Chapter 5 Product Life－cycle and Developing New Product Strategy

• 内容提要：中国经济管理大学  www.mhjy.net  www.eauc.hk

  
  

  行銷管理

  [美]菲力浦•科特勒著第十一版

  第五章：產品生命週期的管理與新產品開發戰略

  教學目的： 本章的目的是通過對產品生命週期和新產品開發戰略的學習，讀完本章之後，你應該能夠：解釋在產品生命週期中市場行銷戰略如何變化；解釋企業如何找到並開發新產品構思；描述產品生命週期階段；解釋在產品設概念命週期中市場行銷戰略如何變化。

  教學重點： 本章的重點在於掌握在產品週期的不同階段，企業因該採取的行銷戰略，以及在開發新產品的過程中，企業應該採取什麼樣的策略。

  教學難點： 由於在實際中，產品的週期並不明顯，難以區分產品處在哪個階段，所以本章的難點在於如何通過實際的案例來具體分析企業在產品的不同週期所應採取的戰略。

  教學時數：6（講授、案例）

  教學內容與步驟：

  
  

  
  

  
  

  
  

  Chapter 5  Product Life－cycle and Developing New Product Strategy

  Lecture One:  Differentiation and Product Life－cycle Strategy

  What Is the Differentiating?

  In the classic text “Marketing Management”, Philip·Kotler points out that the core of the modern marketing is described as STP, which are segmenting (S), targeting (T) and positioning (P).

  Dividing a market into distinct groups of buyers with different needs, characteristics or behavior might require separate. The main task of market segment is to determine the segmental variables and the segmental markets, while the market target is to evaluate each market segment’s attractiveness and select one or more segments to enter. Finally, according to market segment and market target, the company should position its product in the market, and determining the possible positioning concepts, selecting, developing and commutating one of them. The task of positioning is to deliver a central idea about a company or an offering to the target market. Positioning simplifies what we think of the entity. Differentiation goes beyond positioning to spin a complex web of differences characterizing that entity. The final role of STP plays the effect on the product differentiating. We define differentiation as the process of adding a set of meaningful and valued differences to distinguish the company's offering from competitors' offerings.

  All products can be differentiated to some extent, but not all brand differences are meaningful or worthwhile. A difference will be stronger to the extent that it satisfies the following criteria:

  ● Important: The difference delivers a highly valued benefit to a sufficient number of buyers.

  ● Distinctive: The difference is delivered in a distinctive way.

  ● Superior: The difference is superior to other ways of obtaining the benefit.

  ● Preemptive: The difference cannot be easily copied by competitors.

  ● Affordable: The buyer can afford to pay for the difference.

  ● Profitable: The company will find it profitable to introduce the difference.

     Many companies have introduced differentiations that failed on one or more of these tests. The Westin Stamford hotel in Singapore advertises that it is the world's tallest hotel, but a hotel's height is not important to many tourists. Polaroid's Polarvision, although distinctive and preemptive, was inferior to another way of capturing motion——namely, video cameras. When the Turner Broadcasting System installed TV monitors to beam Cable News Network (CNN) to bored shoppers in store checkout lines, it did not pass the "superior" test. Customers were not looking for a new source of entertainment in supermarkets, and Turner took a $16 million tax write-down.

  Sony is a good example of a company that constantly comes up with new feature and benefits. As soon as Sony develops a new product, it might assemble up to three teams to view the new product as if it were a competitor's The first team thinks of minor improvements, the second team thinks of major improvements, and the third team thinks of ways to make the product obsolete.

  Crego and Schiffrin have proposed that customer-centered organizations should                                study what customers’ value and then prepare an offering that exceeds their expectations. They see this as a three step process:

  1. Defining the customer value model: The company first lists all the product and service factors that might influence the target customers' perception of value.

  2. Building the customer value hierarchy: The company now assigns each factor to one of four groups: basic, expected, desired, and unanticipated. Consider the set of factors at a fine restaurant:

  ● Basic: The food is edible and delivered in a timely fashion. (If this is all the restaurant does right, the customer would normally not be satisfied.)

  ● Expected: There is good china and tableware, a linen tablecloth and napkin, flowers, discreet service, and well prepared food. (These factors make the offering acceptable, but not exceptional.)

  ● Desired: The restaurant is pleasant and quiet, and the food is especially good and interesting.

  ● Unanticipated: The restaurant serves a complimentary sorbet between the courses and places candy on the table after the last course is served.

  3. Deciding on the customer value package: Now the company chooses that combination of tangible and intangible items, experiences, and outcomes designed to outperform competitors and win the customers' delight and loyalty.

  Today，Economies are afflicted with surpluses, not shortage, which is the reason of the differentiating strategy. For example, in the supermarket, there are not only several brands of toothpaste but one brand, Colgate, offers a dozen varieties – with baking soda or peroxide, or loaded with “sparking white” or tartar control. No company can win if its product and offering resembles every other product and offering. Today, most companies are guilty of strategy convergence-namely, undifferentiated strategies. For a company, only if it offers the different products in the market based on the STP strategy, it can succeed at last.

  
  

  Differentiating strategy

  The number of differentiation opportunities varies with the type of industry. The Boston Consulting Group (BCG) has distinguished four types of industries based on the number of available competitive advantages and their size

  △ Volume industry: One in which companies can gain only a few, but rather large competitive advantages. In the construction-equipment industry, a company can strive for the low-cost position or the highly differentiated position and win big on either basis. Profitability is correlated with company size and market share.

  △ Stalemated industry: One in which there are few potential competitive advantages and each is small. In the steel industry, it is hard to differentiate the product or decrease manufacturing costs. Companies can try to hire better salespeople, entertain more lavishly, and the like, but these are small advantages. Profitability is unrelated to company market share.

  △ Fragmented industry: One in which companies face many opportunities for differentiation, but each opportunity for competitive advantage is small. A restaurant can differentiate in many ways but end up not gaining a large market share. Both small and large restaurants can be profitable or unprofitable.

  △ Specialized industry: One in which companies face many differentiation opportunities, and each differentiation can have a high payoff. Among companies making specialized machinery for selected market segments, some small companies can be as profitable as some large companies.

    Miland Lele observed that companies differ in their potential maneuverability along five dimensions: target market, product, place (channels), promotion, and price? The company's freedom of maneuver is affected by the industry structure and the firm's position in the industry. For each potential maneuver, the company needs to estimate the return. Those maneuvers that promise the highest return define the company's strategic leverage. Companies in a stalemated industry have very little maneuverability and strategic leverage, and those in specialized industries enjoy great maneuverability and strategic leverage.

  Here we will examine how a company can differentiate its market offering along five dimensions: product, services, personnel, channel, and image (see Table 5-1).

  Table 5-1 Differentiating Variables

  Product	Services	Personnel	Channel	Image
  Form	Ordering ease	Competence	Coverage	Symbols
  Features	Delivery	Courtesy	Expertise	Media
  Performance	Installation	Credibility	Performance	Atmosphere
  Conformance	Customer Training	Reliability		Events
  Durability	Customer consulting	Responsiveness
  Reliability	Maintenance and repair	communication
  Reparability	Miscellaneous
  Style
  Design

  
  

  ■ product differentiation

   Physical products vary in their potential for differentiation. At one extreme we find products that allow little variation: chicken, steel, aspirin. Yet even here, some differentiation is possible. Procter & Gamble makes several brands of laundry detergent, each with a separate brand identity. At the other extreme are products capable of high differentiation, such as automobiles, commercial buildings, and furniture. Here the seller faces an abundance of design parameters, including form, features, performance quality, conformance quality, durability, reliability, reparability style, and design?

  △ Form

   Many products can be differentiated inform--the size, shape, or physical structure of a product. Consider the many possible forms taken by products such as aspirin. Although aspirin is essentially a commodity, it can be differentiated by dosage size, shape, color, coating, or action time.

  △ Features

    Most products cart is offered with varying features that supplement the product/s basic function. Being the first to introduce valued new features is one of the most effective ways to compete. Oral-B managed to differentiate its toothbrush by introducing a blue dye in the center bristles that fades and tells customers when they need a new toothbrush.

  McDonald′s has added Play Lands at a number of its U.S and Mexican restaurants to cater to the young customers. In Paraguay, McDonald′s has installed a number of computer stations to cater to Internet-inclined customers.

  △ Performance quality

     Most products are established at one of four performance levels: low, average, high, or superior. Performance quality is the level at which the product's primary characteristics operate. The important question here is: Does offering higher product performance produce higher profitability? The Strategic Planning Institute studied the impact of higher relative product quality and found a significantly positive correlation between relative product quality and return on investment .High-quality business units earned more because premium quality allowed them to charge a premium price; they benefited from more repeat purchasing, consumer loyalty, and positive word of mouth; and their costs of delivering more quality were not much higher than for business units producing low quality.

  △ Conformance quality

    Buyers expect products to have a high conformance quality, which is the degree to which all the produced units are identical and meet the promised specifications. Suppose a Porsche 944 is designed to accelerate to 60 miles per hour within 10 seconds. If every Porsche 944 coming off the assembly line does this, the model is said to have high conformance quality. The problem with low conformancequality is that the product will disappoint some buyers.

  △ Durability 

  Durability, a measure of the product's expected operating life under natural or stressful conditions, is a valued attribute for certain products. Buyers will generally pay more for vehicles and kitchen appliances that have a reputation for being long lasting. However, this rule is subject to some qualifications. The extra price must not be excessive. Furthermore, the product must not be subject to rapid technological obsolescence, as is the case with personal computers and video cameras.

  △ Reliability

    Buyers normally will pay a premium for more reliable products. Reliability is a measure of the probability that a product will not malfunction or fail within a specified time period. Maytag, which manufactures major home appliances, has an outstanding reputation for creating reliable appliances.

  △ Repairability 

  Buyers prefer products that are easy to repair. Repairability is a measure of the ease of fixing a product when it malfunctions or fails. An automobile made with standard parts that are easily replaced has high reparability. Ideal repairability would exist if users could fix the product themselves with little cost in money or time. Some products include a diagnostic feature that allows service people to correct a problem over the telephone or advise the user how to correct it.

  △ Style

  Style describes the product's look and feel to the buyer. Car buyers pay a premium for Jaguars because of their extraordinary look. Aesthetics play a key role in such brands as Absolute vodka, Apple computers, Montblanc pens, Godiva chocolate, and Harley-Davidson motorcycles

  △ Design

   As competition intensifies, design offers a potent way to differentiate and position a company's products and services. In increasingly fast-paced markets, price and technology are not enough. Design is the factor that will often give a company- its competitive edge. Design is the totality of features that affect how a product looks and functions in terms of customer requirements.

   

  ■ Services Differentiation

  
  

  When the physical product cannot easily be differentiated, the key to competitive success may lie in adding valued services and improving their quality. The main service differentiators are ordering ease, delivery, installation, customer training, customer consulting, and maintenance and repair.

  △ Ordering ease

  It refers to how easy it is for the customer to place an order with the company. Baxter Healthcare has eased the ordering process by supplying hospitals with computer terminals through which they send orders directly to Baxter. Many banks now provide home banking software to help customers get information and do transactions more efficiently. Consumers are now even able to order and receive groceries without going to the supermarket.

  △ Delivery

  It refers to how well the product or service is delivered to the customer. It includes speed, accuracy, and care attending the delivery process. Today's customers have grown to expect delivery speed: pizza delivered in one-half hour, first developed in one hour, eyeglasses made in one hour, cars lubricated in 15 minutes. A company such as Deluxe Check Printers, Inc., has built an impressive reputation for shipping out its checks one day after receiving an order without being late once in 18 years. Levi Strauss, Benetton, and The Limited have adopted computerized quick response systems (QRS) that link the information systems of their suppliers, manufacturing plants, distribution centers, and retailing outlets. Buyers will often choose a supplier with a better reputation for speedy or on-time delivery.

  △ Installation

  It refers to the work done to make a product operational in its planned location. Buyers of heavy equipment expect good installation service. Differentiating at this point in the consumption chain is particularly important for companies with complex products. Ease of installation becomes a true selling point, especially when the target market is technology novices who are notoriously intolerant of on screen messages such as "Disk Error ".

  △ Customer training

  It refers to training the customer's employees to use the vendor's equipment properly and efficiently. General Electric（GE）net only sells and installs expensive X-ray equipment in hospitals; It also gives extensive training to users of this equipment. McDonald's requires its new franchisees to attend Hamburger University in Oakbrook, Illinois, for two weeks, to learn how to manage their franchise properly.

  △ Customer consulting

  It refers to data, information systems, and advice services that the seller offers to buyers. One of the best providers of value adding consulting service is Milliken & Company.

  △ Maintenance and repair

  It describes the service program for helping customers keep purchased products in good working order. Consider Hewlett-Packard's e-support system.

  △ Miscellaneous services

  Companies can find other ways to differentiate customer services. They can offer an improved product warranty or maintenance contract. They can offer rewards. MacMillan and McGrath say companies have opportunities to differentiate at every stage of the consumption chain. They point out that companies can even differentiate at the point when their product is no longer in use.

  Case

  Canon has developed a system that allows customers to return spent printer cartridges at Canon s expense. The cartridges are then rehabilitated and sold as such. Canon makes it easy for customers to return used cartridges: All they need to do is drop the prepaid package off at a United Parcel Service collection station. Canon reported collection of 12,175 tons of toner cartridges worldwide in 1999, which represented a 100 percent recycling ratio. The program has helped build Canon's reputation as an environmentally friendly company.

  
  

  ■ Personnel Differentiation

  Companies can gain a strong competitive advantage through having better-trained people. Singapore Airlines enjoys an excellent reputation in large part because of its flight attendants. The McDonald's people are courteous, the IBM people are professional, and the Disney people are upbeat. The sales forces of such companies as General Electric, Cisco, Frito-Lay, Northwestern Mutual Life, and Pfizer enjoy an excellent reputation? Better-trained personnel exhibit six characteristics: Competence: They possess the required skill and knowledge; Courtesy: They are friendly, respectful, and considerate; Credibility: They are trustworthy; Reliability: They perform the service consistently and accurately; Responsiveness: They respond quickly to customers' requests and problems; and communication: They make an effort to understand the customer and communicate clearly.

  
  

  ■ Channel Differentiation

  Companies can achieve competitive advantage through the way they design their distribution channels' coverage, expertise, and performance. Caterpillar's success in the construction-equipment industry is based partly on superior channel development. Its dealers are found in more locations than competitors' dealers, and they are typically better trained and perform more reliably. Dell in computers and Avon in cosmetics distinguish themselves by developing and managing high-quality direct-marketing channel. Iams pet food provides an instructive case on how developing a different channel can pay off.

  
  

  ■ Image Differentiation

  Buyers respond differently to company and brand images. The primary way to account for Marlboro's extraordinary worldwide market share (around 30 percent) is that Marlboro's "macho cowboy" image has struck a responsive chord with much of the cigarette-smoking public. Wine and liquor companies also work hard to develop distinctive images for their brands.

    Identity and image need to be distinguished. Identity comprises the ways that a company aims to identify or position itself or its product. Image is the way the public perceives the company or its products. Image is affected by many factors beyond the company's control, as the case of Vans' counterculture marketing versus Nike, Reebok Adidas shows.

  Product life-cycle marketing strategies

  A company's positioning and differentiation strategy must change as the product, market, and competitors change over time. Here we will describe the concept of the product life cycle (PLC) and the normal changes as the product passes through each life-cycle stage

  To say that a product has a life cycle is to assert four things:

    1. Products have a limited life.

    2. Product sales pass through distinct stages, each posing different challenges, opportunities, and problems to tile seller

    3. Profits rise and fall at different stages of the product life cycle.

    4. Products requite different marketing, financial, manufacturing, purchasing, and human     resource strategies in each life-cycle stage.

  ■ Product life cycles

  Most product life-cycle curves are portrayed as bell-shaped (see Figure 5-1). This curves typically divided into four stages: introduction, growth, maturity, and decline.

   1. Introduction: A period of slow sales growth as the product is introduced in the market. Profits are nonexistent because of the heavy expenses incurred with product introduction.

   2. Growth: A period of rapid market acceptance and substantial profit improvement.

  3. Maturity: A period of a slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits stabilize or decline because of increased competition.

  4. Decline: The period when sales show a downward drift and profits erode.

  Figure 5-1:

  Sales and Profit life cycles

  

  The PLC concept can be used to analyze a product category (liquor), a product form (white liquor), a product (vodka), or a brand (Smirnoff). Not all products exhibit a bell shaped PLC. Three common alternate patterns are shown in Figure5-2. Figure5-2 (a) shows a growth-slump-maturity pattern, often characteristic of small kitchen appliances. Some years ago, sales of electric knives grew rapidly when the product was first introduced and then fell to a "petrified" level. The petrified level is sustained by late adopters buying the product for the first time and early adopters replacing the product.

  Figure5-2

  

  
  

   The cycle-recycle pattern in Figure 5-2(b) often describes the sales of new drugs. The pharmaceutical company aggressively promotes its new drug, and this produces the first cycle. Later, sales start declining and the company give the drug another promotion push, which produces a second cycle (usually of smaller magnitude and duration)

    Another common pattern is the scalloped PLC in Figure 5-2(c). Here sales pass through a succession of life cycles based on the discovery of new-product characteristics, uses, or users. Nylon's sales, for example, show a scalloped pattern because of the many new uses--parachutes, hosiery, shirts, carpeting, boat sails, automobile tires that continue to be discovered over time.

  Style, Fashion, and Fad life cycles 

  Three special categories of product life cycles should be distinguished—styles, fashions, and fads (Figure 5-3). A Style is a basic and distinctive mode of expression appearing in a field of human endeavor. Styles appear in homes (colonial, ranch, Cape Cod); clothing (formal, casual, funky); and art (realistic, surrealistic, abstract). A style can last for generations, and go in and out of vogue.

  Figure 5-3 Style, Fashion, and Fad Life Cycles

  
  

  

  
  

  A fashion is a currently accepted or popular style in a given field. Fashions pass through four stages: distinctiveness, emulation, mass-fashion, and decline. The length of a fashion cycle is hard to predict. Chester Wasson believes that fashions end because they represent a purchase compromise, and consumers start looking for missing attributes? For example, as automobiles become smaller, they become less com6rtable, and then a growing number of buyers start wanting larger cars. Furthermore, too many consumers adopt the fashion, thus turning others away. William Reynolds suggests that the length of a particular fashion cycle depends on the extent to which the fashion meets a genuine need, is consistent with other trends in the society, satisfies societal norms and values, and does not exceed technological limits as it develops.

  Fads are fashions that come quickly into public view, are adopted with great zeal, peak early, and decline very fast. Their acceptance cycle is short, and they tend to attract only a limited following of those who are searching for excitement or want to distinguish themselves from others. They often have a novel or capricious aspect, such as body piercing and tattooing. Fads do not survive because they do not normally satisfy a strong need. The marketing winners are those who recognize fads early and leverage them into products with staying power. Here is a success story of a company that managed to extend a fad's life span.

  
  

  ◆ Marketing strategies: Introduction stage

  Because it takes time to roll out a new product and fill dealer pipelines, sales growth to be slow at this stage. Robert Buzzell identified several causes for the slow growth: delays in the expansion of production capacity; technical problems ("working bugs"); delays in obtaining adequate distribution through retail outlets; and customer reluctance. Sales of expensive new products such as high-definition TV are retarded by additional factors such as product complexity and fewer buyers.

  Profits are negative or low in the introduction stage. Promotional expenditures highest ratio to sales because of the need to: (1) inform potential consumers: (2) induce product trial, and (3) secure distribution in retail outlets. Firms focus on those who are the readiest to buy, usually higher-income groups. Prices tend to be high because costs are high.

  △  The Pioneer Advantage 

    Companies that plan to introduce a new product must when to enter the market. To be first can be highly rewarding, but risky and expensive. To come in later makes sense if the firm can bring superior technology, quality, or brand strength.

  Speeding up innovation time is essential in an age of shortening product life cycles. Companies that first reach practical solutions will enjoy "first-mover" advantages in the market. Being early pays off. One study found those products that came out six months late but on budget earned an average of 33 percent less profit in their first five years; products that came out on time but 50 percent over budget cut their profits by only 4 percent.

  Most studies indicate that the market pioneer gains the most advantage. Companies like Amazon.com, Campbell, Coca-Cola, Eastman Kodak, Hallmark, Peapod.com, and Xerox developed sustained market dominance. Robinson and Fornell studied a broad range of mature consumer- and industrial-goods businesses, and found that market pioneers generally enjoy a substantially higher market share than do early followers and late entrants. Glen Urban's study also found a pioneer advantage: It appears that the second entrant obtained only 71 percent of the pioneer's market share, and the third entrant obtained only 58 percent.

  △ The sources of the pioneer advantages

  Early users will recall the pioneer's brand name if the product satisfies them. The pioneer's brand also establishes the attributes the product class should possess. The pioneer's brand normally aims at the middle of the market and so captures more users. Customer inertia also plays a role; and there are producer advantages: economies of scale, technological leadership, patents, ownership of scarce assets, and other barriers to entry. An alert pioneer, according to Robertson and Gatignon, can maintain its leadership indefinitely by pursuing various strategies

  ◆ The Competitive Cycle

    The pioneer knows that competition will eventually enter and cause prices and its market share to fall. When will this happen? What should the pioneer do at each stage? Frey describes five stages of the competitive cycle that the pioneer has to anticipate:

   1. Initially the pioneer is the sole supplier, with 100 percent of production capacity and sales.

   2. Competitive penetration starts when a new competitor has built production capacity and begins commercial sales. The leader's share of production capacity and share of sales falls. As more competitors enter the market and charge a lower price, the perceived relative value of the leader's offer declines, forcing a reduction in the leader's price premium.

   3. Capacity tends to be overbuilt during rapid growth. When a cyclical slowdown occurs, industry overcapacity drives down margins to lower levels. New competitors decide not to enter, and existing competitors try to solidify their positions. This leads to share stability.

   4. Stability is followed by commodity competition. The product is viewed as a commodity buyer no longer pays a price premium, and the suppliers earn only an average rate of return.

   5. At this point, withdrawal begins. The pioneer might decide to build share further as other firms withdraw.

  
  

  ◆ Marketing strategies: Growth stage

  The growth stage is marked by a rapid climb in sales. Early adopters like the product, and additional consumers start buying it. New competitors enter, attracted by the opportunities. They introduce new product features and expand distribution.

   Prices remain where they are or fall slightly, depending on how fast demand increases. Companies maintain their promotional expenditures at the same or at a slightly increased level to meet competition and to continue to educate the market. Sales rise much faster than promotional expenditures, causing a welcome decline in the promotion-sales ratio. Profits increase during this stage as promotion costs are spread over a larger volume and unit manufacturing costs fall faster than price declines owing to the producer leaning effect. Firms have to watch for a change from an accelerating to a decelerating rate of growth in order to prepare new strategies.

  During this stage, the firm uses several strategies to sustain rapid market growth:

  1. It improves product quality and adds new product features and improved styling.

  2. It adds new models and flanker products (i.e., products of different sizes, flavors, and so forth that protect the main product).

  3. It enters new market segments.

  4. It increases its distribution coverage and enters new distribution channels.

  5. It shifts from product-awareness advertising to product-preference advertising.

  6. It lowers prices to attract the next layer of price-sensitive buyers.

  These market expansion strategies strengthen the firm's competitive position Consider the following eases.

  ★ Case: Starbucks Coffee Company  

  Starbucks Coffee is one of the best-known brands in the world. Starbucks is able to sell a cup of coffee for $1.40 while the store next door can only get $.50. And if you want the popular cafe latte, it's $2. Howard Schultz, the genius behind the brand, not only delivers a great-tasting cup of coffee, but serves it in attractive "coffee houses.". You can meet friends at Starbucks, or enjoy a moment of solitude. Starbucks consists of more than 3,000 retail outlets in stores, airports, and bookstore chair all over the world. Not surprisingly, competitors have sprung up ranging from Dunkin' Donuts to smaller chains such as 7hlly's Coffee in Seattle and Coffee Station in New York City. Starbucks is using a number of flank defenses. For one thing, it is trying to push out innovative non-coffee-related products, such as its combo of teas and juice named Tlazzi and 1ts ice cream products. It is also selling its premium beans in supermarkets and is getting into the restaurant business. The first Cafe Starbucks opened to capacity crowds in the fall of 1998, and the company opened another restaurant by the end of the year. Starbucks continues to expand globally, entering China, Kuwait, Korea, and Lebanon in 1999 and opening locations in Hong Kong in 2000.

  
  

  ◆ Marketing strategies: Maturity stage

  At some point, the rate of sales growth will slow, and the product will enter a stage of relative maturity. This stage normally lasts longer than the previous stages, and poses formidable challenges to marketing management. Most products are in the maturity stage of the life cycle, and the most marketing managers cope with the problem of marketing the mature product.

  The maturity stage divides into three phases: growth, stable, and decaying maturity.

  Growth Phase:  The sales growth rate starts to decline. There are no new distribution channels to fill.

  Stable Phase:    Sales flatten on a per capita basis because of market saturation. Most potential consumers have tried the product, and future sales are governed by population growth and replacement demand.

  Decaying Phase:  Decaying maturity, the absolute level of sales starts to decline, and customers begin switching to other products.

  The sales slowdown creates overcapacity in the industry, which leads to intensified competition. Competitors scramble to find niches. They engage in frequent markdowns. They increase advertising and trade and consumer promotion. They increase R&D budgets to develop product improvements and line extensions. They make deals to supply private brands. A shakeout begins, and weaker competitors withdraw. The industry eventually copyists of well-entrenched competitors whose basic drive is to gain or maintain market share.

  Dominating the industry are a few giant firms--perhaps a quality leader, a service leader, and a cost leader--that serve the whole market and make their profits mainly through high volume and lower costs. Surrounding these dominant firms is multitude market nichers, including market specialists, product specialists, and customizing firms. The issue facing a firm in a mature market is whether to struggle to become one of the "big three" and achieve profits through high volume and low cost or to pursue a niching strategy and achieve profits through low volume and a high margin.

    For the company, the best way to deal with the situation is to medicate its strategy in the respects of the market and product.

  △ Market Modification

  The company might try to expand the market for its mature brand by working with the two factors that make up sales volume:

  Volume = number of brand users × usage rate per user

  It can try to expand the number of brand users by

  1. Converting nonusers: The key to the growth of air freight service is the constant search for new users to whom air carriers can demonstrate the benefits of using air freight rather than ground transportation

  2. Entering new market segments:  Johnson & Johnson successfully promoted its baby shampoo to adult users.

  3. Winning competitors' customers:  PepsiCo is constantly tempting Coca-Cola users to switch

   Volume can also be increased by convincing current users to increase their brand usage:

  1. Use the product on more occasions. Serve Campbell/s soup for breakfast; Take Kodak pictures of your pets.

  2. Use more of the product on occasion. Drink a larger glass of orange juice.

  3. Use the product in new ways. Example, the WD-40 company encourages the customers to find the new ways to use their lubricant.

  △ Product Modification

   Managers also try to stimulate sales by modifying the product's characteristics through quality improvement, feature improvement, or style improvement.

   1. Quality improvement.  It aims at increasing the product's functional performance. A manufacturer can often overtake its competition by launching a "new and improved" product, such as making their products "stronger," "bigger," or "better". This strategy is effective to the extent that the quality is improved, buyers accept the claim of improved quality, and a sufficient number of buyers will pay for higher quality. However, customers are not always willing to accept an "improved" product, as the classic tale of New Coke illustrates.

  ★ Case: The Failure of the New Coke

  Coca-Cola:  Battered by competition from the sweeter Pepsid2ola, Coca42ola decided in 1985 to replace its old formula with a sweeter variation, dubbed the New Coke. Coca-Cola spent $4 million on market research. Blind taste tests showed that Coke drinkers preferred the new, sweeter formula, but the launch of New Coke provoked a national uproar. Market researchers had measured the taste but had failed to measure the emotional attachment consumers had to Coca-Cola. There were angry letters, formal protests, and even lawsuit threats, to force the retention of "The Real Thing." Ten weeks later, the company withdrew New Coke and reintroduced its century-old formula as "Classic Coke," giving the old formula even stronger status in the marketplace.

    2. Feature improvement.  It aims at adding new features (for example, size, weight, materials, additives, accessories) that expand the product's versatility, safety, or convenience.

  The advantages:

  (1) New features build the company's image as an innovator and win the loyalty of market segments that value these features;

  (2) They provide an opportunity for free publicity and they generate sales force and distributor enthusiasm.

  The chief disadvantages

  (1) Feature improvements are easily imitated; unless there is a permanent gain from being first;

  (2) The feature improvement might not pay off in the long run.

  △ Marketing－Mix Modification

  Product managers might also try to stimulate sales by modifying other marketing-mix elements. They should ask the following questions:

  1. Prices: Would a price cut attract new buyers? If so, should the list price be lowered, or should prices be lowered through price specials, volume or early-purchase discounts, freight cost absorption, or easier credit terms? Or would it be better to raise the price to signal higher quality?

  2. Distribution: Can the company obtain more product support and display in existing outlets? Can more outlets be penetrated? Can the company introduce the product' into new distribution channels? When Goodyear decided to sell its tires via Wal-Mart, Sears, and Discount Tire, it boosted market share from 14 percent to 16 percent in the first year?'

  3. Advertising: Should advertising expenditures be increased? Should the message or copy be changed? Should the media mix be changed? Should the timing, frequency, or size of ads be changed?

  4. Sales promotion: Should the company step up sales promotion trade deals, cents-off coupons, rebates, warranties, gifts, and contests?

  5. Personal selling: Should the number or quality of salespeople be increased? Should the basis for sales force specialization be changed? Should sales territories be revised? Should sales force incentives be revised? Can sales-call planning be improved?

  6. Services: Can the company speed up delivery? Can it extend more technical assistance to customers? Can it extend more credit?

  Marketers often debate which tools are most effective in the mature stage. For example, would the company gain more by increasing its advertising or its sales-promotion budget? Sales promotion has more impact at this stage because consumers have reached equilibrium in their buying habits and preferences, and psychological persuasion (advertising) is not as effective as financial persuasion (sales-promotion deals). Many consumer-packaged-goods companies now spend over 60 percent of their total promotion budget on sales promotion to support mature products. Other marketers argue that brands should be managed as capital assets and supported by advertising. Advertising expenditures should be treated as a capital investment. Brand managers, however, use sales promotion because its effects are quicker and more visible to their superiors; but excessive sales-promotion activity can hurt the brand's image and long-run profit performance.

    

  ◆ Marketing strategies: Decline stage

  Sales decline for a number of reasons, inducing technological advances, shifting in consumer tastes, and increased domestic and foreign competition. All lead to overcapacity, increased price cutting, and profit erosion. The decline might be slow, as in the case of oatmeal; or rapid, as in the case of the Edsel automobile. Sales may plunge to zero, or they may petrify at a low level.

  As sales and profits decline, some firms withdraw from the market. Those remaining may reduce the number of products they offer. They may withdraw from smaller market segments and weaker trade channels, and they may cut their promotion budgets and reduce prices further.

  Unless strong reasons for retention exist, carrying a weak product is very costly to the firm--and not just by the amount of uncovered overhead and profit: There are many hidden costs. For example, weak products often consume a disproportionate amount of management's time; require frequent price and inventory adjustments; generally involve short reduction runs in spite of expensive setup times; require both advertising and sales force attention that might be better used to make the healthy products more profitable; and can cast a shadow on the company's image. The biggest cost might well lie in the future. Failing to eliminate weak products delays the aggressive search for replacement products. The weak products create a lopsided product mix, long on yesterday's bread winners and short on tomorrow's.

  Some firms will abandon declining markets earlier than others. Much depends on the presence and height of exit barriers in the industry? The lower the exit barriers, the easier it is for firms to leave the industry, and the more tempting it is for the remaining firms to stay and attract the withdrawing firms' customers. For example, Procter & Gamblf (P & G) stayed in the declining liquid-soap business and improved its profits as others withdrew.

   In a study of company strategies in declining industries, Kathryn Harrigan identified five decline strategies available to the firm:

  1. Increasing the firm's investment (to dominate the market or strengthen its competitive position).

  2. Maintaining the firm's investment level until the uncertainties about the industry are resolved.

  3. Decreasing the firm's investment level selectively, by dropping unprofitable customer group while simultaneously strengthening the firm's investment in lucrative niches.

  4. Harvesting ("milking") the firm's investment to recover cash quickly.

  5. Divesting the business quickly by disposing of its assets as advantageously as possible

  The appropriate strategy depends on the industry's relative attractiveness and the company's competitive strength in that industry. A company that is in an unattractive industry but possesses competitive strength should consider shrinking selectively company that is in an attractive industry and has competitive strength should consider strengthening its investment. Boston Market is an example.

  ■ The product life-cycle concept: Critique

  The PLC concept helps interpret product and market dynamics. It can be used for planning and control, although as a forecasting tool it is less useful. PLC theory has its share of critics. ◆   Life-cycle patterns are too variable in shape and duration. PLCs lack what living organisms have--namely, a fixed sequence of stages and a fixed length of each stage.

  ◆     PLC pattern seldom tell what stage the product is in. A product may appear to be mature when actually it has reached a plateau prior to another upsurge.

  ◆     They charge that the PLC pattern is the result of marketing strategies rather than an inevitable course that sales must follow

  Suppose a brand is acceptable to consumers but has a few bad years because of other factors--for instance, poor advertising, delisting by a major chain, or entry of a "me-too" competitive product backed by massive sampling. Instead of thinking in terms of corrective measures, management begins to feel that its brand has entered a declining stage. It therefore withdraws funds from the promotion budget to finance R&D on new items. The next year the brand does even worse, panic increases....  Clearly, the PLC is a dependent variable which is determined by marketing actions; it is not an independent variable to which companies should adapt their marketing programs?

   Table 5-2 summarizes the characteristics, marketing objectives, and marketing strategies of the four stages of the PLC.

  
  

  Table5-2: Characteristics, Objectives, and Strategies of PLCs

  	Introduction	Growth	Maturity	Decline
  Characteristics
  Sales	Low sales	Rapidly rising sales	Peak sales	Declining sales
  Costs	High cost per customer	Average cost per customer	Low cost Per customer	Low cost per customer
  Profits	Negative	Rising profits	High profits	Declining profits
  Customers	Innovators	Early adopters	Middle majority	Laggards
  Competitors	Few	Growing Number	Stable number to decline	Declining number
  Marketing Objectives	Create product awareness and trial	Maximize market share	Maximize profit while defending market share	Reduce expenditure and milk the brand
  Strategies
  Product	Offer a basic product	Offer product extensions,  service, warranty	Diversify brands and items models	Phase out weak
  Price	Charge cost-plus	Price to penetrate    market	Price to match or best competitors'	Cut price
  Distribution	Build selective distribution	Build intensive distribution	Build more intensive distribution	Go selective: phase out unprofitable outlets
  Advertising	Build product awareness among early adopters                and benefits	Build awareness and interest                        in the mass-market	Stress brand differences and benefits	Reduce to level needed to retain hard-core loyals
  Sales Promotion	Use heavy sales promotion to entice trial	Reduce to take advantage of heavy consumer demand	Increase to encourage brand switching	Reduce to minimal level

  
  

  
  

  
  

  
  

  
  

  Lecture Two: New-Product Development Strategy

  A company can add new products through acquisition or development. The acquisition meaning takes three forms. The company can buy other companies; it can acquire patents from other companies, or it can buy a license or franchise from another company. The development route can take two forms. The company can develop new products in its own laboratories, or it can contract with independent researchers or new product development firms to develop specific new products.

  ◆ Categories of New Products ( Booz, Allen & Hamilton )

   1. New-to-the world products:  New products that create an entirely new market.

   2. New product lines: New products that allow a company to enter an established market for the first time.

   3. Additions to existing product lines: New products that supplement o company's established product lines (package sizes, flavors, and so on).

   4, Improvements and revisions of existing products: New products that provide improved performance or greater perceived value and replace existing products.

   5. Repositioning: Existing products that are targeted to new markets or market segments.

   6. Cost reductions: New products that provide similar performance at lower cost.

  Less than 10 percent of all new products are truly innovative and new to the world. These products involve the greatest cost and risk because they are new to both the company and the marketplace. Most new-product activity is devoted to improving existing products. At Sony, over 80 percent of new-product activity is undertaken to modify and improve existing Sony products.

  Most companies rarely innovate, some innovate occasionally, and a few innovate continuously In the last category, Sony, 3M, Charles Schwab, Dell Computer, Sun Microsystems, Oracle,   Southwest Airlines, Maytag, Costco, and Microsoft ore the stock price gain leaders in their respective industries. These companies have decided that they must build innovation into the very fiber of their businesses. They have created o positive attitude toward innovation and risk taking; they have reutilized the innovation process; they practice teamwork; and they allow their people to experiment.

  Companies that fail to develop new products are putting themselves at great risk. Their existing products are vulnerable to changing customer needs and tastes, new technologies, shortened product life cycles, and increased domestic and foreign competition. New technologies are especially threatening. Most established companies focus on incremental innovation. Newer companies create disruptive technologies that are cheaper and more likely to alter the competitive space. At the same time, new-product development is risky. For example, Texas Instruments lost $660 million before withdrawing from the home computer business; RCA lost $500 million on its videodisc players; FedEx lost $340 million on its Zap mail; Ford lost $250 million on its Edsel;

  New products continue to fail at a disturbing rate. Recent studies attribute the failure to the following reasons:

  1. A high-level executive pushes a favorite idea through in spite of negative research findings.

  2. The idea is good, but the market size is overestimated.

  3. The product is not well designed

  4. The product is incorrectly positioned in the market, not advertised effectively, or overpriced.

  5. The product fails to gain sufficient distribution coverage or support.

  6. Development costs are higher than expected.

  7. Competitors fight back harder than expected.

  ◆ The Organization Arrangement in New-Product Development

  New-product development requires specific criteria – one company established the following acceptance criteria:

  ○ The product can be introduced within five years

  ○ The product has a market potential of at least $50 million and a 15 percent growth rate.

  ○ The product would provide at least 30 percent return on sales and 40 percent on investment.

  ○ The product would achieve technical or market leadership.

  Senior management must decide how much to budget for new-product development. R&D outcomes are so uncertain that it is difficult to use normal investment criteria. Some companies solve this problem by financing as many projects ax possible, hoping to achieve a few winners. Other companies apply a conventional percentage of sales figures or spend what the competition spends. Still other companies decide how many successful new products they need and work backward to estimate the required investment.

  ★Case

  The 3M Company, one of the most innovative U.S. companies, has a distinctive approach to innovate. Today 3M makes more than 50,000 products, including sandpaper, adhesives, optical films, fiber optic connectors, and etc. Each year 3M launches scores of new products. Its immodest goal is to have each of its divisions generate at least 30 percent of sales from products less than four years on the market. Here is what 3M does:

  △ 3M's 15 percent rule allows all employees to spend up to 15 percent of their time working on projects of personal interest. Post it notes, masking tape, and 3M's micro replication technology grew from 15 percent rule activities.

  △ 3M expects some failures: "Mule has to kiss a lot of frogs to find a prince."

  △ 3M hands out Golden Step awards each year to venture teams whose new product earned more than S2 million in U.S. sales or 54 million in the worldwide sales within the three years of commercial introduction.

  The following table 5-2 shows how much 3M spend on the new-product development.

  Table 5-2: Finding One Successful New Product (Starting with 64 New Ideas)

  

  
  

  
  

  ■ The New -Product Development Process

  For a company, forced by the competition in the market, it must invest to develop the new product, but the development is not sure to be successful. In order to solve the problem, the company must make a plan to develop new product seriously, building a process for the development. In general, the process of the new product-development can be divided into eight steps.

  △  Idea generation

  △  Idea screening

  △  Concept to strategy

  △  Marketing strategy development

  △  Business analysis

  △  Product development

  △  Test marketing

  △  Commercialization

  ◆ Ideas generation

  The new-product development process starts with the search for ideas. New product ideas can come from interacting with various groups and from the creativity generating techniques.

  △ Interacting with others

  Ideas for new products can come from customers, scientists, competitors, employees, channel members, and top management. Customer needs and wants are the logical place to start the search for ideas.   

  In the case of new industrial products, Eric has shown that the highest percentage of ideas originate with customers. Technical companies can learn a great deal by studying those customers who make the most advanced use of the company's products and who recognize the need for improvements before other customers do

  Employees in the company can be a source of ideas for improving production, products, and services. Toyota claims its employees submit 2 million deals annul (about 35 suggestions per employee), over 85 percent of which are implemented. Kodak, Milliken, and other firms give monetary, holiday, or recognition awards to employees who submit the best ideas.

  Companies can also find good deals by researching competitors' products and services. They can find out what customers like and dislike about competitors' products.

  They can buy their competitors' products, take them apart, and build better ones. Top management can be another major source of ideas. Some company leaders, New-product ideas can also come from inventors, patient attorneys commercial laboratories, industrial consultants, advertising agencies, marketing research firms, and industrial publications.

  △ Creativity technologies

  Techniques for stimulating creativity in individuals and groups:

  ○ Forced relationships

  List several ideas and consider each one in relation to each other one, while designing office furniture, for example, consider a desk, bookcase, and filing cabinet as separate ideas. One can then imagine a desk with a built-in bookcase or a desk with built-in files or a bookcase with built-in files.

  ○ Morphological analysis

  Start with a problem, such as "getting something from one place to another via a powered vehicle." Now think of dimensions, such as the type of platform (cart, chair, sling, bed), the medium (air, water, oil, rails), and the power source (compressed air, electric motor, magnetic fields). By listing every possible combination, one can generate many new solutions.

  ○ Reverse assumption analysis

  List all the normal assumptions about an entity and then reverse them. Instead of assuming that a restaurant has menus, charges for food, and serves food, reverse each assumption, the new restaurant may decide to serve only what the chef bought that morning and cooked; may provide some toed and charge only for how long the person sits at the table; and may design an exotic atmosphere and rent out file space to people who bring their own beverages.

  ○ New contexts

  Take familiar processes, such as human helping services, and put them into a new context. Imagine helping dogs and cats instead of people with day care service, stress reduction, psychotherapy, annual funerals, and so on. As another example, instead of hotel guests going to the front desk to check in, greet them at curbside and use a wireless device to register them.

  ○ Mind-mapping

  Start with a thought, such as a car, write it on a piece of paper, then think of the next thought that comes up (say Mercedes), link it to cm, then think of the next association (Germany), and do this with all associations that come up with each new word. Perhaps a whole new idea will materialize.

  ◆ Idea screening

  The purpose of screening is to drop poor ideas as early as possible. The rationales that product-development costs rise substantially with each successive development stage. Most companies require new-product ideas to be described on a standard form that can be reviewed by a new-product committee. The description states the product idea, the target market, and the competition, and roughly estimates market size, product price, development time and costs, manufacturing costs, and rate of return.

  The executive committee then reviews each idea against a set of criteria. Does the product meet a need? Would it offer superior value? Can it be distinctively advertised? Does the company have the necessary know-how and capital? Will the new product deliver the expected sales volume, sales growth, and profit? The product criteria are more specific for each company as in the case of Lego.

  ★ Case

    LEGO Group does not accept a new product idea unless it satisfies these questions: "Does the proposed product have the LEGO look? Will children learn while having fun? Will parents approve? Does the product maintain high quality standards? Does it stimulate creativity?"

  ◆ Concept to strategy

  Attractive ideas must be refined into testable product concepts. A product idea is a possible product the company might offer to the market. A product concept is air elaborated version of the idea expressed in meaningful consumer terms.

  △ Concept Development

   Let us illustrate concept development with the following situation: A large food processing company gets the idea of producing a powder to add to milk to increase its nutritional value and taste. This is a product idea, but consumers do not buy product ideas; they buy product concepts. A product idea can be turned into several concepts.

  The first question is: Who will use this product? The powder can be aimed at infants, children, teenagers, young or middle-aged adults, or older adults.

  Second, what primary benefit should this product provide? taste, nutrition, refreshment or energy?

  Third, when will people consume this drink? Breakfast, midmorning, lunch, mid-afternoon, dinner, late-evening? By answering these questions, a company can form several concepts:

  Concept 1:  An instant breakfast drink for adults who want a quick nutritious breakfast without preparation.

  Concept 2:  A tasty snack drinks for children to drink as midday refreshment.

  Concept 3:  A health supplement for older adults to drink in the late evening before they go to bed.                                   Figure 5-4 Product and Brand Positioning

  

  Each concept represents a category concept that defines the product's competition. An instant breakfast drink would compete against bacon and eggs, breakfast cereals, coffee and pastry, and other breakfast alternatives. A tasty snack drink would compete against soft drinks, fruit juices, and other thirst quenchers.

  Suppose the instant-breakfast drink concept looks best. The next task is to show where this powdered product would stand in relation to other breakfast products. Figure 5-4(a) uses the two dimensions of cost and preparation time to create a product-positioning map for the breakfast drink. An instant breakfast drink offers low cost and quick preparation. Its nearest competitor is cold cereal; its distant competitor is bacon and eggs. These contrasts can be utilized in communicating and promoting the concept to the market, Next, the product concept has to be turned into a brand concept. Figure5-4(b) is a brand-positioning map showing the current positions of three existing brands of instant breakfast drinks. The company needs to decide how much to charge and how caloric ties make its drink. The new brand would be distinctive in the medium-price, medium-chlorate market or in the high-price, high calorie market. The company would not want to position it next to an existing brand, unless that brand is weak or inferior.

  △ Concept Testing

  Concept testing involves presenting the product concept to appropriate target consumers and getting their reactions. The concepts can be presented symbolically or physically. The more the tested concepts resemble the final product or experience, the more dependable concept testing is. In the past, creating physical prototypes was costly and time-consuming, but computer aided design and manufacturing programs have changed that. Today firms can use rapid prototyping to design products (for example, small appliances or toys) on a computer, and then produce plastic models of each. Potential consumers can view the plastic models and give their reactions.

  Companies are also using virtual reality to test product concepts. Virtual reality programs use computers and sensory devices (such as gloves or goggles) to simulate reality.

  Many companies today use customer-driven engineering to design new products. Customer-driven engineering attaches high importance to incorporating customer preferences in the final design. There is how one company uses the World Wide Web to enhance its customer-driven engineering.

  
  

  ◆ Marketing Strategy Development

  Following a successful concept test, the new-product manager will develop a preliminary marketing-strategy plan for introducing the new product into the market. The plan consists of three parts.

  The first part describes the target market's size, structure, and behavior; the planned product positioning; and the sales, market share, and profit goals sought in the first few years;

  The second part outlines the planned price, distribution strategy, and marketing budget for the first year;

  The third part of the marketing strategy describes the long run sales and profit, goals and marketing-mix strategy over time.

  After management develops the product concept and marketing strategy', it can evaluate the proposal's business attractiveness. Management needs to prepare sales, cost, and profit projections to determine whether they satisfy company objectives. If they do the concept can move to the development stage. As new information comes in, the business analysis will undergo revision and expansion.

  
  

  ◆ Business Analysis

  △ Estimating Total Sales

  Total estimated sales are the sum of estimated first-time sales, replacement sales, and repeat sales. Sales-estimation methods depend on whether the product is a one time purchase (such as an engagement ring or retirement home), an infrequently purchased product, or a frequently purchased product. For one-time purchased products, sales rise at the beginning, peak, and later approach zero as the number of potent al buyers is exhausted. If new producers keep entering the market, the curve will not go down to zero.

  △ Estimating Cost and Profits

  Costs are estimated by the manufacturing, marketing, and finance departments. Companies use other financial measures to evaluate the merit of a new-product propose.

  The simplest is break-even analysis, in which management estimates how many units of the product the company would have to sell to break even with the given price and cost structure. Or the estimate may be in terms of how many years it will take to break even. If management believes sales could easily reach the break-even number, it is likely to move the project into product development.

  The most complex method of estimating profit is risk analysis. There three estimates (optimistic, pessimistic, and most likely) are obtained for each uncertain variable reflecting profitability under an assumed marketing environment and marketing strategy for the planning period. The computer simulates possible outcomes and computes a rate of return probability distribution showing the range of possible rates of returns and their probabilities.

  
  

  ◆ Product Development

  Up to now, the product has existed only as a word description, a drawing, or a prototype. This step involves a large jump in investment that dwarfs the costs incurred in the earlier stages. At this stage the company will determine whether the product idea can be translated into a technically and commercially feasible product. If it cannot, the accumulated project cost will be lost except for any useful information gained in the process.

  The job of translating target customer requirements into a working prototype is helped by a set of methods known as quality function development (QFD). The methodology takes the list of desired customer attributes (CAs) generated by market research and turns them into a list of engineering attributes (EAs) that the engineers can use. For example, customers of a proposed truck may want a certain acceleration rate (CA). Engineers will turn this into the required horsepower and other engineering equivalents (EAs). The methodology permits measuring the trade-offs and costs of providing the customer requirement.

  A major contribution of QFD is that it improves communication between marketers, engineers, and tile manufacturing people? The R&D department will develop one or more physical versions of the product concept. Its goal is to find a prototype that embodies the key attributes described in the product-concept statement, that performs safely' under normal use and conditions, and that can be produced within the budgeted manufacturing costs. Developing and manufacturing a successful prototype can take days, weeks, months, or even years. Sophisticated virtual-reality technology is speeding the process. By designing and testing product designs through simulation, for example, companies achieve the flexibility to respond to new information and to resolve uncertainties by quickly exploring alternatives.

  Lab scientists must not only design the product's functional characteristics, but also   communicate its psychological aspects through physical cues. How will consumers react to different colors, sizes, and weights? Marketers need to supply the people with information on what attributes consumers seek and how consumers judge whether these attributes are present. This is the customer tests.

  Consumer testing can take several firms, from bringing consumers into a laboratory to giving them samples to use in their homes. In-home placement tests are common with products ranging from ice cream flavors in new appliances.

  ◆ Test Marketing

  After management is satisfied with functional and psychological performance, the product is ready to be dressed up with a brand name and packaging, and put into a market test. The new product is introduced into an authentic setting to learn how large the market is and how consumers and dealers react to handling, using, and repurchasing the product.

    Not all companies undertake market testing. A company hopes to find all these variables at high levels. In some cases, it will find many consumers trying the product but few repurchasing it; or it might find high permanent adoption but low purchase frequency.

  △Four major methods of consumer-goods market testing (from the least to the most costly):

  1. Sales-Wave Research

  In Sales-Wave Research, consumers initially try the product at no cost are reoffered the product, or a competitor's product, at slightly reduced prices. They might be reoffered the product as many as three to tire times (sales waves), with the company noting how many customers selected that product again and their reported level of satisfaction.

  2. Simulated Test Marketing 

  Simulated Test Marketing calls for finding many qualified shoppers and questioning them about brand familiarity and preferences ill a specific product category. These people are then invited to a brief screening of both well-known and new commercials or print ads. One advertises the new product, but it is not singled out for attention. Consumers receive a small amount of money and are invited into a store where they may buy any items. The company notes how many consumers buy the new brand and competing brands. This provides a measure of the ads relative effectiveness against competitors’ ads in stimulating trial. Consumers are asked the reasons for their purchases or non-purchases. Those who did not buy the new brand are given a free sample. Some weeks later they are reinterviewed by phone to determine product attitudes, usage, satisfaction, and repurchase intention and are offered an opportunity to repurchase any products.

  3. Controlled Test Marketing

   In this method, a research firm manages a panel of stores that will carry new products for a fee. The company with tine new product specifies the number of stores and geographic locations it wants to test. The research firm delivers the product to the participating stores and controls shelf position; number of facings, displays, and point-of-purchase promotions; and pricing. Sales results can be measured through electronic scanners at the checkout. The company can also evaluate the impact of local advertising and promotions during the test.

  4. Test Markets

  The ultimate way to test a new consumer product is to put it into full-blown test markets. The company chooses a few representative cities, and the sales force tries to sell the trade on carrying the product and giving it good shelf exposure. The company puts on a full advertising and promotion campaign in these markets similar to tine one that it would use in national marketing. A full-scale test can cost over $1 million, depending on the number of test cities, tine test duration, and the amount of data the company wants to collect.

   Management faces several decisions:

  ○ How many test cities?

  ○ Which cities?

  ○ Length of test?

  ○ What information?

  ○ What action to take?

  
  

  △ Business-Goods Market Testing

  Business goods can also benefit from market testing. Expensive industrial goods and new technologies will normally undergo alpha testing (within the company) and beta testing (with outside customers). During beta testing, the vendor's technical people observe how test customers use the product, a practice that often exposes unanticipated problems of safety and servicing and alerts the vendor to customer training and servicing requirements. The vendor can also observe how much value the equipment adds to the customer's operation as a clue to subsequent pricing.

  A second common test method for business goods is to introduce the new product at trade shows. The vendor can observe how much interest buyers show in the new product, how they react to various features and terms, and how many express purchase intentions or place orders. Book publishers, for instance, regularly launch their fall titles at the American Booksellers Association convention each spring. They display page proofs wrapped in dummy book covers. If a large bookstore chain objects to a cover design or title of a promising next book, the publisher will consider making changes. The disadvantage of trade shows is that they reveal the product to competitors; therefore, the vendor should be ready to launch the product soon after the trade show.

  
  

  ◆ Commercialization

  Industrial manufactures come close to using full test marketing when they give a limited supply of the product to the sales force to sell in a limited number of areas that receive promotion support and printed catalog sheets.

  If the company goes ahead with commercialization, it will face its largest costs to date. The company will have to contract for manufacture or build or rent a full-scale manufacturing facility. Plant size will be a critical decision. Another major cost is marketing. To introduce a major new consumer packaged well into the national market, the company may have to spend between $20 million and $80 million in advertising and promotion in the first year. In the introduction of new food products, marketing expenditures typically represent 57 percent of sales during the first year.

  Most new-product campaigns rely on a sequenced mix of market communication tools.

  △ When (time)

     In commercializing a new product, market entry timing is critical.

  Suppose a company has almost completed their development work on its new product and learns that a competitor is nearing the end of its development work. The company faces three choices:

    1. First entry: The first firm entering a market usually enjoys tile "first mover advantages" of locking up key distributors and customers and gaining reputation leadership but, if the product is rushed to market before it is thoroughly debugged, the first entry can backfire.

    2. Parallel entry: the he firm might time its entry to coincide with the competitor’s entry. The market may pay more attention when two companies are advertising the new product.

    3. Later entry, the firm might delay its entry after the competitor has entered, the competitor will have blow the cost of educating the market. Its product may reveal faults the late entrant may face.

  △ Where (Geographic Strategy) 

  Company size is an important factor here. Small companies will select an attractive city and put on a blitz campaign. They will enter other cities one at a time. I.arge companies will introduce their product into a whole region and then move to the next region. Companies with national distribution networks, such as auto companies, will launch their new models in the national market.

  △ To Whom (Target-Market Prospects)

  Within the rollout markets, the company must target its initial distribution and promotion to the best prospect groups. Presumably, the company has already profiled the prime prospects, who would ideally have the following characteristics

  △ How (Introductory Market Strategy)

  The company must develop an action plan for introducing the new product into the markets. To coordinate the many activities involved in launching a new product, management can use network planning techniques such as critical path scheduling. Critical path scheduling {CPS) calls for developing a master chart showing the simultaneous and sequential activities that must take place to launch the product. By estimating how much time each activity takes, the planners estimate completion time for the entire project. Any delay in any activity on the critical path will cause the project to be delayed. If the launch must be completed earlier, the planner searches for ways to reduce time along the critical path.

  
  

•