Day 2

Product

The Marketing Mix

The marketing mix deals with the way in which a business uses price, product, distribution and promotion to market and sell its product.

The marketing mix is often referred to as the “Four P’s”:

Product - the product (or service) that the customer obtains

Price - how much the customer pays for the product

Place – how the product is distributed to the customer

Promotion - how the customer is found and persuaded to buy the product

It is known as a “mix” because each ingredient affects the other and the mix must overall be suitable to the target customer and create a competitive advantage for the business

For most businesses, one or two elements of the mix will be seen as relatively more important than the other

Product Price Place Promotion

Luxury High Selective High positioning

Niche Medium Extensive High positioning

Compare the mix of two products: Campari Red passion and LV bags in a grid that considers the 4 P . What is the distinctive element of the mix for each product? Now find a product where each of the 4 Ps is prevalent.

What is a product?

Products are: “anything that is capable of satisfying customer needs” : Goods: trainers, or Services – e.g. a hair cut. A product has three elements:

Core benefits

What the product does - the main functions of the product

E.g. washing machine – it cleans clothes

Tangible or physical element

What the product is made of; what it looks like; E.g. 500g of ice-cream

Augmented benefits

The extra elements which add to the perceived value of the product in the eyes of the consumer

Augmented benefits can be tangible (e.g. materials, weight, extra features) or intangible (e.g. brand name, after-sales service, reputation for reliability)

Often the augmented benefits of a product are the key determinant of whether a customer decides to buy. Many successful businesses understood this. A great example was cosmetics leader Elizabeth Arden. She understood what her customers where really buying from her... she said “I don’t sell cosmetics…I sell hope”

Can we describe the core, tangible extra benefits of a skin cream and an energy drink?

Product life cycles

The product life cycle is an important concept in marketing. It describes the stages a product goes through from when it was first thought of until it finally is removed from the market. Not all products reach this final stage. Some continue to grow and others rise and fall.

The main stages of the product life cycle are:

Introduction – researching, developing and then launching the product

Growth – when sales are increasing at their fastest rate

Maturity – sales are near their highest, but the rate of growth is slowing down, e.g. new competitors in market or saturation

Decline – final stage of the cycle, when sales begin to fall

This can be illustrated by looking at the sales during the time period of the product.

Take Apple or another company you know well. Can you name a product for each phase of the life cycle?

Product life cycles

Product life cycles

Some goods can enjoy continuous growth, such as Microsoft softwares, because the product is being constantly improved and advertised, and maintains a strong brand loyalty.

Extension strategies extend the life of the product before it goes into decline. Examples of the techniques are:

Advertising – try to gain a new audience or remind the current audience

Price reduction – more attractive to customers

Adding value – add new features to the current product, e.g. video messaging on mobile phones

Explore new markets – try selling abroad

New packaging – brightening up old packaging, or subtle changes such as putting crisps in foil packets or Seventies music compilations.

Can you give an example of products that follow each of the above strategies?

Product range

Most businesses sell more than one product. Often they will produce several similar products that appeal to different customers. A collection of such products is known as a “product group” or “product range”.Good examples of product groups include: Sony’s range of DVD players and televisions.

There are several advantages to having a product range rather than just one product:

Spread the risk – a decline in one product may be offset by sales of other products

Selling a single product may not generate enough returns for the business (e.g. the market segment may be too small to earn a living)

However, a disadvantage is that a greater range of products can mean that the marketing resources (e.g. personnel and cash) are spread less efficiently . In order to allocate resources more efficiently some companies adopt a strategy called umbrella branding : which means having all the product range under one brand. But this is not always possible.

The Boston Matrix

Product range can be analysed using the Boston Group Consulting Matrix.

Can you put the following products in each square: Subaru cars in Italy, Samsung Galaxy, cheap personal care products in India, Coca Cola.

Question marks are products with low market share operating in high growth markets. This suggests that they have potential, but may need substantial investment to grow market share at the expense of larger competitors. Management have to think hard about “Question Marks” - which ones should they invest in?

Stars are high growth products competing in markets where they are strong compared with the competition. Often Stars need heavy investment to sustain growth. Eventually growth will slow and, assuming they keep their market share, Stars will become Cash Cows

Cash cows are low-growth products with a high market share. These are mature, successful products with relatively little need for investment. They need to be managed for continued profit - so that they continue to generate the strong cash flows that the company needs for its Stars

Unsurprisingly, the term “dogs” refers to products that have a low market share in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but they are rarely, if ever, worth investing in. Dogs are usually sold or closed.

Ideally a business would prefer products in all categories (apart from Dogs!) to give it a balanced portfolio of products.

The Boston Matrix

Making a product stand out : USP

An important part of the marketing of the product is product differentiation. It can be achieved through:

Distinctive design– e.g. Dyson; Apple iPod

Branding - e.g. Nike, Reebok

Performance - e.g. Mercedes, BMW

A key term to remember is USP, which is the acronym for Unique Selling Point.

A Unique Selling Point is a feature or benefit that separates a product from its competitors.

A USP could be a lower price, a smaller version of the product, offering extra functions, or even simply producing a standard product in a range of colours or designs.

A business needs to look at its unique selling points compared to competitors. If it doesn’t have any, the business will probably struggle to make the product seem attractive to customers (the remaining option is usually to compete solely on price).

If it has a USP but customers are migrating, then the question is: “is it …………………………………? ”

Brands

A brand is a product with unique character, for instance in design or image. It is consistent and well recognised.

The advantages of having a strong brand are that it:

•Inspires customer loyalty leading to repeat sales and word-of mouth recommendation

•The brand owner can usually charge higher prices,

•The strength of a brand can be exploited by a business to develop new products. This is known as brand stretching and it is where the brand is used for a diverse range of products, not necessarily connected. E.g. Pan di Stelle biscuits and cereals or cakes.

Some brands are so strong that they have become global brands. This means that the product is sold in many countries and the contents are very similar. Examples of global brands include: Microsoft, Audi, Coca Cola.

The logo on a product is an important part of the product. A logo is a symbol or picture that represents the business. It is important because it is easy to recognise, establishes brand loyalty and can create a favourable image.