14: PLC and Portfolio Flashcards
Product Life Cycle (2)
- The theory that all products follow a similar pattern over time
- Of development, growth, maturity and decline
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Explain the development phase of PLC (3)
(Sales and Costs per unit)
Sales: Zero
Costs per unit: Only prototypes being produced but R and D costs are high
However, CAD software making NPD more economical
Explain the introduction phase of PLC (3)
(Sales and Costs per unit)
Sales: Low
Costs per unit: High: sales are low but launch costs are high
And overheards (fixed costs) are spread over very few units
Explain the growth phase of PLC (2)
(Sales and Costs per unit)
Sales: Increasing
Costs per unit: Falling as overheads (fixed costs) are spread over more units
Explain the maturity phase of PLC (2)
(Sales and Costs per unit)
Sales: Growth is slowing
Costs per unit: Falling as sales are still growing
Explain the decline phase of PLC (2)
(Sales and Costs per unit)
Sales: Falling
Costs per unit: Low as R and D costs have been covered and promo costs are cut
Explain the development phase of PLC (2)
(Capacity Utilisation and Cash Flow)
Capacity Utilisation: Very low
Cash flow: Negative
Explain the introduction phase of PLC (2)
(Capacity Utilisation and Cash Flow)
Capacity Utilisation: Low
Cash flow: Usually negative
Explain the growth phase of PLC (2)
(Capacity Utilisation and Cash Flow)
Capacity Utilisation: Rising
Cash flow: May become positive
Explain the maturity phase of PLC (2)
(Capacity Utilisation and Cash Flow)
Capacity Utilisation: High
Cash flow: Should be strongly positive
Explain the decline phase of PLC (2)
(Capacity Utilisation and Cash Flow)
Capacity Utilisation: Declining
Cash flow: Weaker
Explain the development phase of PLC (4)
Product: Prototypes
Promotion: Alerting customers of launch
Place/Distribution: X
Price: X
Explain the introduction phase of PLC (4)
Product: Basic
Promotion: Raising brand awareness
Place/Distribution: Persuading retailers to stock an unproven product is tough so may be limited (depends on reputation of brand)
Price: Skimming or penetration
Explain the growth phase of PLC (4)
Product: Modified according to customer feedback/range may be expanded
Promotion: Raising brand loyalty
Place/Distribution: Increasing as more distributers willing to stock
Price: Depends on demand conditions
Explain the maturity phase of PLC (4)
Product: May extend brand to new items OR focus on core products and remove poor sellers
Promotion: Focus on product differentiation
Place/Distribution: Focus on key outlets and more profitable channels
Price: Usually lowered to maintain competitiveness
Explain the decline phase of PLC (4)
Product: Focus on profitable items
Promotion: None
Place/Distribution: Focus on most profitable outlets
Price: Discounts to maintain sales OR kept high to maintain any lasting brand loyalty
Extension Strategy (2)
- Marketing activities used to prevent a product
- From entering the decline phase of the product life cycle
The PLC of a product is short if… (3)
- Rapid rate of technological change
- High degree of innovation in the market
- Customer tastes are rapidly changing, e.g. Fashion
Product-based extension strategy (2)
- Different pack sizes
- Product in different form (e.g. loose vs tablet)
Promotion-based extension strategy (5)
- SImply running a new advertising campaign or switching from traditional to social media WON’T WORK
- Instead, the firm must find a new market position
- Through targeting a new segment of the market (re-positioning)
- Developing new uses for the product
- Increasing usage (e.g. competitions/challenges)
Why are extension strategies useful (2)
- As NPD involves high costs and high failure rate
- So firms want to prolong the sales of succesful products
NPD involves… (5)
- R&D: Research into product/process innovation
- Market research: Understanding customers within a certain market segment
- Design: Bringing the product to life with the right combo of the design mix
- Advertising/branding: Raising awareness/loyalty/differentiation
- Pricing: Either skimming or penetration
Use of the Product Life Cycle (3)
- Sales forecasting
- Tool to assist in pricing/promotional/distribution strategy
- Cash flow forecasting
Limitations of the Product Life Cycle (3)
- Too generic (Shape and duration of cycle varies greatly)
- Length cannot be reliably predicted
- Can become a self-fulfilling prophecy
