Multimedia Marketing/Marketing.iso/market/chapter5.5p

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SECTION 5.5  New Product Strategies

INSTRUCTIONS Think of the major strategies that companies might pursue in developing
new products. Then go through this section for expansion of your ideas.

EXAMPLE

A diversified manufacturing concern suffered a seven year bout
with anemic sales and even worse profits. Outsiders reported that
the company "just does not seem to know what products to offer."
The company was forced to write off almost ,100 million for closed
and distressed sale business.

The firm's historical strength came from serving the railroad
business but its entire railroad castings operation, once a contributor
of 40 percent of the company's revenues, was sold after this industry
nearly collapsed. The chosen replacement was electrical connector
products.

No sooner had the company moved into this new product line than the
market softened and competition grew tougher. The firm was also once
a major auto parts supplier but it withdrew from that market--just
before the auto industry enjoyed a spurt in sales.

Company management continues to look for a product line where it
can prosper. However, management just does not seem to know what
products to add and which to drop.

DETAILS

A big risk is taken when marketing a new product. There are two major
hurdles to overcome. First, introducing a new product is usually
quite expensive. Second, new products have an enormous failure rate.
Despite the cost and risk, management may have no other choice but
to introduce new products. Usually market expansion alone cannot
fill all contribution gaps in the long run.

There are four fundamental types of new product strategies. These
are:rounding out existing lines, creating market related lines,
creating technologically related lines, and creating unrelated
lines.

Rounding out existing lines involves intensifying the depth of an
existing product line. In this sense "depth" refers to the number of
substitutes or variations a company offers within a line. When
management rounds out existing lines, similar customers, marketing
skills, and technology are involved: the firm stays on familiar
ground.

PROBLEM 1

A sporting goods store has considerable _____ in its product line.

A. Breadth.
B. Girth.
C. Depth.
D. Clearance.

WORKED

A sporting goods store has considerable depth in its product line.
This means that it has many substitutes or variations within a line.
If a consumer wants to purchase a softball glove, there are many
different variations in the store--various sizes, colors, and quality
levels. A discount store does not have as much depth. It may have only
a few gloves available for customers. However the discount store
offers many different items besides sporting goods in its product mix.
It furnishes breadth, rather than depth, to its target customers.

ANSWER  C

INSTRUCTIONS Think of the major strategies that companies might pursue in developing
new products. Then go through this section for expansion of your ideas.

EXAMPLE

A diversified manufacturing concern suffered a seven year bout
with anemic sales and even worse profits. Outsiders reported that
the company "just does not seem to know what products to offer."
The company was forced to write off almost ,100 million for closed
and distressed sale business.

The firm's historical strength came from serving the railroad
business but its entire railroad castings operation, once a contributor
of 40 percent of the company's revenues, was sold after this industry
nearly collapsed. The chosen replacement was electrical connector
products.

No sooner had the company moved into this new product line than the
market softened and competition grew tougher. The firm was also once
a major auto parts supplier but it withdrew from that market--just
before the auto industry enjoyed a spurt in sales.

Company management continues to look for a product line where it
can prosper. However, management just does not seem to know what
products to add and which to drop.

DETAILS

After expanding a line, the firm may be better able to meet the
needs of target customers. Each thrust into a significant new
market segment can turn a line's stagnant market into one of growth
opportunity.

Rounding out usually offers the greatest potential for synergy of
the four new product strategies. This is because the company can
take advantage of its current marketing strengths: image and awareness
among customers, channels of distribution, and so on. Similarly, the
strategy usually takes advantage of the company's current production
expertise because the products are similar, keeping down the associated
development costs.

Success in filling out a line depends largely on how divergent are
the needs of various segments as well as what size they are. Companies
seeking to attract the patronage of many segments adopt a full line
strategy. On the other hand, smaller firms are often forced to adopt
a limited line strategy and target one or several segments that
industry leaders have bypassed. Some coffee service firms, for example,
provide their own blends of coffee to offices located in major cities.
While their coffees are typically unavailable to the general public,
these firms seek their niches in segments bypassed by large competitors.

PROBLEM 2

A soft drink marketer is considering rounding out its fruit drinks
line. Which of the following is not a major advantage of this
strategy?

A. There are substantial opportunities for synergy.
B. The company can take advantage of its image among consumers.
C. The company can use existing channels of distribution.
D. The company can diversify its risk by moving into new kinds of
   ventures.

WORKED

A soft drink marketer that is considering rounding out its fruit
drinks line may benefit because of the many possible sources of
synergy. The firm can take advantage of its image among consumers
and its existing channels. However, rounding out lines keeps the
company in its existing sphere of business. It will not diversify
risk by moving into new kinds of ventures. Hence, the company still
has all of its eggs in one basket. If that target turns out to be
a bad choice, the firm may suffer catastropic financial loss.

ANSWER  D
INSTRUCTIONS Think of the major strategies that companies might pursue in developing
new products. Then go through this section for expansion of your ideas.

EXAMPLE

A diversified manufacturing concern suffered a seven year bout
with anemic sales and even worse profits. Outsiders reported that
the company "just does not seem to know what products to offer."
The company was forced to write off almost ,100 million for closed
and distressed sale business.

The firm's historical strength came from serving the railroad
business but its entire railroad castings operation, once a contributor
of 40 percent of the company's revenues, was sold after this industry
nearly collapsed. The chosen replacement was electrical connector
products.

No sooner had the company moved into this new product line than the
market softened and competition grew tougher. The firm was also once
a major auto parts supplier but it withdrew from that market--just
before the auto industry enjoyed a spurt in sales.

Company management continues to look for a product line where it
can prosper. However, management just does not seem to know what
products to add and which to drop.

DETAILS

The breadth of a product mix refers to the number of lines a company
offers. To illustrate, general hospitals typically have six or more
lines of service, including maternity , surgery, extended care, cardiac
treatment, outpatient care, and emergency treatment.

The second new product alternative is the creation of new lines to
fill a contribution gap. By so doing, a company is able to expand its
potential opportunity by channeling a portion of its efforts into
new types of products and new markets. There are three possible
expansion strategies that a firm can take: market related lines,
technologically related lines, and unrelated lines.

A new line is market related when the target customers or required
marketing activities are very similar to those of existing customers
or activities. A market related line is often a substitute for
other items in a company's product mix.

Next to rounding out an existing line, adding a market related line
is the most likely new product strategy to result in positive
synergy, since it enables the organization to capitalize on its
marketing expertise. After gaining experience in dealing with
certain types of consumers, channel members, and promotional efforts,
a company management team is better able to exert its expertise in
related areas. Further, if the new line fails, it may not damage the
reputation of the older lines because of their separate identities.

Another means of achieving favorable synergy is to expand into
technologically related lines. As a result of engaging in ongoing
technical activities, managers and operatives develop expertise in
certain fields of production, research and development, financial
planning, and organization skills. This knowledge may provide the
necessary differential advantage for expanding into technically
related fields.

While expanding into technologically related lines can be synergistic,
many production oriented managers neglect one important element:
assessing market opportunity. A company may have a production
related competitive advantage only because the potential market for
an offering is so small that other firms are not willing to enter.

Management should consider any new product strategy only if it
offers sufficient profit opportunity to warrant incurring the inherent
risks and the company has both the marketing and production skills
required for successful introduction.

A third possible strategy for broadening a product mix is to expand
into unrelated lines. These are neither market nor technologically
related to a firm's existing lines.

Some companies regularly pursue unrelated lines; some job-shop
manufacturers go after virtually any type of business they can get.
Other companies expand into unrelated lines when competition becomes
too fierce or demand declines in established industries.

Adding an unrelated product line is the strategy least likely to
succeed because a company can neither capitalize on its marketing
ability nor its technological experience. Management should consider
this strategy only as a last resort. In most instances, it makes far
better sense to engage first in market expansion, then move on to some
related line, and then start another round of market expansion.

PROBLEM 3

An office supplies wholesaler is considering expanding into the
personal computer line, because it is market related. If this is
the case it would allow the company to:

A. Deal with the same type of customers.
B. Raise funds more easily through financial institutions.
C. Distribute its offerings more rapidly.
D. Lower the prices for office supplies.

WORKED

An office supply wholesaler that is considering expanding into the
personal computer line because it is market related would find that
it was dealing with the same type of customers. In this case, the
customers would be office supply retailers, industrial buyers, and
nonprofit organizations. The wholesaler has experience in dealing
with these organizations. The members of its sales force already are
acquainted with most of the buyers. Company managers know what
motivates target customers and how to develop customer loyalty. These
are invaluable assets.

ANSWER  A
INSTRUCTIONS Think of the major strategies that companies might pursue in developing
new products. Then go through this section for expansion of your ideas.

EXAMPLE

A diversified manufacturing concern suffered a seven year bout
with anemic sales and even worse profits. Outsiders reported that
the company "just does not seem to know what products to offer."
The company was forced to write off almost ,100 million for closed
and distressed sale business.

The firm's historical strength came from serving the railroad
business but its entire railroad castings operation, once a contributor
of 40 percent of the company's revenues, was sold after this industry
nearly collapsed. The chosen replacement was electrical connector
products.

No sooner had the company moved into this new product line than the
market softened and competition grew tougher. The firm was also once
a major auto parts supplier but it withdrew from that market--just
before the auto industry enjoyed a spurt in sales.

Company management continues to look for a product line where it
can prosper. However, management just does not seem to know what
products to add and which to drop.

DETAILS

Any type of expansion through new product introduction can do more
damage than good, even if the offerings are, by themselves, very
successful. If a new product contributes less to the company's
objectives than those it displaces and if it caters to essentially
the same target, the result may be cannibalization. In turn,
cannibalization takes place when more profitable items do not sell
in sufficient volume because consumers purchase a new but less
profitable product.

Successful new product strategy is often a function of obtaining
conquest sales--those taken away from competitors' products. But
this is not always the case. Instead , the company can trade up
customers to an item yielding a greater contribution. Trading up
involves developing additional products that are slightly more
desirable to buyers (and also more profitable to the company) and
then convincing consumers that they should purchase the more profitable
ones.

Management must exercise caution when attempting to trade up consumers.
If the company exerts too much pressure to trade up or if low priced
items are unusually shoddy or purposefully made unavailable, the
practic is termed "bait and switch", which is illegal under federal
law.

PROBLEM 4

What practice might a department store engage in which is illegal?

A. Introducing a new product that contributes less to profits than
   did older products.
B. Developing new products that are slightly more desirable to
   consumers than old ones, and convincing consumers to buy the
   new products.
C. Exerting excessive pressure on consumers to buy more expensive
   models.
D. Telling consumers that company products are superior to those
   of competitors

WORKED

If a department store exerts excessive pressure on consumers to
buy more expensive products, this is illegal under federal law.
Once consumers have entered the store in search of bargains which
they have read about in advertisements, sales clerks might ridicule
the low priced model and tell consumers that they would be foolish
not to buy a higher priced one. Or, they might indicate that they
are out of stock in the case of the less expensive item when, in
fact, they never had an adequate stock. These bait-and-switch
techniques have been ruled to be illegal in a number of court cases.

ANSWER  C