products and markets 2

8/3/2019 Products and Markets 2

1/22

Products and Markets 2Products and Markets 2Business StrategyBusiness Strategy

Prof. Rushen ChahalProf. Rushen Chahal


2/22

Product Life CycleProduct Life Cycle

Introduction stageIntroduction stageGrowth stageGrowth stage

Maturity stageMaturity stageDecline stageDecline stage


3/22

Introduction Stage of theIntroduction Stage of the

Product Life CycleProduct Life Cycle

Introduction Stage of theIntroduction Stage of the

Product Life CycleProduct Life CycleSales

Sales

Costs

Costs

Profits

Profits

Marketing Objectives


Product

Product

Price

Price

Low sales

Low sales

High cost per customer

High cost per customer

Negative

NegativeCreate product awareness

and trial

Create product awarenessand trial

Offer a basic product

Offer a basic product

Use cost-plus

Use cost-plus

Distribution

Distribution Build selective distribution

Build selective distribution

Advertising

Advertising Build product awareness amongearly adopters and dealers

Build product awareness amongearly adopters and dealers


4/22

Growth Stage of the Product Life CycleGrowth Stage of the Product Life Cycle

Sales

Sales

Costs

Costs

Profits

Profits



Product

Product

Price

Price

Rapidly rising sales

Rapidly rising sales

Average cost per customer

Average cost per customer

Rising profits

Rising profits

Maximize market share

Maximize market shareOffer product extensions,

service, warranty

Offer product extensions,service, warranty

Price to penetrate market

Price to penetrate market

Distribution

Distribution Build intensive distribution

Build intensive distribution

Advertising

Advertising Build awareness and interest inthe mass market

Build awareness and interest inthe mass market


5/22

M aturity Stage of the Product Life CycleM aturity Stage of the Product Life Cycle

Sales

Sales

Costs

Costs

Profits

Profits



Product

Product

Price

Price

Peak sales

Peak sales

Low cost per customer


High profits

High profitsMaximize profit while defending

market share

Maximize profit while defendingmarket share

Diversify brand and models

Diversify brand and models

Price to match or bestcompetitors

Price to match or bestcompetitors

Distribution

Distribution Build more intensive distribution

Build more intensive distribution

Advertising

Advertising Stress brand differences andbenefits

Stress brand differences andbenefits


6/22

D ecline Stage of the Product Life CycleD ecline Stage of the Product Life Cycle

Sales

Sales

Costs

Costs

Profits

Profits



Product

Product

Price

Price

Declining sales

Declining sales



Declining profits

Declining profitsReduce expenditure and milk the

brand

Reduce expenditure and milk thebrand

Phase out weak items

Phase out weak items

Cut price

Cut price

Distribution

Distribution Go selective: phase outunprofitable outlets

Go selective: phase outunprofitable outlets

Advertising

Advertising Reduce to level needed to retainhard-core loyal customers

Reduce to level needed to retainhard-core loyal customers


7/22

Product Portfolio TheoryProduct Portfolio Theory

Product portfolioProduct portfolio the array of products athe array of products acompany providescompany provides

Assembling a portfolio is based on the Assembling a portfolio is based on theidea of minimizing riskidea of minimizing riskBroad portfolioBroad portfolio company has a presencecompany has a presencein a wide range of product and market in a wide range of product and market sectorssectorsNarrow portfolioNarrow portfolio company operates incompany operates inonly a few or even one product market oronly a few or even one product market orsectorsector


8/22

THE BCG GROWTHTHE BCG GROWTH- -SHARESHARE

MATRIXMATRIXIt is aIt is a portfolio planning m odelportfolio planning m odel which iswhich isbased on the observation that a company sbased on the observation that a company sbusiness units can be classified in to fourbusiness units can be classified in to fourcategories:categories:

S tars S tars Qu estion m arks Qu estion m arks

Cash c owsCash c owsDogsDogs

It is based on the combination of market It is based on the combination of market growth and market share relative to thegrowth and market share relative to the next next b est c o m petitorb est c o m petitor ..


9/22

The BCG matrix is a way of identifyingThe BCG matrix is a way of identifyingwhere a company s products are in thewhere a company s products are in themarket and how they should be treated inmarket and how they should be treated ininternal analysisinternal analysisHelps identifyHelps identify whi c h prod uc t to p u sh or whi c h prod uc t to p u sh or drop, and whendrop, and when

The horizontal axis measures market The horizontal axis measures market share in a particular way (market shareshare in a particular way (market sharemeasure)measure)The vertical axis measures the rate of The vertical axis measures the rate of market growth (market growth measure)market growth (market growth measure)

BCG Matrix: A way to view theBCG Matrix: A way to view the

entire product rangeentire product range


10/22

MARKET GROWTHMARKET GROWTH

RATERATEMarket growthMarket growth is used as a measure of ais used as a measure of amarket s attractiveness.market s attractiveness.

MGR = Individual salesMGR = Individual sales - - individual salesindividual salesthis year last yearthis year last yearIndividual sales last yearIndividual sales last year

Markets experiencing high growth are onesMarkets experiencing high growth are oneswhere the total market share available iswhere the total market share available isexpanding, and there s plenty of opportunity forexpanding, and there s plenty of opportunity foreveryone to make money.everyone to make money.


11/22

MARKET SHAREMARKET SHAREMarket shareMarket share is the percentage of the total market that is the percentage of the total market that is being serviced by your company, measured either inis being serviced by your company, measured either inrevenue terms or unit volume terms.revenue terms or unit volume terms.

RELATIVE MARKET SHARE RELATIVE MARKET SHARE

RMS =RMS = Business unit sales this yearBusiness unit sales this yearLeading rival sales this yearLeading rival sales this year

The higher your market share, the higher proportion of The higher your market share, the higher proportion of the market you controlthe market you control ..


12/22

1 21 2

T he Boston Consulting GroupsT he Boston Consulting GroupsGrowthGrowth- -Share MatrixShare Matrix

Theimagecannotbe displayed.Your computer may nothaveenoughmemory toopen theimage,or theimage may havebeen corrupted.Restart your computer,and then open thefileagain.If thered x stillappears,youmay haveto deletetheimageand then insertitagain.

?

10 x 4x 2x 1.5 x 1 x10 x 4x 2x 1.5 x 1 x

20%20% --18%18% --16%16%

--1 4%1 4% --1 2%1 2% --10%10% --

8%8% --6%6% --4%4% --2%2% --

00 M a r

k e t g r o w t h r a

t e

Relative market share

Stars

Cash cow

Question marks

Dogs

?

.5 x .4x .3 x .2x .1 x.5 x .4x .3 x .2x .1 x


13/22

Understanding the BCG MatrixUnderstanding the BCG Matrix

Cash cowCash cow a product witha product with highhigh market market share in ashare in a lowlow growth market normally isgrowth market normally isprofitable and a generator of cashprofitable and a generator of cashStandard strategy for a cash cowStandard strategy for a cash cow manage conservatively and defendmanage conservatively and defendstronglystrongly


14/22


DogDog a product that has aa product that has a lowlow market market share in ashare in a lowlow growth market, and isgrowth market, and istypically not profitabletypically not profitableStandard strategyStandard strategy get rid of it, orget rid of it, ordifferentiate it to try to get a strongdifferentiate it to try to get a strongposition for it in a niche market position for it in a niche market


15/22


StarsStars products that haveproducts that have highhigh market market share in ashare in a highhigh growth market growth market

O ne important characteristicO ne important characteristic likely to uselikely to uselots of company cash in advertising andlots of company cash in advertising andproduct improvementsproduct improvements


16/22


Question marksQuestion marks products that haveproducts that have lowlowmarket share inmarket share in highhigh growth marketsgrowth markets

If they cannot improve, they will becomeIf they cannot improve, they will becomedogsdogsStrategyStrategy management must make amanagement must make adecision: either invest more resources indecision: either invest more resources inwinning market share, or dump it winning market share, or dump it


17/22

BCG Portfolio Matrix ExampleBCG Portfolio Matrix Example

Sub-

Notebooksand Hand-HeldComputer

Integrated

phone/Palmdevices

Laptop andPersonal

Computers

MainframeComputer

M A R K E T

G R O W T H R

A T E

L O W

H I G H

MARKE T SHARE DOMINANCE

HIGH LOW

S TARPROBLEM

CHILD

CASHCOW DOG


18/22

Strategies for ResourceStrategies for Resource

Allocation AllocationBuild

Hold

Harvest

Divest

Provide financial resources if SBU(Question Mark) has potential to be a Star .

Preserve market share if SBU is a successfulCash Cow . Use cash flow for other SBUs .

Increase short-term cash return . Appropriate for all SBUs except Stars .

Get rid of SBUs with low shares inlow-growth markets .


19/22

The Product Life Cycle and theThe Product Life Cycle and theBoston MatrixBoston MatrixSales

Time

AB C

D

The productportfolio fourproducts in theportfolio

(1)

(1) A is at maturitystage cash cow.Generates funds for

the development of D

(2)

(2) Cash from B used to support

C through growth

stage and tolaunch D. A nowpossibly a dog?

(3)

(3) Cash from C used to supportgrowth of D and

possibly to financeextension strategyfor B?

Importance of maintaining abalance of productsin the portfolio at

different stages of the PLC BostonMatrix helps with theanalysis


20/22

Another way to analyze: GEC Another way to analyze: GEC

MatrixMatrixBased on a comparison of market attractivenessBased on a comparison of market attractivenessand competitive strengthand competitive strengthMarket attractiveness criteria is set by the userMarket attractiveness criteria is set by the userof the matrix (factors such as market growth,of the matrix (factors such as market growth,profitability, strength of competition, entry/exit profitability, strength of competition, entry/exit barriers, etc. are common)barriers, etc. are common)Competitive strength might include technologicalCompetitive strength might include technologicalcapability, brand image, distribution channelcapability, brand image, distribution channellinks, production capability and financial strengthlinks, production capability and financial strength


21/22

A A BB CC

DD EE FF

GG HH II

High Medium Low

Competitive Strength

M a r k e t A

t t r a c t i v e n e s s

High

Medium

Low


22/22

Understanding the GEC MatrixUnderstanding the GEC MatrixCell A StrategyCell A Strategy invest stronglyinvest stronglyCell B StrategyCell B Strategy either build strength toeither build strength tochallenge, or build selectivelychallenge, or build selectively

Cell C StrategyCell C Strategy here is a dilemma, either sell orhere is a dilemma, either sell ordifferentiatedifferentiateCell D StrategyCell D Strategy investment and maintenanceinvestment and maintenanceof competitive positionof competitive positionCells E & F StrategyCells E & F Strategy minimize risk and expandminimize risk and expandcarefullycarefullyCells G & H StrategyCells G & H Strategy management for earningsmanagement for earningsCell I strategyCell I strategy sell or minimize investment sell or minimize investment

products and markets 2

Documents