IGCSE Business Studies - 3.3.1 Product

Objective: Recommend and justify an extension strategy to use in a given situation

Understanding Product Extension Strategies

Product extension strategies are ways businesses can keep their products appealing to customers for a longer period. This helps maintain sales and profitability. They are particularly important in industries where technology changes rapidly or consumer tastes evolve.

There are several common product extension strategies. The choice of strategy depends on the product type, the market, and the business's resources.

Common Product Extension Strategies

• Product Modification: Making changes to the existing product. This can involve improvements, new features, or alterations to the design.
• New Uses: Finding new ways customers can use the product.
• Price Changes: Adjusting the price to make the product more or less attractive.
• New Market Segments: Targeting different groups of customers who might find value in the product.
• Brand Extension: Using the existing brand name to launch a new product in a different category.
• Packaging Changes: Altering the packaging to improve appeal, functionality, or sustainability.

Justifying a Product Extension Strategy

When recommending a product extension strategy, it's crucial to justify your choice. This involves explaining:

• Why this strategy is suitable for the product and market.
• How it will benefit the business (e.g., increased sales, market share, profitability).
• Potential risks and how they can be mitigated.

Example Situation and Strategy Recommendation

Situation: A company that produces digital cameras is facing declining sales due to the increasing popularity of smartphones with built-in cameras. The market is becoming saturated with smartphone cameras, and consumers are less willing to spend on dedicated digital cameras.

Recommended Strategy: New Uses - Focus on marketing the digital camera for specific, niche applications where smartphones fall short. For example, high-quality photography for professional use, aerial photography with drones, or specialized photography (e.g., wildlife, sports). Also, emphasize the superior image quality and features offered by the camera compared to smartphone cameras.

Justification:

1. Why: This strategy addresses the declining sales by shifting the focus from general-purpose photography to specific areas where the digital camera offers a distinct advantage. It targets a smaller, but more willing-to-spend market segment.
2. How: By highlighting these niche uses, the business can create a stronger value proposition for potential customers. Marketing campaigns can showcase stunning images taken with the camera in these specific scenarios. This can increase demand and maintain sales.
3. Potential Risks: The niche market might be too small to significantly boost overall sales. The business needs to accurately identify and target the most profitable niche segments. Marketing costs for these specific campaigns could be high.

Table Summary of Extension Strategies

Extension Strategy	Description	Potential Benefits	Potential Risks
Product Modification	Improving existing product features or design.	Increased customer satisfaction, competitive advantage.	Development costs, risk of alienating existing customers.
New Uses	Finding new ways customers can use the product.	Expanded market reach, increased sales.	May not resonate with all customers, requires effective marketing.
Price Changes	Adjusting the price (increase or decrease).	Increased revenue (price increase), increased sales volume (price decrease).	Potential impact on brand image, may attract price-sensitive customers.
New Market Segments	Targeting different groups of customers.	Increased sales volume, market share.	Requires market research, may need tailored marketing.
Brand Extension	Using the brand name for a new product.	Leverages brand recognition, reduced marketing costs.	Risk of damaging brand image if the new product fails.
Packaging Changes	Altering the packaging design or functionality.	Improved appeal, functionality, sustainability.	Packaging costs, potential environmental concerns.

Figure: Suggested diagram illustrating the different product extension strategies and their potential impact on sales.