Topic 2 Product

8/3/2019 Topic 2 Product

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Topic 2: Product


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Product TrialThis is when a business gets customers to

buy a product for the first time. This maybe because the product is new on the

market.Hopefully this will instil some brand loyalty

and ensure repeat purchases.

Getting a customer to trial a product for thefirst time means using certain aspects ofthe 4Ps of marketing.


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Product Trial Price:

Penetration pricing can be used when the product isnew. This means initially selling it at a much reducedprice and then raising the price once it has established

some brand loyalty. Money off coupons can be used in newspapers,

magazines and/or through direct mailing.

Promotional pricing can be used if the product is notnew. This means lowering the price for a limited time

to try and encourage new people to try it out. BOGOFor 2 for 1 could also be used as part of this.


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Product TrialProduct:

Free samples using magazines, direct mailingor a stand in the supermarket

Test trials e.g. test drive a carTrying out a product in the shop e.g. new

video game


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Product Trial Promotion:

Advertising TV, radio, newspapers, magazines etc.Companies will try to make sure they can reach their targetaudience by using specific magazines or TV programmes.

Sponsorship Sponsoring a TV programme is a good wayof getting people to notice your product and trial it.

Billboards and/or any flat space e.g. buses

Publicity have a launch party and invite journalists tocome. Give them a brochure and ask them to write about

the product in their publications. Celebrity endorsement get a celebrity to champion the

product.

Viral marketing use Twitter, FaceBook, YouTube,MySpace to get people talking about it and recommending

it to friends.


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Product Trial Place:

Manufacturers often need to persuade retailers todevote shelf space to the product. Often this meansthat they will have to pay for the privilege.

Also manufacturers may have to pay for anypromotional deals that the retailer has such asBOGOF and 2 for 1


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Repeat PurchaseRepeat purchase is when a customer buys

a product more than once.

Customer loyalty is the willingness of

customers to make many repeat purchasesfrom one company or of one product.

Repeat purchases is the key to success ofmost business. It is less expensive toachieve than launching new successfulproducts.


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Repeat PurchasePromotion:

Advertising is very important for keeping thebrand in the consciousness of customers. Allforms of advertising are suitable to achievethis.

Many other forms of promotion are also usefulfor this e.g. money off coupons, competitions,special offers etc.


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Repeat PurchasePrice:

Showing that the product gives value formoney is a good way of considering the price.

Sometimes firms can maintain a high priceknown as prestige pricing because they areattracting people with relatively high incomeswho want to purchase something exclusive orof high quality.

Promotional pricing can be very usefuloccasionally.

BOGOF and 2 for 1 can be good.


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Repeat Purchase Product:

Must meet or exceed customer expectations

The brand should match the image of the customer

The product should be made to feel as if the customer

cannot live without it The product needs to be able to satisfy a customers

need or want

The product could satisfy more than one need or want

(dual purpose) New varieties to keep consumers interested.

New technology to keep consumers interested.


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Repeat Purchases Place:

Manufacturers often need to persuade retailers todevote shelf space to the product. Often this meansthat they will have to pay for the privilege.

Also manufacturers may have to pay for anypromotional deals that the retailer has such asBOGOF and 2 for 1


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Questions 1. Answers B and D

Comments

A incorrect low or high production costs will not persuade or dissuade acustomer from buying the product.

B correct a relevant free gift acts as an incentive to the purchaser.

C incorrect this is a human resources matter and has no bearing on acustomers decision to purchase.

D correct a reduced price may persuade a customer to buy a productwithout having to spend too much money on it.

E incorrect many of the other magazines may have different target markets.

2. Answer A

Comments

A correct a lack of loyalty means that customers will not return to purchasethe same brand again and again.

B incorrect a lack of loyalty often reduces sales levels.

C incorrect good value often results in customer loyalty.

D incorrect large price cuts are not a guarantee of customer loyalty as it isoften based on many different factors


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Questions 3. Answer C

Comments

A incorrect the amount of profit is based on several differentfactors and not just sales levels.

B incorrect repeat purchases maintain sales levels for acompany.

C correct advertising encourages people to make repeatpurchases.

D incorrect little brand loyalty would not generate repeat

purchases. Also, in the pizza market people do tend to havebrand loyalty.


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Repeat PurchasesOther key factors:

Be sure everyone in your company providesoutstanding service to your customers.

Stay in touch with customers and ask for feedback.

Tell someone by in person, on the phone, or by mail,"Thank you for your business.


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Product Life CycleProduct Life Cycle (PLC):

Every product goes through a life cycle

from development to declineEach life cycle is differentSome products have longer lifecycles than

othersSome companies are very successful in

extending lifecycles


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Product Life CycleThe Stages of the Product Life Cycle:

Development

Introduction/Launch

Growth

Maturity

SaturationDecline

Withdrawal


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Sales

Time

Development Introduction Growth Maturity Saturation Decline

Product Life Cycle


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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/needing5,10,20 years hence?

At this stage there are high costs and no revenuetherefore the company is making a large loss

Product Life Cycle


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Introduction/Launch:Advertising and promotion campaigns

Target campaign at specific audience?

Monitor initial salesMaximise publicity

High cost

Low salesFirm still making losses

Length of time type of product

Product Life Cycle


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Growth: Increased consumer awareness

Sales rise

Revenues increaseCosts - fixed costs/variable costs, profits

may be made

Monitor market competitors reaction?

Product Life Cycle


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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/newstrategies?

Product Life Cycle


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Saturation: New entrants likely to mean market is flooded Necessity to develop new strategies. Sales and profits falling.

Decline and Withdrawal: Product outlives/outgrows its usefulness/value

Fashions change

Better products appear

Sales decline

Cost of supporting starts to rise too far

Decision to withdraw may be dependent onavailability of new products and whether

fashions/trends will come around again?

Product Life Cycle


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Extending the life cycleDiversification have core product but

introduce new flavours/styles etc.

Innovate use new technology to enhance theproduct

Change flavour

RepackageAdvertise to appeal different audience

Re-launch product that have been withdrawncan make comebacks if sold right e.g

skateboards, yoyos

Product Life Cycle


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Sales

Time

Effects of ExtensionStrategies

Product Life Cycle


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Cash Flow and the Product Life CycleDuring the development stage cash flow is

going to be NEGATIVE. Money has to be paid

out for equipment, wages etc but no money iscoming in.

During the launch stage cash flow is stillNEGATIVE. More money is being paid out

than is coming in (as sales are very low at themoment).

Product Life Cycle


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Cash Flow and the Product Life Cycle During the growth stage cash flow may turn from

NEGATIVE to POSITIVE. Lots of money is coming inbut there are many outgoings because the firm has to

continue to promote the product and may need toexpand production and its workforce.

During maturity/saturation and decline the cash flowwill be POSITIVE. The company spends little money

on promoting it. It doesnt need to expand productionbut sales are still coming in. Only during the declinestage will sales be so low that cash flow might beNEGATIVE.

Product Life Cycle


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Sales/Cash Flow

Time

PLC and Cash Flow

PLC

Negative Cash Flow

Positive Cash Flow

Product Life Cycle


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Product Portfolio Analysis

Product Portfolio is the rangeof products a company has indevelopment or available for consumers at

any one time.

The Boston Matrix is a means of analysingthe product portfolio and informing

decision making about possible marketingstrategies. It was developed by the BostonConsulting Group a business strategyand marketing consultancy in 1968


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The Boston MatrixMarket Growth

Market Share

High

Low High

Problem Children Stars

Dogs Cash Cows


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The Boston Matrix

Stars

Products in markets experiencing highgrowth rates with a high or increasing

share of the market.

Likely to be in the growth stage of productlifecycle so costs of advertising and

machinery could still be high.Potential for high revenue and profit in the

future but not in the present.


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The Boston Matrix

Cash Cows: High market share

Low growth markets

maturity stage ofPLC

Low cost supportlittle spent on

advertising. High customer

loyalty.

High cash revenue

positive cash flows


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The Boston Matrix

Dogs: Products in a low

growth market

Have low ordeclining marketshare (decline stageof PLC)

Associated with

negative cash flow May require large

sums of money tosupport

Company may dropthem soon


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The Boston Matrix

Problem Child: Products having a

low market share in

a high growth market May have potential

but needs moneyspent to develop

them May produce

negative cash flow

Potential for the

future or ditch theroduct?

P d t P tf li


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Product PortfolioAnalysis/Boston Matrix

Advantages:

The company knows at what stage of theproduct life cycle its products are

It will know whether the products are dogs,stars, cash cows or problem children

It will be able to understand the levels ofrevenue the products should be generating

Cost to the business may be determined.

P d t P tf li


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Product PortfolioAnalysis/Boston Matrix

Advantages:

The likely level of advertising for the productswill be understood

The company will be able to see if it needs todevelop any new ideas

Likewise the company will be able to know if itneeds to get rid of any products


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Questions

1. Answer A Comments

A correct the costs of development are high and there are no sales asthe product has not been launched.

B incorrect a positive cash flow may be evident as sales are increasingand may outweigh any other supporting costs such as marketing.

C incorrect sales are likely to outweigh any supporting costs.

D incorrect support may be minimal so costs are low despite a fallingsales trend.

2. Answer B

Comments

A incorrect this is an activity used to support an extension strategy.

B correct this is an activity designed to adapt the product itself.

C incorrect this would be the development of a completely new product.

D incorrect this would not necessarily extend the sales or life of theproduct.


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Questions 3. Answer D

Comments

A incorrect they may be cash cows, problem children or, indeed, dogs.

B incorrect the 25 products may not all be in the same market or inmarkets with fast growth.

C incorrect despite being a star it may have lower sales levels than, say,a cash cow product.

D correct this is one feature of a star product.

4. Diversification

Innovate

Change flavour

Repackage

Advertise to appeal different audience

Re-launch


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Questions 5.

To stay ahead of the competition in order to maintain marketshare.

To re-launch the brand to remind consumers of the brandsexistence.

To develop the range in order to meet changing market needs andfashions.

To introduce the product to a new segment of the market or ayounger audience.

To prevent the product from being withdrawn due to a lack of

sales.


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Branding and Differentiation

A brand is a named product which customerscan identify with and which is seen as differentfrom other similar products. E.g. I-pod.

A generic product is a product made by anumber of different businesses, whichcustomers fail to recognise any differences

between. E.g. Other MP3 players.An own brand is one which is sold under the

brand name of a supermarket, rather than thename of the company that manufactured it.


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Product differentiation occurs when acompany produces a range of brands eachwith different features e.g. quality, design,

packaging etc.


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Achieving branding/differentiation:

Design make each product have different features,quality, build to others in the range. Make your productfeatures different to those of competitors.

Name make each name unique. Either make the namereflect the product e.g. Gold Blend Coffee or make thename obscure to imply that it is highly technical e.g. IntelPentium Processor. Some firms market themselves

under the company name brand e.g. Cadbury, whereasothers prefer to do it through individualised branding e.g.Nestle with Kit Kat and Yorkie.

Efficiencyso the product doesnt break down

Quality value for money


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Achieving branding/differentiation:

Packaging used to give the product anattractive appeal. Used to protect the product.

Used to give instructions on how to use theproduct.

Range appeal to different market segments

Design to attract the consumer

After sales service so the customer gets helpwhen they need it

Unique Selling Point (USP) what makes it

different from everything else on the market


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Advantages of branding/differentiation:

Premium prices: A strong brand may allowfirms to charge a higher price than rivals. This

allows a firm to add value.Greater consumer awareness: This may make

consumers more likely to buy a high profilebrand rather than a rivals less well known

brand.

Increased sales and market share: Bothe ofthe factors listed previously can result in an

increase in sales revenue and market share.


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Advantages of branding:

It is more likely that retailers will devote shelfspace to well known brands.

Allows the company to launch new productsPossibility of successful product trial

Encouragement of word or mouth advertising

Possibility of repeat salesDiscourages competition


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Disadvantages of branding: High costs associated with the massive promotion that

is needed to establish and maintain the brand.

Launching a new version of the brand may lead to arisk of failure and damage to the brand.

A single bad event will affect all the brands products

e.g. Cadbury Salmonella scare in 2006 wiped 14% offCadbury sales.

Brand names may be difficult to protect in a globalmarketleading to fake products.

It may be more important for a firm to use otheraspects of the marketing mix e.g. price, place or

romotion.

B di d M k


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Branding and Market maps


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Questions 1. Answer B

Comments

A incorrect increasing levels of production does not differentiateone product from another.

B correct a change in packaging could make one product stand

out from another on the shelf.

C incorrect increasing sales does not change a product in itslook, taste or smell.

D incorrect a change in suppliers may change the raw materialsor reduce costs but does not differentiate.


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Questions 2. Answer D

Comments

A incorrect cutting costs of production can apply to both brandedand non-branded products.

B incorrect this is a product which is sold under the brand name

of a supermarket chain or other retailer rather than under thename of the business which manufactures the product.

C incorrect these are products made by a number of differentbusinesses in which customers see no difference between theproducts of one business compared to the products of another

business.

D correct branded products, through quality or advertising, cancharge a higher selling price.


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Questions 3. Answer C

Comments

A incorrect high pricing will not entice customers tobuy for the first time.

B incorrect the customer will not be aware of the newproduction method and this will not persuade them totry the product.

C correct heavy advertising will inform the customer

of the products existence. D incorrect the launch is important to get the

customer to know about the product. Cutting the triallaunch costs would reduce this effect.


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Questions 4.

Definition: A branded product is a product which, in theeyes of customers, is seen to be different from other,often similar, products. A brand provides an identity

which allows consumers to associate with the productor service and to recognise it. This may help topersuade them to buy that product rather than its rivals.

Apple Corporation has very distinct brands. Thecompany brand itself Apple is worldwide and the

individual product brands, such as iPhone, iPod andiMac are all strong brands in their own right. Peoplerecognise the brand and associate it with style andquality.


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Questions 5.

Branding helps Apple to get trials by:

its reputation for worldwide quality.

the wish for consumers to buy a reliable product.

consumers wanting to be part of the cult. branding brings word of mouth advertising with current

owners persuading new ones to buy the product.

Branding helps with repeat purchase by:

retaining current Apple product users.

customers desire to own a suite of Apple products.

constant advertising reminding the customer of the brands

features and advantages.

reputation for updating their product portfolio to meet market

Topic 2 Product

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