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The product is a bundle of satisfaction that a customer buys. It represents a solution to a customer’s problems. According to Peter Drucker – so long as a product is not bought and consumed, it remains a raw material or at best an intermediate. The product is almost always a combination of tangible and intangible benefit. For example; a refrigerator is not just merely steel, plastic, Freon gas, brand name, number of doors, and so on, but also involves factors like after sales service, delivery and installation, assistance in purchase of the product, dealer network and service. It also connotes status in developing countries. It is the same with products like T.V., music systems, automobiles, personal products and services like banks, airlines, telephone, courier, and so forth.
PRODUCT MIX One of the realities of business is that most firms deal with multiple products. This helps diffuse its risks across different product groups. Also, it enables the firm to appeal to a much larger group of customers or to different needs of the same customer group. So when a company like Samsung entered India with a diversified product portfolio consisting of television, music systems, washing machines, refrigerators, microwave ovens and cell phones, it sought to satisfy the aspirations of the middle and upper middle income group of consumers. Likewise, Bajaj Electricals, a household name in India, has almost ninety products in its portfolio ranging from low value items like bulbs to high priced consumer durables like mixers, luminaries and lighting projects. The number of products carried by a firm at a given point of time is called its product mix. This product mix contains product lines and product items. In other words, it is a composite of products offered for sale by a firm. Some firms prefer diversity and hence inconsistency is visible in their product mix. An example of this is the engineering giant Larsen & Toubro (L&T), which has diversified into cement and medical diagnostics. Likewise, ITC Ltd. Diversified into hotels, vegetable oils,
exports (sea food), financial services, agro tech and retail and now in e-business. Some firms, on the other hand, have product lines that are consistent with their main business. The ideal product mix is an issue that varies from firm to firm and may be hard to define and come by. The following situations may suggest that the firm has a sub-optional product-mix: a) Excess capacity in a firm’s manufacturing, warehousing or transportation facilities. b) High proportion of profits from a small percentage of product items. c) Insufficient use of sales force contact and skills. d) Steadily declining sales or profits.
PRODUCT LIFE CYCLE (PLC)
Another approach to examining product mix is to look at the life cycle phase of each product. Each product goes through a life cycle. It shows the introduction, growth, maturity and decline during its period of existence. The product life cycle reflects sales and profits of a product over a period of time. Generally, most products follow an established path and when their sales are plotted against time, one gets an S-shaped curve as shown in the figure below.
However, there are exceptions when the product may not follow this path. There are products that either show a sharp growth and then a sharp decline, or remain in the maturity phase for a long time and in fact may never face a decline. While fads and fashion can be grouped in the first category, products in a closed and sheltered market or in a monopolistic market represent the second type. One may also have commodities like steel, cement, and food products, where the demand remains inelastic, relative to other manufactured products. In India, Premier and Ambassador Cars, refrigerators, and many other products’ sales did not experience a decline until competition set in following
liberalization and the opening up of the economy in the 1980s and more specifically after 1991.
Another factor that has to be borne n the mind is that profits form a product peak before its sales. Profits never or rarely appear in the introduction phase. The growth phase brings profits and by the time the product enters the later part of growth or early maturity, profits start declining.
PLC: CONDITIONS AND STRATEGIES IN DIFFERENT PHASES
INTRODUCTION PHASE This phase marks the launch of the product in a market. Organizationally, this phase is characterized by high operational costs arising out of inefficient production levels or bottlenecks, high learning time, unwillingness of the trade to deal in the product, demand of higher margins or extended credit terms and advertising. During this phase, a firm’s requirement for cash is very high as all expenses have to be met. Generally, the suppliers, media and others are not willing to give credit so all payments have to be made in cash. The environment of the firm is characterized by customers who have low or no awareness of the product. Even those who are aware and are willing to try the product, do so in small quantities, called trial purchase. The trial demand is limited both in the quantity bought and the number of customers buying it. Competition either does not exist or is limited to a few firms who may also not be operating at efficient levels. Much of the competition is indirect or from the substitutes. The marketing task for a pioneer firm is to stimulate demand for the new product and also to reduce the break even time. For this reason, initially, the firm offers just one or a limited product version. It offers tangible benefits and reasons for the customers to switch over from existing products to the new one. Invariably, the firm adopts a strategy of high price
and active promotion. But this is not the only strategy available to the firm. Depending on its objectives, the firm may choose its introduction strategy from any of the four illustrated below and discussed thereafter.
High Price Low
Rapid Skimming Rapid Penetration High
Slow Skimming Slow Penetration Low
A) Rapid Skimming This strategy of high price and high promotion works effectively only when customer awareness for the product is not very high, or for those who are aware, willingness to buy at any price is high.
B) Slow Skimming This strategy is based on the assumption that a firm has sufficient time to recover its prelaunch expenses. This happens when the technology being used by the firm is highly sophisticated and competition will have to invest substantial resources to acquire this technology.
C) Rapid Penetration Strategy The strategy of rapid penetration is based on the same assumptions and environmental conditions as the ones mentioned under the rapid skimming strategy. The only difference between rapid skimming and penetration is the firm’s long-term objectives. D) Slow Penetration Strategy
This strategy delivers results when the threat from competition is minimal, market size is large, the market is predominantly price sensitive and majority of the market is familiar with the product. The firm’s objective is to maximize sales or profits in the long-run.
GROWTH PHASE Once a product crosses the introduction phase, it enters the growth phase. This
competition now offers greater choice to the customer in the form of different product types, packaging and prices. The market base expands as more customers buy the product. More trade channels are now willing to keep the product and one generally observes softening of prices. Organizationally, the pioneer firm now operates at economical levels. There are lesser production bottlenecks and hence costs are lower now. To remain competitive over a period of time, the pioneer firm initiates a product improvement or modification programme. Sales and profit grow exponentially, but profits taper off at the end.
MATURITY PHASE Most products that survive the heat of the competition and gain customers’ approval enter the maturity phase. This phase is characterized by slowing of growth rates of sales and profits. In fact a decline in profits seem to appear now. This phase is also marked by cutthroat competition which often tends to narrow down to a price and promotion war. As mentioned earlier, it is an irony that when the firm has established its product and generated customer preferences for its brand, competition intensifies and the firm has no other alternative but to invest resources in service augmentation and also sees a boom in market demand as more and more customers are now willing to accept the product.
DECLINE PHASE This is the phase when sales decline because customer preferences have changed in favor of more efficient and better products. The number of competing firms also gets reduced and generally the industry now has limited product versions available to the customer.
Customer’s value perception of the product also undergoes a change. However, the firm may see a rise in its profit curve, largely coming from people who will be willing to pay a higher price to possess it either for its antique value or because they resist any change. The marketing task becomes one of diverting and gradual withdrawal of the product. To cater to a small niche, a firm may consider generating primary demand for the product rather than the brand demand. Nonetheless, products having entered a decline phase need to be pruned.
WHY CHANGES OCCUR IN THE PRODUCT LIFE CYCLE?
The most important factors leading to changes in a PLC are: 1) Changing Customer Needs 2) Better more efficient, and user-friendly products
Changing Customer Needs The most fundamental of all the environmental factors that shapes the product’s life cycle over a period of time is the customer’s needs. These needs change as customers become more aware and have higher disposable incomes leading to a change in their lifestyles and aspirations. Today we are noticing this change occurring all over the country, largely because of the wider reach of television – a single source of mass media that has revolutionized markets and products. Satellite communication, dish antenna, cable TV, cell phones, multimedia messaging service and other telecommunication products are changing customers’ needs and expectations all over India.
While customers in the metros are looking or more sophisticated products, other urban and rural customers are seeking basic product versions. Further, needs develop over time as the customer uses the product and finds that there are other situations too in which he or she can use it.
Better and Efficient Product
Today technology offers phenomenal opportunities to firms to develop more user-friendly, low priced and attractive products. A case point is Parle Bottling which used developments in packaging to successfully launch their mango drink, Frooti. The tetra pack did wonders for Frooti, making it convenient, easy to use and carry and also more attractive than other mango drinks in bottles. The product caught customers’ fancy and was hugely successful. Today tetra pack is most widely used packaging in food industry.
Mandar Education Society’s Rajaram Shinde College of MBA
I year MMS
MARKETING MANAGEMENT Semester I
Sonia Jose Roll no. 18
Prof. Vijay Nalawade
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