4.5 PRODUCT
Learning Outcomes
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To be able to draw and interpret the product life cycle for a business.
A04
To understand the relationship between the product life cycle and the
marketing mix and be able to apply this K&U to a business. A02
To understand and be aware of possible extension strategies and
then be able to analyse and evaluate the most appropriate strategy in
a given situation. A03
To understand the relationship between the product life cycle,
investment, profit and cash flow. A02
To understand, interpret, analyse and draw a Boston Consulting
Group (BCG) matrix on an organization’s products. A03, A04
To understand the following aspects of branding – awareness,
development, loyalty and value. A02
To be able to analyse and evaluate the importance of branding in a
particular context and to a particular business. A03
To be able to analyse and evaluate the importance of packaging in a
particular context and to a particular business. A03
Central Question
What makes the
difference
between product
success and
product failure?
The Product Life Cycle - Classic
Saturation
Sales Quantity
Sales
Maturity
Decline
Growth
Cash Flow
Introduction
Development
Time
‘Death Ride Valley’
The Stages
• Stage 1: Development – brainstorm ideas and go through
new product development process
• Stage 2: Introduction – launch the product on to the
market.
• Stage 3: Growth – as awareness increases and more
consumers adopt the new product, sales increase.
• Stage 4: Maturity – sales are still increasing but slowly
as most people who want or need the product are
already consumers.
• Stage 5: Saturation – the market is now made up of many
competitors and becomes saturated. Sales level off and
begin to decline
• Stage 6: Decline – steady drop in sales as consumers
change to newer, better or substitute products.
New Product Development
Process
Brainstorm of
product ideas
Screen Ideas for
viability
Prototype
Market
Failure
Test Market
Research
Commercialization
Failure
Failure
SUCCESS
Failure
What is happening at each
stage?
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Product
Price
Promotion
Place
Investment level
Sales
Profits
Cash flow
STRATEGIES
INTRODUCTION
GROWTH
MATURITY
SATURATION
DECLINE
PRODUCT
Basic product is
marketed
Product
improvements or
new product
development
plans start.
New product
development at
an advanced
stage. Extension
strategies may
be introduced
Extension
strategies are
crucial to
maintain sales.
Weak products
are withdrawn
from the market.
PRICE
Cost-plus,
skimming, or
penetration
pricing. Which is
best?
Penetration
prices begin to
increase.
Competitive or
promotional
pricing used.
Competitive
pricing used.
Price cuts are
made.
PROMOTION
Informative
advertising.
Persuasive
advertising.
Extensive
advertising to
remind
customers of the
product.
Aggressive
advertising is
carried out to
emphasizes the
brand’s benefits
and differences.
Advertising
reduced to a
minimum.
PLACE
Selective or
restricted
distribution
takes place
Intensive
distribution or
more
distribution
outlets are used.
More intensive
distribution or
wider range of
outlets used.
Widest range of
geographical
distribution
outlets used.
Selective
distribution and
unprofitable
outlets
eliminated.
Relationship between PLC and
investment, profits & cash flow
STAGE OF
PRODUCT
LIFE CYCLE
DEVELOPMENT
INVESTMENT
GROWTH
MATURITY
SATURATION
High research High
&
promotion
development costs.
costs.
Average to
high
promotion
costs.
Lower costs
on
promotion.
Cost focus is Very low
on
promotion
extension
costs if any.
strategies.
PROFIT
None.
None or
negative.
Some
profit and
rising.
High profit
– reaches
its peak.
High and
mostly
stable
profit.
Decreasing
profit.
CASH
FLOW
Negative.
Negative but
improving
with sales.
Positive.
Positive.
Positive.
Positive but
decreasing
cash flow.
LEVEL
INTRODUCTION
DECLINE
Task – 10 mins
• Apply these concepts to one of our chosen
companies
• You need to be able to analyse one product by
applying the PLC tool and analysing how the
marketing mix is adapted depending on the stage
• Also consider what was likely to be happening to
investment, profits and cash flow at each stage.
Alternative Product Life Cycle
Sales
Qty/$
Time
Alternative Product Life Cycle
Sales Qty/$
Time
Alternative Product Life Cycle
Sales Qty/$
Time
Alternative Product Life Cycle
Sales Qty/$
Time
Life Cycle Extensions
Sales Qty/$
Extension Strategies
Time
Extension Strategies
• How to extend the life of a product??
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Find new uses eg:
Find new markets eg:
Find new market segments eg:
Add features eg:
Change the packaging/appearance eg:
Change the price eg:
Develop new promotional strategies eg:
A Balanced Portfolio
Sales Qty/$
Product A
Product B
Product C
Time
Balanced portfolios
Benefits of a balanced portfolio
• Expensive launches can be financed by profits from
other products.
• Expensive extensions can financed by profits from
other products.
• All products not ‘maturing’ at the same time
• Overall cash flow not over-stretched
Long Life – why??
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Quality
Enduring popularity
Dynamic product development
Brand loyalty
Cult following
Seeking new markets
Captivating advertising
The Boston Matrix
IB Business and Management
What is the Boston Matrix?
• It is a tool created by the Boston Consultancy Group
• It is designed to be used by multi-product firms
• It is used to analyse a firm’s product portfolio and
help to devise marketing strategies
The Boston Matrix
• The Boston Matrix allows a firm to analyse its
product portfolio by their market growth and market
share in relation to their competitors
• Products are categorised as either a:
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Problem Child/Question Mark
Star/Rising Star
Cash Cow
Dog
Market Share
High
M
a
r
k
e
t
G
r
o
w
t
h
Low
H
i
g
h
STAR
Problem Child
L
o
w
CASH COW
DOG
Problem Child
• Question marks have a low share
of a high growth market
• Also known as Question Marks
• Are often new products
• The firm may decide to BUILD on
existing sales by investing more in
promotion and distribution
Stars
• Stars have a high market share of
a high growth market
• Also called rising stars
• The firm may wish to use a
HOLDING strategy whereby it
maintains current levels of
spending to keep the product in
this category
Cash Cows
• Cash Cows have a high market
share of a low growth market
• These are well established
products
• Little or no investment is required
• Companies may wish to adopt a
MILKING strategy whereby they
use profits to support other
products
Dogs
• Dogs have a low market share of a
low growth market
• Companies do not want to have
many products in the ‘dog’
category
• Firms may invest in dogs or may
DIVEST which means withdrawing
from the market
Task in pairs - 10 mins
• Use the blank Boston Matrix template and
apply its products to one of our chosen
companies.
• Get ready to feedback and justify
BCG Matrix Strategies
STRATEGY
EXPLANATION
HOLDING
Products with a high market share want to maintain their
current position in the market. After all they are likely to be
facing growing competition. Therefore investment will be
needed to sustain consumer demand.
BUILDING
This strategy focuses on turning “problem children” into
“stars”. Money from cash cows could be invested in
promoting or distributing the product or even adapting the
product to increase market share.
HARVESTING
This strategy concentrates on milking the benefits of
products with a positive cash flow. These products provide
the necessary finance which could be used to invest in other
portfolio products.
DIVESTING
Badly performing products or “dogs” are phased out or sold
off. Resources gained from this can be used to boost other
products across the portfolio.
Limitations of the Boston
Matrix
• Focuses on current position no regard for future
planning.
• Can be time consuming and complex for a business
to accurately evaluate their products according to
market share and growth.
• High market share does not necessarily equate to
high profits. This can depend on the pricing strategy
being used.
Brand & Branding
BRAND
“A name, symbol, sign, or design that differentiates a firm’s
product from its competitors”
BRANDING
“The process of distinguishing one firm’s
product from another”
BRAND AWARENESS
“The ability of consumers to recognize the existence and
availability of a firm’s good or service”
BRAND LOYALTY
“When consumers become committed to a firm’s brand and are
willing to make repeat purchases over time”
Aspects of Branding
ASPECT
EXPLANATION
BRAND
AWARENESS
To effectively promote a product creating brand awareness is vital. It
can act as a USP or a way of differentiation in a market that is
saturated with competition. A high level of brand awareness usually
leads to higher sales and healthy market share.
Is any plan to improve or strengthen the image of a product. This
BRAND
DEVELOPMENT approach aims to enhance awareness by increasing the power of its
name, sign or symbol. Heavy promotion is often used – a range of
above and below line methods could be used .
BRAND
LOYALTY
BRAND VALUE
&
VALUES
When consumers repeatedly purchase the same product despite
alternatives – brand preference. Extremely powerful and free
marketing through word of mouth. (Apple)
How much a brand is actually worth in terms of reputation,
potential income and market value. A high brand value is desired
and can be classed as intangible asset on balance sheet. Values of a
brand can also reflect a moral code by which the brand lives.
Consumers may by the product because they share the same values
(CSR).
Advantages of Branding
• Provides a visual representation of the
product
• Can add value
• Encourages loyalty
• Can help generate sales
• Reduces risk
• Increases barriers to entry for new
competitors
These hopefully lead to an increase in
profits
The importance of branding
• Initially good products will sell the brand,
eventually a brand will sell the product
• Products can be copied but brands can’t*
• Products can take on a ‘personality’ with
branding which should further enhance
awareness and loyalty.
• Can charge higher prices - skimming
• The lifecycle of a brand lasts far longer than that
of a product
Except in China of course!
The difficulties of
branding….
• Developing a brand is very costly and takes a
long time
• Protecting the brand can be difficult
• Need regular investment and updating
Branding over time
Look at how these logos have changed
over time……
• Why have these logos evolved?
• Which logos do you think have changed for the
better?
The Gap Re-branding
disaster
• Gap launched their
new Logo online in
2010
• Customers took to
Twitter and Facebook
to voice their
complaints
• Within a week Gap
announced they were
reverting to their
original logo
Complete re-branding
Importance of Packaging
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Reflects the desired brand image
Provides physical protection
Can improve distribution
Differentiation from competition
Provides information
Can help reduce security risks
Helps promotion
EE/TOK
To what extent does packaging for
goods contribute to the
destruction of the environment?
Should/could businesses be more
responsible?
Why might they not want to be
more responsible?
Product – CUEGIS?
CONCEPT
CHANGE
CULTURE
ETHICS
GLOBALISATION
INNOVATION
STRAETEGY
RELEVANCE TO PRODUCT THEORY
QUIZ TIME