26 PRODUCT LIFE CYCLE

S. Thilagamani

epgp books

 

 

 

Objectives

 

This module will enable the learner to

 

  • Compile the various stages of product lifecycle and the role of management at each phase
  • Understand the implementation of strategies and concepts at each stage of lifecycle

Introduction

 

Like human beings, products also have a limited life cycle and they pass through several stages in their life-cycle. A typical product moves through five stages, namely, introduction, growth, maturity, saturation and decline. These stages in the life of a product are collectively known as product life-cycle. The length of the cycle and the duration of each stage may vary from product to product, depending on the rate of market acceptance, rate of technical change, nature of the product and ease of entry. But sales volume and profit level change from stage to stage. Every stage creates unique problems and opportunities and, therefore, requires a special marketing strategy.

 

1. Introduction: In the first stage, the product is introduced in the market and its acceptance is obtained. As the product is not known to all consumers and they take time to shift from the existing products, sales volume and profit margins are low. Competition is very low, distribution is limited and price is relatively high. Heavy expenditure is incurred on advertising and sales promotion to gain quick acceptance and create primary demand. Growth rate of sales is very slow and costs are high due to limited production and technological problems. Often a product incurs loss during this stage due to high start up costs and low sales turnover.

 

2. Growth: As the product gains acceptance, demand and sales grow rapidly. Competition increases and prices fall. Economies of scale occur as production and distribution are widened. Attempt is made to improve the market share by deeper penetration into the existing market or entry into new markets. The promotional expenditure remains high because of increasing competition and due to the need for effective distribution. Profits are high on account of large scale production and rapid sales turnover.

 

3. Maturity: During this stage prices and profits fall due to high competitive pressures. Growth rate becomes stable and weak firms are forced to leave the industry. Heavy expenditure is incurred on promotion to create brand loyalty. It tries to modify and improve the product, to develop new uses of the product and to attract new customers in order to increase sales.

 

4. Saturation: Market peaks and levels off during saturation. Few new customers buy the product and repeat orders disappear. Prices decline further due to stiff competition and firms fight for retaining market share or replacement sales. Sales and profits inevitably fall unless substantial improvements in the product or reduction in costs are made. Product differentiation, market segmentation and product improvement are the marketing strategies used in this stage.

 

5. Decline: The sales and profits of the product fall rapidly due to its gradual displacement by new products or evolving change in consumer preferences. As cost control becomes essential to avoid losses, promotion expenditure is considerably reduced. Price becomes the main weapon of competition. Many firms ultimately abandon the product to make better use of resources. New product innovations enter the market to take the place of the obsolete and abandoned products. This is the obsolescence stage. Finns’ which fail to develop new or improved products to arrest continuous decline in sales are forced out of business.

 

The Growth stage is the second of stages in the product life cycle, and for many manufacturers this is the key stage for establishing a product’s position in a market, increasing sales, and improving profit margins. This is achieved by the continued development of consumer demand through the use of marketing and promotional activity, combined with the reduction of manufacturing costs. How soon a product moves from the Introduction stage to the Growth stage, and how rapidly sales increase, can vary quite a lot from one market to another.

 

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.

 

Product Life Cycle Management

 

The standard Product Life Cycle Curve typically shows that profits are at their highest during the Growth stage. But in order to try and ensure that a product has as long a life as possible, it is often necessary for manufacturers to reinvest some of those profits in marketing and promotional activity during this stage, to help guarantee continued growth and reduce the threat from the competition.

 

Maturity

 

After the Introduction and Growth stages, a product passes into the Maturity stage. The third of the product life cycle stages can be quite a challenging time for manufacturers. In the first two stages companies try to establish a market and then grow sales of their product to achieve as large a share of that market as possible. However, during the Maturity stage, the primary focus for most companies will be maintaining their market share in the face of a number of different challenges.

 

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.

 

Product Life Cycle Management in the Maturity Stage

 

The Maturity stage of the product life cycle presents manufacturers with a wide range of challenges. With sales reaching their peak and the market becoming saturated, it can be very difficult for companies to maintain their profits, let alone continue trying to increase them, especially in the face of what is usually fairly intense competition. During this stage, it is organizations that look for innovative ways to make their product more appealing to the consumer that will maintain, and perhaps even increase, their market share.

 

Decline stage

 

The last of the product life cycle stages is the Decline stage, which as you might expect is often the beginning of the end for a product. When you look at the classic product life cycle curve, the Decline stage is very clearly demonstrated by the fall in both sales and profits. Despite the obvious challenges of this decline, there may still be opportunities for manufacturers to continue making a profit from their 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.

Product Life Cycle Management

 

Many products going through the Decline stage of the product life cycle will experience a shrinking market coupled with falling sales and profits. For some companies it will simply be a case of continuing to manufacture a product as long as it is economically viable, but withdrawing it as soon as that’s not the case. However, depending on the particular markets involved, some companies may be able to extend the life of their product and continue making a profit, by looking at alternative means of production and new, cheaper markets. Even in the Decline stage, a product can still be viable, and the most successful manufacturers are those that focus on effective product life cycle management, allowing them to make the most from the potential of each and every product the company launches.

 

Product Life Cycle Challenges

 

The Product Life Cycle Curve is a popular marketing model that provides manufacturers with an understanding of how they can expect their products to perform throughout their lifetime. However, it isn’t without is critics, with some arguing that there are a number of challenges with the well-recognized illustration of a product’s lifespan, and companies need to take these into account when using the model as part of their decision-making process.

 

The Product Life Cycle Curve

 

To understand the challenges of using the Product Life Cycle Curve, it makes sense to look at it in a little more detail. The curve is a simple illustration that plots sales against time, providing a general picture of how a product is likely to perform through the four product life cycle stages – rising through the Introduction and Growth stages, before peaking in the Maturity stage, and eventually falling off during the Decline stage. Adaptations of the model also plot the level of profit as a second curve, which is often useful for highlighting the considerable investment and negative profits that are made in the first stage of the cycle.

 

Product Life Cycle Curve

 

 

While a product’s life may be limited, it is very hard for manufacturers to predict exactly how long it is likely to be, especially during the new product development phase. While most manufacturers are very good at making the best decisions based on the information they have, consumer demand can be unpredictable, which means they don’t always get it right.

 

1.Change: The unpredictability of a products life span comes from the fact that all the factors that influence the product life cycle are constantly changing. For example, changes in the cost of production or a fall in consumer demand due to the launch of alternative products, could significantly alter the duration of the different product life cycle stages.

 

2. The Curve is a Model: Critics of the product life cycle have claimed that some manufacturers may place too much importance on the suggestions the model makes, so that it eventually becomes self-fulfilling. To illustrate the point, if a company uses the product life cycle curve as a basis for its decisions, a decrease in sales may lead them to believe their product is entering the Decline stage and therefore spend less on promoting it, when the opposite strategy could help them to capture more market share and actually increase sales again. While the Product Life Cycle Curve needs to be applied with a certain amount of care, and manufacturers are unlikely to rely solely on it’s simple illustration to predict their sales and profits, it is still a useful tool.

 

Conclusion

 

With a general appreciation of the kind of challenges that will be faced during each of the four stages, the model provides businesses and their marketing departments with the opportunity to be plan ahead and be better prepared to meet those challenges. Some of these methods can form an ‘extension strategy’ that prolongs the life of your current product or service. This may give enough time to create a new version, or an entirely new product. However, this strategy will only temporarily delay a product or service’s decline. By understanding the product life cycle of all of the products and services, we can ensure that at least one of the ventures is at growth or maturity stage, while another is in decline. By doing this we can guarantee a regular source of profit for all of the products.

you can view video on PRODUCT LIFE CYCLE

 

Web References

Book References

 

  1. William J. Rothwell and H.C. Kazanas, 2006, Planning and Managing Human Resources, 2nd edition, Jaico Publishing house, Delhi
  2. Aquinas P G, 2009, Human Resource Management Pricniples and Practice, Vikas Publishing House Pvt ltd, New Delhi
  3. Pravin Durai, 2010, Human Resource Management, Pearson Publications, New Delhi
  4. Jill Dyche, 2003, The CRM handbook, Pearson Publications, New Delhi

 

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