4.2 Product
Chapter 26
Product Vocabulary
 Product (Good, Service, Idea)
 The end result of the production process
sold on the market to satisfy a customer
need.
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.
Product Vocabulary
 Product line
 A set or related
products sold by a
business.
Product Vocabulary
 Product mix
 The variety of product lines that a business
produces or a retailer stocks
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.
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.
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
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.
Product Life Cycle
 Introduction
 Growth
 Maturity or Saturation
 Decline
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.
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!
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?
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
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
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?
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.
Product Life
Cycle Phase
Price
Promotion
Place
Product
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
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 –
Apple
Lenovo
Hewlett-Packard Dell
Gateway
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
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.
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.
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
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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
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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
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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.
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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
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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.
High
B
C
Market
Growth%
A
Low
High
HL
D
Low
Market Share %
Boston Matrix
Low market growth – high
market share
 Product A
CASH COW
 Well established product in a mature market.
 Sales are high; promotional costs low.
 Cash is “milked” from this product.
High
B
C
Market
Growth%
A
Low
High
HL
D
Low
Market Share %
Boston Matrix
High market growth – high
market share
 Product B
STAR
 Successful market in a growing market.
 Sales are high; promotional costs high to reinforce brand.
 Could become a CASH COW.
High
B
C
Market
Growth%
A
Low
High
HL
D
Low
Market Share %
Boston Matrix
High market growth – low
market share
 Product C
PROBLEM 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
High
B
C
Market
Growth%
A
Low
High
HL
D
Low
Market Share %
Boston Matrix
Low market growth – low
market share
 Product D
DOG
 Offers little to a firm; low growth, low market share, low cash flow
 May need to drop the product
High
B
C
Market
Growth%
A
Low
High
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D
Low
Market Share %
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.
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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!
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