Product Life Cycling as a Determinate of Marketing Mix and Strategy.

University Degree Business and Administrative studies

Product Life Cycling as a Determinate of Marketing Mix and Strategy

Outline

Abstract

Introduction – From the Cradle to the Grave

Definition
Types of Cycles
Marketing Mix

Product Life Cycle – “The Birth”

Product Development – The Unforgettable Stage
Product Awareness
Price Consideration
Distribution
Failure

Product Life Cycle – “Growing Pains”

Brand Loyalty
Price Alteration
Distribution
Increased Advertising

Product Life Cycle – “Prime of life”

Product Enhancement
Price Competition
Distribution
Product Differentiation

Product Life Cycle – “Retirement”

Maintain, Harvest, Delete
Modification/Rejuvenation
Price Drop
Market Selection
Image Reinforcement

Conclusion

Product Life Cycling as a Determinate of Marketing Mix and Strategy

Table Of Contents

Introduction – From the Cradle to the Grave . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Product Life Cycle – “The Birth” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Product Life Cycle - “Growing Pains”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Product Life Cycle - “Prime of Life” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Product Life Cycle - “Retirement”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Product Life Cycling as a Determinate of Marketing Mix and Strategy

Abstract

Product Life Cycle portrays a product’s position through four stages at a given time. As the product moves between the stages, the firms strategy must change to stay competitive in the market.

Introduction – From the Cradle to the Grave

Alpha and omega; the beginning and the end. Everything goes through some type of cycle. With people, we develop in the womb, conceived at birth, grow from childhood to adulthood, mature during adulthood, and decline towards the latter part of life. Depending on your religious affiliation, you may be taught that life doesn’t stop at death but begins again in the after life. The same concept holds true for products and/or services provided by various firms. The Product Life Cycle is usually a graph depicting time versus sales as a product moves among four stages: introduction, growth, maturity and decline. The life cycle concept may apply to a brand or to a category of a product. It’s duration may be short or long depending upon the product. The cycle is normally viewed as a bell-shape curve, see Figure 1, but may appear in different forms.

Figure 1 Product Life Cycle Curve

Kotler describes three additional common patterns for a product life cycle (2003, 329). The Growth-Slump Maturity pattern depicts a product that takes off rapidly after introduction but leveling off after a certain period of time. The Cycle-Recycle pattern is two cycles in one. The product takes off and as it starts to decline, a promotion push occurs and the product grows upward again. The last common pattern, Scalloped, shows a succession of life cycles due to rediscovery of a product uses or users.

As the product moves through each life cycle stage, the marketing mix will change in order to adjust to the evolving challenges and opportunities. Marketing mix is the set of marketing tools the firm uses to pursue its marketing objectives in the target market (Kotler, 15). The marketing mix is broken down into four categories: product, price, promotion and place. These variables are used to affect product demand and increase a competitive advantage.

Product Life Cycle – “The Birth”

Stage: Introduction

Objective: Awareness and trial

Marketing Strategy: Communicate general product benefits to consumers and channel members.

A product starts as an idea in the minds of inventors, researchers, or innovating employees. The ideas may formulate by watching competitors, creative thinking or possibly planned research and development. During the development process, an firm has to answer certain questions such as will consumers’ want this product, who will buy the product, etc. Research and Development or product development is the incubation stage of the product life cycle. There are no sales, or revenue generated, as the firm is preparing to launch a new product during this stage. Once the potential, new product has completed the developmental stage, it is ready to enter the first stage of the product life cycle, the introduction stage.

The introduction stage occurs when a new product enters the market. Another way to define the introduction stage is with the launch of a newly developed product into the marketplace. The introduction stage of the product life cycle extends the commercialization stage of the new-product development process. Sales growth in the introduction stage is often slow because innovators typically represent a small portion of the market. Profits are low or nonexistent because of heavy expenses incurred in product development and intensive marketing to launch the product. There are no direct competitors for the first market entry, but competitors will likely enter over time. In the introduction stage, the firm seeks to build product awareness and develop a market for the product. The following are some of the marketing mix implications of the introduction stage:

Product branding and quality level is established, and intellectual property protection such as patents and trademarks are obtained (.
Pricing may be low penetration pricing to build market share rapidly, or high skim pricing to recover development costs.
Distribution is selective until consumers show acceptance of the product and a distribution plan is formulated.
Promotion is aimed at innovators and early adopters. Marketing communications seeks to build product awareness and to educate potential consumers about the product.

During the introduction stage, an firm attempts to achieve the marketing objective of gaining product awareness. ...

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Product branding and quality level is established, and intellectual property protection such as patents and trademarks are obtained (.
Pricing may be low penetration pricing to build market share rapidly, or high skim pricing to recover development costs.
Distribution is selective until consumers show acceptance of the product and a distribution plan is formulated.
Promotion is aimed at innovators and early adopters. Marketing communications seeks to build product awareness and to educate potential consumers about the product.

During the introduction stage, an firm attempts to achieve the marketing objective of gaining product awareness. Promotion plays an educational role, tries to teach customers to get used to the product or service.

Price consideration is a dilemma at this stage of the cycle. The firm decides between either a price skim or price penetration strategy. Price skimming occurs when a firm sets a high price for a product/service recover costs incurred while developing the product. Over time, a firm that implemented this strategy should lower the product price to stay competitive. Price penetration calls for the firm to set a low price, probably lower than the market price, to discourage new entrants or a entry barrier. This approach is intended to generate faster market penetration. Because of the low price, it will take longer for a firm to recover new-product development costs. The low-price strategy can lead to a larger market share and long-term profits. This stage still bring a dilemma about setting the price, because if it is set high (to cover the expenses) there is always a chance that competition will react by bringing similar product for lower price. For this reason, introduction stage is very dangerous.

Distribution in the introduction stage is limited as the product is introduced in selected markets. Marketing efforts must be targeted to channel members as well as final customers. Marketers use different communication tools to persuade resellers to stock the product and to get consumers to try the product.

Timing is critical; therefore, firms have to cautiously plan the appropriate time for their product to enter the market. If a product enters the market too early or too late, the end results could spell disastrous for the company. If the target market is too small or product quality is poor, then the product will cease to exist before leaving this stage.

The overall objective in the introduction stage is to increase awareness and stimulate trial of the new product. Also during the introduction stage, the primary goal is to establish a market and build primary demand for the product class. If there are no competitors, marketing efforts are on generating primary demand, or demand for the new product form. As competitive brands are introduced, the focus shifts to generating secondary demand, or demand for the firm’s specific brand. Once a product has achieved the goals/criteria for the introduction stage, it moves to the next level, the growth stage.

Product Life Cycle – “Growing Pains”

Stage: Growth

Objective: Usage of firm’s brand

Marketing Strategy: Specific brand marketing communications, lower prices, and expanding distribution.

Following the introductory stage is the growth stage. In this stage the product has successfully entered the market and established some position on it. Competition is growing and thus primary objective is to define and overcome competitive differences. There are more versions of the product available and its distribution has been broadened. During this time, sales and profits increase rapidly. Innovators, early adopters, and the early majority buy the product. Recognizing the potential for profits, additional competitors enter the market with different product versions. The number of competitors and rate at which they enter affect how long the growth stage will last. It will be shorter the faster competitors enter the market and the more aggressive their marketing strategies. In the growth stage, the firm seeks to build brand preference and increase market share. The following are some of the marketing mix implications of the growth stage:

Product quality is maintained and additional features and support services may be added.
Pricing is maintained as the firm enjoys increasing demand with little competition.
Distribution channels are added as demand increases and customers accept the product.
Promotion is aimed at a broader audience

When a product enters the growth stage, the firm’s basic objective is to build consumer preference for its brand or referred to as brand loyalty. Because of the favorable characteristics of the growth stage, many competitors are likely to enter the market. These competitors usually challenge existing brands by offering improved versions of the product. The firm needs to show why their product is different from the competition. Communication efforts emphasize the competitive advantage of each firm’s brand. By this point, consumers are aware of the product benefits, however, the firm has to differentiation those benefits from the competitor’s product. The idea is for customers to request your product, thus, increasing product demand, creating brand loyalty.

Depending on the pricing strategy implemented during the introduction stage, the firm may either maintain the current price or lower the price. If the firm decided to implement a price skimming strategy, then more than likely they lower the price with the purpose of capturing additional customers. Price competition begins as more competitors enter the market

Increased competition often results in lowering of prices, especially toward the end of the growth stage. Marketers usually expand distribution to make it easier for consumers to purchase the product. The firm will increase the channels of distribution as product demand increases and more customers accept the product. At this point, resellers are less cautious to accept the product. The product has been in the market for a period of time, therefore, the risk of carrying the product decreased as the product moved from the introduction to the growth stage.

Advertising during the growth stage is increased. The firm attempts to reach a larger consumer base. By increasing advertising efforts, the firm reach new, potential customers, educate current customers and build brand loyalty.

Product Life Cycle – “Prime of life”

Stage: Maturity

Objective: Maintain market share and extend product life cycle

Marketing Strategy: Sales promotion, lower prices, expanding distribution, new uses and

new versions of the product.

The third stage of PLC is the maturity stage. The overall objectives at the maturity stage are to defend market share and extend the product life cycle. The sales, profit, and competitive characteristics of the maturity stage produce a difficult situation for marketers. Marketing strategies used in the introductory and growth stage are not successfully in the maturity stage. Firms often try many different strategies to maintain market share and extend the product life cycle. With the diffusion process nearing completion, opportunities to get new adopters are limited. Marketing efforts focus more on taking customers away from competitors than bringing new adopters in to the market. If a product reaches this stage it means that product is successful and the main objective is to keep brand loyalty. Therefore, promotion is reminder orientated – telling customers that the product is still here. Product is now being distributed through as many outlets as possible. Since there are many competitors, price is set to defend profit and market share. When the marketing efforts of all competitors begin to get adoptions from the last majority, the maturity stage begins. Profits peak, and then begin to decline, reflecting intensified competition, especially on price. Competition becomes even fiercer during the latter part of the maturity stage when laggards adopt the product. The market get saturated such that increased sales come more from taking business away from competitors than getting business from new adopter categories. Most companies market products in the maturity stage of the product life cycle. At maturity, the strong growth in sales diminishes. Competition may appear with related products. The primary objective at this point is to defend the market share while maximizing profit. The following are some of the marketing mix implications of the maturity stage:

Product features may be enhanced to differentiate the product from that of competitors.
Pricing may be lower because of the new competition.
Distribution becomes more intensive and incentives may be offered to encourage preference over competing products.
Promotion emphasizes product differentiation.

One popular approach is to get consumers to use the product in different ways. This type of strategy can lead to more purchasing from existing customers, and possibly extend the product life cycle. The firm enhancing the product features, differentiating from the competitor’s product, can achieve this. Consumers may not be aware of various possibilities a product contains until those possibilities are brought to light through modification. Another approach is to extend the life cycle by continually introducing new and improved version of this same product. Since the new version isn’t a new product form, it will start a new product life cycle. This will prevent the product from moving into the decline stage.

As the competition increases, the firm may lower the product price to maintain a competitive advantage. The last thing the firm wants to do at this level is get into a price war with the competition. With sales growth diminishing, a price war may hurt the little sales the firm are achieving at this stage of the game. The firm may offer incentives to consumers for purchasing the firm’s brand. These include lowering the brand’s price relative to competitors or using sales promotions, such as coupons or rebates, to reduce the brand’s price. Although incentives can produce more sales from existing customers and take sales from competitors, their cost reduces a firm’s profit margins.

Advertising during this stage emphasizes continuous product differentiation as well as brand loyalty. Consumers have a vast product knowledge, however, the firm still wants to advertise to all for the simple fact that the competition is still out there. Lack of advertising at this stage of the life cycle will be detrimental to the firm market share and product existence.

Product Life Cycle - “Retirement”

Stage: Decline

Objective: Decide what to do with product

Marketing Strategy: Maintain, harvest, or divest.

The last stage of PLC is the decline stage. This is the final stage before a product will definitely disappear from the market. Therefore, the main goal of the manufacturer is to keep the product profitable for as long and possible. As the product is declining, so is the competition. Promotion is minimal or none and its distribution are being limited again. When falling sales persist past the short run, a product enters the decline stage. Profits decline and competition is changing. A product can reach this stage for a variety of reasons. One, most consumers who could buy the product may have done so. Another reason may be a shift in consumers’ taste, which is common in the clothing industry. Sales can also decline because of technological advances. As sales decline, the firm has several options, and the following are some of the marketing mix implications of the decline stage:

Product may be reduced or rejuvenated by adding new features and finding new uses.
Price reduced and firm continue to offer it, possibly to a loyal niche segment.
Distribution is more selective.

Promotion expenditures are lowered to reinforce brand image

When a product reaches the decline stage, marketers must make tough decisions on what to do with their brand. Sales and profits are decreasing and competition is strong. If most competitors stay in the market, opportunities are limited. The appropriate strategy depends on a great deal on the actions of the competitors. .

Three basic strategic choices are available: maintaining, harvesting, or deleting the product. Maintaining refers to keeping a product going without reducing marketing support, hoping that competitors will eventually leave the market. At the same time, the firm hopes that as the product continues to stay in the market, consumers will start purchasing the product again, sales increases and the product can move out of this stage as it makes an upward swing.

A harvesting strategy focuses on reducing the costs associated with a product in the decline stage as much as possible. Advertising, sales force time, and research and development budgets are limited. The objective is to wring out as much profit as possible during the decline stage.

Deleting refers to dropping a product altogether. A firm might withdraw the product from the market, ending its life cycle, or might be able to sell it to another firm. Deleting products is difficult for many firms, but it may be the best strategy. The resources expended on a product in the decline stage may produce only minimal returns. Allocating these resources to products that will produce higher returns can normally increase productivity.

At this point, the firm can decide whether or not the product is reduced or rejuvenated. Though some firms elect to reduce the product line, attempts should be made to bring the product back to life through various means. The firm can enhance the product by adding new features and benefits. Enhancing the product will make it appear to be different from the original product but in actuality, they are one in the same. The firm can also introduce add-ons or variations of the product. By this stage, there may be some consumers who are not aware of the products full capabilities, so by introducing add-ons or variations, the firm gives the product more buying options.

Firms with products in this stage may consider lowering the product price for those consumers maintaining brand loyalty. This is definitely a “last hope” effort to save a declining product. The firm is rewarding the loyal customer by lowering price, however, may have to eventually consider ending the product because there may not be enough loyal consumers to help the product survive.

Product distribution at this stage is selective. The firm will only provide the product in areas that are profitable and those that are not, will be phased out. This approach could be a plus for the firm because the product will be reduced to only certain outlets or retailers. This could, in turn, motivate the retailers who have been removed from the distribution process, ask the firm if they can be included once more. Retailers can provide promotional support for the declining product, which could be enough to pump some life back into its sales.

As the firm lower expenditures and focus on image reinforcement, they should also attempt to locate new, undiscovered markets. Hopefully the firm can broadening the market place by tapping in unknown resources. Advertising efforts should focus on the selective and newly, discovered market.

Conclusion

Product Life Cycle depicts a product life span through four stages: introduction, growth, maturity and decline. The Marketing Mix ( product, price, distribution and promotion ) changes as the product moves through the various stages in the cycle. As the marketing mix change, so will the strategies as the firm seeks to remain profitable and competitive.

Product development is not illustrated within the cycle, however, this process is the actual beginning the life of a new product or a product experiencing change. A firm can or should expect this first leg to be very expensive with losses and no sales revenue. Ideas for new product or existing product development may come in the form of ideas from customers, a R&D department, employees, just to name a few. The idea is developed into a concept, which goes through a series of test before the product is launched. Once the product is ready, it enters the introduction stage.

The introduction stage should include expectations of low sales volume and high costs. The firm’s main objective for the product is brand awareness. If a price skimming strategy is implemented, the price will be set high to recoup losses incurred while developing the product. If a price penetration strategy is implemented, the product price is set lower than the market price and acts as a barrier for new entrants. The firm, however, have to be cautious during this stage because timing is very critical. The firm should make sure that they enter the market at the appropriate time as well as with a quality product because the beginning can be the end for the product.

The growth stage occurs when the product has been in the market for a while and has established position. The firm can expect sales volumes to increase significantly and begin to see a profit. The firm should focus on customer preference towards its brand. Competition increase and therefore, the need to differentiate from the competitor is necessary. As the product moves towards the end of this stage, prices decreases as the number of competitors increases.

The maturity stage usually ends the rapid growth and sales level off. At this point, the product is very successful and the firm focus on maintaining market share and extending the product life cycle. Advertising place emphasis on continuous product differentiation as well as brand loyalty. If all possible, the firm should avoid price wars at this stage of the cycle.

The decline stage is the fourth stage in the cycle. By the time a product has reached this stage, sales and profits have declined. The firm have to decide what to do with the declining product. The firm can elect to implement a maintaining strategy in which a the product is kept without reducing market support, hoping the competition will leave the market. They can implement a harvest strategy in which the focus is placed on reducing the cost associated the product. The ultimate strategy a firm can implement is deleting, dropping a product altogether. Basically, at this stage, the firm should decide whether efforts are going to be made to rejuvenate the product or get out of the market.

References

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Grindstaff, Charles C. “Product lifecycle management's goal: simplicity in product development”. Design News 112, Vol. 57, Iss. 16 ( August 2002 )

Kotler, Philip Marketing Management p. 329 ( 2003 )

Selliger, G.;Buchholz, A.; Kross, U. “Enhanced product functionality with life cycle units”. Engineering Manufacture 1197-1202, Vol. 217, Iss. 9 ( 2003 ).

Steinhardt, Gabriel ( 2003 ). Extending Product Life Cycle Stages. Retrieved February 4, 2004 from http://www.blackblot.com/