4.5 - Product

Definition: A product is any good or service that serves to satisfy the needs or wants of customers

Product life cycle

  1. Growth
  1. Maturity
  1. Launch
  1. Decline
  1. Research & Development

very high investment level ( a lot of research & failures)
no profit
highly negative cash flow

very high investment level (marketing & advertising)
little profit (high expenses involved in launch e.g. publicity, promotion)
negative cash flow

high investment level
rising profit (sales revenue increasing, lower unit costs - economies of scale in production)
positive cash flow

lower investment level
high profit (significant market share, peak sales revenue, economies of scale)
steady, highly positive cash flow

very low investment level (no more sales)
low profit (decreasing) (due to new trends, lower customer demands
decreasing positive cash flow

Extension strategies - lengthening product's life cycle + delaying its decline by prolonging sales revenue

Boston Consulting Group (BCG) matrix: helps managers to plan for a balanced product portfolio

Branding (product differentiation)

Price reduction = increases demand of product / get rid of excess stock (price cut)

Redesigning = introducing special features / 'limited edition' = adds value, entices more customers to buy it

Repackaging = change appearance to make it more attractive to customers = revives demand

Expand to new markets = expand customer base, attract new customers

Brand extension = use existing & successful brand name to launch a new or modified version of the product = prolong life cycle

Product differentiation = make a product stand out again rival businesses = withstand competition, requires marketing support e.g. sales promotion

Question marks / problem children - low market share with high market growth

  • marketing may be inferior or product quality bad (little sales compared to rest of the market)
  • uses up a lot of cash

Stars - high market share and high market growth

  • successful, generates high amounts of cash
  • high investment level
  • peak of a product

Dogs - low market share with low market growth

  • market is stagnant or declining
  • business may use product extension strategies / dispose of the dogs, if not they may face liquidity problems

Cash cows - high market share and low market growth

  • mature market, products are well-established
  • superb net cash flow, high profits
  • risk of turning into dogs = usage of extension strategies to prolong its stage of life

a diverse product portfolio is important for a company so as to not limit the revenue of a business

Aspects

Importance

  • Legal instrument (gives lawful ownership to the business and protects it from limitations)
  • Risk reducer (create a sense of value for money, generate loyal customer base)
  • Image enhancer (people are willing to pay a premium price for 'good' brands due to 'feel good' factor)
  • Revenue earner (brand loyalty = companies can charge higher prices without losing customers)

Advantages

  • Price advantages (market is saturated, branding can increase value of a product and allow for higher prices to be placed on the product)
  • Recognition and loyalty (customers prefer to buy the brand, stable customer source)
  • Distribution advantage (retail shops may only allow the best brands)

Packaging

Brand value: the premium that customers are willing to pay for a brand name over and above the value of the product itself, more reputable brands can be priced higher

Brand awareness: the extent to which potential customers / general public recognise a particular brand (high brand awareness = high sales revenue)

Brand loyalty: customers buy the same brand of products over and over again (maintain/improve market share, charge premium prices, barrier to enter competitive markets - reduces likelihood of brand switching, prolongs product life cycles)

Brand development: the marketing process of improving and enlarging the brand name in order to boost sales revenue and market share, takes a long time to develop a desired brand image

a form of product differentiation

increases attractiveness of product by appealing to people's moods through colour etc.

encourages impulse buying