Learning objectives

2. Learning objectives • Define the terms product item, product line and product mix • Explain the concept of product life cycles • Explain the importance of developing new products • Describe the six categories of new products • Explain the steps in the new-product development process • Explain the diffusion process through which new products are adopted

3. Learning objective 1 Define the terms product item, product line and product mix

4. 1 Product items, lines and mixes Product item A specific version of a product that can be designated as a distinct offering among an organisation’s products. Product line A group of closely related product items. Product mix All products that an organisation sells.

5. 1 Benefits of product lines • Why form product lines? • advertising economies • package uniformity • standardised components • efficient sales and distribution • equivalent quality

6. 1 Product mix width • The number of product lines an organisation offers: • diversifies risk • capitalises on established reputations.

7. 1 Product line depth • The number of product items in a product line: • attracts buyers with different preferences • increases sales/profits by further market segmentation • capitalises on economies of scale • evens out seasonal sales patterns.

8. 1 Adjustments Adjustments to product items,lines and mixes Product modification Product line extension or contraction Productrepositioning

9. 1 Product modifications • Quality modification • Functional modification • Style modification

10. 1 Planned obsolescence • The practice of modifying products so those that have already been sold become obsolete before they actually need replacement.

11. 1 Repositioning • Why reposition established brands? • changing demographics • declining sales • changes in social environment.

12. 1 Product line extension • Adding additional products to an existing product line in order to compete more broadly in the industry.

13. 1 Product line contraction • Symptoms of product line over-extension • some products have low sales or cannibalise the sales of other items • resources are disproportionately allocated to slow-moving products • items have become obsolete because of new-product entries.

14. Learning objective 2 Explain the concept of product life cycles

15. 2 Product life cycle • A concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death).

16. 2 Product life cycle (cont.)

17. 2 Introductory stage • Full-scale launch of new products • High-failure rates • Little competition • Frequent product modification • Limited distribution • High marketing and production costs • Negative profits • Promotion focuses on awareness and information • Intensive personal selling to channels

18. 2 Growth stage • Second stage • Increasing rate of sales • Entrance of competitors • Market consolidation • Initial healthy profits • Promotion emphasises brand ads • Goal is wider distribution • Prices normally fall • Development costs are recovered

19. 2 Maturity stage • A period during which sales increase at a decreasing rate • Declining sales growth • Saturated markets • Extending product line • Stylistic product changes • Heavy promotions to dealers and consumers • Marginal competitors drop out • Prices and profits fall • Niche marketers emerge.

20. 2 Decline stage • Where sales keep declining over a relatively long period of time • Long-term drop in sales • Large inventories of unsold items • Elimination of all nonessential marketing expenses

21. 2 Product category • All brands that satisfy a particular type of need.

22. 2 Product category (cont.)

23. Learning objective 3 Explain the importance of developing new products

24. 3 Why new products? • New products are needed to sustain growth, profits and replace obsolete items • Ultimately in a FMCG market nine out of ten new listed products fail • Product death occurs due to market changes and the decline in quality, quantity and viability of consumer research.

25. Learning objective 4 Describe the six categories of new products

26. 4 New product • A product new-to-the-world, the market, the producer, the seller or some combination of these.

27. 4 Categories of new products • Six categories of new products: • new-to-the-world • New-product lines • product line additions • improvements/revisions • repositioned products • lower-priced products.

28. Learning objective 5 Explain the step in the new-product development process

29. 5 Successful new-product development process • New-product success factors: • long-term commitment • New-product strategy • capitalise on experience • establish an environment.

30. 5 New-product development process • New-product strategy • Idea generation • Idea screening • Business analysis • Development • Test marketing • Commercialisation • New product.

31. 5 Idea generation • Sources of new-product ideas: • customers • employees • distributors • competitors • research and development • consultants • creative thinking.

32. 5 Brainstorming • The process of getting a group to think of unlimited ways to vary a product or solve a problem.

33. 5 Idea screening • The first filter in the product-development process, which eliminates ideas that are inconsistent with the organisation’s new-product strategy, or are inappropriate for some other reason.

34. 5 Concept test • A test to evaluate a new-product idea, usually before any prototype has been created.

35. 5 Business analysis • Considerations in business analysis stage: • preliminary demand • cost • sales • profitability.

36. 5 Development • Creation of prototype • Marketing strategy • Technical production feasibility • Final government approvals, if required.

37. 5 Test marketing • The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation.

38. 5 Choosing a test market • Similar to planned distribution • Relative isolation and free of influences • Advertising availability; multiple media • Diversified cross-section • No atypical purchase habits • Representative population/income • Not overly used or easily ‘jammed’ • Year-round sales stability • Available research/audit and retailers.

39. 5 Alternatives to test marketing • Single-source research using supermarket scanner data • Simulated (laboratory) market testing.

40. 5 Commercialisation • Steps in marketing a new product: • production • inventory build-up • distribution shipments • sales training • trade announcements • customer advertising.

41. Learning objective 6 Explain the diffusion process through which new products are adopted

42. 6 Diffusion • The process by which the adoption of an innovation spreads.

43. 6 Categories of adopters • Categories of adopters in the diffusion process: • innovators • early adopters • early majority • late majority • laggards.

44. 6 Categories of adopters (cont.) Percentage of adopters Early adopters 13.5% Late majority 34% Early majority 34% Laggards 16% Innovators 2.5% Time

46. 6 Product characteristics and the rate of adoption • Product characteristics predict rate of adoption. • Complexity • Compatibility • Relative advantage • Observability • Triability.

47. 6 Marketing implications of the adoption process • Communication aids the diffusion process • Word-of-mouth • Direct from marketer.