Download Product Life Cycle: Stages, Strategies, and Management - Prof. Luca and more Summaries Marketing in PDF only on Docsity!
SUBJECT – MARKETING MANAGEMENT
UNIT II – PRODUCT AND PRICING DECISIONS (PART – IV)
PRODUCT LIFE CYCLE (PLC)
Definition: 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. A new product progresses through a sequence of stages from introduction to growth, maturity, and decline. This sequence is known as the product life cycle and is associated with changes in the marketing situation, thus impacting the marketing strategy and the marketing mix. The product life cycle is an important concept in marketing. It describes the stages a product goes through from when it was first thought of until it finally is removed from the market. Not all products reach this final stage. Some continue to grow and others rise and fall. Characteristics of PLC Stages There are the following major Product life cycle stages, which are defined as under:
Stage Characteristics
- Market introduction stage This is the stage in which the product has been introduced first time in the market and the sales of the product starts to grow slowly and gradually and the profit received from the product is nominal and non-attained. The market for the product is not competitive initially and also the company spends initially on the advertisement and uses various other tools for promotion in order to motivate and produce awareness among the consumers, therefore generating discerning demands for particular brand. The products start to gain distribution as the product is initially new in the market and in this stage the quality of the product is not assured and the price of the product will also be determined as low or high. 1. costs are very high 2. slow sales volumes to start 3. little or no competition 4. demand has to be created 5. customers have to be prompted to try the product 6. makes little money at this stage
- Growth stage In the Growth stage, the product is present already in the market and the consumers of the products are habitual of the product There is quick growth in the product sales as more new and new customers are using and trying and are becoming aware of the product. The customers are becoming satisfied from the product and they bought it again and again. The ratio of the product repetition for the trial procurement risen and also at this level, the competitors have started to overflow the market with more appealing and attractive inventions. This helps in creating increased competition in the market and also results in decreasing the product price. 1. costs reduced due to economies of scale 2. sales volume increases significantly
- prices, profitability diminish
- profit becomes more a challenge of production/distribution efficiency than increased sales Note: Product termination is usually not the end of the business cycle, only the end of a single entrant within the larger scope of an ongoing business program. Identifying PLC Stages Identifying features
STAGES
Introduction Growth Maturity Decline Sales Low High High Low Investment cost Very high High (lower than intro stage) Low Low Competition Low or no competition High Very high Very High Profit Low High High Low
Limitations
It is important for marketing managers to understand the limitations of the PLC model. It is difficult for marketing management to gauge accurately where a product is on its life cycle. A rise in sales itself is not necessarily evidence of growth, a fall in sales itself does not typify decline and some products, e.g. Coca-Cola and Pepsi, may not experience a decline. Differing products possess different PLC "shapes". A fad product develops as a steep sloped growth stage, a short maturity stage, and a steep sloped decline stage. Products such as Coca-Cola and Pepsi experience growth, but also a constant level of sales over a number of decades. A given product (or products collectively within an industry) may hold a unique PLC shape such that use of typical PLC models are only useful as a rough guide for marketing management. For specific products, the duration of each PLC stage is unpredictable and it's difficult to detect when maturity or decline has begun. Because of these limitations, strict adherence to PLC can lead a company to misleading objectives and strategy prescriptions. Marketing Strategies for Different PLC Stages: Product passes through four stages of its life cycle. Every stage poses different opportunities and challenges to the marketer. Each of stages demands the unique or distinguished set of marketing strategies. A marketer should watch on its sales and market situations to identify the stage in which the product is passing through, and accordingly, he should design appropriate marketing strategies. Here, strategy basically involves four elements – product, price, promotion, and distribution. By appropriate combination of these four elements, the strategy can be formulated for each stage of the PLC. Every stage gives varying importance to these elements of marketing mix. Let us analyze basic strategies used in each of the stages of the PLC, as described by Philip Kotler. I. Marketing Strategies for Introduction Stage: Introduction stage is marked with slow growth in sales and a very little or no profit. Note that product has been newly introduced, and a sales volume is limited; product and distribution are not given more emphasis. Basic constituents of marketing strategies for the stage include price and promotion.
(b) Most buyers are price-sensitive. They prefer the low-priced products. (c) There is strong potential for competition. (d) Market is not much aware of the product. They need to be informed and convinced. (e) Per unit cost can be reduced due to more production, and possibly more profits at low price.
4. Slow Penetration: The strategy consists of introducing a product with low price and low-level promotion. Low price will encourage product acceptance, and low promotion can help realization of more profits, even at a low price. Assumptions of this strategy: (a) Market is large. (b) Market is aware of product. (c) Possibility of competition is low. (d) Buyers are price-sensitive or price-elastic, and not promotion-elastic. II. Marketing Strategies for Growth Stage: This is the stage of rapid market acceptance. The strategies are aimed at sustaining market growth as long as possible. Here, the aim is not to increases awareness, but to get trial of the product. Company tries to enter the new segments. Competitors have entered the market. The company tries to strengthen competitive position in the market. It may forgo maximum current profits to earn still greater profits in the future. Several possible strategies for the stage are as under:
- Product qualities and features improvement
- Adding new models and improving styling
- Entering new market segments
- Designing, improving and widening distribution network
- Shifting advertising and other promotional efforts from increasing product awareness to product conviction
- Reducing price at the right time to attract price-sensitive consumers
- Preventing competitors to enter the market by low price and high promotional efforts III. Marketing Strategies for Maturity Stage: In this stage, competitors have entered the market.
There is severe fight among them for more market share. The company adopts offensive/aggressive marketing strategies to defeat the competitors. Following possible strategies are followed:
1. To Do Nothing: To do nothing can be an effective marketing strategy in the maturity stage. New strategies are not formulated. Company believes it is advisable to do nothing. Earlier or later, the decline in the sales is certain. Marketer tries to conserve money, which can be later on invested in new profitable products. It continues only routine efforts, and starts planning for new products. 2. Market Modification: This strategy is aimed at increasing sales by raising the number of brand users and the usage rate per user. Sales volume is the product (or outcome) of number of users and usage rate per users. So, sales can be increased either by increasing the number of users or by increasing the usage rate per user or by both. Number of users can be increased by variety of ways. There are three ways to expand the number of users: i. Convert non-users into users by convincing them regarding uses of products ii. Entering new market segments iii. Winning competitors’ consumers Sales volume can also be increased by increasing the usage rate per user. This is possible by following ways: i. More frequent use of product ii. More usage per occasion iii. New and more varied uses of product 3. Product Modification: Product modification involves improving product qualities and modifying product characteristics to attract new users and/or more usage rate per user.
This strategy is followed with the expectations that competitors will leave the market. Selling and promotional costs are reduced. Many times, a company continues its products only in effective segments and from remaining segments they are dropped. Such products are continued as long as they are profitable.
2. Continue Products with Improvements: Qualities and features are improved to accelerate sales. Products undergo minor changes to attract buyers. 3. Drop the Product: When it is not possible to continue the products either in original form or with improvement, the company finally decides to drop the products. Product may be dropped in following ways: i. Sell the production and sales to other companies ii. Stop production gradually to divert resources to other products iii. Drop product immediately.
Product Life-Cycle Management ( PLM )
Product life-cycle management ( PLM ) is the succession of strategies by business management as a product goes through its life-cycle. The conditions in which a product is sold (advertising, saturation) changes over time and must be managed as it moves through its succession of stages. Goals The goals of Product Life Cycle management (PLM) are to reduce time to market, improve product quality, reduce prototyping costs, identify potential sales opportunities and revenue contributions, and reduce environmental impacts at end-of-life. To create successful new products the company must understand its customers, markets and competitors. Product Lifecycle Management (PLM) integrates people, data, processes and business systems. It provides product information for companies and their extended supply chain enterprise. PLM solutions help organizations overcome the increased complexity and engineering challenges of developing new products for the global competitive markets. PLC management makes the following three assumptions: Products have a limited life and thus every product has a life cycle. Product sales pass through distinct stages, each posing different challenges, opportunities, and problems to the seller. Products require different marketing, financing, manufacturing, purchasing, and human resource strategies in each life cycle stage. Once the product is designed and put into the market, the offering should be managed efficiently for the buyers to get value from it.
Adding Value – add new features to the current product, e.g. improving the specifications on a smartphone Explore New Markets – selling the product into new geographical areas or creating a version targeted at different segments New Packaging – brightening up old packaging or subtle changes Changing customer consumption - By appreciating more frequent use showing their own benefit. Heightening interest - Raising interest by offering Jackpot and other offers.
