CH-6 Product and Brand Strategy – A Preface to Marketing Management : Chapter Notes

Chapter 6 Product and Brand Strategy High-Level Chapter Outline I. Basic Issues in Product Management A. Product Definition B. Product Classification C. Product Quality and Value D. Product Mix and Product Line E. Branding and Brand Equity F. Packaging II. Product Life Cycle A. Product Adoption and Diffusion III. The Product Audit A. Deletions B. Product Improvement IV. Organizing for Product Management Detailed Chapter Outline I. Basic Issues in Product management Successful marketing depends on understanding the nature of products and basic decision areas in product management. A. Product Definition The way in which the product variable is defined can have important implications for the survival, profitability, and long-run growth of the firm. The same product can be viewed in at least three different ways: In terms of the tangible product In terms of the extended product In terms of the generic product From the standpoint of the marketing manager, to define the product solely in terms of the tangible product is to fall into the error of “marketing myopia.” Executives who are guilty of committing this error define their company's product too narrowly, since they overemphasize the physical object itself. The classic example of this mistake can be found in railroad passenger service. Although no amount of product improvement could have staved off its decline, if the industry had defined itself as being in the transportation business, rather than the railroad business, it might still be profitable today. In line with the marketing concept philosophy, a product can be defined as the sum of the physical, psychological, and sociological satisfactions the buyer derives from purchase, ownership, and consumption. From this standpoint, products are customer-satisfying objects that include such things as accessories, packaging, and service. B. Product Classification A product classification scheme can be useful to the marketing manager as an analytical device to assist in planning marketing strategy and programs. In general, products are classified according to two basic criteria: End use or market Degree of processing or physical transformation Agricultural products and raw materials These are goods grown or extracted from the land or sea, such as iron ore, wheat, and sand. In general, these products are fairly homogeneous, sold in large volume, and have low value per unit or in bulk weight. Organizational Goods Such products are purchased by business firms for the purpose of producing other goods or for running the business. This category includes the following: Raw materials and semifinished goods Major and minor equipment, such as basic machinery, tools, and other processing facilities Parts or components, which become an integral element of some other finished good Supplies or items used to operate the business that do not become part of the final product Consumer Goods Consumer goods can be divided into three classes: Convenience goods, such as food, which are purchased frequently with minimum effort. Impulse goods would also fall into this category. Shopping goods, such as appliances, which are purchased after some time and energy, are spent comparing the various offerings. Specialty goods, which are unique in some way so the consumer will make a special purchase effort to obtain them. In general the buying motive, buying habits, and character of the market are different for organizational goods vis-à-vis consumer goods. Organizational goods are usually purchased as means to an end and not as an end in themselves. This is another way of saying that the demand for organizational goods is a derived demand. Many organizational goods are subject to multiple influence, and a long period of negotiation is often required. Certain products have a limited number of buyers; this is known as a vertical market, which means that: It is narrow, because customers are restricted to a few industries It is deep, in that a large percentage of the producers in the market use the product Some products have a horizontal market, which means that the goods are purchased by all types of firms in many different industries. From the standpoint of the marketing manager, product classification is useful to the extent that it assists in providing guidelines for developing an appropriate marketing mix. C. Product Quality and Value Quality can be defined as the degree of excellence or superiority that an organization’s product possesses. Quality can encompass both the tangible and intangible aspects of a firm’s products or services. Although quality can be evaluated from many perspectives, the customer is the key perceiver of quality because his or her purchase decision determines the success of the organization’s product or service and often the fate of the organization itself. Many organizations have formalized their interest in providing quality products by undertaking total-quality management (TQM) programs. TQM is an organizationwide commitment to satisfy customers by continuously improving every business process involved in delivering products or services. Organizations that practice TQM train and commit employees to continually look for ways to do things better so defects and problems don’t arise in the first place. The result of this process is the higher-quality products being produced at a lower cost. The term quality is often confused with the concept of value. Value encompasses not only quality but also price. Value can be defined as what the customer gets in exchange for what the customer gives. Some organizations are beginning to shift their primary focus from one that solely emphasizes quality to one that also equally encompasses the customer’s viewpoint of the price/quality trade-off. Organizations that are successful at this process derive their competitive advantage from the provision of customer value. D. Product Mix and Product Line A firm’s product mix is the full set of products offered for sale by the organization. A product mix may consist of several product lines, or groups of products that share common characteristics, distribution channels, customers, or uses. A firm’s product mix is described by its width and depth. Width refers to the number of product lines handled by the organization. Depth refers to the average number of products in each line. An integral component of product line planning revolves around the question of how many product variants should be included in the line. Organizations offer varying products within a given product line for three reasons: Potential customers rarely agree on a single set of specifications regarding their “ideal product.” Customers prefer variety. The dynamics of competition lead to multiproduct lines. All too often, organizations purchase product line additions with little regard for consequences. However, in reaching a decision on product line additions, organizations need to evaluate whether: Total profits will decrease The quality/value associated with current products will suffer E. Branding and Brand Equity A critical focus in marketing strategy is on building the company’s brand and brand equity. Marketing Insight 6–3 presents some of the most valuable worldwide brands that are most likely to be familiar because of some or all of the following reasons: Whatever they do, they do it very well They tell their story often and very welll Customers see the brand wherever they shop The brand has a distinct personality, in other words, they stand for something The brand name is perhaps the single most important element on the package, serving as a unique identifier. A brand is a name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers. The legal term for brand is trademark. A good brand name can evoke feelings of trust, confidence, security, and strength. Many companies make use of manufacturer branding strategies in carrying out market and product development strategies. The line extension approach uses a brand name to facilitate entry into a new market segment. In brand extension, a current brand name is used to enter a completely different product class. In franchise extension or family branding, a company attaches the corporate name to a product to enter either a new market segment or a different product class. A final kind of branding strategy that is becoming more and more common is dual branding in which two or more branded products are integrated. Companies may also choose to assign different brand names to each product. This is known as multibranding strategy. Major advantages of using multiple brand names are that: The firm can distance products from other offerings it markets The image of one product is not associated with other products the company markets The products can be targeted at a specific market segment Should the product(s) fail, the probability of failure impacting on other company products is minimized The major disadvantage of this strategy is that because new names are assigned, there is no consumer brand awareness and significant amounts of money must be spent familiarizing customers with new brands. Increasingly, companies are finding that brand names are one of the most valuable assets they possess. Brand equity can be viewed as the set of assets (or liabilities) linked to the brand that add (or subtract) value. Brand equity is determined by the consumer and is the culmination of the consumer’s assessment of the product, the company that manufactures and markets the product, and all other variables that impact on the product between manufacture and consumer consumption. Figure 6.1 lists the elements of brand equity. As with consumer products, organizational products also can possess brand equity. However, several differences do exist between the two sectors. Organizational products are usually branded with firm names and as a result, loyalty (or disloyalty) to the brand tends to be of a more global nature, extending across all the firm’s product lines. Because firm versus brand loyalty exists, attempts to position new products in a manner differing from existing products may prove to be difficult, if not impossible. Loyalty to organizational products encompasses not only the firm and its products but also the distribution channel members employed to distribute the product. As a related branding strategy, many retail firms produce or market their products under a so-called private label. Private label products differ markedly from so-called generic products that sport labels such as “beer”, “cigarettes”, and “potato chips.” Private label brands are being marketed as value brands, products that are equivalent to national brands but are priced much lower. Private brands are rapidly growing in popularity. Consolidation within the supermarket industry, growth of super stores, and heightened product marketing are poised to strengthen private brands even further. F. Packaging Distinctive or unique packaging is one method of differentiating a relatively homogenous product. In other cases, packaging changes have succeeded in creating new attributes of value in a brand. Finally, packaging changes can make products urgently salable to a targeted segment. On one hand, the package must be capable of protecting the product through the channel of distribution to the consumer. In addition, it is desirable for packages to have a convenient size and be easy to open for the consumer. The marketing manager must determine the optimal protection, convenience, positioning, and promotional strengths of packages, subject to cost constraints. II. Product life cycle A firm’s product strategy must take into account the fact that products have a life cycle. Products are introduced; they grow, mature, and decline. Figure 6.2 illustrates this life-cycle concept. During the introduction phase of the cycle, there are usually high production and marketing costs, and since sales are only beginning to materialize, profits are low or nonexistent. Profits increase and are positively correlated with sales during the growth stage as the market begins trying and adopting the product. As the product matures, profits for the initiating firm do not keep pace with sales because of competition. At some point sales decline, and the seller must decide whether to: Drop the product Alter the product Seek new uses for the product Seek new markets Continue with more of the same In doing so, it should become clear that shifts in phases of the life cycle correspond to changes in the market situation, competition, and demand. When applied with sound judgment, the life-cycle concept can aid in forecasting, pricing, advertising, product planning, and other aspects of marketing management. As useful as the product life cycle can be to managers, it does have limitations that require it to be used cautiously in developing a strategy. Fashions are accepted and popular product styles. Their life cycle involves a distinctiveness stage in which trendsetters adopt the style, followed by an emulation stage in which more customers purchase the style to be the trendsetters. Fads are products that experience an intense but brief period of popularity. Some fads may repeat their popularity after long lapses. Refer Marketing Insight 6-7 for marketing strategy implications of the product life cycle. A. Product Adoption and Diffusion The shape of the life-cycle curve indicates that most sales occur after the product has been available for awhile. The spread of a product through the population is known as the diffusion of innovation, as illustrated in Figure 6.3, which presents five adopter categories. The first category is the innovators, those who are the first to buy a new product. If the experience of the innovators is favorable, early adopters begin to buy. Members of the early majority tend to avoid risk and to make purchases carefully. Members of the late majority not only avoid risks but are cautious and skeptical about new ideas. Laggards are reluctant to make changes and are comfortable with traditional products. III. The Product Audit The product audit is a marketing management technique whereby the company’s current product offerings are reviewed to ascertain whether each product should be continued as is, improved, modified, or deleted. The audit is a task that should be carried out at regular intervals as a matter of policy. Product audits are the responsibility of the product manager unless specifically delegated to someone else. A. Deletions In today’s environment, there are growing numbers of products being introduced, that are competing for limited shelf space. This growth is primarily due to: New knowledge being applied faster The decrease in time between product introductions (by a given organization) One of the main purposes of the product audit is to detect sick products and then bury them. Rather than let the retailer or distributor decide which products should remain, organizations themselves should take the lead in developing criteria for deciding which products should stay and which should be deleted. Some of more obvious factors to be considered are listed below: Sales trends Profit contribution Product life cycle Customer migration patterns B. Product Improvement An important objective of the audit is to ascertain whether to alter the product in some way or to leave things as they are. Attributes refer mainly to product features, design, package, and so forth. Marketing dimensions refer to things as price, promotion strategy, and channels of distribution. Product improvement is a top-level management decision, but the information needed to make the improvement decision may come from the consumer or the middlemen. A discussion of product improvement would not be complete without taking into account the benefits associated with benchmarking, especially as they relate to the notion of the extended product, the tangible product along with the whole cluster of services that accompany it. The formal definition of benchmarking is the continuous process of measuring products, services, and practices against those of the toughest competitors or companies renowned as leaders. It is an effective tool organizations use to improve on existing products, activities, functions, or processes. Benchmarking can assist companies in many product improvement efforts, including: Boosting product quality Developing more user-friendly products Improving customer order-processing activities Shortening delivery lead times IV. Organizing for Product Management Whether managing existing products or developing new products, organizations that are successful have one factor in common—they actively manage both types. Under a marketing-manager system, one person is responsible for overseeing an entire product line with all of the functional areas of marketing such as research, advertising, sales promotion, sales, and product planning. This type of system is popular in organizations with a line or lines of similar products or one dominant product line. Sometimes referred to as category management, the marketing manager system is seen as being superior to a brand manager system because one manager oversees all brands within a particular line, thus avoiding brand competition. Under a brand-manager system, a manager focuses on a single product or a very small group of new and existing products. Successful new products often come from organizations that try to bring all the capabilities of the organization to bear on the problems of customers. This requires the cooperation of all the various functional departments in the organization. Thus, the use of cross-functional teams has become an important way to manage the development of new products. A venture team is a popular method used in such organizations as Xerox, Polaroid, Exxon, IBM, Monsanto, and Motorola. A venture team is a cross-functional team responsible for all the tasks involved in the development of a new product. The use of cross-functional teams in product management and new product development is increasing for a very simple reason—organizations need the contributions of all functions and therefore require their cooperation. Cross-functional teams operate independently of the organization’s functional departments but include members from each function. Figure 6.4 presents some prerequisites for the use of cross-functional teams in managing existing products and developing new products. KEY TERMS Brand: A name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers. The legal term for brand is trademark. Brand equity: The set of assets (or liabilities) linked to the brand that add (or subtract) value. The value of these assets is dependent upon the consequences or results of the market place’s relationship with the brand. Brand extension: A strategy that uses a current brand name to enter a completely different product class. Brand-manager system: Type of product management system in which a manager focuses on a single product or a very small group of new and existing products. The brand manager is responsible for everything from marketing research and package design to advertising. Cross-functional teams: Teams requiring the membership and cooperation of all the various functional departments in the organization to create successful new products. Dual branding: A strategy in which two or more branded products are integrated. This strategy is sometimes called joint or cobranding. Extended product: The tangible product along with the whole cluster of services that accompany it; one of the three ways a product can be viewed. Fads: Products that experience an intense but often very brief period of popularity. The faster they become popular, the faster they will become unpopular. A few fads may repeat their popularity after long absences. Family branding: Sometimes called franchise extension; an organization’s attachment of the corporate name to a product to enter either a new market segment or a different product class. Fashions: Accepted and popular products that go through a repetitive cycle of popularity, lost popularity, and regained popularity, repeating the cycle again. Generic product: Product that includes the essential benefits the buyer expects to receive; one of the three ways a product can be viewed. Global virtual team: A cross-functional team that operates across time, geographic distance, organizational boundaries, and cultures, whose members communicate mainly through electronic technology. (e.g., smartphone, laptop, texting, e-mail, video conferencing, etc.) Horizontal marketing: Market that exists for an organizational product when it is purchased by all types of firms in many different industries. Marketing-manager system: Type of product management system popular in organizations with a line or lines of similar products or one dominant line. One person is responsible for overseeing an entire product line with all of the functional areas of marketing such as research, advertising, sales promotion, sales, and product planning. Multibranding: A strategy that assigns different brand names to each product. The organization makes a conscious decision to allow the products to succeed or fail on their own merits. Product: The sum of the physical, psychological, and sociological satisfactions the buyer derives from purchase, ownership, and consumption. This definition is consistent with the marketing concept. Product adoption and diffusion: The spread of a product through the population; encompasses five stages of adopters: innovators, early adopters, early majority, late majority, and laggards. Product life cycle: The concept that many products go through a cycle; that is, they are introduced, grow, mature, and decline. While the cycle varies according to industry, product, technology and market, it is a valuable aid in developing product and marketing strategies. Product line: A group of products that share common characteristics, distribution channels, customers, or uses. Product line extension: A strategy of line extension that uses a well-known brand name to enter into a new market segment. Product mix: The full set of products offered for sale by an organization; described by its width and depth. Product mix depth: The average number of products in each product line. Product mix width: The number of individual product lines offered by the organization. Quality: The degree of excellence or superiority that an organization’s product or service possesses. It can encompass both the tangible and intangible aspects of a product or service. Although quality can be evaluated from many perspectives, the customer’s perception of quality is crucial. Tangible product: The physical entity or service that is offered to the buyer; one of the three ways a product can be viewed. Value: Encompasses not only quality but also price. Value is what the customer gets for what the customer gives. Venture team: A cross-functional team responsible for all of the tasks involved in the development of a new product. When the new product is launched, the team usually turns over responsibility for managing the product to a brand manager or product manager or it may manage the new product as a separate business. Vertical market: Market for organizational products that have a limited number of buyers. A vertical market is narrow because customers are restricted to a few industries and is deep in that a large percentage of the producers in the market use the product. ADDITIONAL RESOURCES Calkins, Tim. Defending Your Brand. New York: Palgrave Macmillan, 2012. Gladwell, Malcolm. The Tipping Point. NY: Book Bag Books, 2006. Keough, Donald R. The Ten Commandments of Business Failure. NY: Portfolio Books, 2008. Knapp, Duane. The Brand Promise. NY: McGraw-Hill, 2008. . Pullig, Chris, Carolyn J. Simmons, and Richard G. Netemeyer. “Brand Dilution: When Do New Brands Hurt Existing Brands?" Journal of Marketing, April 2006, pp. 52-64. Rust, Roland, Debra Viana Thompson, and Rebecca Thompson. “Defeating Feature Fatigue.” Harvard Business Review, February 2006, pp. 98-109. Van Praet, Douglas. Unconscious Branding. New York: Palgrave Macmillan, 2012. Chapter 7 New Product Planning and Development High-Level Chapter Outline I. New Product Strategy II. New Product Planning and Development Process A. Idea Generation B. Idea Screening C. Project Planning D. Product Development E. Test Marketing F. Commercialization G. The Importance of Time III. Some Important New Product Decisions A. Quality Level B. Product Features C. Product Design D. Product Safety IV. Causes of New Product Failure A. Need for Research Detailed Chapter Outline I. New Product Strategy Authors C. Merle Crawford and Anthony DiBenedetto have developed a useful definition of new products based on the following categories. New-to-the-world-products—products that are inventions and create a whole new market. New-to-the-firm products—products that take the firm into a category new to it but not to the world. Additions to existing product lines—these are products that extend existing product lines to current markets such as Bud Light, Apple’s iMac and Tide’s liquid detergent. Improvements and revisions of existing products—these are current products that are made better. Virtually every product on the market has been improved, often many times. Repositionings—products that are retargeted for a new use or application. Cost reductions—these are new products that simply replace existing products in a line, providing the customer similar performance but at a lower cost. The best strategy is the one that will maximize company goals. A second approach to the new product question is the one developed by H. Igor Ansoff in the form of growth vectors (Figure 7.1). Market penetration denotes a growth direction through the increase in market share for present product markets. Product development refers to creating new products to replace existing ones. Market development refers to finding new customers for existing products. Diversification refers to developing new products and cultivating new markets. Market penetration and market development strategies use present products. A goal of these types of strategies is to either increase frequency of consumption or increase the number of customers using the firm’s product. Product development and diversification can be characterized as product mix strategies. Policy-making criteria on new products should specify: A working definition of the profit concept acceptable to top management A minimum level or floor of profits The availability and cost of capital to develop a new product A specified time period in which the new product must recoup its operating costs and begin contributing to profits It is critical that firms do not become solely preoccupied with a short-term focus on earnings associated with new products. II. New Product Planning and Development Process Ideally, products that generate a maximum dollar profit with a minimum amount of risk should be developed and marketed. Refer figure 7.2 for the new product development process. A. Idea Generation Every product starts as an idea. Some estimates indicate that as many as 60 or 70 ideas are necessary to yield one successful product. The problem at this stage is to ensure that all new product ideas available to the company at least have a chance to be heard and evaluated. Since idea generation is the least costly stage in the new product development process, it makes sense that the emphasis be placed first on recognizing available sources of new product ideas and then on funneling theses ideas to appropriate decision makers for screening. Top-management support is critical to providing an atmosphere that stimulates new product activity. Both technology push and market pull research activities play an important role in new product ideas and development. By taking a broad view of customer needs and wants, basic and applied research (technology push) can lead to ideas that will yield high profits to the firm. Marketing, on the other hand, is more responsible for gathering and disseminating information gained from customers and other contacts. B. Idea Screening The primary function of the idea screening process is twofold: To eliminate ideas for new products that could not be profitably marketed by the firm To expand viable ideas into full product concepts The organization has to consider three categories of risk (and its associated risk tolerance) in the idea screening phase prior to reaching a decision: Strategic risk: It involves the risk of not matching the role or purpose of a new product with a specific strategic need or issue of the organization. Market risk: It is the risk that a new product will not meet a market need in a value-added, differentiated way. Internal risk: It is the risk that a new product will not be developed within the desired time and budget. In evaluating these risks, firms should not act too hastily in discounting new product ideas solely because of a lack of resources or expertise. Instead, firms should consider forming joint or strategic alliances with other firms. A strategic alliance is a long-term partnership between two organizations designed to accomplish the strategic goals of both parties. Potential benefits to be gained from alliances include: Increased access to technology, funding, and information Market expansion and greater penetration of current markets De-escalated competitive rivalries C. Project Planning This stage involves several steps. Various alternatives exist for creating and managing the project teams. Two of the better-known methods are the establishment of a skunkworks, whereby a project team can work in relative privacy away from the rest of the organization, and a rugby or relay approach, whereby groups in different areas of the company are simultaneously working on the project. The common tie that binds these and other successful approaches together is the degree of interaction that develops among the marketing, engineering, production, and other critical staff. A key component contributing to the success of many companies’ product development efforts relates to the emphasis placed on creating cross-functional teams early in the development process. (Marketing Insight 7-6 explains why cross-functional product development teams can work.) D. Product Development At this juncture, the product idea has been evaluated from the standpoint of engineering, manufacturing, finance, and marketing. If it has met all expectations, it is considered a candidate for further research and testing. In the laboratory, the product is converted into a finished good and tested. A development report to management is prepared that spells out in fine detail: Results of the studies by the engineering department Required plan design Production facilities design Tooling requirements Marketing test plan Financial program survey Estimated release date E. Test Marketing Test-market programs are conducted in line with the general plans for launching the product. Test marketing is a controlled experiment in a limited geographical area to test the new product or in some cases certain aspects of the marketing strategy, such as packaging or advertising. The main goal of a test market is to evaluate and adjust, as necessary, the general marketing strategy to be used and the appropriate marketing mix. Throughout the test market process, findings are being analyzed and forecasts of volume developed. In summary, a well-done test market procedure can reduce the risks that include not only lost marketing and sales dollars but also capital—the expense of installing production lines or building a new factory. Upon completion of a successful test market phase, the marketing plan can be finalized and the product prepared for launch. F. Commercialization This is the launching step in which the firm commits to introducing the product into the marketplace. During this stage, heavy emphasis is placed on the organization structure and management talent needed to implement the marketing strategy. Procedures and responsibility for evaluating the success of the new product by comparison with projections are also finalized. G. The Importance of Time Time to market can be defined as the elapsed time between product definition and product availability. Successful time-based innovations can be attributed to the use of short production runs. Several U.S. companies, including Procter & Gamble, have taken steps to speed up the new product development cycle by giving managers, at the product class and brand family level, more decision-making powers. III. Some Important New Product Decisions In the development of new products, marketers have several important decisions to make about the characteristics of the product itself. These include quality level, product features, product design, and product safety levels. A. Quality Level Both consumers and organizational buyers consider the level of product quality when making purchase decisions for both new and existing products. In designing new products, marketers must consider what criteria potential customers use to determine their perceptions of quality. An important indicator of a number of the criteria listed in Figure 7.3 is the presence and extent of a new product warranty. A warranty is the producer’s statement of what it will do to compensate the buyer if the product is defective or does not work properly. A guarantee is an assurance that the product is as represented and will perform properly. Figure 7.3 presents some criteria for determining perceptions of quality. B. Product Features A product feature is a fact or particular specification about a product. Marketers may identify a need for new features that target markets have not yet thought of and may not even understand. C. Product Design Designing new products with both ease of use and aesthetic appeal can be difficult, but it can clearly differentiate a new product from competitors. Good design can add great value to a new product. D. Product Safety New products must have a reasonable level of safety. Safety is both an ethical and a practical issue. Ethically, customers should not be harmed by using a product as intended. Some products are inherently dangerous and can result in injury to users. Other products such as patented medicines can harm a small portion of users. Hopefully, the benefits such products offer outweigh their risks. IV. Causes of New Product Failure Many new products with satisfactory potential have failed to make the grade for reasons related to execution and control problems. Some of the more important marketing causes of new product failures are as follows: No competitive point of difference, unexpected reactions from competitors, or both Poor positioning Poor quality or product Nondelivery of promised benefits or products Too little marketing support Poor perceived price/quality (value) relationship Faulty estimates of market potential and other marketing research mistakes Faulty estimates of production and marketing costs Improper channels of distribution selected Rapid change in the market (economy) after the product was introduced A. Need for Research Top management has a responsibility to ask certain questions, and the new product planning team has an obligation to generate answers to these questions based on research that provides, marketing, economic, engineering, and production information. Some of the specific questions commonly raised in evaluating product ideas are: What is the anticipated market demand over time? Are the potential applications for the product restricted? Can the item be patented? Are there any antitrust problems? Can the product be sold through present channels and the current sales force? What number of new salespersons will be needed? What additional sales training will be required? At different volume levels, what will be the unit manufacturing costs? What is the most appropriate package to use in terms of color, material, design, and so forth? What is the estimated return on investment? What is the appropriate pricing strategy? KEY TERMS Commercialization: Stage of the new product development process that involves the actual launch of the product and the implementation of the marketing strategy. Cross-functional teams: Members from many different departments come together to jointly establish new product development goals and priorities and to develop schedules. Diversification: A strategy that seeks to develop new products and cultivate new customers. It often leads the organization into new businesses, sometimes through acquisition. Guarantee: An assurance by the producer that the product is as represented and will perform properly. If not, the organization making the guarantee replaces the product or refunds the customer’s money. Idea generation: Stage of the new product development process at which the goal is to ensure that all new product ideas considered by the organization have the opportunity to be heard and evaluated because the success of the process will depend greatly on the quality of the ideas generated. Idea screening: Evaluation of an idea based on strategic risk, market risk, and internal risk for the purpose of eliminating ideas that could not be profitably marketed and expanding viable ideas into full product concepts. Market development: A strategy that seeks to find new customers for existing products. An organization pursuing this strategy seeks to establish footholds in new markets or preempt competition in emerging market segments. Market penetration: A strategy that denotes a growth direction through the increase in market share of present products in present markets. An organization pursuing this strategy hopes to capitalize on existing markets and combat competitive entry or incursions. New product development process: Stages include idea generation, idea screening, project planning, product development, test marketing, commercialization. Product development: A strategy that seeks to create new products to replace existing ones. An organization pursuing this strategy hopes to capitalize on existing markets and combat competitive entry or incursions. Product development stage: Stage of the new product development process at which the product idea has met all expectations and is considered a candidate for further research and testing. In the laboratory, the product is converted into a finished good and tested. Project planning: Stage of the new product development process at which the idea is evaluated further and responsibility for the project is assigned to a project team. The idea is evaluated in terms of production, marketing, financial, and competitive factors. A development budget is established, and preliminary marketing and technical research is undertaken. Rugby or relay: An approach to creating and managing product development teams that involves groups in different areas of the organization working simultaneously on the project. Skunkworks: An approach to creating and managing product development teams that involves team members working in relative privacy, away from the rest of the organization. Test marketing: Stage of new product development process at which the product is no longer a company secret. Test marketing is a controlled experiment in a limited geographical area to test the new product as well as elements of the marketing mix. Time to market: The elapsed time between product definition and product availability. It is important because history has shown that organizations that are first in bringing their product to market often gain a competitive advantage in terms of profits and market share. Warranty: The statement of the producer of what it will do to compensate the buyer if the product is defective or does not perform properly. ADDITIONAL RESOURCES Adamson, Allen P. The Edge: Fifty Tips from Brands That Lead. New York: Palgrave Macmillan, 2013. Bender, Michael. A Manager’s Guide to Project Management. Upper Saddle River, NJ: FT Press, 2010. Biyalogorsky, EyaI, William Boulding, and Richard Staelin. “Stuck In The Past: Why Managers Persist in New Product Failures.” Journal of Marketing, April 2006, pp. 108-122. Estrin, Judy. Closing The Innovation Gap. NY: McGraw-Hill, 2009. Knight, Joe, Roger Thomas, and Brad Angus. Project Management for Profit. Boston: Harvard Business Review Press, 2012. Macintosh, Julie. Dethroning the King. NY: John Wiley and Sons, 2011. Mack, Ben. Think Two Products Ahead. NY: John Wiley, 2007. Siegel, Eric. Predictive Analytics. Hoboken, NJ: John Wiley and Sons, 2013. Instructor Manual for A Preface to Marketing Management J. Paul Peter, James H. Donnelly, Jr. 9780077861063, 9781259251641