Product Decisions and Product Life Cycle Chapter 8 Session: 12 Prof: Yasmin S 1.

Product Decisions and Product Life Cycle

Chapter 8

Session: 12

Prof: Yasmin S

1

What is a product?

• A product is any offering by a company to a market that serves to satisfy customer needs and wants.

• It can be an object, service, idea,etc.

2

Product Personality

• The components of a product convey different meanings to different customers and project a distinctive image of the product in the eyes of the customers

• These meanings and images contribute to the formation of Product Personality

3

Product Personality• Core benefit- is the basic component of a

product. All other components are superimposed on the core product to form the personality of the product. Eg. Car- core benefit is a personal means of transport.

• Associated Features- size, shape, capacity, brand etc are associated features, firms selling similar products compete on the basis of the associated features as the core features remain the same

4

Nature of the Product

• Prof. Theodore Levitt differentiated the products based on the value they provide to the customers

• Levitt conceptualized the generic, expected, augmented and potential product

5

Product Levels

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Product Levels

Customer value hierarchy

• Core benefit

• Generic/ Basic product

• Expected product

• Augmented product

• Potential product

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Product Hierarchy

• Organizational chart that depicts the array of products offered in a given market

• Eg. Automobile Sector:– Product class- cars, bike, trucks– Product form- cars divided into SUV, family

cars etc, cars with two doors, four doors etc– Product brands- Chervolet, Skoda, Mercedez

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Product classification

• Durability & Tangibility– Non durables– Durables– Services

• Usage – Consumer products– Industrial products

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Consumer goods classification

• Convenience goods- relatively inexpensive and are bought frequently.– Staple (milk, bread, newspaper)

– Impulsive (chewing gum, chips etc)

• Shopping goods- buyer is wiling to spend time and effort in planning and making purchase decision. Products have longer life and purchased less frequently. Relatively expensive and sold at selective outlets

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Consumer goods classification• Specialty goods- products that have one or

more unique characteristic feature. Customers are aware of what they want and will not accept a substitute. Expensive product eg original painting, an antique car, Mont- Blanc Pen

• Unsought goods- a product that a customer purchases when he is faced with a sudden problem eg insurance, medicines etc

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Classes of Consumer ProductsClasses of Consumer Products

ConvenienceConvenience ShoppingShopping SpecialtySpecialty

GoodsGoods

ServicesServices

PO

P

14-1

$$

ATM

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Industrial goods classification• Production goods

– Raw materials

– Component parts

– Process materials

• Support goods– Capital equipment

– Accessory equipment

– Consumables supplier• Maintenance items

• Repair items

• Operating items

– Business services13

Product Policy

• Product mix

• Product mix strategies

• Managing product lines

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Product Policy

Can be understood as:• Product mix

• Product mix strategies

Width

Length

Depth

Consistency

Expansion of product mix

Contraction of product mix

Altering existing products

Positioning the product

Trading up

Trading down

Product Mix

• The assortment of products that a company offers to a market

• Width – how many different product lines?

• Length – the number of items in the product mix

• Depth – The no. of variants offered in a product line

• Consistency – how closely the product lines are related in usage

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PRODUCT MIX OF HUL

CONFECTIONARIE

COLOR COSMETICS

HAIR CARE

SKIN CARE

ORAL CARE

DEODORANTS

SOAPS AND DETERGENTS

TOILET SOAPS

BEVERAGES FOOD

Max Lakme SunsilkFair & Lovely

Peposodent Axe Surf Liril 3 Roses Knorr

Aviance Clinic Pond'sClose up Pond's Rin

Lifebouy

lipoton Yellow label

Anapurna Ata

Dove Rexona Wheel Lux

lipton green label

Anapurna salt

Denim OK Breezelipton ice tea

modern food range

501Pears Red LabelKwality Walls

Sunlight Hamam Taj Mahal Kissan

Ala RexonaBrooke Bond Taza

Vim Dove Bru Savlon

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Product Mix Strategies• Expansion of product mix

• Contraction of product mix

• Altering existing products

• Positioning the product– In relation to competitors product– In relation to target market– In relation to product class– By price and quality

• Trading Up

• Trading Down 18

Managing Product Lines• Product line analysis

• Product line length: too long – when profits increase by dropping a product in the line too short – when profits increase by adding products to the product line – Line stretching– Line filling

• Product-line modernization

• Line pruning

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20

Managing Product Lines

• Product line analysis

• Product line length: can be increased in two ways

• Product line modernization

• Line pruning

• Reasons for line extension

• Limitation of product line extension

•Line stretching•Line filling

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Managing Product Lines contd..

• Reasons for line extension:-

- Provide wide variety of goods under one umbrella

- less time and cost is involved as compared to introducing new products

- high price for premium products

- reduce cost for market research

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Managing Product Lines contd..

• Limitations of product line extension:-

- Weaker lines

- Lowers Brand Loyalty

- Under exploitation of ideas

- Stagnant Demands

- Profits earned is short lived

- It can dilute brand image

- Complexity in logistic

Brand

• A name becomes a brand when consumers associate it with a set of tangible and intangible benefits that they obtain from the product or service

• It is the seller’s promise to deliver the same bundle of benefits/services consistently to buyers

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Advantages of branding

• Easy for the seller to track down problems and process orders

• Provide legal protection of unique product features• Branding gives an opportunity to attract loyal and

profitable set of customers• It helps to give a product category at different

segments, having separate bundle of benefits• It helps build corporate image• It minimises harm to company reputation if the brand

fails

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PRODUCT LIFE CYCLE• Product Life Cycle – shows the stages that

products go through from development to withdrawal from the market– Each product may have a different life cycle– PLC determines revenue earned– Contributes to strategic marketing planning– May help the firm to identify when

a product needs support, redesign, reinvigorating, withdrawal, etc.

– May help in new product development planning– May help in forecasting and managing cash flow

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PLC

• Products have a limited life

• Product sales pass through distinct stages

• Profits rise and fall at different stages of the PLC

• Product require different strategies in each stage of the PLC

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Product Life Cycle

Time

ProductDevelopment

Introduction

Profits

Sales

Growth Maturity Decline

Losses/Investments ($)

Sales andProfits ($)

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The Stages of the Product Life Cycle:

• Development

• Introduction/Launch

• Growth

• Maturity

• Saturation

• Decline

• Withdrawal

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The Development Stage:

• Initial Ideas – possibly large number• May come from any of the following –

– Market research – identifies gaps in the market– Monitoring competitors– Planned research and development (R&D)– Luck or intuition – stumble across ideas?– Creative thinking – inventions, hunches?– Futures thinking – what will people be

using/wanting/needing 5,10,20 years hence?

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The Development Stage:

– New ideas/possible inventions– Market analysis – is it wanted? Can it be

produced at a profit? Who is it likely to be aimed at?

– Product Development and refinement– Test Marketing – possibly local/regional– Analysis of test marketing results and

amendment of product/production process– Preparations for launch – publicity, marketing

campaign

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The Introduction Stage

The seller tries to stimulate demand

• Promotion campaigns to get increase public awareness

• Explain how the product is used,

• Features Advantages Benefits

• You will lose money, but you expect to make profits in the future

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The Introduction Stage

• Sales are low, and profits are below the line because your costs are greater than the amount of money you make

• you have “negative” profit

• Need to spend a lot of money on promotion

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The Introduction Stage

• Advertising and promotion campaigns

• Target campaign at specific audience?

• Monitor initial sales

• Maximise publicity

• High cost/low sales

• Length of time – type of product

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Strategies - Introduction

• Skimming the market

• Penetrating the market

• Must have sufficient resources to withstand the initial losses and heavy promotion costs

• Incremental selling efforts at this stage is highest

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Introduction Stage of the PLC

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Low sales Low sales

High cost per customerHigh cost per customer

NegativeNegativeCreate product awareness

and trialCreate product awareness

and trial

Offer a basic productOffer a basic product

Use cost-plus Use cost-plus

DistributionDistribution Build selective distributionBuild selective distribution

AdvertisingAdvertising Build product awareness among early adopters and dealers

Build product awareness among early adopters and dealers

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Growth• A lot is sold - The seller tries to sell as much as

possible

• Other competitor companies watch, and decide about joining in with a competitor product

• “success breeds imitation” (Text)

• Growth will continue until too many competitors in the market - and the market is saturated

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• At the end of the growth stage, profits start to decline when competition means you have to spend more money on promotion to keep sales going.

• Spending money on promotion cuts into your profit

Growth

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Growth

• Increased consumer awareness

• Sales rise

• Revenues increase

• Costs - fixed costs/variable costs, profits may be made

• Monitor market – competitors reaction?

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Strategies - Growth

• Improves quality and adds features• Adds new models and variants• Enters new market segments• Increases distribution coverage and adds new

channels• Shifts communication from awareness to

preference building• Scale economies enable it to lower prices to attract

the next level of price conscious buyers

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Growth Stage of the PLCGrowth Stage of the PLC

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Rapidly rising sales Rapidly rising sales

Average cost per customerAverage cost per customer

Rising profitsRising profits

Maximize market shareMaximize market share

Offer product extensions, service, warranty

Offer product extensions, service, warranty

Price to penetrate marketPrice to penetrate market

DistributionDistribution Build intensive distributionBuild intensive distribution

AdvertisingAdvertising Build awareness and interest in the mass market

Build awareness and interest in the mass market 41

Maturity• Many competitors have joined - the market is saturated

• The only way to sell is to begin to lower the price - and profits decrease

• It is difficult to tell the different between products since most have the same F.A.B. - Features, Advantages & Benefits

• Competition can get “Nasty” and commercials are intense

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Maturity

• “Persuasive Promotion” becomes more important during this stage

• That is to say, you have commercials almost begging the customer to still buy your product because you still make it just as good.

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Maturity

– Sales reach peak– Cost of supporting the product declines– Ratio of revenue to cost high– Sales growth likely to be low– Market share may be high– Competition likely to be greater– Price elasticity of demand?– Monitor market – changes/amendments/new

strategies?

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Maturity

• Marketing Strategies: Product – Diversify brand and models

• Price – Set to match or beat competition• Distribution – Build more intensive

distribution• Advertising – Stress brand differences and

benefits• Sales Promotion – Increase to encourage

brand switching

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Strategies - Maturity

• Most products are in this stage

• Price wars are inevitable.

• Scramble for market share

• The fittest survive

• Market modification, product modification, marketing mix modification can help extend the maturity stage

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Maturity Stage of the PLCMaturity Stage of the PLC

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Peak salesPeak sales

Low cost per customerLow cost per customer

High profitsHigh profitsMaximize profit while

defending market share

Maximize profit while defending

market shareDiversify brand and modelsDiversify brand and models

Price to match or best competitors

Price to match or best competitors

DistributionDistribution Build more intensive distributionBuild more intensive distribution

AdvertisingAdvertising Stress brand differences and benefits

Stress brand differences and benefits 47

Saturation• New entrants likely to mean market is ‘flooded’• Necessity to develop new strategies becomes more

pressing:– Searching out new markets:

• Linking to changing fashions• Seeking new or exploiting market segments• Linking to joint ventures – media/music, etc.

– Developing new uses– Focus on adapting the product– Re-packaging or format– Improving the standard or quality– Developing the product range

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Decline and Withdrawal

• Product outlives/outgrows its usefulness/value• Fashions change• Technology changes• Sales decline• Cost of supporting starts to rise too far• Decision to withdraw may be dependent on

availability of new products and whether fashions/trends will come around again

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Decline and Withdrawal

• Newer products are now more attractive - even a low price does not make consumers want to buy.

• Profit margin declines - and so the only way to make money is to sell a high volume

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Decline and Withdrawal

• To increase volume you try to

1. Increase the number of customers - get new customers

2. Increase the amount each customer uses

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Decline and Withdrawal

• Marketing Strategies: Product – Phase out weak items

• Price – Cut price• Distribution – Use selective distribution:

phase out unprofitable outlets• Advertising – Reduce to level needed to

retain hard-core loyalists• Sales Promotion – Reduce to minimal level

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Strategies - Decline

• Withdrawal

• Rationalisation of products

• Harvesting whatever is possible

• Divesting the product

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Decline Stage of the PLCDecline Stage of the PLC

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Declining salesDeclining sales

Low cost per customerLow cost per customer

Declining profitsDeclining profits

Reduce expenditure and milk the brand

Reduce expenditure and milk the brand

Phase out weak itemsPhase out weak items

Cut priceCut price

DistributionDistribution Go selective: phase out unprofitable outlets

Go selective: phase out unprofitable outlets

AdvertisingAdvertising Reduce to level needed to retain hard-core loyal customers

Reduce to level needed to retain hard-core loyal customers 54

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Limitations of PLC Concept

• Sales of some products rise or decline quickly at the same rate.

• Increase in marketing activities may alter the shape of PLC curve

• PLC outlines the phases but does not give any indication to their duration.

Session-14

Product Life Cycles

Sales

Time

Development Introduction Growth Maturity Saturation Decline

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