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4.3 Product
Topic 4 Marketing
Syllabus Requirements
Classify products by line, range and mix Describe the importance of innovation and R&D especially
financing problems Analyse relationship between product life cycle and marketing
mix Determine appropriate extension strategies Analyse relationship between product LC, investment, profit and
cash flow Apply BCG matrix Discuss the importance and role of branding Distinguish between different types of branding Analyse the role of branding in a global market
Classification of products
Products can be classified in different ways, the three classifications you need to be aware of are:
Product lines – these are groups of products which are closely related to each other (e.g. merchandise from films)
Product range – these are products which complement each other and may form part of a set (e.g. shampoo and conditioner)
Product mix – this is the same as the product portfolio and is the range and type of products a business produces
Complete Q4.3.1
New product design and development Research is defined as ‘an investigation
involving the process of enquiry and discovery used to generate new business ideas’
Development is defined as ‘the changing of new ideas into commercial propositions’
Research and development (R&D) is the process by which a business seeks out and meets consumer needs or gaps in the market for commercial gain.
Why do R&D?
There are many benefits of R&D including: Development of new products (competitive
advantage and possible patents*) Development of new materials Development of new production techniques Improved business image Motivation Consumer benefits
*(Patents are a form of legal ownership of an idea or product – such as Dyson has for bagless vacuum cleaners)
Importance of R&D
It is argued that in today’s era of rapid technological change that R&D is increasingly important
What do you think? You need to be aware of the problems
associated with financing R&D so…
Why might a business be reluctant to fund R&D?
Product Life Cycle
These show the different stages in the life of a product and the sales that can be expected at each stage
The product life cycle stages are: Development Introduction Growth Maturity Saturation Decline
You need to be able to explain each of these stages
Product Life Cycle: Development 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/needing 5,10,20 years hence?
Product Life Cycle - Development Stage Cont.
Product Development: Stages New ideas/possible inventions Market analysis – is it wanted? Can it be produced at a
profit? Who is it likely to be aimed at?
Product Development and refinement Test Marketing – possibly local/regional Analysis of test marketing results and amendment of
product/production process Preparations for launch – publicity, marketing campaign
Product Life Cycle - Introduction/Launch Advertising and promotion campaigns Target campaign at specific audience? Monitor initial sales Maximise publicity High cost/low sales Length of time – type of product
Product Life Cycles - Growth
Increased consumer awareness Sales rise Revenues increase Costs - fixed costs/variable costs, profits
may be made Monitor market – competitors reaction?
Product Life Cycles - 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/new
strategies?
Product Life Cycles - Saturation New entrants likely to mean market is ‘flooded’ Necessity to develop new strategies becomes more
pressing: Searching out new markets:
Linking to changing fashions Seeking new or exploiting market segments Linking to joint ventures – media/music, etc.
Developing new uses Focus on adapting the product Re-packaging or format Improving the standard or quality Developing the product range
Product Life Cycles - Decline
Product outlives/outgrows its usefulness/value Fashions change Technology changes Sales decline Cost of supporting starts to rise too far Decision to withdraw may be dependent on
availability of new products and whether fashions/trends will come around again?
Typical Product Life Cycle Diagrams
Sales
Time
R&D Intro Growth Maturity Saturation Decline
Fashionable Product Life Cycle Diagrams
Sales
Time
R&D Intro Growth Maturity Saturation Decline
Product Life Cycle and Profits
Sales/Profits
Time
PLC
Losses
Break Even
Profits
Sales Revenue
Expenses
Extension Strategies
To extend the life of a product the business can try to apply extension strategies.
The most common techniques include: Finding a new use for the product Finding new markets for existing products Developing a wider product range Gearing the product toward a specific target group Changing the appearance, format or packaging Encourage more frequent use Changing ingredients or components
Product Life Cycles and the Boston Matrix
Sales
Time
Effects of ExtensionStrategies
Product Portfolio Analysis - BCG The Boston Matrix:
A means of analysing the product portfolio and informing decision making about possible marketing strategies
Developed by the Boston Consulting Group – a business strategy and marketing consultancy in 1968
Links growth rate, market share and cash flow
The Boston Matrix
Classifies Products into four simple categories:
Stars – products in markets experiencing high growth rates with a high or increasing share of the market
- Potential for high revenue growth
The Boston Matrix
Cash Cows: High market share Low growth markets –
maturity stage of PLC Low cost support High cash revenue –
positive cash flows
The Boston Matrix
Dogs: Products in a low growth
market Have low or declining
market share (decline stage of PLC)
Associated with negative cash flow
May require large sums of money to support
Is your product starting to embarrass your company?
The Boston Matrix
Problem Child / ?:- Products having a low
market share in a high growth market
- Need money spent to develop them
- May produce negative cash flow
- Potential for the future?Problem children/Question Mark – worth spending good money on?
The Boston Matrix
Stars Problem Children or ?
Cash Cows Dogs
Market Share
Mark
et
Gro
wth
High
Low
(matu
re)
Hig
h(g
row
ing
)Low
The Boston Matrix
Implications: Dogs
Are they worth persevering with? How much are they costing? Could they be revived in some way? How much would it cost to continue
to support such products? How much would it cost to remove
from the market?
The Boston Matrix
Implications: Problem Children / Question Mark
What are the chances of these products securing a hold in the market?
How much will it cost to promote them to a stronger position?
Is it worth it?
The Boston Matrix
Implications: Stars
Huge potential May have been expensive to develop Worth spending money to promote Consider the extent of their product life cycle in
decision making
The Boston Matrix
Implications: Cash Cows
Cheap to promote Generate large amounts of cash –
use for further R&D? Costs of developing and promoting
have largely gone Need to monitor their performance –
the long term? At the maturity stage of the PLC?
The Product Life Cycle and the Boston Matrix
Sales
Time
AB
C
D
The product portfolio – four products in the portfolio
(1)
(1) ‘A’ is at maturity stage – cash cow. Generates funds for the development of ‘D’
(2)
(2) Cash from ‘B’ used to support ‘C’ through growth stage and to launch ‘D’. ‘A’ now possibly a dog?
(3)
(3) Cash from ‘C’ used to support growth of ‘D’ and possibly to finance extension strategy for ‘B’?
Importance of maintaining a balance of products in the portfolio at different stages of the PLC – Boston Matrix helps with the analysis
Activity
Complete 4.3.2
Product Branding
A brand is defined as ‘a name, term, sign, symbol, design or any other feature that allows consumers to identify the goods and services and differentiate them from those of competitors
Why Brand?
There are many competitive advantages which can be gained from having a strong brand image and these include:
Creating brand loyalty Differentiating the product/service from competitors Gaining flexibility for pricing decisions Helping recognition Developing a brand image
In groups of two using a mind map to structure your response, complete 4.3.2, 4.3.3, 4.3.4, 4.3.5
Types of BrandingTypes Description
Family branding
Product branding
Company branding
Own label branding
Manufacturer’s brand
Activity
Read article about Aldi’s branding strategy. (see LP link) What branding strategies has Aldi implemented in
its stores?
Complete 4.3.7