Product liufe cycle

 

CONTENT

 

 

 

INTRODUCTION………………………………………………..…………………3-4

 

1. THEORETICAL ASPECTS OF PRODUCT LIFE CYCLE

 

1.1Stages of Product Life Cycle……………..…………………………..…5-12

1.2 Product Life Cycle Analysis………….………………..…………...…13-17

1.3 Product Life Cycle Cost………………………………………..…...…18-21

 

2. EXAMPLES OF PRODUCT LIFE CYCLE ON THE BASIS OF  INTERNATIONAL COMPANIES

 

2.1 Maggi.  Experience of one of the most successful Nestle brand…...…22-24

2.2 BMW. Company with logical marketing plan………………..……….25-27

 

CONCLUSION……………………………………………………………...…...28-29

 

LIST OF LITERATURE………………………………………….…………………30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTRODUCTION

 

Product life cycle is a business term that refers to the stages in the progression of a product, from the conception of the product to the time the product starts to show inevitable signs of retrogression. A similar example is the life cycles of a butterfly: the processes they go through, starting from fertilization to the formation of the eggs, the caterpillar, the pupa and adult. Eventually, the butterfly will start to show signs of wear and tear until it dies. Knowing the various stages of the life cycle, the signs to look for and what to expect can be likened to the product life cycle in business. In this case, the subject is a product or service and the importance of this process includes the fact that it allows the manufacturers and various businesses to gauge the stage of production, which enables it to apply the relevant marketing principles.         A role of product life cycle in business is its usefulness as a measure of the state of a product in correlation to the expectations of the consumers and the manufacturers. For example, it helps to consider the case of a product in the form of a smartphone that has been introduced into the market. The phone is received with much anticipation by the consumers and hailed as the most innovative smartphone yet. As the months progress, other phone companies bring out their own similar versions of the smartphone, diminishing the dominance of that particular smartphone on the market. Aside from this, the consumers are already yearning for a smartphone that will offer more than this one can.                                                                             

The makers of the smartphone know that they have to monitor the various indicators as the phone goes through its various stages in order to know when to discontinue the product and introduce another updated version of the phone, or a new one all together. This knowledge gives the manufacturers of the phone a strategic advantage over the other phone companies. It allows the company to gain as much as it can from the product in terms of sales without losing competitive advantage over other companies by allowing the product to outlive its usefulness, and possibly losing some customers to competitors with better products.                                                   Another importance of product life cycle in business is the fact that it allows the company to target its marketing effort based on the particular stage at which the product is in its life cycle. For instance, the marketing campaign a the introduction of the product will differ for the type of marketing drive during the middle of the product life cycle in business. Knowing this is a crucial factor in the formulation of marketing strategies.                                                                                                      So, the concrete problems which will be considered are the following:                           1. to present the full  theoretical information about PLC and answer for the following questions:                                                                                                                       a) What is the fundamental idea behind product life cycle?                                           b) What are the main aspects of the product life cycle?                                                       c) How do you use product life cycle analysis?                                                                    d) Does every product follow the same product life cycle curve?                                         e) What are the trends in product life cycle?, and                                                                       2. to consider some examples on the bases of real existing companies and products.

 

The actuality of the “Product Life Cycle” theme.

For the present day, by statistics, more than 50% of new companies` products  which have been  entered to Kazakhstan  domestic market  disappear. Unfortunately, those marketers who work in our domestic market, have not got a lot of knowledge about  marketing as a whole. More so they do not know how to  right support new product  in the market and to discharge product from  its` ruin.  That is why, was given especially this theme – to inform and show with a help of examples how to introduce new products to the market and increase their maturity stage.               Scientific novelty is conducted in the following: nowadays   there are a lot of new companies in the whole market which produce  the most claiming products. Of course they had a lot of  NEW problems in  introduction, growth or maturity stage. But they  survived.  That is why, exactly at that time  studying their mistakes and their removals, it will be very helpfully to new companies which are going to  enter to the market  to avoid it. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1  THEORETICAL ASPECTS OF PRODUCT LIFE CYCLE

 

1.1 Stages of Product Life Cycle

Product life-cycle (PLC) Like human beings, products also have an arc. From birth to death, human beings pass through various stages e.g. birth, growth, maturity, decline and death. A similar life-cycle is seen in the case of products. The product life cycle goes through multiple phases, involves many professional disciplines, and requires many skills, tools and processes. [4, p. 33] Product life cycle (PLC) has to do with the life of a product in the market with respect to business/commercial costs and sales measures.

There are actually more than one definition of product life cycle. The definition may pivot on a customer view, an enterprise view or the product itself:

• Enterprise view - when the product ceases to be produced or supported.
• Customer view - when the product ceases to be used and is disposed of.
• Product - type of product, market segment and whether a single product or part of a range.

To say that a product has a life cycle is to assert three things:

• Products have a limited life,
• Product sales pass through distinct stages, each posing different challenges, opportunities, and problems to the seller,
• Products require different marketing, financing, manufacturing, purchasing, and human resource strategies in each life cycle stage.

Product life cycle  applies to both brand and category of products. Its time period vary from product  to product. Modern product life cycles are becoming shorter and shorter as products in mature stages are being renewed by market segmentation and product differentiation.

Companies always attempt to maximize the profit and revenues over the entire life cycle of a product. In order to achieving the desired level of profit, the introduction of the new product at the proper time is crucial. If new product is appealing to consumer and no stiff competition is out there, company can charge high prices and earn high profits.

One of the  approach to examine product mix is by looking at different stages of products life cycle. Every product introduced has a specific life span. This life span is divided into different four phases (fig.1):

Phase1: Introduction stage of product life cycle.

Phase 2: Growth stage of product life cycle.

Phase 3: Maturity stage of product life cycle.

Phase4: Decline stage of product life cycle.

 

Figure 1.  Four phases of Product Life Cycle

 

 

1. Introduction stage of product life cycle.

 

This is the stage where a product is conceptualized and first brought to market. The goal of any new product introduction is to meet consumer's needs with a quality product at the lowest possible cost in order to return the highest level of profit. The introduction of a new product can be broken down into five distinct parts:

• Idea validation, which is when a company studies a market, looks for areas where needs are not being met by current products, and tries to think of new products that could meet that need. The company's marketing department is responsible for identifying market opportunities and defining who will buy the product, what the primary benefits of the product will be, and how the product will be used.
• Conceptual design occurs when an idea has been approved and begins to take shape. The company has studied available materials, technology, and manufacturing capability and determined that the new product can be created. Once that is done, more thorough specifications are developed, including price and style. Marketing is responsible for minimum and maximum sales estimates, competition review, and market share estimates.
• Specification and design is when the product is nearing release. Final design questions are answered and final product specs are determined so that a prototype can be created.
• Prototype and testing occurs when the first version of a product is created and tested by engineers and by customers. A pilot production run might be made to ensure that engineering decisions made earlier in the process were correct, and to establish quality control. The marketing department is extremely important at this point. It is responsible for developing packaging for the product, conducting the consumer tests through focus groups and other feedback methods, and tracking customer responses to the product.
• Manufacturing ramp-up is the final stage of new product introduction. This is also known as commercialization. This is when the product goes into full production for release to the market. Final checks are made on product reliability and variability. [4, p. 33]

In the introduction phase, sales may be slow as the company builds awareness of its product among potential customers. Advertising is crucial at this stage, so the marketing budget is often substantial. 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.

Author Philip Kotler has found that 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 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.

At introduction stage, the company core focus is on establishing a market and arising demand for the product. So, the impact on marketing mix is as follows:

Product 
Branding, Quality level and intellectual property and protections are obtained to stimulate consumers for the entire product category. Product is under more consideration, as first impression is the last impression.

Price 
High(skim) pricing is used for making high profits with intention to cover initial cost in a short period and low pricing is used to penetrate and gain the market share. company choice of pricing strategy depends on their goals.

Place 
Distribution at this stage is usually selective and scattered.

Promotion 
At introductory stage, promotion is done with intention to build brand awareness. Samples/trials are provided that is fruitful in attracting early adopters and potential customers. Promotional programs are more essential in this phase. It is as much important as to produce the product because it positions the product.

 

 

2. Growth stage of product life cycle

As the introduction stage of product life cycle ends, the product has spent considerably moderate time into the market where customers / consumers get familiar to the product and start buying the product (or consuming it). As the product is now into the market it becomes more strengthened and faces more intense competition. This competition now offers greater choice to the customer in the form of different product type, packaging and price. The market base expands as more customers by the product. More trade channels are now willing to keep the product and one generally observes softening of prices.

At this time the company soon starts operation on economic levels. There are les product bottlenecks hence cost is low. To remain competitive over a period of time the firm initiates product improvement or modification in the product to stay in the market, but profits taper off at the end of this phase.

Affect on 4 P’s of marketing is as under:

Product 
Along with maintaining the existing quality, new features and improvements in product quality may be done. All this is done to compete and maintain the market share.

Price 
Price is maintained or may increase as company gets high demand at low competition or it may be reduced to grasp more customers.

Distribution 
Distribution becomes more significant with the increase demand and acceptability of product. More channels are added for intensive distribution in order to meet increasing demand. On the other hand resellers start getting interested in the product, so trade discounts are also minimal.

Promotion 
At growth stage, promotion is increased. When acceptability of product increases, more efforts are made for brand preference and loyalty.

3. Maturity Stage of product life cycle.

This now brings the product to its maturity stage. There can be ample number of reasons for product getting mature. For example, entry of a new product that may be offering better quality at a cheaper price which has induced the consumer to shift. This calls for some great marketing strategies that could revitalize the product so that the product stays in the market. But at this point, it’s difficult to survive, as there are new entrants that are now offering better priced products. This maturity often leads to death of the product and this is the time when company is incurring losses due to its production (no sign of profits).

Remember, till the time a product is contribution to the growth of the company, the product is continued to be produced. But when the carrying cost increase than cost of production the production is stopped.

Marketing mix decisions include:

product 
At maturity stage, companies add features and modify the product in order to compete in market and differentiate the product from competition. At this stage, it is best way to get dominance over competitors and increase market share.

Price 
Because of intense competition, at maturity stage, price is reduced in order to compete. It attracts the price conscious segment and retain the customers.

Distribution 
New channels are added to face intense competition and incentives are offered to retailers to get shelf preference over competitors.

Promotion 
Promotion is done in order to create product differentiation and loyalty. Incentives are  also offered to attract more customers.

 

 

4. Decline stage

Decline in sales, change in trends and unfavorable economic conditions explains decline stage. At this stage market becomes saturated so sales declines. It may also be due technical obsolescence or customer taste has been changed.

The marketing mix may be modified as follows:

Product

The number of products in the product line may be reduced. Rejuvenate surviving products to make them look new again.

Price

Prices may be lowered to liquidate inventory of discontinued products. Prices may be maintained for continued products serving a niche market.

Distribution

Distribution becomes more selective. Channels that no longer are profitable are phased out.

 

 

Promotion

Expenditures are lower and aimed at reinforcing the brand image for continued products.

At decline stage company has 4 options:

• maintaining the product in the hope that your other competitors will withdraw their versions before you, which may create an increase in demand again
• reducing your costs and finding another use for the product - entering into another niche area could increase profits
• reducing marketing support, 'harvesting' the product, coasting along until profits dry up and then discontinuing the product
• discontinuing the product when your profit disappears, or when you unveil a successor product

 

Some of these methods can form an 'extension strategy' that prolongs the life of your current product or service. This may give you 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.

At declining stage, marketing mix decisions depends on company’s strategy. For example, if company want to harvest, the product will remain same and price will be reduced. In case of liquidation, supply will be reduced dramatically.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 1

 Summary of product life-cycle characteristics, objectives and strategies

	Introduction	Growth	Maturity	Decline
Characteristic  Sales   Costs   Profits   Customers   Competitors	Low sales   High cost per customer   Negative   Innovators   Few	Rapidly rising sales   Average cost per customer   Rising profits   Early adopters   Growing number	Peak sales   Low cost per customer   High profits   Middle majority   Stable number beginning to decline	Declining sales   Low cost per customer   Declining profits   Laggards   Declining number
Marketing Objectives	Create product awareness and trial	Maximize market share	Maximize profit while defending market share	Reduce expenditure and milk the brand
Strategies   Product	Offer a basic product	Offer product, extensions, service, warranty	Diversify brand and models	Phase out weak items
Price	Use cost-plus	Price to penetrate market	Price to match or best competitors	Cut price
Distribution	Build selective distribution	Build intensive distribution	Build more intensive distribution	Go selective: phase out unprofitable outlets
Advertising	Build product awareness among early adopters and dealers	Build awareness and interest in the mass market	Stress brand differences and benefits	Reduce to level needed to retain hard-core loyals
Sales Promotion	Use heavy sales promotion to entice trial	Reduce to take advantage of heavy consumer demand	Increase to encourage brand switching	Reduce to minimal level