Page 5: Extension strategies
As sales begin to decline, a business needs to decide whether to withdraw the product or use extension strategies to boost product sales and extend its ‘life’. Extension strategies include repackaging, adding extra features or changing the product price.
A business needs to have a mix of products at different stages of the PLC to meet the demands of its customers as well as maintaining a profitable business. To help identify the right product mix a business can use an analysis tool called the Boston matrix. The Boston matrix compares the market growth of a product with its share of the market. The matrix analysis refers to products as question marks, stars, cash cows and dogs.
All new products are seen as question marks, this is because they are new entrants to the market and so are not yet profitable and the product may succeed or fail. Stars are those products with high growth and high market share; they are in the profitable growth stage of the PLC. Cash cows are in the maturity stage of the PLC as they are products with a high market share, but their growth in the market has stabilised. At this stage the costs of the product in terms of production and promotion are generally lower, so cash cows generate high revenue for the business. Finally, dogs are products that have a low market share and low market growth. They can be a drain on a business’ resources so are often sold off if they are no longer making a profit. For a business to survive, it needs a balanced product portfolio so that it can invest the revenue it generates from its cash cow products to develop new question marks so that they become stars.
Balancing the product portfolio
JD monitors product sales and its products portfolio closely. For example, if one of its products is not selling as expected, the company will decide to reduce the price of the product in order to encourage more sales. If the product is not selling well after four to six weeks, it becomes an ‘offer’ product. The product is then displayed using a vibrant orange and grey price ticket and will be on display in store with other ‘offer’ products.
By sectioning these products off from full price products, it encourages a high footfall of customers looking for a bargain. This process also applies to its online sales. JD uses ‘offer’ pages on its website to promote these products as well as sending e-mails to previous offer customers in order to sell the products more quickly and clear stocks.