The Product Planning

System
UNIT 3 THE PRODUCT PLANNING SYSTEM
Objectives

After reading this unit you should be able to:

• expalin the meaning of a product planning system

• discuss the constituents of a product planning system
• describe some major product planning models
• develop a suitable product planning system for a given organisation.
Structure

3.1 Introduction
3.2 The Traditonal Approaches to Product Planning
3.3 A Matrix Approach to Product Planning
3.4 A Model to Add Clarity and System to the Judgements Involved in
Product Planning
3.5 Summary
3.6 Self-Assessment Questions
3.7 Further Readings

3.1 INTRODUCTION
Development of a strategic product planning system is one of the most
critical elements of a company's product management function. In designing
such plans, the management requires adequate information on the current
and anticipated performance of its existing products. This information can
again be broadly classified into two dimensions: (i) the perceptual
dimension consisting of the consumers perception about the product per se
as well as in relation to the products of the competitors and (ii) the
`objective' dimension consisting of actual raw information about actual and
anticipated performance on relevant criteria such as sales, profits and market
share.

As you can see for yourself the information on both the dimensions needs to
be seen as a whole to develop a proper product planning system. However,
most approaches use the information obtained in isolation making the
picture incomplete. We shall, in this unit, discuss the different approaches to
product planning.

3.2 THE TRADITIONAL APPROACHES TO

PRODUCT PLANNING
The product portfolio approach described in the earlier unit is one of the
earlier tools used for product planning. Then there is the concept of
positioning the product vis-a-vis. its competitors. However, both these
systems show little concern for the measures like sales, market share and
profitability taken together comprehensively. An integrated approach to
product planning was been suggested by Yoram Wind and Henry J.
Clayclamp in a paper presented in the Journal of Marketing. We shall study
the same in the next section.
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Product Management –
Introduction
3.3 A MATRIX APPROACH TO PRODUCT PLANNING
The matrix approach consists of the following phases:
Phase A: This requires definition of the relevant universe in terms of the
relevant strategic product/market area. What do we understand by this? It
essentially means that
i) The definition of the product should be clear and unambiguous
inclusive of sub categories of the product;
ii) The strategic market should be a well focussed segment to lend
specificity to the analysis;
iii) The relevant measurement instruments in terms of units of sale and the
time period of sales whether monthly or quarterly must be specified.
Phase B: This entails examination of the sales position for the given
product in the strategic market area. A graph of industry sales and company
sales for a given period is plotted. Thereafter the product is assigned to the
stage in the product life cycle on the basis of certain criteria:

If the annual sales trend over the past years is:

i) negative, assign to the decline category
ii) 0%-10% increase, assign to the stable category;
iii) Over 10% increase, assign to the growth category.
Phase C: The market share of the company's given product in the strategic
product market area is then determined using certain criteria to assign into
categories.
The illustration given below for two products A and B will enable you to
understand the process of assignment to categories and determination of the
product's strategic position.
Illustration: Assign product to one of the following categories.
Sales Industry Company
1). Decline ………………… ……………………
2). Stable .............................. ……………………
3). Growth ………………… ……………………
Market Share
1). Marginal Market Position ...………………………………….
2). Average Market Position ..…………………………………..
3). Leading Market Position ……………………………………
Profitability
1). Below Target ……………………………………
2). Target ……………………………………
3). Above Target ……………………………………
A past trend of the product is also plotted to facilitate the assignment process described
above:

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 The Product Planning
On the basis of the assignment done above a product evaluation matrix for System
two hypothetical products would look somewhat as:

Fig. 2: Incorporating Sales, Market Share and Profit Forecasts into the Product
Evaluation Matrix

Source: Adapted from Planning Product line Strategy A Matrix approach by Yoiam
Wind and H. J. Claycamp "Journal of Marketing", Vol. 40 .January, 1976
Here two products A and B have been traced for three years. Product A which
showed a marginal market share in a growth industry had stable but below
target profitabilty in the first year. This improved to growing profits and
average market share in the next year to achieve targets. This was followed by
an above target profits coupled with an average market share in a growing
industry. The performance of product A has thus steadily improved.
The product B on the other hand is in a declining industry with an average
market share and stable profits on target in the first year but in the next year
a decline in profitability is seen. In the third year the decline in profits
continues with a drop in the market share as well.
Suggested Marketing Strategy on the basis of the Product Evaluation
Matrix: The best course available for product A will be to move from average
market share to the leading position maintaining above target profits or
sacrificing some profits for the leading position to have targeted or even below
target profits.
For product B the course of action available would be to improve market
share position from marginal to average and also achieve a stability in
profits although they may be below target.
As you can very well discern from this exercise that a product evaluation
matrix enables a company to take into account four parameters - industry
sales; company sales; market share and profits simultaneously. We can
make the following inferences regarding a firms product planning exercise:
Inferences: A firms major strategic product/market decision alternatives for
its existing product line and the component products of that time in a given
strategic product market area are:
1) Do not change the product or its marketing strategy;
2) Do not change the product but do change its marketing strategy. This
may involve a change in the type and level of advertising, distribution.
and pricing strategies associated with a given positioning and given
product attributes.
3) Change the product. This may involve product modifications either within
the parameters of the product's current market positioning or within a new
positioning. In either case, a change in the associated marketing strategy is
required.
4) Discontinue the product or the product line. This strategy may involve
an interim product or product line "run out" strategy, gradual
choppoing of the product line, or the immediate phasing out of the
product or the complete line.
5) Introduce new products into the line of add new product lanes.
In keeping with the varying degree/intensity of changes required in the five
alternatives suggested above, we can identify different levels of analysis and
specificity of guidance provided by the Product Evaluation Matrix. This is 25
described in the next section.
Product Management – Product Evaluation Matrix - A Gist
Introduction
This approach requires five levels of analysis each with an increasing
specificity of guidance, for the firm's strategic marketing decisions. The first
level is based upon the evaluation of the product's current position with
regard to industry and company sales, market share -and profitability thus
providing limited guidance. The fifth level on the other hand, provides
detailed and specific guidance based on projected product performance with
regard to sales, market share and profitability under alternative marketing
strategies, anticipated competitive actions and alternative environmental
conditions. The five levels are summarised in the following table.

This Table has been taken from a paper presented by Yoam Wind and henry
J. Cray Camp on Product Line Planning Strategy which appeared in Journal
of Marketing, Vol 40, (January 1976)

Activity 1

Select a specific FMCG brand of your company or any other company you
are familiar with and collect data on past trends pertaining to:
i) Company Sales
ii) Industry Sales
iii) Market-share of the product
iv) Profitability
Prepare a product evaluation matrix on the basis of this data. Suggest an
action plan for the product.

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 The Product Planning
3.4 A MODEL TO ADD CLARITY AND SYSTEM TO THE System
JUDGEMENTS INVOLVED IN PRODUCT PLANNING
Different companies use different systems for product planning. These may range
from a system wherein a single person attempts to assimilate the pertinent data,
make a decision, and then explain. his strategy to his associates. At the other end
of the scale is the large company with a well-organised product planning
department where the required marketing information is collected and compiled
into a whole lot of charts, profile graphs and estimate sheets for the consideration
of those responsibl6 for the final decision.
A model for product-planning with particular emphasis on new product
introduction in the product line has been presented by John T.O. 'Meara, in the
Harward Business Review. Let us examine this approch in detail.
The Model: It uses statistical and financial concepts like probability and pay-back
period. The exhibit below gives the criteria for awarding ratings to a given
product. Thus, rating the product on certain factors and subfactors is the first step
in this model for product planning. This exercise is particularly useful in
evaluating a new product. On the basis of ratings awarded in the evaluation
exercise carried out above, the factor ratings on the four major factors viz.
Marketability, Durability, Productive Ability and Growth Potential are obtained.
These factors are also assigned weights in accordance with their relative
importance. In the same manner, each of the subfactors that comprise the four
major factors are weighted. Let us evaluate the subfactors of the factor
Marketability. Therein each of the factor ratings are assigned an estimated
profitability which essentially evaluates the chances of whether a factor will
achieve the rating awarded to it. From the exhibit given below it can be seen that
there is at least a 50-50 chance that the merchandisability characteristics of
product X will meet the definition of "very good", that there is less chance that it
will meet the definition of `good' and that there is even a smaller chance that it
will meet the definition of `average'. This method of precisely stating one's best
judgement will result in a more efficient evaluation than would be possible using a
less systematic procedure.
After assigning probabilitiei to the subfactors, each probability figure is
multiplied by the numerical value attached to the rating. This is termed as the
expected value. The expected value of all the subfactors and a total of these
expected values gives the final evaluation of the factor concerned. The end
result is an index number which represents the factor. The total expected values
for each factor are then multiplied by their weights to arrive at a final factor
evaluation -as follows:
Table 1: Factor Rating for a Product
Proposed Product Product X Evaluated by John Smith
1 2 3 4
Factor Factor weight Assigned Factor Final Factor
Value Evaluation
Marketability 0.4 71.4 28.6
Durability 0.3 68.6 20.6
Productive Ability 0.1 91.60.1 9.2
Growth Potential 0.2 69.2 13.8
Final intangible factor index 1.0 72.2
number
This final intangible factor index number so obtained is compared for different products
which are being evaluated as well as against a standard set by the company.

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Product Management –
Introduction

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The Product Planning
System

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Product Management –
Introduction

3.5 SUMMARY
In this section we have seen some tools available for product planning and analysis.
These may not provide an end to the problem but they definitely serve as a guideline.
Depending upon the data available and time available to take decisions a company may
adopt one or more of the above methods. It also depends upon the number of products
the company has in its product line.

3.6 SELF-ASSESSMENT QUESTIONS

1. Draw comparisons between the first approach suggested for Product
Planning (based on industry sales, company sales, market share of the
product-and profitability) and the Market-Share Approach Outlined for
product planning based on PLC.

2. Briefly enumerate the systematic approach to product planning using

probability estimates.

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 The Product Planning
3.7 FURTHER READINGS System

Kotler, Phillip, 2002 Marketing Management, Prentice Hall of India Pvt.

Ltd., New Delhi.

Harvard Business Review Vol. 53 January, February, 1975, Shifting Role of the
Product Manager by Richard Crewett & Stanley Stasch.

Journal of Marketing, April, 1977, Diagnosing the Product Portfolio by George Day.

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