Watch the product life cycle; but more important, watch the market life cycle.

Kotler on MarketingKotler on Marketing

Product Life Cycle

Introduction Stage Causes for the slow growth:

Delay in the expansion of production capacity,

Technical problems,

Delays in obtaining adequate distribution through retail outlets,Customer reluctance to change established behaviour

Product complexity (for some products)

 

Profits are negative or low in this stage

because of low sales and heavy distribution and

promotional expenses.

Prices are high because of high cost due to

relatively low output rates, technological

problems in production

  New product launch may be set high or low

level for each marketing variable (4Ps).

Considering only price and promotion,

management can pursue one of four strategies.

 

  Rapid skimming – high price and high promotion logic is – potential market is unaware of the product and are eager to have it and will pay – asking price.   Slow skimming – high price and low promotion-- market is limited in size, market is aware of the product – buyers are willing to pay a high price.   Rapid penetration – low price and heavy promotion-- when market is large – the market is unaware, most buyers are price sensitive, strong potential competition, unit cost will fall with company’s scale of production and experience.   Slow penetration – low price and low promotion-- when market is large, highly aware of product, is price sensitive and there is some potential competition

PIONEER ADVANTAGE : Companies that plan to introduce a new product must decide when to enter the market. To be first can be highly rewarding. To enter later makes sense if the firm brings superior technology, quality.   Speeding up innovation time is essential in an age of shortening product life cycle.   Companies that first reach practical solutions will enjoy “first - mover” advantages in the market.

GROWTH STAGE :   This stage is marked by rapid climb in sales. Early adopters & other consumers start buying it.  New Competitors enter attracted by the opportunities. They introduce new product features and expand distribution.  Prices remain where they are or fall slightly – depending on how fast demand increases.   Companies maintain their promotional expenditures at the same or at a slightly increased level to meet competition & to educate the market.   Profits increase during this stage as promotion costs are spread over a larger sales and manufacturing cost falls faster owing to learning / experience effect.

During this stage the strategies the firm uses to sustain rapid market growth are : Improves product quality, adds new features and improve styling, Adds new models & flanker (products of different sizes, flavours to protect the main product) Enters new segments Increases & enters new distribution channels Shifts product awareness advertising to product preference advertising. Lower prices to attract the next layer of price - sensitive buyers.

MATURITY STAGE : The rate of sales growth will be slow, and the product will enter a stage of relative maturity. This stage lasts longer than the previous stages & poses challenges to marketing management. This stage divides into three phases : growth, stable and decaying maturity. First phase, the sales growth rate starts to decline. In the second phase, sales flatten.  Most consumers have tried the product, sales are governed by population growth and replacement demand. 

 

  In the third phase, decaying maturity, the absolute level of sales starts to decline & customers begin switching to other products & substitutes. Sales slow down creates over capacity in the industry leading to intensified competition. Competitors engage in frequent markdown. They increase advertising & trade and consumer promotion.

 

  They increase R & D budgets to develop product improvements and the extensions.

 

 Shake out begins & weaker competitors withdraw. 

Dominating the industry are a few giants firms -

perhaps a quality leader, a service leader & a cost

leader - that serve the whole market & make their

profits mainly through high volume & lower costs.

Surrounding them are market nichers, including

market specialists, product specialists and

customising firms.

 

    Market Modifications :

The Company can try to expand the number

of brand users in three ways: 

     Convert non users

     Enter new market segments

     Win competitors customers.

 

    Product Modification : Managers also stimulate sales by modifying the product characteristics through quality improvements, feature improvements or style improvement.  Quality Improvement : Aims at increasing products’ functional performance - its durability, reliability, speed, taste etc. This strategy is effective when buyers accept the claim of improved quality and are willing to pay higher quality.

 

 Feature Improvements : Aims at adding new

features (eg. size, weight, additions, accessories) that

expand the products’ versatility, safety or

convenience. New features build company image

but can be easily imitated ; unless there is a

permanent gain from being first. 

 Style Improvement : Aims at increasing the

products’ aesthetic appeal (introduce new colours,

texture, restyle package etc.) 

 

     Marketing - Mix Modifications : 

Price

Distribution

Advertising

Sales Promotion

Personal Selling

Services

DECLINE STAGE : The decline may be slow, may plunge to zero, they may petrify at a low level.   Sales decline for a number of reasons, including technological advances, shifts in consumer tastes, increase domestic & foreign competition. All lead to over capacity, increased price cutting, profit erosion.   Those firms in market place may withdraw from smaller segment, weak trade channels, cut their promotional budget and further reduce prices.   Failing to eliminate weak products delay the aggressive search for replacement products.   The lower the exit barriers, the easier it is for firms to stay and attract the withdrawal firms’ customers.

Company Strategies in declining industries :

 

1. Harvesting (milking) the firm’s investment

to recover cash quickly, 

2. Diversify the business quickly by disposing

of its assets.