PBM 0304 b

Product & Brand Management

Session 3,4Forecasting , Product Life Cycle

Forecasting : Time Series Analysis.

Components of a Time Series1. Trend2. Cyclical variation3. Seasonal variation4. Irregular/erratic variation

Time Series Analysis: Trend

Positive Trend

Negative Trend

The long-term trends of sales, employment, stock prices, and other business and economic series follow various patterns. Some move steadily upward, others decline, and still others stay the same over time.

• A typical business cycle consists of a period of prosperity followed by periods of recession, depression, and then recovery with no fixed duration of the cycle.

• The rise and fall of a time series over periods longer than one year is called Cyclical Variation.

• In a recession, for example, employment, production, and many other business and economic series are below the long-term trend lines.

• Conversely, in periods of prosperity they are above their long-term trend lines.

Time Series Analysis: Cyclical Variation

Time Series Analysis: Cyclical Variation

• These are patterns of change in a time series within a year. These patterns tend to repeat themselves each year.

• Many sales, production, and other series fluctuate with the seasons. The unit of time reported is either quarterly or monthly.

• Almost all businesses tend to have recurring seasonal patterns. Garments, for example, have extremely high sales just prior to Diwali and relatively low sales just after Diwali and during the summer.

• Other e.g. : Soft drinks, paints etc.

Time Series Analysis: Seasonal Variation

Time Series Analysis: Seasonal Variation

• Many analysts prefer to subdivide the erratic/irregular variation into episodic and residual variations.

• Episodic fluctuations are unpredictable, but they can be identified. The initial impact on the economy of a major strike or a war can be identified, but a strike or war itself cannot be predicted.

• After the episodic fluctuations have been removed, the remaining variation is called the residual variation.

• The residual fluctuations, often called chance fluctuations, are unpredictable, and they cannot be identified.

• Neither episodic nor residual variation can be projected into the future.

• However, based on the past, certain assumptions can be made. E.g. : increased terrorist activities in J & K or Naxalite activities in Jharkhand could dampen the market by 5 % in those territories during the year.

Time Series Analysis: Irregular Variation

Conclusions• Trend line is a linear equation.• For multivariate analysis , we could look at

regression.• Products in their infancy and launch do show a

growth which is quite linear.• But Products, as we all know, if not nurtured

and revived do show a tendency to decline and die over a period of time.

• This leads us to ……….

Product Life CycleConventionally , there are 4 stages in a PLC.

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In large measure disagreements about the existence ofPLC’s arise from lack of definition of what, precisely,is a product. Doyle (1999) distinguishes 6 possible

levels of definition.

Table 4.2 Doyle’s product life cycle factorsSource: Doyle (1999)

• The PLC is a tool which encourages strategic insight, policy formulation and long term strategic planning. It is not a tactical device.

Snap Crackle Pop

Kellogg's• The Kellogg Company (informally Kellogg's or Kellogg) is

a multinational food manufacturing company headquartered in Battle Creek, Michigan, United States.

• Kellogg's brands are household names around the world and include Rice Krispies, Special K and Nutri-Grain, whilst some of its brand characters, like Snap, Crackle and Pop, are amongst the most well-known in the world.

• In 2006, Kellogg had total worldwide sales of almost $11 billion.With 2012 sales of $14.2 billion, Kellogg is the world's leading cereal company.

Kellogg's- The marketThe company has broadly divided its market into six key segments.

1. 'Tasty Start' cereals - Kellogg's Corn Flakes, Nutri-Grain2. 'Simply Wholesome‘ - Kashi Muesli3. 'Shape Management‘ - Special K 4. 'Inner Health' - All-Bran5. 'Kid Preferred‘ – Frosties6. 'Mum Approved‘ - Raisin Wheats

Nutri-GrainNutri-Grain was originally designed to meet the needs of busy people who generally missed breakfast. It aimed to provide a healthy cereal breakfast in a portable and convenient format.

This case study is about Nutri-Grain. It shows how Kellogg's recognized there was a problem with the brand and used business tools to reach a solution. The overall aim was to re-launch the brand and return it to growth in its market.

Nutri-Grain- Launch Many products do well when they are first brought out and Nutri-Grain was no exception.

From launch of Soft bake bars in 1997 it was immediately successful, gaining almost 50% share of the growing cereal bar market in just two years.

Introduction or Launch

The following are some of the marketing mix implications of the introduction stage:

Product - one or few products, relatively undifferentiated

Price - Generally high, assuming a skim pricing strategy for a high profit margin as the early adopters buy the product and the firm seeks to recoup development costs quickly .In some cases a penetration pricing strategy is used and introductory prices are set low to gain market share rapidly .

Distribution - Distribution is selective and scattered as the firm commencesimplementation of the distribution plan.

Promotion - Promotion is aimed at building brand awareness. Samples or trialincentives may be directed toward early adopters.The introductory promotion also is intended to convince potential resellers to carry the product .

Kellogg's - Growth• Nutri-Grain's sales steadily increased as the

product was promoted and became well known. It maintained growth in sales until 2002 through expanding the original product with new developments of flavor and format.

• This is good for the business, as it does not have to spend money on new machines or equipment for production.

• The market position of Nutri-Grain also subtly changed from a “missed breakfast” product to an 'all-day' healthy snack.

Stage 3: Growth

During the growth stage, the goal is to gain consumer preference and increase sales.

• The growth stage is a period of rapid revenue growth. Sales increase as more customers become aware of the product and its benefits and additional market segments are targeted.

• Once the product has been proven a success and customers begin asking for it, sales will increase further as more retailers become interested in carrying it .

• The marketing team may expand the distribution at this point .

• When competitors enter the market, often during the later part of the growth stage, there may be price competition and/ or increased promotional costs in order to convince consumers that the firm's product is better than that of the competition .

Kellogg's- Growth

Kellogg's- MaturityMaturity - Successful products attract other competitor businesses to start selling similar products. This indicates the third stage of the life cycle - maturity. This is the time of maximum profitability, when profits can be used to continue to build the brand. However, competitor brands from both Kellogg's itself (e.g. All Bran bars) and other manufacturers (e.g. Alpen bars) offered the same benefits and this slowed down sales and chipped away at Nutri-Grain's market position.

Maturity

• Because brand awareness is strong, advertising expenditures will be reduced. Competition may result in decreased market share and/ or prices. The competing products may be very similar at this point , increasing the difficulty of differentiating the product.

• The firm places effort into encouraging competitors' customers to switch, increasing usage per customer, and converting non- users into customers.

• Sales promotions may be offered to encourage retailers to give the product more shelf space over competing products.

Decline

• Eventually sales begin to decline as the market becomes saturated, the product becomes technologically obsolete, or customer tastes change .

• If the product has developed brand loyalty, the profitability may be maintained longer. Unit costs may increase with the declining production volumes and eventually no more profit can be made .

• During the decline phase, the firm generally has limited options:

1. Analyze the product , brand & market and then decide.2. Maintain the product in hopes that competitors will exit . Reduce costs and

find new uses for the product .3. Harvest it, reducing marketing support and coasting along until no more

profit can be made.4. Discontinue the product when no more profit can be made or there is a

successor product .

Kellogg's- Decline

Decline - Clearly, at this point, Kellogg's had to make a key business decision. Sales were falling, the product was in decline and losing its position.

Should Kellogg's let the product 'die', i.e. withdraw it from the market, or should it try to extend its life?

Strategic use of the product life cycle• Strategically, Kellogg had a strong position in the market for both

healthy foods and convenience foods.

• Nutri-Grain fitted well with its main aims and objectives and therefore was a product and a brand worth rescuing.

• This meant developing an extension strategy for the product. Ansoff’s matrix is a tool that helps analyze which strategy is appropriate. It shows both market-orientated and product-orientated possibilities.

Ansoff’s matrix

Extending the Nutri-Grain cycle –identifying the problem

• Kellogg had to decide whether the problem with Nutri-Grain was the market, the product or both.

• The market had grown by over 15% and competitors’ market share had increased while Nutri-Grain sales in 2003 had declined.

• The market in terms of customer tastes had also changed – more people missed breakfast and therefore there was an increased need for such a snack product.

• The choice of extension strategy indicated by the matrix was either product development or diversification.

• Diversification carries much higher costs and risks. Kellogg decided that it needed to focus on changing the product to meet the changing market needs.

Extending the Nutri-Grain cycle –identifying the problem

Research showed that there were several issues to address:

1. The brand message was not strong enough in the face of competition. Consumers were not impressed enough by the product to choose it over competitors.

2. Some of the other Kellogg products (e.g. Minis) had taken the focus away from the core business.

3. The core products of Nutri-Grain Soft Bake and Elevenses between them represented over 80% of sales but received a small proportion of advertising and promotion budgets.

4. Those sales that were taking place were being driven by promotional pricing (i.e. discounted pricing) rather than the underlying strength of the brand.

Implementing the extension strategy

• Fundamental to the re-launch was the renewal of the brand image. Kellogg looked at the core features that made the brand different and modeled the new brand image on these.

• Nutri-Grain was unique as it is the only product of this kind that is baked. This provided two benefits:– the healthy grains were soft rather than gritty– the eating experience is closer to the more indulgent foods that people

could be eating (cakes and biscuits, for example).

• Hence the focus of the brand, needed to be the ‘soft bake’.

Implementing the extension strategy• Researchers also found that a key part of the market was a group

termed ‘realistic snackers’. These are people who want to snack on healthy foods, but still crave a great tasting snack.

• The re-launched Nutri-Grain product needed to help this key group fulfil both of these desires.

• Kellogg decided to re-focus investment on the core products of Soft Bake Bars and Elevenses as these had maintained their growth (accounting for 61% of Soft Bake Bar sales).

• Three existing Soft Bake Bar products were improved, three new ranges introduced and poorly performing ranges (such as Minis) were withdrawn.

• New packaging was introduced to unify the brand image.• An improved pricing structure for stores and supermarkets was

developed.

The Marketing Mix• Product – improvements to the recipe and a wider range of

flavors, repositioning the brand as ‘healthy and tasty’, not a substitute for a missed breakfast.

• Promotion – a new and clearer brand image to cover all the products in the range along with advertising and point-of-sale materials.

• Place – better offers and materials to stores that sold the product.

• Price – new price levels were agreed that did not rely on promotional pricing. This improved revenue for both Kellogg and the stores.

The Result

• As a result Soft Bake Bar year-on-year sales went from a decline to substantial growth, with Elevenses sales increasing by almost 50%.

• The Nutri-Grain brand achieved a retail sales growth rate of almost three times that of the market and most importantly, growth was maintained after the initial re-launch.

Nutri-Grain – 2005

Nutri-Grain – 1994

Nutri-Grain – 2005-2010

Nutri-Grain –2010

Nutri-Grain – Vampires : Mortons -1

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Stage 1: Gestation• This is also called the New Product development

phase.• With accelerating technological changes and

increased competition, companies are forced to launch newer products continuously & quickly.

• As a result , the products are either still-born or survive for a very small time before they are replaced with newer products.

• Moreover, Mckinsey’s research in the 1990s showed that “ time to market “ is more important than the budget compliance.

Stage 1: Gestation• The research takes into account PLC of 5 years

, annual growth of 15% and a price erosion of 12% per annum.

• The conclusions are that a firm bringing a new product on budget but 6 month’s late would forfeit almost 50% of its profit potential .

• While a company with an over-run of 50% would forfeit only 4% if the product is brought out on time.

Too Early ??

• GO Corporation (1987) was one of the most well-funded startups of its time, with a mobile operating system and pen-based computers that were surprisingly good.

• Stiff competition from Apple & Microsoft• GO struggled, In 1994, was acquired by AT&T due to

cash crisis• It was a forerunner to the runaway success of the Palm

Pilot, and in many ways of later touch-based computing devices like the iPhone or the iPad. It was just too early.

• There are a long list of products on the web like sixdegrees.com, webTV etc.

More Notes on PLC

Stage 2: Introduction• In 1960, Theodore Levitt “ Marketing Myopia”

commented that consumers are continuously searching for newer and better ways of satisfying their needs.

• “This alone should drive the companies to innovate and introduce products and those companies that understand the needs of the customer better are more likely to overcome the hurdles in the infancy stage.”

• (Close to the customer- Peters & Waterman – In Search

of Excellence)

Stage 2: Introduction

The following are some of the marketing mix implications of the introduction stage:

Product - one or few products, relatively undifferentiated

Price - Generally high, assuming a skim pricing strategy for a high profit margin as the early adopters buy the product and the firm seeks to recoupdevelopment costs quickly .In some cases a penetration pricing strategy is used and introductory prices are set low to gain market share rapidly .

Distribution - Distribution is selective and scattered as the firm commencesimplementation of the distribution plan.

Promotion - Promotion is aimed at building brand awareness. Samples or trialincentives may be directed toward early adopters.The introductory promotion also is intended to convince potential resellers to carry the product .

Stage 3: Growth

• The growth period is one of particular dynamism because it offers the opportunity for new entrants to take on the established suppliers and win market share.

• The growth stage is a combination of push (supply) and pull (demand) at work.

• In the pull side , the new customers like to display the product and discuss with others about it leading to a ‘viral’ WoM.

• But at the same time potential suppliers would not want to miss a piece of the cake !!

Stage 3: Growth

• During the growth stage, the goal is to gain consumer preference and increase sales.

• The growth stage is a period of rapid revenue growth. Sales increase as more customers become aware of the product and its benefits and additional market segments are targeted.

• Once the product has been proven a success and customers begin asking for it, sales will increase further as more retailers become interested in carrying it .

• The marketing team may expand the distribution at this point .

• When competitors enter the market, often during the later part of the growth stage, there may be price competition and/ or increased promotional costs in order to convince consumers that the firm's product is better than that of the competition .

Stage 3: Growth

The marketing mix may be modified as follows:

Product - New product features and packaging options; improvement ofproduct quality.

Price - Maintained at a high level if demand is high, or reduced to captureadditional customers.

Distribution - Distribution becomes more intensive. Trade discounts are minimal if resellers show a strong interest in the product .

Promotion - Increased advertising to build brand preference.

Stage 4: Maturity

• During the maturity stage, the primary goal is to maintain market share and extend the product life cycle .

• Maturity occurs when the new product has successfully displaced the product for which it was a substitute and competitors have also switched to the replacement or quit.

• The maturity stage is the most profitable . While sales continue to increase into this stage, they do so at a slower pace.

Stage 4: Maturity

• Because brand awareness is strong, advertising expenditures will be reduced. Competition may result in decreased market share and/ or prices. The competing products may be very similar at this point , increasing the difficulty of differentiating the product.

• The firm places effort into encouraging competitors' customers to switch, increasing usage per customer, and converting non- users into customers.

• Sales promotions may be offered to encourage retailers to give the product more shelf space over competing products.

Stage 4: Maturity

Marketing mix decisions may include :

Product - Modifications are made and features are added in order to differentiate the product from competing products that may have been introduced.

Price - Possible price reductions in response to competition while avoiding a price war .

Distribution - New distribution channels and incentives to resellers in order to avoid losing shelf space.

Promotion - Emphasis on differentiation and building of brand loyalty .Incentives to get competitors' customers to switch .

Stage 5: Saturation

• Advanced stage of Maturity.

• The pareto principle kicks in with a large number of smaller firms contributing to 20% of the sales.

• The PIMS study of doubled profitability with a 15% increase in market share becomes more apparent.

• There will be price stability with major players avoiding head on price conflict with the market leader.

Stage 5: Saturation

• Niche segments catering to specific needs of the customers will emerge and charge premium.

• The greatest reward is that now is the time to reap rewards since all the suppliers have established themselves and are at “ peaceful co-existance” mode.

• However the greatest danger is “complacency” . Any slackness in terms of correct deployment of resources could cause a huge set-back.

Stage 6: Decline

• Eventually sales begin to decline as the market becomes saturated, the product becomes technologically obsolete, or customer tastes change .

• If the product has developed brand loyalty, the profitability may be maintained longer. Unit costs may increase with the declining production volumes and eventually no more profit can be made .

• During the decline phase, the firm generally has three options:1. Maintain the product in hopes that competitors will exit . Reduce

costs and find new uses for the product .2. Harvest it, reducing marketing support and coasting along until no

more profit can be made.3. Discontinue the product when no more profit can be made or there

is a successor product .

Stage 6: Decline

The marketing mix may be modified as follows:• Product

– The number of products in the product line may be reduced.– Rejuvenate surviving products to make them look new again .

• Price – Prices may be lowered to liquidate inventory of discontinued products.– Prices may be maintained for continued products serving a niche

market.

• Distribution - Distribution becomes more selective. Channels that no longer are profitable are phased out.

• Promotion - Expenditures are lower and aimed at reinforcing the brand image for continued products.