Marketing and the Competitive Environment
Using the Marketing Mix
: Product
“When the product is right, you don’t have to be a great
marketer.”
L. Iacocca
“It is not the employer who pays wages – he only handles
the money. It is the product who pays the wages.”
Henry Ford
“A product must be its own best advertisement.”
Silvia Hartmann
2.15 Product
Using the Marketing Mix: Product
In this topic you will learn about:
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Influences on the development of new goods
and services
Unique selling points (or propositions)
Product portfolio analysis
Product life cycle
New products at Dragon’s Den
You will need access to the
internet to watch this video
clip.
2.15 Product
Product Development
What is product development?
Products are the goods and services that the firm provides. Goods are physical or
tangible products. You can touch them – a car or a television. Services are
unphysical or intangible. They cannot be touched – financial consultancy or teaching.
Firms are constantly using (scientific) Research and (technical) Development (R&D)
to improve their products. Product development is the process of developing new
products or improving existing products and then bringing them to the market.
Product design will be important in order for the product to appeal to the customer.
Look at the following three products: a
can of cola, a chocolate bar and your Business
Studies text book. Write down three things that you
find attractive about the design. Why?
2.15 Product
Product Development
New Product Development (NPD)
1.
2.
3.
4.
5.
6.
NPD is the process of bringing a new product or service to the market. The
process involves:
Generating ideas through different methods e.g. brainstorming
Screening the ideas to come up with a specific idea
Development and testing of the concept
Analysis of costs, sales forecasts and likely profits
Market testing of the concept
Product launch
Product development at Cadbury’s
2.15 Product
Influences on the development of new
goods and services

Technology

Competitors’ actions

The entrepreneurial skills of managers and
owners
2.15 Product
Influences on the development of new
goods and services
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


Technology
Advances in technology have seen incredible changes in a range of
industries in the past 30 years. The internet and mobile phones have made
communications and the exchange of information quick, easy and cheap.
Robotics, new stock control systems and the micro-chip have revolutionised
manufacturing.
New technology has:
Brought economies of scale to business
Made the world a global market through communication systems
Seen the rapid development of both new and innovative products
The future of Keyboards:
You will need access to the
internet to watch this video
clip.
2.15 Product
Influences on the development of new
goods and services
Competitors’ actions
Firms are now faced with increasingly competitive markets. Not only are
UK firms competing against each other but they are now also competing
against firms from all over the planet.
Firms keep a close eye on competitors’ actions and either respond to
moves by their competitors or they try to be proactive and bring out new
products before their competitors do.
BBC1’s ‘Maria’ or ITV’s X-Factor
Eastenders or Coronation Street
BBC News or ITV’s News at Ten
Can you think of any other programmes from the BBC and
ITV that have stemmed from competition between the two TV
heavyweights? Why do you think that they do this?
2.15 Product
Influences on the development of new
goods and services
The entrepreneurial skills of managers and owners
The managers and owners of businesses are vitally important if the firm is to
develop a range of new ideas and products. It is the owners and managers
that will:

Be able to see the opportunities for new products that might arise within their
markets
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Provide the funding that will be required for firms if they are to have the
resources that are required in order to develop the new products

Provide the inspiration and motivation for other members of the organisation
so that all staff are engaged in the process of identifying new ideas that might
lead to new products
2.15 Product
Unique selling points/propositions
A Unique Selling Point (USP) is something that distinguishes a firms
product from those of its competitors
Firms try to make their product different to the competition by adapting the
actual product in some way or by distinguishing the product through
advertising and branding. This is known as product differentiation.
A USP at Dragon’s Den!
You will need access to the
internet to watch this video
clip.
2.15 Product
Product Portfolio Analysis
Product portfolio analysis looks at the range of products and brands
(product portfolio) that a firm has under its control. This type of analysis can
help a firm identify where every single one of its products is positioned in
the market.
Perhaps the most common type of product portfolio analysis that firms use
to analyse their product mix is the Boston Matrix. The AQA specification
states that students need to know this form of product portfolio analysis.
Richard Branson runs the Virgin Empire. How many different
type of products does Virgin have under its control?
2.15 Product
Boston Matrix
MARKET SHARE
HIGH
M
A
R
K
E
T
G
R
O
W
T
H
H
I
G
H
L
O
W
LOW
Stars
Problem Children
Cash Cows
Dogs
2.15 Product
Boston Matrix
This is a popular method for product portfolio analysis. It consists of four
sections that allow a firm to assess its range of products:
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Stars – High market share in a high growth market
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Cash Cows – High market share in a low growth market
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Problem Children – Low market share in a high growth market

Dogs – Low market share in a low growth market
2.15 Product
Stars
High market share in a high growth market
These products enjoy increasing sales revenue (They equate to the growth
stage of the product life cycle). However, because the market is growing
other firms are entering the market with similar products. There will be
fierce competition between these firms to establish their own product.
There is usually heavy promotional spending on these types of product and
increased capital investment in order to increase capacity. Therefore cash
flow can often be negative at first. Stars are often funded from cash cows.
It is hoped that a star can go on to become a cash cow but many stars
eventually become dogs.
2.15 Product
Cash Cows
High market share in a low growth market
These are established products (that have reached the maturity stage of the
product life cycle). The profits made through these products can be used to
finance other products such as rising stars.
Firms will want to establish as many cash cows as possible.
With low market growth there is likely to be less competition from new firms
entering the market. Therefore, firms can spend less on advertising.
A product is called a cash cow because a firm can ‘milk’ the product to
finance other areas of the business.
2.15 Product
Problem Children
Low market share in a high growth market
With growth in the market a product can be very successful if there is
enough demand. However, some products are unsuccessful and the firm
will have to decide whether to persevere with the product or discontinue it.
A problem child (or question mark) will require a lot of attention, particularly
in the form of marketing. This will cost the firm time and money.
If sales of the product can be increased there is the opportunity for
increased profits in the future and the product can be turned into a cash
cow.
2.15 Product
Dogs
Low market share in a low growth market
Dogs are unlikely to be kept on by a company. With little growth in the
market and little market share the company might see little scope for future
profits.
This does not always mean that the company will discontinue the product.
If there is a market, then some products can still be profitable.
However, when a firm looks at its range of products it is more likely to
concentrate on cash cows and rising stars rather than dogs.
2.15 Product
Activity - Boston Matrix
In small groups try to think of products that fall into the
following categories :
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Stars – High market share in a high growth market
Cash Cows – High market share in a low growth market
Problem Children – Low market share in a high growth market
Dogs – Low market share in a low growth market
On A3 paper produce a Boston Matrix showing products that
fall under each heading.
2.15 Product
Product Life Cycle
The stages that a product will go through in its lifetime:
1.
2.
3.
4.
5.
6.
Development – negative cash flow due to market research and Research
and Development (R&D). No sales revenue before launch.
Introduction – production and promotion costs can be high
Growth – sales revenue increases but as more units are sold production
costs also increase. However, there will be economies of scale.
Maturity – sales stabilise and the product acts as a cash cow.
Decline – at some point the product will start to lose sales.
Extension strategies - many products are adapted and given a new lease
of life.
2.15 Product
Product Life Cycle
How do you think that you might show development and
extension strategies on this chart?
2.15 Product
Activity - Product Life Cycle
Produce a product life cycle for a product of your choice. Use the internet
to see if you can find the timeline of the product. Complete the time
stages that the product went through during each stage of its lifetime:
1.
2.
3.
4.
5.
6.
Development
Introduction
Growth
Maturity
Decline
Extension strategy
If you are stuck look at some of the following: video recorders or
cassettes, the Sony Walkman, vinyl singles or LPs, Playstation or any
other similar type of product.
2.15 Product