Video Transcript: Product Marketing Mix - Part 3

So welcome to part three of the marketing mix on products. And we've been  talking quite, quite a bit about product management in the previous two lectures  on this and in this third and final lecture, we're going to talk about new product  introductions, the ins and outs of actually doing that, some of the concerns and  considerations that you need to keep in mind as you do roll out a new product.  And then we'll wrap this lecture up, talking just briefly about product life cycles,  because a lot of people aren't aware that there is very explicit life cycle to  products, from new products to gaining market share to maturity, to decline, and  then finally, the company pulls the plug on it. So we're going to talk about new  product introductions. We're going to talk about product life cycles. What types  of new products do we have to a company. There's different iterations of new  product. You know, you say new product, you think, well, we're going to run out  back in the shop, we're going to get a can full of nuts and bolts and a few pieces of wood and some sheet metal, and we're going to make something new that  refers to newly developed, newly designed product. The second one is new to  the firm, and that may not be what you think. It is new to the firm. Means that,  well, maybe they went out back and they put some nuts and bolts together with  some wood and lumber and whatever else, and they made something. But it  also could mean that they went out onto the market and they bought a product  line with all the blueprints, with all the manufacturing instructions from a firm that no longer wanted to do that, additions to existing product lines. We're talking  here about adding recliners to a firm that makes lamps. For example, if you got  a lamp, you might as well make the recliner sit next to it and be able to read  your magazine or watch TV or do whatever in comfort with a little light there. So  it might be expanding kind of the product line to include products that are  complementary to what you're already making, and the key to that is making  absolutely certain that these new products tend to complement what you're  already doing. You already have that existing customer base that's going to have a lot of interest in acceptance of a new any, whatever new product you have, if  you do this, right? So that's it. That is an important point, improved and revised  products. We're talking about changing the class from camping to maybe with a  tent, maybe to camping with an RV. And then you might want to escalate your  product offering so that you're offering a all inclusive vacation somewhere to  maybe a low end cruise, for example, all the way up to a very expensive private  resort. So there's different, improved and revised, new features, new benefits,  new levels of the same product, just different, added features and benefits,  reduced costs. That's kind of going the other direction. If you already have a  luxury vacation, maybe you want something that's a little less expensive, and  someone walks into the travel agent's office and they can't afford a $10,000  vacation for a week? Maybe they'd be interested in something for $1000 or  vacuum cleaners. There's a whole class of vacuum cleaners that sell for high  end, you know, they're like, $1,500 to $2,000 and if you got a new house with 

new carpet, Oh, of course you want to get the best vacuum cleaner to make  your new investment last longer, so you don't have to replace your carpet in 20  years. So to speak, on the other hand, maybe somebody's got an older home  and they're little less concerned about it, or they're on a budget, and maybe they need to buy a new one, but it's got to be in a $700 range, or the $400 range. So  this is why we talked about developing new products at a reduced cost or a  lower price point. Importance of new products. The market never stands still. It's  always dynamic. Somebody's always inventing a new version of the wheel, and  those new wheels are always designed to meet the needs and wants of a new  target market, new set of consumers. So you've always kind of got to keep your  ear to the ground, and you've always got to be aware of new opportunities  beating the competition. And they are constantly developing new features and  benefits I mentioned a little bit earlier the issue of about of doing product  management for bigger software companies. And kind of the general rule of  thumb is that if a salesperson had a quota to sell $3 million worth of software  this year. Next year, he'd still have to only sell $3 million worth of software. But  the problem is the price went way down lower. So he really is selling twice as  much software next year as he did this year to maintain a $3 million quota. So  this is all stuff that's going on out there, increasing profits, avoiding threats from  the substitutes, is all reasons why you want to develop new products, increasing profits. We're talking about, we're talking about doing things in a way where we  may maybe have fewer features. You might have been able to do a redesign  and create the same product with much less manufacturing, cost of materials or  cost of labor, then the last one, like I said, is avoiding threats from substitutes.  What do I mean by threats of substitutes for every product that's on the market.  There's always something else that's out there, and it may not even be obvious,  but a substitute could divert people away from your product, and they may want  to go with the other product, or a substitute product, for example. And again, like I said, sometimes those substitutes are not always obvious, and you find out  about them after the fact, and sometimes it can have very dire consequences.  Product life cycles. We talked about this. We've mentioned it a few times.  There's very distinct stages of products development, its growth and its maturity, its revenue and its demise, and we're going to identify some of those specific  layers or levels on the life cycle chart here. You see the chart here. What we're  talking about is the there's five distinct categories here, and you'll see those  along the horizontal line. The first one is the product development phase, and  this is where the engineering department is going through the building  prototypes or doing design work. They're generating blueprints or CAD drawings or whatever. But it also could be a situation where marketing people are out  there, and they're doing a lot of beta testing with us, so they're giving this out to  people to use it. What do you think? What does the user interface look like? Is it  easy to use? Is it solving problems? Is there things that we can do that would 

add more value to this product in your organization. That's what happens in the  product development phase. And the two curved lines that you see here refer to  two things. The top one refers to sales, and the bottom curved line is an  indication of profitability, and if it goes below the horizontal line like the  profitability line does, that means you're not profitable. In fact, you're the  opposite of profitable. You're not profitable. You're losing money on this. And you will start to see an indication here of how the revenue in the profitability relate to  where you are on this chart of life cycle processes. So by the time you get to the introduction phase, all of the money that has been spent on engineering and  beta testing and building prototypes and buying tooling for the assembly line, or,  you know, whatever, all that money has been spent, and you'll see the  profitability is way below zero at that point. And it's not too long into the  introduction phase, where all the money you spent to build these products, all  the money you've been spending to start advertising and building awareness  and all that stuff, and you start actually generating some revenue. And by the  time you get to the end of the introduction phase, you'll notice that the  profitability line is rising back up towards that zero or that break even point. So  the third point in the life cycle is the growth phase. The product has been  discovered is getting good reviews. A lot of people are starting to buy it. You're  gaining market share, and the profit is starting to come back very nicely at that  point. And the growth rate, as you see, or the growth, the growth of your sales  revenue, is actually climbing at a very sharp. Rate. So the fourth point, or the  fourth segment on the product life cycle is maturity, and by this point in time, you have very good awareness of your product that's out there in the marketplace. I  mean, it's got name recognition. You don't have to do a lot of advertising. You  don't have to do a lot of what marketing people call education, to educate  people, what this is, what it'll do for you, what the payback is, all that people just  know it. And at that point they go down to the store, they buy the thing. That's  the point where you start putting your revenue on cruise control. It's a point  where your profits are kind of on cruise control. And this period, or actually any  of these four, five periods on here can be any length of time. They could be a  matter of months to a matter of decades. So think toothpaste. Toothpaste is very much, very similar to what it was 60 years ago. On the other hand, you get a  software product, and they could go through all five phases of this product life  cycle process in a two, maybe three year period from beginning to end, and it's  gone. So the last phase is the decline portion of the product life cycle process.  And at this point, very little money is being spent to improve the product  manufacturing or even advertising or even marketing, and you see that sales  are starting to tail off. The profit margin is tailing off here, and you're really just in a decline phase. And this is probably the phase where a lot of businesses will  consider selling a product line to another company, for example. Maybe Maybe  this product just matches what they are doing, and they can fold it right in, and 

they can kind of milk this mature product for an even longer period of time. So  that's what life cycles are all about. There's five of them, the product  development phase, the introduction, where you're actually introducing it to the  market, you have the growth, excuse me, the growth phase, where you're  spending a lot of time and a lot of money educating the market and capturing  market share, capturing profitability. You put it into the maturity phase. That's  where a lot of the expenditures sort of go away, and all you're doing is just  banging out product from one week to the next week to the next month to the  next quarter, next year, that kind of thing. And you capture the revenue, you  capture the profitability, until you notice that it's starting, starting to decline, at  which point you make some strategic decisions. Is this a part of our future or  business? So a few characteristics of the various these are kind of important. I  got five slides here, one for each of the life cycle components. And it shows you  some of the characteristics, some of the parameters of what these different  stages look like, life cycle stages. So the introduction phase, the this is the one  that's after product development. Advertising you build, you're spending a lot of  money building product awareness among early adopters and dealers and  wholesalers, distributors, that kind of thing. Distribution, you're you're out there,  you got people on the street, you're going to trade shows, and you're spending a lot of effort to build a network of selective distributions throughout your market  area, whether it's North America, whether it's regional in nature, or whatever.  Worldwide pricing you'll typically use the cost plus pricing model product you  start off offering basic products, because at some point in the near future, you  can always come back with that same product with a few extra bells and  whistles on it, with higher profitability and higher level of sales revenue,  marketing objectives, you're spending a lot of time, a lot of energy And a lot of  money creating product awareness and product trials, that sort of thing.  Negative profitability, very high cost per customer at this point and the sales, the  actual sales revenue is actually quite low at this during the introduction stage of  the product life cycle. Strategies that product manager would use during the  introduction stage is building product awareness among the early adopters,  spending a lot of time focusing on building a key network of very key distributors who will nurture the product amongst their their own. Client base, there's going  to be a lot of money spent to do sales promotion, educating the market that type of thing. Pricing is pretty simple, cost plus profit margin, and then the basic  product without very many features and benefits at this point. So in the growth  stage of the product life cycle, some of the characteristics here is, again, you're  continuing to build and as far as advertising, you're going to continue to build  awareness and interest in the mass market. You're going to continue building a  lot of intensive distribution of your products, assuming that's one of your sales  channels is to sell your product through distributors. You're going to start paying  a lot more attention to pricing to capture additional market share at this point. At 

this point, you're becoming a lot more aware of what it is your competitors are  doing. They've heard about you in the introduction phase, and now they're going to be doing things to protect their turf. So pricing is one area where you'll  compete, and you will be pricing your product to penetrate the market and  capture or hold on to your market share gains, product extensions, product  services, product warranties. Maximizing market share is the key issue in this  whole growth stage area, rising profits. You want to be paying attention to that  making sure that the overall total profits that are coming back in are meeting  expectations. The other thing that's important here is you want to be paying  attention to the average cost per customer, and you want to see that number  dropping at this point, rising, rapidly rising sales. Venture capital. People refer to  this as kind of the hockey stick curve they get into not Well, early stage type  investments of new products. And they like to invest just as the product is being  rolled out to an introduction and the growth stage and their money will actually  do some good. And they refer to that chart as being sort of the hockey stick. And they want to see rapidly rising sales. So some of the strategies that people do  during the growth stage, consumer demos, getting a lot of promotional  opportunities, building awareness, continuing to spending a lot of time and  energy on the distribution, you'll want to be pricing your product in a way that  allows you to be a serious contender in the market. And as far as product issues are concerned, you'll want to be working with product warranties, services, extra extensions, add ons, doodads, upsells, whatever. So in the maturity phase, this  is where things start to level off. This is where the sales and where the  profitability tend to get into cruise control mode. Let's say this is a point where  you start, you stop, or you spend a lot less money on the advertising. And the  advertising that you do is going to be stressing brand differences and benefits  distribution. Just again, the hammers down. You're working on getting more  localized people that are responsible for supporting your product out in a  specific region of your sales area, pricing you go on a price, price it to match or  beat your competitors or offer more value, diversify the brand and the models of  your products. In other words, you might have luxury versions of your product.  You might have some middle of the road type stuff, and you might want to have  the basic dollar hamburger version of it, so you can go anywhere from the dollar  hamburger up to the Big Mac maximizing profits while defending market share.  That's the main objective of the maturity stage. At this point, from a senior  management level, you're going to be spending a lot of your time just sitting  back and just letting this thing you're in a maintenance mode. You're just going  to just kind of keep things going, making sure product is being made. There's no quality issues, there's no delivery issues. You're just getting product out there,  and you know exactly how much money and sales, revenue and profitability  you're going to have nine months from now from that product. That's kind of the  key characteristics of the maturity faith, face of the product life cycle. Some of 

the strategies diversify the brand. You want to have a few different iterations of  this particular product, different price points, different features and benefits.  You're going to be doing a lot of pricing, to work, to compete with your  competitors, building more distribution, and maybe you're adding new areas and new market areas. Maybe done very well in North America. So you're going to  take it over to Europe or off to Asia or wherever. Advertising, you're going to  stress the brand differences, the features and the benefits, the competitive  advantages that your product has over your competitors. Sales promotion,  you're going to want to just encourage people to switch from brand A. Let's take  a look at my brand B and see how much value it can add to your day. So those  are the characteristics and the strategies of the maturity stage of the product life  cycle. And the last one we get into here is the declining stage the product  declining. It's kind of at the tail end its lifespan. Software is a huge thing for this,  because the entire life cycle for a software product is very compressed  compared to most other products. Advertising, you're really just going to, if  you're doing any advertising at all, you're going to reduce it to a level just to kind of keep your hard core loyal customers happy, keep in touch with them.  Distribution, you're going to start weeding out some of them that are  unprofitable. Pricing, you're going to be cutting prices, typically cutting prices,  maybe not necessarily all the time. You're going to phase out some of the  weaker iterations of a particular product. You know, discontinued products, they  aren't selling well, so you kind of like take them off and they go away, reducing  expenditures, milking the brand, declining profits. Maybe the profit margins not  declining, but the overall total profitability, you'll notice, is starting to decline, kind of in sync with the declining sales, you're going to have very low cost per  customer simply because you're not spending any money promoting or  delivering this product to the marketplace. So your costs per customer are going to be probably the lowest of that they would be at any point throughout the  product life cycle. Some of the strategies for the product life the decline stage of  the product life cycle, phasing out weaker product lines, the ones that are no  longer profitable to maintain manufacturing resources for, you're going to be  cutting prices. You're going to be selectively phasing out unprofitable distributors or combining them territories. For example, advertising, you're going to reduce it to a level that's needed to retain your hardcore, loyal customers around the  world or around your territory, and your sales promotion, if you're even doing  any you reduce it to a very minimal maintenance level. So that brings us to kind  of the end, thankfully, of our discussion on a lot of the core fundamental  concepts about marketing. There's actually four product mix components. You  got the product promotion, Pricing and Distribution. We've covered two of them,  two of the most important ones. One is the product marketing. One is the  pricing. And I think, without beating this thing to death, I think we're going to call  it a day at this point, and when we see you next time, we're going to be talking 

about some fun stuff like email marketing or stuff that you can do that's really  relevant make your day relevant. So I'll see you next time