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Product life cycle

The product life cycle is an important concept in marketing.  It describes the stages a product goes through from when it was first thought of until it finally is removed from the market. Not all products reach this final stage.  Some continue to grow and others rise and fall. 

The main stages of the product life cycle are:

  • Introduction – researching, developing and then launching the product
  • Growth – when sales are increasing at their fastest rate
  • Maturity – sales are near their highest, but the rate of growth is slowing down, e.g. new competitors in market or saturation
  • Decline – final stage of the cycle, when sales begin to fall

This can be illustrated by looking at the sales during the time period of the product.
Product Life Cycle

A branded good can enjoy continuous growth, such as Microsoft, because the product is being constantly improved and advertised, and maintains a strong brand loyalty.

Some key features of each stage in the product life cycle can be summarised as follows:

Introduction

•New product launched on the market
•Low level of sales
•Low capacity utilisation
•High unit costs – teething problems occur
•Usually negative cash flow
•Distributors may be reluctant to take an unproven product
•Heavy promotion to make consumers aware of the product

Relevant strategies at the introduction stage might include:

 
•Aim – to encourage customer adoption
•High promotional spending to create awareness and inform people
•Either skimming or penetration pricing
•Limited, focused distribution
•Demand initially from “early adopters”

Growth

•Expanding market but arrival of competitors
•Fast growing sales
•Rise in capacity utilisation
•Product gains market acceptance
•Cash flow may become positive
•Unit costs fall with economies of scale
•The market grows, profits rise but attracts the entry of new competitors

Relevant strategies at the growth stage might include:

•Advertising to promote brand awareness
•Increase in distribution outlets – intensive distribution
•Go for market penetration and (if possible) price leadership
•Target the early majority of potential buyers
•Continuing high promotional spending
•Improve the product – new features, improved styling, more options

 

Maturity

•Slower sales growth as rivals enter the market = intense competition + fight for market share
•High level of capacity utilisation
•High profits for those with high market share
•Cash flow should be strongly positive
•Weaker competitors start to leave the market
•Prices and profits fall

There is a wide variety of possible options for a product that has reached the maturity stage:

•Product differentiation & product improvements
•Rationalisation of capacity
•Competitor based pricing
•Promotion focuses on differentiation
•Persuasive advertising
•Intensive distribution
•Enter new segments
•Attract new users
•Repositioning
•Develop new uses

Decline Stage

Common features at this stage include:

•Falling sales
•Market saturation and/or competition
•Decline in profits & weaker cash flows
•More competitors leave the market
•Decline in capacity utilisation –switch capacity to alternative products

Potential strategies are:

•Harvest by spending little on marketing the product
•Rationalise by weeding out product variations
•Price cutting to maintain competitiveness
•Promotion to retain loyal customers
•Distribution narrowed

Extension strategies

These extend the life of the product before it goes into decline.  Again businesses use marketing techniques to improve sales.  Examples of the techniques are:

  • Advertising – try to gain a new audience or remind the current audience
  • Price reduction – more attractive to customers
  • Adding value – add new features to the current product, e.g. video messaging on mobile phones
  • Explore new markets – try selling abroad
  • New packaging – brightening up old packaging, or subtle changes such as putting crisps in foil packets or Seventies music compilations

Some criticisms of the product life cycle

•The shape and duration of the cycle varies
•Strategic decisions can change the life cycle
•It is difficult to recognise exactly where a product is in its life cycle
•Length cannot be reliably predicted
•Decline is not  inevitable?
•Assumes no reversion to earlier consumer preferences
•It can become a self fulfilling prophecy 
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