4.5. Product

4.5. Product

A product (goods or services) is anything that satisfies a need or want. It is not a thing with features but a package of benefits.

A customer will choose a product based on three things:

a. Customer value is the customer’s estimate of how far a product or service goes towards satisfying their needs

b. Every product has a price, and so the customer makes a trade-off between the expenditure and the value offered.

c. According to Kotler, a customer must feel that they get a better deal from buying an item than by any of the alternatives.

Product Levels

It is useful for marketers to think of a product, and its attributes, at different levels:

1) Core product: core benefits provided by the product/service i.e. car

2) Actual/basic product: features offered as part of the product/service i.e. design, efficiency and airbags

3) Expected products: attributes customers expect when they buy i.e. level of performance of car and its reliability; psychological benefits such as thrill and status

4) Augmented product: elements which support core/actual features i.e. after-sales service, warranties and credit facilities

5) Potential product: all augmentations/changes possible in the future to enhance or develop the product i.e. better fuel economy, enhanced design and computerized systems

Many products are marketed at the augmented product level – the total package of the customer’s experience of purchasing and consuming the product/service is relevant.

Product range

A company’s product range (product portfolio, assortment or mix) is all the product lines and items that the company offers for sale.

Product Life Cycle

(a) Introduction stage

· The product offers something new to customers

· There are unlikely to be any competing products, but heavy advertising/sales promotion costs may be incurred to raise customer awareness

· Design changes may be required as customer needs become better understood

· Business needs to establish an operational capability that allows it to be flexible and capable of adopting and changing

· Initial customers are willing to pay a high price but need to be convinced about the merits of the purchase

· Unlikely to be profitable due to the high fixed costs

(b) Growth stage

· Volume of demand for the product increases and there are likely to be more competitors in the market.

· Heavy advertising costs but falling as a % of sales revenue.

· Prices begin to fall

· Product reliability improves and product features may become important between different suppliers (more competitors enter the market)

· Main objective for the operations function could be to keep up with the growing demand

· Speed of response to customer orders and reliability of supply could also be significant

· Quality standards will have to be maintained or improved in response to the growing competition, and cost and price are likely to be much more significant

· Increasing profit margins

(c) Market maturity

· Demand levels off

· Some early competitors are likely to have left the market, which might now be shared by a small number of organizations.

· Product design will be largely standardized, although organizations might try new varieties of the product (market segmentation) to extend its life cycle (extension strategies). Organizations in the market are likely to compete on price and/or on value for money (product differentiation)

· Falling prices but good profit margins due to sales volume

· Brand image is important as main source of sales is repeat purchases

· To remain competitive, it will be important to achieve low costs through productivity improvements, whilst still providing reliability of supply.

(d) Decline stage

· Total demand declines and competitors will start to withdraw from the market.

· Quality becomes more variable

· Less money spent on advertising and sales promotion

· Relatively low prices and profit margins fall due to sales volume decline.

· Excess capacity in the industry will mean remaining organizations will compete on price

· Cost targets will remain the key operational objective

· Company may also stop making and selling the product, and to focus its energies instead on another developing/growing product.

Some writers refer to an additional phase between market growth and market maturity. Often at this time, some of the weaker players in the market are shaken out of the market by the stronger organizations. This is referred to as a shakeout.

The relationship between the product life cycle and the marketing mix

Introduction Stage

In the introduction stage, the firm seeks to build product awareness and develop a market for the product. The impact on the marketing mix is as follows:

· Product branding and quality level is established, and intellectual property protection such as patents and trademarks are obtained.

· Pricing may be low penetration pricing to build market share rapidly, or high pricing skimming to recover development costs.

· Distribution is selective until consumers show acceptance of the product.

· Promotion is aimed at innovators and early adopters. Marketing communications seeks to build product awareness and to educate potential consumers about the product.

Growth Stage

In the growth stage, the firm seeks to build brand preference and increase market share.

· Product quality is maintained and additional features and support services may be added.

· Pricing is maintained as the firm enjoys increasing demand with little competition.

· Distribution channels are added as demand increases and customers accept the product.

· Promotion is aimed at a broader audience.

Maturity Stage

At maturity, the strong growth in sales diminishes. Competition may appear with similar products. The primary objective at this point is to defend market share while maximizing profit.

· Product features may be enhanced to differentiate the product from that of competitors.

· Pricing may be lower because of the new competition.

· Distribution becomes more intensive and incentives may be offered to encourage preference over competing products.

· Promotion emphasizes product differentiation.

Decline Stage

As sales decline, the firm has several options:

· Maintain the product, possibly rejuvenating it by adding new features and finding new uses.

· Harvest the product - reduce costs and continue to offer it, possibly to a loyal niche segment.

· Discontinue the product, liquidating remaining inventory or selling it to another firm that is willing to continue the product.

The marketing mix decisions in the decline phase will depend on the selected strategy. For example, the product may be changed if it is being rejuvenated, or left unchanged if it is being harvested or liquidated. The price may be maintained if the product is harvested, or reduced drastically if liquidated.

Extension Strategies

Businesses will attempt to use extension strategies to prevent their product from going into decline. They will have to spend money in research and development to try and retain periods of growth and maturity for as long as possible in order to maximize sales. There are various strategies that businesses can employ:

* Finding new uses for the product, for example the basic technology in hot air strippers is no different from that of a hairdryer;

* Targeting new market segments with the existing product, for example sports clothes manufacturers now advertise their products as 'street wear' rather than just sports wear in the hope of achieving more sales;

* Marketing a product as a new brand with a different use, for example Lucozade was originally sold as a product to assist those recovering from illness, by selling it as a sports drink a huge increase in sales has been achieved;

* Making minor cosmetic changes to the product, for example, Manchester United frequently make small changes to their kit in the hope of increasing their replica shirt sales.

The effect of extension strategies can be shown on the diagram below.

Decline is inevitable in certain markets as new technology makes existing products out of date. This means that a business will have to spend money on research and development to ensure that they have other products to sell when demand for the current product goes into decline.

Relationship between the product life cycle, investment, profit and cash flow

Introduction

•New product launched on the market

•Low level of sales

•Low capacity utilisation

•High unit costs - teething problems occur

•Usually negative cash flow

•Distributors may be reluctant to take an unproven product

•Heavy promotion to make consumers aware of the product

Growth

Expanding market but arrival of competitors

•Fast growing sales

•Rise in capacity utilisation

•Product gains market acceptance

•Cash flow may become positive

•Unit costs fall with economies of scale

•The market grows, profits rise but attracts the entry of new competitors

Maturity

•Slower sales growth as rivals enter the market = intense competition + fight for market share

•High level of capacity utilisation

•High profits for those with high market share

•Cash flow should be strongly positive

•Weaker competitors start to leave the market

•Prices and profits fall

Decline Stage

Common features at this stage include:

• Falling sales
• Market saturation and/or competition
• Decline in profits & weaker cash flows
• More competitors leave the market
• Decline in capacity utilisation –switch capacity to alternative products

Relationship between the PLC and the Product Adoption Model

Product Adoption is a compelling and important topic. It affects every single business. There are numerous whitepapers, frameworks, and discussions focused on Product Adoption. They discuss various elements, from market conditions to product attributes to tactical engagement. The purpose of this article isn’t to present anything new. Rather, it’s an attempt to synthesize various established frameworks from reputable strategists and businesses to present a comprehensive, holistic look at Product Adoption

Let’s start at the highest level–the market.

1. Select the Right Market Segment

At the macro level, we have market forces at play. This concept is captured best by the Product Life Cycle. The essence of this framework is that a product will go through 4 stages of development from creation to obsolescence.

The Product Life Cycle is often mapped against the Product Adoption Curve (one of the best known marketing frameworks). By doing this, we can determine the ideal market segment to go after at each stage of the product’s lifecycle.

Each stage of the Product Life Cycle is typified with a unique set of characteristics. Likewise, different strategies are best suited for the different stages. They are as follows:

• Introduction. In the initial stage, pricing is critical. We need to address the key question that drives Pricing Strategy: do we want to penetrate or to skim the market? Penetrating the market implies stronger consumer adoption, but at the trade off of higher margins and possibly profits.
• Growth. In this stage, the focus shifts to Customer Satisfaction, so that we can build customer loyalty and drive repeat purchases. As portrayed in the diagram above, we are now at the brink of breaching the Early Majority market.
• Maturity. Depending on the competitive dynamics in the industry, companies will elect to employ one of three strategies: Maintain, Defend, or Innovate.
• Decline. In the final stage of the product’s lifecycle, we need to make the decision to focus on innovation or make a calculated exit.

By knowing what phase of the lifecycle we are in, we have identified the general corporate strategy. We can now also identify the prevailing customer group, as defined by the Consumer Adoption Curve. There are five distinct customer groups, each characterized by a set of beliefs, motivations, and behaviours:

• Innovators. Innovators only represent 2.5% of the overall market, but they are the first adopt a new product. They are willing to take risks, youngest in age, have the highest social class, have great financial liquidity, are very social and have closest contact to influential sources and interaction with other innovators.
• Early Adopters. This is the second fastest category of individuals who adopt an innovation. Early Adopters have the highest degree of opinion leadership among the other adopter categories. They are typically younger in age, have a higher social status, have more financial lucidity, advanced education, and are more socially forward than late adopters.
• Early Majority. Individuals in this category adopt our product after a varying degree of time. This time of adoption is significantly longer than the Innovators and Early Adopters. Early Majority tend to be slower in the adoption process, have above average social status, contact with Early Adopters, and seldom hold positions of opinion leadership or influence.
• Late Majority. Late Majority folks will adopt an innovation after the average member of society. They approach a new product with a high degree of skepticism and only after the majority of society has adopted the product already. They are also typically skeptical about an innovation, have below average social status, very little financial lucidity, in contact with others in late majority and early majority, very little opinion leadership.
• Laggards. These guys are the last to adopt. These individuals typically have an aversion to change and tend to be advanced in age. Laggards typically tend to be focused on “traditions,” likely to have lowest social status, lowest financial fluidity, be oldest of all other adopters, in contact with only family and close friends.

Thorough Product Life Cycle analysis provides us with the backbone to our overall product marketing strategy.

The drawback of Product Life Cycle is that it is only a market-focused framework. It doesn’t address other critical drivers to adoption, such as the Product itself and Consumer Psychology.

You may have your overarching marking mix right, but if you fail at the tactical and execution level, your product will fail.

Boston Consulting Group (BCG) matrix on an organization’s products

Star: a high market share in a high growth industry

The star has the potential for generating significant earnings, currently and in the future. At this stage it may still require substantial marketing expenditure as part of a maintain strategy, but this is probably regarded as a good investment for the future.

Question Mark/problem child: a small market share in a high growth industry.

The generic product is completely popular, but customer support for the particular brand is limited. A small market share implies that competitors are in a strong position and that if the product is to be successful, it will require substantial funds and a new marketing mix.

· If the market looks good and the product is viable, then the company should consider a ‘build’ strategy to increase market share by increasing the resources available for that product to permit more active marketing.

· If the future looks less promising, then the company should consider withdrawing the product.

Cash Cow: a high market share in a mature slow-growth market

Typically, you have a well-established product with a high degree of consumer loyalty. Product development costs are usually low and the marketing campaign is well-established. The cash cow will normally make a substantial contribution to overall profitability.

· If market growth is reasonably strong then a holding strategy will be appropriate.

· If growth and/or share are weakening, then a harvesting strategy may be more sensible by cutting back on marketing expenditure to maximise short-term profit

Dog: a low market share in a low-growth market

Like the cash cow, this is a well-established product but one which is apparently losing customer support and may have cost disadvantages. The usual strategy would be to consider divestment, unless the cash flow position is strong, in which case the product would be harvested in the short-term, prior to deletion from product range.

The following aspects of branding: awareness, development, loyalty and value

Branding

· A brand name refers strictly to letters, words or groups of words which can be spoken.

· A brand image distinguishes a company’s product from competing products in the eyes of the user.

· Brand equity is the premium customers are prepared to pay for the branded product compared to a non-branded product.

· Brand management is the development of a long-term strategy to keep the brand in customers’ minds at all times.

Objectives of Branding

The key benefit of branding is product differentiation and recognition. Products may be branded for a number of reasons:

· It aids product differentiation, conveying a lot of information very quickly and concisely. This helps customers readily to identify the goods and services and thereby helps to create customer loyalty to the brand.

· It maximizes the impact of advertising for product identification and recognition. Branding is needed to create a separate identity to other similar products

· Branding leads to a readier acceptance of a manufacturer’s goods by wholesalers and retailers

· It reduces the importance of price differentials between goods.

· It supports market segmentation, since different brands of similar products may be developed to meet specific needs of categories of uses.

· It supports brand extension or stretching. Other products can be introduced into the brand range to piggy back on the articles already known to the customer.

· It eases the task of personal selling, by enhancing product recognition.

Brands - brand positioning

Brand positioning

As we have argued in our other revision notes on branding, it is the “added value” or augmented elements that determine a brand’s positioning in the market place.

Positioning can be defined as follows:

Positioning is how a product appears in relation to other products in the market

Brands can be positioned against competing brands on a perceptual map.

A perceptual map defines the market in terms of the way buyers perceive key characteristics of competing products.

The basic perceptual map that buyers use maps products in terms of their price and quality, as illustrated below:

Types of Branding

Marketing theory suggests that there are three main types of brand name:

(1) Family brand names:

A family brand name is used for all products. By building customer trust and loyalty to the family brand name, all products that use the brand can benefit.

Good examples include brands in the food industry, including Kellogg’s, Heinz and Del Monte. Of course, the use of a family brand can also create problems if one of the products gets bad publicity or is a failure in a market. This can damage the reputation of a whole range of brands.

(2) Individual brand names:

An individual brand name does not identify a brand with a particular company.

For example, take the case of Heinz. Heinz is a leading global food manufacturer with a very strong family brand. However, it also operates many well-known individual brand names. Examples include Farleys (baby food), Linda MacCartney Foods (vegetarian meals) and Weight Watcher’s Foods (diet/slimming meals and supplements).

Why does Heinz use individual brand names when it has such a strong family brand name? There are several reasons why a brand needs a separate identity – unrelated to the family brand name:

• The product may be competing in a new market segment where failure could harm the main family brand name

• The family brand name may be positioned inappropriately for the target market segment. For example the family brand name might be positioned as an upmarket brand for affluent consumers.

• The brand may have been acquired; in other words it has already established itself as a leading brand in the market segment. The fact that it has been acquired by a company with a strong family brand name does not mean that the acquired brand has to be changed.

(3) Combination brand names:

A combination brand name brings together a family brand name and an individual brand name. The idea here is to provide some association for the product with a strong family brand name but maintaining some distinctiveness so that customers know what they are getting.

Examples of combination brand names include Microsoft XP and Microsoft Office in personal computing software and Heinz Tomato Ketchup and Heinz Pet Foods.

(4) Manufacturer brands

Manufacturer brands are created by producers and bear their chosen brand name. The producer is responsible for marketing the brand. The brand is owned by the producer. By building their brand names, manufacturers can gain widespread distribution (for example by retailers who want to sell the brand) and build customer loyalty (think about the manufacturer brands that you feel “loyal” to).

(5) Own label brands

Own-label brands are created and owned by businesses that operate in the distribution channel – often referred to as “distributors”. Often these distributors are retailers, but not exclusively. Sometimes the retailer’s entire product range will be own-label. However, more often, the distributor will mix own-label and manufacturers brands. The major supermarkets (e.g. Tesco, Asda, and Sainsbury’s) are excellent examples of this.

Own-label branding – if well carried out – can often offer the consumer excellent value for money and provide the distributor with additional bargaining power when it comes to negotiating prices and terms with manufacturer brands.

Task 3 : Explain brand extension, multi-branding and family branding as branding strategies

The Importance of Branding

Uniqueness

Utilize your branding to set yourself apart from your competitors. To do this, analyze what you do best and consider you target demographic. Use graphics and word choices that clearly reflect your business to your target audience, hence your brand. Use your branding to deliver clear messages.

Target Audience

Done correctly, your brand can assist you in getting a stronger foothold in your niche market. Define your unique selling position and consider methods to communicate key messages to your desired audience. Use specific images or phrases to encourage the feel of inclusivity. Let them know the reason your company exists and how it can fulfil their needs. This can connect you to your target audience, engage them and motivate them to buy.

Emotional Connections

According to a 2010 study conducted by the world’s largest public relations firm, Edelman, the Y Generation, also known as the Millennials, consider brand identification almost as important as religious preference and ethnic background when defining themselves online. The power of branding has successfully melded into that of personal identification and emotional connection.

Message Delivery

Having strong branding can evoke trust from your niche market. This can translate to your newsletters, emails and advertisements garnering a greater response, hence increasing sales. As people will already be vested in your brand, they will be confident that they will receive value for time spent reading your messages or researching your product.

Consistency

Focus on your long-term branding efforts to keep your business consistent. This consistency should transcend messages, product lines and audience appeal. It should enhance your business, adding depth to your company’s presence. This should allow you to grow and keep a loyal following.

Advantages and disadvantages of Branding

Branding is the process of communicating the value of your company and its products to a target market. This is normally done through various marketing and communication approaches, including advertising and public relations. Typically, it takes time and consistency in messages and performance for branding to work.

Task 4: How is technology affecting the branding of luxury goods, and can western luxury brands maintain relative market share in China?

Task 5: Analyse the trends in smartphone sales in the US and China, and ascertain how the product's brand will affect these trends

Task 6: Question on brand extension and the Boston Matrix

G is a multinational company that designs, manufactures and sells consumer electronic products, such as portable media players (PMP), tablet computers (TAB), smart-phones, personal computers (PC) and computer software packages.

G has its own retail outlets and also sells its products in other stores as well as online. The G brand and logo is recognised internationally and G has successfully applied a brand extension strategy for a number of years. Every time G launches a new product it publicises this widely to generate a high degree of enthusiasm amongst the public and its potential customers. G’s product launches are highly effective: thousands of customers queue outside the stores, some even camping outside for several days, just to experience a product launch by G. Customers perceive G’s products to offer higher value than those marketed by its competitors, but they are also more expensive. This has proved to be a highly profitable strategy to date for G and has been difficult for competitors to copy.

G is organised into four strategic business units (SBU’s), each responsible for a particular product group.

The PC SBU - G was one of the first developers of personal computers in the 1980s and its unique software and quality design was popular with early PC customers. G’s first product was the G PC with its own unique software and operating system. Despite G’s early success in the PC market, it has failed to maintain its market share in recent years. PCs with software developed and sold by G’s main rivals now dominate the PC market. However, the PC market is highly profitable and has huge potential for growth but competition is intense.

The PMP SBU - The G PMP products have experienced massive growth in the market but now sales are stagnant and predicted to decline. The PMP’s can be used as external data storage devices and through the use of G’s own developed software, can be used to transfer music, photos and games. G continuously rolls-out extension strategies, updating its PMP products with more features, colours, larger memory and faster processors. The cumulative effect is that these updates have increased the life cycle of its PMP products and its long-term sales potential, beyond that forecast a few years ago. G’s PMP products have a high share of the PMP market and are popular amongst a wide range of customers.

The Smartphone SBU - The G smartphone products include all of the features that the G PMP products have as well as telephone technology. G’s retail outlets are becoming more and more focussed on its G smartphone customers and potential new customers. The smartphone products also have a high market share and are growing in popularity.

The TAB SBU - The G TAB has a high share of the rapidly growing tablet computer market. However, the G TAB is beginning to lose its initial high market share advantage as other manufacturers have launched their own tablet products with increasingly sophisticated features. G recognises that the combination of its overall competitive strategy and the strength of its brand must be maintained across its business portfolio in order to maintain and grow its market share.

(a) Explain the benefits of a 'brand extension strategy' for G. Your answer should include a definition of the term 'brand extension'.

(b) Evaluate G's separate product SBUs, using the Boston Consulting Group Growth/Share matrix.

The importance of packaging

Packaging plays an important role as a medium in the marketing mix, in promotion campaigns, as a pricing criterion, in defining the character of new products, as a setter of trends and as an instrument to create brand identity and shelf impact in all product groups.

The findings of many other research projects are supplemented by the survey carried out by IRI (Information Resources Inc.), which provides information about this subject from extensive, in-depth interviews and POS polls, specifically including the issue of multisensory appeal, which is a particular trend. It also presents new arguments and evidence confirming a central conviction held by the packaging industry: that the shopper appreciates and in fact explicitly wants to receive stimulation for the buying decision he is making when standing in front of the supermarket shelf, often even preferring this to other forms of communication. He is keen to be informed and inspired, tempted and pampered by surprising and persuasive functions, emotions and sensual impressions.

The top ten requests about packaging

Even though the consumer is not dissatisfied with the packaging available on the market, he would still like to be tempted by functional and attractive packaging ideas, by multisensory appeal and creative design - preferably with packaging ideas made from board. He acknowledges additional benefits and appeal and is even willing to pay an extra charge for them. Good starting points for improvements, changes, innovations which optimise the features of packaging that determine buying decisions and thus generate new market potential can be summarised in consumers' top ten requests about product packaging:

1. Eye-catching appearance: A distinctive, unmistakable and eye-catching appearance is a signal at the POS to which all consumers and particularly the younger ones respond positively. Whatever stands out clearly in the monotonous competitive environment, whatever is surprising scores points with the consumer. Special effort makes a special impression - and is allowed to cost more too.

2. Design, shape and colour: The purpose of well-considered design, creative printing and finishing is to entice the consumer to devote attention to the pack and its contents at the POS. Aesthetics and attractiveness are major distinctive features - and are in fact essential in some product segments: beautiful packaging design is of central importance in the cosmetics and confectionery product groups. Consumers like to buy agreeably designed and decorative products!

3. Functionality: Functional aspects are the basis for all successful packaging and for thus greater product success too. Product and aroma protection, hygiene and tightness, environmental responsibility and practical handling (in both use and storage) are just as important here as ideas that improve comfort: closure mechanisms, portioning, see-through windows, for example.

4. Innovation: Novelty has exceptionally strong appeal. An innovative pack can even make "new products" out of familiar ones. Unusual solutions, functional new developments and originality not only set design trends but also boost sales!

5. Material: What is printed on board is read particularly willingly, while what is packaged in board sells particularly well. Sustainability, easy disposal and, above all, great design variety and potential are particular features of the material. Popular with consumers, particularly high appeal and many other advantages too.

6. Efficient communication: The packaging is the credible medium at the point of sale and is consulted willingly and intensively (see "Material"). This makes it an efficient means of communication and, in addition, one that gets closer to the consumer than all others. If several of his senses are appealed to as well, he can be persuaded particularly successfully.

7. Multisensory appeal: Anyone who approaches consumers via several of his senses attracts greater attention, intensifies perception and stimulates interest in buying. Packaging that can be felt, smelled and heard as well as looked at wins the customer's favour. So much so that he is willing to pay a higher price for this multisensory appeal.

8. Appropriateness for the product Packaging is considered to be an important indicator of quality. The quality of the product therefore has to be communicated by good packaging and not just by promises of quality made in the text on the packaging. A credible "overall work of art" is created as a result, in which the contents and the packaging are coherent and the consumer is convinced by their consistency.

9. Value Packaging is an excellent way to communicate sophistication, class and value. This makes it an ideal strategic option for expressing premium positioning - as well as being the instrument of choice when a product needs to be upgraded or a brand needs to be revitalised. Products in classy packaging are particularly popular presents too.

10. Additional benefits. Successful packaging not only combines what is pleasant with what is functionally useful but also provides additional benefits. For example, as a gift or for presentation, with entertaining components or simply by making it possible to continue using the packaging for something else after the product has been consumed.

Benefits of Packaging: see https://retailminded.com/4-reasons-why-product-packaging-is-important/

Drawbacks of Packaging

Cost

While packaging can do a lot to get customer attention, and may even add value to a product, it also adds to the cost of production and the eventual retail price. This packaging can represent as much as 40 percent of the selling price of products in industries such as the cosmetic industry. New packaging can be expensive to develop, adding to the cost of products.

Landfill Impact

Packaging is responsible for significant portions of the waste stream. According to the Ashland Food Cooperative, packaging is responsible for about one third of the municipal waste in the United States. Some waste can be recycled, but many materials are not appropriate for recycling. Post-consumer recycled content is often usable only in specific contexts. For instance, many types of recycled plastic may not be used in food containers, even if the original plastic came from food containers. Much of the waste produced by packaging ends up in a landfill.

Production Footprint

Products with more packaging also use more resources in production. According to Green Living Tips, around 12 million barrels of oil are used to make shopping bags for U.S. consumers each year. Over 10 million barrels are used to make water bottles, and one pound of polystyrene (Styrofoam) uses about two pounds of petroleum stock. Production also requires energy, usually sourced from burning fossil fuels, and may produce air and water pollution.

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