Everything you need to know about products in marketing. A product is something that is manufactured for sale in the market.
Customer needs are met by the usage of products. Product is one of the main components of marketing—all marketing activities revolve around the product. Products can be tangible or intangible. Tangible products are known as goods while intangible products are called services.
The term product can be understood in narrow as well as broad sense. In a narrow sense, it is a set of tangible physical and chemical attributes assembled in an identifiable and readily recognizable form.
In this article we will discuss about products in marketing. Also learn about:- 1. Meaning of Product 2. Definition of a Product 3. Concept 4. Features 5. Characteristics 6. The Product Mix 7. Types of New Products 8. Product Hierarchy 9. Levels 10. Design 11. Decision 12. Elements of Production Decisions and Other Details.
Products in Marketing: Meaning, Definition, Concept, Types, Product Mix and Decision
- Meaning of Product
- Definition of Product
- Concept of Product
- Features of Product
- Characteristics of Product
- The Product Mix
- Types of New Products
- Product Hierarchy
- Levels of Product
- Product Design
- Product Decision
- Elements of Production Decisions
- Product Development
- Determinants of the Product Mix
- Importance of Product
This article will also help you to get the answers of:
- Definition of Product
- Product Concept
- Product Mix
- Product Decision
Product – Meaning of Product
A product is something that is manufactured for sale in the market. Customer needs are met by the usage of products. Product is one of the main components of marketing—all marketing activities revolve around the product. Products can be tangible or intangible. Tangible products are known as goods while intangible products are called services.
The term product can be understood in narrow as well as broad sense. In a narrow sense, it is a set of tangible physical and chemical attributes assembled in an identifiable and readily recognizable form.
In a broader sense, it recognizes each separate brand as a separate product. A product can be defined as- “A good, idea, method, information, object, or service that is the end result of a process and serves as a need or want satisfier. It is usually a bundle of tangible and intangible attributes (benefits, features, functions, uses) that a seller offers to a buyer for purchase.”
Ordinarily speaking, product or goods is a word which means any commodity which can be recognised by its certain shape, quality or quantity e.g., car, book, watch, clothes etc. Actually this meaning of the product is narrow in sense. The word ‘Product’ is taken in wider perspective in marketing. Here, every brand is considered a separate product i.e., Lux and Lifebuoy—both are soaps, but are treated as separate products. In narrow sense, these will be considered as merely soaps.
Every business firm undertakes the function of product selling, though it may or may not be visible. A laundry firm provides the clothes-washing service. This function is similar to product selling which a retailer performs. Firms while selling their products, sell services too which are related to their products. A consumer buys a product because he gets psychological and physical satisfaction from that product.
Thus a seller not only sells his products rather he enters into marketing of such psychological and physical satisfaction. For example, a person while purchasing a product does not bother about the inputs by which that product is manufactured. He is rather interested in the fact as to what utility or satisfaction, he will gain by using that product. In this context, the ideas of George Fisk are worth describing. According to him, “Product is a cluster of psychological satisfaction.”
Product – Definition in Marketing
A product is what a seller has to sell and what a buyer has to buy it satisfies the needs of customers. Customers purchase products because they are capable of realizing some benefits to the purchaser. A marketer can satisfy the needs and wants of his customers by ‘offering something’ in exchange for money. And this ‘offering’ is basically a product. The product is one of the important elements of the 4Ps of the marketing mix. It consists of a bundle of tangible and intangible attributes that satisfies consumers.
Product is an important component in marketing-mix. Other elements of marketing-mix i.e. price, promotion and place are complementary to it. A product is central to the marketing operations in an organization. Most of the time product fails not because of poor quality but because they fail to meet the expectations of the customers.
It is not just a bundle of physical attributes, but a bundle of perceived benefits which satisfy consumer’s needs. Hence, utmost care should be taken to handle product decisions. A bad product not only generates bad name for the firm but also affects negatively the price set for the product, dissuades the channel members and reduces the believability of the promotional measures.
In a narrow sense, “A product is a set of tangible physical attributes in an identifiable form” (W.J. Stanton). But in marketing, product is used in a broader form.
According to W. Alderson “A product is a bundle of utilities consisting of various product features and accompanying services”.
According to Philip Kotler “A product is anything tangible or intangible that can be offered to a market for attention, acquisition use or consumption that might satisfy a need or want”.
According to Cravens, Hills and Woodruff “Product is anything that is potentially valued by a target market for the benefits or satisfactions it provides, including objects, services, organizations, places people and ideas”.
From the above definitions, it is clear that product has the want satisfying attributes which drive a customer to purchase the product. It is nothing but a package of problem solving devices and is something more than a physical product. This is because a product encompasses a number of social and psychological attributes and other intangible factors which provide satisfaction to the consumer.
Products can be anything. It can be physical product (e.g. fan, cycle etc.), service (e.g. haircuts, property deals etc.), place (e.g. Agra, Delhi etc.), person (e.g. Late M.F. Hussain etc.), Organization (e.g. Helpage India, Rajiv Gandhi foundation etc.) and idea (e.g. Family Planning, safe driving etc.).
Alderson defines, “A product is a bundle of utilities consisting of various product features and accompanying services”.
Stanton defines, “A product is a set of tangible and intangible attributes, including packaging, colour, price, manufacturer’s and retailer’s services, which the buyer may accept as offering satisfaction or wants or needs”.
According to Philip Kotler, “A product is anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. It includes physical objects, services, persons, places, organization and ideas”.
Product – Concept
Product refers to a good or service that satisfies the needs and wants of customers. It is offered in the market by an organization to earn revenue by meeting the requirements of customers. Product is an asset of an organization and referred as the backbone of marketing mix.
According to Peter Drucker, “Suppliers and especially manufacturers have market power because they have information about a product or a service that the customer does not and cannot have, and does not need if he can trust the brand. This explains the profitability of brands.”
It is very important for an organization to understand the needs of customers. For example, some customers use mobile phones for talking; whereas, some use mobile phones for talking as well as business purposes, such as teleconferencing. Needs of the customers depend on their purchasing power.
For example, a customer whose basic need is surfing over the Internet may opt for a simple computer; whereas, a software engineer may need a high configuration computer. Therefore, when the level of need increases then the level of product also increases.
Product – Features of a Product
Products are tangible in nature, customers can touch, seen or feel a products. For example, car, book, computer etc.
ii. Intangible Attributes:
Service products are intangible in nature, services like, consultancy, banking, insurance etc. The product may be combination of both tangible and intangible attributes like restaurants, transportation, in case of a computer it is a tangible product, but when we will talk of its free service provided by dealer, then the product is not only a tangible item but also an intangible one.
iii. Associated Attributes:
The attributes associated with product may be, brand, packaging, warranty, guarantee, after sales services etc.
iv. Exchange Value:
Irrespective of the fact that whether the product is tangible or intangible, it should be capable of being exchanged between buyer and seller for a mutually agreed price.
v. Customer Satisfaction:
A product satisfies the customer needs and wants of customers, value of products is also determined by the level of satisfaction given by a product after purchase.
Product – Characteristics of Product
1. It can be a single commodity or a service; a group of commodities or a group of services; a product service combination, or even a combination of several products and services.
2. Its meaning is determined by the needs and desires of the consumer. The purpose of a product is to satisfy some need of the consumers. The buyers purchase problem-solving and time for creativity when they purchase a computer system.
3. It may be durable such as those that are expected to deliver a stream of satisfaction over a period of time,
4. Products may be luxuries which might be needed as a symbol of prestige and status such as car, a well- furnished bungalow in a posh colony or necessities which are needed to keep the body and soul together, such as bread, milk, sugar, etc.
5. It may be an agricultural, mineral, forest or semi-manufactured or manufactured product.
The product mix is a combination of products manufactured or sold by the same organization. Generally companies offer an assortment of related or unrelated products to the markets instead of focusing on a single product to strengthen their presence in the market and increase profitability.
Smaller or medium firms usually offer products that are related to each other while bigger ones go for large scale diversification.
For example- Ayur Herbals, a comparatively smaller enterprise basically deals with cosmetics and beauty products while giants like Reliance group and Tata industries have their presence in varied fields like telecom, processed food, consumer goods, etc. Dealing with multiple products enables a firm to expand its customer base and spread risk among its various offerings. The product mix includes both product lines and product items.
(i) Product Line:
Product line is a group of products that are closely related either because they satisfy a class of need, or used together, are sold to the same customer group, are marketed through the same types of outlets, or fall within given price ranges or that are considered a unit because of marketing, technical, or end-use considerations. For example, The Sunsilk range of shampoos and conditioners constitute a product line.
(ii) Product Item:
It is a distinct unit within the product line that is separate from others on basis of colour, size, price or other attributes. For example, Sunsilk Thick and Long shampoo is a product unit distinguishable from other items in the product range.
Width of the product mix means the number of different product lines found within the company. Thus, breadth is measured by the number of product lines carried. For example, Bajaj group has a number of subsidiaries under it producing bulbs, fluorescent lights, mixers and grinders, toasters, motorcycles, pressure cookers and a host of other products.
Depth of the product mix refers to the average number of items offered by the company within each product line. It is measured by assortment of sizes, colours, models, prices and quality offered within each product line. For instance, Hindustan Unilever offers a number of variants like Lux Fresh Splash, Strawberry and cream, Peach and cream, Sandal and cream, etc. within the product line Lux soaps.
The consistency of product mix points out how closely related the various product lines are in terms of consumer behaviour, production requirements, distribution channels or in some other way. For example, the products produced by the General Electric Company have an overall consistency in that most products involve electricity in one way or the other.
According to Kotler, all three dimensions of product mix have a market rationale. By increasing the width of the product mix the company hopes to capitalise on its good reputation and skills in present markets.
By increasing the depth of its product mix, the company hopes to entice the patronage of buyers of widely differing tastes and needs. By increasing the consistency of its product mix, the company hopes to acquire an unparalleled reputation in a particular area of endeavour.
Product – Types of New Products
Business firms always try to find new market by innovation and research they create new products to satisfy the changing demand of customers. We can see new products especially in the field of electronic and computer.
Booz, Allen and Hamilton have identified six categories of new products:
(i) New-to-the-World Products:
New-to-the-world products are innovative products that create an entirely new market, like water purifiers.
(ii) New Product Lines:
New products that allow a company to enter an established market like LCD television.
(iii) Additions to Existing Product Lines:
New products that supplement a company’s established product lines like Fair and Lovely for men.
(iv) Improvements and Revisions of Existing Products:
New products that provide improved performance or greater perceived value and replace existing products, examples are books and software.
Existing products that are targeted to new markets or market segments, this is beneficial in expansion of market.
(vi) Price Differentiation:
Sometimes due to increasing competition in the market, the manufacturers have to offer the product with same features and functions but at lower price.
It is a core need that underlies the existence of a product family. These products satisfy a core need of the group of people or of an individual. They are called products from the “Need Family”. Eg. Hunger is core need which is satisfied by food.
These consist of all the product classes that can satisfy a core need with reasonable effectiveness. It comprises of varieties of product within this group, which compete with one another to satisfy the same need. These are ‘family of products satisfying the same need’. Eg. Fast foods, Snacks, Veg. Thali, etc.
c. Product Class:
It is a group of products within the product family recognized as having a certain functional coherence. A group of products, within this family of products, having similar characteristics are labelled as product class or product category. Eg. Fast Foods.
d. Product Line:
It is a group of products within a product class which are closely related to each other since they perform a similar function, are sold to the same customer groups, are marketed through the same outlets or channels, or fall within the given price ranges. A product line may consist of different brands, or a single family brand, or individual brand that has been line extended. Eg. Burgers, Pizzas, etc.
e. Product Type:
It is a group of items within a product line that encompasses one of several possible forms of the product. Eg. Chicken burger.
f. Item (Stock Keeping Unit or Product Variant):
It is a distinct unit within a brand or product line which is distinguishable by size, shape, price, appearance, or some other attribute. Eg. Burger King’s Jumbo Chicken burger.
Product – Levels of Product
The needs of customers vary according to their economic conditions and social situations. As customers grow economically, they require enhanced products that can satisfy their current needs. The organizations address the varied needs of customers by producing a same product at different levels. Each level adds some valuable features in a product. For example, mobile phones come with different features and functions to satisfy the varied needs of customers.
If a customer wishes to use mobile phone only for communication purposes, he/she can buy a very simple mobile phone. However, if the customer wishes to use mobile phone for communication, business and entertainment purposes, he/she can buy the mobile phone with additional features.
Now, let us discuss the different levels of a product in brief:
i. Core Product:
It includes the key feature of a product. It forms the basis for other product offering levels. For example, the key feature of a car is to travel from one place to another. Therefore, a simple and small car with no additional features is a core product.
ii. Basic Product:
It includes some added benefits along with the basic feature of a product. For example, a clean and spacious car is the basic product.
iii. Expected Product:
It refers to a product that is desired by customers. It varies from individual to individual depending on other factors, such as social class. For example, a customer buying a car may expect an air conditioner and music system in it.
iv. Augmented Product:
It includes additional attributes of a product as compared to products offered by competitors. The additional benefits satisfy rational customers more in terms of value. For example, a car may have special in-built features, such as LCD TV or refrigerator.
v. Potential Product:
It compares the benefit derived from the product in future with the current product. It creates a value for customers beyond their expectations. For example, a high technology gadget car with good ambience and comfort is a potential product.
Changes in design are largely dictated by whether they would improve the prospects of greater sales, and this, over the accompanying costs. Changes in design are also subject to cultural pressures. The more culture-bound the product is, for example food, the more adaptation is necessary. Most products fall in between the spectrum of “standardization” to “adaptation” extremes.
The application the product is put to also affect the design. In the UK, railway engines were designed from the outset to be sophisticated because of the degree of competition, but in the US this was not the case. In order to burn the abundant wood and move the prairie debris, large smoke stacks and cowcatchers were necessary.
In agricultural implements a mechanised cultivator may be a convenience item in a UK garden, but in India and Africa it may be essential equipment. “Perceptions” of the product’s benefits may also dictate the design. A refrigerator in Africa is a very necessary and functional item, kept in the kitchen or the bar. In Mexico, the same item is a status symbol and, therefore, kept in the living room.
Factors encouraging standardization are:
(i) Economies of scale in production and marketing
(ii) Consumer mobility – The more consumer’s travel the more is the demand
(iv) Image, for example “Japanese”, “made in”.
The latter can be a factor both to aid or to hinder global marketing development. Nagashima (1977) found the “made in USA” image has lost ground to the “made in Japan” image. In some cases “foreign made” gives advantage over domestic products. In Zimbabwe one sees many advertisements for “imported”, which gives the product advertised a perceived advantage over domestic products.
Often a price premium is charged to reinforce the “imported means quality” image. If the foreign source is negative in effect, attempts are made to disguise or hide the fact through, say, packaging or labelling. Mexicans are loathe to take products from Brazil. By putting a “made in elsewhere” label on the product this can be overcome, provided the products are manufactured elsewhere even though its company maybe Brazilian.
Factors encouraging adaptation are:
(i) Differing Usage Conditions:
These may be due to climate, skills, level of literacy, culture or physical conditions. Maize, for example, would never sell in Europe rolled and milled as in Africa. It is only eaten whole, on or off the cob. In Zimbabwe, kapenta fish can be used as a relish, but wilt always be eaten as a “starter” to a meal in the developed countries.
(ii) General Market Factors:
Incomes, tastes etc. Canned asparagus may be very affordable in the developed world, but may not sell well in the developing world.
Taxation, import quotas, non-tariff barriers, labelling, health requirements. Non-tariff barriers are an attempt, despite their supposed impartiality, at restricting or eliminating competition. A good example of this is the Florida tomato growers, who successfully got the US Department of Agriculture to issue regulations establishing a minimum size of tomatoes marketed in the United States.
The effect of this was to eliminate the Mexican tomato industry which grew a tomato that fell under the minimum size specified. Some non-tariff barriers may be legitimate attempts to protect the consumer, for example the ever stricter restrictions on horticultural produce insecticides and pesticides use may cause African growers a headache, but they are deemed to be for the public good.
Sometimes, as a result of colonialism, production facilities have been established overseas. Eastern and Southern Africa is littered with examples. In Kenya, the tea industry is a colonial legacy, as is the sugar industry of Zimbabwe and the coffee industry of Malawi. These facilities have long been adapted to local conditions.
(v) Financial Considerations:
In order to maximise sales or profits the organization may have no choice but to adapt its products to local conditions.
Sometimes, as in the case of the EU, suppliers are forced to adapt to the rules and regulations imposed on them if they wish to enter into the market.
Decisions regarding the product, price, promotion and distribution channels are decisions on the elements of the “marketing mix”. It can be argued that product decisions are probably the most crucial as the product is the very epitome of marketing planning. Errors in product decisions are legion.
These can include the imposition of a global standardised product where it is inapplicable, for example large horsepower tractors may be totally unsuitable for areas where small scale farming exists and where incomes are low; devolving decisions to affiliated countries which may let quality slip; and the attempt to sell products into a country without cognisance of cultural adaptation needs.
The decision whether to sell globally standardised or adapted products is too simplistic for today’s market place. Many product decisions lie between these two extremes. Cognisance has also to be taken of the stage in the international life cycle, the organization’s own product portfolio, its strengths and weaknesses and its global objectives.
Unfortunately, most developing, countries are in no position to compete on the world stage with many manufactured value-added products. Quality, or lack of it, is often the major letdown. Most developing countries are likely to be exporting raw materials or basic and high value agricultural produce for some time to come.
Product – Elements of Production Decisions
In decisions on producing or providing products and services in the international market it is essential that the production of the product or service is well planned and coordinated, both within and with other functional area of the firm, particularly marketing.
For example, in horticulture, it is essential that any supplier or any of his “out grower” (sub-contractor) can supply what he says he can. This is especially vital when contracts for supply are finalised, as failure to supply could incur large penalties. The main elements to consider are the production process itself, specifications, culture, the physical product, packaging, labelling, branding, warranty and service.
The key question is, can we ensure continuity of supply? In manufactured products this may include decisions on the type of manufacturing process – artisanal, job, batch, flow line or group technology. However in many agricultural commodities factors like seasonality, perishability and supply and demand have to be taken into consideration.
Quantity and quality of horticultural crops are affected by a number of things. These include input supplies (or lack of them), finance and credit availability, variety (choice), sowing dates, product range and investment advice. Many of these items will be catered for in the contract of supply.
Specification is very important in agricultural products. Some markets will not take produce unless it is within their specification. Specifications are often set by the customer, but agents, standard authorities (like the EU or ITC Geneva) and trade associations can be useful sources.
Quality requirements often vary considerably. In the Middle East, red apples are preferred over green apples. In one example French red apples, well boxed, are sold at 55 dinars per box, whilst not so attractive Iranian greens are sold for 28 dinars per box. In export the quality standards are set by the importer. In Africa, Maritim (1991), found, generally, that there are no consistent standards for product quality and grading, making it difficult to do international trade regionally.
Product packaging, labeling, physical characteristics and marketing have to adapt to the cultural requirements when necessary. Religion, values, aesthetics, language and material culture all affect production decisions.
The physical product is made up of a variety of elements. These elements include the physical product and the subjective image of the product. Consumers are looking for benefits and these must be conveyed in the total product package.
Physical characteristics include range, shape, size, color, quality, quantity and compatibility. Subjective attributes are determined by advertising, self-image, labelling and packaging. In manufacturing or selling produce, cognisance has to be taken of cost and country legal requirements.
Again a number of these characteristics is governed by the customer or agent. For example, in beef products sold to the EU there are very strict quality requirements to be observed. In fish products, the Japanese demand more “exotic” types than, say, would be sold in the UK.
None of the dried fish products produced by the Zambians on Lake Kariba, and sold into the Lusaka market, would ever pass the hygiene laws if sold internationally. In sophisticated markets like seeds, the variety and range is so large that constant watch has to be kept on the new strains and varieties in order to be competitive.
Packaging serves many purposes. It protects the product from damage which could be incurred in handling and transportation and also has a promotional aspect. It can be very expensive. Size, unit type, weight and volume are very important in packaging. For aircraft cargo the package needs to be light but strong, for sea cargo containers are often the best form.
The customer may also decide the best form of packaging. In horticultural produce, the developed countries often demand blister packs for mangetouts, beans, strawberries and so on, whilst for products like pineapples a sea container may suffice. Costs of packaging have always to be weighed against the advantage gained by it.
Increasingly, environmental aspects are coming into play. Packaging which is non-degradable plastic, for example is less in demanded. Biodegradable, recyclable, reusable packaging is now the order of the day. This can be both expensive and demanding for many developing countries.
Labelling not only serves to express the contents of the product, but may be promotional (symbols for example Cashel Valley Zimbabwe; HJ Heinz, Africafe, Tanzania). The EU is now putting very stringent regulations in force on labelling, even to the degree that the pesticides and insecticides used on horticultural produce have to be listed.
This could be very demanding for producers, especially small scale, ones where production techniques may not be standardised. Government labelling regulations vary from country to country. Bar codes are not widespread in Africa, but do assist in stock control.
Labels may have to be multilingual, especially if the product is a world brand. Translation could be a problem with many words being translated with difficulty. Again labelling is expensive, and in promotion terms nonstandard labels are more expensive than standard ones. Requirements for crate labelling, etc. for international transportation will be dealt with later under documentation.
The entire product development process is characterized by a number of factors which complicate its conduct. The first is that all functional units of the enterprise are involved at various points, and many of them throughout the entire process. They must be carefully mobilized and their natural resistance to cooperative action overcomes.
Second, many different types of activity must be carried on concurrently. Practically all of these are necessary prerequisites to later activities. Thus, there is an acute problem of timing, requiring the establishment of target dates and follow-up to determine progress.
For products that require a substantial amount of technical research and development work, the period from the original concept of the idea until commercialization is typically five to ten years.
Third, is the need for several check points at which the project is considered in all of its aspects, and decisions are reached—whether it should be abandoned, put on the shelf, or continued at a given rate of work?
There is no magic number of such points, although the most obvious occur at:
1. Preliminary screening of new-product ideas.
2. The time substantial amounts of expenditures are authorized for research and development.
3. Authorization for prototype manufacture and market or use testing.
4. The decision regarding full-scale manufacture and marketing.
The process of reviewing the project in its manifold technical and economic aspects at each of these check points becomes increasingly more detailed and thorough as larger and larger amounts of company resources must be committed by decisions to continue it.
Fourth, new products that are quite similar to the present line in production and selling characteristics will not require a process of development so elaborate or as long as those that are more alien to the established knowledge and know-how of the company organization.
The nature of these complicating factors indicates the desirability of systematizing the search for new products. While the appropriate elements of a product development system would vary from one firm to another, certain activities are basic to the process itself.
These include at least the following phases:
1. Generating new-product ideas.
2. Preliminary appraisal of new product ideas and selection of projects.
3. Product and market research.
4. Process research.
5. Prototype testing in production and marketing.
With the exception of the second step, the appraisals that are likely to be made near the end of one phase and the beginning of the next have been omitted.
1. Generating New-Product Ideas:
It is almost a truism that new product ideas should match the capabilities of the enterprise and be generated in sufficient number to present a real choice of opportunities. Both internal and external sources should be consulted.
a. Internal Sources:
Stimulating a flow of ideas internally is largely a matter of gaining and holding the interest of groups in the organization. One means of doing this is to provide adequate machinery for prompt acknowledgement, review, and decision regarding new-product ideas submitted by insiders.
Delay in acting on such ideas is apt to be interpreted as lack of interest on the part of management and can dampen creative effort. Financial rewards can also be effective in generating ideas, particularly if they are offered promptly.
Some of the more obvious internal sources of new-product ideas are:
i. Research and Development Departments:
For companies large enough to support them, R&D departments are usually fruitful sources of new-product ideas. As a rule, research personnel are very imaginative and accustomed to working with new concepts.
Although they are not always fully aware of the commercial requirements of new products, this limitation can be met in part through the efforts of the research director to create in his staff an understanding of cost and profit problems.
An important characteristic of research personnel as a source is that they are typically thinking ahead to future technology and are not likely to be influenced by current industrial practices.
In addition to ideas that may spring from an R & D department, an active program of research inevitably produces many “spin-off” products not included in the primary research objectives.
When research directed to a certain end turns up new-product ideas not contemplated in its original purpose, they are usually shelved for reexamination at a future time. Too often, they are forgotten.
These by-products of research frequently represent promising opportunities, either for development by the company or for sale or license to other firms. One chemical company found it very worthwhile to review the new-product projects it had placed on the shelf (because they did not fit company needs closely enough), and through license arrangements or sale, to exploit these properties and derive some income from them.
ii. Technical Service Staffs:
Technical service personnel are usually a good source of product ideas due to their close contact with the problems of applying company products to customer needs. Service personnel frequently specialize by customer industry and thus have an intimate knowledge of their changing needs. Dealing with complaints about the technical characteristics or performance of products often suggests new- product ideas.
Without proper encouragement, though, technical service men are likely to be interested only in improvements to present products rather than in new products. While the former are important, it is the latter which offers the greatest new business potential.
iii. Company Salesmen:
A salesman often displays the same tendency to relate ideas primarily to present products as do technical service personnel. However, a salesman is in a particularly good position to discover opportunities for new products because of his day-to-day contact with customers and his familiarity with competitive products.
If he is alert and has the right kind of contacts with influential managers inside the customer firm, he may be able to identify the direction of customer research and development. This provides important clues to the types of materials and equipment they are likely to need in the future.
The value of the industrial sales force as a source of new-product ideas depends in part on the marketing channels used by the company. If sales flow mainly through distributor channels, these provide a sort of insulation between user and company with regard to detailed knowledge of the user’s needs and desires.
Even in this case, however, an alert sales force will maintain close contact with the most important customers of distributors and will attempt to keep in close touch with distributors and their salesmen about the problems and conditions of product use.
iv. Executive Personnel:
Executives in sales, production, research, and general management have an intimate view of the needs and probable future course of the company. They represent a source of ideas that should be consistent with company capabilities and potential.
Some of them are likely to possess an intuitive sense of profit opportunities and of the proper timing for maximum exploitation of them. In addition, they are apt to have access to the high-level trade grapevines that often carry surprisingly accurate news about the product planning and development activities of customers and competitors.
v. Company Sales Records:
Analyses of company sales results by product lines and by items is useful in indicating the need for redesign of some products and the approaching obsolescence of others, as well as the types of products that have won strong buyer acceptance.
vi. Company Patent Departments:
Personnel staffing patent departments should not be overlooked as sources of new-product ideas. They are trained to think in terms of new products. For the alert, motivated employee, patent searches as well as the writing of patent descriptions can generate new-product ideas.
b. External Sources:
A variety of sources of new-product ideas may be found outside the company. The most common are probably competitors, free-lance inventors, and trade literature.
Successful competitors can often be a source of valuable clues concerning the number of items or models which should be included in the product line. The concept of a full line is somewhat difficult to define. While it is often desirable to sell more than a single product or a single product line, the point of diminishing returns is difficult to identify.
The number of product lines and the breadth of these lines that competitors are selling successfully may serve as a crude yardstick in determining the product mix that is best for one’s own company. If new products are called for, the general nature of these products is already outlined by competitors.
ii. Free-Lance Inventors:
Although not the important source of new- product opportunities they once were, free-lance inventors are still credited with some important product innovations. Business men will not soon forget C. F. Carlson’s copying machine or Edwin Land’s camera. Both men were turned down by blue-chip companies and forced to form their own enterprises—Xerox and Polaroid.
iii. Trade Literature:
Literature searches, both in United States publications and those of foreign countries, have proved fruitful for some companies. In a number of instances, equipment developed in foreign countries has later appeared in the United States through import channels.
The practice of following foreign technical literature enabled one domestic company to develop similar equipment and have it on sale in this country before imports appeared.
iv. Other Outside Sources:
These include professional society meetings, trade shows, exhibits, government research programs, university research programs, and consulting organizations. The problem in using such sources is how to tap them without an excessive expenditure of time and energy.
2. Preliminary Appraisal:
This phase has two major purposes. The first is to eliminate ideas that are clearly unworthy of further consideration. The second is to select from among the remainder those with enough promise to warrant exploratory work by technical research.
Great reliance is usually placed on the experience and judgment of executives in conducting the screening process. Because of the multiplicity of issues which affect the desirability of pursuing any specific new-product idea, it is often useful to develop a checklist of questions to be answered.
Checklists are no substitute for analysis, but they have the merit of preventing the omission of vital questions in the heat of pursuing what initially appears to be an exciting idea. If the company product mix is fairly homogeneous, one such list may serve the purpose; if not, it may be necessary to have more than one.
Although it is essential that the entire range of conditions influencing the success of an idea be considered, it is not necessary that detailed information about each be available at this time. The emphasis, rather, is on detecting negative issues that might suggest abandonment of the idea.
Major considerations in the appraisal of a new-product idea usually include expected profit potential, the competitive situation, the general adaptability of the company to the new product, and the scale of investment that would be necessary in relation to the funds the company has available.
Marketing considerations include the approximate size of the market, the trends operating within it, marketing methods that would be necessary for successful sale, price structures, and so forth.
Many new-product ideas involve problems of technical design. Thus, it becomes necessary to judge the technical feasibility of the idea and estimate the likelihood of success in solving technical problems.
Production considerations also enter in the form of the nature of production facilities required, approximate costs of production, availability of materials, and continuity of their supply. At times, legal considerations also enter, both as to the patent situation and as to hazards that may accompany customer use of the product.
Several firms have attempted to develop formulas to use as tools in making new-product decisions. A critical total score was worked out by applying the formula in retrospect to a number of products the company had introduced and comparing scores with actual performance.
Such a formula assures that all the factors generally significant in a new-product decision are considered in a systematic, uniform manner. But its use has dangers. When men have a formula, they tend to quit thinking. Any new-product idea may have one feature that outweighs all others and that is not general in the sense that few other ideas, or none, have it.
A formula is apt to be disastrous if used by a committee or staff group composed entirely of conformists. It may work well for a group that contains one or more highly vocal people who always look for the unusual in every situation.
3. Product and Market Research:
This phase includes the technical, economic, and market research carried on after an idea has been selected as a project after the preliminary appraisal. The amount of technical research necessary will vary greatly, depending on the difficulties involved in achieving a satisfactory product. The more similar the new product is to those currently being manufactured, the less likely is the need for significant amounts of technical work.
During this phase, the physical properties of the new product are determined, small quantities are prepared in the laboratory, research on possible uses is initiated, preliminary work on patents starts, and preliminary estimates of production costs are made.
Some industrial products, especially materials and supplies, lend themselves to limited field distribution of sample quantities, and thus permit preliminary evaluation of their suitability to the needs of selected customers.
It is usually advisable to prepare a study of the economic possibilities of the new product at this time which would seek answers to such questions as:
a. What is the precise market or segment of the market in which the new product promises the greatest benefit to users?
b. How much effort will be needed to generate an acceptable revenue, and how much will it cost?
c. How much new investment must customers make in order to use the new product?
d. How much change must customer firms make in their present production techniques and routines to use it?
e. Have customers got the technical and application skills needed to use the new product?
f. How many people in the typical customer firm must be convinced before a sale can be made and how hard are they to reach?
g. How solid are relations between the typical customer and his present supplier?
h. What buying motivation can we offer the customer, such as reduction in cost, an increase in attractiveness and volume of the end product, or possible increase in its price?
i. What risks will the user of the new product incur?
j. How fast will any information we may supply permeate the typical customer firm?
k. Are there any built-in customer roadblocks to trying or adopting the new product?
4. Process Research:
In point of time, this phase may overlap the preceding one as the technical group begins to investigate the most feasible way of producing the new product and developing information needed for patent application.
The best way to test various manufacturing techniques may be to build a pilot plant and produce the product in small quantities. Quality control problems are also investigated during this phase.
5. Prototype Testing:
With modest amounts of the product available, market development personnel can begin field testing with a selected group of customers who agree to cooperate, often in return for assurances of preferential treatment if the product proves satisfactory.
All information gathered from field evaluations is relayed back to the technical group who review it for clues to possible flaws in product design.
During this phase there is often a review by an appropriate executive committee which makes recommendations concerning the future disposition of the project. These are based on the results of research completed together with relevant marketing and economic data.
Further research might be recommended if information seems inadequate, further technical work might be authorized if serious product defects have been discovered, or the project might be abandoned.
If continuance of the project is recommended, larger field tests would be undertaken that would more nearly approximate conditions of actual marketing. The regular sales organization would begin familiarizing its members with the product, and promotional strategy would be worked out along with decisions concerning selling methods. It also would be necessary about this time to choose a brand name for the product and determine package design.
The makers of certain kinds of industrial materials and equipment face legal hurdles in introducing new products. For example, before the producer of a chemical used in medicines can market it, he must gain approval of the Food and Drug Administration by supplying evidence that it will do what he says it will do, and will have no more than allowable toxic side effects. In order to gain clearance, he must submit the results of approved independent clinical tests to satisfy the Administration.
This requirement has both good and bad effects on the manufacturer’s marketing activities:
i. It delays the introduction of the product. Not only does it take a long time to complete clinical tests, but after they are submitted the manufacturer must await completion of any supplementary tests the Administration decides to make and the slow unwinding of its bureaucratic red tape, which is further delayed by chronic undermanning due to the niggardly policy of Congress in dealing with its budget.
ii. The conduct of such clinical tests and presentation of their results in a form that suits the needs of the Administration is an art in itself.
iii. The timing of the Administration’s release may bear no relation to the ebb and flow of demand. Many diseases are seasonal, and the release of a product at the end of the season may lose the maker a whole year in its introduction to the market.
Nor can the time of release be forecast with any accuracy. So marketing plans must be prepared in detail and then held in abeyance, often to become outdated before they can be put into effect.
iv. On the other hand, once the Administration issues a release, this in itself goes far to assure users that the product will do what is claimed for it, and thus materially eases the marketing task.
The maker of a food additive must have a release from the Administration, showing that its use will have no dangerous toxic effects on the people who consume the end products containing it.
The manufacturer of a plant protective material, or one designed to cure or prevent diseases of animals or fowl, or to stimulate the growth of animals, poultry, or plants must obtain such a release, assuring that no toxic residue remains in the meat, milk, eggs, fruits, or vegetables when prepared for human consumption.
This requirement adds all the handicaps in connection with medicinal materials, but does not establish that the product will do what it is designed to do. It constitutes merely a manufacturer’s hunting license to try to capture sales, and affords no particular help in doing so.
Aside from the benefits of the Administration’s work in protecting the public health, most manufacturers of such materials welcome these restrictions because they tend to preclude irresponsible producers from plaguing them with a type of competition very difficult to combat.
The makers of many kinds of building materials and equipment must see to it that the safety and fire-resisting properties of their products meet the requirements of the Board of Fire Underwriters and the local building codes. Since the codes differ from city to city, meeting their standards may be very cumbersome, time-consuming, and expensive.
A considerable amount of information is available regarding the new product as a result of prototype testing. Firm estimates of full-scale production costs, probable product uses, buyer reaction to prices, market potential, and other results of market evaluation tests are at hand. With this data one can predict the time required to recover development costs and the rate of return the product can be expected to earn on the funds invested in it.
If the results look impressive when compared to alternative investment opportunities, a recommendation for approval will probably be forwarded to top management for final action. This is the point at which large sums of money are committed to the manufacturing and marketing of the product.
New products approved for commercialization enter the final phase of the development process. During the period required to get into full- scale production various activities, such as package design, promotional literature, and advertising copy can be completed.
Depending on the similarity of the new product to present products and its estimated market potential, it might be assigned to an existing division, to a new division specifically established for it, or to a new enterprise owned wholly or partially by the developing company.
Conditions which appear to exert a major influence on the product- mix decision are:
Comparatively little industrial research is basic in the sense that it is directed to the discovery of new principles or knowledge. By far the greatest industrial use of research and development is in the application of existing knowledge to the development of new products and processes or the improvement of existing ones.
The rate of technological change is accelerating, and technical research is unquestionably the most basic force affecting the product mix of the individual company.
A second important determinant of a firm’s product mix is changes in competitors’ product offerings. Closely related is the introduction of competitive products by companies not now considered to be competitors.
This has happened increasingly in recent years, with the growing tendency of industrial firms to enlarge their product mixes to include product lines in fields and markets not previously served.
Changes in competitive products represent a direct challenge to a company, and if the change is a truly significant improvement, it may prove disastrous unless it can be matched or surpassed within a reasonable length of time.
This matter of the time element explains why firms seemingly in a solid product position spend large sums on research to discover new products that render their present ones obsolete. When asked why his firm was doing this, one chief executive replied, ‘If we don’t, someone else will.”
In addition to changes in their product designs, competitors may make changes in their overall product mix and put a rival at a competitive disadvantage. There are important forces favoring a product mix of considerable breadth. Broadening product lines may be a real advantage in distributor relations and in lowering selling costs.
The number of competitors may change. An increase in numbers is likely to result in keener competition and lowered profit margins. Significant increases in numbers of competitors are especially likely in industries where the capital investment necessary for entry is modest.
In such situations, a product that enjoys a rapid increase in sales is likely to attract many new entrants into the field, some of whom will not survive the period of consolidation, or “shakeout,” as it is sometimes called.
In industries that require large investment, increases in the number of competitors are less dramatic. When they occur, the new competitors tend to reach for volume by cutting price, which reduces both the dollar sales and the gross profit rate of the original innovator.
The result is that as soon as a firm introduces a new product on the market, it starts research to improve it and to find other new products to replace it when competition develops.
Another important factor influencing a marketer’s product mix is underutilized capacity. Since production facilities are usually composed of complexes of interrelated machines, changes in production capacity can rarely be made in small increments.
When demand outruns existing facilities and a new equipment complex is brought on line, there may be a period in which it is not totally utilized in satisfying existing demand.
In such situations it is very common for management to be under pressure to find new products which the equipment can make. Similarly, when a marketing organization is established to serve a particular territory for a given product line, it often becomes apparent that salesmen could handle other lines as well, and pressure is generated to find other products they can sell profitably.
It is well known that many profitable firms do not pay out all their profits in dividends. Retained earnings become part of the firm’s capital structure and must be invested. New products are one of the investment opportunities into which underutilized funds are often channeled.
Many manufacturing processes involve by-products which must either be used internally, marketed, or disposed of as waste. Growing concern with industrial wastes may be expected to stimulate greater efforts than in the past to turn them into products which can either be used internally or marketed. The latter instance, of course, leads to an expansion of the product mix.
4. Market Factors:
Although declines in demand are disturbing to management and may result in an expansion of the product mix in an effort to replace lost business, upward changes are also of significance. Management’s responsibility is to capitalize as fully as possible on expanding product fields just as much as it is to meet the challenge of declining markets.
These changes in demand are of various types:
i. Shifts in Customer’s Product Mix:
Goods which enter into customers’ products such as parts and components are vulnerable to changes in the product lines manufactured by customers. If the customer is himself an industrial goods producer selling to other industries, his shift may be triggered by changes his customers have found necessary. Depending on the direction of change, pressure for an expansion or contraction of his own product mix is apt to result.
In addition to the product demand shifts brought about by customers’ changes in product line design to meet their own customer needs, some regular customers may engage in diversification programs that expand their product mix.
This offers opportunities for the sale of additional quantities or for modification of the seller’s product mix to capitalize on additional business available from them. Since diversification programs often grow out of a decline in business or the fear of a future decline, there may well be concurrent drops in normal demand.
ii. Changes in Availability or Cost:
A material or part used in making an end product may become scarce or its price may go up so as to distort the competitive relationships in either the component or the end product market. This necessitates product modification by the firm supplying the components and by consequence alters its mix of products.
iii. Changes in Manufacturing Processes:
Manufacturers of special purpose machines are particularly vulnerable to changes in the manufacturing processes of their customers. A change in process can render their machines obsolete, forcing a constriction in the product mix.
iv. Shifts in Location of Customers:
Transportation costs are important for many types of industrial goods. These costs limit the geographical extent of the market that can be profitably served by an industrial marketer, and any shift of customers out of this market area can result in major declines in sales and the necessity for replacing this lost business with other products.
Sometimes migration of industry into the area economically served by a producer helps offset losses from outward migration. Some manufacturers, however, have been so closely tied to particular industries—for example, textiles—that large-scale migration becomes a death sentence unless the supplier also moves.
v. Changes in Levels of Business Activity:
Nearly every producer faces some type of seasonal pattern of sales, and also is vulnerable in greater or less extent to major shifts in the level of general business. Some companies have extended their product mix by adding lines whose seasonal patterns offset those of their present lines, and thus have obtained a reasonably even rate of total production and sales activity throughout the year. This consideration also applies to distributors who may feel the need for a product mix that evens out seasonal fluctuations.
In somewhat similar fashion, some companies have sought to add product lines less sensitive to business-cycle fluctuations than are their existing ones. Many manufacturers of machinery, particularly in the major equipment groups, are concerned about their sensitivity to cyclical drops in demand and would like to meet this drop through diversification, Cyclical fluctuations are often of the rolling type in that demand does not decline in all industries at the same time.
When this happens, a supplier who diversifies to sell to a number of industries may diminish the sharpness and extent of the decline in his sales volume.
In addition to changes in general business activity, there may be variations in local or regional markets or in individual industries.
vi. Government Controls:
The last several decades have been a period of war and general tension in international relations. It seems certain that for many years in the future there will be a high level of government spending for national defense, coupled with the possibility of limited scale military action.
Under such conditions, certain materials are of great strategic importance, and the government may take steps to limit their use for civilian purposes in order to manufacture military material or to build stockpiles.
Such government controls have widespread ramifications through industry, and tend to cause major changes in sales volume for particular product lines. When there is no possibility of substituting materials, little product action can be taken.
Frequently, however, such a tight material situation may encourage experimentation and research on substitute materials to perform the function. This leads to changes in product mix.
1. Central Point for All Marketing Activities:
Product is the foundation of all the marketing activities such as, selling, purchasing, advertisement, distribution, sale promotion, etc. It is the product which is the vehicle of profitability for the business.
2. Starting Point of Planning:
The starting point of any marketing programme is the product. Planning for all marketing activities such as distribution, price, sales promotion, advertising, etc. is made on the basis of the nature, quality and the demand for the product. Product policies decide all other policies.
3. Product is an End:
The main objective of all marketing activities is to satisfy the customers. Various policies and techniques are formulated to provide the customers benefits, utilities and satisfactions through the product. Thus, product is the means for satisfaction of customers. The producer must insist on the quality and functionality of the product so that it may satisfy the customer’s needs.
4. Product is Indispensable:
Product is a must for marketing activities. All marketing activities are done for the satisfaction of customer. The producers must know their customers and their needs. They should also know their product and its qualities.
The product must contain the qualities which can satisfy the customers, should make continuous and sincere efforts to know their product through marketing research and planning and to improve it wherever it is lacking.