topic 4 - product - wordpress.com · product life cycle •all products have a life cycle. •some...
TRANSCRIPT
Topic 4 - Product
Higher Business Management
1
Learning Intentions / Success Criteria
Learning
Intentions
Product
Success Criteria
Learners should be able to describe and explain:
• the sales revenue/ levels at the research, introduction,
growth, maturity, saturation and decline phases of a
product’s lifecycle
• the profits at the research, introduction, growth, maturity,
saturation and decline phases of a product’s lifecycle
• the use of extension strategies to enhance product sales and
profits
• the costs and benefits of product line product portfolios
• the costs and benefits of diversified product portfolios
• Boston Matrix and its use.
2
Product
• Product is the actual (good or service) product being sold.
• Product is important because customers won’t buy
something they don’t want; market research identifies
what customers want.
• The more products that are sold, the more chance the
business will have of maximising sales.
• An organisation can change the product by bringing out a
new one or making an adaptation to an existing product.
• This will invite new people to try it and will help to
maintain existing customer loyalty.
3
Product Life Cycle
• All products have a
life cycle.
• Some products go through the stages of a life cycle very quickly, known as fads, while others can have a life cycle that lasts many decades, for example, Coca Cola.
4
Stages of Product Life Cycle
The product life cycle has the following six stages:
1. Development
2. Introduction
3. Growth
4. Maturity
5. Saturation
6. Decline
5
1. Development
• The product is being researched and developed.
• Prototypes will be made and tested.
• Changes may have to be made after research
feedback.
Impact on Sales Impact on Profits
There are no sales yet as the
product is still being
developed.
No sales, high costs.
The product will actually be
making a loss due to the costs
of development and zero
income from sales.
No profit. 6
2. Introduction
• The product is launched.
• This usually coincides with introductory promotional
activities to create ‘hype’ for the product.
Impact on Sales Impact on Profits
• Sales are slow to begin with as
customers are unsure of the
product.
• Customers may have to be
persuaded to move from
competitor products.
Sales are low and costs are high.
The product begins to cut into
the losses from development,
but high promotional costs
still result in a loss being
made overall.
Very little, if no, profit.
7
3. Growth
The product has been on the market for some time, customers are
fully aware of the product and are purchasing.
Impact on Sales Impact on Profits
• Sales start to rise rapidly.
• This can be the result of
slightly reduced prices, lack
of competition and/or
consumer confidence in the
product.
Sales grow rapidly.
Profits are starting to be made
and loses from development
and promotions during the
initial stages are recouped.
Profit begins to increase.
8
4. Maturity
• The product has been on the market for some time.
• Competition enters the market.
Impact on Sales • Impact on Profits
• Sales growth peaks and
levels out.
• Many sales can still be made
for a long time at this stage.
Steady sales.
• Profits can still be healthy
but start to fall.
• The competition will take
sales away and thus profits
will fall.
High profits.
9
5. Saturation
The product suffers from too many competitors being in
the market.
Impact on Sales Impact on Profits
Sales begin to fall as
consumers flock to
competitor’s products.
Sales start to fall.
Profits fall rapidly, especially if
prices are slashed to encourage
sales.
High profits before they
decrease.
10
6. Decline
• The product’s life is nearing the end.
• The product will stop being produced.
Impact on Sales Impact on Profits
Sales fall rapidly and
eventually the product will
be withdrawn from the
market.
Sales fall.
• The product will actually be
profits continue to fall.
• Eventually products may be sold
at unit cost just to break even.
Profits fall and a loss might be
incurred eventually.
11
Extension Strategies
As sales (and profits) begin to fall as a product matures, a business can attempt to inject new
life into the product. The can do the following:
• change the appearance of the packaging to give the product a new image
• change the size, variety or shape of the product, as this makes it different from the
original
• improve the quality of the finished product by, for example, using higher quality raw
materials
• change the method of promotion used to promote the product, for example, by offering a
discount
• change the method of advertising the product to reach a larger number of people
• change the price of the product (up or down), to reach a different market segment
• change the place the product is sold, for example, offering it online as well as in a shop
• change the name of the product
• change the use of the product so that it can be used for different purpose.
12
Product Portfolio
• A business should strive to have a product portfolio.
• This means having a range of products on sale.
13
Kraft’s Product Portfolio
14
Advantages of a Product Portfolio
Many organisations sell more than one product for a number of reasons:
• to reduce risk of failure of one product, as one product might be doing
better than another
• to appeal to a variety of market segments, as different products will appeal
to different types of customers
• to increase sales and profits from selling different products, as customers
will be able to buy a variety of products from the same business
• to make introducing a new product easier, as customers will already be
aware of the business
• newer products can replace those at the end of their life cycle
• to increase awareness of the business, its reputation and its brand by having
more than one product
• to cope with products that are only demanded in certain seasons, as other
products will gain sales at different times of the year.
15
Disadvantages of a Product
Portfolio • Costs of promoting and advertising lots of different products
could be high and could result in less profit.
• If one product receives a bad reputation or image this might
impact on all the products being sold by the business.
• Maintaining a varied product portfolio will involve a high cost
of research and development.
• Cost of purchasing and maintaining machinery for different
types of products might be high.
• Staff may require training on the features of different products
which could be time-consuming and expensive.
16
Boston Matrix
• Businesses can analyse
their product portfolio
using a Boston matrix.
• This enables products to
be analysed on two frons:
1. Market share – the
percentage of sales in the
market a product makes.
2. Market growth – the
overall potential for sales
that the market has as a
whole.
.
17
Stars
Description Impact
Products that have a high
market share in a high-growth
market, e.g. Apple’s iPad.
• Stars need constant
investment in marketing to
keep ahead in a competitive
market.
• Stars allow a business to be a
market leader.
• Over time, stars will decline
into either question marks or
cash cows.
18
Cash Cows
Description Impact
Products that have a high
market share of a low-growth
market, e.g. Microsoft’s Office
Software.
• Cash cows should require
little marketing expense due
to lack of competition.
• Funds generated can be used
to further strengthen stars and
improve riskier ventures,
such as question marks.
19
Question Marks/Problem Children
Description Impact
Products that have a low market
share in a market with high
growth potential, e.g.
manufactures of less popular
brands of tablet computers.
• Question marks can be
invested in due to their
position in a promising
market.
• They need development of a
strong marketing mix if they
are to be turned into stars.
20
Dogs
Description Impact
Products that have a low market
share of a market with low
growth, e.g. less popular brands
in declining technology
industries.
• Dogs can adversely affect
profits.
• Dogs should be diverse due
to the lack of market share
and the declining market for
the product.
• They cannot be turned into
stars.
21