The 4 P’s / The Marketing Mix Product

Learning Objectives Be able to classify products by line, range and mix To be able to describe the importance of new product design and development To be analyse the stages of a typical product life cycle and the relationship between this and the marketing mix, profit and cash flow To understand product portfolio analysis and the application of the Boston Consulting Group matrix To be able to discuss the importance and role of branding HL – Use the Boston Matrix to develop future strategic direction HL – Distinguish between different types of branding and analyse the role of branding in a global market

The marketing mix The marketing mix is also known as the 4Ps: Product Price Place Promotion Key Terms Product – The end result of the production process Consumer durables – manufactured products that can be re-used and are expected to have a reasonably long life (cars, washing machines) Product line – A set of related products sold by a business Product mix – The variety of product lines that a business produces or a retailer stocks Product range – All the types of products made by a business

Product You can sell any product once, but to establish loyalty and good customer relationships, the product must be right A business must meet customer expectations of Quality Durability Performance Appearance

Product ‘Product’ refers to the functions and features of a good or service Should satisfy the needs of the customer May have a Unique Selling Point (USP) ‘Product’ also includes a range of factors such as packaging, quality, warranties, after-sales service and branding Products and brands may suggest certain images e.g. sporty, sophisticated, value

New Product Design / Development Crucial to the success of some businesses operating in markets with constant changes E.G. Technological change – video games Other industries can sell the same products for years with only slight adjustments E.G. Pepsi Financing NPD can be a major problem as you do not see a return on your investment for years

http://www. telegraph. co http://www.telegraph.co.uk/finance/festival-of-business/10246113/How-to-successfully-launch-a-new-product.html

1 Generating new ideas E.G Market research, brain storming, adapting existing products 2 Idea screening Eliminate those ideas that have the least chance of being successful A very small proportion of new ideas ever reach the 7th stage NPD process reduces the risk of failure by eliminating unsuitable and unprofitable products before they reach the final stage 3 Establishing consumers, possible costs, specific features of the product Concept testing 4 Analysing the impact of new product on revenue, costs and profits Business analysis 5 Developing prototypes to assess performance and to obtain feedback Product testing 6 Launching developed product in a small but representative section of the market Test marketing 7 Full scale launch of the product with appropriate promotion and distribution Commercialisation

Product lifecycle The product lifecycle looks at the sales of a product over time

Stages of the product lifecycle Introduction – high costs but no sales Launch – high expenditure on promotion and product development, low sales Growth – sales increase and product should break-even Maturity – sales stabilise, less expenditure on promotion needed, revenue & profit should be high Decline – sales decline, extension strategies can be adopted or the product withdrawn

Extension strategies Extension strategies should maintain or increase sales. They include: Modifying the product Reducing the price Adding a feature Promoting to a different market sector Extension strategies

Uses of the product life cycle Two main uses Assisting with the planning of marketing mix decisions Identifying how cash flow might depend on the product life cycle

1. Assisting with the planning of marketing mix decisions Product life cycle phase Price Promotion Place (Distribution) Product Introduction Maybe high compared to competitors (skimming) or low (penetration) High levels of informative advertising to make consumers aware of the product Restricted outlets Basic model Growth If successful, an initial penetration strategy could now lead to rising prices Consumers needs to be convinced to make repeat purchases - branding Growing number 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 the market – need to keep prices competitive Brand imaging continues Highest geographical range of outlets as possible New models, colours, accessories as part of extension strategies Decline Lower prices to sell off stock, or if a product has a following then maybe raise prices Advertising likely to be limited Eliminate unprofitable outlets for the product Prepare to replace with other products, slowly withdraw from certain markets

2. Identifying how cash flow might depend on the product life cycle Cash flow closely linked with the product life cycle Costs high nothing has been sold yet Most positive cash flow, high sales Promotional expenses, factory capacity

The Boston Matrix The Boston Matrix: A means of analysing the product portfolio and informing decision making about possible marketing strategies Developed by the Boston Consulting Group – a business strategy and marketing consultancy in 1968 Links growth rate, market share and cash flow What do these terms mean?

Devised by the BOSTON MARKETING GROUP FOUR Basic Types of product Each has different characteristics NOT GOOD to have just one type of product

The Boston Matrix (questions marks = Problem children) |

The ‘Problem Child’ (Question Mark) Exciting but unpredictable product Could be the next big thing Could be a flop Requires careful investment Must be monitored closely Question Mark or Problem Child: Products having a low market share in a high growth market Need money spent to develop them May produce negative cash flow Is there potential for the future? Introduction stage of the PLC

The ‘Rising Star’ Established and growing in the market Starting to pay back on investment Needs careful management Needs a developed marketing strategy Stars: – Products in markets experiencing high growth rates with a high or increasing share of the market Potential for high revenue growth Growth stage of the PLC

The ‘Cash Cow’ Established Market Share Highly Profitable Stable Cash flow Cash Cows: High market share Low growth markets – maturity stage of PLC Low cost support

The ’Dog’ Shrinking market share Falling profitability Time for rethink/revival of fortunes? Dogs: Products in a low growth market Have low or declining market share (decline stage of PLC) Associated with negative cash flow May require large sums of money to support

The Balanced Portfolio Sales / Popularity The Balanced Portfolio Gr owt h Development Introduct ion De c l i ne Maturi ty Time

Your Task Draw a Boston matrix and put 8 products of your own choice from the same company. Your matrix should include a title, headings for each of the 4 areas and title along the sides of the matrix. Using terminology from the Product Life Cycle and Boston Matrix, describe the stage of development at which each product is currently located and how this may affect the business.

Using your examples we are going to discuss the following questions:

The Boston Matrix Implications for STARS: Huge potential – how? May have been expensive to develop – why? Is it worth spending money to promote? What issues are there with the product life cycle?

The Boston Matrix Implications for CASH COWS: Why are they cheap to promote? Generate large amounts of cash – are these used for further R&D? Do you think there are any costs of developing and promoting these products? Is there a need to monitor their performance – in the long term? What stage of the PLC are these at?

The Boston Matrix Implications for PROBLEM CHILDREN / QUESTION MARKS: What are the chances of these products securing a hold in the market? How much will it cost to promote them to a stronger position? Is it worth it?

The Boston Matrix Implications for DOGS: Are they worth persevering with? How much do they cost? Could they be revived in some way? How much would it cost to continue to support such products? How much would it cost to remove these products from the market?

The Product Life Cycle and the Boston Matrix (3) Cash from ‘C’ used to support growth of ‘D’ and possibly to finance extension strategy for ‘B’? Importance of maintaining a balance of products in the portfolio at different stages of the PLC – Boston Matrix helps with the analysis (1) ‘A’ is at maturity stage – cash cow. Generates funds for the development of ‘D’ (2) Cash from ‘B’ used to support ‘C’ through growth stage and to launch ‘D’. ‘A’ now possibly a dog? Sales (1) (2) (3) D B C A The product portfolio – four products in the portfolio Time

HL Boston Matrix & Strategic Analysis Stars Problem Child / ? Market Growth Stars Problem Child / ? Cash Cows Dogs HOLDING – Continuing support for these products so they can maintain their good market position. May need to ‘freshen up’ the product so sales growth can be sustained BUILDING – Supporting problem child products with additional advertising or further distribution outlets. Finance could be taken from established cash cow products High MILKING – Taking the positive cash flow from established products and investing elsewhere in the portfolio DIVESTING – Identifying worst performing dogs and stopping production. Not a decision to be taken lightly Low Low High Market Share

Boston Matrix – An evaluation This tool is relevant when: Analysing the performance and current position of existing products Planning action to be taken with existing products Planning the introduction of new products No technique can guarantee success – depends of the accuracy of the marketing managers

Boston Matrix – An evaluation Helps to establish current situation, but is of little use in ‘predicting’ future success or failure Detailed and continuous market research will help It is only a planning tool

Branding One of the most powerful concepts a business can achieve Brand – An identifying symbol, name, image or trademark that distinguishes a product from its competitors Brand awareness – Extent to which a brand is recognised by potential customers and is correctly associated with a particular product Brand development – Measures the infiltration of a products sales. 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

Read NY Times article too http://hypebeast.com/2013/9/apple-passes-coca-cola-as-most-valuable-brand Read NY Times article too

HL Types of branding Different types of branding

HL Family branding Example – Heinz (Ketchup, soup, beans) Benefits A marketing strategy that involves selling several related products under one brand name Example – Heinz (Ketchup, soup, beans) Benefits Marketing EoS Makes new product launches easier Limitations Poor quality of one product under the brand name may damage them all

HL Own label branding Example – Walmart has numerous brands Benefits Often cheaper than name brand products Each own label brand appeals to different groups Often little spent on advertising – in store promotions Limitations Consumers often perceive products to have a lower quality image Retailers create their own brand name and identity for a range of products

Individual / Product branding HL Each individual product in a portfolio is given its own unique identity and brand image (unrelated products) Example – Proctor & Gamble Benefits Each product is perceived as its own unique and separate brand Limitations Loses the positive image of a strong company brand

Company / corporate / global branding HL Company name is applied to products and this becomes the brand name globally Example – Disney Products Benefits Similar points to family branding but now applies to all products produced under the company’s brand name Limitations Could lose positive image of a strong company brand

HL Manufacturers' brands Example - Coca Cola Benefits Limitations Successful branding establishes a unique personality which many consumers want to be associated with and will often pay a premium price for Limitations The brand has to be constantly promoted and defended Producers establish the brand image of a product or a family of products, often under the company’s name

Role of branding in a global market Globalised branding can have substantial benefits