MSc in Digital Marketing Week 4

By Paul Morris

Note: these notes are aimed as a memory mnemonic for my MSc in Digital Marketing 

Week 4 – Products and Strategic management tools.

This week split out into 4 sections:

1/ Product Hierarchy and mapping protocols

2/ New product development

3/ Product life cycles (PLC)

4/ Portfolio matrix (BCG)

1/ Product Hierarchy and mapping protocols

The Marketing Mix

Sometimes 4: Product (Customer Benefit), Price (Cost = time / energy), Place (convenience), Promotion (communication)

Sometimes more: People, Physical Evidence, Process, Philosophy, Partnerships.

  • Kotler defines product as:

–      Anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. This includes physical objects, services, persons, places, organisations and ideas.

  • Dibb & Simkin (2010) define the product as being ‘Ideas, services or goods, or any combination of those’

–      Everything (both favourable & unfavourable) received in an exchange: a complexity of tangible & intangible attributes including functional, social and psychological benefits. A product may be a good, service or idea.

2/ New product development

Product Hierarchy: Core Product, Basic Product, Expected Product, Augmented Product, Potential Product (but the product hierarchy is often shown in slightly different ways).

Product Mix Width: The product mix of a company, which is generally defined as the total composite of products offered by a particular organization, consists of both product lines and individual products.  e.g. The Co-operative Group product lines, width, length and SKU’s are massive (depth less so).

3/ Product life cycles (PLC)

The period of time over which an item is developed, brought to market and eventually removed from the market. First, the idea for a product undergoes research and development. If the idea is determined to be feasible and potentially profitable, the product will be produced, marketed and rolled out. Assuming the product becomes successful, its production will grow until the product becomes widely available. Eventually, demand for the product will decline and it will become obsolete.

Essentially: Introduction, Growth, Maturity, Decline.

Baker and Hart (2008) extended this: Gestation, Introduction, Growth, Maturity, Saturation, Decline, Elimination (you can also overlay: early adopters, early majority, late majority, laggards = see the next section).

Factors in the PLC = sales, cost / customer, profits, customers, competitors, objectives,.

Strategies = Product, Price, Place, Advertising, Promotion.

Principles of Diffusion of Innovation

The diffusion of innovation is there process by which the adoption of an innovation spreads. Early adopters (13.5%), early majority (34%), late majority (34%), laggards (16%).

Characteristics that help predict and explain rate of acceptance & diffusion = Complexity, Comparability, Relative advantage, Observation, Trialability, Perceived risk, Divisibility, Communicability

Adoption requires = Awareness, Interest, Evaluation, Trial, Adoption

Communications therefore aids diffusion = Word of mouth, Comms directly from marketer to potential adopters

4/ Portfolio matrix (BCG)

To be successful, a company should have a portfolio of products with different growth rates and different market shares. The portfolio composition is a function of the balance between cash flows.

= The Boston Matrix.

  • According to BCG:
    • High growth products require cash inputs to grow. Low growth products should generate excess cash. Both kinds are needed simultaneously.
    • The value of a product depends on its obtaining a leading share of its market before growth slows.
    • Every product should eventually be a cash generator; otherwise it is worthless.
    • Only a diversified company with a balanced portfolio can use its strengths to truly capitalize on growth opportunities.

Build Share, Maintain Share, Harvest, or Withdraw/Divest

Star, Question Mark, Cash Cow, Dog.

GE Matrix

Then the GE Matrix / McKinsey Matrix has a similar principle to BCG but with a different axis…

Particulalr helped with GE’s approach to investment decision making. The GE/McKinsey Matrix solves most of the issues of the BCG model (e.g. not flexible enough to include all the broader issues that a company was facing while operating in a fast changing global environment) and proposes a more sophisticated and comprehensive approach (essentially 3X3 matrix) to investment decision making.

Instead of looking solely at each unit’s future prospects, a corporation can adopt a multi-dimensional approach based on two components that will indicate how well the unit will perform in the future. The two components used to evaluate businesses are the ‘attractiveness’ of the relevant industry and the unit’s ‘competitive strength’ within the same industry. Each axis is then divided into Low, Medium and High.

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