4.3 Product Topic 4 Marketing

Syllabus Requirements Classify products by line, range and mix Describe the importance of innovation and R&D especially financing problems Analyse relationship between product life cycle and marketing mix Determine appropriate extension strategies Analyse relationship between product LC, investment, profit and cash flow Apply BCG matrix Discuss the importance and role of branding Distinguish between different types of branding Analyse the role of branding in a global market

Classification of products Products can be classified in different ways, the three classifications you need to be aware of are: Product lines – these are groups of products which are closely related to each other (e.g. merchandise from films) Product range – these are products which complement each other and may form part of a set (e.g. shampoo and conditioner) Product mix – this is the same as the product portfolio and is the range and type of products a business produces Complete Q4.3.1

New product design and development Research is defined as ‘an investigation involving the process of enquiry and discovery used to generate new business ideas’ Development is defined as ‘the changing of new ideas into commercial propositions’ Research and development (R&D) is the process by which a business seeks out and meets consumer needs or gaps in the market for commercial gain.

Why do R&D? There are many benefits of R&D including: Development of new products (competitive advantage and possible patents*) Development of new materials Development of new production techniques Improved business image Motivation Consumer benefits *(Patents are a form of legal ownership of an idea or product – such as Dyson has for bagless vacuum cleaners)

Importance of R&D It is argued that in today’s era of rapid technological change that R&D is increasingly important What do you think? You need to be aware of the problems associated with financing R&D so… Why might a business be reluctant to fund R&D?

Product Life Cycle These show the different stages in the life of a product and the sales that can be expected at each stage The product life cycle stages are: Development Introduction Growth Maturity Saturation Decline You need to be able to explain each of these stages

Product Life Cycle: Development 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?

Product Life Cycle - Development Stage Cont. Product Development: Stages  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

Product Life Cycle - Introduction/Launch Advertising and promotion campaigns Target campaign at specific audience? Monitor initial sales Maximise publicity High cost/low sales Length of time – type of product

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

Product Life Cycles - 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?

Product Life Cycles - 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

Product Life Cycles - Decline 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?

Typical Product Life Cycle Diagrams Sales Time R&D Intro Growth Maturity Saturation Decline

Fashionable Product Life Cycle Diagrams Sales Time R&D Intro Growth Maturity Saturation Decline

Product Life Cycle and Profits Sales/Profits Time PLC Losses Break Even Profits Sales Revenue Expenses

Extension Strategies To extend the life of a product the business can try to apply extension strategies. The most common techniques include: Finding a new use for the product Finding new markets for existing products Developing a wider product range Gearing the product toward a specific target group Changing the appearance, format or packaging Encourage more frequent use Changing ingredients or components

Product Life Cycles and the Boston Matrix Sales Time Effects of Extension Strategies

Product Portfolio Analysis - BCG The Boston Matrix:  A means of analysing the product portfolio and informing decision making about possible marketing strategies  Developed by the Boston Consulting Group – a business strategy and marketing consultancy in 1968  Links growth rate, market share and cash flow

The Boston Matrix Classifies Products into four simple categories: Stars – products in markets experiencing high growth rates with a high or increasing share of the market - Potential for high revenue growth

The Boston Matrix Cash Cows:  High market share  Low growth markets – maturity stage of PLC  Low cost support  High cash revenue – positive cash flows

The Boston Matrix 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 Is your product starting to embarrass your company?

The Boston Matrix Problem Child / ?: - Products having a low market share in a high growth market - Need money spent to develop them - May produce negative cash flow - Potential for the future? Problem children/Question Mark – worth spending good money on?

The Boston Matrix Stars Problem Children or ? Cash CowsDogs Market Share Market Growth High Low (mature) High (growing) Low

The Boston Matrix Implications: Dogs  Are they worth persevering with?  How much are they costing?  Could they be revived in some way?  How much would it cost to continue to support such products?  How much would it cost to remove from the market?

The Boston Matrix Implications: Problem Children / Question Mark  What are the chances of these products securing a hold in the market?  How much will it cost to promote them to a stronger position?  Is it worth it?

The Boston Matrix Implications: Stars  Huge potential  May have been expensive to develop  Worth spending money to promote  Consider the extent of their product life cycle in decision making

The Boston Matrix Implications: Cash Cows  Cheap to promote  Generate large amounts of cash – use for further R&D?  Costs of developing and promoting have largely gone  Need to monitor their performance – the long term?  At the maturity stage of the PLC?

The Product Life Cycle and the Boston Matrix Sales Time A B C D The product portfolio – four products in the portfolio (1) (1) ‘A’ is at maturity stage – cash cow. Generates funds for the development of ‘D’ (2) (2) Cash from ‘B’ used to support ‘C’ through growth stage and to launch ‘D’. ‘A’ now possibly a dog? (3) (3) Cash from ‘C’ used to support growth of ‘D’ and possibly to finance extension strategy for ‘B’? Importance of maintaining a balance of products in the portfolio at different stages of the PLC – Boston Matrix helps with the analysis

Activity Complete 4.3.2

Product Branding A brand is defined as ‘a name, term, sign, symbol, design or any other feature that allows consumers to identify the goods and services and differentiate them from those of competitors

Why Brand? There are many competitive advantages which can be gained from having a strong brand image and these include: Creating brand loyalty Differentiating the product/service from competitors Gaining flexibility for pricing decisions Helping recognition Developing a brand image In groups of two using a mind map to structure your response, complete 4.3.2, 4.3.3, 4.3.4, 4.3.5

Types of Branding TypesDescription Family branding Product branding Company branding Own label branding Manufacturer’s brand

Activity Read article about Aldi’s branding strategy. (see LP link)  What branding strategies has Aldi implemented in its stores? Complete 4.3.7