Part Three

Business Marketing Programming

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Part Three

Business Marketing ProgrammingPart 3 covers the key areas of business marketing programming.

Chapter 8 Developing and Managing Products

Chapter 14 Pricing and Negotiating for Value

Chapter 9 Business Marketing Channels

Chapter 10 Communicating with Customers (IMC)

Particular Communication Vehicles:

– Advertising, Trade Shows, and PR (Chapter 11)

– Direct mail, Telephone, and Internet (Chapter 12 )– Personal Selling (Chapter 13)

Chapter Eight

Developing and Managing Products:

What do Customers Want?

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Learning Objectives

What is a Product? Managing Products

Key product management decisions Product management levels Product management tools (portfolio and product life

cycle) New Product Development

Identify the process of developing products internally Discuss the importance of lead users to the product

development process Indicate what partnering, with both suppliers and

customers, means to the product development process

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What is a Product

COMPETITIVEADVANTAGE:

PRODUCT:A Bundle of Benefits and a Collectionof Solutions to Needs and Wants

How the Product or Service Satisfies

A NeedBENEFIT:

A Benefit That Satisfies a CustomerBetter than A Competitor’s ProductBenefits

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Core Product & Augmented Product

Product – A collection of features; A collection of advantages; A collection of buyer benefits including services.

Core Product – the tangible item plus customary services

Augmented Product – the tangible product plus customary and unique/customized services comprises the augmented product.• A means of exceeding customer expectations• Should be done on a customer-by-customer basis• Is accomplished by adding unique/customized services to the core

product• Aiding in building strong customer partnerships

E.g., computers + 2 hr free training is a core product or an augmented product?

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Managing Products

• Key product management decisions

• Product management levels

• Management tools

1. Product Portfolio – BCG and GE matrix2. Product Life Cycle

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Key Product Management Decisions

1. Which product to introduce

2. Which products to keep

3. Which product to promote

4. What level of promotion to provide (low to high?)

5. What products to continue or delete

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Product Management Levels

The product category

The product line

The technology platform

The product itself

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Product Management Tools

1. Product Portfolio Management Tools BCG Matrix GE Matrix

2. Product Life Cycle

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Growth share matrix is a portfolio planning method that evaluates a company’s products in terms of their market growth rate and relative share.

• Products are classified as: Stars, Cash Cows, Question marks and Dogs

• Marketing efforts, or investments, will change, depending on the product’s classification

The BCG Matrix

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The BCG Matrix

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Stars are high-growth, high-share businesses or products requiring heavy investment to finance rapid growth. They will eventually turn into cash cows.

Cash cows are low-growth, high-share businesses or products that are established; require less investment to maintain market share in a stable market.

Question marks are low-share business units in high-growth markets requiring a lot of cash to hold their share.

Dogs are low-growth, low-share businesses and products that may generate enough cash to maintain themselves but do not promise to be large sources of cash. Not worth much investment.

The BCG Matrix

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Problems with Matrix Approaches

• Difficulty in defining SBUs and measuring market share and growth

• Time consuming• Expensive• Focus on current businesses, not future planning

The BCG Matrix

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A more advanced model developed by General Electric: measuring market attractiveness and business strength

• Market attractiveness is a composite measure of the potential for sales and profits in a particular market segment

• Business strength is the strength of our offering relative to other companies’ products

• GE Matrix is an expansion of the BCG matrix. The dimensions are more comprehensive and detailed.

GE Matrix

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GE Matrix

Market Attractiveness• Growth• Diversity• Competitive Structure Change• Technology Change• Social Environment

Business Strength• Size of Market & Share• Company Growth Rate• Profit• Margins• Technology Platform• Image• People

GE Matrix

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Product Life Cycle (PLC) – The cycle of product development, introduction, growth, maturity, and decline in sales

• PLC describes the sales history of a successful product

• The cycle can be applied to individual products or to product platforms or categories

• As products go through the life cycle, marketing emphases will change.

Product Life Cycle

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PLC Decision Points

Rapid expansion of distributorsProduct line expansionNiche marketingContinued heavy promotionSales force incentives and managementSearch for new sources for supplyNeed to balance supply and demandStock-out and back-order damage control

Development Introduction Growth Maturity Decline Time

Strongly defend home-market nichesPrune product linesEmphasize gross contribution rather than market share and sales volumeReview logistics: prune costsReduce pioneering sale force effort, more telemarketingMore trade than consumer promotionIntroduce flankers, private labels, genericsReinvest in market research & R&DUse promotions to increase heavy-user loyaltyFreeze investment in plantProductivity reviewSpecial trade promotions to keep channels happyFocused attacks on vulnerable competitorsLong-term price reduction or at least a short-term price promotionKeep plant at maximum capacity and subcontractexcess

Cut low-gross-margin products from the lineWithdraw from channels in order of their unprofitabilityFreeze R& D and product modificationsFreeze advertising and promotionsAttempt to maintain price to the endBuy back remaining stock and redistributeMaintain spare parts and serviceConsider divesting while it is a going concern

Redirect focus & promotionInvest in expanding productionBuild inventoryExpand distributor networkTrain expanded sales forceInstitute marketing controlsInvest heavily in advertisingTarget on best prospects: innovators and enthusiastsUse most loyal distributorsUse free samplesUse public demonstrations and trade showsUse publicity and endorsementsUse specialist media & catalogs

Sales

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PLC – A new look

Product

Develop-ment

R&D

Test Marketing

Introduction Growth Maturity Decline

Kill the product

Find New Uses

Find New Markets

Repeat LifeCycle

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Introduction – Profits are not expected; the focus is on building distribution channels; a truly innovative product must focus on stimulating primary demand

Growth – Sales and profits increase at their fastest rate; product differentiation may be employed in an attempt to stimulate secondary demand

Maturity – Sales level off; maintain/improve its profit position through product differentiation

Decline – seek markets/applications for the product

PLC – Recommendations for each stage

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Some authors have combined the life cycle and portfolio matrices into one model.

1. How would you do that?

2. What are some limitations of the model?

Discussion Question

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The most basic decision: go – no go decision

Risks involved in developing new products:

Investment risk – we decide to go ahead with the product, it fails, and we lose some or all of our investment

Opportunity risk – we decide to kill a product and thereby lose all of the revenue we would have gained if it had been a success

New Product Development

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Product Development Process

EVALUATION

LAUNCH

BETA TESTING

PRODUCT DEVELOPMENT

SPECIFYING FEATURES

SCREENING AND PRELIMINARY INVESTIGATION

IDEA GENERATION

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Internally developed products:

1. Begin as an idea that must be screened to determine if it is worth further development (concept test)

2. Features are specified and then a prototype is created

3. A small run of the product is manufactured and beta, or field, tested – letting customers use in real-world conditions

4. The product is launched and evaluated

New Product Development Process

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Making a product successful

Five factors are key to success:Company’s ability to identify needs and satisfy them1. Have close ties with a well defined market to anticipate customer needs.

2. Company is highly integrated and market-oriented

3. Company has a competitive advantage in technology and production capability

Company’s ability to market products4. Company has a strong marketing proficiency

5. New product launch adequately financed

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Winning the new product contest

FOCUS ON CORE COMPETENCY(WHAT YOU DO BEST FOR A COMPETITIVE ADVANTAGE)

PLUS

PROVIDE GREATEST VALUE TO CUSTOMER

EQUALS

SUCCESSFUL PRODUCT