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Module 3 - Product Life Cycle in Theory and Practice
Module 3 - Product Life Cycle in Theory and Practice
Introduction:
Product life-cycle management (or PLCM) is the succession of strategies used by business
management as a product goes through its life-cycle. The condition in which a product is sold
(advertising, saturation) changes over time and must be managed as it moves through its
succession of stages.
Product life-cycle (PLC) Like human beings, products also have an arc. From birth to death,
human beings pass through various stages e.g. birth, growth, maturity, decline and death. A
similar life-cycle is seen in the case of products. The product life cycle goes through multiple
phases, involves many professional disciplines, and requires many skills, tools and processes.
Product life cycle (PLC) has to do with the life of a product in the market with respect to
business/commercial costs and sales measures. To say that a product has a life cycle is to assert
three things:
Products have a limited life, and thus every product has 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.
Chapter Objectives:
Explain the nature of PLCs and the stages associated with them;
Understand the concept of product cannibalization;
Be familiar with the criticisms made of the PLC concept; and
Be aware of and be able to explain variants of the classic life cycle.
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 revenue and profits can be plotted as a function of the life-cycle stages as shown in
the graph below:
Conventionally, and as presented in Figure 3.1, the product life cycle is conceived of as having
four stages – Introduction, Growth, Maturity and Decline. In this section of our study we shall
be concerned with the ‘stretched’ PLC consisting of seven stages by adding ‘ Gestation’ before
the Introduction Stage; by including ‘Saturation’ between Maturity and Decline; and by adding a
final stage of ‘Elimination’. The stretched PLC is shown in Figure 3.2
Figure 3.2 Stretched PLC
Growth
Introdu
Gestati
Saturati
Maturit
Decline
Elimina
ction
tion
on
on
y
In terms of emphasis we stress the Gestation of New Product Development phase, the
Introduction or Launch Phase, and the Elimination Phase. The reason for this emphasis is that
not only does it reflect the research interests of the authors but it acknowledges the fact that
most marketing management books concentrate on the Growth/Maturity phases as these
represent the areas where most marketing activity occurs, i.e the source of most revenue and
profit. It is also the principal focus of the marketing management function.
PLC can be used as forecasting tools, but only when one has a considerable amount of
information about the product and the market into which the product is to be introduced. In
the present context, however, the relevance of the PLC is that it is a constant reminder of the
inevitability of changes and does mirror the stages through which all successful products pass.
Product development phase begins when a company finds and develops a new product idea.
This involves translating various pieces of information and incorporating them into a new
product. A product is usually undergoing several changes involving a lot of money and time
during development, before it is exposed to target customers via test markets. Those products
that survive the test market are then introduced into a real marketplace and the introduction
phase of the product begins. During the product development phase, sales are zero and
revenues are negative. It is the time of spending with absolute no return.
Of course, the ideal is to be on time and on budget with a product which precisely meets the
intended customer’s needs: the goal of the processes, procedures and techniques. But having
said that, it has to be recognized that few if any managers are blessed with perfect foresight
and there is no known market research technique which can guarantee 100% accuracy in
predicting how an intended market will actually respond to a new product. It follows that the
firm which launches a less than perfect product, but which has the capability to respond quickly
and effectively to customer reactions and feedback, may well outperform the ‘perfectionist’
organization which takes much longer to get to the market.
Stage Two: Introduction (Launch)
When a new product is introduced to the market, sales volumes are normally not very high. The
volume will normally only increase once a number of potential customers become aware of the
product and the benefits it has for them.
During the introduction stage the strategic goal normally includes to acquire a strong market
position.
The goal in respect of the competition dimension is to prevent the early entry of aggressive
competitors into the market segment.
During the introduction stage of the life cycle, most companies will endeavor to build product
awareness and establish a market for the product. The impact on the marketing mix is as
follows:
1. The product strategy will normally be to have a limited number of variations of the
product in order not to confuse the early adopters. During this stage establishing the
product brand and quality level in the market is imperative. The establishment of
intellectual property protection such as patents and trademark registration is important
aspects to remember.
2. An aggressive pricing policy to maximize market penetration is very common during this
phase of the life cycle. If market share is built rapidly the development cost can be
removed later. In cases where development cost was high and the life cycle is expected
to be short high skim pricing to recover development costs is normally a suitable
strategy during this phase.
3. The promotion strategy is normally aimed at innovators and early adopters. Marketing
communications will focus on establishing a definite product identity to ensure that the
market awareness is maximized. Potential buyers are made aware of the new product,
its features, uses, benefits and advantage in order to entice them to buy it.
4. During the introduction phase an exclusive and selective distribution strategy that is
aimed at focused distribution channels is a common strategy in order to ensure that the
product is available at the correct place for the early adopters. The creation of high
profit margins for middle men is also an important component of the distribution
strategy for this stage.
5. In cases where the barrier to entry is low it may be more appropriate to have a more
extensive and comprehensive distribution strategy to cover as wide a market as possible
early on in the life cycle of the product.
During the introduction stage, the most important objective is to establish a market and
establish a firm initial demand for the product. The marketing communication cost is by and
large quite high during this stage of the product life cycle. This is as a result of the need to
increase customer awareness of the product rapidly and to ensure that the early adopters are
targeted.
During the introductory stage a company is normally also expected to incur extra costs
associated with the establishment of the initial distribution channels of the product due to the
initial inefficiencies that normally exists.
The high level of the extra costs to establish a new market at the same time as the low sales
volume that is usual for a new product being introduced normally results in the introduction
stage to be a time where losses is accumulated. This should not bother the company as these
losses are normally more than recovered in the next phase provided that the correct marketing
strategies are followed during this introduction stage.
Stage Three: Growth
As demand increases, economies of scale will become possible and better prices can be offered.
This stage can also be recognized by a rapid increase in sales with profits reaching a peak before
it starts to decline.
The emergence of competitors during this stage is the biggest threat to the survival of the
product. To counter this and maintain the growth for as long as possible the marketing function
should focus on the basic features of the product and any additional features that may be
added. The primary focus should be to build the brand and get consumers to prefer and choose
the product as a result of the brand. The idea is to get some customers to make repeat
purchases as a result of the brand recognition.
The phase also lends itself to an increase in the distribution channels in order to make the
product available to a more extensive audience, thus expanding the market base. Growth stage
is characterized by the following:
1. Sales increase rapidly during the growth phase. This increase is due to: (1) consumers
rapidly spreading positive word-of-mouth (WOM) about the product; (2) an increasing
number of competitors enter the market with their own versions of the product; (3) and
a "promotion effect" which is the result of individual firms employing, advertising and
other forms of promotion to create market awareness, stimulate interest in the product,
and encourage trial.
2. Cost are declining on a per unit basis because increased sales lead to longer production
runs and, therefore, scale economies in production. Similarly firms may experience
curve effects which help to lower unit variable costs.
3. Because sales are increasing and, at the same time, unit costs are declining, profits rise
significantly and rapidly during this stage.
4. Customers are mainly early adopters and early majority. It is the early adopter,
specifically, that is responsible for stimulating the WOM effect. During the latter part of
growth, the first major segment of the mass market, called the early majority, enters the
market. This category of consumers is somewhat more price sensitive and lower on the
socio-economic spectrum. As a result, these consumers are somewhat more risk averse
and, therefore, somewhat more hesitant to adopt the product.
5. Competition continues to grow throughout this stage. As competitors recognize profit
potential in the market, they enter the market with their own versions of the product.
As competition intensifies, strategies turn to those that will best aid in differentiating
the brand from those of competitors. Attempts are made to differentiate and find
sources of competitive advantage. In addition, firms identify ways in which the market
can be segmented and may develop focused marketing strategies for individual
segments.
Maturity occurs when the new product has successfully displaced the product(s) for which it
was a substitute such that all the suppliers of the former product have now switched to its
replacement or else quit the market. By the maturity stage the product form will have achieved
a state in which it is capable of little if any further physical development. The proliferation of
the variants so typical of the growth stage will cease. In maturity, customers know what they
want and the physical attributes of the product are well known and understood. Further,
market segmentation on the basis of physical differences and usage becomes difficult if not
impossible.
As a result supplier to the market must look to other forms of differentiation as the basis for
building and retaining market share. Thus, it is in the maturity stage that professional marketer
is most heavily engaged in developing and delivering an effective marketing mix. Competition
becomes much more intense and focused as growth slows down and sellers struggle to avoid
price concessions in an increasingly difficult market. Non-price competition based upon
promotion, distribution and service – both presales and after sales – dominate as supplier firms
jockey for position.
Saturation is the advanced stage of maturity. By now the market has settled down, usually with
three or four major players serving the mass market and a constellation of small firms meeting
the specialist needs of the minority. The 80/20 or Pareto principle will usually obtain with a
small number of large firms accounting for 80% of sales and a large number of small firms
accounting for the remaining 20%.
At the saturation 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.
During this period new brands are introduced even when they compete with the company’s
existing product and model changes are more frequent (product, brand, and model). This is the
time to extend the product’s life. Pricing and discount policies are often changed in relation to
the competition policies i.e. pricing moves up and down accordingly with the competitors one
and sales and coupons are introduced in the case of consumer products. Promotion and
advertising relocates from the scope of getting new customers, to the scope of product
differentiation in terms of quality and reliability. The battle of distribution continues using multi
distribution channels. A successful product maturity phase is extended beyond anyone’s timely
expectations. A good example of this is “Tide” washing powder, which has grown old, and it is
still growing.
This occurs when the product peaks in the maturity and saturation 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.
This stage is distinguished by a reduction in market share, declining popularity of the product
and falling profits. The decision regarding the future of the product should be carefully
considered. This may include continuing with the product as it is, to revitalize the product or to
withdraw it from the product offering. One can only justify continuing with the current
unchanged product as long as it makes a contribution to profits or enhances the success of the
other products in the product mix.
1. Sales continue to deteriorate through decline. And, unless major change in strategy or
market conditions occur, sales are not likely to be revived. Costs, because competition is
still intense, continue to rise. Large sums are still spent on promotion, particularly sales
promotions aimed at providing customers with price concessions.
2. Profits, as expected, continue to erode during this stage with little hope of recovery.
3. Customers are primarily laggards.
4. There generally are a significant number of competitors still in the industry at the
beginning of decline. However, as decline progresses, marginal competitors will flee the
market. As a result, competitors remaining through decline tend to be the larger more
entrenched competitors with significant market shares.
This new stage of the product life cycle has been added to recognize that while change is
inevitable and most, if not all, products have finite lives, evolution is about the survival of the
fittest and the role of management is to ensure the survival of the species. In this analogy, of
course, the species is the firm and only if it is a single product firm will survival of the firm and
product be the same thing. Usually it is not, for, implicitly or explicitly, firms recognize and
understand the implications of the PLC and so seek to develop a portfolio of products each at
different stages of their individual life cycle. However, it is sufficient to recognize that the
elimination/withdrawal of a product needs to be just as much a conscious and considered
decision as was its introduction and launch.
This is the time to start withdrawing variations of the product from the market that are weak in
their market position. This must be done carefully since it is not often apparent which product
variation brings in the revenues. The prices must be kept competitive and promotion should be
pulled back at a level that will make the product presence visible and at the same time retain
the “loyal” customer. Distribution is narrowed. The basic channel is should be kept efficient but
alternative channels should be abandoned.
Product cannibalization occurs when a company decides to replace an existing product and
introduce a new one in its place, regardless of its position in the market (i.e. the product’s life
cycle phase does not come into account). This is due to newly introduced technologies and it is
most common in high tech companies. As all things in life there is negative and positive
cannibalization.
UNFAVORABLE CANNIBALIZATION
Cannibalization should be approached cautiously when there are hints that it may have an
unfavorable economic effect to the company, such as lower sales and profits, higher technical
skills and great retooling. The causes of such economic problems are given below.
1. The new product contributes less to profit than the old one: When the new product is
sold at a lower price, with a resulting lower profit than the old one, then it does not
sufficiently increase the company’s market share or market size.
2. The economics of the new product might not be favorable: Technology changes can
force a product to be cannibalized by a completely new one. But in some cases the loss
of profits due to the cannibalization is too great. For example a company that produced
ready business forms in paper was forced to change into electronic forms for use in
personal computers. Although the resulting software was a success and yield great
profits, the sales of the paper forms declined so fast that the combined profit from both
products, compared to the profits if the company did not cannibalize the original
product showed a great loss in profits.
3. The new product requires significant retooling: When a new product requires a different
manufacturing process, profit is lower due to the investment in that process and due to
the write-offs linked to retooling the old manufacturing process.
4. The new product has greater risks: The new product may be profitable but it may have
greater risks than the old one. A company cannot cannibalize its market share using a
failed or failing product. This can happen in high-tech companies that do not understand
enough of a new technology so that to turn it into a successful and working product. As
a result unreliable product emerges and replaces a reliable one, that can increase
service costs and as a result decrease expected profits.
Cannibalization favors the attacker and always hurts the market leader. For companies that are
trying to gain market share or establish themselves into a market, cannibalization is the way to
do it. Also cannibalization is a good way to defend market share or size. A usual practice is the
market leader to wait and do not cannibalize a product unless it has to. It is thought that a
company should acquire and develop a new technology that will produce a newer and better
product than an existing one and then wait. Then, as competitors surface and attack market
share, cannibalization of a product is ripe. Then and only then quick introduction of a new
product into the market will deter competition, increase profits and keep market share. But this
strategy does not always work since delays will allow the competition to grab a substantial
piece of the market before the market leader can react.
Controlled cannibalization can be a good way to repel attackers as deforesting can repel fire. A
market leader has many defensive cannibalization strategies that are discussed bellow.
1. Cannibalize before competitors do: Cannibalization of a company’s product(s) before a
competitor does, is a defensive strategy to keep the competitor of being successful.
Timing is the key in this strategy. Do it too soon and profits will drop, do it too late and
market share is gone.
2. Introduction of cannibalization as a means of keeping technology edge over
competition: A good strategy is for a company that is the market leader, to cannibalize
its products as competitors start to catch up in terms of technology advancements. (For
example “Intel Corporation” cannibalized its 8088 processor in favor of the 80286 after
2 ½ years, the 80286 in favor of the 386 after 3 years, the 386 in favor of the 486 after 4
years, the 486 in favor with the Pentium after another 4 ½ and so on). So the market
leader dictates the pace and length of a product’s life cycle. (In the case on Intel the
replacement of 486 to Pentium took so long because competitors had not been able to
catch up).
3. Management of cannibalization rate through pricing: When cannibalization of a product
is decided, the rate at which this will happen depends on pricing. The price of the new
product should be at a level that encourages a particular mix of sales of the old and new
product. If the price of the new product is lower than the price of the old then
cannibalization rate slows down. If the opposite happens then the cannibalization rate is
increased. Higher prices in new products can reflect their superiority over the old ones.
4. Minimization of cannibalization by introducing of the new product to certain market
segments: Some market segments are less vulnerable to cannibalization to others. This
is because there is more or less to lose or gain for each of them. By choosing the right
segments to perform the cannibalizations of a product a company can gain benefits
without loses and acquire experience on product behavior.
As we have seen, the PLC has the ability to offer marketers guidance on strategies and tactics as
they manage products through changing market conditions. Unfortunately, the PLC does not
offer a perfect model of markets as it contains drawbacks that prevent it from being applicable
to all products. Among the problems cited are:
Shape of Curve – Some product forms do not follow the traditional PLC curve. For
instance, clothing may go through regular up and down cycles as styles are in fashion
then out then in again. Fad products, such as certain toys, may be popular for a period
of time only to see sales drop dramatically until a future generation renews interest in
the toy.
Length of Stages – The PLC offers little help in determining how long each stage will last.
For example, some products can exist in the Maturity stage for decades while others
may be there for only a few months. Consequently, it may be difficult to determine
when adjustments to the Marketing Plan are needed to meet the needs of different PLC
stages.
Competitor Reaction not Predictable – As we saw, the PLC suggests that competitor
response occurs in a somewhat consistent pattern. For example, the PLC says
competitors will not engage in strong brand-to-brand competition until a product form
has gained a foothold on the market. The logic is that until the market is established it is
in the best interest of all competitors to focus on building interest in the product form
itself and not on claiming one brand is better than another. However, competitors do
not always conform to theoretical models. Some will always compete on brand first and
leave it to others to build market interest for the product form. Arguments can also be
made that competitors will respond differently than what the PLC suggests on such
issues as pricing, number of product options, spending on declining products, to name a
few.
Impact of External Forces – The PLC assumes customers’ decisions are primarily
impacted by the marketing activities of the companies selling in the market. There are
many other factors that can affect a market which are not controlled by marketers. Such
factors (e.g., social changes, technological innovation) can lead to changes in market
demand at rates that are much more rapid than would occur if only marketing decisions
were being changed (i.e., if everything was held constant except for company’s
marketing decisions).
Use for Forecasting – The impact of external forces makes it difficult to use the PLC as a
forecasting tool. For instance, market factors not directly associated with the marketing
activities of market competitors, such as economic conditions, may have a greater
impact on reducing demand than customers’ interest in the product. Consequently,
what may be forecasted as a decline in the market signaling a move to the Maturity
stage may in fact be the result of declining economic conditions and not a decline in
customers’ interest in the product. In fact, it is likely demand for the product will
recover to growth levels once economic conditions improve. If a marketer follows the
strict guidance of the PLC they would conclude that strategies should shift to those of
the Maturity stage. Doing so may be an over-reaction that could hurt market position
and profitability.
Stages Not Seamlessly Connected – Some high-tech marketers question whether one
stage of the PLC naturally will follow another stage. In particular, technology consultant
Geoffrey Moore suggests that for high-tech products targeted to business customers a
noticeable space or “chasm” occurs between the Introduction and Growth stages that
can only be overcome by significantly altering marketing strategy beyond what is
suggested by the PLC.
While not perfect, the PLC is a marketing tool that should be well understood by marketers since
its underlying message, that markets are dynamic, supports the need for frequent marketing
planning. Also, for many markets the principles presented by the PLC will in fact prove to be very
much representative of the conditions they will face in the market.
As mentioned at a number of places previously, all life cycles do not conform to the classic S-
shaped curve or U-shaped distribution. It is these ‘deviant’ cases which are usually invoked as
evidence of the non-applicability of the PLC concept. The best known exceptions to the PLC rule
are fads and fashions.
Apparel and other consumer products can be classified by the length of their life cycles. Basic
products such as T-shirts and blue jeans are sold for years with few style changes. Businesses
selling basic products can count on a long product life cycle with the same customers buying
multiple units of the same product at once or over time.
The life cycle curves of basic, fashion, and fad products are pictured below.
Fashion product life cycles last a shorter time than basic product life cycles. By definition,
fashion is a style of the time. A large number of people adopt a style at a particular time. When
it is no longer adopted by many, a fashion product life cycle ends. Fashion products have a
steep decline once they reach their highest sales.
The fad has the shortest life cycle. It is typically a style that is adopted by a particular sub-
culture or younger demographic group for a short period of time.
The overall sales of basic products are the highest of the three types of products, and their life
cycles are generally the longest.
Apparel products often have a fashion dimension, even if it is just color. As fashion features
increase in a product, the life cycle will decrease. Therefore, if you are designing a fashion
product, you will want to have multiple products in line for introduction as each fashion
product's cycle runs its course.
Some firms build their lines to include basic, fashion, and fad products in order to maximize
sales. For example, with a sweater line, a business may have four styles that have classic styling
and colors and are always in the line. Four additional styles may be modified every two years to
include silhouette, length, and collar changes based on the current fashion. One or two short-
cycle fashion or fad styles based on breaking trends may be introduced once or twice a year.
Styles that a popular celebrity or sports hero is wearing are examples of fashion and fad styles.
We can also look at the number of fashion product adopters against time.
Five types of consumers emerge at each of the life cycle stages.
Different marketing strategies should be used to reach each of these consumer types.
Fashion innovators adopt a new product first. They are interested in innovative and
unique features. Marketing and promotion should emphasize the newness and
distinctive features of the product.
Fashion opinion leaders (celebrities, magazines, early adopters) are the next most likely
adopters of a fashion product. They copy the fashion innovators and change the product
into a popular style. The product is produced by more companies and is sold at more
retail outlets.
At the peak of its popularity, a fashion product is adopted by the masses. Marketing is
through mass merchandisers and advertising to broad audiences.
As its popularity fades, the fashion product is often marked for clearance, to invite the
bargain hunters and consumers, the late adopters and laggards, who are slow to
recognize and adopt a fashionable style.
Product management is a middle level management function that can be used to manage a
products life cycle and enables a company to take all the decisions needed during each phase of
a product’s life cycle. The moment of introduction and of withdrawal of a product is defined by
the use of product management by a Product Manager.
A Product Manager exists for three basic reasons. For starters he manages the revenue, profits,
forecasting, marketing and developing activities related to a product during its life cycle.
Secondly, since to win a market requires deep understanding of the customer, he identifies
unfulfilled customer needs and so he makes the decision for the development of certain
products that match the customers and so the markets needs. Finally he provides directions to
internal organization of the company since he can be the eyes and ears of the products path
during its life cycle. To improve a product success during each of its phase of its life cycle
(development - introduction – growth – maturity – decline), a product manager must uphold
the following three fundamentals.
1. Understand how product management works: When responsible for a given new
product, a product manager is required to know about the product, the market, the
customers and the competitors, so that he can give directions that will lead to a
successful product. He must be capable of managing the manufacturing line as well as
the marketing of the product. When the product manager has no specific authority over
those that are involved in a new product, he needs to gather the resources required for
the organization to meet product goals. He needs to know where to look and how to get
the necessary expertise for the success of the product.
2. Maintain a product / market balance: The product manager as the person that will make
a new product to work, needs to understand and have a strong grasp of the needs of
the customer / market and therefore make the right decisions on market introduction,
product life cycle and product cannibalization. To achieve the above he must balance
the needs of the customers with the company’s capabilities. Also he needs to balance
product goals with company objectives. The way a product’s success is measured
depends on where the product is in its life cycle. So the product manager must
understand the strategic company direction and translate that into product strategy and
product life cycle position.
3. Consider product management as a discipline: Managing a product must not be taken as
a part time job or function. It requires continuous monitoring and review. Having said
that, it is not clear why many companies do not consider product management as a
discipline. The answer lies in the fact that product management is not taught as
engineering or accounting i.e. does not have formalized training.
Summary
All products and services have certain life cycles. The life cycle refers to the period from the
product’s first launch into the market until its final withdrawal and it is split up in phases.
During this period significant changes are made in the way that the product is behaving into the
market i.e. its reflection in respect of sales to the company that introduced it into the market.
Since an increase in profits is the major goal of a company that introduces a product into a
market, the product’s life cycle management is very important.
The understanding of a product’s life cycle, can help a company to understand and realize when
it is time to introduce and withdraw a product from a market, its position in the market
compared to competitors, and the product’s success or failure.
Irrespective of whether a product has a normal or deviant life cycle, it is clear that eventually
this will come to an end, leading to the death of the industry responsible for its creation. But,
while technologies may be superseded and replaced, firms strive to survive. To do so it is
necessary to anticipate and manage change and this means avoiding putting all your eggs in one
basket. To survive the firm needs to innovate and develop a sequence of new products at
different stages in their individual life cycles.