Products & Product Portfolios 3.3 Decision making to improve marketing performance

What you need to know What is a product and where it sits within the extended marketing mix Difference between consumer and industrial products Value of product portfolio analysis (including Boston Matrix) Value of product life cycle model and extension strategies Influences on and the value of new product development

Importance of Product in the Traditional Marketing Mix Price Promotion Place Products are at the heart of marketing The product needs to exist for the other elements of the mix to happen

Products Link Closely With Segmentation Target Market Market Research Positioning Product Life Cycle Adding Value

Products in the Extended Marketing Mix Price Promotion Place People Process Physical

A product is anything that is capable of satisfying customer needs What is a Product? A product is anything that is capable of satisfying customer needs

The Layers of a Product Core Value Augmented Product Actual Product Pre-sale Support Brand Name Core Value Quality Warranty Design Features Packaging After-sale service Source: Kotler, Armstrong, Harris & Piercy; Principles of Marketing

Consumer and Industrial Products Consumer Products Bought by final consumers for personal consumption Differ in they way consumers buy them Industrial Products Bought for further processing or for use in conducting a business Bought by other businesses, not consumers

Three Main Categories of Consumer Products Convenience Products Bought frequently Little planning or shopping effort Low customer involvement Shopping Products Bought less frequently Customers careful on suitability, quality, price, brand, style etc. Speciality Products Unique characteristics or brand Buyers make a special effort when buying

Shopping Products: Emphasis of Marketing Mix Convenience Products PRICE Tends to be low PLACE Widespread distribution PROMOTION Mass promotion Bought frequently Little planning or shopping effort Low customer involvement

Convenience Products: Emphasis of Marketing Mix Shopping Products PRICE Tends to be higher PLACE Selective distribution (fewer outlets PROMOTION Advertising by producer and resellers Bought less frequently Customers careful on suitability, quality, price, brand, style etc.

Speciality Products: Emphasis of Marketing Mix PRICE High PLACE Exclusive distribution or limited outlets PROMOTION More carefully targeted Unique characteristics or brand Buyers make a special effort when buying

Three Main Kinds of Industrial Products Materials & Parts Raw materials, components etc. Mostly sold to other industrial users Price and service key issues Capital Items Industrial products used in production or operations E.g. IT systems, buildings infrastructure Supplies and services Operating supplies (e.g. energy) and business services (e.g. maintenance, security)

Key Features of Marketing Industrial Products EXPLANATION Specialist buyers and sellers Buyers are businesses – will have specialist requirements and more experience. Often dealing with professional “buyers” Buyer-seller relationship Strong emphasis on customer relationship management and repeat business Transaction value Purchase value often substantial in a single transaction (e.g. bulk purchase contract) Quality and Price Greater emphasis on product quality and price (where there are acceptable alternative products). Price is often negotiated by the buyer Support Greater requirement for after-sales support

Product Life Cycle A theoretical model which describes the stages a product goes through over its life

Key Uses of the Product life Cycle Model Forecast future sales trends Help with market targeting and positioning Help analyse & manage the product portfolio

Stages in the Product Life Cycle Development Introduction Growth Maturity Decline / End Product Life Cycle model can be applied to a: Product category Style Brand or model

Product Life Cycle Chart SALES & CASH FLOW (£) Sales Cash Flow DEVELOPMENT GROWTH MATURITY DECLINE INTRODUCTION TIME

Development Stage Often complex Absorbs significant resources May not be successful May involves a long lead time before sales are achieved

New Product Development Time –consuming but CAD is reducing product development times The cost of development rises as it approaches launch Market research including a test launch often done to reduce the risk of product failure Most new product ideas do not reach the launch phase

Why New Products Are Scrapped Before Launch Inadequate demand Action of competitors Change in the external environment Production problem High costs Does not fit in the firm’s product range Life cycle expected to be too short

Introduction Stage New product launched on the market Low level of sales Low capacity utilisation High unit costs Usually negative cash flow Distributors may be reluctant to take an unproven product Heavy promotion to make consumers aware of the product

Strategies at the Introduction Stage Aim – encourage customer adoption High promotional spending to create awareness and inform people Either skimming or penetration pricing Limited, focused distribution Demand initially from “early adopters”

Growth Stage Expanding market but arrival of competitors Fast growing sales Rise in capacity utilisation Product gains market acceptance Cash flow may become positive Unit costs fall with economies of scale The market grows, profits rise but attracts the entry of new competitors

Strategies in the Growth stage Advertising to promote brand awareness Increase in distribution outlets - intensive distribution Go for market penetration and (if possible) price leadership Target the early majority of potential buyers Continuing high promotional spending Improve the product - new features, improved styling, more options

Maturity Stage Slower sales growth as rivals enter the market = intense competition + fight for market share High level of capacity utilisation High profits for those with high market share Cash flow should be strongly positive Weaker competitors start to leave the market Prices and profits fall

Strategies for Mature Products Manage capacity & production Promotion focuses on differentiation Persuasive advertising Intensive distribution Enter new segments Attract new users Repositioning Develop new uses

Market saturation and/or competition Decline Stage Falling sales Market saturation and/or competition Decline in profits & weaker cash flows More competitors leave the market Decline in capacity utilisation –switch capacity to alternative products

Reasons Why Products Enter the Decline Stage Technological advance Changes in consumer tastes and behaviour Increased competition Failure to innovate and develop the product

Strategies for the Decline Stage Maintain market share Harvest by spending little on marketing the product Rationalise by weeding out product variations Price cutting to maintain competitiveness Promotion to retain loyal customers Distribution narrowed

Extending the Product Life Cycle Lower price Change promotion (e.g. new promotional message) Change product - re-styling and product improvement Look for alternative distribution channels Develop new market segment Find new uses for the product Reposition the product

Weaknesses of the Product Life Cycle Model The shape and duration of the cycle varies from product to product Strategic decisions can change the life cycle It is difficult to recognise exactly where a product is in its life cycle Length cannot be reliably predicted Decline is not inevitable

Example of the Product Life Cycle: Apple iPod Global Apple iPod sales from 2006 to 2014 (in million units)

Examples of the Different Stages in the Product Life Cycle: Consumer Electronics Development Launch Growth Maturity Decline Consumer drones developed out of sophisticated military use

Examples of the Different Stages in the Product Life Cycle: Consumer Electronics Development Launch Growth Maturity Decline Apple’s launch of iWatch expected to fuel growth of global wearable technology market

Examples of the Different Stages in the Product Life Cycle: Consumer Electronics Development Launch Growth Maturity Decline Sales of Ultra HD displays (TVs, monitors etc) are one of the fastest-growing segments of the display market

Examples of the Different Stages in the Product Life Cycle: Consumer Electronics Development Launch Growth Maturity Decline LED TV sets are a well-established and mature product – the global market is now growing quite slowly

Examples of the Different Stages in the Product Life Cycle: Consumer Electronics Development Launch Growth Maturity Decline The number of DVDs bought in the UK is in sharp decline as consumers switch to online streaming

Product portfolio Product Portfolio is the range of products or brands provided by a business

Product Portfolio Analysis Product portfolio analysis assesses the position of each product or brand in a firm’s portfolio to help determine the right marketing strategy for each

Boston Consulting Group developed this as a tool of portfolio analysis Boston Matrix Boston Consulting Group developed this as a tool of portfolio analysis It can be applied to the portfolio of products produced by a firm or the portfolio of businesses owned by a firm Portfolio is the collection of businesses or products that make up a business

Boston Matrix in Summary Firms should analyse their portfolio (collection) of products Products are categorised as: Question marks (also known as problem children) Stars Cash cows Dogs The ideal is that firms should aim for a balanced portfolio with some products in each category

Drawing the Matrix

Comparison with the Product Life Cycle Is concerned with individual products Is concerned with sales over time The Boston Matrix Is concerned with the firm’s portfolio of products Focuses on cash flow from products

Axes of the Boston Matrix Relative market share This is expressed not as a % but share in relation to other firms in the market A measure of the firm’s/product’s strength in the market Market growth % rate of growth of sales in the market Measure of market attractiveness From this we derive four cells as a means of analysing products

“Question mark” Products Low share of a rapidly growing market Cash flow is negative Have potential but the future is uncertain Could become either a star or a dog

Strategy for “Question Marks” Invest to increase market share Substantial investment to achieve growth at the expense of powerful competitors Invest in promotion and other aspects of marketing Build selectively

High share of a rapidly growing market Star Products High share of a rapidly growing market Position of leadership in a high growth market The product/business is relatively strong and the market is growing Require high marketing spending Net cash inflow is neutral or at best modestly positive

Investment to sustain growth Build sales and/or market share Strategy for Stars Investment to sustain growth Build sales and/or market share Spend to keep competitors at bay Invest to maintain or increase leadership position Repel challenges from competitors

High share of a slowly growing market Cash Cow Products High share of a slowly growing market Mature stage in the product life cycle Mature, successful product Dominant share Little potential for growth Large positive cash inflow

Aim for short term profits Little need for investment Strategy for Cash Cows Defend market share Aim for short term profits Little need for investment Little potential for further growth Reduce investment in order to maximise short term cash flow and profits Use profits from cash cows to invest in new products

Dog Products Dogs are either Low share of a slowly growth market Products that have failed or Products that are in the decline phase of their life cycle Low share of a slowly growth market Not going anywhere & no real potential

Phase out or sell off (divest) Not worth investing in Strategy for Dogs Phase out or sell off (divest) Not worth investing in Any profit made has to be re-invested just to maintain market share Uses up more management time and resources than can be justified Divest or, at most, focus on a defendable niche

How Valuable is the Boston Matrix Model? A useful tool for analysing product portfolio decisions But it is only a snapshot of the current position Has little or no predictive value Focus on market share and market growth ignores issues such as developing a sustainable competitive advantages