Chapter 12, Managing The Product, Class Notes
Popularized by Theodore Levitt, 1965
PLC can be applied to:
- product category (Watch)
- product style (Digital)
- a product item/brand (Timex)
Four Stages to the Product Life Cycle:
- Introduction
- Growth
- Maturity
- Decline
The following material refers to the PLC as far as the product category is concerned
unless otherwise stated.
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Failure rate for new products can range from 60%-90%, depending on
the industry. A product does not have to be an entirely new
product, can be a new model (car).
Marketing Mix(MM) considerations
Need to build channels of distribution/selective distribution
Dealers offered promotional assistance to support the product...PUSH
strategy.
Develop primary demand/pioneering information, communications should
stress the benefits of the product to the consumer, as opposed to the
brand name of the particular product, since there
will be little
competition at this stage and you need to educate consumers of the
product's benefits.
Price skimming...set a high price in order to recover developmental
costs as soon as possible.
Price penetration...set a low price in order to avoid encouraging
competitors to enter the market, also helps increase demand and therefore
allows the company to take advantage of economies of scale.
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Need to encourage strong brand loyalty, competitors are entering the
market place. Profits begin to decline late in the growth stage.
May need to pursue further segmentation.
MM considerations
May need to perform some type of product modification to correct weak or
omitted attributes in the product.
Need to build brand loyalty (selective demand), communications should stress
the brand of the product, since consumers are more aware of the products
benefits and there is more competition, must differentiate your
offering from your competitors.
May begin to move toward intensive
distribution-the product is more
accepted, therefore intermediaries are more inclined to risk accepting
the product.
Price dealing/cutting or meeting competition, especially if previously
adopted a price skimming strategy.
Handout...Coca Cola Launches Fruit-Drink line...
Category doubled in size last year to about $300m - $325m
Coca Cola's entrant--Fruitopia expect sales this year to reach $400m
Fruitopia is in the Introductory stage when the Alternative Beverage
market is in the Growth stage. New competitors like Coca Cola will help
grow the size of the market.
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Sales curve peaks-severe competition, consumers are now experienced
specialists.
MM Considerations
A product may be rejuvenated through a change in the packaging, new models or aesthetic changes.
Advertising focuses on differentiating a brand, sales promotion
aimed at customer (PULL) and reseller (PUSH).
Move to more intense distribution
Price dealing/cutting or meeting competition
Provides company with a large, loyal group of stable customers. Generally cash cows that can
support other products.
Strategies during maturity include:
- Modification of product...use line
extensions
- Reposition Product
Handout...New Life Savers Ads Grab Hold of Taste
Reposition...Taste vs. moment
Line extension, gummy savers, breath savers, holes (unsuccessful)
Licensing name
Weaker competition will have left the market place.
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Sales fall off rapidly. Can be caused by new technology or a
social trend.
Can justify continuing with the product as long as it contributes
to profits or enhances the effectiveness of the product mix.
Need to decide to eliminate or reposition to extend its life.
MM Considerations
Some competition drop out
Need to time and execute properly the introduction, alteration and
termination of a product.
Handout...Cannibalism Is a Virtue in Computer Business
Problems with high-tech products, relate to Product Adoption Process etc.
Need to manage product mix through their respective life-cycles. When to
decide to introduce new (modified) products that compete with the current
product offering.
With high-tech products, need to consider introducing new (and competing) products as the
existing product is still in the growth stage of its life cycle.
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Fad Curve
Handout...Anatomy of a fad...
Clear products, Crystal Pepsi
Fleeting fashions vs. lasting shifts in consumer preference.
Cannot differentiate between the two using usual marketing tools like focus
groups.
"Hand anyone a hula hoop, and they'll have fun with it--at first"
Clear was equated with natural, reinforcing the idea of what you
get is what you see.
Problems:
Clear products that didn't fit the positioning...clear gasoline/beer
Pay higher prices for products with fewer ingredients.
Seasonal Curve
Life cycles that vary by season, clothing etc.
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Part of the actual product.
Without brands, shoppers choice becomes arbitrary.
Definition:
A name, term, design, symbol or any other feature that identifies
one seller's good or service as distinct from anothers.
- Brand name is that part that can be spoken, including letters,
words and #s, IE 7UP.
Brand names simplify shopping, guarantee a certain level of quality
and allow for self expression.
- Brand mark-elements of the brand that cannot not be spoken, IE
symbol
- Trade Character IE Ronald McDonald, Pillsbury Doughboy
- Trade mark-legal designation that the owner has exclusive
rights to the brand or part of a brand.
1990, US Patent & Trademark Office had 680,000 trademarks
registered, 56,515 new in that year.
- Tradename-The full legal name of the organization. IE
Ford, not the name for a specific product.
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Provides benefits to buyers and sellers
TO BUYER:
- Help buyers identify the product that they like/dislike.
- Identify marketer
- Helps reduce the time needed for purchase.
- Helps buyers evaluate quality of products especially if unable
to judge a products characteristics.
- Helps reduce buyers perceived risk of purchase.
- Buyer may derive a psychological reward from owning the brand,
IE Rolex or Mercedes.
TO SELLER:
- Differentiate product offering from competitors
- Helps segment market by creating tailored images, IE Contact lenses
- Brand identifies the companies products making repeat
purchases easier for customers.
- Reduce price comparisons
- Brand helps firm introduce a new product that carries the name
of one or more of its existing products...half as much as using a new brand, lower co. designs,
advertising and promotional costs.
EXAMPLE, Gummy Savers
- Easier cooperation with intermediaries with well known brands
- Facilitates promotional efforts.
- Helps foster brand loyalty helping to stabilize market
share.
- Firms may be able to charge a premium for the brand.
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Why does AMC Brand Itself?
Increasing Competition, 500 channels etc.
Need to differentiate Product offering so consumers associate
satisfying need to see good movies to watching AMC
Consumers cannot check all brands therefore need to make choice
easier for them
"We compete now with many movie channels, If consumers think of you
without a Brand or personality, you become an inventory of
pictures, In a world of hundreds of channels, you'll get lost".
How does AMC Brand Itself?
Advertise...emphasize need to keep movies in original state
Boutiques in stores to sell "AMC Collection"
License Audrey Hepburn image...spokesperson
Co-promotion w/ United Artists Theaters sponsoring afternoon
vintage movies.
AMC news magazine at Newsstands.
Logo and AMC Letters
Releasing AMC movies on video
TM = 72% over 35 years old
Brand loyalty is declining due to an increase in similar new
products for customers to chose from, and an increase in marketing
activities to encourage brand switching and the increasing quality of
private label products.
Brand equity, financial value associated with the brand. Can be
increased when licensing royalties can be gained.
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Four Branding Decisions firms must make
A firms name logo and trade characters.
Over 1000 ongoing firms change names each year, DuPont
If nature of business changes, may need to alter name--Southwest
Airlines?? Allegheny Airlines change to US Air due to expansion in
geographic markets. (United Brands changed name to CHIQUITA
brands)
Boston Chicken vs. Boston Market
Geographic names not as popular as they used to be compared to surnames,
descriptive names and coined names.
Kiwi airlines--named after a bird that cannot fly :)
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Manufacturers Brands:
Initiated by the producer.
85% food items, all autos, 75% major appliances, more than 80% gasoline.
Requires the producer to be involved in distribution, promotion, and to some
extent, pricing.
Brand loyalty is encouraged by quality, promotion and guarantees. Producer tries to stimulate
demand, encouraging middlemen to make the product available (PULL)
Private Distributor Brands:
Initiated and owned by the resellers.
50% of shoes, 33% tire market, 13% food, 25% appliances.
Manufacturers not identified in the product.
Helps retailers develop more efficient promotion, generate higher margins and increase store
image.
Wholesalers brands-IGA
Retailers brands Sears Kenmore, JC Penney's Stafford Executive.
Presidents Choice, Loblaw, 1000 products
Our Compliments, MF. by Nabisco
Master Choice, A & P
Select, Safeway
Kodak in Japan, market private label film since Mf. label not successful
in marketplace, "COOP" for the Japanese Consumer Cooperative Union.
DuPont, with Initiatives Inc, design/make fashion items, utilize
its fiber resources and develop another customer for them. Work
with retailers to design fashions.
The competition between manufacturers brands and private brands
(15% retail grocery) is intensifying.
Handout...How Country's Biggest Brands Are Faring at the
Supermarket
Reason for increase in Private Brands:
- Increasing prices of MB in 1980s with flat demand
- Increasing Quality of PB
- Increasing Promotion of PB
- PB offer retailers higher margins
- Offer regional products
Private brands have been growing:
1991 increase 4%
1992 increase 3%
1993 increase .8%
Manufacturer brands are beginning to fight back.
- Reduce price (marlboro monday, reduced 20%)
- Promotions focus on quality and directed at PL
- New product launches, line extensions.
- Focus on core products
PB are still popular, also consumers are purchasing PB products
that were once bastions of MB, personal care etc., Beer/Cigarettes,
another
indication of consumers' growing confidence of the quality of PBs.
Handout...Philip Morris Makes Dave's---
Marketers of MB products (esp. Philip Morris) are developing products
that appear to be PB products, in recognition to consumers growing
preference for this type of product.
Abroad
UK, Private Label is 36% of market. Why??
- National Advertising
- Retailers are Marketers not landlords.
Sainsburys launched 1400-1500 new products each year. 8000 of
16000 products are private label.
Generic Brands:
Indicates only product category.
Began as low cost alternative in the drug industry.
Less than 1% of supermarket revenue even though 85% stock them. Cheeper than branded
items.
Accounts for less than 1% of retail sales, was 10%.
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Criteria for choosing a name:
- Easy for customers to say, spell and recall (inc. foreigners)
- Indicate products major benefits
- Should be distinctive
- Compatible with all products in product line
- Used and recognized in all types of media
- Single and multiple words Bic, Dodge Grand Caravan, IBM PC (letters), or a
combination Mazda RX7
- Availability, already over 400 car "name plates", this makes it difficult to select a new
one.
- Use words of no meaning to avoid negative connotation, Kodak, Exxon
- Can be created internally by the organization, or by a consultancy
- Legal restrictions, i.e. Food products must adhere to the Nutrition
Labeling and Education Act, 1990...May 8 1994
FDA, Pringles Right Crisps, as opposed to Light Only 1/3 less fat.
Considered Pringles Right Choice/Idea.
Light/Lite must be 1/2 fat of original content
Reduced fat = 25% reduction
"Lite taste" can still be used :)...lite is a descriptor of the word
taste, not of the actaul product!!
Service-usually the company name, must be flexible enough to
encompass activity of current services as well as new ones in the
future (Southwest Airlines).
Frequently use symbols, AT&Ts globe, Travellers insurance umbrella.
Naming process goes from idea generation to idea evaluation to
legal evaluation.
Should define objectives--what value to the product should the name
provide.
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Need to design a brand that can be protected through registration.
Generic words are not protectable (aluminum foil), surnames and
geographic or functional names are difficult to protect.
To protect exclusive rights to a brand, must make certain that the
brand is not likely to become considered an infringement on any
existing registered brand.
Guard against a brand name becoming a generic term used to refer to
general products category. Generic cannot be protected. IE
Aspirin, Shredded Wheat ETC.
Xerox
Rollerblade
Thermos
Kleenex
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First question is whether to brand or not to brand. Homogenous
products are difficult to brand (Not Purdue, Robinson Brick).
Branding policies are:
- Individual Branding:
Naming each product differently P&G, facilitates market segmentation and
no overlap.
- Overall Family Branding:
All products are branded with the same name, or part of a name, IE Kraft,
promotion of one item also promotes other items.
- Line Family Branding:
Within one product line. IE P&Gs Ivory line.
- Brand Extension Branding:
Use one of its existing brand names as part of a brand for an improved or
new product, usually in the same product category.
75% new products are brand extensions!!
Handout...Can Virgin Name sell Cola, Computers, Vodka and more.
To use brand extensions the products should be either related (not the
case for Virgin), or the brand name should have a value over and above
the particular product category, i.e. a counter culture image for
example. If that is the case, then it might work.
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Approve use of trade marks on other products for a licensing fee.
IE Harley Davidson with Cologne, McDonalds with McKids.
PRO Gain extra revenue and free publicity and trade mark
protection, also helps develop your brand, AMC
CON Lack of manufacturing control, bombardment of unrelated
products.
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Part of the actual product.
Consists of a products physical container, label and/or
insert.
Approximately 10% of product selling cost.
Development of a container and a graphic design for a product. Can
effect purchase decisions IE pump dispenser on a tube of
toothpaste.
Packaging Functions include:
- Protect product and maintain functional form, IE milk.
- Foil shop lifting
- Offer convenience, Usage (dispersement)
- Promote product by communicating features "last 5 seconds of mktg", Campbells...Read
Article
- Develop reusable package for alternative use.
- Segmentation, tailored to a specific group Contact Lenses
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Packaging decision serve the channel members and the final consumer.
- Cost--how much are customers willing to pay for the packaging?
- Preprinted cost, use UPC codes
- Must comply with the FDA packaging regulations.
- Make product tampering evident to the reseller and customer, cost benefit with liability
- Need to consider consistency among package designs--Family packaging...category
consistent...Pringles
- Need to inform potential buyers of new products content, features, uses, advantages and
hazards.
- Need to create a desirable image through color etc. Can be designed to appear taller
or shorter (thin vertical lines for taller) People associate specific colors with certain feelings,
Red with fire. Do not package meet in green!!
- Must meet the needs of resellers--transportation, storage and
handling.
- Environmental responsibility.
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Packaging can be a major component of the marketing strategy--giving
a product a competitive advantage. Need to reevaluate packaging
periodically.
Altering the Package - must evolve with the times
Change style of package Coke, Pepsi
Pepsi freshness dating, need extensive marketing effort to
communicate this.
Coke's new contoured bottle "feel the curves" "the ultimate form
of refreshment", with a silhouette of a coke bottle on a bill
board. Considering a contoured can in the future!!
Multiple Packaging Twin packs, six packs etc...won't work for salt!!
Stimulate extra use. Helps gain customer acceptance.
Handling Improved packaging
Packaging changes during distribution, IE Cartons
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- Functional problems, Flour, sugar.
- Packages that are difficult to open.
- Recyclability. Safety issues (sharp)
- Package deception. Customer confusion IE different size designations, Giant, Econ etc.
- Increased costs attributed to packaging.
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- Facilitates ID of a product
- Descriptive function
- Indicate the grade of the product
- Describe source of product, its content and major features
- How to use the product etc.
- Label can be a promotional tool
- Needs to fulfill federal obligations.
- Universal Product Code for Inventory and Information.
Handout...New labels will tell real...
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Part of the augmented product.
Reduce risk to buyer, therefore encouraging trial/adoption of product.
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