PRODUCT AND SERVICE MANAGEMENT

I. OBJECTIVES

At the end of this chapter, the students are expected to understand:

1. The Function of Product and Service Management

2. The Benefits of Managing Products and Services
3. The Factors Affecting Product and Service Management
4. The Activities of Product and Service Management
5. The Phases of Product and Service Management
6. Product Life Cycle, Its Curves and Strategies

II. CONTENT

Introduction

Product and service management is the process of designing, creating, and maintaining a
product or services through all stages of its lifecycle.

Product and service management is a marketing function that involves obtaining,

developing, maintaining, and improving a product or service mix in response to market
opportunities.

Benefits of Product and Service Management

Management of product and services in modern conditions implies coordination of the

entire complex of elements of the company's marketing activities: selection and evaluation of
production technologies, its technical tests, market research, trial sales, advertising sales support
and so on. With the proper implementation of marketing measures, you can decide the fate of the
company for the better and get such benefits of product service management:

 Constant control and good management of goods give more chances to increase sales and
profits.
 Modification of goods and the introduction of new products expand the number of
customers.
 Increasing sales due to an understanding of demand and the need for goods.
 Increased customer orientation, ensures that the product meets the real needs of
consumers. This is the effective management of the product.
 Product management allows you to make your business more flexible to changing market
conditions.

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Factors Affecting Product and Service Management

It is often said that only changes are constant in our world. Managers in the product in the
process of adapting to changes in the marketing environment are faced with many factors. Here
are some of the key influencing factors.

 Changing needs and desires of customers.

 Strategy, mission, and purpose of the company
 The presence of strong competitors
 Market conditions
 The product, its functions, quality and characteristics
 Stages of the life cycle of goods
 Economic trends
 Cost and resources
 Changing both the company’s internal and external environment
 Government regulation

Activities of Product and Service Management

Product and service management involves many activities, such as:

 Discovering new-product opportunities

 Developing marketing plans and strategies for products
 Coordinating the product mix
 Sustaining successful products as long as possible
 Reassessing products that are not meeting expectations
 Eliminating products that have become liabilities

Phases of Product and Service Management

1. Developing new products

Companies spend a great deal of money, time, and effort developing new products to
offer their customers. New products may be goods or services that:

 Have never been offered on the market before

 Have been modified in some way
 Will be presented or distributed in a new manner

Some products are entirely new to the market, but even old products can be considered
“new” again in this process. An established soft drink may have a “new, improved” formula or
taste. A cosmetic, such as lipstick, that has been on the market for several years may receive
completely new packaging or design.

Businesses have several different ways to obtain new products. They may purchase them
from another person or company, license them from another person or company (meaning they
buy permission to sell the product but do not actually own it), acquire them by purchasing
another company, or develop them internally.

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The Basic Steps of Internal Product Development

a. Generate ideas. Ideas for new products can come from a variety of sources—employees,
customers, sales representatives, retailers, friends, family members. It may take hundreds
of ideas to come up with a good one for new-product development. Some companies
have product-management committees that meet regularly to brainstorm new-product
ideas. Each idea must then go through a screening process.
b. Screen ideas. The purpose of screening new-product ideas is to identify any that will
potentially be unworkable. For this reason, top-level managers from many different
departments (finance, engineering, distribution, etc.) are often involved in this step. An
idea may seem great on paper, but in reality it may be too expensive, it may have been
tried unsuccessfully in the past, or it may not fit well with company goals and objectives.
c. Test the product concept. If an idea makes it past the screening process, it is ready to be
tested. This means getting feedback from potential customers about the potential product.
Concept testing should answer the questions:
o Is our target market interested in this product?
o Is it the right time to introduce this product?
o What benefits does our target market expect from this product?
Concept testing may involve a simple customer questionnaire or, in some cases, an actual
prototype of the product. It is important to be very selective at this stage in the new-
product development process because to take a product any further requires a much more
significant financial investment from the company.
d. Conduct a business or feasibility analysis. This is an in-depth analysis that takes many
factors into account, such as demand, costs, competition, required investment, and
potential profit. Again, managers from many different departments may contribute to this
step in the process. Think of the feasibility analysis as a much more detailed and serious
screening step. It may take months to complete. If the company decides at this time that
the product is feasible, it will take further steps to develop it.
e. Develop the product. Product development is a lengthy step that could take months or
even years to finish. During this step, a working model of the product is tested, modified,
and retested, until the company decides it’s ready to hit the market. The cost of
production is estimated, and plans for packaging, labeling, brand name, promotion, and
distribution are made. Government regulations may also require safety tests to be
completed during this step to prevent unsafe products from entering the market.
Development can be a very expensive stage.
f. Test market the product. Test marketing involves introducing the product to a limited
market to see how it will be accepted. It serves to guide product or service managers in
planning actual marketing strategies. The product is tried out in specific locations to get
customers’ and retailers’ reactions before starting a wider distribution. Modifications in
the product can be completed as a result of the test market, or the product may be
dropped at this point if test market results are particularly poor.
Not all new products need test marketing. In some cases, it may not be used because it is
costly, delays entry into the full market, may not give an accurate picture of performance,
provides no guarantee of actual success, and gives competitors an opportunity to copy the
idea while it is being tested.
g. Commercialization. If a product has made it through every other stage in the new-
product development process, it is finally ready for commercialization. This is the point
at which the product goes into full-scale production, a marketing plan is put in place,
service and sales training are conducted, and the product’s life cycle begins.

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2. Monitoring existing products

Existing products are those that are already on the market. It is important for product and
service managers to keep a close eye on existing products and monitor them in terms of sales,
profit, market share, and how well they’re meeting company goals and expectations.

Product and service managers may decide an existing product is performing well and
needs no modifications or, they may choose to add new features or change the design or
packaging in some way. Making changes in an existing product often follows steps similar to
those used in new-product development. Managers may reposition the product by changing the
marketing strategy or, they may decide to eliminate the product altogether.

3. Eliminating weak products

This is also known as product discontinuation. Weak products are those with declining
sales and profitability. Product discontinuation must be planned carefully to prevent damaging
the company’s image. Some products can be dropped immediately, but some are withdrawn from
the market over a period of time. Some companies eliminate a weak product slowly so that
customers have time to find replacements, or they may continue to provide service for a
discontinued product for a certain period of time to retain customer goodwill. Product and
service managers must weed out weak products, however, because of their costs to the company.
Remember, product and service management is all about making the most profitable product-mix
decisions possible.

Product Life Cycle

Whether you're looking through your parent's old VHS tapes or shopping for a new
smartphone, you're participating in and experiencing different stages of the product life cycle, or
PLC. When a product enters the market, often unbeknownst to the consumer, it has a life cycle
that carries it from being new and useful to eventually being retired out of circulation in the
market. This process happens continually - taking products from their beginning introduction
stages all the way through their decline and eventual retirement.

The product life cycle is the process a product goes through from when it is first
introduced into the market until it declines or is removed from the market. The life cycle has four
stages - introduction, growth, maturity and decline. While some products may stay in a
prolonged maturity state, all products eventually phase out of the market due to several factors
including saturation, increased competition, decreased demand and dropping sales.

Additionally, companies use PLC analysis (examining their product's life cycle) to create
strategies to sustain their product's longevity or change it to meet with market demand or
developing technologies.

Understanding Product Life Cycle Curves

It is important for marketing managers to understand the limitations of the product life
cycle model. A rise in sales per se is not necessarily evidence of growth, just as a fall in sales
does not typify decline. Some products like Coca Cola and Pepsi may not experience a decline at
all.

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 Differing products possess different product
life cycle “shapes.” A fad product develops as a
steeply-sloped growth stage, a short maturity stage,
and a steeply-sloped decline stage (for instance, the
pet rock phase in the 1970s). A product like Coca-
Cola and Pepsi experiences growth, but also a
constant level of sales over decades. A given
product may hold a unique product life cycle shape such that use of typical product life cycle
models is useful only as a rough guide for marketing management.

The duration of each product’s life cycle stage is unpredictable, making it difficult to
detect when maturity or decline has begun. Due to these limitations, strict adherence to the
product life cycle model can lead a company to misleading objectives and strategy prescriptions.
Rather, the product life cycle model should be used as a rough guide to predict how sales
patterns may play out given competitive and economic conditions. All in all, it is a useful model,
but not a certainty.

Stages of the Product Life Cycle

Generally, there are four stages to the product life cycle, from the product’s development
to its decline in value and eventual retirement from the market.

1. Introduction

Once a product has been developed, the first stage is its introduction stage. In this stage,
the product is being released into the market. When a new product is released, it is often a high-
stakes time in the product's life cycle – although it does not necessarily make or break the
product's eventual success.

During the introduction stage, marketing and promotion are at a high - and the company
often invests the most in promoting the product and getting it into the hands of consumers. This
is perhaps best showcased in Apple's famous launch presentations, which highlight the new
features of their newly (or soon to be released) products.

It is in this stage that the company is first able to get a sense of how consumers respond
to the product, if they like it and how successful it may be. However, it is also often a heavy-
spending period for the company with no guarantee that the product will pay for itself through
sales.

Costs are generally very high and there is typically little competition. The principle goals
of the introduction stage are to build demand for the product and get it into the hands of
consumers, hoping to later cash in on its growing popularity.

2. Growth

By the growth stage, consumers are already taking to the product and increasingly buying
it. The product concept is proven and is becoming more popular – and sales are increasing. Other
companies become aware of the product and its space in the market, which is beginning to draw
attention and increasingly pull in revenue. If competition for the product is especially high, the
company may still heavily invest in advertising and promotion of the product to beat out
competitors. As a result of the product growing, the market itself tends to expand. The product in
the growth stage is typically tweaked to improve functions and features.
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 As the market expands, more competition often drives prices down to make the specific
products competitive. However, sales are usually increasing in volume and generating revenue.
Marketing in this stage is aimed at increasing the product's market share.

3. Maturity

When a product reaches maturity, its sales tend to slow or even stop - signaling a largely
saturated market. At this point, sales can even start to drop. Pricing at this stage can tend to get
competitive, signaling margin shrinking as prices begin falling due to the weight of outside
pressures like competition or lower demand. Marketing at this point is targeted at fending off
competition, and companies will often develop new or altered products to reach different market
segments.

Given the highly saturated market, it is typically in the maturity stage of a product that
less successful competitors are pushed out of competition – often called the "shake-out point." In
this stage, saturation is reached and sales volume is maxed out. Companies often begin
innovating to maintain or increase their market share, changing or developing their product to
meet with new demographics or developing technologies. The maturity stage may last a long
time or a short time depending on the product. For some brands, the maturity stage is very drawn
out, like Coca-Cola.

4. Decline

Although companies will generally attempt to keep the product alive in the maturity stage
as long as possible, decline for every product is inevitable. In the decline stage, product sales
drop significantly and consumer behavior changes as there is less demand for the product. The
company's product loses more and more market share, and competition tends to cause sales to
deteriorate.

Marketing in the decline stage is often minimal or targeted at already loyal customers,
and prices are reduced. Eventually, the product will be retired out of the market unless it is able
to redesign itself to remain relevant or in-demand. For example, products like typewriters,
telegrams and muskets are deep in their decline stages (and in fact are almost or completely
retired from the market).

PLC Strategies

For companies in an introduction stage with their product, there are several pricing
models available to begin generating sales - either price skimming, which sets the price of the
product initially high and lowers it to "skim" groups as the market expands, or price penetration,
which sets the initial price low to penetrate the market more quickly and eventually increases it
once demand grows.

Companies often run into trouble when they don't understand the introduction stage of
their product's life cycle – especially when customers do not respond well to the initial product
(either because of pricing or the inherent value and usefulness of the product). It is important to
examine product advertising and packaging in addition to pricing.

Conducting a PLC analysis can help companies learn when they need to reinvent or pivot
their product in a new direction. For example, online streaming service Netflix pivoted their
product by going from a DVD-delivering service to primarily an online streaming service –
which was met with great success. By examining where their product is in the product life cycle,
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companies can continue innovating alongside new technology to diversify their product, keep up
with competition and potentially elongate their product's life in the market.

Other Examples of Product Life Cycles

 Stable products – Some products have defied time to maintain the period of maturity for
a considerable time. For example, products like Marmite, Kelloggs Corn Flakes and
Evian mineral water seem fairly stable and immune to technological innovation.

 Maturity from the start. Some products are launched to great fanfare and product
awareness. For example, the iPhone X is related to previous iPhones so there is no need
for an introduction phase. Other products like the XBox are eagerly awaited. Rather than
using penetration pricing, these products can practise price-skimming – where the firm
takes advantage of inelastic demand.

 Failed products. Many products never really escape the introduction phase. For
example, failed product launches such as the mini-disc, Betamax.

 Reinvented products. Some products have successfully reinvented themselves and

proved to be more successful after a period of decline. For example, in the mid-1990s,
Apple computers appeared to be in its decline phase, but in the late 90s and early 2000s,
it successfully re-pioneered itself. You could say that the Apple MacBook is a different
product to previous Apple computers. It depends how you define a product. Vinyl records
are enjoying a revival.

Limitations of the Product Life Cycle Concept

The term “life cycle” implies a well-defined life cycle as observed in living organisms,
but products do not have such a predictable life and the specific life cycle curves followed by
different products vary substantially. Consequently, the life cycle concept is not well-suited for
the forecasting of product sales.

Furthermore, critics have argued that the product life cycle may become self-fulfilling.
For example – if sales peak and then decline, managers may conclude that the product is in the
decline phase and therefore cut the advertising budget, thus precipitating a further decline.

Nonetheless, the product life cycle concept helps marketing managers to plan alternate
marketing strategies to address the challenges that their products are likely to face. It also is
useful for monitoring sales results over time and comparing them to those of products having a
similar life cycle.

The Disadvantages of Using Product Life Cycles to Direct Strategies

According to Harvard Business School professor Youngme Moon, though the product
life cycle concept has been used successfully over the past 40 years, it has made marketers
assume that there is only one trajectory for successful products. By viewing the product life cycle
in the same way, marketers pursue similar positioning strategies for products and services during
each stage of the life cycle. In the process, they miss out on opportunities to differentiate
themselves.
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