MBA Study Material - Production and Brand Management – Understanding Brands

Production and Brand Management – Understanding Brands

New product planning

New product

A new product is a product that is new to the company introducing it even though it may have been made in same form by others.

Types of New Product

New to the world: this is new to the world. no close substitute were existed .innovators will be attract the new product.

New to the company:  This is new to the company, which is already in the market.

Addition to existing product:  This product is called as modified product of basic product. Based on the Changes in the consumer tastes and preferences, basic product will be reintroduced into the market with Some major or minor changes.

Improved and Revised: This product is advanced product of basic product with additional features.

Reduction in Cost: A product is said to be a new product when it is introduced into the market with reduced price.

New product development (NPD) is the complete process of bringing a new product to market. A product is a set of benefits offered for exchange and can be tangible (that is, something physical you can touch) or intangible (like a service, experience, or belief). There are two parallel paths involved in the NPD process: one involves the idea generation, product design and detail engineering; the other involves market research and marketing analysis. Companies typically see new product development as the first stage in generating and commercializing new product within the overall strategic process of product life cycle management used to maintain or grow their market share.

The stages

1. Idea Generation is often called the "fuzzy front end" of the NPD process

• Ideas for new products can be obtained from basic research using a SWOT analysis (Strengths, Weaknesses, and Opportunities & Threats). Market and consumer trends, company's R&D department, competitors, focus groups, employees, salespeople, corporate spies, trade shows, or ethnographic discovery methods (searching for user patterns and habits) may also be used to get an insight into new product lines or product features.
• Lots of ideas are generated about the new product. Out of these ideas many are implemented. The ideas are generated in many forms. Many reasons are responsible for generation of an idea.
• Idea Generation or Brainstorming of new product, service, or store concepts - idea generation techniques can begin when you have done your OPPORTUNITY ANALYSIS to support your ideas in the Idea Screening Phase (shown in the next development step).

2. Idea Screening  

• The object is to eliminate unsound concepts prior to devoting resources to them.
• The screeners should ask several questions: 
• Will the customer in the target market benefit from the product? 
• What is the size and growth forecasts of the market segment / target market?
• What is the current or expected competitive pressure for the product idea?
• What are the industry sales and market trends the product idea is based on?
• Is it technically feasible to manufacture the product?
• Will the product be profitable when manufactured and delivered to the customer at the target price?

3. Concept Development and Testing

• Develop the marketing and engineering details
• Investigate intellectual property issues and search patent databases
• Who is the target market and who is the decision maker in the purchasing process?
• What product features must the product incorporate?
• What benefits will the product provide?
• How will consumers react to the product?
• How will the product be produced most cost effectively?
• Prove feasibility through virtual computer aided rendering and rapid prototyping
• What will it cost to produce it?
• Testing the Concept by asking a number of prospective customers what they think of the idea - usually via Choice Modeling.

4. Business Analysis

• Estimate likely selling price based upon competition and customer feedback
• Estimate sales volume based upon size of market and such tools as the Fourt-Woodlock equation
• Estimate profitability and break-even point

5. Market Testing

• Produce a physical prototype or mock-up
• Test the product (and its packaging) in typical usage situations
• Conduct focus group customer interviews or introduce at trade show
• Make adjustments where necessary
• Produce an initial run of the product and sell it in a test market area to determine customer acceptance

6. Technical Implementation

• New program initiation
• Finalize Quality management system
• Resource estimation
• Requirement publication
• Publish technical communications such as data sheets
• Engineering operations planning
• Department scheduling
• Supplier collaboration
• Logistics plan
• Resource plan publication
• Program review and monitoring
• Contingencies - what-if planning

7. Commercialization (often considered post-NPD)

• Launch the product
• Produce and place advertisements and other promotions
• Fill the distribution pipeline with product
• Critical path analysis is most useful at this stage

CRITERIA FOR EVALUATING NEW PRODUCT

1.      Is there sufficient demand?
2.      Will it be profitable?
3.      What is the likely payback period?
4.      Does it fit the firm’s image?
5.      Does it fit the firm’s product portfolio?
6.      What is the likely life cycle of the product?
7.      How is the competition?
8.      How easy will it be to manufacture?

FAILURE OF NEW PRODUCTS:

1.      Poor idea
2.      Under estimation of competition
3.      Over production cost
4.      Poor performance
5.      Technical problems
6.      Poor planning
7.      Inadequate promotion
8.      Poor packaging
9.      Faulty pricing

SUCCESSIVE FACTORS OF NEW PRODUCT

1.      Reasonable pricing
2.      Attractive packing
3.      Effective promotion strategy
4.      Proper planning
5.      Technical support
6.      Good performance
7.      Low competition
8.      Good idea

CONSUMER ADOPTION PROCESS

Adoption is an individual’s decision to become a regular user of a product. Sequence of events beginning with consumer awareness of a new product leading to trial usage and culminating in full and regular use of the new product. Over time the adoption process resembles a bell curve formed by innovators, early adopters, the majority of consumers, late adopters, and laggards.

An innovation is any good, service, or idea that is perceived by someone as new. The idea may have a long history, but it is an innovation to the person who sees it as new. Innovations take time to spread through the social system. Rogers defines the innovation diffusion process as “the spread of a new idea from its source of invention or creation to its ultimate users or adopters.”

The consumer-adoption process focuses on the mental process through which an individual passes from first hearing about an innovation to final adoption. Adopters of new products have been observed to move through five stages:

1. Awareness -The consumer becomes aware of the innovation but lacks information about it.

2. Interest-The consumer is stimulated to seek information about the innovation.

3. Evaluation -The consumer considers whether to try the innovation.

4. Trial-The consumer tries the innovation to improve his or her estimate of its value.

5. Adoption -The consumer decides to make full and regular use of the innovation.

The new-product marketer should facilitate movement through these stages. A portable electric dishwasher manufacturer might discover that many consumers are stuck in the interest stage; they do not buy because of their uncertainty and the large investment cost. But these same consumers would be willing to use an electric dishwasher on a trial basis for a small monthly fee. The manufacturer should consider offering a trial-use plan with option to buy.

FACTORS INFLUENCING THE ADOPTION PROCESS

People differ in their approach towards adopting a new product. Some differ in adopting new fashion, some in adopting new appliances, some doctors are hesitant to apply new medicines and still some farmers do not apply new implements. This is called adoption culture. Once the customer buys the product, they increase the use and then others follow. Here others means are late adopters by nature. Let us categorize these customers into three units

1)  One who are early adopters. They are very quick in their response. These people are venture some and willing to try new ideas. In fact they are innovators in life and early adopters.

2)  Secondly Early Majority. They are very careful people and take time to adopt things. They tend to collect information about the change or the product, study carefully and then adopt on the basis of their merits.

3) The third ones are late majority and traditionalists. They are the ones who adopt late and then use the product.

The following the main factors influence the customers towards new product

1.      Individual readiness to try new product
2.      Characteristics of innovation
3.      Personnel influence
4.      Relative advantage
5.      Compatibility
6.      Social acceptability
7.      Cost

PRODUCT LIFE CYCLE MANAGEMENT-SPECIAL ISSUES

INTRODUCTION

All products and services have certain life cycles. The life cycle refers to the period from the product’s first launch into the market until its final withdrawal from market. During this period significant changes are made in the way that the product  is  behaving  into  the  market  i.e.  Its reflection in respect  of  sales  to  the company that introduced it into the market. Since an increase in profits is the major goal of a company that introduces a product into a market.

The understanding of a product’s life cycle, can help a company to understand and realize when it is time to introduce and withdraw a product from a market, its position in the market compared to competitors, and the product’s success or failure.

For a company to fully understand the above and successfully manage a product’s life cycle, needs to dev e l o p strategies and methodologies, some of which are discussed later on.

PART 1: PRODUCT LIFE CYCLE MODEL

The product’s life cycle - period usually consists of five major steps or phases: Product development, Product introduction, Product growth, Product maturity and Product decline.  These phases exist and are applicable to all products or services.

Fig. 1: Product Life Cycle Graph

PRODUCT DEVELOPMENT PHASE

Product development phase begins when a company finds and develops a new product idea. This involves transforming various pieces of information and converting them into a new product. A product is usually undergoing several changes involving a lot of money and time during development, before it is sent to target customers through test markets. Those products that survive the test market are then introduced into a real mmarket and the introduction phase of the product begins. During the product development phase, sales are zero and revenues are negative.  It is the time of spending with absolute no return.

2. INTRODUCTION PHASE
The introduction phase of a product includes the product launch with its requirements to getting it launch in such a way so that it will have maximum impact at the moment of sale.  A  good  example  of  such  a  launch  is  the  launch  of  “Windows  XP”  by Microsoft Corporation.

This period can be described as a money loss period compared to the maturity phase of a product. Large expenditure on promotion and advertising is common, and quick but costly service requirements are introduced. A company must be prepared to spent a lot of money and get only a small proportion of that back. In this phase distribution arrangements are introduced. Having the product in every counter is very important and is regarded as an impossible challenge. Some companies avoid this  stress by hiring external contractors or outsourcing the entire distribution arrangement. This has the benefit of testing an important marketing tool such as outsourcing.

Pricing is something else for a company to consider during this phase. Product pricing usually follows one or two well structured strategies. Early customers will pay a lot for  something  new  and  this  will  help  a  bit  to  minimize  that  sinkhole  that  was mentioned earlier. Later the pricing policy should be more aggressive so that the product can become competitive. Another strategy is that of a pre-set price believed to be the right one to maximize sales. This however demands a very good knowledge of the market and of what a customer is willing to pay for a newly introduced product.

3. GROWTH PHASE
The growth phase offers the satisfaction of increasing the sales in the market place. This is the appropriate timing to focus on increasing the market share. If the product has been introduced first into the market, (introduction into a “virgin”1 market or into an existing market) then it is in a position to gain market share relatively easily. A new growing market alerts the competition’s attention.

The company must offer product extensions, services, warranty and try to differentiate them from the competitors ones. A frequent modification process of the product is an effective policy to discourage competitors from gaining market share by copying or offering similar products.

Promotion and advertising continues, but not in the extent that was in the introductory phase and it is oriented to the task of market leadership and not in raising product awareness. A good practice is the use of external promotional contractors to build awareness and interest in market.

This period is the time to develop efficiencies and improve product availability and service. Cost efficiency and time-to-market and pricing and discount policy are major factors in gaining customer   confidence.  Good coverage in all marketplaces is worthwhile goal throughout the growth phase.

4. MATURITY PHASE
When the market becomes saturated with variations of the basic product, and all competitors are represented in terms of an alternative product, the maturity phase arrives.     In this phase market share growth is at the expense of someone else’s business, rather than the growth of the market itself. This period is the period of the highest returns from the product. A company that has achieved its market share goal enjoys the most profitable period, while a company that falls behind its market share goal, must reconsider its marketing positioning into the marketplace.

During this period new brands are introduced even when they compete with the company’s existing product and model changes are more frequent (product, brand, and model). This is the time to extend the product’s life.

Pricing and discount policies are often changed in relation to the competition policies i.e. pricing moves up and down accordingly with the competitors one and sales and coupons are introduced in the case of consumer products. Promotion and advertising relocates  from  the  scope  of  getting   new   customers,  to  the  scope  of  product differentiation in terms of quality and reliability.

The battle of distribution continues using multi distribution channels2. A successful product  maturity phase is extended beyond anyone’s timely expectations. A good example of this is “Tide” washing powder, which has grown old, and it is still growing.

5. DECLINE PHASE
This is the time to start withdrawing variations of the product from the market that are weak in their market position. This must be done carefully since it is not often apparent which product variation brings in the revenues.

The prices must be cut and promotion should be pulled back at a level that will make  the product presence visible and at the same time retain the “loyal” customer. Distribution is narrowed. The basic channel is should be kept efficient but alternative channels should be abandoned.

PART2: ANALYSIS OF PRODUCT LIFE CYCLE MODEL
There are some major product life cycle management techniques that can be used to optimize a product’s revenues in respect to its position into a market and its life cycle. These techniques are  mainly marketing or management strategies that are used by most   companies   worldwide To comprehend these strategies one must first make a theoretical analysis of the model of product life cycle.

In the mid 70’s the model of product life cycle described in “Part 1”, was under heavy criticized by numerous authors.  The reasons behind  this  criticism  are  described below:

a. The shift changes in the demand of a product along a period of time makes the distinction of the product life cycle phase very difficult, the duration of those almost impossible to predict and the level of sales of the product somewhat in the realm of the imagination.

b. There are many products that do not follow the usual shape of the product life cycle graph as shown in fig.

c. The product life cycle does not entirely depend on time as shown in fig.1. It also depends on other parameters such as management policy, company strategic decisions and market trends. These parameters are difficult to be pinpointed and so are not included in the product life cycle as described in “Part 1”.

Nevertheless, a product manager must know how to recognize which phase of its life cycle is a product, regardless of the problems in the model discussed above. To do that a good method is the one, suggested by Donald Clifford in 1965, which follows.

• Collection of information about the product’s behavior over at least a period of 3 – 5 years (information will include price, units sold, profit margins, return of investment – ROI, market share and value).
• Analysis  of  competitor  short-term  strategies  (analysis  of  new  products emerging into  the market and competitor announced plans about production increase, plant upgrade and product promotion).
• Analysis of number of competitors in respect of market share.
• Collection of information of the life cycle of similar products that will help to estimate the life cycle of a new product.
• Estimation of sales volume for 3 – 5 years from product launch.
• Estimation of the total costs compared to the total sales for 3 – 5 years after product  launch  (development,  production,  promotion  costs).  The  estimate should be in the range of 4:1 in the beginning to 7:1 at the stage where the product reaches maturity

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Written by Ramu Magham

Ramu Magham is an English Language Teacher who drives his students crazy with trending technologies and current happenings.