7.3 - Product - Part 1 

7.3 - Product - Part 1 

What makes a good product? What factors do we need to consider before launching a product? Marketing is an essential department in product advertising as much as its development. In business, the term “product” includes consumer and industrial goods and services. It is the end result of the production process sold on the market to satisfy a customer need. 

Some key words

• consumer durables: manufactured products that can be re-used and are expected to have a reasonably long life, such as cars and washing machines

• industrial product: products purchased by businesses not final consumers 

• product line: set of related products sold by a business

• product mix: variety of product lines that a business produces or a retailer stocks

• product range: all the types of products made by a business

PRODUCT LIFE CYCLE

the pattern of sales recorded of a product from launch to withdrawal from the market. It can be broken up into cycles, and understanding it allows the company to pinpoint when to launch/update a product.

stage 1: introduction

start of launch (after development and testing), sales usually low and most of the time slow increase

stage 2: growth 

if effective promotion and well received by the market, then significant growth. This period vary on the product/promotion/company. The reasons for declining include increasing competition, technological changes making the product less appealing, changes in consumer tastes and saturation of the market.

stage 3: maturity or saturation 

sales tend to plateau, period can last for years (eg: coca-cola). This is caused by most consumers who wanted a certain product having already bought one (e.g: mobile phones). 

• extension strategies: marketing plans that extend the maturity stage of the product before a new product is released. Such strategies include developing new markets (eg: export markets), new uses for existing products or products relaunches including new packaging and advertising.

stage 4: decline

decline in sales due to no extension strategies, new competition, and products became obsolete. 

WHY IS THE LIFE CYCLE CONCEPTS USEFUL?

Assisting with the planning of marketing mix decisions

Identifying how cash flow might depend on the product life cycle

Cash flow is vital to business survival. A typical relationship would resemble this: 

development and introduction: cash flow negative due to high cost (production then promotion costs) and low sales

As sales increase during growth and maturity so does cash flow. This is the result of high sales combined with limited promotional costs and low spare capacity. Spare capacity is the ability to produce more than the current quantity: a low level means that production is at high/maximum capacity which in turn indicates high demands from customers. 

As the product passes to the decline phase, price reductions and falling sales contribute to reduced cash flows.