product life cycle

product life cycle

▪ PLC helps to identify the stages that products go through from development to
withdrawal from the market
✓ products have limited life
✓ products sales are not consistent
✓ sales variation results in profit variation at different stages of PLC
✓ necessity for adoption of varying strategies at each stage of PLC

“PLC is crucial to forecast sale figures, profits, redesign, re-launch and various other
options that may be taken in entire product life cycle to maximize its success”
 product life cycle
▪ example:
 product life cycle
▪ phases of PLC:
✓ development
• initial concept
• market research, competitors, planning, creative thinking
✓ introduction/launch
• advertisement, choosing target audience
• high cost vs low sales, break even
✓ growth
• increased consumer awareness
• rise in sales, profit targets and growth projection
 product life cycle
▪ phases of PLC:
✓ maturity
• peak sales and profit
• sales growth slow
• monitor market
• high market share + high competition
✓ saturation
• new entrants, market flooding
• develop new strategies
• search new markets, introduce new features
 product life cycle
▪ phases of PLC:
✓ decline
• product outlives / outgrows its usefulness
• fashion changes
• technology progresses
• sales decline + cost rise
✓ withdrawal
• has the product sales declined to unsustainable level?
• when to withdraw the product?
• replacement of products
• use of facilities, equipment and labour
 product life cycle
▪ PLC graph based on sales over time
Development Introduction Growth Maturity Saturation Decline
Sales

Time
 product life cycle
▪ PLC extension strategies
✓ adopting extension strategies, profits can be increased
Sales

Time
 product life cycle
▪ PLC and profits
✓ sales do not always translate into profits

Sales/Profit

Profits

Time

Break Even
break even (BE) analysis
 break even (BE) analysis
▪ Problem-1:
A company produces certain products with a rate of 20,000 units per month. The
selling price is set Rs 15 per unit. The associated costs are:
a. Material costs = Rs 135,000
b. Labour costs = Rs 65,000
c. Mfr overhead costs = Rs 40,000
d. Adm overhead costs = Rs 12,000
e. Marketing costs = Rs 8,000
Calculate:
1. Total cost of production
2. Profit per unit
3. Draw BE chart and determine BE quantity
4. Determine margin of safety (MoS)
 break even (BE) analysis
▪ Problem-2:
a firm produces product with selling price of Rs 10 per unit. The variable costs per unit
is Rs 3 per unit. The total fixed costs are Rs 21,000. Calculate:
1. BE quantity
2. Revenue at BE quantity
3. Total cost at BE quantity
4. If the demand is of 15,000 units, what would be the total profit?
5. If firm reduces the product price to Rs 8 per unit, what would be the effect on BE
quantity?
TC (total cost) = TFC (total fixed cost) + TVC (total variable cost)
product life cycle
product life cycle (Nokia)