Chapter 2: Product Management

What is a Product?

Product is defined as anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. To most people, the term product means a tangible good. However, a “product” also include services, events, persons, places, organizations, ideas, or a mixture of these. Products have five levels, which are known as ‘customer value hierarchy’, with each level adding more customer value. Five levels of a product include; the core product, the generic product, the expected product, the augmented product and the potential product.

Core product: A core product is the fundamental need or want that consumers satisfy by consuming the product or service. In another words, a core product is what customer is really buying. For example, the core product of a restaurant is food. The core product of a hotel is rest and sleep. The core product of a book is information.

Generic product: It is a version of the product containing only those attributes or characteristics absolutely necessary for it to function. In our hotel example, this could mean a bed, pillow, mirror and wardrobe etc.

Expected Product: It is about all aspects the consumer expects to get when he/she purchases a product. For instance, hotel customers expect a clean bed, fresh towels and a degree of quietness.

Augmented Product: It is the inclusion of additional features, benefits, attributes or related services that serve to differentiate the product from its competitors. For example, the hotel can provide a free map of the town in every room, remote-control satellite TV and prompt check-in and checkout.

Potential Product: It includes all augmentations and transformations the product might undergo in the future. In simple language, this means that the product must be augmented to continue surprising and pleasing customers. In our hotel example, this could mean a different gift placed in the room each time a customer stays. One of the things which confuses many beginners in marketing is the product hierarchy. There are just too many types of product classes. To understand the product hierarchy, we will have to look not at a single product but the business as a whole. The product hierarchy stretches from basic needs to particular items that satisfy those needs. Six levels of the product hierarchy are; need family, product family, product class, product line, product type, item or product variant.

Classification of Products

To bring order to a wide and complex area of marketing, it is useful to be able to define groups of products that either have similar characteristics or generate similar buying behavior within a market. The concept of “product classification” consists of dividing products according to specific characteristics so that they form a structured portfolio. Marketers have usually classified products on the basis of durability, tangibility, and end use (consumer or industrial).

Products fall into three groups according to durability and tangibility: non-durable goods, durable goods and services. Consumer products are products and services bought by final consumers for personal consumption. Consumer products can be further classified into convenience products, shopping products, speciality products and unsought products. Industrial products are those purchased for further processing or for use in conducting a business. The big difference in the industrial products market is derived from the demand for final consumer products. Industrial products can be classified into three groups of materials and parts, capital items, and supplies and services.

Product Mix Decisions

The product mix, also called product portfolio, is the full range of products offered by a firm. For instance, the product mix of ABC Electronic Company consists of three product lines, in turn, consists of several sub-lines. The product mix of a company has four important dimensions:

• Product mix width
• Product mix length
• Product mix depth
• Product mix consistency

Decisions About Products: Brands, Packaging and Labeling

A brand is something (name, symbol, design, or other element) that identifies one seller’s product and differentiates it from all others. The basic purposes of branding are the same everywhere in the world. In general, the functions of branding are as follows:

• To distinguish a company’s offering and differentiate one particular product from its competitors,
• To create identification and brand awareness,
• To guarantee a certain level of quality and satisfaction,
• To help with promotion of the product.

Marketers can position their brands clearly in target customers’ minds at three levels:

• Positioning based on product attributes is the lowest level (e.g: face cream-cleansing).
• A better positioning is by using the brand name with a desirable benefit to the customer. (e.g: face cream - softer skin, glowing skin).
• Strongest brands are positioned on strong beliefs and values (e.g: face cream- makes you more attractive).

Line extensions involve introduction of additional items in a given product category under the same brand name, such as new flavours, forms, colours, ingredients, package sizes, etc. Line extensions are low-cost and low risk ways of launching new products. But over extended brands often cause confusion to consumers. Also, if marketers are not cautious, sales of an extension may cut into the sales of other items in the line, which is called ‘cannibalism’.

Brand extention means extending a current brand name to new or modified products in a new category. This is a powerful tool in brand development and management. It helps new products to acquire instant brand recognition, and faster acceptance. It enables a company to enter new product categories more easily. Brand extension costs much less than launching a new brand.

A new brand name is created by a company when it enters a new product category for which the present brand name is found not suitable. The company may also feel that the power of its existing brand name is weakening and a new brand name is needed.

Brands vary in the amount of power and value they have in the market. A powerful brand has high brand equity. David Aaker, one of the leading authorities on branding, has defined the term brand equity as ‘a set of brand assets and liabilities linked to the brand, its name and symbol, that add to or subtract from the value provided by a product or service to a firm or to the firm’s customers’. In a way, brand equity is the positive differential effect that knowing the brand name has on consumer response to the product or service.

Packaging is often the most important and most overlooked aspect of marketing. In the last 10 seconds before the purchasing decision, consumers view packaging as a motivation to buy. Packaging involves designing and producing the container or wrapper for a product. It is an important part of the product that not only serves a functional purpose, but also acts as a means of communicating product information and brand character. The packaging is often the consumer’s first point of contact with the actual product, and is therefore very important. When customers select products from shelves, packaging become an important promotional tool. Sales are enhanced by packages that are visible, informative, emotionally appealing, and workable. High visibility packages tend to be easy to find when they are displayed on shelves of stores. Package designs with good informational value tell the customer at a glance what the package contains. Packages, also, serve to satisfy emotional needs.

Labeling is closely related to packaging. A label is that part of the product or the package conveying information about the product to the purchaser. A label performs several functions. First, it identifies the product or brand. The most straight-forward function is to identify the product or brand. But the label can also describe several things about the product: who made it, where and when was it made, the contents, how it is to be used etc. Finally, the label can promote a brand. It supports the brand’s positioning and may help to connect with customers. By a brand logo, the label can add personality to a brand and contribute to the brand identity.

New Product Concept and New Product Development Process

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 that one can touch) or intangible (like a service, experience, or belief). Developing new product ideas – and affective strategies to go with them – is often the key to a firm’s success and survival. But this is not easy and involves a series of steps which the organisation must carry out.

The organization must seek to generate new ideas. Idea generation stage involves creating a large pool of ideas from various sources. Major sources of new-product ideas include internal sources and external sources such as customers, competitors, distributors and suppliers, and others.

There will be more ideas generated than it is possible for the organisation to develop, so there must be a screening process carried out to select possible developments. This stage, called idea screening, eliminates ideas that are inconsistent with the organization’s new-product strategy or are obviously inappropriate for some other reason. This stage should prove that the ideas are suitable for the market.

A concept test evaluates a new-product idea, usually before any prototype has been created. Typically, a model of the product or a detailed description and visual representation of the product concept is presented to members of the potential target market and asked such questions as; How likely are you to want to purchase and use this product? How much are you willing to pay for it? What can be done to improve this idea? Concept test results are analyzed to discover whether or not this concept is viable.

As far as possible, a company must be sure that the launch of a new product will contribute to the profitability of the firm. For this reason, the company should conduct an analysis of the likely financial outcome as a central issue in the ‘go’/‘no go’ decision. Business analysis is a combination of marketing research, cost benefit analysis, and assessment of competition. The analysis is based on the fullest information available to the company thus far.

If business analysis points to a favourable decision, the next major step is product development which is the stage where prototypes are physically made. All the branding and other strategies decided previously are tested and applied in this stage.

In test marketing, the new product is tested in a way that involves consumers purchasing in a normal shopping situation, or in the case of a more durable product, being tested in an environment in which it is finally used (usually at homes). The objective of the test marketing exercise is reduction of risk in any subsequent decisions that are made. The need for this research is to reduce the risk of a costly mistake in a national launch.

The final stage of a new product development is ‘Commercialization’, or bringing the product to the market. This will usually involve a large marketing budget to promote the product or service, and build customer awareness and preference. Commercialization involves following activities:

• Deciding product characteristics and packages.
• Branding and trade marking.
• Building up manufacturing facilities.
• Building up an appropriate marketing mix.
• Introducing product in the market.

It is accepted that failure rates for new products are high. Various rates are quoted, ranging from 50 percent to 90 percent plus. Several reasons are responsible for this high rates of failures. Because the cost of product failure is so high, many businesses are making an aggressive attempt to reduce the rate of new product failure.

The Consumer Adoption Process

The consumers generally follow a mental and physical process of knowing a product and assess its usefulness or utility and then take further action towards buying decision or rejecting the product. The consumer adoption process deals with the process by which the marketers try to understand how the potential customers try and come to learn about new products, new concepts, and new services offered by organizations.

The steps in the adoption process include:

(1) Awareness stage: The consumer becomes aware of the innovation but lacks information about it.

(2) Interest stage: The consumer is stimulated to seek information about the innovation.

(3) Evaluation stage: The consumer considers whether to try the innovation.

(4) Trial stage: The consumer tries the innovation to improve his or her estimate of its value.

(5) Adoption stage: The consumer decides to make full and regular use of the innovation.

The Product Lifecycle

There is a view that products like people, live a life. They are born, they grow up, they mature, and eventually, they die. For example, if Samsung launches a new mobile phone model, it knows that the model will grow for 1 or 2 months, it will then reach maturity for 3 to 6 months and then it will start declining because consumers start searching for new models. This is the basic premise of the product life-cycle concept, which was originally developed by marketing academics for manufactured goods. A typical product life cycle (PLC), the course that a product’s sales and profits take over it’s lifetime. A product life cycle is divided into five major stages: preintroduction stage, introduction stage, growth stage, maturity stage, and decline stage. Not all products follow all five stages of the product life cycle. Some products are introduced and die quickly; others stay in the mature stage for a long, long time. It seems that a well-managed brand could live forever.

The product life cycle concept can play a useful role in a firm’s management of its overall portfolio of products. However, it is important to be aware that there have been some criticisms of the concept and its application. The key criticisms of the PLC concept are explained below

Misleading strategy prescriptions: The product life cycle is a dependent variable that is determined by the marketing mix; it is not an independent variable to which firms should adapt their marketing programmes34. If a product’s sale is declining, management should not conclude that the brand is in its the decline stage and should not withdraw marketing resources from the brand. Instead, management might increase marketing support in order to create a new cycle.

Fads: Not all products follow the classic product life cycle curve. Fads are fashions that are adopted very quickly by the public, peak early and decline very fast. Remember, yo-yos, hulahops, or Fidget spinners as stress-relievers. It is difficult to predict whether something will be only a fad, or how long it will last. The amount of mass-media attention together with other factors will influence the fad’s duration.

Unpredictability: The duration of the product life cycle stages is unpredictable. Critics charge that markets can seldom tell what stage the product is in. A product may appear to be mature when actually it has only reached a temporary plateau prior to another upsurge.