4.3 Product4.3 Product

Chapter 26Chapter 26

Product VocabularyProduct Vocabulary

ProductProduct The end result of the production process The end result of the production process

sold on the market to satisfy a customer sold on the market to satisfy a customer need.need.

Product VocabularyProduct Vocabulary

Consumer durablesConsumer durables Manufactured products Manufactured products

that can be re-used and that can be re-used and are expected to have a are expected to have a reasonably long life.reasonably long life.

Industrial goodsIndustrial goods Products that are Products that are

purchased by businesses purchased by businesses not final consumers.not final consumers.

Product VocabularyProduct Vocabulary

Product lineProduct line A set or related A set or related

products sold by a products sold by a business.business.

Product VocabularyProduct Vocabulary

Product mixProduct mix The variety of product lines that a business The variety of product lines that a business

produces or a retailer stocksproduces or a retailer stocks

Product VocabularyProduct Vocabulary

Product rangeProduct range All of the types of products made by a businessAll of the types of products made by a business

Kraft FoodsKraft Foods, Inc. - The , Inc. - The product range is foodproduct range is food, everything from , everything from jams to hams.jams to hams.

GMGM - The product - The product range is transportationrange is transportation, everything from , everything from plane parts to automobiles.plane parts to automobiles.

Apple, IncApple, Inc. - The product . - The product range is technologyrange is technology, everything from , everything from from phones to laptops.from phones to laptops.

New Product New Product DevelopmentDevelopmentor NPD or NPD

New product development can be critical New product development can be critical for some businessesfor some businesses Technology companies – Develop the latest Technology companies – Develop the latest

in technology for new products to sell. in technology for new products to sell. Can Can you think of some?you think of some?

Pharmaceutical industry – Patents only last Pharmaceutical industry – Patents only last 17 years; new products must be developed.17 years; new products must be developed.

NPD Process – 7 StagesNPD Process – 7 Stages

1.1. Generate new ideas –Generate new ideas – market research, brainstorm, adapt existing productsmarket research, brainstorm, adapt existing products

2.2. Idea screening –Idea screening – eliminate ideas that have least chance of being successfuleliminate ideas that have least chance of being successful

3.3. Concept testing – Concept testing – who are likely buyers, production costs, specific featureswho are likely buyers, production costs, specific features

4.4. Business analysis –Business analysis – what are potential revenues, costs, and profitswhat are potential revenues, costs, and profits

5.5. Product testing – Product testing – develop prototypesdevelop prototypes

6.6. Test marketing –Test marketing – launch test product and examine resultslaunch test product and examine results

7.7. Commercialization – Commercialization – full-scale launch of product with promotion and distributionfull-scale launch of product with promotion and distribution

Product Life CycleProduct Life Cycle

The pattern of sales recorded by a The pattern of sales recorded by a product from launch to withdrawal from product from launch to withdrawal from the market.the market.

A classic business error is failing to A classic business error is failing to recognize when a product is in decline as recognize when a product is in decline as other competitors create new replacement other competitors create new replacement products.products.

Product Life CycleProduct Life Cycle

IntroductionIntroduction

GrowthGrowth

Maturity or SaturationMaturity or Saturation

DeclineDecline

Characteristics of Characteristics of Product Life Cycle: Product Life Cycle: IntroductionIntroduction

IntroductionIntroduction The product has been launched after The product has been launched after

development and testing.development and testing. Sales are typically low and growing slowly.Sales are typically low and growing slowly. Advertising costs are high.Advertising costs are high. Profits not yet realized.Profits not yet realized.

Characteristics of Characteristics of Product Life Cycle: Product Life Cycle: GrowthGrowth

GrowthGrowth Sales grow significantly if the product is well Sales grow significantly if the product is well

received in the market place.received in the market place. This phase does not last forever!This phase does not last forever!

Characteristics of Characteristics of Product Life Cycle: Product Life Cycle: MaturityMaturity

Maturity or SaturationMaturity or Saturation Sales fail to grow but they do not decline.Sales fail to grow but they do not decline.

Example: Coca-ColaExample: Coca-Cola Can you think of others?Can you think of others?

Saturation occurs when everyone has the Saturation occurs when everyone has the product that needs the productproduct that needs the product Example: cell phonesExample: cell phones Can you think of others?Can you think of others?

Characteristics of Characteristics of Product Life Cycle: Product Life Cycle: MaturityMaturity

EXTENSION STRATEGIESEXTENSION STRATEGIES Marketing plans that extend the maturity Marketing plans that extend the maturity

stage of a product before a new product is stage of a product before a new product is needed.needed.

Develop new marketsDevelop new markets Create new uses Create new uses Create new packaging Create new packaging New advertising campaignsNew advertising campaigns

Characteristics of Characteristics of Product Life Cycle: Product Life Cycle: DeclineDecline

Sales fall steadily, extension strategies Sales fall steadily, extension strategies were not tried or did not work.were not tried or did not work.

Product obsolescenceProduct obsolescence Newer competitors products maybe Newer competitors products maybe

availableavailable

Why be concerned with Why be concerned with product life cycle?product life cycle?

1. Assists with the planning of the 1. Assists with the planning of the marketing mix decisions.marketing mix decisions.

When do we raise/lower prices?When do we raise/lower prices? When should we advertise and how much?When should we advertise and how much? When should variations to the product be When should variations to the product be

introduced?introduced?

Why be concerned with Why be concerned with product life cycle?product life cycle?

2. How is cash flow affected?2. How is cash flow affected? Cash flow is negative during development and Cash flow is negative during development and

costs are high – nothing sold yet!costs are high – nothing sold yet! At the introduction phase, development costs are At the introduction phase, development costs are

over but promotional expenses are high. Factory over but promotional expenses are high. Factory capacity is not fully utilized.capacity is not fully utilized.

At maturity, cash flow is likely at its best: sales At maturity, cash flow is likely at its best: sales are high, promotional costs are low, factory are high, promotional costs are low, factory capacity is fully utilized.capacity is fully utilized.

At decline, cash flow declines due to falling prices At decline, cash flow declines due to falling prices and falling sales.and falling sales.

Product Life Product Life Cycle PhaseCycle Phase

PricePrice PromotionPromotion PlacePlace ProductProduct

IntroductionIntroduction May be high May be high compared to compared to competitors competitors (skimming) or low (skimming) or low (penetration)(penetration)

High levels of High levels of informative informative advertising to advertising to make consumers make consumers aware of the aware of the product’s arrival to product’s arrival to marketmarket

Restricted outlets – Restricted outlets – possibly high-class possibly high-class outlets if a outlets if a skimming strategy skimming strategy is adoptedis adopted

Basic modelBasic model

GrowthGrowth If successful, initial If successful, initial penetration pricing penetration pricing strategy could now strategy could now lead to rising priceslead to rising prices

Consumers need Consumers need to be convinced to to be convinced to make repeat make repeat purchases – brand purchases – brand identification will identification will help to establish help to establish consumer loyaltyconsumer loyalty

Growing numbers Growing numbers of outlets in areas of outlets in areas indicated by indicated by strength of strength of consumer demandconsumer demand

Planning of product Planning of product improvements and improvements and developments to developments to maintain consumer maintain consumer appealappeal

MaturityMaturity Competitors likely Competitors likely to be entering to be entering market – there will market – there will be a need to keep be a need to keep prices at prices at competitive levelscompetitive levels

Brand imaging Brand imaging continues – continues – growing need to growing need to stress the positive stress the positive differences with differences with competitor’s competitor’s productsproducts

Highest Highest geographical range geographical range of outlets as of outlets as possible – possible – developing new developing new types of outlets types of outlets where possiblewhere possible

New models, New models, colors, colors, accessories, etc… accessories, etc… as part of as part of extension extension strategiesstrategies

DeclineDecline Lower prices to sell Lower prices to sell off stock – or if the off stock – or if the product has a product has a small “cult” small “cult” following, prices following, prices could even risecould even rise

Advertising likely to Advertising likely to be very limited – be very limited – may just be used may just be used to inform of lower to inform of lower pricesprices

Eliminate Eliminate unprofitable outlets unprofitable outlets for the productfor the product

Prepare to replace Prepare to replace with other products with other products – slowly withdraw – slowly withdraw from certain from certain marketsmarkets

Product VS BrandingProduct VS Branding

Product is a general term used to Product is a general term used to describe what is being sold – describe what is being sold –

a computer. a computer. Branding is the name or symbol that Branding is the name or symbol that

distinguishes one manufacturers product distinguishes one manufacturers product from another –from another –

MacintoshMacintosh CompaqCompaqHewlett-PackardHewlett-Packard DellDellGatewayGateway

Branding can…Branding can…

Influence marketingInfluence marketing Create a perception in customers minds Create a perception in customers minds

– positive or negative– positive or negative Give products a unique identityGive products a unique identity If successful, charge premium pricesIf successful, charge premium prices Be EXPENSIVE and take years to Be EXPENSIVE and take years to

developdevelop Not be guaranteed to be successfulNot be guaranteed to be successful

Branding VocabularyBranding Vocabulary

BrandBrand An identifying symbol, name, image or An identifying symbol, name, image or

trademark that distinguishes a product from trademark that distinguishes a product from its competitorsits competitors

Brand awarenessBrand awareness The extent to which a brand is recognized by The extent to which a brand is recognized by

potential customers and is associated with a potential customers and is associated with a particular product.particular product.

Branding VocabularyBranding Vocabulary

Brand developmentBrand development Measures the infiltration of a product’s sales usually Measures the infiltration of a product’s sales usually

expressed per thousand peopleexpressed per thousand people If 100 people in 1000 buy a product, it has a brand If 100 people in 1000 buy a product, it has a brand

development of 10development of 10

Brand loyaltyBrand loyalty The faithfulness of consumers to a particular brand The faithfulness of consumers to a particular brand

as shown by their repeat purchases irrespective of as shown by their repeat purchases irrespective of the marketing pressure from competing brands.the marketing pressure from competing brands.

Family BrandingFamily Branding

Selling several related products under Selling several related products under one brand name – also known as one brand name – also known as umbrella brandingumbrella branding

Examples: Apple, Inc.Examples: Apple, Inc. All Apple products have the same logo on its All Apple products have the same logo on its

products to create recognition of the brand.products to create recognition of the brand. Apple produces computers, phones, and music Apple produces computers, phones, and music

playersplayers

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Company BrandingCompany Branding

The company name is applied to the The company name is applied to the products and the becomes the brand products and the becomes the brand (also known as corporate branding)(also known as corporate branding)

Examples: Disney Examples: Disney Similar to Family Branding, but all products relate Similar to Family Branding, but all products relate

to the company nameto the company name Disney movies, clothing, vacationsDisney movies, clothing, vacations

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Individual BrandingIndividual Branding

Each individual product has its own Each individual product has its own unique identify and brand image (also unique identify and brand image (also known as product branding)known as product branding)

Examples: Proctor & Gamble Examples: Proctor & Gamble Many different product lines with their own Many different product lines with their own

identityidentity Head & Shoulders Shampoo, Pampers, DuracellHead & Shoulders Shampoo, Pampers, Duracell

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Manufacturer’s BrandingManufacturer’s Branding

Producers of the product establish the Producers of the product establish the brand image for the products, often under brand image for the products, often under the company namethe company name

Examples: Polo, Izod, Gucci Examples: Polo, Izod, Gucci The manufacturer may not have its own retail The manufacturer may not have its own retail

stores, therefore, relying on the brand popularity stores, therefore, relying on the brand popularity to create demand in retail stores.to create demand in retail stores.

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Own-Label BrandingOwn-Label Branding

Retailers create their own brand name Retailers create their own brand name and identify for a range of productsand identify for a range of products

Examples: Walmart Examples: Walmart These are often called store brands.These are often called store brands. Sam’s Choice, Faded Glory, Great ValueSam’s Choice, Faded Glory, Great Value

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Boston MatrixBoston Matrix

A method of analyzing a product portfolio in A method of analyzing a product portfolio in terms of market share and market growth. terms of market share and market growth. The size of the circle indicates market share sizeThe size of the circle indicates market share size..

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High

MarketGrowth%

Low

High Low

Market Share %

B

A

C

D

Boston MatrixBoston MatrixLow market growth – high Low market growth – high market sharemarket share

Product AProduct A CASH COWCASH COW Well established product in a mature market.Well established product in a mature market. Sales are high; promotional costs low.Sales are high; promotional costs low. Cash is “milked” from this product.Cash is “milked” from this product.

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High

MarketGrowth%

Low

High Low

Market Share %

B

A

C

D

Boston MatrixBoston MatrixHigh market growth – high High market growth – high market sharemarket share

Product BProduct B STARSTAR Successful market in a growing market.Successful market in a growing market. Sales are high; promotional costs high to reinforce brand.Sales are high; promotional costs high to reinforce brand. Could become a CASH COW.Could become a CASH COW.

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High

MarketGrowth%

Low

High Low

Market Share %

B

A

C

D

Boston MatrixBoston MatrixHigh market growth – low High market growth – low market sharemarket share

Product CProduct C PROBLEM CHILDPROBLEM CHILD Consuming resources without much returnConsuming resources without much return If new product, it will need heavy promotion.If new product, it will need heavy promotion. Positive – it is in a growing market; negative – product may need toPositive – it is in a growing market; negative – product may need to

be dropped be dropped

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High

MarketGrowth%

Low

High Low

Market Share %

B

A

C

D

Boston MatrixBoston MatrixLow market growth – low Low market growth – low market sharemarket share

Product DProduct D DOGDOG Offers little to a firm; low growth, low market share, low cash flowOffers little to a firm; low growth, low market share, low cash flow May need to drop the productMay need to drop the product

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High

MarketGrowth%

Low

High Low

Market Share %

B

A

C

D

Analyzing the Boston Analyzing the Boston MatrixMatrix

Building:Building: Support problem child products; Support problem child products; finance can be obtained from the cash cows.finance can be obtained from the cash cows.

Holding:Holding: Continue support of stars so high Continue support of stars so high sales growth and market position can be sales growth and market position can be maintained.maintained.

Milking:Milking: Take the cash generated from cash Take the cash generated from cash cows to invest in other products in the portfolio.cows to invest in other products in the portfolio.

Divesting:Divesting: Identify the dogs and stop Identify the dogs and stop production; carefully evaluate the impact of this production; carefully evaluate the impact of this decision.decision.

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Pros & Cons of the Pros & Cons of the Boston MatrixBoston Matrix

On its own, it cannot predict product On its own, it cannot predict product success or failure.success or failure.

It is only a planning tool and criticized for It is only a planning tool and criticized for its simplicity.its simplicity.

It assumes higher rates of profit are It assumes higher rates of profit are related to high market shares – this may related to high market shares – this may not be the true!not be the true!

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