Product Life Cycles

Product Life Cycle..

No of sales

Saturation Maturity

Decline

Growth Launch / Introduction

R&D

Time line

Recap

What is meant by an extension strategy?

Product Life Cycles revision

Sales

Effects of Extension Strategies

Time

Product Portfolio Analysis

Product portfolio analysis looks at the range of products and brands (product portfolio) that a firm has under its control. This type of analysis can help a firm identify where every single one of its products is positioned in the market. Perhaps the most common type of product portfolio analysis that firms use to analyse their product mix is the Boston Matrix. The AQA specification states that students need to know this form of product portfolio analysis.
Richard Branson runs the Virgin Empire. How many different type of products does Virgin have under its control?

2.15 Product

What are the links between these images?

Product Life Cycles and the Boston Matrix

Product Life Cycle shows the stages that products go through from development to withdrawal from the market
Managing

Product Portfolio the range of products a company has in development or available for consumers at any one time

product portfolio is important for cash flow

Product Life Cycles and the Boston Matrix

Product Life Cycle (PLC):

Each product may have a different life cycle PLC determines revenue earned Contributes to strategic marketing planning May help the firm to identify when a product needs support, redesign, reinvigorating, withdrawal, etc. May help in new product development planning May help in forecasting and managing cash flow

Product Life Cycles revision

The Development Stage: Initial Ideas possibly large number May come from any of the following

Market research identifies gaps in the market Monitoring competitors Planned research and development (R&D) Luck or intuition stumble across ideas? Creative thinking inventions, hunches? Futures thinking what will people be using/wanting/needing 5,10,20 years hence?

Product Life Cycles revision

Product Development Stages:

New ideas/possible inventions Market analysis is it wanted? Can it be produced at a profit? Who is it likely to be aimed at? Product Development and refinement Test Marketing possibly local/regional Analysis of test marketing results and amendment of product/production process Preparations for launch publicity, marketing campaign

Product Life Cycles revision

Introduction/Launch: Advertising and promotion campaigns Target campaign at specific audience? Monitor initial sales Maximise publicity High cost/low sales Length of time type of product

Product Life Cycles revision

Growth: Increased consumer awareness Sales rise Revenues increase Costs - fixed costs/variable costs, profits may be made Monitor market competitors reaction?

Product Life Cycles revision

Maturity:

Sales reach peak Cost of supporting the product declines Ratio of revenue to cost high Sales growth likely to be low Market share may be high Competition likely to be greater Price elasticity of demand? Monitor market changes/amendments/new strategies?

Product Life Cycles revision

Saturation:
New entrants likely to mean market is flooded Necessity to develop new strategies becomes more pressing: Searching out new markets:

Linking to changing fashions Seeking new or exploiting market segments Linking to joint ventures media/music, etc.

Developing new uses Focus on adapting the product Re-packaging or format Improving the standard or quality Developing the product range

Product Life Cycles revision

Decline and Withdrawal:

Product outlives/outgrows its usefulness/value Fashions change Technology changes Sales decline Cost of supporting starts to rise too far Decision to withdraw may be dependent on availability of new products and whether fashions/trends will come around again?

Product Life Cycles and cash flow

Sales/Profits PLC and Profits

PLC
Profits Losses Break Even Time

The Boston Matrix

The Boston Matrix

The Boston Matrix:

A means of analysing the product portfolio and informing decision making about possible marketing strategies Developed by the Boston Consulting Group a business strategy and marketing consultancy in 1968 Links growth rate, market share and cash flow

What do these terms mean?

Boston Matrix key terms..

Drawing the Boston Matrix

The Boston Matrix - STARS

Stars products in markets experiencing high

growth rates with a high or increasing share of the market - Potential for high revenue growth

The Boston Matrix Cash Cows

Cash Cows: High market share Low growth markets maturity stage of PLC Low cost support High cash revenue positive cash flows

The Boston Matrix - Dogs

Dogs: Products in a low growth market Have low or declining market share (decline stage of PLC) Associated with negative cash flow May require large sums of money to support

Is your product starting to embarrass your company?

The Boston Matrix - ? Problem child

-

Question mark ??? Or Problem Child: Products having a low market share in a high growth market Need money spent to develop them May produce negative cash flow Potential for the future?

Problem children worth spending good money on?

The Boston Matrix

Market Growth HighProblem Children

Stars

Dogs

Cash Cows

Low

Market Share High

What stage of the Boston Matrix are these at?

Put these onto a grid

Boston Matrix Grid

Market Growth

Problem Children
High

Stars

Dogs

Cash Cows

Low

High Market Share

Boston Matrix Grid

Market Growth

Problem Children
High

Stars

Dogs
Video

Cash Cows

Low

High Market Share

The Boston Matrix

Implications: Dogs:

Are they worth persevering with? How much are they costing? Could they be revived in some way? How much would it cost to continue to support such products? How much would it cost to remove from the market?

The Boston Matrix

Implications: Problem Children:

What are the chances of these products securing a hold in the market? How much will it cost to promote them to a stronger position? Is it worth it?

The Boston Matrix

Implications: Stars:

Huge potential how? May have been expensive to develop why? Is it worth spending money to promote? What issues are there with product life cycle?

The Boston Matrix

Implications: Cash Cows:

Why are they cheap to promote? Generate large amounts of cash are these used for further R&D? Do you think there are any costs of developing and promoting these products? Is there a need to monitor their performance the long term? What stage of the PLC are these at?

The Product Life Cycle and the Boston Matrix

Sales (1) (2) (3)

Importance of (3) Cash from C (2) A is at maturity maintaining a (1) Cash from B The product used tocash cow. balance support used to of products stage support portfolio D and growth of funds for in throughfour Generates growth Cthe portfolio at productsto finance possibly stages of different in the of the development stage and to portfolio Boston the PLC D.strategy extension A now D launch Matrix helps with the for B? a dog? possibly analysis

C
Time

Place these eateries on a Boston Matrix grid.

McDonalds (global brand) Chick King (lesser known chicken restaurant) KFC Burger King Woodies Restaurant Chichester, (small but popular restaurant) Little Chef MGM Hotel Restaurant, Las Vegas (huge brand, single mega hotel) Subway A deli in London (small but popular deli) A hot dog stand in Brighton (cheap but low quality).

Boston Matrix Grid

Market Growth

Problem Children
High

Stars

Dogs

Cash Cows

Low

High Market Share

SBU Classification Dogs (Low Share, low Growth

SBU Characteristic Generate low profit or losses Consume more management time

Strategy Divest

Strategy Characteristic Sell or liquidate the business because resources can be better used elsewhere

Question Marks
(Low share , High Growth)

Requires a lot of cash flow for fast growth Continue investing or withdraw from market

Build/ Harvest

Increase the SBU market share or short term cash flow and eliminate R&D expenditure

Stars(High Share, High Growth)

Generate large amount of cash Competitors attack on SBU Generate considerable sums of cash Enjoy economies of scale and higher profit margins

Build

Increase the SBUs market share

Cash Cows

Hold/ Harvest

Preserve the SBU / a market share or increase the short term cash flow and involve eliminating R&D expenditure

The Boston Consulting Group SBU Classification & Suggested Strtegies

Limitation of BCG Matrix

The assumption that cash flow will be determined by a products position on the matrix is weak. Some stars will show a healthy positive cash flow as will some dogs in markets where competitive activity is low. Treating market growth rate as proxy for market attractiveness and market share as indicator of competitive strength is over simplistic. Other factors like market size, brand strength are also important When competitive retaliation is likely, cost of share building outweigh gains. Therefore excess stress on market share may be harmful. The analysis ignores interdependence among products. A dog may complement a star. Customer may want a full product line. Dropping a product because they fall in a box may be nave. Some products have a short PLC and profits should be maximized in the star stage instead of building them.

7 Protect Position Invest to Build Build Selectively Selectively Manage for Earnings Manage for earnings 4.6 6 2.33 Limited expansion for harvest Divest

4.6 6
2.33

Build Selectively Protect and Refocus 7

Business strength Business strength is an indicator of the ability of the company to compete in each of the markets being analyzed. Business strength can depend on a number of factors including: Soundness of financial structure able to invest in markets and weather downturns. Quality products that are both desirable and affordable within the market in question. Flexibility in being able to adapt to market conditions. Innovative ability in creating products and adapting marketing to compete well the target market. The ability to grow quickly, for example with spare capacity at hand. Fit with government concerns, such as lower energy usage.

Industry/market attractiveness

The attractiveness of the market indicates the desirability for the company to enter and compete within each market being analyzed. Factors that indicate an attractive market include:

Growth rate of market. Potential for profit, both short-term and long-term. Limited serious competition within market. Good infrastructure and other factors

Arthur D Little Model

Strong relationship between

Shareholders Resources Process Organisation

The Arthur D. Little Strategic Condition Matrix C o m Embryoni Growth Mature Ageing pe Defend position cGrow fast Build Grow fast Aim for Defend position cost leadership increase the T Dominant barriers Act Focus Consider Defend position Act importance of cost offensively. withdrawal I offensively. Act offensively. T Lower cost Grow fast Lower cost I Differentiate Attack Harvest Differentiate Differentiate Strong small firms V Focus e
P Favorable o S I Tenable T I on Weak
Grow fast Differentiate
Focus Differentiate Defend

Focus Differentiate Harvest Hit smaller firms

Grow with the industry Focus Search for a niche Attempt to catch other markets

Hold on or withdraw Niche Aim for growth

Niche Hold on or withdraw

Withdraw

Niche or withdraw

Withdraw

Withdraw

Stage of Industry Maturity

Portfolio Management Models

Advantage

Companies can plan strategically Understanding economics is easy Better plans can be made Can spot information gaps Better communication between units and management Can eliminate weak business and strengthen strong business

Disadvantages

Too much emphasis on market share and growth Too little importance on current business Results depend on ratings and weights Two business can share the same spot in spite of differing on individual ratings