Section Three - Marketing Decisions - Marketing Mix (product)

Question 1

What are three types of consumer products?

Answer 1

• Convenience products
• Shopping products
• Specialty products

Question 2

What are convenience products?

Answer 2

These are inexpensive, everyday items bought regularly by lots of people.
They’re often bought out of habit, e.g. a coffee on the way to work. Consumers don’t put too much thought into buying them and they don’t bother shopping around for cheaper alternatives because they wouldn’t save much.

Question 3

Explain shopping products

Answer 3

These are things like clothes, computers and washing machines that are bought less regularly than convenience products. They’re more expensive and are sold in fewer places than convenience products. People might pay more for a particular brand, e.g. a Bosch hob or a Jack Wills sweater.

Question 4

Explain specialty products

Answer 4

These are things consumers believe are unique in some way, and they’ll travel to find the exact brand - e.g. designer handbag, celebrity hair stylist or luxury car. Perceived image and quality are more important to consumers than price for speciality products, so higher profits can be made from them.

Question 5

What is the Boston Matrix?

Answer 5

The Boston Matrix compares market growth with market share. Each circle in the matrix represents one product. The size of each circle represents the sales revenue of the product.

Question 6

What does the Boston Matrix look like?

Answer 6

Question 7

Explain question marks

Answer 7

All new products are question marks and they have small market share and high market growth.
These aren’t profitable yet and could succeed or fail. They need heavy marketing to give them a chance. A business can do various things with question marks - brand building, harvesting (maximising sales or profit in the short term) or divestment (selling off the product).

Question 8

Explain cash cows

Answer 8

Cash cows have high market share but low market growth. They’re in their maturity phase. They’ve already been promoted and they’re produced in high volumes, so costs are low. Cash cows bring in plenty of money.

Question 9

Explain stars

Answer 9

Stars have high market growth and high market share. They’re in their profitable growth phase and have the most potential. They’re future cash cows. BUT… competitors are likely to try to take advantage of this growth market too, so a firm will need to spend a lot on promoting their product to keep their market share. Also, money might need to be spent to increase capacity to keep up with demand.

Question 10

Explain dogs

Answer 10

Dogs have low market share and low market growth. They’re usually pretty much a lost cause. If they’re still profitable, e.g. a chocolate bar that is still popular, but no longer growing, the business will harvest profit in the short term.
If the product is no longer making a profit it can be sold off.

Question 11

What is a disadvantage of Boston Matrix?

Answer 11

But the Boston Matrix can’t predict exactly what will happen to a product. A product’s profit may be different from what the matrix suggests (e.g. a dog can have strong cash flow and be profitable despite falling sales).

Question 12

What are the three main reasons why it is worthwhile for companies to develop new products?

Answer 12

1) New products can bring in new customers.
2) They give a competitive advantage.
3) They allow companies to maintain a balanced product portfolio.

Question 13

How can technology inspire new products?

Answer 13

Technological developments mean that a company can now offer the customer something that it couldn’t offer before, e.g. 8K TV. In the long term, the new product is likely to be a replacement for the old one.

Question 14

How can competition inspire new products?

Answer 14

2) A company might develop an imitative new product in response to one which has been launched by a competitor, e.g. lots of companies decided to develop bagless vacuum cleaners after the launch of the Dyson ™.

Question 15

What does the product life cycle?

Answer 15

Question 16

Explain the development stage

4 bullets

Answer 16

1) The research and development (R&D) department develop the product.
2) The marketing department does market research.
3) The costs are high, and there aren’t any sales yet to cover the costs.
4) Development has a high failure rate. This is because there’s often not enough demand, or because the business can’t make the product cheaply enough to make a profit.

Question 17

What is the introduction stage?

7 bullets

Answer 17

1) The product is launched, either in one market or in several markets. It’s sometimes launched with complementary products - e.g. the PlayStation® was launched with games.
2) The business often promotes the product heavily to build sales - but businesses need to make sure they’ve got enough resources and capacity to meet the demand that promotions create.
3) The initial price of the product may be high to cover promotional costs. This is called skimming.
4) Alternatively, the price can start off low to encourage sales. This is penetration pricing.
5) Sales go up, but the sales revenue has to pay for the high fixed cost of development before the product can make a profit. The business usually ditches products with disappointing sales after this stage.
6) There aren’t many outlets for the new product - businesses have to work hard to persuade retailers to sell it.
7) Competition may be limited (if it’s an innovative product).

Question 18

What is the growth stage?

4 bullets

Answer 18

1) Sales grow fast. There are new customers and repeat customers.
2) Competitors may be attracted to the market. Promotion shows differences from the competitors’ products.
3) The product is often improved or developed, and it may be targeted at a different market segment.
4) Rising sales encourage more outlets to stock the product.

Question 19

What is the maturity stage?

3 bullets

Answer 19

1) Sales reach a peak and profitability increases because fixed costs of development have been paid for.
2) At saturation (when the market is full and has reached maximum growth) sales may begin to drop, depending on the product. Sales are more likely to drop for long-lasting products that customers do not need to replace regularly. The price is often reduced to stimulate demand, which reduces profits.
3) There aren’t many new customers. Competition within the industry becomes fierce so sales might suffer.

Question 20

What is the decline stage?

Answer 20

1) The product doesn’t appeal to customers any more. Sales fall rapidly and profits decrease.
2) On the other hand, the product may stay profitable if promotional costs are reduced enough.
3) If sales carry on falling, the product is withdrawn or sold to another business (divestment).
Sometimes, sales might pick up again if competitors leave the market first.

Question 21

What are extension strategies they could do?

Answer 21

• Product development
• Market development