Deze samenvatting is gebaseerd op het studiejaar 2013-2014.

A. The product as a variable concept

Products can be tangible or intangible, tangible products often refer to products and intangible products are often services. Every product has marketing activities which consist of decisions about distribution channels, the price and promotion. The product is always the starting point.

Until 1930 competitive advantage was about the price (quantity) of homogeneous products. After 1930 it was more about differentiation and therefore heterogeneous products (quality and choice).

Product levels (defined by Levitt):

1. Core benefit (main benefit for the customers; for instance buying a car for ‘transportation’)

2. Basic product (the products basic attributes or characteristics; for instance tyres of a vehicle)

3. Expected product (products characteristics taken for granted; for instance the good condition of tyres)

4. Augmented product (product characteristics that exceed expectations; for instance road assistance)

5. Potential product (product characteristics that could be added later and offer customer enrapture)

Product hierarchy (defined by Kotler):

1. Need family (the presence of a product family as a basic need; for instance safety)

2. Product family (product classes that can gratify basic needs efficient; for instance savings and income)

3. Product class or category (inside a product family a group of products; for instance investment products)

4. Product line (closely related group of products inside a product class; for instance investment accounts)

5. Product type (group of items that operate in a similar way inside a product line; for instance capital guaranteed accounts)

Other categories are brand (the name of product) and an item which is a unit inside a brand or product line but is differentiated by size, price, etc.

Products should be managed at all levels.

Product life cycle (PLC)

PLC consists of four stages (see figure 1.1 page 5), each stage has marketing implications for marketing actions.

Introduction stage:

Sales grow slowly but there are expenses involved in communicating, etc. Therefore profits aren’t high in this stage, despite the high prices. Four strategies can be determined from which management has to select. The variables for those strategies are promotion and price, if they are both high a high profile strategy should be followed. On the other hand if they are both low a low profile strategy should be followed, the other two strategies are selective penetration strategy and pre-emptive penetration strategy (see figure 1.2 page 5). The basic factors management should consider in selecting any of those strategies are market size, market awareness of the product, price sensitivity in market, type and nature of competition in the market and company’s cost structure.

Growth stage:

The profits increase and management should focus on best-selling versions (improvement, elimination unnecessary specifications, etc.)

Maturity stage (longest stage):

Market acceptance and expectation of competition entering the market. Management should change tangible and intangible characteristics that will attract new users and/or more usage from current users. The product should as well change features of quality to improve the product and reduce costs. Also the price should be reduced (lower profits) and attention of customers must be gathered by promotions, deals and contests.

Decline stage:

Product stops to be profitable, due to new technologically advanced products or changes in buyer’s economic environment and habits. Management should eliminate the product or a few items (different versions for example). It could also adopt a concentration strategy in which it concentrates resources on strongest market, a milking strategy in which it strongly reduces expenditures for marketing to increase profits (as ultimate also death of product) or if a hard-core loyalty remains strong, the product can stay with high price and thus high profits.

Product positioning (perceived position of a product in the customer’s mind)

Perceptual maps can be developed which uses data about the perceptions of customers about products. Those maps make use of multidimensional scaling techniques. There are some implications relating to perceptual mapping:

1. Identification of important attributes (to evaluate a specific product class)

2. Identification of close substitutes-main competitors (which brands perceived as similar?)

3. Identification of differentiated brand (which brands perceived as different?)

4. Market segmentation (based on desired combinations)

5. Identification of gaps in the market new product opportunities (when no product is in a box)

An example of a perceptual map is for instance about car brands positioning with the attributes price and sporty looking (see figure 1.3 page 8).

Companies can create a position in the minds of customers of their product by following positioning strategies:

• Attributes (specific for a product)

• Benefits

• Price/quality

• Competitor (by differentiating)

• Application (product use)

• Product user (segmentation is important)

• Product class (a differentiated product class)

• Hybrid positioning (use more than one of the strategies)

If competition in market is intense those strategies has to be made more carefully.

The following mistakes can be made by positioning:

• Underpositioning: differences between brands of the company and competitors aren’t understood by customers

• Overpositioning: the brand has in the eyes of the buyers a narrow image

• Confused positioning: usually because of many different communication posts or changes in positioning strategies (due to changes in competitors activities, customer needs and wants or the environment, for example legislation)

• Doubtful positioning: doubt about receivables of products in view of the price of the products, the distribution, features, etc.

Repositioning strategies:

• In existing customers, for instance to be more modern a change in the packaging of a product

• In new customers, for instance energy drink what was first a child’s health drink

A company depositions if it stresses negative points of competitors so that they receive a worse position.

Product innovativeness

Six categories of innovating products

1. New to the world products (new market creation)

2. New product lines (not new to market but only for the company)

3. Additions to existing product lines (new products added to product line that already exists)

4. Revisions/improvements to existing product lines (existing products of a company are substituted)

5. Repositionings (a new target market for existing products of a company)

6. Cost reductions (existing products substituted with the same benefits, but the costs are lower)

Wheelwright and Clark proposed a typology of a development project or map, dependent on two dimensions which are the amount of change of the product and the amount of change of manufacturing process), five types are developed:

1. Breakthrough projects: a high amount of change to already existing products and processes, the new technologies or materials are radical and need a revolutionary manufacturing process

2. Platform projects: new product lines created; focus on product-market differentiation

3. Derivative projects: the changes are incremental (product and process perspective), for instance lowering costs

4. Research and advanced development projects: these projects not within development map, it’s about creating know-how and know-why of new materials and technologies

5. Alliances and partnership projects: also not within development map, can be made to chase all kinds of projects

Crawford described three types of innovation:

• Pioneering that addresses first-to-market products

• Adaption for improving the product

• Imitation or emulation that addresses me-too products

Service innovativeness categories:

• New to the market services

• New tot the company services

• New delivery processes

• Service modifications

• Service line extensions

• Service repositionings

The first ones are more innovative than the latter ones (see figure 1.4 page 12).

Product classification schemes

Different sorts of products are aiming at different target markets, because of that products have to be classified in classification schemes. The schemes are based on the following three basic characteristics:

(1) Product tangibility

Tangible goods often refers to goods (for example Japanese restaurant and a motorcycle) and intangibles often refer to services (for example also a Japanese restaurant and a car repair). Services and goods have three characteristics that distinct them from each other:

1. Inseparability of service: production and consumption is happening at the same time

2. Heterogeneity of service: services are different from each other depending on the person who provides the service

3. Perishability of service: a service can’t last forever

(2) Product durability

Durable products can gratify a need for a long time (for instance a washing machine). On the other hand non-durable products serve a certain need for one time only (for instance water)

(3) Product use (B2C and B2B classification)

Types of consumer products (see table 1.1 page 15):

• Convenience goods: customers don’t want to make too much time or money available for those goods and they feel little risk for making a decision about which product to choose. Examples of those products are umbrellas, batteries etc. For industrial users raw materials or supplies are an example. Buyer behaviour is impulse or habit and marketer’s objective is move to preference, or shopping, or dominate via low cost.

• Shopping goods: customer do want to make a significant amount of time and money available and here they feel an increase level or risks for making a decision about which product to choose. Examples of those products are vehicles, clothing, furniture, etc. For industrial users equipment and component parts are an example. Buyer behaviour is limited and marketer’s objective is source or store loyalty.

• Specialty goods: those goods are unique and therefore need special efforts at the time and money perspective. Examples of those products are rare vintage, imported wines, expensive sport cars, etc. For industrial users installation of buildings is an example. Buyer behaviour is extensive and marketer’s objective is source and brand loyalty.

• Preference goods: those goods have low shopping effort, low ego involvement but high brand preference. Buyer behaviour is routine and marketer’s objective is brand loyalty.

Types of industrial products:

• Entering goods: raw materials and manufactured materials and parts. The raw materials can be divided in farm products (for instance fruit) or natural products (for instance oil). Manufactured materials and parts can be divided in component materials (processed further; for instance cement) and component parts (no further change; for instance batteries).

• Foundation goods: these facilitate the development and management of the finished goods, so these goods are for the long-term. It can be divided in installations (major purchases and comprise buildings) and equipment. Equipment can again be divided in portable factory equipment and tools (for instance lift trucks) and office equipment (for instance notebooks or desks).

• Facilitating goods: those goods are supplies (which can be divided in operating supplies, for instance stationary, and maintenance and repair, for instance nails) and business services (which can also be divided, into maintenance and repair services, for instance photocopier repair and business advisory services, for instance accountancy, legal).

Industrial goods can also be classified in the following types:

• Proprietary of catalogue products

• Custom-build products

• Custom-designed products

• Industrial services

B. Decisions regarding products

Decisions regarding the types of product

Product type decisions are very critical and conscious decisions, made by a company which offers the product. The global decisions areas are about product types, tangible/physical products and intangible/augmented products (see figure 2.1 page 20). Decisions are made in two different levels:

(1) Product-mix level: products that a firm or business unit is offering to customers who can buy those products:

• Width: how much product lines there exist (for instance two: pasta sauce and pasta)

• Length: the amount of brands there exist in total of all product lines (for instance five: two brand types of pasta sauce and three brand types of pasta)

• Depth: mean amount of variants of the products the company offers (for instance four: two sizes of the three pasta brands = six + one size of the two pasta sauce brands = two  8/2 = four)

• Consistency: the relatedness of the different product lines (characteristics, production process, distribution channels, etc.)

Diversification is the term used for adding new product lines to the product mix:

• Related diversification: here the skills and resources that belongs to any functional area (for instance R&D, marketing or production) is being shared

• Unrelated: here there is no commonality in the functional areas (for instance markets, distribution channels, production or R&D)

Eliminating some of the product lines that exist in the product mix is described as divestment or divestiture.

(2) Product-line level: closely related group of products are associated with a product line, they can be closely related because they satisfy a class of need, are used together, sold to the same customer groups or fall within a given price range.

The length of the product mix is determined by the decisions about product line. It is about the extension of the line (by adding some new products), the contraction of the line (by eliminating some products) or the replacement of existing products (by new and improved ones).

Product line extension can be done in two different ways:

• Line stretching: this can be done downward (offering a new product in a lower price/quality ratio) or upward (offering a new product in a higher price/quality ratio).

• Line filling: adding new products to the product line because they want for instance establish an image of a full-line company, taking advantage of excess capacity, filling gaps in market and discouraging competitive actions. They can only do this when it doesn’t result in confusion for the customers or to product cannibalization (that stands for introducing a new product that results in less sales of an product that already exists in the company). Sometimes cannibalization is being planned because they want to attack the market leader or being the first to introduce a new technology.

Compared to those decisions there are also some less complex decisions (of tangible/physical products) to make, about quality (reliability and durability), functional features and style. Those decisions will result in new and improved products added to a line or a replacement in a line.

The augmented (intangible) product generates next to the physical product also competitive advantage. The augmented product is the total of benefits that the customer will experience by buying the physical product. The key characteristics are branding, packaging and product services.

Branding

(1)Strategic branding decisions considers six areas:

• Should a company establish their own brands or should they use the brands of the resellers (private labels versus own label). Establishing an own brand helps with building loyal and profitable customers and also helps building a reputation and image. Brand equity is an important concept when evaluating if a brand is successful, it is about the strength of the brand in the market, the acceptability of the brand in the market, the preferences and the loyalty.

• Should a company make their products the same for both the reseller brand and their own brand. Supermarkets offers products with their own label, also called store brands. The advantages that results from producing store brands are economies of scale in production and distribution, achieve utilization, increase sales without marketing costs, etc.. Next to the advantages there are also some disadvantages when producing store brands, for instance producers are given the tight product specifications from the retailer, the production store brands may be inconsistent with the producer’s corporate image but customers will think they are comparable, etc..

• Should a company create a special brand for each product they produce (multi-brand product) or should they use a ‘family brand’ they can use for all products they offer (multiproduct brand). ’

• Should a company use their existing brand name when introducing additional items in the same category of products.

• Should a company use a new brand name when they are launching products in a new category. This refers to brand extension which results in:

  • Lower costs regarding start-ups and maintenance advertising

  • Higher sales achievements

  • Changes of surviving in the market is higher

  • Positive evaluations for a proposed brand extensions due to earlier successful brand extensions

  • Hurting a well-established brand name risk

• Should a company make use of a co-branding strategy in cooperation with other enterprises/organizations. This is being done when a product’s brand exists of two or more popular brand names.

(2)Tactical branding decisions, this includes:

• Selecting the brand name (good to pronounce, short, optimistic, unique, characteristics of product, impact on people, not similar to other to avoid confusion)

• Selecting the brand symbol/logo (corporate or trade names rendered in typography, visual device with association with name or activity business or abstract with no obvious relation)

• Registering a trademark (a word, phrase, symbol or design or a combination that identifies and distinguishes the source of the goods of one party from another, it’s not required, only with medicine)

• Monitoring brand acceptance (brand loyalty is the ultimate brand acceptance, this is being measured by determining the brand switching sequence between competitors)

  • Perfect single brand loyalty

  • Single brand loyalty with occasional switching

  • Divided loyalty

  • Indifference

Packaging

Packaging functions can be separated into six categories:

1. Containment and protection (state of goods when it arrives at the customers)

2. Transportation and distribution (how efficient the handling of the product is in all stages and issues about utilization and pack-size)

3. Management (how efficient stock-listing, pricing, ordering and labelling (bar-codes) is)

4. Sale (aesthetic value and the sales power to the customer and labelling for recognition, information and product description)

5. Use (transportation, storage, opening and possible re-shutting by customer and unit size)

6. Disposal (rest-value of packaging after its content has been used, positive or negative)

Packaging components for which management must take decisions are packaging materials, size, shape, colour, texture, graphic art, ease of opening, ease of use, re-usability, etc.

Product services

Those service extend the utility of the product and the customers are considering the product services when buying the product instead of an alternative of another physical products. For industrial products product services are unmistakable.

Classification of product services, due to what kind of value they add to the product:

• Product performance enhancing services (more important for industrial goods; for instance installation and training of operators)

• Product life prolonging services (evenly important; for instance maintenance and repair)

• Product risk reducing services (for instance product warranties)

Decisions regarding services

Those decisions are made to help customers have an easier access to services. The global decision areas are about service types, tangible/physical services an intangible/augmented services (see figure 2.2 page 37). It’s so critical that physical evidence is added as the fifth p next to product, price, place and promotion. This fifth p includes the following elements:

• Facility exterior (for instance parking area)

• Facility interior (for instance lights and warmth)

• Tangibles (for instance information brochures)

A service company has to make decisions regarding the amount of tangibility of the service and what elements are necessary to make a service more tangible.

There are five dimensions of service quality (SERVQUAL instrument):

1. Tangibles (equipment being modern)

2. Dependability (showing interest to the customers regarding their problems)

3. Responsiveness (willingness to help customers)

4. Assurance (having enough knowledge to properly respond to the questions of the customers)

5. Sympathy (giving attention to each individual customer)

There are four dimensions regarding the quality of service:

• Potential quality (for instance having the facilities that are required)

• Hard process quality (do not oversee details)

• Soft process quality enthusiastically accepted (being to open to listen to other ideas)

• Output quality (reaching the formed objectives)

Hard is about what is being performed during the service and soft about how the service is performed during the service process.

Decisions that companies have to make regarding the intangible/augmented service concerns the core service for the customers (for instance buying transportation with buying a vehicle), the supplementary services and branding.

There is a flower of service which consist of the core service together with eight supplementary services (see figure 2.3 page 39). Those eight supplementary services are:

• Information

• Order taking

• Billing

• Payment

• Consultation (beyond only given information, this is about advising to provide the best use of the service)

• Hospitality (making the waiting time for the customer more joyful with providing water for example)

• Safekeeping

• Exceptions (special requests)

C. The strategies for launching the product to the market an PLC

There are three levels to which a product can be divided:

1. Product-class (for instance automotive)

2. Product-form (for instance reversible)

3. Product-brand (for instance Peugeot 208)

The changes that takes place in the markets is reflected by the product class, is lasts longer than the other two levels because those can be directed to one special company and it is following the product life cycle which is in the maturity stage indefinite, it can be very long or short.

There are many products whose life cycle does not represent precisely the four stages of product life style (which are introduction, growth, maturity and decline). Also there is uncertainty about when a product will switch from one stage to the next one and how long it will stay in one particular stage. Besides those two discussion points, it is also difficult to know at which stage a product is at a certain moment.

The following figure shows the stages and their characteristics (from lecture).

Strategies for marketing in the first stage (introduction: here a new product/service is being launched)

(1) Mass-market penetration:

Try to get and keep a huge market share for the new product and try to reduce the costs per unit. Two penetration strategies exist:

• Slow: the products/services that is coming to the market got a low price and the promotion expenditures are limited

• Rapid: the products/services that is coming to the market got a low price and the promotion expenditures are high

For both there should be a large potential market which is price sensitive and there must be some potential competition. For the slow strategy, the market should be aware of the product/service, for rapid not aware (rapid product line extensions).

(2) Niche penetration:

Companies should try to receive a leading position in a market segment that is specific. Due to the focus on a particular segment companies are being more efficient , considering the utilization of resources, and fence off competitor who have a large established market share (modify and improve product/service).

(3) Skimming and early withdrawal:

This strategy implies that it must lure as much customers that they can and capture high profit margins, gathered by setting high prices and when profits are pushed down (by competitors) they should exit the market. Also here, there are two skimming-strategies:

• Slow: the product/service that is coming to the market got a high price and the promotion expenditures are high

• Rapid: the product/service that is coming to the market got a high price and the promotion expenditures are low

For both there must be a small potential market that isn’t price sensitive. For the slow strategy, the market should be not aware of the product/service, for the rapid strategy they should be aware.

Strategies for marketing for the second stage (growth)

(1) Strategies for market leaders: basic objective is to try to achieve a huge market share, there are five strategies what will help a firm maintain its leading position (an individual strategy or a combination of more strategies)

1. Fortress or position defence strategy: enlarge satisfaction, loyalty and re-purchases

2. Flanker strategy: defend an exposed flank, leader develops second brand (flanker brand) with higher quality and price (trading up) or lower quality and price (trading down)

3. Confrontation strategy: offer differentiated products than competitors by improving its product, increasing promotional effort or decreasing its prices

4. Market expansion or mobile strategy: maintain huge market share/positions in various market segments

5. Contraction or strategic withdrawal strategy: decrease or quit efforts on marketing in particular market segments and focus on the most auspicious segments

(2) Follower’s strategies: objective of these strategies are increasing achievement of competitors and customers that are new, also here there are five strategies:

1. Frontal attack strategy: develop products that are superior, the expenditures on promotional efforts and distribution channels becomes higher and the customer service is better.

2. Flanking attack strategy: attack the invalidity of competitors; elaborate a unique and superior product which satisfies unmet needs by existing offerings.

3. Encirclement strategy: attack the competitor on more than one front, first try to cut off the competitor from its main suppliers and/or customers and secondly offer a unique and superior product or service.

4. Bypass or leapfrog strategy: fence off competitor’s main market and focus on new markets (unrelated products, new geographical markets or outstanding existing products with new technologically forwarded products (technological leapfrogging))

5. Guerrilla attack strategy: troublesome leader through disrupting its plans and amusing some of its resources and attention (sudden and sporadic), looks like sales promotion schemes.

Strategies for marketing in the third stage (maturity)

Markets that are assigned as mature have the characteristics of a lack of competitors that can offer products that can as well satisfy customers. There are three strategies:

1. Extensive penetration strategy: reformation of current non-users to users in the target market by for example adding new features or services, sales promotion, etc.

2. Use expansion strategy: enlarge use of the product by current users by increases in frequency of use, quantity used or development of new product uses (different occasion, locations or purposes)

3. New market strategy: serving yet unreached segments (geographic expansion)

Strategies for marketing in the fourth stage (decline)

Markets that undergo a decline aren’t always unattractive markets in some circumstances, there are three factors: demand conditions (slow decline), ease of market exit (no re-investing) and competitive rivalry (high switching cost). There are five strategies:

1. Profitable survivor strategy: foster competitors to exit the market by for example price reduction, increased promotion, etc.

2. Milking or harvesting strategy: maximizing returns by avoiding investments and decrease operational costs

3. Hold strategy: hold the same market share, even if it causes reduction in profit, by maintain R&D expenses, promotion and reduce price if necessary

4. Niche strategy: reinforce the position in the market in one or a few promising segments by improving product to target segments or focus promotion on customers of that particular target segment

5. Divesting or exit strategy: exiting the market (if decline is rapid and exit barriers can be overcome)

D. Portfolio of product and services and their evaluation

An important activity for the marketing department is evaluating their existing products and services. In this way it can achieve resource allocation (financial, production, marketing, etc.). There are several ways in which evaluation takes place:

1. Multidimensional ‘screening’ approach

This entails screening dimensions which are used for evaluating products and services. Examples of these screening dimensions are (see table 4.1 page 63):

• Sales value

• Profitability

• Profit trend

• Product effectiveness

• Sales or market decline

• Inventory requirements

• ROI

• Development costs

• Sales revenue

• Future sales volume

• Sales volume

• Average order size

• Etc.

2. ‘Index’ approach

There are also dimensions in the index approach for evaluating products and services (see table 4.2 page 64).

3. Classification of product portfolio and the matrix approach

Companies are examining their products/markets and the combinations of those with taken under consideration of the strengths and opportunities for high financial returns.

*Non-financial models of product portfolio

(1) Classification of products (Peter Drucker)

1. ‘Tomorrow’s breadwinners’: ‘today’s breadwinners’ or products that are new, changed and improved

2. ‘Today’s breadwinners’: yesterday’s innovations with still more potential for growth

3. Products capable of becoming net contributors if something drastic is done

4. ‘Yesterday’s breadwinners’: products with high volumes, but they are badly fragmented

5. ‘Also rans’: yesterdays’ hopes that, while they did not work out very well, even so did not become outright failures

6. ‘Failures’: those product aren’t a problem, the ultimately liquidate themselves

(2) Classification of products (Fluitman)

There are identified four dimensions uses for evaluating products portfolio: sales volume, average annual growth rate, utilization of key resources and ROI. They together create eight categories:

1. Failures

2. Investments in managerial ego

3. Fade-out products

4. Yesterday’s products

Those four products represent a low percentage of company’s sales turnover, they have no substantial growth, high percentage of resources and a negative ROI. Resources should be taken to cut down such products to achieve profit objectives.

The remaining four products are:

5. Products of tomorrow

6. Products of today

7. Sleepers

8. Specialties

(3) BCG Matrix

This is a matrix with on the horizontal axis the variable relative market share and on the vertical axis market growth rate (see figure 4.1 page 68). This delivers four quadrants which each needs its own unique marketing strategy. Those quadrants are stars, question marks, cash cows and dogs. The size of the circles corresponds to the sales achieved by the respective product in relation to the overall company sales. The marketing strategies are as follows:

• Stars: these products are the leaders in fast growing markets but the cash flows are negative due to the financing of fast growth rates and facing competition by price reductions

• Cash cows: those products are the cash generators of the company in the maturity phase; they achieve economies of scale and high profit margins in low growth markets that don’t need financial resources. The positive profits are used to support the other products in the other quadrants, especially question marks

• Problem children or question marks: those products require financial resources and the profit margins are limited, here companies have to decide whether to invest in the product or exit the product it in the market

• Dogs: those products are loose and not very attractive, usually they are products in the maturity or decline phase

Companies should balance the BCG: few dogs, moderate question marks/cash cows and many stars.

(4) Product profitability grid (Philip Kotler)

This is a grid with on the horizontal axis annual sales growth and on the vertical axis annual ROI. Those two variables are useful for judging the profitability of a product at the long term. It shows strong products, satisfactory products and weak products (see figure 4.2 page 71).

(5) Product evaluation matrix (Wind and Claycamp)

This matrix shows five strategies that can be suitable for a particular product (or product line) depending on the specific market conditions (for instance market size, competition, customer needs, etc.):

• Maintain present form of the product and its corresponding marketing strategy

• Maintain present form of the product but change marketing strategy

• Change product and alter the marketing strategy

• Exit of the product or the entire product line

• Add one or more products into the line or add new product lines

(6) Competitive position portfolio model (General Electric/McKinsey)

Can be viewed as an improvement of the BCG matrix as it is based on multifactor analysis.

The dimensions are further analysed in sub-dimensions. Market attractiveness result from market size, number of competitors, etc. Business strength from market share, unit cost, product quality, etc. Management should identify most appropriate factors and rink them on a scale from one to five and then multiply them by the weight representing the factors importance.

Size of circle corresponds the size of product’s market, a shaded part of circle represents market share.

(7) Shell international directional policy matrix

This matrix has as a dimenion on the horizontal axis prospects for sector profitability and on the vertical axis company’s competitive capabilities. It results in strategies that each should be used for a specific box (see table 4.3 page 74).

(8) Ben Enis’s product/market matching matrix

This matrix has as a dimension on the horizontal axis market stage (new, expanding, stable or contracting) and on the vertical axis product life cycle stage (introduction, growth, maturity or decline). These results in three different strategies, namely market extension, market development and market exploitation (see figure 4.4 page 75).

(9) Business profile matrix by A.D. Little

This matrix has as a dimension on the horizontal axis stages of industry maturity and on the vertical axis competitive position. This model implies that risk increases as products are aging and competitive position becomes weak. Different strategies, for example for the variables embryonic or growth  market penetration (see table 4.4 page 74).

(10) Barksdale and Harris model

This combines BCG with the product life cycle concept. This model recognizes that the initial and the final stage is just as important in the product life cycle when product portfolios are evaluated. So they suggest three new categories of products next to stars, problem children, cash cows and dogs (see figure 4.5 page 76 and figure 4.6 page 77).

• Infants are products that need niche marketing, they don’t generate profits for a period of time and require financial resources.

• In a declining market, cash generators (cash cows) become war horses

• Dodo’s are products with small market share in markets that are declining and offers opportunities that are limited of generating cash flows, usually these products are deleted from portfolio.

*Financial models of product portfolio

An efficient portfolio is been evolved, it’s an efficient curve that lies through the ideal spots between return and risk, known as the ‘efficient frontier’ (see figure 4.7 page 78). To identify the ‘efficient frontier’:

• Calculate average ROI of the investments in portfolio

• Risk portfolio measured as standard deviation or variance of portfolio’s return

To improve portfolio productivity, the following processes could be assigned:

• Define investments

• Estimate returns and risks

• Measure portfolio productivity (average ROI weighted by resources committed to each of them as percentage of total resources committed)

• Select desired investments sets

E. NPD and products placed in portfolios

The development of new products and services require several sequential steps, at each step decisions have to be made regarding a lot of different areas.

Different kinds of NPD models (new product development)

(1) Basic model with six steps:

1. Exploration (searching for ideas for new products)

2. Screening (which ideas are applicable and deserve a study that is more detailed)

3. Business analysis (extension of the idea to concrete business recommendation)

4. Development (product idea becomes a ready-made product that is demonstrable and also producible)

5. Testing (commercial experiments)

6. Commercialization (production at full-scale and the launch of the product in the market place)

(2) NPD models seen from the view of the management

Innovation characterized as internal corporate venturing (ICV): conceptual (idea generation), pre-venture, entrepreneurial (product development) and organisational (implementation). The process of innovations contains three sequential stages; the idea stage, the design stage and the implementation stage.

(3) NPD models seen from the view of the industry design

The market forms the start and the end of the design activity model which recognizes that design is an iterative process. The steps are: market, specification, concept design, detail design, manufacture and sell.

The iterative process exists task clarification, conceptual design, embodiment design and detail design.

(4) NPD models seen from the view of the marketing

The eight major steps of NPD according to Kotler:

- Idea generation

- Idea screening

- Concept development and testing

- Marketing strategy

- Business analysis

- Product development

- Market testing

- Commercialization

NSD models (new service development)

Characteristics of services:

• Intangibility: service remains conceptual, thereby there exists uncertainty about the exact nature and therefore there is a high risk of failure. Companies should make a detailed service blueprinting and make imitation difficult (make it more abstract)

• Inseparability: production and consumption at same time, so front-line personnel need to know all about new service and should be motivated to promote it to customer (external and internal marketing planning necessary)

• Heterogeneity: the outcomes of services differ from each particular service that is given

• Perishability: services can’t be produced in advance and be kept in stock, therefore over- or under capacity can occur. They should add a service line as an alternative.

There are fifteen steps for the activities for NSD in sequence (see figure 5.1 page 87), those steps are divided in four distinct groups:

• Direction: here the first three steps are applied, namely formulation of new service objectives and strategy, idea generation and idea screening. Internal and external sources of new service ideas are used.

• Design: here the next eight steps are applied, namely concept development, concept testing, business analysis, project authorization, service design and testing, process and system design and testing, marketing programme design and testing and at last personnel training. During concept testing customer’s reactions to service concepts are gathered, unattractive ideas are eliminated by customers. Project authorization is when top management addresses resources to the development of a full service.

• Testing: here the next three activities are applied, namely service testing, pilot run and test marketing. Service testing is used to examine the potential customers’ acceptance of the new service, also process and system design and testing with pilot runs ensure the service’s smooth functioning. Thirdly test marketing examines the marketability of the new service with limited number of customers.

• Introduction: here the last two stages are applied, namely full-scale launch and post-launch review. Post launch review is needed to determine if the objectives of the new services are being met or if adjustments are needed.

Different types of ND models

It’s about the sequence of activities:

(1) First generation stage-gate models

This is also called Phase Review Process, with stages and a review point applied after each phase. The process was engineering focused because only the development phase is examined, therefore the models is very slow.

(2) Second generation stage-gate models (see as example figure 5.2 page 89)

This model is been described as a game plan or blueprint, its used for improving the efficiency in time and effectiveness of the process. The gates in this model stand for go/no go decision points and each stage involves marketing, R&D, manufacturing, etc. (therefore its cross-functional). Weakness of this model is unnecessary resource use when shortcut is more applicable. Also in this models overlapping different stages is not done.

(3) Third generation models (see as example figure 5.3 page 90)

This models deals with the discussed weaknesses of the second-generation stage-gate models. This model consists of four characteristics:

- Fluidity: overlapping and fluid stages (with higher speed as a result)

- Fuzzy gate: provisory go decisions instead of go/no go

- Focused: looks at whole portfolio instead of one project, they prioritize (first and second generation models did look at one project only)

- Flexible: each project has a specific routing and thus is unique (routing was rigid by first and second generation models)

New products places in portfolios and management of those portfolios

Portfolio management: a decision process that is dynamic. Within the portfolio management, the list of products and projects of R&D of a business, is constantly updated and revised. In this process, new projects are evaluated, selected and prioritized; existing projects may be accelerated, killed or de-prioritized, and resources are allocated and re-allocated to the active projects.

(1) Goals of management of the portfolio, for new products

Maximizing value of portfolio, achieving a balanced portfolio and achieving a strong link to strategy.

(2) Methods of management of the portfolio, for new products

Maximizing value

- Portfolio value maximization, financial methods:

• NPV (net present value)

• ECV (expected commercial value)

ECV = [(NPV x SI x Pcs) - C] x Pts – D

SI: strategic importance of the new product

Pcs: probability of commercial success

C: capital and marketing costs, only if product is technically successful

Pts: probability of technical success

D: cost of development of the new product

• PI (productivity index)

PI = [NPV x Pts – R&D]/R&D

R&D: R&D costs remaining in the project

New products or projects are then rank-ordered in order to arrive at the preferred portfolio.

• Dynamic rank ordered list: rank-ordered according several criteria (see table 5.1 and 5.2 page 93)

- Portfolio value maximization, non-financial methods:

• Scoring models: new products/projects are rated on different criteria, for example market share, marketing know-how, market fit, etc. A product/project is scored on each criteria (in terms of degree they satisfy each criteria) and that score is multiplied by the weighting of each criteria. If the total score is 0-50 a product/project is rejected, by a total score of 50-70 re-evaluated and by a score of 71-100 accepted (see table 5.3 page 93)

• Checklists: same as scoring model, only here the criteria is rated with a yes or no

• Paired comparison: this method is done in the phase of idea generation. It contains comparing a pair of new product ideas against each other and the best one survives. This method is very time consuming (nine ideas contributes to 36 comparisons)

Achieving a balanced portfolio

• Visual charts: bubble diagram for which number of parameters can be used, for example probability of technical success (Pts) and reward (NPV) (see figure 5.4 page 94). For each new product, resources must be limited from another. Size of bubbles shows resources spent annually on each new product.

-Pearls: potential stars

-Oysters: long-shot projects

-Bread and butter: small and simple projects

-White elephants: low success and low reward projects

Strategic direction

Strategic buckets model is used to make sure that the spending of a portfolio reflects the priorities of strategy. Strategic buckets model has following characteristics:

- defining vision and strategy of company

- make decisions regarding where company wants to spend it’s R&D and new product resources

- create and define buckets with ideal spending levels (envelopes of money), for example x per cent spent on product platforms

- prioritize projects within buckets by using the methods explained by maximizing value

(3) The use frequency of portfolio management methods

Almost all companies use multiple methods. Financial methods is most popular approach, next strategic bucket and at last bubble diagram.

F. Activities included in NPD and NSD

NPD process:

• Pre-development stages (this chapter discussed):

• new product strategy development

• idea generation

• idea screening

• concept development and testing

• marketing strategy

• business analysis

• Post-development stages (next chapter discussed):

• technical development

• testing

• launching (commercialization)

(1) New product strategy development

The strategic requirements are defined, which should be satisfied by the new product or service. The next stage, idea generation, will focus on generate ideas that is closely related to those strategic objectives. There are two broad strategies:

• Strategic objectives that are externally driven:

• Defending position of current market

• Create lodgement on new market

• Pre-empt market segment

• Strategic objectives that are internally driven:

• Keep your status as product innovator

• Utilize technology in a new, different way

• Capitalize on strengths of distribution

• Provide a cash generator

• Use excess or off-season capacity

Mortality curve of new product ideas shows rate of which ideas for new products are screened out at consecutive steps of the NPD (see figure 6.1 page 103). It is showed that at idea generation and screening there are far more ideas that at the latter stage launching. There are no differences between goods and services.

(2) Idea generation

This stage together with next one (idea screening) is often referred as ‘fuzzy front end’.

1. Sources for generating ideas

• Internal forces (employees for instance)

• External forces (customers and competitors for instance)

• Market or technology forces

2. Techniques for generating ideas

• Creative techniques: emphasizes creativity and imagination (brainstorming for instance)

• Analytical techniques: emphasizes analysis of a specific situation (market

analyses for instance)

There are a lot of techniques for generating ideas (see table 6.1 page 109-111), examples are:

• Adaption

• Brainstorming

• Critical path network

• Interaction

• Market research

• Method ‘6-3-5’

• Questioning

• Experimenting

• Evaluation

(3) Idea screening

During this third stage, the generated new product ideas go through a screening process. There is considered if those ideas can satisfy the strategic goals with the corporate resources and know-how already available. This refers to the technical capabilities and the market potential of the new product. Therefore different approaches are used, like ranking, checklists, scoring models, pi etc..

O’Meara’s study included analysis of competitive conditions. Four screening criteria are described:

• Marketability

• Durability

• Productive ability

• Growth potential

Cooper and de Brentani also described general screening criteria:

• Economic performance/financial potential

• Corporate/internal synergy (utilization of the experiences, capabilities and facilities of the company)

• Technological synergy/production-design synergy (utilization of the production facilities)

• Product differential advantage (uniqueness and superiority of the new product)

(4) Concept development and testing

Definition of product concept: a clearly written and possibly visual description of the new product idea that includes its primary features and customer benefits, combined with a broad understanding of the technology needed.

The collected information during the testing of the concept is about the degree of how customers perceive the appropriateness of new idea for satisfying their needs and their intention to buy the new product. Concept testing often is done by interviewing respondents personally at their home (consumer products) or at the workplace (industrial products).

There are two forms in which concept testing can be conducted:

• Monadic testing: here the respondent is only exposed to one product concept (this is done when there are little substitutes)

• Paired comparison: here the respondent has to choose between the new product and the product of the main competitor

Sometimes concept tests are understated or overstated. For products sold through the internet there is a dry test: product descriptions are provided and when potential customer actually starts order he/she is informed that the product is in development.

(5) Marketing strategy

Marketing is actually conducted throughout the whole NPD process, from the moment the company decides define the new product strategy development until the stage of launching (commercialize) the product into the market. Market planning for new products/services (see figure 6.2 page 115):

• Introduction (description product for example)

• Analysis external environment (size market, SWOT, etc.)

• Analysis internal environment (marketing audit and SWOT)

• Marketing objectives (quantitative; sales and profits first year or qualitative; improvement company’s image)

• Marketing strategy (target market, product & price strategy, etc.)

• Action plan (pricing, distribution & promotion activities, budget etc.)

(6) Business analysis

In this six stage the idea for the new product is further evaluated with now including financial facts (cost-benefit analysis). The outcome of this analysis is used for defining the new product budget, which is a part of marketing plan. These two stages are thus interrelated and often undertaken concurrently. Three categories:

• Subjective models: the judgments and advices of experts and experiences gained in the past are used in order to make forecasting judgements.

• Analogue models: historical performance of similar products are used with assuming that the way a new product is accepted in the market place will be close to the way similar products are accepted.

• Analytical first purchase (diffusion type) models: describing and forecasting the diffusion of an innovation using a given set of prospective adopters over time. It is the imitation process, a product is first adopted by innovators who influence others.

G. Last three activities in NPD and NSD

(7) Technical development

During this seventh stage the new product idea will be translated in concrete and tangible terms, therefore this stage includes the largest part of the innovation budget. For products prototypes can be developed, but for services it’s not easy due to its intangibility. It brings two separate elements: satisfaction of customer and technical feasibility.

Approaches are discussed regarding providing marketing-based information and guidelines for the design of industrial products and services:

• Industrial market response model: four sub models (awareness model, acceptance model, individual evaluation model and group decision model). Those models all relate to the behaviour of the organization towards a key product strategy area. The sample trade-off curve depicts that acceptance is 2,5% when minimum expected life is 12 years and the maximum initial investment is 450euros (see figure 7.1 page 120)

• Designor: evaluates the impact of alternative product design on market share and sales

• Posse: product optimization and selected segment evaluation

• Quality function development (QFD): the goal of this approach is reducing design time by 40% and design cost by 60% (see figure 7.2 page 122)

• Blueprinting (for services): describes all process steps that customers and service employees must follow in a given service environment (see figure 7.3 page 122)

(8) Testing

(1) Product use testing (investigates product/operating problems that could arise in normal conditions), two types:

-Alpha testing: in-house (laboratory)

-Beta testing: intended market-users

(2) Market testing (investigates market-related pitfalls that could arise):

This test is done when the product is in the last stage of NPD before introduction to the market. Market testing may be undertaken to evaluate the product and its marketability under selected field conditions.

• Methods for B2C products

-Simulated test marketing: ask potential customers to their buying behaviour and simulate purchases (give them money to purchase a product in a specific firm with the new product and ask why they bought what they bought; why or why not did they buy your product)

-Test marketing: select cities (that are representative in terms of average of demographic and psychographic characteristics) and new product is placed on store’s, in those selected cities, shelves with full promotional campaign. The company analyses sales figures and reaches conclusions about acceptance and reactions of their competitors

-Consumer panels: potential customers use product and give their opinion of the product and their intentions to buy it

• Methods for B2B products

-Test product in limited geographical area

-Test product in distributor and dealer display rooms (how a product is normally sold)

-Test product in trade show (in this way the product is being tested to many potential customers, but the product is also showed to competitors)

-Test product by speculative sale (fake sale)

(9) Launching (Commercialization)

In this last stage the costs dramatically increases (it has the second highest cost next to development). Those high costs are derived from investing in production facilities, training and the launch programmes. The company implements the production (or service operations) plan and the marketing plan. Approaches of the marketing plan is presented below.

(1) Preannouncement of new products: those preannouncements vary in timing, nature and length of the process of announcement. It also differs between companies and between products (that are produced by one company)

(2) Launch strategies of new products:

Two different types:

-Full market launch: the products are launched simultaneously to all target markets, this approach is preferred when competitors don’t lag far behind and there is an early mover advantage the company can benefit from. This approach does have high risks and costs

-Rollout strategy: product introduced one target segment at a time (the advantage of this approach is that a company can learn from mistakes made in other target segments)

There are four strategies for high technology companies, which can help to speed up the adoption process of the new product:

1. Cooperation with other producers: this consist of sharing technology and embark on an education programme. Education is not the same as promotion, due to the fact that the technology incorporated in the product is the main subject instead of the product itself.

2. Positioning the product in the market (winning early market acceptance): this consist of approach innovative adopters, approach users that use the product category very often (this approach is focused on users of the technology that the new product is intended to replace) and approach users that use the preceding technology very often.

3. Directly reducing the risk of adoption: of a trial or lease a product so that the customer doesn’t have to purchase it directly and occlude the risk.

4. Winning market support (support WOM-marketing): win the approval of opinion leaders, settle an image of a ‘winner’ image and ‘legitimize’ the product (publicize the names of the organization that have already adopted the product).

(3) Launch tactics for new products: this approach consists of four different tactics (see table 7.1 page 131):

• Market preparation tactics (take action to prepare the market for the launch of the new product)

• Targeting tactics (target potential customers: innovators, early adopters, late adopters, existing customers and competitors’ customers)

• Positioning tactics (position the product in the market)

• Market attack tactics (attack the market by for example use opinion leaders)

The degree of the use of those tactics depend on market newness and the maturity of the technology (see table 7.2 page 132).

(4) The relationship between strategic and tactical decisions in new product launching: strategic launch decisions are made early in the NPD process and they affect the tactical decisions who are made later in the process.

Strategic decisions:

• product strategy (product innovativeness)

• market strategy (market targeting)

• competitive stance (number of competitors)

• firm strategy (marketing or technology driven)

Tactical decisions:

• product (branding)

• distribution (intensity)

• pricing

• promotion

Four strategies are defined, each strategy is a combination of the strategic and tactical launch decisions:

-Niche innovators (most successful): Technology driven and also driven by market needs. This strategy has a niche focus (so there is little competition). Tactical decisions associated with this strategy are skimming price, exclusive distribution and broad product assortment

-Niche followers (second most successful): This strategy is a combination between technology and market needs and has also a niche focus. Tactical decisions associated with this strategy are moderately broad assortment, no price preferences and new distribution channels

-Mass marketers (moderate successful): Tactical decisions associated with this strategy are broad assortment with a price that can penetrate the market rapid

-Would-be me-toos (unsuccessful): This strategy is market-driven. Tactical decisions associated with this strategy is a small assortment (mismatch strategy and tactics)

There are differences when you look at strategic and tactical decisions about launching a product for successful and unsuccessful products (see table 7.3 page 135).

-Strategy: product innovativeness and newness are associated with higher levels of performance

-Tactical: launching a broader assortment of product using print advertising is associated with higher performance

H. The degree of adoption and diffusion of the new products and services

The success of new products and services

Performance dimensions of the new products and/or service:

• Financial performance

• Opportunity window (amount of which the new product opened new opportunities, for example new product categories or new markets)

• Market impact

Factors of success for new products

40-60% of new products fail. The most important determinants of new product success are identified as: identifying and understanding user’s needs and focus on R&D activities for satisfying them, appropriate internal and external communication and considerable commitment of financial resources.

There are seven factors identified that lead to high performance of a new product:

• a fit with the needs of the market

• a fit with the functional strengths of the company

• technological superiority

• support of the top management

• use of proper development process

• suitable competitive environment

• proper organizational arrangements for product development

There are eight factors identified that lead to new product failures:

• market analysis is insufficient

• product defects

• estimated costs are too low

• introduction of new product has a bad timing

• reaction of competitors

• marketing effort and efficiency insufficient

• sales force insufficient

• product distribution insufficient

Me-too aren’t successful as well, which means launching a new product after a competitor launched a similar product.

Factors of success for new services

There are four performance measures that are defined and which are used to estimate the performance of the new services:

• performance of sales and market share

• competitive performance (uniqueness and competitive advantage)

• other boosters or performances of other company services (expertise)

• cost performance

Factors that distinguish successful and unsuccessful services:

• Synergy: the degree to which the needs of new service project fits with the resources, skills and experiences

• Product/market fit: degree to which the service meets customer needs/wants and responds to changes in those needs/wants

• Quality of execution of the launch: service tested before launch, launch plan detailed and well documented, personnel had training, promotional plan designed and implemented and internal marketing had been done (service well promoted to front line personnel)

Innovative products and performance of new products and services

The negative impact of business and market opportunity analysis can be derived from the fact that with the me-too offerings the company builds on prior knowledge.

There are development activities that have an impact on the performances of industrial products, with a distribution between innovative and non-innovative products (see table 8.1 page 156), those activities are:

• Strategic planning

• Idea development and screening

• Business and market opportunity analysis

• Technical development

• Product testing

• Product commercialization

Factors that have an impact on the success of new business services, with a distribution between innovative and non-innovative services (see table 8.2 page 157), those activities are:

• Client/need fit

• Strategy and resource fit

• Front line expertise

• Formal testing and launch

• Low complexity/cost

• Innovation culture and management

• Formal evaluation and design

• Service quality evidence

• Market potential

Factors that have an impact on the performance of new and incremental consumer services, with a distribution of innovative and non-innovative consumer services (see table 8.3 page 158), those activities are:

• Idea generation and screening

• Technical development

• Market testing

• Operational testing

• Internal marketing and training

• Marketing strategy and commercialization (+)

The development activities (idea generation and screening, business analysis and marketing strategy, technical development, testing and launching) have impact on the different types of service innovations (see table 8.4 page 159). Those different service innovations are:

• New to the market

• New to the company

• New delivery process

• Service modification

• Service line extension

• Service repositioning

Innovations degree of adoption and diffusion

Can be examined for the B2B and B2C market both. Irrespective of the market, the definition of the both concepts are:

• adoption of innovation: refers to the decision of a company or consumer to adopt an innovation on a systematic basis

• diffusion of innovation: refers to the spread of the innovation from its source of development to the adopter’s community.

Process of adoption

Adopting an innovation occurs over time, six stages are included:

1. Unawareness: individual or company not aware of innovation

2. Awareness: individual or are becoming aware of the innovation, but inadequately motivated to seek for further information

3. Interest: individual or company is now searching for more information to gather a more complete picture

4. Evaluation: individual of company determines the advantages and disadvantages of the innovation with regard to their needs and wants

5. Trial: if evaluation the evaluation stage is concluded to be positive, the individual or company is using the innovation on a restricted basis to further evaluate the usefulness of the innovation

6. Adoption: if satisfied by trial then its adopted for systematic use by the individual or company

There are five different individual adopter categories defined, according to the ‘individual innovativeness theory’ (see figure 8.1 page 162):

• Innovators (the earliest adopters, they have higher incomes what reduces the risk)

• Early adopters (they can be opinion leaders where other people listen to)

• Early maturity (they adopt the product earlier than other average persons, they don’t like taking unnecessary risk)

• Late maturity (they adopt the innovation because of economic or social reasons)

• Laggards (they are the latest adopters and when they adopt the product the product can be replaced already by yet another innovation)

The degree of which an innovation is been adopted, depends on three categories of factors:

• innovation characteristics

• adopter characteristics

• supplier’s marketing activities

There are seven characteristics defined of innovations:

• relative advantage

• compatibility (compatible with values and experiences of individuals)

• low perceived risk

• low complexity

• divisibility; trial ability

• observability/communicability

• low switching cost

Baker’s model of industrial adoption process:

This model states that the adoption decision of an organization includes a sequence of the following factors:

• Selective perception: the managements perception from the unawareness to the first awareness until the adoption (or rejection) is been influenced by the organizational characteristics

• Precipitating circumstances: factors that stimulates a company to begin evaluate an innovation (for instance new markets)

• Enabling conditions: if an innovations is suited within the organisation, it must include some specific conditions (for instance personnel that is been trained)

• Technical/economic advantage/disadvantages

• Behavioural response: for instance the attitudes of management

The adoption and diffusion process is been influenced by:

• the innovation characteristics

• the organization’s characteristics

• supply side competitive environment

• adopter industry competitive environment

Relationships:

(1) Factors supply side competitive environment and adoption/diffusion of a technological innovation:

-Industry competitiveness: higher competition more aggressive pricing policies  rapid diffusion

-Supplier reputation: higher reputation  reduced uncertainty innovations performance  rapid diffusion

-Technology standardization: higher standardization lower prices and uncertainty about use innovation  rapid diffusion

-Vertical coordination with customers: high degree of coordination  high information flow and customer involvement  rapid diffusion

(2) Factors adopter competitive environment and adoption/diffusion of a technological innovation:

-Industry heterogeneity: intermediate level of heterogeneity  rapid diffusion

-Competitive intensity: monopolistic conditions  lower adoption

-Demand uncertainty: difficult forecasting demand  susceptibility to innovation

(3) Communication factors of adopter industry competitive environment and adoption/diffusion of a technological innovation:

-Signal frequency and clarity: frequent and clear signals  more information about adoption competitors  more rapid innovation other companies in the industry

-Levels of professionalism: more expertise  rapid diffusion

-Cosmopolitanism of the industry: the greater external orientation of an industry  more new ideas of innovations  rapid diffusion

I. Identifying the unsuccessful and weak products/services

The most important activity for the marketing department is evaluating the products and services that already exist in their company.

The process of revitalization and elimination in a decision-making process includes the following four stages (see figure 9.1 page 176):

1. identification of candidates for elimination

2. analysis and revitalization

3. evaluation and decision-making

4. implementation of the elimination decision

First two stages are discussed in this chapter.

(1) Identification of candidates for elimination

Weak products are identified in two different ways:

• Management-cycle activities: during management meetings with departmental heads the weak products are identified

• Product-planning-cycle activities: during committee meetings (their most important task is the evaluation of existing products/services) the weak products are identified

Weak products are identified through different audit criteria (see table 9.1 page 179), some criteria’s are:

• sales volume

• product volume

• market share

• profit margin

• unit sales

• ROI

The providers of services use the same criteria as companies with industrial product’ use, for the identification of weak products and determining which products has to be eliminated. Eight criteria (in order of importance) for weak services are defined:

• profitability

• sales volume

• market growth potential

• customers’ perceptions

• activities of competitors

• market share

• position in the life cycle curve

• operational problems

Influences on the identification of weak products (internal and external)

• Market trends (market growth rate, products position on PLC)

• Market performance (market share, future sales volume, competitive activity, market growth rate)

• Financial performance (past volume sales, profitability, share of company’ sales)

These dimensions are influenced by factors in the organization or the environment, such as:

• company size

• product diversity

• operations technology

• market competition

• degree of technological change

For services the factors that have influences are:

• type of market in which financial service is offered

• business strategy

• market orientation

• competition

• legislation

• rhythm of technological change

(2) Analysis and revitalization

In the weak product revitalization process stage management tries to determine what factors cause the unsatisfactory performance of the identified weak products. Also they try to define alternative corrective or remedial actions that are able to restore the performance of these particular products.

The revitalization process has multiple sequential stages (see figure 9.2 page 186). It includes three phases of diagnostic routine:

• Phase 1: diagnosis routine

• Phase 2: identification of the sources of deviation

• Phase 3: investigation into the sources of deviation

Statements are defined for explaining why some specific products have unsatisfactory performances, those are:

• uncompetitive price

• production problems

• not mass produced-uneconomic batches

• high costs

• overengineered

• dominating competitors

• customer requirements not as expected

• low selling price

Alternative corrective actions for revitalizing weak products:

Some of these action are (see table 9.3 page 189):

• additional promotion

• product change

• cost analysis

• price change

• cost reduction

• packaging changes

• distribution improvements

• development of new markets

These actions focus on the marketing mix (4 P’s: price, place, promotion, product) or development of new markets, the general dimensions are:

-Cost reduction/product modifications

-Price changes consideration

-Promotion changes consideration

-Channel changes consideration

-Development of new markets

Some factors of the organization and environment influences the importance of alternative corrective actions for revitalizing weak B2B products, such as:

• company size

• product diversity

• operations technology

• rhythm of technological change

• competitive actions

Management now have to decide if a corrective action is executable. There is a big reliance on some factors for deciding to select or reject a particular corrective action, those factors are:

• reliance on judgement

• discussion with other members of the company

• reliance on general past experiences

Then there has to be determined when and how these actions are implemented.

J. Evaluation and strategies for elimination of the identified unsuccessful and weak products/services

(3) Evaluation and decision-making

The attention of management shifts from focus on the product or service itself to the impact on the whole company when the product or service will be eliminated, when it realizes that there are no corrective actions executable for the product or service that is identified as weak (is it in best interest of company to eliminate of retain the product or service?).

There exist no differences of the process of evaluation between products and services.

The evaluation process can be skipped when retention is the chosen alternative, due to the low importance of the candidate for elimination.

There are several factors for evaluating if a product should be retained of eliminated, those are for instance (see table 10.1 page 202):

• product profitability

• market position

• competitive action

• past costs

• future costs

• price trend

• market share

• unit sales

Six dimensions underlying the weak product evaluation process:

• Implications for company resources (financial, physical and human)

• Market reaction (company image and reaction competitors and consumers)

• Financial implications (financial implications of a product’s elimination)

• New product potential (new replacement product)

• Managerial (alternative opportunities) considerations

• Product range considerations

(4) Implementation of the elimination decision

Once the decision to eliminate a product has been taken, plans must be drawn for its inurement. Two categories for implementation of elimination:

1. The alternative strategies: ‘drop immediately’, ‘milk’ (phase out slowly) and ‘selling out’ to another manufacturer. Six factor influence these plans:

• stocks on hand

• status of replacement parts

• holdover demand

• effect on customer/distributors

• salvage value of special machinery and equipment

• time needed to shift over to a new product

2. Strategies that allow the management to first make a profit out of a declining product and then lessen the impact when the product is finally dropped (ch3).

The drop immediately approach used in consumer goods isn’t suitable for industrial good, there the phase out immediately (milk) is more applicable. This strategy implies that specific changes in the product’s marketing strategy are imposed (for example, reduction in marketing promotion, product formulation change, price changes, etc.). This allows the companies to buy extra time until first the replaced product can utilize the same facilities as the eliminated product.

Phase out slowly strategies give the opportunity to select a planned phase-out, which can be related with the phase-in of a new product, the following alternative strategies can be used:

• Butt-on: product is immediately replaced by a new product

• Low season switch: switch when demand is low and customer’s attention is elsewhere

• High season launch: switch when demand is high

• Roll-in/roll-out: drop out and launching new product in different market segments

• Downgrading: old product not replaced but retained and serves another market segment

• Splitting: roll-in/roll-out with specialized variations

• Sharing: one products changes radically, but parallel products retain major components

• Sell off: selling production licenses to companies in other countries

• Specials/end of line kickers: stimulate demand in products being out

• Teasing/leaking: teaser campaigns or leaking news to media about changes to a product

• Fudging: reduce discontinuity by overlapping new and old product

Besides phase out immediately and phase out slowly there are some other approaches:

• Sell out (to other manufacturers)

• Drop the product from the standard range and reintroduce it as a ‘special’

The phase out immediately approach is mostly used with services (see table 10.4 page 215).

K. Products and services developed, managed and eliminated

Administrative mechanisms and roles are necessary to control and integrate work activities and work flows, those mechanisms and roles are part of the organizational structure. The organizational structure includes different factors, those are:

• degree of autonomy

• type of coordination

• degree of exclusive orientation towards the new product/service project

There exists different amounts of autonomy for different functional areas. For organizing NPD process, there are two categories of structures, those are:

• Free-standing or autonomous units:

• independently working units

• no involvement of top management

• full-time concern is innovation

• primary goal is innovation

• NPD activities separated by those activities that refer to existing products and services

This approach can take the following forms:

• new product department

• task force

• venture team (or unit)

• Functionally based units:

Part of existing functions (for example marketing or finance), there are three forms:

• new product committee

• integrative new product organization

• product management system

To coordinate activities, including the NPD process, organizations use sets of structural mechanisms. Seven sets are defined:

1. Bureaucratic control/hierarchical directives

2. Individual liaisons

3. Temporary task force

4. Integrating managers

5. Matrix structures (functional, functional matrix, balanced matrix, project matrix and project team)

6. Design teams

7. Design centres

NPD processes formality characteristics:

• Specialization

• Formalization

• Standardization

• Centralization

• Stratification (status differentials are adhered to in the execution of tasks)

The functions marketing, sales, EDP/systems and operations are involved in the five stages of the NPD process. Those involvements differ between ‘me too’ services and new-to-the-market services (see table 11.1 page 237).

The five stages of the NPD process were:

1. Idea generation and screening

2. Business analysis and marketing strategy

3. Technical development

4. Testing

5. Launching

Four defined structures:

• Functionally-focused structure: every function has an own department or division and each of those departments have their own manager, which is accountable to the general manager (figure 11.1 page 238)

• Market-focused structure: here a marketing director assigns marketing activities to each separate market segment (figure 11.2 page 239)

• Product-focused structure: here marketing activities are undertaken by product managers (see figure 11.3 page 239)

The duties of a product manager can be separated into (see table 11.2 page 240):

• Day-to-day duties

• Short-term duties

• Long-term duties