http://www.bized.ac.uk
Product Life Cycles and the
Boston Matrix
Copyright 2005 - Biz/ed
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
Copyright 2005 - Biz/ed
http://www.bized.ac.uk
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
Copyright 2005 - Biz/ed
Product Life Cycles and the Boston
Matrix
• The Stages of the Product Life Cycle:
-  Development
- Introduction/Launch
- Growth
-  Maturity
- Saturation
-  Decline
- Withdrawal
Copyright 2005 - Biz/ed
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?
Copyright 2005 - Biz/ed
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
Copyright 2005 - Biz/ed
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
Copyright 2005 - Biz/ed
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?____________________________
Copyright 2005 - Biz/ed
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?
Copyright 2005 - Biz/ed
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
Copyright 2005 - Biz/ed
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?
Copyright 2005 - Biz/ed
Product Life Cycles and the Boston
Matrix
Sales
Development       Introduction        Growth                   Maturity             Saturation    Decline
Time
Copyright 2005 - Biz/ed
http://www.bized.ac.uk
Product Life Cycles and the Boston
Matrix
Sales
/
"N
y
/
/
Effects of Extension Strategies
Time
Copyright 2005 - Biz/ed
http://www.bized.ac.uk
Product Life Cycles and the Boston
Matrix     _________
Sales/Profits
PLC and Profits
PLC
Profits
Losses
Time
Break Even
Copyright 2005 - Biz/ed
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
Copyright 2005 - Biz/ed
The Boston Matrix
• Classifies Products into four simple categories:                                       A
• Stars - products in markets \ experiencing high growth rates//^ with a high or increasing share of the market
- Potential for high revenue growth
Copyright 2005 - Biz/ed
The Boston Matrix
■ -^"    *-•- r • Cash Cows:
-  High market share
-  Low growth markets -maturity stage of PLC
-  Low cost support
-  High cash revenue - positive cash flows
Copyright 2005 - Biz/ed
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
Copyright 2005 - Biz/ed
Is your product starting to embarrass your company?
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      pr0blem children - worth spending -   Potential for the          good money on?
future?
Copyright 2005 - Biz/ed
http://www.bized.ac.uk
The Boston Matrix
Market Growth
High
Problem Children
Dogs
Stars
Cash Cows
Low
Market Share —► High
Copyright 2005 - Biz/ed
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?
Copyright 2005 - Biz/ed
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?
Copyright 2005 - Biz/ed
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
Copyright 2005 - Biz/ed
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?
Copyright 2005 - Biz/ed
http://www.bized.ac.uk
The Product Life Cycle and the
Boston Matrix
Sales
Importance of maintaining a balance of products in the portfolio at different stages of the PLC - Boston Matrix helps with the analysis
Time
Copyright 2005 - Biz/ed