P RODUCT Unit 3 Topic 3.1

P RODUCT T RIAL This is when a business gets customers to buy a product for the first time. This may be because the product is new on the market. Hopefully this will instil some brand loyalty and ensure repeat purchases. Getting a customer to trial a product for the first time means using certain aspects of the 4Ps of marketing.

P RODUCT T RIAL Price: Penetration pricing can be used when the product is new. This means initially selling it at a much reduced price and then raising the price once it has established some brand loyalty. Money off coupons can be used in newspapers, magazines and/or through direct mailing. Promotional pricing can be used if the product is not new. This means lowering the price for a limited time to try and encourage new people to try it out. BOGOF or 2 for 1 could also be used as part of this.

P RODUCT T RIAL Product: Free samples using magazines, direct mailing or a stand in the supermarket Test trials e.g. test drive a car Trying out a product in the shop e.g. new video game

P RODUCT T RIAL Promotion: Advertising – TV, radio, newspapers, magazines etc. Companies will try to make sure they can reach their target audience by using specific magazines or TV programmes. Sponsorship – Sponsoring a TV programme is a good way of getting people to notice your product and trial it. Billboards and/or any flat space e.g. buses Publicity – have a launch party and invite journalists to come. Give them a brochure and ask them to write about the product in their publications. Celebrity endorsement – get a celebrity to champion the product. Viral marketing – use Twitter, FaceBook, YouTube, MySpace to get people talking about it and recommending it to friends.

P RODUCT T RIAL Place: Manufacturers often need to persuade retailers to devote shelf space to the product. Often this means that they will have to pay for the privilege. Also manufacturers may have to pay for any promotional deals that the retailer has such as BOGOF and 2 for 1

R EPEAT P URCHASE Repeat purchase is when a customer buys a product more than once. Customer loyalty is the willingness of customers to make many repeat purchases from one company or of one product. Repeat purchases is the key to success of most business. It is less expensive to achieve than launching new successful products.

R EPEAT P URCHASE Promotion: Advertising is very important for keeping the brand in the consciousness of customers. All forms of advertising are suitable to achieve this. Many other forms of promotion are also useful for this e.g. money off coupons, competitions, special offers etc.

R EPEAT P URCHASE Price: Showing that the product gives value for money is a good way of considering the price. Sometimes firms can maintain a high price – known as prestige pricing – because they are attracting people with relatively high incomes who want to purchase something exclusive or of high quality. Promotional pricing can be very useful occasionally. BOGOF and 2 for 1 can be good.

R EPEAT P URCHASE Product: Must meet or exceed customer expectations The brand should match the image of the customer The product should be made to feel as if the customer cannot live without it The product needs to be able to satisfy a customer’s need or want The product could satisfy more than one need or want (dual purpose) New varieties to keep consumer’s interested. New technology to keep consumers interested.

R EPEAT P URCHASES Place: Manufacturers often need to persuade retailers to devote shelf space to the product. Often this means that they will have to pay for the privilege. Also manufacturers may have to pay for any promotional deals that the retailer has such as BOGOF and 2 for 1

Q UESTIONS 1.Answers B and D Comments Aincorrect – low or high production costs will not persuade or dissuade a customer from buying the product. B correct – a relevant free gift acts as an incentive to the purchaser. C incorrect – this is a human resources matter and has no bearing on a customer’s decision to purchase. D correct – a reduced price may persuade a customer to buy a product without having to spend too much money on it. E incorrect – many of the other magazines may have different target markets. 2.Answer A Comments A correct – a lack of loyalty means that customers will not return to purchase the same brand again and again. B incorrect – a lack of loyalty often reduces sales levels. C incorrect – good value often results in customer loyalty. D incorrect – large price cuts are not a guarantee of customer loyalty as it is often based on many different factors

Q UESTIONS 3.Answer C Comments A incorrect – the amount of profit is based on several different factors and not just sales levels. B incorrect – repeat purchases maintain sales levels for a company. C correct – advertising encourages people to make repeat purchases. D incorrect – little brand loyalty would not generate repeat purchases. Also, in the pizza market people do tend to have brand loyalty.

R EPEAT P URCHASES Other key factors: Be sure everyone in your company provides outstanding service to your customers. Stay in touch with customers and ask for feedback. Tell someone by in person, on the phone, or by mail, "Thank you for your business.

P RODUCT L IFE C YCLE Product Life Cycle (PLC): Every product goes through a life cycle from development to decline Each life cycle is different Some products have longer lifecycles than others Some companies are very successful in extending lifecycles

P RODUCT L IFE C YCLE The Stages of the Product Life Cycle: Development Introduction/Launch Growth Maturity Saturation Decline Withdrawal

Sales Time DevelopmentIntroductionGrowthMaturitySaturationDecline P RODUCT L IFE C YCLE

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? At this stage there are high costs and no revenue – therefore the company is making a large loss

P RODUCT L IFE C YCLE Introduction/Launch: Advertising and promotion campaigns Target campaign at specific audience? Monitor initial sales Maximise publicity High cost Low sales Firm still making losses Length of time – type of product

P RODUCT L IFE C YCLE Growth: Increased consumer awareness Sales rise Revenues increase Costs - fixed costs/variable costs, profits may be made Monitor market – competitors reaction?

P RODUCT L IFE C YCLE 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?

P RODUCT L IFE C YCLE Saturation: New entrants likely to mean market is ‘flooded’ Necessity to develop new strategies. Sales and profits falling. Decline and Withdrawal: Product outlives/outgrows its usefulness/value Fashions change Better products appear 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?

P RODUCT L IFE C YCLE Extending the life cycle Diversification – have core product but introduce new flavours/styles etc. Innovate – use new technology to enhance the product Change flavour Repackage Advertise to appeal different audience Re-launch – product that have been withdrawn can make comebacks if sold right e.g skateboards, yoyos

Sales Time Effects of Extension Strategies Product Life Cycle

P RODUCT L IFE C YCLE Cash Flow and the Product Life Cycle During the development stage cash flow is going to be NEGATIVE. Money has to be paid out for equipment, wages etc but no money is coming in. During the launch stage cash flow is still NEGATIVE. More money is being paid out than is coming in (as sales are very low at the moment).

P RODUCT L IFE C YCLE Cash Flow and the Product Life Cycle During the growth stage cash flow may turn from NEGATIVE to POSITIVE. Lots of money is coming in but there are many outgoings because the firm has to continue to promote the product and may need to expand production and its workforce. During maturity/saturation and decline the cash flow will be POSITIVE. The company spends little money on promoting it. It doesn’t need to expand production but sales are still coming in. Only during the decline stage will sales be so low that cash flow might be NEGATIVE.

Sales/Cash Flow Time PLC and Cash Flow PLC Negative Cash Flow Positive Cash Flow Product Life Cycle

P RODUCT P ORTFOLIO A NALYSIS Product Portfolio is the range of products a company has in development or available for consumers at any one time. The Boston Matrix is a means of analysing the product portfolio and informing decision making about possible marketing strategies. It was developed by the Boston Consulting Group – a business strategy and marketing consultancy in 1968

T HE B OSTON M ATRIX Market Growth Market Share High Low High Problem ChildrenStars DogsCash Cows

T HE B OSTON M ATRIX Stars Products in markets experiencing high growth rates with a high or increasing share of the market. Likely to be in the growth stage of product lifecycle so costs of advertising and machinery could still be high. Potential for high revenue and profit in the future but not in the present.

T HE B OSTON M ATRIX Cash Cows: High market share Low growth markets – maturity stage of PLC Low cost support – little spent on advertising. High customer loyalty. High cash revenue – positive cash flows

T HE B OSTON M ATRIX 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 Company may drop them soon

T HE B OSTON M ATRIX Problem Child: Products having a low market share in a high growth market May have potential but needs money spent to develop them May produce negative cash flow Potential for the future or ditch the product?

P RODUCT P ORTFOLIO A NALYSIS /B OSTON M ATRIX Advantages: The company knows at what stage of the product life cycle its products are It will know whether the products are dogs, stars, cash cows or problem children It will be able to understand the levels of revenue the products should be generating Cost to the business may be determined.

P RODUCT P ORTFOLIO A NALYSIS /B OSTON M ATRIX Advantages: The likely level of advertising for the products will be understood The company will be able to see if it needs to develop any new ideas Likewise the company will be able to know if it needs to get rid of any products

Q UESTIONS 1. Answer A Comments A correct – the costs of development are high and there are no sales as the product has not been launched. B incorrect – a positive cash flow may be evident as sales are increasing and may outweigh any other supporting costs such as marketing. C incorrect – sales are likely to outweigh any supporting costs. D incorrect – support may be minimal so costs are low despite a falling sales trend. 2.Answer B Comments A incorrect – this is an activity used to support an extension strategy. B correct – this is an activity designed to adapt the product itself. C incorrect – this would be the development of a completely new product. D incorrect – this would not necessarily extend the sales or life of the product.

Q UESTIONS 3.Answer D Comments A incorrect – they may be cash cows, problem children or, indeed, dogs. B incorrect – the 25 products may not all be in the same market or in markets with fast growth. C incorrect – despite being a star it may have lower sales levels than, say, a cash cow product. D correct – this is one feature of a star product. 4. Diversification Innovate Change flavour Repackage Advertise to appeal different audience Re-launch

Q UESTIONS 5. To stay ahead of the competition in order to maintain market share. To re-launch the brand to remind consumers of the brand’s existence. To develop the range in order to meet changing market needs and fashions. To introduce the product to a new segment of the market or a younger audience. To prevent the product from being withdrawn due to a lack of sales.

B RANDING AND D IFFERENTIATION A brand is a named product which customers can identify with and which is seen as different from other similar products. E.g. I-pod. A generic product is a product made by a number of different businesses, which customers fail to recognise any differences between. E.g. Other MP3 players. An own brand is one which is sold under the brand name of a supermarket, rather than the name of the company that manufactured it.

B RANDING AND D IFFERENTIATION Product differentiation occurs when a company produces a range of brands each with different features e.g. quality, design, packaging etc.

B RANDING AND D IFFERENTIATION Achieving branding/differentiation: Design – make each product have different features, quality, build to others in the range. Make your product features different to those of competitors. Name – make each name unique. Either make the name reflect the product e.g. Gold Blend Coffee or make the name obscure to imply that it is highly technical e.g. Intel Pentium Processor. Some firms market themselves under the company name brand e.g. Cadbury, whereas others prefer to do it through individualised branding e.g. Nestle with Kit Kat and Yorkie. Efficiency – so the product doesn’t break down Quality – value for money

B RANDING AND D IFFERENTIATION Achieving branding/differentiation: Packaging – used to give the product an attractive appeal. Used to protect the product. Used to give instructions on how to use the product. Range – appeal to different market segments Design – to attract the consumer After sales service – so the customer gets help when they need it Unique Selling Point (USP) – what makes it different from everything else on the market

B RANDING AND D IFFERENTIATION Advantages of branding/differentiation: Premium prices: A strong brand may allow firms to charge a higher price than rivals. This allows a firm to add value. Greater consumer awareness: This may make consumers more likely to buy a high profile brand rather than a rival’s less well known brand. Increased sales and market share: Bothe of the factors listed previously can result in an increase in sales revenue and market share.

B RANDING AND D IFFERENTIATION Advantages of branding: It is more likely that retailers will devote shelf space to well known brands. Allows the company to launch new products Possibility of successful product trial Encouragement of word or mouth advertising Possibility of repeat sales Discourages competition

B RANDING AND D IFFERENTIATION Disadvantages of branding: High costs associated with the massive promotion that is needed to establish and maintain the brand. Launching a new version of the brand may lead to a risk of failure and damage to the brand. A single bad event will affect all the brand’s products e.g. Cadbury Salmonella scare in 2006 wiped 14% off Cadbury sales. Brand names may be difficult to protect in a global market – leading to ‘fake’ products. It may be more important for a firm to use other aspects of the marketing mix e.g. price, place or promotion.

B RANDING AND M ARKET MAPS

Q UESTIONS 1.Answer B Comments A incorrect – increasing levels of production does not differentiate one product from another. B correct – a change in packaging could make one product stand out from another on the shelf. C incorrect – increasing sales does not change a product in its look, taste or smell. D incorrect – a change in suppliers may change the raw materials or reduce costs but does not differentiate.

Q UESTIONS 2.Answer D Comments A incorrect – cutting costs of production can apply to both branded and non-branded products. B incorrect – this is a product which is sold under the brand name of a supermarket chain or other retailer rather than under the name of the business which manufactures the product. C incorrect – these are products made by a number of different businesses in which customers see no difference between the products of one business compared to the products of another business. D correct – branded products, through quality or advertising, can charge a higher selling price.

Q UESTIONS 3.Answer C Comments A incorrect – high pricing will not entice customers to buy for the first time. B incorrect – the customer will not be aware of the new production method and this will not persuade them to try the product. C correct – heavy advertising will inform the customer of the product’s existence. D incorrect – the launch is important to get the customer to know about the product. Cutting the trial launch costs would reduce this effect.

Q UESTIONS 4. Definition: A branded product is a product which, in the eyes of customers, is seen to be different from other, often similar, products. A brand provides an identity which allows consumers to associate with the product or service and to recognise it. This may help to persuade them to buy that product rather than its rivals. Apple Corporation has very distinct brands. The company brand itself ‘Apple’ is worldwide and the individual product brands, such as iPhone, iPod and iMac are all strong brands in their own right. People recognise the brand and associate it with style and quality.

Q UESTIONS 5. Branding helps Apple to get trials by: its reputation for worldwide quality. the wish for consumers to buy a reliable product. consumers wanting to be ‘part of the cult’. branding brings ‘word of mouth’ advertising with current owners persuading new ones to buy the product. Branding helps with repeat purchase by: retaining current Apple product users. customers desire to own a ‘suite’ of Apple products. constant advertising reminding the customer of the brand’s features and advantages. reputation for updating their product portfolio to meet market needs.