The PLC, and its relevance to strategic planning.

Prods / mks have life cycles that call for changing mk strategies over time. The PLC attempts to model this and is often shown as an S curve. This curve can vary a lot . The PLC attempts to recognise distinct stages in this cycle i.e. emergence. intro, growth, maturity, decline. A firm needs to plan for a succession of strategies appropriate to each of these 4 stages. This life cycle [or the time dimension] could be one month to 100 + years eg. ivory soap / pop record. The Diffusion of Innovations [Everett] fits with the PLC, and describes how certain types of buyer are attracted to the different stages of the PLC. Ie. Innovators, early adopters, laggards etc.

It is common to draw implications from the PLC eg: # Strategic: Each stage poses different challenges to the firm. This is useful for it allows firms to say that certain strategies could be appropriate for each stage. # Most elements of a firms strategy need to change as a product / service moves from one stage to another. # Marketing mix. Variables will change over the life cycle. # Organisation / management: Different mgmt styles are appropriate in the different stages. # A products profitability will not last forever and firms must think about how to extend the products life and / or introduce new prods. Firms usually have a range of prods and ideally each should be at a different stage of their evolution. Products that are successful can fund NPD, new mks / new technologies and products. Relate to the BCG.

PLC usefulness / problems: # Assessing a prods stage in the plc is difficult. No evidence that the turning points are predictable from months to decades. ER / Duracel. it largely depends on mgmt keeping their eyes on their products, together with researching likely future trends, competitors etc. An key issue is how quickly a prod will be adopted by the mk - adoption process. # What do we mean by product? Do we mean total industry sales or product Forms or Brands.

e.g. computers e.g. Notebook computers. e.g. Apple Mac.

# Is there evidence that most products follow such a 4 stage cycle?

# However you define 'product' there appears to be no standard shape. Sales development is shaped by competitors / external and internal events. # Unclear implications: eg. the growth phase may or may not be associated with high profits. # It is easy for the PLC to become a self fulfilling concept. eg. the sales reach a plateau, management define the business as a cash cow and milk it, no investment so the product declines. # The PLC is product oriented. # The PLC may be better as a control tool rather than as a forecasting tool - [can we speed up growth / extend maturity.] # It is useful in that it draws attention to the need to maintain action to lengthen the PLC. Regenerate the product or replace it.

Discussion of the four PLC stages:

Life cycle begins when prod fully launched. Introduction phase. 1. Profits negative. Cash flow may be hi but so are costs, [heavy dist, marketing, prod costs.] 2. Customer type usually Early adopters. Usually buyers reluctant to be first. 3. Few competitors - pre empt. 4. Mk activity - induce trial, raise awareness, promote, increase distribution outlets. Sales often slow at first because of limited distribution / outlets. This phase can last years e.g. Instant coffee. 5. Promo - Raise awareness. 6. Distribution - selective. encourage dealers to stock. 7. Price - Skim or Penetration. 8 Sort out product teething troubles / technology and production issues. 9. Management style, often entrepreneurial. Two Basic PIONEER POLICIES based on pricing strategy. 1. Price skimming # Charging the highest possible price that target audience will pay. It offers the co price flexibility - prices can be lowered later on. Sometimes a sensible policy if production capacity limited. BUT hi price may attract competitors. [Slow] skimming.

Often the prod will be targeted at specific cust groups, [innovation diffusion, - opinion formers, innovators.] These people want to be first, don't mind a hi price, and often give a sign of approval to other buyer groups. When this group / mk is saturated the price is lowered and the prod promoted to another target audience. Often cos who do this have technology / patent advantages. 2 mk penetration strategy Here the initial price is below the competition, so as to penetrate the mk, give hi sales volume [and hi mk share] quickly. But it can then be difficult to raise price.

Growth phase of PLC. 1. profits grow fast as sales rise- prices might fall as competition increases, cash flow increases. 2. customer type, the early adopters. They are keen to be associated with new ideas / prods when they are socially acceptable, later joined by early majority who do not want to be fashionable, they are followers not leaders. 3. competition - growing number from now on therefore pressure on prices. Comp may well enter mk with new features, prods [me too's]. They expand the total mk and lead to an increase in distribution. 4. This is the take off phase. Firms can build mk share and have less profit now, or harvest and reap hi profits now. eg. Amstrad in Citizens Band. However: # How easy will it be to build mk share / break into mk - Laker Air. # Is there a min mk share to break even - are we aiming to be no 1 or 2.! # How easy will it be to build on to mk share and prevent competition from getting established / entry barriers. Often the aim is to maximise mk share in an expanding total mk and to maintain mk growth for as long as possible- so mk penetration, persuade mass mk to prefer your brand. Brand building starts: Start to segment the mk and enter these. The importance of mk share. It helps to identify who the true competitor really is. + a mk share approach serves as a basis for mk strategy ie. we can set as a target to build x% mk share . PIMS a strong positive correlation between mk share and ROI (possibly because of economies of scale / bargaining power / better mgmt.) 5.Hi promo, brand building, shift advertising from building customer awareness to encouraging purchase. [A] IDA. 6. To build mk share, essential to build intensive distribution. 7.Sometimes hi price in an expanding mk, and / or reduce price to bring in price sensitive buyers. 8. Extensions and enhancements eg: improve prod quality, add new features. refine styling, add new models. Maturity phase. Most products in this stage.......... usually the longest stage...The most challenging?

Some authors identify several sub stages in maturity. ie. growth maturity, stable maturity, decline maturity. Sales hi / medium, but growth slows down as mk penetration reaches max. 1. profits lower as competitors cut margins. May be squeezed by Advertising, distribution, product proliferation. 2. customers, late majority -Mass mk / repeat buying. Most customers have tried the prod, growth governed by repeat demand, new uses etc. 3. Possible new competitors enter and some may leave. A slow growth rate can also lead to over capacity, so firms need to defend mk share as mk not now growing. 4. Defend market share. Differentiate to maximise profits. How to prolong maturity and stave off decline. Increase use of segmentation / niche marketing to maximise mk appeal - enter new segs, geographic, demographic. Aim to increase brand awareness. usage rate / eg more frequent use - eg Cornflake adverts to convert non users, or take users from competition, Pepsi. 5. Communications. Hi to moderate costs, stress brand differences / differentiate. One target is the distributor, incentives aimed directly at them, Push Strategy, coupons, discounts, Sales promotion. The other: Consumer Ad / promo needed to maintain mk share and differentiate. 6. Distribution chain members of key importance to maintain mk share / presence. Maintain loyalty of distribution chain for defence. Can the prod be introduced into new types of distribution to convert non users. e.g. 7. Price: To match or beat the competition firms may compete on price -so price wars, often price flexibility used to differentiate offering i.e. non price competition.. 8. Product proliferation & modification. Many models / brands - see segmentation strategy. Rejuvenation, new features, prod differentiation, / repack, new styling, models. "New improved" and New Car Models. Reengineer to reduce costs of prod. Own label - should firms co-operate or not?

The Decline Phase. Product sales decline because of: new technology consumer shifts in taste, trends, economic conditions. competition. This phase can be slow [newspapers] or fast - [C5.] 1. profits: declining. 2. customers: laggards + experienced users. 3. competition: fewer or declining BUT exit barriers. 4. strategy: see below. 5. communications: some but selective. eg. SP, discounts, few Ad's. Maintain loyalty. 6. distribution: selectively weed out unprofitable distribution channels.

7. price: stabilised - hi / low. Raise price to loyal customers, [or] have hi mk share! special offer's may slow decline, use of discounts, coupons. 8. product: rationalise range - phase out weak ones. All prods decline but not all BRANDS. The prod in the decline stage may be very different from that introduced by the co. Customer expectations are progressive, - a feature, attribute that once influenced consumer choice, is now taken for granted. Each new attribute if successful creates a competitive advantage for the firm leading to temporary higher mk share and profits. How can a firm routinise this innovation process and assess when the mk place is ready for new needs. MR to gauge demand etc. The decline stage can be slow or fast. Possible issues in the decline stage: # prod over capacity in industry - low volume of sales. # hi competition / low profits # declining sales o/a. possible substitutes. Consumers are experienced so a prod with a lack of distinctiveness / only minor prod differences will be substituted, by price, features etc. # increased brand switching. Strategies will very much depend on industry, and the firms competitive position within it. eg. withdraw from a declining industry and invest in a growing one. If a firm is not no 1 or 2 in that mk should they get out to use resources better elsewhere? Many firms withdraw / harvest. Dump stock, and lower price. Remaining firms rationalise product lines to maintain profits. Some options in the decline stage. A. concentrate on profitable niches [customer groups]. if not profitable don't do it. The co needs to identify their weak prods as they can have a hi cost in promo / sales force time / prod set up time / mgmt time relative to sales / profits. With competitors pulling out there may be opportunities to widen niche, raise prices, dominate mk - profits from spares, servicing. This strategy may call for investment, so that the co could dominate the mk. One question is will this declining prod mk stabilise eg. vinyl records and radio values, and so continue to be a small but profitable cash cow. B. Harvesting / Milking means aiming for a lower mk share to give the best short run returns, with the aim of pulling out of the mk some time. So reduce spending on R & D / sales force etc. - gather funds for other investments. Rationalise products / distribution channels. C. divesting aims to sell the business so the co needs to maintain its attractiveness profitability while a buyer is found. - fattening up the co. D. Dropping the prod / introducing a replacement, but the brand continues.

This could include maintaining the product with some modifications and reposition to extend life. Ensor. Ch 7. W & G - Ch 9 and 10. Fifield - Ch 8 - 10