Page 6 - MCS August Day 2 Suggested Solutions

CIMA AUGUST 2018 – MANAGEMENT CASE STUDY

For instance, it may be decided that a component is needed that will have to be manufactured
specifically for the product. This locks in the costs of either setting up a manufacturing line for the
component or of buying it in from another manufacturer and being subject to their prices.

When reviewing this cost in the context of the entire product life, it may be felt that it leads to a
cost commitment over many years that is too large for the product to maintain feasibility.

The developers could instead decide to make a small adjustment so that the camera can use a
component that is already manufactured by the company, leading to significant lifetime cost
savings.

This decision would be very difficult to implement if the camera was already in production.

The use of life‐cycle costing also allows businesses to plan ahead in terms of getting the product
to market ahead of its competitors and to look even further to the future and aim to anticipate
keeping the product in the maturity stage as long as possible for maximum profitability.

Life‐cycle costing would also encompass overheads incurred in relation to a product, so that these
can be pro‐actively managed. For instance, the allocation of marketing spend can be planned to
be more intense in the introduction and growth stages than in the maturity and decline stages.

Pricing issues in relation to the product life cycle.

Businesses can use pricing as a way of navigating a product through its life cycle to maintain
maximum profitability at all stages.

Rather than choosing one price to be charged during the entire life of a product, a business can
adapt its pricing policy to tie in with its strategic aims. For instance, maintaining a market share
during a maturity stage of a product may involve the necessity to cut prices compared to the
growth stage.

If Montel chooses to adapt its prices over its products’ lives, it must always bear in mind its overall
strategy of offering high quality products and the pricing policies it uses should not compromise
this.

Montel’s products
DSLRs and lenses

Some products have very long life cycles and, barring major technological advances or changes in
markets, are not anticipated to change very much.

It could be said that Montel’s DSLR camera ranges and lenses are all in the maturity stage of their
life cycles with no foreseeable decline in the market. Montel’s policy is to price at a premium
level to reflect the quality level of the products.

This price level also acts as a marketing tool. Customers will see the premium price and feel that
the product must therefore be of a high quality.

With no anticipated downturn in the market and no change in Montel’s strategy, there appears to
be no reason to change this policy for these products.

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