Market and Marketing Analysis (part 2)

Nur Aini Masrurohhttp://aini.staff.ugm.ac.id/ ; Email: aini@ugm.ac.id; n_masruroh@yahoo.com

Outline Product life cycle The Boston matrix Marketing strategy

Product Life Cycles 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

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

PLC: development stage May come from any of the following

Market research – identifies gaps in the market Monitoring competitors Planned research and development (R&D) Luck or intuition – stumble across ideas? Creative thinking – inventions, hunches? Futures thinking – what will people be

using/wanting/needing 5,10,20 years hence?

Product development: stages 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

PLC: introduction/launch Advertising and promotion campaigns Target campaign at specific audience? Monitor initial sales Maximise publicity High cost/low sales Length of time – type of product

PLC: Growth Increased consumer awareness Sales rise Revenues increase Costs - fixed costs/variable costs, profits

may be made Monitor market – competitors reaction?

PLC: maturity 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?

PLC: 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

Decline and withdrawal 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?

Product Life Cycle Sales

Time

Effects of Extension Strategies

Product Life Cycle Sales/Profits

Time

PLC and Profits

PLC

Losses

Break Even

Profits

The Boston Matrix the Boston Matrix is a well known tool for the marketing

manager

A means of analysing the product portfolio and informing decision making about possible marketing strategies

Developed by the Boston Consulting Group – a business strategy and marketing consultancy in 1968

Links growth rate, market share and cash flow

You would look at each individual product in your range (or portfolio) and place it onto the matrix. You would do this for every product in the range. You can then plot the products of your rivals to give relative market share.

The Boston Matrix

Cash CowsDogs

StarsProblem Children

Market Growth

Market Share

High

Low High

The Boston Matrix Classifies Products into four simple categories: Stars – products in markets experiencing high

growth rates with a high or increasing share of the market

- Potential for high revenue growth

The Boston Matrix

Cash Cows: High market share Low growth

markets – maturity stage of PLC

Low cost support High cash revenue

– positive cash flows

The Boston Matrix

Dogs: Products 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 Is your product starting to

embarrass your company?

The Boston Matrix

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 Matrix Implications: Dogs:

Are 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?

The Boston Matrix Implications: 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?

The Boston Matrix Implications: Stars:

Huge potential May have been expensive to develop Worth spending money to promote Consider the extent of their product life cycle in

decision making

The Boston Matrix Implications: Cash Cows:

Cheap 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 Product Life Cycle and the Boston Matrix

Sales

Time

AB

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

Marketing strategies Market penetration Market expansion Product development Diversification Marketing mix

Marketing Mix

PeoplePhysical evidenceprocess

Product Marketing tools to evaluate product

Three levels of a product Product life cycle Customer life cycle

Place, distribution, channel, or intermediary Six basic channel consideration:

Do we use direct or indirect channels? (e.g. 'direct' to a consumer, 'indirect' via a wholesaler).

Single or multiple channels. Cumulative length of the multiple channels. Types of intermediary (see later). Number of intermediaries at each level (e.g.

how many retailers in Southern Spain). Which companies as intermediaries to avoid

'intrachannel conflict' (i.e. infighting between local distributors)

Types of Channel Intermediaries Wholesalers

break down 'bulk' into smaller packages for resale by a retailer buy from producers and resell to retailers

Agents Agents are mainly used in international markets An agent will typically secure an order for a producer and will take a

commission Agents can be very expensive to train. They are difficult to keep

control of due to the physical distances involved. They are difficult to motivate

Retailers Retailers will have a much stronger personal relationship with

the consumer. The retailer will hold several other brands and products. A

consumer will expect to be exposed to many products Internet

Pricing strategies

Other pricing strategies Psychological Pricing.

This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example 'price point perspective' 99 cents not one dollar.

Product Line Pricing. Where there is a range of product or services the pricing reflect the

benefits of parts of the range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole package $6.

Optional Product Pricing. Companies will attempt to increase the amount customer spend once

they start to buy. Optional 'extras' increase the overall price of the product or service. For example airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other.

Value Pricing. This approach is used where external factors such as recession or

increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at McDonalds.

Other pricing strategies Captive Product Pricing

Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor

Product Bundle Pricing. Here sellers combine several products in the same package. This also

serves to move old stock. Videos and CDs are often sold using the bundle approach.

Promotional Pricing. Pricing to promote a product is a very common application. There are

many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free).

Geographical Pricing. Geographical pricing is evident where there are variations in price in

different parts of the world. For example rarity value, or where shipping costs increase price.

Promotion mix Personal Selling. Sales Promotion. Public Relations. Direct Mail. Trade Fairs and Exhibitions. Advertising. Sponsorship

Physical evidence Packaging. Internet/web pages. Paperwork (such as invoices, tickets and dispatch

notes). Brochures. Furnishings. Signage (such as those on aircraft and vehicles). Uniforms. Business cards. The building itself (such as prestigious offices or

scenic headquarters). Mailboxes and many others . . . . . .