1.3.5 Marketing Strategy

Question 1

what is the Product Life Cycle?

Answer 1

A model which describes / predicts the stages a product goes through during its life.

Question 2

What are the 5 stages of the product life cycle?

Answer 2

1. Research & Development
2. Introduction
3. Growth
4. Maturity
5. Decline

Question 3

How can using the product life cycle help a business?

Answer 3

• Forecast sales trends
• Market targeting and positioning
• Analyse and manage a product portfolio
• Focus investment in products

Question 4

What happens during the Research and Development stage?

Answer 4

• The research and development (R&D) department develop the product.
• The marketing department does market research
• The costs are high, and there aren’t sales yet to cover the costs
• Negative cash flow
• Development has a high failure rate. This is because there’s often not enough demand, or because
  the business cannot make the product cheaply enough to make a profit.

Question 5

What happens during the introduction stage?

Answer 5

1. The product is launched, either in one market or several markets.
   It’s sometimes launched with complementary products - The playstation was launched with games
2. In the introduction stage sales are at its lowest
   The business needs mass advertising to build sales
3. Initial price of product may be high to cover promotional costs (Price Skimming)
   Alternatively, the price can start off low to encourage sales (Penetration Pricing)
4. Negative Cashflow

Question 6

What happens during the growth stage?

Answer 6

1. Sales grow fast.
   There are new customers and repeat customers
   Rising sales encourage more outlets to sock the product
2. Unit costs fall with economies of scale
3. The market grows, profits rise but attracts the entry of new competitors

Question 7

What are the strategies for the growth stage?

Answer 7

1. Promote brand awareness
2. Intensive distribution - many new outlets
3. Market penetration
4. Wider target customer base
5. Improve the product - new features, improved styling

Question 8

What happens during the maturity stage?

Answer 8

1. Sales reach a peak and profitability increases because fixed costs and development have been
   paid for.
   Slower sales growth as rivals enter the market
2. At saturation (when the market is full and has reached maximum growth) sales may begin to drop,
   depending on the product.
3. There aren’t many new customers. Competition within the market becomes fierce so sales might
   fall.
4. Extension strategies are being considered
5. Cashflow should be strongly positive (less need for investment and marketing)
6. Prices start to fall

Question 9

What are the strategies for mature products?

Answer 9

1. Manage capacity and production
2. Promotion focuses on differentiation
3. Intensive distribution
4. Adopt extension strategies
   - -> Attract new, late customers
   - -> Develop new uses
   - -> Reposition in the market

Question 10

What happens during the decline stage?

Answer 10

1. The product doesn’t appeal to customers anymore. Sales fall rapidly and profits decrease.
   On the other hand, product may stay profitable if promotional costs are reduced enough.
2. Weak cash flow
3. Excess capacity and rising unit costs

Question 11

What are the strategies for the decline stage?

Answer 11

1. Maintain market share of what is left
2. Minimise marketing spend
3. Cut prices to stay competitive
4. Support loyal customers

Question 12

What is an extension strategy?

Answer 12

Strategies used to increase the sales / extend the life of a product, and so extend its life cycle.

Question 13

What are the two main extension strategies?

Answer 13

1. Product
   –> Product development involves businesses improving, reformulating or redesigning a product.
   They can change the design to make it look more up to date, or making special editions of the
   product. They can also give a new focus to existing marketing campaigns.

2 Promotion
–> A business can change the way it promotes the product - for example, by running a new ad
campaign, or by using special offers or competitions

Question 14

What are Product Lines

Answer 14

A group of products with very similar characteristics, uses or target customers.

Question 15

What is a Product Portfolio?

Answer 15

The combination of all the product lines that a business produces.

Note: For example, the Nestle KitKat product line includes 2 Finger KitKat, 4 Finger KitKat, KitKat
chunky, etc.
Nestle’s product portfolio includes all the product lines they make - KitKat, Nescafe, Shredded
Wheat, etc.
Product portfolio is also called the product mix.

Question 16

What is the Boston Matrix?

Answer 16

A 2x2 matrix model that analyses a product portfolio according to the growth rate of the market and the relative market share of products within the market.

Question 17

What are the 4 categories of the Boston Matrix?

Answer 17

1. Star –> High Market Growth & High Market Share
   –> In growth phase and have most potential. They’re future Cash Cows. Competitors are
   likely to take advantage of this growth market, so a business will need to spend a lot on
   promoting their product to keep their market share.
2. Question Mark –> High Market Growth & Low Market Share
   –> New products are question marks. Not yet profitable and could succeed or fail.
   Heavy marketing is needed.
3. Cash Cow –> Low Market Growth & High Market Share
   –> In the maturity phase. They’ve already been promoted and they’re produced in
   high volumes, so costs are low. Cash cows bring plenty of money.
4. Dogs –> Low Market Growth & Low Market Share
   –> Pretty much a lost cause. If they’re still profitable, the business will harvest profit in the
   short term. If the product is no longer making a profit it can be sold off.

Question 18

What is Market Share?

Answer 18

The proportion of total market sales that a particular business has.

Question 19

What is Market Growth?

Answer 19

The percentage increase in the size of the market in terms of value or volume

Question 20

What are the types of markets are appropriate for marketing strategies?

Answer 20

1. Niche Markets
2. Mass Markets
3. Business to Business (B2B) and Business to Consumer (B2C) marketing

Question 21

What is a Niche Market?

Answer 21

A smaller market that has customers with specific needs or requirements

Question 22

What is a Mass Market?

Answer 22

A market with a large number of customers, which is not segmented into groups based on customer needs or interests

Question 23

What is Business to Business (B2B) marketing?

Answer 23

The sale of one business’s product to another business or organisation.

Note: For example, the marketing of surgical gloves to a local hospital

Question 24

What is Business to Consumer (B2C) marketing?

Answer 24

The sale of a business’s product to a consumer.

Note: For example, the marketing of ready meals to shoppers in a supermarket

Question 25

How do businesses develop customer loyalty

Answer 25

• Strong customer service
  - -> Good relationships with customers may lead to repeated purchases
• After sales service
  - -> Makes the customer feel valued, so they’re more likely to make repeated purchases
• Loyalty cards
  - -> Help tie a customer in to a particular service provider or retailer.
• Saver schemes
  - -> Customers collect points based on the amount that they spend