What is the Product Life Cycle?
According to many authors, products have a life cycle, which is based on the statement that products have certain life limits - from the moment the idea for a new product arises to the moment it goes out of the market.
The concept of the Product Life Cycle is important for marketing because it gives an in-depth idea of product dynamics. The classic version of the Product Life Cycle concept is represented by three image curves. It is divided into four stages - introduction, growth, maturity, and decline.
Products have a life cycle, which is based on the premise that products have certain life limits.
According to Pride, William M. and Ferrell, O. C: “Product life cycles, like biological cycles, go through introduction, growth, maturity, and decline. As the product goes through the cycle, strategies on competition, promotion, distribution, pricing, and market information need to be periodically evaluated and changed. The product life cycle concept is used to determine the introduction, development, and termination of the product. Thus, companies can maintain profitably and abandon unprofitable products. ” Reference: https://books.google.com/books/about/Marketing.html?id=yzu6u373WsIC&redir_esc=y
The concept of the product life cycle is important for marketing because it gives an in-depth idea of product dynamics.
The product life cycle concept summarized
- The product range is analyzed based on the product life cycle and the ratio between new and discontinued products is balanced.
- The product life cycle makes it possible to predict the changes that will occur in consumer requirements and in competition.
- The products have a limited life.
- Product sales have clearly defined stages.
- Profits change at each stage of the product life cycle.
- New marketing strategies are required at every stage.
In today's highly dynamic marketing environment, the company's marketing strategy must change accordingly to the changes in the product, the market, and competitors.
To say that a product has a life cycle means:
- The products have a limited life;
- Product sales go through different stages with different challenges, opportunities, and problems for the seller;
- At different stages of the product life cycle, sales increase and decrease;
The products require different strategies for marketing, finance, production, supply, and personnel at every stage.
The life cycle is not a normative but a descriptive characteristic. It manifests itself as a trend under the influence of the specifics of the products themselves, the behavior of buyers, and the activities of competitors.
All this variety of conditions and factors for the market destiny of the products can modify the stages in the life cycle and present different configurations of the curve. Reference: Four Steps to Forecast Total Market Demand, hbr.org
Therefore, market development is not always reduced to the classical version of the life cycle curve. In many cases, the so-called incomplete life cycles develop ie life cycles that do not pass through all phases.
In many cases, product life cycle curves develop repeat cycles. Usually, the revival of the second wave is achieved by activating marketing efforts to stimulate sales.
The product mix is formed by different types of products and alternatives
As the product mix is formed by different types of products and their alternatives, the market destiny of a business organization depends on how it combines the life cycles of different products so that there are always leading products in the group to provide its main revenue.
Therefore, the analysis of product life cycles is a necessary prerequisite for the choice of marketing tools to achieve the set goals.
The product life cycle concept is best suited for interpreting product and market dynamics. As a planning tool, this concept helps managers identify the main marketing challenges at each stage of a product's life and develop their main alternative marketing strategies. As a control tool, the concept helps the company measure product performance against similar products in the past. The product life cycle concept is less useful as a forecasting tool, as the sales history demonstrates different models and the stages differ in their duration.
Phases of the product life cycle - stages of introduction, growth, maturity, decline
The classic version of the RCP is an S-shaped curve, which can be divided into four stages:
- Introduction - the appearance of the product on the market; a gradual increase in sales volume; there are no profits because the costs of introducing the product are high;
- Growth - a period of rapid acceptance of the product on the market, a significant increase in profits;
- Maturity - a period of "saturation", ie. slowing sales growth; profits stabilize or begin to decline due to increased marketing costs for product promotion;
- Decline - a period of a sharp decline in sales and profits;
It should be emphasized that determining the beginning and end of each of the four stages is a bit arbitrary. In addition, for most products, it is quite difficult to determine at what stage of their life cycle they are. The trend of increasing competition over time leads to shorter product life cycles, which means that products must become profitable in a shorter period.
The phases of the product life cycle are the following: "development, implementation, increase, saturation and decline".
The Zero phase in the product life cycle
We can include the zero phase to the product life cycle - the development phase. In many theoretical marketing developments, it is not included in the product life cycle. But it is a necessary preparatory phase, at the end of which the products are "born".
After that, the typical market life cycle of the product begins. The "development" phase includes all efforts to generate ideas for products, their technical and economic development, preliminary studies, and evaluations of the possibilities for their production and sales, its adaptation to the needs of the market and the interests of the business organization.
The costs incurred in this phase are not covered by any income, so the profit curve here constantly falls down to negative values. The business organization expects to redeem them through the proceeds from future sales. This is a phase of investment in which all guarantees of success or risks of failure of future products are set. The marketing efforts of this phase are differentiated as innovation strategies. They come down to preparing the market for future products and shaping future consumer behavior.
1. Introduction stage.
It starts with the launch of the new product. An important feature is the high ratio of costs for promotion, investment, research to sales. This is because sales during this period are low and the cost of promotions is high due to the need:
- Inform potential users.
- Implement the distribution path.
- To establish the distribution itself. Organizations focus their sales on those buyers who are most willing to buy, usually high - income groups.
A policy of low or high prices can be adopted. Prices are rather high, as costs are high due to the relatively low production volume, technological problems in production, and the high rate of profit required to meet the high costs of product launch and promotion. The main marketing goals are related to informing consumers, gaining fame, generating demand, and more.
Companies need to decide when to enter the market with a new product. Most studies show that the market pioneer has the greatest advantages.
There are four possible strategies for introducing a new product
The quick profit strategy relies on the high price of the product and a high level of promotion costs. This strategy can be successful if a large part of the potential market is not aware of the product if there are enough high-income consumers willing to pay the high price and if there are potential competitors.
The strategy of slow profit implies low costs for promotion. This is acceptable when the market is small in size and a large part of consumers are aware of the product and accept the high price.
A strategy of rapid market entry involves launching the new product at a low price in order to gain the largest market share. It is applied in strong competition.
The strategy of slow market entry, unlike the previous one, relies on low promotion costs along with the low price of the product. It is applied in a large market, in demand with strong price elasticity, in good knowledge of the product.
2. Stage of growth.
The growth stage is a rapid increase in profits. This is a period of rapid acceptance of the product on the market, rapid growth in sales and profits. The competition is emerging. The market share is expanding. The first users to accept the product, if they like it, make repeat purchases and new users appear.
Attracted by the new opportunities, competitors enter the market with new product qualities and wider distribution.
Prices remain the same or fall slightly depending on how fast demand grows.
Price reductions are used to attract lower-paying consumers.
Sales increase faster than the cost of promotion and lead to the desired reduced ratio of promotions/sales.
The ads emphasize selective demand, indicating the competitive advantages of the products. Advertising is no longer just about informing, but also convincing customers.
The introduction of product modifications, new models, and versions of the already known product, which is being improved, can begin. The number of endpoints in sales is expanding.
At this stage, profits are growing. Promotion costs are divided into a larger volume of units sold. Production costs fall faster than price reductions due to the "smarter manufacturer" effect.
At this stage, the organization uses several strategies to maintain rapid market growth for as long as possible:
- Improving product quality, adding new properties, and improving design;
- Adding new and related products;
- Entering new market segments;
- Increasing the distribution coverage and entering new distribution channels;
- Change from advertising aimed at informing about the new product, to advertising highlighting its advantages;
- Reduce prices to attract the next layer of more price-sensitive buyers.
3. Stage of maturity
The stage of maturity usually lasts longer and therefore most products are at this stage of their life cycle. This is a stage of market saturation, ie. slowing sales growth as profits stabilize or decrease.
Managing a mature product and choosing the right marketing strategies are relatively the most complex.
When the rate of sales growth begins to decrease, it can be considered that the product has entered the stage of maturity.
Competition is intensifying due to the oversupply of the product. New market niches are being sought.
Organizations are forced to lower prices and increase promotion costs. As a result, profits fall.
Prices are reduced and the goal is to achieve brand loyalty and enter new markets for the company, for which the product is new. Promotional activity increases.
There are three possible marketing strategies for the mature product:
Through this strategy, the company seeks to increase the size of the market by increasing the number of consumers and the frequency with which they buy the product.
This can be achieved by attracting new users; entering new segments, winning customers' competitors, and stimulating more intensive consumption and more diverse product applications.
This strategy can be implemented in several ways.
- Improving the quality in order to increase the functionality of the product.
- Improving performance.
- Improving the appearance in order to increase the aesthetic appeal of the product.
Product modifications are effective when there are enough users who appreciate the improvements and merits of the product and are willing to pay for it.
Modification of the marketing mix
The organization may modify one or more of the elements of the mix. For example, by reducing the price, including a new distribution channel, more effective advertising, sales promotion.
The competition in this phase reaches its maximum. The products are known on the market and are mastered as production by many manufacturers and in various modifications.
At the distribution points, there is a diverse range of products, all possible buyers are covered, as a result of which strong competition in trade develops. A flexible pricing policy is pursued.
4. Stage of decline
This is the last stage of the product life cycle
At the stage of decline, sales of most products and brands go down for the following common reasons:
- Technological progress
- Change in consumer searches
- Increased local and international competition.
All these factors lead to overproduction and a greater reduction in prices and profits.
New strong competitors are emerging.
As sales and profits decline, some organizations withdraw from the market. Other organizations may reduce the number of products offered. They can withdraw from smaller market segments and weaker trade channels. They can also cut their budget for promotions and reduce their prices even more.
Harrigan identifies five possible strategies:
- Increasing the company's investments;
- Maintaining the investment level until the uncertain elements in the industry are clarified;
- Selective reduction of the investment level, abandoning non-profitable consumer groups, while increasing investment in profitable niches;
- Collecting the company's investments in order to quickly recover the funds;
- Quickly sell the business by selling off its assets as profitably as possible.
Product life cycle curves, sales, profits.
The classic variant of the product life cycle is an S-shaped curve (Reference: aitriz.org), which can be divided into four stages:
It should be emphasized that determining the beginning and end of each of the four stages is a bit arbitrary. In addition, for most products, it is quite difficult to determine at what stage of their life cycle they are.
The trend of increasing competition over time leads to shorter product life cycles, which means that products must become profitable in a shorter period.
There is no specific length of the product life cycle. There are a number of different product life cycle curves and each requires a different marketing strategy.
This is due to the difference in the characteristics of the products themselves - seasonal, modern, satisfying basic needs or whims, requiring training for use or not, etc.
E. Berkovich and co-authors consider the product life cycle curves depending on the characteristics of the products, which are divided into:
Products that require extensive user training to be used. These products have a long introduction period because consumers need to realize the benefits of purchasing such a product or be trained to use it. For example, a computer or microwave ovens. Special manuals and other materials are provided with them.
Products that do not require training. Their introduction takes place in a short period of time because the benefits of them are easily realized and little knowledge is required about the use of the products. But these products are easily imitated by competitors and have many substitutes. They require large-scale production that meets the demand and occupation of a large market share and retail space to repel competing substitutes.
Fashion products. They are introduced quickly, but also quickly fade away and return after a while.
Products that satisfy whims.
Product life cycle phase management
There are three ways to manage the product life cycle.
Strategies are used for modifications, changes in product characteristics, such as quality, appearance, etc. Modifications can be structural, stylish, functional, quality. The product changes depending on the changing consumer preferences and thus prolongs their life cycle.
Modification of the market
It means increasing usage, finding new applications, or discovering new users. Finding new applications for the product increases its life cycle.
Placing a different place in the consumer consciousness through the elements of the marketing mix. Repositioning can be expressed in reacting to the position of competitors; in reaching a new market; detecting a new trend; in changing the value offered to the consumer.
Eg. Danone in 1984 introduced Jop - liquid yogurt, but the product fails because no one is interested in such a product. In 1988, Danone repositioned Jop as a soft drink for healthy eating and there was a big increase in sales.
The analysis of changes in consumer trends can lead to product repositioning. For example, tanning in the summer was a ritual that led to high sales of beach oil. The growing fear of skin cancer in the summer has led to the repositioning of beach oil as a means of protection against skin cancer.
When repositioning the product line, the company may decide to change the value of the product by increasing or decreasing it. Increasing the value requires adding new values through further improvements or the use of better quality materials.
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