Why did Apple reduce the price of Iphone by 33% three months after launching it in the market? Why did Sony stop manufacturing its most successful product- The Walkman? Why has there been no end to products like detergents, whiskey and automobiles? These are a sort of issues the marketers are faced up with in their everyday life. The ever increasing competitive environment is forcing the managers to revaluate how their firms react to the rapidly changing opportunities and threats in an evolving market place. (Teece, 1984) The product life cycle is one of the most frequently used, most quoted and widely accepted elements of the marketing theory to judge the overall competitive advantage of a particular product in the industry. Though it has been subject to a lot of criticism in terms of its evolution, definition and failure to explain certain products like consumer goods, automobiles, it has been one of the most important tools for effective marketing strategy formulation and implementation.
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This paper focusses on the various challenges for the existence of product life cycle concept in the changing marketing environment. Initially, I discuss the implications of the changing marketing environment for the marketers. Then, an analysis of the reasons for the existence of the product life cycle from an economics perspective will be provided. This will be followed by the most important application of the product life cycle concept i.e innovation management. In order to make an analysis on redundany of the product life cycle concept, a discussion on different criticisms and its implications for the managers would be considered. After analysing the different criticisms we proceed to a discussion on why the product life cycle concept has been a prominent tool in strategic analysis. Finally, a discussion adressing the various pitfalls of the ecology perspective would be taken into account to support the product life cycle concept.
Marketing environment is defined as the actors and forces that affect the company's ability to develop and maintain successful transactions and relationships with its target customers. (Kotler, 1981) A change in the marketing environment leads to companies facing threats, opportunities and uncertainties. Marketing managers who fail to recognize changes in environmental forces leave their firms unprepared to capitalize on marketing opportunities or to cope with threats created by changes in the environment (Dibb et al, 2004) Furthermore, with a change from stable markets in the 1960s to a turbulent markets in the 1990s, the marketers have put an ever increasing importance on understanding political, legal, social and demographic factors of the environment alongwith a focus on understanding the changing needs of the customers. (Argenti, 1974) The product life cycle concept, one of the most lauded concepts in marketing literature which has widely been used for planning and timing new products into the market to generate maximum profits needs to be looked at in more detail to cope with the constantly changing marketing environment.
Drawn from the positional school of strategy and based on the biological life cycle, this concept suggests that the a product is evolved over time and product evolution covers four distinct phases, introduction, growth, maturity, and decline, before disappearing from the market. (Dean, 1950 & Levitt, 1965) These four different phases are characterized by a specific growth rate for sales; during the introduction phase, sales grow only slightly but become exponential as the product reaches the growth phase. When the growth rate reaches its point of inflexion and becomes marginally negative, i.e. increasing at a decreasing rate, the product is said to reach maturity.(Cox, 1967) The final phase, decline, is reached when sales begin an outright negative growth. The instabilities in supply and demand in the market give an S shape to the PLC curve. The instability of demand relates to why consumers get into and out of the market while the instability of supply relates to why there are number of firms in the market. (Nadeau & Casselman, 2008) The instability of supply is directly supported by the rate of adoption of innovative products as discussed in Roger's theory of diffusion of innovations. (Roger, 1962) According to this theory, sales during the introduction phase are dependent of purchases made by the innovators and represent about 2.5% of the purchasers; early adopters (13.5%) and the early majority (34%) purchasers during the growth phase and the late majority (34%) in a situation of repurchase. The economic cycle proceeds from monopoly to competition to oligopoly along the PLC, thus giving it a S shape. The stages of both these theories represent an intersection of supply and demand. (Nadeau & Casselman, 2008) Thus, economics provides with a logical reasoning of the existence of the product life cycle.
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An important application of the product life cycle concept is planning the innovations as an active rather than a reactive product policy. (Levitt, 1965) A strategy for planning every product can be developed instead of mere stop gap products for sudden declining profits. Managers can lay out a long term plan of infusing a new life into a product at the right time with right degree of care and with right amount of effort. (Levitt, 1965)) PLC is key to study the new product acceptance and operationalise existing concepts and ideas into sound managerial practice, given the high rates of failure in the new products in the market. For instance, the hair colour and tints became a fashion after careful investigation of the fashion needs and creation of fashion consciousness amongst women. A significant amount of corelation was found between the degree of newness of the product and its product life cycle. (Kluvyer, 1977)
Another advantage of pre-planning a product into the market is that it helps the company to gain a broader perspective of the environmental factors. In managerial terms, product life cycle is beneficial to predict the time required for the sales take off and determine whether a particular innovaiton would be suitable for a particular kind of a firm. Incremental and disruptive innovations have been determined as the important factors for the sales take off in the market. According to a study on the US consumer goods performed by Agarwal and Bayus (2002), the emperical evidence for sales take off and variation in time for take off has been given in terms of demand side shifts after a new entry of the firm in the market. In a study of Whirlpool's new personal wallet, importance of price reductions to decrease the time to take off has been illustrated. (Foster, J; Golder, P.; Tellis, G. 2004) Managers may extend the lifecycle of a product by constantly focussing on innovations to cater to the ever increasing needs of the consumers. To cite an example, the extension strategy was used by DuPont in extending the sales of Nylon. Introduction of textured yarns and carpet yarns to foster innovation in the nylon market was a key factor in extending the product life cycle of Nylon. The product life cycle concept can provide an important insight into predicting the future sales and key determinant of a firm strategy in the constantly changing marketing environment. At each stage in the development, the management must decide the competitive strategy for the next stage. For instance, a decision to establish a strong branding policy during the market growth stage might help to insulate the brand against strong price competition later (Levitt, 1965) Thus, with the firms constantly focussing on innovation to gain competitive advantage, the PLC concept has become even more important for formulation and execution of strategies.
However, the product life cycle concept has been a subject of several criticisms in the academic literature. Firstly, it does not provide a clear definition of the product and the product market and several examples can be found where products have existed for generations i.e automobiles, refrigerators and museums as well as theatres. Secondly, it is very difficult to evaluate the present phase in which a particular product is at any given point of time. It is thus difficlut to implement the recommended strategies for each phase of the life cycle. Thirdly, there is a debate as to the unit of analysis to be applied to the product life cycle concept. It has been most successfully used on three levels viz. product class, product form and brand level. (Wind, 1982) However, this argument was refuted in that the concept can be used only at the product class level, which is the unique combination of the "application of a distinct technology to the provision of a particular function for a specific customer group" (Day, 1986) product life cycle can neither be considered at the class nor the form level (Dhalla and Yuspeh,1976) Fourthly, there has been some criticism on the shape of the curve. Atleast six different shapes of the curve including a polynomial function have been identified i.e. a cycle and re-cycle shape, in a study of 258 pharmaceutical products (Cox, 1967, Day, 1986 & Wind, 1982) Furthermore, the shape of the sales time function is determined by the marketing actions of the manager and that, consequently, generic recommendations for each phase are irrelevant. (Dhalla and Yuspeh, 1976)
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However, several issues in the product life cycle concept are addressed by the researchers over the years. The claim that empirical evidence does not exist disregards several studies on the subject that demonstrate its existence and its importance to business strategy. (Andersen & Zeithaml, 1984) The definition of product as the application of a distinct technology to the provision of a particular function for a specific customer group (Abell, 1980) may serve in determining aberrations from the product cycle concept. Whenever there is a change along one of these factors then the product may have a abberation in the standard lifecycle viz a timeless product (Tide detergent), a multifunction material (Nylon), technologically substituted products (beer cans) and sequentially unfolding segments (communications technology) (Day, 1981) Managers need to to accept that some products will not go through a complete lifecycle and changes to technology, customer groups or product function will allow these products to go into a new cycle and remain in the market. Some products also display seasonality. According to a study by Radas & Shagun, managers also need to time their products at an appropriate time to achieve a sales takeoff faster. Also, it is possible to identify the location of a product on the PLC based on penetration of the market, nature of competition, number of competitors and growth rates (Golder & Tellis, 2004). Furthermore, the boundary identification problems can be solved by making sutable interpretations of the economic activity in the market in addition to the past sales patterns to identify the present location of the product in the product life cycle. (Wind, 1981) Managers should look at all levels viz. product class, form and the brand before making any decision based on the product life cycle concept. However, it should be remembered that Mercer (1993) has found little evidence for the existence of the life cycle at the brand level. Managers need to be aware that numerous underlying factors are found to affect the shape and application of product life cycle. Percieved comparative advantage of a new product compared to its substitutes, barriers to adoption and information availability are the factors that need to be considered before evaluating strategy in the introductory phase. (Day, 1981) Also, competitor strategies, repeat buying, competitive turbulence become important in the growth and the maturity stages. (Midgley, 1981) These factors determine the suitability of the life cycle at the form, class or the brand level.
In terms of managerial implications, it should be remembered that the product life cycle should be distuinguished according to whether one seeks to validate its shape and phases on existing sales data or to use it as a managerial decision-making tool. It should be understood that there are several shapes that describe the sales over time. (Cox, 1967; Polli and Cook, 1969) Manegers should try to fit an appropriate marketing strategy around the different PLC patterns to achieve the best results. (Swan & Rink, 1982) Furthermore, if the marketing communications model as suggested by Dhalla & Yuseph were to be trusted, we would have products like Sony Walkman, Black and White television still selling into the market. According to a study by Harnell & Taylor(1981), PLC has been proved valid in the consumer durables industry contrary to the assumptions of Dhall and Yuseph (1976) To its support, several studies have shown that managers who have used it as a strategic decision making tool also have been successful. (McDonald, 1992; Kinra, 1993; Hooley, 1995).
The popultaion ecology model of market evolution focussing on the supply side factors has provided a theory for the pattern of entries and exits among the organizations competing within particular population. (Day, 1986) This model has led to many researchers questioning the validity of the product life cycle concept. However, even this model is not emperically complete and subject to many criticisms. Firstly, it is drawn from the biological analogies to the social organizations. The fact that many large organizations seem to persist indefinitely without any evidence of decline is considered a particularly cogent example of this problem (Aldrich 1979). Natural selection as a mechanism for succes or failure of an organization has been challenged at various levels. This approach is considered to be antithetical to the management disciplines because a strict interpretation suggests performance is determined fully by the environment and is indifferent to management behavior. (Perrow 1979; Van de Ven 1979) A final problem with the ecological model, is that many of the variables lack clear, unambiguous definitions and di-rections for how they should be applied (Carroll 1985; Freeman 1982; Wholey and Brittain 1986). Key concepts such as resource spaces, niches, organizational form, natural selection, and performance are discussed at a very superficial level without much consideration of measurement issues.
Having discussed the various aspects of PLC it would be an informed decision to say that this theory can be successfully used as an alternative management theory. Innovation management and new product planning are the main advantages of the product life cycle concept. A failure to justify the theory at the brand level is the major pitfall of the theory. Managers need to consider additional macroeconomic and microeconomic factors for a successful application at the product form and the brand level. It should also be noted that only 20% of the papers on this theory have challenged its assumptions while the others have provided several different applicatons of this theory. Managers need to apply this theory alongowith other strategic management tools like the BCG Matrix, Porter's five force analysis and Doblin's model of innovation to identify the implications of different offensive or defensive strategies pursued to maximize a firm's competitive advantage. In terms of the future research, an emperical link needs to be established between the consumer cycle and the product life cycle using the various demographic considerations of the consumers. It might provide an answer to the immortality of certain products by explaining that the newer consumers enter the market after certain time and are required to use the same products viz. automobiles, detergents etc. Also, in terms of the future research, emperical evidence needs to be built up for the different types of variations in the product life cycle at the brand level. This may yield certain important patterns in the product life cycle not yet discovered.