Product Life Cycles

Most product life-cycle curves are portrayed as bell-shaped (see Figure

10.1). This curve is typically divided into four stages: introduction,
growth, maturity, and decline
1. Introduction -A period of slow sales growth as the product is introduced
in the market. Profits are nonexistent because of the heavy expenses of
product introduction.
2. Growth -A period of rapid market acceptance and substantial profit
improvement.
3. Maturity-A slowdown in sales growth because the product has achieved
acceptance by most potential buyers. Profits stabilize or decline because
of increased competition.
4. Decline - Sales show a downward drift and profits erode.

The PLC concept can be used to analyze a product category. Three common alternate patterns
are shown in Figure 10.2.

Figure 10.2(a) shows a growth-slump-maturity pattern. Sales grow rapidly when the
product is first introduced and then fall to a "petrified" level that is sustained by late
adopters buying the product for the first time and early adopters replacing the product.
The cycle-recycle pattern in Figure 10.2(b) often describes the sales of new product.
The company aggressively promotes its new product, and this produces the first cycle.
Later, sales start declining and the company gives the product another promotion push,
which produces a second cycle (usually of smaller magnitude and duration).24
Another common pattern is the scallopedPLCin Figure 10.2(c). Here sales pass through a
succession of life cycles based on the discovery of new-product characteristics, uses, or
users.

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 Fig 10.2: Common Product Lifecycle Pattern

Style, Fashion, and Fad Life Cycles

We need to distinguish three special categories of product life cycles—styles, fashions,
and fads (Figure 10.3). A style is a basic and distinctive mode of expression appearing in
a field of human endeavor. Styles appear in homes (colonial, ranch, Cape Cod); clothing
(formal, casual, funky); and art (realistic, surrealistic, abstract). A style can last for
generations, and go in and out of vogue. A fashion is a currently accepted or popular
style in a given field. Fashions pass through four stages: distinctiveness, emulation, mass
fashion, and decline.26
The length of a fashion cycle is hard to predict. One point of view is that fashions end
because they represent a purchase compromise, and consumers start looking for missing
attributes.27 For example, as automobiles become smaller, they become less comfortable,
and then a growing number of buyers start wanting larger cars. Furthermore, too many
consumers adopt the fashion, thus turning others away. Another observation is that the
length of a particular fashion cycle depends on the extent to which the fashion meets a
genuine need, is consistent with other trends in the society, satisfies societal norms and
values, and does not exceed technological limits as it develops.28

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Fads are fashions that come quickly into public view, are adopted with great zeal, peak
early, and decline very fast. Their acceptance cycle is short, and they tend to attract only
a limited following of those who are searching for excitement or want to distinguish
themselves from others. Fads do not survive because they do not normally satisfy a
strong need. The marketing winners are those who recognize fads early and leverage
them into products with staying power. Here is a success story of a company that
managed to extend a fad's life span:

PRODUCT LIFE-CYCLE MARKETING STRATEGIES

 TO SAY THAT A PRODUCT HAS A LIFE CYCLE ASSERTS FOUR THINGS

1. PRODUCTS HAVE A LIMITED LIFE.
2. PRODUCT SALES PASS THROUGH DISTINCT STAGES, EACH POSING
DIFFERENT CHALLENGES, OPPORTUNITIES, AND PROBLEMS TO THE
SELLER.
3. PROFITS RISE AND FALL AT DIFFERENT STAGES OF THE PRODUCT LIFE
CYCLE.
4. PRODUCTS REQUIRE DIFFERENT MARKETING, FINANCIAL,
MANUFACTURING, PURCHASING, AND HUMAN RESOURCE STRATEGIES
IN EACH LIFE-CYCLE STAGE.

Marketing Strategies: Introduction stage and the pioneer advantage

[Introduction stage : The introduction stage starts when the new product is
launched. It takes time to roll out the product in several markets and to fill dealers
pipelines, so sales growth is apt to be slow.
In this stage, profits are negative or low because of the low sales and heavy
distribution and promotion expenses. Much money is needed to attract distributors
and fill the pipeline.
Promotional expenses are at the highest ratio to sales because of the need for a
high level of promotional efforts to (i) inform potential consumers of the new and
unknown product (ii) include trial of the product and (iii) Secure distribution in
retail outlets.
Considering only price and promotion, an organization can pursue one of the four

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 strategies in introduction stage.
(a) Rapid Skimming (b) slow Skimming (c) Rapid Penetration (d) Slow Penetration

Rapid Skimming: – Consist of launching the new product at a high price in order to
recovers as much gross profit per unit as possible. It spends heavily on
promotion to convince the market of the products merit even at a high price
level. This strategy makes sense under the following assumptions:-
i) a large part of the market is unaware of the product.
ii) those who become aware are eager to have the product and can pay the
asking price.
iii) the firm faces the potential competition and wants to build up the brand
preference.
B) Slow Skimming:- Strategy consists of launching the new product at a high price
and low promotion. The high price helps recover as much gross profit per unit as
possible and low level of promotion keeps marketing expenses down. This strategy
makes sense when
i) the maket is limited in size.
ii) most of the market is aware of the product.
iii) buyers are willing to pay a high price.
iv) Potential competition is not imminent.

C) Rapid Penetration: Consist of launching the product at a low price and spending
heavily on promotion. This strategy promises to bring about the fastest market
penetration and the largest market share. This strategy makes sense when
i) the market is large.
ii) the market is unaware of the product.
iii) most buyers are price sensitive.
iv) there is strong potential competition
v) the company’s unit manufacturing experience

D) Slow Penetration Strategy: Consist of launching the new product at a low price
and low level of promotion. The low price will encourage rapid product acceptance;
and the company keeps its promotion costs down in order to realize more net
profit. The company believes that market demand is highly price elastic but
minimally promotion elastic. This strategy makes sense when
i) the market is large.
ii) the market is highly aware of the product.
iii) the market is price sensitive and
iv) there is some potential competition.]

Profits are negative or low in the introduction stage. Promotional

expenditures are at their highest ratio to sales because of the need to

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1. Inform potential consumers,
2. Induce product trial
3. Secure distribution in retail outlets.
Firms focus on those buyers who are the most ready to buy, usually higher-
income groups. Prices tend to be high because costs are high. Because it takes
time to roll out a new product, work out the technical problem, fill dealer
pipelines, and gain consumer acceptance, sales growth tends to be slow at this
stage.

Sales of expensive new products such as high-definition TV are slowed by

additional factors such as product complexity and fewer potential buyers.

Companies that plan to introduce a new product must decide when to enter the
market. To be first can be rewarding, but risky and expensive. To come in later
makes sense if the firm can bring superior technology, quality, or brand strength.

Speeding up innovation time is essential in an age of shortening product life

cycle. Being early can pay off. One study found that products that came out six
months late but on budget earned an average of 33% less profit in their first
5years; product that came out on time but 50% over budget cut their profits by
only 4%.

Most studies indicate that the market pioneer gains the most advantage.
Companies like Campbell, Coca-Cola, Hallmark, and Amazon.com developed
sustained market dominance. Carpenter and Nakamoto found that 19 out of 25
companies who are market leaders in 1923 were still the market leaders in 1983,
60 years later. Robinson and Min found that in a sample of industrial-goods
businesses, 66% of pioneers survived at least 10 years, versus 48% of the early
followers.

The sources of the pioneer’s advantage are:

Early users recall the pioneer’s brand name if the product satisfies them. The
pioneer’s brand also establishes the attributes the product class should
posses. The pioneer’s brand normally aims at the middle of the market and
so captures more users. Customer inertia also plays a role; and there are
producer advantages: economies of scale, technological leadership, patents,

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ownership of scarce assets, and other barriers to entry. Pioneers can have more
effective marketing spending and enjoy higher rates of consumer repeat
purchases. An alert pioneer can maintain its leadership indefinitely by pursuing
various strategies.

The pioneer advantage, however, is not inevitable. Look at the fate of Bowmar
(hand calculators), Apple’s Newton (personal digital assistant), Netscape
(Web browser), Reynolds (ballpoint pens), and Osborne (portable computers),
market pioneers who were overtaken by later entrants.

28 industries were studied by an expert where the imitators surpassed the

innovators. He found several weakness among the falling pioneers, including
new product that were too crude, were improperly positioned, or appeared before
there was strong demand; product-development costs that exhausted the
innovator’s resources; a lack of resources to compete against entering larger
firms; and managerial incompetence or unhealthy complacency.

Successful imitators thrived by offering lower prices, improving the product more
continuously, or using brute market power to overtake the pioneer. None of the
companies that now dominate in the manufacture of personal
computers—including Dell, GATEWAY, AND Compaq—were first movers.

There are doubts about the pioneer advantage. They distinguish between an
inventor (first to develop patents on a new-product category), a product pioneer
(first to develop a working model), and a market pioneer (first to sell in the new-
product category). They also include non surviving pioneers in their sample. They
conclude that although pioneers may still have a advantage, a large number of
market pioneers fail than has been reported and a larger number of early market
leaders (though not pioneers) succeed.

Examples of later entrants overtaking market pioneers are IBM over Sperry in
mainframe computers, Matsushita over Sony in VCRs, and GE over EMI in CAT
scan equipment.

The pioneer should visualize the various product markets it could initially,
knowing that it cannot enter all of them at once. Suppose market-segmentation

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analysis revealed, the pioneer should analyze the profit potential of each product
market singly and in combination and decide on a market expansion. In a more
recent study, the following five factors are identified as underpinning long term
market leadership, vision of a mass market, persistence, relentless innovation,
financial commitment and asset leverage.

 Marketing Strategies: Growth Stage

GROWTH STAGE: The growth stage is marked by a rapid climb in the sale. The
early adopters like the product, and the middle majority consumers start buying
the product. New competitors enter the market, attracted by the opportunities for
large scale production and profit. They introduce new product features and this
move further expands the market. The increased number of distribution outlets
leads to an increase in the number to fill the distribution pipeline.
Price remains where they are or fall insofar as demand is increasing quite rapidly.
Companies maintain their promotional expenditure at the same or at a slightly
increased level to meet competition and to continue to educate the market.
Profits increase during this stage as promotion costs are spread over a larger
volume and unit manufacturing costs fall faster than declines owing to the
experience curve effect. Marketing strategies during the growth stage:

 Improve product quality and add new product features

and improved styling
 Add new models and flanker products
 Enter new market segments
 Increase distribution coverage and enter new
distribution channels
 Shift from product-awareness advertising to product-
preference advertising
 Lower prices to attract next layer of price-sensitive
buyers

Marketing Strategies: Maturity Stage

In the maturity state, some companies abandon their weaker products, believing
there is little they can do. They think the best thing is to conserve their money
and spend it on newer products in the development pipeline.
Marketers systematically consider strategies of market, product and marketing
mix modification.

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  Market Modification
 Expand number of brand users by:
 Converting nonusers
 Entering new market segments
 Winning competitors’ customers
 Convince current users to increase usage by:
 Using the product on more occasions
 Using more of the product on each occasion
 Using the product in new ways
 Product modification
 Quality improvement
 Feature improvement
 Marketing-Mix Modification
 Prices
 Distribution
 Advertising
 Sales promotion
 Personal selling
 Services
 Marketing Strategies: Decline Stage
The sales of most product forms and brands eventually decline. Sales decline for a
number of reasons including technological advances, consumer shifts in tastes and
increased and foreign. All lead to overcapacity, increased price cutting and
profit.erosion.
As sales and profits decline, some firms withdraw from the market. Those remaining
may reduce the number of product offerings. They may withdraw from smaller
market segments and weaker trade channels. They may cut the promotion budget
and reduce their price further. Marketing Strategies during the Decline Stage:

 Increase firm’s investment (to dominate the market and

strengthen its competitive position)
 Maintain the firm’s investment level until the uncertainties
about the industry are resolved.
 Decrease the firm’s investment level selectively by dropping
unprofitable customer groups, while simultaneously
strengthening the firm’s investment in lucrative niches
 Harvesting (“milking”) the firm’s investment to recover cash
quickly
 Divesting the business quickly by disposing of its assets as
advantageously as possible.

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Decline Stage
As sales decline, the firm has several options:
MAINTAIN THE PRODUCT, possibly rejuvenating it by adding new features and finding
new uses.
HARVEST THE PRODUCT - reduce costs and continue to offer it, possibly to a loyal
niche segment.
DISCONTINUE THE PRODUCT, liquidating remaining inventory or selling it to another
firm that is willing to continue the product.
The marketing mix decisions in the decline phase will depend on the selected strategy.
For example, the product may be changed if it is being rejuvenated, or left unchanged if
it is being harvested or liquidated. The price may be maintained if the product is harvested, or
reduced drastically if liquidated.