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Learning Objectives:-

• What is a Product
•Levels of Product
•PLC
•BCG Matrix.
What Is a Product.

 A product is more than physical. A product is anything that can be


offered to a market for attention, acquisition, or use, or something that
can satisfy a need or want.
 A product can be a physical good, a service, a retail store, a person, an
organization, a place or even an idea.
 Products are the means to an end wherein the end is the satisfaction of
customer needs or wants.
 A product can be
 Physical good
 Service
 Retail store
 Person
 Organisation
 Place
 Idea
Three Basics
 Kotler distinguished three components:
 need: a lack of a basic requirement;
 want: a specific requirement for products or services to match
a need;
 demand: a set of wants plus the desire and ability to pay for the
exchange
5 Levels to a Product- By Kotler
Potential Product

Augmented Product

Expected Product

Generic Product

Core Benefit
5 levels of product
Core Benefit
 the fundamental need or want that consumers satisfy by consuming the
product or service.
Generic Product
 a version of the product containing only those attributes or characteristics
absolutely necessary for it to function.
Expected Product
 the set of attributes or characteristics that buyers normally expect and agree
to when they purchase a product.
Augmented Product
 inclusion of additional features, benefits, attributes or related services that
serve to differentiate the product from its competitors.

Potential Product
 all the augmentations and transformations a product might undergo in the
future.
In a Nutshell…
Potential Product All the augmentations and transformations that a product
might ultimately undergo in the future

Augmented Product Additional product attributes, benefits, or related services


that distinguish the product from competitors

Expected Product Attributes and characteristics that buyers normally


expect and agree to when they purchase a product

Basic vVersion of the product containing only those


Generic Product elements absolutely necessary to function. No
distinguishing features.

Core Benefit The fundamental need or want that consumers satisfy


by consuming the product or service
3 levels of Product by -Levitt

 The CORE product is NOT the tangible, physical product. You can't touch it.
That's because the core product is the BENEFIT of the product that makes it
valuable to you. So with the car example, the benefit is convenience i.e. the ease at
which you can go where you like, when you want to. Another core benefit is speed
since you can travel around relatively quickly.
 The ACTUAL product is the tangible, physical product. You can get some use out
of it. Again with the car example, it is the vehicle that you test drive, buy and then
collect.
 The AUGMENTED product is the non-physical part of the product. It usually
consists of lots of added value, for which you may or may not pay a premium. So
when you buy a car, part of the augmented product would be the warranty, the
customer service support offered by the car's manufacture, and any after-sales
service.
3 levels of Product by -Levitt
Brand Definition
AMA (Technical Definition)
“Name, term, sign, symbol, or design, or a combination of them,
intended to identify the goods and services of one seller or group
of sellers and to differentiate them from those of competition”
Product  Brand
Product = Commodity
A product is a produced item always possessing
these characteristics
• Tangibility
•Attributes and Features

Brand = Mind Set


The sum of all communications and experiences
received by the consumer resulting in a distinctive
image in their mind set based on perceived
emotional and functional benefits

Source: Timothy D. Ennis, Ennis Associates, Inc


Examples of 5 Product level

In the case of a car.


 Core product : Transportation from one place to another.
 Actual Product : Brand of the car, looks and design of the car etc.
 Expected Product : Decent mileage, proper engine, inflated tyres
etc.
 Augmented Product : After-sale services, insurance policy etc.
 Potential Product : May run more smoothly as it wears off a little.
The Product Brand Connect
Potential Product

Augmented Product

Expected Product
Products Brand Name Brand Strong Brand
(Commodities)

Perceived by the
Generic Product
No difference Well known consumer as
except price but similar Distinctive unique

Core Benefit Brand Distinction

5 Levels to a Product
Product Life Cycles
and the Boston Matrix
Product Life Cycles and the Boston Matrix

 Product Life Cycle – shows the stages that products go


through from development to withdrawal from the market.

Product Portfolio – the range of products a company has


in development or available for consumers at any one time

 Managing product portfolio is important for cash flow.


Product Life Cycles and the Boston Matrix
 Product Life Cycle (PLC):
 Each product may have a different life cycle
 PLC determines revenue earned
 Contributes to strategic marketing planning
 May help the firm to identify when
a product needs support, redesign, reinvigorating,
withdrawal, etc.
 May help in new product development planning
 May help in forecasting and managing cash flow
Product Life Cycles
 The Stages of the Product Life Cycle:
 Development
 Introduction/Launch
 Growth
 Maturity
 Saturation
 Decline
 Withdrawal
Product Life Cycles
 The Development Stage:
 Initial Ideas – possibly large number
 May come from any of the following –
 Market research – identifies gaps in the market
 Monitoring competitors
 Planned research and development (R&D)
 Luck or intuition – stumble across ideas?
 Creative thinking – inventions, hunches?
 Futures thinking – what will people be using/wanting/needing
5,10,20 years hence?
Product Life Cycles
 Product Development: Stages
 New ideas/possible inventions
 Market analysis – is it wanted? Can it be produced at
a profit? Who is it likely
to be aimed at?
 Product Development and refinement
 Test Marketing – possibly local/regional
 Analysis of test marketing results and amendment of
product/production process
 Preparations for launch – publicity, marketing
campaign
Product Life Cycles and the Boston Matrix
Sales
Development Introduction Growth Maturity Saturation Decline

Time
PLC
Sales and
Profits ($)

Sales

Profits

Time
Product Introduction Growth Maturity Decline
Develop-
ment
Losses/
Investments ($)
Product Life Cycles
 Introduction/Launch:
 Advertising and promotion campaigns
 Target campaign at specific audience?
 Monitor initial sales
 Maximise publicity
 High cost/low sales
 Length of time – type of product
INTRODUCTORY PHASE

Sales Low sales


Costs High cost per customer
Profits Negative
Create product awareness
Marketing Objectives
and trial
Product Offer a basic product
Price Use cost-plus
Distribution Build selective distribution
Advertising Build product awareness among
early adopters and dealers
Product Life Cycles
 Growth:
 Increased consumer awareness
 Sales rise
 Revenues increase
 Costs - fixed costs/variable costs, profits may be
made
 Monitor market – competitors reaction?
Growth Phase
Sales Rapidly rising sales
Costs Average cost per customer
Profits Rising profits
Marketing Objectives Maximize market share
Product Offer product extensions, service,
warranty
Price Price to penetrate market
Distribution Build intensive distribution
Advertising Build awareness and interest in
the mass market
Product Life Cycles and the Boston Matrix
 Maturity:
 Sales reach peak
 Cost of supporting the product declines
 Ratio of revenue to cost high
 Sales growth likely to be low
 Market share may be high
 Competition likely to be greater
 Price elasticity of demand?
 Monitor market – changes/amendments/new
strategies?
Maturity Phase
Sales Peak sales
Costs Low cost per customer
Profits High profits
Marketing Objectives Maximize profit while defending
market share
Product Diversify brand and models
Price to match or best
Price competitors
Distribution Build more intensive distribution
Advertising Stress brand differences and
benefits
Product Life Cycles and the Boston Matrix
 Saturation:
 New entrants likely to mean market is ‘flooded’
 Necessity to develop new strategies becomes more pressing:
 Searching out new markets:
 Linking to changing fashions
 Seeking new or exploiting market segments
 Linking to joint ventures – media/music, etc.
 Developing new uses
 Focus on adapting the product
 Re-packaging or format
 Improving the standard or quality
 Developing the product range
Product Life Cycles and the Boston
Matrix
Sales

Effects of Extension
Strategies

Time
Decline Phase
Sales Declining sales
Costs Low cost per customer
Profits Declining profits
Marketing Objectives Reduce expenditure and milk the
brand
Product Phase out weak items
Price Cut price
Go selective: phase out
Distribution
unprofitable outlets
Advertising Reduce to level needed to retain
hard-core loyal customers
Product Life Cycles and the Boston Matrix
 Decline and Withdrawal:
 Product outlives/outgrows its usefulness/value
 Fashions change
 Technology changes
 Sales decline
 Cost of supporting starts to rise too far
 Decision to withdraw may be dependent on
availability of new products and whether
fashions/trends will come around again?
Product Life Cycles
Sales/Profits PLC and Profits

PLC

Profits

Time
Losses
Break Even
Strategies for the differing stages of the Product Life Cycle.
•Introduction.
The need for immediate profit is not a pressure. The product is promoted to create
awareness. If the product has no or few competitors, a skimming price strategy is
employed. Limited numbers of product are available in few channels of distribution.
•Growth.
Competitors are attracted into the market with very similar offerings. Products become
more profitable and companies form alliances, joint ventures and take each other over.
Advertising spend is high and focuses upon building brand. Market share tends to
stabilise.
•Maturity.
Those products that survive the earlier stages tend to spend longest in this phase. Sales
grow at a decreasing rate and then stabilise. Producers attempt to differentiate products
and brands are key to this. Price wars and intense competition occur. At this point the
market reaches saturation. Producers begin to leave the market due to poor margins.
Promotion becomes more widespread and use a greater variety of media.
•Decline.
At this point there is a downturn in the market. For example more innovative products are
introduced or consumer tastes have changed. There is intense price-cutting and many
more products are withdrawn from the market. Profits can be improved by reducing
marketing spend and cost cutting
Why Changes Occur in the Product life Cycle ( PLC)
1. Changing customer Needs
2. Better , more efficient & user friendly products.

Emerging Issues In PLC


•Adapting Products to local Conditions
•Threats from Duplications
•Quality Improvement
•Benefits of Superior Quality
•Total Quality Management
•Product Performance.

Problems with Product Life Cycle.


In reality very few products follow such a prescriptive cycle. The length of each
stage varies enormously. The decisions of marketers can change the stage, for
example from maturity to decline by price-cutting. Not all products go through
each stage. Some go from introduction to decline.
INTRODUCTION

 BOSTON CONSULTING GROUP (BCG) MATRIX is


developed by BRUCE HENDERSON of the
BOSTON CONSULTING GROUP IN THE EARLY
1970’s.

 According to this technique, businesses or products


are classified as low or high performers depending
upon their market growth rate and relative market
share.
MARKET SHARE
• Market share is the percentage of the total market that is
being serviced by your company, measured either in
revenue terms or unit volume terms.

• RELATIVE MARKET SHARE

• RMS = Business unit sales this year


Leading rival sales this year

• The higher your market share, the higher proportion of the


market you control.
MARKET GROWTH
RATE
 Market growth is used as a measure of a market’s
attractiveness.

 MGR = Individual sales - individual sales


this year last year
Individual sales last year

 Markets experiencing high growth are ones where the total


market share available is expanding, and there’s plenty of
opportunity for everyone to make money.
THE BCG GROWTH-SHARE
MATRIX
 It is a portfolio planning model which is based on the
observation that a company’s business units can be
classified in to four categories:
 Stars
 Question marks
 Cash cows
 Dogs

 It is based on the combination of market growth and


market share relative to the next best competitor.
STARS
High growth, High market share
 Stars are leaders in business.
 They also require heavy investment, to maintain
its large market share.
 It leads to large amount of cash consumption and
cash generation.
 Attempts should be made to hold the market share
otherwise the star will become a CASH COW.
CASH COWS
Low growth , High market share

 They are foundation of the company and often the


stars of yesterday.
 They generate more cash than required.
 They extract the profits by investing as little cash as
possible
 They are located in an industry that is mature, not
growing or declining.
DOGS
Low growth, Low market share

 Dogs are the cash traps.


 Dogs do not have potential to bring in much cash.
 Number of dogs in the company should be
minimized.
 Business is situated at a declining stage.
QUESTION MARKS
High growth , Low market share

 Most businesses start of as question marks.


 They will absorb great amounts of cash if the
market share remains unchanged, (low).
 Why question marks?
 Question marks have potential to become star and
eventually cash cow but can also become a dog.
 Investments should be high for question marks.
WHY BCG MATRIX ?

To assess :
 Profiles of products/businesses
 The cash demands of products
 The development cycles of products
 Resource allocation and divestment decisions
MAIN STEPS OF BCG MATRIX
 Identifying and dividing a company into SBU.
 Assessing and comparing the prospects of each SBU
according to two criteria :
1. SBU’S relative market share.
2. Growth rate OF SBU’S industry.
 Classifying the SBU’S on the basis of BCG matrix.
 Developing strategic objectives for each SBU.
BENEFITS

 BCG MATRIX is simple and easy to understand.


 It helps you to quickly and simply screen the
opportunities open to you, and helps you think about
how you can make the most of them.
 It is used to identify how corporate cash resources can
best be used to maximize a company’s future growth
and profitability.
LIMITATIONS

 BCG MATRIX uses only two dimensions, Relative


market share and market growth rate.
 Problems of getting data on market share and market
growth.
 High market share does not mean profits all the time.
 Business with low market share can be profitable too.
PRACTICAL USE
 MAHINDRA & MAHINDRA
 HLL
 IES
BCG MATRIX

scorpio

Jeep
balero
Though BCG MATRIX has its limitations it is one
of the most FAMOUS AND SIMPLE portfolio
planning matrix ,used by large companies having
multi-products.
The Product Life Cycle and the Boston Matrix
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