The product life-cycle (below) for a given product consists of introduction, growth, maturity and decline. Given that the product is most profitable during the maturity phase, marketers want to extend that phase for as long as possible.
One of the ways of doing this is, as the above graph demostrates, is through the use of extension strategies. Extension strategies employ the use of Market Penetration or Product Development strategies (see Ansoff’s Matrix) to delay the decline stage as much as possible. If the former is used, often the price may be lowered or a new marketing campaign is commissioned; if the latter is undertaken, an adjustment is made to the product to give it a ‘refresh’.
Although Market Development can achieve similar – if not greater – levels of sales by taking the product into a new market, it is not an extension strategy as the product will still enter the decline phase in its original market.
But how does this relate to, Nissan’s crossover car, the Juke (below)?
Well, Nissan have used unconventional extension strategies – to extend the life of the Juke – which I feel are worth exploring. Many people believe that all extension strategies follow like Apple’s iPads or Sony’s Playstations: that is, #1 product is launched, then replaced by #2 product, then possibly #2 product thinner / more colours edition, then #3 product and so on and so on.
Product extensions, however, do not always follow this pattern – particularly, Nissan’s Juke. Namely, each product update serves not to replace the preceding product but to increase the originals sales at the expense of the new product, which is akin to a loss leader.
Here is a time-line of the Juke’s extension strategies and quick summary of each new update:
Juke Ministry of Sound – updated with an iPod docking station and Ministry of Sound exterior styling. Limited production run of 250 units.
Juke-R – updated with a 545 break-horse-power engine to take the car to almost 200 miles per hour. Very Limited production run of an unconfirmed number of units – likely to be less than ten.
Juke Nismo ‘Dark Knight Rises Edition’ – faster version of the original, with styling cues taken from the bat-mobile, with a launch to coincide with the Dark Knight Rises DVD release. One-off car, used solely for marketing purposes (not for sale).
Juke Nismo – a faster version of the original with exterior styling updates. The car will have a full – rather than limited – production run, however supply will be kept very limited making the car more exclusive.
As you can tell from the limited productions, each new model never intends to replace the original. Instead, the use of extension strategies is used to generate news coverage and favourable PR that raises awareness of the Juke. Hence, the Ministry of Sound version, for instance, is used to grab new car buyer’s attention in the news and encourage them to research into the original Juke or visit a Nissan dealership.
But why is this method of extension strategies not used for every car? Namely, because the Juke is targeting a younger consumer that is more influenced by the status and intangible benefits of owning a car – marketing sizzle – rather than its functionality – product sausage.
Therefore, the Juke requires a heavy investment as a ‘Rising Star’ in the BCG Matrix (above) to keep its momentum, particularly so as the car is faced with many new competitors to the crossover car category . In contrast, although the Qashqai is a similar car it is targeted very much at someone in their mid-late adulthood. Consequently, in the five years the Qashqai has been on sale for, only two updates have been made. This allows Nissan to milk profits from the Qashqai, its ‘Cash Cow’, in order to fund the Juke, its ‘Rising Star’ which has a more ‘marketing-lead’ target consumer and stiffer competition.
This company almost needs no introduction. Although I am not really a fan of their products, there is no denying the huge success of Apple: the technology company now has the highest market capitalization in the world at $573 billion, which is more than Microsoft and Google’s valuation combined; the firm is the most admired company in the world; and the Apple brand value is worth $153.3 billion alone. The list is simple endless…
Having only briefly spoken about Apple before, this post will show how the firm’s success is based on simple marketing concepts.
The Product Life Cycle (PLC)
Apple’s iPod is a textbook example of how to manage the PLC from introduction through to decline.
The PLC consists of 4 stages: New Product Development, Introduction, Growth, Maturity, Decline. But it is the introduction and maturity stages where Apple’s marketing ability really shows.
What sets Apple apart from every other technology company is how it utilises its Apple stores to create over-the-top product launch events and generate free publicity. Every time Apple launches a product (not just iPods), all employees make an effort to ensure each customer is congratulate the new owners. It is simple but effective: thousands queue outside – even camping out for several days – just to experience a product launch by Apple. This is entirely unique to Apple – one cannot even imagine consumers showing the same amount of passion for a Microsoft product. The stores are simply great for free PR.
As the maturity stage is the most profitable time of PLC, it is crucial to extend this period to be as long as possible and delay a decline in sales. This is very much true with the iPod. The iPod has already experienced massive growth; now sales are stagnant and predicted to decline. Hence, Apple continuously roll-out extension strategies, updating the iPod with more features, more colours, larger memory, faster processors, a smaller size – anything to keep on getting a short-term sales boost. The cumulative effect of these short-term updates is that, combined, they actually increase long-term sales – see this great infographic on how the evolution of the iPod has grown sales.
Apple also recognise that decline is inevitable – one day they will have to stop selling the iPod. But they are more than prepared for this – the iPhone is almost a direct substitute for the iPod, while the Apple Store is becoming more and more orientated to iPad and iPhone users.
Product Development
Product development is just one of the growth options in Ansoff’s Matrix, but perhaps the most effective for global brands.
As you can see (above), product development involves launching a new product to the firm’s existing customers. If you, like Apple, already have a global presence, in major markets, and understand your customer inside-out, it arguably offers the best trade-off between risk and reward. By launching the iPad, iPhone and operating systems to the same audience Apple builds up integrated customer relationships across multiple platforms and therefore creates brand loyalty. This increases the likelihood of new products being a success. Conversely, Google’s innovations have high failure rates.
The effect on sales of this product range filling strategy has had a cumulative effect on Apple’s sales growth:
The Boston Consulting Group Matrix/ Product Portfolio Management
The famous BCG matrix classifies a firm’s product portfolio into four strategic business units (SBU): Stars, Question Marks, Cash Cows and Dogs. Within each SBU, there are again four potential strategies to take: build market share, hold market share, harvest (reduce investment) and divest (phase-out).
Star: This would be the iPad because it has a high share of the rapidly growing tablet market. As the iPad is in its growth phase of the product life-cycle, the product is beginning to lose its first-mover advantage as other manufacturers begin to launch their own tablet devices. Hence, Apple should invest heavily into marketing the iPad in order to grow sales to maintain their share (sales need to grow at the same rate as overall market sales to maintain market share within a growing market). But in the future, when market sales become stable, Apple should harvest the product to turn it into a Cash Cow to fund other SBUs.
Question mark: Despite Apple’s best attempts, PCs with Microsoft operating systems still continue to dominate the PC market. Much of this is down to strong business-to-business marketing and high switching costs for businesses and consumers, alike. Apple could potentially used three strategies for their Mac software:
1) Divest – this could allow Apple to devote more time on their most profitable products, but it is highly unlikely as the Mac is part of the firm’s brand identity.
2) Build – Apple could potentially invest lots and lots of resources to try to turn Macs into a star, however even with Apple’s huge cash pile, it is questionable if it is even possible to beat Microsoft-powered PCs.
3) Hold – this is the most likely strategy. Apple will probably continue to develop new Macs and support existing customers, however investments will be kept at a minimum and be target towards the iPad.
Cash Cow: Apple’s source of steady flows of income are clearly the iPhone and the iPod; both the MP3 and mobile phone market have reached saturation and Apple has a high share of both these markets.
As the iPod is reaching the decline stage of the PLC, Apple is beginning to harvest the product. That is, slowly reducing investment in marketing iPods to increase their profitability; by generating more cash, further investments can be made into question marks or stars.
In the future, Apple will probably only maintain their market share of the iPhone. It is a highly profitable to generate sales from existing customers from upgrades, which can be almost guaranteed after a consumer invests heavily in downloads from the app store.
Dog: Lastly, Apple TV – a device that allows media files in iTunes to be played on a TV – has never really caught-on. By launching a second and third generation, Apple have shown they are committed to building sales. However, unless the overall market for digital media receiver grows, it could be more profitable to divest the product.
Competitive Positioning
Apple have a clearly defined premium strategy: they offer more benefits for a higher price. According the Value Proposition Matrix (above), any of the white squares are competitive strategies. But, I personally believe a ‘more for more’ position is perhaps one of the more effective. This is because it is highly profitable and hard for competitors to copy a premium identity.
Developing a premium, or luxury image, is incredibly hard for both new and existing brands. Hence, it is highly unlikely any of Apple’s competitors will risk undertaking an upward brand stretch and gain a premium status. Moreover, this type of branding allows a premium price tag to be attached to any product – regardless of the quality – with an Apple logo, allowing the firm to make huge gross margins.
This heavily links into Micheal Porter’s famous generic strategies:
A firm’s scope can be either to target a niche market (narrow scope) or a mass market (broad scope); and their strategy can be based on low-cost, or differentiating themselves, with additional benefits, from their competitors.
Apple has been very clever with their choice of strategy, depending on the product. Initially – and for a long time – the firm used a Differentiation Focus strategy while Apple only sold Mac computers. The firm was very niche and was targeting Innovators and Early Adopters:
According Everett Roger’s Diffusion of Innovations theory and Kotler, those who adopt new technological products act as opinion leaders and brand evangelists who spread word-of-mouth promotion about your product. This then attracts the Early Majority, where the bulk of sales comes from.
After Apple used a Differentiation Focus strategy and masses of consumers where becoming more aware of the Apple brand, the firm has moved towards a pure Differentiation strategy. This is seen by the iPod and iPhone that are used by wide range of consumers.
Many firms make a mistake these days of not targeting the Innovators and Early Adopters – they try to immediately win huge sales. Seth Godin (and I) believe this is a poor strategy:
Branding – Corporate Branding / Family Branding
If you have read my previous post on Proctor & Gamble, I am a very strong believer in the power of corporate branding. This is where a single brand image of the firm is used to promote their range of products, rather than developing a brand for each product category. Apple is a great example of this.
Apple’s own brand values – innovation, simplicity, style – have been consistently emphasised across all of their products. These have even been personified by former CEO Steve Jobs’ personality.
This is highly beneficial to the firm because it makes new product launches much more likely to be successful; it seems that Apple could launch an iWhatever and consumers would buy it. Moreover, Apple customers have been so conditioned to Apple brand values that it is naturally assumed a new Apple product will be any of the above brand values.
Further to this, Apple also benefits from something called the ‘Halo Effect’. This is where a customer purchases/likes one product from a firm and is then interested to try out other products the same company has to sell.
As the graph shows, after a big rise in iPod sales in 2003/4, Mac sales also started to pick up more significantly. Many think this is down to the Halo Effect – consumers enjoy their experience so much with their iPods they decided to fully ‘make the switch’ to Mac computers. It has been found by Apple Insider that almost 20% of Mac sales have come from once PC owners who first purchased an iPod. More recently, the same Halo Effect is occurring because of the iPad
To reiterate: it is because Apple has such a good corporate brand that consumers believe if they like one product by the company, they will like all of their products.
Services Marketing
Although I have already blogged about the Genius Bar, it is worth mentioning it again here as it provides a good lesson in services marketing.
Ever since the end of WW2 services marketing has been given growing attention by businessmen and academics. Now, in the 21st Century, offering additional services to a product has become a major source of competitive advantage and brand differentiation. Apple, for example, achieves differentiation from other technology firms through having retail outlets that allow them to provide superior customer service.
The Genius Bar, offers Apple customers face-to-face technical support; a very welcome change to poor after-sales service provided by their competitors. This helps augment their products and support their ‘More for More’ competitive positioning, hence it is an important way to add value to Apple products.
In addition to enhancing their value proposition, it gives Apple an unrivaled chance to practice interactive marketing – engagement between employees and customers. Where as other technology firms often only practice external marketing, Apple can use interactive marketing to enable customers bond with the firm. This is helped by the fact that employees are – or at least perceived to be – brand ambassadors that truly believe in what they are selling.
Marketing Communications
Lastly, there is no point in doing any of the above unless consumers know about it. However, it is hard to say what makes great campaigns. But one thing is sure: they have to be original. There is no real strategy or science behind it, but Apple have managed to get it right on so many occasions:
I hope I have managed to cover the main theories, and used Apple to help explain these, but if I have missed anything out please let me know in the comments below. I also hope I have highlighted how important the Apple stores are to the firm’s success as I feel this is something that is often overlooked by other business writers.
Diageo is the drinks group behind the likes of Johnnie Walker, the scotch; Guinness, the beer; and Blossom Hill, the wine – a well-rounded product portfolio. The group recently announced revenue had increased 5% to £9.78 billion and operating profit had risen 2% to £2.45 billion for their financial year. This was despite the weak consumer spending in the US and Europe – their largest markets, suffering from recent recessions – where the net sales in the former fell 3% and 2% in the later. So how did Diageo remain resilient? By Market Development – expanding across several markets with the current product portfolio. And, as marketing and planning is a cyclical process, Diageo has not forgotten its core market, the UK: Guinness is about to repositioned.
Although, according to Ansoff’s Matrix, Market Development poses high levels of risk when initially expanding – moreover given localised brand names used in alcoholic drinks – the spread of revenue channels in the long-term reduces Diageo’s reliance on one economy. Therefore, a PEST analysis is always a fundamental influence on the marketing strategy. Diageo has furthermore proven the benefits of risk-taking: scotch drinks returned a 15% net sales growth in Latin America and 10% in Africa; most importantly, however, their market share increased as well as volumes. When their sales are boosted by GDP growth, and higher overall consumer spending, of emerging markets and one-off factors, like the World Cup in South Africa, it is important for the sake of raw-competitiveness that market share grows by a greater proportion to be hailed a success.
However, Diageo have clearly identified the UK market as their ‘Cash Cow’, which needs to be milked for all its worth, where as Latin America and Africa can be considered ‘Rising Stars’ – if one uses the Boston Matrix to analyse markets rather than products of a firm. Diageo’s repositioning of Guinness as sports brand, therefore, is a form of market penetration; this is a low-risk strategy, albeit with low scope for growth. The ‘Bring it to life’ campaign involves above-the-line T.V promotions, sponsorship of Sky’s 3D sports coverage – which is currently only available in pubs – and nostalgic football advertisements in newspapers. While none of this is particularly innovative, Guinness’ brand image is consequently associated among sport viewers – and not sport hooligans.
If there is one lesson to be learnt from Diageo it’s diversity: a strong product portfolio in a variety of markets sold through a focus on traditional and new marketing strategies.
All companies have various degrees of success throughout their product portfolios – this is particularly true at Audi, the German car manufacturer. To classify each car model’s success – and therefore allocate resources, like advertising budgets, more effectively – the Boston Matrix can be used by Marketing managers. This matrix essentially classifies products as follows: Rising Stars, which have a high market share of a quickly growing market; Cash Cows, which have a high market share of a slowly expanding market; Dead Dogs, which have a low market share of a stagnant market; and Question Marks that have a low market share of a quickly growing market.
What proactive, and innovative companies like Audi – ‘Vorsprung durch technik’, Audi’s ethos, translates as ‘lead through technology – aim to do is to have at least one Rising Star in their product portfolio; Audi’s new A8 (above) is packed with new technology that will eventually become widely available in the majority of cars. Hence, the Boston Matrix often, but not always, follows the Product Life Cycle. The car taps into the growth of the internet: Google Maps and Earth is integrated with SAT NAV and syncs with a home PC to plan routes and the car will soon function as a WLAN hotspot. A benefit of such innovation is that the first-mover advantage often leads to a dominant market position, which in turn has created a Rising Star. Although, the R&D behind the car is hugely expensive, this can be mainly funded by a cash-cow; for Audi, this has been their TT Cope and Roadster that provide healthy, and consistent, source of internal finance.
However, as with any major company, there are products in Audi’s portfolio that are not as successful – yet, they need to be fully integrated and managed as one within the Boston Matrix. The Question Mark of Audi’s portfolio is the e-tron A1, an electronic spin-off of their A1 hatchback car. As the cliché name may lead you to infer, Audi is hoping to compete in the niche for environmentally friendly cars. As a whole market, this niche has been rapidly expanding – for instance, Toyota’s Prius has become universally known as a market leader – as consumers become more concerned with the environment. However, Audi is synonymous among customers for quality, not ethics; the e-tron A1 thus has low market share and may need to be nurtured through its life cycle from the TT’s sales revenue. And Audi’s Dead Dog? Their clothing range. Despite not requiring myself to elaborate: generic clothing is not going anywhere and when was the last time you saw someone wearing and Audi-branded T-shirt?
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