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Chapter 11

Study Notes for Chapter 11


Department
Management (MGM)
Course Code
MGMA01H3
Professor
Ingrid L.Stefanovic
Chapter
11

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Chapter 11: Product Strategy
INTRODUCTION
Product Mix
- the assortment of product lines and individual offerings available from a company
Product Line
- a series of related products
Individual Offering
- a single product within a product line
THE EXISTING PRODUCT MIX
-the marketer looks for gaps in the assortment that can be filled by new products or by
modified versions of existing products
-firms usually decide to expand or redevelop existing product lines since market
requirements for these lines are well known
Cannibalization
- a situation where one product takes sales from another offering in a product line
Line Extension
- the development of individual offerings that appeal to different market segments but
are closely related to the existing product line
-a cheap way of increasing sales revenue at minimal risk
THE IMPORTANCE OF PRODUCT LINES
Desire to Grow
- firms place limitations on their growth potential if they focus only on a single product
-firms often introduce new products to offset seasonal variations in the sales of their
current products
Making Optimal Use of Company Resources
-by spreading costs of operation over a series of products, average costs of all products
is reduced!
-advertising costs overall from an intermediary if the quantity of products is larger
-same with production facilities
-expertise of all the firm's personnel can be applied more widely to a line or products
instead of just one
Increasing Company Importance in the Market
-companies are expected to offer other related products to its initial one under the same
brand name
Exploiting the Product Life Cycle
-as output reaches maturity and decline, the firm must add new products
THE PRODUCT LIFE CYCLE
- a product's progress through introduction, growth, maturity and decline stages
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Stages of the Cycle
1. Introductory Stage
Objective
- to stimulate demand for the new market entry
What Happens
- public is being acquainted with product benefits and acceptance is being gained
2. Growth Stage
Objective
- gain profit from promotion during introductory stage
What Happens
- competition is also attracted!
3. Maturity Stage
Objective
- increase sales and market share at the expense of competitors (price reducing will be
easily copied and only results in overall revenue loss)
What Happens
- industry sales continue to grow but eventually plateaus, a large number of competitors
have entered the market and profits decline as competition intensifies
4. Decline Stage
What Happens
- new innovations or shifting customer preferences bring about an absolute decline in
total industry sales
DEPARTURES FROM THE TRADITIONAL PRODUCT LIFE-CYCLE
MODEL
Issues with it
1. Failure in distinguishing the life cycle of a product type and of an individual brand
- do not use the product life-cycle theory as the predictive mode for anticipating when
changes would occur!
2. It is a normative model, meaning that it prescribes the alternative strategies that
should be considered at each stage. However, this should not be, since the product life
cycle is dependent on what marketing strategy was implemented for that product at a
particular time
Realistic View of the Product Life-Cycle
- it serves as an enabling condition such that underlying forces that inhibit or facilitate
growth create opportunities and threats with strategic implications
- stages of the life-cycle acts as a moderating variable through its influence on the value
of market-share position and the profitability consequences of strategic decisions
Other Life-Cycle Issues
1. Length of Cycle Stages
- there is variation in length of the stages
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