What is Product Life Cycle and its stages in Marketing
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 maximize its value and profitability at each stage. Life cycle is primarily associated with marketing theory.
Introduction of Product Life Cycle
This is the stage where a product is conceptualized 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 commercialization. This is when the product goes into full production for release to the market. Final checks are made on product reliability and variability.
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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 specialized, 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.
Benefits of the Introduction Stage
Limited competition: If the product is truly original and a business is the first to manufacture and market it, the lack of direct competition would be a distinct advantage. Being first could help an organisation to capture a large market share before other companies start launching competing products, and in some instances can enable a business’s brand name to become synonymous with the whole range of products, like Walkman, Biro, Tannoy and Hoover.
High Price: Manufacturers that are launching a new product are often able to charge prices that are significantly above what will eventually become the average market price. This is because early adopters are prepared to pay this higher price to get their hands on the latest products, and it allows the company to recoup some of the costs of developing and launching the product. In some situations however, manufacturers might do the exact opposite and offer relatively low prices, in order to stimulate the demand.
Product Life Cycle Management
The initial stage of the product life cycle is all about building the demand for the product with the consumer, and establishing the market for the product. The key emphasis will be on promoting the new product, as well as making production more cost-effective and developing the right distribution channels to get the product to market.
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 specialized 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.
Challenges of the Growth Stage
- Increasing Competition: When a company is the first one to introduce a product into the market, they have the benefit of little or no competition. However, when the demand for their product starts to increase, and the company moves into the Growth phase of the product life cycle, they are likely to face increased competition as new manufacturers look to benefit from a new, developing market.
- Lower Prices: During the Introduction stage, companies can very often charge early adopters a premium price for a new product. However, in response to the growing number of competitors that are likely to enter the market during the Growth phase, manufacturers may have to lower their prices in order to achieve the desired increase in sales.
- Different Marketing Approach: Marketing campaigns during the Introduction stage tend to benefit from all the buzz and hype that surrounds the launch of a new product. But once the product becomes established and is no longer ‘new’, a more sophisticated marketing approach is likely to be needed in order to make the most of the growth potential of this phase.
Benefits of the Growth Stage
- Costs are Reduced: With new product development and marketing, the Introduction stage is usually the most costly phase of a product’s life cycle. In contrast, the Growth stage can be the most profitable part of the whole cycle for a manufacturer. As production increases to meet demand, manufacturers are able to reduce their costs through economies of scale, and established routes to market will also become a lot more efficient.
- Greater Consumer Awareness: During the Growth phase more and more consumers will become aware of the new product. This means that the size of the market will start to increase and there will be a greater demand for the product; all of which leads to the relatively sharp increase in sales that is characteristic of the Growth stage.
- Increase in Profits: With lower costs and a significant increase in sales, most manufacturers will see an increase in profits during the Growth stage, both in terms of the overall amount of profit they make and the profit margin on each product they sell.
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 maximized. 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 utilize 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.
Challenges of the Maturity Stage
- Sales Volumes Peak: After the steady increase in sales during the Growth stage, the market starts to become saturated as there are fewer new customers. The majority of the consumers who are ever going to purchase the product have already done so.
- Decreasing Market Share: Another characteristic of the Maturity stage is the large volume of manufacturers who are all competing for a share of the market. With this stage of the product life cycle often seeing the highest levels of competition, it becomes increasingly challenging for companies to maintain their market share.
- Profits Start to Decrease: While this stage may be when the market as a whole makes the most profit, it is often the part of the product life cycle where a lot of manufacturers can start to see their profits decrease. Profits will have to be shared amongst all of the competitors in the market, and with sales likely to peak during this stage, any manufacturer that loses market share, and experiences a fall in sales, is likely to see a subsequent fall in profits. This decrease in profits could be compounded by the falling prices that are often seen when the sheer number of competitors forces some of them to try attracting more customers by competing on price.
Benefits of the Maturity Stage
- Continued Reduction in Costs: Just as economies of scale in the Growth stage helped to reduce costs, developments in production can lead to more efficient ways to manufacture high volumes of a particular product, helping to lower costs even further.
- Increased Market Share Through Differentiation: While the market may reach saturation during the Maturity stage, manufacturers might be able to grow their market share and increase profits in other ways. Through the use of innovative marketing campaigns and by offering more diverse product features, companies can actually improve their market share through differentiation and there are plenty of product life cycle examples of businesses being able to achieve this.
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 minimized. 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.
Challenges of the Decline Stage
- Market in Decline: During this final phase of the product life cycle, the market for a product will start to decline. Consumers will typically stop buying this product in favour of something newer and better, and there’s generally not much a manufacturer will be able to do to prevent this.
- Falling Sales and Profits: As a result of the declining market, sales will start to fall, and the overall profit that is available to the manufacturers in the market will start to decrease. One way for companies to slow this fall in sales and profits is to try and increase their market share which, while challenging enough during the Maturity stage of the cycle, can be even harder when a market is in decline.
- Product Withdrawal: Ultimately, for a lot of manufacturers it could get to a point where they are no longer making a profit from their product. As there may be no way to reverse this decline, the only option many business will have is to withdraw their product before it starts to lose them money.
Benefits of the Decline Stage
- Cheaper Production: Even during the Decline stage, there may be opportunities for some companies to continue selling their products at a profit, if they are able to reduce their costs. By looking at alternative manufacturing options, using different techniques, or moving production to another location, a business may be able to extend the profitable life of a product.
- Cheaper Markets: For some manufacturers, another way to continue making a profit from a product during the Decline stage may be to look to new, cheaper markets for sales. In the past, the profit potential from these markets may not have justified the investment need to enter them, but companies often see things differently when the only other alternative might be to withdraw a product altogether.
PROBLEMS WITH THE PRODUCT LIFE CYCLE THEORY
While the product life cycle theory is widely accepted, it does have critics who say that the theory has so many exceptions and so few rules that it is meaningless. Among the holes in the theory that these critics highlight:
- There is no set amount of time that a product must stay in any stage; each product is different and moves through the stages at different times. Also, the four stages are not the same time period in length, which is often overlooked.
- There is no real proof that all products must die. Some products have been seen to go from maturity back to a period of rapid growth thanks to some improvement or redesign. Some argue that by saying in advance that a product must reach the end of life stage, it becomes a self-fulfilling prophecy that companies subscribe to. Critics say that some businesses interpret the first downturn in sales to mean that a product has reached decline and should be killed, thus terminating some still-viable products prematurely.
- The theory can lead to an over-emphasis on new product releases at the expense of mature products, when in fact the greater profits could possibly be derived from the mature product if a little work was done on revamping the product.
- The theory emphasizes individual products instead of taking larger brands into account.
- The theory does not adequately account for product redesign and/or reinvention.