MBA semester 1

1. PRINCIPLES OF MARKETING
Product Planning and Development

2. What is a Product?

3. The Meaning of Product
Narrow Sense - a product is a set of physical attributes
e.g., steel, chair, football, computer, etc.
According to this definition, a Nokia and a Sony Ericsson
mobile phone are the same products.
Broader Sense - a product is a set of tangible and
intangible attributes, which may include
packaging, color, price, quality, brand,
seller’s services/reputation etc.
According to this definition, each brand is considered a
different product. A minor change in a feature provides the
seller with an opportunity to use a new set of appeals to
reach a new segment.

4. The Meaning of Product
Seller’s
Service
Design
Physical
Characteristics
Brand Product
Warranty
Color
Price
Packaging

5. The Meaning of Product
There are two main types of product;
1. Goods (Tangible)
2. Services (Intangible)

6. Classification of Consumer Products

7. Classification of Consumer Products
The following classification is not based on the natural
differences among products. Rather, it is based on how
consumers go about buying a particular product.
1. Convenience Goods
2. Shopping Goods
3. Specialty Goods
4. Unsought Goods

8. Classification of Consumer Products
1. Convenience Goods –Convenience goods are items that
buyers want to buy with the least amount of effort, that is, as
conveniently as possible.
In this category, consumers usually;
 Prefer easy access
 Do not gather additional information
 Don’t make excessive price comparisons
Such goods are;
 Low in price
 Non-durable
 Not affected by change in fashion
 Purchased frequently in small quantity
 Widely available and involves wholesalers
 Advertised only by manufacturer of the goods

9. Classification of Consumer Products
These goods can be further divided into two subcategories:
Staples goods are basic items that buyers plan to buy before
they enter a store for example milk, bread, and toilet paper.
Impulse Items are other convenience goods that are purchased
without prior planning, such as chocolates, soft drinks, snacks
etc.

10. Classification of Consumer Products
2. Shopping Goods – Shopping goods are purchased only after the
buyer compares the products of more than one store or looks at more
than one assortment of goods before making a deliberate buying
decision. Price, quality, style, and color are typically important factors
in the buying decision. For example, fashionable apparels, television,
computers, furniture, major appliances, and automobiles. Shopping
goods has the following characteristics;
 Have higher value than convenience goods
 Bought infrequently and are durable
 Require fewer retail outlets
 Retail stores are located close to each other.
 Different brands are often placed in a single store to facilitate
comparison.
 Retail stores enjoy a greater bargaining power.
 Retailers usually buy directly from manufacturers
 Image of retailer’s store has a significant impact on that of the
manufacturer’s product.
 Advertising cost is often shared by producer and retailer

11. Classification of Consumer Products
3. Specialty Good – Specialty goods are items that are unique
or unusual—at least in the mind of the buyer. Buyers know
exactly what they want and are willing to exert considerable
effort to obtain it. These goods are usually, but not necessarily,
of high value, and they may or may not be durable goods. They
differ from shopping goods primarily because price is not the
chief consideration. Often the attributes that make them unique
are brand preference (e.g., a certain make of automobile) or
personal preference (e.g., a food dish prepared in a specific
way). Items that fall into this category are wedding dresses,
antiques, fine jewelry, and golf clubs.
Specialty goods have the following main characteristics;
Consumer has a strong brand preference
Distributed via exclusive retail stores in a location
Manufactures deals directly with retailers
Usually retailers make extensive efforts to advertise the brand.

12. Classification of Consumer Products
Producers and distributors of specialty goods prefer to place their
goods only in selected retail outlets. These outlets are chosen on the
basis of their willingness and ability to provide a high level of
advertising and personal selling for the product. Consistency of image
between the product and the store is also a factor in selecting outlets.

13. Classification of Consumer Products
4. Unsought Goods - An unsought good is one that a
consumer does not know about (a new invention) or knows
about but does not normally think of buying. New products,
such as new frozen-food concepts or new smartphones,
are unsought until consumers learn about them through
word-of-mouth influence or advertising. In addition, the
need for unsought goods may not seem urgent to the
consumer, and purchase is often deferred. This is
frequently the case with life insurance. Because of this,
unsought goods require significant selling efforts on behalf
of the manufacturer.

14. Levels/Layers of Product

15. Levels/Layers of Product

16. Levels/Layers of Product
 The core benefit level is the fundamental
need or want that consumers satisfy by
consuming the product or service.
 Example:
Product Core Benefit
Cell Phone Communication

17. Levels/Layers of Product
 The generic product level is a basic version of
the product containing only those attributes or
characteristics absolutely necessary for its
functioning but with no distinguishing features.
This is basically a stripped-down, no-frills
version of the product that adequately performs
the product function.
Product Generic Level
Cell Phone A basic wireless phone

18. Levels/Layers of Product
 The expected product level is a set of
attributes or characteristics that buyers
normally expect and agree to when they
purchase a product.
Product Expected Level
Cell Phone Apps, camera, alarm clock,
etc.

19. Levels/Layers of Product
 The augmented product level includes
additional product attributes, benefits, or related
services that distinguish the product from
competitors.
Product Augmented Level
Cell Phone Voce recognition, GPRS,
High Performance
processor, High-resolution
camera, ultra light weight
etc.

20. Levels/Layers of Product
 The potential product level includes all
the augmentations and transformations
that a product might ultimately undergo in
the future.Product Potential Level
Cell Phone 3D screen, ultra-flexible
body, holographic display
etc.

21. Development of New Product

22. What is a New Product??
Whether a product is new or not
ultimately depends upon the market
perception.

23. Stages in the Product Development

24. Stages in the Product Development
Guided by a company’s new product strategy, a new
product is best developed through a series of six stages as
shown in the following figure.

25. Stages in the Product Development
1. Idea Generation
Idea generation is a continuous, systematic search for new product
opportunities. Main and most common source of idea generation is
brainstorming (spontaneous gathering of ideas). Many companies
engage their distributors, wholesalers, retailers, and even customers to
bring up new ideas.
2. Screening Ideas
After the firm identifies potential products, it must screen them. In
product screening, poor, unsuitable, or otherwise unattractive ideas are
weeded out from further actions. Today, many companies use a new-
product screening checklist for preliminary evaluation. In it, firms list
the new-product attributes considered most important and compare
each idea with those attributes. The checklist is standardized and
allows ideas to be compared. For example…

26. Stages in the Product Development
GENERAL
CHARACTERISTICS
OF NEW PRODUCTS
MARKETING
CHARACTERISTICS
OF NEW PRODUCTS
PRODUCTION
CHARACTERISTICS
OF NEW PRODUCTS
• Profit potential
• Existing competition
• Potential competition
• Size of market
• Level of investment
• Patentability
• Level of risk
• Fit with marketing
capabilities
• Effect on existing
products (brands)
• Appeal to current
consumer markets
• Potential length of
product life cycle
• Existence of
differential advantage
• Impact on image
• Resistance to
seasonal factors
• Fit with production
capabilities
• Length of time to
commercialization
• Ease of product
manufacture
• Availability of labor
and material
resources
• Ability to produce at
competitive prices
Example: New Product Screening Checklist

27. Stages in the Product Development
3. Business Analysis A surviving idea is expanded into a complete
business proposal. Following are some of the factors considered in this
stage of planning:
Demand projections: Price/sales relationship; short- and long-run sales
potential: speed of sales growth: rate of repurchases.
Cost projections: Total and per unit costs; use of existing facilities and
resources; startup vs. continuing costs: estimates of future raw materials and
other costs; economies of scale; channel needs; break-even point
Competition: Short-run and long-run market shares of company and
competitors; strengths and weaknesses of competitors; potential
competitors; likely competitive strategies in response to new product by firm
Required investment: Product planning (engineering, patent, product
development, testing): promotion: production; distribution
Profitability: Time to recover initial cost; short- and long-run total and per-
unit profits; control over price; return on investment (ROI); risk

28. Stages in the Product Development
4. Prototype Development
If the results of the business analysis are favorable, then a prototype or a trial
model of a product is developed. A small quantity of the trial model is
manufactured and is tested in lab to judge whether the proposed product will
survive normal (even abnormal) usage. Technical evaluations are carried out
to determine whether it is practical to produce the product.
5. Market Test
Test marketing involves placing a product for sale in one or more selected
areas and observing its actual performance under the proposed marketing
plan. The purpose is to evaluate the product and pretest marketing efforts in
a real setting prior to a full-scale introduction. Rather than inquire about
intentions, test marketing allows actual consumer behavior to be observed.
The firm can also learn about competitive reactions and the response of
channel members. On the basis of testing, the firm can go ahead with its
plans on a larger scale, modify the product or modify the marketing plan and
then expand its effort, or drop the product.

29. Stages in the Product Development
6. Commercialization
After testing is completed, the firm is ready to introduce the product to
its full target market. This is called commercialization and it
corresponds to the introductory stage of the product life cycle.
Commercialization involves implementing a total marketing plan and
full production. Up to this point in development, management has
virtually complete control over the product. However, once the product
is born and made available for purchase, the external competitive
environment becomes a major determinant of its destiny.

30. New Product Adoption & Diffusion

31. New Product Adoption

32. New Product Adoption
Adoption Process:
 The adoption process is a set of successive decisions an individual
person or organization makes before accepting an innovation.
Stages in the adoption process:
Awareness People come to know about a product and may turn into
prospects but lack sufficient information about it
Interest Prospects are interested enough to seek information.
Evaluation Prospects judge pros and cons of a product and compare it
with alternatives.
Trial Prospects make the first purchase or try a sample to
determine its worth or usefulness.
Adoption Prospects decide whether to use the product on a full-scale
basis. Prospect are turned into regular consumers.
Confirmation After adopting the product, the consumer seeks assurance
that the decision to purchase the product is correct.

33. New Product Diffusion

34. New Product Diffusion
 The diffusion of innovation (new products) refers to the tendency of new
products, practices, or ideas to spread among people. Usually, when new
products or ideas come about, they are only adopted by a small group of
people initially; later, many innovations/new product spread to other people.

35. New Product Diffusion
 Innovators (2.5%)- are first to buy and typically described as
venturesome, younger, well educated, financially stable, and willing
to take risks. More likely to respond to non-personal source of
information.
 Early Adopters (13.5%)– are people who are integrated more into
the local community and are respected by people around them.
Most of them are opinion leaders (other people are interested in
and are influenced by their opinions) who’s product decision can
influence others to follow their steps. In the process of diffusion, a
change agent (an formal marketer) is a person who seeks to
accelerate the spread of a given innovation. These change agents
usually focus their early promotional efforts on these opinion
leaders and try to benefit from the positive word of mouth (wom) to
attract others in the market.

36. New Product Diffusion
 EARLY MAJORITY (34%) – are more deliberate consumers who adopt
innovation after early adopters. This group is a bit above average in the
social and economic measure and rely on ads, sales people and
contact with early adopters for information search.
 LATE MAJORITY (34%) - described as older, more conservative,
traditional, and skeptical of new products who will adopt a new product
to either save money or to submit to the peer pressure. They rely on
early and late majority as source of information. Advertising and
personal selling is less effective than word of mouth communication
 Laggards (16%) – are highly traditional in nature and are last to adopt
an innovation. They are mostly suspicious of innovators and question
the benefits provided against the extra money demanded. Laggard are
usually older and are at the lower end of the social and economic
scales.

37. New Product Diffusion
 For many innovations/new products there are many people who
do not adopt the product and thus are not included in the
percentages. They are called non-adopters and are excluded in
any of the preceding categories.

38. Characteristics Affecting
Adoption Rate

39. Characteristics Affecting Adoption Rate
a. Relative Advantage: How improved an innovation is over the previous
generation of products.
b. Compatibility:. The degree to which an innovation coincides with the
values and lifestyles of prospective adopters.
c. Complexity: If the innovation is too difficult to use people will not likely
adopt it and adoption will be hindered.
d. Trialability: How easily an innovation may be sampled. The better the
trialability, the faster the adoption rate.
e. Observability: The extent that an innovation is visible to others. An
innovation that is more visible will drive communication among the
individual’s peers and personal networks and will in turn create more
positive or negative reactions.