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Product Life Cycle

Product Life Cycle

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marketing management
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Published by: mechidream on Feb 01, 2010
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03/07/2011

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Explain The Product Life Cycle and how marketing mix strategy can be applied at each stage A new

product progresses through a sequence of stages from introduction to growth, maturity, and decline. This sequence is known as the product life cycle and is associated with changes in the marketing situation, thus impacting the marketing strategy and the marketing mix.

For a business, having a growing and sustainable revenue stream from product sales is important for the stability and success of its operations. The Product Life Cycle model can be used by consultants and managers to analyse the maturity stage of products and industries. Understanding at which stage a product is in provides information about expected future sales growth, and the kinds of strategies that should be implemented.

The product revenue and profits can be plotted as a function of the life-cycle stages as shown in the graph below: Product Life Cycle Diagram

Introduction Stage At the market introduction stage the size of the market, sales volumes and sales growth are small. A product will also normally be subject to little or no competition. The primary goal in the introduction stage is to establish a market and build consumer demand for the product.
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There may be substantial costs incurred in getting a product to the market introduction stage. Substantial research and development costs may have been incurred, for example, thinking of the product idea, developing the technology, determining the product features and quality level, establishing sufficient manufacturing capacity, preparing the product branding, ensuring trade mark protection, etc. Marketing costs may be high in order to test the market, launch and promote the product, develop a market for the product, and set up distribution channels. The market introduction stage is likely to be a period of low or negative profits. As such, it is important that products are carefully monitored to ensure that sales volumes start to grow. If a product fails to become profitable it may need to be abandoned. The impact on the marketing mix is as follows:

Product branding and quality level is established and intellectual property protection such as patents and trademarks are obtained. Pricing may be low penetration pricing to build market share rapidly, or high skim pricing to recover development costs. Distribution is selective until consumers show acceptance of the product. Promotion is aimed at innovators and early adopters. Marketing communications seeks to build product awareness and to educate potential consumers about the product.

Growth Stage If the public gains awareness of a product and consumers come to understand the benefits of the product and accept it then a company can expect a period of rapid sales growth, enter the “Growth Stage”. In the Growth Stage, a company will try to build brand loyalty and increase market share.Profits are driven by increased sales volume (due to growth in market share as well as an increase in the size of the overall market). Profits might also be driven by cost reductions gained from economies of scale, and perhaps more favourable market prices.
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Competition in the Growth Stage remains low, although new competitors are expected to enter the market. When competitors enter the market a company might be subject to price competition and increase its marketing expenditure. The impact on the marketing mix is as follows:

Product quality is maintained and additional features and support services may be added. Pricing is maintained as the firm enjoys increasing demand with little competition. Distribution channels are added as demand increases and customers accept the product. Promotion is aimed at a broader audience.

Maturity Stage When a product reaches maturity, sales growth slows and sales volume eventually peaks and stabilizes. This is the stage during which the market as a whole makes the most profit. A company’s primary objective at this point is to defend market share while maximising profit. In this stage, prices tend to drop due to increased competition. A company’s fixed costs are low because it is has well established production and distribution. Since brand awareness is strong, marketing expenditure might be reduced, although increased marketing expenditure might be needed to retain market share and fight increasing competition. Expenditure on research and development is likely to be restricted to product modification and improvement, and perhaps research into improved production efficiency and product quality. The impact on the marketing mix is as follows:

Product features may be enhanced to differentiate the product from that of competitors. Pricing may be lower because of the new competition. Distribution becomes more intensive and incentives may be offered to encourage preference over competing products. Promotion emphasizes product differentiation.
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• •

Decline Stage A product enters into decline when sales and profits start to fall. The market for that product shrinks which reduces the amount of profit available to the firms in the industry. A decline might occur because the market has become saturated, the product has become obsolete, or customer tastes have changed. A company might try to stimulate growth by changing their pricing strategy, but ultimately the product will have to be re-designed, or replaced. High-cost and low market share firms will be forced to exit the industry. As sales decline, a company has three strategy options:

Hold: maintain production and add new features and find new uses for the product. Reduce the cost of manufacturing (e.g. move manufacturing to a low cost jurisdiction). Consider whether there are new markets in which the product might be sold.

Harvest: continue to offer the product, reduce marketing expenditure, and sell possibly to a loyal niche segment of the market. Divest: Discontinue production, and liquidate the remaining inventory or sell the product to another firm.

Some considerations for marketing mix for a declining market include:

Product consolidation: the number of products may be reduced, and surviving products rejuvenated (renewed/rebuild product appearance). Price: prices may be lowered to liquidate inventory, or maintained for continued products. Distribution: distribution becomes more selective. Channels that are no longer profitable are phased out. Promotion: Expenditure on promotion is reduced for products subject to the Harvest and Divest strategies.

The marketing mix decisions in the decline phase will depend on the selected strategy. For example, the product may be changed if it is being rejuvenated, or left unchanged if it is being harvested or liquidated. The price may be maintained if the product is harvested, or reduced drastically if liquidated. Conclusions: 4

• The PLC concept is best used by marketing managers to interpret product and market dynamics. • As a planning tool, the PLC concept characterizes the main marketing challenges in each stage and poses major alternative marketing strategies. • As a control tool, the PLC concept allows the company to measure product performance against similar products launched in the past. • As a forecasting tool, the PLC concept is less useful because sale histories exhibit diverse patterns, and the stages vary in duration. However, PLC lacks what living organisms have, namely, a fixed sequence of stages and fixed length of each stage. Marketers can seldom tell what stage the product is in.

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