Critically evaluate the usefulness of the product life cycle concept as a tool for formulating marketing strategies.

University Degree Business and Administrative studies

Critically evaluate the usefulness of the product life cycle concept as a tool for formulating marketing strategies

Introduction

Since the product life cycle (PLC) concept was first developed from 1950s (Dean, 1950), it had become one of the most quoted and most popular elements of marketing theory and it also had been widely used as a tool for formulating marketing strategy, new product management and product portfolio analysis. However, the PLC model received extensive criticism of its limited applicability and was even regarded as ‘a dangerous idea’ (Kevin and Peter, 2004). Although the life cycle pattern has its own flaw of nature, the benefits of helping managers to plan strategies are also significant, especially when using the model in the right method and with the reasonable purpose.

Characteristics of the Product Life Cycle

Just as the biological life cycles progress from birth through growth to maturity, the product has the similar cycle. Michael (1996) described the product life cycle concept as follows: The paradox of the product life cycle concept is that it is one of a very small number of original marketing ideas to enjoy a wide currency and yet is largely discredited in terms of practical application and relevance. Generally speaking, a product life cycle can be divided into four major stages: (1) introduction, (2) growth, (3) maturity and (4) decline and the product sales and profits can be explored as a function of the life-cycle stages which is shown in the graph below (Figure 1):

The introduction stage of the life cycle begins at a product’s first appearance in the marketplace, when sales are zero and profits are negative (Sally, 2001). Customers seldom buy any these kinds of new products as being not aware of their benefits or advantages compared with current products. Moreover, the cost of developing new products is high and the expense of the promoting and distributing them is also considerable, so the profits are below zero. As time passes, the product’s sales go up. When the company turns to have positive profits on this product, it begins the growth stage. The characteristics of this stage are that the product’s sales rise rapidly and the profits will reach a peak and then decline gradually due to the competitive market. During the maturity stage, the product’s sales continue to increase until it arrives at the highest point and then start to decrease, whereas the profits remain declining. As for the decline stage, sales fall rapidly as another new product may place great pressure on it and cause a significant downturn in the market. Profits continue to decrease although there maybe still have a slight profit.

As a product develops from one stage to another, the product revenue and profits changes correspondingly, thus influencing the marketing strategy and marketing mix, which makes the PLC concept a widely used tool for formulating the marketing strategy. Just as Hofer (1975) argued, ‘the most fundamental variable in determining an appropriate business strategy is the stage of the product life cycle’.

Concept of a Market Strategy

A market strategy consists of two parts: (1) the definition of market targets and (2) the composition of marketing mix (Eugene, 1967). Market targets mean what kinds of customers will ...

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Concept of a Market Strategy

A market strategy consists of two parts: (1) the definition of market targets and (2) the composition of marketing mix (Eugene, 1967). Market targets mean what kinds of customers will be sought; the marketing mix points out how could realize market targets by a series of sales campaigns.

To define a market target, the most important issue is to divide the general and broad potential market into detailed operating segments. There are two types of criteria that could be used in the classification of the customers. The first are those conventional features such as age, incomes, religion and married status that can be measured. The second are social and psychological characteristics that almost always are immeasurable and apply particularly to the product in question (Eugene, 1967).

The marketing mix is composed of a large number of sales campaigns that attract customers to buy a particular product, for instance, what particular functions the product should provide, what kind of price level the product should formulate, where the advertisements should be carried out and how the products should be distributed.

Usefulness of the PLC in Marketing Strategy

The value of the PLC concept is that of a planning tool in that it helps managers to narrow the sea of uncertainty and allows them to concentrate on the specifics of each problem (Robert, 1990). It provides a useful planning and forecasting tool for planning marketing strategy and a feasible and systematic method of the execution of formulated business strategy.

During the introduction stage, the company aims to build product awareness and develop a market targeting the ‘Innovators’ (Peter, 1976). The marketing mix may be formulated as follows: Product branding and quality level is established, and intellectual property protection such as patents and trademarks are obtained. Pricing strategy may either be low penetration pricing to build market share quickly, or high skimming pricing to get high margins. Distribution is selective until consumers show acceptance of the product. There is also an intensive promotion campaigns to educate potential customers about the product.

When it begins the growth stage, the firm seeks to build brand preference and increase market share. Product quality is maintained and additional features and support services may be added. Pricing is maintained and products become more profitable as the firm enjoys increasing demand with little competition. Distribution channels are added as demand increases and customers accept the product. High promotion is aimed at broader consumers.

At maturity, majority consumers have accepted the product and the market seems to reach saturation. So the primary objective at this stage is to differentiate the products and defend the market share. Product functions may be enhanced to distinguish it from that of competitors. Pricing may be lower owing to the intense competition. Distribution becomes more intensive and incentives may be offered to encourage preference over competing products. Promotion may be reduced but emphasizes specific product differentiation.

Regarding the decline phrase, some particular types of products may be cut or re-package products to make them look new again. Prices may be lowered for those discontinued products or be maintained for continued ones. Distribution becomes more selective, and the expenditures on promotion are lower and aims at reinforcing the brand image for continued products.

Limitations of the Product Life Cycle

Nevertheless, in reality very few products follow such a prescriptive cycle. Cox (1967) argued that the PLC is not a completely independent variable – it is itself heavily influenced by the very strategies it predicts; and unlike biological life cycles, a PLC stage can be renewed, through opening up a new segment. So although the PLC concept is widely used as a tool for formulating marketing strategy, its limitations could not be ignored, for instance, the following are three aspects of the drawbacks of the PLC concept:

Firstly, however the PLC is used to describe general industry sales and profits for a product idea within a particular product idea, sales and profits of an individual product class (e.g. cigarettes), a product form (e.g. filter cigarettes), or a brand (e.g. Winston) may not, and often do not, follow the life-cycle pattern (Dhalla and Yuspeh, 1976). They may vary up and down throughout the life cycle – sometimes moving in the opposite direction of industry sales and profits. According to the statistical data of the 20-year history of 929 brands spread across 150 fast-moving consumer goods (FMCG) market in the UK which was investigated by the British Marketing Research Bureau (BMRB) in 1989 (Mercer, 1993), it pointed out that the ‘life cycle’ of the brand leaders is indeed more stable, and much longer than that the PLC would have predicted.

In addition, the product life cycle depends on how broadly we define the market. For example, about 80% of all US households owned microwave ovens, which would lead to conclude that microwave ovens were at the maturity stage. In many countries, however, they were still in the growth stage, e.g. in Switzerland, for example, microwave ovens had a household penetration level of less than 15% in 1994. US microwave manufactures can extend their product life cycles by expanding their distribution to overseas market.

What’s more, how long a whole product life cycle takes, and the length of each stage varies enormously across products. The decisions of marketers can change the stage, for example from maturity to decline by price-cutting. Not all products go through each stage. Some go from introduction to decline directly. It is not easy to tell which stage the product is in and lead to misleading decisions. For instance, if sales peak and then decline, manager may conclude that the product is in the decline phase and then cut the advertising budget, thus resulting in a further decline.

Discussion

Just as mentioned above, although the PLC model is inefficient when dealing with products class, form or brands, not all products go through every stage of the PLC and each of the stage varies substantially in length across products, and it is difficult to forecast the transitions in PLC stages just based on the sales of the products which often lead to erroneous conclusions, the PLC model is still useful as an explanatory tool in facilitating and understanding of past and future sales performance. To some extent, the PLC is a dependent variable that is determined by marketing actions and it is not an independent and single variable as a determinant of strategy. The concept is not a precise tool, which neither promises answers nor provides cures. But it provides the managers the ability to forecast product direction on a macro and general level, especially when markets and economies are stable. Due to its advantages of helping marketing managers to understand and plan products strategies, the PLC concept leads the Boston Consulting Group to propose a systematic procedure for analyzing the comparative and collective performance of different products in a firm’s range that has become famous as the ‘Boston Box’, which groups all products into ‘Cash Cow, Star, Problem Child and Dog’ (Michael, 1996).

Conclusions

Regarding the validity of the product life cycle eventually, it is still regarded as a relatively useful tool for planning marketing strategies but depending on how to make use of this model and what purpose of using it. On the one hand, it is not advisable for strategy planners to expect the sales and profits of one firm’s individual product or brand to follow the general life cycle pattern. It might be more sensible to think in terms of ‘product-market’ life cycle rather than ‘product’ life cycle, as the PLC is more suitable for the objective of a general product market; On the other hand, it is not a precise forecasting tool. It is not the single factor for formulating marketing strategy but it is a good reference tool for planning marketing strategy and a useful explanatory tool for understanding of past and future sales performance.

References

Cox, William E. (1967). ‘Product Life Cycles as marketing models’, Journal of Business, 40(4), pp. 375-384

Dean, J. (1950). ‘Pricing Policies for New Products’, Harvard Business View, November-December, pp. 45-53.

Dhalla, Nariman K. and Yuspeh, Sinia (1976), ‘Forget the product life cycle concept’, Harvard Business Review, 54(1), pp. 102-112.

Eugene J. Kelly and William Lazer (eds) (1967), Managerial Marketing Perspectives and viewpoints, Homewood, I11: Richard D. Irwin, pp. 237-248.

Hofer, Charles N. (1975). ‘Toward a contingency theory of business strategy’, Academy of Management Journal, 18(4), pp. 784-810.

Kevin J Clancy; Peter C Krieg (2004). ‘Product Life Cycle: A Dangerous Idea’, Brandweek, Mar 1, 2004, pp. 26.

Mercer D. (1993). ‘A two-decade test of product life cycle theory’, British Journal of Management, Vol 4, pp. 269-274.

Michael J. Baker (1996). Marketing: An Introductory Text (Sixth Edition), Macmillan Press Ltd. London. pp. 53, 284.

Peter Doyle (1976). ‘The Realities of the Product Life Cycle’, Quarterly Review of Marketing, Summer, pp.1-6.

Robert W. Eckles (1990). Business Marketing Management: Marketing of Business Products and Services, Prentice-Hall International. Inc. pp.168.

Sally Dibb; Lyndon Simkin; William M. Pride; O. C. Ferrell (2001). Marketing: Concepts and Strategies (Fourth European Edition). Houghton Mifflin, Boston, New York, pp. 257-259.