Product Life Cycle and Portfolio Analysis: Understanding the BCG Matrix and Branding, Diapositivas de Economía

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4.5 THE FOUR P’s

PREPARED BY CARLOS VARGAS, FOR LOGOS ACADEMY. GYE, 2015

INTRODUCTION

 So far, we covered Marketing Mix 101 as we can

identify the basics of each element in the marketing

mix.

 Each element (product, price, place, promotion)

contains new features to undercover throughout

the unit.

PRODUCT

 A product is any good (tangible item) or service (intangible

offering) that is offered in the market with the aim of satisfying

consumer needs and wants.

 In this element, we are studying four sub topics:

 (^) Product Life Cycle  (^) Product Portfolio Analysis  (^) Branding  (^) The 8th^ P

THE PRODUCT LIFE CYCLE

 A cycle that shows the course that a product takes from its

development to its decline.

THE PRODUCT LIFE CYCLE

Stage 2: Introduction  (^) Launch stage of the product into the market.  (^) Sales are low because most consumers are not yet aware of the product’s existence.  (^) Cost incurred in the launch are high, therefore no profits are normal on this stage. Cash flow is negative.  (^) If a product uses brand-new technology, price skimming is applied. Stage 3: Growth  (^) Sales volume and value start increasing significantly. Therefore, profits are rising and cash flow becomes positive.  (^) Consumers are attracted by products as advertising becomes persuasive.  (^) Pricing strategies must be set as competition tends to appear.

THE PRODUCT LIFE CYCLE

Stage 4: Maturity  (^) Sales continue to rise but they do so slowly  (^) Product is well established with a stable and significant market share with positive cash flow. Sales revenue is at its peak and profit is high.  (^) Competitors want to take part of the market share, while the business starts thinking about introducing extension strategies. Stage 5: Saturation  (^) By this time, competitors have entered the market and saturated it.  (^) Sales are at their highest point and begin to fall. Cash flow is still positive.  (^) Some businesses were forced out of the market as a result of stiff competitions.  (^) Prices will have to be reduced.  (^) Firms use extension strategies to stabilize market share.

THE PRODUCT LIFE CYCLE / EXTENSION STRATEGIES  (^) These are attempts by firms to stop sales from falling by lengthening or extending the product’s life cycle. This is normally done in the maturity or saturation stage.  (^) Sell existing products to new markets.  (^) Find new uses for products. i.e. cellphones.  (^) Change product packaging (new design, appearance, color to stimulate interest in customers).  (^) Develop new promotional strategies. In simple terms, they could create new advertising campaigns to encourage consumers to continue using heir products).  (^) Target to different market segments.

WRAPPING UP PRODUCT LIFE CYCLE

• The basic product is marketed.

Introduction^ Introduction

• Product improvements or new product development plan starts.

Growth^ Growth^

• New product development is at an advance stage.

Maturity^ Maturity

• Extension strategies are critical to maintain sales.

Saturation^ Saturation^

• Weak products are withdrawn from the market.

Decline^ Decline

PRODUCT PORTFOLIO

ANALYSIS

 Product portfolio analysis is a process that evaluates the

products making up a business.

 A business will want to invest more resources into its profitable

products and phase out the weaker ones.

THE BOSTON CONSULTING GROUP (BCG) MATRIX  (^) The BCG is the most common tool for businesses to analyze their product portfolios.  (^) It was developed in the 1970s by the Boston Consulting Group.  (^) This matrix works with two variables measuring the market growth rate (vertical axis) and the market share (horizontal axis)  (^) Market growth rate shows how attractive is a product in the market while relative market share looks at how much of the market a product has captured.

THE BCG MATRIX

Stars

 A star has high market share and high market growth.

 They are successful products in the market and generate high

amounts of income to the business. However, they need a high

level of investment to sustain their rapid growth and status in

the market.

 Once these products get matured and their market growth

slows down, they eventually turn into cash cows.

THE BCG MATRIX

Cash Cows  (^) A cash cow is a product with low market growth and high market share.  (^) Cash cows are to be milked.  (^) They are well-established products in a mature market and, as a result, businesses invest less to hold on to their market share.  (^) The sales are really high and very profitable so they generate good amounts of cash for the business.  (^) A good strategy for cash cows is that, as they have strong presence in the market, firms can even charge slightly higher prices to increase profit margins.

THE BCG MATRIX

Dogs  (^) A product classified as a dog has low market share and low market growth.  (^) Very few businesses want to have dogs in their portfolios.  (^) These products generate low income for the business and also their chances of them to gain market share are very limited as the market itself is not growing.  (^) If a business has many “dog” products may face cash-flow problems.  (^) Businesses tend to get rid of dogs unless the products have secondary benefits, such as being a necessary part of product line that is profitable overall.

THE BCG MATRIX

Source: http://dunkindonutsnews.blogspot.com/2014/01/boston-matrix.html