Commercial Techniques, Distribution & Product Levels: A Comprehensive Guide
Commercial Techniques
1. Introduction Stage
This stage of the product life cycle can be the most expensive for a company. Market size and sales are low, while research and development, consumer testing, and marketing costs are high, especially in competitive sectors. Product price is typically low.
2. Growth Stage
This stage is characterized by strong sales and profit growth. Economies of scale in production lead to increased profit margins. Businesses can invest more in promotional activities to maximize potential.
Key elements: Price increase, cost reduction, and profitability increase.
3. Maturity Stage
The product is established, and the focus shifts to maintaining market share. Competition is high, requiring wise marketing investments. Product modifications or production process improvements can provide a competitive advantage. Sales are constant, and costs are reduced.
4. Decline Stage
The market shrinks due to saturation or consumer shifts to different products. While decline may be inevitable, companies can still profit by switching to less expensive production and targeting cheaper markets. Sales are reduced.
Distribution Channels
There are three options to get products to users:
- Sales Force: Selling directly to final sellers.
- Agent Distributor: Selling in bulk, often the entire production output.
Distributing goods to end consumers involves three phases:
1. Demand Generation
Creating demand through the distribution channel. For example, providing catalogs to sellers.
2. Physical Distribution
The physical delivery of goods.
3. Post-Sales Services
- Internal: A retailer handles returns and repairs, sending faulty products back to the manufacturer (e.g., a broken iPhone purchased at Fnac is returned to Apple by Fnac).
- External: A smaller shop handles repairs and returns directly.
Framework for Channel Strategy
1. Capacity
The distribution channel must align with consumer needs.
2. Control
Maintaining control over potential internal and external problems and risks between producer and distributor.
3. Coverage
The percentage of the target market reached through the distribution channel.
4. Cost
Efficiency in covering the target market and meeting their needs.
Ansoff Matrix
1. Market Penetration
Selling more established products in existing markets by increasing market share, for example, through price reductions.
2. Market Development
Selling existing products or services in new markets.
3. Product Development
Creating new products or services for existing markets.
4. Diversification
Creating new products or services for new markets. This is the riskiest strategy.
Levels of Product
1. Core Benefit
The basic purpose of the product. For example, a warm coat protects from cold and rain.
2. Generic Product
The basic qualities of the product. For example, a coat is waterproof and fits well.
3. Expected Product
Aspects consumers expect when buying the product. For example, a coat should be comfortable, protect from the weather, and have pockets.
4. Augmented Product
Additional factors that differentiate the product from competitors, including brand identity, warranty, and post-purchase service. The goal is to exceed expectations.
5. Potential Product
Future augmentations and transformations of the product. For example, a warm coat made from an incredibly thin and light material.