The Role of Product Management in the Global Crisis - Case Study in Domestic Appliance Industry

The role of product management in the global crisis - case study in domestic appliance industry

Peter MEŽA,Ph.D.

International school for social and business studies,

Mariborska cesta 7, 3 000 Celje, Slovenia

03 425 8220

Neven ŠERIĆ, Ph. D.,

University of Split, Faculty of Economics,

Matice hrvatske 31, 21 000 Split, Croatia

385 021 430 659

Abstract

The recession had a profound impact on all businessfields. The time is high for the companiesto restructuretheirmarketing product strategies, a feat that also represents a monumentalchallenge. Thisarticleshowcases aproduct-oriented marketingmodel bygradually introducing casesrelevant tothe domestic appliance industry. It also shows that choosing aright marketing strategy is paramountfor achieving a substantial growth that also ensures a steady future development. The article deals with issuesthatdefine how to protect and preserve the domestic appliance industry in Slovenia, by choosing the acceptable marketing models. The research has been made on the following premises:

• The effective evaluation of a proposed project management model is implied by the chosen marketing strategy;

• The profit of the domestic appliance producersdepends on the application of the marketing strategy;

Hypothesis: During the time period that is characterised by a sharp transition into recession, an efficient marketing strategy platform is essentially achieved trough contextualization. The demand that governs the market has to be embedded into the chosen marketing strategy. In other words,the marketing strategy selected for the chosen industry is primarily influenced by the perception of demand.

Key words: product management, marketing, crisis,domestic appliance

Introduction

The industry of domestic appliances is currently in the focusing phase. From the global perspective, there are currently five main producers ofdomestic appliances. The velocity of branch concentration is still falling. Today, the world-wide concentration of big, commercial chains, coupled with the polarization of customers and a constantly evolving,ever distinctive global competition will ultimatelyreshape the future structure of this entire branch.[1] What do the findings that concern the underlying dynamics, as well as the structureof the branch mean for all the companies involved? Essentially, the branch itself is quite concentrated and mature, resulting in the constantdiminishing ofopportunities for differentiation among the competitors themselves.[2] This is the prime reason behind the fact that price competitiveness is becoming one of the crucial factors of the entire buying process.[3] The competitors are thus simply forced to seek out new opportunities, create cost-effective expendituresandavoid potential crises.Based on the concept of Customer relationship marketing, focusing solely on the product’s price during the times of recession has a most profound effect.[4] The customers demand change more vigorously, which results in the emergence of entirely new potential market segments. For instance, young families, because of the reduced living space, prefer smaller domestic appliances. Also, contemporary design solutions, coupled with the manufacturing process which uses modern materials are preferred. Ignoring this new product conception, which is primarily defined by its multidimensionalnature, may ultimately result in the decreased demand, in spite of the reasonable, competitive prices set. In the time of recession, this proves out to be a novel rule that governs the sale of the domestic appliances.

When one goes so far as to disregard the increased volatility of this entire branch of industry, a great sense of anxiety still instils the producers. In the recent years,the labour force, oil, metal and other crucial reproduction materials have substantially risen in price. At the same time,the product price dropped. This shear, combined with the overwhelming rise in costs is reverberating throughout the entire industry. An effect is thus created; one that can not be simply suppressed, despite all of the cost reductions. Furthermore, the majority of companies have already taken advantage of the economies of scale. At the moment, adopting an adequate product strategy is the most logical reaction to the prevalent difficulties this entire branch of industry is facing. An immediate alignment of the product management processwiththe strategy implementation is called upon. This crucial interaction is directly mirrored in the company’s success, which can be defined by the income increase, the retention and growth of market share, as well as thefuture development.

The basic hypothesis of the article isas follows: In order to secure the relevant market segment, the one that will ultimately result in the retention of the market share for the domestic appliance manufacturers during the recession period, one has to focus on the context of the demand genesis, rather than on the marketing support for the product management.

Theoretical starting points – ageneral description of the company’s crises

Regardless of the branch and the market a company operates in,each manufacturer must inevitably, in time, cope with a certain crisis. The loss of market share, coupled with a lack of product competitiveness, can most certainly ruin a company completely. Interestingly, each crisis is quiteunique;with consequences that can prove out to be long-term rather than short-term.[5] The former can have a profound effect and influence the future existence of the manufacturer.[6] The economic World is an interconnected one; thusall the active players in the entire value chain are ultimatelyaffected.

It is an absolute necessity for the company to use certain methodology and to have concrete measures at its disposal, especially in the times of crisis. In order to derive a proper model onhow to respond during a crisis scenario, first an accurate definition of this concept must be formulated.“Crisis” can be defined as an occurrence in time, beginning with conditions that weaken the company trough hampering of the relevant goals (Vrečko, 2002.).[7]In essence, the situation deteriorates and as time progresses the company’s state quite differs from the desirable one. At the peak of the crisis,certain measures must be carried out in order to establish a new working order, or to re-establish a previous one, that was before the onset of the crisis. When either occurs, the crisis ends.

There are three basic forms of crisis that can befall a certain company: a business catastrophe, a strategic crisis and a business crisis. Business crises are the central concern of this entire article. The models that aim for the solution of business crises will ultimately be defined.

A business crisis occurs when the growth indicators start to fall, in other words, as soon as the company’s state starts to deteriorate.[8]The crisis itself is measurable and quite evidentfrom the state of the company and/or its environment. A business crisis can arise from all the previously stated forms of crisis. For instance, an overlooked or unsolved strategic crisis can ultimately cause a business crisis. In fact, a business crisis usually follows in the wake of a strategic one. In the paragraphs that follow, the main focus of this article is directed at thenumerous elements of a product crisis, as well as the role of product management in solving and preventing business crises that resulted from strategic ones. The latter situation is quite unfavourable for the entire company. While a manufacturer can still operate substantially well, the success rates are slowly, but visibly deteriorating. The main reason lies in the lack of possibilities for developmentthat could turn the situation for the better.

Picture 1 presents a life-cycle of a company, byusing a correlation diagram between growth indicators and the lapse of time. The graph clearly shows an increase of crisesthat is quite typical before crisis-solving procedures are carried out. The dependence between the increase of crisis and the life-cycle of the company curve is shown in the diagram. As soon as the growth indicators start falling, a business crisis occurs. This is initially observedthrough a fall of the growth indicators for the company.

Picture 1: The life-cycle of a company and an onset and the development of a business crisis before the crisis–solving measures

Source: proper, Šerić, Meža 2008 – 2009

A crisis reverses as soon as the life cycle curve of the company’s growth changes from increasing one to the decreasing one. Due to a longer decrease of profitability, turnover and other segments of operations, liquidity problems start to arise when the solvency of the company is endangered and it often occurs that company then falls deeply in debts.[9] In case the company then does not start to solve the crisis,it is gradually going toward bankruptcy, approaching the point when the liquidity problems are too big to be solved. Once beyond this stage, the company cannot solve the problems any more. It finally ends in bankruptcy.

The importance of marketing-oriented product management in preventing a product crisis

The central concern of product management is by no means just a manufactured product, the underlying managerial process, or the immediate plans for development.The success of all the tasks done by product management can ultimately be judged by the level of market success the products make. Certainly, there are certain products that are more likely to succeed on the battlefield that is the modern economic market. These products are called leading products and are usually supported by capital investments. Also, their development cycle is longer than usual, as is their life cycle.[10] The interaction between the product management and the marketing is an absolute prerequisite for securing the market share during the times of recession. In these troubled times, the potential buyers are fully aware of their significance, so they expect the manufacturers to recognize their specific wishes and demands. After all, the buyers are then loyal only to the products that fulfil their needs. Therefore, to disregard the wishes of the target audience results in the diminishment of the market share, especially in the times of recession.

The product marketing management is essentially a department of a company that directly transfers clear information concerning the marketdemand to the other departments in the company, which need such information to make relevant business decisions. Nowadays, in these times of severe competition, characterised by a constant price pressure, product managers must continuously reduce the costs of the product cycles. Also, the design of the product must be continuously modified in order to meet the rigorous expectations of the demand.

Each product needs toobjectivelymirror the customers’ wishes and needs, as well as reflect the state of the entire market. It also should preferably compare with other competitive products on the target market, in order toclearly stress its advantages and mask its weaknesses. The unique market position of the product can be achievedtrough integrity of quality and favourable characteristics that are thus perceived by the customers. The adequate product positioning on the market is absolutely necessary in order to successfully carry out the strategies set.

Summing up the activities of the product manager, the responsibilities are as follows:

• collection and analysis of market information, information about competitors and the customer’s perception of new trends,

• working on novelprojects that are in congruence with the demand of the target audience
• supporting the sale departments at the times the new products, product families and product lines are being launched onto the market,in order to lower the rollout costs
• adequate market positioning, while setting the right prices for new products
• monitoring the entire product group

In the beginning of this article, the outlyingcharacteristics of a product crisis were defined, especially the time limit which can vary in time. The causes that lead to the rise of a product crisis were defined, as well as the subsequent consequences. Both are inexplicablyinterlinked to various manifestations of strategic and business crises. According to the defined characteristics of the product crises, there is a logical need for the product management to participate in the problem-solving. In order to rectify the crisis, this sector of company has to reconsider the fundamental principles of business.

At that crucial point in time, during these critical situations, a key juncture of business process must be reached, so the product management must assume a new role. The crisis-directed product management, beside its regular activities, has to proactively cooperatewith projects that help in solving and/or preventing the product crisis. The product management therefore collects information on the market, systematically adopts it to the model of product cycles and launches corrective activities based on the perceived product crisis. This definition places the product management inside a company; serving as the crucial interlink thatconnects crisis management, markets/products and functional departments.[11]

The product-project model of crisis solving

Numerous authors have been dealing with concrete ideas about the effectiveness of project management at crisis solving processes. Kovač in his works suggests the use of a project method in order to solve a certain crisis.[12] He defines projects as programmes of reorganization and revitalization. The reorganization implies a stabilization of basic operating variables. He suggests theconduct of the following activities: a formation of the reorganization group, the analysis of state/conditions, a strategic analysis, the making of a project that deals with the reorganization and revitalization of the entire company, as well as the financial reorganization, rationalization and cost reduction. Also, the changes should be made in the sectors of marketing and production, based on the product-market-profitability analysis. Final modification is a change of the company’s culture. The process of revitalization encompasses the activities that lead to the revival of the company, leading to the solid, base growth.Besides the above mentioned activities, a formation of themanagement structure, the identification of strategic crisis, formulation of a new vision, forming of business organizational units/departments, the assurance of resources and conditions to implement new strategic directions (such as acquiring new, fresh capital and organizational changes), checking /monitoring the strategy implementation of the company.

This approach focuses on the company itself. It is as if one forgets that the recession is caused primarily by external factors that govern the market. This does not mean that one has to treat proactive internal processes as negligible, quite the contrary. However, no matter how efficiently the latter is done, without a clear focus on the current market environment and the clear needs and wishes of the target audience, the relevant market share will continue to be elusive. Because of this, the whole marketing strategy, as well as certain specific tactics made for specific product or the whole groups of products, has to adapt to the expectations of the target audience. This kind of approach is an absolute prerequisite for keeping the occupied market share during the troubled times of recession.

The following part of the article will focus on the product management, especiallythe role in solving and preventing the decline crises. There are various factors which cause a decline crisis. However, a decline crisis first has to be defined. It represents the initial period of a business crisis and it is characterised by the decline of growth indicators. The reasons of the decline crisis as far as the products are concerned are:

• the reduced producing ability of the company, especially when the company is not able to perceive the discrepancy in time,
• a decrease of the marketing ability, caused by poor advertising efforts, or when its sales and distribution strategy are not clear enough.

At this point we will analyse some cases of crisis in the fieldof product cycles of domestic appliances, as well as their causes.[13]

Picture 2: A product life-cycle and the levers for appearance of risks / crisis situations

Source: proper, Meža, Šerić 2008 – 2009

Regardless of the branch a certain company operates in, we can sum up some possibilities to solve and prevent product crises:

1. The avoidance and prevention of potential product crises during the phases of project development and introduction of new products – the defined goals are assured by means of a classic project approach (project planning of new products)”:

• efficient and transparent product marketing (competition analysis) before, and during product development
• product strategy (programme definition, forecasts, classification, product mix, target costs control, planning of product life-cycle, target quality etc.) in synergy with marketing strategy of the product
• quality and systematic development of marketing strategy in definition of a new product (new product generations)
• efficient marketing communication, commercialization of novelties/ changes (due advertising start and adequate advertising strategy)
• proper branding strategy, and distribution strategy
• cost strategy of a product related to cost strategy on individual markets.

2. Activities of preventing potential crises by means of product exploitation (regular control of indicators/indices of operations, control and keeping up with competition. In the moments of crisis some corrective measures or project revitalizations are introduced in the company:

• efficient and transparent product marketing (competition analysis) and proactive performance of marketing-technical analyses (head-to-head-benchmarking)
• in cases of excessive quality costs that demand more technical-technological challenges when solving a crisis, projects of improvements are introduced in the company
• in cases of sales decline some activities /projects of acquiring new markets, new sales channels and ways and the activities of product promotion are introduced in the company
• in cases of price weak/poor competitiveness projects of cost reduction on the product level (cost re-engineering) and on the level of purchase chain are introduced (cost reduction of purchase material)
• extension of the period between maturity and decline of a product is possible on the level of revenues by means of projects of minor functional and design improvements (product face lift) and sales promotion (marketing activities, sales promotions – special sales offers etc).

Conclusion