4.5 – The Four P’s IB Business

Product Life Cycle Research and Development Launch (Introduction) Generating Ideas; Screening Ideas; Creating a Prototype; Test Marketing; Commercialization Launch (Introduction) Growth Maturity Saturation Decline

Product life Cycle

Extension Strategies Done at the maturity or saturation stages New Markets New uses for a product Repackaging/Redesigning Target different market segments Promotion These strategies are essential to long-term business success

Product Life cycle & marketing mix Strategies Introduction Growth Maturity Saturation Decline Product Basic product marketed Product improvements or new product development New product development; extension strategies Extension strategies critical to maintain sales Weak products withdrawn from market Price Cost-plus, skimming or penetration pricing used Penetration prices slightly increase Competitive or promotional pricing used Competitive pricing used Price cuts are made. Promotion Informative advertising used Persuasive advertising used Extensive advertising to remind customers of product Aggressive advertising carried out to emphasize benefits Advertising reduced to a minimum Place Selective or restricted distribution takes place Intensive distribution or more distribution outlets are used More intensive distribution or a wide range of distribution outlets Widest range of geographical distribution outlets used Selective distribution and unprofitable outlets are eliminated

Relationship between product lifecycle, investments, profit & cash flow Product Life Cycle Stage Development Introduction Growth Maturity Saturation Decline Investment Level High R & D costs High costs on promotion Average to high costs on promotion Lower costs on promotion Cost focus is on extension strategies Very low costs on promotion 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 improves with sales Positive Positive but decreasing cash flow

Product Portfolio Analysis – BCG matrix Market Growth Market Share High Low High (Growing) Stars Problem Children or Question Marks ?????? Low (Mature) Cash Cows Dogs

BCG Matrix strategies Holding strategy – Building strategy – focus here is on products with a high market share, to ensure they maintain current position Building strategy – turning problem children into stars Harvesting strategy – milking the benefits of products with a positive cash flow Divesting strategy – poor-performing dogs are phased out or sold off.

Limitations of Boston matrix Focuses on current market position May be a time consuming and complex exercises for businesses High market share doesn’t necessarily equate to high profits.

Branding Branding A name, symbol, sign or design that differentiates a firm’s product from its competitors Can add value to a product, and can have a strong influence on how consumers view a product. Brand Awares

Aspects of Branding Brand Awareness Brand Development Brand Loyalty Ability of consumers to recognize a firm’s goods or services Major step; very important when promoting a product. Brand Development Any plan to strengthen or improve the product image Brand Loyalty When consumers are committed to a firm’s brand; willing to make repeat purchases A result of brand preference Brand Ambassadors – consumers who are positive about a particular brand Brand Value How much a brand is worth – reputation, potential income, market value

Importance of branding One of the most important tasks of marketers Branding gives customers a clear image with which they can associate the business A well-known brand can command a higher price Customers make judgments about certain product and services based on the way they are presented A firm’s brand can provide legal protection Effective branding results in a sense of personal identification & emotional connection among consumers

Importance of packaging Provides physical protection Offers convenience Provides information Can help reduce security risks Aids promotion Should be eye-catching and appeal to the customer Color and shape is key to reinforce and project a brand image

price Plays a significant role in the marketing mix – only “P” that generates revenue for a business; businesses need to set an appropriate pricing strategy Cost-plus pricing (Mark-up pricing) Adding a mark-up to the average cost of producing a product – p. 303 Penetration pricing Setting a low initial price to attract a large number of customers quickly – p. 303-304 Price Skimming Setting a high price when introducing a new product – usually for a limited period – p. 304 Psychological Pricing When firms consider how pricing affects consumers’ perception of their product’s value – p. 305 Consumers may associate a higher price with high quality Also reducing prices to make us believe we’re getting a deal – 9.95 instead of 10.00

Price - continued Loss Leader Price Discrimination Competitive Pricing Charging a low price for a product, below average cost Aim is to attract customers; usually associated with supermarkets p. 305 Price Discrimination Charging different prices to different groups of consumers Business has to have price-setting ability Elastic v. inelastic demand Example – concert tickets – different price points – p. 305-306 Competitive Pricing Takes into account what competitors are charging Predatory pricing; Destroyer pricing – driving competitors out of the market – p. 306

Promotion Communicating about your product to consumers Objectives of Promotion Informing consumers of a new or improved product Persuading consumers to purchase a product Reminding consumers that your product exists Enhancing the brand image of the product as well as the image of the business Promotion categorized into two forms: above-the-line and below-the-line

Above the line Paid form of communication – uses independent mass media to promote a product or business Advertising – central global role – categories of advertising Informative Advertising – providing information on features, price or other specifications Persuasive Adverting – convincing customers to buy one product over another Reassuring Advertising – Focus on existing customers; remind them they made the right decisio Television Radio Cinema Newspaper Magazines Outdoor Advertising

Below the Line promotion Focuses on promotional activities aimed at consumers or people interested in product Direct Marketing – examples – direct mail sent to consumers Has limitations – many consider it “junk mail” Personal Selling – sale of a product through personal contact Face to face or over the telephone – car sales as an example; personalized attention; salesperson = commission Public Relations – promotional activities aimed to enhance the product image Sales Promotions Money off coupons Point of sale displays Free offers or free gifts Competitions BOGOF – Buy one get one free

Promotional mix Involves a good balance of both above-the-line and below-the-line methods Certain factors must be considered when putting together an appropriate mix: Cost – does the marketing budget support the method you want to use? Legal framework – must take into account any applicable laws Target Market – what specific segment of the market is the produce aimed at? Stage in the Product Life Cycle Type of Product

Impact of new technology on promotional strategies Over the last decade technology has changed rapidly, forcing marketers to incorporate the new technology into their marketing strategy. Social Media Marketing – the way technology is used to build relationships, drive repeat business, and attract new customers through the sharing of information. Promotion through word of mouth powered by technology Viral Marketing – individuals pass on promotional messages within social networks Use of banners, pop-ups, social media, YouTube videos. Main goal to increase brand awareness through replicating a viral-like process

Benefits/limitations of technology Benefits of Technology on Promotional Strategies Limitations of New Technology Wide Reach – large % of internet usage is Social Media Accessibility problems – if a region has no computer of internet, opportunities may be missed Engagement – most customers are participants Distraction – use of pop-ups can be viewed as a waste of time Market Information – provide useful feedback on trends, public opinion, brand activity, etc. Lurkers – people who sit and absorb information. Cost Savings – Less expensive than traditional methods Brand Recognition – Repeat exposure can increase awareness of brands, leading to loyalty Speed – ads can reach a wide audience in a short space of time

Guerrilla marketing Marketing form using “untraditional” activities to help companies stay successful Phrase coined from military and warfare-related terminology Principles of Guerilla Marketing – remember with acronym of APENS A = Activity P = Presence E = Energy N = Networks S = Smart

Methods used in guerrilla marketing Peer Marketing; Product Give-aways; text- & video-messaging; “Roach Baiting” and Buzz Marketing; Intrigue; Liver commercials; Bill Stickers Benefits: Low Cost Flexibility Simplicity Identified target market Communication Tool Interaction opportunity Accessibility Negative Effects of Guerilla Marketing Denting the brand image high negative attitudes Negative impact on social life Ethical issues

Place – how does product get to consumer? Refers to the location of the business and the customers Helps businesses develop the best way to distribute their produce Using intermediaries and wholesalers helps businesses store and market products Growing use of internet makes reaching a wide range of customers possible

Channels of distribution Path taken by a product from producer to consumer Zero Intermediary – directly sold from producer to consumer Example – vegetables at a Farmer’s Market One Intermediary – One person between producer & consumer Two Intermediaries Producer, Wholesaler, Retailer, Consumer Look at illustrations and table, page 316

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