Page 333 - Foundations of Marketing

300 Part 4 | Product and Price Decisions

Is demand strong enough to justify entering the market, and
will the demand endure? What types of environmental and
competitive changes can be expected, and how will these
changes affect the product’s future sales, costs, and profits?
When HP launched its TouchPad tablet computer, the
business analysis did not signal to the company that the com-
petitive environment and profi t margins would cause the fi rm
to withdraw this product shortly after its launch. It is there-
fore also crucial that a fi rm determine whether its research,
development, engineering, and production capabilities are
adequate to develop the product; whether new facilities
must be constructed, how quickly they can be built, and how
much they will cost; and whether the necessary fi nancing for
development and commercialization is on hand or is obtain-
able based upon terms consistent with a favorable return on
investment.
In the business analysis stage, fi rms seek market infor-
mation. The results of consumer polls, along with second-
ary data, supply the specifi cs needed to estimate potential
© iStockphoto.com/kenneth-cheung (when they are still just product ideas), forecasting sales
sales, costs, and profi ts. For many products in this stage
accurately is diffi cult. This is especially true for innova-
tive and completely new products. Organizations some-
times employ breakeven analysis to determine how many

times, an organization also uses payback analysis, in which
marketers compute the time period required to recover the
Product Failure units they would have to sell to begin making a profi t. At
The HP TouchPad was discontinued due to lack of demand. The funds that would be invested in developing the new product.
business analysis stage did not prepare HP for the competitive Because breakeven and payback analyses are based on esti-
environment and profit margins that would cause its new product mates, they are usually viewed as useful but not particularly
to struggle. precise tools.

Product Development

Product development is the phase in which the organization determines if it is technically
feasible to produce the product and if it can be produced at costs low enough to make the final
price reasonable. To test its acceptability, the idea or concept is converted into a prototype,
or working model. The prototype should reveal tangible and intangible attributes associated
with the product in consumers’ minds. The product’s design, mechanical features, and intan-
gible aspects must be linked to wants in the marketplace. Through marketing research and
concept testing, product attributes that are important to buyers are identified. These charac-
teristics must be communicated to customers through the design of the product. GreenTech
Automotive, for example, has developed a series of hybrid prototypes meant to appeal to
consumers looking for efficient hybrid vehicles.
After a prototype is developed, its overall functioning must be tested. Its performance,
safety, convenience, and other functional qualities are tested both in a laboratory and in the
fi eld. Functional testing should be rigorous and lengthy enough to test the product thoroughly.
Studies have revealed that the form or design of a product can actually infl uence how consum-
14
ers view the product’s functional performance. Manufacturing issues that come to light at
this stage may require adjustments.
product development A crucial question that arises during product development is how much quality to build
Determining if producing a into the product. For example, a major dimension of quality is durability. Higher quality often
product is technically feasible calls for better materials and more expensive processing, which increase production costs
and cost effective and, ultimately, the product’s price. In determining the specific level of quality, a marketer

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