1.3.5 Product life cycle and portfolio

Question 1

Define the product life cycle

Answer 1

A theoretical model which describes the stages a product goes through over its life

Question 2

What are the 3 key Uses of the Product life Cycle Model

Answer 2

Forecast future sales trends

Help with market targeting and positioning

Help analyse & manage the product portfolio

Question 3

What are the 5 stages of the product life cycle

Answer 3

• Development
• Introduction
• Growth
• Maturity
• Decline / End

Question 4

What is the development stage?
What do business do to reduce failure?

Answer 4

Designing and developing the product
usually has high costs for research and product testing to reduce failure

Question 5

What are 3 implications of the development stage?

Answer 5

Negative cash flow as the business is investing in a lot but not earning sales revenue
May be a long lead time before sales are achieved
Some products may be scrapped before launch if no demand or life cycle expected to be too short

Question 6

What is the introduction stage?
What pricing strategy tends to be used?

Answer 6

Where the product is launched but has slow sales growth as the product is still new and unknown
Often try to use price penetration (low to high) or spice skimming (high to low)

Question 7

What are 2 implications of the introduction stage?

Answer 7

Cash flow usually negative as spending lots on promotion to relate awareness and generate an interest
Distributors ma be reluctant to sell a new, unknown product

Question 8

What is the growth stage?
(What happens to cash flow and costs)

Answer 8

Where sales begin to rapidly increase and the business shifts its focus to building market share and increasing production to meet demand
Cash flow likely to turn positive as sales revenue increases
Unit costs fall with economies of scale
(Rise in capacity utilisation)

Question 9

What is an implication of the growth stage?

Answer 9

Arrival of competition

Question 10

What is the maturity stage?
(Inc cash flow and the main aim)

Answer 10

Where growth slows down as the product reaches its peak in terms of market penetration (successful selling of a product in a market)
Cash flow is usually strongly positive and the business aims to maintain market

Question 11

What is an implication of the maturity stage?

Answer 11

competition is at its highest levels

Question 12

What is the decline stage?
(Inc cash flow)

Answer 12

Where sales begin to decline as the product becomes obselete or replaced
Cash flow turns negative and the business main aim is to reduce costs

Question 13

What strategies are used in the decline stage?

Answer 13

Reducing price to get rid of stock

Question 14

What are 2 reasons products may enter the decline stage?

Answer 14

-change in consumer taste
-failure to innovate

Question 15

Give 3 examples of extension strategies to extend the product life cycle

Answer 15

Change distribution channel
Lower prices
Modify the product to make it more appealing

Question 16

Give 2 weaknesses to the product life cycle

Answer 16

-It’s hard to recognise where the product is in the cycle
-The length of the cycle cannot be reliably predicted as strategic decisions can change the length

Question 17

What is a product portfolio?

Answer 17

a collection of the various products or services a company offers

Question 18

what does product portfolio analysis asses and why?

Answer 18

assesses the position of each product in a firm portfolio to help determine the right marketing strategy for each product

Question 19

What is the Boston matrix?

Answer 19

a method used by businesses to analyze their product portfolio and make strategic decisions about each product. Focuses on cash flow from products.

Question 20

what is the difference between the product life cycle and the Boston matrix?

Answer 20

product life cycle- concerned with individual products and sales over time
Boston Matrix- concerned with a firm portfolio of products and cash flow from products

Question 21

What are the 4 categories the matrix classifies products into based on market share and market growth rate?

Answer 21

stars- high market share in a rapidly growing market

cash cows- high market share in a slowly growing market

question marks- low market share in a rapidly growing market

dogs- low market share in a slowly growing market

Question 22

What should firms aim for in relation to its portfolio?

Answer 22

they should aim for a balanced portfolio with some products from each of the 4 categories

Question 23

how can a business categorizing its products in the portfolio help them?

Answer 23

By categorising products the business can allocate resources more efficiently, optimise cash flow and develop marketing strategies

Question 24

What are on the 2 axis of the matrix?

Answer 24

Market growth rate
relative market share

Question 25

What does the relative market share measure?

Answer 25

measures the product strength in the market

Question 26

What does the market growth rate measure?

Answer 26

measures the products attractiveness in the market

Question 27

What are the characteristics of question mark products?

Answer 27

Low market share in rapidly growing market -have potential to become stars if business invests in their debvelopment

Question 28

what strategies will a business use for question mark products?

Answer 28

they will invest in promotion to increase awareness and growth which will result in an increase in market share

Question 29

What are the implications of question mark products?

Answer 29

-Often have negative cash flow as the business invests a lot into products to increase market share to turn them into stars

Question 30

What are the characteristics of star products?

Answer 30

-High market share in a rapidly growing market -these products are strong and the market for them is growing

Question 31

What strategies will a business use for star products?

Answer 31

-Businesses will invest in these products to sustain growth, build sales, and maintain leadership in the market share -The business will also focus its marketing efforts to building brand recognition to increase market share

Question 32

What are the strengths of star products?

Answer 32

-They have a positive cash flow and also have the potential to grow -They are valuable assets

Question 33

What are the characteristics of cash cows?

Answer 33

-have a high market share in a slowly growing market -products in this quarter are reaching their maturity stage in the life cycle but still maintain loyalty and should continue to produce until sales decline

Question 34

What strategies do businesses use for cash cow products?

Answer 34

-reduce investments as there is little potential for further growth -USE profit from cash cows to invest in new products

Question 35

What is the strength of cash cow products?

Answer 35

have a positive cash flow but low growth potential

Question 36

What are the characteristics of dog products?

Answer 36

-Low market share in a slowly growing market -The products either have failed or are in the decline phase of the life cycle- have no/little potential

Question 37

What strategies do businesses use for dog products?

Answer 37

-sell off (divest) products as they are not worth investing in

Question 38

What are the implications of dog products?

Answer 38

-they generate little revenue and use more management time and resources than can be justified

Question 39

Give a strength of the Boston matrix model

Answer 39

helps businesses identify new opportunities within the market they're operating in and understand which products in their portfolio offer the most potential.

Question 40

Give a limitation of the Boston matrix model

Answer 40

It assumes that market share and market growth are the only two factors that determine the profitability and attractiveness of a product