WHAT IS PRODUCT HIERARCHY ?

PRODUCT HIERARCHY

Each product is related to certain other products. The product hierarchy stretches from basic needs to particular items that satisfy those needs. We can identify six levels of the product hierarchy (here for life insurance):

1.  Need family: 

The core need that underlies the existence of a product family. Example: security.

2.  Product family:

All the product classes that can satisfy a core need with reasonable effectiveness, Example: savings and income.

3. Product class:

A group of products within the product family recognized as having a certain functional' coherence. 'Example: financial instruments.

4. Product Line: 

A group of products within a product class that are closely related because they perform similar function, are sold to the same customer groups are marketed through the same channels, or fall with in given price ranges. Example: life insurance.

5. Product type:

A group of items within a product line that share one of several possible forms of the product. Example: term life.

6. Item 

(also called stock-keeping unit or product variant); A distinct unit within a brand or product line distinguishable by size, price, appearance, or some other attribute. Example: Prudential renewable term life insurance.

 A product system is a group of diverse but related items that function in a compatible manner. For example, the Handspring personal digital assistant comes with attachable Visor products including a phone, radio, pager, video games, e-books, MP3 player, digital camera, and voice recorder.

A product mix is the set of all products and items that a particular seller offers for sale to buyers.

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WHAT IS PRODUCT CLASSIFICATIONS ?

PRODUCT CLASSIFICATIONS

Marketers have traditionally classified products on the basis of characteristics: durability, tangibility, and use (consumer or industrial). Each product type has an appropriate marketing-mix strategy.

DURABILITY AND TANGIBILITY: 

Products can be classified into three groups, according to durability and tangibility:

1. Non durable goods: 

Non-durable goods are tangible goods normally consumed in one or a few uses, like beer and soap. Because these goods are consumed quickly and purchased frequently, the appropriate strategy is to make them available in many locations charge only a small markup, and adver­tise heavily to induce trial and build preference

2. Durable goods: 

Durable goods are tangible goods that normally survive many uses: refrigerators, machine tools and clothing. Durable products normally require more personal selling and service, command a higher margin and require more seller guarantees.

3. Services:

 Services are intangible, inseparable, variable, and perishable products. As a result, they nor­mally require more quality control, supplier credibility, and adaptability. Examples include haircuts and repairs.

CONSUMER-GOODS Classification: 

Goods can be classified on the basis of shopping habits. We can distinguish among convenience, shopping, specialty, and unsought goods.

Convenience goods: 

Convenience goods are those the customer usually purchases frequently, immediately, and with a minimum of effort. Examples include tobacco products, soaps, and newspaper. Convenience goods can be further divided.

Staple Goods 

Staple Goods are the goods consumers purchase on a regular basis. A buyer might routinely purchase Kissan ketchup, Colgate toothpaste, and Lux soap.

Impulse goods

Impulse goods are purchased without any planning or search effort. Candy bars and magazines are impulse goods. Emergency goods: Emergency goods are pur­chased when a need is urgent-umbrellas during a rainstorm, boots and shovels during the first winter snowstorm. Manufacturers of emergency goods will place them in many outlets to capture the sale.

Shopping goods are goods that the customer, in the process of selection and purchase, characteristically compares on such bases as suitability, quality price, and style. Examples include furniture, clothing, used cars; arid major appliance-Shopping goods can be further divided.

Homogeneous shopping Homogeneous shopping goods are similar in quality but different enough in price to justify shopping comparisons. Heterogeneous shopping: Heterogeneous shopping goods differ in product features and services that may be more important than price. The seller of heterogeneous shopping goods carries a wide assortment to satisfy individual tastes and must have well-trained salespeople to inform and advise customers.

Specialty goods:

Specialty goods have unique characteristics or brand identification for which a suf­ficient number of buyers are willing to make a special purchasing effort. Examples include cars, stereo components, photographic equipment, and men's suits. A Mercedes is a specialty good because interested buyers will travel far to buy one. Specialty goods do not involve making comparisons; buyers invest time only to reach dealers carrying the wanted products. Dealers do not need convenient locations; however, they must let prospective buyers know their locations.

Unsought goods 

Unsought goods are those the consumer does not know about or does not normally think buying, like smoke detectors. The classic examples of known but unsought goods are life insurance, cemetery plots, gravestones and encyclopedias. Unsought goods require advertising and personal-selling support.

INDUSTRIAL-GOODS CLASSIFICATION: 

Industrial goods can be classified in terms of how they enter the production process and their relative costliness. We can distinguish three groups of industrial goods: materials and parts, capital items, and supplies and busi­ness services. Materials and parts are goods that enter the manufacturer's product completely fall into two classes: raw materials and manufactured materials and parts:

Raw materials Raw materials fall into two major classes:

a) Farm products (e.g., wheat, cotton, livestock, fruits, and vegetables) b) Natural products (e.g., fish, lumber, crude petroleum, iron ore )  
These are supplied by many producers, who turn them over to marketing intermediaries, who provide assembly, grading, storage, transportation, and selling services. Their perishable and seasonal nature gives rise to special marketing practices. Their commodity character results in relatively little advertising and promotional activity, with some exceptions. At times, commodity groups will launch campaigns to promote their product-potatoes, prunes, milk.

Natural products are limited in supply. They usually have great bulk and low unit value and must be moved from producer to user. Fewer and larger producers often market them directly to industrial users. Because the users depend on these materials, long-­term supply contracts are common. The homogeneity of natural materials limits the amount of demand-creation activity. Price and delivery reliability are the major factors influencing the selection of suppliers.

Manufactured materials and parts fall into two categories: 

component materials (iron, yarn, cement, and wires) and component parts (small motors, tires, castings) Component materials are usually fabricated further-pig iron is made into steel, and yam is woven into cloth. The standardized nature of component materials usually means that price and supplier reliability are key purchase factors. Component parts enter the finished product with no further change in form, as when small motors are put into vacuum cleaners, and tires are put on automobiles. Most manufactured materials and parts are sold directly to industrial uses. Price and service are major marketing considerations, and branding and advertising tend to be less important.

Capital items 

Capital items are long-lasting goods that facilitate developing or managing the finished product. They include two groups:

Installations.

 Installations consist of buildings (factories, offices) and equipment (generators, drill presses, mainframe computers, elevator installations are major purchases. They are usually bought directly from the producer. The producer's sales force includes technical personnel. Producers have to be willing to design to specification and supply post sale services. Advertising is much less important than personal selling

Equipment: 

equipment comprises portable factory equipment and tools (hand tools, lift trucks) an office equipment (personal computers, desk) these types of equipment do not become part of a finished product. They have a shorter life than installations but a longer life than operating supplies. Some equipment manufacturers sell direct, more often they use intermediaries, because the market is geographically dispersed, the buyers are numerous, and the orders are small. Quality, features, price, and service are major considerations. The sales force tends to be more important than advertising, although the latter can be used effectively.      

Supplies and business services are short-lasting goods and services that facilitate developing or managing the finished product. Supplies are of two kinds: maintenance and repair items (paint, nails, brooms), and operating supplies (lubricants, coal, writing paper, pencils) together, they go under the name of MRO goods. Supplies are the equivalent of convenience goods; they are usually purchased with minimum effort on a straight rebury basis. They are normally marketed through intermediaries because of their low unit value and the great number and geographic dispersion of customers. Price and service are important considerations, because suppliers are standardized and brand preference is not high.

Business services include maintenance and repair services (window cleaning, copier repair) and business advisory services (legal, management consulting, and advertising) L Maintenance and repair services are usually supplied under contract by small producers or are available from the manufacturers of the original equipment. Business advisory services are usually purchased on the basis of the supplier's reputation and staff.

WHAT IS PRODUCT MIX ?

PRODUCT MIX

The product mix (also called product assortment)  is the complete set of all products offered for sale by a company. Kodak's product mix consists of two strong product lines: information products and image products. HLL product mix consists of all product line like detergent, soaps, cooking medium.

A company's product mix has a certain width, length, depth, and consistency.

§  The width of a product mix denotes the number of product lines in the product mix.

§  The length of a product mix refers to the total number of items in the mix. We can also talk about the average length of a line. This is obtained by dividing the total length (here 25) by the number of lines (here 5), or an average product length of 5.

§  The depth of a product mix refers to how many variants are offered of each product in the line.

§  The consistency of the product mix refers to how closely related the various product line are in end use, production requirements, distribution channels, or some other way:) P&G's product lines are consistent insofar as they are consumer goods that go through the same distribution channels. 
                              The lines are less consistent insofar as they perform different functions for the buyers.These four product-mix dimensions permit the company to expand its business in four ways. It can add new product lines, thus widening its product mix. It can lengthen each product line. It can add more product variants to each product and deepen its product mix. Finally, a company can pursue more product-line consistency.

WHAT PRODUCT-LINE DECISIONS & ANALYSIS ?

A product mix consists of various product lines. In general electric's consumer Appliance Division, there is product-line managers for refrigerators stoves, and washing machines.

In offering a product line, companies normally develop a basic platform and modules that can be added to meet different customer requirements. Car manufacturers build their cars around a basic platform. Home builders show a model home to which additional features can be added. This modular approach enables the company to offer variety while lowering production costs.

 

Product-line analysis

Product-line managers need to know the sales and profits of each item in their line in order to determine which items to build, maintain, harvest, or divest. They also need to understand each product line's market profile.

SALES AND PROFITS: 

 shows a sales and profit report for a five-item prod­uct line. The first item accounts for 50 percent of total sales and 30 percent of total profits. The first two items account for 80 percent of total sales and 60 percent of total profits. If these two items were suddenly hurt by a competitor, the line's sales and profitability could collapse. These items must be carefully monitored and protected. At the other end, the last item delivers only 5 percent of the product line's sales and profits. The product line manager may consider dropping this item unless it has strong growth potential.

Every company's product portfolio contains products with different margins. Supermarkets make almost no margin on bread and' milk; reasonable margins on canned and frozen foods; and even better margins on flowers, ethnic food lines, and freshly baked goods. A local telephone company makes different margins on its core telephone service, call waiting, caller ID, and voice mail.

A company can classify its products into four types that yield different gross mar­gins, depending on sales volume and promotion. To illustrate with personal computers:

§  Core product: Basic computers that produce high sales volume and are heavily promoted but with low margins because they are viewed as undifferentiated commodities.

§  Staples: Items with lower sales volume and no promotion, such as faster CPUs or bigger memories. These yield a somewhat higher margin.

§  Specialties: Items with lower sales volume but which might be highly promoted, such as digital movie-making equipment; or might generate income for services, such as personal delivery, installation, or on-site training.

§  Convenience items: Peripheral items that sell in high volume but receive less promotion, such as computer monitors, printers, upscale video or sound cards, and software. Consumers tend to buy them where they buy the original equipment because it is more convenient than making further shopping trips. These items can carry higher margins.

The main point is that companies should recognize that these items differ in their potential for being priced higher or advertised more as ways to increase their sales, margins, or both.

PRODUCT-LINE LENGTH

A product line is too short if profits can be increased by adding items; the line is too long if profits can be increased by dropping items.

Company objectives influence product-line length. One objective is to create a product line to induce up selling: Thus BMW would like to move customers up from the BMW 3 series to the 5 to 7 series. A different objective is to create a product line that facilitates cross-selling: Hewlett-Packard sells printers as well as computers. Still another objective is to create a product line that protects against economic ups and downs; thus the GAP runs various clothing-store chains (Old Navy, GAP, banana republic) covering different price points in case the economy moves up or down. Companies seeking high market share and market growth will generally carry longer product lines. Companies that emphasize high profitability will carry shorter lines consisting of carefully chosen items.

Product lines tend to lengthen over time. Excess manufacturing capacity puts pressure on the product-line manager to develop new items. The sales force and distributors also pressure the company for a more complete product line to satisfy customers; but as items are added, several costs rise: design and engineering costs, inventory-carrying costs, manufacturing-changeover costs, order-processing costs, transportation costs and new-item promotional costs. Eventually, someone calls a halt: Top management may stop development because of insufficient funds or manufacturing capacity. The controller may call for a study of money-losing items. A pattern of product-line growth followed by massive pruning may repeat itself many times.

A company lengthens its product line in two ways: by line stretching and line filling.

LINE STRETCHING: 

Every company's product line covers a certain part of the total possible range. For example, BMW automobiles are located in the upper price range of the automobile market. Line stretching occurs when a company lengthens its product line beyond its current range. The company can stretch its line down-market, up market, or both ways.

Down-market Stretch 

A company positioned in the middle market may want to intro­duce a lower-priced line for any of three reasons:

1. The company may notice strong growth opportunities as mass-retailers such as Wal-Mart, Best Buy, and others attract a growing number of shoppers who want value-priced goods.

2. The company may wish to tie up lower-end competitors who might otherwise try to move up the market. If the company has been attacked by a low-end competitor, it often decides to counterattack by entering the low end of the market.

3. The company may find that the middle markets stagnating or declining.

A company faces a number of naming choices in deciding to move down-market. Sony, for example, faced three choices:

1. Use the name Sony on all of its offerings. (Sony did this.)

2. Introduce the lower-priced offerings using a sub-brand name, such as Sony Value Line. Other companies have done this, such as Gillette with Gillette Good News and United Airlines with United Express. The risks are that the Sony name loses some of its quality image and that some Sony buyers might switch to the lower-priced offerings.

3. Introduce the lower-priced offerings under a different name, without mentioning Sony; but Sony would have to spend a lot of money to build up the new brand name, and the mass merchants may not even accept a brand that lacks the Sony name.

Up market Stretch 

Companies may wish to enter the high end of the market for more growth, higher margins, or simply to position themselves as full-line manufacturers. Many markets have spawned surprising upscale segments: Toyota's Lexus; Nissan's Infinity; and Honda's Acura. Note that they invented entirely new names rather than using or including their own names.

Other companies have included their own name in moving upmarket. Two-Way Stretch Companies serving the middle market might decide to stretch their line in both directions..        ­

The Marriott Hotel group also has performed a two-way stretch of its hotel product line. Marriott International develops lodging brands in the most profitable segments in the industry. In order to determine where these opportunities lie, Marriott conducts extensive consumer research to uncover distinct consumer targets and develop products targeted to those needs in the most profitable areas. Examples of this are the development of the JW Marriott line in the upper upscale segment, Courtyard by Marriott in the upper mid-scale segment and Fair field Inn in the lower mid-scale segment. By basing the development of these brands on distinct consumer targets with unique needs, Marriott is able to ensure against overlap between brands.

LINE FILLING: 

A product line can also be lengthened by adding more items within the present range. There are several motives for line filling: reaching for incremental profits, trying to satisfy dealers who complain about lost sales because of missing items in the line, trying to utilize excess capacity, trying to be the leading full-line company, and try­ing to plug holes to keep out competitors.

Line filling is overdone if it results in self-cannibalization and customer confusion. The company needs to differentiate each item in the consumer's mind. Each item should possess a just-noticeable difference. The company should also check that the proposed item meets a mar­ket need and is not being added simply to satisfy an internal need.

Line modernization, featuring, and pruning

Product lines need to be modernized. A company's machine tools might have a 1950s look and lose out to newer-styled competitors' lines. The issue is whether to overhaul the line piecemeal or all at once. A piecemeal approach allows the company to see how customers and dealers take to the new style. It is also less draining on the company's cash flow, but it allows competitors to see changes and to start redesigning their own lines.

In rapidly changing product markets, modernization is carried on continuously. Companies plan improvements to encourage customer migration to higher-valued, higher-priced items. Microprocessor companies such as Intel and Motorola, and software companies such as Microsoft and Lotus, continually introduce more advanced versions of their products. A major issue is timing improvements so they do not appear too early (damaging sales of the current line) or too late (after the competition has established a strong reputation for more advanced equipment). The product-line manager typically selects one or a few items in the line to feature. Sears will announce a special low-priced washing machine to attract customers. At other times, managers will feature a high-end item to lend prestige to the product line. Sometimes a company finds one end of its line selling well and the other end selling poorly. The company may try to boost demand for the slower sellers, especially if they are produced in a factory that is idled by lack of demand. This situation faced Honeywell when its medium-sized computers were not selling as well as its large computers, but it could be counter-argued that the company should promote items that sell well rather than try to prop up weak items.

Product-line managers must periodically review the line for deadwood that is depressing profits. Unilever recently cut down its portfolio of brands from 1,600 to 970 and may even prune more, to 400 by 2005. The weak items can be identified through sales and cost analysis. A chemical company cut down its line from 217 to the 93 products with the largest volume, the largest contribution to profits, and the greatest long-term potential. Pruning is also done when the company is short of production capacity. Companies typically shorten their product lines in periods of tight demand and lengthen their lines in periods of slow demand.

WHAT IS PRODUCT LIFE CYCLE ?

PRODUCT LIFE CYCLE

Every product has its life. Industrial goods may have a longer life than consumer goods. When a product idea is commercialized, the product enters into the market and competes with the rivals for making sales earning profits.. Products, like human beings have length of life. This has been described as life-cycle in human beings and when applied to products, it is called as product life-cycle.  The product life cycle is generally termed, as product market life cycle because it is called to particular market. For, instance, an old product in the market of Mumbai, may have a new life in a remote village. The product life-cycle may be short for some products and long for some other products. The period may differ from product to product. Every product posses through certain stages collectively, knew as product life cycle stages. These stages include.

(i)  Introduction
(ii) Growth
(iii) Maturity
(iv) Decline

SIGNIFICANCE OF PRODUCT LIFE CYCLE

        The concept of product life cycle highlights that sooner or, later all products die and that if management wishes to sustain' its revenues, it must replace .the declining products with the new ones. The product lifecycle concept 'indicates as to what can be expected in the market for a new product at various stages i.e., introduction, growth, maturity and decline.  Thus, the concept of product life-cycle can be used as a forecasting tool. It can alert management that its product will inevitably face saturation and decline, and the host of problems these stages pose. The product life-cycle is also a useful framework for describing' the typical evolution of marketing strategy over the stages of product lifecycle. This will help in taking sound marketing decisions at different stages of the product lifecycle.

After a product has been developed, it is launched in the market with the help of various promotional devices such 'as 'advertising, sales promotion, publicity and personal selling. In other words, product development (some people call it incubation, stage of product life-cycle) must be followed by the successful introduction of the product ill, the market. For this, planning\for introduction of the product starts during the process of product development itself. Every firm makes sale projections during introduction" growth and maturity stage of the product life-cycle. To achieve the projected sales target, ' it formulates promotional, pricing and distribution policies. Thus, the concept of product life-cycle facilitates integrated marketing policies relating to product, price, promotion and distribution.

       

The advantages of "Product Life Cycle" to a firm are as follows:  

1. When the "product life-cycle" is predictable, the management must be cautious in taking advance steps before the decline stage, by adopting product modification, pricing strategies, style, quality change, etc.
2. The firm can prepare an effective product, plan by known the product life-cycle of a product.

3. The management can find new uses of the product for the expansion of market during growth stage and for extending the maturity stage.

4. The management can adopt latest technological changes to improve the product quality, features and design.

PRODUCT LIFE CYCLE

With the development of product and start of commercial production, life-cycle of the product begins with its introduction in the market. As shown, in Fig. 1, every product moves through the four stages, namely, introduction, growth, maturity, and decline. As the product moves through different stages of its life-cycle, sales volume and profitability change from stage to stage. The management emphasis on the marketing mix elements also undergoes sub­stantial changes from stage to stage. A brief discussion of the marketing strategies in different stages of the product life-cycle is given below:

                                        (Stages of Product Life Cycle)

1. Introduction Stage

The first stage of a product life-cycle' is the introduction or pioneering stage. Under this stage, competition is almost or non-existent prices are relatively high, markets are limited and the product, innovation in not known much. The growth in sales volume is at a lower rate because of lack of knowledge on the part of the customers and difficulties in making, the product available to the customers. During this stage, high expenditure has to be incurred on advertising and other promotional techniques.  Prices are usually high during the introduction stage because of small scale of production, technological problems-and heavy promotional expenditure.

            To introduce the product successfully the following strategies may be adopted:
 (i) Advertisement and publicity of the product Money back guarantee may be offered to stimulate the people try the product.

(ii) Attractive gift to customers as an ‘introductory offer’.

(iii) Selective distribution and attractive discount to dealers.

(iv) Higher price of product to earn greater profit during the initial stages i.e., skimming the cream pricing policy.

2. Growth Stage.

 As the product grows in popularity it moves into the second phase of its life-cycle, i.e., the growth stage. In this stage, the demand expands rapidly, prices fall, competition increases, and distribution is greatly widened the marketing management focuses its attention on improving the market share by deeper penetration into the existing markets and entry into new markets.  The falling ratio of promotional expenditure to sale leads to increase in profitability during this stage.
(i) The product is advertised heavily it to stimulate sales.

(ii) New versions of the product are introduced-to cater to the require­ments of different types of customers.

(iii) The channels of distribution are strengthened so that the product is easily available wherever required.

(iv) Brand image if product is created through Promotional activities

(v) The price of product is competitive

(vi) There is greater emphasis on customer service.

3. Maturity Stage. 

The product enters into maturity stage as competition intensifies further and market gets stabilized. Profits come down because of stiff competition, and marketing expenditures rise. The prices are decreased because of competition and innovations in technology. There is saturation in the market as there is no possibility of sales increase. This-stage may last for a long period as in the case of many products with long-run demand characteristics. But sooner or later, demand of the product starts declining as new products are introduced in the market. Product differentiation, identification of new, segments and product improvement are emphasized during this stage.  In order to lengthen-the period of maturity stage, the following strategies may be adopted:
(1) Product may be differentiated from the competitive products and brand image may be emphasized more.

(ii) The warranty period may be extended. For instance manufacturers of typewriters have introduced the concept' of life-time warranty.

(iii) Reusable packaging may be introduced.

(iv) New market may be developed.

(v) New uses of the product may be developed.

4. Decline Stage.

This stage is characterized by either the product's gradual displacement by some new products or change in consumer buying behavior. The sales fall down sharply and the expenditure on promotion has to be cut down dramatically. The decline may be rapid with the product soon passing out of market or slow if new uses of the product are found. To avoid sharp decline in sales, to following strategies may be used:

(i) New features may be added to the product and its packaging may be made more attractive.

(ii) Economy packs or models maybe introduced to revive the market.

(iii) The promotion of the product should be selective to reduce dis­tribution costs;

5. Abandonment of Product.

 Many firms abandon the product-in order to put their resources to better use.  The demands of the people change and, new innovations come to the market to take place of the abandoned products, As, far as possible, attempts should be made to ,postpone the decline stage. But if the decline is rapid, the product model may be abandoned and the new model with unique features may be introduced. Lt it is not possible or there are heavy losses, the manufacturer may seek merger with a strong firm.

Tag: Product Life cycle, Product life, stages of Project life cycle, Product decline stage, Product maturity stage , Product growth stage, MBA marketing, MBA marketing Notes