MBA Help - Marketing

The Product Life Cycle

The concept of the product's life cycle is rooted in the fact that technology and consumer tastes take time to adapt to new products and are always changing. As such, when a new product is introduced, it takes some time to be widely accepted, at which point its sales and revenues will begin to grow. This will attract other competitors into the market, cause the market to mature. Finally, the market will saturate and decline as companies begin to introduce the next product, and consumers switch to that product. The product life cycle can be used to describe a brand, a single product or a whole product category. In some cases, such as a new mobile phone, the life cycle may proceed very rapidly, and the life cycle may only last a few months as new phones enter the market. In other cases, such as Coca Cola the product life cycle for a single product may last over a century. Also, in product categories such as the internal combustion engine, the basis product life cycle may last for many years with few alterations, such as improved batteries or alterations to use different types of fuel.

The basic product lifecycle goes through five distinct stages:

Product development

This is the stage during which the majority of marketing planning occurs. The company is developing the product, selecting its target market, and creating a marketing plan and marketing mix. The company may also be carrying out pre launch marketing and attempting to build customer awareness of the product, particularly if the product is a radical new innovation.

Introduction Stage

The introduction stage begins when the product is first launched and made publically available. At this point, sales and revenues are usually low, as customers have not had much contact with the product, and can be slow to recognise the product as superior to previous offerings. As such, advertising revenues are often high as companies are trying to increase the levels of customer awareness and customer acceptance of the new product. As such, and coupled with the costs of distribution, profits are often low or negative in this stage. One strategy company’s can try to use to avoid this is to announce the product before it is launched, hence building up customer anticipation. However, this runs the risk of alerting competitors, who can then develop competing products. As such, this tactic is often only done when a company has a unique offering, such as a new film, computer game or technologically superior device such as the iPod or iPhone.

Growth Stage

The growth stage occurs once customer awareness and acceptance of the product has grown, and hence ever increasing numbers of customers begin to buy it, thus revenues grow rapidly. This stage is also marked by a self reinforcing cycle: as customers demand the product more distribution channels offer it, which further increases the level of awareness and hence increases customer demand. However, this period is also often the first point at which competitors can enter the market with their competing products, developed during the introduction phase, and hence competition levels increase. As such, this phase is often accompanied by price or promotional competition, as firms attempt to convince customers that their product is superior to competing offerings

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Maturity Stage

When a market reaches maturity, customer demand is generally more stable. This makes this the most profitable stage, as companies have generally established their market position and market share, and can work on exploiting it. As the rate of sales growth slows in this phase, there is less incentive for new entrants to enter the market, and hence the incumbents can concentrate on maximising their own profits. This will be helped by strong levels of brand awareness built in the growth phase, which mean that companies do not need to advertise as much. However, competitive pressures may still be strong as existing incumbents battle for market share and continue to try to demonstrate the superiority of their product. Indeed, as the market develops so competing products will become increasingly similar as companies better understand customer demands, and being to imitate the most successful products. This can lead to companies focusing strongly on differentiating their product from competing offerings, and encouraging customers to switch to their offering.

Saturation and Decline Stage

Eventually sales levels will begin to fall as levels of competition become so high that firms start developing new products to attract customers out of the market. In addition, the product itself may become technologically obsolete and customer tastes are likely to change. Products with superior levels of brand loyalty will tend to maintain their profitability for longer, and will be helped as competitors enter the market. Eventually, the market shrinks so much that most firms exit the market, leaving just a few left to serve greatly reduced customer demand. The product may disappear altogether if it is completely unprofitable, however the product often remains on the market as a collector’s item or to serve people who depend on it. One example of this is long playing records, which are still sold by some dealers to people who are familiar with them prefer them to more modern options such as CDs or MP3s.

Limitations of the Product Life Cycle Concept

The concept of a product life cycle implies that a product has a specific birth, life span, and ultimately death, much like a living being. However, most products will not tend to follow such a predictable pattern, with the actual development of a product depending on a variety of factors. For example, a product may reach the saturation and decline phase quickly, but then may grow again due to changing customer demands. Alternatively, some products may reach maturity as soon as they are introduced, such as films and video games which often have greatest sales in the week of release, and then experience additional revenue growth spurts when they move to DVD and pay per view TV. Indeed, some have argued that the product life cycle concept tends to be a self fulfilling prophecy, as it encourages managers to abandon products in periods of declining sales, even if the product has not reached the end of its useful life.

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