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Operations Management

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266 Terms

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Operations Management

concerned with providing the right products in the right quantities and quality level in a cost-effective and timely manner 

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Ways of managing operations

  1. Method of production 

  2. Size, scope and timing of production 

  3. Quality control 

  4. Research and development innovation

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Marketing Implications

Operations method used to provide a good/service will affect both the quality and the individuality of the product

  • exclusive product can be marketed at a premium price

  • Promotional strategies executed by high sales volume (ex. supermarkets) rely on aggressive tactics to gain market share and profit 

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Human Resource Management Implications

  • Production methods can determine workforce size 

    • Ex. dependence on automated machines → less workers

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Finance Implication

Capital intensity and lean production require heavy investment in machinery and equipment

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Factors of Production

The resources needed to produce a good or service, namely land, labour, capital, and enterprise

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Production Process

The method of turning inputs into outputs by adding value in a cost-effective way

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Value Added

Occurs during the production process when the value of output is greater than the costs of production. Firms earn profit if value added exists in the production process.

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Job Production

Customizing an individual product from start to finish, tailor made
Benefits: Quality, Flexible, Unique, Motivates, Choice

Drawbacks: Labour Intensive, Time consuming, Expensive, few economies of scale, order irregularity

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Batch Production

Producing a set of identical products. For businesses that make a range of products and when demand is estimated
Benefits: Economies of scale, specialization, variety
Drawbacks: High amount of inventory, inflexible, repetitive and boring

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Mass Production 

Large-scale manufacturing of a standardized product

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Flow Production

Form of mass production that uses continuous and progressive processes, carried out in sequence.

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Mass/Flow Benefits/Drawbacks

Benefits: large value of output, cost effective, low defect rate, low labour cost
Drawbacks: monotonous, limited choice, expensive, inflexible

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Factors to determine operations method 

  1. Size - larger markets tend to use capital intensive technology

  2. Cost of labour and capital 

  3. Aims and objectives of business - for profit, economies of scale 

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Quantitative Reasons for a specific location of production

  1. Availability, suitability and cost of land 

    HIGH demand but LIMITED supply =HIGH cost 

  2. Availability, quality and cost of labour 

  3. Proximity of the market (customers) 

    Bulk-increasing

  4.  Proximity and access to raw materials

    Bulk-reducing

  5. Government incentives and regulations

  6. E-Commerce

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Qualitative Reasons for a specific location of production 

  1. management preferences

  2. local knowledge

    Potential competitive advantage

  3. Infrastructure

  4. Political Stability 

    No corruption, Stable exchange rate

  5. Government restrictions and regulations 

    economic freedom, anti-corruption measures, tax rates 

  6. Ethical issues

  7. Comparative shopping (clustering) 

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Ways of Reorganizing Production 

  1. Outsourcing

  2. Offshoring

  3. Inshoring

  4. Reshoring

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Outsourcing

Hiring a third-party contractor to carry out specific work.(recruitment, office cleaning)

Benefits: efficient, cost control, reduce labour costs as outsourced workers are not employees of organization

Drawbacks: Subcontractors may not align with business aim, Quality management must be monitored, unethical practices

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Offshoring

Getting business activities or functions done in a different country

Benefits: avoid import tax or trade restrictions, Cheaper labour, Abundance of natural resources, job creation

Drawbacks: Unethical to exploit cheap labour , Vulnerable to economic instabilities (exchange rate fluctuations), Political unrest

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Inshoring

Use of an organization’s own people and resources to accomplish a certain function 

Benefits: Greater control over business functions, cheaper overall, increased productivity 

Drawbacks: training, Employees feel overworked, Less focus on core activities

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Reshoring

Transfer of business operations to country of origin 

Because: Product recalls, unethical practices, Improving/monitoring quality, consistent output

Benefits: lower transportation cost, created jobs

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Bulk-increasing/Weight-gain industries 

Products that increase in weight during the production process, so need to be located near their customers in order to reduce costs

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Bulk-reducing/Weight-loss industries

locate near the source of raw materials that are heavier and costlier to transport than the final product

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Footloose Organization 

Does not gain any cost-reducing advantages from locating in a particular location. Can locate anywhere

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Industrial Inertia 

Reluctance to relocate due to the inconvenience of moving even when the competitive advantages for the location no longer exists

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Government Incentives 

Financial enticements offered by the state to businesses to locate in a particular area or region, perhaps due to high unemployment 

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Subcontractors 

Outsourced firms that undertake non-core activities for an organization due to their expertise and the cost advantages

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Break Even Benefits

  • make realistic sales, costs,profit predictions 

  • decision making, risk assesment in a simple and quick way 

  • Works well for single product analysis, standardized product and operation in a single market  

  • Predicting impacts of changing costs and prices 

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Break Even Drawbacks

  • Costs and revenue are not linear

    • unpredictability of economies of scale affecting fixed and variable costs  

    • Businesses offer bulk discounts. Prices are not constant 

  • Assumes business will sell all output

  • Obsolete or unrealistic data will affect the validity

  • Only useful to firms selling one product 

  • Ignore dynamic changes. Like staffing, motivation and productivity

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Human Resource Management

Deploying and developing people within an organization to meet its business objectives

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Why is HR important

Adds value to its output by:

  • Increasing labour productivity

  • Improving product quality

  • Creating new ideas

  • Providing better customer service

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HR Planning (Workforce Planning)

Management process of anticipating and meeting an organization’s current and future staffing needs

Looks at:

  • Historical Data/Trends

  • Sales and income levels

  • Labour turnover rates

  • Flexibility/workload of employees

  • Demographic changes

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5 Problems of no HR (5R)

Recruitment, Resources, Reservations, Returns, Reputation

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Factors that Affect HR Planning

Demographic Change, Changes in labour mobility, Immigration, Flexitime, Gig economy

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Demographic Change

Caused by: net birth rate, migration rate, retirement age, females in the workforce

Ageing population effects: Increased dependent population, reduced labour mobility, changes in consumption patterns, change in employment patterns

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Labour Mobility

The extent to which people can move to different locations and their flexibility in changing jobs

More mobile workers → higher the supply of labour

Depends on: age, mobility of the job, discrimination

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Immigration

Contribues to production, consumption and payment of taxes.

Reasons for immigration: Pay, opportunities, seasonal factors, domestic instability, standard of living

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Flexitime

Requires employees to work for a core period, but the rest of the time is flexible

Benefits: improves firm image, reduces overtime, freedom and balance

Teleworking or Homeworking

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B/D of Homeworking/Teleworking

Benefits: Flexible hours, lower cost of technology, low absenteeism, reduced overheads

Drawbacks: Workers exceed work hours, social isolation, management is more difficult, technological breakdowns

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Gig Economy

Workers are short-term, flexible, and temporary contracts. Includes freelance workers/independent contractors

Benefits: greater flexibility, lower cost, workers are more in control of work balance

Drawbacks: No job security or benefits, no regular income, higher burnout rate, risk

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Portfolio Workers

People involved in a number of different jobs carried out simultaneously, often temporary

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Resistance to change in the workplace

Self interest, low tolerance, misinformation, different assessments of the situation

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Six change approach

  1. education and communication

  2. participation and involvement

  3. facilitation and support

  4. negotiation and agreement

  5. manipulation and co-option

  6. explicit and implicit coercion

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Centralization

Decision-making power is kept in the hands of a few people or shared among the workforce.

Benefits: rapid decision making, better control, better sense of direction, efficiency

Drawbacks: added pressure/stress for senior staff, inflexibility, possible delays in decision making, demotivating

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Decentralization

Decision making authority is shared with others

Benefits: input from workforce, faster decision making, improved morale, improved accountability, teamwork

Drawbacks: costly, inefficiencies, greater chance of mistakes, some loss of control, communication issues

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Factors decision making depends on

Size of organization, importance of decision, level of risk, corporate culture, management attitudes

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Delayering

Removing one or more structures in the hierarchy to flatten the organizational structure

Benefits: reduces cost, improves communication, encourages delegation

Drawbacks: creates anxiety, increased workload, slower decision making

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Matrix Structure

Flexible method of organizing employees from different departments to temporarily work together

Benefits: improved communication, maximizes skill set, cost-effective

Drawbacks: added workload, difficult to coordinate, time consuming

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Flat organizational chart

Exist in cultures that foster creativity and innovation

Benefits: more opportunities, better communication, cheaper, eliminates hierarchy

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Tall organizational chart

Traditional approach

Benefits: quicker and more effective communication in small teams, easier to control, more productive, greater promotional opportunities

Drawback: bureaucratic

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Types of leaders

Autocratic, Paternalistic, Democratic, Laissez-Faire, Situational

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Autocratic leader

Makes all the decisions and prefers not to delgate responsibility

Benefits: quick decision making, workers opinions ignored

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Paternalistic Leader

Guides employees through the consultation process and acts in the best way of their subordinates

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Democratic Leader

Involves employees in the decision making process

Benefits: better morale and job satisfaction, improved decisions
Drawbacks: delays decision making, not suitable for large workforces

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Laissez-Faire

Allow subordinates to make their own decisions and complete tasks their own ways

Benefits: higher motivation, promotes creativity

Drawbacks: delays decision making, relies heavily on teamwork and goodwill of employees, encourages slack

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Situational leadership

Depends on: CLOTS

culture, leader, organizational structure, task, subordinates

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Motivational Theorists

Taylor, Maslow, Herzberg

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Taylor

Employees are motivated by money, productivity is improved by setting output and efficiency targets related to pay

Division of labour and differentiated piecework

Differentiated piecework: workers are paid a standard level of output and receive overtime

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Drawbacks of Taylor

Drawbacks: ignores the non-physical contribution of workers, difficult to measure physical output (like teaching)

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Maslow

Focused on the psychological needs of workers. People need to be satisfied with their lower level needs first.

Needs: psychological needs, safety, love/belonging, esteem needs, self-actualization

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Drawbacks of Maslow

Level of needs are difficult to measure, assumes everyone is motivated in the chronological order

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Herzberg

Focused on the sociological and psychological aspects of work

Hygiene factors (security, pay, conditions, relationships) and motivators (achievement, advancement, personal growth, recognition)

Limitations: does not apply to low-skilled/payed jobs, some employees do not want enriched jobs

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Financial Rewards

Salary, wages, commission, performance related pay, profit-related pay, employee share ownership schemes, fringe payments

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Non Financial rewards

Job enrichment, job rotation, job enlargement, empowerment, purpose, teamwork

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Types of training

Induction, on the job, off the job

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Market Orientation

Outward looking. Focuses on making products that they can sell, rather than selling products that they can make.
Benefits: meets wants and needs, greater flexibility, lower risk

Drawbacks: market research is expensive, future is uncertain

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Product Orientation

Inward looking. Focus on selling products that they make, rather than making products that they can sell.
Benefits: quality is assured, more control over operations, USP
Drawbacks: market needs are ignored, high failure rate, high risk

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Market Share formula

firms sales revenue/industrys sales revenue * 100

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Market Growth

The rate which the size of a market is increasing.
(Current market size/original market size)/original market size * 100

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Marketing Plan

A document outlining an organization's marketing objectives and the marketing strategies to be used to achieve these objectives.
Benefits: improves chances of success, identifies/deals with anticipated problems, better control of operations
Drawbacks: too expensive (money,time,resources) for small businesses, inflexible and outdated quickly

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Marketing Audit

A review of the current position of an organization's marketing mix (SWOT)

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Marketing Plan Includes

Marketing objectives, s/w of competitors, methods of market research to find target markets, outline of marketing mix, details of marketing budget, anticipated difficulties

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Segmentation

A distinct group of customers with similar characteristics (such as age or gender) and similar wants or needs
Benefits: Better understanding of customers, higher sales revenue, growth opportunities, support for product differentiation strategies

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Targeting

Each distinctive market segment having its own specific marketing mix.

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Consumer Profiles

Demographic and psychographic characteristics of consumers in different markets, such as their age, gender, occupation, religion.

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Segmentation by demographic

Age, Gender, Language, Religion, Marital Status, Race, Income/Socio-economic class

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Segmentation by geographic factors

climate, location

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Segmentation by psychographic factors

values, religion, status, culture, hobbies and interests

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Niche Market

Targets a specific and well-defined market segment.

Benefits: better focus, less competition, high specialization encourages customer loyalty

Drawbacks: small customer base, less economies of scale, entrance of new competition

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Mass Marketing

A broad range of market segments are targeted collectively to maximize sales.
Benefits: Economies of scale, same marketing strategies (saves time and resources), large customer base

Drawbacks: Not suitable for all businesses, high competition, lack of focues

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Unique Selling Point

Any aspect of a business, product or brand that makes it stand out from those offered by competitors

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Differentiation

Distinguishing a business or its products from competitors in the market. Helps business thrive and compete effectively.
Business: Price advantage, brand recognition and loyalty, distribution advantage
Drawbacks: Expensive, economies of scale, choice is not always desirable

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Market Research

Discover the opinions, beliefs and preferences of potential and existing customers.
Continuous or Ad hoc (only when necessary)
Reduces risk of failure

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Primary Market Research

Gathering new and first-hand data for a specific purpose
Benefits: Relevant, up to date, confidential and unique
Drawbacks: Time consuming, costly, validity

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Survey

PR. Avoids bias, avoids jargon, has open and close ended questions, is tried and tested, objective
Benefits: qualitative and quantitative, simple
Drawbacks: costly, time consuming, bias or dishonest answers

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Focus Group

PR. Small discussion groups to gain insight into opinions, attitudes and behaviours.

Benefits: particular group

Drawbacks: uneven participation, peer pressure, expensive

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Interviews

PR. 1-1 discussion to investigate personal circumstances and opinions.
Benefits: can be in-depth

Drawbacks: non-quantifiable info, difficult to analyze, time consuming, large scope of bias

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Observation

PR. Watching how people behave and respond in situations.
Benefits: Record behaviour vs words
Drawbacks: Does not explain behaviour, bias in interpretation

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Secondary Research

Second-hand data and information that already exists.
Benefits: Cheap and fast, provides insight in the industry, large range, large sample size, valid
Drawbacks: outdated, inappropriate format, provides partial info, available to competitors

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Market Analysis

SR. Reveals the characteristics, trends and outlook for a particular product or industry, such as market size, market share and market growth rates.

Benefit: relevant, up-to-date, detailed
Drawback: expensive, outdated quickly

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Academic Journals

SR. Periodical publications from educational and research institutions.
Benefits: up to date, reliable

Drawbacks: not always relevant, outdated quickly

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Government Publication

SR. Population census, social trends, trade statistics, unemployment figures, inflation rates.
Benefits: comprehensive, reliable, up to date, large range of topics

Drawbacks: identifying and locating info, fee required for special data

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Media Articles/ Google

Benefits: up to date, easily accessible, wide range of info, free

Drawback: bias from reporters, out of date quickly, paid subscription

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Qualitative MR

Benefits: Explores driving/restraining forces, valuable (flexible), inexpensive, detailed less bias

Drawbacks: not representative of the whole, time consuming, cost of hiring skilled interviewers, interviewer bias

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Sampling Methods

PR. A small group of the population from a particular market for research.

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Quota Sampling

A certain number of people from different market segments are selected
Benefits: representative, quick, reliable

Drawbacks: not always representative, sampling errors

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Random Sampling

Giving everyone in the population an equal chance of being selected

Benefits: easy, minimizes bias

Drawbacks: indiscriminate, time consuming, expensive

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Convenience Sampling

uses research subjects that are easy (convenient) to reach

Benefits: easy and quick
Drawbacks: highly skewed, unrepresentative of the population,

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The 7 P’s - Product

Tangible or intangible. Consumer or producer.

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Product life cycle

Shows different stages that a product is likely to go through.

Allows managers to identify necessary changes to improve marketing strategy.

R&D, Launch, Growth, Maturity, Decline.

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