Product research and

development

BBA 3
 What is a product
• A set of tangible physical attributes assembled in an
identifiable form(narrow definition)
• Each product carries a commonly understood descriptive or
generic name such as apples , see, football.
• In marketing however we need a definition that
communicates the idea that consumers want to buy not
products, but solutions to problems.
• Thus we don't want sand paper but we want a smooth surface
• Therefore to get an ideal definition we start by setting up
"product" as umbrella term that includes tangible goods,
services, places, persons and ideas.
 What is a product
• The Sunbird Hotels product is service that provides the benefit
of comfortable nights rest at a high price
• In a political campaign the product is the person (candidate)
that they want you to vote for
• The BEAM is promoting the idea of cervical cancer
• Going further we describe products as brands. The brand
name suggests a product difference to the consumer and
brings the concept of consumer want-satisfaction into
definition
• Any chance in the feature(design, colour, size, packaging) no
matter how small creates another product e.g Brufen,
Novafen
 Definition
• Product is: a set of tangible and intangible
attributes, including packaging, colour, price,
quality and brand, plus the services and
reputation of the seller
• In essence then consumers are buying more
than a set of physical attributes.
• They are buying want-satisfaction in the form
of product benefits.
 Classification of products
• Consumer products: are intended for use by
household consumers for non business purposes
• Business products: are intended for use primarily
in producing other products or for providing
services in a business
• The fundamental basis for distinguishing between
the 2 groups is the ultimate use for which the
product is intended in its present form
Classification of Consumer Goods
1. Convenience goods
• The characteristics are:
1. The consumer has adequate knowledge of the particular
product wanted before going to buy it
2. The product is purchased with minimum effort
3. Shopping around to compare prices and quality is not
considered
4. The customer is willing to accept any of the several brands
and will buy one that is most accessible e.g groceries
5. Typically have low unit price, are not bulky and are not
greatly affected by fad and fashion
6. They are purchased frequently
 Convenience
• Consumer goods must be readily accessible when
consumer demand arises so the customer must
secure wide distribution. That's why we have
wholesalers to reach retail markets
• Retailers carry several brands of convenience
item, so they are not able to promote a single
brand
• Therefore the promotion of a brand is done by
the manufacturer.
 2. Shopping goods
• These are products for which consumers usually wish to
compare quality, price and style in several stores before
purchasing
• The search continues only as the customer believes that
the gain from comparing products offsets the additional
time and effort required e.g. womens apparel, furniture,
cars
• Buying habits affect the distribution and promotion
strategy for both manufacturers and middlemen
• Manufacturers require fewer retail outlets because
customers are willing to look around for what they want
 3. Specialty goods
• They have strong brand preference
• They are willing to spend time and effort in purchasing
them.
• The consumer is willing to forego more accessible
substitutes in order to procure the wanted brand e.g
expensive men's suits, stereo sound equipment, health
foods cars etc
• Since consumers Insist on a particular brand and are
willing to put are effort In finding It, manufacturers can
afford fewer outlets and deals directly with these retailers
• These products are advertised extensively and some of the
retailers advertising costs are met by the manufacturer
and the retailer's name appears on the manufacturer's ads
 4. Unsought goods
• These are usually new products that the
consumers are not yet aware of e.g computers
• Products that right now the consumer does not
want e.g prepaid burial insurance
Classification of Business goods
1. Raw materials
• These are business goods that will become part of another
physical product.
• They have not been processed in any way expect for
protection during physical handling
• They are goods found in their raw state, land, minerals
• Supply of these products is limited and cannot be
substantially increased
• Few large producers are involved
• Products must be carefully graded and highly standardized
• Agricultural products maize tobacco wheat, live stocks,
animal products like eggs milk.
 Raw Materials
• Marketing of raw materials is influenced by several factors:
a. The supply of these products is limited and cannot be
substantially increased
b. Usually only a few large producers are involved
c. The products must be carefully graded and consequently
they are highly standardized
d. Because of their bulkiness, low unit value and long distances
between producer and the business user, transportation is an
important element in the supply chain.
e. These products are of commodity nature with no product
differentiation within and given grade or quality level
f. Their prices are set by supply and demand
2. Fabricating materials and parts
• These factors necessitate short channels of distribution
and a minimum physical handling
• These are business goods that become an actual part
of the finished product
• They have been processed to some extent in contrast
to raw materials
• Fabricating materials will undergo further processing
e.g flour for making bread
• Fabricating parts will be assembled with no further
change in form e.g zips for clothes
3. Installations
• These manufactured business products - the long
lived, expensive, major equipment of the business
user e.g planes for an airlines, network towers etc
• The differentiating characteristic for Installations is
that they directly affect the scale of operating in a
firm
• Usually no middlemen are involved
• The unit sale Is large often the product is made to
the buyers detailed specification
4. Accessory equipment
• It is used in the production operations of a business firm, but
it does not have significant influence on the scale of
operations
• It does not become the actual part of the finished product
• It's life is shorter than that oft installations, and longer than
that of operating supplies e.g cash register machine
• Manufacturers use middlemen because:
• The market is geographically dispersed
• There are many different types of potential users
• Individual orders may be relatively small.
5. Operating supplies
• These are convenience goods of the business sector
• They are short lived, low priced items usually purchased with
minimum of effort
• They aid in the firm's operations but do not become part of the
finished product e.g stationary
• Like consumer convenience goods, business operating supplies
must be distributed widely
• Producing firms use wholesalers extensively because the
product Is low in unit value, is bought in small quantities and
goes to many users
• Price competition is heavy because compete products are quite
standardized and there is little brand insistence.
 Importance of product innovation:
1. Social and economic justification
• The social and economic justification of a
business is its ability to satisfy it's customers
while making a profit
• Effective new product planning and
development are vital to a company today
• Good executive management elsewhere cannot
offset weaknesses in product planning
• A company simply cannot successfully sell a
bad product over the long run
2. Requirement for growth
• It's either you innovate or die
• For many companies a substantial portion of
sales volume and net profits will come from
products that didn't exist 5 to 10 years ago
• Like people, products go through a life cycle
• They grow in sales then decline and then
replaced
 3. Increased consumer selectivity
• Consumers have become more selective in
their choice of products
• As consumers disposable income has
increased and as an abundance of products
has become available consumers have fulfilled
many of their wants
4. Resources and environmental
considerations
• We cannot afford to degrade the environment
because our natural resources are limited and
irreplaceable
• Environmental factors will influence new
product planning
• Increase in recycled products to avoid
pollution etc
 Development of new products
What is a new product?
• Products that are really innovative - truly unique e.g a
cure for cancer - products for which there is a real need
but for which no existing substitutes are considered
satisfactory
• Replacements for existing products that are significantly
different from the existing ones fit screen TV
• Imitative products that are new to a particular company
but not new to the market
• It all depends on how the market perceives it
 Selection of new product strategy
• The development of new products should begin with the
selection of an explicit new product strategy
• This strategy can serve as a meaningful guideline throughout
the step by step development process of each new product
• The overall strategy will identify the strategic role new
products will play in achieving corporate and marketing goals
e.g
• To defend market share position or maintain company's
position as a product innovator. Or
• To meet specific ROI goal or to establish a new position in
the market
 Steps in the development process
• Generation of new ideas:
– New product starts with an idea. Encouragement should start
from within. Customers can also be allowed
• Screening and evaluation of ideas:
– Ideas are evaluated to determine which ones require further
study
• Business analysis:
– A business proposal can stem from here. Management identifies
product features, estimates mkt demand, competition and
product profitability, establishes programmes to develop the
product, and assigns responsibility for further study of the
products feasibility
• These 3 steps are concept testing
 Steps…
• Product development:
– Idea on paper is converted to a physical output
– Pilot models or small quantities are manufactured to designated
specifications.
– Lab tests and other technical evaluations are made to determine the
production feasibility of the article
• Test marketing
– Market tests, in use tests and other commercial experiments in limited
geographic areas are conducted to ascertain the feasibility of full scale
marketing program.
– In this stage design and production variables may have to be adjusted as
a result of test findings.
– Management must now make a final decision regarding whether or not
to market the product commercially
• Commercialization:
– Full - scale production and marketing programmes
are planned, and the product is launched.
– Up to this point in the development process, mgt
has virtually complete control over the product
– Once the product is born and enters it's life cycle,
the external competitive environment becomes a
major determinant of it's destiny.
 Producer's criteria for new products
When should a proposed new product be added to a company's
existing product assortment?
• There should be an adequate market demand. Too often makers
ask can we use the present workforce? Or will the new item fit
into our production system? The basic question is do enough
people really want this product?
• The product should fit a financial standpoint. At least 3
questions should be asked:
• Is adequate financing available
• Will the new item increase seasonal and cyclical stability
in the firm?
• Are the profit possibilities worthwhile
 Criteria
• The product must be compatible with the current
environment and social standards and processes
– Do the production processes heavily pollute air or
water(steel or paper mills)
– Will the use of finished product be harmful to the
environment (cars)
– After being used is the product harmful to the
environment (DDT and some detergents)
– Does the product have recycling potential
 Criteria
• The product should fit current into the company's present
marketing structure
– Can existing sales force be used
– Can present channels of distribution be used
• A new product idea will be more received by management if
It meets with Its existing production facilities, labour and
management capabilities.
• There must be must be no legal objections. Patents must be
applied for, labelling and packaging must meet exist
regulations
• Management in the company must have experience, time
and the ability to deal with the new product
 Criteria
• The product should be in keeping with the
company's image and objectives. A firm
stressing low priced, high turnover products
normally should not add an item that suggests
prestige or status.
 New product adaption and diffusion
process
• The opportunity to market a new product
successfully is increased if management
understands the adoption and diffusion processes
of that product
• The adoption process is the decision making
activity of an Individual through which the new
product - the Innovation is accepted
• The diffusion of the new product is the process by
which the innovation is spread through a social
system over time
 Stages of adoption
Awareness Individual is exposed to the
innovation; becomes a prospect

Interest Prospect is interested enough to seek

information

Evaluation Prospect mentally measures relative

merits

Trial Prospect physically measures relative

merits

Adoption Prospect decides whether to use the

innovation on a full scale basis

Post adoption The innovation is adopted, then the

user continues to seek assurance that
the right decision was made
 Adopter categories
• Innovators
– They are venturesome group
– Constitute about 3% of the market
– Are the first to adopt an innovation
– Are likely to be younger, have a higher social status
and in a better finance position
– Tend to have broader, more cosmopolitan social
relationships
– Rely more on impersonal sources of Information rather
than on sales people or other word of mouth sources
 Early Adopters
• Early Adopters
– About 13% of the market
– Tend to be part of a local social system
– Whereas innovators have broad social involvements
outside the local community, early adopters are
more likely to function within a local community
– The early adopters include more opinion learn than
any other adopter group
– They are greatly respected In their social system
 Early majority
• Early majority:
– The more deliberate group
– Represent about34% of the market
– Often accepts innovation just before the average
adopter in a social system
– The group is above a bit above average in the
social and economic measures
– It's members rely quite a bit on advertisements,
sales people and contact with early adopters
 Late majority
• Late majority:
– 34% of the market
– It's a skeptical group
– They respond to an innovation in response to an
economic necessity or social pressure from peers
– They rely on their peers as sources of information
– Advertising an personal selling are less effective
than is word of mouth
 Laggards
• Laggards:
– The tradition bound group
– 16% of the market
– Includes those who are last to adopt an innovation
– They are suspicious of innovations and innovators
– By the time they adopt something new, it may
already have been discarded by the innovator group
– They are older and usually at the lower end of the
social and economic scales
 Product mix and product lines
• Product mix:
– It is the full list of all the products offered for sale by the
company
– Structure of the product mix has dimensions of both breadth
and depth
– It's breadth is measured by the number of product lines carried
– It's depth by the variety of sizes, colours, models offered within
each product line
• Product line:
– A broad group of products, intended essentially for similar uses
and possessing reasonably similar physical characteristics
 Product mix strategies
• Product positioning:
– The ability to position the product appropriately in the
market is a major determinant of company profit
– The products position is the image the product projects in
relation to competitive products as well other products
marketed by the same company
• Positioning strategies:
– Position in relation to a competitor butex/geisha
– Position In relation to target market chill beer
– Positioning in relation to product class juice no sugar added
– Positioning by price and quality; Pep SHOPRITE in SA
 Product life cycle
• Divided In 4 stages: introduction, growth, maturity
and decline
• Applies to generic categories of products like
microwave ovens but not to specific brands like
samsung
• Marketing success is on the ability to understand
and manage the life cycle of products
• The PLC can be illustrated with the sales volume
and profit curves.
 Characteristics of each stage
• Introduction stage
– It's the first stage
– Product is launched onto the market with a full
scale promotion and marketing program
– It has gone through idea evaluation, pilot
models and test marketing
– The entire product may be new or the basic
product may be well known but a new feature or
accessory may be in the introductory stage
 PLC
• There Is a high percentage of product failures in this stage
• Operations are characterised by high costs, low sales
volume, net losses and limited distribution
• Most risky and expensive stage
• For really new products there is little direct competition
• Promotional programme is designed to stimulate primary
rather than secondary demand, by emphasising the type
of product rather than the seller's brand
Product Life Cycle
 PLC
• Growth
– Or market acceptance stage, both sales and profits rise
often at a rapid rate
– Competitors enter the market- in large numbers if profit
outlook Is particularly attractive
– Sellers shift to secondary demand rather than primary-
demand promotion strategy
– The number of distribution outlets Increases, economies
of scale are introduced, prices may come down a bit
– Typically profits start to decline a bit near the end of the
growth stage
 PLC
• Maturity
– During the first part of this period sales continue to increase
but at a decreasing rate
– While sales are valeting off, the profits of both the producer
and the retailer's are declining
– Marginal producers adhere forced to drop out of the market
– Price competition intensifies
– The producer assumes the greater share of the total
promotional effort In the fight to retain dealers and shelf
space in their stores.
– New models are Introduced as producers broaden their lines
– Trade - in sales become significant
 PLC
• Decline and possible abandonment:
– In virtually all products, obsolescence Inevitably
sets in as new products start their own life cycles
and replace the old ones
– Cost control becomes increasingly critical as
demand drops
– Advertising declines and a number of competitors
withdraw from the market
 Price
• It's what a company gets back in return for all
the effort that has been put into the
manufacturing and marketing the product
• Price shouldn't be set in isolation it should be
blended with the other 3 mixes
Cost oriented pricing:
1. Full cost pricing

• Where all costs including fixed costs are

included in the pricing structure
• It leads to an increase in price as sales fall
• The procedure is illogical because a sales
estimate is made before a price is set
• It focuses on internal costs rather than
customer's willingness to pay
• There may be a technical problem in allocating
overheads in multi product firms
2. Direct cost pricing:(marginal cost pricing )

• It's the calculation of only those costs that are likely to

rise as the output increases
• Price does not cover full costs and so the company
would be making a loss selling a product at this low
price
• It Is useful for services marketing eg rooms in a hotel
• They Indicate the lowest price at which it is sensible to
take business if the alternative is to let machinery idle.
• It avoids the problem of allocating overhead charges
found with full cost pricing
Competitor oriented pricing
1. Going rate pricing

• Where there is no product differentiation like

coffee/tobacco a producer may have to take a
going rate for the product
• A fundamental marketing principle is the
creation of differential advantage which helps
companies to build monopoly positions
around their products
• E.g delivery on time or pay back guarantee
2. Competitive bidding:
• Putting contracts out to tender
• Potential suppliers quote a price that is
confidential sealed bids
• Buyer may select the supplier with lowest
price
• Successful bidding depends on having efficient
competitor information system
 Marketing oriented pricing
• Pricing should be set in line with the
marketing strategy
• Pricing decision is dependent on other
decisions in the marketing planning process
• For new products price will depend on
positioning strategy
• For existing products price will be affected by
strategic objectives:
Pricing new products - Positioning strategy

• Product positioning involves the choice of target

market and the creation of differential advantage
(value that people in that segment place on the
product)
• Where multiple segments appear attractive,
modified versions of the product should be
designed and priced differently, not according to
differences in costs, but in line with the respective
values that each target market places on the
product
• A product launch strategy is a planned effort to
launch a new product in a market.
• The goal of most businesses is to launch something
and get as much growth and traction as quickly as
possible.
• Companies use various strategies to promote their
services and products.
• A product launch strategy involves research, testing
and actions from different departments to ensure
customers buy a product.
• If you have a new product or service you want
to introduce to the market, you should learn
how to create a successful product launch
strategy.
• In this article, we review the definition of a
product launch strategy, its importance, the
steps to create one and tips to help you build
yours.
 Launch strategies
• A product launch strategy is a comprehensive
plan designed to jumpstart, accelerate, and
scale product adoption once something hits the
market.
• It involves a series of coordinated actions and
decisions to create awareness, generate
interest, and appeal to specific target audiences.
• Price should also be blended with other
elements of the marketing mix
New Product Strategies
 New Product Strategies
• Rapid skimming:
– a combination of high price and high promotion expenditure
– The high price provides high margin returns on investment
– Heavy promotion creates high levels of product awareness
and knowledge
• Slow skimming:
– Combines high price with low levels of promotional
expenditure
– High prices mean big profit margins, but high levels of
promotion are believed to be unnecessary, perhaps because
word of mouth is more Important or because heavy
promotion Is thought to be incompatible with product image
 Launch Strategies
• Rapid penetrative strategy:
– Combination of low prices with heavy promotional
expenditure
– The aim is to get market share rapidly, perhaps at the
expense of the rapid skimmer e.g easy jet attacking BA
• Slow penetration strategy:
– Combines low price with low promotional expenditure
– Own label brand s use this strategy
– Promotion Is not necessary to gain distribution
– Low promotional expenditure helps to maintain high profit
margins
 Pricing existing products
• Should be set in context of strategy- especially strategic
objectives of each product will have major bearing on
pricing.
• The 4 objectives are: build, hold harvest and reposition
• Build objective:
– For price sensitive market, a build objective for a product
implies a price lower than competition.
– If competition lowers It's price we would be slow to match it
– Price In these circumstances will be dependent on the
overall positioning strategy thought appropriate for the
product
Strategies based on BCG Matrix
Dr Vidya Hattangadi by Dr Vidya Hattangadi
 Pricing existing products
• Hold objective:
– Where the strategic objective Is to hold
sales/market share
– The appropriate pricing strategy is to maintain or
match the price relative to competition
– This has implications for price changes: if
competition reduces the price then our price
would match this price fall
 Pricing existing products
• Harvest objective:
– Implies maintenance or raising the profit margins venue though
sales/market share are falling
– The implication for pricing strategy would be to set premium prices
– For products that are being harvested there would bet much
greater reluctance to match price cuts
– On the other hand price increases would swiftly be matched
• Reposition objective:
– Changing market circumstances and product fortunes may
necessitate the repositioning of an existing product
– This may involve a price change, the direction and magnitude will
be dependent on the new positioning strategy
 Value to the customer
• The second marketing consideration when
setting prices is estimating a product's value to
the customer
• The more value a product is gives compared to
that of competition, the higher the price that
can be charged