Product Life Cycles and the Boston Matrix Product Life Cycles and the Boston Matrix • 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 Product Life Cycles and the Boston Matrix • 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 Product Life Cycles and the Boston Matrix • The Stages of the Product Life Cycle: – Development – Introduction/Launch – Growth – Maturity – Saturation – Decline – Withdrawal Product Life Cycles and the Boston Matrix • The Development Stage: • Initial Ideas – possibly large number • 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? Product Life Cycles and the Boston Matrix • 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 Product Life Cycles and the Boston Matrix • 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 Product Life Cycles and the Boston Matrix • Growth: – Increased consumer awareness – Sales rise – Revenues increase – Costs - fixed costs/variable costs, profits may be made – Monitor market – competitors reaction? Product Life Cycles and the Boston Matrix • 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? Product Life Cycles and the Boston Matrix • 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 Product Life Cycles and the Boston Matrix • 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? Product Life Cycles and the Boston Matrix The Boston Matrix • The Boston Matrix: – 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 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 The Boston Matrix • Cash Cows: – High market share – Low growth markets – maturity stage of PLC – Low cost support – High cash revenue – positive cash flows 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 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? The Boston Matrix 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? 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? 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 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? The Product Life Cycle and the Boston Matrix Bostonská matice – zdroj : http://www.dpu.se/boston_e.html And the reality....