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BM 4.3 Product


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B Business and Management (Standard Level)
All material taken from the IB Business and Management Textbook:
"Business and Management", Paul Hoang, IBID Press, Victoria, 2007

Published in: Business, Design
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BM 4.3 Product

  1. 1. IB Business and management <ul><li>Unit 4.3: Product </li></ul><ul><li>Lesson 1: Classification of Products (pp. 500-502) </li></ul>
  2. 2. 1. Think about it... <ul><li>“ It is not the employer who pays wages - he only handles the money. It is the product who pays the wages.” - Henry Ford (1863-1947) </li></ul><ul><ul><li>What did Ford mean by this? </li></ul></ul><ul><ul><li>Is there any truth in this quote? Why or why not? </li></ul></ul>
  3. 3. 2. focus questions <ul><li>1. What is a product? </li></ul><ul><li>2. Why are products tangible and intangible? </li></ul><ul><li>3. Describe the product mix. </li></ul><ul><li>4. Explain in detail the stages of new product develop. </li></ul><ul><li>5. Draw and explain a product life cycle. </li></ul><ul><li>6. What are some product extension strategies? </li></ul><ul><li>7. What is product portfolio analysis? </li></ul><ul><li>8. What is branding, Brand development, and brand loyalty important? </li></ul>
  4. 4. 3a. Product <ul><li>defined in previous lessons, as any good or service that satisfy the NEEDS or WANTS of customers. </li></ul><ul><li>Can be tangible (a car) or intangible (car insurance). </li></ul><ul><li>every year thousands of new products are launched, but few may succeed globally. </li></ul><ul><li>Customers will always ask if the product offers value for their money. </li></ul><ul><ul><li>The benefits of consumption must be greater than the cost in order for the customers to make a purchase. </li></ul></ul><ul><ul><li>Products must have value added (Unit 1.1) </li></ul></ul><ul><ul><ul><li>Must have: functional value - what the product actually does and </li></ul></ul></ul><ul><ul><ul><li>Must have: emotional value - the feel good factor behind the purchase of a product. </li></ul></ul></ul><ul><ul><ul><li>The customer may also find that the design of a product suits their personal style and taste. </li></ul></ul></ul><ul><ul><li>This means that product strategy such as design and branding, is vital in adding value to a product. </li></ul></ul>
  5. 5. 4a. classification of Products <ul><li>Many ways to categorize products; one way is to class products by line, mix, and range. </li></ul><ul><ul><li>Product Line : </li></ul></ul><ul><ul><ul><li>refers to a variety of the same product that a business produces (Frito Lay Potatoe Chips) </li></ul></ul></ul><ul><ul><ul><li>Most companies will change their product line due to changes in the market. </li></ul></ul></ul><ul><ul><li>Product Mix : </li></ul></ul><ul><ul><ul><li>also known as product assortment or product portfolio </li></ul></ul></ul><ul><ul><ul><li>describes the variety of the different product lines a company produces. </li></ul></ul></ul><ul><ul><ul><li>Allows to spread a firm’s risk over different markets with different products (Nike, shoes and clothes). </li></ul></ul></ul><ul><ul><li>Product range : </li></ul></ul><ul><ul><ul><li>Refers to all product lines of a firm’s product mix. </li></ul></ul></ul><ul><ul><ul><li>all the products sold by the firm :) </li></ul></ul></ul><ul><ul><ul><ul><li>What does Apple Inc. sell? :) </li></ul></ul></ul></ul>
  6. 6. 4b. classification of Products <ul><li>Products can also be classified as either consumer or producer products. </li></ul><ul><ul><li>Consumer products : </li></ul></ul><ul><ul><ul><li>these are products purchased by private individuals, like you and me; for personal use. </li></ul></ul></ul><ul><ul><ul><li>Classified into four (4) categories : </li></ul></ul></ul><ul><ul><ul><ul><li>1. Fast-moving consumer goods (FMCG): think of goods sold in a supermarket (Low Involvement Products (LIP)). </li></ul></ul></ul></ul><ul><ul><ul><ul><li>2. Consumer perishables: products that do not last long (flowers (LIP) during Mothers’s Day) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>3. Consumer durables: purchased irregularly; tend to last a long time (TV, High Involvement Products (HIP)) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>4. Specialty consumer products: exclusive and very expensive (Porches (HIP)) </li></ul></ul></ul></ul><ul><ul><li>Producer Products : </li></ul></ul><ul><ul><ul><li>also known as industrial products, are those purchased by businesses. </li></ul></ul></ul><ul><ul><ul><li>they are used in the production process; raw materials. </li></ul></ul></ul>
  7. 7. IB Business and management <ul><li>Unit 4.3: Product </li></ul><ul><li>Lesson 2: New Product Design & Development (pp. 502-508) </li></ul>
  8. 8. 5a. New product design & development <ul><li>Businesses will change their product portfolio . Why? </li></ul><ul><ul><li>internal forces, desire to launch new products, to cater to changing consumer tastes and preferences. </li></ul></ul><ul><li>The design of new products is crucial to their success . </li></ul><ul><ul><li>the term design not only refers to the physical appearance of a product, but also to the process of adding value . </li></ul></ul><ul><ul><li>this can be done through the value analysis triangle (p. 503) </li></ul></ul><ul><ul><li>Firms must take these factors into consideration stand a much better chance of launching successful products. </li></ul></ul>Cost of Production Physical design Reliability Performance
  9. 9. 5b. New product design & development <ul><li>Sources of Value Added : </li></ul><ul><ul><li>Many ways to gain a competitive advantage over your competition. </li></ul></ul><ul><ul><li>Tom Peters suggests that a small increase in costs of production can generate a disproportionate increase in value added or customer appeal . </li></ul></ul>New competitive advantage or value added Eliminate Raise Create Reduce features of the product should be improved to exceed industry norms examine features that should be added features that should be cut back features of a product that can be removed
  10. 10. 6. Stages of New product development Stages of NPD Market research Product Development & Testing Feasibility study Launch
  11. 11. 7. Sources of New product development Sources of NPD Market research Product extensions Research & development Me too developments
  12. 12. 8. Product life cycle
  13. 13. 9. EXTENSION STRATEGIES Extension Strategy New Markets Repackaging Redesign Price Reduction Promotion
  14. 14. 10. Product Differentiation <ul><li>Is a marketing strategy that involves making a product stand out from others. </li></ul><ul><li>Product branding is an example of this. </li></ul><ul><ul><li>What makes NIKE special? </li></ul></ul><ul><ul><li>How can you pick out a NIKE product from other foot ware products? </li></ul></ul><ul><li>There are several benefits to production differentiation : </li></ul><ul><ul><li>Price advantages : allows a firm to charge a higher price </li></ul></ul><ul><ul><li>Consumer recognition & loyalty : branded products increases the chances of selling the product. </li></ul></ul><ul><ul><li>Distribution advantages : retail space is limited and will only stock the best selling brands. </li></ul></ul>
  15. 15. IB Business and management <ul><li>Unit 4.3: Product </li></ul><ul><li>Lesson 3: Product Portfolio Analysis (pp. 509-524) </li></ul>
  16. 16. 11a. Product Portfolio <ul><li>means the range of products owned by a business. </li></ul><ul><li>can also refer to strategic business units (SBU) </li></ul><ul><li>an analysis of the product portfolio allows a business to decide which products should receive more or less investment (develop growth strategies (Unit 1.7) ). </li></ul><ul><li>Why is it important to have a diverse product portfolio? </li></ul><ul><ul><li>Think about the firm’s cash flow. </li></ul></ul><ul><ul><ul><li>selling to a limited market segment will limit sales revenue. </li></ul></ul></ul><ul><ul><ul><li>also important to spread risks. </li></ul></ul></ul><ul><ul><li>The most popular model of product portfolio analysis is the Boston Consultancy Group Mix. </li></ul></ul><ul><ul><ul><li>It is a marketing tool which helps YOU the manager to plan for a balanced product portfolio. </li></ul></ul></ul>
  17. 17. 11b. The Boston matrix Market Growth Low (mature) High (growing) High Low Market share <ul><li>Dogs: products with a low market operating in a low growth market (stagnant & declining). </li></ul><ul><li>Problem child: products operating in a high market growth sector, but low market share. </li></ul><ul><li>Stars: products operate in high growth markets and have high market share (highly successful). </li></ul><ul><li>Cash cows: products with high market share operating in low growth market (good profit quality). </li></ul>Stars Problem Children Cash Cows Dogs
  18. 18. 12a. branding <ul><li>is a form of differentiating a firm’s product. </li></ul><ul><li>What is a brand? </li></ul><ul><ul><li>refers to a name that is identifiable with a product of a business. </li></ul></ul><ul><ul><li>can refer to sign, symbol, colour scheme, font, or design. </li></ul></ul><ul><li>What is a trademark? </li></ul><ul><ul><li>gives legal protection to the registered firm to exclusively use a brand name or brand mark. </li></ul></ul><ul><li>Brands can alter a consumer’s feeling and/or their perception of the product’s taste. </li></ul><ul><li>It is important for YOU as the manager to realize the importance of the roles and functions of branding. </li></ul>
  19. 19. 12b. The role & Advantages of branding <ul><li>So all these advantages = one thing...TO MAKE MORE PROFITS </li></ul><ul><li>brands that are invested in tend to prosper. </li></ul><ul><li>Developing a brand takes about 20 years and can be very expensive. </li></ul>Role & Advantages of Branding as a legal instrument (identity) as a logo as a risk reducer (brand loyalty) as an image enhancer (premium price) as a sales generator (price elasticity of demand <ul><li>The brand is far more important than the product. </li></ul><ul><li>intangibility: its the brand that sells the product. </li></ul><ul><li>Uniqueness: brands are unique, products are easily copied. </li></ul><ul><li>Time: brands are timeless, products come and go. </li></ul>
  20. 20. 12b. Brand names <ul><li>Can you think of some brand names? </li></ul><ul><li>What makes these brands effective? What makes other brand names ineffective? </li></ul><ul><li>Can yo think of some badly designed brands? </li></ul><ul><li>There are different types of brand names: </li></ul><ul><ul><li>coined brands: made-up names (Haagen Dazs, Exxon, Xerox, etc.). </li></ul></ul><ul><ul><ul><li>these are easy to remember. </li></ul></ul></ul><ul><ul><li>Bona fide names: real world names (Burger King, Apple, etc.). Hard to trademark. </li></ul></ul><ul><ul><li>Acronyms: abbreviations such as BMW, KFC, CNN, etc. Long brand names can be hard to remember, having a well-design acronym can solve this problem. </li></ul></ul><ul><ul><li>Numbers: numerical symbols; Nike 90, Play station 3, etc. </li></ul></ul><ul><ul><li>Personal names: brands named after famous people; Walt Disney, Ford, etc. </li></ul></ul><ul><ul><li>Place names: brands named after a certain area; Air France, Singapore Airlines. </li></ul></ul><ul><li>Branding is often supported and developed with the use of corporate slogans (catchphrase) </li></ul><ul><ul><li>For example: </li></ul></ul><ul><ul><ul><li>McDonald’s “I’m lovin’ it” </li></ul></ul></ul><ul><ul><ul><li>Nike, “Just do it” </li></ul></ul></ul><ul><ul><li>Can you think of others? </li></ul></ul>
  21. 21. 12c. Brand development & loyalty <ul><li>What is brand preference ? </li></ul><ul><ul><li>It is when a customer favours a particular brand over rival brands. </li></ul></ul><ul><li>Brand Loyalty : </li></ul><ul><ul><li>can be seen when customers buy the same brand of product time and time again. </li></ul></ul><ul><li>This brand preference and loyalty will help improve a firm’s market share. </li></ul><ul><ul><li>The firm with the largest market share is the market leader or brand leader. </li></ul></ul><ul><ul><ul><li>Can you name some market leaders? </li></ul></ul></ul><ul><li>Advantages for a firm to achieve brand loyalty : </li></ul><ul><ul><li>1. Higher market share </li></ul></ul><ul><ul><li>2. Ability to charge premium prices </li></ul></ul><ul><ul><li>3. Demand becomes more price inelastic (what does this mean?) </li></ul></ul><ul><ul><li>4. Fosters brand extension strategies </li></ul></ul><ul><ul><li>5. Higher barriers to entry </li></ul></ul><ul><li>So brand development is part of a firm’s long-term marketing strategy . </li></ul><ul><ul><li>It is the process of strengthening and building the name and image of a brand to boost sales. </li></ul></ul><ul><ul><ul><li>can do this through brand awareness techniques: ask yourself, what makes our brand stand out from others? </li></ul></ul></ul>
  22. 22. 12d. Brand development & loyalty <ul><li>Successful brand development will help extend the maturity of a product’s life cycle. </li></ul><ul><li>The opposite of brand loyalty is brand switching. </li></ul><ul><ul><li>consumers turn to alternative branded products. </li></ul></ul><ul><ul><li>this mainly happens when their favourite brand lost something which was once a strength. </li></ul></ul><ul><ul><ul><li>To prevent brand switching: </li></ul></ul></ul><ul><ul><ul><ul><li>businesses often use customer loyalty schemes; such as sale promotion to entice customers to stick to the purchase of their brands. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>A prime example is air miles. </li></ul></ul></ul></ul>
  23. 23. End