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Chapter 5 Industrial Product Strategy
www.dinhtienminh.net
DINH Tien Minh (Ph.D.) University of Economics HCMC
Objectives
product.
Understanding the meaning of an industrial
Know the factors influencing changes in product strategy. Learn product life-cycle theory and its applications. Understand steps involved in developing product strategies. Learn branding in business market.
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Content
5.1 Definition of an industrial product
5.3 Industrial product life-cycle and strategies
5.2 Changes in product strategy
5.4 Developing product strategies
5.5 Branding in Business Market
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Definition: The industrial product in defined not only as a physical entity, but also as a complex set of economic, technical, legal and personal relationship between the buyer and the seller.
Nguồn: Webster F.E., Jr., Industrial Marketing Strategy, John Wiley & Sons, 2nd edition, p.106.
5.1. Definition of an industrial product
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Example of an industrial product
5.1. Definition of an industrial product
relationships between itself and the
Personal suppliers.
Product: Moulded Case Circuit Breakers. Economical side: Price Technical side: Specifications Legal side: If the supplier delays delivery.
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5.1. Definition of an industrial product
From the customer’s point of view, a
product is a combination of :
Nguồn: Krishna K Havaldar (2010), Business Marketing, McGraw Hill, 3rd edition, p42
Basic properties are included in generic product made differentiable by adding tangible benefits. Enhanced properties such as product features, styling and quality. Augmented properties such as spare parts, maintenance, repair service, warranties…
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Technical assistance
Augmented Product
5.1. Definition of an industrial product
Features
Enhanced Product
Timely Delivery
Spare Parts
Fundamental Benefits
Generic Product
Quality
Styling
Maintenance
Payment term
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An industrial marketer should be aware of what constitutes a total product package in the mind of prospective customers (Tangible and Intangible Benefits)
5.1. Definition of an industrial product
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5.1. Definition of an industrial product
Example of an industrial product
Tangible benefits: Product quality (less noise,
Product: Diesel Engines.
simple or easy operation). Intangible benefits: Availability of Spare parts, Technical assistance, Training
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5.2. Changes in product strategy
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Factors demanding changes in product
5.2. Changes in product strategy (cont’)
strategy:
1. Customer’s
continuously needs: Monitor changes of customer’s needs and continue to satisfy by making changes in its products. Example: Increase of cost of
storing raw material, changed for vertical height in order to save space and money.
land used for the firm’s need have stacking from 2m to 6m
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5.2. Changes in product strategy (cont’)
Factors demanding changes in product
strategy (cont’):
2. Technology: The change of
technology can require either the product modification or make existing product obsolete.
Example: The jelly filled telecom cables are getting replaced by fiber optic telecom cables.
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Factors demanding changes in product
5.2. Changes in product strategy (cont’)
strategy (cont’):
3. Government’s policies or laws
Example: Government issues orders for banning the use of wood for window, door and partition frame and recommends the use of steel and aluminum frames to save natural in order environment.
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Factors demanding changes in product
5.2. Changes in product strategy (cont’)
strategy (cont’):
products 4. Change of PLC: In order to maintain growth in sales and profits, the industrial firms decide to drop, or modify, or develop new (substitute) products when reach existing “maturity” or “decline” stages in PLC.
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5.3. Industrial PLC and Strategies
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5.3. Industrial PLC and Strategies (cont’)
A General Model of the PLC
Slower rates
Sales and Profits
Industry Sales
Industry Profits
+
0
Time
_
Introduction
Decline
Growth
Maturity
Nguồn: Krishna K Havaldar (2010), Business Marketing, McGraw Hill, 3rd edition, p166.
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5.3. Industrial PLC and Strategies (cont’)
The PLC for High-tech products
Sales
Time
NPD
M
I&G
D
NPD = New Product Development cost and time are high I&G = Introduction and Growth period are long M = Maturity period is very short (rapid change in technology) D = Decline period
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Nguồn: Krishna K Havaldar (2010), Business Marketing, McGraw Hill, 3rd edition, p167.
5.3. Industrial PLC and Strategies (cont’)
The PLC for Commodity products
Sales
Time
The demand remains relatively inelastic, especially in monopolistic market. The sales does not experience a decline due to the absence of competition.
Nguồn: Krishna K Havaldar (2010), Business Marketing, McGraw Hill, 3rd edition, p167.
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Three factors affecting to the behavior of
5.3. Industrial PLC and Strategies (cont’)
the PLC:
Changing the needs of customers. Changes in technology. Changing competition.
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5.3. Industrial PLC and Strategies (cont’)
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5.3. Industrial PLC and Strategies (cont’)
Application of PLC theory to Marketing
strategies:
• Some products get accepted rapidly, the marketing intense
to meet
evolved
should
be
strategy competition.
• For slowly accepted product, marketing strategy should concentrate on market development efforts.
1. Introduction stage: What should we do?
Example: Hand-held electronic calculators replaced mechanical calculators in a very short time.
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Application of PLC theory to Marketing
5.3. Industrial PLC and Strategies (cont’)
strategies (cont’): 2. Growth stage: What will we do?
•
Improve product design (benefits, features to cover wider segments of the market). Improve distribution (stronger availability).
• • Reduce the price as increased volume of production
(economies of large scale).
Example: In India, with additional feature like camera and increased number of dealers, LCD projector prices were reduced.
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Application of PLC theory to Marketing
5.3. Industrial PLC and Strategies (cont’)
strategies (cont’):
• Enter new market.
• Keep the existing customers satisfied.
• Cut Marketing, production and other costs to maintain
profit margins.
3. Maturity/ Saturation stage: What should we think of?
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5.3. Industrial PLC and Strategies (cont’)
Application of PLC theory to Marketing
strategies (cont’):
• Withdraw the product from the market.
• Develop a substitute product.
• Reduce marketing and other expenses.
4. Decline stage: Price competition is more severe, the strategy adopted is to either:
Example: The decline tends to proceed rapidly since new technologies make established products obsolete .
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5.3. Industrial PLC and Strategies (cont’)
But how to locate industrial products in their life cycle?
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5.3. Industrial PLC and Strategies (cont’)
Locating Industrial Products in their Life Cycle:
Example: Trend of Motobike industry in VN
Step 1: Develop a trend analysis for the past three to five years based on information to be collected for an industrial firm for a product, on quantity and value of sales, profits, market share, number of competitors and prices.
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5.3. Industrial PLC and Strategies (cont’)
Locating Industrial Products in their Life Cycle:
Step 2: Analyze competitor’s market share, product performance, new product introduction, diversification or expansion plans. Step 3: Estimate sales and profits of the product over next three to five years. fix the Step 4: From the above analysis, product’s position on its life-cycle curve.
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5.4. Developing Product Strategies
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What are called new product?
5.4. Developing Product Strategies (cont’)
1. Innovative and new to the world. 2. New to the company, but not new to the market. 3. Revisions or improvements to the existing products in the existing markets. 4. Addition to the existing product lines with additional markets. 5. Repositioning existing product to new market segments.
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5.4. Developing Product Strategies (cont’)
New product development process:
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For the existing products, the following
5.4. Developing Product Strategies (cont’)
steps should be taken:
Step 1: Evaluate the performance of all
the existing products by using Product Evaluation Matrix (PEM).
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5.4. Developing Product Strategies (cont’)
Product Evaluation Matrix
Decline
Stable
Growth
Company Sales Profitability
Target
Target
Target
Below Target
Above Target
Below Target
Above Target
Below Target
Above Target
Market Share
Industry Sales
Dominant
S1
Competitor P
Growth
S
Marginal Average Dominant
Stable
Marginal Average Dominant
Decline
Marginal Average
Nguồn: Developed by Yoram Wind and Henry Claycamp – Krishna K Havaldar (2010), Business Marketing, McGraw Hill, 3rd edition, p170.
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5.4. Developing Product Strategies (cont’)
For the existing products, the following
steps should be taken:
company’s products the Step 2: By using Perceptual Mapping (PM) technique, examine the relative strengths and weaknesses of in comparison to competitors’ products.
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5.4. Developing Product Strategies (cont’)
Perceptual Mapping Technique
High quality
B
A1 New position
C
Weak services
Strong services
A
Old position
Low quality
Nguồn: Krishna K Havaldar (2010), Business Marketing, McGraw Hill, 3rd edition, p171.
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For the existing products, the following
5.4. Developing Product Strategies (cont’)
steps should be taken:
Maintain or continue the products and its strategies.
Modify the product and/or change the mkt strategies.
Eliminate or drop the product or the product line.
Add new products or new product lines
Step 3: Based on the above analysis, decide the product strategies:
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5.4. Developing Product Strategies (cont’)
Nguồn: Krishna K Havaldar (2010), Business Marketing, McGraw Hill, 3rd edition, p172.
Product Elimination Dropping the product or product line is one of the most controversial decisions because many stakeholders are threatened by this decision. A firm should therefore consider the following factors: -Is there a new product to replace the eliminated one? -Will the consumer relationships be affected? -Will the sales of other products get affected? -Will the company’s image be affected? -What will be the possible competitive reactions?
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5.5. Branding in Business Markets
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Definition:
5.5. Branding in Business Markets (con’t)
Krishna K Havaldar (2010), Business Marketing, McGraw Hill, 3rd edition, p172.
A brand is defined as a name, symbol, term, sign, design, or a combination of them, intended to identify the goods or services of one seller and differentiate them from those of competitors.
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5.5. Branding in Business Markets (cont’)
Definition:
Brand equity is the value of a well known brand.
requirements.
4. Less
likelihood
customers
switching
to
of competitors’ offerings.
Source: Krishna K Havaldar (2010), Business Marketing, McGraw Hill, 3rd edition, p172.
It’s measured by answering these questions: 1. Customers are willing to pay a higher price. 2. Customers take less time to decide the orders. 3. Customers give a higher share of their purchase
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5.5. Branding in Business Markets (cont’)
Brand Equity
1. Brand Awareness
2. Perceived Quality
5. Other Values
Brand Equity
