DEVELOPING AND MANAGING PRODUCTS

1. DEVELOPING AND MANAGING PRODUCTS • Products and product lines • New products: Development, successes and failures • The Product Life Cycle and Diffusion of Innovations • Branding

2. Learning Objective #1 IMAGE/ POSITIONING RISK CHOICES BRANDING DIFFEREN- TIATION PRODUCT DECISIONS BRAND EXTENSIONS IDEAS AND EVALUATIONS TEST MARKETING COMPETITIVE RESPONSE DISTRIBUTION PRODUCT LINES The choices firms need to make on new product introductions

3. Learning Objective #2 FEATURES DIFFEREN- TIATION BRAND STRUCTURE DIFFUSION PRODUCT IMAGE/ POSITIONING AWARENESS • CATEGORY • BRAND PRICE COMPETITION SUBSTITUTES PARTNERSHIPS Steering the product through the Product Life Cycle

4. The Product Life Cycle (PLC) Peak (Maturity) Plateau Revitali-zation • Products will generally be invented and start with low use. • With decreased costs and improved technology, more people tend to adopt. • The product life cycle can reach: • Plateau • Decline • Revitalization

5. Some PLC Stage Examples • Color TVs: Decline • Black and white TVs: Decline • HDTVs: Growth • VCRs: Decline • DVD players: Decline. • Jeans: Maturity • Fast food: Growth/maturity • Traditional photography: Decline • Digital photography: Growth/maturity • Fax machines: Decline • Travel agencies: Decline • Cranberry juice: Revitalization

6. The Product Life Cycle (PLC) involves ________ over time • Demand for the product • Awareness of the product • Competition in supplying the product • Price • Features • Differentiation • Profitability • Alternatives available to the product • Investment opportunities (Boston Consulting Group model) • Appropriate strategies

7. Types of Innovations • Continuous--same product, just small improvements over time--e.g., typical automobile/stereo system model changes • Dynamically continuous--product form changed, but function and usage are roughly similar--e.g., jet aircraft, ball point pen, word processor • Discontinuous--entirely new product; usage approach changes (e.g., fax)

8. The Chicken-and-Egg Problem • Some programs require two components, each of which must be present before the other can be attracted • E.g., an online auction site needs both buyers and sellers. Buyers are less motivated to come when there are few sellers, but buyers are needed to attract sellers. • A “jump start” may be needed—e.g., period of free service in return for early signup

9. Examples of “Chicken-and-Egg” Vulnerable Ventures Personals sites Auction sites Text messaging systems “Wiki” projects Carpool systems Electric cars Computers and software Fashion

10. Some Diffusion Examples • ATMs (*) • Easy observability • Significant relative advantage • Credit cards (*) • “Chicken-and-egg” problem • “Jump-starting the cycle” • Faded, torn jeans • Fads • Innovations do not have to be high tech • Fax machines (*) • Network economies • Rap music • Low barriers to entry • Spread to a new consumer group • Hybrid corn (*) • Trialability • Imitation *You should be able to discuss these case histories on the final

11. Diffusion Themes • Observability: Products that can be seen being used to others tend to spread faster • “Chicken-and-egg” problem: A certain infrastructure is needed to make adoption attractive, but motivation to provide the infrastructure depends on market size—e.g., • Coupons and clearinghouses • Hydrogen/electric cars • HDTV • Entertainment media • Trialability: People tend to prefer “trying out” a potentially costly innovation rather than having to commit before trial • Network economies: Some innovations become more valuable when more others have that innovation—e.g., • Text messaging • E-mail • Online personals sites • Other online communities • Auction sites

12. To Adopt or Not to Adopt: How Will Consumers Answer the Question? • Some causes of resistance to adoption • Perceived risk--financial and social • Self image • Effort to implement and/or learn to use the product • Incompatibility • Inertia

13. Influences on the Speed of Diffusion • Risk to expected benefit ratio (relative advantage) • Product pricing • Trialability • Switching difficulties and learning requirements/ ease of use

14. Break-Even Sales Volume Points • Two types of costs • Fixed: Generally independent of quantity produced within a certain range (e.g., R&D, equipment needed, setup, overhead) • Variable (marginal): Costs of making one additional unit (e.g., labor, materials) • At what quantity sold will the firm break even—i.e., cover costs without making a profit?

16. Break-Even Quantities

18. Assumptions in Simple Break Even Analysis • No additional manufacturing capacity will be needed to make any of the quantities considered • All customers pay the same price • No interest on sales made after the initial period • No periodic fixed effects • Marginal costs of resources remain constant • No quantity discounts • No increase in costs due to limited market supply

19. Alternative Approach: New Products an Investments • Calculation of net present value (NPV)--discounted cash flows over time for • R&D expenses • Setting up manufacturing capacity • Period fixed expenses (e.g., cost of buildings and equipment depreciation) • Total revenue • Discount rate should reflect the risk associated with the specific product considered • More complex models assign probabilities to various outcomes (e.g., competitor entry, reaching certain sales levels, changes in resource costs) • This approach is covered in finance and managerial accounting courses

20. Branding • Brands • Product or product line specific brands • E.g., Tide, DeWalt, Hayes modem • International issues • “Umbrella Brands” • 3M • National vs. regional • National vs. international • Store brands • Trade marks and “genericide” Branding has been traced to whiskey casks that were identified for quality.

21. Brand Value and Image • Brand equity: Value added to product based on brand name • Choice likelihood • Ability to charge higher price • Use of product as loss leader • Benefit in market share, temporary revenue (Coca Cola) • Possible damage to long term brand image (Louis Vuitton suitcases in Japan) • Brand “personality:” Associations with product

22. Co-branding • To take advantage of assets of both firms • Types • Distributional • Egalitarian: Carl’s Jr. and Green Taco • Hierarchical: Visa as official credit card of the Olympics • Line filling—e.g., airline code sharing • Ingredients • Cooperative: Dryers’ ice cream with Mars M&Ms • Independent: Local computer maker advertises Maxtor hard drive components • Intrusive: “Intel Inside” • Partial: McD’s serves Coca Cola • Sponsorship: Good Housekeeping seal of approval

23. Brand Extensions • Use of an existing brand name to a new-to-the-brand product category • May lower cost of launching new product line and increase speed of market penetration, but… • Considerations • Congruence: Are products consistent in image to be represented by the same brand name? • Coke and Diet Coke • Miller vs. Miller Light Beer • Perception of ability to make product well • Extension should not be exploitative—making a “trivial” product by high image brand (e.g., Heineken Popcorn) • Order of entry: First manufacturer of new to market product should not extend an existing brand—this causes confusion

24. Lessons from Japan • Customers expect to see the actual product

25. Lesson from Japan: Purposes of Products Relative bargain! Just $45 a box! Strawberries--$75 a box!

26. Japan: Product Adaptations

27. Talking Robotic Dolls

28. Teapot will e-mail adult children if elderly parents have not used it during the last 24 hours

29. Brazil: Ethanol Driven Cars…

30. McDonald’s—Free Standing Ice Cream Shop

31. Korea

32. China