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Product Decisions and Product Life Cycle
Chapter 8
Session: 12
Prof: Yasmin S
1
What is a product?
• A product is any offering by a company to a market that serves to satisfy customer needs and wants.
• It can be an object, service, idea,etc.
2
Product Personality
• The components of a product convey different meanings to different customers and project a distinctive image of the product in the eyes of the customers
• These meanings and images contribute to the formation of Product Personality
3
Product Personality• Core benefit- is the basic component of a
product. All other components are superimposed on the core product to form the personality of the product. Eg. Car- core benefit is a personal means of transport.
• Associated Features- size, shape, capacity, brand etc are associated features, firms selling similar products compete on the basis of the associated features as the core features remain the same
4
Nature of the Product
• Prof. Theodore Levitt differentiated the products based on the value they provide to the customers
• Levitt conceptualized the generic, expected, augmented and potential product
5
Product Levels
6
Product Levels
Customer value hierarchy
• Core benefit
• Generic/ Basic product
• Expected product
• Augmented product
• Potential product
7
Product Hierarchy
• Organizational chart that depicts the array of products offered in a given market
• Eg. Automobile Sector:– Product class- cars, bike, trucks– Product form- cars divided into SUV, family
cars etc, cars with two doors, four doors etc– Product brands- Chervolet, Skoda, Mercedez
8
Product classification
• Durability & Tangibility– Non durables– Durables– Services
• Usage – Consumer products– Industrial products
9
Consumer goods classification
• Convenience goods- relatively inexpensive and are bought frequently.– Staple (milk, bread, newspaper)
– Impulsive (chewing gum, chips etc)
• Shopping goods- buyer is wiling to spend time and effort in planning and making purchase decision. Products have longer life and purchased less frequently. Relatively expensive and sold at selective outlets
10
Consumer goods classification• Specialty goods- products that have one or
more unique characteristic feature. Customers are aware of what they want and will not accept a substitute. Expensive product eg original painting, an antique car, Mont- Blanc Pen
• Unsought goods- a product that a customer purchases when he is faced with a sudden problem eg insurance, medicines etc
11
Classes of Consumer ProductsClasses of Consumer Products
ConvenienceConvenience ShoppingShopping SpecialtySpecialty
GoodsGoods
ServicesServices
PO
P
14-1
$$
ATM
12
Industrial goods classification• Production goods
– Raw materials
– Component parts
– Process materials
• Support goods– Capital equipment
– Accessory equipment
– Consumables supplier• Maintenance items
• Repair items
• Operating items
– Business services13
Product Policy
• Product mix
• Product mix strategies
• Managing product lines
14
15
Product Policy
Can be understood as:• Product mix
• Product mix strategies
Width
Length
Depth
Consistency
Expansion of product mix
Contraction of product mix
Altering existing products
Positioning the product
Trading up
Trading down
Product Mix
• The assortment of products that a company offers to a market
• Width – how many different product lines?
• Length – the number of items in the product mix
• Depth – The no. of variants offered in a product line
• Consistency – how closely the product lines are related in usage
16
PRODUCT MIX OF HUL
CONFECTIONARIE
COLOR COSMETICS
HAIR CARE
SKIN CARE
ORAL CARE
DEODORANTS
SOAPS AND DETERGENTS
TOILET SOAPS
BEVERAGES FOOD
Max Lakme SunsilkFair & Lovely
Peposodent Axe Surf Liril 3 Roses Knorr
Aviance Clinic Pond'sClose up Pond's Rin
Lifebouy
lipoton Yellow label
Anapurna Ata
Dove Rexona Wheel Lux
lipton green label
Anapurna salt
Denim OK Breezelipton ice tea
modern food range
501Pears Red LabelKwality Walls
Sunlight Hamam Taj Mahal Kissan
Ala RexonaBrooke Bond Taza
Vim Dove Bru Savlon
17
Product Mix Strategies• Expansion of product mix
• Contraction of product mix
• Altering existing products
• Positioning the product– In relation to competitors product– In relation to target market– In relation to product class– By price and quality
• Trading Up
• Trading Down 18
Managing Product Lines• Product line analysis
• Product line length: too long – when profits increase by dropping a product in the line too short – when profits increase by adding products to the product line – Line stretching– Line filling
• Product-line modernization
• Line pruning
19
20
Managing Product Lines
• Product line analysis
• Product line length: can be increased in two ways
• Product line modernization
• Line pruning
• Reasons for line extension
• Limitation of product line extension
•Line stretching•Line filling
21
Managing Product Lines contd..
• Reasons for line extension:-
- Provide wide variety of goods under one umbrella
- less time and cost is involved as compared to introducing new products
- high price for premium products
- reduce cost for market research
22
Managing Product Lines contd..
• Limitations of product line extension:-
- Weaker lines
- Lowers Brand Loyalty
- Under exploitation of ideas
- Stagnant Demands
- Profits earned is short lived
- It can dilute brand image
- Complexity in logistic
Brand
• A name becomes a brand when consumers associate it with a set of tangible and intangible benefits that they obtain from the product or service
• It is the seller’s promise to deliver the same bundle of benefits/services consistently to buyers
23
Advantages of branding
• Easy for the seller to track down problems and process orders
• Provide legal protection of unique product features• Branding gives an opportunity to attract loyal and
profitable set of customers• It helps to give a product category at different
segments, having separate bundle of benefits• It helps build corporate image• It minimises harm to company reputation if the brand
fails
24
PRODUCT LIFE CYCLE• Product Life Cycle – shows the stages that
products go through from development to withdrawal from the market– Each product may have a different life cycle– PLC determines revenue earned– Contributes to strategic marketing planning– May help the firm to identify when
a product needs support, redesign, reinvigorating, withdrawal, etc.
– May help in new product development planning– May help in forecasting and managing cash flow
25
PLC
• Products have a limited life
• Product sales pass through distinct stages
• Profits rise and fall at different stages of the PLC
• Product require different strategies in each stage of the PLC
26
27
Product Life Cycle
Time
ProductDevelopment
Introduction
Profits
Sales
Growth Maturity Decline
Losses/Investments ($)
Sales andProfits ($)
28
The Stages of the Product Life Cycle:
• Development
• Introduction/Launch
• Growth
• Maturity
• Saturation
• Decline
• Withdrawal
29
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?
30
The Development Stage:
– 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
31
The Introduction Stage
The seller tries to stimulate demand
• Promotion campaigns to get increase public awareness
• Explain how the product is used,
• Features Advantages Benefits
• You will lose money, but you expect to make profits in the future
32
The Introduction Stage
• Sales are low, and profits are below the line because your costs are greater than the amount of money you make
• you have “negative” profit
• Need to spend a lot of money on promotion
33
The Introduction Stage
• Advertising and promotion campaigns
• Target campaign at specific audience?
• Monitor initial sales
• Maximise publicity
• High cost/low sales
• Length of time – type of product
34
Strategies - Introduction
• Skimming the market
• Penetrating the market
• Must have sufficient resources to withstand the initial losses and heavy promotion costs
• Incremental selling efforts at this stage is highest
35
Introduction Stage of the PLC
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Low sales Low sales
High cost per customerHigh cost per customer
NegativeNegativeCreate product awareness
and trialCreate product awareness
and trial
Offer a basic productOffer a basic product
Use cost-plus Use cost-plus
DistributionDistribution Build selective distributionBuild selective distribution
AdvertisingAdvertising Build product awareness among early adopters and dealers
Build product awareness among early adopters and dealers
36
Growth• A lot is sold - The seller tries to sell as much as
possible
• Other competitor companies watch, and decide about joining in with a competitor product
• “success breeds imitation” (Text)
• Growth will continue until too many competitors in the market - and the market is saturated
37
• At the end of the growth stage, profits start to decline when competition means you have to spend more money on promotion to keep sales going.
• Spending money on promotion cuts into your profit
Growth
38
Growth
• Increased consumer awareness
• Sales rise
• Revenues increase
• Costs - fixed costs/variable costs, profits may be made
• Monitor market – competitors reaction?
39
Strategies - Growth
• Improves quality and adds features• Adds new models and variants• Enters new market segments• Increases distribution coverage and adds new
channels• Shifts communication from awareness to
preference building• Scale economies enable it to lower prices to attract
the next level of price conscious buyers
40
Growth Stage of the PLCGrowth Stage of the PLC
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Rapidly rising sales Rapidly rising sales
Average cost per customerAverage cost per customer
Rising profitsRising profits
Maximize market shareMaximize market share
Offer product extensions, service, warranty
Offer product extensions, service, warranty
Price to penetrate marketPrice to penetrate market
DistributionDistribution Build intensive distributionBuild intensive distribution
AdvertisingAdvertising Build awareness and interest in the mass market
Build awareness and interest in the mass market 41
Maturity• Many competitors have joined - the market is saturated
• The only way to sell is to begin to lower the price - and profits decrease
• It is difficult to tell the different between products since most have the same F.A.B. - Features, Advantages & Benefits
• Competition can get “Nasty” and commercials are intense
42
Maturity
• “Persuasive Promotion” becomes more important during this stage
• That is to say, you have commercials almost begging the customer to still buy your product because you still make it just as good.
43
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?
44
Maturity
• Marketing Strategies: Product – Diversify brand and models
• Price – Set to match or beat competition• Distribution – Build more intensive
distribution• Advertising – Stress brand differences and
benefits• Sales Promotion – Increase to encourage
brand switching
45
Strategies - Maturity
• Most products are in this stage
• Price wars are inevitable.
• Scramble for market share
• The fittest survive
• Market modification, product modification, marketing mix modification can help extend the maturity stage
46
Maturity Stage of the PLCMaturity Stage of the PLC
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Peak salesPeak sales
Low cost per customerLow cost per customer
High profitsHigh profitsMaximize profit while
defending market share
Maximize profit while defending
market shareDiversify brand and modelsDiversify brand and models
Price to match or best competitors
Price to match or best competitors
DistributionDistribution Build more intensive distributionBuild more intensive distribution
AdvertisingAdvertising Stress brand differences and benefits
Stress brand differences and benefits 47
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
48
Decline and Withdrawal
• 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
49
Decline and Withdrawal
• Newer products are now more attractive - even a low price does not make consumers want to buy.
• Profit margin declines - and so the only way to make money is to sell a high volume
50
Decline and Withdrawal
• To increase volume you try to
1. Increase the number of customers - get new customers
2. Increase the amount each customer uses
51
Decline and Withdrawal
• Marketing Strategies: Product – Phase out weak items
• Price – Cut price• Distribution – Use selective distribution:
phase out unprofitable outlets• Advertising – Reduce to level needed to
retain hard-core loyalists• Sales Promotion – Reduce to minimal level
52
Strategies - Decline
• Withdrawal
• Rationalisation of products
• Harvesting whatever is possible
• Divesting the product
53
Decline Stage of the PLCDecline Stage of the PLC
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Declining salesDeclining sales
Low cost per customerLow cost per customer
Declining profitsDeclining profits
Reduce expenditure and milk the brand
Reduce expenditure and milk the brand
Phase out weak itemsPhase out weak items
Cut priceCut price
DistributionDistribution Go selective: phase out unprofitable outlets
Go selective: phase out unprofitable outlets
AdvertisingAdvertising Reduce to level needed to retain hard-core loyal customers
Reduce to level needed to retain hard-core loyal customers 54
55
Limitations of PLC Concept
• Sales of some products rise or decline quickly at the same rate.
• Increase in marketing activities may alter the shape of PLC curve
• PLC outlines the phases but does not give any indication to their duration.
Session-14
Product Life Cycles
Sales
Time
Development Introduction Growth Maturity Saturation Decline
56