Download Briefing: Impact of Product Life Cycles

Section 5
Briefing: Impact of Product Life Cycles
Page 5-1
Topic
Impact of Product Life Cycles on Marketing Decisions
Key Points
Define product life cycle.
The marketing theory that a product moves through different stages of life from its
birth to its death.
Identify stages of the product life cycle, and describe their characteristics.
1. Introduction
A product is introduced to the market, and usually, sales growth is slow. Early
adopters, or innovators, are the primary buyers of the product or brand.
2. Growth
The product is growing up, and sales are quickly increasing. Copycat
products are hitting the market, so competition is building. Early adopters
continue to buy the product and are joined by followers.
3. Maturity
The product can be compared to adulthood: Sales are steady. Competition is
probably the fiercest. It’s become difficult to tell the differences among
competing products. The supply of the product now exceeds demand.
4. Decline
This stage of the product’s life could be considered its golden years. Product
sales decrease due to shifts in consumer preference or technological
innovations. The only way to make money on the product is to sell large
volumes since prices have been cut so much. Eventually, the product may
need to be removed from the market.
Discuss the impact of each stage of the product life cycle on marketing decisionmaking.
1. Pricing decisions: What price will we charge?
a. Introductory stage—Prices are set high to recover investment in the
product; there are few to no competitors.
b. Growth stage—Prices are lowered to attract customers and compete
with copycat products.
c. Maturity stage—Prices are stabilized to maintain market share.
d. Decline—Prices are lowered to get rid of stock on hand.
2. Promotion decisions
a. Introductory stage—The level of promotion is high with the intent being
to “get the word out” about the product so that customers know about its
existence and features. The business promotes the product to its channel
members to get them to carry the product.
b. Growth stage—The level of promotion remains high or increases, but its
focus shifts to persuading customers of its benefits over those of the
competition.
c. Maturity stage—The level of promotion is steady with funds directed to
advertising and sales promotion to remind customers about the product or
brand.
d. Decline—The level of promotion is reduced and eventually trails off.
3. Place decisions: Where will the product be offered?
a. Introductory stage—Efforts are made to get good channel members to
offer the product. The business may offer exclusive distribution rights.
b. Growth stage—The business increases the number of distribution
outlets.
Section 5
Topic
Briefing: Impact of Product Life Cycles
Page 5-2
Impact of Product Life Cycles on Marketing Decisions
c.
4.
Maturity stage—The business works on building intensive distribution—
getting the product in as many outlets as possible.
d. Decline—The business phases out the product in unprofitable distribution
outlets, thereby becoming more selective with its distribution efforts.
Selective distribution occurs when businesses deliberately seek to limit
the locations at which the product is sold.
Product decisions: What assortment of products will be offered?
a. Introductory stage—The business offers a basic product.
b. Growth stage—The business increases its assortment of products and
offers new features and models.
c. Maturity stage—The business modifies the product to appeal to new
customers.
d. Decline—The business alters or gets rid of the product. Manufacturers
drop the product from their offerings.
Explain how a company can extend a product's life cycle.
Product modifications are used to extend the life of the products. This
entails changing product quality or packaging.
Businesses also modify their markets by increasing the frequency with
which present customers use the product, by finding new customers, or by
creating new uses for the product.
Section 5
Briefing: Factors Affecting Pricing Decisions
Page 5-3
Topic
Factors Affecting Pricing Decisions
Key Points
Define selling price.
The amount a seller charges for a good or service; usually thought of as the dollar
figure shown on the price tag of products or quoted as the price of services
Identify examples of selling prices.
1. Dues for an organization’s membership
2. Automobile insurance premium
3. Toll for driving on certain roads
4. College tuition
5. Bus or taxi fare
6. Fee for legal advice or medical attention
7. Salaries of professional athletes
Discuss characteristics associated with selling prices.
1. They can’t be pulled out of thin air. (Each business must carefully determine
and adjust selling prices.)
2. They change. (Example: Gasoline prices fluctuate with the price of crude oil.)
Explain that businesses only keep a portion of the money that customers
pay.
1. Businesses have to pay all the costs associated with the products they sell.
2. They have to pay their operating expenses (e.g., utilities, salaries, lease/rent,
etc.).
Describe the importance of selling price.
1. Businesses and customers use selling price as a way to compare
products when making buying decisions.
2. Businesses and customers use selling price as a way to decide how to
allocate their money (i.e., since they can’t buy everything they want,
they look at selling price to decide which items they can afford).
3. Businesses use selling price to determine the amount of income from
sales they’ll receive (i.e., businesses determine how much markup
they’ll apply to the cost of products to pay current expenses and to
provide for the business’s future growth.)
Explain that pricing objectives and marketing objectives must be compatible.
Businesses need to set their marketing objectives first, and then determine the
pricing objectives that will most likely help them achieve the marketing objectives.
As marketing objectives change, pricing objectives will need to be reviewed and
possibly changed.
Describe primary categories of pricing objectives.
1. Sales-oriented objectives
Are focused on increasing total income from sales and can be
accomplished in two ways:
a. Charge low prices to increase the volume of sales so that the
business has more total income because it sells more products
b. Charge high prices to increase the dollar value of each sale
2. Profit-oriented objectives
Section 5
Briefing: Factors Affecting Pricing Decisions
Page 5-4
Are focused on creating profit for a business
a. Some businesses set prices that result in the greatest amount of
profit.
b. Other businesses set prices to recover their costs and earn a
reasonable profit.
Explain how marketing benefits our society.
1. Makes our lives better.
2. Promotes using the earth’s resources more wisely.
3. Encourages trade between nations.
Describe ways in which consumers and businesses would be affected if
marketing did not exist.
1. Without marketing, our nation would have difficulty linking producers
with customers.
2. Without marketing, our own routines would be different because
marketing shapes even the little things we do.
Section 5
Briefing: Factors Affecting Pricing Decisions
Page 5-5
Topic
Positioning
Key Points
Define competitive advantage.
A competitive advantage is an advantage over competitors gained by offering
consumers greater value, either by means of lower prices or by providing greater
benefits and service that justifies higher prices.
Define positioning.
Positioning is how your target market defines you in relation to your competitors.
Describe the purpose of positioning.
The purpose of positioning is to make your product or service
stand out in a crowd. Positioning is important because you are
competing with all the noise out there competing for your potential
customers’ attention. If you can stand out with a unique benefit,
you have a chance at getting their attention.
Explain that positioning is about how products are perceived in the minds of
consumers. Discuss that how a company sees itself and sees its products
are not always the way that customers and potential customers view the
products.
Discuss the relationship between the target market and positioning.
When positioning your product/service, it is important to focus on how your target
market perceives you. After all, the target market makes up those consumers that
are most likely to purchase your product/service. Key tip: you can never make
everyone happy, but you must make your target market happy in order to survive.
Discuss the relationship between the competition and positioning.
1. Is our product the first in its market?
2. If not, how are our competitors positioned?
3. Do we have enough money to position our product/service similarly to
the market leader and thus take over as the market leader?
4. If not, we must find an unoccupied position in the market that the
target market cares about. Example: Target was certainly not the first
mass merchandiser, but it was the first to successfully position itself
as the “trendy, hip mass merchandiser” in the eyes of its target
market.
Describe types of positioning strategies.
There are seven positioning strategies that can be pursued:
Product Attributes: What are the specific product attributes?
Benefits: What are the benefits to the customers?
Usage Occasions: When/how can the product be used?
Users: Identify a class of users.
Against a Competitor: Positioned directly against a competitor.
Away from a Competitor: Positioned away from competitor.
Product Classes: Compared to different classes of products.
Section 5
Briefing: Factors Affecting Pricing Decisions
Page 5-6
Discuss how marketing mix elements can be differentiated to position
products/businesses.
Each of the 4 P’s should be examined as potential tactics for differentiating your
product/service and reinforcing its positioning in the minds of the target market.
For example, Krispy Kreme doughnuts were originally available to consumers
only at Krispy Kreme bakeries. In the early 2000’s, the company decided to
alter its distribution (Place) strategy to include supermarkets and gas stations.
While that decision radically increased sales potential by making the product
available to more consumers, it also changed how the target market perceived
the Krispy Kreme brand. (Think about it: do you view a sandwich that you buy
at a gas station differently from a sandwich that you purchase at a casual
dining restaurant?) The questions below can be used to thoughtfully decide
how each element of the 4 P’s is affected by (and can affect) a
product/service’s positioning.
Product/Service
• What does the customer want from the product/service? What needs does
it satisfy?
• How and where will the customer use it?
• How is it differentiated versus your competitors’ products/services?
Place
• Where do buyers look for your product or service?
• If they look in a store, what kind? A specialist boutique or in a
supermarket, or both? Or online? Or direct, via a catalogue?
• How can you access the right distribution channels?
• Do you need to use a sales force? Or attend trade fairs? Or make online
submissions? Or send samples to catalogue companies?
• What do your competitors do, and how can you learn from that and/or
differentiate what you do from them?
Price
• What is the value of the product or service to the buyer?
• Are there established price points for products or services in this area?
• Is the customer price sensitive? Will a small decrease in price gain you
extra market share? Or will a small increase be indiscernible, and so gain
you extra profit margin?
• What discounts should be offered to trade customers, or to other specific
segments of your market?
• How will your price compare with your competitors?
Promotion
• Where and when can you get across your marketing messages to your
target market?
• Will you reach your audience by advertising in the press, or on TV, or
radio, or on billboards? By using direct mail? Through PR? On the
Internet?
• When is the best time to promote? Is there seasonality in the market? Are
there any wider environmental issues that suggest or dictate the timing of
your market launch, or the timing of subsequent promotions?
• How do your competitors do their promotions? And how does that
influence your choice of promotional activity?
Section 5
Briefing: Factors Affecting Pricing Decisions
Page 5-7
Positioning activity.
Ever wonder about the laundry detergent product category? Why do several
companies produce the majority of laundry brands? For example, Procter &
Gamble markets Tide, Gain, Era, Cheer, Ivory, and Bold. . . among others. How
does P&G differentiate these brands? How many different messages can you
develop about laundry detergent? Using the Web and a little research at a retail
outlet that sells laundry detergent, conduct an analysis of the P&G brands of
laundry detergent. What are the distinguishing features of each brand -- and are
they clearly communicated to the consumer? What are the target markets for each
brand? Are the positions different enough to avoid cannibalization?