Every product has its life. Industrial goods may have a longer life than consumer goods. When a product idea is commercialised, the product enters into the market and competes with the rivals, for making sales and earning profits. Products, like human beings, have length of life. This has been described as life-cycle in human beings and when applied to products, it is product market life-cycle, because it is related to particular market. For instance, an old product in the market of Mumbai, may have a new life in a remote village. The product life-cycle may be short for some products and long for some other products. The period may differ from product to product. Every product passes through certain stages, collectively known as product life-cycle stages. These stages include:
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.
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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 paresonal 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 acheive 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 PLC 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.
STAGES IN 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.
Stages of Product Life Cycle
Product life cycle comprises four stages:
Fig 1: product life-cycle
Product Life Cycle (PLC)
Product is introduced in the market with intention to build a clear identity and heavy promotion is done for maximum awareness. Before actual offering of the product to customers, product passes through product development, involves prototype and market tests. Companies incur more costs in this phase and also bear additional cost for distribution. On the other hand, there are a few customers at this stage, means low sales volume. So, during introductory stage company’s profits shows a negative figure because of huge cost but low sales volume.
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:
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.
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.
Distribution at this stage is usually selective and scattered.
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.
In this stage, company’s sales and profits starts increasing and competition also begin to increase. The product becomes well recognized at this stage and some of the buyers repeat the purchase patterns. During this stage, firms focus on brand preference and gaining market share. It is market acceptance stage. But due to competition, company invest more in advertisement to convince customers so profits may decline near the end of growth stage.
Affect on 4 P’s of marketing is as under:
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 is maintained or may increase as company gets high demand at low competition or it may be reduced to grasp more customers.
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.
At growth stage, promotion is increased. When acceptability of product increases, more efforts are made for brand preference and loyalty.
At maturity stage, brand awareness is strong so sale continues to grow but at a declining rate as compared to past. At this stage, there are more competitors with the same products. So, companies defend the market share and extending product life cycle, rather than making the profits, By offering sales promotions to encourage retailer to give more shelf space to the product than that of competitors. At this stage usually loyal customers make purchases.
Marketing mix decisions include:
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.
Because of intense competition, at maturity stage, price is reduced in order to compete. It attracts the price conscious segment and retain the customers.
New channels are added to face intense competition and incentives are offered to retailers to get shelf preference over competitors.
Promotion is done in order to create product differentiation and loyalty. Incentives are also offered to attract more customers.
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.
At decline stage company has three options:
Maintain the product, Reduce cost and finding new uses of product.
Harvest the product by reducing marketing cost and continue offering the product to loyal niche until zero profit.
Discontinue the product when there’s no profit or a successor is available. Selling out to competitors who want to keep the product.
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.
EXAMPLES FROM DIFFERENT SECTORS
http://www.ithappensinindia.com/wp-content/uploads/2010/09/BPL-Television.jpg BPL TELEVISIONS
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.
There are five distinct stages in the life cycle of a product as shown below :
Introduction. Research or engineering skill leads to product development. The product is put on the market; awareness and acceptance are minimal. There are high promotional costs. Sometimes a product may generate a new demand, for example, Maggi. Volume of sales is low and there may be heavy losses.
Growth. The product begins to make rapid sales gains because of the cumulative effects of introductory promotion, distribution, and word-of-mouth influence. High and sharply rising profits may be witnessed. But to sustain growth, consumer satisfaction must be ensured at this stage.
Maturity. Sales growth continues, but at a diminishing rate, because of the declining number of potential customers who remain unaware of the product or who have taken no action. Also, the last of the unsuccessful competing brands will probably withdraw from the market. For this reason, sales are likely to continue to rise while the customers for the withdrawn brands are mopped up by the survivors. There is no improvement in the product but changes in selling effort are common. Profit margins slip despite rising sales.
Saturation. Sales reach and remain on a plateau marked by the level of replacement demand. There is little additional demand to be stimulated.
Decline. Sales begin to diminish absolutely as the customers begin to tire of the product and the product is gradually edged out by better products or substitutes, for example, dial telephones and petrol jeeps.
Fig 2: product life-cycle of BPL TV’s
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.
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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, PLC 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 repositioning of a product, which might trigger off a new growth cycle. Repositioning involves changing basically the image or the perceived uses of a product.
Is Facebook Approaching the End of Its Product Life Cycle?
Fig 3: product life-cycle of Facebook
Yes. If you’re a prospective Facebook stakeholder looking to profit from the social-networking site – as an investor or major advertiser – beware of all the Facebook hype. Facebook appears to be approaching the end of its product life cycle.
True, Facebook has 1 billion+ users worldwide and appears to be in the proverbial catbird seat. However, urgent caution is advised.
“You can’t be serious,” you’re probably thinking, “Facebook is huge.”
Firstly, consider: Facebook needs advertising revenue to sustain itself.
However, Facebook keeps self-destructing with highly questionable practices by incurring the wrath of the advertising industry and other stakeholders.
In addition, a 2012 reveals that social media, especially Facebook, only delivers 1 percent of an e-commerce site’s revenue.
Furthermore, the seemingly constant Facebook buzz appears to be masking some serious red flags, especially, if you’re a major investor or marketer counting on it as an advertising medium Why? Published data indicates Facebook is showing signs that it might have advanced too far along its product life cycle (PLC) for you to reap a significant return on your investment.
A PLC, of course, ranges from the time when a product is introduced to market to when it’s no longer viable because of what the marketplace considers superior competitors.
The PLC stages:
In marketing, the PLC is important. In the introduction stage, sales are insignificant until the branding takes effect. Think in terms of a bell curve. The steeper the slope of the growth stage, the higher sales revenue you enjoy. Maturity is the stage when a product achieves saturation. Decline is just as the term implies.
Recent data demonstrates that a savvy investor or marketer would want to think twice about Facebook. That’s because Facebook appears it’s in the downward slope of its PLC curve in key markets. Yes, as amazing as it seems, Facebook appears to be already in its PLC stage 3 of reaching maturity – en route to stage 4 of a decline in popularity in many of the world’s most-important markets.
The first red flag about Facebook’s PLC appeared in this headline: Facebook Sees Big Traffic Drops in US and Canada â€¦ -Inside Facebook.
“Most prominently, the United States lost nearly 6 million users, falling from 155.2 million at the start of May to 149.4 million at the end of it,” wrote Eric Eldon. “This is the first time the country has lost users in the past year. Canada also fell significantly, by 1.52 million down to 16.6 million, although it has been fluctuating around that number for the past year. Meanwhile, the United Kingdom, Norway and Russia all posted losses of more than 100,000.”
Strangely, Inside Facebook reports the social networking site grew. But how?
“Most of the new users continue to come from countries that are relatively late in adopting Facebook, as has been the trend for the past year,” explained Mr. Eldon.
Facebook later denied it’s losing members in North America and Europe.
Facebook’s demise is illustrated by other indicators.
WebProNews originally published some eye-opening data from YouGov BrandIndex covering Jan. 3 to June, 13, 2011, which shows Facebook has had some serious erosion in word-of-mouth. (Note: In my experience, WebProNews articles should be taken seriously.)
To determine its Buzz score, which can range from 100 to -100, YouGov BrandIndex asked respondents:”If you’ve heard anything about the brand in the last two weeks, through advertising, news or word of mouth, was it positive or negative?”
In compiling the answers, the firm’s Buzz rating is then determined by subtracting the negative response from positive. Equal negative and positive responses lead to a zero score.
The eye-opening YouGov BrandIndex scores:
Adults, 35-49, the Jan. score of 28.5 plummeted to 10.4 in June
Adults, 18-34, the Jan. score of 36.2 dropped to 22.7 in June
Meanwhile, consider Twitter’s success as reported in this NewsFactor Network headline, Pew Study Finds Meteoric Growth in Twitter Usage.
“A meteoric rise in Twitter usage has been reported by the Pew Research Center, even though only 13 percent of online adults use Twitter,” stated NewsFactor Network in the article’s summary. “Pew also found that about half of Twitter users access the service on mobile phones, and African-Americans and Latinos have high Twitter adoption rates. Twitter expects more growth with photo sharing.”
Facebook does not work in B2B advertising. Understand, however, if you’re marketing anything, you still need to maintain a presence on Facebook to keep your Internet ranking strong. Facebook’s marketing strength is B2C.
But if you’re counting on Facebook to generate a strong return on your advertising investment, my sense is recent indicators are not positive. That’s true, too, for disappointed investors in Facebook’s IPO in 2012.
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