4.5 PRODUCT

Learning Outcomes• To be able to draw and interpret the product life cycle for a business. A04• To understand the relationship between the product life cycle and the marketing

mix and be able to apply this K&U to a business. A02• To understand and be aware of possible extension strategies and then be able to

analyse and evaluate the most appropriate strategy in a given situation. A03• To understand the relationship between the product life cycle, investment, profit

and cash flow. A02• To understand, interpret, analyse and draw a Boston Consulting Group (BCG)

matrix on an organization’s products. A03, A04• To understand the following aspects of branding – awareness, development,

loyalty and value. A02• To be able to analyse and evaluate the importance of branding in a particular

context and to a particular business. A03• To be able to analyse and evaluate the importance of packaging in a particular

context and to a particular business. A03

Central Question

What makes the difference

between product success and

product failure?

The Product Life Cycle - Classic

Time

Sales

Cash Flow

Sales Quantity

Introduction

Growth

MaturityDecline

‘Death Ride Valley’

Development

Saturation

The Stages• Stage 1: Development – brainstorm ideas and go through

new product development process• Stage 2: Introduction – launch the product on to the

market.• Stage 3: Growth – as awareness increases and more

consumers adopt the new product, sales increase.• Stage 4: Maturity – sales are still increasing but slowly as

most people who want or need the product are already consumers.

• Stage 5: Saturation – the market is now made up of many competitors and becomes saturated. Sales level off and begin to decline

• Stage 6: Decline – steady drop in sales as consumers change to newer, better or substitute products.

New Product Development Process

Market Research

Failure

Failure

Failure

What is happening at each stage?

• Product• Price• Promotion• Place• Investment level• Sales• Profits• Cash flow

STRATEGIES INTRODUCTION GROWTH MATURITY SATURATION DECLINE

PRODUCT Basic product is marketed

Product improvements or new product development plans start.

New product development at an advanced stage. Extension strategies may be introduced

Extension strategies are crucial to maintain sales.

Weak products are withdrawn from the market.

PRICE Cost-plus, skimming, or penetration pricing. Which is best?

Penetration prices begin to increase.

Competitive or promotional pricing used.

Competitive pricing used.

Price cuts are made.

PROMOTION Informative advertising.

Persuasive advertising.

Extensive advertising to remind customers of the product.

Aggressive advertising is carried out to emphasizes the brand’s benefits and differences.

Advertising reduced to a minimum.

PLACE Selective or restricted distribution takes place

Intensive distribution or more distribution outlets are used.

More intensive distribution or wider range of outlets used.

Widest range of geographical distribution outlets used.

Selective distribution and unprofitable outlets eliminated.

Relationship between PLC and investment, profits & cash flow

STAGE OF PRODUCT LIFE CYCLE

DEVELOPMENT INTRODUCTION GROWTH MATURITY SATURATION DECLINE

INVESTMENT LEVEL

High research & development costs.

High promotion costs.

Average to high promotion costs.

Lower costs on promotion.

Cost focus is on extension strategies.

Very low promotion costs if any.

PROFIT None. None or negative.

Some profit and rising.

High profit – reaches its peak.

High and mostly stable profit.

Decreasing profit.

CASH FLOW

Negative. Negative but improving with sales.

Positive. Positive. Positive. Positive but decreasing cash flow.

Task – 10 mins

• Apply these concepts to one of our chosen companies

• You need to be able to analyse one product by applying the PLC tool and analysing how the marketing mix is adapted depending on the stage

• Also consider what was likely to be happening to investment, profits and cash flow at each stage.

Alternative Product Life Cycle

Sales Qty/$

Time

Sales Qty/$

Time

Alternative Product Life Cycle

Sales Qty/$

Time

Alternative Product Life Cycle

Sales Qty/$

Time

Alternative Product Life Cycle

Life Cycle Extensions

Sales Qty/$

Time

Extension Strategies

Extension Strategies

• How to extend the life of a product??

– Find new uses eg:– Find new markets eg:– Find new market segments eg:– Add features eg:– Change the packaging/appearance eg:– Change the price eg:– Develop new promotional strategies eg:

A Balanced Portfolio

Product A Product B Product C

Time

Sales Qty/$

Balanced portfolios

Benefits of a balanced portfolio

• Expensive launches can be financed by profits from other products.

• Expensive extensions can financed by profits from other products.

• All products not ‘maturing’ at the same time• Overall cash flow not over-stretched

Long Life – why??

• Quality• Enduring popularity• Dynamic product development• Brand loyalty• Cult following• Seeking new markets• Captivating advertising

The Boston Matrix

IB Business and Management

What is the Boston Matrix?

• It is a tool created by the Boston Consultancy Group

• It is designed to be used by multi-product firms• It is used to analyse a firm’s product portfolio and

help to devise marketing strategies

The Boston Matrix

• The Boston Matrix allows a firm to analyse its product portfolio by their market growth and market share in relation to their competitors

• Products are categorised as either a:• Problem Child/Question Mark• Star/Rising Star• Cash Cow• Dog

Market Share

Market

Growth

High

Low

High Low

CASH COW

STAR Problem Child

DOG

Problem Child

• Question marks have a low share of a high growth market

• Also known as Question Marks• Are often new products• The firm may decide to BUILD on

existing sales by investing more in promotion and distribution

Stars

• Stars have a high market share of a high growth market

• Also called rising stars• The firm may wish to use a

HOLDING strategy whereby it maintains current levels of spending to keep the product in this category

Cash Cows

• Cash Cows have a high market share of a low growth market

• These are well established products• Little or no investment is required• Companies may wish to adopt a

MILKING strategy whereby they use profits to support other products

Dogs

• Dogs have a low market share of a low growth market

• Companies do not want to have many products in the ‘dog’ category

• Firms may invest in dogs or may DIVEST which means withdrawing from the market

Task in pairs - 10 mins• Use the blank Boston Matrix template

and apply its products to one of our chosen companies.

• Get ready to feedback and justify

BCG Matrix StrategiesSTRATEGY EXPLANATION

HOLDING Products with a high market share want to maintain their current position in the market. After all they are likely to be facing growing competition. Therefore investment will be needed to sustain consumer demand.

BUILDING This strategy focuses on turning “problem children” into “stars”. Money from cash cows could be invested in promoting or distributing the product or even adapting the product to increase market share.

HARVESTING This strategy concentrates on milking the benefits of products with a positive cash flow. These products provide the necessary finance which could be used to invest in other portfolio products.

DIVESTING Badly performing products or “dogs” are phased out or sold off. Resources gained from this can be used to boost other products across the portfolio.

Limitations of the Boston Matrix

• Focuses on current position no regard for future planning.

• Can be time consuming and complex for a business to accurately evaluate their products according to market share and growth.

• High market share does not necessarily equate to high profits. This can depend on the pricing strategy being used.

Brand & Branding BRAND

“A name, symbol, sign, or design that differentiates a firm’s product from its competitors”

BRANDING“The process of distinguishing one firm’s

product from another”

BRAND AWARENESS“The ability of consumers to recognize the existence and

availability of a firm’s good or service”

BRAND LOYALTY“When consumers become committed to a firm’s brand and

are willing to make repeat purchases over time”

Aspects of BrandingASPECT EXPLANATION

BRAND AWARENESS

To effectively promote a product creating brand awareness is vital. It can act as a USP or a way of differentiation in a market that is saturated with competition. A high level of brand awareness usually leads to higher sales and healthy market share.

BRAND DEVELOPMENT

Is any plan to improve or strengthen the image of a product. This approach aims to enhance awareness by increasing the power of its name, sign or symbol. Heavy promotion is often used – a range of above and below line methods could be used .

BRAND LOYALTY

When consumers repeatedly purchase the same product despite alternatives – brand preference. Extremely powerful and free marketing through word of mouth. (Apple)

BRAND VALUE&

VALUES

How much a brand is actually worth in terms of reputation, potential income and market value. A high brand value is desired and can be classed as intangible asset on balance sheet. Values of a brand can also reflect a moral code by which the brand lives. Consumers may by the product because they share the same values (CSR).

Advantages of Branding

• Provides a visual representation of the product • Can add value• Encourages loyalty• Can help generate sales• Reduces risk• Increases barriers to entry for new competitorsThese hopefully lead to an increase in profits

The importance of branding

• Initially good products will sell the brand, eventually a brand will sell the product

• Products can be copied but brands can’t*• Products can take on a ‘personality’ with

branding which should further enhance awareness and loyalty.

• Can charge higher prices - skimming• The lifecycle of a brand lasts far longer than

that of a product

Except in China of course!

The difficulties of branding….

• Developing a brand is very costly and takes a long time

• Protecting the brand can be difficult• Need regular investment and updating

Branding over time

Look at how these logos have changed over time……

• Why have these logos evolved?• Which logos do you think have changed for the

better?

The Gap Re-branding disaster

• Gap launched their new Logo online in 2010

• Customers took to Twitter and Facebook to voice their complaints

• Within a week Gap announced they were reverting to their original logo

Complete re-branding

Importance of Packaging

• Reflects the desired brand image• Provides physical protection• Can improve distribution• Differentiation from competition• Provides information• Can help reduce security risks• Helps promotion EE/TOK

To what extent does packaging for goods contribute to the

destruction of the environment?Should/could businesses be more

responsible?Why might they not want to be

more responsible?

Product – CUEGIS?CONCEPT RELEVANCE TO PRODUCT THEORY

CHANGE

CULTURE

ETHICS

GLOBALISATION

INNOVATION

STRAETEGY

QUIZ TIME