Marketing - Products


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Marketing - Products

  1. 1. Products
  2. 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. 3. What is a Product?A product is anything that is capable of satisfying customer needs
  4. 4. The Importance of Product Products are at the heart of marketingThe product needs to exist for the other elements of the mix to happen
  5. 5. Parts of a Product• Specifications and materials• Design or styling• Functions and benefits• Packaging• Range (options & accessories)
  6. 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. 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. 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
  9. 9. Brands
  10. 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. 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. 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. 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)
  14. 14. Product Life Cycle
  15. 15. Product life cycle A theoretical model which describes thestages a product goes through
  16. 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
  17. 17. Implications of each stage• Net cash flow• Profit• Marketing strategy
  18. 18. Product life cycle and cash flow Sales Cash Flow
  19. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 29. Reasons for decline• Technological advance• Changes in taste and behaviour• Increased competition• Economic circumstances• Damaging publicity• Product side effects
  30. 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. 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. 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
  33. 33. Product life cycle with an extensionSales(£) Time
  34. 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. 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
  36. 36. Short product life cycle of a fashion (or fad) itemSales(£) Time
  37. 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
  38. 38. No apparent declineSales(£) Time
  39. 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. 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. 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. 42. Product life cycle of the VHS video1976 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 edge1984 Toshiba formulates plan for Digital Versatile Disc1987 Betamax concedes defeat1996 First film released on DVD2003 US DVD rentals surpass VHS2004 Hollywood studios stop releasing films on VHS
  43. 43. ProductPortfolios
  44. 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. 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
  46. 46. Drawing the Matrix
  47. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 61. Boston Matrix: summaryStar Problem childHigh market growth High market growthHigh market share Low market shareCash neutral Cash absorbingHold BuildCash cow DogLow market growth Low market growthHigh market share Low market shareCash generating Cash neutralHarvest or milk Divest
  62. 62. Test Your Understanding
  63. 63. Products