Product life cycle and its stages Essay

In today’s world, where market is unpredictable, strategies play crucial role in defending a firm’s product position. â€Å"The main reason why companies must continually develop new products is because products have life cycle†, (Bittel, 1980). Just as operation managers must be prepared to develop new products, they must also be prepared to develop strategies for both new and existing products. First and foremost, before proceeding into the product life cycle strategies, lets define what a product life cycle is. According to Griffin and Ebert (2002), a product life cycle is a series of stages through which it passes during its profit -producing life. Depending on the product’s ability to attract and keep customers over time, a product life cycle may be a matter of months, years, or even decades. Anyway, there are four phases that every product undergoes in a market since it was produced and launched to its out-of market position. They are the introductor y, growth, maturity and decline phases. Below follows the figure of a product life cycle and all phases’ detailed descriptions shall be described later. Also, considerations must be given to how far the product is along the product life cycle. A new concept / product just entering the product life cycle may require intensive distribution to start with to launch it on to the market. As it becomes more established, perhaps the after sales-service will play a more important role which leads to a more selective distribution, with only those dealers that are able to offer the necessary standard of after sales-service being allowed to sell the product. In simpler words, in every phase of a product life cycle, a product should undergo different, suitable strategy in order to stay competitive in the ever changing market. Below follows the product life cycle stages along with their definitions and beneficial strategies†¦ Introductory Stage: According to Stevenson (1999), the introduction stage begins when a product  reaches the market place. When an item is first introduced, it may be treated with curiosity by the buyers. Demand is generally low as buyers are not yet familiar with that item. This often leads to the drop of the product’s price. Therefore, along with time, production and design improvements, many new products became more reliable, less costly, and also the increase in awareness in buyers lads to the increase in demand. Also, according to Griffin and Ebert (2002), during this stage, marketers focus on making their target markets aware of the products and their benefits. Also, during this stage, the particular product is represented with innovation (diffusion of innovative curve), product development (Ansoff Growth Matrix) and problem children (Boston Consulting Group). Among the common characteristics, according to Smith et al – 1997 are: – new products; – low sales; – low market share; – Specific type of customers willing to buy new products. During this phase, as compared to the other phases, profits are negative or low because of low sales and high distribution and promotional expenses. Promotional expenditures are high as the company is eager to inform customers’ about the product’s availability and get them to try it. Since the market is not ready for new products at this stage, the firm focuses on selling such items to those who are the readiest to buy. A company that wishes to be a market leader for its product must choose to launch a strategy that is consistent with the intended product positioning. The company, when deciding on which strategy to implement for the product’s long-term, life and will have to continuously formulate new pricing, promotion and other marketing strategies. Growth Stage: It is the second stage of product life cycle process. Only if the new product satisfies the market’s demand and need, it will enter this stage. According to Heizer and Render (2001), in the growth phase, product design has begun to stabilize, and effective forecasting of capacity requirements is necessary. Adding capacity or enhancing existing capacity to accommodate the increase in product demand may be necessary. Also, customers who have tried the product earlier may remain loyal. In the face of such opportunity, new competitors will start entering the market and they will introduce new product features and hence, expanding the market, leaving the product’s price constant or fall slightly. Here, a company, in order to stay competitive in the market, should keep on promoting its product. In addition, profits start to increase. The firm has several strategies to stay in the rapid growing market as long as possible. Also, the firm improves the product quality, adds more distribution channels, changing the advertising theme – from promoting the product to the market to reminding the market on the availability of the product as well as to increase awareness. The firm also lowers the price in order to attract more buyers. During this stage, usually firms that have successfully passed their product’s introduction stage have high market share and are highly profitable. On the whole, as said by Smith et al – 1997, this phase is represented by: – sales and profits growth; – more widespread usage; – development of the market; – high market share; – Increasing competition. Maturity Stage: The third stage for a product to go. As stated by Pride et al, (1988), sales are still increasing at the beginning of the maturity stage, but the rate of increase has slowed. Later in this stage, the sales curve peaks and begins to decline. Many products maturity stages lasted longer than the previous stages. Industry profits decline throughout this stage. During this stage, sales growth starts to slow down. Hence, the firm as well as its market competitors starts lowering down their prices, increases advertising and sales promotions. Also, the intense market led weaker competitors to quit. Only those strong enough will be able to precede the competition. A company should consider a different strategy when its product cines ti maturity, either by redesigning the market or its product. Modifying market is when the company tries to increase consumption if the current product. The currently matured product can also be redesigned its package or style. It is an effective way of strengthening a firm’s market share. Consumers may also be encouraged to use the product more often or in new ways. Pricing strategies are flexible during this stage, such as markdowns pr price incentives. Marketers may offer incentives and services to declare offering such matured products, especially from competitors. Sales promotions and aggressive personal selling can e effective during this period, when competition may require large promotional expenditures. On the whole, just as adopted from Smith et al (1997), this phase is represented by: – market maturity and a slow-down in sales growth’ – conversion of late majority of customers, and – trying to increase market penetration and share. Decline Stage: The final stage of the product life cycle. According to Lancaster and Jobber (1994), it is when sales begin to fall and already slim profit margins are depressed even further. Customers have begun to become bored with the product and are looking forward to newer, latest products. Dealers begin to de-stock the product in anticipation of reduced sales. Here, sales and profits sank lower, due to various reasons such as advancement in technology, shifts in consumer tastes or intense competitions. Such factors have forced many companies to quit the market and for the other remaining companies, they may have to redesign their strategies to stay longer in the market by raising the price to cover cists, re price to maintain market share, or lower the price to reduce inventory. The firm can also cut down or tighten the product’s advertising and promotional budget so it will be easier for the company to lower down the price. In addition, the company can also â€Å"downsize† its market and focuses on smaller segment as well as their trade channels. In other words, distribution of the declining product will be narrowed to te most profitable existing market. Also, the product will not be highly promoted, although advertising and promotions may be used to slow down the decline. Instead, the firm may even decide to drop the product entirely at the end. Just like the above three phases, this stage is also represented by: – declining sales and profits; – rationalism in the marketplace through mergers, acquisitions and take-over; – some products will be milked for the profits; – often products may need to be harvested; and – in a few cases, product extensions can be developed. Detecting Maturity and Decline: â€Å"The need in strategy development is to detect changes in the trend of  industry sales, to detect when the product life cycle will enter a new phase†, (Asker, 1984). In other word, it is very essential for a firm to view and analyze all market factors involved when its product’s growth phase of the product life cycle changes to a flat maturity phase and when the maturity phase changes into a decline phase. Below are some factors that supply as market indicators that serve as an aid for a firm in detecting its product maturity and decline†¦ – Price pressures caused by overcapacity and the lack of product differentiation; – As the product matures. Buyers have become familiar with the related product and hence, they are unwilling to pay finest price for the product in order to obtain brand security; – Technology advancement and substitute products may lead to the decline of a product. A suitable example for this case is the black and white television sets which due to technological development have lead to the production of color televisions – a definite unpredictable effect on sales of black and white television sets; – When the number of potential first time buyers for a particular product decreases, the market along with the company sales and profits happen to decline; – The market is fully penetrated and there are no sources of growth from existing and new users; and – Existing customers may start to be disinterested in the product and are probably looking forward to switch brands. Actually a product life cycle is conceptually simple yet powerful. However, it is not easily applied. The stages described above are not easily forecasted or predicted or even easily determined. Furthermore, it is difficult to determine and analyze the product definition and finally, even  if the stages in the life cycle are determined, the strategy implications are not always obvious. Therefore, on the whole, I would like to conclude that a company should be aware of the life cycle stages of each product it is responsible for. The company should also predict on how long the product is expected to linger in that stage. Such thinking is very important for setting up strategies such as let say, if the product is expected to remain the maturity stage for a long time; a replacement product might be introduced later in the maturity stage. On the other hand, if the maturity stage is expected to be short, however, a new product should be introduced much earlier.