Establishing positioning of new products is an extremely challenging issue while developing marketing strategies. Whether the new product is a novel entity or one that adds value to existing products, a vital aspect of such functions is the prevalence of a hypercompetitive environment. As this paper has proposed and demonstrated, the present marketing research methodologies used by majority of the companies in ascertaining the ideal product positioning is not efficient and does not allow the development of actual and aspiring positioning themes. Perhaps this is due to the fact that potential customers are made to consider the characteristics of the products from the firm’s perspectives and the marketing strategies do not exhaustively address the aspirations of customers. This paper has examined several approaches for positioning with a focus on customer driven positioning in keeping with other quantitative and qualitative means that are utilized in professional development of promotions. The paper has also delved into the processes that firms engage in while undertaking to launch new product lines. The feasibility of introducing new products including testing, designing and marketing in regard to product launches have been examined in the context of marketing and impact on financial statements. The most important and critical factors that positively impact the determination of a product’s optimum positioning have been examined in the light of factors that makes firms to achieve such a situation.
In order to understand the concept of promotion planning it is vital to view it in the context of the firm’s over all marketing and business plans, specifically its strategies and objectives. Along with the traditional promotion activities, other aspects of the marketing plan are also pertinent in this regard. Other elements in the context of optimal positioning of new products include distribution, pricing, product and the quality of service provided to customers. Promotional activities must be carried out during the last phase of the marketing and business planning processes and must not be viewed as a stand alone set of actions which have little relevance to the firm’s markets, purpose and goals.
As pointed out by Peter Anderson (2009), “Over two thousand years ago, the great strategist Sun Tzu, pontificated that the ground (i.e., positioning) was a key element of competition/conflict. Where the victor, among other factors, was determined primarily by who held the “high-ground.” Sun Tzu suggested that it is best to first identify and acquire the optimal ground, then hold this position and persuade the opposition to come to you. This strategy offers many benefits. First, a focused-impact can be harnessed by channeling the energy saved by maintaining ground. Second, it affords one the competitive knowledge, strengths and insights from their own positioning” (Peter, 2009). It is required of professional marketing teams that marketing strategies should be framed so that the market is initially researched to identify the specific consumer segments and thereafter the optimal positioning strategies should be applied. The ideal marketing strategy optimizes the firm’s communication whereby the limited resources and energies are conserved.
When launching a new product the starting point of effective marketing is its efficient product positioning. But whatever position that the firms aims at creating for the product, the ultimate position is the one that comes to prevail in the minds of the target audience. Efficient positioning of new products has to be based on the actual needs of consumers, researched market facts and the quantifiable attributes of the new product. The product attributes have to be precisely and strongly communicated to the target audience since positioning is based on hard facts and impacts business results to a great extent. In gaining a larger share of the market, firms are mostly engaged in product launch strategies and tactical launching capabilities. New product launches are exciting, rewarding and challenging at the same time and creating a strong and efficient positioning for new products is a highly methodical exercise which may not surely result in concrete marketing results. An effective product launch implies that there is a powerful brand and a well crafted marketing strategy.
The cost of administering a product is quite costly and a complex effort. Thus it is required to have strong market potential in ensuring the consistent financial viability of the product. Usually financial hurdles are measured in terms of returns on investments and market shares. A significant benchmark for firms is the internal rate of return which is arrived at on the basis of the opportunity costs, which implies the amounts that the firm could have earned in the next best investment. Some firms just cap the amounts of investment dollars that are made available for rolling out the initial products.
The marketing team comprising of brand managers, advertisement agency and marketing research teams make a strategy a few months before the actual launch of the product. Various customer attributes and aspirations are considered so that a template is designed that considers certain concept statements:
- Target audience is indicative of the customer groups addressed by the concept statement.
- Frame of reference defines the aspirations of customers.
- The benefits statement outlines the major advantages that the product offers.
- A basis for substantiating the positive attributes of the new product.
The marketing team needs to devise a problem statement that defines the unmet needs of the market in the given product category and the advantages that will accrue to consumers, emotionally and physically, by using the new product. Marketing teams normally aim at developing several statements that are differentiated amongst each other and which define the wide array of different places where the new product could succeed and occupy a strong place in relation to present and future competitors. Such concept statements can be tested by way of consistent rounds of marketing research efforts in ascertaining which ones resonate with different consumer segments in terms of different parameters such as motivational value, credibility and relevance. This way the positioning can be determined by finalizing a few strategies in keeping with the expected share of markets from different segments. After the positioning decision has been taken the next step is to ascertain how to efficiently deploy such positioning amongst customers. Subsequent actions include material testing, logo testing and testing of promotional concepts.
Although such processes of establishing positioning have been gainfully deployed by several firms, there are some faults in such approaches since they do not demonstrate a process whereby customers can learn in depth about new products. Customers often reject a reasonable statement because it does not appeal to their aspirations. Moreover, brand teams often get frustrated in observing some facets if the efforts do not appear credible to consumers. The next generation approach to positioning is little different in providing customers with building blocks. Making use of a systematic methodology they are made to build upon the positioning statements and this process allows assessment and examination of the aspirational claims. This methodology does not differ much from the ways in which firms presently devise their positioning strategies. The first stage in this process entails pre-positioning research that is aimed at creating the main elements that gainfully differentiate the new product from its competitors. The next stage in the process pertains to efforts being made by marketing teams to refocus on important theoretical aspects of positioning.
Positioning is a task that is essentially performed by the brand and marketing teams and aims at influencing customers’ thinking patterns. While positioning new products, a radical shift may be involved in the landscape of the specific customer segments whereby the objective is to venture into territories that open avenues in terms of what the product can be instead of what it should be. Essentially, positioning does not pertain to what a customer likes or does not like but about what kind of persuasion will work in taking the desired course of actions. The positioning statement relates to integral and ideal enduring statements of purpose which represent a signal and organizing principle for every promotional development activity that follows. The idea is to establish major elements of messages which may fall in each of the under mentioned rubrics:
- Problem statements- Optional elements of the positioning statements are inclusive of problem statement which builds upon specific unmet requirements of the market that will be met by the new product.
- Functional benefits refer to certain mechanistic or scientific properties of the new product which adds further utility to existing brands.
- Emotional benefits pertain to the emotion which is derived by customers by using the product in question, in terms of for example, trust, confidence and reassurance.
- Main themes are the truly exclusive and aspirational benefits provided by the new product.
By working upon such a learning and building technique, customers can realize the actual advantages of a product and through this approach eventually arrive at a higher satisfaction level in establishing the positioning of new products. This approach can further serve as the basis for development of promotional materials in future campaigns. Once a new product is launched by firms, its success depends upon whether the market has noticed it and whether average revenues and profits are ramping at a higher speed than costs during the first two quarters. A significant measure for the new product’s success is to see whether competition has reacted and market changed in keeping with the firm’s expectations. This aspect is ascertained if the product reaches new markets and grabs sizable market shares from competitors. If the product demonstrates sales so that the firm is ahead of its projected profit curve the launch has been successful.
Product launch has now become an art which can make or break new products. Successful product launches enables potential consumers to become conscious of the new product and they become eager to try it out. The process of launching new products plays a crucial role in ensuring that the offering reaches the markets at the right time and in a cost effective method, though the entire process can prove to be a resource intensive and arduous effort. But if the product launch process is executed efficiently it makes a positive difference between victory and failure for the firm.
The Need for Optimal Positioning
Positioning a new product is a very crucial and difficult challenge facing marketing professionals. Positioning remains an important hurdle due to underperformance of products and shifts in markets and must be overcome to succeed in marketing efforts. Optimal positioning is the foundation upon which convincing messaging is cultivated, which makes it a springboard for the firm’s complete communications strategies. It plays an important role in creating factors of product differentiation which is required in generating market segmentation. An efficient positioning enables confidence in terms of the what, how and who of the complete communication strategy and permits the firm’s external and internal marketing groups to create beneficial and convincing creative and copy strategies for the new brand. Past patterns have shown that the development of a compelling process for positioning requires a blend of discipline and proven processes along with well designed creativity.
It is often said that a product that is well designed, suitably priced and distributed will not need much efforts for promotion, rather consumers would be readily buying it. Some of the new products have the good fortune of being positioned in a seller’s market and producers of such products are able to sell their entire production without the need for promotion. But the fact remains that in most markets the competition is fierce amongst suppliers whereby every supplier has to make hectic efforts in communicating with buyers and luring them in providing exclusive advantages from buying their respective products. This paper aims to develop a thorough understanding of promotion and positioning as an inherent function of marketing and business planning processes. The major stages of the promotion planning and positioning processes will be discussed along with the variety and options of promotion strategies, models of communicative strategies and the monitoring of positioning activities.
Marketers and Product Positioning
Product positioning occupies the minds of marketers more than corporate positioning and requires immense skills, detailed attention and a thorough understanding of different issues including a complete knowledge about the market segments and target customers. Positioning essentially refers to the perceived status of a product in the market place irrespective of whether it is intentionally placed or by a matter of chance or luck. Product positioning for new products implies the creation of a group of cautiously crafted positioning statements and plans, supporting statement and elaborative statement which prove it to be better than the claims, advantages and capability of the other products in the market. This way all related information and statements that are crucial for communicating and defining the position of a product for the complete positioning framework for a firm. External communication with customers may not necessarily use the same texts that are created for the positioning framework, but all external communications make use of the positioning framework in all forms. Positioning is also referred to as relative positioning in terms of creating an exclusive and different position in the context of the prevailing competition.
In the context of positioning of new products Monica Brand has asserted that “product launch is marked by initial low sales and high start-up costs, mostly because of the heavy promotion needed to build customer awareness and entice demand. This staff-intensive period should be brief if the pilot test was effective because early adopters should already be familiar with the product. The main challenge for the institution at this phase is to make sure the systems and staff are prepared for the subsequent growth phase, which will likely put a strain on the organization” (Brand, 1998).
There is not a single product which does not have any position. Product positioning concerns the recognition and visibility and how it is viewed by the customer. In markets where there is intense competition and rivalry, it becomes critical for customers to have more choice and a thorough understanding of the product’s unique benefits. A product that is offered with clear orientations towards the needs of a specific target segment will be purchased. However larger margins can be warranted if value of the product is enhanced and firms try to manage the positions of their products in using varied strategies of positioning in order to take new positions in the minds of customers and thus to acquire an edge over competitors. Positioning was previously very crucial in markets which were competitive and in which barriers for mobility was relatively less. However in the present times such traits are applied to almost every sector of business and to all economies. It is not possible for any product to stand in the market unless it is supported with intensive and distinctive positioning.
The problem with the present research is that it is rather vivid. It is not enough for a product to enjoy a good brand image to be successful in the market. The product has to enjoy an explicit and distinctive image in the mind of the present and potential customer as compared to other brands in the market. Successful positioning pertains to a situation whereby the product is able to establish a strong place in the minds of consumers. The objective of positioning is to establish an exclusive and advantageous image in the mind of target customers (Bhat, 1998). According to Fill (2006), “positioning, therefore, is the natural conclusion to the sequence of activities that constitute a core part of the marketing strategy. Market segmentation and target marketing are prerequisites to successful positioning (Fill, 2006).
Product Positioning Steps
The customer decision making process is considered as the most crucial in the product positioning process. According to Winner (2007), marketing teams have to take care of the following issues while framing strategies for positioning:
- What dimensions do consumers use to evaluate product offerings in the industry or category?
- How important is each of these dimensions is in the decision making process?
- How do you and competition compare on the dimensions?
- What decision processes do the customers use?
Hooley (2001) had determined the following steps in the product positioning process
- Identification of competitors
- Singling out decision making attributes
- Evaluation out of decision making attribute significance
- Identification of competitor position according to the most important attributes
- Identification of consumer needs
- Preparation of a consumer map
- Selection of the desired position
- Selection of positioning strategy
Traditional approach to Brand Positioning
While discussing positioning it is beneficial to define the terminology. Al Ries and Jack Trout have pointed out in their influential work, Positioning, that “positioning is where the company wants its product to be placed in the customer’s mind so that it will achieve optimal utilization” (Rais & Trout, 1972). Positioning is the basis for product marketing and the firm’s internal statement of objectives which provides information and leads to the establishment of the complete marketing communication framework of the firm. A positioning statement can be judged as efficient only if it holds strength against the objective performances of the product. The positioning statement has to be exclusive in differentiating from other remedial options and in being of relevance and motivation to encourage a prescribing behavioral pattern amongst customers. It has been pointed out by Ries and Trout that “history shows that the first brand into the brain, on average, gets twice the long-term market share of the number 2 brand. Almost all the material advantages accrue to the leader. In the absence of any strong reasons to the contrary, consumers probably will select the same brand for their next purchase as they selected for their last purchase” (Ries & Trout, 1972).
Presently the traditional approaches towards brand positioning relate to reaction statements of customers developed by the marketing teams of firms. Generally the first step in the process is pre-positioning which entails meetings amongst marketing teams and primary research that is conducted externally. The main objective for such exercise is to establish a thorough knowledge of the areas in which the new product can be fitted and to commence with the development of promotional communication which serves as a means for the positioning concepts. Qualitative research helps a great deal in exposing customers to the product profiles as also the profiles of the main competitors. This way the firm gains clarification about the prevailing and possible competitive benefits provided by the new product (Sreekumar et al, 2009).
The most significant contributors and thinkers during the early period pertaining to branding were Jack Trout and Al Ries. They reasoned how positioning takes place in the customer’s mind. In elaborating upon brand categories, they considered that customers are directly concerned only about the utility they derive from goods and have limited interest in the corporate goals in regard to the brands rolled out by firms. For instance if he or she think of smart phones, he may have in mind Blackberry at number one, iPhone at number two and then others. The authors had written about the crucial aspects of category and brand leadership as also the methods to compete with the top leaders and how to reach the top slot in consumer segments by categorizing and sub categorizing. Most companies do not have the inherent tendency to create new categories of brands; they rather prefer to create legitimacy than to differentiate products in meeting the expectations of customers. They have the inherent tendency to desire legitimacy than to differentiate. Ries and Trout signaled a new era of marketing strategies which came to be known as the Era of Positioning. They held that
“Positioning has its roots in the packaged goods field where the concept was called product positioning. It literally meant the product’s form, package size and price as compared to competition… today we are entering an era that recognizes both the importance of the product and the importance of the company image, but more than anything else, stresses the need to create a position in the prospect’s mind” (Trout & Ries, 1972).
It is revealed by examining the concept of positioning that it does not pertain to a single or diverse theory. It incorporates several concepts which are usually related and is also as adaptable and resourceful as marketing strategies. Thus the concept which enables the most efficient and full coverage of positioning is referred to as positioning strategy. The extent of the term can broadly include internal and external positioning as also positioning in terms of a commercial medium and positioning for social accountability. The issues in this context relate to whether positioning is a new concept or is only an alternative means to express efficient marketing strategies. According to Maggard (2010), “positioning ideas are contained within the overall scope of marketing strategy and they appear to have some features that set them off from traditional marketing ideas. The following discussion examines these similarities and differences and reflects upon the contribution of positioning to the development of marketing thought” (Maggard, 2010).
Optimal positioning for new products is often subjected to a lot of variations in interpretations. Hence there is usually considerable difference of opinion in regard to what comprises an effective positioning strategy for new products. Mostly, positioning strategies are understood in the context of general terms that relate to the same things such as target selections and the subsequent promotional aspect of marketing strategies. Most marketing experts do not appear to be clear about the meaning of the different concepts but they are in agreement that positioning enables the provision of an efficient vehicle in interpreting the different elements of marketing strategies. Some experts emphasize the importance of single models of positioning and others focus on mixed concepts. For instance, William McGirr recommended the following:
- “Position your product in the marketplace so that it stands apart from competing brands. You can cover that consumer space as if you had a patent on it. Find a strong product position and sit on it” (McGirr, 1973).
- “Positioning tells what you stand for, what you are, how you would like customers to evaluate you. Your position telegraphs the simple truth of your products” (McGirr, 1973).
Positioning as a Conceptual Vehicle
Positioning makes significant contributions as a conceptual vehicle in effectively coordinating varied marketing concepts such as target markets, consumer preferences, product differentiation and market segmentation, to be effectively used for new product launches. The present environment is favorable for the application of some quantitative techniques to the concept of positions which is aptly demonstrated by the Fishbein and Rosenberg attitude models (Ray, 1973, p.35). Such a model is indicative of the possibility for manufacturers to impact factors affecting consumer attitudes towards the brand. Attitude research has revealed that a brand’s positioning in the prospective customer’s mind can be ascertained by a combination of the product characteristics in terms of flavors, colors, reliability, durability, quality and price. The customer weighs importance on each of these characteristics and it is possible by making promotion efforts to realign the preferences, thus making adjustments in the consumer’s mind about the position of the brand. Such concepts are equally effective and applicable with firms.
Primary and secondary differentiators
If a firm’s competitor owns efficacy based positioning it must find other ways of positioning its new product. Pre-emptive approaches are helpful in this regard in providing that many brands are present in the same class but possess different features. In being the first to position the product in that class the firm stands to benefit by being ahead in the race. Uniqueness is conferred on a firm that introduces its product in the market as it becomes synonymous with specific and appealing attributes such as safety, efficacy and tolerability. Moreover, the reputation based on positioning usually lasts for the life period of the brand. Such differentiators assume critical advantages in optimally positioning new products.
Head On Positioning
Head-on positioning is a concept that is applied to both firms and products. Till some time ago this strategy was not considered appropriate in view of the huge risks. Trout and Ries have stated in this regard that “you can’t compete head-on against a company that has a strong position. You can go around under or over, but never head-on,” (Trout & Ries, 1972). Such propositions made during the early days of the positioning era cited innumerable cases in substantiating on the contentions. Examples of head-on entries include the entry of Xerox into the computer industry and IBM’s entry into the market for paper copiers. According to Harry W. McMahon, “The general feeling has been that the new product too often served to the advantage of the entrenched brand. Starch research, in 1969, revealed test results on television advertising (the medium in which the head-on clash most frequently appears) that indicated that out of 1,800 commercials in prime time, an average of only 16% of the viewers could remember the name of the advertised product, and 8% were crediting the commercial to a rival product. In additional research of the same nature in 1970 and 1971, the identification figure dropped below 15%, with the degree of misidentification increasing,” (McMohan, 1973, p.38).
With the increasing popularity of comparison advertising, the past fears associated with head-on positioning appear to be diminishing. The area of positioning may pertain to automobiles, cosmetics or drugs but there is now no issue in placing new brands along side the well established leaders, all in the context of the same commercial settings. Usually most product launches are made directly or indirectly against leaders. Although the direct head-on action can be risky, adopting some variances in the kind of strategy is common practice.
Positioning for Social Accountability
The concept of positioning in the context of social accountability is very interesting and has been described by E B Weiss as, “we hear a good deal currently about positioning products. I suggest that products will also be positioned for social accountability. Johnson and Johnson, in its new marketing strategy, plans a program designed to locate areas of greatest consumer dissatisfaction with all of the company’s consumer products. That’s a splendid example of using a social audit to achieve improved service to the public – and improved profit performance,” (Weiss, 1972, p.78). The success of this approach of positioning is subject to speculation since every manufacturer of consumer goods has to be aware of the pattern towards the protection of consumer interests, a pattern which is slated to become more significant in the coming times. The stand of social accountability is gaining ground in the markets of today and many companies exert strong efforts in projecting an image of good citizenship and corporate governance through promotional planning.
Bayard Hooper (1973) has defined the potential for profits through positioning for social accountability. He focused on the belief that surveys contribute in indicating that most consumers do not trust the majority of firms and marketing managers. Further, majority of the consumers hold that the quality of products and customer service has gone down during the past one decade and that most managers also agree in this context. Hooper held that “You must convince your corporate clients that advertising can only gain in credibility as the products you are promoting gain in reliability, and you must make it clear to them that as Americans’ faith in business is declining, their expectations of what business should be doing as responsible corporate citizens is growing all the time,” (Hooper, 1973).
From the macro perspective it is possible that marketing strategies will have to become adaptive to the philosophy of social accountability in the same way as the marketing concept had become a necessity during the 1960s. Irrespective of whether it is a strategy or a philosophy the concept of social accountability is gradually taking the place of marketing concepts. Bell and Emery (1981) have held that future marketing strategies will have to face the difficulties and challenges in recognizing and dealing with the combined business objective of profitability and social responsibility and that a different viewpoint of the marketing concepts is the new approach in meeting such challenges. A large number of academicians, consumerists and businesses are now ready to approve the belief that “because it is amoral in its present form, the marketing concept has outlived its usefulness, especially for those firms whose products – engines, fertilizers, detergents, fuels, nuclear reactors, etc. – contribute pollution that threatens man’s very survival. A new concept of business responsibility to the public and to future generations must replace the current criterion of the highest level of current, individual need satisfaction that has been the goal of the marketing concept. Tomorrow’s customer must be defined not as some of the people but as all of the people.” (Webster, 1980).
According to Joshi et al (2009), companies consistently face challenges while making decisions about entering new markets where they have a leveraging advantage in the current markets but there is no positive impact on the corresponding social influences. They held that the optimal entry strategies of firms under such circumstances cannot be compared to the well known strategies of now or never or now or at maturity, which have been widely cited in the available literature. They attempted to establish that a powerful leveraging impact is not in the nature of enabling adequate reason for firms to try out new markets nor there should be any expectation of a back lash impact in deterring firms from entering new markets. The optimal strategy in this regard is necessitated by way of a careful trade off amongst the three issues of patience, back lash and leveraging. Therefore, Joshi et al (2009) feel that “an astute manager can always find the opportune time to enter the new market if she takes into account the dynamic and recursive nature of cross-market interaction effects, where leverage enhances the backlash but backlash weakens the leverage in a nonlinear, dynamic fashion” (Joshi et al, 2009). In regard to entering new markets the authors held that “we illustrate that firms stand to benefit from explicit considerations of these effects in deciding whether and when to enter a new market. Furthermore, we explore how the optimal time of entry into the new market relates to the time of peak sales for the existing market, demonstrating that depending on the interactive effects of leverage and backlash, entry could be optimal either before or after peak sales in the existing market” (Joshi et al, 2009).
New product development Strategies
Just as a product’s failure can result from changes in environmental factors and consumer tastes, a product can succeed due to the same reasons. A competitive environment which is favorable can lead the product to be a grand success. Firms should aim at developing new products that cater to specific requirement of the markets although in some cases a product can lead to market demand instead of responding to it. If the product is well aligned with the core competencies and the organization goals of the firm, it will receive a great deal of support from the market. The top management has a crucial role to play in supporting the product by marshalling the organization’s resources for effective implementation.
As per the principles of marketing, “new products usually fail due to a number of reasons such as overestimation of market size, product design problems, product incorrectly positioned, priced or advertised, costs of product development and competitive actions. In order to create new products successfully, firms must understand their customers, competitors and the markets as also develop products that provide immense value to customers.” (Principles of Marketing, 2010)
In order to create new products successfully, firms must understand their customers, competitors and the markets as also develop products that provide immense value to customers. The development of new products goes through a process whereby ideas are generated, ideas are screened and the concept developed and tested. A suitable market strategy has to be framed which is then analyzed from the business perspective. The next stage is of product development, test marketing and finally the product is commercialized. Krishnan and Ulrich have said about concept development that “decisions define not only the product specifications and the product’s basic physical configuration, but also the extended product offerings such as life-cycle services and after-sale supplies. There are five basic decisions to be made. What are the target values of the product attributes? What will the product concept be? What variants of the product will be offered? What is the product architecture? And, what will be the overall physical form and industrial design of the product?” (Krishnan and Ulrich, 2001)
Idea generation is the systematic search for ideas about new products solicited from employees, competitors, customers, distributors and suppliers. Idea screening is a process that spots new ideas and drops poor ones at the earliest. Companies often have systems that rate and screen ideas to ascertain market size, price of products, development time and costs and rates of return. The idea is then evaluated in the context of the general criteria of the company. The new product development process requires the development of new product ideas into different detailed product concepts. New product concepts have to be tested amongst groups of different target customers and the one that has the highest appeal is chosen.
Market strategy formulation entails the description of the target market in terms of planned product positioning, sales and profit objectives and market share. Short term planned price of the product, its distribution and marketing budget has to be decided along with the long term marketing mix strategy and sales and profit objectives. After completing such exercise a review of the pattern of product sales, costs and profit projections have to be made to ascertain that the planned objectives of the company are fulfilled. If they do not meet the company objectives the product concept has to be dropped. Test marketing is the next stage whereby the product and the corresponding marketing strategies are introduced into realistic market settings to test the efficacy and acceptability of the product. Elements that may be test marketed by a firm include positioning strategy, advertising, distribution, pricing, branding and packaging. Commercialization is an important concept for new product development (Rezwani, 2009).
Product positioning involves the creation of a complete marketing strategy which includes product attributes, images and prices as also service, distribution and packaging in order to meet the expectations of consumers in the specific market segment. Hence product positioning becomes a part of the over all procedure of market segmentation though entailing a narrowed focus. According to Glen L. Urban and Steven H. Star, “Product positioning takes place within a target market segment and tells us how we can compete most effectively in that market segment” (Urban & Star, 1991). It is important to understand the parameters utilized by consumers in evaluating the efficacy of marketing strategies and the parameters involved in the decision making process. It is of great help to the management in keeping track of consumer aspirations under different circumstances and amongst different market segments. After an understanding has been made of consumer perceptions, the firm should select the most efficient positioning for the product and initiate action in aligning the marketing strategies behind such positioning choices. In order to gain competitive advantages and an edge over competitors, management has to make discreet choice to position its products and use the marketing strategy in creating unique benefits for the customers by way of reliability and quality.
Before attempting to delve into further aspects of product positioning it is better to fully grasp the goals and processes of market segmentation. According to Charlene Prounis (2007), “positioning is the strategic process of analyzing a brand and identifying what makes it relevant and unique. When done well, it should result in a compelling perception of a product relative to its competitors’. A sound positioning strategy can then be used to facilitate creative communications. In general, positioning must achieve three critical goals: It must be relevant, it must be differentiating and it must be simple” (Prounis, 2007).
Product Life Cycle
The development of a new product is marked by a process which evolves with its maturity and the growth of the firm. Success of the product is to some extent due to the constant readjustments and fine tuning of the changes in market demands and the gradual aging process with the evolvement of the product through its life cycles. The launch of the product is usually characterized with high start up costs and low sales initially since there is a heavy need of promotion to create awareness amongst customers and to enhance demand. This period is considered to be short if the product’s pilot test was positive since the initial adaptors would have become familiar with the new product. The firm has to ensure that the institutional systems in the organization are ready for the ensuing phase of growth which will put pressure on the firm.
The growth phase is characterized with increased sales, reduction in average costs and the first stage of profits. Market penetration is a phase that needs a lot of marketing efforts in maintaining volumes and reducing costs per customer in order to get maximum profits. The product then gets fully integrated as a regular product of the firm and the firm starts the identification of cross selling prospects with other products. As the track record of the product develops new competitors enter the field and the firm has to make further efforts in identifying potential consumers and in implementing incentive schemes to reward staff for getting new customers. Additionally, the firm has to conduct more market research and initiate added publicity campaigns. In order to successfully position a new product the firm has to keep track of the following:
- Solicit client feedback throughout the process to continually refine the product.
- Expect problems to arise along the way.
- Generate institutional buy-in early and continually throughout the product development process
- Test the product in actual market settings and expand slowly.
- Make realistic cost revenue projections to prepare for the financial impact of adding another product.
- Make sure systems have sufficient capacity and flexibility to manage and track new products.
- Provide appropriate training and incentives to staff to ensure effective implementation.
- Cancel the project if external or internal conditions are not conducive to new products.
- Identify a product champion who will maintain momentum throughout the development process.
- Create a client-centered institution.
Competition inevitably results in product innovation and client driven firms consistently re-examine their service procedures in aiming to seize opportunities, satisfy customers and enhance profits. The most successful product launch of new products results when it occurs in expectation of market change instead of a response to crisis situations. By making adjustments towards an increased competitive atmosphere, new innovations are spawned and firms that do not recognize this necessity will be swept away in the market driven industries (Murray, 2006).
Implication on Financial Statements
If the product is successfully positioned from the very beginning in using the right methods of research, the company’s financial statements will be impacted positively. Return on investments is a method that compares the benefits of employing capital to finance a specific project to the costs incurred by the firm. The benefits represented by the return on investments are normally measured from the profits generated by the project. If the return on investment exceeds the costs of capital it pays for the firm to undertake the planned investment. Profits are defined as the earning of the firm after taking into account all expenses including taxes and interest that are paid. Instead of only looking at profits, financial analysis mostly pertains to examining the free cash flows of the firm. Theoretically, most items and activities in the balance sheets such as fixed assets, investments on working capital, deferred taxes and depreciation, influence cash flows available to the firm, though they may not be replicated in its net accounting profits. Thus cash and not book profits are crucial to the shareholders and management in any organization. Management of organizations recognize that negative operating cash flows limit their ability to be flexible in pursuing long term investments since internal growth cannot be financed by them. For shareholders, repayment of debts, dividend payments and repurchase of shares are possible only with the availability of excess cash flows resulting after long term investments (Livingstone et al, 2001).
Normal cash flow analysis relates to the adjustment of profits by considering investments on working capital and fixed assets such as properties, plants and machinery including the means of financing in terms of debt versus equity. A simplified and straight forward method of ascertaining cash flow is as follows:
Cash Flow (CF) = EBIT (1- t) – )WC – )PPE
EBIT = Earnings Before Interest and Taxes t = Tax rate
WC = change in working capital = current assets – current liabilities
PPE = change in property, plant, and equipment = capital expenditures – depreciation
The above formula commences with net operating earnings that are adjusted for taxes and compares the funds that a firm receives from consumers with the funds spent on production and services. Investments in working capital are a function of the firm’s credit policies in terms of payment that is receivable, payment policies in terms of accrued liabilities, prepaid expenses and payables and the anticipated growth in sales in terms of inventories. The formula provides for long term investment by way of capital expenses in properties, plants and equipments (PPE). The impact of depreciation is incorporated in the PPE.
Time value of money is a concept that has to be considered by firms during positioning of new products and it is based on the principle that the value of money in the present is significantly more than what it will be in the future since funds which are invested now can enable good interest returns with immediate effect. Thus the opportunity cost of capital which is also known as the discount rate, is understood as the return that is relinquished in terms of not being invested in interest earning instruments. The suitable discount rate to use is dependent upon the risk associated with the project in the context of the extent to which cash flows will be available in the future. A firm will choose a discount rate on the basis of acceptable benchmarks such as the periodical rate of return on stocks for projects that display moderate risk levels and can be adjusted upwards for riskier investment. If the discount rate is high it is implied that the present value of future cash flow will take care of the initial investments enabling firms to discontinue with the project (Hawawini and Viallet, 1998).
Present value and rates of return are financial decision rules which are used frequently by firms and are based on the opportunity cost of capital in the context of making investment decisions. Firms should make decisions in favor of investments which have a positive net present value and which have rate of return which exceeds the opportunity cost of capital. Net present value is arrived at by discounting the future cash flows by the opportunity costs of capital. For instance investments which result in the generation of cash flow (C1) in the first year, C2 in the second year, C3 in the third year and so forth till the year N when the product no longer provides revenues. Such future cash flows can be discounted in terms of the cost of the capital R, in calculating their respective present values (PV), which is shown in the following equation:
Present value: PV = C n (1 + r)n = C1/(1 + r) + C2/(1 + r)2 + Cn/(1 + r)n
In deriving the net present value a firm has to consider the initial costs of investments CO, and the cash provision in time periods connoted by O. Such an expense proves to be a negative cash flow which is subtracted in getting the net present value.
Net present value: NPV = [Cn / (1 + r)n ] – CO
When the discounted rate for future cash flows becomes more than the initial investments, the project can be considered viable and initiatives taken to commence production. If the net present value is negative, the investment cannot be considered financially viable. However if the NPV is zero it implies that the discounted future cash flow expected from the project will be the same as the cost of investments.
While positioning new products firms have to confirm that the internal rate of return for the new product is positive. Internal rate of return (IRR) is derived from NPV equation and is not a very precise financial decision making tool. The internal rate of return for any project undertaken by the firm is the discount rate which is calculated by considering the current value of future cash flows in terms of the potential investments as equated with the costs of investing in such projects. Thus the internal rate of return is the discount rate at which the NPY is made of a given project. The formula for ascertaining the IRR of a given investment that results in
To find the IRR of a particular investment that generates cash flow Cn for n years, the IRR has to be worked out as per the following equation:
NPV = C0 + C1/(1 + IRR) + C2/(1 + IRR)2 + C3/(1 + IRR)3 , Cn/(1 + IRR)n = 0 or
C n / (1 + IRR)n = CO
n = # of years (time period)
If the IRR proves to be more than or equivalent to the opportunity costs of capital, which are the hurdle rates of returns required to be met by all investments, the project can be cleared for investment. However if the IRR becomes lesser than the required rates of return, the investments are not considered financially viable. In using the above example a firm can make calculation of the IRR for the project in determining if it can be undertaken.
The internal rate of return for the project is the IRR that calculates the following equation:
NPV = ($8,000) + $700/(1 + IRR) + $2,500/(1 + IRR)2 + $3,600/(1 + IRR)3+
$4,800/(1 + IRR)4+ $4,800/(1 + IRR)5 = 0
A realistic calculation of IRR is a procedure that entails trials and errors. Assuming the discount rate of zero (0.0 percent), the resultant NPV will be + $8,400, which is calculated as under:
NPV = ($8,000) + $700/(1.0) + $2,500/(1.0)2 + $3,600/(1.0)3+ $4,800/(1.0)4+
$4,800/(1.0)5 = $8,400 which is more than zero.
Therefore it can be seen that if IRR is more than zero but in variance with NPV it is not enough to just recognize that IRR is positive since it has to be more than the hurdle rates of return for the firm. In going back to the trial and error methods it is possible to make arbitrary choice of a very high rate of return, say 50%, in order to ascertain the upper limit for IRR. By replacing the given IRR 50% (0.5) in the equation the NPV will become $4241.98.
NPV = ($8,000) + $700/(150) + $2,500/(1.50)2 + $3,600/(1.50)3+ $4,800/(1.50)4+
$4,800/(1.50)= ($4,241.98) , which is less than zero.
It is thus clear that the actual IRR will be between 0 and 50% and this is the simplest procedure to ascertain if the firm should go ahead with the new product development from the perspective of financial return. It is thus clear that in launching new products a firm must consider the financial implications of its actions in terms of efficient positioning of the product. The core objective of all business actions pertain to achieve profitability which is determined on the basis of the numbers in the financial statements. In effect, financial statements reveal the financial impact of transactions and other events which are grouped together into broad categories as per their economic characteristics. Such broad categories are referred to as the elements of the financial statements. Assets, liabilities and equity are some components which have a direct bearing on the different aspects of financial positioning. Income and expenses are the elements which are directly associated to the product’s performance. The entries in the income statements and the accounting figures given in the balance sheets are also replicated in the statement of cash flow for any given firm.
A firm has to usually engage in the recognition process which requires that the products which meet the definitions of the different components and which are recognized by the firm as being part of its product mix should be included in the balance sheets and income statements. In the context of positioning of new products an asset is assumed to be included in the balance sheet if there are chances of future economic benefits flowing towards the entity which enables the asset’s cost or value to be determined accurately. The balance sheet of a firm recognizes liabilities if there are possibilities of resources that represent potential for profitability which are made possible by resolving the current liabilities that enable the settlement figures to be measured precisely. Income can be accepted in the income statements if there is indication of potential benefits related to the enhancement in values of the assets or a decline resulting from liability which can be measured accurately. This implies that income can be recognized along with the recognition of increased asset values or decline in liability. Expenses can be recognized if there is a decline in future economic benefit in relation to decline in asset value or enhancement of liability which can be measured accurately.
The dimensions of the components in the financial statements involve the allocation of monetary values that acknowledge the financial values of the different components. The financial and accounting practices entail the recognition of a number of diversified processes that are utilized in the prevailing business atmosphere in different combinations and in varying degrees in the financial statements. They usually include historical costs, current costs, net realizable settlement values and present discounted values. It is pertinent to note that only if the firm recognizes and judiciously uses such processes can it have a clear picture of the financial implications of its business actions in regard to the positioning of new products (Deloitte, 2010). It is thus necessary for firms to position products by using the correct research methodologies which will have a positive impact on the financial statements. But if the optimal positioning for the product is not developed there will be negative impact on the financial statements.
Purpose of Financial Statements
The primary purpose of financial statements and their examination is to ascertain the financial data pertaining to different time periods to evaluate the firm’s financial position and performance and to estimate the future potential and risks that relate with the positioning of the new product. The examination of financial statements can provide pertinent data and inferences about the patterns and associations, the amount of earning and the advantages and disadvantages of the financial aspects as related to the positioning strategies of the new product.
According to Bernstein (2007), “horizontal analysis and vertical analysis of financial statements are additional techniques that can be used effectively when evaluating a company. Horizontal analysis spotlights trends and establishes relationships between items that appear on the same row of a comparative statement thereby disclosing changes on items in financial statements over time. Vertical analysis involves the conversion of items appearing in statement columns into terms of percentages of a base figure to show the relative significance of the items and to facilitate comparisons. For example, individual items appearing on the income statement can be expressed as percentages of sales. On the balance sheet, individual assets can be expressed as a percentage of total assets. Liabilities and owners’ equity accounts can be expressed in terms of their relationship to total liabilities and owners’ equity” (Bernstein, 2007).
The firm that makes reliable, relevant, understandable and comparable financial statements can conduct a thorough exercise in ascertaining its strengths and weakness in terms of liabilities, assets and equity which are directly associated with the firm’s financial positions. Financial statements serve several other purposes for the firm in forming a basis for financial analysis and in enabling the management with a reliable tool to understand the firm’s performance. Employees use financial statements for collective bargaining and to discuss promotion and compensation. Potential investors use financial statements to get an idea of the firm’s potential and plans as also the financial performance over a given time period. They can thus make decisions about viability of investments made in the firm. Financial statements are a strong basis for financial institutions such as banks and other credit agencies in deciding whether they should provide credit facilities or debt securities to the firm for funding its expansion plans. Financial statements are an authentic means for government agencies in ascertaining whether the declared taxes and duties have been paid by the firm to which the statement pertains.
Sales Forecasting of new Products
While making plans for positioning new products it is required to make forecasts and in making forecasts innumerable possibilities are considered. One of them is to assume that business circumstances will remain the same and another could be the assumption that the economy may witness some level of recession thus making the business to suffer a little. There is an element of chance or likelihood for every possibility and when the firm takes into account all possible results, such probabilities should ideally sum up to unity. Every possible result for the firm is indicative of certain aspects of business such as the fact that if there is some level of recession in the economy the firm will have a decline in its sales. Once the combined outcomes are analyzed, an average or expected value in terms of future sales is derived. Such approaches need to be elaborated and analyzed. After the firm undergoes the exercise of forecasting as emanating from the provision of sales figures, it has to engage in the process of forecasting in terms of cash flow details, balance sheets and income statements for the entire period that is to be considered for the forecasting. This will enable the firm to have an estimate of its profits, requirement of equipments and the needs for capital and liquidity. Unless the firm has this information it will run immense risks of ruining the business in terms of losing suppliers and consumers.
Forecasted financial statements are known as pro-forma statements but firms have to beware since companies often generate unrealistic financial figures in attempts to reveal or hide some information because of which the reports do not meet the requirements of the generally accepted accounting practices (GAAP). Sales forecast is defined as the unit and dollar sale of a product during a given future period and is usually prepared on the basis of recent sales patterns including forecast about the over all economic prospects for the industry, region, nation and so on. The sales forecasting process commences with reviews of sales in the preceding five to ten years and is usually expressed by means of a graph as shown below in regard to the sales figures of Allied Food products as cited by Concise Brigham-Houston.
Financial statement forecasting is usually done by the percent of sales method whereby future financial statements express every account as a ratio or percentage of the sales. Such percentage can change with time or can remain constant. After the sales are forecasted the firm has to forecast future income statements and balance sheets which are also called pro-forma reports. The percent of sales methods begin with the forecast of sales that are stated as yearly rate of growth in dollar sales revenue. The sales forecast is expressed as the estimated values of probable distribution which implies that there are different levels of sales possible. This is so since there is an element of uncertainty for any given sales forecast and financial analysts mostly wish to ascertain the extent to which uncertainty is present in the sales forecasts which are measured in terms of the standard deviations present in the anticipated levels of sales.
With the given understanding, the following table explains how the method is used in forecasting the financial statements of Allied Food products. Initially the income statement for the ensuing year is forecasted since the details are required to get an idea of incomes and the additions to retained earning.
Table 1. Allied Food Products: Actual 2001 and Projected 2002 Income Statements (Millions of Dollars)
|2001, Actual (1)||Forecast Basis (2)||2002, Forecast (3)|
|Sales||3,000||1.10x 2001 Sales =||3,300|
|Costs, except Depreciation||2616||.872×2002 Sales =||2878|
|Depreciation||100||0.1×2002 Net plant =||110|
|Total operating costs||2716||2988|
|Earnings before tax||196||224|
|Tax at 40%||78||89|
|Net income before preferred dividends||118||135|
|Dividends to preferred||4||4 (a)|
|Net income for common||114||131|
|Dividends to common||58||63|
|Addition to retained earnings||56||68|
Source: Concise Brigham-Houston, (2010). Forecasting and Pro Forma Financial Statements.
Next, forecasting is done for the balance sheet in terms of the assets being required to increase if sales have to be enhanced.
Table 2. Allied, Balance Sheet: 2001-Actual and 2002-Forecast
|2001, Actual |
|First Pass |
|Cash and near cash||10||.33% x 2002 sales||11||11|
|Accounts Rec||375||12.5% x ’02 sales||412||412|
|Inventories||615||29.5% x ’02 sales||677||677|
|Tot current assets||1000||1100||1100|
|Net Plant & Equip||1000||33.33%x ’02 sales||1100||1100|
|Acc. Payable||60||2% x ’02 sales||66||66|
|Accruals||140||4.67% x ’02 sales||154||154|
|Tot Current Liab||310||330||358|
|Tot Liab and equity||2000||2088||+112||2200|
Source: Concise Brigham-Houston, (2010). Forecasting and Pro Forma Financial Statements.
The forecast of total assets is depicted in the third column of the above table at $2200 million and is indicative that the firm has to make addition of $200 million in new assets during the year 2002 in supporting higher sales targets. But the liability that is forecast and the equity accounts increase only by $88 million to $2088 million as shown in column three. Hence the company has to raise added capital of $112 million and this amount is defined as the AFN (Additional Funds Needed). The AFN can be raised by making a combination of bank borrowings, issue of long term bonds and selling of new common stocks.
Funds can then be raised by the company on the basis of several factors that include the company’s target capital structure, the impact of short term borrowings on current ratios, circumstances prevailing in the equity and debt market and restraints imposed by the current debt agreements.
Market segmentation and Positioning
Market segmentation refers to the science of segmenting the entire market into major consumer sub sets wherein the members have common needs and aspirations. Since the concept requires considerable market research market segmentation entails extra costs but is vital for small businesses that usually lack resources in targeting large market sizes and in maintaining a large variety of differentiated products for diversified markets. Market segmentation is a powerful medium used by firms for positioning of new products in view of the sensitivity relating to the product’s success. It enables businesses to develop products and a marketing mix in keeping with the homogenous parts of the entire market. When resources are focused on a particular customer base, a business can create a market niche which serves in outwitting its competitors.
Customers in general are prepared to pay higher prices for products which meet their expectations better as compared to competing products. Therefore firms those are able to effectively present their products in keeping with the needs of the market segments will eventually benefit in terms of larger profits and reduced competition. The potential of market segmentation to enable profits has to be considered in relation to costs and the resources required for market research in carrying out market segmentation since there may be higher marketing and production expenses (Vanderveer, 2007).
Hiam and Schewe (1992) have identified six stages in the process of market segmentation. The first stage pertains to determining the market boundaries and in complying with this stage firms have to utilize formal business plans to develop a wide definition of their businesses and then make a basis for the market strategies in regard to the varied competitive situations so as to get knowledge about the needs of consumers in the different market segments. The second stage pertains to making decisions about the resources and the strategies that the firm will use in the process of outlining different market segments. Several firms get entrapped by collecting information on a large number of variables and subsequently attempt to resolve the problems in drawing meaningful conclusions. Hiam and Schewe (1992) have recommended in this regard firms should make use of their knowledge of the markets in advance by selecting some pertinent variables. Such an approach proves to be less costly and will bring better results.
The third stage in this market segmentation process relates to the collection and analysis of data whereby market research tools are applied. The objective is to locate market segments which are internally uniform yet noticeably varied in respect to other segments. The next stage refers to the development of exhaustive profiles pertaining to all segments which require that variables be selected that confirm to the realistic purchasing behaviors of customers in the different segments. The fifth stage is for firms to make decisions about the segments that have to e served. To target given market segments companies will benefit if they look for opportunities whereby potential customers are attracted by providing them reason to gain satisfaction from purchasing the given product. Companies need to look at future scope for making profits and gaining a larger size of the markets and to make sure that their competencies and skills will result in the provision of the required satisfaction to customers as against the services of competitors.
A core concept underlying most promotional activities is communication and it must be framed and used in reaching a particular audience. The accurate classification of the market segments is a big challenge for marketing teams and is now being increasingly done by utilizing advanced techniques in manipulating qualitative and quantitative data. It is crucial to have accurate market information to effectively carry out promotion management, especially in the context of efficient use of resources and the maximization of responses. Product positioning for new products implies the creation of a group of cautiously crafted positioning statements and plans, supporting statement and elaborative statement which prove it to be better than the claims, advantages and capability of the other products in the market. This way all related information and statements that are crucial for communicating and defining the position of a product for the complete positioning framework for a firm. External communication with customers may not necessarily use the same texts that are created for the positioning framework, but all external communications make use of the positioning framework in all forms. Positioning is also referred to as relative positioning in terms of creating an exclusive and different position in the context of the prevailing competition.
In order to enable optimal positioning of the new product, the firm has to devise a problem statement that defines the unmet needs of the market in the given product category and the advantages that will accrue to consumers, emotionally and physically, by using the new product. Marketing teams normally aim at developing several statements that are differentiated amongst each other and which define the wide array of different places where the new product could succeed and occupy a strong place in relation to present and future competitors. Such concept statements can be tested by way of consistent rounds of marketing research efforts in ascertaining which ones resonate with different consumer segments in terms of different parameters such as motivational value, credibility and relevance. This way the positioning can be determined by finalizing a few strategies in keeping with the expected share of markets from different segments. After the positioning decision has been taken the next step is to ascertain how to efficiently deploy such positioning amongst customers. Subsequent actions include material testing, logo testing and testing of promotional concepts.
The media enables the provision of considerable data on market research by way of the Target Group Index which makes a mix of product use along with the attitudinal, socio economic and demographic information. In similar vein, The Broadcasters Audience Research Board (BARB) makes use of householder groups by making analysis in terms of monitoring TV viewer ship data, while the National Readership Surveys (NRS) enables information about the views of readers of magazines and newspapers. Along with such data, market research companies and advertisement agencies carry out research on their own in providing meaningful insight about identifying appropriate variables for market segmentation. After the firm has identified the potential market segment and selected the target segment, it requires ascertaining the product or service positioning in the market as also in the consumers’ minds. It is not appropriate to create promotion plans unless a thorough understanding of the product positioning is ascertained.
Understanding Consumer Perceptions
Positioning of products is considered the final stage in the process of market segmentation and entails the formulation of a marketing strategy for the product in question, which must appeal to the potential customers in the different market segments. To position a new product efficiently, firms have to identify the features which are most significant to customers in that segment and subsequently create an over all marketing plan which attracts the attention of customers. Positioning is gainfully employed during the initial stage of product designing by identifying who the target customers will be in relation to the geographical, behavioral and demographic attributes. In citing the significance of such attributes Krishnan and Ulrich (2001) have opined that “attributes are an abstraction of a product. Concept development also involves the embodiment of these attributes into some kind of technological approach, which we call the core product concept. The decision of which technological approach to pursue is often supported by two more focused activities: concept generation and concept selection” (Krishnan and Ulrich, 2001).
There are several tools that assist firms in understanding perceptions which have a bearing on purchase decisions. Perceptual map is a visual arrangement and a means to portray the diverse options available to firms while positioning products. Marketing teams have the option to develop perceptual maps from data obtained through marketing research in order to locate customer needs which have not yet been realized. For instance, consumers can be asked to rank home computers on elements pertaining to ease and handiness, efficiency of service, storage space and processing speeds. These four qualities can be merged to form perceptual dimensions such as utility and technical. Utility pertains to ease of use and service availability which usually appeals to non technical people that need a computer for personal use or business. Technical pertains to processing speed and storage capacities which appeals to computer users that are well experienced and who require the best technology. All brands of computers available in the market are incorporated in the data in keeping with the preference ranks given by consumers. If the results indicate that a large number of computer firms focused upon the technical characteristics of the product, there is added potential for new firms to emphasize on the ease of use and provision of better services.
It is pertinent to understand the comparative significance that is placed on different dimensions of computers. For example, the market for personal computers is indicative of customer preferences whereby technical features and the expectation of higher utility is given more attention although the same customers are at variance in regard to the other product dimensions. According to Urban and Star (1991),
- “The implications of these importances for positioning are significant” (Urban and Star, 1991).
- “It is necessary to understand preference differences within the targeted market segments because they are important in selecting a position for a brand and in determining the competitive structure within the segment” (Urban and Star, 1991).
- “When preferences vary within a segment, positions and physical product features may vary considerably” (Urban and Star, 1991).
- ‘If preferences are relatively homogeneous within a segment, the positions of competing brands will be relatively similar, and the quantity of advertising and promotion will be the critical competitive weapons” (Urban and Star, 1991).
It must be kept in mind that prices are not depicted in the perceptual map for home computers though price is an important element in influencing purchase decisions of consumers. It is possible to depict the significance of prices by utilizing different parameters in the perceptual map whereby it becomes multi dimensional representation of each product and which depicts a variant as divided by the token prices to calculate the representations. Eventually the map that is revealed depicts the values per dollar and the technological features per dollar. This implies that trade offs made by consumers amongst price and the original dimensions will be clearly portrayed. Eventually firms have to accept the fact that perpetual maps reveal the over all dimension in the context of evaluation and not the product’s specific features. The characteristics of the product are a vital determinant of the manner in which consumers will choose the product and hence the selection of product characteristics is a crucial determinant of positioning. In essence, both product pricing and consumer perceptions are strongly impacted by product features (Cachon & Christian, 2006).
After firms finish with the exercise of mapping perceptions of customers in regard to the products of competitors, they get information about the target segments and can then proceed with selecting suitable positioning for their products. Before firms position their product in the different market segments they have to make attempts in providing a wider choice so as to make the product profitably viable in the log run. Marketing teams benefit in formulating strategies which maximize shares if they add specific features as desired by customers. They can also use advertising strategies in improving customer perceptions. Although both these strategies entail considerable expense for the company, it is imperative for it to make a balancing act in regard to the costing and expenditure so that a visible pay off occurs.
There are a number of positioning options that can be availed of by firms. One of them is quality emphasis whereby production is made to become free of any defects while customer service and product designs are made to meet or exceed consumer expectations. An alternative option for marketing teams is to offer exclusive features and advantages which customers do not find with other competing products, which can vary from unique styles to production that is environmental friendly. Usually these exclusive features are a result of the firm’s unique resources in having competitive advantages in the market place. This aspect creates difficulties for the firm’s competitors in matching the unique benefits and features due to the enhanced costs resulting on adding the same features to their products. In this context, Urban and Star have observed that “if we develop a unique competitive advantage on a dimension of importance to a significant portion of the market, we can enjoy a substantial share and high margins,” (Urban and Star, 1991). However innovations and marketing research have to be carried out on a consistent basis in maintaining such competitive advantages.
Sometimes it is beneficial for firms to establish new dimensions of significance for consumers instead of just opting for product positioning within the normal structures of market segments. However in establishing new dimensions the firm has to go through a number of difficulties since innovations result only from major changes in the production processes. Firms have another choice by exploiting the advantages of positioning that go with overlapping market segments, especially in the context of new products. However the firm must ensure that there is no contradiction in terms of conflicting claims made in regard to the products since customers could sometimes patronize one or more segments. In avoiding confusing customers it is vital to utilize varied brand names for a product in every market segment; or else, to address the needs of both segments and subsequently alter the positioning a little in every segment. Customers in general are prepared to pay higher prices for products which meet their expectations better as compared to competing products. Therefore firms those are able to effectively present their products in keeping with the needs of the market segments will eventually benefit in terms of larger profits and reduced competition. The potential of market segmentation to enable profits has to be considered in relation to costs and the resources required for market research in carrying out market segmentation since there may be higher marketing and production expenses
It should be kept in mind that promotion is not necessarily targeted at consumers always. There are other audiences which must be identified along with the target customers, on the basis of their importance, impact and roles in the market place. Such interest groups are usually referred to as stake holders and include the following:
- Supply Chain/ Market place
- Distributors / agents
- Partner organizations
- Local authorities
- Governments and International bodies
- Financial Institutions
- Interest Groups
- Pressure Groups
- Trades Unions
- Local communities
- The Media
- Opinion leaders
The promotional mix comprises of activities that include direct marketing, public relations, selling, sales promotion and advertising. Amongst each of these categories there are specific ranges of options which are recognized and used in the promotional plans. Some of the major components of the promotional mix are as under:
- Advertising is defined as any paid form of non personal communication of ideas, products or services which is made possible through varied media options.
- Sales promotion is a set of strategic marketing practices that are created by professional marketing teams in attempts to enhance the value of goods and services so that they result in the desired outcomes from sales and marketing efforts.
- Public Relations are the purposeful, planned and sustained efforts that are carried out through planning and consistent attempts in establishing and maintaining a meaningful understanding amongst the firm and its clients.
- Selling and Sales Management pertains to providing the personal interface amongst a firm and consumers. Such a contact can either be face to face, on telephone or by using information technology.
- Direct marketing involves direct mailing, responses on telephone and the internet in allowing promotional communication to be developed ad targeted towards target customers in consideration of their perceived and unique needs.
Considerable relevance for the management can be drawn from such elements since they show the management how a systemic approach towards positioning can be adopted because positioning products close to the ideal points would normally not result in higher profitability. This model enables the management of firms to compare the enhanced revenues resulting from repositioning products close to the ideal points with the costs of such repositioning. The circumstances resulting from such models can facilitate managements in making the right decisions for optimally positioning new products.
Market research in positioning
During the process of positioning the basic objective is to reveal the emotions and perceptions of consumers so as to get information about them and develop the most efficient positioning. But such instances occur mostly after reviewing the outcomes of marketing research and after observing the response of consumers to the positioning techniques used by the firm. Market research has developed as a very creative aspect of the entire process of positioning. It can be argued that well executed market research is a vital part of establishing an efficient positioning strategy for new products. Creativity is crucial in market research because information obtained from research activities assists the firm in avoiding duplicate positioning strategies. Charlene Prounis has elaborated on the importance of research in positioning in saying that,
- “during the positioning process, the goal is to uncover hidden perceptions and emotions in order to gain insight and create the most compelling positioning possible” (Prounis, 2007).
- “Often that insight will come in flashes of intuition, and throughout the positioning process, there are usually several instances of informed serendipity” (Prounis, 2007).
- “However, these often occur after reviewing the results of market research or directly observing how customers respond to your positioning ideas” (Prounis, 2007).
The first step in market research is to establish relevancy amongst the target audience since even in the early stage of market research there are signs of an emotional attachment to specific consumer outcomes. Market research is much helpful in enabling a thorough understanding about the different parameters associated with the product as the firm develops its plans for positioning. However positioning is not a stationary exercise and though positioning statements are pertinent under some situations they could be relevant only till the time that there are specific indications for the product to be repositioned. Such indications pertain to situations when there is downfall in sales, new firms enter the markets in competition against the product, there is a shift in market segments and procedures and alteration in the way paradigms are treated. Nevertheless, as firms gain experience they become prepared in shifting gears at the opportune time. It is required to keep watch and conduct regular checking which improves and proves to be informative in regard to the available marketing decisions and choices. A positioning statement that is well conceived will epitomize simple grace but convenience and simplicity are mostly achieved through hard scrabble striving. Though being an arduous exercise it is beneficial and important for the firm to ascertain the exclusive characteristics of its product which will pave the way for the most ideal positioning strategy in the different segments. (Boyett, 1998).
One of the most authentic sources of information for firms is its customers. It is crucial for firms to understand the needs of customers because their success is dependent upon the acceptance of the products by customers. Pilot testing enables reality checks on the undertaken market research in addition to affording the firm opportunities in refining the product prior to its introduction in the market. This way a certain amount of market acceptance is ensured after the commercialization of the product. It is thus important to analyze, design and conduct pilot tests. The following steps are required to conduct a plot test:
- Select size, location, and target sample
- Establish benchmarks for analysis and refinement
- Determine the optimal duration
- Evaluate the results.
The pilot testing site has to be a sub set of the target markets which includes consumer groups in the over all potential market in which the firm is to pursue its strategies on the basis of its market segmentation. In getting the optimal size of the pilot test, the firm is required to weigh the advantages of accuracy as compared to costs. Usually the sample size in terms of the number of potential customers to be involved in the test is required to be of a size that enables researchers to have confidence about the information collected while also not proving to be expensive in making the monitoring process very difficult. The product development team should station itself close to a few test markets so as to closely monitor the situations and to resolve issues that may arise. This kind of proximity enables the teams to collect the required data in order to refine the product and to assist in guiding employees after the product is eventually delivered.
In gathering the required information, pilot testing enables the determination of the commercial viability of products. The product development teams can set up bench marks or hurdles that demonstrate the firm’s objectives for the product’s pilot testing. Such objectives could relate to volume of loan, penetration of markets, average size of loan and rates of delinquency. After the hurdles are elaborated upon, the product development personnel can engage in periodical interventions during the pilot testing to obtain additional information, to adjust product characteristics and to add more value to the testing process, if required. Product tem interventions are guided by certain markers such as:
- Expanding to a few additional markets
- Gathering further information for analysis
After gathering information from the pilot testing process the firm has to evaluate if the commercialization of the new product is worthy of further investments. The quantitative criteria in this regard pertain to:
- Financial viability
- Competitive considerations
- Institutional factors, such as infrastructure, management information systems, and human resources
In attempts to administer a diverse product a firm has to face lot of complications which implies that there must be strong market prospects in ensuring consistent financial viability in terms of the new product. Usually financial hurdles are measured in the context of projected return on sales and investments and market shares. Another measure is the internal rate of return which is based on the opportunity cost of capital and implies the amounts that the firm can earn due to its next best investments. Financial projection is made on the basis of competitive consideration in the context of commercialization of new products. An important competitive aspect is the market shares accruing to the firm by expanding its product lines. Market shares are ascertained on the basis of existing customer retention, capturing new customers and the acquirement of new customers that were not forthcoming in the past. Competition also entails consideration around the product mix. New products have the propensity to dilute brand equity if the product’s quality is not monitored discreetly. While considering introduction of a new product a firm should contemplate the positioning of the product in the market place. A product which is excessively scattered will confuse consumers since attempts of catering to a number of customer aspirations will result in the product being available for fewer people.
According to Sonja and Steven (1998), “if a new product enters a high season during the early growth stage of its life cycle, seasonaiity would both increase observed sales and accelerate growth. Entering a high season during the decline stage of a life cycle, in contrast, would temporarily increase sales but accelerate the decline of the product as it more quickly exhausts its market. With the transformed-time method, the impact of seasonality depends on the position in the life cycle. We suggest that predictable external factors often cause a predictable pattern of seasonality. If that pattern is known, it should be considered when any model of sales is estimated. Although we sometimes can use the same data to estimate both the model and the seasonal pattern, this is often inefficient because we usually have substantial historic exogenous data on the seasonal pattern. Moreover, we might have insufficient data for a new product to estimate the seasonal pattern while trying to predict sales for the new product. ”, (Sonja and Steven, 1998).
Methodological and Social Considerations
Methodological and social considerations do impact decisions in moving ahead with new products. Usually resources are reallocated by new products in a way which is supportive of he firm’s missions. New products form a part of the firm’s evolution process and there needs to be a provisional trade off. Though such actions make firms to have the abilities to serve harder to reach segments of the market, in the short term self sufficiency is more important as compared to social objectives. But the pressures to achieve the scales quickly should not be achieved at the cost of maintaining quality product lines. A firm must essentially keep refining its methodology and product lines on the basis of the stage of growth that it is going through.
Employees that are adapted to the prevailing operating processes could resist the changes which comprise a natural process in the growth of every organization. Changes sometimes lead to disruption and adapting to new processes is usually a time consuming effort which may become difficult to achieve. Therefore a crucial aspect is to decide if the firm should move forward with the new product development in keeping with the internal circumstances so as to bring about collaboration and adjustment in attitudes. This factor has to be considered in the context of the firm’s objective of encouraging an organization culture which is driven by clients and entrepreneurs. In shifting towards such a culture the firm has to provide for additional resources in terms of sufficient capacities to venture into development of new products. In order to achieve adequate capacity the firm has to have some systems in place, such as:
- Delivery channels such as physical infrastructure and communication channels to facilitate marketing of the product amongst the target consumer base.
- Management information systems have to be provided in terms of accounting and other back office systems.
- Human resources have to take care of additional training facilities and other incentive schemes to put the new products into operation.
The firm has to assess these systems and ascertain in the pilot testing phases whether it can be successful in launching the product commercially or whether organizational capacities have to be created to promote innovations. However, all product launches cannot be successful which has been analyzed by Michael Burkett (2005),
- “Supply chain professionals and design engineers have clashed for years over the challenge of delivering innovative products in sufficient volume—and at a price and lead time that the market will accept” (Burkett, 2005).
- “But regardless of what side of the debate you happen to be on, one thing is clear: A successful product launch depends on the ability to ramp up the supply of a new product to its targeted peak-sales volume” (Burkett, 2005).
- “The market landscape is littered with examples of companies that have not understood this” (Burkett, 2005).
A competitive environment entails the incorporation of a framework that includes economies of scale and production costs in order to position products in a given market segment. The ideal model is one that facilitates an equilibrium which enables firms to decide upon product and price positions for the different segments. This result also adds value to the conventional theories of equilibrium points in product and price positions whereby companies first decide upon their products and then fix prices. Sensitivity analysis provides an understanding about the effect of alterations in the saving incurred from economies of scale and the costs associated with producing new products by a given company upon the price levels, positioning of products and profits generated by other companies in the market. Under certain circumstances the profit of an organization can decline while it makes changes in product design to reach the ideal point of the market segment. Such circumstances make it convenient for the firm to decide and finalize about product design so that an optimal situation is arrived at after which developing the product would result in higher profits due to decreased cost of production. Research has revealed that in positioning a new brand nearer to the ideal point, given that the product positioning of other firms is known, will result in higher levels of buyer preferences and thus to a larger bottom line. Though the profits and prices of competing firms can be enhanced or reduced, conditions are created whereby the shift towards the equilibrium situation in the segments results in reduced profits for competing firms.
Product positioning and pricing are important aspects to be dealt with by the management of organizations and the inherent processes entail a frequent requirement whereby new products have to be developed and the current ones repositioned. Production cost and economies of scale are important aspects of issues concerning product positioning. Problems have to be approached from the perspective of a systemic viewpoint when the production and marketing portfolios have important roles in the decision making process. By making use of such strategies firms can ascertain as to how they can influence prices and profits and redesign them in keeping with the equilibrium that is to be maintained in the segments. There is a strong need for the examination of the effect of such reframing efforts by a firm and how they impact the profitability and prices of competing firms. (Dobson & Kalish, 1993).
A large number of models are in existence and which have been introduced by different scholars for the designing and evaluation of new products. Green and Krieger (1985) had categorized these models by using procedures that involved the use of data collections and formations of consumer preference techniques in terms of the conjoint analysis and the scaling analysis based on different parameters. Sudharshan, May, and Gruca (1988) made a review and categorized product positioning procedures on the basis of single and probable preference processes as also on the basis of single and multiple products introduced in their respective research papers. They made distinctions amongst the varied processes that analyzed the concepts of data generation and evaluative techniques. Green and Krieger (1985) reviewed the procedures extensively.
A major lacking amongst majority of the research done in this regard pertained to the fact that they analyzed the positioning of products in different markets without uniformly selecting the corresponding prices and product positions. Selection in this regard should have been made on a sequential basis as was made by Hauser (1988) who first analyzed them by treating prices as constant and later positioned the products or treated the positions as constant. Carpenter (1989), Moorthy (1988) and Vandenbosch and Weinberg (1995) permitted firms to first decide upon product positions and then to fix prices. In this context Schwartz (1989) held that the two step modeling in choosing prices and products enabled the prevalence of an ideal strategy equilibrium under conditions when none could have existed if products and prices were decided upon simultaneously. According to Carpenter (1989),
- “Competitive marketing is dependent on a branding strategy that positions brands for their optimal perceptual effect on consumers” (Carpenter, 1989).
- “An analysis of a competitive brand strategy model used to explain competition and perceptions and preferences in a two dimensional, two brand market, leads to the conclusions that: marketing strategies are dependent upon the positioning of brands; marketers can reposition brands to increase profits; and competition in advertising and distribution ameliorate the effects of price competition” (Carpenter, 1989).
- “Results indicate that market volume depends on the positioning of brands since closely positioned brands compete intensely for the same buyers” (Carpenter, 1989).
- “Results also show that more differentiation in products leads to less overlap and higher market volume” (Carpenter, 1989).
- “To increase profits, marketers should increase the differentiation of their brands in order to move perceptions away from those of competitors’ products” (Carpenter, 1989).
The occurrence of equilibriums in product positioning has been analyzed in the context of spatial situations and significant research has been done in this regard that commenced with the classic work of Hotelling (1929) in regard to the concepts of least differentiation methods. There have been lot of discussions about price equilibrium and positioning in studies related to the lively competitive environment and more so in the context of reactions in this regard forwarded after their entry. Hauser and Shugan (1983) made a description of defensive responses towards entry in distribution, advertising, product positioning and pricing. The economics literature on the significant competitive situations comprises of studies that relate to the simultaneous presence of ideal points in product and price positioning while using the logit models. Such equilibrium situations cannot be used in new product positioning since positions decided by all contenders in such equilibriums are similar and prices are the same for all firms. A far reaching analysis has been presented by Anderson, De Palma, and Thisse (1992) in the context of spatial competitive situations and the prevalence of equilibriums in positioning and price situations. Other scholars that have commendably approached the issues of price and product equilibriums in the context of defense responsiveness and in meaningfully adding to the literature on positioning are Economides, Gruca, Kumar, and Sudharshan (1992) and Kumar and Sudharshan (1988). Maggard (2009) has held that product differentiation is an integral part of product positioning:
“Marketers will quickly recognize the early concept of product positioning as nothing more than the established practice of product differentiation. Referenced in the above statement, however, are two additional positioning concepts, both external in nature: “company (image) positioning” and “positioning within the prospect’s mind.” Trout and Ries proceed to introduce a third concept, “master plan positioning,” which is internal in nature. This particular positioning concept involves the firm’s strategy of positioning a given product within the framework of its overall product line. It is a plan to manufacture a separate product to serve each of several particular consumer needs, such as one toothpaste for cavity prevention and another for sex appeal. Again, however, most marketers may view such “ master plan positioning” as nothing more than differentiating each of several brands for a different market segment” (Maggard, 2009).
In the context of the above discussion the models permit firms to concurrently decide upon product and price positions in a given market segment. The model entails managerial insight on the procedure of how cost of production is minimized and savings maximized as a result of economies of scale. Such procedures influence optimal profits, prices and product positioning. More importantly, a modeling framework that integrates production costs within the product positioning may result in decline in profits as the firm engages in redesigning products close to the ideal points of the segment. Research efforts have supported the conclusion that positioning of products in close proximity to the equilibrium point would result in more buyers preferring to purchase the product and thus result in higher profits for firms. When single firms engage in the redesign of such product profiles, circumstances are created that result in bringing profits for the subject firm while competing firms may decrease or increase prices without adversely impacting the positions of the subject firm.
Normative management relevance can be drawn from such results since they show the management how a systemic approach towards positioning can be adopted since positioning products close to the ideal points would normally not result in higher profitability. This model enables the management of firms to compare the enhanced revenues resulting from repositioning products close to the ideal points with the costs of such repositioning. The circumstances resulting from such models can facilitate managements in making the right decisions for optimally positioning new products.
If the search for better prices becomes convenient for consumers, the pricing pressure on firms will increase thus resulting in lower prices in the market. Research has proved that the current search technologies like the internet have reduced prices in some markets. There is also evidence that firms can maintain pricing powers and the internet has enabled variety in several markets. Such a broadening of the assortments has led to enhanced consumer welfare. Hence firms tend to compete on the basis of prices and assortments while consumers strive to achieve price levels to match consumer aspirations at the lowest possible prices. Easier search options intensify competition which exerts pressure on firms to reduce prices. However easy search capability also results in the expansion of markets and enables firms to increase their assortments. Resulting from increased assortments consumers can better find products that meet their needs and preferences and this additional benefit allows firms to have some controls over prices. Market expansion results in market domination and intensifies competition whereby the prices in competitive markets are increased because of easy search possibilities, which is contrary to the usual conventional patterns. Cachon and Terwiesch (2006) have asserted in this regard that,
“The emergence of the Internet over the last decade has fueled considerable interest on how search influences market dynamics. Initially, it was widely believed the Internet would lead to brutal price competition. The argument is simple and compelling: the Internet lowers the costs consumers incur to search for goods and services, so consumers will search more, resulting in more opportunities to compare prices and ultimately more severe price competition among sellers. In the most extreme version of this logic, consumer search costs are essentially eliminated, thereby resulting in full price transparency in the marketplace and prices set at marginal cost” (Cachon and Terwiesch, 2006).
Price determination is considered to be a vital part of new product designing and different products have distinctive costs related to their delivery which implies that differential pricing is very important for financial sustainability of the firm. Some consumers can be more price-sensitive to certain products as compared to others. It is thus important to understand cost differentials and recognize sensitivity to enable firms to price products efficiently and to make conscious decisions in regard to the market segments that they can tap. The main objectives of an efficient pricing system are recovery of costs and other competitive aspects of the market. Firms have to keep the following in mind while pricing products:
- Cost of Capital
- Cost of product delivery
- Contribution to the fixed cost of the firm
- Competitors pricing
Products can be represented as a set coordinated attributes whereby all dimensions in the attributes designate different product characteristics. Attributes that can be quantified have to be actionable in indicating some action that the manufacturers should take in building the product (Shocker & Srinivasan, 1974, p. 922). According to (Hauser & Causing, 1988) one method to translate consumer preference into quantifiable and operational dimension is Quality Function Deployment (QFD). In such a framework of attribute space, all consumers are assumed to possess a group of preferred attributes which theorists term as ideal point. When the proximity level of product offering amidst the attribute space is closer to the consumer’s ideal point, the appeal and attraction of the product will be greater and the propensity and probability of purchase by consumers will be greater. In this context, McFadden (1986) researched and provided a basis for buying patterns of consumers in relation to the probabilistic and deterministic choice models.
In carrying the study further we can consider the case whereby a company desires to position a new soap brand in the market segment. Market research would have ascertained the individual consumer preferences in the segment as also the specific characteristics of the product. By placing such attributes amongst the space for product attributes will provide the firm with a clear viewpoint of the existence of customer clusters with similar aspirations. Such clusters will be representative of the varied marker segments. By conducting market research for other soap brands the firm can get an idea of consumer perceptions. McCarthy and Perrealt (1993, p. 105) and Kotler (1997, p. 303) made an elaborative analysis on such concepts and provided ways on positioning soap brands. In positioning its soap brand the firm will select market segments and will design the new product in meeting specific objectives. While undergoing this process the firm will have to consider factors such as the competitors and the fact that a product that is not positioned within the segment may not be appealing to customers in the given market segment. From the manufacturing perspective, the designing of the product has to consider how the finalized design will impact the over all production costs and what will be the benefits accrued from economies of scale.
Market Share Models
Some kinds of market share models have been classified as being consistent logically, which is a trait which requires that market share models must forecast share values in the range of zero to one and summing up to unity. According to Cooper and Nakanishi (1988), market share models that are logically constant use relationships in capturing the market share of an organization in a competitive set up. The market share of firms was considered by Bell, Keeney, and Little (1975) as being the ratio of the attraction that customers have with a specific brand to the sum of the attraction of the products of all other competing companies. In this context, Gruca et al (1992) employed the Multiplicative Competitive Interaction (MCI) market share models, also eferred to as the attraction model.
When there is non cooperative competition amongst firms in a market, none of them have any incentives in changing their strategies at Nash equilibrium (Nash, 1951). There is evidence of the presence of Nash equilibrium under conditions of simultaneous choice being made by firms in regard to product and price positions, which makes use of the N-person game of Friedman (1990) in providing assumptions and conditions for the uniqueness and presence of Nash equilibrium. The results thus obtained are in keeping with the traditional theories of equilibrium situations in terms of product and price positioning whereby firms first choose to go for product positioning and then make decisions about prices.
Firms are faced with the issue of assessing future potential for profit sales and market shares of new and existing products. One of the most efficient ways to make assessment about the success rates of sales and market segmenting is conjoint analysis which is a research technique that is most efficiently used on the basis of simulation of actual purchase behaviors demonstrated by customers. In a typical conjoint exercise, consumers are made to go through a simple exercise whereby they are required to rank and select their preferences and choices from a vast variety of different products and services with varied features. The data is then considered and studied on the basis of Bayesian mathematics which enables the creation of a predictive model. After the model is created some realistic possibilities are run through in determining the optimum set of features, the most efficient pricing strategies and the expected market shares that the new product may bring for the firm. Additionally, the analysis enables the researchers to predict the reaction of competing firms as also the effect it has on the market positioning of the firm.
There are different ways to carry out the conjoint analysis and the most efficient in terms of the actual depiction of authentic and realistic results that can be rewardingly used by firms are Adaptive Conjoint Analysis (ACA), Choice Based Conjoint (CBC) and MaxDiff. Every such conjoint analysis has its own exclusive advantages and if used in the right perspective, the model proves to be an extremely efficient marketing research medium for the creation and success of new products. Research companies provide a wide range of conjoint analysis techniques in meeting the diverse needs of businesses. But conjoint analysis should be used after providing for the following assumptions:
- “A product (good or service) must be able to be described or represented by a set of attributes that are mutually exclusive” (The Marketing Analysts, 2010).
- “Consumers view the product as a combination of attributes that can be exchanged for others An example is the inclusion of an additional product feature in exchange for a higher price” (The Marketing Analysts, 2010).
- “The total utility (value) of the product being analyzed is equivalent to the sum of the individual utilities of each attribute. It is important to realize that several common forms of conjoint analysis do not consider nonlinear relationships, particularly interactions among attributes. Ignoring interaction will lead to bad research results” (The Marketing Analysts, 2010).
- “Products with a greater overall utility are more attractive than products with lower total utility scores” (The Marketing Analysts, 2010).
If these assumptions are provided for by the firm, conjoint analysis will enable the availability of data that can be efficiently utilized by the firm in taking appropriate decisions about positioning. The available data can be quantified and includes the significant attributes of the product as also the desirable traits as expressed by respondents. The potential market share for the product can be ascertained along with the information about market segmentation. Conjoint analysis is very well suited for implementing some types of market segmentation of new products. Firstly the focus of the analysis is on measuring preferences of buyers for different product attributes. Secondly conjoint analysis focuses on micro based measurement techniques and if preferential heterogeneity is prevalent, researchers can figure the same and frame appropriate policies. Thirdly, conjoint analysis entails the gathering of information related to respondent’s background in terms of psychographic and demographic data. There is an increased tendency to gather background data of customers in regard to their perceived preferences of purchase on different occasions. Fourthly even the most basis conjoint analysis includes simulation of buyer choices so that researchers can ascertain new product profiles in finding out the choice making process of consumers as against competitors.
Positioning and Financial Statements
The bottom line of any firm is impacted by its marketing activities and at least in theoretical terms there should be a net profit from such activities which in the case of this research will be impacted by the positioning strategies. Some key figures need to be tracked in terms of performance figures and major ratios. Gross contribution has to be compared with net profit, gross profit with return on investments and net contribution with profit on sales. The firm can benefit considerably in comparing these figures with those achieved by competing firms. Such a performance analysis concentrates on the quantitative procedures that are explicitly based on short term performance. There are certain other indirect processes which mainly track attitudes of customers and can be indicative of the firm’s over all performance in relation to its long term marketing advantages and can thus become vital indicators. The firm needs to do appropriate market research which includes customer information in tracking consumer behavior over time. Lost business needs to be tracked in knowing of lost orders due to different reasons such as the product not meeting customer expectation or the product being out of stock etc.
The basic qualification of marketing plans essentially appears in the form of budgets since they are exhaustively quantified. Such plans reflect the unmistakable projection of execution plans as against the results expected. Moreover, they can be monitored precisely since performance as compared to the budget is the core review process used by managements. The purpose to formulate budgets is to compile all costs and revenues in the marketing and positioning process into one compact document. The budget is a management tool which makes a balance between what is required to be invested as against the affordability of the firm and assists in making choices as per the hierarchical needs in the process. It can then be utilized in measuring and monitoring the actual performances. The marketing budget is a vital source through which the management ascertains the relationships amongst available means and desired outcomes. The starting point of the budget should be the marketing plans and strategy that have been framed in the marketing plans; though both run parallel to each other in actual practice
The final stages of marketing plans are to create targets to measure the progress which makes it vital to incorporate both time scales and quantities within the marketing goals. In the context of positioning new products the firm has to provide for changes in the environment which implies that the forecasts may have to be changed frequently. Hence performance has to be monitored continuously as against the planned targets and reviewed regularly. Planning cycles usually revolve around quarterly reviews in terms of the quantified aspect of the annual plan. The plans have to include the latest information which has to be updated on a regular basis which enables the plans as also their implementation to be carried out realistically. The success of such plans is possible only if they are implemented and not just kept in the cabinets (Aaker, 2004).
Some elements of marketing plans which must be tracked are sales analysis and market share analysis to get the right feed back about the success of positioning strategies. Most firms track their sales performance in terms of the deviation from the targeted figures so as to enable the emergence of a true picture of the marketing and positioning efforts. Micro analysis investigates the problems in detail and then the elements are looked into in terms of the individual products, sales areas and customers to determine the areas that fail to meet targets. Some firms keep track of market shares, segment share, relative share and the annual fluctuation rates of market shares.
The cost of administering a product is quite costly and a complex effort. Thus it is required to have strong market potential in ensuring the consistent financial viability of the product. Usually financial hurdles are measured in terms of returns on investments and market shares. A significant benchmark for firms is the internal rate of return which is arrived at on the basis of the opportunity costs, which implies the amounts that the firm could have earned in the next best investment. Some firms just cap the amounts of investment dollars that are made available for rolling out the initial products. In effectively applying financial hurdles firms have to be diligent in estimating the expected sales and the related cost to confirm that the product can be financially sustained. While projecting profitability it is crucial for the firm to keep track of the implicit costs as well as the revenue which is not directly related to the delivery of the products but which has been developed because of its introduction (Robinson, 1995). Costs are tied to risks which are integral to some products and financial projection is linked to the competitive consideration pertaining to the commercialization of new products. A significant competitive issue pertains to the market shares obtained by the firm while expanding its new product line. Market shares are determined by the number of customers retained, new customers captured and by the acquirement of new clients.
Developing a marketing Strategy
The firm has to make strategic decisions in promoting its new products and the commercialization plans essentially revolve around the four marketing Ps as relevant to the new product. Its features will be further developed as it matures through its life period and as the client needs change. The four Ps in the marketing context are used from the firm’s or seller’s perspective, they are essentially devised to bring benefit to the consumer and can be taken to relate to the four Cs as applicable to the customer:
Criteria for developing a market strategy
- 4 Ps
- 4 Cs
- Customer needs and wants
- Costs to the consumer
With such perspectives the product teams in firms can alter the results of pilot testing into products that are commercially viable. A crucial aspect for the firm is to decide if it should move forward with the new product development in keeping with the internal circumstances so as to bring about collaboration and adjustment in attitudes of people. This factor has to be considered in the context of the firm’s objective of encouraging an organization culture which is driven by clients and entrepreneurs. In shifting towards such a culture the firm has to provide for additional resources in terms of sufficient capacities to venture into development of new products.
Employees are generally accustomed to the prevailing procedures of operation and could resist change, which is integral to the growth of any firm. Change usually results in disruption and adaptation to new procedures is quite time consuming. A crucial requirement is to consider if the changes happening due to product change or new product development can be brought about with attitude change and collaborations. Attitudes can be molded by introducing and encouraging an organizational culture which is entrepreneurial and client driven. The shifting towards such a culture will entail considerable expenses and the firm must ensure that it has enough capacity to initiate new product development. Institutional capacities have to be built which involve upgrading to the required office systems (Stearns, 1993).
A firm can bring about shift in attitudes by structuring incentives to motivate staff and by targeting the goals that it wishes to encourage. A well designed incentive scheme institutionalizes training and assists management in guiding the focus of operations. The main aspects of an effective incentive scheme to promote new products are:
- Performance based multiple incentives go along way in rewarding employees and in reinforcing organization goals.
- Weighted time limited reward programs permit a firm to adjust its incentive scheme policies on the basis of priority for specific stages of growth and marketing plans.
- The straight forward reinforcing reward scheme is one of the most effective incentive programs. Incentive schemes may be complicated and the firm’s objectives can suffer or be misunderstood. Hence intangible benefits that enable recognition by senior management results in the reinforcement and in complementing the financial rewards that go with functions related to the new product.
- Some firms provide group based inducements to maintain the spirit of camaraderie amongst employees and encouraging each office as a profit center while at the same time recognizing individual employee contribution.
In launching a new product the firm has to ensure that the basic requirements are met with in fulfilling the requirements of the competition and in meeting the aspiration of customers. The audience has to be targeted by defining the market in terms of market segmentation so that customer needs are ascertained and they get what they need from the product. The sales force should be well trained in being fully conversant and comfortable with the product. Selling the product should be their focus in the close time frame that is available in a competitive environment. Samples and demos should be in place since they form the critical basis to insure readiness prior to launch. The pricing and terms should be set after considering all parameters including distributors and retailers.
Firms have to ensure that promotions are in place and merchandisers and displays are ready for the new product launch. It must be ensured that the means of getting the product to end users are ready since products without proper promotion do not serve the prospective customers. It is not enough to have the product in the distribution channels and firms have to ensure that there is sufficient inventory in stock to cater to unexpected increase in demand. People have to be made aware of the product launch and the media must have a lead time since print publications can run over several months. When launching a new product the starting point of effective marketing is its efficient product positioning. But whatever position that the firms aims at creating for the product, the ultimate position is the one that comes to prevail in the minds of the target audience. Efficient positioning of new products has to be based on the actual needs of consumers, researched market facts and the quantifiable attributes of the new product.
There is a lot of variation in the interpretations relating to the manner in which positioning should be implemented. Hence there is usually considerable difference of opinion in regard to what comprises of an effective positioning strategy. Mostly positioning strategies are understood in the context of general terms that relate to the same things such as target selections and the subsequent promotional aspects of marketing strategies. Most marketing experts do not appear to be clear about the meaning of the different concepts they are in agreement that positioning enables the provision of an efficient vehicle in interpreting the different elements of marketing strategies. Some experts emphasize the importance of single models of positioning and others focus on mixed concepts.
A major drawback with most of the available research pertains to the fact that they deal with the concerns about positioning of products in competitive markets but lack a simultaneous selection of prices and product positions. Selection ought to be made sequentially which has been exemplified by some researchers as outlined in this paper. They treated prices as constant and subsequently positioned the products or treated the positions as fixed. Some researchers permitted firms to first decide upon product positions and then to fix prices. Studies have also found that the two step modeling in choosing prices and products enabled the prevalence of ideal strategy equilibrium under conditions when none could have existed if products and prices were decided upon simultaneously.
Market research has an important bearing in this context and enables a dimensional and deeper sense of understanding of the product while a firm formulates its positioning strategies. However positioning is not a static exercise and although a positioning statement may be relevant for some time, clear signs develop when the time comes to reposition. Such signs pertain to reducing sales, new entrants in the competitive environment, shifts in the markets, new procedures and change in the treatment paradigms. However, as a firms gains experience they become prepared in shifting gears at the opportune time. It is required to keep watch and conduct regular checking which improves and proves to be informative in regard to the available marketing decisions and choices.
For the product to be positioned successfully from the very beginning, the firm has to use the right methods of research which will result in financial statements being impacted positively. Return on investments is a method that compares the benefits of employing capital to finance a specific project to the costs incurred by the firm and must be applied prior to making positioning strategies. The benefits represented by the return on investments are normally measured from the profits generated by the project, hence the vital need for financial considerations. If the return on investment exceeds the costs of capital it pays for the firm to undertake the planned investment. Profits are defined as the earning of the firm after taking into account all expenses including taxes and interest that are paid. Instead of only looking at profits most financial analysis pertains to examining the free cash flows. Theoretically, most items and activities in the balance sheets such as fixed assets, investments on working capital, deferred taxes and depreciation, influence cash flows available to the firm, though they may not be replicated in its net accounting profits. Thus cash and not book profits are crucial to the shareholders and management in any organization.
The firm’s marketing team needs to devise a problem statement that defines the unmet needs of the market in the given product category and the advantages that will accrue to consumers, emotionally and physically, by using the new product. Marketing teams normally aim at developing several statements that are differentiated amongst each other and which define the wide array of different places where the new product could succeed and occupy a strong place in relation to present and future competitors. Such concept statements can be tested by way of consistent rounds of marketing research efforts in ascertaining which ones resonate with different consumer segments in terms of different parameters such as motivational value, credibility and relevance.
Product launch has now become an art which can make or break new products. Successful product launches enables potential consumers to become conscious of the new product and they become eager to try it out. The process of launching new products plays a crucial role in ensuring that the offering reaches the markets at the right time and in a cost effective method though the entire process can prove to be a resource intensive and arduous effort. But if the product launch process is executed efficiently it makes a positive difference between victory and failure for the firm. The issue of why firms fail in product positioning has been researched by Burkett, (2005), and he has cited a practical example to explain the reasons,
“A recent AMR Research survey of manufacturers identified many reasons for product-launch failures. Included among these were misunderstanding customer needs, arriving late to market and missing demand, and designing the product with no consideration of the supply chain requirements or implications. Two of the more prominent examples of product-launch failures are Palm and Motorola. Palm suffered financial losses back in 2001 after it aggressively promoted a new hand-held device but suffered supply problems resulting from design challenges. Motorola, for its part, blamed a decline in fourth-quarter 2003 revenue on its inability to launch several new cell phones because of difficulties associated with supply readiness. The lesson to be learned is that the greatest innovations may never provide business benefits if the supply chain is unable to deliver. Notably, both companies rebounded successfully by addressing these problems in subsequent product launches. In particular, Motorola’s successful launches were reflected in its impressive results for fourth quarter 2004” (Burkett, 2005).
Though the processes of establishing positioning have been gainfully deployed by several firms, there are some faults in the prevalent approaches since they do not demonstrate a process whereby customers can learn in depth about new products. Customers often reject a reasonable statement because it does not appeal to their aspirations. Moreover, brand teams often get frustrated in observing that some facets of the efforts do not appeal to consumers. The next generation approach to positioning is little different in providing customers with building blocks and in using a systematic methodology that is built upon the positioning statements and this process allows assessment and examination of the claims.
Summary and Conclusions
A few decades ago positioning was considered as a simplistic concept for placing and locating and was a popular term amongst marketing professionals in the areas of promotion ad advertising. It is still a commonly used term in marketing literature. But the concept is difficult to conceptualize and involves a number of different interpretations. The objective of this paper has been to explore the different ideas of positioning especially in the context of new products and to ascertain the new developments in the concept. Internal positioning, external positioning, positioning for social accountability, positioning with ideas and head on positioning are some of the variants that have been examined. There are a large number of efficient elements of marketing strategies that are embodied in the over all concept of positioning. Most of them are connected quite closely to the promotional and advertisement positions of the marketing mix. Hence positioning cannot be said to be an entirely new or revolutionary concept for marketing strategies.
Positioning plays a major role while reaching the desired impact in the minds of present and potential customers. Most marketing professionals view positioning of products as an arrangement whereby a product occupies a specific, desirable and distinct place in the mind set of target consumers in relation to the products competing in the same market segment. The position of a product is ascertained by the manner in which customers view the features of the product in correspondence to the features of the competing products. Product positioning cannot be separated from segmentation and customer targeting and if there are faults in these two processes, product positioning will not succeed. A combined conclusion can be drawn from the opinion of different scholars in the field, in saying that product positioning is a complicated and continuous chain process. While executing positioning plans firms have to follow the under mentioned steps.
- identify and analyze competitive products in the market
- identify the determinant attributes and measure their significance to the user
- select positioning or repositioning strategy,
- compose the positioning map
- determine the desired position of the product
- identify the current position of the product and other competing products according to determinant attributes
- create positioning statement.
The use of positioning strategies has been made from the days when firms believed in the idea of product differentiation and market segmentation. Innovation of products have conventionally been carried out with the advent of new ideas and the concept of social accountability as also the recent concept of de-marketing are actually parts of the already developed image building roles accepted in marketing strategies. It is however not intended to mention that concepts of positioning are not useful. They are actually valuable conceptual vehicles that are utilized meaningfully to frame strategic techniques more productive and efficient. Market research activities enable a meaningful and deeper sense of knowledge about the product as a company frames its positioning strategies. However positioning is not a static exercise and although a positioning statement may be relevant for some time clear signs develop when the time comes to reposition. Such signs pertain to reducing sales, new entrants in the competitive environment, shifts in the markets, new procedures and change in the treatment paradigms. Nevertheless, as firms gain experience they become prepared in shifting gears at the opportune time. It is required to keep watch and conduct regular checking which improves and proves to be informative in regard to the available marketing decisions and choices.
In the financial context, it is necessary for firms to make reliable, relevant, understandable and comparable financial statements which can enable the conducting of a thorough exercise in ascertaining its strengths and weakness in terms of liabilities, assets and equity which are directly associated with the firm’s financial positions. Financial statements serve several other objectives for the firm in forming the basis for financial analysis and provide the firm with a thorough understanding of the data relating to the performance of the product. Employees use financial statements for collective bargaining and to discuss promotion and compensation. Potential investors use financial statements in assessing the benefits from investing in the given business and financial analysts provide the basis for the advantages that can occur with such decisions. Financial institutions such as banks and other financial agencies use them to decide about the extent of funding to be given to firms to finance their investments and development projects. It is imperative for all firms to focus on efforts in making their financial statements so that they reflect a picture that appeals to clients and other agencies with which it has direct relations while conducting business.
Organizations have to recognize that competition inevitably results in product innovation and client driven firms consistently re-examine their service procedures in aiming to seize opportunities, satisfy customers and enhance profits. The most successful product launch of new products results when it occurs in expectation of market change instead of a response to crisis situations. By making adjustments towards an increased competitive atmosphere, new innovations are spawned and firms that do not recognize this necessity will be swept away in the market driven industries
Positioning is a task that is essentially performed by the brand and marketing teams that aim at leading customers’ thinking patterns. While positioning new products a radical shift may be involved in the landscape of the specific customer segments whereby the objective is to venture into territories that open avenues in terms of what the product can be instead of what it should be. Essentially, positioning for new products does not pertain to what a customer likes or does not like but about what kind of persuasion will work in taking the desired course of actions. While applying the concepts of positioning firms should view it in the context of its over all marketing and business plans, specifically its strategies and objectives. Along with the traditional promotion activities, other aspects of the marketing plan are also pertinent in this regard. Other elements include distribution, pricing, product and the quality of service provided to customers. Promotional activities must be carried out during the last phase of the marketing and business planning processes and must not be viewed as a stand alone set of actions which have little relevance to the firm’s markets, purpose and goals.
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