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Product & Brand Management

Session 3,4
Forecasting , Product Life Cycle
Forecasting : Time Series Analysis.
Components of a Time Series
1. Trend
2. Cyclical variation
3. Seasonal variation
4. Irregular/erratic variation
Time Series Analysis: Trend
Positive Trend
Negative Trend
The long-term trends of sales, employment, stock prices, and other
business and economic series follow various patterns. Some move
steadily upward, others decline, and still others stay the same over
time.
A typical business cycle consists of a period of prosperity
followed by periods of recession, depression, and then
recovery with no fixed duration of the cycle.
The rise and fall of a time series over periods longer than one
year is called Cyclical Variation.

In a recession, for example, employment, production, and
many other business and economic series are below the long-
term trend lines.
Conversely, in periods of prosperity they are above their long-
term trend lines.
Time Series Analysis: Cyclical Variation
Time Series Analysis: Cyclical Variation
These are patterns of change in a time series within a year.
These patterns tend to repeat themselves each year.

Many sales, production, and other series fluctuate with the
seasons. The unit of time reported is either quarterly or
monthly.

Almost all businesses tend to have recurring seasonal
patterns. Garments, for example, have extremely high sales
just prior to Diwali and relatively low sales just after Diwali
and during the summer.
Other e.g. : Soft drinks, paints etc.
Time Series Analysis: Seasonal Variation
Time Series Analysis: Seasonal Variation
Many analysts prefer to subdivide the erratic/irregular variation
into episodic and residual variations.
Episodic fluctuations are unpredictable, but they can be identified.
The initial impact on the economy of a major strike or a war can be
identified, but a strike or war itself cannot be predicted.
After the episodic fluctuations have been removed, the remaining
variation is called the residual variation.
The residual fluctuations, often called chance fluctuations, are
unpredictable, and they cannot be identified.
Neither episodic nor residual variation can be projected into the
future.
However, based on the past, certain assumptions can be made.
E.g. : increased terrorist activities in J & K or Naxalite activities in
Jharkhand could dampen the market by 5 % in those territories
during the year.
Time Series Analysis: Irregular Variation
Conclusions
Trend line is a linear equation.
For multivariate analysis , we could look at
regression.
Products in their infancy and launch do show a
growth which is quite linear.
But Products, as we all know, if not nurtured
and revived do show a tendency to decline
and die over a period of time.
This leads us to .
Product Life Cycle
Conventionally , there are 4 stages in a PLC.
Stretched PLC
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Time
In large measure disagreements about the existence of
PLCs arise from lack of definition of what, precisely,
is a product. Doyle (1999) distinguishes 6 possible
levels of definition.
Table 4.2 Doyles product life cycle factors
Source: Doyle (1999)
The PLC is a tool which encourages
strategic insight, policy formulation and
long term strategic planning. It is not a
tactical device.
Snap Crackle Pop
Kellogg's
The Kellogg Company (informally Kellogg's or Kellogg) is
a multinational food manufacturing company headquartered
in Battle Creek, Michigan, United States.

Kellogg's brands are household names around the world and
include Rice Krispies, Special K and Nutri-Grain, whilst some of
its brand characters, like Snap, Crackle and Pop, are amongst
the most well-known in the world.

In 2006, Kellogg had total worldwide sales of almost $11 billion.
With 2012 sales of $14.2 billion, Kellogg is the world's leading
cereal company.



Kellogg's- The market
The company has broadly divided its market
into six key segments.

1. 'Tasty Start' cereals - Kellogg's Corn Flakes, Nutri-Grain
2. 'Simply Wholesome - Kashi Muesli
3. 'Shape Management - Special K
4. 'Inner Health' - All-Bran
5. 'Kid Preferred Frosties
6. 'Mum Approved - Raisin Wheats
Nutri-Grain
Nutri-Grain was originally designed to
meet the needs of busy people who
generally missed breakfast. It aimed to
provide a healthy cereal breakfast in a
portable and convenient format.


This case study is about Nutri-Grain. It
shows how Kellogg's recognized there
was a problem with the brand and used
business tools to reach a solution. The
overall aim was to re-launch the brand
and return it to growth in its market.

Nutri-Grain- Launch
Many products do well when they
are first brought out and Nutri-
Grain was no exception.

From launch of Soft bake bars in
1997 it was immediately successful,
gaining almost 50% share of the
growing cereal bar market in just
two years.

Introduction or Launch
The following are some of the marketing mix implications of the introduction stage:

Product - one or few products, relatively undifferentiated

Price - Generally high, assuming a skim pricing strategy for a high profit margin as the
early adopters buy the product and the firm seeks to recoup development costs
quickly .
In some cases a penetration pricing strategy is used and introductory prices are set
low to gain market share rapidly .

Distribution - Distribution is selective and scattered as the firm commences
implementation of the distribution plan.

Promotion - Promotion is aimed at building brand awareness. Samples or trial
incentives may be directed toward early adopters.
The introductory promotion also is intended to convince potential resellers to carry
the product .
Kellogg's - Growth
Nutri-Grain's sales steadily increased as the
product was promoted and became well known.
It maintained growth in sales until 2002 through
expanding the original product with new
developments of flavor and format.

This is good for the business, as it does not have
to spend money on new machines or equipment
for production.

The market position of Nutri-Grain also subtly
changed from a missed breakfast product to
an 'all-day' healthy snack.
Stage 3: Growth
During the growth stage, the goal is to gain consumer preference and
increase sales.

The growth stage is a period of rapid revenue growth. Sales increase as
more customers become aware of the product and its benefits and
additional market segments are targeted.

Once the product has been proven a success and customers begin asking
for it, sales will increase further as more retailers become interested in
carrying it .

The marketing team may expand the distribution at this point .

When competitors enter the market, often during the later part of the
growth stage, there may be price competition and/ or increased
promotional costs in order to convince consumers that the firm's product
is better than that of the competition .

Kellogg's- Growth
Kellogg's- Maturity
Maturity - Successful products attract other competitor
businesses to start selling similar products.
This indicates the third stage of the life cycle - maturity.
This is the time of maximum profitability, when profits can
be used to continue to build the brand.
However, competitor brands from both Kellogg's itself
(e.g. All Bran bars) and other manufacturers
(e.g. Alpen bars) offered the same benefits and this slowed
down sales and chipped away at Nutri-Grain's market
position.
Maturity
Because brand awareness is strong, advertising expenditures
will be reduced. Competition may result in decreased market
share and/ or prices. The competing products may be very
similar at this point , increasing the difficulty of differentiating
the product.

The firm places effort into encouraging competitors'
customers to switch, increasing usage per customer, and
converting non- users into customers.

Sales promotions may be offered to encourage retailers to
give the product more shelf space over competing products.
Decline
Eventually sales begin to decline as the market becomes
saturated, the product becomes technologically obsolete, or
customer tastes change .
If the product has developed brand loyalty, the profitability
may be maintained longer. Unit costs may increase with the
declining production volumes and eventually no more profit
can be made .
During the decline phase, the firm generally has limited
options:
1. Analyze the product , brand & market and then decide.
2. Maintain the product in hopes that competitors will exit . Reduce costs and
find new uses for the product .
3. Harvest it, reducing marketing support and coasting along until no more
profit can be made.
4. Discontinue the product when no more profit can be made or there is a
successor product .

Kellogg's- Decline
Decline - Clearly, at this point, Kellogg's had to make a key
business decision. Sales were falling, the product was in
decline and losing its position.

Should Kellogg's let the product 'die', i.e. withdraw it
from the market, or should it try to extend its life?


Strategic use of the product life cycle

Strategically, Kellogg had a strong position in the market for both
healthy foods and convenience foods.

Nutri-Grain fitted well with its main aims and objectives and
therefore was a product and a brand worth rescuing.

This meant developing an extension strategy for the product.
Ansoffs matrix is a tool that helps analyze which strategy is
appropriate. It shows both market-orientated and product-
orientated possibilities.
Ansoffs matrix
Extending the Nutri-Grain cycle
identifying the problem
Kellogg had to decide whether the problem with Nutri-Grain was the market,
the product or both.

The market had grown by over 15% and competitors market share had
increased while Nutri-Grain sales in 2003 had declined.

The market in terms of customer tastes had also changed more people
missed breakfast and therefore there was an increased need for such a snack
product.

The choice of extension strategy indicated by the matrix was either product
development or diversification.

Diversification carries much higher costs and risks. Kellogg decided that it
needed to focus on changing the product to meet the changing market needs.
Extending the Nutri-Grain cycle
identifying the problem
Research showed that there were several issues to address:

1. The brand message was not strong enough in the face of
competition. Consumers were not impressed enough by the
product to choose it over competitors.
2. Some of the other Kellogg products (e.g. Minis) had taken the
focus away from the core business.
3. The core products of Nutri-Grain Soft Bake and Elevenses
between them represented over 80% of sales but received a
small proportion of advertising and promotion budgets.
4. Those sales that were taking place were being driven by
promotional pricing (i.e. discounted pricing) rather than the
underlying strength of the brand.
Implementing the extension strategy
Fundamental to the re-launch was the renewal of the brand
image. Kellogg looked at the core features that made the brand
different and modeled the new brand image on these.

Nutri-Grain was unique as it is the only product of this kind that is
baked. This provided two benefits:
the healthy grains were soft rather than gritty
the eating experience is closer to the more indulgent foods that people
could be eating (cakes and biscuits, for example).

Hence the focus of the brand, needed to be the soft bake.
Implementing the extension strategy
Researchers also found that a key part of the market was a group
termed realistic snackers. These are people who want to snack
on healthy foods, but still crave a great tasting snack.
The re-launched Nutri-Grain product needed to help this key
group fulfil both of these desires.
Kellogg decided to re-focus investment on the core products of
Soft Bake Bars and Elevenses as these had maintained their
growth (accounting for 61% of Soft Bake Bar sales).
Three existing Soft Bake Bar products were improved, three new
ranges introduced and poorly performing ranges (such as Minis)
were withdrawn.
New packaging was introduced to unify the brand image.
An improved pricing structure for stores and supermarkets was
developed.
The Marketing Mix
Product improvements to the recipe and a wider range of
flavors, repositioning the brand as healthy and tasty, not a
substitute for a missed breakfast.

Promotion a new and clearer brand image to cover all the
products in the range along with advertising and point-of-sale
materials.

Place better offers and materials to stores that sold the product.

Price new price levels were agreed that did not rely on
promotional pricing. This improved revenue for both Kellogg and
the stores.
The Result

As a result Soft Bake Bar year-on-year sales went from a
decline to substantial growth, with Elevenses sales
increasing by almost 50%.

The Nutri-Grain brand achieved a retail sales growth
rate of almost three times that of the market and most
importantly, growth was maintained after the initial re-
launch.
Nutri-Grain 2005
Nutri-Grain 1994
Nutri-Grain 2005-2010
Nutri-Grain 2010
Nutri-Grain Vampires : Mortons -1
Stretched PLC
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Time
Stage 1: Gestation
This is also called the New Product development
phase.
With accelerating technological changes and
increased competition, companies are forced to
launch newer products continuously & quickly.
As a result , the products are either still-born or
survive for a very small time before they are replaced
with newer products.
Moreover, Mckinseys research in the 1990s showed
that time to market is more important than the
budget compliance.
Stage 1: Gestation
The research takes into account PLC of 5 years
, annual growth of 15% and a price erosion of
12% per annum.
The conclusions are that a firm bringing a new
product on budget but 6 months late would
forfeit almost 50% of its profit potential .
While a company with an over-run of 50%
would forfeit only 4% if the product is brought
out on time.
Too Early ??
GO Corporation (1987) was one of the most well-
funded startups of its time, with a mobile operating
system and pen-based computers that were surprisingly
good.
Stiff competition from Apple & Microsoft
GO struggled, In 1994, was acquired by AT&T due to
cash crisis
It was a forerunner to the runaway success of the Palm
Pilot, and in many ways of later touch-based computing
devices like the iPhone or the iPad. It was just too early.

There are a long list of products on the web like
sixdegrees.com, webTV etc.
More Notes on PLC
Stage 2: Introduction
In 1960, Theodore Levitt Marketing Myopia
commented that consumers are continuously searching
for newer and better ways of satisfying their needs.
This alone should drive the companies to innovate and
introduce products and those companies that understand
the needs of the customer better are more likely to
overcome the hurdles in the infancy stage.

(Close to the customer- Peters & Waterman In Search of
Excellence)
Stage 2: Introduction
The following are some of the marketing mix implications of the introduction stage:

Product - one or few products, relatively undifferentiated

Price - Generally high, assuming a skim pricing strategy for a high profit margin as the
early adopters buy the product and the firm seeks to recoup
development costs quickly .
In some cases a penetration pricing strategy is used and introductory prices are set
low to gain market share rapidly .

Distribution - Distribution is selective and scattered as the firm commences
implementation of the distribution plan.

Promotion - Promotion is aimed at building brand awareness. Samples or trial
incentives may be directed toward early adopters.
The introductory promotion also is intended to convince potential resellers to carry
the product .
Stage 3: Growth
The growth period is one of particular dynamism because it
offers the opportunity for new entrants to take on the
established suppliers and win market share.

The growth stage is a combination of push (supply) and pull
(demand) at work.

In the pull side , the new customers like to display the product
and discuss with others about it leading to a viral WoM.

But at the same time potential suppliers would not want to
miss a piece of the cake !!

Stage 3: Growth
During the growth stage, the goal is to gain consumer preference and
increase sales.

The growth stage is a period of rapid revenue growth. Sales increase as
more customers become aware of the product and its benefits and
additional market segments are targeted.

Once the product has been proven a success and customers begin asking
for it, sales will increase further as more retailers become interested in
carrying it .

The marketing team may expand the distribution at this point .

When competitors enter the market, often during the later part of the
growth stage, there may be price competition and/ or increased
promotional costs in order to convince consumers that the firm's product
is better than that of the competition .

Stage 3: Growth
The marketing mix may be modified as follows:

Product - New product features and packaging options; improvement of
product quality.

Price - Maintained at a high level if demand is high, or reduced to capture
additional customers.

Distribution - Distribution becomes more intensive. Trade discounts are
minimal if resellers show a strong interest in the product .

Promotion - Increased advertising to build brand preference.
Stage 4: Maturity
During the maturity stage, the primary goal is to maintain
market share and extend the product life cycle .

Maturity occurs when the new product has successfully
displaced the product for which it was a substitute and
competitors have also switched to the replacement or quit.

The maturity stage is the most profitable . While sales
continue to increase into this stage, they do so at a slower
pace.
Stage 4: Maturity
Because brand awareness is strong, advertising expenditures
will be reduced. Competition may result in decreased market
share and/ or prices. The competing products may be very
similar at this point , increasing the difficulty of differentiating
the product.

The firm places effort into encouraging competitors'
customers to switch, increasing usage per customer, and
converting non- users into customers.

Sales promotions may be offered to encourage retailers to
give the product more shelf space over competing products.
Stage 4: Maturity
Marketing mix decisions may include :

Product - Modifications are made and features are added in order to
differentiate the product from competing products that may have been
introduced.

Price - Possible price reductions in response to competition while avoiding a
price war .

Distribution - New distribution channels and incentives to resellers in order to
avoid losing shelf space.

Promotion - Emphasis on differentiation and building of brand loyalty .
Incentives to get competitors' customers to switch .
Stage 5: Saturation
Advanced stage of Maturity.

The pareto principle kicks in with a large number of
smaller firms contributing to 20% of the sales.

The PIMS study of doubled profitability with a 15%
increase in market share becomes more apparent.

There will be price stability with major players
avoiding head on price conflict with the market
leader.
Stage 5: Saturation
Niche segments catering to specific needs of the
customers will emerge and charge premium.

The greatest reward is that now is the time to reap
rewards since all the suppliers have established
themselves and are at peaceful co-existance
mode.

However the greatest danger is complacency . Any
slackness in terms of correct deployment of
resources could cause a huge set-back.
Stage 6: Decline
Eventually sales begin to decline as the market becomes
saturated, the product becomes technologically obsolete, or
customer tastes change .
If the product has developed brand loyalty, the profitability
may be maintained longer. Unit costs may increase with the
declining production volumes and eventually no more profit
can be made .
During the decline phase, the firm generally has three
options:
1. Maintain the product in hopes that competitors will exit . Reduce
costs and find new uses for the product .
2. Harvest it, reducing marketing support and coasting along until no
more profit can be made.
3. Discontinue the product when no more profit can be made or there
is a successor product .
Stage 6: Decline
The marketing mix may be modified as follows:
Product
The number of products in the product line may be reduced.
Rejuvenate surviving products to make them look new again .

Price
Prices may be lowered to liquidate inventory of discontinued products.
Prices may be maintained for continued products serving a niche
market.

Distribution - Distribution becomes more selective. Channels that no
longer are profitable are phased out.

Promotion - Expenditures are lower and aimed at reinforcing the brand
image for continued products.