1. Market and Marketing Analysis (part 2) Nur Aini Masruroh http://aini.staff.ugm.ac.id/http://aini.staff.ugm.ac.id/ ; Email: aini@ugm.ac.id; n_masruroh@yahoo.comaini@ugm.ac.idn_masruroh@yahoo.com

2. Outline  Product life cycle  The Boston matrix  Marketing strategy

3. 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

4. Product life cycle

5. 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

6. 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?

7. 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

8. 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

9. PLC: Growth  Increased consumer awareness  Sales rise  Revenues increase  Costs - fixed costs/variable costs, profits may be made  Monitor market – competitors reaction?

10. 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?

11. 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

12. 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?

13. Product Life Cycle Sales Time Effects of Extension Strategies

14. Product Life Cycle Sales/Profits Time PLC and Profits PLC Losses Break Even Profits

15. 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.

16. The Boston Matrix Cash CowsDogs Stars Problem Children Market Growth Market Share High Low High

17. 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

18. The Boston Matrix  Cash Cows:  High market share  Low growth markets – maturity stage of PLC  Low cost support  High cash revenue – positive cash flows

19. 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?

20. 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?

21. 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?

22. 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?

23. 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

24. 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?

25. 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

26. Marketing strategies  Market penetration  Market expansion  Product development  Diversification  Marketing mix

27. Marketing Mix People Physical evidence process

28. Product  Marketing tools to evaluate product  Three levels of a product  Product life cycle  Customer life cycle

29. 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)

30. 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

31. Pricing strategies

32. 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.

33. 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.

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

35. 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......