4.5. B) PRODUCT

4.5. B)THE SEVEN Ps of the marketing mix - PRODUCT

Relationship between: Product life cycle, investment, profit and cash flow

Introduction to products

Branding: brand awareness, development, loyalty and value

Extension strategies

Relationship between: Product life cycle, product portfolio and marketing mix

05

04

03

02

01

INDEX

Product?

Product?

Product?

Product?

01

Introduction to products

RM, WIP, NCA

Commercial

Individual

Services

Physical

Producer

Consumer

Intangible

Usage?

Tangible

Tangible?

any GoS to satisfy wants/needs

Product

Classify the following products according to their TANGIBILITY and USAGE

Classify the following products according to their TANGIBILITY and USAGE

Classify the following products according to their TANGIBILITY and USAGE

Classify the following products according to their TANGIBILITY and USAGE

What makes some products succeed while others fail?

€ 6

Value for money?

€ 10

Value for money?

€ 17

Value for money?

SUCCESS!

Regular product

additional utility that a GoS acquires as a result of a TRANSFORMATION

USP

DESIGN

QUALITY

BRANDING

TIME

Added Value

02

Relationship between: Product life cycle, product portfolio and marketing mix

1.

Product life cycle

iPhone launch

2007

New models

iTunes

2003

600,000 units sold

2002

iPodlaunch

2001

MERCADO

TIEMPO

Product life cycle

Product life cycle

iPhone launch

2007

1.

/ Loss

Decline

Maturity

Growth

Launch

R & D

MARKET

Product life cycle

TIME

TIEMPO

extension strategies

less promotion

low SR and π

competitive pricing

higher π

high saleslow PUCost

brand loyalty

sales growth + recognition

promotion

awareness +advertising

test marketing

ideas +market

1.

/ Loss

Decline

Maturity

Growth

Launch

R & D

TIEMPO

Product life cycle

Juan Roig's group is betting on the catering sector and for now will only implement the project in the only store in Burjassot (Valencia), where it opened this Friday the first test counter of freshly made food, as Valencia Plaza advanced. Mercadona thus dares to follow the path of Carrefour and El Corte Inglés, which already sell ready-made meals in their stores. The Burjassot supermarket will be the first one, according to Mercadona, but in the short term it will also implement this service in other selling points. So much so that in several of those recently refurbished for the implementation of its 'total freshness' model, the Valencian company has already carried out the works, taking into account the installation of the extraction systems for the future kitchens.

1.1. R&D stage: test marketing

Market share

Penetration pricing

Existing markets

USP

1st-mover

High price

1.2. Launch (introduction)

A company offers the following products:printing service in 2D and 3D.

• Identify the corresponding stage of the life cycle for each product.
• Discuss at least TWO characteristics for each stage.

20/9/24

20/4/24

20/9/23

20/4/23

2.

20/9/22

Product portfolio

Collection of products or SBUs

TIEMPO

Portfolio #3

Portfolio #2

Portfolio #1

iOS 13

Apple Watch Series 9

iPhone 15

iOS 15

Apple Watch Series 7

iPhone 13

iOS 13

Apple Watch Series 5

iPhone 11

20/9/23

20/9/21

2.

20/9/19

Product portfolio

Products'market potential

BALANCED PRODUCT PORTFOLIO

Decision-making

Situational

BMT

Boston Consulting Group matrix

TIEMPO

BCG matrix

Mkt growth

Mkt share

BMT

Boston Consulting Group matrix

TIEMPO

"An organisation's portion of the total value of sales revenue in an industry (or market)"

MARKETSHARE

Original market size

Original market size

X 100

Current market size

MARKET GROWTH =

"Rate at which market size (volume or value) is increasing."

MARKET GROWTH

= 8.33%

24 million units

26 million units

2024

24 million units

2023

Bikes market

24 million units

X 100

26 million units

MARKET GROWTH =

MARKET GROWTH (by volume)

= 21.87%

Q= 26 million unitsP= 360 €

2024

Q= 24 million unitsP= 320 €

2023

Bikes market

7680 million €

768 million €

X 100

9360 million €

MARKET GROWTH =

MARKET GROWTH (by value)

Sprite

Zero Coke

Regular Coke

Diet Coke

Classify the following Coca-Cola product portfolio according to the BCG matrix

/ Loss

Decline

Maturity

Growth

Launch

R & D

TIEMPO

3.

Product life cycle and BCG matrix

Relationship between Product life cycle and a firm's product portfolio

/ Loss

Decline

Maturity

Growth

Launch

R & D

TIEMPO

3.

Product life cycle and BCG matrix

03

Extension strategies

• Revive demand

• Negative publicity

• USP

• Zero Coke

• Ferrari

• Added value

• Persuade

• Increase demand

Reposition the product

Change brand name

Product differentiation

• Brand
• extension

Newmarkets

Redesigning / repackaging

Advertising

• Price
• reductions

Extension strategies

BCG matrix

Mkt growth

Mkt share

BMT

BCG matrix : CASH COW

TIEMPO

AC= $ 2.00

Selling PRICE

100% mark-up

Let us assume a coffee shop estimates the average cost of its coffee to be $2 and wants 100% profit margin (mark-up)

Cost-plus pricing

1.3. CICLO VIDA PRODUCTO

MATRIZ BCG

1.3. CICLO VIDA PRODUCTO

AC= $ 2.00

PRICE= $ 4.00

100% mark-up

Let us assume a coffee shop estimates the average cost of its coffee to be $2 and wants 100% profit margin (mark-up)

Cost-plus pricing

AC= $ 2.00

Selling PRICE

$ 1.50 mark-up

Let us assume now that coffee shop wants to earn $1.50 profit on each cup of coffee sold.

Cost-plus pricing

AC= $ 2.00

PRICE= $3.50

$ 1.50 mark-up

Let us assume now that coffee shop wants to earn $1.50 profit on each cup of coffee sold.

Cost-plus pricing

03

Penetration pricing

Compete against existing firms

Newmarketor industry

LOW PRICES

Pricing method

Penetration pricing

Gain market share

• Compete against existing firms

• Less time

• More customers

Heavily advertised discounted price

Penetration pricing

Lower P -> Higher QD

High PED

Sustain low profit margins

MASS MARKET

Penetration pricing: suitability

04

Loss leader pricing

Involves selling a GoS below its cost

Production COST

Selling PRICE

Pricing method

Loss leader pricing

1. complementary goods
2. subscription services
3. royalty payments

• Recoup loss by subsequent sales of:

• Encourage brand switching

• Attracting customers

Heavily advertising loss leader

Loss leader pricing

SONY claims to break-even on their games console once two games have been bought

05

Predatory pricing

SELLING PRICE

Temporarily reducing prices to force competitors out as they cannot compete profitably

Pricing method

Predatory pricing

PRICE

PRICE

PRICE Company D

PRICE Company B

PRICE Company A

Company A applies predatory pricing

PRICE Company D

PRICE Company C

PRICE Company B

PRICE Company A

Predatory pricing

PB: 6 €

PA:5 €

PB: 6 €

PA: 9 €

Production CostB: 5 €

PB: 10 €

PA: 9 €

Production CostA: 6 €

PB: 10 €

PA: 12 €

Price war

7.45 €

4.15 €

Practice 2

06

Premium pricing

X's PRICE

Z's PRICE

Y's PRICE

A'S PREMIUM PRICE

Involves setting a significantly higher price than similar competing products

Pricing method

Premium pricing

Financial worth corresponding to customers awareness

Block entry for competitors if loyal customer base

BRAND VALUE

BARRIERS TO ENTRY

HIGHER π MARGIN

Profit margin

Price

Advantages of premium pricing

Customers must be convinced the product is worth price

If appeal to mass market

MUST CONVINCE

MIGHT LOSE STATUS

LIMIT #CUSTOMERS

Drawbacks of premium pricing

H1

Dynamicpricing

£ 2.60

11:00 pm

7:00 am

£ 3.20

Off-Peak time

Peak time

£ 2.60

11:00 pm

7:00 am

£ 3.20

11:00 pm

5:00 pm

1:00 pm

7:00 am

£ 2.40

PRICE (£)

£ 3.20

£ 2.60

£ 3.20

Varying price to reflect changing market demand

Practice

Dynamic pricing / Real-time pricing

Real-time data

GREATER CONTROL

Maximise PROFITS

Profit margin

Price

Advantages of real-time pricing

Not sustainable in the long-term

Harm future sales

PRICE WARS

DAMAGE REPUTATION

UNHAPPY CUSTOMERS

Drawbacks of surge pricing

H2

Competitive pricing

SURVIVAL

SUPERIOR PRODUCT

BRAND DIFFERENTIATION

ABELOW COMPETITION

ABOVE COMPETITION

= COMPETITION

Involves setting the same or similar price level of its competitors

Practice

Competitive/going-rate pricing

H3

Contribution pricing

REVENUE

VARIABLE

sum of money that remains after all DIRECT and VARIABLE costs have been taken away from REVENUE

Contribution

(P - AVC) X Q

P - AVC

Total=

Per unit =

Contribution

Contribution

Price set

Direct costs

Setting a price based on direct production costs

Practice

Contribution pricing