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Unit 8
Unit 8
Structure: 8.1 Introduction Learning Objectives 8.2 Levels of Product 8.3 Classification of Products 8.3.1 Consumer products 8.3.2 Business products 8.4 Product Hierarchy 8.5 Product Line Strategies 8.6 Product Mix Strategies 8.7 Packaging and Labeling 8.8 New Product Development 8.9 Product Life Cycle (PLC) 8.10 Summary 8.11 Terminal Questions 8.12 Answers
8.1 Introduction
Product: A good, service, person, place, event or organization offered to consumers to satisfy his need or want. A good is a tangible product, which can be seen and touched. These tangible items can be produced in bulk and inventoried. For example, switches from Bajaj Electricals are goods. A service is an intangible product, which requires simultaneous consumption and production. These are also perishable in nature. For example, Wockhart hospital offers heart surgery, which consumers cannot see but need to undergo when there is a pain in the heart. Hence surgery a service, is perishable in nature, needs to be produced and consumed simultaneously.
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A product may be a person also. Here marketer tries to buy and sell the celebrities or sports persons of a league or club etc For, example, Board of Cricket Control in India (BCCI) asks its Indian premier league (IPL) teams to buy iconic players and foreign players for certain price. An event is also considered as product. Many event management companies earn their revenue by selling tickets and advertisement space at the event. The following example explains how an event can be marketed.
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Figure 8.1
An organization is also considered as a product. It can be bought and sold on the basis of value of the firm. To make it more clear Tatas bought Tetley for 271mn on 27th February 2000.
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Many state governments and central governments sell their places to get the pie in the tourism market. Here governments provide advertisements of a place to attract tourists from India and abroad. For example, Karnataka Government under one state many world campaign highlighted historical places, wildlife, waterfalls etc... In the following advertisement it provides the inputs on Hampi , a historical place in Karnataka to the tourists.
Figure 8.2
Learning Objectives After studying this unit, you will be able to Analyze how products are classified. Discuss the product line and product mix strategies. Describe the product life cycle. Assess the stages involved in the new product development.
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4. Augmented product: Inclusion of value added services to the expected product to distinguish it from competitors. E.g. Online or tele medicine facilities, expert knowledge sharing, 24 hour ambulance service etc... 5. Potential product: These are the future products provided by the company which customer didnt anticipate. Ultimately consumer will be delighted by this product. E.g. Medical insurance from the hospital, after service care etc
Products are classified into two broad categories. They are consumer products and business products. Consumer products are purchased by the consumer for his personal consumption. Business products: These products are purchased by business concerns for further product development 8.3.1 Consumer Products As these products are purchased by the final consumer for his own consumption, the market is very big. The large market needs to serve different needs of consumer. Therefore company should create different
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types of products. Hence consumer products are classified into four different categories. They are a. Convenience goods. b. Shopping goods c. Specialty goods d. Unsought goods. a. Convenience goods: These are the fast moving consumer goods that are purchased regularly with less amount of effort. 1. These are purchased frequently. 2. Customer involvement is very low. 3. Price of the product is very low. 4. Intensive distribution is used to reach the consumer. 5. The stock turnover is high. 6. Aggressive promotion is required i. Example: soaps and detergents, groceries etc. b. Shopping goods: These goods require high consumer involvement and before buying such products consumer processes the information of product suitability, quality and price. Compared to convenience goods, shopping goods are purchased less frequently. Consumer takes lot of time to search and evaluate the information. These products are available in selected outlets. The price of the product is very high. For example, a consumer who wants to purchase the washing machine will collect the information on type of washing machine, type of control, loading, wash method, pre wash, delicate wash, cycle time, after sales service, sensors, water consumption, etc. c. Specialty goods: These are the products for which a consumer shows high brand loyalty and is ready to wait, or spend time i. Consumers are having strong brand loyalty. ii. Usually companies adopt premium pricing strategy. iii. Exclusive distribution and selective communication strategies are adopted. To illustrate, a consumer is willing to pay Rs 32000 for Bose Digital Home Theater though competitors products are available at Rs 15,000 to Rs 25000.
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d. Unsought goods: These products are called unsought because consumer is usually unaware or ignorant about the products to purchase it. Marketers need heavy promotion activities to educate and sell their products. For example, Insurance is the product which most of the consumers are aware of but very few are willing to purchase. Life Insurance Corporation trains its agents to promote and sell aggressively. These agents provide lot of inputs regarding insurance to consumers. Activity 1: Find out the various types of products purchased in your house in the last 3 months and classify them into the 4 consumer product categories. 8.3.2 Business or Industrial Products Business products are purchased by the Organizational consumers who use these products as a material, part, capital item or service in producing his/her final product. For example, CET offers range of services to Birla copper, Jindal Vijayanagar Steel and Mukund Limited. These services are used to develop the final products of these companies.
Exhibit 1
Centre for Engineering & Technology Center for Engineering & Technology (CET), an ISO: 9001 certified organization is the design, engineering & consultancy unit of SAIL. It has its Head Office at Ranchi, Sub Centers at Bhilai, Durgapur, Rourkela, Bokaro, Burnpur & Bhadravati, Unit Offices at Bangalore, and New Delhi for formulation of Interplant Standards for Steel Industry. As a solution provider for all project needs, CET had been rendering complete range of services not only to the Steel Plants under SAIL but also to various clients other than SAIL both within and outside the country. Some of the important clients other than SAIL include EGITALEC (Egypt), Ashok Steel (Nepal), Chittagong Steel Mills (Bangladesh), Birla Copper, Mukand Ltd., Jindal Vijayanagar Steels Ltd., National Iron & Steel Co., Hindustan Zinc Ltd., National Mineral Development Corporation and Romelt- SAIL (India) Ltd., CET is also the nodal agency for acquisition and lateral transfer of technologies within SAIL plants.
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The range of services includes conceptualization, project evaluation & appraisal, project consultancy, design & engineering and project management in the areas of iron and steel making. Apart from this, CET has been providing its services in the related areas like mine planning and development, infrastructure development, industrial piping, industrial warehousing, material handling system, industrial pollution control and environment management systems, water supply and sanitation, town planning, power projects, etc
(Source: www.sail.co.in)
Business products are classified into three categories. They are: a. Materials and parts. b. Capital items c. Supplies and services. a. Materials and parts: These products are further classified as raw materials and manufactured material and parts.
Materials and parts. Raw materials 1. Natural products materials 2. Farm products Manufactured Materials & parts 1.Component & parts 2. Componentmaterials
Materials are classified into raw materials and manufactured materials and parts. Raw materials are of two types namely, Natural products and secondly, Farm products. 1. Natural products are extracted and used for further product development. For example, Orex Minerals Private Limited supplies iron ore to Adani exports limited, Nobel Resources and Trading Private Limited and Sino Steel India Private Limited. 2. Farm products are also used in further product development. For example, Parle agro division supplies required wheat for the production of biscuits. Manufactured materials are further classified into two types. They are component parts and component materials. 1. Component parts. For example, Melco Precisions Private Limited supplies heat resistant steel to Grasim, NTPC and NFL for further product development.
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2. Component materials These are also called original equipment manufacturer products. These companies products are directly fitted in the final product. For example, MRF tyres are directly fitted in Maruti Udyog Limited cars. b. Capital items include developing the building( for example, L & T and Siemens developing Bangalore International Airport) Fixed equipments (for example, Lenovo supplying computers to Manipal university) Accessory equipments( for example, Hindustan Everest Tools Limited sells its spanners and pliers to industrial customers) and office equipments ( HP supplying fax machine to Shristi Automation Private Limited) c. Suppliers and services: Supplies includes operating supplies( Castrol sells its lubricants to VRL limited) maintenance and repair services (Eagle Securities Service to corporate clients)
7. Item
(Adapted from Kotler Philip, Marketing Management) Sikkim Manipal University Page No. 155
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sealants line has following 11 items in the product line. Hence the length of product line is 11
1. White Glue 3. Glue Stick 5. Epoxy Putty 7. PVC Insulation Tape 9. Contact Glue 11. Maintenance Spray 2. Paper Glue 4. Instant Adhesive 6. Epoxy Adhesive 8. Silicone Sealants 10. All Purpose Glue
b. Product line stretching: Company lengthens its product line either by stretching upwards or downwards or both ways. Line stretching decision depends on three situations i. Company which operates in high end market may come up with mid class or low class targeted products. ii. The company which operates in lower end of market may come up with high end market products.
iii. If the company operates in mid segment and comes out with low end product as well as high end product then it is stretching both ways. For example, Maruti Suzuki Limited launched its first product, Maruti 800 in the year 1983 and in the year 1985 it launched Maruti Gypsy. Gypsy is costlier than Maruti 800 and targeted for higher segment. This shows that the company extended its product line upwards or in short, upward stretch. Tata Motors launched their Rs 1 lakh car NANO in the year 2008. The company which was targeting upper class and middle class with their products SUMO and Indica respectively, has stretched downwards to reach the lower level segment. This illustrates the downward stretch. Toyota Kirloskar Limited which extended their line from Qualis and Corolla to Innova and Camry is planning to come out with small car in India. This clearly illustrates the two way stretch of the product line. c. Product line filling: Adding more items in the present product line. For example, in the year 2000 Maruti Suzuki launched Alto. This product was between Maruti 800 and Maruti Zen. Here company was trying to fill the gap existing in the segment by introducing ALTO, i.e. line filling.
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d. Product line pruning: Removing the unprofitable products form the product line. Toyota Kirloskar phased out their well known brand Qualis when they thought the brand was not adding value to the product line.
Ujala washing powder (25g, 500g, 1Kg) Stiff & shine (20gm sachets, 100ml and 200ml bottles)
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Product mix width: The total number of product lines that company offers to the consumers. For example, Jyothy Laboratories product mix has six lines. Hence the width is 6
Fabric care
Utensil cleaners
Fragrances
Personal care
Allied business
Product mix length: The total number of items that company carries within its product line. For example, Jyothy Laboratories fabric care division has three items
Product line depth: The number of versions offered of each product in the line. For example, Jyothy Laboratories Jeeva Natural is offered in three versions i.e. Coconut Milk with Milk Protein, Coconut Milk with Jasmine and Coconut Milk with Kasturi Manjal, and is presented in 75gm packs. Product mix consistency: If companys product lines usage, production and marketing are related, then product mix is consistent, else it is unrelated.
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In the case of Jyothy Laboratories, all six product lines are FMCGs. Hence it is having consistent product mix. But ITC Companys cigarette and cloth product lines are totally unrelated.
Worm turns for Cadbury Hyderabad: The worms in the chocolate bars controversy has hit Cadbury India where it hurts most and that is in sales. The company today faces tough times ahead as the business environment for its chocolates becomes increasingly negative with rising raw material prices and low consumer sentiments, post the worms controversy in October this year. While the sales of chocolates (institutional and retail) fell by 3 to 4 per cent last month and are predicted to be down by 10 per cent in November by the trade, Cadbury India has had to incur additional costs in upgrading packaging and damage control promotional efforts. To add to all this, prices of milk and cocoa have been on the upward path in recent months, adding further to the costs. The largest impact on sales has been in Maharashtra, and specifically in Mumbai, which is where the whole controversy arose as worms were found in Cadbury chocolates in allegedly eight outlets across the state. If it weren't bad enough that the controversy blew up at the festival season when the chocolates sales are at their peak, the company may also just have to shelve plans of becoming a major sourcing hub for British chocolates and beverages
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giant Cadbury Schweppes. As part of a global realignment of its supply chain management, the company was giving finishing touches to a plan that might have seen Cadbury India emerge as a major supplier of chocolates to the Asia-Pacific region and the Middle East. The outsourcing model could have resulted in significant revenue generation for Cadbury India. Initially the company blamed retailers for not storing the products properly but is now engaged in putting in place a regular monitoring and checking system of the storage of the chocolates. Cadbury India managing director Bharat Puri says the company has made substantial investments in packaging in order to maintain product quality from the manufacturer to the customer. And now it is making all attempts to reassure the consumer and win back their confidence and interest in the category. It has initiated Project Vishwas, a three-step programme involving wholesalers and retailers in which the company partners with the traders on a war-footing to build awareness about storage requirements for Cadbury products. In Maharashtra where the maximum damage has been done the company has involved a team of quality-control managers along with 300 salespeople to carry out checks of over 50,000 retail outlets which retail Cadbury products. The products in upgraded packaging are expected to hit retail stores early next year. Analysts say in the past couple of years in the face of increasing competition from Swiss chocolates major Nestle India and the homegrown Amul, Cadbury has been pushing its products aggressively and targeting the adult audience especially to expand the market.
(Source: www.domain_b.com; Author Mohini Bhatnagar)
Packaging strategies: 1. Adopting the same package for entire product line. 2. Multiple packs for multiple products 3. Changing the packages continuously. Labeling: Labeling: it carries the information about the product and the seller and this information is presented on the package as well as on the product.. Types of labels: a. Brand label: Only brand name is mentioned on the packaging. For example, on Dharawad mangoes pack, only brand name is highlighted.
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b. Grade label: Identifies the products judged quality with a letter, number or word. For example, fertilizers 19-19-0-19, 17-19-19-19 etc c. A descriptive label: Gives the entire information about the product, use, and care. For example, Vasemol hair dye packet contains brochure in which it tells how to use product, what are the precautions one should take etc Activity 2: Take any 2 similar kinds of products like for example 2 different brands of toothpaste or soaps and then identify the differences in their packaging and labeling. Self Assessment Questions 1. A place can also be marketed as a product a. True b. False 2. Insurance is __________________ type of consumer good 3. Phasing out of the brand from the product line is called as ___________ 4. The number of versions offered of each product in the line is known as ________________ 5. ____________ are called as original equipment manufacturer products.
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c. They are imitative; these products are not new to the market but new to the company. For example, Cavin Kare launched Ruchi pickles. This product is new to Cavin Kare but not to the market. New product development process: Stage 1 - Idea generation: New product idea can be generated either from the internal sources or external sources. The internal sources include employees of the organization and data collected from the market. The external source includes customers, competitors and supply chain members. For example, Ingersoll Rand welcomes new ideas from the General public
. Stage 2-Idea screening: Organization may have various ideas but it should find out which of these ideas can be translated into concepts. In an interview to Times of India, Mr. Ratan Tata, chairman TATA group discussed how his idea saw many changes from the basic version. He told that he wanted to develop car with scooter engine, plastic doors etc... But when he unveiled the car, there were many changes in the product. This shows that initial idea will be changed on the basis of market requirements. Stage 3 - Concept development: the main feature or the specific desire that it caters to or the basic appeal of the product is created or designed in the concept development. Concepts used for Tata Nano car are Concept I: Low-end 'rural car,' probably without doors or windows and with plastic curtains that rolled down, a four-wheel version of the autorickshaw
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Concept II: A car made by engineering plastics and new materials, and using new technology like aerospace adhesives instead of welding. Concept III: Indigenous, in-house car which meets all the environment standards Stage 4 - Concept testing: At this stage concept is tested with the group of target customers. If any changes are required in the concept or the message it will be done during this stage. Also the effectiveness is tested on a minor scale. If the concept meets the specific requirements, then it will be accepted. Stage 5 Marketing strategy development: The marketing strategy development involves three parts. The first part focuses on target market, sales, market share and profit goals. TATAs initial business plan consisted sales of 2 lakhs cars per annum. The second part involves product price, distribution and marketing budget strategies. TATAs fixed Rs 1 lakhs as the car price, and finding self employed persons who work like agent to distribute the cars. The final part contains marketing mix strategy and profit goals. Stage 6 - Business analysis: it is the analysis of sales, costs and profits estimated for a new product and to find out whether these align with the company mission and objectives. Stage 7 - Product development: during this stage, product is made to undergo further improvements, new features or improvised versions are added to the product. There is also scope for innovation and using the latest technology into the product. TATA Nano car development (Source: business world nanolution) Tried to outsource the product from all over the world. Development of mule or prototype with 20bhp. Designing the small engine Thermodynamic simulations and final engine Development of MPFI with help of Bosch. Cost reduction and negotiating with vendors. Sona Koyo and Rane Group came up with hollow steering shafts, saving cost and cutting weight. Sharda Motors and Emcon designed the exhaust system and MRF tweaked the tyres to bear extra weight on rear wheels.
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Stage 8 - Test marketing: is the most crucial stage for the testing products performance and its future in the market. There are certain cases where product has failed in the test marketing and had to be withdrawn. The product is introduced into the realistic market The 4Ps of marketing are tested. The cost of test marketing varies with the type of product.
Stage 9 - Commercialization: In this stage product is completely placed in the open market and aggressive communication program accompanied with promotion activities is carried out to support it.
The product which is introduced into the market will undergo some modifications over the period. Its sales also fluctuate. Therefore a marketer will be interested in finding out how sales changes over a period and what strategies are best suited at that point. A product life cycle can be graphed by plotting aggregate sales volume for a product category over time. Generally the curve resembles a bell shaped curve. We can obtain style, fashion or fad style of product life cycles also.
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Product life cycle (bell shaped curve) According to PLC, a product passes through five stages which are as follows: 1. Product development stage: In this stage company identifies the viable idea and develops it. Even if sales in this stage are nil it requires huge research and development budget. Therefore company incurs losses at this stage. For example, TATA Docomo before entering the cellular services market had done research and found that calls were charged for minutes rather than seconds. 2. Introduction stage: Company introduces the product into the market. As the product is new to the market, consumer awareness is usually very low. Here company adopts heavy sales promotion and product awareness programs. The cost of product is very high and sales are very low. At this juncture the company charges high price to the customers. For example, TATA Docomo has entered into cellular services initially through the Billboards. 3. Growth stage: Company gets experience over the period and now tries to get the maximum market share (takes first mover advantage). Sales will grow rapidly, resulting in lesser cost and better profit. Company reduces the price of the product and offers varieties and values in it. It focuses on building better distribution network and pushes the product through it. Therefore company needs less sales promotion. There will be increase in Competition and the company is forced to keep a tab on its competitors. For example, TATA Docomo has entered into the growth stage by aggressively advertising on Television and other mediums and at the same time giving competition to the existing players.
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4. Maturity stage: In this stage, the product has already established itself in the market. These are the characteristics of this stage a. Peak sales. b. Low cost per customer. c. High profits. d. Competition based pricing e. Communicating the product differentiation (or USP) to consumers. f. Improving supply chain efficiency. g. Defend the market share h. Industry experiences consolidation. For example, Airtel in its advertising is clearly stating its subscriber base as 1, 10,000 indicating that it has entered into a mature stage. 5. Decline stage: In this stage, product sales and profit decline. Company should phase out weak items from their product mix and may even lower the prices of the existing products. The advertisement budget of the company also comes down and the company may struggle to meet its costs. For example, VCRs have been replaced with DVD players and so VCR entered into the decline stage and is almost out of the market. Activity 3: Find out the life cycle stage about a product that you recently bought and suggest some techniques on how it can do better in that particular stage. Other product life cycles: 1. Style: A style is a basic and distinctive mode of expression that appears in the study of human behavior. For example, style is evident in homes, art, accessories and clothing. Once the style is invented it will be there for a longer period. 2. Fashion: Currently accepted or popular style in a given field. For example, cargo jeans are now the fashion with college going students. Fashion changes with time. 3. Fad: A fashion that enters quickly is adopted with great zeal, peaks early, and declines very fast. For example, when pager was introduced, everybody wanted to have the product. But when people found mobiles as alternative, the demand for pager went down drastically.
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Self Assessment Questions 6. 7. 8. 9. 10. In _____________ life cycle, product sales reach peak very quickly and decline very quickly. Maximizing the market share is the objective of company in ______________stage of product life cycle. In product development are_________ a. True b. False. stage of product life cycle sales
Imitative products are also considered as a new product In _____________ stage, a product is well established in the market.
8.10 Summary
Product: A good, service, person, place, event or organization that are offered to consumers to satisfy his/her needs or wants. A product has five levels, i.e. core product, generic product, expected product, augmented product, and potential product. A product can be classified as consumer products and industrial products. Product line length: The number of items in the product line is called the product line length. Product mix width: The total number of product lines that company offers to the consumers. New products may be really innovative, different from others or imitative one. In the growth stage of PLC, sales and profits of the company increase because product is recognized and accepted in the market.
List of Key terms Core product Consumer products Product mix Product hierarchy Product life cycle New product development
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8.12 Answers
Answers to Self Assessment Questions: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. True Unsought Line pruning Product line depth. Component material Fad Growth Zero True Maturity
Answer to Terminal Questions: 1. 2. 3. 4. 5. Refer 8.3.1 Refer 8.1 Refer 8.8 Refer 8.9 Refer 8.6