Topic 2 product (1)


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Topic 2 product (1)

  1. 1. Topic 2: Product
  2. 2. Product Trial This is when a business gets customers tobuy a product for the first time. This maybe because the product is new on themarket. Hopefully this will instil some brand loyaltyand ensure repeat purchases. Getting a customer to trial a product for thefirst time means using certain aspects ofthe 4Ps of marketing.
  3. 3. Product Trial Price: Penetration pricing can be used when the product isnew. This means initially selling it at a much reducedprice and then raising the price once it has establishedsome brand loyalty. Money off coupons can be used in newspapers,magazines and/or through direct mailing. Promotional pricing can be used if the product is notnew. This means lowering the price for a limited timeto try and encourage new people to try it out. BOGOFor 2 for 1 could also be used as part of this.
  4. 4. Product Trial Product: Free samples using magazines, direct mailingor a stand in the supermarket Test trials e.g. test drive a car Trying out a product in the shop e.g. newvideo game
  5. 5. Product Trial Promotion: Advertising – TV, radio, newspapers, magazines etc.Companies will try to make sure they can reach their targetaudience by using specific magazines or TV programmes. Sponsorship – Sponsoring a TV programme is a good wayof getting people to notice your product and trial it. Billboards and/or any flat space e.g. buses Publicity – have a launch party and invite journalists tocome. Give them a brochure and ask them to write aboutthe product in their publications. Celebrity endorsement – get a celebrity to champion theproduct. Viral marketing – use Twitter, FaceBook, YouTube,MySpace to get people talking about it and recommendingit to friends.
  6. 6. Product Trial Place: Manufacturers often need to persuade retailers todevote shelf space to the product. Often this meansthat they will have to pay for the privilege. Also manufacturers may have to pay for anypromotional deals that the retailer has such asBOGOF and 2 for 1
  7. 7. Repeat Purchase Repeat purchase is when a customer buysa product more than once. Customer loyalty is the willingness ofcustomers to make many repeatpurchases from one company or of oneproduct. Repeat purchases is the key to success ofmost business. It is less expensive toachieve than launching new successfulproducts.
  8. 8. Repeat Purchase Promotion: Advertising is very important for keeping thebrand in the consciousness of customers. Allforms of advertising are suitable to achievethis. Many other forms of promotion are also usefulfor this e.g. money off coupons, competitions,special offers etc.
  9. 9. Repeat Purchase Price: Showing that the product gives value formoney is a good way of considering the price. Sometimes firms can maintain a high price –known as prestige pricing – because they areattracting people with relatively high incomeswho want to purchase something exclusive orof high quality. Promotional pricing can be very usefuloccasionally. BOGOF and 2 for 1 can be good.
  10. 10. Repeat Purchase Product: Must meet or exceed customer expectations The brand should match the image of the customer The product should be made to feel as if the customercannot live without it The product needs to be able to satisfy a customer’sneed or want The product could satisfy more than one need or want(dual purpose) New varieties to keep consumer’s interested. New technology to keep consumers interested.
  11. 11. Repeat Purchases Place: Manufacturers often need to persuade retailers todevote shelf space to the product. Often this meansthat they will have to pay for the privilege. Also manufacturers may have to pay for anypromotional deals that the retailer has such asBOGOF and 2 for 1
  12. 12. Questions 1. Answers B and D Comments Aincorrect – low or high production costs will not persuade or dissuade acustomer from buying the product. B correct – a relevant free gift acts as an incentive to the purchaser. C incorrect – this is a human resources matter and has no bearing on acustomer’s decision to purchase. D correct – a reduced price may persuade a customer to buy a productwithout having to spend too much money on it. E incorrect – many of the other magazines may have different target markets. 2. Answer A Comments A correct – a lack of loyalty means that customers will not return to purchasethe same brand again and again. B incorrect – a lack of loyalty often reduces sales levels. C incorrect – good value often results in customer loyalty. D incorrect – large price cuts are not a guarantee of customer loyalty as it isoften based on many different factors
  13. 13. Questions 3. Answer C Comments A incorrect – the amount of profit is based on several differentfactors and not just sales levels. B incorrect – repeat purchases maintain sales levels for acompany. C correct – advertising encourages people to make repeatpurchases. D incorrect – little brand loyalty would not generate repeatpurchases. Also, in the pizza market people do tend to havebrand loyalty.
  14. 14. Repeat Purchases Other key factors: Be sure everyone in your company providesoutstanding service to your customers. Stay in touch with customers and ask for feedback. Tell someone by in person, on the phone, or by mail,"Thank you for your business.
  15. 15. Product Life Cycle Product Life Cycle (PLC): Every product goes through a life cyclefrom development to decline Each life cycle is different Some products have longer lifecycles thanothers Some companies are very successful inextending lifecycles
  16. 16. Product Life Cycle The Stages of the Product Life Cycle: Development Introduction/Launch Growth Maturity Saturation Decline Withdrawal
  17. 17. SalesTimeDevelopment Introduction Growth Maturity Saturation DeclineProduct Life Cycle
  18. 18.  The Development Stage: Initial Ideas – possibly large number May come from any of the following – Market research – identifies gaps in the market Monitoring competitors Planned research and development (R&D) Luck or intuition – stumble across ideas? Creative thinking – inventions, hunches? Futures thinking – what will people be using/wanting/needing5,10,20 years hence? At this stage there are high costs and no revenue –therefore the company is making a large lossProduct Life Cycle
  19. 19.  Introduction/Launch: Advertising and promotion campaigns Target campaign at specific audience? Monitor initial sales Maximise publicity High cost Low sales Firm still making losses Length of time – type of productProduct Life Cycle
  20. 20.  Growth: Increased consumer awareness Sales rise Revenues increase Costs - fixed costs/variable costs, profitsmay be made Monitor market – competitors reaction?Product Life Cycle
  21. 21.  Maturity: Sales reach peak Cost of supporting the product declines Ratio of revenue to cost high Sales growth likely to be low Market share may be high Competition likely to be greater Price elasticity of demand? Monitor market – changes/amendments/newstrategies?Product Life Cycle
  22. 22.  Saturation: New entrants likely to mean market is ‘flooded’ Necessity to develop new strategies. Sales and profits falling. Decline and Withdrawal: Product outlives/outgrows its usefulness/value Fashions change Better products appear Sales decline Cost of supporting starts to rise too far Decision to withdraw may be dependent onavailability of new products and whetherfashions/trends will come around again?Product Life Cycle
  23. 23.  Extending the life cycle Diversification – have core product butintroduce new flavours/styles etc. Innovate – use new technology to enhance theproduct Change flavour Repackage Advertise to appeal different audience Re-launch – product that have been withdrawncan make comebacks if sold right e.gskateboards, yoyosProduct Life Cycle
  24. 24. SalesTimeEffects of ExtensionStrategiesProduct Life Cycle
  25. 25.  Cash Flow and the Product Life Cycle During the development stage cash flow isgoing to be NEGATIVE. Money has to be paidout for equipment, wages etc but no money iscoming in. During the launch stage cash flow is stillNEGATIVE. More money is being paid outthan is coming in (as sales are very low at themoment).Product Life Cycle
  26. 26.  Cash Flow and the Product Life Cycle During the growth stage cash flow may turn fromNEGATIVE to POSITIVE. Lots of money is coming inbut there are many outgoings because the firm has tocontinue to promote the product and may need toexpand production and its workforce. During maturity/saturation and decline the cash flowwill be POSITIVE. The company spends little moneyon promoting it. It doesn’t need to expand productionbut sales are still coming in. Only during the declinestage will sales be so low that cash flow might beNEGATIVE.Product Life Cycle
  27. 27. Sales/Cash FlowTimePLC and Cash FlowPLCNegative Cash FlowPositive Cash FlowProduct Life Cycle
  28. 28. Product Portfolio Analysis Product Portfolio is the rangeof products a company has indevelopment or available for consumers atany one time. The Boston Matrix is a means of analysingthe product portfolio and informingdecision making about possible marketingstrategies. It was developed by the BostonConsulting Group – a business strategyand marketing consultancy in 1968
  29. 29. The Boston MatrixMarket GrowthMarket ShareHighLow HighProblem Children StarsDogs Cash Cows
  30. 30. The Boston Matrix Stars Products in markets experiencing highgrowth rates with a high or increasingshare of the market. Likely to be in the growth stage of productlifecycle so costs of advertising andmachinery could still be high. Potential for high revenue and profit in thefuture but not in the present.
  31. 31. The Boston Matrix Cash Cows: High market share Low growth markets– maturity stage ofPLC Low cost support –little spent onadvertising. High customerloyalty. High cash revenue –positive cash flows
  32. 32. The Boston Matrix Dogs: Products in a lowgrowth market Have low ordeclining marketshare (decline stageof PLC) Associated withnegative cash flow May require largesums of money tosupport Company may dropthem soon
  33. 33. The Boston Matrix Problem Child: Products having alow market share ina high growth market May have potentialbut needs moneyspent to developthem May producenegative cash flow Potential for thefuture or ditch theproduct?
  34. 34. Product PortfolioAnalysis/Boston Matrix Advantages: The company knows at what stage of theproduct life cycle its products are It will know whether the products are dogs,stars, cash cows or problem children It will be able to understand the levels ofrevenue the products should be generating Cost to the business may be determined.
  35. 35. Product PortfolioAnalysis/Boston Matrix Advantages: The likely level of advertising for the productswill be understood The company will be able to see if it needs todevelop any new ideas Likewise the company will be able to know if itneeds to get rid of any products
  36. 36. Questions 1. Answer A Comments A correct – the costs of development are high and there are no sales asthe product has not been launched. B incorrect – a positive cash flow may be evident as sales are increasingand may outweigh any other supporting costs such as marketing. C incorrect – sales are likely to outweigh any supporting costs. D incorrect – support may be minimal so costs are low despite a fallingsales trend. 2. Answer B Comments A incorrect – this is an activity used to support an extension strategy. B correct – this is an activity designed to adapt the product itself. C incorrect – this would be the development of a completely new product. D incorrect – this would not necessarily extend the sales or life of theproduct.
  37. 37. Questions 3. Answer D Comments A incorrect – they may be cash cows, problem children or, indeed, dogs. B incorrect – the 25 products may not all be in the same market or inmarkets with fast growth. C incorrect – despite being a star it may have lower sales levels than, say,a cash cow product. D correct – this is one feature of a star product. 4. Diversification Innovate Change flavour Repackage Advertise to appeal different audience Re-launch
  38. 38. Questions 5. To stay ahead of the competition in order to maintain marketshare. To re-launch the brand to remind consumers of the brand’sexistence. To develop the range in order to meet changing market needs andfashions. To introduce the product to a new segment of the market or ayounger audience. To prevent the product from being withdrawn due to a lack ofsales.
  39. 39. Branding and Differentiation A brand is a named product which customerscan identify with and which is seen as differentfrom other similar products. E.g. I-pod. A generic product is a product made by anumber of different businesses, whichcustomers fail to recognise any differencesbetween. E.g. Other MP3 players. An own brand is one which is sold under thebrand name of a supermarket, rather than thename of the company that manufactured it.
  40. 40. Branding and Differentiation Product differentiation occurs when acompany produces a range of brands eachwith different features e.g. quality, design,packaging etc.
  41. 41. Branding and Differentiation Achieving branding/differentiation: Design – make each product have different features,quality, build to others in the range. Make your productfeatures different to those of competitors. Name – make each name unique. Either make the namereflect the product e.g. Gold Blend Coffee or make thename obscure to imply that it is highly technical e.g. IntelPentium Processor. Some firms market themselvesunder the company name brand e.g. Cadbury, whereasothers prefer to do it through individualised branding e.g.Nestle with Kit Kat and Yorkie. Efficiency – so the product doesn’t break down Quality – value for money
  42. 42. Branding and Differentiation Achieving branding/differentiation: Packaging – used to give the product anattractive appeal. Used to protect the product.Used to give instructions on how to use theproduct. Range – appeal to different market segments Design – to attract the consumer After sales service – so the customer gets helpwhen they need it Unique Selling Point (USP) – what makes itdifferent from everything else on the market
  43. 43. Branding and Differentiation Advantages of branding/differentiation: Premium prices: A strong brand may allowfirms to charge a higher price than rivals. Thisallows a firm to add value. Greater consumer awareness: This may makeconsumers more likely to buy a high profilebrand rather than a rival’s less well knownbrand. Increased sales and market share: Bothe ofthe factors listed previously can result in anincrease in sales revenue and market share.
  44. 44. Branding and Differentiation Advantages of branding: It is more likely that retailers will devote shelfspace to well known brands. Allows the company to launch new products Possibility of successful product trial Encouragement of word or mouth advertising Possibility of repeat sales Discourages competition
  45. 45. Branding and Differentiation Disadvantages of branding: High costs associated with the massive promotion thatis needed to establish and maintain the brand. Launching a new version of the brand may lead to arisk of failure and damage to the brand. A single bad event will affect all the brand’s productse.g. Cadbury Salmonella scare in 2006 wiped 14% offCadbury sales. Brand names may be difficult to protect in a globalmarket – leading to ‘fake’ products. It may be more important for a firm to use otheraspects of the marketing mix e.g. price, place orpromotion.
  46. 46. Branding and Market maps
  47. 47. Questions 1. Answer B Comments A incorrect – increasing levels of production does not differentiateone product from another. B correct – a change in packaging could make one product standout from another on the shelf. C incorrect – increasing sales does not change a product in itslook, taste or smell. D incorrect – a change in suppliers may change the raw materialsor reduce costs but does not differentiate.
  48. 48. Questions 2. Answer D Comments A incorrect – cutting costs of production can apply to both brandedand non-branded products. B incorrect – this is a product which is sold under the brand nameof a supermarket chain or other retailer rather than under thename of the business which manufactures the product. C incorrect – these are products made by a number of differentbusinesses in which customers see no difference between theproducts of one business compared to the products of anotherbusiness. D correct – branded products, through quality or advertising, cancharge a higher selling price.
  49. 49. Questions 3. Answer C Comments A incorrect – high pricing will not entice customers tobuy for the first time. B incorrect – the customer will not be aware of the newproduction method and this will not persuade them totry the product. C correct – heavy advertising will inform the customerof the product’s existence. D incorrect – the launch is important to get thecustomer to know about the product. Cutting the triallaunch costs would reduce this effect.
  50. 50. Questions 4. Definition: A branded product is a product which, in theeyes of customers, is seen to be different from other,often similar, products. A brand provides an identitywhich allows consumers to associate with the productor service and to recognise it. This may help topersuade them to buy that product rather than its rivals. Apple Corporation has very distinct brands. Thecompany brand itself ‘Apple’ is worldwide and theindividual product brands, such as iPhone, iPod andiMac are all strong brands in their own right. Peoplerecognise the brand and associate it with style andquality.
  51. 51. Questions 5. Branding helps Apple to get trials by: its reputation for worldwide quality. the wish for consumers to buy a reliable product. consumers wanting to be ‘part of the cult’. branding brings ‘word of mouth’ advertising with currentowners persuading new ones to buy the product. Branding helps with repeat purchase by: retaining current Apple product users. customers desire to own a ‘suite’ of Apple products. constant advertising reminding the customer of the brand’sfeatures and advantages. reputation for updating their product portfolio to meet marketneeds.