Product Lifecycle Strategies

I

Product lifecycle strategies

NameBhargesh Ved

BatchXMBA 15 (Malad)

Ref NoMAL2012XMBA15P008

Bhargesh Ved

ITM executive education center

[PRODUCT LIFECYCLE MANAGEMENT STRATEGIES]

Contents

Introduction.............................................................................................................................................5

What is Product life cycle?...............................................................................................................5

Stages in a Product life cycle...................................................................................................................6

Product development......................................................................................................................6

Introduction.....................................................................................................................................7

Growth.............................................................................................................................................9

Maturity.........................................................................................................................................10

Decline...........................................................................................................................................11

Changing the marketing mix..................................................................................................................11

Premiums and gifts........................................................................................................................12

Discounts and coupons..................................................................................................................13

Entertaining advertising.................................................................................................................13

Analysis of Product Life Cycle Model.....................................................................................................14

Product life cycle strategies...................................................................................................................15

Conclusion.............................................................................................................................................16

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Introduction

What is Product life cycle?

A product is like any living organism and goes through a lifecycle. The lifecycle refers to the products journey from its development through its final withdrawal. The lifecycle is divided in phases and is often referred to Product Life Cycle (PLC)

The primary aim of any company that introduces a product in the market is to derive profits from it. Managing Product life cycle helps the company know if they should Introduce or withdraw a product from the market, its position compared to competitors and the products chances to succeed or fail in the market.

The life cycle of a product consists of 5 major phases.

Product development Introduction Growth Maturity Decline

These phases are applicable to all products that are sold in the market. It could be a daily use product like a new brand of biscuits or an electronic gadget like a mobile phone or an automobile.

These phases need to be considered by the company before introducing any product in the market since they dictate the products sales performance.

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Stages in a Product life cycle

The below chart shows a relationship between sales volumes of a product and the time in its product life cycle.

Lets start looking at each phase of a product lifecycle in detail.

Product development

The product development phase begins when a company finds an idea on the basis of which it wants to develop a product.

The ideas are evaluated on many criteria such as:

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Whether the product is fits with the objectives of a company The strengths and weaknesses of a product. Whether the product will work in the current and future market trends. The volume and revenue potential of the product. Can it be manufactured and marketed? Rough estimates of costs, investment, sales and profit margins

If the product idea passes these evaluation criteria it is then turned over to the engineers to make a prototype of a product which involves a lot of liaison work between the engineers and the marketing, conceptualizing teams.

The product undergoes several changes involving huge investments in time and money; it is then exposed to target customers via test markets. Those products that survive the test market are then introduced into a real marketplace. The products might go through several iterations of product development before they are introduced in the real market. There can be modifications and additions to the products features during the product development phase. These modifications are bought about through user surveys or consumer reactions gathered thru the test markets.

There are no profits at this stage and the money is spent only on developing a product to ensure a product that is complete and saleable.

Example of Product development:

Television serials are show put through extensive conceptualization and test viewing with selected audience to gauge audience reaction. Changes are made to some elements in the script before the television serial can be aired.

Food products go through ‘taste tests’ to determine flavors that will be more popular

Introduction

The initial stage of the product life cycle is all about building the demand for the product with the consumer, and establishing the market for the product. The key 5 Bhargesh Ved


emphasis will be on promoting the new product, as well as making production more cost-effective and developing the right distribution channels to get the product to market.

The type of advertising depends on the product. If the product is intended to reach a mass audience, than an advertising campaign built around one theme may be in order. If a product is specialized, or if a company's resources are limited, than smaller advertising campaigns can be used that target very specific audiences. As a product matures, the advertising budget associated with it will most likely shrink since audiences are already aware of the product.

As per leading management author Philip Kotler, marketing departments can choose from four strategies at the commercialization stage. The first is known as "rapid skimming." The rapid refers to the speed with which the company recovers its development costs on the product—the strategy calls for the new product to be launched at a high price and high promotion level. High prices mean high initial profits (provided the product is purchased at acceptable levels of course), and high promotion means high market recognition. This works best when the new product is unknown in the marketplace.

The opposite method, "slow skimming," entails releasing the product at high price but with low promotion level. Again, the high price is designed to recover costs quickly, while the low promotion level keeps new costs down. This works best in a market that is made up of few major players or products—the small market means everyone already knows about the product when it is released.

The other two strategies involve low prices. The first is known as rapid penetration and involves low price combined with high promotion. This works best in large markets where competition is strong and consumers are price-conscious. The second is called slow penetration, and involves low price and low promotion. This would work in markets where price was an issue but the market was well-defined.

Besides the above marketing techniques, sales promotion is another important consideration when the product is in the introductory phase. According to Kotler

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and Armstrong in Principles of Marketing, "Sales promotion consists of short-term incentives to encourage purchase or sales of a product or service. Whereas advertising offers reasons to buy a product or service, sales promotion offers reason to buy now." Promotions can include free samples, rebates, and coupons.

Growth

The growth phase occurs when a product has survived its introduction and is beginning to be noticed in the marketplace. At this stage, a company can decide if it wants to go for increased market share or increased profitability. This is the boom time for any product. Production increases, leading to lower unit costs. Sales momentum builds as advertising campaigns target mass media audiences instead of specialized markets (only if the product is a mass market product otherwise specialized markets will continue to be targeted). Competition grows as awareness of the product builds. Minor changes are made as more feedback is gathered or as new markets are targeted. The goal for any company is to stay in this phase as long as possible.

It is possible that the product will not succeed at this stage and move immediately past decline and straight to cancellation. That is a call the marketing staff has to make. It needs to evaluate just what costs the company can bear and what the product's chances for survival are. Tough choices need to be made—sticking with a losing product can be disastrous.

If the product is doing well and killing it is out of the question, then the marketing department has other responsibilities. Instead of just building awareness of the product, the goal is to build brand loyalty by adding first-time buyers and retaining repeat buyers. Sales, discounts, and advertising all play an important role in that process. For products that are well-established and further along in the growth phase, marketing options include creating variations of the initial product that appeal to additional audiences.

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Maturity

The market maturity stage occurs when the market has become saturated. Sales growth rate tends to decrease. Efforts are focused on differentiation of the product. Pricing may be lower because of increased competition. More internal pressure is placed on reducing costs. Margins begin to shrink as marginal competitors are forced out of the market. Distribution is maxed, and promotions come into play as a way to encourage preference over competing products.

Market share becomes the main focus in the maturity stage. The market is well established. There are numerous players, although some have started falling by the wayside, and the competitive pressures are building. If your profits are steady or increasing, regardless of where you are on the product life cycle, you are well positioned. On the other hand, if profits are flat or decreasing, then it is time to take action. Sales reach their peak, while pressure remains on reducing price. The product must be defended against competitors and promoted to build stronger retail relationships. Distribution is intensive, and profits start out high but can drop quickly.

The company works to maximize profits while defending market share. Instead of dealing with the president or merchandise manager, the salesperson is relegated to dealing with the buyer. It is a relationship that the buyer controls and constantly looks for more from the supplier. This takes a salesperson who is a strong negotiator, flexible and persistent. It requires relationship-building and problem-solving skills. Everyone looks for new markets, more models and ways to increase usage or diversify. In the low-to-no-growth stage, there are two types of players. Cash cows are what everyone hopes for, but few attain. They have a high relative share in a low growth market, and they harvest the profits.

The other position is that of the dogs. They have low market share in a low-growth market. It doesn’t usually make sense to invest heavily to gain market share unless there is some reason to believe that the market might once again move into a growth stage. It might also have some strategic importance and might be considered a “guard dog.” More than likely, it maybe something that you want to divest if possible and reinvest where there is more opportunity.

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Decline

The decision for withdrawing a product seems to be a complex task and there a lot of issues to be resolved before with decide to move it out of the market. Dilemmas such as maintenance, spare part availability, service competitions reaction in filling the market gap are some issues that increase the complexity of the decision process to withdraw a product from the market. Often companies retain a high price policy for the declining products that increase the profit margin and gradually discourage the few remaining customers from buying it. Such an example is telegraph submission over email.

Sometimes it is difficult for a company to conceptualize the decline signals of a product. Usually a product decline is accompanied with a decline of market sales. Its recognition is sometimes hard to be realized, since marketing departments are usually too optimistic due to big product success coming from the maturity phase. This is the time to start withdrawing variations of the product from the market that are weak in their market position. This must be done carefully since it is not often apparent which product variation brings in the revenues.

The prices must be kept competitive and promotion should be pulled back at a level that will make the product presence visible and at the same time retain the “loyal” customer. Distribution is narrowed. The basic channel is should be kept efficient but alternative channels should be abandoned. For an example, a 0800 telephone line with shipment by a reliable delivery company, paid by the customer is worth keeping.

While two strategies are commonly followed in the decline stage -- close up shop or milk the cash cows -- there are a number of other good strategies that can extend the lifecycle and increase the return on the original investment in the product, brand or company.

Changing the marketing mix

Product sales can be substantially improved during both growth and maturity by making changes to non-product components of the marketing mix. Most such 9 Bhargesh Ved


changes usually affect how the brand is promoted, but changes can also be made to the product's price and its distribution channels. We'll focus mainly on changes to promotion.

Premiums and gifts

Premiums and gifts are excellent tools for inducing initial trial, brand switching, and repeat purchases. These tools have been effectively employed by breakfast cereal manufacturers for decades. When kids are little, like most kids, they insist on buying some breakfast cereals just for the gifts or premiums that were offered. Premiums and gifts, as well as coupons and other forms of sales promotion are effectively employed to 'buy' market share from competitors. Sales promotions can be so effective at generating incremental sales that some major consumer goods producers, such as Procter and Gamble, have channeled more money into this form of promotion than into advertising

Examples of premium and gifts:

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Discounts and coupons

Coupons are a type of sales promotion and can be even more effective than gifts or premiums for generating added sales for brands . If you are a "coupon clipper," you are are considered to be in a" coupon-elastic" market segment. In contrast, those people who generally don't redeem coupons are considered to be "coupon inelastic." It's basically a waste of money for marketers to target this latter group. Firms that rely heavily on couponing seek to determine who are these "coupon elastic" and "coupon inelastic" customers. Marketers are very interested in stretching their promotional dollars as far as possible. If coupon elastic customers possess unique demographics and / or media graphics, marketers can find ways to efficiently target their couponing dollars and avoid wasted coverage on the inelastic segment of the market.

Example of discounts and coupons:

Entertaining advertising

Probably one of the best things that you can do at any stage of the product life cycle is to have entertaining advertisements that attract and hold people's attention. Many people watch TV for the entertaining commercials. In fact, based on a recent survey of IPL viewers, a substantial proportion of viewers watch the 11 Bhargesh Ved


game to see the commercials, not the game itself! The logic advocated by many advertising executives is simply that, if consumers like the ads, they are more likely to like the brand.

Example of Entertaining advertising:

Analysis of Product Life Cycle Model

There are some major product life cycle management techniques that can be used to optimize a product’s revenues in respect to its position into a market and its life cycle. These techniques are mainly marketing or management strategies that are used by most companies worldwide and include the know-how of product upgrade, replacement and termination. To comprehend these strategies one must first make a theoretical analysis of the model of product life cycle.Nevertheless, a product manager must know how to recognize which phase of its life cycle is a product, regardless of the problems in the model discussed above. To do that a good method is the one, suggested by Donald Clifford in 1965, whichfollows.• Collection of information about the product’s behavior over at least a period of 3 – 5 years (information will include price, units sold, profit margins, return of investment – ROI, market share and value).

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• Analysis of competitor short-term strategies (analysis of new products emerging into the market and competitor announced plans about production increase, plant upgrade and product promotion).• Analysis of number of competitors in respect of market share.• Collection of information of the life cycle of similar products that will help to estimate the life cycle of a new product. • Estimation of sales volume for 3 – 5 years from product launch.• Estimation of the total costs compared to the total sales for 3 – 5 years after product launch (development, production, promotion costs). The estimate should be in the range of 4:1 in the beginning to 7:1 at the stage where the product reaches maturity.

Product life cycle strategies

Each new product is made to better satisfy the needs of a previous one. If a company concentrates only on its own brand life cycle, it will miss the total picture of the product life cycle which is going on. Companies should decide when and what kind of product demand should be invested in. This is best done by having a product life cycle strategy. Below are the strategies that are employed by organizations to help them in their PLC decisions.

Development Introduction Growth Maturity Decline

Stra

tegi

c Go

al Develop on a product idea, test its feasibility and prototyping

Introduce a product

Maintain and increase market position

Defend market position from competitors and improve the product

Derive remaining profits from the product.

Com

petiti

on

Almost non existent

Early entry of aggressive competitors in the market

Price and distribution channel pressure

Establishment of a competitive environment

Some competitors are already withdrawing from the market

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Prod

uct

Variations based on initial response to prototype

Introduction of initial product

Improvement / upgrade of product

Non profitable variations are withdrawn from market.

Development Introduction Growth Maturity Decline

Pric

e Go

al

High sales to middle men

Aggressive price policy for sales increase

Re-estimation of price policy

Defensive price policy in line with competition

Maintain price level for small profit

Prom

otion

Go

al

Creation of Public awareness

Reinforcement of product awareness and preference

Reinforcement of relationship with middle men

Maintain middle men loyalty

Gradual Decrease

Dist

ributi

on G

oal

Exclusive and selective distribution through certain distribution channels and creation of high profit margins for middle men

General and reinforced distribution through all distribution channels available

General and reinforced distribution with good supply to middle men but low margins of profit for them

General and reinforced distribution with good supply to the middle men but with low margins of profit for them.

Gradual withdrawal from most channels of distribution xcept those used in the development phase.

Conclusion

Without an understanding of the product lifecycle, marketers are will be unable to make long-term strategic decisions. Using the product lifecycle as a tool for evaluating your current business situation facilitates a longer-term perspective and can point out options for future strategic decisions.Managing a product must not be taken as a part time job or function. It requires continuous monitoring and review. Many companies now are taking product management seriously. There are dedicated courses for it in educational institutions. The product manager as the person that will make a new product to

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work, needs to understand and have a strong grasp of the needs of the customer / market and therefore make the right decisions on market introduction, product life cycle and product cannibalization. To achieve the above he must balance the needs of the customers with the company’s capabilities. Also he needs to balance product goals with company objectives. The way a product’s success is measured depends on where the product is in its life cycle. So the product manager must understand the strategic company direction and translate that into product strategy and product life cycle position.

References

Barringer P. H. “Why you need practical reliability details to define life cycle costsfor your products and competitors products”, Barringer & Associates, on-linehttp://www.barringer1.com

Genesis Strategies “Product Life Cycle Management”, on-linehttp://www.genesisstrategies.com

Hata T. Sakamoto H. Kato S. Kimura F. Suzuki H. “Feasibility Study for RapidProduct Life Cycle”, University of Tokyo, on-line http://www.cim.pe.u-tokyo.ac.jp

Jensch J. “Strategic Marketing and the Product Life Cycle”, 1999, http://www.questteam.com

Lightfoot W. “Product Life Cycle Stages”, http://www.marketinginc.com

McGrath M. Product Strategy of High-Technology Companies, McGraw-Hill, 2000.McNamara C. “Basic Overview of Organizational Life Cycles”http://www.mapnp.org/library/org_thry/org_cycl.htm

Resources “Locational Implications of the Product Cycle”, http://www.faculty.washington.edu/krumme/systems/pcycle.html

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http://www.faculty.washington.edu/krumme/systems/pcycle.html

http://www.mapnp.org/library/org_thry/org_cycl.htm

http://www.marketinginc.com/

http://www.questteam.com/

http://www.cim.pe.u-tokyo.ac.jp/

http://www.genesisstrategies.com/

http://www.barringer1.com/


Smith J. C. “Product Life Cycle”, http://www.accessnorthga.com

--- Thank You ---

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http://www.accessnorthga.com/

Product Lifecycle Strategies

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