Lecture - 13

# Product Life Cycle Theory

#A product life cycle is the length of time from a product first being introduced to
consumers until it is removed from the market. Product Life Cycle Theory was
proposed by American economist Raymond Vernon in 1966.
There are five phases in a product's life cycle—
● Development
● Introduction
● Growth
● Maturity
● Decline
Every product in the market has to go through these five phases in its life cycle.

Development Phase
Product development is always a leap into the unknown. Companies can spend
millions of dollars on product research and development, but there’s no guarantee
the product launch will be successful.
At this stage, companies are spending money on the product without corresponding
revenue. Proposals are made, tests carried out, hypotheses validated, and changes
implemented.
This stage is naturally integrated into the process of startup companies but is not
restricted to them. For example, an automobile manufacturer won’t launch a new
car without first having an intensive project development phase. The only difference
is that established companies are able to fund this phase from revenue generated by
other products.

Introduction Phase
The introduction phase is the first time customers are introduced to the new
product. A company must generally include a substantial investment in advertising
and a marketing campaign focused on making consumers aware of the product and
its benefits, especially if it broadly unknown what the good will do.
Businesses can typically expect sales to be low during the introduction stage
because potential customers are still learning about the product. Businesses can
also expect to have little competition during this phase since competitors have not
attempted to duplicate or improve upon their products yet.

Growth Phase
The next stage is when the demand for the product begins to increase. As a result,
more sales are generated, which in turn generates more profit. It is during the
growth stage that the product rises in popularity and competitors start to take
notice. Businesses may start to find similar products released into the market as
competitors try to siphon off some of their sales.
An investment in marketing and promotion is essential during this stage to attract
as many customers as possible. This is typically the phase where businesses see the
most sales of their product since enthusiasm is still building and there is still
relatively little competition.

Maturity Phase
The maturity stage of the product life cycle is the most profitable stage, while the
costs of producing and marketing decline. With the market saturated with the
product, competition now higher than at other stages, and profit margins starting to
shrink, some analysts refer to the maturity stage as when sales volume is "maxed
out".
Depending on the good, a company may begin deciding how to innovate their
product or introduce new ways to capture a larger market presence. This includes
getting more feedback from customers, their demographics, and their needs.
During the maturity stage, competition is now the highest. Sales levels stabilize, and
a company strives to have their product exist in this maturity stage for as long as
possible.

Decline Phase
As the product takes on increased competition, the product may lose market share
and begin its decline. Product sales begin to decline due to market saturation and
alternative products, and the company may choose to not pursue additional
marketing efforts .
Should a product be entirely retired, the company will stop generating support for
the good and entirely phase out marketing endeavors. Alternatively, the company
may decide to recondition the product or introduce it with a next generation,
completely modernized item. If the upgrade is substantial enough, the company may
choose to re-enter the product life cycle by introducing the new version to the
market.

The marketing of a product in done using these two psychologies :

● Bandwagon Effect
● Snob Effect

# Bandwagon Effect
The bandwagon effect is a psychological phenomenon whereby people do
something primarily because other people are doing it, regardless of their own
beliefs, which they may ignore or override. The more people that adopt a particular
trend, the more likely it becomes that other people will also hop on the bandwagon.
This tendency of people to align their beliefs and behaviors with those of a group is
also called a herd mentality.
Examples
Diets: When it seems like everyone is adopting a certain fad diet, people become
more likely to try the diet themselves.
Elections: People are more likely to vote for the candidate that they think is winning.
Fashion: Many people begin wearing a certain style of clothing as they see others
adopt the same fashions.
Music: As more and more people begin listening to a particular song or musical
group, it becomes more likely that other individuals will listen as well.

# Snob Effect
Snob effect is understood as the desire to possess a unique commodity having a
prestige value. It is quite opposite to the bandwagon effect. The demand for a
commodity having a snob value is greater when the smaller the number of people
owns it.
It refers to a decrease in demand for commodities because other people are
consuming them. It is the desire of people to separate or dissociate from the
common herd.
For instance, if Miss. A and Miss. B are arch rivals of each other. If in a party Miss. A
wears a dress, and on seeing it Miss B who also has the same dress decided to reject
its use from future as other people(here Miss. A is able to have it).
 For example, many people own a car. But Benz cars will be owned by a limited
person only. So the person owning a Benz car will be identified as a unique person
in that group. This is an example of a Snob effect.

Both snob effect and bandwagon effect are functions of consumption of others, but
one leads to an increase in demand whereas the other decreases demand.

From the Decline phase the sales of the product start to decay. So to keep the
revenues growing the company takes some initiatives. They can be:

# Sustaining Innovation
Sustainable innovation involves making intentional changes to a company’s
products, services, or processes to generate long-term social and environmental
benefits while creating economic profits for the firm.
Sometimes the company uses some innovative ideas to keep the sales high. It’s not
that sustainable, that means it's temporary or just delaying the decline phase for a
while.
Two common examples include smartphone manufacturers and computer chip
manufacturers. Apple and Samsung lead the way in the mobile phone industry. Both
companies release new models of their flagship phones each year or two. The
designs are not always noticeably innovative, as they tend to include minor
developments compared to the previous generation of phones.
Graph : Drubo and Akhi’s note

# Incremental Innovation
To keep the revenue high for a longer period, the company introduces some new
and unique features, added to that old product which attract the consumer's
attention. Its more sustainable. Then after that new featured product starts losing
its popularity, the company again introduces newer versions of that product and it
just goes on and on. So from the ‘S’ curve we can see that a new curve starts to
emerge at the maturity phase of that old product and it keeps going higher.
Any size company can benefit from bringing incremental innovations to market,
which range from adding a new feature to an existing product or developing a line
extension. When done well, these low-risk, low-cost modifications can play a
powerful role in helping differentiate a company or product from the competition.
Graph : Drubo and Akhi’s note

# Innovation Diffusion Theory :

Diffusion of innovations is a theory that seeks to explain how, why, and at what rate
new ideas and technology spread.This theory states that response to a new
innovation will not be the same for all types of consumers. This theory was
introduced by Everett M. Rogers in 1962
.Roger Classified them as 5 categories. They are:
1. Innovators: These are people who want to be the first to try the innovation. They
are venturesome and interested in new ideas. These people are very willing to take
risks, and are often the first to develop new ideas. Whether it is necessary or not,
they try new products. They are risk takers.
2. Early Adopter(Opinion Leader): These are people who represent opinion
leaders. They enjoy leadership roles, and embrace change opportunities. They are
already aware of the need to change and so are very comfortable adopting new
ideas.
They use new products out of their needs. They use the product and try to give
review of that product honestly if they are asked for it. Pragmatists value their
reviews and take their decisions. They also take a little risk.
3. Early Majority(Pragmatics): These people are rarely leaders, but they do adopt
new ideas before the average person. That said, they typically need to see evidence
that the innovation works before they are willing to adopt it.
They are careful and don’t take any risks. They take reviews of any new product
from its users(from Early Adopter), and then decide whether they should buy the
product or not.
4. Late Majority(Conservatives):These people are skeptical of change, and will only
adopt an innovation after many other people have tried the innovation and have
adopted it successfully. They wait till the market price decreases and other issues
and consume the product late.
5. Lagger(Skeptics): These people are bound by tradition and very conservative.
They are very skeptical of change and are the hardest group to bring on board.
They don’t buy any new product until they are compelled. Like the older version is
unusable so they had to buy a new one.