Intensive distribution exclusive distribution selective distribution franchising

Case Analysis And Questions

CHAPTER 7

Developing and Managing Offerings

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DEVELOPING AND MANAGING OFFERINGS

Developing new products for most companies is a constant process.

Some “new” offerings may be only improved versions of existing offerings.

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LEARNING OBJECTIVES

Identify an effective process for creating offerings and bringing them to market.

Understand the relative importance of each step in the new-offering development process and the functions within each step.

Distinguish between the various forms of testing and analysis that take place before a new offering is brought to the market.

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OFFERING DEVELOPMENT: 7 STEPS

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IDEA GENERATION

Ideas for products can come from anywhere:

Employees

Customers

Suppliers

In the B2B markets, customers can be the biggest source of new ideas.

Lead users are customers who are good at generating new ideas for products or for applications of products.

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CROWDSOURCING

e.g., AppCo, a crowdsourcing website where people can submit ideas for Web and mobile apps

THE PROCESS OF OBTAINING PRODUCT IDEAS, FUNDING, AND OTHER CONTRIBUTIONS ONLINE FROM LARGE NUMBERS OF PEOPLE RATHER THAN JUST ONE’S EMPLOYEES, CUSTOMERS, OR SUPPLIERS

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CROWDFUNDING

e.g., Kickstarter and GoFundMe

THE TERM USED SPECIFICALLY FOR OBTAINING FUNDING ONLINE FOR PROJECTS

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IDEA GENERATION

Companies also get ideas by watching competitors.

Some offerings are protected from duplication by copyrights or patents, but companies find different ways to achieve the same results.

Many new ideas are really new versions of existing products and services.

When a company develops a product or service based on one of their other products, this is called a line extension.

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NEW OFFERING IDEAS

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IDEA SCREENING

Companies evaluate ideas with the following questions:

Does it add value to the customer?

Does it satisfy a market need?

Can it be produced within a stated period of time?

How many units will sell?

At what price will it sell?

Can the company make and sell the product within budget and still make money?

What after-sales services to the customer will need to be provided?

Does the company have the resources for after-sales services?

Does it fit the company image and corporate strategy?

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IDEA SCREENING

Concept testing: running the idea by potential customers.

Focus groups: groups of 8-12 consumers react to the concept.

Depth interviews: individuals react individually to the concept.

Process feasibility: the degree to which the company can feasibly make and service a product.

Financial feasibility: the ability of the new offering to make money.

Firms face two types of risks:

Investment risk

Opportunity risk

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DEVELOPMENT STEPS

Feature specification: narrowing down the product’s features.

Quality function deployment (QFD): the company designs an offering that delivers benefits customers desire.

Development: the offering is designed, specifications are written, and prototypes are developed.

Testing:

Alpha testing: lab testing

Beta testing: actual customers test the offering in real-world conditions

Market test: a test of the complete launch of a marketing plan.

Launch or Commercialization: the offering is made available to customers.

Rolling launch: the offering is available to certain markets first.

Evaluation: executives monitor the progress of the offering.

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KEY TAKEAWAYS

Most companies put new offering ideas through a seven-step process, beginning with the idea generation stage.

Ideas for new offerings can come from anywhere including one’s customers, employees, customers, suppliers, and competitors.

The next step in the process is the idea screening stage, followed by the feature specifications, development, testing, and launching stages.

After an offering is launched, it is evaluated.

A company must balance an offering’s investment risk (the risk associated with losing the time and money put into developing the offering) against the offering’s opportunity risk (the risk associated with missing the opportunity to market the product and profit from it).

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LEARNING OBJECTIVES

Explain how organizations manage offerings after being introduced to the marketplace.

Explain how managing an offering may be different in international markets.

Explain the product life cycle and the objectives and strategies for each stage.

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PRODUCT LIFE CYCLE

The PLC is a beneficial tool that helps marketers manage the stages of a product’s acceptance and success in the marketplace.

Not all products go through all stages and the length of a stage varies.

INCLUDES THE STAGES THE PRODUCT GOES THROUGH AFTER DEFVELOPMENT, FROM INTRODUCTION TO THE END OF THE PRODUCT.

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PRODUCT LIFE CYCLE

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PRODUCT LIFE CYCLE FACTORS

Life Cycles vary for different categories of products.

Some products never experience success.

Some products remain in phases longer.

Computer products have limited cycles.

Jewelry and kitchen products often have longer cycles.

How products are marketed can vary throughout its life cycle.

Global differences may also affect phases in the life cycle.

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INTRODUCTION STAGE

Marketing costs are higher in this stage.

Profits are low or non-existent due to R&D and other costs.

Distribution channels are limited to early adopters.

Pricing strategies can vary, and may be based on skimming or penetration objectives.

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INTRODUCTION STAGE PRICING

Penetration pricing strategy: using a low initial price to encourage customers to try the product.

Skimming pricing strategy: setting a high initial price to recover the initial investment quickly.

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THE GROWTH STAGE

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acceptance

When the product is accepted by the market, it enters the growth phase.

Acceptance attracts competitors

Increasing sales and attractive profits encourage competition.

Growth requires sufficient inventories

Expanding a product’s distribution and increasing its production to ensure availability.

GROWTH AND DISTRIBUTION

Having the product in the right place at the right time means expanded presence in order to serve the increasing demand.

Product’s costs remain high during the growth stage.

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GROWTH PHASE PRICING

Pricing typically remains constant.

Some competitors may reduce prices in order to gain share.

Companies look to increase profits during this phase from the increased sales.

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THE MATURITY PHASE

Products like people reach a stage of maturity, or leveling-off of growth.

Sales level-off as demand erodes and sales are largely due to replacement or repeat users as opposed to new customers.

This phase can last longer, and only the strongest suppliers will survive.

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EXTENDING LIFE CYCLES

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ENTER NEW MARKETS

MODIFY TARGET MARKETS

MODIFY MARKETING STRATEGY

ADD NEW FEATURES

MODIFYING PRODUCTS TO EXTEND MATURITY

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packaging

Redesign and repackage.

quality

Adding new features that extend use.

quantity

Increasing amount purchased for same price.

EXTENDING LIFE THROUGH NEW MARKETS

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GLOBAL

SUBSTITUTE PRODUCTS

ONLINE

THE DECLINE STAGE

Product sales decrease at an increasing rate.

Technology obsoletes products.

Fads generally have short lives.

Fashions change life cycles!

Harvesting of products is accomplished through reducing costs to maintain profits.

Modifying products during maturity may avoid a decline phase.

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KEY TAKEAWAYS

The product life cycle helps a company understand the stages (introduction, growth, maturity, and decline) a product or service may go through once it is launched in the marketplace.

The number and length of stages can vary.

When a product is launched or commercialized, it enters the introduction stage. Companies must try to generate awareness of the product and encourage consumers to try it.

During the growth stage, companies must demonstrate the product’s benefits and value to persuade customers to buy it versus competing products. Some products never experience growth.

The majority of products are in the mature stage. In the mature stage, sales level off and the market typically has many competitors. Companies modify the target market, the offering, or the marketing mix in order to extend the mature stage and keep from going into decline.

If a product goes into decline, a company must decide whether to keep the product, harvest and reduce the spending on it until all the inventory is sold, or divest and get rid of the product.