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4.3 Product Chapter 26 Product Vocabulary Product The end result of the production process sold on the market to satisfy a customer need. Product Vocabulary Consumer durables Manufactured products that can be re-used and are expected to have a reasonably long life. Industrial goods Products that are purchased by businesses not final consumers. Product Vocabulary Product line A set or related products sold by a business. Product Vocabulary Product mix The variety of product lines that a business produces or a retailer stocks Product Vocabulary Product range All of the types of products made by a business Kraft Foods, Inc. - The product range is food, everything from jams to hams. GM - The product range is transportation, everything from plane parts to automobiles. Apple, Inc. - The product range is technology, everything from from phones to laptops. New Product Development or NPD New product development can be critical for some businesses Technology companies – Develop the latest in technology for new products to sell. Can you think of some? Pharmaceutical industry – Patents only last 17 years; new products must be developed. NPD Process – 7 Stages 1. Generate new ideas – market research, brainstorm, adapt existing products 2. Idea screening – eliminate ideas that have least chance of being successful 3. Concept testing – who are likely buyers, production costs, specific features 4. Business analysis – what are potential revenues, costs, and profits 5. Product testing – develop prototypes 6. Test marketing – launch test product and examine results 7. Commercialization – full-scale launch of product with promotion and distribution Product Life Cycle The pattern of sales recorded by a product from launch to withdrawal from the market. A classic business error is failing to recognize when a product is in decline as other competitors create new replacement products. Product Life Cycle Introduction Growth Maturity or Saturation Decline Characteristics of Product Life Cycle: Introduction Introduction The product has been launched after development and testing. Sales are typically low and growing slowly. Advertising costs are high. Profits not yet realized. Characteristics of Product Life Cycle: Growth Growth Sales grow significantly if the product is well received in the market place. This phase does not last forever! Characteristics of Product Life Cycle: Maturity Maturity or Saturation Sales fail to grow but they do not decline. Example: Coca-Cola Can you think of others? Saturation occurs when everyone has the product that needs the product Example: cell phones Can you think of others? Characteristics of Product Life Cycle: Maturity EXTENSION STRATEGIES Marketing plans that extend the maturity stage of a product before a new product is needed. Develop new markets Create new uses Create new packaging New advertising campaigns Characteristics of Product Life Cycle: Decline Sales fall steadily, extension strategies were not tried or did not work. Product obsolescence Newer competitors products maybe available Why be concerned with product life cycle? 1. Assists with the planning of the marketing mix decisions. When do we raise/lower prices? When should we advertise and how much? When should variations to the product be introduced? Why be concerned with product life cycle? 2. How is cash flow affected? Cash flow is negative during development and costs are high – nothing sold yet! At the introduction phase, development costs are over but promotional expenses are high. Factory capacity is not fully utilized. At maturity, cash flow is likely at its best: sales are high, promotional costs are low, factory capacity is fully utilized. At decline, cash flow declines due to falling prices and falling sales. Product Life Cycle Phase Price Promotion Place Product Introduction May be high compared to competitors (skimming) or low (penetration) High levels of informative advertising to make consumers aware of the product’s arrival to market Restricted outlets – possibly high-class outlets if a skimming strategy is adopted Basic model Growth If successful, initial penetration pricing strategy could now lead to rising prices Consumers need to be convinced to make repeat purchases – brand identification will help to establish consumer loyalty Growing numbers of outlets in areas indicated by strength of consumer demand Planning of product improvements and developments to maintain consumer appeal Maturity Competitors likely to be entering market – there will be a need to keep prices at competitive levels Brand imaging continues – growing need to stress the positive differences with competitor’s products Highest geographical range of outlets as possible – developing new types of outlets where possible New models, colors, accessories, etc… as part of extension strategies Decline Lower prices to sell off stock – or if the product has a small “cult” following, prices could even rise Advertising likely to be very limited – may just be used to inform of lower prices Eliminate unprofitable outlets for the product Prepare to replace with other products – slowly withdraw from certain markets Product VS Branding Product is a general term used to describe what is being sold – a computer. Branding is the name or symbol that distinguishes one manufacturers product from another – Macintosh Compaq Hewlett-Packard Dell Gateway Branding can… Influence marketing Create a perception in customers minds – positive or negative Give products a unique identity If successful, charge premium prices Be EXPENSIVE and take years to develop Not be guaranteed to be successful Branding Vocabulary Brand An identifying symbol, name, image or trademark that distinguishes a product from its competitors Brand awareness The extent to which a brand is recognized by potential customers and is associated with a particular product. Branding Vocabulary Brand development Measures the infiltration of a product’s sales usually expressed per thousand people If 100 people in 1000 buy a product, it has a brand development of 10 Brand loyalty The faithfulness of consumers to a particular brand as shown by their repeat purchases irrespective of the marketing pressure from competing brands.