The Roles of Product Life Cycle - Case Study Example

 The Roles of Product Life Cycle Assessment and Portfolio Analysis In an Effective Product Policy Introduction In economics, production is defined as the process of producing consumer articles with an exchange value. In other words, a product must possess the attributes necessary to make it ideal for exchange and use. The current thinking in product development is that the best practice of marketing management cannot enhance the exchange value and salability or usability of a product if it does not configure product planning and management. This is called product policy, which involves planning and managing a product from the time the idea germinated to commercialisation and onward until the consumers’ interest ebbs after a period of use. It is widely acknowledged in management and marketing circles that every product dies at some point after a successful launch and growth. Thus, product policy helps preserve a company’s profitability as it manages every stage of the product life cycle in a meticulous manner for the purpose of avoiding the “decline” phase common to products brought to market with less attention to such details. A product policy is also useful to companies with a line of products if it includes an analysis of its product portfolio since this will help decide which article needs to be developed further and which should be abandoned. To validate this hypothesis, this paper examines the potential of product life cycle and portfolio analyses to give a higher degree of efficiency to product planning and management by looking into the product policy of the BMW Group. In 2000, the BMW Group sold to Ford Motors its manufacturing rights to Rover, which had been manufactured in UK since 1994 and brought the Group some $2 million in losses daily. The Group has since learned its lesson and formulated a product policy that focuses on luxury limousines and high-end sedans as characterised by the highly successful 5-car BMW series, Rolls Royce and the Mini. These luxury vehicles set the industry standards for technology, environmental protection, fuel economy and safety. Product Policy The main objective of product policy is to evaluate the risks and hazards that a product can cause during its life cycle by incorporating all the phases of product development, the possible players, trade policy and procurement, economic instruments, materials regulations, inter-trade agreements, environmental and labeling laws, and product design (Charter & Tischner, 2001). For this reason, product policy encompasses corporate policy and planning, development, portfolio management, life cycle assessment, brand management and marketing strategy. The other key concerns are reflecting good science, protecting confidential business information, avoiding technical barriers to trade and ensuring that a product has timely access to appropriate markets around the world (Gorchels, 2007). In effect, product policy refers to all aspects of development and management of a firm’s product, including branding and packaging. It also looks at key issues related to the 4Ps of marketing – product, price, place and promotion – to determine if the product will have good exchange value, at what price will it appeal to consumers, which particular market should it be addressed, and what marketing strategies should be employed to actualise the desired sales transaction (Dhalla & Yuspech, 1976). The initial step in observing an effective product policy is to define the core product, such that in the case of a car manufacturer like BMW, the firm decides if it will be a luxury top-of-the-line vehicle or a moderately priced sedan. Then the firm assesses the benefits that customers will derive from the core product. Next, the product is built around the core, which involves the design, packaging and the features calculated to provide the desired benefits and quality. Good practice of product management dictates that a new product stays longer at the research and development room for augmentations, such as adding or reducing features when warranted by an assessment of the product life cycle and the company’s product portfolio. In recent years, environmental concern has crept into consumer attitudes and preferences to impose a new demand for greener products. Thus, the word integrated is often appended to product policy to suggest planning and management that aims to minimise the negative effects of a product to the environment. Integrated product policy is used interchangeably with environmental product policy, which is impossible to accomplish in isolation. It must consist of a mix of many different actions that fall into three categories –influencing prices, stimulating demand and promoting green production. Prices of what may be called environment-friendly products can be influenced by government through reduced business taxes or subsidies, while demand may be stimulated by the business sector through better consumer information on eco-labeling and appropriate buying choices. As for the promotion of green products, this can be done by eco-design in product development and life cycle information about such products. This means that a product that considers the environment in its life cycle from production to marketing and disposal will have something to offer for all, including consumers, manufacturers, retailers and cause-oriented NGOs (Department for Environment, Food & Rural Affairs, 2006). As for portfolio analysis, it enables the product manager to compare the new product with those in its product mix as to which is more environment-friendly. Since the coverage of product policy spans the whole product life cycle, brand positioning is just as important, which requires an understanding of the competition and customer preferences and attitudes. A new product can be something not previously marketed by the firm but by others, in which case the firm needs to introduce new and unique attributes to the product. This should be communicated to customers with appropriate marketing support. Life Cycle Assessment Like humans, consumer products also have their own life cycle, which has to do with the life of a product starting from the extraction of the required raw material to product design, actual production, distribution, sale, use and, eventually, its disposal as waste. Analysis of the product life cycle focuses on the measurement of production costs against sales, acknowledging in the process that: 1) products have limited life; 2) sales pass through distinct stages, with each stage posing a different set of challenges, opportunities and problems to the seller; 3) profits rise and fall at different stages of the product life cycle; and 4) in each life cycle stage, products require different financial, marketing, manufacturing, purchasing and human resource strategies (Dhalla & Yuspeh, 1976). The product life cycle consists of the market introduction, growth, maturity and decline or stability stages. In the introduction phase, the product manager devises the best strategy in addressing the 4Ps of marketing. After the product launch, the next imperative is to build consumer preference for the brand and increase market share. In the maturity stage, any strong sales growth of a product is expected to decline so management should concentrate on defending the product’s market share in step with maximising profit. In the decline stage, the product manager needs to choose whether to maintain the product, add new features or find new uses. Other options are to reduce cost and offer the product to a niche segment of the market or sell the product to a firm willing to take it (Malcom, 2005). Product Life Cycle Diagram ____________________________________________ Introduction Growth Maturity Decline ______________________________________ Analysis of the product life cycle also enables a company to identify energy sources with less environmental impact, which can attract the growing number of ecologically conscious shoppers (Portney, 1993). In fact, product life cycle analysis is increasingly used in the manufacture of detergents and containers for fruit juices. For this reason, such analysis is considered expensive since it requires extensive use of technology. These costs need to be balanced with the expected market reception and sales of the product. Portfolio Analysis Portfolio analysis is the process of comparing the contents of a company’s product portfolio to determine which of the particular product or service is promising and deserving of further investment, or which should be discontinued. The concept was borrowed from investment portfolio analysis, which is used by financial analysts to advice investors on what stock to buy or sell and when. Now, portfolio analysis is popularly used in marketing management as a strategic planning tool to evaluate market growth rates, relative market share of a product, and how best to allocate the firm’s resources. In this sense, a portfolio is the set of products or services that a company decides to develop and market. The basic purpose of portfolio analysis is to achieve a balance in a company’s product line so that no product lags behind the others in sales, otherwise the firm’s bottom line will suffer. This is done by evaluating all the elements of marketing to get the right mix and then comparing the market performance of the product with those in the portfolio. The result will provide the product manager with an idea of which product to pour resources into or which to consider for deletion (Gorchels, 2007). A new product is either acquired or internally developed. When a firm decides to manufacture a product acquired from another company, portfolio analysis is especially crucial because it will make the firm see if the new product will compete with its existing products. BMW Group The key products in the portfolio of BMW Group today are the BMW 5-car series, the MINI and Rolls Royce. All three vehicles share the same configuration, which suggest luxury and premium class quality. This is precisely the corporate culture that animates BMW, which is expressed in its mission statement: “to be the most successful premium manufacturer in the industry.” BMW built a solid reputation on this operational strategy. The product policy of the company is first, identify areas with growth potential, understand what they represent, recognize where its strength lies, then make the best of every opportunity by pursuing a clear strategy (BMW Group, 2006). Based on its recent product life cycle and portfolio assessments, BMW found that it is unproductive for a company of its history and reputation to develop products catering to the mass market. From the start, BMW has been identified with upscale luxury vehicles so when it acquired the moderately priced Rover from its British owners in 1994, it was a product policy that the company regretted. In 2000, the BMW Group finally sold to Ford Motors its manufacturing rights to Rover, after sustaining losses of about $2 million daily for five years. Portfolio analysis showed to the firm that the Rover was not deserving of further investment and decided to discontinue its production. It reached the “decline” stage in the product life cycle of Rover when BMW needed to choose whether to maintain the product, add new features, find new uses for it, reduce cost or offer the product to a niche segment of the market. The final decision was to sell the product to a firm willing to take it. The Institute for Mobility Research of the BMW Group focuses primarily on future developments within the field of mobility. Automotive mobility is just one facet of research; social sciences, politics, economics, ecology and cultural studies all play important roles in dealing with the scientific questions and challenges of the future. The BMW Group Research and Innovation Center, also known by its German abbreviation the FIZ, is located close to BMW's Munich headquarters, and is one of the world's most modern automobile-industry development centres. Here, some 7,000 engineers, prototype builders, computer experts, and scientists from many areas – as well as purchasers and employees belonging to supplier companies – develop vehicles and technologies of the future for the BMW Group. The concept of well-structured communication is constantly applied at the FIZ. This means that all three functional areas – development, manufacture and purchasing – work very closely with each other. The areas of logistics, controlling, and personnel were integrated into the development process right from the start. Even suppliers are incorporated within the teams through a process called simultaneous engineering. All these represent the best practice of product planning and management. Conclusion The relevance of product life cycle and portfolio analyses to product policy is demonstrated in the failure of Rover, an automotive product not previously included in the product portfolio of BMW. Obviously, the company had not conducted a thorough portfolio assessment when it bought the Rover earlier. Otherwise, the firm would have seen that a new product different from its portfolio requires different marketing, manufacturing, financial, purchasing and human resource strategies in each life cycle stage. From the start, BMW has thrived on luxury vehicles such that its production and management systems were oriented towards this niche market. When the company produced a lower priced vehicle, no change was made in this orientation, which is addressed by the modern concept of product policy. In time, however, the BMW Group compared the contents of its product portfolio and found that the Rover was not deserving of further investment and should be discontinued. Bibliography 1. 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