The life cycle of a product can be broken down into stages. Sales grow slowly at the introduction stage when a product is new on the market there is only a limited awareness of its existence. Sales then grow rapidly during the period of growth. It is at this point that competitors enter the market and promote their own products. This will reduce the rate of sales. This period is known as maturity and it is at this time that the market becomes saturated as there are too many firms competing for customers. Firms will compete in a variety of ways and some will drop out of the market.
The profit market then declines and the existing product becomes unprofitable. The life cycle of some products may last hundreds of years while the life cycle of other products may only last a few months. If a firm wants to prolong the life cycle of its own brand of product it is important for them to invest in the development of the product as well as the promotion of it. Once a product is on the market it may be necessary to improve or update it. Large companies will produce many products each with their own product life cycle.
A new product is aimed to reach Maturity as the old product is coming into decline. This collection of products is known as the product portfolio. Ideally the company would want the product portfolio to range over a number of different markets. An effective way to analyse a firms products is through a Boston Matrix. From the diagram above it is possible to see that product 1 has a high market share of a low growth market. The size of the circle relates to its turnover of the product. This type of product is known as a cash cow.
This type of product generates high profits and cash for the company because sales are relatively high whilst the promotional cost per unit is quite low. This means it is possible for the company to spend more money on other products which are newer and moving their way into the market. Product 2 has a high growth market but a low market share, this type of product is called a problem child. In the future it may well provide high profits as the market itself is growing fast but it needs to gain a larger market share.
Often a re-launch of a product will help to find it a more profitable place in the market. Product 3 is know as a star, rising star. These products have a high market share and are a fast selling market. However it is often necessary to put in high amounts of advertising to keep sales growing and to protect the product from competition. It is possible for a firm to use the profits from the cash cow to keep the sales of the star growing. Product 4 is known as a dog. They have a low market share with low market growth.
They hold little appeal to the firm unless they can be revived. It is possible for a firm to assess their current position in the market by analysing their situation through both product life cycle and product portfolio analysis, this is known as market auditing. Market Segmentation Market segmentation is the process that businesses and firms use to sub-divide the market in to groups for a specific product or service. Market segmentation allows the market to target a particular group which will become the focus of all its marketing efforts.
Markets can be segmented in a number of ways. A firm may specialise in the segment for the over 60’s, this would be because the proportion of elder people in the country is growing as people are living longer. ‘Saga’ is an example of a firm specialising in the over 60’s. Sex: Manufacturers may target females when marketing their products. This can be seen in the promotional campaigns for cars, smaller cars are often targeted at woman drivers. Social Class: social class used to be placed into six socio-economic categories.
These categories related income via profession. It allowed a firm to see what level income, and kind of person, their product was best suited to. However because of regular changes in pay and the varying status of some jobs the categories often have to be revised. Religion: Food procedures may specialise in Jewish food, Kosher. Family characteristics: These segments could include young singles, young mothers, married with no children, single parent family etc. Geography: This would consider the region of the country the consumer lives in, urban, rural.
It may also look at the type of house people they own. The main aim of market segmentation however is to increase profits by raising sales, therefore it is important that the product is aimed at a suitable market. It is also important that the product or service meets the expectations of the customer. For market segmentation to be effective it the organisation must understand the segment they are aiming their product at. The main reason for using market segmentation is that it allows products to be targeted at a specific market.
If the company is able to identify the specific characteristics of its customers it can ensure that its product is tailored to meet their needs. By targeting a particular segment, organisation are able to position themselves in a particular market. For example McDonald’s is positioned in the fast food market. By establishing a strong market position, an organisation can ensure that its product is identified as meeting the needs of customers in that market. This is known as niche marketing. C;A’s Marketing Process
The environment in which an organsiation competes will provide both opportunities and threats that influence its development. Organisations therefore have to analyse their products to ensure that they are filling their potential and fit the market they are aimed at. In 1997 C&A evaluated its situation in the market, they hired a specialist research company to provide external information such as socio-demographic data on age, social class, house size and the firms market share. They also produced a detailed SWOT analysis.
The SWOT analysis helped to see if the business plan was able to respond to changes in the environment. C&S’s strengths were in family orientation, reputation for low prices and extensive choices, while its weaknesses were in lack of targeted communication with customers, the reluctance to adapt to meet local fashion needs and most importantly the lack of a quality fashion image. C;A in the past had focused on the cost and price of its goods. As one of the largest buyers within the clothing industry in Europe it had been product orientated.
As consumers became more aware of brands, C;A saw a decrease in customer loyalty and a shrinking market value. One problem was C;A’s product portfolio was too large, consisting of over twenty-three labels. They drew out a Boston Matrix and from that scrapped 10 of the sub-brands to leave thirteen. Of these thirteen they were placed within four different market segments. These market segments allowed C&A to breakdown the market and see what potential customers the products were aimed at. They included.