1. 4.3 Product Chapter 26

2. Product Vocabulary  Product  The end result of the production process sold on the market to satisfy a customer need.

3. Product Vocabulary  Consumer durables  Manufactured products that can be re-used and are expected to have a reasonably long life.  Industrial goods  Products that are purchased by businesses not final consumers.

4. Product Vocabulary  Product line  A set or related products sold by a business.

5. Product Vocabulary  Product mix  The variety of product lines that a business produces or a retailer stocks

6. Product Vocabulary  Product range  All of the types of products made by a business  Kraft Foods, Inc. - The product range is food, everything from jams to hams.  GM - The product range is transportation, everything from plane parts to automobiles.  Apple, Inc. - The product range is technology, everything from from phones to laptops.

7. New Product Development or NPD  New product development can be critical for some businesses  Technology companies – Develop the latest in technology for new products to sell. Can you think of some?  Pharmaceutical industry – Patents only last 17 years; new products must be developed.

8. NPD Process – 7 Stages 1.Generate new ideas – market research, brainstorm, adapt existing products 2.Idea screening – eliminate ideas that have least chance of being successful 3.Concept testing – who are likely buyers, production costs, specific features 4.Business analysis – what are potential revenues, costs, and profits 5.Product testing – develop prototypes 6.Test marketing – launch test product and examine results 7.Commercialization – full-scale launch of product with promotion and distribution

9. Product Life Cycle  The pattern of sales recorded by a product from launch to withdrawal from the market.  A classic business error is failing to recognize when a product is in decline as other competitors create new replacement products.

10. Product Life Cycle  Introduction  Growth  Maturity or Saturation  Decline

11. Characteristics of Product Life Cycle: Introduction  Introduction  The product has been launched after development and testing.  Sales are typically low and growing slowly.  Advertising costs are high.  Profits not yet realized.

12. Characteristics of Product Life Cycle: Growth  Growth  Sales grow significantly if the product is well received in the market place.  This phase does not last forever!

13. Characteristics of Product Life Cycle: Maturity  Maturity or Saturation  Sales fail to grow but they do not decline.  Example: Coca-Cola  Can you think of others?  Saturation occurs when everyone has the product that needs the product  Example: cell phones  Can you think of others?

14. Characteristics of Product Life Cycle: Maturity EXTENSION STRATEGIES  Marketing plans that extend the maturity stage of a product before a new product is needed.  Develop new markets  Create new uses  Create new packaging  New advertising campaigns

15. Characteristics of Product Life Cycle: Decline  Sales fall steadily, extension strategies were not tried or did not work.  Product obsolescence  Newer competitors products maybe available

16. Why be concerned with product life cycle? 1. Assists with the planning of the marketing mix decisions.  When do we raise/lower prices?  When should we advertise and how much?  When should variations to the product be introduced?

17. Why be concerned with product life cycle? 2. How is cash flow affected?  Cash flow is negative during development and costs are high – nothing sold yet!  At the introduction phase, development costs are over but promotional expenses are high. Factory capacity is not fully utilized.  At maturity, cash flow is likely at its best: sales are high, promotional costs are low, factory capacity is fully utilized.  At decline, cash flow declines due to falling prices and falling sales.

18. Product Life Cycle Phase PricePromotionPlaceProduct Introduction May be high compared to competitors (skimming) or low (penetration) High levels of informative advertising to make consumers aware of the product’s arrival to market Restricted outlets – possibly high-class outlets if a skimming strategy is adopted Basic model Growth If successful, initial penetration pricing strategy could now lead to rising prices Consumers need to be convinced to make repeat purchases – brand identification will help to establish consumer loyalty Growing numbers of outlets in areas indicated by strength of consumer demand Planning of product improvements and developments to maintain consumer appeal Maturity Competitors likely to be entering market – there will be a need to keep prices at competitive levels Brand imaging continues – growing need to stress the positive differences with competitor’s products Highest geographical range of outlets as possible – developing new types of outlets where possible New models, colors, accessories, etc… as part of extension strategies Decline Lower prices to sell off stock – or if the product has a small “cult” following, prices could even rise Advertising likely to be very limited – may just be used to inform of lower prices Eliminate unprofitable outlets for the product Prepare to replace with other products – slowly withdraw from certain markets

19. Product VS Branding  Product is a general term used to describe what is being sold – a computer.  Branding is the name or symbol that distinguishes one manufacturers product from another – MacintoshCompaq Hewlett-PackardDell Gateway

20. Branding can…  Influence marketing  Create a perception in customers minds – positive or negative  Give products a unique identity  If successful, charge premium prices  Be EXPENSIVE and take years to develop  Not be guaranteed to be successful

21. Branding Vocabulary  Brand  An identifying symbol, name, image or trademark that distinguishes a product from its competitors  Brand awareness  The extent to which a brand is recognized by potential customers and is associated with a particular product.

22. Branding Vocabulary  Brand development  Measures the infiltration of a product’s sales usually expressed per thousand people  If 100 people in 1000 buy a product, it has a brand development of 10  Brand loyalty  The faithfulness of consumers to a particular brand as shown by their repeat purchases irrespective of the marketing pressure from competing brands.

23. Family Branding  Selling several related products under one brand name – also known as umbrella branding  Examples: Apple, Inc.  All Apple products have the same logo on its products to create recognition of the brand.  Apple produces computers, phones, and music players HL

24. Company Branding  The company name is applied to the products and the becomes the brand (also known as corporate branding)  Examples: Disney  Similar to Family Branding, but all products relate to the company name  Disney movies, clothing, vacations HL

25. Individual Branding  Each individual product has its own unique identify and brand image (also known as product branding)  Examples: Proctor & Gamble  Many different product lines with their own identity  Head & Shoulders Shampoo, Pampers, Duracell HL

26. Manufacturer’s Branding  Producers of the product establish the brand image for the products, often under the company name  Examples: Polo, Izod, Gucci  The manufacturer may not have its own retail stores, therefore, relying on the brand popularity to create demand in retail stores. HL

27. Own-Label Branding  Retailers create their own brand name and identify for a range of products  Examples: Walmart  These are often called store brands.  Sam’s Choice, Faded Glory, Great Value HL

28. Boston Matrix  A method of analyzing a product portfolio in terms of market share and market growth.  The size of the circle indicates market share size. HL High Market Growth% Low High Low Market Share % B A C D

29. Boston Matrix Low market growth – high market share  Product ACASH COW  Well established product in a mature market.  Sales are high; promotional costs low.  Cash is “milked” from this product. HL High Market Growth% Low High Low Market Share % B A C D

30. Boston Matrix High market growth – high market share  Product BSTAR  Successful market in a growing market.  Sales are high; promotional costs high to reinforce brand.  Could become a CASH COW. HL High Market Growth% Low High Low Market Share % B A C D

31. Boston Matrix High market growth – low market share  Product CPROBLEM CHILD  Consuming resources without much return  If new product, it will need heavy promotion.  Positive – it is in a growing market; negative – product may need to be dropped HL High Market Growth% Low High Low Market Share % B A C D

32. Boston Matrix Low market growth – low market share  Product DDOG  Offers little to a firm; low growth, low market share, low cash flow  May need to drop the product HL High Market Growth% Low High Low Market Share % B A C D

33. Analyzing the Boston Matrix  Building: Support problem child products; finance can be obtained from the cash cows.  Holding: Continue support of stars so high sales growth and market position can be maintained.  Milking: Take the cash generated from cash cows to invest in other products in the portfolio.  Divesting: Identify the dogs and stop production; carefully evaluate the impact of this decision. HL

34. Pros & Cons of the Boston Matrix  On its own, it cannot predict product success or failure.  It is only a planning tool and criticized for its simplicity.  It assumes higher rates of profit are related to high market shares – this may not be the true! HL