1. Developing and Managing Products Copyright © Houghton Mifflin Company. All rights reserved. PowerPoint Presentation by Charlie Cook 11 Part Three Product Decisions

2. Copyright © Houghton Mifflin Company. All rights reserved. 11–2 Chapter Learning Objectives To understand how companies manage existing products through line extensions and product modifications To describe how businesses develop a product idea into a commercial product To understand the importance of product differentiation and the elements that differentiate one product from another To explore how products are positioned and repositioned in the customer’s mind To understand how product deletion is used to improve product mixes To describe organizational structures used for managing products

3. Copyright © Houghton Mifflin Company. All rights reserved. 11–3 Managing Existing Products What is a Line Extension –Development of a product that is closely related to existing products in the line but meets different customer needs Why do a Line Extension Is a less expensive, low risk alternative May focus on the same or a new segment Can be used to counter competing products –Many “new products” are really line extensions. “Cheerios” “Honey- Nut Cheerios”

4. Copyright © Houghton Mifflin Company. All rights reserved. 11–4 Managing Existing Products (cont’d) Product Modifications –A change in one or more characteristics of the product and the elimination of the original product from the product line. Product must be modifiable. Customer must be able to perceive modification has been made. Modified product more closely satisfies customers’ needs.

5. Copyright © Houghton Mifflin Company. All rights reserved. 11–5 Product Modifications Quality Modifications –Changes in material or production processes related to a product’s dependability and durability Reducing quality to offer a lower price to customers Increasing quality to gain a competitive advantage 1st

6. Copyright © Houghton Mifflin Company. All rights reserved. 11–6 Product Modifications (cont’d) Functional Modifications –Changes affecting a product’s versatility, effectiveness, convenience, or safety; usually requiring redesign of the product Aesthetic Modifications –Changes to the sensory appeal of a product such as altering taste, texture, sound, smell, or appearance

7. Copyright © Houghton Mifflin Company. All rights reserved. 11–7 Developing New Products Benefits –Enhances product mix –Increases depth in product line –Attracts new customers –Increases market and customer share Risks –Expensive to develop –Creates risk of market failure –Loss of market share without new products

8. Copyright © Houghton Mifflin Company. All rights reserved. 11–8 Phases of New-Product Development FIGURE 11.1

9. Copyright © Houghton Mifflin Company. All rights reserved. 11–9 Phases of New Product Development (cont’d) Idea Generation –Seeking product ideas to achieve objectives Internal sources: marketing managers, researchers, sales personnel, and engineers External sources: customers, competitors, advertising agencies, consultants, and new-product alliances What about your businesses? New business and new product? List ideas here Focus on unmet needs Group activity 4 minutes Brainstorming session? 10 good ideas

10. Copyright © Houghton Mifflin Company. All rights reserved. 11–10 Phases of New Product Development (cont’d) Screening –Choosing the most promising ideas for further review –What criteria do you base you decision on? (Goto WP) Concerns about cannibalization of existing products Company capabilities to produce and market the product Nature and wants of buyers Concerns about whether it fits in the mission –In a group, screen out 5 Tell me about 1 you screened out

11. Copyright © Houghton Mifflin Company. All rights reserved. 11–11 Phases of New Product Development (cont’d) Concept Testing –Seeking potential buyers’ responses to a product idea Low cost determination of initial reaction to product idea Identification of important product attributes and benefits Interview, observation or focus group (Chap 6)

12. Copyright © Houghton Mifflin Company. All rights reserved. 11–12 Concept Test for a Tick and Flea Control Product FIGURE 11.2

13. Copyright © Houghton Mifflin Company. All rights reserved. 11–13 Phases of New Product Development (cont’d) Business Analysis –Assessing the potential of a product idea for the firm’s sales, costs, and profits Does product fit in with existing product mix? Is demand strong enough to enter the market? How will introducing the product change the market? Is the firm capable of developing the product? What are the costs for developing and marketing? USE EXCEL linklink

14. Copyright © Houghton Mifflin Company. All rights reserved. 11–14 Phases of New Product Development (cont’d) Product Development –Determining if producing a product is feasible and cost effective Construction of a prototype, or working model Testing of the prototype’s overall functionality Determining the level of product quality Branding, packaging, labeling, pricing, and promotion decisions

15. Copyright © Houghton Mifflin Company. All rights reserved. 11–15 Phases of New Product Development (cont’d) Test Marketing –Introducing a product on a limited basis to measure the extent to which potential customers will actually buy it Sample launch of entire marketing mix Lessens risk of larger market failure Is expensive; simulated test marketing is an alternative NO TIME FOR YOUR PRODUCTS

16. Copyright © Houghton Mifflin Company. All rights reserved. 11–16 Phases of New Product Development (cont’d) Commercialization –Deciding on full-scale manufacturing and marketing plans and preparing budgets Modifications indicated by test marketing are incorporated into the production design. Marketing, distribution, and servicing plans are finalized. Product roll-out occurs in stages to lessen the risks of introducing the new product.

17. Copyright © Houghton Mifflin Company. All rights reserved. 11–17 Stages of Expansion into a National Market During Commercialization FIGURE 11.3 Source: Adapted from Herbert G. Hicks, William M. Pride, and James D. Powell, Business: An Involvement Approach. Copyright © 1975. Reproduced with permission of The McGraw-Hill Companies.

18. Copyright © Houghton Mifflin Company. All rights reserved. 11–18 Product Differentiation Through Quality, Design, and Support Services Product Differentiation –Creating and designing products so that customers perceive them as different from competing products Perceived differences in product quality, product design and features, and product support services Branding—a crucial way to differentiate a product Horizon Organic Milk Borden Milk Sunkist

19. Copyright © Houghton Mifflin Company. All rights reserved. 11–19 Product Differentiation Product Quality? –The overall characteristics of a product that allow it to perform as expected in satisfying customer needs –Level of quality is the relative amount of quality a product possesses. –Consistency of quality is the degree to which a product has the same level of quality over time.

20. Copyright © Houghton Mifflin Company. All rights reserved. 11–20 Product Differentiation (cont’d) Product Design and Features –Product design How a product is conceived, planned, and produced Good design provides a strong competitive advantage. Customers typically desire products with good designs and that function well. –Styling is the physical appearance of a product –Product features include specific design characteristics that allow a product to perform certain tasks

21. Copyright © Houghton Mifflin Company. All rights reserved. 11–21 Product Differentiation (cont’d) Product Support Services –Customer services Human or mechanical efforts or activities that add value to a product Delivery and installation, financing, customer training, warranties and guarantees, repairs, online product information A competitive advantage when all other product features are equally matched by competitors

22. Copyright © Houghton Mifflin Company. All rights reserved. 11–22 Product Positioning and Repositioning Product Positioning –Creating and maintaining a certain concept of a product in customers’ minds –A product’s position results from customers’ perceptions of a product’s attributes relative to those of competing products. Marketers emphasize characteristics most desired by the target market (or segment) in advertising.

23. Copyright © Houghton Mifflin Company. All rights reserved. 11–23 Product Positioning

24. Copyright © Houghton Mifflin Company. All rights reserved. 11–24 Hypothetical Perceptual Map for Pain Relievers FIGURE 11.4 Perceptual maps show marketers how closely products are conceptually positioned by consumers to “ideal points,” to their own products, and to competitors’ products.

25. Copyright © Houghton Mifflin Company. All rights reserved. 11–25 Positioning Exercise Italian Sub Sandwiches 1. List characteristics why people would buy (tangible or perceived) 2. For the group of people you are targeting (consider the competition), which are the two most important? Write a positioning statement –Succinct statement of target market for which the product is intended –Product category in which it competes –Unique one or two benefits (not features) the product offers –Please spare me the vague or ambiguous platitudes about high quality or excellent service—only mention price if you are truly the low cost provider

26. Copyright © Houghton Mifflin Company. All rights reserved. 11–26 Product Positioning and Repositioning (cont’d) Repositioning a Product –Adjusting a product’s present position can strengthen/ increase its market share and profitability. Repositioning is accomplished by changing the product’s features, price, distribution, or image. Adding new products to the line may necessitate the repositioning of older products. Mary Kay Cosmetics adds distribution through retail stores and online sales Avon LinkLink

27. Copyright © Houghton Mifflin Company. All rights reserved. 11–27 Product Deletion –The process of eliminating a product from the product mix –Reasons to remove a product: Slow sales create higher unit-production costs, inventory costs, and distribution costs. To prevent negative feelings from affecting the company’s other products.

28. Copyright © Houghton Mifflin Company. All rights reserved. 11–28 Product Deletion Process FIGURE 11.5 Source: Martin L. Bell, Marketing: Concepts and Strategy, 3rd ed., p. 267; copyright 1979, Houghton Mifflin Company; used by permission of Mrs. Martin L. Bell.

29. Copyright © Houghton Mifflin Company. All rights reserved. 11–29 Organizing to Develop and Manage Products Product/Brand Manager Approach –Product manager The person responsible for a product, a product line, or several distinct products that make up a group –Brand manager The person responsible for a single brand –Market manager The person responsible for managing the marketing activities that serve a particular group of customers –Venture team A cross-functional group that creates entirely new products that may be aimed at new markets

30. Copyright © Houghton Mifflin Company. All rights reserved. 11–30 After reviewing this chapter you should: Understand how companies manage existing products through line extensions and product modifications Be able to describe how businesses develop a product idea into a commercial product Understand the importance of product differentiation and the elements that differentiate one product from another Know how products are positioned and repositioned in the customer’s mind Understand how product deletion is used to improve product mixes Be able to describe organizational structures used for managing products

31. Chapter 11 Supplemental Slides Copyright © Houghton Mifflin Company. All rights reserved. 11–31

32. Copyright © Houghton Mifflin Company. All rights reserved. 11–32 Key Terms and Concepts The following slides (a listing of terms and concepts) are intended for use at the instructor’s discretion. To rearrange the slide order or alter the content of the presentation –select “Slide Sorter” under View on the main menu. –left click on an individual slide to select it; hold and drag the slide to a new position in the slide show. –To delete an individual slide, click on the slide to select, and press the Delete key. –Select “Normal” under View on the main menu to return to normal view.

33. Copyright © Houghton Mifflin Company. All rights reserved. 11–33 Important Terms Line Extension –Development of a product that is closely related to existing products in the line but meets different customer needs Product Modifications –A change in one or more characteristics of the product and the elimination of the original product from the product line. Quality Modifications –Changes in material or production processes related to a product’s dependability and durability

34. Copyright © Houghton Mifflin Company. All rights reserved. 11–34 Important Terms Functional Modifications –Changes affecting a product’s versatility, effectiveness, convenience, or safety; usually requiring redesign of the product Aesthetic Modifications –Changes to the sensory appeal of a product such as altering taste, texture, sound, smell, or appearance Idea Generation –Seeking product ideas to achieve objectives Screening –Choosing the most promising ideas for further review

35. Copyright © Houghton Mifflin Company. All rights reserved. 11–35 Important Terms Concept Testing –Seeking potential buyers’ responses to a product idea Business Analysis –Assessing the potential of a product idea for the firm’s sales, costs, and profits Product Development –Determining if producing a product is feasible and cost effective Test Marketing –Introducing a product on a limited basis to measure the extent to which potential customers will actually buy it

36. Copyright © Houghton Mifflin Company. All rights reserved. 11–36 Important Terms Commercialization –Deciding on full-scale manufacturing and marketing plans and preparing budgets Product Differentiation –Creating and designing products so that customers perceive them as different from competing products Product Quality –The overall characteristics of a product that allow it to perform as expected in satisfying customer needs Product design –How a product is conceived, planned, and produced

37. Copyright © Houghton Mifflin Company. All rights reserved. 11–37 Important Terms Styling –The physical appearance of a product Product Positioning –Creating and maintaining a certain concept of a product in customers’ minds Repositioning a Product –Adjusting a product’s present position to strengthen/ increase its market share and profitability by changing the product’s features, price, distribution, or image Product Deletion –The process of eliminating a product from the product mix

38. Copyright © Houghton Mifflin Company. All rights reserved. 11–38 Important Terms Product Manager –The person responsible for a product, a product line, or several distinct products that make up a group Brand Manager –The person responsible for a single brand Market Manager –The person responsible for managing the marketing activities that serve a particular group of customers Venture Team –A cross-functional group that creates entirely new products that may be aimed at new markets

39. Copyright © Houghton Mifflin Company. All rights reserved. 11–39 PepsiCo Product Mix- Tropicana Brands Tropicana Pure Premium Juices Tropicana 100% Pure Juice Tropicana Season’s Best Juices Copella Juices Tropicana Pure Tropics Juices Hitchcock Juices Tropicana Twister Juice Beverages Kirin-Tropicana Juices Dole Juices Looza Juices Fruit Smoothies and Healthy Shakes Looza Nectars Juice Bowl Juices Juice Bowl Nectars

40. Copyright © Houghton Mifflin Company. All rights reserved. 11–40 PepsiCo Product Mix- FritoLay Brands Baked Lay’s Potato Chips Baked Tostitos Brand Tortilla Chips Cheetos Brand Cheese Flavored Snacks Chester’s Brand Crackers Doritos Brand Crackers Doritos Brand Dips Doritos Brand Tortilla Chips Fritos Brand Corn Chips Funyons Brand Onion Flavored Rings Grandma’s Brand Cookies Lay’s Brand Potato Chips Munchos Brand Potato Chips Rold Gold Brand Pretzels Ruffles Brand Potato Chips Sanitas Brand Tortilla Chips Smartfood Brand Popcorn Sunchips Brand Multigrain Snacks Tostitos Brand Crackers Tostitos Brand Dip Tostitos Brand Tortilla Chips Baken-ets Brand Fried Pork Skins