A product's life cycle (PLC) can be divided into several
stages characterized by the revenue generated by the product. If a curve is
drawn showing product revenue over time, it may take one of many different
shapes, an example of which is shown below:
Product Life Cycle Curve
The life cycle concept may apply to a brand or to a category of product. Its duration may be as short as a few months for a fad item or a century or more for product categories such as the gasoline-powered automobile.
Introduction
Stage
When the
product is introduced, sales will be low until customers become aware of the
product and its benefits. Some firms may announce their product before it is
introduced, but such announcements also alert competitors and remove the
element of surprise. Advertising costs typically are high during this stage in
order to rapidly increase customer awareness of the product and to target the
early adopters. During the introductory stage the firm is likely to incur
additional costs associated with the initial distribution of the product. These
higher costs coupled with a low sales volume usually make the introduction
stage a period of negative profits.During the introduction stage, the primary goal is to establish a market and build primary demand for the product class. The following are some of the marketing mix implications of the introduction stage:
·
Product - one or few products, relatively undifferentiated
·
Price - Generally high, assuming a skim pricing strategy for a
high profit margin as the early adopters buy the product and the firm seeks to
recoup development costs quickly. In some cases a penetration pricing strategy
is used and introductory prices are set low to gain market share rapidly.
·
Distribution - Distribution is selective and scattered as the firm
commences implementation of the distribution plan.
·
Promotion - Promotion is aimed at building brand awareness. Samples
or trial incentives may be directed toward early adopters. The introductory
promotion also is intended to convince potential resellers to carry the
product.
Growth Stage
The growth
stage is a period of rapid revenue growth. Sales increase as more customers
become aware of the product and its benefits and additional market segments are
targeted. Once the product has been proven a success and customers begin asking
for it, sales will increase further as more retailers become interested in
carrying it. The marketing team may expand the distribution at this point. When
competitors enter the market, often during the later part of the growth stage,
there may be price competition and/or increased promotional costs in order to
convince consumers that the firm's product is better than that of the
competition.During the growth stage, the goal is to gain consumer preference and increase sales. The marketing mix may be modified as follows:
·
Product - New product features and packaging options; improvement
of product quality.
·
Price - Maintained at a high level if demand is high, or reduced
to capture additional customers.
·
Distribution - Distribution becomes more intensive. Trade discounts are
minimal if resellers show a strong interest in the product.
·
Promotion - Increased advertising to build brand preference.
Maturity
Stage
The maturity
stage is the most profitable. While sales continue to increase into this stage,
they do so at a slower pace. Because brand awareness is strong, advertising
expenditures will be reduced. Competition may result in decreased market share
and/or prices. The competing products may be very similar at this point,
increasing the difficulty of differentiating the product. The firm places
effort into encouraging competitors' customers to switch, increasing usage per
customer, and converting non-users into customers. Sales promotions may be
offered to encourage retailers to give the product more shelf space over
competing products.During the maturity stage, the primary goal is to maintain market share and extend the product life cycle. Marketing mix decisions may include:
·
Product - Modifications are made and features are added in order
to differentiate the product from competing products that may have been
introduced.
·
Price - Possible price reductions in response to competition
while avoiding a price war.
·
Distribution - New distribution channels and incentives to resellers in
order to avoid losing shelf space.
·
Promotion - Emphasis on differentiation and building of brand
loyalty. Incentives to get competitors' customers to switch.
Decline
Stage
Eventually
sales begin to decline as the market becomes saturated, the product becomes
technologically obsolete, or customer tastes change. If the product has
developed brand loyalty, the profitability may be maintained longer. Unit costs
may increase with the declining production volumes and eventually no more
profit can be made.During the decline phase, the firm generally has three options:
·
Maintain the product in hopes that competitors
will exit. Reduce costs and find new uses for the product.
·
Harvest it, reducing marketing support and
coasting along until no more profit can be made.
·
Discontinue the product when no more profit
can be made or there is a successor product.
The marketing
mix may be modified as follows:
·
Product - The number of products in the product line may be
reduced. Rejuvenate surviving products to make them look new again.
·
Price - Prices may be lowered to liquidate inventory of
discontinued products. Prices may be maintained for continued products serving
a niche market.
·
Distribution - Distribution becomes more selective. Channels that no
longer are profitable are phased out.
·
Promotion - Expenditures are lower and aimed at reinforcing the
brand image for continued products.