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To make or not to make new products

products, product launching, product innovation, making new products, marketing, selling, promotion

There are various ways in which new products can be 'bought'. A company needs to decide whether it will 'make or buy', i.e. whether it will itself manufacture the products it markets or whether it will simply be a marketing organization, leaving the manufacturing to specialists in that part of the operation. Marks & Spencer's is an outstanding case of a very successful organization which develops detailed specifications for a wide range of products and exercises strict quality control, but does not itself manufacture, preferring to buy in from numerous manufacturing companies (which in turn are prepared to leave M. & S. to do the marketing end of the job for them).

A company must similarly decide whether it is better to do its own product development or to 'buy in' this particular expertise. Thus new products can be acquired by the following ways:
1. Buying patent rights;
2. Acquiring manufacturing rights;
3. Arranging to act as a marketing organization for a company wishing to concentrate on manufacturing;
4. Acting as marketing agent in one country for a company manufacturing and marketing in another.

The Criteria New Products Must Meet.

The majority of new products are not worthwhile, so that great caution must be exercised in devoting time and money to their development and launching. Fortunately, some clear-cut criteria can be applied, and if they are observed, the chances of success are likely to be greatly increased. (It should be noted, however, that there is no way of totally avoiding the risk inherent in launching a product of which consumers have no previous experience.) These are the criteria:
1. There must be an adequate demand. It is quite pointless to produce a product that is unlikely to be bought in sufficient quantity for the revenue to cover development, production, marketing, and distribution costs, and also to make a contribution to profit.
2. The product should be compatible with the company's marketing experience and resources. A washing machine manufacturer could add a dishwasher to his range and market it successfully with his existing organization and through the same distribution channels. Customers' motivations and purchasing habits could be expected to be familiar. But a similar manufacturer deciding to sell paint or biscuits would be entering a totally new marketing area and would somehow have to acquire a completely new body of expertise. He would need different retailers and an appropriate pricing structure, he would be faced with quite new physical distribution problems, and his advertising approach and way of thinking would have to change.
3. The product should fit fairly easily into the company's present production pattern. The plant and machinery, technical expertise, servicing facilities may all be quite different for a new product field.
4. The financial implications of launching the new product must be carefully thought through and appropriate arrangements made. For example, if the new product needs high stock levels, the extra finance must be available; and if its sales are seasonal, the cash-flow fluctuations must be provided for. Developing and launching a new product generally means very heavy costs, so that a long time may elapse before it reaches break-even point. The cash to sustain this period of heavy 'losses' must be available.
5. Adequate management time must be devoted to a new product. Without such attention it will wilt and die.

In addition, any necessary legal and other procedural clearances must be obtained well in advance.
Finally, there is no point in trying to launch a new product unless it has some clear marketing advantage that can form the basis of a unique selling proposition to be featured in promotion and it can reasonably be expected to make a profit contribution in line with the management time and other resources it will absorb.
Published: 2007-04-29
Author: Martin Hahn

About the author or the publisher
Martin Hahn PhD has received his education and degrees in Europe in organizational/industrial sociology. He grew up in South-East Asia and moved to Europe to get his tertiary education and gain experience in the fields of scientific research, radio journalism, and management consulting.

After living in Europe for 12 years, he moved to South-East again and has worked for the last 12 years as a management consultant, university lecturer, corporate trainer, and international school administrator

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