Products and Markets 2
Transcript of Products and Markets 2
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Products and Markets 2Products and Markets 2Business StrategyBusiness Strategy
Prof. Rushen ChahalProf. Rushen Chahal
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Product Life CycleProduct Life Cycle
Introduction stageIntroduction stageGrowth stageGrowth stage
Maturity stageMaturity stageDecline stageDecline stage
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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
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
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Growth Stage of the Product Life CycleGrowth Stage of the Product Life Cycle
Sales
Sales
Costs
Costs
Profits
Profits
Marketing Objectives
Marketing Objectives
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
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M aturity Stage of the Product Life CycleM aturity Stage of the Product Life Cycle
Sales
Sales
Costs
Costs
Profits
Profits
Marketing Objectives
Marketing Objectives
Product
Product
Price
Price
Peak sales
Peak sales
Low cost per customer
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
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D ecline Stage of the Product Life CycleD ecline Stage of the Product Life Cycle
Sales
Sales
Costs
Costs
Profits
Profits
Marketing Objectives
Marketing Objectives
Product
Product
Price
Price
Declining sales
Declining sales
Low cost per customer
Low cost per customer
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
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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
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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 ..
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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
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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.
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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 ..
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1 21 2
T he Boston Consulting GroupsT he Boston Consulting GroupsGrowthGrowth- -Share MatrixShare Matrix
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?
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
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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
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Understanding the BCG MatrixUnderstanding the BCG Matrix
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
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Understanding the BCG MatrixUnderstanding the BCG Matrix
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
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Understanding the BCG MatrixUnderstanding the BCG Matrix
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
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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
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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 .
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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
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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
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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
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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