1. Background

THE idea of the Product Life Cycle was first developed in 1965 by Theodore Levitt in an article entitled “Exploit the Product Life Cycle” published in the Harvard Business Review on 1 November 1965.

2. Benefit of the Product Life Cycle model

For a business, having a growing and sustainable revenue stream from product sales is important for the stability and success of its operations. The Product Life Cycle model can be used by consultants and managers to analyse the maturity stage of products and industries. Understanding which stage a product is in provides information about expected future sales growth, and the kinds of strategies that should be implemented.

3. Product Life Cycle model

The “Product Life Cycle” is the name given to the stages through which a product passes over time. The classic Product Life Cycle has four stages:

  1. Introduction,
  2. Growth,
  3. Maturity, and
  4. Decline.

3.1 Introduction

At the market introduction stage the size of the market, sales volumes and sales growth are small. A product will also normally be subject to little or no competition. The primary goal in the introduction stage is to establish a market and build consumer demand for the product.

There may be substantial costs incurred in getting a product to the market introduction stage. Substantial research and development costs may have been incurred, for example, thinking of the product idea, developing the technology, determining the product features and quality level, establishing sufficient manufacturing capacity, preparing the product branding, ensuring trade mark protection, etc. Marketing costs may be high in order to test the market, launch and promote the product, develop a market for the product, and set up distribution channels.

The market introduction stage is likely to be a period of low or negative profits. As such, it is important that products are carefully monitored to ensure that sales volumes start to grow. If a product fails to become profitable it may need to be abandoned.

Some of the considerations in the introduction stage include:

  • Product development: research and development of the basic technology and product concept, determining the product features and quality level.
  • Pricing: should penetration pricing or a skimming price strategy be used? A skimming price strategy might be appropriate where there are very few competitors.
  • Distribution: distribution might be quite selective until consumer acceptance of the product can be achieved.
  • Promotion: marketing efforts are aimed at early adopters, and seek to build product awareness and to educate potential consumers about the product.

3.2 Growth

If the public gains awareness of a product and consumers come to understand the benefits of the product and accept it then a company can expect a period of rapid sales growth, enter the “Growth Stage”. In the Growth Stage, a company will try to build brand loyalty and increase market share.

Profits are driven by increased sales volume (due to growth in market share as well as an increase in the size of the overall market). Profits might also be driven by cost reductions gained from economies of scale, and perhaps more favourable market prices. Competition in the Growth Stage remains low, although new competitors are expected to enter the market. When competitors enter the market a company might be subject to price competition and increase its marketing expenditure.

Some of the considerations in the Growth Stage include:

  • Product improvement: product quality might be improved, additional features and support services added, and packaging updated.
  • Pricing: if consumer demand is high the price might be maintained at a high level.
  • Distribution: distribution channels might be added as consumer demand increases.
  • Promotion: promotion is aimed at a broader audience. A company might spend a lot of resources on promotion during the Growth Stage to build brand loyalty.

3.3 Maturity

When a product reaches maturity, sales growth slows and sales volume eventually peaks and stabilises. This is the stage during which the market as a whole makes the most profit. A company’s primary objective at this point is to defend market share while maximising profit.

In this stage, prices tend to drop due to increased competition. A company’s fixed costs are low because it is has well established production and distribution. Since brand awareness is strong, marketing expenditure might be reduced, although increased marketing expenditure might be needed to retain market share and fight increasing competition. Expenditure on research and development is likely to be restricted to product modification and improvement, and perhaps research into improved production efficiency and product quality.

Some considerations for the mature product market include:

  • Product differentiation: increased competition in the mature product market means that a company must find ways to differentiate its product from that of competitors. Strong branding is one way to do this.
  • Pricing: prices may be reduced because of increased competition. Firms in the market should be careful not to start a price war.
  • Distribution: distribution intensifies and incentives may be offered to encourage preference to be given over competing products.
  • Promotion: promotion will focus on emphasising product differences and creating/maintaining a strong brand.

3.4 Decline

A product enters into decline when sales and profits start to fall. The market for that product shrinks which reduces the amount of profit available to the firms in the industry. A decline might occur because the market has become saturated, the product has become obsolete, or customer tastes have changed.

A company might try to stimulate growth by changing their pricing strategy, but ultimately the product will have to be re-designed, or replaced. High-cost and low market share firms will be forced to exit the industry.

As sales decline, a company has three strategy options:

  • Hold: maintain production and add new features and find new uses for the product. Reduce the cost of manufacturing (e.g. move manufacturing to a low cost jurisdiction). Consider whether there are new markets in which the product might be sold.
  • Harvest: continue to offer the product, reduce marketing expenditure, and sell possibly to a loyal niche segment of the market.
  • Divest: Discontinue production, and liquidate the remaining inventory or sell the product to another firm.

Some considerations for a declining market include:

  • Product consolidation: the number of products may be reduced, and surviving products rejuvenated.
  • Price: prices may be lowered to liquidate inventory, or maintained for continued products.
  • Distribution: distribution becomes more selective. Channels that are no longer profitable are phased out.
  • Promotion: Expenditure on promotion is reduced for products subject to the Harvest and Divest strategies.

4. Criticisms

The Product Life Cycle is useful for monitoring sales results over time and comparing them to products with a similar life cycle. However, the Product Life Cycle model is by no means a perfect tool. Products often do not follow a defined life cycle, not all products go through each stage, and it is not always easy to tell which stage a product is in at any one time. Consequently, the life cycle concept is not well-suited for the forecasting of product sales.

The length of each stage will vary depending on the product and the marketing strategies employed. A Product Life Cycle may be as short as a few months for a fad or as long as a century or more for a product like petrol cars. In many markets the product life cycle is longer than the planning cycle of the organisations involved. Major products often hold their position for several decades or more, indeed, Coca-Cola was introduced in 1886 and is still the leading brand of cola.

The Product Life Cycle is only one of many considerations that a company must bear in mind. The product life cycle of many modern products is shrinking, while the operating life for many of these products is lengthening. For example, the operating life of durable goods like household appliances has increased substantially. As a result, a company that produces these products must take their market life and service life into account when planning.

Some critics have argued that the Product Life Cycle may become self-fulfilling. For example, if sales peak and then decline a manager may conclude that a product is on the decline and cut back on marketing, thus precipitating a further decline.

The Product Life Cycle (PLC)

The Product Life Cycle (PLC) phenomenon does not operate in a vacuum. It is the market reaction to the product that largely decides when one stage in the life cycle will taper off and the next stage sets in. For example, immediately after product launch, if the consumers are indifferent to the product and are unwilling to try it out, obviously the pioneering stage will get extended. In the maturity stage, the consumers apathy to the product may drive a sudden decline. Conversely, in this stage, if consumers interest can be strongly aroused and sustained, it can be prolonged. This only means that each stage of the product life cycle is an outcome of market behavior/response.

The duration of each phase will depend upon the product, its newness, its functions and the marketing strategy of the firm. Here, we have to recall the process of innovation diffusion discussed on New Product Decisions. The firm success in reaching out to the innovators, early adopters, and early majority and so on will decide the duration of each PLC stage. Innovation diffusion, new product adoption and PLC are closely interrelated concepts.

With appropriate marketing strategies, the firm can exploit this linkage and manipulate the various stages in the cycle to its advantage. And, it is this linkage that makes the PLC concepts a

useful tool in the formulation of marketing strategy.

Put differently, the utility of PLC arises out of the following facts:

1. A product has to necessarily pass through certain stages during its life.

2. What happens to it in each stage depends on market behavior.

3. By manipulating market behavior, the life cycle stages of the product can also be manipulated.

Actually the PLC concept can be of help in different ways – in pre-planning the new product launch; in prolonging the profitable life phase of an existing product; in reacting to competition in a planned way; in deciding the long-term investment in products.

PLC Concept helps Marketing Strategy formulation.

 Facilitates pre-planning the product launch.
Facilitates prolonging the profitable phase.
Facilitates investment decisions on products.
Facilitates choice of appropriate entry strategy.
Facilitates choice of the right time to exit.
Provides useful clues for managing customers.

ADVANTAGES OF PLC

Many firms are seen to slip in pre-planning new product launch. As a result, they face the bitter experience of suddenly entering the market with a new product and struggling with it, not knowing how to handle the problems peculiar to that stage. With the help of the PLC concept, it is possible to foresee and predict the profile of the proposed product life, the events that are likely to take place in the market and the issues on pricing, channel and promotion that are likely to come up. Through deep probing, one should even be in a position to predict when competitors are likely to enter the scene in what areas they will imitate the product, what will be the extent of cost advantages the competitors will have due to copying and what pricing strategies they may follow to undercut the pioneer.

This does not mean that with PLC, the actual life phase and events in a products life cycle can be exactly predicted and appropriate, foolproof plans prepared in advance. The actual position will usually vary from what is projected. But, elaborate pre-planning does render the marketing man equipped to charter the course of the product. It provides him valuable lead time. He can keep strategic options ready in anticipation of the range of events in the market. For example, if he does a thorough job in the pre-planning stage, he will be working and reworking the possible life cycle his product might take; he will also be studying the life history of similar products in different countries and markets. He can use the insights from the exercise in understanding the life cycle of his product.

Facilitates Prolonging the Profitable Phase

The PLC concept can also be of help to the marketing man in prolonging the profitable life phase of a product. Some products get into trouble in their maturity stage. Powerful retaliation from competitors may threaten the product with a no-more-growth and no-more-maturity situation and push them in to decline. This was exactly the situation faced by ITC with Scissors, their cash cow. The brand came close to total extinction. ITC brought forward a series of strategies, with the sole objective of saving the brand from extinction.

Normally, the following are the strategic routes available to a firm for extending the profitable stage of the life cycle of a product.

1. Finding out users for the product.
2. Finding out new uses for the product.
3. Popularizing more frequent use of the product.
4. Making the product more distinctive to the consumers.
5. Adding real and/or psychological value to the product.