Copyright 2006 – Biz/ed Product Life Cycles and the Boston Matrix

Copyright 2006 – Biz/ed 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 Hasbro Hasbro Managing product portfolio is important for cash flow

Copyright 2006 – Biz/ed Product Life Cycles The Stages of the Product Life Cycle: –Introduction/Launch –Growth –Maturity –Decline

Copyright 2006 – Biz/ed Product Life Cycles Sales Time Research & Development IntroductionGrowthMaturitySaturationDecline

Copyright 2006 – Biz/ed Product Life Cycles Sales/Profits Time PLC and Profits PLC Losses Break Even Profits

Copyright 2006 – Biz/ed StageSalesMarketing Intro Growth Maturity Decline

Copyright 2006 – Biz/ed Intro Focus is on promotion and production Product awareness (promotions) Least profitable stage

Copyright 2006 – Biz/ed Growth Increasing sales and profits Competition is starting to offer product Advertising focus on building the brand

Copyright 2006 – Biz/ed Maturity Sales level off/slow down Most of TM now owns product Promotion widespread Price wars with competition; some leave market, question—can we continue to improve?

Copyright 2006 – Biz/ed Decline Sales fall Consumer tastes change Drop product? Modernize it or alter it

Copyright 2006 – Biz/ed Product Life Cycles Each product may have a different life cycle PLC determines revenue earned 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 managing cash flow

Copyright 2006 – Biz/ed The Boston Matrix Problem ChildrenStars DogsCash Cows Market Growth Market Share High Low High

Copyright 2006 – Biz/ed Market Share Market share is the percentage of the total market that is being serviced by your company. The higher your market share, the higher the proportion of the market you control.

Copyright 2006 – Biz/ed Market Growth Market growth is used as a measure of a market's attractiveness. Markets experiencing high growth are ones where the total market is expanding, meaning that it’s relatively easy for businesses to grow their profits, even if their market share remains stable.

Copyright 2006 – Biz/ed The Boston Matrix Dogs (low market share, low growth): –These units typically "break even", Are they worth persevering with? –How much are they costing? –Could they be revived in some way? –They depress a profitable company's return on assets ratio, used by many investors to judge how well a company is being managed.

Copyright 2006 – Biz/ed The Boston Matrix Problem Children (low market share, high growth): –growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash. –What are the chances of these products securing a hold in the market? (and becoming Stars?) –How much will it cost to promote them to a stronger position? –Is it worth it?

Copyright 2006 – Biz/ed The Boston Matrix Stars (high market share, high growth): –The hope is that stars become the next cash cows –May have been expensive to develop –Worth spending money to promote

Copyright 2006 – Biz/ed The Boston Matrix Cash Cows (high market share, low growth): –Cheap to promote –generate cash in excess of the amount of cash needed to maintain the business– use for further R&D? –Costs of developing and promoting have largely gone –At the maturity stage of the PLC? –They are to be "milked" continuously with as little investment as possible

Copyright 2006 – Biz/ed

As a particular industry matures and its growth slows, all business units become either cash cows or dogs. The natural cycle for most business units is that they start as problem children, then turn into stars. Eventually the market stops growing thus the business unit becomes a cash cow. At the end of the cycle the cash cow turns into a dog.

Copyright 2006 – Biz/ed The Product Life Cycle and the Boston Matrix Sales Time A B 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