1.
Define Product
Product is:
“…something that can be marketed to customers…provides a benefit and satisfies a need.”
Types of Product:
Tangible vs. Intangible
(Good) v. (Service)
2. Categories of Product Developments
New-to-the-market
New to the company
Improvement in an existing product
Extend existing product line
3. New-Product Development Process
Concept Marketing
Idea generation Idea screening development strategy
and testing development
Business Product
Test marketing Commercialization
analysis development
3.1. Idea generation
New idea generation is the systematic search for new product ideas.
To create a large number of ideas
Sources of new-product ideas
– Internal sources refer to the company’s own formal research and development, management and
staff, and intrapreneurial programs.
– External sources refer to sources outside the company such as customers, competitors, distributors,
suppliers, and outside design firms.
3.2. Idea screening
refers to reviewing new-product ideas in order to drop poor ones as soon as possible.
3.3. Concept Development and Testing
Product idea is an idea for a possible product that the company can see itself offering to the market.
Product concept is a detailed version of the idea stated in meaningful consumer terms.
Product image is the way consumers perceive an actual or potential product.
Concept testing refers to testing new-product concepts with groups of target consumers. To find out
how attractive each concept is to customers, and choose the best one.
3.4. Marketing Strategy Development
Marketing strategy development refers to the initial marketing strategy for introducing the product
to the market.
Marketing strategy statement:
Part 1:
◦ Description of the target market
◦ The planning product positioning; sales, market share, and profit goals
Part 2:
◦ Price distribution and budget
Part 3:
◦ Long-term sales, profit goals, and marketing mix strategy
3.5. Business Analysis
Business analysis involves a review of the sales, costs, and profit projections to find out whether
they satisfy the company’s objectives.
3.6. Product Development
Product development involves the creation and testing of one or more physical versions by the
R&D or engineering departments. - Requires an increase in investment
4. Product life cycle
The life of a product includes its time in development and the time it is in the market. It usually
consists of the following stages:
development;
introduction;
growth;
maturity;
saturation;
decline.
Describe the types of utility provided by a product
Form Utility : Changing raw materials into usable goods or putting parts together to make them
more useful
Place Utility : Having a product where customers can buy it
Time Utility : Having a product or service available at a certain time of year or a convenient
time of day
Possession Utility : The exchange of a product for money
Explain how to research an industry
Collect Competitive benchmarking information, like:
People in Similar Businesses
Potential customers
Published Industry Data
Warning : Sometimes the data contained in competitors’ catalogs and
supporting literature are not accurate. If possible, verify by independent
testing or observation.
5. Breakeven Analysis
Breakeven Analysis “…total sales
revenue must exactly equal all your
expenses (both variable and fixed).”
BEP calculation
• Computes the quantity of goods company needs to sell to cover its costs
QBE = F/ (SP - VC)
• QBE : Break even quantity
• F : Fixed costs
• SP : selling price/unit
• VC : Variable cost
• Break-even analysis also includes calculating
• Total cost: in a sum of fixed and variable cost
Total cost = F + (VC)*Q
• Revenue: is an amount of money brought in from sales
Revenue = (SP) * Q
• Q: number of units sold
Example (Break-even calculation):
A company is planning to establish a chain of movie theaters. It estimates that
each new theater will cost approximately $1 Million. The theaters will hold 500
people and will have 4 showings each day with average ticket prices at $8. They
estimate that taxes will average $2 per patron. The variable costs in labor and
material are estimated to be $6 per patron. They will be open 300 days each year.
What must average occupancy be to break-even?
Break-even calculation: A company is planning to establish a chain of movie theaters. It estimates
that each new theater will cost approximately $1 Million. The theaters will hold 500 people and
will have 4 showings each day with average ticket prices at $8. They estimate that taxes will
average $2 per patron. The variable costs in labor and material are estimated to be $6 per patron.
They will be open 300 days each year. What must average occupancy be to break-even?
• Break-Even Point
Total revenues = Total costs @ break-even point Q
Selling price*Q = Fixed cost + variable cost*Q
($8+$2)Q= $1,000,000 + $6*Q
Q = 250,000 tickets
• What is the gross profit if they sell 300,000 tickets
Profit = Total Revenue – Total Costs
P = $10*300,000 – (1,000,000 + $6*300,000)
P = $1,200,000
• If taxes only average $.50/patron, what is break-even Q now? (sensitivity analysis)
($8.50) Q = 1,000,000 + $6*Q
Q = 400,000 tickets
Challenges of Product development
The challenges of product development are:
1. Trade-offs: An airplane can be made lighter, but this action will probably increase
manufacturing cost. One of the most difficult aspects of product development is recognizing,
understanding, and managing such trade-offs in a way that maximizes the success of the
product.
2. Dynamics: Technologies improve, customer preferences evolve, competitors introduce new
products, and the macroeconomic environment shifts. Decision making in an environment of
constant change is a formidable task.
3. Details: The choice between using screws or snap-fits on the enclosure of a computer can
have economic implications of millions of dollars. Developing a product of even modest
complexity may require thousands of such decisions.
4. Time pressure: Any one of these difficulties would be easily manageable by itself given
plenty of time, but product development decisions must usually be made quickly and without
complete information.
5. Economics: Developing, producing, and marketing a new product requires a large
investment. To earn a reasonable return on this investment, the resulting product must be both
appealing to customers and relatively inexpensive to produce.
