A LEVEL OF A CHI EVEM EN T B USI N ESS STUDI ES A LEVEL RESOURCES.

Issue 2 Sept 2001

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Product Life Cycle 2

The Product Life Cycle (PLC) describes the stages a new product idea goes through from beginning to end. The PLC is divided into five major stages:

Product Development,

Market Introduction,

The Product Development stage begins when the company finds and develops a new-product idea. This involves translating trends in the macroenvironment, taking diverse pieces of information, and incorporating them into a product concept. Product concepts typically undergo several versions, involving considerable time and money, before they

Market Growth,

Market Maturity,

S ales Decline . Total sales of the product, by all companies in the industry, vary in each of the five stages. They move from zero in the product development stage, very low in the market introduction stage, to high S ales and profits do at market maturnot move together ity and then back to low in the sales over time. decline stage. M ore important, Industry profits the profit picture changes, decline while industry sales are too. These general relationships can be see in the graph. still rising.

are exposed to target consumers via test markets. Concepts that survive test market scrutiny are ready for market introduction. "Time to market," or the amount of development time necessary to move from product concept to finished product, can be critical, especially when competitors are working on similar products. Forward-thinking marketing managers are using interactive concept testing via the Internet to obtain faster feedback from target customers and to shorten their product development timetables. During the product development stage, sales
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Product Life Cycle Stages

A particular firm's marketing mix usually must change during the PLC. Customers' attitudes and needs may change over the PLC. The product may be aimed at entirely different targets at different stages. For example, a car is a product that provides personal transportation, but our choice of vehicle changes as our needs and situations change.

Title PLC 2 are zero and profits are negative (i.e. anticipated future profits are being invested in product development). In the Market Introduction stage, sales are low as a new idea is first introduced to a market. Customers aren't looking for the product, and Most companies may not be aware of its beneexperience losses fits or advantages over curduring introduction rent offerings. In fact, they because they spend may not even know about it. a lot of money for Informative promotion is promotion, product, needed to tell potential cusand place tomers about the new proddevelopment. Of uct concept. course, they invest the money in the Even though a firm promotes hope of future its new product, it takes time profits. for customers to learn that the product is available. M oney is invested in developing the market in anticipation of future profits In the Market Growth stage, industry sales grow quickly -- but industry profits rise and then start falling. The innovator begins to make big profits as more and more customers buy. But competitors see the opportunity and enter the market. Some just copy the most successful product, or try to improve it to compete better. Others try to refine their offerings to do a better job of appealing to some target markets. The new entries result in much product variety. This is the stage where industry profits are largest, but it is also when industry profits begin to decline as increased competition creates downward pressure on prices. Market Maturity occurs when industry sales level off. Competition gets tougher as aggressive competitors have entered the race for profits. Industry profits continue to go down during maturity because pro-

Page 2 motion costs rise and competitors continue to cut prices to attract more business. New firms may still enter the market during this stage. These late entries skip the early life cycle stages, including the profitable growth stage. They must try to take market share from established firms, which is difficult and expensive in a saturated, flat market. Customers who are satisfied with their current relationship won't be interested in switching to an unknown brand. In the United Kingdom, the markets for most cars, boats, television sets, and most household appliances are in During the market maturity. This stage maturity phase, less may continue for many years - efficient firms can't - until a new product idea compete with the comes along that makes the old increasing pressure product concept obsolete -- on prices and drop even though individual brands out of the market or models come and go. Market maturity for During the S ales Decline an entire industry stage, new products replace the may continue for old. Price competition from many years, even dying products becomes more though individual vigorous, but firms with strong brands may come brands may make profits until and go the end because they successfully differentiated their products. They may also keep some sales by appealing to the most loyal customers or those who are slow to try new ideas. These buyers might switch later, smoothing the sales decline

Market Specific Product Life Cycles

The product life cycle concept can describe a product class (e.g. petrol-powered cars), a product form (e.g. estates), or a brand (e.g. the Ford Focus). The PLC concept applies differently in each case. Generally, however, the PLC is used to deCopyright A Level of Achievement

Title PLC 2 scribe industry sales and profits for a product idea within a particular product market. Sales and profits of an individual product, model, or brand may not, and often do not, follow the lifecycle pattern. They may vary up and down throughout the life cycle -- sometimes moving in the opposite direction of industry sales and profits. Further, a product idea may be in a different life-cycle stage in different markets. A given firm may introduce or withdraw a specific product during any stage of the industry product life cycle. A "me-too" brand introduced during the Market Growth stage may never get any sales at all and suffer and quick death. Or, it may reach its peak and start to decline even before the industry reaches the Market Maturity stage. M arket leaders may enjoy high profits during the market maturity stage, even though industry profits and declining. Sometimes the innovator brand loses so much in the Introduction stage that it has to drop out just as others are reaping big profits in the market growth stage. Strategy planners who naively expect sales of one firm's individual brand to follow the general product life-cycle pattern are likely to be rudely surprised. In fact, it might be more sensible to think in terms of "product-market" life cycles rather than "product" life cycles, even though the latter term is more commonly accepted and more widely used. How we see product life cycles depends on how broadly we define the market. About 70% of all U.K. households own microwave ovens, which would lead some to conclude that microwave ovens are at the market maturity stage. In many countries, however, they are still early in the growth stage -- in Switzerland, for example, microwave ovens had a household penetration level of less than 15% in 1994. U.K. microwave manufacturers can extend their product life cycles by expanding their distribution to off-shore markets.

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Product life cycles also depend on how broadly we define the needs of customers in a product market, and who the competitors are. Consider, for example, the needs related to storing and preparing foods. Wax paper sales in the U.K. started to decline when Dow introduced Cling Film. In the early 1970's, sales of Cling Film, and similar products, declined sharply when plastic storage bags became popular. However, sales increased by the end of the decade. The product didn't change, but consumer needs did -as microwave ovens gained in popularity, consumers found that plastic wraps worked very well in microwave cooking. If a market is defined broadly, there may be many competitors, and the market may appear to be in market maturity. On the other hand, if the focus is on a narrow sub-market, and a particular way of satisfying needs, then we may observe much shorter life cycles as improved product ideas come along to replace the old ones.

Product Life Cycles Vary in Length

How long a whole product life cycle takes, and the length of each stage, varies across products. The cycle may vary from as little as 90 days, as in the case of Ghostbusters products, to as long as 100 or more years, as for petrol-powered cars. The first entry into A new product idea will move through the early stages of the product life cycle more rapidly when it has certain characteristics. a market often has an advantage, because a brand name can be established before competitors enter

The fast adoption of Nutrasweet low-calorie sweetener in the U.S. market is a good example -- it offered a real comparative advantage, namely fewer caloCopyright A Level of Achievement

Title PLC 2 ries than sugar without the aftertaste of artificial sweeteners. Plus, it was easy to communicate the benefits -- Nutrasweet worked well in many products, such as diet soft drinks, that were already a big part of consumers' lifestyles. However, in less-developed countries, where malnutrition, not dieting, is the problem, Nutrasweet does not offer a comparative advantage. Although the life of different products varies, in general product life cycles are getting shorter. This is partly due to rapidly changing technology -- one new invention may make possible many new products that replace old ones. Tiny electronic microchips led to hundreds of new products, from calculators and digital watches in the early days, to today's microchip-controlled valves in artificial hearts Patents for a new invention may not be much protection in slowing down competitors, who can often find ways to copy a product idea without violating a specific patent. Worse, some firms find out than an unethical competitor simply disregarded the patent protection. Patent violations by foreign competitors are very common, and sometimes a product's life can be over before a case can get through Patent Court bottlenecks. Shorter life cycles mean that firms must constantly develop new products in order to stay in business. Further, they must offer marketing mixes that make the most of the M arket Growth stage, when profits are highest. The company with the first entry in a product market, sometimes referred to as the "Pioneer" or "Innovator," usually has an advantage, because they have the opportunity to establish their brand name in the minds of consumers before competitors enter the market. However, during the M arket Growth stage, competitors are likely to introduce product improvements. Fast changes in marketing strategy may be necessary, be-

Page 4 cause profits don't automatically go to the innovator. Sales of some products are influenced by fashion -the currently accepted or popular style. Fashionrelated products generally have short life cycles, as what is currently popular can change rapidly. M arketing managers who work with fashions often have to make very fast product changes.

Fads have even shorter life cycles -- do you remember Pet Rocks or Cabbage Patch Dolls? Such products can be very profitable while their popularity lasts, but it is difficult to predict which products are going to catch the public's fancy. Further, companies can be caught short with items that really "take off," and may not be able to meet demand. With fads, these lost profits opportunities can probably never be made up, and it is likely the public will be interested in something new before the company can increase production of the current fad item With on-line shopping becoming more popular, what will be the effect on product life cycles? Will cycles, in general, be shorter or longer? Will it affect the whole cycle, or only certain stages Notes

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