Product Life-Cycle

Product Life-Cycle

A company’s positioning and differentiation strategy must change as the product, market, and competitors

change over the product life cycle (PLC). To say a product has a life cycle is to assert four things:

1. Products have a limited life.

2. Product sales pass through distinct stages, each posing different challenges, opportunities, and problems to

the seller.

3. Profits rise and fall at different stages of the product life cycle.

4. Products require different marketing, financial, manufacturing, purchasing, and human resource strategies in

each life-cycle stage.

Product Life Cycles

Most product life-cycle curves are portrayed as bell-shaped. This curve is typically divided into four stages:

introduction, growth, maturity, and decline as shown in the following figures.

1. Introduction—A period of slow sales growth as the product is introduced in the market.

Profits are nonexistent because of the heavy expenses of product introduction.

2. Growth—A period of rapid market acceptance and substantial profit improvement.

3. Maturity—A slowdown in sales growth because the product has achieved acceptance by most potential

buyers. Profits stabilize or decline because of increased competition.

4. Decline—Sales show a downward drift and profits erode.

We can use the PLC concept to analyze a product category (Pharmaceutical product), a product form (solid

dosage form/ tablet), a product (Aspirin), or a brand (Loprin).

Some authors include product development in the introduction phase and others demarcate it as a separate

phase called as “Incubation Phase”

Not all products exhibit a bell-shaped PLC.

Three other common alternate patterns are:

1) Growth-slump-maturity pattern Sales grow rapidly when the product is first introduced and then fall

to a “petrified” level sustained by late adopters buying the product for the first time and early adopters

replacing it.

2) Cycle-recycle pattern often describes the sales of new drugs. The pharmaceutical company

aggressively promotes its new drug, producing the first cycle. Later, sales start declining, and another

promotion push produces a second cycle (usually of smaller magnitude and duration)

.

3) Scalloped pattern in which sales pass through a succession of life cycles based on the discovery of

new-product characteristics, uses, or users.

Marketing Strategies: Introduction Stage and the Pioneer Advantage:

Because it takes time to roll out a new product, work out the technical problems, fill dealer pipelines, and gain

consumer acceptance, sales growth tends to be slow in the introduction stage. Profits are negative or low,

and promotional expenditures are at their highest ratio to sales because of the need to (1) inform potential

consumers, (2) induce product trial, and (3) secure distribution in retail outlets.

Firms focus on buyers who are the most ready to buy. Prices tend to be higher because costs are high.

Companies that plan to introduce a new product must decide when to enter the market. To be first can be

rewarding, but risky and expensive. To come in later makes sense if the firm can bring superior technology,

quality, or brand strength to create a market advantage. Speeding up innovation time is essential in an age of

shortening product life cycles.

Pioneers advantages are: Early users will recall the pioneer’s brand name if the product satisfies them. The

pioneer’s brand also establishes the attributes the product class should possess. It normally aims at the middle

of the market and so captures more users. 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 spend marketing dollars more effectively and enjoy higher rates of repeat

purchases. An alert pioneer can lead indefinitely by pursuing various strategies. But the advantage is not

inevitable.

Also, sometimes, imitators can surpass the innovators. Reasons associated to this anomaly are: 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

innovator’s 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.

Peter Golder and Gerald Tellis raised doubts about the pioneer advantage. They distinguished between an

inventor, first to develop patents in a new-product category, a product pioneer, first to develop a working model,

and a market pioneer, first to sell in the new-product category. They also included no surviving pioneers in their

sample. They concluded that although pioneers may still have an advantage, a larger number of market

pioneers fail than has been reported, and a larger number of early market leaders (though not pioneers)

succeed. Later entrants overtaking market pioneers include GE over EMI in CAT scan equipment.

Tellis and Golder more recently identified five factors underpinning long-term market leadership:

1) Vision of a mass market (Identification of potential market and potential buyers)

2) Persistence (in terms of quality/efficacy)

3) Relentless innovation (just like what GSK has done i.e. Inhalational Aerosol sprays, Spacer, MDI, DPI

and now recent innovative products called Diskus )

4) Financial commitment (Assets in monitory values for product to always satisfy market needs)

5) Asset leverage (Debts to increase companies’ assets)

Others have highlighted the importance of the novelty of the product innovation. When a pioneer starts a

market with a really new product, like the Needle-less IV injectable, surviving can be very challenging. In the

case of incremental innovation, like APIs with newer features, survival rates are much higher.

The pioneer should visualize the product markets it could enter, knowing it cannot enter all of them at once.

Suppose market-segmentation analysis reveals the product market segments. The pioneer should analyze the

profit potential of each product market singly and in combination and decide on a market expansion path.

Marketing Strategies: Growth Stage

The growth stage is marked by a rapid climb in sales. Early adopters like the product and additional consumers

start buying it. New competitors enter, attracted by the opportunities. They introduce new product features and

expand distribution. Prices stabilize or fall slightly, depending on how fast demand increases. Companies

maintain promotional expenditures or raise them slightly, to meet competition and continue to educate the

market. Sales rise much faster than promotional expenditures, causing a welcome decline in the promotion–

sales ratio. Profits increase as promotion costs are spread over a larger volume, and unit manufacturing costs

fall faster than price declines, owing to the producer-learning effect. Firms must watch for a change to a

decelerating rate of growth in order to prepare new strategies.

To sustain rapid market share growth now, the firm:

• improves product quality and adds new features and improved styling. Example: Immediate release products

are modified to alternatives having sustained release rates for maximal patient compliance.

• adds new models and flanker products (of different sizes, flavors, and so forth) to protect the main product.

• enters new market segments.

• increases its distribution coverage and enters new distribution channels.

• Shifts from awareness and trial communications to preference and loyalty communications.

• Lowers prices to attract the next layer of price-sensitive buyers.

By spending money on product improvement, promotion, and distribution, the firm can capture a dominant

position. It trades off maximum current profit for high market share and the hope of even greater profits in the

next stage.

Marketing Strategies: Maturity Stage

At some point, the rate of sales growth will slow, and the product will enter a stage of relative maturity.

Most products are in this stage of the life cycle, which normally lasts longer than the preceding ones.

The maturity stage divides into three phases: growth, stable, and decaying maturity. In the first, sales growth

starts to slow. There are no new distribution channels to fill. New competitive forces emerge. In the second

phase, sales per capita flatten because of market saturation. Most potential consumers have tried the product,

and future sales depend on population growth and replacement demand. In the third phase, decaying maturity,

the absolute level of sales starts to decline, and customers begin switching to other products.

This third phase poses the most challenges. The sales slowdown creates overcapacity in the industry, which

intensifies competition. Weaker competitors withdraw. A few giants dominate—perhaps a quality leader, a

service leader, and a cost leader—and profit mainly through high volume and lower some companies abandon

weaker products to concentrate on new and more profitable ones. Yet they may be ignoring the high potential

many mature markets and old products still have.

Three ways to change the course for a brand are market, product, and marketing program modifications.

MARKET MODIFICATION A company might try to expand the market for its mature brand by working with

the two factors that make up sales volume: Volume = number of brand users ⋅ usage rate per user but may also

be matched by competitors.

PRODUCT MODIFICATION Managers also try to stimulate sales by improving quality, features, or style.

Quality improvement increases functional performance by launching a “new and improved” product.

Feature improvement adds size, weight, materials, supplements, and accessories that expand the product’s

performance, versatility, safety, or convenience.

Style improvement increases the product’s esthetic appeal. Any of these can attract consumer attention.

MARKETING PROGRAM MODIFICATION finally, brand managers might also try to stimulate sales by

modifying non product elements—price, distribution, and communications in particular. They should assess the

likely success of any changes in terms of effects on new and existing customers.

Marketing Strategies: Decline Stage

Sales decline for a number of reasons, including technological advances, shifts in consumer tastes, and

increased domestic and foreign competition. All can lead to overcapacity, increased price cutting, and profit

erosion. The decline might be slow, as for certain pharmaceutical products having problematic promotion and

brand in an overcapacity market. Sales may plunge to zero or petrify at a low level. These structural changes

are different from a short-term decline resulting from a marketing crisis of some sort.

“Marketing Insight :Managing a Brand Crisis,” describes strategies for a brand in temporary trouble.

As sales and profits decline over a long period of time, some firms withdraw. Those remaining may reduce the

number of products they offer, withdrawing from smaller segments and weaker trade channels, cutting

marketing budgets, and reducing prices further. Unless strong reasons for retention exist, carrying a weak

product is often very costly.

Besides being unprofitable, weak products consume a disproportionate amount of management’s time, require

frequent price and inventory adjustments, incur expensive setup for short production runs, draw advertising and

sales force attention better used to make healthy products more profitable, and cast a negative shadow on

company image. Failing to eliminate them also delays the aggressive search for replacement products, creating

a lopsided product mix long on yesterday’s breadwinners and short on tomorrows.

Unfortunately, most companies have not developed a policy for handling aging products. The first task is to

establish a system for identifying them. Many companies appoint a product-review committee (PRC) with

representatives from marketing, R&D, manufacturing, and finance who, based on all available information,

makes a recommendation for each product. The strategies may be to leave it alone, modify its marketing

strategy, or drop it. Some firms abandon declining markets earlier than others, much depends on the height of

exit barriers in the industry. The lower the barriers the easier will be for firms to leave the industry and the more

tempting for the remaining firms to stay and attract the withdrawing firms’ customers.

The appropriate strategy also depends on the industry’s relative attractiveness and the company’s competitive

strength in it. A company in an unattractive industry that possesses competitive strength should consider

shrinking selectively. A company in an attractive industry that has competitive strength should consider

strengthening its investment. Companies that successfully restage or rejuvenate a mature product often do so

by adding value to it.

Strategies for harvesting and divesting are quite different. Harvesting calls for gradually reducing a product or

business’s 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

advertising expenditures, ideally without letting customers, competitors, and employees know what is

happening. Harvesting is difficult to execute, yet many mature products warrant this strategy. It can

substantially increase current cash flow. When a company decides to divest a product with strong distribution

and residual goodwill, it can probably sell the product to another firm. Some firms specialize in acquiring and

revitalizing “orphan” or “ghost” brands that larger firms want to divest or that have encountered bankruptcy.

These firms attempt to capitalize on the residue of awareness in the market to develop a brand revitalization

strategy. If the company can’t find any buyers, it must decide whether to liquidate the brand quickly or slowly.

It must also decide how much inventory and service to maintain for past customers.

Summary of PLC: