Iarb reba2 m3_t2_s1


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Iarb reba2 m3_t2_s1

  1. 1. STUDY GUIDEPage 1/11Previous Contents Next
  2. 2. Product Portfolio Management (PPM)• PPM and the PLC• Strategic objectives across the PLC• Extending the PLCStudy guide: PPM and the Product Lifecycle (PLC)Page 2/11Previous Contents Next
  3. 3. Product Portfolio Management (PPM)PPM and the PLCA Product Portfolio Manager begins their task by first establishing where on theproduct lifecycle (PLC) each of their products currently sits. They do this by trackingthe trends of key metrics like sales, revenues and profits and understanding thecompetitive and market dynamics for each of their products.The next step then is to establish the strategic objectives and of their product considera series of strategic and tactical actions for their portfolio of products, depending onthe stage of the lifecycle they are in.The concept of a lifecycle was first applied to products in the 1950s. According to thistheory, all products have lifecycles, defined at the period from their development(incubation) of the product through its introduction (birth), growth (youth), maturity(middle age/old age) and subsequent decline and withdrawal from the market (death).These broad phases can be clearly identified by plotting on a graph the volume ofsales across the lifetime of the product.Page 3/11Previous Contents Next
  4. 4. Product Portfolio Management (PPM)PPM and the PLCAdditionally, at each stage of the product’s sales lifecycle, we can measure therevenue and costs of the product, and hence determine the profits that the productmakes and track the profit made on the product over time.It is important to keep in mind that the PLC is not deterministic, i.e., while all productswill follow this shape, the size of the curve (the amount of sales or profits made) or thelength of each stage will be determined by the strategies undertaken by the business.Managing the product through its lifecycle is therefore a critical issue for businesses.The PLC is a very effective management tool in this activity because it helps productmanagers to understand which stage their product is in currently, what might happennext and what strategies are appropriate at this stage of the lifecycle.As with any statically determined model, the higher the level of aggregation at whichwe view the information, the better the model fits the data. Hence the PLC is found towork best at the level of the product category or sub-category. It may be less accurateat the level of a particular brand or model, though the general shape of the curvecontinues to be consistent.Page 4/11Previous Contents Next
  5. 5. Product Portfolio Management (PPM)PPM and the PLCThe PLC is usually designated as having five majorphases. These are:1. Development2. Introduction3. Growth4. Maturity5. DeclineThe amount of time that a product stays in each stagemay vary from weeks and months to years and decades.The sales volume achieved in each stage is a function ofa number of factors of which two stand out. These arethe potential demand in the market for the product, andcompetitive strategy.Page 5/11Previous Contents Next
  6. 6. Product Portfolio Management (PPM)PPM and the PLCPage 6/11RevenuesProduct Life CycleDevelopment Introduction Growth Maturity DeclineRevenue/ProfitTimeProfitsPrevious Contents Next
  7. 7. Product Portfolio Management (PPM)Strategic objectives across the PLCThis table summarises the strategic objectives that a product manager must set fortheir product across the PLC.Page 7/11Previous Contents Next
  8. 8. Product Portfolio Management (PPM)Page 8/11Development Introduction Growth Maturity DeclineProductPricePromotionDistributionCompetitiveforcesDesign and testing of aproduct that best meetsthe needs of a targetcustomer setBuild awareness andtrial; establish astrong market shareMaintain/growmarket shareDefendmarket shareSqueeze any leftoverprofits from the productMinimum orno variationsMinimum orno variationsProduct featureenhancement;multiplevariations/extensionsVery minor productenhancementsMinimum orno variationsPre-selling todistributors atattractive pricesSkimming oraggressive marketpenetration pricingPricing reduction to grabmarket sharePrice movementsto defend market shareCreation ofawareness indistribution channelsAggressiveawareness buildingfor both customersand distributionchannelEstablishmarket/brandleadershipMaintain brandpositioningDeclining spend with afocus on narrowertarget segmentsEstablish launchdistribution channelsthat will allow forreasonable productavailability to earlyadoptersSlowly expanddistribution channels asdemand builds; highmargins for distributionchannels to ensurethey provide shelfspaceAll possible distributionchannels to ensurecustomer demand canbe met; distributionchannel margins startto reduceAll possible distributionchannels to ensurecustomer demand canbe met; low margins fordistribution channelNil As product begins tobecome popular,aggressivecompetitors enterAggressivecompetition based onproduct different;competition fordistribution channelsDeeply entrenchedcompetitors with well-established market shares;less capable competitorshave left the marketNo/very small numberof competitorsOverallStrategyMaintain or even raiseprice to achieve smallprofitOnly specialistdistribution channel/lowest-cost channelsare kept alivePrevious Contents Next
  9. 9. Product Portfolio Management (PPM)Extending the PLCIt is possible to extend the PLC and keep a product in an extended maturity or growthstage, sometimes even reversing from a decline stage. This can be done through oneor more of the following three strategies:1. Increase the use of the product amongst existing users. This is achieved bycreating opportunities for existing customers to use the product more often. Forexample in the credit cards industry, by increasing the number and type of merchantsthat accept cards, we can increase the usage/revenues from the product. In thetoothpaste industry this has been achieved by encouraging customers to brush theirteeth after every meal rather than once a day.Page 9/11Previous Contents Next
  10. 10. Product Portfolio Management (PPM)Extending the PLC2. Create new uses for the product. This can be done by creating product variantsand repackaging the product. A good example of this is the development of Kellogg’sCereal Snack bars, which has extended the lifecycle of the base cereal product bycreating a snacking product that can be eaten at times other than breakfast.3. Identify new customers. This is achieved by expanding into new geographies ornew socio-economic or psychographic groups. A good example of this strategy isexpanding the sale of toothpaste into developing countries or launching wealth-management products into Latin America and Africa.Page 10/11Previous Contents Next
  11. 11. Product Portfolio Management (PPM)Extending the PLCThe table of strategic objectives, demonstrates the complexity of the task for a product managerwhen looking across a portfolio of products. Products in different stages may be combined toform a diversified product portfolio, which can reduce risk. Mature products with strong, steadycash-flows can help balance the cash-flow deficit of products in the pioneering stage, which willlower the risk of bankruptcy. A balanced product portfolio will also help smooth production andpersonnel needs. Low unit sales in the introduction and decline stages can be offset by highersales during the growth and maturity phases. This will facilitate scheduling as well as increasethe stability and efficiency of operations. If the company desires to be a healthy, ongoingconcern, it cannot rely on only one product that will eventually reach maturity and decline.Instead, it should maintain a portfolio of several products – ideally, at least one product in eachPLC stage. The cash-flows generated by mature and declining products can feed the cash-flowneeds of new, developing products, creating a continuous cycle of evolution. One generation ofproducts can help give birth to the next. Cash resources need not come from the capital market,but rather from those units that generate cash-flows. In this way, the firm can perpetuate itself asa continually evolving, viable system.Page 11/11End of sectionPrevious Contents Next