14: PLC and Portfolio

Question 1

Product Life Cycle (2)

Answer 1

• The theory that all products follow a similar pattern over time
• Of development, growth, maturity and decline

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Question 2

Answer 2

Question 3

Explain the development phase of PLC (3)

(Sales and Costs per unit)

Answer 3

Sales: Zero

Costs per unit: Only prototypes being produced but R and D costs are high

However, CAD software making NPD more economical

Question 4

Explain the introduction phase of PLC (3)

(Sales and Costs per unit)

Answer 4

Sales: Low

Costs per unit: High: sales are low but launch costs are high

And overheards (fixed costs) are spread over very few units

Question 5

Explain the growth phase of PLC (2)

(Sales and Costs per unit)

Answer 5

Sales: Increasing

Costs per unit: Falling as overheads (fixed costs) are spread over more units

Question 6

Explain the maturity phase of PLC (2)

(Sales and Costs per unit)

Answer 6

Sales: Growth is slowing

Costs per unit: Falling as sales are still growing

Question 7

Explain the decline phase of PLC (2)

(Sales and Costs per unit)

Answer 7

Sales: Falling

Costs per unit: Low as R and D costs have been covered and promo costs are cut

Question 8

Explain the development phase of PLC (2)

(Capacity Utilisation and Cash Flow)

Answer 8

Capacity Utilisation: Very low

Cash flow: Negative

Question 9

Explain the introduction phase of PLC (2)

(Capacity Utilisation and Cash Flow)

Answer 9

Capacity Utilisation: Low

Cash flow: Usually negative

Question 10

Explain the growth phase of PLC (2)

(Capacity Utilisation and Cash Flow)

Answer 10

Capacity Utilisation: Rising

Cash flow: May become positive

Question 11

Explain the maturity phase of PLC (2)

(Capacity Utilisation and Cash Flow)

Answer 11

Capacity Utilisation: High

Cash flow: Should be strongly positive

Question 12

Explain the decline phase of PLC (2)

(Capacity Utilisation and Cash Flow)

Answer 12

Capacity Utilisation: Declining

Cash flow: Weaker

Question 13

Explain the development phase of PLC (4)

Answer 13

Product: Prototypes

Promotion: Alerting customers of launch

Place/Distribution: X

Price: X

Question 14

Explain the introduction phase of PLC (4)

Answer 14

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

Question 15

Explain the growth phase of PLC (4)

Answer 15

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

Question 16

Explain the maturity phase of PLC (4)

Answer 16

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

Question 17

Explain the decline phase of PLC (4)

Answer 17

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

Question 18

Extension Strategy (2)

Answer 18

• Marketing activities used to prevent a product
• From entering the decline phase of the product life cycle

Question 19

The PLC of a product is short if… (3)

Answer 19

• Rapid rate of technological change
• High degree of innovation in the market
• Customer tastes are rapidly changing, e.g. Fashion

Question 20

Product-based extension strategy (2)

Answer 20

• Different pack sizes
• Product in different form (e.g. loose vs tablet)

Question 21

Promotion-based extension strategy (5)

Answer 21

• 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)

Question 22

Why are extension strategies useful (2)

Answer 22

• As NPD involves high costs and high failure rate
• So firms want to prolong the sales of succesful products

Question 23

NPD involves… (5)

Answer 23

• 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

Question 24

Use of the Product Life Cycle (3)

Answer 24

• Sales forecasting
• Tool to assist in pricing/promotional/distribution strategy
• Cash flow forecasting

Question 25

Limitations of the Product Life Cycle (3)

Answer 25

• Too generic (Shape and duration of cycle varies greatly)
• Length cannot be reliably predicted
• Can become a self-fulfilling prophecy