“Markets are not created by God, nature, or by economic forces, but by businessmen” (Peter Drucker in Zinkin 2006).
This simple argument by Peter Drucker states one of the main goals of a company; creating and maintaining satisfied customers. This goal can be fulfilled via one product or a portfolio of products, and when the company moves from one product to a portfolio of products, different complicated decisions to sustain its marketplace are needed (Goldgehn & Lagarce 1983).
A key question here is how can companies use the strategic marketing tools to manage and develop their product and/or products portfolios? The body of literature in this area suggests different concepts and theories, but which one is the most suitable one?
In order to examine that, three concepts will be critically evaluated to understand their usages, advantages, limitations and the new insights around them. The three concepts are product life cycle, Ansoff’s matrix and BCG matrix.
Product Life Cycle
Product life cycle “is a graph [was first introduced in the 1950s] which plots the volume or value of sales of a product from its launch to its decline and withdrawals” (McDonald 2007, p.197).
Most product life- cycle curves are represented as a bell- shaped divided into four stages (Kotler & Keller 2012, p.310); introduction, growth, maturity and decline. However, another 11 types were addressed in different studies and summarized as “cycle- recycle, cycle-half recycle, increasing sales, decreasing sales, high plateau, low plateau, stable maturity, growth maturity, innovative maturity, growth- decline plateau, and rapid penetration” (Rink & Swan 1979).
The product life cycle concept is generally utilized due to many advantages such optimizing the allocation of resources (Barksdale & Harris 1982), providing understanding for the full- lifetime of a product (Goldgehn & Lagarc p, 1983), assisting the managers to focuses their attention on the expected future patterns (McDonald 2007, p.198) and helping in optimizing company’s income from its sales (Sychrová 2012).
The concept has also been criticized due to providing the same strategies without looking at the product life cycles phases of the competing products (Barksdale & Harris 1982). Another critique is due to the difficulty in drawing the curve and the need for sales numbers per each product (McDonald 2007, p.201). Finally, the argument that the product life cycle concept focuses only on one product rather than having a look at the whole market (Kotler & Keller 2012, p.317).
The limitations of the concept itself did not hinder scholars from expanding the theory to look at service life cycle and service portfolio management. For example: Carman and Langerad (1980) studied the effect of service life cycle, the experience and the market share on the profitability of the service firms and suggested three growth strategies, and another three researchers from Athens University of Economics and Business analysed the service elimination decision-making during the service life cycle (Papastathopoulou et al. 2012).
Ansoff’s product- market growth matrix is a model for generating four basic alternative directions for strategic development based on two factors: marketing growth and product growth (Johnson et al. 2008, pp.257 – 258). The four strategies are: “market penetration, market development, product development and diversification” (Pleshko & Heiens 2008).
Ansoff (1975) highlighted that the first three strategies are usually followed with the same technical, financial and merchandising resources which are used for the original product line. However, diversification requires new skills, new techniques, and new facilities. To deal with that risk of diversification, seven steps a company should take were addressed by Anderson, Ansoff, Norton and Wetson (1959).
Since it was introduced in 1960’s, the matrix was considered generally due to its systematic approach for strategy formulation. One study compared Ansoff’s matrix with other five schools of thoughts and concluded that “it is easy to visualize, repeatable, auditable and provides clear managerial guidelines and process” (Baraldi et al. 2007).
On the other hand, the same study criticized it due to “its broad concept, time-consuming, can become a ritual, single organization perspective and the separation of formulation from implementation” (Baraldi et al. 2007).
Recently, Pleshko and Heiens (2008) argued that it is very old and requires an update; therefore, they presented an amended version with nine distinct growth options to replace the original ones. The new five strategies are: “intensive market development, intensive product development, product development with intensive market development, market development with intensive product development and finally intensive growth” (Pleshko & Heiens 2008).
Boston Consulting Group Matrix (BCG)
BCG’s growth-share matrix is “a model that combines relative market share and market growth rate as criteria to suggest investment decisions under four groups” (Kotler & Keller 2012, p.42). The groups are ‘Dogs’, ‘Cash Cows’, ‘Question Marks’, and ‘Stars’ (Goldgehn & Lagarce 1983). The meaning of each class is: star is a business unit that has a high market share and a high growing market, question mark is a business unit in a growing market, but with low market share, cash cow is a business unit with a high market share in a mature market, and finally dog is a business unit with a low share in static or declining markets (Johnson et al. 2008).
This method has many advantages. Barksdale and Harris (1982) advised that it helps in identifying products that are out of synchronization in terms of their market share market growth position, and evaluating in greater depth when to introduce and phase out products. Pearce and Robinson (2007) highlighted that it helps managers to perform diagnostic analysis to identify the markets that they would like to enter. BCG matrix can be used in forecasting a company’s market position (McDonald 2007, p.212), and It provides a visualized method to understand the four possible marketing strategies easily (Johnson et al. 2008, p.279).
Controversy, there are still limitations in this matrix such as difficulties in undertaking the exact meaning of the terms used such as high or low share (John et al. 2008, p.279), BCG doesn’t take into consideration the differences and complex levels of companies (Pearce & Robinson 2009, p. 279) and even Kotler and Keller described it as “oversimplified and subjective” (Kotler & Keller 2012, p.42).
In order to deal with those limitations, the consulting firm Boston Consulting Group amended the matrix in 1980 to become what is known as ‘BCG II Matrix’ or ‘Competitive Advantage Matrix’ (Ionescu 2011). Ionescu discussed the new criteria that are used to classify the industries in B.C.G. II matrix and addressed its advantages and limitations (Ionescu 2011).
A part from that, there are still many strategic management tools in the literature. Kotler and Keller (2012) discussed GE/McKinsey matrix and introduced a new method which relays on “Shareholder Value Analysis”. Udo-Imeh, Edet and Anani (2012) addressed ‘Arthur D. Little strategic Condition Matrix’, ‘Shell Directional Policy Matrix’ and ‘Abell and Hammond Investment Opportunity matrix’. Burns (2014) discussed a new model based on the dynamics of today’s business environment under the name of ‘Opportunity Assessment Matrix’.
Having said that, the limitations and problems associated with the above tools led to many new concepts. One study by Udo-Imeh et al. (2012) highlighted some of them such as: ‘Strategic Position and Action Evaluation (SPACE) Matrix’, the ‘Strategic Triangle of 3C’s’, ‘Market Economics and Competitive Position (ME/CP) Strategic Framework’, ‘Diversification Risk Model’, ‘Internal-External Matrix’, ‘Hofer’s Product-Market Evolution Model’ and ‘COPE analysis’ (Udo-Imeh et al. 2012).
The previous discussion showed that the product life cycle concept, Ansoff’s matrix and BCG matrix are not coming from a mere. Each tool has its advantages and limitations. It is very difficult to weight the advantages over the limitations, and conclude that one concept is better in shaping the marketers’ strategic decisions. Providing a narrower scope for the discussion will lead to a better comparison. For example, comparing the tools’ usage in two similar companies from the same sector.
As a conclusion, there is no single tool that can be used solely to analyse the company’s strategic planning, therefore, a proposed framework for this kind of analysis is presented in below.
The benefits of this framework are that it combines the external and internal factors that surround the company, hence providing a better understanding of its macro and micro environment.
The application for this framework on a selected Jordanian company, Aramex, is presented in this case study.
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