2. What this topic is all about
• The nature and
importance of product in
the marketing mix
• Product differentiation
• Product life cycle
• Managing a portfolio of
products
3. What is a Product?
A product is anything
that is capable of
satisfying customer
needs
4. The Importance of Product
Products are at the heart of marketing
The product needs to exist for the other elements
of the mix to happen
5. Parts of a Product
• Specifications and materials
• Design or styling
• Functions and benefits
• Packaging
• Range (options & accessories)
6. Product Range
• Product range – a collection of similar
products offered by the same business
• Helps spread risk – a decline in one product
may be offset by sales of other products
• A range can be sold to different segments of
market e.g. family & activity holidays
• Selling a single product may not generate
enough returns for business (e.g. market
segment may be too small to earn a living)
7. Product Differentiation
• Products that are the same – tend to get the
same price
• Challenges for a business
– To make products different from competitors
– Ensure that customers recognise that product is
different!
• Ways of differentiating a product
– Distinctive design– e.g. Dyson; Apple iPod
– Branding - e.g. Nike, Reebok
– Performance - e.g. Mercedes, BMW
8. Marketing Services
• Services are mainly marketed through
product differentiation
• Similar products are adjusted to target
audience
• Businesses then use heavy promotion to
highlight these differences.
• Differs from goods marketing, because
goods have greater opportunity to use
packaging and physical product design
10. Brands
• A product with a unique character for instance in
design or image
• It is consistent and well-recognised.
• Benefits
– Inspires customer loyalty leading to repeat sales
– Can charge higher prices, especially if brand is market
leader
– Retailers or service sellers want to stock brands
• Own label brands
– A retailer which uses their own name on product rather
than manufacturer’s
– Examples: Tesco tea or Sainsbury Cola
11. Brand Extension
• Brand extension
– When a business uses a brand
name on a new product that
has some of brand’s
characteristics
– Examples include:
• Dove soap and Dove shampoo
(both contain moisturiser)
• Mars Bar and Mars Ice Cream
• Lucozade & Lucozade Sport
12. Brand Stretching
• Where brand is used for
a diverse range of
products, not
necessarily connected.
• Virgin is perhaps the
best example of how far
a brand can be
stretched into distinct
markets
13. Role of Packaging
• Packaging has several functions:
– Protection of contents
– Distribution – getting product from manufacturer to customer
– Selling – design and labelling provides information and also
conveys a certain image
– Customer convenience – e.g. multi-pack
• Packaging plays important role in “selling”
– If a product cannot be differentiated by its features or designs,
then packaging becomes really important
– Help to advertise and promote brand image
– Help maintain quality standards (important)
– Designed to encourage impulse buying (e.g. crisps, snacks)
– Packaging also needs to appeal to distributors (e.g. shops)
15. Product life cycle
A theoretical model
which describes the
stages a product goes
through
16. Stages in the Product Life Cycle
• Research & product
development
Theory can be
• Introduction applied to a:
• Growth Product category
• Maturity Style
Brand or model
• Decline
• Rejuvenation or
termination
19. Research & product development phase
• Often complex
• Absorbs significant
resources
• May not be successful
• May involves a long
lead time before sales
are achieved
20. Product development
• Often takes years but CAD is reducing product
development times
• Evaluate at each stage and ,if necessary,
abort the product idea
• The cost of development rises as it
approaches launch
• Market research including a test launch often
done to reduce the risk of product failure
• Most product ideas do not reach the launch
phase
21. Causes of elimination before launch
• Inadequate demand
• Action of competitors
• Change in the external environment
• Production problem
• High costs
• Does not fit in the firm’s product range
• Life cycle expected to be too short
22. Introduction stage
• New product launched on the market
• Low level of sales
• Low capacity utilisation
• High unit costs - teething problems occur
• Usually negative cash flow
• Distributors may be reluctant to take an
unproven product
• Heavy promotion to make consumers aware
of the product
23. Strategies at the introduction phase
• This stage makes special demands on the
marketing function
• Aim – to encourage customer adoption
• High promotional spending to create
awareness and inform people
• Either skimming or penetration pricing
• Limited, focused distribution
• Demand initially from “early adopters”
24. Growth stage
• Expanding market but arrival of
competitors
• Fast growing sales
• Rise in capacity utilisation
• Product gains market acceptance
• Cash flow may become positive
• Unit costs fall with economies of scale
• The market grows, profits rise but attracts
the entry of new competitors
25. Strategies in the growth stage
• Advertising to promote brand awareness
• Increase in distribution outlets - intensive
distribution
• Go for market penetration and (if possible)
price leadership
• Target the early majority of potential buyers
• Continuing high promotional spending
• Improve the product - new features,
improved styling, more options
26. Maturity
• Slower sales growth as rivals enter the
market = intense competition + fight for
market share
• High level of capacity utilisation
• High profits for those with high market share
• Cash flow should be strongly positive
• Weaker competitors start to leave the market
• Prices and profits fall
27. Strategies for mature products
• Need to defend position
• Product differentiation & product improvements
• Rationalisation of capacity
• Competitor based pricing
• Promotion focuses on differentiation
• Persuasive advertising
• Intensive distribution
• Enter new segments
• Attract new users
• Repositioning
• Develop new uses
28. Decline stage
• Falling sales
• Market saturation and/or competition
• Decline in profits & weaker cash flows
• More competitors leave the market
• Decline in capacity utilisation –switch
capacity to alternative products
29. Reasons for decline
• Technological advance
• Changes in taste and behaviour
• Increased competition
• Economic circumstances
• Damaging publicity
• Product side effects
30. Strategies for the decline phase
• Maintain market share
• Harvest by spending little on marketing
the product
• Rationalise by weeding out product
variations
• Price cutting to maintain competitiveness
• Promotion to retain loyal customers
• Distribution narrowed
31. Strategies to reduce the rate of decline
• Increase in promotion
• Focus on profitable segments
• Reduce prices
• Change distribution channels
• Product improvement
• Reposition the product
32. Extending the product life cycle
• Change price
• Change promotion (e.g new promotional
message)
• Change product - re-styling and product
improvement
• Change more efficient distribution
• Develop new market segment
• Find new uses for the product
• Reposition the product
34. Product rationalisation
• Elimination of the product – either a natural
death or termination (brand culling)
• Unless the product is profitable or has growth
potential or is seen as necessary to maintain
sales of another product the organisation
should seriously consider eliminating the
product
• Weak products take a disproportionate
amount of the firm’s financial resources and
can harm the firms image
35. The life cycle is short if….
• The rate of technological change is rapid
• There is a high degree of innovation in
the market
• Customers’ tastes are changing rapidly
• The product is a fashion item
• The product is badly marketed
37. Is decline inevitable?
• The assumption is that products go
through the cycle and inevitably reach
the decline phase
• But some classic products have a long life
cycle and no apparent sign of decline
• These are exceptions to the rule although
the life cycle can be extended
• Examples: Corn Flakes, Coca Cola
39. Uses of the product life cycle concept
• To forecast future behaviour of sales
• To be a tool of analysis to assist in the
formulation of marketing strategies
• As a manipulative device to indicate when
short-term measures might be used to distort
the life cycle to the firms advantage
• To identify deviations from the norm
• To aid the analysis of the firm’s product
portfolio
40. A balanced portfolio
• Product portfolio refers to the mix of
products produced by a single firm
• Undesirable to have too many products at
one stage
• New products involve heavy investment
and mature products might only have a
short life left to them
• A balanced portfolio is one in which the
firm has a variety of products at different
stages in the life cycle
41. Criticisms of the PLC concept
• The shape and duration of the cycle varies
• Strategic decisions can change the life cycle
• It is difficult to recognise exactly where a
product is in its life cycle
• Length cannot be reliably predicted
• Decline is not inevitable?
• Assumes no reversion to earlier consumer
preferences
• It can become a self fulfilling prophecy
42. Product life cycle of the VHS video
1976 Competing video systems launched: VHS (JVC and
Victor) and Betamax (Sony)
1980s VHS-Betamax war. VHS’s longer playing time and
more liberal licensing system gave it the edge
1984 Toshiba formulates plan for Digital Versatile Disc
1987 Betamax concedes defeat
1996 First film released on DVD
2003 US DVD rentals surpass VHS
2004 Hollywood studios stop releasing films on VHS
44. Boston Matrix
• The Boston Consulting Group developed
this as a tool of portfolio analysis
• It can be applied to the portfolio of
products produced by a firm or the
portfolio of businesses owned by a firm
• Portfolio is the collection of businesses or
products that make up a business
45. Essence of the Boston Matrix
• Firms should analyse the portfolio or collection
of products
• Products are categorised as:
– Question marks (also known as problem children)
– Stars
– Cash cows
– Dogs
• The ideal is a balanced portfolio with some
products in each category
47. Comparison with the Product Life Cycle
• The product life cycle
– Is concerned with individual products
– Is concerned with sales over time
• The Boston Matrix
– Is concerned with the firm’s portfolio of products
– Focuses on cash flow from products
48. The axes of the matrix
• Relative market share
– This is expressed not as a % but
share in relation to other firms in
the market
– A measure of the firm’s/product’s
strength in the market
• Market growth
– % rate of growth of sales in the
market
– Measure of market attractiveness
– From this we derive four cells as a
means of analysing products
49. “Question mark” product
• Low share of a rapidly growing market
• Cash flow is negative
• Have potential but the future is uncertain
• Could become either a star or a dog
50. Strategy for “question marks”
• Invest to increase market share
• Substantial investment to achieve growth
at the expense of powerful competitors
• Invest in promotion and other aspects of
marketing
• Build selectively
51. Stars
• High share of a rapidly growing market
• Position of leadership in a high growth
market
• The product/business is relatively strong
and the market is growing
• Require high marketing spending
• Net cash inflow is neutral or at best
modestly positive
52. Strategy for stars
• Investment to sustain growth
• Build sales and/or market share
• Spend to keep competitors at bay
• Invest to maintain or increase leadership
position
• Repel challenges from competitors
53. Cash cows
• High share of a slowly growing market
• Mature stage in the product life cycle
• Mature, successful product
• Dominant share
• Little potential for growth
• Large positive cash inflow
54. Strategy for cash cows
• Harvest
• Defend market share
• Aim for short term profits
• Little need for investment
• Little potential for further growth
• Reduce investment in order to maximise
short term cash flow and profits
• Use profits from cash cows to invest in new
products
55. Dogs
• Here dog means unattractive
• Low share of a slowly growth market
• Not going anywhere
• No real potential
• Dogs are either
– Products that have failed or
– Products that are in the decline phase of their life
cycle
56. Strategy for dogs
• Phase out or sell off (divest)
• Not worth investing in
• Any profit made has to be re-invested just
to maintain market share
• Uses up more management time and
resources than can be justified
• Divest or, at most, focus on a defendable
niche
57. Strategic decisions that flow from the
Boston Matrix
• Cash from cash cows should be used to
support stars
• Inadequate funding of stars will lead to a fall
in market share and eventually becoming a
problem child
• As markets mature stars will become cash
cows and eventually problem children
• Problem children should be funded to
become stars-if not they should be dropped
• Dogs can be milked for cash but are probably
bettered dropped
58. Value of the Boston Matrix
• A useful tool for analysing product portfolio
decisions
• But it is only a snapshot of the current
position
• Has little or no predictive value
• Does not take account of environmental
factors
• There are flaws which flow from the
assumptions on which the matrix is based
59. Assumptions underlying the Boston
Matrix
• Market share can be gained by investment in
marketing
• Market share gains will always generate cash
surpluses
• Cash surpluses will be generated when the
product is in the maturity stage of the life
cycle
• The best opportunity to build a dominant
market position is during the growth phase
60. Criticisms of the Boston Matrix
• Market growth is an inadequate measure
of a market’s attractiveness
• Market share is an adequate measure of a
products ability to generate cash
• The focus on market share and market
growth ignores issues such as developing
a sustainable competitive advantages
• The product life cycle varies
61. Boston Matrix: summary
Star Problem child
High market growth High market growth
High market share Low market share
Cash neutral Cash absorbing
Hold Build
Cash cow Dog
Low market growth Low market growth
High market share Low market share
Cash generating Cash neutral
Harvest or milk Divest
