4.5 The four Ps - product, price, promotion and place Flashcards
Product
The end result of the production process sold on the market to satisfy a customer need
Consumer durables
Manufactured products that can be reused and are expected to have a reasonably long life, such as cars
Product life cycle
The pattern of sales recorded by a product from launch to withdrawal from the market
What are the first 3 stages of the product life cycles
Introduction
Growth
Maturity or saturation
Introduction
The product has just been launched after development and testing.
Sales are often quite low to begin with and may increase only quite slowly
Growth
Rapid volume increase due to better awareness and expansion of distribution channels
Starts to be profitable due to economies of scale in production and marketing
Competition begins becoming attracted to the market
Reasons for declining growth
Increasing competition
Technological changes making the product less appealing
Changes in consumer tastes
Saturation of the market
Maturity or saturation
Sales may begin to peak/stabilise (no significant changes)
Achieve highest market share, while competition continues to pour into the market
Companies will employ price reductions, product differentiation and extension strategies very aggressively to protect their market share
Extension strategies
Marketing plans that extend the maturity stage of the product before a brand new one is needed
Types of extension strategies
Adding features to the original product
Repackage a product
Discount the price
Rebrand
Sell into new markets
Advantage adding features to the original product
Can usually be developed and marketed more quickly - and at lower cost - than a completely new product
Limitation of adding features to the original product
The basic original product is still ageing and at maturity/decline so consumers may not ‘buy into’ a slightly revised product
Advantage of repackage a product
Relatively cheap and quick method
Disadvantage of repackage a product
Consumers may quickly realise the product is the same and feel that they are being misled
Advantage of discount the price
Lower income consumers can now afford the product = product promotion might actually target different market segments
Disadvantage of discount the price
Impact on long term image of the brand and the company - better to replace the product earlier to avoid discounting
Advantage of rebrand
Opens up new market segments. Can be presented as a substantially ‘new product’
Disadvantage of rebrand
Expensive - is this rebranding strategy really worthwhile if a product has the perception of being old fashioned and is shortly to be replaced?
Advantage of selling into new markets
Market development can increase sales especially if the product is not perceived as being too old or ‘mature’ in these markets
Sell into new markets
Product and promotion may need to be redesigned to meet local laws
Introduction price
May be high compared to competitors (skimming) or low (penetration)
Introduction promotion
High levels of informative advertising to make consumers aware of the product’s arrival on the market
Introduction place
Restricted outlets - possibly high class outlets if a skimming strategy is adopted
Growth price
If successful, an initial penetration pricing strategy could now lead to rising prices
Growth promotion
Consumers need to be convinced to make repeat purchases - brand identification will help to establish consumer loyalty
Growth place
Growing numbers of outlets in areas indicated by strength of consumer demand
Growth product
Planning of product improvements and developments to maintain consumer appeal
Maturity price
Competitors likely to be entering market - there will be a need to keep prices at competitive levels
Maturity promotion
Brand imaging continues - growing need to stress the positive differences with competitors’ products
Maturity product
New models, colours, accessories. As part of extension strategies
Decline price
Lower prices to sell off stock - or if the product has a small ‘cult following, prices could even rise
Decline promotion
Advertising likely to be very limited - may just be used to inform of lower prices
Decline place
Eliminate unprofitable outlets for the product
Decline product
Prepare to replace with other products - slowly withdraw form certain markets
Product life cycle and investment
Investment - capital spending which aims to return a profit - is likely to be heaviest towards the end of a product’s life cycle.
Newer replacement products will be needed to take over when the existing products cease to sell in sufficient numbers and profits are falling or non existent.
This time period required to research and develop new products will determine the timing of this new investment.
Product life cycle and profit
The profitability of products will vary considerably during the life cycle
High profit margins are most likely during the growth and maturity phase - but towards the end of the latter stage, prices might have to be made more competitive and this might start to lead to lower margins.
Product life cycle and cash flow
Cash flow is vital to business survival and ignoring the link between cash flow and product life cycles could lead to a lack of liquidity for the business.
Boston consulting group matrix
A method of analysing the product portfolio of a business in terms of market share and market growth
Low market growth - high market share: product A ‘cash flow’
A well established product in a mature market.
Typically the product creates high positive cash flow and is profitable.
Sales are high relative to the market, and promotional costs are likely to be low due to high consumer awareness
Product can be milked and profits used in other products
High market growth - high market share: product B ‘star’
Successful product as it is performing well in an expanding market.
The firm will be keen to maintain the market positive of this product
Promotional costs will therefore be high to help differentiate the product and reinforce its brand image
High income
Should become cash costs of the future when the market matures
High market growth - low market share: product C ‘problem child’
Consumes resources but generates little return
Future is uncertain
Requires a lot of promotion if it is new
Should have potential of selling
Low market growth - low market share: product D ‘dog’
Offers little to the business
Need to be replaced
When should the Boston Consulting Group matrix be used?
Analysing the performance and current potion of existing products
Planning action to be taken with existing products
Planning the introduction of new products
Issues with the Boston matrix
On its own it cannot tell a manager what will happen next with any product.
It is only a planning tool and it has been criticised as simplifying a complex set of factors determining product success
The assumption is made that higher rates of profit are directly related to high market shares - this is not necessarily the case if sales are being gained by reducing prices and profit margins.
Brand
An identifying symbol, name, image or trademark that distinguishes a product from its competitors
Brand awareness
Extent to which a brand is recognised by potential customers and is correctly associated wit ha particular product - can be expressed as a percentage of the target market