Product life cycle and strategies

Cash Flow

The flow of money going into and out of the business.

Introduction stage

The product is launched. Pricing will either be high (skimming) in order to cover development/promotion costs, or low (penetration) in order to gain market share and brand loyalty. There will be high levels of promotion to raise awareness, which will come at a high cost Distribution costs may be high, as new production lines will have to be created. Few outlets/shops will stock the product at this stage. No cash inflow as more money is paid out to design, develop and launch the product. lots of money spent on advertising.

For some products, life cycles are getting shorter...

This is most common in areas such as electronics and technology. In the computer industry, some models and software have became obsolete within a very short period as newer versions are created which are more advanced. One example is Windows: Windows 95, Windows 98, Windows 2000, Windows Xp, Windows Vista etc.

modifying the product example

With the Crayola My Virtual Fashion Show drawing kit and app, for instance, children first design fashions using the provided color pencils and sketchpad. They then take photos of the designs with their smartphones or tablets and watch their original creations magically come to life inside the app on 3D models who walk virtual runways in Milan, New York, and Paris

modifying the market examples

brands such as Harley-Davidson and Axe fragrances, which have typically targeted male buyers, have created products and marketing programs aimed at women. Conversely, Weight Watchers and Bath & Body Works, which have typically targeted women, have created products and programs aimed at men.

Decline Stage

Maintain the product Harvest the product Drop the product

Product development

1

Introduction Stage

2

Growth Stage

3

Maturity Stage

4

Decline Stage

5

When consumers lose interest in a product, and sales start to fall..

A business may withdraw it from the market, sometimes poor selling products are withdrawn to prevent them damaging the image of the company. It may be replaced with another new product.

modifying the market

the company tries to increase consumption by finding new users and new market segments for its brands.

modifying the product

—changing characteristics such as quality, features, style, packaging, or technology platforms to retain current users or attract new ones.

The most common extension strategies consist of...

Finding new markets for existing products. (In recent years, sales of 'sports' clothing has increased as it is seen as fashionable) Developing a wider product range. (Lucozade was once a drink used to recover from illness, now they have different ranges such as 'sport,' and cola.) Gearing the product towards specific target markets (banks now have accounts for younger people) Changing the appearance, format or packaging. (Coca-Cola can be bought in cans, in glass or plastic bottles, or in multi-packs.) Encouraging people to use products more often ('breakfast cereals' are now encouraged at any time during the day.) Changing the ingredients or components ('low fat meals,' cars with built in MP3 players.) Updating designs

Decline stage...

For the majority of products, sales will eventually decline. This is usually due to changing consumer tastes, new technology or the introduction of new products. The product will lose its appeal to customers. At some stage it will be withdrawn or sold to another business. It may still be possible to make a profit if high prices are charged and little is spent on promotion or other costs. Cash flow becomes negative unless the business introduces an extension strategy.

However, there may also be problems with using this model...

It may not be entirely accurate in predicting the future of the product's life cycle. In practice, every product is likely to have a different life cycle. The model does not determine decisions. A product in the decline stage, doesn't have to be automatically withdrawn. Sales may be falling due to lack of promotion or poor distribution. The decline in sales may be more to do with management decisions than where the product is in its cycle.

Why might a business be interested in analysing the product life cycle of its existing products or anticipating the life cycle of new products?

It will illustrate the different trends in revenue that a product might earn for the business. It will identify when a business may want to launch new products, as older ones are in decline It will identify points where extension strategies may need to be used It may help a business to identify when and where spending is required (e.g. on research and development at the start, or on marketing at the introduction and when extension strategies are required.) It may help to identify points at which a business should no longer sell a product. It will help a business to manage its product portfolio - its mix of products. It will give an indication of the profitability of a product at each stage of the cycle. It will allow a business to plan different styles of marketing that a product might need over its life cycle.

Maturity Stage Modifying Strategies

Market modifying Product modifying Marketing mix modifying

Extension strategies...

Methods used to extend the life of a product, once it has reached the maturity or decline stage.

Name of the graph Product Life Cycle

Name 1.

Sales and profits (Vertical Column)

Name 2

Losses/Investment (Horizontal column name)

Name 3

Profits

Name 4

Sales/Revenues

Name 5

However, businesses must take care not to withdraw a product too early..

Over time, certain products have became popular again. - For example: skateboards, which were popular in the 1980s regained popularity in the mid-1990s and the early 2000s.

Growth stage

Sales begin to grow rapidly, new customers buy the product and develop brand loyalty. Costs may fall as production increases (purchasing economies of scale). The product starts to become profitable. If it is a new product, and there is a rapid growth in sales, some competitors may launch their own versions, which may lead to a slowdown of the rise in sales. Prices may be changed at this stage, high prices may be lowered and low prices may be raised slightly. Promotion may be increased to encourage brand loyalty, or to appeal to new markets. Cash flow improves and business might break even (where costs = revenue).

Growth Stage

Sales increase New competitors enter the market Price stability or decline to increase volume Consumer education Profits increase Promotion and manufacturing costs gain economies of scale

Maturity stage

Sales will peak at this point. The product will be established and have a stable market share. Competitors will have entered the market in order to take advantage of potential profits. As more firms enter the market it will become saturated, forcing some businesses out of the market, as too many firms will be competing for customers. During this stage extension strategies may be used in order to extend the life of the product. Cash flow is very positive, business is making a profit

Introduction Stage

Slow sales growth Little or no profit High distribution and promotion expense

Maturity Stage

Slowdown in sales Many suppliers Substitute products Overcapacity leads to competition Increased promotion and R&D to support sales and profits

Some product life cycles never reach decline...

Some businesses still enjoy profits from products which were launched many years ago. E.g. The Oxo cube and Kellogg's cornflakes, which have been around since the early 1900s. These products still sell well today, and haven't changed much since the original was released.

Development stage

Suitable ideas must be investigated, developed and tested. If an idea seems worthwhile, then a prototype may be produced. After all this a decision is made about whether or not to launch the product. A large number of products never progress past this stage and will fail because businesses often avoid taking risks with new products. Costs are high at this stage, as there are no sales or revenue being generated.

Maturity stage

The PLC stage in which a product's sales growth slows or levels off.

New product development

The development of original products, product improvements, product modifications, and new brands through the firm's own product development efforts.