1. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-1

2. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-2 McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Product and Service Strategies

3. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-3 Objectives Understand the different characteristics of a product mix Recognize the stages and characteristics of the product life cycle (PLC) Identify appropriate marketing strategies for products different life cycle stages Describe the limitations of the PLC concept Discuss different product-mix and product-line strategies

4. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-4 Product Concepts Product Mix:  is the total assortment of products and services marketed by a firm. Product Line:  is a group of individual products that are closely related in some ways. Individual Product:  is any brand or variant of a brand in a product line. Thus, product mix is a combination of product lines, which are combinations of individual products. 222

5. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-5 Product Concepts Product Mix Width:  Refers to the number of product lines in a product mix. Product Line Width:  Refers to the number of products in a product line. Product Mix Consistency:  Refers to the relatedness of the different product lines in a product mix. P.222

6. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-6 Product Life Cycle (PLC) PLC describes the advancement of products through identifiable stages of their existence. The stages are introduction, growth, maturity, and decline. PLC is based on four ideas: i. Products have limited life ii. Product sales pass through distinct stages, each with different marketing implications iii. Profits from a product vary at different stages iv. Products required different strategies at different stages

7. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-7 Product and Service Strategies

8. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-8 Diffusion Process Some people buy new/innovated products as they enter the market and others wait until the product has been in the market for some time. The different product adoption rate means that new innovative product takes time to diffuse throughout a market. The diffusion process describes the adoption of an innovation over time.

9. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-9 PLC Stages and Characteristics

10. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-10 PLC Stages Introduction:  Starts with the launch of new product in the market. It extends the commercialization stage of new product development. Objective is awareness and trail. Growth:  This stage, sales and profit increase rapidly, competitors enter with new versions. Objective is to use firm’s brand. Maturity:  Severe competition begins to get adoption from late majority. Profits peak, then begin to decline, reflecting intensified competition, especially on price. Objective is to maintain market share. Decline:  When falling prices persist past the short run, decline starts. Profits decline and competition changes. Objective is to decide what to do?

11. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-11 PLC Strategies: Introduction Overall objective is to increase awareness and stimulate trial of new product With no competition focus is on generating primary demand (demand for new product) With competition focus shifts to generating secondary demand (demand for specific brand) Some firms set high introductory prices to quickly recover the costs Some firms set low introductory prices to generate faster market penetration Distribution is limited

12. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-12 PLC Strategies: Growth Basic objective is to build consumer preference for its brand Increased competition results in lowering prices Marketers expand distribution

13. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-13 PLC Strategies: Maturity Overall objectives are to defend market share and extend the PLC With diffusion nearing, getting new adopters is difficult – offering incentives is one strategy Get consumers to use the product in different ways Introduce new and improved versions of the product

14. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-14 PLC Strategies: Decline At declining stages marketers must take tough decisions on what to do with their brand; continue or stop Maintaining strategy refers to keeping a product going without reducing marketing support hoping that competition will eventually evade Harvesting strategy focuses on reducing the costs. Advertising, sales force time and R&D budgets are limited Deleting strategy refers to dropping a product altogether

15. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-15 PLC Marketing Strategies StageObjectiveMarketing Strategy IntroductionAwareness & trialCommunicate benefits GrowthUsage of firm’s brandSpecific brand communication, lower prices, expand distribution MaturityMaintain market shareSales promotion, drop price, Extend life cycleexpand distribution, new uses & new versions of product DeclineDecide what to doMaintain, harvest, or divest with product IntroductionAwareness & trialCommunicate benefits GrowthUsage of firm’s brandSpecific brand communication, lower prices, expand distribution MaturityMaintain market shareSales promotion, drop price, Extend life cycleexpand distribution, new uses & new versions of product DeclineDecide what to doMaintain, harvest, or divest with product

16. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-16 Product Line Strategies Individual products that are related in some way form product lines. First must integrate strategies for individual products within the strategy for a product line. Basic strategic alternatives are to:  Increase the product line  Decrease the product line

17. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-17 Increasing the Product Line Downward-stretch Strategy Upward-stretch Strategy Two-way-stretch Strategy Line-filling Strategy Cannibalization occurs when a new Product takes sales away from existing products.

18. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-18 Increasing Product Line Downward-Stretch: is an attempt to add products to the lower end of the product line. Upward-Stretch: is an attempt to add products to the higher end of the product line. Two-Way-Stretch: entails adding products at both the high and low ends of product line. Line-Filling: involves adding products in different places within a product line.

19. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-19 Decreasing Product Line Firms consider deleting products when:  they are no more successful;  they have reached the decline stage;  the costs of marketing long product lines are high. Deleting products from product line is referred to as ‘product line contraction’.

20. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-20 Product-Mix Strategies The Product Mix consists of all product lines and individual products marketed by the firm.

21. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-21 Product Mix Strategies Strategic Alternatives:  Basic product mix strategic alternatives are to add new product lines or to delete existing ones.  Many firms achieve growth by expanding product mix.  To achieve growth by adding new product line there should be some similarity to existing product lines. Branding Strategies:  Individual branding strategies  Family brand name strategy

22. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-22 Branding Strategies Product Mix Branding Strategies Product Mix Branding Strategies Family Brand Name Strategy Family Brand Name Strategy Individual Brand Name Strategy Individual Brand Name Strategy Company Name Company Name Family Brands or Product Types Family Brands or Product Types Family & Individual Brand Name Family & Individual Brand Name