Marketing is one of action you must perform in launching a new brand, moving into a new market, growing the sales, and so on.
Marketing is the way how to get your product to be delivered to the right people at the right time.
You must understand the theories about Product lifecycle, BCG Matrix, Porter's five Forces, market share, and PESTLE analysis to enhance your marketing skills.
Generally, there are five stages in these life-cycles: introduction, early growth, late growth, maturity, decline. You can find at another source about the phases, they are: development, growth, maturity, decline.
Every product goes through these phases during the lifetime.
I try to describe the product life cycle below:
- It begins with the development of a product. There is no sales/profits in this cycle.
- It starts sales but begins slowly when the product is introduced to a market.
- Hopefully, the product begins growing. It has high sales/profits.
- Then it continues to mature stage. Profits start decreasing.
- The conditions keep stable until the market is saturated (with product and competitor).
- The decline phase is coming. It has declining demand for a product because of a saturated market and there are a lot of competitors sell the same product.
Why do the marketers must understand the product life cycle? Because there is a close relationship between sales volume and time in the market. You as a marketer must plan for the product growth, product maturity, and the declining. The marketing strategy and pricing strategy are totally different when the product is growing and the product is declining.
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If you want to know further about pricing strategies for a product in the maturity stage at product lifecycle, browse here:
http://marketingforbeginner.blogspot.com/2016/04/pricing-strategies-for-established-product-maturity-stage.html
==========================================
You might need further information about Boston Matrix, so you can read here:
Portfolio analysis with Boston Consulting Group analysis.
==========================================
What is the purpose of Boston Matrix?
a. Boston Matrix can be used to set what priorities should be given in the product portfolio/business unit. In other words, Boston Matrix can help decision maker making resource allocation when he knows the products are classified. In addition to this, he can decide different strategies for different product portfolio/business unit.
b. Boston Matrix can help the decision maker understand a frequently made strategy mistake.
c. If the company has multiple business units, it must decide what the strategies for each business units (and how to allocate resource among them).
A business unit can be considered as a portfolio (product portfolio). Boston Matrix is one method of portfolio planning approach. With this approach decision makers can confidently decide the business strategies (investment strategies, allocate resource strategies, and so on) of each business units/product portfolio.
BCG matrix has two aspects: market growth and market share.
The equation in BCG matrix:
a. The bigger the market share the better for the company.
b. The faster the market grows the better for the company.
There are four categories of product portfolio in BCG matrix method:
1. Stars
Stars mean high growth and high market share. Usually, it uses a large amount of cash, leaders in the industry, and should generate a large amount of cash.
2. Cash Cows
Cash cows mean low growth but high market share. Usually, it keeps profits high. Because of this, investment should be low. Actually, it is doing well in no growth market with limited opportunities.
3. Dogs
Dogs in Boston matrix means low growth and low market share. It becomes weak in the market so that it is difficult to make a profit.
4. Question Marks.
It means high growth but low market share. Usually, the condition is high demand but low return (because it has a low market share).
In examining competition, you should calculate your fair share and your market share against the competition.
I will take an example in a hotel industry for an explaining you how to determine market share and fair share.
Usually, the items to be calculated are the size rooms, room occupancy, occupancy percentages, and room nights sold.
Market share definition in this case (hotel industry) = the amount of room nights sold by your hotel relative to the total room nights sold by you and your competitors.
So, market share = room nights sold/total market room night sold
Note
Glossary in hotel industry:
Room occupancy is the number of times a room is sold (occupied) in a given period.
Occupancy percentages = Room occupancy/maximum number of nights in a given period.
Room night = One room occupied for one night (total number of rooms multiplied by the number of nights in those rooms). It is a measure of occupancy where a room is the unit of measure.
Whereas fair share is the number of room nights would sell relative to the number of rooms among all.
So, fair share: available room nights/total market available room nights.
M. Porter created this tool in 1979. The main function is to understand how these key forces affect an industry.
This analysis tool can help you to assess industry captivation, competition trends, which industries a company should compete in, how a company can take a position for success.
The five forces are:
a. Threat of entry
This key force show you how easy/how difficult it is to enter a certain industry. If an industry is profitable and there are a small barrier to enter, a competitor will come soon. A profitable market will attract new entrants.
The threat of new entrants can make current players keeping a price down and spend more to retain customers. As a consequence, when many companies compete for the same market share, profits start to fall.
General strategy for the current player is to create high barriers for new entrants to enter the industry. The current player must perform customer loyalty programs, product differentiation, cost reduction, and so on to defend against the threat of new competitor.
b. Bargaining power of Buyers.
Buyer power is an assessment of how easy it is for buyers to drive prices down. Buyer power is high when buyers are large relative to the competitors serving them. They can force the price down and demand more service at the current prices. Lower price means lower profit for the company.
Buyer can have strong bargaining power when:
- They can simply find a substitute product.
- Buy in a large quantity.
- Only few buyers exist.
- Buyer is a price sensitive.
c. Bargaining power of suppliers.
Supplier power is an assessment of how easy it is for suppliers to drive up prices. Suppliers are most powerful when you are dependent on them and you can not switch another supplier.
Because of above reason, they have the power to influence the price. They can sell higher price or low-quality raw material for the same price.
Suppliers have strong bargaining power when:
- It is expensive to switch suppliers.
- Switching suppliers is time-consuming.
- Lack of alternative suppliers.
- There are few suppliers but many buyers.
d. Rivalry among competitors/competitive rivalry
Competitive rivalry is a measure of the extent of competition among existing company (the number and capability of competitors in the market). This is a major determinant in how competitive and profitable an industry is.
In a tight competition, a company must compete hard for a market share. As a consequence, it drives lower price and raises the cost of competing such as increasing the cost of advertising, and finally it makes a lower profit.
Rivalry is intense when:
- There are many competitors playing in the same industry.
- Slow industry of growth.
- Low customer loyalty.
e. Threat of substitution.
This force is threatening when buyers can easily find substitute products with competitive prices. A company is concerned about this force, especially competitor offers lower prices with the same quality and functions. So, buyers can have the opportunities to switch. But, if the cost of switching is high, the threat of substitution is low.
It collects information about external factors that may have an impact on their business (risks and opportunities).
PESTLE stands for Political, Economic, Social, Technological, Legal, Environmental.
Political factors
These include government regulations, political stability, trade restriction, global/national/local political conditions.
Economic factors
These factors comprise inflation, interest rates, currency exchange rate, economic growth, world/national/local economic. The factors affect capital and purchasing power, etc.
Social factors
Social factors comprise population growth, social behavior, social attitude, demographics, development in society, etc. These factors affect consumer's need and potential market size.
Technological factors
These includes all technology related such as a computer, application, other equipment, materials, innovation, automation, etc.
Legal factors
These includes world/national legal, and so on.
Environmental factors
These comprise Global/national/local environment issue, pressures, movement, etc.
There is one basic information for you to know related to this article. I entitled the article "How to perform business competition analysis." You can browse there to complete the information about business and marketing analysis.
I think it is enough for today. I hope you understand very well the marketing theories above and you can implement it in your business.
Marketing is the way how to get your product to be delivered to the right people at the right time.
You must understand the theories about Product lifecycle, BCG Matrix, Porter's five Forces, market share, and PESTLE analysis to enhance your marketing skills.
The theory of business and marketing strategic analysis tools
1. Product life-cycle
Product life cycle is one of the most important business principle. It is an essential concept for planning, manufacturing, product development, and marketing strategy.
Generally, there are five stages in these life-cycles: introduction, early growth, late growth, maturity, decline. You can find at another source about the phases, they are: development, growth, maturity, decline.
Every product goes through these phases during the lifetime.
I try to describe the product life cycle below:
- It begins with the development of a product. There is no sales/profits in this cycle.
- It starts sales but begins slowly when the product is introduced to a market.
- Hopefully, the product begins growing. It has high sales/profits.
- Then it continues to mature stage. Profits start decreasing.
- The conditions keep stable until the market is saturated (with product and competitor).
- The decline phase is coming. It has declining demand for a product because of a saturated market and there are a lot of competitors sell the same product.
Why do the marketers must understand the product life cycle? Because there is a close relationship between sales volume and time in the market. You as a marketer must plan for the product growth, product maturity, and the declining. The marketing strategy and pricing strategy are totally different when the product is growing and the product is declining.
==========================================
If you want to know further about pricing strategies for a product in the maturity stage at product lifecycle, browse here:
http://marketingforbeginner.blogspot.com/2016/04/pricing-strategies-for-established-product-maturity-stage.html
==========================================
2. Boston Matrix
After product life cycle theory, you have to understand BCG matrix theory. BCG stands for Boston Consulting Group. We can say it Boston matrix method.==========================================
You might need further information about Boston Matrix, so you can read here:
Portfolio analysis with Boston Consulting Group analysis.
==========================================
What is the purpose of Boston Matrix?
a. Boston Matrix can be used to set what priorities should be given in the product portfolio/business unit. In other words, Boston Matrix can help decision maker making resource allocation when he knows the products are classified. In addition to this, he can decide different strategies for different product portfolio/business unit.
b. Boston Matrix can help the decision maker understand a frequently made strategy mistake.
c. If the company has multiple business units, it must decide what the strategies for each business units (and how to allocate resource among them).
A business unit can be considered as a portfolio (product portfolio). Boston Matrix is one method of portfolio planning approach. With this approach decision makers can confidently decide the business strategies (investment strategies, allocate resource strategies, and so on) of each business units/product portfolio.
BCG matrix has two aspects: market growth and market share.
The equation in BCG matrix:
a. The bigger the market share the better for the company.
b. The faster the market grows the better for the company.
There are four categories of product portfolio in BCG matrix method:
1. Stars
Stars mean high growth and high market share. Usually, it uses a large amount of cash, leaders in the industry, and should generate a large amount of cash.
2. Cash Cows
Cash cows mean low growth but high market share. Usually, it keeps profits high. Because of this, investment should be low. Actually, it is doing well in no growth market with limited opportunities.
3. Dogs
Dogs in Boston matrix means low growth and low market share. It becomes weak in the market so that it is difficult to make a profit.
4. Question Marks.
It means high growth but low market share. Usually, the condition is high demand but low return (because it has a low market share).
3. Market share
How to calculate market share and fair share?In examining competition, you should calculate your fair share and your market share against the competition.
I will take an example in a hotel industry for an explaining you how to determine market share and fair share.
Usually, the items to be calculated are the size rooms, room occupancy, occupancy percentages, and room nights sold.
Market share definition in this case (hotel industry) = the amount of room nights sold by your hotel relative to the total room nights sold by you and your competitors.
So, market share = room nights sold/total market room night sold
Note
Glossary in hotel industry:
Room occupancy is the number of times a room is sold (occupied) in a given period.
Occupancy percentages = Room occupancy/maximum number of nights in a given period.
Room night = One room occupied for one night (total number of rooms multiplied by the number of nights in those rooms). It is a measure of occupancy where a room is the unit of measure.
Whereas fair share is the number of room nights would sell relative to the number of rooms among all.
So, fair share: available room nights/total market available room nights.
4. Porter's five forces analysis - identify threats and opportunities
Porter's five forces analysis is a tool used to analyze an industry competition based on five key forces that affect a company's profitability. In other words, it is an analysis tool to determine the intensity of competition and its profitability level in one industry.M. Porter created this tool in 1979. The main function is to understand how these key forces affect an industry.
This analysis tool can help you to assess industry captivation, competition trends, which industries a company should compete in, how a company can take a position for success.
The five forces are:
a. Threat of entry
This key force show you how easy/how difficult it is to enter a certain industry. If an industry is profitable and there are a small barrier to enter, a competitor will come soon. A profitable market will attract new entrants.
The threat of new entrants can make current players keeping a price down and spend more to retain customers. As a consequence, when many companies compete for the same market share, profits start to fall.
General strategy for the current player is to create high barriers for new entrants to enter the industry. The current player must perform customer loyalty programs, product differentiation, cost reduction, and so on to defend against the threat of new competitor.
b. Bargaining power of Buyers.
Buyer power is an assessment of how easy it is for buyers to drive prices down. Buyer power is high when buyers are large relative to the competitors serving them. They can force the price down and demand more service at the current prices. Lower price means lower profit for the company.
Buyer can have strong bargaining power when:
- They can simply find a substitute product.
- Buy in a large quantity.
- Only few buyers exist.
- Buyer is a price sensitive.
c. Bargaining power of suppliers.
Supplier power is an assessment of how easy it is for suppliers to drive up prices. Suppliers are most powerful when you are dependent on them and you can not switch another supplier.
Because of above reason, they have the power to influence the price. They can sell higher price or low-quality raw material for the same price.
Suppliers have strong bargaining power when:
- It is expensive to switch suppliers.
- Switching suppliers is time-consuming.
- Lack of alternative suppliers.
- There are few suppliers but many buyers.
d. Rivalry among competitors/competitive rivalry
Competitive rivalry is a measure of the extent of competition among existing company (the number and capability of competitors in the market). This is a major determinant in how competitive and profitable an industry is.
In a tight competition, a company must compete hard for a market share. As a consequence, it drives lower price and raises the cost of competing such as increasing the cost of advertising, and finally it makes a lower profit.
Rivalry is intense when:
- There are many competitors playing in the same industry.
- Slow industry of growth.
- Low customer loyalty.
e. Threat of substitution.
This force is threatening when buyers can easily find substitute products with competitive prices. A company is concerned about this force, especially competitor offers lower prices with the same quality and functions. So, buyers can have the opportunities to switch. But, if the cost of switching is high, the threat of substitution is low.
5. PESTLE tool - future environmental developments
A PESTLE Analysis is a tool that can help companies developing strategies by making them understand external environment now and future (scanning external macro-environment in which company exists).It collects information about external factors that may have an impact on their business (risks and opportunities).
PESTLE stands for Political, Economic, Social, Technological, Legal, Environmental.
Political factors
These include government regulations, political stability, trade restriction, global/national/local political conditions.
Economic factors
These factors comprise inflation, interest rates, currency exchange rate, economic growth, world/national/local economic. The factors affect capital and purchasing power, etc.
Social factors
Social factors comprise population growth, social behavior, social attitude, demographics, development in society, etc. These factors affect consumer's need and potential market size.
Technological factors
These includes all technology related such as a computer, application, other equipment, materials, innovation, automation, etc.
Legal factors
These includes world/national legal, and so on.
Environmental factors
These comprise Global/national/local environment issue, pressures, movement, etc.
There is one basic information for you to know related to this article. I entitled the article "How to perform business competition analysis." You can browse there to complete the information about business and marketing analysis.
I think it is enough for today. I hope you understand very well the marketing theories above and you can implement it in your business.
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