4.5 The Four Ps

Product Life Cycle shows the different stages that a product is likely to go through from its initial conception and launch to its decline and eventual withdrawal from the market. Its life cycle is measured by sales revenue against time, which allows managers to identify any necessary changes and take appropriate actions to prepare for the next stage of the life cycle.

There are 5 stages: research and development, launch, growth, maturity and decline.

Research and Development Stage

Designing and testing prototypes to arrive at the finished version of a proposed product. The market reaction to the prototype, together with detailed market research, will be the markers to assess the potential success of the finished product, helping the business make an informed decision about whether to continue investing into the project.

The R&D stage is usually met with high costs with no revenue from the product, putting the business in a negative cash flow position.

Launch Stage

The launch stage involves careful marketing planning, with usually a great emphasis on promotion to raise brand and product awareness among the target segment. Sales will be relatively low as the product has not gained traction in the market yet so awareness is low. Customers who buy products at launch are referred to as innovators, who are usually product reviewers and loyal customers of the brand.

The launch stage is usually met with high costs from the extensive marketing campaigns, but little revenue. The product will still be unprofitable, and the business will still be in a vulnerable cash flow position, meaning managers will aim to get the product onto the next stage as soon as possible.

Growth Stage

The growth stage sees sales revenue increasing as the product gains awareness within the market. The growth is usually due to the business using wider channels of distribution to get the product more accessible to the target market segments. Rising brand awareness from promotional campaigns during the launch stage will increase sales as well. Customers purchasing the product at this stage are known as early adopters.

Profits will begin to materialise with the increasing sales revenue and potential lower unit costs if the business is able to utilise economies of scale in production to meet the increasing demand. However, the cash flow position of the business will depend on its credit control. Businesses will strive to prolong this stage as long as possible, but will have to continue investing in extensive promotional campaigns to remain competitive.

Maturity Stage

The maturity stage will see a slowing rise in sales revenue as sales reach its peak. The marketing mix of the business will focus on fostering brand loyalty and repeat purchases from target market segments, as well as market development strategies to increase the potential customer base of the business in an attempt to maintain sales and prolong the maturity stage before the product enters the decline stage.

Decline Stage

The final stage of the product life cycle will see declining sales, as the product becomes obsolete and out-dated. 

The business will inevitably see a fall in profit, but the cash flow position of the business will depend on whether it decides to invest into extension strategies to revive interest in the product and prolong the maturity stage.

Possible Extension Strategies

Pricing Strategies - To increase demand for a product, businesses could use price cuts to get rid of excess stocks and free storage space before the product becomes obsolete.

Redesigning - Without adding any additional features to improve functionality, the business could release new designs and limited editions of a current product.

New Markets - Market development strategies and broadening distribution channels will enable the business to reach a greater customer base to increase sales.

Brand Extension - Using an existing brand name, such as the iPhone or Galaxy, to launch a new or modified version of the product.

BCG Matrix - Marketing planning tool that helps managers to plan for a balanced product portfolio. It uses two dimensions, market share and market growth, to assess products of the business in terms of their market potential, in order to decide which products should receive more or less investment. 

Question Marks / Problem Children - Products that operate in a high market growth sector, but have low market share. This suggests inferior marketing or product quality, as the market prefers alternative products from competitors. The business should analyse reasons for its low market share and develop strategies such as market penetration and greater promotional campaigns.

Stars - Products that operate in high growth markets and have high market share. Stars are successful products that generate high sales and profits for the business. However, high market growth will attract more competitors, so the business will have to continue investing into the product to maintain high market share.

Cash Cows - Products with high market share operating in a low-growth market. Low-growth markets tend to be mature, with high barriers of entry, such as the soft drink industry. Cash cows tend to generate high profits and a healthy cash flow for the business, but require some investment into extension strategies to prolong their high earning potential.

Dogs - Products with low market share operating in a low growth market. Dogs do not generate much cash or profits for the business, and businesses have to decide whether to risk potential losses or withdraw the product entirely.

Branding - A form of differentiation that involves creating a name, symbol or design that is identifiable with a product or business. Successful branding is a natural expansion of the vision, mission and culture of the business, in other words, branding is a reflection of the business’ identity.

Importance of Branding

Communication - Branding gives the business an opportunity to communicate its purpose and ideologies to customers, advertising the values and beliefs that customers will be supporting by choosing the business over competitors. 

Recognition - Branding is how products get recognised as part of a business’ portfolio. The familiarity and assumed dependability of a recognisable brand will improve sales by attracting new customers.

Loyalty - A strongly established brand will build trust with customers, who will have confidence in the quality and consistency of a product or service from the brand. This will also increase the anticipation and performance of newly released products from a business.

Brand Awareness - Measures the extent to which potential customers or the general public recognises a product by its name. Products and services that maintain a high level of brand awareness are likely to generate more sales as customers prefer familiarity with a brand they can trust.

Brand Development - The marketing process of improving the perception of quality, value and trust a customer has in the organisation and its products. Brand development is an ongoing process of continuous improvement to enhance customer satisfaction.

Brand Loyalty - When customers make repeat purchases of the same product or service, despite attempts of competitors to lure customers away.To encourage brand loyalty, businesses use loyalty schemes such as discounted prices or favourable treatment to reward devoted customers.

Brand Value - The premium customers are willing to pay for a brand name over and above the value of the product itself. It measures the extent to which customers will pay more for a reputable brand over a generic product without a recognisable brand during a buying decision.

Packaging - The way the product is presented to a customer. Packaging is a form of differentiation to make the product’s design stand out from others. 

• Function - Packaging protects the product from damage during transportation and distribution.
• Attraction - Attractive and attention-grabbing packaging piques the interest of customers to find out more about the product. The quality of packaging will be associated with the quality of the product.
• Facilitates Purchase Decision - Packaging can contain product descriptions to enable customers to make a more informed purchase decision.
• Differentiation - Packaging offers the business an opportunity to differentiate the product from competitors by advertising its brand or using a unique design.

Mark-up Pricing - Adding a percentage or predetermined amount of profit to the cost per unit of output to determine the selling price. This allows the business to determine a reasonable price for customers that will definitely cover the direct costs of the product to ensure gross profits are positive.

Penetration Pricing - Setting a relatively low price to help establish a new product in the market in order to gain brand recognition and market share during the launch and growth stage of the product. The price stays low as long as the business is able to sustain a low profit margin, but it is usually raised before too long.

Price Skimming - Charging a premium price to maximise profits. This is usually adopted by first-movers who have introduced new technologies after heavy investment into research and development. The high prices are meant to cover the costs of research and development, and the product tends to still sell due to the little competition first-movers face.

Psychological Pricing - Rounding down numbers such as from 10.00 to 9.99 to deceive customers into thinking prices are lower. This method has gained commonplace across all industries, but is unsuitable for businesses who trade in cash, where whole numbers will be more convenient.

Loss Leader - Selling a product below its cost value in the hope of attracting customers to purchase additional products from the business. The aim is to receive the loss of a particular good through the sale of optional add-ons to the product.

Price Discrimination - Occurs when the same product or service is marketed at different prices to different market segments. For example, services for children are generally cheaper than they are for adults.

Price Leadership - A strategy used by a clear market leader, who is able to dictate the price of the market by rising or lowering its prices.‍

Predatory Pricing - Using below-cost pricing to undercut competitors in an attempt to sacrifice profit margins or even losses to gain a market advantage. Predatory pricing is used to force rivals who are unable to compete profitably out of the industry.

Above the Line Promotion - Any form of paid-for advertising that is largely non-targeted and has a wide reach, through independent mass media sources. Common platforms for ATL promotion include television, radio, magazines, and billboards.

Below the Line Promotion - Direct advertising activities, using non-mass media outlets, focused on a targeted segment of customers. Common methods for BTL promotion include direct mail, sales promotions, branding, point-of-sales promotion and targeted search engine marketing.

• Direct mail - Reaching out to individual customers by sending them exclusive offers or promotional material through an email or packaged mail.
• Sales promotions - Using short-term attractive initiatives to stimulate demand for a product and increase its sales.
• Point of sales promotions - Promotion of a product at the place or location where the customer buys the product, such as the suggested bar in the shopping cart page of e-commerce websites or at the checkout counter of a store
• Publicity - Promoting a business and its products by gaining free media coverage. This includes hosting launch events, intentionally stirring controversy to gain social media coverage, and gifting products to celebrities for their personal use in hopes that they will post about it on social media.
• Sponsorship - Providing financial funds and resources to support an event or another organisation in return for publicity and prime advertising space.
  

Promotional Mix - The set of tools that a business can use to communicate effectively the benefits of its products or services to its customers. It consists of the main methods, whether it be ATL or BTL, that the business will adopt to advertise its products.

In devising a promotional mix, marketers consider a combination of factors, including:

• Cost - Businesses often consider the cost of promotion divided by the potential audience size, otherwise known as the cost per head, when selecting the most appropriate method of promotion.
• Product - Certain products are suited to a particular type of promotion. For example, toys for children will be advertised on websites, television networks and magazines visited by children or parents.
• Legislation - Rules and regulations can prevent certain products (such as tobacco or alcohol) from being advertised in certain media. This means that other forms of promotion, such as publicity and point of sales promotion, is preferred.

Elements of a Promotional Mix

Personal Selling - Relying on sales representatives directly helping and persuading customers to make purchases. Sales representatives commonly use sales presentations, private meetings with clients, or door-to-door sales.

Direct Marketing - Advertising directly to individual customers, usually through mail, email, text or other means of personal communication.

Public Relations - Business activities aimed at establishing and protecting the desired image of the organisation through independent media coverage of the activity or event.

Sales Promotion - Offering short-term incentives designed to stimulate demand for a product or service.

Advertising - The practice of calling public attention to a product or service in order to develop awareness, positive perception and recognition.

The internet and social media have broadened the opportunities available to businesses to extend their promotional strategies. 

Social Media has granted cheaper forms of BTL promotion through media websites such as Google, YouTube, Instagram and Facebook. Advertisements on these platforms have a cheaper cost per head than traditional advertising space such as television and radio, and allow organisations to target their advertisements to specific demographics. Additionally, advertisers can monitor the performances of their advertisements, with social media platforms offering information such as number of views and number of interactions with the advertisement.

Influencer Marketing on social media platforms offer businesses cheaper opportunities for promotional activities through sponsorships and publicity. Additionally, businesses can sponsor selected influencers whose audience matches the target market segment of the product; particularly beneficial for businesses operating in niche markets.

Viral Marketing is similar to word-of-mouth marketing, except viral marketing is conducted through social media platforms. Businesses have the opportunity to make promotional material on social media go viral just by posting them on their own pages; major brands such as Nike and Apple have gathered millions of followers across social media platforms.

Guerrilla Marketing - Achieving conventional marketing goals with unconventional methods, focusing on creativity and imagination in promotional material. Guerrilla marketing often has a smaller budget than traditional methods of promotion, and has a heavy reliance on viral marketing and word-of-mouth.

Advantages

Viral Marketing - Successful marketing tends to gain viral attention on social media platforms by stirring controversy. The snowball-like spread of the promotional material as more people share it will enable the business to gain a mass audience easily.

Lower Costs - As guerrilla marketing relies on word-of-mouth community spread, a smaller budget is required to increase distribution to a large audience.

Disadvantages

Unpredictable - Guerrilla marketing tends to be polarising, with the potential to be easily misunderstood by audiences. The possible backlash may cause irreparable damage to the image and reputation of the brand.

Channel of Distribution - The chain of businesses or intermediaries a product passes through to reach the consumer. Traditional distribution channels consist of manufacturers, wholesalers and retailers. However, the more intermediaries there are between manufacturers and the customer, the higher the price of the product as each intermediary adds a profit margin to their price.

Specialty Channels of Distribution - A direct way to distribute products directly to consumers without the use of intermediaries. Examples include e-commerce stores, vending machines, and telemarketing.

Advantages of Specialty Channels of Distribution

Price Advantage - The omission of intermediaries allows the business to control the price of the product sold to consumers, enabling them to use pricing strategies that make the most of not having to share its profits with intermediaries.

Independence - The business is not vulnerable to disruptions in sales due to external organisations as they are not dependent on any intermediary to complete a sale.

Control of Sales Process - The business will have full control over presentation, packaging, customer service and the overall quality of the purchasing experience.

Intermediaries - Agents or businesses that act as a middle person in the channel of distribution between the manufacturer and consumers of a product. The three main types of intermediaries include wholesalers, distributors and agents, and retailers.

Types of Intermediaries

Distributors - Independent and specialist businesses that trade in the products of a limited range of manufacturers, usually a singular manufacturer. The distributor acts as an intermediary between a manufacturer and prospective buyers of the products of the manufacturer, such as wholesalers, retailers, or the end consumer.

Agents / Brokers - Negotiators who act on behalf of buyers and sellers of a product to arbitrate a deal. Agents/brokers are used to assist the business in finding clients, and to deal with and speed up negotiations so that the business can focus on more essential operations.

Retailers - A business that sells products directly to consumers. They stock a range of well-known brands in their stores to attract customers to a common marketplace to purchase goods from different brands.

Wholesalers - Businesses that purchase large quantities of products from a manufacturer and then separate or break the bulk-purchases into smaller units for resale, mainly to retailers or direct to the consumer. A wholesaler primary operates as an intermediary between a product’s manufacturer and retailers that want to sell the product.

Advantages of including wholesalers in channel of distribution

Storage Costs - Wholesalers buy in-bulk from manufacturers, taking a large amount of stock off their hands and freeing up storage space for the manufacturers. This enables manufacturers to save on storage costs and profit from purchasing economies of scale from the bulk sales to wholesalers.

Focus - Businesses can divert their attention to production and operations if they manage to offload the majority of stocks to wholesalers immediately.

Disadvantages of including wholesalers in channel of distribution

No Control - Businesses lose control over the way their products are presented to consumers when they are sold by the wholesaler, who may present it in a way that damages the image and reputation of the business.

Extra Cost - The price of the product for consumers will increase with the addition of a level in the chain of distribution, putting the business in a competitive disadvantage on price.