IB: Business Management: Marketing Product (Unit 4.3~the product)

THE PRODUCT - notes

• A product is something that the company seeks to sell to satisfy customer needs and wants


• The product was ‘add value’ meaning that the value of the finishing product needs to be higher than when it first went into the factory, meaning that the company is actually able to make a profit from it


• There are different classifications for products:


• Fast moving- products that are necessary for daily use, like toilet paper and it is something that consumers need to buy. Something that is bought for a short period of time, meaning quick and rapid resales. Usually a large volume is sold with a low profit margin due to the low prices. There is small customer loyalty, and therefore a high elasticity of demand( consumers are more sensitive to price changes)


• Perishables- products that easily and quickly are out of use, for example flowers or food, that have a certain time period where the product is useful. They are usually priced very high during peak times like valentines day for flowers, however due to the temporary nature of the products, it means that it is therefore costly to get rid of excess stock.


• Durables- products that are used for a long period of time, like a phone or electronics in general. This means that there is usually a high profit margin due to the high prices, it takes up a large portion of the consumer’s income but it also means that they wont be buying very rapidly.


• Specialty- these products have a high profit margin due to their high prices, they are very exclusive products like the iPod for apple, these cannot be sold from any other brand meaning that they have a low elasticity of demand  and the consumers are less price sensitive. This is also applied to the Porsche and the Ferrari.


• Product range- This is all the range of products in the product mix of a company, meaning all the products that it sells.


• Product mix- The different types of products that your company offers, like a phone or television. It doesn’t necessarily mean specifically touch screen phone and non-touch screen phone, but just a phone.


• Product line- the different types of product within your product mix, like different sized television screens. They are essentially the same product(product mix) but they are different variations of the same product.


• New product design and development


• Must have market research to support design and development to ensure that what you produce is what the consumer wants reducing sales


• Product life cycle


• This is looking at the way a product behaves throughout time on the axis of sales revenue and time

• Research and development is the stage before introduction, and this is the stage where new products are being test marketed and tested before it is launched to minimize risk


• The research and development stage is very costly due to the high rejection rate of products and also the industrial espionage risk, as many car products are publicized during testing periods


• High investment with no return, very risky for business


• Introduction is the stage where the product is launched and pubicised to the general public, a lot of intense marketing is used here like launch campaigns, below the line promotion to enhance consumer awareness of the product


• Little growth and little market share and little profit due to the lack of consumer awareness to begin with


• Objective is to get to growth as quickly as possible as that is when they start making profit


• Growth is the stage where consumer attention has been yielded, and also sales revenue begins to increase quite rapidly


• There is still low market share as the product is still being noticed by the consumers


• Starts facing competition


• Many companies wish to stay in growth for as long as possible because of the fast growing market share and fast growing profits of the product


• More product differentiation occurs here, the product is distinguished amongst other products causing it to increase in sales


• Increase in distribution areas- place


• Maturity is the stage where the growth slows down, with a high market share but low growth quite equivalent to the cash cow on the boston matrix


• This is the stage where a lot of promotion and above the line promotion is used because of the high and intense level of competition, making it crucial for a distinguishing advertising campaign to work.


• Highly reliant on promotion to differentiate itself


• Products like coca cola and mars bar stay at this level for a long period of time


• High level of Economies of scale in terms of production and marketing


• Unsuccessful competitors then drop out


• Decline is when the product grows old, and many replacements appear, making it not worthwhile for the business to continue investing in that product


• For example cathode ray televisions have now been replaced by LCD screens in televisions


• Equivalent of the dog in the boston matrix


• Sales fall and prices decrease as there is no longer a demand for the product


• Extension strategies, are strategies that a company uses to prevent their product from entering the final stage of the product life cycle(decline) for example

-          Re-advertising, with a completely new image to provoke a different impression of the product, like Hello Kitty advertising towards teenage girls rather than young girls

-          Below the line promotion, like discounts and coupons to encourage sales in the short term and to stimulate consumer interest in the product

-          Creating new variations of the product, like a fun sized chocolate bar to arouse consumer interest and also to prevent the product from entering decline

-          Target towards different market segment, aim it towards a different set of people with a different marketing strategy to maximize sales to a larger group of people

-          Redesigning and repackaging, different types of packaging to change the image of the product

Branding

• Branding is referring to the identity that is usually given to a product to improve customer loyalty and brand recognition, it represents the product and the company in a shape or a word


• This is a key product differentiator, allows the product to be separated from others.


• Intangible asset in the way that it is not something that you can achieve just by buying it, it is something that is built over time


• Trademarks are legal rights to protect the brand, to allow the business to enjoy the benefits of a good and established brand

Brand development

• Build the awareness of the brand, which is crucial for a successful brand and successful product, because even if the product is good, it doesn’t mean that it will sell very much because of the lack of awareness and recognition of the brand


• This is a long term investment, and it is very expensive


• But to build a strong brand is the aim of every marketing department

Brand Loyalty

• Very important to business to encourage customer resales, and it ensures that consumers will buy from them rather than from a competitor, hence ensuring that their product is differentiated from that of another company’s because of the strong and established brand

Loyalty programs

• This is to encourage the loyalty of consumers, for example with the use of membership cards, or certain below the line promotion schemes that encourage buyers to buy from that certain brand, hence building a good brand recognition and brand loyalty

Why should firms develop a brand?

-          Reduces risk, so if they try to expand into different product markets, it means that there will be less risk as there is an increased brand recognition, which means that people will buy it because they recognize the brand. For example, Mars advancing into ice cream products, because of the well known and established brand of Mars, it means that consumers are more willing to try their new ice cream products due to their already established impressions of the mars bar.

-          Foster extension strategies, it means that the extension strategies of that successful brand is likely to work, for example by re-advertising a product with a different image or changing the product to appeal to different target markets, it is likely to be more successful because of the brand loyalty and brand recognition

-          Distribution advantages, it means that the business will not have to look especially for a distributor to sell the product, if the product is well known and it sells it means that all the distributors will be fighting for the most recognized products as they have a highest chance of selling. 

-          Competitive advantage, with a more successful brand it means that it can potentially generate a large volume of sales, this is due to the fact that consumers trust the product and are willing to spend money on it as they associate the quality of the product with the price

-          Premium pricing, the business or firm is able to use premium pricing and get away with it because their products are associated wth a higher quality, and because of the brand recognition and customer loyalty it usually entails that there will be a high elasticity of demand, and customers will be less sensitive to price changes if they are loyal to that brand

• Barriers to entry,it means that with a lot of well established brands in the industry it prevents any small business from wanting to establish themselves in that market. This is because of the high economies of scale for the businesses with big brands, for example Mcdonalds has a very high economies of scale due to it’s size, purchasing and also because of it’s well known brand, which makes it hard for a new unknown business to establish themselves. This is because of the relatively high startup costs, and also they cannot compete with the low prices of these successfully branded companies.


• Types of branding


• Family branding- many products under the same brand, like virgin has a wide variety or a wide product range all under the same brand name


• Company branding- meaning that the branding follows after the name of the company like adidas or nike, this is useful for marketing economies of scale


• Own brand- many retailers like park’n shop have their own brands, that are set at lower than the prices of the big brands. Appealing to consumers who are more price sensitive, and also this is possible due to the high purchasing economies of scale


• Product branding- under the same brand name like coca cola there can be many different individual brands. For example coca cola with sprite and fanta, these are all separate brands but under the same company, this may be used to allow consumers to not associate the products together by creating a different brand image for both. Also shown in Lexus in Toyota


• Manufacturer’s brand- this is branding that is from the company in itself, the company is responsible for manufacturing and selling. For example dell is able to directly sell to the customer.


• Branding in a global market: this makes it important for a business to have an established brand, which allows it to be easily recognizable across nations. For examples Mcdonalds has a very recognizable brand, which allows the consumer to recognize the brand


• Some brands are ‘glocalized’ meaning that they are adapted to certain areas to suit the demands of the local customer, for example a brand name that may seem suitable in one nation may not be the same in another, to cater for different target markets


• A globalized brand also allows the firm to have global marketing economies of scale, as one advertisement can be used worldwide, rather than repeatedly creating new ones for each brand name in each different nation


• It encourages customer loyalty

Product differentiation

• Companies need to differentiate their product in order to survive in the competitive market


• In terms of


• Design(also includes durability and quality)


• Appearance


• After sales service


• Loyalty programs


• Availability, abundance of their product in terms of distributors.

Benefits of differentiation

• More competitive advantage


• Increased customer loyalty and recognition of the brand as you are differentiated from other competitors


• Allows premium pricing, because your product is not something that other businesses can offer


• Distribution advantages, more people want to sell your product in their store

Boston Matrix

• A measure of market share against growth


• Used to analyze the product portfolio of a business and to assess whether they are worth investment or not


• Good to have a large range of products, this is because risk is spread, if your business is declining in one market but expanding in another it means that your business is at less risk as compared if you had a less diversified product range


• This is because different products do well in different economic climates, for example certain airlines under virgin will do well in economic recessions but not so well in other times.


• It is also good because it means that larger revenues can be generated due to the diversity of the products


• Boston matrix analyzes different products and assesses where they lie within the matrix and is used to judge whether or not a product is worth investment


• CASH COWS: are products that are in the maturity section of the product life cycle, they are the bread and butter of the company’s profits, and they generate a lot of sales revenue. High profits, low growth, high market share.


• STARS: Relative to the growth section, high growth, high market share but still need investment to go onto being cash cows


• QUESTION MARKS: They have a high growth but a low market share, this is a product that could be a dog or a star, it depends on the nature of the product and the availability of resources within the business, the fate of the question marks usually is the outcome of market research on the demand of such a product-requires a lot of investment


• Low revenues


• DOGS: lack of demand, equivalent of the decline stage of the product, there are many substitutes and they gradually become out of fashion and out of production. Low market share, low growth they are considered an opportunity cost as that money could be used elsewhere for example in training.


• However there are limitations to the Boston matrix as the boston matrix highly focuses on the sales revenue, when indeed a lot of sales revenue does not necessarily equate to a high profit because it depends on the management of costs within the business