an equal relevance.

5. Summary Brand Equity is the perception of the brand and its values in the customers mind. It is affected by the awareness of the brand, perception of its quality, customers loyalty to the brand and his association with the brand. The brand equity can be measured in financial terms for a brand and an organisation but it is measure of the customers perception that is the most helpful in creating the brand. Brand equity can be measured in several ways at the organisational, product or consumer level. However from the marketing point of view it is the brand equity at the consumer level that is most important. By monitoring this a brand manager can determine if the brand is heading in the right direction. SO if the activities that the brand manager is doig to promote the brand are leading to the increase in brand equity he can be sure that in the long term it is good for the brand and the product. However if the brand equity in the consumers mind is going down then there is something for him to worry because a dropping brand equity is sooner than later going to show in drop in sales and profits for the product and brand. The process of creating the brand equity begins from the definition of the brands identity. This identity has many elements and textures that can be used for brand building. Using this identity the brand manager creates the brand
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position with the USP focussed for the target segment to which it is actively communicated. This brand positions communication is regularly monitored to see if it is creating the right brand equity so as to reinforce the communication or to fine tune it as required. However in todays competitive scenario companies find it difficult to maintain brand equity because of pressures of today for performance and profit need to be balanced with the needs and investments of the future. All this is further complicated because of the fragmentation of the media. However a systematic approach in creating the brand equity can be done by creating a well documented brand identity and then using it in a systematic and consistent manner to build the brand and consequently brand equity.

6. Your learning 1. What is brand equity? Why is it important for the Brand? 2. What is the Graveyard Model? How does it help? 3. What is a Niche segment? Does branding help in a Niche segment?

7. Key Words 1. Niche - A niche market or brand is a focused, targetable portion of a market or brand. A business that focuses on a niche market is addressing a need for a product or service that is not being addressed by most providers. You can think of a niche market as a narrowly defined group of potential customers. For example, instead of offering cleaning services, a business might establish a niche market by specializing in office complex window cleaning services. 2. Graveyard This is the place where people are buried after they die. So when a brand reaches the graveyard it is dead the customers do not bother about it anymore. 3. Substantiate to support with proof or evidence. To verify. To establish as genuine or real. 4. Perceives as quality - To understand as quality of; To become aware of the quality directly through any of the senses, especially sight or hearing.
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5. Aspects A way in which we can look at a problem, idea, situation. 6. Immediate sales outweigh Immediate sales become more important than other considerations. Sales get the maximum weightage in all decision making.

7. Fragmentation Broken up in small parts. So when the media fragments it has broken up into many additional channels and magazines each of which occupies a small part of the market.

8. Exercises 1. Why is the brand larger than the product? What does the brand have in addition to the product? 2. Is only the media fragmented or is it the market that is fragmented or are both fragmented? How does this affect brand development? 3. Why is it so difficult to create a brand? Which in your opinion s the most difficult part of this and why? 4. What is the difference between brand identity and brand position?

1. 2. 3. 4.

9. Further Reading Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice Hall of India, page 405-407 Evans, Joel R and Berman, Barry (2007) Marketing Management, New Delhi, India, Cengage Learning, Page 42, 303-304 Lehmann, Donald R and Winer, Russel S, (2005) Product Management, New Delhi, India, Tata McGraw-Hill Page 241-249 Saxena, Rajan (2009) Marketing Management, New Delhi, India, Tata McGraw Hill Education Pvt. Ltd Page 278-283

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41. 42.

UNIT XI PACKAGING DECISIONS

Learning Objectives The importance of Packaging The various types of packaging How to decide about packaging

Structure 1. 2. 3. Packaging Objectives of Packaging Types of Packaging 3.1. By function 3.2. By type 4. Packaging Design Considerations 5. Symbols used on packages 6. Future of Packaging 7. Summary 8. Your learning 9. Key Words 10. Exercises 11. Further Reading

1. Packaging Packaging is the science and technology of protecting products for distribution, storage, sale, and use by the end consumer. Packaging also refers to the process of design, evaluation, and production of packages. Packaging can be described as a coordinated system of preparing goods for transport, warehousing, logistics, sale, and end use. Packaging contains, protects, preserves, transports, informs, and sells.

2. Objectives of Packaging There are several objectives of packaging. Each type has a function to perform sometimes one type of packaging may perform more than one objective. Let us see the various types of packaging:
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i. To provide an impermeable protective barrier around the product. This type of packing is needed for items that would get spoilt or contaminated by the surrounding atmosphere for example food items, medicines, sanitised items, etc. This type of packaging is useful in some food items as it allows us to fill the contained with specialised gasses that help in extending the life of the product. ii. Many times we need packaging that can protect the product from physical damage because of transportation, or environment. So let us say when we transport a refrigerator from the factory to the retailer and then to the customer we do not want the refrigerator to get scratched, or dented before it reaches the end user. Her we want a packing that will make sure that the packaging protects it from shocks, damages due to handling, ease of handling (so that the delicate parts like door handle are not used for lifting or unloading the refrigerator.) iii. Packaging is also used to transmit information from the company to the customer. It contains basic information about the brand name, model name, quantity, price, how to transport, which side to keep up, whether it is fragile or not, and statutory information like price, net weight, gross weight, and for food products and medicines expiry dates, etc. iv. It is also used to bulk pack several small items to ensure ease of handling and transportation. Let us say a strip of medicine contains 10 tablets. If we handle each such strip individually it will be very difficult to handle all. So what is done is to bulk pack 10 or 20 such strips of 10 tablets each into a small box. Several such boxes go into a larger box which is then used for transportation. Here the initial box where we have put the 10 or 20 strips is performing the job of holding/ containing a certain minimum together. v. Packaging also has an important marketing function. The surface of the packaging is an excellent place to put marketing communication as it will not only inform the customer but also attract him. Companies constantly strive to put interesting and new communication on the packaging as it is not only cost effective but also serves to attract and satisfy the customer. vi. Like containment that allows the manufacturer to easily handle the material another important reason is to make a packaging such that the product is easy to move through the distribution channel right
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upto the customer. So if we take the case of a desk top computer it is packaged in a nicely rectangular boxes while the actual computer has several items like the keyboard, mouse, tower and the monitor each of which is of irregular shape. But a good packaging design allows several irregularly shaped items to be packed in such a manner that it can be easily stacked during transport, storage, at the distribution and retail points and be safely opened an resealed if required. vii. We can also have tamper proof packaging so that when the consumer gets the package he understands that no one else has used a part of the product before he has been able to do so. We can see that under a bottle cap like Pepsi, Coke, Bisleri we have a plastic ring that is attached with the cover. Once the bottle has been opened it detaches and cannot be attached again. Hence anyone buying the bottle can assure himself that the bottle has not been opened before.

3. Types of packaging There are two ways in which we can classify packaging. It can be classified either by the type of packaging or by the function the packaging performs. 3.1.

By function

Packaging types can be classified from the function they perform starting from the first layer Primary packaging This is the first layer of packaging over the product. If we take the example of the medicine strip the covering over the medicine is the primary packaging. Similarly if we take the example of a desk top computer the first covering over the keyboard or mouse is the primary packaging. Secondary packaging This is the packaging that is outside the primary packaging. In the case of the medicine strip it is the box that collates the 10 or 20 strips and in the case of the desktop computer it is the cardboard carton that is the secondary packaging. Tertiary Packaging This is the packaging that is usually used for bulk transport. In the case of the medicine strip several boxes each containing 10 or 20 strips will be packed in a larger carton and then shipped to the destination usually a wholesaler who will then take out the smaller boxes and send them to the retailers. In the case of the desktop no additional packing layer will be added but these cartons will be stacked onto a palette and shrink wrapped. Shrink wrapping is a process by which a polymer film is wrapped on certain set of products. This is then heated to a low temperature and the film tightens on
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the contents and holds them tightly. We nowadays see several soda bottles or coke cans wrapped together like this. 3.2. By Type

Another way to identify packaging types is to classify them by their type: Blister packaging it has a preformed shape that is open from one side and is used to contain the product. The other side is flat and is used to seal it so that product cannot come out unless desired. Typically used for small products like medicines, small consumer electronics like pen drives, etc, Skin packaging Skin forming is a form of visual carded display packaging that tightly locks the product to the bottom board by using a at formed film that virtually sticks to the contours of the product. This type of packaging can be done for small and medium products. The difference between skin and blister packing is that in the latter case we have to get the blister pre-shaped for a product which can be done only if there is a certain minimum volume. While in the case of the skin packaging it can be done for any shape as long as the film width is adequate for covering the product. This type of packaging is done for auto parts, arts and crafts, ceramics, glass, food stuff, etc. Vacuum packing This type of packing is used in areas where we do not want air to interact with the product and spoil it. Hence it is usually used for storing and preserving food. IN this type of packing after the vacuum is created another gas is added to modify the atmosphere to increase the shelf life of the product. Box packing This type of packing is used as an outer or consolidation packing system. This type of box is usually made of a thin but stiff paper that is strong enough to hold the product but not strong enough for transportation. This type of packaging we see on display on retail counters and has the branding of the product including all the retail and Govt. mandated information. This type of packing has two functions: It helps in making small units handlable for example if we want to sell thread or medicine since these items are small first of all we need to consolidate them so that we do not have to handle too many pieces it so as we saw above we put 10 or 20 medicine strips into a box. It makes products of irregular shape into regular shapes that can be further packed or handled in transportation and storage. Let us take the example of a toothpaste tube it has an irregular shape and is difficult to store, handle or transport by itself. So we put it in a box that allows it to be stored, transported and easily displayed on retail shelves.
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Carton packing This type of packing is strong and has the ability to withstand impact. This type of packing allows the damage free movement of goods from the manufacturer to the retailer. This type of packing is usually the outer most layer of packing for most products. Though for some products it is also used for internal packing and retail display. When it is used as an outer layer it is generally used for transportation. This packing can be made in different thicknesses and strengths which can be described a ply. So we can have a 5ply or a 7 ply carton and a 7 ply carton being stronger than a 5 ply. Sometimes we make a 3 ply carton also but this is used for internal packing or retail display. This type of packing is used for internal packing because it has some amount of cushioning effect because of its construction and can bear vibration and impact during handling and transportation. It is especially useful for fragile items like glass, crockery, decorative items, etc. Also because of its construction it has strength which allows a 3 ply carton using what we call micro fluting to be used for making open cut out packing that we typically see for say a toy which we can see through a window. The need to use this type of packing is because when you put a transparent window the overall strength of the box comes down and so a 3 ply carton provides the additional strength needed by the box. Metallised film packaging is a relatively recent innovation where a polymer film is laminated with an aluminium layer. This metallised film has excellent properties of being tough, reducing permeability to air, water and light. Hence it used to pack food and also for speciality applications including insulation and electronics sometimes also used for decorative purposes. This type of packing provides a glossy metallic appearance of an aluminium foil and has a low cost and weight. This film can easily be printed and hence becomes an ideal packing medium. We see this packing being used extensively on food items like chips, snacks, etc where it to only provides the flexibility of packing irregularly shaped items but at the time of packing some gas is also filled into the packing. This gas is an inert gas that prevents the food item coming into contact with air or water so that its shelf life is enhanced. In addition this gas serves another purpose it prevents the chips or any other items in the packing from getting crushed during handling and transportation. Bottle packing is used to pack liquids. This is the simplest form of packing for liquids and it serves the additional purpose of being the product dispenser. Traditionally bottles used to be of glass only but with the availability of low cost
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impact resistant plastics plastic bottles have made a huge inroads into this category. The use of plastic bottles reduces breakages during transportation and handling not only be the company but also be the consumer. Plastics however increase the environmental problems because of the non biodegradable nature of plastics. Cans Cans were an extensively used mechanism for packing products in the early part of the industrial development especially for foodstuff. These cans were tough, did not allow air, water and light ingress. They were extensively used for food packing. However at that time because of the technology their shelf life was not very long. In addition cans needed a can opener to open them. Today the technology has improved significantly improving the shelf life of these cans in addition technology has provided a mechanism of allowing a consumer to open these cans without a can opener. Because of the improvement in material that have become lighter, stronger and cheaper it has now become possible to use these cans for aerated drinks also. Palletising This is a form of packing that is used to aggregate packets into a bulk form in such a manner that it becomes possible to use a forklift, palette jack, front loader or any other device to lift, move and store the products. A palette is a flat structure with feet in rows which allow a fork lilts fork enough space to enter. It is made of wood, plastic or metal. The material used for the palette depends on the product that will be loaded onto the palette. Many times palettes are also used for storage of material in large warehouses. In order to pack material onto a palette the material is stacked on the palette and this material is then secures with straps, stretch film or shrink wrapping. Refrigerators when they are transported from the factory they are put on a palette and bolted onto it from the bottom. The cardboard carton of the refrigerator covers it from the top and then all this is strapped onto the palette so that it is further secured on it. Similarly when we export say garments the garments are packed into cartons. These cartons are stacked on the palette. This is then secured on the palette using stretch film which is stretched and wrapped around the boxes and palette. This film tightens itself on the boxes and does not allow them to fall or move. The whole palette is then moved using a forklift or other similar devices.

Each of the above types of packaging has wide applications and cost implications and so we must choose wisely which packaging is most suited to the product.

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4. Packaging Design Considerations Packaging design and development is usually done at the time of product development since it helps in the comprehensive development of the product and understanding of all costs and issues related to the products performance in the market. i. Packaging design begins by understanding the requirements of the product to be packed and identify requirements related to: Marketing The marketing requirements of the product must be met. If the new product is from an existing family of products then its packaging cannot be significantly different from the earlier products otherwise the customer may not recognise it. Product display Depending on the product type the product needs to be displayed at the retail counter. Now the retail counter is of standard shapes and sizes and hence must be designed in a manner it is easy and yet prominent at the display. The product packing must be able to display the brand and the marketing message clearly to the customer. Ensuring quality of delivery packing must be developed in a manner that ensure that the product is delivered from manufacture to the customer in a safe manner that is free from any form of damage minor or major. We know that during the products transit fro the manufacturing unit to the end consumer the product will be handled several times. The people handling the product will not always take the best care and so the product must be packed so that despite these glitches it reaches the customer safely. Transportation during transportation the product has to be loaded and unloaded onto transport and moved to and from the warehouse. Now depending on the product and its size and weight we may need the use of specialised equipment to handle the product. The packaging must therefore be designed in such a manner that equipment needed to handle the product has the necessary tackles and handles. Let us take the example of a heavy machine that needs to be packed. Once this machine is packed it needs to be lifted for this the packing design must provide that it is either put on a palette so that it can be moved by a forklift or it must provide for a hook at some place that will allow a crane to lift the
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machine and move it. If these things are not thought of at the design stage it will not be possible to move the machine later. Govt. Regulatory requirements These are some of the mandatory requirements that every manufacturer has to display on the product. These have been mandated by the government so as to inform and protect the consumer so that the manufacturer or the retailer does not take unfair advantage of the consumer. These are things like Price, Net Weight, Gross weight, composition of contents, expiry date, storage conditions, health hazards, etc. Any packaging design must ensure that there is adequate space on it to display all such mandatory information. In addition Govt. also lays down parameters in terms of what type of packaging is suitable for what types of product especially food. Shelf life is the length of time that food, drink, medicine and other perishable items are given before they are considered unsuitable for sale or consumption. In some products, a best before, use by or freshness date is required on packaged perishable foods. Since it is not always possible that the customer will buy the product it becomes important that the packaging assist in extending the shelf life of the product. As we have see above there are several ways to do this and depending on the product and the use we must design the packaging accordingly. End use the end use of the product is important while designing packaging. For example if we are designing a packaging for a shampoo we know that this will be used while having a bath where there will be water and so a chance of slipping from the hand. Hence while designing we need to identify an packing material that will not break on falling down, in addition we must make sure that it is easy to hold and take out the shampoo even if it is slippery thus defining its shape and texture. Environmental issues Environmental concerns are growing by the day. We now know that we are living in a finite environment and we cannot undertake infinite pollution. As it is over the last 100

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years man has severely harmed the environment to the point that our air, water and soil have become full of pollution. A metallised film, or a plastic container, or a blister pack are such materials that do not degrade on their own and cause environmental problems. Marketers and business heads are now more than ever concerned and are being held accountable for the companys impact on environment. Hence at the design stage we need to evolve packing materials that will serve our business needs of shelf life, handling, transportation while at the same time being environmentally friendly. In many countries internationally companies contribute a part of the cost of the product towards systems that allow the company to bring back products that are non bio-degradable back into the manufacturing recycling system and do not pollute the environment. One such system is the Green Dot which the license symbol of a European network of industryfunded systems for recycling the packaging materials of consumer goods. The logo is trademark protected worldwide. ii. The design made for the product must meet the performance criteria Any packing design must be able to meet the performance desired from it. If we look at the shampoo example we know that the shampoo bottle has to be opened and closed several times before it becomes empty. Now the bottle cap that is designed in such a way that it will remain intact and will not break away from the bottle. Similarly the bottle must also be strong enough to last its life. If we take the example of a laptop now the laptop is a sensitive piece of equipment and cannot withstand rough handling hence its packaging must ensure that the lap top is adequately protected from all sided from impact etc. However if the packaging does not perform to its performance criteria the lap top will get damaged during transit. iii. The design must meet the time targets Any development takes time from concept to completion. However since we have a product to launch it is imperative that the product packaging is released on time. The product development team must freeze the time target with the team developing the packaging as any other milestone in the product development and this must be adhered to.
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iv. The resources available and the cost targets must also be met In business for any activity resources are limited and so is the case for the development of the product. The company must ensure that packaging is developed using the resources available with the company or those that the company can get for itself. However having said this the packing being designed also has a cost target. This means that the designed packing cannot cost more than a specified amount otherwise the product will become unviable in the market. This cost limit is also specified by the product development team at the start of the project.

5. Symbols used on packages Symbols are used as a universal language. It allows people to understand its meaning even without knowing the language of the place of origin of the product. It also allows for recognition from a distance and can be put on packages of different sizes conveniently. Below are a number of symbols often seen on packaging. Each has a specific meaning. The symbols are normally very simple and easy to understand.

This symbol reminds those handling the package to keep out of the rain and not to store it in damp conditions. It is normally found on cardboard based packages which would be damaged if placed in contact with water.

The broken wine glass suggests that the product inside the packaging could be easily damaged if dropped or handled without care and attention. The contents are fragile

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The two hands holding or protecting the package is another reminder that the contents should be handled with care.

This is to show that the package that it must be stored the correct way up. The arrows point towards the top of the package.

The symbol showing the thermometer is found mainly on packages containing food and drink. The symbol tells us that the contents should be stored at a temperature between the two temperatures mentioned (10 and 20 degrees (centigrade) in this case). Below are a number of symbols often seen on packaging. Each has a specific meaning. The symbols are normally very simple and easy to understand.

POLYTHENE TEREPHTHALATE (PET) is a material widely used for packaging, especially drinks containers. The symbol is used to remind the consumer that it is 90% recyclable so that he may discard it in the recyclable materials bin.

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These are internationally recognisable symbols for recycling and are used on many packages. It is used to remind the customer that the material with this sign must be discarded in the recycling bin and not general waste bin.

This symbol is also for a recyclable material. However, the letters alu mean aluminium. Thus helping disposal in the appropriate manner. Cold drinks cans are usually manufactured from aluminium and may have this symbol.

These symbols say that the product carrying this symbol has been tested to British and European safety standards. These symbols that are usually applied to non-food products such as electronic
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products or toys. However, they may still be applied to the packaging to indicate that the package itself is safe

This symbol represents the centre of gravity of a heavy substance

This symbol represents that the product must be kept dry

This symbol is used to denote that the product is heavy and must not be lifted. In many countries law provides that nobody should lift by hand any load more than a certain weight. This is 25 Kg for EU.

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6. Future of Packaging The packaging industry is very dynamic and has undergone a great deal of change because of the changing world around it. Laws and regulations, new products, the globalization of technologies, and a general increase in competitiveness have accelerated in the last 10 years, and there are greater concerns with health and reliability issues. However since the packing industry is a large one with each player working in a small area of the whole industry they usually do not take a holistic view of the problems or the possibilities of the industry. There's a need for a more comprehensive and integrated view for the packaging industry to plan on a more informed and inclusive basis. The following areas are where the impact of packaging is going to play an important role in the near future: Environment: Environment has played a large role for several decades and continues to do so on packaging for example, the current availability of bottled water is producing 1.5 million tons of plastic waste each year. In many parts of the country, the most visible kind of trash on the street is plastic water bottles. This is creating a large environmental problem and if the industry doesn't start resolving the environmental concerns it will cause a catastrophe. Also, the different types of plastics are becoming a virtual nuisance in society and are affecting the ground, ground water, and river water of the country. While we try to deal with the situation, the waste heaps continue to grow larger. Something will have to be done to clean them up. Globalization: As companies go global the challenges for packaging become much more complex. This is partially due to the fact that different countries have different legal requirements and different connotations for different names, numbers and colours. Like in India red is an auspicious colour while in Pakistan it would be green, similarly in the US 13 is an unlucky number in India any number ending with 1 is auspicious like 101, 21. All these relate to the culture of the country which companies must take cognisance of. For example Nike offended Muslims in June, 1997 when the "flaming air" logo for its Nike Air sneakers looked too similar to the Arabic form of God's name, "Allah". Nike had to pull out more than 38,000 pairs of sneakers from the market. As businesses globalize, they must accommodate their packaging to reflect the culture. Energy. The idea of rationing energy use or carbon dioxide production has increased from a possibility to a probability, which will have a direct effect on
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packaging. Years ago, the availability of cheap energy and low awareness of its impact on carbon dioxide generation meant that the average product was excessively packaged. Even today, though to a lesser there is excessive packaging, which translates into a waste of energy and a source of carbon dioxide production as the material is burned. Today there is a global movement towards sustainability and packaging while having to satisfy its needs in the market will have to make sure that it is scoring high on the sustainability scale. This will mean that the energy consumption and thus the carbon dioxide generation of each packaging and the product will come under greater scrutiny over the years. Legal regulations: Over the next few years and decades we will see that in the domestic and export markets regulations will require compliances in three areas: Recycling involves processing used, unwanted or waste materials into new products to reduce the consumption of fresh raw materials, reduce energy usage, reduce air pollution (from burning waste) and water pollution (from land filling) and lower greenhouse gas emissions as compared to fresh production Reclamation is the recovery of useful substances from waste products or recovering usable parts. Remanufacturing Many formal definitions of remanufacturing exist in the literature, but the first published report on remanufacturing, by R. Lund (1998), describes remanufacturing as an industrial proc ess in which wornout products are restored to like-new condition. Through a series of industrial processes in a factory environment, a discarded product is completely disassembled. Useable parts are cleaned, refurbished, and put into inventory. Then the product is reassembled from the old parts (and where necessary, new parts) to produce a unit fully equivalent and sometimes superior in performance and expected lifetime to the original new product. Recycling is well known with packaging, but reclamation and remanufacturing will largely apply to the things that are packaged. As reclamation and remanufacturing occur, there's going to be a need for packaging that allows the consumer to send things back to the manufacturer or to the manufacturer's reclamation station. Technology: New technologies like radio frequency identification (RFID) and others will allow organisations to manage stock where a product leaving the warehouse or the factory is never touched by a human hand until the consumer receives it. This is possible by integrating radio frequency identification within the entire transportation system.
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Intelligent packing is going to become more and more important as technology advances. This type of packing will allow products to talk with the devices that are around it. For example the products will be able to talk to the retail counter and as each is removed from the counter it will be able to update the stock of the product in the warehouse which will then automatically reorder the product to the vendor. When the vendor sends the material and as it comes into the store warehouse it will automatically update the stock in the warehouse and as it moves from the warehouse to the retail shelf it will also reduce the stock of the warehouse and update the stock on the shelves. Intelligent packing will also be able to monitor the shelf life of the product and as it nears its expiry date automatically reduce prices of the product. The objective of such a packing will be to reduce human effort and monitoring. Managements must begin to take account of these concerns in order to design new packaging that will address these concerns while reducing costs of negative impact on society and environment.

7. Summary Packaging is an important aspect of marketing since it carries out several marketing functions and helps fulfill Governmental regulations. It helps to protect, preserve, transmit information, bulk pack, move the material through the distribution channel and to ensure that the product is not tampered before the consumer begins to use it. Packaging can be classified in by function or by type of packaging. Its design is depends on its need in the market for marketing, product display, or to ensure its quality till delivery and to ensure that the Govt. Regulations can be displayed in an adequate manner. The packaging must also address the environmental issues and the end use of the product. In future energy and environment are going to be very critical and any packaging must conserve energy to the extent possible and must not degrade the environment for these legal requirements are going to become stricter. New technology in packaging will have a significant impact on the way material is packed and handled and so marketers must keep abreast with it. 8. Your learning 1. What is the importance of packaging? 2. How many types of packaging exist? And why do we need so many different types?
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3. What is the need of governmental regulations specifying what must be disclosed on packaging by the company? 9. Key Words 1. Impermeable Something through nothing can pass. Especially a fluid like air, water, etc. 2. Sanitised items items that are made acceptable by removing unacceptable features like germs, bacteria, etc 3. Tamper proof something that cannot be tampered with, or something that we cannot tinker with to spoil or harm the product. 4. Adequate enough to meet a requirement or need. 5. Withstand impact must be able bear a collision with another object. 6. Permeability - The ability of a substance to allow another substance to pass through it, product dispenser. Usually this product does not allow light, air and water to pass. 7. Extensively to a large extent. 8. Inert gas a gas that does not react with its surroundings of with the products that are packed in it. 9. Mandated an authorisation to carry out a certain task or function.

10. Exercises 1. Why do we use symbols on packaging? 2. How does packaging help a marketer in his marketing efforts? 3. Does packaging have any effect on the retailing of the product? If so how? 4. Do all products small and large have to be packed? What will we need to do if we want to transport a large machine? Will we need to pack this also? Why and in your opinion how?

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1. 2. 3. 4.

11. Further Reading Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice Hall of India, page 418-421 Evans, Joel R and Berman, Barry (2007) Marketing Management, New Delhi, India, Cengage Learning, Page 312-317 Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India: Response Books pg 155-516 Gupta, C B Dr. and Rajan Nair, N Dr. (2009), Marketing Management, New Delhi, India, Sultan Chand and Sons page 7.21-7.26

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43.

44. BLOCK 3: NEW PRODUCT DEVELOPMENT

45. Unit 12: Organizing for New Product Development 46. 47. Unit 13: Generation, Screening and Development of New Product Ideas

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48. 49.

UNIT XII ORGANISING FOR NEW PRODUCT DEVELOPMENT

Learning Objectives Structures for Product Development Why we need a structure for Product Development Types of Structure and some key elements needed in the structure for ongoing innovation and protection of innovation

Structure 1. Why have a structure for Product Development 2. Types of Structures 2.1. Functional Organisation 2.2. Product Organisation 2.3. Matrix Organisation 2.4. Alternative Classification of Structure 3. Need for Ideas 4. Protection for Innovation 4.1. Copyright 4.2. Trade Marks 4.3. Patent 4.4. Industrial Design Rights 5. Summary 6. Your learning 7. Key Words 8. Exercises 9. Further Reading

1. Why have a structure for Product Development As we read at the beginning of the book product development is no longer associated with inventors or great men getting good ideas. It has now become a scientific exercise in first understanding the requirements of the customer or his unfulfilled needs and then go about systematically creating a product that

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will meet this requirements and along with this also help the company meet its business objectives like profit, sales, market penetration, market share, etc. When we talk and say that we need to gather information from the customer, analyse it seems to be a simple task. However behind the simple sentence the amount of work that is actually needed on ground is enormous. It first requires the understanding of Who the customer is? An exact definition is needed in terms of his demographic, psychographic, geographic characteristics. How does this customer purchase? Where does he purchase? When does he purchase? Based on this the company has to decide how to find out the information on customer needs of the customer. Will it be from o The sales force o The market channel o The customer himself o Group discussions o Etc. Depending on the way the company wants to find out the information from the customer it needs to put in place a mechanism to gather this information. This information could be gathered on a regular basis or on a one time basis depending on the companys decision. Once the information has been collected this information must be analysed for its relevance to the companys business and for any ideas for product development. For undertaking this, the company needs a team of people who can do the analysis. The ideas that come out from this analysis need to be disseminated across the specified persons in the company in order to get their feedback or comments on these ideas before they can be taken any further.

So we see that just a small spoken sentence needs a series of steps in order to bring the tasks to fruition. All of this cannot be done by one person in an organisation since product development is not a onetime activity. It is an ongoing process of development. In this process we undertake some activities
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for the immediate requirement, some for the midterm and some for the long term. Hence such planned efforts in product development needs a formal structure within the organisation which is entrusted with the task of undertaking product development.

2. Types of Structures The nature of the product varies from company to company. Some companies have products that need extensive research; some need more customer research, while some need more in terms of development and testing. Thus depending on the type of effort needed the company must build the necessary capabilities to be able to carry out the tasks. Since product types vary from one extreme to another, we can define a series of organizational structures between two extremes, functional organizations on one end and product organizations on the other. Functional organizations are organized according to functional disciplines. Senior functional managers are responsible for allocating resources. A single person does not have the responsibility for the total product. Detailed specifications, procedures and rules, meetings (ad hoc and structured) and shared traditions among engineers allow for effective coordination amongst team members. Products which need specialized knowledge for its development require a functionally organized organisation structure. 2.1. Functional Organisations

This type of organisation structure is usually divided by function and each function carries out a specialised functions This type of organisation needs an organisation structure for achieving common goals it is structured hierarchically with a strong concept of subordination. Most companies in the modern era rely upon this functional/hierarchical model. In the functional organization, each job becomes the focus point. People performing similar functions and specialisations are put together in departments. The functional areas will have personnel with varied skills, but those skills are grouped on their similarities. The people who have identical skills can be grouped easily and they can be placed in separate units and this creates an organizational structure. The top management coordinates
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with all levels for various activities. When an organization handles a single product, the functional organizational structure is most suited and most frequently used. When product development is required, each specialised activity is performed inside a single departmental unit. If there is a need for taking information or help from other departments for developing the product, it is done by requesting assistance from the other unit. The procedure for getting this cooperation between departments is to route the request through the head of the unit to the other head of the other unit from whom the information is sought. In other situations, the communication flow is restricted inside the functionally of the department. Coordination occurs through rules and procedures, detailed specifications, shared traditions among engineers and meetings. Products which need specialized knowledge for its development require a functionally organized organisation structure. In this structure a product manager is added and it is he who coordinates the product development activities through interaction with representatives from each function. The main tasks of the product manager are: to collect information, to solve conflicts and to facilitate achievement of overall project objectives. Their influence and status in the organisation is less as compared to functional managers. This is because here they have no direct access to working level people.

Fig 2: Functional Organisations

The benefits in utilizing a structure which relies upon the functional model are:

The chain of command is linear and sound

The human resource abilities are constantly nurtured by concentrated tutoring, leadership, and guidance Professional similarities between the organizational participants in each of the different functional offices

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The development of professional expertise attained clustering specialists in the present function as a single unit

by

Provides an easy path for the employees to grow within the organization sideways as well as upwards in the organizational tree The drawbacks of the functional organizational structure are

The decision making process is bureaucratic and is slow

The flow of communication and synchronization between functional departments is complicated

The speed of resolving problem is slow and inefficient

Grouping based on functions results in a lack of broader view from employees resulting in narrowed vision of overall organizational objective

2.2.

Product Organisations

In this type of organisation product development is treated as a project and structures and information flows are designed in a manner that helps in the movement of people and information expeditiously. Here the structure consists of separate product oriented teams. A product organisation exists because of product oriented flows: project and teams. The project members move out of their functional departments and dedicate all their time to the product development. The product team sits together in a separate location and work towards developing the product. The people in this organisation bring in the necessary skills from their functional departments and are responsible for any work that needs to be done from that functional area. For example if a functional manager in the project team is from the manufacturing department and the product development team needs any work to be done by the manufacturing department then the functional manager on this team from the manufacturing department will be responsible for getting the work done in that department. In addition to this necessary inputs such as the organisations ability to manufacture the new product, capacity available, manpower sills in manufacturing will also be provided by this person to the product development team. In these structures the project manager is usually more senior than the corresponding person involved in product development in a functional structure. This is because he does not have the direct access to the
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resources of the department and therefore needs the additional authority to get the work done. Product Based companies are much more focussed towards the customer and each product manager is responsible for ensuring the success of the product. However resources like finance, marketing, manufacturing are in the common pool. This leads to competition for centralised resources.

Fig 2: Product Organisations

The advantages of product organisations are Resources can be optimally utilised in an organisation They can also be optimally allocarted within the project team Technical and market tradeoffs can be evaluated more quickly Information movement across the organisation is speeded up.

The limitations of such an organisation structure are Individual team members may get cut off from their functional area and so may lose some of their cutting edge knowledge of the function. 2.3. Matrix Organisations

The matrix organisation attempts to ensure satisfactory control of products while utilising resources effectively and efficiently. The company is organised into functional units, such as marketing, finance, development, etc. For each product or a group of products the company is involved with has a product manager. It is the function of the product managers to ensure products they are responsible for progress satisfactorily. Functional managers are primarily responsible for managing their staff, ensuring correct procedures and levels of quality are maintained, etc. Product managers are responsible for managing products, that is ensuring tasks are completed on time, budgets are met, etc. If the Product manager encounters a problem it must be resolved between the functional managers, the product manager and the individuals involved. Product managers need to have good negotiating skills. Managers of departments and Products managers must co-operate.
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Product managers and functional managers have direct communication links with senior management, including direct access to the managing director. In Figure3, it is assumed four projects are in progress. Where line intersects are denoted by a star it means the function is being used on the project. Product 2 is using marketing, finance, and quality, implying the project is in production and development has finished. Note that in this type of organisation, product managers would normally be expected to manage several products concurrently. The organisational structure of a company organised on the matrix principle is shown in Figure 3.

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Figure 3: Matrix Organisation

2.4.

Alternative Classification of Structure

Though companies generally classified as per their organisation structure we can also view them in a different manner. They can be classified based on the nature of the projects undertaken/ products developed. We distinguish projects by the number of employees needed to undertake the tasks, or amount of work involved in developing them, and the number of tasks needed for development that are fundamentally different in nature. Another way to classify organization structure is by one of the following four categories: i. The product to be developed can be understood by one person. This one person is likely to have all the knowledge needed to develop, manufacture and assemble. The companys development department which undertake these kinds of projects are usually very small. Companies that have more than one department are usually structured as a functional organization. ii. The product to be developed has a reasonably low complexity, but total amount of work needed to complete the product is high. In this case these types of products are likely to be developed within one functional department. A research department can also be an example of a department in which these types of projects are done. The light weight matrix structure is preferred if more than one departments are involved. Usually here employees are involved on a full-time basis. Tasks involved in product development may be performed concurrently. iii. If the product to be developed has of a lot of different parts, such as software, PCB, power supply and mechanical structure. Though the parts are many, however it is clear what needs to be
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done to get the product developed and into production. In such a case various departments perform their own tasks. These tasks have mostly a low workload. Here employees cannot work full-time on one product since they are a part of the department and have other functions also to complete. This creates a complex situation because allocation of resources is not a simple task because of fluctuation of work load on a daily basis. Setting up separate cross-functional engineering teams is the right way to develop products. However, the drawback is commencing of too many project at the same time. This causes key people from marketing, manufacturing, and engineering work at several projects at once thereby limiting the time given to each product and in the overall context lengthens the product development time. iv. The product is complex. Here typically the total work would be high. Employees can thus work on a full-time basis. A project organization is the best suited organizational structure for these kinds of products.

3. Choosing an organisation Structure Which organisational structure is most suited for the organisation depends on the performance parameters that are most critical to the success of an organisation. Functional organisations have a focus on specialisation of function while coordination is a slow tedious. In product organisations the focus is on quick decisions and effective co-ordination amongst different functions. Matrix organisation by their definition can have a mix of both the functional and product organisation characteristics. However in order to decide which structure to use we must answer the following: i. Can an individual in a product organisation be fully utilised for the duration of the project If a person is deputed from his function and is to be used in a project then he must have enough work on the project to justify his deputation. We may find that in a product team some functions have a lot of work which can justify their use but some functions which do not have much work. In this case functions which have less work may be structured as a function and the others as a product structure.

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ii. Does the work involve a large amount of coordination amongst various functions if a large amount of coordination is required then a product organisation will be more suited rather than a functional organisation. iii. Does the work involve a large amount of specialisation when specialisation of services is needed on a regular basis across the organisation then a functional organisation is more suited. For example in a car manufacturing company the design department will be working over several products and the skill needed in design will be highly specialised. iv. Is speed of development a critical factor since product organisations can resolve conflicts more quickly because of their structure they are more preferred in case the time to market is small. Let us say the electronic industry where new products are needed every six months here the product structure will be most suited.

4. Need for Ideas Ultimately an organisation can only develop products from ideas. So where do we get these ideas. As we have seen in Chapter 2, companies have various sources to get this information. However this is easier said than done and so it is important to have a part of the organisation structured towards gathering this information, collating it and then evaluating it keeping in mind the business type and objectives of the company. There are two key places from where information can be gathered i. Customer the customer is the one who has to use the product and it is the customers needs that we need to fulfill and so he is the best person to ask for what he wants. Unfortunately we do not have only one customer and each customer will Explain his need in his own way. Each customers need will not be the same and will differ from a little bit to a lot. Some customers may not be able to put their need in words on the other hand some customers may describe it in too much detail. Too much detail is also not good as it tends to cloud the thinking of the product developers.

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Some customers may not be even aware of a certain latent need e.g. in the case of the Fair and Handsome cream for men. Till sometime back no one thought that men would also use a cream to become fair. This was totally created by the advertising which possibly fanned a latent desire. Some markets may be behind other markets and so may not be ripe for products already existing in those markets. E.g. MNCs had several home appliances and consumer durables available in international markets like microwave ovens, washing machines, mixer grinders, etc. which they brought into India only when the market was ripe for their acceptance.

So asking a customer is not so simple. Organisations must therefore create a system of collecting this information from their customers on an ongoing basis so that the customers inputs are captured. Companies may capture the information in several ways: Customer surveys customer surveys can be carried out by the organisation itself if it has the capability otherwise this can be carried out by specialised organisations on behalf of the company. The important part of the survey is that it must be structured in the right. This is because the wrong type of questions may lead us to collect information the wrong type of information (that we already know or the information that we would like to hear). The right questions allow the company to test hypothesis, concepts and new ideas. It also helps companies to uncover new areas in which products can be positioned, positions where no other customer is focussing. A consumer survey also gives the company an opportunity to collect more information that what it needs for its immediate decision so as to use it at a later point of time. Customer feedback from retail outlets when customers buy products from retail outlets they discuss with the retailer the limitations of the existing products and also offer suggestions for improvements and new products. By putting in place a system of capturing this information and bringing it back to the organisation can help the company get many valuable ideas. Customer feedback from customer service department similarly when a customer is using a product he begins to get ideas of how it should operate to improve it. So when the product has a failure
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and the customer service engineer visits the customer he has a lot of ideas which he gives to the engineer. Unfortunately companies generally do not implement systems to capture this data. This also has another problem, this is that a new product development is the realm of the marketing department and the credit for developing an excellent new product will go to them. Hence there is little incentive for the service department to provide inputs for new products. This is where the role of top management is important in creating systems where the credit can be shared and it is for them to motivate people in companies to work as a team rather than as individual departments. Customer feedback received directly from a customer writing to the company many times we have enterprising customers who write directly to the company. Though this is generally to complain about lack of service but we also have some writing with new ideas of products that they want. Some companies May take them into consideration and some may not take any further action. Customer clubs Large consumer base companies try and get customers engaged in customer clubs. This set of customers get company promotions, information about new products and activities of the company. It is possible to use these clubs for feedback and information. These feedback are valuable because unlike a consumer survey where we do not know if the consumer being surveyed is our customer or not, here we know that the user is using our product and so the feedback is qualified. Standard Chartered bank credit card team used to send a questionnaire to its select customers every year to get a feedback on various aspects of the card.

Now in order to capture information from any of the above areas the company must create a system where the data is captured in a Formatted manner this is important since the customer will give the information in several ways but the company cannot analyse the information that comes in different formats. There is a fixed periodicity for collecting the information There is someone who is assigned the task of collecting and collating the information

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The information captured must be analysed and stored in a manner that is useful for the company. All information is then classified and stored so that it can be retrieved when required.

ii. Within the organisation this is an area which many companies neglect but can become an excellent source of information. Imagine that all the employees of the company are aware of the companys products on one hand and on the other hand they are also consumers of various similar and possible also the companys product. The companys employees know about the companys product in much more detail than any consumer, plus they also know what the companys capabilities are and so what they can manufacture. Thus they are in the best position to advise the company on what products it can make in order to capture the customers money. However in order to get this information the company must again put certain processes in place so that eh employees contribute their ideas Just as we survey customers by making an attempt to go out to them and seek their ideas the company must go out and seek its employees ideas also. Many times the company does not undertake such an exercise because they feel that employees will want an award for their ideas while it is not a bad idea to reward employees who give a good idea because this will bring in profit for the company. However many employees do not seek a monetary award but recognition within the company for their ideas. The company can do this through a news letter or a felicitation ceremony. The concept of quality circles in manufacturing has helped companies a great deal in using the brain power of their employees who are actually working on the shop floor to improve manufacturing processes and quality. Similar groups in product development can bring about tremendous benefit for companies. Many times companies only reward success and no scope is left for failure and to learn from this failure to enable the company or its employees to do better next time. This in a way stifles innovation because when an employee or his team innovates there are chances of failure. Of course we have to take all the necessary
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precautions to ensure that this does not happen but here is still a possibility. This scope of error helps employees improve their ability to take correct decisions and therefore helps in product development. Lastly all ideas will not work and it is only one in many which will give a reward. If a company or its management make negative remarks for ideas that do not work then employees will stop giving suggestions because they do not want to be ridiculed in the organisation. Here again as in the case of customers there must be a system to collect, analyse and store the information for use. However we need one extra aspect in the case of internal employees this is the factor of recognition of employees who contribute good ideas. This is a hugely motivating factor for them and can have long term benefits in motivation and team building. If companies follow the process of gathering information in a systematic manner it can lead to an ongoing process of development and improvement for companies.

5. Protection of Product Innovation Companies spend a large amount of effort and money in developing new products. This effort comes by way of creating structure in the organisation, training its manpower, interacting with customers, and finally spending its time and money on the actual development process. If after spending so much time and effort on a product innovation some competitor were to come and copy the product the company would not be able to recover its investment. Over a period of time companies would not be interested in spending this time and effort on developing new products. Thus in order to protect these innovations companies can use the protection offered by Intellectual Property Right protection. Intellectual property (IP) is a term referring to a number of different and unique types of creations of the mind for which property rights are recognized by law. Under intellectual property law, owners are granted certain exclusive rights to a variety of intangible assets, such as musical, literary, and artistic works; discoveries and inventions; and words, phrases, symbols, processes and designs. Common types of intellectual property include copyrights, trademarks, patents and industrial design rights.
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5.1.

Copyrights

Copyright is a set of exclusive rights granted to the author or creator of an original work, including the right to copy, distribute and adapt the work. Copyright does not protect ideas, only once they have been created. The Copyright is automatically obtained as soon as the idea has been created and does not need to be registered. Once the work comes into public domain copyright owners have the exclusive right to control over copying and other exploitation of the works for a specific period of time. Initially copyright law only applied to the copying of books. However over a period of time it became applicable to other uses such as translations and derivative works were made subject to copyright and copyright now covers a wide range of works, including maps, dramatic works, paintings, photographs, sound recordings, motion pictures and computer programs.

5.2.

Trade Marks

A trademark is a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify that the products or services to consumers with which the trademark appears originate from a unique source, and to distinguish its products or services from those of other entities. A trademark is typically a name, word, phrase, logo, symbol, design, image, or a combination of these elements

5.3.

Patents

A patent is a set of exclusive rights granted by the government to an inventor for a limited period of time in exchange for a public disclosure of an invention. Typically, however, a patent application must include one or more claims defining the invention which must be new, non-obvious, and useful or industrially applicable. Under the World Trade Organization's (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights, patents should be available in WTO member states for any inventions, in all fields of technology, and the term of protection available should be the minimum twenty years.

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5.4.

Industrial Design Rights

Industrial design is a combination of a design and science, whereby the looks, design and usability of products may be improved for increasing its marketability and ease in production. An Industrial design right is an intellectual property right that protects the visual design of objects that are not purely utilitarian. An industrial design consists of the creation of a shape, configuration of prototype or color, or in three dimensional form containing aesthetic value. An industrial design can be a two- or threedimensional pattern used to produce a product, industrial commodity or handicraft.

6. Summary Product development in todays competitive world must be engineered through a systematic and structured process. The business processes and markets are so competitive that any development left to chance or not monitored properly could go out of control in terms of time and cost. Since new products are a key factor in helping companies meet their business objectives a delay in the development of new products can have disastrous consequences. Depending on the type of product the company is developing and the type of its customers the companies can be organised around different structures since they would be the most efficient way of developing and delivering products to customers. Functional organisations are structured as typical organisations along with departments where people are structured based on their functionality however at the other end we have organisations that use a set of common resources but are structured with separate heads that look after the complete development and delivery of the product. Here people from different departments join the product development team and are the key interfaces for getting work done in their departments. However we find that the most efficient can be the matrix organisations that use a combination of functional and product organisations. However any product development depends on the generation of new ideas and so companies must put in place mechanisms that help them systematically gather information from customers and employees within the organisation since these are the two key people who are with the product the most and are ideally suited to give good ideas. Once products are created they must be protected from copying and plagiarism to ensure that the companys efforts in time and money are protected.

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7. Your learning 1. Why can we not develop products without having a structure in the organisation for its development? 2. What is a functional organisation? What are its advantages and disadvantages? 3. How does a Matrix organisation provide the best mix between the functional and product organisation? 4. What is the product managers role in a product organisation?

8. Key Words 1. Tasks to fruition Jobs that are taken to completion. 2. Entrusted Given a task job or responsibility. Entrusted a task. 3. Extensive research a large amount and detailed of research 4. Synchronization to time the happening of one activity along with another activity so that both the activities happen at the correct or same time. 5. Expeditiously to undertake a job promptly, with efficiency and with speed 6. Low complexity products that are simple or those which are not complicated 7. Cross-functional activities that are undertaken along with persons from several functional areas. So a cross functional team will have people from say marketing, production, quality, finance so that each can provide the expertise from his area. 8. Concurrent something that is happening at the same time. Acting together or in agreement with each other 9. Periodicity working at a fixed interval of time. Happening at regular intervals. 10. Collating to tabulate data in a proper form to compare it to note the similarities and differences.

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9. Exercises 1. If companies are creating an organisation structure for product development how should they ensure that the customers inputs are always captured? 2. In order to make a motivated organisation that is generating ideas from its employees what additionally must the organisation do over and above what it does to get this information from customers? Expand your ideas. 3. Who is in a better position to generate new product ideas the customer or the companys employees? Give reasons for your answer. 4. If the company has created a consumer product what type of Intellectual Property must it file for? 5. If this product is an Industrial product what additional protection can it get?

10. Further Reading 1. Karl T Ulrich, Second Edition, Product Design and Development, New Delhi, India: Irwin McGraw Hill, page 45-49 2. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India: Response Books Page 1-6, 17-20 3. Crawford, Merle and Benedetto, Anthony Di (2004) New Product Management Singapore, McGraw Hill Page 299 305

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50. UNIT XIII GENERATION, SCREENING AND DEVELOPMENT OF NEW PRODUCT IDEAS 51. Learning Objectives Steps in idea generation Steps in screening ideas Steps in development of product ideas

Structure 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Product Development Generation of ideas Screening of ideas Development of Product Ideas Customer Requirement Document Summary Your learning Key Words Exercises Further Reading

1. Product Development The product development process is a critical process as new products are needed for the companies to stay ahead of competition and also ensure continued growth in sales and profit. It is a critical process since an error while taking decisions can lead to the company spending its money on an unviable or unnecessary product. The company must have a well defined organisational structure and processes to undertake the whole process of product development. As each stage of product development is progressed through it means spending more time and money on wrong decisions. Wrong decisions at any stage are expensive but at wrong decisions at later stages can be critical especially for small and medium companies because they have limited resources and cannot commence development all over again. This many times leads to companies launching products thay know are not the best but because they have spent a lot of money on it they hope to recover the costs of development by launching it. Even one product failure in a small company may
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threaten its survival if a large amount of time, scarce resources, and personnel are committed to it. 2. Generation of Ideas This is the phase in which the company conducts various activities in order to understand the customers needs and desires and define the functional requirements of the product. The product management group is entrusted with the task of creating a systematic process to understand the customer requirements and create a document that outlines what the product functions should be. During this phase the product development personnel and people from top management undertake some of the following activities: i. Customer surveys and responses to existing products so that improvements to existing products can be undertaken. They also try to understand what the customer feels are his pain areas (areas where the customer has problems). Many times it is the solution of the pain area of the customer that gives rise to new innovations. When a company is selling a product in its target segment then this product will fulfil all the needs of a part of this segment, most of the needs of a large part of this segment and some of the needs of the balance. In order to know whether the companys products are meeting the customers expectations the companys sales force or an agency appointed by the product management team. These people generate a feedback from the customers some of which is extremely useful in generating new ideas. ii. They read journals, magazines, books, and also go to international exhibitions, conferences and see what innovations are being displayed and discussed by eminent scientists, business associates and competitors. This helps them keep abreast with the latest developments around the world so that they can use some of these in their own products. It also helps understand what the competition could possibly develop in terms of new products. iii. Companies create think tanks that take in all the data that comes in from various sources and come up with various ideas. This consists of cross functional teams teams consisting of people from various departments many of whom may eventually be involved in the development of the product. These cross functional teams get all the inputs that is available for product development and they also bring into the team their knowledge and experience. Using this they debate and come up with ideas for new produce development.
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iv. All interesting information is collated and circulated organisationwide usually strategic planners or technology policy makers. Organisations generally circulate information about products, technologies, business processes, competition, etc within the organisation. This not only helps people keep abreast with the latest trends but also allows the germination of new ideas. During this phase several product ideas are generated and there is a fuzzy view of each of these products. Some of the ways in which ideas can be generated are: 1. To simplify an existing product for example earlier suitcases and bags did not have wheels to drag them around, adding wheels was a simple extension of an existing product. Cars had separate levers for indicators, light dipper and on off switches and now all have been combined into one lever. 2. Innovate packaging, distribution when telecom companied launched their pre-paid and post paid cards they thought of selling and activating them through their own or franchised outlets. But they found this restrictive in terms of meeting the high demand from customers and reaching them easily since they had a limited reach. They then changed the distribution pattern by proliferating this task to a large number of small retailers who could sell the cards and also activate them on behalf of the customer by calling a company operated helpline number. Shampoos earlier had screwon cap but now they have been replaced by a clip on for ease of opening and closing. 3. Replacement Parts New products as replacement of existing or new products are a booming business e.g. printer cartridges, batteries for laptop computers, mobile phones, cars, etc 4. Variety through variety in colours Product variety can be enhanced by creating the same model in a variety of colours. Different colour cars, different colour mobile phone covers, watches with attractive dials for the same watch, soaps of different colours, etc. 5. Same product of lesser value Now with the advent of Internet we are able to create products that can have differential pricing based on certain criteria. For example airline seats are available for a

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lower price at earlier bookings and at a higher price closer to date of travel. 6. Make products more communicative by putting interesting colours, slogans, designs We now see that slogans are being put on several new places that was once not thought possible. This gives rise to several new combination of products. Earlier we saw slogans and logos only on products like T-shirts and bags now we have a variety of designs, logos and slogans on some new types of busses, taxis, etc. 7. Concept of being ecofriendly Today everyone is talking about preserving the environment and products that can benefit the environment form very good ideas. Organic farming, CFC/ HCFC free refrigerators, etc 8. Explore other cultures and markets for existing products The Basmati Rice and Darjeeling Tea that were the creations of India have become famous all over the world. 9. Go back in history today a lot of music is a remix of yesteryears, similarly many design ideas for consumer products can be taken from the past we have seen that fashion tends to repeat itself after several years loose trousers and then tight ones to loose once again. 10. Size reduction Another option is to reduce the size of an existing product. We have seen that the sachet created initially by shampoo manufacturing companies is now being used in many products mouth fresheners, ketchup, mustard, etc. 11. Combination of multiple categories In earlier times printers could only print they can now scan, photocopy and print simultaneously, health equipment is beginning to get electronic displays, games are being used to teach children, etc. 12. We can add uses to an existing product - Mobile phones were initially only for talking but are now used for messaging, seeing videos, listening to music, as a calculator, a watch, alarm clock, reminder of things to do. 13. Can we make a childrens version of the product toy cars, toy phones, kid meals like McDonalds, childrens watches,

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14. Product extensions Product Extensions happens when a company introduces additional items in the same product category under the same brand name such as new flavors, forms, colors, added ingredients, package sizes. Eg Surf, Sure Excel and Surf Excel Blue, or Nescafe, Nescafe Classic, Nescafe Gold, Nescafe Cappuccino. 15. Combine several functions into one product The most famous example of this is a Swiss Knife that has a scissors, a knife, file, a tin opener, a bottle opener, etc. We also have a drill machine that can drill several different sizes and different types of material. We also have blender in the kitchen which can be used for several functions like blending, grinding, juicing, etc. 16. Help to reduce time Earlier in order to tighten a nut a spanner had to be used. Now in industrial situations where large productivity is needed pneumatic spanners are used. These work using compressed air and speed up the process of tightening significantly. 17. Make the product do-it-yourself In many applications it is possible to make products in a manner that the end user is able to undertake the final assembly of the product himself. This saves the company the cost of assembling the product, also the product can be packed in a more compact manner thus saving transportation costs. For example a bed, or a table can be sent with its legs, headboard, footboard and flat bed separately in a manner that they can be tightened by screws by the customer himself. 18. Make a free product Anything that is free will be loved by the customers. So how does this work it works by providing the service free to the consumers and leveraging this through a separate business model to generate revenue. So services like Google, Skype, Wikipedia, etc are free. Google provides the service free to its customers buy charges companies for advertising on its site thus generating revenue. 19. Add value to packaging Generally packaging is thrown away once the product has been taken out. If we are able to design the packaging in a manner that the customer has a use of the packaging then he may buy the product as it packaging has a value to the customer.

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3. Screening of ideas The purpose of screening ideas is to identify and drop poor ideas while selecting the right ones for development as early as possible since the cost of product development rises substantially at each successive development stage. Many times when products reach later stages of development, management feels that it has invested so much time and money in development that the product should be launched to recover some of the investment. However this may mean spending more money on a product that the management knows is not right just in the hope of recovering some money. The chances are that it may land up losing more money rather than recovering any. Ideas generated may seem interesting but for a company to decide to take any idea forward the idea must be in line with its business objectives, and the organisation must have the necessary resources and competencies to develop, manufacture and sell the product successfully. For evaluating each idea the company must have a set of parameters against which it should measure itself to understand if it meets its business objectives or matches its competencies. While screening the company has to make sure that the process followed is not so stringent that it decides not to undertake good ideas and neither is it too lenient that a poor idea is let go to the development and implementation stages. There are several methods to screen or evaluate ideas However we may undertake the following broad processes. i. Does the product idea fit with the business strategy Ideas must be in consonance with the companys business strategy as it lends synergy with the companys existing efforts. In order to check this the following questions must be answered: Does the product meet the needs of the of the target buyer? Which unmet needs of the customer will it fulfill? Is there sufficient data to substantiate that these are Truly Unmet needs for the customer? The products performance should be measured against measurable business objectives like market share, sales, profits, growth, etc. Define positioning of the product and see if the product has any strengths/ USPs. What is the amount of money the company will spend on marketing the product. How does this compare with the competitors spend for similar products.
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What will be the price quality equation of the product.

ii. New products must meet a minimum benchmark on sales and profits Every product development is a process that consumes companys time and money and unless it is able to give a certain return on that investment in terms of sales and profits it is not worth the effort. The benchmark sale and profit varies from company to company depending on its size and market position. Sometimes what the competition is using as a benchmark can be a good reference mark, however we must be careful in adopting the norm without proper thought since they could be making an error. iii. Discuss the product idea with key customers/ channel partners The new product is being designed to fulfil an unmet customer who then is best judge of whether it meets the needs. This feedback can sometimes help the company add some functionalities that may have been missed out or it may add some features that will add value to the product. It may also lead to the change in the weightage in the importance of features because of customer feedback. Bouncing product ideas off key customers is also important because at times managements get so involved with their own ideas that they give the go ahead for the development and land up making mistakes. Customer surveys can be done using field surveys, personal interviews and focus group discussions. All of these help get the customers point of view into product development. This also allows the marketer to get an outsiders view on his thoughts. Though field surveys and personal interviews are an important way of getting customer feedback, these methods are usually administered by market researchers and the information is then collated and analysed for getting feedback. However in Focus Group Discussions the marketer can be personally present and so can hear the feedback directly and so there is no loss in transmission from surveyor to the marketer. Focus Group Discussions are an important method of screening ideas because it allows an interaction with multiple customers whose interaction and discussion helps the marketer get a feedback on multiple parameters at the same time. Focus group discussions are done by identifying a set of people from the target segment and calling them to a common place and showing these people the concept and discussing with them the product concept.
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Generally, during focus group discussions ideas are presented to a group as a concept or storyboard for example, customers may be shown a concept as drawings of a product idea or an advertisement showing the product. Sometimes focus groups are shown a dummy of the idea, which is a physical but generally non-functional version of product idea. During focus groups with customers the marketer tries to find information like: The likes and dislikes of the concept; Level of interest in purchasing the product; Frequency of purchase (used to help forecast demand); And price points to determine how much customers are willing to spend to purchase the product.

iv. Some other key questions that need to be answered are Is there sufficient data to substantiate that these are truly Unmet needs for the customer Are there any barriers to entry for the new product, i.e. design patents; trademarks, etc. If not, how easy it might be for someone to reverse engineer and copy the new product? What are the product features that will be claimed? Can these be substantiated through scientific and other evidence? Who is your competition? How can they affect the new product's sales? What are the most effective channels of distribution? Which are the major factors that influence potential users? Price, quality, brand name, service, etc.? Does the product meet these requirements? What is the best way to enter this market? Are there any drawbacks of selling in this market? Does the company have required experience, know-how and resources for effectively marketing /selling and distributing the new product?
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What are the alternative plans if the sales, market share, profit, growth projections are not met?

Once all the data has been collected we need to interpret the data. While interpreting the data we need to follow the following steps: Express the need in terms of what the product has to do and not how to do. Express the need a the raw data has been collected and not by interpreting it. This is because each persons interpretation may be different and so this may change the whole meaning of the customers feedback. Use positive and not negative phrasing e.g. the customer wants the feature and not as customer does not like the feature Write the need as an attribute of the product Avoid using words like must and should. These words means that it is necessary for the product to have the feature and can become limiting factors.

When we have documented all the information then this information need to be Organised in a hierarchy of primary and secondary needs. This classification is done on an intuitive basis. Form these needs we remove the redundant needs Then all needs are grouped according to similarity. These groups must be based on how the customer thinks and not by technology, material used or by department responsible, etc. This helps understand the importance of a particular need the more the similar needs the greater the importance of the need. It also helps in reducing the number of variables that the company has to deal with. In case the number of groups is still very large (More than 20) then these should be further grouped in super groups. Based on this hierarchy the company needs to create and needs statement. This must be based on customer need or market segment.
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So using the above hierarchy and grouping the needs statement must be categorised by relative importance of needs. This relative importance can be decided based on The product development teams consensus based on their experience It can also be based on a further study of the consumers.

Between the two the trade off is speed versus accuracy. All ideas selected will be laid down in order of priority the most important being on top and the least at the bottom. Each of these ideas will be taken through the evaluation at the development phase to see if it can be taken forward.

4. Development of the Product Ideas The idea screening process is a complex process of going back and forth on the possibilities of developing a product. The ideas selected must be evaluated thoroughly for economic viability, fit with business objectives, strategic advantage over competition, etc. In order to determine this the company must Undertake market survey in order to understand market size. The company must be sure that the market size is large enough for its new product, its features or enhanced functionality. Here the company may conduct independent market surveys for itself or they may buy market reports for certain type of products. These market reports that are bought are taken from market research companies that conduct regular reports on specified product categories on a regular basis and provide these reports for a price. The market surveys must determine the total size of the market for the product, the other possible uses for it since it can help define additional functionalities or features, seasonality of demand, quality, price customer will be willing to pay etc. Production costs and technologies Based on the volumes that the company is likely to need initially and its projections for the future the type of technology needed for the manufacture of the product will vary and along with it the cost of the product will vary. Hence an evaluation of the various technologies available have to be evaluated by the R&D or Industrial Engineering or Production Department of an organisation to evaluate what technology will give the best return.
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Apart from technology the company must also undertake an analysis of what will be the costs of the product. By the time the company reaches this stage it has a fair idea about the structure of the product and hence it can go about estimating its cost. Many times companies which are in a product category already know the raw material suppliers and they can get a fair idea of the material cost. Once these costs have been received the Industrial engineering department or the production department of the company will be able to arrive at a fairly accurate cost of the product including manufacturing costs. Companies that keep themselves abreast with the latest developments are also in a position to factor in at this stage any new technology that can help them in manufacturing the product more economically or faster than existing processes within the organisation. Any new technology will need an investment to acquire, install and operate. The company then has to evaluate whether this new technology will be more economical than the existing processes. For this information from the market as to the volumes of production, seasonality of demand and level of quality needed by the customer will play an important part in decision making. Let us take the case of a soft drink bottling plant in case it needs to bottle only one type of drink and in one size then the machinery/ technology requirement will be different from that of a company bottling several types of drinks each with different sizes. Similarly the quality standards and precision of a company making equipment for a space program will be considerably more stringent than a company making equipment for a cloth cutting machine. Business likely to be generated a Once the company has an idea of the costs of the product, it is in a position to determine the amount of profits it is likely to make based on the sales it expects. Hence the estimation of sales and hence profits is an important variable that helps determine whether to accept the idea or to reject it. Estimation of sales and profits also helps to quantify as to how much of the business objectives the product will help fulfil. At this planning stage the company can also use an iterative process to arrive at possible sales targets which the company must aim at so that it will justify the introduction of the product. It can thus evaluate if it has the resources manpower, machines, money needed to achieve the sales needed by the product.

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It will also be possible for the company to calculate the breakeven point and know whether the breakeven sales is within its reach or not. Any product that has a very high breakeven point will mean that it is a much more risky project as compared to a product with a low breakeven point.

Having knowledge of the market, cost of production, technology needed, if any, the sales and profits likely to be generated and the companys capability to achieve it enables the company to evaluate if the product fits into its business strategy or not. If it does it is the idea is right for introduction. If it does not fit fully the company must evaluate what is the percentage fit and evaluate this percentage fit in comparison with other product ideas that the company is evaluating. Once all the ideas have been evaluated to match with business objectives and meet customer requirements the company may reset the priorities for each ideas thus lowering some and increasing the others in priority.

S. No.Initial Priority 1Idea 1 2Idea 2 3Idea 3

Changed Priority Idea 2 Idea 1 Idea 3

The product that provides the best fit on various parameters should be selected.

5. Creation of the Customer Requirement Document Once the idea has been selected we need to make the Customer Requirement Document (CRD). This is a comprehensive document that contains all the necessary data needed for development of the product such as: 1. The CRD lists out all the functions and features that the product must have. 2. Each of these functions must be listed by priority i.e. the highest priority first and then the next and so on. 3. It contains the commitments of all the stake holders in the Product Development Team
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4. This document starts from the highest priority feature and breaks it down in to tasks that need to be done in order to accomplish it. This listing of tasks is done along with the persons who have to work on it. The advantage of this is that it brings in their commitment and ownership and the document is not one which the Product Manager has thrust on the other departments. 5. This document also contains commitments by the developer departments on indication of the time and resources needed to complete the task.

We must remember that many times during product development we may get unexpected results while this is not necessarily a good or bad thing, it is something that tends to be a distraction as work temporarily stops and in extreme cases can be totally diverted by it. The correct thing to do is to discuss with the team all results expected or unexpected and only after due consideration proceed. It is important for the product manager or the team leader to keep his focus on the requirements laid down in the Customer Requirement Document and how he can fulfill this rather than be led by the unexpected development. However please note that such an unexpected development can be an excellent source ideas for the current or future products and must not necessarily be discarded.

6. Summary Product Development is an important part of the marketing mix. It is amongst the 4 Ps of Marketing. A good product helps the company achieve its business objectives while at the same time it enables the company to stay ahead of the competition. The generation of product ideas starts from the understanding of the customer requirements and is mixed with the new concepts and technologies entering the market. The job of creating these new ideas is given to think tanks within the organisation that collate information and circulate to people within the organisation in order to take their inputs and generate a list of desired ideas. These ideas are evaluated using asset of given criteria so as to ensure that good ideas are selected to move to the next stage. The objective of these criteria is to ensure that good ideas go through while poor ones are left out. This is important since at every stage companies spend money on product screening and development and they do not want to waste money on products that will not benefit them.
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Once ideas are shortlisted they must be evaluated on various parameters market size cost of technology, cost of the product, and business likely to be generated. Once products ideas are valid on these parameters the best idea is taken forward for product development. The basis of product development is controlled by the creation of a Customer Requirement Document which is a comprehensive document that allows the product manager to control development and launch of the product. Many times during product development some new unexpected development happen and the development team must not get distracted by these developments but consider if they have a value or not before using them. Many times such developments provide excellent ideas for current or future products.

7. Your learning 1. Why is generation of ideas a difficult task? How do magazines and journals help? 2. How can competitors be a source of product ideas for the company? 3. How does variety in colours help create new products? 4. Explore the concept of Do-it-yourself concept? See how many products you can find are do-it-yourself.

8. Key Words 1. Eminent scientists outstanding, or high ranking or important scientists. 2. Cross functional teams a is a group of people with different functional expertise working toward a common goal. It may include people from several departments like marketing, production, finance, etc 3. Collated to arrange in a proper sequence. Or to arrange information is a logical sequence. 4. Germination to start the process of growing or developing, to create 5. fuzzy blurred, not clear, lacking a clarity in the definition 6. Competencies possession of the needed skills, knowledge or qualification.
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7. Stringent strict, constraining, restrictive 8. Consonance in agreement with various other parts. 9. Synergy combined functioning of several parts in harmony with each other. 10. 11. 12. Functionalities capabilities pertaining to different functions of a product or an organisation. Redundant something that is not required or something that is in excess. Consensus General agreement amongst various parts, departments, persons.

9. Exercises 1. Why should an idea fit into the business strategy? 2. What would happen if product ideas are not discussed with customers? Are all ideas of the customer important enough to be accepted? 3. How can patents and trademarks prevent product development? Can the company use these patents or trademarks to make competitive products? 4. How does the Customer Requirement Document help in keeping the product development on course?

10. Further Reading 1. Evans, Joel R and Berman, Barry (2007) Marketing Management, New Delhi, India, Cengage Learning, Page 356-363 2. Ulrich Karl T and Eppinger, Steven D, (2000) Product Design and Development, New York, USA, Irwin McGraw Hill page 107-159 3. Crawford, Merle and Benedetto, Anthoni Di, (2004) New Products Management, New York, USA, Page 83-91, 118-130

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52.

53. BLOCK 5: IMPLEMENTING NEW PRODUCT DECISION

54. Unit 14: Concept Development and Testing 55. 56. and Test Marketing 57. 58. Unit 16: Product Launch Unit 15: Pre-test Marketing

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59. 60.

UNIT XIV CONCEPT DEVELOPMENT AND TESTING

Learning Objectives The difference between idea generation and concept testing To understand how to undertake Concept testing

Structure 1. 2. Difference between Concept Testing and Idea Generation Concept Development and Testing Process 2.1. Define the purpose of the concept test 2.2. Choose the target customer to survey 2.3. Decide the method of information gathering 2.4. Communicate the concept to the customer 2.5. Capture the customers response 2.6. Interpret the results Summary Your learning Key Words Exercises Further Reading

3. 4. 5. 6. 7.

1. Difference between Concept Testing and Idea Generation During the idea generation stage a company may have several ideas, however they will go through all the ideas and arrive at only a few that will be taken up in the next stage. In this stage the development team tries and get responses of the various product ideas/ concepts from some potential customers in the target market. This testing allows the product development team to understand if the concept meets the customers expectations, whether it can be improved and to get an idea of the potential sales of the product. In this phase product concept can be discussed with the customer at several points in the development for example in the initial stage the product may only be described to a customer verbally to get a feedback on whether the product actually meets the customers expectations as is being thought by the company because this is the basis on which the company is developing the product. The product can also be shown to the customer once it has been partially
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developed in order to get a more clear response from the customer and also an indication of the potential sales that the company can get from the product. Concept testing closely follows the process of generating ideas. Idea generation and concept testing both are similar in nature because both aim to reduce the number of concepts under consideration. However concept testing is different from Idea generation because idea generation is more judgemental while concept testing is based on getting a direct feedback from potential customers and so is not so judgemental. Now we cannot go to the customer will a large number of ideas as it will confuse him and not allow a clear decision to be taken. Hence at the idea generation stage itself the company must screen ideas and shortlist only a few that can be taken for concept testing to the customer. In concept development and testing we have not only to discuss the concept with the customer it may also involve showing him the prototype of the product or other methods of making him understand the product, its utility and thus getting the relevant feedback from him. Based on the feedback we receive from the customer the company should be able to evaluate the customers acceptance of the product, its potential sale and hence the fit into the business objectives of the company. This concept testing may or may not be carried out. The decision to carry it out or not depends on The type of product and Time available for development Cost of development versus the cost of launch Cost of failure vs cost of development

For example if we launch a website and there is an error it can be corrected at a later point of time also but if we launch medical equipment on which life depends and it malfunctions the consequences can be very serious. 2. Concept Development and Testing Process Concept testing can be carried out by following the following steps: i. Define the purpose of the concept test ii. Choose the target customer to survey iii. Decide the method of gathering information
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iv. Communicate the concept to the customer v. Capture the customers response vi. Interpret the results 2.1. Define the purpose of the concept test

The first step in concept testing is to define what and why we want to test about the concept. The product development team must know what the areas they want to test are and for what areas they need answers. It is only then that the test can be structured in a proper manner. The concept test is an experimental process and like for any experiment its objective must be defined before we undertake the test. It is the definition of the test that will tell us how to measure the responses of the customer. For example if the company is developing a new washing machine it may need to know how much piped water is available in houses in that country or region. If we do not define this parameter in the test we may just discuss the concept without determining the amount of water available. In other words we will not measure the water availability in the test. Generally a product concept test will need an answer to the following primary questions: i. ii. iii. iv. v. vi. Does the product meet the customers need? How can the product be improved? Can the product be enhanced to meet additional needs? How frequently will the customer need the product? How much sales will the product generate? Should the development be continued or not?

All questions in the surveys design will have a bearing on the product and along with it the business strategy of the company. For example if the product meets the customers needs but is not likely to generate sales then the purpose of development is lost.

2.2.

Choose the target customer to survey

Once we have decided what we want to ask the customers we have to choose the customers from whom we will ask the information. Choosing the target customer sample who will be surveyed for testing the concept is an
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extremely important step. This is because we are going to base the entire product development concept on the feedback received from this customer sample. If we have chosen the customer sample wrongly this customer sample gives the wrong feedback and it will be disastrous for the product development and the company. For example if the customer sample with whom we have discussed the concept likes the product and approves it but these customers do not represent the target market segment because of a wrong selection then the product will most likely fail. In order to overcome such a problem companies undertaking such a survey like to include as many potential target segments in a survey as possible. However such a survey is very expensive and it is not possible for all companies to undertake it. So many times companies try and include two or three major segments in the survey. This allows the company to get a mix of opinions and so arrive at a more balanced decision. Another important factor while undertaking the survey is to decide the number of customers to be surveyed. Naturally the more the customers who are surveyed the greater is the possibility of a more unbiased or balanced decision. Here again more customers to survey means more cost and so a trade off needs to be arrived at between number of customers to be surveyed and cost to be spent. The factors which determine the size of the test consumers are: Factors for selecting a small sample size o If the test is done during the early part of the developmental process o If the test is only to gather some qualitative data about the product o If it is expensive or time consuming to survey customers o If the investment needed for developing the product is small Factors for selecting a large sample size o If the test is being carried out at a later stage of development. In later stages of the development we have moved ahead on the development and now have certain definite questions to be answered to proceed to the next stage of development. This needs a larger number to answer them so as to get the information without bias. o If we are trying to get an estimate of the demand of the product. o If it is possible to survey customers quickly and without much cost.
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o If the investment needed to develop and launch the product is high eg an aeroplane, medical equipment, car, etc. So the actual numbers of customers surveyed will vary drastically from a small number to a very large number depending on the above mentioned factors. Let us see what would happen if we develop a website and host it quickly after conducting a brief survey of only a few customers. It is possible that because all information on the needs of the customer was not captured due to a small sample and also due to the speed of the development some aspects of the website do not function properly. In such a situation the company developing the website can continue to correct it in stages since the information is not critical. However if we were to do this for say a medical equipment on which life depended and this machine did not give all the needed functions because we did not ask enough customers or were in a hurry to launch it the consequences would be disastrous.

2.3.

Decide the method of gathering information

Once the customer sample has been decided we now have the task of actually going out and collecting the information. The product development team has the responsibility of determining the best way to collect the information since they are the ones who are setting up this experiment. In the initial stages of the product development information is taken in a more unstructured manner this means that the questions are such that can have qualitative answers and are not so easily quantifiable. In the later stages of development questions can be more structured. This means that in the initial stages the interaction with the customer must be done by the development team themselves while a more structured survey done at later stages can be given to a research agency for collecting and collating the information. There are many ways in which information can be collected Face to face interaction this type of surveys are the most common and by far the most effective method. In this method the surveyor meets the customer face to face and ask him the questions which have been decided in the questionnaire. Just before beginning the detailed questionnaire the customer is asked a few questions to confirm that he is actually from the target segment for which the questionnaire is planned. So the customer may be asked general questions about his age, income, education, whether he is the user of a certain product category, etc. to
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validate him. If this is the customer from our target segment then the survey continues or else it stops. The face to face interaction with the customer can be done by meeting him in o Retail outlets, malls, or other public areas where the customer may be. o Trade show booth these are good places to talk to the customer since here we have a relevant customer. In the trade show companies show their prototypes or concept products. Here customers are focussed on the product and are likely to give more relevant answers. o Focus groups These are a set of customers (between 5 to 10 at a time) from the target segment who are invited by the company to come to a fixed location where all of them are explained or shown the product concept. During their session the concept is discussed with them and their responses are recorded. Since this is a face to face discussion the product development team is able to get a lot of qualitative inputs from the customers. Inputs may be on does the customer find the product useful, what needs it fulfils, what more should be in the product, what kind of colours are suited for the product, does the customer find it easy to use, etc. Generally the price is not discussed because it tends to either over value or undervalue the product in the consumers eye even before he begins to answer the questions. If price needs to be determined then the customer must be asked to specify what he would pay for the product. The focus groups have an advantage that they are better for presenting several alternatives to the concept and getting a separate feedback on each, or they can also be sued for getting ideas in improving the product. Telephone today technology is also being used for trying to reduce the time needed in getting a feedback on a product concept. Telephones can be sued where the product concept can easily be explained to consumers without actually having to see a prototype, or drawing, etc. In using telephones the calls can be made to a o Predetermined set of customers like young men, or young women, or college going students, etc.

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o Or we can make cold calls meaning that we call without precategorisation and once we get responses we set them off depending on the response category. Today mobile phones have allowed companies to target questions to specific categories of customers by profiling their mobile numbers based on their age, sex, profession, income category, etc. However the limitation is that because of its overuse customers are not always willing to respond to such calls. Postal mail this was an option that used to be followed in earlier days when the prevalence of electronic media was not so pervasive. Earlier a telephone was only land line based and so who would answer a phone was not certain and so asking questions on phones was not simple. It was therefore better to send a questionnaire to a customer and along with that send him a prepaid return envelope and hope that the customer will fill the questionnaire and send it back. In most cases it was seen that the response was not more than 1-2% and it was slow. In order to increase the responses companies sometimes gave incentives to customers to send in their responses. Email this is option is an improved version of the postal mail. It has virtually the same issues as the postal mail system. Here people have the option to put filters in their mail to block unwanted mail. However this remains a quick and cost effective option to collect feedback from customers. It also has the advantage that data collected can be integrated into the database without needing to actually feed the data into it. Internet the internet can be used very effectively in getting a feedback from the customer. Here the product development team can put not only a questionnaire but can also show images of the products concept or simulated videos showing how the product will work and what benefits the customer can get from it. Here the customers can be asked to comment on the product or fill the feedback form that is on the website. Filling this form automatically updates the information database. In addition today the internet blogs provide a virtual space where potential customers can come and discuss products and provide suggestions and solutions. In a way we can say that these are similar to the focus groups that companies use for getting a feedback.

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In cases like software companies sometimes release a beta version on the net for people to download and use before giving their comments on its features and benefits. Each method of gathering information has a bias towards the type of customer it is suited for internet/ email is more suited towards technology savvy customers, the focus group discussions are good for products where the product development team needs feedback on qualitative characteristics of the product. However even though each process has some limitations, for some products it is a good idea to use a test method with a limitations because for using the product this functionality is needed e.g. a software based product needs ability in the customer to use technology. However it is not such a good idea if TV based internet (IPTV) is to be tested. Open ended interactive formats are better in the concept development stage since it allows the customer to choose his reply himself. As tests get more focussed a more structured format can be used. For these type of surveys a market research company can be hired.

2.4.

Communicate the concept

So we have decided what to ask, to whom to ask and how to ask. The next step is how to show him the concept. Please note that the concept must be communicated to the customer in such manner that the ideas of the product development team do not dominate his thoughts. The customer should have the freedom to use his own thoughts to give the feedback. Some of the ways in which the concept can be shown to the customer are: Verbal description here the customer is given a verbal description of the product. This is usually done in the initial stages of the products development and when the product is still in the conceptual stage of development and no firm description is available. Sketch The product concept can also be shown as a single or a series of sketches. These can show the concept and how it can be used. This type is again used in the initial stages of the product development. Photo and rendering Sometimes product concepts can be shown as images that have been developed on computer simulation. This allows the customer to get a more realistic impression of the product. This type of visualisation allows the product development team to show the

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customer different colours and also the detail of some functional or ergonomic features. Storyboard a storyboard is a concept that was first developed for making cartoons by Walt Disney and later for films. According to Christopher Finch in The Art of Walt Disney (Abrams, 1974), Disney credited animator Webb Smith with creating the idea of drawing scenes on separate sheets of paper and pinning them up on a bulletin board to tell a story in sequence, thus creating the first storyboard. So the product development team uses the storyboarding method to show the concept to the customers who can by seeing this understand what the product can do. Video the advantage of a video is to show how the product works and how it can be used. This method is used where it is difficult to take the actual product to the customers. For example if we want to show how a machine works it is easier to take a video of the machine and its functionality and show it to customers at different locations. Simulation - It is the imitation of some real thing or process. The act of simulating something generally means showing certain key characteristics or behaviours of a selected physical or abstract system. In simulation a user may actually control the use of a product and get a real feel of how the product will respond. This can give him a near real feeling of the product. Simulation is used in safety engineering and tests, for training, development, etc. For exapmle we have a flight simulator in which pilots train how to fly aircrafts before that actually go on a plane. During product development this method is used where the system can be used to show the effect of using different use parameters e.g. in a chemical process where the change in parameters can lead to different consequences. Simulation is also used when the real system cannot be engaged, because it may not be accessible, or it may be dangerous or unacceptable to engage. Interactive media The product development team can also use a combination of Video plus simulation to explain the concept better. Developing simulation is expensive. This type of method is used in highly technical products where the cost of developing the simulation is significantly lower than the cost of developing the product.
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Physical appearance models In this method the concept is shown as a model of the product. At times this model also has some functions also incorporated in them so that customers can get an idea of how the product will work. Generally this type of method is used either when the product development team has a clear idea of what they have to develop or it is in the later stages of the development of the product by which time a large extent of the work has been done.

Working prototypes This type of method is used when the product development is almost complete and the product development needs the final inputs for the customer. However care must be taken because customers tend to equate this product with the final product so the positives and negatives of the prototype rub off onto their judgement and feedback. Secondly since the prototype is generally one of the few products developed by the product development team and all care has been taken and probably better material has been used to manufacture it this prototype may perform better than the final product that comes off the actual production.

The choice of the survey format must match the communication method used because how we show the product concept to the customer depends on how we are asking him to respond. So for example we cannot demonstrate a working model while using a phone survey. In addition to this we must take care that while showing or communicating the product concept to the customer: Must not oversell the concept to the customer. Must give only that much information as much as the customer will get during selling. This ensures that the responses from the customer will be similar to the way he will respond when he gets the advertising stimulus. Price must not be given but customer must be asked for it. Giving a price to the customer tends to undervalue or overvalue the product depending on how the customer perceives the price. SO in order to overcome this problem it is better to ask the customer what he is willing to pay for the product.

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2.5.

Capturing customer response

The product development team must faithfully capture the customer response in order to ensure that the development progresses in the right direction. Here in order to capture the information is the right manner the tests are made with formats that provide for Questions with multiple choice answers. In order to ensure that the answers given by the customer are validated as correct and consistent the questionnaire also has questions that ask asks why he gave the answer. The questionnaire also has similar questions in different parts of the questionnaire that ask similar information in a slightly different manner. This again helps the development team to validate and understand the correctness and consistency of the customers thinking. The questionnaire also captures the intention of the customer to buy the product, the frequency of purchase, the certainty of purchase, etc. Here we may capture answers like o Definitely buy o Probably buy o Might or might not o Probably would not buy o Definitely not buy Depending on the method used in interacting with the customer the product development team in addition to structured responses from the customer interaction can also capture of a large amount of unstructured data. This data is also important and needs to be recorded and analysed.

2.6.

Interpret results

Once the information has been captured it must be collated and structured. This information must then be structured in a hierarchy of importance. This hierarchy must be segregated by primary and secondary needs. From the responses the redundant responses must be removed and further all information should be categorised by customer need so that we can see what important needs have to be worked upon first and what can be worked on later.
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Since customers are shown multiple options, results must be interpreted based on the difference in responses and the concept preferred by the customers. They must also factor in cost of manufacturing and other considerations (Like possible sales, customer acceptance, profit, etc). If manufacturing costs are very different and price of the product has not been communicated to the customer during the survey then the company must use its own judgement in proceeding ahead with one of the products selected by the customer. Some factors like sales of the product have to be calculated by using various forecasting methods. However even this data needs to be compared with the sales data that the company may have had for similar products or industry data that exists in the market to check if this bears out the forecast. In case the company has no history of the product and neither does the market then care must be taken In concept testing models we are not able to factor in Effect of word of mouth especially when product benefits are not obvious word of mouth plays an important role in promoting the products Fidelity of concept description if the final product differs substantially from the one described in the test forecast may differ Pricing if price deviates significantly from that indicated in survey or from customer expectations Level of premium spending on advertising and promotion can add to the cost of the product. This is weakly accounted in forecasting models by factoring in awareness/ availability term and via materials used to present the concept(s)

A Team must reflect on results and qualitative and quantitative results obtained. In order to be sure that th answers received are true they must ask two key questions o Was the concept communicated in the way that the customer response is likely to be true? o Is the resulting forecast consistent with the observed sales rate of similar products?

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All results whether used or not must be documented so that they are available for similar products in the future. Another learning that the product development can get is that their results for the tests can be compared with future results. This benefits the team because testing in future can benefit from the experience in analysing the difference between forecast and actual. The benefits from this survey is o Overall size of market can be increased by considering alternative markets o Availability/ awareness of the product can be enhanced through distribution and promotion o Fraction of consumers likely to purchase can be enhanced by changes in product design(and advertising) that improve the attractiveness of the product

3. Summary Many people ask is there a difference between development of an idea and testing of the concept. They say that ultimately in both we are taking inputs for the customer and analysing his responses and arriving at decisions on how to take the product development forward. This is true however at the time of the generation of the idea the concept is in a fuzzy stage and no clear cut decisions are available. In that stage we are still trying to work through a large number of options to arrive at a few shortlisted options. The process of concept development begins from here and takes forward the development. During the concept development stage all interaction with the customer takes place with a view of understanding on how to develop or improve on the few options that have been shortlisted. It is during this phase of development that the company actually begins to commit financial resources for the development of the product. This phase of the development is a more experimental phase in which interaction with the customer is planned to determine the answers to a few predetermined questions. The need for such an interaction with the customer arises when the product development team needs to clarify the choices they have to make in the development of the product. This kind of testing can be done at various stages in the development of the product meaning that the product development team can interact with the
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customer just after the ideas have been finalised in order to understand the functionality needed in the product or they can meet him towards the end of the development of the product so as to get a more clear feedback on the acceptance of the product by the customer and the amount of sales that can be expected so that the necessary changes can be incorporated before launch. There is a six step method that can be used to collect this information from the customer.

4. Your learning 1. Do you think that there is a difference between idea generation and concept testing? Please explain how. 2. Do you think we can get the information needed in concept development at the stage of customer contact in the idea generation stage? 3. Why do we need to define the purpose of the concept test? 4. If you were gathering information for a consumer durable product which method of information gathering method would you use? Why would you choose this option? 5. Please state the best method of showing the customer the concept for the method of information gathering chosen in your answer above? 5. Key Words 1. Judgemental Someone who tends to make moral judgements, or showing an attitude where judgements about other things are made 2. Prototype one of the first units manufactured of a product, which is tested so that the design can be changed if necessary before the product is manufactured commercially 3. Disastrous To have an extremely unfortunate effect or dire consequences that can lead to complete breakdown 4. Quantifiable something that can be measured accurately or something that can be mentioned as a quantity 5. Structured Having a clearly defined structure, anything composed of parts arranged together in some organised way. 6. Surveyor someone who conducts a survey, a supervisor who is responsible for the inspection of something for purposes of measurement and valuation
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7. Validate a to make valid to substantiate or to confirm

6. Exercises 1. If we use a focus group discussion what will be the advantages of this over getting the same information over the phone from the customer? 2. Why do we have to make sure that the concept is communicated in the way that the customer response is likely to be true? 3. What are the benefits of conducting these customer surveys to the company? 4. Why does the product development team have to document and save the results of the tests? How does this help the company?

7. Further Reading 1. Evans, Joel R and Berman, Barry (2007) Marketing Management, New Delhi, India, Cengage Learning, Page 356-363 2. Ulrich Karl T and Eppinger, Steven D, (2000) Product Design and Development, New York, USA, Irwin McGraw Hill page 107-159 3. Crawford, Merle and Benedetto, Anthoni Di, (2004) New Products Management, New York, USA, Page 83-91, 118-130

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61. 62.

UNIT XV PRE-TEST MARKETING AND TEST MARKETING

Learning Objectives To understand the concept of Test Marketing To understand how it helps marketers To understand the risks and problems associated with Test Marketing

Structure 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. What is Test Marketing Uses of Test Marketing Decisions needed to Test Markets Risks involved in Test Marketing Advantages of Test Marketing Various Methods Used in Test Marketing Summary Your learning Key Words Exercises Further Reading

1. What is Test Marketing Product Development is a process that is under the companys control and any modifications in its features and capabilities and values can be inbuilt during this development phase. However the purchase of the product by the customer is not in the companys control. This is affected by many variables the price, the market, the competition, the customer himself, etc. Despite all the surveys undertaken at the time of development by the company it cannot be 100% sure that the product will succeed. This is because the finished product has to be accepted by the customer in the presence of all market factors. One of the ways for companies to be more sure that the product the product will be accepted by the customers is to undertake a test marketing programme before a formal launch of the product.

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So we can define Test Marketing as the Product development stage where the product and its marketing plan are exposed to a carefully chosen sample of the population for deciding if the product will be accepted by the customer or not before its final launch. Test marketing is an experiment conducted in a test market which comprises of actual stores and real-life buying situations, without the buyers knowing they are participating in an evaluation exercise. The product is sold to the ultimate market-mix to understand the consumer reaction. Test marketing may last from few weeks to several months depending on the product and the extent of information needed to take a decision. Due to its high cost, however, test marketing is not suitable for all products. It is undertaken by the company when it lacks experience in a product and wants to reassure itself or the cost of an error is very high and so it must test market to make the product just right. The three key aspects to be kept in consideration for test marketing are: i. The composition of the population in the test market must be demographically similar to the final market in which the product will be sold. Population size Demographic composition Lifestyle considerations Competitive situation

ii. This test market must be small enough so that advertising is effective but not so small that the market behaviour is not representative to the main market. iii. It should be far enough from the main markets of the product so that any negative effect of the product during test marketing does not impact the main market.

2. Uses of Test Marketing Test Marketing is done so that the data collected during test marketing can be extrapolated for its use over the entire territory eg Nation, or state or any other area and be used for a launch of the product in the larger area. These decisions also help the company understand if there are any significant problems with the product that need to be addressed before the full launch.

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During the period of test marketing the company can evaluate several aspects like: i. Effectiveness of the advertising The effectiveness of any communication is judged by the fact that its message is understood by the customer in the manner it was intended by the company. Whether the message is being interpreted by the customer in the manner that the company intends it to be can be tested in the test marketing phase in a relatively cost effective manner since it is being undertaken in a limited market. During this phase the company would need to use specific channels or media that address the test market defined for the test marketing. This area is much smaller than the complete market and hence advertisement spend is lesser. For the company to evaluate the effectiveness is also much easier.

ii. Problems likely to occur in the distribution channel The distribution channel is the key for a product to reach the customer. Because companies tend to use the same channel for all their products it is possible that this channel is over loaded and so it is important to judge whether the system of distribution is adequate after adding the new product or not. It can also be used to evaluate what are the requirements that the distribution channel needs in addition to its existing systems and how can this be validated during the test, how much stock must lie in the channel for the sales to be effective, what kind of retailers will be most effective in selling the product, will the distributors have to be given some specific training to sell the product, whether the training that has been given has been effective or the training programme needs a modification, etc.

iii. Customer response to the product and services The success or failure of the product is ultimately decided by the customer. Hence the customers response is a crucial factor of the test marketing. Here the company uses parameters like sales, repurchase, customer satisfaction, etc to understand whether the customers have accepted the product, or do they feel that the product is wanting in some aspects, what do they feel about the price and
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quality. The necessary parameters to decide what will constitute that the customer has accepted the product and has found the price right must be set at the beginning of the test period.

iv. The price point If the price is too high the customers will not buy it and if the price is too low not only will the company lose potential profits but the customer may devalue the product (in his eyes) considering it a cheap product or of low quality (many times people see a higher priced product to be of higher quality). Hence the company has to find out whether the price is right or too high or low. Here again the company must set its parameters on what factors will lead them to understand that price is accepted by the customers. Generally the company has made an estimation of sales per customer during its product development stage while estimating the amount of business a product will generate. This is a good starting point for evaluation and can be improved on as more refined tests are undertaken.

v. The behaviour of the product in a real market like situation during previous interactions with the customers (during surveys, group discussions, etc.) or earlier market researches the conditions are more controlled and the product shown or discussed with the customer may only be a prototype so the reaction of the prospective customers not actual as to what it will be to the final product. But when the customer sees the final product in an actual market condition his reactions will be important to decide how the product will perform in an actual market.

In order to undertake a comprehensive test marketing the company should duplicate the complete system from product launch to distribution to placement in order to understand its behaviour. Since test marketing has to be undertaken in a limited area we need to define the area so that it is a representative area and yet insular insulated from the main markets of the company thereby containing any negative effects of a wrong product test market to that area itself. The test area could be:

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i. By geography (including international) a town, specific market, residential neighborhood, media coverage area, etc ii. By application the test market may be chosen based on the application of the product. So if we have a farm based product like a tractor or a cultivator testing it in a city would have no relevance. Also testing it in an area where tractors will not sell due to a low income availability will also not make sense. iii. By influence If the company has an area of influence where it can sell the product then it must know that these people will approve of the product. So say some company has its influence of selling in the Defense then it must test the product there. iv. By trade channel Sometimes some channels are specialized for a specific product eg a marketing channel, a distribution channel, a delivery channel, etc. Sometimes companies may choose areas that are not representative or areas that are hard to sell in so as to understand the problems in these areas and what can be done to overcome them. The advantages of undertaking test marketing in a small market are: Small market or town so easy to control various sales and distribution parameters. Low chance of being detected by the competition since mostly companies focus their efforts and energies on larger markets since maximum sales and profits are generated there. Distribution is forced (guaranteed) because of a small market it is possible fort eh company to ensure that its product is in all possible areas where the product needs to be placed.

The Advantages of Using Controlled Method of Test Marketing Reduced costs because the resources are used only over a small area Shorter time period needed for reading test market results sine the markets are smaller the data collection and collation is much faster. Increased secrecy from competitors No distraction of company salespeople from regular product lines

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3. Decisions needed to Test Markets Like any test or research that the company undertakes here also the company must be clear on its objectives and what it aims to achieve from this exercise. This is because apart from the fact that this an expensive way to undertake any test this test also lets the competition know about the companys plan to launch a product. Thus before the company launches its test marketing it must be sure about: i. In which market will the test be undertaken? depending on the factor to be evaluated the market will be selected accordingly. Let us say we want to evaluate the effectiveness of the media communication then we need to identify a market that is influenced by a particular one or a set of media channels; if we want to see how the consumer off-take is then we must take a geographic area and so on. ii. What characteristics will be tested? are we going to test the price point, or customers reaction on the features, or the stock levels needed in the channel, or the problems in distribution, or effectiveness of advertising communication any other characteristic or combination thereof. iii. How long will the test last? will it be a short test in which the company quickly enters and comes out after evaluating the necessary factors or will it be a detailed test. A we know the time needed for detailed tests varies with each product category and can vary from a few weeks to a few months. iv. Will modifications be undertaken midway and some aspects repeated? The company must decide if it is willing to take into consideration the customer feedback midway through its test and incorporate these into the product and retest the product. Most of the times companies keep on compiling the data till the end of the test and collate and discuss in one go the improvements or modifications needed in the whole system product, positioning, advertising, etc before going into a full launch. its

Sometimes however because of the technical nature of the product and keeping in view that for these products the customer requirements can be very clear and stringent the companies may
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decide that they will take inputs upto a pint and incorporate changes and retest the product.

v. What criteria will be taken to decide that the test is over and objectives are met? the company must finalise the criteria needed to move from a test marketing stage to a full launch stage. Hence before they commence the test they must identify the process and parameters that will be used to view the test market as complete. Some of eth factors that they may use are meeting of the objectives for sales, communication, distribution effectiveness, customer acceptance for product or price.

4. Risks involved in Test Marketing However as we have defined Test Marketing it must undertake all the activities during the test marketing that it will undertake while launching on a larger market. This has several risks for the company. i. The biggest risk is that the competition will come to know About the companys intention to launch the product. It will also come to know the entire strategy of the company from advertising to distribution to positioning on the retailer shelves. The competition will try and subvert the test marketing by dubious means. The competition may give unreasonable responses which it would not give in the larger market because of the costs and consequences for its own image. The competition may also undertake to buy its competitors products in the test market to give unrealistic figures of sales to the company. It gives competition time to react with the development of its own product.

ii. The second problem is that test marketing is an expensive process. It involves the cost of the manpower, advertising, launch, etc. and hence the company must weigh how much difference the Test Marketing will make to the final launch of the product. Unless the
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answer is that it is likely to make a large difference the test marketing must not be undertaken. iii. By the time test marketing is undertaken anyway most of the development cost has already been incurred on the product development and manufacturing facilities and no major changes can be undertaken anyway. At most the company may undertake some fine tuning to the product. iv. Test marketing is a time consuming exercise and may go on from a few weeks to several months. Thus giving time to competition to gear itself up and respond to what the company is planning to do. v. Any test market will at best be a market similar to the larger market. It cannot behave and be exactly like the larger market. Hence the lessons learnt in this market may not apply in totality in the larger market. vi. Although companies expect to save some cost in the development and launch of the product the costs are still significant. Thus the company needs to weigh if the cost of test marketing versus the benefits that it is likely to get. Here are some examples of what competitors have done while companies have undertaken test marketing: Kellogg tracked the sale of General Foods' Toast-Ems while they were in test market. Noting they were becoming popular, they went national quickly with Pop-Tarts before the General Foods' test market was over. After having invented freeze-dried coffee, General Foods was testmarketing its own Maxim brand when Nestle bypassed them with Taster's Choice, which went on to be the leading brand. While Procter & Gamble was busy test-marketing its soft chocolate chip cookies, both Nabisco and Keebler rolled out similar cookies nationwide. The same thing happened with P&Gs Brigade toilet-bowl cleaner. It was in test marketing for three years, during which time both Vanish and TyD-Bol became established in the market. General Foods' test market results for a new frozen baby food were very encouraging--until it was learned that most of the purchases were being made by competitors Gerber, Libby, and Heinz!
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Since there are so many possible risks why should companies undertake any market testing at all. 5. Advantages of Test Marketing Companies undertake these because it does have some advantages and if undertaken in the right manner it can give results that can give companies more profits. Some of the advantages that companies have in test marketing are: i. Reduces Risk A companys decision to undertake test marketings is to reduce its risk. Though monetary risks are the most significant that the company wants to reduce there are other non monetary risks also that they would like to reduce before any implementation. Thus the risks that get mitigated are: Monetary risk A national launch of a product means that the company has to have a large budget for its launch, in addition the entire sales channel must be filled to an extent so that as soon as the advertising starts and the consumer asks for the product it is available, thus the investment in the product needed to fill the channel is also needed. For any new product the sales channel and the sales force needs to be trained and ground level activities need to be performed along with the launch of the product. This takes time, effort and even money. It also takes the sales team away from their existing work thus has the potential of affecting current sales. If for some reason the product the launch does not succeed the loss to the company is quite large. Thus undertaking test marketing in a small area where the investment in terms of money and need of the sales force is limited the error can be corrected and without having an impact on its larger market and also saving it money which it would have needed to fill the channel and to undertake advertising on a national scale. Channel relationships A company is dependent on its channel for sales. Hence maintaining these relationships are important for it. New products are a risk not only for the company but also for the sales channel since they also have to invest into it. Thus a product that is not likely to be successful is a problem with the channel partners also. A company does not refund any investment made by the channel partners in case a product
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does not succeed. However a company is responsible for the success of the product and so if it does not work the channel is not happy because its money gets stuck. However if the company undertakes a test marketing exercise in a limited area it sometimes assures the channel partners that they will help them recover the money. This is possible because the companys investment is limited to a small area. A test marketing exercise thus helps to reduce the fears of the channel and enhances the companys relationship by indirectly conveying that we care for you, and so we undertake this test marketing to make sure that your money is not blocked or lost. Sales force morale The sales force is the companys interface with the channel, customers, etc. They are the ones who are the key in making a product a success in the market by using the right tactics, motivating the right channel, by bringing the right feedback from the customer and competitors activities on time. Hence a motivated sales force is very important fort eh companys success. The involvement of the sales force in a test marketing exercise is absolutely necessary. This involvement gives the sales force the feeling that the company considers them important to take their views into consideration and consults them. This can be a huge motivating factor for the sales force leading to an enhanced morale. ii. Strategic improvement Marketing Mix Many times test marketing is not done for launching an absolutely new product. Many times it is done to change the marketing mix for the product. The company may want to evaluate a change in pricing, positioning, features. It may want to test new distribution channels to see if they are more effective or if they can add to sales. Traditionally if we wanted to withdraw money from a bank we would have to go to the bank and get the money from the counter or if we wanted to make a payment we would have to make a cheque and give it to the person for whom it was meant and he would have to go and deposit it in his account
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for the money to get transferred to his account. When the internet became available the banks got an opportunity to use another channel for the same activities. To Understand if this would be beneficial to the bank and if the customers would accept such a system the banks had to test market their new delivery system for existing products through internet banking. In the initial stages they had to give incentives to customers to use this product they had to assure customers that this product was safe. The test marketing showed that this new delivery of an existing product was not only more convenient to the customers but also much cheaper for the banks since the banks did not have to increase the size of their offices with the increase in customers saving money on manpower and real estate costs. Banks have now successfully expanded these products and have added many more because of the success of standard products. Production facilities A test marketing programme allows the company to test if its production facilities are capable of manufacturing the product in the desired quality and features planned. It also allows them to evaluate these facilities in an integrated manner along with the production of existing products in real time performance. In case any new technology has been incorporated along with an existing technology it allows the company to understand any limitations that the new technology might have in working with its existing systems.

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6. Various Methods used in Test Marketing Test marketing can be done in several ways depending on the objectives and the products being tested. i. Open Market Sale in a Test market This type of test marketing is generally undertaken for consumer products where the final customer is not identified as an individual but is identified as a target segment with a certain set of characteristics. In this type of testing the a test market similar to the final market is selected. The combination of the 4Ps of the product is employed. The sales channel is stocked which in turn puts the product on the retail shelves and a mini product launch is undertaken limited to the test market only. The product sales is monitored in the same manner as it would be ultimately. The retailers are restocked as their products are sold. The company monitors the buying pattern and behaviour of the customer. They also interview some customers who are buying the product to get their immediate feedback on the product and their reasons for purchasing the product. This data is then analysed and
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extrapolated for a larger market and for making any changes in the product before the final launch. ii. Test Marketing by Informal Selling This type is used both for consumer durables and industrial products. In this type of test marketing the product information is given to the customer directly with an objective to inform him about its features, prices, varieties, etc. and he is then free to take a purchase decision. The sales people may be trained on the product and given the necessary promotional material which they will use to educate the customer so as to help him decide about the purchases. In the case of Industrial products the sales persons may go and make presentations to the ultimate customers to get their feedback. They may also induce trial purchases with customers to get feedback from them. Many times products may be displayed in trade shows where potential customers see the product and are interactively engaged to get feedback and book trial orders. In the case of consumer products informal selling may be done by setting up kiosks in some key markets and displaying the product in them. As customers pass they become aware of the kiosk and the products and interact with the sales people in the kiosk. They tell the customer about the product, its features and prices. They are likely to get customer feedback and trial which is a more direct way of getting customer information. These trials when conducted over several markets and customers give valuable and more real information to the company. This kind of test marketing is done when: The company has a close relationship with the customer When products are technically complex When large amounts of money cannot be spent on test marketing of products When we want to get some specific information from the customer.

iii. Test Marketing by Direct Marketing

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New and emerging technologies now allow companies to undertake test marketing in ways that allow them more control and secrecy over it. This technique is much cheaper than the traditional method of test marketing because it does not need the company to undertake a marketing campaign neither does it need to fill the sales channel (which also needs training, promotional material). In this type of test marketing the company uses a Direct marketing company for test marketing its product concept and its 4Ps via a direct marketing campaign. In the camping the direct marketing company sends out mailers to prospective customers in the target segment. This is followed up with tele-calling to find out the customers response and desire to buy the product. In some types of products the customer is sold the product and after delivery and use his feedback is sought to collate information. This type of method has more secrecy than by any other controlled sale method and the feedback is very fast. Since the positioning of the product is not being communicated to the whole market (via advertising) the company is in a position to try several combinations of 4Ps and variations of product specifications before arriving at the final combination. The technique matches today's growing technologies of credit card marketing, telephone ordering, and database compilation. iv. Test Marketing in Minimarkets This type of test marketing is similar to the conventional test marketing except in that the whole town would be taken for test marketing. In the case of Mini Markets the town would be replaced by a few strategic retailers in the whole town. In a way defining a mini- market or a small market. Here also we do not use regular local TV or newspaper advertising, but chosen outlets can advertise product in their own flyers and windows. They undertake special display of the product on their retail shelves and may undertake a special localised promotion near or outside their shop to highlight the product. These retailers will also use various techniques to get customer information about those who undertake trial or show interest on its use.
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The retailer may also motivate the customers first trial by using trial period discounts, or by giving coupons that can be redeemed for a discount within a certain trial period. The advantage of this type of test marketing is that it is more difficult for the competition to detect and requires a significantly less effort on the part of the company in manpower terms but also in terms of monetary resources committed. This type of test is as close as possible to a real market test without needing a large effort. There is a greater possibility of saving money at the end of the test.

v. Test Marketing by Scanner Market Testing This type of test marketing is used to test products over different markets. It is most suited when a company want to reposition its existing product for say price, packaging, features, etc. and see the effect different positions may have on sales. In this type the product with different positions is launches in different markets of the company and sales data is audited over various stores within or across markets. Data may be collected by the sales executives or it could be collected from the companys MIS system. The objectives could be to Use the data to replace a mini-market test It can compare sales in cities where differing levels of sales support are provided. It can monitor sales during a rollout from one region to the next It can monitor performance of different positions of the product.

Here the product are monitored on several parameters like sales, returns, repurchases, support, discounts needed to sell, promotion, etc the company is able to evaluate the products performance and make necessary changes or modifications in the product, promotion or other parameters.

vi. Test marketing by actual user feedback

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We can also undertake test marketing by taking an actual user feedback. This is usually undertaken for FMCG products which can be taken to the consumer for trial and feedback. SO let us say a company wants to introduce a new flavour of tea in the market. They can install kiosks in market places where the consumer frequents. Here the sales persons at the kiosks make the consumers try the new flavour and also take their feedback. This type of test can be undertaken where the cost of developing the product is not high or it an extension of the companys existing product line.

7. Summary Test marketing is a process that companies undertake sometimes in order to reduce their financial risk in launching their product. Though there are other reasons like maintaining channel relationships or enhancing the role of the sales force, these reasons are generally secondary factors in undertaking test marketing. Test marketing is used to understand various factors line the effectiveness of the advertising, the effectiveness of the distribution channel for the product, what is the customers response to the product and whether the price at which the company intends to sell the product is right or not, etc. In short the company tries to understand the behaviour of the product under real life situation. However this type of test marketing has the single biggest disadvantage that the competitor comes to know about the companys plans ahead of the full launch. It gives the competition time to react and plan its own products. In order to overcome some of these problems there are other forms of test marketing which can help the company get accurate information and reduce the cost of test marketing. Some of these use latest communication and information technologies to assist companies in undertaking test marketing.

8. Your learning 1. What is Test Marketing and what is its significance to product development? 2. How does Test Marketing help Marketers?

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3. market? 4. 5.

Why should test marketing be undertaken in a small What criteria should we use in defining the test area? Why is test marketing also considered a risk?

6. How does informal method of test marketing reduce the risk of a company?

9. Key Words 1. Exposed To shown to people. Exposed to a target segment means that the product or its communication is shown to the target segment. Comprises consists of or includes. If the test market consists of actual stores means that actual retail outlets are used. Evaluation exercise the process of undertaking an examining and judging carefully or estimating the customers reaction without their knowing that this is being done. Ultimate market-mix The final combination of the 4Ps that the company is likely to follow in the final market. Composition the combination of the various parts of the markets that combine to make the whole market. A demographic composition is the various types of people that combine to make the complete market. Impact the effect or the power to make an impression. To have an impact on means to have an effect on. Extrapolated to estimate by extending or projecting the known information. To use the data on the customers behaviour in a smaller market to understand/ estimate the behaviour in a bigger market. Relatively cost effective to be cost effective in relation to another market or area. If advertising had to be tested in a larger area it would have been more expensive and so in relation testing in a smaller area is more cost effective.
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2. 3.

4. 5.

6. 7.

8.

9.

Areas that are not representative an area that does not represent the target segment of the company. In this market the larger part of the target segment will be different from that of the companys target segment. Collation of data To assemble data in proper numerical or logical sequence so as to examine and compare it. To find points of agreement and disagreement and help in taking decisions. Adequate sufficient to satisfy a requirement or meet a need. Insulated something that does not allow the passage of information or any other thing like electricity, heat, sound. An insulated market is one where information on activities being conducted within do not go outside the market. Representative area A area that is a smaller version of a larger area in terms of features or characteristics. Where if some activities are performed the reactions of the customers would be similar to the larger market it represents. Aspects A way in which something will be viewed by the mind eg viewed all aspects of the situation. Subvert - to spoil or destroy by wrong means, to corrupt. Subvert the test marketing means to spoil it by trying to generate wrong information for the company by using unfair means in the market. Dubious something that is of questionable nature. Something that arouses doubt in the mind.

10.

11. 12.

13.

14. 15.

16.

10. 1.

Exercises What types of risks does test marketing reduce?

2. How does test marketing help improve channel relationships and sales force morale? 3. What other avenues of test marketing can be use by using todays technologies?
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4. How can we use different types of test marketing for keeping the information about new product launch from the competition?

11.

Further Reading

63. 1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India: Response Books pg 161-164 2. Crawford, Merle and Benedetto, Anthoni Di, (2004) New Products Management, New York, USA, Page 449-464 3. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice Hall of India, page 348-350

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64.

UNIT XVI PRODUCT LAUNCH

65.

Learning Objectives To understand the how a Planned Product Launch is beneficial To understand the various elements of a Product launch To understand some key decisions needed in Product Launch

Structure 1. Learning Objectives 2. Product Launch and its Objectives 3. Preparation for Launch 3.1. The Competitive Strategy 3.2. The Market Strategy 3.3. The Company Analysis 4. The Final Decisions 4.1. Product Related 4.2. Pricing Related 4.3. Promotion Related 4.4. Distribution Related 5. The Launch Process 6. New Technologies for Product Launches 7. Summary 8. Your learning 9. Key Words 10. Exercises 11. Further Reading

1. Product Launch and its Objectives The product Launch is the final stage of the new product development process in which the decision is made to put the new product into full scale production and to launch it into the market. The product launch signifies the point at which consumers first have access to a new product.
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Promotion often begins prior to product launch as marketers prime the market. At this stage emphasis may be on public relations in an attempt to encourage the media to discuss the product prior to launch. The success of a new product depends not only on the idea behind the product, but also on the marketing of the new product before, during and after the product launch. New Product Launching (NPL) is part of the New Product Development. In the modern world of business, it is useless to be a creative original thinker unless you can also sell what you create. Management cannot be expected to recognize a good idea unless it is presented to them by a good salesman. David M. Ogilvy

If we look at the market today, we observe that there is major competition for virtually all types of products. This major competition has motivated companies to continue coming out with new and innovative products in order to have an edge over competition. This can give companies sustained success amongst a competitive market. That is why having a product launch plan is very important for the success of a product. Here are four easy ways to get started with a successful product launch plan. When the company creates a product launch plan, it is very important that it has an understanding of its target market. If the company releases a product amongst an audience that has no interest in its product, then the product launch plan will be a tragic failure. Therefore, the company must really know its target audience before it comes up with a product launch plan. Also, it is important that the company launches its product during a time when there is maximum demand for its product in the market. With a good product launch plan, it is necessary that the company market and presell its product before the actual launch date. During this time, the company must use as many methods of advertising as it can to get send out the message. Remember, that a successful product launch plan always takes into account the target audience that it is marketing to. The company should always include attractive bonus offers with its product when it begins to come up with the product launch plan. Including bonuses and attracting offers with the product will improve the chances of success and earnings gained from the launch. Another proven product launch plan idea is to keep the price low initially during the launch, then raising the price to its normal price after a few days.
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The objectives of the launch are: i. To give the product some momentum in the market. ii. To announce it to all the customers iii. To use the opportunity to get some pre-booking for the product. iv. To fill the distribution channel by telling all channel partners that after the launch customers will want the product immediately. v. To inform internal customers that the development phase is over and that the product is being commercialised.

2. Preparation for Launch In order to launch the product in an effective manner the company as to undertake a large amount of ground work before the launch date. The product launch strategy is a culmination of a lot of work done on the product since its conceptualisation through its development and testing and finally to its launch. In order to launch a product we need to work with funding, marketing, public relations, development and many other channels to get the product off the ground. In the preparation for the product launch the company must ensure that i. It has the right strategy for the product launch ii. It has the right combination of the 4Ps so as to have a competitive edge in the market.

New Product Strategy The New Product Strategy is developed right at the start of the development process and it is fine tuned throughout the development process. This strategy provides the long term vision of the product and how this fits with the business objectives of the company. At the end when the product is ready for launch it is this strategy that forms the basis for its launch. The components of this strategy are: 2.1. The Competitive Strategy

The competitive strategy defines for the company how the product will be differentiated in the market from its competitors. It defines its positioning and what values the customer will seek in the product. A lot
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of this is also based on the strengths of the company and what it is capable of providing to its customers. The basis of defining the competitive strategy is how the company wants the products success to be measured. Does the company look at the product in terms of adding for the company the top line (sales) or bottom line (profit) or it expects to capture a large market share, or it wants the product to help the companys market penetration objectives. This definition of the products USP in the market is defined at the time the product is approved for development and the Customer Requirement Document is frozen. Subsequently as it passes through the various development phases it might undergo subtle changes depending on how the development takes place. If for example there is a road block in the development of the product a specific material is not available or is too expensive, or a technology needed is not available because of licensing issues or any other problem and so the product specifications are modified marginally the effort is to ensure that the competitive strategy is not changes. If some fine changes are made needing some fine tuning the strategy may also be fine tuned along with the development process. This must outline the Functional benefits of the product these are benefits that can be measures in physical terms as time, money, duration, etc Psychological benefits these are those that gives to the customer a pleasant feeling such as self esteem, feeling of power, pleasant view and so on The objective of the competitive strategy is to place the product in the market in such a way that it allows the company to have an advantage over the competitor. The competitive strategy consists of: An analysis of competition their products and competencies A SWOT analysis of their products A statement of areas where the company has an advantage over competition It also gives how the new product will be positioned as compared to competitive products. It also gives a scenario of the current market and a projection of the scenario by the time the new product will be ready.
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See how Tata Motors got their competitive edge through their Chairman Mr. Ratan Tatas vision at the end of this chapter.

2.2.

The Market Strategy

This strategy outlines activities the company will need to take in order to meet its marketing objectives defined in the competitive strategy. This document will define the sales channels that the company will need in order to sell the product, the amount of advertising it will need, methods it will use to approach customers, what after sale services will the company need in order to support the product, in short all market related activities. This document aims at positioning the company/ brand and the product vis-a-vis the competition in the market space. The market strategy analyses the various aspects of the market and its customers. Form this the company evaluates what types of customers are available in the market, it also tries to uncover if there are any new applications or customer types that can be added to the new product being planned, since this will enhance the area in which the product can be sold thereby increasing the possibility of the products success. We know that any new product development originates from a customer need or unfulfilled desire. The study and analysis of these unfulfilled desires has already led us to begin new product development whose competitive advantages we have outlined in the competitive strategy. Now added to this competitive advantage that the company wishes to deliver to the customers it must also evaluate its own strength, the various types of customers that can be targeted in addition to the initial segment that the product was aimed for. Based on this analysis the company must find the best way of delivery of the new product if it has to succeed in making a name for itself and ensuring that the product is successful in the market. The company must undertake an analysis of the following areas for making a successful marketing strategy: Consumer analysis In order to be able to sell to the customer the company must know the customer. They must know his characteristics, his buying process and what type of benefits he seeks physical or emotional

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Customer Characteristics first of all we need to define if our customer is a business to business customer or a business to consumer customer. A business to business customer would be if a hotel buys bathing soap from a company. Here the companys customer is buying in bulk and may be needing a special packing, and also a special price since the business customer is buying in bulk. However the same soap if it is bought by an end consumer who is buying the product for his own use then he will be a business to consumer type of consumer. He will buy in much smaller quantities, prices will be different, and the way of selling and promoting the product will be different from the business customer. We also need to define the demographic characteristics of the customer along with the area in which the customer is since both these factors have a significant effect on the buying process of the customer.

The Buying process every type of customer has their and this process varies from product to product. So if a customer is buying a bathing soap the process, effort and involvement the customer will have will be significantly different from that of buying a car, or a consumer durable. So the company must evaluate Who is the decision making person? In a Business-toBusiness the decision may be taken by the manager so we must know which one is important to take the product decision to him. In a Business-to-Customer situation the decision may be taken by the family or may be taken by one person in the family the father, mother or even the child. The more the people involved in the decision making the more complicated the process. At what time or periodicity does he buy? The frequency of the purchase can have a significant effect in the companys strategy. For example a large number of products are sold during the marriage season or the festival season. This will vary with the demographics of the population Diwali and Eid come at different times of the year and so the purchase pattern in demographically different area will vary. How does he buy? Depending on the different types of products and the customer category the process of purchase will vary. It can be impulsive at one end of the spectrum and highly considered at the other end of the spectrum. So if a person has to buy an ice cream he may buy it on an impulse but if he has to buy a house he may consider various options and look at
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each of them and take his time before taking a decision. How does he pay? Once the customer decides to purchase the product he must pay for it. It has been seen that if the payment can be facilitates it can lead to an enhanced sales. About two or three decades ago all payments were in cash. And so if a customer did not have cash he could not buy a product until he saved enough money to buy the product. However over the last 10 to 15 years we have seen the introduction of various options in payment. The introduction of credit cards, debit cards, loans for consumer durables, homes and now internet banking has facilitated the sales of many products. If we see car sales companies analysed that customers do not have all the cash needed for purchasing cars and so they tied up with financing companies to provide loans for their products. These loans were provided at the sales outlet of the companies with the customer not having to run around banks to get loans. Because of this convenience the customers began to buy cars in a much larger number in comparison to what was being bought earlier. Market analysis The company does not intend to sell to only one person. So it must know the customers profile, thus it now has to group all the persons sharing the same profile: It is called the customer market segment. A market is a group of customers (or prospects) sharing their characteristics all of whom get the benefits offered by the product or service. Thus the company must first define the market for the companys product. When we begin to group customers we see that we find that for some product categories the user cannot be categorised while in some cases we can do so. We thus have two broad categories of customer markets: The Undifferentiated markets these are the markets in which the product is used by all categories of people without discrimination of age, sex, income, social standing. It has a benefit for all categories or segments of the markets. For example Coco-Cola, Pepsi these are consumed by virtually all segments of customers.

Segmented markets these are markets where products can be targeted to specific customer segments or grouping of customers based on some parameters. The company must segment the market into different segments

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based on its requirement of application of the product. These parameters could be

Demographic parameters divide the population on measurable variables such as age, sex, income, educational level and so on. Psychographic parameters These parameters are emotional and difficult to measure but sometimes can give valuable information based on the type of product. Geographical parameters customers by area, city, state, country, market, etc.

Based on this definition the company must evaluate the total size of the market. While segmenting the market the company must ensure that each segment must be: -Homogeneous: It means that a segment must be clearly different from other segments in the same broad market. For example, a segment having people income ranging from Rs 20,000 to Rs 200,000 is not homogeneous and not useful for a marketing strategy. -Consistent: A segment must have a large number of prospects to allow a company to make profit. The factors which can influence the size of a segment are the increase in population, the situation of employment and the changes in income, the supply of resources, the evolution of laws, the consumer tastes and preferences. -Profitable: A segment must generate profit. It means that the prospects in the segment must have a sufficient income with regard of the product price. If you sell luxury car, it's not a good idea to choose a segment which only contains middle income people. -Executable: It means that the company can reach the segment through advertising, sales force, distribution. It does not make sense to choose a segment if it is unable to reach the people who are in the segment. For example, if we want to sell a toy in Japan and if we do not understand the Japanese culture we will never be able to sell in that market. Once we have finalised the segment, the first task is to evaluate the size of the segment. This is important as our sales projections are dependent on the total requirement. From this we need to remove the quantities being sold by competing products or companies. This will then finally give the gap available to us for selling.
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Once the market size has been evaluated the company must analyse the growth trend of similar products in the industry and the industry as a whole. 2.3. Company Analysis

Introduction of the product needs to be fully backed by a companys strengths and abilities. Hence the company must analyse its capabilities and see if these are in line for example if a company does not have the ability to undertake extensive distribution then either the product must not be one that needs distribution or it must then select channels that do not depend on distribution or the must tie up with a partner that will be able to help in overcoming the companys weakness in distribution. The company must analyse the following Synergy with business strategy Synergy with existing products Manufacturing capability for new product Ability to distribute the product Ability to support the product in after sales Knowledge of its manpower and its distribution channel regarding the product.

3. The Final Decisions The broad elements of the strategy have already been laid at the beginning of the product development product. However since the product development takes some time and markets are dynamic and constantly changing the company must once again make a check on the relevance to the current market situation. If no change exists then there is no concern, if there is then the necessary changes need to be incorporated. Once this has been done the company must finally decide the 4Ps of the product. Here all the analysis that the company has undertaken till date will come into play. The difference is that before the product has been launched we can change all parameters without having any significant impact on the product. However once the product has been launched it becomes difficult to change parameters drastically without having a negative impact on the product and its performance in fulfilling its business objectives. All the fine tuning that
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the company needs or can undertake is specified in a Tactical Plan. This plan consists of moving the 4Ps to the best advantage of the company. Hence the areas in which the company needs to take a final decision are: 3.1. Product Related

The two key decisions that the company needs to take for the product are Brand what brand will be used to launch the product. Will it be a main brand or a sub brand e.g. HP is a main brand but HP Deskjet is a sub brand. The company must take these decisions based on the parameters discussed under Branding Decisions discussed in Chapter VIII Product breadth At the time of launch the company has to finally position the product amongst the various other products that the company. It must finally decide what will be the initial features of the product and how many variants (bigger, smaller, etc.) of this product will the company launch. Even if the variants are not launched immediately the company must have a plan on the timing that it will use for launching these features. Various aspects discussed in Product Line (chapter IV) and Product Portfolio (Chapter VI) decisions must be taken into consideration. 3.2. Pricing Related

Pricing decisions are amongst the most important ones that the company has to make. Price is the first parameters that the customer uses to evaluate the product. A very high price and the customer will not buy the product and a very low price the company may not meet its profit or business objectives. Hence before the product launch the company must Finalise the price the criteria for defining the price commence from the various costs in developing, manufacturing, storing, distributing and marketing the product. However the final price is dependent on what the customer is willing to pay for the product. This means that no matter what the cost if the customer is not willing to pay the price of the product the company cannot sell it. So if we take an example of a product whose cost of raw material, manufacturing, selling etc is say Rs 100 but the customer is willing to pay only Rs 90 then the company will not be able to make a profit on this product. However it is also possible that the customer is willing to pay Rs 200 in this case to company has the flexibility
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of pricing its product anywhere between 100 and 200 Rs. The final price would depend on the strategy the company wants to use of keeping a high price and taking profits or of keeping a low price and penetrating the market. Sometimes a combination of both is used by initially introducing the product at a higher price and then later lowering the price. Pricing Policy The Company will need to make several decisions on price once the product is in the market. These decisions will be needed to counter competition, to cater to different customer groups, or to the sales channel, or large institutional buyers. It is also possible to create different price levels for different customer groups and geographical locations. Hence in order to take these decisions the company must create a policy that helps guide its employees who are at different parts of the organisation. It allows for a consistent decision making process. The objective of this policy is to create attractive opportunities for consumers, so that they tend to buy the product faster. 3.3. Promotion Related

Based on the product being launched, the companys resources, the market conditions, customers, etc the company must decide on the type of promotion and extent of promotion. Thus the company must decide on Promotion budget The promotion budget outlines the total resources the company is willing to commit on the launch of the product and to see it through the initial stages of its growth. How this is spent depends on the tactical plan laid out in the detailing of the various activities laid out in the launch related promotional activities. Define the promotion costs and activities to be undertaken at launch This is a part of the tactical plan and lays out the specific activities, and their cost, that the company plans to undertake while launching the product. Defining the promotion expenditures gives a clear view on the costs for promoting the new product. This information can be used in calculating the price level of the product. Define the sales force needed during promotion Any new product launch needs an additional amount of sales force in order to ensure that placement of the product in the market and at appropriate
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places on the shelves, to undertake special promotions, on ground, to ensure that the channel understands the benefits of the product especially in financial terms, etc. In order to undertake this the sales force has to be trained and knowing how many people is important sometimes companies hire additional people for the initial launch period by using companies specialised in such activities. 3.4. Distribution Related

The product has to pass through the distribution channel in order to reach the ultimate customer. The effectiveness and ability of the channel to move the product is important. Hence the company has to decide Choice of channel There are several types of distribution channels. Each type has different capabilities. Some can handle consumer durables, some FMCG, some industrial products. Some channel partners are cash rich and have enough additional resources to invest in new products some are not and so new products means that some existing product will suffer at this expense some do not have the technical expertise to handle a specified product, and so on. Hence the company must make a choice of the channel to use. Existing channels are the simplest to use but they may not always be the best suited. Many times adding a new product also motivates the channel partners and so leaving them out of a new product because that are financially weak or not trained on the product is not very good. So companies must evaluate a complex set of issues and decide on the channel. In combination with the channel expenses and distribution intensity, it forms a distribution plan. This plan contains information about the organization of the distribution of the new product and is part of the tactical plan. Channel margins and other channel expenses The objective of the company are to minimise the cost of distribution. However if the channel margins are not attractive enough the channel partners will not be motivated enough to push the product. Hence the company must balance between the cost of the channel versus how much it wants the channel partners to feel motivated to push the product. We must realise that after all this is a cost and will need to be passed on to the customer. The customer will pay only as long as he sees value in it. Defining the channel expenses gives a clear view on the costs for distributing the new product. This
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information can be used in calculating the price level of the product. Lastly the company needs to define the channel/ distribution intensity this means that the company must evaluate how much territory a given distributor will cover will it be a state, a city, or a market. This intensity may or may not need the addition of another layer in the distribution channel (a super distributor). However for a product like a soap which is needed by virtually every retail outlet the distribution intensity may be high while for a product like a TV, Refrigerator the distribution intensity may be low since the number of outlets in a market will be limited.

4. The Launch Process The actual launch process commences a few weeks before the actual launch of the product in the market and continues till the product has been successfully launched inn the market. The period can vary from a few weeks to a few months. SO we can break the launch into three zones:

i. The period just before launch: This is a small period of time a few days or weeks before the actual launch/ announcement date. This period is concerned with the logistics of the actual launch. In this period the full scale production of the product starts with the variants that the company has decided to launch at the initial stage. The product is dispatched to the various parts of the market and the sales channel is filled. Only the last mile that is the actual delivery of the product to the retailer is not undertaken. Even though the retailer does not have the product he is aware of the new product likely to arrive and has already been explained how to sell the product. His initial orders are pre-booked so as to dispatched them as soon as the product is launched. During this period the promotion of the product is also put in place. All advertising is discussed with the releasing company and the exact schedule of advertising is planned for TV, newspapers and magazines. Any ground activity needed to support the product is also given the necessary tools and sent on location. If any additional manpower is needed it is hired and trained for demonstrating the product to the customers or to the retailers. This is necessary to produce a big impact
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on the market and the customers so that they become aware of the product and also get interested in undertaking the first trials of the product. Any initial offers to customers and to channel partners are also initiated. So the customers may find that if they buy the initial lot of the product the prices may be lower than the actual price of the product. Sometimes companies also combine the new product with an existing established product. This way the customer feels that he can try the new product and even if he does not like the new product at least he is getting an existing product which he is using and so it not a total loss. Since it is not possible to go to a large number of dealers and give them the in shop promotional material immediately after the launch of the product, this material is provided to the retailer during this time. This helps him put it up in his shop as soon as the product is formally launched in the market. The actual product launches are of several types in some cases the product is just sent into the market and launch is communicated through the commencement of advertising (the launch of the Chevrolet Optra), in other cases launch is undertake at a formal location and in a very formal manner like in the case of the launch of the Nano car which was launched through a well choreographed launch in a hotel. If the launch is of the latter type this must be prepared for in this phase.

ii. The actual product launch The launch of the product is the simultaneous execution of the advertising of the product along with an announcement of the product. As soon as the product is launched the sales force ensures that the product is dispatched to the retailer from the distributor. They also ensure that the product is placed in the right placed on the retailers shelves so that it is convenient for the customers to see and try. The sales force also makes sure that the retailer has displayed all the promotional material prominently for the customer to see. Since the sales force cannot be at all the retail stores at the same time they prioritise the outlets by importance in terms of sales. They visit the most important ones first and work their way to the least important at the last. If the company undertakes a formal launch process in an specified location like a hotel, auditorium, etc. then it provides them the
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opportunity to book some orders during the launch. Te people who are present are presented with an offer that dives them some benefit based on their order. The product launch is an instant in the life of the product. It is meant to provide an initial momentum to the product. This is the momentum that will induce the initial lot of customers to try the product and begin the process of trial acceptance and repurchase.

iii. The period just after the launch This is the period of a few weeks or months after the product launch. It is a very critical period in the life of the product because it is in this period that the company realises if the product has been accepted or rejected by the customer. During this period the company must Monitor sales and evaluate if they are up to the mark expected by the company before the launch of the product. They must evaluate the markets purchasing the product to see which segments are actually buying the product. They must evaluate and rectify any limitations in the distribution channel. If any drastic feedback is received from the customers then the necessary modifications to it need to be undertaken on a war footing. In this period the competition will also react. Now for all the scenarios of the competition the company may have planned eh competition may do something very similar or absolutely different. If it is something on expected lines the response will be easier. However if it is radically different the company will have to act extremely fast to counter it. If a new and unexpected segment gets added with the use of the product then a modified approach may need to be evolved. Advertising needs to be monitored for its relevance and quantity. After all we do not want to continue an ineffective advertising nor do we want to do so much that it wastes resources. At the same time all necessary information and learnings new customer segment, new application, any problems, etc must be communicated not only to the top management in the company but also to other parts of the company for people to take
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advantage of the benefits and not make the same mistakes. This allows for enhanced teamwork and synergy between different parts of the organisation. Constantly review the product with the channel partners, sales team and even with a few select customers to get a sense of the product over and above just numbers. This is important as it allows for the launch of different variants and also to proactively solve problems which the customers are likely to point out later. A customer pointing out a problem always reduces the image of the company. Self correction always enhances it in the eyes of the customer. As the product passes from the introduction stage to the growth stage the company must review all the parameters set out for the product and see how many have been met and what more can be done to enhance the performance of the product.

5. New Technologies for product Launches Today there are several new technologies that can be used to launch and support a product. These technologies allow for a cheap dissemination of information and also allow us to present information in a manner that is needed by the target segment. Some of these technologies are The Internet itself The internet has given the companies the ability to disseminate information like never before. One of the big advantages of the Internet is that information can be customised in a manner that is needed by the viewer. So if we want we can link the product information to different sites in a different manner let us imagine that there is a site that is frequented by younger people and the company puts its link on that site. Any person clicking on the link will see the information that has been displayed keeping a young profile. Similarly this link can be put on a site frequented by middle aged people them the information displayed on clicking will be seen from the point of view of a middle aged person. Similar breakup can be done sex wise ie separate for males and separate for females. The social networking sites like Facebook, Twitter, Ibibo, etc. Today social networking sites allow companies to interact with customers directly and engage with them by answering their queries and gently direct them in taking decisions to purchase the product. This
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type of interaction allows customers to share their experience on using the product. This interaction has more credibility that the organisations communication since customers always feel that the company will always talk positively about their product but customers will give real feedback. Companies nowadays use agencies who try and take the discussion in the right direction. Any new product that the company wants to launch can be announced on these sites and can spread very fast with almost no cost to the company. The email marketing another tool that has been created by the arrival of communication technology is the targeting of customers by sending them emails with product information. It can also provide information on where and how to buy the product. This information can be tailored for the target segment by screening the email addresses by the target segment criteria. SMS marketing is another variation to the email marketing and is sent on the mobile phone instead of the computer. This again is a powerful tool in informing customers about approaching product launches. Interested customers can be indiced to buy the product and they may even forward this message to friends and relatives making the job easier and cost effective for the company. Association with various interactive TV shows today many TV shows are interacting with their customers- eg Indian Idol this platform is also being used to cross promote various products. Amir Khan used one of the shows to promote his new film Peepli Live. On this show not only the director and the cast were present but he himself was present. They all talked about the film and showed parts of it. Since the viewership of the programme was high the film got its share of promotion prior to launch. Promotion through radio jockey linked promotions similar to TV now-a-days radio stations also take on the job of promoting several products. They in build the promotion along with the radio jockeys interaction with the audience. This is again used for launch of films, to give positive reviews of new films so that people are motivated to go and see it. People listening to the radio jockey assume that it is his opinion and not that of the company launching the film and so it has a much greater credibility.

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6. Summary The Product launch is the culmination of a series of activities that the company has undertaken from the commencement of the product development. In todays competitive market scenario a product launch ensures that the product is given the initial momentum in the market so as to help it establish itself. It allow all the participants in the market the channel, the retailer, the customer and also the sales force to be informed about the new product in the market and thus all of them make an effort to know and sell the product in one unison. In the preparation of the launch which begins with the commencement of the development the company must have in place the competitive strategy, the marketing strategy and also an analysis of the companies capabilities. Though all of these would have been created at the commencement of the product but they must be once again evaluated before product launch for any missing links or changes brought about because of market forces. Once these are found in order the company must not take the final decisions on the various aspects of the 4Ps price, promotion, place and product. These are the market variables that the company can fine tune before launch. Though the company executives would have made several estimations on these aspects while planning the product all those estimations were still within the companys four walls and could be changes as many times without any impact on the product. But once launched in the market changes are very difficult and so the final decisions must be taken very carefully. Finally all the launch activities must be planned and undertaken. Once launched the company must continue to evaluate the performance of the product in the market so as to continue to fine tune all requirements and help the product establish itself. In this stage the company also has a chance to respond to any actions that the competitor may have taken post the product launch. Today many new technologies are available that help the product manager in lowering the cost of product launch while helping him penetrate the market better and also customise the message to each category of customer separately.

7. The Nano Car Tatas Competitive Edge THE NANO CAR TATAS COMPETITIVE EDGE
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The concept of the Nano car was first thought of by Mr. Ratan Tata, Chairman Tata Motors in 2003. He dream was to provide customers with a safe, affordable Car for the common man. Finally after a wait of five years, crossing all financial and technological barriers, Mr. Ratan Tata kept his promise and unveiled Tata Nano on 10th January 2007, at the 9th Auto Expo 2008 in New Delhi. Tata Motors - Tata Nano is worlds cheapest car with a price of around Rs 100,000. While designing the car the company had a clear target market based on which it started developing the car. 1. The low-cost car was intended for the masses. To be used by a family of four that would otherwise have to use a scooter, precariously balancing a child in the front and the wifes on the pillion holding a baby in her lap. The reason for selecting this was that the first-time car buyer in India is a huge market. 2. This car would also attract the small cars buyers who currently had no option but to buy products like the Maruti 800. Now why is it that consumers in India would buy this product and not stay with the two wheelers that are significantly cheaper than the Nano car? There are several factors which need to be looked at to understand the background: The buoyancy of the Indian Economy We need to look at the economic factors before the great depression of the 2008. During the early part of the 21st Century, after the removal of several barriers of the license raj, the Indian economy continued to register an impressive GDP growth. Although during this period the economy continued showing inflationary trends because of the increase in the cost of raw materials and energy. But seeing India, a huge economy with 400 million plus middle income group grow, investment flows into India had gone up to a record level of about Rs. 120,000 Crores an increase of 20%.

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The Booming of the Automobile Industry During this period the Indian automotive sector also continued to grow at around 15% year on year with substantial growth in new passenger car introductions and the light commercial vehicles sector.

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India which was till now considered as a low potential market because of the domination of the Ambassador and Premier brands of cars began to be recognized as a potential emerging automobile market. Foreign players also began to invest or to enhance their investments in Indian auto industry. The various tax reliefs and liberalization policy provided by the Govt. of India in recent years had made remarkable impacts on Indian Automobile Industry. The Indian auto industry, because of its high growth per annum and the large size of the population, had become a preferred destination for several global automobile players like Volvo, General Motors and Ford. The Indian automobile market can be divided broadly in three segments the commercial vehicles, the passenger car and the two/ three wheeler segment. At the time of the commencement of the development of the Nano Tata Motors were already market leaders in commercial vehicles and were a very strong contender for one of the top slots in the passenger car segment. The company Tata Motors which started in 1945 when it started manufacturing locomotives made its first commercial vehicle in 1954 with the collaboration of Daimler Benz. By now they had expanded from one facility in Pune to Jamshedpur, Pantnagar and Lucknow also. Their desire to be number one was very strong. In order to become number one they would have to create a product that will give numbers and capitalise on the trust of the Tata name. When TATA looked at the competition in cars they had two options one was to go for the top end segment of the market since they were already catering to the middle end with their Tata Indica range of cars. Otherwise they could go to the lower end of the cars which was currently dominated by the Maruti 800. Now in order to compete with this product the company would have to do something drastic to break into the market. Hence Tata Moors initially targeted the Nano car as the least expensive car to be produced in the world aiming for a starting price of Rs 100,000 despite rapidly rising material prices. Here Tata Motors used all their engineering and developmental skills to overcome the challenges posed by such a low price and desire for high quality and performance standards.
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The Tata Nano uses adhesives and plastics instead of welding.

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o o

Uses vertical-integration to ensure reduction in costs It also partially using inexpensive polymers instead of a full metalbody. It has no power steering, no Air Conditioning, no power windows, etc.

The advantage of this price point is that within the two-wheelers segment, motorcycles contribute 80% of the segment size. These motorcycles are not very far below in terms of prices from the Rs 100,000 price targeted for the Nano. This allows potential customers of motorcycles to upgrade themselves to a car. Also by being at that price point they are also able to break the customers for the Maruti 800 (which is the largest selling car in numbers). The company had another advantage and that was that the Nano being the worlds cheapest car and also complying with the Euro 4 norms had a huge export potential. Now because of the growing automobile industrys reputation and many foreign manufacturers, who were already in India to take advantage of the growing Indian market and its cheap resources labour, manufacturing costs, etc., export of cars was becoming a growing reality. Thirdly Tata Motors also planned to launch an electric version of this car at a later date. This version has the potential to become an even greater hit because of its low pollution which is something needed in the world today. Even internationally countries which are battling to meet the UNs global emission norms agreed in the Kyoto Protocol are waiting to buy this product. The road to the launch was not an easy one with many inside and outside the company whether the company ill be able to live up to its promise. During the development stages many competitors made several comments some encouraging and some trying to say that the product will not work:
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Rajesh Jejurikar, Managing Director, Mahindra and Renault Its a good product but its still too early to say whether it will overtake the 800 because it caters to a totally new market segment. Andreas Prinz, Managing Director, Volkswagen India said I think it is a great thing for India because mobility is generating fresh opportunities. I hope Tata Nano achieves great success with the Rs one lakh car, but it is not a part of our plan.

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Jagdish Khattar, Former MD of Maruti Udyog Limited said Meeting the proper quality and safety standards is not feasible at all in such a model.

Thus Tata Motors with the inspiration from its Chairmans vision have positioned a product in a competitive space which has provided then the opportunity to bring them to the forefront of the industry globally. They have leveraged emerging markets which always become excellent ground for innovation. The challenge is in reaching a dispersed, low-income consumer base in emerging markets. This has spurred significant innovation in several areas. As customers gain more power, they will demand more value-added service and customisation to meet their needs. Companies that innovate in this area are likely to greatly benefited. World is getting tougher day by day being unique is a competitive advantage. The development of the Nano has proved this. After 100 years to Henry Ford, Ratan Tata has proved himself not only did he exceed in expectations but has also created a platform for Indian auto sector in the world.

8. Your learning 1. Why do we need a product launch? 2. What are the objectives of a product launch? 3. Why do we have to prepare for a product launch? 4. When does the preparation start for a product launch? 5. What all needs to be ready before we can consider launching a product launch? 6. Why do we have to prime the market before a product launch?

9. Key Words
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1. Signifies to mean or to be an indication of, or to involve or indicate by inference, association, or necessary consequence rather than by direct statement 2. Marketers prime the market To prepare the market for the product launch typically by supplying them with relevant information, sending the initial product lots to the distributors, etc 3. Virtually all types almost all types of products. A variety of products. 4. Bonus offers An additional offer along with the new product with an intention of motivating the buyer to purchase the product. 5. Momentum - The driving force gained by the product or the activity by carrying out certain process or course of events. 6. Culmination The highest point of an activity where things come to completion. The culmination of an activity or all the activities undertaken for developing and launching the product. 7. Subtle Very fine changes. Changes that are not very obvious. 8. Unfulfilled desires Not having fully utilized or exploited one's desires. Those desires which the customer has not been fulfilled. 9. Periodicity Something that happens at a periodic or fixed interval. 10. Impulsive something that is done without much thought. 11. One end of the spectrum Used to classify something, or suggest that it can be classified, in terms of its position on a scale between two extreme or opposite points. 12. Highly considered where the decision is taken after a lot of thought and consideration. 10. Exercises

1. Why do we need to understand our customer in order to have a successful product launch? 2. What are the activities we need to undertake after the actual launch of the product? 3. What is the importance of monitoring the product after the product launch?
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4. How does the reaction of competition affect activities that the company is undertaking after product launch? 5. Do new technologies available in assisting the product launch help the product manager? How does it help him? 6. Do you think new technologies help companies reduce the cost of marketing at the time of product launch? Please explain your answer. 11. Further Reading 1. Kahn, Kenneth B. (2001). New Product Planning. New Delhi, India: Response Books pg 164-180 2. Crawford, Merle and Benedetto, Anthoni Di, (2004) New Products Management, New York, USA, chapter 17, 18, 21 3. Kotler, Philip, (1999), Marketing Management, New Delhi, India, Prentice Hall of India, page 348-350

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