The
theory of a product life cycle was first introduced in the 1950s to
explain the expected life cycle of a typical product from design to
obsolescence, a period divided into the phases of product
introduction, product growth, maturity, and decline. The goal of
managing a product's life cycle is to maximise its value and
profitability at each stage. Life cycle is primarily associated with
marketing theory.
INTRODUCTION
This
is the stage where a product is conceptualised and first brought to
market. The goal of any new product introduction is to meet
consumers' needs with a quality product at the lowest possible cost
in order to return the highest level of profit. The introduction of a
new product can be broken down into five distinct parts:
- Idea validation, which is when a company studies a market, looks for areas where needs are not being met by current products, and tries to think of new products that could meet that need. The company's marketing department is responsible for identifying market opportunities and defining who will buy the product, what the primary benefits of the product will be, and how the product will be used.
- Conceptual design occurs when an idea has been approved and begins to take shape. The company has studied available materials, technology, and manufacturing capability and determined that the new product can be created. Once that is done, more thorough specifications are developed, including price and style. Marketing is responsible for minimum and maximum sales estimates, competition review, and market share estimates.
- Specification and design is when the product is nearing release. Final design questions are answered and final product specs are determined so that a prototype can be created.
- Prototype and testing occur when the first version of a product is created and tested by engineers and by customers. A pilot production run might be made to ensure that engineering decisions made earlier in the process were correct, and to establish quality control. The marketing department is extremely important at this point. It is responsible for developing packaging for the product, conducting the consumer tests through focus groups and other feedback methods, and tracking customer responses to the product.
- Manufacturing ramp-up is the final stage of new product introduction. This is also known as commercialisation. This is when the product goes into full production for release to the market. Final checks are made on product reliability and variability.
In
the introduction phase, sales may be slow as the company builds
awareness of its product among potential customers. Advertising is
crucial at this stage, so the marketing budget is often substantial.
The type of advertising depends on the product. If the product is
intended to reach a mass audience, than an advertising campaign built
around one theme may be in order. If a product is specialised, or if
a company's resources are limited, then smaller advertising campaigns
can be used that target very specific audiences. As a product
matures, the advertising budget associated with it will most likely
shrink since audiences are already aware of the product.
Techniques
used to exploit early stages make use of penetration pricing (low
pricing for rapid establishment) as well as "skimming,"
pricing high initially and then lowering price after the "early
acceptors" have been lured in.
GROWTH
The
growth phase occurs when a product has survived its introduction and
is beginning to be noticed in the marketplace. At this stage, a
company can decide if it wants to go for increased market share or
increased profitability. This is the boom time for any product.
Production increases, leading to lower unit costs. Sales momentum
builds as advertising campaigns target mass media audiences instead
of specialised markets (if the product merits this). Competition
grows as awareness of the product builds. Minor changes are made as
more feedback is gathered or as new markets are targeted. The goal
for any company is to stay in this phase as long as possible.
It
is possible that the product will not succeed at this stage and move
immediately past decline and straight to cancellation. That is a call
the marketing staff has to make. It needs to evaluate just what costs
the company can bear and what the product's chances for survival are.
Tough choices need to be made—sticking with a losing product can be
disastrous.
If
the product is doing well and killing it is out of the question, then
the marketing department has other responsibilities. Instead of just
building awareness of the product, the goal is to build brand loyalty
by adding first-time buyers and retaining repeat buyers. Sales,
discounts, and advertising all play an important role in that
process. For products that are well-established and further along in
the growth phase, marketing options include creating variations of
the initial product that appeal to additional audiences.
MATURITY
At
the maturity stage, sales growth has started to slow and is
approaching the point where the inevitable decline will begin.
Defending market share becomes the chief concern, as marketing staffs
have to spend more and more on promotion to entice customers to buy
the product. Additionally, more competitors have stepped forward to
challenge the product at this stage, some of which may offer a
higher-quality version of the product at a lower price. This can
touch off price wars, and lower prices mean lower profits, which will
cause some companies to drop out of the market for that product
altogether. The maturity stage is usually the longest of the four
life cycle stages, and it is not uncommon for a product to be in the
mature stage for several decades.
A
savvy company will seek to lower unit costs as much as possible at
the maturity stage so that profits can be maximised. The money earned
from the mature products should then be used in research and
development to come up with new product ideas to replace the maturing
products. Operations should be streamlined, cost efficiencies sought,
and hard decisions made.
From
a marketing standpoint, experts argue that the right promotion can
make more of an impact at this stage than at any other. One popular
theory postulates that there are two primary marketing strategies to
utilise at this stage—offensive and defensive. Defensive strategies
consist of special sales, promotions, cosmetic product changes, and
other means of shoring up market share. It can also mean quite
literally defending the quality and integrity of your product versus
your competition. Marketing offensively means looking beyond current
markets and attempting to gain brand new-buyers. Relaunching the
product is one option. Other offensive tactics include changing the
price of a product (either higher or lower) to appeal to an entirely
new audience or finding new applications for a product.
DECLINE
This
occurs when the product peaks in the maturity stage and then begins a
downward slide in sales. Eventually, revenues will drop to the point
where it is no longer economically feasible to continue making the
product. Investment is minimised. The product can simply be
discontinued, or it can be sold to another company. A third option
that combines those elements is also sometimes seen as viable, but
comes to fruition only rarely. Under this scenario, the product is
discontinued and stock is allowed to dwindle to zero, but the company
sells the rights to supporting the product to another company, which
then becomes responsible for servicing and maintaining the product.
Marketing
Mix Decisions at different stages of PLC
A
product life cycle is the typical stages a product goes through
during its lifetime. The product life cycle is broken down into five
different stages, which include the development, introduction,
growth, maturity and decline stages of the product. Characteristics
for each stage differ and in response to the different needs of the
product as it moves through its life cycle, the market mix (various
marketing tactics) used during these stages differ as well.
Understanding the product life cycle can help business owners and
marketing managers plan a marketing mix to address each stage fully.
Development
Stage
During
the development stage, the product may still be just an idea, in the
process of being manufactured or not yet for sale. In this stage, the
marketing mix is in the planning phase, so rather than implementing
marketing strategies, the product producer is researching marketing
methods and planning on which efforts the company intends on using to
launch the product. The marketing mix for this stage includes ways to
bring awareness of the product to potential customers through
marketing campaigns and special promotions.
Introduction
Stage
As
the product hits the market, it enters the introduction stage of the
product life cycle. Because it is a new product that customers are
not yet aware of, the product sales during the introduction stage are
generally low. At this time, marketing expenses are generally high
because it requires a lot of effort to bring awareness to the
product. The marketing mix during this stage of the product life
cycle entails strategies to establish a market and create a demand
for the product.
Growth
Stage
As
customers become aware of the product and sales increase, the product
enters into the growth stage of the product life cycle. Marketing
tactics during the growth stage requires branding that differentiates
the product from other products in the market. Marketing the product
involves showing customers how this product benefits them over the
products sold by the competition; also known as building a brand
preference.
Maturity
Stage
As
the product gains over its competition, the product enters the
maturity stage of the product life cycle. The marketing mix during
this stage involves efforts to build customer loyalty, typically
accomplished with special promotions and incentives to customers who
switch from a competitor's brand.
Decline
Stage
Once
a product market is over saturated, the product enters into the
decline stage of the product life cycle. This is the stage where the
marketing mix and marketing efforts decline. If the product generated
loyalty from customers, the company can retain customers during this
stage, but does not attract new sales from new customers. For the
marketing mix that remains during the decline stage, the focus is
generally on reinforcing the brand image of the product to stay in a
positive light in the eyes of the product's loyal
customers.
