PRODUCT DEVELOPMENT

AND MANAGEMENTDayton High School

Mr. Martin

Lesson ObjectivesAfter this lesson, you will be able to:

Describe the process of product planning and development.

Define product terms and explain their role in product planning.

Explain how changes in the consumer market, competition, and production capabilities influence product planning.

List the six stages of product development. Describe and discuss the characteristics of a products

life cycle.

Product Planning

Product planning is the direction and control of all stages in the life of a product—from the time of its creation to the time of its removal from the company’s product line.

Product planning decisions may be the most important decisions marketers make because they commit a company’s money or capital.

Product Planning Costs Money

Product planning decisions cost money and takes a great deal of time and effort to plan new products or change established ones.

Manufacturing and equipment cost, inventory development, handling, and storage may become major expenses.

A mistake could cost millions. The BIC Corporation spent $11 million to

market a flask of perfume but only made

$6 million.

Product Terms Defined Product: Goods or services Product Item: A specific, physical product Product Line: A group of similar types of

product items that are closely related because they satisfy a class of customer needs, are used together, or sold to the same customer groups

Product Mix: The total of all product items and product lines offered for sale by a company.

Influences on Product Planning

Product Planning involves finding answers to seven questions:

1. What products do our customers need and want?

2. When should we introduce a new product?

3. How broad a product mix should we offer?

4. Should we expand or modify any product line?

5. What product or products should we drop?

6. How can we develop new uses and a new image for our product?

7. How should the product be packaged and branded?

Influences on Product Planning

The answers to these questions will be guided by the company’s product objectives.

Strategies to meet product objectives may include:Introducing new productsImproving existing productsDeveloping a complete product lineEliminating unprofitable products

Changes in the Consumer Market The demands of a constantly changing

consumer market are a powerful influence on product planning.

Example:A lot of companies are moving into the

digital world by creating phone and tablet apps for basically anything to account for the high demand of instant satisfaction.

Competition

Competition is one of the strongest influences on product development.

If two competing products are very similar, on marketer may try to make a better-quality product or offer better service.

Developing New Products

Six Steps of Product Development Process:

1. Generating Ideas

2. Screening Ideas

3. Evaluating Ideas

4. Preparing a Prototype of the Product

5. Testing the Product

6. Introducing the product into the marketplace

Generating Ideas

Ideas for new products can come from a company’s customers, employees, research staff, competitors, or computer software programs.

Example:Post-it Notes

Screening Ideas

A company interested in developing a new product usually starts out with a large number of ideas.

The company then reviews them, saving those that have special merit and eliminating those that seem unfit.

Evaluating Ideas Companies carefully evaluate the ideas that

pass the screening stage. They are put through a thorough business analysis.

Some questions asked include:Will the product meet a definite customer need?Will the product be a logical addition to the

company’s product mix?Can the product be developed, produced, and

marketed at a reasonable cost?Will the product produce a profit for the

company?

Preparing a Prototype

After a company screens and evaluates a new product idea, work on the actual product begins.

A company must develop a product it can manufacture easily and at a competitive price.

A company must design the product and determine the kind quality of materials to be used.

Prototype is a model of a new product.

Testing the Product

Once a prototype has been made, it is tested.

It can be tested in a lab, by a special group of customers, or under actual market conditions.

Test Marketing is the introduction of a product in a small marketing area to check customers’ reactions.

The test market is chosen as a representative of the total market.

Marketing the New Product When the new product passes all the

tests, it is ready for full-scale introduction to a market.

Can be introduced nationwide or to a limited market.

A limited market can be a certain state, type of consumer, geographic region, or type of marketer.

Product Life Cycle

Product Life Cycle is an identifiable cycle in a product’s life, which is represented by its sales history over a period of time and is usually divided into the four stages of introduction, growth, maturity, and decline.

The stages of PLC are influenced by marketing conditions such as competition and consumer behavior.

Introduction Stage

Introduction Stage is the first appearance of the product on the market.

A company puts all its effort into the marketing and production in order to make the product a marketing success.

This is the least profitable segment of a products life.

Growth Stage

Growth Stage is the period in a product life cycle when sales and profits are rising.

The length of the growth stage depends on the product and the marketing techniques used.

In order for a product to experience growth, it is important that sales increase at this time.

Maturity Stage

Maturity Stage is the period in a products life cycle when sales remain at a fairly even level.

Sales begin to level off during this stage. When a product matures, it is time for

marketing management to consider ways to extend the product’s life cycle, gradually phase it out, or replace it with another product.

Decline Stage

Decline Stage is the period in a products life cycle during which sales slow down.

Sometimes an increased marketing effort will boost sales again for a while, but the sales gain is usually temporary and sometimes not worth the cost.

Influences on the PLC

Managing marketing strategies is difficult because many factors can influence the PLC at the same time.

Three major influences on the PLC are competition, the product’s features, and consumer reactions.

Product Elimination

The decision to eliminate a weak product may be difficult.

Even though sales may be down for a product, people may still depend on it.

If a product is dropped to quickly, the company’s image may be hurt.

Product Extension

A marketer may discover that changing a successful product actually would lose customers.

The sales and profit position of the product may be strong.

This could be a chance to add a new product to the line, or to gain more customers by changing the marketing mix in other ways.

Promote New Uses and Benefits

Old products can have new uses. For example:

Arm & Hammer baking soda, which was originally marketed for baking, is now also promoted as a refrigerator freshener and toothpaste.

Change Pricing or Distribution To answer a competitive challenge, a

marketer may raise or lower the price of a successful product.

Although the product does not change, its image may.

As a result, customers may consider it a new bargain or a new prestige item.

Product Modification

Product Modification is a planned change in a product or its packaging that may include changes in features, quality, or style.

Most product modifications are changed periodically just to hold a competitive position.

New packaging can build customer interest or add convenience.