411 Product Management-1

7/31/2019 411 Product Management-1

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PRODUCT MANAGEMENT

Directorate of Distance Education

MBA

Paper 4.11


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MBA PAPER 4.11

ELECTIVE GROUP A

PRODUCT MANAGEMENT

SYLLABUS

UNIT 1 Product: classification, benefits product line decisions product mix decisions product

modification product differentiation product elimination product management structure role of

product managers.

UNIT 2 Product life cycle use as a strategic tool product positioning developing product plans product

policy new product development need, risks and uncertainty classification of new product.

UNIT 3 New product development process: generation of ideas screening of ideas feasibility testing

concept development and testing marketing strategy development business analysis - product

development test marketing commercialization launching mistakes successful launches.

UNIT 4 Diffusion of innovation: venture teams organisatoin for NPD top management contribution 7S

framework and its use in NPD team working.

UNIT 5 New product success and failures product research areas of product research

UNIT 6 Branding: selection of brand name brand valuation brand image brand equity brand

positioning strategies packaging latest trends in packaging future trends in product

management.


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1. Contents UNIT I

1. Introduction to Product Management

2. Product Line and Mix Decisions

3. Product Modification and Differentiation

4. Product Elimination

5. Organising Product Function and the Role of Product Managers

UNIT II

6. Product Life Cycle

7. Product Positioning

8. Product Planning

9. Product Policy

UNIT III

10. New Product Development-an Overview

11. NPD 1 : Idea Generation

12. NPD 2 : Idea Screening

13. NPD 3 : Concept Development and Marketing Strategy Development

14. NPD 4 : Business Analysis

15. NPD 5 : Product Development and Test Marketing

16. NPD 6 : Test Marketing for New Product

17. NPD 7 : Commercialization and Launch Strategies

UNIT IV

18. Diffusion of Innovation

19. Teams in NPD

20. Top Management Contribution

21. Mickinseys 7s Framework and NPD

UNIT V

22. New Product Successes

23. New Product Failures

24. Product Research

UNIT VI

25. Introduction to Branding

26. Brand Equity

27. Brand Positioning

28. Packaging

29. Future Trends in Product Management


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Lesson 1

Introduction to Product Management

Introduction

As the liberalization, privatization and globalization becomes prominent, companies are gearing to face them by

becoming more specialized. Hence the marketing department becomes mo0re professionalized and in this context,

product management gains prominence. The expanding markets based on liberalization, privatization, and

globalization needs a professional approach coupled with the sophistication in technology and consumers becoming

more educated, this development in product management is inevitable.

Product Levels

According to Philip Kotler, there are five levels of a product. Marketing managers need to think, their way around five

different levels of product when working through the essentials of the offer which is going to be made to the

customers. They are:

The core benefit:The basic benefit which is what the customer really wants when deciding on a particular product.

For example, a toothpaste which is able to clean the teeth.

The generic product:This is the basic version of the actual physical product, for example, an electric cooker.

The expected product:A set of attributes and conditions that buyers normally agree to when they purchase a product.

For example, a soap is expected to last long and at the same time does not wear away due to water.

The augmented product: The product includes additional services and benefits which help to distinguish it from

competitive offerings, for example, a manufacturer of television might extend the normal warranty period from one

year to say three years. In fact, SHARP television offered seven years warranty.

The potential product: At the final level stands the product of the future, namely all the transformations and

augmentations that a particular product might undergo in the future. This is where the companies search for new

ways to satisfy their customers and differentiate their products. The emergence of Hyper markets is one example.

Dominiquez conceives product management as a hexagon and found to have the following as the importantaspects:

Product

Forecasting

Planning

Market

Profit and

Coordination

Nuances in Product Management

Ensuring over time that a product or service profitably meets the needs of customers by continually monitoring and

modifying the elements of the marketing mix, including the product and its features, the communications strategy,

distribution channels and price is the job of product management. Product Manager is The person assigned

responsibility for overseeing all of the various activities that concern a particular product. Sometimes called a brand

manager in consumer packaged goods firms.

For this a Product Plan with detailed summary of all the key elements involved in a new product development

effort such as product description, schedule, resources, financial estimations and interface management plan is


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prepared. Product Platforms Underlying structures or basic architectures that are common across a group of products

or that will be the basis of a series of products commercialized over a number of years are called product platforms.

Product Development

A pre-determined list of activities and disciplines responsible for completing those activities used as a guideline to

ensure that all the tasks of product development are considered prior to commercialization. The collection of new

product concepts and projects that are within the firms ability to develop, are most attractive to the firms customers

and deliver short and long-term corporate objectives, spreading risk and diversifying investments. Product

Development Process is a disciplined and defined set of tasks, steps, ad phases that describe the normal means bywhich a company repetitively converts embryonic ideas into salable products or services. Product Development

Strategy is the strategy that guides the product innovating program. Product Development Team comprises of a

multifunctional group of individuals charted to plan and execute a new product development project. The entire task is

undertaken during the NPD stages. It is hence important to know them now.


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Lesson 2

Product Line and Mix Decisions

Introduction

Product is any thing that can be offered to a market to satisfy a want or need. Product that are marketed included

physical goods, services, experiences, event persons, places, properties, organizations, information, and ideas. A

product mix (also called product assortment) is the set of all products and items that a particular seller offers for sale.

A product line is an element in the product mix where a single line like soaps are product line for a company, e.g.,Kodaks product mix consists of two strong product lines: information products and image products. A companys

product mix had a certain width, length, depth and consistency. These concepts are illustrated below:

Width

The width of the product mix refers to how many different product lines the company carries.

Example : Hindustan lever limited has different product lines. It offers different products for the consumers. Some

product lines offered by HINDUSTAN LEVEL LIMITED are Detergents, Toothpaste, Bar soap etc.

Length

The length of a product mix refers to the total number of items in the mix. This is obtained by dividing the total length

by the number lines.

Depth

The depth of a product mix refers to how many variants are offered of each product in the line.

Example : Hindustan Lever Limited offers tooth paste named Close Up at different sizes like 20 grams, 50 grams,

150 grams etc. In this case HTL has a product depth of three.

Consistency

The consistency of the product mix refers to how closely related the various product lines are in end use, production

requirements, distribution channels, or some other way. P&Gs product lines are consistent insofar as they are

consumer goods that go through the same distribution channels. The lines are less consistent insofar as they perform

different functions for the buyers.

These four product mix dimensions permit the company to expand its business in four ways. It can add new

product lines, thus widening its product mix. It can lengthen each product line. It can add more product variants to

each product and deepen its product mix. Finally, a company can pursue more product-line consistency.

Product Mix Strategies

Godrej offers different brands of refrigerators, soaps and other things to its consumers. Did this diverse assortment of

products developed by accident? No it reflects a planned strategy by the company. To be successful in marketing,

producers and middlemen need carefully planned strategies for managing their product mixes.

Positioning the product

Managements ability to bring attention to the product and to differentiate it in a favourable way from similar products

goes a long way toward determining that products revenues and the companys profits. Thus management needs toengage in positioning, which means developing the image that a product projects in relation to competitive products

and to the firms other products.

Marketing executives can choose from a variety of positioning strategies. Sometimes they decide to use more than

one for a particular product. Here are several positioning strategies.

Positioning in relation to a competitor

For some product the position is directly against the competition. The strategy is especially suitable for a firm that

already has a already has a solid differential advantage or is trying to solidify such an advantage. To fend off rival

maker of microprocessors, Intel corp. launched a campaign to convince buyers that its product is superior to


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competitors. The company even paid computer makers to include the slogan. Intel inside, in their ads. Coca-Cola

and Pepsi-Cola compete directly with each other in virtually every element of the marketing mix (even celebrity

endorsers).

For other products head-to-head positioning is exactly what not to do, especially when a competitor has a strong

market position.

Positioning in relation to a product class or attribute

Sometimes a companys positioning strategy entails associating its product with (or disassociating it from) a productclass or attribute. Some firms promote their wares as being in a desirable class, such as Made in Japan, or having

an attractive attribute, such as low energy consumption e.g. Philips launched tube lights stating that it will consume

only less electricity. Some having an attractive attribute, such as environmentally friendly, e.g., Hero Honda

launched its two wheeler vehicle starting that it is environment friendly.

This strategy is widely used not for food products. For example Sunflower and Saffola introduced oil with one

common denominator they contain no cholesterol.

Positioning by price and quality

Certain products and retailers are known for their high-quality products and high prices. In the retailing field, Raymond

offers quality, products but its products are priced high. Peter England had factory retail shop which offers high quality

products at higher price.

In the automotive field, positioning by price and quality is common. In recent years, luxury cars that accentuate

quality and carry comparatively high prices have proliferated; Infiniti and Lexus are the latest noteworthy entries.

However, the makers of luxury cars are having trouble differentiating themselves from each other with respect ot

important attributes such as performance, comfort, and safety. As a result, consumers are confused.

Positioning in relation to a target market

Regardless of which positioning strategy is used, the needs of the target market always must be considered. This

positioning strategy doesnt suggest that the other one ignore target markets. Rather, with this strategy, the target

market-rather than another factor such as competition is the focal point in positioning product.

Nestle offers different products using this strategy that address different consumers desire regarding taste, calories

and price.Product-mix expansion

Product-mix expansion is accomplished by increasing the depth within a particular line and/or the number of lines a

firm offers to consumers. Lets look at these options.

When a company adds a similar items to an existing product line with the same brand name, this termed a line

extension. For illustrations, pull the coupons insert out of your Sunday news paper. For example Pepsi-cola company

introduced many new flavours for its drink like Diet Pepsi, Lehar Team etc. Like wise Coca-Cola company introduced

news flavours like sprite, diet coke etc.

The line extension strategy is also used by organizations in services fields. For example, universities now offer

programs to appeal to prospective older students, and the roman catholic church broadened its line of religious

services by adding Saturday and Sunday evening masses.

There are many reasons for line extensions. The main one is that the firm wants to appeal to more market segments

by offering a wider range of choices for a particular product. Line extensions might be the most pronounced trend in

marketing during the early 1990s As discussed in the nearby box, line extensions have becomes so common as to

raise questions about their effectiveness.

Another way to expand the product mix, referred to as mix extension, is to add a news product line to the companys

present assortment. To illustrate, when Johnson & Johnson introduced a lilne of Acuvue disposable contact lenses,

that was mix extension because it added another product to the companys product mix. In contrast, line extension

adds more items within the same product line. When J&J adds new version of baby soaps, thats line extension.


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Under a mix-extension strategy, the new line may be related or unrelated to current products. Furthermore, it may

carry one of the companys existing brand names or may be given an entirely new name. here are examples of these

four alternatives.

Related product, same brand:

Pepsi colas pepsi, mirinda, lehar 7up, Diet pepsi, etc.

Smithkline beechams Horlicks, Boost etc.

Unrelated product, same brand:

Godrej produces many unrelated products like refrigerators, soaps etc.

Related product, different brand:

Procter & Gamble introduces Luvs as a companions to its disposable diapers. Unrelated product, different

brand:

McDonalds testing leaps and bounds, an indoor playground for children and their parents.

Most often, the new line is related to the existing product mix because the company wants to capitalize in its expertise

and experience.

Trading Up and Trading Down

The product strategies of trading up and trading down involve a change in producer positioning and an expansion of

the product line. Trading up means adding a higher price product to a line to attract a broader market. Also, the seller

intends that the new products prestige will help the sale of its existing lower-price products.

Trading down means adding a lower-price product to a companys product line. The firm expects that people who

cannot afford the original higher-price product. The reason: the lower-price product carries some of the status and

some of the other more substantive benefits (such as performance) of the higher-price items,

Some times the effect of trading down can be achieved through advertising, without introducing new, lower-prices

products. A manufacturer of fine or chinaware might accomplish this by advertising some of the lower-price in its

existing product lines.

Trading up and trading down are perilous strategies because the new products may confuse buyers, resulting innegligible net gain. It is equally undesirable if sales of the new item or line are generated at the expense if the

established products. When trading down, the new offering may permanently hurt the firms reputation and that of its

established high-quality product. To reduce this possibility, new lower-price products may be given brand names

unlike the established brands.

In trading up, on the other hand, the problem depends on whether the new product or line carries the established

brand or is given a new name. if the same brand name is used, the firm must change its image enough so that new

customers will accept the higher-price product. At the same time, the seller does not want to lose its present

customers. The new offering may present a cloudy image, not attracting new customers but driving away existing

customers. If a different brand name is used, the company must create awareness for it and then stimulate

consumers to buy the new product.

Alteration of Existing Products

As an alternative to developing a completely new product, management should take a fresh look at the organizations

existing products. Often, improving an established product-product alternation can be more profitable and less risky

than developing a completely.

New one. However product alternation is not with out risks. When Coca-Cola co. modified the formula for its leading

product and changed its name to new coke, sales suffered so much that the old formula was brought back 3 months

later under the Coca-Cola classic name.

Product Mix Contraction


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Another product strategy, product mix contraction, is carried out either by eliminating an entire line or by simplifying

the assortment with in a line. Thinner and/or shorter product lines or mixes can weed our low-profit and unprofitable

products. The intended result of product-mix contraction is higher profits from fewer products.

E.g., Unilever has announced that it would prune its brand portfolio by 75% from 1,600 to 400.

In service fields, some travel agencies have shifted from selling all modes of travel to concentrate on specialized tours

and trips to exotic places. And, to reduce their liability risks and insurance costs, many physicians have stopped

offering obstetrical service.

During the early 1990s most companies expanded-rather than contracted-their product mixes. Numerous line

extensions document this trend. As firms find that they have an unmanageable number of products or that various

items or lines are unprofitable, or both, product-mix pruning is likely. The result in man organizations will be fewer

product lines, with the remaining lines thinner and shorter.

How many Products are too Many?

Whether it is Hindustan lever, Procter & Gamble, Colgate-Palmolive, Godrej soaps or Marico, the story is same. With

a plethora of brands fighing for that shrinking share space on retail shelves, companies are reworking their array of

brands. Analysts tracking the sector view this as part of natural market cycle. Post liberalization, when multinationals

entered the country in hordes, there were product launches by the day. To compete, domestic companies offered the

same. As a result there was intense competition. To generate more excitement and get consumers to talk about their

product, companies launched variants. These came in the form of a different flavour, new packaging, or a slightchange in the product formulation.

And now its tome for brand shakeout companies are rationalizing, consolidating their brand portfolios.

Internationally, brand rationalization has been on companies agendas for some time In September 1999, Unilever

announced that it would prune its brand portfolio by 75% - from 1600 to 400. The basket of 400 include brands like

Dove, Lux, and the Calvin Klein range of fragrances. According to Procter & Gamble, extensions are a companys

way of responding to consumers desires, which are often gauged through research. Still, many consumers can not

differentiate across the numerous alternatives and get frustrated or angry in the process. The large number of new

offerings also poses problems for many retailers. Supermarkets, in particular, lack of shelf space to add all or even

most of the new products. Supermarket managers may squeeze more separate items into their stores by reducing the

average amount of space allocated to each item.


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Lesson 3

Product Modification and Differentiation

Introduction

Managers try to stimulate sales by modifying the products characteristics through qua lity improvement, features

improvement, or style improvement. This strategy has several advantages. New features build the companys image

as innovator and win the loyalty of market segments that value these features. They provide a opportunity for free

publicity and they generate sales and distributor enthusiasm. The chief disadvantage is that feature improvements areearly imitated: unless there is permanent gain from being first, the feature improvement might not pay off in the long

run.

Differentiation is the act of designing a set of meaningful differences to distinguish the companys offerings from

competitors offerings. Differentiation of physical products takes place in a continuum. The main product

differentiations are Features, Performance, Conformance, Durability, Reliability, Reparability, Style and Design.

Features

Features are characteristics that supplement the products basic function. The starting point of features differentiation

is a stripped down version of the product. The company can create additional versions by adding extra features. A

company can identify and select new features by contacting recent buyers and asking them questions as to what they

like about the product, its good and bad features, etc. the next task for the company is to decide which factors are

worth adding. The company also needs to consider how many people want each feature, how long it would take to

introduce each feature, whether competitors could easily copy the feature, etc.

Performance Quality

Products are established at four performance levels, low, average, high and superior. Performance quality refers to

the level at which the products primary characteristics operate. A Company must decide to manage performance

quality through time. Three strategies are available. First, where the manufacturer continuously improves the product,

often improves the product, often produces the highest return and market share. The second strategy is to maintain

product quality at a given level. Third strategy is to reduce product quality to offset rising costs, hoping the buyers will

not notice and difference. Others reduce the quality deliberately to increase their current profits although it increases

their long run profitability.

Conformance Quality

Conformance quality is the degree to which all the product units are identified and meet the promise target

specifications.

Durability

Durability is a very important product attributes to most buyers. Durability is a measure of the products expected

operating life under natural or stressful conditions. Buyers will pay more for products that have more durability.

Reliability

Reliability is a measure of the profitability that product will not malfunction or fall within a specified time period. Buyers

want to avoid the high costs of breakdowns and repair time.

Repair ability

Repairability is a measure of the ease of fixing a product that malfunctions or fails. Ideal repariability would exist if

users could fix the product themselves with little or no cost or time lost.

Style

Buyers are wiling to pay high price for products that are attractively styled. Style describes the products looks and

feel to the buyer. Style has the advantage if creating product distinctiveness that is difficult to copy.


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Design

Design is the totality of features that affect how a product looks and functions in terms of customer requirements.

Design is important in making and marketing durable equipment, apparel, retain services and packaged goods.

Jack Trouts Differentiation

Jack Trout has been a proponent of the Differentiation strategies followed among products. In the book Differentiate

or Die he has given the different kinds of sacrifice a company has to make while following differentiation strategies.

They are of three kinds-

Product sacrifice

Staying focused on one kind of product is far superior to the everything-for-everyone approach (unless you use

multiple brands): Duracell in alkaline batteries, KFC in chicken, Foot Locker in athletic shoes, White Castle in small

hamburgers. Subaru in four-wheel-drive cars, Southwest Airlines in short-haul air travel. The company can become

different as the expert and the best of the breed in this kind of product.

Attribute sacrifice

Staying focuses on one kind of product attribute is superior to telling a multiple attribute story. It enables one to be

different by taking ownership of a perceived benefit. Volvo took ownership of safety in automobiles. Crest took

ownership of cavity prevention. Nordstrom took ownership of service. Dell took ownership of selling direct. The

product might offer more than one attribute, but the message should be focused on the point that one wants to

preempt.

Target market sacrifice

Staying focused on one target segment in a category enables the company to be different by becoming the preferred

product by the segment: Pepsi for the younger generation, Corvette for the generation that wants to be young. If one

looks for another target segment, chances are the original customer will be lost.

There is chance of undermining the basic differentiation idea when too much versions are added. If, as in Marlboros

case, they stand for full flavor, but when they offered other flavours the focus shifted.

Michelob was once a very successful, expensive full-flavored beer. Then it introduced Michelob Light and Michelob

Dry. The brand went downhill. Heineken, another expensive full-flavored beer, obviously learned from that mistake.Their light beer was called Amstel Light, which is doing very nicely with the brilliant differentiating idea 95 calories

never tasted so imported.

Once Eveready had a strategy to offer whatever kind of battery that was required. They introduced Duracell. They

sacrificed a lot of business and offered only alkaline batteries. Duracell became the specialist in long-lasing alkaline

batteries and a differentiated success. But they were not the leader and had nothing to lose. As you saw in an earlier

chapter, the need for growth tends to make market leaders vulnerable. Rather than give up anything, they kept adding

more. Most failed brands once had a differentiating idea that they destroyed by adding more and more versions. So

even if one differentiates one should bring too many versions which kills the focus.

Product Differentiation in Refrigerator Industry in India

Refrigerator Industry

The Product Differentiation is very evident in this closely competitive sector. The players like Godrej, BPL, Whirlpool,

Videocon and Voltas have achieved economies of scale. Godrej has a capacity utilization of 75% and the highest

capacity in the industry. This declines their unit cost of every function of business and enables them to keep their

prices low. The companies like Godrej, BPL and Videocon, being very old players in the Indian market enjoy high

brand awareness and consumer loyalties. These brand names are associated with trust and reliability in the Indian

market. The Korean players like LG and Samsung who engaged in heavy advertising and brand promotion during the

last year have also created a niche for them in the premium segment.


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Product differentiation

LG-LG 18/20 CU ft Top mount w/ Fast fresh cooling

These premium refrigerators offer an extensive array of sophisticated features including exclusive Fast Fresh Door

Cooling. This LG innovation provides a second cooling element in the refrigerator door that chills from the front of

compartment, to reinforce the standard cooling from the back and increase cool air circulation evenly through our the

interior. It means everything is cooled more quickly and stays cool consistently (including items stored in the door

shelves), to maintain freshness, texture, and nutritional value even when the refrigerator door is opened often.

Some of the features offered are:

FastFresh Door Cooing System

Quiet Operation

Sound power 40.9 dB

Americas New Quietest

Energy Star

Reversible door

Modern & Elegant Round-Door Design Long Vertical Grip Handles

Embossed Coated Metal Finish/VCM Finish

Whirlpool whirlpool water filtration refrigerator solution

The Whirlpool UltraEase Water Filtration system uses a sediment and activated carbon filter to remove dirt, rust,

chlorine, odor and lead. The long, torpedo-shaped filter enables water to keep in contact with the activated carbon

longer for effective filtration resulting in clear, better-tasting water.

BPL

It has launched its Converti model with a freezer that can, at the switch of a button, function like any other part of the

refrigerator. BPL is now looking at models based on non-CFC technologies. This activity in the frost-free segment isonly to be expected.

Godrej-GE

Godrej has launched designer refrigerators with colour images on door panels. The various innovative features,

recently added, include:

A curd-o-matic-a special area to make curds/yogurt

A deodorizer-to keep away foul odors

A humidity control switch to keep vegetable crisper

A flexible shelf mechanism

Four temperature zones

Samsung India electronics

It has launched new high-end top-of-the-line frost-free refrigerators. They launched five new frost-free models of

refrigerators in 400 litres of 640 liters. The new, top-of-the-line frost-free models in 640 liters (SG 648) and 570 liters

come with Samsungs patented twin cooling technology. The 400 and 440 litre bio fresh refrigerators models come

with unique bio friendly features.


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Product Differentiation in Washing Machine in India

1. LG electronicseffectively applied the various rules of brand creating to create a company brand and became

Indias second largest consumer electronics brand only next to BPL with Videocon at the t hird spot. In an

environment where their consumer was being given various exchange offers, LG differentiated their products

on the basis of technology. They realized that the Indian customer was not price but value conscious. The

washing machine were launched with the chaos punch plus three technology. In semi automatic washing

machine instead of launching a 4.5 kg machine that dominated the entire market, LG launched 6 kg machine

which was more convenient for large Indian households.2. LG Washer/Dryer Combo This Compact 24 unit houses and advanced-design asher and dryer in one-an

amazing combination of efficient space usage and fine fabric care. The washer features a vertical basket that

gently and thoroughly rotates even your most delicate clothes-rather than violently agitating them. Then it

rinses and dries them in one simple automatic operations. All using one-third of the water of a conventional

machine.

Electroluxplans to introduce low-end top loading, twin-tub machines; a fully automatic machine and a range

of front-loading washing machines from Italys Portryal. The company has launched a new model washing

machine 1045 model that provides four rinses as against three rinses of all other washing machines. The

fourth rise removes the dirt and soap residues completely from the fabric.

3. Videocon, which had pioneered washing machines in India, was the market leader with its range of low-priced

washers (spinning tubs) and semi-automatic machines, which required manual supervision and some labour

and claims to be the first company in India to introduce fully automatic washing machines.

4. IFB BOSCH fully automatic washing machines is another premium brand that has successfully differentiated

itself on product features. It has gained a distinct competitive edge by offering features like an in-built geyser

for not water washing required for removal of grease, tumble wash facility, a choice of two speeds for drying,

and a front loading facility available only in IFB at the moment.

5. WhirlpoolWhirlpool introduced Washing machines with a 1-2, 1-2 Hand Wash Agitator System as it wanted to

induce the feeling of washing with hands. Whirlpools another offering is the Whitemagic aquashower range of

semi-automatic washing machines. The machine offers a hotwash facility and is equipped with an inbuilt

heater. The new wash system is a combination of the unique Agitator and the special Aquashower. Other

features of the machine include the uni-mix detergent dispenser which ensures the uniform mixing ofdetergent and water as the water flows into the wash tub.

6. Samsung India Electronics Ltd. has launched the new WA 75K5and WA 75K4washing machines which have

been customized to suit Indian requirements by being equipped with a new memory back-up feature which

offers programme settings. Cost between Rs. 14,400 to Rs. 17,500.

Product differentiation in Television Sector in India

LG

The televisions were launched with the digital flatiron TV with Golden eye technology. Innovative features are

constantly adde3d to their models. The most imaginative of these was in field of television; multilingual screen display

(the menu appears on the screen in five Indian languages).

BPL Ltd.

India largest color television (CTV) manufacturer. When CTVs the company has a wide range of product catering to

all segments of the market. The company has also entered into the net savvy technology WEB TV and interactive

TVs, multimedia TV, which combines the latest in television and computer technology. However these products are

more to cater to the market craze and have yet to turn commercially viable.

Samsung India electronics Ltd.

Samsung launched its new, advanced, digital ready range of Flat Colour Television (Plano) and Projection televisions

in the market.


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Onida

They have come with different versions for different segments of people. For the upgraders there is Igo. The style

conscious teenager has Candy a 14inch TV with Earphones. The KY Thunder is meant for those who want their

music to sound like heavenly rage. A new range is also planned for the premium segment- the Gulliano Bellini

designed range. Then there are unique collections with models which can be hung on the wall (Pure Flat) or turned at

angles to suit viewing (Twister with swivel base).

Product Differentiation in Microwave Sector in India

The microwave oven market is in a nascent stage of development in the country. However, with consumers in a mood

to buy household goodies, many players have entered the market in the past few months. And in consonance with the

demand-supply theory, prices have come down. However, the microwave oven, when first launched in India, did not

get an enthusiastic response. Industry sources believe that the reason might well have been the high-prices and the

fact that the average Indian household was not yet ready to change its food habits.

There is no practice of using leftovers or frozen foods or food in any unprocessed form. Moreover, Indian cuisine

normally involves constant stirring or frying and one cannot stir or fry food in the microwave. The microwave could not

replace usual cooking methods. In addition, the microwave requires special containers for use. So microwaves were

generally used for reheating in Indian kitchens.

LGIt has three varieties of microwave ovens in its kitty-solo model, grill variety and convector variant. LG microwave

have a robo grill an auto-moving heather that can be set at various angles. It also has an anti-bacteria cavity, whichprevents the growth of bacteria inside the cavity and absorbs odour.

LG also offers an Over-the-Range Microwave with Sensor, In yet another stunning display of LG innovation, this

microwave is arrayed with a network of sensors that detect the exact amount of time to cook a given food item by

monitoring gasses released from food as it cooks.

Samsungmodels of Microwave Ovens have a special features and that is that they have a ceramic enamel cavity. As

a result, the conductivity is 2.4 times less than stainless steel, which means less time and hence less power

consumption. The cavity is so scratchproof that the user does not have the problem of getting spilled food stuck in

crevices. It also has a 3D-shower wave for uniform heating.

French company Moulinexhas also made its mark in India. Its microwave have two shelvesso that one can cook two

dishes simultaneously. This is a unique feature and is not available in any other microwave.

IFBThe Megatron and the Electron models from IFB are without grill. The Neutron, Proton and the Position have an

auto-cook memoryalong with grill and browning facility. The Proton has a 100% convection system.

Whirlpool launched Magicook cooking rangeWhirlpool has announced the launch of its Magicook cooking range. The

inside walls of the cooking range are coated with a special porcelain enamel that automatically vapourises food stains

from the oven walls.

The Innovation Series These models feature the new, time-saving Jet Defrost System. Innovative technology and

European design permit defrosting up to 70% faster than other previous microwave ovens.

Whirlpool Gold model A new Tupper Wave Oval Steamernot is included with the unit. This new feature makes it

quick and easy for consumers to prepare healthful tearned vegetables, rice, pasta, fish, shrimp, and many other

foods. And with the Tupper Ware Oval Steamer, there is no need for any other small steaming appliances.


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Lesson 4

Product Elimination

Introduction

Product deletion is some thing which is an integral part of product management. It plays a vital role in keeping the

profit margin of the organisation high. For an organisation which is a continuous entity, the customers are very

precious. So are the customer preferences. In the modern context of business, the worth of the business is calculated

on terms of the share value that the organisation fetches. Also in the context of increased competition, a teeny tinyflaw found in the main competitor is over blown and shown to the share holding public as a major disaster etc. this

causes the organisation to loose its image in the public. In all these contexts, the product deletion process gains more

relevance.

Product deletion strategies mainly include the following

Price adjustments

Product reformulation

Revised distribution etc

When a product dies or when companies merge, what does one do with a product when its profitability declines

steadily and cannot be revived. Obviously, the product should be eliminated. Yet most companies, do not have a well-

planned procedure for handling products that are in decline. American industry has traditionally paid less attention to

establishing formal procedures for eliminating products than to establishing procedures for developing new products.

Need for Product Deletion

Product deletions can occur due to many things. Or these, those pertaining to the markets are the most important

ones. Though we can attribute the need to be due to many reasons, market acceptance and rejection is the key

cause for all indicators. We can categorize the need to delete the product as the following.

1. Market rejection

2. Technological improvements / obsolescence

3. Macro economic factors

4. Governmental regulations

5. Ecological / Environmental Considerations

6. Non-availability of raw materials

Market rejection

Market rejection can occur due to many factors. The marketer may be blinded of many factors in the market that may

go against the product and launch the product. Then the adverse factors may come into play and the complete

rejection of he product is the result. Then the company has to withdraw the product. Here there is no strategy is need

as there is no relevance of the product.

Technological improvements\obsolescence

The advancements in the technological fields can render a product useless. Customers may find a better product, at a

better price, due to technological advancement. An apt example for this in the Indian market is the Pagers. BPL had a

pager service network in India. Because of the rapid technological advancement that happened in the field of

communications, there is no need to carry a pager.

Yet another example will be the handsets by Iridium technologies. The handsets were thought to be of very high use

as it could revolutionize the communications technology because of the Global Positioning System of GPS. But the

handset was too heavy and the company had to drop that product because of the rapid advancement made by Sony

& Co. in miniaturizing the mobile.


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Strategies to be applied

In this case there are certain strategies which cold be applied. This is important because there may be many a brand

loyal customers who would not like to change their product. Their support and satisfaction is important for the

company to survive. Hence the company has to strategize the withdrawal of the product.

Increasing the price

This could to be applied in the case of products which are price sensitive. This will cause the customer to move away

from the product, which will ultimately result in the death of the product.Decreasing the quality

This could the applied in the spread between upper segments to the price sensitive segment. Though this could affect

the company in adverse way also, the company could say that it is withdrawing the product because of the decreased

quality.

Macro economic factors

The environmental factors such as Global environment, the Political environment etc may lead to the deletion of the

product. Macro economic factors may affect the company and the many factors which may affect the company. For

example a company which is operating in the foreign markets may be affected by the new quality standards set by the

Government there. An example would be the rejection of the Indian Garments by the US Govt, which has practically

led the Indian manufacturers to close down their factories.

Governmental regulations

Governmental regulations in a specific industry etc can act as the death knell to the product. There are many products

which have gone to the darkness of the unknown due to this particular factor.

Ecological/environmental conditions

The products which are causing damages to the environment may be withdrawn by the company. When it was known

that the CFC which is being used in the fridges is causing the environmental damage, the fridge manufacturers

wanted to make changes and this had affected the chemical companies which had been supplying the material to the

Fridge Manufacturers.

Again the production of DDT, a harmful product has been stopped due to the environmental factors.Non availability of raw materials

This is a factor which is increasingly affecting the small scale industry which maintains the bare minimum stocks.

When this continues for a while, the company has to stop the production as the demand for the product may have

died out the customers might have found alternate product etc.

Benefits of Product Deletion

1. Perhaps the most obvious benefit to be derived from a formalized product deletion plan is the potential effect

on profitability. This is perhaps most often true during a merger or acquisition when there is generally a great

deal of product redundancy. Reducing the number of products offered streamlines the new companys

product line and can improve efficiency as well as profitability.

2. Often a large percentage of firms product mix accounts for a small percentage of its total sales and profits.

This suggests that at least some of these products are unprofitable or have an unacceptably low return on

investment. For example, one firm with annual sales of $40 million eliminated 16 products that accounted for

only eight percent of its sales volumes. Within three years, the firms profits increased 20-fold: aggressive

product abandonment was cited by management as the prime reason.

3. Since weak product can consumer important company resources, deleting them can spur overall sales by

freeing up resources for more promising uses. Also, marginal products tie up sale personnel, warehouse

space, advertising budgets, equipment, raw materials, and other resources to the same extent as strong


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products. Weak products also tend to require a disproportionate amount of management time. Finally, failure

to dump weak products may delay an aggressive search for more profitable products.

4. Establishing procedures for determining under what circumstances a product should be eliminated offers

other benefits as well. It may cause a firm to analyze for the first time why certain products need to be

dropped. As a result, past mistakes are more likely to be identified and practices instituted to prevent a

recurrence of the same problems.

Reasons for Product Deletions

Eventually all products reach the end of profitable lives. Whatever the reason for the demise phasing out, the weak

products calls forcareful planning. Candidates for elimination from a firms line are identified through managements

regular monitoring of product performance. Once such candidates have been identified, there are typically

considerable resources at stake when the product drop decisions are made.

Decisions to drop a product are difficult. Some times powerful arguments for retaining the products are given by the

sales force, by manufacturing and by other areas of organisation. Further more the measurement of product

performance is complex. A products real contribution to operating results is difficult to determine because the

products sales and cost are interrelated with those of other products. Yet the elimination of a product can make

important profit contributions and free scarce marketing resources for higher priority needs.

Deleting a product is a difficult decision to make because dropping even a single product will alter the product line and

product portfolio. However, there are certain warning premonitions that a company cannot leave alone. They are:

Declining sales

Declining prices declining product profitability

Declining prices

Increasing effective alternatives or substitutes

Devotion of excessive attention to otherwise weak link product due to emotional influences

But too many companies ignore these warnings. Products are maintained in the companys line because of concern

that the customers who still buy them may be upset if they are no longer available that their decision may have a

negative affect on sales of the firms other products, or that the sales force of distributors will object to the loss of old

familiar standbys. This suggests the need to establish a product deletion process that is just as comprehensive and

through.

Revitalizing a Declining Product

There may be ways to revitalize a decline product. Production cost may be reduced through value analysis. Joint cost

might be reallocated. The product might be positioned as in the case of Fa cosmetics range or re-launched in a

foreign market. The product might be made more profitable in its waning years by raising its price as in the case of

old-Cinthol soap from Godrej, by cutbacks in promotion expense or through more economical distribution, such as

consolidating field inventories in a central ware house.

The drain on companys resources might be reduced and customer demand still met by subcontracting production of

the product to another manufacturer. But when these alternatives hold little hope, the best approach is to program the

products elimination in such a way that the least disturbance is created for the company, its distributors andcustomers and so that replacement and repair parts will still be available to customers. One technique for doing is to

authorize another company, which can operate profitability serving the remaining core market, to take over the

product.

As a part of the marketing control process, product performance should be evaluated against standards on a regular

basis. The results of such evaluations can lead to three possible actions like continue to market the product in the

market, modify the producer to remedy the problem, or phase out the product. This is explained in the below flow

chart. The option selected depends on what shows up during the evaluation. In order to determine the impact on

production operations and marketing activities, the demands on management time, servicing requirements and the

alternative uses of resou8rces made available by a drop.


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As a part of the marketing control process, product performance should be evaluated against standards on a regular

basis. The results of such evaluations can lead to three possible actions like continue to market the product in the

market, modify the product to remedy the problem, or phase out the product. This is explained in the below flow chart.

The option selected depends on what shows up during the evaluation. In order to determine the impact on production

operations and marketing activities, the demands on management time, servicing requirements and the alternative

uses of resources made available by a drop.

Channel participants and suppliers: assessment is made of the impact of a producer drop on channel

relationships, sales and profit impact of drop on channel members and the probable reaction of suppliers to adrop.

Competitive: Advantages that a drop provides to competition are assessed.

Some of these criteria can be quantified and for others such as the impact of a proposed product drop on channel

relationships, only a more subjective evaluation is possible. The selection of the criteria for a product drop should be

based on assessment of the factors that relate to the product performance in a particular firm. Since these factors

may involve economic, market and technical performance a team of executives representing the top management

and various other functional areas of the firm should select and assign weights to the criteria.

Formal procedures should be established for monitoring of the products of the firm. An evaluation team made up of

representatives of the key functional areas in the firm can review data on the performances of the product and apply

the criteria. The frequency of meeting of this team depends on the rate of change in the product life cycle and inhistorical product performance, this varies from firm to firm. An annual review is usually the minimum time span longer

intervals may be appropriate, depending on the situation.

Matching criteria with performance the criteria set by management are used to measure the performance of the

existing products. When a company has a large product mix, the performance assessment should be done in steps of

which the first step is to quickly screen for possible drop candidates. It would be too costly and time consuming to

perform a comprehensive analysis for each product of a wholesale food or drug firm because of thousands of

products involved.

Computer models have been developed for screening when evaluative criteria and performance information be

quantified. The Product Review and Evaluation Subsystem (PRESS) model is one computerized approach to identify

the product.

Deletion candidates. It utilizes the standard cost accounting and marketing informations to generate product rankings.

The products with low selection indexes are considered for elimination from the product line of the firm. The selection

index (SIN) is calculated by the formula;

Where, SINi = selection index number for product i,

Cmi = contribution margin for product i,

Fci = facilities costs for product i,

Cmi = summation of contribution margins of all products

Fci = summation of facilities cost of all products

If products A and B have equal contribution margins, but As facilities costs are double those of B, then As SIN valuewill be half that of B.

Depending on the particular evaluation criteria that the appropriate in a given firm, factors other than facilities costs

could be used, such as shelf space of floor space in a retail firm. The PRESS model can also apply available

subjective and historical date to examine price-volume relationships, sales trends and product complimentarily and

sustainability. Evaluation terms help ensure that the assessment process considers the impact of a proposed product

drop on various areas of the firm. Since it is impossible to quantify all of the evaluation criteria, the teams must

subjectively assess the impact of the drop on customers, competitors and suppliers.

Planning a product phaseout: The phaseout of a product must be planned for and coordinated. Management may

choose one of the three possible strategies.


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1. Selling the product to another firm may enhance the financial attractiveness of the product elimination

decision. This strategy has been followed by many firms seeking to restructure their product mixes.

2. If selling a product is not feasible, management may decide to drop the product gradually, allowing time for

inventory reduction, facilities conversion, assisting the customers in finding the new sources of supply and

other internal restructuring.

3. It may be necessary in some instances to bite the bullet by rapidly eliminating the product and accepting the

consequences

Product Deletion Stages

The product deletion strategies follow four stages each stage in essential if a clear decision is to be made:

Recognize weak products

This determination should been made as part of a continuing and systematic monitoring of all company products.

Products are to live up to the expectations for profitability sales growth and market share and consumer attitude.

Portfolio techniques like BCG matrix will help identify these weak links.

Analysis of weak products

Management must examine the products identified in the above step to determine why they are falling short. Before

product deletion, other possibilities like product modification, repositioning and improved marketing mix strategies

needs to be found. In other words, the cost of resources, executive time and likely need to be considered for the

deletion decision.

Cause and effect evaluation

If repositioning, product modification in the marketing mix seem unlikely to salvage be product, the next obvious step

is to consider the implication of cause effect of product deletion. The influence of product deletion upon the entire

company in terms of finance, resources, marketing and management are to be analysed. The potential fallout on the

financial positions, the influence and impact of the top management commitment on the deletion will have to be

studied and analysed.

Implementation of the deletion decision

After the decision is made through all the above steps the timing and the procedure of elimination must be planned inorder to minimize the disruption from the constituents of the relationship marketing. This stage may be used to sell the

product to some interested party, perhaps including patents and production and distribution facilities.

Harvesting strategy

Before product elimination company should recover the cost incurred in producer development, promotional

expenses, management expenses etc. Before deletion, the company can fix high price to de-motivate the customer to

purchase a product.

A company may be prevented from implementing the harvesting strategy if there are exit barriers to reckon

with, since they reduce the firms strategic flexibility Exit barriers refer to circumstances within an industry that

discourage the exist of competitors whose performance in the particular business may be marginal.

There types of exit barriers are:

a. A thin resale market for the assets involved

b. Intangible strategic barriers (eg. Value of distribution network, customer goodwill for the other

product of the company, or strong corporate identification with the products of a company, or

strong corporate identification with the product) as deterrents to timely exit; and

c. Managements reluctance to terminate a sick line. When the exit barriers disappear, or their effect

ceases to be of concern, the harvesting strategy may be pursued.

A research was conducted on product elimination by the researchers in the American University. The outcome of that

research is as follows. The product elimination decision is a decision of great strategic importance in todays


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increasingly competitive marketplace. The purpose of this manuscript is to examine whether marketing decision-

makers assess the relative correctness or appropriateness of such strategically important decisions following their

implementation. An after-the-fact or post-hoc analysis of recent product elimination decisions was conducted among

American manufacturing firms. The product itself had been eliminated with the focal pint for the study being the

decision-making process used to do so.

Example for Product Elimination Strategy

When the Indian automobile industry was opened up along with the other global players, Ford motors also launched

their most tried and tested escort. The product was positioned along with Opel Astra and Mitusbishi Lancer initiallyEscort was successful in bringing revenue to the company but later on it showed a declining trend. The company

adopted various strategies to revive the product has reached the deletion stage and launched ford ikon replacing

ford ikon replacing the old ford.

Similar case was found on PAL Peugeot 709. This model was initially success but with years, but later it was found

that showing decline trend. Now company is tied with TELCO. Now Peugeot is not releasing car pegeout 709 cars at

present.

Hindustan motors deleted the Ambassodor car-delux model now they released the model called Ambassodor-classic.

Kawasaki SX Endura was deleted from its product line after certain years as a part of product mix strategies.

Sun TV network launched new channel Sun Movies and Sun Music channels were heavily cannibalizing the parent

channel Sun TV. They decided to delete the channels from the product line.

When Hewlett Packard introduced the printer-HP DJ-500. After going through the first quardent of the model the

printer failed to bring in profits to the firm, irrespective of heavy promotional efforts. HP finalized with the strategy of

product deletion.

HLL : In the annual meeting 2001, the companys plan is to reduce down the product portfolio from 110 to 36, over a

three years period. Of these 18 will be international brands, while the remaining will be home-grown. To ensure that

the company does not lose sales by not supporting non-core brands. Lever plans to subsume some equities through

an umbrella-branding exercise. For instance, in branded staples, kissan Annapurna will be the core brand. In 2001

Lever will have access to yet another brand in the branded staples business, Captain cook, through its acquisition of

International Best Foods. Over a three-year period, the company will attempt to bring the captain cook franchise

under Kissan Annapurna and phase out the former.

The core brand strategy will ensure that bigger brands get for greater support. Innovation efforts will also be

streamlined. Earlier, if a research manager worked on four different projects, he would now probably work on one big

project. The result of the focus are bound to be far more effective, says a Lever executive. An analysis showed that

all personal products division had 21 brands in all, but only nine brands made up 85-90% of sales. Clearly, the core

brands were being deprived of adequate support to develop newer brands.

Cadbury has withdrawn its product Mocka, year and a half ago. BPL Sanyo Tech has pruned the number of

models from the earlier 40 to 11 in its old cassette player-based audio systems. This strategy is to focus on CD player

segment than the Stereo segment in the audio market. The companys turnover has dropped to Rs. 83.22 crore, or

half of what it used to be two year ago. BPLs market share in audio segment also reduce to 20% in terms of value.

Aiwa is the single reason why BPL Sanyo Techs has dropped its turnover.

Suzuki automobile dropped its two wheeler Suzuki sogun and Suzuki shaolin. Maruti Udyog Ltd. dropped Maruti 1000

due to problem in the engine. Pepsico and Coca-fola dropped it diet Pepsi and diet Coke respectively due to non-

acceptance by our customers.


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Lesson 5

Organising Product Function and the Role of Product Managers

Introduction

Even though product managers are within the marketing department, they are having considerable autonomy in their

functioning. This lesson looks at the determinants of their work, their position in the organisation and the work related

activities of them in detail.

Determinants of work

Several different factors determine how many sales persons have to work under a product manager. We should keep

in mind that this consideration is for a period of time, since there could be temporary overloads. Anything beyond a

few weeks will cause significant deterioration in performance.

Customer mix

First among the considerations is the customer. To know what is the customer mix one has to check the companys

relation with their customer. That includes whether the company sells them a wide variety of products and services, or

do the customers all buy a relatively small number of the quantities purchased etc. Or are the firms customers govtal

agencies? Consumers? Non profit organisatoins? Any mix of types will complicate customer relationship. And there

are numerous ways to mix, even within categories. Each type of entity has specific requirements, in terms of products

or services and requirements for business dealings. In other words the organisation must be sensitive to theorganizational cultures of its customers. In the final analysis that alone is the key.

With a range of customers and relationship complexities it is impossible to standardize the manner in which

customers are handled. So it will be impossible to have one type of sales procedure or one type of sales personnel.

Someone has to be there to track down all these. Naturally this falls under the sales manager. It is impossible for him

to keep track of that many levels if so many people too are working under him. Actually the sales function by definition

requires more human efforts than neatly any other function in the company.

Product mix

This depends on the variety of products offered by the company. When the company is selling a very low number of

different items the task will be relatively simple for the sales function in general and the product manager in particular.

Only the customer mix adds to the complexity.Product life cycle

On each level like setting up or declining stage the product function will be different. Naturally the product manager

will be working more closely with the sales force during difficult times. Now with a wide variety of products this

becomes even more complex. These kinds of complexities are found in both small as well as large firms. That is why

and how quality of supervision will have a direct relationship to the quantity and quality of the work accomplished by

the sales function, especially over long period of time.

Effect of geography

It almost goes without saying that the geographical area for which a product manager is responsible will affect how

many people can be effectively supervised. The only solution for the product manager to spend even more time with

the sales people in the field. If not in field the product managers must spend more time communicating with them bothverbally and in writing.

Organisation types

There are three types of organizational structures. In simple terms organizational structure refers to how

organizational lines will be drawn.

Line

In this type all employees report to a superior and there is no formal communication between levels of the

organisation. The sales person covering one area wil not have any direct communication with any other subordinate


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or superiors. All the work is done by the sales people. There is no support staff. The advantage of this system is its

simplicity. So there is no duplication of work. Everyones responsibility is sales results in the short term. But this type

of organisatoin is slower to develop and respond to product and market opportunities. Its very simplicity and lean

structure also means that its primary concern is short term results. Here all of them have only direct link with Sales

manager and Product managers does not have much role.

Combination line-staff

Many organizations experience a great deal of success with a combination tailored for their particular needs. A

combination structure allows for the staff support specialists to assist the line people, or sales people, at theappropriate level in the company to meet their needs. Flexibility to meet changing needs is built in. Staff and line

personnel can establish communication and interact at any level of the two groups as needed. The extent of up-down

communications across staff boundaries will strictly a result of the organizational culture. Thus there is a minimum of

outside influence determining the flow of communication.

Organizing the product department

Another series of issues must be explored before decision can be made about the sales department organisation.

These questions deal with the deployment of the field sales force. In most cases, those issues can be dealt with

separately from those determinants explored previously. An alternative way to define this step is to revisit the

objective of the sales function. Lets deal with it in detail.

Function

One option it to structure the roles the salespeople along functional lines. That is, some sales person will specialize in

new account establishments. Their main duty is to sign up new customers. Often this strategy is called blitz because

frequently the company will put several new account specialists into an area at one time. If the com panys objective is

to build long term relationship with customers, this tactic works well.

In a function oriented sales force some sales people will specialize in managing established accounts. Their role will

be to ensure that the customer is deriving maximum convenience and benefit from the relationship with the company.

Many firms allow inside sales persons to do this duty. These sales positions will concentrate their efforts on tele-

marketing and is also helpful for new trainees. They may also coordinate communications between the administrative

staff and the outside sales people. When customers do visit the companys facilities these inside sales people will

handle all aspects of the visit. When the firm serves a wide geographic area dividing the sales force between inside

and outside is often economical and efficient.

Products

When the sales volume will support it, having the sales people specialize by products can be efficient. The more

complex the more increased specialization makes sense. Thus each sales group will be extremely proficient in its

application. And customers will be benefited from this expertise. But when the customer has wide range of activity

then there could be duplications that is more than one sales person could visit the very same customer. Usually if it

can be justified on an economic basis, the customer will benefit and at little cost to the supplier company.

Customers

Dividing the sales force along customer lines again requires volumes. In a business environement the customers

really are divided by SIC (Standard Industry Classification) codes, lines of business. The customers principalbusiness interest will be the criterion for dividing accounts. Two possible problems may arise.first, the customer may

be in more than one business. Then either two or none will visit the customer thinking the other will go. Secondly the

sales person could pass up some customers thinking that particular customers may not fall into certain specific

categories. Nevertheless concentrating on one particular type of customers allows the sales person to build a high

degree of knowledge of the customers challenges and opportunities.

Geographic organisation

Dividing sales responsibilities among geographic lines is the most efficient in terms of travel time and coverage

concentration and make the most sense in most situations ingnoring the considerations of the other methods. It is

certainly the simplest to operate and administer. The sense of concern responsibility, and responsiveness is definitely


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highest when this strategy is employed. The sales person will not be able to become as familiar with a given customer

group. Or a product or technique for opening new accounts or maintaining old customers.

Combination

It goes without saying that most firms will need to employ some type of combination reflecting the realities of their

particular marketplace and their product service mix. A company may choose to specialize or divide the functions

differently when analyzing different customer groupings or different geographic areas or any number of other

considerations.

Functional Product company

General Manager

Manager Sales production Sales manager Director product Manager Distribution

Sales people Sales people

Fig. 5.1

Role of product managers

1. Creating a product plan on an annual basis

2. Developing demand planning and forecasting for the product category

3. Discussing the forecast with the production department and agreeing on schedules

4. Knowledge of the industry where the product manager is wo0rking

5. Creating innovating marketing strategies for the respective products in consultations with the marketing chief

6. Discussing about packaging with production, advertising/ marketing departments

7. Responsible for product line extensions/stretching

8. New product identification and working on the development process

9. Preparing communication and working on the development process

10. Proposing sales promoting plant to the sales/marketing department

11. Establishing sales force training management with sales/marketing department

12. Conducting marketing research with the agency concerned

13. Setting up controls to monitor performance.


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Fig. 5.2

Robert Rudolph summed up the product managers responsibilities as:

1. Product strategy

2. Product planning

3. Product development monitoring

4. Product marketing and

5. Product business activities

The various interfaces of the Product manager with are:1. Top management on guidance and mission / vision achievement

2. Sales department for implementing product strategies

3. Marketing department for marketing plans and strategies

4. Legal department for contracts

5. Finance department for getting the budgets cleared and on return on investment

6. Research and Design for new product development activities

7. Production and Materials departments for manufacturing according to schedule

Geographical Organisation Structures

Product

Manager

Manager-

Sales

Distribution

Manager

Regional sales

Manager - West

Regional sales

Manager - East

Regional sales

Manager - North

Regional sales

Manager - South

District managers District managersDistrict managers District managers District managers

Sales Executive Sales Executive Sales Executive Sales Executive


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Lesson 6

Product Life Cycle

Introduction

The product life cycle reflects sales and profits of a product over a period of time. Generally, most products follow an

established path or when their sales are plotted against time, one gets an S-shaped curved as shows in Figures.

Another approach to examining product mix is to look at the life cycle phase of each product. Each product goes

through a life cycle. It shows introductions, growth, maturity and decline during its period of existence.

However, there are exceptions when the product may not follow this path. As shown in Figures, there are products

that either show a sharp growth and then sharp decline or remain in a maturity phase for a long time and in fact may

never faced a decline. While fads and fashions can be grouped in the first category, products in a closed andsheltered market or in a monopolistic market represent the second type. One may aloso have commodities like steel,

cement and food products where the demand remain inelastic relative to other manufactured products. In India,

Premier and Ambassador cars, refrigerators and many other products sales did not experience a decline until the

competition set in following liberalization and opening of the economy in 1980s but more specifically after 1991.

Another factors that has to be borne in mind is that profits from a product peak before its sales. Profits never or rarely

appear in the introduction phase, Growth phase brings profits and by the time product enters later part of growth or

early maturity, profits start declining. Figure shows this relationship between sales, profit and time.

Fig. 6.2

Fig. 6.3

Fig 6.4

Why Profits Peak Before Sales

A question that intrigues marketers is that sales maximization does not mean profit m aximization. One of the reasons

for profits maturing even before sales is the competition rather the intensity of inter-firm rivalry in a product market

situation. Most competition in all imitation route and tend to draw away customers from the pioneer firm with an

Sales

Introduction

Growth

Maturity

Decline

Sales

Time

Fig. 6.1


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attraction of low price, or better service or better distribution network, or aggressive promotions. To fight back

competition and retain market share, the pioneer firm, (i.e. the firm launched the product first time in a market) has to

spend more money on media, distribution channels and sales force. The irony is that the firm has to either retain its

current price level or reduce it to remain competitive in the market place. In either case, the sales revenue generated

is not enough to meet or marketing cost and hence profits start eroding. Another reason is shifting customer

preference and loyalties.

As competition intensifies, better and more efficient products are made available to the market by rival firms. These

firms are use state of the art technology and customers preference change. Consider for example, the watch industry:with the introduction of quartz technology in the watch industry, mechanical watches faced a decline. And once a firm

like Titan entered the Indian market, the leader HMT (Hindustan Machine Tools) lost out as it has focused primarily on

mechanical watches for a long time, even after Titan had been launched, senior HMT to exclusive believed that an

average Indian consumer cannot afford. A quartz watch priced affords of Rs. 350.But with TS watch and later

introduction Timex quartz watches by Titan at price level lower than Rs. 350, the market scenario changed

dramatically and mechanical watches now became outdated HMT kept loosing the markets share and profits. Thus

customer preference change and there is know loyalty in the market which cannot be bought with a better technology

marketed at an affordable price.

Fig. 6.5

It is for the above reasons competition and customer preferences that firms have to evolve strategies to reduce their

break even time and also the introduction phase. The firm has to start early in production modifications and adapting

to new technology if it has to maintain study flow of profits and growth rate. Most progressive and market driven firms

follow this rout only and there one sees product life cycle curve as shown in figure.

This modification could be in packaging are in the product from like from solid to liquid (example antacid which were

originally available in liquid form now available in tablet parag, the leader in the pan masala segment, according to

industry sources, grew by more than 25% when the farm strted using sachets of different sizes to pack the product.And the scales and profits further jumped as it introduced a new flavour for tobacco addicts called pan parag zarda.

Like wise, Rasna, a leader in soft drink for tobacco addicts called pan parag grow meteorically as it increased the

numbers of flavours available to the customers and also extend its usage to antoher situations too. Thus, a market

driven firm anticipates competition and evolves strategy to preempt any competitive moves.

To have a better under standing of the concept of product life cycle, let s understand the condition prevailing in each

of the four phase and the strategies available to a firm.

Rapid Skimming

This strategy of high promotion effectively works only when the customer awareness for the product is not very high,

and among those who are aware, willingness to pay any price to possess or buy it is high. This strategy also works

when the market size for the product is large and thread from competition is imminent. Most consumer electronicsand non-durables could be classified in this group. Thats the reason why most consumer electronics like T.V., VCR,

Music System, Video Games, etc., are initially priced high and then gradually reduced to maintain market share.

Since the thread from competition is real, the pioneer firm always try to rap[idly skin the cream off the market as it will

help to reduce the firms break even time and hence more profits. The strategy also works in situations where the

firms the objective is short term, i.e., sales or profit maximization in the short-term or where the firms basic strategy is

to fight a guerilla warfare. While we shall learn more about it in the chapter on marketing strategy, it is sufficient to say

that a guerilla always vacates before the going gets tough for him or her. A large number of die manufacturers,

specifically H acid used in textiles and leather garments, adopted this strategy when dies where included on the

export priority list following chemical firms vacating this sector in the developed countries. Most of these firms went


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out the business in five years as their plants got totally corroded and more efficient and low cost firms came in the

business. They also exited is more environmental friendly substitutes were developed.

Slow skimming

This strategy is based on the assumption that the firm has sufficient time to recover its pre-launch expenses. This

happens when either the technology being used by the firm is highly sophisticated and competition will have to invest

substantial resources to get this technology. Further most competitions may not have the required quantum or

resources, competition may be limited to just one or tow large companies. another environmental characteristic

supporting this strategy is that the market size for the product is limited and those who are aware are willing to payany price to buy it. Many of the industrial products, more specifically renewable energy resources or laser technology

or petrochemicals may fall in this category. In consumer products, this strategy may work in a closed and protected

market as India has been until recently.

Rapid penetration strategy

This strategy of rapid penetration is based on the same assumptions and environmental conditions as the one

mentioned under the rapid skimming strategy. The only difference between the rapid skimming and penetration is the

firms long term objectives. If the objectives is market share and profit maximization in the run and the market is

characterized by intensive competition or other entry barriers, a firm may choose to enter the market with this

strategy. Japanese firms adopted this strategy to launch their products in North America and Europe. Later in the

1980s South Koreans, Taiwanese and Hong Kong firms used the same strategy to uproot Japanese and other local

competitor firms from these markets. The same strategy of uproot Japanese and other local competitor firms from

these markets. The same strategy is now being used by these firms from Southeast Asia to penetrate the Indian

Market. The leading example of Indian firms having adopted this strategy is one of Nirma and T-series audio cassette.

Both these firms have successfully used high promotion low price strategy to grow in the price sensitive Indian

market.

Slow penetration strategy

This strategy delivers results when the thread from competition is minimal, market size is large, market is

predominantly price sensitive and majority of the market is familiar with the product. The firms objectives is maximize

sales or profits in the long run.

Thus, some of the considerations at the introduction stage revolve around pricing and promotion levels. As

we mentioned earlier, affirm offers only a limited version of the product at this stage. Consider the example of Maruti.

Initially the firm, Maruti Udyog., offered only one version of Suzuki 800 Car and was priced not at the common mans

level. The firm offered tangible benefits of fuel efficiency and s afety over the existing products. The firms initial

production levels could not meet their demand generated in the market and we all know how people made money on

the Suzuki allotment letters.

Growth Phase

Once the product crosses the introduction phase, it enters the growth phase. As we shall learn in our next chapter on

New products, the introduction phase is indeed the most crucial one. For more than 95% of products fail at this phase

only. However, those 5% lucky products who enter the growth phase meet with a more strengthened and increased

competition. This competition now offers greater choice to the customer in the form of different product types,

packaging and prices. More trade channels are now willing to keep the product and one generally observes softeningof prices.

Organizationally, the pioneer firm now operates at economical levels. There are lesser production bottlenecks and

hence costs are lower now. To remain competitive over a period of time, the pioneer firm initiates the product

improvement or modification programme. The sales and profit grow exponentially. But profits taper off at the end of

this phase.

The marketing task is that of cultivating selective demand. This involves, in some cases, niche marketing and in

others, focused marketing strategies. Whatever be the ultimate choice of the strategist, one thing emerges, that

growth phase also marks an end to standardization or mass marketing approach. The growth phase involves strategy

of product modification, enlarging distribution and service network and maintaining a competitive price level. The


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strategy also involves one of extending product to different use situation s and considering newer packaging

alternatives to attract more and more new customers.

Maturity Phase

Most products that survive the heat of com

411 Product Management-1

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