PRODUCT. Products can also be generally classified as either consumer products or producer products.

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1 1 PRODUCT Products can be tangible (physical products) or intangible (services). Products must have value added in order to stand any chance of success in the market place. Classification of products Products can also be generally classified as either consumer products or producer products. Consumer products These are products that are purchased by private individuals for their personal use. * Fast moving consumer goods (FMCG) are everyday convenience products that are sold in retail outlets. Examples groceries, personal care, newspaper etc. * Consumer perishables are products that do not last for very long time, such as fresh flowers or fresh seafood. *Consumer durables are products that are purchased irregularly because they tend to last for relatively long time and/ or take up a relatively large proportion of a consumer s income. Example ; Furniture, automobiles etc.. * Speciality consumer products- are exclusive and expensive products that often require a large amount of commitment in both money and time. Examples : jewellery, residential property etc. Producer products Producer products or industrial goods are those that are purchased by businesses, rather than aimed at consumers. They are used in the production process to help the running of the business. Examples raw materials, machinery, tools and other equipments. Product line A product line refers to variety of the same product that a business produces for customers of particular market. (Samsung produces different television sets such as LCD and plasma televisions, Sony produces different digital camera) Most businesses will change their product line due to changes in the market. Product portfolio describes the variety of the different product that a business produces.

2 2 Honda produces cars and motor bikes. Yamaha produces automobiles and musical instruments. Unilever produces food, beverages, personal care etc.. Businesses should be able to increase overall sales as a variety of products are sold to a larger consumer base. Activity: Research and make a presentation on the product portfolio of any two multinational companies

3 3 PRODUCT LIFE CYCLE The product life cycle shows the different stages that a product is likely to go through from its initial design and launch to its decline (i.e. withdrawal from market ). Its life cycle is measured over time in terms of the differing levels of sales. The use of a product life cycle (PLC) allows managers to identify any changes that may be needed in the product s marketing strategy. Some specific products, such as different models of mobile phones, have a relatively short life cycle, while other products have very long life cycles. For example, Coco-Cola, Levis Jeans and Colgate toothpaste were established over 100 years ago. Moet & Chandon (a well-known brand of champagne) has existed since For most products, there are generally six stages to their life cycle : Research & Development, Launch, Growth, Maturity, Saturation, and Decline.

4 4 1. Research and Development (R&D) The R&D stage of a product s life cycle involves designing and testing the product. This tend to be time-consuming task. A prototype (trial product) will be often produced and test-marketed along with other methods of market research in order to assess the potential success of the product. 2. Launch (introduction) The introduction stage requires careful marketing planning. Sales will be relatively low since customers are not fully aware of the product s existence. At the same time, costs are very high due to the costs involved in the launch stage ( such as promotion, distribution etc..) hence the product us unprofitable at this stage of life cycle. 3. Growth The growth stage of a product s life cycle sees sales volume increasing. This is partly due to businesses using a wider distribution network to get the product to different customers in different locations. Businesses will aim to prolong this stage of the life cycle as far as possible. 4. Maturity During the maturity stage, sales revenues continue to rise but at a slower rate. The firms is likely to have obtained significant market share since sales revenues are at their peak. Saturation saturation occurs when there are too many competitors in the market and sales have peaked or have started to fall. Price reduction and extension strategies are likely to be used in order to maintain market share. Promotional activities may become more aggressive to get existing customers to purchase the product. 5. Decline this represents the product s final stage of the product life cycle. During decline, sales and profit of the product decline. This could be the result of changing customer demands, new technology, and new replacements models being introduces either by the firm itself or by competitors.

5 5 Product life cycle and its relationship with investment, profit and cashflow

6 6 Extension strategies Extension strategies refer to any means of extending the products life cycle and delaying its decline.

7 7 Common extension strategies Price reductions Lowering price will tend to raise the level of demand for a product. Business often use this extension strategy to get rid of excess stocks before they become obsolete. Redesigning This involves introducing special features or limited editions to a current product. Repackaging Changing the packaging of a product, such as using more attractive colours or materials, can help to revive demand. New markets Trying to locate new opportunities for current products can also extend its life cycle. Promotions revised promotional activities such as advertising can help to remind customers about the benefits of purchasing the product. This can help to boost demand, at least for little longer.

8 8 Boston Matrix or BCG matrix. (developed by USA s Boston Consultancy Group) The BCG matrix is a marketing planning tool which helps managers to plan for a balanced product portfolio. It looks at two dimensions, market share and market growth, in order to assess new and existing products in terms of their potential. There are four possible results from using the Boston matrix :

9 9 Stars are products that operate in high growth markets and have high market share, hence stars are highly successful products that tend to generate high amounts of cash for a business. Businesses will tend to invest money in developing and promoting their stars. Question mark - refers to products that operate in a high market growth sector, but have low market share. This can be concern as they may represent inferior products quality or marketing those of competitors. Question marks are also known as problem child or wild cards because it is not always obvious whether a business should invest more in these products. Cash cows are products with high market share operating in a low growth market. These markets tend to be mature markets and the products are very well established, thereby generating superb net cash flow. Cash cows provide business with large amounts of profits.

10 10 Dogs - are products with a low market share operating in a low growth market. Dogs do not generate much cash for the business as the market tends to be stagnant or declining, so business may try to dispose of these products. Activity: Design a BCG matrix for any two of the following companies: Samsung, Unilever, Toyoto, Sony, Nike, Coca-cola, Yamaha

11 11 Branding Branding is a form of differentiating a firms product from those of its competitors. A brand refers to a name that is identifiable with a product of a particular business (although the term can also refer to a sign, colour, scheme, font or design) A trademark gives legal protection to the registered firm to exclusively use a brand name or brand name or brand mark. For example ; Microsoft s brand names include Windows XP, Explorer, Microsoft Word, Microsoft excel, PowerPoint and Vista.

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14 14 The role and advantages of branding Branding as a legal instrument. brand names create a legal identity for a product by giving it a unique and recognizable name and image to differentiated it form other products. Branding a logo this function stresses the importance of logos (visual representations of a brand) as a vital source of differentiation. Logos can provide huge cost advantages to a business. Logos also have advantage of being able to break international language barriers. Branding as risk reducer Brands can give new products a better chance of survival in the market place. They can create a sense of value for money and encourages customer loyalty or band loyalty. Branding as an image enhancer Brands that are successful allow a business to charge a premium price. Customers are often willing to pay substantially higher prices for a good brand. Branding as a sales generator Being able to charge a proportionately higher price without losing customers means that customers stick to buying products from same business. Customers perceive the branded products as superior to others and will not tend to buy substitutes, even if the price is higher. Brand Development and Brand Loyalty Brand development is part of a firm s long-term marketing strategy. It is the process of strengthening and building the name and image of a brand in order to boost its sale. This is likely to take a lot of time, perhaps years to establish. Brand preference Brand preference means that customers favour a particular brand over rival brands. This could be due to customers being loyal to a certain brand. Brand loyalty Brand loyalty is seen when customers buy the same brand of product time and time again. Both brand preference and loyalty will help to sustain or improve firm s market share. The firm with the largest share of the market is know as the market leader (or brand leader) Brand Switching

15 15 The opposite of brand loyalty is brand switching. This means that consumers turn to alternative branded products. This happens mainly because the original brand has lost something which was once its strength. Make a list for 20 brands (national & global) Brand name Product Company iphone Smart phone Apple Inc. USA Learner Profile Be an inquirer How do multinationals market their product to different countries? Watch Comparative marketing approaches of McDonald s in China and the USA.

16 16 Ansoff Matrix : is an analytical tool to devise various product and market growth strategies. Ansoff matrix describes potential growth strategies

17 17 Market penetration This is low-risk growth strategy for businesses that choose to focus on selling existing products in existing markets..i.e to increase their market share of current products. This might be achieved by improving a firm s marketing mix. Advantage the business is focusing on markets and products that is familiar with. Market research expenditure can therefore be minimized. Product development This is medium-risk growth strategy that involves businesses aiming to sell new products in existing markets. Product development is suitable for products that have reached the saturation or decline stage of their product life cycle in order to prolong their life. Market development Market development us the medium-risk growth strategy that relates to businesses selling existing products in new markets. i.e. an established products is marketed to new market segment. This might be done by using new distribution channels to sell the product. Diversification

18 18 Diversification refers to the high risk growth strategy that involves a business marketing new products in new markets. A key driving force for diversification is that the business can spread its risks.