Addis Ababa university school of commerce

PREPARED BY:AGEREDECH GETENEH BERHAN KETEMA

DANIEL SULAMO
EYERUSALEM HABTU

Product Development
Introduction product :- is any thing offered to the market that has value and satisfy wants and need. Organizations provide products to meet customer needs. One common way of thinking about products is to see them as a series of layers surrounding the central core: It is essential to any marketing activity, since it is by consuming the product that a customer experiences enjoyment and utility.

What Organizations Provide for Customers

Organizations provide products to meet customer needs. One common way of thinking about products is to see them as a series of layers surrounding the central core.
1. The core product

2. The tangible product

3.

The augmented product

4. The potential product.

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Organizations provide products to meet customer needs. One common way of thinking about products is to see them as a series of layers surrounding the central core. 1. The core product . The core product represents the basic need that is being provided in the case of a bank current account, the core product is money transmition. At the core-product level, all organizations in the market are basically the same all current accounts offer money transmission, all credit cards offer the opportunity to delay payment, and all unit trusts provide an investment opportunity.

2. The tangible product. at this level the organization will make the product identifiable by adding certain features, facilities, brand name, accessibility etc. The products of different organizations will be slightly differentiated although, from the consumers perspective, all the features offered in this layer are what they would expect as a minimum before purchasing. This suggests that it would be difficult really to differentiate products at this level.

3. The augmented product., is usually used to refer to those features which organizations add to make their products distinct from the competition. It is at this level that an organization hopes to gain a competitive edge by offering attractive features that competing products do not offer. For instance, investing only in environmentally responsible companies.
4. The potential product. This refers to features that are either

very new or not yet available, but which can potentially be added to a product to make it very distinct. Eg. On line buying and selling

Having all the above in mind, Financial services organizations will look to develop services that meet some or all of the financial needs of some or all customer groups. Once a product is established, product modification and product development are an essential issues for organizations. Product modification is concerned with changing the attributes of a product to make it more attractive to the marketplace. For instance, making fixed annual repayments on existing mortgages.

Product development:Is growth strategy which is used by firms and involves creating a new variant of an existing product.

New-Product Development Strategy

Basically there are two ways to obtain new products Acquisition refers to the buying of a whole company, a patent, or a license to produce someone elses product

New product development refers to original products, product improvements, product modifications, and new brands developed from the firms own research and development

New-Product Development Process

Stages in New-Product Development

Idea Generation
Idea generation is the systematic search for new-product ideas Sources of new-product ideas Internal External Internal sources refer to the companys own formal research and development, management and staff, and intrapreneurial programs External sources refer to sources outside the company such as customers, competitors, distributors, suppliers, and outside design firms

idea screening
Identify good ideas and drop poor ideas Screening Framework:
Is it real? Can we win? Is it worth doing? Concept Development and Testing Refers Developing to testing new-product concepts with groups of target consumers

Marketing Strategy Development

Refers to the initial marketing strategy for introducing the product to the market. Marketing strategy statement includes:

Description of the target market Value proposition Sales and profit goals

Business analysis involves a review of the sales, costs, and profit projections to find out whether they satisfy the companys objectives or not.

Product development
It involves the creation and testing of one or more physical versions of the product by the R&D or engineering departments which requires an increase in investment.

Test marketing:- is the stage at which the product and marketing program are introduced into more realistic marketing settings. It Provides the marketer with experience in testing the product and entire marketing program before full introduction.

Reasons for new product failure

Overestimation of market size Poor design Incorrect positioning Wrong timing Priced too high Ineffective promotion Management influence High development costs Competition

product management decisions

Implications for new product development

New product development and launch has to be based upon significant new products that can be expected to have a prolonged life for the provider. Furthermore, designing products and contracts in such a way as to facilitate migration of current products to newer variants in order to mitigate the legacy cost problem.

Product development involves creating a new variant of an existing product, and is typically associated with either product-line stretching or product proliferation. With increases in competition and with high consumer expectations, product modification is important for organizations seeking to maintain and expand the customer base. But in a general term Product development is growth strategy used by firms, that occurs through developing related products and modifying existing products to appeal to current markets.

Growth in existing market can be achieved by increasing market share or by increasing product usage. product usage can also be increased by:Increasing frequency of consumption :- attempt to increase usage among current users. Or by Increasing the level of consumption:- ex. increase insurance coverage

Expanding geographically: operating to another region. ex VISA card location Expand in new market segment:- consider and serve a wide variety of segmentation variables. ex. opening new branches into new segment.

more over, growth in existing market can be through Market development with existing products . Sensibly, it is duplicating the business operation with minor adaptive changes,

The other growth strategy is product development. it can be attained through product feature additions, product line extension, developing new generation product/technologies and by developing new product for existing market . I. Product feature additions: - to present viable growth opportunities firms add features on their current products. They can be used as a means of differentiating the service. Nonetheless, the actual range of distinct features which can be attached to a particular

financial service firm is limited and may not provide a longterm basis for differentiation, As these features can be easily copied. Accordingly, any attempt to differentiate a product at the expected or augmented level must look beyond simple product features and consider instead issues such as quality, branding and organizational image.

But it is so obvious that quality in the service sector in general, and in financial services in particular, can be a rather more complex concept. II. Product line extension: - it aims at expanding or broadening the product line in which the distribution or even much of the manufacturing will be common to the line extension. it involves the addition of new services to an existing service line, which has traditionally accounted for much of the new product development activity in financial institutions.

 considering points will customers benefit from the system do potential manufacturing, marketing efficiencies for an

expanded product line is the new product/ service compatible with the firms image, etc.

III. Developing new generation product/technologies it is when financial institutions use new technologies to make their business and market more attractive , which enables them to provide more sales of their services. IV. Developing new product or service for existing market It is a growth strategy by adding compatible products that share customers with but very different from existing products.

Implications for new product development

New product development and launch has to be based upon significant new products that can be expected to have a prolonged life for the provider. Furthermore, designing products and contracts in such a way as to facilitate migration of current products to newer variants in order to mitigate the legacy cost problem.

Product development management decision

Product management decisions

The two broad categories Management of existing product lines Product range management/New product development 1. Management of existing product lines. Covers two broad areas(Product attributes and product modification). Product attributes-include features, brand name(memorable name), quality, etc of a product attached to a particular product. Quality can be technical ( outcome based ) and/or functional (process) quality

 Product modification/product development Once a product is established, there are two broad

areas that require attention: product modification and product development. Product modification is concerned with changing the attributes of a product to make it more attractive to the marketplace. Product development involves creating a new variant of an existing product, and is typically associated with either product-line stretching or product proliferation

 Product modification in financial services aims to improve

the performance of an existing product. improving the delivery system (redesigning an on-line banking site to make it more useable). With increases in competition and with high consumer expectations, product modification is important for organizations seeking to maintain and expand the customer base

 Obviously, if a product is at the mature or decline stage in its

lifecycle then additional expenditure on that product may be risky. At the same time, trying to develop completely new products is also risky, so an approach that concentrates on modifying existing products can be very attractive. Product-line stretching or product proliferation involves adding new services to an existing service line, and has traditionally accounted for much of the new product development activity in financial institutions. One widespread example of this form of activity is the development of premium bank accounts providing customers with a range of additional services.

For example, in addition to its Regular Savings Account, HDFC Bank in India offers a Payroll Account, a Classic Salary Account, a Regular Salary Account and a Premium Salary Account, each of which offers a slightly different set of features and attributes
The rationale for stretching a product line is to further

differentiate existing products in order to appeal to more specific segments of the market. Since line stretching is a form of new product development in a market with which the organization is familiar, the risks tend to be relatively low What are the dangers with line stretching strategy?

New product development

Developing new products is an important aspect of product

management because it ensures that the range is up to date innovative, and meets changing consumer needs. In this section there are five specific types of new product development: Major innovations-which are products that are new to the organization and new to the market. As such, while they offer great potential in terms of returns they are also more risky since they will typically require a much higher level of investment and the use of different and new technologies. They may also involve the organization moving into areas in which it is comparatively inexperienced. Such major innovations are rare in financial services.(mobile banking in Ethiopia)

 Startup business-consists of new services for market that is

already served by existing product that meet the same generic need.( money transfer by mail- telegram). Service improvement- changes in features of services that are already offered might involve faster execution of the of existing service process , extended hour of services. New service lines. These are products that are new to the organization but not new to the market. Sometimes they are referred to as me too products, and this aspect of product development has been more in evidence than wholly original product development during the past.

 Since there are competing products already established in the

market the potential returns may be lower, but at the same time the organization is moving into an area with which it is considerably more familiar, in terms of either the technology or the markets. It is probably one of the most common forms of NPD in the financial services sector, particularly so as regulator changes have reduced some of the restrictions on what organizations can do. Style change- change in color scheme, logo and etc of the organization. This does involves fundamental change in service rather its appearance.

New product development stages

New-product development strategy- A clear strategy is important to ensure that all those involved understand the importance of NPD and what the organization wishes to achieve. For example, it is essential that all those involved should understand whether the process of NPD is to be orientated towards taking advantage of new market segments, seen as crucial to the continued competitiveness of the organization, required to maintain profitability, or designed to reduce excess capacity or even out fluctuating demands 2. Idea generation-Ideas may be generated internally from specialized NPD teams, from employee feedback of suggestions. Externally, ideas may be generated based on customer feedback, market research, specialist new product development agencies or by copying competitors.
1.

3. Idea screening. The variety of ideas produced at the ideageneration stage must be screened to check that they are suitable. This usually means deciding, in advance, a set of criteria to be used when ideas are evaluated. The sort of criteria used can vary, but questions asked are likely to include the following: Does the idea fit with the organizations strategy? Does the idea fit with the organizations capabilities? Does the idea appeal to the right market segments? Is the idea viable in terms of cost and profit? 4. Development and testing-this stage states that the basic idea for the new product must be translated into a specific set of features and attributes which the product will display (how this can be applicable in financial sector?)

 At this stage it is common to test this newly defined product and to

identify consumer and market reactions in order to make any necessary modifications to the product before it is launched. The problem with test-marketing in the financial service sector is that it gives competitors advance warning of an organizations latest ideas and thus offers competitors the opportunity to imitate. As a consequence, test-marketing of financial services is comparatively unusual. Many organizations argue that the actual costs of developing new products are often low, but the losses from giving advance warning to competitors may be quite high. 5. Product launch. is the final stage and the true test of any newly developed product; it is the point at which the organization makes a full-scale business commitment to the product.

 At this stage, the major decisions are essentially of an

operational nature decisions regarding the timing of the launch, the geographical location of the launch and the specific marketing tactics to be used in support of that launch

Drivers of product development

Drivers of product development

There are two major drivers that help organization takes a

strategic position in its business: 1. internal drivers: Profitability Research and development Cost Leadership and image 2. External drivers . Regulation Technology Competition Customer expectation

 INTERNAL DRIVERS profitability- the goal of any business is to maximize

profit. Financial service organizations either modify existing product or develop new products so as to increase their profit

Research and development(R&D)-Involves: Development of new products before competitors

Improving product quality

Improving manufacturing processes to reduce costs

 Cost - providing services at lower price than competitors do. For

instance banks that have potential provide service charge for money transfer will increase their market share Quality leadership and image service organizations with brand reputation can easily extend their product line. In such cases customers give priority to price than quality. Today the focus has been on customer perceived quality, especially when dealing with service operations. The serviceprofit chain of Heskett et al. (1994) clarifies the role of quality, and its inter-relationships with operational aspects of a service organization.

 The arguments in Heskett et al. proceed as follows: (i)

profit and growth are stimulated primarily by customer loyalty; (ii) loyalty is a direct result of customer satisfaction; (iii)satisfaction is largely influenced by the value of services provided to customers; (v) value is created by satisfied, loyal and productive employees; (vi) employee satisfaction results primarily from highquality support services and policies that enable employees to deliver results to customers.

 Government Actions Driving Product Development A novel development in the promotion of green mortgages is

currently underway in the UK. Announced in January 2007, the countrys All Party Parliamentary Climate Change Group submitted letters to the countrys top 100 mortgage lenders requesting each to detail their plans, if any, for the launch of environmentally friendly products Technology- When existing product line gets matured, new innovation are pursued to cop up with changing environment( eg. Convenient use of banking service using ATM)

Competition- Induce your competitors not to invest in those products, markets and services where you expect to invest the most .that is the fundamental rule of strategy.(Bruce Henderson, Founder of BCG). The regular monitoring of competitors is an important source of information for product managers, for several reasons. First, changes in a competitors product range and product features will indicate a possible change in the pattern of competition. Secondly, because it is relatively easy to copy financial services, monitoring what competitors are doing can be an important source of new product ideas

 Customer expectations - include the response of

customers to wards a particular product -, Functionality, ,Convenience( time& place utility ), Brand loyalty(satisfaction level in existing service) ,Values(Price, quality of the service provided) Organizations provide products to meet customer needs. One common way of thinking about products is to see them as a series of layers surrounding the central core:

 the core product , the tangible product, the augmented

product, The potential product. There are two broad categories of product management decisions which include Management of existing product lines( features, attributes, brand name etc., Product range management/New product development . Product development involves creating a new variant of an existing product, and is typically associated with either product-line stretching or product proliferation.

 There are five types of NPD (Major innovations, Startup

business, Service improvement, New service lines, Style change. A new product development in financial product passes-Newproduct development strategy- Idea generation, Idea screening, development and testing, product launch. There are two major drivers that help organization takes a strategic position in its business: the drivers can be classified as internal(such as profitability, research and development, cost effectiveness, quality leadership and image); external divers (include governmental regulation, technology, competition, customer perception and etc.)

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Developing new products is an important aspect of product management because it ensures that the range is up to date, innovative, and meets changing consumer needs.

It should be borne in mind that innovation can be in areas concerning service features as well as utility features. In this section we will consider two specific types of new product development:

Generally speaking, the term New Product Development (NPD) covers a range of types of innovation; some new products are genuinely new, but others are actually developments of existing product. New product development includes the introduction of new financial services (such as savings or insurance), new product features (such as loan terms, amortization schedules, and interest rates), and tangible products (such as smart cards).

Traditional Approach to New Product Development

Traditional Approach to New Product Development Opportunity Identification Design & Development Market Testing Commercialization Analysis & Evaluation Life Cycle Management Harvest/Terminate

The width of the range refers to the number of different broad product types or lines. For instance, savings, investment, credit card. The length of the line: number of related products each type or line will consist.

CTD
A key aspect of product management is to make decisions about the development of this range to ensure that the organization maintains and improves its competitive position. Product management decision

1 . Management of existing product lines

This includes product design (features, quality,

brand, points of differentiation, etc.), product modification (checking product performance and making adjustments to product design where necessary) and product line management (addition of new variants of existing products).

Product range management:

focuses on the overall choices regarding the range of products to offer. Of particular importance in this area are the introduction of new products and the removal of older, poorerperforming products. It should be recognized that they are necessarily interdependent; product attribute decisions have implications for the product range, and decisions relating to the product range will also have implications for aspects of the new product development process, managing products over their lifecycle, and product elimination.

CTD
Like any aspect of marketing, the product management process will be influenced by a range of external factors; in particular, it will be important for organizations regularly to monitor customers, competitors and the external and internal environments to identify new ways of meeting consumer needs. Equally, of course, product management must be based on a clear understanding of the organizations strengths and weaknesses.

Each factor is considered here in turn. Customers: For corporate customers, marketing managers must focus on the objectives and strategies of customers and on understanding the environment in which customers businesses operate in order to identify likely financial needs. For example, an awareness of the increasing time pressure on many consumers.

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2. Competitors. The regular monitoring of competitors is an important source of information for product managers, for several reasons. First, changes in a competitors product range and product features will indicate a possible change in the pattern of competition. Secondly, because it is relatively easy to copy financial services, monitoring what competitors are doing can be an important source of new product ideas.

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External environment. Identify new threats and opportunities marketing managers must be aware of general trends in the environment. the development of WAP technology provided an opportunity for the development of a new method of distribution. In contrast, the progress of the EU policy to create a single European market in financial services might be regarded as a significant threat by many domestic providers.

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4. Internal factors. In order to understand how best to respond to a particular opportunity or threat and to make good product decisions, managers must have a clear understanding of the resources available to the organization and its particular strengths and weaknesses. Thus, for example, Prudentials strengths and track record in life insurance and investment management give the company a strength that it has been able to match to emerging market opportunities in countries such as Vietnam, Thailand, Indonesia and the Philippines.

Managing existing product line

The product development decisions deals with the management decision of the product. these decisions may be:I. Product attributes This is one among the most basic sets of decisions which relates to the choice of product attributes (features, brand name, quality, etc.). The attributes are used to create a tangible or augmented product, therefore, the generic service product such as life insurance, has to be developed into some tangible or augmented form.

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These features are used as one means of differentiating the service. However, the actual range of distinct features which can be attached to a particular financial service is limited and may not provide a long-term basis for differentiation, since such features are easily copied. Thus, any attempt to differentiate a product at the expected or augmented level must look beyond simple product features and consider instead issues such as quality, branding and organizational image.

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For instance Quality is an increasingly important product feature, and refers to the ability of a product to perform its intended task. But it is so obvious that quality in the service sector in general, and in financial services in particular, can be a rather more complex concept.

II. Product modification/pdt development

The other decision deals with Product modification/product development After the product is already is established, the two areas that require attention are product modification and product development. Product modification is concerned with changing the attributes of a product to make it more attractive to the marketplace.

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In financial services, Product modification aims to

improve the performance of an existing product. Perceptibly at the mature or decline stage in the product lifecycle making additional investment on that product may be risky. Moreover, trying to develop completely new products is also risky; therefore an approach for decision making concentrates on modifying existing products which may make the market more attractive.

On the other hand, Product development involves creating a new variant of an existing product, and is classically allied with either product-line stretching or product proliferation. Product-line stretching or product proliferation involves adding new services to an existing service line, which has traditionally accounted for much of the new product development activity in financial institutions.

Advantages of line stretching Enables to further differentiate existing products in order to appeal to more specific segments of the market. The risks tend to be relatively low. Since line stretching is a form of new product development in a market with which the organization is familiar,

Disadvantages of line streching

Increase costs but not increase revenue The product line will be long and difficult to manage,(

confusion amongst consumers who almost face too much choice). difficult to Simply cease manufacture, run down stocks and remove the maxi-mortgage from its product range Accordingly, product line management must be aware of the need to consider withdrawing existing products as well as introducing new ones.

Drives for product development