Product Life Cycle (PLC)
The concept of product life cycle is one of the popular concepts in marketing literature. This concept has been used as a tool for forecasting and also for developing marketing strategy. In its simplest form, this model explains the market response to a new product introduced in the market over a period of time.
It is considered as the ‘supply view’ of the diffusion concept discussed in the previous chapter. The idea of product life cycle is borrowed from biology and an analogy is drawn with the life of an organism. As a living being progresses through the stages of birth, growth, maturity, decline and death, so also a product passes through similar stages during its market entry and obvious exit.
Table of Contents
- 1 Product Life Cycle (PLC)
- 2 Product Strategy for Life Cycle Stages
Product life cycle theory is one of the first analytical attempts to determine marketing strategies at different product market situations. The product life cycle concept describes the stages in the sales (market response) history of a product. The basic features of this theory have propositions that a product has a limited life and a product’s sales generally follow an ‘S’ curve until sales eventually start declining.
As mentioned earlier, biological studies have established the concept of the ‘S’ shaped curve as the most suited representation of process of life. The concept of product life cycle creates distinct stages in product performance in market place as introduction, growth, maturity, saturation and decline phase.
An introduction phase is known as lag phase, the growth phase as exponential phase, growth and maturity as stationary phase and decline as a down turn phase. These are the different stages in a typical product life cycle.
Shapes of the Product Life Cycle
Products go through different life cycle patterns. There are several shapes that can be observed in practice. The shapes commonly reported are classical bell shaped curve, growth-slump-maturity pattern, cycle-recycle pattern, scalloped pattern; style, fashion and fad.
Growth-slump maturity pattern, exhibits an initial growth for the product, followed by a decline in sales and subsequent stability for fairly long time. Growth-slump-maturity pattern displays a multimodal shape due to the different promotional mechanisms adopted by the marketers at different points of time.
Style pattern of product life cycle conceptualises sales in cyclical order where growthsaturation-slump-re-growth-saturation and decline happens over a period of time. The fashion cycles are slow growth, saturation and decline pattern whereas a fad has in instant pick and sharp fall.
The latter creates a high level demand in short term but as the customers complete the trial process, they don’t go for adoption and fall comes sharper than a style curve.
Stages in the Product Life Cycle
Products follow certain kinds of life cycle patterns. Whether the pattern is like that of an S-shaped curve or modifications as we have shown in previous pages, we need to understand the relevance of the product life cycle concept in the context of making strategic decisions and making marketing forecasts. 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 is termed as ‘the cycle of competitive degeneration’.
The cycle begins with the invention of a new product, 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. This 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 television launched Picture in Picture (PIP) television, which was eliminated at the introduction stage itself.
Pagers had a grand launch in the market but got eliminated as the next better product of communication in the form of mobile phones entered the market. The innovation of a new product and its degeneration into a common product is termed as the life cycle of a product.
This often helps competitors to benchmark against the available technology and develop better products compared to the current one so as to take away the market share from the market leader.
There are four distinct stages in the life cycle of a product as shown below:
Research or engineering skill leads to new product development. The product is put on the market at the stage of commercialisation. The concept of product life cycle starts from the ‘commercialisation’ stage of new product development. At this stage, product awareness and acceptance among prospective customers are minimal.
As the sales are low, there are high promotional costs. This is due to the fact that the company has to spend money for advertising, sales promotion and other forms of promotion. The major obstacle to rapid market penetration at this stage is poor distribution strategy.
Many retailers will not support a new product launch and will wait till they hear well about the brand. Many companies prefer regional roll outs in which the new product is introduced market-by-market, region-byregion. This system of new product introduction often brings physical distribution and logistics problems to the forefront.
The consumer acceptance of a new product is also low as very few customers are ready to accept the new product. Only innovative customers buy the product. The newer the product, the more the marketer needs to spend in terms of financial resources and efforts to create demand for the product.
Length of the introductory stage will depend on the complexity involved in the product, its degree of newness, its fit into the existing customer need structure, the presence of competitive products, either as perfect or imperfect substitutes and the nature, magnitude and effectiveness of the introductory marketing expenditure.
It is assumed at this stage that the product does not have a perfect competitor. The competition will be in the form of imperfect substitutes available in the market and by the availability of existing products. In many instances two firms working on a similar technological platform may also launch competing products at the same time.
So mapping competition at one point of time may not give much help to the new product marketer as competition may emerge from new products launched at the same time.
Alternatively, a company observes the test marketing results of its competitor and may launch the competing products at the same time when the test marketing company is finalising its launch. When two or more firms launch a product at the same time, then the introductory stage is likely to be shorter.
Example: Holographic projection technology allows consumers to turn any flat surface into a touchscreen interface. With a huge investment in research and development, and high prices that will only appeal to early adopters, this is another good example of the first stage of the cycle.
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 are witnessed at this stage. However, for sustained growth, consumer satisfaction must be ensured at this stage. This stage begins when demand grows rapidly.
In the case of repeat buying situation, the innovators move from trial purchase to adoption stage. If the innovators are satisfied with the products, they influence other buyers through word-ofmouth and referral communication.
Deeper penetration in market by intensive distribution strategy and increase in store visibility and usage tend to bring new buyers in the market. The competitors also start their advertising and sales promotion making the total category demand to increase in the market. Growth stage also contributes in increasing profit levels.
Example: With advanced technology delivering the very best viewing experience, Blue Ray equipment is currently enjoying the steady increase in sales that’s typical of the Growth Stage.
Organic food is another product which is gaining momentum in the market and is in the growth stage and it hasn’t gained deeper penetration in the market place yet.
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. The last of the unsuccessful competing brands will tend to withdraw from the market. For this reason, sales are likely to continue to rise while the survivors mop up the customers for the withdrawn brands.
There is no improvement in the product but changes in selling efforts are common. Profit margins slip despite sales due to higher cost in acquiring new customers. Sales reach and remain on a plateau marked by the level of replacement demand.
There is little additional demand to be stimulated. This is the stage in which it becomes difficult to maintain effective distribution and the competition is more on the basis of price than any other component.
Example: Introduced a number of years ago, manufacturers that make DVDs, and the equipment needed to play them, have established a strong market share. However, they still have to deal with the challenges from other technologies that are characteristic of the Maturity Stage.
Another example in this context could be of laptop computers that have been around for a number of years, but more advanced components like ipod, ipad, tablets and phablets etc. as well as diverse features that appeal to different segments of the market, may help to sustain this product as it passes through the Maturity stage.
Decline Stage EEventually, sales start declining due to multiple reasons. Changes in customer preferences, competitive structure in the market, technology and other environmental forces lead to the decline of sales.
Sales begin to diminish absolutely as the customers begin to get bored with the product. If the decline is for the product category, the marketer may decide to prune the product portfolio and drop the declining brands or may plan to re-introduce brands with product modifications.
The category may gradually be edged out by better products or substitutes, e.g. dial telephones and petrol jeeps led to eventual dropping of the brand by the firms. The product decline happens due to entry of new competitors with advanced technology; and reduction in consumer interest. The marketer is left with an option of price reduction, which puts pressure on the profit margins leading to deletion of products.
There are several reasons why the life cycle of a product tends to be shorter. Majority of companies are into a process of continuous research for new product development leading to dropping products and adopting new products; simultaneous attempts by several companies in the same direction and with similar technology leading to shortening of the life cycle and the 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 competitor hits upon a real improvement (perhaps based on an entirely new technology) and markets it well, both sales and profits of the original new product marketer may decline drastically.
It may be noted that products may begin a new life cycle or revert to an early stage as a result of the discovery of new uses, appearance of new users and introduction of new features. As the distinctiveness of the product fades out, the pricing discretion enjoyed by their producers gradually declines.
This is what happened in the case of many products like ballpoint pens, transistors, radios, etc. Throughout the life cycle, changes take place in price, promotional efforts leading to changes in elasticity of demand, production and distribution costs of the product. Pricing policy, therefore, must be adjusted over the various phases of the cycle.
Example: Typewriters, and even electronic word processors, have very limited functionality. With consumers demanding a lot more from the electronic equipment they buy, typewriters are a product that is passing through the final stage of the product life cycle.
Another example is of Video cassettes which are no more in trend and have seen a wipe from the market in the scenario of DVDs and portable music players as medium of carrying and listening to music.
Product Strategy for Life Cycle Stages
The marketing strategies need to get adapted to the changing situations in the market and evolving life cycle of the product.
- Characteristics and Marketing Strategies at Introduction Stage
- Characteristics and Marketing Strategies at Growth Stage
- Characteristics and Marketing Strategies at the Maturity Stage
- Characteristics and Marketing Strategies at Decline Stage
Characteristics and Marketing Strategies at Introduction Stage
The product life cycle begins with the introduction stage when the product is launched. At this stage:
- Sales are low. This stage involves high distribution and promotion expenses; profits are found to be negative or low. Since it is too early for refinements, basic versions of the product are sold. Focus of marketing is on those buyers who are always ready to buy.
Better quality, features and superior performance of the basic product helps the marketer to grow at this stage. Based on these characteristics, a company may use an appropriate marketing strategy, commensurate with the company objectives and resources. Google Glass is one example which is in the stage of gaining popularity. The superior quality of the product has an added boon.
- At this stage, since the product is new, all competitors focuses on building distribution network and product awareness. The success in the market would revolve around pricing and promotions. The marketer may follow a high price and low promotion strategy.
This strategy will yield high profit per unit and also keep the marketing costs down. This strategy will succeed when competition and market sizes are limited. There is some level of product awareness in the market and customers are willing to pay a premium.
For Google glass the market is very limited. No other competitor has even made an endeavour to imitate the product. The product is gaining popularity through newspapers and articles which provides an insight into its usage and functions and future scope of the product. This gadget has been adopted in aviation industry by Virgin Atlantic when its pilots flew a glass-aided airline.
- The second possible alternative strategy is low price and heavy promotion. This will help in cornering a bigger market share and faster market penetration. This strategy is possible when the size of the market is big and buyers are sensitive to price. There is also some amount of product awareness in the market and competition is very strong.
- The marketer passes the economy of scale of operation to the customer and follows a low cost per unit production process. Though Hyundai launched its premium brand called ‘Sonata’, it still offers the product at a comparatively lower cost in its category.
Characteristics and Marketing Strategies at Growth Stage
The next stage in the product life cycle is growth stage.
- This stage is most rewarding for the marketer, if the new product is considered to be satisfactory by the market. The characteristics of this stage include a very sensitive market response where sales climb rapidly. There is a marked increase in profits at this stage.
So also there is an increase in competition. It helps in opening new market segments as the marketers look for growth and enter into newer market segments.
- The growth stage has two distinct sub stages, namely early growth and late growth. In the early growth stage, the sales increase at an increased rate and in the late growth stage; it increases at a decreasing rate.
- At the growth stage, the marketer follows different kinds of strategies compared to the earlier stage of product life cycle. As sales and profit grow rapidly, compared to the introduction stage, companies use varying strategies in the growth stage.
Lured by high sales and the correspondingly high profits,, competition enters the market. Therefore, improving and/or adding features will expand the market for a company. Because of the high volume of business and increase in competition, price should not be raised. On the other hand, strategic lowering of prices should be resorted to attract more buyers.
- Increased emphasis on promotions will play a very important role in educating the market as well as in meeting the challenges of the competition. Distribution channels need to be strengthened and new channels should be opened to handle additional volumes and new markets.
In advertising, some emphasis would shift from product awareness to product conviction. The marketer needs to prepare an overall strategy and face a trade off between high profits and high market share.
Example: Nutri-Grain’s sales steadily increased as the product was promoted and became well known. It maintained growth in sales until 2002 through expanding the original product with new developments of flavour and format.
As mentioned above, increased investment in product improvement, promotion, and distribution may lower the current profits but the company can make it up in the next stage.
Characteristics and Marketing Strategies at the Maturity Stage
At the end of a responsive growth stage, begins a stage of maturity.
- In this stage despite higher spending on the marketing program, there is no substantial growth in sales volume and the market is flooded with many competing products.
- In this stage, though the sales growth slows down, the stage in itself continues for a long period. Therefore, it poses a strong challenge to marketing managers. The market suddenly experiences increased supply and so also the firm will have increased capacity and a high level of inventory carrying cost due to the slow movement of the products.
- The market experiences commoditization and competition brings down the prices, putting pressure on the profitability and liquidity of the firm. In the late maturity stage, the profits drop sharply. This is a stage when the competitor’s sales curve starts entering the growth stage and customers start switching from the previous brand to the newer entries in the market.
- Because of the intense competition and falling profits, not all companies can survive this stage. Thus, a number of proactive steps are needed to stay profitable. Marketers can follow strategies like market modification, product modification, and overall changes in the marketing mix.
- In a market modification strategy, the companies have goals to increase consumption; hence the companies look for new users, new market segments, and increased usage among present customers. Here, the attempt is to get competitors’ customers to buy your brand and enter into unserved territories and motivate people to consume more.
- The other alternative strategy is to bring product modifications. In order to increase consumption and attract more users, a company may attempt to improve product characteristics like improvements in quality, features, and style.
Example: Maruti launched MPFI (Multi Point Fuel Injection System) in Maruti 800 and Power Steering in Maruti Esteem to bring noticeable product modification. Companies can also revamp their overall marketing mix.
They can bring value-for-money propositions and organize contests, coupons, and sales promotion programs to enrich the customer’s overall experience and keep them for a long adoption cycle.
Characteristics and Marketing Strategies at Decline Stage
There is a great saying that nothing lasts forever or all good things must come to an end. This is also applicable to successful products and services in the market.
- The sale of any product eventually dips. They may plunge to zero or continue at a very low level for some years. This indicates the stage of decline. There is either no profit or very low levels of profit. The intensity of competition comes down as many players will leave this market due to poor levels of profit potential and they will search for newer pastures.
- This is the stage when the product is left with very few customers and these customers are called laggards. This is a stage when customer switch is the highest and many of the existing customers switch to newer and better brands in the market.
- The firm reaches this stage due to strategic bankruptcy. A company may have a number of products introduced simultaneously but the extent of decline may not be the same for all products.
Companies should therefore identify and pay more attention to aging products because the strategy for each product would depend upon its health. The health can be gauged by reviewing the sales, market shares, and extent of profits. Based on these observations, a company can follow different strategies.
- The company can decide to follow a strategy to maintain its position in the market and most likely in the territories where it is doing well. Hoping that with the passage of time, competition will drop out and the product will continue to sell, a company may decide to continue with the product.
Example: In the Indian market, Modi Xerox, Global, and Network dropped the fax machines but Panasonic didn’t. It continued to sell in India and achieved success due to the eventual dropping out of other key players.
- Alternatively, the company can decide to harvest the market. This strategy is aimed at reducing the overall costs including production, maintenance, advertising, and sales force management costs, and hoping that the product sales will be profitable for some time to come.
Another example is Hindustan Motors which continued to produce Ambassador despite the product being at a decline stage and the demand for passenger cars now shifting towards Tata Indica. It is doing so because it would like to harvest the brand value of Ambassador in the Indian market.
- Eventually, the firm will decide to drop the product from its portfolio. This is the end of the line for a particular product. However, it may be sold to another company if there is a corporate buyer and the new buyer can run the company with a profit. Dropping the product is a difficult decision as it involves various strategic and organizational issues.
For example, Carona dropped Puma Shoes in the Indian market as the product entered the eventual decline stage in the market.