Managing The Product Range Assignment Help
8.3. Managing The Product Range
The product life cycle (PLC) is a useful concept to describe how products progress from introduction through to obsolescence. The theory is that products, like living things, have a natural life cycle beginning with introduction, going through a growth phase, reaching maturity, then going into decline, and finally becoming obsolete. In the introduction phase, the product's sales grow slowly, and the profit will be small or negative because of heavy promotion costs and production inefficiencies. If the product is very new, there will also be the need to persuade retailers and others to stock the product. In the growth stage, there will be a rapid increase in sales as the product becomes better known. At this stage profits begin to grow, but competition will also be entering the market so the producer may now need to think about adapting the product to meet the competitive threat.In the maturity phase the product is well known and well established: at this point the promotional spend eases off and production economies of scale become established. By this time competitors will almost certainly have entered the market, so the firm will need to develop a new version of the product. In the decline phase, the product is losing market share and profitability rapidly. At this stage the marketer must decide whether it is worthwhile supporting the product for a little longer, or whether it should be allowed to disappear; supporting a product for which there is little natural demand is very unprofitable, but sometimes products can be revived and relaunched, perhaps in a different market. The assumption is that all products exhibit this life cycle, but the timescale will vary from one product to the next. Some products, for example computer games, may go through the entire life cycle in a matter of months. Others, like pitta bread, have a life cycle measured in thousands of years, and may never become obsolete. The product life cycle concept is a useful way of looking at product development, but like many simple theories it has a number of flaws:
- The theory assumes that changes in consumer preference go only one way, and that there is no swing back to an earlier preference. Some clothing fashions return after a few years, and some styles of music enjoy periodic revivals, but also some traditional products can suddenly become popular again, often following advertising campaigns based on nostalgia.
- The model assumes that nobody does anything to revive the product when it begins to decline or be superseded by other products. Most marketers would look at their declining products and decide whether a revival is possible, or worthwhile.
- The model looks at only one product, whereas most marketing managers have to balance the demands of many differing products, and decide which ones are most likely to yield the best return on investment.
To answer some of these criticisms, Enis et al.3 re-designed the product life cycle. In this more detailed model, the maturity phase now includes a section of maintenance, and one of proliferation. Maintenance is where the marketing manager is using various tactics (sometimes called mid-life kickers) to keep the product in the public eye and maintain sales, and proliferation is where the firm introduces variations on the original product in order to extend the life cycle. Sometimes these maintenance tactics will keep the product alive and successful for many years, but eventually the PLC theory implies that the product will be superseded and will go into decline. Note here that the PLC concept is useful to describe what is happening, but is not much use for predicting what is going to happen, since it is virtually impossible to tell how long the maturity phase will continue. This makes it difficult to use as a decision-making device; marketers are not easily able to tell which part of the product life cycle the product currently occupies. A temporary fall-off in sales might be caused by extraneous factors such as recessions or new competitive activity, without actually heralding the beginning of the decline phase. Most firms produce several different products at the same time, and it is possible to superimpose the PLC diagrams for each product onto the graph to give a composite view of what is happening to the firm’s product portfolio. This will give a long-term overview, but the problems of prediction still remain; for many managers, a ‘snapshot’ of what is happening now is more useful. The Boston Consulting Group (BCG) developed a matrix for decision-making in these circumstances.
- Stars are products with rapid growth and a dominant share of the market. Usually, the costs of fighting off the competition and maintaining growth mean that the product is actually absorbing more money than it is generating, but eventually it is hoped that it will be the market leader and the profits will begin to come back in. The problem lies in judging whether the market is going to continue to grow, or whether it will go down as quickly as it went up. It may be difficult to judge whether a Star is going to justify all the money that is being poured in to maintain its growth and market share, but a firm that does not do this will end up with just Dogs. Even the most successful Star will eventually decline as it moves through the life cycle. The most prominent examples of Stars at present are dot.com companies such as Lastminute.com, which have shown astronomical growth in a rapidly expanding market, but which have yet to show a profit.
- Cash Cows are the former Stars. They have a dominant share of the market, but are now in the maturity phase of the life cycle and consequently have low growth. A Cash Cow is generating cash, and can be milked’ of it to finance the Stars. These are the products that have steady year-in year-out sales and are generating much of the firm’s profits.
- Dogs have a low market share and low growth prospects. The argument here is not whether the product is profitable; it almost always is. The argument is about whether the firm could use its production facilities to make something that would be more profitable, and this is also almost always the case.
- The Problem Child (?) has a small share of a growth market, and causes the marketer the most headaches since it is necessary to work out a way of building market share so as to turn the product into a Star. This means finding out why the share is so low, and developing strategies to increase market share rapidly. The Problem Child (or question mark) could be backed with an even bigger promotion campaign, or it could possibly be adapted in some way to fit the market better.
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Like the product life cycle, the BCG matrix is a simple model that helps marketers to approach strategic product decisions; again, like the PLC, it has a number of flaws. It is based on the following assumptions:
- Market share can be gained by investment in marketing. This is not always the case: some products will have lost their markets altogether (perhaps through environmental changes) and cannot be revived, no matter how much is invested.
- Market share gains will always generate cash surpluses. Again, if market share is gained by drastic price cutting, cash may actually be lost.
- Cash surpluses will be generated when the product is in the maturity stage of the life cycle. Not necessarily so; mature products may well be operating on such small margins due to competitive pressure that the profit generated is low.
- The best opportunity to build a dominant market position is during the growth phase. In most cases this would be true, but this does not take account of competition. A competitor’s product might be growing even faster.
In 1982 Barksdale and Harris proposed two additions to the BCG matrix.
- War Horses have high market share, but the market has negative growth; the problem for management is to decide whether the product is in an irreversible decline, or whether it can be revived, perhaps by repositioning into another market.
- Dodos have a low share of a negative growth market, and are probably best discontinued.
The BCG matrix has proved a useful tool for analysing product portfolio decisions, but it is really only a snapshot of the current position with the products it describes. Since most markets are to a greater or lesser extent dynamic, the matrix should be used with a certain degree of caution. The size of the product portfolio and the complexity of the products within it can have further effects on the firm’s management. For example, it has been shown that manufacturing a wide range of products with many options makes it difficult for the firm to use just-in-time purchasing techniques, and complicates the firm’s supply activities.
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