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A LevelBusinessCambridge (CIE)Revision NotesMarketingThe Marketing MixMarketing Mix: Product Portfolio Analysis

Marketing Mix: Product Portfolio Analysis (Cambridge (CIE) A Level Business): Revision Note

Exam code: 9609

Steve Vorster

Written by: Steve Vorster

Reviewed by: Lisa Eades

Updated on

Stages in the product life cycle

  • The product life cycle describes the different stages a product goes through from its conception to its eventual decline in sales

  • There are typically five stages in the product life cycle: development, introduction, growth, maturity and decline

A typical product life cycle

The five stages a product goes through over its life span: development, introduction, growth, maturity and decline.
The five stages a product goes through over its life span — from development to decline (and ultimately withdrawal from a market)

Stages of the product life cycle

Stage

Explanation

Implications for cash flow

Development

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

  • The business usually incurs high costs for research and development, marketing 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

Introduction

  • 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

Growth

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

  • The business focus shifts from building market share and increasing production to meeting 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

Maturity

  • 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

Decline

  • 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

Extension strategies

  • Extension strategies refer to the techniques used by businesses to extend the life of a product beyond its natural life cycle

  • These strategies are designed to boost sales and maintain profitability for a product that has reached the decline stage of its life cycle

  • There are two types of extension strategies:

    • Product-related extension strategies

    • Promotion-related extension strategies

  • These extension strategies involve changing or modifying the product to make it more appealing to customers and extend its life cycle

    • Product improvements

      • e.g. Samsung releases new versions of its Galaxy Smartphone every year with upgraded features and improvements to the previous model

    • Line extensions

      • e.g. Coca-Cola introduced Diet Coke and Coke Zero as line extensions of its original Coca-Cola

    • Repositioning

      • e.g. when IBM's personal computer division started losing market share to other brands, it repositioned its products as high-end business machines and focused on the enterprise market

  • These extension strategies involve changing the promotional aspects to extend a product's life cycle

    • Changes to advertising

      • e.g. Kellogg's continues to recreate advertisements for its Corn Flakes cereal, which has been around since 1906

    • Price promotions

      • e.g. Cyber Monday occurs on the first Monday after Thanksgiving in the USA, and electronic firms discount prices significantly to boost sales of their products

    • Sales promotions

      • e.g. many coffee shops offer a loyalty programme where customers can earn a free drink for every six drinks consumed

The Boston Matrix and its uses

  • The Boston Matrix is a tool used by businesses to analyse their product portfolio and make strategic decisions about each product

  • The matrix classifies products into four categories based on their market share and the market growth rate

    • Cash Cow

    • Problem Child/Question Mark

    • Star

    • Dog

The Boston Matrix

A diagram showing the classification of products in the Boston Matrix according to their market share and the growth rate in the market as a whole. The categories are Stars, Question Marks, Cash Cows and Dogs.
The classification of products in the Boston Matrix according to their market share and the growth rate in the market as a whole 

  • By categorising products into these categories, businesses can allocate resources more effectively, optimising their cash flow and developing marketing strategies that align with the product's potential

Explanation of product types in the Boston Matrix

Cash cow

  • 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

    • Cash cows provide stable sources of income

Problem child/question mark

  • 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/question mark products to increase their market share and turn them into stars

Star

  • 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

Dog

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

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

Limitations of the Boston Matrix

  • While the Boston Matrix provides valuable insights for marketing managers and serves as a useful starting point for portfolio analysis, there are some limitations to its usefulness

Limitation

Explanation

Simplistic approach

  • 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

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

Lack of focus on the future

  • 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

Ignores interdependencies

  • 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 marketing decisions

Time-consuming

  • 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 must be made to the positioning of products to ensure that appropriate marketing decisions are made

The impact of portfolio analysis on marketing decisions

  • Both the product life cycle and portfolio analysis help businesses make marketing decisions by understanding:

    • Where a product is in its journey

    • How profitable or risky it is

    • How best to allocate marketing budgets, promotional efforts and future investment

Marketing decisions made using the product life cycle

  • Knowing where a product is in its life cycle helps a business plan the right marketing strategy, avoid wasted spending, and maximise profits at each stage

Strategies at each stage of the product life cycle

Stage

Marketing decisions

Introduction

  • The focus is on creating awareness

  • Marketing decisions may include high promotional spending, special offers or launch events to attract early customers

Growth

  • As sales rise, businesses often invest in wider advertising, expand distribution, and emphasise the product’s advantages over competitors

Maturity

  • With many competitors, businesses may use price reductions, loyalty schemes, or product updates to maintain customer interest and defend market share

Decline

  • At this point, the business must decide whether to withdraw the product, reduce promotion, or attempt to extend its life with improvements or new uses

Marketing decisions made using the Boston Matrix

  • The Boston Matrix helps businesses prioritise marketing spending by identifying which products need support, which generate income and which may no longer be worth promoting

  • Marketing strategies for products in a business portfolio vary depending on the BCG Matrix quadrant in which they sit

Boston matrix strategies

Four different marketing strategies based on the Boston Consulting Group matrix include build, harvest, divest and hold
Four different marketing strategies based on the BCG Matrix 

Hold strategies for stars

  • Allocate more resources to support further growth

  • Build market share through continuous investment in product development, marketing and innovation to maintain a strong market position

  • Capture additional market segments by expanding the product's reach into new geographical markets

Harvest strategies for cash cows

  • Maintain market dominance by protecting existing market share through branding, quality and customer loyalty

  • Optimise profitability by streamlining operations, reducing costs, and maximising efficiencies to maximise profits

  • Extract cash flows to invest in other products or new ventures

Build strategies for question marks

  • Conduct market research and analysis to determine the potential for growth and profitability

  • Invest selectively and allocate resources strategically to question marks with the highest potential and withdraw resources from those with low potential

  • Invest in marketing, research and development to increase market share and convert them into stars

Divestment of dogs

  • Sell off the product or business unit if it no longer fits with the company's overall strategy or long-term objectives

  • Harvest or maintain if the product can still generate some cash flows

  • If the product has no future prospects plan for an orderly exit from the market

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    Author
    Reviewer
    Steve Vorster

    Author: Steve Vorster

    Expertise: Economics & Business Subject Lead

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.

    Lisa Eades

    Reviewer: Lisa Eades

    Expertise: Business Content Creator

    Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.