Marketing Mix » Product Component (Products and Services)

What you'll learn this session

Study time: 30 minutes

The Product component of the Marketing Mix (4Ps)
Differences between products and services
Product lifecycle stages and strategies
Brand development and extension strategies
How to analyse real-world product decisions
Product portfolio management techniques

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Introduction to the Product Component

The product is arguably the most important element of the marketing mix. Without a strong product or service that meets customer needs, the other elements (price, place, promotion) won't matter much. Let's explore what makes up the product component and why it's so crucial for business success.

Key Definitions:

Product: A physical item, digital good, or service that satisfies customer needs or wants.
Marketing Mix: The 4Ps framework (Product, Price, Place, Promotion) used to develop marketing strategy.
USP: Unique Selling Proposition - what makes your product different from competitors.
Brand: The identity, values and reputation associated with a product or company.

⊞ Products

Physical or digital items that customers can own:

Tangible - can be touched, held, stored
Can be manufactured in advance
Consistent quality is easier to maintain
Examples: smartphones, trainers, books

⊞ Services

Activities or benefits provided to customers:

Intangible - cannot be physically possessed
Produced and consumed simultaneously
Quality can vary based on delivery
Examples: haircuts, education, insurance

Product Levels

Products aren't just physical items - they have multiple dimensions that create value for customers:

⌖ Core Product

The fundamental benefit or problem-solving service that customers are really buying.

Example: A smartphone's core product is communication and information access.

⌖ Actual Product

The physical item with features, design, quality level, packaging and brand name.

Example: The iPhone 14 with its specific features, design and Apple branding.

⌖ Augmented Product

Additional services and benefits that come with the product.

Example: Apple's warranty, customer service, App Store ecosystem.

The Product Life Cycle

Products typically go through four main stages during their lifetime. Understanding these stages helps businesses make strategic decisions about product development, marketing and investment.

⊚ Development & Introduction

Characteristics:

High development costs
Low sales volume
Negative or minimal profits
Limited competition
Focus on creating awareness

Strategies:

Heavy promotion to build awareness
Premium pricing (skimming) or penetration pricing
Limited distribution channels

⊚ Growth

Characteristics:

Rapidly increasing sales
Growing profits
Competitors begin to enter
Increasing customer awareness

Strategies:

Improve product quality/features
Expand distribution channels
Build brand loyalty
Maintain or gradually reduce prices

⊚ Maturity

Characteristics:

Sales growth slows down
Peak profits, then decline
Intense competition
Price competition increases

Strategies:

Product modifications/improvements
Market modifications (new segments)
Marketing mix modifications
Differentiation from competitors

⊚ Decline

Characteristics:

Falling sales
Declining profits
Reduced competition as firms exit
Reduced marketing support

Strategies:

Reduce costs/production
Discontinue product
Sell the brand/business
Harvest (minimal investment)
Rejuvenate (rare but possible)

Case Study Focus: Innocent Smoothies

Innocent started in 1999 when three friends sold smoothies at a music festival. They've since moved through the product lifecycle:

Introduction: Started with simple fruit smoothies, built awareness through quirky packaging and ethical messaging.
Growth: Expanded product range and distribution to supermarkets across the UK.
Maturity: Faced increasing competition, so diversified into juices, kids' drinks and veg pots.
Extension strategy: Rather than decline, Innocent extended their lifecycle by launching new products like Innocent Plus (with added vitamins) and expanding internationally. They also sold a stake to Coca-Cola to support growth.

This shows how understanding the product lifecycle helps businesses make strategic decisions to extend success.

Brand Development Strategies

Once a business has established products, they have several options for growth:

⊞ Line Extension

Adding new varieties within an existing product line.

Example: Cadbury introducing different flavours of Dairy Milk chocolate (Oreo, Caramel, Fruit & Nut).

Benefits: Lower risk, uses existing brand recognition, meets different customer preferences.

⊞ Brand Extension

Using an established brand name to launch products in different categories.

Example: Virgin expanding from music (Virgin Records) to airlines, banking and telecommunications.

Benefits: Leverages brand reputation, reaches new markets, economies of scope.

Product Portfolio Management

Most businesses offer multiple products. The Boston Consulting Group (BCG) Matrix helps analyse a product portfolio based on market growth and market share:

★ Stars

High market growth, high market share

Generate high revenue but need investment
Future cash cows
Strategy: Invest to maintain leadership
Example: Apple's iPhone when first released

◯ Cash Cows

Low market growth, high market share

Generate more cash than they consume
Provide funds for other products
Strategy: "Milk" for profit with minimal investment
Example: Coca-Cola's original drink

? Question Marks

High market growth, low market share

Require significant investment to grow
Uncertain future - could become stars or dogs
Strategy: Invest selectively or divest
Example: A new product line with potential

✗ Dogs

Low market growth, low market share

Generate little cash, may lose money
Drain resources from better opportunities
Strategy: Divest or reposition
Example: Outdated technology products

Making Product Decisions

When developing or modifying products, businesses need to consider:

Customer needs: What problems does the product solve? What benefits does it provide?
Market research: Understanding customer preferences, competitor offerings and market trends.
Differentiation: How to make the product stand out from competitors.
Quality level: Balancing quality with cost considerations.
Features and design: What functionality and aesthetics will appeal to the target market?
Branding: How to build and maintain a strong brand identity.
Packaging: Protection, information, promotion and convenience considerations.
After-sales service: Warranties, customer support and other augmented product elements.

Case Study: Dyson

Dyson revolutionised the vacuum cleaner market by focusing on product innovation:

Identified a customer problem: traditional vacuum cleaners lost suction
Developed innovative cyclone technology (5,127 prototypes!)
Created a premium product with distinctive design
Built a strong brand associated with innovation and quality
Used brand extension to move into new product categories (air purifiers, hair dryers, hand dryers)
Maintained premium pricing to reflect quality positioning

This shows how product decisions form the foundation of marketing strategy, with other elements of the marketing mix supporting the product positioning.

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