2 Discussion questions due today

Slide #

Scene #

Narration

Slide 1

Scene 1

[Ed, Samantha – Ed’s Office]

Ed and Samantha meet in the morning to discuss the next steps in the tablet PC launch.

MKT500_5_1_Ed-1: Hello, Samantha. How are you this morning?

MKT500_5_1_Samantha-1: I’m doing fantastic. I’m really excited about this project. I felt energized after our meeting with Carl last week when we presented our ideas for our branding strategy.

MKT500_5_1_Ed-2: I’m glad to hear that! I just left Carl’s office, and he had some valid questions. The most important question for us to consider next was, “Once we launch the new tablet and enjoy the honeymoon period, what is in store for Golds Reling in the years that follow?”

MKT500_5_1_Samantha-2: I see, so Carl wants us to focus on the life cycle of the product next?

MKT500_5_1_Ed-3: Correct. As you may recall from various Strayer marketing classes, the product life cycle is a popular metaphor in marketing to describe the evolution and duration of a product in the marketplace.

MKT500_5_1_Samantha-3: Yes. I recall that the stages within this life cycle are market introduction, market growth, maturity, and decline.

Sales and profits behave predictably during the different stages, and the marketing actions that are thought to be optimal during each stage are also clearly prescribed.

MKT500_5_1_Ed-4: You’re absolutely right. You’ll also recall, what occurs in each stage of the product life cycle.

Slide 2

Interaction

Click the stages of the product life cycle to learn more about each.

Market Introduction: During this stage a company brings a new product, including both goods and services, into the marketplace with heavy marketing spending. Promotion techniques used include advertising, samples, coupons, et cetera.

Strategically, prices might start low, a strategy known as penetration, but they often start high in order to recoup development costs, a strategy known as skimming. The company uses limited distribution and sales are also low.

Market Growth: This stage is characterized by accelerated sales, rise in profits, stronger customer awareness, greater distribution channel coverage, and entry of competitors. The company might be able to begin increasing prices. Advertising is intended to persuade customers as to the brand’s superiority compared to competitors.

Market Maturity: During this stage the advertising continues to persuade customers about the brand’s relative advantages and serves as a reminder to buy the product; products may proliferate to a fuller product line to satisfy more segments of customers. There is more competition; sales grow but profits decline; strong competitors gain market share and weaker firms begin to fall out of the marketplace; and the product offerings of different firms often begin to homogenize. Instead of reducing prices, the firms should try to find new benefits and either increase, or at least maintain current prices.

Market Decline: This phase is characterized by declining sales and profit. New products start replacing older ones. The firm may divest, harvest, or rejuvenate the old product.

The lengths of product life cycles vary a lot. The length of product-category life cycles tends to be longer than those of individual brands.

MKT500_5_1_Ed- 5: Click the stages of the product life cycle to learn more about each.

MKT500_5_1_Ed-6:

Market Introduction: During this stage, a company brings a new product, including both goods and services, into the marketplace with heavy marketing spending. Promotion techniques used may include advertising, samples, and coupons.

Strategically, prices might start low, a strategy known as penetration, but they often start high in order to recoup development costs, a strategy known as skimming. The company uses limited distribution, and sales are also low during market introduction.

MKT500_5_1_Ed-7:

Market Growth: This stage is characterized by accelerated sales, rise in profits, stronger customer awareness, greater distribution channel coverage, and entry of competitors. The company might be able to begin increasing prices as the product is accepted by the target market. Advertising is intended to persuade customers as to the brand’s superiority compared to competitors.

MKT500_5_1_Ed-8:

Market Maturity: During this stage, the advertising continues to persuade customers about the brand’s relative advantages and serves as a reminder to buy the product; products may proliferate to a fuller product line to satisfy more segments of customers. There is more competition; sales grow but profits decline, typically because of pressures from competition; strong competitors gain market share and weaker firms begin to fall out of the marketplace; and the product offerings of different firms often begin to homogenize. Instead of reducing prices, the firms should try to find new benefits, and either increase, or at least maintain, current prices.

MKT500_5_1_Ed-9:

Market Decline: This stage is characterized by declining sales and profit. New products start replacing older ones. The firm may divest, harvest, or rejuvenate the old product.

The lengths of product life cycles vary a lot. The length of product-category life cycles tends to be longer than those of individual brands.

Slide 3

Scene 1, cont.

[Ed, Samantha – Ed’s Office]

MKT500_5_1_Ed-10: I also have a video here with a bit more information about the product life cycle.

Slide 4

Traditional Product Life Cycle

http://www.youtube.com/watch?v=wYeXCeBZhjE

Slide 5

Scene 1, cont.

[Ed, Samantha – Ed’s Office]

(Displayed on screen)

(Displayed on screen)

MKT500_5_1_Samantha-4: Thanks for that summary of the stages of the product life cycle, Ed. Thinking about the introduction stage, a product such as ours needs a lot of promotions for the launch.

MKT500_5_1_Ed-11: Exactly. We have to cut through all of the clutter out there and make our tablet the first one that customers think of when they are considering their purchase. We have to create good top-of-the-mind awareness, not just spontaneous awareness.

MKT500_5_1_Samantha-5: Remind me again of the difference between the two?

MKT500_5_1_Ed-12: Top-of-the mind awareness is the first brand that a customer thinks of when asked an unprompted question about a particular product category. Companies that are well known advertise heavily and have attention-getting ads that tend to receive the highest top-of-the-mind awareness scores in ad tracking studies. I am sure that we can think of some products that fall into this category. Let's think of some...

When I say, “gaming system”, what do you think of?

MKT500_5_1_Samantha-6: Xbox. How about, “foreign car”?

MKT500_5_1_Ed-13: BMW. I’ve got one: “education”.

MKT500_5_1_Samantha-7: (Laughing) Strayer University! What can you tell me about spontaneous awareness?

MKT500_5_1_Ed-14: Well, spontaneous, or unaided, awareness refers to the other brands a customer thinks of when asked an unprompted question about a particular category. For example, when asked about cereal, a customer may first think of Cheerios, so Cheerios would have top-of-the-mind awareness. However, the customer may next think of Apple Jacks, meaning Apple Jacks has spontaneous awareness.

For top-of-the-mind awareness, consider this question, “When the need arises for a particular service or product, what is the first thing, name, company, or store that comes to mind?” Whether it's a person or a business, whoever pops into your mind first has successfully achieved top-of-the mind awareness.

The goal of PR, and all of marketing, is to park your product in your customers' minds right next to the “need” button; this button rests right at the top of their mind.

MKT500_5_1_Samantha-8: That makes perfect sense! Can you explain a little more about the purposes of top-of the mind awareness and spontaneous awareness?

(Display graph on screen)

MKT500_5_1_Ed-15: Top-of-the-mind awareness is an important purchase driver, but spontaneous awareness is important for brand recognition, which establishes a customer’s trust in the product and removes any associated risk with making a purchase.

The more buzz about a product or service, the more awareness exists. The more awareness exists, the higher the probability of being in that top-of-the mind position.

MKT500_5_1_Samantha-9: So how can we here at Golds-Reling go about creating buzz for our new tablet launch?

MKT500_5_1_Ed-16: Creating buzz and awareness is done by many things, such as an Internet blog or website, usually all working together synergistically.

Getting that label and moniker starts with announcing to the world, usually announcing to your particular target market, that you are in business. We would do this with a press release that's sent to the media, handed out to prospects and customers, or used as a direct-mail piece. We could also post the press release on our website, which has been a very effective form of communication for us in the past.

MKT500_5_1_Samantha-10: Yes, I remember from my classes at Strayer University that top-of-the-mind awareness is often difficult to achieve for a new product.

MKT500_5_1_Ed-17: Right. The primary purpose of our advertising, PR, and social media efforts will be to create top-of-the-mind awareness.

(Display figure on screen)

Here is a diagram that will help explain how consumers adopt a new product. In addition to the marketing actions underlying the product life cycle, during these phases, marketers have also developed a theory about what customers are doing.

Marketers are of the opinion that when a new product is introduced, the person to try it first goes and shows it to others; the others appreciate it, buy it, and then tell others. This word-of-mouth or “viral marketing” helps activate the process of the diffusion of innovations.

Slide 6

Interaction

Click the sections of the Diffusion of Innovation figure to learn more about each group.

MKT500_5_1_Ed-18: This figure shows the diffusion process as a normal curve and partitions the customer base into five groups.

MKT500_5_1_Ed-19: Click the sections of the Diffusion of Innovation figure to learn more about each group.

MKT500_5_1_Ed-20: The innovators are the first three to five percent who like to try new ideas and are willing to take risks.

MKT500_5_1_Ed-21: The early adopters are the next group, or the ten to fifteen percent who are even more influential as opinion leaders, primarily because they are a bigger group.

MKT500_5_1_Ed-22: The early majority, who make up thirty-four percent, are more risk averse than the first two groups.

MKT500_5_1_Ed-23: The late majority, who make up thirty-four percent, are even more cautious, often older and more conservative, and wish to buy only proven products.

MKT500_5_1_Ed-24: The final group, the laggards or non-adopters, who account for five to fifteen percent, are the most risk averse. They are typically skeptical of new products and stereotypically lower in income.

Slide 7

Scene 1, cont.

[Ed, Samantha – Ed’s Office]

Display formula here:

nt = [ p + q (Nt – 1 / M)] (M – Nt – 1)

MKT500_5_1_Samantha-11: And the innovators are who we want to target with our advertising, PR, and social media during our launch. Correct?

MKT500_5_1_Ed-25: Absolutely. In fact, I have a formula right here that I think will be helpful for a successful launch.

(Display formula on screen)

In the equation given in the figure, we are trying to forecast n subscript t, which is, the number of units we will sell during time period, t. N subscript T minus one represents the number of units we have sold so far, or cumulative sales in units. M is the max on the likely market potential. The term on the right, M – N subscript t minus one, means “how we are doing so far?”: what is the difference between what we could sell, M, and what we have sold so far, which remember, is N subscript t minus one. p is called the coefficient of innovation—it’s the likelihood that someone will buy or adopt the new product due to information obtained from the marketer. q is the coefficient of imitation—the likelihood that someone will buy or adopt the new product due to word-of-mouth information obtained from another consumer.

MKT500_5_1_Samantha-12: Hmmm…I can think of two different ways we can use this diffusion model. First, we can observe early sales data, fit the model, and make predictions about the future. Alternatively, we can use past results on products similar to ours and plug in those numbers to make predictions about the future even before launching the product.

MKT500_5_1_Ed-26: That’s correct, Samantha! The imitation effect, or q is usually bigger; p in ratio to q is about one to ten. The percentage of innovators and early adopters, the customers who are driving p, is about ten to fifteen percent of the market, whereas the remainder of the market is eighty-five to ninety percent, and they are driving q. We can speed up innovators; that is, make p bigger, by introducing price decreases early, or speed up imitators; that is, make q bigger, by introducing price decreases later.

We need to interact with our customers throughout these phases. During the new product launch, we will heighten awareness through advertising.

In the diffusion process, word-of-mouth increases the size of q, the imitation effect. Thus based on our formula, we need to do a lot of buzz marketing aimed at innovators and early adopters, which comes by the way of our website and PR.

MKT500_5_1_Samantha-13: This is excellent research, Ed, and I believe that Carl will be impressed with your efforts, but how do we know that our new tablet is hitting the mark and will be accepted in the marketplace?

MKT500_5_1_Ed-27: Well, we began our new product plan internally, by identifying the corporate and marketing missions and objectives to be achieved via the new product or service. We’ve been careful to remember that customers are important in the feedback they provide in the new product development process.

However, a number of factors influence the customers’ acceptance of new products and the diffusion of the innovation throughout the marketplace. Consumer acceptance tends to be higher when the new product:

A. Has a clear relative advantage over existing products

B. Is compatible with the customer’s lifestyle

C. Is not overly complex, or the complexity is masked by a user-friendly interface

D. Is easily tried or sampled, to facilitate initial assessment

MKT500_5_1_Samantha-14: I see. Utilizing the factors of compatibility tends to make acceptance of innovations better, so I’m convinced that this will help make the launch of Golds Reling’s new tablet very smooth.

MKT500_5_1_Ed-28: Exactly. We had better start organizing our data if we want to be ready for our update meeting with Carl this afternoon.

MKT500_5_1_Samantha-15: You’re right. Let’s get started.

Slide 8

Scene 2

[Ed, Samantha, Carl – Conference Room]

Ed and Samantha meet with Carl in the conference room to share the next steps for the tablet launch.

MKT500_5_2_Ed-1: Hello, Carl. I hope you had a good lunch. We have a lot to share with you regarding the product life cycle of our new tablet.

Much like the personalities of people, the product life cycle and the diffusion of innovation process will vary. Some companies are innovators, whereas others are reactors. Golds Reling is an innovative company.

MKT500_5_2_Carl-1: I agree.

MKT500_5_2_Ed-2: Our research shows that the first to market is often the first to fail because a new concept takes a while to sink into the minds of customers. By comparison, first movers may have advantages in launching new products because there is less risk. In either case, after the first to market, the next few “early follower” firms have approximately the same survival risks when launching either totally new or incrementally new products. Next generation products such as ours are easier to launch because there is an existing customer base, channels of distribution, and much more predictability.

MKT500_5_2_Samantha-1: So, based on our research after completion of the test marketing process, prior to our launch, this data will be used in an attempt to predict the tablet’s likely success. If the predictions of sales are not promising, this stage is the last opportunity for Golds Reling to abort before launching. If the predictions are promising, we will proceed to commercialize.

Here is the formula that we will use to make our predictions.

Slide 9

Interaction

Click the segments of the equation to learn more about sales predictions.

$SP = MP x PI x Pr.

MKT500_5_2_Samantha-2: Click the segments of the equation to learn more about sales predictions.

MKT500_5_2_Samantha-3: We have constructed a forecasting model, and it will be used to estimate the sales potential, or dollar sign S.P.

MKT500_5_2_Samantha-4: The first estimate needed for this is market potential, known as M.P., which is how many units we might possibly sell. We will use some data from our previous launches to decide on potential unit projections. Secondary data or other relevant benchmarking data are also used.

MKT500_5_2_Samantha-5: Next, P.I., the estimate of the purchase intention, or the likelihood that the target segment will buy the product, has to be determined. This number comes from the most recent marketing research that was conducted.

MKT500_5_2_Samantha-6: Finally, the component we need to consider which is under our control is Pr., the price the company intends to charge. All of these components are put into the equation: dollar sign SP equals market potential times purchase intention times price charged.

Slide 10

Scene 2, cont.

[Ed, Samantha, Carl – Conference Room]

MKT500_5_2_Carl-2: This is very impressive, and Golds Reling is in good hands with both of you in charge of this launch. I’m eager to see your plans for the next steps of setting the price and determining the distribution channels. Good work!

Slide 11

Interaction - Check Your Understanding.

Select the answer that best completes the sentence.

During the introduction stage of the product life cycle, sales grow slowly and____:

A. competition becomes tough

B. profit is minimal

C. more product is needed

D. advertising expenditures are low.

E. the promotion is complete.

A: Incorrect Feedback: Competition becomes tough in the growth stage.

B. Correct Feedback: Profit is minimal because the company has invested heavily in research and development.

C: Incorrect Feedback: Product development has already occurred.

D: Incorrect Feedback: Advertising expenditures are really high during the introduction stage.

E: Incorrect Feedback: Promotion is a big part of the growth and maturity stages.

MKT500_5_2_Ed-3: Select the answer that best completes the sentence.

Slide 12

Scene 3

[Ed, Samantha – Hallway]

MKT500_5_3_Samantha-1: I’m glad Carl appreciated the research we’d done for each stage of the tablet’s product life cycle. I really do believe that with the right strategies, Golds Reling will be able to achieve both top-of-the-mind and spontaneous brand awareness with the new tablet.

MKT500_5_3_Ed-1: I agree. With buzz marketing, we’ll attract the innovators and early adapters that we identified in the diffusion model, and we’ll be able to successfully penetrate the market.

Remember that we have an e-Activity and the weekly threaded discussion on new product development and the product life cycle where we can discuss this further. See you next week!