Prepared byDr. Ammar Hasan Beck

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 Life Cycle (PLC):

• Each product may have a different life cycle• PLC determines revenue earned• Contributes to strategic marketing planning• May help the firm to identify when

a product needs support, redesign, reinvigorating, withdrawal, etc.

• May help in new product development planning• May help in forecasting and managing cash flow

The Stages of the Product Life Cycle

• Development• Introduction/Launch• Growth• Maturity• Saturation• Decline• Withdrawal

The Development Stage

Initial Ideas

May come from any of the following :

Market research

Monitoring competitors

Planned research

Luck or intuition stumble across ideas?

Creative thinking

Futures thinking : what will people be

using/wanting/need

• New ideas/possible inventions• Market analysis – is it wanted? Can it

be produced at a profit? Who is it likely to be aimed at?

• Product Development and refinement

• Test Marketing – possibly local/regional

• Analysis of test marketing results and amendment of product/production process

• Preparations for launch – publicity, marketing campaign

Product Development

Stages

• Advertising and promotion campaigns

• Target campaign at specific audience?

• Monitor initial sales• Maximise publicity• High cost/low sales• Length of time – type of

product

Introduction/Launch

• Increased consumer awareness

• Sales rise• Revenues increase

• Costs - fixed costs/variable costs, profits may be made

• Monitor market – competitors reaction?

Growth

• Sales reach peak• Cost of supporting the product

declines• Ratio of revenue to cost high• Sales growth likely to be low• Market share may be high

• Competition likely to be greater• Price elasticity of demand?

• Monitor market – changes/amendments/new

strategies?

Maturity

Saturation

New entrants likely to mean market is ‘flooded’

Necessity to develop new strategies becomes more pressing: • Searching out new markets:

• Linking to changing fashions• Seeking new or exploiting market segments• Linking to joint ventures – media/music, etc.

• Developing new uses• Focus on adapting the product

• Re-packaging or format• Improving the standard or quality

• Developing the product range

• Product outlives/outgrows its usefulness/value

• Fashions change• Technology changes

• Sales decline• Cost 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?

Decline and

Withdrawal

Time

Development Introduction Growth Maturity Saturation Decline

Sales

Sales

Time

Effects of ExtensionStrategies

Sales/Profits

Time

PLC

Losses

Break Even

Profits

A means of analysing the product portfolio and

informing decision making about possible marketing

strategies

Classifies Products into four simple categories:

Stars

Cash cows

Dogs

Problem child

STARS products in markets experiencing high growth rates with a high or increasing share of the market .

Potential for high revenue growth

Cash CowsHigh market share

Low growth markets – maturity stage of PLC

Low cost support

High cash revenue – positive cash flows

DogsProducts in a low growth market

Have low or declining market share (decline stage of PLC)

Associated with negative cash flow

May require large sums of money to support

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 Stars

Dogs Cash Cows

Market Growth

Market Share

High

Low High

DogsAre they worth persevering with?

How much are they costing?

Could they be revived in some way?

How much would it cost to continue to support such products?

How much would it cost to remove from the market?

Problem Children

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?

Is it worth it?

StarsHuge potential

May have been expensive to develop

Worth spending money to promote

Consider the extent of their product life cycle in decision making

Cash CowsCheap to promote

Generate large amounts of cash – use for further R&D?

Costs of developing and promoting have largely gone

Need to monitor their performance – the long term?

At the maturity stage of the PLC?

The Ansoff Growth matrix is a tool that helps businesses

decide their product and market growth strategy.

Ansoff’s product/market growth matrix suggests that a

business’ attempts to grow depend on whether it markets

new or existing products in new or existing markets

Favorite definition is: "The Ansoff growth matrix assists

organizations to map strategic product market growth"

In order to make a worthwhile analysis it is also important to

consider other factors, such as the condition of the market. You

will need to know if it is in growth, decline or entering

recession. Competition levels and amount of resources available

need also to be taken into account.

The Ansoff Matrix was invented by H. Igor Ansoff. Ansoff was

primarily a mathematician with an expert insight into

business management

To portray alternative corporate growth strategies, Igor

Ansoff presented a matrix that focused on the firm's present

and potential products and markets (customers). By

considering ways to grow via existing products and new

products, and in existing markets and new markets,

New productsExisting products

New

mar

kets

Exi

stin

g m

arke

ts

Market penetration

Diversification Market

development

Product development

Looking at it from a business perspective, the low risk option is to

stay with your existing product in your existing market: you know

the product works, and the market holds few surprises for you.

However, you expose yourself to a whole new level of risk by

either moving into a new market with an existing product, or

developing a new product for an existing market. The new market

may turn out to have radically different needs and dynamics than

you thought, and the new product may just not be commercially

successful.

And by moving two quadrants and targeting a new market with a

new product, you increase your risk to yet another level!

Ansoff's matrix provides four different growth strategies:

Market Penetration - the firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share.

Market Development - the firm seeks growth by targeting its existing products to new market segments.

Product Development - the firms develops new products targeted to its existing market segments.

Diversification - the firm grows by diversifying into new businesses by developing new products for new markets.

MARKET PENETRATION

Market penetration is the name given to a growth

strategy where the business focuses on selling existing

products into existing markets.

Market penetration seeks to achieve four main objectives:

• Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling

• Secure dominance of growth markets

• Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors

• Increase usage by existing customers – for example by introducing loyalty schemes

A market penetration marketing strategy is very much about

“business as usual”. The business is focusing on markets and

products it knows well. It is likely to have good information on

competitors and on customer needs. It is unlikely, therefore, that

this strategy will require much investment in new market

research.

MARKET DEVELOPMENT

Market development is the name given to a growth strategy where the

business seeks to sell its existing products into new markets.

There are many possible ways of approaching this strategy, including:

• New geographical markets; for example exporting the product to a

new country

• New product dimensions or packaging

• New distribution channels

• Different pricing policies to attract different customers or create new

market segments

PRODUCT DEVELOPMENT

Product development is the name given to a growth strategy

where a business aims to introduce new products into existing

markets. This strategy may require the development of new

competencies and requires the business to develop modified

products which can appeal to existing markets

DIVERSIFICATION

Diversification is the name given to the growth strategy where a

business markets new products in new markets.

This is an inherently more risk strategy because the business is

moving into markets in which it has little or no experience.

For a business to adopt a diversification strategy, therefore, it

must have a clear idea about what it expects to gain from the

strategy and an honest assessment of the risks.