Product Life Cycle

Report
Unit 3 Building a Business
Product Life Cycle
21 October 2013
Learning objectives
 Understand the four phases of the product
life cycle. (D)
 Appreciate what is meant by an extension
strategy. (c)
 Understand the link between cash flow and
the product life cycle.(c)
 Understand product portfolio analysis using
the Boston Matrix (B)
Key terms
 Product life cycle: the stages through which a product passes
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from its development to being withdrawn from sale; the phases
are research & development, launching the product, growth,
maturity, saturation and decline.
Research and development: the process of scientific and
technological research and then development of the findings
of that research before a product is launched.
Extension strategy: method used to increase the life cycle of a
product and prevent it failing into decline
Product portfolio or product mix: the combination or range of
products that a business sells
Product portfolio analysis: investigation of combination of
products sold by a business
Boston Matrix: a model which analyses a product portfolio
according to the growth rate of the whole market and the
relative market of a product within the market; a product is
placed in one of four categories-STAR,CASH COW,PROBLEM
CHILD OR DOG
Starter
 Products have a limited life. List the factors
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that may affect the length of a product's life:
New technology
Inventions
Changes in taste
Changes in fashion
Main-Theory
 The product life cycle shows the stages
through which a product passes.
The product life cycle
 Case study example -MINI
 Development stage : MINI first started at this stage
in 1957, Sir Leonard Lord chairman of British Motor
cars (BMC) ordered workers to create a new design
for a small car.
 Research and development : Took three years to
carry out for the designer , Sir Alec Issigonis and his
team.
 Launching product : After promotion
 /advertising (newspaper & specialist car magazines)
the MINI came into the market in August 1959. Models
of the MINI placed in showrooms for customers to
trial.
Cont.
 The growth phase: the sales and profits rise.
For the MINI in the first full year of production
in 1960,116,677 MINIS were produced. Then a
further £157,059, an increase in the number of
customer who wanted to test drive car.
 Product maturity : at this stage the product
reaches it’s peak in sales, breaking even (costs
being paid). The product is profitable, and
enough to be financing the development of
new products. Customer royalty and repeat
purchase is now established .
Continued….
 For MINI maturity stage lasted between 1960
and early 1970.
 Also at this stage the manufacturer tries to
extend the maturity stage by introducing
extension strategies.
 Introducing slight Changes and a fresh appeal
to the target market, but allowing it to appeal
to a new segment of the market.
 Producing a new product would mean start
up costs again.
How the MINI changed
 1961-the MINI COOPER version (powerful
engine)
 1964- MINI MOKE- Jeep type version
 1967-MARK II MINIS-facelift of MINI range.
 2002- 150,000 MINI’s produced
 2006-200,00 MINI’s produced
 2001-2008 luxury car market growing strongly. A
best seller within the market.
 Invested heavily in production facilities in
Oxford.
Saturation and decline
 Towards the end of maturity stage market become
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saturated.
Competitors bring products, taking away sales.
Consumers have plenty of choices of products making it
difficult for sales to grow.
Saturation for MINI occurred in 1970, when other car
manufacturers bought out other small cars. They had
advantage of being small but also had more features than
the MINI, therefore taking away the sales.
Decline: when there is a huge fall in sales the product goes
into decline.
1994 the German luxury car manufacturer, BMW bought
the MINI car brand. BMW decided to produce a completely
new MINI, which was launched in 2001. Then in 2007, BMW
launched a new version of this car. (extension strategy)
Stages of product life cycle
 http://www.businessstudiesonline.co.uk/live/i
ndex.php?option=com_content&view=article
&id=2&Itemid=8
 Sales and profit
 http://www.businessstudiesonline.co.uk/Gcse
Business/Activities/Module3/Product/Product
LifeCycleProfitvSales/frame.htm
Product portfolio analysis
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Businesses sell a range of products, for example BMW makes a range of cars
mini is just one of them.
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This range of products represents the Product mix or product portfolio.
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Businesses need to manage their product portfolios. In order to keep up
with overall sales, new products are launched everyday.
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When existing products decline-new products launched and grow.
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New products make up for declining sales of older products.
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The product portfolio analysis
questions:
helps provide answers for the following
1.
Which products are doing well?
2.
Which are likely to do better in the future?
3.
Should a product be withdrawn from the market?
4.
Will increased advertising improve sales/
The Boston Matrix devised by the Boston Consultancy Group is a technique
used in this planning.02 The Boston Matrix.pdf
BOSTON MATRIX
Boston Matrix
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STARS
A product whose market is growing fast.
High market share, sales and profits will be
growing.
Big profit earners in the future
Net cash flow – small (disposable income)
Money coming in matched by costs of
production and extra investment.
Business will be spending on new equipment and
machinery to make extra output.
Cash Cows
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Product with strong market share
In maturity phase of product life cycle
Market growth is low
Sales may be declining
Less growth for future sales
Good level of profit
Popular products with market
High customer loyalty (repeat purchase)
Little need for new investment in production facilities (sales not
growing very quickly)
 Strong positive net cash flows for the business
 Net cash flow can be used to update product portfolio
 Extension strategies help keep sales and profits high.
Problem child/ Question mark
 Low market share in a fast growing market.
 Business unclear about what needs to be done
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about the product.
Unsuccessful in its own market
May have some promise-not quite ready to take
off
Net cash flow small
Questions to be asked-should we get rid of it?
Or should we invest more to turn it into a star?
(spending on promotions or bring out a new
version of the product)
Dogs
 Low market share in low growth market.
 Product unsuccessful in its own market and
prospects for whole market are poor.
 Little point of investing in it.
 However if it generates some net cash flow
could stay on sale.
 The product when negative in cash flow and
unprofitable should be withdrawn from sale.
Independent activity
Target grade
(c)
 Using your notes draw and label the product
life cycle of the MINI.
 Draw and label the BOSTON MATRIX
 Identify which category you think the MINI
was in between 2001 and 2008.
Test yourself
Target grade (c)
1. List the phases of the product life cycle. (1)
2. What is meant by the term ‘extension strategy’? (2)
3. Identify two possible extension strategies that a breakfast
cereal manufacturer might use? (2)
4. Explain how one of the strategies you identified would
extend the product life of the new cereal? (An explain question must
have three linked sentences- make sure you relate answer to the breakfast cereal) (3)
Guide to answering question 4:
Explain how the strategy would change the product or the operations of the
business
Explain how this would affect consumers and the market
Explain how it would affect sales.
Self-assessment –Mark your
answers
 1) Development, launch, growth, maturity, saturation
and decline (1)
 2) Extension strategies are methods used by businesses
to increase the life of a product, to prevent it falling into
decline by maintaining it’s sales. (2)
 3)Promotional offers or discounts, lower prices,
 Improve the product, advertise, increase number of
distribution outlets, changing product (flavour, variety,
design etc.) (2)
 4) Introducing new flavours, market for cereal will be
bigger, attractive a lot more customers and thus
increasing sales. (3)
Plenary
Key Terms
Mix and Match
Boston Matrix
:
Product life cycle:
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:
Target Grade (c)
Investigation of combination of products sold by a
business
Method used to increase the life cycle of a product
and prevent it failing into decline
Research and development:
The combination or range of products that a
business sells
Extension strategy:
The stages through which a product passes from
its development to being withdrawn from sale; the
phases are research & development, launching the
product, growth, maturity, saturation and decline.
Product portfolio or product mix
A model which analyses a product portfolio
according to the growth rate of the whole market
and the relative market of a product within that
market; a product is placed in one of four
categories- star, cash cow, problem child, dog
Product portfolio analysis:
The process of scientific and technological
research and then development of the findings of
that research before a product is launched.
Review learning outcomes
Understand the four phases of
the product life cycle. (D)
Describe the four phases of the
Product Life Cycle
Appreciate what is meant
by an extension strategy.(C)
Explain the term extension strategy
and provide an example
Understand the link between
Identify how cash flow and product
cash flow and the product life cycle. (C) life cycle are related
Understand product portfolio
analysis using the Boston Matrix (B )
Identify the four categories and explain
them. Give one example.
Summarise topic
Homework/Extension
• Fill out self –assessment chart for unit 3 Topic
Product Life Cycle (in note books).
• Over to you case study and results plus pp.22-23
Extension/homework:
Case study Bistro history answer questions 2 & 3
Product life cycle and online fashion.

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