SCA and Marketing Strategy Models Flashcards
Product Life Cycle - definition
Process of 4 sequential stages (introduction, growth stage, maturity, decline or extension) that explains variations in demand, sales, and competition.
Uses of PLC
- 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
Types of PLC
- New product
- Fashion/trend product
- Fad products (very profitable but very risky too)
Problems with fads, fashions and new products concept
- 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
How managers use PLC
Timeframes (build, test and launch product):
- Regulatory/approval issues
- Sales channels
- Future versions and obsolescence
Use PLCs from past product versions to predict patterns
Problems/weaknesses of PLC
- 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)
Experience curve - definition
Concept that firms learn from doing, the cost per unit decreases as a result of increased experience in production
Sources of experience
- Learning
- Technology
- Economies of scale
(experience curves comprise all three sources, difficult to disaggregate sources)
Uses of Experience curve
- Compare with competitors (profitability)
- evaluate competitive position (low-cost advantage)
- manage supplier performance
- argument to support penetration pricing
Experience curve equation
Cn = C1 n^-z
Equation to find out ‘z’
1 - k = 1 - 2^-z
1 - k = fall in costs
k = experience effect
‘z’ equation shortcut (logs)
z = log k / log 2
Overall concept of experience curve
More experience > lower costs > lower price > greater market share > more profits
Problems with experience curve
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
BCG matrix definition
Product portfolio model that uses growth rate and market share to categorise products into four types (cash cow, star, question mark, pet)
Two scenarios (BCG matrix)
- 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
Problems with BCG matrix
- 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)
Uses of BCG matrix
- 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
Importance of contribution
- 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
BCG matrix in changing world
Products move around quadrants more quickly
cashing out stars and retiring cows more quickly, maximising information value of pets
Cash cow
Mature and slow growth industry, but dominant, earning positive cash flow, milk to invest in riskier products
Star
Large market share in rapidly growing industry
Pet
Small share and slow growth, divestment or liquidation
Question mark
New and rapidly growing, little market share
Could become star or could fail, nurture them to turn into future stars
Experience curve (disaster situation)
Static technology > higher costs > higher prices > less market share > lose profits
Relationship between BCG matrix, PLC and Experience curve
- 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
Calculate cost per unit when production is doubled
(Cost per unit of current production) x (experience effect)
Calculate cost per unit when production is halved
(Cost per unit of current production) / (experience effect)
Issues with estimating/predicting a competitor’s experience curve
- 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)
Three positioning strategies for PLC
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)
