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products - introduction

A product is defined as:

"Anything that is capable of satisfying customer needs"

This definition includes both physical products(e.g. cars, washing machines, DVD players)

as well as services (e.g. insurance, baning, private health care).

The process by which companies distinguish their product offerings from the competition is

called branding.

!or most companies, brands are not developed in isolation " they are part of a product

group.

A product group (or product line) is a group of brands that are closely related in terms of theirfunctions and the benefits they provide (e.g. Dell#s range of personal computers or $ony#s

range of televisions).

There are two main types of product brand:

(1) Manufacturer brands

(2) Own-label brands

%anufacturer brands are created by producers and use their chosen brand name. The producerhas the responsibility for mareting the brand, by building distribution and gaining customer

brand loyalty. &ood e'amples include %icrosoft, anasonic and %ercedes.

wn"label brands are created and owned by distributors. &ood e'amples include Tesco and

$ainsbury#s.

The main importance of branding is that, done well, it permits a business to differentiate its

products, adding e'tra value for consumers who value the brand, and improving profitability

for the company.

*usinesses should manage their products carefully over time to ensure that they deliverproducts that continue to meet customer wants. The process of managing groups of brands

and product lines is called portfolio planning.

Two models of product portfolio planning are widely nown and used in business:

+ The *oston &roup &rowth"$hare %atri', and

+ & %aret Attractiveness model

These models are described in more detail in other tutor-u revision notes.

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*usinesses need to regularly loo for new products and marets for future growth. A useful

way of looing at growth opportunities is the Ansoff &rowth matri' which suggests that there

are four main ways in which growth can be achieved through a product strategy:

(1) Market penetration" ncrease sales of an e'isting product in an e'isting maret

(2) Product development " mprove present products and/or develop new products for the

current maret

(3) Market development" $ell e'isting products into new marets (e.g. developing e'port

sales)

() !iversification " Develop new products for new marets

products - product life cycle

0e define a product as 1anything that is capable of satisfying customer needs. This definition

includes both physical products(e.g. cars, washing machines, DVD players) as well as

services (e.g. insurance, baning, private health care).

*usinesses should manage their products carefully over time to ensure that they deliver

products that continue to meet customer wants. The process of managing groups of brands

and product lines is called portfolio planning.

The stages through which individual products develop over time is called commonly nown

as the "Product Life ycle".

The classic product life cycle has four stages (illustrated in the diagram below): introduction2

growth2 maturity and decline

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!ntroduction tage

At the ntroduction (or development) $tage maret si3e and growth is slight. it is possible that

substantial research and development costs have been incurred in getting the product to this

stage. n addition, mareting costs may be high in order to test the maret, undergo launch

promotion and set up distribution channels. t is highly unliely that companies will maeprofits on products at the ntroduction $tage. roducts at this stage have to be carefully

monitored to ensure that they start to grow. therwise, the best option may be to withdraw or

end the product.

#rowth tage

The &rowth $tage is characterised by rapid growth in sales and profits. rofits arise due to an

increase in output (economies of scale)and possibly better prices. At this stage, it is cheaper

for businesses to invest in increasing their maret share as well as en4oying the overall

growth of the maret. Accordingly, significant promotional resources are traditionally

invested in products that are firmly in the &rowth $tage.

Maturity tage

The %aturity $tage is, perhaps, the most common stage for all marets. it is in this stage that

competition is most intense as companies fight to maintain their maret share. 5ere, both

mareting and finance become ey activities. %areting spend has to be monitored carefully,

since any significant moves are liely to be copied by competitors. The %aturity $tage is the

time when most profit is earned by the maret as a whole. Any e'penditure on research and

development is liely to be restricted to product modification and improvement and perhaps

to improve production efficiency and 6uality.

$ecline tage

n the Decline $tage, the maret is shrining, reducing the overall amount of profit that can

be shared amongst the remaining competitors. At this stage, great care has to be taen to

manage the product carefully. t may be possible to tae out some production cost, to transfer

production to a cheaper facility, sell the product into other, cheaper marets. 7are should be

taen to control the amount of stocs of the product. 8ltimately, depending on whether the

product remains profitable, a company may decide to end the product.

%&a'ples

$et out below are some suggested e'amples of products that are currently at different stages

of the product life"cycle:

!*O$+!O #*O, M+*!/ $%L!%

Third generation mobile

phonesortable DVD layers ersonal 7omputers Typewriters

"conferencing mail !a'es5andwritten

letters

All"in"one racing sin"

suits

*reathable synthetic

fabrics 7otton t"shirts $hell $uits

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iris"based personal

identity cards$mart cards 7redit cards 7he6ue boos