PRODUCT

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  • Created by: Neelam
  • Created on: 19-12-12 10:43

Value analysis

-Businesses try to make their products good value for money - for themselves and the customer

-Looks at the way of reducing the costs of making, warehousing, distributing and selling the product these costs should be reduced as far as possible as long as they don't affect the product quality too much

-It's risky if customers might notice the changes and think that the quality of the product has fallen.

-Works best if the customer is unlikely to not notice the change

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The product life cycle

Regardless of the value analysis mix, all products progress through a life cycle. They are launched, hopefully increase in popularity, and eventually are replaced by new improved products or naturally decline

There are four stages of the product life cycle:

-Introduction / development stage

-Growth stage

-Maturity / saturation stage

-Decline stage

Each stage of the product life cycle requires a different marketing  mix

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Development

- The research and development (R&D) department develops the product

- The marketing department does market research

- The costs are high, and there aren't any sales yet to cover the costs

-The initial sales may be slow until the consumer has tried the product and any marketing activity has had time to build interest

- New product development has a high failure rate. This is because there's often not enough demand, or because the business can't make the product cheaply enough to make a profit

- Customers are often reluctant to try anything new or change from the brand they are used to

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Introduction

-The product is launched, either in one market or in several markets. It's sometimes launched with complementary products

-Businesses often promote the product heavily to build sales - but businesses need to make sure they've got enough resources and capacity to meet the demand that promotions create

-The Initial price of the product may be high to cover costs of things like promotion or R&D. This is Price skimming

- Alternatively, the price can start off low to encourage sales. This is called penetration pricing

- Sales go up, but the sales revenue has to pay for the high fixed cost of the development before the product can make a profit. Businesses usually ditch products with disappointing sales at this stage

-There aren't many outlets for the new product yet, and competition is limited

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Intorduction/Development: Marketing mix

Sufficient market research to ensure the product meet its consumes' needs

Depending on the nature of the product, the pricing will include introductory offers to encourage consumers to try the product

Occasionally, research costs are very high and therefore the price of the product will initially be high until sales increae

The advertising will be informative to increase consumer awareness

Distribution channels will be low, through increasing sales outlets will be a priority

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Growth

- Sales grow fast. There are new customers and repeat customers

-Word of mouth (WOM) promotion enhances sales further

- Economies of scale mean the price of manufacturing a unit goes down the more you make, so profits rise

- The pricing strategy may change

- Competitors may be attracted to the market. Promotion points out differences from competitors

- The product is often improved or developed.

- Rising sales encourage more outlets to stock the product

- The rate of growth in sales depends on the nature of the product and the amount of alternative (competition) in the market

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Gowth: Marketing Mix

Modifications may be made after initial feedback market research

If in a competitive market, pricing will have to reflect the market price unless a highly distinctive edge allows for a premium price

Informative advertising may continue but a move to competitive and persuasive style is likely

Distribution is now much wider and therefore additional channels may be required

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Maturity

- Sales reach a peakand profitability increases because the fixed costs of development have been paid for

- Sales start to go down. The price is often reduced to stimulate demand, which makes it less profitable.

- At this stage, there aren't many new customers.

- Some products are forced out of the market

-Sales are likely to flatten out, the nature of any marketing will have changed and competition from newer products becomes a concern

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Maturity: Marketing Mix

Product established although there may be slight variations to maintain sales

Depending upon the actual product, pricing will reflect the amount of competition in the market.

However, price reductions may be used as extension strategies

With an established product, any advertising will be used just to remind consumers of its existence. Such advertising will increase if newer products enter the market. Similarly, advertising and sales promotions could be used as extension strategies

There is the possibility of seeking new markets for the product and therefore establishing new outlets in which it can be made available

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Decline

- The product doesn't appeal to consumers any more. Sales fall rapidly and profits decrease

- The product may just stay profitable if promotional costs are low enough

- If sales carry on falling, the product is withdrawn or sold to another business. This icalled divestment.

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Decline: Marketing Mix

There is little point in spending money on a product in decline

Prices may be drastically reduced in order to sell off any stock that is left before the new model/product is launched

Sales promotions may be heavily used to help sell off final stock

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