Practise IB Business Management SL/HL 6.1.4 by applying boston consulting group matrix concepts to exam-style questions.
Music Mania (MM)
Music Mania (MM) is an independent store selling new and used music compact discs (CDs), DVD films and music vinyl records. It is a sole trader business owned by André, who has 25 years of experience in the retail and music business. M M has loyal customers but its total revenue is falling. The store currently has a low market share in DVDs and vinyl records.
André decided to conduct some primary and secondary market research, as the entertainment industry is changing rapidly. He discovered that:
- the market for DVDs is in rapid decline
- CD sales are declining slowly but new releases still sell well
- MM has had to stock computer games, which are selling out very quickly, and the sales of new vinyl records are growing slowly.
André is accustomed to variations in sales but the current sales forecasts are, in his experience, the most worrying. He has decided to create an e-commerce website to increase his sales of new and used vinyl records and CDs. André is also aware that new free online music streaming and gaming sites are being launched.
André has only limited internal sources of finance to set up the website. Two new tactics to ensure future success for M M being considered are:
- to stop selling DVDs
- to increase below-the-line promotional spending on vinyl records.
Using the Boston Consulting Group (BCG) matrix, discuss the two new tactics André is considering to ensure MM's future success.
Revenue is falling, computer games sales are rising and now André is considering the possibility of setting up an e-commerce business website. Although M M and André have been in the business for 25 years, external factors are changing the nature of his business model. The two tactics are to stop selling DVDs and start increasing below-the-line promotional spending on vinyl records.
By applying the BCG matrix, we could argue that:
- DVDs are a dog (low market share and growth)
- vinyl records are a problem child or question mark (low market share but potential growth).
Removing or divesting the dog will free up shelf space in the retail store. DVD sales could be transferred and sold via the e-commerce site so that M M is able to make some form of contribution. More space for games is now possible. However, removing a product line from the portfolio is a risk, as some of MM's loyal customers will be unhappy.
Keeping DVDs - although a dog - may block potential new retail rivals if it creates MM's USP. It is also indicated in the stimulus that computer games are not MM's core business.
So perhaps it is worth keeping the core product for a little longer until M M is clear whether the new product is doing well. If e-commerce is to be used, M M can potentially use a market development strategy and find some segment in less technologically advanced economies that are still interested in DVDs.
Increasing spending on below-the-line promotion seems like an appropriate tactic. Although M M has not got sufficient internal sources of finance, the product is in a question mark position with a potential to grow and be profitable. Profit that M M needs. One, therefore, may judge this tactic as highly appropriate especially as below-the-line promotional tactics are cheaper than above-the-line promotional tactics. Moreover, external sources of finance can be used. André needs to use below-the-line promotion methods to move the vinyl records to a star and hopefully a cash cow position so in the medium term, he will be able to milk the potential cow. Short term spending versus medium to long term benefits/ profit seems like a good tactic.
It is expected that the candidates show a clear understanding/application of below the line methods rather than just promotion generally.
Moreover, below-the-line methods can be considerably cheaper than above the line methods of promotion which are currently very appropriate to M M . M M can use short-term sales promotion to encourage buying the product. Below-the-line
promotion can complement the decision to use e-commerce. MM can generate viral marketing and or/ use social media for promotion.
Candidates should be credited for classification of the vinyl as a dog given the low growth of the market share and for suggesting to use below-the-line promotion to extend the life cycle or not to spend money on above-the-line promotion.
Judgment
The BCG provides some clues as to what André should consider but there are some difficult choices to be made. Removing DVDs will allow for a greater stock of vinyl but removing a product line and replacing it with a problem child is risky. It may be sensible in the short term to keep the DVDs, as they will still contribute to growth. Spending more on below-the-line promotion seems more sensible given his loyal customer base and the future potential. If André can't keep both options and has to choose one tactic, perhaps the second tactic is more viable as there is more longer term potential as the market is growing and M M will more responsive to changes in the external environment.
Accept any other relevant issue.
Accept any other relevant discussion.
A conclusion with judgment is expected.
Accept any substantiated judgment
A balanced response is one that covers at least two arguments for and at least two arguments against.
As there are two tactics to discuss, a balance response is one that covers one argument for and one argument against each option.
Marks should be allocated according to the markbands on page 3 with further guidance below.
For one relevant issue that is one-sided, award up to [3]. For more than one relevant issue that is one-sided, award up to a maximum of [4].
For a lack of balance for both option award up to a maximum of [4]
Award a maximum of [6] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment/conclusion.
Candidates cannot reach the [7-8] markband if they give judgment/conclusions that are not based on analysis/explanation already given in their answer.
If the candidate only considers one tactic then award [5] if the answer is balanced with a judgment.
If the candidate does not use the BCG matrix then award a maximum of [4] even if the response is fully balanced.