TOPIC 2- BROAD DEFINITION OF A PRODUCT

A product is anything that can be offered to the market (customers) for attention,
acquisition, use, or consumption and might satisfy a want or need. In short, a product
is anything that can be offered to a market to satisfy a want or a need. Marketed
products include physical goods, services, experiences, events, persons, places,
properties, organizations and ideas.

Product levels
In planning its market offering, the company needs to think through five levels of the
product. Each level adds more customer value.
1. Core benefit
This is the fundamental service or benefit that the customer is really buying. For
example, a restaurant guest maybe buying rest and sleep.

2. Basic product
This involves turning the core benefit into a basic product. Thus, a restaurant room
includes a bed, bathroom, towel and a desk. Generally, basic product includes product
features, brand name, color, packaging, labeling, size, shape, design and other tangible
aspects of a product. An estate agent selling a house to you may say that the house is
situated 4 km from your workplace (product feature), which means that you can be at
work within 15 minutes of leaving home (customer benefit).

3. Expected product
This is a set of attributes and conditions buyers normally expect when they purchase a
product. For instance, a restaurant guest expects a clean bed, fresh towels, working
bulbs and a degree of quiet.
4. Augmented product
The aim of augmented product is to meet the customer’s needs beyond their
expectations and usually refers to “support” systems, which are put into place to serve
the customer. Generally, it involves extra benefits that the marketer adds to his offer.
This may include assistance of the sales person, free delivery, warranties, financing,
customer advice, maintenance and repair, installation services etc. Today’s competition
takes place at this level.
5. Potential product
This encompasses all the possible augmentations and transformations the product of
offering might offer in the future. It is the possible evolution of the product. It is where
companies search for new ways to satisfy customers and distinguish their offer.

CLASSIFICATION OF PRODUCTS
Product classification is important in assisting marketers to develop marketing
strategies. Products can be classified in the following ways:-
(i) Extent of durability and tangibility – under this method of classification,
there are durable and non-durable products, and services
 Durable – these are products are tangible or physical in nature and
which are consumed over a long period. Examples are motor vehicles,
furniture, buildings and computers
 Non-durable – these are tangible products but their consumption does
not last long. Examples are bread, milk, soap, cosmetics etc
 Services – they are intangible and include haircuts, medical treatment,
consultancy, legal advice and motor vehicle repairs. In many cases,
services cannot be separated from the persons selling them.
(ii) Buying effort used by the consumer – this is the time spent in evaluating the
available products and outlets stocking the desired products. Under this
classification, we have convenience, shopping, specialty, and unsought
products.
 Convenience products – these are products that the consumer buys
frequently, immediately, with minimum comparison and buying
effort. They are usually low priced and widely available. Examples
include newspapers, toothpaste, bread, milk, cigarettes and detergents.
The producers of convenience products use mass promotion
 Shopping products – these are products that are less frequently
bought by the consumer. When buying such products, the consumer
compares them on the basis of price, quality, suitability and style. The
consumer spends much time and effort in gathering information and
making comparisons. Examples include furniture, clothing, TVs,
refrigerator and microwave.
 Specialty products – these are products with unique features or brand
identification for which a large number of buyers are willing to make a
special buying effort. Consumers have strong brand preference and
loyalty. Examples of local stores selling specialty clothing include little
red, Sir Henry’s, Woolsworth, Mango (at Karen shopping centre), and
Deacons among others.
 Unsought products - these are products that customers either do not
know about or know about but do not normally think of buying.
Examples include life insurance, blood donations and encyclopedia.
Due to their nature, they require aggressive advertising, personal
selling and other marketing efforts.
 (iii) Extent of perishability of products – here the products are classified
according to perishable and non-perishable products. Perishable products
deteriorate in quality fast. For example, most agricultural products are
perishable whereas industrial goods are non-perishable. Perishability can be
reduced by canning or refrigeration.
(iv) Consumer and industrial goods – consumer goods are purchased for final
consumption while industrial goods are purchased for further processing.
Consumer goods include products like bread and milk. Industrial products
include machinery and raw materials.
(v) Standardized and custom-made products – standardized products are
similar in all respects; they are mass-produced. Examples are motor vehicles,
bolts, clothes and estate houses. Custom-made products (non-standardized
products) are made to meet individual customer specifications. Examples
include custom-made furniture, custom-built homes, tailor-made suits and
dresses.

Significance of product classification

 Product classification helps marketing managers in the task of designing
marketing programs. The nature and type of the product influence the type of
distribution, promotion and pricing strategies used
 Product classification brings order in a market characterized by many products
 Product classification helps in markets targeting

PRODUCT MIX AND PRODUCT LINE DECISIONS

Product mix/product assortment
It is the set of all product and items that a company offers for sale. A company’s
product mix has a certain width, length, depth and consistency.
 The width of a product mix refers to how many different product lines the
company carries. For example detergents, toothpaste, bar soap, cooking fat,
cooking oil etc
 The length of a product mix refers to the total number of items in the mix. For
example, BIDCO has 28 products, at the time of writing this book
 The depth of a product mix refers to how many variants are offered of each
product in the line. For example, if Colgate comes in three sizes and two
formulations (regular and mint), then it has a depth of six
 Consistency of the product mix refers to how closely related the various product
lines are in end use, production requirements, distribution channels or some
other way. For example, BIDCO products are related in the sense that the raw
 materials is similar i.e. palm oil and they are distributed using the same outlets.
The company’s products are cooking fat, oil, detergents, bar soaps or baking
powder.
Product Portfolio Management
The business portfolio is the collection of businesses and products that make up the
company. The best business portfolio is one that fits the company's strengths and helps
exploit the most attractive opportunities.
The company must:
(1) Analyze its current business portfolio and decide which businesses should receive
more or less investment.
(2) Develop growth strategies for adding new products and businesses to the portfolio,
whilst at the same time deciding when products and businesses should no longer be
retained.

BCG Matrix (Portfolio Analysis)

Boston Consulting Group (BCG) Matrix was developed by BCG in the early 1970s. It
remains to be one of the most commonly used matrix by businesses and students (doing
project!) to analyse all the different businesses or product categories a company possess
under their belt, all neatly sorted into an overall matrix for analyzing the performance
of each business/products to get a macro view of the business on hand for the
large organizations and to achieve the overall objectives of the organization.

In order to understand how to use BCG Matrix correctly, lets take a look at the axis.
BCG Matrix places businesses/products in its matrix by the merit of Market Growth (x-
axis) and Market Share (y-axis).
Market Share (y-axis)
Market Share is the % of the total market that is being serviced by your product
category in terms of revenue or the volume of the ACTUAL observed market for a
stipulated time period.

Equation - Market Share in unit volume = (unit volume sold by you) / (total unit sold
in stipulated time period)

-Market share are usually a forecast if you were to use it to gauge the share for the next
working year, but you can also use it to calculate share from the previous year and use
them as an estimate. The higher the share, the better, of course.
Market Growth Rate (x-axis)
Market growth rate used to assess the state and performance of a market, usually in
terms of sales.
Equation - Market Growth Rate = (sales in year 2011 - sales in year 2010) / sales in year
2010.

Market growth rate will tell you if the market is attractive enough to
continue/discontinue in the product category.

Let's now look at the 4 quadrant respectively. A company's business products can fall
into any four categories in BCG Matrix in the form of : Stars, Question mark, Cash
cows and Dog.
Stars
- Star category represents high growth and high market share
- High investments needed to maintain the share
- High cash flow outward movement in this category to maintain status
- Usually in the end of the 'Growth' Product Life Cycle stage
- Represents emerging and good business for the company, though they need alot of
attention and priority

Cash Cow
- Represents low growth, high market share
- This is the best quadrant of the portfolio as the company basically enjoy the 'milk' of
success
- This is where the revenue stream flows inwards
- Usually in the matured stage in Product Life Cycle
Dog
- Represents low growth, low market share
- No potential to be valuable to organization anymore
- Opportunity cost in the effort to maintain this business/products as they can channel
effort to other place
- Usually in the declining stage in Product Life Cycle
- Line pruning or divested after awhile in real organizations

Question marks
- Represents high growth, low market share
- They are usually new product category or new products/business for the organization
- They have the potential, but it is not clear which direction will the business go next
- Usually requires huge investments
- Usually in the introduction stage in Product Life Cycle

Rationales for using BCG Matrix

Macro Perspective:
- Maximize the organization's use of money and investments to achieve desired ROI
- Allow a company to assess their multiple businesses on hand and manage the multiple
businesses in portfolio
- Visuals on where the money is coming in and out; Resource allocation and fund
movements.
- Achieve the entire organization objectives
Micro Perspectives:
- In the micro level, users usually look at where the business/products is in, and try to
implement strategies to shift it around in the portfolio
- Ability to do simple calculations to see where the business/product lies in the BCG
matrix
-Allow marketers to develop strategies for the business/product in the particular
quadrants as they display similar characteristics in the quadrant

Limitations
The growth-share matrix once was used widely, but has since faded from popularity as
more comprehensive models have been developed. Some of its weaknesses are:
 Market growth rate is only one factor in industry attractiveness, and relative
market share is only one factor in competitive advantage. The growth-share
matrix overlooks many other factors in these two important determinants of
profitability.
 The framework assumes that each business unit is independent of the others. In
some cases, a business unit that is a "dog" may be helping other business units
gain a competitive advantage.
 The matrix depends heavily upon the breadth of the definition of the market. A
business unit may dominate its small niche, but have very low market share in
the overall industry. In such a case, the definition of the market can make the
difference between a dog and a cash cow.