Topic 4 - Product

Higher Business Management

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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.

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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.

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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.

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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

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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.

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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.

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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.

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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.

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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.

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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.

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Product Portfolio

• A business should strive to have a product portfolio.

• This means having a range of products on sale.

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Kraft’s Product Portfolio

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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.

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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.

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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.

.

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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.

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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.

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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.

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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.

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