Webster University Boston Consulting Group’s Growth/Share Matrix Essentials of Product Life Cycles MRKT 5980

11/1/2015 Webster University INTB 5000 Page 2 Definitions Product Life Cycle – shows the stages that products go through from development to withdrawal from the market Product Life Cycle – shows the stages that products go through from development to withdrawal from the market Product Portfolio – the range of products a company has in development or available for consumers at any one time. Managing product portfolio is important for cash flow Product Portfolio – the range of products a company has in development or available for consumers at any one time. Managing product portfolio is important for cash flow

11/1/2015 Webster University INTB 5000 Page 3 Product Life Cycle (PLC): Product Life Cycle (PLC): Each product may have a different life cycleEach product may have a different life cycle PLC determines revenue earnedPLC determines revenue earned Contributes to strategic marketing planningContributes to strategic marketing planning May help the firm to identify when a product needs support, redesign, reinvigorating, withdrawal, etc.May help the firm to identify when a product needs support, redesign, reinvigorating, withdrawal, etc. May help in new product development planningMay help in new product development planning May help in forecasting and managing cash flowMay help in forecasting and managing cash flow Product Life Cycle Fundamentals

11/1/2015 Webster University INTB 5000 Page 4 The Stages of the Product Life Cycle: The Stages of the Product Life Cycle: DevelopmentDevelopment Introduction/LaunchIntroduction/Launch GrowthGrowth MaturityMaturity SaturationSaturation DeclineDecline WithdrawalWithdrawal Product Life Cycle Fundamentals

11/1/2015 Webster University INTB 5000 Page 5 The Development Stage: The Development Stage: Initial Ideas – possibly large number Initial Ideas – possibly large number May come from any of the following – May come from any of the following – Market research – identifies gaps in the marketMarket research – identifies gaps in the market Monitoring competitorsMonitoring competitors Planned research and development (R&D)Planned research and development (R&D) Luck or intuition – stumble across ideas?Luck or intuition – stumble across ideas? Creative thinking – inventions, hunches?Creative thinking – inventions, hunches? Futures thinking – what will people be using/wanting/needing 5,10,20 years?Futures thinking – what will people be using/wanting/needing 5,10,20 years? Product Life Cycle Fundamentals

11/1/2015 Webster University INTB 5000 Page 6 Product Development: Stages Product Development: Stages New ideas/possible inventionsNew ideas/possible inventions Market analysis – is it wanted? Can it be produced at a profit? Who is it likely to be aimed at?Market analysis – is it wanted? Can it be produced at a profit? Who is it likely to be aimed at? Product Development and refinementProduct Development and refinement Test Marketing – possibly local/regionalTest Marketing – possibly local/regional Analysis of test marketing results and amendment of product/production processAnalysis of test marketing results and amendment of product/production process Preparations for launch – publicity, marketing campaignPreparations for launch – publicity, marketing campaign Product Life Cycle Fundamentals

11/1/2015 Webster University INTB 5000 Page 7 Introduction/Launch: Introduction/Launch: Advertising and promotion campaignsAdvertising and promotion campaigns Target campaign at specific audience?Target campaign at specific audience? Monitor initial salesMonitor initial sales Maximise publicityMaximise publicity High cost/low salesHigh cost/low sales Length of time – type of productLength of time – type of product Product Life Cycle Fundamentals

11/1/2015 Webster University INTB 5000 Page 8 Growth: Growth: Increased consumer awarenessIncreased consumer awareness Sales riseSales rise Revenues increaseRevenues increase Costs - fixed costs/variable costs, profits may be madeCosts - fixed costs/variable costs, profits may be made Monitor market – competitors reaction?Monitor market – competitors reaction? Product Life Cycle Fundamentals

11/1/2015 Webster University INTB 5000 Page 9 Maturity: Maturity: Sales reach peakSales reach peak Cost of supporting the product declinesCost of supporting the product declines Ratio of revenue to cost highRatio of revenue to cost high Sales growth likely to be lowSales growth likely to be low Market share may be highMarket share may be high Competition likely to be greaterCompetition likely to be greater Price elasticity of demand?Price elasticity of demand? Monitor market – changes/amendments/new strategies?Monitor market – changes/amendments/new strategies? Product Life Cycle Fundamentals

11/1/2015 Webster University INTB 5000 Page 10 Saturation: Saturation: New entrants likely to mean market is ‘flooded’ New entrants likely to mean market is ‘flooded’ Necessity to develop new strategies becomes more pressing: Necessity to develop new strategies becomes more pressing: Searching out new markets:Searching out new markets: Linking to changing fashions Linking to changing fashions Seeking new or exploiting market segments Seeking new or exploiting market segments Linking to joint ventures – media/music, etc. Linking to joint ventures – media/music, etc. Developing new usesDeveloping new uses Focus on adapting the productFocus on adapting the product Re-packaging or formatRe-packaging or format Improving the standard or qualityImproving the standard or quality Developing the product rangeDeveloping the product range Product Life Cycle Fundamentals

11/1/2015 Webster University INTB 5000 Page 11 Decline and Withdrawal: Decline and Withdrawal: Product outlives/outgrows its usefulness/valueProduct outlives/outgrows its usefulness/value Fashions changeFashions change Technology changesTechnology changes Sales declineSales decline Cost of supporting starts to rise too farCost of supporting starts to rise too far Decision to withdraw may be dependent on availability of new products and whether fashions/trends will come around again?Decision to withdraw may be dependent on availability of new products and whether fashions/trends will come around again? Product Life Cycle Fundamentals

11/1/2015 Webster University INTB 5000 Page 12 Sales Time DevelopmentIntroductionGrowthMaturitySaturationDecline Product Life Cycle Fundamentals

11/1/2015 Webster University INTB 5000 Page 13 Sales Time Effects of Extension Strategies Product Life Cycle Fundamentals

11/1/2015 Webster University INTB 5000 Page 14 Sales/Profits Time PLC and Profits PLC Losses Break Even Profits Product Life Cycle Fundamentals

11/1/2015 Webster University INTB 5000 Page 15 The Boston Consulting Group Growth/Share Matrix The Boston Consulting Group Matrix: The Boston Consulting Group Matrix: A means of analyzing the product portfolio and informing decision making about possible marketing strategiesA means of analyzing the product portfolio and informing decision making about possible marketing strategies Developed by the Boston Consulting Group – a business strategy and marketing consultancy in 1968Developed by the Boston Consulting Group – a business strategy and marketing consultancy in 1968 Links growth rate, market share and cash flowLinks growth rate, market share and cash flow

11/1/2015 Webster University INTB 5000 Page 16 Classifies Products into four simple categories: Classifies Products into four simple categories: Stars – products in markets experiencing high growth rates with a high or increasing share of the market Stars – products in markets experiencing high growth rates with a high or increasing share of the market - Potential for high revenue growth The Boston Consulting Group Growth/Share Matrix

11/1/2015 Webster University INTB 5000 Page 17 Cash Cows: Cash Cows: High market share Low growth markets – maturity stage of PLC Low cost support High cash revenue – positive cash flows The Boston Consulting Group Growth/Share Matrix

11/1/2015 Webster University INTB 5000 Page 18 Dogs: Dogs: Products in a low growth marketProducts in a low growth market Have low or declining market share (decline stage of PLC)Have low or declining market share (decline stage of PLC) Associated with negative cash flowAssociated with negative cash flow May require large sums of money to supportMay require large sums of money to support Is your product starting to embarrass your company? The Boston Consulting Group Growth/Share Matrix

11/1/2015 Webster University INTB 5000 Page 19 Problem Child: Problem Child: - Products having a low market share in a high growth market - Need money spent to develop them - May produce negative cash flow - Potential for the future? Problem children – worth spending good money on? The Boston Consulting Group Growth/Share Matrix

11/1/2015 Webster University INTB 5000 Page 20 Problem Children Stars Dogs Cash Cows Market Growth Market Share High Low High The Boston Consulting Group Growth/Share Matrix

11/1/2015 Webster University INTB 5000 Page 21 Implications: Implications: Dogs: Dogs: Are they worth persevering with?Are they worth persevering with? How much are they costing?How much are they costing? Could they be revived in some way?Could they be revived in some way? How much would it cost to continue to support such products?How much would it cost to continue to support such products? How much would it cost to remove from the market?How much would it cost to remove from the market? The Boston Consulting Group Growth/Share Matrix

11/1/2015 Webster University INTB 5000 Page 22 Implications: Implications: Problem Children: Problem Children: What are the chances of these products securing a hold in the market?What are the chances of these products securing a hold in the market? How much will it cost to promote them to a stronger position?How much will it cost to promote them to a stronger position? Is it worth it?Is it worth it? The Boston Consulting Group Growth/Share Matrix

11/1/2015 Webster University INTB 5000 Page 23 Implications: Implications: Stars: Stars: Huge potentialHuge potential May have been expensive to developMay have been expensive to develop Worth spending money to promoteWorth spending money to promote Consider the extent of their product life cycle in decision makingConsider the extent of their product life cycle in decision making The Boston Consulting Group Growth/Share Matrix

11/1/2015 Webster University INTB 5000 Page 24 Implications: Implications: Cash Cows: Cash Cows: Cheap to promoteCheap to promote Generate large amounts of cash – use for further R&D?Generate large amounts of cash – use for further R&D? Costs of developing and promoting have largely goneCosts of developing and promoting have largely gone Need to monitor their performance – the long term?Need to monitor their performance – the long term? At the maturity stage of the PLC?At the maturity stage of the PLC? The Boston Consulting Group Growth/Share Matrix

11/1/2015 Webster University INTB 5000 Page 25 Sales Time A B C D The product portfolio – four products in the portfolio (1) (1) ‘A’ is at maturity stage – cash cow. Generates funds for the development of ‘D’ (2) (2) Cash from ‘B’ used to support ‘C’ through growth stage and to launch ‘D’. ‘A’ now possibly a dog? (3) (3) Cash from ‘C’ used to support growth of ‘D’ and possibly to finance extension strategy for ‘B’? Importance of maintaining a balance of products in the portfolio at different stages of the PLC – Boston Matrix helps with the analysis The Boston Consulting Group Growth/Share Matrix