Principles of marketing
The Product Life Cycle Just like plants and animals, products also have a life cycle. That is they are born, grow up, mature and finally die. The concept of product life cycle involves an attempt to identify the different stages or phases in the sales history of a product. Each stage when identified, presents different marketing opportunities and problems. If the marketer knows the phase in which a product is in or is moving towards, he can devise a marketing programme that befits that stage. The product life cycle shows an S shaped curve. SALES IntroductionGrowthMaturity Decline TIME (1)Introduction
This stage is characterized by slow growth in sales and low or no profits. The customers are largely unaware of the new product and those who become aware may be involved in searching for information before deciding whether or not to buy it. Profits are usually negative or negligible because of high investment for launching the product e. g heavy promotion and distribution. Marketing Strategies in the Introduction Stage In launching a new product, management can set a high or low level for each marketing variable such as price, promotion and distribution. Management can pursue any of the following strategies:
A Rapid Skimming Strategy—The new product is launched at a high price and a high promotion level. The high price is aimed at recovering as much gross profit per unit as possible. Heavy promotion is aimed at convincing the market of the merits of the product. Slow Skimming Strategy—The product is launched at a high price and low promotion. High price to get as much gross profit per unit as possible and the low promotion to keep marketing expenses down. Rapid Penetration Strategy—Launching the product at a low price and high promotion aims to bring fastest penetration and a large market share.
A Slow Penetration Strategy—The product is launched at a low price and low promotion. The low price is aimed at encouraging rapid product acceptance while the low promotion keeps costs down. (2)Growth Stage This stage is marked by a rapid climb in sales because the product has managed to satisfy customers. The high sales are due to trial buys and repeat buys. The high profits start to attract competitors. The marketer needs to maintain the sales by engaging in product quality improvements shifting the emphasis in advertising from informing to convincing potential buyers.
(3)Maturity Stage In this stage the sales growth rate slows down and sales reach their peak. This stage which lasts longer than previous stages is divided into: i. growth maturity—where sales increase at a decreasing rate ii. stable maturity—sales have flattened and the market is saturated and iii. decaying maturity—the absolute level of sales starts to decline and customers start switching to other products and substitutes. The industry experiences over-capacity which leads to intense competition.
A marketing manager must carefully combine market modification, product modification and marketing mix modification in order to devise a marketing programme that will efficiently help him achieve his objectives. (4)Decline The absolute level of sales decreases consistently. This decline can be slow or rapid depending on the existing market conditions as well as the strategy adopted by the marketer. As the sales and profits decline some firms withdraw from the market, those left may reduce product offering or withdraw from smaller market segments and weaker trade channels.
The marketer must however decide very carefully when to quit since leaving the market too early or too late may be uneconomical. The strategies available to the manager at this stage are: Increasing the firm’s investment to dominate or strengthen its competitive position Maintaining the firm’s investment level until the uncertainties about the industry are resolved Decreasing investment selectively e. g. Dropping unprofitable customer groups Harvesting (milking) trying to recover cash very quickly Divesting the business quickly by disposing of its assets as advantageously as possible.
Importance of Product Life Cycle Curve (PLC) •the PLC can be used by marketing managers to interpret market movements •as a planning tool, the PLC concept characterizes the main marketing challenges in each stage and poses major alternative marketing strategies. •as a control tool, the PLC allows the company to measure product performance against similar products •taking to account the stages in the PLC it is easy to plan development and introduction of new products, and plan the withdrawal of obsolete products •knowing the stage on the PLC, the potential sales growth of a product can be assessed.
Problems In Using The PLC (a)Time period—how long is the product life cycle? years, months or decades. There is no fixed length of each stage. (b)Sometimes you cannot tell which stage the product is truly in. Not every decline means an absolute decline or maturity. It could be temporary due to other forces in the market place. (c)Products could show other curves other than the S curve. (d)Product definition—the concept of product life cycle does not clearly define what it is that is being referred to by the term `product’, yet in marketing the term product could refer to any of the following: Product item—e. g.
Close-up tooth paste, Toyota RX, or Bic pen. Product-line—e. g. toothpastes, soaps, cars, etc. Product mix—e. g. EAI range of products, Cussons range of products or Bidco range of products. CAT 1 ASSUMING YOU ARE THE MARKETING MANAGER OF SAFARICOM,WHAT MARKETING STRATEGY WILL YOU APPLY TO INTRODUCE A NEW SERVICE AND WHAT BENEFITS WILL IT HAVE OVER THE OTHER COMPETITORS? Market Analysis. The market analysis for a service industry will include:- Components of population Why the customers want the services; Buying motives in different market segments; Buying patterns of service (when, where, how and who does buying).
Psychological determinants of buyer behaviour, e. g. attitude, perceptions, personality. Sociological factors, e. g. social class, small-group influence, etc. External and internal factors of business environment. .PRICE DECISIONS The second marketing mix variable is the price. A simple term but with many dimensions. Price is the value placed on a good or service by the customers at some point in time. A product placed in the market with a price higher or lower than the value perceived by potential customers does not really contain the customer orientation necessary to market that product.
Price may go by many other names e. g. rent, fees, wages, interest, honorarium, salary etc. All these terms mean one thing—what customers pay for a good or a service. Importance of Price •Pricing keeps the economy in balance •Price serves as a regulator of economic activity •The rise in any of the factors of production e. g. land, labour and capital is dependant upon the price received by each •A products price has a strong effect on sales and an increase or decrease may mean different sales levels depending on the nature of the product Price in many cases has a psychological impact on consumers.
Sometimes it can be used to emphasize quality, other times a bargain or gain hence a saving. Price can also play a big role in offsetting competition. Of all the 4P’s only price can be changed quickly to respond to changes in the market. So whether or not pricing is properly done does determine the success of the firm. The marketing executive must have a thorough understanding of pricing decisions. Factors affecting prices Marketing objective: The firm must decide on the strategy for its service. The objective could be survival, profit maximisation, market share, leadership or product quality leadership. E. g. a company may have survival as the objective when there is heavy competition in which case it may set low prices to increase demand. Cost: They set the floor for the price that the company can charge a price that both covers all its cost for producing, distributing and selling the product and delivers a fair return on its effort and risk. Market and demand: The market and demand set upper limits. Both consumer and industrial buyers balance the price of a service against the benefits of owning it. Consumer perception of price and value: In the end the consumer will decide if the price is right or wrong.
The perception will affect the consumer’s buying decision. Pricing decisions must be buyer oriented. Effective, buyer-oriented pricing involves understanding how much value consumers place on the benefits they receive from the product and selling a price that fits its value. Competitors’ prices: Consumers always evaluate a number of companies’ products prices before buying. Economic factors such as boom, recession, inflation and interest rates. The consumer price index all affect pricing decisions. Government legislation for example minimum price levels. DISTRIBUTION DECISIONS (PLACE)
The third element of the marketing mix is distribution. This refers mainly to the movement of goods and services from producer to the consumer through a given channel of distribution. A channel of distribution has been defined as a chain of market intermediaries or middlemen used by a producer or a marketer to make products and services when and where consumers or users want them. It is therefore a route followed by a product as it moves from the producer to the user. Examples of Channels P – CZero level P – R – COne level P – W – R – CTwo level P – A – R – CTwo level P – A – W – R – CThree level P = Producer, A = Agent, W = Wholesaler, R = Retailer, and C = Consumer Factors to Consider in Selecting Channels i. Customer Characteristics—the size of the market, the geographical dispersion of consumers, buying habits and preferences, buying outlets etc. For example where customers are widely dispersed one cannot sell direct. If the market is composed of industrial buyers then fewer intermediaries are better. ii. Product Characteristics—important factors include perishability, whether product is household or industrial, need for bulk breaking whether product is fragile, non-fragile, whether product is breakable or not.
For example products that are highly perishable like bread, milk, fresh flowers or fruits require very short channels usually from producer to consumer direct. iii. Company Characteristics—here you look at the company objectives, financial status, product mix and desired degree of channel control. High degree of control allows only for one middleman or direct selling. iv. Middle-men Characteristics—What markets do the middlemen serve? Do they provide any financial support, what services do they provide, how sound are they financially because financially weak middlemen may require credits.
Some channels of distribution for example are not available everywhere. Functions of channels of distribution members Information: Gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and yyyy exchange. Promotion: developing and spreading persuasive communications about an offer. Contact: Finding and communicating prospective buyers. Matching, shaping and fitting the offer to the buyers’ need including activities such as manufacturing, grading, assembling and packaging. PROMOTION DECISIONS
Every product needs to be brought to the attention of the market through identification of the benefits of the product. The basic elements of promotion which when put together from the promotional mix include: advertising, personal selling, sales promotion and publicity. (a)Advertising Has been defined as any paid form of non personal presentation by an identifiable sponsor. Advertising is used to communicate persuasive information about a product to the target group through use of spoken or written word and by visual materials. Advertising has certain distinctive qualities:
i. Public presentation: Advertising is a highly public mode of communication, which suggests a standardised offering to customers. ii. Pervasiveness: Advertising is pervasive as it permits the seller to repeat a message many times. iii. Amplified Expressiveness: Advertising provides opportunities for dramatising the company and its products through the artful use of print, sound and colour. iv. Impersonality: In developing an advertising program marketing managers must make five major decisions: •what are the advertising objectives? (mission) •How much will be spent?
What is to be communicated? (message) •What channel will be used? (media) •How should the results be measured? (effectiveness) Advertising Objectives Include: i. To inform ii. To persuade iii. To remind (b)Personal Selling Involves use of sales people to communicate the product to the market. It involves face to face contact between the sales person and the prospective customer. Because of the personal contact personal selling is the most expensive of the promotional elements but it can also be the most rewarding and effective in clinching deals.
Sales people besides just selling the product have other duties which include: after-sales servicing, information gathering, communicating new information to customers and prospecting. To be effective sales people need information about the company, the products offered, sales and profit targets, customers, sales plan, promotional material, techniques of selling and a knowledge of competitor products. A company must decide on how to structure its sales force depending on the product and the market being targeted. The alternative forms of sales force structure include: i.
Territorial Structured Sales Force—here each sales person is assigned an exclusive territory in which to represent the company’s full line. ii. Product Structured Sales Force—where each sales person is in charge of a specific product or line of products. iii. Customer Structured Sales Force—where sales force are set up for different groups of customers. iv. Combined Structure (Complex) Sales force effectiveness can be measured either by net sales achieved, call rate, value of sales per call, number of new sales or by sales expenses in proportion to sales achieved. (c)Sales Promotion
Sales promotion involves attempts to stimulate sales by use of incentives. These incentives may include free samples, special discounts, bonus for sales people, temporary price reductions, bargain packs, gifts, point of sale demonstrations etc. When directed at consumers, sales promotion has the following objectives: i. Draw attention to new products ii. Encourage sales of slow moving products iii. Stimulate off peak sales iv. Increase usage of products Sales promotion can also be directed at traders with the following objectives: i. Encourage dealer/retailer cooperation ii.
Persuade dealers/retailers to devote increased shelf space to the company’s products iii. Develop goodwill of dealers/retailers (d)Publicity Publicity often does not cost the organization money. It is news about the product or the organization reported in the press and other media without charge to the organization, but there are however certain costs involved in setting up the publicity programme. In publicity the firm aims to secure editorial space as divorced from paid space in the media available to customers. Publicity is a part of the larger concept of public relations.
A company’s public relations has several objectives including, obtaining favourable publicity for the company, building up a good company image, and handling adverse rumours or stories about the company. To carry out these objectives the public relations department of a company could use press relations, product publicity, corporate communications, lobbying, and counselling. The people in charge of publicity must make the following major decisions: i. Establish the publicity objectives ii. Choosing the publicity message and media iii. Implementing the publicity plan and iv. Evaluating the publicity results