SCA and Marketing Strategy Models

Question 1

Product Life Cycle - definition

Answer 1

Process of 4 sequential stages (introduction, growth stage, maturity, decline or extension) that explains variations in demand, sales, and competition.

Question 2

Uses of PLC

Answer 2

• Adjust marketing strategy/mix according to stage
• Understand industry structure, profit/sales and consumers in each stage (external analysis)
• Allocate resources/marketing elements depending on demand
• Plan competitive moves and long-term offensive marketing strategies
• Understand past and future sales progression (coupled with sales figures)
• Determine when it’s reasonable to eliminate dead products

Question 3

Types of PLC

Answer 3

• New product
• Fashion/trend product
• Fad products (very profitable but very risky too)

Question 4

Problems with fads, fashions and new products concept

Answer 4

• Replicability in different industries (different lengths)
• Product hard to categorise as one of these
• Ambiguity and unpredictability: when product launches, its hard to know what it is

Question 5

How managers use PLC

Answer 5

Timeframes (build, test and launch product):
- Regulatory/approval issues
- Sales channels
- Future versions and obsolescence
Use PLCs from past product versions to predict patterns

Question 6

Problems/weaknesses of PLC

Answer 6

• Product classes, forms and brands don’t follow same patterns (e.g. within classes, there are forms that are in decline or growth)
• No common shape (not all products go through every stage and have same lengths)
• Stages of PLC and resulting demands are hard to forecast/recognise (measurement lags from sales figures)
• Good at explaining what happened, but not predict what’s going to happen (retrospective)
• Declining stage is misleading (fluctuations in sales, resurgent growth)

Question 7

Experience curve - definition

Answer 7

Concept that firms learn from doing, the cost per unit decreases as a result of increased experience in production

Question 8

Sources of experience

Answer 8

• Learning
• Technology
• Economies of scale
  (experience curves comprise all three sources, difficult to disaggregate sources)

Question 9

Uses of Experience curve

Answer 9

• Compare with competitors (profitability)
• evaluate competitive position (low-cost advantage)
• manage supplier performance
• argument to support penetration pricing

Question 10

Experience curve equation

Answer 10

Cn = C1 n^-z

Question 11

Equation to find out ‘z’

Answer 11

1 - k = 1 - 2^-z

1 - k = fall in costs

k = experience effect

Question 12

‘z’ equation shortcut (logs)

Answer 12

z = log k / log 2

Question 13

Overall concept of experience curve

Answer 13

More experience > lower costs > lower price > greater market share > more profits

Question 14

Problems with experience curve

Answer 14

Reliable estimation is difficult
- Complex, tons of variables that may change rapidly and unpredictably
- Outsourcing? alliances?
- What about services?
- Estimating competitor costs
Pursuing experience curve with a static technology

Question 15

BCG matrix definition

Answer 15

Product portfolio model that uses growth rate and market share to categorise products into four types (cash cow, star, question mark, pet)

Question 16

Two scenarios (BCG matrix)

Answer 16

• Success: cash from cash cow, invest in question marks to turn into stars, these then become cash cows
• Disaster: stars don’t receive enough resources and become question marks, and then into pets, cash cow also turns into pet

Question 17

Problems with BCG matrix

Answer 17

• Dependent on what is good growth rate and market share (subjective to different contexts and industries)
• Line separating quadrants is arbitrary (2 businesses in same quadrant with large intra-differences vs. 2 businesses in 2 quadrants with small inter-differences)

Question 18

Uses of BCG matrix

Answer 18

• Manage portfolio of products, investments and business units (investing/divesting)
• Diversify and balance product investments
• Aid prescription and direction (map current portfolio and plan direction)
• Helps cope with ambidexterity: exploitation and exploration

Question 19

Importance of contribution

Answer 19

• Determine profitability of products through relationship between costs, prices, and volumes
• Decide which products to sell more/less, which costs to reduce and which prices to increase
• Aid in making decisions related to profit, market size, cannibalisation, and performance of products
• Breakeven and sensitivity analysis

Question 20

BCG matrix in changing world

Answer 20

Products move around quadrants more quickly

cashing out stars and retiring cows more quickly, maximising information value of pets

Question 21

Cash cow

Answer 21

Mature and slow growth industry, but dominant, earning positive cash flow, milk to invest in riskier products

Question 22

Star

Answer 22

Large market share in rapidly growing industry

Question 23

Pet

Answer 23

Small share and slow growth, divestment or liquidation

Question 24

Question mark

Answer 24

New and rapidly growing, little market share

Could become star or could fail, nurture them to turn into future stars

Question 25

Experience curve (disaster situation)

Answer 25

Static technology > higher costs > higher prices > less market share > lose profits

Question 26

Relationship between BCG matrix, PLC and Experience curve

Answer 26

• PLC is related to growth rate: cash cows are in maturity, stars are in growth, question marks are in introduction and pets are in decline
• Experience curve is related to market share: less cost per unit means prices are lower, thus greater market share

Question 27

Calculate cost per unit when production is doubled

Answer 27

(Cost per unit of current production) x (experience effect)

Question 28

Calculate cost per unit when production is halved

Answer 28

(Cost per unit of current production) / (experience effect)

Question 29

Issues with estimating/predicting a competitor’s experience curve

Answer 29

• Followers learn (re-engineering the latest solution)
• Technology leapfrogs (e.g. Uber)
• Shared experience (e.g. experience of iPhone transfers to iPad)
• All competitors benefit from suppliers’ experience
• Competitors may have specific advantages (e.g. location, networks)

Question 30

Three positioning strategies for PLC

Answer 30

Move backwards:
- Reverse positioning (strips away attributes to add new ones)
- Breakaway positioning (associate product with different category)
Move forwards:
- Stealth positioning (place product into category that is more desirable)