MARKETING AND SALES MANAGEMENT
CHECK POINT 87: PRODUCT STRATEGIES
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MARKETING AND SALES MANAGEMENT
CHECK POINT 87: PRODUCT STRATEGIES
Please Select Any Topic In Check Point 87 Below And Click. |
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DO I NEED TO KNOW THIS CHECK POINT?
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WELCOME TO CHECK POINT 87 |
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HOW CAN YOU BENEFIT FROM CHECK POINT 87? |
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The main purpose of this check point is to provide you and your management team with detailed information about Product Strategies and how to apply this information to maximize your company's performance. |
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In this check point you will learn: |
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• About product classification by the American Marketing Association.
• About main factors related to product creation and development.
• About the basic steps in the new product development process.
• How to generate new ideas for product development?
• About screening of new ideas and questions related to product development.
• How to complete a business analysis related to new product development.
• How to determine a payback period related to new product development.
• About main objectives in the new product market testing process.
• About commercialization of products in the marketplace.
• About four stages of a product life cycle. and much more. |
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LEAN MANAGEMENT GUIDELINES FOR CHECK POINT 87 |
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You and your management team should become familiar with the basic Lean Management principles, guidelines, and tools provided in this program and apply them appropriately to the content of this check point. |
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You and your team should adhere to basic lean management guidelines on a continuous basis: |
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Treat your customers as the most important part of your business. |
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Provide your customers with the best possible value of products and services. |
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Meet your customers' requirements with a positive energy on a timely basis. |
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Provide your customers with consistent and reliable after-sales service. |
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Treat your customers, employees, suppliers, and business associates with genuine respect. |
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Identify your company's operational weaknesses, non-value-added activities, and waste. |
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Implement the process of continuous improvements on organization-wide basis. |
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Eliminate or minimize your company's non-value-added activities and waste. |
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Streamline your company's operational processes and maximize overall flow efficiency. |
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Reduce your company's operational costs in all areas of business activities. |
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Maximize the quality at the source of all operational processes and activities. |
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Ensure regular evaluation of your employees' performance and required level of knowledge.
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Implement fair compensation of your employees based on their overall performance.
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Motivate your partners and employees to adhere to high ethical standards of behavior. |
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Maximize safety for your customers, employees, suppliers, and business associates. |
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Provide opportunities for a continuous professional growth of partners and employees. |
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Pay attention to "how" positive results are achieved and constantly try to improve them. |
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Cultivate long-term relationships with your customers, suppliers, employees, and business associates. |
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1. WHAT IS A PRODUCT? |
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A PRODUCT |
Business owners and marketing managers must have good understanding about various product strategies to ensure effective implementation of the marketing plan within the organization.
The prime purpose of every business organization is to satisfy customers' needs by supplying products and services in the marketplace, and to make a profit at the same time.
A Product can be defined as anything capable of satisfying a consumer's wants or needs. A product can be expressed in a variety of forms outlined below. |
VARIOUS FORMS OF PRODUCTS |
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A physical object. |
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A service. |
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A place. |
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An organization. |
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An idea. |
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A personality. |
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According to the American Marketing Association, all products may be classified into two main categories outlined below. (24) |
PRODUCT CLASSIFICATION BY THE AMERICAN MARKETING ASSOCIATION |
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Consumer Goods |
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Industrial Goods |
These include all products used by the ultimate consumer or household in such forms that they can be used without further processing. |
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These include all products that are to be sold primarily for use in producing other goods or rendering services, as contrasted with goods destined to be sold primarily to the ultimate consumer. |
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NEED FOR DIFFERENT TYPES OF PRODUCTS |
The meaning of a concept "Product" is widely used in various aspects of business management. In production, for example, the term "product" describes the outcome of people's work in a specific manufacturing process.
It is generally accepted that every product is created, manufactured, and supplied in order to meet particular Customer Needs. Naturally, such needs vary at times and this subsequently creates the necessity for a wide range of products required in the open market. These products differ in design, quality, price, size, color, shape, life span, and other descriptive characteristics, but their main and common purpose is to perform effectively and to ensure the satisfaction of the users. |
ADDITIONAL INFORMATION ONLINE |
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2. MAIN FACTORS RELATED TO PRODUCT DEVELOPMENT |
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PRODUCT CREATION AND DEVELOPMENT |
The process of Product Creation And Development is usually accompanied by a number of factors outlined below. |
KEY FACTORS IN PRODUCT CREATION AND DEVELOPMENT |
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Customer Satisfaction.
This is the most important factor related to the product development, because without customers' satisfaction all other factors are completely irrelevant. |
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Profit.
This is probably the most essential factor motivating the shareholders and management to invest their capital, resources, and skills in order to initiate the process of creating various products. |
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Return On Investment.
Profit alone will not be sufficient in terms of evaluating the financial justification for the development of new products. An acceptable return on shareholders’ investment (ROI) will provide the ultimate financial criteria for developing new products. |
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Employment.
It is an important factor to provide the necessary work opportunities and fair income to employees during the process of creating various products. |
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Motivation.
This is a vital factor stimulating shareholders and employees to ensure momentum throughout the process of creating various products. |
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Economic Growth.
This is an essential outcome of the positive development of a company involved in the process of continuous creation of products. |
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3. STEPS IN THE NEW PRODUCT DEVELOPMENT PROCESS |
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A PRODUCT DEVELOPMENT PROCESS |
A successful Product Development Process can be maintained for a substantial period of time regardless of the type or size of a product providing that it satisfies a need of the users in the marketplace.
As a result of a Limited Product Life Span, it is necessary to ensure constant development of new products to provide continuity of the company's performance. New product development represents, therefore, an important function of marketing management.
The New Product Development Process consists of six steps which are summarized below. The main objective of each stage of new product development is to establish the overall viability of the product without incurring unnecessary expenditures. Each stage should be properly conducted to ensure a successful launch of the product into the market in accordance with the overall objectives of the organization. |
STEPS IN THE NEW PRODUCT DEVELOPMENT PROCESS |
Step 1: Generation Of New Ideas.
Step 2: Screening Of New Ideas.
Step 3: Business Analysis.
Step 4: Product Development.
Step 5: Market Testing.
Step 6: Commercialization Of A Product In The Marketplace. |
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4. GENERATION OF NEW IDEAS |
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STEP 1: GENERATION OF NEW IDEAS
The product development process starts with the Generation Of New Ideas. These ideas may come from a number of different sources illustrated below. |
SOURCES OF NEW PRODUCT IDEAS |
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Customers.
According to the marketing concepts, the customer plays a central role in generation of new ideas. This is particularly important because only satisfied customers create a continuous demand in the marketplace. |
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Sales People.
Probably one of the best sources for new ideas is sales people because they are constantly dealing with different customers. Sales people usually have firsthand experience through their contacts with buyers and may provide valuable information. |
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Competition.
Many new ideas come from competing organizations. It is useful, therefore, to study new product developments in the marketplace and to be prepared to follow a good example. Every new product launched by a competitor should be carefully examined from the company's profitability point of view. |
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Executive Management.
New ideas are frequently generated by senior management staff who are expected to have a better understanding of overall requirements in the marketplace. Since senior managers have an improved knowledge about the company's capabilities, their suggestions may be highly valuable. |
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Research And Development Department.
One of the prime objectives of this department is to generate new ideas and to develop new products on the company's behalf. Employees who are engaged in research and development usually have a solid technical background and are familiar with all the latest developments in the marketplace. |
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5. SCREENING OF NEW IDEAS |
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STEP 2: SCREENING OF NEW IDEAS
The second step of the product development process entails Screening Of New Ideas and evaluation of new product or service opportunities. Typical questions that should be answered at this stage relate to the company's operations, market potential, concept marketability, engineering, manufacturing, financial, and legal issues. Some of these questions are summarized below. (25) |
KEY QUESTIONS DURING THE SCREENING OF NEW IDEAS |
• Company's Current Operations Aspects:
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- How does the proposed product or service fit with the existing range of company's products or services?
- Does the proposed product or service represent a potential problem in terms of the existing operational set-up?
- Does the proposed product or service presents a potential difficulty in terms of providing an effective after-sales service?
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• Market Potential Aspects:
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- How large is the existing market for the proposed product or service?
- What are the geographic characteristics of the new market?
- What market share can be expected if the product or service will be launched?
How fast may the sales of the new product or service be developed?
How stable is the existing market for the proposed product or service?
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• Marketing Aspects:
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- Who are the existing competitors for the proposed new product or service?
- How does the competitors' products or services compare with the proposed product or service in terms of features, quality, and price?
- Do we have sufficient sales force to support the proposed product or service?
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• Manufacturing Or Operational Aspects:
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- How feasible is the production of the proposed product in a cost-effective manner?
- What additional plant and machinery will be required for the proposed product or service?
- Do we have sufficient production or operational capacity to accommodate the proposed product or service?
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• Financial Aspects:
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- What is the value of anticipated sales and profitability associated with the proposed product or service?
- How long will it take to recoup capital investments associated with the proposed product or service?
- What is the anticipated return on investment associated with the proposed product or service in one, two, and three years?
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• Legal Aspects:
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- Does the proposed product or service present a potential legal liability in the short-, medium-, and long-terms periods?
- Can the product be patented?
- Can the product name be trademarked?
Can the service name be service-marked?
Is there any potential legal conflict with any other existing product or service?
What are the legal restrictions imposed by the government on this product or service?
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6. BUSINESS ANALYSIS |
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STEP 3: BUSINESS ANALYSIS
The third step in the product development process, Business Analysis, is summarized by the financial and legal questions outlined above. One of the elements of the business analysis relates to the evaluation of Return On Investment (ROI).
The Average Rate Of Return On Investment for a new product may be calculated as follows:
Thus, for example, if an average annual net income produced from a particular product is $50,000, and the total investment cost is $250,000, then the average rate of return on investment can be determined as follows:
Average Rate Of Return = $50,000 x 100% = 20% On Investment $250,000
In order to determine an accurate ROI value, it Is necessary to consider the Average Life Period Of The New Product. This is particularly important since such a period will depend upon the specific characteristics of the product life cycle.
The 20% ROI in the abovementioned example indicates that under normal conditions, the investment in this particular new product development will pay for itself over a five year period, without taking into account the depreciation of plant and equipment. This represents a good return on investment, taking into consideration that alternative investment could yield only 6% annual return. |
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7. A PAYBACK PERIOD |
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A PAYBACK PERIOD
The Payback Period is another important element, which is usually evaluated during the business analysis stage. The payback period is defined as the number of years required to recover the initial cash invested in new product development and can be calculated as follows:
Payback Period = Total Investment Into The Project
(In Years) Estimated Annual Net Cash Inflow
The payback period should be determined in conjunction with the Expected Product Life Cycle Period. Thus, for example, if the total investment into the project is $150,000, it can be recovered in three years if the additional estimated annual net cash inflow generated by the project is as follows:
Year 1: $ 10,000
Year 2: $ 50,000
Year 3: $ 90,000
Total $150,000
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8. PRODUCT DEVELOPMENT |
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STEP 4: PRODUCT DEVELOPMENT
The fourth step in the Product Development Process entails the actual development of the product. Product development represents a combined effort of the marketing and engineering departments.
The Product Development Process which consists of several steps that were discussed in detail in Tutorial 4, is summarized below. |
STEPS IN THE PRODUCT DEVELOPMENT PROCESS |
Step 1: Product Conception.
This stage entails creation and introduction of a product by the design office.
Step 2: Feasibility Study.
This stage entails initial feasibility study related to the new product.
Step 3: Preliminary Design.
This stage entails preliminary design of all elements of the new product.
Step 4: Prototype Construction.
This stage entails constructing a prototype of the new product for testing purposes.
Step 5: Prototype Test.
This stage entails initial testing of the prototype of the new product to establish its viability and potential design problems.
Step 6: Final Design.
This stage entails additional design of the new product to conform with final design parameters.
Step 7: Pre-Production Test.
This stage entails a pre-production test of the new product to identify possible manufacturing and assembly problems. |
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9. MARKET TESTING |
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STEP 5: MARKET TESTING
The fifth step in the product development process, the pre-production test, leads to the beginning of the Market Testing procedure. The prime purpose of the market testing procedure is to introduce the new product in limited geographic areas to establish whether the product should be introduced to a larger market. Market testing of the new product will accomplish several major objectives outlined below. |
MAIN OBJECTIVES OF THE NEW PRODUCT MARKET TESTING |
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Management will gain detailed information and experience with the product before entering into larger markets and committing additional funds. All potential problems that relate to the new product are expected to be identified at this stage. |
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Market testing helps to measure the customers' response to the new product and to identify possible inefficiencies in product application. |
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Market testing is instrumental in assessing the competitors' influence on the potential success or failure of the new product. |
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Market testing assists the company's management in preparing accurate sales projections for new products. |
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ADDITIONAL INFORMATION ONLINE |
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10. COMMERCIALIZATION OF A PRODUCT IN THE MARKETPLACE |
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STEP 6: COMMERCIALIZATION OF A PRODUCT IN THE MARKETPLACE
The last step in the product development process entails Commercialization Of A Product In The Marketplace and requires maximum coordination of the company's functional abilities. Particular cooperation should be demonstrated by marketing, manufacturing, and distribution departments. Commercialization of new products usually requires a substantial investment in various promotional efforts illustrated below. |
ELEMENTS OF A NEW PRODUCT
COMMERCIALIZATION IN THE MARKETPLACE |
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Advertising
And
Promotion |
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Distribution
Of
Free
Samples |
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Discounts
And
Sales
Incentives |
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The performance of new Distribution Channels should be monitored on a continuous basis, and all inefficiencies identified and eliminated. |
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11. A PRODUCT LIFE CYCLE |
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WHAT IS PRODUCT LIFE CYCLE? |
Product Life Cycle (PLC) is a summary of various stages from inception to decline that can be attributed to the life of any product or service.
In order to be successful in the product development process, the business owner and the marketing manager must become familiar with five stages of the Product Life Cycle illustrated below. |
THE PRODUCT LIFE CYCLE DIAGRAM
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A typical Product Life Cycle comprises five distinctive stages which are outlined below. |
FIVE STAGES IN THE PRODUCT LIFE CYCLE |
Stage 1: Product Design And Development.
This stage represents the design and development of the product and is characterized by substantial investment and absence of sales.
Stage 2: Product Introduction.
This stage represents the introduction of the product in the marketplace and is characterized by heavy expenditures, slow growth, and low profits.
Stage 3: Product Growth.
This stage represents the process of acceptance and growth of the product in the marketplace and is characterized by a rapid increase in sales and profits.
Stage 4: Product Maturity.
This stage represents the process of stabilization of the product sales level and its acceptance in the marketplace and is characterized by a stabilized level of sales and profits.
Stage 5: Product Decline.
This stage represents the process of gradual decline of the product's acceptance in the marketplace and is characterized by a gradual decrease in sales and profits. |
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12. PRODUCT LIFE CYCLE CHARACTERISTICS, OBJECTIVES, AND STRATEGIES |
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BE AWARE OF THE PRODUCT LIFE CYCLE
Business owners and marketing managers must to be aware of a broad range of implications, which relate to all five stages of the Product Life Cycle, namely:
• Stage 1: Product design and development.
• Stage 2: Product introduction.
• Stage 3: Product growth.
• Stage 4: Product maturity.
• Stage 5: Product decline.
Characteristics related to five stages of the product life cycle as summarized below. |
PRODUCT LIFE CYCLE CHARACTERISTICS |
Characteristics |
Product Life Cycle Stage |
1. Product
Design |
2. Product Introduction |
3. Product Growth |
4. Product Maturity |
4. Product Decline |
Sales Volume |
Zero |
Low |
Increasing |
High |
Decreasing |
Unit Product Cost |
High |
High |
Average |
Low |
Low |
Profitability |
Negative |
Negative |
Increasing |
High |
Decreasing |
Customer Volume |
Zero |
Low |
Increasing |
High |
Decreasing |
Competition |
Low |
Low |
Increasing |
High |
Decreasing |
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Marketing Objectives And Strategies related to five stages of the product life cycle are summarized below. |
PRODUCT LIFE CYCLE MARKETING OBJECTIVES AND STRATEGIES |
Characteristics |
Product Life Cycle Stage |
1. Product Design |
2. Product Introduction |
3. Product Growth |
4. Product Maturity |
5. Product Decline |
Marketing Objective |
Develop product marketing objectives. |
Develop product awareness in the marketplace. |
Increase product awareness and profitability in the marketplace. |
Maximize product awareness and profitability in the marketplace. |
Reduce expenditure and capitalize on the brand name and market positioning. |
Product
Strategy |
Develop the product strategy. |
Offer a basic product model. |
Offer improved product models and extended service and warranty. |
Introduce additional and improved product models. |
Eliminate non-profitable product models. |
Price
Strategy |
Develop the price strategy. |
Use cost-plus pricing or price-skimming method. |
Use market penetration pricing method. |
Use meet-the-competition pricing method. |
Use price-cutting method to maintain market position. |
Distribution
Strategy |
Develop the distribution strategy. |
Develop selected distribution channels. |
Develop additional distribution channels. |
Maximize the number of distribution channels. |
Optimize distribution channels and keep only profitable ones. |
Advertising
Strategy |
Develop the advertising strategy. |
Develop product brand awareness and recognition in the selected marketplace. |
Increase product brand awareness and recognition in marketplace. |
Maximize product brand recognition, differentiation, and benefits in the marketplace. |
Reduce product brand recognition, differentiation, and benefits to the loyal-customers' marketplace. |
Sales
Promotion
Strategy |
Develop the sales promotion strategy. |
Introduce strong sales promotion for product trial in the selected marketplace. |
Optimize sales promotion based on the consumer demand in the marketplace. |
Increase sales promotion to support the product brand in the marketplace. |
Limit sales promotion to support only profitable products in the selected marketplace. |
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ADDITIONAL INFORMATION ONLINE |
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13. PACKAGING |
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WHAT IS PACKAGING?
Packaging And Labeling is another important element of the product strategy development process. Packaging is often viewed as an extension of the physical product. The promotional impact of packaging comes mainly from the use of several elements outlined below. |
ELEMENTS OF PACKAGING |
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Special wrapping materials. |
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Style of letters. |
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Selection of colors. |
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Type of illustrations. |
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User-friendly explanations related to the product. |
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Product reviews and endorsements. |
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THE PRIME PURPOSE OF PACKAGING |
The prime purpose of an effective Package Design is to transmit a persuasive and informational message to generate interest, and convince potential customers to buy.
The Packaging Method has particular promotional significance in consumer goods marketing. As a result of effective packaging, consumer goods are expected to generate a better shelf impact, and thus attract more potential buyers.
Packaging is also used to symbolize a brand - a unique name, sign, symbol, or design of a particular product. Companies generally protect the unique names, or brands, of their products and services by registering trademarks and service-marks to ensure that no other company can use the same name in a specific marketplace. |
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14. BRANDING |
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WHAT IS BRANDING?
Brand Management or Branding has become a very important issue in the product strategy development process. Branding, in fact, may add value to the product, providing a particular brand is known in the marketplace for its high quality or reliability.
According to the marketing experts and authors Philip Kotler and Gary Armstrong, Brand is a unique name, term, sign, symbol, or design, or combination of these, that identifies the products or services of one seller or group of sellers and differentiates them from those of competitors. (26)
The majority of small business owners and marketing managers usually do not pay much attention to brand development due to the size of their business. However, it may be a smart strategy for a company of any size, including small businesses, to look into branding of specific products and to develop brand equity and brand loyalty in the marketplace.
Brand Equity represents a value of the brand based on the extent, to which the potential customers may be attracted to specific products, and have a Brand Loyalty to such products, based on their superior quality, price, and trademark or patent recognition.
Here are some examples of well-known and popular brands:
• Reliable and affordable computers: Dell, HP, Fujitsu, Sony, Toshiba.
• High quality, reliable and reasonably priced cars: Honda, Toyota, Nissan.
• High class, luxury and very expensive cars: Rolls Royce, Bentley.
• High class, very expensive and very fast sports cars: Ferrari, Lamborghini, and Maserati. |
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15. A TRADEMARK |
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WHAT IS A TRADEMARK?
Business owners and managers often decide to select unique names for their company's products or services, and to use such names as Brand Names. The purpose of creating brand names is to develop a better visibility for a particular product or service and to avoid any possible confusion with similar products or services, offered by competitors, in the marketplace in the future.
Everybody, for example, is familiar with the name Coca Cola ®, which is a registered trademark of the Coca Cola Bottling Company. The "®" in the above name implies that this is a Registered Trademark Symbol of the Coca Cola Bottling Company, and no other company, not even Pepsi Cola Bottling Company, is allowed to use this name for its cold drinks.
Application for a trademark can be a very smart strategy for small business owners, who may have a unique idea and want to introduce a new product or service into the market. A registered trademark may help business owners to ensure that customers will be able to distinguish the superior quality or another essential feature of their product or service in the marketplace.
Take, for example, two young students - Sergey Brin and Larry Page, who met in 1995, and started Google TM from a garage. They certainly had no idea, how far their business would go, but today they are pretty happy that they applied for a trademark protection for their business name, which became known worldwide as the best search engine online.
The trademark application and registration process is regulated by the U.S. government through The Lanham Trademark Act Of 1946. In accordance with this act, the owner of the trademark can obtain special protection for new product names as outlined below. |
BENEFITS OFFERED BY THE LANHAM TRADEMARK ACT OF 1946 |
1. |
Registration of a trademark in a particular class for any product, and identification of the trademark with the symbol " ®", provided that this will not interfere with any registered or pending trademark in applicable classes. |
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Registration of a service mark in a particular class for any service, and identification of the service mark with the symbol " ®" provided that this will not interfere with any registered or pending service mark in applicable classes. |
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THE UNITED STATES PATENT AND TRADEMARK OFFICE |
The Trademark and Service Mark registration is handled by the United States Patent And Trademark Office in Washington D.C.
If you have a specific name for a trademark or service mark in mind and you wish to check whether this name is still available, or you wish to check the status of your trademark or service mark application, you can do it online. |
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16. LICENSING |
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LICENSING
Development of new products may sometimes prove to be an expensive and lengthy exercise for a company. In fact, many companies do not develop their own products and instead acquire designs of new products from other sources. This process is known as Licensing, and it offers the company several advantages outlined below. |
LICENSING ADVANTAGES |
1. |
It saves time and money at the design stage. |
2. |
It allows the company to introduce a proven product into the marketplace. |
3. |
It reduces the financial risk to a minimum. |
4. |
It provides an opportunity to serve customers in a competitive market environment. |
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LICENSING AGREEMENT
If you have invented a product, you may decide to go all the way and manufacture this product by yourself. In this case you will have to build a new business organization, unless you already have an existing business. In both cases, new product launch will require serious financial investment and this may present a challenge for you. For this reason, you may consider licensing your product to an existing business and enter into a Licensing Agreement which will enable you to receive Royalties from the future sales of your product. |
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17. FRANCHISING |
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FRANCHISING
Another method of acquiring the right to offer newly developed products, or services, is known as Franchising. By using the franchising method, the original designer, or Franchisor, allows other organizations, Franchisees, to sell newly-developed products or services in specific geographic locations under a Franchise Agreement.
Most firms develop a number of products or services to meet the specific requirements of their customers. One of the functions of the marketing manager is to establish a suitable product mix and to monitor the profitability of product or service lines. The more profitable product or service lines should receive stronger support and further development, and the less profitable lines should be phased out and replaced by new products or services. |
USEFUL CONTACTS ONLINE |
You can obtain additional information about Franchising and other related issues online: |
• International Franchise Association
• American Franchise Directory
• The Franchise Company
• Franchise Handbook
• Franchise Network
• Franchise Solutions
• Franchise Direct |
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18. FOR SERIOUS BUSINESS OWNERS ONLY |
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ARE YOU SERIOUS ABOUT YOUR BUSINESS TODAY? |
Reprinted with permission. |
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19. THE LATEST INFORMATION ONLINE |
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LESSON FOR TODAY:
Sell Solutions, Not Just Products!
Klaus M. Leisinger,
Director, Ciba-Geigy
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Go To The Next Open Check Point In This Promotion Program Online. |
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