The Product 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. Product Life Cycle Diagram

Introduction Stage Because it takes time to introduce a new product, complete the technical problems, fill dealer pipelines, and gain consumer acceptance, sales growth tend to be low at this stage, especially in the case of expensive products because its hard to find out potential customers. Profits are negative or low in this stage because the expenditures are at their highest ratio to sales. The reasons why expenditures are high due to: (1) cost to inform potential consumers, (2) cost to induce product trial, and (3) cost to secure distribution in retail outlets. Firms nowadays usually focus on high-income groups because they are willing to pay money for a high-price-product if they like. Prices tend to be high due to costs are high. *** Pioneers can be rewarding but risky and expensive. Most studies indicate that the market pioneer gains the most advantage. Companies like Coca-Cola, Amazon.com, Hallmark developed sustained market dominance. Carpenter & Nakamoto found that 19 out of 25 companies who were market leader in 1923 were still the market leader in 1983, 60 years later. Robinson &Min found that in a sample of industrial-goods businesses, 66 percent of pioneers survived at least 10 years, versus 48 percent of the early followers.

Early users will recall the pioneers brand name if the products satisfies them. Customer inertia also plays a role; and there are producer advantages: economies of scale, technological leadership, patents, ownership of scarce assets, and other barriers to entry. Pioneers can have more effective marketing spending and enjoy high rates of consumer repeat purchase. An alert pioneer can maintain its leadership indefinitely by pursuing various strategies. *** The pioneer advantage, however, is not inevitable. Look at the fate of Netscape (Web browser), Reynolds (ballpoint pens), Bowmar (hand calculators), and Osborne (portable computers), market pioneers who were overtaken by later entrants. A study of Steven Schnaars found that several weaknesses among the failing pioneers, including: new products that were too crude, were improperly positioned, or appeared before there was strong demand; product-development costs that exhausted the innovators resources; a lack of resources to compete against entering larger firms; and managerial incompetence or unhealthy complacency. Successful imitators thrived by offering lower prices, improving the product more continuously, or using brute market power to overtake the pioneer. Dell, Gateway, and Compaq used to dominance the first mover in manufacture of personal computers but now they are not. (Compaq was overtaken by HP in 2002). To come in later makes sense if the firm can bring superior technology, quality or brand strength. There are five factors underpin long-term market leadership: vision of a mass market, persistence relentless innovation, financial commitment, and asset leverage. Growth Stage Sales climb rapidly in this stage because early adopters like the product and additional consumers start to buy it. New competitors enter to market due to attractive opportunities. These competitors introduce new product features and expand distribution in the market. Prices remain or fall slightly depend on how fast demand increases (demand increases fastprices remain, demand increases lowprices fall slightly to attract customers). Companies maintain their promotional expenditures at the same or slightly increased level to meet competition and to continue educating the market. Sales rise much faster than promotional expenditures and profit increases during the stage. The reasons why the profit increases are (1) costs are spread over a larger volume, (2) producers leant how to produce a unit effectively to save cost. However, companies have to watch for a change from an accelerating to a decelerating rate of growth in order to prepare new strategies.

Here are strategies: - Improve product quality, style & add new product features. - Add new models and flanker (1) products (i.e., products of different sizes, flavor to protect the main product) - Enter new market segments. - Increase distribution coverage and enter new distribution channels. - Shift from product-awareness ads product-preference ads. - Lower price to attract the next layer of price-sensitive buyers. Companies may face trade-off between high market share and high current profit. By spending money on product improvement, promotion, and distribution, it can capture a dominant position. It forgoes maximum current profit in the hope of making even greater profits in the next stage. Yahoo example: Grew more than just a search engine became portal: offer a fullblown package of information and services form e-mail to online shopping malls Maturity Stage This stage normally lasts longer than the previous stages; sales growth will slow, and poses big challenges to marketing management. The maturity stage divides into three stages: growth, stable, and decaying maturity Growth maturity: Sales growth stage starts to decline. There are no new distribution channels to fill. Stable maturity: Sales flatten per capita because of market saturation. Most potential consumers have tried the product, and future sales are governed by population growth and replacement demand. Decaying maturity: The absolute level of sales starts to decline, and customer begin switching to other products. The sales slowdown shows the overcapacity status in the industry, due to the intensified competition. Competitors scramble to find niches, engage frequent discount, increase ads, trade, consumer promotion, increase R&D budgets to develop product improvements and line extensions Strategies for company to boost sales Some companies abandon weaker products and concentrate on more profitable products and on new products. But they may be ignoring the high potential many mature market and old product still have. Here is an example: Hush Puppies, a footwear manufacturer, by made a number of marketing changes in the early 1990s. New product designs and numerous offbeat color combinations such as: powder blue, lime green and electric orange, enhanced the

brands fashion appeal. Sales rose from 30,000 pairs in 1994 1.7 million pairs in 1996. Company can try to expand the number of brand users by converting nonusers. Procter & Gamble was very successful in convincing people to floss by using dentists recommendations strategy. Floss(cch ni dng ch hnh ng v sinh rng ming bng ch - khng phi bng tm). Company can also try expanding the number of brand users by entering new market segments. When Goodyear decided to sell its tires via Wal-Mart, it boosted market share from 14 to 16 percent in the first year. The third way to expand the number of brand users is winning competitors customers by convincing current users to increase their brand usage: (1) Use the product on more occasions, (2) Use more of the product on each occasion, and (3) Use the product in new ways Managers also try to stimulate sales by modifying the products characteristics through quality improvement, feature improvement, or style improvement: Quality improvement: something stronger, bigger, or better. However, customers are not always willing to accept an improved products, the New Coke of Coca-Cola is a real example. In 1985, Coca-Cola spent $4m on market research, replaced its old formulation with a sweeter variation, named the New Coke. But they failed in satisfying customer. Ten weeks later, the company withdrew New Coke and reintroduced Classic Coke. Feature improvement: It aims at adding new features (size, weight, materials, accessories) that expand the products performance, versatility, safety, or convenience. In 1998, after years of R&D, Vlasic created a cucumber 10 times larger than the traditional one. Style improvement: The periodic introduction of new car models is largely about style competition, as is the introduction of new packaging for consumer products. A style strategy might give the product a unique market identity but it also has problem. First: difficult to predict whether people will like a new style. Second: changing in style requires discontinuing the old style, and the company risks losing customers. Decline Stage Sales decline for a number of reasons, including technological advances, shifts in consumer tastes, and increased domestic and foreign competition. All lead to overcapacity, increased price-cutting, and profit erosion. The decline might be slow, as in the case of sewing machines; or rapid, as in the case of the 5.25 floppy disks. Sales may plunge to zero, or they may petrify at a low level.

As sales and profits decline, some firms withdraw from the market. Those remaining may reduce the number of products they offer. They may withdraw from smaller market segments and weaker trade channels, and they may cut their promotion budgets and reduce prices further. Unless strong reasons for retention exist, carrying a weak product is very costly to the firm and not just by the amount of uncovered overhead and profit: there are many hidden costs. Weak products often consume a disproportionate amount of managements time; require frequent price and inventory adjustments, require both ads and sales forces attention that might be better used to make the healthy product more profitable. In handling aging products, a company faces a number of tasks and decisions. The first task is to establish a system for identifying weak product. Many companies appoint a product-review committee with representatives from marketing, R&D, manufacturing, and finance. Some firms abandon declining market earlier than others. Much depends on the presence and height of exit barriers in the industry. The lower the exit barriers, the easier it is for firms to leave the industry and vice versa. For example, Procter &Gamble stayed in the declining liquid-soap business and improved its profits as others withdrew. There are five strategies available for firm in declining industries: Increase the firms investment (to dominate the market or strengthen its competitive position). Maintaining the firms investment level until the uncertainties about the industry are resolved. Decreasing the firms investment level selectively, by dropping unprofitable customer groups, while simultaneously strengthening the firms investment in profitable niches. Harvesting (milking) the firms investment to recover cash quickly. Divesting the business quickly by arranging of its assets as advantageously as possible.

If the company were choosing between harvesting and divesting, its strategies would be quite different. Harvesting calls for gradually reducing a product or businesss costs while trying to maintain sales. The first step is to cut R&D costs and plant and equipment investment. The company might also reduce product quality, sales force

size, marginal services, and ads expenditures. It would try to cut these costs without letting customers, competitors, and employees know what is happening. When a company decides to divest a product, it faces further decisions. If the product has strong distribution and residual goodwill, the company can probably sell it to another firm. If the company cant find any buyers, it must decide whether to liquidate the brand quickly or slowly. It must also decide on how much inventory and service to maintain for past customers. The appropriate decline strategy depends on... The industrys relative attractiveness The companys competitive strength in that industry Consideration of company image Motivational factors for management

Value of the PLC concept The PLC concept helps marketers interpret product and market dynamics. It can be used for planning and control, although it is useful as a forecasting tool. Planning: It helps managers describe the main challenges for each stage wherefore giving suitable marketing strategies in order to win the market. Controlling: Allowing the company measurement of product performance against similar products launched in the past. Forecasting: It is less useful because life-cycle patterns are too variable in shape and duration. Its hard to give a forecast what will happen in the future without stable shape and duration.