Cash Cows
These products have a very high market share in a stable market (i.e. market growth is low). These products are at the ‘Maturity’ and ‘Saturation’ stages of their product life-cycle and produce a very large amount of revenue for the business. This money is often used to promote the ‘Problem Child’ products and to develop new products.
Dogs
These products have a very low market share in a low growth market. They produce very little revenue for the business and are at the ‘Decline’ stage of the product life-cycle. The business has to decide whether to try and extend the life-cycle and boost sales revenue, or whether to delete the product from the portfolio.
These different categories can be represented in a Boston Matrix, as illustrated below:
As you can see from the above diagram, this business has five products in its portfolio. The size of each circle is proportional to the amount of revenue which each product generates. Some important points to note from the diagram :
Product 1 is a ‘Dog’ and is clearly in decline - the business would be advised to delete this product from its portfolio.
Product 2 is a ‘Cash Cow’ and produces large amounts of revenue to fund new product development as well as to fund ‘Problem Child’ products (such as Product 3).
Product 4 is a ‘Star’ and is generating a high level of sales, but is probably likely to face strong competition in the near-future. It will, therefore, require much money to be spent on its advertising and promotion, in order to protect its sales from rival brands.
Product 5 is another ‘Dog’, but it clearly still produces a reasonable level of sales revenue. The business may decide to use an extension strategy to prolong the life-cycle of the product and to boost its sales level. Otherwise product 5 may well go into terminal decline like product 1.
Asset-Led Marketing
This refers to the situation where a business develops its strategy based upon its existing strengths and assets. This involves the business focussing on what it currently performs effectively, and then using this as the base for developing new products or breaking into new markets.
For example, many chocolate manufacturers (such as Cadbury, Nestle and Mars) have built on the tremendous success of their confectionery products to break into the ice-cream market (e.g. brands such as Crunchie, Starburst and Rolo have become high sales-volume ice-cream lines, as well as maintaining their high sales levels for the confectionery lines).
Niche marketing capitalises on the consumer loyalty that a business has, and helps it to develop new products and devise new marketing strategies.
Adding value
This refers to the amount of money which is added on to the raw material cost in order to arrive at the retail price for a product.
For example, the raw materials needed to manufacture a car might include steel, plastic, rubber, aluminium, glass, electronics, etc. These may total £6,000 for a particular car, which retails to customers for £19,000. The difference of £13,000 is added value.
It represents what the customer is actually prepared to pay for the final product. This £13,000 is not the profit that the manufacturer receives from selling the car, since part of it will be used to pay for wages and factory costs – so the profit will be less than the £13,000.
Some products have a very high added value figure (e.g. McDonalds ‘Big Mac’, Sunny Delight, and Manchester United football kits. The customer is prepared to pay a price which is several hundred percent higher than the cost of the raw materials. This could be due to the speed of service, the quality of the image / brand, the taste, the design, the advertising or the quality of the finished product.
Marketing Model
This is a framework for making marketing decisions in a scientific manner. It is derived from Frederick Taylor's method of decision-making. The model has five stages:
Stage 1 - Set the marketing objective (normally based on the company's objectives). For example, if the company’s main objective is growth, then a marketing objective may be to increase the number of markets in which it sells its products.
Stage 2 - Gather the data that will be needed to help make the decision. This will involve the extensive use of market research to gather qualitative and quantitative data concerning the market size, the market growth, customers’ perceptions of the company and its products, the competitors, etc.
Stage 3 - Form hypotheses, (theories and strategies about how best to achieve the objective). For example, a medium-sized UK manufacturer of shoes may start selling products in the lucrative North American market, or it may decide to concentrate on new segments of the UK market (e.g. sports-shoes).
Stage 4 - Test the hypotheses. Each hypothesis will be analysed to see its potential profitability and the likelihood of success. This will be carried out through further market research, possibly by test marketing a product in a small geographic area in order to assess its potential for success.
Stage 5 - Control and review the whole process. This involves implementing one of the hypotheses, via the marketing mix, and looking at its outcome (ie did it meet the objective? could it have been improved?). This will help the business to set future strategies and plans which will be achievable and realistic.
