ESSENTIAL READINGS-2

PRODUCT
Product is a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies
consumers and is received in exchange for money or some other unit of value.
The concept of product as a bundle of benefits is the theory which seeks to explain a product from the
viewpoint of a consumer. Products are what marketers supply in exchange for customers' money. From
the producer's viewpoint, a product is the end result of combining factors of production, i.e. labour, raw
materials, capital and enterprise, but from a customer's viewpoint the product is defined by the benefits it
provides. Since marketing involves seeing everything the firm does from the viewpoint of the customer,
marketers define products as bundles of benefits.

MARKETING MYOPIA
DESCRIPTION: Shortsightedness in marketing planning and strategy development and, more
specifically, a failure to define adequately the scope of the firms business.
KEY INSIGHTS: Coined and characterized by Levitt (1960), marketing myopia encompasses the view
that firms can be short-sighted in their planning and strategy efforts, where short-sightedness involves
overly narrow definitions of a firms markets and excessive attention to present circumstances as opposed
to future considerations. Ultimately, a narrow view of a firms mission leads it to focus excessively on
products as opposed to customer wants or needs, thereby posing a threat to the firms existence as
customer wants and needs change over the longer term.
KEY WORDS: Marketing planning, marketing strategy, short-sightedness
IMPLICATIONS: In an effort to ensure the long-term viability of their firm, marketers should be wary of
overly narrow definitions of their business shaping marketing planning and strategy development. In
addition, rather than discounting the impact of possible future events and trends due to their
unpredictability, marketers should strive to adopt methods that enable them to systematically incorporate
knowledge of future possibilities into their ongoing marketing planning and strategy development efforts.
BIBLIOGRAPHY
Levitt, T. (1960). Marketing Myopia, Harvard Business Review, 38(4), JulyAugust, 4556.

Page | 1

Course-: MSL-862 (Product Management)

Course Coordinator: Dr. Mahim Sagar

BETTER MOUSETRAP FALLACY

DESCRIPTION: The myth or mistaken belief in the development and marketing of new products that any
given market will more readily adopt technologically advanced or superior products should they ever be
developed.
KEY INSIGHTS: While Ralph Waldo Emerson may have held this belief as he is quoted as saying,
Build a better mousetrap and the world will beat a path to your door, such a belief is clearly unjustified
based on numerous marketing principles and practices. In most instances, superior product offerings do
not automatically market themselves and drive consumers to seek them out and acquire them. Consumers
may be resistant to change due to their investments in current products or they may view a superior
product as overkill relative to their needs and have little or no need for them. The influential role of
marketing strategy and functional area strategies of pricing, promotion, and distribution are neglected as
well.
KEY WORDS: Product development, product superiority, myth, false belief IMPLICATIONS: When
present, such a belief is a symptom that new product developers and/or marketers are so intent on
developing products with superior attributes that they often end up making unwarranted assumptions
regarding a markets true need for them and/or the marketing challenges associated with bringing such
new products to market. While to some it may seem counter-intuitive that markets would not
automatically welcome better products, such a view is simplistic given the richness of marketing
knowledge regarding successful marketing strategies, new product development practices, consumer
behavior, and competitive dynamics. Marketers should be on guard for individuals and organizations
adopting such a mistaken belief.
BIBLIOGRAPHY
Hultink, Erik Jan, and Hart, Susan (1998). The Worlds Path to the Better Mousetrap: Myth or Reality?
An Empirical Investigation into the Launch Strategies of High and Low Advantage New Products,
European Journal of Innovation Management, 1(3), December, 106122.

PRODUCT-MARKET INVESTMENT STRATEGIES (also called growth strategies)

DESCRIPTION: Generic strategies of the firm in the pursuit of growth.
KEY INSIGHTS: Firms seeking to grow for any reason (management directive, shareholder pressure,
etc.) typically need to make strategic investments in one or more areas of their operations. To understand
where to invest, firms must, either explicitly or implicitly, establish a strategic direction for growth. One
explicit means for analyzing a firms growth options involves the use of a product-market expansion grid,
or Ansoff matrix more specifically, which characterizes options for growth and investment along market
and product dimensions, where each is distinguished further by either being existing or new. The
Page | 2

Course-: MSL-862 (Product Management)

Course Coordinator: Dr. Mahim Sagar

four common categories for product-market investment are therefore: market penetration, where the
firms growth is directed at existing markets and the use of present or existing products; market
development (or market expansion), where the firms growth is directed at new markets and the use of
present or existing products; product development (or product expansion), where the firms growth is
directed at new product development for present or existing markets; and diversification, where the firms
growth is directed at new product development for new markets. In the latter category, while
diversification can be considered to be a matter of degree, it is also not uncommon to distinguish
conceptually between related and unrelated diversification, where related diversification is where there
are certain assets and competencies within the firm that can be leveraged in its pursuit of synergy with its
other products and/or market operations and where unrelated diversification is where the area of
investment involves no real synergistic relationship with the firms other products and/or market
operations. An extension of the Ansoff matrixs four-quadrant approach to product-market investment
analysis is to consider as well the possibility of integration as yet another avenue of firm growth, such as
where a firm engages in vertical integration to acquire both suppliers and customer organizations.
KEY WORDS: Investment, generic growth strategies
IMPLICATIONS: A challenging question faced by many marketers is in what direction the firm should
grow. Addressing such a question requires marketers to identify feasible options for growth and engage in
analyses to understand better their possible benefits and costs in relation to the firms marketing and
business objectives. As such, a greater understanding of the many different product-market investment
strategies and the many issues associated with each can assist the marketer with making growth-related
decisions that ultimately meet a set of important criteria including being feasible, generating an attractive
return on investment, and supporting a sustainable competitive advantage.
BIBLIOGRAPHY
Aaker, David A. (2005). Strategic Market Management. New York: John Wiley & Sons, Inc.

PROSPECT THEORY
DESCRIPTION: A theory relating individual risk-aversion and risk-seeking tendencies to gain and loss
situations, where it is theorized and experimentally demonstrated that individuals are significantly more
risk averse when facing gains and significantly more risk seeking when facing losses.
KEY INSIGHTS: According to prospect theory as developed and researched by Kahneman and Tversky
(1979), individuals facing favorable conditions tend to be more risk averse, as opposed to risk seeking,
because they feel they have more to lose than to gain. Conversely, individuals facing unfavorable
circumstances tend to be more risk seeking, as opposed to risk averse, because they feel they have little to
lose. The theory has received support

as a result of experiments conducted by the founders and

Page | 3

Course-: MSL-862 (Product Management)

Course Coordinator: Dr. Mahim Sagar

subsequent academic researchers on individuals confronted with gain and loss situations under a wide
variety of controlled conditions.
KEY WORDS: gains, losses, risk taking, risk seeking, risk, return, decision making, and framing.
IMPLICATIONS: The theory has implications for explaining and predicting the tendenciesof people in
evaluating information. Specifically, the theory provides an explanation for why individuals and
organizations may make decisions that vary from what might be considered purely rational based on
maximizing expected utilities. In the context of organizational decision making, executives facing
external threats might be expected to be risk seeking, and executives facing external opportunities might
be expected to be risk averse (Fiegenbaum and Thomas 1988; Wiseman and Gomez-Mejia 1998;
Chattopadhyay, Glick, and Huber 2001). Executives and managers should, therefore, attempt to
compensate for the possibility of inadvertent biases in their decision making as a result of the way a
decision is framed in terms of gains and losses.
In the context of influencing consumer decision making, marketers should consider the fact that
consumers are likely to make product and service purchase decisions based on personal valuations of
gains and losses that differ significantly from a purely rational perspective. Specifically, whereas losing a
dollar should be just as painful as the pleasure of gaining a dollar, experiments based on prospect theory
suggest that losing a dollar is about twice as painful as the pleasure of gaining a dollar (Kahneman and
Tversky 1991). Thus, according to the theory, consumers buying and holding financial market
instruments will tend to hold on to losing positions in the hope of a recovery while also tending to move
too quickly to sell to secure any financial gains.
Astute marketers of a wide range of products and services (e.g. financial instruments, disability insurance,
electric utility services, equipment warranties) should therefore recognize consumer biases in
psychologically valuing gains and losses and make adjustments to their marketing strategies and tactics in
order to provide stronger psychological and actual tangible appeals. In advertising and promotions, for
example, marketers may potentially increase consumer receptivity to a product or service by emphasizing
the risk of significant losses without the product or service as opposed to the opportunity for significant
gains with the same product or service.

BIBLIOGRAPHY
Chattopadhyay, Rithviraj, Glick, William H., and Huber, George P. (2001). Organizational Actions in
Response to Threats and Opportunities, Academy of Management Journal, 44(5), October, 937955.
Fiegenbaum, A., and Thomas, H. (1988). Attitudes toward Risk and the Risk-Return Paradox: Prospect
Theory Explanations, Academy of Management Journal, 31, 85 106.

Page | 4

Course-: MSL-862 (Product Management)

Course Coordinator: Dr. Mahim Sagar

Kahneman, Daniel, and Tversky, Amos (1979). Prospect Theory: An Analysis of Decision under Risk,
Econometrica, 47, 263292.
Kahneman, Daniel, and Tversky, Amos (1991). Loss Aversion in Riskless Choice: A ReferenceDependent Model, Quarterly Journal of Economics, 106(4), November, 10391063.
Wiseman, R., and Gomez-Mejia, L. (1998). A Behavioral Agency Model of Managerial Risk Taking,
Academy of Management Review, 23, 133153.

The Black Swan: The Impact of the Highly Improbable

By NASSIM NICHOLAS TALEB
Before the discovery of Australia, people in the old world were convinced that all swans were
white, an unassailable belief as it seemed completely confirmed by empirical evidence. The
sighting of the first black swan might have been an interesting surprise for a few ornithologists
(and others extremely concerned with the coloring of birds), but that is not where the
significance of the story lies. It illustrates a severe limitation to our learning from observations or
experience and the fragility of our knowledge. One single observation can invalidate a general
statement derived from millennia of confirmatory sightings of millions of white swans. All you
need is one single (and, I am told, quite ugly) black bird.
I push one step beyond this philosophical-logical question into an empirical reality, and one that
has obsessed me since childhood. What we call here a Black Swan (and capitalize it) is an event
with the following three attributes.
First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the
past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite
of its outlier status, human nature makes us concoct explanations for its occurrence after the fact,
making it explainable and predictable.
I stop and summarize the triplet: rarity, extreme impact, and retrospective (though not
prospective) predictability. A small number of Black Swans explain almost everything in our
world, from the success of ideas and religions, to the dynamics of historical events, to elements
of our own personal lives. Ever since we left the Pleistocene, some ten millennia ago, the effect
of these Black Swans has been increasing. It started accelerating during the industrial revolution,
as the world started getting more complicated, while ordinary events, the ones we study and
discuss and try to predict from reading the newspapers, have become increasingly
inconsequential.
Page | 5

Course-: MSL-862 (Product Management)

Course Coordinator: Dr. Mahim Sagar

Just imagine how little your understanding of the world on the eve of the events of 1914 would
have helped you guess what was to happen next. (Don't cheat by using the explanations drilled
into your cranium by your dull high school teacher). How about the rise of Hitler and the
subsequent war? How about the precipitous demise of the Soviet bloc? How about the rise of
Islamic fundamentalism? How about the spread of the Internet? How about the market crash of
1987 (and the more unexpected recovery)? Fads, epidemics, fashion, ideas, the emergence of art
genres and schools. All follow these Black Swan dynamics. Literally, just about everything of
significance around you might qualify.
This combination of low predictability and large impact makes the Black Swan a great puzzle;
but that is not yet the core concern of this book. Add to this phenomenon the fact that we tend to
act as if it does not exist! I don't mean just you, your cousin Joey, and me, but almost all "social
scientists" who, for over a century, have operated under the false belief that their tools could
measure uncertainty. For the applications of the sciences of uncertainty to real-world problems
has had ridiculous effects; I have been privileged to see it in finance and economics. Go ask your
portfolio manager for his definition of "risk," and odds are that he will supply you with a
measure that excludes the possibility of the Black Swan-hence one that has no better predictive
value for assessing the total risks than astrology (we will see how they dress up the intellectual
fraud with mathematics). This problem is endemic in social matters.
The central idea of this book concerns our blindness with respect to randomness, particularly the
large deviations: Why do we, scientists or nonscientists, hotshots or regular Joes, tend to see the
pennies instead of the dollars? Why do we keep focusing on the minutiae, not the possible
significant large events, in spite of the obvious evidence of their huge influence? And, if you
follow my argument, why does reading the newspaper actually decrease your knowledge of the
world?
It is easy to see that life is the cumulative effect of a handful of significant shocks. It is not so
hard to identify the role of Black Swans, from your armchair (or bar stool). Go through the
following exercise. Look into your own existence. Count the significant events, the technological
changes, and the inventions that have taken place in our environment since you were born and
compare them to what was expected before their advent. How many of them came on a
schedule? Look into your own personal life, to your choice of profession, say, or meeting your

Page | 6

Course-: MSL-862 (Product Management)

Course Coordinator: Dr. Mahim Sagar

mate, your exile from your country of origin, the betrayals you faced, your sudden enrichment or
impoverishment. How often did these things occur according to plan?

What You Do Not Know

Black Swan logic makes what you don't know far more relevant than what you do know.
Consider that many Black Swans can be caused and exacerbated by their being unexpected.

Think of the terrorist attack of September 11, 2001: had the risk been reasonably conceivable on
September 10, it would not have happened. If such a possibility were deemed worthy of
attention, fighter planes would have circled the sky above the twin towers, airplanes would have
had locked bulletproof doors, and the attack would not have taken place, period. Something else
might have taken place. What? I don't know. Isn't it strange to see an event happening precisely
because it was not supposed to happen? What kind of defense do we have against that? Whatever
you come to know (that New York is an easy terrorist target, for instance) may become
inconsequential if your enemy knows that you know it. It may be odd to realize that, in such a
strategic game, what you know can be truly inconsequential.
This extends to all businesses. Think about the "secret recipe" to making a killing in the
restaurant business. If it were known and obvious then someone next door would have already
come up with the idea and it would have become generic. The next killing in the restaurant
industry needs to be an idea that is not easily conceived of by the current population of
restaurateurs. It has to be at some distance from expectations. The more unexpected the success
of such a venture, the smaller the number of competitors, and the more successful the
entrepreneur who implements the idea. The same applies to the shoe and the book businesses-or
any kind of entrepreneurship. The same applies to scientific theories-nobody has interest in
listening to trivialities. The payoff of a human venture is, in general, inversely proportional to
what it is expected to be.
Consider the Pacific tsunami of December 2004. Had it been expected, it would not have caused
the damage it did-the areas affected would have been less populated, an early warning system
would have been put in place. What you know cannot really hurt you.

Page | 7

Course-: MSL-862 (Product Management)

Course Coordinator: Dr. Mahim Sagar

Experts and "Empty Suits"

The inability to predict outliers implies the inability to predict the course of history, given the
share of these events in the dynamics of events.
But we act as though we are able to predict historical events, or, even wore, as if we are able to
change the course of history. We produce thirty year projections of social security deficits and oil
prices without realizing that we cannot even predict these for next summer-our cumulative
prediction errors for political and economic events are so monstrous that every time I look at the
empirical record I have to pinch myself to verify that I am not dreaming. What is surprising is
not the magnitude of our forecast errors, but our absence of awareness of it. This is all the more
worrisome when we engage in deadly conflicts: wars are fundamentally unpredictable (and we
do not know it). Owing to this misunderstanding of the casual chains between policy and actions,
we can easily trigger Black Swans thanks to aggressive ignorance-like a child playing with a
chemistry kit.
Our inability to predict in environments subjected to the Black Swan, coupled with a general lack
of the awareness of this state of affairs, means that certain professionals, while believing they are
experts, are in fact not based on their empirical record, they do not know more about their
subject matter than the general population, but they are much better at narrating-or, worse, at
smoking you with complicated mathematical models. They are also more likely to wear a tie.
Black Swans being unpredictable, we need to adjust to their existence (rather than navely try to
predict them). There are so many things we can do if we focus on anti knowledge, or what we do
not know. Among many other benefits, you can set yourself up to collect serendipitous Black
Swans by maximizing your exposure to them.
Learning to Learn
Another related human impediment comes from excessive focus on what we do know: we tend
to learn the precise, not the general. What did people learn from the 9/11 episode?
Did they learn that some events, owing to their dynamics, stand largely outside the realm of the
predictable? No. Did they learn the built-in defect of conventional wisdom? No. What did they
figure out? They learned precise rules for avoiding Islamic proto terrorists and tall buildings.
Many keep reminding me that it is important for us to be practical and take tangible steps rather
than to "theorize" about knowledge. The story of the Maginot Line shows how we are
conditioned to be specific. The French, after the Great War, built a wall along the previous
Page | 8

Course-: MSL-862 (Product Management)

Course Coordinator: Dr. Mahim Sagar

German invasion route to prevent reinvasion-Hitler just (almost) effortlessly went around it. The
French had been excellent students of history; they just learned with too much precision. They
were too practical and exceedingly focused for their own safety.
We do not spontaneously learn that we don't learn that we don't learn. The problem lies in the
structure of our minds: we don't learn rules, just facts, and only facts. Metarules (such as the rule
that we have a tendency to not learn rules) we don't seem to be good at getting. We scorn the
abstract; we scorn it with passion.
Why? It is necessary here, as it is my agenda in the rest of this book, both to stand conventional
wisdom on its head and to show how inapplicable it is to our modern, complex, and increasingly
recursive environment.
But there is a deeper question: What are our minds made for? It looks as if we have the wrong
user's manual. Our minds do not seem made to think and introspect; if they were, things would
be easier for us today, but then we would not be here today and I would not have been here to
talk about it-my counterfactual, introspective, and hard-thinking ancestor would have been eaten
by a tiger while his nonthinking, but faster-reacting cousin would have run for cover. Consider
that thinking is time-consuming and generally a great waste of energy, that our predecessors
spent more than a hundred million years as nonthinking mammals and that in the blip in our
history during which we have used our brain we have used it on subjects too peripheral to matter.
Evidence shows that we do much less thinking than we believe we do-except, of course, when
we think about it.

A NEW KIND OF INGRATITUDE

It is quite saddening to think of those people who have been mistreated by history. There were
the potes maudits, like Edgar Allan Poe or Arthur Rimbaud, scorned by society and later
worshipped and force-fed to schoolchildren. (There are even schools named after high school
dropouts). Alas, this recognition came a little too late for the poet to get a serotonin kick out of it,
or to prop up his romantic life on earth. But there are even more mistreated heroes-the very sad
category of those who we do not know were heroes, who saved our lives, who helped us avoid
disasters. They left no traces and did not even know that they were making a contribution. We
remember the martyrs who died for a cause that we knew about, never those no less effective in
their contribution but whose cause we were never aware-precisely because they were successful.
Page | 9

Course-: MSL-862 (Product Management)

Course Coordinator: Dr. Mahim Sagar

Our ingratitude towards thepotes maudits fades completely in front of this other type of
thanklessness. This is a far more vicious kind of ingratitude: the feeling of uselessness on the
part of the silent hero. I will illustrate with the following thought experiment.
Assume that a legislator with courage, influence, intellect, vision, and perseverance manages to
enact a law that goes into universal effect and employment on September 10, 2001; it imposes
the continuously locked bulletproof doors in every cockpit (at high costs to the struggling
airlines)-just in case terrorists decide to use planes to attack the World Trade Center in New
York City. I know this is lunacy, but it is just a thought experiment (I am aware that there may be
no such thing as a legislator with intellect, courage, vision, and perseverance; this is the point of
the thought experiment). The legislation is not a popular measure among the airline personnel, as
it complicates their lives. But it would certainly have prevented 9/11.
The person who imposed locks on cockpit doors gets no statues in public squares, not so much as
a quick mention of his contribution in his obituary. "Joe Smith, who helped avoid the disaster of
9/11, died of complications of liver disease." Seeing how superfluous his measure was, and how
it squandered resources, the public, with great help from airline pilots, might well boot him out
of office. Vox clamantis in deserto. He will retire depressed, with a great sense of failure. He will
die with the impression of having done nothing useful. I wish I could go attend his funeral, but,
reader, I can't find him. And yet, recognition can be quite a pump. Believe me, even those who
genuinely claim that they do not believe in recognition, and that they separate labor from the
fruits of labor, actually get a serotonin kick from it. See how the silent hero is rewarded: even his
own hormonal system will conspire to offer no reward.
Now consider again the events of 9/11. In their aftermath, who got the recognition? Those you
saw in the media, on television performing heroic acts, and those whom you saw trying to give
you the impression that they were performing heroic acts. The latter category includes someone
like the New York Stock Exchange Chairman Richard Grasso, who "saved the stock exchange"
and received a huge bonus for his contribution (the equivalent of several thousand average
salaries). All he had to do was be there to ring the opening bell on television-the television that,
we will see, is the carrier of unfairness and a major cause of Black Swan blindness.
Who gets rewarded, the central banker who avoids a recession or the one who comes to "correct"
his predecessors' faults and happens to be there during some economic recovery? Who is more

Page | 10

Course-: MSL-862 (Product Management)

Course Coordinator: Dr. Mahim Sagar

valuable, the politician who avoids a war or the one who starts a new one (and is lucky enough to
win)?
It is the same logic reversal we saw earlier with the value of what we don't know; everybody
knows that you need more prevention than treatment, but few reward acts of prevention. We
glorify those who left their names in history books at the expense of those contributors about
whom our books are silent. We humans are not just a superficial race (this may be curable to
some extent); we are a very unfair one.

RETAILING (MERCHANDISE PLANNING)

DESCRIPTION:
Merchandise planning is the process conducted by a retailer to ensure that the right product is
available to the customer at the right place, time, quantity and price. This process involves
selecting the products the retailer will carry and determining the purchase quantities of these
products. Merchandise Planning then is "A systematic approach. It is aimed at maximizing return
on investment, through planning sales and inventory in order to increase profitability. It does this
by maximizing sales potential and minimizing losses from mark - downs and stock - outs."

Industry Examples
Following companies were also discussed in the class

Bajaj

Airtel

Walmart

Maruti

Zee Network

Reliance Jio

Tata Nano

Honda

Page | 11

Course-: MSL-862 (Product Management)

Course Coordinator: Dr. Mahim Sagar