Chapter 8 Product Management

1. With Videos Chapter 8Product Management

2. Comparison of Products What is the difference between these products? On what basis do they compete? Ziploc Freezer Bags Glad Freezer Bags

3. Elements of a Product • Augmented Product • Installation • Tangible Product • Packaging • Delivery • and • Credit • After-saleService • BrandName • Features • Core Product • Quality Styling • Warranty

4. Product - Market Hierarchies Alcoholic Beverages Industry Product Class or Category Senior Management Whisky/Spirits Product Type or Form Coolers Cognac/Brandy VP Marketing Smirnoff-IceMike’s Hard Lemonade Remy – MartinCourvoisier Brand Manager Brands Board of Directors

5. Strategic Classification of Products Shopping Goods Risk Specialty Goods • Financial • Social • Psychological • Performance • Physical Marketing Mix Risk • Effort • Search Time and Sources • Decision Complexity Preference Convenience Effort/Involvement

6. Low and High Involvement Behavior • Low Involvement • High Involvement • Information processors • Evaluate before purchasing • Seek to maximize satisfaction • Product is closely linked to self-concept and beliefs • Lifestyle characteristics are related to purchase • Reference groups influence purchase • Information gatherers • Purchase and evaluate (if at all) after purchasing • Seek acceptable level of satisfaction • Product is not closely linked to self-concept or beliefs • Lifestyle characteristics are not related to purchase • Reference groups do not influence purchase

7. Product Line Width, Length, Depth and Consistency Width Bar Soap Laundry Detergent Shampoo Length Industrial Soap Allergenic Soap Family Soap Depth Everyday Soap Soap with Cream/Oils Consistency Zesty/Outdoors Soap Soap with Fragrance

8. Product Policy Bears Upon... • The management of existing products (e.g., product mix, branding, packaging, labeling) • The nature, timing and management of new products (e.g., degree of innovations, technology, features) • The removal of existing products from the product line • The amount of resources to be allocated to each product

9. How Product Policy Works • Relevant Information • Others • Internal Units • Customers Provides a frame for the collection of information • All Information • Suppliers • Intermediaries Increases forecasting accuracy by including other perspectives Focuses organizational activities Communicates organization's position

10. Product Policy Should Include Consideration of... • Financial issues associated with supporting products (e.g., total profit, selling margins, working capital required) • Market issues (e.g., volume, share objectives) • Customer issues (e.g., same or different customers) • Distribution issues (e.g., dealers acceptance and support) • Company fit issues (e.g., objectives, risk) • Technology issues (e.g., same or different technology)

11. Manufacturer of Plastic Containers Considers New Product Line The Organization • Privately owned, profitable and with 30 years experience • Serving clients across Canada and the US • Manufactures over 1,000 food and non-food plastic containers and tubs for food, food storage, kitchen and household storage • Sells direct and through a range of container package and wholesale supply companies • Possesses a state-of-the art manufacturing facility with excess capacity The Opportunity To produce a range of heavy-duty dangerous goods plastic buckets and tubs • Must meet high technical and climatic specifications • Must include different sizes and features suitable to packaging chemicals, hygiene products, mineral oils, medical devices, etc. • Must handle solids and fluids • Must meet UN standards The Decision – How would you evaluate this opportunity?

12. Federated Co-operatives Limited • 235 retail co-operatives serving members from Thunder Bay, ON to the Queen Charlotte Islands, BC • Distribution centers in Winnipeg, Saskatoon, Calgary and Edmonton • Vertically integrated with feed plants, sawmills, oil refineries • One significant area of activity is the Farm Equipment Division

13. FCL’s Farm Equipment Division’s Product Policy • PRODUCTS • Grain bins and related products which can increase overall margins • Retrofit parts • OTHER • Product should be < $5,000 retail cost • Requires that a second source of product supply exists • Supplier must meet eligibility criteria • FCL must be able to provide necessary support • FINANCIAL • Must have annual sales volume of $500 thousand • MARKET • Must meet 20% ROI objective • Must contribute to balanced seasonal sales of division

14. Product Mix and Marketing • Few organizations market only a single product • Product mix decisions are strategic • Exploiting a proprietary technology • possible broad width with little depth opting for, as the market matures, those segments attaching the greatest value to the product • Striving for segment dominance • possible long length and depth to appeal to all user subgroups • Pursuing profits • possible broad width with only one or two items in each product line (cherry picking)

15. Product Mix Marketing Strategies Product mix decisions are strategic • Cargill • Exploiting a technology • Shimano Group • Striving for dominance • Chattem • Pursuing profits

16. Cargill – Exploiting a Technology Cargill Brand BiOH soybean polyolsare a unique proprietary alternative to the petrochemicals traditionally used in polyurethane foams Flooring Bedding and Foam

17. Shimano – Striving For Dominance Lifestyle Gear Width Rods Reels Combos Length Inshore – Saltwater – Jigging – Surf – Freshwater – Muskie – Salmon-Trolling Depth Teramar Rods Crucial Rods Consistency Compre Rods Clarus Rods Teramar Rods Convergence Rods

18. Chattem– Pursuing Profits Width Health & Wellness Skin & Hair Care Pain Relief Length Selsun Blue BalmexBullFrog Gold Bond Herpecin L Sun-In Ultraswim Depth Selsun Blue Selsun Blue Deep Cleansing Consistency Selsun Blue For Itchy Scalp Selsun Blue Naturals Selsun Blue

19. Product Bundling and Marketing • Several products are incorporated into a bundle • Preferred when: • Scale/scope economies are present • Consumers gain increased value • Fixed costs are high, variable costs are low • Pure Bundling • Mixed Bundling • autos (extended warranties, services) • cable (TV, high speed Internet, pay per view) • cable (local and national networks) • restaurant (entrée, dessert, beverage) Shaw Bundle

20. Brand Extension Strategies Rationale • Growth is limited in existing products • Defensive action to fill product line gaps • Offensive action to protect against competitors

21. Volkswagen “Phaeton” Hyundai “Azera” Timex Superbrand (“Expedition” watches) Mercedes “C-Class” BMW “3 Series” Michelin economytires Brand Extension Strategies Trading Up Trading Down Volkswagen Phaeton Wal-Mart Fashion Show

22. Reverse Line ExtensionBroadening the uses and users • Dr. Bronner’s Organic Soap • Legendary for its many uses • Johnson & Johnson Baby Shampoo • For babies and adults • Ivory Soap Bar • Good for everyone in the house • Good for home cleaning and as a camping soap Dr. Bronner’s All in One Soap Johnson’s Baby Shampoo Ivory Soap

23. Branding Strategies • Family Line Extension (e.g., Diet Pepsi) • Family Brand Extension (e.g., Black & Decker Irons) • Multibrands(e.g., Ariel, Tide, Gain, Cheer, Ivory Snow) • Private Label Brands (e.g., President’s Choice, Alex Campbell Signature Series) • Generic Brands (e.g., light bulbs, bulk food items)

24. Packaging A packaging innovation should deliver a customer, consumer or trade benefit • A thin insulating layer protects beverages from heat transferred from warm hands, condensation and outside air • 5 layer film expands to allow built-up pressure and steam to escape through micro pores in one layer • Combines a paint container and roller tray in one re-sealable recyclable container

25. Labeling • Distinctive formats that enable consumers to learn more quickly • Eye catching labels are part of promotion Kenwood Artist Series

26. The Product Life Cycle Concept • Products have a limited life • Their sales history is typically represented by an “s” curve • The inflection points in the sales history identify the stages known as introduction, growth, maturity and decline • The average profitability per unit rises and then falls as products move through the stages • The life of the product may be extended by marketing efforts

27. Alternative Product Life Cycle Curves Product Life Cycle Variations Extended Introduction Cycle-Recycle Sales Indefinite maturity Fad Years

28. Extending the Life of the Ford ‘Mustang’ 1966 > 650,000 units 2012 < 70,000 units Units (in thousands) EVOS Muscle Cars (2 Generations) Dew 98 Fox Bodies (1 Generations) SN93 (2 Generations) Ford Mustang Time Pony Car (2 Generations) Economy Cars (2 Generations)

29. The Product Life Cycle Development Costs Sales Profits Time $ Dollars Production and promotion costs Cash Flow Point of maximum sales Point of introduction into market Point of invention

30. Distribution of Innovation Adopters Early Majority 34% Early Adopters 13.5% Late Majority 34% Innovators 2.5% Laggards 16%

31. Product Adoption Categories • Innovators • Technology enthusiasts • First to buy, even at high prices • Are adventuresome and are willing to try new products • Early Adopters • Want innovations to enhance performance (not technology for technology’s sake) • Are opinion leaders • Adopt new ideas early and are risk takers • Early and Late Majority • Want proven established products (evolutionary not revolutionary products) • Decision-making is deliberate/skeptical • Are rarely leaders • Laggards • Not worth talking about • Don’t buy unless they are forced to • Are traditionalists • Are suspicious of change Adopters Through History

32. Determinants of the Rate of Diffusion of Innovation • Relative Advantage (e.g., functional, psychological, cost performance) • Compatibility (e.g., with existing behaviors, self-concept) • Complexity (e.g., use or maintenance) • Divisibility (e.g., ability to purchase in modules, test through pilot programs) • Communicability (e.g., ease in communicating relative advantage)

33. Apple’s iPhone • Relative Advantage • Compatibility • Complexity • Divisibility • Communicability

34. Typical Changes in the Marketing Environment Over the PLC Total Industry Sales Total Industry Profit

35. Typical Changes in Marketing Strategy Over the PLC Total Industry Sales Total Industry Profit

36. Strategic Marketing Options in Maturity Big Box Stores Starbucks Kiosk Arm & Hammer

37. Market Harvesting in Decline • Occurs when a market leader decides to remain in the market • Is accompanied by • Increased market expenditures at the beginning • Offer of incentives to competitors to exit the market • Decreased marketing expenditures and high prices toward the end

38. Marketing in Decline – Harvesting Powdered Milk • Skim milk powder was originally produced for conversion to liquid milk for consumers with limited or no refrigerator storage and as an ingredient in other food products, including baking • It’s use has steadily declined since the 1950’s • Brands available – Pacific • Product packaging – 500g., 1kg., 2.5 kg. • Location – 3rd shelf from bottom • Seldom promotionally priced Fluid Milk Powdered Milk Size 1 litre 2 litre 4 litre Price/litre* $1.99 $1.64 $1.25 Size 1kg 2.5kg Conversion to fluid 10 litres 25 litres Price/litre* $1.40 $1.32 * January 2011

39. Planned Obsolescence • Technical Obsolescence iPod Touch1st Generation 2008 iPod Touch2nd Generation 2009 iPod Touch3rd Generation 2010 iPod Touch4th Generation 2011 • Functional Obsolescence • Tablet with Wi-Fi • Tablet with Wi-Fi and Cellular PC Notebook

40. Planned Obsolescence to Increase Demand for Replacement Products Wear out Style Replacement and the prevention of Backporting Ink Cartridges Harley Earl

41. Gillette Practices Planned Obsolescence (Replacement Product) Gillette FusionProGlide

42. Cost of Problem Products • Diverts attention and resources away from other products • May harm organization’s reputation or relationship with channel members • Diverts resources away from new product development

43. Process for Managing Problem Products • Step 1:Develop key criteria to “flag” problem products (e.g., warehouse shipments, sales) and regular monitoring schedule • Step 2: Subject flagged products to in-depth analysis • Financial (e.g., margins, volumes, price trend) • Marketing (e.g., market growth, customer loyalty) • Managerial (e.g., dealer acceptance, opportunity cost) • Other (e.g., government reaction) • Step 3:Take action • Maintain status quo • Abandon • Retain and modify • Step 4:Monitor outcomes

44. Stages in the New Product Development Process • Stage1 • Idea generation • Stage 2 • Screening and evaluation of ideas • Stage 3 • Business Analysis • Stage 4 • Product prototype development • Stage 5 • Test marketing/Commercialization

45. --- End --- Chapter 8Product Management