Marketing - Product Life Cycle

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Marketing - Product Life Cycle

  1. 1. Product Life Cycle
  2. 2. Product life cycle A theoretical model which describes thestages a product goes through
  3. 3. Stages in the Product Life Cycle• Research & product development Theory can be• Introduction applied to a:• Growth Product category• Maturity Style Brand or model• Decline• Rejuvenation or termination
  4. 4. Implications of each stage• Net cash flow• Profit• Marketing strategy
  5. 5. Product life cycle and cash flow Sales Cash Flow
  6. 6. Research & product development phase• Often complex• Absorbs significant resources• May not be successful• May involves a long lead time before sales are achieved
  7. 7. Product development• Often takes years but CAD is reducing product development times• Evaluate at each stage and ,if necessary, abort the product idea• The cost of development rises as it approaches launch• Market research including a test launch often done to reduce the risk of product failure• Most product ideas do not reach the launch phase
  8. 8. Causes of elimination before launch• Inadequate demand• Action of competitors• Change in the external environment• Production problem• High costs• Does not fit in the firm’s product range• Life cycle expected to be too short
  9. 9. Introduction stage• 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
  10. 10. Strategies at the introduction phase• This stage makes special demands on the marketing function• 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”
  11. 11. Growth stage• 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
  12. 12. Strategies in the growth stage• 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
  13. 13. 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
  14. 14. Strategies for mature products• Need to defend position• 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
  15. 15. Decline stage• 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
  16. 16. Reasons for decline• Technological advance• Changes in taste and behaviour• Increased competition• Economic circumstances• Damaging publicity• Product side effects
  17. 17. Strategies for the decline phase• Maintain market share• 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
  18. 18. Strategies to reduce the rate of decline• Increase in promotion• Focus on profitable segments• Reduce prices• Change distribution channels• Product improvement• Reposition the product
  19. 19. Extending the product life cycle• Change price• Change promotion (e.g new promotional message)• Change product - re-styling and product improvement• Change more efficient distribution• Develop new market segment• Find new uses for the product• Reposition the product
  20. 20. Product life cycle with an extensionSales(£) Time
  21. 21. Product rationalisation• Elimination of the product – either a natural death or termination (brand culling)• Unless the product is profitable or has growth potential or is seen as necessary to maintain sales of another product the organisation should seriously consider eliminating the product• Weak products take a disproportionate amount of the firm’s financial resources and can harm the firms image
  22. 22. The life cycle is short if….• The rate of technological change is rapid• There is a high degree of innovation in the market• Customers’ tastes are changing rapidly• The product is a fashion item• The product is badly marketed
  23. 23. Short product life cycle of a fashion (or fad) itemSales(£) Time
  24. 24. Is decline inevitable?• The assumption is that products go through the cycle and inevitably reach the decline phase• But some classic products have a long life cycle and no apparent sign of decline• These are exceptions to the rule although the life cycle can be extended• Examples: Corn Flakes, Coca Cola
  25. 25. No apparent declineSales(£) Time
  26. 26. Uses of the product life cycle concept• To forecast future behaviour of sales• To be a tool of analysis to assist in the formulation of marketing strategies• As a manipulative device to indicate when short-term measures might be used to distort the life cycle to the firms advantage• To identify deviations from the norm• To aid the analysis of the firm’s product portfolio
  27. 27. A balanced portfolio• Product portfolio refers to the mix of products produced by a single firm• Undesirable to have too many products at one stage• New products involve heavy investment and mature products might only have a short life left to them• A balanced portfolio is one in which the firm has a variety of products at different stages in the life cycle
  28. 28. Criticisms of the PLC concept• 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
  29. 29. Product life cycle of the VHS video1976 Competing video systems launched: VHS (JVC and Victor) and Betamax (Sony)1980s VHS-Betamax war. VHS’s longer playing time and more liberal licensing system gave it the edge1984 Toshiba formulates plan for Digital Versatile Disc1987 Betamax concedes defeat1996 First film released on DVD2003 US DVD rentals surpass VHS2004 Hollywood studios stop releasing films on VHS
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