Chapter 12, Managing The Product, Class Notes

Contents for Class Notes

Product Life Cycle

Popularized by Theodore Levitt, 1965
PLC can be applied to: Four Stages to the Product Life Cycle:
  1. Introduction
  2. Growth
  3. Maturity
  4. 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: 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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Different types of Life Cycle Curves

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Part of the actual product.
Without brands, shoppers choice becomes arbitrary.

A name, term, design, symbol or any other feature that identifies one seller's good or service as distinct from anothers.

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Benefits of Branding

Provides benefits to buyers and sellers



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Importance of Branding and How to Develop a Brand

Handout...American Movie Classics...

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

Need to determine Corporate Name

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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Types of Brands

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:
Private brands have been growing:
1991 increase 4%
1992 increase 3%
1993 increase .8%

Manufacturer brands are beginning to fight back.

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.

UK, Private Label is 36% of market. Why??

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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Selecting a Brand Name

Criteria for choosing a name: 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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Protecting a Brand

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.
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Branding Policies

First question is whether to brand or not to brand. Homogenous products are difficult to brand (Not Purdue, Robinson Brick). Branding policies are: Return to Content List

Brand Licensing

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:

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Major Packaging Considerations

Packaging decision serve the channel members and the final consumer. Return to Content List

Packaging and Marketing Strategy

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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Criticism of Packaging

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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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