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

What makes the difference between product success and product failure? Central Question What makes the difference between product success and product failure?

The Product Life Cycle - Classic Saturation Sales Sales Quantity Maturity Decline Growth Cash Flow Introduction Development Time ‘Death Ride Valley’

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 Brainstorm of product ideas Screen Ideas for viability Prototype Test Market Commercialization Failure SUCCESS Failure Market Research Failure Failure

What is happening at each stage? Product Price Promotion Place Investment level Sales Profits Cash flow

PRODUCT PRICE PROMOTION PLACE 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 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

Alternative Product Life Cycle Sales Qty/$ Time

Alternative Product Life Cycle Sales Qty/$ Time

Alternative Product Life Cycle Sales Qty/$ Time

Life Cycle Extensions Sales Qty/$ Extension Strategies Time

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 Sales Qty/$ Product B Product C Product A Time

Benefits of a balanced portfolio 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

IB Business and Management 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 High Low High Market Growth STAR Problem Child Low CASH COW 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 Strategies STRATEGY 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.

“The process of distinguishing one firm’s 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 Branding ASPECT 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 competitors These 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