Page 1 of 8 ASSIGNMENT MEMORANDUM SUBJECT : PRODUCT MANAGEMENT (PM) ASSIGNMENT : 1 st SEMESTER 2010 SPECIFIC INSTRUCTIONS The following memorandum outlines the basic topics that should have been covered in the student s answers to the assignment. The memo does not cover every possibility and the marker is to use his/her discretion when allocating marks based on the quality of the student s answers. In addition, students do not have to cover every point identified in this memorandum it serves as a guide only. As stated previously, marks are allocated based on the student s comprehension of the work and insight shown through his/her examples and practical applications. Take note that 10 marks are allocated to presentation. following elements: Length Spelling checked Structure Use of headings and paragraphs Logical development of answers. This includes the Textbook reference: Lehman, D.R., and Winer, R.S. 2005. Product Management. 4 th ed. McGraw-Hill. QUESTION 1 [16] Refer to Lehmann & Winer, 2005: 52-59, Chapter 3. Students had to identify and explain each of the four levels of competition and the implications each level has for product strategy. Using the example of Nutri-Grain, they further had to identify the competitors for each level. Four examples had to be given for each level where possible. 3 marks for the explanation of each level of competition and its implication for product strategy 4 x 3 = 12 1 mark for the identification of the competitors at each level 4 X 1 = 4 Total = 16 marks
Page 2 of 8 The following should have formed the basis of the student s answer: Product form competition These products typically pursue the same market segment and their features therefore have similar values. Breakfast bars. Product category competition This level of competition is based on those products or services with similar features. It basically refers to the industry. Breakfast foods in general. Generic competition This level of competition focuses on substitutable product categories. Competition at this level is defined as consisting of those products and services fulfilling the same customer need. General food items. Budget competition The broadest view of competition. It considers all products and services competing for the customer s money. Instead of a Nutri-Grain bar, the customer could use his/her money to purchase a cinema ticket, a pair of socks, or stationery for example. IMPLICATIONS FOR PRODUCT STRATEGY The following outlines the basic implications for product strategy that should have been discussed: Product form convince customers that the brand is better than others in the product form. Product category convince customer that the product form is the best in the category. Generic convince customers that the product category is the best way to satisfy needs. Budget convince customers that the generic benefits are the most appropriate way to spend the discretionary budget. Students need to discuss these points in more detail. QUESTION 2 [24] Refer to Lehmann & Winer, 2005: 75-78, Chapter 4. Students had to discuss, in detail, the aggregate market factors that will determine the category attractiveness for Nutri-Grain. They should have applied each factor that they discussed to Nutri-Grain. 2 marks for the explanation of each aggregate market factor 6 X 2 = 12
Page 3 of 8 2 marks for the practical application/analysis relevant to Nutri-Grain 6 X 2 = 12 The above allocations are flexible to an extent. Students will focus their attention on specific issues and neglect others. The question does however cover a wide range of topics and this should be taken into account when dividing the marks. The marker can use his/her own discretion in mark allocation depending on the quality of the discussion given. It was important that students discuss their answer from the perspective of how each factor will influence the operations and marketing of Nutri-Grain and hence influence the attractiveness of the category. Total = 24 marks The following aggregate market factors should have been addressed: Category size Market growth Product life cycle Sales cyclicity Seasonality Profits. The focus of each element is the extent to which the market is attractive or unattractive for competing in a particular category under the given conditions. QUESTION 3 [30] 3.1 Who buys and uses the products? (10) Refer to Lehmann & Winer, 2005: 140-144, Chapter 6. Using Nutri-Grain as their point of reference, the student had to explain, in detail, what the product manager needs to consider in order to answer the question Who buys and uses the product? General impression mark. Mark allocation is at the discretion of the marker. It is however important that the bulk of the topics be covered and that the answer be related to Nutri-Grain. Total = 10 marks The following topics should have been addressed in the student s answer: Who buys and uses the products? Buyers versus users o Initiator o Influencer o Decider o Purchaser o User. Descriptive variables consumer products o Demographic
Page 4 of 8 o o o Socio-economic Personality Psychographics and values. Please note that it was unnecessary to discuss the descriptive variable relating to industrial products as it should be obvious that Nutri-Grain is not an industrial product. Students should be penalised 2 marks should they have not recognised this point. 3.2 What customers buy and how they use it. (20) Refer to Lehmann & Winer, 2005: 144-148, Chapter 6. Using Nutri-Grain as their point of reference, the student had to explain, in detail, what the product manager needs to consider in order to answer the question What customers buy and how they use it. General impression mark. Mark allocation is at the discretion of the marker. It is however important that the bulk of the topics be covered and that the answer be related to Nutri-Grain. Total = 20 marks What customers buy and how they use it 1. Benefits A company produces features, customers purchase benefits. The benefit is more important than the physical product but also helps define the competition based on the benefit. Important to understand what benefits the customer is seeking. 2. Purchase pattern (to product assortment) Criteria for evaluating and segmenting customers: o Recency o Frequency o Monetary value. Potential customers o Unaware o Aware o Accepting o Attracted o Active o Advocates. 3. Product assortment The number of brands purchased by the customer Share of wallet. 4. Use
Page 5 of 8 How customers use the product Occasions in which the product is used Uses other than the intended use. QUESTION 4 [20] Allocate approximately 10 marks to diffusion of innovation and 10 marks to the discussion of the consumer adoption process. Practical application was essential. Marker to use discretion based on quality of the answer and insight shown. Due to students using different sources the answers will vary. The marker needs to ensure that the basic concepts at the very least are addressed. It was essential that students conduct further research on this topic when answering this question. They had to consult additional textbooks, study articles, conduct Internet searches and use any other resources at their disposal when researching this topic. Total = 20 marks The following form the basis of the concepts to be addressed. DIFFUSION OF INNOVATION Theories define diffusion of innovation as a process by which new products are communicated through channels over a time period among the members of the society. It describes the behaviour of consumers as they purchase new products and services. The individual categories of innovator, early adopter, early majority, late majority and laggards are described below. Five adopter categories and their characteristics: Innovators: these are the first group of consumers to adopt the new product and they are called the enthusiasts. They are the type of consumers that want advanced technology and performance, are willing to take risks and are enthusiastic about purchasing new products. The innovators amount to 2.5% of the overall population. Their demographic profile is that they are young, educated, have networking connections, and thus fit the characteristics of the South African Generation Y. For information concerning the products or services they use, refer to impersonal and scientific sources such as the Internet, special-interest magazines (for example if it is a health product they will read magazines such as Shape for women or Fitness for men). Early adopters: they are termed the visionaries, account for 13.5% of the overall population and only adopt a product once the innovators have used it. Early adopters are the influential group of consumers and are the driving force behind the acceptability and spreading of personal non-paid for communication (word-of-mouth). They are the opinion leaders and are important for the marketers as they are held in high esteem by those that accept their opinions and recommendations, also determine whether consumers will have a positive or negative attitude towards the product. These consumers are also educated and have self-confidence as they are specialists in their fields. They have contact with salespeople, read more
Page 6 of 8 magazines and use mass media as their source of information. Early majority: prefer products that have been tried and tested as they avoid risks that can be psychological, financial and performance risks. They are pragmatists that want solutions and convenience from the products that they purchase. Early majorities are middle-class consumers who have contact with the opinion leaders, salespeople and the mass media. This group relies on the recommendations of the early adopters and it comprises 34% of the population. Late majority: these are pessimistic consumers who do not seek anyone s opinion and only use the product when reassured of its benefits and values. This might be due the fact that they are less educated, older, financially stable and more traditional than the former group. They use fewer marketing communication sources for gathering information; instead they seek information from consumers within their own group. The late majorities account for 34% of the population. Later adopter, laggards or non-adopters: the laggards are termed the sceptics as they do not believe in new ideas, instead they are suspicious and prefer things to be done as in the past. They account for 16% of the population and relate to the new product or service and its benefits at a slow rate. They are older in terms of age and are in the lower socio-economic class, they also depend on consumers within the same categories like the late majorities. Factors affecting the spread of innovation Complexity: refers to the degree of difficulty in terms of the level of understanding of the new product and the use of it. The difficulty impacts on the rate at which the spread will take. An example would be where a product (e.g. vacuum cleaner) requires consumers to understand the technical jargon to assemble the product. Compatibility: concerns whether the product is compatible to the consumers values, beliefs or objectives regarding its purchase and use. Relevant advantage: relates to consumer needs that innovation meets, such as reduced costs or new methods of doing things, for example when First National Bank (FNB) introduced cell phone banking where one can make payments and purchases. Observability: deals with the extent to which the potential adopter has had the opportunity to monitor the positive effects of accepting the innovation. If the adopter had such an opportunity the possibility of a more rapid diffusion is feasible. Trialability: the easier it is to have a low-cost or low-risk trial of the innovation, the more rapid its diffusion. Samples of shampoo in small sachets provide the consumer with the opportunity to use a new product at no financial risk to them. Perceived risk: should the risk of trying an innovation be high, diffusion will be slow. The risks might be psychological or financial. Financial risk includes when the product is expensive and consumers cannot be refunded. Marketing effort: refers to the marketing mix (7Ps) activities executed by the organisation; it influences the rate of diffusion as the marketers have to
Page 7 of 8 communicate the product attributes such as features, quality and benefits. With the Nintendo Wii the price, place (CNA), promotion (TV, magazines), product (Nintendo Wii), people (teenagers and young adults), process and physical evidence (layout, displays in store) communicate to the target market. The type of group: the target market is the determinant of the rate at which innovation will diffuse as some groups are more accepting than others. The young, affluent and highly educated market segments tend to eagerly accept change and new products. Type of decision: decisions are made collectively or individually, collective decision may slow the rate of diffusion as they reason among each other about the purchase whereas individual decision may speed up the diffusion rate. Fulfilment of perceived need: when the satisfaction that will be derived from the innovation is obvious in terms of meeting the need, the more rapid the diffusion. The Nintendo Wii offers features such as powerful new motionsensing controllers and uses Bluetooth, compared to other game stations, and thus fulfils the need for greater realism. CONSUMER ADOPTION PROCESS The adoption process is defined as the development of consumers awareness of a product, ranging from being aware of the existence of the product to the time that they actually use the product regularly. Adoption and diffusion are often confused; adoption is concerned with being aware of the product while diffusion is the speed with which innovation is spread through the society. Psychologically, individuals go through the various stages of adoption; this however does not necessarily mean that they will go through them at the same rate or speed. The consumers that adopt the innovative product first, the innovators, go through the stages quickly while other adopters take longer as they deliberate on their purchases. The innovation can be rejected at any stage of the adoption process. Individual consumers move through fairly definite steps in adopting the new product. The steps are as follows: Awareness: the potential consumer comes to know about the product but does not have information. The consumer at this stage may not know how the product works and what it can do. Interest: the consumer knows about the product but still lacks information, if they become interested they gather information and facts about the product. The information may be gathered from secondary data sources such as magazines and journals. Evaluation: the consumers evaluate the product based on their past personal situations and experiences. The consumers use their intellectual capital to value the product. Trial: at this stage the consumer may buy the product to use it to determine if it meets his/her needs. It is important for marketers, especially for those of fast moving consumable products, to provide samples to facilitate trial. Consumers do not easily experiment with expensive products and marketers need to ensure that the products are available so as to encourage trial and adoption.
Page 8 of 8 Decision: once the products have been tested, the consumer decides on whether to adopt or reject the new product. The adoption is done if the consumer is satisfied with the product and may even become a regular user. Confirmation: the consumer searches for more information pertaining to the product to reaffirm the decision about the product that he/she purchased. The consumer conducts a post-purchase evaluation as he/she decides on repurchasing the product. PRESENTATION [10]