PRODUCT & BRAND

MANAGEMENT
PRODUCT CONCEPT
MODULE CONTENT
PRODUCT CONCEPT
Definition of product
Classification
Product Mix, Width, Depth, Line,
Consistency


Service
Intangible
It is rendered. It is experienced.
Experience (movies), time (consultants), Process (dry
cleaning)
It does not result in ownership.
It may or may not be attached with a physical product
Complexity of Marketed Entities
There are really very few, if any, "pure" products or
services in the marketplace.
For example: Automobile

1
st
opinion : It is a physical object, with a full range of
tangible features and options.

2
nd
opinion :It is service of transportation marketed in
tandem with steel and chrome.
Complexity of Marketed
Entities
Transportation is an independent marketing
element and it is not car-dependent, but can be
marketed in its own right.

A car is only one alternative for satisfying the
market's transportation needs.

So what are automobiles?
Tangible Services?

Complexity of Marketed Entities
How airline transportation can be described?
Service is intangible
But, there are certain very real things like important tangibles as
interior dcor, food & drink, seat design, and from tickets to
attendants' uniforms.
So, what are airlines?
Intangible Product!!
Either-or" terms (product vs. service) do not adequately describe
the true nature of marketed entities.
A market entity can be partly tangible and partly intangible, without
diminishing the importance of either characteristic.
Airlines vs. Automobiles
In some ways, airline travel and automobiles are mirror opposites
A car is a physical possession that renders a service.
Airline travel, on the other hand, cannot be physically possessed. It
can only be experienced.
The inherent "promise" of a car is service, airline transportation
often promises a destination, which is marketed as though it were
physically obtainable.

Array of market entities along a continuum, according to the weight
of the "mix" of elements that comprise them is important.
Source: Break Free From Product Marketing, Shostack, 1977

Product Tangibility Spectrum
Shostack, 1977 , J ournal of
Marketing ,Vol 41

Three Levels of Product

Core benefit
What the product means to the
customer ?
Example : A refrigerator offers
benefits of storing, preserving and
cooling
Actual (Tangible) product
Brand name, Features, design,
quality etc.
Example : Whirlpool , double-door,
frost free
Augmented product
Installation, Warranty, Service
Example : Warranty for 5 years,
free delivery & installation.
Product Classifications
Industrial
Product
Consumer
Product
A product used to manufacture other goods or
services, to facilitate an organizations operations,
or to resell to other consumers.
Product bought to satisfy an
individuals personal wants
Types of Products
Unsought
Products
Specialty
Products
Shopping
Products
Convenience
Products
Consumer
Products
Industrial
Products
PRODUCTS
Product Classifications
Consumer Products
13
Unsought Products

New innovations
Products consumers dont
want to think about these products
Require much advertising &
personal selling
i.e Life insurance, blood donation



Specialty Products

Special purchase efforts
High price
Unique characteristics
Brand identification
Few purchase locations
i.e. fancy goods like rolex watches

Shopping Products

Buy less frequently
Higher price
Fewer purchase locations
Comparison shop
i.e. Clothing, appliances
Convenience Products

Buy frequently & immediately
Low priced
Mass advertising
Many purchase locations
i.e. Candy, newspapers

Product Mix
Assortment of product lines and individual product offerings
that the company sells.
Product widthNumber of product lines a firm offers.
Product lengthNumber of different products a firm sells.
Product depthVariations in each product that the firm
markets in its mix.
Consistency of product mix refers to how closely related the
various product lines are in end use, production
requirements or distribution channels.
Product Mix of HUL Limited
Personal
Care Laundry Skin Care
Hair
Care Oral Care Deodorants Ayurvedic
Color
Cosmetics Tea Coffee Foods Ice Cream
Lux Surf Excel Fair & Lovely Sunsilk Pepsodent Axe Ayush Lakme Brooke Bond Bru Kissan Kwality Wall's
Lifebuoy Rin Pond's Clinic Clsoe-up Rexona Lipton Knorr
Liril Wheel Vaseline Annpurna
Hamam
Breeze
Dove
Pears
Rexona
Length of Product Mix = 29 Width of Product Mix = 12
Average Depth of Product Mix = 29/12 = 2.42
PRODUCT LINE DECISIONS
Short line Long line
When focus is on specialization
If companies want to be positioned as full
line companies

As a consequence of contraction
defense strategy As a result of flanking strategy

If profitability is the objective
If market growth and market-share are the
objectives

When line pruning is done, loss
making products are dropped
Product line proliferation. Zealously new
products are added. A sort of undisciplined
growth
Product Line
Need to workout optimal length
PRODUCT LINE DECISIONS
17
Product Line :
Line Stretching
Upward : adding higher end items e.g. Lifebuoy to Lifebuoy Plus,
Lifebuoy Gold
Downward: adding lower end items e.g. P & Gs Ariel detergent to
Ariel Bar
Bothways: adding both higher and lower end items
Reasons
Reaction: as reaction to competitors, innovative products are
added.
Opportunity: to utilize the existing market gap
Image: to have full line company image
Pressure: yielding to pressure of sales force and dealers
Strength: to use available excess capacity
Desire: to fulfill desire of top executive/product manager






18
PRODUCT LINE
DECISIONS
Product Line :
Line Pruning
Products line tend to lengthen over time
Dead wood will accumulate
Weeding out periodically based on contribution of product items
Product items are
Traffic Builders : which attract customers but generate marginal
incomes.
Bread Winners: which generate major share of income
Parasites: which incur losses and depend on bread winners (line
vulnerability)
Line pruning is done when
Identified that dead wood is depressing profits
Production capacity incapable of handling all existing products






19
PRODUCT DECISIONS
Product Line :
Line Modernization
Technological advances
Commercial & Legal changes
Aspects to be considered are
Timing:
a)Conversion readiness of customers
from old products to new products
b) Competitor moves
c) Profitability level of existing
product line
Approach : Whether the change is
total or piece-meal? : merits and
demerits







20
Total Piece-Meal
Requires heavy
cash flow
Less draining on
companys cash
flow
Surprises,
competitors -no
chance to imitate
Allow competitors
to see change
and design their
own time
Implementation of
changes involving
dealers and
customers difficult
People affected
by change
understand easily
and adopt
changes
PRODUCT LINE DECISIONS
Concept Check
Explain the difference between product mix and
product line.
Answer:
A product line is a group of products that are closely
related because they satisfy a class of needs, are used
together, are sold to the same customer group, are
distributed through the same type of outlets, or fall within
a given price range. Each product line has its own
marketing strategy, whereas a product mix is a number of
product lines offered by a company.

Concept Check
What are the four main types of consumer goods?
Answer:
The four main types of consumer goods are: (1)
Convenience goods, (2) Shopping goods, (3)
Specialty goods, and (4) Unsought goods

PRODUCT LIFE CYCLE
CLASSIC PLC CURVE
Introduction Stage of the PLC
Marketing Objectives
Product
Price
Create product awareness
and trial
Offer a basic product
Use cost-plus
Distribution
Build selective distribution
Promotion
Build product awareness among early
adopters and dealers
Growth Stage of the PLC
Marketing Objectives
Product
Price
Maximize market share
Offer product extensions,
service, warranty
10% of market level.
10% if the brand name is weak and
competition is severe
+ 10% if sales are good and competition
does not have similar product to offer
Distribution
Build intensive distribution
Promotion
Build awareness and interest in
the mass market
Maturity Stage of the PLC
Marketing Objectives
Product
Price
Maximize profit while defending
market share
Diversify brand and models
Stable
Distribution
Build more intensive distribution
Promotion
Stress brand differences and benefits
Decline Stage of the PLC
Marketing Objectives
Product
Price
Reduce expenditure and milk the brand
Phase out weak items
Cut price
Distribution
Go selective: phase out unprofitable
outlets
Promotion
Reduce to level needed to retain
hard-core loyal customers
3 sigma method of using control charts is an effective method
to control and study repetitive processes.
Atypical control charts look like this-


Identification of PLC Stages: 3 sigma method
Time Period
Sales
UCL
LCL
CL
Obtain a sample of sales data at some point of
PLC
Find mean and std. deviation
Mean is taken as standard line (CL)
Draw UCL by adding mean + 3 std. deviation
Draw LCL by adding mean 3 std. deviation
Sample values are now plotted on the graph.
The minimum period is 3 years.
Identification of PLC Stages: 3 sigma method
Growth Stage
Time Period
Sales
UCL
LCL
CL
If there are 3 or more points lying on or above the UCL, then it
indicates a shift from introductory to growth stage.
Any number less than 3 would indicate a short-term spurt in sales
Maturity Stage
Time Period
Sales
UCL
LCL
CL
If there are 3 or more points lying below the UCL, then it
indicates a shift from growth to maturity stage.
Any number less than 3 would indicate a short-term spurt in sales
Decline Stage
Time Period
Sales
UCL
LCL
CL
If points are lying below CL and 3 or more points below LCL,
then it indicates a shift from maturity to decline stage.
Any number less than 3 would indicate a short-term spurt in sales


Strategies at each phase of
PLC
Introduction Stage : Acquire a strong position
Growth Stage : Maintain your market position and build on
it
Maturity Stage : Defend market position from your
competitors and improve your product
Decline Stage: Milk all remaining profits from your
product
1. Increase frequency of use by present
customers
2. Add new users
3. Find new uses
4. Change product quality or packaging

Extending the Product Life Cycle
Market Modification
Product Modification
Purpose: to sell more product and cover original investment
2 things you can do
To prevent the product going into decline
you modify the market

MARKET MODIFICATION
Increase frequency of use & usage rate by current
customers (Bigbazar Sabse sasta tin din, Happy
hour in restaurant, Archies Cards-not only for birthdays
or festivals)
Add new customers ( e.g. Fair & Lovely for men)
Find new uses for the product (baking soda, milkmaid,
Nylon)
Extending the product Cycle
To prevent the product going into decline
you modify the product

PRODUCT MODIFICATION
adding new features, variations, model varieties will
change the consumer reaction - create more demand
E.g. Surf -------- Surf Excel -------Surf Excel Automatic
LG----- LG Golden Eye
Extending the product Cycle
Technology on PLC
As a new technology matures so is the product or
service that uses this technology.
The change that occurs during a technology life cycle
has a unique reflection on the customers and so on
the product life cycle
In the early days of a new technology, early adopters
and technology enthusiasts drive a market since they
demand just technology.
Drive and demand is translated as the introduction
phase of a new product by many companies.
As technology grows, old customers become more
conservative and demand quick solutions and
convenience.
In this case a product usually enters in the realm of its
growth and as time passes its maturity.

PLC and TLC
PLC and TLC (contd.)
The chasm shown in the graph depicts the
difference between the early and late adopters
One should note that the late adopters hold the
greatest percentage of customers in a market.
This is why most products begin their life cycle as
technology driven and change into customer driven as
time passes by.
A good example of this is the computer market. In one
hand customers ask for ease of use, convenience,
short documentation and good design. On the other
hand customers rush out to purchase anything new
regardless of its complexity.

PRODUCT CANNIBALISM
Product cannibalization occurs when a
company decides to replace an existing
product and introduce a new one in its place,
regardless of its position in the market
PLC does not come into account
Due to newly introduced technologies and it is
most common in high tech companies.

PRODUCT CANNIBALISM
In normal case of cannibalization, an improved
version of a product replaces an existing product as
the existing product reaches its sales peak in the
market.
The new product is sold at a high price to sustain the
sales, as the old product approaches the end of its life
cycle
Cannibalization should be approached cautiously
when there are hints that it may have an unfavorable
economic effect to the company, such as lower sales
and profits, higher technical skills and great retooling.
Intel Corporation is one of the companies that usually
withdraw products during their peak to replace them
with other ones of better and newer technology.



INTEL VS AMD
Intel Corporation cannibalized its 8088 processor in
favor of the 80286 after 2 years, the 80286 in favor of
the 386 after 3 years, the 386 in favor of the 486 after 4
years, the 486 in favor with the Pentium after another 4
and so on
In case of Intel the replacement of 486 to Pentium took
so long because competitors had not been able to catch
up
INTEL and AMD are companies that use cannibalization
as an offensive strategy tool. AMD uses it to grab a bite
of Intels market share of CPUs and Intel uses it to
defend its market share as market leader.
Another example is the war waging between Sega and
Nintendo as one company after the other cannibalize its
products, introducing new ones, in an effort to keep and
gain market share.
Product Portfolio analysis
Business Portfolio Analysis
A technique which uses market growth rate and
relative market share to identify what combination of
SBUs will best achieve organization objectives.
Market growth rate annual rate of sales growth of
the SBUs industry.
Relative market share the sales of the SBU
divided by the sales of the largest firm in the
industry.
BCG MATRIX
BOSTON CONSULTI NG GROUP (BCG)
MATRI X is developed by BRUCE
HENDERSON of the BOSTON CONSULTI NG
GROUP IN THE EARLY 1970s.

According to this technique, businesses or
products are classified as low or high
performers depending upon their market
growth rate and relative market share.
MARKET SHARE
Market share is the percentage of the total market that is
being serviced by your company, measured either in revenue
terms or unit volume terms.

RELATI VE MARKET SHARE

RMS = Business unit sales this year
Leading rival sales this year

The higher your market share, the higher proportion of the
market you control.


MARKET GROWTH
RATE
Market growth is used as a measure of a markets
attractiveness.

MGR = Individual sales - individual sales
this year last year
Individual sales last year

Markets experiencing high growth are ones where the
total market share available is expanding, and theres
plenty of opportunity for everyone to make money.

THE BCG GROWTH-SHARE
MATRIX
It is a portfolio planning model which is based on the
observation that a companys business units can be
classified in to four categories:
Stars
Question marks
Cash cows
Dogs

It is based on the combination of market growth and
market share relative to the next best competitor.
BCG MATRIX WITH CASH FLOW

Business Portfolio Analysis
Cash Cows SBUs that have a high market share
of a low sales growth market.
Stars SBUs that have a high market share of a
high sales growth market.
Question marks SBUs that have a low market
share of a high sales growth market.
Dogs SBUs that have a low market share of a low
sales growth market.

Analogy between portfolio and PLC
?
$ X
Market Share
Growth
?
$ X
Successful Sequence Disaster Sequence
H
L
H
L
H :High, L : Low
Product Portfolio Matrix Strategic Consequences
Analogy between portfolio and PLC
?
$
X
Introduction
Stage
Growth
Stage
Maturity
Stage
Decline
Stage
H
L
?
X
$
Introduction
Growth
Maturity
Decline
Time
Analogy by superimposing
arrowed lines in quadrants of
BCG matrix Analogy by superimposing the
symbols on PLC
Arrowed line is natural life
cycle of product
Balanced & unbalanced
portfolios
?
$
X
B
u
s
i
n
e
s
s

G
r
o
w
t
h

R
a
t
e

Relative Competitive Position
?
$
X
(a) Balanced Portfolio (b) Unbalanced Portfolio
Product Planning : Strategic Alternatives
1. Product Extension : One Product, One Message. E.g.
Pepsis same advertising and promotional themes for
national and international markets, urban or rural markets.
2. Product Extension, Communication Adaptation : Product
remains the same, marketing communications different.
E.g. KMP Oil markets its product differently in Orissa, uses
purple color as it is considered to be auspicious.
3. Product Adaptation, Communications Extension :
Changes in product features/attributes or formulation;
communications remains the same. Esso lubricants
changed product formulation to meet the weather
requirements of foreign markets. Communications remained
the same: Put a Tiger in Your Tank




Product Planning : Strategic Alternatives
1. Dual Adaptation : Product varies as well as
communications varies. E.g. Archies different cards
for different occasions, different appeal.
2. Product Invention : New product to satisfy a
particular need. LG has invented a 4.3 cft washing
machine with steam function. No drying or iron. It is
price at 2550 USD i.e. Rs. 1,27,500/- . Price point is a
barrier of converting the need to want. Very few
early adaptors.




Concept of New Product Development -
Similarity/Dissimilarity Analysis, Factor Analysis
Factors Initiating NPD
Types of NPD
Stages of NPD
New Product Marketing Strategies
New Product Forecasting Diffusion, Innovation- Adoption
Process, Bass Modelling
NEW PRODUCT
DEVELOPMENT
NEW PRODUCT
DEVELOPMENT
Whats a new product?
Can a cell phone with a wireless charger be
termed as new product?
Can a keep fresh container for potato chips be
considered a new product?
The perceived new product by a company
may not be actually looked upon as new
product by market
NEW PRODUCT
DEVELOPMENT
Classification of new product
Concept of new product development
Factors initiating NPD
Types of new product developments
NPD process
New Product Forecasting Techniques
Diffusion Adoption Process
Classification of New Product
Several methods of classifying new products
The most popular ones are-
Based on Allen & Hamilton Framework
Based on Opportunities
Based on the state of purchasers needs
Allen & Hamilton Framework
Technological breakthrough/New to the world : PCs, Cell
phones, Laser Printers, DVDs.
Modified : New flavours, new package, new size : Kurkure
flavours, Britannia Good Day
New to Company: Product new to company but not new to market :
ITCs John Players mens wear is new to company but not to market
Repositioning: Existing product targeted at new segment or same
segment for new use : IODEX headfast balm, Krack cream for
younger women to both for younger & older women
Cost Reductions: Products functionally similar but at reduced price
Sunlight detergent bar
Based on Opportunities
Low High
High Salutary Products
e.g. Burnol
ointment
Desirable Products
e.g. Kellogs
Cornflex
Low Deficient Products
e.g. Poorly made
movie
Pleasing Products
e.g. Cigarettes
Short term Satisfaction
Long
term
Benefit
Based on Purchasers Needs
High Value : Music CDs of a celebrated artist
Intensive Information Search : Luxury Items like LED TV,
Car
Low Risk: Higher version of an used product e.g.
Microsoft Office 2010
Reasonable Price: Free cellular connection with Nokia
handset
New product development
NPD is a process which is design to develop,
test and consider the viability of products
which are new to the market or new to the
company in order to ensure the growth or
survival of the organization.
New Product Development Process
Five Models-
Model1: Cyclical Approach Model
Model 2: New Product Process Management Model
Model 3 : Product Strategy Model
Model 4 : Five-Step Process Model
Model 5 : The New NPD Game Model

Product Strategy Model is the popular model and often adopted
in organizations
Why do people prefer new products?


Latest products employs latest technology
Latest models fits todays needs better
Consumers want to develop image as innovator
(looking good)
New products are more fashionable
New, better products increases productivity

FACTORS INITIATING NPD

The product life cycle
e.g. Automobiles: 5 year cycle
PCs: 3 years (386, 486, Pentium, Core 2 Duo)
Clothing: 1 season
Technology: Internet internet business
Invention: Polaroid (instant photo)
Demographics and life-style changes
low fat
low cholesterol
e.g. Amul-Lite, Diet-Coke
Supplier/Distributor Initiatives and Reactions:
Tetrapak Frooti, Dhara Refined Oil


OTHER INITIATING FACTORS

Financial goals: future profits not present
Sales and market share growth
Competitive action
Government Regulation:
Clean Air Act catalytic converters (2 stroke to 4
stroke)
Emission standards BS II, BS III, BS IV, electric
cars
Materials cost, availability and customer request
Price of oil HPCL- Petrol -Speed
IOC-Petrol-Premium

Types of new product developments
Major innovations.
New product lines.
Product line extension.
Product improvements.
Repositioning.
Cost reductions.

NPD Process
Product Strategy Model
Idea generation/Concept
Development
Unstructured Creative Mechanisms
Brainstorming (4-10 people group, discussion of all ideas and
listing down)
Competitive Review Technique (review of competitors activities)
Creative Stimuli Technique (linking of particular attribute to a
product
e.g. soft to cars
soft cushions, soft touch opening of doors/windows, soft to
customer pockets)
Structured Creative Processes
Motivational Research (in-depth interview with the customers)
Scenario Analysis (future trends and projections e.g. customized
wear through net : shopping of branded mens wear through e-
commerce)
Idea generation/Concept Development
Highly Structured Creative Techniques

Similarity/Dissimilarity Analysis: Competitiveness of
marketplace, two different approaches similarity & dissimilarity
Similarity : Each offering is compared with other with regard
to a set of defined attributes using Yes/No. % of similar
responses on same set of attributes is calculated to represent
similarity index and all indices are summarized in matrix form
Dissimilarity : Difference on product offerings. A set of metric
data is obtained for each of the offering as against relevant
attributes. Euclidean distance is measured between the
offerings and dissimilarity matrix is drawn.

Illustration : Similarity Index
Low
cost
(A1)
Quality
(A2)
Availability
(A3)
Amul Yes Yes Yes
Nestle No Yes No
Aavin Yes Yes Yes
Amul Nestle Aavin
Amul 0.33 1
Nestle 0.33 0.33
Aavin 1 0.33
Comparison of cost, quality and availability Comparison among competitors
Amul-Aavin similarity is highest at unity since they have equal
values for all attributes
Amul-Nestle and Aavin-Nestle similarities are lowest at 0.33 as
only one attribute matches for each of the pair
New Product can be launched to fight against Nestle where the
potential threat is low
Idea generation/Concept Development
Type of Course
(Attribute)
Target Segment Cost (level)
Full time Executives High
Part time MBA Aspirants Medium
Managers Low
Two-Dimensional Matrix & Morphological Analysis:
Relationship between attributes/dimensions. Levels are
identified for each attribute.
A full-time executive program at high cost, a part-time MBA for
managers at low cost are few of 18 ideas that can be generated
Spectrum Analysis and Heuristic Ideation Technique are
other methods, the scope of which is beyond the present
syllabus.

Screening ideas & Evaluation/Concept
Testing
Screening of products to spot good ideas and drop
poor ones as soon as possible
Ideas are checked for technical feasibility, financial
viability and marketability
Ideas rating according to marketing, production and
strategic factors.
Concepts are tested among target groups of
consumers.
Screening ideas & Evaluation/Concept
Testing
Concept Testing :
Quadrant Analysis
Discriminant Analysis
Correspondence Analysis
Perceptual Mapping
Conjoint Analysis

Screening ideas & Evaluation/Concept
Testing
Quadrant Analysis
Importance attached by consumers to attributes of
concepts under evaluation.
Concept Statement : A water bottle that occupies less
space, holds huge volume of water and easy to carry
Attributes : Small size of bottle, Volume, Ease of carrying
Rating on a 3-point scale
Attributes Importance Concept Testing
Small Size 3 3
Volume 3 2
Ease of carrying 1 1
Screening ideas & Evaluation/Concept
Testing
Rating
Importance
Not
Important
Very
Important
Excellent
Poor
Quadrant 1
Quadrant 2
Quadrant 3
Quadrant 4
Quadrant Graph
Positive
Interpretations of Quadrant
Graph
If there are more stars in Q1, it means company
has many positives.
If placed in Q2, then its is highly comfortable
If placed in Q4, then there is scope of
improvement
If placed in Q3, then company should ignore.
Screening ideas & Evaluation/Concept
Testing
Discriminant, Correspondence and Conjoint
Analysis are at present beyond scope of
discussion.
However, for conjoint analysis, please read
page nos. 569 & 570 of Marketing Management
by Kotler, Keller, Koshy & Jha.
Screening ideas & Evaluation
1. Develop Product Ideas into
Alternative
Product Concepts
2. Concept Testing - Test the
Product Concepts with Groups
of Target Customers
3. Choose the Best One
Marketing Strategy Development
Part Two - Short-Term:
Products Planned Price
Distribution
Marketing Budget


Part Three - Long-Term:
Sales & Profit Goals
Marketing Mix Strategy



Part One - Overall:
Target Market
Planned Product Positioning
Sales & Profit Goals
Market Share

Test marketing


Standard
Test Market

Full marketing campaign
in a small number of
representative cities.



Simulated
Test Market

Test in a simulated
shopping environment
to a sample of
consumers.
Controlled
Test Market
A few stores that have
agreed to carry new
products for a fee.
Commercialization/product launch
Introducing a new product into the market.
Timing is critical for success.
There will be heavy promotional expenditure at
the launch.
Choice of skim or penetration pricing.
The product has to be well targeted and
positioned.



VOLVOS NPD
Volvos innovative YCC
How listening to employees and co-workers matters
in new product development
New Product Marketing Strategies

Product proliferation strategy
Value for money strategy
Superior design strategy
Innovation strategy
Service strategy
Speed strategy
PRODUCT PROLIFERATION
STRATEGY
Provide wide choice
More tailoring
Choke out competitors
Fill up shelves
High Risk, High Reward approach
Better used by a leader to defend its position
Or by #2, #3 competitors to attack.
Useful when patent protection cannot be
enforced.



Honda

Yamahas challenge in 1981
Between 1981 and 1982: Honda had 80 new
models and 113 product alternations
Yamaha countered -- only had 34 new models and
37 product alterations
So every market niche was filledYamahas penetration
was preempted.
Yamahas sales dropped 50%
President of Yamaha resigned

SONY
Could not prevent imitators of its Walkman
A lifestyle innovation more than technology innovation.
By 1982, imitators had grabbed 80% of the
market.
Used an aggressive proliferation strategy
Introduced 170 new models of Walkman between 1981-
1989
Intense product churning ensured tailored
products for every niche.
MS increased to 40%!

VALUE FOR MONEY
STRATEGY

Continuous Improvement---Toyota
Quality and cost is not a tradeoff
Lean production
Elimination of waste
JIT
Teams, Kaizen
Diffusion of lean production
Radical Restructuring --- IKEA
Co-Creation of Value (Prahlad & Ramaswamy)
Toyotas 7 0s
Zero Defects
To avoid delays due to defects
Zero (Excess) Lot Size (== lot size of one)
To provide parts rapidly for the downstream workstation
Zero Setups
To minimize setup delay and facilitate small lot sizes
Zero Breakdowns
To avoid stopping tightly coupled line
Zero (Excess) Handling
No extra moves to and from storage
Zero Lead Time
To ensure rapid replenishment of parts
Zero Surging
No sudden changes

IKEA: Low Price Offer on Home Furnishings :
Radical Restructuring
The IKEA Concept began when Ingvar Kamprad, an entrepreneur
from the Smland province in southern Sweden, had an innovative
idea. In Smland, although the soil is thin and poor, the people have
a reputation for working hard, living frugally and making the most
out of limited resources.
Ingvar's innovative idea was to offer home furnishing products of
good function and design at prices much lower than competitors by
using simple cost-cutting solutions that did not affect the quality of
products. Ingvar used every opportunity to reduce costs, and he
scraped and saved in every way possible - except on ideas and
quality. This is how the IKEA Concept began.
Furnitures are customised , can be packed in car, components can
be assembled at home, no distribution or carrying cost, least in-
store selling assistance.



SUPERIOR DESIGN STRATEGY
Industrial design: Product, Graphic and
Environmental
Aesthetics
Function
Humanware
Apple iPod, Chrysler, Nike, Swatch
Sony:
Laptop
Video Camera -> water dunk

INNOVATION STRATEGY

Technological superiority leading to improved
performance
Samsung : Dynamic RAM, over 3 billion in profits 1995; largest memory
maker, 50% larger than Hitachi, takeover of AST Research (PC maker)
mainly for innovation strategy
Sony: Personnel policies support innovation and creativity;
subordinates can choose their boss; unpopular bosses do not get
any engineers
3M: skunk works ; bottom-up innovation; incentives
Winners need to take the perspective of the consumers!
Philips v/s Sony (DAT > DCC> CD-R & RW>DVD-R & RW)
Sony DAT > Philips DCC (Panasonic) > Sony CD

SERVICE STRATEGY

Customer satisfaction through better service
Marriott: Employee satisfaction superior
service customer satisfaction
Otis: speedy service
Blue Dart: Franchisee satisfaction superior
service customer satisfaction

SPEED STRATEGY

Time based competition
Honda, Chrysler: simultaneous engineering;
heavy-weight project manager; supplier involvement
Benetton, Levis: QRS (quick response system); able to
respond to changing fashion preferences faster; advantage
over overseas manufacturing



It is far better to foresee even without
certainty than not to see at all
- Henri Poincare,
Mathematician
New Product Forecasting
New Product Forecasting

Quantitative Consumer/Market
Research
Judgmental
Time
Series
Causal
Others
Market Testing
Product Use
testing
Concept
Testing
Pre-market Testing
Jury of executive
opinion
Sales force
estimate
Scenario
Analysis
Assumption based
modeling
Delphi method
Judgmental Techniques
Decay Curve & Expenditure Curve
Risk, Cost and Time dimensions
Risk : Percent of product concepts that successfully
pass through the development stage
Cost : Standard cost per product concept
Time : Standard time taken for development of a
product concept
PDMA (Product Development & Management
Association) surveys companies every 5 years to
establish NPD decay rates.
Illustration
NPD STAGE RISK/
CONCEP
T
COST/CONCEPT TIME (MAN-
WEEKS)/
CONCEPT
NO. OF IDEAS
NEEDED
CG 0.5 70000 5 8.7
BA & PTE 0.57 410000 6 4.35
TD 0.7 260000 12 2.48
C 0.65 590000 4 1.74
TOTALS 1330000 27 1
Probability of one success (0.5 x 0.57 x 0.7 x
0.65) (12.97= 13%)
0.1297
# ideas needed for success = (1-0.13) 8.7
CG : Concept generation, BA : Business Analysis & Pre-technical evaluation ,
TD : Technical Development , C : Commercialization
Consumer Research
Techniques
Factor Analysis
Factor analysis is a general name denoting a class of
procedures primarily used for data reduction and
summarization.
Factor analysis can be used in
Market segmentation for identifying the underlying
variables on which to group the customers.
Product research to determine the brand attributes that
influence consumer choice.
Advertising to study the media consumption habits of the
target market.
Pricing to identify the characteristics of price-sensitive
consumers.



Demonstration with an example
What appeals to you when you visit these types of eateries and how do you
rate them on a scale of 1-10 (1-least important, 10-most important)? Circle
the appropriate one for each factor.

The varied menu available at the eateries -------------------1 2 3 4 5 6 7 8 9
10
The taste of some food items appeals to you-----------------1 2 3 4 5 6 7 8 9
10
The ambience of the shop------------------------------------------1 2 3 4 5 6 7 8 9
10
The price of the food items-----------------------------------------1 2 3 4 5 6 7 8 9
10
Service rendered by waiters---------------------------------------1 2 3 4 5 6 7 8 9
10
Hygiene maintained at the shop----------------------------------1 2 3 4 5 6 7 8 9
10
It symbolizes my personality and status. ----------------------1 2 3 4 5 6 7 8 9
10

Input Data Table
Var_menu
score Taste_score
Ambiance_sco
re Price_score Service_Score Hygiene_score
Personality_sc
ore
7 7 7 7 7 7 7
8 9 8 5 9 7 8
8 8 7 6 7 7 7
8 9 8 7 8 8 8
8 9 7 6 8 7 7
7 8 7 6 8 7 7
8 9 8 5 9 8 8
7 7 8 5 8 7 8
9 9 8 6 8 8 8
7 8 8 5 8 8 7
8 8 8 6 9 7 7
6 7 8 6 9 8 7
7 9 7 7 9 7 7
8 9 7 7 8 7 7
9 9 7 5 8 7 7
8 9 7 7 9 7 7
7 9 8 5 9 7 8
5 7 8 6 8 7 8
9 8 7 6 8 7 7
Diffusion Modelling
Bass Model
Based on two components : Mass Media effect
(also called coefficient of innovation) and word
of mouth effect (also called coefficient of
imitation)
Mathematically expressed as :
n(t)= p [m-N(t)] + q{N(t)/m} [m-N(t)]
= p x remaining potential + q x Adopters x
Remaining Potential
Innovation effect
Imitation effect
Illustration


m= potential no. of adopters (adopters= sales)
n(t)= no. of adopters at time t
N(t) = cumulative no. of adopters at time t
p= coefficient of innovation
q=coefficient of imitation

Illustration
Example:
p= 0.1
q= 0.25 , found from industry analysis of
analogous products
Management proposes a 7-year product life,
Maximum sales level = 1,00, 0000
So, m= 1,00,0000

Illustration
Year 1 forecast :
= 0.1 x (1,00, 0000-0)+ (0.25 x [0/1,00,000]
x [1,00,0000-0]
= 1,00,000 -0 = 1,00,000
Year 2 forecast :
= 0.1 x (1,00,0000-1,00,000) + (0.25 x
[1,00,000/1,00,0000] x [1,00,0000-1,00,000]
=90,000 +91,000=1,81,000

Illustration
p 0.1 q 0.25 m 1,00,0000
Year N(t) Innovation
Effect
Imitation
Effect
Forecast Cumulative
Forecast
1 0 1,00,000 0 1,00,000 1,00,000
2 1,00,000 90,000 91,000 1,81,000 2,81,000
3 2,81,000 71,900 92,810 1,64,710 4,45,710
4 4,45,710 55,429 94,457 1,49,886 5,95,596
5 5,95,596 40,440 95,956 1,36,396 7,31,992
6 7,31,992 26,801 97,320 1,24,121 8,56,113
7 8,56,113 14,389 98,561 112,950 9,69,063