Product Life Cycle Stages: Examples, Strategies, Definition, 5 Stages, Examples, Notes and Diagram!
Answer 1. Top 5 Stages of Product Life Cycle [with examples]:
The product moves through five stages, namely:
As the product moves through different stages of its life cycle, sales volume and profitability change from stage to stage as shown in Fig. 6.1. The management emphasis on the marketing mix elements also undergoes substantial changes from stage to stage.
Product Life Cycle Strategies
A brief discussion of the marketing strategies in different stages of the product life cycle is given below:
(1) Introduction Stage:
The first stage of a product life cycle is the introduction or pioneering stage. Under this stage, competition is almost or non-existent, prices are relatively high, markets are limited and the product innovation is not known much. The growth in sales volume is at a lower rate because of lack of knowledge on the part of the customers and difficulties in making the product available to the customers.
During this stage, high expenditure has to be incurred on advertising and other promotional techniques. Prices are usually high during the introduction stage because of small scale of production, technological problems and heavy promotional expenditure.
To introduce the product successfully, the following strategies may be adopted:
(i) Advertisement and publicity of the product —’Money back’ guarantee may be offered to stimulate the people try the product,
(ii) Attractive gifts to customers.
(iii) ‘Price off’ as an introductory offer, i.e., introducing the product at a discount to attract the people. ,
(iv) Attractive discount to dealers.
(v) Higher price of product to earn greater profit during the initial stages i.e., skimming the cream pricing policy. If there is competition in the market, the firm may fix lower price to penetrate the market.
(2) Growth Stage:
As the product grows in popularity, in moves into the second phase of its life cycle, i.e., the growth stage. During this stage, the demand expands, price fall, competition increases, and distribution is greatly widened. The management focuses its attention on improving the market share by deeper penetration into the existing markets and entry into new markets.
Sometimes, major improvements also take place in the product during this stage. The promotional expenses remain high although they tend to fall as a ratio to sales volume. The falling ratio of promotional expenditure to sales leads to increase in profitability during this stage.
The following strategies are followed by the business firms during the growth stage:
(i) Advertisement and publicity of the product.
(ii) Incentive schemes may be offered to stimulate more people to try the product.
(iii) New versions of the product are introduced to cater to the requirements of different types of customers.
(iv) Channels of distribution are strengthened so that the product is easily available wherever required.
(v) Brand image of the product is created through promotional activities.
(vi) The price of product is competitive.
(vii) There is greater emphasis on customer service.
(3) Maturity Stage:
The product enters into maturity stage as competition intensifies further and market gets saturated. Profits come down because of stiff competition, and marketing expenditures rise. The prices are decreased because of competition and innovations in technology.
This stage may last for a long period as in the case of many products with long-run demand characteristics. But sooner or later, demand of the product starts declining as new products are introduced in the market. Product differentiation, identification of new segments and product improvement are emphasised during this stage.
In order to lengthen the period of maturity stage, the following strategies may be adopted:
(i) Product may be differentiated from the competitive products and brand image may be strengthened further.
(ii) The warranty period may be extended. For instance, some manufactures of TVs have introduced the concept of life time warranty.
(iii) Reusable packaging may be introduced.
(iv) New markets may be developed.
(v) New uses of the product may be developed.
(4) Decline Stage:
This stage is characterised by either the product’s gradual displacement by some new products or change in consumer buying behaviour. The sales fall down sharply and the expenditure on promotion has to be cut down drastically. The decline may be rapid with the product soon passing out of market or slow if new uses of the product are found.
To avoid sharp decline in sales, the following strategies may be used:
(i) New features may be added to the product and its packaging may be made more attractive.
(ii) Economy packs or models may be introduced to revive the market.
(iii) Promotion of the product may be done on a selective basis to reduce the distribution costs.
(5) Abandonment Stage:
Many firms abandon the obsolete product in order to put their resources to better use. Innovative products are introduced in the market to take place of the abandoned products. As far as possible, attempts should be made to postpone the decline stage.
But if the decline is rapid, the product model may be abandoned and the new model with unique features may be introduced. If it is not possible or there are heavy losses, the manufacturer may seek merger with a strong firm.
Answer 2. Stages of Product Life Cycle:
Like a human being, all products have certain length of life during which they pass through certain identifiable stages through the conception of the product, during its development and up to the market introduction, then goes through a period during which its market grows rapidly, eventually, it reaches at maturity and then stands saturated. Afterwards its market declines and finally its life come to an end.
“The product life cycle is an attempt to recognize distinct stages in the sales history of the product”. – Philip Kotler
“The concept of life cycle of a product as from its birth to death, a product exists in different stages and in different competitive environment. Its adjustment to these circumstances determines to a great degree how successful its life will be”. – Wiilliam. J. Stanton
The important stages firm the viewpoint of marketing can be grouped into four stages such as:
It is the first and the most important stage in the life of a product. The product is first introduced in the market. In this stage the product is absolutely new and distinctive. This stage is characterized by slow rise in the sales and profit margin from direct competitors, high production and marketing costs, narrow product line, greater emphasis on advertising and sales promotion, high prices, limited distribution, frequent production modification and above all purchases by customers are made cautiously on a trial basis.
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:
(a) Product – one or few products, relatively undifferentiated
(b) 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.
(c) Distribution – Distribution is selective and scattered as the firm commences implementation of the distribution plan.
(b) 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.
After the product is introduced in the market the product enters its second stage of the life cycle called as the Growth-stage. In this stage, the product achieves considerable and wide spread approval in the market, the demand and sales improves very rapidly due to promotional efforts.
Profits also increase at an accelerated rate. In this stage effective distribution advertising and sales promotion are considered as key factors. During the growth stage, the goal is to gain consumer preference and increase sales.
The marketing mix may be modified as follows:
(a) Product – New product features and packaging options; improvement of product quality.
(b) Price – Maintained at a high level if demand is high, or reduced to capture additional customers.
(c) Distribution – Distribution becomes more intensive. Trade discounts are minimal if resellers show a strong interest in the product.
(d) Promotion – Increased advertising to build brand preference.
Now the product enters its third stage i.e., maturity stage. In this stage, the maturity of product is reflected in terms of its capacity face competition. The product has to face keen competition which brings pressure on prices. Though the sales of the product rise at a comparatively lower rate, profit margins however decline due to keen competition.
The product enters the more markets and marketers have to adopt measures to stimulate demand and face competition through additional advertising and sales promotion.
During the maturity stage, the primary goal is to maintain market share and extend the product life cycle.
Marketing mix decisions may include:
(a) Product – Modifications are made and features are added in order to differentiate the product from competing products that may have been introduced.
(b) Price – Possible price reductions in response to competition while avoiding a price war.
(c) Distribution – New distribution channels and incentives to resellers in order to avoid losing shelf space.
(d) Promotion – Emphasis on differentiation and building of brand loyalty. Incentives to get competitors’ customers to switch.
Once the peak or saturated point is reached, the product inevitably enters the 4th stage. It may be displaced by some new innovation or change in consumer behavior. Sales drop severely and competition declines. At this stage, the price becomes the primary weapon or competition cost control becomes the key factor.
During the decline phase, the firm generally has three options:
(a) Maintain the product in hopes that competitors will exit. Reduce costs and find new uses for the product.
(b) Harvest it, reducing marketing support and coasting along until no more profit can be made.
(c) Discontinue the product when no more profit can be made or there is a successor product.
The Marketing Mix May be Modified as Follows:
(a) Product – The number of products in the product line may be reduced. Rejuvenate surviving products to make them look new again.
(b) Price – Prices may be lowered to liquidate inventory of discontinued products. Prices may be maintained for continued products serving a niche market.
(c) Distribution – Distribution becomes more selective. Channels that no longer are profitable are phased out.
(d) Promotion – Expenditures are lower and aimed at reinforcing the brand image for continued products.
Limitations of the Product Life Cycle Concept:
The term “life cycle” implies a well-defined life cycle as observed in living organisms, but products do not have such a predictable life and the specific life cycle curves followed by different products vary substantially. Consequently, the life cycle concept is not well-suited for the forecasting of product sales.
Furthermore, critics have argued that the product life cycle may become self-fulfilling. For example – if sales peak and then decline, managers may conclude that the product is in the decline phase and therefore cut the advertising budget, thus precipitating a further decline.
Nonetheless, the product life cycle concept helps marketing managers to plan alternate marketing strategies to address the challenges that their products are likely to face. It also is useful for monitoring sales results over time and comparing them to those of products having a similar life cycle.
Answer 3. Stages of Product Life Cycle [with definition]:
The Product Life Cycle (PLC) is a generic description of the way a product behaves in the market place, from the point at which it is launched through to peak, decline and withdrawal. This recurrent series of product states, as depicted in Figure 3.2, is a useful way to visualize how a product progresses through the market, adopting different strategic priorities and management implications at each successive stage.
Unlike the human life cycle – where the only certainties in life are taxes and death – the PLC does not necessarily reach a natural end. The life cycle curve can be prolonged through careful management and investment, or indeed, hastened to an early demise by poor management at the cost of wasted resources.
The PLC demonstrates how products move and is manipulated in the market place, extending from the introductory phase through to the typical stages of rapid growth, maturity, saturation and finally decline as the product is overtaken by other products that better fulfill customers’ needs.
Both the shape and duration of the PLC can vary. For example, the life cycle for fashion items and fad products can be steep, but short-lived, whereas the life cycle of aircraft can run to many years. There is a recognized propensity for life cycles to become shorter as the rate of technological innovation increases and the expectations of customers heighten.
The mechanical typewriter, for instance, may have enjoyed a life cycle of a decade or more, while its latter day equivalent, the word processing program, may have a life cycle measured in months.
The level of sales plotted on the vertical axis is usually given in unit or revenue terms. For marketing purposes, it is often of more value to measure sales against the growth in the market as this gives a better indication of the product’s competitive ability and attractiveness to the customer. Of course, absolute sales volumes are also important as they determine revenue and profitability.
The PLC can be used in a number of ways:
1. The PLC can be a predictive device, forecasting how products may behave in the future and allowing corrective action to be taken. It can help us to understand how products relate to markets and, as shown in Figure 3.1, to appreciate where certain elements of the marketing mix may be more appropriate to particular PLC stages.
2. The PLC can be a comparative device, warning of any significant deviations from the market norm or enabling a strategic balance to be achieved among products within the same range.
3. The PLC can be a formative device, assisting the design of future product/ market strategies based on sales performance in combination with experience and additional analysis. It can provide clues about what are the most appropriate strategies to use at different stages of the life cycle.
4. The PLC can be a manipulative device, indicating when short-term strategies might be used to ‘distort’ the life cycle to our advantage.
While the PLC is an effective aid to understanding how products behave in markets, it is not without drawbacks. The PLC model is not especially adept at examining a range or portfolio of products as the life cycle may vary from one product to another. Also, the life cycle has limited value as a predictive tool.
Once the product has run its course, the PLC does not enlighten strategy for new products in new markets- it is relevant only to existing products within existing markets. To assist where the PLC falls short, there are additional analytical devices, generically known as matrix tools. The three most widely known and important of these are the Ansoff Matrix, the Boston Matrix and the Directional Policy Matrix.
Developed by Igor Ansoff in the 1960s when he worked with the General Electric Company in the USA, this marketing diagnostic tool was originally designed for use with the SBLI unit of analysis. Because of its simplicity and versatility, the Ansoff Matrix has wide application and is particularly helpful in structuring future product and market opportunities.
The Ansoff Matrix has two axes, representing products and markets. In this context, the product could be service-based. Each axis is divided into existing and new poles to give a simple four box structure. In reality, there are many gradations between these two extremes. One of the advantages of using matrix tools is that they can reduce complexity, aiding a clearer understanding of product behaviour and market dynamics.
In considering our future strategy, the Ansoff Matrix suggests a number of options, each with varying degrees of risk. Obviously, our current position is located in the top left-hand corner, where our products are competing in established markets and where we have greatest knowledge and experience. This quadrant therefore represents the lowest level of risk. As we move out of this comfort zone, so the level of risk increases, but so do the opportunities.
Of course, profit is the reward for risk, but how much risk versus how much profit? The Ansoff Matrix helps us to understand these relationships better and to arrive at more informed judgments about our present position and proposed future direction.
The combination of options provided in the Ansoff Matrix gives rise to the following broad strategies:
1. Market Penetration:
To grow our business, we should consider ways in which we can gain more customers for our current product offering- for example, by seeking routes to alternative markets in order to reach customers we do not currently serve.
2. Product Development:
It may be that our customers buy products elsewhere that are complementary to those we sell. By developing our product range and thus augmenting our product benefits, we can build on established customer relationships and buying patterns. However, this move may require an investment in product development, which in itself carries inherent risks.
3. Market Development:
This approach can be applied in a number of ways. More market research may enable us to find and address unsatisfied customers or segments within our current area of operations. Alternatively, there may be opportunities to expand geographically into other domestic or export markets.
It is reasonable to assume that potential customers have satisfied their needs to a greater or lesser extent, and that entering new markets may involve significant risks attributable to high investment costs and dealing with the unknown.
This strategy embodies greatest risk, since both markets and products are new. We are furthest from our area of expertise and encroaching upon the territory of a competitor, who will almost certainly have the advantages of greater market knowledge and acceptance.
Even buying our way in through product acquisition offers no guarantee of success as this means that the established player places a lower value on the business than we do; otherwise they would not be tempted to sell.
The Boston Matrix:
The Boston Matrix was developed by the Boston Consulting Group and its founder Bruce Henderson, and was introduced to the business world in the early 1970s. Originally designed as a financial management tool, it now has an accepted role in marketing and strategic planning.
The technique’s popularity rests in its ability to capture a number of concepts simply and to offer strategic guidelines for future action. Boston Matrix terminology has become part of everyday business language. Again, it is a simple four box matrix.
The axes of the Boston Matrix consider products in two dimensions: relative market share and market growth rate. The measure of market share is not absolute market share, but is relative to the largest competitor. This is important because it reflects the degree of dominance enjoyed by the product in the market.
For example, if the industry leader has a market share of 30 per cent and our product claims a share of only 15 per cent, then this represents a ratio of 0.5:1 in the other company’s favour.
However, if we were the market leader with a share of 30 per cent and our main competitor had only 15 per cent, then the ratio would be 2:1 and we would be in a market dominant position. Market dominance has both financial and marketing advantages in that our ‘share of mind’ is highest and we have the greatest opportunity to achieve a low cost position.
The definition of high relative market share is generally taken to be ratio of 1:5 or more. The vertical axis denotes market growth rate, the extent of the scale being dependent on prevailing circumstances within the industry concerned. However, the cut-off point for high, as opposed to low, market growth is often seen as 10 per cent.
While the Boston Matrix is simple in concept, it begs questions such as, ‘Who are the main competitors and what are their shares?’ or ‘What is the definition of the market and how do we find out the market growth rate?’ Despite its inability to address these issues, the Boston Matrix is an appealing tool because it takes into account a number of important factors affecting the ability of products (or whatever unit of analysis is used) to compete and generate profits.
The Boston Matrix uses four boxes to categorize the generic nature of the product being described. The Question Mark sometimes referred to as the ‘problem child’, does not hold a dominant market position and thus has low market share, but is in a high growth market. Question Marks are often recently introduced products, which run a high risk of failure. They may not progress through to the Star box, building market share as sales improve.
As the PLC indicates, the period of rapid market growth eventually subsides and the product then enters the Cash Cow box. Here, the product has a high relative market share of a low growth market and is thus regarded as a mature product. As market share declines, the product passes into the Dog box. Bruce Henderson is unequivocal in his view that there is no room for Dogs in the product portfolio and they should be deleted from the product range.
The Boston Matrix is based on the principle that cash – not profits – drive a product from one box of the matrix to another. Understanding the distinction between cash flow and profits is crucial. At least as many businesses go bankrupt due to lack of cash or liquidity as due to poor performance in relation to factors such as low sales. When cash flow is managed effectively, the viability of the business improves.
In financial terms, the quadrants of the Boston Matrix may be summarized as follows:
1. Question Mark – strong cash consumer, requires large amounts of cash to fund product development and introduction costs.
2. Star – cash neutral, generating cash as volume and revenue builds rapidly, but requiring substantial funding to support promotion, product range development and expansion costs.
3. Cash Cow – cash generator, providing the funds needed to support other parts of the business. The danger here lies in excessively milking the cow, causing it to lose market presence and share.
4. Dog – cash neutral or cash consumer. At one time probably a strong performer in the product range, but now substantially declined, generating a poor cash flow and perhaps even consuming cash due to the costs of maintaining the product in the range. It is characteristically difficult to cost out the time and resources required managing such products, and thus Dogs can impede or destabilize overall business progress.
The function of the Boston Matrix is to aid forward planning by suggesting strategy for the future development of the range- selectively invest in Question Marks; invest in and grow Stars; maintain Cash Cows; and critically examine Dogs and delete them as appropriate.
The Directional Policy Matrix:
Building on the success of the Boston Matrix, the Directional Policy Matrix (DPM) was developed as a further sophistication of the matrix tool technique. McKinsey, an international firm of management consultants, in conjunction with General Electric in the USA and Shell in Europe, designed it as a multi- factor approach to portfolio management.
The DPM is similar in construction to the Boston Matrix, as shown in Figure 3.6. It was originally introduced as a 3×3 matrix, rather than the more conventional 2×2 structure, and is today used in either format. The major difference between the two matrices, however, lies in the way the axes are constructed.
The Boston Matrix uses only two factors to analyses performance- market growth rate and relative market share. While these factors are very important to product and business success, they are not the only contributing variables. The DPM attempts to provide a more comprehensive picture by widening the scope of the axes to embrace market attractiveness and business strengths.
The criteria defining these broad headings may include:
Once the axes criteria are established, they can be weighted in terms of importance and ranked against those of competitors or other products to provide a comparative view. It is worth reiterating here the importance of clearly defining the unit of analysis to be used.
The DPM technique can be demonstrated by selecting a few of the criteria listed under Business Strengths, and weighting and scoring them accordingly.
1. Invest for Growth – Businesses that are relatively high in business strengths and market attractiveness. Apply or use resources to promote profitability.
2. Manage for Sustained Earnings – Businesses with medium strength in markets of medium to low attractiveness. Maintain a strong position in moderately attractive markets, but do not invest in increased market share.
3. Manage for Cash – Businesses with a relatively weak position in a relatively unattractive market. Harvest for current profitability or divest.
4. Opportunistic – Businesses with low business strength and high market attractiveness or vice versa.
Three options are available:
(a) Invest and develop if resources are available, but check extent of possible diversification and cash availability.
(b) Maintain a holding position and continue to monitor.
(c) Divest to a buyer able to exploit the opportunity, or consider a joint venture or alliance.
Answer 4. Stages of Product Life Cycle:
New product development process is just the starting point of the product life cycle (PLC). In the life of business, product life cycle passes through four stages: introduction, growth, maturity and decline. While plotting on a diagram, it takes the shape of a bell; leading to call it a Bell shaped PLC Curve.
In the introduction stage, initial sales growth is slow, but marketing and promotional expenses are high, leading to negative or no profit. The company tries to create product awareness and induces trial for the product.
In the growth stage, sales starts picking up, leading to rising profits. The company tries to maximize market share, resulting in increase in profits.
Sales reach to its peak in this stage and then it starts declining. Profit also starts declining. At the end of the stage, the company struggles to keep its market share intact.
In the decline stage, sales as well as profit go down.
Generally all the products pass through these four stages, but in some cases the PLC curve may be different. For example, in 2009, the demand for N95 masks had gone up tremendously in India with swine flu outbreak. But the demand had fallen sharply with the improvement in curbing it. This also happens in the case of Fads, the fashion that becomes hit among the people instantly and then it peaks and after that it declines very fast.
With the new usage of the product also, the sales and profit cycle shows a different scalloped pattern like plastics, nylon and fiber.
Sometimes, a product grows rapidly, reaches its peak and then fell to a petrified level. The petrified level is sustained by the replacement market of early adopters and new market for late adopters. Another PLC pattern is found in the case of new drugs, where the drug reaches its peak and then declines, again the company pushes the product and it produces a second cycle.
As far as product strategy is concerned, PLC process helps a company to strategise its marketing mix. In the introduction stage, the company may focus on the core benefits through the basic product, can add product line extensions in the growth stage. Expand the brand in the maturity stage and prune the product or brand mix in the decline stage.
The same can also be understood with the following table:
In the above table, as it is shown; in the introduction stage, a company always focuses on creating product awareness and trial. Then, it leads to maximizing market share in the growth stage. In the maturity stage, the objective of the company is to maximize profits, while defending its market share.
In the decline stage, the company needs to reduce the expenditure and milk the brand. As far as product strategy is concerned, in the beginning, the company offers a basic product, which goes on to offer product extensions in the growth stage. In maturity, it needs to diversify brands and item models and in decline, it can phase out the weak models. The company offers cost plus pricing in the introduction stage, while it may offer prices to penetrate market and go on to offer competitive prices in the maturity stage. In the decline stage, it needs to cut the price.
On the distribution front, a company can go for selective distribution to intensive to again selective distribution in the decline stage. In the beginning, advertising and promotional efforts are intended to create awareness and induce trial, which go on to brand building exercise in the growth and maturity stage. In decline stage, the advertising and promotional efforts are reduced with the declining sales.
The concept of PLC is important for the success and longevity of the company. The company should always take a cue from it and formulate its marketing strategy. In the era of cut throat competition, many companies try to put their eggs into different baskets to minimise the risk. It means that through a product portfolio, a company can counter most of the attacks in the market.
For example, Maruti Suzuki has got a product portfolio of 13 different cars. As the market is very competitive with players like Hyundai, Tata Motors, Chevrolet, Fiat, Honda, Ford, Mahindra & Mahindra etc; Maruti is always trying to better its car offerings or trying to launch a totally new car in the market.
In 2009, it has launched Ritz and Estilo and now in 2010, it has launched all new Wagon R. In the same way, its competitors are not far behind. Tata has launched Nano and Indigo Manza, while Hyundai has launched new face lifted Santro, i20 Diesel and i20 Automatic, Verna Automatic and face-lifted Sonata.
The different cars sold under the Maruti stable are under different life cycle. The erstwhile highest selling car, Maruti 800 has been phased out and Alto 800 has taken its place. Swift and Swift Dzire are enjoying the growth phase, while Zen Estilo has also been phased out. Now with the growing demand of Compact SUV, Maruti Suzuki is launching S Cross and also bringing IV 4 concept. Sedan SX4 is also getting replaced by Ciaz.
The company can also put some life into its products through line extension. Brand extension can also help in getting to a new category, through the same brand image. But it should be used carefully. Companies like ITC has gone further and added additional brands in several product categories and also diversified in other businesses to sustain and enhance the business growth.
Product life cycle can be divided into four stages.
1. Market Introduction Stage:
This is the first stage of product life cycle. The beginning of product life cycle starts with the introduction of product in the market. Therefore this stage is also known as birth stage or introductory stage. The production is undertaken on full scale in this stage. Even marketing programmes are also developed and implemented at high level.
The main features of this stage are as follows:
(i) The firm does not face any competition in the market because competitors are not able to present their product for sale in the market so very quickly. The firm, which presents its products in the market before others, has an edge and is able to sell its products easily.
(ii) The buyers and consumers do not possess wide knowledge about product. So the firm, presenting its product in the market, is able to acquaint them with its products.
(iii) Firm distributes its product in limited area and increases the sale gradually.
(iv) Costs are high in the initial stage because firm resorts to wide advertisement and promotional efforts.
Such efforts entail high total costs. Therefore it is quite possible that firm may incur losses in place of profits. If the sale is less, it amounts to definite loss to the firm.
2. Market Growth Stage:
When the product gets accepted by the customers and consumers start buying it again, it brings new consumers also in the market. This enhances the sale of the product to a great extent and results in more profits to the firm. Other competitors also start presenting their products in the market at this stage which brings element of competition in the market.
This stage consists of following features:
(i) Consumers are acquainted with the product on a wide scale by advertisement and sale promotion. Consumers start accepting the products due to these efforts and sales get a boost as a result of this process.
(ii) Profits start increasing in this stage for producers, distributors and retailers at a fast pace.
(iii) Competitive commercial firms feel tempted to make their appearances in the market after knowing about those rising profits. Thus competition starts becoming hot. Every firm starts presenting its brand and trademark. Consumers start purchasing other brands if they fail to have their preferred brand. Thus new firms start coming in the market with their products.
(iv) Many important decisions are taken at this stage like choice of channel of distribution; the type of research to be undertaken so as to have wide share in the market and choosing the appropriate advertisement policy etc.
(v) Production costs become less at this stage because production is being done on a large scale. Even advertisement expenses do not occur at this point.
Managers should concentrate on the following tasks at this stage:
(i) More attention to be paid on kind, quality, size and shape of the product.
(ii) Efficiency in product marketing and distribution works should be increased so that the life cycle of the products increases gradually.
3. Market Maturity:
The third stage of product life-cycle is called market maturity. Competition is at its apex at this stage and that is why different producers resort to more expenses on advertisement and sales promotion so that the demand for their brand may remain intact. However, due to tough competition in the market, the demand for their brand declines.
Thus market maturity stage gives birth to two situations:
(a) Maturity Stage:
At this stage:
(i) Competition increases with new products. Price falls and there is downfall in profits.
(ii) Sales increase at diminishing rate.
(iii) Supply of goods is more as compared to their demand.
(iv) Competitive firms too start incurring more expenses on sales promotion. Therefore “Demand Stimulation” and “Dealer Support” activities become necessary.
(v) Advertisement expenses increase, but sale price becomes less.
(vi) To increase sale of the product, efforts are being made by the producer to come closer to the consumer. This gives birth to “Creative Sales.”
(b) Saturated Stage:
At this Stage:
(i) Sale of alternative/substitution products starts taking place.
(ii) Production process is thought to be old at this juncture and need is felt to modify it.
(iii) Sales become low after reaching the apex point due to tough competition in the market.
(iv) Costs become more resulting in low profits.
4. Market Decline:
This is the last stage of product life cycle. The sale of product becomes less at this stages because some new and advanced products make their appearance in the market. Some manufacturers close their business units, while others again appear in the market with new products to their credit. That is why this stage is being called market decline stage.
Every product has a certain length of life during which it passes through different stages. The product life cycle concept is very useful in this context. It helps a marketer in preplanning the entry of a new product in a market, in prolonging the profitable stage, in meeting competition and in long-term decisions on investment on products. When a product is first introduced at the pioneering stage, the sales will take some time before they pick up.
Once the product gains consumer acceptance the sales will go up in growth stage. Henceforth, as more competitors enter the market the growth decreases but the total sale volume goes up. Afterwards, a stage comes when the sales come to standstill inspite of the best efforts of the marketer. This is the saturation stage. In the end sales are likely to go down or may reach the decline stage and the product dies at the end. Every product has these stages.
Detailed explanations of above stages are as under:
1. Introduction Stage:
Introducing the product in the market for the first time is known as introductory stage. The sale is quite less in this stage because consumers have no knowledge about the product or they feel satisfied with the product which they are using already. That is why they are not willing to part with the old products. It is also possible that the same product is not available in all the markets.
In this stage of product life cycle promotional expenses are more as compared to sale proceeds.
The following steps are taken in the strategy adopted in this stage:
(i) Introducing the new and unknown product to the prospective buyers.
(ii) Laying pressure on the consumer to use the product.
(iii) Making provision for distribution facilities through retailers.
The prices are kept very high in the presentation stage because:
(i) The cost of production becomes high due to less production.
(ii) Technological problems pertaining to products still remain in the enterprise.
(iii) High price becomes essential in order to meet the promotional expenses.
This is the second stage of the life cycle of the product. Under this stage a product gains acceptance from the part of consumers and businessmen. Sales of the product increase. Profit also increases. This is the stage where competitors appear along with substitute products in large numbers. Previous buyers continue in their purchase and new buyers appear. Firms may find it difficult to meet the demand. The success of firms depends upon the efficient manufacturing and distribution systems of the product.
This is the third stage of a product. During this stage sales continue to increase but at a decreasing rate. This is termed as the maturity stage. This is the most crucial stage as the marketers have to adopt such strategies as will boost the growth rate, and face competition with the substitute products. The management incurs additional expenditure in product modification, broadening the product line and reduction in price which overall reduces the profits. The effectiveness of the marketing-mix strategy is the most important factor in the maturity stage.
During this stage each of the characteristics mentioned under different stages is intensified. This is the stage when total sales of the product are at the maximum possible level. The sales of the product become stagnant at this stage. This stage continues till substitutes of the product enter the market. The production goes on increasing and the competitors try to capture the market. The costs of advertising and sales promotion increase and consequently the profits of the enterprise decrease.
At this stage of product, the marketer must try to develop new and alternative uses of the product. Necessary developments and modifications must also be introduced so that some new consumers may start using it.
The stage is characterized by the product’s gradual replacement by some new innovations. New products are introduced in the market by competitors. Sales of existing product go down inspite of all the best efforts for picking it up. Cost control becomes necessary to reduce the price in order to compete. At this stage, the marketer should explore the possibilities of selling the product. If he finds bleak possibility, he should divert his resources to other products.
This is the end stage of a product. The demand of the product is almost nil and there is no effect of advertising and sales promotion measures of the enterprise on consumers. New substitutes capture the market and the old product is practically out of the market. This is the stage when the enterprise suffers a loss and the possibilities of creating any demand for the product are almost nil. At this stage, it is advisable that the marketer should stop the production of his product and think of starting the production of some new products.
Answer 6. Stages of Product Life Cycle (PLC) [with notes]:
All products and services have certain life cycles. The life cycle of a product starts from the time it is introduced in the market and continues till the product is withdrawn. Product life cycle consist of 5 important stages viz. Introduction, growth, maturity, saturation and decline.
Each stage poses different challenges, opportunities and problems to the seller. As a result marketer is required to adopt different marketing, financing, purchasing and such other strategies during these stages. It is important to note that product life cycle is applicable to every product – big or small, cheap or expensive.
This is a stage when product is introduced or launched in the market. It is also known as pioneering or infancy stage. Here the marketer has to create a primary demand for the product.
This stage is characterized by:
i. High promotional expenditure as the product is new to the market.
ii. Low profits or negative returns as the expenditure is high and sales are low
iii. Prices in general are on the higher side
iv. There is little or no competition.
At this stage pricing strategy usually followed are:
a. Skimming pricing strategy – Under this strategy the marketer charges a high price for the product to support the heavy promotional expenditure. By doing so, he skims the cream of the market. Early customers pay a lot for something new.
b. Penetration pricing strategy – Here the marketer charges a low price for the product so as to penetrate the market.
Growth stage is marked by rapid increment in sales and profits. This is because the product is accepted by the market.
Growth stage is characterized by:
i. Increasing competition due to increasing public awareness about the product.
ii. Falling price as a result of competition.
iii. Increasing promotional expenses to meet the competition and increasing public awareness.
iv. Increasing distribution outlets as more retailers are interested in selling the product.
3. Maturity Stage:
After passing through the growth stage, a product starts attaining maturity. This is a stage when market is saturated with variations of the basic product and every competitor has as alternative product.
This stage is characterized by:
i. Decline in the growth rate of the sales volume, due to more competitors
ii. Increasing competition leads to pressure on price and price starts falling
iii. Falling prices reduce profit margins
iv. The firms in order to survive introduces new brands even when they compete with the company’s existing product. Here the firm can consider the strategies of market modification and product modification.
4. Saturation Stage:
In this stage the sales volumes become stagnant and there are no new customers for the product. Intense competition is there in market and profit margin declines as the production and distribution cost starts increasing. There is a sharp decline in the price. Marketer here must try to develop new and alternative uses of product. Necessary developments and modification may also be introduced.
5. Decline Stage:
This is the final stage in the product life cycle. It is the most critical period for any product as sales and profits decline. There is a downturn is the market as new products enter the market and existing products are dropped. Most of the marketers withdraw from the market and some withdraw from some marketing segments.
Intense price cutting is there. Distribution is narrowed down. Marketer here has to find out whether there is any possibility of selling his product or not. If there is no possibility he should stop the production of the product and divert the resources for producing other product.