Product Lifecycle
October 21, 2007
Product Lifecycle
Product Lifecycle is the process through which a product goes through. To say a product has a lifecycle is to assert 4 things:
a) Products have limited life
b) Product sales pass through distinct stages each passing different challenges, opportunities and problems to the seller.
c) Profits rise and fall at different stages of the product life cycle.
d) Products require different marketing, financial, manufacturing/purchasing and human resource strategies in each life cycle.
Product lifecycle helps interpret product and market dynamics. It can be used for planning and control, although its less useful tool in forecasting.
PLC concept can be used to analyze a:
a) A product category (liquor)
b) A product form (white liquor)
c) A product (vodka)
d) A brand (Smirnoff)
There are four types of PLC. These are:
a) Growth-Slump-Maturity Pattern
This is characteristic of small kitchen appliances. This is applied when electric kitchen knives were introduced, they grew rapidly and then the demand fell to an alarming level. This alarming (petrified) level was sustained by late adopters and early adopters replacing the product.
b) Cycle-recycle pattern
This is common to new drugs. The pharmaceutical company aggressively promotes its new drug and this produces the 1st cycle later the sales of the drug declined and the company gives another promotional push which produces 2nd cycle.
c) Scalloped PLC
In this pattern the product passes through a succession of lifecycles based on the discovery of the product characteristics, uses or users. E.g. Nylon sales, because of new uses of Nylon i.e. parachutes, carpets, sturts, boat sails, automobile tyres e.t.c.
d) Belly shaped PLC
This pattern has four stages, these are:
i. Introduction
This is the period when the product is introduced in the market. This is the period of slow growth. Sales growth is slow due to:
- Delay in expansion of product capacity
- Delay in establishing adequate distribution through retail outlets.
- Customer reluctance
- Technical problems
- Promotion costs are highiest ratio to sales. This is due to:
à Inducing product trials
à Informing customers
à Securing distribution retail outlets.
ii. Growth
This is marked with rapid growth in sales. This is caused by early adopters liking the product and new additional customers buying the product, new competitors enter, attracted by the opportunities they introduce new product features and expand distribution.
Prices remain where they are or fall slightly due to reduce production costs and economics of sale during production.
Companies maintain their promotional expenditures at the same or slightly increased level to meet competition and continue to educate the market.
Sales rise faster than promotional expenditures, causing a welcome decline in the promotion sales ratio.
During this stage, a firm may use several strategies to sustain rapid market growth.
à It improves product quality and adds new product features
à It enters new market segment
à It shifts from product awareness advertising to product preference advertising.
à It leaves prices to attract new price sensitive customers.
à It increases its distribution coverage and enters new distribution customers
à Adds new models
A firm at this stage faces a trade off between high market share and high current profit. It should spend more on product improvement, promotion and distribution so as to capture the market.
iii. Maturity stage
This stage lasts longer than previous stages. In this stage sales growth will slow. In this stage there are three phases:
a) Growth Phase: In this stage the growth rates starts to decline, there are no new
Distribution channels to fill.
b) Stable: In this phase, sales flatten due to market saturation. Future sales are governed by population growth and replacement demand.
c) Decaying: In this phase, the absolute levels of sales start to decline and customers begin to switch to other products.
Sales slow down create over capacity which leads to competition, thus leads to weaker competitors being knocked out and the market belongs to the cost leader, service leader and quality leader together with other market niches.
One should strive to become the “big three” so as to survive by producing products in large volumes and at lower costs. They should also abandon weaker products.
Several strategies can be used e.g.
§ Prices strategy
§ Sales promotion
§ Advertising
§ Personal selling
§ Distribution
§ Services i.e. can the organization speed up delivery e.t.c.
§ Quality improvement
§ Image/style improvement
iv. Decline stage
Sales may decline for a number of reasons e.g. technological advances, shifts in consumer tastes, increased competition, and price cutting e.t.c. As sales decline, some firms withdraw from the market.
If the cost barrier is low, the easy it is for a firm to leave the market.
One should not carry a weak product coz its very costly to the firm in terms of consuming management’s time, frequent price and inventory adjustments, expensive set up, advertising costs e.t.c.
Failing to eliminate a product, delays the aggressive search for replacement products.
Comments
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