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BCG Matrix & PLC
- 1. Professional English in use: Marketing Instructor: Ms. Nguyen Khoa Hong Minh
- 2. “ ” 1. Product Life Cycles 2. The Boston Matrix 3. The relationship between PLC and BCG matrix Product Life Cycles & the Boston Matrix
- 4. 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
- 5. Product Life Cycles 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. Product Life Cycles The Stages of the Product Life Cycle: Development Introduction/Launch Growth Maturity Saturation Decline/Withdrawal
- 7. Product Life Cycles 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 Creative thinking – inventions, feeling Futures thinking – what will people be using/wanting/needing 5,10,20 years hence?
- 8. Development stage MS DOS -> windows iPhone - > smart phones Nano technologies Kinect sensors -> Robotics->
- 9. Product Life Cycles 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
- 10. Product Life Cycles 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
- 11. Product Life Cycles Growth: Increased consumer awareness Sales rise Revenues increase Costs - fixed costs/variable costs, profits may be made Monitor market – competitors reaction?
- 12. Product Life Cycles 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?
- 13. Product Life Cycles 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
- 14. Product Life Cycles 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?
- 15. Product Life Cycles Sales Time Development Introduction Growth Maturity Saturation Decline
- 16. Product Life Cycles and the Boston Matrix Sales Time Effects of Extension Strategies
- 17. Product Life Cycles Sales/Profits Time PLC and Profits PLC Losses Break Even Point Profits
- 19. 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
- 20. 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
- 21. The Boston Matrix Cash Cows: High market share Low growth markets – maturity stage of PLC Low cost support High cash revenue – positive cash flows
- 22. 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?
- 23. 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?
- 24. The Boston Matrix Problem Children Stars Dogs Cash Cows Market Growth Market Share High Low High
- 25. 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?
- 26. 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?
- 27. 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
- 28. 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?
- 34. The organization has a portfolio of all its products and can see how well they are performing in the markets and assess their strengths and weaknesses.
- 35. It is very hard to assess the market share of the product and of the market growth rate. It is also difficult to assess which box in the cell matrix the product will fall into as in different markets when dealing internationally, a cash cow at home might be a star or a novelty product in another market.
- 36. The relationship between the PLC and the BCG Matrix
- 37. The difference between the BCG Matrix and the Product life cycle 1. The corporate business Is divided into four categories from two aspects of market share and anticipated growth rate; However, the product life cycle is divided into four stages from two a spects of sales and time.
- 38. The difference between the BCG Matrix and the Product life cycle 2. The BCG Matrix can roughly judge enterprise's overall operating conditions, but the product life cycle only reflects the market per formance of a single product.
- 39. The difference between the BCG Matrix and the Product life cycle 3. The BCG matrix mainly studies the allocation and use of corporate resources, but the produce life cycle mainly studies the use of the product marketing strategy.
- 40. The difference between the BCG Matrix and the Product life cycle 4. The BCG matrix can reflects corporate a variety of different business conditions, but the product life cycle can not reflect s all businesses and product in the curve.
- 41. The common points of the BCG Matrix and the Product life cycle Problem child stage - Development At the start of its life, the product is being designed, developed, launched and promoted; Net cash flow is likely to be negative: • High investment • Low rate of return. There is no guarantee that the product will become successful • Jump in any direction.
- 42. The common points of the BCG Matrix and the Product life cycle Star stage - Growth If the product is successful, its growth potential is greatest at the next stage. Net cash flow shoots up. Still a high cash injection is needed • Marketing of the product Establish the product’s market share This is the shooting star • Shoots upwards
- 43. The common points of the BCG Matrix and the Product life cycle Cash cows – Maturity Product is established Generates income without the need for further cash injection. It is the company’s breadwinner, earning income and allowing investment in other areas. Keep the cash cow for as long as possible so that it can be milked.
- 44. The common points of the BCG Matrix and the Product life cycle Dog Stage – Decline Declining cash flow • New products from competitors • Fashion or economic trends • An injection of cash is needed to boost the declining cash flow • Or the company will wish to divest itself of the product.
- 45. Ideally, a company should enter the product/market segment in its introduction stage, gain market share in its growth stage, attain a position of dominance on its maturity stage and maintain this dominant position until the product/market enter in its decline stage, and then determine the optimum point for liquidation
- 46. This also remind about the importance of portfolio analysis, and thus to decide, in which question mark, the corporation should invest. If the question mark fails to create market share, then it directly falls down to dog and a lot of money waste along with valuable time.
- 47. 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