Product Decisions (AQA A Level Business): Revision Note

Purpose

Bought for personal use

Bought for business use

Decision maker

Individual or household

Business or purchasing department

Purchase volume

Usually small quantities

Often large-scale purchases

Price sensitivity

More sensitive to price and brand

Focused on value, reliability, and total cost of ownership

Example

e.g. iPhone, shampoo, clothing

e.g. photocopier for an office, raw materials for a manufacturer

Marketing focus

Branding, emotional appeal, convenience

Functionality, efficiency, cost-effectiveness

• Cash cows are products with a high market share in a mature market (the entire market is no longer growing)

• They generate significant positive cash flow but have low growth potential

• The business invests minimal resources in cash cows, as they stable sources of income

• Marketing efforts focus on maintaining their market share and profitability

• Cash cows are valuable assets that can be used to fund the development of new products

• Problem child or question mark products have a low market share in a high-growth market

• These products have the potential to become stars if the company invests in their development

• There is often a negative cash flow, as businesses usually invest in problem child products to increase their market share and turn them into stars

• If the investment does not result in growth, the product is usually discontinued

• Marketing efforts focus on increasing market share and brand recognition

• Star products have a high market share in a high-growth market

• The company typically invests in stars to maintain or increase their market share

• These generate significant positive cash flow and have the potential for continued growth

• Marketing efforts focus on building brand recognition and increasing market share

• Stars are valuable assets and the business should focus on maximising their potential

• Dog products have a low market share in a low-growth market

• They generate little revenue for the company and have no growth potential

• Businesses often move away (divest) from these to focus on more profitable products

• Marketing efforts for dog products are minimal or zero

• The BCG matrix classifies products solely on market growth rate and relative market share

  • Other key factors, such as competition, technological advancements, customer preferences and other industry trends, are ignored

  • This may lead to poor strategic decisions

• A high market share does not guarantee profitability when the market is highly competitive or if the company incurs significant costs to maintain its share

  • E.g. despite controlling market share of around 50% between them, the three largest airlines in the USA achieve average annual profit margins of less than 5 per cent

• It is based on current market conditions and historical data and does not consider changes in the competitive environment

• It may not identify emerging trends which are crucial for long-term planning

• It treats each product in isolation and does not account for potential synergies or interdependencies

• In reality, some products may complement each other or benefit from shared resources, which can affect the marketing decisions that may be made

• Identifying market growth rates and market share for each product within a business's portfolio is likely to take expertise and time

• If market conditions are changing rapidly, regular changes will need to be made to the positioning of products within the matrix to ensure that appropriate marketing decisions are made

• Generating and screening product ideas and then designing and developing the product

• The business usually incurs high costs for research and development, market research, and product testing

• Cash flow is usually negative during this stage, as the company is investing heavily in the product without generating any revenue

• Marketing strategy during this stage is focused on creating awareness and generating interest in the product

• The stage begins when the product is launched

• Characterised by slow sales growth as the product is still new and unknown to most consumers 

• Cash flow is usually negative as the business usually incurs high costs for promotion, advertising and distribution

• Promotional efforts are focused on creating awareness and generating interest in the product

• Pricing strategies will depend upon the nature of the product and the market

  • Price skimming may be used for innovative or high technology products where little competition exists

  • Penetration pricing may be more suited to products being introduced to competitive markets

• The product enters this stage when sales begin to increase rapidly

• The business focus shifts to building market share and increasing production to meet the growing demand 

• Cash flow usually turns positive during this stage as sales revenue increases and costs are spread out over a larger volume of production

• Marketing strategies focus on differentiating the product from its competitors and building brand loyalty

  • Price skimming tactics may be dropped in favour of longer-term premium pricing for high-end products

  • Promotional activity is likely to increase as customers are encouraged to purchase repeatedly

  • Further distribution channels will be sought to meet increasing demand

• Characterised by slowing sales growth as the product reaches its peak in terms of market penetration

• Cash flow is usually positive during this stage as sales revenue continues to come in and costs are reduced through economies of scale and efficient production processes

• Marketing strategy aims to maintain market share and increase profitability by cutting costs and finding new markets

  • Promotional pricing tactics may be used

  • Advertising will focus on reminding customers of product benefits

  • Further new distribution channels will be sought

  • Product features may be upgraded

• Starts when sales begin to decline as the product becomes obsolete or is replaced by newer products

• The business focus shifts to managing the product's decline and reducing costs

• Cash flow usually turns negative as sales revenue declines and costs associated with the product's decline increase

• Marketing strategy may involve discontinuing the product, reducing its price to clear inventory, or finding new uses for the product

• Real customer problems or gaps in the market can prompt profitable ideas

• The trend for flexitarian diets led Burger King to create the plant‑based Whopper

• New technology unlocks features that were impossible before.

• Wider 5G networks encouraged Qualcomm to design faster chips for gaming consoles and computers

• A rival’s move can force a business to respond rapidly

• Microsoft added haptic feedback to its Elite gaming controllers after Sony’s success with its DualSense product

• Innovation requires time, talent and cash

• Pfizer channelled major R&D funds into mRNA tech, enabling it to develop its Covid vaccine quickly

• Changes in the law and social pressure can lead to new inventions

• EU single‑use‑plastic regulations led Coca‑Cola Europe to launch tethered bottle caps

• Products must fit with the firm’s long‑term goals

• IKEA aims for carbon neutrality; its flat‑pack solar panels align with that mission

• Market research collection

• and analysis regarding the new product is time-consuming

• Sell more products to existing customers

  • Making the most of existing relationships is cheaper than finding new customers

• Investment in research and development and design can be very expensive

• Developing new products spreads fixed costs like premises or salaries across a wider range of products

• The costs of producing trial products, including the costs of wasted materials, can be significant especially if innovative materials or components are used

• Diversifying the products it offers means a business is less reliant on certain customers or markets

• Low sales if the target market is wrong or if market or technical research leads to the development of an inappropriate product or service for the market

• Can create a unique selling point by developing a new innovative product for the first time in the market

  • This USP can be used to charge a high price for the product as well as be used in advertising

• Damage to the brand if the new product fails to meet customer needs

• Charge higher prices for new products

  • Pricing strategies such as price skimming can be used for innovative new products