Many products generally have a characteristic known as perishable distinctiveness. This means that a product which is distinct when new degenerates over the years into a common commodity. The process by which the distinctiveness gradually disappears as the product merges with other competitive products, has been rightly termed by Joel Dean as “the cycle of competitive degeneration”. The cycle begins with the invention of a new product and is often followed by patent protection, and further development to make it saleable. This is usually followed by a rapid expansion in its sales as the product gains market acceptance. Then competitors enter the field with imitation and rival products and the distinctiveness of the new product starts diminishing. The speed of degeneration differs from product to product. While some products fail immediately on birth or a little later, others may live long enough. BPL’s picture in picture TV was eliminated at the introduction stage itself. The innovation of a new product and its degeneration into a common product is termed as the life cycle of a product.
Stages of Product Life Cycle
A new product passes through set of stages known as product life cycle. 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. There are five distinct stages in the life cycle of a product as shown below :
1. Product Development
This is the stage during which the majority of marketing planning occurs. The company is developing the product, selecting its target market, and creating a marketing plan and marketing mix. The company may also be carrying out pre launch marketing and attempting to build customer awareness of the product, particularly if the product is a radical new innovation.
2. Introduction Stage
The introduction stage begins when the product is first launched and made publicly available. At this point, sales and revenues are usually low, as customers have not had much contact with the product, and can be slow to recognize the product as superior to previous offerings. As such, advertising revenues are often high as companies are trying to increase the levels of customer awareness and customer acceptance of the new product. As such, and coupled with the costs of distribution, profits are often low or negative in this stage. One strategy company’s can try to use to avoid this is to announce the product before it is launched, hence building up customer anticipation. However, this runs the risk of alerting competitors, who can then develop competing products. As such, this tactic is often only done when a company has a unique offering, such as a new film, computer game or technologically superior device such as the iPod or iPhone.
3. Growth Stage
The growth stage occurs once customer awareness and acceptance of the product has grown, and hence ever increasing numbers of customers begin to buy it, thus revenues grow rapidly. This stage is also marked by a self reinforcing cycle: as customers demand the product more distribution channels offer it, which further increases the level of awareness and hence increases customer demand. However, this period is also often the first point at which competitors can enter the market with their competing products, developed during the introduction phase, and hence competition levels increase. As such, this phase is often accompanied by price or promotional competition, as firms attempt to convince customers that their product is superior to competing offerings
4. Maturity Stage
When a market reaches maturity, customer demand is generally more stable. This makes this the most profitable stage, as companies have generally established their market position and market share, and can work on exploiting it. As the rate of sales growth slows in this phase, there is less incentive for new entrants to enter the market, and hence the incumbents can concentrate on maximizing their own profits. This will be helped by strong levels of brand awareness built in the growth phase, which mean that companies do not need to advertise as much. However, competitive pressures may still be strong as existing incumbents battle for market share and continue to try to demonstrate the superiority of their product. Indeed, as the market develops so competing products will become increasingly similar as companies better understand customer demands, and being to imitate the most successful products. This can lead to companies focusing strongly on differentiating their product from competing offerings, and encouraging customers to switch to their offering.
5. Saturation and Decline Stage
Eventually sales levels will begin to fall as levels of competition become so high that firms start developing new products to attract customers out of the market. In addition, the product itself may become technologically obsolete and customer tastes are likely to change. Products with superior levels of brand loyalty will tend to maintain their profitability for longer, and will be helped as competitors enter the market. Eventually, the market shrinks so much that most firms exit the market, leaving just a few left to serve greatly reduced customer demand. The product may disappear altogether if it is completely unprofitable, however the product often remains on the market as a collector’s item or to serve people who depend on it. One example of this is long playing records, which are still sold by some dealers to people who are familiar with them prefer them to more modern options such as CDs or MP3s.
Implications of of Product Life Cycle Concept
There are several reasons why the life-cycle of a product tends to be short: (a) continuous research for product development, (b) simultaneous attempts by several companies in the same direction, and (c) tendency of a new idea to attract competitors. Improvements offered by one company are likely to be met and, if possible, exceeded by competitors in a relatively short period. If a competitor hits upon a real improvement (perhaps based on an entirely new technology) and he markets it well, both sales and profits of the original technology) and he markets it well, both sales and profits of the original product innovator may decline drastically.
It may be noted that products may begin a new cycle or revert to an early stage as a result of (a) the discovery of new uses, (b) the appearance of new users, and (c) introduction of new features.
As the distinctiveness of the products fade, the pricing discretion enjoyed by their producers gradually declines. This is what happened in the case of many products like ball-point pens, transistors, radios, etc. Throughout the cycle, changes take place in price and promotional elasticity of demand as also in the production and distribution costs of the product. Pricing policy, therefore, must be adjusted over the various phases of the cycle.
Product life cycle concentrates only the life-cycle of a product beginning with its introduction into the market to the post-marketing phase. However, a series of processes are to be undertaken by the management even prior to the introduction of a product in the market. These processes include exploration, screening, analysis, development, testing, etc. The concept of product life cycle may be used as a managerial tool.
Marketing strategies, however, have to be changed with changes in the phase of the life-cycle of a product. An understanding of the cycle is helpful to the managers for a rational understanding of the future sales activities as also planning of marketing strategies. Hence, Product Life Cycle is synonymous with the pattern of demand for a product over time.
The length of time that a product spends at anyone stage varies from product to product. A product might not pass through every stage in the cycle. Some products, for instance, might not get past the introductory stage, while others might not get past the growth or even the maturity stage. There might be still other products that might pass through the introduction to maturity stages but might take a longer period to reach the saturation stage and hence might take a longer period to reach the decline stage. Some products, for instance, might not get past the maturity stage. There might be still other products that might pass through the introduction to maturity stages but might take a longer period to reach the saturation stage and hence might take a longer period to reach the decline stage. Some products might even hustle through the entire cycle in an amazingly short period. In certain cases, there might even be a re-positioning of a product, which might trigger off a new growth cycle. Re-positioning involves changing basically the image or the perceived uses of a product.
Significance of Product Life Cycle
The concept of product life cycle highlights that sooner or later all products die and that if management wishes to sustain its revenues, it must replace the declining products with the new ones. The product life cycle concept indicates as to what can be expected in the market for a new product at various stages. i.e., introduction, growth, maturity and decline. Thus, the concept of product life-cycle can be used as a forecasting tool. It can alert management that its product will inevitably face saturation and decline, and the host of problems these stages pose. The product life cycle is also a useful framework for describing the typical evolution of marketing strategy over the stages of product life cycle. This will help in taking sound marketing decisions at different stages of the product life cycle.
After a product has been developed, it is launched in the market with the help of various promotional devices such as advertising, sales promotion, publicity and personal selling. In other words, product development must be followed by the successful introduction of the product in the market. For this, planning for introduction of the product starts during the process of product development itself. Every firm makes sale projections during introduction, growth and maturity stage of the product life-cycle. To achieve the projected sales target, it formulates promotional, pricing and distribution policies. Thus, the concept of product life-cycle facilitates integrated marketing policies relating to product, price, place and promotion/distribution.
The advantages of product life cycle to a firm are as follows:
- When the product life cycle is predictable, the management must be cautious in taking advance steps before the decline stage, by adopting product modification, pricing strategies, style, quality, change, etc.
- The firm can prepare an effective product plan by knowing the product life cycle of a product.
- The management can find new uses of the product for the expansion of market during growth stage and for extending the maturity stage.
- The management can adopt latest technological changes to improve the product quality, features and design.