Chapter 2

Product Line decisions and

New Product Development Process

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Contents
• Product Hierarchy
• Product Line Decisions
• Product Mix Decisions
• Characteristics of Services
• Service Quality Chain
• Marketing Strategy for service firms
• Causes of New Product failures
• New Product Development Process

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Product Hierarchy - A product hierarchy is a method of classifying
company’s products and services by their essential components into a logical structure.

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Product Hierarchy

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Mc Donald’s Product Lines

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Product Line Strategies
• PRODUCT LINE – Features
• The group of related products which uses same marketing effort to
reach the customer.
It caters to the common need of a group or class of customers.

• PRODUCT LINE DECISIONS

The major product line decisions are
 Product line length
 Product line stretching
 Product line filling
 Product line pruning
Product line decisions
[Link] LINE LENGTH
o The number of items in the product line is
called the product line length
o The product line chain can be short or long
o If short, it can add more new products
o If long, it can reduce the number of products

[Link] LINE STRETCHING

o Company lengthens its product line by
stretching upwards, stretching downwards or
both ways
Product line decisions
• Line stretching decision depends on three
situations:
o Downward Stretching: Company that operates in
high end market may come up with mid class or
low class targeted products. Eg. Maruti Gypsy,
Nano etc.
o Upward Stretching: The company which operates
in lower end of market may come up with high end
market products. Eg. Scorpio by M & M
o Two-way Stretching - If the company operates in
mid segment and comes out with low end
products as well as high end product, then it is
called as stretching both ways.
Product line decisions
C. PRODUCT LINE FILLING
It means adding new products to the same product
range to use excess capacity, increase customer base,
extra profit, and keep competitors away.
Example- Sony added waterproof and solar-powered
Walkman to its current Walkman line.

D. PRODUCT LINE PRUNING

Removing the unprofitable products from the
product line.
Example- Crystal Pepsi launched and discontinued
Product
Product Mix
Mix Decisions
Decisions

Width
Width -- number
number of
of
different
different product
product
lines
lines
Consistency

Length
Length -- total
total Product
number Product MixMix --
number of of items
items all
all the
the product
product
within
within the
the lines
lines lines
lines offered
offered

Depth
Depth -- number
number
of
of versions
versions of
of
each
each product
product
Product Mix

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Product Mix Strategies

• Product Mix
o The number of product lines and items offered by
marketer to the consumer is called as Product Mix

• Dimensions of Product Mix

o Product Mix Width
The total number of product line that a company offers
to the consumers.
Product Mix Length
The total number of items that company carries within
its product line.
Product Mix Strategies
• Product Line Depth
The number of versions offered of each product in
the line

• Product Mix Consistency

If the company’s product line, production and
marketing are related, then it is called as product
mix consistency.
Characteristics
Characteristics of
of Services
Services

Can’t be seen, tasted, felt, heard,

Intangibility
Intangibility or smelled before purchase.

Inseparability
Inseparability Can’t be separated from service
providers.
Variability
Variability Quality depends on who provides
them and when, where and how.
Perishability
Perishability Can’t be stored for later sale or use.
Marketing Strategies for Service
Firms
• Managing Service Differentiation
– Develop offer, delivery and image with competitive advantages.

• Managing Service Quality

– Empower employees
– Become “Customer centric”
– Develop high service quality standards
– Watch service performance closely

• Managing Service Productivity

– Train current or new employees
– Improve quality
– Utilize technology
NEW PRODUCT DEVELOPMENT
Discussion Question

Why do products fail?

See if you can identify the fatal flaw
in the brands below and at right.

Ben-Gay Asprin Buttermilk Shampoo Fruit of the Loom

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Laundry Detergent
Causes of New Product Failures

• Overestimation of Market Size

• Product Design Problems
• Product Incorrectly Positioned, Priced or Advertised
• Costs of Product Development
• Competitive Actions

To create successful new products, the company must:

– understand it’s customers, markets and competitors
– develop products that deliver superior value to customers.
New Product Development
• New product development is a process
whereby a new product is created by the
company
• New product doesn't mean that absolutely
new to the world
• It may be modification, or offered in the
new market, or differentiate from the
existing products
New Product Development
• New Products are
o New innovative product. Eg Orkut by Google
o A product totally different from others. Eg.
Dream liner jet by Boeing
o Imitative product that are not new to the market
but new to the company. Eg. Tata Salt
Major Stages in
New-Product Development
New Product Development
• New Product Development Process
Stage 1 - Idea Generation
o A new product is the result of a new idea.
o Ideas are generated either from internal sources
(employees, R&D) or from external sources (Customers,
competitors, distributors, suppliers etc.).
3M’s corporate
culture
encourages,
supports, and
rewards new
product ideas
and innovation
Using the Web to Solicit Product Ideas
Procter and Gamble
To see how P&G solicits ideas from customers, visit
the Procter and Gamble home page, click on the
Resources and Offers button, then select the Share
Your Thoughts listing.
Procter & Gamble

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New Product Development Strategy

Stage 2: Idea Screening

– Idea screening is a process whereby feasible ideas will
be selected and non-feasible ideas will be rejected.
– Screening important as product development
costs increases dramatically
in later stages.
– Ideas are evaluated
against criteria and
further elimination is decided.
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New Product Development Process

Stage 3: Concept Development and Testing

• Product concepts provide
detailed versions of new
product ideas.
• Consumers evaluate
ideas in concept tests.

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New Product Development Process

Stage 4. Marketing Strategy Development

This involves three parts. They are:

o Target market, sales, market share and profit goals
o Product price, distribution, marketing budget
o Marketing mix strategies and profit goals
New Product Development Process
Stage 5. Business Analysis
• Analysis of sales, cost and profit of the new product and
its compatibility with the company’s mission, vision and
objectives
Stage 6. Product Development
• Real proto-type of the product will be manufactured to
test its real performance
Stage [Link] Marketing
• The new product will be tested in a realistic marketing
situation in few test centers
• The 4 Ps of marketing also will be tested
Stage 8. Commercialization
• The product will be aggressively launched in the market
with aggressive communication strategy.