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Product life cycle

Product life cycle simplified

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Product life cycle

  1. 1. Product Life Cycles• Product Life Cycle (PLC):– Each product may have a different life cycle– PLC determines revenue earned– Contributes to strategic marketing planning– May help the firm to identify whena product needs support, redesign,reinvigorating, withdrawal, etc.– May help in new product development planning– May help in forecasting and managing cashflow
  2. 2. Product Life CycleSales &ProfitSalesProfitProductDevelopment Introduction Growth Maturity Decline
  3. 3. Product Life Cycles• The Stages of the Product Life Cycle:– Development– Introduction/Launch– Growth– Maturity– Saturation– Decline– Withdrawal
  4. 4. Product Life Cycles• The Development Stage:• Initial Ideas – possibly large number• May come from any of the following –– Market research – identifies gaps in the market– Monitoring competitors– Planned research and development (R&D)– Luck or intuition – stumble across ideas?– Creative thinking – inventions, hunches?– Futures thinking – what will people beusing/wanting/needing 5,10,20 years hence?
  5. 5. Product Life Cycles• Product Development: Stages– New ideas/possible inventions– Market analysis – is it wanted? Can it beproduced at a profit? Who is it likelyto be aimed at?– Product Development and refinement– Test Marketing – possibly local/regional– Analysis of test marketing results andamendment of product/production process– Preparations for launch – publicity, marketingcampaign
  6. 6. Product Life Cycles• Introduction/Launch:– Advertising and promotion campaigns– Target campaign at specific audience?– Monitor initial sales– Maximise publicity– High cost/low sales– Length of time – type of product
  7. 7. Stages of the Product Life CycleIntroduction• Low sales• High costs percustomer• Negative profits• Innovator customers• Few competitors• Objective: to createawareness and trial• Offer a basic product• Price at cost-plus• Selective distribution• Awareness – dealersand early adopters• Induce trial via heavysales promotion
  8. 8. Stages of the Product Life CycleGrowth• Rising sales• Average costs• Rising profits• Early adopterscustomers• Growingcompetition• Objective: maximizemarket share• Offer service, productextensions, warranty• Price to penetrate• Intensive distribution• Awareness and interest– mass market• Reduce promotions dueto heavy demand
  9. 9. Product Life Cycles• Growth:– Increased consumer awareness– Sales rise– Revenues increase– Costs - fixed costs/variable costs, profits maybe made– Monitor market – competitors reaction?
  10. 10. Product Life Cycles• Maturity:– Sales reach peak– Cost of supporting the product declines– Ratio of revenue to cost high– Sales growth likely to be low– Market share may be high– Competition likely to be greater– Price elasticity of demand?– Monitor market – changes/amendments/new strategies?
  11. 11. Product Life Cycles• Saturation:• New entrants likely to mean market is ‘flooded’• Necessity to develop new strategies becomes morepressing:– Searching out new markets:• Linking to changing fashions• Seeking new or exploiting market segments• Linking to joint ventures – media/music, etc.– Developing new uses– Focus on adapting the product– Re-packaging or format
  12. 12. Stages of the Product Life CycleMaturity• Peak sales• Low costs• High profits• Middle majoritycustomers• Stable/decliningcompetition• Objective: maximize profitwhile defending market share• Diversify brands/items• Price to match or beatcompetition• Intensive distribution• Stress brand differences andbenefits• Increase promotions toencourage switching
  13. 13. Product Life Cycles• Decline and Withdrawal:– Product outlives/outgrows its usefulness/value– Fashions change– Technology changes– Sales decline– Cost of supporting starts to rise too far– Decision to withdraw may be dependent on availabilityof new products and whether fashions/trends will comearound again?
  14. 14. Stages of the Product Life CycleDecline• Declining sales• Low costs• Declining profits• Laggard customers• Declining competition• Objective: reduce costs andmilk the brand• Phase out weak models• Cut price• Selective distribution• Reduce advertising to levelsneeded to retain hard-coreloyalists• Reduce promotions tominimal levels
  15. 15. • The product life cycle concept can be applied toa:– Product class (soft drinks)– Product form (diet colas)– Brand (Diet Dr. Pepper)• Using the PLC to forecast brand performance or to developmarketing strategies is problematicProduct Life-Cycle Strategies
  16. 16. Product Life-Cycle Strategies• Product development• Introduction• Growth• Maturity• Decline• Begins when thecompany develops anew-product idea• Sales are zero• Investment costs arehigh• Profits are negativePLC StagesPLC Stages
  17. 17. Product Life-Cycle Strategies• Product development• Introduction• Growth• Maturity• Decline• Low sales• High cost per customeracquired• Negative profits• Innovators are targeted• Little competitionPLC StagesPLC Stages
  18. 18. The Strategies in The Product Life Cycle• Introduction Stage:High priceHigh priceLow promotionLow promotionLow priceLow priceHigh promotionHigh promotion
  19. 19. • Product – Offer a basic product• Price – Use cost-plus basis to set• Distribution – Build selective distribution• Advertising – Build awareness among earlyadopters and dealers/resellers• Sales Promotion – Heavy expenditures tocreate trialMarketing Strategies:Introduction Stage
  20. 20. Four IntroductoryMarketing StrategiesRapid-Rapid-skimmingskimmingstrategystrategyRapid-Rapid-skimmingskimmingstrategystrategyRapid-Rapid-penetrationpenetrationstrategystrategyRapid-Rapid-penetrationpenetrationstrategystrategySlow-Slow-penetrationpenetrationstrategystrategySlow-Slow-penetrationpenetrationstrategystrategySlow-Slow-skimmingskimmingstrategystrategySlow-Slow-skimmingskimmingstrategystrategyPricePriceLowLowHighHighPromotionPromotionHighHigh LowLow
  21. 21. The Strategies in The Product Life Cycle• Growth Stage:High marketshareHigh marketshareHigh currentprofitHigh currentprofit
  22. 22. • Product – Offer product extensions, service,warranty• Price – Penetration pricing• Distribution – Build intensive distribution• Advertising – Build awareness and interest in themass market• Sales Promotion – Reduce expenditures to takeadvantage of consumer demandMarketing Strategies:Growth Stage
  23. 23. • The Strategies in The Product Life Cycle• Maturity Stage:ModifyingtheMarketModifyingtheMarketModifyingtheProductModifyingtheProductModifyingtheMarketingMixModifyingtheMarketingMix
  24. 24. • Product – Diversify brand and models• Price – Set to match or beat competition• Distribution – Build more intensive distribution• Advertising – Stress brand differences andbenefits• Sales Promotion – Increase to encourage brandswitchingMarketing Strategies:Maturity Stage
  25. 25. • The Strategies in The Product Life Cycle• Decline Stage:MaintainMaintain HarvestHarvest DropDrop
  26. 26. • Product – Phase out weak items• Price – Cut price• Distribution – Use selective distribution: phaseout unprofitable outlets• Advertising – Reduce to level needed to retainhard-core loyalists• Sales Promotion – Reduce to minimal levelMarketing Strategies: DeclineStage
  27. 27. Marketing Strategy & the Product Life Cycle
  28. 28. Product Life Cycle Growth Maturity DeclineE-conferencing email faxes Handwritten lettersThird generationmobile phonesPortable CD players Personal Computers TypewriterIris-based personalidentity cardsSmart cards Credit cards Check booksExamples of products in various stages of theproduct life cycle
  29. 29. Product Adoption ProcessAwarenessAwareness The buyer becomes more aware of theproductInterestInterest The buyer seeks information and is receptiveto learning about the productEvaluationEvaluation The buyer considers the product’s benefitsand decides whether to try the productTrialTrial The buyer examines, tests, or tries theproduct to determine if it meets needsAdoptionAdoption The buyer purchases the product and can beexpected to use it again when the need forthis type of product arises
  30. 30. Product Adoption Process(cont’d)• Categories of Product Adopters– Innovators: First adopters of new products– Early adopters: Careful choosers of new products– Early majority: Those adopting new products justbefore the average person– Late majority: Skeptics who adopt new productswhen they feel it is necessary– Laggards: The last adopters, who distrust newproducts
  31. 31. Product Life CycleEarlyAdoptersInnovatorsEarlyMajorityLateMajorityLaggards
  32. 32. Product Life CycleRegeneration“Natural”Evolution“Induced”Regeneration
  33. 33. Product Life CycleRegeneration - Intel386486Pentium
  34. 34. IntroductionGrowthMaturityDeclinePLC ManagementFasterFasterMore profitably …More profitably …LongerLongerHigherHigher
  35. 35. Consumer Product AdoptionAdoptionSteps in the Adoption ProcessTrialEvaluationInterestAwareness
  36. 36. Consumer Product AdoptionAdopter Categorization on the Basis of Relative Time ofAdoption of Innovation
  37. 37. Consumer Adoption ProcessCommunicabilityFive product characteristics influencethe rate of adoptionComplexityRelative AdvantageDivisibilityCompatibility
  38. 38. Why Some Products Fail andOthers Succeed• Reasons for Product Failure– Product’s value or features did not match customerneeds– Ineffective or inconsistent branding that failed toconvey the right message or image to customers– Technical or design problems– Poor market timing– Overestimation of market size– Ineffective promotion– Insufficient distribution
  39. 39. The Product Life Cycle• Are there other types of the PLC curve?– Growth-slump-maturity pattern– Cycle-recycle pattern– Scalloped pattern– Styles, Fashions, Fads
  40. 40. Product Life CyclesSalesTimeDevelopment Introduction Growth Maturity Saturation Decline
  41. 41. Product Life CyclesSalesTimeEffects of ExtensionStrategies
  42. 42. Product Life CyclesSales/ProfitsTimePLC and ProfitsPLCLossesBreak EvenProfits
  43. 43. Case study
  44. 44. • Kellogg’s is the world’s leadingproducer of breakfast cereal. In 2007, itwas Britain’s leading grocery brand.• Its lines include both ready-to-eat cereal(like Rice Krispies) and cereal bars.• Kellogg’s divides its markets into sixsegments so that marketing can betargeted.• Each brand has to hold its own in itsmarket. If a brand is not performing aswell as it should, the business must dosomething about it.
  45. 45. • Nutri-grain was designed to meet the needsof busy people who had• missed breakfast, providing a healthy cerealbreakfast in a bar.At launch in 1997, Nutri-Grain immediatelygained 50% market share;• Growth was maintained by bringing out newversions and repositioning the bar as an ‘allday snack’.
  46. 46. • At maturity, competitor brands (like Alpen)started to chip away at market share. Somevariants (such as Minis and Twists) struggled,whilst some grew (like Elevenses) but couldnot halt the overall decline.• At saturation, the market is ‘full’. Better orcheaper competing products have come tomarket. By mid- 2004, Nutri-grain faceddeclining sales in a growing market.• Decline: at this point Kellogg had to decidewhether to let the product die or use anextension strategy to lengthen its life.
  47. 47. • Kellogg had to decide whether theproblem with Nutri-Grain was themarket, the product or both. It couldsee– that the market was growing, but thatcustomer tastes were changing.– The choice was therefore between productdevelopment or diversification. The first ofthese carries much lower costs and risks.
  48. 48. • Research showed Kellogg that:• the brand message was not strongenough• some other Kellogg’s products (likeMinis) had taken the focus from Nutri-Grain• Soft Bake and Elevenses did notreceive enough marketing support,despite having 80% of sales• market growth was being driven bydiscounts, rather than any permanentfactors.
  49. 49. Kellogg re-branded and relaunched Nutri-Grain in 2005. Thebars had a new brand image. Theyalso had a stronger unique sellingpoint (Nutri-Grain is more healthybecause it is baked). Kellogg alsoput more promotional investmentinto the core brands and droppedsome of the others.
  50. 50. • As a result, Soft Bake Bar salesgrew, with Elevenses sales up byalmost 50%.• The Nutri-Grain brand grew atalmost three times that of themarket and maintained this evenafter the re-launch was over
  51. 51. Definition• New Product Development– Development of original products, productimprovements, product modifications, andnew brands through the firm’s own R & Defforts.
  52. 52. New Product Development• Six product development options:– New-to-the-world products (discontinuous innovations)• I-Pod– New product lines• Sony MP3 players– Product line extensions• Pepsi Blue– Improvements or revisions of existing products• Shampoo w/ conditioner– Repositioning• Cadbury’s– Cost reductions• Hard back vs Paper back
  53. 53. • New products can be obtained viaacquisition or development.• New products suffer from high failurerates.• Several reasons account for failure.New Product DevelopmentStrategy
  54. 54. • New Product Development Process:– Stage 1: Idea Generation• Internal idea sources:– R & D• External idea sources:– Customers, competitors, distributors, suppliersNew Product DevelopmentStrategy
  55. 55. • New Product Development Process:– Stage 2: Idea Screening• Product development costs increasesubstantially in later stages.• Ideas are evaluated against criteria; most areeliminated.New Product DevelopmentStrategy
  56. 56. • New Product Development Process:– Stage 3: Concept Development and Testing• Product concepts provide detailedversions of new product ideas.• Concept tests ask target consumers toevaluate product concepts.New Product DevelopmentStrategy
  57. 57. • New Product Development Process:– Stage 4: Marketing Strategy Development• Strategy statements describe:– The target market, product positioning, and sales, share,and profit goals for the first few years.– Product price, distribution, and marketing budget for thefirst year.– Long-run sales and profit goals and the marketing mixstrategy.New Product DevelopmentStrategy
  58. 58. • New Product Development Process:– Stage 5: Business Analysis• Sales, cost, and profit projections– Stage 6: Product Development• Prototype development and testingNew Product DevelopmentStrategy
  59. 59. • New Product Development Process:– Stage 7: Test Marketing• Standard test markets• Controlled test markets• Simulated test markets– Stage 8: CommercializationNew Product DevelopmentStrategy
  60. 60. Success rate of new products• The success rate of new products is very low –less than 5%.• Product obsolescence is rapid with improvementsin technology• Shorter PLCs• Most new product development is an improvementon existing products• Less than 10% of new products are totally newconcepts.
  61. 61. • $50 billion in profitsover 27 years• Early new-productdevelopment reliedheavily on copyingthe competition• $4.2 billion annuallyinvested in R & D• Innovation is critical toMicrosoft’s futuresuccess• Much of R & D effortsare Internet related• Many new productsand services are indevelopmentMicrosoftMicrosoftCase Study