IAL (Edexcel) Unit 1 - Section 3.3.1 Flashcards

Marketing Objectives

• Increase market share.

• Increase sales revenue.

• Build a brand.

  • This leads to less competition, higher prices, economies of scale (EOS), better cash flow, and customer loyalty.

  • Charging premium prices results in less price elasticity, meaning that if price increases, demand decreases less.

The Product Life Cycle

• Shows the sales of a product over time.

• Helps the business make decisions about:

  • Changing marketing activities.

  • Whether to continue or discontinue a product.

  • Predicting the impact on cash flow and profits as a product progresses through the cycle.

• The shape of the curve can vary depending on the product.

• Competition decreases as everyone already has the product or it's out of trend.

• Advertising spending decreases, leading to less profit.

• Spending more on very new products entering the market leads to negative cash flow.

Impact of Product Life Cycle on Cash Flow & Profits:

• The product life cycle includes stages of development, introduction, growth, maturity, and decline.

• Sales and profits vary at each stage.

Product Life Cycle: Managing a Product Portfolio

• The lower the elasticity, the less demand decreases with a price change, resulting in shooting out cash flow.

Product Life Cycle Extension Strategies

• By adjusting the product:

  • Bringing out updated models of a product (e.g., Toyota Corolla ‘sport’ or ‘limited edition’ model).

  • Adding extra features (e.g., A credit card with bonus points for spending and travel insurance included).

  • Extending the product range (e.g., new flavours of crisps or ‘limited edition’ items).

  • Changing the packaging to make the product look more appealing.

Product Life Cycle Extension Strategies

• By promotion:

  • Finding new markets.

  • Launching an advertising campaign.

  • Encouraging consumers to use the product more frequently (e.g., suggesting breakfast cereal can also be a midday snack).

  • Selling in different countries.

Extension Strategies:

• Examples include video games like Uncharted and The Last of Us, and shrimp tom yum hot pot flavour noodles.

Boston Matrix & ‘the Product Portfolio’

• The Boston Matrix can be used to help businesses manage their portfolio of different products.

• It helps identify which products will need attention, which will generate the most cash, and which may need to be discontinued.

Boston Matrix: The Two Axes Used

• Relative market share:

  • Expressed as a share of the market in relation to other firms in the market.

  • A measure of the product's or brand's strength in the market.

• Market growth:

  • Measure of market attractiveness in terms of the market's increasing size.

  • An increasing market size should make it easier to sell to.

The Boston Consulting Group Matrix

• Need marketing additions to maintain place.

• When the market grows, competition increases with customers, and demand increases, invest a lot of money to try to raise market share.

• Stable cash comes in from a shrinking market with steady/still demand.

• Takes lots of time, effort, and money to keep selling the product.

Star Products

• High share of a rapidly growing market.

• Position of leadership in a high growth market.

• The product/business is relatively strong and the market is growing.

• Requires high marketing spending (to take advantage).

• Net cash inflow is neutral or at best modestly positive.

• Strategy:

  • Investment to sustain growth.

  • Build sales and/or market share.

  • Spend to keep competitors at bay.

  • Invest to maintain or increase leadership position.

  • Repel challenges from competitors.

Question Mark (Sometimes Referred to as Problem Child)

• Low share of a rapidly growing market.

• Cash flow is negative.

• Have potential but the future is uncertain.

• Could become either a star or a dog.

• Strategy:

  • Invest to increase market share.

  • Substantial investment to achieve growth at the expense of powerful competitors.

  • Invest in promotion and other aspects of marketing.

Cash Cow Products

• High share of a slowly growing market.

• Mature stage in the product life cycle.

• Little potential for growth.

• Large positive cash inflow.

• Strategy:

  • Defend market share.

  • Aim for short-term profits.

  • Little need for investment.

  • Little potential for further growth.

  • Reduce investment in order to maximise short-term cash flow and profits.

  • Use profits from cash cows to invest in new products in other stages of the Boston Matrix.

  • The expression ‘Cash Cow’ originates from the Boston Matrix.

Dog Products

• Dogs are either products that have failed or products that are in the decline phase of their product life cycle.

• Low share of a slowly growing market.

• Not going anywhere & no real potential.

• Strategy:

  • Phase out or sell off (divest).

  • Not worth investing in.

  • Any profit made has to be re-invested just to maintain market share.

  • Uses up more management time and resources than can be justified.

  • Divest or, at most, focus on a defendable niche.

Summary: For Each Product, Should You Be:

• Building - should you try to build ‘Question mark’ products? More advertising, etc.

• Holding - you should try and hold ‘star’ products, keep the product up to date and fresh to maintain a good market position.

• Milking - you should ‘milk’ the positive cash flows from ‘cash cows’ to help improve the other products in the portfolio.

• Divesting - you should identify the worst-performing ‘dogs’ and cease production of these - this will, however, impact production workers.

Movement Around the Boston Matrix

• The Boston matrix can be used to manage the transition and movement of different products in a business portfolio around the matrix.

Boston Matrix - How Useful Is It - Evaluative Points!

• A useful tool for analysing product portfolio decisions.

• Does not provide strategic choices but highlights those products that may require action to be taken at the strategic level.

• However, some businesses only sell one product!

• A well-run business will have a balanced portfolio of these different types of products - too many dogs may lead to a shortage of cash to improve the situation.

• Helpful when deciding to introduce new products.

• Needs to be used alongside the product life cycle.

• It is only a snapshot of the current position - what about the future?

• Has little or no predictive value.

• Focus on market share and market growth ignores issues such as developing a sustainable competitive advantage.

The Marketing Mix

• ‘The combination of factors such as Product, Place, Promotion, Price that influence a customer’s decision to purchase a product.’

• These must be integrated in order to meet marketing objectives!

  • Ensure consumers' needs and wants are met.

  • Right product, at the right price, available at the right place, and communicated through the right promotion channels (media).

The Marketing Mix

• Product

  • How consumers use the product

  • The appearance of the product

  • What it costs to make the product

  • The product’s life cycle

  • The USP (if any)

• Promotion

  • Providing information about the product or service to encourage customers to buy it

• Price

  • Depends on the market being targeted (e.g., level of competition)

  • Costs may need to be covered

  • Premium segment customers may expect to pay higher prices

• Place

  • It must be convenient for target customers to obtain and purchase the product or service

The Integrated Marketing Mix

• Compared: iPhone vs. Flights vs. Ice-cream

The Integrated Marketing Mix Detailed

Marketing Strategy: Mass Market Products

• Many competing products that are likely to be close substitutes.

• Markets will be very large.

• Perhaps develop a USP or strong brand.

• Prices are likely to be similar; businesses will often charge the ‘going rate’ rather than try to provoke a price war.

• Businesses often invest heavily in promotion (as it’s difficult to compete on price), and therefore this aspect of the marketing mix is very important.

• Often businesses will use multiple channels of distribution.

Marketing Strategy: Niche Market Products

• Products are likely to be very different from rivals.

• Products will be designed very carefully to meet the specific needs of the niche; the product is a very important aspect of the marketing mix.

• Businesses can be more flexible in pricing, perhaps charging higher prices (less competition); customers may be willing to pay higher prices as their specific needs are being met.

• Smaller market, therefore less need to use national advertising; advertising may be very targeted at the specific needs of the target market.

• Businesses may use a small number of specially selected distribution channels.

Marketing Strategies B2B & B2C

• Business-to-Business (B2B) marketing strategies are likely to differ from business-to-consumer (B2C).

• B2B is likely to use a combination of:

  • Outbound marketing strategies: Directing promotional material at potential customers whether they are expecting it or not (can be costly and not very effective).

  • Inbound marketing strategies: Attracting potential customers to websites, etc., when they are looking for suppliers or solutions to problems (e.g., through providing e-books, video tutorials, blogging, social media, search engine optimisation).

How a Business Can Develop Customer Loyalty

• Preferential treatment

• Personalisation

• Customer incentives (e.g., loyalty stamps, 1 free after 10 stamps)

• Communication

• Customer service

• Social media

Marketing Strategies Depend On….

• Nature of the product

• Resources available to the business (e.g., marketing budget and staff skills)

• The size & nature of the market

• The objectives of the business