02 PLC and Boston Matrix

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New Product Development

and

Product Life-Cycle Strategies

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Causes of New Product FailuresCauses of New Product Failures

• Overestimation of Market Size

• Product Design Problems

• Product Incorrectly Positioned, Priced or Advertised

• Costs of Product Development

• Competitive Actions

• To create successful new products, the company must:– understand it’s customers, markets and

competitors

– develop products that deliver superior value to customers.

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New Product Development ProcessNew Product Development Process

• Idea Generation and Screening• Concept Development and Testing• Marketing Strategy• Business Analysis• Product Development• Test Marketing• Commercialization

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New Product Development ProcessStep 1. Idea Generation

New Product Development ProcessStep 1. Idea Generation

Systematic Search for New Product Ideas

Internal sources

Customers

Competitors

Distributors

Suppliers

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• Process to spot good ideas and drop poor ones

• Criteria– Market Size

– Product Price

– Development Time & Costs

– Manufacturing Costs

– Rate of Return

New Product Development ProcessStep 2. Idea Screening

New Product Development ProcessStep 2. Idea Screening

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New Product Development ProcessStep 3. Concept Development & Testing

New Product Development ProcessStep 3. Concept Development & Testing

1. Develop Product Ideas into Alternative

Product Concepts

1. Develop Product Ideas into Alternative

Product Concepts

2. Concept Testing - Test theProduct Concepts with Groups

of Target Customers

2. Concept Testing - Test theProduct Concepts with Groups

of Target Customers

3. Choose the Best One3. Choose the Best One

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New Product Development ProcessStep 4. Marketing Strategy Development

New Product Development ProcessStep 4. Marketing Strategy Development

Part Two - Short-Term:Product’s Planned Price

DistributionMarketing Budget

Part Two - Short-Term:Product’s Planned Price

DistributionMarketing Budget

Part Three - Long-Term:Sales & Profit Goals

Marketing Mix Strategy

Part Three - Long-Term:Sales & Profit Goals

Marketing Mix Strategy

Marketing Strategy Statement Formulation

Part One - Overall:Target Market

Planned Product PositioningSales & Profit Goals

Market Share

Part One - Overall:Target Market

Planned Product PositioningSales & Profit Goals

Market Share

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New Product Development ProcessStep 5. Business AnalysisStep 6. Product Development

New Product Development ProcessStep 5. Business AnalysisStep 6. Product Development

Business Analysis

Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

Business Analysis

Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

If Yes, Move to Product Development

If Yes, Move to Product Development

If No, Eliminate Product Concept

If No, Eliminate Product Concept

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New Product Development ProcessStep 7. Test Marketing

New Product Development ProcessStep 7. Test Marketing

StandardTest Market

Full marketing campaignin a small number of representative cities.

StandardTest Market

Full marketing campaignin a small number of representative cities.

SimulatedTest Market

Test in a simulated shopping environment

to a sample of consumers.

SimulatedTest Market

Test in a simulated shopping environment

to a sample of consumers.

Controlled Test Market

A few stores that have agreed to carry newproducts for a fee.

Controlled Test Market

A few stores that have agreed to carry newproducts for a fee.

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Product Life CycleProduct Life Cycle

Time

ProductDevelop-

ment

Introduction

Profits

Sales

Growth Maturity Decline

Losses/Investments ($)

Sales andProfits ($)

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Introduction Stage of the PLCIntroduction Stage of the PLC

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Low sales Low sales

High cost per customerHigh cost per customer

NegativeNegative

Create product awareness and trial

Create product awareness and trial

Offer a basic productOffer a basic product

Use cost-plus Use cost-plus

DistributionDistribution Build selective distributionBuild selective distribution

AdvertisingAdvertising Build product awareness among early adopters and dealers

Build product awareness among early adopters and dealers

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Growth Stage of the PLCGrowth Stage of the PLC

SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

Rapidly rising sales Rapidly rising sales

Average cost per customerAverage cost per customer

Rising profitsRising profits

Maximize market shareMaximize market share

Offer product extensions, service, warranty

Offer product extensions, service, warranty

Price to penetrate marketPrice to penetrate market

DistributionDistribution Build intensive distributionBuild intensive distribution

AdvertisingAdvertising Build awareness and interest in the mass market

Build awareness and interest in the mass market

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Maturity Stage of the PLCMaturity Stage of the PLC

SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

Peak salesPeak sales

Low cost per customerLow cost per customer

High profitsHigh profits

Maximize profit while defending market share

Maximize profit while defending market share

Diversify brand and modelsDiversify brand and models

Price to match or best competitors

Price to match or best competitors

DistributionDistribution Build more intensive distributionBuild more intensive distribution

AdvertisingAdvertising Stress brand differences and benefits

Stress brand differences and benefits

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Decline Stage of the PLCDecline Stage of the PLC

SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

Declining salesDeclining sales

Low cost per customerLow cost per customer

Declining profitsDeclining profits

Reduce expenditure and milk the brand

Reduce expenditure and milk the brand

Phase out weak itemsPhase out weak items

Cut priceCut price

DistributionDistribution Go selective: phase out unprofitable outlets

Go selective: phase out unprofitable outlets

AdvertisingAdvertising Reduce to level needed to retain hard-core loyal customers

Reduce to level needed to retain hard-core loyal customers

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The Boston MatrixThe 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

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The Boston MatrixThe 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

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• Cash Cows:–High market share–Low growth

markets – maturity stage of PLC–Low cost support–High cash revenue

– positive cash flows

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• 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?

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• 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?

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Problem Children Stars

Dogs Cash Cows

Market Growth

Market Share

High

Low High

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• 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?

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The Boston MatrixThe 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?

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The Boston MatrixThe 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

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• 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?

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The Product Life Cycle and the Boston MatrixThe Product Life Cycle and the Boston Matrix

Sales

Time

AB

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

Documents

02 PLC and Boston Matrix