Top marketing models of all timeComplied by: Dr Dennis Mark Laxton

Just like human every brand and product has also its life time in this world. Some brands are born for very short time period and people may be customers or competitors rejected them and compelled them to die. For instance a social community website “ORKUT” that almost quit from the market due to its weak strategies and strong competitors like Face book and Twitter. But some brands live long lasting life that never end like Pepsi and Coke.

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Product life cycle consist of different stages that a product or brand must occupies in its life. There is a chance of missing one or more stage in product life cycle i.e. one product can be directly shift from introduction stage to decline. Market rejects these products and compels to die.

There are five stages in Product Life Cycle:

1. Product Development or Research and Development Stage

2. Introduction Stage

3. Growth Stage

4. Maturity Stage

5. Decline Stage

All the stages are explained below:

Product Development or Research and Development Stage

This is the pre-lunched and very beginning stage of any product or brand. In this stage product is on the table of experiment and research. Manufacturers, in this stage try to make product according to customers need. Initial work done on this stage and research and development, that may any product need also done in this stage. Very heavy cost occurs in this stage and manufacturer bear only loss in this stage. This is not actual loss but this is pre-lunched expenditure. But if product fails in this stage then all the expenditure turned in to loss.

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On graph Red line is showing sales made by that particular product or brand and in this stage sales line is on the X-axis and also parallel to X-axis it means in this stage product never make any sale as this is pre-lunched stage of product life cycle. Blue line which is representing profit is below the X-axis which means product in not earning profit it is in the loss.

In this stage company try to hide all the information regarding product from the market and its competitors because it is too dangerous for one company to spread product’s information before it launching. No marketing and advertising expense made on this stage because of secrecy. All the cost spend on this stage is development and research cost.

Introduction Stage

This is the second stage of product life cycle. After pre launched step, product development, this is the after launching step. In this step company launch its product in the market and start selling it. Now product is available in the market to all customers.

In this stage company try to invest heavy budget on marketing and advertising on product because this is the first step of product in the market and product needs advertisement and promotions.

In this stage company also bears more cost because of advertisement and marketing activities regarding product. Although product available in market and also starts selling but revenue is not enough to cover all the expenditure so we can say that product starts covering its all expenditures and cost.

In the graph, red line is just above the X-axis which means it just starts it selling and with the passage of time it will make more and more sale. And the blue line representing profit is below the X-axis which means no profits earns in this stage and all the sales are now covering previous cost.

Growth Stage

After the introduction of product in the market, company knows the response of customer toward its product. If company found customers are appreciating its product and purchasing more units then product is shifting itself in to next stage” Growth stage”.

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Growth is the third stage of product life cycle. In this stage company also make heavy investment on advertising and marketing of product because competition is high and product needs some support from company in term of advertising. For becoming no 1 product in the market, manufacturer try to invest more money on the product but product also return to the company. Now product is filmier with market and everyone knows about it. So product is now earning profit for its owner.

In the graph, red line is now vertically going upward which means product is now on the road. Product is generating more revenue and covering its all cast. Blue line representing profit ratio earned by the brand, is now getting above the X-axis and representing huge profit. Now product is in the profit. All the expenditure is covered and product is now bearing cost by itself.

With comparison to introducing stage, growth time period is little bit short. If market accepts it then product will quickly pass into growth stage. With proper backup and support in terms of advertisement, promotions and marketing related activities, product will quickly reach in next era.

Maturity Stage

After growth stage, next stage is maturity stage. Product is mature and very much familiar with market conditions and on top position. In the maturity stage, product enjoys it high market share and cashing brand name.

In this stage low investment required for advertisement and promotions because everyone knows about product and ad displays just for exposure and support. Advertisement made for sustaining positions not for make more sales.

Now product is earning high profit and on its peak time. Market conditions are mature. Competitors also know about product market share.

Graph showing red line parallel to X-axis but distance from X-axis is very high. In this stage red line remains constant and no variations occur in the graph. Blue line which is representing profit is same with sales line but distance with X-axis is low because profit cannot increase from sales. Profit line is on the peak and horizontal.

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This is the last stage of gaining more market share. Product now cannot gain more market share each and every activity done just for sustaining market share.

Decline Stage

Everything in this world has to die. Here die means quitting from the market. Product, after long time enjoying profit and sales, goes down in the market. There may be many reasons of it i.e. technology can be changed and new technology can make good product as compare to previous so in this stage customers change their preferences and shift to other product. Sales go down and profit also.

No need to invest more money on product in this stage. You will definitely not waste your 10 dollars to save your one dollar. Yes, manufacturers try to make other product more efficient and more attached with customers needs.

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Ansoff MatrixThe Ansoff Growth matrix is another marketing planning tool that helps a business determine its 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.

The output from the Ansoff product/market matrix is a series of suggested growth strategies which set the direction for the business strategy. These are described below:

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

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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: for example New distribution channels (e.g. moving from selling via retail to selling using

e-commerce and mail order) Different pricing policies to attract different customers or create new market

segments

Market development is a more risky strategy than market penetration because of the targeting of new markets.

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.

A strategy of product development is particularly suitable for a business where the product needs to be differentiated in order to remain competitive.  A successful product development strategy places the marketing emphasis on:

Research & development and innovation Detailed insights into customer needs (and how they change) Being first to market

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.  However, for the right balance between risk and reward, a marketing strategy of diversification can be highly rewarding.

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The BCG matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit. To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. It has 2 dimensions: market share and market growth. The basic idea behind it is that the bigger the market share a product has or the faster the product's market grows, the better it is for the company.

Placing products in the BCG matrix results in 4 categories in a portfolio of a company:

Cash Cow - a business unit that has a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be used to invest in other business units.

Star - a business unit that has a large market share in a fast growing industry. Stars may generate cash, but because the market is growing rapidly they require investment to maintain their lead. If successful, a star will become a cash cow when its industry matures.

Question Mark (or Problem Child) - a business unit that has a small market share in a high growth market. These business units require resources to grow market share, but whether they will succeed and become stars is unknown.

Dog - a business unit that has a small market share in a mature industry. A dog may not require substantial cash, but it ties up capital that could better be deployed elsewhere. Unless a dog has some other strategic purpose, it should be liquidated if there is little prospect for it to gain market share.

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Some limitations of the Boston Consulting Group Matrix include:

High market share is not the only success factor Market growth is not the only indicator for attractiveness of a market Sometimes Dogs can earn even more cash as Cash Cows

The BCG Matrix method can help understand a frequently made strategy mistake: having a one-size-fits-all-approach to strategy, such as a generic growth target (9 percent per year) or a generic return on capital of say 9.5% for an entire corporation.

In such a scenario:

A. Cash Cows Business Units will beat their profit target easily; their management have an easy job and are often praised anyhow. Even worse, they are often allowed to reinvest substantial cash amounts in their businesses which are mature and not growing anymore.

B. Dogs Business Units fight an impossible battle and, even worse, investments are made now and then in hopeless attempts to 'turn the business around'.

C. As a result (all) Question Marks and Stars Business Units get mediocre size investment funds. In this way they are unable to ever become cash cows. These inadequate invested sums of money are a waste of money. Either these SBUs should receive enough investment funds to enable them to achieve a real market dominance and become a cash cow (or star), or otherwise companies are advised to disinvest and try to get whatever possible cash out of the question marks that were not selected.

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McKinsey / GE MatrixThe business portfolio is the collection of businesses and products that make up the company. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities.

The company must:

(1) Analyse its current business portfolio and decide which businesses should receive more or less investment, and

(2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at the same time deciding when products and businesses should no longer be retained.

The two best-known portfolio planning methods are the Boston Consulting Group Portfolio Matrix and the McKinsey / General Electric Matrix (discussed in this revision note). In both methods, the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. An SBU is a unit of the company that has a separate mission and objectives and that can be planned independently from the other businesses. An SBU can be a company division, a product line or even individual brands - it all depends on how the company is organised.

The McKinsey / General Electric Matrix

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The McKinsey/GE Matrix overcomes a number of the disadvantages of the BCG Box. Firstly, market attractiveness replaces market growth as the dimension of industry attractiveness, and includes a broader range of factors other than just the market growth rate. Secondly, competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed.

The diagram below illustrates some of the possible elements that determine market attractiveness and competitive strength by applying the McKinsey/GE Matrix to the UK retailing market:

Factors that Affect Market Attractiveness

Whilst any assessment of market attractiveness is necessarily subjective, there are several factors which can help determine attractiveness. These are listed below:

- Market Size- Market growth- Market profitability- Pricing trends- Competitive intensity / rivalry- Overall risk of returns in the industry- Opportunity to differentiate products and services- Segmentation- Distribution structure (e.g. retail, direct, wholesale

Factors that Affect Competitive Strength

Factors to consider include:

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- Strength of assets and competencies- Relative brand strength- Market share- Customer loyalty- Relative cost position (cost structure compared with competitors)- Distribution strength- Record of technological or other innovation- Access to financial and other investment resources

7 Ps – marketing mix

Product, Price, Place, Promotion, People, Process and Physical evidence – these elements of the marketing mix form core tactical components of a marketing plan.

USP

Unique Selling Proposition is the concept that brands should make it clear to potential buyers why they are different and better than the competition.

Boston Consulting Group Matrix

This model categorises products in a portfolio as Stars, Cash Cows, Dogs and Question Marks, by looking at market growth and market share.

Brand positioning map

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This model allows marketers to visualise a brand’s relative position in the market place by plotting consumer perceptions of the brand and competitor brands against the attributes that drive purchase.

Customer Lifetime Value

Customer Lifetime Value is the concept used to assess what a customer is worth, based on the present value of future revenue attributed to a customer’s relationship with a product.

Growth strategy matrix

Ansoff’s matrix identifies alternative growth strategies by looking at present and potential products in current and future markets. The four growth strategies are market penetration, market development, product development and diversification.

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Loyalty ladder

This model shows the steps a person takes before becoming loyal to a brand as they move through the stages of prospect, customer, client, supporter and advocate.

PESTLE

As an extension of the traditional PEST model, this analysis framework is used to assess the impact of macro-environmental factors on a product or brand – political, economical, social, technological, legal and economic.

Porter’s Five Forces

The five forces are Rivalry, Supplier power, Threat of substitutes, Buyer power and Barriers to entry and are used to analyse the industry context in which the organisation operates.

Product Life Cycle

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This model plots the natural path of a product as it moves through the stages of Introduction, Growth, Maturity, Saturation and Decline.

Segmentation, Targeting and Positioning

This three stage process involves analysing which distinct customer groups exist and which segment the product best suits before implementing the communications strategy tailored for the chosen target group.

SOSTAC

This acronym stands for Situation, Objectives, Strategy, Tactics, Actions, Control and is a framework used when creating marketing plans.

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McKinsey Growth Pyramid - Growth Strategy

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Introduction

This model is similar in some respects to the well-established Ansoff Model. However, it looks at growth strategy from a slightly different perspective.

The McKinsey model argues that businesses should develop their growth strategies based on:

• Operational skills• Privileged assets• Growth skills• Special relationships

Growth can be achieved by looking at business opportunities along several dimensions, summarised in the diagram below:

• Operational skills are the “core competences” that a business has which can provide the foundation for a growth strategy. For example, the business may have strong competencies in customer service; distribution, technology.

• Privileged assets are those assets held by the business that are hard to replicate by competitors. For example, in a direct marketing-based business these assets might include a particularly large customer database, or a well-established brand.

• Growth skills are the skills that businesses need if they are to successfully “manage” a growth strategy. These include the skills of new product development, or negotiating and integrating acquisitions.

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• Special relationships are those that can open up new options. For example, the business may have specially string relationships with trade bodies in the industry that can make the process of growing in export markets easier than for the competition.

The model outlines seven ways of achieving growth, which are summarised below:

Existing products to existing customers

The lowest-risk option; try to increase sales to the existing customer base; this is about increasing the frequency of purchase and maintaining customer loyalty

Existing products to new customers

Taking the existing customer base, the objective is to find entirely new products that these customers might buy, or start to provide products that existing customers currently buy from competitors

New products and services

A combination of Ansoff’s market development & diversification strategy – taking a risk by developing and marketing new products. Some of these can be sold to existing customers – who may trust the business (and its brands) to deliver; entirely new customers may need more persuasion

New delivery approaches

This option focuses on the use of distribution channels as a possible source of growth. Are there ways in which existing products and services can be sold via new or emerging channels which might boost sales?

New geographies

With this method, businesses are encouraged to consider new geographic areas into which to sell their products. Geographical expansion is one of the most powerful options for growth – but also one of the most difficult.

New industry structure

This option considers the possibility of acquiring troubled competitors or consolidating the industry through a general acquisition programme

New competitive arenas

This option requires a business to think about opportunities to integrate vertically or consider whether the skills of the business could be used in other industries.

Value Chain Analysis

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Introduction

Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business.

Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings:

(1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and

(2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities.

Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("out sourced").

Linking Value Chain Analysis to Competitive Advantage

What activities a business undertakes is directly linked to achieving competitive advantage. For example, a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition. By contrast, a strategy based on seeking

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cost leadership will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used.

Primary Activities

Primary value chain activities include:

Primary Activity Description

Inbound logistics All those activities concerned with receiving and storing externally sourced materials

Operations The manufacture of products and services - the way in which resource inputs (e.g. materials) are converted to outputs (e.g. products)

Outbound logistics

All those activities associated with getting finished goods and services to buyers

Marketing and sales

Essentially an information activity - informing buyers and consumers about products and services (benefits, use, price etc.)

Service All those activities associated with maintaining product performance after the product has been sold

Support Activities

Support activities include:

Secondary Activity

Description

Procurement This concerns how resources are acquired for a business (e.g. sourcing and

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negotiating with materials suppliers)

Human Resource Management

Those activities concerned with recruiting, developing, motivating and rewarding the workforce of a business

Technology Development

Activities concerned with managing information processing and the development and protection of "knowledge" in a business

Infrastructure Concerned with a wide range of support systems and functions such as finance, planning, quality control and general senior management

Steps in Value Chain Analysis

Value chain analysis can be broken down into a three sequential steps:

(1) Break down a market/organisation into its key activities under each of the major headings in the model;

(2) Assess the potential for adding value via cost advantage or differentiation, or identify current activities where a business appears to be at a competitive disadvantage;

(3) Determine strategies built around focusing on activities where competitive advantage can be sustained

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