Product life cycle (PLC) has to do with the life of a product in the market with respect to business/commercial costs

and sales measures; The different stages in a product life cycle are: ! "arket introduction stage o cost high o sales #olume low o no/little competition $ competiti#e manufacturers watch for acceptance/segment growth losses o demand has to be created o customers ha#e to be prompted to try the product %! &rowth stage o costs reduced due to economies of scale o sales #olume increases significantly o profitability o public awareness o competition begins to increase with a few new players in establishing market o prices to ma'imi(e market share )! "ature stage o Costs are #ery low as you are well established in market * no need for publicity! o sales #olume peaks o increase in competiti#e offerings o prices tend to drop due to the proliferation of competing products o brand differentiation+ feature di#ersification+ as each player seeks to differentiate from competition with ,how much product, is offered o -ndustrial profits go down .! /ecline or 0tability stage o costs become counter$optimal o sales #olume decline or stabili(e o prices+ profitability diminish o profit becomes more a challenge of production/distribution efficiency than increased sales

BCG Growth-Share Matrix

The 1C& &rowth$0hare "atri' is a portfolio planning model de#eloped by Bruce Henderson of the 1oston Consulting &roup in the early 2345s! to help corporations with analyzing their business units or product lines. This helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis. -t is based on the obser#ation that a company5s business units can be classified into four categories based on combinations of market growth and market share relati#e to the largest competitor+ hence the name ,growth$share,! Market growth serves as a proxy for industry attractiveness, and relative market share serves as a proxy for competitive advantage! The growth$share matri' thus maps the business unit positions within these two important determinants of profitability! This framework assumes that an increase in relative market share will result in an increase in the generation of cash! This assumption often is true because of the e'perience cur#e; increased relati#e market share implies that the firm is mo#ing forward on the e'perience cur#e relati#e to its competitors+ thus de#eloping a cost ad#antage! A second assumption is that a growing market requires investment in assets to increase capacity and therefore results in the consumption of cash. Thus the position of a business on the growth$share matri' pro#ides an indication of its cash generation and its cash consumption! The BCG Matrix can be used to determine what priorities should be given in the product portfolio of a business unit. To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. The Boston Consulting Group Matrix has dimensions! market share and market growth. The basic idea behind it is! if a product has a bigger mar"et share, or if the product#s mar"et grows faster, it is better for the company. The four categories are: Dogs $ /ogs ha#e low market share and a low growth rate and thus neither generate nor consume a large amount of cash! 6owe#er+ dogs are cash traps because of the money tied up in a business that has little potential! 0uch businesses are candidates for di#estiture!

o o o

Avoid and minimize the number of Dogs in a company. Watch out for expensive rescue plans. Dogs must deliver cash, otherwise they must be li uidated

Question marks $ 7uestion marks are growing rapidly and thus consume large amounts of cash+ but because they ha#e low market shares they do not generate much cash! The result is a large net cash comsumption! 8 9uestion mark (also known as a ,problem child,) has the potential to gain market share and become a star+ and e#entually a cash cow when the market growth slows! -f the 9uestion mark does not succeed in becoming the market leader+ then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines! 7uestion marks must be analy(ed carefully in order to determine whether they are worth the in#estment re9uired to grow market share!

o o o

!uestion "ar#s have the worst cash characteristics of all, because they have high cash demands and generate low returns, because of their low mar#et share. $f the mar#et share remains unchanged, !uestion "ar#s will simply absorb great amounts of cash. %ither invest heavily, or sell off, or invest nothing and generate any cash that you can. $ncrease mar#et share or deliver cash.

Stars $ 0tars generate large amounts of cash because of their strong relati#e market share+ but also consume large amounts of cash because of their high growth rate; therefore the cash in each direction appro'imately nets out! -f a star can maintain its large market share+ it will become a cash cow when the market growth rate declines! The portfolio of a di#ersified company always should ha#e stars that will become the ne't cash cows and ensure future cash generation!

o o

&tars are using large amounts of cash. &tars are leaders in the business. 'herefore they should also generate large amounts of cash. &tars are fre uently roughly in balance on net cash flow. (owever if needed any attempt should be made to hold your mar#et share in &tars, because the rewards will be )ash )ows if mar#et share is #ept.

Cash cows $ 8s leaders in a mature market+ cash cows e'hibit a return on assets that is greater than the market growth rate+ and thus generate more cash than they consume! 0uch business units should be ,milked,+ extracting the profits and investing as little cash as possible. Cash cows pro#ide the cash re9uired to turn 9uestion marks into market leaders+ to co#er the administrati#e costs of the company+ to fund research and de#elopment+ to ser#ice the corporate debt+ and to pay di#idends to shareholders! 1ecause the cash cow generates a relati#ely stable cash flow+ its #alue can be determined with reasonable accuracy by calculating the present #alue of its cash stream using a discounted cash flow analysis!

o o

*rofits and cash generation should be high. +ecause of the low growth, investments which are needed should be low. )ash )ows are often the stars of yesterday and they are the foundation of a company.

:nder the growth$share matri' model+ as an industry matures and its growth rate declines+ a business unit will become either a cash cow or a dog+ determined soley by whether it had become the market leader during the period of high growth! ;hile originally de#eloped as a model for resource allocation among the #arious business units in a corporation+ the growth$share matri' also can be used for resource allocation among products within a single business unit! -ts simplicity is its strength $ the relati#e positions of the firm5s entire business portfolio can be displayed in a single diagram!

Limitations
0ome limitations of the 1oston Consulting &roup "atri' include: -t neglects the effects of synergy between business units!

6igh market share is not the only success factor! "arket growth is not the only indicator for attracti#eness of a market! 0ometimes /ogs can earn e#en more cash as Cash Cows! The problems of getting data on the market share and market growth! There is no clear definition of what constitutes a ,market,! 8 high market share does not necessarily lead to profitability all the time! The model uses only two dimensions < market share and growth rate! This may tempt management to emphasi(e a particular product+ or to di#est prematurely! 8 business with a low market share can be profitable too! The model neglects small competitors that ha#e fast growing market shares!

Using the BCG Box to determine strategy Once a company has classified its SBU's, it must decide what to do with them. In the diagram above, the company has one large cash cow (the si e of the circle is proportional to the SBU's sales!, a large dog and two, smaller stars and "uestion mar#s. $onventional strategic thin#ing suggests there are four possible strategies for each SBU% (1) Build Share: here the company can invest to increase mar#et share (for e&ample turning a '"uestion mar#' into a star! (2) Hold: here the company invests (ust enough to #eep the SBU in its present position (3) Harvest: here the company reduces the amount of investment in order to ma&imise the short)term cash flows and profits from the SBU. *his may have the effect of turning Stars into $ash $ows. (4) Divest: the company can divest the SBU by phasing it out or selling it ) in order to use the resources elsewhere (e.g. investing in the more promising '"uestion mar#s'!. ANSOFF PRODUCT/MARK T MATR!" !ntrod#$tion*he +nsoff ,rowth matri& is a tool that helps businesses decide their product and mar#et growth strategy. +nsoff-s product.mar#et growth matri& suggests that a business- attempts to grow depend on whether it mar#ets ne% or existing products in ne% or existing mar&ets'

*he output from the +nsoff product.mar#et matri& is a series of suggested growth strategies that set the direction for the business strategy. *hese are described below%

Market penetration

/ar#et penetration is the name given to a growth strategy where the business focuses on selling e&isting products into e&isting mar#ets. /ar#et penetration see#s to achieve four main ob(ectives% 0 /aintain or increase the mar#et share of current products 1 this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling 0 Secure dominance of growth mar#ets 0 2estructure a mature mar#et by driving out competitors3 this would re"uire a much more aggressive promotional campaign, supported by a pricing strategy designed to ma#e the mar#et unattractive for competitors 0 Increase usage by e&isting customers 1 for e&ample by introducing loyalty schemes + mar#et penetration mar#eting strategy is very much about 4business as usual5. *he business is focusing on mar#ets and products it #nows well. It is li#ely to have good information on competitors and on customer needs. It is unli#ely, therefore, that this strategy will re"uire much investment in new mar#et research.

Mar&et de(e)o*ment
/ar#et development is the name given to a growth strategy where the business see#s to sell its e&isting products into new mar#ets. *here are many possible ways of approaching this strategy, including% 0 6ew geographical mar#ets3 for e&ample e&porting the product to a new country 0 6ew product dimensions or pac#aging% for e&ample 0 6ew distribution channels 0 7ifferent pricing policies to attract different customers or create new mar#et segments Prod#$t de(e)o*ment 8roduct development is the name given to a growth strategy where a business aims to introduce new products into e&isting mar#ets. *his strategy may re"uire the development of new competencies and re"uires the business to develop modified products which can appeal to e&isting mar#ets. Di(ersi+i$ation 7iversification is the name given to the growth strategy where a business mar#ets new products in new mar#ets. *his is an inherently more ris# strategy because the business is moving into mar#ets in which it has little or no e&perience. 9or a business to adopt a diversification strategy, therefore, it must have a clear idea about what it e&pects to gain from the strategy and an honest assessment of the ris#s.

Diversification is the most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. In fact, this quadrant of the matrix has been referred to by some as the "suicide cell". owever, diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. !ther advantages of diversification include the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk

ADL Matrix

'he ADL matrix from Arthur D. Little is a portfolio management method that is based on product life cycle thin#ing. 'he AD, portfolio management approach uses the dimensions of environmental assessment and business strength assessment. 'he environmental measure is an identification of the industry-s life cycle. 'he business strengths measure is a categorization of the corporation-s &+.-s into one of five /01 competitive positions2 dominant, strong, favorable, tenable, wea# /and non3viable1. 'his yields a 4 /competitive positions1 by 5 /life cycle stages1 matrix. *ositioning in the matrix identifies a general strategy.

ndustry Maturity !m"ryonic

C o m p e t i t i # e %a#ora"&e $ "oderate to aggressi#e push for market share $ Look for ways to impro#e competiti#e ad#antage $ -n#est selecti#ely $ Look for ways to impro#e competiti#e ad#antage and market share $ 0electi#ely in#est to impro#e position $ /e#elop a niche or other strong differentiating factor and maintain it! $ "inimum or selecti#e rein#estment $ Cut e'penditures to ma'imi(e profit (har#est) or plan a phased withdrawal $ "inimum in#estment or look to get out of current in#estment Strong $8ggressi#e push for market share $ Look for ways to impro#e competiti#e ad#antage $ -n#est faster than market share dictates $8ggressi#e push for market share $ Look for ways to impro#e competiti#e ad#antage $ -n#est to increase growth and position $ "aintain position+ grow market share as the industry grows $ =ein#est as necessary $ "aintain industry position or cut e'penditures to ma'imi(e profit (har#est) $ "inimum rein#estment Dominant $8ggressi#e push for market share $ -n#est faster than market share dictates $ "aintain industry position and market share $ -n#est to sustain growth $ "aintain position+ grow market share as the industry grows $ =ein#est as necessary $ "aintain industry position $ =ein#est as necessary

Growth

Mature

Ageing

$ o 'ena"&e s i t i o (eak n

$ Look for ways to impro#e industry position $ -n#est #ery selecti#ely

$ /e#elop a niche or other strong differentiating factor and maintain it $ -n#est selecti#ely

$ /e#elop a niche or other strong differentiating factor and maintain it or plan a phased withdrawal! $ 0electi#e rein#estment

$ Phased withdrawal or abandon market $ &et out of in#estments or di#est

$ /ecide if potential benefits outweigh costs+ otherwise get out of market $ -n#est or di#est

$ Look for ways to impro#e share and position+ or get out of the market $ -n#est or di#est

$ Look for ways to impro#e share and position or plan a phased withdrawal $ 0electi#ely in#est or di#est

$ 8bandon market $ /i#est

L M 'A' )*S 0ome known limitations of the 8/L "atri' are: There is no standard life cycle length.

Determining the current industry life cycle phase is difficult. Competitors may influence the length of the life cycle.

"C>-?0@A "8T=-B/ &@ "8T=-B 'he GE / McKinsey Matrix is more sophisticated than the +)6 "atrix in three aspects2 7. Market ( ndustry! attracti"eness replaces mar#et growth as the dimension of industry attractiveness. "ar#et Attractiveness includes a broader range of factors other than 8ust the mar#et growth rate that can determine the attractiveness of an industry 9 mar#et. )ompare also2 *orter-s :ive )ompetitive :orces model. ;. #ompetiti"e strength replaces mar#et share as the dimension by which the competitive position of each &+. is assessed. )ompetitive strength li#ewise includes a broader range of factors other than 8ust the mar#et share that can determine the competitive strength of a &trategic +usiness .nit. <. :inally the GE / McKinsey Matrix wor#s with a $%$ grid, while the &#G Matrix has only ;=;. 'his also allows for more sophistication. 'ypical (external! factors that affect Market Attracti"eness2 3 "ar#et size 3 "ar#et growth rate 3 "ar#et profitability 3 *ricing trends 3 )ompetitive intensity 9 rivalry 3 >verall ris# of returns in the industry 3 %ntry barriers 3 >pportunity to differentiate products and services 3 Demand variability 3 &egmentation 3 Distribution structure 3 'echnology development

'ypical (internal! factors that affect #ompetiti"e (trength of a (trategic &usiness )nit2

3 &trength of assets and competencies 3 ?elative brand strength /mar#eting1 3 "ar#et share 3 "ar#et share growth 3 )ustomer loyalty 3 ?elative cost position /cost structure compared with competitors1 3 ?elative profit margins /compared to competitors1 3 Distribution strength and production capacity 3 ?ecord of technological or other innovation 3 !uality 3 Access to financial and other investment resources 3 "anagement strength