Product (AQA A Level Business): Revision Note

Introduction to product

• In the marketing mix, product refers to the good or service a business offers to meet the needs of its target market

  • It is the foundation of the entire marketing mix - without a product, there is nothing to price, distribute or promote

• A product is more than just the physical item a customer buys

• It encompasses;

  • Core features and design

    • The functional characteristics that make the product work

  • Quality

    • The standard of the product relative to customer expectations and competitor offerings

  • Branding

    • The name, logo and identity associated with the product

  • Packaging

    • The way the product is presented and protected

  • After-sales service

    • Support, warranties and customer care provided once the sale is made

• Product decisions are central to marketing because they shape every other element of the mix

  • The price a business can charge

  • Distribution channels it uses

  • The way it promotes the product

The product life cycle

• The product life cycle describes the different stages a product goes through from its conception to its eventual decline in sales

• There are five stages in the product life cycle: development, introduction, growth, maturity and decline

A typical product life cycle

The five stages

Development

• The product is being researched, designed, and tested - it has not yet been launched

• There are no sales and therefore no revenue, but costs are high due to research and development

• The business is investing with no immediate return

• Marketing's role at this stage is market research - identifying customer needs and testing product concepts

Introduction

• The product launches onto the market - sales grow slowly as awareness is low

• High marketing spend is needed to build brand awareness and attract early adopters

• The product is typically loss-making due to high costs and low sales volume

• Pricing may include;

  • Price skimming (high initial price targeting early adopters)

  • Penetration pricing (low price to build market share quickly)

Growth

• Sales rise rapidly as the product gains market acceptance

• Revenue increases and the product begins to generate profit

• Competitors take notice and begin entering the market with rival products

• Marketing focus shifts to building brand loyalty and differentiating the product from new rivals

Maturity

• Sales reach their peak and begin to level off; the market becomes saturated

• Competition is most intense; price competition may begin to erode profit margins

• Marketing focuses on maintaining market share through promotional activity and competitive pricing

• This is typically the most profitable stage overall, as development costs have been recouped and production is efficient

Decline

• Sales fall as the market shrinks, customer tastes change or superior products emerge

• Profits fall; some competitors exit the market

• The business must decide whether to extend the product's life, reduce investment and harvest remaining profit or withdraw the product entirely

Implications for other functions

Extension strategies

• An extension strategy is an action taken by a business to slow down or reverse a product's decline and extend its profitable life

• Rather than withdrawing the product, the business invests in refreshing it

Some key extension strategies

Advertising

• Renewed or intensified promotional campaigns can create renewed interest in the product

• Advertising may target new customer segments or remind existing customers of the product's benefits

• This is often the quickest extension strategy to implement

  • However, it may only provide a temporary boost if the underlying product has not changed

Rebranding

• Updating the product's name, packaging, logo or overall image to appeal to a new generation of customers or to signal a change in values (such as a commitment to sustainability)

• Rebranding can breathe new life into a tired product

  • However, it carries the risk of alienating loyal existing customers

Lowering the price

• Reducing the price makes the product accessible to a wider, more price-sensitive audience

  • This can boost sales volume but will reduce profit margins

• It also risks repositioning the product as lower quality, which may damage the brand in the long term

Adapting the product

• Changing the product itself - by adding new features, launching new variants, improving the formula or updating the design

• This is the most substantive form of extension strategy and is most likely to provide a lasting boost

• It requires investment in product development and may involve significant operational changes

Product portfolio analysis

• Product portfolio analysis involves reviewing all the products a business sells to understand how they are performing and how resources should be allocated between them

• The most widely used tool for this is the Boston Matrix

The Boston Matrix

• The Boston Matrix categorises a business's products into four groups based on two factors

  • Relative market share - how the product's share compares to its largest competitor (high or low)

  • Market growth rate - how fast the overall market for the product is growing (high or low)

Stars

• Stars are successful products in fast-growing markets

• They have a high market share in a high-growth market

• They generate strong revenue but require continued investment to maintain their position as competition intensifies

• With the right support, stars can become cash cows as market growth slows

Cash cows

• Cash cows have a high market share in a low-growth market

• They are established, profitable products in mature markets

• They require relatively little marketing investment, as they already dominate a stable market

• They generate surplus cash that can be used to fund stars, question marks or new product development

Question marks

• Question marks have a low market share in a high-growth market

• They are products in fast-growing markets that may be underperforming

• Their future is uncertain - with the right investment, they could become stars; without it, they risk becoming dogs

• The business must decide whether to invest heavily or cut its losses

Dogs

• Dogs have a low market share in a low-growth market

• They are generally poor performers with limited profit potential

• The business may choose to withdraw them

• Some dogs are retained if they serve a specific niche or complete a product range

Significance for marketing planning

• The Boston Matrix helps a business in several ways

  • Allocate its marketing budget effectively

    • Directing more resources towards stars and promising question marks

  • Identify cash-generating products (cash cows)

    • These can fund investment elsewhere in the portfolio

  • Make strategic decisions about which products to develop, maintain or withdraw products

  • Balance its portfolio

    • A healthy business needs a mix of products at different stages, avoiding over-reliance on any single product

Limitations of the Boston Matrix

• Market share and growth rate alone do not capture a product's full value

  • Profitability, strategic fit and brand association also matter

• The model is a snapshot in time - market conditions can change rapidly

• Classifying products as simply 'high' or 'low' on each axis oversimplifies a more complex reality

New product development

• New product development (NPD) is the process of designing, creating and launching a product that is new to the business or to the market

• It is a core part of a long-term marketing strategy

The purpose and value of new product development

• Businesses invest in new product development to:

  • Replace products in decline before revenue falls significantly

  • Enter new markets or attract new customer segments

  • Respond to changing customer needs and preferences

  • Stay ahead of - or catch up with - competitors

  • Grow revenue and market share over the long term

• When successful, new product development delivers significant benefits

  • Competitive differentiation

    • A genuinely new product offers customers something rivals cannot match

  • First-mover advantage

    • Being first to market with an innovation allows a business to establish brand leadership before competitors can respond

  • Reduced reliance on existing products

    • A healthy pipeline of new products makes the business less vulnerable to the decline of any single product

  • Revenue growth

    • Successful new products generate new and additional income streams

The challenges of new product development