Product portfolios and Development

Businesses need to manage their existing product portfolio in such a way as to maximise their strengths and increase their share in their current market,. Business should also look for new products and markets for future growth. This doesn't come without risk . Depending on if the business wants to launch a new product, enter a new market or both, increases the risk factor!

The Ansoff Matrix

https://corporatefinanceinstitute.com/resources/knowledge/strategy/ansoff-matrix/

The Ansoff Matrix is a useful way of looking at growth opportunities. Devised by Igor Ansoff in 1957, it is a framework for marketing directors to devise strategies for future growth. By combining present & new products and present & new markets into a 2x2 chart, the four product strategies for growth are illustrated, with the risks associated with each strategy .

Market penetration - Increasing sales of existing products for an existing market. (eg: branded shampoo sold at a discount in store/online for core market)
Product development - Introducing new products to an existing market (eg: new wilko KIN branded shampoo sold in store/online for core market)
Market development - Entering a new market with existing products (eg: targeting branded shampoo at a new audience, such as an 18-24 year old student market)
Diversification - Entering a new market with the introduction of new products (eg: wilko KIN branded shampoo being sold in other retailers)

From the diagram it's clear to see that market penetration is the least risk strategy whilst diversification is the riskiest.

Market penetration

In this strategy, a business uses its products in an existing market to increase its market share and win competitors' customers. This can be achieved by cutting prices, increasing promotion and distribution of the product or acquiring a competitor in the same market.

For example Morrisons bought the failing Safeway supermarket chain which immediately increased the number of Morrison's stores and sales volume. Bookmakers all largely cater for the same market, thus use sign up offers, promotional odds on big events and free bets to increase their promotion efforts in a competitive market.

Greggs used social media to survey its 20k followers about its brand and used that information to create a 7.5% increase in turnover. Greggs also has more outlets than the likes of McDonalds, KFC and Subway with stores in high streets, retail parks and concessionary kiosks in train stations meaning the brand has more penetration in the market and is therefore the UK's largest retail food chain.

wilko aims to have market-leading or parity on price on branded products with it's main competitors which it identifies as B&M, Home Bargains and Dunelm. wilko has seasonal sales, regular "2 for £X" offers and also has its own range of products - including paint, health & beauty and household items which is a USP.

To protect the penetration already gained, a business may consider methods of discouraging competitive entry. Barriers can be created by cost advantages (lower labour, cheaper raw materials) and being more aggressive in promotion, retaliating to competitor's movements.

wilko's market leading price for a branded Flash speedmop

Product development

The product development strategy involves the development of new products for existing markets. One option is to increase product variants to give consumers more choice. Eg: The flagship Samsung Galaxy S20 was launched in 2020, and the S21 will follow in 2021. Samsung also release mid-range models such as the A-series, giving consumers a greater choice in specifications, functionality and price. When a new model comes out, customer's may repurchase and upgrade to the enhanced-value product, however when new ranges are cheaper than the original, it could hit sales of the core product. (The entry-level models could also target a slightly different market, such as younger people with less income, linking this to market development )

More examples include the iPod and its subsequent touch, shuffle and nano models. Ford's introduction of new electric cars & updates to existing models (Focus, Fiesta etc) as consumers are becoming more environmentally conscious. Microsoft is a classic example of replacement products being introduced (Windows 10) whilst older products such as Windows 7 & Vista are still supported.

wilko were first to market in 2020 with new plastic free wipes for the more environmentally conscious customer. All of their wipes, from multi-surface wipes to baby wipes are now plastic free and are less harmful to the environment.. wilko's own brand of shower gel comes in a number of scents, to give customers a different experience whilst showering and may encourage repeat purchases as customers "try out" each variant.

A business may acquire a competitor's product and merge resources to create a new, better product to meet the needs of a market.

wilko's range of plastic-free wipes. Our baby & face wipes are also plastic-free.

Market development

In this strategy, a business enters a new market with existing products (or new uses of). This may mean expanding into new geographic regions - either regionally or internationally - or customer segments. The strategy is most successful when the business has proprietary it can leverage into new markets - such as a patent, copyright exclusivity or trade secret. Also when consumer behaviour in the new markets does not deviate too far from existing customers and they are profitable. (ie: have disposable income) .

Nike & Adidas recently entered the far-East market, selling the same equipment & clothing as in the existing Western markets.

Tesco practised market development by taking its existing products - sold in supermarkets to a new market segment by opening up convenience stores and expanding into petrol forecourts. Tesco Express allows shoppers to grab their products in their local store or whilst filling-up, without having to make a specific journey to the supermarket. There are now more opportunities for customers to access their products than just on the weekly shop.

wilko now open more stores in out-of-town retail parks & large shopping centres such as Meadowhall than its traditional home on the high street. Customers often benefit from free parking and can conveniently park directly outside the store to click & collect. wilko launched their website in 2005 also now have a store presence on Amazon enabling its products to be sold on the worlds largest online retailing platform.

New store in St James' retail park in Sheffield opened in 2019

wilko's presence on Amazon

Diversification

This is when a business enters new markets with a new product. This is the most risky strategy as it's not based on the business' core competencies but is moving into unfamiliar territory with both market and product development required. The risks can be somewhat mitigated by related diversification where there are some similarities between the existing business and new product. (eg: wilko launch new skincare range). Conversely, unrelated diversification is when there are no similarities between exiting business and new product. (eg: wilko hypothetically launch a new mobile network). This strategy may offer the greatest potential for growth as it opens up an entire new revenue stream for the business in a market previously untapped.

Microsoft - known for PCs and operating systems - entered the games console market when it was dominated by the Sony Playstation and Nintendo 64. The Xbox was launched in 2000 to compete with Sony's next-gen PS2 & Nintendo Game Cube and has since become the main competitor to Sony, with the latest Xbox X and PS5 consoles launched in 2020. Nintendo has lost its share in the core market and now target's its WiiU and switch consoles to a younger audience.

wilko's diversification is demonstrated with sister company KIN brands LTD launched in 2019 with the aim of getting wilko own brand products (KIN, Skin therapy, Fruits etc) into other retailers.

wilko's own brand Fruits shower gel in various scents.

The product lifecycle

Brands and their product lines need to be continually managed. The product life cycle is the journey of a product from when the product is in development to after it has been removed from the market.

Introduction

When a product is first introduced into the market, its sales are usually low and marketing/ promotion are at a high - the company often invests the most in promoting the product at this time and getting it into the hands of consumers. Losses can occur at this stage due to the high promotional expenditures and low sales. Companies should monitor the uptake in the product and consider dropping it if there is little growth.

An exception to the notion that sales start low could be the iPhone - Apple introduce the latest version of the product at a launch event and promote the latest product heavily. The product however doesn't go on sale straight away but such as the anticipation for the product it gets a high amount of pre-orders so is likely to gain rapid growth when it is finally released weeks later.

Growth

This is the stage of faster sales and profit growth. Customers are taking to the product and increasingly buying it. The product concept is proven and is becoming more popular - and sales are increasing. Competitors may enter the market attracted by the sales growth and profit potential. As the market expands, more competition may drive prices down. Marketing in this stage is aimed at increasing the product's market share.

Apple introduced the iPad in 2010 and following rapid growth Samsung, Microsoft and Amazon created their own tablet devices with their own operating systems. Samsung (and many cheap tablet manufacturers) use Android, Microsoft Surfaces use Windows 10, Amazon Kindles use their own OS based on Android).

The end of the growth period can end with competitor shakeout when weaker suppliers cease production. Nokia for example was once the leading mobile phone manufacturer but was slow to adapt to the smartphone and tablet market. Now Nokia have only a small share of the mobile market.

Maturity

This is when sales peak and flatten as saturation occurs. Following the competitor shakeout, the competition battle for market share through advertising, promotional offers, discounting and slight improvements to target different demographics in the market. The result is a strain on profit margins. Businesses must focus on maintaining brand loyalty and retention.

Brand leaders are in the strongest position to maintain profit margins and fend off competition. In 2013 Coca-cola in a saturated soft drinks market decided to remove it's name from its bottles, replacing it with 150 forenames. Customers would seek out their name on the shelf and likely choose that drink over Pepsi. This marketing worked as the Coca-Cola branding is so iconic, even without the name being on the bottle. Coca Cola may try diffeent flavours, such as vanilla & lime.

Coca Cola increased sales in a saturated market by dropping it's brand name, replacing it with names. This meant customers would be drawn to choosing a drink with their name on

Decline

Companies will look to keep their products in the maturity stage for as long as possible, but for some products decline is inevitable. Sales and profits fall during this stage as new technology or changes in consumer tastes reduce demand for the product. Businesses may choose to cease production completely or reduce the range. Companies will no longer promote the product and eventually cease to support it. (Microsoft stopped technical support for it's best selling operating system Windows XP in 2019)

Examples of product lifecycles

Playstation

Introduction: Launched in 1994 it was the first games console to offer 3D gaming and a CD drive which was revolutionary at the time.
Growth: It had rapid growth and was the first games console to ship 100 million units. As more games were released, customers who had yet to purchase, would buy a bundle with their favourite new releases.
Maturity: Sony released the "Dual Shock" controller which vibrated during gameplay, and the 20% smaller PSOne (pictured) to increase sales and maintain its market share.
Decline: As technology advanced with flat screen TVs being introduced and faster computing power with better graphics now available, The playstation was no longer capable and was replaced by the Playstation 2.

DVDs

Introduction: The first DVDs came out in the mid 1990s when the market was saturated with VHS and video tapes.
Growth: DVDs enabled the viewer to skip to their favourite scene, and select bonus features that was not possible to do on a tape. They also took up less space. Eventually DVDs took over VHS as the dominant format to consume films at home. (Decline of VHS)
Maturity: In the 00's DVD player and DVD sales were at peak. As technology improved. Blue-rays were introduced as a higher definition variation for people with more powerful TVs and blue-ray players. Blue-Rays lengthened the maturity stage of the product.
Decline: With the rise on online streaming services such as Netflix, People could watch their favourite films at their fingertips, without having to store DVDs on a shelf or larges files on a hard drive. DVDs and Blue-Ray sales therefore declined. Most DVDs are now bought cheaply in 2nd hand shops and there are less DVD players available to buy in the market.

Electric cars

Introduction: The Nissan Leaf, introduced in December 2010, became the first modern all-electric, family hatchback to be produced for the mass market from a major manufacturer.
Growth: There are now many car manufacturers diversifying into electric cars, including Volkswagon, Ford and Tesla - who make high-end electric sports cars. There was initially only small growth as skeptics were put off by slow charging capacities, but recent fuel shortages and changes in attitudes to the environment have led to increased growth in the electric car market.
Maturity: Electric cars have not yet reached maturity, but with a growing charging infrastructure and that petrol/diesel cars are set to be banned from sale in the UK in 2030, it is predicted this market will reach maturity in the next decade.
Decline: This product has not reached the decline stage. Maybe in 50 years or so when manufacturers invent a car powered by water?

K1 -The fundamentals of marketing theory that support the marketing process e.g. the extended marketing mix (7P’S: Product, Price, Place, Promotion, Physical environment, Process, People), product development, and segmentation.K9 -Basic principles of product development and product/service portfolios

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