Reading2 Asecond extractfromMarketing Essentials

Dibb &Simkin2009 Reading 2Product LifeCycles

Reading 2Product Life Cycles

Productlife cycle Just as biological cycles progress through growthand decline, so toodo Thefour majorstages productlifecycles. Anew productisintroduced into themarketplace; it through whichproducts grows; it matures; andwhenitloses appeal andsales decline, it is move: terminated.AsexplainedinChapter 9, differentmarketing Introduction, growth, maturity anddecline Figure8.4:concepts of widthofproductmix anddepth of productline appliedtoselected Procter&Gamble products Source: informationprovidedand reprintedbypermission of theProcter & Gamble company, Public Affairs Division, Proctor&Gamble Plaza, Cincinnati, OH 45202-3315

Laundry Toothpastes Barsoaps Deodorants Shampoos Tissue/ detergents Towel Productline IvorySnow Gleem1952 Ivory1879 Old Spice Head &Shoulders Charmin depth 1930 Crest 1955 Camay1926 1948 1961 1928 Dreft 1933 Zest 1952 Secret 1956 PantenePro 1965 Puffs Tide 1946 Safeguard Sure 1972 VidalSasson 1960 Cheer 1950 1963 1974 Bounty Bold 1965 Olay 1993 PertPlus1979 1965 Gain 1966 Ivory1983 Royale Era1972 1996 Productmix width

Strategies areappropriateatdifferent stages in theproductlife cycle. Thus packaging, branding andlabellingtechniquescan be used to help create or modify products that have reached differentpointsintheir life. As Figure8.5 shows, aproductlife cyclehas four majorstages: introduction growth maturity decline. When aproductmovesthrough its cycle, thestrategiesrelatingto competition, promotion, place/distribution, pricingand market information must be evaluatedperiodically andpossiblychanged. Astutemarketing managers usethe life-cycleconcepttomakesurethatthe introduction, alteration andterminationofaproductare timedand executedproperly.By understanding thetypical life-cyclepattern,marketers arebetterableto maintain profitableproducts anddropunprofitableones.

Introduction Introduction stage Aproduct's first appearanceinthe The introductionstage of thelifecycle begins at aproduct's first marketplace, before any appearance in themarketplace, whensales arezeroand profits arenegative. sales or profits have been Profits arebelow zerobecause anew productincursdevelopmentcosts, made. initialrevenuesare low, andatthe sametimeacompanymustgenerally

5 Reading 2Asecond extractfromMarketing Essentials

incurthe significantexpenses incurred duringpromotion anddistribution. As timepasses, sales shouldmove upwards fromzeroand profits shouldbuild up fromthe negativeposition(see Figure8.5). Because of cost,veryfew productintroductions represent majorinventions. Developing andintroducinganewproductcan mean an outlayofmany millions of pounds.The failure rate fornew products is quitehigh, ranging from60to90per centdepending on theindustry andonhow product failure is defined. For example, in thefood anddrinks industry, 80 percent of allnew products fail. Typically,however, productintroductions involve a newdeodorant, anew type of vacuum cleaner or anew leisureconcept rather than amajor productinnovation. In general, themoremarketing- oriented thecompany,the more likelyitwillbetolaunchinnovative products that arenew to themarket. Newproduct ideas aremorelikelytobesuccessful when senior management is involved in product developmentand launch. In addition, research shows that aclear,stablevision, flexibility andimprovisation, informationexchange andcollaborationare also keyingredientsinnew productsuccess.

Figure8.5: Thefour stages of the productlifecycle

Growth

Growth stage During the growth stage,sales rise rapidly, andprofits reach apeak and Thestage at whicha then starttodecline(see Figure8.5). Thegrowthstage is critical to a product'ssales rise product's survival because competitive reactions to itssuccessduringthis rapidlyand profits reach periodwill affect theproduct's life expectancy.For example, Mars apeak, before levelling offintomaturity successfullylaunchedIce Cream Mars,the firstice-cream versionofan establishedconfectionery product. Todaythe productcompeteswith more than adozen otherbrands.Someofthe competingbrands failed quickly and others followed. Profits declinelateinthe growth stageasmorecompetitors enterthe market,drivingprices down andcreatingthe need forheavy promotionalexpenses.Atthispoint atypical marketingstrategy encourages strong brandloyalty,perhaps usingsales promotion, andcompeteswith aggressive emulatorsofthe product. Duringthe growthstage,acompany

6 Reading 2Product LifeCycles

triestostrengthenits market shareand developacompetitive position by emphasising theproduct's benefits. Aggressive promotionalpricing, including pricecuts, is typical duringthe growthstage.The Internet industryisnow well into its growthstage,and many competitors have enteredthe market.Companies likeAOL mustbattle hard to maintain theirexistingpositions in this competitivearena.

Maturity

Maturity stage During the maturity stage,the sales curvepeaks andstarts to decline, and Thestage during whicha profits continue to decline(seeFigure8.5). Thisstage is characterised by product'ssales curve severe competition, with many brands in themarket. Competitors emphasise peaks and starts to improvementsand differences in theirversions of theproduct. Inevitably, decline, andprofits continue to decline duringthe maturity stage, some weaker competitors aresqueezed out or switchtheir attentiontoother products. For example, somebrands of DVD player areperishing now that theproductisreachingthe maturity stage. During thematurity stage, theproducerswho remain in themarketmust make fresh promotionaland distributionefforts.These efforts must focuson dealersasmuchasonconsumerstoensurethatbrand visibility is maintained at thepoint of sale. Advertisingand dealer-oriented promotions aretypical duringthisstage of theproductlife cycle. The promotersmustalsotakeinto account thefact that,asthe productreaches maturity,buyers'knowledgeof it attainsahigh level. Consumers of theproduct arenolongerinexperienced generalists, but rather experienced specialists.

Decline

Declinestage During the declinestage,sales fall rapidly(see Figure8.5). Newtechnology Thelast stage of a or anew social trendmay cause productsales to take asharp downturn. For product'slife cycle, example, iPods have reduced CD sales andgreen concerns have damagedthe during whichsales fall sales volumes of certain models of vehicles. When this happens,the rapidly marketer must consider pruning items from theproductlinetoeliminate thosenot earning aprofit. Sony surprisedthe market by announcingitwould be pulling out of selling PDAs. The decision camebecause Sony believed that technology changesare signallingamove away fromhandheld organisers towardsmultifunctionalmobile phones. At this time,too, the marketer maycut promotionefforts,eliminatemarginaldistributorsand, finally,plantophase out theproduct. Because most businesses have aproductmix consistingofmultiple products, acompany'sdestinyisrarelytiedtoone product. Acomposite of life-cycle patternsisformedwhenvarious products in themix areatdifferent stages in thecycle.Asone productisdeclining, otherproducts areinthe introduction, growthormaturity stage. Marketersmustdeal with thedualproblemsof prolonging thelife of existingproducts andintroducingnew products to meet sales goals.Moredetails of this kind of portfoliomanagementactivity aregiven in Chapter 9, which also explores thedevelopmentofnew

7 Reading 2Asecond extractfromMarketing Essentials

products andconsidershow they can be managedintheir variouslife-cycle stages.

8 Why Some Products Fail andOthersSucceed

WhySomeProductsFailand Others Succeed

Thousandofnew products areintroduced each year andmanyofthemfail. Someestimates putthe productfailure rate as high as 60 to 90 percent. Failure andsuccess ratesvaryindifferent industriesand fromcompany to company. Figures suggest that consumer productsare more likelytofailthan thosedirected at business markets. Beingone of the firstbrands launchedin aproductcategoryisnoguarantee of success. One study found that in 50 productcategories, only half of thepioneerssurvived. Products fail formanyreasons. Oneofthe most common is thecompany's failure to matchproductofferings to customer needs. When products do not offervalue andlack thefeaturecustomers want,theyfailinthe marketplace. Ineffectiveorinconsistent branding hasalsobeen blamed forproduct failures. Otherreasonsoften givenfor newproductfailure include technical or design problems, poor timing, overestimationofmarketsize, ineffective promotionand inefficientdistribution. The problemsleadingtothe downfall of Coca-Cola'sUKlaunchofbottledwater Dasaniwerewidelydebated in thepress.Technical difficultiesled to bromidecontaminationatthe company'splant.Atatimewhenconsumerswerealreadyconcernedabout thepurityoftap water, thewithdrawalofthe productwas inevitable. For CadburyTrebor Bassett's 24-7 chewinggum,failure wasblamedon distribution problemsand lack of in-store support.

Degrees of ProductFailure

It is important to distinguish between degrees of productfailure.Absolute failure occurs whenacompanyloses moneyonanewproductbecause it is unabletorecoverdevelopment, productionand marketingcosts.Sucha productisusually deletedfromthe productmix.Relativeproductfailure occurs whenaproductreturns aprofitbut doesnot meet acompany'sprofit or market share objectives. If arelativeproductfailure is repositionedor improved, it maybecome asuccessful member of theproductline. Some products experience relativeproductfailure afteryearsofsuccess. Drinks business Diageo recently steppedintostemdecliningsales of Guinness stout.Partofthiseffortinvolvedreformulatingthe cannedversion of the drink, to make itstastecloser to that of draught Guinness. Thecanswere also redesignedtoappeal to ayoungersegment of drinkers.Asthe MarketingInsight explains,Guinness hasbeen looking at various ways to reinvigorateits brand.

9 Reading 2Asecond extractfromMarketing Essentials

TheIngredients forSuccess

Despite this gloomypicture of productfailure,somenew products arevery successful.Perhaps themostimportant ingredient forsuccess is theproduct's abilitytoprovide asignificantand perceivablebenefittoasizeable number of customers. Newproducts with an observableadvantageoversimilar availableproducts -suchasmorefeatures,ease of operation or improved technology- have agreater chance of success.

10 Tangible and Intangible ProductCharacteristics

Tangible andIntangibleProduct Characteristics

When developing products,marketers make many decisions.Someofthese involve thetangible, or physical,characteristics of theproduct; others focus on less tangiblesupportservices that areverymuchapart of thetotal product.

PhysicalCharacteristics andProduct Quality

The questionofhow much quality to build into theproductiscrucial for marketers. In thecoreproduct, qualityconstitutesthe product's ability to achieve thebasicfunctionalrequirementsexpected of it.Amajordimension of quality is durability. Higher quality oftendemands better materials and more expensiveprocessing, which increases productioncosts and, ultimately, Quality theproduct'sprice. How muchthe target market is prepared to paywill Thecoreproduct's ability affect thelevel of quality specified.The concepts of quality andvalue are to achieve thebasic related. Aconsumer maybehappy to paypremium forahard-wearingpaint. functionalrequirements Because they perceive it as better valuethancompetingofferings.Ingeneral, expected of it acompany shouldset consistent quality levels forall products with asimilar brand. The quality of competingbrands is also an important consideration. As explainedinChapter 7, marketingresearch playsanimportant role in determiningthe optimum physical features -suchasquality-of aproduct.

11 Reading 2Asecond extractfromMarketing Essentials

MarketingInsight

OldBrands Battlethe EffectsofAgeing

Guinness andKit-Kat have somethingincommon. They arebothvery well-establishedbrandsthathave attracted considerable customer supportover thelengthy relationshiptheyhaveenjoyed withdifferent generationsofconsumers. Yetthese well-loved brands arealsofacing crisis.Diageo'sGuinnessinthe middleofthe decade suffered aUK salesdeclineof3percent. In Ireland, thebrand’sdomestic market,the salesfallreached 7per centduringthe same period.Meanwhile Nestlé’skit Kat wasalsostruggling,with UK salesdecliningby5.4 per cent in just 12 months.

So what were thereasons forthismalaise?Accordingtothe former executivechairman of TheHenleyCentre,'Thetrouble with most mature brands is that they arebeing marketed to apopulationthatischanging rapidly.'Over extensionofthe Kit-Kat brand mayhavediluted the consumer franchise forKit-Kat, whileamoveawayfromthe familiar advertising strapline, Have aBreak…., also alienatedsomeconsumers whofailedtolatch on to newercampaigns.The challengefor both brands is to continue to communicate strongly with their loyalcustomer base,while doingmoretoreflectthe needsofpotential newcustomers.

ForGuinness, thereisapositivesidetofiguresfor thebrand:the stout's global fortunesappear to be on theascendant,with a3per cent increase in volume. So what went wronginthe UK andIreland?Some believe that thebrand's marketingmay be partlytoblame forthe decline. Duringits 75 yearsofadvertising, Guinness developed a reputationfor innovative campaigns,manyofwhich achievediconic status.Thisstartedin1929,with thenow famous ‘Guinness is good for you’ strapline. Soon afterwardsin1935, thetoucanwas featured forthe firsttime on advertising posters. Initially theplanhad been to usea pelican.The idea was to runa'Guinness-a-day’ theme(buildingonthe 'Guinnessisgoodfor you' concept). Theplanwas to featureanimage of apelican withseven pintspositioned alongits beak.Inthe event, a toucanwas substitutedand an appropriateverse waswritten to accompanythe advertising:

‘If he cansay as youcan

Guinness is good foryou

How grandtobeatoucan

Just thinkwhattoucan cando'

Thetoucanwas finally retiredin1982. Other high-profile campaigns, such as the'Pure Genius'advertisingfollowed. However,recent advertising executions,including the'moth'advertisement, which featured youngpeopleleavingacar in adarkforesttofollowacloudof mothstowards thelight comingfromaGuinness bar, were criticised as uninspiring. Otherindustryexpertssuggest that theGuinnessbrand has

12 Marketing Insight

been diluted by confusinginnovations. Product extensionGuinness Extra Cold, which some argued flew in thefaceofthe warmth associated with traditionalGuinness, was pinpointed as oneculprit. Now Diageowants to battlethe effectsofthe mature stageofGuinness'slife cycle, by focusingonits heritage as astatusbrand,and is backingup this strategy witharange of newadvertisinginitiatives.The latest advertising,'Hands’ waiting in anticipation hasbeenwellreceived and recent performancehas improved.Maintaining consumer interest in long standing products,nomatterhow successful they have been previously, is no easy matter. Both Nestlé withKit-Kat andDiageowith Guinness areperpetually introducing newproduct varieties, innovativepackaging andup-ratedadvertisingconceptssoastoavoid maturitycreepinginto thedecline stage.

Sources: 'Guinnessinfacelift as volumedips', MarketingWeek,20 May2004, p.8; Sonoo Singh, 'Strugglingtokeepup', MarketingWeek; 20 May2004, pp.24-7;www.thetoucan.co.uk, 26 November,2007; http:// landingpage.guinness.com,26November,2007.

SupportiveProduct-related Services

Allproducts possess intangiblefeatures. When prospectivecustomers are unabletoexperiencethe productinadvance, they aremakingdecisions based on promises of satisfaction. Awoman buying lingerieoverthe Internet hopesthatwhenthe garments sheordered arrive, they will meet her expectations of quality,look and fit. Shouldshe be disappointed,she will expect to be able to return theitems.Arrangementsfor productreturns are just one of many product-relatedservices. Others include productguarantees, credit andrepairfacilities. Although these productfeaturesmay be less tangiblethanthe productitself, they areoftenastrong influenceonthe choices that customersmake. Canyou imaginebuying awatch with no guarantee, or atelevisionthatcannot be repaired? The type of guarantee acompany providescan be critical forbuyers, especially whenexpensive, technically complexgoods such as appliances are involved. Aguarantee specifies whatthe producer or supplierwill do if the productmalfunctions.Somephotographicprocessors offerfreeprocessing on prints not readywithin24hours. Guarantorsare legally required to state more simply andspecifically theterms andconditionsunderwhich the companywilltakeaction. For example, changesinEUlaw now require electrical itemstocarry atwo-year guarantee. Marketersare now using guarantees more aggressively as toolstogivetheir brands acompetitive advantage. An effectiveguarantee shouldbeunconditional, easy to understand and communicate, meaningful,easy to invoke,and quick andeasy to acton. The customer shouldbeabletoreturnaproductand getareplacement, arefund or acreditfor thereturneditem. Such guarantees arebeneficial because they generate feedback fromcustomers andhelpbuild customer loyalty andsales.

13 Reading 2Asecond extractfromMarketing Essentials

Although it is more difficult to provide guarantees forservices than for goods,someservice marketersdoguarantee customer satisfaction. For example, someopticians offeringaone hour turnaround fornew lenses or framesdonot charge customerswho have to wait longer than this time. Establishing asystemtoprovide replacementparts andrepairservices is an essentialsupportservice forcomplex andexpensive consumer or business products.For example, buildersexpect constructionmachinery manufacturers likeCaterpillartobeabletoprovide replacementparts quickly andwithout fuss. Sometimes these services areprovideddirectly to buyers,inother cases regionalservice centres or middlemen areused. Finally,acompanymustsometimes provide credit services to customers. Eventhough credit services place a financialburdenonabusiness, they can be beneficial.For instance, acompany mayacquire andmaintainastable market share. Many majoroil companies, forexample,havecompeted effectivelyagainst petroldiscountersbyproviding credit services. For marketersofrelativelyexpensiveitems,suchascarsorsoftfurnishings, offeringcreditservices enablesalargernumberofpeopletobuy theproduct, thus enlargingthe market forthe item.

14 Summary

Summary

Aproductiseverything, bothfavourable and, unfavourable,thatisreceived in an exchange.Itisacomplexset of tangibleand intangibleattributes, including functional, social andpsychological utilitiesorbenefits.Aproduct can be agood, aservice, an idea or anycombination of these three. Consumersbuy thebenefits andsatisfactiontheythink theproductwill provide Products can be classified on thebasisofthe buyer'sintentions. Consumer products arepurchased to satisfy personaland family needs. Industrialor business products arepurchased foruse in acompany'soperations or to make otherproducts. The sameproductmay be classified as botha consumer productand abusiness product. Consumer products can be subdividedintoconvenience, shopping, speciality and unsought products. Business products can be dividedinto rawmaterials, major equipment, accessory equipment, component ports, process materials, consumable supplies(MROitems)and businessservices. It is important to remember that aproduct hasthree levels:core, actualand augmented. The purchaser buys acorebenefitorservice {the core product) in addition to theirproduct's brandname, features, capabilities, quality, packagingand design (theactual product).Increasingly, aspects of the augmentedproduct areimportant considerations forpurchasersofconsumer goods,services andbusiness goods.Warranties, deliveryand credit, personnel, installation, after-sales supportand customer serviceare integral to theactualproduct's appeal andperceivedbenefits.The role of personnel in particular is of fundamental concerntomarketers;peopleand customer service nowformacentral part of themarketingmix. A productitem is aspecificversion of aproductthatcan be designatedasa distinct offering amongabusiness's products.Aproductline is agroup of closelyrelated productitems that areaunitbecause of marketing, technical or end-useconsiderations.Acompany'stotal group of products is calledthe productmix.The depth of aproductmix is measured by thenumberof differentproducts offeredineach productline. The width of theproductmix is measured by thenumberofproductlines acompany offers. The productlife cycle describeshow productitems in an industrymove through four majorstages: (1)introduction stage,(2) growthstage,(3) maturity stage and (4)declinestage. The life-cycle conceptisused to make sure that theintroduction, alterationand terminationofaproductare timed andexecutedproperly.The sales curveisatzeroonintroduction, rises at an increasing rate duringgrowth, peaksatmaturity andthendeclines. Profits peak towardsthe endofthe growthstage of theproductlifecycle.The life expectancy of aproductisbased on buyers'wants,the availability of competingproducts andother environmentalconditions.Mostbusinesses have acompositeoflife-cycle patternsfor various products.Itisimportant to manage existingproducts anddevelop newonestokeep theoverall sales performance at thedesiredlevel. Thousands of newproductsare introduced each year andmanyofthemfail. Someestimates putthe productfailure rate as high as 60 to 90 percent.

15 Reading 2Asecond extractfromMarketing Essentials

Failure,and success ratesvaryindifferent industries andfromcompany to company. Products fail formanyreasons: because of afailure to match productofferings to customer needs, ineffectiveorinconsistent branding, technical or design problems, poor timing, overestimationofmarketsize, ineffectivepromotionand inefficientdistribution. It is important to distinguish between degrees of productfailure.Absolute failure occurs whenacompanyloses moneyonanewproductbecause it is unabletorecoverdevelopment, productionand marketingcosts.Relative productfailure occurs whenaproductreturns aprofitbut doesnot meet a company'sprofitormarketshare objectives. Despite this gloomypicture of newproductfailure,somenew products are very successful.Perhaps themostimportant ingredient forsuccess is the product's abilitytoprovide asignificantand perceivablebenefittoasizeable numberofcustomers. When creatingproducts, marketersmusttakeintoaccount otherproduct- relatedconsiderations,suchasphysical characteristicsand less tangible supportservices. Specificphysical productcharacteristics that require attentionare thelevel of quality andproductfeatures,suchastextures, coloursand sizes. Support services that maybeviewedaspartofthe total productinclude guarantees, repairs/replacements andcredit.

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