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PRODUCTMANAGEMENT
Learning ObjectivesI.      Define product management.II. Discuss the constituents of a product.       i.        Examine th...
Learning ObjectivesI.      Define product management.II. Discuss the constituents of a product.       i.        Examine th...
Product                 management© 2014 Berlin Asong. All rights reserved.   4
It’s theprocess ofsatisfying consumers’                       needs and fosteringa firm’s performance through             ...
It’s the process of managinga product successfully throughout the various stages of its lifecycle. © 2014 Berlin Asong. Al...
© 2014 Berlin Asong. All rights reserved.   7
Learning ObjectivesI.        Define product management.II. Discuss the constituents of a product.         i.      Examine ...
What is a product           comprised of?© 2014 Berlin Asong. All rights reserved.   9
© 2014 Berlin Asong. All rights reserved.   10
What are theelements or parts  of this pack of      cereals?© 2014 Berlin Asong. All rights reserved.   11
Organisation                                                                                                              ...
Product anatomy is a          breakdown of a product           into constituent units.© 2014 Berlin Asong. All rights rese...
Learning ObjectivesI.      Define product management.II. Discuss the constituents of a product.       i.        Examine th...
What are the                                              implications of the                                             ...
1        A product is more than its        physical form or content.    © 2014 Berlin Asong. All rights reserved.   16
narrow                                A reason for product failures is…managers have                             interpret...
2        It is the interaction     of product elements that    provide value to customers.    © 2014 Berlin Asong. All rig...
Failure to integrate the     various product elements                         successfully is a reason for product failure...
3       Managing a product    successfully demands a mix         of knowledge…    © 2014 Berlin Asong. All rights reserved...
Product management                                                       Ecology                                          ...
Learning ObjectivesI.        Define product management.II. Discuss the constituents of a product.         i.      Examine ...
PRODUCT P CK GING© 2014 Berlin Asong. All rights reserved.   23
The outward                tangible elements                  of a product.© 2014 Berlin Asong. All rights reserved.   24
Colours                                              Size                                             Shape               ...
Is it worth spending                 millions of pounds on                 product packaging?© 2014 Berlin Asong. All righ...
© 2014 Berlin Asong. All rights reserved.   27
1                                           Portability                             Convenient to carry, transport & consu...
2Preservation  High-tech packagesare extending the shelf-    life of products.    © 2014 Berlin Asong. All rights reserved...
3                                                   It conveys                                                critical pro...
Lack of information tomake informed  and educated    choices, is   perceived asrisky by buyers.© 2014 Berlin Asong. All ri...
Perceived Risk                                                                                   Psychological Risk       ...
Putting a message on packagingcosts significantly less than newspaper,      TV, or Internet advertising.                  ...
4       Visual elements      of actual product.    © 2014 Berlin Asong. All rights reserved.   34
Glossy packaging gives a luxurious orpremium impression   of the product. © 2014 Berlin Asong. All rights reserved.   35
Visual differentiation  frequently drives purchase          decisions.                                            Tetra Pa...
Visually appealingpackaging can provoke   impulse buying.© 2014 Berlin Asong. All rights reserved.   37
Studies show impulse        shoppers respond highly          to packaging visuals.© 2014 Berlin Asong. All rights reserved...
of all purchasing decisionsare made inside the store,you realise how important is product appearance.Tetra Pak (2012), “Te...
5                                                Safety    © 2014 Berlin Asong. All rights reserved.            40
Consumers want to be confident thatthe [package] is safe and protects thecontents, but they also want to know if it is env...
6        Packaging serves to    differentiate a product from           rival products.    © 2014 Berlin Asong. All rights ...
Classic coke’s curvy, “stripes”,etc. are instantlyrecognisable byfans, worldwide.© 2014 Berlin Asong. All rights reserved....
Packaging gives                                            personality to classic                                         ...
7     It could serve as a salespromotional tool.    © 2014 Berlin Asong. All rights reserved.   45
Multipack meanslower unit cost, cost-savings       to customers.© 2014 Berlin Asong. All rights reserved.   46
8                   To flaunt                a firm’s green                 credentials.    © 2014 Berlin Asong. All right...
Coca-Cola’s PlantBottle© 2014 Berlin Asong. All rights reserved.   48
Anatomy of Product PackagingTetra Pak (2012), “Tetra Pak Magazine No 96 - Package Communication”. Retrieved Feb. 27, 2012,...
© 2014 Berlin Asong. All rights reserved.   50
1                          It increases the                        cost &, consequently                          price of ...
2                                       Deceitful                                      packaging    © 2014 Berlin Asong. A...
© 2014 Berlin Asong. All rights reserved.   53
3                                                Using excess                                                packaging.   ...
Learning ObjectivesI.      Define product management.II. Discuss the constituents of a product.       i.        Examine th...
PRODUCT  DECISIONS© 2014 Berlin Asong. All rights reserved.   56
The main goal ofproduct management is to grow product sales       profitably.   © 2014 Berlin Asong. All rights reserved. ...
can this be achieved© 2014 Berlin Asong. All rights reserved.      58
Ansoff-Growth Matrix                                                Current                                               ...
Current                                                      Market    New                                              Ma...
Growth within a firm’s              existing territorial or           “segmentorial” market.(demographic, psychographic, a...
Desirable State                                                              Gap to close    Market Share                 ...
30 minutes        Unsatisfied with its sales and   profit performance for 2012, Morrisons    supermarket is embarking on m...
1    Provide valued-products.    © 2014 Berlin Asong. All rights reserved.   64
2    Picture source: wikimedia.org                                            Expand retail presence (no. of stores).     ...
3                                                  Provide an                                                online-to-hom...
4      Price-promotion    © 2014 Berlin Asong. All rights reserved.   67
5                         Build brand equity.    © 2014 Berlin Asong. All rights reserved.   68
6                                                 Provide superior                                                customer...
30 minutes                          What are the                       chances of success? © 2014 Berlin Asong. All rights...
Growth by market    penetration thrives under     certain conditions like…© 2014 Berlin Asong. All rights reserved.   71
1        Firm’s operating market       is underpenetrated.    © 2014 Berlin Asong. All rights reserved.   72
2             If the firm can reduce the           market share of rivals without           destroying its profit margins....
Current                                                      Market    New                                              Ma...
The firm targets a new territorial or “segmentorial”market with an existing offering. © 2014 Berlin Asong. All rights rese...
Geographic market extension  An existing  product orservice is madeavailable in new   markets.   © 2014 Berlin Asong. All ...
© 2014 Berlin Asong. All rights reserved.   77
Usually the           offering is adapted to fit             buyer’s preferences.© 2014 Berlin Asong. All rights reserved....
Tesco’s US outfit© 2014 Berlin Asong. All rights reserved.                  79
Tesco’s UK outfit© 2014 Berlin Asong. All rights reserved.                  80
Market extension                  can be pursued by                 acquiring other firms.© 2014 Berlin Asong. All rights ...
Such as ASDA’s 2011 acquisition of NETTO© 2014 Berlin Asong. All rights reserved.          82
© 2014 Berlin Asong. All rights reserved.   83
Gender market extension From Dovewomen to Dove    men.© 2014 Berlin Asong. All rights reserved.                       84
Age-based market extension    An existing product orservice is made available to a   consumer segment of a      certain ag...
Originalmarket:18-35age-group Product                                                 Extendedmarket:40-65age-group Servic...
Income-based market extension    An existing product orservice is made available to a   consumer segment of a  certain inc...
Originalmarket:£70.000.00plusincome                                                               Extendedmarket:£18.000.0...
What are the pushfactors for market extension, and probability for success?© 2014 Berlin Asong. All rights reserved.   89
1                          Firm’s operating                         market is saturated.    © 2014 Berlin Asong. All right...
2    There’s a strong fitbetween the existing offering and the extended market.    © 2014 Berlin Asong. All rights reserve...
3           If a firm’s existing       capabilities can adequately         serve the new market.    © 2014 Berlin Asong. A...
What are the                                  challenges of growth                                  by market extension?© ...
…and how                           those challenges                           can be overcome?© 2014 Berlin Asong. All rig...
Current                                                      Market    New                                              Ma...
The firm grows within     its existing territorial or“segmentorial” market by providing    new products or services.© 2014...
Samsung’s 2012 revenue                                            growth was strong thanks to a                           ...
© 2014 Berlin Asong. All rights reserved.   98
© 2014 Berlin Asong. All rights reserved.   99
Some of Coca-Cola’s                products are acquired                    businesses.© 2014 Berlin Asong. All rights res...
30 minutes                  The justification for                 growth through new                product development. ©...
1  To ignite revenue growthespecially if the firm operates    in mature industries.    © 2014 Berlin Asong. All rights res...
Apple’s iPod line from 2001-2012© 2014 Berlin Asong. All rights reserved.     103
2                         …to appeal to                     various buyers’ needs                     in an existing marke...
3    Innovate or                                 die!    If not you will be outran by the competition.    © 2014 Berlin As...
Current                                                      Market    New                                              Ma...
The firm moves           into new product        categories or industries.© 2014 Berlin Asong. All rights reserved.   107
Not too long ago,the iPod was a bigrevenue generator for Apple, but not     any more.© 2014 Berlin Asong. All rights reser...
In 2007, Apple  entered the mobile phone   industry.© 2014 Berlin Asong. All rights reserved.   109
The iPhone accounts    for 44% of Apple’s       revenue in 2011.© 2014 Berlin Asong. All rights reserved.   110
© 2014 Berlin Asong. All rights reserved.   111
Related Diversification     The firm grows by expandinginto product or service categories that    are related to its core ...
© 2014 Berlin Asong. All rights reserved.   113
A high degree of                              relationships exit among                             Apple’s product categor...
1                                          A high degree of                                      relationships exit among ...
2010: HP acquired Palm to enter the               fast growing tablet computing space.© 2014 Berlin Asong. All rights rese...
© 2014 Berlin Asong. All rights reserved.   117
Related Diversification     The firm grows by expandinginto product or service categories that  are unrelated to its core ...
1987; the merger                                            between Moet Hennessy                                         ...
© 2014 Berlin Asong. All rights reserved.   120
© 2014 Berlin Asong. All rights reserved.   121
In August2011, Google acquired MotorolaMobility. Is the acquisition a related  or unrelated diversification?© 2014 Berlin ...
30 minutes   Virgin Group has diversified    into related and unrelated industries. Does diversification   benefit the com...
1         It enables the company to     pursue growth in multiple territorial,     “segmentorial” & product markets.    (d...
2        By moving resources &      core competencies into new     industries, the firm can use its         capabilities e...
The efficiency of a factory is       improved by producing two or   more product categories compared if   multiple product...
synergy                                            When two firms combine; they can                                       ...
Before the 2008 global financial crisis,             GE finance accounted for 50% of GE’s profit & funded                 ...
© 2014 Berlin Asong. All rights reserved.   129
© 2014 Berlin Asong. All rights reserved.   130
Possible areas                  of synergistic gains.                                            Administration    HR     ...
3                       Risks Spreading                                      Are single-product firms more                ...
4     Shareholders’ wealth    may improve as a direct      result of reinvesting    cash in new businesses.    © 2014 Berl...
20 minutes                      Growth through Diversification              Challenges© 2014 Berlin Asong. All rights rese...
1     It requires a strongmanagement system to keep tap of multiple businesses.    © 2014 Berlin Asong. All rights reserve...
2                              The risk of cross                              contamination is                            ...
News of the World, a UK-basednewspaper outfit of News Corp.,  was shutdown amid a phone   hacking scandal in 2011.© 2014 B...
News Corp pulls out of BSkyB bid                                            Source: The Guardian (2011). Retrieved from ww...
News Corp pulls out of BSkyB bid                                            Source: The Guardian (2011). Retrieved from ww...
3               Diversification has            in many cases devalued             shareholders’ wealth.                   ...
Learning ObjectivesI.        Define product management.II. Discuss the constituents of a product.         i.      Examine ...
Product Management                TOOLS© 2014 Berlin Asong. All rights reserved.   142
Product life-cycle                                          BCG Matrix                                      GE-McKinsey Ma...
© 2014 Berlin Asong. All rights reserved.   144
Raymond Vernon–                      Product Life-cycle, (1966)                      Economist, Professor                 ...
Philip Kotler & Gary Armstrong (2009) Principles of Marketing, 13Ed.© 2014 Berlin Asong. All rights reserved.             ...
As a product manager, what   actions would you take tominimise the cost and maximise the sales of a product through       ...
Which element ormix of elements                                                    Productwould you use to                ...
Pre-introduction Stage© 2014 Berlin Asong. All rights reserved.
Introduction Stage© 2014 Berlin Asong. All rights reserved.
iPad 3 launch, March 7 2012© 2014 Berlin Asong. All rights reserved.
Product                                                  Planet                       Price                               ...
Product                                             Plan                    Price                                         ...
Growth Stage© 2014 Berlin Asong. All rights reserved.
Tablet devices© 2014 Berlin Asong. All rights reserved.               155
Product                                            Planet                   Price                                         ...
Maturity Stage© 2014 Berlin Asong. All rights reserved.
Product                                            Planet                   Price                                         ...
Product                                            Planet                   Price                                         ...
Product                                            Planet                   Price                                         ...
iPad 3 launch© 2014 Berlin Asong. All rights reserved.
© 2014 Berlin Asong. All rights reserved.   162
Decline Stage© 2014 Berlin Asong. All rights reserved.
Product                                            Planet                   Price                                         ...
© 2014 Berlin Asong. All rights reserved.
Product                                            Planet                   Price                                         ...
© 2014 Berlin Asong. All rights reserved.   167
Product Life-Cycle   Has it got limitations?© 2014 Berlin Asong. All rights reserved.                        168
1   Can you locate the precisestage of the product on its life-cycle?                   Introduction                 Growt...
Difficult to determine      an accurate position of a       product on the curve.© 2014 Berlin Asong. All rights reserved....
2  Do all products actually gothrough such a neat, tidy curve?                   Introduction                 Growth      ...
© 2014 Berlin Asong. All rights reserved.   172
A fall in sales doesn’t necessarily mean the product or industryhas reached maturity or decline. © 2014 Berlin Asong. All ...
3                                        Do all products                                       “die-out”?    © 2014 Berlin...
© 2014 Berlin Asong. All rights reserved.   175
…developed by Bruce Henderson in 1968.© 2014 Berlin Asong. All rights reserved.             176
Also known as…Portfolio Analysis Tool.© 2014 Berlin Asong. All rights reserved.                    177
The BCG Matrix is a…        …tool used for deciding       how to allocate resources        to a group of products.© 2014 B...
Product Portfolio                               The total range of products owned by a firm.© 2014 Berlin Asong. All right...
Product Mix                                            Variety of products owned by a firm.© 2014 Berlin Asong. All rights...
Product Line                                            A group of products sharing a common                              ...
Homecare          Skincare   Food&Beverages   It’s the start of a new financial year.  Your job as CFO is to allocate spec...
How much funding    should we allocate to   homecare, skincare and     food & beverages?© 2014 Berlin Asong. All rights re...
…it depends on the market       share of each business, and         its market growth rate.© 2014 Berlin Asong. All rights...
What is market                                            share? Why is it                                             an ...
120    UK Mobile Phones Market Volume : million units, 2008–2012          Market demand (million units)   100             ...
Is the growth rate rising,                                  falling or stagnant?© 2014 Berlin Asong. All rights reserved. ...
The sweetest spot for any business is to…  “…achieve the maximummarket share that generates themost cash with minimal cost...
MarketShareMarketGrowthRate  © 2014 Berlin Asong. All rights reserved.                 189
MarketShare                                              High                 Low                         HighMarketGrowth...
© 2014 Berlin Asong. All rights reserved.   191
The results from the BCG Matrix analysis…       …can reveal possible     strategies to adopt for a    given product or bus...
What actions would you                        adopt for a star product?© 2014 Berlin Asong. All rights reserved.          ...
Star Business: Strategic Options                                               Grow market share leadership.              ...
What actions would you            adopt for a cash-cow product?© 2014 Berlin Asong. All rights reserved.   195
Cash-cow Business: Strategic Options                                              Defend market share leadership.         ...
What actions would you adopt          for a question-mark product?© 2014 Berlin Asong. All rights reserved.   197
Question-mark Business: Strategic Options                                                    Grow market share.           ...
What actions would you                        adopt for a dog product?© 2014 Berlin Asong. All rights reserved.          199
Dog Business: Strategic Options                                                    Sell the business.                     ...
Homecare          Skincare   Food&Beverages     As CFO, you have allocated  funding for each business basedon market share...
False assumption          of equating market-share               to profitability.1    © 2014 Berlin Asong. All rights res...
False assumption of2    equating market-growth to      industry attractiveness.    © 2014 Berlin Asong. All rights reserve...
© 2014 Berlin Asong. All rights reserved.   204
© 2014 Berlin Asong. All rights reserved.   205
Our focus is on the…                                       GE Matrix.© 2014 Berlin Asong. All rights reserved.            ...
The GE Matrix analysis…           …reveals what strategy         a business should adopt by         analysing its strength...
IndustryAttractiveness                                                               CompetitiveStrengthofBusiness© 2014 B...
Industry Attractiveness                                              PESTEL Forces.                                       ...
Competitive Strength of Business                                                     Market share.                        ...
High          Invest | Grow                                      IndustryAttractiveness                                   ...
Mooradian, Matzler & Ring (2012), “Strategic Marketing”. 1st Ed., Pearsoned© 2014 Berlin Asong. All rights reserved.      ...
© 2014 Berlin Asong. All rights reserved.   213
A thorough examination of the financial and non-financialcosts and benefits of a proposedinvestment in a product project. ...
…however, cost-benefitanalysis is an imperfect tool.             Why?© 2014 Berlin Asong. All rights reserved.   215
The amount of time (in weeks, years or months) it takes for a                                  business to make back the m...
Source: Johnson, J., Scholes, K. & Whittington, R. (2007) “Exploring Corporate Strategy”, 8 ed.© 2014 Berlin Asong. All ri...
© 2014 Berlin Asong. All rights reserved.   218
It’s the NPV of the future    cash flows generated by a       proposed investment.  NPV:NetPresentValue© 2014 Berlin Asong...
Cash          Cash         Net Cash                                                                        −2 million     ...
© 2014 Berlin Asong. All rights reserved.   221
Because the NPV (£35.4m) ispositive, the benefits (£35.4m) of theinvestment exceed the cost(£2m).  NPV:NetPresentValue© 20...
…however, DCF appraisaltechnique is imperfect. Why?© 2014 Berlin Asong. All rights reserved.   223
© 2014 Berlin Asong. All rights reserved.   224
© 2014 Berlin Asong. All rights reserved.   225
© 2014 Berlin Asong. All rights reserved.   226
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Product Management

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I. Define product management.
II. Discuss the constituents of a product.
i.Examine the significance product elements.
III. Evaluate the role of product packaging in consumers’ buying decisions.
IV. Evaluate four product-growth decisions.
V. Use techniques for product management.

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Transcript of "Product Management"

  1. 1. PRODUCTMANAGEMENT
  2. 2. Learning ObjectivesI. Define product management.II. Discuss the constituents of a product. i. Examine the significance product elements.III. Evaluate the role of product packaging in consumers’ buying decisions.IV. Evaluate four product-growth decisions.V. Use techniques for product management. © 2014 Berlin Asong. All rights reserved. 2
  3. 3. Learning ObjectivesI. Define product management.II. Discuss the constituents of a product. i. Examine the significance product elements.III. Evaluate the role of product packaging in consumers’ buying decisions.IV. Evaluate four product-growth decisions.V. Use techniques for product management. © 2014 Berlin Asong. All rights reserved. 3
  4. 4. Product management© 2014 Berlin Asong. All rights reserved. 4
  5. 5. It’s theprocess ofsatisfying consumers’ needs and fosteringa firm’s performance through effective product-development and product-marketing .© 2014 Berlin Asong. All rights reserved. 5
  6. 6. It’s the process of managinga product successfully throughout the various stages of its lifecycle. © 2014 Berlin Asong. All rights reserved. 6
  7. 7. © 2014 Berlin Asong. All rights reserved. 7
  8. 8. Learning ObjectivesI. Define product management.II. Discuss the constituents of a product. i. Examine the significance product elements.III. Evaluate the role of product packaging in consumers’ buying decisions.IV. Evaluate four product-growth decisions.V. Use techniques for product management. © 2014 Berlin Asong. All rights reserved. 8
  9. 9. What is a product comprised of?© 2014 Berlin Asong. All rights reserved. 9
  10. 10. © 2014 Berlin Asong. All rights reserved. 10
  11. 11. What are theelements or parts of this pack of cereals?© 2014 Berlin Asong. All rights reserved. 11
  12. 12. Organisation Actual Product After SalesAugmented Product Service Price Packaging Product Brand Finance Advice Values Design Features Delivery Warranties Basic Product Augmented product Corporate Image© 2014 Berlin Asong. All rights reserved. 12
  13. 13. Product anatomy is a breakdown of a product into constituent units.© 2014 Berlin Asong. All rights reserved. 13
  14. 14. Learning ObjectivesI. Define product management.II. Discuss the constituents of a product. i. Examine the significance product elements.III. Evaluate the role of product packaging in consumers’ buying decisions.IV. Evaluate four product-growth decisions.V. Use techniques for product management. © 2014 Berlin Asong. All rights reserved. 14
  15. 15. What are the implications of the product anatomy to product management?© 2014 Berlin Asong. All rights reserved. 15
  16. 16. 1 A product is more than its physical form or content. © 2014 Berlin Asong. All rights reserved. 16
  17. 17. narrow A reason for product failures is…managers have interpretation of product.© 2014 Berlin Asong. All rights reserved. 17
  18. 18. 2 It is the interaction of product elements that provide value to customers. © 2014 Berlin Asong. All rights reserved. 18
  19. 19. Failure to integrate the various product elements successfully is a reason for product failure.© 2014 Berlin Asong. All rights reserved. 19
  20. 20. 3 Managing a product successfully demands a mix of knowledge… © 2014 Berlin Asong. All rights reserved. 20
  21. 21. Product management Ecology Engineering Gastronomy Economics Anthropology Human resource management Informationtechnology Operations management Graphics design Finance Etc.© 2014 Berlin Asong. All rights reserved. 21
  22. 22. Learning ObjectivesI. Define product management.II. Discuss the constituents of a product. i. Examine the significance product elements.III. Evaluate the role of product packaging in consumers’ buying decisions.IV. Evaluate four product-growth decisions.V. Use techniques for product management. © 2014 Berlin Asong. All rights reserved. 22
  23. 23. PRODUCT P CK GING© 2014 Berlin Asong. All rights reserved. 23
  24. 24. The outward tangible elements of a product.© 2014 Berlin Asong. All rights reserved. 24
  25. 25. Colours Size Shape Weight Pictures Labels Materials© 2014 Berlin Asong. All rights reserved. 25
  26. 26. Is it worth spending millions of pounds on product packaging?© 2014 Berlin Asong. All rights reserved. 26
  27. 27. © 2014 Berlin Asong. All rights reserved. 27
  28. 28. 1 Portability Convenient to carry, transport & consume. © 2014 Berlin Asong. All rights reserved. 28
  29. 29. 2Preservation High-tech packagesare extending the shelf- life of products. © 2014 Berlin Asong. All rights reserved. 29
  30. 30. 3 It conveys critical product information to buyers. © 2014 Berlin Asong. All rights reserved. 30
  31. 31. Lack of information tomake informed and educated choices, is perceived asrisky by buyers.© 2014 Berlin Asong. All rights reserved. 31
  32. 32. Perceived Risk Psychological Risk Functional Risk Financial Risk Physical Risk Social Risk Time Source: adapted from Kotler (2012)© 2014 Berlin Asong. All rights reserved. 32
  33. 33. Putting a message on packagingcosts significantly less than newspaper, TV, or Internet advertising. Tetra Pak (2012), “Tetra Pak Magazine No 96 - Package Communication”. Retrieved Feb. 27, 2012, from www.tetrapak.com/Document%20Bank/TetraPak_Magazine/TP_Magazine%20Nr98_EN.pdf© 2014 Berlin Asong. All rights reserved. 33
  34. 34. 4 Visual elements of actual product. © 2014 Berlin Asong. All rights reserved. 34
  35. 35. Glossy packaging gives a luxurious orpremium impression of the product. © 2014 Berlin Asong. All rights reserved. 35
  36. 36. Visual differentiation frequently drives purchase decisions. Tetra Pak (2012), “There’s No Second Chance to Make a First Impression”. Retrieved Feb. 27, 2012, from http://www.tetrapak.com/about_tetra_pak/cases/Pages/First_Impression.aspx© 2014 Berlin Asong. All rights reserved. 36
  37. 37. Visually appealingpackaging can provoke impulse buying.© 2014 Berlin Asong. All rights reserved. 37
  38. 38. Studies show impulse shoppers respond highly to packaging visuals.© 2014 Berlin Asong. All rights reserved. 38
  39. 39. of all purchasing decisionsare made inside the store,you realise how important is product appearance.Tetra Pak (2012), “Tetra Pak Magazine No 98 - Consumer Trends”. Retrieved Feb. 27, 2012, from www.tetrapak.com/Document%20Bank/TetraPak_Magazine/TP_magazine96_EN.pdf © 2014 Berlin Asong. All rights reserved. 39
  40. 40. 5 Safety © 2014 Berlin Asong. All rights reserved. 40
  41. 41. Consumers want to be confident thatthe [package] is safe and protects thecontents, but they also want to know if it is environmentally sustainable. Tetra Pak (2012), “Tetra Pak Magazine No 98 - Consumer Trends”. Retrieved Feb. 27, 2012, from www.tetrapak.com/Document%20Bank/TetraPak_Magazine/TP_Magazine%20Nr98_EN.pdf © 2014 Berlin Asong. All rights reserved. 41
  42. 42. 6 Packaging serves to differentiate a product from rival products. © 2014 Berlin Asong. All rights reserved. 42
  43. 43. Classic coke’s curvy, “stripes”,etc. are instantlyrecognisable byfans, worldwide.© 2014 Berlin Asong. All rights reserved. 43
  44. 44. Packaging gives personality to classic coke, & identifies its maker, Coca-Cola.© 2014 Berlin Asong. All rights reserved. 44
  45. 45. 7 It could serve as a salespromotional tool. © 2014 Berlin Asong. All rights reserved. 45
  46. 46. Multipack meanslower unit cost, cost-savings to customers.© 2014 Berlin Asong. All rights reserved. 46
  47. 47. 8 To flaunt a firm’s green credentials. © 2014 Berlin Asong. All rights reserved. 47
  48. 48. Coca-Cola’s PlantBottle© 2014 Berlin Asong. All rights reserved. 48
  49. 49. Anatomy of Product PackagingTetra Pak (2012), “Tetra Pak Magazine No 96 - Package Communication”. Retrieved Feb. 27, 2012, from www.tetrapak.com/Document%20Bank/TetraPak_Magazine/TP_Magazine%20Nr98_EN.pdf © 2014 Berlin Asong. All rights reserved. 49
  50. 50. © 2014 Berlin Asong. All rights reserved. 50
  51. 51. 1 It increases the cost &, consequently price of product. © 2014 Berlin Asong. All rights reserved. 51
  52. 52. 2 Deceitful packaging © 2014 Berlin Asong. All rights reserved. 52
  53. 53. © 2014 Berlin Asong. All rights reserved. 53
  54. 54. 3 Using excess packaging. © 2014 Berlin Asong. All rights reserved. 54
  55. 55. Learning ObjectivesI. Define product management.II. Discuss the constituents of a product. i. Examine the significance product elements.III. Evaluate the role of product packaging in consumers’ buying decisions.IV. Evaluate four product-growth decisions.V. Use techniques for product management. © 2014 Berlin Asong. All rights reserved. 55
  56. 56. PRODUCT DECISIONS© 2014 Berlin Asong. All rights reserved. 56
  57. 57. The main goal ofproduct management is to grow product sales profitably. © 2014 Berlin Asong. All rights reserved. 57
  58. 58. can this be achieved© 2014 Berlin Asong. All rights reserved. 58
  59. 59. Ansoff-Growth Matrix Current Market New Market Market Current Penetration Extension Product Product New Diversification Development© 2014 Berlin Asong. All rights reserved. 59
  60. 60. Current Market New Market Market Current Penetration Extension Product Product New Diversification Development© 2014 Berlin Asong. All rights reserved. 60
  61. 61. Growth within a firm’s existing territorial or “segmentorial” market.(demographic, psychographic, and behavioural consumer segments.) © 2014 Berlin Asong. All rights reserved. 61
  62. 62. Desirable State Gap to close Market Share Current State Time The underlying goal of "market penetration" is to increase sales and market share.© 2014 Berlin Asong. All rights reserved. 62
  63. 63. 30 minutes Unsatisfied with its sales and profit performance for 2012, Morrisons supermarket is embarking on market penetration. In what ways can the company penetrate the UK grocery market? © 2014 Berlin Asong. All rights reserved. 63
  64. 64. 1 Provide valued-products. © 2014 Berlin Asong. All rights reserved. 64
  65. 65. 2 Picture source: wikimedia.org Expand retail presence (no. of stores). © 2014 Berlin Asong. All rights reserved. 65
  66. 66. 3 Provide an online-to-home delivery service. © 2014 Berlin Asong. All rights reserved. 66
  67. 67. 4 Price-promotion © 2014 Berlin Asong. All rights reserved. 67
  68. 68. 5 Build brand equity. © 2014 Berlin Asong. All rights reserved. 68
  69. 69. 6 Provide superior customer service experiences . © 2014 Berlin Asong. All rights reserved. 69
  70. 70. 30 minutes What are the chances of success? © 2014 Berlin Asong. All rights reserved. 70
  71. 71. Growth by market penetration thrives under certain conditions like…© 2014 Berlin Asong. All rights reserved. 71
  72. 72. 1 Firm’s operating market is underpenetrated. © 2014 Berlin Asong. All rights reserved. 72
  73. 73. 2 If the firm can reduce the market share of rivals without destroying its profit margins. © 2014 Berlin Asong. All rights reserved. 73
  74. 74. Current Market New Market Market Current Penetration Extension Product Product New Diversification Development© 2014 Berlin Asong. All rights reserved. 74
  75. 75. The firm targets a new territorial or “segmentorial”market with an existing offering. © 2014 Berlin Asong. All rights reserved. 75
  76. 76. Geographic market extension An existing product orservice is madeavailable in new markets. © 2014 Berlin Asong. All rights reserved. 76
  77. 77. © 2014 Berlin Asong. All rights reserved. 77
  78. 78. Usually the offering is adapted to fit buyer’s preferences.© 2014 Berlin Asong. All rights reserved. 78
  79. 79. Tesco’s US outfit© 2014 Berlin Asong. All rights reserved. 79
  80. 80. Tesco’s UK outfit© 2014 Berlin Asong. All rights reserved. 80
  81. 81. Market extension can be pursued by acquiring other firms.© 2014 Berlin Asong. All rights reserved. 81
  82. 82. Such as ASDA’s 2011 acquisition of NETTO© 2014 Berlin Asong. All rights reserved. 82
  83. 83. © 2014 Berlin Asong. All rights reserved. 83
  84. 84. Gender market extension From Dovewomen to Dove men.© 2014 Berlin Asong. All rights reserved. 84
  85. 85. Age-based market extension An existing product orservice is made available to a consumer segment of a certain age group.© 2014 Berlin Asong. All rights reserved. 85
  86. 86. Originalmarket:18-35age-group Product Extendedmarket:40-65age-group Service© 2014 Berlin Asong. All rights reserved. 86
  87. 87. Income-based market extension An existing product orservice is made available to a consumer segment of a certain income threshold.© 2014 Berlin Asong. All rights reserved. 87
  88. 88. Originalmarket:£70.000.00plusincome Extendedmarket:£18.000.00plus© 2014 Berlin Asong. All rights reserved. 88
  89. 89. What are the pushfactors for market extension, and probability for success?© 2014 Berlin Asong. All rights reserved. 89
  90. 90. 1 Firm’s operating market is saturated. © 2014 Berlin Asong. All rights reserved. 90
  91. 91. 2 There’s a strong fitbetween the existing offering and the extended market. © 2014 Berlin Asong. All rights reserved. 91
  92. 92. 3 If a firm’s existing capabilities can adequately serve the new market. © 2014 Berlin Asong. All rights reserved. 92
  93. 93. What are the challenges of growth by market extension?© 2014 Berlin Asong. All rights reserved. 93
  94. 94. …and how those challenges can be overcome?© 2014 Berlin Asong. All rights reserved. 94
  95. 95. Current Market New Market Market Current Penetration Extension Product Product New Diversification Development© 2014 Berlin Asong. All rights reserved. 95
  96. 96. The firm grows within its existing territorial or“segmentorial” market by providing new products or services.© 2014 Berlin Asong. All rights reserved. 96
  97. 97. Samsung’s 2012 revenue growth was strong thanks to a string of new mobile devices targeting low-end, mid and high-end mobile users.© 2014 Berlin Asong. All rights reserved. 97
  98. 98. © 2014 Berlin Asong. All rights reserved. 98
  99. 99. © 2014 Berlin Asong. All rights reserved. 99
  100. 100. Some of Coca-Cola’s products are acquired businesses.© 2014 Berlin Asong. All rights reserved. 100
  101. 101. 30 minutes The justification for growth through new product development. © 2014 Berlin Asong. All rights reserved. 101
  102. 102. 1 To ignite revenue growthespecially if the firm operates in mature industries. © 2014 Berlin Asong. All rights reserved. 102
  103. 103. Apple’s iPod line from 2001-2012© 2014 Berlin Asong. All rights reserved. 103
  104. 104. 2 …to appeal to various buyers’ needs in an existing market. © 2014 Berlin Asong. All rights reserved. 104
  105. 105. 3 Innovate or die! If not you will be outran by the competition. © 2014 Berlin Asong. All rights reserved. 105
  106. 106. Current Market New Market Market Current Penetration Extension Product Product New Diversification Development© 2014 Berlin Asong. All rights reserved. 106
  107. 107. The firm moves into new product categories or industries.© 2014 Berlin Asong. All rights reserved. 107
  108. 108. Not too long ago,the iPod was a bigrevenue generator for Apple, but not any more.© 2014 Berlin Asong. All rights reserved. 108
  109. 109. In 2007, Apple entered the mobile phone industry.© 2014 Berlin Asong. All rights reserved. 109
  110. 110. The iPhone accounts for 44% of Apple’s revenue in 2011.© 2014 Berlin Asong. All rights reserved. 110
  111. 111. © 2014 Berlin Asong. All rights reserved. 111
  112. 112. Related Diversification The firm grows by expandinginto product or service categories that are related to its core business. © 2014 Berlin Asong. All rights reserved. 112
  113. 113. © 2014 Berlin Asong. All rights reserved. 113
  114. 114. A high degree of relationships exit among Apple’s product categories.© 2014 Berlin Asong. All rights reserved. 114
  115. 115. 1 A high degree of relationships exit among HP’s product categories. 2 3 4 5© 2014 Berlin Asong. All rights reserved. 115
  116. 116. 2010: HP acquired Palm to enter the fast growing tablet computing space.© 2014 Berlin Asong. All rights reserved. 116
  117. 117. © 2014 Berlin Asong. All rights reserved. 117
  118. 118. Related Diversification The firm grows by expandinginto product or service categories that are unrelated to its core business. © 2014 Berlin Asong. All rights reserved. 118
  119. 119. 1987; the merger between Moet Hennessy and Louis Vuitton.© 2014 Berlin Asong. All rights reserved. 119
  120. 120. © 2014 Berlin Asong. All rights reserved. 120
  121. 121. © 2014 Berlin Asong. All rights reserved. 121
  122. 122. In August2011, Google acquired MotorolaMobility. Is the acquisition a related or unrelated diversification?© 2014 Berlin Asong. All rights reserved. 122
  123. 123. 30 minutes Virgin Group has diversified into related and unrelated industries. Does diversification benefit the company? How? © 2014 Berlin Asong. All rights reserved. 123
  124. 124. 1 It enables the company to pursue growth in multiple territorial, “segmentorial” & product markets. (demographic, psychographic, and behavioural consumer segments.) © 2014 Berlin Asong. All rights reserved. 124
  125. 125. 2 By moving resources & core competencies into new industries, the firm can use its capabilities efficiently. © 2014 Berlin Asong. All rights reserved. 125
  126. 126. The efficiency of a factory is improved by producing two or more product categories compared if multiple production platforms are used.© 2014 Berlin Asong. All rights reserved. 126
  127. 127. synergy When two firms combine; they can share & use the same capabilities. Thereby, reducing costs.© 2014 Berlin Asong. All rights reserved. 127
  128. 128. Before the 2008 global financial crisis, GE finance accounted for 50% of GE’s profit & funded the operations of GE’s businesses like Energy.© 2014 Berlin Asong. All rights reserved. 128
  129. 129. © 2014 Berlin Asong. All rights reserved. 129
  130. 130. © 2014 Berlin Asong. All rights reserved. 130
  131. 131. Possible areas of synergistic gains. Administration HR Technology Marketing Distribution R&D Manufacturing© 2014 Berlin Asong. All rights reserved. 131
  132. 132. 3 Risks Spreading Are single-product firms more at risk than multi-product firms? © 2014 Berlin Asong. All rights reserved. 132
  133. 133. 4 Shareholders’ wealth may improve as a direct result of reinvesting cash in new businesses. © 2014 Berlin Asong. All rights reserved. 133
  134. 134. 20 minutes Growth through Diversification Challenges© 2014 Berlin Asong. All rights reserved. 134
  135. 135. 1 It requires a strongmanagement system to keep tap of multiple businesses. © 2014 Berlin Asong. All rights reserved. 135
  136. 136. 2 The risk of cross contamination is always there. © 2014 Berlin Asong. All rights reserved. 136
  137. 137. News of the World, a UK-basednewspaper outfit of News Corp., was shutdown amid a phone hacking scandal in 2011.© 2014 Berlin Asong. All rights reserved. 137
  138. 138. News Corp pulls out of BSkyB bid Source: The Guardian (2011). Retrieved from www.guardian.co.uk/media/2011/jul/13/news-corp-pulls-out-of-bskyb-bid© 2014 Berlin Asong. All rights reserved. 138
  139. 139. News Corp pulls out of BSkyB bid Source: The Guardian (2011). Retrieved from www.guardian.co.uk/media/2011/jul/13/news-corp-pulls-out-of-bskyb-bid© 2014 Berlin Asong. All rights reserved. 139
  140. 140. 3 Diversification has in many cases devalued shareholders’ wealth. The new diversified business, especially if it turns out to be successful, dilutes or lowers the value of investors’ shareholding. © 2014 Berlin Asong. All rights reserved. 140
  141. 141. Learning ObjectivesI. Define product management.II. Discuss the constituents of a product. i. Examine the significance product elements.III. Evaluate the role of product packaging in consumers’ buying decisions.IV. Evaluate four product-growth decisions.V. Use techniques for product management. © 2014 Berlin Asong. All rights reserved. 141
  142. 142. Product Management TOOLS© 2014 Berlin Asong. All rights reserved. 142
  143. 143. Product life-cycle BCG Matrix GE-McKinsey Matrix Cost-Benefit Analysis Discounted Cash Flow Analysis Payback Period analysis Breakeven Analysis Etc.© 2014 Berlin Asong. All rights reserved. 143
  144. 144. © 2014 Berlin Asong. All rights reserved. 144
  145. 145. Raymond Vernon– Product Life-cycle, (1966) Economist, Professor 1914-1999© 2014 Berlin Asong. All rights reserved. 145
  146. 146. Philip Kotler & Gary Armstrong (2009) Principles of Marketing, 13Ed.© 2014 Berlin Asong. All rights reserved. 146
  147. 147. As a product manager, what actions would you take tominimise the cost and maximise the sales of a product through out its lifecycle?© 2014 Berlin Asong. All rights reserved.
  148. 148. Which element ormix of elements Productwould you use to Planet Price manage theproduct along its life-cycle? Process Marketing Mix Place Physical Promotion Layout People© 2014 Berlin Asong. All rights reserved. 148
  149. 149. Pre-introduction Stage© 2014 Berlin Asong. All rights reserved.
  150. 150. Introduction Stage© 2014 Berlin Asong. All rights reserved.
  151. 151. iPad 3 launch, March 7 2012© 2014 Berlin Asong. All rights reserved.
  152. 152. Product Planet Price Process Marketing Mix Place Physical Promotion Layout People© 2014 Berlin Asong. All rights reserved. 152
  153. 153. Product Plan Price Marketing Process Place Mix Physical Promotion Layout People© 2014 Berlin Asong. All rights reserved. 153
  154. 154. Growth Stage© 2014 Berlin Asong. All rights reserved.
  155. 155. Tablet devices© 2014 Berlin Asong. All rights reserved. 155
  156. 156. Product Planet Price Marketing Process Place Mix Physical Promotion Layout People© 2014 Berlin Asong. All rights reserved. 156
  157. 157. Maturity Stage© 2014 Berlin Asong. All rights reserved.
  158. 158. Product Planet Price Marketing Process Place Mix Physical Promotion Layout People© 2014 Berlin Asong. All rights reserved. 158
  159. 159. Product Planet Price Marketing Process Place Mix Physical Promotion Layout People© 2014 Berlin Asong. All rights reserved. 159
  160. 160. Product Planet Price Marketing Process Place Mix Physical Promotion Layout People© 2014 Berlin Asong. All rights reserved. 160
  161. 161. iPad 3 launch© 2014 Berlin Asong. All rights reserved.
  162. 162. © 2014 Berlin Asong. All rights reserved. 162
  163. 163. Decline Stage© 2014 Berlin Asong. All rights reserved.
  164. 164. Product Planet Price Marketing Process Place Mix Physical Promotion Layout People© 2014 Berlin Asong. All rights reserved. 164
  165. 165. © 2014 Berlin Asong. All rights reserved.
  166. 166. Product Planet Price Marketing Process Place Mix Physical Promotion Layout People© 2014 Berlin Asong. All rights reserved. 166
  167. 167. © 2014 Berlin Asong. All rights reserved. 167
  168. 168. Product Life-Cycle Has it got limitations?© 2014 Berlin Asong. All rights reserved. 168
  169. 169. 1 Can you locate the precisestage of the product on its life-cycle? Introduction Growth Maturity Decline 0 Low rivalry Increasing Stronger rivalry Extreme rivalry Rivalry © 2014 Berlin Asong. All rights reserved. 169
  170. 170. Difficult to determine an accurate position of a product on the curve.© 2014 Berlin Asong. All rights reserved. 170
  171. 171. 2 Do all products actually gothrough such a neat, tidy curve? Introduction Growth Maturity Decline 0 Low rivalry Increasing Stronger rivalry Extreme rivalry Rivalry © 2014 Berlin Asong. All rights reserved. 171
  172. 172. © 2014 Berlin Asong. All rights reserved. 172
  173. 173. A fall in sales doesn’t necessarily mean the product or industryhas reached maturity or decline. © 2014 Berlin Asong. All rights reserved. 173
  174. 174. 3 Do all products “die-out”? © 2014 Berlin Asong. All rights reserved. 174
  175. 175. © 2014 Berlin Asong. All rights reserved. 175
  176. 176. …developed by Bruce Henderson in 1968.© 2014 Berlin Asong. All rights reserved. 176
  177. 177. Also known as…Portfolio Analysis Tool.© 2014 Berlin Asong. All rights reserved. 177
  178. 178. The BCG Matrix is a… …tool used for deciding how to allocate resources to a group of products.© 2014 Berlin Asong. All rights reserved. 178
  179. 179. Product Portfolio The total range of products owned by a firm.© 2014 Berlin Asong. All rights reserved. 179
  180. 180. Product Mix Variety of products owned by a firm.© 2014 Berlin Asong. All rights reserved. 180
  181. 181. Product Line A group of products sharing a common parental name or common characteristics.© 2014 Berlin Asong. All rights reserved. 181
  182. 182. Homecare Skincare Food&Beverages It’s the start of a new financial year. Your job as CFO is to allocate specificfunding for each of the three businesses owned by Unilever. Assuming you have a total budget of £10m. Allocate the funding & justify your decision.© 2014 Berlin Asong. All rights reserved. 182
  183. 183. How much funding should we allocate to homecare, skincare and food & beverages?© 2014 Berlin Asong. All rights reserved. 183
  184. 184. …it depends on the market share of each business, and its market growth rate.© 2014 Berlin Asong. All rights reserved. 184
  185. 185. What is market share? Why is it an important indicator?© 2014 Berlin Asong. All rights reserved. 185
  186. 186. 120 UK Mobile Phones Market Volume : million units, 2008–2012 Market demand (million units) 100 80 60 40 20 2008 2009 2010 2011 2012 2013 2014 2015 2016 What is market growth rate? Why is it an important indicator?© 2014 Berlin Asong. All rights reserved. 186
  187. 187. Is the growth rate rising, falling or stagnant?© 2014 Berlin Asong. All rights reserved. 187
  188. 188. The sweetest spot for any business is to… “…achieve the maximummarket share that generates themost cash with minimal costs.”© 2014 Berlin Asong. All rights reserved. 188
  189. 189. MarketShareMarketGrowthRate © 2014 Berlin Asong. All rights reserved. 189
  190. 190. MarketShare High Low HighMarketGrowthRate Low © 2014 Berlin Asong. All rights reserved. 190
  191. 191. © 2014 Berlin Asong. All rights reserved. 191
  192. 192. The results from the BCG Matrix analysis… …can reveal possible strategies to adopt for a given product or business.© 2014 Berlin Asong. All rights reserved. 192
  193. 193. What actions would you adopt for a star product?© 2014 Berlin Asong. All rights reserved. 193
  194. 194. Star Business: Strategic Options Grow market share leadership. Penetrate market withexisting product. Innovateexisting product. BoostR&D expenditure. Allocatethe best resources.© 2014 Berlin Asong. All rights reserved. 194
  195. 195. What actions would you adopt for a cash-cow product?© 2014 Berlin Asong. All rights reserved. 195
  196. 196. Cash-cow Business: Strategic Options Defend market share leadership. Penetrate market withexisting product. Acquire rival firms. Innovateexisting product. Reduce R&D expenditure. Seek operational efficiency.© 2014 Berlin Asong. All rights reserved. 196
  197. 197. What actions would you adopt for a question-mark product?© 2014 Berlin Asong. All rights reserved. 197
  198. 198. Question-mark Business: Strategic Options Grow market share. Acquire rival firms. Innovateexisting product. PrudentlyboostR&D expenditure. Prudentlyallocate thebest resources.© 2014 Berlin Asong. All rights reserved. 198
  199. 199. What actions would you adopt for a dog product?© 2014 Berlin Asong. All rights reserved. 199
  200. 200. Dog Business: Strategic Options Sell the business. Kil the business. Prudentlyinnovateexisting product. Cost-cutting.© 2014 Berlin Asong. All rights reserved. 200
  201. 201. Homecare Skincare Food&Beverages As CFO, you have allocated funding for each business basedon market share and market growthrate. Is that a valid decision? Explain.© 2014 Berlin Asong. All rights reserved. 201
  202. 202. False assumption of equating market-share to profitability.1 © 2014 Berlin Asong. All rights reserved. 202
  203. 203. False assumption of2 equating market-growth to industry attractiveness. © 2014 Berlin Asong. All rights reserved. 203
  204. 204. © 2014 Berlin Asong. All rights reserved. 204
  205. 205. © 2014 Berlin Asong. All rights reserved. 205
  206. 206. Our focus is on the… GE Matrix.© 2014 Berlin Asong. All rights reserved. 206
  207. 207. The GE Matrix analysis… …reveals what strategy a business should adopt by analysing its strengths and industry attractiveness.© 2014 Berlin Asong. All rights reserved. 207
  208. 208. IndustryAttractiveness CompetitiveStrengthofBusiness© 2014 Berlin Asong. All rights reserved. 208
  209. 209. Industry Attractiveness PESTEL Forces. Porter’s Five Forces. Market growth rate. Market Size. Etc.© 2014 Berlin Asong. All rights reserved. 209
  210. 210. Competitive Strength of Business Market share. Resources. Finance. Talents. Knowledge. Strategic alliances. Brand | reputation. Culture. R&D. Etc.© 2014 Berlin Asong. All rights reserved. 210
  211. 211. High Invest | Grow IndustryAttractiveness Medium Hold Harvest| Divest Low High Medium Low CompetitiveStrengthofBusiness© 2014 Berlin Asong. All rights reserved. 211
  212. 212. Mooradian, Matzler & Ring (2012), “Strategic Marketing”. 1st Ed., Pearsoned© 2014 Berlin Asong. All rights reserved. 212
  213. 213. © 2014 Berlin Asong. All rights reserved. 213
  214. 214. A thorough examination of the financial and non-financialcosts and benefits of a proposedinvestment in a product project. © 2014 Berlin Asong. All rights reserved. 214
  215. 215. …however, cost-benefitanalysis is an imperfect tool. Why?© 2014 Berlin Asong. All rights reserved. 215
  216. 216. The amount of time (in weeks, years or months) it takes for a business to make back the money it spends on a specific investment.© 2014 Berlin Asong. All rights reserved. 216
  217. 217. Source: Johnson, J., Scholes, K. & Whittington, R. (2007) “Exploring Corporate Strategy”, 8 ed.© 2014 Berlin Asong. All rights reserved. 217
  218. 218. © 2014 Berlin Asong. All rights reserved. 218
  219. 219. It’s the NPV of the future cash flows generated by a proposed investment. NPV:NetPresentValue© 2014 Berlin Asong. All rights reserved. 219
  220. 220. Cash Cash Net Cash −2 million Inflows (£) Outflows (£) Flows (£) 2011 2 million 2012 7 million 4.5 million 2.5 million 2013 10 million 6 million 4 million 2014 15 million 9.5 million 5.5 million 2015 18 million 10 million 8 million 2016 20 million 10 million 10 million 2017 25 million 12 million 13 million 2018 30 million 13 million 17 million What is the NPV of a £2m investment in a physical asset if thediscount rate is 10% in the next 7 years?© 2014 Berlin Asong. All rights reserved. 220
  221. 221. © 2014 Berlin Asong. All rights reserved. 221
  222. 222. Because the NPV (£35.4m) ispositive, the benefits (£35.4m) of theinvestment exceed the cost(£2m). NPV:NetPresentValue© 2014 Berlin Asong. All rights reserved. 222
  223. 223. …however, DCF appraisaltechnique is imperfect. Why?© 2014 Berlin Asong. All rights reserved. 223
  224. 224. © 2014 Berlin Asong. All rights reserved. 224
  225. 225. © 2014 Berlin Asong. All rights reserved. 225
  226. 226. © 2014 Berlin Asong. All rights reserved. 226

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