As a result of the study of Chapter 5, the student must:
• marketing solutions for the assortment;
• the content of category management taking into account the system of ECR relations;
• models for evaluating the organization's assortment;
be able to
• introduce a system of basic principles of assortment policy in business activities, taking into account the influence of internal and external factors of the market environment;
• to generalize and supplement the conceptual apparatus characterizing the formation of the assortment structure, defining the conditions and the basic system elements, specifying the process of formation of consumer value and economic effect;
• a methodology for studying the processes of building an assortment policy, ways to determine its relationship with corporate objectives and marketing strategies of the company.
The order of the assortment of goods. Product mix structure
Assortment policy - activities related to the planning and implementation of a set of activities and strategies for building competitive advantages through the implementation of the concept of positioning in order to ensure the appropriate profit of the enterprise.
In the strategic plan, the assortment policy of the enterprise must proceed from the concept of the product life cycle, i.e. from the fact that each product has a certain period of market stability, characterized by the volume of its sales in time.
An important element of the assortment policy is the timely introduction of changes in the assortment card, which are based on the accounting of the consumer value of the goods and expand the range of its possible buyers.
Based on market research and the prospects for its development, the company receives initial information for solving issues related to the formation, planning of the assortment and its improvement.
Assortment of goods - the basic set (list) of goods, united by any sign: specialization, price, reputation, etc. The formation of the optimal range that promotes profit growth over a long period is relevant for enterprises seeking to be competitive.
Creating an assortment - activities to compile a set of products that meet real or projected needs, and achieve the goals defined by the organization's management.
The trading range is a nomenclature of goods that are subject to sale in the retail trade network. It includes an assortment of goods produced by many enterprises and is divided into two commodity branches: food and non-food products. Given the complexity of the assortment, products of simple and complex assortment are distinguished.
The process of forming an assortment of goods can be conditionally divided into three stages.
1. The aggregated assortment of goods is established - the goods united by common characteristics into certain aggregates (class, group, type of goods), i.e. the assortment profile of stores is determined. This work is carried out taking into account the current principles of placement of retail trade network and on the basis of marketing research in the field of the target market. Then determine the place and role of the store in the general system of trade services of the city, district, etc.
2. Establishment of a quantitative correlation of individual groups of goods in a store, i.e. the structure of the enlarged assortment is calculated.
3. A expanded range is defined, i.e. the selection of specific varieties of goods of each group on different grounds is carried out. At the same time, each store must ensure that the proposed range of goods meets the demand of the population. Consider also the influence of various factors on the construction of an assortment of goods at each particular retail trade enterprise.
By product range is understood the totality of all goods and services produced and (or) sold by the firm. Each company seeks to optimize the product range, i.e. it should include only those goods and services, production and marketing of which, on the one hand, are oriented to the needs of the market, and on the other - positively influence the growth of the enterprise, bring it profit and make it competitive. In general form with the structure of the product range of the company can be found in Fig. 5.1.
As you can see in Fig. 5.1, the product range can consist of individual goods and their groups, to which services are added. Each product group may include products related to the application, for example, cosmetic products or detergents, etc.
Fig. 5.1. The structure of the product range of the company
Each commodity group (product mix) can include individual goods and product lines (product line). A product series means a combination of goods , having the same name and purpose, but differing from each other in characteristics and prices. For example, there may be a fairly large number of shampoos from the cheapest to the most expensive.
Services included in the product range of the company can be divided into two groups:
• not related to the maintenance of goods sold by the company;
• included in the maintenance of goods sold by the company.
The program of marketing of trade includes managerial decisions on a commodity assortment. To them it is possible to carry:
• decisions about the breadth of the range, i.e. number of the groups of goods and services included in it;
• decisions about the length of the product line of a specific product or the level of service delivery.
Decisions about the breadth of the product range should be taken based on a simple consideration that it is too narrow if you can increase profits by expanding it and too broad if you can increase profits by narrowing it. This fits well within the scope of determining the assortment policy of the firm given above.
To a wider range, those companies want to increase their market share and ensure stable profitability in the long term. Companies interested in obtaining high short-term profits tend to narrow their range to individual products.
The assortment can be expanded by increasing the product groups related to one industry (for example, to the existing car groups added a new one). You can also increase the number of product groups related to other industries (for example, to the group of space products to add household goods, jewelry, fashionable clothes, etc.).
Expanding the range through the transition to other industries is called diversification . It gives advantages in the competitive struggle, as it increases the possibility of maneuvering in a changing market environment, provides a stable market share, reduces the risk associated with preserving new products, improves the use of R & D results, allows the company to grow by introducing into other industries, etc. .
Decisions on the expansion of the product range are taken to better cover the market and meet various customer requests. This leads to an increase in sales and profits.
The product line can be expanded downward or upward or simultaneously down and up. Variants of the expansion of the product range in the coordinates "quality - price & quot; are shown in Fig. 5.2. The downward expansion is carried out when a company operating in the upper market segment wants to work also in the lower one. In this case, it first creates its own image of high-quality and expensive, and then distributes its activities to a segment where lower prices and not so high quality are required. Sometimes this expansion is connected with the desire to occupy a free niche in the lower segment. Thus, Xerox expanded the product line of copiers by adding small devices to it when their market began to develop at a fast pace.
Fig. 5.2. Options for expanding the product range
When expanding down, the following problems may occur:
1) new cheaper products can become competitors to existing ones, and the cannibalism effect can arise;
2) the consumer, accustomed to the fact that the company produces high-quality and expensive products on the market, can be confused about the image of the company and its product.
Expansion is carried out when there are attractive opportunities in the upper market segment (for example, higher growth rates) or when the firm wants to increase the prestige of existing products.
The decision to expand up may be risky. Competitors who have good positions and experience in the upper segment, can go into a counterattack and even break into the lower segment of the market. Sales representatives and distributors may simply not have the skills and knowledge to serve the upper market segment. And, finally, potential buyers may not believe that a new company on the market is capable of producing high quality goods.
Solutions related to the product life cycle. In accordance with the product life cycle on the market, the product range includes products that:
• are successfully marketed;
• must be modified in accordance with the requirements of an already mastered market or for introduction to a new market;
• It is necessary to withdraw from production, as it does not meet the requirements of buyers;
• You need to master (new products).
The transition from one stage of the life cycle to another is usually explained by significant changes in the growth rates of sales and profits. The definition of these changes is one of the important tasks of the marketing function of the enterprise. On this basis, appropriate adjustments are made to the assortment program of the enterprise. Below are the main stages of the life cycle of a product (LCT).
1. Deployment phase. This phase is characterized by a slow growth in sales and maximum spending on marketing activities, namely:
1) attracting potential consumers to the novelty (according to analysts at this stage, you can predict only 5-7% of sales to the target audience of "super-innovators");
2) the reorientation of traditional buyers who use long-time analogous products produced by competitors;
3) the formation of the optimal level of the selling price per unit of the product, which can fluctuate depending on the cost price of the goods, the competitive price, the influence of the fashion, etc.
4) organization of publicity, presentations, advertising campaigns.
This stage of the LCT involves active promotion of the brand, the creation of a merchandising system with sales promotion elements, the development of safety standards for production, labor, environmental protection.
From the vast arsenal of operational strategies in the practice of managing marketing activities, the following are used:
• The strategy of intensive marketing, which involves setting a high price for a novelty, taking into account the high marketing costs for maximizing profits in a short payback period, as well as lack of competition or a small level of it;
• The strategy of broad penetration is characterized by the establishment of a low price for a new product with a high level of costs for sales promotion; it provides the fastest penetration to the market and the winning of its maximum share and is optimal in a highly competitive environment, with low solvent demand and large reserve corporate capabilities of the firm;
• The selective penetration strategy is implemented by mastering various market segments and a combination of the first two strategies, i.e. due to the variation in sales prices, taking into account the costs of sales promotion and the level of competition.
2. Stage of growth. It is characterized by an increase in sales volumes, making repeated purchases. Prices are stabilizing, but there is a tendency to decline. This stage involves planning and management decisions of strategic marketing related to the improvement of the sales promotion system, promotion of the brand, the implementation of franchising as a lease of the trademark. Marketing costs are less than in the first stage, but still at a fairly high level.
3. Saturation stage. As a result of competitive influence, the initial growth rates of demand intensity slow down. At this stage, the strategic goal is to increase the market share, corporate influence in the target segment and search for new sales segments. Expenses are stabilized, incomes are maximum. This stage involves the release of new products, the modernization of traditional.
The saturation stage is the most prolonged in comparison with all other stages of the JTS, and the firm is certainly interested in it. As a rule, it lasts longer when selling industrial goods, and the manufacturer strives to stretch it as much as possible.
4. Stage of decline. There is a clear reduction in sales, revenues and increased costs for repeated marketing campaigns in the field of advertising, publicity. It implements strategies for modifying the market, goods and marketing complex.
The strategy of market modification involves the development of new segments due to attracting potential buyers as a result of a profitable demonstration of novelties, effective merchandising, participation in fairs (exhibitions).
When using the product modification strategy, new consumer characteristics are created that increase the functional significance, design, and styling. For example, nylon, a well-known product, has undergone various stages for two centuries-its consumer characteristics and purpose have changed (from sewing men's shirts and lingerie to making carpets and car tires).
In the course of implementation of the strategy of modification of the marketing complex, corporate efforts are aimed at developing commodity, chain, communication and service policies, intensifying relations with the public and the media. New forms of sales are being created, in particular, individualization of orders, personalization of sales takes place.
5. The stage of withdrawal from the market. Assumes a strategic decision based on the principle of "either-or"; take planning and management decisions or continue market participation, despite the unprofitability and high marketing costs, or the timely withdrawal from the market, the termination of the production cycle of traditional goods and services.
The harvesting strategy & quot; involves a sharp reduction in costs, the use of conversion marketing, aimed at minimizing market participation and organizing a profitable sale, perhaps at reduced prices, but in large volumes. All this leads to the removal from the conveyor of obsolete products and development of new products, which was developed at the stages of growth and saturation.
The appearance of the goods from time to time can change, a new package is created, or an advertising campaign is launched to prolong the maturity stage and delay the onset of the recession (Figure 5.3). Depending on the specifics of individual types of products, the characteristics of demand for them, there are different types of product life cycles: boom, hobby, fashion or seasonality, nostalgia, failure (Figure 5.4).
Curve & quot; boom & quot; describes an extremely popular product with stable sales for a long time. Curve & quot; fascination & quot; is characterized by a sharper focus than the "boom".
Curve & quot; seasonality & quot; occurs when the goods are sold well during periods spaced in time. Curve & quot; dip & quot; reveals the behavior of the product, which generally does not have market success.
It is very important to ensure a situation in which the company's achievements, its profitability will not depend on the life cycles of individual goods. In Fig. 5.5 shows the goods A, B, C, D, which are introduced to the market in such a time sequence that the values of the sales volume and profit of the firm do not decrease.
Commodity policy essentially depends on the ratio between the growth rate of sales volume and the relative market share in comparison with the main competitors. Based on this Boston Consulting Group (BCG) , a matrix was proposed that allows you to plan a balanced portfolio of goods and (or) services.
If brand A owns 10% of the market, where the largest competitor (brand B) owns a 20% stake, then the A-share is 0.5 (10/20). This is a low market share, since it is less than one. For brand B, the relative market share as compared to brand A is equal to
Fig. 5.3. Product lifecycle extension
Fig. 5.4. Life Cycle Types by J. Evans
Q - sales volume, t - time
two (20/10). A high growth rate of sales is considered to be an increase of 10%.
The reference to the notion of relative market share is based on the hypothesis of a high degree of correlation between market share and profitability (more market share - more profitability). From this point of view, ownership of 20% of the market, when the nearest competitor has 40 or 5%, correlates with completely different competitive situations.
So, each of the four quadrants has its own group of products, which requires a certain approach from the point of view of financing and development of a marketing strategy.
1. If the growth rate of sales and the relative market share are large, then such a product brings the company significant profits, and it, in turn, pursues a policy aimed at strengthening the position of its products in the market and does everything possible to ensure that the growth rate of its sales volume does not decrease . Such goods but the BCG classifications are called & quot; stars & quot ;.
2. If, with increasing sales, the market share of the product is still low (which is typical for products that are at the stage of introduction to the market), then it is called "problematic". Such goods do not bring high profits, however
Fig. 5.5. Market introduction
need considerable investment to increase their market share in order to turn into "stars", due to which you can earn income.
3. Goods with a low sales growth rate, but with a significant market share (maturity), can generate significant profits if they themselves do not need investments to maintain a market share. These include fairly popular products with stable sales for a long time. They can serve as a source of financing for other commodity groups, therefore they are called "dairy cows". Typically, profits from "milk cows" are used to maintain the "stars" and & quot; problem products & quot ;. With insufficient investment, the & quot; star & quot; can lose the leader's position and move into the group of problematic goods, and the TC into the group of "losers."
4. When the growth rate of sales and the market share decrease (the decline phase), then such goods are called "losers" or & quot; dogs & quot ;. They can sometimes go into one of the three groups discussed above, especially if they decide to enter new markets with them. On their former in most cases it is advisable to remove from production and sales. Excess of aging goods indicates the danger of a recession, even if the current performance of the firm is positive.
Analyzing the position of goods on the quadrants of the matrix, you can evaluate what should be a favorable for the company portfolio of goods. Ideally, it should consist of products that can provide free cash, and from goods that are at the stage of introduction to the market and (or) growth, capable of ensuring the long-term interests of the firm. At the same time, the financing of the second group is carried out from the funds given by the first. However, it should be remembered that an excess of new goods can lead to financial difficulties.
Focusing only on the relative market share and the growth rate of sales on it can lead to a major error in making decisions that determine the company's product policy.
Judging by the very high growth rate of sales, the portable computer market is very promising. However, rapid changes in demand, pricing policy, high rate of aging, intensity of competition make it very risky and, accordingly, less attractive.
In this case, the firm can have a significant competitive advantage due to the brand image, technological leadership, a powerful commercial organization, etc., even if the market share belonging to it is small compared to the most powerful competitor.
When IBM introduced its personal computer in Europe, its market share was zero and, accordingly, the competitiveness of the Boston Consulting Group was low. But many analysts, considering the company's reputation in the computer market, huge technological potential, available resources and the will to win, assessed its competitive capabilities as very high and did not make the mistake.
Therefore, to make decisions that determine the commodity policy, in addition to using the BCG matrix, it is necessary to take into account additional factors and indicators (internal and external), as done, for example, in Table. 5.1.
Product Prospects Assessment
Average arithmetic estimates in graphs 3-6
Estimate prospects (columns 3, 4, 5, 6) can be on a four-point scale: "4" - very good, & quot; 3 & quot; - Medium, & quot; 2 & quot; - worsening, & quot; 1 & quot; - The bad. In this table can be added graphs, with which you can take into account the specifics of the enterprise. In addition, column 5 can be divided into several subgraphs (for example, raw materials and materials, personnel, technical support, suppliers, etc.) and for each of them to assess the prospects.
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