Chapter 30 Product Planning

Standards 1.2.11A- Read and understand essential content of information texts and documents. 1.6.11AD- Listen to others. Contribute to discussions.

Product Planning, Mix, and Development 30.1 After finishing this section you will know: The nature and scope of product planning The concept of product mix The different product mix strategies The steps in new product development

Product Planning Product planning- making decisions about those features that are needed to sell a business’s products, services, or ideas These decisions relate to features such as: Packaging Labeling Branding These decisions related to services such as: Product warranties necessary to support the product

Product Mix Product mix- all the different products that a company makes or sells

Product Items and Lines Product line- a group of closely related products manufactured and or sold by a business Retailers frequently sell more than one product line Product item- a specific model, brand, or size of a product within a product line Retailers usually carry several product items for each product line they sell

Product Width and Depth Product width- the number of different product lines a business manufactures or sells Product depth- the number of product items offered within each product line Product depth for a company that sells jeans is sizes, price ranges, colors, and styles

Product Mix Strategies The plan for how the business determines which products it will make or stock

Developing New Products New products can add substantially to a company’s overall sales New products (those less than 5 years old) account for 35% of total sales New product development generally involves 7 key steps: Generating ideas Screening ideas Developing a business proposal Developing the product Testing the product Introducing the product Evaluating customer acceptance

Generating Ideas Tracking cultural trends and observing customer behaviors to generate ideas New ideas come from many sources: Customers Competitors Channel members Company employees Research development departments Creativity is essential for new product development

Screening Ideas Matched against the company’s overall objectives to see if they fit Evaluated on potential conflict with existing products One or two ideas are selected for development and a business proposal is written

Developing a Business Proposal New product ideas are evaluated in terms of their profit potential Business proposals consider: Size of market Potential sales Costs Profit potential Technological trends Overall competitive environment Level of risk

Developing the Product A prototype is made, tested, and adjustments are made to improve the final product Prototype- model of a product

Testing the Product Test marketed to get customers’ responses Not all new products are test marketed in a geographic area, some are tested in focus groups Marketers may forgo testing because they fear that a time delay will allow competitors to enter the market before their product is ready

Introducing the Product If the customer response is favorable, the product is introduced into the marketplace Commercialization- after a product has been researched it is ready for full market introduction Costs of introducing new products are high Must be advertised to introduce its benefits to consumers To pay for these costs, companies must get their products into the market quickly The first company to: introduce a new product has an advantage in acquiring customers and building brand loyalty

Evaluating Customer Acceptance After products have been introduced, marketers track new product performance Customized reports can be prepared from marketing data gathered from scanning equipment and computer systems These reports can help answer key questions such as: Who are the best customers for our new product? What new products are customers buying? How often do customers buy the new product? When did customers last buy the new product?

Developing Existing Products Businesses constantly review their product mix to see if they can further any product lines This builds on an already established image Appeals to new markets Increases sales and profits Disadvantage- cost through increased inventory, promotion, storage, and distribution

Line Extension Companies can extend product offerings by adding new product lines, items, or services May or may not be related to current products Line extension- designed to be a different product that appeals to somewhat different needs of consumers Company wants to provide a wider range of choices to increase product depth

Product Modifications Product modification- an alteration in a company’s existing product When modifying a product: the old product usually gets phased out Packaging may be modified to appeal to consumers

Deleting a Product of a Product Line Reasons to delete a product line: Obsolescence- changes in interests and technology Older models of desktop computers are slow and outdated

Deleting a Product of a Product Line Loss of appeal- changes in consumer tastes lead to companies dropping products Ovaltine hot chocolate Conflict with current company objectives- sometimes a product conflicts with current objectives Sears sold Caldwell Banker real estate company because they were losing market share to other realtors

Deleting a Product of a Product Line Replacement with new products Shelf space is limited, so retailers must make shelf or display space for new products Products may be dropped because the store thinks it can make more money by carrying a different product One manufacturer may offer better buying terms than another

Deleting a Product of a Product Line Conflict with other products in the line- sometimes products take business away from other products in the same line Example: Proctor & Gamble discontinued White Cloud Tissue in order to improve its return on similar products

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Sustaining Product Sales 30.2 After finishing this section you will know: The product life cycle The concept of product positioning The purpose of category management

The Product Life Cycle Product life cycle- the stages that a product goes through during its life

Managing During the Introduction Stage Focus is on promotion and production Major goal: draw the customer’s attention to the new product Build sales by increasing product awareness The least profitable stage of the cycle

Managing During the Growth Stage The product is enjoying success as shown by increasing sales and profits Much of the target market knows about and buys the product Advertising focuses on customer satisfaction rather than new product benefits Competition is aware of new product and likely to release new products to compete To keep sales up, companies may have to introduce new models or modify the existing product

Managing During the Maturity Stage This stage occurs when sales level off or slow down More competition or most of the target market already has the product Most of the marketing dollars are spent fighting off competiton

Managing During the Decline Stage Sales fall and profits are smaller than costs If a company doesn’t want to discontinue the product they have other choices: Sell of license the product- products are sold to risk-taking companies who try to rejuvenate the product by changing it’s image or introducing it to a new market

Managing During the Decline Stage Recommit to the product line- declining product may have other uses that can improve sales Discount the product- product lines can be saved by discounting them so that they can compete with cheaper store of private brands

Managing During the Decline Stage Regionalize the product- selling products only in geographical areas where there is a strong customer loyalty Modernize or alter the product offering- can mean complete redesign, packaged differently, or reformulated

Product Positioning Product positioning- the image the product projects The effort a business makes to identify, place, and sell its products in the marketplace Goal- to set the product apart from the competition Create an image of the product that appeals to customers Identify customer’s need and determine how their product compares to the competition

Product Positioning Strategies used to position products in the marketplace: Positioning by price and quality- stresses high price as a symbol of quality and low price as a indication of value Economy line, mid-priced line, and luxury line Positioning by features and benefits- products are positioned by stressing their features and benefits to the buyer Companies position products to highlight the products unique characteristics

Product Positioning Positioning in relation to the competition- to compete directly with product of other companies Positioning in relation to other products in a line- in relation to products in the same line

Category Management Category management- process that involves managing product categories as individual business units Category manager- responsible for all the profits and losses for one specific product line Planogram- computer-developed diagram that shows retailers how and where products within a category should be displayed on a shelf at individual stores

Assignment Page 562 Reviewing Key Terms # 1-6