Essay: Product Life Cycle Theory And Product Portfolio Management - A Strategic Analysis.

Introduction to Product Life Cycle Theory

Question:

Discuss the product portfolio management theories and product life cycle by quoting examples from a company with wide range of products. 
 

Product Life Cycle Theory is the cycle through which the product undergoes from the introduction to the declination stage. Proper analysis of plc would enable the company to initiate the health for the product and in relation with the market it serves. It contributes the scan of the market and enables to create the action in much faster way. The Product Portfolio Management enables to complete the overview of all the products along with its projects and the resources. It helps to build the ideas for the product thorough the strategic alignment. The dynamic portfolio of the product would ensure to make the attention of the requirement. The success of the Product Portfolio Management delivers to avoid the pitfalls and initiate high quality along with data driven decisions (philip 2016). The company of Nestle has been taken into consideration for the analysis.

One criticism of the model is that product lifecycle, the product portfolio does not clearly predict the length in each phase, and it does not forecast the sales with accuracy. Along with it if the marketer decides the product to approach in the phase of Decline the sale of the product will inevitably decline. It does not happen if it’s been in the Maturity Phase. The issues relates with the product portfolio management is inadequate resource planning and lack of prioritization. The lack of financial transparency and the inability to recognize the underperforming projects and the products are other important issues which arise (Kotler et al. 2016). 

The Product Life Cycle enables to describe the products and the four phases of it, which includes introduction, Growth, Maturity and Decline. It further initiates that each phase has different mix of the marketing and maximize the probability of the product. It involves the investment, which secures the revenue. Another important findings is that though it does not predict the sales but can be analyzed the sales figure and the forecast. It again provides the guide to the marketing along with the tactics at a given point of time (Dhillon 2013).

The Product portfolio management helps to beat the competition and increase the revenue. Further it initiates the delivery of new products and drive down the cost. It again improves the market conditions and represents the prod it strategy along with a planned perspective. It further executes the projects to accomplish the goals. It further helps to analyze the risk and plan the financials with the use of the scenario (Alon et al. 2013).

The Theory of Product Life Cycle is first incorporated in the year of 1950. It explains the expected life cycle of the product from the design till its obsolescence. It divided into various phase which includes introduction, growth, maturity and decline (Dhillon 2013). The main goal of the life cycle is to create the evaluation of the values and the profitability in each cycle. This is associated with the marketing theory (Ayres et al. 2013). The product life cycle of each product in a company is exhibited through the following order:

Product Portfolio Management

                                   

Figure showing the PLC stages of Magi

Source: (Ayres et al. 2013).

Development Stage

Development stage is stage when the product is introduced into the market. They are introduced before the demand created in the market. The company in this stage can choose between pricing strategies (Hanks 2015).  Now, taking Maggi as example when it was first introduced in the market there was no competition. It has limited distribution of the product. The promotion of the product mainly focuses on awareness and the information.

Growth Strategies

 In this stage the demand began to increase and the size of the market expands. The sales and the profit start to increase in this stage. The company will make the product price same throughout to maximize the earnings (Kerzner 2013). The Maggi shows the initial profit and development costs are covered.

Market Maturity

Market maturity is the stage the other company would increase as a competitor. They will introduce similar products. They need to develop new service and new strategies to differentiate it from the competitors (Mahapatra et al. 2012). The market of Maggi got saturated and declines the sales growth. Competitors like Knorr Annapurna Soupy noodles and yippee noodles try to capture the market.

Decline Stage

The product began to lose its customer’s appeal and the sales stats to drift downward. The company has two options in this stage fist they can maintain the product through reducing the price or they can discontinued with it (Stark 2015). The market of Maggi makes to long-run drop in terms of sales. They lower the marketing expense for the product.

The product Portfolio is the items which a company sells in the market. The product portfolio makes differentiation of each product of the company. The cost of the product of the company differs according to the product. For Example if we take Nestle then it has milk Products like Nestle EveryDay, Yogurt etc. Again it has different beverages like Nestea, Coffee etc. Thirdly it has chocolates and confectionary including KitKat, BarOne, etc. Fourthly it has another segment in Prepared Dishes and Cooking Aids like Maggi Noodles, Maggi sauce etc. based on the performance the products can be classified into several steps of Stars, Cash cows, Dogs and Question Marks (Eggers 2012). 

Boston Group Consulting Matrix

Both the portfolio of the Nestle products can be classified through the Boston Group Consulting Matrix. The category of each product will be based on four areas which would based on

• Market Share- it shows will the product can be sold having a low or high market share.
• Market Share- it shows that number of the customers growing or not.

Question Marks

The strategic business units need to have a low market share along with high growth market. For example the Magi 2- minute noodles require an investment to capitalize the growth in the culinary segment. It needs to offer the high return on the investment in the portfolio of Nestle’s brands (Palia et al. 2014).

Stars

The strategic Business Unit here shares high growth of market. The wide range of the Nestle in the segment of the mineral water is the combination of the healthy lifestyle and the emerging market. However, the product in these segments needs to involve with large investment. So, it differentiates the bottled water from the competitors of the mature market like Kinley. They also need to ensure the brand awareness in the new markets (Cantamessa  and Montagna 2016). 

Issues with Product Portfolio Management

Dogs

It involves low share of market in the low grow of the market. The product of the range needed to take example of the sales of Jenny Craig and the Lene Cusise products. It deals with the loss management brands and fails to expand beyond USA (Palia et al. 2014).

Cash Cows

Cash Cows ensures high share in the low growth of the market. Here the company needs to invest very lees amount (Cantamessa  and Montagna 2016). The example of Nestle product in this category is Milkpak. 

 

Figure showing the BCG Matrix and Nestle Product on the table

Source: (Palia et al. 2014).

The portfolio product management differs from company to company. The main dominator for the firms is the goals which need to achieve. There are five goals associated with that could best explored by Dr. Cooper and Dr. Edgett.

Value Maximization

The resources need to allocate so that the value of the portfolio received a number of key objectives. Example of it is profitability, acceptable risk and the ROI. Methods can be used to achieve the maximization of the goal which ranges from the financial method to the sourcing models (Archibald and Archibald 2015).

Balance

The project can be balanced through adopting some parameters like risk versus returns, short term or long term, Business technologies and various markets. Here methods like financial methods and the scoring models can be used (Kaiser et al. 2015).

Business strategy alignment

The three man approaches, which reflect the strategy of the company, are the top-down, bottom-up and the top-down and bottom-up. It ensures that breakdown of the spending aligns with the strategic priorities of the company (Archibald and Archibald 2015).

Pipeline Balance

Number of projects needs to initiate to achieve the balance between the demand of the pipeline resource and the availability of it. The main goal is to avoid the gridlock that is many projects with limited resource (Archibald and Archibald 2015).

Sufficiency

The profits set out for the product innovation strategy need to be achieved. It can be conducted through the financial analysis of the pipeline’s potential value of the future (Kaiser et al. 2015).

Pricing Decisions of PLC

The product when first introduced in the market need to use the strategy of price skimming and the penetration strategy. Price skimming ensures to introduce the product at a high price. Some customers like to buy the product as it enables to offer high price which no other product of the same segments offers. Through the view of company they want to capture the market before competitors comes with their product. The marketing manager can also make to introduce with low price to get the initial orders (Philip 2016).

Identification

The product is successful and it will produce the growth. Sales will be high and consumers will aware about the advertising and the promotions. For example the Nestle Company use the product with the same pricing strategy. If the company starts to sell with high price then its attempts of market share would make the price to comparatively low (Cabeza et al. 2014)

Role of Product Life Cycle in Marketing

Function

The second stage is the maturity stage. Here as been discussed the sales will continue to grow. Here, the profits needs to higher than any other stage. The competition will be complex to acquire many new users. As a result the Nestle Company require lowering the price along with its competition. The increase of the market share needs to become the priority during the maturity stage which needs discounting (Philip 2016).

Effects

The sale for a particular product need to get decline after it reaches a saturation pint. The company undergoes through different stages either maintain the product or reduce the price. Nestle company at this stage need to eliminate the unprofitable channels of the distribution (Lovelock et al. 2014).

Pricing Decisions of PPM

Product Portfolio Management simplifies the different Pricing strategy that matches with the strength of the product. It ensures the strategy, which enables to a price, which maximizes the returns. Product Portfolio Management of the company adopts a varied approach in the pricing strategies and its product mix (Lovelock et al. 2014).

Premium Pricing

Products with the high price of Nestle enable the consumers to assume that it has high quality. In other sense a company can charge high price for a single product even its competitors are charging low. Premium pricing is hard when the competition is high. It applies to the product where the brand name is high that they are willing to pay high price. The Coke Diet price is high than normal drinks of Coke (Lovelock et al. 2014). 

Market Penetration Pricing

The companies when need to increase the market share they can adopt for the market penetration pricing. Company charges low price to secure high volume in the market. Companies need to use the newcomers the market, the industry, or the small sized companies to become the challengers of the market (Philip 2016).

Fair Market Pricing

The pricing strategy needs to adopt the line with the pricing of the market comparing with the competitors. The knowledge of the customers and the competitors within the market, need to rely with the market research for the product price of Nestle. (Cantamessa and Montagna 2016).

Cost plus Pricing- when the company takes its cost of goods sold and ensures to set a profit. the company has a cost of product in this scenario and therefore it decides to seta profit on that (Lovelock et al. 2014).

Gross profit margin- it is the pricing strategy, which ensures the sale of the company and cover the company is cost of goods sold.  The Cost of the goods sold at the variable as well as the fixed costs of the sale (Philip 2016). 

Macroeconomic effect on PLC

The Product Life Cycle theory explains the comparative advantage of the goes that enables to shift from another country to another. The development and the testing require a design of the product. Over the time the product tens to get standardized as many manufactures can manufacture it. For example initially in India Magi captured the market. After which the popularity of Knorr Soupy Noodles and the Yippee became popular (Joëts  et al. 2015). The theory of PLC is related with the comparative advantage that new product gets which can be exported and manufactured worldwide. As the result foreign firms gets accustomed with the technology and they produce the same product in their country.

Application of Product Portfolio Management in Nestle

Product development

Product Portfolio Management acts important factor in any company for the development of the product. Nestle has the most import approach for developing its product Through Product Portfolio Management Nestle able to make the implementation and the maintenance of the efficient portfolio management. The product development of Nestle depends to respect the traditional and the quality of the product. Nestle has categorizes into different development for the product according to different categories. The renovation of the Nescafe enabled to deliver to launch a new product throughout the world (Armstrong et al. 2014). The development of the new coffee aroma in Nescafe enabled to range it in the premium range. While, the Nespresso has the strongest performance, which delivers new color machine and a customer service in the Nespresso Club and the implementation of new online, order service initiates to achieve high level of acceptance of customers.

The company introduces the Product development of a company through the product life cycle. The Magi in India is in the decline stage the company again tries to develop it through reestablishing the brands. They kept the price of Magi same while creating more innovations in advertisement. Nestle introduces its product going through various stages (Sheth and Sisodia, 2015). It enables to create the brand of Magi through over going its stages.

Magi the product of Nestle in India is in the stage of the decline. It enables the product to cater the decreased or the negative growth. The introduction and the growth stage of MGI Enxures the strength and the success of the product. While because of the low demand the product is in the decline stage. The company reintroduces the product through innovations in the advertisement. The competition enables the market to shift to other products. As a competition many competitors starts to capture the market. It becomes harder for Magi to maintain the acceptable sales and the growth in the company (Kotler et al. 2016). Buyers change its preferences to knorr or Yippee because of its changes and innovation. Magi need to adopt policies like reducing the price and innovation in its product. The company can change its packaging and designing segments.

The company needs to adopt and identify the target customer and need to make strategies accordingly. The consumption of Magi is mostly the youth. They belong to people who are school goers and the college attendants. The Magi are in the stage, which is in the decline. Now marketing strategies need to attend to specify the customers segments (Foxall 2014). Diffusion of innovation is the theory, which seeks to explain the new ideas and the technologies into it. The four elements attached with it are the innovators, early adopters, early majority, late majority and laggards. The categories of the innovators can be innovators, early adaptors, early majority, late majority and the laggards. The customers in the segment of Nestle of Magi are mostly the late majority. They adopt the innovation along with skepticism.

The PLC and the PPM of the Nestle adopted to take a complete space in terms of the product development. It intimated a planned way to develop the products. However, the company has some products which are in the decline stage or maturity stage. The products like KitKat which are on the maturity stage need to adopt policies so that they overcome from it. The company also needs to initiate innovations for its product of Mineral Water. Strategies need to develop to solve the problems associated with the product of Nesquik, Milkpak. They share the market with high growth but low share (Slack 2015).

Boston Group Consulting Matrix

The Company needs to expand in the technological advancement and trends along with innovations. The company needs to understand the taste and the sales trend of the products. Every product will decline at some stage. Company need to maintain the product so that competitors withdraw the products before Nestle does it (Kapferer 2012). They need to reduce the cost and enter into other niche area to increase the profit. The product need to discontinue the product which siaappears the profit.

Extension strategy needs to include which would lead to the prolonged life for the current product or the service. It would enable to create a new version of the entire new product or the service. The strategy would help to delay the product or the service decline temporarily (Hill et al. 2014).

Metrics is the measure system which quantifies the trend and the dynamics of the certain characteristics. The metrics can evaluate the ROI of the specific, actions and the test hypothesis. It would enable the company to evaluate the performance on the conversion, impact and the interaction (Phillips 2012). 

Conclusion

Product Portfolio Management and The Product Life Cycle ensure to develop the product. The product can ranges through various stages. It enables the company to go through the stages. Product Portfolio Management initiates the product line associated with a single brand. It differentiates each product of the brand according to each to the market share and the market growth of the company. The company need measure each brand and crate policies according to the stages of the product. Product development measures has imitated for both the product life Cycle and the Product Portfolio Management. The company needs to initiate certain strategies and policies to sustain and develop its product. 

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