In the Product Decisions Tutorial, we showed that marketers are confronted with many issues when building the product component of their marketing strategy. While product decisions represent just one aspect of marketer’s overall activities, these decisions are often the most important because they lead directly to the reasons (i.e., benefits offered, solutions to problems) why the customer decides to choose the organization’s goods, services, or ideas. Consequently, it is often the marketing decision that consumes the most time for marketers and for their organization.
In this part of our Principles of Marketing Tutorials, we extend the coverage of product decisions by exploring additional product issues facing the marketer. In particular, we examine four important areas. First, we categorize the roles played by those involved in product management and show how the scope of a manager’s responsibilities changes as these roles take on greater importance. Second, we return to a discussion of branding by focusing on overall branding strategies that may be adopted by the marketing organization. Third, we spend a large part of this tutorial covering the importance of new product development including an analysis of the steps organizations may follow to bring new products to market. Finally, we will see that once new products have been established in the market numerous factors force the marketer to continually adjust their product decisions.
Product Management Responsibilities
While this tutorial touches on basic concepts and strategies applicable to a large percentage of marketing situations, the reader should understand that no two marketing situations are the same. Yet while some concepts and strategies important to one marketer may not hold the same weight with another, in general, the basic principles of marketing (e.g., satisfying target markets, support decisions using research, etc.) hold no matter the type of industry, type of organization, or type of product being sold.
What is often different between two marketing situations is the level of complication and challenge that arises as a marketer’s scope of responsibility increases. For our purposes, a marketer’s level of responsibility is measured in terms of:
- the number and variety of tasks that must be performed (i.e., what has to be done)
- the value these tasks represent to the organization (i.e., how important marketing is perceived within the company)
- the overall financial stake the marketing position holds (i.e., total sales volume and profit generation).
As responsibilities change so to do the marketer’s tasks. For instance, with regard to product decisions, a marketer’s responsibilities will often increase as her/his day-to-day job shifts from being involved in issues related to a single product (e.g., finding a graphics design company to create a new label) to decisions concerning many products that may include setting the future marketing direction of the organization (e.g., developing marketing plans for numerous products). We can see this in greater detail by examining the responsibilities associated with four different marketing management levels.
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Levels of Product Management
Product management can be separated into four different levels with the responsibilities increasing with each level.
Product Item Level
At this level, responsibilities are associated with marketing a single product or brand. By “single” we are limiting the marketer’s responsibility to one item. For instance, a startup software development company may initially market just one product. In some organizations, the person in charge has the title Product Manager, though in smaller companies this person may simply be the Marketing Manager.
Brand Product Line Level
At this level responsibilities are associated with managing two or more similar product items. By “similar” we are referring to products carrying the same brand name that fit within the same product category and offer similar solutions to customers’ needs. Procter & Gamble, one of the largest consumer products companies in the world, markets Tide laundry detergent in many different packaging sizes (e.g., 50oz., 100oz., 150oz.), in different forms (e.g., regular powder, concentrated powder packs, high efficiency liquid), and with different added features (e.g., softener, bleach, freshener) resulting in a product line consisting of over 70 different versions of the product. Differences in the product offerings indicate these are targeted to different segments within the larger market (e.g., those preferring liquid vs. those preferring powder packs), however, it may also represent a choice for the same target market who may seek variety. A product line is often measured by its depth, relative to competitors, with deep product lines offering extensive product items. Brand product lines are often managed by a Brand or Product Line Manager.
Category Product Line Level
At this level, responsibilities are associated with managing two or more brand product lines within the same product category. In this situation, the marketer may manage products that offer similar basic benefits (e.g., detergent to clean clothes) but target their offerings to slightly different needs (e.g., products for tough to clean clothing vs. products to clean delicate clothing). Multiple brand product lines allow the marketer to cover the needs of more segments and, consequently, increases its chance of generating sales. Often in larger companies, category product lines are the responsibility of the Product Category or Divisional Marketing Manager, who may have Brand Product Managers reporting to her/him.
Product Mix Level
At this level, responsibilities include two or more category product lines that are directed to different product categories. In some cases, the category product lines may yield similar general solutions (e.g., cleaning) but are aimed at entirely different target markets (e.g., cleaning dishes vs. cleaning automobiles). In large companies, the product lines are very diverse and offer different solutions. For example, BIC sells writing instruments, shaving products, and gas lighters. This diversification strategy cushions against an “all-eggs-in-one-basket” risk that may come if a company directs all resources to a single product category. A product mix can be classified based on its width (how many different category product lines) and its depth (how many different brand product lines within a category product line). Generally responsibility for this level belongs to a company’s Vice President for Marketing.
As we discussed in the Product Decisions Tutorial, branding is an important decision designed to enhance the identity of the product through the use of unique brand names, symbols and other distinctive measures. With competition growing more intense in almost all industries, establishing a strong brand allows an organization’s products to stand out and avoid potential pitfalls, such as price wars, that have befallen many products. Therefore, a clear understanding of branding strategy is essential in order to build solid product strategy. In particular, marketers should be aware of various branding approaches that can be pursued and deployed to establish a product within the market.
By branding approach, we are referring to different product identification strategies that can be deployed to establish a product within the market. As we will see, the purpose of these approaches is to build a brand that will exist for the long term. Making smart branding decisions in the early stages of a new product is crucial since a company may have to live with the decision for a long time.
Approaches to Branding
Branding approaches include the following:
Individual Product Branding
Under this branding approach, new products are assigned new names with no obvious connection to a company’s existing brands. Under individual product branding, the marketing organization must work hard to establish the brand in the market since it cannot ride the coattails of previously introduced brands. The chief advantage of this approach is it allows brands to stand on their own thus lessening threats that may occur to other brands marketed by the company. For instance, if a company receives negative publicity for one brand this news is less likely to influence the company’s other brands since these carry their own unique names. Additionally, as mentioned in the Product Decisions Tutorial, brands can create financial gains through the concept known as brand equity. Under an individual branding approach, each brand builds its own separate equity which allows the company, to potentially sell off individual brands without impacting other brands owned by the company. The most famous marketing organization to follow this strategy is Procter & Gamble, which has historically introduced new brands without any link to other brands or even to the company name.
Under this branding approach, new products are placed under the umbrella of an existing brand. The principle advantage of this approach is that it enables the organization to rapidly build market awareness and acceptance of a new product, since the brand is already established and known to the market. But the potential disadvantage is that the market has already established certain perceptions of the brand. For instance, a company that sells low-end, lower priced products may have a brand that is viewed as an economy brand. This brand image may create customer confusion and hinder the company if they attempt to introduce higher-end, higher priced products using the same brand name. Additionally, with family branding any negative publicity that may occur for one product within a brand could spread to all other products that share the same name.
This approach takes the idea of individual and family branding a step further. With co-branding a marketer seeks to partner with another firm, which has an established brand, in hopes synergy of two brands on a product is even more powerful than a single brand. The partnership often has both firms sharing costs but also sharing the gains. For instance, major credit card companies, such as Visa and MasterCard, offer co-branding options to companies and organizations. The cards carry the name of a co-branded organization (e.g., university name) along with the name of the issuing bank (e.g., Citibank) and the name of the credit card company. Besides tapping into awareness for multiple brands, the co-branding strategy is also designed to appeal to a larger target market, especially if each brand, when viewed separately, does not have extensive overlapping target markets with the other brand. Thus, co-branding allows all partners to tap into market segments where they did not previously have a strong position.
Private or Store Branding
Some suppliers are in the business of producing products for other companies, including placing another company’s brand name on the product. This is most often seen in the retail industry where stores or online sellers contract with suppliers to manufacture the retailer’s own branded products. In some cases the supplier not only produces product for the retailer’s brand but also markets their own brand so that store shelves will contain both brands.
No-Name or Generic Branding
Certain suppliers supply products that are intentionally “brandless.” These products are mostly basic commodity-type products that consumer or business customers purchase as low-price alternatives to branded products. Basic household products such as paper products, over-the-counter medicines (e.g., ibuprofen) and even dog food, are available in a generic form.
Under brand licensing, a contractual arrangement is created in which a company owning a brand name allows others to produce and supply products carrying the brand name. This is often seen when a brand is not directly connected with a product category. For instance, several famous children’s characters, such as Sesame Street’s Elmo, have been licensed to toy and food manufacturers, who market products using the branded character’s name and image.
Developing New Products
By its nature, marketing requires new ideas. Unlike some organizational functions, where basic processes follow a fairly consistent routine (e.g., accounting), successful marketers are constantly making adjustments to their marketing efforts. New ideas are essential for responding to changing demand by the target market and by pressure exerted by competitors. These changes are manifested in decisions in all marketing areas including the development of new products.
In addition to being responsive to changing customer tastes and competitive forces, there are many other reasons why new product development is vital. These include:
Over time customers’ needs may evolve. What attracted customer interest in the past is not guaranteed to do the same in the future. This is especially the case for products targeted to narrow age groups, where not only are customers’ needs changing but customers themselves change (e.g., from young child to early teen). The constant influx of new customers, along with continually losing existing customers, requires frequent evaluation of programming to ensure the network is meeting the needs of an ever-changing target market.
Attract Different Customers
Almost all companies face a point at which appealing to the current target market is not enough to grow the business. Instead, the company must attract different customers, who are not yet major purchasers of the company’s products. To appeal to new customers often requires a different set of products than what the organization presently offers.
Profits in Newer Products
Many new products earn higher profits than older products. This is often the case for products considered innovative or unique which, for a period of time, may enjoy success and initially face little or no competition.
Helps With Repositioning
New products can help reposition the company in customer’s minds. For instance, a company that traditionally sold low-priced products with few features may shift customers’ perceptions about the company by introducing products with more features and slightly higher pricing.
Keep Ahead of Competition
Fierce global competition and technological developments make it much easier for competitors to learn about products and replicate them. To stay ahead of competitors marketers must innovate and often create and introduce new products on a consistent schedule.
Fill Out Product Line
Companies with limited depth in a product line may miss out on more sales unless they can add new products to fill out the line. For example, companies may have a strong high-end, high priced product but lack a good quality, mid-price offering
Expand Product Mix
Some firms market seasonal products that garner their highest sales during a certain time of the year or sell cyclical products whose sales fluctuate depending on economic or market factors (e.g., slow sales during economic downturn). Expanding the firm’s product mix into new areas may help offset these fluctuations. For manufacturing firms, an additional benefit is realized as new products utilize existing production capacity that is under-used when seasonal or cyclical products are not being produced.
Categories of New Products
New products can fall into one of several categories. These categories are defined by the type of market the product is entering (i.e., newly created, existing but not previously targeted, existing and targeted ) and the level of product innovation (i.e., radically new, new, upgrade).
Creates New Market with Radically New Product or Product Line
This category is represented by new breakthrough products that are so revolutionary they create an entirely new market. A relatively recent example can be seen with evolution of ridesharing services, such as Uber and Lyft. Highly innovative products are rare so very few new products fall into this category
Enters Existing But Not Previously Targeted Market with New-Product or Product Line
In this category, a marketer introduces a new product item or product line to an existing market which they did not previously target. Often these products are similar to competitors’ products already available in the market but with some level of difference (e.g., different features, lower price, etc.). Apple’s introduction of the HomePod into the existing voice-controlled smart speaker market is an example.
Stays in Existing and Previously Targeted Market by Enhancing Existing Product or Product Line
Under this development category the marketer attempts to improve its current position in the market by either improving or upgrading existing products or by extending a product line by adding new products. This type of new product is seen in our earlier example of Procter & Gamble’s Tide product line, which contains many product variations of the basic Tide product.
How New Products Are Obtained
Marketers have several options for obtaining new products. First, products can be developed within an organization’s own research operations. For some companies, such as service firms, this may simply mean the marketer designs new service options to sell to target markets. For instance, a marketer for a mortgage company may design new mortgage packages that offer borrowers different rates or payment options. At the other extreme companies may support an extensive research and development effort where engineers, scientists or others are engaged in new product discovery.
A second way to obtain products is to acquire them from external sources. This can occur in several ways including:
Purchase the Product
With this option, a marketer purchases the product outright from another firm that currently owns the product. The advantage is the product is already developed, which reduces the purchasing company’s time and cost of trying to develop it themselves. The disadvantage is the purchase cost may be high and, under some conditions, the purchase may not include valuable assets (e.g., equipment, facilities, people) associated with the product.
License the Product
Under this option, the marketer negotiates with the owner of the product for the rights to market the product. This may be a particularly attractive option for companies who have to fill a product need quickly (e.g., give a product line more depth) or it may be used as a temporary source of products while the marketer’s company is developing its own product. On the negative side, the arrangement may have a limited time frame at which point the licensor may decide to end the relationship leaving the marketer without a source for the product.
Purchase Another Firm
Instead of purchasing another company’s products marketers may find it easier to just purchase the whole company selling the products. One key advantage to this is that the acquisition often includes the people and resources that developed the product which may be a key consideration if the acquiring company wants to continue to develop and market their own products.
New Product Development Process
Because introducing new products on a consistent basis is necessary to the future success of many organizations, marketers in charge of product decisions often follow set procedures for bringing products to market. In the scientific area, this may mean the establishment of ongoing laboratory research programs for discovering new products (e.g., medicines), while less scientific companies may pull together resources for product development on a less structured timetable.
In this section, we present a 7-step process comprising the key elements of new product development. While some companies may not follow a deliberate step-by-step approach, the steps are useful in showing the information input and decision making that must be done in order to successfully develop new products. The process also shows the importance marketing research plays in developing products.
We should note that while the 7-step process works for most industries, it is less effective in developing radically new products. The main reason lies in the inability of the target market to provide sufficient feedback on advanced product concepts since they often find it difficult to understand radically different ideas. So while many of these steps are used to research breakthrough ideas, the marketer should exercise caution when interpreting the results.
Additionally, the new product development process may also be challenging in less-developed markets. This is due to difficulties marketers may face in obtaining significant marketing research information in less-developed markets (e.g., underdeveloped countries) compared to what can be obtained in more-developed markets. Often this is due to the lack of a reliable communication infrastructure. Though it may not be possible to gain the same level of market analysis in less developed markets, some level of marketing research should still be considered as even a small amount of research may prove to be useful.
Step 1: Idea Generation
The first step of new product development requires gathering ideas to be evaluated as potential product options. For many marketers, idea generation is an ongoing process with contributions from inside and outside the organization. Many marketing research techniques are used to encourage ideas including: running focus groups with consumers, channel members, and the company’s sales force; encouraging customer comments and suggestions via toll-free telephone numbers, social media postings and website comments forms; and gaining insight on competitive product developments through secondary data sources. One important research technique used to generate ideas is brainstorming where open-minded, creative thinkers from inside and outside the organization gather and share ideas. The dynamic nature of group members floating ideas, where one idea often sparks another idea, can yield a wide range of possible products that can be further pursued.
Step 2: Screening
In Step 2, the ideas generated in Step 1 are critically evaluated to isolate the most attractive options. Depending on the number of ideas, screening may be done in rounds with the first round involving company executives judging the feasibility of ideas while successive rounds may utilize more advanced research techniques. As the ideas are whittled down to a few attractive options, rough estimates are made of an idea’s potential in terms of sales, production costs, profit potential, and competitors’ response if the product is introduced. Acceptable ideas move on to the next step.
Step 3: Concept Development and Testing
With a few ideas in hand the marketer now attempts to obtain initial feedback from customers, distributors, and its own employees. Generally, focus groups are convened where the ideas are presented to a group, often in the form of concept board presentations (i.e., storyboards) and not in actual working form. For instance, customers may be shown a concept board displaying drawings of a product idea or even an advertisement featuring the product. In some cases, focus groups are exposed to a mock-up of the ideas, which is a physical but generally non-functional version of product idea. During focus groups with customers, the marketer seeks information that may include: likes and dislike of the concept; level of interest in purchasing the product; frequency of purchase (used to help forecast demand); and price points to determine how much customers are willing to spend to acquire the product.
Step 4: Business Analysis
At this point in the new product development process, the marketer has reduced a potentially large number of ideas down to one or two options. Now in Step 4, the process becomes very dependent on marketing research as efforts are made to analyze the viability of the product ideas. (Note, in many cases the product has not been produced and still remains only an idea.) The key objective at this stage is to obtain useful forecasts of market size (e.g., overall demand), operational costs (e.g., production costs), and financial projections (e.g., sales and profits). Additionally, the organization must determine if the product will fit within the organization’s overall mission and strategy. Much effort is directed at both internal research, such as discussions with production and purchasing personnel, and external marketing research, such as customer and distributor surveys, secondary research, and competitor analysis.
Step 5: Product and Marketing Mix Development
Ideas passing through business analysis are given serious consideration for development. Companies direct their research and development teams to construct an initial design or prototype of the idea. Marketers also begin to construct a Marketing Plan for the product. Once the prototype is ready the marketer seeks customer input. However, unlike the concept testing stage, where customers were only exposed to the idea, in this step the customer gets to experience the real product as well as other aspects of the marketing mix, such as advertising, pricing, and distribution options (e.g., retail store, direct from company, etc.). Favorable customer reaction helps solidify the marketer’s decision to introduce the product and also provides other valuable information, such as estimated purchase rates and understanding how the customer will use the product. Reaction that is less favorable may suggest the need for adjustments to elements of the marketing mix. Once these are made the marketer may again have the customer test the product. In addition to gaining customer feedback, this step is used to gauge the feasibility of large-scale, cost effective production for manufactured products.
Step 6: Market Testing
Products surviving to Step 6 are ready to be tested as real products. While, in some cases, the marketer accepts what was learned from concept testing (Step 3) and skips over market testing to launch the idea as a fully marketed product, many companies will seek more input from a larger group before moving to commercialization (Step 7). The most common type of market testing, used especially for consumer products sold at retail outlets, uses methods that make the product available to a selective, small segment of the target market (e.g., one city). This market is then exposed to a full marketing effort, just as they would be with most other products they could purchase. In conventional test markets, the marketer must work hard to get the product into the market by convincing distributors to purchase and place the product on their store shelves or website. In more controlled test markets distributors may be paid a fee for agreeing to make the product available for customers to purchase.
Another form of market testing for consumer products, which is even more controlled, uses methods to recruit customers to a “laboratory” store where they are given shopping instructions. Product interest is then measured based on customers’ shopping responses. Finally, there are several high-tech approaches to market testing including virtual reality and computer simulations. With virtual reality testing customers are exposed to a computer-projected environment and asked to locate and select products. With computer simulation testing customers may not be directly involved at all. Instead, certain variables are entered into a sophisticated computer program and estimates of a target market’s response are calculated.
Step 7: Commercialization
If market testing displays promising results the product is ready to be introduced to a wider market. Some firms introduce or roll-out the product in waves with parts of the market receiving the product on different schedules. This allows the company to ramp up production in a more controlled way and to fine tune the marketing mix as the product is distributed to new areas.
Managing Existing Products
Marketing strategies developed for initial product introduction almost certainly need to be revised as the product settles into the market. While commercialization may be the last step in the new product development process, it is just the beginning of managing the product. Adjusting the product’s marketing strategy is required for many reasons including:
- Changing customer tastes
- Domestic and foreign competitors
- Economic conditions
- Technological advances
To stay on top of all possible threats, the marketer must monitor all aspects of the marketing mix and make changes as needed. Such efforts require the marketer to develop and refine the product’s marketing plan on a regular basis. In fact, as we will discuss in The PLC and Marketing Planning Tutorial, marketing strategies change as a product moves through time leading to the concept called the Product Life Cycle (PLC). We will see that marketers make numerous revisions to their strategy as product move through different stage of the PLC.