1.3.5 Product life cycle and portfolio Flashcards
Define the product life cycle
A theoretical model which describes the stages a product goes through over its life
What are the 3 key Uses of the Product life Cycle Model
Forecast future sales trends
Help with market targeting and positioning
Help analyse & manage the product portfolio
What are the 5 stages of the product life cycle
• Development
• Introduction
• Growth
• Maturity
• Decline / End
What is the development stage?
What do business do to reduce failure?
Designing and developing the product
usually has high costs for research and product testing to reduce failure
What are 3 implications of the development stage?
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
What is the introduction stage?
What pricing strategy tends to be used?
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)
What are 2 implications of the introduction stage?
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
What is the growth stage?
(What happens to cash flow and costs)
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)
What is an implication of the growth stage?
Arrival of competition
What is the maturity stage?
(Inc cash flow and the main aim)
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
What is an implication of the maturity stage?
competition is at its highest levels
What is the decline stage?
(Inc cash flow)
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
What strategies are used in the decline stage?
Reducing price to get rid of stock
What are 2 reasons products may enter the decline stage?
-change in consumer taste
-failure to innovate
Give 3 examples of extension strategies to extend the product life cycle
Change distribution channel
Lower prices
Modify the product to make it more appealing
Give 2 weaknesses to the product life cycle
-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
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What is a product portfolio?
a collection of the various products or services a company offers
what does product portfolio analysis asses and why?
assesses the position of each product in a firm portfolio to help determine the right marketing strategy for each product
What is the Boston matrix?
a method used by businesses to analyze their product portfolio and make strategic decisions about each product. Focuses on cash flow from products.
what is the difference between the product life cycle and the Boston matrix?
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
What are the 4 categories the matrix classifies products into based on market share and market growth rate?
question marks- low market share in a rapidly growing market
stars- high market share in a rapidly growing market
cash cows- high market share in a slowly growing market
dogs- low market share in a slowly growing market
What should firms aim for in relation to its portfolio?
they should aim for a balanced portfolio with some products from each of the 4 categories
how can a business categorizing its products in the portfolio help them?
By categorising products the business can allocate resources more efficiently, optimise cash flow and develop marketing strategies
What are on the 2 axis of the matrix?
Market growth rate
relative market share
What does the relative market share measure?
measures the product strength in the market
What does the market growth rate measure?
measures the products attractiveness in the market
What are the characteristics of question mark products?
Low market share in rapidly growing market
-have potential to become stars if business invests in their debvelopment
what strategies will a business use for question mark products?
they will invest in promotion to increase awareness and growth which will result in an increase in market share
What are the implications of question mark products?
-Often have negative cash flow as the business invests a lot into products to increase market share to turn them into stars
What are the characteristics of star products?
-High market share in a rapidly growing market
-these products are strong and the market for them is growing
What strategies will a business use for star products?
-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
What are the strengths of star products?
-They have a positive cash flow and also have the potential to grow
-They are valuable assets
What are the characteristics of cash cows?
-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
What strategies do businesses use for cash cow products?
-reduce investments as there is little potential for further growth
-USE profit from cash cows to invest in new products
What is the strength of cash cow products?
have a positive cash flow but low growth potential
What are the characteristics of dog products?
-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
What strategies do businesses use for dog products?
-sell off (divest) products as they are not worth investing in
What are the implications of dog products?
-they generate little revenue and use more management time and resources than can be justified
Give a strength of the Boston matrix model
helps businesses identify new opportunities within the market they’re operating in and understand which products in their portfolio offer the most potential.
Give a limitation of the Boston matrix model
It assumes that market share and market growth are the only two factors that determine the profitability and attractiveness of a product
