CHAPTER 1

Marketing Management

By :-
Prof. Rashmi Phirake
AISSMS-IOM
 NEW PRODUCT DEVELOPMENT
WHY DEVELOP NEW PRODUCTS FOR YOUR BUSINESS?

Introduction
• Every business needs to innovate to stay ahead of
the competition.
• No business can continue to offer the same
unchanged product; otherwise sales would
decrease and profits reduced.
Consumer "Needs and Wants" Change
• Consumer "needs and wants" continuously changes.
• Firms should respond to these changes through their
products and services.
• Otherwise consumers will switch to competitor products
that satisfy their "needs and wants".
• For example consumers are becoming more health
conscious, this is forcing companies to introduce low
sugar, salt and fat products.
• Coca-Cola Zero which contains no sugar is a classic
example of new product development even though Coca-
Cola's existing product range already contained diet coke.
• Both diet coke and Coca-Cola Zero contain no sugar but
they taste different.
Product Reaches The End Of Its Product Life Cycle
• The product maybe at the end of its Product Life
Cycle, so the company may introduce new and
improved updated versions.
Product Is At The Maturity Stage Of Its Product
Life Cycle
• The product might be at the maturity stage of
its Product Life Cycle and need modifications to
stimulate an increase in sales.
Environmental Changes
• There may be environmental changes which the
company wants to capitalize on.
• Music companies are now selling more music via
internet downloads than through traditional retail
shops.
• Record companies were pushed into selling music
through the internet.
• In April 2006 the song "Crazy" by Gnarls Barkley made
history by becoming the first song to achieve the
number one spot in the UK charts through music
download sales only.
• In March 2011 Mercury Records stopped releasing on
CD as by then 99% of sales were through downloads.
Competitors
• Competitors may force change.
• This is very apparent in the technology market, where
new products are constantly being introduced to a target
market that welcomes change and innovation.
• Technology consumers are not afraid to try new
products, in fact they often want the latest gadget to
show to friends and colleagues.
• If a product is successful then competitors will attempt to
develop similar products.
• In fact Google say that they developed the Android
operating system to prevent the technology market for
products such as mobile phones and tablets being
dominated by one supplier.
Utilization Of Excess Capacity
• Invariably, each and every company starts with a
spare capacity- in terms of certain minimum
amount of costs which are irreducible.
• In case, the rated capacity is not used, the cost of
production will be normally higher than what is
expected.
• To have fuller use of capacity, the existing sales may
be limiting factor.
• Hence , new product, in whatever form, is to be
produced with double advantage.
Recycling of Waste Product
• In mass Production Lines, waste, scrap, rejects are in
large quantities though may be representing a
normal percentage of input.
• Recycling of these will go a long way in reducing the
burden of costs.
• It may result in production innovation.
All Products Experiencing Problems
• If all of your products are experiencing poor sales or suffering from
a negative reputation it is time to change your product offering.
• In 2001 the introduction of the Pod MP3 player reversed the
fortunes of Apple Computers.
• Since then Apple has introduced the successful iPhone and iPad
and increased its share price from $9.07 per share (Oct 2001) to
over $400 per share
Summary
• New product development is an essential activity for all
businesses.
• It helps you stay ahead of the competition.
• If you do not develop new products someone else will and steal all
of your customers.
• The number of businesses that have gone into administration
during the current world recession demonstrate the importance of
change management.
 The Classification of Products in Marketing
• Product classifications help marketers focus their
efforts using consumers’ buying behavior.
• Your business can use these buying habits to design
your marketing efforts for a clearly defined target
audience.
• Consumer products are often classified as
convenience goods, shopping goods, specialty
products or unsought goods.
• Although these classifications are named as types of
products, focusing on how your customers buy these
goods is equally important as you classify products
and develop your marketing campaigns.
 Convenience Goods
• Those products your customers buy often and without much
thought or planning are classified as convenience goods.
• Soap, condiments and toothpaste are common examples of
convenience goods.
• Consumers typically make a choice once on their brand preference
for these products and repeat that choice over many purchases.
• Making your convenience goods available for impulse or
emergency purchases can be particularly effective.
• You’ll see this marketing tactic in the placement of candy near the
cash register of your grocery store for impulse buys.
• Another version is to place umbrellas, boots or snow shovel near a
store exit when sudden weather changes call for them.
 Shopping Goods
• Buying decisions are detailed considerations of price,
quality and value for products classified as shopping
goods.
• Think about the amount of time you put into picking
out a clothing purchase, a car or appliances.
• Successful marketing of your shopping goods can
come from positioning as a better buy than your
competitors -- for example, presenting better value
with higher quality for the price or vice versa.
• Products in the shopping goods classification tend to
rely on heavy advertising and even trained
salespeople to influence consumer choices.
 Specialty Products
• Goods in the specialty products classification tend to promote
very strong brand identities, often resulting in strong brand
loyalty among consumers.
• Examples include stereos, computers, cameras and the most
high-end brands of cars and clothing(marriage shopping).
• While used cars are classified as shopping goods, a brand-
new Mercedes is classified as a specialty good.
• Buyers for your specialty goods generally spend more time
seeking the product they want than on comparing brands or
products to make a value decision.
• Your marketing of specialty goods can be successful by
promoting what you have on hand and where your costumers
can find it.
 Unsought Goods
• The products classified as unsought goods are those
that your consumers don’t put much thought into
and generally don’t have compelling impulse to buy.
• Examples include batteries or life insurance.
• Your consumers essentially buy unsought goods when
they have to, almost as an inconvenience rather than
the newest, latest, greatest product they can’t wait to
purchase.
• Marketing your unsought goods will likely be most
effective with lots of advertising and salespeople
promoting the idea of unresolved need for your
unsought products.
 INDUSTRIAL PRODUCTS

“Individuals and organizations that acquire goods and

services to be used, directly or indirectly, in the production
of other goods and services or to be resold.”
 Classification is done on the basis of three
broad groups:
• Material and Parts

• Capital Items

• Supplies and Services

 MATERIAL AND PARTS
Goods that enter the product directly. The cost of
these items are treated by the purchasing
company as the part of manufacturing cost.
Material and parts are further segregated into
three parts that are:

 Raw Materials
 Manufacturing Materials
 Component Parts
Raw Material: These are the basic products which
enter into the production process with little or no
alterations. They may be marked to user customers or
OEMs (Original Equipment Manufactures). Such as
iron ore, crude oil, vegetables.

Manufactured Materials: That also includes those

raw materials that are subjected to some amount of
processing before entering the production process.
Such as acids, fuel oil, steel and chemicals.

Component parts: These are the semi finished parts

that can installed directly into the products with little
or no additional change. Such as small motors,
batteries and tyres.
 CAPITAL ITEMS
Capital items are those which are used in the
production process. They are normally treated
as user customers. Capital items are classified
into three groups:

Heavy equipments
Light Equipments
Plant and Buildings
Heavy Equipments: These are the major and long
term investments such as general purpose and
special purpose machines, turbines, generators and
earth moving equipments.

Light Equipments: Light equipments and tools which

have lower purchase prices and are not considered
as the part of heavy equipment such as typewriters,
computers and small electric motors.

Plants and Buildings: These are the real estate

property of the company. It includes the firm offices,
plant, warehouses, warehouses and parking lots.
 SUPPLIES AND SERVICES
Supplies and services support the operations of
the purchasing organization. They are not
consider as the part of the finished goods.
They are further segregated into two parts:

Supplies
Services
Supplies: These items are generally standardized
and are marketed to a wide cross section of
industrial users. Such as paints, oils, grease,
pencils, stationary etc.

Services: Company needs a wide range of

services like building maintenance services,
auditing services, legal services, courier
services and many more.
 Classification of New Product
• Everywhere you go there are advertisements for new
products! In fact, thousands of new products are
introduced to consumers and businesses every year.
• Ninja Corp's technology division, Ninja Tech, creates
new products yearly. The tech company realizes that
there are many benefits to new product development
and being the first to market.
• Ninja Tech's advantages are increased product loyalty,
increased profit margins, increased sales and
leadership in the market.
• Although most consumers are bombarded with new
product messages, did you know that there are specific
categories of new products?
• The only true new product category is
called new-to-the-world products.
• These products are truly new because they
create a totally new market and are only a
small percentage of the new product
category.
• Examples of this type of new product
category would be microwave ovens,
microprocessors and copiers. Ninja Tech's
products would not fall into these categories.
• The second new product category is new
product lines.
• When a company offers a product from a new
category that they haven't previously offered,
then it would be a new product line.
• For example, Ninja Tech recently developed
Ninja Tech Nutritional Bars to improve memory.
• Their previous products have all been
technology related, and this entry into the food
market would be considered a new product line.
• Additions to existing product lines occur
when a company adds a new product that
solidifies its area of product offerings.
• For example, Ninja Tech recently showcased a
new martial arts gadget that allows
consumers to monitor their health during
physical workouts.
• The product fits the overall Ninja Tech
product line of spy gear, computers, tablets,
phones, etc.
• Another new product class that Ninja Tech also uses
to increase their revenue is improvements or
revisions of existing products.
• Ninja Tech uses the ad words 'New and Improved'
on their packaging to increase consumer awareness
and create interest.
• Most new and improved products are only slight
changes, such as flavors, scents or maybe even
slightly more product.
• Ninja Tech recently promoted its new and improved
spy gear by focusing on improved spy distances and
new colors.
• Sometimes a company's product has failing sales, and the
marketing team needs to come up with a plan to rescue
the product.
• Repositioned products are products that can be targeted
or changed slightly to increase sales.
• For instance, Ninja Tech used to market a product called
the Stretch Rack.
• The Rack allowed consumers to strap themselves into the
device and turn a knob to slowly stretch their leg muscles.
• The product did cause some injuries, so Ninja Tech
decided to revamp the product with new safety
guidelines implemented to avoid torn muscles.
• The old Stretch Rack's name was also changed to Bodu
Stretching Device.
 Classification of Products
• The classification of the product depends
upon the TANGIBILITY and DURABILITY found
in an offering.
• Typical classification of Product:
 Service
 Durable
 Non Durable
 Non Durable Products
• Products that are consumed fast and are
purchased on a regular basis. The consumer
here spends minimum time and effort in
comparing and buying the item.

• Consumer Products are further classified

according to its use: Personal, Family and
Household as Convenience, Shopping and
Specialty.
 FMCG
• Fast Moving Consumer Goods are the Non
Durable Goods. Eg. Sot Drinks, Chips, Ice
Creams etc…. The consumer shows minimum
effort in buying these articles.
• FMCG is further sub divided into 3 Classes…
• Staples
These are goods purchased on a regular basis.
Eg. Soap, Pulses, Toothpaste etc…
Whenever the stock is about to end the
consumer buys these products again.
• Impulse Goods
These are the goods which are purchased
without planning or search… Our external
stimuli provokes us to buy these products. Eg.
Cold drinks, Chocolates, Chips….
Most of the time the consumers aim is not
buying the product solely but when spots
them, feels, attracted and ends up in buying
them.
• Emergency Goods
These goods are purchased when the need
arises. Eg. Umbrellas in rainy season, Pullovers
in winters etc..
The marketers tries for a very good
distribution chain, as the sales is not the same
throughout and whenever the need arises, the
product should be available at maximum
places…
 Characteristics of FMCG
Consumers Point
• FMCG has a very low shelf life
1. Frequent Purchases: Salt, Rice, Chocolates
2. Low Involvement: The consumer will buy an
alternative if the brand ask for is not
available….
Exceptions to the rule: Products like Cigarettes,
Personal Hygiene Products, Brand Loyalty.
 Characteristics of FMCG
Marketers Point
• High Volumes
The volume of the product required is very
high.
Eg. An average family may require 3-4 Soaps a
month… Imagine No. of family using it in the
whole country???
If the organization cannot ensure high sales
volume, they will have difficulties in surviving.
• Low Margins
As the product is required in high volume, there
is an intense competition which makes the
marketer sell the product with very less margin.
They earn through high volume sales to
maximize their turnover.

The Key Becomes High Volumes Low Margins.

• Extensive Distribution Networks
 Consumer preference in FMCG products
are not that rigid.
 Recall plays a very important role.
 Brand Loyalty is not very high.
 Consumer allows shopkeeper to decide for
him.
Due to all this it becomes very important for the
marketer to make its product available at
maximum place possible.
• High Stock Turnover
It is a characteristic feature of FMCG. It is
because these products are bought frequently
or on a regular basis.
Which in turn allows the marketer to rotate
the capital invested.
 New Product Development Process
Step 1. Idea Generation

• Systematic Search for New Product

Ideas
• Internal sources
• Customers
• Competitors
• Distributors
• Suppliers
New Product Development Process
Step 2. Idea Screening
• Process to spot good ideas and drop poor
ones
• Criteria
– Market Size
– Product Price
– Development Time & Costs
– Manufacturing Costs
– Rate of Return
New Product Development Process
Step 3. Concept Development &
Testing Concepts
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• Those ideas which survive in the second stage
of product development i.e. the screening
stage must be, evaluated further to assess the
product concept.
• Firms use concept testing i.e. getting reaction
from customers on how well new ideas fit with
their needs.
• Concept testing uses market research, ranging
from formal focus groups to formal service of
potential customers
• Group discussions are widely used for concept
testing
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New Product Development Process
• Once the product concept has been developed
which will be acceptable in the market to satisfy
the needs and wants of the consumers, it is of
utmost importance to assess the potential
business dimensions of such new products.
• The company will assess future sales, costs,
profits, and whether these criteria will meet its
business objectives.
• The business analysis will assume certain micro-
macro environmental conditions and expect its
that there will not be any major macro level
change.
• The product being developed may be good for
the market and potential consumers but the crux
of the matter is whether the product will yield
enough sales and profits over a period of time.
• Some idea about the financial performance of the
product can be obtained by carefully analyzing
old historical data of similar type of products &
carrying out consumer survey.
• However the company should be able to assess
the range of sales revenue and profit and work
out the feasibility of the new product
development
 New Product Development Process
Step 5. Marketing Strategy Development
• Marketing Strategy Statement
Formulation
Part
Part One
One -- Overall:
Overall:
Target
Target Market
Market
Planned
Planned Product
Product Positioning
Positioning
Sales
Sales &
& Profit
Profit Goals
Goals
Market
Market Share
Share
Part
Part Two
Two -- Short-Term:
Short-Term:
Product’s
Product’s Planned
Planned Price
Price
Distribution
Distribution
Marketing
Marketing Budget
Budget

Part
Part Three
Three -- Long-Term:
Long-Term:
Sales
Sales &
& Profit
Profit Goals
Goals
Marketing
Marketing Mix
Mix Strategy
Strategy
 Step 6. Product Development
• A Product concept which has passed the test of business
analysis and has favorable market demand would now
required to be converted into a physical product.
• The concept paper giving descriptive details of the
product, product design, sketches and drawing details of
the product.
• The management would now like this concept to be
designed and developed into a functional useful product
for consumers.
• This would need well coordinated cohesive efforts by
design and engineering department, research and
development , production dept and marketing dept of
the company to develop prototype product.
New Product Development Process
Step 7. Test Marketing

Once the developed new product satisfies all

functional performance and overall product
style and features, the product is taken for
actual field trials called market testing
 New Product Development Process
Step 7. Test Marketing

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New Product Development Process
Step 8. Commercialization
 Introduction Stage of the PLC
Sales
Sales Low
Low sales
sales

Costs
Costs High
High cost
cost per
per customer
customer

Profits
Profits Negative
Negative

Marketing Create
Create product
product awareness
awareness
Marketing Objectives
Objectives and
and trial
trial

Product
Product Offer
Offer aa basic
basic product
product

Price
Price Use
Use cost-plus
cost-plus

Distribution
Distribution Build
Build selective
selective distribution
distribution

Build
Build product
product awareness
awareness among
among early
Advertising
Advertising adopters and dealers
adopters and dealers
early
 Growth Stage of the PLC

Sales
Sales Rapidly
Rapidly rising
rising sales
sales

Costs
Costs Average
Average cost
cost per
per customer
customer

Profits
Profits Rising
Rising profits
profits

Marketing
Marketing Objectives
Objectives Maximize
Maximize market
market share
share

Product
Product Offer
Offer product
product extensions,
extensions, service,
service, warranty
warranty

Price
Price Price
Price to
to penetrate
penetrate market
market

Distribution
Distribution Build
Build intensive
intensive distribution
distribution

Build
Build awareness
awareness and
and interest
interest in
in the
the mass
mass
Advertising
Advertising market
market
 Maturity Stage of the PLC

Sales
Sales Peak
Peak sales
sales

Costs
Costs Low
Low cost
cost per
per customer
customer

Profits
Profits High
High profits
profits

Marketing Maximize
Maximize profit
profit while
while defending
defending
Marketing Objectives
Objectives market share
market share
Product
Product Diversify
Diversify brand
brand and
and models
models

Price
Price Price
Price to
to match
match or
or best
best competitors
competitors

Distribution
Distribution Build
Build more
more intensive
intensive distribution
distribution

Advertising
Advertising Stress
Stress brand
brand differences
differences and
and benefits
benefits
 Decline Stage of the PLC

Sales
Sales Declining
Declining sales
sales

Costs
Costs Low
Low cost
cost per
per customer
customer

Profits
Profits Declining
Declining profits
profits

Marketing
Marketing Objectives
Objectives Reduce
Reduce expenditure
expenditure and
and milk
milk the
the brand
brand

Product
Product Phase
Phase out
out weak
weak items
items

Price
Price Cut
Cut price
price

Distribution
Distribution Go
Go selective:
selective: phase
phase out
out unprofitable
unprofitable outlets
outlets

Advertising
Advertising Reduce
Reduce to
to level
level needed
needed to
to retain
retain
hard-core
hard-core loyal
loyal customers
customers