Product Lifecycle Management

Edmundas Radavicius

PRODUCT LIFECYCLE MANAGEMENT

SCIENCE ECONOMY COHESION EUROPEAN UNION

UNIVERSITY OF APPLIED SOCIAL SCIENCES Creating the Future of Lithuania

UNIVERSITY OF APPLIED SOCIAL SCIENCES COURSE HANDBOOK

UNIVERSITY OF APPLIED SOCIAL SCIENCES

UNIVERSITY OF APPLIED SOCIAL SCIENCES SCIENCE ECONOMY COHESION EUROPEAN UNION

Creating the Future of Lithuania UNIVERSITY OF APPLIED SOCIAL SCIENCES

UNIVERSITY OF APPLIED SOCIAL SMK University of Applied Social SCIESciencesNCES

UNIVERSITY OF APPLIED SOCIAL SCIENCES Edmundas Radavicius

UNIVERSITY OF APPLIED SOCIAL PRODUCT LIFECYCLE MANAGEMENTSCIENCES Course handbook

Klaipeda, 2015

1 Edmundas Radavicius

PRODUCT LIFECYCLE MANAGEMENT Course handbook

Approved by the decision of the Academic Board of SMK University of Applied Social Sciences, 15th April 2014, No. 4.

The publication is financed within project „Joint Degree Study programme “Technology and Innovation Management “ preparation and implementation“ No. VP1-2.2-ŠMM-07-K-02-087 funded in accordance with the means VP1-2.2- SMM-07-K “Improvement of study quality, development of Internationalization” of priority 2 “Lifelong Learning” of the Action Programme of Human Relations Development 2007 – 2013.

ISBN 978-9955-648-64-2

2 CONTENTS

INTRODUCTION ...... 4 Part 1: The content and classification of produc ...... 5 Part 2: The content and classification of service ...... 45 Part 3: Phases of product lifecycle ...... 64 Part 4: Marketing strategies used in product lifecycle phases ...... 82 TASKS FOR INDIVIDUAL/GROUP WORKS ...... 110 REFERENCE OUTLINE ...... 147 QUESTIONS FOR ANALYSIS ...... 184 CLASSROOM ACTIVITIES ...... 186 LITERATURE ...... 187

3 INTRODUCTION

The period of time over which an item is developed, brought to market and eventually removed from the market. First, the idea for a product undergoes research and development. If the idea is determined to be feasible and potentially profitable, the product will be produced, marketed and rolled out. Assuming the product becomes successful; its production will grow until the product becomes widely available. Eventually, demand for the product will decline and it will become obsolete. The aim of the students independent work is to provide student with knowledge, expertise and practical skills through mastering of the key concepts and classification of a product and service used in marketing, to develop a systematic understanding of the phases of product lifecycle and fundamentals of their use in practice, to reveal the characteristics of marketing strategies used in different product lifecycle stages and causal relationship between successes and failures. The course deals with the concept and classification of a product and service. The students learn about the basic phases of product lifecycle. The students’ ability to apply in practice the marketing strategies used in different phases of product lifecycle is developed. Course unit study outcomes: 1. Is able to apply modern marketing theories in identifying the concepts and kinds of product and service. 2. Is able to apply innovative product and service marketing concepts high- lighting the key product and service lifecycle phases. 3. Is able to evaluate the market changes properly and to apply appropriate marketing strategies used in different product and service lifecycle phases.

4 Part 1

The content and classification of product

Objective outline:

1. Define product and major classifications of products and services. 2. Describe the decisions companies make regarding their individual products and services, product lines and product mixes. 3. Analyze the product strategies.

Chapter Glossary New product development process – the stages people in the organization go through in order to create and market new products or services. Product – all things a buyer receives in an exchange, good and bad, intended and unintended. Cross-functional teams – product development teams that include representatives from all or most the functional areas in the organization including R&D, Manufacturing, Finance, Marketing, and others. Product positioning - the image of a product in the mind of the target customer in relation to competing products and other products of the same company.

How do companies decide what products and services to market?

In this chapter we begin a series of chapters on the components of the marketing mix: Product, Price, Distribution, and Promotion. Our emphasis in this chapter will be the product or service that the organization markets and how products are envisioned, created and commercialized. 1

In this chapter, we will review the process of product development and how companies manage that process. While the process is similar for consumer marketers and organizational marketers, there are significant differences in how different

5 companies approach this function.1

We will define ‘product’ as all things the buyer receives in an exchange, bad and good, intended and unintended. Products include all things the buyer receives including the physical attributes (a new car) and the intangible attributes (a war- ranty and a financing contract). It is sometimes helpful to list the main (sometimes called ‘salient’) attributes for purposes of performing both upstream activities (for example, concept development) and downstream activities (for example, advertising and personal sales presentations).1

In this chapter we will discuss the following areas related to managing new product development (NPD): - the ideal climate for NPD - the NPD process - pitfalls in the NPD - the role of product positioning in NPD1

The ideal climate for NPD There are several characteristics that help describe an ideal climate for the new product development process. A list of these characteristics follows;

a. Goal clarity – the objectives of the task are jointly understood b. Resources – adequate economic and non-economic support for the task c. Encouragement – sincere emotional support for the task d. Freedom – the ability to explore whatever directions of inquiry that are needed e. Integrity – management does what it says it will do.2;3

Stages in a typical new product development process (NPD) The NPD is basically an exercise in idea management. Thus, the process proceeds from stage to stage. However, frequently a new product team may skip around stages when playing with a new product idea.1

6 1. Idea generation – conceptualize a list of new product ideas 2. Idea assessment – evaluate the ideas based on a previously created list of criteria. In this stage ideas that are judged not to meet the criteria are removed from consideration. 3. Concept testing – the idea is assessed through discussion with potential customers or users. Or, representatives of the organization explore the product idea and assess its overall potential (No physical product yet exists). 4. Idea choice – one or more ideas are selected for initial investment 5. Idea prototype development – an initial working model of the product is created for testing and evaluation 6. Final version development – a model of the final version of the product is created 7. Commercialization – the product is put into production and the distribution of the new product to customers begins.1

Each stage should feedback information into the previous stages and this information should be organized and retained for future use.

Idea generation The idea generation stage is the first stage in the NPD. However, in an organization with a healthy environment for creative thinking, new ideas abound, and only rarely is it necessary to have a formal meeting to generate ideas. New ideas flow from every day activities within the organization.4

Ideally, idea generation should be fun and naturally occurring. This is why a ‘formal meeting for idea generation’ should be somewhat of an oxymoron in healthy, creative organizations. There are many creative problem-solving (CPS) techniques that provide extra stimulation for generating ideas for new products and services. The Couger Center for the Study of Creativity and Innovation has applied over thirty CPS techniques in organizations with success. CPS approaches fall along a continuum from intuitive to analytical. For example, a commonly used analytical CPS technique is the “5 W’s and H” technique. Rudyard Kipling even wrote a poem about this technique. The ‘wishful thinking’ technique is a more intuitive

7 CPS approach. The appendix to this chapter describes how to use each of these two techniques.4

Idea assessment Most organizations have extensive guidelines concerning the criteria for new product ideas. Some typical criteria are: potential estimated demand for the product, cost/revenue expectations, fit with the organization’s business and marketing strategy (you may want to go back and review compatibility in the discussion of requirements for effective segmentation in Chapter Three.) Many product ideas may not match with the firm’s current product line and there should be guidance about what to do if this happens. Some organizations broker or sell new product ideas that don’t entail serving current or planned future customer segments.5

Creative ideas are judged on two criteria: Novelty and Value (or utility). We have found that business firms primarily put more importance on the expected economic returns (value) of a new idea than whether the idea is particularly novel or new. However, in a context of the arts, this emphasis is usually reversed. That is, in the arts, judges often look to novelty first and value later. This point brings about an underlying problem in judging new ideas. Novelty can usually be judged fairly early on, whereas, value is sometimes difficult to assess for some time.5

In order to have a steady flow of new ideas, organizations must establish a clear understanding with personnel responsible for new product development how these two dimensions will be assessed. 5

Concept testing In this stage, employees play with the idea and have fun considering its potential. The rationale underlying concept testing is that organizations are much wiser to explore the idea thoroughly before actually building a physical prototype. Often the ‘Five W’s and H’ technique, described in Chapter Eleven, can be helpful in fleshing out the new product idea. If customers are involved in this stage, ‘projec- tive techniques’ can often be used to illicit the opinions of customers about new product ideas without asking the customers directly.6

8 We have mentioned two types of thinking: convergent and divergent. Convergent thinking is the type of thinking with which most people in the U.S. culture are most familiar. In this approach to thinking the mind or minds of those involved follows a linear process of reasoning ultimately arriving at a point of conclusion. Diver- gent thinking is quite different in that it requires the participant or participants to ‘play’ with ideas going off in unexpected directions. DeBono is well known for coining the term “lateral thinking” which is a type of divergent thinking (see: http://www.edwdebono.com/ and review DeBono’s “Six Hats Method”).7

Note that when involved in the ideal approach to creative thinking, people feel they have time to ‘play’ with ideas and forget about ‘hard work’ or “the expected conclusion.” This fact might trouble some managers, but the endeavor is usually well worth the time expended. Particularly, in the U.S. we constantly and incorrectly equate ‘hard work’ with ‘no fun’ and something to be feared or dreaded.7

The NPD process should begin with divergent thinking and then apply convergent thinking with a careful recording of all new ideas as the process proceeds.

Unfortunately, in the U.S. culture, people who are expert ‘idea destroyers’ are often rewarded informally and formally in many organizations. That is, in our culture there is often more reward for observing what is wrong with an idea, rather than stating what right about it. Many great ideas with considerable positive potential are rejected every day in organizations, not because the idea isn’t any good, but because people in the organization are more oriented to idea destruction than idea construction.1

Idea Choice During this stage, the organization decides where its resources are best invested. A multiattribute model similar to the one we discussed in chapter three is often used to make such decisions. The major criteria for choice are listed and an importance weight is assigned to each attribute. Then competing ideas are assessed on this basis. Obviously, this process requires a healthy climate for creativity and

9 innovation within which employees can ‘let go’ of personal ownership of ideas and judge the ideas on an objective basis.1

Idea prototype development During this stage working models of the new product are created to assess the feasibility of mass production of the product. We should note that the same activity could be engaged with services. In fact, it is easier with services, usually, than with tangible products. For example, if I restaurant is in the process of developing new menu items, it can prepare different variations of the items and let the restaurant staff sample the items. In some cases a restaurant may maintain a panel of expert tasters comprised of current customers to assist in determining which new dishes to put on the menu.1

Final version development Because learning takes place in each stage of NPD, a final version of the product is created to assess whether or not to take the product into the full commercialization stage. For example, in our restaurant example above, one can see that a trial run of preparing dishes from supply to delivery and sampling should take place to identify possible bottlenecks and problems in the process before an item is adopted for inclusion in the menu.1

In the case of physical products, this stage is usually worthwhile to identify possible problems but also to assess whether the organization should make a commitment to full commercialization. As the reader is no doubt aware, companies often adopt a test marketing approach, which in many ways is the same of ‘final version development’ except that test marketing entails a trial run of the total marketing mix.1

Commercialization After the organization has refined its production and distribution systems, it only remains to enter the commercialization stage. This stage usually is implemented in small increments in order to further refine all systems involved in marketing the new product or service. A notable exception is when a firm seeks full-scale

10 commercialization as soon as possible with its product or service. Examples of this strategy include new products for the cinema and products that are low in uniqueness and thus will be copied quickly by competitors if initially successful.1

Common pitfalls in the NPD Process Various pitfalls can occur during the process of new product development. An easy way to identify these barriers to new product development is to apply a CPS technique called the ‘problem reversal technique’ and ‘reverse’ the characteristics of an ideal climate described earlier considering the outcome of any of these characteristics being absent in the organization. The following list may help explain how an absence of these characteristics can discourage new product development.

1. Lack of Goal clarity – the objectives of the task are not jointly understood, so people in the process are confused and disagree about what they are expected to accomplish. 2. Lack of Resources – there is inadequate economic and non-economic support for the task so that the NPD process is doomed from its beginning. 3. Lack of Encouragement – management does not provide sincere emotional support for the task thus employees on the NPD team feel ‘unconnected’ and ‘neglected’ by management feeling that no one values their activity. 4. Lack of Freedom – absence of the ability to explore whatever directions of inquiry are needed. Members of the NPD team constantly feel restricted in considering novel approaches to problem solving because they may be seen by others as not relevant and ‘too playful’. 5. Lack of Integrity – management repeatedly fails to follow through on prom- ises made, thus leaving members of the NPD team frustrated and neglected – this if often the cause of total ‘shutdown’ of creativity of the NPD team.1

Several roles are commonly adopted on new product development teams. Unfortunately some of these roles are counterproductive and should be purposely deleted from the process. Although there are many different possible roles in the idea generation stage of the NPD, we will identify and discuss a few of the most common roles:

11 Positive roles: enhance new idea generation and product development Willie, the wild idea man – lots of ideas, likes to have fun, gets bored easily with details Inga, the analytical – constantly asks questions such as “exactly what do you mean by that?”, “How would that work?” Edith, the encourager – may often say “Yeah, that is a great idea!” Pam, the peacemaker – unconsciously reduces conflict by focusing on ideas, not people Otto, the observer – says very little but is engaged in the process and has many ideas which must be actively drawn out by others.1

Negative Roles: discourage new idea generation and product development Doubtful David – fearful, always hesitant to approve of a new idea Serious Sandra – has trouble with Willie’s glee and Inga’s constant questions, constantly says, “Okay, let’s get to work and stop playing around” Patty the parent – similar to Sandra but feels compelled to ‘take the group in hand and manage it’ – believes she is ‘responsible’ Nasty Nick - never approves of anyone’s ideas but his own. Always has a snide comment about other peoples’ ideas, often offered as humor War Story Wally – always has a story about ‘how we did it back then’.1

Of course, all of the positive roles are nice to have on a NPD team. However, Doubtful David, Patty the Parent, and Knowing Nick have no legitimate place on an idea generation or even NPD team. The roles of David and Wally can be tolerated if other team members can cope with them. These roles or roles similar to them tend to be present on most new product teams and can either facilitate the process or retard it.1

Organizing for New Product Development Just as everyone in the organization is responsible for customer satisfaction, everyone in the organization should be responsible for new product ideas. The task of conceptualizing ideas about new products should not be reserved for the few people who are members of the NPD teams. Primary success in managing the

12 NPD Process has been realized through the use of Cross-functional Teams. These groups are comprised of people with different educational backgrounds and different organizational areas, which make them more productive, and more challenging to conduct at the same time. For example, at Daimler-Chrysler/US, NPD teams have members from most organizational functions including design, engineering, marketing, manufacturing, and finance. While this approach introduces the potential for more chaotic group meetings, it also introduces the potential for a rich cauldron for the creation of ideas.1

The role of product positioning in NPD Product positioning can be defined as the image of a product in the mind of the target customer in relation to competing products and other products of the same company. For example, if someone says “Mercedes-Benz” you might think “luxurious and expensive.” Then, if someone says “luxurious and expensive,” you might respond by saying BMW, Lexus, or Cadillac, as well as, Mercedes-Benz. Thus product positioning is a critical part of understanding how to focus the new idea generation process. We often think in terms of new benefits we can provide customers or new ways of providing those benefits. For example, a traditional benefit sought with new cars is personal safety. One new product design team in the car industry sought out and hired as a consultant, a retired U.S. Air Force officer who had spent his career in aircraft escape systems to stimulate the team’s ideas about new features in car safety.1

Examining the relative positions of products in the marketplace can be of great assistance in new product idea generation. Whether you realize it or not, you already have a rich understanding of product positioning through your everyday activities as a consumer. For example, think about breakfast cereals. Breakfast cereals are available in many different types: sugar-added/no sugar added (is this segmentation based on ‘benefits sought?’); vitamin enriched versus ‘all natural’ (is this segmentation based on ‘lifestyle?”); and finally, some cereals may encourage ‘overall regularity’ like bran cereals; still another segment. Thus, you, as a marketing student should be aware of segmentation approaches, and should be able to use positioning concepts as a way to understand where your product should ‘fit

13 in’ in the marketplace. Do a keyword search internet using “product positioning” and “perceptual mapping.” (Be sure to put your keyword in quotation marks to avoid references to other, non-related areas.1

Lack of ideas versus lack of climate for creativity: Is lack of ideas a sign of lack of ability of employees or a lack of willingness on the part of employees?

Organizations with a paucity of new product ideas should not assume that their employees are ‘just not creative.’ We have conducted studies on many different organizations and employees indicate that the larger problem for them personally is not new ideas, but the fact that they don’t believe their new ideas will be adopted or even seriously considered by management.8

Product attributes Developing a product or service involves defining the benefits that it will give. These benefits are communicated and delivered by product attributes such as quality, features and style and design. In other words, product attributes are was of adding customer value to a product.8

Product quality: Quality is one of the marketer’s positioning tool. Quality may be defined as “freedom from defects”. However, most customer centred companies go beyond this narrow definition. Instead, they define quality in terms of creating customer value and satisfaction.8

Product features Features are competitive tool for differentiating the company’s product from the competitors’ products. Being the first producer to introduce a valued new feature is one of the most effective ways to compete.8

Product style and design: Another way to add customer value is through distinctive product style and design. Design is a layer concept than style. Style simply describes the appearance of

14 a product. Style can be eye catching. A sensational style may grasp attention and produce pleasing aesthetics, but does not necessarily make the product perform better. Design unlike style goes deep to the very heart of the product. Good design con- tributes to a product’s usefulness as well as to its looks. Good design begins with deep understanding of customers need.8

Types and classification of motives Generally, motives are forces initiating behaviour, without which no act of human behaviour can take place. Product buying motives or buying motives or product motives are all synonymous and may be defined as all impulses, desire and con- siderations of the customer, which includes the purchase of good and services. Buying motives explain why customers buy, whereas buying habit which we shall examine subsequently refers to how, when and where customer buy. There are several ways to classify product motives but we shall discuss only three of them as follows: 1. Emotional and rational product motives 2. Operational and socio-psychological product motives 3. Conscious and unconscious product motives (Dormant motives)8

Emotional product motives Emotional product motives are those forces which induce the customers to purchase without giving much thought to the reasons for and against there action. Such motives are aroused by non-rational process of the thought. Thus buying out of fear of being look upon as being very poor, desire to emulate others, desire for fashion, affection, are all examples of emotional product motives. For example, a beautiful girl is pictured in the advertisement on the TV as a user of Joy soap. The purpose the advertisement being to suggest to the customers that they can be equally beautiful as the girl pictured in the advertisement if they use Joy soap.8 If the customers after watching the advert, are moved and charmed by it, they may develop a favorable emotional impression about the product and go ahead to buy it without actually going through any rational thought. These suggest that the advertisement is successful. But if some customers after watching the commercial,

15 stop to think about the message contained in the advertisement, they may dis- cover that there is only very little in the implied relationship.8

After all, a customer who was born ugly with a flat nose can not turn out to beautiful over night simply because she uses “Joy soap”. Ant consumer going through the rational process of thought is unlikely to buy the soap and therefore, unlikely to respond to the emotional appeal of beauty. Again consider another advertisement in Times Magazine in which an emotional appeal to imagination is made, calling on smokers to smoke a certain brand of cigarette made in USA and have a taste of America. The Aim of the advertisement is to suggest that if you smoke that brand of cigarette, you will have a taste of America. If the ad is successful, the smoker will respond to the emotional appeal and buy the cigarette to get the imaginary taste of USA.8 A times, a consumer may be so much sold by the appeal that he may consciously or unconsciously start behaving and taking in slang’s as though he or she is an American at the times of smoking the cigarettes, but if the advert is unsuccessful, it means that smoker fail to respond to the emotional appeal because there is only very little in the implied relationship of smoking a cigarette and having the taste of USA.8

Rational product motive Rational product motives are those forces which induce customers to purchase after carefully going through a rational process of thought i.e. (after considering the reasons for and against the action). Rational product motives are aroused through appeals to reasons. It involves a conscious reasoning about a course of action.8

When appeal is made on rational product motives, the consumers are made to feel like they are reaching the buying decision purely by themselves, and primarily through a rational process of thought. To arouse such feelings, it is absolutely necessary to present valid reasons indicating the rational for taking the action as suggested in the appeal. For example, an advertisement for a Panasonic tape recorder may stress flexibility (in the sense that it can be operated with batteries and electricity, economy to the use of power, durability and perhaps, guaranteed for life.8

16 The aim of the advertisement is to get the reader to reason along the same line and probably respond to a combination of rational appeal and come up with a decision that it is the right product to buy. Other rational product motives include convenience, availability of spare parts and repair services.8

Operational and socio-psychological product motives A second classification of motives is on the belief that the consumer’s satisfaction from a product comes partly from the physical performance of the product and partly from his “social and psychological interpretation of the product and its performance. For example, a young man who bought a high quality stereo set as the most efficient way to entertain himself and his visitors is influenced by the operational product motive.

In contrast, the young lady who receives psychological satisfaction from the bottle of expensive French perfume because she associates it with an advertisement pic- turing a heavy romance or because of her believe in social prestige of the perfume is motivated by a socio-psychological product motives.8

Conscious and unconscious motives (Dormant motives) Another classification of product buying motives is based upon the fact that while some motives are within the level of awareness of the consumer, other is not.

Conscious motives are those that are within the level of awareness of the consumer. The consumer is so conscious of the motive or motives that he dose not need to be aroused through any marketing strategy variable before a decision to purchase is made. Knowledge of buying motives enables the right motives to the target market to get them to take buying decision.8

Classification of products Broadly speaking, products or goods may be classified into two major categories: consumer products and industrial product (goods). Consumer products are products and services bought by final consumer’s for personal consumption whereas industrial products or goods are destined for use in further production of (goods)

17 products and services. An adding machine or calculator purchased by a whole- saler for use in the office, a car purchased by a taxi driver for use in transportation of passengers and raw materials, or spare parts purchased by a manufacturer are all industrial goods or product.9

However, a calculator purchased by a student to help him in doing a course in sta- tistic, a car purchased by a lecturer for household use and spare parts purchased by him for maintenance of his vehicle are all customer good and products. This suggest that often, it is not possible to place a product permanently in one class or the other until the purpose for which the product is purchased is known. Later we shall examine how each of those major product categories is further classified.9

Buying habits and classification of consumer products It is not enough for the manufacturers and middlemen to know the buying motives of consumers; they should also be familiar with their buying habits. Buying habits generally refers to how, when and where consumers buy. They apply both to buyers of industrial and consumers goods as well. However, the purchasing habits of an industrial buyer or user when analyzed in terms of how, when and where are quite different from that of the buyer or users of the consumer goods. Buying habits are being discussed in this section with reference to consumer’s goods only.8

In other words, to find out how the consumers buy, we may ask the following questions: • How does the consumer buy impulsively? • Does he buy once a week?

To find out where the consumer shops, you may ask: • Where does he buy his men’s clothing ( from department stores, speciality stores “e.g. boutiques”, discount stores or where? To find out when he buys, they following questions may be raised: • When does he shop (end of the week, or end of the month)?

If the consumers are fund of buying impulsively or at the most accessible or convenient store, the manufacturer of the consumer goods will seek for maximum

18 exposure for their goods. But if consumers are in the habit of going out of their way, simply because they want quality women’s outfit, and they can afford a considerable searching time for it, then the manufacturers of such outfit may restrict their distributive outlets to one or two stores in the city.8

Based on this line of thought, Prof. Copeland of USA stated that the first step a manufacturer of consumer goods should take in selecting a trade channel is to classify his products on the basis of consumers buying habits. As an aid to such a step, he developed a three step classification of consumers goods based on buying habits, as follows: • Convenient goods, • Shopping goods and • Specialty goods. However, unsought goods have been added more recently, bringing the classification to be four.8

Convenient goods: Are those goods which consumers often desire to buy without much bother to themselves, at the most convenient and accessible stores. Usually, the product are of low unit values and are purchased as soon as the desire for it arises. Examples include soap, candy, chewing gum, ice cream, newspaper, cigarettes and fast food.8

Marketing of convenient goods: Since the consumers wish to buy good with minimum of effort, the manufacturers of convenient goods should attempt to secure maximum exposure for their products. With regards to distribution intensity, it is more feasible that the manufacturers to engage in intensive distribution. This implies that the product should be distributed in as many stores as possible. The stores should be located to the consumers as close as possible, since the unit value of the convenient goods are low, an indirect or long channel of distribution is recommended.8

Shopping goods: Shopping goods are less frequently purchased customer products and services that

19 consumers would desire to buy only after comparing quality, style, price and suit- ability of this product in different stores. Usually, these products are of high unit value. They are purchased once in a while unlike convenience goods which are purchased as soon as the idea enters the mind of the consumers. Examples include furniture, clothing, rugs, men’s clothing, stereo sets and electrical appliances.8

Marketing of shopping goods: Since consumers of shopping goods like to compare prices and quality in different stores, stores engaged in selling shopping goods often congregate in shopping centers in big cities. Usually, these stores perform better when they are located in few hundred meters away from each other. The manufacturer of such goods are not interested in a wide spread of distribution as in convenient goods. Rather they are more interested in the quality of the stores that handle these goods. Therefore, the distribution intensity should be selective in which case; few stores are chosen to distribute the products. There are no good examples of such stores in Botswa- na. Department deal mainly on shopping goods. A larger percentage of shopping goods are sold directly from the manufacturers to the larger scale retailer (department stores) without the aid of middlemen. Stores handling shopping goods are usually very large-scale retailers. They have the buying capacity, a factor which encourages direct sale and permits shipments from the manufacturers on economic basis.8

Specialty goods: These are consumer products with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort. In other words, the buyers of such goods are willing to go a long way to searching for it. Examples are expensive women’s fine watches, designer clothes, services of medical or legal specialists, high quality men’s and women’s clothing, high quality musical instruments, shoes etc. The unit values of these products are very high.8 Marketing of specialty goods: Since the consumers of such products have formed the habit of going a long way searching for it, the manufacturers of such goods neither need wide-spread (intensive) distribution as required in convenient goods nor do they need the major

20 outlets, in shopping areas that are required for marketing of shopping goods. Con- sequently, they use exclusive agency whereby only one dealer is made to be sole representative for certain areas (exclusive distribution).8

Unsought products: These are consumers products that the consumer either does not know about or knows about but does not normally thinks of buying. Classic examples of unknown but unsought products and services, blood donation of Red Cross. By their very nature, unsought products require a lot of advertising, personal selling and other marketing efforts.8

Industrial goods: Industrial goods are those purchased for further processing or for use in conducting of business. The three groups of industrial product and services include materials and parts, capital items and supplies and services. Materials and parts include raw materials and manufactured materials include cement, wires, component parts, tires. Capital item are industrial products that aids the buyer in production. It includes installation and accessory equipment. Installations consist of major purchases such as buildings (factories, offices) and fixed equipment such as elevators, generators, large computer system. Accessory equipment includes portable factory equipment and tools (hand tools, lift trucks) and office equipment (computers, fax machines, desk). They have a shorter life than installations supplies: includes operating supplies (lubricants, coal, paper, pencil) and repair and maintenance items (paint, nails, brooms). They are convenient product of the industrial field because they are usually purchase with minimum of effort or comparison.8

Product development: New product development consists of the company seeking increased sales by developing new or improved product for its currents market.10

There are three possibilities - The company can develop new product features or content, through attempting to adapt, modify, magnify, minify, substitute, re-arrange, reverse or

21 combine existing features. - The company can create different quality version of the product. - The company can develop additional models and sizes.10

Pricing objectives: In the case of a profit oriented enterprise, the pricing objectives may be the following: • pricing to the maximum, • pricing to maintain market share • pricing to achieve a target return on investment or net sales • pricing to stabilize price • Pricing to meet or prevent competition.11

Product development and Product life cycle Product development involves developing the product concept into physical product in order to ensure that the product idea can be turned into a workable product.8 • Calls for large jump in investment. • Prototypes are made. • Prototype must have correct physical features and convey psychological char- acteristics8

Eg: Gillette uses employee volunteers to test new shaving products. Every working day at Gillette, 200 volunteers from various departments come to work unshaven. The volunteers are given razors, shaving cream or after shave to use. The volunteers evaluate razors for sharpness of blade, smoothness of glide, ease of handling. In a nearby shower room, woman performs the same ritual on their legs, under- arms, and what the company delicately refers to as “Bikini area”.12 After launching the new product, management wants the product to enjoy a long and happy life. Although the company doesn’t expect its product to sell forever, the company wants to earn a decent profit to cover all the effort and risk that went into launching it.12

22 Product Life Cycle (PLC) is the course of a products sales and profits over its lifetime. It involves five distinct stages: product development, introduction, growth, maturity and decline. Figure given below shows a typical product life cycle (PLC) although its exact length and shape is not known in advance.12

Figure 1. Product Life Cycle12

Introduction Stage of PLC The introduction stage starts when the new product is first launched. Introduction takes time, and sales growth is apt to be slow. Products such as Instant coffee, frozen foods etc lingered for many years before they entered a stage of rapid growth. In this stage, as compared to the others, profits are negative or low because of the low sales and high distribution and promotion expenses. Much money is needed to attract distributors and build their own inventories.12

Promotion spending is relatively high to inform consumers of the new product and get them to try it.12 Growth Stage of PLC If the new product satisfies the market, it will enter a new growth stage in which sales will start climbing quickly. The early adopters will continue to buy and later buyers will start following their lead, especially if they hear favorable word of mouth.

23 Attracted by the opportunities for profit, new competitors will enter the market. They will introduce new product features, and the market will expand. The increase in competitors will lead to increase in the number of distribution outlets, sales jump just to build reseller inventories. Prices remain same or fall only slightly. Companies keep their promotion spending at the same or a slightly higher level. Profits increase during the growth stage, as promotion expenses are spread over a large volume and as unit manufacturing costs fall. The firm uses several strategies to sustain rapid market growth rate as long as possible.12

Maturity Stage of PLC At this stage of PLC, product sales growth will slow down. The maturity stage normally lasts longer than the previous stages and poses strong challenges to marketing management. In any market, most products are in the maturity stages of the life cycle. Therefore, most of the marketing management deals with mature product.

Competitors begin marking down prices, increasing their advertising and sales promotion and allocate their R&D budgets to find better versions of the product. These steps lead to a drop in profit. Some of the weaker competitors start dropping out, and the industry eventually contains only well established competitors.12

Decline Stage of PLC The sales of most product forms and brands eventually dip. The decline may be slow or rapid depends on the products. Sales may plunge to zero or they may drop to a level where they continue for many years. This stage is the decline stage. As sales and profits decline, some firms withdraw from the market. Carrying a weak product can be very costly to the firm, and not just in profit terms. A weak product often requires frequent price and inventory adjustments. A products falling reputation can cause customers concern about the company and its products. For these reasons, companies need to pay more attention to their aging products. The firm’s first task is to identify those products in the decline stage by regularly

24 reviewing sales, market shares, costs and profit trends.12

Generic Strategy: Types of Competitive Advantage Basically, strategy is about two things: deciding where you want your business to go, and deciding how to get there. A more complete definition is based on competitive advantage, the object of most corporate strategy:

Competitive advantage grows out of value a firm is able to create for its buyers that exceeds the firm’s cost of creating it. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price. There are two basic types of competitive advantage: cost leadership and differentiation. -- Michael Porter, Competitive Advantage, 1985, p.3

The figure below defines the choices of “generic strategy” a firm can follow. A firm’s relative position within an industry is given by its choice of competitive advantage (cost leadership vs. differentiation) and its choice of competitive scope. Competitive scope distinguishes between firms targeting broad industry segments and firms focusing on a narrow segment. Generic strategies are useful because they characterize strategic positions at the simplest and broadest level. Porter maintains that achieving competitive advantage requires a firm to make a choice about the type and scope of its competitive advantage. There are different risks inherent in each generic strategy, but being “all things to all people” is a sure recipe for mediocrity - getting “stuck in the middle”.12

Treacy and Wiersema (1995) offer another popular generic framework for gaining competitive advantage. In their framework, a firm typically will choose to emphasize one of three “value disciplines”: product leadership, operational excellence, and customer intimacy.13

25 COMPETITIVE ADVANTAGE Lower Cost Differentiation

Broad 1. Cost Leadership 2. Differentiation Target COMPETITIVE SCOPE Narrow 3A. Cost Focus 3B. Differentiation Target Focus

Figure 2. Porter’s Generic Strategies (Porter, 1985)13

Conceptual Strategy Frameworks: How Competitive Advantage is Created

Frameworks vs. Models We distinguish here between strategy frameworks and strategy models. Strategy models have been used in theory building in economics to understand industrial organization. However, the models are difficult to apply to specific company situations. Instead, qualitative frameworks have been developed with the specific goal of better informing business practice. In another sense, we may also talk about “frameworks” in this class as referring to the guiding analytical approach you take to your project (i.e. decision analysis, economics, finance, etc.).13

Some Perspective on Strategy Frameworks: Internal and External Framing for Strategic Decisions It may be helpful to think of strategy frameworks as having two components: internal and external analysis. The external analysis builds on an economics perspective of industry structure, and how a firm can make the most of competing in that structure. It emphasizes where a company should compete, and what’s important when it does compete there. Porter’s 5 Forces and Value Chain concepts comprise the main externally-based framework. The external view helps inform strategic

26 investments and decisions. Internal analysis, like core competence for example, is less based on industry structure and more in specific business operations and decisions. It emphasizes how a company should compete. The internal view is more appropriate for strategic organization and goal setting for the firm.13

Porter’s focus on industry structure is a powerful means of analyzing competitive advantage in itself, but it has been criticized for being too static in an increasingly fast changing world. The internal analysis emphasizes building competencies, resources, and decision-making into a firm such that it continues to thrive in a changing environment. Though some frameworks rely more on one type of analysis than another, both are important. However, neither framework in itself is sufficient to set the strategy of a firm. The internal and external views mostly frame and inform the problem. The actual firm strategy will have to take into account the particular challenges facing a company, and would address issues of financing, product and market, and people and organization. Some of these strategic decisions are event driven (particular projects or reorgs responding to the environment and opportunity), while others are the subject of periodic strategic reviews.13

Porter’s 5 Forces & Industry Structure What is the basis for competitive advantage? Industry structure and positioning within the industry are the basis for models of competitive strategy promoted by Michael Porter. The “Five Forces” diagram captures the main idea of Porter’s theory of competitive advantage. The Five Forces define the rules of competition in any industry. Competitive strategy must grow out of a sophisticated understanding of the rules of competition that determine an industry’s attractiveness. Porter claims, “The ultimate aim of competitive strategy is to cope with and, ideally, to change those rules in the firm’s behavior.” (1985, p. 4) The five forces determine industry profitability, and some industries may be more attractive than others. The crucial question in determining profitability is how much value firms can create for their buyers, and how much of this value will be captured or competed away. Industry structure determines who will capture the value. But a firm is not a complete prisoner of industry structure - firms can

27 influence the five forces through their own strategies. The five-forces framework highlights what is important, and directs manager’s towards those aspects most important to long-term advantage. Be careful in using this tool: just composing a long list of forces in the competitive environment will not get you very far – it’s up to you to do the analysis and identify the few driving factors that really define the industry. Think of the Five Forces framework as sort of a checklist for getting started, and as a reminder of the many possible sources for what those few driving forces could be. 13

Entry Barriers Rivalry Determinants • Economies of scale • Industry growth • Proprietary product differences • Fixed (or storage) costs / value added • Brand identity • Intermittent overcapacity • Switching costs New Entrants • Product differences • Capital requirements • Brand identity • Access to distribution • Switching costs • Absolute cost advantages • Concentration and balance Proprietary learning curve Threat of • Informational complexity Access to necessary inputs New Entrants • Diversity of competitors Proprietary low-cost product design • Corporate stakes • Government policy • Exit barriers • Expected retaliation Industry Bargaining Power Competitors Bargaining Power of Suppliers of Buyers Suppliers Buyers

Intensity of Rivalry Determinants of Buyer Power Determinants of Supplier Power • Differentiation of inputs • Switching costs of suppliers and firms in the industry Threat of Bargaining Leverage Price Sensitivity • Presence of substitute inputs Substitutes • Buyer concentration vs. • Price/total purchases • Supplier concentration firm concentration • Product differences • Importance of volume to supplier • Buyer volume • Brand identity • Cost relative to total purchases in the industry • Buyer switching costs • Impact on quality/ • Impact of inputs on cost or differentiation relative to firm performance • Threat of forward integration relative to threat of Substitutes switching costs • Buyer profits backward integration by firms in the industry • Buyer information • Decision maker’s • Ability to backward incentives Determinants of Substitution Threat integrate • Relative price performance of substitutes • Substitute products • Switching costs • Pull-through • Buyer propensity to substitute

Figure 3. Porter’s 5 Forces - Elements of Industry Structure (Porter, 1985)13

How is competitive advantage created? At the most fundamental level, firms create competitive advantage by perceiving or discovering new and better ways to compete in an industry and bringing them to market, which is ultimately an act of innovation. Innovations shift competitive

28 advantage when rivals either fail to perceive the new way of competing or are un- willing or unable to respond. There can be significant advantages to early movers responding to innovations, particularly in industries with significant economies of scale or when customers are more concerned about switching suppliers. The most typical causes of innovations that shift competitive advantage are the following: • new technologies • new or shifting buyer needs • the emergence of a new industry segment • shifting input costs or availability • changes in government regulations.13

How is competitive advantage implemented? But besides watching industry trends, what can the firm do? At the level of strategy implementation, competitive advantage grows out of the way firms perform discrete activities - conceiving new ways to conduct activities, employing new procedures, new technologies, or different inputs. The “fit” of different strategic activities is also vital to lock out imitators. Porters “Value Chain” and “Activity Mapping” concepts help us think about how activities build competitive advantage.13

The value chain is a systematic way of examining all the activities a firm performs and how they interact. It scrutinizes each of the activities of the firm (e.g. development, marketing, sales, operations, etc.) as a potential source of advantage. The value chain maps a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. Differentiation results, fundamentally, from the way a firm’s product, associated services, and other activities affect its buyer’s activities. All the activities in the value chain contribute to buyer value, and the cumulative costs in the chain will determine the difference between the buyer value and producer cost.13

A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors. One of the reasons the value

29 chain framework is helpful is because it emphasizes that competitive advantage can come not just from great products or services, but from anywhere along the value chain. It’s also important to understand how a firm fits into the overall value system, which includes the value chains of its suppliers, channels, and buyers.13

With the idea of activity mapping, Porter (1996) builds on his ideas of generic strategy and the value chain to describe strategy implementation in more detail. Competitive advantage requires that the firm’s value chain be managed as a system rather than a collection of separate parts. Positioning choices determine not only which activities a company will perform and how it will configure individual activities, but also how they relate to one another. This is crucial, since the essence of implementing strategy is in the activities - choosing to perform activities differently or to perform different activities than rivals. A firm is more than the sum of its activities. A firm’s value chain is an interdependent system or network of activities, connected by linkages. Linkages occur when the way in which one activity is performed affects the cost or effectiveness of other activities. Linkages create tradeoffs requiring optimization and coordination.13

Porter describes three choices of strategic position that influence the configuration of a firm’s activities: • variety-based positioning - based on producing a subset of an industry’s products or services; involves choice of product or service varieties rather than customer segments. Makes economic sense when a company can produce particular products or services using distinctive sets of activities. (i.e. Jiffy Lube for auto lubricants only) • needs-based positioning - similar to traditional targeting of customer segments. Arises when there are groups of customers with differing needs, and when a tailored set of activities can serve those needs best. (i.e. Ikea to meet all the home furnishing needs of a certain segment of customers) • access-based positioning - segmenting by customers who have the same needs, but the best configuration of activities to reach them is different. (i.e. Carmike Cinemas for theaters in small towns).13

30 Porter’s major contribution with “activity mapping” is to help explain how different strategies, or positions, can be implemented in practice. The key to successful implementation of strategy, he says, is in combining activities into a consistent fit with each other. A company’s strategic position, then, is contained within a set of tailored activities designed to deliver it. The activities are tightly linked to each other, as shown by a relevance diagram of sorts. Fit locks out competitors by creating a “chain that is as strong as its strongest link.” If competitive advantage grows out of the entire system of activities, then competitors must match each activity to get the benefit of the whole system.13

Porter defines three types of fit: • simple consistency - first order fit between each activity and the overall strategy • reinforcing - second order fit in which distinct activities reinforce each other • optimization of effort - coordination and information exchange across activities to eliminate redundancy and wasted effort.13

How is competitive advantage sustained? Porter (1990) outlines three conditions for the sustainability of competitive advantage: • Hierarchy of source (durability and imitability) - lower-order advantages such as low labor cost may be easily imitated, while higher order advantages like proprietary technology, brand reputation, or customer relationships require sustained and cumulative investment and are more difficult to imitate. • Number of distinct sources - many are harder to imitate than few. • Constant improvement and upgrading - a firm must be “running scared,” creating new advantages at least as fast as competitors replicate old ones.13

Core Competence and Capabilities Proponents of this framework emphasize the importance of a dynamic strategy in today’s more dynamic business environment. They argue that a strategy based on a “war of position” in industry structure works only when markets, regions, products, and customer needs are well defined and durable. As markets fragment and proliferate, and product life cycles accelerate, “owning” any particular mar-

31 ket segment becomes more difficult and less valuable. In such an environment, the essence of strategy is not the structure of a company’s products and markets but the dynamics of its behavior. A successful company will move quickly in and out of products, markets, and sometimes even business segments. Underlying it all, though, is a set of core competencies or capabilities that are hard to imitate and distinguish the company from competition. These core competencies, and a continuous strategic investment in them, govern the long term dynamics and potential of the company.13

What are core competencies and capabilities? • Prahalad and Hamel (1990) speak of core competencies as the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technology. These skills underlie a company’s various product lines, and explain the ease with which successful competitors are able to enter new and seemingly unrelated businesses. Three tests can be applied to identify core competencies: (1) provides potential access to wide variety of markets, (2) makes significant contribution to end user value, and (3) difficult for competitors to imitate. • Examples of core competence: Sony in miniaturization, allowing it to make everything from Walkmans to video cameras to notebook computers. Canon’s core competence in optics, imaging, and microprocessor controls have enabled it to enter markets as seemingly diverse as copiers, laser printers, cameras, and image scanners. • Stalk, Evans, and Schulman (1992) speak of capabilities similarly, but defined more broadly to encompass the entire value chain rather than just specific technical and production expertise. • Examples of capabilities: Wal-mart in inventory management, Honda in dealer management and product realization.13

Implications for strategy? • Portfolio of competencies. An essential lesson of this framework is that competencies are the roots of competitive advantage, and therefore businesses should be organized as a portfolio of competencies (or capabilities) rather

32 than a portfolio of businesses. Organization of a company into autonomous strategic business units, based on markets or products, can cripple the ability to exploit and develop competencies - it unnecessarily restricts the returns to scale across the organization. Core competence is communication, involve- ment, and a deep commitment to working across organizational boundaries. • Products based on competencies. Product portfolios (at least in technology- based companies) should be based on core competencies, with core products being the physical embodiment of one or more core competencies. Thus, core competence allows both focus (on a few competencies) and diversification (to whichever markets firm’s capabilities can add value). To sustain leadership in their chosen core competence areas, companies should seek to maximize their world manufacturing share in core products. This partly determines the pace at which competencies can be enhanced and extended (through a learning-by- doing sort of improvement). • Continuous investment in core competencies or capabilities. The costs of losing a core competence can be only partly calculated in advance - since the embedded skills are built through a process of continuous improvement, it is not something that can be simply bought back or “rented in” by outsourcing. Wal-mart, for example, has invested heavily in its logistics infrastructure, even if the individual investments could not be justified by ROR analysis. They were strategic investments that enabled the company’s relentless focus on customer needs. While Wal-mart was building up its competencies, K-mart was outsourcing whenever it was cheapest. • Caution: core competencies as core rigidities. Bowen et al. talk about the limitations to restricting product development to areas in which core competencies already exist, or core rigidities. Good companies may try to incrementally improve their competencies by bringing in one or two new core competencies with each new major development project they pursue.13

Resource-Based View of the Firm (RBV) What is RBV? The RBV framework combines the internal (core competence) and external (industry structure) perspectives on strategy. Like the frameworks of core competence and

33 capabilities, firms have very different collections of physical and intangible assets and capabilities, which RBV calls resources. Competitive advantage is ultimately attributed to the ownership of a valuable resource. Resources are more broadly defined to be physical (e.g. property rights, capital), intangible (e.g. brand names, technological know how), or organizational (e.g. routines or processes like lean manufacturing). No two companies have the same resources because no two companies have had the same set of experience, acquired the same assets and skills, or built the same organizational culture. And unlike the core competence and capabilities frameworks, though, the value of the broadly-defined resources is determined in the interplay with market forces. Enter Porter’s 5 Forces. For a resource to be the basis of an effective strategy, it must pass a number of external market tests of its value.13

Collins and Montgomery (1995) offer a series of five tests for a valuable resource: 1. Inimitability - how hard is it for competitors to copy the resource? A company can stall imitation if the resource is (1) physically unique, (2) a consequence of path dependent development activities, (3) causally ambiguous (competitors don’t know what to imitate), or (4) a costly asset investment for a limited market, resulting in economic deterrence. 2. Durability - how quickly does the resource depreciate? 3. Appropriability - who captures the value that the resource creates: company, customers, distributors, suppliers, or employees? 4. Substitutability - can a unique resource be trumped by a different resource? 5. Competitive Superiority - is the resource really better relative to competitors?13

Similarly, but from a more external, economics perspective, Peteraf (1993) pro- poses four theoretical conditions for competitive advantage to exist in an industry: 1. Heterogeneity of resources => rents exist A basic assumption is that resource bundles and capabilities are heterogeneous across firms. This difference is manifested in two ways. First, firms with superior resources can earn Ricardian rents (profits) in competitive markets because they

34 produce more efficiently than others. What is key is that the superior resource remains in limited supply. Second, firms with market power can earn monopoly profits from their resources by deliberately restricting output. Heterogeneity in monopoly models may result from differentiated products, intra-industry mobility barriers, or first-mover advantages, for example. 2. Ex-post limits to competition => rents sustained Subsequent to a firm gaining a superior position and earning rents, there must be forces that limit competition for those rents (imitability and substitutability). 3. Imperfect mobility => rents sustained within the firm Resources are imperfectly mobile if they cannot be traded, so they cannot be bid away from their employer; competitive advantage is sustained. 4. Ex-ante limits to competition => rents not offset by costs Prior to the firm establishing its superior position, there must be limited competition for that position. Otherwise, the cost of getting there would offset the benefit of the resource or asset.13

Implications for strategy? • Managers should build their strategies on resources that pass the above tests. In determining what are valuable resources, firms should look both at external industry conditions and at their internal capabilities. Resources can come from anywhere in the value chain and can be physical assets, intangibles, or routines. • Continuous improvement and upgrading of the resources is essential to prospering in a constantly changing environment. Firms should consider industry structure and dynamics when deciding which resources to invest in. • In corporations with a divisional structure, it’s easy to make the mistake of optimizing divisional profits and letting investment in resources take a back seat. • Good strategy requires continual rethinking of the company’s scope, to make sure it’s making the most of its resources and not getting into markets where it does not have a resource advantage. RBV can inform about the risks and benefits of diversification strategies.13

35 Alternative Frameworks: Evolutionary Change and Hypercompetition Recently, strategy literature has focused on managing change as the central strategic challenge. Change, the story goes, is the striking feature of contemporary business, and successful firms will be the ones that deal most effectively with change, not simply those that are good at planning ahead. When the direction of change is too uncertain, managers simply cannot plan effectively. When industries are rapidly and unpredictably changing, strategy based on industry analysis, core capabilities, and planning may be inadequate by themselves, and would be well complemented by an orientation towards dealing with change effectively and continuously.13

Evolutionary Change Theories that draw analogies between biological evolution and economics or business can very satisfying: they explain the way things work in the real world, where analysis and planning is often a rarity. Moreover, they suggest that strategies based on flexibility, experimentation and continuous change and learning can be even more important than rigorous analysis and planning. Indeed, overplanning is a danger to be avoided.

In Competing on the Edge, Eisenhardt (1998) advocates a strategy based on what she calls “competing on the edge,” combining elements of complexity theory with evolutionary theory. In such a framework, firms develop a “semi-coherent strategic direction” of where they want to go. They do this by having the right balance between order and chaos - firms can then successfully evolve and adapt to their unpredictable environment. By competing at the “edge of chaos,” a firm creates an organization that can change and produce a continuous flow of competitive advantages that form the “semi-coherent” direction. Firms are not hindered by too much planning or centralized control, but they have enough structure so that change can be organized to happen. They successfully evolve, because they pursue a variety of moves, and in doing so make some mistakes but also relentlessly reinvent the business by discovering new growth opportunities. This strategy is characterized by being unpredictable, uncontrolled, and inefficient, but it works. It’s important to note that firms should not just react well to change, but must also

36 do a good job of anticipating and leading change. In successful businesses, change is time-paced, or triggered by the passage of time rather than events.13

In Built to Last, Collins and Porras (1994) outline habits of long-successful, vi- sionary companies. Underlying the habits is an orientation towards evolutionary change: try a lot of stuff and keep what works. Evolutionary processes can be a powerful way to stimulate progress. Importantly, though, Collins and Porras also find that successful companies each have a core ideology that must be preserved throughout the progress. There is no one formula for the “right” set of core values, but it is important to have them. In strategy-speak, it is this core ideology that most fundamentally differentiates the firm from competitors, regardless of which market segments they get into. They are deeply held values that go beyond “vision statements” - they are mechanisms and systems that are built into the system over time. Attention to the core beliefs may sometimes defy short-term profit incentives or conventional business wisdom, but it is important to maintain them. Examples of core ideologies are: HP’s commitment to making an “original technical contribution” in every market they enter, Wal-mart’s “exceed customer expectations,” Boeing’s “being on the leading edge of aviation,” and 3M’s “respect for individual initiative.” Notice the “maximize shareholder wealth” is not an adequate core ideology - it does not inspire people at all levels and provides little guidance.13

In the context of strategy and planning, this book offers a couple of important lessons: • Unplanned, evolutionary change can be an important component to success. Strategy and planning should foster and complement such change, not suffocate it. • Certain core beliefs are fundamental to organizations, and should be preserved at all costs. Not everything about an organization is a candidate for change in considering alternative strategies.13

37 Hypercompetition Traditional approaches to strategy stress the creation of advantage, but the concept of hypercompetition teaches that strategy is also the creative destruction of an opponent advantage. This is because in today’s environment, traditional sources of competitive advantage erode rapidly, and sustaining advantages can be a dis- traction from developing new ones. Competition has intensified to make each of the traditional sources of advantage more vulnerable; the traditional sources are: price & quality, timing and know-how, creation of strongholds (entry barriers have fallen), and deep pockets. The primary goal of this new approach to strategy is disruption of the status quo, to seize the initiative through creating a series of temporary advantages. It is the speed and intensity of movement that characterizes hypercompetition. There is no equilibrium as in perfect competition, and only temporary profits are possible in such markets.13

Successful strategy in hypercompetitive markets is based on three elements: • Vision for how to disrupt a market (setting goals, building core competencies necessary to create specific disruptions) • Key capabilities enabling speed and surprise in a wide range of actions • Disruptive tactics illuminated by game theory (shifting the rules of the game, signaling, simultaneous and strategic thrusts).13

Additional Tools for Strategic Thinking and Analysis Game Theory Game Theory in Strategy Game theory helps analyze dynamic and sequential decisions at the tactical level. The main value of game theory in strategy is to emphasize the importance of thinking ahead, thinking of the alternatives, and anticipating the reactions of other players in your “game.” Key concepts relevant to strategy are the payoff matrix, extensive form games, and the core of a game. Application areas in strategy are: • new product introduction • licensing versus production • pricing • R&D

38 • advertising • regulation13

The Importance of Understanding “The Game” Successful strategy cannot depend just on one firm’s position in industry, capabilities, activities, or what have you. It depends on how others react to your moves, and how others think you will react to theirs. By fully understanding the dynamic with others, you can recognize win-win strategies that make you better off in the long term, and signaling tactics that avoid lose-lose outcomes. Moreover, if you understand the game, you can take actions to change the rules or players of the game in your favor. Brandenburger and Nalebuff (1995) give some good examples of this. One way a company can change the game and capture more value is by changing the value other players can bring to it, as the Nintendo example illustrated. In summary, companies can change their game of business in their favor by changing: • players (“Value Net”) - customers, suppliers, substitutors, and complemen- tors (not just the competitors) • added values - the value that each player brings to the collective game • rules - laws, customs, contracts, etc. that give a game its structure • tactics - moves used to shape the way players perceive the game and hence how they play • scope - boundaries of the game.13

Game theory has been a burgeoning branch of economics in recent years. It is a complex subject that spans games of static (one-time) and dynamic (repeated) nature under perfect or imperfect information. The references below will be helpful for those wishing to explore the theory and modeling of game theory in more detail. For strategy, though, it can often be a major step just to recognize certain situations as games, and thinking about how a player can set out to change the game.13

39 Options Options theory has influenced corporate strategy unlike any other paradigm coming from Wall Street. The “real option” is analogous to the financial option in that a company with an investment opportunity holds the right but not the obligation to purchase an asset at some time in the future. Business schools have taught managers to analyze/evaluate investment decisions using net present value (NPV), which assumes one of two things: 1) the investment is reversible or 2) if not, it is a now-or-never proposition. In fact, most investment decisions are irrevocable allocations of resources and capable of being delayed. Dixit and Pindyck (1995) discuss how the options approach to capital investment provides a richer framework that allows managers to address the issues of irreversibility, uncertainty, and timing more directly.13

The options framework places value on flexibility (keeping the investment option alive) and modularity (creating options):

Flexibility examples: 1) Investments in R&D can create options that allow the company to undertake other investments in the future should market conditions be favorable. 2) A mining facility operating at a loss given current prices may be deliberately kept open because closure would incur the opportunity cost of giving up the option to wait for higher future prices.13

Modularity examples: 1) A land purchase could lead to development of mineral reserves. 2) An electric utility could invest in small additions to capacity as needed to meet uncertain demand instead of building expensive, large-scale plants.

The option is structured such that the company can exercise it when profitable and let it expire when it is not, depending on how uncertainty is resolved. As long as there are some contingencies under which the company would choose not to invest, the option has value. Thus, options theory captures the fact that the greater the uncertainty, the greater the value of the opportunity and the greater the incen- tive to wait and keep the option alive rather than exercise it.13

40 Implications for strategy? • The options approach is particularly appropriate for companies in very vol- atile and unpredictable industries, such as electronics, telecommunications, biotech, and pharmaceutical industries. • When raising capital, greater value should be placed on investments that create options, compared to those that exercise options. • Options are especially appropriate for analyzing a series of phased investments. • Options theory helps us understand how traditional discounted cash flow analysis systematically underestimates the benefits of waiting. • Real options also provide a means for evaluating disinvestment, an often overlooked opportunity to avoid future losses (e.g., closing a facility in response to a market downturn). • Consider whether the client would be in a better position after some uncertainty is resolved. In framing alternatives, consider strategies that include downstream decisions. Options might be the ideal way to model such decision opportunities.13

Strategic Scenarios Scenarios are powerful vehicles for challenging our mental models of the world. The value is not in predicting the future, but in making better decisions today. The decision makers could be individuals, businesses, or policy makers. Scenarios are a nice complement to the principles of decision analysis: the DA cycle ends in decisions and insights, while the scenario process ends in a scenario.13

Why Develop Scenarios? - Uncovering the Decision Besides predicting the future, scenarios aid in strategic decision making: • Make the decision conscious. The first step in the scenario process is making the decision conscious. People’s decision agenda is often unconscious, and people should not avoid a decision just because they feel powerless. • Articulate current mindsets. Scenarios are like stories we can tell ourselves - they are a powerful way of suspending disbelief and avoiding the dangers of denial. Often, people may refuse to think about possibilities that are unap-

41 pealing to them. The process of scenario building, considering both opti- mistic and pessimistic and just plain different futures, overly exposes “mental models” and assumptions that may be inbred in the organization. • Develop insights and solid instincts. Insights come from asking the right questions - from having to consider more than one scenario. Also, scenario building helps develop a gut feeling for a situation, and assures us that we’ve been comprehensive in covering the bases relevant to our decision.13

How to Develop Scenarios? Developing scenarios is similar to developing and pruning influence diagrams in DA, but the scope of consideration is a little broader with scenarios. Still, scenario builders should consider both narrow (situation specific) and broad questions. Typically, the scenario building exercise will result in no more than four scenarios - any more is too complex to draw insights. The set of scenarios should span a range of outcomes; typically something like “same but better,” “worse,” and “different but better.”13

Steps to developing scenarios are as follows: 1. Identify the focal issue or decision. (DA analogue: frame the decision) 2. Identify the basic driving forces influencing the outcome: social, technological, economic, political, environmental. (DA analogue?) 3. Identify the key forces in the local environment: determining the predeter- mined elements and critical uncertainties. (DA analogue: identify the uncertainties) 4. Rank the uncertainties in order of importance. (DA analogue: tornado diagram) 5. Selecting scenario plots (logics). Scenario plots typically run according to certain logics, like: winners & losers, challenge & response, evolution, revolution, cycles, etc. 6. Flesh out scenarios. Each plot will lead to a different decision today. From the different plots, narrow and combine them to form two or three coherent scenarios. 7. Assess implications of scenarios on decision.

42 8. Identify leading indicators and signposts. Learn to notice symptoms, cues, and warning signals of certain plots unraveling before you.13

Chapter Exercises 1. Do an internet search on the term “new product development” and prepare a one-page summary of your findings. 2. Do an internet search on the term “idea generation” and prepare a one-page summary of your findings. 3. Have you ever been in a situation at work or in a university organization in which you were attempting to identify new ideas that were creative? Use the dimensions of an ideal creative environment to identify which dimension existed in your situation and which ones did not. 4. You, as a consumer, see new products everyday. Choose a new product and describe what new additional benefits it purports to provide to consumers that its competitors do not. Be sure to try to focus your description on ‘new benefits’ not ‘new features.’ 5. Conceptualize a new product or new service for which you think there is a need. Describe the segment to which this new product or service will appeal and what additional benefits will accrue to these potential customers. Use the “Five W’s and H” technique to flesh out your answer. 6. The keyword “idea generation” and describe your findings in a one-page report. 7. Go to your favorite drugstore and outline the product positions that are used either for toothpaste or shampoo. Describe the different benefits customers are seeking in each different position. 8. Explain how a market segment relates to a product position 9. Create a skit to perform in your class that demonstrates the idea generation process and the ten roles in the process described in the chapter.

REFERENCES The context of this part has been adapted from the following product(s): 1. How do companies decide what products and services to market?, The access via Internet: www.principlesofmarketing.com/word/Chapter-Six.doc

43 2. Krishnan, V; Ulrich, Karl (2001). “Product development decisions: A review of the literature”. Management science 47 (1): 1–21. doi:10.1287/ mnsc.47.1.1.10668. 3. Kenneth, B. Kahn (2013). The PDMA handbook of new product development (Third edition ed.). Hoboken, New Jersey: John Wiley & Sons Inc. p. 21. ISBN 978-0-470-64820-9. 4. Koen et al. (2007). “Providing clarity and a common language to the ‘fuzzy front end’”. Research Technology Management 44 (2): 46–55. 5. Bruiyan, Nadia (2011). “A framework for successful new product development”. Journal of industrial engineering and management 4 (4): 746–770. 6. Cooper, Robert (1990). “Stage-gare systems: A new tool for managing new products”.Business Horizons 33 (3): 44–55. doi:10.1016/0007-6813(90)90040-i. 7. Author Unknown (2009). Strategies of Divergent Thinking. University of Washington. Retrieved August 6, 2009. 8. Principles of marketing. Access via Internet: www.exalogics.com/.../notes/ PRINCIPLES-OF-MARKETING-Notes.doc 9. Kotler, P., Armstrong, G., Brown, L., and Adam, S. (2006) Marketing, 7th Ed. Pearson Education Australia/Prentice Hall. 10. Krishnan, V; Ulrich, Karl (2001). “Product development decisions: A review of the literature”. Management science 47 (1): 1–21. doi:10.1287/ mnsc.47.1.1.10668 11. Pricing decisions. Access via Internet: www.icaiknowledgegateway.org/lit- tledms/download.php?id=2919 12. New-Product Development and Product Life-Cycle Strategies. Access via Internet: surejpjohn.com/website/wp-content/uploads/.../Chapter-8-summary.doc 13. Strategy and Marketing Primer. Access via Internet: web.stanford.edu/ class/msande473/483primerV3.doc

FURTHER READING 1. Lambin, J-J. Market-Driven Management. Strategic & Operational Market- ing. London: Macmillan Press Ltd., 2000. 2. McDonald, M. Marketing Plans. How to Prepare Them: How to Use Them

44 (3rd edition). Oxford: Butterworth-Heinemann. 1997. 3. Riezebos, R., Kit, B., Kootstra, G. Brand Management: A Theoretical And Practical Approach. Essex: Pearson Education Limited, 2003.

Part 2

The content and classification of service

Objective outline: 1. Explain the importance of understanding definition of service. 2. Identify the five core marketing and other business strategies of services. 3. Discuss about differences between product and services. 4. Identify strategies for creating value for customers and capturing value from customers in return.

Chapter Glossary Services marketing mix - is an extension of the 4-Ps framework. The essential elements of product, promotion, price and place remain but three additional variables – people, physical evidence and process – are included to 7–Ps mix.

People – because of the simultaneity of production and consumption in services the CE staff occupy the key position in influencing customer’s perceptions of product quality.

Physical evidence – this is the environment in which the service is delivered and any tangible goods that facilitate the performance and communication of the service.

Process – this means procedures, mechanism and flow of activities by which a service is acquired. 45 This part discusses the special issues concerning the marketing of services. This is not to imply that the principles of marketing covered in the previous chapters of this Handbook do not apply to services rather it reflects the particular characteristic of services in addition to those typical for products.1 The provision of the continuing education contains the element of the tangible and intangible. It usually provides a learning materials (physical good) and also numbers of the service activities (teaching processes, contact with customers, organisation of the courses, etc.). The distinction between physical and service offering can, therefore, be best understood as a matter of degree rather those in absolute terms. The continuing education is service –based since the value of this product is dependent on the design and delivery of the CE courses rather than the cost of the physical product (teaching materials, CDs, etc.).1 The services marketing mix is an extension of the 4-Ps framework. The essential elements of product, promotion, price and place remain but three additional variables – people, physical evidence and process – are included to 7–Ps mix. The need for the extension is due to the high degree of direct contact between the CE providers and the customers, the highly visible nature of the service process, and the simultaneity of the production and consumption. While it is possible to discuss people, physical evidence and process within the original-Ps framework (for example people can be considered part of the product offering) the extension allows a more thorough analysis of the marketing ingredients necessary for successful services marketing.1

People – because of the simultaneity of production and consumption in services the CE staff occupy the key position in influencing customer’s perceptions of product quality. In fact the service quality is inseparable from the quality of service provider. An important marketing task is to set standards to improve quality of services provided by employees and monitor their performance. Without training and control employees tend to be variable in their performance leading to variable service quality. Training is crucial so that employees understand the appropriate forms of behaviour and trainees adopt the best practices of the andragogy. Physical evidence – this is the environment in which the service is delivered and any tangible goods that facilitate the performance and communication of the ser-

46 vice. Customers look for clues to the likely quality of a service also by inspecting the tangible evidence. For example, prospective customers may look to the design of learning materials, the appearance of facilities, staff, etc. Process – this means procedures, mechanism and flow of activities by which a service is acquired. Process decisions radically affect how a service is delivered to customers. The service in CE includes several processes e.g. first contact with customers, administrative procedure regarding course delivery, preparation, delivery and evaluation of the courses. The following guideline can be useful for successful CE management:

• ensure that marketing happens at all levels from the marketing department to where the service is provided • consider introducing flexibility in providing the service; when feasible cus- tomize the service to the needs of customers • recruit high quality staff treat them well and communicate clearly to them: their attitudes and behavior are the key to service quality and differentiations • attempt to market to existing customers to increase their use of the service, or to take up new service products • sep up a quick response facility to customer problems and complaints • employ new technology to provide better services at lower costs • use branding to clearly differentiate service offering from the competition in the minds of target customers.1

Team Assignment – people, physical evidence and process Identify six most important marketing mix elements (people, psychical evidence and process) for your selected market segments.

The differential advantage and branding Only few products are unique. Often the challenge lays in finding a way to differentiate your products from a rival’s near-identical offerings. The basic question says: “How can I get an advantage over the competition?”1 When your products are better than those of your competitors, and when customers recognize this superiority, you have a real advantage. Few organisations are in this position. Most find that there is a little or nothing to distinguish their

47 own products from competitor’s. To gain competitive advantage, uncover not just differences but also attributes that customer’s value. Make sure the differences are meaningful to customers, so that your product is preferable to the others available.1 Often it is the little things that count. Customers may choose your product over a competitor’s identical product because they prefer your lecturers or because you give them coffee while delivery of the courses. Pay attention to details that could make a difference. A genuine customer-centric approach will differentiate you from competitors. Show your commitment to customers and ensure that staffs are emphatic. Review company systems and processes to make them more customers focused.1

Team Assignment – differentiate your product

Answering the following questions, try to identify the differential advantage of your CE centre:

Why should customers buy from us rather than from our competitors? What makes us different from our competitors? How are we better than our rivals? What strengths do we have that we can effectively capitalize on?

Strong, well-known products provide companies with a real competitive advantage. Use the power of branding to imbue your products with personality and meaning, ensuring they achieve a prominent position in the marketplace. The right name helps to sell products and service. It bestows individuality and personality, enabling customers to identify with your offerings and to get to know them. It makes products and services tangible and real. Choose name that enhance your company image and that are appropriate for the products and its positioning in the marketplace.1 Establish trust in your brand and customers will remain loyal. Branding means developing unique attributes so that your products are instantly recognizable, memorable, and evoke positive association. Some brands have a

48 solid and reliable personality, others are youthful and fun. Choose your company and product name, corporate colors, logo, design and promotional activity to help convey a personality and build a brand. Customers should be able to look at one of your products and assimilate all that you stand for in a second by recalling the brand values. But remember: A strong brand is not a substitute for quality but an enhancement to it. The service attributes are e.g. friendless, creativity, courtesy, helpfulness and knowledge ability. The creation of a corporate identity is a vital element of branding. Present an integrated, strong, instantly recognizable, individual image that is regarded in a positive way by your customers, and seize every opportunity to strengthen your corporate identity. It is important to maintain corporate identity consistently by issuing written guidelines for staff.1

Marketing strategy Marketing strategy is the fundamental goal of increasing sales and achieving a sustainable competitive advantage.2 Marketing strategy includes all basic, short- term, and long-term activities in the field of marketing that deal with the analysis of the strategic initial situation of a company and the formulation, evaluation and selection of market-oriented strategies and therefore contribute to the goals of the company and its marketing objectives.3 The process generally begins with a scan of the business environment, both internal and external, which includes understanding strategic constraints.4 It is generally necessary to try to grasp many aspects of the external environment, including technological, economic, cultural, political and legal aspects.5 Goals are chosen. Then, a marketing strategy or marketing plan is an explanation of what specific actions will be taken over time to achieve the objectives. Plans can be extended to cover many years, with sub-plans for each year, although as the speed of change in the merchandising environment quickens, time horizons are becoming shorter.3 Ideally, strategies are both dynamic and interactive, partially planned and partially unplanned, to enable a firm to react to unforeseen developments while trying to keep focused on a specific pathway; generally, a longer time frame is preferred. There are simulations such as customer lifetime value models which can help

49 marketers conduct “what-if” analyses to forecast what might happen based on possible actions, and gauge how specific actions might affect such variables as the revenue-per-customer and the churn rate. Strategies often specify how to adjust the marketing mix; firms can use tools such as Marketing Mix Modeling to help them decide how to allocate scarce resources for different media, as well as how to allocate funds across a portfolio of brands. In addition, firms can conduct analyses of performance, customer analysis, competitor analysis, and target market analysis. A key aspect of marketing strategy is often to keep marketing consistent with a company’s overarching mission statement.6 Marketing strategy should not be confused with a marketing objective or mission. For example, a goal may be to become the market leader, perhaps in a specific niche; a mission may be something along the lines of “to serve customers with honor and dignity”; in contrast, a marketing strategy describes how a firm will achieve the stated goal in a way which is consistent with the mission, perhaps by detailed plans for how it might build a referral network, for example. Strategy varies by type of market. A well-established firm in a mature market will likely have a different strategy than a start-up. Plans usually involve monitoring, to assess progress, and prepare for contingencies if problems arise. A strategy gives business a defined route to follow and a clear destination. Build a marketing strategy and you will ensure that marketing is a long-term way of working, not a one-off activity.1 A marketing strategy provides organization with shared vision of the future. All too often, an organization will perform a marketing task, such a direct mail shot, then sit back and see what happens. A strategic approach will ensure that you maximise returns on your marketing spending and boost the profits of your organisation.

Strategic marketing manager • has a clear picture of the future • anticipates changes in the market • works towards clear long/term goals

Non-strategic marketing manager • lives day to day without planning

50 • reacts to changes in the market • has only short-term objectives During the creating of the marketing strategy the marketing manager should proceed as follows:

1. create the team 2. review current situation 3. set objectives 4. plan action 5. implement strategy 6. review strategy1

Create your team The first steps during preparation of the marketing strategy are the hardest part. It is important to bring together a strong team to help to prepare the marketing plan. The strategic elements must be understood by every member of team in order to assure the marketing success. It is important to involve the people whose function touches on marketing, and those whose job involves considerable customer contact. Before embarking on your marketing strategy, establish common ground by agreeing definitions and purpose. Build the team unity; perhaps by organizing an away day at a pleasant venue to discuss shared marketing issues and concerns. Show that you recognise the contribution each team member can offer.1

Review current situation - perform a SWOT analysis • SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis of these four factors provides information on how to shape your marketing strategy. Devise objectives aimed at strengthening weak areas, exploit- ing strengths, seizing opportunities, and anticipating threats.

51 Team Assignment – Marketing SWOT analysis Identify your 4 strengths, weaknesses, opportunities and threats answering the questions below: 1. Do you sue your strengths to full advantage? Could you do more to capitalise on them? 2. Are there current or future opportunities you could exploit? Are new markets emerging or are there existing, untapped customer groups? 3. What threats do your competitors pose? What threats exist in wider marketplace? 4. What lets you down? What are you not good at? What do your competitors do better?

Setting objectives Draw up your objectives carefully, because your entire marketing strategy will be structured around them, and ensure that they are measurable so that you can evaluate their success.7

Short-term objective can be staging posts on the way towards fulfilling long-term goals. Analyze your situation and then ask: “What if we do nothing?” Will products become out of date? Will your competitors grow more powerful? Spend time asking “what if?” to help you realize the effects of not keeping up with customer needs and competitor activities. It can serve to spur action.7

If you have devised a set of objectives around which to build your marketing strategy, seek agreement for them across the organisation. Marketing is a discipline that cuts through many departmental boundaries. Marketing activity will have a knock-on effect in various parts of the operation so, for it to be effective, you will need the support of colleagues. Ensure they understand the need for these objectives and the impact they may have on their work.7

Plan action - investigate constraints, such as time and money, and then create a timetable of activity to give you a working marketing plan. The activities on your marketing timetable should be manageable and workable.

52 The costs of not undertaking certain marketing activities, both in missed opportunities and the effect on your reputation, should be taken into consideration.7 Look at your marketing ideas and work out the costs of each. Remember that marketing involves meeting customer need at a profit. To be justified, marketing activity should have a positive impact on the balance sheet. Examine not only the costs but also the benefit. An advertising company may cost a lot of money, but if it reaps profit amounting to several times its costs, is it cheap.7

Table 1. The example of marketing plan7

Activity Priority Start date Completion Date Organise lunch for Medium by the end of February top ten customers Produce new bro- High Mid-January end March chure Update mailing list ready for new High end March brochure Mail new High Early April brochure

Implementing strategy Some organizations invest considerable effort in developing a strategy but enthusiasm and energy wane when it comes to implementation. Ensure that your marketing strategy is put into the action, not let to gather dust on a shelf. Assign each task or activity due for implementation within the next 12 months to a named person.7

Review strategy The world is not static. Things within your organisation or within your market are likely to change over the time. If they do, you might need to redefine your objectives. Review your objectives six-monthly or annually to check that you are till on track.8

53 Answering the following questions will help you evaluate the success of your marketing strategy: 1. Have profits increased since the strategy was implemented? 2. Have we seen an increase in our customer base? 3. Have we attracted a greater number of orders, or larger individual orders? 4. Has the number of product/service enquiries risen? 5. Has awareness of our organisation and its products or services increased?8

Team assignment - Assess your marketing ability Answer the questions below. If your answer is “never: , mark Option 1, and so on. Use the Analysis at the end of the questionnaire to identify your potential weaknesses in the area of marketing.

OPTIONS: 1 Never 2 Occasionally 3 Frequently 4 Always I. We research customer needs before developing new products and services 1 2 3 4

II. Our CE centre considers customer “buying points” when promoting products. 1 2 3 4

III. Our CE centre ensures that orders are processed swiftly as well as accurately. 1 2 3 4

IV. Our CE center obtains customer information and use it to influence d ecisions. 1 2 3 4

54 V. Our CE Centre set standards to ensure effective customer care. 1 2 3 4

VI. Our CE centre take action to make sure that every customer is a satisfied customer. 1 2 3 4

VII. Our CE centre measure performance against the standards of customer care. 1 2 3 4

VIII. Our CE center take the complains of customers very seriously. 1 2 3 4

IX. Our CE centre monitor the number of customer complaints that we re- ceive. 1 2 3 4

X. Our CE center tries to see if there is anything we can learn from a customer’s complaints. 1 2 3 4

XI. Our CE center finds reasons to keep in touch with customers. 1 2 3 4

XII. Our CE center tries to turn one-off customers into regular ones. 1 2 3 4

XIII. Our CE center keeps a record of key customer contact. 1 2 3 4

XIV. Our CE centre asks customers whether they will recommend us 1 2 3 4

55 XV. Our CE centre shows customers that their business is value. 1 2 3 4

XVI. Our CE centre tries to find out why we have a lost a customer. 1 2 3 4

XVII. Our CE centre attempts to win back lost customers. 1 2 3 4

XVIII. Our CE centre is already looking for the new customers. 1 2 3 4

XIX. Our CE centre tries to nurture customer’s loyalty. 1 2 3 4

XX. Our CE centre seeks customer comment and feedback. 1 2 3 4

XXI. Our CE centre listens what customer say. 1 2 3 4

XXII. Our CE centre pay attention to the little details that make all the difference. 1 2 3 4

XXIII. Our CE centre tries to add value to our services. 1 2 3 4

XXIV. Our CE center emphasizes benefits, not features. 1 2 3 4

XXV. Our CE centre use public relations techniques to boost marketing effectiveness 1 2 3 4

56 XXVI. Our CE centre draws up a pricing strategy for every new product marketed. 1 2 3 4

XXVII. Our CE centre set objectives for publicity campaigns. 1 2 3 4

XXVIII. Our CE centre carefully target mail shots. 1 2 3 4

XXIX. Our CE centre takes care to select the right envelope for direct mail campaign. 1 2 3 4

XXX. Our CE centre tests mail shots to find the most successful combination. 1 2 3 4

XXXI. Our CE centre measures the overall effectiveness of a publicity campaign. 1 2 3 4

XXXII. Our CE centre keeps non-marketing colleagues informed of key marketing activity. 1 2 3 4

57 ANALYSIS 32-64: try to take a more organised, planned, methodical, and measured approach to improve your effectiveness 65-95: some of your marketing activity is a success, but you need to develop your skills to become wholly effective 96-128: you have adopted a thoroughly professional strategic approach to marketing and are running successful marketing campaigns. Keep up the good work to stay ahead of the competition.

Marketing in non-profit organizations Nonprofit organization is an organization that uses its surplus revenues to further achieve its purpose or mission, rather than distributing its surplus income to the organization’s directors (or equivalents) as profit or dividends. This is known as the distribution constraint. The decision to adopt a nonprofit legal structure is one that will often have taxation implications, particularly where the nonprofit seeks income tax exemption, charitable status and so on.9 The nonprofit landscape is highly varied, although many people have come to as- sociate NPOs with charitable organizations. Although charities do comprise an often high profile or visible aspect of the sector, there are many other types of nonprofits. Overall, they tend to be either member-serving or community-serving. Member-serving organizations include mutual societies, cooperatives, trade unions, credit unions, industry associations, sports clubs, retired serviceman’s clubs and peak bodies – organizations that benefit a particular group of people – the members of the organization. Typically, community-serving organizations are focused on providing services to the community in general, either globally or locally: organizations delivering human services programs or projects, aid and development programs, medical research, education and health services, and so on. It could be argued many nonprofits sit across both camps, at least in terms of the impact they make.10 For example, the grassroots support group that provides a lifeline to those with a particular condition or disease could be deemed to be serving both its members (by directly supporting them) and the broader community (through the provision of a helping service for fellow citizens). Many NPOs use the model of a double bottom line in that furthering their cause

58 is more important than making a profit, though both are needed to ensure the organization’s sustainability.11;12 Although NPOs are permitted to generate surplus revenues, they must be retained by the organization for its self-preservation, expansion, or plans.13 NPOs have con- trolling members or a board of directors. Many have paid staff including management, whereas others employ unpaid volunteers and even executives who work with or without compensation (occasionally nominal).14 In some countries, where there is a token fee, in general it is used to meet legal requirements for establishing a contract between the executive and the organization.15 Designation as a nonprofit does not mean that the organization does not intend to make a profit, but rather that the organization has no ‘owners’ and that the funds realized in the operation of the organization will not be used to benefit any owners. The extent to which an NPO can generate surplus revenues may be constrained or use of surplus revenues may be restricted.15 Non-profit organization attempt to achieve some other objectives than profit. This does not mean that they are uninterested in income as they have to generate cash to survive. However their primary goal is non – economic, e.g. to provide education.16 Marketing is of growing importance to many non-profit organizations because of the need to generate funds in an increasingly competitive arena. Even organization who rely on government - sponsored grants need to show how their work is of benefit to society: they must meet the needs of their customers. Many non-profit organizations rely on membership fees or donations, which means that communication to individuals and organization is required, and they must be persuaded to join or make a donation. This require marketing skills , which are being increasingly applied.16

Characteristics of non-profit marketing : • Education versus meeting current needs Some non-profit organizations see their role as not only meeting current needs of their customers but also educating tem in new ideas and issues, cultural development and social awareness. It can be done in harmony with providing CE as an additional value of CE course.

59 • Multiple publics Most non-profit organization serve several groups or publics. The two broad groups are donors , who may be individuals, trust , companies and governmental bodies, and clients, who include audiences and beneficiaries. The need is to satisfy both donors and clients, complicating marketing task. For example a community association providing also the CE courses may be partly funded by the local authority and partly by other donors (individuals or companies) and partly by clients. To succeed all the groups must be satisfied. • Measurement of success and conflicting objectives For profit oriented organizations success is measured ultimately on profitability. For non-profit organizations measuring success is not so easy. In universities , for example, is success measured in research terms, number of students taught, the range of qualifications or the quality of teaching? The answer is that it is a combination of these factors, which can lead to conflict: more students and larger of courses may reduce the time needed for research. Decision making is therefore complex in non-profit oriented organization. • Public scrutiny While all organization are subject to public scrutiny, public sector non-profit organization are never far from public’s attention. The reason is that they are publicity funded from taxes. This gives them extra newsworthiness as all tax-payers are interested in how their money is being spent. They have to be particularly careful that they do not become involved in controversy, which can result in bed publicity.16

Marketing procedures for non-profit organizations Despite these differences the marketing procedures relevant to profit oriented companies can also be applied to non-profit organizations. Target marketing, differentiations and marketing mix decision need to be made. These issues will be discussed with reference to the special characteristics of non-profit organizations.16 • Target marketing and differentiation Non-profit organization can usefully segment their target publics into donors and clients (customers). Within each group, sub segments of individuals and organiza-

60 tion need to be identified. These will be the target for persuasive communications, and the development of services. The need of each group must be understood. For example the donors can judge which non-profit CE centre to give the support n the basis of awareness and reputation, the confidence that funds will not be wasted on excessive administration, and the perceive worthiness of the cause. That is why the CE center needs not only to promote itself but also to gain publicity for its cause. Its level of donor funding will depend upon both of these factors. The brand name of CE centre is also important (it has been discussed n previous parts). • Developing the marketing mix Many non-profit organizations are skilled at event marketing . Events are organized to raise the funds, including dinners, dances, coffee mornings, book ales, sponsored walks and others. The pricing god the services provided by non-profit organizations may not follow the guidelines applicable to profit oriented pricing. For example the price of CE curse organized by non-profit CE center for Gypsies may be held low to encourage poor families to take advantage of this opportunity. Some non-profit organization even provide free access to services. Like most services, distribution systems for many non-profit organizations are short, with production and consumption simultaneous. This is the case also of education. Such organization have to think carefully about how to deliver their services with the convenience that customers require. For example, although the CE center is based in big city, over half of the courses for ethnic minorities may be delivered in small villages around the city. Many non-profit organizations are adept at using promotion to further their needs. The print media are popular with organization seeking donations for cases that are in common interest of whole society (education for gypsies, raising awareness in the area of abused children or women, courses to support and educate the political refugees …). Direct mail is also used to raise the funds. Mailing lists of past donors are useful here, and some organization use lifestyle geodemographic analysis to identify the type of person who is more likely to respond to direct mailing. Non-profit organization must be also aware of public opportunities which may arise because of their activities.

61 Pubic relations has an important role to play to generate positive word-of-mouth communications and to establish the identity of the non-profit organization. A key objective of communications effort should be to produce a positive assessment of the fund-raising transaction and to reduce the perceived risk of the donation so that donors develop trust and confidence in the organization and become committed to the cause.16

Team assignment – marketing of non-profit organization Consider that your CE center is non-profit organization. How does marketing in non-profit organization differ from that in profit –oriented organizations? Discuses the extend to which marketing principles can be applied and try to identify 2 marketing procedures which fit mostly for non-profit organizations.

REFERENCES The context of this part has been adapted from the following product(s): 1. The services marketing mix. Accsess via Internet: acru.uvlf.sk/doc/CME_ Present/BB_Marketing.doc 2. Baker, Michael The Strategic Marketing Plan Audit 2008. ISBN 1-902433-99- 8. p.3 3. Homburg, Christian; Sabine Kuester, Harley Krohmer (2009): Marketing Management - A Contemporary Perspective (1st ed.), London. 4. Aaker, David Strategic Market Management 2008. ISBN 978-0-470-05623-3. 5. Aaker, David Strategic Market Management 2008. ISBN 978-0-470-05623-3 6. Baker, Michael The Strategic Marketing Plan Audit 2008 ISBN 1-902433-99- 8. p. 27 7. Marketing effectively. Accsess via Internet: https://books.google.lt/ books?isbn=1405352213 8. Marketing. Accsess via Internet: acru.uvlf.sk/doc/CME_Present/Marketing_ Natasa.ppt 9. Bijan Vasigh; Ken Fleming; Liam Mackay (2010). Foundations of Airline Fi- nance: Methodology and Practice. Ashgate Publishing. p. 19. ISBN 0754677702. 10. Hansmann, R. B. (1980). The role of nonprofit enterprise. Yale law journal, 835-901.

62 11. Lyons, Mark. Third Sector: The contribution of nonprofit and cooperative enterprises in Australia. Allen & Unwin, 2001. 12. The Nonprofit Handbook: Everything You Need to Know to Start and Run Your Nonprofit Organization (Paperback), Gary M. Grobman, White Hat Com- munications, 2008. 13. “not-for-profit - definition of not-for-profit in English from the Oxford dic- tionary”. Retrieved 14 May 2015. 14. “Publication 4220 (Rev. 8-2009)” (PDF). Retrieved 31 July 2010. 15. Drucker, Peter (1989). “What Business Can Learn from Nonprofits”. Har- vard Business Review: 1–7. 16. Marketing II. Access via Internet: acru.uvlf.sk/doc/CME_Present/Market- ing_Natasa.ppt

FURTHER READING 1. Malamut, Michael E. and Blach, Thomas J. (2008). “ABA Code Revision Raises Concerns for Democracy and Parliamentary Law in Nonprofits”. Nation- al Parliamentarian, Volume 69, No. 1. 2. Charity on Trial: What You Need to Know Before You Give / Doug White (2007) ISBN 1-56980-301-3. 3. Edwards, M. and Hulme, D. (2002) NGO Performance and Accountabil- ity: Introduction and Overview. In: Edwards, M. and Hulme, D., ed. 2002. The Earthscan Reader on NGO Management. UK: Earthscan Publications Ltd., Chapter 11. 4. Becchetti, Castriota, & Depedri. Working in the For-Profit versus Not-For- Profit Sector: What Difference Does it Make?http://icc.oxfordjournals.org/content/early/2013/11/28/icc.dtt044 5. Cohen, R. Nonprofit Salaries: Achieving Parity with the Private Secto- rhttps://nonprofitquarterly.org/management/5506-nonprofit-salaries-achieving-parity-with-the-private-sector.html 6. Coffman, S. Nonprofits Can Compete with Employee Benefitshttp://www. bizjournals.com/columbus/stories/2002/12/23/focus4.html?page=all 7. Frumkin, Peter (2005). On Being Nonprofit: A Conceptual Primer. Harvard University Press.

63 8. Glasius, Marlies, Mary Kaldor and Helmut Anheier (eds.) “Global Civil So- ciety 2006/7”. London: Sage, 2005. 9. Drayton, W: “Words Matter”. Alliance Magazine, Vol. 12/No.2, June 2007. 10. Ramirez, Jr., L:”The Case for Social Benefit Organizations”.MiniDonations. org Blog, February 2010. 11. Alvarado, Elliott I.: “Nonprofit or Not-for-profit -- Which Are You?”, page 6-7. Nonprofit World, Volume 18, Number 6, November/December 2000. 12. Bruiyan, Nadia (2011). “A framework for successful new product development”. Journal of industrial engineering and management 4 (4): 746–770. 13. Cooper, Robert (1990). “Stage-gare systems: A new tool for managing new products”.Business Horizons 33 (3): 44–55. doi:10.1016/0007-6813(90)90040-i. 14. Kenneth, Kahn (2013). The PDMA handbook of new product development (Third edition ed.). Hoboken, New Jersey: John Wiley & Sons Inc. p. 34. ISBN 978-0-470-64820-9.

Part 3

Phases of product lifecycle Objective outline:

1. Describe the environmental forces that affect the company’s ability to serve its customers. 2. Explain how changes in the demographic and economic environments affect strategies of product lifecycle. 3. Discuss bout each phase of product lifecycle management.

Chapter Glossary

Project planning and initiation - this phase includes important planning, organization and administration tasks. Project execution and control - this phase is primarily focused on carrying out the project plans documented in the Project Charter. Project closure - the primary purpose of this phase is to administratively close down the project and to evaluate how effective the project execution was.

64 Life cycle costing - can apply to products, services, customers, projects or assets and, as its name implies, it cost the cost object over its projected life. Planning tool - it characterizes the marketing challenges in each stage and poses major alternative strategies. Control tool - the launched PLC concept allows the company to measure product performance against similar products launched in the past. Forecasting tool - it is less useful because sales histories exhibit diverse patterns and the stages vary in duration.

Relationship of PMLC to the Product Development Life Cycle (PDLC)

The scope of project management is not the technical work which prepares the information technology based products. Rather, the domain of project management is the management of all the factors which surround and enable the technical development work to be accomplished. These factors include project resources, time, cost, schedule and quality. Project success is often defined as meeting the project cost, schedule and quality constraints.1

The scope of the Product Development Life Cycle (PDLC) is all of the project technical functions that have to be performed to produce, maintain and support the expected product deliverables. These functions include business analysis, functional and technical requirements definition, system design, construction, rollout/release and maintenance.1

During the formation and execution of a project, the activities in the PMLC and PDLC are integrated, i.e., all technical activities are planned (using the PDLC as a source of technical activities to be performed) and executed using the planning, execution and control methods defined in the PMLC.1

If PMLC and PDLC activities are integrated during a project, why are they separated in the methodology? They are separated in order to:

65 * Recognize the natural separation of project work between technical and project management activities. And to facilitate the training and use of these activities by the project members responsible for them. * Recognize the importance of both the technical and management work. And ensure that project management activities are clearly identified and performed. Too often the technical work is stressed and the project management work is “forgotten”. Through practical project experience, the implementation of systems engineering standards, and development of systems engineering theory, the software industry has recognized the importance of project management. * Facilitate the effective maintenance (improvement) of both life cycles. If they are kept separate in the methodology, the changes in one life cycle are much less likely to affect the other.1

Relationship of PMLC to Supporting Processes

The PMLC documents project management phases, tasks, activities, expected inputs and outputs (deliverables) and organizational participation in these. The PMLC does not contain the detailed description of every method used within the life cycle. These detailed method descriptions are contained in the Supporting Processes section of the methodology. When needed, the PMLC references these Supporting processes. Methods such as project planning, project estimation, project scheduling, risk management, resource management, cost management, time management, project reporting, configuration management, incident reporting, tracking and resolution, etc. are part of the Supporting Processes.1

What Needs to be Managed?

Projects are organized and staffed by people of varying skills, responsibilities and roles. In order to perform their work, these people use processes (ad hoc or stan- dardized) and tools.1 Projects are constrained by many factors. The common ones are time, cost, re-

66 sources, product requirements and quality. The ultimate goal of a project team is to deliver a product on time, within budget, that meets the product requirement and quality constraints. To achieve this goal the team must use effective methods to manage the people, processes and tools used for the project. The following need to be considered for each:

People * Identification of roles, responsibilities, and skills needed for the project. * Identification of types and numbers of people resources needed to meet project roles, responsibilities and skill requirements- technical development (ar- chitects, analysts, programmers, etc.), managerial (senior management, project management), quality assurance, product marketing, operations, etc. * Identification of staffing sources - use of existing organizational resources, contractors, new hires * Organization of people resources into effective teams with the necessary communication interfaces. * Communication of project mission and individual team assignments * Communication of project values/expectations - quality, quantity of work, communication, teamwork, etc. * Training on project methods (management and technical), communication skills, technology and tools * Communication on project status, issues, problems and changes. Effective communication to all project team members. * Communication on effectiveness of project methods, tools and work environments. * Implementation of methods, tools and work environment improvements * Measurement of team and individual performance (based on project values/expectations); implementation of performance improvements. * Monitoring of project staffing/skill needs; maintaining necessary staffing levels and/or re-assigning roles and responsibilities.1 Processes * Definition of the management and technical methods needed for the project

67 * Selection of the appropriate management and technical methods from the organizational Product Development Process * Acquisition and/or development of project specific methods not available in the organizational Product Development process * Implementation of process effectiveness measurements * Monitoring of process effectiveness, implementation of process improvements.1

Tools * Evaluation of project tools required to support chosen management and technical methods * Selection, implementation and administration of project tools. Tools to be considered include:

* Process Management * Estimating * Risk Management * Project Management * Prototyping * Requirements Definition * Technical Analysis and Design * Code Generation * Code Library Generation and Maintenance * Data Base Managers * QA (Test Management, Reviews, Inspections, Audits) * Configuration Management * Document Control * Incident Reporting, Tracking and Resolution * Product Installation1

Phases of Project Management

The Project Management Life Cycle naturally breaks into three major phases - Project Planning and Initiation, Project Execution and Control, and Project Clo- sure. These are described briefly below.1

68 Project Planning and Initiation

This phase includes important planning, organization and administration tasks.

The phase begins when authorization is given by management to formally start a new project. In order to start this phase, the necessary up-front business planning and cost justification analysis that occurs in the Business Analysis Phase of the Product Development Life Cycle (PDLC) should have taken place and been approved by management. The key deliverables from the Business Analysis Phase - the beginning Project Charter and product functional requirements - should be available as input into this phase.1

The key to project success is the adequate planning of the project. The planning tasks include the definition of project scope, deliverables and constraints (what will be done), the selection of management and technical methods that will be used (how it will be done), the definition and organization of the project team (who will do it), the estimation of effort and resources required (how much it will cost), and the determination of project milestones and schedules (when it will be done). This project planning foundation has to be laid to ensure the success of the project execution. The planning information will be documented in the key de- liverable of this phase - the Project Charter. The Project Charter is reviewed and approved by the designated participants before the project team is formed and the project is initiated. After approval of the Project Charter, the project team is formed and the project is initiated.1

Project Execution and Control

This phase is primarily focused on carrying out the project plans documented in the Project Charter. All of the work required to define, design, construct, test and deploy the product is done during this PMLC phase. Successful project execution will require the use of the management and control methods identified in this phase.1 The primary purpose of project management during this phase is to monitor,

69 evaluate and communicate project progress and to define and implement correc- tive measures if progress does not meet the expectations defined in the Project Charter. These include expectations for product functionality, performance, quality, cost of development, and development/deployment schedules. Project issues, problems and change requests have to be identified, evaluated and resolved. These have to be communicated to all project team members (organizational technical and management, and contractors) involved in evaluating and resolving them. Improvement measures may be applicable to individual project teams, working environments, processes and tools.1 Organizational Product Development Process methods employed during this phase include those for Project reporting, Verification and Validation, Risk Man- agement, Configuration Management, Document Control, Project and Product metrics, Contractor Management, Project Estimation, Project Scheduling, Tools Evaluation and Acquisition, peer Reviews, Audits, Incident Tracking, Reporting and Resolution, Time Management, and Cost Management.1 The Project Charter continues to serve as the primary communication vehicle for project plans and progress. It is a dynamic document during this phase and is up- dated when necessary to reflect changes in project scope, constraints, deliverables, and progress.1

Project Closure

The primary purpose of this phase is to administratively close down the project and to evaluate how effective the project execution was. Administrative closure includes the updating of project metrics, cleanup and archiving of all project doc- umentation, libraries and repositories, and the release of project resources.2

Evaluation of project effectiveness includes a Project Post-Mortem evaluation. The purpose of the evaluation is to determine “what went right” (and to carry this forward to other projects), “what went wrong” (and to keep it from happening again), and what was produced that may be reusable by other projects. This evaluation serves as a primary improvement vehicle for all organizational projects. A Project Post-Mortem Report is generated that contains evaluation findings and

70 other projects), "what went wrong" (and to keep it from happening again), and what was produced that may be reusable by other projects. This evaluation serves as a primary recommended actions.2 Life cycle costing is a technique which takes account of improvement vehicle for all organizational projects. A Project Post-Mortem Report is the total cost of making a product or owning a physical asset, during its economic generated that contains evaluation findings and recommended actions.2 Life cycle costing life. The production and sale of many products follow a cycle over their economic is a technique which takes account of the total cost of making a product or owning a physicallives. Normally, asset, during sales its economic start out life. slow, The expand production rapidly and sale as ofthe many product products is popularised follow a andcycle then over droptheir economicoff rapidly lives. as Normally,a better productsales start becomes out slow, available expand rapidly or a newas the product productemerges is popularised in the market. and then Therefore, drop off rapieachdly productas a better takes product a number becomes of available years (account or - a ingnew periods) product emerges to complete in the themarket. cycle. Theref Theore, figure each givenproduct below takes ashows number through of years different (accountingphases in the periods) life cycle, to complete a product the too cycl hase. The similar figure phases. given The below length shows of through the product differentcycle is phases governed in the by life the cycle, rate of a product(a) technological too has similar change phases. (b) Themarket. length2 of the 2 product cycle is governed by the rate of (a) technological change (b) market.

S A L RECYCLE E S III IV & P R O II F I T PROFIT (Rs.) I

Figure 4. Product Life Cycle Curve2 State I Introduction (childhood)Figure 4. Product Life Cycle Curve2 II Growth (Adulthood) State I Introduction III Maturity (childhood) (Manhood) II IV Growth Decline (Adulthood) (Old age and death) III Maturity (Manhood) AcceptanceIV Declineand (c) competition. (Old age and By death)and large, consumer products have shorter life cycle than basic industry goods which have a longer life cycle. The product life cycle Acceptanceconcept is a andvery (c)useful competition. concept in sales By andforecasting, large, consumerplanning and products control as have current shorter 2 lifecompany cycle than products basic cannot industry hold thegoods market which position have indefinitely. a longer life cycle. The product life cycle concept is a very useful concept in sales forecasting, planning and control as The concept of life cycle costing involves: current company products cannot hold the market position indefinitely.2

The concept of life cycle costing involves: 69 (a) identify product life cycle and estimating number of units to be produced per period over the life cycle of the product;

71 (a) identify product life cycle and estimating number of units to be produced per period over the life cycle of the product; (b) estimating the costs involved for the same; and (c) determining the average cost of production over the product life.2

Life cycle costing --- introduction

(b) estimating the costs involved for the same; and Life cycle costing can apply to products, services, customers, projects or assets and, (c) determining the average cost of production over the product life.2 as its name implies, it cost the cost object over its projected life. The aim is to adopt a policy Lifewhich cycle will costing maximize --- introduction the return over the cost object’s total life. To a certain extent capital budgeting attempts to de this but often a project’s complete life is not Life cycle costing can apply to products, services, customers, projects or assets coasted as a cut off time is used. For example any inflows after year 5 to 10 are and, as its name implies, it cost the cost object over its projected life. The aim is to ignored because they are assumed to be too uncertain or insignificant. More adopt a policy which will maximize the return over the cost object’s total life. To a importantly,certain normalextent capital capital budgeting budgeting attempts techniques to de this simply but often project a project’s expected complete costs and revenueslife inis not order coasted to make as a cut an off assessment time is used. of profitabilityFor example anyin advanceinflows ofafter the year project. 5 They to do 10 not are ignored attempt because to maximize they are assumed profit by to be minimizing too uncertain costs or insignificant. and maximizing revenuesMore over importantly, the life normal cycle capital by applying budgeting planning techniques and simply control project techniques. expected This costs and revenues in order to make an assessment of profitability in advance of deliberate attempt to maximize profitability is the key to life cycle costing.2 the project. They do not attempt to maximize profit by minimizing costs and max- Projectingimizing costs revenues and over revenues the life overcycle by the applying cost object’splanning and life control span runstechniques. counter to traditionalThis accounting,deliberate attempt which to chops maximize up costs profitability and revenue is the intokey to time life periodscycle costing. – a2 month, a yearProjecting etc. This costs prevents and revenues consideration over the of cost the object’s total profitability life span runs of counter an individual to producttraditional or service accounting, and does which not allow chops the up costs total and picture revenue to be into seen. time If periods a snapshot – is a month, a year etc. This prevents consideration of the total profitability of an taken on one particular day an organization will have a number of different projects, individual product or service and does not allow the total picture to be seen. If products, customers, etc all of which have different life span : see Figure 5. a snapshot is taken on one particular day an organization will have a number of different projects, products, customers, etc all of which have different life span: see

Figure 5.

P4 P3

P2 P1

1 2 3 4

Figure 5. Time period -- years2

72 70

The important of life cycle costing lies in the consideration of the whole life cycle. 2 When viewed as a whole costFigure reduction 5. Time andperiod minimization -- years opportunities as well as revenue extension opportunities will present themselves. These are unlike to be The important of life cycle costing lies in the consideration of the whole life cycle. found when management is focusing on maximising profit on a period by period When viewed as a whole cost reduction and minimization opportunities as well as basis.1 revenue extension opportunities will present themselves. These are unlike to be found when management is focusing on maximising profit on a period by period basis.1 The old adage, time is money, still holds true. The management of time is par- ticularlyThe old important adage, time inis money,lifecycle still costing holds trueif profit. The management is to be maximized. of time is particularly An increase in importanttime during in lifecycle the development costing if profit stage is causesto be maximized. an increase An inincrease cost or in atime decrease during in revenue,the development which in stageturn causes ana reduction increase in in cost profit. or a decreaseTime is inoften revenue, the causalwhich infactor of turna reduction causes a in reduction profit inwhereas profit. an Time increase is often in thecosts causal is merely factor the of aeffect reduction or result in if 2 anprofit increase whereas in time. an increase2 in costs is merely the effect or result if an increase in time. 2 ThisThis section section willwill look look specifi specificallycally at life at cyclelife cyclecosting costing for products for products and customers. and custom - ers.2

Product life cycle costing

Product life cycle costing All product have a life cycle chart that looks something like Figure 6 In reality the time span may be only a few months or years, as in the case of novelty products All product have a life cycle chart that looks something like Figure 6 In reality the andtime toys, span or may it may be onlylast fora few more months than or 100 year years,s, as in as the in casethe caseof novelty of products products such and as 2 binoculartoys, or and it may marmite. last for more than 100 years, as in the case of products such as binocular and marmite.2

£’000

2 4 6 8 10 12 14

Figure 6. The product life cycle2 Figure 6. The product life cycle2

73 71

Figure 6 shows a product that has a research and development stage prior to the commencement of production in year 4 when revenue begin to be generated. Losses are incurred initially, followed by a profit that gradually tapers off once the product enters its maturity stage. Figure 6 shows a product that has a research and development stage prior to the

commencement of production in year 4 when revenue begin to be generated. FigureLosses 7 are illustrates incurred initially, a product followed that by has a profit severa thatl differentgradually tapers life cycle; off once the the original life cycleproduct has enters been its extended maturity because stage. the organization found new uses for the product. One of the classic examples of this is the manufacture of nylon, which was developed Figure 7 illustrates a product that has several different life cycle; the original life just before the Second World War. Its first use was in parachutes for the armed force, cycle has been extended because the organization found new uses for the prod- its uct.next One use of was the classicin ladies’ examples stockings, of this isand the thismanufacture was follo ofwed nylon, by which car tires was carpets and clothes.developed2 just before the Second World War. Its first use was in parachutes for the armed force, its next use was in ladies’ stockings, and this was followed by car tires carpets and clothes.2

£’000

Figure 7. Extending the product life cycle time2 Figure 7. Extending the product life cycle time2 Figure 8 highlights the danger of product proliferation, when products are update or supersededFigure 8 highlights too quickly, the danger the product of product life proliferation, cycle is cut when short products so that are updatethe product hardly or superseded too quickly, the product life cycle is cut short so that the product has time to generate a profit. The product barely covers the R & D costs before its hardly has time to generate a profit. The product barely covers the R & D costs 2 successorbefore its is successor launched is launchedon the market. on the market. 2

£’000 Sales revenue

Figure 7 illustrates a product that has several different life cycle; the original life cycle has been extended because the organization found new uses for the product. One of the classic examples of this is the manufacture of nylon, which was developed just before the Second World War. Its first use was in parachutes for the armed force, its next use was in ladies’ stockings, and this was followed by car tires carpets and clothes.2

Figure 6 shows a product that has a research and development stage prior to the

commencement of production in year 4 when revenue begin to be generated. Losses are incurred initially, followed by a profit that gradually tapers off once the product

enters its maturity stage. £’000

Figure 7 illustrates a product that has several different life cycle; the original life

cycle has been extended because the organization found new uses for the product.

One of the classic examples of this is the manufacture of nylon, which was developed

just before the Second World War. Its first use was in parachutes for the armed force, its next use was in ladies’ stockings, and this was followed by car tires carpets and 2 clothes. 2 Figure 7. Extending the product life cycle time

Figure 8 highlights the danger of product proliferation, when products are update or superseded too quickly, the product life cycle is cut short so that the product hardly has time to generate a profit. The product barely covers the R & D costs before its successor is launched on the market.2 £’000 £’000

Sales revenue

profit Figure 7. Extending the product life cycle time2 Figure 8. Product life cycle when product proliferation occurs2 Figure 8 highlights the danger of product proliferation, when products are update or superseded too quickly, the product life cycle is cut short so that the product hardly hasThere time are to a generatenumber ofa factorsprofit. that The need product to be bamanagedrely covers in order the to R maximise& D costs a before its successorproduct’s returnsis launched over its on life the cycle. market. These2 are:

• £’000 maximize the length of the life cycle itself. • design costs out of theSales product revenue • minimize the time to market • manage the product’s cash flows.2

Generally the longer the life greater the profit that will be generated, assuming that production ceases one the product goes into decline and becomes unprofitable. One way to maximizes the life cycle is to get the product to market as quickly 72 as possible because this should maximise the time in which the product generates a profit. This is discussed below 4.11 illustrates another way of extending a product’s life , by finding other uses, or markets, for the product. Other product uses may not be obvious when the product is still in its planning stage and need to be planned and managed later on. On the other hand, it may be possible to plan for a staggered entry into different markets at the planning stage. Many organisations stagger the launch of their products in different world markets in order to reduce

75 costs, increase revenue and prolong the overall life of the product. A current example is the way in which new films are released in the USA months before the UK launch. This is done to build up the enthusiasm for the film and to increase revenues overall. Other companies may not have the funds to launch world-wide at the same moment and may be forced to stagger it.2 Skimming the market is another way to prolong life and to maximise the revenue over the product’s life. This was discussed in the chapter in pricing.2

Design costs out of the product It was stated earlier that between 80 per cent and 90 per cent of a product’s costs were often at the design and development stages of its life. This is decision made then committed the organization to incurring the costs at a later date, because the design of the product determines the number of components, the production method, etc. it is absolutely vital therefore the design teams do not work in isolation but as part of cross-functional team in order to minimise costs over the whole life cycle.2

Minimise the time to market In a world where competitors watch each other keenly to see what new products will be launched, it is vital to get any new product into the market place as quick as possible. The competitors will monitor each other closely so that they can launched rival products as soon as possible in order to maintain profitability, it is vital, therefore, for the first organisation to launch its product as quickly as possible after the concept has been developed, so that it has as long as possible to establish the product in the market and to make a profit before the rival’s product is launched. Often it is not so much costs that reduce profit as time wasted. A Mck- insey study revealed that if a product was launched six months behind schedule 33 per cent of after-tax profit was lost if on the other hand product development cost 50 per cent more than planned, profits reduce by just 3.5 per cent. All new product development should have a planned time to market and events should be monitored closely to make sure that the planned timing is adhered to. This can be done using Gantt charts. Nowadays simultaneous engineering is often used in the planning, development and testing stages, which allows for several activities to be

76 performed at the same time rather than sequentially, thus speeding the product on to the market. Alternatively cross-functional development teams, which operate simultaneously, are used to shorten the time to market.2

Manage the product’s cash flows In order to manage the life cycle of their products Hewlett-Packed developed what they termed the return map. House & Price (1991) describe how this was developed in order to minimize the time to market and to maximize the return over the product’s life cycle. It was developed to help employees focus on the issue profit over time. This y-axis is the measurement of money and is normally drawn on a of developing products that would make the most profit in the least time. The re- logarithmic scale to capture cumulative sales and investment adequately.2 turn map measures both money and time (see Figure 9), and plots the cumulative The return map measures several key time periods, the first of which is the time to investment, sales and profit over time. This y-axis is the measurement of money market (TM). Other key measures that are shown on the chart in Figure 5 are and is normally drawn on a logarithmic scale to capture cumulative sales and in- breakeven time (BET), breakeven time after release (that is after the product is vestment adequately.2 launched) (BEAR), and return factor (RF), which is the excess of profit the investment.2 The return map measures several key time periods, the first of which is the time to market (TM). Other key measures that are shown on the chart in Figure 5 are breakeven time (BET), breakeven time after release (that is after the product is launched) (BEAR), and return factor (RF), which is the excess of profit the investment.2

100 sales Cumulative costs & revenues £’000 profit 10 (RF) investment

(BEAR) 1 (TM) Concept Development Manufacturing-sales 6 12 18 24 30 Time Manufacturing release (MR)

2 FigureFigure 9.9. The The returnreturn mapmap2

House & Price (1991) recount the history of the ultra-second machine that had a time to machine (TM) of nine months when the product was proposed. Two months into77 the project’s development Hewlett- Packard ad breakthrough in technology that would give clear pictures. The management decided to incorporate this, and so the TM was extended by four months despite the fact that the return map showed that the return factor would reduce slightly.2

Customer Life cycle costing

House & Price (1991) recount the history of the ultra-second machine that had a time to machine (TM) of nine months when the product was proposed. Two months into the project’s development Hewlett- Packard ad breakthrough in technology that would give clear pictures. The management decided to incorporate this, and so the TM was extended by four months despite the fact that the return map showed that the return factor would reduce slightly.2

Customer Life cycle costing Not all investment decisions involve large initial capital outflows or involve the Not all investment decisions involve large initial capital outflows or involve the purchase of physical assets. The decision to serve and retain customers can also be a purchase of physical assets. The decision to serve and retain customers can also be capital budgeting decision even through the initial outlay may be small. For example a a capital budgeting decision even through the initial outlay may be small. For ex- credit card company or an insurance company will have to choose which customers ample a credit card company or an insurance company will have to choose which they take on and then register them on the company’s record. The company incurs customers they take on and then register them on the company’s record. The com- initial costs due to the paperwork, checking creditworthiness, opening policies, etc. pany incurs initial costs due to the paperwork, checking creditworthiness, open- For newing customers.policies, etc. It For takes new some customers. time before It takes these some initial time costsbefore are these recouped. initial costs 3 Researchare has recouped. also shown Research to the company.has also shown to the company.3

Net cash flow generated by customer £

1,000

500

1 2 3 4 5 6 7 8 Years

Figure 10. Customer Life cycle costing3 Figure 10. Customer Life cycle costing3 Figure 10 shows this and that customers become more profitable year after year. Thus it becomes78 important to retain customer, whether by goods service, discounts. Other benefits, etc. A customer’s life can be discounted and decisions made as to the value of, say, a five-year-old’ customer. Eventually a point arise where profit no longer continues to grow; this plateau is reached between about 5 years and 20 years depending on the nature of the business. Therefore by studying the increase revenue and decreased costs generated by an ‘old’ customer, management can find strategies to meet their needs better and to retain them.3

Figure 10 shows this and that customers become more profitable year after year. Thus it becomes important to retain customer, whether by goods service, discounts. Other benefits, etc. A customer’s life can be discounted and decisions made as to the value of, say, a five-year-old’ customer. Eventually a point arise where profit no longer continues to grow; this plateau is reached between about 5 years and 20 years depending on the nature of the business. Therefore by studying the increase revenue and decreased costs generated by an ‘old’ customer, management can find strategies to meet their needs better and to retain them.3

Many manufacturing companies only supply a small number of customers, say between six and ten, and so they can cost customers relatively easily. Other companies such as banks and supermarkets have many customers and cannot easily analyse every single customer. In this case similar customers are grouped together to from category types and these can then be analyzed in terms of profitability. For example, the UK banks analyze customers in terms of fruits, such as oranges, lemons, plums, etc. Customers with large mortgages, for example, are more valuable to bank than customers who do not have a large income and do not borrow money. Banks are not keen on keeping the latter type of customer.3

The cost per unit varies significantly from year to year because of the impact of fixed cost on production. But if life cycle costing is followed the cost of the product over its life cycle would be as follows irrespective of fluctuations in production (demand) from year to year.3

79 Many manufacturing companies only supply a small number of customers, say between Many six and manufacturing ten, and so companies they can only cost supply customers a small relatively number easily. of customers, Other say companiesbetween such as six banks and and ten, supermarkets and so they have can many cost customers customers and relatively cannot easily.easily Other analyse everycompanies single such customer. as banks In thisand casesupermarkets similar customers have many are customers grouped togetherand cannot to easily from categoryanalyse types every and single these customer. can then In bethis analyzed case similar in termscustomers of profitability. are grouped together For to example, fromthe UK category banks analyze types and customers these can in thenterms be of analyzedfruits, such in as terms oranges, of profitability. lemons, For plums, etc.example, Customers the UK with banks large analyze mortgages, customers for example, in terms areof fruits, more suchvaluable as oranges, to bank lemons, than customersplums, whoetc. Customersdo not have with a large large income mortgages, and do for not example, borrow are money. more Banksvaluable are to bank 3 not keen thanon keeping customers the lawhotter do type not of have customer. a large income and do not borrow money. Banks are The cost notper keenunit varieson keeping signifi thecantly latter from type yearof customer. to year 3because of the impact of fixed cost on production.The cost per But unit if lifevaries cy clesignifi costingcantly is fromfollowed year theto year cost because of the product of the impactover its of fixed life cyclecost would on production. be as follows But if irrespectiv life cyclee costing of fluctuations is followed in the production cost of the (demand) product over its from year to year.3 QUESTIONlife cycle AND would DISCUSSION: be as follows irrespectiv e of fluctuations in production (demand) from year to year.3 QUESTION AND DISCUSSION:

SummariseQUESTION the product AND lifeDISCUSSION: cycle (PLC) characteristics and state how the PLC Summarise the product life cycle (PLC) characteristics and state how the PLC concept concept is used by marketing manager product and market dynamics. is used bySummarise marketing the manager product product life cycle and (PLC) market charact dynamics.eristics and state how the PLC concept is used by marketing manager product and market dynamics. Answer: The stage wise characteristic can be summarised as follows: Answer: The stage wise characteristic can be summarised as follows : Answer: The stage wise characteristic can be summarised as follows :

Sales SalesIntroduction Maturity Decline Introduction Maturity Decline Growth Growth

Time Time

S T A G E S S T A G E S

Low Rapidly Peak Declining Sales Sales Low Rising RapidlySales Peak Sales Declining Sales Sales Sales Rising Sales Sales Sales

High Cost Average Low cost Low cost Cost Per High CostCost per AveragePer Low cost Per Low cost Cost Customer Per Customer Cost perCustomer Per CustomerPer Customer Customer Customer Customer

Negative Rising High Decline Profits Profit Profit Profit

77 77 Innovators Early Middle Laggards Customer Adopters Majority

Declining Competitors Few Growing State Number Number Number beginning to Decline Uses of the Product Life Cycle : Uses of the Product Life Cycle : ⇒ as a Planning tool, it characterises the marketing challenges in each stage and poses major alternative strategies. ▶ as a Planning tool, it characterises the marketing challenges in each stage and poses⇒ majoras a Control alternative tool, strategies. the launched PLC concept allows the company to measure product performance against similar products launched in the past.

⇒ as a Forecasting tool, it is less useful because sales histories exhibit diverse 80 patterns and the stages vary in duration.

REFERENCES

The context of this part has been adapted from the following product(s):

1. Project management life cycle. Access via Internet: www.heinsights.com/sitebuildercontent/sitebuilderfiles/pmlifecy.doc 2. Performance management: managerial level. Access via Internet: https://books.google.lt/books?isbn=1856177793 3. Management accounting decision management. Access via Internet: https://books.google.lt/books?isbn=0750680474

FURTHER READING

1. Ryan, B.; Gross, N. (1943). “The diffusion of hybrid seed corn in two Iowa communities”. Rural Sociology 8. 2. Greenhalgh, T.; Robert, G.; Macfarlane, F.; Bate, P.; Kyriakidou, O.; Peacock, R. (2005). “Storylines of Research in Diffusion of Innovation: A Meta-narra- tive Approach to Systematic Review”. Social Science & Medicine 61: 417–430. doi:10.1016/j.socscimed.2004.12.001. 3. Berwick, DM. (2003). “Disseminating Innovations in Health Care”. The Jour- nal of the American Medical Association 289 (15): 1969-1975. doi:10.1001/ jama.289.15.1969.PMID 12697800. 4. Pemberton, H. E. (1936) ‘The Curve of Culture Diffusion Rate’, American Sociological Review, 1 (4): 547–556. 5. Rogers, E.; Shoemaker, F. (1971). Communication of innovations: a cross- cultural approach. Free Press. 6. Srinivasan, V. (1988), A Conjunctive-Compensatory Approach to the Self- Explication of Multiattributed Preferences, Decision Sciences, Vol. 19, Spring 1998, 295-305. [dead link] 7. Green, P. E. and Srinivasan V. (1990) Conjoint Analysis in Marketing: New Developments with Implications for Research and Practice, Journal of Mar- keting, Vol. 54, October 1990, 3-19. 8. John Naisbitt (1982). Megatrends: Ten New Directions Transforming our Lives. Macdonald. 9. T. Levitt (1960) “Marketing myopia”, In: Harvard Business Review, (July— August 1960) 10. M. Lorenzen (2006). “Strategic Planning for Academic Library Instruc- tional Programming.” In: Illinois Libraries 86, no. 2 (Summer 2006): 22-29. 11. L. Fahey and V. K. Narayman (1986). Macroenvironmental Analysis for Strategic Management”. West Publishing. 109 12. R. F. Lusch and V. N. Lusch (1987). Principles of Marketing. Kent Publish- ing, 13. Brian Tracy (2000). The 100 Absolutely Unbreakable Laws of Business Suc- cess. Berrett, Koehler Publishers. 14. Michael Allison and Jude Kaye (2005). Strategic Planning for Nonprofit Organizations. Second Edition. John Wiley and Sons.

TASKS FOR INDIVIDUAL/GROUP WORKS

By and large these can be answered by referring to the text so no further comment is necessary.

Case Studies Lecturers often prefer to set their own questions on case studies. Here I restrict myself to making some general observations on the case studies which may be useful in answering many questions that may be posed and related to the case studies.

Mirela Fashions 1. The organization is constantly trying to identify and explore opportunities in order to survive and be profitable. 2. Yes. Its manager focuses on the market and tries to identify opportunities which the organization can explore and face market threats. 3. Yes. The owner knows that the organization cannot compete successfully with the high demand for imported fashion brands and hence, it decided instead to focus on satisfying the needs of those customers that want made- to-measure garments i.e. wedding dresses, evening gowns, and any made-to measure clothing item. 4. Increase of imports of both reputable fashion brands and wedding dresses. Increase of competition may lead to a decrease in the prices of imported goods and hence there may no longer be a demand for made-to-measure clothes. Perhaps the organization should consider expanding its operations in new markets.

110 5. Customers: good quality products, affordable prices (the organization should explore ways to keep costs to a minimum in order to be able to be more competitive).

Employees: job security (the organization can perhaps expand its operations to new markets – demographic and geographic – in order to increase its customer base).

Local community: Offer employment to local people.

King Olaf’s Hall

The major issue here is what should be done to increase the revenue stream from activities that are acceptable to the stakeholders. Many suggestions may be considered but essentially the building is of historical and cultural interest and the main desire of most of the stakeholders might be to use the Hall for purposes that fit with this image. Wrestling, boxing and pop music events are not the order of the day but exhibitions of paintings, sculptures and chamber music would fit better with the cultural image. The Law Courts are of historical and educational interest and might be marketed as such to visitors.

A major problem, however, is how does the Hall make sufficient money from these kinds of activities to make itself self-financing? The market for such activities as those listed above may be comparatively small and may not be capable of generating the desired income stream.

Given the proximity to the museums, art galleries and library there may be opportunities for synergy in developing joint strategies with the latter establishments.

Acme (A) & Acme (B)

Use here can be made of the spreadsheets illustrating the BCG and DPM matri- ces. (see BCG Chapter 2, DPM Chapter 2 & DPM Example Chapter 2).

111 Barrington Breweries

The problems of the company are to be found in the last paragraph. These problems need to be addressed. Tied estate creates difficulties for the company and it may well be worth the company’s while disposing of some of its tied assets and ploughing the monies generated into new profitable ventures. Stakeholders in the company need to be persuaded that change is necessary … particularly shareholders. Shareholders are interested in the long term future of the company and if they can be persuaded that the current strategy is likely to prove less than productive in the future they will be happy to give their backing to new ventures. Some new ideas are required and these need to be explained to stakeholders before a change in attitude may come about.

The spreadsheets Organisational Health Chapter 3, Scorecard Chapter 3, & Chap- ter 3 Stakeholder Benefits may be adapted for use in this case.

Avila Batteries

The idea here is to get student’s to review the block to creative thinking in an organisation mentioned. The founder obviously had his own approach to business and his own ideas about what he wanted the firm to be and where he wanted it to go. This could have created a mindset for the whole organisation. The new supre- mo may have his own ideas and certainly needs to change the direction of the firm given its current performance. If he hasn’t any definite ideas then just observing what competitors are doing may give him ideas. Alternatively, talking to distributors will obviously be helpful. Keeping the business under the control of the family as has been done in the past has resulted in the firm missing opportunities. A willingness to share the control of the enterprise and bring in new blood can be beneficial but sometimes such decisions are made too late in the day. Of course, such a strategy can have risks, too. There many aspects to the car and automotive industry that company could think of moving into from its base as a battery manufacturer. Products could be made

112 under license or alternatively imported. Home manufactured finished products of other manufacturers might be marketed along side the batteries.

Stelco

A change in company structure with a holding firm and several different firms specialising in producing products for certain different markets might be a possible strategy to pursue. Certainly aiming to be a fully integrated business operation is not the order of the day. By fragmenting into separate operating companies more flexibility can be introduced and the firms would be more open to new possibilities in terms of developing products and serving markets.

ABC Ltd

The spreadsheet SPACE ANALYSIS Chapter 4 can be used as a template for con- structing a SPACE analysis for the firm in the case study. Note that some degree of subjective estimating is required and also that not all the categories in the spreadsheet can be fully assessed.

Majestic Tobacco Company

The firm should consider diversifying its product market scope for long term profitability since the medium and long term prospects for tobacco products is very uncertain.

Cometex

Door to door selling of products is less popular than it used to be years ago in developed countries. The advent of large supermarkets and the fact that fewer people are at home in the day has eroded the door to door selling approach. Nevertheless, its very decline in popularity has made it an innovative way of gaining distribution for products. Catalogue selling and Internet selling are now a popular way of selling items that the door to door approach could have favoured in the past. Nevertheless, certain products and services are still sold door to door.

113 There may be more scope for door to door selling in the developing world though cultural factors may influence its acceptability. In many developing countries good access to the Internet is available and traders have a wide variety of means to engage with customers.

In developing countries market information on market sizes may be sparse. One cannot assume that the same kind of data can be acquired from secondary information sources as one can in the more developed countries. Sample surveys and informed opinion are more the order of the day in some cases.

Ecoprods

People are becoming more aware of the need to use green products but awareness alone will not guarantee that they will use or buy such products. Not only may the relative cost of such products be a factor but there may be many other factors, too.

Finding out how many people might buy the product in this case would have to be assessed by a sample survey of motorists. Even then it would be a matter of estimating what proportion of those motorists who would say they would buy the product would actually do so. With a new product the proportion would vary from one product to another.

Forecasting Demand for part-time university MBA places

The data is suitable for analysis using multiple regression analysis in the way indicated in the text of the chapter. See Forecasting Car sales Chapter 5 spreadsheet.

Laiki

The Porter’s model of competition helps the organization identify five important factors relating to the profitability of the organization: rivalry among competitors, bargaining power of customers, bargaining power of suppliers, threat of new en-

114 trants, and the threat of substitute products or services. Clearly the bank needs to identify its competitors and the degree of rivalry among them. The model will enable the organization to assess the degree of rivalry in the market.

Information regarding: sales, market share, profit margin, return on investment, cash-flow, new investments is required.

The degree of competition needs to be assessed by using data from the following sources: public (for example articles and newspaper reports); trade and professional sources (for example distributors, the trade press and even customers); government and investors.

Cyproswim

An intimate knowledge of the market and what competitors are doing seems essential. Such information would be gained by personal experience of the executives of the firms operating in the swimming pool market and would be gained from interaction with clients, distributors and competitors’ staff. All the companies do of course produce brochures illustrating and describing their swimming pools so that it is easy to match product quality with list prices. Inspection of installed swimming pools and a knowledge of the prices charged may provide ideas on what competitors are really giving customers in terms of value for their money.

An interesting question to ask is whether a swimming pool in the setting is a “designer product”? Can customers have a hand in designing their own swimming pools and what is available in the way of say computer software to enable them to see the end result of their dream pool before it is ever produced and installed?

The Porter’s five forces model will enable the organisation to understand the competition in the industry. The model will enable the management team to decide what direction to follow in terms of its competitive strategy. The organization should also identify the five levels of competition in order to be able to develop an effective competitive strategy.

115 Cartech

Many unusual products that are produced may just seem to be gimmicks. As such they may have very short life cycles and prove to be unprofitable ventures as far as their owners are concerned. Audible signalling devices, however, do provide a useful functions and probably even more so when they actually imitate the voice and convey useful information to people. Attachments to a reversing vehicle, for example, which warn people that the vehicle is approaching and whether it intends to move to the left , right or keep on coming in the same direction would be a case in point. Whether or not product applications of this type are perceived by buyers to be any more useful than those which simply emit sounds seems to be the issue here. Perhaps a market survey may help throw some light on the matter. What certainly would be useful would be situations where it is necessary to issue definite instructions or give out very specific information.

Evaluating competitive forces

Union Assurance Company

The spreadsheet Cross Impact Chapter 7 might be modified and developed to assess the impact of the PEST and other factors here. The case also presents an opportunity to construct a TOWS matrix. This might be coupled with the brain- storming of further ideas with respect to threats, opportunities, weaknesses and strengths identified in the four cells of the matrix.

The Foldaway Company

Tony’s experience to date relates to items for the home. He could consider applications for the office, workshop or any other place of work where economy of space is an issue. Shortage of space for living and work is the main issue here.

Choosing a holiday – part of a focus group discussion

116 People have different interests and tastes but there are always people who have the same interests and tastes in common. Holidays, too, are opportunities to gain new experiences or socialize for many people. The case illustrates that people have many different expectations from a holiday. Holiday companies need to be suffi- ciently creative to be able to identify means of fulfilling these expectations.

While packaged holidays may still be popular, the growth of the Internet has brought a new product into the arena - self-service holidays. People now find it easy to arrange their own holidays via the Internet on a ‘pick and mix’ basis. This has implications for providers and some interesting developments may be noted. Brittany Ferries, for example, not only provides cross Channel travel facilities but also networks with a large number of hoteliers and self catering establishments to provide a comprehensive overall service.

Office Improvements

Business to business selling has some commonalities with selling to consumer markets but in many ways it is different. Finding the locus of decision making in commercial, industrial or business organizations is usually one of the critical success factor. Looking at who influences, decides, buys, authorizes, uses, etc. the product or service needs to be thoroughly understood. Rarely is it a single person so the seller has much research to do find the key personnel. Moreover, the people involved in the decision making may all have different ideas of what is required and this has to be uncovered and understood by the sales person.

Barney Malone

Management succession in the running and managing of businesses is always a problem. This is particularly the case where the founder of the business is involved. In this case there is a gap produced by the departure of Molly and there does not appear to be anyone to fill it. In very small businesses of this type having a good strategy alone is not sufficient one also needs to have the personnel capable of running the business whatever direction it takes. One option might be for Bar-

117 ney to sell off the beauty salon and invest the money produced in a venture where he or his wife has the necessary skills to develop it. Businesses do not need to sell complementary products though this can often create synergies.

The Competitive Advantage Grid Chapter 9 spreadsheet may be developed and modified to illustrate the issues in this case.

Singapore Sam

In small businesses such as this the core competencies are usually those relating to the personal interests and experiences of the owners of the business. In this case those relating to antique market and those relating top IT. In the case of the IT experience this is a fast moving area and it seems likely that whatever competencies Sam acquired from his experiences in this connection may soon become out of date and no longer be classifiable as competencies at all.

The decision seems to rest on whether the interest in antiques and the financial and other opportunities it affords are sufficient to motivate Sam to pursue his -cur rent line of business. Returning to the IT field and setting up a business in that connection is obviously still a possibility but the decision to do so needs to be taken quickly.

The Competitive Advantage Grid Chapter 9 spreadsheet may be developed and modified to illustrate the issues in this case.

Home Baker

We live in a world where convenience has become an important criterion when it comes to shopping but at the same time people still enjoy creative recreational pursuits which may have practical applications and uses. This is particularly the case with hobbyists who often make, repair or simply create products which they could just as easily purchase off the shelf in its completed form.

118 Most people like to express themselves in a creative way and arguably this could be the case when it comes to home baking. Indeed, a person who does not appear to be creative at all may suddenly find this activity a means of achieving self- expression.

There may not be any well defined ways of identifying the users for such a product and using simple demographic segmentation methods on their own may not be productive. Life style and general psychographic approaches may be more productive but these may be then linked to certain demographic profiles.

The Observatory – segmentation strategy

The observatory offers basically two products – an exploration of the universe and extensive facilities to study shrubs and plants. This is an unusual combination yet at the same time one could see it as all being a window on the “natural world”. If the organization were to define its business as being that of giving people first hand experience of the natural world then the two products could be identified as two product market segments. It may even be possible to introduce new products which differ from the existing one but constitute new market segments. The existing two market segments can of course be further segmented themselves.

The case presents an opportunity to consider how both existing and new products- market segments might be segmented and even how products may be designed or modified to stimulate interest.

Casa resort

Key areas/issues for discussion/analysis:

1. Casa’s strength in defining a focused target market. - Delineating the target market is the first step towards strategizing marketing programs effectively. Specific definition of target market helps in prioritising strategies and implementing effective programs.

119 - Marketing programs that flow from the management’s vision and mission and corporate objectives is critical in ensuring corporate success. - Management needs become clearer when specific programs especially those relating to marketing flows from corporate goals.

2. The dynamic environment typical in the hospitality industry has to be addressed. Although Casa is currently enjoying success with its present strategies, there is no guarantee that they will continue to enjoy this in the future. Com- petitors will come in even though Port Dickson already has a number of hotels and resorts. It is not impossible for Casa to lose its appeal if it stops to innovate in its offerings and loyal customers may migrate to newer and more attractive offerings.

3. Developing loyal customers and sustaining them is not an easy task. Casa’s ability to retain customers who keep coming back to the resort is a signal that something is going right but this will not continue if Casa stops strategizing effectively. Thus, the need to continuously assess new market, create innovative activities, develop creative marketing programs and training activities aimed at retaining loyal and experienced personnel are key ingredients in ensuring long term survival.

Possible answers to questions

1. Repositioning implies that Casa has to move away from its present position of targeting to corporations. It is now positioned as ‘the place’ to carry out organizational events like family days or sports carnival etc. A possible repositioning strategy is to offer new services such as personalized tours and accom- modation package for tourists from Singapore or other ASEAN countries that make up the majority of visitors to Malaysia. Linking itself with relevant bodies such as the state Tourism Board or the local authority may be a good alternative where specific events can be planned for Port Dickson town whilst ensuring that Casa is given special privileges to address specific clients. In this way, both the town and the resort can benefit from this win-win collaboration. Loyalty

120 programs, relationship marketing, Customer Relationship Management (CRM) are but some of the initiatives that Casa must now seriously consider. It is no longer adequate to plan strategies to satisfy customers but the move must now gear towards delighting customers through extensive personalization or even customerization of services. Personalization efforts such as these must now be a priority if Casa wants to be the driver of innovation.

2. Diverting to a new target market may well be a strategy that Casa needs to undertake. Targeting to other target market such as specific international market like the Chinese market (visitors from China are increasing in numbers over the years) or group visitors/tourists in package tours may be an alternative worth considering. Casa therefore has to link with tour operators for this purpose.

3. Training and retraining of its personnel is necessary if Casa wants to retain experienced staff. Experienced staff who understand the requirements of the hospitality industry is a key ingredient in attracting new customers and sustaining loyal ones. Facilities management and enhancement must also be a priority. Guests to resorts such as Casa are attracted to visit because of the facilities and the infrastructure at the resort that not only meet the needs of guests but are also well maintained. There is noting more disturbing to a guest than a resort or a hotel where facilities such as elevators, parking areas, swimming pools, etc. are not well maintained.

Inova

1. The company is attempting to identify and target those segments from which there is demand for its products and services. An organisation can not fully satisfy the needs of all the customers in the market therefore it needs to segment the market in order to identify and understand customers’ needs and match its products/services to their needs. 2. The Company has gained a competitive advantage by offering services tailored to local cultures and needs. The organisation has realised that they key to

121 globalisation, is the adoption of a local approach to its products or services. 3. No. It has adopted target marketing. The organisation targets specific market segments with specific products/services that satisfy their needs. 4. By positioning its products/services in such a way that appear to be different/superior/unique. There is a need to study the competition and its products/ services. Differentiation will be achieved on the basis of Inova’s strengths, customers’ needs and competitors’ product’s.

Eau de nuit

Innovative distribution and marketing can sometimes produce good results as the case indicates. Any product which appeals to a specific, identifiable group who use particular facilities in a similar manner might be approached in this way. Golf accessories are a case in point.

Longevity bulbs

Such bulbs might be distributed and sold through as many different outlets as possible. A push strategy whereby merchandising help and discount incentives to retailers is likley to produce the best results. A premium can be charged for such bulbs but not so much as to make the bulbs so much more expensive than traditional bulbs. Bulbs need to be made to meet the requirements of a wide range of fittings and intensity of lighting conditions.

Remote Applications

Technology advances with amazing rapidity and new innovations soon become standard applications. One needs to look carefully at exactly what this product does and how it actually works before thinking about how one sets about marketing the product. Is there really a demand for such a product in the home?

There may be more applications for such a product in the business / industrial world. Certainly the ability to turn an appliance off at the mains plug outlet with-

122 out having to move from the position where one is using the appliance could be very useful. From the consumer market perspective this kind of products requires the use to identify useful applications for the product.

One might market the product through DIY shops and any electrical retail outlets providing push support in terms of promotion.

Surplus Garden Furniture

Most of the garden furniture sold by DIY and garden centres may be of the cheap foreign imported variety designed only to last for a season or two. As such the strategy of selling it off cheap at the end of the season may be the most suitable approach to take. For more durable furniture such as that offered by the firm in this instance there may be some mileage in thinking of operating internationally and even shipping items among outlets.

Electric Cars

This is an instance where the innovation adoption curve can be illustrated. The product is of interest to those with plenty of money but will it appeal to the all important next groups of people in the innovation adoption curve? The entirely electric car certainly has many limitations but possibly over time many of these can be removed and the product made more useful to the bulk of people who will want to use it to replace petrol and diesel fuelled cars. It is hard to estimate how long this will be since the technology to do so appear to be lacking at the outset. One has to remember, however, that in the very early days TVs and computers faced similar kinds of problems.

Just as interesting is the use of intermediate technology mentioned in the case and used by some manufacturers with some degree of usefulness by the consuming public.

123 MANUFACTURER ACI

Key areas/issues for discussion/analysis:

1. ACI is not currently in total control of its distribution channel. Although the subsidiaries are its main distribution arm, it is still the wholesalers who will be responsible for ensuring wide distribution. Yet, existing wholesalers are not necessarily loyal to ACI brands and can easily switch their concentration on other manufacturers’ brands. There is perhaps a need for some formal relationship between the regional subsidiaries and the wholesalers and this could be in the form of collaboration or some form of administered relationship that will allow channel members to work together on particular functions like cooperative advertising or joint sales promotional efforts.

2. New product development is costly but highly profitable if a manufacturer can strike a winning product that has clear competitive advantages. This however is not easy to achieve. Thus, there is a need to involve channel members in new product development so that relevant inputs including feedbacks from consumers can be used strategically in developing the new product. ACI should incorporate the views of the subsidiaries and their wholesalers when planning new products. There is no point in aggressively pursuing new product development if these are not readily accepted by distributors.

3. Direct distribution to the high traffic outlets has become a necessary distribution arrangement which the high traffic outlets or the big retailers seek. Relationship marketing is very much a part of this type of channel arrangement as the big retailers are looking for long term relationship where suppliers understand their needs and therefore, supply efficiency will be enhanced. Efficient consumer response also demands established long term channel arrangement where the use of information linkages like electronic data interchange between supplier and distributor is possible for inventory management and stock replenishment purposes.

124 Possible answers to questions

1. It is possible for ACI to pursue some form of strategic collaboration with the wholesalers so that they will be more committed to the distribution arrangement outlined by ACI. Without any formal linkage such as this, there are no formal ties that will bind the wholesalers to ACI. Alternatively, ACI can also develop formal arrangement through relationship marketing. Relation- ship marketing is capable of getting wholesalers to actively support ACI and its products and therefore they are more inclined to be brand loyal. The shar- ing of knowledge and expertise between ACI and the distributors can create long term bonds. At the extreme end, ACI may consider vertical integration or vertical marketing system where the wholesaling function is incorporated into its distribution structure and the thirteen subsidiaries might expand their function into wholesaling as well.

There is definitely room for relationship marketing to develop in ACI’s current channel relationships. At one end, relationship marketing between ACI and the high traffic outlets can be well established whilst on the other end, the thirteen subsidiaries and the wholesalers can also develop relationship marketing on a formal basis. Relationship marketing can improve the current distribution efficiency as interdependence and cooperation is enhanced between channel members.

WAN MART

Key areas/issues for discussion/analysis:

1. The dilemma faced by the small retailers with the existence of larger retail competitors dictate the need for them to be innovative in strategizing their business operation. Wan Mart’s diversion in concentrating more on their supply business is perhaps an innovative attempt to ensure sustainability in light of the competitive environment.

2. Business relationships that are well established is an essential ingredient in

125 ensuring effective business operations that are not only long term but will also develop trust and commitment amongst the players. This is key to the development of relationship marketing in the distribution channel where channel members develop long term partnership which is likely to create efficient channel operations. Wan Mart’s firm relationship with Ramly transcends the boundary of transactional relationships and have now move into the realm of long term partnership.

3. Competition will always be present in any business environment and Wan Mart must deal with such competition by looking beyond the traditional mode of managing their business. If in the past they have been concentrating on end users in their mini market operations, they must now focus on how best to strategize the distribution business where their main clientele are other business operators including the burger stall owners, the restaurant operators and the caterers who will seek Wan Mart for their supply of frozen burgers.

Possible answers to questions

1. The similarity of relationship marketing and Chinese business philosophy lies in the recognition that establishing, developing and maintaining long term relationship is important in strengthening business relationship. Com- mitment and trust for example, are typical constructs in relationship marketing and these are also present in Chinese business philosophy.

2. The concepts of trust and cooperation are essential in relationship marketing. A supportive culture helps in strengthening the relationship and in the case of Wan Mart, their well established relationship with Ramly that has been cultivated over the years will help them in sustaining their business operation for a long term period.

Folix: transition from growth to maturity

This is an opportunity to look at all those things which contribute to blinkered thinking and lack of creativity in an organisation. All these factors contribute to

126 lack of innovation and an inability to get to grips with the demands of a changing environment as the industry moves to a different stage in its life cycle.

Maturity to decline

Issues of family control of the business and personal preferences of the owner are important issues here. Operating in declining markets is a viable strategy until the market becomes too small to provide an organisation with the kind of returns on investment it requires. Downsizing the scale of operation and becoming a leaner and fitter organisation may provide a temporary solution but an exit strategy will probably be required in the long term.

Wanting to operate close to local markets may be a somewhat out of date desire these days. Internet marketing and speedy and reliable delivery services can offset the attractiveness of simply working in close proximity to the market. Video con- ferencing and similar links which facilitate examining machines and parts from a distance make it easier to assess the nature of work to be carried out.

Successful SMEs

The TOWS matrix may well be a useful tool for explaining what the firms have achieved but the success of both firms seems to be attributable to the development of good relationships with customers thereby arguing the case that relationship marketing is very important to such firms.

The Wildlife Centre

The report may not stand up to scrutiny and many of the so called achievements may well be attributable to other activities than the marketing undertaken.

Extending the product life cycle A Kellogg’s case study

(Source: http://businesscasestudies.co.uk/kelloggs/extending-the-product-life-cycle/introduction.html#axzz3g5Pso6Bn)

127 Introduction Businesses need to set themselves clear aims and objectives if they are going to succeed. The Kellogg Company is the world’s leading producer of breakfast cereals and convenience foods, such as cereal bars, and aims to maintain that position.

In 2006, Kellogg’s had total worldwide sales of almost $11 billion (£5.5 billion). In 2007, it was Britain’s biggest selling grocery brand, with sales of more than £550 million. Product lines include ready-to-eat cereals (i.e. not hot cereals like por- ridge) and nutritious snacks, such as cereal bars.

Kellogg’s brands are household names around the world and include Rice Krispies, Special K and Nutri-Grain, whilst some of its brand characters, like Snap, Crackle and Pop, are amongst the most well-known in the world.

Kellogg’s has achieved this position, not only through great brands and great brand value, but through a strong commitment to corporate social responsibility. This means that all of Kellogg’s business aims are set within a particular context or set of ideals. Central to this is Kellogg”s passion for the business, the brands and the food, demonstrated through the promotion of healthy living.

The market The company divides its market into six key segments. Kellogg’s Corn Flakes has been on breakfast tables for over 100 years and represents the ‘Tasty Start’ cereals that people eat to start their day. Other segments include ‘Simply Wholesome’ products that are good for you, such as Kashi Muesli, ‘Shape Management’ products, such as Special K and ‘Inner Health’ lines, such as All-Bran. Children will be most familiar with the ‘Kid Preferred’ brands, such as Frosties, whilst ‘Mum Approved’ brands like Raisin Wheats are recognised by parents as being good for their children.

128 The market

The company divides its market into six key segments. Kellogg's Corn Flakes has been on breakfast tables for over 100 years and represents the 'Tasty Start' cereals that people eat to start their day. Other segments include 'Simply Wholesome' products that are good for you, such as Kashi Muesli, 'Shape Management' products, such as Special K and 'Inner Health' lines, such as All-Bran. Children will be most familiar with the 'Kid Preferred' brands, such as Frosties, whilst 'Mum Approved' brands like Raisin Wheats are recognised by parents as being good for their children.

Each brand has to hold its own in a competitive market. Brand managers monitor the success of brands in terms of market share, growth and performance against the competition. Key decisions have to be made about the future of any brand that is not succeeding. This case study is aboutNutri-Grain . It shows how Kellogg’s recognised there was This case study is about Nutri-Grain. It shows how Kellogg's recognised there was a a problem with the brand and used business tools to reach a solution. The overall problem with the brand and used business tools to reach a solution. The overall aim aim was to re-launch the brand and return it to growth in its market. was to re-launch the brand and return it to growth in its market.

TheThe product product life life cyclecycle Each product has its own life cycle. It will be ‘born’, it will ‘develop’, it will ‘grow old’ Each product has its own life cycle. It will be 'born', it will 'develop', it will 'grow old' and, eventually, it will ‘die’. Some products, like Kellogg’s Corn Flakes, have retained and, eventually, it will 'die'. Some products, like Kellogg's Corn Flakes, have retained theirtheir market market position position forfor aa longlong time.time. Others Others may may have have their their success success undermined undermined by by fallingfalling market share share or orby competitors.by competitors.

FigureFigure 19. 19. LifeLife cycle extensionextension

The product life cycle shows how sales of a product change over time. The five typical stages of the life cycle are shown on the graph. Not all products126 follow these stages precisely and time periods for each stage will vary widely. Growth, for example, may take place over a few months or, as in the case of Nutri-Grain, over several years.

However, perhaps the most important stage of a product life cycle happens before this graph starts, namely the research and development (R&D) stage. Here the company designs a product to meet a need in the market. The costs of market research - to identify a gap in the market and of product development to ensure that the product meets the needs of that gap - are called ‘sunk’ or start-up costs.

Nutri-Grain was originally designed to meet the needs of busy people who had missed breakfast. It aimed to provide a healthy cereal breakfast in a portable and convenient format.

129 The product life cycle shows how sales of a product change over time. The five typical stages of the life cycle are shown on the graph. Not all products follow these stages precisely and time periods for each stage will vary widely. Growth, for example, may take place over a few months or, as in the case of Nutri-Grain, over several years.

However, perhaps the most important stage of a product life cycle happens before this graph starts, namely the research and development (R&D) stage. Here the company designs a product to meet a need in the market. The costs of market research - to identify a gap in the market and of product development to ensure that the product meets the needs of that gap - are called 'sunk' or start-up costs.

Nutri-Grain was originally designed to meet the needs of busy people who had missed breakfast. It aimed to provide a healthy cereal breakfast in a portable and convenient format. 1. Launch - Many products do well when they are first brought out and Nutri- Grain 1.was Launch no exception. - Many products From do launch well when (the they first are stagefirst brought on the out diagram) and Nutri-Grain in 1997 it was no exception. From launch (the first stage on the diagram) in 1997 it was was immediately successful, gaining almost 50% share of the growing cereal bar immediately successful, gaining almost 50% share of the growing cereal bar market in market in just two years. just two years.

FigureFigure 20. 20. Sales Sales of Nutriof Nutri - Grain - Grain range range 2. Growth - Nutri-Grain's sales steadily increased as the product was promoted and 2. Growthbecame - Nutri-Grain’s well known. It sales maintained steadily growth increased in sales as until the 2002product through was expanding promoted the and becameoriginal well known.product withIt maintained new developments growth of in flavour sales anduntil format. 2002 This through is good expanding for the the originalbusiness, product as it does with not new have developments to spend money of on flavour new machines and format. or equipment This is for good for the business, as it does not have to spend money on new machines or equipment for production. The market position ofNutri-Grain also subtly changed127 from a “missed breakfast” product to an ‘all-day’ healthy snack.

3. Maturity - Successful products attract other competitor businesses to start selling similar products. This indicates the third stage of the life cycle - maturity. This is the time of maximum profitability, when profits can be used to continue to build the brand. However, competitor brands from both Kellogg’s itself (e.g. All Bran bars) and other manufacturers (e.g. Alpen bars) offered the same benefits and this slowed down sales and chipped away at Nutri-Grain’s market position. Kellogg’s continued to support the development of the brand but some products (such as Minis and Twists), struggled in a crowded market. Although Elevenses continued to succeed, this was not enough to offset the overall sales decline.

4. Saturation - This is the fourth stage of the life cycle and the point when the market is ‘full’. Most people have the product and there are other, better or cheaper

130 competitor products. This is called market saturation and is when sales start to fall. By mid-2004 Nutri-Grain found its sales declining whilst the market continued to grow at a rate of 15%.

5. Decline - Clearly, at this point, Kellogg’s had to make a key business decision. Sales were falling, the product was in decline and losing its position. Should Kel- logg’s let the product ‘die’, i.e. withdraw it from the market, or should it try to extend its life?

Strategic use of the product life cycle

When a company recognizes that a product has gone into decline or is not performing as well as it should, it has to decide what to do. The decision needs to be made within the context of the overall aims of the business.

Figure 21. Kellogg's | Extending the product life cycle Figure 21. Kellogg’s | Extending the product life cycle

Strategically,Strategically, Kellogg's Kellogg’s had had a strong a strong position position in the in market the market for both for healthyboth healthy foods andfoods convenienceand convenience foods. Nutri-Grainfoods. Nutri-Grain fitted well fitted with well its mainwith its aims main and aims objectives and objectives and thereforeand therefore was a productwas a product and a brandand a brand worth worth rescuing. rescuing. Kellogg's Kellogg’s aims includedaims included the development of great brands, great brand value and the promotion of healthy living. 131 Kellogg's decided to try to extend the life of the product rather than withdraw it from the market. This meant developing an extension strategy for the product.

Ansoff's matrix is a tool that helps analyse which strategy is appropriate. It shows both market-orientated and product-orientated possibilities.

Extending the Nutri-Grain cycle - identifying the problem

Kellogg's had to decide whether the problem with Nutri-Grain was the market, the product or both. The market had grown by over 15% and competitors' market share had increased whilst Nutri-Grain sales in 2003 had declined.

The market in terms of customer tastes had also changed more people missed breakfast and therefore there was an increased need for such a snack product.

129 the development of great brands, great brand value and the promotion of healthy living. Kellogg’s decided to try to extend the life of the product rather than withdraw it from the market. This meant developing an extension strategy for the product.

Ansoff’s matrix is a tool that helps analyse which strategy is appropriate. It shows both market-orientated and product-orientated possibilities.

Extending the Nutri-Grain cycle - identifying the problem

Kellogg’s had to decide whether the problem with Nutri-Grain was the market, the product or both. The market had grown by over 15% and competitors’ market share had increased whilst Nutri-Grain sales in 2003 had declined.

The market in terms of customer tastes had also changed more people missed breakfast and therefore there was an increased need for such a snack product.

Extension strategies The choice of extension strategy indicated by the matrix was either product development or diversification. Diversification carries much higher costs and risks. Kellogg’s decided that it needed to focus on changing the product to meet the changing market needs. Research showed that there were several issues to address: 1. The brand message was not strong enough in the face of competition. Con- sumers were not impressed enough by the product to choose it over competitors. 2. Some of the other Kellogg’s products (e.g. Minis) had taken the focus away from the core business. 3. The core products of Nutri-Grain Soft Bake and Elevenses between them represented over 80% of sales but received a small proportion of advertising and promotion budgets. Those sales that were taking place were being driven by promotional pricing (i.e discounted pricing) rather than the underlying strength of the brand.

132 Implementing the extension strategy for Nutri-Grain

Having recognised the problems, Kellogg’s then developed solutions to re-brand and re-launch the product in 2005.

Fundamental to the re-launch was the renewal of the brand image. Kellogg’s looked at the core features that made the brand different and modelled the new brand image on these. Nutri-Grain is unique as it is the only product of this kind that is baked. This provided two benefits:

• The healthy grains were soft rather than gritty • The eating experience is closer to the more indulgent foods that people could be eating (cakes and biscuits, for example) • The unique selling point, hence the focus of the brand, needed to be the ‘soft bake’.

Researchers also found that a key part of the market was a group termed ‘realistic snackers’. These are people who want to snack on healthy foods, but still crave a great tasting snack. The re-launched Nutri-Grain product needed to help this key group fulfill both of these desires.

Kellogg’s decided to re-focus investment on the core products of Soft Bake Bars and Elevenses as these had maintained their growth (accounting for 61% of S oft Bake Bar sales). Three existing Soft Bake Bar products were improved, three new ranges introduced and poorly performing ranges (such as Minis) were withdrawn. New packaging was introduced to unify the brand image. An improved pricing structure for stores and supermarkets was developed.

The marketing mix Using this information, the re-launch focused on the four parts of the marketing mix: • Product improvements to the recipe and a wider range of flavours, repositioning the brand as ‘healthy and tasty’, not a substitute for a missed breakfast

133 • Promotion a new and clearer brand image to cover all the products in the range along with advertising and point-of-sale materials • Place better offers and materials to stores that sold the product • Price new price levels were agreed that did not rely on promotional pricing. This improved revenue for both Kellogg’s and the stores

As a result Soft Bake Bar year-on-year sales went from a decline to substantial growth, with Elevenses sales increasing by almost 50%.

The Nutri-Grain brand achieved a retail sales growth rate of almost three times that of the market and most importantly, growth was maintained after the initial re-launch.

Conclusion Successful businesses use all the tools at their disposal to stay at the top of their chosen market.

Kellogg’s was able to use a number of business tools in order to successfully re- launch the Nutri-Grain brand. These tools included the product life cycle, Ansoff”s matrix and the marketing mix. Such tools are useful when used properly.

Kellogg’s was able to see that although Nutri-Grain fitted its strategic profile a healthy, convenient cereal product it was underperforming in the market. This information was used, along with the aims and objectives of the business, to develop a strategy for continuing success.

Finally, when Kellogg’s checked the growth of the re-launched product against its own objectives, it had met all its aims to: • re-position the brand through the use of the marketing mix • return the brand to growth • improve the frequency of purchase • introduce new customers to the brand.

134 Nutri-Grain remains a growing brand and product within the Kellogg’s product family.

Case study - Nestlé Securing customers’ interests through mutual ownership

(Sourse: download.businesscasestudies.co.uk/retrieve_nestle_10)

Introduction

Consumer research shows that people are looking to adopt healthier lifestyles. Newspapers and television channels bombard us with health information and messages about the benefits of healthier living. Governments, keen to ensure that people are looking after their health in order to ease the burden on public health services, are also reinforcing these messages. As a result, many people are taking positive steps to lead healthier lives. They are starting to take appropriate exercise; to find ways of relaxing and to eat a balanced, nutritious diet.

When millions of people decide to change their lifestyle and their buying habits market-led companies are certain to notice and to respond. This is because their ability to stay in business depends on providing goods and services that meet customers’ needs and to respond to changing requirements.

Nestlé is the world’s biggest food and beverage company and produces a wide range of products. Many of its best known brands are household names, although you may perhaps not realise, that some of them are part of the Nestlé portfolio.

The Nestlé organisation operates through product divisions. These include:

You will be familiar with many of the brands, which include • Nescafé (coffee) • Smarties, KitKat (confectionery)

135 • Perrier, Buxton (water) • Buitoni (pasta) • Sveltesse (chilled dairy) • Shredded Wheat (cereals).

Henri Nestlé developed the first infant food in 1867 to save the life of a friend’s baby who could not be breastfed. Since then, the company has looked to build on a tradition of providing nutritious products. It builds its business around: • discovering what customers want • identifying pressures for change e.g. government campaigns, health education initiatives • responding to changes in the market place.

Today, in Lausanne (Switzerland), Nestlé operates the world’s largest nutrition based science research unit. Over 600 scientists and food technicians work there developing and improving products. This Case Study focuses on how Nestlé, one of the world’s leaders in consumer-led approaches to product development, continually seeks to provide products that meet consumers’ changing requirements. In particular, it also looks at how Nestlé use its vast scientific and consumer knowledge to make products that make it easier for consumers to be healthier.

Responding to market demands

A market led company like Nestlé is continually monitoring customer attitudes and requirements through market research. This research takes two main forms: • Qualitative research. This involves setting up small focus groups of consumers who express their ideas and opinions about their needs and views on different products. At one level, this might involve asking groups of athletes to talk about their lifestyles, dietary habits and training regimes. At another level, it could involve a consumer focus group discussing the quality of the nutritional labelling on a yoghurt drink.

136 • Quantitative research. Whereas qualitative research involves only relatively few people, quantitative research involves much bigger numbers. For example, professional market researchers may interview thousands of people through postal or telephone interviewing.

Nestlé regularly uses both forms of research to gain a clear idea of consumer opinions and trends. Market research helps the company to keep in touch with an ever changing environment in which social attitudes and buying patterns are continually shifting.

Nestlé’s market researchers do not work in isolation. They liaise closely with the company’s product developers, food scientists and technologists. In this way the company can design products to meet market needs.

Nestlé spends more on Research and Development (R&D) than any other company in the food industry. It is constantly looking at ways to improve its products.

Using this market-led approach, Nestlé introduced and developed its Sveltesse (‘slimness’ or ‘elegance’ in French) range. The range began with yoghurts and dairy products and globally now includes bottled water, ice cream, cereal bars and frozen prepared meals.

In developing Sveltesse, the emphasis is concentrating on an appealing taste com- bined with a low or no fat, low calorie option.

Strategic development

A strategy is the means by which an organisation achieves particular ends. An agreed strategy answers the question “By what means are we going to achieve our objective?”. For example, Nestlé’s market research confirms that increasing numbers of consumers want to buy good tasting foods that can allow them to have healthier diets. Nestlé is keen to capture a greater share of this growing market. So Nestlé’s ongoing strategy is to develop a ‘Wellness’ approach that builds on its tradition of producing nutritional products.

137 Wellness is a condition of enhanced health, a physical state which is maintained by good diet, exercise and life habits. Wellness is also associated with a feeling of vitality and being in good shape.

In 2001, Nestlé’s Chief Executive set out the company’s vision when he stated: ‘We want to grow from the respected and trustworthy food company that we are known as now, into a respected and trustworthy food, nutrition and Wellness company’. Nestlé’s development of a strategy to promote Wellness is an evolution of the company’s original commitment to nutrition and health.

Ensuring strategic fit

An Environment, Value and Resources (EVR) fit is a simple but useful business tool to decide whether a proposed strategy is appropriate.

The strategy the business chooses must match these three elements.

For example, Nestlé’s Wellness strategy must:

▶ Match the strategy to the prevailing Environment, in which the business operates. In this case, it is a social environment, in which consumers are seeking nutritional products to complement a healthy lifestyle.

▶ Ensure the strategy is consistent with the organisation’s Values. Nestlé worldwide adheres to a set of business principles that have long underpinned the way the company operates. One key principle is that of meeting consumers’ needs for nutrition, enjoyment and quality they can trust. This is why the company places so much emphasis on market research and on the best ways to communicate with customers. Principles that underpin consumer communication include: • stressing moderation in food consumption • depicting children in healthy, energetic pursuits.

Nestlé is clear, for example, that its advertising must not look to encourage children to eat snack foods instead of meals.

138 ▶ Ensure the company has the necessary Resources to support the strategy. With its science and technology base, Nestlé is well equipped to develop the required science-based improvements to existing products. It can also handle the development of new products that contribute to Wellness.

Personal health and Wellness are powerful, universal, human needs. With its strong brands, wide product portfolio and R&D competence, Nestlé is well positioned to benefit from a growing market. It has the values and the resources to meet customer requirements in an environment in which more and more people are seeking health and Wellness.

Implementing the strategy

Having developed a clear strategy, it is important to implement it. Nestlé will look to ensure that going forward all its products retain a superior taste profile while providing enhanced nutritional benefits.

This will involve: 1. retain certain products 2. product reformulations (including salt, sugar, fat reduction) 3. launching new products with scientifically proven nutritional benefits. Nestlé’s product research and development network ensures it is well placed to meet the challenge of changes in consumer expectations. The Company’s Wellness strategy is carefully geared to delivering what consumers want in relation to the foods they eat - a high nutritional value and a positive contribution to their general wellness.

This has led to the following three-part strategy:

Clinutren has been formulated for patients with increased energy and protein requirements and supports the nutrition of people suffering from a series of medical conditions or recovering from operations. Fitnesse is a 99% fat free cereal. Sveltesse is a range of low or fat-free products (e.g. yoghurt and fromage frais).

139 Using this approach, over the past five years Nestlé has developed or reformulated over 700 products so that they have a lower fat, sugar and salt content.

In addition, the Company looks to educate consumers about healthy lifestyles and proper nutrition. Its initiatives include: • the Nestlé Trust supporting a number of initiatives focused on developing nutritional awareness, often these are aimed at young people • a website focused on providing nutritional information • on-pack nutrition information.

As the Wellness approach is now central to everything that Nestlé does, the company has set up a Strategic Wellness Unit. Its job is to promote the Wellness approach both internally and outside the organisation, so that everyone knows what it means and how to implement it.

Conclusion

Consumer interest in the nutritional quality and health impact of foods has probably never been greater and for good reason. Governments have been busy ‘spread- ing the message’ that healthy foods and a balanced diet are vital for good physical and mental health and a general feeling of Wellness.

Nestlé is one of the world’s leading food companies and intends to remain so. Its commitment to high quality market research ensures that it remains fully aware of changes in consumer behaviour and consumer tastes. Its excellent product research and development network ensures that it is well placed to meet the challenge of changes in consumer expectations. The company’s Wellness strategy is carefully geared to delivering to customers what they now clearly want in relation to the foods they eat; a high nutritional value and a positive contribution to their general Wellness.

140 Practical exercises Product design, management, and ownership instruction

An effective product owner has diverse responsibilities

Product developing owner role actively directs the planning, design, and incremental development of a product that emerges incrementally. This is a new role not common in software development before and not commonly understood today. An effective product owner • balances the concerns of a variety of stakeholders, customers, and users • synthesizes business goals, user goals, and their understanding of the potential use of the system to envision a solution that could be built by the team • guides incremental development and validation of the software.

Product ownership is a challenging role that requires a blend of subject matter expertise, product design, planning, and software development management.

It’s difficult to acquire skills necessary to be an effective product owner

Sadly those placed into the role often have no idea of the challenges that await them. Development as a process, and its process points, but don’t teach the skills necessary to confidently fulfill the product owner role.

Product owner course from the topics below What follows is a list of course topics designed to train product owners, members of the product owner team, and all others participating process with interested in the product ownership role. These classes emphasize software product design and planning and how the results of that work enter a process, generally as user stories. The courses help those in the product owner team identify problems to solve, software solutions to those problems, and tactics for developing and validating those solutions.

141 To construct a course for your organization, choose from among the buffet of topics described below. All are valuable. Most can be tailored to fit your organization’s context and your team’s existing skills. Use this list of courses as a guide to start planning, then continue the conversation with me to tailor your course. context and your team’s existing skills. Use this list of courses as a guide to start Courseplanning,context andTopics then your continue & team’s Timing the existing conversation skills. w Useith me th isto listtailor of your courses course. as a guide to start (Source:planning, www.agileproductdesign.com/consulting/patton_training_workshops.doc)then continue the conversation with me to tailor your course. Course Topics & Timing Course(Source: www.agileproductdesign.com/conTopics & Timing sulting/patton_training_workshops.doc)

Layers(Source: www.agileproductdesign.com/conof planning and the productsulting/patton_training_workshops.doc) development lifecycle (45 minutes) Layers of planning and the product development lifecycle (45 minutes) Discuss how layers of planning and re- Layers of planning and the product developmentDiscuss lifecycle how (45 layersminutes) of planning and requirementsDiscussquirements how starting layers starting ofat more planning at strategic more and strategic programrequirementsprogram levels, starting levels, continuing at continuingmore strategic through through products,programproducts, projects,levels, projects, continuing iterations iterations and through user and user storiesproducts,stories relate relate projects, to the to iterationssimple the simple and and typical user and typical time-boxedstoriestime-boxed relate development to development the simple lifecycle and lifecycle typical seen seen in intime-boxedScrum Scrum Sprints, Sprints,development or or XP XP lifecycle Iterations. Iterations. seen Under- in Scrum Sprints, or XP Iterations. Understandstand how how the the product product ownershipownership team teamUnderstand is responsible how the product for ownership planning, is responsible for planning, design work, design work, and product testing and evaluationteam outside is responsibleof the typical for development planning, and product testing and evaluation outside of the typical development time-box. time-box.design work, and product testing and evaluation outside of the typical development ShowShowtime-box. andand discuss discuss models models to help to helpparticipan participantsts understand understand and leverage and these leverage concepts. these concepts.TheShow problem and discuss analysis models to solution to help dparticipanefinition lifecyclets understand (45 minutes) and leverage these concepts. The problem analysis to solution definition lifecycleTo effectively (45 minutes) de sign a product that meetsToThe effectively itsproblem desired de analysisgoalssign we a to productspend solution a thatfair definition bitmeetslifecycle of its time desired (45 talking minutes) goals about we thingsspend a other fair thanbitTo of effectivelythe time product talking itself.design about Things a thingsproduct such other as that meets than the product itself. Things such as theits desired business goals problems we spendor goals a fair it bit of addresses,the business the problems users that or may goals use it, it time talking about things other than the andaddresses, the way the theyusers meet that may their use goals it, product itself. Things such as the busi- todayand the without way the they product meet their you intend goals totodayness build. withoutproblems These the concerns or product goals are you ittaken addresses, intend up the during problem analysis where they’re modeledtousers build. and that usedThese may to concerns validateuse it, are prospectiveand taken the up way they solutions.during problem The analysis problem where analysis they’re solution modeled definitionmeet and their used lifecycle goals to validate describestoday prospectivewithout an ideal the prod- uctlifecyclesolutions. you ofintend The activities problemto build.that analysislead These from solution understanding concerns definition are a problemtaken lifecycle up through describesduring to designingproblem an ideal analysis whereandlifecycle validating they’re of activities amodeled prospective that leadand solution fromused understanding to and validate planning prospective a problem its incremental through solutions. development. to designing The problem Sinceand validating life is seldom a prospective ideal, additional solution discus andsion planning will focus its incrementalon how to adapt development. this ideal 142lifecycleSince life to is the seldom real world. ideal, additional discussion will focus on how to adapt this ideal lifecycle to the real world. 139

139 analysis solution definition lifecycle describes an ideal lifecycle of activities that lead from understanding a problem through to designing and validating a prospective solution and planning its incremental development. Since life is seldom ideal, additional discussion will focus on how to adapt this ideal lifecycle to the real world.

ShowShow andand discuss discuss models models to help to helpparticipan participantsts understand understand and leverage and these leverage concepts. these con- Driving Prioritization from goals (1.5 hours) cepts. Show and discuss models to help participants understand and leverage these concepts. UnderstandingDriving Prioritization the goals from ofgoals (1.5 Driving Prioritization from goals (1.5 hours) organizations paying for software and Understandinghours) the goals of using software is critical to making organizationsUnderstanding paying the for software goals of and organiza - choices about what to build and how usingtions software paying for is criticalsoftware to makingand using soft- to prioritize specific details of a choicesware isabout critical what to to making build and choices how about prospective software solution. This towhat prioritize to build specific and how details to prioritize of a spe- discussion and exercise helps prospective software solution. This participantscific details understa ofnd a goals prospective as not software discussion and exercise helps thesolution. software This we intend discussion to build, but and exercise participants understand goals as not the benefit we hope to realize after the software ishelps put into participants use. Participants understand will learn goals as the software we intend to build, but nothow the to validatesoftware and we support intend their to goalsbuild, with but metricsthe benefit that help we identify hope to progress realize after the the benefit we hope to realize after the software is put into use. Participants will learn towards their realization. softwarehow to validate is put andinto support use. Participants their goals with will metricslearn how that to help validate identify and progress support their Modeling Customers, users, and use (3 hours) goalstowards with their metrics realization. that help identify progress towards their realization. In software product design we need to Modeling Customers, users, and use (3 hours) balance the goals and desired of users InModeling software product Customers, design we users, need and to use (3 with those paying for the software. balancehours) the goals and desired of users Users also have particular knowledge, with those paying for the software. characteristics,In software biases, product and workingdesign we need Users also have particular knowledge, constraintsto balance that the will goalsaffect andour solution desired of us- characteristics, biases, and working designers with choices. those In this paying discussion for the and software. constraints that will affect our solution supportingUsers also exercises have participantsparticular will knowledge, design choices. In this discussion and learn the difference between a supportingcharacteristics, exercises biases, participants and will working customer who makes buying decisions and a user engaged in using the system. learnconstraints the difference that will betweenaffect our a solution Participants learn how to model customers and users in a concise and relevant way so customer who makes buying decisions and a designuser engaged choices. in using In this the discussion system. and those models can be used to help drive design for and validate prospective solutions. supportingParticipants learn exercises how to participantsmodel customers will and learn users in the a concise difference and relevant between way so a customer In exercises, participants will identify user types, add detail to them to create user whothose makes models buyingcan be used decisions to help anddrive a design user engagedfor and validate in using prospective the system. solutions. Participants profiles, and leverage that detail to create useful user personas. In exercises, participants will identify user types, add detail to them to create user learn how to model customers and usersModeling in a concise software and userelevant with way user so those profiles, and leverage that detail to create useful user personas. stories and story maps (2 - 3 hours) Modeling software use with user 143 Development user stories are used to stories and story maps (2 - 3 hours) describe how users might use software Development user stories are used to describe how users might use software

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Show and discuss models to help participants understand and leverage these concepts. Driving Prioritization from goals (1.5 hours) Understanding the goals of organizations paying for software and using software is critical to making choices about what to build and how to prioritize specific details of a prospective software solution. This discussion and exercise helps participants understand goals as not the software we intend to build, but the benefit we hope to realize after the software is put into use. Participants will learn how to validate and support their goals with metrics that help identify progress towards their realization. Modeling Customers, users, and use (3 hours) In software product design we need to balance the goals and desired of users with those paying for the software. Users also have particular knowledge, characteristics, biases, and working constraints that will affect our solution design choices. In this discussion and supporting exercises participants will learn the difference between a customer who makes buying decisions and a user engaged in using the system. modelsParticipants can learn be used how toto model help drivecustomers design and forusers and in a validate concise and prospective relevant way solutions. so In exercises,those models participants can be used towill help identify drive design user for types, and validate add detail prospective to them solutions. to create user profiles,In exercises, and participants leverage willthat identifydetail to user create types, useful add detail user topersonas. them to create user profiles, and leverage that detail to create useful user personas. ModelingModeling software software use use with with user user stories stories and story maps (2 - 3 hours) and story maps (2 - 3 hours) Development user stories are used to Development user stories are used to de- describe how users might use software scribe how users might use software to meet their goals. Participants will learn 140 to write high level user stories that describe activities and user tasks engaged in by users. Using these high level user to meet their goals. Participants will learn to write high level user stories that describe stories, participants will create a useful activities and user tasks engaged in by users. Using these high level user stories, map of the full system that’s valuable for telling big stories about the end to end participants will create a useful map of the full system that’s valuable for telling big use of the entire system. Story maps form useful backdrops for discussion. Use stories about the end to end use of the entire system. Story maps form useful conversationbackdrops for discussion. around a storyUse conversa map totion identify around problemsa story map and to identify opportunities problems in exist- ingand opportunitiessystems, check in existing for completeness systems, check foofr completenessyour user stories, of your userand stories,understanding and of usersunderstanding and use. of users and use. Envisioning and validating use using paper prototyping (3 - 4.5 hours) ToEnvisioning envision software and validating that solves user’suse using pa- andper business’prototyping proble (3 ms- 4.5 we hours) need to begin thinking about possible concrete To envision software that solves user’s solutions. Writing textual user and business’ problems we need to begin scenarios allows us to quickly, thinking about possible concrete solu- cheaply, and iteratively imaging the worldtions. with Writing a new softwaretextual solutionuser scenarios in al- place.lows usQuick to quickly,to build paper cheaply, prototypes and iterative - allowly imaging us to envision the world the with specific a new user software interface that supports use. Placing simple prototypessolution inin front place. of users Quick and to asking build paper prototypesthem to try toallow meet us goals to envision as you move the specific paper simulating user interface the computer’s that supports response use. Plac- ingallows simple you to prototypes validate the insuccess front of of your users pros andpective asking solution. them Pa torticipants try to meet will learn goals as you scenario writing, paper prototyping, and light weight usability testing. move paper simulating the computer’s response allows you to validate the success of your prospective solution. Participants will learn scenario writing, paper prototyping, and light weight usability testing.

Incremental release planning to maximize value and reduce risk (2 - 3 hours) 144 A tenet of company development is releasing software to users frequently. Incremental releases increase return on investment and reduce project risks. Participants will learn about the benefits of incremental release, strategies for thinning incremental releases, and a simple approach to

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to meet their goals. Participants will learn to write high level user stories that describe activities and user tasks engaged in by users. Using these high level user stories, participants will create a useful map of the full system that’s valuable for telling big stories about the end to end use of the entire system. Story maps form useful backdrops for discussion. Use conversation around a story map to identify problems and opportunities in existing systems, check for completeness of your user stories, and understanding of users and use. Envisioning and validating use using paper prototyping (3 - 4.5 hours) To envision software that solves user’s and business’ problems we need to begin thinking about possible concrete solutions. Writing textual user scenarios allows us to quickly, cheaply, and iteratively imaging the world with a new software solution in place. Quick to build paper prototypes allow us to envision the specific user interface that supports use. Placing simple prototypes in front of users and asking them to try to meet goals as you move paper simulating the computer’s response allows you to validate the success of your prospective solution. Participants will learn scenario writing, paper prototyping, and light weight usability testing.

Incremental release planning to maximize value and reduce risk (2 - 3 hours) AIncremental tenet of company release developmentplanning to ismaximize releasingvalue and software reduce to risk users (2 frequently. - 3 hours) Incremental releases increase return on A tenet of company development is re- investment and reduce project risks. leasing software to users frequently. In- Participants will learn about the cremental releases increase return on benefits of incremental release, strategiesinvestment for and thinning reduce incremental project risks. releases,Participants and awill simple learn approach about the to benefits of incremental release, strategies for thinning incremental releases, and a simple 141 approach to leverage your story maps to identify releases that take into account leveragethe entire your breadth story maps of the to identify system. releas Participantses that take will into expressaccount theincremental entire breadth releases not ofas thepiles system. of features, Participants but willas roadmaps express incremental that express releases how not business as piles of and features, user goals are butreached as roadmaps over time.that express how business and user goals are reached over time. Driving solution development with tactical user stories (1.5 – 3 hours) BuildingDriving solution from development a foundational with tactical understanding of business goals, users, user stories (1.5 – 3 hours) use, and some vision of the final Building from a foundational under- solution, tactical user stories allow us standing of business goals, users, use, and to being to support that use by building software.some vision Participants of the willfinal learn solution, how tactical expressuser stories story allow details us as to acceptance being to support criteriathat usearrived by at building through conversation software. Partici- withpants developers, will learn testers,how express and other story details team members. Participants will learn strategiesas acceptance for thinni criteriang stories arrived to allow at through developmentconversation to proceedwith developers, quicker to a testers,solution thandat can other be validated team members. through actual Participants use. will A product owner will spend a great deal of their time collaborating with the team to learn strategies for thinning stories to allow development to proceed quicker to a write acceptance criteria, answer questions during development, and review working solution that can be validated through actual use. software to confirm it meets its acceptance criteria, and ultimately helps users reach A product owner will spend a great deal of their time collaborating with the team their goals. Participants will begin to feel the rhythm of driving software developmentto write acceptance using user stories.criteria, answer questions during development, and review Workingworking collaboratively software to (3 confirm hours) it meets its acceptance criteria, and ultimately helps users reach their goals. Participants willEffective begin to productfeel the rhythm owners of elicit driving software development using user stories. information from a variety of stakeholders, then synthesize, communicate, and leverage that information to make good product decisions. Product owners facilitate 145 workshops to gather information, create models, and build common understanding among stakeholders, and within the team. Effective product owners are good collaborators that can work with others to create models, plans, and ultimately working software that’s better than any single individual could create.

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leverage your story maps to identify releases that take into account the entire breadth of the system. Participants will express incremental releases not as piles of features, but as roadmaps that express how business and user goals are reached over time. Driving solution development with tactical user stories (1.5 – 3 hours) Building from a foundational understanding of business goals, users, use, and some vision of the final solution, tactical user stories allow us to being to support that use by building software. Participants will learn how express story details as acceptance criteria arrived at through conversation with developers, testers, and other team members. Participants will learn strategies for thinning stories to allow development to proceed quicker to a solution that can be validated through actual use. A product owner will spend a great deal of their time collaborating with the team to write acceptance criteria, answer questions during development, and review working software to confirm it meets its acceptance criteria, and ultimately helps users reach their goals. Participants will begin to feel the rhythm of driving software development using user stories. Working collaboratively (3 hours) EffectiveWorking collaboratively product owners (3 hours) elicit informationEffective product from a owners variety elicit of informa- stakeholders, then synthesize, tion from a variety of stakeholders, then communicate, and leverage that synthesize, communicate, and leverage information to make good product that information to make good prod- decisions. Product owners facilitate workshopsuct decisions. to gather Product information, owners facilitate createworkshops models, to andgather build information, common create understandingmodels, and build among common stakeholders, understand - and within the team. Effective product ownersing are amonggood collaborat stakeholders,ors that can and work within the team.with others Effective to create product models, plans,owners and are ulti matelygood collaboratorsworking software that that’s can better work than with others toany create single individualmodels, couldplans, create. and ultimately working software that’s better than any single individual could create.

Class format 142

ClassesClass formatare taught workshop style by alternating short periodsClasses of are lecture taught and workshop discussion style with by collaborative alternating short hands on exercises. Slides favor the use of simple periods of lecture and discussion with collaborative models and photographs to help cement participants’ hands on exercises. Slides favor the use of simple mental models or envision the practice of a technique. models and photographs to help cement participants’ Simple games are used to teach card modeling techniquesmental models used throughout or envision various the class practice topics. of a technique. Simple games are used to teach card modeling tech- The design problem used in this courseniques used throughout various class topics. For hands on exercises to be most productive, these courses use an example customer Thewith adesign real business problem problem used inthat this can course be solved with a software solution. When I Forteach hands courses on within exercises a single to company, be most it’sproductive, valuable to these tailor acourses problem use based an on example the cus- product and business problems participants work on in their daily work life. When tomer with a real business problem that can be solved with a software solution. tailoring a custom course, consider tailoring a design problem that allows your When I teach courses within a single company, it’s valuable to tailor a problem participants to get the most out of the training. based on the product and business problems participants work on in their daily

work life. When tailoring a custom course, consider tailoring a design problem that allows your participants to get the most out of the training. REFERENCE OUTLINE

1) What are the two ways that a company can obtain new products? A) line extension and brand management B) internal development and brand management C) new-product development and acquisition D) service development and product extension 146E) market mix modification and research and development Answer: C

2) Product improvements, product modifications, and original products can all be classified as ______. A) pioneer products B) new products C) product concepts D) product ideas E) test products Answer: B

3) Which of the following is NOT a potential reason for a new product to fail?

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REFERENCE OUTLINE

1) What are the two ways that a company can obtain new products? A) line extension and brand management B) internal development and brand management C) new-product development and acquisition D) service development and product extension E) market mix modification and research and development Answer: C

3) Which of the following is NOT a potential reason for a new product to fail? A) an underestimated market size B) a poorly designed product C) an incorrectly positioned product D) higher than anticipated costs of product development E) ineffective advertising Answer: A

4) Which of the following is NOT a challenge presented by the product life cycle that a firm must face? A) All products eventually decline. B) Changing tastes, technologies, and competition affect the marketing of the product as it passes through lifecycle stages. C) A firm must be good at developing new products to replace aging ones.

147 D) A firm must be good at adapting its marketing strategies. E) It is difficult to plot the stages as a product goes through them. Answer: E

5) The creation of a successful new product depends on a company’s understanding of its ______and its ability to deliver ______to customers. A) competitors, distributors, and employees; new styles B) customers, brands, products; product images C) customers, competitors, and markets; superior value D) product, marketing mix, and marketing strategy; functional features E) product life cycle, legal responsibilities, and social responsibilities; innovations Answer: C

6) New product development starts with ______. A) idea generation B) idea screening C) concept development D) concept testing E) test marketing Answer: A

7) Executives, manufacturing employees, and salespeople are all examples of ______. A) external sources for new-product ideas B) internal sources for new-product ideas C) core members of innovation management systems D) research and development team members E) new-product committee members Answer: B

8) Your company decides to use internal sources for developing new product ideas. Which of the following would NOT be consulted?

148 A) executives and professionals B) company records and data C) intrapreneurial programs D) suppliers E) salespeople Answer: D

9) Which of the following is perhaps the most important external source of new- product ideas? A) engineers B) customers C) competitors D) trade magazines, shows, and seminars E) distributors and suppliers Answer: B

10) Which of the following is NOT a recommended method for companies to tap into their customers as sources for new-product ideas? A) analyzing customer complaints and questions B) relying heavily on customers to know what types of technical products they need C) working alongside customers to get ideas and suggestions D) turning customers into cocreators E) putting customer-created products on the market Answer: B

11) Your firm asks you to consult external sources for new product ideas. All of the following are common external sources EXCEPT ______. A) customers B) suppliers C) competitors D) trade shows and magazines E) the firm’s executives Answer: E

149 12) The purpose of idea generation is to create a ______number of ideas. The purpose of succeeding stages is to ______that number. A) small number; reduce B) small number; increase C) large number; increase D) large number; reduce E) limited number; sustain Answer: D

13) GrayBerry Gifts has just brainstormed a large number of ideas for adding new products and services after visiting several buying fairs. The owners will begin the first idea-reducing stage, called ______, to arrive at a realistic number to adopt. A) business analysis B) idea generation C) concept testing D) idea screening E) concept development Answer: D

14) Which of the following is most likely to be included in an executive’s write up of a new-product idea to be presented to a new-product committee? A) the proposed customer value proposition B) the product image C) the marketing strategy D) the business analysis E) the planned marker rollout Answer: A

15) A detailed version of a new idea stated in meaningful customer terms is called a ______. A) product idea B) product concept

150 C) product image D) product proposal E) product movement Answer: B

16) A ______is the way consumers perceive an actual or potential product. A) product idea B) product concept C) product image D) test market E) concept test Answer: C

17) An attractive idea must be developed into a ______. A) product idea B) product concept C) product image D) test market E) product strategy Answer: B

18) ______calls for testing new-product concepts with groups of target consumers. A) Concept development B) Concept testing C) Idea generation D) Idea screening E) Test marketing Answer: B

19) In the concept testing stage of new-product development, a product concept in ______form is presented to groups of target consumers. A) physical or symbolic

151 B) prototype C) final D) market-tested E) commercial Answer: A

20) With what groups do firms conduct concept testing for new products? A) suppliers B) employees C) target customers D) manufacturers E) competitors Answer: C

21) For some ______, a simple description consisting of a word or picture might be sufficient. A) concept tests B) product concepts C) marketing strategies D) product developments E) business analyses Answer: A

22) After concept testing, a firm would engage in which stage in developing and marketing a new product? A) idea screening B) marketing strategy development C) business analysis D) product development E) test marketing Answer: B

23) The first part of the marketing strategy statement describes the target market; the planned product positioning; and goals for sales, profits, and ______.

152 A) market share B) competition C) secondary market D) competition’s anticipated reaction E) life-cycle duration Answer: A

24) The second part of the marketing strategy statement outlines the product’s planned price, distribution, and ______for the first year. A) advertising B) promotion C) marketing budget D) positioning E) target market Answer: C

25) The third part of the marketing strategy statement includes all of the following EXCEPT ______. A) long-run sales B) profit goals C) marketing mix strategies D) short-run sales E) A and C Answer: D

26) A review of the sales, costs, and profit projections for a new product to find out whether they satisfy the company’s objectives is called a ______. A) business feasibility plan B) marketing strategy development C) business analysis D) product acceptance E) proposal Answer: C

153 27) During which stage of new-product development will management most likely estimate minimum and maximum sales to assess the range of risk in launching a new product? A) concept testing B) marketing strategy development C) business analysis D) product development E) test marketing Answer: C

28) Once managers of The Grecian Urn have decided on their product concept and marketing strategy, they can evaluate the business attractiveness of the proposal in the ______stage of the new-product development process. A) business feasibility B) feasibility study C) business analysis D) product acceptance E) concept testing Answer: C

29) New World Releases is conducting a business analysis to determine which of the many new songs available to management should be released. Sales must be estimated before costs can be estimated. Which of the following did your text recommend for forecasting sales? A) conducting surveys of competitors B) considering the history of market opinions C) considering the sales history of similar products and conducting surveys of market opinions D) applying the PLC concept E) none of the above Answer: C

30) Once the product or service passes the business analysis test, it moves into what stage?

154 A) concept development B) product development C) market testing D) strategy development E) product proposal Answer: B

31) In the ______stage of new-product development, products undergo rigorous tests to make sure that they perform safely and effectively or that consumers will find value in them. A) business analysis B) idea generation C) concept development and testing D) product development E) marketing mix Answer: D

32) Once the prototype of Wainwright Industries’ new riding lawnmower, made especially for women, passes product tests, the next step is ______. A) test marketing B) focus group surveys C) commercialization D) post-testing E) business analysis Answer: A

33) Bonneville Communications is concerned about test marketing its new de- vice. Which of the following is NOT a disadvantage of test marketing that would likely concern Bonneville Communications? A) Test marketing costs can be high. B) It can take a lot of time to test market. C) Test marketing allows time for competitors to spy and gain advantages. D) People who are surveyed tend to tell less than the truth.

155 E) Test marketing does not guarantee success. Answer: D

34) Under what circumstances might it be wise for a company to do little or no test marketing? A) when a new product requires a major investment B) when management is not sure of the product C) when management is not sure of the marketing program D) when the product has no substitutes and is new in its category E) when the costs of developing and introducing the product are low Answer: E

35) Although test marketing costs can be high, they are often small when compared with ______. A) the final results B) the costs of a major mistake C) management’s approval and acceptance D) stockholders’ confidence E) research and development costs Answer: B

36) Many marketers are now using new interactive technologies, such as Frito- Lay’s online virtual convenience store, to reduce the cost of ______. A) concept development B) concept testing C) marketing strategy development D) product development E) test marketing Answer: E

37) The major purpose of test marketing is to provide management with the information needed to make a final decision about ______. A) how to develop a market strategy

156 B) which market to compete in C) whether to launch the new product D) how to compete in the market E) how long to compete in the market Answer: C

38) Introducing a new product into the market is called ______. A) test marketing B) new product development C) experimenting D) commercialization E) marketing development Answer: D 39) Which of the following costs is most likely associated with the commercialization stage of new-product development? A) building or renting a manufacturing facility B) paying groups of target customers for product feedback C) determining the product’s planned price, distribution, and marketing budget D) developing a prototype of the product E) identifying target markets Answer: A

40) A company getting ready to launch a new product must make several decisions. The company must first decide on ______. A) whether to launch the product in a single location B) whether to launch the product in a region C) whether to launch the product into full national distribution D) when to time the new product introduction E) when to develop a planned market rollout Answer: D

41) Following the decision to “time” the introduction of the new product, a company must decide ______to launch the new product.

157 A) where B) how C) to what degree D) why E) all of the above Answer: A

42) Which of the following is necessary for successful new-product development? A) a holistic and sequential product development approach B) a customer-centered, team-based, systematic approach C) a team-based, innovation-management approach D) a market pioneer mindset and a holistic approach E) an innovation management system and sequential product development Answer: B

43) Which stage of the new-product development process focuses on finding new ways to solve customer problems and create more customer-satisfying experiences? A) concept testing B) new-product development C) customer-centered new-product development D) sequential product development E) team-based new-product development Answer: C

44) ______is a new-product development approach in which one company department works to complete its stage of the process before passing the new product along to the next department and stage. A) Team-based product development B) Simultaneous product development C) Sequential product development D) Product life-cycle analysis E) Micromarketing Answer: C

158 45) In order to get their new products to market more quickly, many companies are adopting a faster, team-oriented approach called ______. A) simulated new-product development B) sequential product development C) team-based new-product development D) phased-in new-product development E) market development Answer: C

46) The team-based new-product development approach is faster because departments work closely together through ______. A) team efforts B) a step-by-step process C) the help of a consultant D) cross-functional teams E) departmentalization Answer: D

47) The team-based new-product development approach uses cross-functional teams that overlap the steps in the process to achieve which of the following goals? A) save time and reduce errors B) save time and increase effectiveness C) increase effectiveness and employee satisfaction D) speed product to market and reduce costs E) B and D Answer: B

48) Which of the following is a disadvantage of a team-based approach to new- product development? A) It takes longer to get the right products to market. B) The development effort is not as effective because of team members’ lack of expertise.

159 C) Levels of risk can be more easily controlled. D) Organizational confusion and tension can affect the process. E) The process does not work with the shorter life cycles of many of today’s products. Answer: D

49) The innovation management system approach yields two favorable outcomes: it helps create an innovation-oriented company culture, and it ______. A) clearly assigns responsibility for the process B) yields a larger number of new-product ideas C) guarantees successful products D) frees up senior management time E) requires less budget support Answer: B

50) The search for new-product ideas should be ______rather than haphaz- ard. A) intermittent B) systematic C) segmented D) strategically planned E) rare Answer: B

51) ______is the product life cycle period when sales fall off and profits drop. A) Introduction B) Growth C) Maturity D) Decline E) Development Answer: D

52) Increasing profits will most likely occur at which stage of the PLC? A) introduction

160 B) maturity C) growth D) decline E) product development Answer: C

53) Which stage in the PLC is characterized by rapid market acceptance and increasing sales? A) introduction B) maturity C) growth D) decline E) development Answer: C

54) Some products that have entered the decline stage have been cycled back to the growth stage through ______. A) promotion or repositioning B) concept testing C) business analysis D) innovation management E) customer-centered product development Answer: A

55) All of the following are stages in the PLC EXCEPT ______. A) introduction B) growth C) maturity D) adoption E) decline Answer: D

56) Which stage of the typical consumer product life cycle is out of order below? A) product development

161 B) introduction C) maturity D) growth E) decline Answer: C

57) Which of the following CANNOT be described using the PLC concept? A) product class B) product form C) product image D) brand E) styles Answer: C

58) All of the following are accurate descriptions of a style product, EXCEPT which one? A) Style products appear in home, clothing, and art. B) Once a style is invented, it may last for generations. C) A style has a cycle showing several periods of renewed interest. D) Styles last only a short time and tend to attract only a limited following. E) Styles are basic and distinctive modes of expression. Answer: D

59) The PLC concept can be applied by marketers as a useful framework for describing how ______. A) to forecast product performance B) to develop marketing strategies C) products and markets work D) concept testing is conducted E) product ideas are developed Answer: C

60) Using the PLC concept to develop marketing strategy can be difficult because strategy is both a ______and a(n) ______of the product’s life cycle.

162 A) mirror image; cause B) cause; result C) result; mirror image D) beginning; end E) purpose; effect Answer: B

61) In which stage of the PLC will promotional expenditures be especially high in an attempt to create consumer awareness? A) growth B) product development C) maturity D) introduction E) adoption Answer: D

62) In the ______stage, the firm faces a trade-off between high market share and high current profit. A) growth B) decline C) maturity D) introduction E) adoption Answer: A

63) In which stage of the PLC will promotional expenditures be high in an attempt to respond to increasing competition? A) growth B) decline C) maturity D) product development E) adoption Answer: A

163 64) Which stage in the PLC normally lasts longer and poses strong challenges to the marketing managers? A) growth B) decline C) maturity D) phase-in E) adoption Answer: C

65) Which of the following would lead to greater competition in the maturity stage of the PLC? A) overcapacity B) market pioneers C) poor management D) inadequate promotion E) diminishing budgets Answer: A

66) Most products in the marketplace are in the ______stage of the product life cycle. A) growth B) decline C) maturity D) introduction E) development Answer: C

67) When a product enters the maturity stage, the company should consider ______. A) harvesting the product B) modifying the product, market, or marketing mix C) divesting the product D) maintaining the product E) dropping the product Answer: B

164 68) Sales decline in the decline stage of the PLC because of technological advances, increased competition, and ______. A) shifts in the economy B) shifts in unemployment C) shifts in consumer tastes and preferences D) inventory costs E) new market pioneers Answer: C

69) Which of the following best represents the options a company has when a product is declining? A) maintain or harvest the product B) harvest or drop the product C) maintain, harvest, or drop the product D) maintain or pioneer the product E) pioneer, harvest, or maintain the product Answer: C

70) A manufacturer with a product in the decline stage of the product life cycle might decide to ______if it has reason to hope that competitors will leave the industry. A) harvest the product B) maintain the product without change C) drop the product D) search for replacements E) delay planning Answer: B

71) Manufacturers must comply with specific laws regarding ______. A) price structures B) product quality and safety C) product placement D) distribution channels E) product life cycles Answer: B

165 72) Because of ______, a company cannot make its product illegally similar to a competitor’s already established product. A) anti-monopoly laws B) patent laws C) the Consumer Product Safety Act D) product warranties E) product liability Answer: B

73) Which of the following best describes the role of a product steward? A) to protect consumers from harm B) to evaluate new-product ideas against a set of general criteria C) to develop a new-product concept into a physical product D) to protect the company from liability by identifying and solving potential product problems E) A and D Answer: E

74) The advantages of standardizing an international product include all of the following EXCEPT ______. A) the development of a consistent image B) lower product design costs C) the adaptation of products to different markets D) decreased manufacturing costs E) lower marketing costs Answer: C

75) Because names, labels, and colors may not easily translate from one country to another, international marketers must carefully assess ______. A) product standardization B) market rollout C) the product life cycle D) packaging E) styles Answer: D

166 76) Your firm added three new products earlier this year to increase variety for customers. Two of them failed to reach even minimal sales. Which of the following is LEAST likely to have been the cause of their failure? A) The products were priced too high. B) The products were advertised incorrectly. C) Competitors fought back harder than expected. D) Research was too extensive. E) The product launch was ill-timed. Answer: D

77) Which of the following is the most likely reason that employees at your firm regularly attend trade shows and seminars? A) to analyze the product life cycle B) to test new-product concepts C) to get new-product ideas D) to test market new products E) to implement a team-based new-product development approach Answer: C

78) Which of the following statements best explains why idea screening may be the most import step of new product development? A) It increases the number of ideas generated. B) Some potentially profitable ideas may be ill perceived by the idea screeners. C) Some ideas that will become market disasters may be originally viewed favor- ably by the idea screeners. D) It gives research and development team members an opportunity to gather consumer feedback. E) It saves the company money in product development costs by giving the green light to only the product ideas that are likely to be profitable. Answer: E

79) JoAnn Fabrics, Inc., has just created a new combination of colors and fabric types. The firm wants to be sure of the way consumers perceive its new product.

167 The firm is concerned with the product ______. A) idea B) concept C) image D) proposal E) presentation Answer: C

80) Which of the following is a product concept? A) a battery-powered all-electric car B) a pocket-size digital music player C) an energy efficient humidifier D) a thin, lightweight laptop with extended battery life appealing to students and young professionals who want access to their computer anywhere, anytime E) a high-tech, stylish running shoe with built-in sensors to record the distance the wearer has walked or run Answer: D

81) Wainwright Industries will build a new prototype riding lawnmower especially for women. In the product development stage, Joe Wainwright and his staff will incorporate the functional features and convey the ______. A) brand image B) advertising C) safety features D) intended psychological characteristics E) visual characteristics Answer: D

82) Skippy Peanut Butter has a new peanut butter and bacon product and finds a small number of representative test cities. They plan to use the results to forecast national sales and profits. Skippy is using ______. A) controlled test markets B) simulated test markets

168 C) standard test markets D) random test markets E) single-city test markets Answer: C

83) Anita’s DayCare plans to offer third-shift childcare, based upon the opening of two new manufacturing plants in her area. Together the plants will hire 423 employees and run all three shifts. Initial test marketing results look promising. In considering launching this new service, Anita must first decide on ______. A) timing B) expansion costs C) hiring suitable employees D) checking local and state regulations E) food costs Answer: A

84) Atlas Steel Corporation lacks the confidence, capital, and capacity to launch its new steel product into full national or international distribution. Even though test market results look promising, what will be management’s next step? A) retest the product in additional markets B) develop a planned market rollout over time C) secure a loan to provide confidence, capital, and capacity D) seek the help of a nationally known consultant E) develop a prototype Answer: B

85) At Fantastic Flavors, a large regional chain of candy stores, employees from marketing, design, production, and finance work in a cross-functional group to save time and money in the new-product development process. Fantastic Flavors uses a(n) ______approach. A) customer-centered new-product development B) sequential new-product development C) team-based new-product development

169 D) innovation management system E) consumer composite Answer: C

86) Sherri’s Exclusives sells currently accepted and popular clothing items in given fields. What does she stock in her store? A) styles B) fashions C) fads D) exclusives E) services Answer: B

87) Flurrbies, a winter accessory which fell in and out of favorability with customers quickly, are an example of a ______. A) style B) fashion C) fad D) product idea E) market strategy Answer: C

88) Big Moose Toys is a market pioneer introducing a modern version of Bullwin- kle the Moose, a character from an animated television series originally broadcast in the 50s and 60s. Their version of Rocky the Flying Squirrel, another character from the show, targeted to baby boomers was a strong success. They need to make the new launch strategy for Bullwinkle consistent with the intended ______. A) promotion campaign B) product positioning C) company image D) target market E) use Answer: B

89) Apple’s iPod has been called “one of the greatest consumer electronics hits of all time.” More than 120 million iPods have been sold, and the iPod captures

170 more than 70 percent of the music player market. This success has attracted many large, resourceful competitors. The iPod is in the ______stage of the product life cycle. A) introduction B) product development C) maturity D) decline E) adoption Answer: C

90) Mattel’s Barbie is an example of an age-defying product. Barbie, simultaneously timeless and trendy, is in the ______stage of the PLC. A) introduction B) growth C) maturity D) decline E) adoption Answer: C

91) Over the past 100 years or so, Binney and Smith’s Crayola crayons have become a household staple in more than 80 countries around the world. Crayola crayons are in the ______stage of the PLC. A) introduction B) growth C) maturity D) decline E) incubation Answer: C

92) When Heinz introduced EZ Squirt packaging and new colors such as Blas- tin’ Green and Awesome Orange to revitalize consumer buying, the company was ______. A) modifying the market B) modifying the pricing strategy C) modifying the distribution D) modifying the product 171 E) dropping the product Answer: D

93) It’s What’s Hip, a chain of 18 music and CD stores, has discovered that carrying a weak product during the decline stage of the PLC can be very costly to a firm, and not just in profit terms. Which one of these is NOT likely to be one of those costs? A) takes up much of management’s time B) frequent price and inventory adjustment C) requires advertising and sales force attention D) few concerns about company image and other products E) all of the above Answer: D

94) Superior Luggage Company has undertaken the task of identifying its products in the decline stage of the PLC. Which of the following should NOT be done in the identification process? A) regularly reviewing sales B) regularly reviewing market share C) regularly reviewing costs and profit trends D) regularly reviewing management’s pet projects E) all of the above Answer: D

95) Proctor & Gamble has sold off a number of lesser or declining brands such as Oxydol detergent and Jif peanut butter. In these examples, management decided to ______the products. A) further test B) maintain C) drop D) harvest E) ignore the test market results of Answer: C

172 96) When Kraft focused on cost-cutting with its older and established brands, leaving them to wither without much investment or modification, Kraft had decided to ______the older products. A) extend B) maintain C) drop D) harvest E) review Answer: D

97) CellTones, a new company selling several lines of cellular phones, has closely modeled its products after successful products that are already in the marketplace. As it prepares to enter the market with its new products and services, which of the following should concern CellTones the most? A) legal obligations to suppliers and dealers B) patent laws C) the Federal Food, Drug, and Cosmetic Act D) product liability suits E) limited warranties Answer: B

Refer to the scenario below to answer the following questions.

Most people laughed when Evelyn Ringler explained her product idea: a solar- powered vacuum cleaner. But the concept was practical and the technology used in the vacuum was the same as that used in many children’s toys. After setting up a demonstration booth in a mall in a Chicago suburb, Evelyn felt more assured than ever that her idea would be a hit. Consumers seemed receptive and offered helpful pieces of advice, such as how much they would pay for the vacuum, what colors they would prefer, and why they would not buy the vacuum. The vacuum itself was dome-shaped, something like a small saucer, with a filter bag on top and sensory nodes along the edges. After being charged in the sunlight, the vacuum could run for 10 hours, covering a floor area of 600 square feet. As

173 the apparatus lightly bumped into table legs, chairs, and so on, the sensory nodes allowed the vacuum to move around the objects in various directions. This is the same type of technology used in the manufacture of children’s race cars and walk- ing dolls. Evelyn knew that the solar-powered vacuum would be especially helpful to both elderly consumers, who may have a more difficult time with vacuuming, and on-the-go consumers who lead busy lives. The price would be above average but would likely reduce after Evelyn recouped some of her costs. After a 500-unit production run and a substantial financial investment, Evelyn Ringler set up a multiple-city test market, in a Chicago mall and in an appliance store in New Jersey. “It’s such a novel idea,” Evelyn added. “People will notice it, even if they don’t buy it right away.”

98) Evelyn’s ______is the practical use of solar power in a vacuum cleaner that is designed to effortlessly sweep the floors of on-the-go and elderly consumers. A) product idea B) product concept C) product image D) prototype E) promotional product Answer: B

99) When Evelyn set up a demonstration booth to learn about consumers’ feelings toward her vacuum cleaner, she was doing which of the following? A) concept testing B) marketing strategy development C) idea screening D) product development E) test marketing Answer: A

100) Evelyn’s vacuum is at the ______stage of the product life cycle. A) product development

174 B) introduction C) growth D) adoption E) incubation Answer: A

101) A firm can obtain new products in two ways: acquisition or new-product development. Answer: TRUE

102) Up to 90 percent of all new consumer products fail. Answer: TRUE

103) New product development begins with a systematic search for new product ideas through idea generation. Answer: TRUE

104) Malibu Beach Parties finds that the tastes and preferences of its customers change more rapidly than in the past. The manager should constantly look for external ideas from customers, suppliers, and the competition. Answer: TRUE

105) Companies rarely solicit ideas from customers during the idea generation stage of product development. Answer: FALSE

106) Blair House wares wants to add new lines of products to its 46-store chain. Managers are correct in believing that the purpose of idea generation is to create a few ideas, and the purpose of succeeding stages is to increase that number. Answer: FALSE

107) A product idea is an idea for a possible product a company can offer the market, while a product concept is a detailed version of the idea stated in meaningful consumer terms. Answer: TRUE

175 108) Concept testing works best with people who are familiar with the new idea and the new product’s purpose. This generally includes top management, the sales force, and research and development. Answer: FALSE

109) GreenTree Lawn and Garden Products is engaged in marketing strategy development. Management should first create a statement outlining the product’s planned price, distribution, and marketing budget for the first year. Answer: FALSE

110) GreenTree Lawn and Garden Products is engaged in a review of the sales, costs, and profit projections for some new products to find out whether they satisfy the company’s objectives. This activity is called business product development. Answer: FALSE

111) The business analysis stage represents the first large jump in financial investment in the new-product development process. Answer: FALSE

112) The stage at which new product and marketing programs are introduced into realistic market settings is called concept testing. Answer: FALSE

113) A company launching a new product into the market must first decide on when to launch the product. Answer: TRUE

114) JumBo Games is launching a new set of game toys in the commercialization stage. The first decision to make is introduction timing and the second is where to launch the new product. Answer: TRUE

115) Sequential product development has the advantage of not only being a team- oriented approach, but it is also faster in bringing products to market. Answer: FALSE

176 116) To avoid too few new product ideas and the failure of many good ideas, management should install an innovation management system that collects, reviews, evaluates, and manages new-product ideas. Answer: TRUE

117) Using the PLC concept to develop marketing strategy can be problematic because strategy is both a cause and a result of the product’s life cycle. Answer: TRUE

118) Profits rise during the growth stage of the PLC because promotion costs are spread over a large volume and unit manufacturing costs fall. Answer: TRUE

119) Although products that remain in the maturity stage of the PLC seem un- changed, the most successful ones actually evolve to meet changing consumer needs. Answer: TRUE

120) When sales of a product falter during the PLC, a company can take several approaches. The more common ones are to modify the marketing mix, modify the product, or modify the market. Answer: TRUE

121) Sales for the time-tried household cleansers made by Brite and New, Inc., have been declining for some time. If these products are typical, sales are declining because of technological advances, shifts in consumer tastes, and lack of raw materials from foreign suppliers. Answer: FALSE

122) Companies need to pay attention to their aging products. Management should regularly review sales, market shares, costs, and profit trends, and then decide whether to maintain, harvest, or drop these declining products. Answer: TRUE

177 123) When a company decides to maintain a product in the decline stage, it will reduce costs and hope that sales hold up to increase the profits in the short run. Answer: FALSE

124) The federal government may prevent a company from adding products through acquisitions if acquisition threatens to lessen competition. Answer: TRUE

125) The international growth of many professional and business services such as accounting, consulting, and advertising led to the globalization of the client companies they serve. Answer: FALSE

126) Explain why so many new products fail and how a company can improve its odds of new product success. Answer: Although an idea may be good, the market size may have been overestimat- ed. Other possible reasons for failure include the following: the actual product was not designed as well as it should have been; the product may have been incorrectly positioned in the market, priced too high, or advertised poorly; a high-level executive might have pushed a favorite idea despite poor marketing research findings; the costs of product development were higher than expected; or competitors fought back harder than expected. One way to improve the odds is to identify successful new products and find out what they have in common. Another is to study new product features to see what lessons can be learned. A company must understand its customers, markets, and competitors and deliver superior value to customers.

127) Briefly describe the steps in the new-product development process. Answer: New-product development starts with idea generation from internal and/ or external sources. Next, the ideas must be reduced through idea screening. Once the new ideas are decided upon, the product concept must be developed and tested. A marketing strategy must be developed to introduce the product to the market. Once the product concept and marketing strategy are chosen, a business analysis is conducted to review the sales, costs, and profit projections to see if they will satisfy the

178 company’s objectives. A prototype will next be created in the product development stage. Test marketing will follow, introducing the new product and its marketing program into more realistic market settings. The last step is to launch or not launch the new product. If the company decides to launch the product, it will go ahead with the commercialization stage and later test its sales and profit results.

128) Provide the major sources of external new product ideas and explain why these sources offer advantages over internal sources. Answer: The major sources of new product ideas from external sources include customers, suppliers/distributors, competitors, and research firms. These sources are close to the market and tend to reflect current tastes and preferences. Firms can better match their product offerings to customer needs and wants. Consumers may also create new products and services on their own.

129) Distinguish among a product idea, a product concept, and a product image. Answer: A product idea is an idea for a product that a company can imagine itself offering to the market. A product concept takes the idea several steps further, with a detailed version of the idea stated in meaningful consumer terms. Finally, a product image is the way consumers perceive an actual or potential product.

130) Explain concept testing. Answer: Concept testing calls for testing new product concepts with groups of target consumers. The concepts may be presented physically or symbolically. A more concrete and physical presentation, however, will increase the reliability of the concept test. After being exposed to the concept, consumers are asked questions about it; their answers reveal to the marketer whether the concept needs to be altered in any way.

131) Define commercialization. Explain the two important issues on which the company must decide during this stage. Answer: Introducing a new product into the market is called commercialization. The company launching a new product must first decide on introduction timing. Next, the company must decide where to launch the new product–in a single location, a region, the national market, or the international market. Confidence, capital, and

179 capacity are required to launch new products on a large-scale basis. Hence, firms plan a market rollout over time.

132) What are the two advantages of an innovation management system for developing new products? Provide four ideas for a company to use to establish a successful system. Answer: The first advantage of an innovation management system is that it helps create an innovation-oriented company culture. It shows that top management supports, encourages, and rewards innovation. The second advantage is that it will yield a larger number of ideas, among which will be found some especially good ones. As the system matures, ideas will flow more freely. To establish a successful system a company can do the following: (1) Appoint a respected senior person to be the company’s idea manager; (2) create a cross-functional innovation management committee with people from each department; (3) set up a Web site for anyone who wants to become involved in finding and developing new products; (4) encourage all company stakeholders to send their ideas to the idea manager; and (5) set up formal recognition programs to reward those who contribute the best new ideas.

133) Each product will have a life cycle, although its exact shape and length is not known in advance. Briefly explain each step in the PLC. Answer: Product development begins when the company finds and develops a new product idea. Sales are zero and the company’s investment costs mount. Introduction is a period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction. Growth is a period of rapid market acceptance and increasing profits. Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition. Decline is the period when sales fall off and profits drop. A company may seek to reinvigorate a product in decline or maintain it hoping competition will diminish or harvest it or drop it.

134) PLC can be applied to more than just brands. Your assignment is to prepare a presentation about the application of the PLC to as many of your company’s op-

180 erations as possible. What would you include? Answer: The PLC can be applied to new product and services. It can also be applied to product class, a product form, or a brand. The PLC concept lends itself to styles, fashions, and fads. The concept can be used as a useful framework for describing how products and markets work, as well as developing marketing strategy for each stage of the product life cycle. Managers may have difficulties using the PLC concept to forecast product performance or develop general marketing strategies.

135) Describe three public policy issues or regulations that marketers should carefully consider as they make decisions about adding or dropping products. Answer: The government may prevent companies from adding products through acquisitions if the effect threatens to lessen competition. On the other hand, companies dropping products must be aware that they have legal obligations to their suppliers, dealers, and customers who have a stake in the dropped product. Companies must also obey U.S. patent laws when developing new products, meaning that a company cannot make its product illegally similar to another company’s established product. Manufacturers must also comply with specific laws regarding product quality and safety. The Federal Food, Drug, and Cosmetic Act and the Consumer Product Safety Act are just two of many laws that protect consumers from potentially harmful products. If consumers have been injured by a product that has a defective design, they can sue manufacturers or dealers.

136) How might a firm benefit from implementing an “intrapreneurial” program? Answer: Such programs encourage employees to be innovative and to develop new- product ideas.

137) How might competitors be a good external idea source? Answer: Marketers can pay particular attention to competitors’ ads to get clues about their new products. In addition, salespeople in the field can learn about competitors’ plans if prospects purposefully, or even inadvertently, reveal them.

138) You have recently sent a proposal for a fictional novel to an editor at a major publishing firm. The editor, alone, will carry out the idea screening. Why might

181 you feel this process is unfair? Answer: The success of your proposal, or at least the likelihood that your novel will be published, is at the mercy of that one individual. A screening committee might give the proposal a more accurate and fair assessment.

139) What elements may help to create a product image? Answer: Any number of product attributes, as well as packaging and intended use, create product image; the promotional campaign also affects product image.

140) The potential market strengths and weaknesses are being determined for a new-product idea at Art for Kids. In what stage of the new-product development process does this occur? Answer: It occurs in the business analysis stage of the new product development process.

141) What may be learned in a test market? Answer: Test marketing lets a company assess customer response to its product and the effectiveness of its positioning strategy, advertising, distribution, pricing, branding, and packaging.

142) A marketer has selected a single city in which to conduct a test market. What might we conclude from this choice of a single-city test market? Answer: The marketer may feel assured that consumers in that city are typical of the overall market.

143) A marketer has chosen a multiple-city test market. What might we conclude from this choice of a multiple-city test market? Answer: The marketer likely understands that the product being tested will be perceived differently in different geographic regions.

144) Why might a company choose to develop a planned market rollout? Answer: A company without the confidence, capacity, or capital to introduce its product in several regions or the full national market may find it less risky and more

182 manageable to enter attractive cities or regions one at a time, using success in regional markets to build up to a larger market rollout.

145) Why might individual departments prefer sequential product development? Answer: This process allows individual departments to work individually with a new idea, completing its stage of development before passing the product on; other departments are less likely to interfere.

146) Explain how the PLC applies differently to a product class than to a product form. Answer: Product classes have longer life cycles, while product forms tend to have the standard PLC shape.

147) Why might ad expenditures be high for products in the introduction stage of the PLC? Answer: Consumers have very little awareness about such products; promotional spending can enhance customer awareness.

148) Why might ad expenditures remain high in the growth stage of the PLC? Answer: Though sales are increasing for such products, competition becomes fierce as competitors attempt to enter the market; therefore, ad dollars remain high in an effort to offset competitive threats.

149) Marketers can prolong the lives of many products in the maturity or decline stages of the PLC, sometimes even moving these products back into the growth stage. How can this happen? Answer: Marketers can change any element of the marketing mix, change the number of uses or the number of users, or even change the frequency of product use.

150) Why has the cost of product liability insurance risen so dramatically? Answer: Consumers who have been injured by a product with a defective design can sue manufacturers or dealers of the product; though manufacturers are only found to be at fault in a small percentage of cases, the average jury award is $1.5 million.

183 Answers to Questions and Exercises

Questions for Review

1. What are the various classifications of consumer and industrial products? Give an example of a good and a service for each category other than those in the text.

Consumer Products

Convenience goods and services – candy, ATM services Shopping goods and services – clothing, car repair Specialty goods and services – houses, interior design

Industrial Products

Expense items – inventory, repair bills Capital items – computer servers, long-term maintenance contracts

QUESTIONS FOR ANALYSIS

1. Select an everyday product. Show how different versions of your product are aimed toward different market segments. Explain how the marketing mix differs for each segment.

Answers will vary, but students should focus on product and package characteristics, price levels, promotional tools, and distribution options. They should also discuss demographics and psychographics of the target market and the way they influence marketing mix decisions.

2. If you were starting your own small business, which of the forces in the external marketing environment would you believe to have the greatest potential impact on your success?

184 Answers will vary.

3. How would you expect the branding and packaging of convenience, shopping, and specialty goods to differ? Why? Give examples to illustrate your answers.

Convenience goods, such as candy bars, should have very prominent branding and packaging elements in order to spur impulse purchases. Shopping goods, such as computers and clothing, should be branded and packaged to clearly communicate their unique features and benefits since shoppers engage in comparisons. Special- ty goods, such as high-end cosmetics in top department stores, should be branded and packaged in a way that reinforces their mystique.

Application Exercises

4. Interview the marketing manager of a local business. Identify the degree to which this person’s job is focused toward each element in the marketing mix.

Answers will vary, but students should address how the person’s job relates to product, price, promotion, and place, and how the person monitors decisions in each area to determine when change is necessary.

5. Select a product made by a foreign company and sold in the United States. What is the product’s target market? What is the basis on which the target market is segmented? Do you think that this basis is appropriate? How might another approach, if any, be beneficial? Why?

Answers will vary based on the nature of the product and the business.

Answers to Building Your Business Skills

1. Which location did you choose? Describe the market segmentation factors that influenced your decision.

185 Answers will vary, but students should have specific information for each of the market segmentation factors.

2. Identify the two most important variables that you believe will have the greatest impact on the dealership’s success. Why are these factors so important?

Answers will vary.

3. Which factors were least important? Why?

Answers will vary.

4. When equipment manufacturers advertise residential H/AC products, they often show them in different climate situations. Which market segments are these ads targeting? Describe these segments in terms of demographic and psychographic characteristics.

These ads are likely targeted to middle-to-higher income owners of older homes who need to replace heating or air conditioning systems or are willing to pay for upgraded equipment for greater comfort. They may also target affluent buyers who are building a home.

CLASSROOM ACTIVITIES

1. Break the class into small groups and assign each group a specific industry. Have each group discuss the marketing strategies that they believe important to the effective marketing of products in that industry.

2. Divide the class into three-member groups. Ask each group to bring three similar products (or packages of those products) to class. Examples might include breakfast cereals, soft drinks, or laundry detergent. Ask each group to analyze the target market for each of their three products. Then, based on who they have

186 identified as the target market for each product, ask each group to discuss each element of the marketing mix – explaining how the marketing mix was “built” for each product.

LITERATURE Part 1 1. How do companies decide what products and services to market?, The access via Internet: www.principlesofmarketing.com/word/Chapter-Six.doc 2. Krishnan, V; Ulrich, Karl (2001). “Product development decisions: A review of the literature”. Management science 47 (1): 1–21. doi:10.1287/mnsc.47.1.1.10668. 3. Kenneth, B. Kahn (2013). The PDMA handbook of new product development (Third edition ed.). Hoboken, New Jersey: John Wiley & Sons Inc. p. 21. ISBN 978-0-470-64820-9. 4. Koen et al. (2007). “Providing clarity and a common language to the ‘fuzzy front end’”. Research Technology Management 44 (2): 46–55. 5. Bruiyan, Nadia (2011). “A framework for successful new product development”. Journal of industrial engineering and management 4 (4): 746–770. 6. Cooper, Robert (1990). “Stage-gare systems: A new tool for managing new products”.Business Horizons 33 (3): 44–55. doi:10.1016/0007-6813(90)90040-i. 7. Author Unknown (2009). Strategies of Divergent Thinking. University of Wash- ington. Retrieved August 6, 2009. 8. Principles of marketing. Access via Internet: www.exalogics.com/.../notes/ PRINCIPLES-OF-MARKETING-Notes.doc 9. Kotler, P., Armstrong, G., Brown, L., and Adam, S. (2006) Marketing, 7th Ed. Pearson Education Australia/Prentice Hall. 10. Krishnan, V; Ulrich, Karl (2001). “Product development decisions: A review of the literature”. Management science 47 (1): 1–21. doi:10.1287/mnsc.47.1.1.10668 11. Pricing decisions. Access via Internet: www.icaiknowledgegateway.org/lit- tledms/download.php?id=2919 12. New-Product Development and Product Life-Cycle Strategies. Access via In- ternet: surejpjohn.com/website/wp-content/uploads/.../Chapter-8-summary.doc

187 13. Strategy and Marketing Primer. Access via Internet: web.stanford.edu/class/ msande473/483primerV3.doc Part 2 1. The services marketing mix. Accsess via Internet: acru.uvlf.sk/doc/CME_Pres- ent/BB_Marketing.doc 2. Baker, Michael The Strategic Marketing Plan Audit 2008. ISBN 1-902433-99-8. p.3 3. Homburg, Christian; Sabine Kuester, Harley Krohmer (2009): Marketing Man- agement - A Contemporary Perspective (1st ed.), London. 4. Aaker, David Strategic Market Management 2008. ISBN 978-0-470-05623-3. 5. Aaker, David Strategic Market Management 2008. ISBN 978-0-470-05623-3 6. Baker, Michael The Strategic Marketing Plan Audit 2008 ISBN 1-902433-99-8. p. 27 7. Marketing effectively. Accsess via Internet: https://books.google.lt/ books?isbn=1405352213 8. Marketing. Accsess via Internet: acru.uvlf.sk/doc/CME_Present/Marketing_ Natasa.ppt 9. Bijan Vasigh; Ken Fleming; Liam Mackay (2010). Foundations of Airline Fi- nance: Methodology and Practice. Ashgate Publishing. p. 19. ISBN 0754677702. 10. Hansmann, R. B. (1980). The role of nonprofit enterprise. Yale law journal, 835-901. 11. Lyons, Mark. Third Sector: The contribution of nonprofit and cooperative enterprises in Australia. Allen & Unwin, 2001. 12. The Nonprofit Handbook: Everything You Need to Know to Start and Run Your Nonprofit Organization (Paperback), Gary M. Grobman, White Hat Com- munications, 2008. 13. “not-for-profit - definition of not-for-profit in English from the Oxford dic- tionary”. Retrieved 14 May 2015. 14. “Publication 4220 (Rev. 8-2009)” (PDF). Retrieved 31 July 2010. 15. Drucker, Peter (1989). “What Business Can Learn from Nonprofits”. Harvard Business Review: 1–7. 16. Marketing II. Access via Internet: acru.uvlf.sk/doc/CME_Present/Marketing_Na- tasa.ppt 188 Part 3 1. Project management life cycle. Access via Internet: www.heinsights.com/sitebuildercontent/sitebuilderfiles/pmlifecy.doc 2. Performance management: managerial level. Access via Internet: https://books. google.lt/books?isbn=1856177793 3. Management accounting decision management. Access via Internet: https:// books.google.lt/books?isbn=0750680474

Part 4 1. How do companies decide what products and services to market? Access via Internet: http://www.principlesofmarketing.com/Full.htm 2. Principles of marketing. Access via Internet: www.principlesofmarketing.com/ word/Chapter-Two.doc 3. Rogers, Everett (16 August 2003). Diffusion of Innovations, 5th Edition. Simon and Schuster. ISBN 978-0-7432-5823-4. 4. Kinnunen, J. (1996). “Gabriel Tarde as a Founding Father of Innovation Diffu- sion Research”. Acta Sociologica 39 (4): 431. doi:10.1177/000169939603900404. 5. Valente, T.; Rogers, E. (1995). “The Origins and Development of the Diffusion of Innovations Paradigm as an Example of Scientific Growth”. Science Communi- cation 16: 245–246. 6. Types of competitive advantage. Access via Internet: web.stanford.edu/class/ msande473/483primerV3.doc 7. Johnson, Richard M. (September 2001). “History of ACA”. Proceedings of the Sawtooth Software Conference. Victoria, BC, Canada. pp. 205–212. 8. Ijzerman MJ, van Til JA, Bridges JF. (212). “A comparison of analytic hierarchy process and conjoint analysis methods in assessing treatment alternatives for stroke rehabilitation”. Retrieved 4 July 2013. 9. Conjoint analysis. Access via Internet: www.trizsigma.com/conjoint.html 10. Marketing’s Four P’s: First Steps for New Entrepreneurs. Access via Internet: https://www.extension.purdue.edu/extmedia/ec/ec-730.pdf

189 11. Henderson, Bruce D. “The Product Portfolio”. Retrieved 16 May 2013. 12. Mintzberg, Henry and, Quinn, James Brian (1996). The Strategy Process: Concepts, Contexts, Cases. 13. Competitor-oriented Objectives: The Myth of Market Share http://cogprints. org/5196/1/myth_of_market_share.pdf 14. Henderson, Bruce. “The Product Portfolio”. Retrieved 3 April 2013. 15. Fripp, Geoff.“BCG Matrix and the Experience Curve” Guide to the BCG Ma- trix 16. Philip Kotler (1986), “Megamarketing” In: Harvard Business Review. (March—April 1986) 17. V. Krishnan; Karl T. Ulrich. Product Development Decisions: A Review of the Literature. Management Science (2001) Vol. 47, No. 1, January 2001 pp. 1–21 18. What is STP process. Access via Internet: http://www.segmentationstudyguide. com/stp-process/what-is-the-stp-process/ 19. Generic strategy: types of competitive advantage. Access via Internet: web. stanford.edu/class/msande473/483primerV3.doc 20. Marketing management. Access via Internet: https://books.google.lt/ books?isbn=0070153272

190 191 Edmundas Radavicius

Product Lifecycle Management Course handbook

ISBN 978-9955-648-64-2

This Course Handbook was prepared with support from the European Structural Funds. This publication reflects the views only of the author, and the SMK University of Applied Social Sciences cannot be held responsible for any use which may be made of the information contained therein.

Order no. 150730331 S. Jokužys Publishing-Printing House. 2015. Nemuno str. 139, LT-93262 Klaipeda www.spaustuve.lt

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