MKT420

TUTORIAL 6
(PRODUCT AND SERVICE STRATEGY)
(DEVELOPING NEW PRODUCTS AND MANAGING THE
PRODUCT LIFE CYCLE)

NAME : FADZLIN SYAFIQAH BINTI FAHIZAN

New product development is a task taken by the company to introduce newer products in the
market. Regularly there will arise a need in the business for new product development. By new
products we mean original products, product improvements, product modifications, and new
brands that the firm develops through its own product development. The new products are
important as they bring new solutions and variety to customers’ lives, and they are a key source
of growth for companies.

There are eight major stages in the new product development process. The first stage is idea
generation. Idea generation is basically involved in the systematic search for new product ideas.
A company has to generate many ideas in order to find one that is worth pursuing. The major
sources of new product ideas include internal sources and external sources. Using internal
sources, many companies give incentives to their employees to come up with workable ideas.
Companies can also obtain good new product ideas from any of a number of external sources
such as distributors, suppliers, competitors and customers. For example, sometimes reviews and
feedbacks from the customers or even their ideas can help companies generate new product
ideas.

The second stage in new product development is idea screening. Ideas can be many, but good
ideas are few. This second step of new product development involves finding those good and
feasible ideas and discarding those which aren’t. Many factors play a part here, these include
company’s strength and weakness, customer needs, ongoing trends, expected ROI, affordability
and others. These factors need to be considered carefully, to avoid product failure after
considerable investment down the line. One marketing expert describes an R-W-W (“real, win,
worth doing”) new product screening framework that asks three questions. First, Is it real?
Second, Can we win? Finally, Is it worth doing? The company should be able to answer yes to
all three R-W-W questions before developing the new product idea further.

The third stage in new product development is concept development and testing. An attractive
idea has to be developed into a product concept. As opposed to a product idea that is an idea for
a product that the company can see itself marketing to customers, a product concept is a detailed
version of the idea stated in meaningful consumer terms. This is different again from a product
image, which is the consumers’ perception of an actual or potential product. Once the concepts
are developed, these need to be tested with consumers either symbolically or physically. For
some concept tests, a word or a picture may be sufficient, however, a physical presentation will
increase the reliability of the concept test. After being exposed to the concept, consumers are
asked to respond to it by answering a set of questions designed to help the company decide
which concept has the strongest appeal. The company can then project these findings to the full
market to estimate sales volume.

Next, marketing strategy development is the fourth stage. Marketing strategy development is
designing an initial marketing strategy for a new product based on the product concept. The
strategy statement consists of three parts. The first part describes the target market, the planned
product positioning and the sales, market share and profit goals for the first few years. The
second part outlines the product’s planned price, distribution, and marketing budget for the first
year. The third part of the marketing strategy statement describes the planned long-run sales,
profit goals, and the marketing mix strategy.

The fifth stage of new product development process is business analysis. Once the
management has decided on the marketing strategy, it can evaluate the attractiveness of the
business proposal. Business analysis involves the review of projected sales, costs and profits to
find out whether they satisfy a company’s objectives. If they do, the product can move to the
product development stage. This analysis also needs to include whether there is a demand for the
product, a full appraisal of the costs, competition and identification of a break-even point.

Product development is the sixth stage involved in the new product development process.
Once all the strategies are approved, the product concept is transformed into an actual tangible
product. Here, R&D or engineering develops the product concept into a physical product. This
development stage of new product development results in building up of a prototype or a limited
production model. This step calls for a large investment. All the branding and other strategies
decided previously are tested and applied in this stage. It will show whether the product idea can
be developed into a full- fledged workable product. Functional tests are then conducted under
laboratory and field conditions to ascertain whether the product performs safely and effectively.
 The seventh stage is test marketing. If the product passes the functional tests, the next step is
test marketing. Test marketing is the stage at which the product and the marketing program are
introduced to a more realistic market settings. It gives the marketer an opportunity to tweak the
marketing mix before the going into the expense of a product launch. The amount of test
marketing varies with the type of product. Costs of test marketing can be enormous and it can
also allow competitors to launch a “me-too” product or even sabotage the testing so that the
marketer gets skewed results. Hence, at times, management may decide to do away with this
stage and proceed straight to the next one, commercialization.

Commercialization is the last stage involved in new product development process. This is the
stage in which the product is introduced to the target market. All the data obtained throughout
the previous seven stages of this approach are used to produce, market and distribute the final
product to and through the appropriate channels. Introducing the product to the market, company
will face high costs for manufacturing and advertising and promotion. The company will have to
decide on the timing of the launch (seasonality) and the location (whether regional, national or
international). This depends a lot on the ability of the company to bear risk and the reach of its
distribution network. Today, in order to increase speed to market, many companies are dropping
this sequential approach to development and are adopting the faster, more flexible, simultaneous
development approach. Under this approach, many company departments work closely together,
overlapping the steps in the product development process to save time and increase effectiveness.
2. Distinguish the different types of consumer products. Give examples.

A consumer product is a product bought by final consumers for personal consumption. But
not every consumer product is the same. There are four different types of consumer products.
Marketers usually classify consumer products into these four types of consumer products which
are convenience products, shopping products, specialty products and unsought products. These
four types of consumer products all have different characteristics and involve a different
consumer purchasing behavior. Thus, the types of consumer products differ in the way
consumers buy them and, for that reason, in the way they should be marketed.

Convenience products is the first type of consumer products. Convenience products are
frequently purchased by customers. There are required very little buying efforts when drawing a
comparison to buying these products. These consumer products are low priced. Due to
widespread distribution, these are available in different convenience locations according to
consumer wants and needs. Producers adopt mass promotion strategies. The examples of
consumer products are newspapers, toothpastes, laundry detergent and groceries. Most of the
time these products do not require much thought and are almost reflex reactions for the consumer
to buy. Convenience products also do not require complicated information-based ads. Instead,
the promotion is all about deals and reminding the consumer that the product is available.

Next, shopping products are also the type of consumer products. Shopping products are those
consumer products that are less frequently purchase. Consumers need shopping efforts and
planning to decide and compare this type of consumer products. Shopping products are usually
more expensive and are purchased occasionally. The consumer is more likely to compare a
number of options to assess quality, cost, and features. Consumers spend more of their time and
efforts to gather information and compare available alternatives. The examples of consumer
products include television, clothing, furniture and cars. Besides have higher prices, these
shopping products have selective distribution through fewer outlets and marketers promote these
products through personal selling and different advertisement campaigns.

Specialty products represent the third type of consumer products classification. Specialty
products are those consumer goods having distinctive characteristics and brand identification for
which a significant group of buyers is ready to make a specific purchase effort. This type of
consumer products, consumers make efforts in the decision-making process. Specialty products
need serious efforts to make a purchase. Specific consumers are involved in purchasing efforts.
The examples of specialty products include luxury goods and cars, designer clothes, architect
designed house and many more. Another good example of specialty products is Mercedes-Benz
Maybach Exelero and Bugatti Veyron, these are one of the world most expensive cars. If a
certain consumer wants to buy one, he can even travel from one country to another. These types
of products are less comparable with each other. Those willing to buy these cars invest their time
to reach dealers who carrying their desired product. These products are highly priced and follow
exclusive distribution and available in fewer outlets. For example, Bugatti is available in 17
countries throughout the world. Promotional strategies are carefully targeted to reach the targeted
consumers.

Lastly, the four types of consumer products also include unsought products. Unsought
products are those consumer products that a consumer either does not know about or knows
about but does not consider buying under normal conditions. Thus, these types of consumer
products consumers do not think about normally, at least not until they need them. Most new
innovations are unsought until consumers become aware of them. The examples of these types of
consumer products are life insurance, pre-planned funeral services, charity donations, fund
raising events and sometimes counseling and personal support. As a consequence of their nature,
unsought products pricing and distribution varies and have a tendency to draw aggressive sales
techniques, as it is difficult to get the attention of a buyer who is not seeking the product.
3. A product life cycle shows a product’s sales and profits over its lifetime. Using Perodua
Kancil as your example, describe the stages of its product life cycle.

The product life cycle, which can be defined as the course of a product’s sales and profits
over its lifetime. It also can describes as the period of time over which an item is developed,
brought to market and eventually removed from the market. The cycle is broken into five distinct
stages, which are product development, introduction, growth, maturity and decline.

The first stage of a product life cycle is product development. Product development begins
when the company finds and develops a new product idea. During product development, sales
are zero, and the company’s investment costs mount. The Perodua Kancil (also known as the
Perodua Nippa in the United Kingdom, and Daihatsu Ceria in Indonesia) is a city car
manufactured by Malaysian automobile manufacturer Perodua from August 1994 to 2009. The
Kancil was Perodua's first car after its founding in 1992. It is a small five-door hatchback vehicle
on a monocoque framework that can seat five people. The Kancil, like its predecessors, is a
slightly modified Daihatsu Mira L200; rebadging is common in Malaysia's automotive industry,
having begun in 1985 with car maker Proton, which based its cars on retired models of
Mitsubishi Motors. Subsequent Kancil were only rejuvenated cosmetically as Perodua
maintained the monocoque structure and tweaked its engines.

Introduction stage is a second stage of product life cycle. During the introduction stage, a
product is being introduced into the market. Typically, the characteristics of this stage include a
heavy influence of advertising to raise product awareness, along with less revenue being made at
this time. This stage of the cycle could be the most expensive for a company launching a new
product. The size of the market for the product is small, which means sales are low, although
they will be increasing. On the other hand, the cost of things like research and development,
consumer testing, and the marketing needed to launch the product can be very high, especially if
it’s a competitive sector. The Kancil is named after the mouse deer (chevrotain) native to
Malaysia. In January 1995, the Perodua Kancil EZ was launched. It came with an automatic
transmission and in addition to the existing equipment on the GX variant, there was colored
bumpers, gear lock, side protector molding, hazard sign and the first-aid kit for metallic and mica
models only. On 27 August 1997, the Perodua Kancil was facelifted. Changes included new
design for the larger front grille, rear garnish, rounded indicator lights and different wheel caps
designs, new cabin upholstery with the use of improved seat fabric and 2 front washer nozzles. In
December 1995, Perodua produced its 50,000th Kancil. By January 1997, 100,000 Kancils had
been manufactured, and by 1999 250,000 had been built.

The third stage of the product life cycle is the growth stage. This stage reflects the largest
increase in profits during the product's entire cycle. During this stage, the demand expands, price
fall, competition increases, and distribution is greatly widened. The management focuses its
attention on improving the market share by deeper penetration into the existing markets and
entry into new markets. Sometimes, major improvements also take place in the product during
this stage. The promotional expenses remain high although they tend to fall as a ratio to sales
volume. The falling ratio of promotional expenditure to sales leads to increase in profitability
during this stage. Following its release in 1994, the Kancil became an instant success in
Malaysia. The Kancil is popular with beginner drivers and is commonly used in Malaysian
driving schools. It was also preferable for its fuel efficiency and ease of parking due to its size.
Average monthly production during its fifteen years was 4,000, with October 2002 being the
most successful month with 7,700 built. In total 722,223 Kancils were built, of which around
14,000 were exported. The Perodua Kancil was sold in the United Kingdom as the Perodua
Nippa in September 1997. It was priced at just over £5,000 (cut to £4,999 in 1999). On 3 May
1998, the Perodua Kancil EX extra was launched. It came with a 660cc engine and 5-speed
manual transmission. In 2000, the car was given another slight facelift consisting of body-
coloured side mouldings, a new grille and reprofiled front bumper with larger indicators.

The product enters into maturity stage as competition intensifies further and market gets
saturated. Profits come down because of stiff competition, and marketing expenditures rise. The
prices are decreased because of competition and innovations in technology. This stage may last
for a long period as in the case of many products with long-run demand characteristics. But
sooner or later, demand of the product starts declining as new products are introduced in the
market. Product differentiation, identification of new segments and product improvement are
emphasized during this stage. In Indonesia, the Perodua Kancil was sold as the Daihatsu Ceria.
The Ceria, meaning "happy" or "cheerful" in Malay/Indonesian, was introduced at the 11th
Gaikindo Auto Expo in Jakarta in July 2001. It had been preceded the year before by the
Daihatsu KX-P "concept car" - a standard Kancil equipped with a leather and wood interior. The
Ceria was only available with the larger 850 cc engine with a carburettor and 37 PS (27 kW), in
two equipment levels: the base model KL and the more extra-spec KX, which received a
chromed grille. The Kancil received a more extensive restyling in September 2002, featuring
rounder headlights, taillights and bumpers; its rear license plate was also repositioned onto its
hatch from the bumper below. Its interior features a flushed dashboard with the combination
instrumentation panel placed in the middle similar to that of the Toyota Yaris.

The last stage of product life cycle is decline stage. This stage is characterised by either the
product’s gradual displacement by some new products or change in consumer buying behavior.
The sales fall down sharply and the expenditure on promotion has to be cut down drastically.
The decline may be rapid with the product soon passing out of market or slow if new uses of the
product are found. Production of Kancil ceased on 20 July 2009 and replaced by the basic model
of Perodua Viva known as Perodua Viva 660BX which comes in manual transmission only. The
Perodua Kancil that sold in United Kingdom was replaced by the Perodua Kelisa four years later.
While in Indonesia, Kancil was discontinued in 2006. It was later superseded in 2012 by a
spiritual successor, the Ayla, which is also rebadged as the Toyota Agya.