Five Product Levels

Potential product – all possible

Augmented product – fresh flowers

Expected product – clean bed

Basic product – hotel room

Core benefit - Sleep

Product Mix

Width - number of different product lines

Width - number of different product lines

Length - total number of items

within the lines

Length - total number of items

within the lines

Depth - number of versions of each

product

Depth - number of versions of each

product

Product Mix - all the product

lines offered

Product Mix - all the product

lines offered

Co

nsi

sten

cy

Brand Equity

No Brand Loyalty(customer will change)

No Brand Loyalty(customer will change)

Satisfied Customer(no reason to change)Satisfied Customer

(no reason to change)

Satisfied & Switching CostSatisfied & Switching Cost

Values the Brand

(brand as friend)Values the Brand

(brand as friend)

Devoted to Brand

Devoted to Brand

11-5

Types of Consumer Products

The Buyer Decision Process for New Products

• The adoption process is the mental process that an individual passes through from first learning about a new product to final adoption (making the decision to become a regular user).

• Consumers go through five stages in the process of adopting a new product;– awareness: the consumer becomes aware of the

new product but does not have information.

– interest: the consumer seeks information about the new product.

– evaluation: the consumer considers whether trying the new product is a good idea.

– trial: the consumer tries the new product to understand its value.

– adoption: the consumer decides to make regular use of the new product.

(AIETA)

Individual Differences in Innovativeness

• People differ in their readiness to try new products. After a slow start, an increasing number of people adopt the new product. The number of adopters reaches a peak and then drops off as very little adopters remain.

• There are five adopter categorization on the basis of time of adoption of innovations;– Innovators: are the first 2.5 percent of the buyers, they are

adventurous, take risk, relatively younger, better educated, have higher income, are more receptive to

unfamiliar things, rely more on their own values andjudgement, are less brand loyal and more likely to tae advantage of special promotions e.g. discounts.

– Early adopters: are the next 13.5 percent, are opinion leaders in their communities and adopt new ideas early but carefully.

– Early majority: are rarely leaders but adopt new ideas before the average person.

– Late majority: adopt an innovation only after a majority of people have tried it.

– Laggards: are suspicious of changes and adopt the innovation only when it has become tradition.

Adopter categorization on the basis of relative time of adoption of innovations

34% 34% early late

13.5 % majority majority early 16%

innovators adopters laggards2.5%

BCG & GE Matrix

Mar

ket A

ttra

ctive

ness

Business Strength

Mar

ket G

row

th

Relative Position

(Market Share)

About GE Matrix

Developed by McKinsey & Company in 1970’s.

GE is a model to perform business portfolio analysis on the SBU’s.

GE is rated in terms of ‘Market Attractiveness & Business Strength’

It is an Enlarged & Sophisticated version of BCG.

Classification M

arke

t Att

racti

vene

ss

Strong Medium Weak

Low

Med

ium

Hig

hBusiness Strength

5.00 1.002.333.67

5.00

3.67

2.33

Annual market growth rate Overall market size Historical profit margin Current size of market Market structure Market rivalry Demand variability Global opportunities

Market Attractiveness

Current market share Brand image Brand equity Production capacity Corporate image Profit margins relative to competitors R & D performance Managerial personal Promotional effectiveness

Business Strength

THE BCG GROWTH-SHARE MATRIX

• It is a portfolio planning model which is based on the observation that a company’s business units can be classified in to four categories:

Stars Question marks Cash cows Dogs

• It is based on the combination of market growth and market share relative to the next best competitor.

STARSHigh growth, High market share

• Stars are leaders in business.• They also require heavy investment, to

maintain its large market share.• It leads to large amount of cash

consumption and cash generation.• Attempts should be made to hold the

market share otherwise the star will become a CASH COW.

CASH COWS Low growth , High market share

• They are foundation of the company and often the stars of yesterday.

• They generate more cash than required.• They extract the profits by investing as little

cash as possible• They are located in an industry that is

mature, not growing or declining.

DOGSLow growth, Low market share

• Dogs are the cash traps.• Dogs do not have potential to bring in much

cash.• Number of dogs in the company should be

minimized.• Business is situated at a declining stage.

QUESTION MARKSHigh growth , Low market share

• Most businesses start of as question marks.• They will absorb great amounts of cash if

the market share remains unchanged, (low).• Why question marks?• Question marks have potential to become

star and eventually cash cow but can also become a dog.

• Investments should be high for question marks.

WHY BCG MATRIX ?

To assess : Profiles of products/businesses The cash demands of products The development cycles of products Resource allocation and divestment

decisions

LIMITATIONS

• BCG MATRIX uses only two dimensions, Relative market share and market growth rate.

• Problems of getting data on market share and market growth.

• High market share does not mean profits all the time.

• Business with low market share can be profitable too.

BCG Matrix(Three Paths to Success)

• Continuously generate cash cows and use the cash throw-up by the cash cows to invest in the question marks that are not self-sustaining

• Stars need a lot of reinvestments and as the market matures, stars will degenerate into cash cows and the process will be repeated.

• As for dogs, segment the markets and nurse the dogs to health or manage for cash

Three Paths to Success (cont’d)

High Low

High

Low

Market Growth Rate

Relative Market Share

BCG Matrix(Three Paths to Failure)

• Over invest in cash cows and under invest in question marks– Trade further opportunities for present cash

flow• Under invest in the stars

– Allow competitors to gain share in a high growth market

• Over milked the cash cows

Three Paths to Failure (cont’d)

High Low

High

Low

Market Growth Rate

Relative Market Share

GE Multifactor Portfolio MatrixIndustry Attractiveness

Busi

ness

Str

eng t

hs

High

High

Medium

Medium

Low

Low

Invest/Grow

Selectivity/earnings

Harvest /Divest

Protect Position

Invest to Build

Build selectively

Build selectively

Selectively manage for earnings

Limited expansion or harvest

Protect & refocus

Divest

Manage for earnings

29

IdeaGeneration

IdeaScreening

ConceptDevelopment

and Testing

MarketingStrategy

BusinessAnalysis

ProductDevelopment

TestMarketing

Commercialization

Major Stages in New-Product Development (Fig. 9.1, p. 340)

30

Customers Competitors Distributors Suppliers

Idea Generation is the Systematic Search for New Product Ideas Obtained Internally From Employees and

Also From:

New Product Development ProcessNew Product Development Process Step 1. Idea Generation

31

Original ProductsOriginal Products

ProductImprovements

ProductImprovements

ProductModifications

ProductModifications

NewBrandsNew

Brands

AcquiredCompaniesAcquired

Companies

Acquired Patents

Acquired Patents

AcquiredLicenses

AcquiredLicenses

Step 1: Idea Generation/ New-Product Strategies

Strategies for Obtaining New Product Ideas

32

New Product Development Process Step 2. Idea Screening

• Process to spot good ideas and drop poor ones as soon as possible.

• Many companies have systems for rating and screening ideas which estimate:– Market Size– Product Price– Development Time & Costs– Manufacturing Costs– Rate of Return

• Then, the idea is evaluated against a set of general company criteria.

33

1. Develop New Product Ideas into Alternative Detailed

Product Concepts

2. Concept Testing - Test theNew Product Concepts with Groups of Target Customers

3. Choose the One That Has theStrongest Appeal to Target

Customers

New Product Development Process Step 3. Concept Development

Product Image is the Way Consumers Perceive an Actual or Potential Product

34

Part Three Describes Long-Term:Sales & Profit Goals

Marketing Mix Strategy

Part Two Describes First-Year:Product’s Planned Price

DistributionMarketing Budget

Part One Describes Overall:Target Market

Planned Product PositioningSales & Profit Goals

Market Share

New Product Development Process Step 4. Marketing Strategy

35

If No, Eliminate Product Concept

Business AnalysisDo Projected Sales, Costs, & Profits Meet Company Objectives?

Methods: payback, ROI, BE, NPV, IRR, project numbers

Business AnalysisDo Projected Sales, Costs, & Profits Meet Company Objectives?

Methods: payback, ROI, BE, NPV, IRR, project numbers

Step 5. Business AnalysisStep 6. Product Development

If Yes, Move to Product Development

36

AdvertisingAdvertising

PackagingPackaging

ProductProductBudget LevelsBudget Levels

Positioning Positioning

DistributionDistributionPricingPricing

BrandingBranding

Elements that May be Test Marketed

by a Company

Test Marketing is the Stage Where the Product and Marketing Program are Introduced into More Realistic Market Settings.

New Product Development ProcessStep 7. Test Marketing

37

StandardTest Market

Full marketing campaignin a small number of representative cities.

Controlled Test Market

A few stores that have agreed to carry newproducts for a fee.

SimulatedTest Market

Test in a simulated shopping environment

to a sample of consumers.

New Product Development Process Step 7. Test Market Types

Electronic Test Market

Use split-cabletechnology and

scanner data

38

Step 7: Test Marketing

• Characteristics of Good Test Markets– .2 to 1.5% of the population– Good media coverage– Appropriate demographics– * Isolated media and distribution *– Length of the test = repurchase cycle

• Limitations of Test Markets– Expensive– Delays to market– Sabotage– Artificial– Industrial products

39

When is the Right Time to

IntroduceProduct?

When is the Right Time to

IntroduceProduct?

Where to Launch a

New Product?

Where to Launch a

New Product?

Commercialization is the Introduction of the New Product into the Marketplace.

New Product Development Process Step 8. Commercialization