3.3.4 (PLC Strategy) Making marketing decisions: using the marketing mix Flashcards
What should a business aim to do?
Have as many products in maturity as possible - these are the products that get the most profit.
How do we achieve the maturity aim?
We must have a policy of new product development, so that it has products in the introduction and growth stages that will eventually enter maturity.
What is the consequence of achieving this maturity aim?
Firms have to attempt to have a balance of products under development and in the introductory and growth stages, financed by the profits generated by their mature products.
Outline the strategy of the introduction stage.
Penetration pricing -persuades purchasing - make clear this is a limited offer as customer goodwill could drop if price increases later.
For more exclusive products - price set to show superiority to rivals.
Promotion and advertising necessary - increase awareness.
Outline the strategy of the growth stage.
Business adapts strategies according to market research. Can include: modifying the product, targeting new market segments (through different promotions) or widening the distributions etc.
Outline the strategy of the maturity stage.
Aim is to keep product in this stage for as long as possible. Done through extension strategies.
Define an extension strategy.
Methods used to lengthen the life cycle of a product by preventing or delaying it from reaching the decline stage of the product life cycle.
Outline the 6 types of extension strategies.
- Attracting new market segments.
- Increasing usage amongst existing
customers. - Modifying the product.
- Change image.
- Targeting new geographical markets.
- Promotions, advertising and price offers.
Outline the strategy of the decline stage.
Continue to use extension strategies - once decline is viewed as inevitable - can ‘milk’ the product. Cut advertising expenditure, allowing it to reach high profits for a period of timer.
Eventually should take off the market - only if unprofitable though.
What is the problem with trying to predict the product life cycle?
Limited use in strategic planning - exact life span of a product is never known.
Some markets are easier to predict - others not so much.
More useful in explaining past events than predicting future trends.
Why is the product life cycle useful?
Can assess whether a product launch is feasible - know whether it can operate at a loss during the introduction and growth stages - have a clear idea of when to expect profit can be made.
Outline the financial implications of the development stage.
R&D costs, market research costs, promotion, production costs will be high (especially if new equipment is necessary).
Outline the financial implications of the introduction stage.
Promotion costs, price offers - reduce inflow of cash - production per unit may be high as the scale of production will be low.
Outline the financial implications of the growth stage.
First opportunity to make profit.
Possible to cut back on promotion costs, lower production costs per item can be achieved; this finally allows the business to achieve a positive cash flow situation.
Outline the financial implications of the maturity stage.
Firm will receive the highest revenue from the product - the unit costs of production should be at their lowest - this is the stage where majority of the profit is made (tends to be cash cows).
