How Product Packaging Influences Buying Decisions

Learning Objectives

I. Define product management.

II. Discuss the constituents of a product.

i. Examine the significance product elements.

III. Evaluate the role of product packaging in consumers’ buying decisions.

IV. Evaluate four product-growth decisions.

V. Use techniques for product management.

© 2014 Berlin Asong. All rights reserved. 2

Learning Objectives








Product
management

It’s theprocess ofsatisfying consumers’
needs and fosteringa firm’s performance through
effective product-development
and product-marketing .


It’s the process of managing
a product successfully throughout
the various stages of its lifecycle.


Learning Objectives








What is a product
comprised of?


What are the
elements or parts
of this pack of
cereals?


Organisation
Actual Product

After Sales
Augmented Product Service

Price

Packaging

Product
Brand Finance Advice Values
Design
Features

Delivery Warranties

Basic Product

Augmented product Corporate
Image


Product anatomy is a
breakdown of a product
into constituent units.


Learning Objectives








What are the
implications of the
product anatomy to
product management?


1

A product is more than its
physical form or content.


narrow
A reason for product failures is…managers have

interpretation of product.


2

It is the interaction
of product elements that
provide value to customers.


Failure to integrate the
various product elements
successfully is a reason for product failure.


3

Managing a product
successfully demands a mix
of knowledge…


Product management
Ecology
Engineering
Gastronomy
Economics
Anthropology
Human resource management
Informationtechnology
Operations management
Graphics design
Finance
Etc.

Learning Objectives








PRODUCT
P CK GING

The outward
tangible elements
of a product.


Colours
Size
Shape
Weight
Pictures
Labels
Materials

Is it worth spending
millions of pounds on
product packaging?


1

Portability
Convenient to carry, transport & consume.


2

Preservation
High-tech packages
are extending the shelf-
life of products.


3

It conveys
critical product
information to
buyers.


Lack of
information to
make informed
and educated
choices, is
perceived as
risky by buyers.


Perceived Risk

Psychological Risk
Functional Risk

Financial Risk
Physical Risk

Social Risk

Time
Source: adapted from Kotler (2012)


Putting a message on packaging
costs significantly less than newspaper,
TV, or Internet advertising.
Tetra Pak (2012), “Tetra Pak Magazine No 96 - Package Communication”. Retrieved Feb. 27, 2012,
from www.tetrapak.com/Document%20Bank/TetraPak_Magazine/TP_Magazine%20Nr98_EN.pdf


4

Visual elements
of actual product.


Glossy packaging
gives a luxurious or
premium impression
of the product.


Visual differentiation
frequently drives purchase
decisions.
Tetra Pak (2012), “There’s No Second Chance to Make a First Impression”. Retrieved Feb. 27, 2012,
from http://www.tetrapak.com/about_tetra_pak/cases/Pages/First_Impression.aspx


Visually appealing
packaging can provoke
impulse buying.


Studies show impulse
shoppers respond highly
to packaging visuals.


of all purchasing decisions
are made inside the store,
you realise how important
is product appearance.
Tetra Pak (2012), “Tetra Pak Magazine No 98 - Consumer Trends”. Retrieved Feb. 27, 2012, from
www.tetrapak.com/Document%20Bank/TetraPak_Magazine/TP_magazine96_EN.pdf


5

Safety


Consumers want to be confident that
the [package] is safe and protects the
contents, but they also want to know
if it is environmentally sustainable.

Tetra Pak (2012), “Tetra Pak Magazine No 98 - Consumer Trends”. Retrieved Feb. 27, 2012, from
www.tetrapak.com/Document%20Bank/TetraPak_Magazine/TP_Magazine%20Nr98_EN.pdf


6

Packaging serves to
differentiate a product from
rival products.


Classic coke’s
curvy, “stripes”,
etc. are instantly
recognisable by
fans, worldwide.


Packaging gives
personality to classic
coke, & identifies its
maker, Coca-Cola.


7

It could
serve as a sales
promotional tool.


Multipack means
lower unit cost, cost-savings
to customers.


8

To flaunt
a firm’s green
credentials.


Coca-Cola’s PlantBottle


Anatomy of Product Packaging

Tetra Pak (2012), “Tetra Pak Magazine No 96 - Package Communication”. Retrieved Feb. 27, 2012,
from www.tetrapak.com/Document%20Bank/TetraPak_Magazine/TP_Magazine%20Nr98_EN.pdf


1

It increases the
cost &, consequently
price of product.


2

Deceitful
packaging

3

Using excess
packaging.


Learning Objectives








PRODUCT
DECISIONS

The main goal of
product management is
to grow product sales
profitably.


can this be achieved


Ansoff-Growth Matrix
Current
Market New

Market Market
Current Penetration Extension
Product

Product
New Diversification
Development


Current
Market New

Market Market
Product

Product
New Diversification
Development


Growth within a firm’s
existing territorial or
“segmentorial” market.
(demographic, psychographic, and behavioural consumer segments.)


Desirable State

Gap to close
Market Share

Current State

Time
The underlying goal of
"market penetration" is to increase
sales and market share.

30 minutes

Unsatisfied with its sales and
profit performance for 2012, Morrisons
supermarket is embarking on market
penetration. In what ways can the company
penetrate the UK grocery market?


1

Provide valued-products.


2

Picture source: wikimedia.org

Expand retail presence (no. of stores).

3

Provide an
online-to-home
delivery service.


4

Price-promotion

5

Build brand equity.


6

Provide superior
customer service
experiences .


30 minutes

What are the
chances of success?


Growth by market
penetration thrives under
certain conditions like…


1

Firm’s operating market
is underpenetrated.


2

If the firm can reduce the
market share of rivals without
destroying its profit margins.


Current
Market New

Market Market
Product

Product
New Diversification
Development


The firm targets a new
territorial or “segmentorial”
market with an existing offering.


Geographic market extension

An existing
product or
service is made
available in new
markets.

Usually the
offering is adapted to fit
buyer’s preferences.


Tesco’s US outfit

Tesco’s UK outfit

Market extension
can be pursued by
acquiring other firms.


Such as ASDA’s 2011 acquisition of NETTO


Gender market extension
From Dove
women to Dove
men.


Age-based market extension

An existing product or
service is made available to a
consumer segment of a
certain age group.


Originalmarket:18-35age-group

Product Extendedmarket:40-65age-group
Service


Income-based market extension

An existing product or
service is made available to a
consumer segment of a
certain income threshold.


Originalmarket:£70.000.00plusincome

Extendedmarket:£18.000.00plus


What are the push
factors for market extension,
and probability for success?


1

Firm’s operating
market is saturated.


2

There’s a strong fit
between the existing offering
and the extended market.


3

If a firm’s existing
capabilities can adequately
serve the new market.


What are the
challenges of growth
by market extension?


…and how
those challenges
can be overcome?


Current
Market New

Market Market
Product

Product
New Diversification
Development


The firm grows within
its existing territorial or
“segmentorial” market by providing
new products or services.


Samsung’s 2012 revenue
growth was strong thanks to a
string of new mobile devices
targeting low-end, mid and
high-end mobile users.


Some of Coca-Cola’s
products are acquired
businesses.


30 minutes

The justification for
growth through new
product development.


1

To ignite revenue growth
especially if the firm operates
in mature industries.


Apple’s iPod line from 2001-2012


2

…to appeal to
various buyers’ needs
in an existing market.


3

Innovate or die!
If not you will be outran by the competition.


Current
Market New

Market Market
Product

Product
New Diversification
Development


The firm moves
into new product
categories or industries.


Not too long ago,
the iPod was a big
revenue generator
for Apple, but not
any more.


In 2007, Apple
entered the
mobile phone
industry.


The iPhone accounts
for 44% of Apple’s
revenue in 2011.


Related Diversification

The firm grows by expanding
into product or service categories that
are related to its core business.


A high degree of
relationships exit among
Apple’s product categories.

1

A high degree of
relationships exit among
HP’s product categories.
2
3
4
5


2010: HP acquired Palm to enter the
fast growing tablet computing space.

Related Diversification

The firm grows by expanding
into product or service categories that
are unrelated to its core business.


1987; the merger
between Moet Hennessy
and Louis Vuitton.

In August2011, Google acquired Motorola
Mobility. Is the acquisition a related
or unrelated diversification?


30 minutes

Virgin Group has diversified
into related and unrelated
industries. Does diversification
benefit the company? How?


1

It enables the company to
pursue growth in multiple territorial,
“segmentorial” & product markets.
(demographic, psychographic, and behavioural consumer segments.)


2

By moving resources &
core competencies into new
industries, the firm can use its
capabilities efficiently.


The efficiency of a factory is
improved by producing two or
more product categories compared if
multiple production platforms are used.


synergy
When two firms combine; they can
share & use the same capabilities.
Thereby, reducing costs.


Before the 2008 global financial crisis,
GE finance accounted for 50% of GE’s profit & funded
the operations of GE’s businesses like Energy.


Possible areas
of synergistic gains.
Administration

HR Technology Marketing Distribution R&D Manufacturing


3

Risks Spreading
Are single-product firms more
at risk than multi-product firms?


4

Shareholders’ wealth
may improve as a direct
result of reinvesting
cash in new businesses.


20 minutes

Growth through Diversification
Challenges

1

It requires a strong
management system to keep
tap of multiple businesses.


2

The risk of cross
contamination is
always there.


News of the World, a UK-based
newspaper outfit of News Corp.,
was shutdown amid a phone
hacking scandal in 2011.


News Corp pulls out of BSkyB bid

Source: The Guardian (2011). Retrieved from www.guardian.co.uk/media/2011/jul/13/news-corp-pulls-out-of-bskyb-bid


3

Diversification has
in many cases devalued
shareholders’ wealth.
The new diversified business, especially if it
turns out to be successful, dilutes or lowers
the value of investors’ shareholding.


Learning Objectives








Product Management

TOOLS

Product life-cycle
BCG Matrix
GE-McKinsey Matrix
Cost-Benefit Analysis
Discounted Cash Flow Analysis
Payback Period analysis
Breakeven Analysis
Etc.

Raymond Vernon–
Product Life-cycle, (1966)
Economist, Professor
1914-1999


Philip Kotler & Gary Armstrong (2009) Principles of Marketing, 13Ed.


As a product manager, what
actions would you take to
minimise the cost and maximise
the sales of a product through
out its lifecycle?

© 2014 Berlin Asong. All rights reserved.

Which element or
mix of elements Product

would you use to Planet Price

manage the
product along its
life-cycle? Process Marketing Mix Place

Physical Promotion
Layout

People


Pre-introduction Stage


Introduction Stage


iPad 3 launch, March 7 2012

Product

Planet Price

Process Marketing Mix Place

Physical Promotion
Layout

People


Product

Plan Price

Marketing
Process Place
Mix

Physical
Promotion
Layout

People


Growth Stage


Tablet devices


Product

Planet Price

Marketing
Process Place
Mix

Physical
Promotion
Layout

People


Maturity Stage


Product

Planet Price

Marketing
Process Place
Mix

Physical
Promotion
Layout

People


iPad 3 launch

Decline Stage


Product

Planet Price

Marketing
Process Place
Mix

Physical
Promotion
Layout

People


Product Life-Cycle
Has it got limitations?


1 Can you locate the precise
stage of the product on its life-cycle?

Introduction Growth Maturity Decline

0
Low rivalry Increasing Stronger rivalry Extreme
rivalry Rivalry


Difficult to determine
an accurate position of a
product on the curve.


2 Do all products actually go
through such a neat, tidy curve?
Introduction Growth Maturity Decline

0
Low rivalry Increasing Stronger rivalry Extreme
rivalry Rivalry


A fall in sales doesn’t necessarily
mean the product or industry
has reached maturity or decline.


3

Do all products
“die-out”?


…developed by Bruce Henderson in 1968.


Also known as…
Portfolio Analysis Tool.


The BCG Matrix is a…
…tool used for deciding
how to allocate resources
to a group of products.


Product Portfolio
The total range of products owned by a firm.


Product Mix
Variety of products owned by a firm.


Product Line
A group of products sharing a common
parental name or common characteristics.


Homecare Skincare Food&Beverages

It’s the start of a new financial year.
Your job as CFO is to allocate specific
funding for each of the three businesses
owned by Unilever. Assuming you have
a total budget of £10m. Allocate the
funding & justify your decision.

How much funding
should we allocate to
homecare, skincare and
food & beverages?


…it depends on the market
share of each business, and
its market growth rate.


What is market
share? Why is it
an important
indicator?


120 UK Mobile Phones Market Volume : million units, 2008–2012

Market demand (million units) 100
80
60
40
20

2008 2009 2010 2011 2012 2013 2014 2015 2016

What is market
growth rate? Why is it an
important indicator?

Is the growth rate rising,
falling or stagnant?


The sweetest spot for any business is to…
“…achieve the maximum
market share that generates the
most cash with minimal costs.”


MarketShare

MarketGrowthRate


MarketShare
High Low

High

MarketGrowthRate

Low


The results from the BCG Matrix analysis…
…can reveal possible
strategies to adopt for a
given product or business.


What actions would you
adopt for a star product?


Star Business: Strategic Options

Grow market share leadership.
Penetrate market withexisting product.
Innovateexisting product.
BoostR&D expenditure.
Allocatethe best resources.


adopt for a cash-cow product?


Cash-cow Business: Strategic Options

Defend market share leadership.
Penetrate market withexisting product.
Acquire rival firms.
Reduce R&D expenditure.
Seek operational efficiency.


What actions would you adopt
for a question-mark product?


Question-mark Business: Strategic Options

Grow market share.
Acquire rival firms.
PrudentlyboostR&D expenditure.
Prudentlyallocate thebest resources.


adopt for a dog product?


Dog Business: Strategic Options

Sell the business.
Kil the business.
Prudentlyinnovateexisting product.
Cost-cutting.


Homecare Skincare Food&Beverages

As CFO, you have allocated
funding for each business based
on market share and market growth
rate. Is that a valid decision? Explain.

False assumption
of equating market-share
to profitability.
1


False assumption of
2 equating market-growth to
industry attractiveness.


Our focus is on the…
GE Matrix.


The GE Matrix analysis…
…reveals what strategy
a business should adopt by
analysing its strengths and
industry attractiveness.


IndustryAttractiveness

CompetitiveStrengthofBusiness

Industry Attractiveness

PESTEL Forces.
Porter’s Five Forces.
Market growth rate.
Market Size.
Etc.


Competitive Strength of Business

Market share.
Resources.
Finance.
Talents.
Knowledge.
Strategic alliances.
Brand | reputation.
Culture.
R&D.
Etc.

High Invest | Grow

IndustryAttractiveness
Medium Hold

Harvest| Divest
Low

High Medium Low

CompetitiveStrengthofBusiness

Mooradian, Matzler & Ring (2012), “Strategic Marketing”. 1st Ed., Pearsoned


A thorough examination of
the financial and non-financial
costs and benefits of a proposed
investment in a product project.


…however, cost-benefit
analysis is an imperfect tool.
Why?


The amount of time (in weeks, years or months) it takes for a
business to make back the money it spends on a specific investment.

Source: Johnson, J., Scholes, K. & Whittington, R. (2007) “Exploring Corporate Strategy”, 8 ed.


It’s the NPV of the future
cash flows generated by a
proposed investment.
NPV:NetPresentValue


Cash Cash Net Cash

−2 million
Inflows (£) Outflows (£) Flows (£)
2011 2 million
2012 7 million 4.5 million 2.5 million
2013 10 million 6 million 4 million
2014 15 million 9.5 million 5.5 million

What is the NPV of a £2m
investment in a physical asset if the
discount rate is 10% in the next 7 years?

Because the NPV (£35.4m) is
positive, the benefits (£35.4m) of the
investment exceed the cost(£2m).

NPV:NetPresentValue


…however, DCF appraisal
technique is imperfect. Why?


How Product Packaging Influences Buying Decisions

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