Product Decisions and Product Life Cycle Chapter 8 Session: 12 Prof: Yasmin S 1

What is a product? A product is any offering by a company to a market that serves to satisfy customer needs and wants. It can be an object, service, idea,etc. 2

Product Personality The components of a product convey different meanings to different customers and project a distinctive image of the product in the eyes of the customers These meanings and images contribute to the formation of Product Personality 3

Product Personality Core benefit- is the basic component of a product. All other components are superimposed on the core product to form the personality of the product. Eg. Car- core benefit is a personal means of transport. Associated Features- size, shape, capacity, brand etc are associated features, firms selling similar products compete on the basis of the associated features as the core features remain the same 4

Nature of the Product Prof. Theodore Levitt differentiated the products based on the value they provide to the customers Levitt conceptualized the generic, expected, augmented and potential product 5

Product Levels 6

Customer value hierarchy Core benefit Generic/ Basic product Expected product Augmented product Potential product 7

Product Hierarchy Organizational chart that depicts the array of products offered in a given market Eg. Automobile Sector: –Product class- cars, bike, trucks –Product form- cars divided into SUV, family cars etc, cars with two doors, four doors etc –Product brands- Chervolet, Skoda, Mercedez 8

Product classification Durability & Tangibility –Non durables –Durables –Services Usage –Consumer products –Industrial products 9

Consumer goods classification Convenience goods- relatively inexpensive and are bought frequently. –Staple (milk, bread, newspaper) –Impulsive (chewing gum, chips etc) Shopping goods- buyer is wiling to spend time and effort in planning and making purchase decision. Products have longer life and purchased less frequently. Relatively expensive and sold at selective outlets 10

Consumer goods classification Specialty goods- products that have one or more unique characteristic feature. Customers are aware of what they want and will not accept a substitute. Expensive product eg original painting, an antique car, Mont- Blanc Pen Unsought goods- a product that a customer purchases when he is faced with a sudden problem eg insurance, medicines etc 11

Classes of Consumer Products ConvenienceShoppingSpecialty Goods Services POP 14-1 $ $ ATM 12

Industrial goods classification Production goods –Raw materials –Component parts –Process materials Support goods –Capital equipment –Accessory equipment –Consumables supplier Maintenance items Repair items Operating items –Business services 13

Product Policy Product mix Product mix strategies Managing product lines 14

15 P roduct Policy Can be understood as: Product mix Product mix strategies Width Length Depth Consistency Expansion of product mix Contraction of product mix Altering existing products Positioning the product Trading up Trading down

Product Mix The assortment of products that a company offers to a market Width – how many different product lines? Length – the number of items in the product mix Depth – The no. of variants offered in a product line Consistency – how closely the product lines are related in usage 16

PRODUCT MIX OF HUL CONFECTIONA RIE COLOR COSMETI CS HAIR CARE SKIN CARE ORAL CARE DEODO RANTS SOAPS AND DETERGE NTS TOILET SOAPS BEVERAG ESFOOD MaxLakmeSunsilk Fair & Lovely Peposo dentAxeSurfLiril3 RosesKnorr AvianceClinicPond's Close upPond'sRin Lifebou y lipoton Yellow label Anapur na Ata Dove RexonaWheelLux lipton green label Anapur na salt DenimOKBreeze lipton ice tea modern food range 501PearsRed Label Kwality Walls SunlightHamamTaj MahalKissan AlaRexona Brooke Bond Taza VimDoveBru Savlon 17

Product Mix Strategies Expansion of product mix Contraction of product mix Altering existing products Positioning the product –In relation to competitors product –In relation to target market –In relation to product class –By price and quality Trading Up Trading Down 18

Managing Product Lines Product line analysis Product line length: too long – when profits increase by dropping a product in the line too short – when profits increase by adding products to the product line –Line stretching –Line filling Product-line modernization Line pruning 19

20 Managing Product Lines Product line analysis Product line length: can be increased in two ways Product line modernization Line pruning Reasons for line extension Limitation of product line extension Line stretching Line filling

21 Managing Product Lines contd.. Reasons for line extension:- - Provide wide variety of goods under one umbrella - less time and cost is involved as compared to introducing new products - high price for premium products - reduce cost for market research

22 Managing Product Lines contd.. Limitations of product line extension:- - Weaker lines - Lowers Brand Loyalty - Under exploitation of ideas - Stagnant Demands - Profits earned is short lived - It can dilute brand image - Complexity in logistic

Brand A name becomes a brand when consumers associate it with a set of tangible and intangible benefits that they obtain from the product or service It is the seller’s promise to deliver the same bundle of benefits/services consistently to buyers 23

Advantages of branding Easy for the seller to track down problems and process orders Provide legal protection of unique product features Branding gives an opportunity to attract loyal and profitable set of customers It helps to give a product category at different segments, having separate bundle of benefits It helps build corporate image It minimises harm to company reputation if the brand fails 24

PRODUCT LIFE CYCLE Product Life Cycle – shows the stages that products go through from development to withdrawal from the market –Each product may have a different life cycle –PLC determines revenue earned –Contributes to strategic marketing planning –May help the firm to identify when a product needs support, redesign, reinvigorating, withdrawal, etc. –May help in new product development planning –May help in forecasting and managing cash flow 25

PLC Products have a limited life Product sales pass through distinct stages Profits rise and fall at different stages of the PLC Product require different strategies in each stage of the PLC 26

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Product Life Cycle Time Product Development Introduction Profits Sales GrowthMaturityDecline Losses/ Investments ($) Sales and Profits ($) 28

The Stages of the Product Life Cycle: Development Introduction/Launch Growth Maturity Saturation Decline Withdrawal 29

The Development Stage: 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? 30

The Development Stage: –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 31

The Introduction Stage The seller tries to stimulate demand Promotion campaigns to get increase public awareness Explain how the product is used, Features Advantages Benefits You will lose money, but you expect to make profits in the future 32

The Introduction Stage Sales are low, and profits are below the line because your costs are greater than the amount of money you make you have “negative” profit Need to spend a lot of money on promotion 33

The Introduction Stage Advertising and promotion campaigns Target campaign at specific audience? Monitor initial sales Maximise publicity High cost/low sales Length of time – type of product 34

Strategies - Introduction Skimming the market Penetrating the market Must have sufficient resources to withstand the initial losses and heavy promotion costs Incremental selling efforts at this stage is highest 35

Introduction Stage of the PLC Sales Costs Profits Marketing Objectives Product Price Low sales High cost per customer Negative Create product awareness and trial Create product awareness and trial Offer a basic product Use cost-plus Distribution Build selective distribution Advertising Build product awareness among early adopters and dealers 36

Growth A lot is sold - The seller tries to sell as much as possible Other competitor companies watch, and decide about joining in with a competitor product “success breeds imitation” (Text) Growth will continue until too many competitors in the market - and the market is saturated 37

At the end of the growth stage, profits start to decline when competition means you have to spend more money on promotion to keep sales going. Spending money on promotion cuts into your profit Growth 38

Growth Increased consumer awareness Sales rise Revenues increase Costs - fixed costs/variable costs, profits may be made Monitor market – competitors reaction? 39

Strategies - Growth Improves quality and adds features Adds new models and variants Enters new market segments Increases distribution coverage and adds new channels Shifts communication from awareness to preference building Scale economies enable it to lower prices to attract the next level of price conscious buyers 40

Growth Stage of the PLC Sales Costs Profits Marketing Objectives Product Price Rapidly rising sales Average cost per customer Rising profits Maximize market share Offer product extensions, service, warranty Price to penetrate market Distribution Build intensive distribution Advertising Build awareness and interest in the mass market 41

Maturity Many competitors have joined - the market is saturated The only way to sell is to begin to lower the price - and profits decrease It is difficult to tell the different between products since most have the same F.A.B. - Features, Advantages & Benefits Competition can get “Nasty” and commercials are intense 42

Maturity “Persuasive Promotion” becomes more important during this stage That is to say, you have commercials almost begging the customer to still buy your product because you still make it just as good. 43

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? 44

Maturity Marketing Strategies: Product – Diversify brand and models Price – Set to match or beat competition Distribution – Build more intensive distribution Advertising – Stress brand differences and benefits Sales Promotion – Increase to encourage brand switching 45

Strategies - Maturity Most products are in this stage Price wars are inevitable. Scramble for market share The fittest survive Market modification, product modification, marketing mix modification can help extend the maturity stage 46

Maturity Stage of the PLC Sales Costs Profits Marketing Objectives Product Price Peak sales Low cost per customer High profits Maximize profit while defending market share Maximize profit while defending market share Diversify brand and models Price to match or best competitors Distribution Build more intensive distribution Advertising Stress brand differences and benefits 47

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 48

Decline and Withdrawal 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 49

Decline and Withdrawal Newer products are now more attractive - even a low price does not make consumers want to buy. Profit margin declines - and so the only way to make money is to sell a high volume 50

Decline and Withdrawal To increase volume you try to 1. Increase the number of customers - get new customers 2. Increase the amount each customer uses 51

Decline and Withdrawal Marketing Strategies: Product – Phase out weak items Price – Cut price Distribution – Use selective distribution: phase out unprofitable outlets Advertising – Reduce to level needed to retain hard-core loyalists Sales Promotion – Reduce to minimal level 52

Strategies - Decline Withdrawal Rationalisation of products Harvesting whatever is possible Divesting the product 53

Decline Stage of the PLC Sales Costs Profits Marketing Objectives Product Price Declining sales Low cost per customer Declining profits Reduce expenditure and milk the brand Phase out weak items Cut price Distribution Go selective: phase out unprofitable outlets Advertising Reduce to level needed to retain hard-core loyal customers Reduce to level needed to retain hard-core loyal customers 54

55 Limitations of PLC Concept Sales of some products rise or decline quickly at the same rate. Increase in marketing activities may alter the shape of PLC curve PLC outlines the phases but does not give any indication to their duration. Session-14

Product Life Cycles Sales Time DevelopmentIntroductionGrowthMaturitySaturationDecline 56